Why Ex-Meta CTO Mike Schroepfer Says It’s A Great Time To Build A Hard Tech Company: ‘Infrastructure Is The Moat’

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. Mike Schroepfer, founder of Gigascale Capital. (Courtesy photo) 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. Gigascale Capital partners, from left, Mike Schroepfer, Evaline Tsai and Victoria Beasley. (Courtesy photo) 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