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Trey Stevens, Sean Sankar, welcome to the All-In podcast at the Hill and Valley Forum. Thank you guys for being
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here. What's up? How are you guys doing? >> Thanks for having us. Doing great. Good
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to be here, too. >> You guys are friends, right? You guys go back like a long time.
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>> A really long time. >> Okay. Tell us how you guys know each other. Palunteer Ander. What's the
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connection and the history? >> Well, I'll start. You can fill in all the gaps.
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>> I feel like I know the story you're going to tell and it's going to be very
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yet. The window is open at axon.ai/allin. So Trey, I think you know in the early
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days of Palunteer, I was roaming around giving demos to anyone who could possibly want to see them. Trey was
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working in an intel agency and happened to see one of these demos and he should tell you his version of it, his side of
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it, his frustration with bureaucracy, but I think he he realized like, hey, this this might be really cool. Maybe I
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should uh leave the hell hole I'm in in the basement of this building getting
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nothing done, talking about sports with other people to uh to go join this crusade. So Trey reached out and
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applied. Um he made a big faux paw. He came all the way to Palto and he he wore a fullon suit tie, cufflings, CIA
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cufflings, mind you. >> Coming to interview with I don't know, we were probably 20 people, you know,
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who wore t-shirts and, you know, second handme-down clothes. Um and I, you know,
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he was intercepted in the lobby receptionist who really cared about him and told him to get ditch the tie and
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try to dress down and don't screw it up too bad. But we loved him immediately
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and he helped us build the uh the government business. >> So this was at Palunteer. You were their
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employee 13 2006, right? So this was pretty early on. >> Yeah. I came in in early 2008, but there
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were still, you know, 25 30 people at that point. >> Pretty small. >> And Peter kind of incubated it, was
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involved at the beginning, right? Peter Teal. Maybe you could just recap because
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I know a lot of folks know the history of Palunteer, but just kind of like the early standup of Palunteer and how
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things got going during that era with that small group, how you guys kind of figured out how to build the business.
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>> Yeah, it was it was one of these things that was kind of a slow start. It was
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there was a a real idea amongst the uh the five co-founders, including Peter, that um you know, it's kind of insane to
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live in a world post 911 where people are arguing about what's more important,
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privacy or security. Like, aren't they both really important? And who is actually spending time pushing out the
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efficient frontier? For any amount of given security, you should have more privacy than you had before or any
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amount of given privacy, you should have more security. And and this sort of changing the dialectic there was really
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the the entire impetus of what we started with. And now there's a technical approach that follows from
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that. There's an approach to privacy and civil liberties that are around that. Uh
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but really we started as a business that was pretty myopically focused on solving
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a handful of problems and counterterrorism for a handful of institutions in the world. Let me start
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by asking a question that I think is important to ask particularly for a broad audience and for the two of you to
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frame your personal philosophical views. Is war good? There's a lot of conversation about there is a
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military-industrial complex that has an incentive for war. What's your view,
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your philosophical motivation for why you do what you do? What your view is of war and defense and and the work that
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your businesses kind of pursue? Well, anyone who's been to war would tell you
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that war is awful. War is bad. Categorically bad. That doesn't mean it's always avoidable and that um you
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know there will there are people who will want to use might to make right to define a set of rules. Um and you have
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to be in a position to protect your people and your interests accordingly. >> At the end of the day, it's all about
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deterrence. you don't want to go to war, but you want to be prepared so that if
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you do have to go to war, that you will win decisively and quickly. Um, I've
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never met a general that has said, "You know what I really want to do today? I
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want to make phone calls letting parents know that their children have died in combat." Nobody wants to do that. Um,
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and and I think that that's really the goal of everything we were working on at
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Palanteer. It's what we're working on at Ander, which is make it unthinkable to
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your adversaries that they should ever challenge you. Why do you think it became taboo and became so negative
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particularly in Silicon Valley that building a defense company or company building technology to service the
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defense sector was viewed with with such disdain and was an untouchable sector for so long.
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>> I think it's a beautiful consequence and I mean I mean it unironically of kind of
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the peaceful world that we lived in. The origin story of Silicon Valley is actually defense. You know Lockheed was
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the largest employer in in Silicon Valley in the 1950s. The Corona spy satellites were built there. So in a
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world that was uh gripped by the threat of the Soviet Union, you know, you had a
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very different posture in Silicon Valley. But in a world post the end of the Cold War, the end of history, um
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kind of a view of globalism that it's all going to be great that we exist beyond the confines of our country. Um
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these things were viewed much more cynically and the threats didn't seem very real. And I think you could even
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back test this through the moment where Silicon Valley kind of really woke up and realized, hey, maybe these things
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are real or when the Russian tanks rolled across the Ukraine border, you know, is when they realized and there
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are a lot of Ukrainian, Eastern Europeans, a lot of people who are affected by that in Silicon Valley who
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started to realize that um maybe there's a more nuanced issue here than just
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simple the simple Eisenhower quote of the military-industrial complex. I think many of the people who were protesting
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Silicon Valley's involvement in working on national security priorities were the
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exact same people that had Ukraine flag in bio. Um so there's clearly just like
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a policy mismatch or an understanding mismatch. The other thing I would mention is that these large tech
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companies uh unlike many epics prior uh were global technology companies. They didn't necessarily view themselves as
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American. Uh and so if you go and you look at, you know, where these protests came from, you have to keep in mind that
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a lot of the signatures that they had on these, you know, protests, uh were not coming from US citizens. And so there
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there's like a global character to those companies that probably was not the case
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during the Cold War. >> Do you think that's changed recently? >> I mean, to Sean's point, I think that
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there's just an increased awareness of the complexity of the geopolitical situation. Um, and I I think it's
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certainly a lot less controversial work on these topics than it was in 2017, 2018.
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>> You know, it's a 20-year overnight success, right? And Ander's now
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reportedly raising money at a $60 billion valuation, just landed a $20 billion army contract. Palanteer today
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is worth $400 billion. The flip side of what I just said is that some people are saying that Silicon
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Valley is taking over defense and Silicon Valley is the next story of the American war machine. This has become
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sort of a popular narrative. Can you just respond a little bit to kind of where we were coming out of World War II
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from a defense industry perspective, where we find ourselves, where Silicon Valley seems to be at the center of this
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today. You know, the industrial base that won World War II and the early Cold War was not a defense industrial base.
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It was an American industrial base. You know, Chrysler made the Minute Man ICBM,
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they were the prime contract on it, and they make minivans, so missiles and minivans. General Mills, the serial
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company, had a mechanics division. Everything they learned doing R&D to process grains. They actually used to
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build torpedoes and inertial guidance systems. Ford built satellites until 1990. So the entire economy was invested
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not only in pro economic prosperity but also underwriting the freedom that allowed us to have economic prosperity.
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It's really a consequence of the end of the cold war. So when the Berlin Wall
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still stood in 1989, only 6% of spending on major weapon systems went to pure play defense specialists. 94% of it went
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to what I call as dualpurpose companies. You know, yeah, a missile is single use.
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It's not a dual use product. You're not going to buy it at Walmart. But that
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actually these companies were invested in both parts of this. That figure today is 86%
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goes to defense specialists. So we have a very different structure of the US economy as a result. And I I think it
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leads to very perverse narratives of what would it be like to mobilize if things got really bad. We'll just flip a
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switch and our auto factories will magically turn into enabling us provide for our defense and security. And and I
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think a a coldeyed look at history is it took 18 months to do that. we actually started ramping up to provide this stuff
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for our allies, for the Brits and the Soviets in the context of World War II. And that we've actually missed some of
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those signals today. When when Ukraine went through 10 years of production in 10 weeks of fighting, that probably
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should have been a five alarm fire that we got the fundamental calculus on deterrence wrong. We thought the
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stockpile was going to deter our adversaries. It was always the factory. It was the ability to generate and
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regenerate the stockpile. >> Well, let's look at where we are today. So in terms of defense readiness
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relative to our adversaries 10,000 to1 drone production gap versus China 223x ship building capacity disadvantage and
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I think you've said a 2027 Taiwan window of danger high level we spend more than
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any other nation on defense. How ready are we and how long will it take us? Well, our joint force is the best in the
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world. And so, you know, I think we have to couch the alarmism and commentary in
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that context here. But I think if you look at like the the rate of change, our adversaries are moving very quickly. If
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you just look at the empirical loss of deterrence, you had the annexation of Crimea in 2014, the militarization of
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the Spratley Islands in 15, Iran with breakout capability to get the bomb in 17, you've had a pogram in Israel, you
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have the Houthis holding trade hostage in the Red Sea, not to mention the present conflict. So when you look at
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that you how can you not feel that deterrence is eroding to to Trey's earlier point of having capabilities
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that are so scary that picking a fight isn't worth it and people are investing
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significantly on the low end of the mix. Our high end is still unquestionably amazing. But you know you can't keep
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shooting $2 million interceptors at $20,000 drones and have that math work very long. I think the second part like
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why does it matter that we lost the American industrial base and have a defense industrial base is you lose
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volume. you lose the R&D stimulus to come up with creative ideas like using the methodology of building a bathtub to
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build the next generation lowcost cruise missile, right? And and you get stuck in
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these platforms that are absolutely eyewateringly amazing but are $2 million a pop and you just can't produce them at
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the scale or with the speed that you really need to. >> Right. And Trey, you've talked about
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this. You wrote an article, no solvency, no security. just share with us your view on the importance of this
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industrial base and what it takes for us to have strong defense requisite in a strong manufacturing industrial base. I
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>> I mean we really kind of sent most of these capabilities away um during the
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last 30 years of globalization um and that gutted entire communities in the United States. You know, I mentioned in
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this article that just in my immediate family, like grandparents, aunts, uncles, uh I have family members that
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worked at GM, at Ford, at Frigid Air, at National Cash Register, at Armco Steel.
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Every single one of these factories in Ohio closed. Not a single one still exists. And they all have different
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places they've gone around the world. Um but you know, one of the things we're
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doing with Andrew right now is we're building out a 5 million foot factory campus in Columbus, Ohio. And we have
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the benefit of going back and tapping into that knowledge base that exists that's undermployed at the moment
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because those the factories that kept them busy for many many years are are closed. Um and I think this is the story
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all over America. Like if you think about the atscale manufacturing for a new company started in the this century
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uh in the 2000s um there's really only one that comes to mind just Tesla. That's it. And so we haven't really
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built any muscle around uh new manufacturing capacity. Um and and I think that as you spin things up to
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Sham's point, we don't have the ability to do that quickly because we've
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atrophied massively by by turning all this away globally. So um I think readiness is a real problem and uh we
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have to start investing ahead of the the you know conflict being being there because you can't just start at the
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moment that it's absolutely needed. Tell us about the Arsenal one and then the
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manufacturing behind it. And then I want to just understand a little bit about is
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this productled or production capacity. Do we need to make selections and have capital committed to bringing product to
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market before we start to build out the base or is there an alternative way to get ready?
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>> Arsenal one is our the factory campus that we're building in Columbus. Um the
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operating system for that the Arsenal platform um is really intended to reduce the uh the cost the overhead that's
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required to uh automate and you know handle these processes in the most efficient way possible. So there's like
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kind of the software layer that sits behind that. We're actually working with
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Palunteer uh the foundry platform on some of these programs as well. And uh the idea behind this is that you want it
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to be as modular as possible. If we build out the factory campus and we said we're just going to build furies here or
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we're just going to build road runners here, we're just going to build barracudas here, that provides a
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tremendous limitation in a in the moment of a conflict to be able to be responsive to the demand for specific
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things that are relevant to that conflict. And so we're kind of thinking about this more like contract
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manufacturers think about building assembly capacity where they say, "Yep, we make, you know, this VR headset for
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Facebook. We make this VR headset for Samsung. We make this VR headset for Apple. Um, we build a skill set around
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building optics systems. Um, but we're going to build a bunch of them and we're
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going we're going to be much more effective at doing that by hitting the network of scale. Uh, you know, get
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lower costs on all the individual parts. You're going to build out a supply chain
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to to work through that. That's roughly what we're doing in this case is we're
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saying like a contract manufacturer, we want to be able to pivot on a dime into ramping up production of roadrunners if
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we need road runners or ramping up production of barracudas if we need barracudas. Um the counter example to
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this of course is what we saw in the early days of Ukraine where what they really wanted was more stingers and
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javelins. The problem is is that we once we burned through our inventory in the warehouses the stingers and javelins the
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assembly line to build stingers and javelins didn't exist. All the people that worked on those assembly lines were
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retired. And so the primes were literally calling people out of retirement to come back and teach them
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how to build stingers and javelins again. Um, and so these are problems that we're trying to avoid by the design
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of the factory as a as an initial concept. >> Who funds it? So is there a government
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contract that supports the production of these facilities? And are multiple companies going to be able to to stand
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these up to make these investments or is this just going to end up being an anderal because you've got most of the
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capital and you guys are going to roll these facilities out and how do we make this kind of a national interest?
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>> Well, our business model is definitely very different from the primes uh who
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are basically responding to things as requirements directly from their customer. So they're not really
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investing a whole lot forward of the capability. Um, and on the other hand, we're doing all of this as private R&D
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investment and then we're selling the outcome, the output of that as a product. So, this is fundamentally a
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different business model. Um, but I I do think that there's a tremendous amount
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of capital that's required to pull this off as a new entrant to the space. Um, I
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don't think that the market is going to support 100 new primes or something like
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that. Uh, I'm hopeful that it's not just Anderil. I think it would be healthy if
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there was more competition in the space. Um, but you know, being able to raise that amount of capital, hire the people
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that you need to actually pull it off. Uh, this is not it's not like building a
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a a normal tech company. It's not just the development of a product. It's, you
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know, there's a lot that goes into this. Trey's point might seem kind of obvious
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or simple, particularly to an audience that's largely coming from tech or Silicon Valley, but that's not how
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defense works. People don't build products. People build to a spec that the government says, "This is what I
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want to buy." And then you kind of say, "Yes." You know, you have to think about
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defense as a monoponyy where there's a single buyer for the thing and that concentrates an enormous amount of power
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in the buyer whether they're right or wrong. And if you look at the history of
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defense innovation, typically the monopsin is wrong. You know, it was Churchill as the head of the Royal Navy
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who built the tank because the British army was not smart enough to realize that in the next battle having horses
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was not going to work. So, every one of these innovations is kind of an act of heresy. There there's a founder-like
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figure who is so committed pathologically to a different heretical concept. They see it through and only in
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combat or only when it meets the moment is it actually validated. Now a grave threat like the Soviet Union is a sort
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of forcing function that allow allows you to innovate. When we were building ICBMs we had eight competing programs.
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Today in peace time that would be viewed fastly as wasteful. Why should you have
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eight competing things? Why can't you just pick the right one and put, you know, spend less or put all your wood
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behind one arrow? And of course, that kind of turns its back on our fundamental belief in America on the
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free market that there's a competition of ideas. There's fundamental uncertainty. There's quality like
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variance in the quality of the execution and that you need this competition. And
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it's not just principally competition amongst the primes or new entrance. It's
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also competition inside of government. >> And there were originally, I think, or
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at one point 51 major defense contractors. And just for the audience to understand, they reduce down to
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roughly five or six primes. That's that's the term prime is one of these
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prime contractors and then make subcontract out to other companies to develop componentry parts. My
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understanding in Anderil was to do exactly this build a product, show up with something that's cheaper, better,
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faster, and actually competes on the merits rather than be caught in this kind of prime landscape. And that worked
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clearly. But over time there seems to be a lot of capital concentrating into the
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new primes. You guys, you guys, SpaceX, OpenAI, maybe one or two others. Is the landscape going to emerge that we're
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going to just look like the same old way of operating where we have a handful of
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primes that all have these trusted relationships with the government agencies or how do we kind of create
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that competitive environment to continue to drive innovation and make things affordable for the US government and the
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taxpayer going forward? >> Well, just like uh and I interviewed Trey in my new book on this like just
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like venture, there's going to be a power law here, you know. So, so one of the grave mistakes we've made as we
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think about innovation which has result in essentially innovation theater is this idea that you're going to just
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peanut butter spread around the capital you have for innovation that you know every company is going to get roughly
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the same amount. It's not enough to hit scale. It doesn't reflect actually the
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relative performance differences because there's an authentic power law curve
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like any venture capitalist would would realize that you know your your biggest winners are going to return your whole
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fund. There's there's something authentic here as well, which is like, yeah, you may have 10 bets, but at some
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point you're going to have to get smart about concentrating down on on the things that are actually working.
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>> Yeah. I mean, this is a a kind of a great point about any category. It's
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like if you're a space tech investor and you didn't invest in SpaceX, you
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probably lost money. If you're a crypto infrastructure investor and you didn't
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invest in Coinbase, you probably lost money. If you're a social media investor
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and you didn't invest in Facebook, you probably lost money. And yet, for some
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reason, capital allocators have a very short memory. they don't have the ability to go back to the the prior boom
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cycle and say, "Oh, wait. I remember what happened that last time we had to
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concentrate capital down to the winner." Um, and and I think that this is this
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isn't any different. >> So, what was the motivator then for change in the construction of the
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landscape of defense contracting? Was it software that takes us from the old primes to the new primes? Is that really
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what kind of triggered this >> consolidation? So in '93 having won the
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cold war in '91 or I think more accurately the Soviets lost the cold war you know by 93 we expected as a nation a
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kind of peace dividend we don't have an adversary now we should be able to spend
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less on defense and uh the department had this famous dinner where they brought 15 of the 51 primes together and
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said this is going to happen the budget's going to get slashed we're not
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going to save you guys you have our permission to consolidate some of you are going to go out of business some of
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you should try to make a commercial business which didn't really work uh And
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that's what led down to five. It was actually there was going to be we were going to go from five to four in 99. The
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justice department put their foot down and said we're not going to let Lockheed
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and Northrup consolidate. >> Right. And then today, so the change over, what gave you guys the window?
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What gave you guys the window to build the business that you've built? I mean,
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what did you see early on 20 years ago and continued forward in the hardware side that made you say this is this is
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the moment? Is it software that enabled this? >> Well, I'm going to throw you under the
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bus a little bit on this. It was not obvious from the beginning that this is going to work. Um I can't tell you how
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many meetings even we had together where we walk out and be like >> this is not going to work. This is very
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bad. >> We were not welcome with open arms, >> right? You know, >> early days of Palunteer.
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>> Yeah. Early days, mid days, maybe even late days. You know, famously we had to
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sue our customer just for the right to compete. Uh that that's the strength of
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the monopsin, right? And and really I'd say our our entire business was validated from the field backwards,
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right? It was in DC that we the doors were closed to us. No one wanted to interact with us. Like the where the
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monopsin is strongest at the margin in the field where people are saying like, well, I'm on this deployment. I'm on
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this rotation and I I there is more free market system like what I'm being given
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doesn't work. I'd like to come home. How do I like bend the rules, figure out how
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to get the software I need? That allowed us to empirically show, you know, create
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facts on the ground that this stuff worked. It was a long road to hoe. I think this is part of why it took 20
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years to kind of get to this sort of point here. >> And yeah, I think that a lot of those
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lessons that were learned were not only like educational for and it also created
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a precedence that already existed by the time that we showed up where we didn't
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have to go through all of those same growing pains. So you know what took Palunteer I guess probably about 5 years
00:22:01
to get to 10 million annually in revenue. We did that in 22 months. But I don't think that was a credit to Andrew.
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I think it was mostly a credit to me, Matt, and Brian lived the the 5 years of balance here.
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>> 5 years plus 22 months. >> Exactly. Exactly. And so we kind of had
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a bit of a cheat code, but I don't think it's like culturally shifted to the
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point where it's like actually just easy to do this now. It's not like the
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government has fixed all of their problems. I think it's just that there's
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enough people out there who have seen it that understand how to make it work. Um
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that you can work within the system rather than, as Sham said, trying to constantly fight from the outside in.
00:22:35
Was there a view at that time in these years building Palunteer where you saw an opportunity in hardware? Is that kind
00:22:41
of the motivation for Anderoll that we've got software but there's more to
00:22:45
do and hardware could be reinvented and we could build systems. I mean help us understand the connection.
00:22:49
>> Yeah, in the very early days actually I came by to pitch Sham uh before we
00:22:55
officially started the company. Uh and I think part of that pitch was we said uh
00:22:59
we know how hard software is. We don't want to do that again. We believe hardware would be less hard. Um, and I
00:23:05
think we ended up being right from like a getting going perspective. Um, but yeah, it's just, you know, the
00:23:11
government doesn't know how to think about the value that's created by software. Maybe you feel like they're a
00:23:15
little bit better now, but it was really hard in the early days of Palunteer to convince them to think about it as
00:23:20
anything other than lines of code, for example, or some like metrics that anyone that works in tech knows doesn't
00:23:26
matter. But for hardware, they know there's a bill of materials. In fact, the government made stuff for a long
00:23:32
time. During the Cold War, there were literally ammunition factories that were owned and operated by the United States
00:23:37
government. Um, so they can kind of go through a spreadsheet and say, "Okay, I
00:23:41
know how much it costs for you to build this. I know how much margin I'm comfortable paying you. Uh, and it's a
00:23:47
much easier, you know, crossing of the Rubicon. With software, it never felt like that.
00:23:52
>> Yeah, it's still very hard. I mean, people want to pay for software and
00:23:55
government on a cost plus basis, which doesn't make any sense if you think about the R&D that you put into
00:24:00
software. Like, the marginal price you're paying is a small fraction of the R&D we're advertising across commercial
00:24:05
and government customers. And I think maybe Trey, it's worth telling the story
00:24:09
of how when you got to Founders Fund, you were looking for defense companies to invest in and hitting so many dry
00:24:15
holes is is part of what led to the idea. >> Yeah. I mean I I have no I had maybe
00:24:21
still don't have any interest in venture capital. Um and so when Peter asked me
00:24:24
to come over to Founders Fund, the only thing I knew to do was just to look at C
00:24:28
the category of things I felt like I understood pretty well, which was GVEK. And so I uh incidentally, you can look
00:24:34
up who bids on federal contracts. And so I pulled that list and then at the time
00:24:39
I was using Crunchb. And then I just started outbounding to companies that were bidding on federal contracts. And I
00:24:45
met with hundreds of companies in the first three years that I was at Founders Fund. We made ended up making one
00:24:50
investment in KDM which was renamed Expanse and acquired by Palo Alto Networks. Um but otherwise that was it.
00:24:56
There was nothing else. And even like looking in retrospect like we didn't miss anything. There was just nothing
00:25:01
worth investing in. It turns out Gnome was building in this category. Um, and so I went back to the founders fund
00:25:07
investment team and said, "Man, I feel like someone should be building a next-g
00:25:11
prime that builds hardware, but it's software defined and hardware enabled rather than being hardware defined and
00:25:17
software enabled." Um, and uh, to my surprise, the team was like, "Yeah,
00:25:21
sounds like you're probably the guy that would know that that's the gap. And I
00:25:24
don't know, maybe you should start a company." And I'm like, "Oh, no. You you
00:25:27
guys hired me to work on the investment team at Founders Fund." They're like,
00:25:31
"Yeah, that's fine. You can you can do that, too. It's all good." So yeah, it
00:25:36
was kind of an accidental founding in many ways. >> The capital requirements for hardware
00:25:40
business are notably higher if you didn't have the success you had building the manufacturing facility you're
00:25:45
building. And I'm assuming all the R&D cycles are longer and require more
00:25:48
capital to get to a point of product. Does it make sense for venture capital to be the funer of the next gen of
00:25:56
hardware defense tech companies? How does the economics and the capital markets >> I'll give a take here and then so I
00:26:02
think um if you back up a little bit if you look at Fairchild if you look at integrated circuits in 1968 96% of all
00:26:10
integrated circuits sold were sold to the Apollo program there was effectively a monopsy there's one buyer for this
00:26:15
thing but Bob who was at Fairchild at the time and co-inventor of the transistor he was so maniacally
00:26:21
committed to a future that semiconductors integrated circuits would be in everything that he never let more
00:26:26
than 4% of his R&D be paid for by the government. he was going to be like why
00:26:30
should I have some PM tell me what my R&D road map I invented the thing so he
00:26:34
kept executing that and that's he so he chased Moore's law mercilessly and that
00:26:39
meant in the 80s when the government needed precision guided munitions for assault breaker to compete against the
00:26:44
Soviets we had the price performance we needed uh so this idea that you know because when you get stuck inside the
00:26:50
government loop of what they want you never hit the price performance >> by the way there's a good modern analogy
00:26:54
which is Jensen and Nvidia right 93 graphics chips sold them as an OE almost like an OEM type solution until here we
00:27:01
are. >> The the one that speaks to my heart as a child who grew up in the shadow of the
00:27:04
space coast is shuttle. You know, shuttle is is a it's beautiful, but it's
00:27:09
$50,000 a kilogram to get to orbit. Starship heavy reuse will be under 20 bucks a kilogram, you know, and there's
00:27:15
no way that you will achieve that vision if you're in a cost plus world because
00:27:20
every day you're actually deleting your cost, which means you'd be deleting your
00:27:22
profit instead of deleting your cost, turning that into margin that you can provide a better price performance on
00:27:27
and keep writing that curve down, >> right? >> Although to be fair, SpaceX sued their
00:27:31
customer in the Air Force on the basis of the exact same federal procurement law um that Palanteer did. And so, you
00:27:38
know, even with that massive cost uh costing down, they were in the same position as Palunteer was in the early
00:27:45
days. >> Yeah. Let's go back to the venture capital at this conference that we're
00:27:48
at. There's dozens of VCs now. This is clearly become a hot space as defined by
00:27:54
your successes. What's going to happen? So, these VCs are plowing money into
00:27:58
hundreds of defense tech companies from drones to satellites to weapons systems to software tools. How is this going to
00:28:05
play out over the next couple of years as a venture investor with your knowledge about Androll?
00:28:09
>> I remember when I first got my offer letter from from Palunteer. Um there
00:28:14
there we had this kind of high low mix of salary versus equity compensation and it gave three examples of how much your
00:28:22
equity at your that was on your offer would be worth at different valuations. It was I think it was 15 and 10 maybe or
00:28:29
15 and 20 something like that. And I remember talking to people around the company, they're like, "20? That's
00:28:35
ridiculous. We're never going to be worth $20 billion." Um, and uh, you
00:28:40
know, I feel like now it's like people are going out and they're like, "Our
00:28:42
seed round will be priced at $20 billion." Um, so I think there's there's
00:28:46
been a big shift in just like the way that people think about these things. Um, some of that is good, some of it's
00:28:52
bad. I think on the good side they're, you know, they're able to look at
00:28:55
companies like Palunteer, like SpaceX, like Andreal and say there is actually a path to success. This isn't like an
00:29:01
impossible market to innovate in. But at the same time, um, you know, there's
00:29:05
there's a real tension around amount of capital raised and the valuations that
00:29:09
are being applied to these rounds that add a tremendous amount of risk to the company that doesn't have to exist. You
00:29:16
know, there's this favorite there's this famous scene from HBO's Silicon Valley
00:29:20
where a CEO gets fired. um for uh kind of underperformance on the plan that they had presented. Um and Richard
00:29:27
Hendricks, the main character, says, "You know, you could have raised less at
00:29:30
a lower price." And he said, "What do you mean? No one ever told me I could
00:29:34
have raised less at a lower price." And I think that's ultimately what my advice
00:29:38
to these companies is is like, "Look, your product might be awesome. Seems like you're building a good team. I like
00:29:43
the vision for what you're doing and the mission, but you can also raise less at
00:29:47
a lower price." And I think that avoids, you know, playing chicken ultimately
00:29:52
with trying to hit numbers that frankly don't even make sense. Um, one of the
00:29:57
things that we've been focused on at Andrew that I think maps back to our experience at Palenteer actually is
00:30:02
climbing down the multiples tree uh with every round. We never want to go and raise the next round at a higher revenue
00:30:09
multiple than the prior round. Um, and even the series H that you mentioned before, uh, is is down pretty
00:30:16
significantly from the series G. And we're not doing that because investors wouldn't be willing to pay higher
00:30:20
multiples. We're doing that because I believe the discipline is really, really
00:30:24
important, especially heading into a a, you know, medium-term IPO. >> Emil Michael talked about this $200
00:30:30
billion of capital he wants to deploy. It's been reported he's hiring bankers
00:30:34
to help him deploy it. To counter your point, if there's a lot of capital flowing from the monopsin, if there's a,
00:30:40
you know, a big market that's growing aggressively, you've got a $200 billion
00:30:43
TAM to go after now. Shouldn't that justify the venture capital coming in? Maybe even justify going at a higher
00:30:48
price. Is this Department of War investment activity really going to kind of change the landscape and increase
00:30:54
more venture capital flow? >> I think it's it's going to help out tremendously. First of all, I love the
00:30:58
nickname that this team has, which is Deal Team Six. So, uh you know, I'd be
00:31:02
honored to be part of that team. uh but I I think if even if you look back at the titanium supply chain in the 50s60s
00:31:07
it was it was bootstrapped by the air force in a similar way where they strategically injected capital down the
00:31:12
supply chain to enable the aerospace industry to be created. So I think there's a tremendous opportunity with
00:31:16
the office of strategic capital to think about what are the structural bottlenecks in the production. You can
00:31:21
have a lot of drone companies and they're all going to bottleneck on brushless motors. There's going to be
00:31:25
certain key parts of the supply chain that we don't have enough capacity to produce here in the US and they're going
00:31:30
to need a bolus of investment and just like integrated circuits, the first customer is going to be less economical
00:31:36
than the end customer. So I think that's one part then the other story I love is
00:31:39
where we really screwed this up. The drone is an American birthright. Abe Kareem and the Predator, we we built it
00:31:45
General Atomics. But of course then the government got in the way. The government said, "Hey, a drone is a
00:31:49
flying missile. This thing needs to be ITAR controlled." Also, the FAA got in
00:31:53
the way and said no beyond line of sight operations. Right? So, you basically killed the domestic drone market. There
00:31:58
was a counterfactual world where General Atomics had a consumer subsidiary called
00:32:04
DJI and the consumer drone market was entirely owned by the US and it provided for economic prosperity for America and
00:32:12
wrote us down the price production curve that we could be using these things in innovation for national security as
00:32:17
well. >> What's the next market where you're worried that's going to happen?
00:32:20
>> I have a lot of markets. So, I mean, we're talking a lot about um weapons of
00:32:24
war here. I'm worried about things that go beyond weapons of war that affect our
00:32:28
will to fight. Uh pharmaceuticals is one that's close to my heart. My father was
00:32:31
a pharmacist, and it's one of the things he always wanted me to work on was bringing pharmaceutical production back
00:32:35
home. 80% of APIs for generic drugs are produced by China. What do you think the
00:32:40
American people are going to think when they have to choose between defending the free world, defending American
00:32:44
sovereignty, and their 5-year-old dying of an ear infection that we would have thought of as trivially curable? So I
00:32:50
think there are these these things where we've just embibed the globalist vision
00:32:54
that hey we'll do the innovation they'll do the production without realizing that
00:32:58
innovation is a consequence of productivity probably to put it in terms that the that the tech community would
00:33:03
really understand is like what motivated Google to do the research in 2017 be behind the paper attention is all you
00:33:08
need a desire for a 3% incremental improvement in Google translate you cannot think of something more bal
00:33:16
leading to something more revolutionary and we have seated all of those opportunities to realize and harness
00:33:21
that innovation. Now, if you we stick with pharmaceuticals, there's a reason
00:33:24
50% of all clinical trials, new clinical trials are happening in China and not in
00:33:28
the US. >> Do you have a view on a technology or product that's developed in the US that
00:33:32
we're at risk of getting regulated out and we're or we kind of going in the
00:33:36
right direction at this moment? >> I would say that semiconductors is actually a really interesting one. back
00:33:40
to your your point about um Fairchild is that you know we were the the home of the semiconductor industry for many many
00:33:47
years and um you know once TSMC got got you know ahead of steam in Taiwan uh they kind of ran away with it and we
00:33:55
didn't rather than investing in a domestic competitor uh there are all sorts of reasons for this that we could
00:34:00
spend hours talking about um we basically just allowed that to happen somewhere else and now we're in a
00:34:05
position where almost no amount of money is going to fix this problem for us certainly on a timeline of relev as it
00:34:10
pertains to the risk that Taiwan has um in 2027. So, I would say that's like
00:34:15
another really big one. >> Getting back to defense, how does the hardware and software fit together in
00:34:20
this, you know, kind of emerging war technology landscape? You guys are building software, you're building
00:34:26
hardware, like help us understand a little bit about what the systems of war look like in the decades ahead.
00:34:31
>> Well, I think the the starting premise would be where does it give us an
00:34:34
advantage? And uh you know, we had the first offset which was nuclear weapons. The second offset, precision guided
00:34:39
munitions and stealth. Really, the the third offset is decision advantage. How can we outthink and out execute the
00:34:44
adversary? That's where these things fit together. That's like the thesis of even
00:34:48
having them to begin with. And I think the reality is that there's kind of a
00:34:52
messy overlap of these things. Like all innovation is messy and chaotic and maybe the department suffers at times
00:34:58
because it tries to have a framework-based approach like we're going to have MOSA modular open
00:35:03
standards architecture something like that. you know, it's like we're going to
00:35:07
avoid all of the pain and messiness by having some sort of process, but in reality, the process always destroys all
00:35:13
the innovation. And so there there's obviously a very tight thesis where these things need to coexist and build
00:35:19
off one one another. They need to be interoperable, but you have to earn that. You have to earn that opinion in
00:35:25
the exercises, in the tests, and the evaluation in combat would be my my humble suggestion. Do you think that
00:35:31
outside of what Anderl's building, there's actions that this administration
00:35:38
should be taking or that the private market should be taking to solve this hardware manufacturing and capacity gap
00:35:45
that we have right now? >> My view is they're actually taking a lot of actions. Not all of them have come to
00:35:49
see the day of light here, but you know, even something as simple as reimagining
00:35:53
munitions and drones as consumables. They're not things that you build and then stock on a shelf. They're things
00:35:58
that you at the time of ordering them, you already have an exercise test plan where you plan to expend them, which
00:36:04
means that you're going to have to replenish them, which means there's a
00:36:06
demand signal to industry to keep going and and a buying cycle that means that you can buy the next generation rather
00:36:12
than having the old generation. Uh, and I think this department sees that in a very cleareyed way and is doing the
00:36:17
yman's work of like stitching that through through all the services, all the portfolio acquisition executives to
00:36:23
the point of not believing in process. They've moved from a world where you have a very rigid, hey, I said I was
00:36:29
going to buy X of Y and I can't change my mind to a world where there's more
00:36:32
autonomy and authority for the people who are buying things to say, I told you I was going to buy something that
00:36:37
accomplished this goal. I can change my mind about how I'm going to accomplish
00:36:40
this goal, which you know, can you imagine trying to run any private sector business without that degree of autonomy
00:36:46
and and flexibility in your decision-m? >> To echo Sham's point about what the
00:36:50
administration is doing, there are a bunch of swings that they're taking. It
00:36:53
wasn't that long ago that uh in the Obama administration, there was kind of the Celindra failure where they invested
00:36:58
in this solar panel company. It ended up being a bad investment for the US taxpayer. Um but now the Office of
00:37:04
Strategic Capital is taking a really hard look at critical minerals. They're
00:37:09
looking at, you know, refining of of minerals and uh they're engaging directly with the private sector to come
00:37:14
alongside them in doing deals to get offtake agreements on these things. So I think there is some really clever
00:37:20
thinking going on. Um, and then in addition to that, I think the procurement process is sort of up for
00:37:25
revision constantly. Um, and Ash Carter started pulling a lot of these threads during the Obama administration. That
00:37:31
was the third offset initiative. Um, but you know, we're in a in a world today
00:37:35
where there's kind of a renewed vigor around being asked private industry being asked what do you need like tell
00:37:41
us what you need to be changed about the way that we do business in order to streamline this and make it go faster.
00:37:46
So I I think there's a lot of positive momentum. Do you guys think these changes have been institutionalized or
00:37:52
are they political party dependent? If the Republicans lose the midterms and there's a Democrat president in 2028, do
00:38:01
you think that there's a reversion to the old way of operating that's going to
00:38:05
have some political influence and change things or do you think we've really
00:38:08
changed how things are are running in the government here? >> I I don't think it's political, but I
00:38:11
think it's people. So you can go back to again Ash Carter, Democratic administration, highly focused on fixing
00:38:18
these problems. The current Trump administration highly focused on fixing these problems. And you know, there are
00:38:25
a lot of people that live that were in the middle of that that didn't prioritize this. It wasn't, you know, it
00:38:31
didn't rise to the top of the stack. And so I think we always think of like the
00:38:35
bureaucracy as being a political infrastructure or an institution or, you know, bureaucracy. I actually just think
00:38:41
at the end of the day it's about leadership. It's just do we have the right people that understand the set of
00:38:45
the problems that we're we're facing. >> I couldn't agree more. I mean I I call
00:38:48
them heretics and heroes. Like you you know the entropy of the bureaucracy is always towards some sort of sclerosis.
00:38:54
It doesn't it's not a political statement. It just is what bureaucracy does. when David Packard, who was
00:38:58
probably the last major technology co-founder who served in the Department of Defense, when he came up with the
00:39:03
5,000 series on acquisition, which today we view as just sclerotic BS that's
00:39:09
that's tied us down. Well, he his document was seven pages long in the in the years between when he wrote that and
00:39:14
now it's 2,000 pages. So, did he really screw us or did just the entropy take
00:39:20
hold and there was no strong leadership in between to go do the bushwhacking and
00:39:23
mow the lawn and and and make the right decisions? Now, you know, this this administration's blown up jids, which is
00:39:28
kind of one of these insane bureaucratic processes. Like, can you just take a forget a scalpel, take a machete, and
00:39:35
start clearing the jungle, and reearn some of these lessons as you go through it? If you look at Kelly Johnson, who
00:39:40
was the founder of Skunk Works, he built 41 airframes in his career, including the SR71, still the fastest flying
00:39:45
manned aircraft, and uh and the U2, which we still fly. Like one, if you look at his rules, one of his rules was
00:39:51
he had to play defense to keep the government bureaucrats out of his program. And I think you could, you
00:39:57
know, okay, it's not it's not a critique of government. You could think of big
00:40:00
corporations. When the big corporations bureaucracy gets into the innovation folks, the innovation stops.
00:40:04
>> And the heretics and heroes were really founders. It's like from a tech
00:40:08
perspective, that's exactly what they were. like to the Kelly Johnson point,
00:40:12
the U2 did not start as a US military aircraft because they didn't want it. Uh
00:40:18
he ended up going through the intelligence community to get his start there. Uh and and it was kind of finding
00:40:24
the right person that was willing to take the risk to do the thing rather than relying on the system or the
00:40:29
institution to do that. This is the same with Benny Shriber with ICBMs, Admiral Rickover with the nuclear navy. Um, it
00:40:35
used to be about people, but today if you were to go to the the Pentagon and say, "Who's responsible for the F-35?"
00:40:42
I'm not sure they even know who is responsible for the F-35. We're we're
00:40:45
building systems by by committee rather than trusting the founders and people. >> There's like a proclamation. It's so
00:40:51
great. It's this X Y or Z project is built in all 50 states. Like the objective is it's it's being the money
00:40:57
is being spread around versus the F35. How do you achieve the objective? The F-35 has components manufactured in 400
00:41:03
congressional districts, >> right? >> I mean, that's like that's a political
00:41:07
project. >> We had this AB test with SLS and Starship, right? Like SLS had to have
00:41:12
subs in all 50 states, but this AB test has been played out. >> I do think there's something about the
00:41:16
kind of Calvinist spirit of America that sometimes gets us to misunderstand. You
00:41:20
know, we call it the Apollo program, but it was probably it's it's really the
00:41:24
Jean CR program. You know, uh it's the F-16, but it's really John Boyd's plane.
00:41:28
And and there's like a humility where we'd never want to call it, you know,
00:41:32
you wouldn't call it although maybe the nuclear navy we kind of do call it Rick
00:41:35
Over's Navy, but there's an element of like it's obviously both things. It's
00:41:39
bigger than the person, but actually the starting conditions require the founder
00:41:43
figure. >> So tell me about where we are in the state of readiness. You know, we
00:41:48
highlighted some of the statistics, but if you guys were to think about what we need to accomplish, the infrastructure
00:41:55
we need to stand up to have production lines that can be turned on to support munitions capacity for conflict in, you
00:42:02
know, pick your region, let's say more than one region around the world, and
00:42:06
the US needs to sustain those conflicts to defend the United States. How far are
00:42:10
we from being ready based on what's going on in the investments that are being made today
00:42:15
>> across the sector? I think the way I think about it is if you thought about
00:42:19
this as a spear, the tip of the spear is incredibly sharp. The shaft of the spear
00:42:24
needs a lot of work here. Um, you know, the Department of Defense such a big organization. It it's it's structurally
00:42:31
supply and demand is not integrated. You know, the the demand side is a real world events that happen in the
00:42:36
combatant commands. The the supply side are what the services and the industrial
00:42:40
base build. The man, train, and equip and how you're actually producing that
00:42:44
material. And the ability to drive consensus, which is really the beating heart of any private sector company of
00:42:49
like how does supply and demand come together? What's our review of it? Is is
00:42:52
kind of managed with with great difficulty in the Pentagon. And your ability your agility to respond to
00:42:58
scenarios is is weak. That's that's where we can have a lot more precision
00:43:02
because if you can start changing your mind and saying actually I thought I needed X barracudas, but now I need Y
00:43:08
barracudas and Z furies. How quickly does that take to percolate through the supply base? you know, instead we get
00:43:14
locked into these like, hey, we've made a decision. The decision really can't be
00:43:17
revisited. Uh, and then you start over time, the entropy is like, hey, I need to I have I have an unexpected bill.
00:43:25
Let's just take a little bit of money away from these programs. And everything
00:43:27
starts getting down to minimum rate production, which is this idea of what can I produce to just keep the line
00:43:32
open, which is not deterrence. That's how we frog boiled our way here. And that this is where my my idea of like
00:43:37
you got to tie this into consumption. Like everything you're building, particularly on the munition side, needs
00:43:41
to be consumable, such that you know you're going to replenish it such that the primes and the neopimes all have the
00:43:48
demand signal they need to keep going and have a reason to produce them cheaper in order to make more money. My
00:43:52
most contrarian idea is like the the cynical view that like you have the military-industrial complex and they're
00:43:57
just in it to make money. Well, this it's kind of a crappy business. Like you
00:44:00
know these companies trade at like less than two times revenue. The problem is it's not profitable enough actually. But
00:44:06
Trey, Sham said in the past, we have 8 days of munitions on hand for a major conflict with China versus 800 days
00:44:13
needed. How far away do you think we are to having the supply chain built and the
00:44:18
production capacity built to meet that objective? >> Well, I mean, one of the other things
00:44:22
Sean just said in this conversation is that there's a hyo mix question as well.
00:44:26
like there are exquisite systems that are like the multi-million dollar interceptor missiles and then you have,
00:44:31
you know, dumb munitions, things like bombs that are being dropped and things like that. And it's not the same across
00:44:36
that entire stack. You know, there are some uh some munitions that are woefully under supplied and we have very low
00:44:42
readiness on and there are others where I actually feel pretty good. Um, from an
00:44:46
Android perspective, you know, we're looking at ramping as fast as we can. We
00:44:49
just opened uh Arsenal yesterday uh to start producing furies. Um, and you know, looking out over the next 18
00:44:57
months, we're not taking our our foot off the gas and yet there's still a run
00:45:01
rate capacity that we're running into as we ramp. Like you it just takes time to
00:45:05
get all these lines stood up. Um, so, you know, if we were to start today with unlimited cash, I think over the next 18
00:45:13
months as a country, we could get to the point where we were on track for having
00:45:17
a sustainable uh industrial base. Uh, but we're not going to do that. we're
00:45:21
going to trickle it out over time and uh and I think that unless there's real
00:45:26
political leadership that steps up to drive this forward, we will likely be in a similar situation uh for a long time.
00:45:32
Um and so I think we really need to to take advantage of this specific moment where there's clearly urgency that is
00:45:39
understood by by leadership across the administration. >> How much of the spear is autonomous
00:45:45
systems? Is everything going autonomous? Is it just drones or is there on the ground autonomous
00:45:50
>> right now? Well, I I would actually argue that like the >> if you were to build for the 18-month
00:45:55
out >> Yeah. I mean, the wars of today are fought with the weapons of yesterday.
00:46:00
That's like just a fundamental truth. And some of our weapons of yesterday are
00:46:04
awesome. Like B2s are incredible. Uh the bombs that we dropped last summer in Iran, incredible. Like these are very
00:46:13
high-tech, exquisite systems. Patriot missiles, incredible. They're very performant. Uh they hit their targets
00:46:20
almost every time. I mean, these are great systems. The problem is is that they're incredibly expensive and we
00:46:24
can't resupply. Like we're just we're way behind the eight-ball on that. And
00:46:28
so, uh, you know, thinking about the wars of the future, it means that we need to start building these attritable
00:46:33
mass systems today so that they're in inventory to be used for those conflicts. There are a number of androl
00:46:39
systems that are at a readiness level in at a level of deployment that they're
00:46:43
active and being used in in combat today, but it's still a very small percentage of of the way that the wars
00:46:49
are being waged. Um over, you know, the next 5 to 10 years, that hyo mix is going to have to shift massively. I
00:46:56
mean, this is just like clearly evident in Ukraine. It's clearly evident in Iran. uh and I think the department is
00:47:02
making steps to ensuring that they have a better divide of lowcost attra exquisite systems um but uh you know as
00:47:13
I said it's going to take political leadership to get there uh but we we have the ability to do it the reason I
00:47:18
ask is I want to talk a little bit about the ethics of technology to war the anthropic runin with the department of
00:47:26
war recently and I think you guys have both talked publicly about this but Anthropic refused to let its claude
00:47:33
model be used in Maven without human oversight constraints. This is what's been reported what Emil Michael has said
00:47:39
and the Pentagon labeled them a supply chain risk. Both AI and generally autonomous systems beg the question what
00:47:47
role should humans have and who should have the right to play that role of hitting the kill switch. What's your
00:47:54
view on the role of the technology vendor to the department of war and where you guys draw your line on what
00:48:00
your responsibilities are with respect to ethics? >> Well, my my view on my responsibility to
00:48:06
ethics is a slightly different question than my belief in democracy, which is a different thing. Um, so maybe starting
00:48:12
on on the democracy point. Um, I believe that the people of America have elected
00:48:16
representatives to make really hard decisions about how we engage in combat. Full stop. Um, fully autonomous weapons
00:48:24
are not new. We've had autonomous systems in operation like SeaWiz, which is deployed on uh, naval vessels that
00:48:32
shoots down aerial threats fully autonomously. You don't have time to make decisions about, you know, incoming
00:48:38
missiles or threats to your ship. You just have to shoot it down. So, that's
00:48:41
what Sew does. Now, Sewiz has accountability in the system. There's a person on that boat that is responsible
00:48:48
for whatever actions that weapon system takes. And I believe that this is the future of autonomous systems is that
00:48:54
just like any other system, whether it's a soldier carrying a gun, they are accountable for what happens with that
00:48:59
gun or uh you know the captain of a naval vessel, they are responsible for what happens with that sea whiz. All of
00:49:05
your autonomous systems are going to have accountability baked in. Now, ethically, how do I think about this?
00:49:11
You know, I believe that, you know, what Sean was saying about the first offset,
00:49:15
the second offset, and the third offset, um, is, you know, we have we as a society went from like rocks and sticks
00:49:23
to, you know, knives to guns to bombs. And then in, you know, World War II, we kind of plateaued with nuclear weapons.
00:49:31
And we all looked around at each other and we said, "Wow, that's pretty crazy.
00:49:36
I don't think we want to make more and more powerful nuclear weapons forever."
00:49:40
And so actually our engagement in combat has come back down the chain. Uh we're,
00:49:44
you know, precisiong guided weapons. We're shooting non-exlosive missiles into windows of apartment buildings,
00:49:51
avoiding casualties, unintended casualties. Um and I think that's really the goal. And if you look at AI as the
00:49:58
command center uh for making better decisions with better precision, with better discrimination, with uh less less
00:50:06
uh civilian casualties, this is good. that's actually ethically far improved
00:50:11
from just dropping dumb bombs on areas of cities to eliminate military facilities. So, um I don't think
00:50:17
abstension from participating in the building of technology for national security is a morally neutral decision.
00:50:24
You are making a moral decision when you decide to abstain. And I am making a moral decision as a private citizen
00:50:29
building a company in this space that I believe that this is ethically just and uh I trust in our democracy to deploy
00:50:35
those tools with uh the interests of the American people at heart. There's a lot
00:50:39
that's said about Palunteer enabling a surveillance state. We had the all-in
00:50:43
summit in September. Alex Karp, your CEO, spoke and there was a protest group outside protesting Palunteer powering a
00:50:50
surveillance state. I just want to give you a chance to respond to that. number one. And number two, if you saw that
00:50:57
Palunteer's tools were being used in an illegal way, where's the responsibility
00:51:01
for Palunteer as a technology vendor in addressing those concerns? >> It's almost hard to respond to because
00:51:07
it's very unclear what surveillance people think we're doing. You know, there's just like a broad almost maybe
00:51:12
an outgrowth of Terminator fear around technology. >> And I want to get into that cultural
00:51:16
question next. I think it's like very important to understand. >> We don't collect data. We don't have any
00:51:19
data. It'd be like it'd be like accusing Excel of being a surveillance tool,
00:51:23
right? It's like this is a way of bringing your your own data that you have lawful authorities to collect
00:51:28
together to make decisions. Sounds a lot like Excel. Um, but it's, you know,
00:51:33
because we are unabashedly patriotic and serve the US military, I think people have a kind of colored view of these
00:51:40
things. >> I would argue that it's actually Excel with cellby cell. You know, it' be as Karp says, it's the
00:51:49
most insane platform in the world to try to do something illegal in because you are going to be caught. You know, like
00:51:54
that was part of the idea of how do you enhance privacy and security? It's how
00:51:57
do you build more civil liberties protections in how do you have a normative view that enables a democracy
00:52:01
to say these are laws and rules, the system will enforce it. We're not just relying on people happening to do the
00:52:07
correct thing. Uh so that's one piece of it. The other piece of it to come back
00:52:10
to this broader point is the the need for epistemic humility. like one of the um to the point of we have elected
00:52:16
officials um they are accountable for these policy decisions I think at the limit it's actually kind of indefensible
00:52:23
to have a perspective other than lawful use because if you are salami slicing the policy that's actually tyranny by
00:52:31
techb bro you know a small number of people are constraining the maneuver space of a democracy with no
00:52:36
accountability to the populace so I I think that's a pretty challenging perspective to be and we've been in this
00:52:42
perspective if you go back to How did the Soviets get the nuclear bomb? You know, there's really there's two sources
00:52:47
of treason. One was committed communists like Klaus Fuks who was always a spy. But the other were people like Theodore
00:52:54
Hall. He was one of the youngest scientists in the Manhattan Project at 18 years old. Uh his brother Edward Hall
00:52:59
built the Minute Man missile. His brother was, you know, kind of a heretic and hero in my terms. But Theodore said,
00:53:04
you know, I'm one of the best physicists in the world. I'm probably also one of
00:53:07
the best geopolitical strategists in the world. And I think the only way to have
00:53:10
world peace is if two countries have the bomb. So in 1944, Theodore Hull walked into the Soviet trade mission in New
00:53:16
York and gave them critical secrets to the bomb. Now Theodore thought he was going to deliver world peace. Instead,
00:53:22
every death from communism since 1949 is actually on his hands. And there's no
00:53:26
accountability for that. Yeah. I think one of the other things that comes up in these uh these conversations about
00:53:33
powering the surveillance state is this belief that we have policies but we don't actually want our civil servants
00:53:39
to have the best technology to enforce those policies. And it's almost like a
00:53:43
lack of belief in the institution of democracy. It's like you know traffic cameras for example. It's like man I I'm
00:53:49
sort of libertarian in some ways. I don't love traffic cameras but if traffic came say I'm going to send a
00:53:54
ticket to every single person that blows through this red light. I don't know,
00:53:58
maybe we have to change the policy around red lights if you don't like that. Uh, or
00:54:01
>> I've gotten three speeding tickets in San Francisco from autonomous cameras in
00:54:05
the last month. >> Well, they did ramp it up significantly, which is incredible that they're
00:54:08
enforcing laws at all if we're being honest. >> I mean, like, here's my ticket. And then
00:54:12
I'm literally watching the guy while I'm doing three miles over the speed limit,
00:54:15
you know, take heroin needles out of his arm and put it on the floor next to elementary school and I'm like, totally
00:54:21
fine. Yeah. >> But it's the same thing with like, you know, using t using tech for better
00:54:26
enforcement of tax. uh law or something like that like do you is what we're saying by criticizing what Palantry is
00:54:32
doing is what we're saying that we don't want our civil servants to have the best
00:54:36
tools possible because you can have that position I tend to think that that position is pretty morally bankrupt but
00:54:42
I guess you could have that position but ultimately I think that's what it is
00:54:45
>> so scenario play this for me because there's a public perception I don't know
00:54:48
how farreaching it is that there's some tied corruption between government officials that use technology that's
00:54:53
super advanced that's hard for people to understand and the technology ology
00:54:56
vendors. If you saw government agencies using your technology, either of you in an illegal way that you knew broke the
00:55:02
law, do you report it? >> 100%. >> I there's an entire mechanism.
00:55:07
Absolutely. >> There is an IG in every agency. >> Right. So can just just explain that for
00:55:11
a second. The inspector general maybe. >> Yeah. Every agency has an inspector
00:55:15
general who's an independent organization that you can provide anonymous or non-anmous complaints to
00:55:21
that then have the ability the statutory ability to do an investigation in an unfettered way inside of that
00:55:26
organization whether it's the department of war or um housing and urban development like literally every single
00:55:32
agency. Uh, and this mechanism is used. I actually, you know, in this case it was weaponized against one of my
00:55:38
favorite heretics and heroes, Colonel Drew Cukor, who invented Maven, the founder of Maven really, but you know,
00:55:43
people would file complaints claiming that he was um hiding illegal immigrants in his basement, a basement that he
00:55:49
doesn't really have, you know, but but all of those things were investigated.
00:55:52
Naval Criminal Investigative Services went out to his house and actually looked into these things. So, people
00:55:56
take this incredibly seriously. Where does the culture come from? The anti-defense tech alignment culture. Is
00:56:04
it because of the peace era that we had and folks took for granted national security?
00:56:09
>> I think the first schism was really during Vietnam where people felt like um
00:56:13
they were lied to about the war. It it drove a fundamental schism between academia and defense and that we've
00:56:19
never really healed from that schism. And so there's this this this kind of sense this distrust that's that's brewed
00:56:24
there and kind of escalates through society. The second schism is like the number of people who are prior service
00:56:30
or are connected to this community who actually see these people as humans and have a fully informed mental model of
00:56:36
how diligent they are, how the work actually gets done, what do these words actually mean, what is the process like
00:56:41
is is is evaporated. So then their own fears fill how they think it happens and it seems like maybe it's happening more
00:56:49
in a cowboy way, maybe it's happening in a way without oversight that there is no
00:56:52
such thing as doctrine. like there it's kind of a cartoon version of what's
00:56:55
actually happening that I think you know you're unable to reconcile. >> Yeah. I think if you even look back at
00:57:01
what happened with Snowden uh you know what was that 15 years ago now something like that
00:57:06
>> um you know that there was almost no discussion about the investigations that
00:57:10
went into like was the data collection actually abused and the answer was like basically not at all. there were like
00:57:16
less than 12 documented cases where someone got access to data that they shouldn't have. And it was because of
00:57:21
like technology errors, not because of the policies that were implemented. Um, and so, you know, we can have
00:57:28
disagreements about whether or not the intelligence community should have collected the data and stored it. Uh,
00:57:34
but that was that policy was renewed multiple times by multiple administrations, multiple political
00:57:41
parties that had the majority in Congress over decades. And so apparently our elected representatives thought that
00:57:47
it was important enough to keep in the system. Um so I think it ends up being this kind of weird policy discussion. Uh
00:57:54
but the second point that you make I completely agree with about like the the kind of distrust of the institution uh
00:58:01
in in creating the stories for themselves. Uh I oftentimes go and do guest lectures at Stanford and I always
00:58:08
try to ask like raise your hand if you have an immediate family member that serves in the military. No one ever
00:58:13
raises their hand. It's crazy. Like at at Stamford, there are veterans that come in that go to the GSB and things
00:58:20
like that, but in like the undergraduate undergraduate student population, it's
00:58:24
incredibly rare for anyone to have any connection whatsoever in their immediate family to the military. And I I think
00:58:30
there's like, you know, some of this goes back to criticisms that people like
00:58:34
JD Vance, uh, the vice president, has made about, you know, elites in America and things like that, but there's just
00:58:40
this incredible divide that has happened. Um, and we're kind of losing touch with that kind of salt of the
00:58:46
earth, middle of the country, you know, veteran community that I I feel like was
00:58:50
way more present during the the Cold War, uh, and and, you know, the World War II before that.
00:58:55
>> Do you think that there's any external influence that's driving this culture?
00:58:59
>> Are there influences on social media in mainstream media? And maybe just talk
00:59:04
about destabilization and the attack vectors. I've seen it in other areas of science. I don't want to
00:59:10
spend time on this show talking about it, but there have been traces that I found on external folks that want to
00:59:17
destabilize American science and industry progress and they create fear and they put out articles and then they
00:59:24
go social and they they become viral and suddenly everyone believes it even though it's not true. Do you see that?
00:59:29
And have you actually kind of seen that in the sense of like attacking the tech companies that are now supporting
00:59:34
American defense? >> 100%. Even if you go back to, let's stick with Vietnam. Uh the Soviets spent
00:59:40
$7 billion in 2026 funding the peace movement, the anti-war protest. Now, there's obviously some
00:59:47
there is an organic element to it, but this is just dumping gasoline on the fire to sew division and discord. Uh and
00:59:53
I think in the present day, you I I think you know certainly we see it against Pounder where there's CCP money
00:59:59
flowing to organizations that are protesting us for various domestic issues here that it's not isolated. It's
01:00:05
it's broadly a successful strategy for our adversaries to sew division. >> No one will believe it because no one
01:00:10
wants to believe that they're being influenced, >> right? But but I I think Sean's point is
01:00:14
exactly right. It's like it's actually a brilliant strategy. Like good for them.
01:00:19
They they are not our friends. They're our adversaries. What would you do if
01:00:22
you were in their shoes? It makes a ton of sense. >> Do we do that? >> I mean, look, we we have all sorts of
01:00:27
counter intelligence operations operating around them. The modern art movement was really funded by the CIA to
01:00:32
undermine the kind of Soviet control of art, you know, and it was it was broadly
01:00:37
funded and it wasn't it wasn't directed by CIA, but you you can see how we have
01:00:41
cultural values that we want to inculcate and spread. >> Do you think we have a shot at recasting
01:00:48
the defense industry, the tech industry that's addressing defense and aligning
01:00:53
it with a notion of patriotism? And what is it going to take to make that happen?
01:00:58
I don't know, maybe writing a book, home mobilize. >> Oh, yeah. You have a book.
01:01:02
>> That's right. That's right. I'm trying to do exactly that. You know, look, if
01:01:05
if we look at a cleareyed sense of the world and and how much deterrence we've
01:01:09
lost, you know, you could you could really say like maybe World War II has already started and 10 years from now,
01:01:13
we'll look back and and and be able to perceive that, right? And I I I think
01:01:16
you don't need literally everyone to view this, but if you can if you can create a more cleareyed view of what's
01:01:22
at stake here, not only for you, but for your children and their future, I I think you can you can get people to show
01:01:26
up and participate. And this is this has been America's story all the time, you
01:01:30
know, and usually when we start these things, we are the underdog. All periods of American greatness have started when
01:01:37
we realize that we're the underdog. We were the 17th largest army in the world
01:01:40
at the beginning of World War II, you know, and what did a rag tag bunch of farmers and random tradesmen have taking
01:01:48
on the world's largest army in the British during the Revolutionary War, you know, and and I I think um
01:01:54
having some clarity about what's at stake, what the counterfactual is. It's
01:01:57
so easy when you're successful to kind of let the nealism grow and say like look how imperfect we are. There's like
01:02:03
the self-loathing creeps in. And this is where I take coming back to your point on the legitimacy of our institutions.
01:02:08
like should these institutions work? Do they deserve the best software? I mean, look, if they're public or private, you
01:02:12
can't have doors falling off planes, you you know, are are government organizations need to provide the basic
01:02:17
services they've signed up to do without fraud, without corruption in an efficient way. And the reason is not
01:02:22
just an aesthetic. It's like in the absence of that, it breeds nealism. And the younger generations look at that and
01:02:27
say, you know, we should just tear all of this down. And things will absolutely get worse in a world that looks like
01:02:32
that. So, it's incumbent on us to wake up every day and fight for the legitimacy of these institutions to make
01:02:38
them more functioning. >> America's story is never written. It's every chapter seems to be a whole new
01:02:42
arc and we're in one right now. There's a rising socialist movement in the
01:02:47
United States. Can you guys just comment on how much you think that that socialist movement cast with whatever
01:02:53
term they want to use is going to affect our capacity for defense and resiliency
01:02:59
going into the next decade particularly as our adversaries are rising? >> Well, the argument I've always made is I
01:03:05
think our our greatest threat as a nation is not homicide, it's suicide. And it's it's in this vein. It's the
01:03:10
internal discord. It's the division. Uh it's the it's the self-loathing. It's um
01:03:16
you know things like the socialist movement which I think are symptomatic of this internal discord and ensuring
01:03:21
opportunity for our people to the point of a functioning elite it if you were to
01:03:25
go backwards and think about the root cause like maybe we don't have an elite
01:03:28
that cares enough about the prosperity of the American people and we've made
01:03:32
decisions through globalization we were told NAFTA was going to be a great thing
01:03:36
that actually if you lost your job in manufacturing why don't you just learn
01:03:39
how to code you know there there's a certain sort of callousness in that and
01:03:42
you know I'm not an unabashed free market and I'm clearly not a communist,
01:03:46
but there's a sense of where the decision on the margin actually really does matter and that comes down to
01:03:51
leadership. >> I think one thing that makes me a little hopeful is that socialism literally
01:03:55
doesn't work. Um, and so, you know, you look at, you know, what happened in San
01:04:00
Francisco even where, you know, we elected as the district attorney and then we're like, "Oh, wow. This is not
01:04:06
going well. Recall him." We have the board of education >> rooted in a selling point of empathy,
01:04:10
right? Yeah. Uh what happened with the board of education getting recalled, you know,
01:04:15
Daniel Lur coming in as the mayor. Uh you know, we felt like we kind of went into this valley and sort of hit rock
01:04:21
bottom. Um but I do think that people eventually realize that it doesn't it just fundamentally doesn't work.
01:04:27
>> Seattle and Washington State are likely going to lose a large number of their
01:04:31
biggest employers. And as that happens, they'll come through on the other side.
01:04:35
Probably might take them 7 to 10 years to get there. Yeah, it might be painful and it might take them a long time, but
01:04:40
I think they'll eventually come to their senses. >> What do you two disagree on?
01:04:44
>> That's a great question. >> Um, we actually, I'll be honest, we
01:04:47
bickered with each other quite a bit at Palunteer. Um, and usually it was Sean being right about something and me
01:04:54
taking a long time to come come along to his point of view. Um, but uh, yeah, I think you know, any of these cultures
01:05:01
that are like well functioning are rooted in debate. Um, and you know, eventually,
01:05:06
>> but you're avoiding my question. >> Well, whether it's whether it's actions
01:05:11
or outlooks, >> whether you should show up to your interview at a tech company in a suit, I
01:05:16
don't know. >> Well, no, I I will say this because it actually is part of the story of
01:05:19
Androll. I thought that it was a bad decision at Palunteer to be as quiet as we were. I thought that we needed to get
01:05:27
out there and tell the story so that there would be data that says things like what Sham said about like we don't
01:05:33
have any data. We are Excel. Um and we had a very kind of quiet reserved comm strategy. Um and we went back and forth
01:05:41
on that a lot. And uh when I started Andrew, I was like, you know, all the positive things we learned about uh
01:05:46
doing business with the government from Palunteer, the one lesson that I learned
01:05:50
that we didn't implement at Palanteer is we're going to go out there and tell our
01:05:52
story. Um and I think that's worked for us incredibly well. And I'll be honest,
01:05:56
I think Palanteer has come along to to my my side of the of that debate. >> And last question, if we don't do things
01:06:01
right, what does 2040 look like? And if we do do things right, what does 2040 look like? Economic and defense.
01:06:08
>> Well, the the economic part is, I think, the critical one because national
01:06:11
security is not an end unto itself. It's a means to an end. And that that that
01:06:15
end is economic prosperity, the prosperity of the American people. Um, you know, I think no country has done
01:06:19
more to develop the world. Like how did integrated circuits and micro electronics get to Southeast Asia? We
01:06:24
sent them there. Yeah, we benefited in terms of trade there, but you know, like which other winner in a war spent their
01:06:31
own capital to rebuild the conqueror conquered, you know, in Japan and Germany and and now you have the
01:06:36
stability as a result of it. So when I think about what could go wrong is you actually have a Chinese century that we
01:06:42
never recover from that literally everyone in the world is a vassal state to China and might makes right in their
01:06:48
sort of world you know and we we shouldn't forget it's like it's very
01:06:50
clear even in the present moment that for the CCP it's not enough for China to
01:06:54
prosper America must fall that's an explicit part of the strategy look it is
01:06:57
a business decision if you want to buy American or Brazilian soybeans I actually don't begrudge you one iota
01:07:02
which decision you make there it's an entirely different decision when you're
01:07:05
smuggling agricultural funguses into the US so that we can't grow soybeans. That's the sort of zero sum frame that I
01:07:12
think 2040 will look like if we get this wrong. And if we get it right, I think what we actually see is a massive
01:07:17
re-industrialization of America followed by the West. Um, we see a thriving middle class, which I define
01:07:23
qualitatively as a middle class that believes their children's future will be
01:07:26
better than their future, which is something that I feel is is a fundamental promise that's broken down
01:07:30
over the last 30 years or so. Uh, and a belief in our institutions once again. >> Yeah. No, completely agree with all
01:07:36
those points. Uh I I think there's a big component here around education that we
01:07:40
haven't talked about as well where we figured out a way to educate and successfully enter our young people into
01:07:47
a marketplace that uh needs them and that benefits from their services. Um and I I think that we we haven't quite
01:07:54
nailed that. Um, but I I do think that the re-industrialization point of this is going to be kind of the the central
01:08:01
point of uh making sure that China's many many decade belt and road strategy
01:08:06
is not going to put us in a position where we literally just can't do anything.
01:08:10
>> Do we need military and industrial primacy? or can we operate in a multipolar world where the US can share
01:08:18
influence and economic prosperity with China, perhaps Russia, perhaps one or two other nation states?
01:08:25
>> Well, the the challenge with not being the leader is that you don't get to set
01:08:28
the terms of engagement. And so I think the the benefit that we have had uh since really the end of World War II is
01:08:34
that we've had the primary seat at the table to say this is how we're going to
01:08:38
do uh you know semiconductors. This is how we're going to do supply chain. this
01:08:42
is how we're going to protect trade lanes. And I think the moment that you step back from that, uh, and someone
01:08:48
else has all those incentives, uh, you start playing the rules of their game and it doesn't stay multipolar for long.
01:08:54
>> Well, I really appreciate the two of you being here, Trey, Sean, thank you guys.
01:08:58
This has been great. >> Thank you. >> Thank you guys. I'm going all in.