20VC: Anduril Co-Founder on How a Trump Administration Changes the Defence Industry | What Happens Between China vs Taiwan, Israel vs Palestine, Russia vs Ukraine | How Software Changes War & Why TikTok Should Be Banned with Matt Grimm

24:46And like often, time -dare different incentives at play that lead to a little bit more of a kind of communistic or socialistic approach to the defense sector that I think is fundamentally bad and is ultimately squeezing out kind of the crazy entrepreneurs and the crazy inventors from working in the sector. So the third point that I would change would be way less cost -plus contracting. way, way, way less cost plus contracting, moving many more things to firm fixed price, and then being comfortable. Just for those that don't understand what is cost plus contracting. Oh, man. So, if you've spent any time around lawyers or accountants or folks of that type that bill by the hour, so what happens on these large defense procurements is that one of these prime contractors will come in and they will pitch a PowerPoint slide about how they would do something, and then they hire engineers to build to that vision, then they build those engineers to the government at an hourly rate with a fixed margin.

25:38So that's a cost plus. So it's the cost us this. There's a fixed margin on top of that. And then they charge that back to the government up to the limit of the particular program budget. So it ends up happening. And it's like, you know, I started with lawyers and accounts for a reason is like, when you incentivize someone to work by the hour, hey, it will take more time. And when you incentivize somebody to work by a firm fixed price, it'll go a whole lot shorter. So let's say if you take those fundamental incentives and then you extrapolate that to the entirety of the industry, there's actually not a lot of incentive for the existing prime contractors to make the plane cheaper or faster, fundamentally not the incentive.

26:18What they're incentivized to do, given that their profit margins are ultimately driven by how high they can drive the cost up because they get a firm fixed margin on top of that cost, then you get the behavior that you incentivize. And I think like if you look at some of the statistics and some of the performance of these companies, honestly, it's kind of hard to blame them. It genuinely is. Like the stock performance of the top five defense primes in the US is wildly outperforms the S &P 500. I have the statistics right here. I wrote them down. What are they? I didn't know these. Yeah, so Northrop Grumman over the last 15 years has had a total compounded annual sharehold of return of just over 20%.

26:55Lockheed embellwing or just behind them at about 15%. the S &P 500 over the exact same time period has an 11 .6 % total compounded in what we turn up. So I'm thinking about this as a... Why is that when they have a shitty structure of cost plus that doesn't really incentivize them to be that innovative? I'm struggling to understand this premium. Yeah. I'm enjoying the light bulb going off. What's happening is that the incentive structure within the Pentagon within the procurement office has said like, this is how we prefer to do business because we don't want to have our companies make too much money.

27:29So this firm fixed margin is something like 8 %, 9%, 10%, they're about depending on the particular contract. So that's how they've structured many of their large procurements, including the F -35, including large submarine programs, have all been designed under this kind of cost plus type structure. So what the defense primes have gotten very good at, is they've gotten very good at figuring out ways to take their overhead kind of corporate costs, including their buildings, including their HR departments, their finance departments, their legal departments, all of these, the rightee infrastructure, all of that.

28:00Bundling that into that cost number on the beginning part of the equation, then taking that firm fixed price margin markup on top of that, such that that free cash flow that comes off of that contract, actually pretty, pretty free. So in the company's performed financially very well, including some wild stats about stock buybacks and dividends. Last year alone, Lockheed Martin to 2023 numbers, Like he'd Martin spent six billion dollars on stock buybacks. They only spent one point five billion dollars on IRAD, and it's just called Internal R &D, their own at -risk funding of research and development.

28:36It spent four times the amount of money on stock buybacks than they did on at -risk research and development. That's wild. That's wild. That's completely upside down from how any technology company, how any software company, how any Silicon Valley type company operates. But I don't understand that. And the reason that they're doing that is because that's the incentive structure that exists within government procurement is rewarding that kind of behavior. So what I'm trying to propose in a new administration, kind of a new worldview, a new approach to these contracts is like, stop funding that.

29:07It's not working. You're not getting the best technology in the hands of soldiers. But fundamentally what you are getting is you're getting technology that is two or three generations behind. Because by the time you go from a requirements document to a PowerPoint proposal document to hiring the engineers to developing the thing on a cost plus basis, which takes exactly as long as you think it would, very long time. And then into a fielding and ultimately into a support mechanism for that whole procurement, by definition, you're operating on requirements that are a decade, 15 years old, there are two or three cycles behind where the current state of the art is.

29:38So how long is it from my first deck to your deployment? That, and how long is it with you? Yeah, so it can be upwards of 15, 20 years to go from first requirements document to full fielding of a system, which is way longer than most Silicon Valley companies have been alive. A wild amount of time. But it's like, I'm really enjoying your face right now. But then it's like, I can feel you because if you think about a conflict in Afghanistan, the terrain and the geography of a climate will drastically change the type of equipment that you need. No, I mean, if you remember in the early days of the Iraq war, we sent American soldiers and British soldiers, it into conflict in Iraq in soft -sided humvees where they were just like bullets coming through the canvas on the side.

30:24We were equipped for a different kind of conflict. And then over the course of the 20 years that we were at both in both of those conflicts, we innovated and developed these M -raps, these kind of mind -resistant vehicles. We put armor on all of the humvees. We totally transformed. It a lot of like IED defeat. Is it possible to have 6 to 12 month cycles are my totally dreamy and old. 6 to 12 months would be very hard. I think a two, three year cycles extremely believable, especially if you architect your products to be pretty modular, if you architect your products to be upgrade friendly, design your products around a software kind of mentality where you can thinking similarly to how Tesla approaches their fleet of cars with their over -the -air updates, pushing pretty frequently.

31:04If you take a software first approach who a lot of the products, yeah, I think you can get a lot shorter than a 5, 10, 15, 20 year, kind of life cycle. You mentioned the market there and the kind of the prime is being structured the way they are. Is this not a bad market? Forgive me in the way that I was trained on the winner take -all, winner will accrue 95 % of the value and the second will take 5 % of the value. The very structure of this market kind of denotes that actually no government is going to say 100 % buys with Andrew Earl. They will always be, of course, he's got it. We wouldn't propose that.

31:36And they'll always be pretty scattered. And so does that go against the idea of winner take who and is this market good as a result? I don't think there will ever be a venture style dynamic of a winner take all. I don't think this is a situation of like Google versus Yahoo where one is the obvious dominant winner by 10x and then there's the other brands. I don't think that's going to be anywhere close to the case in overall defense spending. So kind of goes against that thesis. Sure. The inverse of that is that it is a gigantic market and it is a long and during market. I have a couple of stats here to throw at you.

32:11In 2024 alone, US is spending about $880 billion on defense. The UK is spending about $73 billion more. The EU member countries are spending almost $300 billion on top of that. Australia is spending $45 billion on top of that. And that's before we start talking about other partner nations like Japan or like Taiwan or Middle Eastern allies or any of that. That's purely just looking at like this year's spending. It's like over a trillion and almost a trillion five in spending, big number. My point is just that this isn't a kind of new emerging sort of like, oh, I wonder what that gross sector is going to look like.

32:47It's not that at all. It's a like big enduring very reliable sector. The other thing I would say kind of bringing it back around to the political positioning where we started the conversation is that defense spending has largely remained fairly flat and kind of grown pretty predictably, almost linearly, over Republican administrations, Democratic administrations, same in the UK for what it's worth. So from a perspective of like, do we think our customers will be there buying important technology in five years? Of course they will be. So yeah, I think there's a couple of pieces. One is like, I don't see it as a through winner take all.

33:20I don't see it as like lucky, bowing, northrup, Raytheon, etc. We're going to take all of them down. Don't tell that at all. I think it's going to be like, we're going to become the sixth prime alongside them and that there's still plenty, plenty, plenty of food to eat. How much did the US spend? 880. 880. Yeah, wow. How much did the UK spend? 73. 73. Okay, but let's look at that. 880 versus 73. That is 8 % or 8 .5%. Is the US spending too much or is the UK spending too little? UK spending too little by a wide order of magnitude. What should it be? closer to the two and a half, three percent of GDP that everyone's committed that they should be spending on NATO.

33:57It should be, my guess, is like 50 percent higher than that. More importantly than a particular dollar amount, they should be spending it more efficiently. And the UK, like the US, is not. Well, I think about 2 percent of UK GDP now is about $10. I wouldn't be too... You're a comment, not mine. But my question to you is, was Trump right then, and suggesting that the EU should be spending a lot more on the US, should be spending less on EU defense? Yes, absolutely. What happens then with your five primes that respectfully? If they're doing buybacks and non -investing in R &D, I mean this in the nicest way.

34:32Do they consider Angela Threat? Do you think they would consider our approach to technology development, to be a threat to their style of technology development and their style of production? Yes, I don't think they view us as Andral it's ourselves. I don't think they're they're thinking of us every morning. I do think they view Cost plus versus firm fixed Mindset as being particularly impactful to them And what we see the nationalization of different providers and what I mean by that is that we have Andral in the US we have Helsing in Europe. What we have favored Putch thing by those nations.

35:15Oh, we already do. We already do, yeah, for sure. And there's an agenda within each of these countries, within Australia, within UK. This isn't anything particularly new. The British government, like the US government, or like the Australian government, wouldn't be comfortable taking British taxpayer dollars and funneling them straight to Ambril, US, in California, to buy new kid or new technology or new drones or new missiles. So one of the strategic moves we have made is to invest in teams and engineers and production capacities in each of these countries, including the UK. So that UK taxpayer dollars gets spent within the UK to manufacture UK variants of a particular product that we make.

35:57We will see this in every country. So the thesis is basically taking core IP and then localizing it to work with your radio standards, your existing platforms like helicopters or platforms. claims or drones or warships or whatever, but requires a little bit of customization. That's just a slightly different platform, slightly different technology. We adapt it into the UK standard and then manufacture it here, deploy it here, support it here, field it here with British citizens based here in England, like sovereignty agendas what they would call it. What percent of your budget is R &D? Our budget?

36:34Yeah. I'm just wondering comparatively to the 1 .5 % of one of your primes. Yeah, we spend, I'd have to get you the firm number. The number I'm gonna throw out is gonna be... Range -wise is it like 10 to 15 percent? Oh no, no, no, no. It's like 60, 70 percent. Huge number. Like, Andrew, we're gonna do, we're doing very well financially. This year, revenues off the charts, and then we reinvest every single nickel of that, right back into future growth. Like, we're still evident negative as you'd expect for growth stage start -up like us, But we spend a massive percent of our revenue. I think it's super easy to ban.

37:10Banching incumbents. Everyone does it. Yeah. What did you learn? This is the venture capital committee, of course. Of course, everyone who has come before is, of course. Shit. What did you learn from them that they've done well? Yeah. That you actually want to take with you? Yeah. I think a few things. There's a political piece of this, that I think we have a lot of lessons to learn on impacting the appropriations process, impacting the legislative process, having our voice heard in different kind of policy approaches coming out of Congress and coming out of Pentagon. I think there's a lot of lessons to be learned there.

37:43I think there are good lessons to be learned especially on what in our business was and referred to as MRO is essentially the long logistics tail that comes with deploying one of these products. Unlike a Silicon Valley software company where you you hit upgrade on the cloud servers and then well all your customers have a new version just fundamentally not how our business works where we have soldiers using our products deployed all over the world and you can't just click a button and magically upgrade everything. You can upgrade some here, upgrade some here, upgrade some here. There's a real kind of logistics and fielding piece there, but as of today, they're better at than we are.

38:20I think we have a lot to learn there. And then the last piece that I think is kind of an interesting one and might get us to some other interesting conversation topics. I think they've done a really good job at appealing to a patriotic, current, and influencing folks who want to come work and have, you know, defend their country and be patriotic and influence the national defense sector and encouraging them to come work on these problems, I think they've done a really good job. They hire a lot of people, they have a lot of employees, they have a lot of offices, they have a lot of production factories, they have a lot of folks who work there who believe a mission and a vision and I think there's something to be taken from them.

38:54If we're being blunt, is the most ambitious technology -oriented people want to go and work a lot keyed? No. So have they done a good job with that? I think they have done a... I think you can have to bifurcate a little bit, right? Because there is a... like an ambitious AI software engineer type of mentality, and then there is a production assembly line fielding training type of mentality, or different people. Yeah, they have in a certain category. And I think that's where we have some some more things to take. What have you not done that you wish you had done? Oh man, my joke comment is that if I if I only make two mistakes before lunch, it's a good day.

39:34So it's like, there's a lot of there's a lot of things I would like a couple of things. I think taking a stronger corporate position on remote work, a frequent topic within your podcast and your in your world. You wish you'd said no to it? Which would we take any more definitive negative stance? Yes. What did you do? You just took a license? I wouldn't say laissez faire. No, we have a default in office first kind of approach, but we especially through COVID and then through kind of the spreading of people with COVID and then trying to get people back. It has been harder for us to get that kind of core group back together.

40:12So I wish it would be more definitive. We should be more definitive. Yeah. In the earlier days of that kind of evolution, what did you do that you wish you hadn't done? Oh, man. Again, a lot. There's a few things I would say here. First thing is we made a, I made a conscious decision. Little over a year ago, you're going to have to go to attempt to non -linearly scale our G &A support functions. So things like our business systems team that does our internal tooling, our HR team, our people business partners, support their managers in our organization, our IT operations team, our facilities team, and what we are trying to achieve is we are trying to achieve a non -linear kind of return on those types of heads.

40:59Can we build an automation? Can we utilize AI? Can we take a different kind of approach than a traditional type of company that ultimately will get to a stronger cost margin profile if we can kind of condense that G &A segment of the spend that was just a shit decision. Why? It seems highly logical. It seems logical and it sounds on paper. It sounds like a kind of thing that a... Why would a McKinsey consultant would tell you on paper to condense spend? In particular, on two areas, it really kind of hampered our growth and it was a long -term strategic mistake. Looking back, I wish we hadn't done this.

41:40First is on the business systems side, and this is kind of gets to one of my favorite quotes. I literally have this printed on my wall in my office is the Elon quote about production. I want to get the quote right, I have it written, is the extreme difficulty of scaling production of new technologies not well understood. It's 1 ,000 % to 10 ,000 % harder than making a few prototypes. And the machine that makes the machine is really the genius and is really the hard part of getting full systems into production. What that means is there's a lot of guts to running a big hardware company like us that are completely unappreciated by the average certainly venture capitalist or investor a little on the public that goes into like supply chain management, procurement management, the sales and operations planning, which gets until like literally the guts of like how many fasteners should I buy, how many brackets should I buy, how many sensors should I buy into the pipeline planning, this is sort of the whole CRM side of things, into the back end financial engine that kind of makes all of that work that ultimately your auditors have to interact with to stamp and audit at the end of the year.

42:49Was it all this was a mistake? It's obvious now. It wasn't the time. Not at the time, it wasn't no. So what we should have done at the time is take a big swing and say, we're going to make massive investments in ultimately head count and then platform spend to kind of the tools that those folks build to build a unified kind of operating system here. We're doing that now. We announced this publicly. It's called LOS. We've hired a whole bunch of heads, but in retrospect, I should have done that two years ago, and we'd be in a much stronger position now. How do you think about your relationship to regret?

43:21Oh, man. I think that anybody who tells you they have no regrets is lying, and they're trying to put on a face.

43:33They're and introspective reflective regret. I'm incredibly introspective. I'm incredibly self -critical. I like to joke around and roll that I'm our harshest critic. And I actually view it as part of my job to be continually pushing to do better, to go faster, to be more perfectionist. Do you wonder about the impact that has on culture? I'm the same. Oh, 100%. Because nothing's ever good enough, and nothing's ever false, nothing's ever right. And even when it is, it's like, well, that's what I said it should have been. Yeah. No, but that's not great for teams. It's good for high -performing teams.

44:06Not great for shit teams. Sure, but high -performing teams still need math. That's awesome. Well done. Yeah, sure. You can do both. It is very possible to have a customer demo go very well and have the customer walk away and be like, man, that was great. I'm really excited. Like, look forward to meeting next week, talking about pricing and next steps. Ah, this is really great. Thanks for taking the time when they walk out and they close the door, get in the car and drive away. And to turn around and be like, oh, all right. Great job, team. Let's talk about the three things we can do better next time.

44:33That's absolutely totally doable. You can both celebrate your achievements and your successes and aim higher and better next time. Those things aren't mutually exclusive. And I think if anything, and this tends to happen a lot in the valley and certainly amongst VC world, is a naval gazing at how amazing you are and a self -puffery of like, oh, we're the best. First of all, hubris kills everybody in the long run. So you can't have that. And second of all, is just objectively false. like in any individual circumstance, you were always misplaying things. To it, I guarantee at the end of this, I wanna listen to this interview, no less than four times, making notes of different tax I could have taken, or different points I should have made, or different arguments I could have gone down.

45:12And less because I'm neurotic, more because the next time I wanna do better. And I think that you can take that mindset, you can take that approach, and bring that to everything from our facilities, to our IT stack, to our recruiting process, literally everything, as a company, We should be in a position where we say like, okay, great. We achieve that milestone. What can we do better next time? What's the learning? What should we change? Is it good decisions? It's good day. Always better than the perfect decision tomorrow. Yes. However, I think that point is kind of hyperbolic. If the decision is truly genuinely tomorrow and there's new information that is coming today, you know, waiting for tomorrow was better.

45:50That's in practice, it's not actually the point that the question is trying to get at. The point that the question to get at is like, over analyzing, over data collecting, driving to consensus amongst large committees over many, many, many, many months, getting to a group think decision at the end. Yeah, it's always net worse than making a quick decision, seeing the impact of it, learning from it, and then maybe changing course, maybe changing tact completely. Yeah, almost always. How much money have you raised to this point? Who give it a take? Give it a take. Short of debt, it would be about four billion, with that it'd be about five billion.

46:29Who runs the fund -rise process? It's changed over the years. So in the early days, and this is because our investor profile has changed over the years too, and surely you have the notes of who's led the each round and who's participated in each round. In the early days, it was an exclusively tray who'd run our fundraising processes. and he would put Palmer or me or Brian or some of our key engineers in front of investors at the right time to get to whatever questions they had or whatever their concerns were, but really it was orchestrated by Trey. In the later years, that's the more recent years that's shifted to our CFO Bobbock.

47:05Do you think he's raised enough? You've been lean. You could have done more. If you had the time again, could you have done the same one too? No, absolutely not. Absolutely not. I mean, I think there are certainly individual or in D efforts. I don't think I would say, oh, we could have done this on half as much money. No, not at all. I mean, if anything, I think we should raise more and go faster. I spoke to a founder the other day who said the hardest thing that I face today is two -class of citizens within my companies. Those that take secondaries and those that haven't. And kind of the OGs who have been there and deservedly have.

47:38How did you think about the secondary decision? The ability to let people take secondaries, how much, how to provision that. I didn't know how to say this nicely. Antel has a lot of investors through different SPFs and family offices. The amount of antelope investors I've met is a lot. How many of them are lying? Do you want, I think, a lot of it is, hey, one person didn't SPV and got 25 investors for it. And that then needs to 25. People say I'm an investor. Yeah, and there's a fair amount of kind of noise on the second area is about an SPV of an SPV of an SPV. There's a lot of noise. Yeah, yeah.

48:15How do you feel? SpaceX had a similar thing. They still do have a similar thing, right? For sure. How do you feel about that? How do you think about that internally? I think there's something you want to lock down. Two sides of it. They're kind of conflicting. On the one side, I'm like, yeah, secondaries are a good thing. You want these folks to be able to have that freedom. And it's worth noting that every time we've done one of these structured tenders, we've had a relatively low participation rate in them. Somewhere in the like 30 % range of the percent of shares that could have been sold that were eligible to be sold, that folks actually did sell.

48:50So like a fairly low blended average of folks who are selling their shares off, which I take as a great sign that employees are very excited and very long. The inverse of that is the chaos of the secondary market. and I think my reputation for hating the chaos of the secondary markets pretty well deserved. I think there is a lot of what I would describe as pretty scummy behavior that happens in the secondary markets where what is this scummy behavior? So these SPV brokers, they are operating with very low information. Like, Andrewl has never once ever approached an SPV broker and said, hey, here are detailed financials.

49:27Here's our detailed strategy. Let me avail our management team for different interviews or different kind of sessions. They are operating off of a very limited set, basically headlines, which are almost always wrong. Then turning around to investors who are either desperate or just kind of carefree and saying like, I got an opportunity to invest in Android or SpaceX or OpenAI or whatever other kind of hot company that they've been able to wiggle some access into. Here are a couple of headline numbers. A lot of those investors don't understand the fee structures that they're getting into. A lot of those investors don't understand even the structure of carried interest and what that looks like.

50:08And so what is fundamentally happening is you get a representation of bad numbers to relatively unsophisticated investors on the other end who are paying pretty steep premiums to what we would describe as the fair market price with usually pretty ugly layered fees on that. with in some cases pretty material misrepresentations and we've seen some SPVs going around to folks who are fundamentally lying about what shares they have access to, what vehicles they're investing in. Is that not a financial crime? You're like misrepresenting to in G -Hot. 100 % it is. 100 % it is and when we've seen it, we've called folks out and said, hey, that's just not true.

50:46The most classic of which is where someone says, oh, we have direct access to andro primary shares of their last round. There's something going around recently if somebody who is like, we have access to the second close of Andrewll series, F -rays. And it's like, how are you talking about? There is no second close. The round has been closed for four months. This is done. So what you're saying is like you're buying shares from somebody who did invest. Okay, then say that. But that's not what they're saying, what they're making it sound like is just a totally fundamentally different position. To what extent is the owner's not on you for that?

51:18So if I take, for example, Nicolai Ravoulouche, he has fucking controlled that cap table just watertight. Yep. We've tried. We've tried. And to a certain extent, you can't totally control. You certainly can't control fraud. Fraud's going to exist. And I can guarantee that someone out there believes that they invested in their former roommates, boyfriends, SPV and own SpaceX shares, Oriander, or OpenAI, or whatever else. And actually what they're doing is they're funding that guy's co -cavid and the Bahamas or something. guarantee that stuff's happening and it's like, I can't control that. What we can control is who has direct access to the capital, who has direct access to androles strategy, who has direct access to androles financials.

52:02And beyond that, we kind of can't control some of it to be honest. What specifically has Andrew all done to be the break out success that it is? I asked Trey the same question and he gave me a great answer, which I'll reveal to you after. Yeah, you can't tell me ahead of time that would ruin the surprise. My answer would be twofold. I think first we have unlocked what was a latent patriotism within the technology and defense sector. I say latent because if you look at the momentum through the early 2000s into the the 20 teens, the momentum in the tech sector amongst kind of the zeitgeist amongst the employee kind of mindset was not one of patriotism.

52:50And to your question, you know, half hour ago, whatever, like, are the best and brightest going to work at Lockheed, etc. Like, no, there was not an interest in working in the defense sector. And I think like, Andrew has unlocked that kind of latent talent to wake up and come work on problems that we view as the most important problems facing the world right now. We've unlocked that. The other half of that kind of card there is also by unlocking an incredible amount of funding and investment into this sector that had also been historically lacking for this kind of segment. To your point about, isn't this a bad customer?

53:28I'm used to winner -take -all. That's a lot of investors. That's a lot of traditional VC -style investing where you're thinking about the next ad tech company or the next social media platform or something. and like, cool, I get it, fine, power to you. That's not this sector, and thus through the 2000s and then the 20 teens, investors weren't investing in this area. And I think that we were able to both unlock that investor enthusiasm and then pivot that into unlocking this latent kind of patriotism in the tech talent base and be able to align the two of those on this mission set. And ultimately, at its absolute core, I know this is going to sound cheesy, but at its absolute core, like a company is made up of their people.

54:08If we can get the most motivated, the brightest, the hardest working talent who work on these problems, then we will get good results. So it's true. Actually, you said the reason why you've been successful is the composition of leaders that you have in the firm, which is able to be incredible execution in you, incredible product mind in Palmer fundraising ability in tray. Ability to sell into government as well in in a Brian and Trey, very different skill sets. And there are a lot of fans companies where you have one of them and not any of the others. And that is not enough. So great. Which leaves me to my other question, which is we're seeing a ton of spending in defense in terms of venture investments.

54:48What happens to all these venture investments in defense companies? Ultimately, I'm a little nervous about a lot of these companies kind of getting over their skis and then getting one or two fund raises under them and then realizing it's a lot harder than it looks on paper and ultimately struggling and probably, probably imploding. As a venture investor contemplating investing in the market, what should I know that I don't know? You should know that the androle of X is going to be androle. Your best bets probably buying as many androles shares as you can. Beyond that, I think what you should know is that execution and delivery and actually winning these contracts, winning these long -term programs of record, incredibly complicated and fraught with incredibly complex regulations, compliance, accreditation.

55:34There's this whole world of very messy back office stuff that is admittedly not sexy. It admittedly doesn't make great headlines. But saying we've got a new missile, it's going to be great. Like cool, does not a successful missile program make. And there's a huge gap there. So as a new investor to the segment, first of all, I would say you're unlikely to drive venture style returns by being kind of consensus, but like beyond that, truly spend the time to appreciate the complexities of the appropriations process, the budget process, the awarding and winning and supporting and delivering of these.

56:09Because we're seeing like defense funds being created. Yeah. And I'm like, this is not an asset class in itself. To gender. No. No, you agree with me. I agree. Absolutely. As a component of a diversified defense sort of investment within a broader diversified portfolio, I think that makes sense. Absolutely. What do you think of Helsing? Oh, we love them. Good relationship with them. I hope they succeed. We've talked with them a couple of times about central collaborations. We'll see where they end up. Final one for you to equip fire. Before we were chatting, I said, you know, a big thought that I've had is, you know, So, Penny has got to move to the valley, and I didn't.

56:45And you vociferously and passionately said that, no, you should have done them wine on out. Can you just unpack why you reacted like that? Absolutely. I think in your business, your mandate is to find the brightest folks working on the most emerging problems that aren't going to see market for two years, three years, five years, and aren't going to be successes until 10 years. And I think fundamentally what that means is you should be closest to where I'm turning into like like old guy advice guy over here. You should be closest to where the nexus of that talent is. And I think ultimately in the technology section, this isn't to say that there aren't exceptions.

57:25Of course there are. I can't wait for the tweet responses. But like the highest concentration of talent working on what I think is going to be the next generation of problems that the world faces and the next generation of generational segment defining companies. a lot of them are in California, man. You think venture has lost its way then, because you just said they're not gonna see market for two to three years. We here have in the last decade been brought up on the Lean Startup methodology, get product in the hands of customers, focus on SMB accounting tools and e -commerce, optimization, cart abandonment products, has venture lost its way focusing on the wrong things?

58:00I think it's finding its way back. I do think venture lost its way. And in pursuit of that early fad that next kind of quick trend, that next quick pop. And of course everybody, like I get the incentives, I totally get the incentives. Being in the sexiest company that helps you raise the next fund that helps you get the next logo on your page, it helps you generate kind of the LP enthusiasm, I totally get the dynamics. But nonetheless, I think that the enduring companies, the companies with real moats, that I think are gonna be around for a long time, ultimately have real technological innovations at the heart of them.

58:35The thing that worries me though is like, clean tech was a fucking horrible venture performance in 2005, 2006. Yeah, almost took out a couple of, I kind of, feces. Almost took out a couple. And my point of saying that is just like, it is a very different style of investing, analyzing a FinTech procurement platform versus analyzing Andrial. And we have a generation of investors that are very skilled and talented at the SaaS investing, but that is a very different capex structure company build to what we used to. Is this generation of venture investors equipped for that next generation? Inplicit in your question is a assumption that VCs and investors will use the same templates from prior investments on to new investments, which VCs are generally pretty smart.

59:23Like they're generally pretty well educated. They're generally able to learn new things pretty quickly. they wouldn't succeed in venture, they wouldn't get to partner status. I think we're going to see a different mindset. I think some of them are going to be good at it. A lot of them won't. It's just like any other kind of evolution in the valley, any other kind of evolution in the sector. So I think it's going to be tough times for some of them, but overall I'm optimistic, overall I'm excited for all the money pouring into the sector. Are you ready for a series of un -fight questions that will make you uncomfortable?

59:49I don't think they will, but okay. If you were to raise again from one investor, who would you take? Found her soon. Hands down absolutely every time. Why? It's literally in the name of the fund. Their job is to make bets on the people. And throughout their history, this is demonstrated with their relationship with Androle as well. Demonstrated with their relationship with me personally, they are a ride or die stand by their founder's kind of organization. A lot of VCs will say that they are. A lot of VCs will make that claim. And then actually when push comes to shove, they're not. Can you share an anecdote of when they have done a ride or die fee?

1:00:23They have gone to bat for us in numerous times with VCs who were either uncomfortable with the, and these are in the early days, post -Ukrain, all of this has changed. In the early days, when people were very uncomfortable with the ethics of defense, especially in a Trump administration, if you remember at the time, like Trump had just won, it was very controversial in the valley, at least. And there was this like, can we trust them? What about defense? We don't know. There's like this ethical kind of quandary that a lot of VCs are struggling with. And Singerman himself personally, multiple times went to bat for us and said, You're absolutely insane.

1:00:56These are good folks with good ethics and good morals, and this is absolutely technology the world needs, you have to get involved. And has personally gone to bat for us and helped us. So that means a lot to us, to stand by us. Any list of top tier VCs, etc., people who publish the list that doesn't include founders fund at the top is a laughable list. What if you changed your mind on in the last 12 months? I have changed my mind on the importance of business systems and nitty gritty weeds of business systems integrating together leading to an effective manufacturing process. I know why it was a very stimulating dinner discussion, isn't it?

1:01:38Yeah, let me tell you about your P .I. D 'on. I want you to work on today. I'm like, oh, yes, Salesforce APIs. Yeah, and the morning I got sanctioned by China. And then you want to take out the future of ERP for rice? Can I give out the other college guy? Biggest lesson from working with Peter Teele. You're a miss role before. Biggest lesson from Peter is that there's no alpha in consensus. Peter is famously a contrarian, etc. The point is not to be disagreeable. It's not at all the point. The point is that if everyone agrees, if the consensus is X, then there's no alpha in because by definition you were just going to perform exactly as well as literally everybody else's.

1:02:18So the alpha, the actual interesting signal, the investable signal, the differentiated signal is in being contrarian. And it's very easy to say that, it's very easy to read. That is very easy to be like, oh yeah, totally get it. Incredibly hard to implement in practice. If that were the case, would you be not investing in defense now, though? Because everyone sees defences as a very investable opportunity. I think I would not be investing in defense at some of the evaluations that these early stage companies are pulling down, because I think there's a sort of a view of a venture return in some of these companies that I think is going to be pretty hard to achieve.

1:02:51Is Andrew overpriced today? I don't think so. I think Andrew is underpriced today. What's it, 15 billion? 14 billion in the last round. Who's counting? 14 billion. 14 posts in the last round. Okay, so 14 posts in the last round. What does it take for Andrew to be 100 billion? I think really what it takes is full scale production, massive scale production of robot Plains, robot subs, more drones, more missiles, more everything. We've got a lot of building, a lot of investment to make there, but I think that's really what it's going to take. And then really just continued operational excellence and continued delivery.

1:03:23It's hard. I can't believe I'm going to ask this kind of Joe, I'm going to ask question, but I'm just to entreat how realistic is the Robo Dog weaponized with guns as the future of war? Is that like, is that possible? Am I being completely parried? It's very Joe, we're going to have you. Robo dogs color me skeptical robot on robot warfare I think is pretty likely. I think we're kind of already seeing it. If that is the case, surely we are destined to win. I mean this in the nicest way, but if you're fighting in the hills of Afghanistan and we have, you know, 50 robot dogs or robot planes or whatever robot we choose to have and you've got local militia or whatever it is, it's not a fair fight, is it?

1:04:01If that's how you think the future of warfare will play out, then no, it's not a fair fight. I don't think that's how the future of warfare is going to play out. How does the future of warfare play? We're seeing this in the conflict in Azerbaijan in 2020. I think we're seeing it play out in Ukraine right now. I think we're seeing it play out with Iranian missiles that they're lobbying at Israel from Western Iran. The way it's playing out right now, you think about it as like a kind of an indigenous kind of like local tribal kind of warfare that's not what it is. What it is is that these countries, these adversaries, and make these drones in massive quantities for incredibly cheaply.

1:04:39A Iranian Shahed missile, one of the missiles they mostly use, goes pretty slow. It's just a drone. They can make it for in the neighborhood of $50 ,000 and just incredibly cheap for these missiles. They'll either give them to the Russians, that the Russians will shoot them to the Ukrainians or they'll just shoot them at Israel from Iran. Very cheap. Then it takes us a $4 million Patriot missile to intercept one of those, or at best, a million -dollar -ish Irish missile that made by SAB. Those missiles way more expensive. So if you play out and you're like, what is their manufacturing capability of those $50 ,000 drones, very, very, very, very high.

1:05:18And then, okay, we have to then launch either our own very expensive missiles, our own very expensive planes to then go fly up behind and shoot these things down. ultimately that kind of cost curve and that production curve is not in our favor. And if you look at some of the kind of statistics out of Ukraine, I could sense some of these, to you have to show, they're incredibly scary of the amount of munitions that get expended in the first couple of weeks of one of these nation -on -nation conflicts. And the US right now does not have the production capacity in order as the UK, in order as Australia, kind of the West at large, to make enough munitions to fully equip a prolonged nation on nation conflict.

1:05:55So if you think that the war looks like what it did in Afghanistan, then yeah, of course drones and technology will make it and have an in -balance unfair fight. I don't think that's what it's gonna look like though I think what you're gonna see is you're gonna see a reigning agitators equipping those forces with these very cheap drones in large quantities in a way that then like we simply can't afford to to defend ourselves from in the long run. That's where it's gonna get super interesting. So our whole thesis is about driving down the cost and driving up the production rates of those various kind of defense mechanisms and munitions in order to get both keep up with and ultimately out compete.

1:06:31Sure, McGuire said on the show with that in mind that Iran is the greatest evil. Do you agree? Yes and no. I think greatest evil? Probably yes. Most complex and difficult adversary for the West, I would say no. Who is? China. Hands down. I think the mindset of the PRC, I think they're approached to basic human rights. I think they're conducting of an ongoing genocide with their weaker population. I think they're approached to free speech, to political assembly, to religious freedom, are fundamentally antithetical to how the West values human life and how we think about human rights and what we're on this Earth to ultimately do, fundamentally antithetical.

1:07:13And I think if you look at both the sheer populations, a very big country, you look at their production capacity, a lot, you look at their control of the supply chains that we already talked about earlier, and then you put that together with what I view has been a pretty well -demonstrated, least ambition for empire building, whether that's through Belt and Road in Africa, whether that's through invading Taiwan. If you look at them increasing their influence on the global sphere. Also, I control of African mineral supply. It meant you spoke about it earlier in terms of the second third and fourth, and I was just actually thinking, when you look at their ownership of cobalt, for example, very worrying.

1:07:50And the lack of strategic expenditure that the west have had, that they have had a meant -see strategic expenditure in terms of their acquisition of mineral supply chains. Yep. Terrifying, isn't it? So I think to your question about Sean, is it the most evil? Yeah, I think probably, but I think on a global competitive sort of long -term landscape, I think. Should take to be banned in the US. 100 % absolutely yesterday, if not years ago. Because? Can you get Instagram and China? No. Yeah, end of debate. Is that the right approach? 100 % it is. Absolutely 100 % it is. They ban it, so we ban it. No, I think it's more complex than that.

1:08:27I think it's that what you are mainstreaming into the central cortex of the American psyche, especially our youth, especially our teenagers, our college age youth. Like your mainlining is certain type of message to them. And I think like there are parallels where it's like if you look at what Twitter now X was pre -imposed Elon's purchasing, like it's a different tone. It's a different type of thing. They're promoting different content there, or they would say not promoting some content. You can see in the zeitgeist how what content is getting promoted through different social You can see the same thing on Instagram can affect the psyche of a population and what we are willingly doing is we are willingly letting a Strategic adversary control the knobs on what gets mainlined into the psyche of our youth and if you don't think that that has long -term strategic implications for the motivation for the ambition for the direction of a country and man I don't know to tell you but like if they're going to have their finger on the scale and on the knob control the knob of what's being consumed by the overwhelming majority of our citizens.

1:09:33Yeah, we shouldn't want it. Do you think it is overexaggerated the extent to which traditional media is biased, a weapon of the existing infrastructure? Elon has been very clear about this. Your point, though, around traditional media bias and that messaging is 100 % accurate, and I think the democratization of information, of course there are pitfalls, of course, there are challenges around misinformation. I listened to your interview with Owen at Intercom and talking about free speech and what does it mean and all of that like it was a fascinating conversation. But I don't think to answer your question concretely.

1:10:14I don't think it's overstated if anything I think it's understated. Did you take my side or his side in that? His side. Seriously? I'm American. Of course I took his side. So I can say a joke and in sight it's mass violence and that's okay because I was a joke, you took it wrongly. Do you believe that jokes in sight, mass violence? It depends on your perception of what is funny and what's not funny. Yeah, who decides? Do you decide or you, the arbiter of what was a funny joke that got a laugh versus an unfunny joke that got a boo? Someone has to be. Who is that? Who likes that person? I think you have to have a government and a police force that will determine that.

1:10:49Are you proposing that we have a board that if you want to make a joke? You have to run your joke by the board. But do you know? Comedy being famously susceptible to group think and group approval. But if we took the examples that I gave, which is 10 people of a certain race with machetes around one person in the middle of another race with a caption on it, that is funny to some people in certain demographics communities. And that could incite violence in retribution to that that leads to someone dying in another community go and say to that family it's a joke. Yeah, that's not what I'm saying at all.

1:11:30What I'm saying is that having a sort of preemptive control over what opinions, what political positions, what proposals are allowed to be said is an incredibly dangerous path to go down. And the who gets to decide is really at the core of this. Should that person who made that joke be allowed to make that joke. Absolutely, they should be allowed to make that joke. Does that mean there should be no consequences? Sure, there can be consequences. There could be reputational consequences. There can be lawsuits. There are liabilities. There are all sorts of things that can play out. My point is that it shouldn't be the job of the state to say, you are allowed to say this.

1:12:07You are not allowed to say that. But that has never in human history ended up. But it will ultimately, with all the repercussions you just gave, there will ultimately be an arbitrary justice. Or whether that was right or wrong. I say a joke, you sue me and there's a lawsuit about it. that would be an arbiter on that lawsuit. There'll be arguments, there'll be an argument in court, there'll be a jury that will decide whether it crossed into some threshold. And this isn't to say that we have obviously different approaches to freedom of speech in this country and in the US. But they do exist a very well -established set of laws and practices around what is and is not protected speech, whether it's parity, whether it's not.

1:12:40These laws do exist. My point is in the meta saying, this is an allowable opinion. This is an acceptable opinion versus it's not an incredibly dangerous position to be in and you have to look no further than the debate in the dialogue around COVID post kind of in those first few months around when the pandemic really took the world over and social media platforms, Googles the mass media sort of mainstream television and radio, we didn't talk even a little bit about possible alternative theories. It was wild, totally wild in retrospect and like actually some of those alternative theories turned out to be true.

1:13:14So that is a living example of where this kind of mindset goes sideways. Mashing two things together, Dalyannet found his fund in Europe. He's at it on the show, Europe is his turbo country. And I mean, Keith Roboiz, but like, what is that? Like, he just is massive, like, terribly underperforming countries. Yeah. Do you look at Europe honestly staying going to the bleak future? Yeah, I think there's a lot of interesting and very challenging structural issues facing Europe. and I think fundamentally, again, it's coming from a very, very American perspective. There's an ambition. There is a seeking and working towards a better, brighter future that feels to be almost kind of complacently lacking from a large portion of Europe.

1:14:00And you said it yourself here in the UK as well. And I think there's an element of if we want a brighter future, we have to build it. And that spirit, that drive, I worry that Europe's going to lost their spark on that front. What have we not discussed that we should have discussed or what question you not asked that you should be asked? What I'm not often asked about is impact and you've talked a little bit about this with a couple of your other interviews impact of early life and childhood on one psyche and one's approach to the world We get asked all the time about kind of usual questions of AI and ethics and of course you can't go through any media engagement without talking about President Trump All of those things, there was a pretty well -troddened, but I'm really good at asked about the other side, the personal side, the family side, the really childhood side.

1:14:46What was your most painful early childhood moment that shaped you most? So I grew up in the Philadelphia suburbs and remember constant friction between my parents around money, always. There's just never, never enough money, there's always instability. I don't want to make it paint a picture of some sort of Oliver Twist here, kind of begging for food, kind of situation. It wasn't that bleak, but I remember a consistent friction around the direction of the family and whether there was enough money or where the next paycheck is coming from, or whether we'd be able to make the bill payments. I remember bill collectors, I remember mortgage foreclosure notices.

1:15:21I remember a lot of that friction and then observing that friction on the relationship between my mother and my father. I remember very clearly this moment of one of these arguments that went sideways, it got a little ugly. And I remember sitting in my room, I was like 14 and thinking like not me. This is not gonna be me. This is not gonna be my family. This is not gonna be my kids. Like I'd nope. Nope, nope. That drove me through my early childhood career, that drove me through college, that drove me through my early career, palantir. This motivation of just like, that is not gonna be the, how I live my life with my kids.

1:15:59Like I'm going to be in a position where we're not worrying about those things. Does money make me happy? No, of course not. No, anybody who tells you money makes them happy is lying. Really? I think money buys you the opportunity to explore the world, to explore different interests, to have a different relationship to the world. Money in and of itself, no, of course that doesn't make you happy. You feel swimful with cash and swim through it. That's not going to make you happy. What's going to make you happy is good relationships, good friends, good experiences. You know, you remember that. I remember my grandma's using everything and going and staying with them in the jiu -yuan like one room house.

1:16:38And it's so bad that actually, fuck dude, I have a lovely massive bed in a beautiful apartment now that I've looked at the parking. Yeah, times are tough. In whatever you lose a deal with, and already that tough. Who do you spend your time with? Mother. Yeah. Did money buy her? Yes. A lot of Chanel.

1:16:58She would spend time with my brother if it wasn't for the Chanel. That's not true, you know. I don't see as much more amiable. That might be true. That might be true. Did you think money would make you happy? Of course. And then it didn't. Yes. Was that a hot moment? I would tell you, Nanak, to growing up, I had this fascination still do with fancy fast cars. I was one of those kids with the car posters on the walls and my desktop background was a fancy Ferrari, et cetera. And I had this dream, my dream car, you'll chuckle, cause it shows my ambition at the time. My dream car, an M3 coupe, this six -speed, really cool BMW M3, and it's kind of like road car, but kind of a race car, and I could use it, but also it's super fast, super cool.

1:17:45And I had this vision, and then early in my volunteer career, saved up some money, sold a little bit of secondary, I had some good cash, and I was like, oh, yeah, I should get that car. And then I got it and it was like, did this awesome experience of the European delivery, which I strongly encourage, by the way, it's really dope. And then got the car, went back home and I was like, okay, well, I guess I'm just back to work again. Like, going up to dinner with my friends, I guess, and it was that kind of realization that to your point, not quite cheated, disappointed, maybe, is like a better word where it was like, oh, this doesn't actually bring me happiness.

1:18:17This doesn't bring me contentment. This doesn't bring me fulfillment. What I think money does is I think it allows you some freedom to explore who you really are, what really makes you tick, what really brings you joy, what really is rewarding for you. And ultimately, my quip about who do you spend your time with is like, that's really what life's about. And for me, granted, you're about a decade younger than me. But for me, that's about my family and my kids. I don't know. It's different for every person. It's different in never geography. I'm not going to put a number to it. I mean, you could take $500 ,000 and go live in many parts of the world and live very well, living off the interest of that and be quite comfortable.

1:18:59And I know people who are quite comfortable living in a one bedroom apartment and they surf every day, like, that's totally fine. I just, I don't think there's a number at which it's like, that's the number. I don't think it's that simple. I think it's really about like, what is it that's rewarding for you? What is it that makes you happy? That drives you on kind of a more philosophical spiritual level? finding that is one of life's great challenges and ultimately my experience at least somewhat disconnected from the bank account balance. Final final one, what would you do if you knew you couldn't fail?

1:19:29I often think about this. If failure was completely impossible completely off, I'd repatriate all semiconductor fabrication. It started company doing that. It's Android or your lost company. I think probably we're all in this for the long haul. We're gonna ring the bell one day and then we're gonna build a massively successful publicly traded company and like, yeah, it's probably gonna last. I'm getting all get tired. I don't know. Dude, I've so loved doing this. There's conversations like this which make me love what I do. Yeah. It's been really fun. Thank you so much for joining me. Yeah, thanks for having me.

1:20:02It's pleasure. I mean, that was so much fun to do in person. I want to say huge thank you to Matt for being so open with that. Quite vulnerable discussion at points. It was incredible. You You can see it on YouTube by searching for 20 VEC, but before we leave you today, we're excited to ignite your curiosity with a journey into the world of transformative ideas. If you're driven by the pursuit of knowledge and personal growth, you'll love exploring the vast collection of insightful book summaries on the Blinkist app. So with Blinkist, you can access expertly crafted summaries that distill the essence of thousands of influential books, allowing you to read or listen to each in just 15 minutes.

1:20:41I know they beat 20VC. Being recommended by The New York Times and Apple CEO Tim Cook, it's no surprise that 82 % of Blinkist users see themselves as self -optimizes, and 65 % say it's essential for business and career growth. And speaking of business, Blinkist is also a trusted L &D partner for industry leaders like Amazon, Hyundai and KPMG UK, empowering over 32 million users since 2012. 12. As a 20 VC listener, even better, you get 25 % exclusive discount on Blinkist. That's B -L -I -N -K -I -S -T. Just visit Blinkist .com, forward slash 20 VC to claim your discount and transform the way you learn.

1:21:22And while you're optimizing your learning, let's also optimize your finances with Brex. The financial stack founders can bank on. Brex knows that nearly 40 % of startups fail because they run out of cash, so they built a banking experience that takes every dollar further. It's such a difference from traditional banking options that leave your cash, sitting idle while chipping away at it with fees. To help you protect your cash and extend your runway, Bratis combined the best things about checking, treasury and FDIC insurance in one powerhouse account. You can send and receive money worldwide at lightning speed.

1:21:57You can get 20X the standard FDIC protection through program banks and you can earn industry leading yield from your first dollar while still being able to access your funds any time. Bracks is a top choice for startups. In fact, hey, it's used by one in every three startups in the US. Just check them out now, bracks .com -flash -dodups. And talking about building trust, Secureframe provides incredible levels of trust to your customers through automation. Secureframe empowers businesses to build trust with customers by simplifying information security and compliance through AI and automation. Thousands of fast growing businesses, including Nasdaq, Angel List, Doodle and Coda, trust Secure Frame to expedite their compliance journey for global security and privacy standards, such as SOC2, ISO27001, HIPER, GDPR and more, but by top tier investors and corporations, such as Google and Kleiner Perkins.

1:22:56The company is among Forbes' list of top 100 startup employers for 2023, and Business Insiders list of the 34 most promising AI startups for 2023. Learn more today at Secureframe .com. It is a must. Honestly, I just so appreciate your support. We would not be where we are without your incredible support and love for the show. It means the world to me, and I cannot wait for you in an incredible episode coming this Wednesday on the Bolt journey $10 billion valuation.