20VC: Founders Fund's Trae Stephens on Why The Most Competitive Deals are the Worst, Why No Company is Successful Because of their VC, Why We are Making ZIRP Mistakes Again Today, Why Loss Ratio is BS and Upside Maximisation is Everything

24:52We have to think about the future of our business. And I think now in 2024 looking back on what happened, it's very easy in retrospect to say, Wow, we really let that get out of hand. And now we have to do a recap, we have to do it down around, we have to do all this crazy structure. But we're doing the same stupid stuff all over again. And I don't, it's like people don't realize, like guys, you have to calm down. Think about the future of your business. Don't think about what makes you feel good when people are, you know, patting you on the back and giving you exploding term sheets and taking you out to stake dinners.

25:24This is not good for your company. It might be good for your ego, but it's not good for the company. And that's what we should be maximizing is the long -term value and sustainability of these businesses. This was my point with some of the crazy, crazy rounds that we're seeing now, especially in AI. Do you think we actually did learn our lesson? I don't think we did. I think there are some people in the industry that I have a tremendous amount of respect for that have looked at this and said, we're just not going to play this game. Like, guys, it was literally like two years ago. But it's isn't like a 10 -year information gap.

25:56It was like two years ago. And then there are other people that are saying like, yo -ho, like I have to win, I have to get in, I'm gonna plow it in. You know, there was this incredible scene in Silicon Valley that I've been sending some people this video. The main character is sitting at the bar with another founder and the guy is like, you know, his company was taking away from him. He's no longer the CEO and he says, you know, you could have just like taken less at a lower price. And he was like, no, no, like I was offered this price in this mountain, he was like, yeah, but you didn't have to take it.

26:28You could have taken less at a lower price. And he was like, why didn't anyone tell me I could have taken less at a lower price? And I feel like sometimes founders are just, they just get caught up in the moment. They get caught up in this idea that like the only thing that matters is up into the right minimizing delusion. And we'll see what happens. We'll see if that lesson persists. I get in trouble for this one, I see this. but I feel this when I see like two on 20 YC rounds. And I'm like, with two on 20, you're automatically excluding any top venture firm. Because really the 1 .6 is gonna be available for a lead, which is what, 7 .8%.

27:06You're not gonna do something for 7 .8%, it's not worth your time. Right. Instant need excludes them. So I have to ask a bit of a weird one. Doug Leone said on the show that venture capital has moved from a high margin boutique business to a low margin commoditized industry. Do you agree with him, and will we see venture returns to grade as a result? I definitely think the truth to that statement. I think the industry has certainly become significantly more competitive and commoditized. At the same time, the returns end up being pretty highly concentrated towards the winners. You don't see really high IRRs across every new fund that pops up.

27:43There's definitely still great potential for the asset class as an asset class, But certainly like as you know Peter points out in his book zero to one competition is for losers And it will always be for losers I don't care if it's venture capital or startups or any its competition is for losers And so we need to figure out ways to differentiate and stand out What do you think is your biggest challenge today as found as fund? I remember when I had Keith on the show Keith said about just finding the next generation of great talent And it being a young person's game, which I thought was an interesting answer What do you think is your greatest challenge as found as fun today?

28:20Deal flow is always the biggest thing for venture capital. It's like you have to have access to the deals that are going to move the needle. And for large funds, the economics only really work if you have a ten plus billion dollar winner in every fund or more than one in most cases. You have to evaluate yourself on whether or not you got hits on those monopoly -style winners. that's just about maintaining access to the network and being super easy to work with. And I think Founders Fund has the ladder in spades. Like, you know, we were the first fund that was talking about being founder friendly.

28:55You know, we don't generally want to take board seats. We are incredibly hands -off and operationally helpful when asked, but only reactively. And the former is the harder part, though. It's like you have to make sure that you are seeing all of these companies. That has to be the focus for the entire investment team. Do you think the best founders need the VCs? You can definitely get good advice from people throughout the industry, whether it's other founders or VCs, and a great founder will seek wisdom from people they trust that have experience is relevant to what they're doing. Do I think that doing that in the structure of like, gather a bunch of investors on your board is the way to do it?

29:36No. I think that's really stupid. Any company that's successful is not successful because their VCs are really smart. That's not how this industry works. The VC is not going to do the hard work that's involved with building a company. The best companies are going to be the best companies because the founder and the team that they've built around them is awesome. It has a plan and a vision for the future. The best the VC can do is write along and not be annoying and not create drag for the company. Maybe on occasion they can provide some advice or introductions that are helpful, but that will not be the reason the company works You know Ventures today kind of put into world you've got like the boutiques who have specialisms And you've got the kind of capital accumulators and recent and sequer and co -2 and NEA Where is founders fund because you guys like reduced your fund size the fund sizes themselves I don't believe we're actually that big I mean, that I think it's about a billion dollars each, which is big, but it's by the means the large, large funds that we see at other firms.

30:36Where do you sit in capital accumulator or boutique? That's a good question. I think probably somewhere in the middle, we have a lot of money under management, but we also are very intentional about playing our core venture strategy. And so we're not trying to be cute with weird structures and debt instruments and big category specific funds, nothing like that. Our core vision is we just want to invest in the best founders building the best companies that are going to be category defining. And I think you can do that through a very traditional venture model of can we get a check into the series A and can we follow on to the ones that are working.

31:14And that's what we do. And I think that's what we're always going to do. So, Tray, you mentioned the follow -on. I have to ask this. I think reserves are a I think it is too difficult in majority of cases to know which company is truly a value generator and which just has momentum, which is different to true sustainable value generation. What have been your biggest lessons on reserves and how do you think about that when I hit when I say that? Well, I do think it's important to hold reserves to double down in places where you see fund returning potential. I don't believe that doing that in a way that's like guaranteeing your portfolio company is that you have like reserve checks that are going to back into them.

31:51I don't think that model makes sense because and this is by the way the biggest risk of taking seed money from an institutional fund is that like doing your prerada is super lazy, doing more than your prerada is actually a signal and if you're not going to have real signal, if you don't have high conviction, you probably shouldn't be doing anything at all because the prerada again is just super lazy. The strategy really should be make your bets and then where the conviction is justified, you should be doubling, tripling, quadrupling down and so you do need to have fun to access to do that so that you're not striping across a bunch of different funds, but I don't think doing that in a really structural, procedural way is smart either.

32:29Do you think about downside protection when investing? You guys also invest large checks. Do you think about downside protection given the size of checks you write or is it all upside maximization and the words of Brian? All upside maximization. No, downside protection silly. I think if you go back and you look at our portfolio, whether or not we got our money back has never impacted fun performance. Like the only thing that moves the needle for a venture fund of our size is 10 plus billion dollar category defining winners. That's it. Everything else is just around a year to zero. What's been your biggest loss?

33:03I'm what did you learn? Well, I've only been in the industry for 10 years. The reality is that startups survive for longer than anyone thinks they will. There are certainly investments that I've made that are still, you know, puttering along, haven't figured out a way to hit the inflection. but I wouldn't call them a loss. The biggest thing, the biggest lesson that I've learned from these is that there are times where I've gone in and I've said, this has 10x potential from where it is right now. And therefore, it's probably worth making a bet. I look back on some of those investments that I've made and I've said, even if it 10x from a small series A, it's not gonna return the fund, it's not gonna really move the needle.

33:41Really, I should be focusing on finding massive upside because the opportunity cost of deploying these checks is actually quite high. But do you not think you will always underestimate the size of your true winners? If you look at all of Bessima's mammoths, Shopify, I think they put it a $2 billion company, Snap was thought to be a $500 million company, ProCore, a $300 million company, these are across different firms, I'm not just chastising Bessima. But you always underestimate the size of your winners. You know, Peter and Facebook as a core example, no one would have expected Facebook to be all of this.

34:16I think the example that you just offered is exactly what differentiates Founders Fund pushing your team to do things like deal moose for example Forces them to like put down a number that they're later going to be judged by so the investment team is gonna Go back and they're gonna look at that investment memo and they're going to say wow you outperformed Expectation on this deal isn't that great if you don't hit it, you know, you're gonna you're gonna be out Accountable for missing and so of course everyone is going to underestimate because they want to lower the bar that's required for them getting credit for some big outcome.

34:48At Founder's Fund, we will do the investment if we don't believe it can return the fund. And so we absolutely have to have crazy amounts of conviction to make these bets. And I think that is like core to our culture. If you look at any of the big outcomes across our portfolio, whether it's Spotify, Stripe, Airbnb, Palantir, SpaceX, Andral, STEM Center, so you look at all of these big outcomes for us. Every single one of them, though, is someone on the team banging the table saying, this is a hundred billion dollar company. When you have to have this level of upside, do you not put market first above founder?

35:22Because if a founder is in e -commerce, honestly the chance of it being a hundred billion dollar company, it's just so frickin hard. So my question is, do you prioritize markets over founders, given the importance of upside maximization and true upside only being available in very, very few markets? No, because I think the best founders are going to pick really strong markets and they will increase the probability of success even in like a middling market. I think the founder has to be the atomic element always, but obviously like there are going to be great founders that do kind of middling things.

35:56I wrote an essay called Choosing Good Quests that you can read online with Marky Wagner who's actually one of our portfolio founders as well. And I think this is like endemic actually in Silicon Valley where you have all these really talented people that have the potential to go and do something that's like world changing. And instead, they do something that's easy that they know they're going to make money from. It's like George Clooney sells tequila on the back of his brand. Good for George Clooney. It's a commodity. There's nothing special about his tequila. It's the same thing with enterprise sass.

36:27If you're like a multi -time successful entrepreneur and you're starting like a fairly simple trivial enterprise sass company, like shame on you. Shame on you. You need to go big. Like have some vision for how you can impact humanity. I just ruined my investment thesis, okay? What like boring enterprise sauce companies? You come with your fucking defense and space companies and you tell me to be payrolls bad? Damn. There are some great enterprise sauce companies. I think there's some great founding stories behind enterprise sauce companies as well. I just think that as a category, there are a lot of them that are pretty uninspired.

37:04Will you back your founder when you hate their idea? You love them, but you hate their idea. Yeah, there are plenty of situations in which I've done exactly that or I've at least been tempted to do that. Again, the founder is the atomic element. A really great founder and team are going to be able to pivot their way into strong product market fit, whereas a great idea with a weaker founding team are going to get stuck and will likely spin out. So you have to start with that founder aspect first. Can you tell me about a time when you thought a founder was great? They turned out not to be. But like what did you not see that you wish you'd seen?

37:40I backed this incredible day at a scientist out of this amazing company and Everything technically was great, but they were an operator not a founder and the speed was slow The creativity was low and they were an amazing operator But actually they were not a founder and I missed judged and I overestimated their founding ability because their technical ability was so strong big mistake Yeah, like I would say the most common example is where you have a founder that doesn't build like a Diverse enough set of skills around them with the rest of their founding team of their executive team And they assume that they're you know specific superpower will be enough to make it work because there are a lot of brilliant people Some of them are like scientists some of them are software engineers some of them are business people You know you could have like a sales founder that it could be revolutionary and could change an industry But they need to have a complete team.

38:35And so I think sometimes I've gotten really excited about a single person. And then it turns out that there is a completeness of team. Maybe that person does not have a particular strength in recruiting. And that becomes super problematic for the business. So I think like you want to see the depth in bench with the best founders. But how quickly do you know if a company's good or not? I think you know in the first month. Well, that's really fast. I don't know if I would say the first month, but definitely in the first six months. I think you can get a sense for momentum. There's almost nothing as important as momentum in startups There's this I think idea especially in deep tech that like if you just hold out long enough like eventually They'll cross enough tech milestones that like things will seem like they're you know starting to move and even in deep tech Momentum turns out to be the most important thing and you can see that you can feel it It's visceral and I think that it's definitely not five to ten years like people often talk about as as venture capital windows and if you go back and you look at the best companies in any portfolio, they were kind of the best companies at every stage.

39:38Incredibly awesome. A, they were incredibly awesome at B, they were incredibly awesome at C, very rarely do you see a company that struggled for a long time and then suddenly hit an unlock. That doesn't really happen that often. Well, I could push back on that one. Like, Figma for sure was not a hot in the early rounds, took a long fricking time for anything to come out. Your hub sports of the world were not really very hot took a long time for it much to come out. Viva on the vertical SaaS space, definitely not a hot, but unbelievable $35 billion business. I'm almost like there's always a trough of disillusionment that a company goes through, even in the funding markets, whereas like, this is the earth round.

40:17I think those examples are less common than the ones for the momentum drove them all the way through. I don't disagree with those specific examples. I just think you're cherry picking very specific examples that are the exception not the rule. Listen, I'm smart with my usage of data, okay? So just give me some code. My question to you is you mentioned there about kind of timing of deep text, I don't some particular. I'm always just very focused on market timing. I never the light set market timing risk. You clearly do, which I love. I mean, that's some real corners. How do you think about market timing risk as an investor today and as a founder, both?

40:52I think that it's not on me as a venture capitalist to evaluate markets and then pick companies to time some arbitrary thesis I have for any particular market. That's like asking too much. VCs are not super talented specialists in any one space. The best VCs are kind of journalists. And that means that they might have a shallow understanding of a wide set of things. But they probably don't have some massive polymath death of understanding of every type of company they're going to look at. And so I think it's really on the founders to communicate why the market timing thing is relevant to their business and the best founders are able to do that in a way that's super compelling.

41:32And so again, I think this comes down to like, do you have conviction? Oh, thank God I don't have to do it then. Chris Dixon actually said on the show yesterday to me, I like to predict the future and then kind of find companies that align to that prediction. Would you very much disagree with that in terms of a style? It's not disagree, but you have a very different style. I take it. Yeah, as a founder, I think, yeah, Andrew in my, in some way, was me predicting where I thought the defense market was going to go. And so as a founder, I think that is what their job is. As a VC, I think like your investment thesis is only as good as the strength of the companies that come and pitched you.

42:09And so did I have like some super crazy interest in supply chain logistics or a thesis in supply chain logistics before I invest in a flex work? No, of course not. Like I needed Ryan to like convince me of the timing to the market. And so I think that like anytime you're looking at a thesis about the future, you are saying there is a category and I have like some belief in that category and that means you're probably too late. Like if you're like, I have a thesis on SpaceX, SpaceX, but you're not a SpaceX investor, you're probably losing money. If you're like, I have a thesis in crypto, but you're not in Bitcoin and Coinbase, you're probably losing money.

42:44If you have a thesis in cyber but you're not in Paladin or Sarkroud's strike, you're probably losing money. It turns out that the core monopoly investment that won is the only one that matters. In the rest of the category, matters a lot less. So if you have some vision for what the future looks like and you're looking for a company to invest in that's doing it rather than starting it yourself, you're probably already too late. First, despite a decade in this business, clearly you haven't learned the core lesson which is post making investment that goes well, you absolutely did have the thesis that it would play out in this way.

43:18And actually it was all your prediction. You actually really co -founded the company despite the fact you only put 50K in at the Series D. And my friend, that's my favorite when you see those ones. You mentioned there about the core taking so much of the value. And I agree with you. You look at your Andrals of the world. You look at your open AIs as well. So is your perspective as an investor and as a founder then fuck it. Don't try and do defense tech Just do and you're ill and instead of trying to do AI just do open AI Is that generally the right strategic play do you think for investors? I mean there will be other companies that might be worth taking a bet on for sure You know if you were a social media investor you missed Facebook But you got conviction and invested in snap you actually did pretty well There are exceptions.

44:04There are places where you should stay open to the idea that there's a brilliant founder and a team that has the ability to go and To make something in a market But I think that this idea that Investing broadly across an entire category where you're doing relative rather than absolute Assessments is just bad strategy. It doesn't make any sense like there's not gonna be a hundred space X's There's probably not going to be two space X's but if there are, you should just be making that one investment in like a really high conviction thing that you would have done Regardless of whether or not you were looking at that category Yes, that might be a violation of the rule of looking me.

44:41I'm so smart I don't think I'm so smart I think like the founders are the ones that are really smart that are changing the world And I'm just lucky to be on the ride with them as an investor Yes, I agree with you, but as a founder you're on the flip side of that And so I do just want to flip to that because you said you have to pay in a compounding case for why now and why it is more exciting Naviget Day than it was in prior years. What was your insight development, the way that you saw the world, differently to others, with Andrew Hill, that you really had from day one that made you want to commit so much of your life to it?

45:11I mean, I'd spend my entire career in National Security. I worked in the intelligence community after college, and then I was at Palantir really early on supporting intelligence and defense programs. This was a space that I've always been really passionate about. I learned a ton of lessons from that 10 -year run, and prior to joining Founder's Fund. And started going out meeting with as many companies as I could find that were bidding on federal contracts and also raising venture dollars. And I was shocked at how little there was going on in leveraging cutting edge technologies, particularly in software to impact critical national security requirements and gaps in our capabilities.

45:49And I kind of looked at that space and said, this is not gonna be good if we shift out of counter and urgency and counterterrorism into great power conflict. And if we're going to compete in great power conflict, we need to like actually bring a software defined mentality to our national security apparatus. I was supposed, what's great power conflict, just so we're aware, this is like global war instead of just traditional counterterrorism. Correct. No, it's specifically like we're no longer competing with like rogue agents and non -state actors. Our competition are huge nation states with a lot of power resting behind them, places like China, Iran, Russia.

46:27We had for over a decade, really like a decade and a half, we have just been entirely focused on counterinsurgency. The problems that you're dealing with with things like airspace superiority in Iraq or Afghanistan, totally different than determining airspace superiority in Ukraine or in, you know, a potential Taiwan conflict. And so we really needed to like shift to a mentality of how do we compete with great powers? And how has that changed since the last time we did this during the Cold War. And the answer is significantly. The capabilities, the huge expensive platforms that we built for competing with the Soviet Union are not particularly relevant in a future conflict with, you know, a China or in Iran.

47:07In terms of like how they're so different, how are they so different? What were we woefully and equipped with? Yeah, so like when we were preparing for a fight against the Soviet Union, we were building nuclear submarines, aircraft carriers, advanced fighter jets with the idea that we're competing with MiG -29s in an airspace. So if you have to build like a counter air system and you're shooting a $2 .25 million missile at a tens of millions of dollar MiG -29, fine. That's a trade -off you're willing to make. But in modern conflict, we're talking about swarms of drones, kamikaze drones, low -cost remote control systems, you're talking about autonomy.

47:43And so can we afford to shoot a $2 million Patriot missile at a $150 ,000 cruise missile or kamikaze drone. No, it doesn't make sense anymore. Now the whole thing is just messed up. And so when you're not fighting MiG -29s, you have to make decisions about how you're going to do airspace's superiority. And this translates to every domain. It's like we have to make the same decisions with undersea, with surface vessels, with ground vehicles, with airspace, with space. Okay, I get you totally. What worries me is two things. One is customer education. When you're selling to governments in a lot of cases.

48:15The level bluntly of intelligence around the latest use of AI or the latest use of alarm, or the latest use of any of the things that we talk about quite recently in tech is so low. How do you approach a customer education when it's a really challenging start? I think this is core to doing work in this particular sector and it's not the field of dreams. You know, like if I build a really cool product or capability, It's not like the government's just gonna show up and be like, yeah, I'm a buyer of whatever it is That you're building that you think is solving a problem. You have to have a holistic view of government relations Lobbying being really good at telling a narrative communicating to agency heads decision makers and your potential users in the field This is like the type of company that's really really hard to build for a handful of teenagers in a garage It's not like a software company that has like the same type of breakout story as Facebook And I don't think it's like random chance that Palantir's SpaceX and Andral were all founded by billionaires It turns out that it's that hard to do this And so you have to approach it with that in mind.

49:21Why is it a billionaire element that makes some successful? Or is it the structure of their teams and the knowledge and skill sets of their teams? Because brilliant people can raise billions of dollars. It's not the billions It's the team composition of Palmer of you that make it special, no? There is a capital advantage to having a billionaire as a co -founder. At Palantir and SpaceX, certainly, it took a really, really long time to get momentum on the business side of things. And so you need to be able to raise money through a drought while you were figuring that out. At Android, it's a little different now because we have the benefit of standing on the shoulders of giants.

49:55We have done this before. We saw the way it worked with them. There are hundreds of people who have executed the sales motion successfully. It's not quite as hard, but there's still a huge capital advantage to going in and saying, this is capital intensive, it's going to be really hard. We want to raise a war chest to finance getting through to a program of record wins. This isn't something that's going to take six months. It's something that's probably going to take closer to three years. It is important to have the ability to go out and raise that sort of capital. Another concern that I always have is just like the incentives of bias.

50:25If you think about a lot of the incentives of these kind of bluntly, averagely paid, middle management, government, bureaucrats, and a lot of international governments. Why would I bother buying Andrew? Now it's obviously very well -known brand, but in the early days, when I've got established brands where I'm not gonna get, it's the same old LP argument in venture, just invest in ex -well -num firm. How do you fix the incentive problem of buying from innovators? Yeah, I mean, as I mentioned before, with a different set of problems, I think this is primarily a culture problem. All of the authorities that need to exist to buy products from non -traditional companies, they all exist.

51:04You can do it. If the government wanted to do it, it could do it. The problem is that they don't. They don't feel as comfortable with it. They claim that it's a much riskier path. I happened to disagree with that particular fact. But I think the reason why, in the early stages, people were willing to take a chance on us, is that we were working very focused on problems that were clearly software problems. And I think they had had like long running bad experiences with the traditional players in the space coming to them delivering capabilities that relied on the technology delivering the against the problem set depended on software execution.

51:38And so when we come in and we have a demo and we say we can actually do the thing that we know you're trying to do and we can demonstrate that to you in real time. And we've taken the risk of funding the development of those capabilities. We're not asking you to like believe us in like a response to an RFP. We're just going to show you that we can do it. And that shifting that risk to us, rather than putting it on the government, was really important to those early ones. Well, it was Andrew founded 2017, 2018. 17. Yep. So did you just have a crystal ball and predict the explosion of global conflict?

52:11Because we could have continued in this period of Dayton for another 10 years and the need for Angerol would have been lesser than it is now. For sure. Was it just lucky on time, indeed? But that sounds awful, not lucky on time. No, no, yeah. Like I said, I'm not, I'm going to do the opposite of what Chris Dixon did and I'm going to say I don't have a crystal ball. I'm not predicting the future. I think all of us in the founding team of Anderol, like we perceived that we were going to care a lot more about these things, post -insert counterinsertity counterterrorism. But obviously, like, I would not have guessed that all these global conflicts would have necessarily happened.

52:50But I think the writing has been on the wall for a while that globalization didn't really work, and that traditional strategic deterrence with nuclear weapons was not going to be the only thing that drove reduction in conflict globally. And so I think there was, there were some smart decisions that were made, and I think we had a lot of conversations about those elements, but But I certainly wasn't like standing at a whiteboard, you know, with lines and pieces of yarn and pieces of paper being like, and you see China is going to invade. I don't think I had that level of insight. We got Putin coming down the left.

53:25That's 20, 20. Exactly. To be fair, shortly before Andrew was founded, Putin went to a university, a technical university in Moscow and he said, he who controls artificial intelligence will control the world. And so we weren't the only people that were thinking about this. He had clearly been telegraphing his intention with tech development in Russia, since even before Endroll started. Just gonna love this one, and we're not quite impressed with him in Taka Karlsen's interview. I mean, the level of historical depth was really special. My concern was less about, like, is Putin impressive, is he unhinged?

54:02It was more so that, like, man, we have really just allowed our Western political system to just be destroyed by mediocrity. Our standards for our elected leaders are like bargain basement level. It's really pathetic. I don't know what it's going to take to convince talented people to put themselves in a position where they're running for political office, but I think this is a great risk to human civilization at this point. We need to do a better job. I'm not being rude. Why didn't you? So like, it's fine. No, but it's fine for us VCs and startup founders as well to say like, you're a wonderful state of politicians.

54:38Well, I mean, we're pretty smart people, but we choose to be in the private sector. A lot of the time because it's more lucrative, because we see a better life. But if we really thought that it could be improved, and you know that you could do a better job, should you not take that on? I mean, I am deeply committed to the idea that I will return to civil service at some point in my career. I don't know what from a time perspective that will look like, but I am deeply committed to that. As far as elected office goes, my wife, who I love very much, has told me that that she will divorce me if I ever run for office.

55:09And so elected office is off the table. So you said, God, it was that easy. Okay, sold. Yeah, she really doesn't like the idea of being married to a politician, which I get. I'm okay with that. What was the most non -obvious reason for this success of Andrew? Like amazing team, complimentary skills, yes, timing, yes. What's like the no one thought of that, but it was really towards this success. I think you kind of entered at this around like having a holistic view on skills, but I really want to beat the drum and say, you have to be good at selling to the government to make companies in this sector work.

55:47You either have enough money to survive being bad at it for a long time, or you know what you're doing from the beginning. And I think there are way too many companies in this hype moment that are approaching this and saying like, I'm just going to build something really cool that warfighters love and expect that that's going to be sufficient and it's not. And that's what we knew from the beginning at Android. And that's probably the most prescient thing we did is to say, we're going to hire a lobbyist literally in the first week of the company's existence. And we're going to build the relationships so we know we're going to be important for authorization and appropriation of funds to the programs that we're working on.

56:18And most startups just, they don't have the background to understand that they don't have the capital to do it even if they did understand. That's a big differentiator. We've seen like hard tech become successful or popular again in venture. every on one's hard tech again and I think we're just going to see a generation of venture investors burn a load of cash again on hard tech. I think it's such a different skill set investing in it compared to traditional enterprise software FinTech consumer and I don't think they fully understand or comprehend the differences. Do you agree with me? One of the most important things that I've learned about Hardjack in the 10 years I've been at FoundersFind is that you have to have someone on the founding team who's as good at business as the the technical founder is at the tech.

57:01There's just no way around it. The most successful, hard tech companies always are paired with brilliant business people. You can't just evaluate one side. You have to evaluate both. So Palmer is the technical genius that Andrew, how do you characterize the teammates? Well, we should keep in mind that the co -founder of CEO is Brian Schimpf, who is the most brilliant software engineer I've ever worked with. And he ran engineering a volunteer actually before he came over to be the CEO at Andrewl. So Brian's kind of like the software tech genius of the company. Palmer is kind of the prodigy polymath hardware genius.

57:35They both work very closely together on product, like making sure that the thing we're delivering to the customer solves the problem and solves it in a way that is efficient and reliable. And then Matt Grimm, who's the other co -founder, he is the COO. He like runs the day to day operation. He's like a machine, making sure that all the trains are running on time, which is hugely important. You mentioned delivering to end customers there. Do you sell to everyone? That comes a point where one has to have some morals. How do you decide who you sell to? Yeah, this is probably like not to put a, you know, a target on your back area, but this is the most naive question that non -defense people ask because the reality is that we don't, we don't decide.

58:16The US government decides. There aren't very many people that we can sell direct to, like the UK, Australia. Like there's just not that people that are right. You can't sell direct to the UK. No, this one I'm saying there are very few that can buy direct because they have adequate budget and they have the existing relationship with the United States that allows for the source of arms transfers. Can any national government not buy from you? I'm really sorry for being naive. Definitely not. No, we're selling we're selling munitions. We're selling government controlled, itar restricted technology that the US government has to facilitate the transfer of.

58:56And so it's the US State Department that's deciding who they're going to send the tech to, not like random governments making decisions on money that they're spending. You can't just use the Democratic Republic of Congo just for it. We can't just randomly sell to governments that show with bags of cash that all is facilitated by the US DOD, the US Department of State. Obviously, we have to have conversations as an executive team about like which use cases were passionate about working on and stuff like that. But we are like massively controlled by the US government when it comes to like where we're a lot of center stuff.

59:32But the US government has made a ton of very very serious severe mistakes around the types of allies they support over the years. The Mujahideen in many respects being one very obvious and clear one saying oh we we can follow them. Well that clearly not a great picker. Uh yeah I mean there's Obviously, questions that you should ask, but at the same time, if the US government comes to us, let's say that we were making stinger missiles during the early Afghan conflict with the Mujahideen against the Soviet Union. If the US government comes to us as the producer of stinger missiles and says, we are supporting the Mujahideen in their fight with the Soviet Union.

1:00:09We want to transfer a thousand stingers to them in the next six months when we want you to produce it. Is it on us to decide no, we don't want to do that because we have some thesis about what's going to happen in this conflict in 20 years? Or is it our responsibility in a democratically elected governmental system to say we are supporting the Department of Defense's decisions about what they're doing with the quimit that they're buying? And if we don't like it, we can choose to vote against our representatives. We can advocate inside Congress for people to make different decisions. but like if they have stuff in inventory, they have the right to send it abroad anyway, whether or not they're buying it for us for that purpose or it's just been sitting in a warehouse.

1:00:48But I do wanna, I listen to you talk now, and I'm like, wait a minute, you run deals, you're a GP of founders fund, you're running by parts of Andrewville, also this soul, which sorry, sorry, I don't even know you did soul as well, how the fuck do you spend your time? It's tough, without a doubt. I said boundaries, I mean, I have, as I said, I had a lovely wife and two awesome kids. They're 10 and 8. I make sure that I make them breakfast driving to school every morning and I'm with them for dinner every night that I'm not traveling. It's really important to me to be present for my family as well.

1:01:23I have an awesome support team around me. I think that's the only way that this is possible. I have an EA who's been with me the whole time. I've been at Founders Fund that is truly world class. My chief of staff, Ellie Wintermire, is she's been with me for the last nine months now and she's made sure that I know what I'm doing and staying on task and keeping my priorities in line. At Andro we have an incredibly talented executive team and I manage a portion of the business, not the entire business, and we have a high trust relationship across the entire executive team. Do you segment days and times for different companies?

1:01:54Is it much more flexible? Do you choose what you're working on per day? Is it very reactive? It's not that structured. It's much more reactive and flexible. In any given day, like today, I had a pitch meeting and then this conversation and then I have two and rule meetings and then I have another pitch meeting So I'll kind of like bounce back and forth between them I think the important thing is like having that support team that's identifying the priorities and making sure that I'm like staying on track of Making decisions where I need to make decisions that are high priority at any given moment Are you a better investor now that you're founding companies as well?

1:02:29100 % the entropy on Knowledge of operationally being engaged with the startup is so fast All the things that I did at Palantir for six years, like I feel like we're relevant for like my first three years at Founders Fund. And then like the software that we were using to do things is different. Cutting edge on the technology side is different. You're just constantly going through these shifts. And so I think being in a place where I'm operationally engaged in Android, I'm up to date. Like I know what people are using. I know what is impacting our business in a meaningful way. I know what stuff that we started using that ended up kind of being not that useful that we turned off of.

1:03:05I'm keeping up on a day to day basis and I think that's a super valuable asset to my other job as a partner at Foundersund. We see the Colossons, we see Sam Altman, we see many great examples of big founders investing big big dollars. Is the future venture actually found as investing? I think it would be better and more interesting if it were because I think that most of the advice that I've gotten the most out of is from existing founders or former founders or operators. They're the ones that have lived in those shoes. They're the ones that have wisdom that I can glean and I think that if Venture is about anything other than just Access to capital the people that have been operators are are going to be much more useful try I could talk to you all day.

1:03:48I want to do a quick fire around with you So I say a joke state. Okay hit me You have many different hats being a father as one of them You can call yourself up the night before you became a father and give yourself one piece of advice What would you tell yourself? I think I would say this is going to be the hardest 18 -month stretch of your life and it is worth it in every way. Just keep your head down and realize that there's light at the end of the tunnel. What have you changed your mind on most in the last 12 months? Most of the answers that I could give to that would definitely get me canceled, so I'm not going to say those things, but I think there are limits to human scalability.

1:04:25I went through a long period of my career where I was opportunistically saying yes to a lot of things that Benefited me tremendously that I feel really good about that I just don't have the ability to say yes to anymore And so I think learning how to scale and then using nose Strategically has been a big change for me in the last year biggest lesson from working with PETA fatanias investing Oh, man He's such a unique person most smart people have the ability to collate information like we collect information from a lot of places and then we organize it and ship it. He's source material. He's not collating information.

1:04:58He's just generating. I get to talk for days about all the things that I've learned from him. The most critical to this particular moment and what we went through in 2020 -2021 is that hype is not aligned with outcomes. In fact, it's often negatively correlated with outcomes. And so when something feels super consensus, you should be running away, not running toward. It's so funny how kind of the most conventional rules of venture are so true, but no one ever listens. It's funny. If you could choose one person as a board member, who would you choose? No one. Smart people are accessible whether or not you're on their board, they're on your board.

1:05:33You can take advice from people anytime. The last thing you need is unnecessary governance. No one. Does money make you happy, Trey? No. Money can like simplify things that are complicated or tedious in life, but you'll never find core meaning from the acquisition of wealth. Everyone that has gone through this process, I think, comes out on the other end and says that there's a deep emptiness that they fill, that it doesn't matter how much stuff they pour into it, it'll just never be filled. You have to understand the anthropology of your humanity and come to terms with what, for me, is a religious spiritual faith.

1:06:06But for other people, they might try to find that in all sorts of different things, but money is certainly not one that gives you meaning. Has your spiritual faith impacted your investing mindset? Usually, I think like a lot of people, and this goes primarily for like my upbringing even as well, there were a lot of people that they viewed their job as a way to pay their bills, right? It's like, I'm going to go to work 9 to 5, I'm going to make money, and then my life will be what I do when I'm not at work, because the work is just like a mechanism to generate cash to survive. I think this is like a deeply un -theological way of viewing the world.

1:06:38We have a responsibility to our vocation and it doesn't matter what you're doing whether you're a barista at Starbucks or You know starting a defense company that is your vocation You are living in service to humanity and so I think as an investor as a person of faith I look at the world and say I don't want the world to be a science fiction dystopia Like I don't want to live in you know all these Hollywood pictures I want the world to be approaching the kingdom of God like I think we have a role in building that and so as an investor when I look at something and I'm like, yeah, this is a vice investment maybe.

1:07:11It's probably gonna make a lot of money because it leads to addiction or loneliness or, you know, whatever. I don't wanna be involved in that. I don't wanna be involved in stuff that might be a good economic outcome but is going to lead us closer to a science fiction dystopia. How big could Andrew be? Eight billion dollars. I mean, Lockheed Martin does over $65 billion a year in revenue. They have, you know, two and a half ex multiple that's applied to them on the public market. it's worth $130 billion or whatever. Androle operates at higher margins, much faster growth rates. We could be worth over $100 billion with a tiny fraction of Lockheed's revenue.

1:07:46So I incredibly bullish on the path that we're heading down and the speed at which we're growing. You hate mammals, but in mammals that you always write a kind of post -mortem, a reason why or a pre -mortem, a reason why it won't work. If there was one for Andrew, or what would it be? Oh man, I'll give you two and I'll do it quickly. The first is like if we build something and we ship it and it doesn't work, we deserve to be crushed by the market. Unfortunately I don't think that actually happens. The big defense companies are constantly delivering things that don't work like they're supposed to and they're never punished for it.

1:08:19You can see this with like the way that the 737 Max has been going for Boeing for a long time. So that's one way that I think it could in theory go south. The other way is that government cultural risk. We are coming to them with a very different business model and the only way that we win at a scale that we're working towards winning is if we win major multi -decade long programs, like core military platforms, there will have to be people with courage inside the government to make a decision to go with a new player, to build a next generation fighter plan or next generation counter -air missile or whatever.

1:08:52Final one, why do you want to be in 10 years? It's 2034. Where does try then? My goal is to stay super opportunistic and not allow my current of desires to overdetermine my future. That said, I will come back to a point that I earlier said, I'm deeply committed to the idea of civil service. And I don't know if it's in five years or 10 years or 15 years, but at some point, I want to be back as a public servant working for the good of our nation and our allies and partners. And there are a lot of ways that I could do that. I'm very open to going down that path. I'm post 10 years, we can fit another carry cycle in as well.

1:09:27So very strategic each time. It could happen in five years. I don't know. We'll see what happens. I just saw Arnold Schwarzenegger's I'll be back when you said that. So, uh, Trey, I love you. Thank you so much for being so great and this has been so much fun. Awesome. Thanks, Harry. I appreciate it, man. I have to say I so enjoyed doing that, Shoe. If you want to see the full episode in video, you can watch us on YouTube by searching for 20 VC on YouTube. Trey was incredible that I want to thank him so much for being so flexible with that ever -moving schedule. But before we leave you today, one thing I hear from my listeners all the time is that marketing leaders are under more pressure than ever to deliver real business impact.

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