Neros Raises $250M Series C at $2.5B to Build 1 Million Drones a Year

0:01Thank you for having us in your 250 ,000 square foot facility. Is that why you raised$250 million? There is a lot of 250 going on. The 250th anniversary of America, 250 million, 250 ,000 square feet, it's all coming together. We sized this facility to be able to do a million drones a year eventually. The way America got left behind was not caring about consumer electronics manufacturing being done domestically. China has been the biggest beneficiary because they've been supplying both sides of the war, probably making tens of millions of drones per year easily, maybe in the hundreds of millions.

0:35We were the first company to have an FPV drone on the blue UAS list, meaning the Department of War could actually just purchase and use it without having to go through a bunch of crazy approvals. That meant that we had gone and de-China-fied our core components. What is the biggest BS in the market right now?

1:00Soren, welcome to Sorcery. Thank you for having me. Congratulations on the big announcement. What happened? Yeah, so we just announced our Series C fundraise,$250 million at$2.5 billion post. So it's a great milestone. You're going to enable us to do a lot more and continue on production expansion, all the good stuff that we've been talking about. I always say like fundraising isn't the goal, but it is a tool. And I think this is a great milestone for the company. Well, thank you for having us in your 250 ,000 square foot facility. This is huge. Is that why you raised$250 million? There is a lot of 250 going on.

1:42It's the 250th anniversary of America. 250 million, 250 ,000 square feet. It's all coming together. But really, we sized this facility to be able to do a million drones a year eventually. So we think there's a threshold where NEROS is contributing to really being strategic, having a strategic impact for the country, and we think that is around a million a year. And America should have the capability to have factories that can make millions of drones per year, because that's what modern conflict demands. So that's what we've set our sights on. And when we were picking this building late last year, we were really just looking for something that would give us a ton of room to grow and also do vertical integration, start doing component manufacturing in-house and just expand production of the Archer product, but also new products as well.

2:39What was this process for funding like and who was involved? The round was led by Sequoia and ASTF with a bunch of great partners, including Interlagos, Valor Equity Partners, Allen & Company, Teal Capital, Spark Capital, Mantis, and Dillon Field. It was honestly very quick because it was insiders and preempted, which is kind of the theme of our last rounds. And these are just partners that we've worked with a ton already and really enjoy working with and appreciate the partnership. There are some new folks jumping on board as well. I will probably forget everyone, but like Valor Equity Partners is participating as well as Spark.

3:22So some really like fantastic new investors that we're adding around the table. But in many ways, it's, you know, running it back. Sean is incredibly involved with the El Segundo crew. Now you've expanded to Torrance. But what is it like working with Sean? Sean's amazing. I think he was so far ahead of the curve on hard tech in general. I mean, it really is a true passion for him where a lot of VCs have kind of jumped on the hype train recently. But when I met Sean three years ago, even before he invested in NEROS, he was explaining to me his thesis of hard tech and why it's so important to invest in manufacturing and how manufacturing has left America, but we need to bring it back.

4:10And all of these things that are really, really popular ideas now, like Sean was way ahead of the curve on, and he's just been a fantastic partner. So it's great to be doing another round with him. You're also fresh off of a$500 million IDIQ. Yep. So what was the process for that like? Yeah. So that was really last year when we, last year we knew that our biggest goal as a company was to win the Army program. So this is the PBAS, Purpose Built Attribable System Program, and really like the first program of record for FPV drones in America. So really big deal. We knew it was coming down the pipe for about a year, and we put a ton of effort into building new sizes of drones, building a new ground station, just like getting everything ready to perform well there.

4:58And then this was last summer when we had the fly-off. We ended up getting selected. They selected two other companies as well. But we were the only ones to really deliver in a meaningful way. And we've, I think, shown to the program office that we are a great partner and we do scale production and we do deliver. And these systems are now getting fielded across the Army and having a lot of success. So I think that was the biggest motivation for them to go forward with this IDIQ and really enable them to continue helping Neuroscale and enable the partnership of getting FPV drones across the army.

5:36So let's talk about the state of modern conflict, because this has clearly evolved tremendously in a short amount of years, especially with the Ukraine war. So let's start there. So what is the current state of the Ukraine war? How is that evolving? Yeah. So over the last year or so, one of the things that's happened is the distances have gotten much longer. So when you think about the front line, at this point, it is a relatively static position. And the width of the front line, really this like no man zone is expanding. This is driven by the use of drones and the fact that now anything that is visible from the air that moves in that zone is going to be immediately attacked and eliminated.

6:23And drones have been getting larger and going further distances. And so that zone is now like 30 kilometers wide when it used to be a few kilometers wide. This is driving Ukrainian drones, FPVs to get bigger. We've also seen the use of fiber optic drones that are immune to jamming as that has really increased in frequency. And then recently Ukraine has been running a very successful mid-strike campaign where they're actually using drones to strike 150, 200 kilometers past the front line and take out the logistics routes, all the Russian logistics routes. And this has been in the works for the past nine or so months, but really successful in the past three months.

7:13And it's really proof how like, and something that I like to explain to people is FPV drones are one example of where low cost drone technology is reshaping warfare is sort of like the first really big example. But this is going to happen in many different types of drones and different types of defense capabilities. And so now you have these incredibly effective mid-strike drones. You have the deep strike drones. Ukraine has also been striking Russia with deep strike drones and hitting the Moscow region a lot more frequently recently. So these are all, I think, good indicators to look at as like low cost drone warfare is going to be across all ranges, all sizes, and we have to figure out how to produce these things at scale.

7:58And that is really where I think the country is lacking right now. Could you explain what's actually on the battlefield right now, like a little bit more in detail? Because I know that you're also with this funder going into multi-products. So how does that fit and what's currently on the battlefield? Yeah. So, you know, FPVs are still used a lot and our Ukraine office is constantly supporting military units that are using our drone. But another big advancement in the last year or so has been the use of interceptor drones as well. Because you have so many deep strike drones and larger drones coming over from the other side, now the goal is to take those drones out of the sky.

8:40And everyone since the start of the war is talking about drone-on-drone warfare. Now that's really coming true, where 90 % of the DeepStrike Shawhead drones that Russia is using are getting taken out of the sky before they can even hit a target. So one of the things that we have recently started showing is the development of our interceptor product, the Bandit. And it is really driven off the fact that, one, we see that this is effective in Ukraine, and we intend to be deploying Bandit in Ukraine before the end of the year. But we're also, we've seen the massive capability gap for America in the Middle East.

9:19Shahid drones, Iranian Shahid drones, have taken out billions of dollars of infrastructure and other weapon systems in the Middle East and, you know, against U.S. forces. And so there's a very clear just lack of low-cost intercept capability. And that's another area that we're looking to solve. So, you know, we could spend so much time talking about the details of the different systems on the battlefield. I think the biggest takeaway is that so many of the problem areas or capabilities are getting addressed by these low-cost unmanned systems. And the key is to be able to iterate on them really rapidly.

10:02This is what Ukraine does extremely well, is they see what is working and not working right now, and they do very, very quick iterations. And that's how they've gotten to be so successful with the use of drones. And America needs to learn that lesson, as well as the lesson of scale. And Ukraine is estimated to use 7 million FPV drones this year. So that goes back to my point of scaling production, getting to the million scale is absolutely critical. I mean, let's talk about where those are coming from. So how many drones does China produce a year? How many drones do other geographies produce a year?

10:37And how did America get left behind so bad? Yeah. So China is supplying drones and components to both sides, so to Ukraine and to Russia, and they have by far the strongest drone and just electronics industrial base. The way America got left behind was not caring about consumer electronics manufacturing being done domestically. So as with many areas of manufacturing, we have just offshored for the last 30 years, you know, really optimized for the short-term profit margin and let that manufacturing be done somewhere else, and that somewhere else is primarily China. And so the national security implication of this was not really well understood, especially until drones started becoming such an important part of the battlefield and a modern arsenal.

11:33Because what goes into one of these is it looks much more similar to what goes into your laptop, your iPhone, any other consumer electronics product versus a traditional weapon system. And so that was something we identified early on was like, to be able to scale drone production, we're going to have to go quite deep into the supply chain, we're going to have to design our components, build our own components. And you know, today, everyone in the defense startup ecosystem is struggling with suppliers that are not set up for volume, not set up for scale or lower cost systems. But yeah, China has been the biggest beneficiary because they've been supplying both sides of the war and probably making tens of millions of drones per year easily, maybe in the hundreds of millions.

12:23And so that's a split between these types of FPV systems that are usually put together from components from different companies or full-up drones like what DGI makes, which They make the best consumer drones in the world, but they also make the most commonly used reconnaissance drones for the battlefield. Like Ukraine and Russia are using Mavics, Matrices, all these DJI products that are incredibly well engineered and produced at huge scale. I've heard you talk about this a couple of times on other podcasts, but how do you effectively de-Chinify the supply chain? Is it possible to produce one of these without any components from China?

13:05So I think it really just depends on how far you're going down the stack. We've tried to go quite far and we think further than anyone else where you can look at our boards, you can look at all of the chips that go onto our boards. Those will not have ever touched China. Our motors are made outside of China. The material that goes into the magnets are outside of China. The magnet production is outside of China. We've gone way further than pretty much every other drone company in America. But I would be lying to you if I said nothing in our supply chain relies on China. Because the truth of the matter is if you go down far enough, you will find places where China is the main supplier.

13:46It might be raw materials. It might be chemicals for the process. As an example, printed circuit boards, they use precursor materials. The manufacturing uses precursor materials that is completely dominated by China. So even if you go to one of these board shops in America that specializes in, you know, ITAR, Exquisite, like they could be making the printed circuit boards for the F-35, I would be almost certain they're using precursor chemicals that come from China. So it's a massive problem. It's not something that NEROS alone can solve overnight. But we can be very diligent in the core critical components that are very specific to our system.

14:26And hopefully also give more demand for things like non-Chinese batteries or non-Chinese thermal cameras. These are areas that we in the drone industry can contribute to but probably not solve on our own. It's a national effort. This episode is brought to you by Brex, my favorite. You become what you spend on. And I refuse to spend my time on work that shouldn't exist. expense reports, receipt chasing, and manual closes. The companies building what's next from Vercel, OpenAI, Anthropic, Granola, and Deepgram all made the same call. They all run on Brex. Brex is the intelligent finance platform that combines cards, expenses, and banking into a single stack with agentic finance built in.

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16:02Visit Turing.com slash S-O-U-R-C-E-R-Y. What do you think about China selling to both sides? How do you think about that as a company? I mean, I think it's a morally corrupt approach, although it would also be far worse for Ukraine if they didn't have access to Chinese components. So I don't think it really...the only really influence it has on our thinking is just knowing that China is getting all of the learnings and all of the advantage of scaled production. And we already knew how far ahead they were with DGI. They just have by far the best technology. But in FPV systems in particular, they're also making so much of the componentry and just getting constant feedback from both Ukrainian and Russian FPV companies like, what do we need to do differently?

16:57OK, here it is two weeks later. That is what the Chinese industrial base is extremely good at. So they have just so much knowledge collected now as well. You've become the leader. Emile Michael at the Reagan National Defense Forum, I think it was like last December, even called you out in our interview. So this was really interesting. So Emile Michael said, everyone talks about Anderle and Palutir and SpaceX. There are three companies that in the last 10 years have broken into the defense sector to challenge Lockheed Martin, Northrop Grumman, and older primes. And his job is to create five more companies that work in the department and bring new capabilities.

17:32and he said he's excited about everything from Planet Labs, Neros, that's you, and Hadrian and a couple more. So what do you think about that in your positioning? What is the real differentiator between you and other drone companies that are out there? So I think what Neros has been able to do really well is move very, very quickly to real scale. So we talk about it all the time. Our number one goal as a company is scaling production. But I think it really just comes down to we can back up what we claim. So many drone companies are out there claiming that they have X production capacity and maybe doing well on demos and then getting orders and then just falling flat on their face when they come to actually have to deliver those drones.

18:22I think we've done this one just by like it has been built into our ethos as a company from day one. I think we started at the right time to realize how important this is and build the core team around this idea. You know, we started the company in 2023. And so the scale of what was happening, like scale of drones in Ukraine was already apparent. We went to Ukraine right after we started the company and we saw production of tens of thousands of drones happening per month. And we said, OK, we need to we need to do this for America and we need to do it on a secure supply chain. So like we were the first company to have an FPV drone on the blue UAS list, meaning the Department of War could actually just purchase and use it without having to go through a bunch of crazy approvals.

19:10That meant that we had gone and de-China-fied our core components. and then we've also just been the fastest to scale and delivered the quickest on every single program. So like you can look at the results from the drone dominance program, which is a top-down, Hegseth said, we need drone dominance. We're gonna start purchasing, we're gonna hold these competitions and then we're gonna purchase drones and part of it will be your measure on how quickly you deliver. When we got the order after the gauntlet, we had already built pretty much all of the drones and just shipped them out. And then we were so far ahead of everybody in delivery.

19:45And we intend to keep doing that because we've just taken the manufacturing side and the supply chain side super seriously. What is the biggest BS in the market right now? I think, one, it's companies that are claiming production capacity that has never actually been proven. To claim a production capacity, in my opinion, you need to have done it many times over. If you say, we can make 1 ,000 drones a week, you should have done that many times consistently to actually make that claim. And then I think it's really like these companies that are building capabilities that demo really well and fall apart in the battlefield.

20:27So a lot of people like to talk about swarming as an example and show 10, 100 drones swarming together and going and hitting a target, it's all happening on ranges with GPS, which is not a real thing in the battlefield. And a lot of companies are demoing stuff that just does not actually hold up in realistic conditions. Why have so many American firms left Ukraine? So I think that the general trend has been when the war started, a lot of companies, their products were sent over or they proactively decided to go over to Ukraine and see how their stuff would do. I think most of that... What is the process like when you get there?

21:10What is the whole process like? It totally depends. If you are a more traditional weapons manufacturer and your products are included in an aid package, my understanding is you don't really have much insight or control over what happens. It just gets shipped out by the US government. It's harder for you to be directly involved. Our approach was just go to Ukraine ourself with the stuff and then meet the people face to face and literally hand it to them so that then we could get that direct feedback. I think a lot of companies tried to go over or had their stuff sent over and then the first time around it didn't work.

21:50And then instead of persisting and saying, okay, well, we're going to fix the stuff that didn't work and try again and try again, just ended up walking away. and to me that's really disappointing. I think a lot of companies unfortunately would rather develop on a test range in California and then just sort of put their head in the sand when the thing doesn't work in the battlefield. What is the point of that? It's a good question but it's a clear trend I've observed. Is that like that's really a trend? Yeah totally. I mean there's plenty of companies, defense startups. Is it not just like competitive shit talk?

22:28No, no. I think like there's, and there's very few defense tech startups that have a meaningful amount of equipment deployed in Ukraine. Like you can just go down the list and see. So I think there's like motivation to even do it at all. If you do it, do you stick with it? Those things seem like harder, seems like it's harder for people to clear those hurdles than I would have expected. So I guess to come back to you, what breaks as you scale up? Yeah, we've been growing really fast this year. We started at, started 2026 at less than 100 employees. We're more than 250 now and we're growing rapidly.

23:10So a lot of shifts within how the team needs to operate. Like when you're under 100 people, you just have a bunch of really smart, high agency people kind of just working on one thing. stuff just kind of works. Like you don't have to put a ton of effort into like management style and, and like how communication flows across the company and these things that are much more like, much more important when you, when you start to grow. And I think that's one thing that I've been learning a lot as, as we've grown a ton in the last like six months is got to be a lot more intentional with how do you maintain the hiring bar?

23:50How do you screen for culture fit when people are coming in? How do you make sure everything is communicated effectively across the company? How do you find spies? How do you find spies? Yeah. Insider threat protection. Real. So there's a lot of complications that come with scaling. And one of the things you mentioned was that we're really going from single product to multi-product. And one of the questions is how do we do that effectively? Because it's way more clear how do you structure all your teams when your whole engineering team is just split by department, but working on one product. When you need to support multiple different product lines, it starts to become a little bit fuzzier.

24:30And I've talked to a bunch of founders about this who've done it over and over again. And they all say, no, it's just chaos. No matter what you do, it's just chaos. You'll just keep changing it. It'll keep sucking, but you just got to keep changing it and you'll maybe figure it out eventually. But yeah. Okay. Well, we walked around and it does seem like you have a humming culture here. there's a gym there's a nice outdoor area with a sauna it's almost too nice well we we figured like you know we're going to shove everyone into this big industrial box and uh make everyone work out on the floor and and and you know work super hard but uh hopefully give some nice amenities along with it i think that's a pretty like pretty good approach so as you scale out the team itself and the products what are the roles that you're hiring for those and how do you construct those different teams?

25:20Yeah. I mean, right now we're hiring across every engineering discipline. Is it hard to hire? It is, yeah. What's the process? I mean, I think what I've seen is every high-growth startup has the same problem, and especially LA hardware companies. It's just the number of great hardware engineers that can be responsible engineer level on a system or a subsystem and really just be a needle mover, like very limited number of those people in the world. And so the job is to make a company that is attractive for top talent and like a place where people wanna come and prove that they are that. And so I'd say that's where our biggest push on recruiting is right now is finding those top 1 % hardware engineers.

26:09And one of the reasons I say, I mentioned the responsible engineer thing is you need more and more as you go to multi-product. Historically, we've had a responsible engineer on Archer and then on various components, but total it's probably less than 10 REs across the whole system. But as we're going to new product lines, then you suddenly need to have both platform level and component level REs across many different projects. And so suddenly the demand for people who can take on that level of responsibility and deliver is much higher. We've been noticing a very strong trend in all of our interviews, whether it's Applovin, this company called Fall, we were just at Palo Alto Networks, like all various, very different companies.

27:00And this expands pretty much every interview with high growth companies. And this is what Fall called super ICs, like people who are all really capable individual contributors, AppLovin looks for the same thing. All their engineers should also be able to make business decisions in some way or another. And so it's like, do you think that the proliferation of AI is just increasing this extremely efficient type of talent density? I think it's... My perspective is AI just... 10x's whatever the person already is, which means you don't want everyone to have AI if they're not really smart in how they direct it.

27:44And so you've got to be more careful in who is getting 10x'd. But for the people who are, I think it's less applicable in hardware engineering, unfortunately, right now. Every software engineer should be using AI and producing far more code. But the same thing does not exist for hardware engineering yet. So I don't think we're seeing it as much, but in the future, it'll have the same effect.

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