Loading summary
Transcript66 lines
- [00:04]
Elan Benata
You are listening to an art media podcast.
- [00:08]
Michal Avram
So, Yonatan, what's your number this week?
- [00:10]
Yonatan Adiri
Easy. 25 billion. That's the number Palo Alto Networks paid to acquire Cyber Arc. It is also our first Windex marriage where two Windex companies, one gets acquired, one is the acquirer.
- [00:23]
Michal Avram
Well, I feel like we should sing Simontov umazaltov, but I don't think I was hired to sing here. So my number moving on is 100 million. And this is the amount raised by Israeli AI company Descartes, giving it a $3.1 billion valuation. We have lots to talk about when it comes to AI, but whose number wins?
- [00:41]
Yonatan Adiri
I'm in for the Windex. It's a significant number for the industry. It is also a Windex celebration. So I'm voting for my number this time.
- [00:49]
Michal Avram
I'm going to give it to you, but begrudgingly, because this actually sent Palo Alto network's share price down. But okay, fine. It's still a wedding.
- [00:57]
Yonatan Adiri
Yeah, we're going to cover that.
- [00:58]
Michal Avram
It's still a wedding. I agree with you. It's a huge milestone. So you win.
- [01:01]
Yonatan Adiri
All right, let's rol. Well, as you can hear, and I hope my voice would last for the remaining of the episode, but I've exhausted my voice today pitching some new ideas related to Israel's future in Jerusalem. So I hope my voice holds through the episode.
- [01:24]
Michal Avram
Yonatan, it is around noon, around 12:00pm.
- [01:27]
Yonatan Adiri
Here in Palo Alto, 10:00pm in Tel Aviv.
- [01:30]
Michal Avram
Okay. Well, we were off last week. I missed you. But we got to exchange a lot of. A lot of messages over WhatsApp. And there's so much that happened, including the cyber Arc deal, of course, over the last couple of weeks. What's been top of mind for you?
- [01:44]
Yonatan Adiri
Look, top of mind was sort of, you know, we have been covering this over the last few weeks. Are we getting the release of the Fog of War? I expected by early August that this will be more prominent than it is right now. Macro figures coming in early August are actually very positive in Israel, so I've been following those. But most of all, I've been following my father's 80th birthday, which is what I was up to last week. It was 25 of us. Me, my three brothers, the grandchildren, our significant others. That was, you know, kind of a main focus.
- [02:15]
Michal Avram
80 should have been your number of the week, actually. That's a good one. You would have for sure won. So happy birthday. And on today's episode, we have a lot to cover. We've also got a great Interview with Josh Wolfram. Lux Capital, a venture capital firm based in New York and Lux is known for investments in scientific and technological breakthroughs. Josh made a very early bet, or Lux made an early bet on defense tech, including a little company called Anduril really has become the poster child for defense tech startups, which Lux invested in back in 2017, which was quite a while before everybody started talking about defense tech as a category, as its own category. Right?
- [02:56]
Yonatan Adiri
Yeah. And I think, you know, talking to Josh is also always fascinating when it comes to his and the fund's geopolitical worldview and how the thesis comes first and then the investments come second. They've been famous about bringing nuclear back into the cool via this kind of branding of elemental strategy or elemental energy. They've been, you know, as you said on defense tech before it was in vogue and before it was cool to go back to developing defense at the startup phase. So I would say to our listeners and viewers, you know, tune in and pay close attention when Josh sort of and the fond provide their perspectives. Usually reality follows with a high probability.
- [03:34]
Michal Avram
But first, let's take a look at some of this week's last two weeks, really I should say pressing news, AKA our big shorts. So let's get to all of that. Okay, on to our big shorts. Let's kick things off with the Windex. The last two weeks worth of Windex, which we have missed. Jonathan, what are you Looking at?
- [03:53]
Yonatan Adiri
So two weeks in the July 28 through August 8, Windex is in the red again. Palo Alto Networks acquires Cyberark north of $100 billion company buys a $25 billion company with a significant premium on the market cap on the day of acquisition. The market did not appreciate that. And obviously having Palo Alto and Cyberark weighing heavily as part of the Windex market cap, you know, the Windex can't win if CyberArk loses 18.31% in two weeks.
- [04:22]
Michal Avram
Jonathan, why are they so opposed to this marriage?
- [04:26]
Yonatan Adiri
It's kind of like a Jewish family where the, you know, this, I think fundamentally this is an acquisition, one of those acquisitions that are non trivial. They're a bet. Cyborg is 25 years old, really one of the founding companies coming out of Israel in the space. You know, one would even say they're not that Israeli anymore. Even the founders don't even hold enough equity to sort of control the company. But their expertise is in permission management. And I think what Palo Alto understands, Palo Alto is very famous for their acquisitions. Right. For growth through M and A. They understand that we're going in the direction of agentic AI, right? So AI acting as an agent, effectively an AI agent serving as a, as an entity that would need its own permissions and cyber protections and so on and so forth. So I think the bet is on the best company in the field to provide that at scale, which is Cyberark. So to me it makes a lot of sense. Some would say this is a great buy opportunity for Palo Alto Networks, right? Like losing 18 and a half percent in two weeks. You know, kind of fundamentals are very strong. Others would say, well, let's wait out a couple quarters, see how they, you know, gel. I think this is usually the usual kind of M and A concerns when the rationale is forward looking. So we'll have to wait and see. At the same time though, both the S and P and Nasdaq were more or less flat. S and P at 0.1, NASDAQ at 0.25. So overall I think the market was not in a dark green mode, I should say. In general, notable moves that Lemonade, a lot of realized profits and positions from big institutions. Actually following very strong reports from Lemonade, I think a lot of kind of voices in the market are saying, you know, it's been a great run and the stock is trading hands, changing hands. Indicative profitability for 2026 in the last report. Very interesting dynamics to follow.
- [06:16]
Michal Avram
Jonathan, another thing that you and I have exchanged some messages about while we were off is increasing concerns that the gains that we're seeing in the S&P 500 over the last few months, it all comes down to the Mag 7 and I'm curious, are we seeing a similar sort of theme emerging when it comes to the Windex?
- [06:36]
Yonatan Adiri
No. So as we in the Windex episode that we had a couple episodes before, we were transparent with our listeners in terms of the makeup of the 51 companies and the relative weight. And so as much AS S&P 500 or Nasdaq has that weight, DataTrack issued a report recently and they said that on a price return basis, S&P 500 would have been barely registered a gain without the Magnificent seven. So yes, I think overall the market is tilted in that direction and so is the Windex, naturally.
- [07:06]
Michal Avram
Let's move on to some other news. Israel's Leviathan natural gas field has signed its largest export agreement in the country's history. I think it would probably surprise some people to hear that this deal was signed with Egypt. The deal is worth up to $35 billion over the next few years. This is the largest for Israel since the discovery of gas reserves, which is another thing we've discussed in a previous episode that was all about energy. This is an increase, by the way, from a previous agreement signed back in 2020. So it's not an entirely new relationship. It's expected to ease some of Egypt's growing energy issues. And here's really why this caught my eye. You know, we're reading so much about worries of Israel's increasing isolation and yet here is this example of a really major, again I think surprising to many people, regional energy cooperation. So how do you make sense of this?
- [08:01]
Yonatan Adiri
So I think really I encourage some of our listeners to go back to the episode on energy because we touched upon some of those issues and this is actually reality kind of unfolding into some of those scenarios. Three quick things here. One, 10% of the holdings right now of Numid and everything is by Socar from Azerbaijan. This is not just regional, regional kind of Israel, Egypt, Jordan, Syria. It is a broader significance. I agree with you, it's a major piece of news. The second piece though is it hasn't been approved yet because this amount of export has to be approved by the government. This actually does highlight the question we discussed before. Does Israel want to see its natural gas energy independence kind of prolong right. Persist beyond 2050 or does Israel want to play a regional geopolitical role when it comes to energy? Both cannot be achieved at the same time. So this is a very important consideration. $35 billion contract, good taxes to Israel, the National Wealth Fund, so on and so forth. But on the other hand, are we really willing to become energy dependent again by 2050? Those are the things that are critical here when it comes to Egypt. In all honesty, I don't think they have any better alternative right now. There's 130 million people with no water, with a very limited economy. Just to give you a sense, the Egyptian economy is smaller than the Israeli economy even though it is more than 10 times bigger population wise. And so knowing they have a reliable energy source and Israel always was in terms of water to Jordan, in terms of energy to Egypt, was always a reliable partner and never leveraged it geopolitically when in times of war, military context. So I think that for Egypt to have a reliable source is very important. So I totally understand why they do it from their perspective. It's really no other or no better alternative right now.
- [09:52]
Michal Avram
Here's yet another tough decision that Israel will need to make. This is something else that came across our radar in the Last few days there is a committee, an AI committee in Israel that the government put together and they have come out with a report and a pretty critical assessment of the current state of AI in Israel, a slip in global rankings, talent shortages, et cetera. It's also consisting of a new plan that calls for investment and talent, a state owned supercomputer, which we've talked about, and a national energy plan for AI, among some other things. And as we've reported in previous episodes, and by the way, we want to do a deeper dive, a long play on this topic in next week's episode. Israel has really lacked a comprehensive national plan for AI, despite the know how, despite the talent that does exist and the startups, the proliferation of startups in the space. So Yonatan, I think my question to you here is we have seen other attempts to come up with some kind of a comprehensive national plan and strategy. Do you think this time it will stick? What's different here?
- [11:00]
Yonatan Adiri
So I think first again to go back to the episode we had with Yoav Shoam, who was a member, one of Israel's kind of AI founders and pioneers, was part of that effort and he portrays the need and the limitations there, I think to greater detail to keep it on a big short level this time. Two concerns. One was the Ona Berry committee a few years back. Nothing really happened with that report. There was no significant adoption this time. Around $25 billion, that's north of magnitude, $7 billion, more than 1% of Israel's GDP. In a situation of, you know, the next few years with competing priorities, given the expense of the war, you know, how are we going to fund the war and so on and so forth. To spend a percent of GDP on AI, I agree, is going to be a tough decision. The supercomputer decision, debatable. Do we need it? Not every country needs it. Is it a defense? I think we need to wait and see. Again over the next couple of months, the committee submitted its recommendations. I don't know if we're going to have a government in early 2026 or we're going to be on our way to election. If we will this, we'll have to wait for a budget, right, because it cannot be budgeted on an interim budget basis. So. So I'm a little bit concerned about this one, to be honest.
- [12:13]
Michal Avram
I think it's understandable that the government has been distracted in the last close to two years. There were attempts to do this, to put something together and put it into action. As you said, even preceding October 7, 2023. I do wonder if some of the very critical assessments from this report, I do wonder if this is what's needed finally to create some sense of urgency because there are some really, really alarming parts of the report about how behind Israel is and could be risks being if something doesn't happen really, really quickly.
- [12:51]
Yonatan Adiri
Yeah, no, I agree with that. And that highlights the concern on the size of the sheer size of capital that's required to invest. And again, with competing public spending now in the sort of hopefully the end of the war, this is going to be a tough issue. Public spending at that scale, one and a half percent of GDP on AI, on infrastructure, it's not an easy decision to make and it is going to be very consequential. I agree with you.
- [13:21]
Michal Avram
Moving on to our long play, our weekly deep dive. Today we're interviewing Josh Wolf from Lux Capital. Josh, welcome to what's yous Number?
- [13:29]
Elan Benata
Great to be with you guys.
- [13:30]
Michal Avram
For those who are not familiar with Lux Capital, you were founded in New York City in 2000. Size of your last fund was 1.15 billion and you have over 5 billion assets under management. But I want to get beyond the numbers and have you tell people just who you are really at the core because you've always done things a little bit differently at luck. So tell us about why you founded the firm and what's made your approach stand out over the years.
- [13:59]
Elan Benata
So by the way, my number is I guess 40, which is how many years I've been obsessed with science fiction. And I always say that the gap between sci fi and sci fi act is always shrinking. And so a lot of that is the inspiration behind Lux. About a third of what we do is healthcare, biotech, med device, robotic surgery, things that would traditionally be in life sciences. Another third is aerospace, defense, industrial manufacturing, things that sort of come out of the mechanical, physical engineering systems. And then the final third is core technology, which is more defined by what we don't do so very little in like Internet, social media, mobile, ad tech, things that are much more sci fi heavy. And then we do thesis driven stuff, which is sort of my personal passion. I'm very intellectually competitive. I like to understand what is the consensus in a market, what's the variant perception, what are the things that people haven't figured out and then I have to understand why they haven't figured out so that I'm just not arrogant or aloof about it. Then we do people driven, which is the great thing about venture, which is you back people and Then you get to back their cadre of lieutenants and you do company after company with them. And then we also do special situations which you never know when or where they're going to arise. But these are the kinds of scenarios that might be a corporate spinoff, a divestiture, a recap. And so yeah, today we're a little under five and a half billion, as you said last fund, just under a billion too. And we will do everything from the first 100,000 into a company to the last hundred million.
- [15:12]
Yonatan Adiri
I think for me as an ex entrepreneur, back in the entrepreneur days, and also on the government side, what stood out is you always had a transparent thesis, be it a quarterly report that you share or kind of a broad strokes of geopolitics that informed your subsequent investment. You were very open about it. To me, the Elemental Energy was one big thesis that came around in your ability to kind of put yourself ahead of the curve on, for instance, the peace dividend concept around Iran and the region. We just had Azerbaijan and Armenia kind of make a step forward in that. Tell us a bit about why and how you feel comfortable sharing your thesis kind of out there at the open with its geopolitical components as you build the deal flow or kind of attract the right type of opportunities for the fund.
- [15:56]
Elan Benata
Well, when you share a thesis, it's generally because you're out there sending a beacon signal of light and hoping to attract entrepreneurs. And most of the things that we like to fund are not things, things of the thing du jour. I always say that there's a five year psychological bias where everybody wants to be invested today, where they should have been five years ago. And so our job and sort of the raising d' etre of Lux is figure out where should we be investing today that three, four, five years hence our competitors and our peers are going to want to be investing. And so we always like to say, as every venture investor likes to say, that they're contrarian. But of course when everybody's contrarian, then you're not. And so we always like to say we actually want people to agree with us just later. So on your point, Elemental Energy, this was what I rebranded nuclear. Because if nuclear energy was discovered today, people would be running around like, oh my God, this is magic. We're able to extract energy from the nucleus of an atom and like, you know, it just, it would feel like utter magic. But you know, we had a bunch of issues from Chernobyl, Three Mile island, an entire generation that sort of lost the zeitgeist. I think that is coming back slowly as the younger generation that actually are pro nuclear and pro green and pro environment and zero carbon and all of that realize the virtues of it. And the crazy thesis we had back in the day, this now goes back 15 years, was while everybody else was focused on clean and green and alternative energy, nobody was focused on nuclear. And the biggest unsolved problem with nuclear is what do you do with the waste? And so we decided to start a company that was doing high tech nuclear waste cleanup. Really focused on two markets. One, the domestic production for nuclear power. And so you had 104 domestic nuclear reactors and 440 globally. And there was low level nuclear waste for every one of those plants, maybe you make a million to 2 million per plant. That could be a few hundred million dollars business. But the bigger market was pre and post Cold war bomb cleanup. And so we started a company, locked up the best talent, the best technologies, and then frankly got very lucky when Japan got very unlucky because this little company that we started, named Curion after Madame Curie, became the only company picked for the cleanup. And that was a fun maker for us very early on. So sort of validating of having a contrarian thesis, putting the team, the technology together, financing it, and then, you know, ultimately executing and negotiating the sale. So yeah, when we put out crazy theses, we're often trying to say, if anybody's working on this problem, come in and find us.
- [18:04]
Michal Avram
Okay, I want to ask you about, I think, a really good example of this five year psychological bias that you mentioned. And that's your investment pretty early on in Anduril in 2017. This is before everybody was talking about this big boom, Fenstec. It's pre Russia, Ukraine, obviously, pre October 7th. So walk us through the decision. What was the thesis there and why did you guys decide to invest in Anduril so early?
- [18:27]
Elan Benata
Well, let me give you the post reality narrative, which isn't true. First, we did a deep DCF model, discounted cash flow, and we analyzed the market comparables and we sum total the enterprise value of the top 10. Okay. And the reality is, a good friend of mine who's a partner at Founders Fund, Trey Stevens, who had worked at Palantir and was early at NSA and was just very interested in, hey, is there an opportunity for physical kinetic thing in defense? That's like Palantir. And we had long invested in physical kinetic related things, but nothing to the scale or ambitions of this. And he said over we debate whether it was breakfast or brunch or Lunch at Balthazar in SoHo in New York. He's like, I'm going to be starting this company with Palmer Lucky. And Palmer Lucky in particular embodied one of the great attributes that I love universally across any sector or any company that we invest in, which was chips on shoulders, put chips in pockets. And Palmer had recently been fired from Meta after selling Oculus to them for several billion dollars, became a billionaire himself and had FU views after making FU money. And he decided, I want to build a real life Stark Industries out of Ironman. I want to build the great next gen defense company that doesn't really exist. At Balthazar over brunch, I said, I'm in. And we became founding investors alongside Founders Fund and some others in Anduril. And initially was focused on one application which was border protection, so contracts with the cbp. This was at the time, by the way, when Trump was like, build the wall. And I'm not a Trump voter. The idea was that they were going to attract the best and the brightest. And we went from a, I don't know, sub $60 million valuation in the founding round to now $30 billion plus and nearly 2 billion in revenue in seven years. And it's just been an amazing success story.
- [20:04]
Yonatan Adiri
And an element of cool, by the way.
- [20:06]
Elan Benata
Super cool.
- [20:07]
Yonatan Adiri
I mean, just the product launches, the animation, it made it cool to go back to doing defense. You know, in Israel, defense tech is a big part of the economy. But I think what Anduril did is very much, you know, beyond the products, the science and the impact, they made it cool for engineers to go out there and say, hey, I'm going to defense tech. I'm going to work for Anduril. There was an ad, I think, last year of why not to work at Anduril or something like that. Someone's doing a great job there. And I think it's critical to attract talent to defense tech this way.
- [20:35]
Elan Benata
They're a mix of sort of irreverence and snark. And part of that is rooted in the ethos of we're not going to be one of the big cost plus contractors. We're going to use large equity dollars and hundreds of millions or billions of dollars to fund programs, win competitively and then deliver to the war fighters. So absolutely. And on the Israel point, it's very interesting because everybody serves. There's this great sense of camaraderie, this incredible culture facing existential threat that the US doesn't face or hasn't faced really in three generations or two generations. And so the idea of the Us being a victim of its own success in many ways that I think creates present day vulnerabilities when rising stock markets and everybody or reasonable portion of the population living high on the hog. That's why as a culture you get what you celebrate and we celebrate celebrities and you get Paris Hilton's and Britney Spears and nonsense kind of stuff and Kanye and Puffy and all this stuff. And I think now you're starting to see a return to people saying, wait a second, I don't want to just focus on ads and hacking people's attention and I want to do matter that matters, which is sort of a mantra we have at Lux. I think people look and you go back to Americans that have read some of Dan Senor's books and just this idea of really having deep meaning, full connection to your people and your community and the sense of patriotism, it's been lacking really Since World War II in the United States. And that feels something that is reignited unfortunately because of global events and something that's very special. So for us it's a big thrust. We've made our first investments in Israel beginning I want to say a year and a half ago, and we've now done four, two kinetic defense companies, two cyber companies, and we'll probably do another 10 over the next two, three years. And very bullish. I truly believe this is like greatest generation in Israel. You know, born literally out of fire and existential threat.
- [22:24]
Michal Avram
I want to go back to just kind of your broader view of defense tech and where it's going, because it sounds like the Anduril investment was more on like the people thesis side of things. You wanted to invest in Palmer Leki, but tell us more broadly, where are things going for people who haven't been following the sector super closely?
- [22:40]
Elan Benata
Thesis is unfortunately the world is not a kumbaya safe place, that there are bad actors that want to do bad things to good people and to fight that you need better people with better technology. So that to me is the first and foremost sort of philosophical principle we have. What was a 50 company defense industrial base in the United States going into the 80s. And with the decline in the Soviet Union and sort of winning the Cold War, there was this famous last supper where the Secretary of Defense and leaders in government basically pulled together some of the top companies and said, this is it. You're going to see declining defense budgets as a percentage of gdp. And so you got to get your acts together and start merging. And they did. And you went from 50 down to 5 between combinations acquisitions and some failures. And that really created an oligopolistic industry structure. And only now when you're seeing versus a peer adversary which we didn't have for arguably 30 years with the Soviet Union in disarray and the Baltic states not really a threat. And you saw the rise of China in part because of us, as we outsourced so much of our industrial manufacturing capabilities start to rise, whether it was shipbuilding, aircraft, munitions production. And those are against what I would consider major adversaries for us in the United States, which are Krink, China, Russia, Iran, North Korea and of course Iran. And that sort of octopus that has of its proxies and dedicated to the existential erasure of Israel has been an enormous threat. So that is the backdrop of demand, which are bad people that want to do bad things and you need defensive capabilities that deter them and deter them into understanding that you cannot and will not win. And so equipping war fighters, women and men on the front lines, whether that's with intelligence capabilities, kinetic capabilities, shared allied vehicles and platforms to be able to deliver lethality when necessary, is just going to be unfortunately for mankind and then fortunately for those of us who get to sleep soundly at night because our war fighters don't. A long term trend and way more important than, I don't know, video games or ads.
- [24:33]
Yonatan Adiri
Would you agree that there's a culture also of support for the people in the front that is not in big corporates, but is actually people here in Israel? It is that way knowing that the best and brightest are investing in you when you're in the front line, that it's cool that it's not just big corporates. There's a cultural element to a broader defense tech base. You're seeing now the chancellor in Germany saying we're going to be the biggest army in Europe by 2030. But then his people don't want to fight. In every survey, it's like 50, 40% of the people don't want to defend their country. How do you tie the breadth of startups in this space to a broader cultural change as it pertains to defense?
- [25:15]
Elan Benata
It's a recognition of common threats and enemies. And so war is always, I mean, two of our partners, serious military and diplomatic people. One is Tony Thomas, who is the 11th commander at SOCOM and oversaw 90,000 people in 90 countries. Another is Brett McGurk who was in the past four White Houses and most recently ending with the Biden administration after serving Trump and Obama and Bush too, really focused on Gaza and Hamas. And Israel and his counterpart in Lebanon, Amos Hochstein, all brilliant people, but they will always say that war is the will of the people. Me is where technology and the defense space plays a role in that. The people that want to work on these problems, like Palmer and all the people that are drawn to Anduril, yes, they want to make a fortune, yes. But they want to make history and they want to be involved in really protecting country. And I think that that's something noble and bold and relatively new in the past generation. Remember, the roots of venture capital go back to defense. Like defense was the cause celeb of venture capital. It was why we had computers calculating trajectory of missiles and projectiles. It's why Sunnyvale became the home to Lockheed and built up this big base. It wasn't just Hewlett Packard computers in a garage. When this sort of fanciful narrative, really all of venture capital and General Dorio started with defense Focus. So a little bit back to the future. It's a return to the roots and as you note, a cultural zeitgeist that people want to fight and defend. You saw this after September 11th in the US particularly in New York City. So many people enlisted, whether it was a Navy intelligence or on the war on terror. I think you just see it now again, whether China, Russia, Iran, North Korea. Seeing even things in the commercial space like drones that people use on an everyday basis and seeing how far superior the DJI Mavic drones are to anything that the US had in a capability woke people up. And then when you have law enforcement and first responders and military that are using these Chinese drones until they were restricted not to, people are like, wait a second, we have a serious problem here. We've been asleep at the wheel. So culture pushes forward talent, which, which attracts capital in the one case. And in the other case, external exogenous threats to your livelihood motivates people to say, wait a second, we have to do something. And that, particularly in Israel, is what has been, you know, sadly, massively inspiring.
- [27:23]
Michal Avram
You know, at the same time, there's also a cultural backlash. Right. I just walked by Palantir's Palo Alto offices and they've got windows smashed and red paint thrown all over the building. Which happened, I guess, after one of the recent protests. You know, Jonathan was talking about the percentage of people in Germany who do not want to serve. And you can have all the great tech that you want, but ultimately, if people don't feel that sense of both real threat and patriotism to their country, like how do you think about all that, do you think about it as you're making investments?
- [27:54]
Elan Benata
Yeah. I mean, for us, the first lens that we look at is a moral one, which is, are we reducing human suffering? And it's easy when we're funding a cancer drug. Although wrought with cancer, clinical trials are that people may die so that you can save millions. It's no different. And I remember one of our early investments which was on in visual or computer vision, AI capability for aerial drones and planes. I actually said this is a moral, discriminating, positive. Meaning the higher your resolution technologically to discriminate between a person that is walking home with a pickaxe or a shovel, coming from farming or mining to deliver food to their home and take care of their children, children versus a guy that's going with an AK47 to shoot up a school of girls. That is a clear moral discrimination. And the higher your resolution to discriminate an AK47 from a pickaxe, the higher your moral resolution to be able to make good decisions. And particularly for war fighters who are charged with the God call, to be able to decide, do we take that shot? Do we eliminate somebody who cannot be negotiated with. They are hell bent on doing something bad to good people. You want to equip them with better technology, which was, by the way, during your war, our war, this sort of counterintuitive idea that you're not going to give precision munitions but instead give these imprecise munitions which cause more harm. That's an immoral decision. The second piece of this is popular opinion. And there's going to be some popular opinion that is totally against war and always has been and should be. I mean, I think when you talk to generals and military folks, they are the first and foremost people who are against war because they're the ones that have to visit the people that are under their command and the families to report that somebody has died and lost a limb. And it's horrific. They know firsthand the horrors and the tragedy of war. They're the ones that are most anti war. They're not warmongers. Some of those people that are protesting I consider to have good moral instincts, but are relatively naive about geopolitics, naive about bad people with bad intent. So my view is, at Lux, we have a moral dimension. Are we reducing human suffering? And it's easy for me to identify that when we're funding great people with good morals trying to deliver technologies to the war fighters. And I can have both sympathy and empathy and understand the people who are protesting these things, but I just think that they're really on the wrong side of history.
- [30:09]
Michal Avram
Let's pivot to Israel. So tell us a little bit like we all know the edge that Israeli tech, Israeli startups and founders have had when it comes to cyber. But if you think about defense tech as we're kind of currently defining it, and some of the newer technologies that we're seeing, what do you see as Israel's edge here, if at all? What is it? What could it be?
- [30:29]
Elan Benata
Well, for us, our story really started with two individuals and individuals at least one that had been on the front lines post October 7th and returned and seen gaps and capabilities and saw an opportunity to use cutting edge tech to solve those. And that was Alone Drawer and Hamatal Meridor. And we became investors in Kela. And I'm super bullish on them as individuals and the team that they've recruited and now with technologies deployed on borders and beyond. But that was really the starting point and it was very reminiscent of the early Anderil days because when you talk to if you were doing diligence and you talk to somebody in the US Prime Times, Boeing, Raytheon, General Dynamics, Lockheed L3, they would all say, oh, I mean these guys might be cute, small upstarts or whatever, but they massively handicapped their ability to win. And I remember senior people introducing me to senior people at Raphael and Elbid and iai, Israel's main three, and you'd get the exact same thing, oh, these guys are cute, but they're never gonna. And I think it's one of those Gandhi like moments where, you know, first they laugh at you and then they fight you and then they join you and then you win. I'll give you one anecdote about Andrew. Peter Thiel and I were on a panel at the Reagan National Defense Forum right before COVID I think it was late fall, December of 2019. And all the brass are there, the Secretary of Defense are there, we're dressed in suits. Palmer Luckey shows up and is his Hallmark wine shirt, cargo pants, flip flops. And people are joking, considering him a joke, you know, passing around his Comic Con cosplay costumes like, this guy's not serious. I would guess that between 1 and 5% of the people that attended this there have now applied for and probably been rejected for jobs at Anduril. They went from being not taken seriously to being taken very seriously. And I think every small Israeli defense tech company is going to be able to face that upward hill battle that suddenly seems wrought with a high Slope, but suddenly has the propulsion of foreign investment, which I think is a validating thing and an incredible base of talent, including people that are leaving some of the big three projects. Times we funded our second company which is going to come out of stealth in a few months, but mostly focused on one of the big directional arrows of progress in warfare which is large attritable systems and the ability to send economically asymmetric swarms of things to combat an enemy and overwhelm its defenses. And I think that's something that's not only important for Israel, historically focused on the Iranian threat, but also thinking about allies and be it India or or elsewhere that I think could become big customers. So I'm just generally very bullish about human capital, the financial capital that follows them, technological invention, capability. And remember small startups, they don't have the luxury of having long term contracts or cash flow or all the things that can make a big bureaucratic sclerotic incumbent be lazy and slow and so you have to be fast and nimble. I'm just really inspired by every single course in Met.
- [33:23]
Yonatan Adiri
I think that's a great point. In terms of the demand side, how do you reconcile procurement? It's a big deal now in the White House. In Israel it's been a lot easier and There is now a 30, almost $5 billion defense budget, some of which will go, these are meaningful dollars. You also expect the demand side to shift or is this going to be like the next five years like the FDA type Dynamics and then it will roll out in, I don't know, 20, 30 and onwards.
- [33:48]
Elan Benata
I think that there's going to be a lot of process reform to be able to do rapid fielding of technologies. You're seeing small bouts of that with the US whether it's DUI or some others. But you're starting to see major programmatic wins and congressional budget items being awarded to startups in significant way. These aren't small SBIR grants, they're $100 million plus wins and they're important. So I think the same thing will happen in Israel in part because there's a model now of this move fast out, compete, win. And for the US that's everything from manufacturing ships to 155 shells to autonomous aircraft to drones to satellite and space capabilities. And I think for Israel it's going to be the same thing. I remember last April when the major attack happened with 300 ballistic missiles and drones and whatnot. Everybody else is going to look at this defense and say I want that. Whether it's Guyana against Venezuela or India against Pakistan or. And I think that's the case, you know, whether It's David Sling, Arrow 3, everybody wants these capabilities and Israel is going to be careful about who and what they partner with. But I think show a superior capability kinetically and the demand is going to be there.
- [34:59]
Michal Avram
So, Josh, before we let you go, I do want to ask you, on the one hand, yes, we've gotten to unfortunately see a lot of Israel's capabilities on full display right over the last close to couple of years, and especially with the recent war with Iran. And then on the other hand, we're also seeing a lot of elements that are increasingly isolating Israel. And you know, we just saw the German chancellor saying that they're halting some defense exports to Israel. We're seeing all sorts of threats of potential boycotts and things like that. What are you hearing? You know, you're out there, you've got your LPs, your own investors. Are there concerns that you have going forward or is it all bullish? Josh, all the time? What are you hearing and what are you worried about, if at all?
- [35:43]
Elan Benata
We have not had a single concern from a limited partner about investments in Israel. And in some cases, we had such high demand for some of our companies related to defense and with exposure to Israel that people wanted us to create a separate vehicle to add on to some of these. So if anything, we're facing a surplus of demand and support, and a lot of that is the cultivation of our investors and who they are. So that's been a positive. I remember I was with Dancing or.
- [36:08]
Michal Avram
We know that guy, he's awesome.
- [36:10]
Elan Benata
Awesome. But I was with Dan, I think, the first week after October 7th, and I remember that somebody posed a question to him and the Qatari ambassador was there at the time, which was interesting. Somebody said, what does this mean? And he said, look, the era of deterrence is over and there's three things that are going to determine Israel's response. And he was pressing about this. Number one is going to be, like I said, as relates to our general friends and partners, the will of the people. And right now, a country that was divided significantly this summer and of course still is going to be divided, which is the great virtue of a democracy, are unified right now now to get our hostages back and to deter this threat, an existential threat. Number two is going to be the Arab street. And the countries that either have become part of the Abraham Accords or on the cusp of it are not drawn towards Israel because it is weak and vulnerable, but because it is an economic, technological and military juggernaut. And I thought that that was profound. But number three was going to be world opinion. And the fact that world opinion in that first week, which to me was quite honestly the thing that radicalized me after October 7th, it wasn't what happened in Israel, it's what happened in the US on October 8th. And to see the placards and the signs and all these things and the weaponization of the words and genocide and apartheid and baby killer. It was so clearly an information operation that before Israel had even stepped foot in Gaza, before a single shot had been fired, before there had been any counter reaction, before there had been a decision from the war cabinet of what was going to happen, that world opinion. And I realized that Israel was going to win the kinetic war and they were probably going to lose, lose the information propaganda war. And I think that Israel is identifying this now. I think leaders increasingly understand that there has been a deficit of attention here. It's hard. You can't focus on all fronts at all times. But the information sphere is now one that has to be contended with. You mentioned Europe. I think when France made their announcement, they were going to recognize a Palestinian state came ahead of the Arab nations at all. And I think they knew and wanted to front run that to sort of win brownie points. You have a 20% Muslim population or 10% Muslim population in France, 0.5% Jewish population. So it's politically expedient to make a ton of sense. And I think when you look at the other European countries, all of whom are like, oh, we're suspending sales. And like you win brownie points like Europe had very little to do with the defense of Israel during any of this, very little to do in the Gaza operations. And so it's inconvenient, it's uncomfortable to watch, it's unpleasant for Israelis or even for diaspora Jews that might travel to Europe and wear a high or star David. But it's relatively insignificant. And so maybe I'm being naive, but I think in the next year or two do that will abate because Western democracies will realize that this is the canary in the coal mine that they are facing. And the great threat really is violent religious extremists. And especially when you're seeing a flood of porous borders that have brought people into London and Paris and elsewhere that don't want to be British or don't want to be French, they're going to contend with something that they've been warned about and frankly have been warned about by people like Abdullah bin Zayed of the UAE and others know it first and foremost. And so this is the world's next fight and Israel has been the tip of the spear on this. And so while it's uncomfortable and unpopular, it's necessary. And I just think the weaponization of public opinion, so much of the lies and it's, it's disheartening. But I think Israel has up to this point done the right thing of basically being inured to it. There's nothing that public criticism is going to do to say, no, please, sit back, sit down and die.
- [39:25]
Yonatan Adiri
No, no. And I agree. I think also geopolitically, Josh, between India, Azerbaijan and the uae, there are partners that would that stood by Israel throughout a very hard time. I mean, I was just telling the news correspondent here about the Azerbaijan, Armenia thing. Why should we care? I said, listen, every second time you fuel your car, 50% of the fuel in Israel comes from Azerbaijan. And it continued to flow throughout the war even though it came through Turkey. Turkey, this partnership and the Abraham Accords sustained and to an extent even flourished during the war should signal to those on the right. On the right, meaning not on the political right, but basically those who want to get it right. What it looks like, what the visionary Islamic Progress Driven administration in Azerbaijan, in the UAE looks at this.
- [40:17]
Elan Benata
They want peace, they want prosperity, they want access to technology. And unfortunately there's a small minority of people that still are quite very numerous that do hold religious ideologies that will cause them to commit horrific crimes. And they are a real threat globally. But I am optimistic, particularly when you look at a counter Belt and road initiative in China like IMEC. Not enough people are talking about IMEC or i2u2 where you have India, Israel, US and UAE. You have the India Mideast corridor, but the flow of talent, infrastructure, capital, energy, technology from India to Saudi and UAE to Israel, through the Mediterranean up to Europe and then conversely, particularly with a degraded, if not seriously degraded Iran, the probability of that happening and seeing tens if not hundreds of billions of dollars of investment there, from large scale infrastructure to growth investments to venture investments, I think is really optimistic for the world and I think it will be a peace corridor. I don't know if Saudi normalization happens in two months or two years or how long it takes, but they probably bring Indonesia with them. You have a huge part of the musl world that can see that we can coexist. And I don't know why the world is not demanding as they did during the Vietnam War for peace and coexistence instead of the zero sum endless thing that just hasn't worked for 80 years for people that are opposed to Israel.
- [41:34]
Michal Avram
Well, I don't know if you know this, Josh, but IMEC is basically Yonatan's love language. Anyways, thank you so much. This was just awesome. Thank you.
- [41:41]
Yonatan Adiri
Thanks, Josh.
- [41:42]
Elan Benata
Great to be with you. Love listening to you.
- [41:43]
Yonatan Adiri
Thanks a lot.
- [41:48]
Michal Avram
Well, we began our show with the numbers of the week and we are going to end with the words of the week as usual. This is from German Chancellor Friedrich Merz after it was announced that Germany would partially halt arms exports to Israel, which we've mentioned earlier in the interview. Okay, here is the quote. Solidarity with Israel does not mean we consider every single decision by the Israeli government to be good or that we support it even to the extent of providing military support in the form of weapons. He also said, I did not make this decision alone, but at the end of the day, I'm fully responsible for it. There was backlash to this within his own government. My take is he's kind of trying to have his cake and eat it too. And I don't think you can do that. You know, we heard from Josh Wolf. Ultimately, this is not that impactful or meaningful, but when it comes to actual exports. But I do think it's impactful in the information war zone. What do you think?
- [42:46]
Yonatan Adiri
Two things here. First, Germany has been very important for Israel when it comes to BDS and academic decisions in the last few months. So Germany is a very important partner in Europe. Would not, you know, kind of brush this aside. On the other hand, Israel just deployed into Germany three Arrow three systems to defend German skies. So German skies are defended against Russian ballistic missiles by Israeli technology. And I think that, that there's a bit of a foul taste here when you buy critical defense from Israel during the war. This decision was made in, you know, during the October war and then kind of second guess Israel so publicly. So, yeah, we will need to see how that unfolds, but we can't brush it aside again.
- [43:31]
Michal Avram
Eat your cake and have it too. All right, that is it for today's show. Thank you for tuning into Ark Media's what's your number? We hope you found it interesting. And if you did, please be sure to like, like subscribe. Rate review. You know the drill. But most importantly, share it with others who you think will find it interesting. And if you want to make suggestions or share your feedback with us, please reach out to us at what's your number@arc media.org.
- [44:04]
Yonatan Adiri
And if I still have a voice, what's your number? Is produced by Elan Benata Michal. It's edited by Michalev Ram. Sound and video editing is by Martin Huergo. Our theme music is by Midnight Generation. I'm Yonatan Adiri, who has a bit of voice left.
- [44:17]
Michal Avram
And I'm Michal Avram. Go get some tea, Yonatan. We will see you back here next week.
- [44:22]
Yonatan Adiri
See you next week. Ciao.
- [44:28]
Michal Avram
This podcast offers general business and economic information and is not a comprehensive summary for investment decisions. It does not recommend or solicit any investment strategy or security.