Ex-Army Soldier & Defence Investor Steve Baxter on how War has changed forever

Steve Baxter is a former Shark Tank investor, ex-Army guided weapons technician, and founder of Beaten Zone Venture Partners, a fund backing Australian defence startups and pushing them into the US market where the real money is. In this conversation, Steve takes us from growing up in outback Queensland and joining the army at 15, through building and selling one of Australia's biggest dial-up internet providers, to why he believes private capital — not government grants — is the key to Australia's sovereign defence capability. We get into cardboard drones that took out Russian aircraft in Kursk, robot dogs armed for the battlefield, a hypersonic aircraft built in Brisbane, and why 83% of Australia's super funds won't touch defence investment because of ESG. Steve also gives his blunt take on the Iran war, why he thinks deterrence beats conflict every time, and what he'd say to anyone about investing in the business of war. Subscribe to the Mentored newsletter here: https://the-mentored-platform-pty-ltd.myklpages.com/l/WWJGc5 Join my exclusive Mentored+ community: https://mentored.com.au/become-a-member/ See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

• 0:00Speaker 00

  Steve Baxter, welcome to Straight Talk, mate.

• 0:01Speaker 01

  Thanks for having me, Mike.

• 0:02Speaker 00

  So me asking you on the show was actually come off the back of you and I having a really interesting conversation, oh, maybe a month ago, a few weeks ago anyway, now about the defence sector. And all that encapsulates lots of things, investors, technology, you know, defence capabilities, asking all the big questions about Australia and the rest of the world. But before I get into that, I wouldn't mind just having a little bit of a dig into your background, like as to you growing up, et cetera, you know, where you grew up and what type person, because I noticed in the brief, you spent a bit of time growing up with a guy called Bevan Slattery, who's a mate of mine.

• 0:39Speaker 01

  Very nice.

• 0:39Speaker 00

  And similar sort of entrepreneurial flair as you, Bevan, he does.

• 0:44Speaker 01

  We went to school together, mums were best friends.

• 0:46Speaker 00

  Are they?

• 0:46Speaker 01

  Yeah, well, my mum's passed, but yeah, they were best friends. How do you describe that? They are best friends, yeah, we'll go with are, that's better.

• 0:55Speaker 01

  Yeah.

• 0:55Speaker 00

  So you're a proud Queenslander for a start.

• 0:57Speaker 01

  Yeah, I was born in Cloncurry, actually, and then grew up in Emerald. My dad was in Queensland Rail, he went where the next promotion was, I suppose. So Cloncurry, Emerald, Rockhampton, out of 36 cousins, aunties and uncles, I'm the only one not born in Rockhampton. So it's a bit of a regional, a central Queensland family, to say the least. And I was born in Cloncurry, of all amazing places.

• 1:18Speaker 00

  And you joined the army at a young age?

• 1:21Speaker 01

  Yeah.

• 1:21Speaker 00

  I mean, that's a pretty out there thing. Mind you, I guess up that way, though, there is army, there are army towns like Townsville, et cetera.

• 1:28Speaker 01

  Well, there are, but that's not really impacting on that, to be honest. So there was a scheme at the time, I joined in 87, and like within seven years, that scheme had been gone. So it was an army apprentice scheme where they could recruit sort of 15 and a half year olds. And we went, did three years, well, two or three years, my trade was three years in Wudonga, Orbu Wudonga. And that was, you know, sort of fun. I always say, people ask me if I enjoyed the army, I enjoy it a lot more now I'm out, to be honest, just talking about it. So, but yeah, I did that, signed up for a 15 year old, signed a nine year contract when you're 15, which.

• 2:02Speaker 00

  Wow.

• 2:02Speaker 01

  Yeah, well, your parents have to co-sign. So now as a father, I realised, my mother was devastated, I didn't get, I didn't understand it at the time. And now I have like mates with 15 year old kids and I think, oh, that's way too young.

• 2:15Speaker 00

  Because it was your idea, I guess.

• 2:16Speaker 01

  Yeah, I was not doing what at school, I was just a mixed up kid. Puberty was just playing havoc with my common sense, if you know what I mean, as you end up in fights, that sort of stuff. And then, so this was a pretty good opportunity, truthful, he was out of the meatworks in Rockhampton, to be quite blunt.

• 2:28Speaker 00

  Yeah, so would you say it's like not much opportunity in those days in those environments?

• 2:33Speaker 01

  No, but even back then, but going working in the mines was seen as like some sort of, it was a failure in life, you had to go work in the mines because you couldn't get another job. Now, like, oh my god, you're making bank in the mines.

• 2:43Speaker 00

  More than everybody.

• 2:44Speaker 01

  Yeah, so kids left school to go to the meatworks and then all get an apprenticeship, which then you end up in the mines, essentially, so.

• 2:50Speaker 00

  What happened after you left the army?

• 2:53Speaker 01

  Yeah, so I left the army in 1995. So a year before leaving, I actually started a business from home, a dial up internet service provider, sort of, you know, Aussie Mail, home, maybe.

• 3:03Speaker 00

  Yeah, yeah.

• 3:04Speaker 01

  Yeah, actually, Aussie Mail acquired us actually in the end. So we started that in 95 and sold it in 2010, 2000, sold it in 2000, excuse me, in Adelaide. So back then, there was obviously a 30 cent local call tariff on the telephone call. So you could service a very large catchment of people for not much money, essentially. And so there was very strong regional ISPs. So there was, you know, if you know Michael Malone out of Inet in Western Australia, for example, we owned Adelaide to a large degree. And then there was another business out of Melbourne and Aussie Mail sort of ruled the east coast, to be honest.

• 3:35Speaker 00

  What got you to do that, though? Like, I mean, like, how were you thinking, like, I don't understand it, like, you're sort of, you know, ex-army guy, you know, apprentice, blah, blah, blah. And then here you are, thinking about building a dial up business to.

• 3:47Speaker 01

  Yeah. Well, I was a guided weapons technician essentially in the army. So back in the days.

• 3:52Speaker 00

  Guided weapons technician.

• 3:54Speaker 01

  Yeah.

• 3:54Speaker 00

  What is that?

• 3:55Speaker 01

  So the, I primarily worked on two weapon systems, the low level air defence, so missiles that shoot down aircraft, so RBS 70 and Rapier, technically. So we looked after the guidance, the hydraulics, the optics, the whole box and.

• 4:09Speaker 00

  So guidance is comms?

• 4:10Speaker 01

  Guidance, no, is laser and all radar.

• 4:13Speaker 00

  Right.

• 4:13Speaker 01

  So, so on the, on the RBS 70, it was a laser guided, so it was a laser, you point a laser beam at the aircraft, the missile would ride the beam to the aircraft. And, you know, the operators would have a saying, they say, go for the glass bits. So they like to put these things through the pilots' heads, essentially, if you know what I mean. So they're very, very accurate weapons, to be honest. And so, so technical background. And we used to go on exercise for, you know, four weeks to four months. And, and back then, you know, you couldn't take enough books in four months to not go, because it's actually really boring. You go, you drive for three or four days, you dig a hole. Every few days, someone will bring you something to repair. And then that's how it sort of goes, and it's really boring. So you used to take books and you can only take so many books. So I enrolled in part time university, so I ended up getting exemptions for me not finishing school.

• 4:57Speaker 01

  Did part time university, which is a computing science in the end. And that got my, really fired my passion for IT, I hate the word IT, but for computers.

• 5:08Speaker 01

  And then, you know, I did this one subject where it was called Linux, which is a very popular, popular operating system now. And then, you know, and got booted up at home and plugged some modems in and went, holy dole, you could, you could charge people to use this. You know, it was just that sort of entrepreneurial brain fart, actually Glenn Richards from Shark Tank calls it entrepreneurial brain farts, which I think is a really good term. And then, you know, you start it, it's almost a bit like Gerber's, if you've read The Myth by Gerber, he talks about the, you know, the accidental entrepreneur type thing. And it was that, but we jumped through a window that was open into that internet in the mid 90s, which was probably the 25th or 30th internet service provider in Australia at the time. Within a year, there were 1,200. That gives you an idea of how much it ramped up, if you know what I mean.

• 5:49Speaker 00

  Good time to sell.

• 5:50Speaker 01

  Yeah, we, we sold, we sold just prior to the dot com bust. So Aussie Mail were acquiring us and they got acquired by U Unit. And halfway through that process, U Unit got acquired by Amisir WorldCom. So we're in the middle of like three acquisitions as we're getting bought, as we're getting purchased. For the time, it was a good one, just five mil win, if you know what I mean, almost five mil.

• 6:08Speaker 00

  That's a lot of money then.

• 6:09Speaker 01

  Yeah, yeah, big time. We had a business partner then as well, so we were 55% of that business. So my mate Chris, he was, he was 45, so still good mates with him.

• 6:18Speaker 00

  But I guess where I'm going to is, why do you think you decided to build a fund that's going to invest in defence?

• 6:26Speaker 01

  Opportunity. In 2016, the army asked me to get involved with their innovation programme. I was a soldier, ex-soldier boy, made good, had a public profile, it was two years on Shark Tank at that point, literally PR job, come to camera, get a picture with the general, pat on the head. And they let me in the tent, so to speak, and I just saw this amazing capability that was being created through non-dilutive grants out of government. That was just incredible. It was like James Bond's weapons lab, I walked into, it was amazing.

• 6:49Speaker 00

  And then you walked into like an actual lab?

• 6:51Speaker 01

  No, it was, it was, it was a demo day, it was like a, it was a display.

• 6:55Speaker 00

  Yeah.

• 6:56Speaker 01

  It's called Army Innovation Day, was the name of the event. And they have, they run a series of programmes over the years and they culminate in this, in this display at the end type thing, the graduation display almost. And I've walked in, I thought it was all, I thought it was all classified, they're all getting around, taking pictures and putting on LinkedIn and I was like, oh, this is interesting. So I asked, where the other, where are, where are the other investors? And they said, oh, we don't trust investors. I'm like, but while I'm here, we trust you. And I said, you just met me. So, so I worked with the army, or tried to work with the army and then defence about the role private capital can play in early stage innovation. So I saw this amazing stuff being created and just falling into the valley of death, if you remember that concept, the valley of death.

• 7:35Speaker 00

  Yeah.

• 7:35Speaker 01

  But in defence, it's a chasm and nothing gets out of a chasm. So these things just die.

• 7:39Speaker 00

  Yeah.

• 7:39Speaker 01

  So I thought, well, I know a better way to do this. And I know there's a, there's a, there's a larger customer, which is the US. So the US Department of War, at that stage, were spending about $800 billion a year, US on defence. We were spending about $30 billion US dollars on defence at that point. And so, well, there's a, there's a opportunity here to take this great capability, find that exquisite customer, user, market, budget loan, the US, get into that market, get the high revenues, get the multiple uplift, because they're very undervalued in Australia. So the real opportunity is the buy side equation. These things are that unloved, they're very cheap to buy, to be quite blunt. So our role is to get them in the US, get them revenue and get them, get them rated as a US company to go from a two or three times revenue multiple, for example, to a 30 to 100 times revenue multiple.

• 8:23Speaker 00

  Mate, you just explained it to me then, so like, so let's just go through it, unpack it a little bit, if you don't mind. So when you say on the buy side, you're talking about the US as a buyer, perhaps?

• 8:33Speaker 01

  No, us buying the equity here in Australia.

• 8:35Speaker 00

  You buy, so you buy the equity here in Australia, so you can go.

• 8:38Speaker 01

  So when we, when we invest in the startup here.

• 8:39Speaker 00

  Yep.

• 8:40Speaker 01

  It's irrationally unloved. So for a variety of reasons, defence assets here are rationally unloved. The perception in the market is this one customer being the Australian Defence Force.

• 8:48Speaker 00

  Right.

• 8:48Speaker 01

  And that's not true, there's 33 customers we can sell to.

• 8:50Speaker 00

  In Australia?

• 8:51Speaker 01

  The 33 allied customers we can sell to.

• 8:54Speaker 00

  Right.

• 8:54Speaker 01

  With that being a risk as a gun runner. So this, we have Defence Corporation, right? And each one of those has an Army Navy Air Force, God bless America, they've got Marines, Coast Guard, Space Force as well. Each one of those has at least one unit that can buy off tender, which if you knock on their door and you can sell them stuff through the door.

• 9:10Speaker 00

  Without a tender.

• 9:10Speaker 01

  Yeah, it's very, I'm being a bit flippant there, it's a very low overhead process.

• 9:15Speaker 00

  Yeah.

• 9:15Speaker 01

  Right? Typically uncompetitive process, which is good. So in fact, in the US Department of War, there are 275 organisations that have the ability to do that.

• 9:25Speaker 00

  Right, and budgets.

• 9:26Speaker 01

  And budgets, yep. So the thing now about the US Department of War is that they don't buy the best technology, they buy the best technology they can get on contract. So you might have the best tech, but if you knock on the wrong door and the person can't spend, you've got it wrong. So it's an opportunity there to buy the, the equity in Australia, to invest in the startups here and then to transition them into the US. We will not invest in a startup here that has material exposure to the Australian Defence Force. The Australian Defence Force is a risk to its supplies.

• 9:52Speaker 00

  Really? Oh, my word. Why?

• 9:55Speaker 01

  You've seen the headlines about the, the bug, the stuff ups with contracts and bringing capability in. I mean, I'm an ex-soldier, if they needed me to carry a rifle again, I'd do it tomorrow. That'd need to be pretty desperate, my knees are pretty bad, to be honest. But it's, it's just, in all my investing careers, finding, finding an investment and getting them into a bigger market, great, you're the expert at this, I'm not, that's awesome. Now let's get you the courage and the capital to get into a bigger market. So there's no difference in defence to some degree, to be honest.

• 10:22Speaker 00

  Yeah.

• 10:23Speaker 01

  And the US is a, it's not an easy market, but it's a damn sight easier than Australia. No, no government sale is easy, this is still a government sale.

• 10:30Speaker 00

  Yeah.

• 10:30Speaker 01

  So, but you've got a new US administration there and the Secretary of War, the young chap, Pete Hegseth, he's a young man in a hurry. And I really hope he's just a young man in a hurry, he's not staring at a piece of intelligence and he's got to, he's got to do what he's doing, because he's being flagrant with capital over there. They're just, they're trying to bring this new capability in and they're happy to spend like drunken sailors to do it.

• 10:50Speaker 01

  I said, I hope it's, I, I, I, you know, I, I, I fear what's coming.

• 10:54Speaker 00

  You hope it's not reckless. You just hope it's like purposeful.

• 10:57Speaker 01

  No, I think, I, I, I hope he's, I hope he's reckless, to be honest.

• 11:00Speaker 00

  Because you can keep selling to him.

• 11:02Speaker 01

  Yeah, no, no, because, because if he's not reckless, it means he's looking at piece of intelligence, which means complex about to kick off. There's, there's, there's, there's a, there's a background, there's a background macro here, which is the, the demographic issues, the geopolitical issues around the world and demographic, to be honest. Um, you know, exemplified by what's happened in Ukraine, the Middle East and, and what China is, is threatening to do with Taiwan, to be quite blunt. Um, that, that, that's all the background. And so, um, the U S is arming, rearming like crazy. And I started this back in two thousand and twenty-three. Um, the allied, the allied cumulative defence expenditures was one point two trillion US dollars. This year it's one point seven, next year it's one point nine trillion.

• 11:41Speaker 00

  Whoa.

• 11:41Speaker 01

  And none of that's gone to an extra soldier. It's all gone to.

• 11:44Speaker 00

  So it's not staffing.

• 11:45Speaker 01

  It's, it's not staffing on basis. It's, it's, it's technology, uh, changing out as well. So in the, in the, in the press now, in the popular press now, you see a lot about the, the drone, the drone, the expensive missile versus the cheap drone.

• 11:57Speaker 00

  Yeah.

• 11:57Speaker 01

  It, it's a lot more nuanced than that, but that's essentially it. So they're, they're changing out arsenals and what, what I call the, the articles for, for conflict, they're changing those out. Into the more commodity stuff, the people we invest in essentially. So that's the, that all that uplift goes into things that we can put, we can allocate capital into companies that can exploit that increase in budget.

• 12:16Speaker 00

  So i- i- i- is therefore in the U S is a, a, a big retooling exercise?

• 12:21Speaker 01

  Very much so.

• 12:22Speaker 00

  Retooling the, the manufacturing or whatever it is that they're going to use.

• 12:25Speaker 01

  When you look at the start of the year, just prior to, prior to that, that, that, that lunatic war that kicked off on Iran, prior to that. So, uh, Secretary of War Pete Hegseth, he had this, um, he's a showman, but this, it wasn't called the Arsenal of Democracy Tour, he called it. Eight out of the ten companies he visited didn't exist twenty-five years ago. And, and if you, because SpaceX is twenty-three years old, exclude those, seven out of ten didn't exist ten years ago. So he's making a statement there. He doesn't like the old primes. He's really tired of being ripped off. And the U S generally are, they understand their defence base was just fat, dumb and happy, if you know what I mean.

• 12:57Speaker 00

  And spending.

• 12:58Speaker 01

  Yeah. So now, but now they're actually spending with smaller companies, more agile companies, startups, let's call them. Um, near primes are sometimes called as well. Um, and they're getting results, to be honest. They are, they are changing, they're changing how this all, how this all works.

• 13:11Speaker 00

  How, how has war changed?

• 13:14Speaker 01

  Um, it's been, well, it's been changed a few, a lot of ways, I suppose. The, and it's been the, um. Once again, I, I, I'll over characterize it. It's the drone, but it's, it's unmanned systems, unmanned platforms, um, really, really cheap and inexpensive. Yeah, I, I like really cheap and expensive things, not because I'm a tired ass, to be quite honest, Ryan, but because if, if it's cheap, you can give it to a corporal to use. If it's expensive, you give it to a colonel to use. And that corporal's more likely to pull his fruit drive out and fix it if it's broken, or to, if it's not working, right to modify it. So the, the, the innovation cycles you get through commodity war goods. Uh, uh, will, will, will speed up development, innovation a lot. Um, uh, so, and there's, there's lots of new modern business techniques. So the biggest change in war.

• 13:56Speaker 01

  Is that the new modern internet marketing techniques have actually come into equipment procurement. So there's a, an amazing book, it's about twenty-three years old, called The Clue Train Manifesto.

• 14:05Speaker 00

  The Clue Train Manifesto.

• 14:07Speaker 01

  Yeah, the clue trains leaving the station, get on board. It was in the late nineties. It was essentially when organisations were resisting, you know, internet, because their customers might say bad things about them. And the whole part of the thesis of the book is, well, they'll say bad things about you, whether you're on, on the marketplace with them or not. So the internet's a marketplace of ideas. If you're not there, they're still talking about you. You just have not, have no ability to absorb that feedback. So get on there, get on the clue train essentially. But then it goes into the whole, the modern mechanisms around gamification and rewards and that sort of stuff at the same time. Um, and so the, in one example, the Ukrainian Ministry of Defence, they have an innovation, and they're obviously threatened, they're at war with Russia at the moment.

• 14:46Speaker 01

  The Ministry of Defence have, their innovation arm is called Brave One. So brave number one, essentially. And so you can approach them and get your goods into their, into their.

• 14:55Speaker 00

  You mean a civilian or anybody?

• 14:56Speaker 01

  Yeah, anyone can. Yeah, yeah, anyone, anyone, the ally will can, yeah. Um, and they then, they created something called the Brave One Marketplace. So it's, it's like T move for war goods. So literally you put your stuff on there, uh, and then a Ukrainian, um, uh, a soldier in a trench with mud in his boots, gets on his phone and goes, I need that sort of drone. He's been allocated currency from the Ukrainian.

• 15:15Speaker 00

  Uh, they can make the sort of democ- uh, uh, what I, uh, redistribute the decision making.

• 15:19Speaker 01

  Yeah, yeah. Yep. And I can, he get it, he gets delivered to his trench, he gets to use it. He can give star feedbacks, he can give one to five star feedback. No, no, this is the whole thing. No one wants one star feedback, right? If he launches this thing to Russia and it doesn't work, that's bad.

• 15:32Speaker 00

  Yeah.

• 15:32Speaker 01

  He's probably angry, he's probably going to give one star feedback. What you do is you, you, you ring up the supplier and say, mate, this didn't work, right? And they go, well, what, wait, wait, say, tell us what.

• 15:40Speaker 00

  Don't, don't give me a bad review.

• 15:41Speaker 01

  I'll fix it and send you ten more.

• 15:43Speaker 00

  Yeah.

• 15:43Speaker 01

  And so that, all of a sudden, that, that cycle in the West takes years. And that Ukraine takes weeks. So it's actually shortened these cycles out. But they've added one other aspect in, which is quite macabre, but fascinating at the same time. So not only can you use centrally allocated currency from, from the, from the bank. But you have in-game currency. So if you actually can submit proof that you've destroyed a certain piece of Russian equipment, for example, you get allocated, you get allocated in-game points. So Russian tanks worth forty, artillery pieces worth sixty. Um, and there's a leaderboard. And so every week they publish a leaderboard results and the units have competition to see how much Russian equipment they can destroy.

• 16:21Speaker 01

  And then you're going to take those, they can then, then take those points, go back to the, the store. Instead of using money, you can use points to buy more drones, more radars, more antennas, whatever you actually need.

• 16:31Speaker 00

  They like their credits.

• 16:32Speaker 01

  Their credits, yeah. And they actually, they actually did an incentive test. So they actually changed the score for a Russian K I A, so actually killing a Russian soldier, from two to six. And in one week they doubled the K I A count.

• 16:44Speaker 00

  Wow.

• 16:44Speaker 01

  So, you know, incentive and outcome, right? So, um, very macabre, um, fascinating. The U S are trying to, most Western militaries are implementing that. They've actually seen what that does. Just shortening that innovation cycle down. So, um, that's probably the biggest innovation in military logistics since the standardization of rifle.

• 17:02Speaker 00

  I- is that like, in terms of changes to the way war's been waged, um, is that about making your players, your team. Be more intense in terms of what they do day to day? Thinking intense, physically intense, intense in every aspect, instead of just sitting there being like a, like an old school soldier?

• 17:22Speaker 01

  Well, I, I, I think the driver is the, the desire for the soldier to go home in the day. Uh, so they, they face a very existential, every day it's a very existential problem they face.

• 17:31Speaker 00

  Yeah.

• 17:31Speaker 01

  So I think, so everything, everything they do probably relates to that problem.

• 17:34Speaker 00

  Reduce the risk.

• 17:35Speaker 01

  Reduce the risk. If you look at the frontline in Ukraine right now, it, there's, there's not a frontline. It's forty kilometres. So, so you have the line of contact, which is technically the frontline. The twenty kilometres either side is no man's land. Where your job as a soldier is to look exceptionally unimportant, because you're under constant surveillance. And the more important you look, you, you're probably going to get serviced as a target. That's the. Military euphemism for blowing up the drone, to be quite blunt. So now you go from front lines where you might have had a thousand men per kilometre to maybe ten men per kilometre.

• 18:05Speaker 00

  Wow.

• 18:05Speaker 01

  So, because I've just got these, these platforms, which is why I'm not worried about the constant, the constant sort of rhetoric around, you know, Vladimir using nuclear weapons on that. You, you need to deploy a hundred nuclear weapons to have an impact, because, you know, nuclear weapons are there to kill soldiers. And for every kilometre you got ten soldiers, you need a lot of nukes.

• 18:20Speaker 00

  And you're not going to waste that much money.

• 18:22Speaker 01

  No. I mean, the world needs to be cheap, to be honest. So, um, but I mean, it, it's definitely a period victory. But you can't use one and have the effect. You can typically use one or two, drive a thousand tanks through. And you've won. And that's, you know, I'm, I'm, uh, oversimplifying it. And now you just can't do that. Like the front is. It's gone from, it's gone from like this, this, when it started, this massive arm of thrust that came, you know, sort of through Belarus, tried to capture Kiev and all the rest of it. And that's. Very brave Ukrainian to stop that. That was an amazing, that, when the true story comes out, it'll be incredible. And then it went to trench warfare, if you remember that. We saw a lot of pictures of trench warfare. Then it went to the, the drones started coming in. Um, and that, they're probably now on like generation fifty-eight of drones in that, in, in that conflict. That's how fast innovation cycles are moving.

• 19:04Speaker 01

  So they've had like drones that like speed thermite, balling thermite gas on the soldiers. And they now got the fiber optic control drones. They've got deep strike drones. They've just, it's, um. It's terrifying. The other really cool thing they've done with respect to modern business techniques is, you come out of the Ukrainians are clever. Uh, they're going through some political eruptions at the moment with their defence staff. You're seeing some protests there. But they've got something called Trophy Lab. So all the captured Russian equipment they've got.

• 19:29Speaker 00

  The, all the what's right?

• 19:30Speaker 01

  It's called Trophy Lab.

• 19:31Speaker 00

  Yeah.

• 19:32Speaker 01

  So all the captured Russian equipment they've got, they're actually putting it up on a website for people to access. Once you go through your credentials and everything else. So in order to bring their Western partners in to sort of say, hey, you want to partner with us? Not only, you know, can we use and test your kit. But we can also, the stuff we get from the Russians, we can make available for you to exploit, um, in an intel, to inspect, to explore.

• 19:52Speaker 00

  Pull apart.

• 19:54Speaker 01

  Yeah. So, um, so they've not only got that marketplace, but they've also got a, for, for gear, they've got a marketplace for intelligence ideas.

• 20:00Speaker 00

  So very clever, clever leverage.

• 20:02Speaker 01

  Yeah. So it's literally, it's modern business marketing techniques.

• 20:04Speaker 00

  Yeah, yeah.

• 20:04Speaker 01

  Applied to combat.

• 20:06Speaker 00

  Yeah.

• 20:06Speaker 01

  Conflict, more precisely.

• 20:08Speaker 00

  Uh, uh, can we just talk about drones? Because like, um, you just mentioned drones. We were talking about drones. Um, as I understand it, you, you wouldn't know better than me, but as I understand it, the original drones were coming in from Iran when, when Russia first started using the drones, the Iranian drones. Well, um, why was Iran so far ahead of everybody else, well, at least ahead of Ukraine and Russia? Um, so much so that Russia then drew on the, um, Iranian drones, uh, drones and, and started drone warfare. Now there's a whole lot of stuff, responses to drone warfare. So there's drone defence. So we'll talk about that in a moment. But, um, why was the Iranians so far ahead? Or they're understanding this change in warfare?

• 20:44Speaker 01

  Um, so it wasn't just Iranians. I mean, there's also several causes, Azerbaijan and the other place that started. They, they, they went hammer and tong and a few years ago with the drones as well, to be honest.

• 20:53Speaker 00

  Do they?

• 20:53Speaker 01

  Yeah. So they're quite close. Yeah, I mean, you're an Ashurban, you know, I want to say, yeah, that a bit of a dust up.

• 20:57Speaker 00

  Yeah, they haven't fired because they've got borders.

• 20:59Speaker 01

  Yeah. And then, and, and drones were used. The, the side that had the most drones essentially won that battle, if you know what I mean. So I think there might have been a, a tell there. Um, Iran has been embargoed for most things for many years. So, but you know, it's hard to embargo a, a, a lawnmower engine and, and balsa wood, which is what those, those shahids are made of.

• 21:17Speaker 00

  Really?

• 21:17Speaker 01

  Oh, yeah. They're nothing. They're like very cheap, very inexpensive. Um, I mentioned balsa wood in, in a, in a, in a derogatory way, because it's obviously very light, quite structured anyway. So, but you can't, and you can't, you can't embargo a lawnmower engine. That's what it's got on it. It's not like it hasn't got a jet engine. Um, so they built that out of necessity. What, what can we do? What, what effect can we create?

• 21:37Speaker 00

  Pretty innovative, though.

• 21:38Speaker 01

  Oh, very innovative, to be honest. Yeah. And then their, their construction, how they built them at the same time. So, um, uh, but they haven't, they haven't moved much since though.

• 21:47Speaker 00

  Iran hasn't.

• 21:49Speaker 01

  On the innovation side, once again, they've got limited facilities or they're a bargain. There's not a great deal of high tech, probably unless it's a nuclear centrifuge, I mentioned. Not, not a great deal of high tech in Iran. A lot of support through China at the same time though. So that's, if you look at the, just, I suggest anyone who wants to have a think about that conflict, get on Google Maps, zoom out and understand where Iran sits. It's quite fascinating to be honest.

• 22:08Speaker 00

  Yeah.

• 22:08Speaker 01

  It tells you a lot about who's playing in that region. Um, but, uh, on the ballistic missile front, I mean, ballistic missile, the, the first ballistic missile was built by the Germans in World War Two. It was called the V two, right? They've been around for a long time. It's actually really old tech, um, that I think in essence, the world can be pretty proud. It's, it's proliferated quite slowly, if you know what I mean. So, um, not now, now Iran needs them unfortunately. So, um, yeah.

• 22:34Speaker 00

  You mentioned earlier on that we're up to sort of like iteration fifty eight of drones. Um, where's the, that innovation coming from? Like, is that Russia, Ukraine, is it here in Australia?

• 22:43Speaker 01

  Both. Oh, no, we don't do it here in Australia. We have some great companies here in Australia, um, but the innovations come at the existential, young men trying to murder each other, kill each other.

• 22:50Speaker 00

  Yeah.

• 22:51Speaker 01

  Basically, um, and then, like I said, because the platform was that cheap, they can literally pull the screw around. So I think I can make this work better. And so they'll do that.

• 22:58Speaker 00

  Tinkering.

• 22:58Speaker 01

  Yeah, tinkering, yeah. So, and when it's cheap, you can do it. So it was, it was weird, like, and so it's gone through many phases. I remember talking to one of our advisors, um, and he was saying that at one stage, what they were doing is they were doing very much localized. So they'd, they'd work out some new drone feature or something and they deploy in a certain part of the front. Uh, uh, uh, to test it, right? And then it'd work and then they'd actually then mass manufacture it, give it to all the units. But within that sort of period of time, two weeks, the Russians had counted it. So that actually, because they'd, they'd seen it one place, the Russians aren't dumb. They're, they're very much a learning army. They'd, they get exposed to this, this innovation and they'd learn that lesson. They'd, they'd counter it and they'd deploy that across the front. So by the time the Ukrainians went to deploy their thing, it was now null and void. So that point in time, they sort of said, we can't test this on the Russians. We have to assume it's going to work.

• 23:43Speaker 01

  So they get some innovation and they just, they, they wouldn't test it against them.

• 23:46Speaker 00

  Just go for it.

• 23:47Speaker 01

  They just, they create it, put it out there, see if it worked. So that, so also the format, not just the goods, but the format and how you actually deploy that. Because like, you know, it, it's war, the enemy gets a say as well, unfortunately, if you know what I mean. So, uh, and the Russians are, well, they're very much maligned. They are very much an adaptive learning army, that's for sure.

• 24:06Speaker 00

  In terms of drone defense, does Australia play a role? Like, cause we saw those companies like Drone Shield and all those sort of companies that came up in Australia. But, um, are we doing anything in terms of defense for this sort of stuff?

• 24:17Speaker 01

  Yeah, Drone Shield is not to be, not, not to be discounted, obviously Sydney based company, obviously. Um, they, they, they were called, it's called a soft kill solution. So they're all about jamming. So, you know, drones work on little radio signals, GPS. So you can spoof GPS, so you can tell that, you can convince the drone it's in the wrong spot. If you know what I mean, it'll fly to another spot. Um, you can take it over, you can jam it. So a lot of those, um, so that there's, in the innovation race, a lot of that's been counted. So now drones will actually spool, will actually, um, they'll put a, a spool of fiber cable on it. So a single fiber strand, thirty kilometers of fiber weighs about three and a half kilos. So I put that there so you can send this thing thirty kilometers and, and not be able to jam it. It's unjamable essentially. So they've already countered the jamming.

• 25:01Speaker 01

  So the Drone Shield solution, the kinetic sense, I like Drone Shield as a company. I think in the civil defense sense, that makes a lot of sense.

• 25:06Speaker 00

  What's civil defense been?

• 25:07Speaker 01

  Uh, not military. So I suppose defending sports grounds and bridges and things like that.

• 25:12Speaker 00

  Right.

• 25:12Speaker 01

  Um, whereas I'm in the military space, you know, a soldier has to know he can, that he can stop that threat. And the only really way to stop a drone is to put a big smoky hole in it, Mark, to be honest.

• 25:21Speaker 00

  You've got to blow it up.

• 25:21Speaker 01

  You've got to blow it up, yeah.

• 25:22Speaker 00

  And how do you blow it up then with a?

• 25:24Speaker 01

  Yeah, one of their portfolio companies, I can probably talk about that. They've got a solution that, it's a T U S company. They've got a solution which is a set of sights, um, lasers and actuators that fits onto a sold, soldier's rifle.

• 25:35Speaker 00

  Actuator being something that turns something on or off?

• 25:36Speaker 01

  Yeah, so the actuator is so actually on the buttstock, so where the rifle fits in the soldier's butt. Um, you'll actually acquire the target through the camera. And then this, there's actually a pneumatic actuator. So the computer lays the, the rifle onto the target and allows you to engage the target. And they're talking about sort of first, second round accuracy, small flying drones at two hundred meters, which is game changing in that space, to be honest. And they've just, they're doing very well. We, we, we, we think they've, yeah, we've got some good news there soon, which I probably don't know when this is going to air. So I don't know if I can actually say anything about it.

• 26:04Speaker 00

  Well, well, well, don't say anything about it at the stage where if we find out something, we might put it up. But it's, it, but just on that, like, are you saying to me that, like, there's a, a drone coming at me? And this new tech allows me to basically blow a hole in it.

• 26:19Speaker 01

  Yep.

• 26:19Speaker 00

  By virtue of, um, this technology that you've got on the rifle.

• 26:22Speaker 01

  There's, there's, there's laying of the weapon. So that, that's a soldier system. There's also what they call cruise surf. So your bigger machine guns that go on trucks and stuff, I suppose. They've also got the software and hardware, the optics can go on that. And so they have an individual soldier's version, they have a cruise surf version. Um, and then there's also the ammunition that's involved at the same time. So big now is, um, so the early counter to drones with shotguns, which are quite effective, but they only work when it gets within ten meters.

• 26:47Speaker 00

  Yeah, because shots just goes everywhere.

• 26:48Speaker 01

  That's a bit scary close by.

• 26:49Speaker 00

  Yeah, yeah, yeah.

• 26:49Speaker 01

  So now they have, um, now they have ammunition that breaks into like sort of six or seven fragments. So overall, I think over fifty meters gives you about a one and a half meter dispersion type of thing. So that's, so you have being able to get the round near the target, then being able to actually, um, engage it with that. So, but there's many, many facets that, so there's a great Australian company here down in South Australia that have a passive radar solution. So passive radar is, um, this is, this is one, these, these guys will be the killer of Australian defense.

• 27:16Speaker 00

  Right, they, they are, will be.

• 27:18Speaker 01

  I'm hoping they will be.

• 27:19Speaker 00

  Yep.

• 27:19Speaker 01

  Um, so I actually think it's war winning technology personally. So passive radar is great. So let's say, uh, you, you've got a triple J antenna transmitting triple J. It's, it's that way, but for some reason, you know, it, as it transmits out, a little bit bounces off the wall there and comes back. So that's called signal, that's called noise. Now, modern radios are really good at rejecting noise and accepting signal. These guys listen to the noise. So they'll sit there and I'll listen to triple J. And they know it's at that grid coordinate over there doing this. And they can, so they, all the little errant bounces they get, they build a map of the world based on that. So a radar is a really good way to find something. What a radar does is it sends out a ping and listens for the response.

• 27:56Speaker 00

  Yeah.

• 27:56Speaker 01

  Right, when you do that though, the other person can hear.

• 27:58Speaker 00

  Cause it bounces back.

• 27:58Speaker 01

  Yeah, the other person can hear you and have exactly where you are.

• 28:01Speaker 00

  Yeah.

• 28:01Speaker 01

  And so they'll, they'll send you a present to turn your radar off, you know, in a military sense, they'll blow you up.

• 28:05Speaker 00

  Yeah.

• 28:06Speaker 01

  This doesn't make any mission, it just sits there and listens to. So you, you could use it, the enemy's jammer, you could use the enemy's jamming signal as a radar such source. So then you can find the drone. So there's one thing about, uh, uh, once you can find them, they're reasonably easy to kill. They're quite flimsy, they're small.

• 28:23Speaker 00

  Yep.

• 28:23Speaker 01

  Most aircraft, you know, they're, they're built light, they're built for a mission, they're built light. So if you can actually get an X, Y, Z coordinate, you know where this thing is in time and space. You, it's, it's reasonably easy to create an effect. In military terms, I talk about effects and effectors. Um, an effector is a weapon and an effector is the explosion, right? But you can create an effect that decides, well, is that, that drone? So it's not just the actual kinetics of it, it's also how do you find that? That's, unless you know it's there, then you can't shoot it. So we have that in Australia. That's really good. We're coming from EOS, who are a listed company, they, they do a lot of lasers, um, uh, remote weapons, so it's like turrets, uh, the bits and pieces like that. They have a lot of space capability as well. We have EOS, we have the, the soft kill guys from Drone Shield we spoke about. And counter drone space.

• 29:08Speaker 01

  Our investments with the US company, um, called, called Zero Mark. Um, like that was.

• 29:12Speaker 00

  Zero Mark.

• 29:13Speaker 01

  Zero Mark, yeah, I got a great solution. So, um, but in drones in general, like, I, I, I, um, I find, I think drones are an absolutely scary combat innovation and they're actually scary investment. I, we don't invest in drones as a fund. We look at the, the commodity platform itself has been commoditized. And as a result.

• 29:32Speaker 00

  As in the machine itself.

• 29:33Speaker 01

  The machine itself, yeah, the platform's been commoditized.

• 29:35Speaker 00

  Right.

• 29:35Speaker 01

  And there's just no value left in it, to be honest, it's a race to the bottom.

• 29:38Speaker 00

  Right, they're all, they're all discounting each other.

• 29:39Speaker 01

  Yeah, yeah. Um, and there's very little differentiation. I mean, I'll get these pictures from these lovely guys who make drones and, and it, it looks ninety nine percent identical to the last one I saw, but it's supposedly different. And good on them, they, they're pitching, right? Um, so, um, it's, what we did though, about two years ago, um, much to my team's agreement, we had about twenty drone opportunities in that pipeline. I just kicked them all out. I said, no one's, who's, who's going to pick the winner from that? That's crazy. So let's pull a drone apart and let's see what makes it tick. It turns out that the, the, the best allied nations autopilot for small drones is made in Geelong, Victoria. The video modem guys, the, the, in the best in the yellow world are made in.

• 30:18Speaker 00

  What do you call it, yellow world?

• 30:19Speaker 01

  Allied.

• 30:20Speaker 00

  Allied world, what is that?

• 30:21Speaker 01

  Well, the best are Chinese.

• 30:23Speaker 00

  Right.

• 30:23Speaker 01

  And they're not allies.

• 30:24Speaker 00

  Right, okay, okay, our allies, as in allies, yeah.

• 30:26Speaker 01

  Yeah. So the best, I'll just say the best in the world, assuming that means allies.

• 30:30Speaker 00

  Yeah.

• 30:30Speaker 01

  Uh, is, um, uh, video modem, which takes the, the camera signal from the drone back to the operator. Uh, that's in Brisbane, for example. You have two of the world's best, um, speed controls. So the thing that actually makes the, the power get routed to the motors properly, very, very important, probably the most important part of a drone. Best one of those is in Hobart, probably second best is in Sydney, yeah, second best is here in Sydney, maybe second or third best is in Sydney.

• 30:52Speaker 00

  In the world?

• 30:53Speaker 01

  Yeah, in the world, yeah.

• 30:53Speaker 00

  Wow.

• 30:54Speaker 01

  Um, so we had the, the, the world's only non-Chinese motor manufacturer was in Canberra. That young chap, beautiful young man, had the best mentors, Andrew, he got bought out by a Californian company. I think, I think he left a couple of Sydney, Sydney mansions on the table. He could, he could have waited and sold for more personally. But yeah, good on him, he's a lovely chap, so he's done well. So there, there is capability in Australia that goes across all the platform.

• 31:17Speaker 00

  And is, and is our government involved in any of this stuff?

• 31:20Speaker 01

  Um.

• 31:20Speaker 00

  It, it, look. Army, Navy.

• 31:22Speaker 01

  It, it is, it is. So look, a, a, a lot of this, a lot of these things are actually created through non-dilutive government grants. So before people like me came along and private capital funding, the way these things got funded was through non-dilutive government grants. So loosely, federal government have granting mechanisms through the Department of Defense.

• 31:36Speaker 00

  Yeah.

• 31:37Speaker 01

  Um, that then allocate funds out.

• 31:39Speaker 00

  Yeah.

• 31:41Speaker 01

  You know, hit and miss, to be honest. It's a government granting system. So, you know, it's got

• 31:45Speaker 00

  Do they own it? Does the government get a percentage?

• 31:48Speaker 01

  Typically not.

• 31:48Speaker 00

  They just say, we'll, we'll grant you the, the money to go do the research and do, and build it or prototype it, whatever the case would be. And then what happens then is someone like you comes along and says, look, I'll give you another hit because the government grant's over. I'll give you another hit because I think that something's gonna go somewhere.

• 32:04Speaker 01

  Yeah, pretty well. Yeah, pretty well. It, it, it strides a bit differently. The user gets the end. And, and everyone complains that, you know, that not everything the government funds from an innovation sense should, should get picked up or should work. There's got to be an element of throwing socks at the wall here, right? The ones that sticky go for, right?

• 32:19Speaker 00

  Yeah.

• 32:19Speaker 01

  So, um, so, and it got a very bad rap in the past. The scheme was called the Defence Innovation Hub, D I H. It's been superseded now. Got a very bad rap. They spend about ninety million bucks a year on, on various grants. Created a lot of great stuff. So I'm not sure. For me, there's a, there's a business I talk about a lot called the cardboard drone.

• 32:37Speaker 00

  The cardboard drone.

• 32:38Speaker 01

  Cardboard drone. So it's a business, family run business out of Melbourne called Sypak, the Bencino family. They're lovely people. Um, and they created this flat pack. So it's a drone. It's a, it's a, it's, you get it. It's flat pack cardboard. You get it. You, you, a soldier's got a hot glue gun, a roller masking tape, full flap A to flap B to flap C. Forty-five minutes later, there's an aircraft shaped thing.

• 32:58Speaker 00

  Ikea, it's an Ikea drone, basically.

• 33:00Speaker 01

  Forty-five minutes later, you get this thing that can take two kilos off humanitarian payload, sixty kilometres. So you have to talk about things in euphemisms. You can't say two kilos of explosives.

• 33:08Speaker 00

  Yeah, yeah.

• 33:09Speaker 01

  Um, to the point where, so that was created through those D I H granting mechanisms. And this comes on like a pallet of thirty. It comes on a pallet and there's like thirty drone things on a sort of flat pack. The soldiers put them together. And then they send them off on their missions and they program up the.

• 33:23Speaker 00

  Australian soldiers?

• 33:25Speaker 01

  Any soldier. So, yeah, I, I believe there are some quantities in Australia, the biggest, the biggest user. It's got, we've got a lot of coverage a couple of years ago where the Ukrainians used them to destroy Russian aircraft in an airbase in Kursk. So, um, they, it was a long way behind the line. So we, we're thinking they actually got smuggled through the checkpoints and very hard. Cardboard's great in that respect because it doesn't show up on X-ray machines.

• 33:46Speaker 00

  Yeah.

• 33:46Speaker 01

  So I think they did a covert insertion through X-ray machine. I'm only guessing. I actually don't know Mark to be truthful. Um, but it feels like a pretty good story, right?

• 33:54Speaker 00

  Yeah, I like it. So stick with that one.

• 33:56Speaker 01

  So that's the cardboard drone. And cardboard drone, it's great because like it's literally, and they're meant to be, uh, some, some have done like sixty, seventy missions, or they can be a one-way job, but they can do a variety of things and, and nearly, people have talked quite openly about they've actually used, that they've taken like Ukrainians put aircraft radars in them. And they use them as decoys to try and get Russian missile systems to, to start up their, their radars to understand where they are. So they can sort of goad them into, into lighting up their radars. They can discover where they are and, and bomb them essentially. So they've got all sorts of different.

• 34:24Speaker 00

  They're using it for surveillance.

• 34:25Speaker 01

  Yeah, surveillance, everything. Um, so that's, that's a really good drone. And there's been a recent listing on the Australian Stock Exchange. And the company called Borsight. We, we almost invested in these guys before they listed, actually. Our fund can't do listed. We're prohibited from doing listed.

• 34:38Speaker 00

  Is it the H O you deal with?

• 34:39Speaker 01

  No, it's Department of Innovation Science, I want to say.

• 34:41Speaker 00

  Right, okay.

• 34:42Speaker 01

  So, yeah, I mean, they, they feed information back to the.

• 34:44Speaker 00

  That's Arthur Sinedennis's old, uh, portfolio.

• 34:46Speaker 01

  Might have been actually too, yeah, yeah. Um, he's very involved in defence now, Arthur. He's like chairman of a business called Hypersonic Launch Systems. It's a Queensland based business. They, they, they won a, um, it's a great story. I don't know much. You let me just pull, pull me off target if you want, yeah.

• 34:59Speaker 00

  No, no, go for it.

• 34:59Speaker 01

  Um, so, uh, we didn't invest in these guys. The one we missed unfortunately, but they've made a, a, a hypersonic aircraft called the Dart Flyer. And they won a US contract from something called the Defence Innovation Unit, the US. So, you know, if there was a five-star rating system for, for defence funders, innovation funders in the US, these guys would have four point nine nine stars. D I U is brilliant. So they got a fifteen million dollar award there, three aircraft at five million bucks apiece. Plus the, the US Department of Defence bought like the eighteen million dollar rocket they had to strap it to, but times by three. So there was a massive sort of win. They launched their, um, so they got three because, you know, typically in rocketry and so, you know, the first one blows up. The second one to get flies for ten seconds, then blows up and the third one works, you know?

• 35:42Speaker 01

  And they all tend to celebrate their success or their failure in, in, very much in the open. This is why it blew up and everyone's sort of high fiving the fact they just blew a rocket up. They've launched this thing in February out of Wallops Island and the thing took off. And, you know, the, the commentary, you know, the aircraft separated and the US government cut the feed and said, what launch? That's good. That's good. Wrong. I don't know. I'm only guessing it's good. So, um, so that's gonna be an amazing Australian. So hypersonic story in the world is written by an Australian company out of Brisbane, Michael Smarts, the, the, the founder of the technology there. So, um,

• 36:15Speaker 00

  But what is a hyp- just explain what a hypersonic aircraft is like.

• 36:18Speaker 01

  So hypersonic, hypersonic, uh, hypersonic flight profile is usually above mark five.

• 36:23Speaker 00

  Right, going faster than five thousand kilometres an hour, whatever. I don't know where, but there's more than that.

• 36:27Speaker 01

  Yeah, it's twelve one kilometres an hour speed of sound, isn't it?

• 36:28Speaker 00

  Yeah, speed of sound, yeah. Um, that's Mac one.

• 36:31Speaker 01

  Mac one, yeah, this is Mac five.

• 36:32Speaker 00

  It's a Mac five.

• 36:33Speaker 01

  Yeah, Mac five.

• 36:34Speaker 00

  This is going like, uh, two more Max faster than the Concorde you should go.

• 36:37Speaker 01

  And air breathing as well, because you can go very fast in space, but it, that's, there's no resistance in space, but this is, it, so it's a hypersonic and, and steerable. So a lot of these things haven't been steerable in the past.

• 36:46Speaker 00

  And what, and this aircraft, like, what would be the objective? Like, why, why would they want to have something go so fast? Like, apart from being able to get somewhere quickly?

• 36:53Speaker 01

  Yeah, get somewhere very quickly, carries small payload very quickly. Um.

• 36:58Speaker 00

  It's not for, to put anyone in.

• 37:01Speaker 01

  Well, the, the Dart Flyer, the, the initial one's quite small. Like, there's nothing stopping them from actually, uh, uh, scaling it up.

• 37:06Speaker 00

  Right.

• 37:06Speaker 01

  Um, so, um, we've done D D in this business and I can tell you a lot about it, but I won't do that on camera.

• 37:11Speaker 00

  Yeah, no, fair enough. Okay, well, I understand that. Um, of course, I was gonna ask you about, uh, there's been a lot of discussion about robots in warfare. What, what, what's, what's the deal there? Is that for real?

• 37:23Speaker 01

  Look, they're, they're being used in warfare now, you know, not, well, not the walking ones, not the bipeds.

• 37:26Speaker 00

  Yeah, I'm talking about the walking ones.

• 37:27Speaker 01

  The walking ones, yeah. So, um.

• 37:29Speaker 00

  They look like people, but.

• 37:30Speaker 01

  Did you see that, that, that thing, was it Chinese New Year or something? Those robots were, were dancing with the kids and stuff? I thought to myself, oh, oh my God, I, because a robot, it's an industrial machine. If it goes crazy, it's heavy. Imagine if we went out of control and slapped a kid. Now the kid'd have a broken jaw, right?

• 37:43Speaker 00

  Well, I actually did see that happen, not, not broken jaw, but I, I saw one of those robots, robots actually throw an adult.

• 37:49Speaker 01

  Oh, it's, it's a great YouTube channel, Robots Going Crazy. It's hilarious. You watch some of the videos, to be honest.

• 37:54Speaker 00

  Do you think we'll have wars with robots?

• 37:56Speaker 01

  Very much so. I hope so. Let's.

• 37:57Speaker 00

  I mean, a drone's a robot, effectively.

• 37:58Speaker 01

  Let's get the humans out of the picture. I think it'd be awesome, to be honest.

• 38:01Speaker 00

  Yeah, so, yeah, but, but do you know, is there anybody sort of doing this sort of stuff now?

• 38:05Speaker 01

  Not with bipeds. No, very much with, with, um, wheeled, with, with air vehicles, underwater vehicles, surface vehicles. Um, yeah, they're everywhere. We've, there's a, you know, so not, not bipeds. I have not seen biped yet. I have seen the dogs. You've seen the little, the dogs. Um, that's nightmare fuel, right? Too. They, they strap machine guns to these dogs.

• 38:22Speaker 00

  A hundred percent.

• 38:23Speaker 01

  You're like.

• 38:24Speaker 00

  Or bombs?

• 38:25Speaker 01

  Yeah, so, um, yeah, so I mean, the, the, the object now is to get them down to price. So you can actually deploy them at scale. Um, that's going to be the real object there.

• 38:32Speaker 00

  But is this stuff happening in Australia? Do we have robotics, uh, you know, uh, innovation here?

• 38:36Speaker 01

  We do. We, I haven't seen, I've seen people doing things in the periphery of robots. So there's a great business here. I can't remember the name of it now. We almost invested in it at ten thirteen. We, we, we lost out of that deal. So they actually, uh, process, so, you know, robots are a series of machines. And, and a lot of those machines are small computers that make up the robot itself and they generate a lot of data. So these guys have a business that processes the long file data to help the people understand and train how that robot works. So they've got this really, it's, it's like the pick and shovel example for robots. Why build robots? When you've got a pick and shovel robot shop type thing, you know, it's that old analogy. So I don't know of anyone doing the actual robots themselves, but I know of people working on the peripheral parts of the robotics problem, to be honest. So.

• 39:18Speaker 00

  Well, I, I've always wanted to know this too, but why is there a, a resistance to investing in defence?

• 39:26Speaker 01

  Yeah.

• 39:26Speaker 00

  But what is it? What, what, what are we worried about? Like, like.

• 39:30Speaker 01

  I'll put it in, I'll put it in the three things. From my analysis, um, it is that the, as an investor, there's a perception as a single customer. So I don't think it's, it's, we mentioned that earlier. The perception is the A D F's the only customer and it's up.

• 39:41Speaker 00

  Right. But that's a commercial resistance, isn't it?

• 39:43Speaker 01

  Yeah, but that also, that also then, then reflects on the, on the, on the opportunity and the, and the, the opportunity for return. Um, the, the, the, the potential for return for opportunity. Um, the other one is, um, uh, you know, defence is hardware, for the most part. It's, it's, defence is mostly, you know, heavy things made for robust men, if you know what I mean. Hopefully we never have to use. So, and that's got a different return profile. A software business might return you twenty-five X, fifty X, a hundred X, you know, a hardware business returns you five to ten X. It's really good. So that's, it, it's a different return. So it, it, it's, I suppose it appeals to different sorts of investors, if you know what I mean. And we're investors. We always go for the, we're lazy. We go for the, the, the best thing we can get a return from, right? Then there's E S G. We have this, it's, sorry, I don't know if you're allowed to swear here, but it's a societal pox, uh, E S G where it's just environmental, social governance.

• 40:29Speaker 01

  And for whatever reason, defence has been, been put in the, in the naughty box with respect to that. And eighty-three percent of investment funds in Australia are linked to the super generation industry and they, they default rule that investing.

• 40:40Speaker 00

  Oh, really?

• 40:40Speaker 01

  Oh, yeah, very much so.

• 40:41Speaker 00

  So the big super funds, the big industry funds, et cetera, they.

• 40:44Speaker 01

  Won't touch it. The tarnish is coming off. We're starting to talk to a few of the operators in there and they, they wanted to discover more, I suppose. Then you get the, then you get the really cheap shot answers a bit like, oh, yeah, we wouldn't, we wouldn't fund, we wouldn't fund the warship, but we'd, we'd fund the dock. You could tie the warship too. That's, that's bizarre. Excuse me. So, look, in, in the US and Europe, it changed in a heartbeat. One thing happened. Vladimir drove his tanks into Ukraine and everyone just, everyone got over E S G the next day, to be honest. So it's a little bit more existential over there. The, the Yanks never really swallowed it that hard, that hard anyway, to be truthful. So, so E S G is the biggest thing stopping it.

• 41:20Speaker 00

  So let's call it E S G being sort of like, we call it E S G, but like really the ethics of war.

• 41:25Speaker 01

  Yeah, ethics of war.

• 41:26Speaker 00

  Yeah. And, uh, and here in Australia, there's a, a, a resistance to investing. I didn't realise that the super funds have a mandate across the board, none, none, none of that stuff. Um, so that, but that of course opens opportunities for people like you.

• 41:38Speaker 01

  Oh, yeah. Yeah, it is an opportunity. And the reason that the, the equity is so low, we get a great buy-side equation is because we're the only investor at the table.

• 41:45Speaker 00

  Yeah.

• 41:45Speaker 01

  You're in property, right?

• 41:46Speaker 00

  Yeah.

• 41:46Speaker 01

  If only one invest, only one person turns up to buy a house, is the price higher or lower? So, yeah. So, um, and that's us. We, so our, our fund, I need to get a bit more, bit more, um, uh, direct, I suppose. We, we, we invest in defence-first technologies.

• 42:00Speaker 00

  To explain what that means.

• 42:01Speaker 01

  Um, we like companies that increase capability around lethality and survivability. Like, at the end of the day, you don't stop the enemy with harsh language alone. A robust man carrying something heavy, right? We, I'd never want to see these things used, right? So if we, if that's gonna happen, we need better politicians.

• 42:17Speaker 00

  But more deterrence.

• 42:17Speaker 01

  Yeah, we need better politicians and diplomats to deter war, right? So, so it, for us, it's about, I think defence, the realness is, is a solid good. I have no problem with that. Our fund will only invest in things that the A D F will legally use. So I think, you know, we've got quite a moral.

• 42:30Speaker 00

  What's that mean legally used?

• 42:32Speaker 01

  Well, the A D F won't use landmines, for example. They won't use weapons of mass destruction.

• 42:36Speaker 00

  Right.

• 42:36Speaker 01

  Things like that, you know, gases and stuff and gases, the apex of evil that men do to other men. I think it's a terrible thing, gas. But, um, so we'll only, I suppose, we won't break the law in Australia, if we're, if we're, you know what I mean? We don't use.

• 42:49Speaker 00

  That's a new mandate though.

• 42:50Speaker 01

  That's a new mandate, yeah, that's, um, that's in, you know, cluster munitions and the bits and pieces. So what will the A D F deploy this? That's, that's a tick for us.

• 42:56Speaker 00

  Yeah, yeah, yeah. So you, you just sort of, you can sit under their sort of list of rules.

• 43:02Speaker 01

  Yeah, pretty well, yeah. I mean, if they want to change the, change the law, then it's not the, you know, democratic processes, set laws, not, not, not businessmen, right? I think that's probably a good way to go.

• 43:10Speaker 00

  Or army generals.

• 43:11Speaker 01

  Yeah, um, so, uh, the other parts of our mandate are, we have our taxation mandate, the early stage, the E S V C L P stuff.

• 43:19Speaker 00

  Always, it's always early stage.

• 43:21Speaker 01

  Yeah, always early stage, yeah. Um, we have that, then we have, um, we call this, we have our own sovereignty mandate.

• 43:26Speaker 00

  What's that mean?

• 43:27Speaker 01

  Um, so we won't invest in any businesses that, for whatever reason, might be precluded from doing business with the U S.

• 43:33Speaker 00

  Right.

• 43:33Speaker 01

  So, um, so you can't have Chinese scientists, Russian shareholders, contracts with medias, torture jurisdictions, for example, that, that's problematic.

• 43:42Speaker 00

  What about Chinese microchips or, um, process, microprocessors? Or electronics, basically.

• 43:48Speaker 01

  Well, i- if you're in defence in Australia, you, you're, there's a blue list of, the U S called the blue list, the blue list is non-Chinese.

• 43:54Speaker 00

  Yeah.

• 43:54Speaker 01

  Everyone uses the blue list, it's almost not a thing nowadays, to be honest, so.

• 43:57Speaker 00

  But is there many components, electronic components that don't come from China these days?

• 44:01Speaker 01

  More, there's, there are more, I wouldn't say there's a lot, there are more.

• 44:04Speaker 00

  Lots of them come out of Mexico and places like that, but like, uh, the Chinese companies, I understand it, but like.

• 44:08Speaker 01

  Well, there's also China, no one regards Taiwan as part of China, so Taiwan's, Taiwan's in the blue, essentially, so, um, a lot of stuff comes out of there. But you can get them, it just puts the price of their goods up, because the Chinese stuff is actually pretty good and it's really bloody cheap.

• 44:21Speaker 00

  Yeah, yeah, yeah.

• 44:21Speaker 01

  So, and so it becomes a cost equation of that.

• 44:24Speaker 00

  But I just know that a lot of NATO countries, including the U S, they, they won't take something if it's got, um, Chinese component.

• 44:29Speaker 01

  No, I mean, yeah, I mean, there's still, there's some things they can't get away with, to be honest. Um, but getting pretty rare, and there, there's a pretty good supply chain of blue stuff for most things nowadays.

• 44:38Speaker 00

  I remember many years ago, like a long, long time ago, I was involved in this business, technology business, and, um, we won a NATO contract, for the new NATO building in, um, um, in Belgium, and, um, the general, I had a meeting with the general, and, um, he said to me, um, it can't have any Chinese components in it, and when the, when you ship to us, it's all going to be un, unpacked, but it's in front of us, but it's also going to be disassembled, we want to look at all the componentry, and then you reassemble it, and then we'll install, you install it, but then we'll run it, but that, that was the process.

• 45:12Speaker 01

  Well, yeah, it would surprise me, I mean, people, but look what the Israelis did, was it Hamas or the, the mob in Lebanon, what they're called? Um, and they, they, with the, with the pages and stuff, if you know what I mean, so.

• 45:23Speaker 00

  Hezbollah.

• 45:23Speaker 01

  Hezbollah, yeah, with the pages, I mean, you know, they've.

• 45:26Speaker 00

  They said that about a long period of time, though.

• 45:28Speaker 01

  Yeah, but I mean, the, the Russians, uh, when the U S built the embassy in Moscow, that, the place was littered with bugs, like the, the contractors were putting bugs inside of bricks for Christ's sake, if you know what I mean.

• 45:37Speaker 00

  Yeah, yeah.

• 45:37Speaker 01

  So, um, there's a lot of crafty stuff goes on, but with, with our mandate, the other thing we, we don't do, we don't get asked this a lot, is, is, you know, is made an Australian a mandate? Well, it can't be, like, if you sold to the U S and you get a major contract, that they, at least, even way before Trump, this has been going for decades, they expect, um, at least final manufacture to occur, excuse me, final assembly to occur in the U S, at the very least, so, I mean, as we should do in Australia, we should have the same expectation of defence goods here, we just don't, so.

• 46:04Speaker 00

  So what that means is, the components can be all coming from various places, but it all gets shipped to the U S and it sort of gets assembled?

• 46:10Speaker 01

  Assembled.

• 46:11Speaker 00

  In the U S.

• 46:11Speaker 01

  That, that's sort of a minimum, I mean.

• 46:13Speaker 00

  And this is for defence.

• 46:14Speaker 01

  For defence, yeah, yeah, but the reality is, is you're, you're also in a competitive process against other U S businesses who have fully established U S businesses, right? And, and, and they do what I would do if I was them, I would say, oh, look, they're Australian, they're not doing enough, and so you, you, you're a non-Australian, your non-U S status will get used against you in a competitive way.

• 46:30Speaker 00

  Yeah.

• 46:30Speaker 01

  Which you've got to expect, but Australia's still a good place to, uh, run prototypes, you know, we've got really good people here. We've had really good tax incentives, to be quite blunt, the R T D I is actually really good, the research, uh, research development tax.

• 46:42Speaker 00

  What's that?

• 46:43Speaker 01

  Uh, you're forty-three cents on the dollar back for research.

• 46:45Speaker 00

  Ah, yeah, yeah, yeah, R and D.

• 46:46Speaker 01

  R and D, yeah, uh, R D T I, I think it's called.

• 46:48Speaker 00

  Yeah.

• 46:49Speaker 01

  Um, so that's really beneficial, so they have a really good core.

• 46:53Speaker 00

  Well, you, you, basically, you get your future tax, but you get, uh, whatever you spent the money on now, is that, you get a sort of a, a refund of some of the money from the government, but it means you can't deduct it down the track when you get your income, but that's okay, it helps your funding.

• 47:07Speaker 01

  Yeah, well, yeah, and as a startup, you worry about cash flow, let's worry about the bottom line.

• 47:11Speaker 00

  Yeah, because we might not ever make a profit, is this?

• 47:13Speaker 01

  No, we don't want.

• 47:13Speaker 00

  Let's get there.

• 47:14Speaker 01

  Profit gets confusing, Mark.

• 47:15Speaker 00

  Yeah, let's get there.

• 47:16Speaker 01

  Then you get rated by profit, um, so, um, we like, we like growth and traction.

• 47:20Speaker 00

  So we have, so we have two really good schemes here from a tax point of view, in Australia, for startups.

• 47:26Speaker 01

  Well, there, there are probably three, so you, you probably heard of E S I C, so Malcolm Turnbull introduced the, the N I S A National Innovation Science Agenda back in two thousand and seventeen.

• 47:33Speaker 00

  Yeah.

• 47:33Speaker 01

  And there's something called E S I C, so where angel investors get a twenty percent tax credit capital gains tax.

• 47:38Speaker 00

  That's right.

• 47:39Speaker 01

  So that's, so yes, we have, there's the E S I C, there's the, the junior scheme, the senior scheme, and then there's the R and D scheme as well. So I think there's three pretty good schemes, to be honest.

• 47:48Speaker 00

  And then when, that, that was when Malcolm Turnbull introduced the innovation nation, concept of Australia being the innovation nation, and as I said earlier, Arthur Stidgen, who ended up becoming the ambassador to the U S A, and now you've just talked about him in relation to that hypersonic, um, aircraft, um, prototype, um, Arthur was, uh, um, was running that for Malcolm, I think, as I said earlier, he was the, um, Minister for Innovation and Science for a long time.

• 48:11Speaker 01

  He used to call me, he used to call me out of the blue, actually, when I was, I was Queensland Chief Entrepreneur for a year, he used to call me out of the blue when we have a chat and stuff.

• 48:16Speaker 00

  Queensland Chief Entrepreneur for the government?

• 48:18Speaker 01

  Yeah, for the government, yeah, it's like, it's pretty cool, he doesn't get paid, it's a pretty cool business card you walk around with, but that's about it. I was supposed to be the first one, then we found out we're having twins, and my wife said, no, you're not, you're not going to do that. So Mark Salby, who was, I met Mark from, he was Blue Sky Equities.

• 48:32Speaker 00

  I know, I haven't met him, but I know who he is.

• 48:33Speaker 01

  Blue Sky Alternative, sorry.

• 48:35Speaker 00

  Um, so your fund now, so your fund, which, like, given that the super funds have mandated this outside of their, um, their realm, so they can't spend, you, you've formed this fund?

• 48:46Speaker 01

  Yep.

• 48:47Speaker 00

  And this fund is investing in, in all these sort of technologies.

• 48:51Speaker 01

  So we invest, so if I can get a little bit more complicated for you, so under the E S V C L P scheme, you have to invest at least eighty percent of your committed capital in Australian businesses, and you can do twenty percent offshore. So we have some U S businesses as well, for the most part, we invest in sovereign Australian businesses.

• 49:05Speaker 00

  Yep.

• 49:05Speaker 01

  Who want to move, who have demand, and who, whose home, eventual home is the U S.

• 49:10Speaker 00

  Yeah, yeah.

• 49:11Speaker 01

  So, um, so we've, yeah, we've, we've got fifty, we've got almost sixty shareholders, uh, uh, investors in that business. Um, that twenty-one, twenty-one point five four million dollars, if I have the spreadsheets correct this morning, um, we've invested in seven businesses. Um, it should have been eight, one just fell over, annoyingly, but you know, never underestimate entrepreneurs' ability to snatch defeat from the jaws of victory, as they say. Um, we'll probably get them back, so we've got businesses, we've got two space businesses, we've got a, um, like I said, the counter drone business I mentioned before. We have, we have a business that makes a long range artillery shell, so an artillery shell normally goes thirty kilometers, this thing goes a hundred and fifty.

• 49:48Speaker 00

  Well.

• 49:48Speaker 01

  They put a ramjet motor in the front of it, and, and, and sort of, um, yeah, shoot at a, an artillery piece, and the ramjet motor starts up and, and it goes a hundred and fifty k's, and it, it lands with less effect. So instead of landing with forty-seven kilos of effect, it lands with eight kilos of effect, but eight, eight kilos is like sixteen hand grenades, it's still, it's still a pretty bloody bad day for the person who gets it. So, um, that, that's, that's another U S business, and the team there, like, they've sold businesses to Google and, and, and Apple before, you look at the team, they're making roofing nails, Mark, I'd invest in the making roofing nails.

• 50:19Speaker 00

  Yeah, just by, by virtue of their credentials.

• 50:21Speaker 01

  Oh, yeah, their team is that good, yeah.

• 50:23Speaker 00

  You mentioned that ultimately you want to take it to the U S market?

• 50:26Speaker 01

  Mm-hmm.

• 50:26Speaker 00

  And, um, sell something to the U S, like, how do you know these people in the U S?

• 50:32Speaker 01

  Well, we have a, we have a U S venture partner, so Sean Singleton, he's a former U S Air Force chap, that defence innovation, you know, that really good innovation business, I was talking about, uh, government department, I was talking about before. Um, J P Morgan, he's a financial background, he's the politest man alive too, Mark, a, a goalless, again, just wear once before he dies, but, um, he's exceptionally polite southern gentleman. Um, and so.

• 50:53Speaker 00

  How do you build these relationships up?

• 50:55Speaker 01

  Oh, yes, they're great, they, they love it, oh, you've got an Australian accent, so you naturally, they naturally want to talk to you, right?

• 51:00Speaker 00

  Really?

• 51:00Speaker 01

  Yeah, uh, oh, very much so, yeah, they, they get your foot in the door, I mean, after that, you've got to, you know, be a bit more mature, and, but that, literally, it, it, it's, it's an amazing asset when you do business in the U S. Um, how do I get them, so, um, trade shows are helpful, and then you, you land and expand, if I'm one person, you'd, you know, you start the cocktail party, then you have the meetings.

• 51:19Speaker 00

  Yeah.

• 51:19Speaker 01

  So.

• 51:20Speaker 00

  A lot of sort of networking, but, but not in the loose sense.

• 51:23Speaker 01

  Well, of those two hundred and seventy-five organisations that can buy in a low-doc method, we have, we have close connections in the sixty of those.

• 51:29Speaker 00

  Wow.

• 51:30Speaker 01

  We think probably fifty or sixty are probably just offices empty with a brass plaque on the outside, to be truthful, you know, probably like the old Apollo office was in there, they're not sending men to the, they've started again, I suppose, but, you know, so, so, so we, we, I suppose we know how to, we know the easy ways to get in, what we do for our businesses is if, and this might blow Australians away, but that, that, in the U S, there's nine thousand seven hundred taxation jurisdictions.

• 51:52Speaker 00

  Wow.

• 51:53Speaker 01

  Every state, city and county can lodge their own tax and often do.

• 51:57Speaker 00

  Yeah, impose their own tax.

• 51:59Speaker 01

  Yep, impose their own tax. Yep. So you have fifty states, you know, the US, everyone knows it's fifty states. So you have all these other counties. There's some, there's some states that you should never do business in. So places that don't have what they call at will employment, which means you can fire the person on that day. And you have a very different approach to industrial relations. If you go to Texas or Florida, go to some place where you can basically tell the person to bugger off and don't come back again. They're really flexible states and people like setting up there.

• 52:27Speaker 00

  California be slightly different.

• 52:28Speaker 01

  Yeah, California's bad, Oregon's bad. There's a whole bunch of ones you just, you're run scared from basically. But then you also need to then, and democracy is very much done in the open over there. And as an Australian, it feels a little bit dirty and crotty. So I've been on Capitol Hill and lobbied.

• 52:43Speaker 00

  As in Washington?

• 52:44Speaker 01

  Washington, yeah. I've gone and lobbied, you know, elected representative staffers over there dozens of times. You walk down the office, you sign in, it's all open, there's a register. You know, you go to the guy who's, you know, the Florida or the Texas sort of representative. And, you know, if you put a factor in his district, he will work to get your line item thing written into the US Defence Budget. It, it, it won't mention you by name, but it looks like, and you're the only person who can deliver that because it's written so tight that it actually fits your specifications. So, so he will lobby to do that. And it's all done in the open. As an Australian, it feels bloody corrupt, right?

• 53:16Speaker 00

  Yeah.

• 53:16Speaker 01

  No, it's just how you do business in the US.

• 53:18Speaker 00

  Yeah.

• 53:19Speaker 01

  So you've got to break that, you've got to, you've got to break that inertia. You've got to do that because your competitors are doing that. So by God, you've got to do that.

• 53:25Speaker 00

  How, how much, having you, you having lived there for a while, did, did assist that? Or is that just, or this more new?

• 53:31Speaker 01

  Yeah, this is, I lived there for a year. I've learnt this over, over the last three, four years, to be honest.

• 53:35Speaker 00

  Are you going to be aggressively, aggressive in that regard? Like, I mean, when I mean aggressive, I don't mean tough guy aggressive. I mean, like relentless.

• 53:43Speaker 01

  Oh, I have other people to describe me, Mark. I'm not too sure, to be honest. I don't know. I think Australians aren't as a sort of, we're, we're a bit laid back.

• 53:51Speaker 00

  Yeah.

• 53:51Speaker 01

  Like Americans, I always say that Americans, you know, they're, they're, they're very, very confident, born with a pitch deck in their hand. They can, they can pitch. They're very confident and they've got no problem faking it before they make it.

• 54:00Speaker 00

  Yeah.

• 54:00Speaker 01

  Whereas in Australia, we don't tend to do that.

• 54:02Speaker 00

  Yeah.

• 54:02Speaker 01

  That's a disadvantage. We have to break that.

• 54:04Speaker 00

  Yeah.

• 54:05Speaker 01

  Um, so, uh, and so am I competent? I think when I look at how Sean operates in the US, for example, and whilst he's being exceptionally polite, man, he's, you know, he has that American flair about him and he can, he can do the stuff that I find a little cringy.

• 54:17Speaker 00

  Maybe, maybe you could explain what that is, that when you say American flair.

• 54:20Speaker 01

  Try to give, try to give an example now. Um, it,

• 54:26Speaker 01

  I'd give an indirect, give a direct example. It's like, you must have been the pitch of these guys. You go there and you're like, like, if you've ever seen that at the press moment, you hear like Marco Rubio.

• 54:35Speaker 00

  Yeah.

• 54:35Speaker 01

  Who's just the most amazing guy, you know what I mean? And you look at how,

• 54:38Speaker 00

  On his feet.

• 54:38Speaker 01

  Look at how bloody politicians, excuse me, comparisons. That's, that's the delta.

• 54:42Speaker 00

  Yeah.

• 54:42Speaker 01

  You go then you come out. Um, and actually I was in Perth, I've just, I mentioned I flew in the red eye this morning. I was in Perth and I was meeting a business over there we'd loved to invest in. They had their US representative over in Perth, we caught up for a beer and he's actually an Australian chap living in the US. And he came and he, he gave me that, you can tell he's been, he's been, he's lived and he's been steeped in that US ecosystem for probably five or six years. Because when he spoke, he commanded, he left you no certain doubt that he was going to get that thing done. He identified, like, he identified the people we needed to do to attack, to convince, to, to cajole in order to get these contracts through, if you know what I mean, in a very, very confident way. Um, so with, um, with Sean, we had one example there where we were dealing, it's a very boring story. We're dealing with an air force unit that, um, ran, um, that operates their bombing ranges.

• 55:26Speaker 01

  And so it was, it was his way into ingratiating his way in there. Um, he investigated who the guy went to school with and he worked out he had someone in his background who was common, if you know what I mean. Absolutely exploited that, this absolute tenuous link.

• 55:38Speaker 00

  So it's sort of somewhat profile.

• 55:41Speaker 01

  Yeah.

• 55:41Speaker 00

  Sort of, but in a, in a good way.

• 55:42Speaker 01

  They don't, but no, no one takes it badly. Everyone expects there's a bit of a varro. There's a, there's a little, there's a little bit of bullshit at the front.

• 55:48Speaker 00

  Yeah, yeah.

• 55:48Speaker 01

  So, um, so whereas in Australia, we tend to, we, we call the bullshit out. Whereas in the US, they tend to celebrate the bullshit.

• 55:55Speaker 00

  Yeah, yeah.

• 55:56Speaker 01

  Yeah.

• 55:56Speaker 00

  It's, it's, it's because, and it's, because that's where your value, part of your value add. I mean, apart from identifying for your investors, what it's a good investment because it's an early stage, et cetera. And, and all the other governments, sort of, you know, those tax offsets and those tax benefits. I, I guess what you're doing though is, um, taking, helping the, the startup people through your connections, turn it into something over there in terms of who might end up being a end up, end, end customer.

• 56:24Speaker 01

  We're, we're a US market entry organisation. Our job is that. So when I, when I started this, I thought, I thought it'd be like a, a playbook.

• 56:30Speaker 00

  Yeah.

• 56:31Speaker 01

  It's like a, it's like a three D Tetris board. The way you get in there, if you follow the path, you'll get there, but it's very bloody complicated.

• 56:36Speaker 00

  Yeah.

• 56:37Speaker 01

  So, um, but it's just, it, it, and it, we invest in people we think are the best in their field in the world.

• 56:42Speaker 00

  Yeah.

• 56:43Speaker 01

  And then so, but for me, the bottom sixty percent of businesses I deal with, the top forty percent is secret sauce. And that's, that's what they do.

• 56:50Speaker 00

  Yeah.

• 56:50Speaker 01

  But I, you know, I know how to operate a business. We, we know for the most part how to, to get a better chance of success operating a business in the US. So, you know, you don't go to Oregon, for example. They have this, they have a concept, they're called hub zones, historically underserved business, something or other. So it's a poor area. If you put thirty five percent of your staff in a hub zone, for example, and that's a, if you're, if you were hit by a hurricane in the last ten years, you're automatically a hub zone, for example, right? So you put thirty five percent of your staff in a hub zone, then you get a ten percent dispensation when, when bidding for federal contracts. So if you have that status and you're bidding on a federal contract and a million bucks for the,

• 57:27Speaker 00

  You're a leg up.

• 57:28Speaker 01

  Yeah. They have to consider you at nine hundred.

• 57:30Speaker 00

  Yeah.

• 57:30Speaker 01

  So, um, as you do that, if you have a fifty one percent female ownership of your business, if you have a serviceable veteran, you get another ten percent.

• 57:37Speaker 00

  Yeah.

• 57:38Speaker 01

  So there's all these, and,

• 57:39Speaker 00

  They're like tricks, tricks of the game.

• 57:41Speaker 01

  Yeah. And your competitors, and then it all feels weird and it's very confusing, but your competitors are doing it. So you can't not play.

• 57:46Speaker 00

  No, you've got to do it.

• 57:46Speaker 01

  Yeah. So, um, it's making sure. And then, you know, if you're selling to, to, to Special Operations Command of the US, and they're, I mean, this is the way that they should do business. I mean, I, the SOCOM in the US, their, their innovation arm in SOCOM in the US have a budget the size of the Royal Australian Air Force, which is just bloody incredible, right? It's a massive budget. But then what they do is they have very open, they have, they put these, uh, solicitations out saying, hey, we need this. We need satellites or magic boots or magic guns or whatever it is, you know? And so you go and pitch them, right? And it's all very open. It's very businesslike. They publish numbers and stuff, you know, SEAL Team Six, perching officers got a number he publishes. And you go there and if you win that business, then what happens is if you get bought into that, that SOCOM,

• 58:28Speaker 01

  they, their aim is to get your gear used by the regular US Defence Force, which is a, a larger purchasing power. Because when, when they do that, it then goes off their budget and onto that budget. So when you get into this one little,

• 58:40Speaker 00

  That's why they want to get you off. They want to get you in to get off their budget.

• 58:43Speaker 01

  Again, they're very, very fast getting away there. I mean, when you approach these guys, don't, don't, don't take them half by technology because they will test it in real conditions. And if it doesn't work, they'll, you're dead to them. You know, so you take very, very good stuff. Get us through that system and they like it, they're great, but we like it, we're going to keep using it. But if we can convince the other army to pay for it. And so they try and drag you through the sales process.

• 59:00Speaker 00

  Yeah.

• 59:01Speaker 01

  Which is bloody beautiful.

• 59:02Speaker 00

  Yeah.

• 59:02Speaker 01

  But they'll even send, uh, uh, testing crews over to Australia. So they have this scheme called FCT, Fine Comparative Testing. So they'll send like, you know, a dozen or so people over who are experts in their field and we'll spend a week with their technology. But we'll buy a part of it if they need to, you know, have an extraordinary ability to purchase stuff. And they'll test it. They'll go back and understand whether, whether they should buy it or not. So you don't have to, you don't even have to jump on a plane to go there. So, uh, I suggest you do. We look at businesses where a co-founder or a materially, a senior executive who's materially equity incentivized will reside in the US. Because if not in front of your customer five days a week, your competitor is, you're always going to lose. You've, you've got to buy into that market.

• 59:43Speaker 00

  Yeah.

• 59:43Speaker 01

  Um, to get the best.

• 59:44Speaker 00

  You've got to be there.

• 59:45Speaker 01

  Yeah, yeah.

• 59:45Speaker 00

  And there's no other way to do it really other, other than you being there. And,

• 59:48Speaker 01

  And now with capital gains tax, you've got more reasons to move to the US, to be honest, Mark. You go over there and find some place that taxes you at fifteen percent instead of bloody forty seven.

• 59:55Speaker 00

  Well, once you get past that, um, two hundred and fifty million dollar, that, that,

• 59:59Speaker 01

  Oh, that, that's for the investors, but for the start, for the actual founders.

• 1:00:02Speaker 00

  Oh, yeah.

• 1:00:02Speaker 01

  Yeah, yeah.

• 1:00:03Speaker 00

  Other, other, because the founders don't get that, do they?

• 1:00:05Speaker 01

  No.

• 1:00:05Speaker 00

  No, it's only for investors.

• 1:00:06Speaker 01

  No.

• 1:00:07Speaker 00

  That's an interesting point.

• 1:00:08Speaker 01

  In fact, and they actually explicitly carved out of it too, actually, now I think about it.

• 1:00:11Speaker 00

  Are they?

• 1:00:11Speaker 01

  Yeah, because you can understand they could be a little bit of shenanigans if they let them do that, to be honest.

• 1:00:14Speaker 00

  Yeah.

• 1:00:15Speaker 01

  Start your own business with your own tax, with your own tax free.

• 1:00:17Speaker 00

  Yeah, yeah, okay. So it's not available to founders. It's only available to investors.

• 1:00:21Speaker 01

  Yeah.

• 1:00:21Speaker 00

  And the idea is to attract capital.

• 1:00:23Speaker 01

  Yeah.

• 1:00:23Speaker 00

  Yeah.

• 1:00:23Speaker 01

  It's been a very successful scheme. I mean, it's, it's, it's a, I think one of the best schemes in the world personally. So, yeah.

• 1:00:29Speaker 00

  Final question for you. And, um, and it's probably nothing to do with your fund. By the way, what's the name of your fund?

• 1:00:34Speaker 01

  It's called Beaten Zone Venture Partners.

• 1:00:36Speaker 00

  Beaten, B E A T E N Z O N E?

• 1:00:39Speaker 01

  Yep, Beaten Zone. So, um,

• 1:00:40Speaker 00

  Venture Partners.

• 1:00:41Speaker 01

  Venture Partners, yeah. So when I started the journey with, with the army, um, I saw a few things like, one of the things I saw was that the businesses in the defence sector were shunned by, um, polite society. So a lot of guys couldn't bank in their, couldn't bank in their business name.

• 1:00:53Speaker 00

  Yeah.

• 1:00:54Speaker 01

  Can't get insurance.

• 1:00:54Speaker 00

  Banks want to do with it.

• 1:00:55Speaker 01

  Can't get credit cards yet. So I thought, look, Beaten Zone is, it's, it's a, it's a business. My, my, my, my, my absolute laser focus goal is to return multiples of invested capital back to my investors. I'm investing six million bucks at twenty, so I've got skin in this game, right? But, um, so it's not a charity, right? But I, I didn't want to stand behind these people. I'm investing, I want to stand beside them. So the beaten zone's a military term. It's, it's a part of the battlefield where all the bullets land. Essentially, right? So there's, you know, there's more lethal places you can stamp and not very many. So it's like, you know, it's on the tip, no? We're not, we're not trying to hide what we do. I, I think a lot of the, a lot of the issues Western society is having at the moment is because we, we use euphemisms instead of telling uncomfortable truths, if you know what I mean.

• 1:01:34Speaker 01

  So, you know, we don't want soldiers to go into battle, but if we do, we want to have the most well armed, most well trained, most violently controllable men we can get our hands on. But please, don't make us use them.

• 1:01:45Speaker 00

  Yeah.

• 1:01:45Speaker 01

  Right. So I, I think,

• 1:01:48Speaker 00

  And I think the point you're trying to make is you're not a war monger because you don't want war.

• 1:01:51Speaker 01

  I've got three kids as well.

• 1:01:52Speaker 00

  Yeah, that's the last thing you want. But you, but you know, if, but you want to know if someone from Australia or anywhere for that matter, in the, in the, one of the good guys goes to war, you want to make sure that they're not going to, they're going to have the best possible chance of survival.

• 1:02:04Speaker 01

  I, I think deterrence is probably the best way to do it too, right? Because once it starts, it's just a horrible thing to kick off.

• 1:02:08Speaker 00

  Totally. And so just on that, so you, you have me fairly vocal, um, on this. Um, what do you think of the Iran war?

• 1:02:15Speaker 01

  Oh, I, I, I want a really safe Australia, a prosperous Australia. And I think to do that, we need a really, a really good US government, a really strong US government. And I think the Republicans are more, at least what, what the Republican government's done with effective defence and that sort of stuff, that, that they can guarantee our future more. And I think the chance of a good outcome in Iran was two out of five.

• 1:02:37Speaker 00

  Yeah.

• 1:02:38Speaker 01

  And we're seeing this three out of five downside at this point in time, right?

• 1:02:40Speaker 00

  Yeah.

• 1:02:41Speaker 01

  I think it was such a poor chance of a good outcome. Um, so, uh, look, if anyone needed a blowing up, it was a mullahs. No, no love lost for the Iranian regime, don't get me wrong. But just a,

• 1:02:52Speaker 01

  I just hope that he was staring at a piece of intel and said they're days away from a nuclear weapon or something like that. Otherwise, I don't understand it.

• 1:02:59Speaker 00

  Otherwise, you've got a George Bush moment.

• 1:03:00Speaker 01

  Yeah.

• 1:03:02Speaker 00

  Weapons of mass destruction.

• 1:03:03Speaker 01

  Weapons of mass destruction anyway, you know.

• 1:03:04Speaker 00

  In the nineties.

• 1:03:05Speaker 01

  So, um, you know, they have militarily prevailed, but it's not, it's an economic issue now, right? With respect to that strike, within, you know, within five years, this is not going to be an issue. They'll be pushing oil and gas out of the, out of the North Americas, out of the, um, Guiana and places. I mean, the, the reserves in Guiana and Argentina coming online, they'll blow the Middle East away.

• 1:03:25Speaker 00

  Wow.

• 1:03:26Speaker 01

  Oh, if you have, yeah, the, the, so the, obviously they did the Venezuelan reign. But you've got the Baca Verta down in Argentina, which is a massive field. You've got the Guiana fields, which are bigger than Saudi Arabia for crying, you know, they are massive. So, once they come online and, and that's being accelerated now because of this issue, then, yeah. And there's like, there's like hundreds of years of, of world oil supply.

• 1:03:47Speaker 00

  Do you think at any stage, I mean, I, I sometimes I get a bit conspiratorial, but do you think at any stage the actual outcome or objective of the war in Iran could be that you want Iran to close everything down? And you want no more oil coming out of those places and just opens up the oil producers in other parts of the world?

• 1:04:05Speaker 01

  Yeah, yeah. This is a, this is, this is a, um, a subject that bears two nights ago in Perth. I was, I was laughing. Actually, we were sort of, I'm trying to understand if that was actually the, the, the, the purpose of this.

• 1:04:14Speaker 00

  Yeah, I, I don't think it's conspiracy.

• 1:04:16Speaker 01

  A positive downside.

• 1:04:17Speaker 00

  Yeah, a positive downside or, or, or an actual downside that they're going for.

• 1:04:21Speaker 01

  Yeah. But I think that it's like, I mean, there's, there's, there's, there's stories about supply and demand in the past. And a big one, there's a great newsletter, I'm not sure if you recall Doomberg, did I forward, I might have forwarded it.

• 1:04:31Speaker 00

  You did, yeah, you said it to me.

• 1:04:33Speaker 01

  So they did one on the, what happened with the rubber back in World War Two. So the Japanese took control of Malaysian rubber fields and like all of a sudden, uh, no one had any rubber. And within like nine months, they created synthetic rubber. And so they no longer needed the Malaysian rubber fields. So I, I, I think a part of this, so the, the, the competitive reaction out of this, through the strata of wars is A, you're going to be more pipelines, not going through the strata of hummus, right? Which I think will be good. And then utilizing oil resources elsewhere. So you've got the, the amazing sort of US, uh, oil story. You've got the, the central and the Argentinian stories as well. So we'll find oil from other places that are less problematic to be truthful.

• 1:05:11Speaker 00

  And even, even the, uh, the new Prime Minister of the UK is now talking about opening up the North Sea again. And, uh, and, you know, the apparent of the oil reserves in the North Sea are like, like monstrous. But they just haven't looked for anything for a long time.

• 1:05:25Speaker 01

  We can do the same in Basra here because Basra still, that hasn't been tapped by, to any, to any large degree, to be honest.

• 1:05:31Speaker 00

  But good luck seeing it happen.

• 1:05:32Speaker 01

  Yeah, I know. It's gonna be a bit harder, isn't it?

• 1:05:34Speaker 00

  Well, Steve Baxter, this has been fantastic. I really enjoyed this conversation. Um, um, probably I, I want, just want to throw to you last words.

• 1:05:44Speaker 00

  For those people who, and I'm not here as a proponent or an advocate or someone who's against this, I, but, but, but I'm here to actually hear your story. For someone who's investing in defence capability, let's call it that, here in Australia. What would you say to others who are nervous about that or, and I, I don't mean economically, just nervous about doing that. Um, from the point of view of the look or perhaps the ethics of it, what would you say to those individuals?

• 1:06:15Speaker 01

  Yeah, I, I understand why. Um, I, I, from an economic sense, it's easy, it, it's a rising market. So the economic justifications are simple, but then there's social justifications and I, I understand that. Uh, look, I, I think that it's unfortunate, it's a human condition and, and, you know, for as much as you might dislike war, um, it doesn't care about your feelings, it's going to kick your front door in. And I think the best way out of it, yeah, I think the best way out of this is, is deterrence, quite literally. I mean, and I have three daughters, I think, I, I'd love if they voluntarily wanted to serve, if you know what I mean? If, if we had to conscript them, we've, we've lost, or if they were forced to serve because of a war, we've, we've all lost. I, I want to prevent that.

• 1:06:54Speaker 00

  Yeah.

• 1:06:55Speaker 01

  And I think the way to prevent that, what I'm actually trying to do, and I said.

• 1:06:59Speaker 00

  In a philosophical sense, yeah, but what I'm.

• 1:07:01Speaker 01

  And, and I want to say, my, my business is a business, it's not a charity, but if I get it right, I can demonstrate a better way that we can do defence funding. I'm going to back some young kid who's going to go on to be the next billionaire, for example, right? Then he's going to back two young kids to be the next billionaire. So we can create this defence investing flywheel and get more sovereign, sovereign impact in Australia. That, that's, that's my fervent hope. And I think the most honest way to do that is to, is for investors to invest and get returns on capital and want to keep going back and doing it again and doing it again. So we can prove, if we can prove a, a sort of a non-government back way, a private capital, free enterprise way forward. And that's repeatable. I'm, I'm, I'm, I'm not a happy man, Mark, I think that's, that's the best thing we can do.

• 1:07:41Speaker 00

  Steve Baxter, thanks very much.

• 1:07:42Speaker 01

  Thanks, Mark.