The a16z Show
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?
00:10:32 · Elena Burger, Erin Price-Wright
[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? [00:10:46] S1: I think that they they recognize that the, you know, the existing players in the mining industry just were not gonna pick pick up technology fast enough for it to really make a difference and really move the needle. That... And they also recognize that they wanted to actually own the entire value chain to be able to really put their money where their mouth was and capture the end value of the new technology they were bringing. So, yeah, they do everything from, you know, acquiring the asset, developing the asset, mining the asset, operating the asset, and refining the material themselves across multiple different multiple different minerals, and then they sell a final commodity product in the market and have really leaned in. That's an... Another trend I'd point to is how much founders and entrepreneurs building in these spaces are leaning into AI and software as a huge, huge component of their build.