Transcript
0:00 You don't have a defense industrial base without an industrial base. It's been a real wakeup call that we need to get building again. >> AI will be a phenomenal tool that can be used in the physical world. The reality is AI cannot turn a wrench yet. >> The top 10 most valuable companies in the world, like the majority of them are hardware companies. What's it like to visit one of these sites? You're building a physical thing. You're not sitting at a desk on your computer.
0:22 You're out in the world. It sounds kind of sexy and romantic, but when you're actually doing it, it's rough. When you show up at Mariana, when you show up at Hadrien, we show up at Castillion, you literally get people who are so passionate about what they're doing, that produces really good results. >> There's that very famous chart of like US power production versus China new energy production. What would it take to close that gap? >> I don't think that that is a technology problem. I think that that's a Connor and Aaron, thank you so much for joining the podcast today. We're here to talk about 8050 and this year's list and let's just get straight into things.
1:03 I know a big theme of this year was the American industrial base. Can you talk about what we've learned this year and why that's such a big important theme right now? We've been saying for a while, you don't have a defense industrial base without an industrial base. And I think this year really put that into perspective. you know with conflicts going on in the world and and realizing that you know the hollowing out of our industrial base that's happened over the last several decades actually has real consequences on the battlefield for soldiers both you know American soldiers and our allies and I think it's been a real wakeup call in the United States that we need to get building again.
1:44 >> Yeah. I mean I think it's also something that is not just one factor but it's multiple factors that are all kind of happening at the same time. And when you take a step back and you say, okay, world conflict, you have kind of a continued evolution of the capital markets, which I'm sure we'll talk about a bit later about capital flowing into this ecosystem. But I think one of the bigger things is you actually have an entrepreneurial base right now who is effectively raising their hand and saying, I'm going to build in this ecosystem that's incredibly important, not just for our nation, but also you can build really valuable companies in.
2:12 So I think it's just this conglomeration of a of geopolitical factors of capital markets and then entrepreneurs that are kind of all just coming together and you know I think it's a really interesting time to be building. It's a good time for us to be investing. When we looked at 8050 this year, we thought about you know kind of where we're at in the history of American dynamism and we're still early but I think one theme that has evolved is like you really need to start looking at American dynamism companies as a totality from end to end from the input that comes out of the ground to the factory that makes the thing to the end system. And so that's how we've set up 8050 this year to think through those three lenses. Each one of those pillars is uniquely important to you know the end product or the end system but in the end like I I I don't think people think that way and a lot of the companies that are addressing you know things in our portfolio have thought you know from a inputs perspective from a facto's perspective and now from a systems perspective. So one theory that a person could develop after looking at the list is okay we built out this industrial base for you know defense like building missiles and drones. but it's actually a tailwind now that's helping a lot of different industries in America. So there is energy, there's robotics, there's AI.
3:26 Can you kind of talk about how all of these things fit together? Yeah, I mean it's funny because if you look back in history, I mean even you know 70 80 almost 100 years ago if you look at how we've developed technology in America a lot of times it's very much been from the government. If you look at how we you know went to space for the first time, if you look at how we developed the internet, how we developed nuclear energy, it was the government saying we're going to do this for the purpose of the government and then the long tale of that technology was super valuable for, you know, you name it, the internet being created, you know, energy being proliferated, you know, across the world. what's different now to some extent is now private industry as well as private capital was saying, you know, we're actually going to be the impetus that that develop something. And so to your point you know the many of these markets is to serve the federal government to serve the department of war in some way. But the beauty about these things is when you build you know an industrial base either you know down the supply chain or end systems itself those inherently have many use cases. I mean the the term dual use is talked about a lot in in investing and you know to some extent like I think it's a little bit of a folly like focusing on too many things at once is not good for a startup but it is 100% true of what's happening with any factory that's being built today any neoactory being built any any energy production anything we we we touching kind of minerals or materials in the ground it's not just going into a defense system it's going to go into my uncle's car it's going to go into like my kid's future you know toy that they have in some way, shape or form. So I I I do think it is a you know maybe the tip of the spear is focus on the government but I think in the long run to your point like what's happening is these systems will be used you know in the Whimo that we took today or or anything else.
5:09 >> I think a good a good example of this to to look at is actually DJI in China. >> Yeah. >> which start which has gone through you know multiple arcs of of of its lifetime and its journey. you know, started out building consumer drones and recognized over the late 2010s that there was a large market for drones in both public safety and national defense and so built out, you know, a real highcale drone production business for defense. And now the company behind DJ or the the folks behind DJI are now the largest producers of robots in the world because what is very similar to a drone motor is a robot actuator which is the hardest part of building a robot. So you have this company that over the course of growing a large defense business that itself spun out of a consumer business is now you know the world's leading expert on how to build and produce hardware for kind of the next wave of physical AI both consumer and industrial. and so I think, you know, this technology transfer and process knowledge transfer between military use cases and non-military use cases is really important and has always been how it works. and it's great to have the federal government be sort of a a a subsidizer for figuring out this process knowledge and figuring out the new technology. And then, you know, I think I like our world's greatest gift in the United States is the discernment of the American consumer. like we are going to push things to be more capable and cheaper than the government ever will. So that symbiotic relationship in the industrial base is actually really important and we're certainly seeing that on the energy side.
6:45 >> We're seeing that on the electronic side. we're seeing that you know ac across the entire sort of industrial stack >> and and and to some extent I I I I don't think this is a super complex you know topic but it's important to kind of restate which is when you build the first of a kind of anything it's quite expensive like when you are building a bespoke you know whether it's a military system or a consumer product >> zero to 100 it's going to cost a lot >> it's going to cost a lot and and to some extent like you you know we'll get into this a bit a bit later I bet but you know we talked about vertically integrating or using the supply you know chain base that you have. the beautiful thing about what's happening right now is we have a federal government and a department of war is saying, you know, number one, we're going to we're going to try to actively rebuild some of this this industrial base. And by doing that, they're actually changing that unit economic decision from the start for these companies. So, you know, again, it's instead of building a 100 things, you can say, okay, maybe build a hundred, but we're willing to pay a cost that the consumer or the commercial market wouldn't pay. And all of a sudden then you know that means more machines you can put in your factory more capex that you know the government is helping you pay at the start and then that leads to things that are physic you know both like financially viable but also like you know at a scale that actually can touch the consumer. So I just it's important to to to identify that and that is definitely happening right now.
8:00 >> Yeah. Like like if you're building a new PCB fab in the United States like that's a pretty expensive operation. Those are pretty expensive machinery pieces of machinery. and if you have a defense buyer as the first buyer to help you kind of pay for or subsidize a lot of that capex investment, that's great because you know what else has PCB boards? Robots. You know what else has PCB boards? >> Hearing aids. and so the ability to to kind of pass on some of that capex to the defense industrial base, I think is will be really powerful as we as we rebuild kind of industrial capacity in the United States. So what specifically are you seeing startups do to drive down costs and move faster?
8:38 >> Yeah. I mean I I think like many things we can look to Elon for a lot of answers here. I mean it's not a crazy statement to say really the few modern-day companies that have built anything at scale are probably SpaceX and Tesla. and if you look at how Elon and and his team have built those businesses, it's been one very vertically integrated. and and look like I I take the the ideology that you shouldn't vertically integrate everything. I mean again if you're building a super exquisite system like a missile that is you know doing something very unique you kind of have to because you have to you know control the exquisitness you have to control the cost.
9:13 >> Well well I mean SpaceX and Tesla were doing first of their kind like there was there didn't exist an industrial base in the US to support them and so they had to build it themselves. I think where there are high quality suppliers like you should use for sure suppliers. >> Yeah. Yeah. I mean again I I I I think the the the learning though is number one if you don't have an industrial base that you can rely on you know quickly reliably you know etc then you have to do it yourself and inherently that is a hard journey like that that's really hard to do this concept of saying okay I'm going to focus on the end system I'm going to focus on you know building the most you know cost effective you know effective system that I can and oh by the way I got to go figure out the ball bearing I got to go figure out the solenoid valve I got like that that's a lot to do and in case of you know Tesla and SpaceX I would argue the the auto industry was a little bit different because there was a but there wasn't there wasn't a battery supply chain they had to you know Elon had to recreate that >> well the whole the whole power electronics the the whole drivetrain you know they had to really build completely from scratch >> based off papers that were published in the 70s that you know had been collecting dust for for 40 years. in terms of companies that we talk about in the 80 portfolio, there's Mariana Minerals which bought a copper mine and is kind of reinventing things end to end. Would they be a good example to to talk about here? I think that they they recognized that the you know the the existing players in the mining industry just were not going to pick pick up technology fast enough for it to really make a difference and really move the needle that and they also recognized that they wanted to actually own the entire value chain to be able to really put their money where their mouth was and capture the end value of the new technology they were bringing. So yeah, they do everything from you know acquiring the asset, developing the asset, mining the asset, operating the asset and refining the material themselves across multiple different multiple different minerals and then they sell a final commodity product in the market. and have really leaned in that's another trend I would point to is how much founders and entrepreneurs building in these spaces are leaning into AI and software as a huge huge component of their build.
11:22 >> yeah I mean I I I think when you look at the physical world applying software and AI will look different than what has happened in say legal or customer service or or any other category where you see AI taking off in a in a crazy way today. But but to Erin's point like many times what you have to do is you have to own the asset in order really to change that asset. Not every time, but a lot of times, you know, kind of showing is believing in the physical world.
11:47 Whereas, you know, when you when you're purely a digital AI product, you can kind of just see it and it's very easily transferable and kind of understanding. >> You know, what Marion is doing with this copper mine is is really impressive in a lot of ways. It's not just saying, "Hey, we're going to be better at extracting copper." It's it's rethinking everything. It's >> entire process of how you >> plan, operate, mine, and refine materials. And you know what's cool is once you once you own that process end to end and are using software at every stage of that journey, you actually capture that data and then it feeds back.
12:20 >> and this is this is an important point. I mean this is not just Mariana, but if you look at another business like Hrien, I mean this is a perfect example of how one you can utilize software, you know, but but more importantly, it's not one silver bullet that all of a sudden makes a factory or a mine perfect. It's actually 15 or 20 different things. And when you look at what Chris has done at Hrien, you know, yes, it's kind of upfront what it takes to like quote and even take an order of a part. It's, you know, it is the actual physical, you know, making of the part. It's how you, you know, inspect it and transfer it and and, you know, there's there's all these different intram steps that exist within a factory. And the beautiful thing when you kind of either start from a you know a fresh slate like Chris has in building his factories or in Mariana's case when you kind of own the thing and take it over you can look at every single node from a first principles p perspective and say hey was this process that's been done the last 100 years the right process and that's what's happening across every layer of the physical world right now. It's not just mines it's not just factories. I mean again it exists in many different permutations and and you know my personal belief and we see this in a lot of our portfolio companies is look AI will be a phenomenal tool that can be used in the physical world.
13:32 The reality is AI cannot turn a wrench yet. It will at some point but we're we're far off that you know again we can maybe have a discussion about the you know robotic models and autonomy that that that we see in the physical world. We're getting we're getting closer. I just think the the nuance here and and the portfolio companies many that are on this list or or many many non-portfolio companies on this list that they understand that look the the physical world is not about just putting a silver bullet forward like I said that some you know shiny AI product it's it's it's deep understanding of what a process looks like you know physically how to like you know manipulate the the process or how to you know you know change something that's happening in the world is just going to look different based off >> well maybe like a specific example or to talk through is like like low mix high volume versus high mix low volume and how how AI can kind of change change the game there. So, you know, historically like if you're spending a lot and setting up a line with a lot of automation, >> you really need to produce be producing like a lot of one single thing. Mhm.
14:35 >> and that's how you get the cost down and that's how you justify the cost of invest investing in you know a pretty bespoke manufacturing line. in the US we do a lot of lowmix high volume manufacturing which is very hard to automate because it's very expensive when you have to change the line all the time. U but what we're seeing across our portfolio is that manufacturing technicians themselves are have this have the intuition and now have the software tools to be able to to to change the economics of what it looks like to produce low volume high mix on the line. So you can have you know a manufacturing technician. This is not someone with a college degree. This is not someone maybe they are but like not necessarily who's like studied software engineering is now able to use these tools to reprogram and reconfigure their manufacturing lines on the fly using the fact that they understand the manufacturing process and they know how to do what they're doing in the physical world. they now suddenly have all these tools. So they can, you know, you can retool a line instead of having to call a system system integrator, you know, and it takes three months and hundreds of thousands of dollars to kind of reconfigure a line for a new setup. You can have a manufacturing engineer use claude and do that in, you know, 20 minutes. and so that's been a real gamecher across lots of companies that we've seen seen in this space. And and why that's important is you know when you look back at at how we've articulated AD50 this year you know it's it's you know kind of three categories and a lot of times what we focus on at least you know I have and and many people in the in in the sector are focused on is just the systems companies and look there's a lot of really interesting systems companies I mean Andrew Sran Castillian I mean you know the list goes on and on of who's building really good end systems but the problem is is if you can't you know iterate on that on the design and iterate on that prototype, you don't not only not get to an end system that is like, you know, different, better, but you also just move at a slower pace. So then what happens is by the time you finally fix a production level, you know, missile or plane or kind of whatever, then all of a sudden then you got to, you know, go back and rejigger and build up all these kind of, you know, subsystems in order to meet the scale. But if you have, you know, a more transferable line, a more adjustable line, number one, you can also build the prototype faster, but then two, you can then, you know, set up each one of these different components in a way where it actually can get to rate production quicker.
16:50 >> Yeah. You're you're designing for you're designing for manufacturer from the outset. >> Exactly. Exactly. And that that is again I I keep going back to learnings from, you know, Tesla and SpaceX. In a lot of ways, they they they had to make those choice because they didn't have any other opportunity. But in the end it's actually just that mantra of design for manufacturing that now exists within all these systems companies. and to some extent like we are now in the age of now seeing them produce. I mean again like go look at what Andrew's built in you know in Ohio and and now on the east coast in in Baltimore you know go look at what you know Seronica's built with the ship. I mean these are massive huge facilities that are at some point you know in a very soon soon timeline going to be producing thousands tens of thousands hopefully hundreds of thousands of systems. We haven't done that America in a long time.
17:38 >> Yeah this is no longer an on paper theoretical exercise. this is happening in in in the real world and and real stuff is coming off the lines. something that I think is like special about AD Founders is they make any problem an Elonsized problem. and and I'd love to I'd love to hear sort of that applied to the different industries that we're talking about here. Yeah, I mean I think when you look at defense specifically, this has actually been one of the most historically hard, you know, sectors to just build the thing that you think the government needs because unfortunately and again, you know, I I I experienced this in my past, you know, when I served in the army, you know, the buyer is not the user and the b and the appropriator of the dollars for the buyer is completely removed. So you have all these like disjointed decision makers or groups that matter.
18:31 And so what happens is, you know, companies, you know, back then we didn't really have neopimes or ad companies to serve, but what you had is you had primes would just sit there and listen, like tell me what you want. I'll develop the thing after you give me the money. And you know, the the age-old problem is you get a system that's like actually not, you know, technology forward. You get a system that was developed for 10 years ago and then, you know, the end soldier gets something that actually is not super valuable to them. What's different now back to the like you know you can think through an Elon problem now is you can say okay what does the military actually need and and the beautiful thing is you know venture capital and what we do at American Dynamism but also you know the the rest of the capital markets is saying we will actually fund that in advance and you can build in advance of the government saying here's the thing for you to build and and and the outcome of that is the soldier gets a better product gets something that actually fundamentally changes the battlefield and you know helps with deterrence or security or safety and then more importantly you get a time frame of a of a type of system that is actually built you know it you know aligned with the requirement of the market and what technology can do today.
19:35 So it's just it's it's a fundamentally different way of like instead of sitting and waiting for the government to tell you what they want you you the government signals and you see it and you build an advance by using private capital and that just has not happened in the history of defense. So you can build, you know, like Castellian building a a hypersonic missile that does a, you know, a not a super exquisite thing, but it's really hard to build a missile that goes that fast and is reliable. And, you know, the government, you know, now has given them contracts and kind of, you know, showed up and and and bought missiles. But if you go look at the last three years of that business, I mean, it was private venture capital. It was, you know, entrepreneurs like taking the risk and building the thing in advance. I think if you see that again and again in defense, you're just going to get better products and fundamentally like, you know, you'll have the neopimes and the new companies start to take a lot of that market share. But it's not just the defense thing. I mean, Aaron sees it on energy as well. I mean, we're rewriting our entire energy grid right now. And we're again like Aaron would know better than I would, but like we are in on the one yard line. We are just starting that process. I I think you know another part of it is is a little a little more intangible but like these are really hard companies to build. These are really really hard problems to solve. you know when I talk to Turner who's the CEO of Mariana Minerals and you know he's flying all he's flying to the middle of nowhere places all over the world to build his company. he's like out where there's no cell phone signal, where there's no electricity, you know, touching dirt, you know, spending like weeks and months away from his family. like it has to be worth it. You're building a physical thing. You're not sitting at a desk on your computer. You're out in the world.
21:20 It sounds kind of sexy and romantic, but when you're actually doing it, like, it's rough. The travel is really hard. the people you're engaging with, you know, you're not talking to, you're calling up your suppliers. These are not like other startups who operate in the same kind of time scale and culture as you. These are like really tough people to negotiate with and work with who, you know, have a very different culture. >> And if you're going to be putting yourself through that, like it better be damn worth it. and so I think people people really gravitate towards these problems that feel huge and enormous because they're, you know, these are real missionary founders that we see building in this space even as even as it's kind of heated up and there's more capital and it's gotten cool.
22:05 >> it's still brutal. I I I think the biggest thing that has changed in American dynamism land in the last few years is we always knew that the companies being built in this category were really important to the fabric of America. I mean again like when we talk about defense systems, when we talk about energy, I mean when we talk about building, you know, manufacturing widgets that go into everything in the like that stuff's really important. Like it affects our safety, it affects how we live our life. But the biggest change is those companies weren't just the most important thing to us. Now they can be the most valuable companies and that's like a big distinction that that has happened which is you know it's not just like you know solving a problem for safety or security it's solving a problem for safety and security and oh by the way those can be some of the largest companies that exist in the world and and that's what technology has changed in these industries I mean mining has always been a big big industry defense has always been energy >> it hasn't been economically worth it for a young smart person you know who has a lot of ambition to go after these categories but I think >> companiesactly like Palunteer, Anderl, SpaceX have proved that you can build a really big business operating in in these categories. And if you I mean if you look at the you know the top 10 most valuable companies in the world like that right now like the majority of them are hardware companies. They're building a physical product. you know we've kind of come full circle and so >> you get the most ambitious founders of our generation who you know who want to run towards that hard problem and know it's going to be worth it >> and and and the beautiful thing about many of these industries like mining or you know Riotinto has been around for a long time I mean Boeing's been around for like I mean you know good companies that are building good products but I think when you take this you know first of all like a first principles technology approach about like what the audacious thing that needs to be built is and then two you get entrepreneurs like these these folks that that are on this 8050 >> like yeah I'm going to rebuild the American energy grid that sounds that sounds fun >> and you just that that that didn't exist 50 years ago that didn't exist 5 years ago I mean it is something that is fundamentally you know our America's you know best and brightest are building towards this category for the first time and then importantly like Erin said like the opportunity is there you see these examples of these companies that have redefined space launch that have redefined you know kind of military systems have redefined you know all all these these categories of American dynamism that we care out. and yeah, I think it's exciting. I mean, you know, as as again, as someone who served in the military, you always think of, you know, like what you do as something greater than yourself. I mean, look, like the capital markets exists to, you know, make money. Like it's we're we're not a charity. This is a capitalist society, but in the end, a lot of the companies on this 8050 list are doing something that is both going to be large and valuable, but also going to be really inherently important to the fabric of America. And that's that's pretty exciting. What's it what's it like to to visit one of these sites like a manufacturing site or a mining site or you know drone manufacturers those kinds of sites like >> I mean Connor and I have the best job of all time. I did have to I I did I do own steeltoed boots now because the number of the number of site visits I've been to with portfolio companies where you where they're like yeah you got to show up in steel toaded boots.
25:10 >> yeah >> I mean it's not all sexy to be honest. These are these are locations that are, you know, a lot of times hard to get to in the middle of nowhere. And in the end, like we're talking about physical things that require, you know, earth moving. Like I used to have in my time in the military, I used to have this this kind of senior officer who would always tell me like the physical world doesn't care about you. So just be careful in the physical world. like, you know, these are, you know, moving, you know, tons of dirt and, you know, massive, you know, these factories being built out, you know, Hrien or or or what AMA will do. I mean, these things are huge. and and it's impressive.
25:49 You know, my one of my favorite things is maybe you don't see this at the remote sites. Maybe you do, but it's this kind of running competition between these companies who can have the bigger American flag at their site. I actually don't know who currently holds that today. I mean, Hadrien's was pretty big last time I saw. >> I think Valor is pretty big. >> Valor's big, too. Okay, good. Yeah. Yeah. Yeah. And like again, I mean, that's that's awesome. Like the fact that you have that type of like one passion for for something greater than just the the product or the the economic opportunity that you're building. I mean, again, it it drives purpose behind a lot of these teams. when you show up at, you know, Mariana, when you show up at Hrien, when you show up at Castellian, like you you literally get people who are so passionate about what they're doing and and you know, that produces really good results. When you have to do something really hard in the physical world, if you have people that are willing to run through walls, sometimes literally to solve that problem, you're just, you know, you get really audacious, great outcomes. One of my favorite things to do, you know, is visit the same company sort of multiple times within a 12-month period, whether they're in the portfolio or not, because you learn a lot by how fast >> a factory buildout happens.
26:59 >> And so, you know, that that's one thing we do is like we, you know, you don't just go once, you go once, and then you go three months later, you go three months later, you go three months later. And like I'm not I'm not a manufacturing expert. I spent enough time on the factory floor on a factory floor between my time at Palunteer and now doing this job. you know, I like sort of know what some of the machines are and kind of like how a line roughly works, but like there's just something about seeing stuff accumulate in a factory and it goes from the process of watching something go from like empty warehouse with epoxy floors and the big American flag and maybe like a couple of pallets and the founders just really excited to show you their forklift that they rented. and they're kind of like, you know, they're they have the basketball hoop set up or like the gym set up in the corner to like, you know, fast forward six months and it's just, you know, they're freaking out about how to expand. They're like, "Oh, we need to get, you know, the the city out to to give us more power because we have too many machines plugged in. It's like kind of chaos. There's technicians and operators everywhere, people building stuff." That's really satisfying and and and really fun and something I think we we're lucky to get to see that journey and and and how quickly that can happen.
28:03 >> Yeah. Has anyone ever done like a time lapse of >> Oh, there's a lot. It's a whole That's a whole like category of film making and everyone kind of compares theirs and it's like a, you know, a bit of a >> I do I do like the gym thing. I remember when I when I first visited many years ago, Isaiah and the Gundo, he made me do a rep on his on his >> Yeah, they they all they all have like they all they all have their bench press set up, >> which is cool. Is is there a like a contagion effect to things being made in America where it's like oh because the actuator is made here now we can make this and now we can make that and sort of when you're able to compress one timeline you can compress multiple timelines.
28:45 >> I don't even think it's just timeline. I also think it's cost and quality. I mean it's interesting because when we look at defense autonomous systems in particular like looks making a lot of boats. Covenant's making a lot of missiles. Castillian's making a lot of missiles, you know, Andre's making a lot of things. Like when you build many systems, you also require many subsystems below that. And you know, again, like there are really interesting military systems being built today. The the the correlary though, back to the comment we had earlier, is like, you know, by building towards defense, you also build for a different industry. We actually don't have a lot of humanoids or robotics that exist in the world today. I mean there are thousands maybe I don't know the exact number but when you think about the the subsystems that go into some of our military systems it's the exact same subsystems that are going to go into the future robotic systems it's the actuators like it's the motors it's the you know you know valves and switches and those type of things and I think when you can build those to quality and to cost then all of a sudden you make other markets that maybe weren't viable or real all of a sudden makes sense and again I think that's going to happen in the robotics world which is you know We're going to spend all this time on development of all those subcomponents. We're going to build for a lot of these military systems, which is good. We need it for security and safety and deterrence, but then all of a sudden you're going to have this, you know, kind of robotic wave that will come in America. I said it, you know, AI can't turn a wrench yet. They can. They will eventually.
30:07 and that will be enabled by all that, you know, actuators and switches and subsystems that we built. It's going to serve a different market and and it's going to make it, you know, financially viable and we're not going to have to rely on factories in China. And and again I think that is that is net good because you know as you build an industrial base an industrial base can be used for many things and you know down to the component level you know I I just think we don't have enough of it in America and it it's a it's a decision like you talk to a robotics company today that wants to build you know some robotic deployment there's a 99% chance that majority of what they are buying is coming from China and some >> they for many reasons not just geopolitical want to onshore that purchasing for quality, cost, speed of iteration yeah and geopolitical reasons. I think like one thing it you know it's really over the last three years even just it's remarkable how much of a supplier ecosystem has developed like >> one of the companies in our portfolio you three years ago would order two times the number of PCB boards PCBs that they needed because they assumed that they would have to throw 50% of the them away for quality issues. They would get the batch from their supplier. they would do the testing and 50% of them wouldn't pass a quality test. you know, then startups have emerged in this category and are like, we're going to fix this problem. We're going to use, you know, software and modern technology to, you know, redo the way PCBs are manufactured in the US. We're going to do it faster. We're going to do it cheaper. And guess what? We're going to do it better. and you know that now that same company buys you know PCBs from new suppliers and you know they're keeping 70 80 90% passing quality test. So it's I think like we underestimate how much the you know close collocation and co-development of some of this technology with the end customer and their suppliers really matters to to drive quality higher.
32:05 >> So something really interesting is happening. I I believe in the industrial base. like we talked about earlier, you get this top town demand signal from these new systems companies like we're building new military systems but oh by the way like you know Joby and Archer we're building new planes too like we're building new end systems that that is a fact like cars are are being built different planes are being built military systems are being built different when you build these new systems inherently the inputs of those systems need to change as well and when you look at the industrial base in America today like historically if you go look at how Boeing makes a 737 you know Boeing's a a company important to the fabric of America, but they just pick up the phone and they call Honeywell and Honeywell helps them kind of build all the different subcomponents and it's not Honeywell's fault. But what Honeywell does is they say, "I don't want to build a new landing gear again.
32:51 We have this landing gear that meets the spec and does the thing. So, let's just keep going and doing that same thing again and again and again." It's rational. Like, you know, they're going to build more 737s. They're going to get paid the same way if it's a for 50-y old landing gear or if it's a new landing gear. The problem though is when you keep iterating on these new requirements for end systems, at some point the 50-year-old subsystem just doesn't work.
33:14 And maybe it it it physically works in in terms of meets the requirements, but it's been designed and it's been developed in a way that inherently you know, we haven't innovated on it. And and and why does that matter? It's because you know, we've developed new materials. like yes physics hasn't changed but but the inputs to the physics and the inputs to that design has changed. So I think what's happening or what with the opportunity for a lot of these manufacturing companies is to do what I call co-engineering and you know we talked about you know the long tale of these like subtier you know suppliers they they they've been in receive mode for the last 40 years.
33:52 Honeywell's picked up the phone and they've said hey I need another landing gear. Go make that landing gear. and they've executed on the specs with that IP and building it. When you want a new requirement, that middle layer cannot, you know, think on behalf of Honeywell and change the requirement because again they're not in the position to do it. But I think what's going to happen in the future is you're going to have this middle layer of supply companies that you know will effectively be co-engineers with the N OEM of rethinking not just what the end system can do by way of speed or kind of you know weight or mass but the individual subcomponents will be rethought will be re-engineered and will be rebuilt and so you know the end system will change from a top level the the the the individual parts and components will and and I think that just hasn't happened in the last 40 or 50 years. So, you're going to see a completely new wave of what I believe like will be called like the manufacturing middle. that will be, you know, co-engineering and pushing design and development upward in the supply chain as opposed to just being in receive mode and saying, "Okay, I can build the same thing I built 40 years from now." And I just I I think that's an opportunity. I mean, I defined it, you know, previously as like we're creating the American manufacturing asset class right now. I mean, it, you know, private equity has been playing in this ecosystem for a long time and looking at an asset and buying it and improving the cost and, you know, selling it off. Again, that's not fundamentally changing the things that we build. Right now, companies will change the the the different things that we'll build.
35:26 >> A good example of this is kind of the on the on the grid. And when you think about sort of like the electronic stack, >> and we're about to go through a huge step change in how we manage and transfer power on the grid, moving from a system of sort of static and mechanical systems that were deployed in large scale across the US in like the 70s and 80s to now sort of modern power electronics, battery storage architectures which are much more software native and flexible and you know that is is just when you have a such a complete step change in technology where the technology that's replacing the previous thing is just completely different. you have this opportunity to rethink the entire supply chain behind that and the way all of that design and engineering work happens >> and and in the energy world is the same thing that's happening in the defense or the the commercial systems world which is you have this massive amount of demand for you know data centers and you know new factories and new build when you get this top down level you have the ability to innovate like Aaron's talking about and rethink the entire architecture and look like >> because it's a completely new architecture so you know you can't rely on these components that worked in the previous worldly to just reconfigure like you actually have the opportunity to rethink that from the ground up.
36:39 >> And another important point here is like you know you could be pessimistic and you can say okay Connor all these new military or end systems like not all of them are going to be adopted so like that that top down demand or or or or Aaron like we're not actually going to increase energy by four times like there's not going to be that much demand. I actually don't think it matters because I think once you start the snowball of the demand cycle moving in one way even if you deliver half of that you know requirement >> you're not going back >> you're not going back and it doesn't make financial sense and again it's it's like when you rethink something first principles and you make the like new design new engineering decision and a lot of times that comes with better cost better efficiency you're just going to buy that thing now going >> better serviceability easier to manufacture >> yeah yeah you're never going back >> I'm curious Curious kind of what you're seeing in terms of founders being second generation Anderole or second generation Palunteer or something like that and maybe they they see some of these learnings and they see the opportunity to be the middle layer supplier in some something that has never been touched since you know decades ago and and kind of like what what are you seeing in terms of you know those opportunities and those kinds of founders? Yeah, for sure. I mean, if you you get a great way to light a fire under an entrepreneur is for them to be banging their head against the wall on a sort of engineering or supply chain problem where they are and then they're, you know, they're like, "Well, okay, I really care about this. This is a a pain in my ass. I know it's I know it's bothering other people. I know it's a problem that I don't just have here at Ander or SpaceX or Tesla. It's a problem more broadly. I'm going to go solve that more generally." and the kind of lineage of founders that have sort of lived and breathed this on the manufacturing floor and not just founders but even engineering teams who are like I saw this problem I solved this you know within Andre or Seronic or whatever and I'm going to actually like go out and build this as a company and then I'm going to you know I know everyone in the ecosystem so I'm I I have you know automatic access to a customer base that's captive you know we certainly see that trend happening and you know this is how ecosystems get built like people make fun of YC see for all YC companies kind of selling to each other. But like that's how it works because you have, you know, it's it's your friends. They're tolerant. They're understanding. They're willing to like work with you and help you and and you know, put up with something breaking because they're working on their own really really hard problem. And if you know the thing you're doing is not the most existential thing to them, they're like very willing to outsource it to you. That's beautiful. That's how Silicon Valley was built. And what's really like what makes me really optimistic is the extent to which we're starting to see that in these kind of physical world ecosystems and supply chains.
39:21 >> Yeah. I I I think that the few companies you mentioned, you know, the SpaceX's, the Palunteers, look, they weren't overnight successes. Like those companies took a long time to get to both the product scale and just the the size and success of the company that they're at. >> Overnight successes that took 20 years. >> Exactly. I mean, and I think the the learning point and you know, we invest and a lot of the entrepreneurs on this list like come come from those ecosystems is you just learn this like relentless focus to do the one thing as well as you can, you know, down a path until you've succeeded. And like, you know, I've I've seen this with with the Castellian guys, for example. It's like they focused for two and a half, three years on the first hypersonic missile that was really hard to build. And, you know, other people showed up, oh, be multi-product, go build this small drone here. and they're like, "No, we need to do this one thing really well." And I think, you know, that comes from the fabric of SpaceX. Like at SpaceX, the concept of being a responsible engineer and like if this thing doesn't work, like it's my ass. I'm going to make sure I'm going to obsess over this thing and again and again. Like that's what it takes to build really hard things. And again, like, you know, there will be different, you know, derivations of of success. Not everyone will think just like the SpaceX mindset, but if you look at a lot of these businesses like that, you know, in the physical world, you kind of need to do that to build something really hard.
40:35 >> And but what what you do in doing that is you learn, you know, you learn that process knowledge. You learn how to do it. And so think two, thing three, think four >> are a lot easier. You've developed a supply chain. You have your relationships. You've developed manufacturing for design for manufacturer processes. You know, you've learned how to build a factory to a high quality, high spec. you've learned how to build that trust with customers and so if you can do that one thing really well >> that sets you up to do other things really well but it doesn't work unless you deliver on that on that one core thing >> so we talk a lot about competition China what does the United States do uniquely when it comes to our capital markets that that really enables these startups >> well I I I think this may arguably is one of I mean Brian Shimp was talking about it the founder of Android you know a couple days ago which is this concept that you know we of literally trillions of dollars of private capital in our capital markets that inherently follow you know success follow both technology success and and you know to some extent like production success as well and I think if you look at the United States number one like we do not have a top- down directed you know industrial policy that says the state will put this amount of money in in this and I think to some extent that's a good thing because the money will follow the entrepreneur the money will follow the success I think that the the distin distinction though we've kind of always had a good capital markets in the United States. I think the distinction is the capital markets all of a sudden have said you know what the category of ad is really interesting and and you know Aaron and I you know have been living and breathing this for a long time but if you go look you know not just up and down you know Silicon Valley and San Hill Road but if you go to you know the major banks I mean JP Morgan has has committed you know trillions of dollars towards you know both investing in the physical world not just defense but factories and and other things in the physical world and you see that again and again and again across not just our our venture capital firms but you know private private equity now is is is is starting to play in this category in a big >> big credit firms >> big credit firms and and and that's so important because you know the the the reality is many of these companies in in the AD world they require a lot of capital when you build physical systems when you build a Falcon 9 rocket or when you build a CCA and you build a Blackird missile those are expensive inherently to build up those lines and build that physical system. So I I think part of this is you know the capital markets you know speak with you know where the success happens and the reality is is it's the capital markets are not top down driven by our government unlike China's and and what that allows is that allows us to be far more flexible you know again to follow success like I said and then more importantly to fund things in advance of it being obvious and and we talked about that earlier the concept of building in advance of the requirement the need you know maybe we're a little bit late on the energy side maybe a little bit late on on some of the defense systems. But look, the capital markets have woken up and we're we're putting hundreds of billions of dollars if not trillions of dollars, you know, you know, towards this category for the next, you know, 10 plus years.
43:31 >> Yeah. I mean, if you look at just the first half of 2026, more more risk dollars went into the defense ecosystem than all of last year combined, which was many times what went into the defense ecosystem in all of the previous year combined. And I think historically there's, you know, in defense specifically, for example, there's been, you know, a narrative around the valley of death and like how do you get the government contract to like propel you through this period of needing to build out capex and and what's really exciting is that almost that that that's starting to disappear with the support of of capital markets and and and of risk and of risk capital. And that's certainly extending even beyond the defense ecosystem to energy and robotics and critical minerals and some of these other sectors that are really important which is super super exciting to see.
44:22 yeah, >> I had one question. And I'm not sure if it's too much of a tangent though. Just there's that very famous chart of like US power production versus like China new new power new energy production like America's line is like basically flat and China's is you know up and to the right like like I I guess some question around like like what would it take to close that gap or how how fast can we build new power? Yeah, I I don't think that is I don't think that that is a technology problem. I think that that's a we need to do some soularching about our will as an American people and do we want conforming projects to be built? Do we want to grow? and if we do, I think the the the technology and the capital will follow.
45:12 >> Yeah. And it it's funny because you know this is not just an energy problem. It's you know it's it's an everything problem. >> It's an everything problem. and and and look I you know we're we're optimists inherently I do think that snowball has started to roll. I think the question is you know back to our discussion on capital markets earlier will will there be emergent winners in these categories that then fuels more capital to flow into the ecosystem and you know it's this kind of self-fulfilling prophecy that happens like you know yeah if you build it you know that you know they will come but at some point there needs to be a pot at the end of the rainbow and if there is for a few companies I think you know one capital will fall like I mentioned but but I think the last thing I'll say just real briefly is anything in the physical world takes time. you know, we we, you know, to set up a factory, you know, at a scale where really you either affect our our power generation or you affect our military systems or or you name it. You can't take a couple of engineers, you know, throw them in front of a a couple servers and computer screens and come up with an answer. I mean, it's it's moving dirt. It is physically understanding a supply chain.
46:16 Like, these things take years. And so, you know, there's a little bit of patience that we need to have in the capital market side, but again, I I think I'm optimi optimistic. I think it's happening and you know to some extent like it's ours to lose like it's ours as a government and a nation to to mess up and to get in the way of this and that's a risk don't get me wrong but >> I do think it's I do think it's another long will be another long-term benefit of capital markets even if it's short-term painful just people need to feel I mean you mentioned that these are physical things they take time they're also physical things in that they have a physical manifestation to the people and communities that live around them and the most important thing is that you know American society at large feels like they're participating in the economic growth that's coming as a result of this development. Software you know was sort of like had this ability to be sort of siloed because it really existed in just a few cities. It was kind of this virtual thing. you sort of experienced it in the way that your your interaction with digital services got better a lot better over the last 20 years but it you know it it was a little bit more it was a little bit more abstract physical world like someone's building a data center a power plant a mine in your backyard and you need a you know you you have a say and you have a stake in that you phys you physically see it it affects your life and if you don't feel like you have participation in that economic upside it's hard I do think that this is one thing that the capital markets longterm will solve really well because companies will figure out how to bring communities along for the journey and make it financially and economically worth it for them.
47:48 >> And I think there are some good examples of that. A few companies on the AD50 list who like, you know, build real things in their communities and show up the right way. There are also bad examples that have existed in the last, you know, few years. I mean, if you look at what AMA does, like they show up to these these really small machine shops that exist. They partner with them, you know, they don't they don't you know, cut the management and fire people. They say, "How can we build new products?" and grow the kind of you know business that you have today. And it's that type of you know concept of working with communities as opposed to working against them that I think we still need to you know wrestle with a little bit in in the tech world and understand that just because we sit in Silicon Valley I mean we we we don't understand everything that's happening in the world and you know fundamentally I think a lot of these 80 companies will build stuff that that touches middle America. I mean it will physically exist in middle America and you know I I I think that's net good. I think that means more jobs, more prosperity. I think that means more energy and abundance world where you know we have a safer America and >> less concentration of wealth in these pockets in these elite pockets on the coast. It's a good thing.
48:52 >> Yeah. >> But it will take time. >> Yeah. Well, Erin Connor, thank you so much for joining. and everyone can check out the 8050 list today. >> Awesome. Thanks. >> Awesome. Thanks so much.