C (3:30)

And just before I get onto the next question, a quick follow up, maybe inside Baseball a little bit with a 16Z. Do you talk to Mark and Ben about this? How does that happen? Actually, yeah.

A (3:40)

So, I mean, it's interesting the kind of way we came together was my partner David Ulovich and I were just tired of competing with each other on investments. You know, it was like there were very few people that were investing in aerospace, defense, public safety. And after a while you just get to know each other and you're like, maybe it's better to partner than to compete. But yeah, Mark and Ben, Mark always says he had been working with the US government since the 90s, obviously advising in different capacities, but also selling to the U.S. government. And so it was not new to him to be patriotic and to think of technology as a patriotic good. But it was the last 15 years, I'd say probably after the dot com burst, all the way up until 2017. We always mark it as the moment when Google refused to work with the Department, then Department of Defense, but Department of War during Project Maven, when there was a walkout of employees saying we will not work with the US Government. But things changed where I think patriotic engineers said, we do want to work with the Department of war. And that's when Anduril was founded. That's when a number of companies started being founded that are specifically focused on working in the national interest.

C (4:41)

Yeah, I want to talk about the founding of Anduril a little bit because as you mentioned, you were involved in that at another firm previously. But one thing I wanted to ask you about a little bit is in a way, this is Silicon Valley going back to its roots. Right? So you know, people sometimes forget, I mean, industrial and defense are a part of Silicon Valley's history. Its core really, in fact. A core of the core, yes.

A (5:04)

No, no. And even I, you know, when you look back at the history of what was happening in the 50s and the 60s, you know, everyone always thinks of HP as being sort of the, you know, the iconic company that was, that was founded. It starts sort of the technology wave and it's like Lockheed Martin, I think, had something like 16 or six times as many employees in 1956, up and through the 60s as those companies did. And so we like to say, you know, Silicon Valley was buil off of defense investment, the Department of War and the Department of Defense was buying so many of these technologies and working hand in hand with these early companies. And then something got lost. I actually think it was sort of the kind of change in sort of the talent that was coming to Silicon Valley. Everyone always thinks of like the Bob Noyce generation. These are people that grew up on farms working with their hands and working in the physical world. And then when everything moved to software, I always say like the Facebook sort of turn, the Facebook generation, it's a different profile of engineer, it's a Harvard kid in their dorm working with software. And we're seeing the pendulum swing back to the Palmer Lucky's of the world who was building in his garage building Oculus and these sort of moving back to a different profile of engineer. And now you kind of have both, you have the synergy of software and hardware coming together in these iconic companies.

C (6:11)

Oh, interesting, because we talked a little bit about this, the two of us, Catherine, that there was this era and I think even progressives were getting frustrated at the apps that were being created in Silicon Valley about things like dogs feelings. Remember that era when it was web 2.0 and it's a pendulum that really swung a little bit too far. So what are some of the most promising areas that you guys are investing in specifically?

A (6:34)

Certainly so I'd say that this, we like to break it up into eras. So you know, the first sort of Defense 1.0 era is companies like Anduril. It's companies that see themselves as selling directly to the US Government. Anduril, you know, it's no secret when you hear Palmer Luckey talk, he talks about how they want to be the next great Lockheed Martin, they want to be the next great prime contractor working with usg. But there's this whole other wave that's happened. And again, we started the practice almost like the perfect time in 2022. You know, I said, you know, Russia invaded Ukraine. There was this host of new founders that I think, you know, decided they wanted to build for their country. And a lot of them were coming out of companies like SpaceX, like Palantir. They had been trained and sort of already knowing how to work with US government. But they started doing some different things where they're not necessarily priming, right? Like they're saying, we'll work with the existing contractors. We want to rebuild the defense industrial base. So they see Lockheed Martin, Raytheon, you know, these sort of iconic companies of yesterday as potential customers and partners. And so you are seeing sort of the shift from we have to sell directly to US Government to now companies saying, well, we can shift left. We can be the critical supplier. You know, we work with many companies that are, that are supporting, sort of truly supporting the defense industrial base by building critical, critical parts for all of the companies, whether they're new defense, new space, or sort of the existing legacy prime. So you are seeing sort of this growth of the market, whereas I think, you know, maybe a few years ago people looked at it and said, well, how many SpaceX is, are we going to need? Or how many, you know, andurils are we going to need? And now you see, actually the market can support that because a lot of the existing players are desperate for innovation. They're desperate for artificial intelligence suppliers, but they're also desperate for critical parts. And so we are seeing sort of that movement as well.

C (8:16)

Specifically, are we talking about drones here? And I saw the story this week that the United States has introduced a new tank, the M1E3 Abrams. And then the headline was, is this America's Last Tank? So is this drones? Is it all drones? What are the products, specifically?

A (8:34)

Well, I like that question because it depends on how you look at drones. So we always look at it in terms of sort of what is the theater? Is it air, Is it sea, Is it space? And the thing, I think the commonality of the new technologies that are being built by Silicon Valley companies or by companies that are built in, I Always say the school of Elon Musk, right, They're building attritable systems, they're mass producing and they're producing from 1 to 10 to 10,000 as quickly as possible is that these are small systems that can be built cheaply. So we're not investing in aircraft carriers. We're not investing in what's known as exquisite Systems by the Department of War where the kind of 100 year, they know how to build those and it's going to take 10 years to build an aircraft of some kind. We're investing in the products that are 10 times as cheap, they're built as quickly, and they're built in a way where they can be mass produced as quickly as possible for the Department of War. So things like when you said drone, we have a company called Saranic that's building autonomous surface vessels that is a type of drone, but it's on the water. It's also a boat. And if you build a boat and engineer it so that you can go from 1 to 10 to 10,000 as quickly as possible, they have moved faster than any company that we've ever seen in terms of how quickly they've been able to manufacture and produce and get things in warfighters hand. They're a three year old company. They're already working very closely with the Department of War. But that's a type of drone and it's manufactured to be attritable. It's manufactured to potentially carry munitions, carry different types of payloads. And I think that's the thing that's so interesting about these companies is again, they've gone to the school of Elon Musk. It's how quickly can we build, how cheaply can we build? And they're building a different component of what's next in war fighting that is not these expensive systems that are sort of, I'd say the architectures of the past, it's the architecture of the future. And that they're building cheaply and very much for the next domain and the next theater.

C (10:24)

I mean the next generation of warfare, and we're seeing it in Ukraine and other places actually in that part of the world is terrifying. All war is because it seems futuristic. It's even more terrifying, at least to me. I mean, our drones attacking your drones and is that what it's going to come down to? Some of them in the air, some of them on the sea?

A (10:43)

Yeah, I mean, it's a good question. I was fortunate enough to go with some people inside of US government about a year and A half ago to the border of Ukraine and kind of see how we were helping operations there. And I asked a bunch of people who were very much in the thick of it, what's the technology that's most critical? And I actually thought they were going to say drones are the most important technology for this theater. And the answer that every single person gave me was actually Starlink, which I thought was fascinating how that is sort of the architecture, sort of the most important thing that's driving the ability to communicate on a battlefield of the future. What's also interesting about that theater is that it's very unique to a Soviet war, right? Like this is a trench warfare. They're bordering each other in some ways. If you look at the bottom without thinking about Starlink or thinking of the drones, it looks like 1914, which is very unfortunate. It's a very brutal war. But then when you look at the new technologies that are sort of in the air and in space, it's very applicable to other theaters and very applicable to what could potentially happen in the Pacific or what could happen elsewhere. Our view is investing in sort of ahead of what is the next theater. What is the thing that we need to be investing in in the next 10 years, is that the next war is actually going to be fought in space. And that means that we need to be thinking about attritable systems in space. We need to be thinking about offensive capabilities, need to be thinking about how Golden Dome can potentially be a part of that. But I think a lot of the companies that we're working with on the space, much thinking that the infrastructure in space to fight the theaters on the ground is actually, actually where we need to be spending the most time.

C (12:14)

I mean, it sounds like there's one most important person on the planet, at least from our standpoint in the United States when it comes to this, which is Elon, as you're talking about SpaceX and Starlink, nevermind Xai, I mean, are there other people out there besides him? I mean, maybe Jeff Bezos.

A (12:30)

Well, you know, and I actually love that question because the. When I say people went to the school of Elon Musk, I think that Elon's most important contribution to this country is training two generations of engineers really over 20 years on how to work with their hands. Again, we had lost that capability in the U.S. again, the pendulum had moved so far to software that we didn't have someone who was thinking from first principles of how do you actually build as quickly as you possibly can and build in new ways and Capabilities that didn't exist before. You don't learn it at university, and you certainly don't learn it at one of the existing primes, where they're given a list of requirements by the Department of War and they're told, build it exactly as we say. Elon's way of thinking about things, and there's been many books now written about this, but we see it every day in the companies we support, is he always thinks about how do you engineer something for production, how do you build for manufacturing? You don't separate out those two capabilities. You're an engineer. The best part is no part is sort of his number one rule. You want to make it as simply and cheaply and as quickly as possible so that you can mass produce something. That, of course, is the capability of Starlink. And so for every single one of our companies we've watched the diaspora out of SpaceX, I'd say there's SpaceX talent in them that is really taking sort of that Elon knowledge and building for a new capability. Whether we have a company called Castellan that's building hypersonic weapons, it's an all SpaceX team that had worked very, very closely on Starshield and worked with the US government, and now they're taking everything they've learned from that disciplined sort of methodical approach and they're bringing it to a new capability that SpaceX isn't working on. So that, I think, is what you're seeing when you see the diasporas out of these great companies like Palantir and SpaceX, and, and they all know something that they've learned from the previous generation of companies.

C (14:09)

Right. I guess Palmer Luckey's another person. I mean, the Palantir people. Is hypersonic weapons another name for that missile?

A (14:16)

Yeah. So, yes, it can be hypersonic, can mean many things. But in the case of Castellion, they're building hypersonic missiles that go Mach 5, so five times the speed of sound. And the reason this is so important, I actually think the better story about this is how a couple years ago, if I had said I invested in a hypersonic weapon company in Silicon Valley, I think I would have been kicked out of the room. Like really, I would have been called horrible, horrible names. And in 2023, when we invested in Andreessen Horowitz, there was not a peep out of people thinking that this was terrible. And the company came in again. They'd worked for Elon and they'd worked for SpaceX many years, and they said this is a deterrence company. If we cannot build hypersonic weapons, which is the thing that the Department of War is saying is the most critical on their list of things they need to build as quickly as possible, we have lost the next war. This is so incredibly important. And I think that the shift and the cultural shift that moved from saying it's horrible to be working with any of these departments to we have to build for deterrence happened so quickly in Silicon Valley. I'm not even sure that people realize sort of the sea change, the 180C change that happened. So I think that is what's really, really exciting about these technologies, is you have people who are able to build them. They've gone to the school of Elon Musk, but now there's investors. Now there are people who are saying this is actually really important for the national interest, for America's security, and deterrence is really the important part about it.

C (15:38)

Yeah, I mean, it sounds like the old rules still apply, Catherine. Deterrence, mutually assured deterrence. Right. I mean, escalation. Is that an issue, or are the rules still the same?

A (15:49)

Well, I'd say that things have changed in that if we're focused on a space war, that's very different. But I do think that there was a long period of history in Silicon Valley. Palmer talks a lot about this, where he says, people thought it was the end of history, but we are not going to ever see another live war. We're not going to see a land war in Europe that would never happen. And so you had people who said, okay, we should only be focused on software, we should only be focused on consumer technology. And it's actually wrong. Not only should we not be focused from an investment perspective, but it's wrong to be focused on supporting the national interest or supporting defense. And I think if what happened in Ukraine teaches us anything, it's that we have to defend our allies. We have to support not only the US Interests, but the things that are happening around the world and that the US Government says we have to, and we have to have a defense industrial base that is already built. I think one of the things that the current Secretary of War talks a lot about and previous ones have as well, is that if you stop building for it, it becomes depleted. So if you have 15 years where everyone says, oh, we're not going to build this, or the best engineers are not going to go into these companies, then it ultimately leads to a decay. It ultimately leads to, you haven't done research and development, you're not fighting the next theater, you're not thinking about where things are headed. And so I think that has been the sea change, is that now Silicon Valley is all in on this mission and sees how important it is.

C (17:11)

And not to sound like a peacenik, but, you know, I'm afraid you're right. I mean, every time you hear about a war, it's like, and they were woefully unprepared because of a long period and then they have to ramp up again. So. So I guess that's the way human nature is.

A (17:24)

And the defense industrial base, I mean, this is something that in some ways it is the reason why America is so strong and is so mighty. Right. Ben always likes to say this. We won the defense industrial or we won the industrial revolution. The technology is the backbone of what makes America strong, of what is the envy of the world. And if we don't apply that to our national security and our national interests, we lose a lot of that competitive nature. And so having a kind of defense focused and sort of what I would say really a national interest focused practice in Silicon Valley, where a lot of the bleeding edge technology is being produced and where it's thriving, that is really important. And the other thing that I think is really important to call out about Silicon Valley is we're very mimetic people. If one firm is doing something that another firm often follows on, if there's one founder who proves that you can build the next space company, other founders will follow suit. And so that leads to this explosion of talent, explosion of capital, explosion of people focused on sort of something that was untouchable 10 years ago. And so it's our view that the ultimate success story will be when every firm has an American dynamism practice and when every institution looks at it as something that is, it's not just a one off thesis, but it's really something that can be a lasting, enduring category of innovation, which we think it is.

C (18:43)

When I read about drones, I'm always reading about them being made in Turkey, in Iran, in China. Can America make drones? Does America make drones and these hypersonic weapons as well in the United States, not farmed out to somewhere else?

A (18:57)

Absolutely. I mean, part of why it's so necessary is because the US government doesn't want to buy drone technology from other countries. They can't. I mean, in many cases. So you can build it here. I'd say that the actual problem with a lot of the drones that are being manufactured in the US some of the dumb parts, most of them come from China or most of them come from other countries. And that's something that we have to get better at is the component parts that go into these larger systems, even if they're small scale drones, we have to figure out how to manufacture those and incentivize companies to do that. But certainly there's companies like skydio, which is a portfolio company of ours that's been operating for 10, 11 years now that works with the Department of War and is built in the US but we do have to think more about what we call shifting left. These component parts. We can't be taking Chinese parts and saying that that's going to be the solution to how we build for especially the Department of War. But also things like public safety where drones are also being used every day. We say shifting left in terms of it's not these primes, but it's the component parts that go into the supply chain. So it's always confusing because people are like, is that a partisan thing? It's like, no, no, it's not a partisan comment. More of the supply chain. Yeah. The types of component parts that go into a product that you're.

C (20:12)

Well, shouldn't President Trump put tariffs on those components?

A (20:16)

Well, I think, I mean, in some cases, yeah, we've seen different pieces of legislation and policy. I mean, we've certainly seen new executive orders around public safety in particular, not working with Chinese drone companies, for example. For a long time, if you were seeing any sort of police force, local police force, working with drones, oftentimes they were working with dji, they were working with Chinese drones. And that is definitely a national security threat. So now you're seeing sort of a kind of a wake up call and a policy shift that we don't actually want that data returning to China. We don't necessarily want those drones operating in communities across the country. So you are seeing sort of this shift through various types of policy, whether it's executive orders to make sure that these components and make sure that this technology is actually American made. And we certainly, we've been investing in it and I think there's going to become a huge opportunity for people to invest in these companies that are working across various sectors that are important for national security and the national interest.

C (21:12)

And nevermind, just delivering for Walmart. I mean, that's becoming a huge business right now.

A (21:18)

I would say that's the national interest, right? Very, very, very quick delivery.

C (21:22)

I went to one of those facilities. It's really amazing. And you really, you know, at first you laugh at it and then you see it actually working. It's really pretty remarkable. It's not for everywhere. You know, it's not going to happen in Manhattan necessarily anytime soon, but most of America is not Manhattan totally.

A (21:37)

And it's interesting too, because, you know, for us, you know, we've been investing in this category for a long time, but the early drone companies, they were not focused on defense as a mission. Again, it's like no one was thinking about that in 2015. In Silicon Valley, when we were talking about drones in 2015, we were talking about delivery, we were talking about the consumer applications of this. And it goes back to, I think, how technology is built in this category. A lot of these companies are what's known as dual use. They want to provide for the consumer, they want to provide for the enterprise, but they're also working with the Department of War. And so drones are actually a great example of that. A lot of the companies that are now working directly with the Department of War started off as sort of these toys or they started off as something that was going to be focused on a consumer application. That's now they've pivoted to working with public Safety and working with Department of War because that's such a willing customer. So I think we're seeing that too, that sort of movement of even companies that were built 10 years ago saying that this is a real opportunity.

C (22:33)

Do your endeavors speak to both sides of the political aisle, or is this just a GOP thing?

A (22:38)

Oh, this is a bipartisan initiative. I mean, we've been investing in this category. I personally have been investing for over a decade. Republican administrations have been supportive. Democratic administrations have been supportive. At our summit, we've had many, many years now, the deputy secretary, Kath Hicks, spoke a few years ago. It's exciting to see if you go to Washington, there's not many things that people agree on. The one thing that people usually agree on in Washington is the ndaa, the National Defense Authorization act, and supporting our troops, making sure that the best technology ends up in the hands of the war fighter. And so I don't think there's ever been pushback on investing in the defense industrial base. It's something that whether you're talking to House Dems or House Republicans or Senate Dems or Senate Republicans, they usually get to alignment and agreement on. And again, the people who serve on those committees, most of them are veterans or a good many of them are veterans or they've worked in the intelligence community. So they know the realities of what you're dealing with. If you have a faulty device or if you're up against an adversary that has better technology than you, and because they've experienced that, they sort of put away their partisan affiliation. You know, I think the old saying, there's no atheists in foxholes, there's really no Democrats or Republicans in foxholes either. You know, it's like people want to work together and they want to solve the problem at hand. And so I think you really see that in Washington. And when we go, we work with everyone. And no matter who is in power, we're always supporting this issue in the same way. We need to make sure that our men and women in uniform have the best technology in their hands at all times.

C (24:09)

And what could government do better?

A (24:11)

What could government do better? Oh, goodness. Well, so I think for I have.

C (24:14)

A lot of thought, let's end this session a little bit.

A (24:16)

Yeah. So I think it has been a 10 year, I mean, it's been a 10 year journey of saying the same things over and over and over again about needing to bring Silicon Valley companies into procurement. So we've worked very closely with members on both sides of the aisle on how important it is to bring in new technology. There have been memes for many years that actually the Companies that are 100 years old are going to produce the best technologies, or it's cute to work with a company like Anduril, but they're still a small company compared to the public companies that have been around forever. I think those people have changed their tune in recent years, seeing how quickly the capabilities can be built. I mean, Elon has talked a lot about this in terms of his experience with SpaceX, where the government didn't want to work with SpaceX, even though it is arguably the best engineering company on the planet in terms of talent density, in terms of how many products they've been able to build. And so in the case of both SpaceX and Palantir, they both had to sue the US government to be able to compete on contracts and be able to win those contracts and supply the Department of War. And I think that sort of mindset shift that the riskiest thing you can do is bet on the companies of the past and believe that they're going to be all you need to solve your biggest problems. That has changed. People realize that they need to bring in, and particularly I'd say this administration Secretary Hegseth has been very vocal about bringing in new technologies, making sure that they're part of the supply chain, making sure that they have, I'd say, a level playing field to be able to compete for contracts. And a lot of the changes that are happening now are around just allowing for more fair competition between the existing sort of legacy prime customers or companies that have been around for a long time and the new entrants that really just want a level playing field.

C (25:57)

I wanted to follow up quickly on something you've said about Starlink. And that is, is there a competitor to Starlink? I mean, they said that's the most important thing, like it's a generic property. Right. Are there other Starlinks? Are there opportunities that you see there?

A (26:11)

Yeah, so I mean, I think that there's definitely competitors, there's definitely companies that can support that infrastructure. But I think the thing that Starlink has figured out is how to do it cheaply, how to do it efficiently, and how to support what would be contested environments. And so I think the thing that we always say about the Department of War and how they make decisions about who they work with is they have to work with the best companies. They have to work with the ones that work time and time and time again. And so are there companies that build the same thing that can be redundancy? Of course, there's many companies that are working on various types of new technology. In the case of SpaceX, I think the big news yesterday was about space data centers. We're early stage investors, so we see dozens of companies that are wanting to build and different architectures, but wanting to build the same sort of technologies. But ultimately the Department of War is going to work with the company that can continue to deliver in contested domains and harsh environments. And so I think in that respect, talking to operators who were saying how critical starlink is, you know, that was their reality on the ground that this is the most reliable technology and that this is the technology that they use to make sure that they survive another day.

C (27:24)

Fair enough. Okay. We're at WSJ Invest. So there's a lot of talk about IPOs deal making. What's going on in this space. Are there going to be IPOs coming out of your world?

A (27:34)

Well, you know, I think they're, you know, we invest in companies because we believe that they can be standalone public companies. You know, there's a number of different founders in our, in our portfolio that have, that have said publicly that they are aspiring to that. So I think we are going to start seeing more and more founders taking their companies public. But I think the interesting thing that I think will also happen that isn't probably as obvious is I think a lot of these prime legacy public Companies who haven't been thinking about M and A, who really haven't been forced to think about research and development and how they're investing in research and development, new capabilities. I think they're also going to start looking at some of these companies and saying, well, maybe we should partner and maybe we should acquire them. And so I think you're it was for 10 years or so there was sort of this meme in Silicon Valley. None of these large companies are going to be acquisitive. Your companies will have to go public. And this is not a market that is excited about these types of technologies. I think that has changed. I think the world has changed. I think people realize that we're in a new reality. And if you look back to sort of the 1990s, what's known as the Last Supper, when all of these companies were told that they needed to merge, there were something like 17,000 different defense contractors in America. They all merged. They were told by the Department of War they had to merge because the war was over, the Cold War was over, we weren't going to need them anymore. I think you're going to see a lot of more acquisitions and a lot more companies realizing that there's a new sort of view of what's going to happen in the future. And these companies that are supporting the national interests that are venture backed and building faster than ever thought possible, those are companies that are going to have to be part of their suite of products as well. And so I think you could see that in the next few years as well.

C (29:06)

To sounds like some exits for a 16Z coming up.

A (29:10)

Well, and, and, and Silicon Valley. I think Silicon Valley is going to become even more excited about this category. And this is not again, this is not a, a one time thesis. This is something that I think is going to, to define the next 25 years of, of innovation in Silicon Valley.

B (29:26)

Thanks for listening to this episode of the A16Z podcast. If you liked this episode, be sure to like, like, comment, subscribe, leave us a rating or review and share it with your friends and family. For more episodes go to YouTube, Apple Podcasts and Spotify. Follow us on X16Z and subscribe to our substack@a16z.substack.com thanks again for listening and I'll see you in the next episode. This information is for educational purposes only and is not a recommendation to buy, hold or sell any investment, investment or financial product. This podcast has been produced by a third party and may include paid promotional advertisements, other company references and individuals unaffiliated with a16z. Such advertisements, companies and individuals are not endorsed by AH Capital Management, LLC, a16z, or any of its affiliates. Information is from sources deemed reliable on the date of publication, but A16Z does not guarantee its accuracy.

A (30:23)

Sam.