The Anduril Thesis

Kyle Harrison (GP at Contrary, co-author of The Anduril Thesis) joins Molly O'Shea on Sourcery to unpack the 300-page book he just spent two years writing on the most counter-positioned company in defense. We go deep on a 100 years of military history — how Robert McNamara strangled America's industrial golden goose in the 1960s, why cost-plus contracting incentivizes the worst possible outcomes, and how the U. S. ended up building $13 billion programs that turn into trillion-dollar overruns. Then we map all of it onto Anduril: the Chick-fil-A founding story, why Lattice is the real product (not the drones), how the Sentry Tower beat a Lockheed contract that "defied the laws of physics," the new $22B IVAS contract, undersea warfare and the cables that move $10T a day, and why ghost sharks are being built in Australia. Kyle also breaks down Anduril's funding history (including Contrary's Series C entry), the talent density problem (only ~40 people in America can actually sell to the government), the philosophy of conflict deterrence, and closes with a hot take that's deeply un-self-serving for a venture capitalist. If you want to understand why Andúril is named after the Flame of the West, and why that matters for the next decade of geopolitics.. this is the episode. 📕 Get The Anduril Thesis by Kyle Harrison and the Contrary Research team: https://www.amazon.com/Anduril-Thesis-Kyle-Harrison/dp/B0GWLXQ7FC Kyle Harrison: https://x.com/kwharrison13 Molly O’Shea: https://x.com/MollySOShea Sourcery: ⁠https://x.com/sourceryy 𝐄𝐏𝐈𝐒𝐎𝐃𝐄 𝐋𝐈𝐍𝐊 YouTube: https://youtu.be/HZiUlp9I1fc 𝐒𝐏𝐎𝐍𝐒𝐎𝐑𝐒 • Brex https://brex.com/sourcery—The modern finance platform, combining the world’s smartest corporate card with integrated expense management, banking, bill pay, & travel. https://brex.com/sourcery • Turing https://turing.com/sourcery—Turing delivers top-tier talent, data, and tools to help AI labs improve model performance—and enables enterprises to turn those models into powerful, production-ready systems. https://turing.com/sourcery•VCX https://fundrise.com/vcx—VCX is the public ticker for private tech, allowing investors of all sizes to invest in venture capital. View The Portfolio at http://GetVCX.com http://getvcx.com • Deel https://www.deel.com/sourcery—Deel is the global people platform that helps startups hire, manage, pay, and equip anyone, anywhere. Trusted by more than 35,000 fast-growing companies, Deel is the people platform that just works, so teams can scale without the chaos. Visit: https://www.deel.com/sourcery • Public http://public.com/sourcery–Investing platform Public just launched Generated Assets https://public.com/generated-asset, which lets you turn any idea into an investable index with AI. With Generated Assets, you can build, backtest, refine, and invest in any thesis with AI. Gone are the days of one-size-fits-all ETFs. https://public.com/sourcery https://public.com/sourcery • Merge https://merge.dev—The leading provider of customer-facing integrations and agentic tools for frontier LLMs, Fortune 500 organizations, and B2B SaaS companies. Visit https://merge.dev Follow Sourcery for the latest updates! https://www.sourcery.vc/ Disclosure Paid Endorsement. Brokerage services by Open to the Public Investing Inc, member FINRA & SIPC. Advisory services by Public Advisors LLC, SEC-registered adviser. Crypto trading provided by Zero Hash LLC, licensed by the NYSDFS. Generated Assets is an interactive analysis tool by Public Advisors. Output is for informational purposes only and is not an investment recommendation or advice. See disclosures at public.com/disclosures/ga http://public.com/disclosures/ga. Matched funds must remain in your account for at least 5 years. Match rate and other terms are subject to change at any time. 𝐓𝐈𝐌𝐄𝐒𝐓𝐀𝐌𝐏𝐒 (00:00) Kyle Harrison, GP at Contrary & Co-Author of The Anduril Thesis (01:22) The Anduril Thesis: A 300 Page Deep Dive (04:52) How America lost its military edge (07:33) The book that predicted the mess (10:36) How bureaucracy broke the US military (15:39) The ridiculous economics of modern war (19:25) How Ukraine changed everything (23:34) The Andruil thesis explained

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  In order to understand Anduril as a company, you genuinely have to understand 100 years of military history that it is being counter positioned against. Since the end of the Cold War, we had been constantly tripping over ourselves into the hubris of thinking that we have officially become the only great power left in the world, and things will never change. When the reality is that was like a very brief period of time. Ukraine snuck a million dollars of worth of drones into Russian territory. And basically, we're responsible for like $7 billion of damage and destroyed like a third of Russia's long distance bomber fleet. That's a million dollar cost to generate $7 billion of damage. That is modern conflict. We as a nation are not good at that. Palmer Lucky talks about this a lot. Where in their very first pitch deck, he said, "We are going to make billions of dollars

• 0:44Speaker 00

  by saving the government tens of billions of dollars." They called their shot early and basically nailed it. Military superiority is front run by industrial superiority. We did that in World War II. The problem is now that China is doing that today. Pacifism really is a privilege of the protected. There is somebody else who is willing to do those things and build those capabilities to protect our right to say, "I don't want to be involved in that." Because anybody who can do something, who doesn't do something is ultimately responsible for the outcome.

• 1:22Molly O'Shea?

  Kyle Harrison, welcome back to Sorcery.

• 1:25Speaker 00

  Thank you for having me.

• 1:26Molly O'Shea?

  Thank you for writing a 300-page book on Anduril. We've been waiting for this.

• 1:30Speaker 00

  I did it just for you.

• 1:31Molly O'Shea?

  Thank you. Okay, so what is going on here? When did you start writing this?

• 1:36Speaker 00

  So we started working on a deep dive for Anduril, honestly, like towards the end of 2023. So it's been several years evolving in what it looks like. And the original idea came out of, so we've gotten to appreciate Anduril first as an investor. So Contrary has been an investor in Anduril since the early days. And then as we started to build out the firm, Contrary Research basically grew out of that. So that's our public facing research arm, where the goal is rather than like writing blog posts about how smart we are, which is the normal sort of VC marketing fodder. To be able to actually try and contribute something valuable to the ecosystem. And so Contrary Research has grown to a hundred thousand subscribers. We've written about five hundred different companies.

• 2:19Speaker 00

  And we've been working our way through really in-depth reports of some of the most influential companies. We've done OpenAI, we've done Stripe, things like that. So basically, we just worked our way towards Anduril. And we've tried very hard to be objective, even despite, obviously, we're biased towards Anduril as an investor. But we want all of our research to be fairly objective. But as we dug into it, we realized that in order to understand Anduril as a company, you genuinely have to understand like a hundred years of military history that it is being counter positioned against. And in order to do that, it did not lend itself to our typical sort of long-form online writing. And so a book sort of morphed over the course of several years. And then we started collaborating with them on it and it got even bigger.

• 3:01Speaker 00

  And so it's been a lot, it's been a very big lift for the last couple of years for our team. So we're very excited to have it out.

• 3:07Molly O'Shea?

  So who was involved and like, what was the actual process?

• 3:12Speaker 00

  So it started as each of us writes, we have a research team within Contrary. So I run the research team. We have an editor, we have a research associate, and we have basically a small army of research fellows that are more people who are working in the industry. They're engineers, they're working in investing, whatever it might be. But in order to get exposure on the writing side, they will come and write with us about things they're interested in. So we have this massive army. So over the years, there have been a lot of contributors to that, that project. I have been sort of the main driving force in trying to, in trying to get it across the finish line. And then in terms of process, it started out very much as like me just consuming everything there was,

• 3:55Speaker 00

  reading every Anduril blog post that they've ever put out, every press release, listening to dozens of interviews with each of the individual founding members and all kinds of different reports and white papers and, and stuff like that. Reading several books, eventually, once we get into the deeper military history, then it's not enough to watch a YouTube video, you actually have to go back and read the, the literature. And so a lot of it was just immersing myself in a ton of the underlying resources. Then the team collaboration really came from, okay, how do you take this mountain of context? And structure it into this sort of narrative? And that became very much a collaborative process with me and our editor and several folks on the team.

• 4:35Speaker 00

  And then over the course of just, you know, several months, getting it to a place where it was like, we had all the context in the right place. Then it was a function of collaborating with the Anduril team and making sure that we were getting the details right. That we were understanding how things actually evolved, technical details, things like that.

• 4:51Molly O'Shea?

  Wow. So before we go too deep into this, what were the biggest surprises that you took away from? Either the military history, Anduril, or both?

• 5:03Speaker 00

  So first, I think the history is the most important context. It's one of the things I think that is missing from the conversation is everybody talks about Anduril the same way that we talk about a Stripe or an OpenAI or a Databricks or something that feels very similar. The reality is that while all of these other companies have a technological history, most of them don't have the same like deep cultural, industrial, military, geopolitical history that they actively are defined by today where Anduril does. So when I think about the history, one of the things that is both the most frustrating and like surprising is that it's just been multiple decades of like a self-own.

• 5:49Speaker 00

  Like we have been, basically since the end of the Cold War, we have been constantly tripping over ourselves into both the hubris of thinking that we have officially become the only great power left in the world and it will, and we will never be, and things will never change, when the reality is that that was like a very brief period of time that that was true, when it's never been true in history. But everything about military and industrial policy operated on that assumption. And that assumption was just deeply wrong. And so it's just this very, it's honestly heartbreaking, especially when you find the people, the nuggets throughout history of like, man, this guy was calling it in 97, he was saying, this is going to be a problem and this is going to, you know, catch us off-guard and stuff. And it just, nobody listened. So in the historical context, that's the most surprising.

• 6:34Speaker 00

  On the Anduril side, I think the thing that is most, maybe not, I don't know if it's surprising, but because Palmer Lucky talks about this a lot, where in their very first pitch deck, he said, "We are going to make billions of dollars by saving the government tens of billions of dollars of costs." And so that revenue cost equation, that has always been the process that Anduril has pursued as a company. I think probably what is most surprising is that they called their shot early and basically nailed it. We'll talk more about the details and stuff, but they had, in their first pitch deck there, if I can remember all of them, they basically had five things. And they had all these weird ways to describe things like VR for warfighters and perimeter

• 7:19Speaker 00

  security on a stick and all these things that were like, they sounded, I'm sure they sounded insane to their early seed investors, that basically, one by one, they have nailed every single time they've tried to build it out. So that's, it's a pretty impressive example of calling your shot.

• 7:33Molly O'Shea?

  Going into the 100 years of military history, what were some of the sources that you pulled from?

• 7:40Speaker 00

  There's probably two big buckets. So the biggest bucket is actually white papers. The DoD is prolific in trying to do studies, war games, postmortems, exercises, evaluating different things.

• 7:56Molly O'Shea?

  And you can access this?

• 7:58Speaker 00

  I mean, these are all, you can access this. These are on the internet. There's a massive amount of context on the internet. And it's, I mean, things like the CSIS is an organization that has put out a lot of think tanks and stuff, they've put out reports on different things. And so that was probably the largest corpus of stuff. You just drill in and you say, "Why don't we build ships anymore?" And then you dig in and there's a specific law that was passed 150 years ago and has basically screwed us ever since. And so there's all these big problems that have caused issues. So that's the biggest corpus. And then the second bucket is like some pretty incredible books that have been written by people who were boots on the ground, involved in different aspects of these processes.

• 8:42Speaker 00

  Probably the two that we referenced The most is actually one is by who, who, when he wrote it, I think he was in the process of becoming of joining Anduril, but he wasn't at Anduril as he was writing it, is Chris Bros, who's now the chief strategy officer and co-president, I think of Anduril.

• 8:58Molly O'Shea?

  Yeah, you said he was mentioned, you like looked back and he's the most mentioned source?

• 9:03Speaker 00

  By far, yeah, like the kill chain, I think we reference over 150 times.

• 9:07Molly O'Shea?

  Oh, my God.

• 9:08Speaker 00

  So it's, I mean, it's, it's, it's, it is the best introduction to the problem set. I think that the, the, the gap that this book ideally fills is that there's so much context of history, but then also mapping Anduril's trajectory onto that. And he, I clearly, I would imagine that it's a function of both, like, he wasn't at Anduril yet, but also you don't want it to feel biased. You want it to be able to stand, you know, this is true, independent of Anduril. Everything in the kill chain is true. What we do is we say all of these things are true and there's additional context you need to know. And now let's map Anduril against that and say, okay, this thing is broken. Here's why Anduril operates this way. This thing sucks. Here's why Anduril does it, right?

• 9:49Speaker 00

  Back and forth. So the kill chain is by far the most referenced piece in the book because it's, it's one to one. Exactly what we're trying to describe in the first half of the book. The second book is a guy named Ben Rich, wrote a book called Skunk Works, which is one of the best books, just in terms of like high performance teams, building incredible things. So it's a lot about the journey of building the stealth bomber, but there's also a lot about the U2 spy plane. Kelly Johnson is the guy who originally sort of founded the, so Lockheed is the company, Skunk Works is like the lab. And Kelly Johnson founded Skunk Works and he is probably one of the most impressive people in like industrial history. And so those two books together, I'd say there's a handful of others that we, we list in the sources,

• 10:30Speaker 00

  but those two books, I would say like laid a lot of the foundation of like, how did we get ourselves into such a mess when we were so capable?

• 10:37Molly O'Shea?

  So I guess walk through some of the specifics there. So what happened post-World War II?

• 10:42Speaker 00

  So if you set the stage for what things looked like at the end of World War II, the US was like forty plus percent of manufacturing capacity globally. So just massive powerhouse. And even in World War II, they say that we, we basically just outbuilt the enemy. Where it's like a lot of time, I think, take cases like the tanks they were making. Our tanks were technologically inferior to like the tanks of Germans, of the Germans. We just built so many of them and just threw so much industrial capacity at it that that is literally how we won. So it's, we're just this powerhouse industrially. And then you look at the DOD specifically. So at one point into sort of like during the Cold War into the 50s and 60s,

• 11:24Speaker 00

  the DOD alone represented thirty-six percent of global R and D. So all of the research and development being on the world over, thirty-six percent of it was coming from the DOD funding different projects and keeping, going through the Cold War and stuff like that. So there's this massive capability. And you look at all of the things that we accomplished, I mean, we were spitting off, you know, uh, one bomber plane per, basically per day, like just spitting out massive amounts, right? So it's like this industrial powerhouse. Then we go into sort of post, uh, World War II, we're getting into the Cold War, and we'll have spats in Korea and Vietnam and stuff like that. But sort of in the 60s, there was a guy named Robert McNamara who became the, the Secretary of Defense. And he came in with this hypothesis that we were just spending too much on defense.

• 12:09Speaker 00

  And so while you had this industrial powerhouse that was important, it was, in his perspective, it was, it was too much. We were just spending too much. So we needed to control spending. And so he introduced this system that is, it's called PPBE, uh, which is like Planning, Program, Budget, uh, Execution, like something like that. But basically, so Ben Rich, who wrote Skunk Works, he basically, he, he describes it as like, um, a plague descending upon the skunk works of just like auditors and bean counters. Like it was just this army of people who came in to not just say, you need to build this and you need to try and do it at the lowest cost labor. But it was like literally counting every single purchase, every single order. Was it absolutely the most, like the cheapest we could get it?

• 12:52Speaker 00

  And so introduced this just like, just disgusting level of bureaucracy. And thinking that, well, that will control spending. If it's so, if there's so much friction, it will control spending. And it worked for a couple of years. Like our, our spending did go down.

• 13:05Molly O'Shea?

  Yeah.

• 13:06Speaker 00

  But then we rip into Korea and Vietnam and we're we're we go back into conflict phase. And basically, McNamara has strangled the golden goose that we had of industrial capacity, where he's made it so high friction to build anything, that now every single individual project is dramatically delayed, significantly over budget. It's just so expensive to do anything that as that becomes the new paradigm of building things.

• 13:33Molly O'Shea?

  But what makes it so expensive?

• 13:35Speaker 00

  So just the process of like, when you think about bureaucracy, right? It's like, if I ask you to build something that you don't know how to build, it requires a ton of experimentation. But if you have a bean counter along the way, where every time you try and run an experiment, they're introducing three to five to 12 weeks of process to say, well, you need to fill out these forms in triplicate to make sure that we're evaluating these vendors appropriately. And you can't look at these vendors, you have to look at these vendors because there might be a cheaper vendor or whatever. Like, it's just so much friction. It's not any one thing. It's not any one, like, tax. It is a million taxes of friction. So that, like, breaks the process. And now you go into these conflicts.

• 14:15Speaker 00

  And so the problem is that we get used to like, okay, well, now everything is just way more expensive. And so if we're gonna spend money, and we're gonna spend all this time, and everything's gonna be behind budget and over budget and behind deadline, then what we should do is just build the biggest things. And during the Cold War, that mentality kind of made sense because we were doing a lot of what is effectively, you can think of as like, day one framing, where it is, what you want is you want to have the biggest, baddest stick, right? The biggest ships, the biggest navy and army and air force. You want to bring that to bear day one so that just conflict is, it's just too expensive. Don't forget about even nukes, like, you want to have so much big stuff. And so we retrained our ecosystem

• 14:59Speaker 00

  to build these large, exquisite assets and to pour all of our time and money into that stuff. And that is largely what you have now, fast forward to today, is we are we're we are probably pretty good at building, you know, massive aircraft carriers and nuclear submarines. And stuff like that, but everything is ungodly expensive, way behind deadline. In some cases, like literally decades behind deadline. And like you have projects that should have cost thirteen, fifteen billion dollars that are upwards could cost a trillion dollars. Like the F thirty-five program, right? It's like dramatic overages. So that's the broken system that we largely have today.

• 15:39Molly O'Shea?

  Oh, and it's also completely outdated because of how much backlog there is like. I think with the Pentagon asking automakers to start helping build missiles and more advanced drones. There was some sighting and I'll probably get this wrong, but we're throwing two million dollar Ferraris at like, you know.

• 16:00Speaker 00

  Fifty K.

• 16:01Molly O'Shea?

  Fifty K Frisbees. And there's just a big disconnect there. So like, how do you see that technological disconnect like over time? And how we actually lapse in what we quote unquote have been as the superiority in the military complex?

• 16:19Speaker 00

  So it's actually, it is even worse than just a cost imbalance.

• 16:25Speaker 00

  It's actually we, you lack the iterative cycle to stay anywhere close to the cutting edge. So to your point, it's not only that everything is super expensive and super delayed. It's actually not anywhere close to the cutting edge either. And so that we have things like, so for example, if we're really good at building big expensive aircraft carriers. The Chinese have developed missiles that they affectionately refer to as carrier killers. That literally it's like, and these still might be fairly expensive missiles, right? These are fifteen, twenty million dollar missiles, but they can destroy a multi-billion dollar ship. And so, and that's kind of at the cutting edge, right? Such a destructive power that has been developed over time. Whereas our munitions are dramatically delayed.

• 17:05Speaker 00

  And so it's, they're, they're, it's an imbalance, not only because it's more expensive, but also because it's more old school. And so the problem with that is that if we get into any conflict with China. There's suddenly a huge swath of our naval assets that we don't want to put anywhere near China because they could just demolish it. And so invalidate even a lot of the exquisite assets that we have, they become invalidated. So we're really stuck behind. We don't have as much like iterative feedback cycles in the in the assets that even of the stuff that we are building like conflict exchange and you look at Ukraine like that has been like basically I tweet, somebody described like

• 17:43Speaker 00

  Ukraine was like um like the military industrial complex in production where it's like they're they're live testing stuff way more rapidly even than like even the US at its best, even China or whoever. In Ukraine, it is just we try something and we immediately field it and you get a ton of experience.

• 18:01Molly O'Shea?

  Well, I think even Neros like Neros went directly to Ukraine to just start testing.

• 18:06Speaker 00

  Yeah.

• 18:07Molly O'Shea?

  Which is a good new case example.

• 18:10Speaker 00

  And I think like Ukraine is a good is a good illustrative case study of this new age of kind of modern conflict. And where it is, it is increasingly becoming all about high volume, low cost assets, right? What people call a tritable where it's just this thing you can burn through a lot of them and make them very quickly and whatever. So in Ukraine, there was this, I think it was called Operation Spider Web, where Ukraine snuck basically like under false floorboards of a truck. They snuck a million dollars of worth of drones into Russian territory. And then the drones basically took flight and were able to autonomously identify high value targets.

• 18:53Speaker 00

  And and engaged and basically were responsible for like $7 billion of damage and destroyed like a third of Russia's long long distance bomber fleet. And so it's like that's a million dollar cost to generate $7 billion of damage. Like that's the there's several other cases of this, but like that is modern conflict is like you have to be capable of spitting out a high volume of these low cost assets to be able to engage. And we are not, we like we as a nation are not good at that.

• 19:25Molly O'Shea?

  Taking the technology point out of the equation, are we capable, have you been seeing with the new administration? And the DOD and how they're embracing this, you know, I mean, the new wave, but also it's also part of the new administration. If they're, how are they embracing this and how is policy changing?

• 19:49Speaker 00

  The good news is, so the Defense Bill every year is one of the most bipartisan passages each year. Like it is, it is representative of the fact that it actually spans across sort of partisan politics. Where it's not like Republicans love defense and Democrats hate it or whatever. I think it was like in 2022 even, President Biden openly acknowledged that China represented an existential threat. Which was something that like candidly even, you know, five, six, seven years ago, was not openly like talked about, it's kind of taboo, right? We didn't, you know, we didn't acknowledge that risk. And so I think increasingly what has changed is it's less about

• 20:33Speaker 00

  the current administration is doing something unique. I actually think that you go back to like Ukraine as sort of a wake up call for a lot of people. Or even Chinese posturing in the South China Sea and stuff with Taiwan. A lot of those actions are acting as wake up calls for a lot of people. And so I think it's more so a function of people are acknowledging that there is conflict, whether we like it or not, and we do have to be capable of responding to it. And we are not, despite, we continue to have a lot of like the, sort of like on the scorecard, like largest things or biggest things or whatever. And in practical terms, we are not the biggest dog at the party.

• 21:17Speaker 00

  And so we have to acknowledge that there's some strategic changes we have to make to stay relevant.

• 21:21Molly O'Shea?

  Yeah, we put out this clip, but Interviewing Chris Power at Reindustrialize last year, he talks a lot about the Davidson window. And that's the time in which China's going to attack Taiwan. And so he makes it part of his mission to really be able to make sure that we're able to fulfill manufacturing capabilities to meet that. And it's obviously, it seems like we're getting into a tested area. But going back to Ukraine as the wake-up call. So how does this then inflict on timelines and what's coming up next?

• 22:00Speaker 00

  Yeah, so I do think that, because you look at increased conflict, even over the, and this is one of the hardest parts about writing the book, is that like, call it from the end of 2023 through the end of last year. Basically, we were iterating on it. And in that time alone, you have escalation in Ukraine. You have Israel and Palestine happened while we were writing stuff, like October 7th happened. You have, you know, Trump's and Israel's action in Iran. You have stuff that's going on in Venezuela. So it's like, even just over the course of like, writing the book, global conflict has changed shape.

• 22:41Molly O'Shea?

  Whenever a new war breaks out, do you have to go back to the drawing board and edit? Like, what was that like?

• 22:47Speaker 00

  It was, I'll tell you what, it's actually, it was dueling forces of urgency. Because on the one hand, the global climate was changing frequently. And there was frequent things we had to change. At the same time, Anduril is probably one of the most prolific shippers of product. New iterations of things and new versions of stuff, entirely new projects, things that they weren't talking about, that we thought we had kind of like a sneak peek. And then by the time we got around to putting it in print, they'd already talked about it and stuff like. So Anduril's pace of execution against the backdrop of like a global environment that's changing super fast. You know, I think we were on draft 35 by the time we were like, okay, lock. Like, we have to, at some point, we have to actually print the book.

• 23:32Speaker 00

  But it was, it was a lot of iteration.

• 23:34Molly O'Shea?

  Okay, so let's get to the, I mean, the book is literally the Anduril thesis. So what is the Anduril thesis?

• 23:41Speaker 00

  So the core crux of the thesis behind Anduril is understanding that hundred years of military history and then systematically walking through every aspect of Anduril that is deliberately counter positioned to the way that the Defense Department and the US military is set up today. So that is how we acquire new capabilities, right? So there's things like fixed costs, contracting is what Anduril does versus cost plus. Like, there's a rich history there of why we do that and why it made sense briefly, but why it doesn't make sense anymore, but we continue to do that. Why the DOD believes in a sort of built to spec approach of like, we will tell you exactly

• 24:26Speaker 00

  what to build. And that grew out of, you know, back in the 40s and 50s and 60s. Like I said, the DOD was like 36% of global R&D. They had a pretty good handle on what the cutting edge was when they were controlling almost half of all of the latest technology. I mean, Silicon Valley literally was born out of the defense industry, right? So at that time, that made sense. Today, it is sub 1% of global R&D. So the DOD doesn't really know what the cutting edge is. And Pomeroy has this great line where he says, "We absolutely want to listen to our customers because they understand their problem. We don't necessarily listen to them about what the solution should be because they don't have a good framework for what the possible solutions are."

• 25:08Speaker 00

  And so where the military is trying to acquire things built to spec, the goal of Anduril is to acquire things built to mission, right? So they fund their own R&D. They put their own money up rather than asking the government for R&D dollars to go spend and build some brand new thing. Anduril is saying, "We're going to put our capital at risk, and the goal is that we so effectively satisfy the mission that you will want to pay for it without you having funded the R&D yourself." So there's so many aspects of Anduril as a business that are all, you don't appreciate why they are so important unless you go back and map it to the hundred years of history that have gotten us into this sort of, you know, wormhole mess.

• 25:53Molly O'Shea?

  So what did you learn about the actual roadblocks and bottlenecks within the government DOD contracts? So like, did it come down to, oh, they already did? Thousands of pages of paperwork with one supplier. So they're just going to stick with that one. They don't want to bring on new ones. And that's why they're not trying new innovative things. Or is it really like cost? Like what is, what, what is the problem there?

• 26:23Speaker 00

  The shape of the innovation block in, in, in military contracting, defense contracting generally, has really flipped on its head. So in the early days, when we talk about McNamara and introducing all this friction, and you have guys like Ben Rich, who over the course of their career, they might work on 20, 30, 40 iterations of different types of, of planes and bombers and all kinds of different things. You get to this place where it becomes standard that you'll maybe work on one over the course of your entire career. Everything just slows down, right? And so now what you have is you don't have the existing primes. It's not an army of Ben Riches who wish they could be unfettered by this bureaucracy. It is people who were born and raised in the bureaucracy.

• 27:08Speaker 00

  So they like it. It's comfortable that they've, they've, they have reshaped their entire business to be like purpose-built for that bureaucracy. And so now you go back to like the fixed costs contracting that Anduril is trying to push and say, we want to be rewarded for our outcomes. The standard is cost plus, where you say, whatever it costs you, we will guarantee a certain percentage. It's usually quarter of like high single digits, low, you know, 10, 15%, whatever. We'll just tack on that margin. Okay. So think about the incentives in that. If the incentive is, no matter what it costs you, I will give you 10% on top of that. That's your profit.

• 27:48Speaker 00

  Well, 10% of 3 billion is a much bigger number than 10% of 150 million. And so as a traditional prime, you are deeply incentivized to reinvent the wheel from scratch every single time. You're not going to pull anything off the shelf. You're not going to use any commercial products. You're going to go to the government and you're going to say, I mean, what you're asking for is a multi-billion dollar project, right? And it's, and maybe it's not even possible. So take like Anduril's first fielded product, the Sentry Tower.

• 28:20Speaker 00

  Originally, I'm trying to remember.

• 28:23Speaker 00

  I want to say it was Boeing, but that doesn't sound right. But there was a contractor who had, maybe it was Lockheed. There was a contractor who had originally a contract back in the early 2000s. They had a contract with Border Control to build effectively these like digital fences to be able to observe and monitor the border. And they said, "We think that this is going to cost $5 to $10 billion, take 15 years, and probably it defies the laws of physics and we can't do it." And so they tried and tried and tried and spent a ton of money on it. And eventually they just said, "Sorry, like the military is trying to get us to break the laws of physics and we just can't do it. No one could do it, it's impossible." Because their incentive is, "Take as long as you possibly can, make it as expensive

• 29:08Speaker 00

  as humanly possible, build everything from scratch, and get this fat fee on top of that of a much bigger number." Right? Then you have the Anduril team comes along and they say, "Well, look, like you don't need to reinvent sensors and cameras and batteries from scratch. There are some very effective tools in the commercial market. Let's get cameras and sensors and batteries and build a pack and put it on a stick and stick it out on the southern border and stuff." And like their first customer, if I remember correctly, it wasn't even the government. It was a private ranch owner who wanted to monitor because there was like drug traffickers coming across his land. And so originally it was like a private citizen just paying to put up these towers so they could demonstrate it.

• 29:50Speaker 00

  But eventually the, you know, like Homeland Security and stuff, like they became a large customer of the Sentry Tower. And it was dramatically cheaper than anything that this prime was trying to do. It didn't have to cost billions of dollars because Anduril was incentivized to make it as cheap as possible, as quickly as possible, as effective as possible, and then go and sell that prepackaged capability rather than trying to convince the government that they should pay them $1 billion to play around with the possibility of a product.

• 30:18Molly O'Shea?

  So the Sentry Tower was the first product that they went after. Can you talk about the early days of Anduril and how the team got together? I was really fortunate. I don't know how this happened. But we went over to Anduril and we spent the day there. And I was able to interview four of the co-founders. Matt Grimm, Trey Stevens, Palmer Lucky, and Brian Schimpf. And it was amazing. It was so much fun. We did like literally everything. And so I got a little piece of history from each and every one of them. But to your point and to your research too. So what is the outside lens of how things got together and the climate around that?

• 30:57Speaker 00

  So one of the things that is the most fascinating of like walking through the history is it really is like, it's like a deep vein of rich mythology that like the deeper you go, the more impressive it is. And so one of the things you find out is that Palmer has been thinking about defense since he was in high school. So while he was in high school, he volunteered at a lab where they were basically doing research around how to use virtual reality to help soldiers deal with PTSD. So like a combination of his loves of like VR, but also like military technology. That goes back as far like pre Oculus days. There was some basis there. Then there is this other vein of history, which is so Palmer is one of the younger

• 31:41Speaker 00

  of the four. But the other three, I think, were all in high school during 9/11. And Trey Stevens talks about that the most of like that awoke something inside of him of like he saw, he saw what happened. And he said, I need to do something to be of service to my country. And so when he joined the intelligence community and like went to like wanted to go to Georgetown deliberately, like went to work for as a spook. Like he wanted to do that because of that sort of like early sort of patriotism.

• 32:10Molly O'Shea?

  Yeah, he said he had a James Bond dream and then all of a sudden he was trapped in a cubicle in a basement.

• 32:14Speaker 00

  That's right. So like every, each of the founders have these sort of early days exposure that like, you know, sparked the passion. The real linchpin is. And so so Trey was at Founders Fund, Founders Fund had invested in Oculus. There was an event that Founders Fund threw where they invited Palmer to come. Palmer and Trey met and they were talking. And I think the first idea that they batted back and forth was, how could we build a force field? And that was the first like, could we, how would we do that? And eventually it evolved into like, somebody needs to build a real life Stark Industries. And there's other inspirations of like Palmer, I can't remember the character's name, but there's a an anime character. Who was like, he's like a billionaire.

• 32:59Speaker 00

  And he like played, he like a like builds video games with the money that he's he made as an arms dealer. And so Palmer is like. So the reverse.

• 33:09Speaker 00

  He's right, he did it backwards, that's right, he did it backwards. So he's like literally like inspired by that, you know, guy, I think he has like a dragon like. A jet that he drives around and stuff, like flies around and stuff like, so there's all these like little passion projects. There's all these little like, sort of passion threads throughout each of their history. But the way that they come together is very much after Palmer gets fired from Facebook. He says, okay, I'm gonna, I'm going to start another company. There's a handful of things, and this is a deeper mythology of like, there's a bunch of random stuff that Palmer thought about doing. But building a a new defense prime of Stark Industries was at the top of his list. And so he called up Trey and said, we should do this.

• 33:53Speaker 00

  So you have Trey, who is the sort of like Palantir thread. Where he pulls Matt, who he sees as sort of the operational excellence genius. And Brian, who is the engineering, you know, math scientist. And then Palmer pulls Joseph, who's the other co-founder, who was an engineer at Oculus. And I think is the only of the five co-founders who actually served in the military. And so they all come together from their sort of prior experiences. And the story is that they get some Chick-fil-A, they have a bad Google slides. And they sit down with a handful of people that they've met from their past, basically recruiting lunch. To try and lay out exactly what they're gonna do. And this, I think, is where they have this sort of famous experience of they lay out, there's five things, I'm not gonna.

• 34:38Speaker 00

  Remember all of them, but there's five things that they laid out to say, these are some of the things that we could do. And two of, and they're kind of like our good bookends for Anduril's current sort of product portfolio. So one was perimeter security on a stick is how they described it. And it was literally what became the sentry towers where they said, um, you know, camera and sensors and battery and, and stick it out there and stuff. So that was their, their first commercial product. Um, but another one of the projects was, I think like VR for the warfighter. And at the time, this twenty, in 2017, when they're getting started, uh, Microsoft is actually competing for an IVAS contract. I think it's like the integrated visual augmentation service or something for the, the basically AR for, for warfighters.

• 35:21Speaker 00

  Palmer desperately wanted to go compete for it because he's been, you know, he's been doing Oculus. It's right there, defense and VR perfectly suited together. And some of his early investors convinced him that you need to bide your time. Like that's a thing that is going to be a big thing to chew on. And it's going to take everything we can to compete for that versus like the rapid iteration process we need to engage in. And so he let it go. Microsoft got this project, did pretty poorly, uh, for several, several years. And then a year ago, um, Microsoft basically admitted defeat to some extent. And the government said, we're going to recompete the contract. And Anduril first as a potential partner to Microsoft, and then eventually took over a $22 billion IVAS contract,

• 36:03Speaker 00

  which has now become their eagle eye product, which is this like ballistic shell helmet, uh, augmented vision, which is like, there's crazy videos of, of, uh, use cases of like with a combination of like the, the AR and a, a ghost drone flying overhead. You can literally see through walls. Like if there's somebody coming back through this thing, the drone knows where they are. It can display that visually as they're moving from behind the wall and stuff. And so, so like that, that sort of product portfolio has expanded dramatically. In large part because from day one, they were not, uh, it was not about one individual product. It was not about one individual platform.

• 36:42Speaker 00

  It was about this software-defined, hardware-enabled web of products that can all work together and, and focus on capabilities that they're trying to enable.

• 36:52Molly O'Shea?

  Could you walk through the timeline of the products and how they developed? Because they have quite the list of products now. It was so much fun to go see all of them, too.

• 37:02Speaker 00

  Well, fun fact, do you know what their actual, like, first? They never feel, they never, like, commercialized it, but their first product they ever built and prototyped was? It was called Sentry, but it wasn't the tower. It was an autonomous firefighting tank that would roll into a forest fire and could deploy, like, fire suppression and, and so they, like, actually save people and stuff. And that was the original product. Was just trying to figure out, like, what was something they could do with autonomy? Be able to feel a contract. And what is funny about the way that the product evolved is, like, you can kind of see these early days of, like, them throwing a lot of stuff at the wall. But Lattice was this consistent through point in everything they did.

• 37:46Speaker 00

  And so the reason that they talk about, even though, like, everybody kind of knows the drone or the munitions or the submarines or whatever. And the real core product is, a couple of people talk about it different ways. So DARPA has this great phrase where they describe it as, like, mosaic warfare, of, like, pulling all these things together. Chris Bros talks about it as a military internet of things, of, like, having all these sort of edge devices we've woven together. But basically, it very much is this, like, hub-and-spoke model of Lattice as a AI sensor fusion-driven brain. And then the goal is, across every domain and every capability and every force level, how can you plug as many assets into that brain as possible? So you start with Lattice.

• 38:30Speaker 00

  One of the advantages is you can start with just monitoring. Like, it's just, we just need to get information into the system. And so Sentry becomes the first product, and it's a sensor that can pull everything in. But still, Lattice is there to be able to identify and say, hey, this, this looks like this kind of person. Versus, this is a known thing, this is a dangerous thing, this is a normal, this is just a fox, like, whatever, right? So there's actual intelligence there. From the sensors, you start to expand out into UAVs. You're getting into actual flight. It's still a lot about data gathering. And so they had like a quadcopter that they built. And I think you saw, I remember in your video, you saw the early like, like prototype pieces of it with Matt and stuff.

• 39:14Speaker 00

  Like those, it was again, it's, it's very similar idea of it's just about gathering information, but to do it from different angles and with different flexibilities. So you have a quadcopter, you have a ghost drone, just larger sort of longer distance drone. And then eventually you start to get into counter drone systems. And so you have systems that not only do you want to just go observe, you actually want to be able to like intercept a drone. And going back to the like throwing Ferraris at frisbees. The goal is for that to be ideally with not a multimillion dollar asset, taking out a $20,000, you know, Walmart drone or whatever. And so they start to get into some of these like loitering munitions. So Altius is a product that they bought. And it's basically like a tube launched drone that can sort of circle,

• 39:58Speaker 00

  identify, and then engage with a drone to take it out. And then you quickly see them expand into, okay, we have capabilities. We have sensors, we have, you know, monitoring and stuff like that. We're aerial, but now you get into like actual munitions. You have things like Roadrunner, which is a payload carrying asset that can, that can destroy different threats and stuff. You start to get into this, like you have the, originally they had a sentry tower that was like near the ocean. Eventually you deepen the sentry product suite into the sentry seabed, which is like a sensor on the bottom of the ocean.

• 40:31Molly O'Shea?

  And you can talk to whales.

• 40:32Speaker 00

  You can talk to whales, which is the ideal use case, I think, is like number one. Get them on our side. So you, you start to expand out into all these different, and then you get into things like, and dive, like their dive line of autonomous undersea vehicles and stuff.

• 40:49Speaker 00

  And now increasingly, what is most impressive is that what started as very much a sort of like product suite of adjacencies of like, these are all things that will augment a lot of existing assets. We're now getting into potentially like asset replacements. So there's things that we can do instead. So they have like Copperhead is a torpedo product and it can replace existing torpedoes, but it is also autonomous. So you have this ability to be able to effectively loiter, you know, undersea, identify targets and things, and then be able to engage. But you also have, I'd say like probably their crowning product today. I think there's a lot of things that are on the come that are, that are gonna, you know,

• 41:34Speaker 00

  blow people away, but I think that Fury is this very impressive capability because it is effectively an autonomous fighter jet. Like it is, and one of the things that is most important about that is that being a fighter pilot is one of the most difficult, dangerous jobs.

• 41:52Molly O'Shea?

  Also, by the way, most of America is completely removed from the military and like the industrial complex around that, that they don't actually understand the training, the day-to-day, the actual combat that goes into being a fighter pilot. Like that's, you're literally dodging missiles in active war zones.

• 42:13Speaker 00

  And that's true of the majority of technology-enabled roles in the military. So like you look at, so Fury as an example, it's not only replacing in some cases, because there are some missions that we no longer need to send pilots into danger, we can do it autonomously, but there are some cases where you still want human judgment and speed and perspective, but you can extend a pilot's capability with a small sort of set of Furies that can go out and they can go further and identify danger, they can observe things, they can engage in a way that doesn't put the pilot at risk, like that's a capability. But even things like just monitoring, right? We've had drones for a long time, but when you think about like... A drone's capabilities.

• 42:57Speaker 00

  If you were to try and do something like send up a drone, have it go, you know, a couple of miles distance, observe a target, identify where weak points are, where there are sort of things to be aware of, and come back and report on that information. That could take a room full of a dozen people having to switch between, you know, several dozen different screens and messaging people. Chris Bros talks about this in The Kill Chamber. He's seen these distracted, stressed out, exhausted individuals who have to constantly be trying to say, okay, well, this is the data point I need here. I need to send it to this person because that's what's going to control the messaging to the force that's engaging here or whatever. That's not a good, that is not going to lead to ideal outcomes. And so autonomy introduces this incredible capability

• 43:42Speaker 00

  where we are going to do the things we have to do, whether we like it or not. We need to do those things. This way ensures that the outcome is very likely higher quality and puts significantly fewer people at risk in the process.

• 43:56Molly O'Shea?

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• 44:41Molly O'Shea?

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• 45:26Molly O'Shea?

  So I'm curious. I've had people wonder like which parts, and I don't know if you know this information or not, but like which parts of these products are actively ready to use? Like which ones are actually ready to be deployed?

• 45:43Speaker 00

  The biggest like proof point of Anduril's sort of capabilities is you look at like in Ukraine. Palmer says that Anduril has had products on the ground in Ukraine basically since day one. They were over there pretty quickly in, you know, deploying assets and stuff like that. I think that one of the things that is most important to understand about Anduril's go to market is that what you're doing is trying to enable specific capabilities for both the US forces and our allies, right? And so you look at things like ghost sharks in Australia. So Anduril went to Australia, set up a factory specifically for production of

• 46:27Speaker 00

  dive assets, these autonomous undersea vehicles. They specifically set up shop to produce those because Australia represents, so there's this, so AUKUS is the like sort of collaborative group of like Australia, UK, US, like that collaborative force. Australia is sort of like the, the tip of the spear for that effort because they are right there in the Pacific, close to China. Taiwan is nearby, like their, their need for a undersea capability is the strongest. And so you go set up shop in Australia. And so that contract that they have, I think it's a, you know, multi-billion dollar contract at this point, if I remember correctly, but it's like a

• 47:12Speaker 00

  massive contract with the Australian government, maybe a couple hundred million. But the, the whole point is to be able to build things there where they They are most needed and there it is getting fielded significantly, right? Where it's like, this is a capability that we need today. And there's a handful of examples of that where there, there's a very specific need. So probably the sentry towers is the other example of like, it's not only now on borders, but it's also things like military bases throughout the globe. And you have sentry towers protecting those military bases. So there's like a, there is a spectrum, a curve, adoption curve of capabilities that Anduril has. Like what can they capably do?

• 47:53Speaker 00

  Then there is what can Anduril capably do that also matches a near-term need? Then there is what can Anduril do that matches a longer-term need? Where it may not be a thing, so for example, on the munitions side, like they're, they're rapidly spinning up. It's like arsenal one, they're going to be building like fury, furies in Ohio, right?

• 48:15Molly O'Shea?

  They did that on time and under budget.

• 48:18Speaker 00

  That's right.

• 48:18Molly O'Shea?

  Ahead of schedule and under budget.

• 48:20Speaker 00

  Same thing, I think with the ghost sharks, right? Is that it's, it's Andrew, I remember Palmer tweeted about, when's the last time you saw somebody on time and under budget?

• 48:26Molly O'Shea?

  Yeah.

• 48:27Speaker 00

  Like they've done it a couple of times. But a lot of those things are not necessarily things that you are actively deploying in live combat zones. They are things that you have to build arsenals for in order to, in the future, engage in specific conflicts. I think that's the thing that people misunderstand is that these large contracts and these large dollar amounts and these large builds that Anduril is doing, it is not always because we're going to build a batch of drones and send immediately to Ukraine for deployment. It is that we're trying to build these sort of depots. And I think the other thing to understand is that we are sort of staring down the barrel of a large, a potential large-scale conflict with China.

• 49:08Speaker 00

  And when you look at the existing munitions that we have, for example, if we were to engage in a large-scale conflict, I think it's something like 11 days. Like we would run out of munitions in 11 days.

• 49:19Molly O'Shea?

  Yeah.

• 49:20Speaker 00

  So we don't, and then we, and we wouldn't have the capability to rebuild them, right? Or in war games, I mean, we've been, we have been effectively losing war games when, when they model. The scenario of US versus China since, I think like 2015, we have been, the US loses those war games. And a big part of that is because our naval assets are at risk, right? Where it's like, we could get the, you know, I think it's like, half of our naval fleet could be destroyed within the first couple of months of a large scale conflict with China. And it would take us 25 years to rebuild, just to get back to where we were. So our shipbuilding capacity doesn't exist. Our munitions capacity doesn't exist.

• 49:57Molly O'Shea?

  Meanwhile, every ship in China is regulated to also be dual use.

• 50:02Speaker 00

  That's right. And every, and every, um, and really, everything in China is regulated to be dual use.

• 50:08Molly O'Shea?

  Yeah.

• 50:09Speaker 00

  Because military civil fusion means anything you build, we immediately get to weave into the military. Which is, I think it's important to acknowledge that the US maintains that, that, you know, freedom and ability. Trey talks about this a lot of like, I'm grateful to live in a country where if a certain company or certain individuals don't want to work with the military or don't want to work on military projects, great. I'm glad that they have that freedom. But pacifism really is a privilege of the protected. Like, there is somebody else who is willing to do those things and build those capabilities to protect our right to say, I don't want to be involved in that, and that's fine. China does not afford that right to its, its citizens and its companies.

• 50:52Molly O'Shea?

  Yeah. I think he, in our interview, he said, pacifism, pacifism couldn't exist without a monopoly on violence. So to dig back into seabed century a bit more and even dive, what are the biggest misconceptions about undersea warfare? And I know Palmer is really interested in, what is it, like,

• 51:17Speaker 00

  Subterranean?

• 51:17Molly O'Shea?

  Subterranean warfare, but let's just talk about the sea first. So what's going on there and why is that so critical?

• 51:23Speaker 00

  It is all about, um, surface area, right? So how much surface area you have represents the sort of threat vector of a specific domain. And so when you think about like, aerial has a certain amount of volume. When Palmer talks about, you know, subterranean warfare, whatever, it is actually probably the, I think it's the, it is the largest domain outside of space. But it is largely, you know, un-traversable today. Like several people are working on that, including Anduril, much to the surprise. I don't know if you have heard this story, but there was a story of Palmer talking about subterranean warfare and the, the marketing person at Anduril was there. It was like to the, to the journalist was like, just to be clear, we're not working on that. And Palmer was like, oh no, we are, we've been working on some stuff.

• 52:08Speaker 00

  So even Anduril is working on it. But the ocean is the largest surface area that is addressable outside of space. And the, one of the reasons that it is so important is that it is one of the highest friction domains to engage in, right? So it's, it's very easy when you have sort of a large land space. There's a million different ways that you can monitor that. Satellites and sensors and radar and everything. The ocean is really difficult to be able to navigate and understand and make sense of where everything is. And it's just really freaking big. So it's really difficult to pinpoint things, even if you can identify and articulate them. It's really difficult to identify. The second reason that the ocean is so important is because this is probably another aspect

• 52:52Speaker 00

  that most people don't appreciate is that there are massive undersea data cables. Originally, a lot of these, if I remember correctly, were invented and created by Bell Labs. So back, go back to this like, you know, massive industrial capacity in the 50s and 60s and stuff. They literally invented this way to be able to digitally connect, you know, different parts of the world. But today, I mean, it's literally, I remember the numbers feel so stupid that it is like, I, I always feel like I'm getting them wrong. But I think it's something like $10 trillion a day, maybe an hour. Like there's massive amounts of transactional data and volumes and information and everything

• 53:36Speaker 00

  transacting across these, these cables that are just sitting at the bottom of the ocean. And a lot of them run up through the Baltics. They're literally just exposed for Russia to do what they will, you know, with them. And if you wanted to interrupt the global economy, taking out some of those cables is a pretty effective way to do it, right? You could, you could literally knock out, I mean, transportation, energy grids, data transfer, satellite communications. Like, there's so many aspects of the global economy you could just knock out. And so you have to understand that it's not just individual assets where, yeah, we want to be careful of like enemies or, or sort of, you know, less than friendlies who have submarines or whatever. We also want to understand those.

• 54:18Speaker 00

  But we have to map a massive volume of the ocean's surface to be able to protect those assets. And so a combination of Anduril's products in the, in this sort of, you know, ocean faring realm, come together for that defense. So, starting with the sentry towers that they had that were sort of proximity to the ocean, now they have these seabed sentries that are just an incredible, like, when you think about difficult environments to build a product for, candidly, in some cases, the ocean is actually harder to build for than space, because space has a lot of just like neutralizing effects, right? It's just there. And as long as it's maintained, it can be maintained. I mean, you have satellites that have been in orbit since the 60s.

• 55:02Speaker 00

  Whereas the ocean is relentless in how hard it is to field an asset there. So these seabed sentries are incredible products. They also generate a significantly difficult to achieve level of insight to be able to understand what's going on. And then, in terms of like what you do as a result of that information, so the entire dive line of products, so some of them are for monitoring. But increasingly, they have munitions variants of their dive products, so it can carry weapons. And they have things like, so Barracuda is a sort of like small autonomous underwater vehicle that you can maneuver and can be munitions carrying.

• 55:45Speaker 00

  But then also Copperheads are their torpedo products. And so they have munitions variants that they can, they can do things with. And then just recently, so this is what's awesome about Anduril, both as like a cultural artifact and as like a massive products company, is that the last couple of product announcements they've made, they've made with anime, like, like prototype videos.

• 56:09Speaker 00

  And actually, I don't know if you knew this, but they, they, in the last two of their videos, they have teased future products at the end of their videos. So they had, I think if I remember correctly, the first one was for Fury. And at the end of the Fury video, it basically showed them like, like the camera panning under the ocean, and you had these sort of like products that were moving, but you didn't know what they were, and then it cut away. And then, you know, whatever, six, nine months later, they announced the Copperhead products. And so that was what was sort of teased. So the video for the Copperhead products literally picked up where that video ended. And so it shows these Copperhead munitions moving around, and they can be navigated by, you know, deployed from a dive XL, and then they can loiter and, and stuff. And then what happened in this video was you had, you saw all of these assets moving

• 56:53Speaker 00

  towards a target, under, under the water. And then the camera panned up above water, and you saw the slight hint of a above-water vehicle, and then it cuts away, right? Now, just this week, we've gotten, uh, Anduril's announced a partnership with Hyundai, where they are officially starting to build autonomous surface vehicles. And so starting to compete with folks like, uh, Sironic and stuff like that, where it's like, it's literally, it goes back to this idea of mosaic warfare, of a military internet of things, of you want every domain, every surface, every force level to have some relevant asset that you can weave into this network of, of potential responses that somebody could control and command.

• 57:35Molly O'Shea?

  Wow, okay. Key takeaways.

• 57:40Molly O'Shea?

  Don't mess with the undersea cables. So I want to weave back in to the history. I mean, you studied a hundred years of history, that must have taken a really long time. But one of the key parts that you took out of that was throughout these generations and these waves, these founders are often paired with mavericks. And so can you walk through some of those and how that then relates to current day?

• 58:08Speaker 00

  So this is a concept that I would say I didn't, it's not unique to us, but it is expanded in the book and sort of hinted at in, really where it's originally hinted at is in the kill chain in Chris Bros's book. And the example that they give is, I think Bernard Shriver is the guy who was basically put in charge of inventing intercontinental ballistic missiles, like ICBMs, which was a thing that we absolutely did not know how to do. Like this was a, this was a missile that needed to travel basically across the entire planet within a matter of minutes, carrying munitions like in a targeted way. It was a very difficult technical lift to pull off.

• 58:50Speaker 00

  And as they are building ICBMs, President Eisenhower is this military maverick. So if you think about Shriver as this sort of founder style builder, there's a lot of obstacles to working with the government and building such a complicated thing. It's expensive, it's complex, you have to experiment, it's dangerous. And so Eisenhower ran a lot of interference to make sure that they had the assets and the resources that they need. So this sort of like one-to-one pairing of people who are doing hard things and military mavericks who are protecting and enabling their ability to, to, to execute. And that has been a very important capability throughout the history of sort of military innovation in the US, right?

• 59:32Speaker 00

  You look back at modernizing the Navy, William Moffett, I think was his name, and he had President Hoover, you had Ben Rich, we've talked about at Skunk Works, he had Richard Bissell, I think was his name, who was like working for the CIA and basically made the U2 spy plane possible. So you have a lot of these things that if left to bureaucracy, probably would have never gotten off the drawing board. But because you have these military mavericks who are willing to enable people to innovate, that's where things actually get, and there's a, so Anduril, I think, introduces the founder DNA, where you didn't have a lot of people who were building truly innovative products for defense use cases. And you had a lot of traditional primes, but they are mired in this sort of, you know,

• 1:00:17Speaker 00

  broke. System of inefficiency and whatever. So you don't really have founder level energy. So Andro brings that founder level energy. What is awesome is that you had a generation of people who would have been willing military mavericks. You had these sort of prophets of urgency. In the in the eighties and nineties and early two thousands, you had different admirals and military leaders who were saying warfare is going to change. It is going to start to look like this sort of high volume, low costs. Um, you know, uh, style of conflict. Uh, it's going to be significantly more intelligent. It's going and and we have a lot of hubris and we're building these big assets that are not going to be able to carry the their weight. And you had people saying that, just nobody was listening, nobody was doing anything about it.

• 1:01:01Speaker 00

  So those people would have been military mavericks if they had had either institutional buy in or founder level innovation solving the problems. Because the one of the problems too with complaining and trying to send up a flare is that if you don't then have a solution, it's difficult to rally people. And also you didn't have a lot of urgency because you didn't have China rising as a great power, potential conflict and stuff like that. So today you have both Andro as bringing the founder energy. You have great power conflict sort of rearing its head. But importantly, you have people in the military, there's countless people that the Andro team would point to as saying, these are the individuals who have been really valuable compatriots unlocking the things that we need to actually adopt um these capabilities.

• 1:01:45Molly O'Shea?

  A really good example of this that I have just read and I watched a bunch of podcasts on was Shom's book Mobilize on Hyman Rickover. And his point being that Hyman Rickover was kind of the key pioneer behind the nuclear submarine. And it took a lot of fighting and founder mentality and backing up against people that are, you know. He was also a strong willed person and had a strong personality. But it was kind of the same kind of fight of of working against a system. And then also, you know, being innovative ahead of your time when everyone's kind of telling you no, but doing it otherwise. And then he also had the point of similar to the same theme that

• 1:02:30Molly O'Shea?

  America is actually not this, I hope this doesn't get bleeped out in like YouTube, but it's it's not the worry of inflicted homicide. It's that the US is more um.

• 1:02:44Molly O'Shea?

  More vulnerable to suicide of itself, just because we keep shooting ourselves in the foot with these things. And again, like, I don't know, I might have to take that out because YouTube kind of sucks. But I thought that Shom's book Mobilize was quite good and had like a really nice perspective on that.

• 1:03:01Speaker 00

  There's actually, I don't know, this may go filter into the bleeped out part, but that concept comes from an Abraham Lincoln quote, where he says, "If even all of the greatest army in the world was to form against us with a Bonaparte at its head and the treasures of the world funding it, none of them could, you know, take a drink of water from the Mississippi or whatever, none of them could cross the Alleghanies." Like, none of them could have an impact on the US, because the US has such a unique in history and in geography and nation-states, such a unique capability, that it is very diff-- the US has a lot of unfair advantages. And so what Lincoln says is, "If we are to die, we are to die by suicide."

• 1:03:46Speaker 00

  Where it will be our own undoing that we fail to generate the capabilities that we need to be successful.

• 1:03:52Molly O'Shea?

  Yeah. I guess bringing it back to today, we are in the throes of like an amazingly progressive new administration, and one of those being the Department of War. We've now rebranded, and we're the Department of War. So I've had the opportunity to interview undersecretary of Department of War for Research and Development, the CTO, lots of titles there, Emile Michael. And I think one of the most amazing things, talking to him about this, was how he is rethinking that organization entirely. Like, he's collapsing unnecessary parts of it, streamlining it, making sure that there's not 14 billion levels of bureaucracy that were just focused on the main critical points.

• 1:04:35Molly O'Shea?

  He even put out a critical interest areas where he's going through different categories. He's-- him and Peg Seth are actually going to these new sites of all these competitors. Like, people say we're in a defense bubble. Well, turns out, it's kind of like a good thing, because we're at a point-- Where we're looking for automakers and new people to be making missiles to be helping supply the military complex. But I think that while there is a lot of doom around our positioning and like how it all led up to this point, like, thank God, we we had this kind of renaissance in defense tech because there are new entrants, there are people that have been working in the military for a while who are now taking the technological bend to

• 1:05:19Molly O'Shea?

  it and are working with whether it is VCs, different kinds of funding things, using their expertise, their on-field experience, and creating this new generation of companies. So, I mean, there is a long tail of companies that have received these government contracts, whether it is Palantir, which has gotten a lot of them, Anduril, Sironic, I just did a series at Skydio. There is a long tail of these companies. And then there's also a long tail of these new generational companies that are trying to build off of an American supply chain versus ones that do rely on adversarial nations, whether it is China, which, you know, that does touch a lot of things. But, I mean, to your point, I mean,

• 1:06:03Molly O'Shea?

  you also research all of this. So what kind of companies and what other broader themes are you seeing within the tech ecosystem?

• 1:06:10Speaker 00

  I think that one of the most important things is that the the DOD starts, the Department of War starts to put up real legitimate adoption of specific solutions. And because I do think that the defense bubble that we're in is very timely, very important. There's a great book called Boom by Bernhard Hobart.

• 1:06:35Molly O'Shea?

  It's good.

• 1:06:35Speaker 00

  Very good book. And it talks about this idea of like, these bubbles are necessary to fund innovation, and that is true. There is also, though, a lot of sort of huckster speculators. There are a lot of, you know, wannabes and fakes and stuff like that. There is also a lot of capital destruction, even if there's legitimately earnest people who want to build for defense.

• 1:06:56Speaker 00

  They will be unsuccessful and there will be capital destruction of that. I think one of the most important things is that you build this ecosystem that can actually put up solutions and put points on the board and like prove out some of their solutions. One of the obstacles is you're talking about like cutting out a lot of bureaucracy. That is accurate and that that is a is a problem. And so there's a lot of streamlining you can do. But there's another thing to think about is like a lot of the large, you know, purchases and assets and things like aircraft carriers and stuff. I think there's one specific example where I think it was like the F-35 or something, but it has

• 1:07:35Speaker 00

  nineteen, it has components from nineteen hundred different vendors, spread across three hundred and fifty different congressional districts. That is not the most efficient way to build anything, right? There's no way that that is streamlined. And and so one of the things I think that Anduril is is leading the charge on is that you have to build not just capable products. You have to build capable supply chains. And when I think about what are the things that people need to enable to be able to like fund this defense bubble? It's like, yes, like it is great to have companies that want to be new defense primes. And if you are ambitious and strong willed and have a, you know, you're effective at not only building product, but also selling into the government. You know, the the the bummer of any limited conversation about Anduril is that there's so many things you can't talk about.

• 1:08:19Speaker 00

  But people like Matt Steckman, who's their CRO, is like one of the most effective people at selling to the government, probably alive today, right? And like people like that, if you have those people, like, yes, you can be a new defense prime. But for it, but there's not going to be thirty new defense primes. There's probably going to be a very small handful of companies that can check all the boxes you need to be able to do that. Obviously, I think Anduril can be one of them and there's maybe a few others. But the vast majority down the down the sort of long tail is people who are building specific capabilities that can plug in, like one of the things that Pachy McCormick talks a lot about this, where Anduril can be almost like an API into the, you know, Department of War, where it is, they have this established ecosystem.

• 1:09:02Speaker 00

  There's a lot of examples of companies they've been able to acquire. And then immediately plug into that system where the company independently would have never been able to get the same type of contracts and success and things like that. So there are going to be some companies that are building specialized capabilities that that plug very well into the Anduril and the sort of Neo primes. There that but then the even longer tail is going to be people who are building supply chains, manufacturing capabilities, industrialization in general. And that is not going to come from defense alone.

• 1:09:31Molly O'Shea?

  Yeah.

• 1:09:32Speaker 00

  You have to build this dual use sort of industrial base because that you look at the history of defense. Every single time military superiority is front run by industrial superiority. We did that in World War Two. The problem is now that China is doing that today. And if we are going to have any semblance of a chance to have, you know, in in in any potential conflict. We have to have some commensurate industrial capability. It doesn't have to be exactly the same. We don't have to build the exact way they have built. We don't have to spend the next thirty years replicating their way of building. You look at Anduril as one comp for how we can build things significantly more efficiently. We have to do a ton more of that.

• 1:10:12Molly O'Shea?

  Going back to World War Two, when we were using different manufacturing facilities, automakers, serial makers, you know, literally everything to help. Build up our our capabilities. The thing is now with the Pentagon asking for that same call out. To your point of supply chains, those companies don't have the supply chains ready to fulfill any type of order of that capacity.

• 1:10:37Speaker 00

  Yeah.

• 1:10:38Molly O'Shea?

  But I want to go back to, so you did mention this one thing. Okay, so. One of the parts of Anduril that I got exposed to was their talent density. It is so clear. And when I've been at many of these, I've been at so many defense forums and conferences at this point, whether it's. Reindustrialize, which touches on it, the Reagan National Defense Forum, uh, Hill and Valley as well. So I guess between all those conferences, there was one point that I guess I I never considered before because I'm not in the throes of this. But Ross Fubini, who I had on for Hot Take, he is the founder, the founding partner of XYZ Ventures. He said.

• 1:11:24Molly O'Shea?

  At Hillen Valley, there's probably 40 people in the US that are capable of selling to the government. Like, it is extremely hard. That is a clear bottleneck for lots of these companies and the ecosystem in general. Matt Steckman is one of those 40 people who's capable of selling to the government. He's very good at it. And Anduril has built out this world-class team of talent. Is there anybody else at Anduril that, like, caught your eye when you were doing this research of like, "Wow, I can't believe they grabbed that person"?

• 1:11:56Speaker 00

  I think that one of the things that Anduril does well is, there's probably like two buckets of people that they pull from. There's one is just a sort of like mission-driven foundation of just sharp engineer, right? And Palmer talks about this of like, the way to recruit really sharp people that were working in tech is to go to them and say, "Hey, probably the thing that you are working on does not really matter. Do you really want to be, you know, maybe you're making a ton of money, but you're optimizing buttons and ad spend for massive platforms and stuff? Like, is that what you want to do with your life?" And there's another one of our portfolio companies, Base Power in Austin, where they have a, you know, a campaign where it says, "Don't tell your grandkids that all you did was B2B SaaS", right?

• 1:12:41Speaker 00

  Like, there is this mission-driven inspiration that the sort of foundation layer people really resonate with. Then there's a second layer where I would describe it as like, very strong capability. And so you look at like, and I can't remember his name, but Anduril, in setting up Arsenal, they went and got the person who, at Tesla, built out the manufacturing, the head of manufacturing at Anduril came from Tesla, has seen this streamlined experience and is applying the same logic to the way that they're building Arsenal. And you look at, from a strategic perspective of like, what projects do you want to field at what time? You look at Chris Bros and his experience working with the Armed Forces Committee and stuff.

• 1:13:24Speaker 00

  And like, those types of people, you're finding these real hotbeds of very specific types of knowledge and experience. And I think the reason that... The Anduril team resonates with that kind of background is because that is the insight that they had, right? Where you look at like Palmer's experience came from building hardware. He is very capable at that and can plug in that capability. But it's the same thing as like having a team that is largely coming from Palantir. And I think even in your interview with Trey, he said this where Anduril on day one got to start where Palantir was in year 10. Like that, that level of experience and knowledge. And that is the kind of like specialty that they had and resonated with.

• 1:14:05Speaker 00

  And so when they go to find people to plug into specific capabilities, those are the type of people that they build. And I actually think that informs as well, a lot of their acquisitions. Where you look at the companies that they acquire, you're basically saying, who is somebody who are you know, are they a Anduril competitor? No, they are a specialist at a very specific type of capability or a very specific domain. And acquiring that and plugging that into the ecosystem resonates with their ability to understand like where is, what does quality, skill and specialization look like?

• 1:14:36Molly O'Shea?

  One of the things that I noticed when I interviewed four of the co-founders was the company itself, especially on Twitter, is known for hype and like being cool and the vibes and all of that. But they take this really seriously as they should. I mean, it's a huge responsibility to one be helping serve the military and armed services, but also to be preventing lives being lost, to make sure that any conflicts are actually very precise and very efficient. What were some of the misconceptions that you started to see the more you went deeper into the research?

• 1:15:17Molly O'Shea?

  I would say you might be one of the most well researched investors of theirs at this point.

• 1:15:23Speaker 00

  Well, I would say that, and it's a really good question because I think that

• 1:15:29Speaker 00

  there are three buckets. If I had to take everything out of my head that I've learned about Anduril over the last couple of years and put them into three buckets conceptually. The history is a core piece. We've talked a ton about that. The products and the process and product philosophy is A big piece and we've talked a ton about that. The piece that we haven't talked as much about and that I think is one of the most important elements of understanding the company is the philosophical and almost spiritual element of of trying to understand why. And when I talk about the mission driven engineers, what is the mission? Because if the mission is is build cool stuff and blow stuff up, that's not a mission, right? Like, that's a neat, that's a neat trick. The mission revolves around conflict deterrence. And Trey talks a lot about just war theory.

• 1:16:15Speaker 00

  But there is this concept that the only way to effectively prevent conflict is to have the force capable of engaging in that conflict to begin with. If you wait and you say, we're pacifists, we're not going to do anything, we're not going to build anything, we're not going to build any capability. And then suddenly the enemy shows up on your door, you're done. Like, you don't have the choice, you don't have the freedom, the flexibility to be able to respond to that conflict on the day of. You have to be, you have to be credibly building that deterrent effect very early on. And the reason that you do that is not because you love war. It's not because you love conflict and it's cool, you grew up playing Call of Duty or whatever.

• 1:16:54Speaker 00

  It is acknowledging the fact that innocent lives are lost when people who can do something don't do something, right? That idea of like pacifism is a privilege of the protected. There has to be a group of people who are willing to protect those pacifists or else they they'd no longer become pacifists, they become victims. The most critical aspect of conflict deterrence is that it, the only way to prevent this, um, it's, I think it's called Thucydides Trap. Is this very old historian, um, who, um, basically it's this idea of like anytime a rising power threatens a established power, it ends in large conflict, great power conflict. And when you look throughout history, there are 16 instances where that happened.

• 1:17:36Speaker 00

  Of those 16, 12 of them resulted in mass scale conflict. And we don't want that, we don't want that to happen. Andur's entire ethos is this idea of presenting that capability not only to the US to be able to say, we are capable of of deterring conflict. It will be expensive. And painful for you if you engage in conflict. But also for our allies where we want to make them what Palmer calls prickly porcupines. Where we want Taiwan to be prickly enough that China doesn't think it's worth it to step on them. And a lot of people who get angry about, you know, they're called, you know, people like the team in Anduril war mongers and and think that they want this and even a misunderstanding about the military industrial complex inherently. Is that Palmer will say, you know, there's a line from

• 1:18:22Speaker 00

  that that famous where military industrial complex comes from. This idea of every dollar we spend on munitions is a dollar we're not spending on education and preventing poverty and doing all these things. And Palmer doesn't, you know, as a person who is making money building those weapons. He's not standing there saying, well, but I really want to make more money. So let's make more munitions. He's saying, I completely agree. And so let's stop spending tens of hundreds of billions of dollars on weapons. Let's, let's, you know, improve the efficiency curve of everything that we're doing. Actually achieve the means that we need, actually achieve conflict deterrence in a profitable way, in an efficient way.

• 1:19:01Speaker 00

  So that we can reallocate a significant amount of our resources to things that make life worth protecting. That that's, that is inherently every time you you listen to an interview from any of the founders. There is that fundamental sort of hopefulness of like, they want to prevent those conflicts. So that we can enjoy a life worth living.

• 1:19:22Molly O'Shea?

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• 1:20:03Molly O'Shea?

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• 1:20:43Molly O'Shea?

  So your team's ship product, not plumbing. Mistral, Dropbox, and Drata already trust Merge in production. Start building at merge.dev. Founders ship faster on Deal. Set up payroll for any country in minutes, hire anyone, anywhere, and get visas handled fast so you stay focused on scaling. Deal takes care of onboarding, HR, IT, EOR, benefits, and compliance. So your team can grow without borders. It's why more than 37,000 fast-growing companies trust Deal to move fast. Visit D E E L dot com slash sorcery. That's D E E L dot com slash S O U R C E R Y. A track we haven't gone down yet is the funding history behind Anduril.

• 1:21:26Molly O'Shea?

  And there's a lot of deep lore there. I mean, they're rumored and reported to have doubled their valuation from the last round. It was around 30 billion and it's rumored that it's going to be around 60 billion now. Who knows when that announcement's coming out and if there is one. But could you break us through, bring us through the funding history of Anduril? And when did you, because I know your, your firm Contrary got in at a very interesting time. So could you walk us through that and why it wasn't, you know, it might look entirely hypey and very obvious now, but it wasn't.

• 1:22:03Speaker 00

  That obvious in hindsight? So I can speak very high level to like publicly kind of what's known and some of the details and stuff. But like, I think what's underappreciated is the story and evolution of like the narrative. So you look back at when Anduril was first getting started. It was, it was far from, even though Palmer had been a successful founder and sold Oculus for two and a half billion. It was a very unpopular decision to work in defense in 2017 when they started. And there are stories of, you know, Palmer had a lot of engineers that he'd worked with at Meta. Who, who said, hey, I think you were dealt unjustly and whatever you build next, I'd love to follow you. And then he says, well, I'm building in defense and then everybody ghosts him, right? Nobody wants to enter that.

• 1:22:46Speaker 00

  I can't remember if it was the series A or the series B, but Eli Gill led an early round. And I, I think there's a story of, I mean, he got, I think like, maybe not death threats, but like, you know, very angry messages from people he considered friends saying, this is, how could you? This is immoral, what you're doing. And there was things like Palmer went to give a talk at a university campus and he literally had to get security because people were threatening physical violence against him because they wanted to promote pacifism, right? There's, there's all of this like deeply sort of anti militarism thought process early on. And so a lot of like the early investors, if I remember correctly, I think it was primarily Founders Fund

• 1:23:30Speaker 00

  and General Catalyst were the main early investors of Anduril. I think Andreessen comes along a little bit later. And we first invested, I believe in series C, and then we, we have invested at least a little bit in every round since. And Anduril as a company, I would say, the, the vibe shifted hard in, you know, 2022, around the time of the Russian invasion of Ukraine. But what's interesting is there was this sort of like dip, like one-two punch dip?

• 1:24:00Speaker 00

  Where the narrative was starting to shift, where people were acknowledging, man, like this is a, this is a large scale conflict. This is significant. This is not something we see very often, this type of conflict. And people are starting to wake up to the idea of like, well, wait, we don't want these types of conflicts to be happening. Well, at the same time, in 2022, the broader market is collapsing, right? You sort of have this like post zerp hangover. Stocks are plummeting and everybody's struggling. Everybody feels very painful. And Anduril even had a round around 2022, where it actually was, it was even despite this sort of, you know, Ukrainian conflict going on. It was difficult for them to raise at that period, right? You had some investors that had pulled out and promised to invest and things like that.

• 1:24:42Speaker 00

  And so there was this sort of like dip before a, a real takeoff. And then Palmer calls the rest of 2022, his I told you so tour. Where he literally gets to go around and say, listen, we have been saying this from the beginning. And what's crazy is again, going back to like my most surprising experience studying the history. It is true across the board, even until very recently. In 2017, I mean, even like back at like the 2014 Russian invasion of Crimea and stuff like. By no means was everybody saying, oh yeah, no, we're good with no more conflict. There was, there was actively still conflict. People chose not to see it because they believed in their hubris.

• 1:25:23Speaker 00

  They thought it was just a matter of time until countries like Russia or even China would eventually acknowledge like, man, America is so great. This market, free market economy and whatever, like they love us. Don't they want to be like us? Look at our culture in Hollywood and everything is great. And, and that, that just, that hubris was very pervasive for a really long time. And it didn't, it didn't, the vibe shifts, you know, didn't happen for a long time. And, you know, in 2017, you had Putin saying, whoever controls AI will control the world. And it's the same idea that in 2017, Anduril gets started and they're saying, listen, from the, from day one.

• 1:25:58Molly O'Shea?

  Acronym is AI.

• 1:26:00Speaker 00

  That's right. Anduril Industries. Like that, that from day one, they acknowledged that that has to be, that autonomy and AI have to be front and center in any viable. Force solution. And that was not the popular conclusion. Post 2022, that has largely become the the conclusion is the acknowledging that conflict is increasing. Uh tensions in Taiwan are increasing. And Iran is going to continue to be a struggle, you know, things in Venezuela, whatever. Like, there's going to be global conflict. That's gonna happen. I think the next wave now that we have to deal with where the vibes will. And and Palmer says this where he says, listen, like, this is a point in time where people are acknowledging the value and importance of what we're doing.

• 1:26:42Speaker 00

  There will be uh ebbs and flows in that shift, right? And there's a lot of politicization of um of specific conflicts that make people not in favor of of, you know, particular positions or allies that the US may have or whatever. That increasingly, we're gonna have to deal with that, where there's gonna be people who say, we shouldn't be in the business of, you know, um of conflict, of deterrence, of whatever, we should just let it let it go. And because they don't like the politics of the underlying conflicts. But the problem with that is that you you don't have that privilege to just say, because anybody who can do something, who doesn't do something is ultimately responsible for the outcome. If we don't do something that we were capable of doing. And if we rest on our laurels and we say, well, like, we're just gonna stay inefficient.

• 1:27:27Speaker 00

  That is the same as doing nothing, and we will be responsible for larger scale conflicts that will not only hurt human rights, that will not only hurt individual lives, but also economically, like you look at a conflict over Taiwan. I think people say it could be a $10 trillion hit to the global economy. Uh like bigger than the financial crisis, COVID, anything, I think in some cases combined. Um, there's so many reasons why we need to have effective deterrence that it's not a it's not a vibe that we can continue to ignore.

• 1:27:57Molly O'Shea?

  A really good point of that is the conflicts for investors. For some people, they might not know, but investors have LPs, sometimes those LPs, uh there there are certain provisions, clauses within their LPAs where you can invest into vice. Categories or war and that kind of thing. And so like back in the day, there were a handful of funds that could not invest into these companies because of those clauses. And I wonder how that, I mean, I think the vibes shifted for sure.

• 1:28:32Speaker 00

  But not for everybody. There are still a lot of firms, when I was at, so before Contrary, I was at Partner Index Ventures. And Index, as far as I know, still to this day, has a clause where they can't invest in anything that is a weapon or could be used as a weapon. And I remember they had investments in, in companies like a drone company, where they uniquely could have contracted a provision in the, when they funded it, saying, "You will never allow this to be armed with weapons and stuff." So they're actually, it's not only just, "We're going to avoid weapons, but we are going to exert influence over the companies that we invest in to make sure they also don't engage in weapons and, and defense cases." And I think that's, in this case, it was like a policing use case and stuff, but.

• 1:29:12Speaker 00

  So there are still definitely firms, even major firms, that are not comfortable funding weapons. And I think candidly, like, I think that that is, that is good. Like, I think there should be people who remove themselves from this environment. Because I think either you are willing to do the work to weigh and measure the philosophical implications of what you're doing and acknowledge the weight of the burden that it is to engage in this type of technology. That I think more people would be suited, better suited, if they engaged with that philosophical debate. But candidly, I think that's true of most technology, right? Like, I think about that as well with like, you know, you look at like, you know, addictive social media, or, I mean, even like, you know, AI girlfriends and stuff of like,

• 1:29:57Speaker 00

  having things that can be destructive to, you know, human psychology and stuff. Like, everybody should be having more philosophical debates about the things that they are investing in. We don't have nearly enough philosophical debates about the implications. We just say, "Hey, this is a hot technology and it looks like it's ripping and people really like it, or it has a big market for this or whatever, and it's just so blinders on, big market, let's do it." I think more people should have to embrace the philosophical stick that they're picking up because there's consequences at the end, other end of that stick.

• 1:30:28Molly O'Shea?

  Philosophy is back. Do you know one of the largest? and hottest philosophers right now?

• 1:30:32Speaker 00

  I don't.

• 1:30:33Molly O'Shea?

  It's Alex Karp.

• 1:30:34Speaker 00

  Attaboy.

• 1:30:37Molly O'Shea?

  I had to pull that. To close out on the funding side of these things, one of my biggest surprises throughout all these conversations I've been having, I mean, I've been having conversations with people from all corners, whether it's in the admin, whether it's investors, founders.

• 1:30:56Molly O'Shea?

  And off script too, like, I mean, I've been an investor my entire career, like I, that's the only way I think. And so like I've built up a book of all these different relationships and now they're all kind of converging in this cool way. But um, so with sorcery, like this just happened to be a stance and I have to make this, you know, I have to share this because they are a sponsor, but when I was interviewing Ben Miller of V C X. So they got their position in Anduril way back when, when people were trying to sell off their positions.

• 1:31:29Molly O'Shea?

  Like they hadn't, there was an L P who didn't want to be a part of it. It was like at this whole contention point and they sold off and they were like, we'll take it like we're in. And so now you can access like, you know, through the V C X fund on the public markets, Anduril. And it's like this way, there's obviously this hype around private or public access, democratized access to private assets. Um, that's an entirely different story. Like there's just so many different things of those now, but that was a story I didn't hear of because you, you think of these big hypey companies as it's always like.

• 1:32:04Molly O'Shea?

  It's always this clear cut narrative, but there's, there's, there's many twists and turns along the way that actually become really lucrative.

• 1:32:14Speaker 00

  So there's a really good quote from Chris Pyke, I think at Pace Capital where he says, um, people want to not just be right, they also want to be clever. And so you look at these things that feel obvious and you say, well, I don't want to, I don't want to do the same thing, right? Whereas like, you know, um, a couple of years ago, like buying Google would have been a pretty good decision to make, right? Like as they were sort of, people were thinking that it was like, ah, it's just like slow and steady wins the race, big hyperscale. Or whatever. It's like there was actually a lot of these sort of underappreciated tailwinds that would advantage the company in the long run. I think it is the same, but some of those are forced through negative narrative where you look at.

• 1:32:54Speaker 00

  So again, 2022, there's a great story of, I think it was Sequoia and Brookfield started a secondaries fund in like the heat of 2022's collapse. And they went around just buying saying, hey, there's a bunch of these companies that we think are just generational companies. But they're, they're going through a hard time. They're, people want to sell. They're freaking out about the market. The public markets are, are you know, getting demolished and whatever. And the, and so they went around and bought a bunch of positions in these companies. And turns out, yeah, like the, these, these sort of momentary blips throughout a company's life are often not indicative of the success, the long-term success of a good business. And so I think that it's also one of the advantages of paying very close attention to a specific moment in time.

• 1:33:38Speaker 00

  Like a lot of people we were talking about, our good friend Leopold. And like, there's some good people, there's people.

• 1:33:44Molly O'Shea?

  Our good friend Leopold.

• 1:33:47Speaker 00

  Like making a ton of money off of just paying attention to like the underlying thing. And you have like memory chips, right? It's like, that is a logical second, third order effect of the different things that we're focused on. But because you're, you're paying attention to like the loudest and proudest, spiciest name, current thing. You, you get distracted from the broader ecosystem of stuff that exists. And I think that's the same thing of like, people are underappreciating a lot of the like second and third order effects from like a supply chain perspective around defense. Because they're so focused on, well, who's going to be the next Anduril? And it's like, you can make a lot of money investing in things. Or like even I saw a story about, I don't remember what the specific stock was, but somebody had paid really close attention to

• 1:34:32Speaker 00

  the vendor of the ballistic shell for Anduril's Eagle Eye. And it was a publicly, a small publicly traded manufacturing company. And paid attention and was like, hey, they've got this contract with Anduril. Like this is likely going to rip as this contract, I mean, it's a $22 billion contract. Like as they start to go into production, they're going to start ripping. And bought a ton of. Stock in that random little manufacturer. I think it was like a literally like a sub. It's like maybe like a hundred, two hundred million dollar market cap stock, like a very small company. And that stock has ripped because it's paying attention to what those second and third order effects are. Rather than getting caught up in like, what is the current thing? Like, that's what bugs me about so much VC fodder of like, the internet is real life and all that matters is the current thing. You pay attention to this thing and that's all.

• 1:35:15Speaker 00

  It's like, I think you get, you know, you miss a lot because you are, you're missing out on the compounding nature of context. Of like gathering lots of context over time and being able to make decisions based on ecosystem. Instead of like, what's the hottest new AI lab for X or whatever? Like it, it leads a lot of people astray.

• 1:35:36Molly O'Shea?

  Alpha, you heard it here first. So as we wrap up, another one of our sponsors that we love is Brex and they're all about performance. Spending smarter, moving faster. Can you believe it? Crazy. I know. So after reading

• 1:35:53Molly O'Shea?

  this book and writing this book, what are the key takeaways that you learned from Andurall's leadership? And their ability to perform over and over again?

• 1:36:06Speaker 00

  When I reflect back on the last couple of years of, of feeling like I was just spending a lot of time with the Andurall founders, you know, indirectly of like hearing what they have to say and how they think about things and, and how they articulate things in different contexts. You know, throughout the book, we had, I think, over 500 individual sources that we've referenced a thousand plus times. But specifically, if you look at the dozen or so interviews with the founders, I went back and looked at, at transcripts of those things. There are, the, the word hope appears 44 different times. And there is this fundamental hopefulness in everything that Anduril, that the company builds and the, and the mission behind the company.

• 1:36:48Speaker 00

  Is this idea that if we thought all hope was lost, we wouldn't be doing this. We're doing this because we, we continue to have hope. And I think that that speaks fundamentally to what a real mission is. Trey Stevens talks incredible essay about choosing good quests, talks about it all the time. And I think that this speaks truth to what a good quest is. And it is not a specific product. It is not a specific solution. Even for Anduril, it is not defending a specific nation, right? It is not just making the US capable of protecting itself. It is protecting a specific subset of ideals and values that represent this sort of idea of

• 1:37:31Speaker 00

  Western democracy and this idea of human rights, checks and balances, strong rule of law, those fundamental elements. You believe in those things. And so you want to defend those things. And you anchor your mission to that specific worldview and belief, right? The founders of Anduril believe that, believe that those ideals and values are worth defending, even if Anduril didn't exist, even if they weren't making a dollar from it. They would continue to believe fundamentally in the hopefulness of protecting those values. And what is awesome is that that speaks directly to the name of the company of Anduril, The Flame of the West from Lord of the Rings. There is a quote from The Two Towers that's said by, I think, Faramir, who Tolkien even said he most resonates with.

• 1:38:16Speaker 00

  It's the character that he most feels a kinship with. And I'm paraphrasing, but what Faramir says is, "I don't love the blade for its brightness or sharpness. I don't love the arrow for its swiftness or the warrior for his ferocity. I love only that which they defend." And that is fundamentally true of Anduril as a company, of Anduril's founders, of the mission that they engage in. And so every product decision, every hiring decision, every funding decision, every marketing decision, every aspect of the company comes back to this idea of, "What do we think will enable the protection of democracy most capably? That's what we want to do." Like, that informs the product decision. People who go and try and chase a mission and they say that my quest is good,

• 1:39:01Speaker 00

  because wouldn't product A, B, C be awesome? Like, wouldn't it be sick if this product existed? And it's like, that misses the fundamental worldview. Is that what you want is this underlying worldview that informs everything you do? And Anduril has that.

• 1:39:14Molly O'Shea?

  Wow, that's a really good answer.

• 1:39:18Molly O'Shea?

  Uh, one of my favorite quotes of all time is, "Hope is a good thing, maybe the best of things." Shawshank Redemption. Great. Okay, so, as we close out, this is just a simple question. It's not too difficult. What is your hottest take right now?

• 1:39:36Speaker 00

  My hottest take is that fewer people should be raising venture capital.

• 1:39:41Molly O'Shea?

  Wow. Why?

• 1:39:42Speaker 00

  Which is deeply, uh, unself-serving of me as a venture capitalist.

• 1:39:47Molly O'Shea?

  Are you seeing too many bad pitches? Is that why?

• 1:39:50Speaker 00

  I think that I am seeing too many companies and too many people, going back to the mission, like too many people that want to build things, that venture capital is a very specific wedge. It's a very specific funding mechanism. And because it's so, uh, legible, as our friend Paddy McCormick would say, it's so sexy and, and appealing, people overstretch to try and fit their, their round passion into the square hole of venture capital. And it's problematic. And I think the reason that venture capitalists allow it to happen is because we have a lot of capital, so much capital, that if anybody is, is willing to try and do something, we would like to be able to throw capital at that thing.

• 1:40:35Speaker 00

  The problem is that there is a large swath of companies that could be very good companies that are very bad venture-backed businesses. They would be very good businesses, full stop, but they are very bad venture-backed businesses. And more people should strive to really deeply understand the mechanism of venture capital and what that requires in terms of the size and scale of outcome and scale of growth and requirements of burn and velocity and ambition and, and being willing to say, "Hey, I, I have to want to build a hundred billion dollar company because if I don't, it doesn't justify the VC appetite that I'm trying to stir up." There are a lot of better ways to build businesses. And that's like fundamentally, like, one of the reasons why I write my blog, Investing 101,

• 1:41:16Speaker 00

  is to be able to articulate both the virtues but also the vices of venture capital and like why there are goods and bads and to help people be more informed. Because when I look at, I mean, even to, to In this conversation that we're having, when I think about this sort of long tail ecosystem of reindustrialization more broadly, there are a lot of great companies that can be really good venture-backed businesses, even if they're not going to be neo-primes, they can still be really great venture-backed businesses. But there is a huge swath of businesses. I have a friend who builds industrial-scale metal shelves. That is their business, is that they build like the shelves you see in Costco, they build some of those, but they also build things like racks for Tesla to be able to hold different components of the cars and stuff

• 1:41:59Speaker 00

  like that, right? That guy is doing seventeen million of revenue and three million of profit, and he owns the whole business, and he lives a great life, and we need more people like him to be able to do it. That would be a terrible venture-backed business because he's grown three percent a year, give or take, for the last five, six years. It's not growing super fast, but he has a deep client base that he does very well with, and there's a lot of really great opportunities. More people should seek alternative ways of building great businesses, because venture capital does not have a monopoly on great businesses.

• 1:42:30Molly O'Shea?

  Interesting. Sounds like he might have a good supply chain.

• 1:42:34Speaker 00

  Indeed, he does.

• 1:42:37Molly O'Shea?

  Could be some growth opportunities there. Well, Kyle, thank you so much for coming here on short notice, giving me an advanced copy of the book, and letting me read it in due time. No, I really appreciate it all the time. Like, seriously, so much work has gone into this book and the research, and I'm gonna definitely look up some of the sources, because the books that you mentioned throughout the conversation were really interesting, and I hope that writing this got you extra allocation. Thank you so much.

• 1:43:12Speaker 00

  Yeah, we just do it for the love of the game.

• 1:43:15Molly O'Shea?

  Amazing. Well, thank you so much.

• 1:43:17Speaker 00

  Thank you.

• 1:43:18Molly O'Shea?

  Hey, it's Molly. If you enjoy our interviews, check out our newsletter, sorcery.vc, where we deliver a once-a-week top deals and tech headlines email, and also go deeper on our podcast interviews. Subscribe to Sorcery today, and don't forget to subscribe to the podcast on YouTube, Spotify, Apple, or wherever you listen. Link in description to sign up.