Inside Supermoon Capital’s Big Dreams For Its Sleep Tech Focused Fund 

Sleep has long been the bane of the working world, particularly in startup offices where all-nighters are a rite of passage, or even a badge of honor. But that’s changing, according to one brand-new venture capital firm that has its eyes—and money—exclusively focused on helping the world catch more Z’s.

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San Francisco-based Supermoon Capital launched its first fund last month: $36 million dedicated to pre-seed through Series A startups trying to partner with medical teams to solve sleep disorders, make products that will help people get better rest, and explore some of the untouched corners of sleep science, including dreams.

Its own investors include medical equipment company ResMed and wealthy, health-conscious philanthropists, like the Hillenbrand family, Michael and Judy Gaulke, and the Quadracci family.

“Until recently, investing our time and money to improve and enhance our sleep was seen as imprudent and unproductive,” Supermoon co-founder Grayson Judge said in a recent interview. “But today, people understand that sleep is really important for long-term health and wellness and demand for solutions is continually growing.”

Supermoon may be the world’s first VC firm that exclusively focuses on sleep, but it isn’t alone in trying to tap into what the firm’s three co-founders describe as the “night market.”

Venture capital funding into sleep-related technology and products has grown from $375 million in 2017 to $488 million in 2020. As of September, $747 million in venture capital investments has flowed to 37 tech companies working on sleep, setting 2021 up to be a banner year for sleep-related investment, according to Crunchbase data.

So far, Supermoon has invested in six companies, including Israel-based Clair Labs; German app maker Endel; AI software developer EnsoData in Wisconsin; Amsterdam-based FreshBed; and SleepScore Labs, which specializes in sleep research and R&D. The firm’s most recent pre-seed investment was in Bay Area-based software company Cerno Health.

The three co-founders, Pat Connolly, Michael Masterson and Judge hope to close out the firm’s first fund with around 15 investments. The trio spoke to Crunchbase News about the new fund and their dreams for the future of sleep.

This interview has been lightly edited for length and clarity.

Tell me about your personal relationship with sleep, and whether it influenced your decision to launch Supermoon Capital.

Connolly: I think I had always felt you could sort of sleep when you’re dead. … I found myself drinking a lot of coffee, even in the afternoon … and then waking up in the middle of the night and taking an Ambien to get back to sleep. I did that for a while, until I realized that taking Ambien on a regular basis is not good for you. It just really brought home how important [sleep] was, so I started using the SleepScore device, which really changed my attitude toward sleep, and improved every aspect of my life. … I see that as a great mission in life, to not only create a fund that can return outsized returns to our investors, but also do something that really benefits a large number of people. My vision is that at some point, through a series of funds, we are able to help a billion people sleep better and improve their health.

You brought on a panel of sleep experts across academia and industry. How do they influence your investment decisions and the startups in your portfolio?

Masterson: Our objective is to see every new idea on sleep around the world, so many of these are coming in through our sleep science experts. I think [four or five] of our first six investments came through that sleep science collective. Then we work with several of [the experts] when we’re evaluating these companies and understanding them and asking the right questions. … Once we invest, many of our sleep scientists get involved with our companies in some way, shape or form.

Do I understand correctly that a potential incubator could also be on the table?

Masterson: We have some great ideas that have come out of our sleep science collective and the greater academic community at large that we’d like to explore. … We might incubate companies going forward, and one idea in the future is to have a physical incubator of some kind, likely in the Cambridge area.

Is there a risk that focusing exclusively on sleep becomes overly limiting for future funds?

Masterson: Sleep is super unique, and it is a third of our lives. We’re the only fund on the planet focused on sleep, every other fund focuses on [waking time]. In our opportunity set, we can invest in both hardware and software, we can invest in consumer and in clinical, we can invest in services, we can invest in different types of business models. … So the aperture is actually rather expansive and wide and it’s global. … The field is in the early innings and new technologies across hardware, software, services, clinical and consumer are just at the early beginning here. We think we’re in position to bring these things to market over many, many, many years.

What emerging technologies do you have your eye on that some may think are “out there?”

Judge: One of our sleep science collective members, Adam Horowitz, is at the MIT Media Lab and he and his team have been working on new dream incubation technology, so actually being able to curate somebody’s dream and curate the content of their dream … or actually using dreams to improve mental health and get rid of PTSD and start treating dream-related issues at night. The applications of this technology are pretty crazy and widespread.

Illustration: Dom Guzman