To Blog

IQT’s Perspective on American Manufacturing Innovation and National Security

May 07, 2024

This is the first in a two-part series dedicated to advanced manufacturing in the U.S. The second blog will be published in June 2024.

A robust domestic manufacturing base is essential for the nation’s security and prosperity. Advances in manufacturing technologies and processes drive economic growth by helping to create new products and industries. They also develop the capacity needed to produce components and entire systems at scale in strategic sectors such as defense, critical infrastructure, and advanced technologies. The vast majority of U.S. manufacturing capacity is represented by small and medium-sized businesses that support a wide range of sectors, from aerospace to auto manufacturing and from agriculture to advanced medical equipment.

As a strategic investor that provides funding to innovative startups, IQT has long had a unique perspective on the importance of developing American leadership in advanced manufacturing. An analysis of investments across multiple sectors of national security interest—including cybersecurity, automated systems, space, and biotechnology—using statistics from data provider Pitchbook shows that, from 2006 to the end of 2023, hardware deals that require manufacturing capacity have represented around half our total number of investments, or roughly double the average of the venture capital (VC) industry as a whole over that time.

This percentage has also been growing considerably faster than at other investment firms. From 2004 to the end of last year, hardware deals as a percentage of total venture capital-backed deals in these sectors rose from 19% to 25%, representing a 3% year-over-year growth rate. Over the same period, IQT increased its percentage of hardware-related deals from 28% to 57%, which represents an 18% year-over-year growth rate—six times higher than the VC industry’s average.

Home advantage

As noted earlier, our transactions have encompassed a range of industry sectors, which gives IQT a valuable lens through which to view the evolution of manufacturing capabilities in the U.S. and the implications for national security and economic competitiveness. Developing domestic manufacturing capacity in critical technological domains is a vital area of focus for us because it will drive game-changing innovations and help America create more robust domestic supply chains.

When we evaluate an investment, one of our most important questions is “where is the technology made?” This is crucial for both operational security considerations and also for ease of access to the technology.  We’ve supported—and continue to support—a wide range of companies that have expanded their existing manufacturing capacity in America or have brought it to the U.S. from abroad.

In the energy business, one of our portfolio companies is Sila Nanotechnologies, a materials supplier for batteries, which is building a large-scale material-manufacturing plant in Washington state that will produce enough material to power 200,000 electric vehicles a year. We’re also focused on additive manufacturing capabilities, investing in companies such as Markforged, which in 2019 opened a new 25,000 square foot manufacturing facility in the U.S. to more than double its production capacity and support an expanding number of applications for its 3D printing platform.

In the microelectronics domain, our portfolio company JetCool is pioneering innovative new ways to lower operating temperatures of high-power electronics—a capability that’s becoming ever more crucial as artificial intelligence intensifies compute workloads. As part of its systems, the company makes highly specialized nozzles at its Massachusetts headquarters.

These nozzles generate an array of microscopic jets that take heat away directly from the surface of chips. This is more efficient than using traditional components such as heat sinks that carry heat away from chips using a series of tiny physical pins or fins. JetCool just announced an innovative new cold plate integrating its nozzles for cooling NVIDIA H100 chips, which are widely used for AI. Compared with traditional air-cooling methods, JetCool’s technology reduces total power consumption in H100 AI clusters by 15% and boosts performance by 82%.

Defense capabilities

We’ve been very early investors in other businesses helping to expand America’s defense industrial base. In a notable example, Anduril, which produces autonomous aerial systems, underwater vehicles, rocket motors, and other capabilities, has made significant investments in its domestic manufacturing facilities to create automated production lines, leverage precision machinery, and introduce advanced quality-control systems.

Looking ahead, we see many opportunities emerging to support the creation of U.S.-based manufacturing capacity in these and other sectors. And we’re excited at the prospect of supporting young companies creating production capacity in cutting-edge domains for the future, such as the emerging field of engineering biology.

The key to success will be creating highly innovative manufacturing technologies that help U.S. companies compete with lower-cost foreign competitors and that enable output of essential components and systems to be scaled rapidly. To achieve these goals, startups and other businesses will need to harness the potential of everything from additive manufacturing to artificial intelligence-driven process optimization. In our next blog post, we’ll highlight advances in these and other promising production frontiers in more detail.

IQT Blog

Insights & Thought Leadership from IQT

Read More