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00:00This is a story about history not coming to an end after all.
00:04It turns out that predictions of a conflict-free geopolitical future
00:08after the fall of the Soviet Union were premature,
00:11as were hopes for a so-called peace dividend.
00:14War in Ukraine and the Middle East and the rise of China
00:17brought history back with a vengeance.
00:21Former Defense Secretary Mark Esper says that far from a dividend from peace,
00:26the U.S. needs to pay a premium for conflict going forward.
00:30We clearly need to spend more on defense, given the world that we live in today,
00:34more dangerous than it was certainly 10 years ago,
00:37since Xi Jinping has come onto the stage as leader of China
00:40and Vladimir Putin has become far more aggressive in Europe.
00:43But for Esper, it's not just about spending more on defense.
00:47It's about tapping into a new source of innovation and production.
00:51I'm most concerned about our industrial base
00:54and our ability to exploit these cutting-edge technologies
00:57that are coming out from these young minds in Austin, Texas,
01:01and Silicon Valley, and Boston, and other parts of this great country of ours.
01:06There was a time that the tech innovation of Silicon Valley
01:09and the national defense apparatus run out of the Pentagon
01:12would have been considered strange bedfellows.
01:15But the need to put the nation's intellectual and financial capital together
01:19led Andresen Horowitz to create its American dynamism practice four years ago,
01:24led by partners Catherine Boyle and David Ulovich.
01:28We started with a simple thesis,
01:30which was companies that are supporting the national interest.
01:32We had made a number of investments
01:34in companies that were supporting aerospace, defense,
01:38but there were very, very few companies before 2020, 2021, 2022
01:43focused on those areas, focused on hardware,
01:46focused on supporting the national interest,
01:47and most importantly, focused on working with government.
01:50For a while, Silicon Valley was very afraid of touching anything
01:53that was selling to the Department of War.
01:55In Silicon Valley, I always joke that, you know,
01:57it's like saying the word America out loud in Silicon Valley at the time
02:00was sort of surprising to people.
02:01But we immediately saw this groundswell of founders coming to us saying,
02:06actually, this really speaks to me.
02:08Putting the Pentagon together with Silicon Valley
02:10may seem an obvious strategic move,
02:13given the runaway success of the latter
02:15and the increased needs of the former.
02:17But the two come from very different cultures.
02:21Washington is used to zero-sum games, right?
02:23Every couple years, there's an election.
02:25So it's on a very different cycle.
02:27And, you know, someone wins and someone loses,
02:29and that impacts everything about how Washington does business.
02:32Whereas Silicon Valley, it's a positive-sum game, right?
02:34There's always been a view in Silicon Valley
02:36that everyone can be a winner,
02:37that there can always be scale and always be growth.
02:39It's a very different type of doing business.
02:41What's so great about what's happened over the last 10, 11 years
02:44is that there are now founders who've done it before.
02:47The founders of Andrel, many of them met each other
02:49when they were at Palantir, and they learned the lessons,
02:52they built the playbooks, they made some mistakes,
02:54and they decided to build Andrel.
02:56And now they're training the next generation of people
02:58who come on with maybe two to four years' experience.
03:01Perhaps nowhere better represents the culture clash
03:04between the Pentagon and America's startup world
03:06than that oft-criticized, labyrinthine world of procurement.
03:11I'd say that that's been sort of the biggest change
03:14on the business side over the last 10 years.
03:16And again, investors like to take credit for this,
03:18or maybe companies want to take credit for this.
03:19I actually give the credit to the Department of War
03:21because it was actually former Secretary of War Ash Carter
03:24under the Obama administration in 2015
03:26who saw the sort of writing on the wall.
03:28And he said, we have to go out to Silicon Valley,
03:30we have to get the best and the brightest engineers
03:31to work with us, and we have to kind of teach them
03:34what we're looking for.
03:35So in some ways, it's been an ecosystem learning
03:38about all of the quirks and peculiarities
03:41about the procurement process.
03:42But over the last few years in particular,
03:45with a lot of people in the Pentagon
03:46recognizing how crucial these companies are,
03:49and whether it's munitions, whether it's critical parts,
03:51there's been changes to the procurement process
03:53that have allowed these companies,
03:55what they call new entrants at the Pentagon,
03:57to enter procurement in a faster way,
04:00in a more nontraditional way,
04:02to really get to production faster.
04:04Space is an area in great need
04:06of new defense capabilities.
04:08President Trump is pursuing the Golden Dome,
04:11a missile defense system based in space
04:13that would aim to do for the entire United States
04:16what Israel's Iron Dome has done
04:18for a much smaller country.
04:20Space is the new warfighting domain,
04:22a fantastic example of how quickly you can build
04:25for space today in our portfolio,
04:27which is Apex Space.
04:28Apex is building what's known as satellite buses
04:30to propel all sorts of payloads into space,
04:33into low-Earth orbit and orbits beyond.
04:35When it was started, there was definitely a view
04:37that this could be both a commercial
04:38and a government company.
04:39But what's extraordinary about the last few years
04:41is the pull that a company like Apex has received
04:44from the U.S. government for things like Golden Dome,
04:47for things like space-based interceptors,
04:49which, again, these were ideas a couple years ago,
04:52but now they're reality.
04:53We went to the headquarters for Apex Space in Los Angeles,
04:56where its co-founder and CEO, Ian Cinnamon,
04:59took us through its manufacturing process
05:01and business plan.
05:03We want to make sure that people can get to space
05:05as quickly as possible.
05:06The core part of the satellite,
05:07which we call the satellite platform or satellite bus,
05:10really enables anybody to take their payload,
05:13their sensor, whatever they want,
05:14and have it work in space.
05:16At Palantir, I was building software
05:18that was basically analyzing data coming off of satellites.
05:22So I saw this massive influx of demand
05:24for more and more satellites,
05:25and I said, somebody has to go build those.
05:27So tell us about that massive demand.
05:29What is the itch that you are scratching?
05:32So satellites, frankly, have been around for 70 years, right?
05:35They're not new,
05:36but there was a huge inflection point around 2020,
05:40and that was caused by access to space
05:43going from something that was really hard
05:46to basically access to it being incredibly abundant.
05:49SpaceX started to reuse their Falcon 9 launch vehicle,
05:53and the result of that was instead of space
05:55being something that was so hard to get to,
05:58it was now almost as easy as, you know,
06:00booking an airline ticket and getting in the car.
06:02And the result was people started saying,
06:04well, if I can get to space easily,
06:05I don't want to just launch one satellite.
06:08Let me go launch 10, 100, 1,000 satellites
06:11that work together, a swarm, a constellation of satellites.
06:15And they realized there was nobody
06:17who was building them quickly.
06:18So talk about the use of those satellites.
06:21How much of it is civilian?
06:23How much of it is national defense?
06:25And how much of it is mixed use?
06:26So the honest truth is most things in space touch government,
06:32whether that's, you know, something like NASA
06:34or more often stuff like Department of War
06:36or the intelligence community,
06:38almost everything in space touches that.
06:39Now, there's things that are predominantly commercial.
06:42Take, for example, telecommunication.
06:44So you have these big satellites
06:46or DirecTV or things like that.
06:48Those are all working through space.
06:49But by and large,
06:51most of the new satellites that are going up there,
06:53if you ignore that one market,
06:55are really for defense purposes.
06:57Think missile tracking, missile warning,
06:59intercepting missiles from space,
07:01being able to take photos of places like Iran or China
07:05or Russia, know what's going on,
07:07analyzing troop movement, things like that.
07:09When it comes to the Golden Dome project,
07:12Cinnamon says it's a matter of economy and technology,
07:15both of which he thinks are there now.
07:17We have all the key pieces that we need
07:20to actually intercept these missiles from space,
07:23but we can do it in a way that's affordable
07:25and build them in a scalable way,
07:27build enough of these systems,
07:28get them up in space fast enough
07:30to actually be a better offering
07:32than trying to do a fire one missile
07:35from the ground after another.
07:36Cinnamon also believes that,
07:38despite the challenges and enormous investment,
07:41there is the political will in Washington
07:43to realize its promise.
07:45The investment in space,
07:47and specifically defense in space,
07:49has increased every single year
07:52across administrations.
07:53It truly is bipartisan
07:54because everybody fundamentally realizes
07:57space is the ultimate high ground.
08:00If you control space,
08:01you're able to control the battlefield.
08:03So the idea has been,
08:05as more money flows into the defense industry,
08:08a larger and larger chunk continues to go into space.
08:11And just look at our adversaries.
08:14China has announced plans
08:16for a government constellation
08:17of over 12,000 satellites,
08:2012,000 government Chinese satellites.
08:23The U.S. government launched less than 200 last year.
08:26Those are very different numbers.
08:28That's not an order of magnitude off.
08:29That is orders of magnitude off.
08:31While agreeing about the importance of space
08:34for the nation's defense,
08:35former Defense Secretary Esper
08:36isn't so sure about the Golden Dome project
08:39in particular.
08:40Our ability to intercept
08:42is going to be really difficult.
08:43I think it's a great ambition
08:44to be able to put a shield over our country.
08:46I don't know that we have the technology right now,
08:48in fact, I'm sure we don't,
08:49to defeat, you know,
08:51a Russian onslaught of hundreds of missiles
08:53or a Chinese onslaught of hundreds of missiles.
08:55It's going to be hard.
08:55It's going to be expensive.
08:56Some estimates put it over a trillion dollars.
08:58Cinnamon may believe
08:59in the future of the Golden Dome project,
09:01but he says his plans for APEC space
09:04do not depend on it.
09:05So it really comes down to a fundamental shift
09:09in how we think about building things for space.
09:12What we finally are at the point in
09:15is we are ready to now stop thinking about space
09:19as something where it's this bespoke,
09:20exquisite engineering project
09:22and start thinking about it
09:24where it's a repeatable, productized build,
09:27almost like bringing the automobile mentality,
09:29the Ford Model T moment to space.
09:32It's all about manufacturing the same thing
09:34over and over and over again
09:35to get the manufacturing rate way up
09:38and the price point way down.
09:40Whether it's the Golden Dome or something else,
09:42the Pentagon and the tech industry
09:44are changing the calculation of risk and reward
09:47as they work together
09:48and moving up timelines
09:49for getting new equipment designed, made, and deployed.
09:53It's forced investors to actually learn
09:55a lot of disciplines that say,
09:57you know, pure software investors
09:58in Silicon Valley really didn't know.
09:59They really didn't know how to look at a factory
10:01and assess, is this a good factory
10:03or is this a bad factory?
10:04Is this a type of hardware
10:05that the government's actually going to want to procure?
10:07How quickly can you make it?
10:08How quickly can you manage it?
10:09But fortunately, again,
10:10there's now enough people
10:12who have seen the success stories.
10:13The changing nature of defense contracting
10:16led some to think, at first,
10:18that another part of history
10:19might be coming to an end,
10:21the era of huge defense prime contractors,
10:24as startups challenged the likes
10:26of Lockheed Martin, Northrop Grumman, and Boeing.
10:29But it turns out that that part of history
10:31didn't end either.
10:34The first generation of where we were investing
10:36is companies that really wanted
10:37to be primes themselves.
10:38So what I mean by that
10:39is they wanted to sell directly
10:40to the Department of War.
10:41What we're seeing now,
10:42and I think this has been a pleasant surprise
10:44to a lot of the Department of War,
10:45but also to the legacy companies themselves,
10:48is that we have a lot of companies that say,
10:49hey, we don't want to prime.
10:51We want to support
10:53all of the legacy companies
10:54by building critical components,
10:56by manufacturing systems for them
10:58that they can then use cheaply and efficiently.
11:00I think what we're going to see in the future
11:01is autonomy, the use of robotics
11:05on land, sea, air, subsurface,
11:08whether that means underwater or in caves,
11:10will certainly grow.
11:11So it's not going to be an either or,
11:12and we shouldn't think that way.
11:14I see a combination going forward
11:15where the big players,
11:17again, I mentioned the GDs,
11:18the Raytheons, the Lockheeds,
11:20those companies that know how to build at scale,
11:22at volume,
11:23and know how to do sophistication
11:24and testing and everything else.
11:26I think you're going to see
11:27a marriage of convenience
11:28between the two worlds.
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