The a16z Show
00:39:36 · Connor Love, Erin Price-Wright
[00:39:36] S2: I think that the few companies you mentioned, the SpaceXs, the Palantirs, they weren't overnight successes. Those companies took a long time to get to both the product scale and just the size and success of the company that they're at. [00:39:50] S1: Overnight successes that took twenty years. [00:39:52] S2: Exactly. And and I think the the learning point... You know, we invest in a lot of the entrepreneurs on this list, like, come come from those ecosystems, is you just learn this, like, focus to do the one thing as well as you can, down a path until you've succeeded. And I've seen this with the Castelion guys, for example. Focused for two and a half, three years on the first hypersonic missile that was really hard to build, And other people showed up, oh, be multi product, go build this small drone here. And they're like, no, we need to do this one thing really well. And I think that comes from the fabric of SpaceX. At SpaceX, the concept of being a responsible engineer, and if this thing doesn't work, it's my ass, I'm gonna make sure, I'm gonna obsess over this thing, and again and again. That's what it takes to build really hard things. And again, there will be different derivations of success. Not everyone will think just like the SpaceX mindset, but if you you look at a lot of these businesses like that, you know, in the physical world, you kinda need to do that to build something really hard.
00:40:50 · Erin Price-Wright, Elena Burger
[00:40:50] S1: And... But what what you do in doing that is you learn, you know, you learn that process knowledge. You learn how to do it. And so thing two, thing three, thing four are a lot easier. You've developed a supply chain. You have your relationships. You've developed manufacturing for... Or design for manufacture processes. You know, you've learned how to build a factory to a high quality, high spec. You've learned how to build that trust with customers. And so if you could do that one thing really well, that sets you up to do other things really well, but it doesn't work unless you deliver on that Yeah. On that one core thing. [00:41:21] S3: So we talk a lot about competition. China, what does The United States do uniquely when it comes to our capital markets that really enables these startups?
00:41:31 · Connor Love
[00:41:31] S2: Well, think this may arguably is one of... I mean, Brian Schimpf was talking about it, founder of Anduril a couple days ago, which is this concept that we have literally trillions of dollars of private capital in our capital markets that inherently follow success, follow both technology success and to some extent production success as well. And I think if you look at The United States, number one, we do not have a top down directed industrial policy that says the state will put this amount of money in this. And I think to some extent that's a good thing because the money will follow the entrepreneur, the money will follow the success. I think that distinction though, we've kinda always had a good capital markets in The United States, I think the distinction is, capital markets all of a sudden have said, you know what, the category of AD is really interesting. And Erin and I have been living and breathing this for a long time, but if you go look, you know, not just up and down, you know, Silicon Valley and Sand Hill Road, but if you go to, you know, the major banks, I mean, JPMorgan has has committed, you know, trillions of dollars towards, you know, both investing in the physical world, not just defense, but factories and and other things in the physical world, and you see that again and again and again across not just our venture capital firms, but private equity now is starting to play in this category in a big Big credit firms. Big credit firms, and that's so important because the reality is many of these companies in the AD world, they require a lot of capital. When you build physical systems, when you build a Falcon Nine rocket, or when you build a CCA, and you build a Blackbird missile, those are expensive inherently to build up those lines and build that physical system. So I think part of this is, the capital markets speak with where the success happens, and the reality is, the capital markets are not top down driven by our government, unlike China's, and what that allows is that allows us to be far more flexible, you know, again, to follow success, like I said, and then more importantly, to fund things in advance of it being obvious, and we talked about that earlier, the concept of building in advance of the requirement they need.
00:43:28 · Connor Love, Elena Burger, Erin Price-Wright
You know, maybe we're a little bit late on the energy side, maybe we're a little bit late on on some of the defense systems, but look, the capital markets have woken up, and we're we're putting hundreds of billions of dollars, if not trillions of dollars, you know, you know, towards this category for the next, you know, ten plus years. [00:43:46] S3: Yeah. I mean, if [00:43:46] S1: you look at just the first half of twenty twenty six, more more risk dollars went into the defense ecosystem than all of last year combined Yeah. Which was many times what went into the defense ecosystem in all of the previous year combined. And I think historically, there's... You know, in defense specifically, for example, there's been, you know, a narrative around the valley of death and, like, how you get the government contract to, like, propel you through this period of needing to build out CapEx. And what's really exciting is that almost that that's that's starting to disappear with the support of of capital markets and and and of risk and of risk capital, and that's certainly extending even beyond the defense ecosystem to energy and robotics and critical minerals and some of these other sectors that are really important, which is super, super exciting to see. Yeah.
00:43:46 · Erin Price-Wright, Elena Burger
[00:43:46] S1: you look at just the first half of twenty twenty six, more more risk dollars went into the defense ecosystem than all of last year combined Yeah. Which was many times what went into the defense ecosystem in all of the previous year combined. And I think historically, there's... You know, in defense specifically, for example, there's been, you know, a narrative around the valley of death and, like, how you get the government contract to, like, propel you through this period of needing to build out CapEx. And what's really exciting is that almost that that's that's starting to disappear with the support of of capital markets and and and of risk and of risk capital, and that's certainly extending even beyond the defense ecosystem to energy and robotics and critical minerals and some of these other sectors that are really important, which is super, super exciting to see. Yeah. [00:44:38] S3: I had one question. I'm not sure if it's too much of a tangent, though. Just there's that very famous chart of, like, US power production versus, like, China, new new power, new energy production. Like, America's line is, like, basically flat and China's is, you know, up Like and to the like, I I guess some question around, like like, what would it take to close that gap or how how fast can we build new power?
00:44:38 · Elena Burger, Erin Price-Wright, Connor Love
[00:44:38] S3: I had one question. I'm not sure if it's too much of a tangent, though. Just there's that very famous chart of, like, US power production versus, like, China, new new power, new energy production. Like, America's line is, like, basically flat and China's is, you know, up Like and to the like, I I guess some question around, like like, what would it take to close that gap or how how fast can we build new power? [00:45:06] S1: Yeah. I I don't think that is... I don't think that that is a technology problem. I think that that's a... We need to do some soul searching about our will as an American people. And do we want conforming projects to be built? Do we wanna grow? And if we do, I think the the the technology and the capital will follow. [00:45:27] S2: Yeah. And it's funny because this is not just an energy problem, it's [00:45:32] S1: It's an everything problem.