Venezuela’s Oil Test, Overcapacity in Renewables, Defense Tech Boom

28:24This is the Bloomberg Tech Minute brought to you by Chachi PT. Now with ChatGPT Work. I'm Carol Masser. Has the AI moment arrived at corporate offices worldwide? Not yet, and it's perhaps several years away, according to one survey of corporate recruiters who circle the world's business schools each fall and spring. Bloomberg's Rob Mandelbaum notes that according to the Graduate Management Admission Council, the skills recruiters sought most among 2026 graduates of business school master's programs, including MBAs, were communication, problem-solving, and adaptability, which changed little from last year.

29:00Training in artificial intelligence tools ranked in the bottom third of the skills list, but recruiters did say AI-specific training will be more important in five years. On that, recruiters rated current graduates as only somewhat prepared or less to work with AI tools, and said business schools are not doing a good job of teaching AI skills. Bottom line, according to the survey, what most companies want when it comes to AI skills is for candidates to be able to automate routine work. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects.

29:36Get started at chatGPT.com today by selecting Work Mode, available on Plus and Pro Plans. This is Jacob Goldstein from What's Your Problem? Running a business is hard enough. Don't make it harder with a dozen apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. That's software overload. Odoo is the all-in-one platform that replaces them all. CRM, accounting, inventory, e-commerce, HR. Fully integrated, easy to use, and built to grow with your business. Thousands have already made the switch. Why not you? Try Odoo for free at odoo.com. That's odoo.com.

30:21You already know how AI is changing how everyday work gets done, how much ground you can cover, and how fast a team can scale. To stay ahead, you need the tools that give you a competitive advantage, built for this new era. Welcome to Agentic Revenue. Adio is the CRM for this world. It meets you where you work, compounds every customer signal into context, then acts on it across your pipeline to let you move at unmatched speed and scale. With agents and automations for every job in revenue, Adio orchestrates your work around the clock. Built to handle the scale of your workloads, extensible with API and MCP, and with the infrastructure to keep up with your most ambitious agents.

30:58Loved by high-growth startups like Granola, Modal, and Etched, Adio runs the work behind every win. That's Adio, the agentic CRM, the intelligent system that never sleeps. Picks up leads at 2 a.m., catches renewals before they slip, hands you the answer before you ask. Try Adio free at adio.com slash iHeart. That's adio.com slash iHeart.

31:24You're listening to Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is a story about robbing Peter to pay Paul. Even as continental Europe struggles with too much electricity coming from the sun, Scotland is contending with too much coming from the wind, forcing turbines to be turned off when the grid can't handle the electricity being generated. And it has come up with a very different solution. Scotland is building data centers to consume the excess electricity. Our colleague Simon Hampton brings us the story from a proposed data center site in Scotland. So Ravenscree sits just at the east of Glasgow.

32:05It's 1 ,200 acres and was once Europe's largest steel strip mill. Motherwell was once known as Scotland's steel capital, but today it's undergoing a massive reinvention that hopes to turn brownfields into data centers, the factories of the digital age. Michael Hunter is the head of commercial at Apatura, who are contracted to build a data centre here in Ravenscraig. From a data centre perspective, there's a massive opportunity here to create economic stimulus that this part of the country needs and to not only unlock the compute, the 550 megawatts, to bring in significant capital investment. While data centres in rural towns are now a common experience for much of the developed world and are raising the hackles of some communities in the US and Europe, Apertura's data centre development is unique in the way it plans to be powered, tapping into Scotland's most abundant resource, wind.

33:05So we're in a very unique situation here whereby we have two connections in very close proximity to the site. So one near a hill to the north and one at Whishaw to the south. These are grid connected assets, so flow through from the offshore wind that Scotland has in abundance that we can then be utilising to power the next generation of industry in Scotland. In most places around the world, data centres are struggling to secure enough energy to meet high power demands, putting them on a collision course with the local governments. In Scotland, the opposite is true. The so-called windbreak of Europe is generating too much energy, leading to a costly problem known as curtailment, or turning wind turbines off, where instead of the consumer paying the utility company to use electricity, the utility pays the wind generation company not to provide electricity that the grid can't handle.

34:03Last year, the UK spent£1.8 billion curtailing wind generation, with some estimates predicting that will rise as high as£8bn by the end of the decade. It's becoming more commonplace because we've seen renewables deployed so rapidly. System capacity has become increasingly stretched. Peter Osboldstone is the research director at the energy analytics firm Wood Mackenzie. I think last year we saw about 8 to 10 terrell hours of curtailed wind in Scotland and that's about 10 % of the available wind resource in the year. That is a massive amount. Why has it gotten to that point? It goes back to the pattern of development, where the capacity is.

34:45So in a fleet of maybe 30 to 35 gigawatts of installed wind generation in GB, about 14 gigawatts of that is in Scotland. Scotland has about 10 % of the national power demand, so a lot of that wind generation needs to be shifted further south. So we hear about these data centres locating themselves close to wind turbines and where that energy is generated. What are the benefits that that provides? So most of those data centre proposals are through Scotland's central belt and down towards the airship on the east coast. The curtailed winds, or the most curtailed projects, are offshore wind projects on the east coast.

35:28The key point here is you're connecting the excess supply with new demand which is the right side of the system constraint. The system constraint is further south so you just need to stop power from flowing across that constraint. If all the power generated by Scottish wind farms could be distributed throughout the UK there'd be no need for curtailment. The problem is that the grid doesn't always permit the power generated to get where it needs to be used. Most UK data centre proposals are here, where Scotland connects into the rest of Great Britain's transmission system, like a traffic zone where multi-lane highways merge into one, a common spot for grid congestion that leads to curtailment.

36:10The real problem that Scotland, and indeed the UK has just now, is not a generation problem, but it's more of a transmission problem. So with all of that wind generation, when there is nothing to actually utilise the power, when the wind is blowing results in curtailment costs. And what we're looking to do here is to put demand for that electricity strategically in places that then reduce those curtailment costs, ultimately providing compute to the people of the UK while lowering their household bills. And if they can lower curtailment costs, who benefits from that? So curtailment costs come in two parts.

36:53we're spending at the moment in the GB system, NESO, the system operator, around 350 million per year to turn off Scottish wind. But if you turn off a generator somewhere, the system operator also has to turn on a generator elsewhere. The system has to stay in balance. So they're also spending about 650 million a year in turning other generators back on south of the border, essentially gas by a generation in England. But there will be a whole of Britain benefit If you lower those costs, it's not a local... Absolutely, and those costs flow through at the end of the day to consumer bills. So the benefits of reducing curtailment is a lower system cost feeding through to consumer prices.

37:36In theory, building data centres to tap into Scotland's surplus wind power and reduce curtailment costs might sound like a perfect solution, but data centres need power around the clock, and the wind doesn't always blow. Can curtailment alone power this data center? So it's a really important question to think about. I think it's worth breaking it down into component parts. So the first bit is on the 550 megawatt compute itself. So the UK, like the rest of the world, is in need of this data center capacity with everything that's going on from general technology adoption absolutely magnified through what's happening with AI.

38:16there needs to be that compute somewhere in the UK. What we are looking to then do is to site those data centres in places that have a minimum impact from an environmental perspective. And that includes putting it as close to where the renewable energy is being generated to, as I say, then minimise that impact. It's part of the solution. Whether it's in isolation, it certainly isn't a perfect solution. The scale of interest in potential data centers in Scotland, seven or eight gigawatts, compares to maybe four or five gigawatts of peak demand for electricity in Scotland at the moment. So it's massive potential developments.

39:01That's not to say it will all go ahead. So, yeah, 24-7 electricity. And when the wind isn't blowing, low wind speeds or no wind speeds, that power needs to be made up from other sources. So that's drawn from the wider network, potentially reversing flows that are typically north to south at the moment. The other potential, and this is a concern for opponents of large scale data centres, is that data centres start to use their own on-site generation, maybe gas generation. So there are issues there and concerns around emissions as well. Scotland has seen a surge in data centre proposals, but critics say most are speculative and raised concerns about the plausibility of tapping into curtailed wind, with the Environmental Group Action to Protect Rural Scotland saying, there is absolutely no plan from the Scottish Government on how the 7 gigawatts of proposed demand would be able to be delivered in a country with a peak energy demand of 4 gigawatts.

39:58But the UK's energy minister said they are consulting on ways to secure capacity by aligning data centre connections to regional infrastructure, adding quote without data centres we risk missing out on the jobs investment and innovations that will help drive growth in every postcode the UK's tech sector agrees Matt Evans is the chief operating officer of trade association Tech UK there are an abundance of renewable energy sources in the UK particularly up in Scotland do those present an opportunity for the data centre build Definitely. And the reason for that is quite often we're paying those renewable assets to turn off.

40:40You know, that doesn't make a lot of economic sense to do so, particularly if you can build data centres that can take that offtake from those renewable energy sources. That both increases the economic security of Scotland and the UK as a whole, but it also solves some of those curtailment costs as well. The challenges, of course, why do we build data centers where we build them? And historically, that's been really sort of proximity to the customer-driven. You know, latency matters at the end of the day. Geography, even in the digital world, matters. But that relationship is changing and is loosening a little bit as we move, not just from sort of cloud, but into AI inference.

41:30The prospect of using all that Scottish wind to power data centres may provide a solution to having too much power in the wrong places and at the wrong times. But Evans says it could also help the nation find a strategic edge in the AI race. I think what we should be aiming for is firstly the capacity to be able to service our own market and as I said vacancy rates at the moment are down to historic lows so we need to be able to meet the demand from the UK economy in the UK public sector so that's sort of a big challenge but then it's also in terms of what type of economy do we want to be and clearly that is one that is being AI enabled and being driven so we need to you know continue to drive investment into the UK to continue to attract investment into the UK to build out these economic infrastructure assets really.

42:32From a data center perspective, there's a massive opportunity here to create economic stimulus that this part of the country needs and to not only unlock the compute, the 550 megawatts to bring in significant capital investment, but also to allow Ravenscraig to be developed for 2 ,000 additional homes to be built and for the amenities that go alongside that, primary schools, retail facilities. Coming up, U.S. defense needs are bringing together the innovation of Silicon Valley with the massive investment of the Pentagon, a tale of two very different cultures adapting to one another.

43:21This is the Bloomberg Tech Minute, brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. Has the AI moment arrived at corporate offices worldwide? Not yet, and it's perhaps several years away, according to one survey of corporate recruiters who circle the world's business schools each fall and spring. Bloomberg's Rob Mandelbaum notes that, According to the Graduate Management Admission Council, the skills recruiters sought most among 2026 graduates of business school master's programs, including MBAs, were communication, problem-solving, and adaptability, which changed little from last year.

43:57Training in artificial intelligence tools ranked in the bottom third of the skills list, but recruiters did say AI-specific training will be more important in five years. On that, recruiters rated current graduates as only somewhat prepared or less to work with AI tools, and said business schools are not doing a good job of teaching AI skills. Bottom line, according to the survey, what most companies want when it comes to AI skills is for candidates to be able to automate routine work. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects.

44:33Get started at ChachiPT.com today by selecting Work Mode, available on Plus and Pro Plans. This is Jacob Goldstein from What's Your Problem? Running a business is hard enough. Don't make it harder with a dozen apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. That's software overload. Odoo is the all-in-one platform that replaces them all. CRM, accounting, inventory, e-commerce, HR Fully integrated, easy to use And built to grow with your business Thousands have already made the switch Why not you? Try Odoo for free at odoo.com That's odoo.com You already know how AI is changing How everyday work gets done How much ground you can cover And how fast a team can scale To stay ahead, you need the tools That give you a competitive advantage built for this new era.

45:29Welcome to Agentic Revenue. Adio is the CRM for this world. It meets you where you work, compounds every customer signal into context, then acts on it across your pipeline to let you move it on match speed and scale. With agents and automations for every job in revenue, Adio orchestrates your work around the clock. Built to handle the scale of your workloads, extensible with API and MCP, and with the infrastructure to keep up with your most ambitious agents. Loved by high-growth startups like Granola, modal, and etched. Adio runs the work behind every win. That's Adio, the agentic CRM, the intelligent system that never sleeps.

46:05Picks up leads at 2 a.m., catches renewals before they slip, hands you the answer before you ask. Try Adio free at adio.com slash iHeart. That's adio.com slash iHeart.

46:21You're listening to Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is a story about history not coming to an end after all. It turns out that predictions of a conflict-free geopolitical future after the fall of the Soviet Union were premature, as were hopes for a so-called peace dividend. War in Ukraine and the Middle East and the rise of China brought history back with a vengeance. Former Defense Secretary Mark Esper says that far from a dividend from peace, the U.S. needs to pay a premium for conflict going forward. We clearly need to spend more on defense, given the world that we live in today, more dangerous than it was certainly 10 years ago, since Xi Jinping has come onto the stage as leader of China and Vladimir Putin has become far more aggressive in Europe.

47:10But for Esper, it's not just about spending more on defense. It's about tapping into a new source of innovation and production. I'm most concerned about our industrial base and our ability to exploit these cutting-edge technologies that are coming out from these young mines in Austin, Texas and Silicon Valley and Boston and other parts of this great country of ours. There was a time that the tech innovation of Silicon Valley and the national defense apparatus run out of the Pentagon would have been considered strange bedfellows. But the need to put the nation's intellectual and financial capital together led Andreessen Horowitz to create its American dynamism practice four years ago, led by partners Catherine Boyle and David Ulovich.

47:55We started with a simple thesis, which was companies that are supporting the national interest. We had made a number of investments in companies that were supporting aerospace defense, but there were very, very few companies before 2020, 2021, 2022 focused on those areas, focused on hardware, focused on supporting the national interest, and most importantly, focused on working with government. For a while, Silicon Valley was very afraid of touching anything that was selling to the Department of War. In Silicon Valley, I always joke that, you know, it's like saying the word America out loud in Silicon Valley at the time was sort of surprising to people.

48:29But we immediately saw this groundswell of founders coming to us saying, actually, this really speaks to me. Putting the Pentagon together with Silicon Valley may seem an obvious strategic move, given the runaway success of the latter and the increased needs of the former. but the two come from very different cultures. Washington is used to zero-sum games, right? Every couple years there's an election, so it's on a very different cycle, and someone wins and someone loses, and that impacts everything about how Washington does business. Whereas Silicon Valley, it's a positive-sum game, right? There's always been a view in Silicon Valley that everyone can be a winner, that there can always be scale and always be growth.

49:06It's a very different type of doing business. What's so great about what's happened over the last 10, 11 years is that there are now founders who've done it before, The founders of Andrel, many of them met each other when they were at Palantir, and they learned the lessons, they built the playbooks, they made some mistakes, and they decided to build Andrel. And now they're training the next generation of people who come on with maybe two to four years' experience. Perhaps nowhere better represents the culture clash between the Pentagon and America's startup world than that oft-criticized, labyrinthine world of procurement.

49:38I'd say that that's been sort of the biggest change on the business side over the last 10 years. And again, investors like to take credit for this, or maybe companies want to take credit for this. I actually give the credit to the Department of War, because it was actually former Secretary of War Ash Carter, under the Obama administration in 2015, who saw the sort of writing on the wall. And he said, we have to go out to Silicon Valley. We have to get the best and the brightest engineers to work with us. And we have to kind of teach them what we're looking for. So in some ways, it's been an ecosystem learning about all of the quirks and peculiarities about the procurement process.

50:09But over the last few years in particular, with a lot of people in the Pentagon recognizing how crucial these companies are, and whether it's munitions, whether it's critical parts, there's been changes to the procurement process that have allowed these companies, what they call new entrants at the Pentagon, to enter procurement in a faster way, in a more nontraditional way, to really get to production faster. Space is an area in great need of new defense capabilities. President Trump is pursuing the Golden Dome, a missile defense system based in space that would aim to do for the entire United States what Israel's Iron Dome has done for a much smaller country.

50:47Space is the new warfighting domain, a fantastic example of how quickly you can build for space today in our portfolio, which is Apex Space. Apex is building what's known as satellite buses to propel all sorts of payloads into space, into low-Earth orbit and orbits beyond. When it was started, there was definitely a view that this could be both a commercial and a government company. But what's extraordinary about the last few years is the pull that a company like Apex has received from the U.S. government for things like Golden Dome, for things like Space Space Interceptors, which, again, these were ideas a couple years ago, but now they're reality.

51:20We went to the headquarters for Apex Space in Los Angeles, where its co-founder and CEO, Ian Cinnamon, took us through its manufacturing process and business plan. We want to make sure that people can get to space as quickly as possible. The core part of the satellite, which we call the satellite platform or satellite bus, really enables anybody to take their payload, their sensor, whatever they want, and have it work in space. At Palantir, I was building software that was basically analyzing data coming off of satellites. So I saw this massive influx of demand for more and more satellites, and I said, somebody has to go build those.

51:54So tell us about that massive demand. What is the itch that you are scratching? So satellites, frankly, have been around for 70 years, right? They're not new, but there was a huge inflection point around 2020. And that was caused by access to space going from something that was really hard to basically access to it being incredibly abundant. SpaceX started to reuse their Falcon 9 launch vehicle. And the result of that was instead of space being something that was so hard to get to, it was now almost as easy as booking an airline ticket and getting in the car. And the result was people started saying, well, if I can get to space easily, I don't want to just launch one satellite.

52:35Let me go launch 10, 100, 1 ,000 satellites that work together, a swarm, a constellation of satellites. And they realized there was nobody who was building them quickly. So talk about the use of those satellites. How much of it is civilian? How much of it is national defense? And how much of it is mixed use? So the honest truth is most things in space touch government, whether that's something like NASA or more often stuff like Department of War or the intelligence community. Almost everything in space touches that. Now, there's things that are predominantly commercial. Take, for example, telecommunication.

53:11So you have these big satellites or direct TV or things like that. Those are all working through space. But by and large, most of the new satellites that are going up there, if you ignore that one market, are really for defense purposes. Think missile tracking, missile warning, intercepting missiles from space, being able to take photos of places like Iran or China or Russia, know what's going on, analyzing troop movement, things like that. When it comes to the Golden Dome project, Cinnamon says it's a matter of economy and technology, both of which he thinks are there now. We have all the key pieces that we need to actually intercept these missiles from space, but we can do it in a way that's affordable and build them in a scalable way, build enough of these systems, get them up in space fast enough to actually be a better offering than trying to do a fire one missile from the ground after another.

54:03Cinnamon also believes that, despite the challenges and enormous investment, there is the political will in Washington to realize its promise. The investment in space and specifically defense in space has increased every single year across administrations. It truly is bipartisan because everybody fundamentally realizes space is the ultimate high ground. If you control space, you're able to control the battlefield. So the idea has been as more money flows into the defense industry, a larger and larger chunk continues to go into space. And just look at our adversaries. China has announced plans for a government constellation of over 12 ,000 satellites.

54:4712 ,000 government Chinese satellites. The U.S. government launched less than 200 last year. Those are very different numbers. That's not an order of magnitude off. That is orders of magnitude off. While agreeing about the importance of space for the nation's defense, former Defense Secretary Esper isn't so sure about the Golden Dome project in particular. Our ability to intercept is going to be really difficult. I think it's a great ambition to be able to put a shield over our country. I don't know that we have the technology right now, in fact I'm sure we don't, to defeat a Russian onslaught of hundreds of missiles or a Chinese onslaught of hundreds of missiles.

55:22It's going to be hard and it's going to be expensive. Some estimates put it over a trillion dollars. Cinnamon may believe in the future of the Golden Dome project, but he says his plans for APEC space do not depend on it. So it really comes down to a fundamental shift in how we think about building things for space. What we finally are at the point in is we are ready to now stop thinking about space as something where it's this bespoke, exquisite engineering project and start thinking about it where it's a repeatable, productized build. Almost like bringing the automobile mentality, the Ford Model T moment to space.

55:59It's all about manufacturing the same thing over and over and over again to get the manufacturing rate way up and the price point way down. Whether it's the Golden Dome or something else, the Pentagon and the tech industry are changing the calculation of risk and reward as they work together and moving up timelines for getting new equipment designed, made and deployed. It's forced investors to actually learn a lot of disciplines that say, you know, pure software investors in Silicon Valley really didn't know. They really didn't know how to look at a factory and assess, is this a good factory or is this a bad factory?

56:31Is this a type of hardware that the government's actually going to want to procure? How quickly can you make it? How quickly can you manage it? But fortunately, again, there's now enough people who have seen the success stories. The changing nature of defense contracting led some to think, at first, that another part of history might be coming to an end. The era of huge defense prime contractors, as startups challenged the likes of Lockheed Martin, Northrop Grumman, and Boeing. But it turns out that that part of history didn't end either. The first generation of where we were investing is companies that really wanted to be primes themselves.

57:06So what I mean by that is they wanted to sell directly to the Department of War. What we're seeing now, and I think this has been a pleasant surprise to a lot of the Department of War, but also to the legacy companies themselves, is that we have a lot of companies that say, hey, we don't want a prime. We want to support all of the legacy companies by building critical components, by manufacturing systems for them that they can then use cheaply and efficiently. I think what we're going to see in the future is autonomy, the use of robotics on land, sea, air, subsurface, whether that means underwater or in caves, will certainly grow.

57:38So it's not going to be an either or, and we shouldn't think that way. I see a combination going forward where the big players, again, I mentioned the GDs, the Raytheons, the Lockheeds, those companies that know how to build at scale, at volume, and know how to do sophistication and testing and everything else. I think you're going to see a marriage of convenience between the two worlds.

58:00Next, how SpaceX is changing the way the U.S. government thinks about defense contracts.

58:09This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Has the AI moment arrived at corporate offices worldwide? Not yet, and it's perhaps several years away, according to one survey of corporate recruiters who circle the world's business schools each fall and spring. Bloomberg's Rob Mandelbaum notes that, according to the Graduate Management Admission Council, the skills recruiters sought most among 2026 graduates of business school master's programs, including MBAs, were communication, problem-solving, and adaptability, which changed little from last year.

58:46Training in artificial intelligence tools ranked in the bottom third of the skills list, but recruiters did say AI-specific training will be more important in five years. On that, recruiters rated current graduates as only somewhat prepared or less to work with AI tools and said business schools are not doing a good job of teaching AI skills. Bottom line, according to the survey, what most companies want when it comes to AI skills is for candidates to be able to automate routine work. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects.

59:21Get started at ChatGPT.com today by selecting Work Mode. Available on Plus and Pro Plans. This is Jacob Goldstein from What's Your Problem? Running a business is hard enough. Don't make it harder with a dozen apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. That's software overload. Odoo is the all-in-one platform that replaces them all. CRM, accounting, inventory, e-commerce, HR, fully integrated, easy to use, and built to grow with your business. Thousands have already made the switch. Why not you? Try Odoo for free at odoo.com. That's odoo.com.

1:00:06You already know how AI is changing how everyday work gets done, how much ground you can cover, and how fast a team can scale. To stay ahead, you need the tools that give you a competitive advantage, built for this new era. Welcome to Agentic Revenue. Adio is the CRM for this world. It meets you where you work, compounds every customer signal into context, then acts on it across your pipeline to let you move in on match speed and scale. With agents and automations for every job in revenue, Adio orchestrates your work around the clock. Built to handle the scale of your workloads, extensible with API and MCP, and with the infrastructure to keep up with your most ambitious agents.

1:00:43Loved by high-growth startups like Granola, Modal, and Etched, Adio runs the work behind every win. That's Adio, the agentic CRM, the intelligent system that never sleeps. Picks up leads at 2 a.m., catches renewals before they slip, hands you the answer before you ask. Try Adio free at adio.com slash iHeart. That's adio.com slash iHeart.

1:01:09you're listening to bloomberg wall street week with david weston from bloomberg radio the world of doing business with the pentagon has long been known for cost plus contracts it takes whatever a weapon system will cost and then tax on a modest profit margin but that's not the way the tech industry works and katherine boyle of andreessen horowitz says the spacex phenomenon is changing not just how we launch satellites, but how we think about the profits to be made from government contracts. An essential tenet, I believe, of American capitalism is a tying of risk and reward. And as we look at Silicon Valley, there's a perception there's been high risk.

1:01:50A lot of things don't work, but really high reward that really pays off on that risk. Does that carry over into companies in the national interest? Can you get those sort of potential high rewards that go with the risks? I would say there's no greater example than this than the people who invested early in SpaceX. If you were, you know, around in 2015, 2016, hearing what people were saying about a rocket company, people would have laughed you out of the room if you were serious that SpaceX was going to be as important and as critical to the U.S. government as it is today. I think there were, you know, a ton of people who worked at SpaceX who were true believers, but there were very few investors who saw that vision of how important and critical that company could be.

1:02:29And so I like to say, you know, investors look at winners and winners beget winners. If they see something that is truly broken out of the mold and see that something has proven them wrong, they'll change their minds. And I think in many cases, SpaceX has caused a lot of Silicon Valley investors to change their minds about hardware, to change their minds about what it's like to work with the Department of War and the U.S. government. And the U.S. government has also gotten much more sophisticated. They realize that they need new entrants. They need new companies. The competition is good. the reason why we were in the mess that we were in in terms of not having the greatest technology at the fingertips of the warfighter is because for you know in the 1990s there was a decision that we were post-war and there was sort of an understanding that like you know that these companies would need to to to join forces and that there wasn't going to be much need for these types of products and I think the world has changed I think in many ways Ukraine woke a lot of investors in Silicon Valley up.

1:03:24And that has led to just a sea change in how investors and founders and really the entire Silicon Valley ecosystem is viewing, working with the Department of War and working on defense technology. SpaceX is a powerful example, as you say, of the potential rewards here. At the same time, it does occur to me, I think of it at least as a mixed use company. I mean, Starlink, a commercial application is very important to the success of that business. Is that the most likely payoffs for private investors are mixed use? There are definitely dual use companies. We call them dual use where they're working with commercial, but they're also working with the department.

1:04:01And that is something that the U.S. government has long called for. For a long time, there was sort of a view that you have to be a dual use company because the U.S. government really didn't want to be on the hook for working with companies that were only focused on them as their main revenue stream. I think that's changed, though. There are a lot of companies in our portfolio and a lot of companies in the broader defense tech ecosystem that are not dual use companies. For example, we have a company called Castellion that's building hypersonic weapons. There's no consumer that's going to get their hand on a hypersonic weapon.

1:04:29And that company is really critical for the Department of War. And they are building in a way that is making it much cheaper to build to build missiles than, say, the traditional primes have done, you know, in previous times. So I think, yes, we need dual use. And yes, there are companies that are going to be wildly successful as dual use companies. But I think there's also going to be a generation of companies that are solely supporting the department that look more like Andrel, more like Castellian, where they're building really hard things, where the department says, if you build it, we will buy it.

1:05:00And if it works, we will buy it. And especially if you build it cheaper. So I think there's opportunity in both sides. And we certainly invest in both sides. Every procurement system, as far as I can tell, private sector or public sector, has to strike a balance between speed on the one hand and accountability on the other. And I think one of the criticisms of the prior Pentagon system was that it emphasized the accountability over the speed. It took too long. How do you get the speed and maintain sufficient accountability? It's a great question. I think the Pentagon has learned that testing and having open competitions between companies has been a really effective way to make sure that the best companies win.

1:05:39And again, I think new entrants have always said, hey, we're not afraid of a good challenge. We want to get our hardware into the water. We want to get our hardware into space. We want to take on the risk. We're not asking for the Department of War to give us money to do R &D, which is very different than what the primes have historically asked. We will do our own research and development. But we want a seat at the table, meaning that when there's an open competition for companies to enter a new contract, we want to be able to prove to the Department of War that we can meet their demands. And so I think Silicon Valley is very good at rising to the occasion.

1:06:09They're very good at moving very quickly and testing and making sure that they can prove to the Department of War that they're able to build the products that the Department of War needs. Now, I think one of the critical things that Silicon Valley has always asked for is there used to be a regime of we want it built this way or with these parts or with this type of integrated system. And I think Silicon Valley engineers like to build things themselves. If you know sort of the book of Elon and the story of Elon, Elon says the simplest part is no part. So when requirements are built by the Department of War, oftentimes they're thinking in previous ways, you know, things that are not necessarily cutting edge.

1:06:44And so I think what Silicon Valley always asks for is have an open competition. don't make requirements so onerous that we have to operate like it's 1994. We want to operate like it's 2026. And we want to make sure that we can build things simply and cheaply so that we can build them in mass. And I think that is the thing that Silicon Valley companies have sort of pioneered for the Department of War's new entrance. Since you started the American Dynamism practice, has the very nature of venture capital investing changed in this area? Absolutely. And I'd say, you know, in some ways it's fortuitous because I think a lot of the same inputs and a lot of the same bottlenecks that exist currently in the AI ecosystem are things that the Department of War needs.

1:07:24So, for example, when you talk to the best artificial intelligence investors right now, what are they focused on? They're focused on chips, they're focused on hardware, and most importantly, they're focused on energy. How do we have an energy source that's going to constantly be able to support data centers? And that is something that the Department of War is thinking through as well, energy resilience. It has been top of mind for the Department of War for many obvious reasons, not only the current conflict that we are in, but also making sure that they can power their systems. So I think in some ways it's fortuitous that the AI boom is happening at the same time, in many ways, that the American dynamism boom is happening, because both the Department of War and the hyperscalers can benefit from the same inputs and the same sort of critical infrastructure that's being built.

1:08:04And to your point about are these dual-use companies, many of them started out thinking, okay, we're going to only sell to the Department of War, and now they're getting pulled by hyperscalers saying you have an energy solution. That's great. If you were if you were building an energy solution behind the grid and you're going to sell that to the Department of War, can you also sell it to a hyperscaler? So in many ways, it's been very fortuitous that the that the critical infrastructure is now being is being sort of, you know, I would say built for for other other issues in America. Artificial intelligence is consuming so much of the time, energy and goodness knows capital right now in the marketplace.

1:08:39Is there a displacement of investment capital toward AI? Are we losing something on the companies that you're interested in? No, I would say it's the opposite. I would say that investors have become far, far more comfortable investing in CapEx and that there's a lot of overlap between investing in the CapEx that you need to build a massive data center to support the hyperscalers, to support the large labs and the CapEx that you need to build missiles. And so in some ways, the question that we always got was, okay, where's the downstream capital going to come from? The biggest unlock for American dynamism, you know, we're early stage investors and the American dynamism team is really focused on investing early and helping a company get to production.

1:09:18But the question that the Department of War and the question that many investors had is, OK, it's great that you have a product that you've built. How are you going to build that factory? Who's going to put the money in the larger, larger capital? And the downstream capital has arrived, I think, in part because investors are now much, much more comfortable with investing in CapEx, with understanding how debt interplays with this as well. and how these companies can scale much more rapidly if you give them, I would say, larger tickets earlier. And so the companies that really struggled to raise capital in 2015, 2016 to be able to build a factory, those same companies are really soaring now because they've been able to convince investors to invest in a large facility that allows them to move much faster to the Department of War.

1:10:01So I think in many ways it's led to a much more, a different type of style of Silicon Valley investing that we're going to continue to see for the next decade. That does it for us here at Wall Street Week. I'm David Weston. See you next week for more stories of capitalism.

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