Technology's daily show (formerly the Technology Brothers Podcast). Streaming live on X and YouTube from 12 - 3 PM PST Monday - Friday. Available on X, Apple, Spotify, and YouTube.
Welcome to Technology Brothers, the most profitable podcast in the world. There's been a terrible tragedy in DC. There was a a a plane that crashed into a helicopter last night and was really That
Speaker 2:is a rough, rough start to the pod Yeah. But, needs to be said. Yeah. Rest in peace
Speaker 1:to It's always terrible when these, like, you know, crises unfold because, I mean, we saw this with the with the LA fires. Like, every possible take is enumerated very quickly.
Speaker 2:Yeah.
Speaker 1:So you'll just see, like, the right will say it's because of DEI at American Airlines. The left will say it's because of capitalism. The conspiracy theorists will say it was a city. That plane. Yeah.
Speaker 1:CIA operation or Yeah. The the the war hawks will say it was China. And who knows? But it doesn't feel like living in a first world country to me, and it's very disappointing. And I hope that the the worst outcome is the one where there's a huge culture war.
Speaker 1:Everyone battles about it. Everyone gets really angry at each other, and then everyone completely forgets. Yeah. And then nothing actually gets changed because, clearly, whatever happened happened like, the the solution that will stop that is not something that can be implemented in an hour. It's gonna be a lot
Speaker 2:of information. Here is there's there's so much data that's produced Yeah. From the event. Yeah. The the flight logs Yep.
Speaker 2:The, you know, the radio traffic of air traffic control during the event. And so we actually it it's not like a lot of other sort of dramatic crises, you know, events where we may not ever know kind of what actually happened.
Speaker 1:Oh, yeah. We know.
Speaker 2:Be able to figure it out.
Speaker 1:Totally. Totally.
Speaker 2:And so there's not there shouldn't be that rush to, you know, generate new conspiracy theories, spread misinformation, make it a social issue, or, you know, some type of
Speaker 1:Like, clearly something went wrong. Clearly, there's a solution, but it's gonna take a lot of political will and a lot of energy and a lot of hard work and a lot of technology to actually implement that, and it's not gonna be done in a day or a week. It's gonna be done in a number of years.
Speaker 2:The other thing is I don't think anybody, like, last week was saying commercial aviation is super dangerous. Totally. It's actually statistically
Speaker 1:Oh, yeah.
Speaker 2:A super safe way to travel.
Speaker 1:15 years since there was a commercial airline crash in America, and this was the deadliest crash since 911.
Speaker 2:Wow.
Speaker 1:Insane. And, yeah, I mean terrible. Also, you you you always run the risk of, like, it's almost like a black swan event. It's like an event that you're not really prepared for. Like, after the fire after the fire in LA, a lot of people were saying, like, oh, well, I gotta rebuild my house in, like, concrete and brick.
Speaker 1:And it's like, well, what happens if an earthquake comes then? So Yeah. So you you really need to balance out all the possible, risk factors, but, like, we gotta do more here. But fortunately, there's lots of good news. There's lots of interesting tech news right now.
Speaker 1:And we'll start with a fantastic piece of news from, my buddy, Kian Seg, Segegi. I am gonna butcher your name. I'm sorry. But, he bud. Yeah.
Speaker 1:Bud. Kian announced a $14,000,000 series a with participation from Founders Fund 776, Neo, Balaji Srinivasan, GiantStep VC, 1 8 Capital, and many others. We're going to make preventable diseases a thing of the past. So I think we gotta ray hit the size gong for Kean. Boom.
Speaker 1:Congratulations on your $14,000,000 series a.
Speaker 2:Nice work.
Speaker 1:We have some posts from him, and we also have a little bit of his, his blog post. He said, 5 years after founding Nucleus in my bedroom, I'm thrilled to share that we've raised a $14,000,000 series a. Our current road map is ambitious, including dramatically expanding genetic risk assessments. So you can think of them as kind of like the next generation 23 and me. They send you a kit.
Speaker 1:They get you full sequence of your DNA.
Speaker 2:More focus on helping people use the data to be proactive versus the novelty of being like, oh, I have 1% Irish.
Speaker 1:Yeah. Exactly. Or half a percent native American.
Speaker 2:Yeah.
Speaker 1:And and, also, it's just a fundamentally different technology that goes into how they sequence the the the genome. So, 23 me, I believe, does something called shotgun sequencing where they kind of blast a bunch of the the the DNA out, and then they kind of sample it. And, statistically, they get you to, like, 90% there, but it's not a full sequence. Yeah. The full sequence is something that does happen in scientific labs for more rigorous scientific studies, but Nucleus has been able to take that next generation technology and bring it to the consumer market so that you can just go order a kit and get, your exact genome.
Speaker 2:And this came at a good time because I feel like, people lost a huge amount of trust in 23 andMe and some of these sites because they struggled as businesses and then they started changing hands from an ownership standpoint and looking at, you know, looking at, like, they were potential takeover targets.
Speaker 1:Yep.
Speaker 2:And the challenge there is you're looking at this, and if you've given all your genetic data to a company, you actually start to care who who who owns that business, what are their intentions with that data. Yep. And, So a
Speaker 1:bit of a call to action to people. If you did 23 andMe, you can go and export your data, and then you can have them delete it from their servers. And they will do that, and I do believe that they will that they are capable of doing that. And then, and then if it does get taken over by someone who maybe you don't wanna have that data with, you're you won't be in the database anymore, which I think is probably the right thing to do at this point.
Speaker 2:Yeah. They also had a massive, pickup, he says in the post. I'm thrilled to announce that Matt Lanter, former cofounder of Open Store, chief of staff at Founders Fund, and longtime nucleus investor is joining as president. His decades of experience helping scale $1,000,000,000 companies will be a tremendous addition to an already deeply talented team. And I gotta say, there is nothing more bullish than somebody like I don't know Matt personally, but when somebody like Matt who is deeply, deeply connected in the venture world has started their own companies
Speaker 1:Yep.
Speaker 2:And they could there's hundreds of companies that that they could go
Speaker 1:Oh, yeah. Join or
Speaker 2:Just do everything. Bunch of different companies that they could start. If they're choosing to join your company at an inflection point like this, it's the most bullish signal.
Speaker 1:Totally.
Speaker 2:Matt has a quote here. He said, my time working with Keith Ruboy at Founders Fund was a master class in identifying exceptional founders. That experience combined with countless founder meetings as an angel investor helped me recognize something special when I first met Kian. I was immediately struck by qualities I'd seen only in the most successful founders, a deep personal obsession with the problem, and the relentless drive to pursue it. So couldn't be more bullish for the nuclear team.
Speaker 2:Yep. Congrats on this.
Speaker 1:The the first time I met
Speaker 2:The nuclear team.
Speaker 1:In Manhattan, I got coffee with him in the small coffee shop, and we just had the most intense discussion for, like, an hour going back and forth about, like, how this would, affect things and what the value of and, you know, Could could you get something out of it? Because I think the the my my disappointment with 23 andMe was always like it was kind of a nothing burger. Like, you do it and it tells you, like, oh, yeah. Like, you know, heart disease and cancer are probably gonna be what get you. And it's like, I kinda already know that just from, like, the math statistics.
Speaker 1:It doesn't tell me anything specific. And so he made a very a very strong case for finding those those niche preventable diseases and just eliminating all those risks, which is cool.
Speaker 2:And so Yeah. There's even more news in here. Oh, yeah. He goes, I'm also excited to announce Nucleus has acquired Cambrian, an AI based health platform, pioneering algorithms to transform data from wearables like Oura rings and Apple Watches into actionable recommendations. We're excited to welcome the founder, David Sloan, to our product team where he'll spearhead wider data integrations, And this is insane and awesome.
Speaker 2:My only critique of this announcement is you you've already included, like, 3 major announcements, which is your fundraising round. They're also growing 68% month over month. Yep. They're adding this, like, crazy new exec to the team. Yep.
Speaker 2:And they did an acquisition, and they could have spaced that out over 4 weeks and had, like, big news, you know Yeah. Constantly.
Speaker 1:Doing pretty well at going direct. He has a podcast, and he posts a lot. And we'll go in through some of his posts, but, I mean, they have been on an absolute tear. In the last 3 months, they've averaged 68% month over month revenue growth. Since November, monthly users have tripled.
Speaker 1:And less than a year after going live, we've scaled up from 10 genetic analyses to over 800. So it took him 4 years to get this live. He was in his bedroom just kind of grinding on this, figuring out what technology he needed, and, finally got it live. And then they've done a bunch of crazy things that everyone in in Silicon Valley have been like, why are you doing that? Like, they sponsored the Jake Paul fight.
Speaker 1:Did you see this? So, like, when the cut man comes in to, like I think it was a Jake Paul fight. They it's like it's some, like, you know, not super prestigious type event. You know? It's not
Speaker 2:But that's the mass market. But it's the mass market. Biggest companies are built.
Speaker 1:And everyone was like, why why is he doing this? This is, like, so silly. But I I I'd looked at the data, and I think it penciled out really well for that.
Speaker 2:That's cool.
Speaker 1:Just a great
Speaker 2:Yeah. The, there's a good quote in here relevant to this because, you know, this is a now a hyped venture backed company, but to become a, you know, multibillion dollar business and and potentially a $1,000,000,000,000 business, which Alexis will get into here, you have to be able to hit that mainstream of if you're building a consumer product, you should probably, at some point, be able to advertise at a boxing match. Or NASCAR race. You know, NASCAR or things like that.
Speaker 1:Never cross that chasm and you're only cool with the tech people, you can you can ladder up the venture rounds pretty well. You can even spack. We've seen this with, like, the all birds and stuff that never really broke into the mainstream. My my first company never really crossed the chasm into, like, your main mainstream. And, and and so thinking about that earlier in this in the company history Yeah.
Speaker 1:And kind of biting the bullet on, like, yeah, your brand might be not seen as, like, the hottest thing in tech, but that's actually a bigger opportunity.
Speaker 2:Yeah. So one of the, I believe it's a co lead in the round, Alexis Ohanian. He says, they say the next $1,000,000,000,000 business is going to be in consumer health. I buy it. If you look at the landscape today, there's really no one else on the market building the way Kion and Nucleus are.
Speaker 2:Nucleus is running a playbook in health care that used to belong only to purely software companies. It's fascinating to watch.
Speaker 1:Yeah.
Speaker 2:So very cool.
Speaker 1:And so we get we we actually mentioned this in that, in that NVIDIA article that we read, talking about how, you know, there's this data wall we're running out of data, and there is a lot of genomic data, and maybe that has a has a role in AI. And and I think that's what Keyon is betting on is let's let's let's put in a massive amount of of genetic data and and then run these next generation algorithms over there. So it's not just that the hardware got better. The Lumina system, I think, is one of them that can actually sequence more genomic data. Yeah.
Speaker 1:It's it's get all of that into the database and then be able to run more advanced algorithms with AI on top of it. So very bullish. But Keyon has had some banger posts over the last few years. On September 9, 2024, he said, our revenue yesterday, we are absolutely cooking. The movement is getting bigger every
Speaker 2:day. Like a a meme coin joke.
Speaker 1:It does. This is pumped out fun, Keyon. What's going on here? Can Can you believe we haven't even gotten started yet? Oh my god.
Speaker 1:Future of health tech at nuke nucleus genomics. I like that.
Speaker 2:Let's go.
Speaker 1:Just sharing the Stripe dashboard. We love to see it. This is a fun one. Related to 23 andMe in September of, September 20, 2024. Today, I'm announcing that Nucleus Genomics is considering the possibility of making a public offer to acquire 23andme contingent on financing as well as initiating and executing a successful negotiation.
Speaker 2:That's such that's such a that's such an amazing, like, play even at a high level Yeah. To just show your your, your your the kind of game you're playing Oh, yeah. To go to find the most high profile company in your category and say, yeah. We're exploring an acquisition of the company.
Speaker 1:Yeah. Exactly.
Speaker 2:Even if it's not a super serious thing
Speaker 1:Yeah.
Speaker 2:It, in many ways, I'm sure that Kaion and the and the Nucleus team would be able to much better operate and take advantage of the customer relationships and the data.
Speaker 1:And it just comes down to the price. I mean, they're already making acquisitions. They got 14,000,000 right now. I think they'd probably need
Speaker 2:2,000,000 total.
Speaker 1:Right? I think they'd probably need, like, over a 100 to do the deal even if there was debt involved. I don't know how Yeah. 23 me operates as a business, but, it's still just kind of cool. And and there's this trend of, like, you know, when TikTok was up and people were talking about, like, perplexity was jumping on the, hey.
Speaker 1:Maybe we'll buy it. Maybe mister Beast will buy it. A lot of people were circling and at least
Speaker 2:Well, and
Speaker 1:this is ticking the tires.
Speaker 2:Yeah. This is a part of a broader trend we're seeing in venture right now where venture capitalists and founders are starting to think more like traditional private equity
Speaker 1:Yep.
Speaker 2:Looking at roll ups becoming popular, but also, you know, this sort of larger scale m and a Yeah. Mergers.
Speaker 1:So very cool. This is really cool. Dworkesh, obviously, one of the most respected figures in tech right now, had an amazing story. So, Keyon posts, wow. Dworkesh Patel had an amazing story on his concern about his family history for, prostate cancer, and so he exported his 23 me 23 and me data to Nucleus Genomics to find out how he was in the 97th percentile for his genetic risk.
Speaker 1:He now knows to get earlier screening for this. And so this is an example of just, the the software, the application layer in AI being valuable. He didn't even have to do a test with Nucleus. He was able to just take his 23 me data, and I'm sure the quality of that analysis goes even goes up if you actually do the full test with Nucleus. So congrats to Keyon and the Nucleus team.
Speaker 1:We love to see it, and good luck with the next 12 to 18 months until you raise again.
Speaker 2:Try to keep up that 6 68% month over month growth. Yep. And soon your GDP will be big your revenue will be bigger than the GDP of France.
Speaker 1:There you go. There you go. Well, let's move on to a, fantastic article in Pirate Wires. We love to read these, these deep dives on, this one's by Joe Lonsdale and John Noonan. Says America needs better defense acquisition.
Speaker 1:How Trump can seize the moment, learn from what worked and what didn't in his first administration, and make general generational changes to defense bureaucracy. And so during the rebellion in the Philippines a century ago, American soldiers found that their service pistols lacked stopping power and were inadequate for the harsh realities of jungle warfare. In response, army leaders drafted a simple request for a new semiautomatic pistol of at least 45 caliber to replace the service's aging revolvers. This was a big thing in in, in Vietnam. I I I feel like that was the dawn of, like, the 556 round, and a lot of guys would carry Thompson submachine guns that were 45 caliber Mhmm.
Speaker 1:Just because it would cut through all the brush, and the bullets wouldn't get scattered as much. And so so a lot of guys kind of, like, procuring their own weapons, and this is something that's happened in the military for a long time. Like, their their their family will send them bulletproof vests.
Speaker 2:Yeah. This is why, the work that founders are doing in defense tech now is so serious. There's a lot of memes. You know, we've we've Gundo. We've talked, you know, memed about Gundo and bear domestication and stuff like that, but when you're developing these products, if you have bugs or errors or they're not set up properly for the task Yep.
Speaker 2:You're putting American lives on the line Yep. And these soldiers, you know, back in this situation are finding out that their, you know, pistols don't have stopping power, which means that they're actively getting into conflicts, like, you know, eye to eye with
Speaker 1:basically the enemy and
Speaker 2:not being successful with the products.
Speaker 1:Yeah. And so 6 firearm manufacturers answered the call. Their pistols were put through a series of rigorous field tests. The sidearms were refined iteratively throughout the assessment. In the final test, several 1,000 rounds were put through each gun over 48 hours.
Speaker 1:That must have been fun. The army was pleased to discover that one of the 6 prototypes, the Colt, suffered no malfunctions over 2 days of intense use. In early spring 1911, the, oh, this was actually during the Philippines war. This was before Vietnam actually. Had that wrong.
Speaker 1:In early spring 1911, the army settled on the Colt's 45 caliber as the new sidearm of choice for the service. Nearly 3,000,000 Colt 19 Elevens were made. The Colt 1911 served soldiers across 2 World Wars Korea and and, I guess, Vietnam as well, eventually being replaced in 1985. It was a procurement victory for the ages and the result of a competitive process that spoke for itself. To say that the army's attempt to build a new pistol in the 21st century has gone poorly would be a gross understatement.
Speaker 1:The army's effort to buy a new handgun has already taken 10 years and pursued produced nothing more than 30 350 pages of requirements, said the late senator John McCain in 2015. Micromanaging extremely small unimportant details and Byzantine rules and processes the armies once followed, many of which are unnecessary or anti competitive. And so, procurement is a mess. Pirate Wires summarizes this by saying, the Pentagon's purchases more goods, services, and software than all other federal agencies combined, but an ideology of central planning has rendered it ineffective. And here's how the Trump administration can make generational changes.
Speaker 1:And so, Joe and, his coauthor, John, go on to write, change is coming. The DOD bureaucracy, like all bureaucracies, seeks to sustain and grow itself each new inefficiency, like the service pistol mask, prompts shock from congress. Then to fix the inefficiency, the bureaucracy creates more inefficiency. And this is need a new report. Yeah.
Speaker 1:Yeah. Exactly. This is something I'm worried about.
Speaker 2:The report generates a need for new analysis Yep. Investigation and a new report, and then you're back. Yep. And it's a cycle of, just information collection versus action.
Speaker 1:Yeah. It's very, very rough. Like, yeah. You you're you're you're over regulated. You have a problem, and the answer is more regulation.
Speaker 2:It should be it should be the same. It's funny because this initial process, which is, hey, we're gonna give 6 manufacturers the opportunity to produce the next generation firearm. Yep. We're gonna put them through 48 hours of intensive testing. Yep.
Speaker 2:That's exactly what, you know and this this actually is might be surprising to some people, but, there you know, when when if you ever are going to shop and and buying a gun, oftentimes a Glock will get recommended due to its sort of rugged reliability. And so if you put 10,000 rounds through a glock and it's been well maintained or serviced, you're gonna have very little sort of errors with it. But there's a lot of manufacturers that are actively selling products where it's one out of every a 100 rounds, you know, has, you know, that you go through, you have some type of error or it gets jammed or it's, you know, has some type of issue. And that's the last thing you want. It's okay if you open Apple Intelligence and it's telling you something completely inaccurate about a message that you got.
Speaker 2:If you're relying on a handgun in a defensive, you know, scenario and it's has a 1% error rate, that just doesn't really work.
Speaker 1:Yeah. It, and so in 2018, the Pentagon underwent a significant restructuring of its acquisition framework. It results in the creation of a near of nearly a dozen new offices. The creation of the DIU, a lean and nimble group based in Silicon Valley with the authority to fund new products is a bright spot, but the temptation to create new bureaucratic edifices is part of the problem. In the defense world, the Pentagon is the only domestic customer, and so the defense industry is not subject to the same demand forces as the rest of the economy.
Speaker 1:Programs that wouldn't survive an open competition can thrive if the Pentagon wants them to. Superior products can struggle to break through, and they're at the mercy of opaque processes. When the army was searching for a new pistol a century ago, it simply told the best arms manufacturers in the world to build them a pistol, then it tested them in a ruthless competition. Today, Pentagon officials write long lists of requirements, many of them strange and unnecessary, take years to solicit and evaluate proposals. Even when the Pentagon does hold competitions, there is a clear winner that is ordered
Speaker 2:This is for the most simple this is a multi 100 year old product. Right? The pistol. And so imagine when you're testing and trying to sell and create, and earn the Pentagon as a customer if you're building, drone defense Yep. You know, mechanism of sorts.
Speaker 2:Right? Like, imagine the complexity there when you have this emergent threat, new technology
Speaker 1:Yep.
Speaker 2:And they can't even figure out how to acquire a new handgun for, you know, like, service pistol.
Speaker 1:Yeah. And so Joe Lonsdale wrote on x, VP JD Vance mentioned the crisis of broken defense procurement twice in today's interview. Cool. I drew up notes on how to fix it based on my 20 year experience as a defense entrepreneur and investor. With leaders like Pete Hegseth, we've got a real shot at at change.
Speaker 1:Link below. And so, Joe's been working on this for a while, and there are lots of people in tech and defense tech that have been, talking about this for a while. Back in 2023, November 24th, Ryan, Macintosh over at Andreessen said, one of the biggest bottlenecks for defense startups is DOD contracting. Imagine a tech enabled private military company that they could sell to instead circumventing government procurement and ops contracts for mission outcomes, not products delivered defense as a service. Kind of a like, the the most futuristic out possible outcome.
Speaker 1:But, I mean, there's certainly an element of that with, the private military contractors that buy sometimes civilian weapons even.
Speaker 2:We have a mutual friend that's been working on a PMC Yeah. For a while. See how it goes.
Speaker 1:And so Joe goes on to say his friend, Sham Sankar, over at Palantir, has bemoaned what he calls a government defense monopsony where one buyer gets too comfortable and exercises illogical and inefficient to fit decision making In his Martin Luther inspired defense reformation, Scham brilliantly lays out a strategy to end the Pentagon monopsony and flip the military to be a better customer. One of my favorite proposals in this space is to stop identifying the Pentagon as a single entity. It is rather an umbrella for dozens of service branches, agencies, and sub agencies. The thinking is that congress and the president puts these smaller agencies into competition with each other for money and contracts. It would not work across the entire DOD, but putting just a few head to head would be a strong blow against the 19 fifties mandate of efficiency via consolidation and a single difficult top down buyer.
Speaker 2:It's funny efficiency via consolidation sounds like a Soviet era
Speaker 1:It does. Policy. It does.
Speaker 2:Sound doesn't sound very
Speaker 1:You fell for the meme. Capitalist. In the fifties or something.
Speaker 2:Yeah. And it's interesting. One of the dynamics here is that defense manufacturers need to sponsor NASCAR events. They need to buy out of home. We were talking with the AdQuik team yesterday, and they were showing us a an a billboard that Andrew Roll is running in DC.
Speaker 2:Right? So they're basically having to do wide scale Yep. Consumer advertising to build this sort
Speaker 1:of
Speaker 2:brand love, presumably, or or mind share in in a place like DC
Speaker 1:Totally.
Speaker 2:When in theory, a defense contractor shouldn't have to be doing consumer marketing to get their products, you know, purchased by our government. Right? It should be the best, you know, suite or individual product that that sort of wins. But instead, you know, you'd see a ad advertisement for Ozempic next to an advertisement for a submarine.
Speaker 1:Yeah. I remember seeing, I think it was Anduril Ads at Burbank Airport. And, yeah, all of that's just to, you know, target lawmakers that are flying back and forth between LA and probably Sacramento.
Speaker 2:Yep.
Speaker 1:And so there's another promising proposal he highlights to create mission based requirements. The Pentagon has a term called requirements creep, where a simple commercially available solution to a problem becomes infected by new design obligations imposed on industry by military officials. The US Navy's constellation class frigate, for example, was meant to be a fast and simple purchase of a proven and existing warship. The Frem frigate made by Fincantieri. And what was a clear edict from congress to buy quick and off the shelf, navy bureaucrats have reduced the Constellation's design commonality with the original Frem from approximately 85%.
Speaker 1:So they're like, let's just change 15% of it to now it's less than 15%. So it's 85% different. Requirement after requirements, some dating back decades, have resulted in massive cost overruns and delays to the program. As a result, the navy still does not have a frigate in service. That's just like, oh my god.
Speaker 1:The when the Pentagon believes it can do acquisition via central planning more effectively than listening to soldiers or technologists, it fails our
Speaker 2:Again, central planning. All these phrases that that feel
Speaker 1:it's rough. And so, I mean, this is all part of, like, this major vibe shift in in tech and defense tech. There's a post from Dan Primack here, from November 29, 2024. He says one big reason that VCs didn't use to fund defense tech was that they didn't wanna invest in things that were reliant on government procurement. Yes.
Speaker 1:There were philosophical issues too, but this was an era when VCs avoided startups that even brushed up against government or regulation minus biotech. That time has long passed in part because Uber, Lyft, SpaceX, and Airbnb kicked down the doors. And so Yep. Yeah. It's interesting.
Speaker 1:I I hadn't really thought about, Uber and Lyft and Airbnb as, precursors to the andurals of the of the ads. There is a little bit of that where, there there was a there there's a shift in entrepreneurship where founders figured out that some of these things aren't insurmountable.
Speaker 2:Well, a lot of the lowest hanging fruit of, you know, CRMs and Yeah. Email tools and
Speaker 1:things like that. Harder Yeah. Harder thing.
Speaker 2:Yeah. And you had a generation of of entrepreneurs who did the easy things. Yep. Right? And then they realized that there were bigger challenges and bigger opportunities doing the hard stuff Yep.
Speaker 2:Now that now that they had this sort of base level abilities around capital raising software, you know, these sort of generalized skill sets.
Speaker 1:This is a crazy stat. Since the end of the cold war, over 2,500 US companies have been founded and reached a valuation of $1,000,000,000 or more. So 25 100 unicorns in the US since the Cold War, less than a dozen have been in defense. And Wow. I mean, hopefully, we'll be covering more here soon.
Speaker 1:But I personally founded a few and invested early in a few more, Joe's in, like, every defense unicorn, basically.
Speaker 2:Not just in them, but
Speaker 1:Founded. Yeah. In many areas, these companies are out competing the primes if they're allowed to. They represent thousands of manufacturing jobs in the US and could have put a multiple of that in the next decade. But they need allies in the government.
Speaker 1:New officials can start by trimming down an encyclopedia of regulations that was first written and consolidated in the Reagan administration. The federal acquisition, regulation, FAR, first issued on April 1st. That's funny. April Fools' Day.
Speaker 2:April fools.
Speaker 1:1984, also a weird year. It's a it's a very dystopian. Has almost doubled in length and with it, the complexity.
Speaker 2:Always meant to be a joke.
Speaker 1:It was a joke, and it was meant to be a dystopian.
Speaker 2:Got the joke. The joke. Let it roll.
Speaker 1:Yeah. Disregard it entirely. Title 10 of the US code, which governs the armed forces, has become swollen with obsolete and choking legal requirements. This creates fertile grounds for long and contentious lawfare when bids don't go a company's way. And so the story of every defense tech company has been make a better product, get it, you know, loved by Yeah.
Speaker 1:The military and the p and the foe war fighters on the ground. Yeah. And then, essentially, you have to fight a lawsuit when you get screwed in the defense procurement acquisition.
Speaker 2:This is why a bunch of the there's this narrative that all the new defense tech founders are in the gundo. But Yeah. 2 of the companies in my portfolio, Deterrence Yeah. And Allen Control Systems, both the CEOs live in Washington DC. Right?
Speaker 2:So, and they the the opportunity for them is that every lunch and coffee and things like that can get them closer and closer to real traction.
Speaker 1:Yeah. And and, yeah, I think SpaceX and Palantir both had to sue the government when, when contracts didn't go their way and they felt like they were, unduly looked over.
Speaker 2:Yeah. Because it's hyper political. There's lot there's, you know, massive lobbying.
Speaker 1:Totally.
Speaker 2:If you're Lockheed Martin and you like your, you know
Speaker 1:Margins.
Speaker 2:Duopoly or whatever, you're gonna just continue to spend to make sure that, things aren't necessarily always
Speaker 1:There's a great quote in here. The United States was once the arsenal of democracy. Today, it is the arsenal of bureaucracy with an army of federal civilians making it difficult for American companies to sell to willing buyers. To wit, it took the state department and the Pentagon nearly 30 months to finalize the sale of Harpoon antiship missiles to Taiwan. Though upgraded in recent years, the Harpoon has been in service since the eighties.
Speaker 1:It's not a new system, and Taiwan is the nexus of our Pacific deterrents. We have a unique opportunity for American workers and innovation to be fueled by investment from our friends, strengthening both our economy and national security. The process should be simple. It isn't. The half of the arrow in America's side was feathered from our plume.
Speaker 1:That's great. That's a great sentence.
Speaker 2:Great writer. Yeah. Writers.
Speaker 1:Fantastic. Moreover, the the past 3 decades of obsessive consolidating and regulating and subsidizing has undercut the core element of the new administration's foreign policy and natural national security. Trump has rightly emphasized deterrence, a concept that escaped the outgoing president and his team. Deterrence is a simple framework and does not require a mountain of PhDs to grasp. It means, in plain terms, terrifying adversaries with a combination of iron forged national will and fearsome weapons that lend that patriotic resolve, credibility.
Speaker 1:It's great.
Speaker 2:Yeah. 11 I posted a couple weeks ago that we needed a, like, project Stargate style progress, project to address the shortage of domestic drone production. Totally. And when you read this article and you understand how long it takes just to sell
Speaker 1:Oh, yeah.
Speaker 2:A single, you know, harpoon
Speaker 1:Yeah. Yeah.
Speaker 2:To no. What is it? The
Speaker 1:I mean, no one's talking about Taiwan invading China because, like, China is extremely scary when it comes to the deterrent. It's like they have all, all all this incredible military technology. It's unthinkable.
Speaker 2:Yeah. And so I think part of it is getting getting, Peter, people like Pete had had just back, in, you know, effectively in power and helping make some of these decisions. People that have actually experienced conflict
Speaker 1:Yep.
Speaker 2:And getting some of these decisions back into the hands of not, you know, bureaucrats, but actual operators that have on the ground experience.
Speaker 1:Yeah. It's pretty cool looking at who's in now. So, Pete Hegseth said during his confirmation hearing, competition, it's important critically important. Silicon Valley for the first time in generations has shown a willingness, desire, and capability to bring its best technologies to bear at the Pentagon, a Pentagon that has become too insular in ties and tries to block new technologies from coming in. And then Steven Feinberg, the nominee to be the number 2 at the Pentagon, is a patriot who leveraged his vast business experience.
Speaker 1:He's more of a private equity guy, but has done a lot of defense deals. Yeah. I think it's Cerberus. Right? And then, Emil Michael also went went into the administration as well, and he was, the right hand man of Travis Kalanick at at Uber, and just a great overall guy.
Speaker 2:And we want that Uber energy, that TK energy in the Pentagon and running research and engineering. Oh, cool. That is that is cool.
Speaker 1:During so he closes with, during the Persian Gulf War, the stunning American military victory over the Iraqis, then a 4th then the 4th largest army in the world, military experts estimated that US military technology was a decade ahead of the Soviets and 2 decades ahead of the Chinese. The world was shocked at the might of then futuristic weapons and state of the art tactics. The new Trump team has strong has a strong wind in its sail. The woke tech giants of the last decade have given way to a new crop of patriotic leaders and innovators. Silicon Valley is poised and ready to join the fight with a few bold moves.
Speaker 1:President Trump's promised golden age and a second century of American dominance are within reach. I love it. So go subscribe to Pirate Wires. Read the full piece, and, follow Joe on x. And, let's go to some other posts loosely about defense procurement.
Speaker 1:So Josh Wolf wrote US Defense Tech CEOs urge speedier procurement to counter China. This was from months ago, and everyone has been beating the drum on we need to speed up defense procurement. It's boring, but it's very important.
Speaker 2:Yeah. And it puts our companies at risk. If you have a start up and you've developed this incredible product, and then you have one customer, which is the Pentagon, and they're like, okay. We're we're excited about this, but, you know, let's let's start the process. And then it turns into a The status.
Speaker 2:48 month process. Meanwhile, you have $2,000,000 in payroll costs that you're having to absorb every month because you need the best engineers and talent in the world to run your business, but then you're just waiting for that revenue to hit. Yep. And usually it comes in in increments where, you know, that you get awarded $10,000,000 and then and then you need to hit certain milestones. And and so, it's a very, sort of shaky dynamic
Speaker 1:Yeah.
Speaker 2:That has led to otherwise good technology not getting implemented.
Speaker 1:Yeah. And so even back during the Biden administration, there's an open letter that was signed by Palantir, Inderal, Lux Capital, and others, and they went to meet with the Biden administration and the house GOP to work on defense procurement. Obviously, less relevant now that Biden's out, but, still, this is something that's obviously bipartisan and has always been. Patrick Collison had an interesting post here. He took a very academic approach to thinking about defense procurement back in 2017.
Speaker 1:His military procurement turns out to yield interesting management reading, scrutinized from multiple perspectives, lots of pathologies to analyze, r and d is a major factor. He recommends Boyd, Quorum, National Defense by Fallows, and Augustine's Law by Augustine.
Speaker 2:Yeah. So while you're flipping brain rot real content, Patty Patty's Patty's reading these esoteric books on defense procurement. And that's why he runs a $100,000,000,000 company. And, you know And
Speaker 1:you haven't raised a seed right now.
Speaker 2:You just lost $15 on meme coins.
Speaker 1:Yeah. Exactly. It's great. But I I gotta check out some of those books. That's probably pretty interesting stuff.
Speaker 1:But, yeah, he's always been a a a real, powerful deep diver of the of the
Speaker 2:Powerful deep diver.
Speaker 1:Yeah.
Speaker 2:He would add a podcast in another life.
Speaker 1:Yeah. Yeah. This is an interesting one. Have you seen Pentagon Wars, this movie? No.
Speaker 1:It's fantastic. So it it chronicles the story of the Bradley fighting vehicle.
Speaker 2:Okay.
Speaker 1:And it's it's like a made for TV draw like, almost like a dramedy, like a like a drama comedy. Yeah. And it's all about
Speaker 2:like kinda like our show.
Speaker 1:Kinda like our show. Yeah. And so it it tells the story of of the Bradley fighting vehicle and how the the requirements just got so chaotic because they go to 1 general, and he would say originally, it was just it was just supposed to be an armored troop transport to take a bunch of guys from the rear to the front. So it's it's just it's just a bus, basically. And but it, you know, it needs to be fast so it can move.
Speaker 1:It needs a little bit of armor, but nothing crazy. But then, of course, they talk to one guy, and he's like, oh, well, it'd be great if it had a gun on it. And then they're like, okay. Let's put a turd on it. And they're like, well, if we put a turd on it, like, it's gonna carry less guys.
Speaker 1:And they're like, okay. Well, like, it also needs to be able to float in water, and so they add that. And then they and then they're like, well, now and if it's if it has the turret and the and it can go in the water, it's gonna be much heavier. So it's gonna be a target. So now I have to put more armor on it.
Speaker 1:And so that slowed it down and stuff. And so it's a it's a hilarious movie. It's it's fantastic. But there's a little bit of an interesting, like, flip side to this, a little, a little, contrarian take from Robert Potter here. He says, the Bradley is literally taught to students of defense procurement as a bad example.
Speaker 1:The platform has been slammed, audited, and they even made a movie making fun of it, Pentagon Wars. The reality, here it is flogging a Russian tank. Keep that in mind when people talk about the f 35. And so there's always been a few
Speaker 2:was in the news last week because there was a video on an airfield that just fell out of the sky. Luckily, the pilot Yep. Ejected and and came down in a parachute, but, and that was an $80,000,000 ish mistake, I believe. I mean,
Speaker 1:the the program's in, I think, over a trillion or something.
Speaker 2:It's it's huge.
Speaker 1:But there's always actually
Speaker 2:over it can't be over. Do you think it's I don't know. There's no way. It's very
Speaker 1:it's very expensive. I know the numbers are also big. I I can't even keep track anymore. But, but the interesting thing about the f 35 is when you talk to people in defense, they they will say, the problem with the f 35 is not that it's a bad plane, like, as evidenced by the fact that China copied it. The j twenty is a direct copy of the f 35.
Speaker 1:Why would they copy it if it was a bad plane? That just wouldn't make sense. You wouldn't waste your time. Maybe you can make an argument that, like, oh, the r and d is free. So you, you know, you just copy it because it's Yeah.
Speaker 1:It's valuable at if you don't have to pay the r and d cost. But the f 35 is not a lesson in, in, like, oh, we we tried to we tried and failed to build a better, you know, air supremacy fighter or the Yeah. Platform. It is successful. It did actually do all the different things, electronic warfare.
Speaker 1:Like, it's fast. It has all the different features. It's just that it went way over budget and took way too long and is Yeah. Just a technical mess, but it's still
Speaker 2:the best sound. Interesting about, so if you're a fighter pilot and you're based somewhere in the US, let's say you're based in Nevada, if you go if you go on deployment, you just end up flying the jet there. Yeah. And that is it's a strange commute. And it ends up being these, like, really long it's imagine it's it's like a 16 hour flight.
Speaker 2:Yeah. Yeah. So you just, like, commute over
Speaker 1:Yeah.
Speaker 2:To work. Yeah. I just find it, it's it's it's you would imagine that they would get, like, shipped in some way. Yeah.
Speaker 1:Yeah. Yeah.
Speaker 2:You just Normally, you're, I don't know, with with, like, sports cars. Right? You're not you're not like, oh, I'm just gonna, like, go put some I'm gonna I need I want my, you know, turbo in New York. I'm gonna drive it all the way over there. But the planes, they just end up in the most efficient way just to fly it over
Speaker 1:there. Well, the new Anduril, arsenal, their manufacturing plant is right next to an airstrip. And, and the, Palmer was talking to, I think Ed Ludlow at Bloomberg in this interview and saying, like, oh, yeah. We're right next to an airstrip, so we can, like, and one of the advantages and Ed Ludlow's kind of, like, you know, answering his finishing his sentences and saying, like, oh, so, like, you can fly the plane straight from the factory to the customer, like, to the Pentagon or to the airfield. And he's like, Palmer's like, yeah.
Speaker 1:Or the war zone. Yeah. You can just it rolls off the factory line, and it goes straight to the to the front Yeah. Immediately. And that's the most efficient way to deliver capability.
Speaker 1:And I just think that's it's it's funny and interesting. Yeah. Anyway, very expensive and and, again, highlights the fact that, like, we aren't necessarily behind on the technology. We're just behind on the on the efficiency and the procurement process. And over time, the
Speaker 2:I'd rather be behind on procurement because that's a lot of process you can rip out.
Speaker 1:But it's like yeah. It it's a leading indicator. It's like we're overspending on the f 35. The next version won't even get made if if the if the continues, and that's the that's the fear and the risk. So Matt Palmer, says, hate to say it, but I don't think there's any way the US can position itself to deter a major war in the next decade, let alone win one quickly.
Speaker 1:The defense procurement system and the industrial base underpinning it is fundamentally broken, and it will take a major war to fix it. He's a bit of a doomer. I think that there's a chance. I think Joe Lonsdale and the crew at the Pentagon You
Speaker 2:know, I like how they're not taking the Doge branding into this. It's much more of just, hey. Let's just do this.
Speaker 1:Yeah. Yeah. We don't
Speaker 2:need to we don't need to make it a a big marketing campaign.
Speaker 1:Totally.
Speaker 2:We don't need Vivek in here, you know, trashing the jocks again. People like people like people like you No. No. Hardworking Americans.
Speaker 1:I think I I think Heng said it's in many ways the the the the the the cultural opposite.
Speaker 2:Yeah.
Speaker 1:But, I mean, defense tech is is charging on. Let's go to our next story. Startup Castilian has raised a $100,000,000 for hypersonic strike weapons. I think we gotta ring the size gong for Castilian. Let's do it.
Speaker 1:Boom. Boom. Congratulations to everyone involved. We'll break them down.
Speaker 2:To size up the gong for this.
Speaker 1:Yeah. This is a big one. We did 14,000,000. Now we're doing a 100,000,000. Congrats to Castilian.
Speaker 1:So they make hypersonic missiles. Silicon Valley's enthusiasm for super fast weapons has picked up speed with defense tech startup Castilian raising a $100,000,000 through debt and equity to build hypersonic missile systems. The company is buying to sell long range strike weapons to the US military. Castilian is part of an increasingly well funded sector of venture backed defense companies. Many are hopeful that the new Trump administration will yield more government contracts for start ups.
Speaker 1:There will be more support for awarding contracts to non traditional players, said Castilian's cofounder Sean Pitt. The administration has given the Pentagon the freedom to lean into new companies. So they raised 70,000,000 in venture and 30,000,000 in debt. The funding round was led by by Lightspeed Venture Partners, and it brings the company's total funding to a 114,000,000. So they got here with just 14.
Speaker 2:And have you seen their their branding, by the way? It's very fifties nostalgic or even almost World War 2 era. So the the graphics that they use No.
Speaker 1:I haven't seen that. It's cool.
Speaker 2:Feels a little bit insane to be, you know, talking about defense tech company branding, but I think it's smart by them because there are so many new players coming in differentiating yourself, you know, visually is is just another way to kind of stand out.
Speaker 1:Yeah. Yeah. It's great. And and the last thing you wanna do is just be, like, derivative Andral. Right?
Speaker 2:Yeah. Yeah. Yeah. Because the the And Andral has been such a dominant force. Totally.
Speaker 2:And they kind of took the sort of Call of Duty esque branding. Totally. And that is what all these defense tech founders grew up playing.
Speaker 1:Yeah.
Speaker 2:And so it's sort of the default. But because Anduril is first, they own it. And so Castellian's done a good job of of, you know, separating themselves from the pack.
Speaker 1:And so let's do a little bit of a deep dive on, hypersonics. So the defense department has considered hypersonics a national security imperative for more than a decade. Despite spending 1,000,000,000 of dollars on the effort, it it has failed to develop battlefield ready technology. Castilian says its frequent flight tests, quick engineering upgrades, and economical manufacturing will produce cheaper and better hypersonic weapons. It does test flights, it does 3 test flights per month in the California desert.
Speaker 2:So this is crazy. Hypersonic weapons, you might think hypersonic's faster than sound. A hypersonic weapon is defined as a projectile that flies at least 5 times the speed of sound.
Speaker 1:Yeah. Supersonic is Mach 1 to 5. Hypersonic is 5 plus.
Speaker 2:Yeah. So it can be launched from great distances, maneuver, and evade most air defenses. They became a top defense department priority during President Trump's first admin. A 2021 test flight by China, which launched a weapon that circled the globe 20 times the speed of sound or faster alarmed Washington. Yep.
Speaker 2:20 just ripping around 20 x.
Speaker 1:So the main the main reason why we're
Speaker 2:able choose that flight path fairly.
Speaker 1:Well, that's the thing. You don't have to choose the flight path with the hypersonic.
Speaker 2:So it's so high. It's so fast.
Speaker 1:It's not just that it's so high. It it combines speed. So, the traditional ICBM, the intercontinental ballistic missile will also go Mach 20. I I I'm not sure if it's exactly Mach 20, but they go extremely fast. They go all the way up into space, but they follow a perfect, parabolic arc.
Speaker 1:And so we have missile defense systems and satellites that track all of these different missiles as they go up, all the different rockets. So the rocket launches, and you can see that it's on this very smooth trajectory. And what that allows you to do is calculate with a very simple mathematical equation. Well, if it's going, you know, a couple 1,000 miles an hour here, well, then in 5 minutes, it's gonna be here. And if I just get my bomb or my missile here and explode, I will intercept it and blow it up.
Speaker 2:Yeah.
Speaker 1:It's very simple to build a, like, a a a a programmatic calculation for how to counter it. And so that's been the backbone of missile defense systems, and it's why people aren't genuinely freaked out about countries getting ICBM capabilities. Yeah. Because, you know, North Korea will get one, and it's like, yeah, we could probably shoot those down pretty effectively, scramble things as they come, shoot them down.
Speaker 2:Korea is so funny. It's it's it's it's like your drunk friend who just has a gun, and they're shooting it off in the air at random times. Yep. You gotta kind of far away, and so you gotta look over there and be, like, what's going on? Is it alright?
Speaker 2:Hopefully, that doesn't fall anywhere important. Yeah. Meanwhile, the adults are, you know, just sitting around
Speaker 1:Yeah.
Speaker 2:Maybe every once in a while, letting one off, but in a much more, you know, controlled Yeah. Method.
Speaker 1:And so these hypersonic weapons are different than ICBMs because they don't follow predictable trajectories. They maintain the maneuverability almost of a jet or cruise missile, but they're going Mach 5. So cruise there's a couple cruise missile companies, and cruise missiles are obviously very important. But cruise missiles are typically subsonic.
Speaker 2:So
Speaker 1:they're not going it's it's more like a plane with no one inside and just a bomb. So when you have something traveling Mach 5 and it's also able to maneuver, it's very hard to shoot it down. And so these are the the people are worried about these hypersonic weapons being able to take out aircraft carriers very easily
Speaker 2:Yep.
Speaker 1:Be able to strike somewhere because it can take, you know, a lower path, evade radar, evade the satellites, evade detection Yeah. And then just show up very quickly before you can react.
Speaker 2:And so I'm a an adviser to this company, Aon. Aon. Yeah. I don't know. Have you ever met
Speaker 1:you? I don't even met
Speaker 2:them, but I'm from here. So they're based in Texas. Yeah. And, they so in learning about that business, there's only 2 manufacturers that make they make anti tank missiles.
Speaker 1:Yep.
Speaker 2:So launch from the ground, hit, you know, shoulder launched, sort of close range. There's 2 companies that make them, and they they've gotten to the point where they're charging, because they they run on a cost plus model.
Speaker 1:Yep.
Speaker 2:So the the manufacturers make, like, a fee on top of what it costs them to produce it. Yep. So that means that they're incentivized to just run up the price so they make more money. It's just very, you know, poor incentive. And so Aon's making them for 80% less money.
Speaker 2:Yeah. They're making better products that are easier to use. Yeah. And so, Aon, you would think is just, like, you know, obvious easy win. They just go in there and saying, hey, our products, you know, costs Yep.
Speaker 2:80% less. It's easier to use. But because of this procurement process, which we've been talking about
Speaker 1:Yep.
Speaker 2:It's just not it's not a shoe in. Right? It's it's a struggle to get, you know, and they've done very well in terms of getting, traction in the Pentagon. But Yeah.
Speaker 1:And so a lot of it is, you know, you just have to go and get some sort of general or admiral to come out and watch your demo. Yeah. And we've seen videos of Palmer doing this in the desert in a, in a wonderful Hawaiian shirt, and Castellians clearly made that part of their strategy as well. They bought, this crazy looking, like, tank transport thing Yeah. And they drove it to El Segundo, which I guess is where they're headquartered.
Speaker 1:So welcoming our new lsvrmkr18 to El Segundo this week. We'll be making upgrades to convert this vehicle into a launcher system for an upcoming flight test, and it's a fun ride. So I think that they they can build in their factory, put it on the back, drive it out to the desert, and then just shoot it off and fire it.
Speaker 2:I think I think this creates a fun dynamic for, VC demos too. So if you you're running a process, your investors, you know, potential investors wanna see what you got, invite them all out to the same demo.
Speaker 1:That's literally happened.
Speaker 2:Blow some stuff up, and then say you guys can talk amongst yourselves and figure it out. Literally happens all the time. Steve, CEO of, Allen Control Systems. Yeah. There was all these, you know, investor he's, was raising a new round last year.
Speaker 2:All these investors wanted to meet. I was, like, invite them all to the same demo demo because you're gonna just be sitting there watching this incredible
Speaker 1:Yeah.
Speaker 2:You know, demo the technology. And and for him, he's making counter drone
Speaker 1:Yeah.
Speaker 2:You know, systems. So, it's just very cool and and highly relevant to the battlefield today. Yep. And, anyway, so cool opportunity. Normally, you're giving a VC a demo of your product.
Speaker 2:They're using it. But this sort of putting them all out on the same desert is just so fun
Speaker 1:to have. I've heard of that happening, and all the VCs were standing around talking to each other. And one of the bigger VCs there looked to the other one and said, you're not getting a penny of this round. And it was like, wow. That guy's kinda dick.
Speaker 1:But Yeah. Like, it it worked, and they took the round, and and it got done. And it's good for the founder. So lots of investors have been singing Castilian's praises. Andreessen Horowitz is in the round.
Speaker 1:They said, Michelle Volz, former Andreessen associate, or partner says, the best way to ensure the next era of Pax Americana is to build capabilities that deter our adversaries. Congrats to the team. Jake Chapman says, with a fantastic handle on acts just at VC.
Speaker 2:Crazy.
Speaker 1:He says, excited for Castilian and to see us developing this American capability, and I like the folks I know at Lightspeed, but Lightspeed maintains a China arm. What's the relationship between these two firms from a money control systems information flow perspective? Why did everyone scream about Sequoia? It was totally fair, but nobody seems to care about Lightspeed. So he's putting the putting the screws to Lightspeed, telling them divest immediately, I guess.
Speaker 1:Blue Yard Capital is also in this deal. We are excited to consider continue supporting Castilian Corp on their mission to preserve peace through deterrence. Read more about their $100,000,000 series a financing in the Wall Street Journal, which we just did. And, Castilian is very excited to announce their round. We should close out with some more context from the air force, the hypersonics program the air force estimated would become operational in 2022, hasn't materialized, and the service is working on another program that says it will produce a weapon in 2027.
Speaker 1:An Air Force spokeswoman woman said the service is working on other programs and collaborating with startup defense companies and providing them with opportunities to demonstrate their technology. Many in the industry hopes Trump's shake up in Washington agencies, the the technology industry's coziness with the president, the influence of Musk, himself the founder of the largest venture backed defense tech company will bring attention and money to hypersonics. And so Yeah.
Speaker 2:And that's what people still don't realize about SpaceX is it is being able to put things up in space fundamentally makes you a defense tech company. Totally. It's not a just an aerospace No. Totally. Space company.
Speaker 2:Yeah. That's part of what part of their value to the United States.
Speaker 1:A 100%. Yeah. And and, I mean, Star Shield has been very important in getting Internet to the front lines. But then also, there's all the other applications of just putting up spy satellites and even converting the rockets to ICBMs potentially. So all of all 3 of Castilian's founders were previously senior in senior positions at SpaceX, and roughly half the company's 60 employees joined from SpaceX.
Speaker 1:That's pretty crazy. And, Castilian said it would have a finished product ready for the military by 2027, and will have its first hypersonic speed test flight for its weapon this summer. It has been awarded more than $22,000,000 in federal government contracts, mostly from the air force. And so we love to see that.
Speaker 2:But Yeah. And that's and that's why this race shouldn't be that surprising from a headline number standpoint is they're generating 22,000,000 off of 1, basically, one contract. Yep. I'm sure they have others either done or in the pipeline. And if you're a series b SaaS company with 22,000,000 of ARR, you can easily go out and raise a 100,000,000 at, like, a $500,000,000 valuation.
Speaker 1:Sometimes those contracts are kind of paced out though, so it's pretty clear how much they're drawing down from it. But still, yeah, it's obviously, a good sign. There there
Speaker 2:And the and the order that people don't realize the order if if these contracts pan out well Yeah. And the product starts to work, you could be looking at 1,000,000,000 of dollars in orders on one SKU Yeah. Yeah. Which is just that's where
Speaker 1:Yeah. There was some, some, like, you know, like, what is the bear case here? Why, like, like, what what could go wrong? Like, there are competitors in the space. There are other startups that do solid rocket motors.
Speaker 1:And Earl bought a solid rocket motor company. But it seems like Castilian's focused on being the integrator that actually builds the complete system, which I'm sure is is is much more complicated than manufacturing any one piece.
Speaker 2:And so thing, you get these $1,000,000,000 orders, and then you have these servicing contracts, which are like SAS, like, you know, sort of annual contracts on a per typically, from what I know, a per missile basis. So it might be you sell a hypersonic for call it $2,000,000 and then you have 400 k a year for 10 years to maintain it. So it's very predictable Yep. Stable revenue once you win the contract. And so I think what we're seeing already in defense tech is the the companies that have contracts now that are actually getting traction in the Pentagon, they are gonna get more and more capital piled into them because there's this there's a lot of precede seed stage companies that are, you know, able to raise $5,000,000, but getting to that next round, even if you build the technology, if you don't have the contract traction, you're just not gonna get there.
Speaker 1:Yeah. So one of the venture capital firms in Castilian is Blue Yard Capital, and their fun performance was just, published by Eric Newcomer in his newsletter, Newcomer.
Speaker 2:And I don't think they intended for it to be published, but, Eric No.
Speaker 1:Do you know the backstory of how this stuff leaks?
Speaker 2:It's not even leaked. It's a public endowment
Speaker 1:Exactly.
Speaker 2:That basically has to publish
Speaker 1:Their data.
Speaker 2:Presumably for some type of compliance reason.
Speaker 1:So it's the it's it it all comes from UTIMCO, the investment arm of the Texas Public University System. So I don't know if it can be FOIAed or it's just automatically released, but, newcomer loves getting those new, UTIMCO reports because, they they
Speaker 2:sell the I'm sure there's I'm sure there's fund managers now that are like, I don't wanna raise for them because I don't want 5 years from now my fund to be getting dragged. Yep. You know, a lot oftentimes, you know, people. But, anyways, I thought this was a crazy story. So Blue Yard Blue Yard
Speaker 1:is killing it.
Speaker 2:Is killing it.
Speaker 1:Yeah.
Speaker 2:Its 2016 fund has 53% IRR. And where are they based while they're ripping checks into American hypersonics? Berlin, Germany.
Speaker 1:Berlin. Okay.
Speaker 2:Have you been to Berlin? I have. Cool cool city.
Speaker 1:I went to October.
Speaker 2:It's only gonna get more and more punk as their economy
Speaker 1:Collapse. Collapse. Well, yeah. They're really siphoning the money out of the German economy with this fund now.
Speaker 2:To the yeah. Yeah.
Speaker 1:But maybe it'll come back in distributions.
Speaker 2:Well, hopefully, Blueyard's LPs are mostly American. Yeah. If they're investing in American companies, we can keep those, you know, things.
Speaker 1:So it seems like newcomer went to David Bird, the general partner at Blue Yard, and said, hey. I got you dead to rights. I got the UTIMCO
Speaker 2:report. You.
Speaker 1:And this was cool. Yeah. That's the real But but, yeah, they came back, and they were like, here are the real numbers. UTIMCO calculates it one way. We we we can give you our marks, and it seems like they're doing really well.
Speaker 1:The first fund generation that they raised in 2016, they raised a $120,000,000 fund, net multiple of 4.8 x and a net IRR of 51% for a DPI of 3.4x. So they're doing great. That allowed them to raise, 4 more funds, blue yard 2, blue yard 3, and then 2 crypto funds.
Speaker 2:Little bit of a narrative violation. A lot of people when they see a fund go from doing defense and biotech to FOMO ing into crypto, oftentimes, you know, they just assume that they're just incinerating cash. But the first their crypto fund, which was started in 2021, $75,000,000 fund, has a gross multiple of 1.7x right now and a gross IRR of 28%. And so this is again that the narrative violation that we've talked about before, which is that the average crypto fund outperforms the average venture fund.
Speaker 1:Yep.
Speaker 2:And so crypto, the crypto industry continues to laugh, to the bank. Yep. Some retail investors get a little smoked in the process, but that's part of the game.
Speaker 1:And so, newcomer, posted, the full deep dive, which you can go see on his, substack.
Speaker 2:Paywalled.
Speaker 1:Paywalled. But everyone in tech has a subscription or the ability to hop the paywall if they need to. And, Brad Holden, gives a shout out to Protocol Labs for helping Blue Yard drive amazing returns. Any project would be lucky to have Blue Yard supporting them.
Speaker 2:That was a crypto fund?
Speaker 1:Yeah. That was the crypto investment that that really drove returns in their early fund, which I think invested in both Castilian early on and, and Protocol Labs, which really, I guess, mooned. And so there's a couple other there's a couple other funds that are highlighted in here from the UTIMCO report. True Ventures, is doing well. You were in 27, 10
Speaker 2:has has invested in not just one or a handful of funds. They've done 10 of True Ventures funds, and so this is why you solo GPS, you have to start out raising 200 k checks from a bunch of random people, but you try to get to raising from endowments
Speaker 1:Yep.
Speaker 2:Because endowments will basically ride with you for your entire career
Speaker 1:Yep.
Speaker 2:In certain instances, especially if you put up, solid numbers early. Yep. And it's valuable because even if you have a fund that underperforms, you know, they'll continue to to double down and and build that trust with you.
Speaker 1:And so, True Ventures, the newer vintages still have negative IRR because, obviously, the the the the newer companies, they die off faster, and then the later ones start to grow. But the overall IRR is in a solid place at 23.59%, which is great. UPFRONT Ventures has been in trouble. Their portfolio their growth portfolio has fared worse than its early stage funds per UTIMCO's IRR calculations. The firm has only returned around 35,000,000 to UTIMCO out of a 127 million invested so far, though its holdings on paper have been marked up to nearly 150,000,000.
Speaker 1:It has an overall IRR of 9%. The Yeah.
Speaker 2:So so to be clear, there well, this doesn't look great on paper compared to true or, blue yard. They're still sitting on, you know, what what will you know, if it were to be realized today, who knows if it would be is a, you know, 9% IRR, which beating, you know, close to beating the market.
Speaker 1:Yeah. And, and there's some other, funds that got, scooped by a newcomer, so go check it out. Always interesting to dig into what funds are are raising important for founders to understand Yeah.
Speaker 2:The only other
Speaker 1:who's on an upswing and who actually has more capital to deploy. Because once you see a fund start declining in the IRRs, you're they're likely not gonna raise those follow on rounds. They might not be the partner for you that will be there for those series b, series c checks, keep upping their pro rata, staying with you if they're Yeah.
Speaker 2:And this one, this other foundry group, which was in the news last year because I think they returned capital or
Speaker 1:Oh, is that right?
Speaker 2:Or maybe I'm confusing it with another fund. But, yeah, they're just no longer even raising. So that, even funds that, you know, firms that end up raising, you know, in this case, over 8 individual funds, sometimes don't have proper succession plans or the GPs just decide, you know, we had a good run, let's call it. Yeah. Because these things are every new fund is 10 plus years of, you know, commitment
Speaker 1:Yep.
Speaker 2:To managing the firm. And if you're getting to, you know, retirement age Yeah. You're sitting there. I'm 6 years old. I wanna raise another fund now.
Speaker 2:And then
Speaker 1:So I'm bored for another decade.
Speaker 2:Yeah. Potentially, even 15 years, oftentimes, if the times if you get real winners that have, you know, continued access to capital.
Speaker 1:Yeah.
Speaker 2:So it's a long term commitment.
Speaker 1:Well, moving on to one of the greatest cap capital allocators of all time, Masayoshi Sohn is the new size
Speaker 2:gong just to say.
Speaker 1:Let's just hit it a bunch for Masa. He's got so much going on.
Speaker 2:I mean, the the original size lord, you can't Four
Speaker 1:zeros to every number. Yeah. Yeah. You can't
Speaker 2:You can't keep a good man down.
Speaker 1:So there's a report from the information about how he made it back into the White House when president Donald Trump announced a $500,000,000,000 plan for data centers to power artificial intelligence. 1 of the men standing to his left was already getting ready to write the checks.
Speaker 2:And and can we give some credit to Sam for just aura farming the president? Oh, yeah. Like, he got The fantastic Trump has really nothing to do with Stargate at all. Nope. And Masa and Sam got him to announce their project.
Speaker 2:Yep. So, Lulu Lulu, always says, you know, go direct. Yep. But if you if if you get the opportunity, have the president announce your next your new fund. Doesn't hurt to get to get a little, you know, aura boost.
Speaker 1:So, SoftBank CEO Masayoshi Son was already making plans to put a total of 40,000,000 into 40,000,000,000 sorry. I knew I was gonna misspeak, in into the Stargate data center project as well as the company that Stargate is that is Stargate's driving force, OpenAI, 2 familiar 2 people familiar with the matter said. How SoftBank will finance the investment isn't clear, but the company has separately started discussions to borrow as much as 18,500,000,000 using the value of its publicly listed assets as collateral.
Speaker 2:Sun is levering up.
Speaker 1:Levering up.
Speaker 2:Levering up.
Speaker 1:We need a big lever that we can throw out even when the leverage turns on.
Speaker 2:Well, and it's crazy because if you just held on to his Nvidia shares, he could've he could probably actually
Speaker 1:So we have a post about that from, doctor Parikh Patel, CFA. He says,
Speaker 2:I don't think he's
Speaker 1:He says, b a, c f a, a a c c a, e s q. He says, Massassone owned 5% of NVIDIA and sold his entire stake in 2019 to buy WeWork. He is the best AI investor ever. So lots of people are trashing Masa. We got another post from none other than Jordy Hayes here saying
Speaker 2:I'm not I've never trashed Moss
Speaker 1:Moss. This is good. This is good. I think he's I think he's So now that Moss is investing a 100,000,000,000 a year again, it's time to bring back this classic SPG shareholder value. Bunch of unicorns, AI traffic.
Speaker 2:Thing so so I think it talks about this in this article, but while he he was so bullish on AI when he was just going so hard into WeWork Yeah. I think it's because he fell in love with Adam.
Speaker 1:Yeah.
Speaker 2:And he was just so enthralled by, you know, just the Newman effect. Yeah. If he like, he was so early. If you look at all of his slides
Speaker 1:Yeah.
Speaker 2:It's funny because he has, like, another slide that that's Yeah.
Speaker 1:Yeah. I think we have this one here. That one. Rohit. Says Moss is back, baby, and it's a new slide that has the same design aesthetics as Jordy's slide, saying evolution to illustrative, agricultural revolution, industrial revolution, information revolution, birth of superhuman.
Speaker 1:I love it.
Speaker 2:So dramatic. So dramatic. So dramatic. So cool. She, it's
Speaker 1:so simple.
Speaker 2:He has another one too that's this really funny graphic that says the valley of coronavirus and then and then just to further growth. Yeah. And so Masa was was talking about AI before almost before I was born.
Speaker 1:Yeah. I mean, it is it is funny because these slides, as ridiculous as they look, they are great ways to communicate a simple idea. I mean,
Speaker 2:it's basically what other people are saying in in 5,000 words. Exactly. With one slide. Yeah. Yeah.
Speaker 1:But you read a Goldman report, and it's gonna be, like, bar charts with tons of annotations.
Speaker 2:Trying to
Speaker 1:narrow echo graphs, waterfall charts, and all this stuff.
Speaker 2:He's he's simple. He's a vibes oriented investor.
Speaker 1:Yes. Yes.
Speaker 2:And he has extreme conviction. That's got him into some hot water before, but but overall, he's been generally, you know, he's had he had some issues back in the telecom days. We have to do we're gonna do it. So Yeah. Maybe even tomorrow, we'll we'll do this, but down.
Speaker 2:Like, the full story of Masa, because because you can't keep a good man down. But but this story is great. So, they're talking about the announcement, which was only was it last week? So crazy. It feels like a month ago.
Speaker 2:He says one of the men standing beside Masa, open a ICO Sam Altman traveled to Masa's mansion in Tokyo this month seeking a big check to fund his company's growth. Altman and Masa finalized the agreement a few weeks ago, a couple days before congress certified Trump's election, a person familiar with the negotiation says. SoftBank said, to be clear, was already an investor in OpenAI. So Masa, you know, has been on been on the journey. It's funny because they finalized the agreement, but it seems like they kinda just rode down.
Speaker 1:Yeah. Right. You
Speaker 2:know, it seems like the way that Stargate got announced and everybody's just like, yeah. I'm good for I'm good for 20,000,000,000 a year. I'll figure it out. You know?
Speaker 1:You know that both Sam and Masa are obsessed with Napoleon. So Sam They probably just said that. Saying, like, the best book I read this year was Napoleon in his own words, this famous book. And a lot of people read into that, like, bro, like, that's too much. Like, that's too intense.
Speaker 1:Like, you should back off of that because, like, yeah, there's probably some good lessons in there, but it's a little little intense to be like, I want to be Napoleon. Right? Yeah. Yeah. And Masa has massive paintings of Napoleon.
Speaker 2:I bet Masa has, like, actual artifacts from the from
Speaker 1:He's like a collector. He's like a true believer in
Speaker 2:the The largest collection of Napoleon's old swords or something
Speaker 1:like that. Totally. But but, you know, Napoleon had the ups and downs in major