The a16z Show
00:04:30 · Connor Love
[00:04:30] S2: Yeah. I mean, it's funny because if you look back in history, I mean, even seventy, eighty, almost a hundred years ago, if you look at how we've developed technology in America, a lot of times it's very much been from the government. If you look at how we went to space for the first time, if you look at how we developed the Internet, how we developed nuclear energy, it was the government saying, we're gonna do this for the purpose of the government, and then the long tail of that technology was super valuable for, you name it, the Internet being created, energy being proliferated across the world. What's different now to some extent is now private industry as well as private capital is saying, we're actually gonna be the impetus that develop something. And so to your point, many of these markets is to serve the federal government, to serve the Department of War in some way, but the beauty about these things is when you build an industrial base either down the supply chain or end systems itself, those inherently have many use cases. I mean, the term dual use is talked about a lot in investing, to some extent, I think it's a little bit of a folly, like focusing on too many things at once is not good for a startup, but it is 100% true of what's happening with any factory that's being built today, any neo factory being built, any energy production, anything we touch in kind of minerals or materials from the ground, it's not just going into a defense system. It's gonna go into my uncle's car. It's gonna go into my kid's future toy that they have in some way shape or form. So I do think the tip of the spear is focused on the government, but I think in the long run to your point, like, what's happening is these systems will be used in the waymo that we took today or anything else.
00:05:57 · Erin Price-Wright, Connor Love
[00:05:57] S1: I think a good example of this to look at is actually DJI in China [00:06:01] S2: Yeah. [00:06:01] S1: Which has gone through multiple arcs of its lifetime and its journey. Started out building consumer drones and recognized over the late twenty tens that there was a large market for drones in both public safety and national defense. And so built out a real high scale drone production business for defense. And now the folks behind DJI are now the largest producers of robots in the world because what is very similar to a drone motor is a robot actuator, which is the hardest part of building a robot. So you have this company that over the course of growing a large defense business that itself spun out of a consumer business is now the world's leading expert on how to build and produce hardware for kind of the next wave of physical AI, both consumer and industrial. And so I think this technology transfer and process knowledge transfer between military use cases and nonmilitary use cases is really important and has always been how it works. And it's great to have the federal government be a subsidizer for figuring out this process knowledge and figuring out the new technology. And then I think our world's greatest gift in The United States is the discernment of the American consumer. Like, we are gonna push things to be more capable and cheaper than the government ever will. So that symbiotic relationship in the industrial base is actually really important. And we're certainly seeing that on the energy side. [00:07:21] S2: Yeah.
00:07:21 · Connor Love, Erin Price-Wright
[00:07:21] S2: Yeah. [00:07:22] S1: We're seeing that on the electronic side. We're seeing that across the entire sort of industrial stack. [00:07:27] S2: And to some extent, I don't think this is a super complex topic, but it's important to kinda restate, which is when you build the first of a kind of anything, it's quite expensive. Like, when you are building a bespoke... Whether it's a military system or a consumer product [00:07:41] S1: Zero to a 100, it's gonna cost a [00:07:42] S2: lot. It's gonna cost a lot, and then to some extent, we'll get into this a bit later, I bet, but, you know, we talked about vertically integrating or using the supply chain base that you have. The beautiful thing about what's happening right now is we have a federal government and an apartment of ores saying, number one, we're gonna try to actively rebuild some of this industrial base, and by doing that, they're actually changing that unit economic decision from the start for these companies. So, it's instead of building a 100 things, you can say, okay, maybe build a 100, but we're willing to pay a cost that the consumer or the commercial market wouldn't pay, and all of a sudden, then that means more machines you can put in your factory, more CapEx that the government is helping you pay at the start, and then that leads to things that are physic... You know, both, like, financially viable, but also at a scale that actually can touch the consumer. So I just... It's important to identify that, and that is definitely happening. Right?
00:08:29 · Erin Price-Wright, Elena Burger, Connor Love
[00:08:29] S1: Yeah. Like, if you're building a new PCB fab in The United States, like, that's a pretty expensive operation. Those are pretty expensive pieces of machinery. And if you have a defense buyer as the first buyer to help you kind of pay for subsidize a lot of that CapEx investment, that's great because you know what else has PCB boards? Robots. You know what else has PCB boards? Hearing aids. And so the ability to kind of pass on some of that CapEx to the defense industrial base, I think, will be really powerful as we rebuild kind of industrial capacity in The United States. [00:08:58] S3: So what specifically are you seeing startups do to drive down costs and move faster? [00:09:04] S2: Yeah. I mean, I think like many things, we can look to Elon for a lot of answers here. I mean, it's not a crazy statement to say. Really, the few modern day companies that have built anything at scale are probably SpaceX and Tesla. And if you look at how Elon and his team have built those businesses, it's been one very vertically integrated. And look, I take the ideology that you shouldn't vertically integrate everything. I mean, again, if you're building a super exquisite system like a missile that is doing something very unique, you kinda have to because you have to control the exquisiteness. You have to control the cost.
00:09:04 · Connor Love, Erin Price-Wright
[00:09:04] S2: Yeah. I mean, I think like many things, we can look to Elon for a lot of answers here. I mean, it's not a crazy statement to say. Really, the few modern day companies that have built anything at scale are probably SpaceX and Tesla. And if you look at how Elon and his team have built those businesses, it's been one very vertically integrated. And look, I take the ideology that you shouldn't vertically integrate everything. I mean, again, if you're building a super exquisite system like a missile that is doing something very unique, you kinda have to because you have to control the exquisiteness. You have to control the cost. [00:09:35] S1: Well well, I mean, SpaceX and Tesla were doing first of their kind. Like, there didn't exist industrial base in The US to support them, and so they had to build it themselves. I think where there are high quality suppliers, you should use For sure. Suppliers.
00:09:35 · Erin Price-Wright, Connor Love, Elena Burger
[00:09:35] S1: Well well, I mean, SpaceX and Tesla were doing first of their kind. Like, there didn't exist industrial base in The US to support them, and so they had to build it themselves. I think where there are high quality suppliers, you should use For sure. Suppliers. [00:09:46] S2: Yeah. Yeah. I mean, again, I think the learning though is, number one, if you don't have an industrial base that you can rely on quickly, reliably, etcetera, then you have to do it yourself. And inherently, that is a hard journey. That's really hard to do. This concept of saying, okay, I'm gonna focus on the end system. I'm gonna focus on building the most cost effective system that I can. And oh, by the way, I gotta go figure out the ball bearing. I gotta go figure out the solenoid valve. That's a lot to do. And in the case of, you know, Tesla and SpaceX, I I would argue the the auto industry was a little bit different because there was a... But there wasn't a battery supply chain. You know, Elon had to recreate that. [00:10:21] S1: Well, the whole the whole power electronics... The whole drivetrain, you know, they had to really build completely from scratch based off papers that were published in the seventies that, you know, had been collecting dust for for forty years. [00:10:32] S3: In terms of companies that we talk about in the a b portfolio, there's Mariana Minerals, which bought a copper mine and is kind of reinventing things. And and would they be a good example to to talk about here?