The a16z Show
00:27:00 · Erin Price-Wright
[00:27:00] S1: One of my favorite things to do, you know, is visit the same company sort of multiple times within twelve month period, whether they're in the portfolio or not, because you learn a lot by how fast a factory build out happens. And so, you know, that that... That's one thing we do is, like, we... You know, you don't just go once. You go once, and then you go three months later. You go three months later. You go three months later. And, like, I'm not I'm not a manufacturing expert. I spent enough time on the factory floor on a factory floor between my time at Palantir and and now doing this job. You know, I, like, sorta know what some of the machines are and kinda, like, how a line roughly works. But, like, there's just something about seeing stuff accumulate in a factory, and it goes from the process of watching something go from, like, empty warehouse with epoxy floors and the big American flag and maybe, like, a couple of pallets, and the founders just really excited to show you their forklift that they needed. And they're kinda like... Know, they're... They have the basketball hoop set up or, like, the gym set up in the corner to, you know, fast forward six months. And it's just... You know, they're freaking out about how to expand. They're like, oh, we need to get, you know, the the city out to to give us more power because we have too many machines plugged in. It's, like, chaos. There's technicians and operators everywhere, people building stuff. That's really satisfying and and and and really fun and and something I think we're we're lucky to get to see that journey and and and how quickly that can happen.
00:28:18 · Elena Burger, Erin Price-Wright, Connor Love
[00:28:18] S3: Yep. Has anyone ever done, like, a time lapse of [00:28:21] S1: Oh, there's a lot. It's a whole... That's a whole, like, category of filmmaking. Nice. And everyone kinda compares theirs, and it's like a, you know, a bit of a [00:28:29] S2: I do I I do like the gym thing. I remember when I when I first visited many years ago, Isaiah in the Gundow, he made me do a rep on his on [00:28:37] S1: his Yeah. They they all have they all have, [00:28:39] S2: like Yeah. [00:28:39] S1: Yeah. Oh, yeah. All they all have their bed press set up. [00:28:42] S2: Which is cool. [00:28:43] S3: Yeah. Is is there a, like, a contagion effect to things being made in America where it's like, oh, because the actuator is made here, now we can make this and now we can make that. And sort of when you're able to compress one timeline, you can compress multiple timelines. [00:29:00] S2: I don't even think it's just timeline. I also think it's cost [00:29:02] S1: and quality. And quality.
00:29:03 · Connor Love
[00:29:03] S2: I mean, it's interesting because when we look at defense autonomous systems in particular, look, Saronic making a lot of boats, Covenant's making a lot of missiles, Castelion's making lot of missiles, and Anduril's making a lot of things. Like, When you build many systems, you also require many subsystems below that. And again, there are really interesting military systems being built today. The corollary though, back to the comment we had earlier, by building towards defense, you also build for a different industry. We actually don't have a lot of humanoids or robotics that exist in the world today. I mean, there are thousands, maybe, I don't know the exact number, but when you think about the subsystems that go into some of our military systems, it's the exact same subsystems that are gonna go into the future robotic systems. It's the actuators, like it's the motors, it's the valves and switches and those type of things. And I think when you can build those to quality and to cost, then all of a sudden you make other markets that maybe weren't viable or real, all of a sudden makes sense. And again, I think that's gonna happen in the robotics world, which is, we're gonna spend all this time on shoring development of all those sub components, We're gonna build for a lot of these military systems, which is good. We need it for security and safety and deterrence. But then all of a sudden, you're gonna have this kind of robotic wave that will come in America. I said that AI can't turn a wrench yet. They can. They will eventually. And that will be enabled by all that actuators and switches and subsystems that we built. It's gonna serve a different market. And it's gonna make it financially viable, and we're not gonna have to rely on factories in China. And again, I think that is net good because as you build an industrial base, an industrial base can be used for many things, and down to the component level, I just think we don't have enough of it in America, and it's a decision. You talk to a robotics company today that wants to build, you know, some robotic deployment. There's a 99% chance that majority of what they are buying is coming from China and
00:30:57 · Erin Price-Wright
[00:30:57] S1: some much more reform. They, for many reasons, not just geopolitical, want to onshore that purchasing for quality cost, speed of iteration, yeah, and geopolitical reasons. I think, like, one thing it... You know, it's really... Over the last three years, even just it's remarkable how much of a supplier ecosystem has developed. Like, one of the companies in our portfolio, three years ago, would order two times the number of PCB boards... PCBs that they needed because they assumed that they would have throw 50% of them away for quality issues. They would get the batch from their supplier. They would do the testing, and 50% of them wouldn't pass a quality test. Know, then startups have emerged in this category and are like, we're gonna fix this problem. We're gonna use software and modern technology to redo the way PCBs are manufactured in The US. We're gonna do it faster. We're gonna do it cheaper. And guess what? We're gonna do it better. And now that same company buys you know, PCBs from new suppliers and, you know, they're keeping 70, 80, 90% passing quality tests. So it's... Yeah. I think like we underestimate how much the, you know, close colocation and co development of some of this technology with the end customer and their suppliers really matters to to drive quality higher.
00:32:20 · Connor Love
[00:32:20] S2: So something really interesting is happening, I believe, the industrial base. Like we talked about earlier, you get this top down demand signal from these new systems companies, like we're building new military systems, but oh by the way, you know, Joby and Archer, we're building new planes too, like we're building new end systems, that is a fact, like cars are being built different, planes are being built, military systems are being built different. When you build these new systems, inherently the inputs of those systems need to change as well, and when you look at the industrial base in America today, like historically, if you go look at how Boeing makes a seven thirty seven, you know, Boeing's a great company, important to the fabric of America, they but just pick up the phone and they call Honeywell, and Honeywell helps them kind of build all the different subcomponents. And it's not Honeywell's fault, but what Honeywell does is they say, I don't wanna build a new landing gear again. We have this landing gear that meets the spec and does the thing, so let's just keep going and doing that same thing again and again. And again, it's rational. They're gonna build more seven thirty seven's. They're gonna get paid the same way if it's a... For a 50 year old landing gear or if it's a new landing gear. The problem, is when you keep iterating on these new requirements for end systems, at some point the 50 year old subsystem just doesn't work. And maybe it physically works in terms of meets the requirements, but it's been designed and it's been developed in a way that inherently we haven't innovated on it. And why does that matter? It's because we've developed new materials, like yes, physics hasn't changed, but the inputs to the physics and the inputs to that design has changed. So I think what's happening with the opportunity for a lot of these manufacturing companies, is to do what I call co engineering. And we talked about the long tail of these sub tier suppliers, they've been in receive mode for the last forty years. Honeywell's picked up the phone and they've said, Hey, I need another landing gear, go make that landing gear, and they've executed on the specs with that IP and building it.
00:34:21 · Connor Love
When you want a new requirement, that middle layer cannot think on behalf of Honeywell and change the requirement because, again, they're not in the position to do it. But I think what's gonna happen in the future is you're gonna have this middle layer of supply companies that will effectively be co engineers with the end OEM of rethinking not just what the end system can do by way of speed or kind of, you know, a weight or mass, but the individual sub components will be rethought, will be reengineered, and will be rebuilt. And so, the end system will change from a top level, the individual parts and components will change, and I think that just hasn't happened in the last forty or fifty years, so you're gonna see a completely new wave of what I believe will be called the manufacturing middle, that will be co engineering and pushing design and development upward in the supply chain, as opposed to just being in receive mode and saying, okay, can build the same thing I built forty years from now. And I just, I think that's an opportunity. I mean, I defined it previously as like, we're creating the American manufacturing asset class right now. I mean, private equity has been playing in this ecosystem for a long time, and looking at an asset, and buying it, and improving the cost, and selling it off again, that's not fundamentally changing the things that we build. Right now, companies will change the the the the different things that we'll build.