E442: Nelson Mills on Building a $100 Billion Company, the China Threat, and the Future of War

What happens when autonomous underwater vehicles become cheap enough to manufacture at scale? Nelson Mills is the Founder of Vatn Systems, a defense technology company building autonomous underwater vehicles. Nelson explains why undersea autonomy has lagged aerial drones, how advances in AI, navigation, manufacturing, and autonomy are changing the economics, and why Vatn is building lower-cost systems designed to operate at scale. We also discuss raising $85 million for a hardware startup, the rise of asymmetric warfare, lessons from Anduril, and what it takes to build a new defense prime.

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

• 0:00Speaker 00

  Andrel proved that you can build a startup in the government space, that you can grow revenue rapidly. And you can do that while still remaining agile and fast moving.

• 0:12David Weisburd?

  You want to become the next Defense Prime. What needs to happen between now and then for you to become this great Defense Prime?

• 0:19Speaker 00

  Recently, we transitioned our first product, our S6 vehicle, to full production readiness. We won over 40 million in contracts. And if you do that, you create defensibility, you create a significant price advantage.

• 0:36Speaker 00

  And you can build a hundred billion dollar company.

• 0:39David Weisburd?

  There's this impending potential conflict between China and Taiwan. Is America ready to go into a naval war?

• 0:48Speaker 00

  I don't know. If this had been a war a decade ago, we were probably.

• 0:53David Weisburd?

  So Nelson, you grew up homeschooled on a sailboat in the Caribbean. How much of Vatton started?

• 1:00Speaker 00

  It's a great question. I spent my entire life on the water, really. Grew up on it. And for Vatton, I always wanted to build a maritime company, right? I worked on a bunch of ideas in the maritime space, then ultimately came to Vatton.

• 1:13David Weisburd?

  And when did the ocean become something that you decided to turn into a business?

• 1:18Speaker 00

  For me, it was really like looking for the right opportunity, right? I think blue tech started having its moment where people realized like, hey, there is this opportunity to take geotechnology and apply it to one of the oldest industries in the world, which is maritime trade and commerce and naval warfare.

• 1:39Speaker 00

  And that this was a new emerging market, right? And so marrying those together really just came up as, hey, this is the right time to do it. But I was kind of seeking that for a while, right? I worked on like an electric boating idea for a while. I worked on an electric ferry concept. I went through a series of ideas until I kind of found the one where I felt like the unit economics. And the market was there for us to really scale and grow this into something important.

• 2:09David Weisburd?

  Most of this reverse career move from venture capital to founder, a lot of founders going to become venture capitalists, but not too many venture capitalists go to become founders. What made you want to leave venture to start Vatton?

• 2:22Speaker 00

  I always saw venture as really a stop along the way into being a founder. As you know, it was a way to learn how to raise money, to build the network, to raise money, to understand how investors think about companies. I never really saw it as the end game. And you know, I think that's reflected in my background too, because I did nine years, about nine years of operating at startups, right? Where I was helping build products, bring product to production. And so venture was just another kind of learning experience, building that muscle of the finance VC side, so that I felt ready and in a good position to start a company.

• 3:03David Weisburd?

  Perhaps it's obvious, but why does being a venture capitalist make you a better founder?

• 3:06Speaker 00

  In many ways, it doesn't, honestly. But I think the ways in which it applies is it makes you a founder who is going to be better at raising capital, right? And if you're bootstrapping a company, is VC going to help you be a better founder? No. But if you are going to be raising venture capital, it definitely helps to have and understand that network. The only like skill set I think that really applied from VC is I was at a fund where they made us do a ton of like cold outreach on LinkedIn. And I took that and applied that to recruiting like the right engineers and people for my team. And that's the only skill set I think that directly applied besides fundraising.

• 3:45David Weisburd?

  I started my second business, really my first real business in high school. Immediately after I was, had to do door to door selling. And I've thought a lot about why is that? It's because the brain, when it does something brutal, so challenging, everything else seems easy. And it just builds this new muscle that just enables you to do these remarkable things.

• 4:06Speaker 00

  I agree completely. And I think VC was also really good for me personally, because I hadn't really considered myself to be an outgoing person or a networker. So VC really taught me like the power of a network, how to network and connect with people and build a group of people that you can kind of turn into, you know, business decisions or outcomes.

• 4:28David Weisburd?

  Now that you're no longer at VC, talk to me about VC value add. Does that exist?

• 4:36Speaker 00

  It can. Is it rare and mythical? Probably. But I do think VCs can add value, right? Decisive Point Ventures, one of our earliest investors, they connected us to a customer that led to our first $2 million contract. Other VCs in our cap table have made key intros, been helpful in our fundraises, right? Dine Ventures, Propeller Ventures, all those guys have really helped us refine our pitch and connect with the right investors who ended up investing in us. So there's definitely value they can add, but there's also a lot of negative impact, right? That you want to avoid. So I always say that there's like three options with an investor. One, they invested, you never hear from them again.

• 5:21Speaker 00

  Two, they invest and they're really a pain in the ass. Or three, they actually add some value once in a while.

• 5:28David Weisburd?

  How would you bucket that? What percentage of investors go into each bucket?

• 5:32Speaker 00

  I would say most kind of fall into that disappear and you never hear from them again bucket.

• 5:36David Weisburd?

  How would you grade? What grade would you give them?

• 5:39Speaker 00

  I think that's, you know, that's actually like a decent outcome, right?

• 5:42David Weisburd?

  B plus, A minus?

• 5:43Speaker 00

  Yeah, B plus, A minus. F is just being a pain, right? Like operationally, being an interference, right? Trying to kind of waste your time with things that just don't matter. And then A plus is, hey, I'm introducing new customers, I'm helping with your next fundraise. I'm like really making an impact on you and your business. That's always amazing.

• 6:05David Weisburd?

  What percentage of investors fit that bucket?

• 6:07Speaker 00

  I've actually had pretty good luck that our decent percentage of our cap table has made an impact. But I would say generally it's like 10%.

• 6:15David Weisburd?

  I was shocked when I heard Sam Altman say that really the only venture capitalists has provided a lot of value on his cap table was Josh Kushner. Not because of Josh Kushner, I've seen as an impeccable reputation, but that he would say that in the middle of trying to raise billions of dollars. This incentive was there and yet he still was so vocal to my mind.

• 6:35Speaker 00

  That is interesting. He said that. I think it's like a known fact and it's a fun fact that like a lot of founders like to be like, oh, VCs are useless, right? And they have their use capital, capital is value, right? That's why like someone who gives you capital and disappears isn't B plus, A minus, right? Because they've given you capital and that's what you need to grow your business and do what you're doing, right? And that's a huge value. Everything past that is just, you know, icing on the cake.

• 6:59David Weisburd?

  You're building in the undersea autonomy space. Why go after that space today?

• 7:04Speaker 00

  It's a great question. I think a bunch of companies over the last 30, 40 years have entered this space and tried to build a company. And most have either turned into kind of small mom and pop shops or just disappeared entirely and pivoted away. And I think the timing was never really right. And we've reached the point of, you know, AI autonomy, even the hardware itself, where you can actually get to a point of usefulness and cost where this market makes sense. That where it just hasn't before, because undersea is deeply challenging market. And so what we recognize is that there's a real white space here where it's behind the air drone market,

• 7:47Speaker 00

  but there's still like massive opportunity and market size here that's really going untapped. And then it's just fundamentally such a challenging space because it's comms denied, GPS denied, really visibility limited, like you can't really see that well underwater unless you're in the Bahamas.

• 8:07Speaker 00

  It's really just hard to enter the space and develop technology. And so that creates natural barriers to entry that just appealed to me. I like a hard problem and I like hard problems that keep other people away from our business.

• 8:19David Weisburd?

  This episode is presented by Juniper Square, the operations partner for private markets.

• 8:26David Weisburd?

  Why do you like hard problems? Is it just the moat? Are there other benefits?

• 8:30Speaker 00

  The moat, the ability to create IP that actually solves that problem and ultimately defend what you're doing, I think that. And then it's also kind of fun, right? Like solving things that people have just struggled at. So less of a business reason, more of a personal one though.

• 8:46David Weisburd?

  Do you find that it's almost easier to attract talent to hard problems?

• 8:50Speaker 00

  I think it's easier to attract talent to exciting problems. So whether that's hard or not, I think depends. But like, I think defense has had its moment lately because everything people are seeing in Ukraine and the excitement around doing cool things with drones, whether it's blowing things up or doing ISR, essentially, you know, intelligence gathering. I think that excites people and gets them excited, like drones are exciting, but not all drones are hard problems.

• 9:19David Weisburd?

  You said before that the drone industry is roughly a decade ahead of the undersea autonomy space. What needs to happen for the undersea autonomy space to catch on to drone?

• 9:32Speaker 00

  It's really three interrelated factors, right? It's getting to scale, it's cost and it's usefulness. And the fact is, right, scale is going to come when cost goes down and usefulness goes up. And I think traditionally, the vehicles in the undersea space have been of limited utility and really high cost, right? So if the, say the government's Mark 18 program, which is a $2 million or so dollar drone, if you could buy those for a thousand dollars, they're pretty useful. But at $2 million, they have very niche use cases, right? And so when you look at like a fire department dive team, they're not going to buy a $2 million drone, but they could buy a $100,000, $200,000 drone.

• 10:15Speaker 00

  So if you can give similar utility and usefulness at that lower cost point, your market opens up. And it's the same thing in oil and gas and other parts of the military, right? Where it's just cheaper right now to have a diver do it. And now we're reaching that inflection point, right? Where it can be cheaper to have a drone do it and it's going to do it better and it's going to do it faster. And that's going to bring scale, right? Which will also drive costs down. So there's always this like chicken and the egg problem of we need scale to drive costs down and then we need usefulness also to justify scale.

• 10:48David Weisburd?

  Chevins paradox, which is as the cost of something goes down, there's more demand and the market goes up, it becomes a more profitable business, even though the cost went down, you would think it would go in the opposite direction.

• 10:58Speaker 00

  Yeah, exactly. And that just hasn't happened in the undersea space yet. And that's ultimately what we're trying to hit that point.

• 11:05David Weisburd?

  Is this a manufacturing issue? Is this an IP issue? Is it all the above?

• 11:11Speaker 00

  It's basically all the above, right? So there's core parts of IP that have struggled to scale, in particular in navigation. Navigation is an undersea is really expensive because you cannot use GPS. And even without using GPS, you can't use vision, right? Because it's relatively featureless and it's hard to see. Radar doesn't work underwater. You have sonar, but it's more limited in range. So it becomes a really hard problem of how do you know where you are? And if you don't know where you are that well, then like a scan of the seafloor is not very useful if you can't say like, that's what is the actual global location of that scan, right? So that has been a big challenge and that's just one of, one of main, like acoustic communications

• 11:55Speaker 00

  or undersea communications is another big challenge, right? And we're working at like worse than dial up internet speeds. How do you get those to a place where they can be useful? And that's, those are some of the problems, you know, we decided to focus on and work on, which allowed us to get the cost down and the usefulness up.

• 12:12David Weisburd?

  For people listening or watching that want to build big things, want to achieve these moonshot type projects, I would put undersea autonomy into that. How does one even go about building an undersea autonomy company? It seems impossible.

• 12:30Speaker 00

  That's a great question. I think a little bit of ignorance of how hard it's going to be, you know, it always helps. But I think, you know, looking for a problem, right? That you see out there where there's a white space. And even though I knew it was going to be challenging, I don't think I fully understand, understood how hard and the kind of trials and tribulations you go with through with any startup, just amp that up by, you know, I think 10x.

• 12:55Speaker 00

  But find the problem and you just got to start working on it, right? And maybe you will find the solution, build the right IP and maybe it will fail. But either way, you will learn something. And if this first one doesn't work, maybe the next one will. Find some way to ground it in some semblance of reality and physics, right? But at the same time, you want to push the boundaries. Like when I started, I got lectured for two hours by a previous undersea vehicle founder. He's probably 65, 70, but gave us a two hour lecture on why we're going to fail and how hard this is and why it's impossible. And we were just like, you know what? We're going to try it anyway and we're going to do it. And you just have to, in some sense, believe and think back to the Ted Lasso poster on the, above the locker room, right? You gotta believe. And if you don't believe, then you should be doing something else.

• 13:40David Weisburd?

  Belief is one thing, but solving this chicken egg problem, how do you get people to even give you the money to build undersea autonomous system?

• 13:50Speaker 00

  So we raised our first round, $2 million pre-seed and 30 days on a strategy.

• 13:57David Weisburd?

  30 days.

• 13:58Speaker 00

  Yeah, it's pretty quick. So by far our fastest round, it's only gotten, taken longer since. But what we recognized is we showed, hey, here's a problem set. We are a team that understands the maritime space and here's the opportunity, right? There's a big market here and if we can solve this, the reward is going to be really high, right? At that time, of course, we had a whole stack of technical risk. But people saw that like, hey, it's worth attacking, going after this technical risk. And we think these, this is a team to do it. So let's, let's give them some money and let them go after it. Does that always work? I think it just depends on your particular company and what you're doing, right?

• 14:40Speaker 00

  But if you can convince the people that you're the right people to potentially solve this problem and you can show that like, hey, there's a really big market at the other end of this, then people will take the risk and give you.

• 14:51David Weisburd?

  What was that, 2 million raised that?

• 14:52Speaker 00

  It was a $8 million cap.

• 14:54David Weisburd?

  8 million. I think that's part of the feature, which is there's a part of the market. It's knowing your customers. If you think about venture capitalists as your customer, there's some very crazy investors called pre-seed investors that at the right valuation, they see the expected value, they're willing to build a portfolio of these crazy moonshots, knowing that one of them could 100x. In this case, they'll probably be Voughton and they're willing to take that risk and just understanding what part of the market is willing to take that bet.

• 15:20Speaker 00

  Yeah, exactly. So professional pre-seed investors and angel investors, they will be willing to take that risk, right? And they don't need you to succeed. They need one of you to succeed, right? And so they'll make 10, 20, whatever investments that are fun and they just need one of them to 100x, right? And then they're in a great position. And I think, like you said, it's a feature of the market. They'll take the most risk in that early stage, they'll get the best price. And then as you develop and, you know, de-risk your technology and de-risk your market, people will give you higher and higher valuations.

• 15:52David Weisburd?

  With most companies, pre-seed, $2 million, plenty of money to build a prototype, to maybe get some product market fit, to even get some revenue. I imagine that was a little bit more difficult for you.

• 16:03Speaker 00

  Yeah, 2 million really, it got us to an initial prototype. It built out like the core team. It kind of de-risked some of what we saw going on in terms of the market. But we had to almost immediately raise an additional like 1.5. And then we raised unusually large seed round and above average Series A. And so now in total, now we've raised $85 million. But we've done a lot on that money, right? And I think hardware is expensive, but if you approach it the right way, you can also do a lot of costs that can be cost efficient. And it really depends. I mean, if you're trying to shoot rockets and launch, you know, SpaceX's starship, that's never going to be cost effective.

• 16:44Speaker 00

  But part of how we thought about our market is let's not start with a 200 foot UUV. Let's start with something small man portable that we can build relatively low cost, but we can build all the core autonomy, navigation, software that can scale to any size of UUV, right? And do that in a way in which is really capital efficient because it is small and we can build a lot of them and we can test it all the time and test it easily. So I think like, as you think through, if you're a founder, thinking through building a company in the hardware space, what can you do to start your product in a place where it is going to be more capital efficient? Can you start with a smaller version and then scale up?

• 17:25Speaker 00

  Can you do a component and then scale to the full system? All those things I think are worth considering.

• 17:34David Weisburd?

  Do you know the Boom Supersonic story?

• 17:37Speaker 00

  Enough in detail.

• 17:38David Weisburd?

  So Blake Scholl previously, I think his episode was around 200. And he told me about the story of how he raised for Boom, now probably a decade or so ago. And he was in Y Combinator, he was in the YC batch. And he was having issues really presenting something. And I believe it was Michael Siebel, who was the president at that point. And he came to him and he said, look, you're going to embarrass yourself at YC. Like you can't just do a presentation. You're trying to build a supersonic jet. You need to show something and you need to show a purchase order. You need to show something to investors for them to invest. And this was like five weeks away. At that point, he was very limited.

• 18:18David Weisburd?

  He could go with a startup airplane manufacturer, which wouldn't be very credible, or he could go to Virgin. Richard Branson was known as this person that would take these wild bets. So through one of his investors, son or Mark Kelly, he got a breakfast meeting with Richard Branson and his mom. So he comes to the meeting, comes to breakfast and obviously Richard Branson is already guarded. Who is this guy who's trying to talk me into investing into a supersonic jet? And before he even sits down, he says, Richard, I'm not here to ask you for money. I'm just here to tell you about Boom. And immediately Richard Branson puts his card down. He talks for 15, 20 minutes and, you know, Richard Branson is nodding his head and he's kind of like doing this whole thing like, yeah, maybe, maybe I can see it.

• 19:03David Weisburd?

  And then he ends the breakfast with this very specific question, which is, Richard, I'm not asking you to believe that we could do this or we could execute. But if and when we do, do you want the first five planes to have a Virgin logo on it?

• 19:22David Weisburd?

  And I believe it was five planes, it might have been more planes. But obviously, for an entrepreneur like Richard, that spiked his dopamine. He got excited and he's like, here, I'll give you an LOI. Of course, we know LOIs aren't really worth their teeth. But he took that LOI, went to YC. I was actually at this YC batch. I forget what year it was, but it ended up being one of the hottest companies. They raised at a crazy valuation of $20 million. This was like a decade ago. So one of the highest YC raises. And, you know, the rest is history. And obviously, they've raised hundreds, I think approaching a billion dollars. But most people don't know how these stories happen in the very beginning. Because by definition, so few people are there for your pre-seed round.

• 20:07David Weisburd?

  People only know kind of this mythology, but so few people actually get to see this with their own eyes. And I think it's so underrated because if we had more pre-seed companies and ambitious companies like Votin or like Boom, we just have so many downstream of that. We'd have so many great companies versus, you know, another vibe-coded software company.

• 20:24Speaker 00

  Yeah, I agree completely. And I think that is the whole point of venture capital, right? That like, at each stage, the bar goes up, right? And that's why, you know, it's something like 60% of companies that raise this seed don't make it to Series A. Or, you know, a stat similar to that. Because you need to show certain evidence to get to that next round. And so the more you can do as a founder to say like, yeah, the LOI, or I have this revenue and look at this revenue growth, or some way to show that customer traction, and then also to show product traction. And I think one of the things we've found is that like, if we can get an investor to our facility in Rhode Island and get them hands on the vehicle and get them out in the water with it,

• 21:09Speaker 00

  we almost always close that investor, right? And very similar to a customer. So there's a real power in seeing physical progress, right? And I think that is an advantage of hardware startups in general. It's just like a little more exciting. You can touch it, you can conceptualize it better. And I do think they're more exciting, but I might be biased.

• 21:32David Weisburd?

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• 22:13David Weisburd?

  That means less time managing disconnected systems and more time investing, working with LPs, and building your firm. This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at junipersquare.com/HowIInvest. That's junipersquare.com/HowIInvest.

• 22:33David Weisburd?

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• 23:16David Weisburd?

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• 23:55Speaker 00

  Definitely. And those hydrofiling boats are just such a different boating experience, right? They use like flying above the water, it's smooth, it's a game changer. And you can't understand it until you actually experience it.

• 24:06David Weisburd?

  So you started with that $2 million pre-seed round. You've now raised 85 million. Where are you at today as a company? If you run a business, you probably start your morning with way too many tabs open. You're checking revenue, ad performance, email, inventory, spreadsheets. And before you've made a single decision, you've already spent your morning just figuring out what happened yesterday. That's what I like about Perplexity Computer. Instead of jumping between every dashboard yourself, Perplexity Computer could connect to the tools you already use and build a command center for your business. It could pull together things like revenue, ad spend, margins, inventory, and email performance, then show you what changed, where you might be losing money, and what you should look at next. But what makes Perplexity Computer really interesting is that it could actually work on projects.

• 24:50David Weisburd?

  It could help pre-write an email flow, build an ad campaign, or draft outbound outreach. And unlike most AI tools, you're not locked in into one model. Perplexity Computer orchestrates leading AI models behind the scenes and automatically chooses the right one for each step. For a limited time only, you could try Perplexity Computer for free. Head to pplx.ai/invest. That's pplx.ai/invest to try Perplexity Computer today. Most AI tools are still answering questions while Perplexity Computer is completing full projects. If you run a business, you probably start your morning with way too many tabs open. You're checking revenue, ad performance, email, inventory, spreadsheets. And before you've made a single decision, you've already spent your morning just figuring out what happened yesterday.

• 25:34David Weisburd?

  That's what I like about Perplexity Computer. Instead of jumping between every dashboard yourself, Perplexity Computer could connect to the tools you already use and build a command center for your business. It could pull together things like revenue, ad spend, margins, inventory, and email performance, then show you what changed, where you might be losing money, and what you should look at next. But what makes Perplexity Computer really interesting is that it could actually work on projects. It could help pre-write an email flow, build an ad campaign, or draft outbound outreach. And unlike most AI tools, you're not locked in into one model. Perplexity Computer orchestrates leading AI models behind the scenes and automatically chooses the right one for each step. For a limited time only, you could try Perplexity Computer for free. Head to pplx.ai/invest.

• 26:19David Weisburd?

  That's pplx.ai/invest to try Perplexity Computer today. Most AI tools are still answering questions while Perplexity Computer is completing full projects. If you run a business, you probably start your morning with way too many tabs open. You're checking revenue, ad performance, email, inventory, spreadsheets. And before you've made a single decision, you've already spent your morning just figuring out what happened yesterday. That's what I like about Perplexity Computer. Instead of jumping between every dashboard yourself, Perplexity Computer could connect to the tools you already use and build a command center for your business. It could pull together things like revenue, ad spend, margins, inventory, and email performance, then show you what changed, where you might be losing money, and what you should look at next.

• 27:01David Weisburd?

  But what makes Perplexity Computer really interesting is that it could actually work on projects. It could help pre-write an email flow, build an ad campaign, or draft outbound outreach. And unlike most AI tools, you're not locked in into one model. Perplexity Computer orchestrates leading AI models behind the scenes and automatically chooses the right one for each step. For a limited time only, you could try Perplexity Computer for free. Head to pplx.ai/invest. That's pplx.ai/invest to try Perplexity Computer today. Most AI tools are still answering questions while Perplexity Computer is completing full projects.

• 27:37Speaker 00

  Just recently, we transitioned our first product, our S6 vehicle, to full like production readiness. So that's in regular, low-rate initial production. And now we're building out a new 90,000-square-foot production facility that can scale that to hundreds a month. We're in a really good position. We're growing our contracts. We've won over 40 million in contracts and, you know, winning continuously every month, new opportunities. And now we're actually scaling abroad too. So we're entering Taiwan. We just signed a deal for distribution in Japan. We're selling our first vehicles into Europe. So we're now in growth mode, right? The technical part is de-risked.

• 28:17Speaker 00

  And now it's taking ourselves from where we are now to scaled production and scaled contracts.

• 28:24David Weisburd?

  You want to become the next Defense Prime, which is these massive defense companies. Right now, there's half a dozen, there's new ones coming like Androl and Castilla and Mock Industries. But you want to do this for the undersea autonomy space. What needs to happen between now and then for you to become this great Defense Prime?

• 28:44Speaker 00

  We're going to see a wave of Defense Primes who are more focused, right? Androl's trying to be the next Lockheed, right? They're doing a little bit of everything. And I think that has worked really well for them. They've paved the way. But I think what we're going to see is that there's an advantage in being a bit more focused. And so our strategy at Votin is that like, hey, if we build a suite of products that are all undersea and scale our technology across those products, like every time we build a product and we vertically integrate it, we've built a bunch of Legos that can be recombined into new products. Whether that's port security, mine countermeasures, which is a product we launched recently,

• 29:25Speaker 00

  undersea sensors, all of those things can be either their own product or recombined into new products. And if you do that, you create defensibility. You create a significant price advantage.

• 29:41Speaker 00

  And you can build a hundred billion dollar company. And so our goal is to transform Vatten into partly into the next electric boat, right? Be that builds the majority of US submarines, but really to be more than that, be a company that spans the undersea space and dominates through that space, through our scale and through our vertical integration.

• 30:05David Weisburd?

  Maybe you could double click on that. How do you build this modular manufacturing that allows you to build many products just from one process?

• 30:14Speaker 00

  Essentially for each vehicle, right? We've divided into modules and you are able to have a line for each module. And those modules can be recombined or individual even subsystems of the module, like our inertial navigation system, that will go into almost every vehicle we build across size and scale, right? And so that allows us to really share a lot of bomb and hardware, right? So we have two vehicles right now that are very different scale, yet something like 50% of the bomb is shared because some of the most expensive parts be verticalized and brought in-house. Modularity in manufacturing can kind of go either way in the sense of like, will it be useful or will it not?

• 30:59Speaker 00

  Will it help or will it make your life more of a pain? But now I think the technology exists where manufacturing can be a lot more flexible.

• 31:11Speaker 00

  And so we focus on high flexibility manufacturing, right? And you lose some efficiency from that, right? Versus say like Toyota, which focuses on maximizing costs and efficiency versus BMW, which focuses on that flexibility because your customer wants like a lot of customization ability. So we're probably more closer to BMW in that sense, but the, we're still able to do that while driving down costs is our competitors are all handmade Rolls Royces. Even worse than that, it's like Bugattis essentially, right? And so we take some of those practices from automotive, build a vehicle that is more efficient, but add modularity where it makes sense, where this is like a true multi-mission vehicle.

• 31:54Speaker 00

  This isn't just a Bugatti that can do one thing really well, which is to go really fast. This can do a bunch of different missions. It can do kinetic missions, it can do mind countermeasures, it can do ISR. So that's how we think about it.

• 32:07David Weisburd?

  You mentioned Anduril. In many ways, Anduril paved the way for companies like Vatten to be able to succeed. What did Anduril understand that traditional primes did not when they started?

• 32:20Speaker 00

  Anduril understood that not only do we have to develop new technology, but we also have to do business in a different way, right? If we copy how a prime does business, then your cost basis is just going to be extremely high. So they went after different contract types. They focused on firm fixed price contracts that most primes won't do. They want, you know, their cost plus because it reduces their risk. And they've had these bad experiences with the government, but Anduril focused on like, hey, can we do these firm fixed price contracts? And can we then reduce our costs so we actually make good margin on them?

• 33:05Speaker 00

  And that's how they've achieved, you know, 40%ish margins versus a traditional block heat, I think has 11% margin on average. And they've done that by not giving the government the power to determine what margin they get or what margin they deserve by doing these, these, these contracts. I think the other part of it is how do you build a more efficient organization, right? How do we, you know, reduce program management? How do we reduce all these FAR clauses that like flow down onto a traditional contract that just raise costs and don't really do anything for the customer and certainly don't do anything for the contractor? So it's just fundamentally different way of doing business with the government.

• 33:49David Weisburd?

  What did Anduril prove to investor market that makes it easier for Vatten to scale today?

• 33:56Speaker 00

  Anduril proved that you can build a startup in the government space, that you can grow revenue rapidly, and you can do that while still remaining agile and fast moving, right? And I think that until that point, a lot of people really didn't believe that. And it's not just Anduril, but also Palantir, I think also proved that point.

• 34:17David Weisburd?

  So much of what's going on in defense is to this backdrop of geopolitics. How does Vatten play a role in this?

• 34:27Speaker 00

  It's a great question. And I studied political science in undergrad and then I was doing a PhD in political science before I dropped out. Never thought I would do anything related to politics after that, but I think if you're a defense contractor, fundamentally you have to engage with Congress and you have to engage with foreign governments if you're going to sell abroad. I think, and then, you know, it impacts fundamentally your business, right? Our budget's going to increase. You know, there is this kind of perverse incentive, right? Where conflict does increase revenue.

• 34:59Speaker 00

  But I think I'm not in this to just increase revenue at the sake of like people dying in war, right? I think that is not a good thing, right? But what I think we do offer is that our systems are deterrent effect, right? And there are real threats that we need to deter. And defense tech is the pathway to doing that because building more ships at the rate we do is just not going to deter China, it's not going to deter Russia. But if we can show, hey, we can take this new technology that's better than yours and build it at massive scale and make it costly, then we will have less war and more peace. That being said, will there be wars in the future?

• 35:44Speaker 00

  Probably. I hope not a world war or anything major, but there will continue to be conflicts like we have with Iran, perhaps conflicts, you know, around Ukraine or with Russia and other areas, particularly as Russia's economy has become more and more dependent on war.

• 36:02Speaker 00

  But ultimately geopolitics do impact, you know, budget. And it is something I think I personally sometimes struggle with is like, how do we make sure those incentives aren't perverse for defense companies?

• 36:16David Weisburd?

  There's this impending potential conflict between China and Taiwan. A lot of people don't want to talk about it, but it's certainly a non-zero chance. I think Polly Market pegs it at 12% chance that happens before the end of 2027. Is America ready to go into a naval war?

• 36:37Speaker 00

  So I don't think China, Taiwan, or the US are fully ready for this conflict. I think the US does have the best navy in the world.

• 36:47Speaker 00

  But is it fully ready for the future of conflict and conducting that war, you know, whatever it is, five, 6,000 miles away from home? I don't know. If this had been a war a decade ago, we were probably ready in a better position. But I think Ukraine has shown that there's a new nature of warfare. But it's a question of how much has China leaned into that and how much are they prepared to fight that? Or are they going to try and fight a traditional war against the US? The biggest challenge we have though, fighting a war in that AOR, in that operating area, is that China just has so many missiles, right? And so can we even get ships into that operating area and can they even survive?

• 37:28Speaker 00

  And that is probably the single biggest problem, right? So, and how do we combat that? And currently at the rate we're shooting Patriots with that's, it's going to be tough. At the same time, China just released a ton of its leadership. They have a ton of training issues and I think what we'll see is we'll see similar issues if that war starts with China that Russia had, right? Where their soldiers are like selling gas and, you know, they open containers and instead of ammo and there's like bubble gum. Corruption and kind of incompetence and a lack of training have caused like a bunch of issues and Russia had to learn a lot of hard lessons.

• 38:09Speaker 00

  At the end of the day, US military has experience doing war, conducting war, and China just doesn't have that.

• 38:16David Weisburd?

  Just recently I had Ethan Thornton, who founded a company called Mock Industries. He's this 22-year-old founder that's built this $4 billion defense company and he's almost exclusively focused on this asymmetric warfare, which is a big game changer in the Russia-Ukraine war, which is you have these very expensive tanks being taken out by 5,000 or $10,000 drones. Do you see this asymmetric warfare coming to the undersea space?

• 38:46Speaker 00

  Yeah, to the undersea, to the maritime space. And it's already, already happened, right? We see it in Ukraine as well with these drone boats, essentially, you know, small wave runners that have bomb strapped them, running into Russian destroyers and, you know, sinking or at least significantly damaging them. And that's why the Russian fleet really hasn't played a role in the Black Sea because they're afraid to be port. So that asymmetric warfare is already happening and like systems, undersea, like low-cost torpedoes.

• 39:19Speaker 00

  Extremely hard to defend against. So if you are a ship leaving a Chinese port and you don't know if there's a bunch of UVs with kinetic straps on them, warhead straps on them waiting outside your port, that becomes a very nerve wracking thing because you probably won't be able to detect them. And even if you do detect them, you probably won't be able to defeat them before an action happens or avoid them. And so I think undersea brings huge asymmetry against traditional surface vessels. It also brings asymmetry against USVs, particularly larger ones. I think against submarines, potentially, hunting and destroying submarines is still

• 40:03Speaker 00

  a very challenging proposition and I think it will take longer.

• 40:07David Weisburd?

  They're very fast.

• 40:08Speaker 00

  Very quiet. It's not even their speed that's the challenge, it's the fact of how damn quiet they are. And just to detect one takes an expensive sensor. That's why our torpedoes are really expensive is they're built for those kind of niche use cases. But there's all these other targets out there that we can have a big impact on with through lower cost undersea systems. And if you control undersea, ultimately you control the surface asymmetry. Because anything that travels on the surface is vulnerable to it. Some mariners love to say like, they love to call their surface navy compatriots targets, right? Because they're ultimately struggled to see and struggled to defend against anything that comes from underwater because it's just hard to.

• 40:52David Weisburd?

  Because it's one sided, the underwater, the vehicles could shoot the ground and the ground can't shoot the vehicle.

• 40:58Speaker 00

  Exactly. You have great radar, you can see a missile coming, you can intercept missiles. And undersea, like anti torpedo systems are very limited. And it's hard to, you can't just look down at the water and see them traditionally despite, you know, what World War II movies will tell you. It's just a challenging, a challenging thing to defeat. Undersea is ultimately our greatest power as a nation, right? And people don't always realize that, but it's also the silent service. But we have the best, most capable submarine fleet in the world and that gives us enormous power. World War II, 60% of Japanese shipping and I think naval assets were sunk by US submarines, right?

• 41:43Speaker 00

  Yeah, it's a major impact.

• 41:44David Weisburd?

  And the defense part of your business, what percentage of your resources, capital, man hours are going towards developing asymmetric warfare?

• 41:54Speaker 00

  Our entire company is based on asymmetric warfare, right? So we're building lower cost systems that make it cheaper, faster to defeat targets or collect data. And that goes from our core vehicles with the acoustic homings, the ability to actually follow and seek moving targets, where essentially they're acting as a cheap torpedo, to our CIGER mine countermeasure system, which can defeat minefields faster and lower cost. Interesting fact, right? You talk about asymmetry, mines are kind of the original maritime asymmetric warfare, right? It can cost, undersea mine can cost, naval mine can cost about two grand.

• 42:39Speaker 00

  You can just throw them off the side of the boat so you can rapidly lay these minefields as we've seen in Iran. But it costs typically 200X more in terms of money and time to clear that minefield, right? And so that's a real problem. And that's why it was one of the areas we decided to focus on as a way to decrease that asymmetry we see there.

• 43:03David Weisburd?

  I'm still thinking about what you said on the Russia-Ukraine war, the naval destroyers from Russia are not leaving the port. To me, it's just such an example of the sunk cost fallacy. And what future war will the destroyers be safe leaving the port? And yet these countries hold on to them as if they're some kind of asset for some theoretical future with no asymmetric warfare, but really they should write them off to zero and move on to this asymmetric warfare. But there's reluctance to accept the new battlefield.

• 43:35Speaker 00

  Yeah, I think that's generally true. I think like if you can put a preponderance of naval assets out there, like if you can have a fleet of destroyers, like there's a lot of capability there to destroy asymmetric assets, right? Like, you know, if we look at the Straits of Hormuz, right? The Yemenis, the Iranians, they've shot tons of stuff at our systems, asymmetric things. But we're not afraid to operate. But our navy is a lot more capable on that front. I think the challenge we're going to see is that like if you can build the US Navy, great, like you can probably defeat a lot of asymmetric threats.

• 44:15Speaker 00

  But if you're Russia, if you're Ukraine, if you're Denmark, Philippines, if you're a small country, there's no way you're ever going to get a preponderance of firepower and surface fleet in which you can have an effect, a deterrent effect, right? Like Philippines, a couple of years ago bought a 400 million dollar guided missile frigate. That will have zero deterrent effect on China, right? China will destroy that in minutes in an actual conflict. But if they spent that money. It's just one frigate doesn't have the air defense capability to defeat, you know, the 400 ships of the Chinese Navy, right?

• 44:55David Weisburd?

  Best case, they, they take out one ship and then there's 399.

• 45:00Speaker 00

  Exactly. You know, even if they took out five ships, it's not going to change the equation and China's not going to be afraid of one frigate. But if they spent that money on, you know, 400 million dollars worth of USVs or UVs that are kinetic and can, any one of them can kill a Chinese ship, that is an actual deterrent effect, right? So especially for small countries, moving to asymmetry just makes sense. But for the US also, like we need to spend our money more wisely and efficiently. And there's a lot of questions around what makes sense and what doesn't, right? And so not all exquisite systems are useless, you need a mix, I think, I still believe that. And we still see that in Ukraine.

• 45:44Speaker 00

  Right before this, I was reading an article about the Bradley Fighting Vehicles, right? It's most effective armor in Ukraine and they've been extremely useful for the Ukrainians. Meanwhile, like main battle tanks are becoming less and less relevant on the battlefield. So certain exquisite systems still useful, it's how you employ them and it's what those particular systems are, right?

• 46:09David Weisburd?

  We're coming up, next month, we have Thanksgiving. You're gonna be around your friends and family, people that are not in defense, people that are not in venture capital or even finance. And I'm sure you get this question a lot, which is, why in the world are you building a war company? What do you answer to that?

• 46:29Speaker 00

  I truly do believe in deterrent effect and our national security and the national security of our allies. And I think our systems will ultimately help defend democratic values across the world. And that's why, you know, we're all in on Taiwan and supporting Taiwan, we're all in on supporting Europe as well as the US. Because these systems will defend us from autocratic nations like China and Russia. For me, it's not about war, right? It truly is about deterrents and defending the US. But if we do have to have a war, that we have the capability to win it rapidly.

• 47:06David Weisburd?

  You mentioned earlier on the interview that part of what made you successful with Laden was your ignorance of how difficult it was to build the company. Do you regret starting this company?

• 47:19Speaker 00

  No, definitely not. It's the best thing I've ever done and it's the most fun I've ever had and I can't imagine doing anything else right now.

• 47:26David Weisburd?

  Would you have started it knowing everything that you know today?

• 47:30Speaker 00

  I still would have, for sure. I mean, was it harder than I thought it was? Yes, but I just can't imagine doing anything else, you know? I've heard founders say that before, like, oh yeah, I wouldn't have done it if I know how hard it was going to be. And yeah, there's been challenging times, right? You know, times when we were low on funds and we're waiting for that, you know, new round to land. There's been arguments with co-founders that we've had to work through. There's been, you know, times I've had to, you know, fire people, technically challenging times where we really had to put our heads down. But ultimately, I mean, it's such a rewarding experience to build a company, to work with

• 48:14Speaker 00

  some of the best people in the world and to give them the tools to go out and create something amazing and then just actually see it roll off a production line. It gives me chills, like I feel somewhat. Addicted to that experience of like accomplishing new things and it's uh yeah, there's nothing like it.

• 48:33David Weisburd?

  How has building Voughton changed you as a person?

• 48:36Speaker 00

  It's a great question. I think um man, I've learned so much in the course of building Voughton. I think I've I've learned a lot about managing people. Really, the job of a CEO or a COO or any like senior executive or leader. It's like it's really about managing managing people, right? How do you enable them to be as productive as possible? How do you build the right environment? How do you hire the right people? And I've learned a ton about what it means to manage people, what it means to lead and how to be a better leader. I think I've learned a lot about what not to do. And I think that's been, you know, super, super valuable and rewarding.

• 49:17David Weisburd?

  What's the biggest people mistake you made early on?

• 49:20Speaker 00

  I think the biggest mistake or biggest lesson I've learned in hiring is that if someone comes into an interview and they're really negative about their last company, they're gonna join you and be really negative in general. Like, that's a probably most likely.

• 49:33David Weisburd?

  Hundred percent correlation?

• 49:33Speaker 00

  Yeah, almost like ninety-five percent correlation, if I my opinion. So um some people just can't, you can't make happy. And what you need are people who are gonna like focus on the good things and focus on um doing their work and and producing criticism and uh you know, feedback is really good, but it has to be done in a positive way. And certain people like they'll just never be happy. And I think that was an important lesson, like, you know, if they're not happy at their last company, then they very good chance they won't be happy at your company.

• 50:08David Weisburd?

  Have you gotten better yourself at getting feedback and criticism?

• 50:11Speaker 00

  You learn quickly how to like work with people, take feedback, improve yourself.

• 50:15David Weisburd?

  Have you developed that skill, something I'm working on?

• 50:18Speaker 00

  I think it's really just, yeah, we were talking before the podcast, right? About how like you just need to do something a lot. And I think.

• 50:25David Weisburd?

  Do the reps.

• 50:25Speaker 00

  You do the reps, right? And ultimately, if you do the reps, that will get you there. So I think just putting yourself in situations where you're receiving feedback and then look at it critically, right? I always have to like kind of pause and say like, okay, am I being defensive? Am I, how am I reacting to this? Like, what is my emotional reaction? And look at that honestly and see like where the truth is and where it isn't. Not all feedback or criticisms you get will be valid. So you also.

• 50:54David Weisburd?

  Have to be discerning.

• 50:55Speaker 00

  Yeah, it doesn't mean like, just be like, everything someone says about me is true and bad, but you just have to be discerning. You have to really analyze yourself and your reactions.

• 51:06David Weisburd?

  I'm to the point where I could solicit a lot of feedback, but it still stings. I haven't numb myself yet to the feedback. I'm working on it.

• 51:14Speaker 00

  And there's um, kind of like we're saying, there's a happy medium, right? Of I've also felt at times like where you become dismissive of feedback, right? Like where you're like, eh, whatever. So you need that like happy medium where maybe it still stings a little bit and maybe that's good because it's gonna make you like think about it. But you don't want it to sting to the point where you become obsessed with it or it really like hurts your feelings.

• 51:38David Weisburd?

  I was thinking about this Travis Kalanick idea of if it doesn't hurt, you have to lean in.

• 51:44Speaker 00

  Yeah.

• 51:44David Weisburd?

  So as soon as something becomes comfortable, you just ratchet it up.

• 51:48Speaker 00

  Totally.

• 51:48David Weisburd?

  And hurting is not the thing to avoid. The hurting, it means that you're at the right amount of.

• 51:53Speaker 00

  For sure. Yeah, exactly. I mean, if you're just dismissing or being numb to something, then I think that's probably a bigger problem than it's stinging.

• 52:01David Weisburd?

  If you go back to beginning of twenty twenty-three, when you had just started Voughton and you could give yourself one timeless piece of advice, what would that be?

• 52:11Speaker 00

  I think the best thing to probably have known is like, hey, it's gonna work out. And like, just believe and stay focused and do what you can do every day, right? I think there's also more luck to things that then people are willing to admit. And I think like you get.

• 52:27David Weisburd?

  VCs?

• 52:27Speaker 00

  Yeah.

• 52:28David Weisburd?

  That's shocking.

• 52:29Speaker 00

  For sure. And you know, I think it's ultimately about how you respond to that luck, like, and how you make opportunities for it, right? Like, um putting yourself out there and going to events and building that network. I think that still is like the best thing that came, I learned in VC. And so doing that as a founder is important, right? I remember as a VC, I used to get these founders I'd reach out to and they're like, we're not raising right now, so we're not talking to any investors. And I think that's silly, right? Because you're never not raising. As a founder, you're always building those relationships.

• 52:58David Weisburd?

  ABR, always be raising.

• 52:59Speaker 00

  Always be raising, yeah. So you're always building relationships for the next round, right? Even if you're not putting a round together right now. And I think that is extremely important. And I think it's the same with customers, like, you know, always be ready to kind of start selling or at least doing like the market research and customer discussions on that next product, right? Because if you finish your current products, you get them to market and you reach market saturation and then you start thinking about your next product, you're already gonna be too late and you're gonna have a massive um growth gap, right? And so for everything we do, we think about like, how do we think about two, three, four steps ahead? Without going like too far ahead as well.

• 53:40Speaker 00

  So I think looking back on myself is like, as far as ahead as possible, or not as far as ahead as possible, but as far ahead that is reasonable, right? So that you can anticipate what's coming. And I think we've generally done a good job of that, right? So, you know, anticipating manufacturing and that transition, um, you know, anticipating the next round, anticipating how the company is gonna change from four people to ten people to twenty people to fifty to a hundred to two fifty. You know, how does the company change from doing zero in revenue to fifteen million in revenue? And what what has to change, right? Those are, I think, the most important things as a founder you have to uh really think through as a CEO.

• 54:25David Weisburd?

  On this topic of luck, I've actually changed my thinking twice. Early on in my career, I thought it was a small factor. And then I started to see just these large factors of luck. And then I've actually realized that it's, again, somewhat less of a factor than I originally intended. Not because it doesn't exist and not because people don't win lotteries. People obviously win lotteries. But because I I do think it's so much downstream of action and activity. And I think over the long term, it's kind of like a venture capital portfolio. If you build enough, if you invest into enough great founders at the pre-seed, one of them will break and then people will call you lucky. But I think every day is the same. It's upstream of who do you meet with, what products are you developing, who are you hiring?

• 55:09David Weisburd?

  And luck is almost just this probabilistic portfolio, less so than this like you're sitting around and then something, you know, a lightning strikes and you have a ten million dollar client.

• 55:20Speaker 00

  Yep. No, I agree generally, like, I think you can't sit around and wait for luck, right? Like, that person who's buying lottery tickets every day, if they just spent head on, you know, investing or like seeding their own company, right? There are far more likelihood of success. And so you really do have to create your own luck. But I think there can be um, you know, bad luck, et cetera, that can impact you. And when it happens, I think you just have to be ready for like, ready for that and understand like, hey, just keep building, keep believing this is the right pathway. And I think that's important. I just don't think that people should devalue it, devalue it too, right? Like, there's, luck is a part of everything we do.

• 56:03Speaker 00

  You can put yourself in the absolute best position to win and do all the right moves.

• 56:11Speaker 00

  But it's still part of the equation, right?

• 56:13David Weisburd?

  Well, Nelson, this has been absolute masterclass. Thanks so much for talking to us.

• 56:16Speaker 00

  I really appreciate it. This was an awesome conversation. Thank you.

• 56:19David Weisburd?

  Congrats on getting to the end of my conversation with Nelson. If you enjoyed that conversation, you're gonna love the conversation right here.