Why Marc Andreessen, Ben Horowitz, & David Ulevitch Launched American Dynamism

0:00The pitch from Mark and Ben was if I came to Andreessen Horowitz I could do whatever I wanted A year after I joined, Mark asked me if I wanted to meet Palmer. And Andruil, even then, was very unapologetic that they were a defense company and they were trying to build the next great defense prime. Mark and Ben have always been super supportive of supporting the government and the national interest. People don't know this, but back at Netscape, they helped pioneer SSL, like the little encryption icon in your web browser, to do secure encrypted communications. In 2018, Google had bailed out of Project Maven, and there was a big protest outside of Google, and people decided they didn't want to participate.

0:30We believe in the romance of technology, of industry, the romance. The Eros of the train, the car, the electric light, the skyscraper, the microchip, the neural network, the rocket, the split atom. We believe in adventure, undertaking the hero's journey, rebelling against the status quo, mapping uncharted territory, conquering dragons, and bringing home the spoils for our community. We believe that we have been and will always be the masters of technology, not mastered by technology. This is a really key point today. Like beginning of 2022, we launched the American Dynamism practice. It was like a meme that was becoming a movement.

1:00We were just like borrowing venture dollars for it. Very shortly after that, we raised the first American Dynamism fund. Private capital is now flowing in massively. JP Morgan is going to commit$1.5 trillion towards the category. The one and a half trillion is a huge amount of money. And I think they went out of their way not to use the words dynamism, even though it's obviously American dynamism. And I think what you see with the JP Morgan announcement is just now broad scale recognition that we need to be invested in these areas. And I think there's going to be incredible returns for the investors.

1:40David Yulovich, welcome to Sorcery. Thanks, Molly. Long time coming. Yeah, I think we've known each other a long time. But I generally don't do podcasts. Well, thank you for joining this one. Yep. We've got a lot to talk about. Okay. We have American Dynamism. We have this new JPMorgan deal. I want to go deeper into Andrel, and then we can also talk about your founding of OpenDNS. Sure. Okay. A lot to cover. A lot to cover. So to start, let's break down the American Dynamism Fund, when this started, how you got Mark involved, how you got even the buy-in to start this. Sure. There's a bunch of different answers, and they're all true as to how the American Dynamism practice and now fund started.

2:24And the original, I would say I joined the firm in 2018. In 2019, you have to remember that era of 2018. This is when in 2018, Google had bailed out of Project Maven, which was a government partnership to support advanced computing and advanced software like AI in the Department of Defense. And there was a big protest inside of Google and people decided they didn't want to participate and Google bailed out of it. And this is after Silicon Valley had had basically its original founding story and origin of like helping the government with the best technology. And now you had a company like Google basically bailing out of supporting the government.

3:01Palmer Luckey a few years earlier had left Meta, had been accused of like being some like major right wing financier. It turned out it was$9 ,000 for one billboard once and none of it was true. But like it was a big scandal and he was sort of treated like a pariah and not as like this genius founder of Oculus. So that was like the circumstance of 2018. I joined Andreessen Horowitz. The pitch for Mark and Ben was if I came to Andreessen Horowitz, I could do whatever I wanted. That was a very good pitch. And a year after I joined, Mark asked me if I wanted to meet Palmer and Brian and the team at Anderil.

3:35And I won't speak for Mark, but I think he was skeptical that the firm would get excited about a defense deal. And Anderil even then was very unapologetic that they were a defense company and they were trying to build the next great defense prime. So I went down to Andrel's offices. I'd already decided I wanted to do the deal. And this was their series B. And when I went down there, I met Catherine Boyle, who was at a rival firm, a general catalyst. And she thought she was going to do the series B. And so the way we met was we ended up having to split the series B, which Andrel sort of like brokered.

4:10They're like, okay, well, you both should just do half. I think she was very unhappy with that outcome. So like our first meeting was not, we didn't get off on the best foot. She has like a funny version of that story. I won't tell it. I'll save it for another time. You can interview her. And anyway, but that was the beginning. And because Andrel was a good investment, as you know, in venture, if you make a good first investment in a category, that can kind of give you the leash to go make other investments. And so then fast forward to 2021 and I invested in a company called Flock Safety. And this is another one where I know Catherine was like around the hoop and was interested.

4:47And I think Garrett, the CEO of Flock Safety, called her the night before she was supposed to have Flock pitched to the General Catalyst team. It was like, oh, the deal got done. Like, I'm going with Yulovich and Andreessen Horowitz and David George on the growth team. And she was like, you know, like, damn, that's terrible. Like, foiled again twice. But Garrett's like, hey, maybe you should talk to Yulovich and maybe the two of you should join forces. So Actually, Garrett Langley at Flock Safety sort of reconnected Catherine and I. I reached out to her. I said, hey, look, Mark and Ben have always been super supportive of supporting the government, the national interest.

5:23Mark has been super involved, even from back in the Netscape days. People don't know this, but back at Netscape, they helped pioneer SSL, like the little encryption icon in your web browser, to do secure encrypted communications. And so Ben is a product manager. Mark is the founder of Netscape. Like even back then, they were building technology that was really important for our government to have secure communications. They've always been supportive of that general philosophy. And so at the end of 2021, I reached out to Catherine and said, hey, I think we should join forces rather than be competitors.

5:56Let's make this a full-throated effort. And Mark was like, at that point, fully fired up on it. Really, like there was a lunch we did at Mark's house with Catherine, me, and Mark. and Mark was just like, everything that I said that I promised Catherine, Mark was like, yes, and more. So she joined at the end of 2021 and the beginning of 2022, we launched the American Dynamism practice. It wasn't a fun then. As Catherine would say, it was like a meme that was becoming a movement and we announced that we had committed all this money to it, but we actually had no fun. We were just like borrowing venture dollars for it.

6:33But it turned out that our timing was excellent because the world is getting spicier. You know, the firm at that point was fully bought in, like Andrel was doing great. Flock was doing great. And so Catherine joined. And very shortly after that, we decided we wanted to raise a fund. We raised the first American Dynamism Fund. It was$660 million. And then we're now actually getting ready to go do our second fund. So you have a background in software and cybersecurity. This is not a traditional venture capital category. How did you get the conviction to go after this to get venture returns? How does that work?

7:13Yeah, I think you have to look at when there's these moments. Like I always think of things as supply and demand. And you have to look at when there's these moments when there's technological shifts. So obviously the defense industry has existed for a long time. But we're now entering an era where you have much more advanced technology. So AI, things that drive that like computer vision, autonomy, much lower cost of hardware, commodity hardware. So motors, manufacturing, production costs, all these things that can now be put into these legacy categories that previously had not been disrupted by advanced technology.

7:47And where software can have a demonstrable impact on not just production time and margins, but even on the quality of the outcome. And so Anderil fully appreciated that and understood that, that you could take essentially commodity hardware, even though they're making their own solutions, they're using commodity hardware for most of the things. Now they're using much more advanced hardware and bespoke hardware. But originally, it was largely commodity hardware. Their first entry tower was essentially off-the-shelf parts that they put together with very advanced software. They built a coordination layer called VATIS, and they said that we can do something to provide perimeter security that never existed before.

8:24And so when you have these moments where you're at a technology transformation moment, that really changes the supply side, where you have a lot more capability and technology. And we'll talk about the founders and talent side of the supply side of the equation in a second. But that really meant that we could change the way that we were providing solutions to the government. And then on the demand side, the government was at this watershed moment where they just recognized. And now it's a foregone conclusion. But even, you know, four or five years ago, the government was starting to wake up and realize, like, wait a minute, we cannot do things the way we've done things in the past.

8:57And you had COVID that highlighted all these supply chain issues where we all of a sudden realized, like, wait a minute, whether it's caused by a pandemic or caused by economic sanctions or other tariff issues or trade issues, we cannot rely on either adversaries or allies that are an ocean away supplying us with our critical raw ingredients we need to make things. And our adversaries are getting much more capable, much stronger. And so we need to be able to buy things in a different way. We need to buy different things. And so the demand side changed as well. And we're now seeing that play out in a bunch of categories.

9:33So defense is a huge one. Space is another one. Obviously, we've been in space for a long time, but not in the way we are now. It is absolutely a new battle space. It's key for communications. It's key for observability. It's key for full awareness of what's happening around the globe and what's happening in space. And now, public safety is another example of a category where, you know, obviously policing has been done in many of the same ways for decades and decades and decades. But now you have AI that can dramatically change the way you do investigations, change the way you catch criminals, change the way that so many things happen that really improve police objectivity, improve the public safety.

10:13And so the demand side has just exploded in a need for new solutions. And then on the supply side, in addition to having all these new technologies and new capabilities, you actually have a base of talent that didn't exist before. All these people coming out of companies that sort of paved the way, like Palantir, Tesla, SpaceX are now having all these alumni that are leaving and starting great companies. I mean, the founders of Anderil came from Palantir, came from Oculus. And so it's really just, we're at a unique moment in time where the demands are high, the supply is there, and we can put them together with private capital.

10:51Constructing this fund is also a little bit more complicated than a normal fund because of how close it is to regulatory environment and all the different kinds of policies and going closer to DC. We've seen in the last years, last couple of years, especially with the new administration, this like really great connectivity between Silicon Valley and DC. But I'm curious from more of a structural standpoint, like how did you set up the fund and how do you help these companies with policy? Yeah. I mean, look, we, I love working with entrepreneurs. Catherine loves working with entrepreneurs. Having a fund that is sized appropriately for the size of the opportunity has always been important to us.

11:26We think our opportunity set is actually just getting bigger. And there's more categories that we want to make sure we can make investments in. But a part of that is also making sure that we have the resources to support our companies. And Washington is a really important place to do that. The firm has always been founded on this practice of how do we build the firm that we wish we had when we were entrepreneurs? And most of the leadership at Andreessen Horowitz were either founders of companies, ran companies, have technical backgrounds from Ben and Mark all the way across the board. And so we know, and like I raise money for my own company, Ben and Mark raise money a couple of different times.

12:05Martine Cassata raised money, Alex, you know, et cetera. And so we know what it's like to have a venture firm that's just treated, treats you like a financier. Like they just give you the money and then you're off on your own. We think there's a better way. And so one of the things we've done in the American Dynamism Fund without, you know, being too much of a shill, but obviously I want to sell my own book because I think it's a very good book, is we've built out a policy team in D.C. And there's work that we're really trying to advance that will benefit not just our companies, but all companies that are trying to build for the national interest.

12:34And ultimately, we think will benefit America. And I'm of the belief that anything that benefits America benefits our allies and, you know, democracy and the whole world. I'm sure that'll get like memed as a quote that will make fun of me later. Like, oh, venture capital saving the world. 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. Brex is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, Brex is designed to help you spend smarter and move faster.

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14:39Trusted by more than 65 ,000 companies in over 160 countries, Carta's platform of software and services lays the groundwork so you can build, invest, and scale with confidence. Carta's fund administration platform supports over 9 ,000 funds and SPVs, representing nearly$185 billion in assets under management, with tools designed to enhance the strategic impact of fund CFOs. For more information, visit carta.com slash sorcery. That's C-A-R-T-A dot com slash S-O-U-R-C-E-R-Y. But the idea of doing work in Washington is that there are structural problems, whether it's in defense procurement, whether it's in how the selection process goes, how the appropriations process goes.

15:28And there's work that we can do. I mean, you see this with some of the Doge effort, like how do you make sure that you have the right people in the right jobs and not have the wrong people in the wrong jobs? There's just a lot of work that structurally has to change in Washington. And so we have a policy team that is really helping to understand the issues and then advance changes from a legislative standpoint or from an education standpoint to drive those changes. So defense procurement, I would say, is the biggest issue for the AD fund. There's a ton of work happening in AI and in crypto elsewhere in the firm.

15:58And they all work together hand in hand to try to have a unified view to advance, you know, not just the interest of our firm, but what we think is the interest of all startups across the country. How do the capital commitments from the government then bleed into this or like collaborate with these kinds of investments? Because there have been really big commitments. Yeah. So I think, you know, people, so the government wants to create a set like a culture of accountability. and that comes with a lot of challenges actually. And those challenges are better solved with private capital. So an example is if the government gives you$50 million for an R &D project to go try to create a prototype of something, they want to make sure you're spending the money wisely.

16:42So that$50 million comes with a ton of overhead of auditing, accounting, tons of oversight. And as a taxpayer, that feels totally appropriate. But it's so burdensome for a small company, it's almost impossible for these small companies to cope with that level of oversight. And so that's why most of the time, these big contracts just go to the primes and the primes have all this structural kind of systems built up to deal with that. So they love the system. They love the oversight. They love, and by the way, they just charge more for the contracts because they have all this overhead and accounting and auditing that happens.

17:14And then ultimately results in a poor experience for the taxpayer because we don't get the best products. We don't get them quickly and we don't get them on budget. Where private capital instead is, I think, a much better alternative is we say, look, if you don't pay for the R &D, you just buy the finished product. All you have to do is commit to buying the finished product. We'll fund the R &D and you can get rid of all the auditing and accounting and constant oversight that you provide because that's our job as private capital. We'll make sure that we're good stewards of our capital and our investors' capital, but you can save the government so much money and we are better pickers of who's going to deliver great technology than the government is.

17:51And that's because we've been doing it a lot longer. We know the founders, we're able to evaluate them. That's like our entire existence as investors. And so I think private capital is just a much better model. And all we need from the government is we don't need them to fund R &D. We need them to commit to buying outcomes and buying solutions. And so one of the defense reforms we're pushing is that it's very common in defense procurement procurement to say, or even any kind of government procurement to say, what have you delivered in the past is an important criteria for deciding if you get awarded a contract for the future.

18:25But a lot of startups haven't delivered anything in the past. And so then it really benefits the legacy incumbents and doesn't give a chance for a startup to deliver. And so we were pushing for changes to say, hey, look, why don't you do bake-offs? Why don't you do competitions? And if a startup shows up with the best product, just pick that one. That's one example. Another example is the government often says, we're going to appropriate money for this specific product. When what they should really say is we're going to appropriate money for something that solves this problem and then let the actual customer, whether it's SOCOM or Indopaycom or the intelligence community, whatever it is, let them decide what the right solution is.

19:04And then, again, hold a bake-off, hold a competition, hold an RFP and get the right solution. But don't appropriate specific, exact, precise products from a specific vendor, but instead just focus on what are the solutions and let the customer at the time that they need to actually buy it decide what the right solution is. Because those things change. If you look at the war in the Ukraine, you'll see that the evolution of drone warfare on the battlefield has changed dramatically. If you look at the government's appropriations from five years ago, there was nothing about very little about like a tritable drones in electronic warfare to deal with the massive influx of drones that are being sent at soldiers.

19:43But that's what the people on the battlefield need today, and they want solutions for that today. And so you need to have an appropriations process that actually is geared toward being able to produce those kinds of solutions. Private capital is now flowing in massively. There is just like a swath coming in now that a pretty big deal, but J.P. Morgan just committed or is going to commit$1.5 trillion towards the category. The one and a half trillion is like a huge amount of capital. It's a huge amount of money. And I think that what we're seeing is an American, and I think they went out of their way not to use the words dynamism.

20:18People sometimes don't want to call it American dynamism, even though it's obviously American dynamism. But I think that this movement is really taking hold. And I think that it's taking hold for a bunch of reasons. One is that there's just increasing realization, whether you look at what's happening in the Ukraine or you look at what's happening from across the Pacific Ocean in China. their ability to build ships is much, much faster than ours. A lot of the raw materials we need for our own ship building comes from China, the steel and many of the metals. A lot of the things we need for batteries, for motors, for a lot of the ingredients we need to actually make the drones we want to make and the autonomous vehicles we want to make, they all come from China.

20:59And so it's not just about defense procurement, but if we look a little bit to the left, what we see is like, oh, wait a minute, we need batteries. We need batteries for lots of things. We have this insatiable thirst to electrify our world, whether it's AI compute, electric vehicles, home energy resilience. It doesn't matter. We need batteries. And if they all come from China and we ever get into a real conflict with China, whether it's an economic conflict or an actual kinetic conflict, they're going to cut us off. And so we need to have resilience for those things. And I think what you see with the J.P.

21:29Morgan announcement is just now broad scale recognition that we need to be invested in these areas. And in fact, private capital is one of the best ways to do that. And I think there's going to be incredible returns for the investors who do that, whether it's mining, manufacturing, supply chain, logistics and production components, robotics, autonomy, you name it, plus all the categories we already invest in, defense, space, public safety, energy, etc. One of the biggest bottlenecks for these types of companies was always late stage capital. So does this now give your LPs and your different investors more security or at least confidence in playing the long game with this?

22:12It certainly should. I think that, you know, the LPs often bring up like, what is the exit going to look like for these companies? And I think it's a good question to ask. And it's one that we take seriously. What we're already seeing in the market is, A, these companies are ramping their revenue faster than companies have in these categories ever before. before, the opportunity size keeps getting larger and larger and larger. And we're also seeing companies going public. And so I think that we're at a moment now where I worry less every day about the exit outcomes for these companies. I mean, obviously, it's something we care about.

22:47We make investments to ultimately get liquidity. But when you look at a company like SpaceX that's still private, I think now investors recognize and they just had an incredible launch yesterday. I think now investors recognize this is one of the transformative companies in this country. And a dollar invested in SpaceX is a dollar put to a good place. And I think the same is true for many of these other categories and many of these other companies. So I hope that LPs see it that way. I hope that they see that it's not just a good investment. But it's also, like for me, it's not just a good investment.

23:21And it's not even just that it's good for America. But if you actually don't have these foundational components that are rock solid here in this country, everything else falls apart. Like all the B2B SaaS falls apart. All the ad click optimization tools fall apart. Like if you don't have a strong democracy, if you don't have a strong economy and a strong country, like all the stuff on top falls apart. You need to have public safety. You need to have defense. You need to have energy reliability. And so I think all these things are actually critical, even for all the stuff that just sits on top that we all benefit from.

23:50How has AI impacted this category? Carta has some incredible data on this that 41 % of companies seen Series A are all AI, quote unquote AI companies. But how does this impact this category since that's such a large driver of, let's say, investments and then also new teams? So I think you can look from any dimension and recognize that AI is transforming all of these categories as it should. So if you start at the most fundamental level, like energy, we just have an insatiable thirst for energy in this country. And AI compute is driving a huge amount of it. Part of the shift to electric vehicles, obviously we have EVs today.