When most people think of startups, they usually think of idealists who try to bring some sweeping change that will alter the way we behave. Whether it's how we eat, travel, watch TV or something else that may shave off a few seconds of inconvenience from our daily lives, idealists capture the public imagination.
But what gets lost in all of these high-profile projects is the other side we hear less about: the work being done to transform the industrial and manufacturing industries. Those same idealists that may have an idea for the next great rideshare outfit may also have the next great way to streamline a part of the supply chain, make a warehouse a worker's job easier or electrify commercial vehicles.
Those ideas catch the attention of Meg Paulus, partner at Holt Ventures. A division of Holt Cat, Paulus and her team evaluate industrial and manufacturing startups and usually partakes in pre-seed to series A funding rounds. In 2022, they provided funding for commercial fleet electrification startup Harbinger Motors, industrial voice AI company Datch, solar-focused company Camp Six and hiring startup Skillit.
Based at the Holt campus in Southeast San Antonio, Paulus can grab any number of executives and workers to ask if any startup she's evaluating has a leg to stand on.
She recently sat down with the Business Journal to talk about how her 2022 went, the state of the industrial startup space and what could lie ahead in 2023.
This interview was edited to preserve space and clarity.
As we near the end of the year, how did the fund's 2022 go?
I believe 2022 brought a lot of deal flows. We were busy at the start of the year and looked at many series A investments. It was business as usual. The market changed in the middle of the year. There was some hesitation in terms of rounds moving forward, and in entrepreneurs' expectations compared to what VCs [venture capital] were willing put on the table. In 2022, our deal flow has not slowed. With the increase in number of investors, it's been difficult to keep up the deal flow over the last three years. This year we didn't make many investments. We did four direct investments, a few follow-ons, and maintained our relationship with two fund investments.
Recently, I have been seeing lots of bridge rounds. These are where people try to extend their runway until 2023. These rounds often come at the same price as previous rounds, so it will be interesting to see how far those runways stretch out and how many deals get completed.
How would you describe Holt Cat? And how does it affect your investments?
Holt Ventures, Holt Cat, and the wider family of Holt Companies enjoy a symbiotic partnership where Holt Ventures helps Holt Cat to keep an eye on the future market. Holt Ventures has access to a unique pool expertise. This is a unique advantage that only a few enterprises have and very few VC firms can access.
What is your favorite thing about investing in manufacturing or industrial startups?
I believe I can see the benefits of my work better than many people sitting in an investment chair. It is easy to see the struggles of our workforce from here. I can see the needs of our customers and how they are changing. I believe the work I do has real results, other than financial.
What 2022 lessons can you apply to your next year's work?
2022 was a time of significant dislocation and diversion from the fundamentals. 2023, however, will offer huge opportunities for disciplined investors and entrepreneurs who have a strong commitment to their ideas. All of us who work in venture capital have learned how to navigate through a vast amount of data and make informed decisions that meet deal deadlines over the past few years.
What is the firm's focus going into 2023?
Focus areas for Holt Ventures in the next year include electrification and the energy transition more broadly, using data effectively and thinking more about labor efficiency and putting the best technology in the hands of our labor force. For example, how do we collect telematics data, make sense of it and use it in a way that benefits end users? I think interesting manufacturing technology will come to market in 2023 as companies think about on-shoring, re-shoring and how they stay competitive.
Is that a change in the type of companies you are looking for? Are there any areas of the industrial sector that aren't being served?
I would say industrials as a whole have definitely been underserved. In the past, that's been due to a lack of investor interest in the space, but that's changed a little bit and I think will continue to change. But broadly, one space that I think where there will be increasing interest is the electrification side of things. As companies start to focus more on their sustainability efforts, companies that are bringing technology that helps that transition happen in a more economical way will get a lot of attention in the new year.
What's the hardest part of your job?
My job is difficult because I have to say no to investment opportunities. Many entrepreneurs have great ideas, but misalignments in terms of price, terms, or buyer behavior can result in a deal not moving forward. It is difficult to see where the industry stands on the technology adoption curve. However, I am able to accept that it will be a challenge. I need to keep my eyes open and take every opportunity to bring technology to the right people.
San Antonio is an exceptional community. There are many families who have made their fortune by taking risks and are willing to support entrepreneurs looking to do so. I feel like I have learned a lot from the people I met here. Because of my location, my work, my office, and the people I interact with daily, I have a unique perspective. This is a benefit to me and my peers. Although I am aware that San Antonio isn't the right place for VC, it's a very unique place with so many opportunities that I believe there will eventually be more.