Welcome to Sorcery.
The potential of photonics, the technology to interconnect these GPUs, global payroll and HR platform, 8 billion operational data points, scaleups over startups. You'd rather have a million of something and one of anything. Building the intelligence layer through defense. There isn't enough power. There's not enough memory chips. We're at the end of physics of what we can still do.
All right. So, for this one, we're going to do something special and hand the baton to Bruno to introduce our lovely guests today. Bruno is a host for us with Strike and at Villa Charlotte. So, Bruno.
Perfect. Well, we're here today with Isis, who was leading Palantir's commercial business for Europe and now is a co-founder and CEO at Onodim Industries, and we're here with George Hajimnas, who is the chief strategy officer at Theon. Thank you guys for coming.
Thank you, Bruno, for the audience without much context. So we're going to be talking about European defense right now, and I would love to start with both of you just giving a little bit of background. Onodim's mission is strengthening the foundations of European defense. So our company, we're not building like another prime or your prime. We actually look to find very good manufacturing and critical mission system businesses in Europe, acquire them, and make them not a bottleneck for European defense, to make sure that the defense primes can deliver the orders in the next decade. So that's our mission.
Well, Theon is an established player in the European defense industry. The focus is electro-optics, both for man-portable and platform applications. An example for everyone would be like night vision systems, augmented reality head-up displays, things like this. And we are a company, one of these companies that was well positioned to take advantage of this boom in European defense over the past few years, both through an IPO in 2024 and having a pretty strong growth trajectory since then.
So what is the current state of European defense, and how has warfare changed since the start of the Ukraine war?
So to answer this question, we have to look at where Europe was a few years ago versus where it is today. Europe really was under-spending on defense for the past few decades. Ukraine proved that this can no longer be the case. We need to prepare. We need to be ready. We need to industrialize. It showed a lot of the weaknesses, so to speak, that we had in terms of our own ability to manufacture at scale and supply our militaries at scale. Now, obviously, there's a very large influx of money that is being poured into defense as Europe and European nations aim to strengthen up their arsenals and build up their armies. And this provides a very interesting opportunity to a lot of companies to scale up, to develop technologies, to create new technologies, and to really achieve scale that a few years ago in this industry in Europe would not have been achievable.
And I'll add, sort of elaborating on the scale paradigm. I think the biggest lesson for defense companies, sort of lesson from Russia's invasion of Ukraine and the war that's happening, is actually that the advantage is technology and volume. Like, just having technology is not enough. And actually, if you had to pick between the two, you would go for volume. Like, volume wins. Like, large scale. You'd rather have a million of something and one of anything. So ideally, we have to do both. But really, I think a lot of the defense industry pre-full-scale invasion of Ukraine was exquisite technologies, these advanced technologies that are like dreams of generals that cannot be mass-produced. But now, what we see the shift in the realities of defense: anything you do has to be produced in tens of thousands, hundreds of thousands, or millions. So volume matters a lot. So this is, I think, the biggest conceptual change. Ideally, it also has to be technology, and ideally also not easily copy-pasteable.
To maybe double down on what Isis said, a lot of the systems that have been new and tested in the United States that have been deployed in Ukraine, frankly, at the beginning of the war didn't work, and they needed to go through these iterative cycles where they keep on updating them and making them better. So even before they reach scale, they have done extremely well in testing environments, but they just have not managed to perform towards the beginning of the war as well as expected.
Bruno, I'm actually curious because you have mapped out the whole market. How do you categorize where people are building most in defense right now, and where do you think there are still gaps?
There's been a very big focus on neoprimes like Helsing, and each sort of core geography has some emerging players that are likely to seize a very large part of defense spend in that country. But one of the biggest gaps that we've noticed is, as Isis has pointed out, a lot of those systems are going to need to be produced at massive scale, and a lot of those systems will need to, more importantly, be produced in Europe. And in order to do that, you're going to have to acquire a very fragmented manufacturing space. The lead times for some of those components could also be in the years, which is why certain primes take four or five years to deliver on certain contracts. So I really think that the white space is very much in the sort of manufacturing gap for supplying some of those next-generation primes that are building systems on sort of outdated supply chains.
Have you had any issues of hiring and talent?
I think hiring into defense has been great. Like, people like Europe's ambition to rearm and re-industrialize. So honestly, from Onodim's perspective, we see the top talent. You know, my co-founder Alex, CTO, he spent 17 years in the US, and now he came back to Germany two weeks ago with his family to strengthen European defense. And we see a lot of that demand, especially with the companies with big ambitions, which I think Europe has not seen enough. And Helsing has seen the same; they have no problem of attracting the best talent. So I really think this is a very favorable environment.
In the US, defense ventures are funded by the government, and also ventures come into the scene. What has the process been like for funding, and how is it different?
So the government is the buyer. There are theories that private military corporations will be the next way to do defense, but that's not yet the case. So funding is from the government, a lot of initiatives from the European Union, and you know that obviously attracts venture funding when there is like a trillion dollars being poured into defense, and by 2030 this triggers venture private funding for the companies to make use of those funds. So this has been the dynamic in Europe.
As warfare becomes more and more autonomous, there's more robotics involved, there's AI, there's software. How does that change the supply chain?
Well, the key thing, and I'll let others say it, the key thing is actually that everything has to become cheaper. It's like if the radio could cost $30,000 four years ago for military, and that was acceptable, this is no longer acceptable when you're talking about autonomous mass technologies. A lot of robots, hundreds and tens of thousands. So a lot of components that were exquisite, and you know, I mentioned radio specifically as an example, but there is more, cameras is actually the same. A lot of these components have to go like significantly cheaper in price, significantly higher in scale. So that's, I think, the big impact. Again, coming back to the volume becomes like a significant issue.
I could not have said it better. Scale is the most important parameter here, but also having the underlying supply chain networks that allow for this scale to be reached.
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In 20 years, do you think defense companies will look more like technology companies or industrial?
I personally don't see this as being mutually exclusive. I think, with our example with Theon, we were mostly an industrial company. About four or five years ago, the main product we were making was night vision, and still, to be honest, is. But since then, we've branched significantly into new technologies. Mind you, the militaries of the world were not very quick to adopt new technologies a few years ago. This is changing. It is not so much a revolution, I would say, it is more of an evolution as new technologies get gradually adopted into existing platforms and systems. But to answer your question, I think the right recipe is a combination of both. Prototypes don't fight wars, no matter how good they are. They cannot win wars. So if you want to be able to be competitive in today's world, you need to have good technology. You need to be at the forefront of technological development and also be industrially acute enough to be able to deliver this at scale.
And my view here is slightly maybe controversial, but I think you need two types of companies. I think the technology companies who do AI and software for defense and connected battlefield have to not want to also be the manufacturing giants of the world. So essentially, I think there will be two types. The success recipe for Europe and for the world is having technology companies who focus on the tech, on the software, on AI, on weapon final assembly and testing, and make sure that they work. And then there are industrial companies who are extremely good at producing components that those companies making technology need. And the synergy between the two, and not a competitive nature but a non-zero-sum nature where they collaborate to produce at scale. I think this is my winning recipe for this part.
So I asked this question yesterday when we were interviewing FEMA on photonics about the state of AI in Europe versus the US and kind of the dynamics there. But the question for you both, and Bruno too, what is the biggest misconception about European defense?
