Maturing technologies are colliding to allow new industry-specific businesses to be built.
When Base Power announced it’s $68M seed round in May, one of the largest seeds in recent memory, I was reminded of something Mike Dempsey’s said in Inflection Points:
“As seed stage investors, we help companies build, survive, and scale, but one of the main components of my job is understanding how and when the world is going to change.”
Base Power is one of those companies that’s difficult to say whether it would or would not have been a good fit for Levante’s portfolio. On the one hand, a huge first round of funding makes it impossible for a smaller fund to get anywhere near its ownership targets. On the other hand, it’s a company built on top of the maturation of several inflection points that have historically led to trillion-dollar companies.
Technological convergences occur when two or more distinct technical breakthroughs are combined then applied to a problem set that previously lacked innovation. The example Mike gives in his post is X-Ray technology being combined with broader compute technology to produce CAT scanning.
Industrial technological convergence is when those combined breakthroughs are applied to a single industry to create an entirely new field of competition and avoid incumbents. Base is building off the maturation and convergence of several technologies that enables it to avoid competing with incumbent energy companies, instead building a new field of competition with a vertically-integrated, distributed power company. Saudi Aramco, the largest energy company in the world, currently trades at a $1.8T market cap.
How could Base do this?
First, increased battery production has lowered the cost of hardware: every time cumulative capacity doubles, the price per kilowatt is reduced by ~19%, with batteries hitting record low price of $139/kh in 2023.
Secondly, increased cell storage capacity tripled between 2020 and 2021, then doubling in 2022 and 2023, growing 80% in 2024. As capacity has increased, so have advancements in energy density which allows for more efficient storage of renewable energy sources. Lithium-ion batteries for example have grown energy density to ~300 Wh/kg, a three-fold increase since early battery modalities.
Lastly, advancements in software and hardware integrations have led to maturity of remote Battery Management Systems, which enables a distributed battery network to be placed closer to customer’s homes.
For the first time, Base is able to combine these separate technological maturations to vertically integrate a modern energy company. It’s easier and cheaper than ever before for them to manufacture their own modularized battery packs, integrated with their own software, built from the ground-up for faster and cheaper installation. This combination of product characteristics means Base can install batteries at the source of the load, the customer’s house, which enables better matching of electricity production and consumption.
Technological Convergences Happening Now
We’re seeing maturation of multiple technological innovations that, together, create a variety of convergences which open up wholly new industrial applications.
For example, drones have reached high fidelity levels of remote piloting and automation. That itself has been powered by compounding advancements in meter-to-millimeter GPS and computer vision accuracy. Lithium-polymer advancements have extended battery life to enable longer flight-times and range, while payload capacity has enabled manufacturers to attach advanced sensors and other equipment.
So today, Skydio is able to reduce maintenance costs, downtime and human error using drones that conduct 3D scans and thermal imaging for industry-specific use cases including military assets, power plant and construction site inspection and monitoring.
Drones themselves have been around for a while. The convergence of data storage and compute with NVIDIA’s Jetson Orin GPU, battery advancements to prolong flight times and lightweight sensor hardware across 3D and thermal imaging, means for the first time these distinct technologies can be applied to specific industry use cases.
Converging technologies like drones, GPS, LIDAR, battery storage, advanced sensors, different robotics modularities, computer vision and modes of AI like LLMs and ML create an almost infinite universe of possibilities. Fully autonomous restaurants, helicopters, bricklayers and more. It allows us to imagine futures that come straight from sci-fi like a fully automated RoboCop, powered by computer vision and threat sensors integrated into public safety records and real-time crime tracking platforms like Flock Safety.
Even technologies that have been generally accepted as being mistimed or false-inflection points have converged to enable new industrial applications. Augmented reality, which got a false start in the consumer context after Facebook’s acquisition of Oculus, has converged with computer vision advancements and is being applied to new fields like surgical operations: Medivis.
Another way to think about this is what Stew and Kunal call “Collisions”:
In each major disruption, the collision of new technologies and changing behaviors played a vital role—creating reinforcing feedback loops that intensify adoption and accelerate change.
The Importance of the Industrial Context
Technological “collisions” or “convergences” alone create the space for new, category-defining companies. Some of the largest companies in the world can trace their roots back to a moment in time when certain technologies came together to force an opening in a market that was previously impenetrable.
I argue that the biggest impact of these collisions over the next decade will be felt in vertical industries, enabling new companies to completely bypass large incumbents and have a shot at building trillion dollar businesses, the way Base is attempting to do in energy.
Some of the largest markets and companies in the world are singular, dominating specific industries and verticals. I’ve previously written about the idea of full-stack, vertical businesses, that build the next incumbent instead of selling to them. For example, what would it look like if instead of selling PMS software to a fragmented market of dentists, where competition is high and ACVs are low, you instead built a full-stack dentistry practice from scratch? This is what Tend is doing by combining maturation in dental scanning, payments technology, scheduling and insurance billing.
Why Focus On One Industry?
Why are vertical markets interesting to begin with? For one, they tend to be more complex, with unique workflows and data sources within a particular industry. As complexity scales within a certain industry, so does the difficulty for incumbent horizontal solutions or even new entrants to come in and copy you.
The chemicals industry is particularly complicated, with multiple fragmented ELN systems, regulatory and compliance protocols, safety standards and lab workflows that are run by experts and scientists. A traditional software system like SAP or Oracle simply doesn’t have the unique functionality necessary to enable these companies to run and record experiments, standardize unstructured chemical data and automate specific chemicals regulatory filings. That’s why chemical companies are such a small and underrepresented percentage of their revenue. This is why a company like Albert Invent, with its customizable chemical lab and compliance workflows, has an opportunity to dominate a $639B market.
Secondly, vertical end markets, especially niche ones, are less competitive with fewer high-calibre players operating. This gives talented teams the space to focus on building out product and go-to-market sequencing that generates true value, instead of being stuck in a constant and inflated game of customer acquisition and re-acquisition. Less competition and high market share is the classic equation for high profits. Metrc for example has been able to dominate the cannabis compliance tracking market, in part through state-granted mandatory usage, with over 80% of legal state share. The company generates double digit and growing EBIT margins on ~$60M+ of revenues. Historically, vertical software businesses average higher gross margin, EBITDA and lower S&M as a % of revenue compared to the wider cohort of software companies.
Lastly, and counter-intuitively, complex and “niche” markets tend to attract less exceptional founder and operating talent than obviously large, simple markets to understand. A byproduct of this is twofold: first, its easier to hire exceptional talent who are passionate about a singular problem set. See Benchling, Toast and AppFolio. Second, breakout companies in these industries tend to monopolize both talent and investor bases, with the top-tier investors rarely investing in multiple startups with the same vertical approach targeting the same industry.
Tying It Together
The common thinking is that software is eating the world, and that the evolution of software serving end customers has naturally taken us into niche-SaaS models with high market share dynamics and custom workflows. This isn’t wrong, but I argue that the companies on the far right of the graphic below could be much bigger if they weren’t stuck selling per-seat SaaS to incumbents. This could mean rebuilding the incumbents themselves as full-stack businesses and new non-SaaS products that unlock much higher spend as a % of end-customer GMV.
What’s enabling these new models is the fact that key technological innovations are maturing to the point of commercial use, and converging or colliding to enable distribution. Combining AI with computer vision for example allows OverJet to reduce rejected claim rates for dentist providers to zero, and instant coverage decision making for payers instead of weeks by replacing manual and subjective reviews. This isn’t a workflow for SaaS system of record companies in the PMS space to tackle, and it wasn’t even possible until AI-driven medical imaging had been trained on enough datasets to be commercially viable.
Levante is looking to invest in companies rethinking real-world industries through the lens of industrial technological convergences, and not just another SaaS layer applied to a low-budget workflow. The next multi-billion, or even trillion dollar business will build a monopoly in the world’s largest industries like chemicals, dentistry, agriculture, alcohol and others by going around the incumbents instead of selling to them, or new business models that unlock higher levels of spend than SaaS ever could.