The a16z Show
00:36:42 · Erin Price-Wright, Connor Love
[00:36:42] S1: Because it's a completely new architecture. Exactly. So, you know, you can't rely on these components that worked in the previous world to just reconfigure. Like, you actually have the opportunity to rethink that from the ground up. [00:36:54] S2: And another important point here is, you know, you can be pessimistic and you can say, okay, Connor, all these new military or end systems, like, not all of them are gonna be adopted. So, like, that that top down demand or or or or Erin, like, we're not actually gonna increase energy by four times, like there's not gonna be that much demand. I actually don't think it matters because I think once you start the snowball of the demand cycle moving in one way, even if you deliver half of that, you know, requirement [00:37:21] S1: You're not going back. [00:37:21] S2: You're not going back. And it doesn't make financial sense. It... And again, it's it's like when you rethink something first principles and you make the, like, new design, new engineering decision, and a lot of times that comes with better cost, better efficiency, You're just gonna buy that thing now [00:37:35] S1: going serviceability, easier to manufacture. Yeah. Yeah. You're never going back.
00:37:35 · Erin Price-Wright, Elena Burger
[00:37:35] S1: going serviceability, easier to manufacture. Yeah. Yeah. You're never going back. [00:37:41] S3: Yeah. I'm curious kind of what you're seeing in terms of founders being second generation Anduril or second generation Palantir or something like that. And maybe they they see some of these learnings and they see the opportunity to be the middle layer supplier in Yeah. Some... Something that has never been touched since, you know, decades ago. And and kind of like what what are you seeing in terms of, you know, those opportunities and those kinds of founders? Yeah. For sure.
00:38:11 · Erin Price-Wright
[00:38:11] S1: I mean, if you you get... A a great way to light a fire under an entrepreneur is for them to be banging their head against the wall on a sort of engineering or supply chain problem where they are, and then they're, you know, they're like, well, okay. I really care about this. This is a pain in my ass. I know bothering other people. I know it's problem a that I don't just have here at Anduril or SpaceX or Tesla is a problem more broadly. I'm gonna go solve that more generally. And the kind of lineage of founders that have sort of lived and breathed this on the manufacturing floor, and not just founders, but even engineering teams who are like, I saw this problem. I solved this, you know, within Anduril or Cyronic or whatever, and I'm gonna actually, like, go out and build this as a company. And then I'm gonna... You know, I know that everyone in the ecosystem, so I'm... I I have, you know, automatic access to a customer base that's captive. Yeah. You know, we certainly see that trend happening. And, you know, this is how ecosystems get built. Like, people make fun of YC for all YC companies kinda selling to each other. But, like, that's how it works because you have... You know, it's it's your friends. They're tolerant. They're understanding. They're willing to like work with you and help you and and, you know, put up with something breaking because they're working on their own really, really hard problem. And if, you know, the thing you're doing is not the most existential thing to them, they're, like, very willing to outsource it to you. That's beautiful. That's how Silicon Valley was built. And what's really... Like, what makes me really optimistic is the extent to which we're starting to see that in these kind of physical world ecosystems and supply chains. Yeah.
00:39:36 · Connor Love, Erin Price-Wright
[00:39:36] S2: I think that the few companies you mentioned, the SpaceXs, the Palantirs, they weren't overnight successes. Those companies took a long time to get to both the product scale and just the size and success of the company that they're at. [00:39:50] S1: Overnight successes that took twenty years. [00:39:52] S2: Exactly. And and I think the the learning point... You know, we invest in a lot of the entrepreneurs on this list, like, come come from those ecosystems, is you just learn this, like, focus to do the one thing as well as you can, down a path until you've succeeded. And I've seen this with the Castelion guys, for example. Focused for two and a half, three years on the first hypersonic missile that was really hard to build, And other people showed up, oh, be multi product, go build this small drone here. And they're like, no, we need to do this one thing really well. And I think that comes from the fabric of SpaceX. At SpaceX, the concept of being a responsible engineer, and if this thing doesn't work, it's my ass, I'm gonna make sure, I'm gonna obsess over this thing, and again and again. That's what it takes to build really hard things. And again, there will be different derivations of success. Not everyone will think just like the SpaceX mindset, but if you you look at a lot of these businesses like that, you know, in the physical world, you kinda need to do that to build something really hard.
00:40:50 · Erin Price-Wright, Elena Burger
[00:40:50] S1: And... But what what you do in doing that is you learn, you know, you learn that process knowledge. You learn how to do it. And so thing two, thing three, thing four are a lot easier. You've developed a supply chain. You have your relationships. You've developed manufacturing for... Or design for manufacture processes. You know, you've learned how to build a factory to a high quality, high spec. You've learned how to build that trust with customers. And so if you could do that one thing really well, that sets you up to do other things really well, but it doesn't work unless you deliver on that Yeah. On that one core thing. [00:41:21] S3: So we talk a lot about competition. China, what does The United States do uniquely when it comes to our capital markets that really enables these startups?
00:41:31 · Connor Love
[00:41:31] S2: Well, think this may arguably is one of... I mean, Brian Schimpf was talking about it, founder of Anduril a couple days ago, which is this concept that we have literally trillions of dollars of private capital in our capital markets that inherently follow success, follow both technology success and to some extent production success as well. And I think if you look at The United States, number one, we do not have a top down directed industrial policy that says the state will put this amount of money in this. And I think to some extent that's a good thing because the money will follow the entrepreneur, the money will follow the success. I think that distinction though, we've kinda always had a good capital markets in The United States, I think the distinction is, capital markets all of a sudden have said, you know what, the category of AD is really interesting. And Erin and I have been living and breathing this for a long time, but if you go look, you know, not just up and down, you know, Silicon Valley and Sand Hill Road, but if you go to, you know, the major banks, I mean, JPMorgan has has committed, you know, trillions of dollars towards, you know, both investing in the physical world, not just defense, but factories and and other things in the physical world, and you see that again and again and again across not just our venture capital firms, but private equity now is starting to play in this category in a big Big credit firms. Big credit firms, and that's so important because the reality is many of these companies in the AD world, they require a lot of capital. When you build physical systems, when you build a Falcon Nine rocket, or when you build a CCA, and you build a Blackbird missile, those are expensive inherently to build up those lines and build that physical system. So I think part of this is, the capital markets speak with where the success happens, and the reality is, the capital markets are not top down driven by our government, unlike China's, and what that allows is that allows us to be far more flexible, you know, again, to follow success, like I said, and then more importantly, to fund things in advance of it being obvious, and we talked about that earlier, the concept of building in advance of the requirement they need.