The a16z Show
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.
00:45:32 · Erin Price-Wright, Connor Love
[00:45:32] S1: It's an everything problem. [00:45:33] S2: It's an everything problem. And look, we're optimists inherently. I do think that snowball has started to roll. I think the question is, back to our discussion on capital markets earlier, will there be emergent winners in these categories that then fuels more capital to flow into the ecosystem? And it's this kind of self fulfilling prophecy that happens, like, If you build it, they will come, but at some point there needs to be a pot at the end of the rainbow. And if there is for a few companies, I think one, capital flow like I mentioned, but I think the last thing I'll say just real briefly is, anything in the physical world takes time. To set up a factory at a scale where really you either affect our power generation, or you affect our military systems, or you name it, you can't take a couple of engineers, throw them in front of a couple servers and computer screens and come up with an answer. Mean, moving dirt, it is physically understanding a supply chain, like these things take years, and there's a little bit of patience that we need to have in the capital market side, but again, I think I'm optimistic. I think it's happening and to some extent, like it's our salutes. Like it's ours as a government and a nation to mess up and to get in the way of this and that's a risk, don't get me wrong, but.
00:46:48 · Erin Price-Wright
[00:46:48] S1: I do think it's do think it's another... Will be another long term benefit of capital markets even if it's short term painful. Just people need a feel... I mean, you mentioned that these are physical things. They take time. They're also physical things in that they have a physical manifestation to those people and communities that live around them. And the most important thing is that, you know, American society at large feels like they're participating in the economic growth that's coming as a result of this development. Software, you know, was sort of... Like, had this ability to be sort of siloed because it really existed in just a few cities. It was kind of this virtual thing. You sort of experienced it in the way that your your interaction with digital services got better... Lot better over the last twenty years, but, you know, it it was a little bit more it was a little bit more abstract. Physical world, like someone's building a data center, a power plant, a mine in your backyard, and you need a You have a say and you have a stake in that. You physically see it. It affects your life. If you don't feel like you have participation and then economic upside, it's hard. I do think that this is one thing that the capital markets long term will solve really well because companies will figure out how to bring communities along for the journey and make it financially and economically worth it.