Contrary Research Rundown #101
The transition from software to moonshots, plus new memos on Traba, Neuralink, Scale, Substack, and more
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Research Rundown
A notable trend is emerging in the tech world: successful software entrepreneurs are increasingly pivoting to ambitious hardware and biotech ventures after exiting their initial companies. This shift is pioneered by high-profile founders like Elon Musk, Jeff Bezos, Daniel Ek, Brian Armstrong and Fred Ehrsam who have the capital, network and will to bring these moonshots to life.
Elon Musk's journey from software to hardtech is perhaps the most well-known. Musk co-founded X.com, an online financial services company, in 1999 (before it killed the bird app). X.com merged with Confinity in 2000 to form PayPal. As a major shareholder, Musk significantly profited when eBay acquired PayPal for $1.5 billion in 2002. With the $180 million he received from the acquisition, Musk put his chips back on the table. He invested heavily in two ambitious hardtech ventures. In 2002, he founded SpaceX with about $100 million, aiming to revolutionize space technology and enable the colonization of Mars. SpaceX has since achieved remarkable milestones, including developing reusable rockets and becoming the first private company to send astronauts to the International Space Station. In 2004, Musk invested in and later became chairman of Tesla. He eventually became CEO and has transformed Tesla into a leader in electric vehicles and sustainable energy solutions.
Jeff Bezos's path shares similarities with Musk's. Bezos founded Amazon in 1994 as an online bookstore, which grew to become one of the world's largest e-commerce and cloud computing companies. In 2000, at the height of Amazon's growth, Bezos founded Blue Origin, investing billions of his personal wealth into the space company. Blue Origin focuses on developing reusable launch vehicles and technologies for space tourism. Notable projects include New Shepard, a suborbital spaceflight system for space tourism, New Glenn, an orbital launch vehicle under development, and Blue Moon, a proposed lunar lander. Bezos has stated that he liquidates about $1 billion worth of Amazon stock annually to fund Blue Origin, demonstrating his commitment to this hardtech venture.
Daniel Ek's transition is more recent. Ek co-founded Spotify in 2006, taking on the music streaming industry. Spotify's success in the software and digital services space made Ek a billionaire. In 2020, Ek said he would invest ~$1.2 billion of his personal wealth in deeptech “moonshot projects” over the next decade. Just two years earlier, in 2018, Ek decided to venture into the healthcare sector by founding Neko Health. Launched publicly in 2023, Neko Health aims to revolutionize preventive healthcare using AI and advanced scanning technology. The company has developed a full-body scanner that can detect potential health issues early, coupled with AI-powered software to analyze scan results and provide personalized health recommendations. While the exact amount Ek has invested in Neko Health isn't public, it's clear that Neko Health won’t be the last moonshot he co-founds and financially supports.
Brian Armstrong co-founded Coinbase in 2012. Coinbase became one of the largest cryptocurrency exchanges globally, and its IPO in 2021 valued the company at nearly $86 billion, making Armstrong a multi-billionaire. In 2022, Armstrong co-founded NewLimit, a biotech company focusing on extending human healthspan through epigenetic reprogramming. The venture aims to develop therapies to reverse age-related cellular changes and utilize machine learning to accelerate drug discovery in age-related diseases. The company has raised $150 million to date — Armstrong and VC Blake Byers committed $110 million over the lifetime of the company.
Fred Ehrsam, another Coinbase co-founder, has followed a similar path. After accumulating wealth from Coinbase's success, Ehrsam co-founded Nudge, revealed earlier this year. Nudge is developing an ultrasound headset designed to enhance human experiences. The company's product aims to allow users to alter their brain states with the push of a button, offering capabilities such as improving sleep, boosting focus, breaking habits, and elevating mood.
This software-to-moonshots trend mirrors a broader shift in the venture capital landscape, where the focus is increasingly turning from traditional software startups to innovative hardware and deep tech companies.
While software startups have traditionally dominated their share of venture capital, recent years have seen an increase in funding for hardware and hard tech companies. In 2021, software startups received $121.2 billion in venture capital funding in the United States, which was about 37% of the total VC funding in the country. However, in 2023, SaaS startups accounted for just 28.4% of capital raised, the sector’s lowest share of the past six years.
In 2020 and 2021, deep tech, which encompasses many hardtech categories, claimed a 20% share of overall venture capital funding by 2021, up from about 10% a decade earlier. Venture capital funding for deep tech reached a peak of approximately $160 billion in 2021. However, 2022 marked a notable decline, with deep tech VC funding decreasing to about $105 billion, aligning with a broader contraction in the VC market.
Despite this overall decline, several positive trends emerged. The size of average deep tech investments increased significantly, with many reaching $100 million or more. Certain hardtech sectors continued to attract strong interest, particularly in areas like defense technology, space tech, and biotech. While hardtech funding declined from its 2021 peak, it remained significantly higher than pre-2020 levels, demonstrating the sector's resilience and continued appeal to investors despite the challenging market conditions.
The influx of experienced entrepreneurs and capital into hard tech sectors will continue to lead to breakthrough advancements in space exploration, healthcare, and other critical areas. As high-profile founders move into hard tech, it will further attract top talent from software into these new sectors, reshaping the job market. Meanwhile, established players in aerospace, healthcare, and other sectors are facing disruption from these well-funded, agile entrants.
This trend could mark the beginning of a new era in technological advancement, one that moves beyond bits and bytes to atoms and molecules.
Traba, a labor marketplace founded in 2021, aims to bridge the gap between these two trends by connecting light industrial businesses with temporary workers seeking flexible employment. To learn more, read our full memo here and check out some open roles below:
Senior Software Engineer (Backend) - New York, NY
Senior Software Engineer (Frontend) - New York, NY
Neuralink, an invasive BCI company with a short-term goal of treating various neurological disorders such as quadriplegia, was founded by Elon Musk in 2016 with the intention of creating another “layer” to the brain to complement the functions of existing layers like the limbic system and the cortex. To learn more, read our full memo here and check out some open roles below:
Electrical Engineer (Robotics) - Freemont, CA
Firmware Engineer - Freemont, CA
Scale AI’s vision is to be the foundational infrastructure behind AI/ML applications. To learn more, read our full memo here and check out some open roles below:
Fullstack Software Engineer, GenAI Growth - San Francisco, CA
Machine Learning Engineer, Federal - San Francisco, CA
Substack is a subscription-based newsletter publishing platform that allows independent writers to build and monetize their audience directly. To learn more, read our full memo here and check out some open roles below:
Senior Software Engineer, Core Product Team - San Francisco, CA
Senior Software Engineer, Substack Enterprise - New York, NY or Remote
Check out some standout roles from this week.
Power | Remote - Senior Product Designer, Senior Software Engineer, Front End Engineer
Together AI | San Francisco, CA - Senior AI Infrastructure Engineer, Senior Backend Engineer, Senior DevOps Engineer
Codeium | Mountain View, CA - Software Engineer, Deployed Engineer, AI Product Engineer
Flock Safety | Remote (US) - Software Engineer III, Senior Software Engineer (Video), Staff Machine Learning Engineer
TruckSmarter | San Francisco, CA - Data Engineer, Product Engineer (Fintech), Senior Product Engineer (Fintech)
Airbase was acquired by Paylocity for $325 million — a 19x revenue multiple for the acquisition.
Anthropic is launching a new enterprise-focused plan for its AI chatbot Claude to compete with OpenAI's ChatGPT Enterprise, offering increased security and administrative controls for businesses.
Bolt's $450 million fundraising deal is in trouble, with investors like BlackRock, Hedosophia, and Untitled Ventures applying for a restraining order to "halt" the Series F round, claiming Bolt was “coercing its investors.”
80% of new data center capacity under construction in North America was preleased, showing the extremely high demand for data center space.
Klarna plans to reduce its workforce from 5,000 to just 2,000 employees as it embraces AI to boost profitability and prepare for a potential IPO next year.
US safety regulators have called for an investigation into the fast-fashion retailers Shein and Temu over safety concerns.
The shift from cloud computing to generative AI will bring software profit margins down from the traditional 90% range to around 60%, as the costs of developing and running AI models are much higher than traditional software.
Bird, a cloud communications platform, hit $110M free cash flow (FCF) run-rate with 130% EBITDA to FCF conversion.
Nvidia's customer concentration is highly unusual for a mega-cap company, with four customers accounting for nearly half of its $30 billion revenue in the second quarter.
OpenAI co-founder Ilya Sutskever's new 'safe' AI startup — Safe Superintelligence — has raised $1 billion in funding from NFDG, a16z, Sequoia, DST Global, and SV Angel.
Canva is raising its Teams subscription prices by up to 300%, citing the addition of new AI-powered features like its Magic Studio suite as the justification.
xAI has turned on "Colossus" — the biggest AI training cluster in the world with 100,000 GPUs.
Mark Zuckerberg has disrupted the AI model market by making Meta's Llama models free as open-source services, which has driven down token prices and made it harder for companies to charge for their AI models.
BlackRock is auctioning off SellerX, a once-$1 billion Amazon aggregator, after a loan it granted to the company soured, highlighting the shakeout among aggregators that bought up Amazon brands during the pandemic e-commerce boom.
China aims to build a prototype fusion power plant in the next few decades, potentially outpacing other countries' fusion energy programs.
Amazon is hiring three of the founders from Covariant, a Bay Area startup that develops AI for advanced warehouse robotics systems, and as part of the arrangement, Amazon will receive a non-exclusive license to Covariant's AI models.
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