Founders Fund Leads $80M B-2 Into Nominal | Trae Stephens, Cameron McCord

24:55Cameron McCord:And I can honestly say, like, there's just not that many things that fit that level of commitment. Most things are, you know, begrudgingly investments like legacy software that you literally can't get away from using because you're in the aerospace and defense sector or, you know, ERPs or something like that, that everyone's unhappy. except the legacy software vendor that realizes that they have you over a barrel. But this is one of those unique cases where everyone feels super aligned, very happy, and we feel like we're getting the return on investment that we want out of that spend.

25:30Trae Stephens:And I think just building on that point too, I think Andrel is this amazing case of we often in nominal, we're competing with internally built solutions or maintained tools. And I think really satisfying and fulfilling for us, I think, to sort of know that what we had built, we'll put it this way. I was very familiar, I think, with the level of capability that existed just natively inside of Anderle, having worked there before. And so waited until I thought Nominal had sort of hit escape velocity on the product offering and the capability to sort of bring it back and have it met with that type of reception that the traders described.

26:09Trae Stephens:So I think like, you know, this is an area where people will, companies as they grow will try to assemble sort of their Frankenstein version of an internal stack. But at some point when you get very serious about scale and operations, you have 30 different hardware programs and product lines. It makes sense to buy a productized solution and back the truck up around it. So, yeah.

26:33Cameron McCord:And now you're saving Andrel billions of dollars. I mean, that would be great because if he was saving us billions of dollars, we would be profitable. We are not.

26:44Trae Stephens:We're doing our small part.

26:46Cameron McCord:Yeah, you're doing your part to helping us eventually get profitability. What a beautiful partnership.

26:54Cameron McCord:I'm so curious from both of your perspectives on this. As AI rips through markets, public markets, hundreds of billions of dollars are being decimated. Do you think the hype, the affect, and this kind of destruction or disruption from OpenClaw and Claude and all these different types of new AI solutions that are causing autonomous agents and creating things instantaneously, is this going to affect you?

27:26Trae Stephens:I think it will affect everything. But let me actually go back to the, I think the GitHub example is a good one. It's like when you whip out your cloud code and you're, you know, uh, vibe coding or whatever you're, you're building, um, you're still in almost all instances, you're still referencing GitHub. Like, I mean, it, GitHub, right. It's like interfacing. And that, that core infrastructure functionality like does not exist in this software for hardware space. Right. Like that is, that is what nominal is building. And so I think where we sort of see is like, we, we talk a lot about how we've like taken this like industrial software and software for hardware world from, I don't know, 2003 to 2021.

28:08Trae Stephens:Like that's the crawl phase of nominal. And so much of that is just like good software engineering is like organizing data, associating metadata, tagging it, storing it thoughtfully, you know, like all of those things that enable the work that engineers can do using nominal. And now we think we have, you know, a pretty sufficient moat to sort of build the next phase. So we're incorporating, you know, AI into our products. We already have beta features out there where if you're doing this post-test analysis, you can, you know, just use a chat interface to start to interact with your test data, which is something, and it blows engineers' minds, but you can say something like plot the kinematics of the drone, right?

28:51Trae Stephens:You don't have to manually do that. Right. And it built on the building blocks of nominal would already exist. It will start to just do that type of function. And so really like the paradigm shift I think is, is moving from like this exquisite hardware system where, you know, 50 engineers had to be involved for like one piece of hardware. I think right now we're sort of in this zone of like one, like one to one, you know, man on man. Um, and I think nominal will help enable a world where one human engineer can actually start to affect and test and validate and interact with you know 50 pieces of hardware um through like you know agentic workflows a lot of parallelization um distribution like that that i think is where the world is going um i i do not worry about uh the sort of d d sassification of nominal um i think the the software for hardware world is like is is ripe for a lot of really

29:44Cameron McCord:really good innovation so what's your long-term defensibility um i mean i think um being that

29:51Trae Stephens:sort of like core you know piece of piece of infrastructure is is that um i think continue to build closer and closer to the hardware as well like getting more into the embedded i think you know systems layer and stuff like that and then ultimately like i mean we've just we kind of have a pretty central north star of like we will do whatever it takes that sounds ominous but um we'll do whatever it takes i think to like satisfy the north star for our customers which is like helping them build and validate hardware better faster and sort of cheaper and i think having that like flexible mission um is really really powerful um as we adapt and react to like how technology is changing whatever it takes write that down yeah whatever it takes it's

30:36Cameron McCord:really important yeah his customers are gonna appreciate that so yeah at some point down the line yeah no i think to your point about um the industrials is that the sector is it's different than like software companies building software where you know you can pretty easily in many cases not in every case uh you can kind of rip something out and replace it with an updated thing where you're just kind of integrating the data again via an api um this is one of those industries where there's stickiness um once it's in and it becomes the trusted kind of source system for uh for the data not only are the partners and vendors going to also be plugged in and trusted but the government which is oftentimes the customer of these commercial organizations they will look to that as you know a trusted system that they can rely on that data being you know represented in a similar way that they can track over time so these things don't end up getting pulled out and you can look at other companies that have demonstrated success in this space palantir most notably palantir doesn't have customer churn like once palantir is and it's sort of in there's not a whole lot that the customer would want to do to change that um and i think that that is like a moat and defensibility not only phenomenal but for like really anyone that's working in this space the downside of course is that these are really difficult customers they're difficult customers to win they're difficult customers to service um and it requires a bit more of a you know a bit more courage than going out and you know being a yc company selling software to other yc companies that's like a very different that's a very different model yeah i think on

32:09Trae Stephens:that point i mean just just beyond that i think like we um this is a this is a fun one because i think um i know treyer categorically like is very skeptical of of dual use businesses is that a statement yep um i think like i'm my nominal is going to be the dual use business that gets trade to be like okay fine um that's my that's my goal that's my saying no but i think i'm on that point like i think it's been really we've we've done a really good job i think of um engaging directly with you know federal customers which are ultimately the the ones setting standards setting regulations like interpreting that test data as the final sort of outcome and sort of like working with them you know building alongside things like you know deploying the product in the different environments where it needs to be doing like high side deployments getting credibility having people be like, oh, actually, like I can look over the shoulder of vendors using nominal and be like, oh, that's like what industry is using the best.

33:04Trae Stephens:Like we've worked really hard, I think, to like connect those two audiences, because I think to your point, when that demand signal is like coming all the way through the ecosystem, it's just extremely powerful. And I think we're really feeling that pull now. Like we've already had some sort of organic hops where people are like, oh, this other program, you know, this vendor participating, this other program is using nominal like we should probably use nominal and like get it and that i think we just like you start to move the market so it's been a case where i think the strategic nature of of being dual use

33:32Cameron McCord:is working so so far so so what is your sales strategy oh um sell software yeah sell software

33:41Trae Stephens:no yeah really do whatever it takes yeah yeah i mean i think big big picture like we We have a portion of our business we call emerging where we're trying to work with the newest company. We think any company in 2026 building a hardware product should use nominal. It should be approachable, out of the box, walk up. Those are not like the business money makers. Some of them might grow, right? But like venture power laws and stuff, some of those companies might not make it. But we want the industry to be using nominal. And a lot of those smaller customers as they're growing, like they push new product innovation, right?

34:18Trae Stephens:So we have a business for that. But really, I think what is the success we experienced last year, I think, was moving upmarket into these larger hard-to-service and very bureaucratic industrial organizations and having success there, which I think has been really big. So that we call it this like bifurcated go to market. But I think that is like really, really key to our success because we're able to take a lot of those learnings, productize it and give it to these companies that need it and sort of deploy it at scale. I think another thing that we have invested a lot in is, it's kind of funny because, you know, there's so many ways in which nominal is like not like traditional enterprise SaaS, like in most cases.

35:03Trae Stephens:But there are, there's still this set of like enterprise SaaS features that like you have to build. And so I think things like role-based access controls and sort of some of the security features and just like collaboration, it's like solved problems. But doing that really, really well has been a big accelerant to nominal's ability to kind of organically spread within an organization. We would see it at places like Andrel, but just like new users, like, you know, stumbling upon nominal. Someone sends them a link. It's in there. It's in a confluence page. It's in a Slack channel. There's like a link to write and people just click up.

35:42Trae Stephens:They can, you know, SSO. They can sign up. They can like start to get into the product. And I think that is actually how you build like a business that's going to grow and get the manual touch, like high touch nature out of out of the growth.

35:54Cameron McCord:To be clear, the reason that I don't like dual use is that your customers, the big defense primes, they use those terms as a pejorative. They try to like box new entrance to the market by saying like, oh, no, this isn't a defense company. This is this is a dual use company, which is their way of saying it doesn't matter. They're just like, they're these little irrelevant vendors and sure, like we'll work with them sometimes, we'll partner with them sometimes, but they can never do anything core. And so I just wish there was a different term that took that power away from them to be able to use it as like a bludgeon against the technology ecosystem.

36:32Cameron McCord:But I agree that there's good utility in selling both on the commercial and the government side of the house.

36:38Trae Stephens:And I think as much as I am saying that to be spicy, I think I do advise in almost all instances, dual use does not make sense. It's sort of a distraction. When I talk to people that ask me about, they're like, oh, nominal does seem to be selling to both these markets. I answer them like, that is very intentional. Like we picked a product that by definition would do that. It is not something that you stumble into, especially in the early days. I think you don't just build a commercial product and then it's a big distraction. I think it's not, generally speaking, something that you should do until you are a multi-billion dollar company.

37:21Cameron McCord:I'm curious from both of your standpoints, how has the new administration, has this already been a year or is it two years? A year and a month. It's been a year and a month or two. It's been a year and a month. Yeah, January 20th of 2025. So, yeah. You're correct. How has the evolution of this new administration embraced or challenged growing in this market for you?

37:50Trae Stephens:I mean, I'm happy to share. I'm obviously super curious for TraceThoughts, too. I think there's been a lot, like there's been a ton of positives. I think there's been no shortage of discussion around acquisition reform and, you know, different things. software acquisition pathways for us and just doing things differently, picking new entrants, doubling down all of this portfolio. That, I think, has been constant in the past, I don't know, three administrations. But I think this admin really seems to be taking action on it in a way that's really, really refreshing. I think particularly a layer lower down, like there's a lot of really interesting discussion around portfolio acquisition reform.

38:36Trae Stephens:But I think restructuring at a high level, I think restructuring the way that the acquisition organizations are structured to be more like businesses, I think, like give people more power and let them sort of like work cross-functionally to allocate resources to get a capability outcome rather than just having things organized because like they all happen to fly. It like makes sense. It's like, you know, you should actually like what's the warfighting capability. that's like a really good tailwind phenomenal because i think our software helps um you know provide insight into the the performance of these hardware products the sort of trl technical readiness level and so we can surface that make it very data driven i think it's something that we've had a lot of like positive feedback from you know from the admin on but um i don't know i feel like you're the the world expert in this well you know i think that defense is not partisan

39:26Cameron McCord:at all. The defense budget has gone up every year, crossing Democratic and Republican administrations for over a decade now. You know, it's the National Defense Authorization Act is like the only bill that passes with a supermajority on an annual basis without very many delays at all. It's really not about partisanship. It's about people. And that's the place where I think we've seen more leverage. If you look at like the Undersecretary of Defense for Research and engineering right now. It's Emil Michael, who is the COO at Uber. That's going from like an academic under the Biden administration to the former COO of Uber.

40:01Cameron McCord:That's a major shift. And individual people, as it turns out, can make a difference. And too often we've like looked at the government within this sort of hands-off perspective where we're like the bureaucracy will do bureaucracy and it kind of is what it is. No, that's not true. There is agency in the world. Individual people can make a difference. And this administration, especially in the Department of War side of things, has really, really strong, highly motivated, mission aligned people that understand the value of technology and understand the importance of acquisitions reform. And that is a huge lever.

40:36Cameron McCord:It has nothing to do with partisanship. It doesn't matter that they're Republicans or Democrats or, you know, far right activists or socialists. It doesn't matter. Individual people are the ones that make the difference and i think we're we're really lucky to have really good individual people in place right now and i think particularly people that uh by intention like understand

41:00Trae Stephens:how businesses run i think that's been a big thing that i've like noticed as well i mean with conversations um some of these like cost sharing like deal agreements and things that are like palantir had a big one for ship os i think hadrian has like one like um we're in some like discussions on on what that could look like but people that understand particularly venture backed businesses that i get to have conversations where i'm like in 2026 like we will probably invest 80 million 100 million dollars into like software product r &d and development that's like unheard of um for a lot of the companies that are that are working um you know with the government and they understand that and they're willing to say hey nominal is willing to like take a risk on itself bet on itself um and as long as there's you know a good story and there's you know gold at the end of the rainbow so to speak like that is a really really like um collaborative model that i think achieves like good good outcomes and averages private capital better

41:54Cameron McCord:business incentive alignment for sure yeah by the way i heard you barely even touched your 75 million dollars series b so with 80 million dollars how are you going to be using the capital you know what's better than 75 million dollars 155 million dollars okay

42:13Trae Stephens:yeah trey how much uh is in the annual coffers right now i couldn't possibly comment on that exactly um so uh yeah i mean that is true we have not um we have not used that we're we're assembling a nice i think war chest i mean things that we are thinking about in in uh 2026 here i think um you kind of touched on i think strategic m &a and i think we want to be positioned to do that we're not i'm not saying we have any like big moves in the horizon but we want to be positioned um and and mostly i think i think the winner in the market that we are playing in like will build uh a platform ultimately and i think it is this like how do you sort of expand your market incrementally and like not get ripped into a million pieces and i think we're at this this phase where as a business we you know to do whatever it takes but we we think like we can acquire additional products and capabilities that will move the needle for our for our customers you know i think particularly having the ability to you know maybe it's even if it's a small aqua hire or just like acquire a product or a team that's building something really interesting but might not have cracked the commercial code i feel like we have um and so having them kind of come under the nominal umbrella makes a ton of sense.

43:28Trae Stephens:And then I think I really love bringing in, you know, former founders. I think they're just some of the best people to hire. I think like Ramp has done this extremely well. Like there's companies that have made a practice of like bringing those people in. And I, you know, people like that are amazing. And I am obsessed with like knowing what they know. Um, I think that's like, that's where a lot of the value is, is like someone who's, who's poured their heart and soul and engaged with hundreds or thousands of customers, even if ultimately, whatever the outcome is, is like not, um, hockey stick inflection.

44:08Trae Stephens:Like I, I want to know what that person knows. Like that's, that's where value is. Um, and so, um, you know, coming in and being a part of this like broader, how do we fix software for, um, the industrial world is like, that's the mission. and the doors are wide open.

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45:48Trae Stephens:competition for us is uh navigating bureaucracy and it is to trey's point it is like getting delivering enough value that you rip out the prior generation really sticky product the national instruments emerson siemens ansys math works companies doing billions in software revenue is like that's the the competitive landscape phenomenal and we have to reach we are doing and now we have to reach an activation energy where it like makes sense for them to actually you know like shift over um but uh but i think we're doing it so apart from potential acquisitions with this funding are you gonna be hiring more yes um we are around uh it's that stage of company growth where like i don't actually know the actual number which is like really exciting no um i think we're around 125 people um right now um and plans to go to around 220 or 230 right so um pretty significant growth this year headcount growth like is not the objective of a company by the way um the companies exist to to make money um but uh i think the human beings that like help power that

46:59Cameron McCord:are really really important um you know you've reached the point of scale that there's no return from when one of your new employees walks up to you and introduces themselves and asks how long you've been there yes that's that's how you know yeah i feel like that was happening i feel like

47:12Trae Stephens:that was happening uh i feel like that was happening to you too trey when you'd like walk around even when i was there at andrew like walk around and people be like who's that guy and be like oh it's like um but uh yes yeah we're we're uh i think starting to reach reach that zone but um i mean that was another reason i think for going full circle for like doing the the fundraise now i think was to like um this sort of cost if you will of talent acquisition is is a real thing and so like going into this year we knew that we needed to really like put our foot down on the gas and so doing another financing, growing the company makes all the sense in the world to get behind that.

47:48For both of you, and role side, investor side,

47:53Cameron McCord:and also nominal side, how do you recruit and find talent that meets the criteria of this new environment? I mean, it's completely changed to some degree of understanding of new tools and kinds of stuff like that, but I'm curious how you're thinking about recruiting from that standpoint and continuing to find like the top quality of talent as the game and like i guess the rules keep on changing i mean i i can start with i think something that i

48:21Trae Stephens:believe will be common amongst both our answers but like the mission matters i think that is like a huge advantage that uh like nominal we we get to build software that um we have an office in new york it's like the greatest talent arbitrage new york is obviously it's expensive but like there are turns out there are tons of really good software engineers in new york who've been working in the sassification world and they're like wait i can build software that helps people with like you know autonomous aircraft and fusion reactors and you know uv's and you know humanoid robotics like sign me up right and so i think um for us it's like this certainly it's defense but i think it's even a broader mission of like helping people build build real real world things like have a real impact so the mission is is huge and then um oftentimes you know if we're competing with like larger company or an AI lab or something I'll just sort of say like dude is your life's do you think you're like life's work is to be the I don't know three thousandth person at company X and then just sort of like leave them thinking about that and pondering it or do you want to come join something like early you know in a nominal's world where we're growing like that's an advantage that we have it at this the size that we're in but yeah God forbid they become

49:33Cameron McCord:I'm the 3 ,000th person at Anduril. They're an exception. Well, I think we ran this campaign last year, the Don't Work at Anduril campaign, where the whole point was not to say, we want to massively increase top of funnel or something like that. There's a lot of people that are already applying. The point is that most of the things that are out there right now are pretty dumb. And there are a lot of really brilliant founders that walk in the doors of Founders Fund here. And they'll start by saying, we're mission focused. We wanna make the world a better place. And then they pitch an ad optimization software company.

50:13Cameron McCord:And it's like, man, I'm having a really hard time squaring the thing that you drew on the whiteboard with the words that are coming out of your mouth. And so I think to Cam's point, yeah, I mean, the mission matters a lot and it needs to be believable. You can't have some voodoo sorcery that you try to convince people of. These people are smart. They're going to see through the BS. And so I think actually doing something that matters, it makes recruiting a lot easier.

50:43Trae Stephens:Choose your quests.

50:44Cameron McCord:Choose good quests. Yeah, that's right. Don't be a sheep. Don't be a sheep. That's right.

50:49Trae Stephens:How many can we keep going? I don't know.

50:55Cameron McCord:As we wrap up, I want to know, what is your biggest piece of andrel lore?

51:03Trae Stephens:Trey, you got to go first. I got to go in the way back machine. There's so much andrel lore.

51:09Cameron McCord:Yeah, I think funny Apple Valley story since you brought that up. You know, in the very early days, we had this test site that was on private land out in Apple Valley, California. Not a place you want to spend a lot of time. And we just had a trailer that everyone would pile into. It smelled terrible It was so hot And you know It's not San Francisco So at the end of the night when everybody Retreats to I forget what the hotel was It was like a double tree or something like that Like you know one of the interstate Highway hotels And people would be like guys tonight Chili's we are going to live The luxe life We're going to eat at Chili's tonight Chicken Christmas The potato skins the cheesy potato skins yeah i mean those are the days smelly trailers and crappy food from chilies yeah i slept at that trailer multiple times i think we all did i think yeah it was like two and a half hours brian shimp yeah brian shimp had many early mornings there as well so yeah there's uh that's lots of lots of crazy stories from the early days we had the towers that we now have you know they're deployable out of the back of a pickup truck uh they're deployed all over uh the world actually at this point um that was originally literally the all the sensor payloads everything was literally on a telephone pole in apple valley we didn't even have a collapsible tower it was just like a wooden telephone i remember we had i'll add to this one and then

52:37Trae Stephens:i remember we had um like the most this thing was like in my opinion was like kitted out like atv that would we would use to go like like if you had a successful intercept obviously like you have to Go find the rabbit vehicle. Yeah, you have to go find the the drone right in the desert all these like bushes and shrubs and stuff And like the the best job was getting to put the helmet on and like hop in and go like GPS locate like you'd literally be like Ribbon like you're 35 miles an hour like going over going over.

53:08Cameron McCord:Obviously. That's what you needed. Yeah, of course Yeah, that was definitely the best job required professional metal detector matt's out in the desert somebody needs to go pick him up yeah i'll do that yeah yeah yeah lastly anything we missed that you want to share with world

53:23Trae Stephens:um i mean i'll just i'll i'll uh i'll really double down on um we're gonna hire probably 120 130 maybe even 140 people this year um potentially even more um and the the mission matters i think if you want to be a part of uh of something um that's going to redefine how the next industrial wave is like is built um for the next you know three four or five decades um would love to have you at nominal um be a part of the team he's speaking to you by the way thank you yeah are you hiring a podcaster yeah i don't know i don't know worst decisions have been made you do have 185 billion yeah i don't know i don't know what like trey would think about like use of funds Do you really need a podcaster now?

54:08Trae Stephens:But maybe.

54:09Cameron McCord:Maybe. Okay. Well, thank you so much, Cameron, Trey. Congratulations.

54:16Trae Stephens:Thank you. Thanks, Molly. All systems nominal.

54:19Cameron McCord:Delta qual.

54:21Trae Stephens:Delta qual.

54:23Cameron McCord:Hey, it's Molly. If you enjoy our interviews, check out our newsletter, Sorcery.vc, where we deliver a once-a-week top deals and tech headlines email and also go deeper on our podcast interviews. subscribe to sorcery today and don't forget to subscribe to the podcast on youtube spotify apple or wherever you listen link in description to sign up