How 8VC Builds Billion-Dollar Companies | Palantir, Addepar, Saronic

0:00The palance of your DNA, I think has laid the groundwork for much of what's going on here at Reindustrial. Anderil now has gotten to a size where they're going to be doing more acquisitions. OpenGov also had a nice exit. I think the thing that's underappreciated is how much your organization has to be designed intentionally to balance this dichotomy of starting companies and investing in them. But I think if you don't intentionally design the incentives, the culture, and the amount of capacity you have on your investing team, on your finance team, then it's very hard to do both well. Building the United States is insanely expensive and it takes a really long time.

0:35Part of that, I think we can address through, you know, regulatory policy and other stuff like that. But part of it is just functionally like, you know, we're not going to pay people what they pay people to work in China building facilities. They need to be paid a lot more here. So Palantir, Anderl, OpenGov, Epirus, Saronic. Which of these are your favorite? Well, I mean.

1:03Drew Oding, welcome to Sorcery. Thank you for having me. This is a big day. We're at the Reindustrialized Summit. How are you feeling? Feeling great. Feeling patriotic and pumped up about all these companies that are here. I'm working on a bunch of interesting stuff. So I love this conference. Second year being here. It's great. What's the biggest thing you've taken away from the day and the programming so far? They do a very good job here of one, having tons of startups, but then, you know, a lot of people from our government. And I think that it's probably the biggest reality of this re-industrialization concept, I think, is that it's going to require the federal government and some state governments and startup companies to interact in a way that probably hasn't happened in a long time.

1:45And I think startups are kind of a new thing for most startup founders to have to really think about. And it's definitely a new thing for a lot of folks in the government to think about because it starts a sort of a different set of challenges and playbooks that they're running than very large companies that the government's used to dealing with. So I think what's promising is that it seems like on both sides, there's a lot of collaboration starting. And you've seen this firsthand. It feels like ABC is at the center of the American mission. You're doing a lot of work, of course, down in Texas.

2:16Joe is kind of a beast at podcasting. Yeah, he's a beast at a lot of things. He's probably the highest energy, highest pain tolerance person that I know. And I think that applies to, you know, obviously building out American Optimist podcast, but also the University of Austin, a crazy project. You think about it, building a new university, it's like starting a super complex startup, but there's no like profit, you know, dream at the end of it. But, you know, working with him has been incredible. I've worked with him my entire career and he definitely is a rare individual of someone who has big ideas, you know, beyond business, but also is like willing to roll up his sleeves and actualize them himself.

2:56It does seem that building is just in your DNA. Above all that, your team has built ABC up to what it is today. And you cover many categories from biotech to manufacturing, defense, enterprise, logistics, and you've actually also built companies internally. So how did you evolve to that state and build so many billion dollar companies? It really stems, I think, from the first fund we did together. We did two funds under Formation 8, which is kind of the predecessor firm for ABC. And, you know, the first conversation I had with Joe ever, because I was right out of college, was I kind of asked him, hey, you know, you're CEO of a company, CEO of Adapar at the time, which is the second company that he co-founded after Palantir.

3:42And I'm like, and you're starting a venture fund, like, how do you do that? And he was like, well, you know, DCs are pretty lazy. So like, I'm pretty sure I can just work like, you know, just a few more hours every day and work seven days a week and then it won't be a problem. Which probably is true. Like VCs are lazier, like especially once your firm's established. Building a venture fund is hard though. It takes a ton of time. And so, you know, Joe then placed himself as CEO of Atabar and began, we began, you know, building it up. And I think it started by the fact that when we went to raise our first fund, many of the people that took a bet on us were betting on really Joe's entrepreneurial track record.

4:28And maybe he had been an incredible angel investor, but had not institutionally managed a venture fund before. And so I think that was kind of the real ticket to the dance that we had. And we kind of kept coming up with ideas for companies in addition to investing in companies. And they sometimes popped up through problems we had. Like I had to manage Joe's network as his chief of staff. And so we ended up starting Affinity, which is now a leading CRM for venture and kind of growth equity investors. we started two more companies off problems we had and when and standard metrics um you know we co-founded and so and then we also started seeing folks who were at apc that maybe were not really there to be in investors for the rest of their life and they started becoming obsessed with ideas and then starting companies so we had nate baker who had been working with us for as an intern and then as, you know, an associate.

5:37And he was just obsessed with title insurance and talks about it all the time. Eventually it's like, listen, there's not that many like, you know, technically brilliant and, you know, sort of charismatic and people who could, someone who can go recruit a bunch of their friends who is 23 or whatever and obsessed with title insurance. So you got to build a company. And so there were these early sort of data points that suggested that, you know, There was something beyond a traditional venture model for supporting entrepreneurship. And so what we called APC Build, we formalized that in 2018 and basically did that so that before we did stuff very ad hoc.

6:22So someone would start a company and if we had common equity in it or something, we would have to go raise from other investors for the seed round because it was a conflict. Or we would give all our common equity we got from founding to the fund. And it's fine for me and Joe, but we thought about proliferating the incentive around starting companies. We want to be able to incentivize our team as well in those. And so when we formalized the build program, it built the infrastructure really to be able to invest a lot of resources in build. It's now 30 % of what we do, all of our capital employees.

7:00And 30 % of it goes into companies we co-founded. And I think Joe and I and the rest of the EPC crew have probably done over two dozen at this point over the last decade or so. Wow. How do you build out the playbook for each of these companies? What are the core components you're looking for across the board? I mean, on the build side, I think there's really two major ways that they get started. The predominant way now is that we have a group of three to six EIRs at any time that are full-time employees at APC, but they're working only on sort of the process of either coming to an idea or getting it ready to kind of launch.

7:48and some people come in with like they might be like I'm either gonna do healthcare or logistics like that broad and maybe they're incredible product or engineering people and we kind of you know haven't spent a bunch of time with investing partners and and and then farther down the line potential customers and some of like the strategic partners we have who can help vet their ideas and and then other times we have an idea and we go recruit specifically against it as we've After we kind of structured ABC Build, it allowed us to have more EIRs, which I think... Then there's a natural person to then launch it.

8:27I think also top founders, they want an idea to be theirs, at least to some extent. And so if you over-refine the idea, then it can become less interesting to a founder who wants to take it... you know, put their own, kind of put their fingerprint on it. And also, frankly, like they probably are going to be better at vetting the idea because they're actually going to go dedicate their life to it. But there's still some times where we have an idea and we're obsessed with it. And so then we go recruit specifically against the idea. It seems like over the last year or so, especially when the VC market was really questionable, I feel like we've gotten to the point where we totally forgot about that, but there was a huge panic state.

9:20And then, you know, funds started to pull things back together and it looked like, oh, let's all do the roll up strategy. And so that was a trend at some point. And then there was also, you know, building things in-house. Oh, how are we ever going to make venture returns again? Let's build it in-house. What is your perspective from having that actually ingrained in the fund? Yeah. of all these other funds doing this and it kind of looking a little touristy? Well, I think that there's, I think it's, I think the thing that's underappreciated is how much your organization has to be designed intentionally to make, to balance this sort of dichotomy of, of starting companies and investing in them.

10:07There's, there's definitely some overlap, But I think if you don't intentionally design the incentives, the culture, and even like the staffing and the amount of capacity you have on your investing team, on your finance team, then it's very hard to do both well. But it is possible for sure. It's just that it almost has to be like an innate thing. Or it can be by exception. I think there always will be exceptions where a firm is an incredible talent pool and that someone either gets bored being a partner or an associate or something, or they have a really big idea and they do it by exception. I think that's actually probably the second best way to do it.

11:00If you're not going to go like all in on integrating the incentives and, and frankly, also the, the skill sets that you need to do, you know, great investing and company building. And so I think that's the, that's the underappreciated part of me. I think most of the firms that are trying it, they have good reason to try it. They have great brands, they have tons of capital. They have insight on the market. I think what sometimes they don't have is a culture and an incentive structure, which makes it symbiotic with the investing side, as opposed to either a clear afterthought or a, or frankly, a competition for resources and a, and a potential source of politics.

11:49But, you know, those are things that you, that you have to work through. and we're just lucky that we sort of worked through those a lot maybe earlier. But there's certainly, we're not the first people to do this. Sutter Hill has done this better than anyone. There's some biotech funds that have done it exceptionally well. And so it's not totally sort of an unproven path, but it does require a lot more. it requires you to run your company differently. When you talk about the 30 % you allocate towards build, how much of the allocation is in the initial incubation of it? What kind of checks are you writing into the companies and then how much of it is sectioned off for follow-on?

12:39It really varies actually. And it varies because what we're trying to do is we try to launch a company with as much unfair advantage as possible. Sometimes capital is an unfair advantage. and sometimes getting the talent or maybe even being able to win a design partnership or something requires more capital at the table from the beginning than if you just went and raised a seat around. Sometimes it doesn't though. And so the initial check size for us is like it's probably three to four million on the small side and maybe 25 to 30 or 40, the bigger side. And then there have been times where we also found these companies with other firms that put capital work, whether they're strategics or they're other investing firms.

13:29And in those cases, sometimes those first rounds are larger, but we're still... Check size for us is still usually in that range. I want to talk deeper about the portfolio because you guys just... You have so many fun names. So many fun names. We're at Reindustrialize, So I'll keep it categorically bounded. Okay. So Palantir, Andurl, OpenGov, Epirus, Saronic. Which of these are your favorite?

14:03Well, I mean, I think it's hard to have favorites, right? Because it's like what? It's not like, you know, there's a lot of different things to prioritize, right? Are you talking about in terms of name? or are you talking about in terms of? It's a trick question. Everyone hates that question, right? Yeah, yeah. I want to talk like a little bit more about them in terms of the impact that they have on the industry. Of course, they're like, they're seismic companies. They've made a real difference, especially Palantir. It's public. It's huge. Anderil now has gotten to a size where they're going to be doing more acquisitions.

14:38OpenGov also had a nice exit. So all of these, you know, they're substantial companies. so maybe just pick one or two um and kind of like break it down a little bit more well palantir really predates predates me uh so i'll put that aside and obviously it's a huge public company now so i don't i don't know much about it but it's a super important company and it and the reality is also the palantir dna i think has laid the groundwork for much of what's going on here at re-industrialize i think between palantir and spacex um they really one is that that is a talent pool that a lot of folks draw on when either they want to sell the federal government or when they want to build physical infrastructure and scale it.

15:25And so I think those companies are really important. So Palantir, the DNA from there has led to a lot of those companies and our investments, frankly. But in terms of I mean, I think OpenGov is probably the, on a relative basis, like I think having like a nearly$2 billion exit for state and local government software is like probably equivalent to like a Palantir type outcome or something. It's so impressive having watched Joe and CEO Zach Bookman build that company because I was on the first sales calls when they won Palo Alto. And it was like, whoa, that's so cool. We got the first customer. And then you start doing the math of how many customers they need to get and to make it a viable business.

16:18And you just think, wow, this is going to be really hard. And it was really hard, but they really did it. And I think, so it's now growing even faster than ever after the acquisition. So it's impressive because I think it highlights that in a place that every VC in the world, like, oh, GovTech, maybe you could do federal, role, but like, are you really going to do state and local? Um, you know, is this sort of very dismissive view of it? Uh, and yeah, it's probably harder than building like the average vertical software company. But, um, but I think it just, it goes to, I think, you know, like I mentioned, Joe's pain tolerance is vision for things that other people, you know, might just not ever want to touch.

17:03And so I think I just, it, it holds like a special place for me because I think it's just, it's such a testament to, I think, that determination and that drive, even if it's not the biggest company. I think Ceranx also just, it's a more recent one. Probably it's one of the first companies we did from build in Austin after we moved there in late 2019. And the founders are just amazing. um you know do you know the ceo um you know navy seal and you always kind of you know know that you can be great leaders and um come under pressure but you know have huge ambition but you see it up close and like see how it's manifested in the company culture and the way they operate it just like confirms that and i think it's something that you know you can intellectualize you know oh yeah of course navy seal is gonna be a great leader but like you know you see it and you're like, whoa, this is like really special.

17:59Uh, and, and Viv, you know, he actually, the CTO, he was, he was an ABC fellow back in the day. Um, and then worked at standard metrics and at Andrel and then, you know, was ready to build his company and came and joined us. So it's, it's cool also because it comes full circle. Um, where, you know, I think first met him when he was, I don't know, 19 or 20 or something. And now he's like, an incredible CTO. So that one's a cool one. Plus it's in Austin, which is fun to go see them. And they also work six days a week in person, which is pretty cool. Saronic is like a rocket ship. Yeah. Yeah, it's an incredible company.

18:37It's crazy the amount of progress that they've made in such a short period of time. Is that a testament to build? Were you able to unlock a bunch of doors for them? Sorcery is brought to you by Brex, the financial stack trusted by more than 30 ,000 companies, including one in three venture-backed startups in the U.S. Nearly 40 % of startups fail because they run out of cash. Rex is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, Rex's designs help you spend smarter and move faster. Their all-in-one solution combines checking, treasury, and FDIC protection into one powerful account.

19:16You can send and receive money globally at lightning speeds, Get 20 times the standard FDIC coverage through their partner banks and even high yield from day one. With same day and even same hour liquidity, access your funds anytime. Companies like Scale AI, DoorDash, Service Titan, HIMSS, Anthropic, Flexport, Robinhood, and Plaid trust and use Brex. Start today at brex.com slash sorcery. That's B-R-E-X dot com slash sorcery. I think we were helpful on the upfront, but frankly, I think it's a testament mostly to Dino and Viv and the other co-founders. They're very mature, super present and patient, but also intense, which is kind of rare in founders.

20:07tend to usually see founders that are really intense, are very extroverted, very manic almost. And then you have also the founders, especially on the technical side, that are maybe more really deep thinkers, but much more introverted. And they all have this mix between the best of both worlds, which I think just means there's a lot less noise. It's incredibly impressive to see it. For those that don't know what Sironic is, Could you share a little bit on? Yes. I mean, Sironic is building basically the autonomous future of the Navy. So they're building autonomous surface vessels for naval reconnaissance, logistics, payload, delivery, ranging from much smaller form factors all the way up through much larger ones.

21:04and a big part of that, which has been a big topic here is shipbuilding capacity and so I think not only is Theronics' ambition to deliver these autonomous boats and there's a huge amount of work that goes into the software and the communication protocols and material science and stuff to make a naval vessel autonomous but the other thing is figuring out how to build ships in the United States again which is an area that we probably have, you know, the, the fallen behind the most in terms of our capacity. And that's on the defense side, but also on the commercial side as well. So in order for, you know, in order for Serenica to succeed, they also have to become, you know, a leader of U.S.

21:52shipbuilding, which is, which is really cool. And they've, they've already made their first, you know, they kind of, they bought a, an old shipyard, you know, know, and they're retrofitting that, but then they're, they have much bigger plans too. I know the portfolio also extends itself into like biotech, life sciences, healthcare that can also, you know, shift into American resiliency and reindustrialization. What are you seeing in that world that's becoming more exciting and, and maybe unlocking with this new administration and technology? Yeah. I mean, I think that the same way that a lot of the, you know, that in order for AI to realize, you know, so its potential for our economy, but yet is blocked by the rate at which we can scale physical infrastructure, you know, genomic medicine and sort of advanced biologics is similar.

22:51Right. So the manufacturing of pharmaceutical drugs is another place where the United States owns the innovation end of it and thinks a lot about manufacturing before something is, you know, when something is still being proven out. But there's not a lot of thought about scalability when it comes to the way you develop a drug. Part of that's because if you're successful, it's, you know, like a 99 % margin business. So if you can do it, if you're really bad and it's an 89 % margin, who cares, which is different than a lot of other industries. But also there's just, there has been a, there's, there's been a, a big outsourcing push, especially in more sort of standardized traditional modalities.

23:41And I think it became pretty obvious during the pandemic that the production of, you know, pharmaceutical drugs is probably something that we want to have domestically controlled, at least to some extent. And so I think, you know, in some ways it's the hardest place to innovate from a manufacturing perspective because there are such stringent regulations. And the FDA and the way that they sort of monitor and evaluate quality of manufacturing is a very static process sort of evaluation. They don't like lots of, you know, sort of continuously improving systems necessarily. But I think that's changing.

24:29And I think the other big thing is just that in life science, these facilities are incredibly expensive. They require huge amounts of labor that needs to be there, whether there is a commercial project or not. Because you're a GMP manufacturing facility, you can't have, you know, mold accumulating. If you don't run the machines, they may either get dirty or they stop performing as well. You need to keep the lights on. You need to keep the HVAC going. You got to keep paying the insurance. You got to keep doing the property tax. So they have very high fixed cost. And I think that has been a barrier for sure that I think this administration is prioritizing.

25:18and then the other part that I think they will prioritize as well which is it's gonna be an interesting one to kind of to grapple with is some of the production of this of pharmaceutical products is a pretty dirty chemical process at least at least in the sort of the way it can be done at scale today so that's why a lot of you know chemistry-based drug manufacturing processes have been moved to places with lower environmental standards. So if you can dump all your chemicals into the water, you know, some river, when you're done with three agents, it's a lot cheaper than if they need to go into a bomb-proof, you know, detention tank and then transported to some biohazard, you know, thing in a mountain somewhere.

26:09And so I think that's going to be a decision we need to make. Either we're comfortable, figuring out ways to reduce that burden from frankly just environmental regulation and deal with frankly the trade off of that which is that there may be some sort of cost to it or we have to invest really aggressively in new technologies that right now are not necessarily commercially viable, even if they're technically viable, because pharma companies are rationally incredibly averse to switching their process because they've already, you know, they make tons of investments or acquisitions across all these different sort of binary bets.

27:01You get one that works, you don't want to have to go deal with changing the way you're going to manufacture that because, you know, and, and there's, there's so much money that was invested in so much money at risk. Once you have something that's commercially viable, that the current way that the, both the regulatory and the sort of market dynamics are, it's really tough to get a new technology into an existing set of programs. And I think that's one way that could accelerate these things would be if you want these sort of cleaner, more innovative, like enzymatic approaches to making certain drugs, I think you're going to have to ration with that.

27:43And I think there's a role for the government on that. There's also probably a role, frankly, for the pharmaceutical industry to, you know, do they really care about making stuff in the U.S. or not? So crazy. Yeah, it's tough. I mean, the good news is that I think in the pharma world, many of our allies have capabilities. You know, there's, you know, Europe has significant capabilities. Japan, you know, I mean, India has a huge amount of manufacturing and I think India will be hopefully a really important ally for the United States going forward. But, you know, we do want some capabilities here.

28:21Especially, you know, at least enough that we can, you know, use them in the event of another pandemic or frankly just because these are pretty good jobs. They pay relatively, they pay actually really high for manufacturing jobs. And there's a ton of downstream economic sort of activity that happens with these. These are like huge multi-hundred million or billion dollar projects. So the construction, the electrical, the HVAC, the logistics, these are all downstream of that. And again, there's a real argument that Americans should be doing that. In today's high-speed business world, staying ahead means using the smartest tools possible, including the powerful capabilities of artificial intelligence.

29:13Meet Turing Intelligence. Turing builds customizable AI systems designed to solve your mission-critical challenges, no matter your industry. From expert guidance to tailored projects, Turing helps top companies realize AI that's more capable, more adaptable, and more effective. With Turing, discover how AI can accelerate your business growth. To learn more, visit Turing.com slash sorcery, spelt S-O-U-R-C-E-R-Y. That's Turing.com slash sorcery. Are there any particular companies you're watching in this space? So we co-founded a company called Resilience, which is a, basically we started it in summer of 2020.

29:52So kind of right as the pandemic was, was underway. And it's a US-based CDMO. So we are a manufacturer of third party, you know, of other people's drugs here in the US. We have about over a thousand folks in our big flagship plant in Ohio. and and so that's like you know that's a that's been a really big company we co-founded it with Arch Bob Nelson at Arch who brings like you know 40 plus years of biotech investing experience and so it was it was a build company that I think is a good example of when we partner and he's he's got more knows more about biotech and has more connectivity than we ever will and we kind of brought I think this sort of national security and and also just kind of like operational view of these types of businesses.