How 8VC Builds Billion-Dollar Companies | Palantir, Addepar, Saronic

0:00 The palance your DNA I think has laid the groundwork for much of what's going on here at Reindustrial. >> And now has gotten to a size where they're going to be doing more acquisitions. OpenGV also had a nice exit. >> I think the thing that's underappreciated is how much your organization has to be designed intentionally to balance this dichotomy of starting companies and investing in them. But I think if you don't intentionally design the incentives, the culture, and the the amount of capacity you have on your investing team, on your finance team, then it's very hard to do both. Well, building the United States is insanely expensive and it's takes a really long time. Part of that I think we can address through, you know, regulatory policy and other stuff like that, but part of it is just functionally like, you know, we're not going to pay people, but they pay people to work in China building facilities.

0:46 They be paid a lot more here. So, Palunteer, Anderal, Open Gov, Eperis, Seronic. Which of these are your favorite? >> Well, I mean, [Music] >> Drew Oding, welcome to Sorcery. >> Thank you for having me. >> This is a big day. We're at the Reindustrialized Summit. How are you feeling? >> Feeling great. Feeling patriotic and pumped up about all these companies that are here. working on a bunch of interesting stuff. So, I I love this conference. Second year being here, it's great.

1:20 >> What's the biggest thing you've taken away from the day and the programming so far? >> They do a very good job here of one having tons of startups, but then, you know, a lot of people from our government. Um, and I think that it's probably the biggest reality of this re-industrialization concept, I think, is that it's going to require the federal government and some state governments and startup companies to interact in a way that is probably hasn't happened in a long time. And I think startups are kind of a new thing for most startup founders to have to really think about and it's definitely a new thing for a lot of folks in in the government to think about because it starts sort of a different set of challenges and playbooks that they're running than very large companies that the government's used to dealing with.

2:02 So it's it's I think what's promising is that it seems like on both sides there's a lot of collaboration starting >> and you've seen this firsthand. It feels like ABC is at the center of the American mission. You're doing a lot of work, of course, down in Texas. Joe is kind of uh he's kind of a beast at podcasting. >> Yeah, he's he's a beast at a lot of things. He's probably the highest uh energy highest pain tolerance person that I know. And I think that applies to, you know, obviously building out American Optimist podcast, but also the University of Austin, a crazy project.

2:35 You think about it, building a new university. It's like starting a super complex startup, but there's no like profit, you know, dream at at the end of it. But, you know, working with him has been incredible. I've worked with him my entire career, and he definitely is a rare individual of someone who has big ideas, you know, beyond business, but also is like willing to roll up his sleeves and actualize them himself. >> It does seem that building is just in your DNA. Above all that, your team has built ABC up to what it is today. And you cover many categories from biotech to manufacturing, defense, enterprise, logistics, and you've actually also built companies internally. So, how did you evolve to that state and build so many billion dollar companies?

3:22 >> It really stems, I think, from the first fund we did together. We did two funds under Formation 8, uh, which kind of the predecessor firm for ABC. And you know the first conversation I had with Joe ever um which was right out of college was I kind of asked him hey you know you're CEO of a company CEO of Adapar at the time which is the second company that he co-founded after Palunteer and I'm like and you're starting a venture fund like how do you do that and he was like well you know VCs are pretty lazy so like I'm pretty sure I can just work like you know just a few more hours every day and work seven days a week and then it won't be a problem. um which which it probably is true. VC like VCs are lazier like especially once your firm's established. Building a venture fun is hard though. Um it takes a ton of time. Um and so you know Joe then replaced himself with CEO of Adabar and began we began you know building it up.

4:13 Um, and I think it started by the fact that when we went to raise our first fund, many of the people that were like took a bet on us were betting on really Joe's entrepreneurial track record. Um, and and maybe less, you know, he had been incredible angel investor, but had not institutionally managed a venture fund before. Um, and so I think that was kind of the the real ticket to the dance that we had. And we kind of kept coming up with ideas for companies in addition to investing in companies and they sometimes popped up through problems we had like we I had to manage Joe's network when I as his chief of staff. Um and so we ended up starting Affinity uh which is you know now the leading CRM for you know venture and kind of growth equity investors. We started two more companies off problems we had Anduin and Standard Metrics um you know we co-ounded and so and then we also started seeing folks who were at APC that maybe were not really there to be in investors for the rest of their life and they started becoming obsessed with ideas and then starting companies. So we had Nate Baker who had been working with us for as an intern and then as you know an associate and he was just obsessed with title insurance and talks about it all the time. Basically it's like listen there's not that many like you know technically brilliant uh and you know sort of charismatic and people who could you someone who can go recruit a bunch of their friends who is 23 or whatever and obsessed with title insurance. So you got got to build a company. Um and so there were these early sort of data points that suggested that um you know there was something beyond just a traditional venture model for supporting entrepreneurship. And so what we called ABC build um we formalized that uh in 2018 and basically did that so that before we did stuff very ad hoc. So someone would start a company and you know we if we if we had common equity in it or something we would um you know have to go raise from other investors for the seed round uh because it was a conflict or we would give all our common equity we got from founding to the fund and it was fine for you know me and Joe but as we thought about proliferating the incentive around starting companies we want to be able to incentivize our team uh as well uh in those and so when we formalized the build program it it allowed built the infrastructure really to be able to um invest a lot of resources in in build.

6:57 It's now 30% of what we do. All of our capital employees and you know 30% of it goes into companies we we co-founded and I think Joe and I and and the rest of the EPC crew have probably done over two dozen at this point um over the last you know decade or so. >> Wow. How do you build out the playbook for each of these companies? like what are the core components you're looking for across the board?

7:23 >> I mean on the build side I think um there's really two major ways that they get started. The predominant way now is that we have a group of um three to six IS at any time that are you know they're full-time employees at ABC but they're working only on sort of the process of either coming to an idea or getting it ready to kind of launch. Um, and some people will come in with like they might be like, I'm either going to do healthcare or logistics like that broad and maybe they're incredible product or engineering people and we we kind of, you know, haven't spent a bunch of time with investing partners and and and then farther down the line potential customers and and some of like the strategic partners we have who can help vet their ideas. Um, and then other times we have an idea and we go recruit specifically against it. um as we've you know after we kind of structured ABC build it allowed us to have more ERS um which I think then there's a there's a natural person to then launch it. I think also top founders like they want to have they want an idea to be theirs at least to some extent. And so if you overrefine the idea then it can become less interesting to a founder who wants to you know take it you know put their own kind of put their fingerprint on it.

8:48 Um, and also frankly like they probably are going to be better at vetting the idea cuz they're actually going to go get dedicate their life to it. But there's still some times where we have an idea and we're obsessed with it and so then we go recruit specifically against the idea. >> It seems like over the last year or so, especially when the VC market was really questionable, I feel like we've gotten to the point where we totally forgot about that. But there was a huge panic state and then you know funds started to pull things back together and it looked like oh let's all do the rollup strategy and so that was a trend at some point and then there was also you know building things in house oh how are we ever going to make venture returns again let's build it in house um what is your perspective from having that actually ingrained in the fund of all these other funds doing this and it kind of looking a little touristy Well, I think that there's I think it's I think the thing that's underappreciated is how much your organization has to be designed intentionally to make um to balance this sort of dichotomy of of starting companies and investing in them. Um there there's there's definitely some overlap, but I think if you don't intentionally design the incentives, the culture, um and even like the staffing and the the amount of capacity you have on your investing team, on your finance team, then it's very hard to do both.

10:27 Well, um but it is possible for sure. It's just that it it almost has to be like an innate thing and or it can be by exception like I think there always will be ex you know exceptions where a a firm just is an incredible you know kind of talent pool and that someone either gets bored being a being a partner or or or associate or something or they have a really big idea and they do it by exception. Um, I think that's actually probably the second best way to do it if you're not going to go like allin on integrating the the incentives and and frankly also the the skill sets that you need to do, you know, great investing and company building. Um, and so I think that's the that's the underappreciated part of me.

11:19 I think most of the firms that are trying it, they have good reason to try it. They have great brands. They have tons of capital. They have insight on the market. Um, I think what sometimes they don't have is a culture and an incentive structure which makes it symbiotic with the investing side as opposed to either a clear afterthought or a um or frankly a competition for resources and a and a potential source of politics. Um, but you know, those are things that you have to work through.

11:52 Um, and we're just lucky that we we sort of worked through those, you know, um, you know, a lot maybe earlier. Um, but there's certainly, you know, we also we're not the first people to do this. I mean, Sutter Hill has done this better than anyone. Um, there's some biotech funds that have, you know, have done it exceptionally well. Um, and so, you know, there's it's it's not totally on sort of a unproven path, but it it does require a lot more. It requires you to run your company differently.

12:23 >> When you talk about the 30% you allocate towards build, how much of that allocation is in you know the initial incubation of it like what kind of checks are you writing into the companies and then how much of it is sectioned off for follow on? >> It's it really varies actually and it varies because the what we're trying to do is we try to launch a company with as much unfair advantage as possible. Sometimes capital is an unfair advantage. Um, and sometimes getting the talent uh or maybe even, you know, being able to win a design partnership or something requires a, you know, more capital at the table from the beginning than, you know, if you just went and raised a seed round. Um, sometimes it doesn't though. And so, you know, the initial check size for us is like it's probably 3 to 4 million on the small side and maybe 25 to 30 or 40 um the bigger side. And then there have been times where we also found these companies with other firms that put capital work, whether they're strategics or they're they're other uh investing firms. And in those cases, sometimes um you know, sometimes those first rounds are larger, but we're we're still check size for us is still usually kind of in that range.

13:38 >> I want to talk deeper about the portfolio because you guys just you have so many fun names. >> So many fun names. Uh we're at Reindustrialized, so I'll keep it categorically perfect >> bounded. Okay. So, Palunteer, Anderl, Open Gov, Eperis, Seronic. Which of these are your favorite? >> Um, well, I mean, I think it's hard to have favorites, right? Because it's like what it's not like, you know, there's there's a lot of different things to prioritize, right? Um, are you talking about in terms of name or are you talking about in terms of >> It's a trick question. Everyone hates that question, right? Uh I want to talk like a little bit more about them uh in terms of the impact that they have on the industry. Of course they're like they're seismic companies. They've made a real difference especially Palunteer it's public. It's huge. Uh and now has gotten to a size where they're going to be doing more acquisitions.

14:38 >> OpenGV also had a nice exit. So all of these are you know they've they're substantial companies. So maybe just pick one or two um and kind of like break it down a little bit more. >> Well, Palanteer really predates pred predates me. Uh so I'll put that aside. And obviously it's a huge public company now, so I don't I don't know much about it, but it's a super important company and it and it the reality is also the Palunteer DNA I think has laid the the groundwork for much of what's going on here at Reindustrializ. Uh I think between Palanteer and SpaceX um they really one is that that is a talent pool that a lot of folks draw on when either they want to sell to the federal government uh or when they want to uh build physical infrastructure and scale it. Um and so I think those companies are you know really important and so Palanteer the DNA from there has led to a lot of our built companies um and our investments frankly. Um, but in terms of I mean I think open gov is is probably the open go is probably the the on a relative basis like I think having like a nearly $2 billion exit for state and local government software is like probably equivalent to like a palunteer type outcome or something. just the the it's so impressive having watched Joe and CEO Zack Bookman build that company because I mean I was on the first sales calls you know when they won Palo Alto and um you know it was like it's like whoa yeah so cool we got the first customer and then and then you start like doing the math of like how many customers they need to get and to make it a viable business and you just think wow this is going to be really hard um and it was really hard but they really did it um and I think so It's it's and it's now growing, you know, even faster than ever um after the acquisition. So, it's it's impressive because I think it it highlights that in a place that every VC in the world like, oh, go, you know, gov tech, maybe you could do federal, but like are you really going to do state and local? Um, you know, is this sort of very dismissive view of it? Uh, and yeah, it's probably harder than building like the average vertical software company, but um, but I think it just it goes to I think like I mentioned Joe's pain tolerance, his vision for things that other people, you know, might just not ever want to touch. And so I think I just it it holds like a special place for me because I think it's just it's such a testament to I think that determination um, and that drive even if it's not the biggest company. Uh I think Seronics also just it's it's a more recent one. Um probably it's one of the first companies we did uh from build in Austin uh after we we moved there in late 2019. And the founders are just amazing. um you know, Dino, the CEO, um you know, Navy Seal and you always kind of, you know, know that they're going be great leaders and um come under pressure, but you know, have huge ambition, but you see it up close and like see how it's manifested in the company culture and the way they operate, it just like confirms that. And I think it's something that you, you know, you can intellectualize, you know, oh yeah, of course, Navy Seal is going to be a great leader, but like, you know, you see it and you're like, whoa, this is like really special and and Viv, you know, he actually the CTO, he was he was a ABC fellow back in the day. Um, and then worked at Sander Metrics and at Androll and then, you know, was ready to build his company and came and joined us. So, it's it's cool also because it comes full circle. um where you know I think first met him when he was I don't know 19 or 20 or something and now he's like an incredible CTO. So that one's a cool one. Um plus it's in Austin which is fun to go see him and they also work six days a week in person which is pretty cool.

18:34 >> Seronic is like a rocket ship. >> Yeah. Yeah. It's an incredible company. >> It's crazy the amount of progress that they've made in such a short period of time. Is that a testament to build? Like did were you able to unlock a bunch of doors for them? >> Sorcery is brought to you by Brex, the financial stack trusted by more than 30,000 companies, including one in three ventureback startups in the US. Nearly 40% of startups fail because they run out of cash. Rex is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, Rex is designed to help you spend smarter and move faster. Their all-in-one solution combines checking, treasury, and FDIC protection into one powerful account. You can send and receive money globally at lightning speeds. Get 20 times the standard FDIC coverage through their partner banks, and even high yield from day one with same day and even same hour liquidity.

19:29 Access your funds anytime. Companies like Scale AAI, Door Dash, Service Titan, HIMS, Anthropic, Flexport, Robin Hood, and Plaid. Trust and use Brex. Start today at brex.com/sorcy. That's brx.com/sourcy. >> I think we were helpful on the upfront, but frankly, I think it's a testament mostly to um Dino and Viv and the other co-founders. Like, they just they're very mature. um super like super present and and sort of patient but also intense which is kind of rare in founders like tend to I tend to usually see like founders that are really intense like are very extroverted like very manic almost uh and then you have also like you know the the founders especially on the technical side that are maybe more like really deep thinkers but much more sort of introverted and they all kind of have like a this mix between like the best of both worlds.

20:27 Uh, which I think just like means there's a lot less just noise. Um, it's just it's incredibly impressive to kind of see it. >> For those that don't know what Seronic is, could you share a little bit on >> Yes. I mean, Seronic is building basically the autonomous future of the Navy. So, they're building um autonomous surface vessels for uh naval reconnaissance, logistics, payload delivery. um ranging from you know much smaller um form factors all the way up through um much larger ones and and a big part of that which has been a big topic here every dust is is ship building capacity uh and so I think not only you know is ambition to deliver these autonomous boats and there's a huge amount of work that goes into the software and the communication protocols and material science and stuff to make a naval vessel autonomous. Um, but the other thing is figuring out how to build ships in the United States again, which is an area that we probably have, you know, the the fallen behind the most in terms of our capacity. And that's on the defense side, but also on the commercial side as well. So, in order for, you know, in order for Seronica to succeed, they also have to become, you know, a leader of US ship building. um which is which is really cool. And they've they've already made their first you know they kind of they bought a an old shipyard um you know and they're they're retrofitting that but then they're they have much bigger plans too.

22:06 >> I know the portfolio also extends itself into like biotech life sciences healthcare that can also you know shift into American resiliency and re-industrialization. What are you seeing in that world that's becoming more exciting and and maybe unlocking with this new administration and technology? Yeah, I mean I think that the same way that a lot of the you know that in order for AI to realize you know so its potential for our economy um but yet is blocked by the rate at which we can scale physical infrastructure um you know genomic medicine and sort of advanced biologics is similar right so the manufacturing of pharmaceutical drugs is another place where the United States owns the innovation end of it and thinks a lot about manufacturing before something is um you know when something is still being proven out but there's not a lot of thought about scalability when it comes to way you develop a drug. Part of that's because if you're successful it's you know like a 99% margin business. So if you can do it if if you're really bad and it's an 89% margin who cares. Um which is different than a lot of other industries. Um but also there's just there has been a um you know there's there's been a a big outsourcing push uh especially in more sort of standardized traditional um modalities and I think it became pretty obvious during the pandemic that the production of you know pharmaceutical drugs is probably something that we want to have domestically controlled at least to some extent.

23:55 Um, and so I think, you know, in some ways it's the hardest place to innovate from a manufacturing perspective because there are such stringent regulations and the FDA and the the way that they sort of monitor and evaluate quality of manufacturing is a very static process um sort of evaluation. they don't like lots of uh you know sort of continuously improving systems necessarily but I think that's changing. Um and I think the other big thing is just that in life science these facilities are incredibly expensive. They require huge amounts of labor that needs to be there whether there is a commercial project or not. Um because you're a GMP manufacturing facility, you can't have, you know, mold accumulating. If you don't run the machines, they may either get dirty or they they stop performing as well. You have you need to keep the lights on. You need to keep the HVAC going. Um you got to keep paying the insurance, got to pay the property tax. So they have very high fixed cost. Um and I think that has been a barrier for sure. um that I think this administration is is you know prioritizing. Uh and then the other part that I think they will prioritize as well which is it's going to be an interesting one to kind of to grapple with is some of the production of this of pharmaceutical products is a pretty dirty chemical process at least um at least in the sort of the way it can be done at scale today. So that's why a lot of, you know, chemistry based drug manufacturing processes have been moved to places with lower environmental standards. So if you can dump all your chemicals into the water, you know, some river when you're, you know, when you're done with three agents, it's a lot cheaper than if you need, you know, they need to go into a bomb proof, you know, uh, you know, detention tank and then transported to some biohazard, you know, thing in a mountain somewhere. Um and so I think that's going to be a decision we need to make. Either we're comfortable figuring out um ways to you know ways to reduce that burden from frankly just environmental regulation and deal with the frankly the trade-off of that which is that there there may be some you know some sort of you know cost to it. Um or we have to invest really aggressively in new technologies that right now are not necessarily commercially viable even if they're technically viable because pharma companies are rationally incredibly averse to switching their process because they've already you know they make tons of investments or acquisitions across all these different sort of binary bets. you get one that works, you don't want to have to go deal with changing the way you're going to manufacture that because, you know, and and there's there's so much money that was invested and so much money at risk.

27:16 Uh once you have something that's commercially viable that um the current way that the both the regulatory and the sort of market dynamics are, it's really tough to get a new technology in to an existing set of programs. Um, and I think that's one way that you could accelerate these things would be if you want these sort of cleaner, more innovative like enzyatic approaches to to making certain drugs, I think you're going to have to rational at that. And I think there's a role for the government on that. There's also probably a role, frankly, for the pharmaceutical industry to, you know, do they really care about making stuff in the US or not.

27:51 >> So crazy. >> Yeah, it's tough. I mean the good news is that I think in the pharma world many of our allies have capabilities um you know there's you know Europe has significant capabilities uh Japan you know I mean India has a huge amount of manufacturing and I think India will be hopefully a really important ally for the United States uh going forward but you know we do want some capabilities here um especially you know at least at least enough that we can, you know, use them in the event of another pandemic or or frankly just because these are pretty good jobs. Um they pay relatively they pay actually really high for manufacturing jobs and there's a ton of downstream uh economic sort of you know activity that happens with these these are like huge multi-mill multiund million or billion dollar projects. So the construction, the, you know, electrical, the HVAC, the logistics, these are all downstream of that. Um, and again, like there's there's a real argument that, you know, Americans should be doing that.

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29:41 Are there any particular companies you're watching in this space? >> So, we co-ounded a company called Resilience um which is a basically we started it um in summer of 2020. So, kind of right as the pandemic was was underway. Um and it's US-based CDMO. So, we are a manufacturer of third party um you know of other people's drugs. uh here in the US we have about over a thousand folks in our big flagship plant in in Ohio. Um and and so that's like you know that's a that's been a a really big company. We co-ounded with Arch Bob Nelson at Arch who brings like you know 40 plus years of biotech investing experience. Um, and so it was it was a build company that I think is a good example of when we partner and he's he's got more knows more about biotech and has more connectivity than we ever will.

30:35 Um, and we kind of brought I think the sort of national uh security and um and also just kind of like operational, you know, view of of these types of businesses. Um I also think there's some the problem with with biotech right now is just that the sentiment is very low. Um >> the kind of is it weird kind of despite like actual outcomes both clinical outcomes but also M&A. Um, I think that's because it's very hard to understand. Companies go public way too early and so the stocks go up if everyone's happy and interest rates are zero and then they are the first thing people sell when they're like, I have no idea what this actually is. I bought it because it sounded cool. Um, and there's not that many people who can, you know, who can understand it. Uh, who also can invest in like a $500 million market cap company. So, you know, you see the stock fall and then people just, you know, sentiment sort of turns. Um, and I think that's I think that's too bad. I mean, I think we're we're sort of obsessed with this idea right now of like lean biotech, which is really the idea of like how do you get as much done with as little money as possible, which seems obvious, like that's like what startups are always trying to do. Biotech's like by and large don't necessarily think that way all that much. Um, and there's ways that now that you know, I think under the new administration, the FDA is encouraging even more to reduce the cost of getting human data, which is really where value is created in in life science. Um, and so I think I think that unfortunately the sentiment really does drive how much innovation you can do on the manufacturing side of things just because um you know the manufacturing companies and also just biorocessing and new tools for developing uh life science companies they are their customer base is biotech and so um and then their source of capital is VCs So, you know, sentiment does matter a lot, but I'm like incredibly bullish on um and I think there's going to be a almost as much a change in like the way that our economy and our lives work from um genomic medicines as from AI. Um but I think it may be a bit of a bumpier ride than with AI where you know you can get two billion of revenue in a couple years or something. clinical trials.

33:09 >> Yeah, you can push stuff and yeah, there's less regulation and things like that. Um, but I but I'm very bullish over the next 10 years. >> We are in a kind of wonderful period of progress and the new administration is definitely helping with that. What other initiatives are you optimistic about right now? I think I think the biggest well what I would say is like being a reindustrial is like one thing is just I think that patriotism is no longer like some four-letter word among like um maybe maybe among like coastal elites. I mean I don't think it really ever like regardless of political affiliation. I think it like I grew up in Iowa. I think every people would everyone flies American flags regardless what party you voted for. Um but I think it I think it became like a weird thing. I mean it's always one of our core values on our website. So, um, to us it never felt weird. Um, but I think it's good to have people be patriotic. Like, if I could have people either be irrationally patriotic or irrationally unpatriotic. It's like I want patriotic cuz we live in this country. You can't really do much about it. So, I'd rather have, you know, the same way I'd rather have people be irrationally optimistic than pessimistic. Um, so I'd rather fall in that. I think it's just good for the for the country, right? I think it's just it it it creates like sort of a levity. People feel, you know, excited and ambitious. They want to do things.

34:30 Um and so that that's great to see from, I think, a really important set of people, which is people who are funding things and people who are, you know, deciding where they're going to work and stuff like that. Uh and it's also good that they get a little bit more on board with probably where the rest of the rest of the country is. Again, like kind of regardless of political affiliation. Um I think the big question as it relates to um the federal policy from from here on is is the industrial policy side. So, um, you know, tariffs are effective in some ways. Um, they cause issues in other ways, but regardless of that, if we want to scale our manufacturing base really quickly, there's just fundamental limiting factors that can only be removed by the government. And so if we've decided that we want to move at that rate, which I think really I think that's another bipartisan issue. I think you know you have you have both sides wanting to do that. You have to actually remove the real barriers. Um and what I'm most focused on is ones for startups because startups are kind of unique, right? Bonus depreciation is awesome if you're Boeing. It's awesome if you're a real estate developer. Um and that's great, but it doesn't do anything for a startup.

35:53 because they're CC Corp, so it doesn't pass through their investors. They have plenty of net operating losses already. So, the fact that they can write that off doesn't mean anything because they don't have any they don't have any profits to to write it off against. Um, and so, you know, I think the traditional tools that the government uses for incentivizing things probably don't most of them don't work super well for closing the gap that this wave of sort of companies being built right now.

36:28 Um, you know, the real gap that exists from a capital perspective on what they need to do for scale. Venture capital can fund hundreds of millions of dollars of stuff. Um, if you're, you know, one of the very very top companies, you can raise billions. Um, but there's many projects out there that maybe don't even meet the threshold for return potential from a VC that would be really important for the country. Um, and so VCs are ignoring them. There's there's not much less capital uh capital wise for them. And then there's certain projects that even the biggest VC funds can't can't fund because um and don't really make sense to, right? So, you know, built ship building in the United States, a great example, talking about many billions of dollars to even kind of make a dent. or if you talk about nuclear power, you're talking about, you know, billions or tens of billions of dollars, you know, and so um in places where startups are the the real sort of growth factor, um I think the way that you know what I'm hope very hopeful for is that this administration marries, you know, some of the other sort of trade-based policies they have with economic policies um that, you know, that make sense for startups as it relates to industrial stuff because um they're startups are 100% in on building in the US. So a large company, they're excited about it now. They're excited about it now because they got to talk to their board about it uh or they got called in front of the president, he made, you know, made fun of him or something or they just want to put a press release out or they were planning on already spending $5 billion. So who cares? We'll just say we're spending it here. But the second that Ireland changes their tax policy or that there's a new administration that, you know, changes the tariffs, we already have 30 years of track record that they're going to go and they're going to move their manufacturing wherever it is cheapest. And as a shareholder of that company, maybe I'm maybe I'm okay with that. But as a citizen, our country, I'm not. And so when our industrial policy is designed, it needs to it needs to take that into account and build for um and be built for the the the companies that are all in on the United States and have no no other choice. You know, we're not going to build our, you know, our fill finish facility in any other country at Resilience. We are 100% we're more than 100% allin in that facility, right? Uh, Seronic's not going to go build ports in, you know, some random tax haven place just because something changed after they've gone all in on building a, you know, ship building in in the US.

39:17 So, um, and I'm very hopeful about that, but I do think it's an important thing for um, both for policy makers, but also for startups to to realize they need to advocate for themselves. >> Technology is moving super fast. The industry is moving super fast. especially like in VC. Like these companies all of a sudden are printing lots of dollars overnight and AI is a factor of that. We're getting to AGI pretty quickly or super intelligence, whatever you want to call it. A company I recently discovered is a company called Turing that develops and deploys uh next generation AGI systems for real world problems across industries. I'm curious from your perspective, how does AGI fit into this piece and like what do you think the biggest effects will be?

40:06 >> Yeah, I think I mean I think part of it obviously depends a bit on like what we mean by AGI, right? So like I will assume that what what we mean by AGI is not like truly an omni potent like sort of digital being because I I frankly think that's a religious conversation. Like I I just think there's not really any distinction between the types of basically between theology and a discussion about something that is truly like a um you know like a a superior intelligence. Um, and and so I don't really worry about it much. Like, you know, either either it will delete me or like, you know, I mean, me and my fiance's German Shepherd has a great life. So, I'm happy to be the pet to some, you know, incredible superhuman as long as I get, I guess, play, I don't know, play golf all day or something, whatever, whatever it would have me do.

41:01 So, I I kind of don't worry about that. Instead, I think about AJI more as like where you could have a system which could go into a variety of different application areas and very quickly effectively process mine them uh and understand them without lots of human or any human uh sort of direction. Um and so I think you know what that looks like is I think it is a pretty big leap forward. Uh, I think what you see right now is basically people building tons of vertically specific intelligences that um I still think have a fair way to go but are like rapidly progressing. Um, and so I think once you see a an AI, you know, product that can rapidly change like what it's capable of doing and without needing to like be directed by the person, um, I think that's like where, you know, that's to me what like AGI would be functionally. And, um, I think it's going to have pretty profound impacts on on some places. I I think the way it touches the physical world is actually going to be um take much longer. Like I I think that a lot of these systems are going to be really good at basically like internet people stuff um because that's what they're trained on and that's who's training them like you know so obsessively now.

42:23 So like software engineering like for sure I think Excel work and you know some legal a lot of legal things a lot of accounting th those are probably the things I and then obviously you know call centers and other stuff like that um I think it's going to be a massive productivity gain at least for the next 20 years if you're like you run a construction company or you have an HVAC business because right now you're paying some person 50 grand to make your website like that's done. That's not anymore. You you're paying some BO to like, you know, handle your call center while you're on the job, that's going away.

43:01 >> If you know, you're hiring some property manager to basically move around paper, like that's going away. Um, and you know, you you need five people to manage coordination of your scheduling of your people, like I think that's going away. So I think for small business owners who do something in the physical world, it's going to make them like so much more productive and profitable. And that's the place where I already see it. Like my YPO forum, I have, you know, people that don't run tech companies.

43:28 They run huge construction companies, industrial companies, and like they're using it themselves, like just making stuff all the time. Um, and it's pretty impressive stuff. So I think I think that that's like a going to be a huge um, you know, huge boom. And maybe robotics will get there and there'll be, you know, a real sort of conflict between, you know, the whatever robot can do electrical work and electricians. But I think that's I think that's much farther off than, you know, automating low-level web design, which I think is already done.

44:02 >> Done. Well, you guys just announced Bedrock Robotics recent round was $80 million to help automate construction vehicles. That's pretty That's a pretty good real world. >> It is. I mean, I think the interesting thing about capital equipment, right, is like the amount of labor relative to the capital equipment already is very very small. Um, and a lot of I think it's a place also where you're increasing functionality and speed more so than just like ripping cost out. Um, so I think it will be largely an enabler um and allow the allow folks working in construction to be uh to frankly like just do less things that are they don't want to do and do more of the important stuff. We also have a massive labor shortage in construction. So uh unlike maybe in I don't know legal or BC or whatever like maybe we're over maybe we maybe we need to cut some jobs there.

45:00 Um, but I think that listen like building the United States is insanely expensive and it's takes a really long time and part of that I think we can we can address through, you know, regulatory policy and other stuff like that, but part of it is just functionally like, you know, we're not going to pay people, but they pay people to work in China building facilities. So, people need to get rightfully so, they need to be paid a lot more here.

45:29 So, we're going to have to have we're going to have to invest heavily in in, you know, systems and hardware that make people way more efficient. It's the only way to to actually do it without just, you know, spending 50% of our GDP on construction each year, which uh probably is is where it would have to be if you were, you know, extrapolating on our current cost structure. >> Love premium merch just as much as we do. That's why Sorcery uses FourthWall.

45:56 Everyone from creators like Marcus Brownley to podcasts like acquired to orgs like the Smithsonian Institute are using FourthWall. They let you create and sell premium products without having to stress the details. They handle everything from production, shipping, customer support, taxes, even giveaways. When it's time to level up and make gear that people are actually proud to wear, that's when it's time to use FourthWall. And that's why we've trusted FourthWall for all of our brand wear at Sorcery since day one. Use my link in the description to get free credits for your first order. And for any VCs, DM me on X and I can get all your portfolio companies set up with a free samples credit deal. One of our partners is Brex and they help companies of all sizes from startups to enterprises spend smarter, move faster, be super capital efficient. As you think about these companies scaling over time, what are the levers that you pull on for whether you want to go for growth or go for profitability? Like what are you looking at? I think that like it's it's hard to like it. Well, I'll use the example because we're here at Reindustrialized.

46:57 So, I think capital allocation is probably something that's been undertalked about in startups for a generation because software largely had pretty obvious capital allocation frameworks. It and it became much more obvious. So, even if it wasn't obvious in 2012 like that you should think about like you know your cact or whatever like it became very obvious very quickly. And so there was kind of these playbooks and I think part of the other reason that you know wasn't thought about all that much is because your biggest source of spend was on engineering and then it switched to sales and during the engineering time you know you don't you know you're just like building quickly and you know shipping product and that's sort of the productivity and and then you get to sales and sales people are really managed based off how much money they bring in. So it's kind of easy to do. Um and so you know it's not the most complicated capital allocation when you're building physical infrastructure.

47:49 It's totally different because the check sizes you have to write without any feedback or huge to build a facility. You can't build like 1/ 1000th of it and be like it's working like let's do more. I mean you might be able to modularize some but you know there's really long lead times on equipment. there's lead times on labor. So, if you're too incremental, then you just built built a facility that's uneconomic. Um, whereas if you know, if you're if you're a software company or or an e-commerce company, you can change your capital allocation to your different sales and marketing channels, you can do that algorithmically at the most atomic unit you want. So you now have a whole set of of companies where a huge part of being the founder is thinking about capital location because you may be betting the farm when you make you know you build your first facility. Um, and so it definitely changes the way that I think about the way startups should manage growth and profitability because um, they get fewer shots on goal in making these big bets with way I think with less data. And so it's about d-risking that. So how do you do that? Well, like with resilience, one thing we learned which is going to sound very obvious, but um, you know, early on we took a little bit of like if we build it, they'll come strategy. That's bad idea.

49:12 Um it's much better to buy or invest in a facility alongside a customer who has you know either already signed or who has given so much demand signal that they need what you are about to build and has clarified the economics so you can do the the analysis um similar with um you know I think in defense like you're not going to get perfect demand signal early on but paying attention to what you know the pe people who run the various parts of the DoD are saying that they want and the processes that have been defined and you know is their budget allocated those things become really really important because if you build something um you know before before there's any demand signal and then there's no demand you've you've sunk hundreds of millions of dollars that you're not going to ever be able to recover. Um so I think I think it changes it a lot for startups. I think they're very aware of it. you hear so much more conversations around capital allocation around cost of capital around you know I think one thing that that we're very um you know excited by and and and trying to trying to do in various ways is to create new financing structures for these companies when they need to go build a ship building port or they need to go build you know a bunch of manufacturing space because there's a big gap between using venture capital and the private credit markets that are more traditional and sort of profit oriented. Um, and there really needs to be a basically infrastructure financing or project financing for growth stage businesses. Um, that's a little bit more willing to take risk. Um, and so I think it's I think it's a huge part and um, and frankly like you just have a lot less margin for error. Um, now that being said, you also can you also once you have it built and successfully, you you usually can get tons of operating leverage on it because you you might be able to do $2 billion of annual revenue in a facility that cost you 200 or 300 million. Um, but the fixed cost of it might be 50 or 75 million a year. So, at 0% you're burning tons of money and at 100% you're printing cash. Um, it's just like a different philosophy of business than most startups are used to.

51:33 That's a great answer. That was probably one of the best answers I've gotten for >> Well, it's good. It was It was long, so I'm glad it was good. It was >> super helpful. Yeah. No, I think that's going to be great. As we wrap up, we have to do the very fun segment. Okay. Are you ready for this? >> These are This is going to be a rapid fire hot spicy question answer round. Okay. >> I might throw in a curveball. Who knows?

52:00 >> Um Okay. So currently there's an 18% chance on Kshi that Trump brings back manufacturing. What's your take on this? >> How are they defining the resolution of that? >> That is a really good point. >> You always have to read >> important these days. >> You have to read the fine print. >> Uh let's see. If the value added by manufacturing to GDP in Q4 2028 is at least 13.1%. Then the market resolves to yes. What is it today?

52:31 >> The first quarter of 2025, manufacturing accounted for 9.7% of total US GDP. >> I think that the Trump administration will bring we'll make a big dent on that. That will improve, but I don't think it'll hit 13.1%. >> When will the next US recession start? >> We could be in one now. For all I know, like I would say in two years or three years would be when probably the the like as per the whoever comes up, the Fed or whatever says that we're in a recession. I think we I think we are in a reckoning right now that's like kind of being held in stasis, but it's going to there's going to be some resolution to it. I think >> right now the market has 20% on Q3 2025.

53:15 That is like the highest percentage of all them. >> Yeah. It's like I I think I think like they just need to come up with like a new definition for a lot of this stuff because like you know last time we had a recession it was like two days it was two days and then we just turned the money printer on and then like the stock market went up but like it still felt like we were in a recession because no one had a job. I mean it's just Yeah. So >> except US debt is at a crazy peak.

53:38 >> Yes. >> Okay. So today US debt I'm looking at a live tracker right now. It's about 36 trillion. 36.65161. It keeps on changing. Um, what do you think the peak US national debt will be this year? >> 38 to 40. >> Okay, that's not bad. >> Well, probably by the Well, I guess like by the end of Yeah. the next budget. >> I mean, that's bad. Like, that's bad to say, but you are close. You are close to what the market is saying.

54:06 >> I think we're going to add to the debt. >> Yeah, seems likely. I mean, if you want to do all this industrial policy stuff, like there's going to be some short-term adding to the debt >> because it's either going to come through reduction in tax revenue or it's going to come through government outlay into stuff. I >> mean, so what what is your take on this? Because of course there's a lot of backlash with Elon and Doge and that sort of thing. Some other people are saying, "Oh, this is going to happen, but AI is gonna unlock so much productivity and like capital gains, profit, that it'll it'll help wipe it away." Do you think that that will actually help mitigate the amount of debt that we've racked up or are we just going to say, "All right, let's move on."

54:43 >> I believe over the next 20 or 30 years it will make a huge difference. Yes. I just think in the short run there's investments need to be made to realize that. And I think that, you know, the way that our system deals with that is by adding to the debt. There's other ways to deal with it, but I I think that there's I don't think there's a I don't think there's the political will to take the type of measures we need to take to both make those investments and reduce the debt in the short run.

55:10 >> Do you think humans are going to colonize Mars by 2050? >> I would say we'll be on Mars by 2050. I don't think we would. I mean, colonize maybe is like depends what that means, but I think there will be a human on Mars by 2050. So maybe that's maybe that's a no. I don't know. But I think they'll be there. >> There's an 11% chance right now. I think they're I don't know if it'll be humans.

55:36 It might be humanoids. >> Oh yeah, >> definitely. >> That's probably even higher. Yeah. >> I'm going to save the best for last. Will the US say that aliens exist this year? >> Yes. >> Yes. >> Yeah. What do they have it at? >> 5%. >> 5%. Good. It's a contrarian bet. You have a lot of upside. >> I got tons of upside. I'm just I'm not convinced that the US government hasn't already said that and that it just it just was buried somewhere and we just didn't notice.

56:04 >> You guys I feel like you have more UAP sightings in like Austin in that area. >> Yeah, there's some. Yeah, I think there's and there's just tons of sightings of stuff. So, I don't know. It's also just fun fun to imagine. Yeah, I have a good friend in Austin and the only he goes to a lot of political, you know, kind of fundraiser, people trying to raise money and the only question he asked them is, "What is your opinion on aliens?" And I think it's actually the best question to ask a a person running for office because one, if they are like, "Um, I'm going to get back to talking about like abortion policy."

56:39 You're like, "Dude, you're not fun at all. Like, I don't I want to hear about the aliens." But two, it's like, you know, one of the things everyone imagines when they're going like if they were a kid and like if I was president one day like I first thing I'd figure out is if there's aliens. So if they if they have energy around it you're like okay this person's like an person's like a real person. They're not like some NPC political drone >> a real one.

57:02 >> Look if we're not going to get the Epstein files this year. At least give us the aliens. >> I know. That's what I think. They need to release something. So I'll take the bet. I got a lot of upside on that. >> Okay. >> Well, Drew, this was so much fun. >> Yeah, this was great. Thank you for taking the time and um being a huge supporter of re-industrialization. >> Yeah, thank you so much for having me on here.

57:23 >> Hey, it's Molly. If you enjoy our interviews, check out our newsletter, sorcery.bc, where we deliver a once a week top deals and tech headlines email and also go deeper on our podcast interviews. Subscribe to Sorcery today and don't forget to subscribe to the podcast on YouTube, Spotify, Apple or wherever you listen. Link in description to sign up.