Figma IPO: What Investors Need to Know, and Understanding Defense Tech

0:01This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

0:26Allie Garfinkle:This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Former undercover CIA officer, how much can you tell me about this and would you have to kill me? I can tell you enough that I don't have to kill you, but if you tortured me and I revealed state secrets that are still secrets, then probably would have to try to kill you.

1:12Allie Garfinkle:Welcome to the Termsheet podcast. I'm Allie Garfinkel, senior finance reporter here at Fortune. And yes, Termsheet is no longer just your written newsletter. It's now talking back.

1:26Allie Garfinkle:Here's the deal. We're going to break down the latest news in private equity, venture capital, and the startup world. Every week, we're going to take a peek behind the curtain and speak with some of the most exciting figures in the private markets. And just like in the newsletter, I'll share some insights on the week's biggest news, what's top of mind for me, and the latest on deals and dealmakers. Termsheet has a long, illustrious history. Termsheet was started by Dan Primack, who's now at Axios. The success of it comes down to probably two things. One, I stand on the shoulders of giants. A lot of really talented people have written Termsheet over the years and have really kept up the quality of the newsletter.

2:01Allie Garfinkle:So quality is part of it. I also do think that the private markets aren't covered nearly as much as lots of other areas. If you think about coverage of big tech, for example, there is a massive amount of coverage of Apple or a massive amount of coverage of Amazon. But actually for a lot of these giant startups, and they are giant, don't get me wrong, you know, Stripe is valued at$91 billion, for example. These startups are massive. And there are a lot of startups that are sort of future giants that are coming up. And there are only so many people covering them. I've covered all kinds of sectors.

2:37Allie Garfinkle:You know, I've covered sort of big consumer goods companies. I've covered insurance companies. I've covered big tech and startups in the private markets. The best thing about it is that people really want to talk and they want to be listened to. And that is, I think, part of why I was so excited to do this show. It is my favorite thing in the world to have a conversation with someone interesting who has devoted their life to something. And startups are just filled with those people. And that's why we're here. And I suspect that's probably why you're here too. So every week on the Termsheet podcast, I'm going to share some of my insights about tech, finance, and the private markets.

3:16Allie Garfinkle:And what's on my mind this week, of course, is probably what you would expect. If you're out there right now listening, in all likelihood, Figma is a public company. Now, this is a really big deal in Silicon Valley. Some of Silicon Valley's biggest names in venture capital are holders of billion dollar stakes or more in this company. That includes Sequoia Capital, Kleiner Perkins, Greylock, Index Ventures. Now, if you don't know any of these names, that's actually okay because there's actually a broader philosophical thing going on here. Figma isn't just a big deal for the VCs who back it or for the company itself.

3:50Allie Garfinkle:It's a big deal for Silicon Valley's venture capital system as a whole because this is a moment where what we're seeing is an exit. An exit is a moment where your investment five, 10 years in the past, 15, 20 in some cases, comes to fruition. And we're seeing fewer and fewer of those over the last few years. For this first episode, we're going to welcome Will Hurd, who's chief strategy officer at Chaos Industries. He also is a former congressman and former presidential candidate. I was really excited to talk to Will for a couple of reasons. The first, Chaos, a defense tech company founded in 2022, operated in stealth for many years, So it's still pretty new, but it's valued at$2 billion, has raised about$500 million from key investors like Excel, 8VC, and NEA.

4:37Allie Garfinkle:And I'll be honest, this is a very vulnerable first conversation for me because defense tech is an area I've long been afraid of covering. And I wanted to stretch myself. I wanted to bring this first episode to you in a way that was something that in some cases, at least for those of us who, those of you like me who maybe don't know as much about defense tech, have a chance to learn. So I'm approaching this with a complete beginner's mindset. And my understanding is that Will's the guy to explain a lot of this stuff to me. Let's welcome Will. Welcome to the first Term Sheet podcast. Oh my God.

5:12Thanks for having me. I'm like super excited to be the first. It's a lot of pressure.

5:16Allie Garfinkle:I was going to say, how are you taking the pressure? Do you feel good about it? You've been under quite a bit of pressure in your life, though, I expect. You know, I enjoy pressure. I enjoy pressure. So I'm looking forward to this. And I hope to, I'm sure your viewers and the people that read Term Sheet are going to give us their opinion after this is over. They absolutely will. It's the best thing about Term Sheet. I get everyone's opinion all the time. Um, so, you know, with you, there's so much to get into. Former congressman, former presidential candidate, now in defense tech. But I want to start with a fact about you that has lived rent free in my head ever since the first time I Googled you.

6:00Allie Garfinkle:Former undercover CIA officer. How much can you tell me about this and would you have to kill me? I can tell you enough that I don't have to kill you. But if you if you tortured me and I revealed state secrets that are still secrets, then probably would have to try to kill you. It was it was the best job on the planet. Right. I started when I was 22 and my job was to recruit spies and steal secrets overseas. Right. I did two years training in in the at our super secret CIA training facility called The Farm. Now it's on Google Maps. You know, it truly is. Like, I wish that was a joke. It actually is on Google Maps.

6:43I did two years in India, two years in Pakistan. I was in New York City for two years doing interagency work, working with the FBI and working with DHS and customs and things like that. And then a year and a half in Afghanistan, where I manage all of our undercover operations. And then when I left Afghanistan a couple of months later, so I left in August 2009, December 2009 is when we had the coast attack. That was one of the deadliest attacks in CIA history. So so my career really was, you know, focused on on on counterterrorism.

7:19Allie Garfinkle:Your career and your career started at an incredibly chaotic moment in in U.S. history. um the what are the skills necessary to recruit a spy and do they still have uses in your life now so so a cia officer we're not a spy the spy is the person that is giving you secrets right and is usually the foreigner um they they the movies make you seem like the people that are putting themselves in harm's way are throwaway that's absolutely not the case my number one job was to make sure that person stayed alive because they were putting themselves, they were putting their family in harm's way and potentially if they were found out, they would be killed.

8:00And so protecting that was most important. But the way I describe it is like you're a professional friend. Like the other person has to like you, has to respect you, have to get to know you. One of the things we're taught in the CIA is what is that person's motivation to work with you, Right. And some people say, you know, when I speak to kids, I always say money. I was like, no, it's not money. It's when does that money get you? Right. And so you always are learning about understanding and motivation. And so that translates into, you know, dealing with in sales. Right. It definitely translate into Congress when I'm going out and representing a huge district, try to understand what my constituents needed and wanted.

8:47And it helps. Look, it helps with the health of my wife. Don't tell her I said that. Hopefully she's not watching, but really understand why somebody is doing something. And I can even go back to I think it was Franklin Covey that always said seek to understand before being understood. And that's something that was a critical skill for a case officer in the CIA.

9:11Allie Garfinkle:That's really well. So have you ever read Charles Duhigg's Cooper Communicators? No, I have not. There's actually an entire chapter about what it takes to recruit a spy. Okay. And how it is actually, people think of it as an act of persuasion, but actually it's an act of listening in a lot of cases. Does that ring true to you? 100%. 100%. Here's a little trick. Here's a little tip for all you. See, everybody who's tuning in to your first show is going to get a tip. Hopefully I don't get in trouble for sharing this. But if you and I are sitting somewhere and I talk more than you, I will have a better opinion about you than you will about me, right?

10:02And so it is letting the other person talk actually increases the likelihood that that person is going to like you. Because guess what? At the end of the day, most people like to talk about, you know, they like to talk. And and so that was that's a little that's a little psychological thing that you learn. It's like the fifth lesson you learn at the farm.

10:23Allie Garfinkle:You went from there's a lot that happened in the middle. Right. Between undercover CIA officer and defense tech. At the same time, a lot has sort of changed in the relationship between tech and Uncle Sam. Walk me through when before before we started this call, you said something to me like no one wanted anything to do with Uncle Sam five years ago. What has changed? Now, look, and here's here is how my my my perspective is framed on that on that question. I left the CIA to run for Congress. In addition to recruiting spies and stealing secrets, I had to brief members of Congress and I was pretty frustrated with the caliber of our elected officials.

11:06and my mother, may she rest in peace, always said, you're the part of the problem, part of the solution. So I decided to run for Congress. Now, I lost that first election by 700 votes. Glad I don't tell that story anymore. But I helped build a cybersecurity company and we did technical vulnerability assessment, penetration testing. The company ultimately got sold to Accenture and it was a real insight in 2009, 2010, in the threats to our digital infrastructure, right? And that seemed like a really, 15 years ago, seems like a really long time. But that was when I really kind of got my feet wet.

11:45And it was that experience that when I did run for Congress and win, I used that in Congress to talk about technology. I held the first hearings on AI.

11:56Allie Garfinkle:When were those first hearings on AI, by the way? The first hearing on AI was in 2015. Did people were people looking at you like you had broccoli coming out of your ear? Look, I thought at the end of this hearing, we were going to know when I could be in my driverless car, barreling down Interstate 10 and have a drone drop Whataburger through my sunroof, right? And while I'm watching a movie that was created by AI, right? Like, that's what I thought we were going to be talking about, right? Right. And and we ended up generating to our drones going to be peeping in our windows. And I'm like, you're not worried about the FedEx guy peeping in your window.

12:42Like like, yes, there's some privacy concern and we always got to manage that. But there was just a lack of understanding. And so I will say this in Congress, the evolution of the conversation on AI from then to now has has evolved quite quite some time. So, look, I was in Congress during the issue of Project Maven when Google employees said they're not going to work for Uncle Sam. I was there when I was talking about a smart wall. I had more border than any other member of Congress. And I was like, we should be using technology. and some guy named Palmer Luckey called me and was like, I got your smart wall, right?

13:29And I'm like -

13:30Allie Garfinkle:Wait, a smart wall? Wait, I have no, actually, wait, what are we, Palmer Luckey had a smart wall? Andrew Rill's first product was this Innovative Tower Initiative, right? Oh my gosh, and that was that product. That was that product. And so when Palmer called, I was like, have you ever been to the border? And he was like, yeah, we've tested this at San Diego. And again, to all the people from San Diego that's watching, I apologize for this, but San Diego is not the border. Like let's, let's go to South Texas. And I took, you know, Palmer and Brian and all those guys. And really that, it was interesting seeing that back then.

14:05And then when I left, I joined the board of open AI. This was, this was before the coup. And then, and then I was an Allen company in the investment bank. And so in 2021, nobody, not many venture capitalists, not much family offices, nobody wanted to invest in a company that had Uncle Sam as a client, let alone having Uncle Sam as the single most important customer. And that was a long-winded way, Ali, to set up to say, what has changed? What has changed is the nature of warfare has completely changed. Warfare now is defined by speed, it's defined by scale, and it's defined by savagery. And the only way to keep up in this dangerous world is if we start iterating on products and deliver things at the edge.

15:16And so that is what has changed. And companies like Palantir approving their capabilities, I think is what has set this moment up.

15:27Allie Garfinkle:Did you ever think you would see so much money being poured into defense tech as you've sort of watched the space developed? How much of it has surprised you? I think a lot of it has surprised me. The founders of Chaos, the company I am with now, they were some of the original investors kind of in this defense tech space early on. And it's been somewhat shocking to them. And there's going to be some winners and some losers, right? There's no question about this. And oftentimes I think, you know, Silicon Valley is always talking about how DOD needs to move faster. And, yes, they do. And DOD understands that and appreciates that.

16:14There's legislation that's going to be moving soon called the Speed Act that, you know, Chairman Mike Rogers is trying to make it show that you can get the right tech in people's hands. But guess what? That tech has to work every time out of the box when you give it to a warfighter. It has to work in incredibly difficult environments like Ukraine. When you talk to Ukrainian folks in the Ukrainian services, they're pretty frustrated with a lot of American tech because the stuff's not working in a communications denied environment. And we know that because we were out there. We were with folks, fighters in Ukraine.

16:53And our systems was deployed outside Kharkiv. We understand the difficulty, not only when the Russians are trying to jam something, but it has to work in the snow. It has to work in the heat. And so so I think this is where even though there's so much money coming in, there's still going to be some some winners and some losers. But the difference this money is making is allowing a pathway to success. You know, in DC, what's about the the the the what do they call it? The the canyon of despair when it's like the trough of disillusionment. Now, it's like you're going to be able to get beyond that because the government has sales cycles just like you have in the commercial industry.

17:41Those sales cycles are longer and a little bit more complicated, and there's a lot more people involved. And so having that runway of money gives you an ability to deliver a product. And I think that's what we're lucky to have been successful and having half a billion dollars in the bank account to be able to help us build these technology and tools that the warfighter definitely needs.

18:08Allie Garfinkle:Well, there's something very interesting here because it sounds like part of success in defense tech is just going to be defined by whose technology works in even the most extreme circumstances, no matter what. Right. But how else do you think the winners and losers are going to sort of be spread out across defense tech? Look, I think another thing is how fast can you iterate and get tools in the hands of the warfighter? Look, what drove me to chaos is that we're giving the warfighter more time, right? Time to understand, time to decide, time to act, time to win, right? And we do that by having a radar that can give you five to ten more minutes.

18:55When you have five to ten more minutes, when you're getting shot at or bomb shots on your head, it's a lifetime. time. And guess what? Old radars that a lot are still deployed that were made in the 40s and the 50s, you notice those big things that turn, right? Because it can only see in one direction. Guess what? Figure out how to see in 360 or as all the engineers say, omni-directional. And so can you deliver a product like that by breaking these paradigms? And can you deliver it in four months and then you can you deliver the the volume that Uncle Sam needs right and so I think that is going to decide where the winners and the losers are going to be because it's a harsh reality they're going to kick they're going to kick the tires and if that tire is flat you're not going to have a chance you're not going to have a chance to make that up again I was going

19:51Allie Garfinkle:to say, I imagine part of this too, is that there is no second chance. It either works or it doesn't. And there are a very finite number of customers you can be going to. Like the customer for most, I mean, who is the customer for chaos? Is it the DOD? It's DOD, right? And it's all the branches, right? So, you know, we're in the middle of a contract negotiation with the army. We're doing something with Air Force where we're getting ready to do a big project at Eglin Air Force Base because right now at Eglin, they train the F-35s, right? One of the important weapon in our arsenal. Right now they can only train three planes at a time because the way the range works, they can only track three planes at a time, which is crazy.

20:44You're going to need more than three planes flying at any one time. Our system, they're updating the system. They're bringing us in in order for us to be able to train hundreds of planes at any one's sake. So that's a project that we have with the Air Force. And we're working and we're trying to work with FAA. We're hearing about all these problems. Everybody knows about the problems at Newark, right? And so replacing the radars that have been in place for like 50 years, right? Like imagine, imagine watching TV on something, a device that's 50 years old, right? That was built the same way 50 years ago.

21:24Allie Garfinkle:That's insane. What you're describing actually is kind of an old school enterprise SaaS story in so many ways, where it's the technology has been here for so, so long. And there's kind of a tyranny of incumbent technology where it just is, this is, why do we have this radar? This is the radar we have had forever. or why would we have a different radar? The answer is if there is something that could actually do a better job, it sounds like government, it sounds like a lot of these sort of branches of government are willing to be having that conversation now. They are, they have the resources. And look, you said earlier, like what is the other thing that has changed?

22:00There is a, I say bipartisan, but it's actually nonpartisan. Understanding. There's something that's nonpartisan right now. This conflict between us and the Chinese government, right? And that the Chinese government is trying to surpass the United States of America in a number of technologies that are going to define the future. And Republicans and Democrats understand that, members of the House and the Senate understand that. And so there is this recognition that on the global playing field, being first in a technology is not enough. You got to be able to have it deployed in some level of mass.

22:40And that's whether it's AI, quantum computing, or tools of warfare. And so that's another realization and understanding that is driving this interest in new things. And it's an understanding that we can't fight today's wars with the tools from 20 years ago.

23:02Allie Garfinkle:What role do ethics play in what you do? Look, it's real simple for me, right? And for the company, it is about how do we ensure that the United States and our allies have the best tools to defend themselves? Full stop. And I think what has happened in Ukraine over the last couple of years have made people realize that that that war is still savage. It's even more so. What's happened in the Middle East over the last, since October of last year, has made people understand that. So the ethics are real simple. This is about protecting our soldiers who are protecting our way of life. And that's part of the great ethos about being in a company like this is that it's about the mission.

23:56It's about protecting the people that are trying to give us the capability to enjoy the lives and things that are the envy of the world. And so the ethics are real simple. Build a great technology and a product and get it in people's hands.