61. Rupert Jones: A Major General's guide to Defence Tech

0:00Welcome to The Difference Engine, the show for tech founders, investors and innovators.

0:10so listeners we've had somebody really really really interesting on the difference engine and the sort of person you wouldn't normally associate us uh with interviewing a man his name is rupert jones and you told me that he's a british army major general that's former former british army major general that's um pretty much at the top of the ranks in the British Army. He is interesting for many, many reasons, one of which is he helped lead the coalition that took down ISIS and clearly is an expert in how you lead organizations in times of rapid change. I'll say 30 years of service. Thank you for that, Rupert.

0:505 ,000 troops under command at one point. Yeah. Crisis zones like Iraq, Syria, Afghanistan, so on, you know, makes a daily commute look a bit tamed. It does. It may beg the question, why is somebody like Rupert on our podcast? Well, because he's advising defense tech startups and as anybody who's vaguely sentient would know the ability to defend Europe has somewhat come up our priority list recently. Yeah, so it seems like we're speaking to the right guy at the right time at the right event. Indeed, and let's not forget there are strong parallels between military leadership and startup leadership.

1:31They're both situations where the wheels can fly off at any time. So lessons to be learned. Let's see what you make of this one.

1:42We're delighted to have with us here former British Army Major General Rupert Jones. Rupert, welcome to The Difference Engine. Delighted to be here. That's a bit of a mouthful, isn't it? It was. I think I did it rather well. You did, brilliant. I did it rather well, which is unusual for me, I have to say. So what we wanted to do was to kick off with trying to get a view on where defense tech is generally in its evolution. I mean, could you start to enlighten us by what you consider is the biggest misconception about the defense tech space is in Europe currently? Yeah, I suppose there's a couple of things, aren't there?

2:17I mean, the first one is kind of almost above the technology. And that is, you know, how does our societies view defense? and we have all been incredibly lucky since 1945 to essentially grow up in a period of relative peace of burdening living standards where wars haven't really touched us. They felt remote. We've sent our militaries off on either wars of discretion or certainly wars that have not touched the public unless you're unlucky enough to have a loved one who was a casualty for sake of argument. And so it's felt very removed. It's felt very remote as you're walking down Oxford High Street.

3:00It just doesn't affect you. I think that's changing. I think that's changing, you know, really very rapidly off the back of what we're seeing in Ukraine and the threat that Russia and indeed other adversaries are posing. So I think societies, if we can generalize, are beginning to feel for the first time in probably our living memory that, okay, this is something that matters. And that might be, we might need to make some judgments about where we spend our budget because defense seems to be a thing that me and my family care about. So that's the first thing I'd say. In terms of the technology, if you like, historically, of course, military technology has been about heavy things, guns, planes, ships, things that go bang.

3:48And those remain vital. Of course, they do. But as in all of our lives, the digital era is changing everything we do in our lives. And the same applies into the military sphere. So it is far more about digital enablement. It's about the cyber domain. It's about space. It's about those kind of really cutting edge technologies and how you bring those to bear in and of themselves, but also integrated with those other things. How do you make an old fashioned ship, software enabled such that it's operating at the pace that the rest of our lives operate at? It is absolutely clear too that the rate of innovation in warfare, as we've seen in Ukraine, is huge at the moment.

4:39So we have to keep up with that. And it makes us wonder that Europe seems to have fallen behind in the big new defense categories with leadership such as Palantir, Anduril, companies like that have come to the fore. and we are yet to see a European company of that stature. Yeah, and I think there's two elements there, isn't there? So there is this idea that war generates innovation and that is undoubtedly true. We can all think of what happened in the Second World War. The pace of technical advancement from 1939 to 1945 was just extraordinary. Didn't Trotsky have something to say about that? He said, war is the locomotive of change.

5:23There you go. So, and it's kind of, it's a quite a nice kind of, you know, visual, isn't it? And I think that is right. So, you know, what you've then got going on, I guess, is in Ukraine, you've got visceral war. And so you're seeing incredible innovation in Ukraine, both if like garage innovation, but also institutional innovation. And we might return to that. So then question, why is it that you mentioned Palantir, for example? Why is it these companies are growing out of the United States and not here in Europe? And I think there's a long and multifaceted answer to that, some which is to do much broader than defence.

6:04It's about entrepreneurism, innovation, finance. Right, because you've got two very extraordinary entrepreneurs at the heart of both those companies. You've got Alex Carp and you've got Palmer Luckey. These guys are characters. Bingo. Is that why they're getting the attention? Well, I think there's certainly a bit of that, isn't there? But so many of the founders and CEOs in the US fall into that characterful description. So there's definitely something about the wider US approach to innovation and investment. As you then pull that back into defense, why is it that they're leading? Well, there's something about the US culture and finance.

6:46There's also, I think there's something about the US have seen themselves at having been at war. After 9-11, they went on to wartime footing. We never did. And you look at the pace at which they, or the rate at which they worked their military through Iraq and through Afghanistan, they were at war. And I think that has created a kind of generation of individuals who've grown up through that. So I think there's a kind of an urgency there as well. Come back into Europe, you know, it's a more diffuse defense landscape, of course. You've got lots of countries and we're all quite small in defense budget terms.

7:29So we haven't necessarily been able to kind of, you know, really cohere ourselves collectively. There are positive signs out there. you know, Andra would be a, for instance, a, you know, essentially a German company that falls into the category, you know, people almost call them the nouveau prime. So the primes of the defense industry, the BAE systems, yeah, Helsing would be a, sorry, forgive me, would be what you'd call a nouveau prime. You know, and historically, we've had these really big multinationals, you know, the BAEs, the Northropes, you know, who really, I mean, they're massive, and they really dominate the conversation.

8:08And now you've got these andurils and these palantirs coming in. And in Europe, you've got Helsing. So there are the early signs of at least a European company beginning to play into that space. Dig into the economics there with the States and the US primes. There's a slight difference in funding, right? So there's a cost plus basis on which Lockheed and Northrop and all of those companies build things. And the new generation of defence companies build things as cheaply as they possibly can and sell them commercially. Have we had that? Perhaps we haven't had that over here yet. No, I think that is fair.

8:46And the wider issue, I think, with the primes is that for a long time, there's been a kind of unholy alliance between our governments and the primes. Both sides find the relationship a little bit frustrating, but they are both in it and need it. And whether that's Rheumatol in Germany, BA here, these big companies, governments need them. Increasingly, governments are going, okay, well, we still need the Rheumatols of the world, but we also need these new entrants and those really dynamic, small companies. But that's quite hard for government. That's quite hard for defence to really leverage what might be a really very small company, but it's got a really niche capability that it needs.

9:36How does it square that circle? And UK defence, our European friends are all trying to make headway on that, but there's definitely more to do. But that comes right down to a very particular point, which is in this new environment where there are new things to play for, where the former military industrial complex is not so applicable, how can European founders compete globally in defence tech? Are there things we're particularly good at? Are there areas where warfare has changed so much that we really have a chance against American defence suppliers? Yeah, I think it goes back to where Europe has an advantage full stop.

10:22And certainly in this country, we would point, wouldn't we, to our research base, our academic base, this incredible seam of talent. And if you can begin to draw them into defence, 10 years ago, these great men and women, young men and women, wouldn't have thought to go into defence. They'd have channeled their intellect into other spheres. Increasingly, they're growing up in a world where they might think, well, actually, defence is something I want to look into. So I think we've got a competitive advantage there. I think the other thing, here we are, BoardWave, and it's a great example of this, it is in the power of the network.

11:05Because it's lonely trying to sell into defence and national security. You don't really know which way is up. Where's the front door? I don't speak the language. So I think networks are really, really important to give companies the confidence to have a go at it and ask themselves, okay, my technology I thought was in the medical field, but actually it transpires there's a segue into defence, but I don't know defence. How do I find my way into the process? Yeah, we've seen that with drones. Dual-use type technologies are very handy and a good option for an entrepreneur to think about. And also if you've got groups like BoardWave forming strong networks, what is it that then the public sector, government, and the military can do to encourage these networks to access them and work with them to create the technologies they're going to need?

12:02Yeah, I mean, I think a whole host of things. So, you know, firstly, be open to them, recognize that much of the very best cutting edge technology that we are going to need in the future is not going to come out of the primes. It is going to come out of relatively small dynamic companies. And so make the sector as flexible as possible to those what you might call new entrants, help them, engage them, lean into these networks. Because historically, defence has been a closed shop. And, you know, defence, if you like, has got to some degree open its kimono to these companies and welcome them in and have that conversation.

12:53And then, you know, I think government defence is not very good at understanding the challenges of being a startup where you've got, you know, you've got finite run rate, you know, you've got a whole stack of pressures. And that's not really how government does its business. It has very slow procurement cycles. You know, it has a very complicated and bureaucratic approvals process, all of which risk putting off a startup or a startup leans into the process. And somewhere along the line just runs out of steam because it hasn't got the money to follow through, for example. So not to take us off track a little bit, but government and military may have been slightly to two sides.

13:38We've seen recently with some of the cyber attacks that there is talk of potentially government recompensing companies that have been hit by an adversary's cyber attack. So much as though it's ideal maybe to try and keep church and state apart, it looks as though you're going to pay for it one way or the other. Yeah, and I think you also, what that talks to is this historic delineation between peace and war. In the Second World War, you knew you were at war. And then you get to the E-Day and you know you're no longer at war. For an extended period of time, that has been blurring away and it just gets more and more blurred.

14:18So we're seeing more and more infrastructure failures in all of our European nations discuss. Would you regard that as war? Is that war for you? No, I would say that's, it's the blurring of lines. So I would describe it as competition. So you are competing, you're challenging. It's a little bit like a child, you know, pestering his or her younger brother. You know, just keep needling, needling, needling. Seeing where the boundaries are. Sabotaging. sabotaging. Okay, did they respond? No, they didn't. Okay, well, I can try a little bit more. And, you know, that's what you've got going on at the moment with, you know, Putin is undoubtedly doing that.

15:03I'm quite certain some other countries are also... And maybe some criminal factors. And of course, criminal actors will be doing that and hiding behind it. And so sometimes the media will assign an attack to a state-based actor. And it may not be at all. If you're in GCHQ, for example, you can recognize the signs, but the way it's portrayed in the media may be rather different. It would be good probably to step back and talk a little bit about your past if you're comfortable with that. And maybe take us back to your time serving in Mosul and Raqqa. We may not be at war, but we made a hell of a lot of movies about those times.

15:44What was it really, really like on the ground there? And what technologies would have made a difference if you had them then? Yeah, it's fascinating, isn't it? So, you know, Mosul and Raqqa, liberation of Mosul and Raqqa, so we're talking this is 2016, 2017. This is when ISIS, Daesh, took over large swathes of Iraq and Syria and were holding the population in brutal bondage, you know, frankly. And a global coalition went and helped the Iraqis and indeed our partners in Syria to defeat ISIS on the battlefield. And, you know, what did it feel like? Well, I think the first thing I'd say is after the, you know, probably quite unpopular wars of Iraq, first time around, and indeed Afghanistan, which were strategically challenged, shall we say, and the public weren't necessarily fully behind them.

16:39And that's not a whole lot of fun if you're the soldier. Absolutely. We then found ourselves, US-led coalition in the Middle East, dealing with ISIS, and it felt very different. It was kind of almost cleansing to go back and be involved in something that was, quite frankly, a clear case of good and evil. Right, yes. And you were liberating people who really, really want to be liberated from brutal occupation. So that was, you know, that was kind of, as a professional, that felt great. The kit was good, because Jonathan was talking about tech. Yeah. So let me come around to that. So was it good?

17:16Yeah, absolutely. It was a US-led coalition. The US were bringing, as were we, some of the most advanced technology in the world. The bulk of the fighting on the ground was being done by our partners, the Iraqis, enabled by us. And I guess what we were doing, as well as advising the senior levels, was doing what you might call the really clever bits. So the Iraqi army had essentially been defeated and we train them back up and we re-equip them we put them back into the fight and they were good enough but they were good enough to liberate their towns and cities with international support so the kind of clever surveillance stuff the airstrikes you know all of that kind of digital conversation the targeting was was being essentially done for them yes was the technology good yeah it was absolutely fantastic well it was absolutely you know global global best practice.

18:10Have we moved on since then? And they call it eight years since? Yes, undoubtedly. But were we bringing to bear the best military technology at that stage the world had ever seen? Yes. But of course, since then, we've moved on several steps further. So what do I mean by that? Well, we all talk about AI the whole time, don't we? Yeah. And there is no doubt, and we're seeing this in Ukraine, the power of AI is allowing the decision action cycle to accelerate. What do I mean by that? So the process by which you see a bad guy doing a bad thing, and you see them, and you orientate to what it is you're seeing, and you conclude, yes, that's a bad guy, and legally I'm allowed to strike, to then go, okay, well, here's an asset, a missile or something that can shoot at it, to then killing that enemy, that historically has been a fairly slow mandorolic process, even as recently as in Raqqa.

19:18You were using surveillance and tools, but the man was the slowest bit of it, and you're joining up the whole process. Now, and the Ukrainians are really leading the way on this, you can use AI to really accelerate that decision action cycle, what we ultimately call the kill chain, the process that leads to a missile, a piece of ordnance killing your objective. Yeah. And one also assumes that the piece of ordnance that you might use to achieve that aim has now changed because of the arrival of cheap drone technology. Yeah, absolutely. I mean, I think for a long time, almost the economics of warfare have been evolving.

20:07So if you've got a 70-ton tank, it's a very expensive bit of hardware, you're going to need quite an expensive thing, probably in old money, to kill it, a missile. And firstly, there's the pure physics of how you can destroy that tank, but also the economics of it. Quite an expensive missile destroying quite an expensive tank. I think we started to see in the Middle East wars where people were using really quite expensive weaponry to kill a single member of the Taliban, where a sniper bullet might have done it just as effectively. Take that forward to where we are now in Ukraine. The economics have really accelerated because you've, as you say, got really quite cheap drones that can now kill a tank.

20:50Yeah. Okay, that's changed. Now, what I destroy that drone with, well, I could use a missile, but again, there's an asymmetry of economics in this. So the trick is, how do I find a cheap but effective tool to kill that cheap drone? And there's a lot of work going on to align the economics, but also just the physical challenge of killing it. Right. So while we're on the subject of economics and funding and getting the price right and matching and so on, what is it that investors who have not been in the defence tech area before need to understand before starting to investigate it, and actually put some money into backing companies that are going to ensure our security going forward?

21:42I think I'd say two things. I mean, the first thing is to understand the sector in its broadest sense, by which I mean, despite the fact the British public, the French public, the Dutch public are more and more concerned about their security, that doesn't necessarily yet translate into the exchequer. So the budget is still very tight. It has increased and it's due to increase again in the case of Britain in 2027. We shall see. And then, you know, under NATO pressure, this country has said, Keir Starmer has said he'll go to 3.5 % of GDP in the next parliament if economic conditions allow. Right.

22:25Caveat, caveat, caveat. So I think the first thing one has to recognize is you're investing into a sector that has been very significantly under-invested in for a long time. The capability, the armed forces, has atrophied. And now the threat has really accelerated. So you're coming from a very low baseline, which means the poor old people in the Ministry of Defence have got a shopping list as long as they're on. Oh, but haven't there's shopping list on the items on the shopping list, as we just discussed, reduced in price in real terms because of dual-use technology, et cetera, et cetera, and cheap componentry and all that sort of stuff.

23:05And isn't it true that the private sector will spot the vacuum and Moore's Law will kick in and the price of kit should drop? You would kind of hope so, wouldn't you? You would hope so. I think the jury's out on that. But I think you would certainly hope so in time. defense i don't just mean uk has typically gone with exquisite things that can do everything it's got all the bells all the whistles and this idea of going a little bit cheap and cheerful which is what the ukrainians are doing very effectively is quite counter-cultural so people talk a lot about it i want my aircraft carrier i want my aircraft carrier i want my fifth generation fighter i want my tank to be able to do everything uh and of course that drives the price point up and up and up.

23:49So you're trying to kind of work against that. So back to your investor, he or she is investing into a sector that's got a very long shopping list, but he can't afford an awful lot of things on his shopping list. That's a problem. And then I think the second thing I would say to that investor is recognize that it is a slow game in defense. You're not investing into the fastest sector in terms of procurement cycles and innovation into core capability and the money flow. So you're going to have to be patient. You're going to have relatively deep pockets to keep in the game. And my God, we still need that investment, but know the game you're getting into.

24:33And so be tolerant of your founders when they're saying, just a bit longer, just a bit longer, because it does take time. It sounds like there's a new class of very patient capital that's needed to fund defence. I mean, where do promising technologies struggle to scale or get deployed when it comes to getting the stuff into the military to the front line? I think they struggle in a number of ways. I mean, the first one is, depending on their background, they struggle to understand this kind of madness that is defence. I mean, they speak in a completely different language, defence. And that kind of matters because you don't really understand what people are talking about.

25:16So there is a kind of genuine issue around translation that matters. And then I think you've got to, fans have got to really listen. In fact, it came up in one of the discussions this morning, customer focus. No one cares about your bit of technology. What they care about in defence is a capability. They've got some problems, they've got some use cases, they've got some challenges. how can you address those use cases for me? And that adds up to a capability. It's not a technology. So really listening to the defence customer and then seeing how you can adapt to their needs. I mean, it's a bit of a nightmare scenario for the old investors, isn't it?

25:58Be patient. The money's going to come. We want stuff we can't have. I mean, very difficult to navigate. Yeah, and I hope I'm not saying don't do it because if you go back... There's a danger, right? So if you go back to where I started, which is, hey, the world feels a slightly scary place. So we need good people playing their role. And again, go back into the US. Why is it that some of these founders, CEOs of the Palantir's went into defence? They went into it because they care. They're nationalists. They believe in their country. And I would say the same about some of our best founders. They're fundamentally good, mission-driven people.

26:37And that mission might take you into the med space because that matters. Well, well, I read defense matters too now. So believe in the mission, be part of the journey, be part of the solution, and good capability will get into the hands of the warfighter. When you consider that, I mean, there's always going to be a gap between the funding the military needs it believes to achieve its mission and what politicians or their electorate are prepared to provide. So in the middle of that, you've got the European tech industry. Are there ways in which that industry can minimize the impact of that gap, which it seems like the poor are always going to be with us?

27:24Yeah, and I think it goes back to listening to government. So if you take the United Kingdom as a, for instance, we had a strategic defence review earlier this year. Did we? Yeah. Big grand statement. It was good. It was a good prognosis of the problem. That doesn't really help a founder or an investor. What's coming out next is something called the defence investment plan. It should be out in the next couple of months. All governments will have an equivalent. And these are the things we think we're going to invest in. So there's a little bit of reading that, seeing where the up arrows are, seeing where government, you know, they've looked at their shopping list and said, ah, we can't have that, but we can have that.

28:03So now kind of go with the flow of where the investment opportunities are, where the UK defence is going, okay, we have decided this is a real priority space for sake of argument. We've got to increase our space capability. And when you see that in lights, you know, the investors, the tech companies need to be answering the mail on that and not trying to push into capabilities that the warfighter still needs. But if the government says it's not going to invest in it, then there's no point in trying to push against a brick wall. Well, I think that's a fascinating difference because normally in general tech, you spot the problem, love the problem and build to it.