This is an ongoing series on investors focused on rebuilding the physical layer. The first interview in the series was with Peter Barrett, a decade-long investor at Playground Global.
Mike Schroepfer founded Gigascale Capital after departing Meta as CTO in 2022. The firm invests in companies rebuilding the physical economy. As Schroepfer and his partners at the firm see it, surging demand for AI, power and industrial capacity is creating a once-in-a-generation opportunity to rebuild the physical economy — from energy infrastructure and advanced manufacturing to materials and robotics. And as AI makes software cheaper and easier to create, the competitive advantage increasingly shifts to the hardware, energy systems and supply chains that underpin it all.
Key to starting the fund was Schroepfer’s experience building out the infrastructure to support Meta’s business. “I could see the trends coming. We’re going to need all the compute,” he said. “I don’t know where we’re going to get the power, so it’s going to create this massive supply-demand crunch.”
Gigascale raised its first institutional fund this month, a $250 million investment vehicle. The firm has already made more than 25 portfolio investments to date.
Schroepfer’s partners at the firm are Victoria Beasley, previously an investor at climate-focused investor Prelude Ventures, and Evaline Tsai, previously at Fine Structure Ventures.
Before raising the fund, the firm made 22 investments funded by Schroepfer’s family office in order to prove the model. At the time, the broad perception was you could not make money investing in the hardware layer.
‘Not software with higher capex’
Gigascale invests at pre-seed through Series A with some later-stage investments. Its check size is anywhere from $1 million to $10 million.
Hardware businesses are not the same as software businesses. “It’s not a software business with higher capex,” said Schroepfer. “The failure modes are very different. The way you plan and test and iterate, and what you understand is very different.”
In our conversation, we spoke about an array of topics, including energy as a major investment focus, his learnings from running Meta, why now is a great time to build a hard-tech company and what excites him about the SpaceX IPO.
Gené Teare: What is Gigascale’s thesis?
Mike Schroepfer: It’s really simple. We are backing companies that are rebuilding the physical economy. This is how things are powered, built, moved, manufactured and how people are fed.
The belief is there is a confluence of technological changes that are bringing new products and new companies to market that are better, faster, cheaper than what’s out there. This is the biggest part of the economy.
Another way to say it is that we think the future is atoms, not bits, and it’s a really exciting time to be building these companies.
What did you see that made you decide to set up the fund in 2023?
Schroepfer: A lot of the tech trends I have been part of — from the web transition when I worked on Firefox, to the early web infrastructure at Facebook, to the mobile transition in the early 2010s, to founding the Facebook AI Research Lab in 2013, well before ChatGPT — were looking at the very shallow part of exponential curves. These technological changes did not seem that prevalent yet, but they were on this massive upswing.
I saw the same set of curves in solar cells, batteries and electrolyzers. They were all going through massive exponential cost downs, and at the same time a massive increase in demand. We had electric vehicles showing up, onshoring and manufacturing, and this was pre-data centers. I knew compute demand was going to grow. Where are we going to get the electrons to fuel all of this? It’s going to create an immense supply chain crunch.
Demand and supply were converging at the same time to create massive tailwinds. It just felt like this opportunity to rebuild the entire physical infrastructure in a way that our kids are happy about. Meaning, the new solution wins because it is cheaper, better and faster.
The other co-benefit it brings along with it is that because it is simple and cheaper, it is also less polluting, so it doesn’t hurt humans. I can build a solar farm way faster than I can build a gas power plant. I can live next to a solar farm and get zero pollution. I do not want to live next to a gas plant.
What I understand about the firm is that you are very focused on energy specifically. Is that a misunderstanding?
Schroepfer: It is probably the single biggest area that we invest in. A large chunk of our portfolio is energy. It is a $2 trillion market and it is the place where I think all the disruption is happening. But we also invest in industry, including materials from neodymium to copper, production and recycling, to a lot of AI in the physical world. That includes everything from how I use AI to make my house more efficient with HomeBoost, to how I build power-efficient AI inference chips with Fractile.
Then there is the built environment, in terms of buildings, and a little bit in food. We do a little bit in everything, but if you look at our portfolio, the two biggest hunks are really energy and AI in the physical world.
When do you think Silicon Valley woke up to the focus on the physical world?
Schroepfer: In the broad consensus, it happened recently — in the last six to 12 months. There were some folks who were looking at it early, but I think the broad consensus has just happened recently.
The other thing that I saw is, if AI is going to make software nearly free to write, then I think software businesses might be challenged, and the moat moves to the hardware. The game becomes: How do I get the infrastructure built to have a better AI? That is mostly an infrastructure hardware problem, less of a software coding problem, and that is going to filter through a lot of businesses.
When I started, frankly, three years ago, I had many people — I am thinking of someone sitting in my office — saying, “don’t do this.” All the money is in software. You can’t make money in hardware.
It doesn’t hurt that Cerebras, Fervo, SpaceX, Nvidia and TSMC are now household names of companies that have had massive valuation runs because they are such a core part of the physical economy. I used to use Nvidia as my example, but now I can use SpaceX. Talk about a company in the biggest market that is running away from the competition. It’s a really hard company to compete with.
How should we understand the energy needs in the U.S.?
Schroepfer: We’ve been at relatively flat demand over the past 20 years or so, meaning each year that goes by, we don’t need much more power, close to 0%. We are now growing at at least a few percent a year.
Something has gone from almost no growth to relatively high growth. You’ve got hundreds of gigawatts of data centers planned to be built over the next five years alone. That doesn’t count EV charging stations and electrification of homes and factories. It’s a massive supply-demand imbalance right now, and building power takes a long time. If you’ve got to build a power line, if you’ve got to permit a gas power plant, these things take years, not months. It has created massive demand, but everyone wants compute yesterday.
Meta has used tents instead of buildings for their servers because cutting out the time erecting steel for the building gets them compute faster. Everyone is thinking about how to get power faster and how to get compute faster because, again, it’s a competitive advantage when infrastructure is the moat.
Which technologies are you focused on in the shorter term, and then the longer term?
Schroepfer: We have companies deploying things now. In the power crunch, one of the big problems is that the demand for power swings much more widely than it used to. It used to be fairly steady. Now you have big training runs, you have solar that comes on and comes off, and you need a shock absorber to dampen the power or deal with three or four days of clouds or no wind, if you’re depending on renewables.
Form Energy is a company that has a new kind of battery that lasts for four days. You charge it up, and it’s there for 100 hours. In any event where a power plant is offline or the sun is not shining, Form Energy is there. Utilities think of this instead of building a gas power plant. There are these gas power plants called peakers, which you only turn on when you really need them. They sit there all the time, and then you fire them up in these intervals. Instead of doing that, which is very expensive, you have this Form Energy battery: zero emissions, much cheaper to operate, and built from the ground up for utilities using a totally different technology. They are going to be deploying batteries this year, as an example.
Going in a different direction, the entire supply chain for how we get electrons to a building. I’m going to build a new data center, and I have to hook it up to the grid to get electrons there. There is all this equipment in the middle called power transformers, these big green boxes or big metal boxes. It’s literally 1930s technology. We haven’t changed much since then. They are back-ordered for years now because they are these exquisite hardware machines.
There is a new company, Heron Power, that said, “wait a second, we’ve been shipping this new generation of technology called solid-state power electronics in electric vehicles — the Model 3, Model Y, and more — for millions of units a year, with very fast ramps. We’re taking that same technology and putting it on the grid.” We’re replacing this 1930s technology with 2020s technology. It’s more efficient, it’s a third the size and, most importantly, they’re going to start shipping lots of units next year. They’re building their factory right now. In 2027, they’ll be shipping lots of these Heron Link units.
A little bit further out, we have a company called Panthalassa that said, “we’ve got about 10 terawatts, which is an immense amount of power, in the Southern Ocean in waves sloshing around with nothing else going on down there. If we can harness that, it is an untapped resource.”
They’re building autonomous buoys that float in the ocean. They bob up and down and turn that wave motion into electricity. Then they use that to power, on the buoy, a compute node to do AI inference and use Starlink to send the bits back. They’re kind of exporting electrons via tokens in the Southern Ocean.
They’ve been testing off the coast of Portland, and they’re going to deploy their first units next year. People have talked about data centers in space. My big pitch for this company is that it’s 100x cheaper to put a ton of capacity in the open ocean than it is to put it into space. If you think data centers in space are a good idea, you might want to look at the ocean.
Then you can think about Radiant, a company in El Segundo, California. They are building a compact, next-generation microreactor, or nuclear reactor. You can think of it as something you put on a truck or on an airplane, and it can run and power something for five years straight. Instead of, in a remote region in Alaska or on a Pacific island, doing what they do now, which is shipping diesel fuel there to run a diesel generator 24/7, you install one of these boxes, and it produces power for five years before it needs refueling. Most importantly, again, you would not want to sit next to a diesel generator while it’s operating. It has very toxic emissions. This thing has no emissions. It’s good for humans, and it’s actually going to be cost competitive with those things. Those are some examples of things we’re doing in the power sector that I think are really affecting the future.
Is there an unlock in this industry that has made development cheaper and faster at this moment in time?
Schroepfer: The analog I’d use is from computing. We used to build mainframes, these big building-sized computers. Then we had minicomputers that were still really big. This is the motherboard for the first server we designed at Meta that we deployed in 2011, called Freedom. It was a Type 1 server. It was the web server.
I installed millions of these, maybe tens of millions. I don’t even know how many. They’re all the same, every single one of them. They go in a pizza-box-size thing that goes into a rack in a building. That building comes in four units. Each of those is the same. That building is next to another building, which is exactly the same. We build four of those on a site. They all look the same. I did that in 17 places around the world. They all look the same.
The technique we use to make things cheap is mass manufacturing. Everything in your life that has gone down in price or improved in price-performance is mass manufactured: your iPhone, the servers and data centers. They’re all the same. They’re mass manufactured.
The world is full of custom, bespoke stuff that’s wickedly expensive.
In the power grid, for example, all of the stuff I talked about, you custom order it. I want a transformer. I do engineering design. I send it off to someone. Four years later, a truck shows up with the crane and all the rest of it. That’s inherently expensive and gets more expensive every year. Everything that is custom gets more expensive every year, so I think the biggest thing we’re seeing is this move to things that are mass manufactured.
Solar panels are mass manufactured. Batteries, the things that go in your phone or in your electric vehicle, are 99% cheaper than they were 20 years ago. That’s because we manufacture them at a massive scale. Every time you double the size of manufacturing, you get a 10% to 20% reduction in cost, and there are so many other problems like that.
In this case, the power electronics, the transformer, are all special-purpose. Heron Power is going to make the same box for a data center, for an EV car charger, and for a solar farm. It’s the same box. No changes. That’s how we’re going to get a cost curve down for these things. That is the most exciting trend underneath this: the idea that generalization and mass manufacturing of things allows you, year over year, to reduce costs.
When you’re competing in the power industry, fossil fuel costs have been basically stagnant. They go up and down a little bit, but if you average them over 50 years they are not on a cost-down curve. It doesn’t get cheaper to get oil out of the ground. My competition is flat, and I’m getting 10% to 20% cheaper every year. That’s a great business to be in. That’s the big trend behind all of this. We saw it first in solar and in batteries, but it enables a whole bunch of other things in other industries, like power electronics and more.
Are we at this time very dependent on China for mass manufacturing?
Schroepfer: A lot is coming from China, but I visit a factory a week in the United States that is getting spooled up with robotics, with really smart founders from Tesla and SpaceX. It turns out that when you start in 2026, you can build a much more efficient, much faster factory. You can use modern technologies.
Right now, China has the industrial base, and we’ve let it go. But I think we have a shot at rebuilding it in the United States, and I see brilliant founder after brilliant founder running at this problem inside the United States every day and every week.
It’s one of the reasons I started this firm, too. I think we have a shot to rebuild that industrial base in a next-generation set of technology. Just like regions around the world that didn’t have landlines went straight to cellphones, we’re going to go straight to fully automated robotic factories with 3D printing, laser milling and the latest technology set. It is not going to be a cut-and-paste of what happened in China, but a next-generation set of technologies that allow the U.S. to be self-sufficient in what we’re doing.
We’ve seen new techniques. As an example, rare earths were something no one ever talked about. Neodymium is this rare earth material that is key to making a magnet. Who cares about magnets? Well, magnets are in every electric motor in anything. Anything that has an electric motor, you care about magnets. Almost all the neodymium is made in China, and it is made in this very polluting, dangerous process. You do not want to visit one of these factories with fluorinated gases — it’s awful.
We’ve got a company making neodymium in Alameda, California. That is not an easy place to permit polluting things, which is fine for them because their process doesn’t pollute at all. It’s very simple. It’s two reactors. I walked around the facility. You don’t need any protective gear. Because it’s so simple, they are cost-competitive with Chinese imports.
To their customers who are saying “I’m trying to make magnets,” they’re saying “great, I will sell you neodymium. I have it. It’s cost-competitive.”
Everyone is excited, but the thing we’re whispering in the background is, it’s also not polluting. This is how we’re going to win. It’s not a cut-and-paste of that technology over here, but saying, “How do we approach this in a way that’s simpler and cheaper, and then likely cleaner as well?”
We’re doing the same thing in copper. We’ve got a whole bunch of bets in different kinds of materials where I think we can do it better in the U.S. We’ve got a company, Red Metals, in South Carolina that’s doing this for copper recycling. We’re doing it in cement manufacturing. There is a whole variety of opportunities. I don’t have enough time to meet all these entrepreneurs.
We talked a lot about some of the companies in the energy sector. What are the other areas of investments that you’ve made that you’re excited about?
Schroepfer: I mentioned this a bit, but worth going a little deeper on is applications of AI to the physical world. I talked about one: Fractile, which is building a next-generation AI inference chip that’s much more power efficient.
Another example is a company called Nyquis, which is using AI to put a simple piece of hardware on a power line, on both sides of a power line, to detect if there is a fault in that power line that might be causing a fire. The idea is that if you detect that fault sooner, you can prevent the fire before it’s a problem instead of waiting for it to happen and then having to respond. Using AI plus hardware to figure these things out is another example of that.
We have another company called Vor Systems that’s using AI to help with the nuts and bolts of how people make transactions to build energy projects. There is a lot of due diligence work and other things that need to happen. You can build, very much like Harvey for legal or OpenEvidence for doctors, these vertical AI companies. This is a vertical AI company for energy developers. There is a lot to happen there.
Then Rhoda is doing industrial automation with robots, using next-generation models to train robots to be more effective in factory environments, back to my point of how we are going to do this in the U.S. with advanced robotics. I think AI for the physical world is a big area.
I talked a bit about materials: neodymium, copper. We have a company called Dioxycle that’s making clean chemicals. Those would be the big areas I would highlight.
I know there are a lot of investors that you partner with or work with that are similarly focused in this area.
Schroepfer: The thing that’s been most interesting is that there is a set of folks who have been doing hard tech or climate for a while, and they are great partners of ours, from Congruent Ventures to Capricorn to Breakthrough Energy to many others. But what’s been interesting to me is the generalist firms coming in. A very common co-investor for us is Founders Fund, a16z, or Sequoia Capital. We’re seeing them come in large amounts, because they’ve seen the economic opportunity here.
What did you learn from spending 14 years at Meta?
Schroepfer: I learned a few things. When I joined in 2008, the company had fewer than 100 million users, was not profitable, and had about a 150-person engineering team. We relied on outside parties to do all the hardware work. We were leasing data center space.
Over the next 14 years, we grew dramatically in users and profitability and in the size of the team. But we also moved into the physical world. As I showed you the server, we built our first data center in 2011. I built 10 million-plus square feet of data centers in 17 places all over the world. We then moved to consumer hardware, so we built the Ray-Ban smart glasses, the Oculus Quest VR headset, and the Portal. Then we moved into AI research with the Facebook AI Research Lab in 2013.
That shift into the physical world brought a lot of really humbling lessons. There were a lot of times where stuff just went wrong. At the very first data center, I remember touring it under construction, and we had wood blocks on the loading dock because they had graded the loading dock wrong, so the trucks couldn’t back up and unload properly.
It’s this new, awesome, state-of-the-art data center with a free-air cooling system, and we got wrong the thing that every Walmart in the country has five of. It’s a million small challenges.
This is the thing I bring to the founders that I see: having learned how to build stuff in the physical world builds an appreciation for the risks and scale, and for how you need to emphasize speed and learning rate.
People learn the wrong lesson. They think hardware means spending a lot of time designing on paper. Wrong lesson. You have to get out there because you don’t know which part is going to blow. You have to get out there and learn as fast as you can and as cheaply as you can, so that when you’re in mass production, you’re not learning things, you’re just repeating.
That lesson, from data centers to consumer hardware, matters. When we build consumer hardware, you spend 18 months building this exquisite pair of glasses or this exquisite headset, but before you sell it, you have to do this drop-test thing, where you literally say, what happens when someone takes it out of the box at home and drops it on the ground? If it breaks, they return it, and we eat the cost. So you sit there and drop this thing with high-speed cameras over and over again to make sure it will survive a drop from head height. You don’t think of these things when you’re designing it. You have to make sure someone can drop it and it’s fine, or spill some wine on it and it’s fine.
Those problems in the real world, plus the challenges of building an executive team and scaling an organization, are the fun part of my job: working with our founders and having their back when things are tough, when they need to recruit someone, or when they’re running into a challenge in the real world, because I’ve seen it. I’ve seen it all.
What’s your reaction to the SpaceX IPO?
Schroepfer: I’m honestly pretty excited about it, because we have a lot of SpaceXers in our portfolio. I have a lot of friends who are alumni or work at SpaceX. Having more people in the world with the financial resources to work on audacious engineering projects is going to be really good.
I think it’s also a lesson in building and hardware. How many companies can land rockets the way SpaceX can? They’ve been doing this for a decade, so they have a very large technical moat in terms of what they’re able to deploy in the world. Starlink is another example. Everyone is racing to catch up. If you’ve ever used Starlink on an airplane, you don’t ever want to be on an airplane without Starlink. It’s hard to describe other companies that have such a singular product as SpaceX. I think it’s exciting that the markets are rewarding that. I can’t wait to see what SpaceX alumni do next.
I imagine there’s going to be a lot of company formation coming out of that IPO.
Schroepfer: It’s going to be an exciting five years. I met you after I started my first company in 2000 and sold it off. We looked at starting another company, and then I worked at Mozilla and Facebook, so I’ve been through a couple cycles of this. I think it is the most exciting time to start a company, in terms of the capital available, the AI tools available to you, and the physical tools to build things quickly in the physical world. It’s the bet I made: I think this is the most interesting time to be building new companies. That’s the smaller version of why I did this. I think this is the time. This is the thing to be doing.
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Illustration: Dom Guzman
