Welcome to Compound Interest from Semafor Business. I'm Rohan Goswami, Semafor's business reporter, and I'm joined as always by Liz Hoffman, our business and finance editor. Where are you joining us from today, Liz?
Rohan, I'm in Semafor's offices in downtown Washington, D.C. down here this week. And it's a great backdrop for the conversation we're going to have today. We're talking to David Ulevitch, who's a partner at Andreessen Horowitz, also known as A16Z, the big venture capital firm. And he runs their American Dynamism fund, which is kind of the America First fund inside kind of the OG America First firm. You know, A16Z was kind of ground zero for this ideological shift in Silicon Valley. You know, their founder Marc Andreessen was an early convert to Donald Trump's second term campaign and agenda. And you know, it has sort of epitomized this investing shift towards, you know, national security, defense, space, robotics, energy, minerals. Real things, but that all kind of have this slightly national, slightly hawkish, and slightly kind of right-coded undertone.
It is also interesting culturally at A16Z. It is a remarkable shift for a firm that, I mean, Marc Andreessen's 'software is eating the world' essay was iconic. And now you're watching them sort of realign and try and find a new blueprint in a world which has been totally scrambled and upended by AI.
Yeah, that's why we really wanted to have, you know, David on the show. The entire investing skill set and ecosystem of Silicon Valley was sort of oriented around really capital-light, infinitely scalable code. They sort of very proudly built light stuff. You know, we had an Uber and then we got an Uber for everything else, and they were backing these business models that took very little physical risk, basically never touched hardware, almost never touched people, and were kind of marketplaces connecting like tailors with people who needed their pants hemmed and kind of taking a cut there. But yeah, they very proudly built things that didn't weigh very much, and that's sort of the simplest way to see the transformation in venture is that they're building really heavy, really expensive stuff. And the question is, A, why?
That is always the question. You know, but how much of that is that they just like this stuff? Just sort of ideologically they have shifted towards kind of, you know, a more conservative, more America First thing. And so they want to put their money there regardless of whether they have a real right to win. And then B, like, are they going to be any good at it? You know, huge parts of the way the US, and this is happening to some degree globally, you know, builds national security is now in the hands of people who haven't done it before. David is absolutely the right person to talk to about all this. So let's take a quick break and we'll come right back with him.
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David, welcome to the show. So just to start, what is A16Z's American Dynamism Fund and what is the origin story there?
Okay, you want the long answer or the short answer?
The long answer. If it's too long, we'll cut it down. Always. We want the long answer always.
Okay, the long answer. So the American Dynamism Fund is a fund that we have here at Andreessen Horowitz that is focused on investing in companies that we say serve the national interest. And that's a broad term, which largely means investing in defense, aerospace, space broadly, energy, the supply chain, public safety, manufacturing, all these things that contribute to the foundations of how we live and work, that promote national security, that promote economic security and resilience, and sort of make, you know, make this the place that we all are excited to either be from, come to, build our businesses in, live in, you know, and make the American dream more real. On top of that is a broader sort of umbrella that encompasses lots of things around education and health care, things that we may not invest in, but we will often talk about because they're important. The other thing that I think is distinctive for American Dynamism is not just the focus on the categories of like defense and energy, public safety, etc., but often that these are companies that sit at the intersection of very, very advanced software as well as hardware. So it's where atoms meets bits, which historically has not been, I would say, en vogue for the venture capital industry, certainly over the last 25 years, although now it's becoming more popular. I think probably due to us. So that's largely what American Dynamism is, and then I'm happy to tell you about sort of the origin story about how it came about, both as a firm practice as well as for myself.
I ran a cybersecurity company called OpenDNS for a long time. I was never a veteran. I never served our country. I didn't even know that many veterans. But then my company got bought by Cisco. Two things happened. One was that I got to work with a lot of veterans. Cisco hires a lot of people that served our country as they come out of the service. And then the other thing that happened at Cisco is I became an executive sponsor for different, you know, which is kind of like a glorified escalation point inside the company for a bunch of customers that were parts of federal government, so people that were part of the intelligence community, people that were part of the Pentagon. And so, you know, if they would go out and buy 50 firewalls and would be told that it, you know, might take four months or six months for delivery and they didn't like that, they would call me and escalate. But I ended up getting to spend a lot of time with those customers and really grew to realize and learn that the people that work for our country in the armed forces or just in the federal government or in the intelligence community, these were people that were just super apolitical, they were very patriotic, they deserved the best technology and capabilities. They often did not have them. And they just wanted to make sure that, like, you know, that the American experiment would continue and that we would, you know, remain the world's superpower, and they were just very, very patriotic in their mission. And so when I left Cisco, I had met Marc and Ben. Ben made the mistake of saying if I joined Andreessen Horowitz, I could do whatever I wanted in about a year. A year after I joined, you know, I really was trying to think about how I wanted to spend my time. My background was in enterprise software, but I was much more excited about doing something that I thought would have very long-term meaningful impact. And Marc introduced me to Palmer Luckey, the founder of Anduril. I co-led the Series B of Anduril with a woman named Katherine Boyle who was at another firm at the time. That's how we met. So we were rivals. I think she probably didn't even like me because she thought she was going to do the deal herself. And, you know, but then fast forward, she and I got to know each other better. We talked about deals. And about two years later, toward the end of 2021, I ended up recruiting her and said, 'Hey, look, I believe in this opportunity that we have to invest in these, introducing these fundamental technology shifts into these categories like defense and public safety and space and energy. Let's make a full practice out of this.' She was putting to paper a lot of the things I believed in. And so I hired her at the end of 2021, and we launched the American Dynamism practice in 2022, and then raised a fund, and now we're on our second fund, and off to the races.
I'm curious, you know, American Dynamism, pretty neutral in all the things you're talking about, national security, energy, you know, in theory should be bipartisan or apolitical. Maybe I just have been in Washington this week, and so maybe I'm just like simmering in the partisan stew. But what do you make of the fact that, like, a lot of these areas feel right-coded these days? So, like, is that a problem for you as you think about fundraising or investing?
Yeah, actually I think one of the things that I've discovered, you know, our firm is very active in, like, politics and policy, so I get to see this stuff firsthand, is that most of these issues are actually very bipartisan. They may not always feel bipartisan in, like, the talking points. When you really spend time one-on-one with policymakers, they're very bipartisan. I think they feel right-coded because we have an administration that loves to lean into the partisanship and the rhetoric. And frankly we have, I think, Democrats on the left who love to lean into their view of that same conversation, the other side of the coin. But when it comes to getting work done, you know, there's a reason that a lot of these critical committees are, I mean, they're all by definition bipartisan. What's right-coded to me feels like the momentum and the desire for change and the appetite to probably break a little bit of glass by making change. That probably does feel maybe more right-coded because we have an administration that again leans very heavily into the, like, we don't care about the way they used to do it, we don't care about what was done in the past, we have to do things differently. I actually think that hopefully will continue no matter what the next administration leadership looks like, because I think that people recognize that we have a system of incumbents who are very slow-moving and stodgy and not using the newest and most advanced technology. We have production and manufacturing capabilities that have really slowed down and atrophied and been outsourced and put too much supply chain resilience on people that may not be able to supply us in the future or may even be adversaries. And so I think that the right-coded piece is really just the appetite for rapid radical change. But I think the core issue is energy abundance. We have an insatiable thirst for energy. It doesn't matter if it's for AI data centers or for electric vehicles or for national security and grid resilience. Like, we just have an insatiable thirst for energy. That's a fairly bipartisan view.
You wrote last August, 'We believe investors, not government, hold the key to defending America's future.' Pretty bold statement. What did you mean by that?
It's not appropriate for the government to endlessly fund advanced R&D that may not have an ROI. We will take on that risk as venture capitalists. Where we think we can find the best entrepreneurs, we think we can motivate the best founders to apply the best technology to manufacture things and then just sell them to the government. And I think people don't always realize that that's not the traditional way that the government has been doing things like defense R&D broadly for the last, you know, 70 years. What normally happens is where the government will say, 'We need this capability and we will give, you know, hundreds of millions of dollars to a major prime contractor to work on this for a while.' Then the contractor will take much longer to do it and it will go way over budget, but the profit margin's already baked in for that prime contractor, the incumbent. So it doesn't matter that it's over budget. It doesn't matter that it took too long because, you know, if something was supposed to cost a hundred million, but then it cost two hundred million, but your profit margin's guaranteed to be ten percent, well, you actually just doubled your profit margin by going over budget. And this is true. And look, for things like aircraft carriers, maybe that's appropriate because it's a very exquisite, you know, platform. But when it comes to things where we want things that are low cost, high volume, high rate of production, like drones, there actually is a better way, and a commercial way is better, where we fund the private capital to it, and then the government will just buy it if it meets their capability specs.
Let's talk about drones, actually, because I did see some crazy stat about how basically asymmetric the weapons that we're using against Iran, specifically. The Shahed drones are these hundred-million-dollar weapons platforms that are very limited quantities against these really cheap, lightweight drones that the Iranians are fielding. So, you know, you've talked about the process, and the process from your eyes and a lot of people's eyes is broken. What should we actually be building? Like, what are we not building in the US that you want to invest in more of, that you are invested in, that you think is really critical?
Yeah, well, I mean, I think advanced interception capability that's at a high rate of production and at a low cost is a perfect example. So we have phenomenal, phenomenal weapons capabilities. We have things like the Patriot missile, but you cannot take a Patriot missile, which could cost anywhere from five to eight million dollars per shot. Not only do we have limited quantity, but just the asymmetric economic cost is incredible to take something down that costs a quarter of a million dollars, and of which there's essentially an unlimited supply of the Shahed drone. They keep making more of them. Russia now makes essentially an equivalent Shahed drone. And so you need to have something that's both economically viable, where you're not losing the economic asymmetry, but you also need to be able to do high rates of production. And that's something that primes have not demonstrated any ability to do or appetite to do despite multiple requests, I think, from the government to speed up production, to open up new factories. I think the demand signal from the government is now very, very clear, but there are startups that say, 'Hey, wait a minute. We understand the Elon philosophy of the factory is the product. We actually can focus on advanced automation, advanced, you know, applying robotics to these processes, to verticalizing more of our supply chain and manufacturing capabilities. We can actually switch out some of the components for lower-cost components. We can actually use software for the guidance systems and the command and control systems and not have to use very, very exquisite laser systems or optical systems.' And so that's happening now. You know, I think we're in the very early innings of seeing this, like, on the battlefield in Iran. We're seeing now that low-cost drones are being used, but I think that this is probably the last major military engagement where we will not see these new startups have a much, much larger position on the battlefield than they have today. There's pockets of it in today's battlefield, but I think this is the last fight where it'll be largely incumbent-driven.
The other big storyline in defense over the last couple weeks is Anthropic. Let's talk about the Anthropic of it all. You know, the company's in the middle of a huge fight with the Pentagon. OpenAI came in and took the contract. Sam Altman seems to have some regrets about how that all worked out, too. Did the calculus of doing business with the US military just change?
I think that, from my vantage point as, like, a venture capitalist, you know, I'm in New York, but ostensibly in Silicon Valley or at least in the Silicon Valley ecosystem.
Do you keep your VC card when you moved to New York City?
They do. Yeah. Yeah. They do. I think my takeaway actually, and I was talking about this with one of my partners the other day, I actually think a lot of this has to do with talent, and it's almost like it's a sorting algorithm where the people that sort of, if you think back to, like, when Google employees protested Project Maven, that became a sorting algorithm for Google where a lot of people said, 'Hey, I want to work at a place that refuses to make sure that our, you know, men and women who serve this country have the best capabilities.' Like, they don't want to work at that kind of, they, you know, they don't want to work at that company or they do want to work at that company. It kind of sorts people out. And I think with the Anthropic OpenAI decisions to support or not support working with the government and letting the government decide, it's kind of that same sorting algorithm. There's going to be employees who leave OpenAI and say that they don't want to be a part of OpenAI for whatever reason. They don't agree with OpenAI's decision to work with the government, or they believe that there should be extrajudicial process and CEOs of companies should be able to overrule the government, and they want to go work at Anthropic. They kind of like the god-complex CEO mentality, and they want to be part of that. And I think there's other people that say, 'Well, you know, we elect leaders, the leaders make laws, there's lots of oversight, there's ways to provide judicial oversight and congressional oversight, and I trust that democratic system, and so I want the, but I also want the people that serve our country to have the best capabilities, and those people will stay at OpenAI.'
It's interesting because, you know, Anthropic, there was some self-sorting that happened on the way into the founding of these companies. Totally. This is very consistent for Anthropic. But it's one thing for the Pentagon to say, 'Look, we don't like Anthropic. We are mad at Dario,' and cancel the contract. That is a thing that happens all the time and should in military contracting. It's another to, like, try to put a private company out of business, which, if, you know, depending on who you ask, is sort of what would happen if no company that did any kind of business with the Pentagon was allowed to use Anthropic in any of its systems.
That seems both highly unlikely and also not exactly what's happening. Okay. I think that, you know, people that have watched this administration know that, you know, they sometimes say the extreme form of something and then they generally do something that is not nearly as extreme as what their original sort of, like, you know, headline rhetoric is. I think Anthropic is doing incredibly well. I think it's a very impressive company. And I think it's their decision not to work with the government. I think that will have, like any decision you make in business, consequences. I don't think it will be a company-killing event. I think the company is a generational company. And I think that there is plenty of other companies that say, 'Wait a minute. Not only do we want to work with the government, we're fine with it, but we don't want to put ourselves in the position of trying to make extrajudicial decisions about how technology is used by these customers who have far more information and intelligence and insight into the use cases and the situation.' I mean, I can't even personally imagine ever putting myself in that situation. Not just, like, the legal liability it would open me up to, but just, like, the moral liability of, like, why do I, I don't want to be the person they call and say, 'Can we hit the enter button on this command or not?' Like, what a crazy dynamic to want to be in. But I also don't have a god complex. So, naturally I would not want to be in that position. But if I did have a god complex, then I'd be like, 'Yes, you can just call me every time you want to use my software and ask me if it's okay to use it.'
You had a meal, Michael, on stage, I think, last week or two weeks ago. This is a deputy undersecretary who's in charge of a lot of the Pentagon's tech use. And he was making the case that, you know, that essentially that argument that we cannot, you know, with missiles flying in, be trying to get Dario on his cell to ask him if it's okay. Like, do you think that he, A, made that case sort of compellingly in the room? And do you think the government is going to have to make that case sort of to the public, to a public that is very wary and getting warier by the day of this technology?
I think we'll find out. It's hard for me to predict. I think he made a compelling case. I think Dario's view, which is one that I think is understandable, is that the technology has moved. It's always been the case that technology is often far ahead of legislation. That's generally always a true statement. And I think Dario's view is that this technology is so advanced, so far beyond other capabilities that have been ahead of legislation, that we actually can't just rely on legislation catching up because the window of time between when legislation catches up and policy catches up is too wide, and the potential consequences are too great. I think that's, if I was going to make Anthropic's argument, I think that's the argument that I would probably make. The challenge with that is that there has to be another solution. And one solution could just be, like, 'I'm not going to sell to the government,' which is currently where Anthropic is. You have to recognize that when the folks who are making the decisions of how to use this technology, they have all of the intelligence and information coming in from the clandestine services. They have all the intelligence information coming from the Department of War, from the special operations groups, from the, you know, they're the ones ingesting all the satellite imagery that's highly classified. They're the ones who have all the, you know, the foreign information around wiretaps and data of, like, 'Where is Maduro hiding out? What building is he in?' They're using all this information to synthesize a plan that will protect the most American lives and achieve their mission outcomes. Not only is it illegal, but it's impossible to convey all that information to some third-party extrajudicial person who's not part of the chain of command. Like, that also doesn't make any sense, either. And so there has to be some other path that I think needs to emerge. And one can be that the technology might be more limited in its capabilities. Or there will be some companies that will fine-tune their models to make better decisions in those use cases. We're not talking about do we or do we not have weapons. What we're really talking about is do we have incredibly smart weapons that know the difference between a school bus and a tank or do we have dumb weapons that don't know the difference? And do I think AI will ever make mistakes? Of course. Do I think it will make fewer mistakes than humans? I for sure think that it will make fewer mistakes.
Okay. So we've covered a lot of the tech. This is a business show. So we wanted to sort of talk about the business of VC and how it is changing. And, you know, VC grew up investing in software, at least over the last 25, 30 years. You know, sort of very proudly kind of capital-light, infinitely scalable. In large part sort of consumer-facing business for a lot of the 2010s. Like, why do you have a right to win in this, like, really hardware-heavy, capital-intensive, strategically complicated businesses?
I will answer your question, but I think there's a meta answer first, which is that things that were previously held to be sort of unassailable truths are now coming into question. People thought SaaS was, like, the most durable business model of all time, and if you invested in an enterprise SaaS company, it was incredible forever. It would pay out like an annuity. And then AI came along and said, 'Well, wait a minute. The ability to replace your internal IT tools with something that's perfectly built the way you want for your own internal system now is, like, you know, infinitely easier and you don't need to pay ServiceNow anymore.' And so these companies that were perceived to be unassailable, and I cannot underscore enough how durable people thought these businesses were. Now it's like, 'Well, these things aren't even worth really anything. Maybe they're worth four times earnings, five times earnings, I don't know, but it's no longer these 50 times earnings because they're no longer unassailable.' And then the previously conceived beliefs around, 'Oh, well, hardware is so hard. It's so low margin. It can't possibly work.' Well, that's not true. When we start building automation into the factory, when we start taking control of our supply chain, when we start using advanced software to replace things that had to be previously done in software, and I'll give an example in a second, we actually think that you can get, with high rate of production, you can get high-margin outcomes. And look, there's tailwinds in defense and energy and aerospace, and, you know, if you look at everything from what SpaceX has done to unlock launch capabilities to what's happening in cyberspace as well as electronic warfare as well as ammunitions as well as in manufacturing as well as in energy generation, transmission and storage. Like, the opportunity set just is growing, I would say largely without bound, and in a way that I think will be much higher margin than in the past. So I can't promise that, but that's what I believe, that's what we're betting, that's what we're investing against, and we're taking these categories where historically have, you know, no offense to the founders who have worked in these industries for a long time, but, like, we're now bringing the best Silicon Valley mindset, the best founders into these largely legacy, slow-moving categories and actually applying advanced technology to them in a way that I think will be much, much more compelling and deliver much greater returns. So I think that's my answer as to why now, you know, we have this watershed technology moment and the economic demand side is, I would say, just growing without bound.
Does something about the way that the hardware is being produced have some DNA that is borrowed from or grafted from other things Anduril's done in the past?
Yeah, one is, this is like one sort of marginal example, but night vision typically has had to use, I think, like vacuum tubes, like really old.
Right. I remember reading about this.
Yeah. Like, this is still true today. Like, when you go buy these very expensive, exquisite night vision systems, you know, it's like $10,000, $25,000, and it, like, literally has, like, vacuum tubes in it. Like, I'm not an expert in this, but I'm pretty sure I'm correct about that. But new night vision systems, because, like, if you think about, like, the cameras we have, like, with multiple lenses going on, you can do a long exposure to capture all the light, you can do a quick exposure to get the granularity, and then software basically now can provide almost, or better in some cases, night vision capabilities without any night vision. And you're just doing it all in software and commodity optics. And so you no longer need this $25,000 optics package when you might be able to use the optics from a $200 phone. So it's really transformative when you can apply advanced software. The same thing applies to the factory as well. We have companies like Hadrian that are transforming the way high-mix, high-rate-of-production manufacturing is happening. We have companies like Sanera that are applying technology to the wire harness business, things that were completely manual labor in the past, but now are being increasingly automated.
When you say high-mix, high-rate of production, like what we think of as an old assembly line, like stamping out these, like, little precision parts, and then someone's putting them together, that's low mix.
Low mix means you only make one thing. High mix means you make lots of different things. If you think about the factory of the future, right now these factories of the future have robotics and have machines, but increasingly they will become increasingly driven by robotics. And you can imagine that, you know, overnight a factory could reconfigure itself to make something else the next day, and all the robots will just reconfigure their software to redo something else and do some other process the next day. You know, today to reconfigure a factory is a massive disruption. You're changing the way the lines work, you're changing the way the supply chain and inventory gets managed. But the factory of the future may not be that way. I think the factory of the future just needs incredible ability to carry a lot of weight on the floor and a lot of power. Right now, factories have power to power the machines, but you actually think about the factory of the future, and you got to charge all the robots up every night, and, you know, or when they're not working. So it's like electric vehicles, you're going to need all these charging stations. You know, your loading dock is not just for bringing in the semi trucks. The loading dock now is a charging station for all the trucks and vehicles and forklifts, and, you know, it's going to be very, very exciting, but a lot of things have to change. But when they do, the outcome will be, I think, dramatic production capability.
We're going to take a quick break and we'll be right back with David after this.
Welcome back to What's Working, the show within a show featuring Compound Interest season partner Amazon Business. I'm your host Rachel Oppenheim, Semafor CRO, joined by Doug Gray. Doug, let's tackle everybody's favorite subject. As VP of tech at Amazon Business, tell us what does AI-powered procurement actually look like when it's working, and what is the biggest misconception that leaders have about it?
When AI-powered procurement is working, it's almost invisible, in a good way. People get what they need quickly, the right guardrails are already built in, and leaders have real-time clarity into the spend and risk without chasing reports or cleaning up issues after the fact. I see a big misconception about AI is that it's just automating buying. In reality, AI is taking busy work off the table, the searching, the comparing, the approving, so that teams can focus on the decisions that actually require judgment, like supplier strategy, budgets and risk. And that only works when you have an AI you can trust. Gartner research indicates that high-quality, well-governed data is the single biggest differentiator and ROI on our AI initiatives. This enables more accurate insights, reduces risk and maximizes the value that AI can deliver across procurement. That's what makes our tool, spend anomaly monitoring, so valuable. You can trust the system to spot what's unusual so managers don't have to approve every routine purchase just to stay in control. As we'd say in Amazon, it has high earned trust.
We had Dara from Uber on the show two weeks ago, and he was sort of talking about this, you know, next trillion-dollar opportunity for Uber, which is essentially sort of tucking all the robo-taxis in at night, kind of the care and feeding of these big fleets, and super interesting. Let me just poke at that a little bit. You know, VC has just optimized for totally different things over the last 25 years, and sort of the skill set and the returns that are expected and the value add that they bring. And there are investors out there, mostly public equity investors, you know, investing in super-capex-heavy businesses who sort of know how to do this well and keep executives accountable. Is Silicon Valley convincing itself that it can be good at this because it wants to be, because it just ideologically likes this stuff?
No. I don't think that's correct. I would say that there are businesses that we see every single day that we say, 'Wow, that's an awesome business.' But it's not a venture-backable business because we don't see the unconstrained upside when we think about the what-if-it-works, how big can it be? If we were in the private equity business and we could just buy this company and run it, and we could probably run it better than these people or these other people or whoever. But broadly we think there's lots of those, there's an entire category of, you know, the sub-subcontractors in the defense industrial base. There's a ton of people along the way in the manufacturing industrial base where we actually think it's fine for private equity and middle-market private equity folks to come in and just run these things and really manage to the bottom line. But in certain areas where we think that there is essentially unlimited demand, where there's transformation moments and there's magnetic founders who can attract capital, attract talent, and the market demand side is essentially insatiable, those we think are venture-backable, and we do think that venture capital is the right place to go there because we're really managing to the top line. How fast can you grow? We know that there are companies we've invested in that are very good at spending money. They're incredible at spending money. The thing that's also incredible is how fast they can grow the top line. First to get a billion-dollar program of record. First to get to $10 billion in total contract value. First to ship X numbers of units in a...
year for a new company. Um, you know, and so and that applies not just to defense but also to energy and a bunch of other public safety and a bunch of these other categories. There's, you know, a private equity company could never build Flock Safety, could never build Anduril because they're so fixated on the P&L and and managing to the bottom line and that's appropriate for more mature businesses or businesses that are TAM constrained, but it's not appropriate. So, there is a place for venture capital. It's not for every business, but we think it's increasingly for a larger and larger set of businesses in these categories. But again, we only need to invest in 20 outsized winners. We don't private, you know, and our loss ratio will be reasonably high the same way in any other venture capital businesses. Private equity doesn't like to have a loss ratio. They don't like to lose money. We're okay with it cuz the winners pay for all the losers and then some.
You know, there's this thing our our colleague Ben Smith wrote a profile a couple months ago of Steve Feinberg, the Pentagon official who's who's overseeing a lot of this stuff, who does come from the finance world but comes from the private equity corner of it. And and I think he had captured some tension between kind of the by-the-numbers private equity guys and and the VC, you know, up-into-the-right dreamers. I think there was an anecdote in that story where he he called Anduril like a like a toy company essentially. And and I'm I'm sort of curious to what you make of that tension, whether it it sounds to you like it is sort of real.
What I would say is that I've been in venture now for almost 8 years. I've been in Silicon Valley since 2004. And at some level the world that we live in has always been people who are willing to press the I believe button and believe that it can become real and people that are like I don't like the I believe button, I want the like show it to me button, right? And I think it's okay to have that tension. I think it's okay to have it in the Department of War. I think it's acceptable for Deputy Secretary of War Feinberg to say like, I want to see production. I want to see high rate of production. What I would push back on is this idea that it's like primes versus the startups. The primes are also not in a high rate of production. And are getting yelled at aggressively by the Pentagon for that. And by the president for that matter. And focusing on share buybacks instead of manufacturing.
That's right. And so and by the way, it's not just the it's not like the share buybacks are the reason they're not at a high rate of production. They could be in a high rate of production if they had the capability, but they don't. They don't have the capability, and they don't want to, and they have no they have no existential necessity. There's people in these primes that will say, 'You know, I was here before the Trump administration. I'll be here after the Trump administration. Like, I don't really care. We ship our 50 missiles a year. Leave us alone. Like, whatever. It's fine.' If I had to bet on which end of the barbell will get to very high rates of production more quickly, is it the legacy incumbent primes who lack the um I would say both both uh institutional knowledge or appetite to move very very fast, or the startups who have just survived an entire period of life of like not dying and are now in the process of moving towards thriving and and are completely fixated and working all hours of the day and have the brightest minds magnetically being attracted to them, are they going to get to high rate of production first? I would make that bet every single day of the week.
What you talked about missiles just now. You talked about the primes moving slowly. Liz and I covered this a few weeks ago. L3 Harris cut this really weird interesting deal with the DoD where like the DoD is taking stake in them or taking a stake in their spin-off, and it's all designed to increase missile production. Do you think they're capable of actually competing with your guys, or is this just a like actually? Like, they seem pretty flat-footed about it. Like, what did you make of that deal?
I think we're in a uh period of time, especially after the Ukraine war, where we supplied arms, uh the conflict with Israel and Gaza, where we supplied arms, and now the conflict in Iran, where we are deploying our own arms. Uh I think we are in a place where we have a massive need to restock uh the arsenal of freedom as they call it. Um and I think that everybody needs to get into production capabilities. I think if L3 Harris wants to ramp up production, I'm not sure what the government taking a stake in that will do to accelerate it. Um maybe there's somebody that sits in the office just like, you know, poking them like move faster, move faster. I don't I don't I don't know. Um but I also think the startups are highly motivated. One one thing I would say is you have to remember the startups occupy a tiny amount of the overall defense spending today. And if that amount of spending went and doubled from, you know, whatever it is, 1 or 2%, you know, if you take away sustainment programs and personnel programs, the amount of money being spent on new programs with startups is is relatively infinitesimally small. And if you just doubled or tripled that, it would be a massive uh demand signal to startups who would actually take advantage of that and respond in kind with high rates of production, more capabilities, and shipping faster. I don't think we, you know, like giving more money to the primes is not going to help them move faster because if that were the case, they would have been moving faster before.
You were saying earlier that, you know, about how you think venture scales up and and your fund is it's a billion eight, right? Um uh what uh it's a the new one's a billion two, but when you add it up with the old one, it's 1776 million. Okay. Okay. Very nice. Very nice. That it's going to be some very finely tuned cash management is what you're going to need there. Um but it was it was also part I think the last round of of like a $15 billion fundraising across uh the firm. Um which is just historically speaking for venture a huge amount of money. Um and history is just like full of cautionary tales of asset classes scaling up and and sort of ending badly. Understanding that you're talking about funding really expensive things and and funding these startups that are getting bigger and staying longer private, like what makes you think that that's a good idea? And and at what point are you actually going to bump into sort of the the next guys up, which I guess would be private equity growth equity, right?
Two things I would say is one is the outcomes are just becoming much, much larger. If you look at the proposed SpaceX IPO, and I don't I don't have any proprietary knowledge about this, but like, you know, that I read the headlines and I read the articles and there's chatter that it could be worth one and a half trillion dollars when it goes public. You know, that I don't think five, six, seven years ago anybody thought about how a company could go public being worth one and a half trillion dollars. Let alone, by the way, companies like, you know, Meta and and Google who are now worth and Apple are worth many, many trillions of dollars. And why can't there be a defense company that's applying advanced technology and advanced high rates of production and advanced manufacturing? Can there be one that's worth a trillion dollars? I think there absolutely can. Uh and so the the outcomes we see are just getting larger and larger. If you look at the energy side of things, whether it's mining and minerals, uh whether it's uh so from a resource extraction standpoint, whether it's from battery manufacturing, motors, actuators for robotics revolution, uh whether it's for generating energy and things like nuclear power, we just think that the again, the the market sizes are growing essentially without bound. And it and it again, it doesn't even matter if you're like, I hate AI data centers. I hate electric vehicles. You can't hate everything in the move to electrification is happening and it doesn't matter which one you're excited about. The combination of all of them just creates this insatiable demand for energy. The same thing is happening with minerals and mining um and same with manufacturing. And so, we just think the outcomes are larger. In terms of working with private credit, working with, you know, essentially I would just call it like the rest of the capital stack, um you know, a bunch of our companies are already doing that. If you have government contracts, you know, for a billion dollars to go build, you know, 5,000 ships, autonomous, you know, surface vessels, uh you're going to go work with private capital to finance that. Finance the equipment, finance the factory build-out. If you're building AI data centers and hyperscalers, and you have commitments from uh the hyperscale customers to buy your next 20 years of compute capacity, you're going to go finance that. You're going to work with the private credit folks. You're going to work with the real estate folks. Um and that's already happening. You've seen JP Morgan commit 1 and 1/2 trillion dollars to this uh security and resiliency initiative or whatever they whatever SR is called.
Version of American Dynamism Fund, right?
