00:00We have been investors in defense tech for a decade in the U.S.
00:03And over the last 18 months, we've started to become more active in defense tech investing here.
00:09And it's really for three reasons.
00:10One is we've seen this dramatic commitment increase by NATO for 5% of GDP among the 31 to the 32 member states.
00:18The second is we really are seeing changes similar to the U.S., changes in the way procurement is happening.
00:23And the third, we're seeing just the nature of warfare has changed dramatically and the economics of warfare as well.
00:29So I think while there's a lot of excitement, I think it's warranted.
00:32Yeah. What does that mean in terms of investments actually in Europe?
00:36I know that if you look at the budget, for example, this was a real game changer from Germany.
00:40We're not going to really see that money until maybe, you know, next half of next year and then well into 2027.
00:46What does that mean for companies?
00:47Sure. Well, we try to invest at the very early stages.
00:50We try to invest at the inception stage where possible.
00:52So these companies that we're backing often take 10, 15, 20 years before they ultimately go public.
00:59And so, you know, we're looking at a pretty long-term time horizon.
01:02So if it's five years or 10 years, I mean, that's, you know, that's something that's compatible with the way that we look at investing in these startups.
01:08Yeah. Do you need consolidation amongst the big defense companies in Europe for the startups to have a little bit more space?
01:14You know, I think there are, not necessarily, you know, I think the pie is growing.
01:20You know, we've got a number of very large primes in each of the, in many of the major countries.
01:26You know, those companies, those primes have seen dramatic increases in their market caps.
01:30I think, you know, Rheinmetall, its stock price is up 27 times over the last four years, which is, you know, that alone is a venture return.
01:36It's dramatic. And we've seen now a growth of the pie.
01:40And so while I think those companies, the primes will have a lot of success, I think we expect some of the neoprimes, some of the more emergent startups,
01:46are also going to have an opportunity to fill the gap that exists around specifically some of the AI and software-defined innovations that are needed by warfighters on the battlefront.
01:55Alex, just four or five years ago, I mean, defense was a dirty word, right?
01:58It was arms, it was dealings, and now you need it to rebuild, I guess, a more secure Europe.
02:02But how do you make sure that you're not giving to the bad guys, you know, weapons that are dangerous?
02:07Sure. Well, you know, I should say, you know, we don't invest in munitions.
02:11So, you know, we're focused on defense tech. There are elements of war tech as well.
02:16But, you know, I look at it somewhat differently.
02:19I mean, I think that combat, I think we can all agree, combat is probably the one job that we would like to see replaced by robotics and automation.
02:25And so, you know, by deploying these autonomous, you know, drones, whether it's air, land, or sea,
02:31I think long term, it's probably going to be something that has a potential to save lives rather than create more destruction.
02:36So what are you focused on? Is it like air defense? Or is it drones recognition?
02:41Yeah, yeah. It's a pretty broad area of focus. We have five specific areas.
02:46We're looking at drones as probably the centerpiece, and it's both air, land, sea, as well as space.
02:52We're also looking at command and control software, which is the software layer that's needed to control this increasingly autonomous fleet of drones.
03:01We're looking at space tech, which is, I think, increasingly space sovereignty is viewed as critical for national security.
03:09The satellite constellations that the U.S. has, that Europe has, are critical for both commercial applications as well as military use cases.
03:16And we're also looking at advanced industrial manufacturing, including rare earths, which, you know, has been in the news a lot lately in terms of the fact that China has such a stranglehold at this point on the production of them.
03:28But, Alex, when you look at, you know, robotics, but also drones, does it not mean more casualties on the ground if these wars are just fought on that ground?
03:37You know, it's, you know, it's hard to estimate, you know, how that will play out.
03:42But, you know, I think as we look more and more at what's happening in Ukraine as a model, you know, we're seeing the deployment of these low-cost fleets of autonomous drones, autonomous boats, submarines.
03:54And, you know, it's in many ways that has become, this autonomous fleet has become the front line.
03:59And so, you know, the hope is that it actually can reduce the number of lives lost because you will have more robots fighting the fight rather than, you know, humans.
04:07Yeah, I mean, I think that's still debatable, but maybe there's a hope.
04:09Alex, when you look at, you know, some of the things that I know is being discussed in the corridors of Brussels is how can you be less reliant on the U.S.
04:18given the unpredictable nature, actually, of this allyship, and we don't know what happens in one, two, three years.
04:25I mean, could European defense stand alone without Starlink, without some of the American technology that at the moment is really at the center of everything we do in Europe?
04:35Sure.
04:36Well, I think, you know, Europe is going to need and is working on its own answer to Starlink and its, you know, alternatives to things like Starlink.
04:43I think in many ways this has been a wake-up call.
04:45And when we speak with people in the ministries of defense or government, they look at this in the optimistic case as a potential path to prosperity.
04:53You know, Europe has really struggled in terms of a shortcoming on GDP growth relative to the U.S.
04:59Per capita productivity has really lagged over the last 15 years.
05:02A number of things have been attempted.
05:04But, you know, as a technology investor, I'm of the belief that productivity and innovation really are going to be the drivers for future prosperity.
05:11And the hope is that much like we saw in the U.S. in the, you know, in the 1950s and 60s, that, you know, we will see dual-use opportunities where many of the innovations that are coming out of the front lines of Ukraine ultimately will be used for the commercial sector.
05:26And whether that's something like, you know, the drone capabilities that our portfolio company, Autirion, has developed being used for things like food delivery or deliveries of medicines into far-flung reaches where they're inaccessible today.
05:39Or whether it's some of the technologies around aerial defense that could perhaps be used in applications such as self-driving cars.
05:46The hope is that this could really drive prosperity for Europe.
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