Arc expands into electric commercial and defense boats with $50M raise

Los Angeles-based Arc Boat Company is setting its sights on a bold expansion, aiming to electrify not just recreational boats but also commercial vessels and even defense applications. With a fresh $50 million Series C funding round led by Eclipse, a16z, Menlo Ventures, Lowercarbon Capital, Necessary Ventures, and Offline Ventures, Arc is poised to scale its operations and push the boundaries of electric propulsion technology on the water.

Founded by Mitch Lee, Arc has already made waves in the electric boat industry with its sleek, high-performance sport boats. These consumer vessels have not only generated meaningful revenue but also served as a proving ground for the company’s cutting-edge technology. Lee sees this consumer segment as a critical stepping stone, much like Tesla’s early days in the automotive world. By establishing credibility and durability in the consumer market, Arc is now ready to tackle larger, more complex challenges in commercial and defense sectors.

The strategy is clear: leverage the technology and experience gained from consumer boats to create reliable, cost-effective solutions for commercial and defense applications. Arc’s approach mirrors Tesla’s playbook—start with a high-end, consumer-focused product, refine the technology, and then scale it to broader markets. Greg Reichow, a former Tesla VP and general partner at Eclipse, believes this strategy is a winning formula for Arc. “The right strategy was to develop the technology, get it to work on the high end of consumer boats, then take that technology as you get some experience with it and make sure the economics really work well for the commercial sector,” Reichow explained.

Arc’s expansion into commercial and defense markets is already gaining traction. The company recently secured its first major order for electric tugboats, worth $160 million, from Curtin Maritime. This project involves Arc designing the boats and partnering with a shipyard to build them, showcasing the company’s ability to scale its technology for industrial applications. In the defense sector, Lee is more focused on supplying propulsion systems to primes and neo-primes, addressing a “huge unmet need for electric powertrains” in autonomous and unmanned watercraft.

The driving forces behind this expansion are twofold. In commercial applications, the cost of electric propulsion is dropping thanks to advancements in automotive R&D, while the cost of traditional combustion engines is rising due to compliance burdens and environmental concerns. Lee doesn’t mince words when describing combustion engines, calling them “cancer spewing machines.” In defense, the push for autonomy is creating a demand for reliable, low-maintenance propulsion systems that can operate without a crew.

Arc’s growth trajectory is impressive. The company has grown to around 200 employees and plans to add more, particularly in production, engineering, and go-to-market teams for commercial watercraft. Lee is excited about the diversification, seeing it as a way to balance the lucrative margins of consumer boats with the long-term stability of commercial contracts. “This is where diversification is incredibly valuable,” he said. “There are unique strengths to being in the consumer space. It’s got great cash conversion cycles [and] lucrative margin opportunities. And then you balance that out with commercial applications, which have a tremendous amount of defensibility.”

While expanding into new markets always carries risks, Arc’s team—comprised of former SpaceX, Tesla, and Rivian employees—is well-equipped to navigate the challenges. Reichow praised the company’s speed and efficiency, calling it their “secret weapon.” “I’ve not yet met a company that has been able to move as quickly as Arc does in terms of develop something, whether it be a technology or product, do it very quickly, do it very efficiently, and then get fast cycles of learning on it,” he said.

As Arc continues to innovate and expand, the future of electric propulsion on the water looks brighter than ever. With a clear vision, strong backing, and a proven track record, Arc is well on its way to electrifying everything on the water—and perhaps even beyond.

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