The Startups Rebuilding American Industry | The AD50

America’s defense, energy, manufacturing, and robotics booms are increasingly becoming one story: the rebuilding of the country’s industrial base. This year’s AD50 highlights the companies building across that stack, from critical materials and factories to the systems they ultimately power. a16z’s Erin Price-Wright and Connor Love join Elena Burger to unpack what has changed. They discuss how defense demand can help finance manufacturing capacity that ultimately serves much larger commercial markets, why AI is changing the economics of American factories, and how a new generation of founders is applying lessons from SpaceX, Tesla, Anduril, and Palantir to mining, energy, manufacturing, and defense. They also make the case that these companies are no longer simply important to America. With private capital increasingly willing to fund physical infrastructure and production before government demand is guaranteed, they can become some of the most valuable companies in the world.

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

• 0:00Speaker 00

  You don't have a defense industrial base without an industrial base. It's been a real wake up call that we need to get building again.

• 0:06Speaker 01

  AI will be a phenomenal tool that can be used in the physical world. The reality is AI cannot turn a wrench yet.

• 0:13Speaker 00

  The top 10 most valuable companies in the world, like the majority of them are hardware companies. What's it like to visit one of these sites? You're building a physical thing. You're not sitting at a desk on your computer. You're out in the world. It sounds kind of sexy and romantic, but when you're actually doing it, it's rough.

• 0:29Speaker 01

  When you show up at Mariana, when you show up at Hadrian, when you show up at Castilian, you literally get people who are so passionate about what they're doing. That produces really good results.

• 0:37Speaker 00

  There's that very famous chart of like US power production versus China new energy production. What would it take to close that gap? I don't think that that is a technology problem. I think that that's a...

• 0:52Erik Torenberg?

  For decades, America moved much of its industrial capacity overseas. Now, a new generation of founders is trying to build it back. In this episode, A16Z's Elena Berger sits down with Aaron Price-Wright and Connor Love to unpack this year's AD50, our list of companies shaping American dynamism. They look at the industrial base from end to end, the critical materials and energy that go in, the factories that turn those inputs into products, and the defense, robotics, and other systems that come out on the other side. Aaron and Connor explain why those pieces are increasingly connected. A defense contract can help finance a new American factory, which drives down the cost of components that can later go into robots, cars, medical devices, and other commercial products.

• 1:35Erik Torenberg?

  And AI is giving workers new ways to reconfigure production lines and rethink processes that have barely changed in decades. They also get into the rise of founders coming out of companies like SpaceX, Anduril, and Palantir, the flood of private capital into physical industries, and why rebuilding America's industrial base is increasingly becoming both a national priority and a major economic opportunity.

• 2:00Speaker 00

  Connor and Aaron, thank you so much for joining the podcast today. We're here to talk about AD50 and this year's list. And let's just get straight into things. I know a big theme of this year was the American industrial base. Can you talk about what we've learned this year and why that's such a big, important theme right now? We've been saying for a while, you don't have a defense industrial base without an industrial base. And I think this year really put that into perspective with conflicts going on in the world and realizing that the hollowing out of our industrial base that's happened over the last several decades actually has real consequences on the battlefield for soldiers, both American soldiers and our allies.

• 2:43Speaker 00

  And I think it's been a real wake up call in the United States that we need to get building again.

• 2:48Speaker 01

  Yeah, I mean, I think it's also something that is not just one factor, but it's multiple factors that are all kind of happening at the same time. And when you take a step back and you say, okay, world conflict, you have kind of a continued evolution of the capital markets, which I'm sure we'll talk about a bit later, about capital falling into this ecosystem. But I think one of the bigger things is you actually have an entrepreneurial base right now who is effectively raising their hand and saying, I'm going to build in this ecosystem that's incredibly important, not just for our nation, but also you can build really valuable companies in. So I think it's just this conglomeration of geopolitical factors, of capital markets, and then entrepreneurs that are kind of all just coming together. And I think it's a really interesting time to be building. It's a good time for us to be investing. When we looked at AD50 this year, we thought about kind of where we're at in the history of American dynamism.

• 3:33Speaker 01

  And we're still early, but I think one theme that has evolved is you really need to start looking at American dynamism companies as a totality from end to end, from the input that comes out of the ground to the factory that makes the thing to the end system. And so that's how we've set up AD50 this year, to think through those three lenses. Each one of those pillars is uniquely important to the end product or the end system. But in the end, like, I don't think people think that way. And a lot of the companies that are addressing, you know, things in our portfolio have thought from an inputs perspective, from a factory's perspective, and now from a systems perspective.

• 4:07Speaker 00

  So one theory that a person could develop after looking at the list is, okay, we built out this industrial base for defense, like building missiles and drones, but it's actually a tailwind now that's helping a lot of different industries in America. So there's energy, there's robotics, there's AI. Can you kind of talk about how all of these things fit together?

• 4:30Speaker 01

  Yeah, I mean, it's funny, because if you look back in history, I mean, even 70, 80, almost 100 years ago, if you look at how we've developed technology in America, a lot of times it's very much been from the government. If you look at how we went to space for the first time, if you look at how we developed the internet, how we developed nuclear energy, it was the government saying, we're going to do this for the purpose of the government. And then the long tail of that technology was super valuable for, you name it, the internet being created, energy being proliferated across the world. What's different now, to some extent, is now private industry, as well as private capital, is saying, we're actually going to be the impetus that develops something. And so to your point, many of these markets is to serve the federal government, to serve the Department of War in some way.

• 5:13Speaker 01

  But the beauty about these things is when you build an industrial base, either down the supply chain or end systems itself, those inherently have many use cases. I mean, the term dual use is talked about a lot in investing. And to some extent, I think it's a little bit of a folly, like focusing on too many things at once is not good for a startup. But it is 100% true of what's happening with any factory that's being built today, any Neo factory being built, any energy production, anything we touch and kind of minerals or materials in the ground, it's not just going into a defense system. It's going to go into my uncle's car. It's going to go into like my kid's future toy that they have in some way, shape, or form. So I do think the tip of the spear is focus on the government. But I think in the long run, to your point, like, what's happening is these systems will be used in the waymo that we took today or anything else.

• 5:57Speaker 00

  I think a good example of this to look at is actually DJI in China,

• 6:01Speaker 01

  Yeah.

• 6:01Speaker 00

  which has gone through multiple arcs of its lifetime and its journey, started out building consumer drones and recognized over the late 2010s that there was a large market for drones in both public safety and national defense. And so built out a real high-scale drone production business for defense. And now the folks behind DJI are now the largest producers of robots in the world because what is very similar to a drone motor is a robot actuator, which is the hardest part of building a robot. So you have this company that, over the course of growing a large defense business that itself spun out of a consumer business, is now the world's leading expert on how to build and

• 6:42Speaker 00

  produce hardware for kind of the next wave of physical AI, both consumer and industrial. And so I think this technology transfer and process knowledge transfer between military use cases and non-military use cases is really important and has always been how it works. And it's great to have the federal government be a subsidizer for figuring out this process knowledge and figuring out the new technology. And then I think our world's greatest gift in the United States is the discernment of the American consumer, like, we are going to push things to be more capable and cheaper than the government ever will. So that symbiotic relationship in the industrial base is actually really important. And we're certainly seeing that on the energy side.

• 7:21Speaker 01

  Yeah.

• 7:22Speaker 00

  We're seeing that on the electronics side. We're seeing that across the entire sort of industrial stack.

• 7:27Speaker 01

  And to some extent, I don't think this is a super complex topic, but it's important to kind of restate, which is when you build the first of a kind of anything, it's quite expensive. Like, when you are building a bespoke, whether it's a military system or a consumer product...

• 7:41Speaker 00

  Zero to 100, it's going to cost a lot.

• 7:42Speaker 01

  It's going to cost a lot. And then to some extent, like, we'll get into this a bit later, I bet, but, you know, we talked about vertically integrating or using the supply chain base that you have. The beautiful thing about what's happening right now is we have a federal government and an Department of War is saying, number one, we're going to try to actively rebuild some of this industrial base. And by doing that, they're actually changing that unit economic decision from the start for these companies. So again, it's instead of building 100 things, you can say, okay, maybe build 100, but we're willing to pay a cost that the consumer or the commercial market wouldn't pay. And all of a sudden, then that means more machines you can put in your factory, more capex that the government is helping you pay at the start. And then that leads to things that are physically, you know, both like financially viable, but also at a scale that actually can touch the consumer.

• 8:26Speaker 01

  So I just, it's important to identify that, and that is definitely happening right now.

• 8:29Speaker 00

  Yeah, like, if you're building a new PCB fab in the United States, like, that's a pretty expensive operation. Those are pretty expensive pieces of machinery. And if you have a defense buyer as the first buyer to help you kind of pay for, subsidize a lot of that capex investment, that's great because you know what else has PCB boards? Robots. You know what else has PCB boards? Hearing aids. And so the ability to kind of pass on some of that capex to the defense industrial... I think will be really powerful as we rebuild kind of industrial capacity in the United States. So what specifically are you seeing startups do to drive down costs and move faster?

• 9:04Speaker 01

  Yeah, I mean, I think like many things, we can look to Elon for a lot of answers here. I mean, it's not a crazy statement to say really the few modern day companies that have built anything at scale are probably SpaceX and Tesla. And if you look at how Elon and his team have built those businesses, it's been one very vertically integrated. And look, I take the ideology that you shouldn't vertically integrate everything. I mean, again, if you're building a super exquisite system, like a missile that is doing something very unique, you kind of have to, because you have to control the exquisiteness, you have to control the cost.

• 9:34Speaker 00

  Well, I mean SpaceX and Tesla were doing first of their kind, like there didn't exist industrial base in the US to support them. And so they had to build it themselves. I think where there are high quality suppliers, like you should use.

• 9:45Speaker 01

  For sure.

• 9:46Speaker 00

  Suppliers.

• 9:46Speaker 01

  Yeah. Yeah, I mean, again, I think the learning though is number one, if you don't have an industrial base that you can rely on quickly, reliably, et cetera, then you have to do it yourself. And inherently that is a hard journey, like that's really hard to do. This concept of saying, okay, I'm going to focus on the end system. I'm going to focus on building the most cost effective, effective system that I can. And oh, by the way, I gotta go figure out the ball bearing, I gotta go figure out the solenoid valve. Like, that's a lot to do. And in the case of, you know, Tesla and SpaceX, I would argue that the auto industry was a little bit different because there was a, but there wasn't a battery supply chain. You know, Elon had to recreate that.

• 10:21Speaker 00

  Well, the whole, the whole power electronics, the whole drivetrain, you know, they had to really build completely from scratch. Based off papers that were published in the seventies that, you know, had been collecting dust for, for 40 years. In terms of companies that we talk about in the AD portfolio, there's Mariana Minerals, which bought a copper mine and is kind of reinventing things. And, and would they be a good example to, to talk about here? I think that they, they recognize that the, you know, the, the existing players in the mining industry just were not going to pick, pick up technology fast enough for it to really make a difference and really move the needle. That, and they also recognize that they wanted to actually own the entire value chain, to be able to really put their money where their mouth was

• 11:07Speaker 00

  and capture the end value of the new technology they were bringing. So yeah, they do everything from, you know, acquiring the asset, developing the asset, mining the asset, operating the asset and refining the material themselves across multiple different, multiple different minerals. And then they sell a final commodity product in the market and have really leaned in. That's another trend I would point to is how much founders and entrepreneurs building in these spaces are leaning into AI and software is a huge, huge component of their build.

• 11:37Speaker 01

  Yeah, I mean, I, I think when you look at the physical world, applying software and AI will look different than what has happened in, say, legal or customer service or any other category where you see AI taking off in a, in a crazy way today. But, but to Aaron's point, like many times what you have to do is you have to own the asset in order really to change that asset. Not every time, but a lot of times, you know, kind of showing is believing in the physical world. Whereas, you know, when you, when you're purely a digital AI product, you can kind of just see it and it's very easily transferable and kind of understanding. You know, what Mariana is doing with this copper mine is, is really impressive in a lot of ways. It's not just saying, hey, we're going to be better at extracting copper, it's, it's rethinking everything.

• 12:17Speaker 00

  The entire end to end process of how you plan, operate, mine and refine materials. And you know, what's cool is once you, once you own that process end to end and are using software at every stage of that journey, you actually capture that data and then it feeds back.

• 12:35Speaker 01

  And this is, this is an important point. I mean, this is not just Mariana, but if you look at another business like Hadrian, I mean, this is a perfect example of how, one, you can utilize software, you know, but, but more importantly, it's not one silver bullet that all of a sudden makes a factory or a mine perfect. It's actually 15 or 20 different things. And when you look at what Chris has done at Hadrian, you know, yes, it's kind of upfront what it takes to like quote and even take an order of a part. It's, you know, it is the actual physical, you know, making of the part. It's how you, you know, inspect it and transfer it. And, and you know, there's, there's all these different interim steps that exist within a factory. And the beautiful thing, when you kind of either start from a, you know, a, a fresh slate like Chris has and building his factories,

• 13:17Speaker 01

  or in Mariana's case, when you kind of own the thing and take it over, you can look at every single node from a first principles perspective and say, hey, was this process that's been done the last hundred years, the right process? And that's what's happening across every layer of the physical world right now. It's not just mines, it's not just factories. I mean, again, it exists in many different permutations. And, and you know, my personal belief, and we see this in a lot of our portfolio companies is, look, AI will be a phenomenal tool that can be used in the physical world. The reality is AI cannot turn a wrench yet. It will at some point, but we're, we're far off that, you know, again, we can maybe have discussion about the, you know, robotic models and autonomy that, that we see.

• 13:57Speaker 00

  We're getting closer.

• 13:58Speaker 01

  We're getting, we're getting closer. I just think that the nuance here and, and the portfolio companies, many that are on this list, or many, many non portfolio companies on this list, that they understand that, um, what the, the physical world is not about just putting a silver bullet forward, like I said, that some, you know, shiny AI product. It's, it's, it's deep understanding of what a process looks like, you know, physically, how to like, you know, manipulate the, the process or how to, you know, you know, change something that's happening in the world is just going to look different based off.

• 14:26Speaker 00

  Well, maybe like a, a specific example or to talk through is like, um, like low mix, high volume versus high mix, low volume. And how, how AI can kind of change, change the game there. So, you know, historically, like if you're spending a lot and setting up a line with a lot of automation, you really need to produce, be producing like a lot of one single thing. And that's how you get the cost down and that's how you justify the cost of invest, investing in, you know, a pretty bespoke manufacturing line. In the US, we do a lot of low mix, high volume manufacturing, which is very hard to automate because it's very expensive when you have to change the line all the time.

• 15:06Speaker 00

  But what we're seeing across our portfolio is that manufacturing technicians themselves are, have this, have the intuition and now have the software tools to be able to, to, to change the economics of what it looks like to produce low volume, high mix on the line. So you can have, you know, a manufacturing technician, this is not someone with a college degree, this is not someone, maybe they are, but like not necessarily, who's like studied software engineering, is now able to use these tools to reprogram and reconfigure their manufacturing lines on the fly, using the fact that they understand the manufacturing process and they know how to do what they're doing in the physical world. They now suddenly have all these tools so they can, you know, you can retool a line instead of having to call a system and, system integrator.

• 15:49Speaker 00

  You know, and it takes three months and hundreds of thousands of dollars to kind of reconfigure a line for a new setup. You can have a manufacturing engineer use Claude and do that in, you know, 20 minutes. And so that's been a real game changer across lots of companies that we've seen in this space.

• 16:03Speaker 01

  And, and why that's important is, you know, when you look back at, at how we've articulated AD 50 this year, uh, you know, it's, it's, you know, kind of three categories. And a lot of times what we focus on, at least, you know, I have and, and many people in the, in the sector are focused on is just the systems companies. And look, there's a lot of really interesting systems companies. I mean, Andrel, Serrano, Castillan, I mean, you know, the list goes on and on of who's building really good end systems. But the problem is, is if you can't, you know, iterate on that, on the design and iterate on that prototype, you don't not only not get to an end system that is like, you know, different, better, but you also just move at a slower pace. So then what happens is by the time you finally fix a production level, you know, missile or plane or kind of whatever,

• 16:47Speaker 01

  then all of a sudden, then you gotta, you know, go back and rejigger and build up all these kind of, you know, subsystems in order to meet the scale. But if you have, you know, a more transferable line, a more adjustable line, number one, you can also build the prototype faster. But then two, you can then, you know, set up each one of these different components in a way where it actually can get to rate production quicker.

• 17:05Speaker 00

  Yeah, you're, you're designing for, you're designing for manufacturer on the outset.

• 17:08Speaker 01

  Exactly, exactly. And that, that is, again, I, I keep going back to learnings from, you know, Tesla and SpaceX. In a lot of ways, they, they, they had to make those choices because they didn't have any other opportunity. But in the end, it's actually just that mantra of design for manufacturing that now exists within all these systems companies. And to some extent, like we are now in the age of now seeing them produce. I mean, again, like go look at what Andrel's built in, you know, in, in Ohio and, and now on the East Coast in, in Baltimore. You know, go look at what, uh, you know, Serrano has built with the shipper. I mean, these are massive.

• 17:41Speaker 00

  Yeah.

• 17:41Speaker 01

  Huge facilities that are at some point, you know, in a very soon, soon timeline, going to be producing thousands, tens of thousands, hopefully hundreds of thousands of systems. We haven't done that in America in a long time.

• 17:52Speaker 00

  Yeah, this is no longer an on paper theoretical exercise. This is happening in, in, in the real world and, and real stuff is coming off the lines. Something that I think is, uh, like special about AD founders is they make any problem an Elon sized problem. And, and I'd love to, I'd love to hear sort of that applied to the different industries that we're talking about here.

• 18:18Speaker 01

  Yeah, I mean, I think when you look at defense specifically, this has actually been one of the most historically hard, you know, sectors to just build the thing that you think the government needs. Because unfortunately, and again, you know, I, I experienced this in my past, you know, when I served in the army, you know, the buyer is not the user and the buyer and the appropriator of the dollars for the buyer is completely removed. So you have all these like disjointed decision makers or groups that matter. And so what happens is, you know, companies, you know, back then, we didn't really have neo primes or AD companies to serve. But what you had is you had primes would just sit there and listen, like, tell me what you want, I'll develop the thing after you give me the money. And, you know, the age old problem is, you get a system that's like, actually not, you

• 19:01Speaker 01

  know, technology forward, you get a system that was developed for 10 years ago. And then, you know, the end soldier gets something that actually is not super valuable to them. What's different now, back to the like, you know, you can think through an Elon problem now, is you can say, okay, what does the military actually need? And, and the beautiful thing is, you know, venture capital and what we do in American dynamism, but also, you know, the, the rest of the capital markets is saying, we will actually fund that in advance. And you can build in advance of the government saying, here's the thing for you to build. And, and the outcome of that is, the soldier gets a better product, gets something that actually fundamentally changes the battlefield and, you know, helps with deterrence or security or safety. And then, more importantly, you get a timeframe of

• 19:41Speaker 01

  a type of system that is actually built, you know, aligned with the requirement of the market and what technology can do today. So it just, it's, it's a fundamentally different way of like, instead of sitting and waiting for the government to tell you what they want, the government signals and you see it and you build in advance by using private capital. And that just has not happened in the history of defense. So you can build, you know, like Castilian, building a hypersonic missile that does a, you know, a, a, not a super exquisite thing, but it's really hard to build a missile that goes that fast and is reliable. And, you know, the government, you know, now has given them contracts and kind of, you know, showed up and, and bought missiles. But if you go look at the last three years of that business, I mean, it was private venture capital. It was, you know, entrepreneurs

• 20:25Speaker 01

  like taking the risk and building the thing in advance. I think if you see that again and again in defense, you're just going to get better products. And fundamentally, like, you know, you'll have the neo primes and the new companies start to take a lot of that market share. But it's not just a defense thing. I mean, Aaron sees it in energy as well. I mean, we're rewriting our entire energy grid right now. And we're, again, like, Aaron would know better than I would, but like, we are in, on the one yard line. We are just starting that process.

• 20:52Speaker 00

  I, I think, you know, another part of it is, is a little, a little more intangible, but like, these are really hard companies to build. These are really, really hard problems to solve. You know, when I talked to Turner, who's the CEO of Mariana Minerals, and, you know, he's flying all, he's flying to the middle of nowhere places all over the world to build his company. He's like, out where there's no cell phone signal, where there's no electricity, you know, touching dirt, you know, spending like, weeks and months away from his family. Like, it has to be worth it. You're building a physical thing, you're not sitting at a desk on your computer, you're out in the world. It sounds kind of

• 21:35Speaker 00

  sexy and romantic, but when you're actually doing it, like, it's rough. The travel is really hard, the people you're engaging with, you know, you're not talking to, you're calling up your suppliers. These are not like other startups who operate in the same kind of time scale and culture as you. These are like, really tough people to negotiate with and work with who, you know, have a very different culture. And if you're going to be putting yourself through that, like, it better be damn worth it. And so I think people, people really gravitate towards these problems that feel huge and enormous, because they're, you know, these are real missionary founders that we see building in this space.

• 22:16Speaker 00

  Even as, even as it's kind of heated up and there's more capital and it's gotten cool, it's still brutal.

• 22:22Speaker 01

  I, I think the biggest thing that has changed in American dynamism land in the last few years, is we always knew that the companies being built in this category were really important to the fabric of America. I mean, again, like, when we talk about defense systems, when we talk about energy, I mean, when we talk about building, you know, manufacturing widgets that go into everything in the, like, that stuff's really important. Like, it affects our safety, it affects how we live our life. But the biggest change is, those companies weren't just the most important thing to us, now they can be the most valuable companies. And that's like a big distinction that, that has happened, which is, you know, it's not just like, you know, solving a problem for safety or security, it's solving a problem for safety and security. And oh, by the way, those can be some of the largest companies that exist in the world. And that's what technology has changed in these industries.

• 23:07Speaker 01

  I mean, mining has always been a big, big industry. Defense has always been.

• 23:11Speaker 00

  But it hasn't been economically worth it for a young, smart person, you know, who has a lot of ambition to go after these categories. But I think companies like Palantir, Anduril, SpaceX have proved that you can build a really big business, operating in, in these categories. And if you, I mean, if you look at the, you know, the top 10 most valuable companies in the world like that, right now, like, the majority of them are hardware companies. They're building a physical product. You know, we've kind of come full circle. And so, you, you get the most ambitious founders of our generation who, who, you know, who want to run towards that hard problem and know it's going to be worth it.

• 23:45Speaker 01

  And, and the beautiful thing about many of these industries, like mining, or, you know, Rio Tinto has been around for a long time. I mean, Boeing's been around for like, you know, good companies that are building good products. But I think when you take this, you know, first of all, like a first principles technology approach about like, what the audacious thing that needs to be built is. And then, two, you get entrepreneurs, like these, these folks that, that are on this, this 80 50 list.

• 24:06Speaker 00

  Who are like, yeah, I'm going to rebuild the American energy grid. That sounds, that sounds fun.

• 24:10Speaker 01

  And you just, that, that, that didn't exist 50 years ago. That didn't exist five years ago. I mean, it is something that is fundamentally, you know, our, America's, you know, best and brightest are building towards this category for the first time. And then importantly, like Aaron said, like, the opportunity is there. You see these examples of these companies that have redefined space launch, that have redefined, you know, kind of military systems, have redefined, you know, all, all these, these categories of American dynamism that we care about. And yeah, I think it's exciting. I mean, you know, as, as, again, as someone who served in the military, you always think of, you know, like, what you do is something greater than yourself. I mean, look, like, the capital markets exist to, you know, make money. Like, it's, we're, we're not a charity. This is a capitalist society. But in the end, a lot of the companies on this 80 50 list are

• 24:53Speaker 01

  doing something that is both going to be large and valuable, but also going to be really inherently important to the fabric of America. And that's, that's pretty exciting.

• 25:01Speaker 00

  What's it, what's it like to, to visit one of these sites, like a manufacturing site, or a mining site, or, you know, drone manufacturers, those kinds of sites? I mean, Connor and I have the best job of all time. I did have to, I, I did, I do own steel toed boots now, because the number of, the number of site visits I've been to with portfolio companies, where you're, where they're like, yeah, you gotta show up and steal those boots. Yeah.

• 25:25Speaker 01

  I mean, it's not all sexy, to be honest. I mean, again, these are, these are locations that are, you know, a lot of times

• 25:32Speaker 00

  Hard to get to.

• 25:32Speaker 01

  Hard to get to, in the middle of nowhere. And in the end, like, we're talking about real, physical things that require, you know, earth moving. Like, I used to have, at my time in the military, I used to have this, this kind of senior officer who would always tell me, like, the physical world doesn't care about you, so just be careful in the physical world. Like, you know, these are, you know, moving, you know, tons of dirt and, you know, massive, you know, these factories being built out, you know, with Hadrian or, or what Amco will do. I mean, these things are huge. And, and it's impressive. You know, my, one of my favorite things is, maybe you don't see this at the remote sites, maybe you do, but, uh, it's this, uh, kind of running, uh, competition between these companies who can have the bigger American flag at their site. I actually don't know who currently

• 26:17Speaker 01

  holds that today. I mean, Hadrian's was pretty big last time I saw.

• 26:20Speaker 00

  I think Valorous is pretty big.

• 26:22Speaker 01

  Is Valorous big too? Okay, good. Yeah, yeah, yeah. And like, again, I mean, that's, that's awesome. Like, the, the fact that you have that type of, like, one passion for, for something greater than just the, the product or the economic opportunity that you're building. I mean, again, it, it drives purpose behind a lot of these teams. When you show up at, you know, Mariana, when you show up at Hadrian, when you show up at Castilian, like, you, you literally get people who are so passionate about what they're doing. And, and, you know, that produces really good results. When you have to do something really hard in the physical world, if you have people that are willing to run through walls, sometimes literally to solve that problem, you're just, you know, you get really audacious great outcomes.

• 27:00Speaker 00

  One of my favorite things to do, you know, is, uh, visit the same company sort of multiple times within a 12 month period, whether they're in the portfolio or not. Because you learn a lot by how fast a factory build out happens. And so, you know, that, that's one thing we do, is like, we, you know, you don't just go once, you go once, and then you go three months later, you go three months later, and you go three months later. And like, I'm not, I'm not a manufacturing expert. I spent enough time on the factory floor, on the factory floor between my time at Palantir and now doing this job. You know, I like, sort of know what some of the machines are and kind of like, how a line roughly works. But like, there's just something about seeing stuff accumulate in a factory. And it goes from, the process of watching something go from like, empty warehouse with

• 27:42Speaker 00

  epoxy floors, and the big American flag, and maybe like, a couple of pallets, and the founder's just really excited to show you their forklift that they built. And they're kind of like, you know, they're, they have the basketball hoop set up, or like, the gym set up in the corner, to like, you know, fast forward six months. And it's just, you know, they're freaking out about how to expand. They're like, oh, we need to get, you know, the, the city out to, to give us more power, because we have too many machines plugged in. It's like, kind of chaos. There's technicians and operators everywhere, people building stuff. That's really satisfying and, and really fun. And something I think we're lucky to get to see, that journey and, and how quickly that can happen. Has anyone ever done like a time lapse of? Oh, there's a lot. It's a whole, that's a whole like category of filmmaking. Nice.

• 28:24Speaker 00

  And everyone kind of compares theirs and it's like a, you know, a bit of a.

• 28:29Speaker 01

  I do, I do like the gym thing. I remember when I, when I first visited many years ago, Isaiah and the Gundo, he made me do a rap on his.

• 28:38Speaker 00

  Yeah, they all, they all have like, they all, they all have their bench press set up.

• 28:42Speaker 01

  Which is cool.

• 28:43Speaker 00

  Is, is there a like a contagion effect to things being made in America where it's like, oh, because that actuator is made here? Now we can make this and now we can make that. And sort of when you're able to compress one timeline, you can compress multiple timelines?

• 29:00Speaker 01

  I don't even think it's just timeline. I also think it's cost.

• 29:02Speaker 00

  And quality.

• 29:03Speaker 01

  And quality. I mean, it's interesting because when we look at defense autonomous systems in particular, like what Sironic's making a lot of boats, Covenant's making a lot of missiles, Castilians making a lot of missiles, you know, Andro's making a lot of things. Like when you build many systems, you also require many subsystems below that. And, you know, again, like there are really interesting military systems being built today. The, the corollary though, back to the comment we had earlier is like, you know, by building towards defense, you also build for a different industry. We actually don't have a lot of humanoids or robotics that exists in the world today. I mean, there are thousands, maybe. I don't know the exact number. But when you think about the, the subsystems that go into some of our military systems, it's the exact same subsystems that are going to go into the future robotic systems.

• 29:46Speaker 01

  It's the actuators, like it's the motors, it's the, you know, you know, valves and switches and those type of things. And I think when you can build those to quality and to cost, then all of a sudden you make other markets that maybe weren't viable or real. All of a sudden makes sense. And again, I think that's going to happen in the robotics world, which is, you know, we're going to spend all this time onshoring development of all those subcomponents. We're going to build for a lot of these military systems, which is good. We need it for our security and safety and deterrence. But then all of a sudden you're going to have this, you know, kind of robotic wave that will come in America. I said it, you know, AI can't turn a wrench yet. They can, they will eventually. And that will be enabled by all that, you know, actuators and switches and subsystems that we built. It's going to serve a different market and it's going to make it financially viable.

• 30:31Speaker 01

  And we're not going to have to rely on factories in China. And, and again, I think that is, that is net good because, you know, as you build an industrial base, an industrial base can be used for many things and, you know, down to the component level. You know, I, I just think we don't have enough of it in America and it, it's a, it's a decision. Like you talk to a robotics company today that wants to build, you know, some robotic deployment. There's a 99% chance that majority of what they are buying is coming from China in some way, shape or form.

• 30:58Speaker 00

  They, for many reasons, not just geopolitical, want to onshore that purchasing for quality, cost, speed of iteration.

• 31:08Speaker 00

  Yeah. And geopolitical reasons. I think like one thing, it, you know, it's really over the last three years, even just it's remarkable how much of a supplier ecosystem has developed. Like one of the companies in our portfolio, it's three years ago, would order two times the number of PCB boards, PCBs that they needed, because they assumed that they would have to throw 50% of them away for quality issues. They would get the batch from their supplier, they would do the testing and 50% of them wouldn't pass a quality test. You know, then startups have emerged in this category and are like, we're going to fix this problem. We're going to use, you know, software and modern technology to, you know, redo the way PCBs are manufactured in the US.

• 31:53Speaker 00

  We're going to do it faster. We're going to do it cheaper. And guess what? We're going to do it better. And, you know, that now that same company buys, you know, PCBs from new suppliers and, you know, they're keeping 70, 80, 90% passing quality tests. So it's, I think like we underestimate how much the, you know, close co-location and co-development of some of this technology with the end customer and their suppliers really matters to, to drive quality higher.

• 32:20Speaker 01

  So something really interesting is happening, I, I believe in the industrial base. Like we talked about earlier, you get this top-down demand signal from these new systems companies. Like we're building new military systems, but oh, by the way, like, you know, Joby and Archer, we're building new planes too. Like we're building new end systems. That is a fact. Like cars are, are being built different. Planes are being built, military systems are being built different. When you build these new systems, inherently the inputs of those systems need to change as well. And when you look at the industrial base in America today, like historically, if you go look at how Boeing makes a 737, you know, Boeing's a great company, important to the fabric of America. But they just pick up the phone and they call Honeywell and Honeywell helps them kind of build all the different subcomponents. And it's not Honeywell's fault, but what Honeywell does is they say,

• 33:04Speaker 01

  I don't want to build a new landing gear again. We have this landing gear that meets the spec and does the thing. So let's just keep going and doing that same thing again. Again, again, it's rational. Like, you know, they're going to build more 737s. They're going to get paid the same way if it's a 450 year old landing gear or if it's a new landing gear. The problem though, is when you keep iterating on these new requirements for end systems, at some point, the 50-year-old subsystem just doesn't work. And maybe it, it physically works in, in terms of meets the requirements, but it's been designed and it's been developed in a way that inherently, you know, we haven't innovated on it. And, and, and why does that matter? It's because, you know, we've developed new materials. Like yes, physics hasn't changed, but, but the inputs to the physics and the inputs to that design has changed.

• 33:50Speaker 01

  So I think what's happening or what with the opportunity for a lot of these manufacturing companies is to do what I call co-engineering. And, you know, we talked about, you know, the long tail of these like sub-tier, you know, suppliers. They, they've been in receive mode for the last 40 years. Honeywell's picked up the phone and they've said, hey, I need another landing gear. Go make that landing gear. And they've executed on the specs with that IP and building it. When you want a new requirement, that middle layer cannot, you know, think on behalf of Honeywell and change the requirement because again, they're not in the position to do it. But I think what's going to happen in the future is you're going to have this middle layer of supply companies

• 34:30Speaker 01

  that, you know, will effectively be co-engineers with the NOEM of rethinking not just what the end system can do by way of speed or kind of, you know, a weight or mass, but the individual subcomponents will be rethought, will be re-engineered and will be rebuilt. And so, you know, the end system will change from a top level, the, the, the individual parts and components will change. And, and I think that just hasn't happened in the last 40 or 50 years. So you're going to see a completely new wave of what I believe like will be called like the manufacturing middle that will be, you know, co-engineering and pushing design and development upward in the supply chain

• 35:11Speaker 01

  as opposed to just being in receive mode and saying, okay, I can build the same thing I built 40 years from now. And I just, I, I think that's an opportunity. I mean, I defined it, you know, previously as like, we're creating the American manufacturing asset class right now. I mean, you know, private equity has been playing in this ecosystem for a long time and looking at an asset and buying it and improving the cost and, you know, selling it off again. That's not fundamentally changing the things that we build. Right now, companies will change the, the, the different things that we'll build.

• 35:40Speaker 00

  A good example of this is kind of the, on the, on the grid. And when you think about sort of like the electronic stack. And we're about to go through a huge step change in how we manage and transfer power on the grid. Moving from a system of sort of static and mechanical systems that were deployed in large scale across the US in like the seventies and eighties to now sort of modern power electronics, battery storage architectures, which are much more software native and flexible. And, you know, that is just, when you have such a complete step change in technology, where the technology that's replacing the previous thing is just completely different. You have this opportunity to rethink the entire supply chain behind that and the way all of that design and engineering work happens.

• 36:25Speaker 01

  And in the energy world, it's the same thing that's happening in the defense or the, the commercial systems world, which is you have this massive amount of demand for, you know, data centers and, you know, new factories and new build. When you get this top-down level, you have the ability to innovate like Aaron's talking about and rethink the entire architecture and look like.

• 36:42Speaker 00

  Because it's a completely new architecture.

• 36:44Speaker 01

  Exactly.

• 36:44Speaker 00

  So, you know, you can't rely on these components that worked in the previous world to just reconfigure. Like you actually have the opportunity to rethink that from the ground up.

• 36:53Speaker 01

  And another important point here is like, you know, you can be pessimistic and you can say, okay, Connor, all these new military or end systems, like not all of them are going to be adopted. So like that, that top-down demand or, or, or Aaron, like we're not actually going to increase energy by four times. Like there's not going to be that much demand. I actually don't think it matters because I think once you start the snowball of the demand cycle moving in one way, even if you deliver half of that, you know, requirement.

• 37:21Speaker 00

  You're not going back.

• 37:21Speaker 01

  You're not going back. And it doesn't make financial sense. And again, it's, it's like when you rethink something first principles and you make the like new design, new engineering decision, and a lot of times that comes with better costs, better efficiency. You're just going to buy that thing now going forward.

• 37:35Speaker 00

  Better serviceability, easier to manufacture. Yeah.

• 37:39Speaker 00

  Yeah, you're never going back. I'm curious kind of what you're seeing in terms of founders being second generation Anduril or second generation Palantir or something like that. And maybe they they see some of these learnings and they see the opportunity to be the middle layer supplier in some something that has never been touched since, you know, decades ago. And kind of like, what what are you seeing in terms of, you know, those opportunities and those kinds of founders? Yeah, for sure. I mean, if you you get a great way to light a fire under an entrepreneur is for them to be banging their head against the wall on a sort of engineering or supply chain problem where they are. And then they're, you know, they're like, well, okay, I really care about this.

• 38:24Speaker 00

  This is a pain in my ass. I know it's I know it's bothering other people. I know it's a problem that I don't just have here at Anduril or SpaceX or Tesla is a problem more broadly. I'm going to go solve that more generally. And the kind of lineage of founders that have sort of lived and breathed this on the manufacturing floor, and not just founders, but even engineering teams who are like, I saw this problem, I solved this, you know, within Anduril or Sironic or whatever, and I'm going to actually like go out and build this as a company. And then I'm going to, you know, I know that everyone in the ecosystem, so I have, you know, automatic access to a customer base that's captive. Yeah. You know, we certainly see that trend happening. And, you know, this is how ecosystems get built. Like, people make fun of Y C for all Y C companies kind of selling to each other.

• 39:08Speaker 00

  But like, that's how it works because you have, you know, it's it's your friends, they're tolerant, they're understanding, they're willing to like work with you and help you and, you know, put up with something breaking because they're working on their own really, really hard problem. And if, you know, the thing you're doing is not the most existential thing to them, they're like very willing to outsource it to you. That's beautiful. That's how Silicon Valley was built. And what's really like, what makes me really optimistic is the extent to which we're starting to see that in these kind of physical world ecosystems and supply chains.

• 39:36Speaker 01

  Yeah, I think that the few companies you mentioned, you know, the SpaceX's, the Palantirs, well, they weren't overnight successes. Like, those companies took a long time to get to both the product scale and just the size and success of the company that they're at.

• 39:50Speaker 00

  Overnight successes that took 20 years.

• 39:52Speaker 01

  Exactly. And I think the the learning point, and, you know, we invest in a lot of the entrepreneurs on this list, like, come from those ecosystems, is you just learn this relentless focus to do the one thing as well as you can, you know, down a path until you've succeeded. And like, you know, I've seen this with with the Castilian guys, for example, it's like, they focused for two and a half, three years on the first hypersonic missile that was really hard to build. And, you know, other people showed up, oh, be multi-product, go build this small drone here. And they're like, no, we need to do this one thing really well. And I think, you know, that comes from the fabric of SpaceX. Like, at SpaceX, the concept of being a responsible engineer and like, if this thing doesn't work, like, it's my ass, I'm going to make sure, like, I'm going to obsess over this thing and again and again. Like, that's what it takes to build really hard things.

• 40:37Speaker 01

  And again, like, you know, there will be different, you know, derivations of of success. Not everyone will think just like the SpaceX mindset. But if you look at a lot of these businesses like that, you know, in the physical world, you kind of need to do that to build something really hard.

• 40:50Speaker 00

  And but what what you do in doing that is you learn, you know, you learn that process knowledge, you learn how to do it. And so thing two, thing three, thing four are a lot easier. You've developed a supply chain, you have your relationships, you've developed manufacturing for or designed for manufacturer processes, you know, you've learned how to build a factory to a high quality, high spec, you've learned how to build that trust with customers. And so if you can do that one thing really well, that sets you up to do other things really well, but it doesn't work unless you deliver on that, on that one core thing. So we talk a lot about competition, China. What does the United States do uniquely when it comes to our capital markets that that really enables these startups?

• 41:31Speaker 01

  Well, I think this may arguably is one of, I mean, Brian Schimpf was talking about it, the founder of Anduril, you know, a couple of days ago, which is this concept that, you know, we have literally trillions of dollars of private capital in our capital markets that inherently follow, you know, success, follow both technology success and and, you know, to some extent, like, production success as well. And I think if you look at the United States, number one, like, we do not have a top-down directed, you know, industrial policy that says the state will put this amount of money in this. And I think to some extent, that's a good thing because the money will follow the entrepreneur, the money will follow the success. I think that the distinction, though, we've kind of always had a good capital markets in the United States. I think the distinction is the capital markets all of a sudden have said, you know what?

• 42:16Speaker 01

  The category of A D is really interesting. And, and, you know, Aaron and I, you know, have been living and breathing this for a long time. But if you go look, you know, not just up and down, you know, Silicon Valley and Sandhill Road, but if you go to, you know, the major banks, I mean, J P Morgan has committed, you know, trillions of dollars towards, you know, both investing in the physical world, not just defense, but factories and other things in the physical world. And you see that again and again and again across not just our our venture capital firms, but, you know, private equity now is is starting to play in this category in a big way.

• 42:45Speaker 00

  Big credit firms.

• 42:46Speaker 01

  Big credit firms. And that's so important because, you know, the the reality is, many of these companies in the A D world, they require a lot of capital. When you build physical systems, when you build a Falcon nine rocket, or when you build a C C A and you build the Blackbird missile, those are expensive inherently to build up those lines and build that physical system. So I think part of this is, you know, the capital markets, you know, speak with, you know, where the success happens. And the reality is, is it's the capital markets are not top-down driven by our government, unlike China's. And what that allows is that allows us to be far more flexible, you know, again, to follow success, like I said, and then more importantly, to fund things in advance of it being obvious.

• 43:27Speaker 01

  And we talked about that earlier, the concept of building in advance of the requirement they need. You know, maybe we're a little bit late on the energy side, maybe we're a little bit late on on some of the defense systems. But look, the capital markets have woken up and we're putting hundreds of billions of dollars, if not trillions of dollars, you know, you know, towards this category for the next, you know, 10 plus years.

• 43:46Speaker 00

  Yeah, I mean, if you look at just the first half of 2026, more more risk dollars went into the defense ecosystem than all of last year combined, which was many times what went into the defense ecosystem in all of the previous year combined. And I think historically, there's, you know, in defense specifically, for example, there's been, you know, a narrative around the valley of death and like, how do you get the government contract to like propel you through this period of needing to build out CapEx? And and what's really exciting is that almost that that's that's starting to disappear with the support of of capital markets and of risk and of risk capital. And that's certainly extending even beyond the defense ecosystem to energy and robotics

• 44:30Speaker 00

  and critical minerals and some of these other sectors that are really important, which is super, super exciting to see. Yeah. I had one question, I'm not sure if it's too much of a tangent, though, just there's that very famous chart of like, U S power production versus like China, new new power, new energy production, like, America's line is like basically flat and China's is, you know, up and to the right. Like, like, I guess some question around, like, like, what would it take to close that gap or how how fast can we build new power? Yeah, I don't think that is, I don't think that that is a technology problem.

• 45:12Speaker 00

  I think that that's a, we need to do some soul searching about our will as an American people. And do we want conforming projects to be built? Do we want to grow? And if we do, I think the the technology and the capital will follow.

• 45:27Speaker 01

  Yeah. And it's funny because, you know, this is not just an energy problem, it's, you know, it's

• 45:33Speaker 00

  It's an everything problem.

• 45:34Speaker 01

  It's an everything problem. And and and look, I, you know, we're we're optimists inherently. I do think that snowball has started to roll. I think the question is, you know, back to our discussion on capital markets earlier, will there be emergent winners in these categories that then fuels more capital to flow into the ecosystem? And, you know, it's this kind of self fulfilling prophecy that happens, like, you know, yeah, if you build it, you know, that, you know, they will come. But at some point, there needs to be a pot at the end of the rainbow. And if there is for a few companies, I think, you know, one, capital will flow, like I mentioned. But but I think the last thing I'll say just real briefly is, anything in the physical world takes time. You know, we, you know, to set up a factory, you know, at a scale where really you either

• 46:16Speaker 01

  affect our our power generation, or you affect our military systems, or you name it, you can't take a couple of engineers, you know, throw them in front of a couple of servers and computer screens and come up with an answer. I mean, it's moving dirt. It is physically understanding a supply chain, like, these things take years. And so, you know, there's a little bit of patience that we need to have in the capital market side. But again, I think I'm optimistic. I think it's happening. And, you know, to some extent, like, it's ours to lose. Like, it's ours as a government and a nation to mess up and to get in the way of this. And that's a risk, don't get me wrong, but.

• 46:48Speaker 00

  I do think it's, I do think it's another, will be another long-term benefit of capital markets, even if it's short-term painful, just people need to feel, I mean, you mentioned that these are physical things, they take time. They're also physical things in that they have a physical manifestation to those people and communities that live around them. And the most important thing is that, you know, American society at large feels like they're participating in the economic growth that's coming as a result of this development. Software, you know, was sort of like, had this ability to be sort of siloed because it really existed in just a few cities. It was kind of this virtual thing. You sort of experienced it in the way that your your interaction with digital services got better, a lot better over the last 20 years.

• 47:33Speaker 00

  But, you know, it was a little bit more, it was a little bit more abstract. Physical world, like, someone's building a data center, a power plant, a mine in your backyard, and you need to, you know, you have a say and you have a stake in that, you physically see it, it affects your life. And if you don't feel like you have participation in that economic upside, it's hard. I do think that this is one thing that the capital markets long-term will solve really well, because companies will figure out how to bring communities along for the journey and make it financially and economically worth it.

• 48:02Speaker 01

  And I think there are some good examples of that, a few companies on the A D 50 list who like, you know, build real things in their communities and show up the right way. There are also bad examples that have existed in the last, you know, few years. I mean, if you look at what Amca does, like, they show up to these, these really small machine shops that exist, they partner with them, you know, they don't, they don't, you know, cut the management and fire people. They say, how can we build new products and grow the kind of, you know, business that you have today? And it's that type of, you know, concept of working with communities as opposed to working against them that I think we still need to, you know, wrestle with a little bit in in the tech world and understand that just because we sit in Silicon Valley, I mean, we don't understand everything that's happening in the world.

• 48:44Speaker 01

  And, you know, fundamentally, I think a lot of these A D companies will build stuff that that touches middle America. I mean, it will physically exist in middle America. And, you know, I think that's net good. I think that means more jobs, more prosperity. I think that means more energy and abundance world where, you know, we have a safer America and

• 49:02Speaker 00

  Less concentration of wealth in these pockets, in these elite pockets on the coasts. It's a good thing.

• 49:07Speaker 01

  Yeah.

• 49:08Speaker 00

  But it will take time. Well, Aaron, Connor, thank you so much for joining, and everyone can check out the A D 50 list today.

• 49:15Speaker 01

  Awesome, thanks.

• 49:16Speaker 00

  Awesome, thanks so much.

• 49:20Erik Torenberg?

  Thanks for listening to this episode of the A 16 Z podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review, and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify. Follow us on X at A 16 Z and subscribe to our Substack at A 16 Z dot Substack dot com. Thanks again for listening, and I'll see you in the next episode.

• 49:45Erik Torenberg?

  As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A 16 Z fund. Please note that A 16 Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A 16 Z dot com forward slash disclosures.