20VC: Inside Anduril's $20BN Army Contract & Why Anduril Must Go Public | Why 99% of Drone Companies Will Die | Why There is Never an Ethical Question of How Anduril Products are Used with Matthew Steckman, President @ Anduril

Matthew Steckman is the President and Chief Business Officer of Anduril. Matt played a central role in securing the $20BN contract Anduril just won with the US military. Prior to Anduril, Matt served as Chief Revenue Officer for Zipline. Before Zipline, Matt held several leadership positions at Palantir. AGENDA: 3:45 — Anduril's $20BN Army Contract Broken Down 6:30 — What Do Most Defense Founders Get Completely Wrong? 9:15 — Can You Build a Billion-Dollar Defense Company Without the US? 12:05 — Why Government Contracts Are Brutal (And Why Most Fail) 15:40 — How Does Anduril Predict Wars 5–10 Years Before They Happen? 18:20 — Why Cyber Warfare Is the Most Dangerous Battlefield No One Understands 23:50 — Why There Will Only Be ONE Winning Drone Company 28:10 — How Anduril Decides Where to Deploy $100M+ Product Bets 35:20 — What Would Anduril Buy If They Had an Unlimited Checkbook? 41:10 — Why Anduril Must Go Public 45:00 — Quickfire: The Future of War, VC Mistakes & Career Advice

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

• 0:00Speaker 00

  Yeah, I mean, you basically can't have a defense company if you don't have a large US business. The government thinks that we can deliver some pretty major stuff now and in the future. There are very few drone programs that would create a material enough amount of revenue to actually create a real business. There are lots of VC companies I would love to buy, an unlimited checkbook.

• 0:20Harry Stebbings?

  Is there other like an ethical question of like, do we agree with sending thousands of missiles to Iran? This is 20 VC with me, Harry Stabbings, and today I'm so excited for one of the most current shows we could do. We've got Matthew Steckman, President and CBO, Chief Business Officer for Anjuril. Just last week, they announced a monster $20 billion contract with the US military, one of the largest ever. We could not have a more apt or pertinent guest as he takes us behind the scenes of both the contract and of Anjuril. But before we dive into the show today, over 80% of Fortune 100 companies are running their businesses with Airtable. Airtable combines AI with the scale of an award-winning, infinitely flexible no-code system,

• 1:05Harry Stebbings?

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• 1:47Harry Stebbings?

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• 2:32Harry Stebbings?

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• 3:17Harry Stebbings?

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• 4:02Harry Stebbings?

  For labs advancing agentic systems, Turing provides the structure required to understand why these failures occur. To find out how, visit turing.com/20vc. That's T-U-R-I-N-G dot com forward slash two zero V C. You have now arrived at your destination. Matt, I am so excited for this dude. I just got off a chat with Christian Garrett and Matt Grimm, and they gave me incredibly tough questions.

• 4:30Speaker 00

  Oh, boy.

• 4:30Harry Stebbings?

  So this is gonna be a grueling hour for you.

• 4:32Speaker 00

  Here we go.

• 4:33Harry Stebbings?

  But thank you for joining me, dude.

• 4:34Speaker 00

  Yeah, thanks for having me. It's really great to be here.

• 4:36Harry Stebbings?

  I actually wanna start with Trey, weirdly, which was Christian Garrett said that I had to ask this. He said, what was Trey like at Georgetown? And what is it about the Anduril founding team that has made Anduril so successful?

• 4:53Speaker 00

  Yeah, well, Trey and I were classmates, met freshman year, played ultimate frisbee together. So we went on a lot of road trips with one another. I don't think Trey has changed at all. You ever seen the movie Hot Tub Time Machine?

• 5:05Harry Stebbings?

  Yeah.

• 5:06Speaker 00

  Yeah, great movie. Yeah, there's a line in it that's like, every group of friends has an asshole, but Trey is our asshole. You know what I'm saying? Yeah, that's Trey, in a nutshell.

• 5:16Harry Stebbings?

  And he's gone on to such things.

• 5:17Speaker 00

  It's crazy how that works. Yeah.

• 5:21Harry Stebbings?

  It has hope for you.

• 5:24Harry Stebbings?

  Do you know, I've never had such a weird start to a show.

• 5:27Speaker 00

  There you go. No, we're kicking this off right.

• 5:29Harry Stebbings?

  It's like a movie reference.

• 5:29Speaker 00

  Yeah, we're definitely kicking this off right.

• 5:30Harry Stebbings?

  And then Trey's our asshole.

• 5:31Speaker 00

  Yeah, yeah, yeah. He'll love that one. Yeah.

• 5:34Harry Stebbings?

  In terms of the team itself, I have so many defense companies pitch me. I think bluntly, the team is always lacking. What do you think it is about the team that Anduril has in terms of founding team that has made it so successful?

• 5:47Speaker 00

  There's kind of some magic in the fact that it's the same leadership team today as it was when we started the company. That implies a whole lot of things, I think. Mainly, it's that we're all friends. So I think that's actually pretty critical. There's a bond there that basically can't be separated by business, or stress, or life. We all know each other really well. But then on top of that, we all come at the industry from really different backgrounds and lenses, especially in defense, which is, it's like everything works against you to get into the defense market. It's like every headwind you could possibly imagine. If you don't have a lot of perspective and knowledge about what's about to come, it's hard to think around corners and you get yourself kind of mixed up and gummed up.

• 6:31Speaker 00

  summed up a lot. And so when you meet founding teams, one of the most important things in defense is some of them can be outsiders and brilliant technologists and thinkers. It does take a lot of inside knowledge. One of the things we got right and keep getting right is that blend of the outside inside process. Who can think differently and bring in sort of commercial perspective, high tech perspective, add a kind of entropy into the system. And then who can really deeply represent our customers, how they think, how does that come together uniquely? That that becomes super important to having any success in the defense world.

• 7:09Harry Stebbings?

  I think one of the things I most look for, honestly, is like GTM experience and ability in a team that I'm looking at in defense. How should we think about analyzing teams for their ability to actually sell and go through procurement? Does it matter if you've got technologists and people with military and combat experience, but no one with GTM experience? How important is that? I know procurement better than fucking anyone.

• 7:33Speaker 00

  It's multidisciplinary, right? So the challenge becomes in defense that if you're missing any of the 12 different types of disciplines it takes to really capture a large program, you will fail. And so one of the things that we've done is over the years, we've built up a pretty sophisticated apparatus to kind of round out these teams with all of the various skills in acquisition and budgeting and technology, mission and operational analysis, indoctrinately how these types of technologies will integrate into the military.

• 8:04Harry Stebbings?

  Does it matter if the founding team doesn't have that experience in terms of going through procurement and GTM?

• 8:09Speaker 00

  I think it does. I advise a lot of companies and if I notice the founding team, at least a portion of it or a person on it hasn't kind of been there, done that. The first thing I recommend is that they have to find someone who represents that piece of the puzzle that that's missing to their team.

• 8:25Harry Stebbings?

  When you meet all of the defence companies that you meet today, again, you know I'm an ambassador, dude, we have so many different European drone companies. But when you look at them, what is the most common red flag that you see when you look at the emerging class of defence companies, trying to be, as awful as it sounds, the next Andrew?

• 8:43Speaker 00

  Yeah, basically two things. It's not realising that what they are doing already exists. There's too much hubris in the technology market. As high-tech people, we can do everything better than everybody else. That causes some companies to think they have an idea that isn't actually an idea because it already exists, and that's pretty common. I'll give you an example. Years and years ago, I'm looking at a pitch, or I forgot, maybe I was advising someone, and here's my idea, and I said, "Well, the thing you don't know is in the 1960s, we invented that." And so there's kind of a hubris to thinking like, the technology sector has all the answers, when like, actually, since the 50s, we've had the most brilliant people in the world

• 9:25Speaker 00

  working on these problems, and a heck of a lot already exists. And this is sort of the point of like, if you don't actually have the inside knowledge, you don't know what mistakes you're making. So that's one.

• 9:35Harry Stebbings?

  Yeah.

• 9:36Speaker 00

  The second, which will be more familiar to you, is addressable market. There's many cases in overestimation of addressable market, where like, actually, what ultimately they're going after is a very small sliver of a problem, which might materialise in a single large contract, but a single large contract is not an enduring business.

• 9:55Harry Stebbings?

  Totally get you and agree with you, and this is one of the big challenges that I face, is when we see a company that, in France, is saying, "We're selling to the French military." Dude, I don't know how to say, I upset everyone these days, I just get used to it. The French military spend less than I do in Chanel for my mother. I mean, it's like, fuck all. Can you be a European-only next-gen prime, or do you have to be selling to the US as well? How do you think about that?

• 10:21Speaker 00

  Yeah, I mean, you basically can't have a defense company if you don't have a large US business, right? So 50% of defense spending is in the US and 50% is in the rest of the world. And so if you are cutting off half of your market from the get-go, that's probably a big problem. The challenge in Europe is it's not like a European Union in defense spend, right? Each country has its own sovereign companies and has its own sovereign agenda. And so you keep getting winnowed and winnowed and winnowed and you're like, oh, well, Europe is my market. Well, if you're a French company, it kind of isn't. France is your market. And so you have to be really careful around how you're actually analyzing who your ultimate customers can be.

• 11:00Harry Stebbings?

  You mentioned 50% of that spend is in the US. You guys signed a $20 billion contract. My question to you is, what's actually entailed in the $20 billion? Was it like an accumulation of all the little contracts bringing together? Because it's a big headline number, but I didn't actually get it and I don't think a lot of people did.

• 11:19Speaker 00

  Yeah, yeah, so let's actually define it because the stuff I saw posted about it was all over the place. It was like a rainbow of interpretations. So this is, think about this as like a credit card limit. So the government has said up to $20 billion they can spend on a class of Anduril's commercial technology. There's no obligated money, but it basically creates a process that reduces a ton of friction that you would ordinarily see in defense procurement, where each individual office would have to go through financing and contracting and evaluation. And all of these repeatable things now can, now only have to happen once. And they did, and they just did.

• 12:02Speaker 00

  And so maybe a fast track is probably, probably the wrong word. It's more like in the arduous process to actually get something contracted, we've cut a lot of the first steps out. There's still a lot of hard work. We've just made it slightly easier for the government to access all of our gear.

• 12:19Harry Stebbings?

  Well, when they say like dependent on delivery, what does delivery mean?

• 12:24Speaker 00

  They will obligate the dollars as the products, which is hardware and software, are actually materialized. So delivery is revenue to us in our world. So when I deliver something, I recognize the revenue. Same thing in government. When we deliver something, they actually, then the actual procurement orders and dollars flow.

• 12:42Harry Stebbings?

  Again, I'm so sorry for being dumb or naive. I'm a venture capitalist for a living. You should be used to us by now. Is this replacing prime spending? Is this net additional? How should we think about this? And is this just a sign that Anjral is now another prime?

• 12:56Speaker 00

  Yeah. It basically means that we have enough business with the federal government to justify putting together what is a fairly sophisticated contracting vehicle. So yeah, the short version of it is like, yeah, the government thinks that we can deliver some pretty major stuff now and in the future. It took a lot of work by a lot of people on the government side to actually make this thing happen. They are not going to do that unless they think that it's worth it.

• 13:21Harry Stebbings?

  What do they spend with like a Lockheed or a Northrop for like comparisons?

• 13:25Speaker 00

  So Lockheed, I think, is in the like 100 billion revenue a year. I think we'll do a couple billion in revenue this year. So we're still, you know, small in the grand scheme of things.

• 13:35Harry Stebbings?

  When you look at the software and the hardware element, how do you guys sit internally? Are you a hardware company? Are you a software company? Are you a services company?

• 13:44Speaker 00

  I think one of the things we've done maybe uniquely is we've given our customers a lot of ways to access our company. What I mean by that is we've been very creative in, okay, a customer wants a piece of software, but it's difficult in government contract for software. And so we can wrap it in a hardware appliance, right? Or they want a piece of hardware, but they know the software is the sophisticated piece of it. And so they're willing to pay more for it because of that sophistication. Or in government, you get these weird things where money is, it's called the color of money. So money is obligated to certain types of spend. So maybe a customer only has money that they can spend on services. Well, okay, can I do an as a service product?

• 14:26Speaker 00

  And actually, one of our first major contracts was with US Special Forces for all of their counter UAS systems. That started as an as a service contract where they weren't buying hardware, they weren't buying software, they were literally buying a service that obligated us to defend certain sites from certain types of threats. And as long as we were meeting the KPIs on the contract, we were fulfilling the obligations of. Of the agreement. So quite novel and that contract has since gone in a lot of different directions and we do a lot of different things on it, not just that, but we have been dogged in our approach to this, basically realizing that the more ways we give our customers to get at us, the better it's going to go.

• 15:10Harry Stebbings?

  What's the hardest thing about working with the government? When you look at the structures that you have to contort yourself in to get a deal done, what's the hardest thing?

• 15:19Speaker 00

  There's a lot of answers to this question, but maybe from my lens, it is how few and far between the large wins are and how hard it is in between those periods of time. If you look at our business, this year we'll do a couple billion in revenue, we'll do 600 separate contracts this year. Only 20 of those are probably of material revenue size. And so the hardest thing is like, what happens in between the 20? And what are you doing to position yourself for the 21st? And because it's so concentrated, every single one of those deals is considered risk to the business, right? If it goes right, if it goes wrong.

• 15:54Harry Stebbings?

  So. Why specifically is it hard in between? Is that morale? Is that revenue predictability? Is that, what is it that's hard?

• 16:03Speaker 00

  The government can sometimes tell you where they want you to go, but oftentimes they don't. And so a lot of this is trying to predict an unpredictable system, right? So how many lenses can you look at, at sort of the next couple of years? I can look at it through what the government is saying, through their rhetoric and through their budgeting. I can look at it through a warfighting lens and what general officers are saying and what military theorists are saying. I can look at it through a technology lens, like what technologies do I think are going to influence the battlefield in the future? And I need to kind of blend all of that together today to make decisions on what I want to build that will be available, you know, five to seven years from now. No one is saying today, this is what I need five to seven years from now.

• 16:48Speaker 00

  It's all sort of a educated guessing game over time.

• 16:52Harry Stebbings?

  What did you not do that with the benefit of hindsight you wish you had done? And what did you learn?

• 16:58Speaker 00

  There's been a couple of areas that have kind of emerged that maybe we were a bit slow in that we would have accelerated. I'll give you an example. There's a huge movement in, not just in the US, but NATO and the rest of the allies into offensive cyber warfare. And you're seeing this now becoming public for the first time, which is really, really interesting. You know, to date, this has been one of the spookiest of all spooky things, right? Like something that just no one ever talks about. And now you're literally seeing public officials talking about it for the first time. We should have moved into that seven years ago and been the first, the first in it. We weren't big enough probably to really even understand it seven years ago, but like in hindsight, it was kind of obvious. We'll probably try and play some catch up here and get into the game. But there's a couple of examples like that where you see these things kind of thematically

• 17:43Speaker 00

  in hindsight and you're like, well, obviously five years ago I should have done it, right? And you only realize that today.

• 17:49Harry Stebbings?

  What is the fear with offensive cyber? When we look at like the worst case scenario, just so I understand it?

• 17:55Speaker 00

  Well, it's a lot of things. So it's both what are adversaries doing and do we understand it? And are they asymmetrically influencing battlefield tactics? And the answer is yes, they are. And then it's, okay, well, if our capability.

• 18:10Harry Stebbings?

  Sorry, can I just stop by again before I get lost in your next statement? What does it mean like asymmetrically influencing battlefield tactics?

• 18:17Speaker 00

  Yep. So one version to think about this is just cost. For a very low cost, they can create an effect that has major implications for us, NATO and our allies. That's asymmetric. So often people refer to terrorism as an asymmetric tactic.

• 18:33Harry Stebbings?

  But this would be like a $10,000 drone that hits a $1 million.

• 18:37Speaker 00

  Drone warfare is an asymmetric battlefield tactic, exactly. And cyber being not only asymmetric, but you'll often hear the term non-kinetic associated with it. So I'm asymmetric as in I'm cheaper and more nimble and I can get a large effect, but I'm also non-kinetic. And why is that so dangerous? Well, when something explodes, we react to it and we react to it with the full force of the military. When things are kind of simmering beneath the surface in sort of a Cold War-ish type of a way, it actually becomes really hard to react. And so in cyber warfare in particular, if assets are affected that we care about, can we do attribution? Do we know where it came from? How do we respond? Do you respond with a non-kinetic attack

• 19:22Speaker 00

  by going kinetic? Is that an escalation of force? How is that perceived by the global community? Right? So you get into all of these really challenging doctrinal positions because of just how sort of unexplored offensive cyber is. And then on the flip side, right, it's like, do we have the ability to amass cyber effects on our own? Right? Because what you would want to do is you would want to do tit for tat. You wouldn't want to do, for the most part, a set of like escalatory decisions. You would want to, you know, match force with force. Do we have the ability to amass the same kind of force non-kinetically, right? So all of these are super important questions that, in my opinion, to date, have not been debated publicly and absolutely need to be.

• 20:02Harry Stebbings?

  What cyber assets do we care about versus not care about?

• 20:06Speaker 00

  What do we care about protecting? Or what do we care about affecting?

• 20:09Harry Stebbings?

  Both.

• 20:10Speaker 00

  Yeah, well, protecting, right? So probably the main one is like the list of critical industries. The military is included on that list. But think about infrastructure, think about power, think about energy, think about all these things, right?

• 20:22Harry Stebbings?

  Okay, so it's like a foreign adversary impacting energy supplies in large cities or water supplies or

• 20:27Speaker 00

  For sure.

• 20:28Harry Stebbings?

  healthcare data or financial systems, I guess?

• 20:32Speaker 00

  Yep. But even even now, though, on the battlefield, it's a foreign adversary impacting our military systems, such that we can either not mount an offense, or we can not successfully defend ourselves.

• 20:43Harry Stebbings?

  Got you. That's the cyber assets that matter on the defense side. On the kind of offense side?

• 20:48Speaker 00

  Yeah.

• 20:49Harry Stebbings?

  Do we think the same in terms of proactive?

• 20:51Speaker 00

  Everything that they would do, we would do too. Exactly. That's the way to think about it.

• 20:54Harry Stebbings?

  Is there any part of you that's like Northrop or Lockheed have a hundred billion dollar spend? With the greatest of respects, we have a twenty billion dollar spend. We're nowhere in offensive cyber. Let's not try and catch up. Let's progress. No, I mean, in a nice way, you can laugh at me and maybe I'm going to get killed for this, but I don't really care. Like, let's just accelerate where we're doing great. Like, why bother catching up when you're seven years behind?

• 21:16Speaker 00

  Let's like, talk about just like our strategy as a whole. So when we started the company, we knew we had to go really wide, really quickly. Because to the point of like, what do other defense companies or newer founders getting wrong? It's that addressable market question. In every technology class in defense, there's probably one, sometimes two, actual programs that if you capture them, you have a business, and if you don't, you have no business. Take small drones as an example. There are very few drone programs for small drones that would create a material enough amount of revenue to like actually create a real business, right? You're basically shooting the moon. You have to create a monopoly. We knew that, and so what we did is we created a bunch of fundamental technologies

• 22:01Speaker 00

  that are applicable to a lot of different types of problems. If you read about us, this is called lattice in a lot of our published literature. It's fundamental tech that allows you to consume data, make sense of it, and then manipulate robots, basically. Like, that's what it is. And so those technologies apply to tons of different things. And so we have twenty different P and Ls at the company, all that are going after different parts of the defense apparatus that take a lot of these fundamental technologies that we build and kind of piece them together in different ways. And so

• 22:34Harry Stebbings?

  So just so I understand, so it's kind of like a horizontal foundational technology that you then verticalize and specialize to fit?

• 22:39Speaker 00

  Lattice is a software platform, exactly. Like, I can talk about software platforms with you. It's hard to actually talk about software platforms with a lot of people because it's like, if you don't actually understand like what we're talking about, it gets a bit weird. Yeah, lattice is basically just a software platform that we can branch from. And it's led us into all of these interesting places. So like, as a really crazy example, the first product we built was a sensing tower that just allowed us to automatically, through a bunch of computer vision technologies. And this was, by the way, pre-Cool AI. This was like old school CV AI in 2017. It just allowed you to spot threats at distance, right? But automatically without a person having to look at a screen. There are pieces of that technology that are resident in our autonomous jet fighter today.

• 23:24Speaker 00

  Not all of it, right? Like, there's been a lot of advancements since then, but there are code blocks, right? That are are shared in common between all of our pieces of technology. That becomes like pretty magical when you approach whatever the next problem is, because you've already got pieces of it solved. Gives us a head start, allows us to get to market at usually reduced cost, usually a better schedule, kind of hitting all of the performance characteristics that our customers care about. So, okay, so back to the actual question on cyber, right? So, so why go after it? Like, we we kind of have to go wide and we have to believe that we have parts of the problem already solved with the platform in order to even approach a market. We wouldn't get into a market if we didn't think we already had applicable technology

• 24:06Speaker 00

  or a technology tailwind, but where we do, we're definitely going to go after it.

• 24:10Harry Stebbings?

  What you said was fascinating to me. You were like, basically, you have to assume a monopoly market if you want to build a big enough company for drones. Why the fuck are there so many drone companies then?

• 24:20Speaker 00

  Yeah.

• 24:20Harry Stebbings?

  I don't know.

• 24:24Harry Stebbings?

  I've seen, I've seen so many, like 30, 40 in Europe, just European ones.

• 24:29Speaker 00

  Yeah, there'll be one that wins, right? It's going to be really hard to pick it, I think, is the problem. But there will definitely be one winner. I think the challenge for investors is actually figuring out which one it is.

• 24:39Harry Stebbings?

  So we should invest in, you know, offensive cyber and defensive cyber. How do we think next then? Your CBO, your president, you're like, great, we should put a billion dollars against it and build that out as a separate business unit? And please tell me where I'm prying too much, right? What's the subsequent thought to that?

• 24:57Speaker 00

  Yeah, so the way that we do this is when we have a new idea, we basically start a really small tiger team that we generally piece together from various parts of the business. We kind of match our own internal motivation and and spend our own IRAD to what the market is whispering to us. So in government, what this generally looks like is you piece together some tech really, really quickly so that you have a demonstrator or at least a dart to throw. And then you start to pulse the market. And you see, how how close was that dart throw to what the customer actually cares about, how they think about the problem? Do you modify it? Were you totally off and you just need to scrap it and start over again?

• 25:38Speaker 00

  In government, uniquely, you know you have something when the customer's excitement starts to match your own. And all of a sudden, you're kind of walking down a path together as opposed to this weird like vendor customer relationship. That's always how we kind of identify that we're on to something. I would say all of these things can be characterized by like a singular champion on the other side of the table that gets it, that believes in it, that wants to shepherd it. Actually, you mentioned Shom, he talks a lot about this, kind of like heroism, like it actually comes down to a single person in government a lot of times. Same experience for us. If you do it right, it kind of tracks similarly. You know, the first year is low dollar spend, but there's a lot of learning.

• 26:20Speaker 00

  And you sort of jump from, I tend to use this like lily pad example, you kind of jump from pad to pad. And this is what I mean by the the 600 contracts in between the 20 that matter. You're basically jumping from contract to contract, trying to figure out, do I have it right? Is the customer excited? Are they telling me things? Do we keep going? Do we keep spending? And ultimately, the thing you're trying to jump at is something very large.

• 26:43Harry Stebbings?

  How do you know when you have something really special and when you should concentrate capital? Again, as a, I think the best founding teams are the best resource allocators. When do you unleash the funding tap and open it up versus constrain and move from little lily pad to lily pad?

• 26:58Speaker 00

  Yeah, there's a lot of ways to look at our business, but one way I think you hit on it is we've been very good at allocating capital. Like, we basically guess right most of the time. If you do this correctly, you have enough data to develop conviction to open the tap, right? And so I think in the beginning, we were working in areas where if we made a mistake, it wasn't, we weren't like too far in on spend that if we pulled back, it wasn't like a disaster for the company. I think a lot of the stuff we're building now is quite sizable and expensive. And so you're looking for certain proof points along the way. And that can be formal feedback from a customer, that can be informal. That can be successful operator feedback.

• 27:41Speaker 00

  That can be successful engagements with the legislative branch. Like, remember in the US, like, your funder is the Congress, right? And so they have a say in all of this. What actually it is, is all of those things pieced together. And so we run, like, basically an investment committee internally, where these tiger teams ultimately have to present, here's what we did, here's what we discovered, here's what we want to do next, here are the gates, here's what it'll cost. And very similarly to how, you know, most financial institutions do it, the investment committee says, go. And I think maybe uniquely when we say go, we have the ability to do it faster and at a higher level of spend than most of our peers, which is a huge advantage. And so when we actually develop conviction in something, we pretty much believe we can get there faster than everybody else because of it.

• 28:26Harry Stebbings?

  If we think about it as an investment committee, we're speaking a language that I know now. Which tiger team was the most successful bet? And which was the least successful bet?

• 28:35Speaker 00

  The most surprising cases to the upside right now is in our missiles portfolio. So we started our missiles business a couple of years ago. The best example, we call the Barracuda family of systems. So it's basically a set of cruise missile systems, different sizes, different shapes, things like that. We basically got into the missiles business looking mainly at sort of this, the actual, like, military warfare lens. Like, there is clearly a gap in capability. We clearly believe that we can be ahead of everybody else if we've already developed it, and when the customer asks for it, we'll have it. And that turned out to be quite prescient. Now, I don't know if you've seen, but there's, like, a war going on with Iran.

• 29:20Harry Stebbings?

  I have seen, yes.

• 29:22Speaker 00

  Yeah. And so it's like, okay, so we got into this market years ago with a certain set of theses. And geopolitics now has dramatically changed what those theses are to the upside.

• 29:34Harry Stebbings?

  When you say it's changed them, do you mean it's confirmed them?

• 29:37Speaker 00

  It's confirmed them, but it's confirmed them in such a way where it feels wholly different.

• 29:41Harry Stebbings?

  How so?

• 29:42Speaker 00

  You know, I think the original theory was we have to get low cost, we have to get more ubiquitous, we have to have a mix of exquisite systems and mass, like all of these kind of major theories of warfare kind of all converging at the same time. We have to be able to build something that takes advantage of commercial supply and commercial manufacturing techniques as opposed to aerospace and defense supply and technique. This kind of like crazy crystallization of a lot of things at the same time. And now there's a war in Iran, we fire a lot of our arsenal. You know, now there's public reporting that large percentages of our offensive and defensive missile systems have been expended and they're really hard to replace. They take a really long time and they're very expensive because they take advantage

• 30:26Speaker 00

  of parts of the market that are kind of strange and very specific and very exquisite. You know, just to give you an example, the cruise missile we build, the actual airframe is built like you build a bathtub. And so we can take advantage of tons of contract manufacturers in the United States that can actually build a bathtub, right? So just thinking through the design differently from the very beginning has led us to build something that can just turn on. It's like, another way to think about it is you can handle elasticity of demand for the first time. That's not really a thing that's ever existed in the missiles business, right? Where you have a fairly labor-intensive process to increase or frankly, sometimes decrease demand. We are on to something in that we've built kind of a first of its kind that can handle

• 31:11Speaker 00

  the ebb and flow of geopolitics and warfare. We can turn lines on and off, we can scale up and down based on the number of contract manufacturers that we engage.

• 31:20Harry Stebbings?

  What do margins look like for these types of products? What is good?

• 31:24Speaker 00

  Yeah, as a business, we run sort of 40% plus gross margin across the board. By the way, in hardware and defense, it's quite good, but every product kind of lives along a spectrum, as you can imagine. The best way to think about this is things that you make more of, like missiles, where you're selling thousands and thousands, tend to be a little bit lower gross margin. And things that you make less of, you can tend to get a decent price for it.

• 31:48Harry Stebbings?

  Sorry, I'm naive. Why is that? I thought the more you produce, the better the margins. You have bulk materials, bulk buying. No? Help me understand that.

• 31:57Speaker 00

  It mostly comes down to customer expectation for what these things should cost over time. And then your ability to gain back margin by cost saving in the long run. Yes, you can close a firm fixed price contract. It doesn't necessarily mean that you can fix that cost forever. And again, it's just like another weird aspect of government business.

• 32:17Harry Stebbings?

  Can I ask you a weird one? But Matt did say I could ask it. Is there other like an ethical question of like, do we agree with sending thousands of missiles to Iran? I'm not saying right or wrong, but is there other an ethical question of how your products are used?

• 32:33Speaker 00

  If you, um, if you work in defense and if you start a defense company, your moral compass tends to be pretty clear on this question, which is, we have a democratically elected set of governments that represent the US, the alliance, NATO, all of the countries participating. They set the rules and we abide by those rules. And if you start to mess around with anything within that framework, you create a pretty dramatic set of slippery slopes that, that if you play the actual thought experiment to its end, end up in a pretty messy situation. The key here is people that live in the world that I live in, we, we tend to think a little bit differently than a person not connected to the national security community on this front. We tend to think a bit more long term as well,

• 33:17Speaker 00

  where I'm building missile systems that might only field in 2035. And so if you fundamentally lack a trust in democratic institutions, this is not the game and this is not the business for you.

• 33:29Harry Stebbings?

  As weird as it sounds and as horrible as it sounds, is war not great for business?

• 33:34Speaker 00

  I think that's the wrong view. Again, if you look at things that span multiple decades, which is probably the right horizon to think through, everything kind of nets out. And so, yes, you'll have spikes in conflict. But like as an example, there are many companies that are profiting off of the war in Ukraine. I would posit that for the most part, if those companies are myopically focused on that conflict, they will not have a business coming out the other end. You have to be very careful around over rotating on the problems of today. Because it can really mess up your strategic thinking.

• 34:07Harry Stebbings?

  Do you think you took advantage enough of the opportunity in Ukraine?

• 34:10Speaker 00

  We were still a baby company when the conflict started. You know, just as a reminder, we were zero people in 2017 when we started the company. We're about 8,000 people today. We were quite small, a couple of hundred people when the war in Ukraine started. And just sort of as a reminder, and now this is kind of lived experience for me and my colleagues. You go to war with what you have. That saying is very, very true. Like you do, you do not invent new stuff along the way. You take what you have and you see if it works and then you adjust. And so we had some stuff in Ukraine, but we were just too small. I think if you play that forward to today, we're heavy participants in the current conflict in the Middle East. Mainly on the defensive side, we build some pretty sophisticated air defense systems that are widely deployed. So it's a wholly different experience because we're a wholly different company.

• 34:55Harry Stebbings?

  Are Android drones used in Iran?

• 34:58Speaker 00

  I can't speak to specific weapon systems used in specific situations. But we are, for the most part, a defensive company in the Middle East, as in we are defending against incoming threats. So if you've read about the Shahid drone as an example. We're one of the principal systems to defend against that threat in the Middle East. Yeah, other than that, you know, it's hard to get into specifics.

• 35:21Harry Stebbings?

  Yeah, I would hate for you to reveal inherent military secrets on 20VC.

• 35:26Speaker 00

  You become pretty good at talking around these things when you do this work.

• 35:31Harry Stebbings?

  That's not in my interest either.

• 35:35Harry Stebbings?

  Please don't. I'm really comfortable with my nice life. Can I ask you, if I gave you an unlimited checkbook, what would you spend on that you're not spending on today?

• 35:46Speaker 00

  That's a great question. I'll give you a funny answer. I think there are some venture capitalist backed defense companies that are making some really, really awesome technology. And they are entirely unaffordable to us today. Because of

• 36:01Harry Stebbings?

  And when you say that unaffordable, you mean they won't sell at a appetizing price to you, given the amount of money that they've raised?

• 36:07Speaker 00

  Correct. Their their valuations are just too high for us to justify the buy. We've bought, I think, almost a dozen companies, maybe more. But for the most part, they've been more traditional style defense companies with what you would command in the commercial market for that type of company. There are lots of VC companies I would love to buy. I had an unlimited checkbook, but right now the multiples today are they put about it out of reach for us.

• 36:29Harry Stebbings?

  This was going to be one of my questions, which is, is there a universe of buyers for the massive VC funded companies that have been generated in the last few years? And what happens to them?

• 36:41Speaker 00

  Actually, Trey, I will always remember when he said this, that never be surprised around how long a company can continue to exist. Meaning like, you know, I think we were sitting around a table being like, oh, like, it's going to come to the point where the multiples will decrease and all this stuff. And Trey's point was Trey has this annoying tendency to mostly be right. I don't know. I don't know if you know that about him.

• 37:05Harry Stebbings?

  But he's our asshole.

• 37:06Speaker 00

  Yeah, exactly. He's our asshole. His point was like, we don't know, but it might be a while before we can actually buy these companies. And so I don't know, there's still a lot of investment in defense tech. Multiples are still very high. I actually think our multiple is quite low compared to most of them.

• 37:21Harry Stebbings?

  Why would you say your multiple is low?

• 37:23Speaker 00

  Because it is.

• 37:23Harry Stebbings?

  Hit me.

• 37:24Speaker 00

  I think we're like 10 or 14 X forward, something like that. But you're seeing deals in 20, 30, 40 X forward.

• 37:32Harry Stebbings?

  My dear friend, you're seeing deals a lot more than that.

• 37:37Harry Stebbings?

  You're sorely mistaken on that one.

• 37:40Speaker 00

  Great. So it's even worse.

• 37:42Harry Stebbings?

  20, 30, 40. Why are you times up by five? Dude, I see like 200. Who would you most like to buy?

• 37:49Speaker 00

  Oh, man.

• 37:49Harry Stebbings?

  But come.

• 37:50Speaker 00

  No, that's a tough one for me to answer. I probably either compliment or offend people that I don't want to compliment or offend. But I'll give you like the classes of technology. Super interested in space domain. Like there's a couple of companies that are doing some absolutely fascinating things, both ground segment and on orbit.

• 38:07Harry Stebbings?

  For that, why is ground segment and on orbit interesting?

• 38:11Speaker 00

  There's this like interesting thing happening in Space Domain where you've got the legacy primes on the military side that have these very large contracts, but they they perform sort of traditionally, right? So it's going to be very, very high performance, but it'll come at a cost and it'll probably take a while to get there. And then you have SpaceX, which is just dominating on the commercial side. And when their commercial tech applies, you know, they do a bunch of government business as well. There's a weird kind of gap in between those two types of companies where the government wants to move really fast, but it's not necessarily commercially adjacent to what SpaceX is doing.

• 38:53Speaker 00

  And so there's a kind of a dearth of providers and it's certainly something that we want to run at. Right now, we do a bunch of partnerships. We build a bunch of our own stuff. We integrate a bunch of really interesting technologies, but it's a huge open hole, I think, in the market that is something we definitely would run at.

• 39:10Harry Stebbings?

  So we have that as one. Any other categories that you're like, that's like prime for the taking, I wish we had more money for that?

• 39:16Speaker 00

  Most of the rest are like kind of uninteresting. It's just consolidating around where we're already winning.

• 39:21Harry Stebbings?

  Do you respect Helsing as a competitor?

• 39:23Speaker 00

  I respect everybody as a competitor. I think the worst thing you can do in this business, again, you know, at the start of the conversation, I mentioned Hubris. I think it's like the second you think you're better than everybody else, you're going to get knocked in your ass. And so I think I in particular on our leadership team, hopefully people would agree, I provide a check against the Hubris. You have to respect.

• 39:45Harry Stebbings?

  You do. You're unusually humble for the Anduril founding team. You're like, honestly dude, like I love Grim, but I wouldn't say he's like super humble.

• 39:55Speaker 00

  Yeah, I don't think I would say that either.

• 39:58Harry Stebbings?

  I know Palmer, like great dude, wouldn't say he's super humble.

• 40:03Speaker 00

  It takes all types.

• 40:04Harry Stebbings?

  And you're like so thoughtful and kind. You're nice.

• 40:08Speaker 00

  Never forget, I am an international arms dealer. So just keep that in the back of your mind.

• 40:12Harry Stebbings?

  There we go. It's like the Nicolas Cage movie. Have you seen this movie?

• 40:16Speaker 00

  Yeah, yeah, yeah.

• 40:17Harry Stebbings?

  But okay, I will push back on you. Andro is one of the hottest companies in a world where capital concentrates towards the few outcomes that are interesting. Yeah, I mean, you don't need to comment on the fundraisers, but like it's reportedly raising four or five or six billion, whatever it is, at 60 billion. The amount of SPVs for Andro, Matt Graham tweets about it all the time. I see. Like, you could raise another billion or two billion on some crazy price and go and buy these companies. Why don't you?

• 40:46Speaker 00

  It's not the company we want to run. We want to create an enduring public company. And so we're running it like that. And we're running it like that right now, even though we're pre-public. Protecting the valuation is important. Not getting over our skis is important. The work is still hard. We will get knocked back if we make a mistake. We don't have the luxury of making mistakes. You know, a lot of our competitors, the really big ones, if they make a mistake, they get paid to fix it. I think if we make a mistake, we lose money and we lose contracts. So there is a bit of conservatism on the team, but I think it's warranted in terms of the market. And overall, right, it's like, we want to be a company in 2050 and 2060, and we're already thinking like that.

• 41:27Harry Stebbings?

  Totally understand. But what I don't understand is why you want to go public? We see companies like Stripe, who are able to never go public, be a brilliant business, and avoid the glare of public markets very efficiently. Why would you want to go public?

• 41:41Speaker 00

  Yeah, there's a pedigree to it in the work that we do. And ultimately, if you are a part of the national security apparatus in the United States, I wouldn't say it's like an expectation and no one would ever say it out loud. But when you are a public company, there is an additional level of trust that is afforded to you that you don't have when you're a private company.

• 42:01Harry Stebbings?

  Do you want to go public in 26?

• 42:04Speaker 00

  Still a couple of years out, but we're close. We're in the window.

• 42:06Harry Stebbings?

  It's in the sniff zone?

• 42:07Speaker 00

  Yeah, yeah, yeah. Like, we're already spending an insane amount of money trying to do all the internal system stuff and all that kind of stuff.

• 42:14Harry Stebbings?

  What do you not have ready yet that needs to be ready to be public?

• 42:19Speaker 00

  So I mentioned, we have 20 products and only about a quarter of those are in any kind of rate production and throwing money back to the business. Everything else is in low rate or development, meaning they're losing money. It's kind of your standard product J curve. So we need more of those 20 core products to come up the curve, to throw money back to the business. And then you trigger the pub event.

• 42:42Harry Stebbings?

  What does that J curve look like from a duration standpoint? Is it, is it months? Is it years? And then how long do you put up with a losing product before you shoot it?

• 42:52Speaker 00

  Yeah. In defense, in a traditional sort of product curve, it's seven to 10 years. We're doing it in three to five, which is kind of part of the magic of the company and the thing we've become known for with our customers is like you're effectively having the traditional path to rate production. Roadrunner is a good example. Roadrunner was, I think, 24 months from like a back of a napkin drawing to a fielded system.

• 43:17Harry Stebbings?

  How much goes in in that three to five year period?

• 43:19Speaker 00

  It's a crazy amount of money.

• 43:20Harry Stebbings?

  But just like from my naive brain, it's like 100 million or like 500 million or like a billion?

• 43:25Speaker 00

  Yeah, so Roadrunner is a moderately sized air defense kinetic intercept system. And that's, you're over 100 million easily before you're generating revenue.

• 43:35Harry Stebbings?

  Okay.

• 43:37Harry Stebbings?

  And we have 20 of these separate products?

• 43:40Speaker 00

  Yeah, so it's a lot of investment, right? So you really have to believe that they're going to come up the curve. And then to your other question about like, when you, when you schwack a product, the better way to think about it is like, don't even enter the curve. If you don't have faith that it's going to come through the other end. And so we kill a lot of developmental products well before they ever get into high spend. Because once you get into that curve, you're 10, 20, 50, 100 million dollar plus in.

• 44:02Harry Stebbings?

  We spoke about, what did you not do? And you said like offensive cyber and the cyber that we discussed earlier. What did you do that you shouldn't have done? And what do you learn from that?

• 44:11Speaker 00

  That's a good question. Way or... Early, I mean, we got into some tech that we weren't ready for. We got into some markets that we weren't ready for. We tried to early on build a pretty sophisticated aerial system. We didn't have the core building blocks. We didn't have the core team. I think we were 20 million or 40 million in before we kind of realized that it was a scrap. We didn't have the sophistication with the customer. We didn't know how the customer was going to buy a vehicle of that sophistication. The kind of crazy part about all of this is like, well, OK, given all of that and given that that was not a good business decision, clearly by most metrics, do we even get to build the autonomous jet fighter if we had never made that mistake? I don't think so. Part of that failure was a stepping stone to getting to success.

• 44:56Speaker 00

  Yeah, we probably spent too much money on it and could have gotten out quicker. But like, I think we had to learn that lesson in order to then re-approach the aviation market in a new way, which obviously has been quite successful for us in recent history. And so if you look at a lot of these failed things that we've done, it's hard to separate that from what came after it.

• 45:16Harry Stebbings?

  Final one before we do a quick fire. I always think to this question of like, the biggest challenges in life are not like iron or gold, but unmade decisions. I never made the decision to move to Silicon Valley and everyone always reminds me that it will be the decision that haunts my career. Is there an unmade decision that ever haunts you?

• 45:37Speaker 00

  No, but I'm kind of weird that way. I don't know. Like, I have trouble separating indecision and failed decisions from the current success that we're actually seeing as a company. I just do. People talk a lot about, I think, like these overblown sort of ideas around like, oh, you have to learn from failure and fail fast. Like, yes, all that's true. Most people suck at actually doing that. So for me, it's, I deeply learn from indecision and from bad decisions. But it doesn't haunt me and it doesn't like, I'm not going to like kill myself over it, right? I'm going to, I'm going to move on and I'm going to make the next best decision.

• 46:12Harry Stebbings?

  Dude, I want to do a quick fire with you. So I say a short statement, you give me your immediate thoughts. Does that sound OK?

• 46:17Speaker 00

  Sure.

• 46:18Harry Stebbings?

  What's one belief you have about modern warfare that most people think is insane?

• 46:23Speaker 00

  I think a lot of my beliefs and our beliefs that we started the company on are now becoming a bit more commonplace. You know, when we started the company, maybe we were a bit out of on a limb of like, could I replace every single mission that the current set of technology provides us with an autonomous system? I believe that that is true in the long run. I also believe that we're not even close to where a lot of people think we are on it. I think we're still in the early days on tons of this tech. But as time goes to infinity, like absolutely, every single mission can be replaced with this new way of thinking. In 2017, when we started the company, not only was that not widely held, that was a headwind for us. I think that's changed pretty dramatically.

• 47:07Harry Stebbings?

  What do VCs fund in defense that you think will most go to shit? What are you like, oh?

• 47:14Speaker 00

  It's really companies that there is only one large program to capture. That's like fundamentally what it is. In defense, you have to be wide by the very nature of how acquisitions occur. And so I think anything is a risk where it's like, nope, there's kind of one program. And if you don't win it, you're not a good company.

• 47:33Harry Stebbings?

  When you think about your kids, what do you tell your kids or kids graduating college about the world when it comes to career advice, knowing and seeing all that you do?

• 47:44Speaker 00

  Yeah, I mostly say a couple of things. I think it's about the community that you surround yourself with. That's a reflection on sort of my own personal story. I mean, everything that I've done in my career has been the community of people around me that have helped me, have gotten me jobs, have afforded me responsibility. You know, it's not like some big machine or process. It's really just the people you surround yourself with. And I like to think I made some pretty good choices early on that helped. And then the other piece would be people tend to overthink a lot of their steps and don't appreciate how much you just can learn along the way. You know, I talked to a lot of military folks that are transitioning out into the commercial world. I would say for the most part, they kind of like hem and haw over what company they should go to.

• 48:29Speaker 00

  You know, my main advice is I actually think you just need to start. You're actually a really smart person. If you don't like it, you can leave. If you like it, you got lucky. You should talk to a lot of companies. You should pick and you should change your mind when you need to. And I think oftentimes there's a hesitance to change your mind, right? And I don't think that's actually true. It doesn't need to be true.

• 48:49Harry Stebbings?

  Final one for you, and this is the most unfair of all, and it will get you most in trouble. When you look at the founding team, in a hypothetical world, in 10 years' time, you start another company, but you can only take one of them with you as your co-founder. Which one and why?

• 49:05Speaker 00

  I can't, I can't take them all.

• 49:07Harry Stebbings?

  No.

• 49:07Speaker 00

  No. Well, it's a trick question because there's no way that I'm starting another company after Andrew.

• 49:14Speaker 00

  I don't know if you know this, but starting companies is really tiring.

• 49:17Harry Stebbings?

  No, I'm a venture capitalist.

• 49:21Harry Stebbings?

  We know it's tiring. We're much wiser than you.

• 49:25Speaker 00

  I'm just gonna retire to the countryside and live with my family, and I'm gonna do that.

• 49:29Harry Stebbings?

  Dude, you gotta choose one.

• 49:30Speaker 00

  Yeah, I'm not choosing. Don't make me choose. You know, I live in Washington DC. I'm very good at not answering questions. Maybe it's Bobic just because the contrast of his baldness and my hair would make us a pretty formidable duo.

• 49:41Harry Stebbings?

  Do you think Palmer's brand is helpful?

• 49:43Speaker 00

  I do, unequivocally. In defense, anything highly regulated, right? Every single thing is a headwind. The main thing you do to cut through headwind is you try and establish trust relationships with people who matter. Palmer is an N of one when it comes to establishing trust relationships with people who matter.

• 50:02Harry Stebbings?

  I've loved this. This is so not how I thought it would be, to be totally honest. It was so nice. It was so fun. I learned. I totally didn't do anything that I kind of thought I would, but thank you. This, it reminds me why I love doing what I do.

• 50:15Speaker 00

  This was great. Honestly, it was great to meet you. I do listen to the pod, most episodes. I love listening to it. So thanks for having me on. It was cool.

• 50:24Harry Stebbings?

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• 51:09Harry Stebbings?

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• 51:52Harry Stebbings?

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• 52:37Harry Stebbings?

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• 53:09Harry Stebbings?

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