Venture Capital Pre-Funds US Defense Plants Ahead of Pentagon Contracts
Elena Burger, Erin Price-Wright, Connor Love
Private capital is underwriting defense manufacturing ahead of government procurement, using military buyers to absorb early factory tooling costs that drive down unit economics for commercial robotics and energy markets.
The AD50 framework evaluates America's industrial revitalization across three integrated layers: upstream inputs like critical minerals and energy, the manufacturing engine of machine shops and tooling, and end systems spanning defense and commercial hardware. (0:00)
Private capital has structurally flipped traditional defense procurement, funding CapEx and production upfront before government programs of record are locked in, with more risk capital entering the defense ecosystem in the first half of 2026 than all of 2025. (43:37)
Defense demand functions as an early financial catalyst, absorbing the steep CapEx required to manufacture the first 100 units so factories can reach the scale and unit economics needed to supply commercial robotics, EVs, and consumer electronics. (5:00)
Generative AI and frontier LLMs are changing the economics of high-mix, low-volume American factories by enabling shop-floor manufacturing engineers to reprogram PLC logic and reconfigure robotic cells in roughly 20 minutes instead of waiting three months for external system integrators. (14:48)
The divergence between flat U.S. power generation and China's surging energy deployment is viewed as a cultural, permitting, and regulatory hurdle of national will rather than an unproven technological deficit. (44:53)
Detailed notes
## Background
Published as an audio podcast on October 29, 2026, by Elena Burger, Erin Price-Wright, and Connor Love, this episode unpacks the AD50 list and the structural revitalization of America's industrial base. According to the show notes, the hosts discuss how the convergence of defense, energy, manufacturing, and robotics enables private capital and venture-backed founders to finance heavy physical infrastructure and manufacturing capacity ahead of guaranteed government demand.
## TL;DR
The discussion outlines how private venture capital is proactively financing high-CapEx industrial infrastructure, overturning legacy cost-plus procurement models by building production-ready defense and physical systems ahead of government need. Defense procurement acts as a vital early subsidizer, absorbing initial manufacturing costs so domestic machine shops, microelectronics fabs, and component lines can scale down unit economics for massive downstream commercial markets like robotics and energy. Led by alumni from SpaceX, Tesla, Palantir, and Anduril, a new cohort of founders is applying first-principles execution to foundational bottlenecks—from acquiring operating copper mines to enabling shop-floor technicians to retool high-mix lines in minutes with AI. Ultimately, closing the physical production gap is framed as a matter of national will and broad geographic distribution, creating high-value industrial assets that physically root economic opportunity across Middle America.
## Atmosphere & style
The conversation strikes a pragmatic, high-conviction, and distinctly hands-on tone, seamlessly balancing macroeconomic defense strategy with raw factory-floor reality. Drawing on Connor Love's military background and Erin Price-Wright's on-site investment visits, the dialogue feels immediate and tactile, punctuated by vivid anecdotes of steel-toed boots, shop-floor gym equipment, and remote global mining trips. The hosts project an urgent, missionary momentum, transforming what could be dry supply chain analysis into a compelling narrative of industrial awakening, patriotic ambition, and hard-won physical execution.
## Bulletin
- `00:00` The AD50 framework evaluates America's industrial revitalization across three integrated layers: upstream inputs like critical minerals and energy, the manufacturing engine of machine shops and tooling, and end systems spanning defense and commercial hardware.
- `43:37` Private capital has structurally flipped traditional defense procurement, funding CapEx and production upfront before government programs of record are locked in, with more risk capital entering the defense ecosystem in the first half of 2026 than all of 2025.
- `05:00` Defense demand functions as an early financial catalyst, absorbing the steep CapEx required to manufacture the first 100 units so factories can reach the scale and unit economics needed to supply commercial robotics, EVs, and consumer electronics.
- `14:48` Generative AI and frontier LLMs are changing the economics of high-mix, low-volume American factories by enabling shop-floor manufacturing engineers to reprogram PLC logic and reconfigure robotic cells in roughly 20 minutes instead of waiting three months for external system integrators.
- `44:53` The divergence between flat U.S. power generation and China's surging energy deployment is viewed as a cultural, permitting, and regulatory hurdle of national will rather than an unproven technological deficit.
## Key takeaways
- `00:00` You cannot have an autonomous defense industrial base without a robust, domestic physical industrial base backing it up.
- `10:00` Physical manufacturing fundamentally requires execution in the real world because software and AI models cannot physically turn a wrench.
- `05:00` Defense procurement enables hardware startups to survive the brutal 'zero to 100' unit economics curve by paying price premiums commercial markets cannot bear.
- `05:00` Shared manufacturing capacity means precision tooling, PCB fabs, and motor production lines benefit both defense munitions and everyday civilian products like hearing aids and robots.
- `08:35` SpaceX and Tesla scaled via vertical integration out of necessity due to a hollowed-out domestic base, but modern founders should leverage external suppliers where high-quality domestic capacity exists.
- `10:00` Transforming heavy industry often requires full ownership of the physical asset lifecycle—from acquiring and operating copper mines to refining finished commodities—rather than merely licensing software.
- `14:48` On-the-floor technicians are using frontier LLMs like Claude to retool manufacturing lines on the fly, transforming legacy high-mix production bottlenecks into flexible assembly lines.
- `17:51` Deep private capital markets allow startups to anticipate military needs and engineer production-ready hardware years before bureaucratic government requirements are formalized.
- `20:00` Industrial and defense hardware companies are no longer viewed merely as national service or impact projects; they represent some of the most valuable enterprise opportunities in global capital markets.
- `30:00` Approximately 99% of components used by contemporary commercial robotics startups originate in Chinese supply chains, necessitating defense-backed component onshoring to establish domestic sovereignty.
- `30:00` Modern software-native fabrication methods have dramatically raised domestic printed circuit board pass rates from historic 50% scrap rates up to 70% to 90% yields.
- `32:32` The 'manufacturing middle' is replacing legacy 'receive mode' machining by actively co-engineering lightweight, thermally optimized subsystems alongside novel aerospace and defense primes.
- `35:15` Surging power demand from AI compute and electrification demands a ground-up redesign of grid architecture, replacing legacy 1970s mechanical switches with software-controlled power electronics.
- `37:46` A second-generation cohort of founders emerging from SpaceX, Tesla, Anduril, and Palantir is productizing hard-won institutional process knowledge to build targeted middle-tier suppliers.
- `40:00` Breakout industrial builders avoid premature multi-product platform expansions, maintaining a relentless, singular focus on solving their most difficult engineering challenge first.
- `46:48` Unlike coastal software platforms, heavy industrial rebuilding physically distributes jobs, capital investment, and economic upside across Middle America.
## Detailed walkthrough
### `00:00` Rebuilding the American Industrial Base: The AD50 Framework
America is undergoing a profound reassessment of its domestic manufacturing capacity. Decades of outsourcing critical industrial capability overseas have left the nation vulnerable, an issue laid bare by recent global conflicts. As defense, energy, manufacturing, and robotics converge, the revitalization of physical production has shifted from a niche policy concern into a core national priority and massive economic opportunity.
```mermaid
flowchart LR
accTitle: AD50 End-to-End Industrial Stack
accDescr: The three lenses of the AD50 framework moving from inputs to factories to end systems.
subgraph Inputs["1. Upstream Inputs"]
I1["Critical Minerals & Materials"]
I2["Energy & Power Production"]
end
subgraph Factories["2. Manufacturing Engine"]
F1["Advanced Machine Shops"]
F2["AI-Enabled Production Lines"]
end
subgraph Systems["3. End Systems"]
S1["Defense: Missiles & Drones"]
S2["Commercial: EVs, AI & Robotics"]
end
Inputs --> Factories
Factories --> Systems
```
Analyzing the current landscape, the AD50 framework evaluates companies across the entirety of the industrial stack rather than treating sectors as isolated silos:
1. **Inputs:** Raw materials, critical minerals pulled from the earth, and energy capacity required to power heavy production.
2. **Factories:** The physical tooling, advanced machine shops, and manufacturing facilities transforming raw inputs into components.
3. **Systems:** The finished platforms—spanning defense systems like autonomous drones and missiles to commercial systems like consumer robotics, electric vehicles, and medical hardware.
The driving force behind this shift is not just capital, but human talent. While artificial intelligence is an extraordinary enabler, physical manufacturing fundamentally requires execution in the real world. Visiting advanced manufacturing hubs like Hadrian or Castelion reveals founders and shop-floor workers operating with an intensity rarely seen in pure software environments. Reflecting on this broader cultural and strategic awakening, Erin Price-Wright observes: “We've been saying for a while, you don't have a defense industrial base without an industrial base.” Connor Love reinforces this sentiment, emphasizing the rare alignment of forces occurring today: “So I think it's just this conglomeration of geopolitical factors, of capital markets, and then entrepreneurs just coming together.”
- Decades of industrial hollowing-out have created tangible supply-chain bottlenecks and operational risks on modern battlefields for U.S. and allied forces.
- Software and AI alone cannot replace industrial operations; physical execution remains irreplaceable because AI cannot turn a physical wrench.
- The majority of the top 10 most valuable companies globally remain hardware- and physical-infrastructure-dependent businesses.
- The widening disparity between U.S. power generation and China's rapid energy deployment is viewed primarily as a regulatory, capital, and execution hurdle rather than a technological deficit.
---
`05:00` Defense as the Catalyst: Subsidizing CapEx for the Broader Economy
Historically, foundational American technology breakthroughs—from nuclear energy and the space race to the creation of the internet—relied on government funding directed toward specific state requirements. Today, that dynamic has flipped: private industry and venture capital take the initial risk to develop platforms before long-term state procurement is guaranteed. While many hardware startups target defense buyers at the outset, the physical base they build naturally supports the entire domestic economy.
```mermaid
flowchart TD
accTitle: Dual-Use Industrial Flywheel
accDescr: Defense buyers absorb initial CapEx allowing factories to scale down unit costs for commercial markets.
A["Defense Buyer: First Customer"] -->|"Absorbs High Initial Unit Economics & CapEx"| B["Domestic Factory & Production Line Built"]
B -->|"Tooling, Process Knowledge & Volume"| C["Commercial Markets & Consumer Applications"]
C --> D["Autonomous Vehicles & Waymo"]
C --> E["Consumer Robotics & Actuators"]
C --> F["Medical Devices & Hearing Aids"]
C -->|"American Consumer Demands Scale & Low Cost"| B
```
While the investment industry frequently debates the viability of “dual-use” technologies, the underlying manufacturing capacity is undeniably shared. Developing an industrial base down the supply chain means an advanced circuit board fab or precision machining shop does not care whether a part is destined for a loitering munition or a family car. China's DJI exemplifies this technology and process transfer: originally a consumer drone manufacturer, it expanded into a massive public safety and defense supplier, and in the process became one of the world's most sophisticated producers of drone motors and robot actuators—the most challenging mechanical component in robotics.
Manufacturing the first 100 units of any novel hardware system involves punitive capital expenditures and high per-unit costs. Defense procurement acts as an indispensable early subsidizer, absorbing initial upfront capital expenditure so factories can purchase expensive machinery. Connor Love highlights the critical role defense buyers play in resetting early cost structures: “So, again, it's instead of building 100 things, you can say, OK, maybe build 100, but we're willing to pay a cost that the consumer or the commercial market wouldn't pay.” Erin Price-Wright emphasizes how this dynamic cascades down the supply chain into standard civilian products: “And if you have a defense buyer as the first buyer to help you kind of pay for, 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.”
- Defense contracts allow startups to overcome the brutal “zero to 100” unit cost curve, paying premiums that the commercial market cannot bear to finance early factory tooling.
- Once capital equipment is operational and capacity scales, factories lower marginal costs, unlocking commercial applications in consumer hardware, autonomous vehicles, and medical devices.
- The discernment of the American consumer serves as the ultimate market test, relentlessly forcing systems to become cheaper, more durable, and more capable than military procurement alone ever demands.
---
`08:35` Vertical Integration vs. Supplier Ecosystems: The SpaceX and Tesla Blueprint
When seeking playbooks for modern industrial scaling, founders look squarely at Elon Musk's operational strategies at SpaceX and Tesla. These two companies proved it was possible to scale complex, high-reliability hardware in the United States over the past twenty years, largely through aggressive vertical integration.
However, full vertical integration was often born of necessity rather than preference. When SpaceX and Tesla began, the domestic industrial base was decimated; there were no existing suppliers capable of meeting their demanding technical requirements, tight delivery schedules, or target cost curves. Startups building bespoke, exquisite systems like advanced missiles may still need to vertically integrate to maintain direct control over unit costs and tight component tolerances.
Conversely, when capable domestic machine shops, PCB fabs, and subsystem fabricators do exist, modern founders are encouraged to leverage high-quality external suppliers rather than reinventing the wheel in-house. Erin Price-Wright draws a clear boundary around when vertical integration is actually warranted: “Well, I mean, SpaceX and Tesla were doing first of their kind. Like there didn't exist an industrial base in the U.S. to support them. And so they had to build it themselves. I think where there are high quality suppliers, like you should use suppliers.” Where reliable supply chains are missing, founders are forced into the arduous task of vertical engineering from scratch.
- SpaceX and Tesla pioneered modern American hardware scale by vertically integrating out of pure necessity when no domestic suppliers existed.
- Highly unique, exquisite defense systems often necessitate internal manufacturing to enforce quality control, protect proprietary designs, and reduce unit costs.
- As a renewed domestic supplier ecosystem takes root across the United States, startups can selectively outsource standardized components and focus in-house capital on their core technological differentiators.
`10:00` Owning the Value Chain: First Principles from Mines to Machine Shops
When tackling deep industrial problems, founders cannot simply pick an end system and outsource the underlying mechanics without facing severe bottlenecks. In the legacy automotive and aerospace sectors, critical components—down to ball bearings and solenoid valves—often rely on designs and supply chains that have been collecting dust for decades. When Tesla and SpaceX started, they faced an electric vehicle landscape devoid of an existing battery supply chain, forcing them to engineer power electronics and drivetrains from scratch. Today, that imperative of full vertical integration is spreading into foundational commodities. Within the American Dynamism portfolio, Mariana Minerals illustrates this shift: rather than merely licensing exploration software, the company bought a copper mine to control the entire lifecycle, spanning asset acquisition, resource development, extraction, site operations, and on-site refining across multiple critical minerals, before ultimately selling finished commodity products directly to market.
```mermaid
flowchart TD
accTitle: Full Stack Physical Asset Integration
accDescr: Mariana Minerals end-to-end operational loop from acquisition to commodity output.
subgraph Operations ["Asset Lifecycle & Production"]
A["Acquire & Develop Asset"] --> B["Mine & Extract"]
B --> C["Refine Critical Minerals"]
C --> D["Sell Commodity into Market"]
end
subgraph SoftwareLoop ["First-Principles Optimization"]
D -.->|"Telemetry & Operational Data"| E["AI & Software Feedback Layer"]
E -.->|"Audit & Continuous Optimization"| A
E -.->|"Audit & Continuous Optimization"| B
E -.->|"Audit & Continuous Optimization"| C
end
```
Applying artificial intelligence to the physical world demands a very different playbook than deploying it into legal tech or customer support. In purely digital domains, software utility is readily apparent and effortlessly transferable, but transforming heavy industry requires physical ownership. As Erin Price-Wright notes, companies often have to own the asset itself to execute true transformation and prove out their thesis. Connor Love points out that Mariana Minerals is not merely trying to extract copper slightly better; they are rethinking the planning, extraction, and refining loop from first principles.
This mirrors what Chris Power has executed at Hadrian in precision manufacturing. A factory or a mining operation does not transform because of a singular software breakthrough; success requires executing on fifteen or twenty distinct operational details. Upstream quoting, CAM programming, physical machining, inspection protocols, and material routing must all be audited individually. Connor Love underscores this reality, cautioning against premature hype:
> “The reality is AI cannot turn a wrench yet.”
True industrial innovation comes from founders who deeply understand that progress is not about waving a shiny AI silver bullet, but about systematically deconstructing and rebuilding every operational node that has stagnated for the past century.
`14:48` High-Mix Manufacturing and the Rise of the AI-Empowered Technician
A structural weakness of American industry has long been the economics of production mix. Heavy automation has historically made financial sense only in low-mix, high-volume production, where massive capital expenditures on bespoke, rigid assembly lines are amortized across millions of identical units. In contrast, the United States predominantly handles high-mix, low-volume manufacturing—producing specialized batches that require frequent retooling. Retooling an assembly line historically required hiring third-party systems integrators, paying hundreds of thousands of dollars, and waiting up to three months for reprogramming.
```mermaid
flowchart LR
accTitle: Shop Floor Retooling Comparison
accDescr: Contrasting legacy system integrator delays with technician-led LLM retooling.
subgraph Legacy ["Legacy Integration"]
direction TB
L1["New Part Order"] --> L2["Hire Outside Systems Integrator"]
L2 --> L3["Wait 3 Months & Spend $100k+"]
L3 --> L4["Line Reconfigured"]
end
subgraph Modern ["AI-Empowered Shop Floor"]
direction TB
M1["New Part Order"] --> M2["Shop Floor Technician Uses Claude"]
M2 --> M3["20 Minutes of Logic & Code Prompts"]
M3 --> M4["Line Retooled on the Fly"]
end
```
Generative AI is upending that dynamic directly on the factory floor. Instead of needing dedicated software engineering teams or outside consultants, frontline technicians are leveraging their domain intuition alongside large language models like Claude to modify PLC logic and reconfigure robotic cells within minutes. As Erin Price-Wright observes:
> “You can retool a line instead of having to call a 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.”
This agility completely transforms the development cycle for systems companies such as Anduril, Saronic, and Castelion. When companies design with manufacturing viability in mind from day one, rapid prototype iteration feeds directly into high-rate production lines. Rather than designing a high-tech missile or drone in a vacuum and subsequently struggling to assemble a bespoke supply chain, these builders establish flexible manufacturing lines from the outset. This allows new entrants to graduate from lab demonstrations to operating massive production footprints, including sprawling manufacturing hubs and dedicated shipyards built to turn out thousands, tens of thousands, or even hundreds of thousands of systems.
- **Legacy retooling profile**: 3 months of downtime, hundreds of thousands of dollars paid to specialized system integrators for custom line reconfiguration.
- **AI-augmented retooling profile**: On-the-floor manufacturing engineers prompting frontier models like Claude to adjust setups in roughly 20 minutes.
- **Systems scaling**: The AD50 systems cohort is shifting from theoretical CAD designs to operating production facilities scaled for volume defense hardware delivery.
`17:51` Financing "Elon-Sized Problems" with Private Capital Ahead of Government Need
The historical defense procurement model is fundamentally broken because the end user (the warfighter in the field) is separated from the customer (the military services) and the appropriator (the congressional committees that allocate the budget). In the legacy prime contractor model, defense giants had little incentive to innovate on their own dime. Primes routinely waited for the Department of Defense to write rigid technical requirements and fund explicit cost-plus contracts before starting development work. The inevitable outcome was a protracted, ten-to-fifteen-year development cycle delivering systems that were obsolete on the day they were fielded.
```mermaid
flowchart TD
accTitle: Venture Capital Shift in Defense Procurement
accDescr: Legacy prime procurement vs venture-funded proactive production.
subgraph LegacyModel ["Legacy Prime Model"]
direction TB
A1["DoD Drafts Requirements"] --> A2["Government Grants Cost-Plus Contract"]
A2 --> A3["10-Year Development by Primes"]
A3 --> A4["System Fielded (Tech Outdated by a Decade)"]
end
subgraph NeoprimeModel ["American Dynamism / Venture Model"]
direction TB
B1["DoD Signals Strategic Battlefield Need"] --> B2["Venture & Private Capital Fully Fund R&D Upfront"]
B2 --> B3["Neoprimes Build Production-Ready Systems Fast"]
B3 --> B4["Warfighter Receives Modern, Scaled Capabilities Today"]
end
```
The emergence of American Dynamism venture funding and deep private capital markets has created a mechanism to bypass this bureaucratic inertia. Founders are now approaching defense problems the way Elon Musk approached space and automotive: by anticipating structural demand and using private equity to build the asset before a formal contract is awarded. Connor Love, drawing on his background serving in the military, explains how this capital deployment fundamentally restructures the battlefield:
> “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 the beautiful thing is, you know, venture capital and what we do in American Dynamism, but also, you know, the rest of the capital markets is saying, we will actually fund that in advance.”
By recognizing operational signals and designing, iterating, and manufacturing production hardware ahead of procurement programs, modern startups eliminate years of administrative lag. Warfighters receive systems engineered with contemporary software, compute, and hardware architectures, built to the actual requirements of current geopolitical conflicts rather than outdated peacetime mandates.
`20:00` Private Capital, Missionary Founders, and the Value of the Physical World
The dynamics of defense procurement have fundamentally inverted. Historically, defense innovation waited for government requirements and cost-plus contracts, but newer companies are taking on extreme engineering challenges entirely on private venture capital before Uncle Sam ever cuts a check. Castelion, for example, took the risk of designing and building a reliable hypersonic missile over several years before the government stepped in to award contracts and buy missiles. As neoprimes demonstrate that building ahead of need yields far superior products, they are beginning to capture serious market share.
```mermaid
flowchart TD
accTitle: Defense Demand Unlocking Commercial Markets
accDescr: Venture-backed defense primes develop subsystems that drive scale and make broader commercial robotics viable.
subgraph DEF["Venture-Backed Defense Scale"]
A["Private Capital & Missionary Founders"] --> B["Build Defense Systems Ahead of Need<br/>(Castelion, Saronic, Anduril)"]
B --> C["High-Volume Subsystem Demand<br/>(Actuators, Motors, Valves, Switches)"]
end
subgraph COM["Commercial Spillovers"]
C --> D["Compressed Timelines & Lower Unit Costs"]
D --> E["Economically Viable Commercial Markets<br/>(Humanoid Robotics, Energy Grid, Heavy Industry)"]
end
```
This phenomenon is not limited to defense; the United States is also at the very beginning of rewriting its entire energy grid. Connor Love points out that these are brutally difficult companies to build, involving harsh physical realities far removed from software desks. He cites Turner, the CEO of Mariana Minerals, who spends weeks and months away from his family flying to remote corners of the world with no cell signal or electricity, literally "touching dirt." Dealing with traditional industrial suppliers and negotiating across vastly different cultures is exhausting. Founders are only willing to endure that friction because the problems feel enormous and critical.
The ultimate shift in American dynamism is that these companies are no longer just viewed as patriotic or socially important—they have become immense economic opportunities. While mining, defense, and energy have always been massive sectors, they previously failed to attract top-tier tech talent because the financial upside was capped by legacy business models. With companies like Palantir, Anduril, and SpaceX proving that hardware and defense can generate generational enterprise value, the calculus has changed completely. Connor Love notes this pivot sharply:
> “Now they can be the most valuable companies. And that's like a big distinction 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 most valuable companies in the world.”
- Legacy industrial giants like Rio Tinto and Boeing have existed for decades, but modern founders are attacking the same spaces with first-principles technology and audacious scopes.
- The top 10 most valuable companies globally are now predominantly hardware and physical-product firms, bringing Silicon Valley full circle from pure software back to atoms.
- While the capital markets operate on financial return rather than charity, the companies featured on the AD50 list combine capitalistic returns with projects foundational to the nation's fabric.
---
`25:00` Inside the Factories: American Flags, Gyms, and Compressing the Supply Chain
Visiting these hardware and industrial facilities is a completely different experience from traditional software venture capital, often requiring personal protective gear. Erin Price-Wright notes that she now owns steel-toed boots simply because of how often portfolio companies mandate them on site. These facilities are often situated in remote, hard-to-reach locations where heavy earthmoving and hazardous manufacturing take place. Connor recalls an old piece of advice from his military days:
> “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.”
Despite the rough conditions, factory floors are marked by high energy, cultural pride, and a running competition over who can hang the largest American flag. Hadrian and Varda Space Industries boast massive flags, and founders often install gyms directly beside production lines. Connor jokes that during an early visit to Hadrian's founder Chris Power in El Segundo, Power made him do a bench press rep on the shop floor.
The most revealing metric for these startups is the velocity of their factory build-outs across repeated visits within a 12-month period:
- **Month 0:** An echoing, empty warehouse featuring fresh epoxy floors, an oversized American flag, a single pallet, a founder eagerly showing off their first forklift, and a basketball hoop or bench press station tucked into the corner.
- **Month 3 to 6:** The floor descends into productive chaos, packed with technicians and operators assembling hardware, machines running at capacity, and founders urgently lobbying the local municipality to route more megawatts of electrical power into the building.
Time-lapse footage of these warehouse transformations has evolved into its own recognized genre of startup filmmaking. More importantly, this rapid industrialization creates a compounding supply chain effect. Autonomous defense platforms—such as Saronic's maritime vessels, Castelion's hypersonics, and Anduril's defense systems—demand high-reliability subsystems at scale, including actuators, motors, valves, and switches. By manufacturing these fundamental inputs at scale to compress cost and delivery timelines for defense, startups simultaneously unlock the economics needed for non-defense hardware, such as commercial humanoids and robotics, where global unit volumes still remain tiny today.
`30:00` The Robotics Wave, Chinese Supply Chains, and American PCB Innovation
The onshoring of component manufacturing that is currently funded by military requirements will ultimately cross over into the commercial robotics sector. While current artificial intelligence models cannot yet physically manipulate physical hardware, that capability is inevitably coming, and when it arrives, it will depend entirely on the domestic ecosystem of actuators, switches, and subsystems built during the defense push. Today, an American robotics company attempting to deploy hardware faces an uncomfortable reality: there is roughly a 99% chance that the vast majority of its bill of materials originates in China. Moving those supply lines to domestic soil is driven as much by product quality, iteration cycles, and unit economics as it is by national security concerns.
This transformation is already visible in domestic electronics fabrication. Three years ago, a hardware company in the venture portfolio routinely had to order double the volume of printed circuit boards (PCBs) it actually required, writing off 50% of every shipment because the boards could not pass quality testing. A cohort of modern manufacturing startups tackled this defect rate directly by applying software and updated production techniques to American PCB fabrication. Today, that same customer retains 70% to 90% of boards passing quality inspection, demonstrating the compounding returns of co-locating suppliers alongside system designers. As Erin Price-Wright observed: “So it’s, I think like we underestimate how much the close co-location and co-development of some of this technology with the end customer and their suppliers really matters to drive quality higher.”
```mermaid
flowchart TD
accTitle: Defense Component Investments Fueling Commercial Robotics
accDescr: Top-down military demand finances domestic subcomponents, driving quality improvements and enabling commercial robotics to bypass foreign supply chains.
subgraph DefenseDemand["Top-Down Demand"]
A["Military Systems & Security Needs"] --> B["Domestic Subcomponent Onshoring<br/>(Actuators, Switches, PCBs)"]
end
subgraph SupplierAdvancement["Manufacturing Middle"]
B --> C["Software-Native Quality Upgrades<br/>(e.g., PCB pass rates from 50% to 90%)"]
C --> D["Fast Iteration & Co-Location"]
end
subgraph CommercialExpansion["Downstream Beneficiaries"]
D --> E["Autonomous Robotics Wave"]
D --> F["Elimination of Chinese Supply Dependency"]
end
```
- A venture-backed hardware startup previously ordered 2x the required volume of printed circuit boards due to an expected 50% scrap rate from supplier quality failures.
- Modern software-enabled domestic board manufacturers raised passing yields to between 70% and 90%.
- Approximately 99% of components used by contemporary commercial robotics startups originate in Chinese manufacturing facilities.
---
`32:32` Beyond "Receive Mode": The Rise of Co-Engineering and the Manufacturing Middle
A structural shift is underway across American industrial manufacturing, driven by novel prime manufacturers in aviation, automotive, and defense, including electric aircraft developers like Joby Aviation and Archer Aviation. Historically, legacy primes operated on stagnant procurement patterns. If Boeing built a 737, it called a tier-one supplier like Honeywell, which in turn relied on landing gear designs that had met specifications for fifty years. Because suppliers received identical compensation whether delivering a half-century-old design or a cutting-edge unit, there was no financial incentive to change anything. However, as end systems change their requirements for mass, software integration, and structural materials, legacy subsystems reach their absolute limits.
```mermaid
flowchart LR
accTitle: Evolution of Aerospace Supply Chain
accDescr: Comparison of legacy passive subcontracting versus modern collaborative co-engineering between OEMs and suppliers.
subgraph ModernModel["Co-Engineering Ecosystem"]
M_OEM["New Prime (Joby, Archer, New Defense)"] <-->|"Continuous Feedback Loop"| M_Middle["Modern Manufacturing Middle"]
M_Middle -->|"New Materials & Weight Optimization"| M_Out["Higher-Performance Subsystems"]
end
```
To bridge this gap, lower-tier suppliers can no longer exist in passive "receive mode"—simply machining parts to pre-existing prints without questioning the underlying design. Instead, an emerging tier termed the "manufacturing middle" is partnering with OEMs to co-engineer components from the ground up, rethinking weight, thermal dynamics, and structural geometry. Connor Love argued that this evolution represents a completely new asset class, explaining: “When you look at the industrial base in America today, historically, if you go look at how Boeing makes a 737, Boeing's a great 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.” He further framed the stakes of this transition: “I mean, I defined it, you know, previously as like, we're creating the American manufacturing asset class right now.”
- Legacy machine shops and sub-tier suppliers spent roughly 40 years operating purely in "receive mode," executing unchanged third-party intellectual property.
- Private equity's historical role in manufacturing concentrated on acquiring industrial assets and engineering margins rather than redesigning the physical systems being produced.
- Advanced aviation primes like Joby and Archer are forcing component-level changes across the supply chain because legacy subsystems cannot meet modern weight, mass, and power profiles.
---
`35:15` Modern Power Electronics, Grid Modernization, and Irreversible Demand Snowballs
The American electrical grid is entering an identical technological transition as it shifts from static, mechanical infrastructure originally installed during the 1970s and 1980s toward dynamic, software-native power electronics and battery storage. Soaring energy demand from artificial intelligence data centers, electrification, and domestic manufacturing facilities is forcing a ground-up redesign of grid architecture. Because the operational requirements of power distribution have fundamentally decoupled from legacy assumptions, the equipment cannot simply be patched or adapted; it requires an entirely new domestic supply chain of transformers, switchgear, and solid-state power systems.
Even if macroeconomic growth cools or top-down procurement falls short of the most aggressive forecasts, the transition cannot be unwound. When an engineering team rethinks a subsystem from first principles, the resulting hardware delivers superior manufacturability, lower unit costs, better thermal performance, and easier serviceability. As Connor Love put it: “And another important point here is, like, you know, you can be pessimistic and you can say, okay, Connor, all these new military-earn systems, like, not all of them are going to be adopted.” He added: “I 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.”
- The core architectural components of the U.S. power grid still rely heavily on mechanical topologies deployed in the 1970s and 1980s.
- Modern power architectures substitute mechanical gear with software-controlled power electronics and distributed battery storage systems.
- First-principles engineering in energy and defense hardware creates irreversible unit-economic advantages that survive broader market downturns.
---
`37:46` Second-Generation Founders: Taking the Playbooks of SpaceX, Tesla, and Anduril to the Supply Chain
A distinct cohort of second-generation founders is emerging directly from the engineering ranks of pioneer deep-tech firms like SpaceX, Tesla, Palantir, and Anduril Industries. After spending years hitting administrative and logistical bottlenecks inside fast-scaling programs, these operators are leaving to launch dedicated venture-backed suppliers to address those specific failure points. Having experienced component delays inside companies like Anduril or maritime autonomous systems builder Saronic, these founders identify widespread hardware gaps and establish outside businesses to solve them for the entire industrial market.
This dynamic replicates the classic founder networks that originally built Silicon Valley and early Y Combinator cohorts. An entrepreneur building a targeted middle-layer component can sell immediately into a warm network of former colleagues who run production lines at peer firms. These initial buyers are willing to accommodate early product rough edges because the component relieves a critical bottleneck, freeing the primary company to focus on its core mission. Erin Price-Wright captured the dynamic that pushes these builders into the market: “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.” Connor Love noted that while these institutional successes seem sudden to outside observers, they represent decades of accumulated development, prompting Erin Price-Wright to emphasize the reality of their emergence: “Overnight successes that took 20 years.”
- Alumni from SpaceX, Tesla, Anduril, Palantir, and Saronic are commercializing the specialized tooling and component capabilities developed during their tenures at those firms.
- Peer networks among deep-tech builders provide early-stage suppliers with immediate, captive design partners who will test imperfect prototypes.
- The collaborative commercial behavior of modern defense and physical hardware companies mirrors the startup ecosystems that scaled early Silicon Valley software platforms.
`40:00` The SpaceX Mindset: Relentless Focus and Process Knowledge
The discussion centers on the operational philosophy required to build hard technology companies in the physical world. Rather than attempting to become multi-product platforms right out of the gate or getting distracted by side projects, breakout industrial founders demonstrate a single-minded obsession with solving their hardest technical hurdle first. A prime example cited is Castelion, where the team spent two and a half to three years intensely focused strictly on designing and producing their first hypersonic missile (the Blackbird). While other entrants in the space spread themselves thin trying to build smaller drones and multiple product lines simultaneously, Castelion refused to pivot away from their core objective until they proved it out.
This discipline directly mirrors the foundational culture forged at SpaceX. In physical hardware, accountability is absolute: if a system fails on the test stand or launchpad, there is nowhere to hide. As Connor Love observes: “Like, that's what it takes to build really hard things. And again, like, you know, there will be different, you know, derivations 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.” Surviving that initial gauntlet generates deep institutional process knowledge that cannot be acquired any other way. Once a company designs for manufacturability, locks down resilient supply chain relationships, learns how to stand up a high-spec factory, and earns deep customer trust on a single, brutally difficult product, executing subsequent programs becomes far easier.
```mermaid
flowchart LR
accTitle: The Single-Product Hardware Scaling Engine
accDescr: Flow showing how mastering a single hard physical product creates the foundational capabilities needed to scale multi-product industrial companies.
subgraph Core ["Phase 1: Deep Obsession"]
A["Relentless Single-Product Focus"] --> B["Survive Test & Launch Failures"]
end
subgraph Foundation ["Phase 2: Process Knowledge"]
B --> C["Design for Manufacturability"]
C --> D["Supply Chain & High-Spec Facilities"]
end
subgraph Scale ["Phase 3: Expansion"]
D --> E["Earn Customer Trust"]
E --> F["Multi-Product Industrial Scale"]
end
```
`41:14` Private Capital vs. State Direction: The American Dynamism Advantage
When evaluating how the United States competes with state-led adversaries like China, the conversation highlights the structural advantage of American capital markets. Drawing on insights recently shared by Anduril co-founder Brian Schimpf, the panel explains that America holds trillions of dollars in private capital that naturally allocate toward demonstrated technical and production milestones. Unlike China’s top-down industrial policy—where state planners decree exactly how much capital must flow into specified sectors regardless of underlying dynamics—the American model lets capital follow the entrepreneur and reward authentic execution.
What has transformed recently is that broader capital markets have formally recognized American Dynamism as an institutional asset class. This shift extends well beyond traditional Silicon Valley and Sand Hill Road venture firms:
- Wall Street balance sheets are deploying massive resources, exemplified by JPMorgan committing trillions of dollars toward financing physical infrastructure, manufacturing facilities, and real-world industrial projects.
- Private equity firms and major credit funds are aggressively entering the ecosystem to supply non-dilutive and late-stage capital.
- Heavy physical systems—such as Falcon 9 orbital rockets, Collaborative Combat Aircraft (CCA), and Castelion's Blackbird hypersonic missiles—require unprecedented CapEx to stand up assembly lines, making debt and large-scale credit indispensable.
- Because these capital allocators operate free from bureaucratic state mandates, they can move flexibly and fund critical capabilities years before a formal government requirement or procurement program is officially locked in.
`43:37` Erasing the Valley of Death Across Defense, Energy, and Robotics
The sheer velocity of risk capital flowing into hardware and national security ecosystems has completely rewired the timeline for defense startups. Historically, the primary hazard for any defense contractor was the notorious "valley of death"—the treacherous multi-year gap between completing a prototype and securing a formal government program of record, during which capital-intensive startups would run out of cash trying to scale manufacturing facilities. Erin Price-Wright highlights how rapidly this dynamic has shifted: “Yeah, I mean, if you look at just the first half of 2026, 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.”
With deep private capital now willing to underwrite factories, tooling, and procurement upfront, founders no longer have to wait on the glacial pace of the Pentagon to survive. Furthermore, this dynamic is not confined to defense tech; it has expanded across the entire physical tech stack:
- Advanced nuclear and grid-scale energy systems
- Industrial and humanoid robotics
- Domestic critical mineral extraction and refining
- Large-scale precision manufacturing
`44:53` Closing the Energy Gap: A Question of National Will, Not Technology
Elena Burger brings up the stark divergence illustrated by the famous global power production chart: while the line representing America's net power generation has remained essentially flat for decades, China’s power generation line climbs aggressively up and to the right. When asked what it will realistically take to reverse this trend and build massive power additions at speed, Connor Love reframes the problem away from engineering limits: “Yeah, I don't think that that is a technology problem, I think that that's a we need to do some soul searching about our will as an American people.”
The real bottleneck is not missing blueprints or unproven physics; it is whether the nation possesses the cultural appetite to permit and build conforming industrial projects and pursue aggressive economic growth. Connor notes that this is fundamentally an "everything problem" that touches all physical infrastructure. Deploying power plants, transmission corridors, and heavy industrial facilities requires physically moving dirt, securing environmental clearances, and coordinating real-world supply chains over multi-year horizons. Unlike software—where a handful of engineers behind monitors can ship code instantly—the physical world demands capital market patience and a unified national consensus to let builders actually build.
`46:48` Physical Reality and Bringing Middle America Along for the Economic Upside
A critical structural difference between the software era and the industrial rebuilding era is geographic and economic distribution. Software products were largely virtual, abstract, and siloed in a few elite coastal metropolitan centers; everyday Americans experienced the tech boom primarily as improvements in their smartphone apps, without directly sharing in the equity or physical development. In contrast, heavy industrial assets—data centers, gigawatts of power generation, mines, and advanced manufacturing plants—must physically exist across Middle America.
For these projects to succeed politically and socially, host communities must actively share in the economic upside rather than viewing tech as an extractive outsider. Connor Love points to industrial consolidation platforms and manufacturing networks as a positive model: companies partner directly with multigenerational, family-owned machine shops instead of gutting management or firing local workforces, actively feeding them cutting-edge defense and aerospace contracts to expand their existing businesses.
Reflecting on the broader cultural impact, Connor emphasizes that the tech ecosystem must shed coastal hubris: “And, you know, fundamentally, I think a lot of these AD companies will build stuff that touches middle America. I mean, it will physically exist in middle America. And, you know, I think that's net good. I think that means more jobs, more energy and abundance world where we have a safer America. Less concentration of wealth in these pockets, in these elite pockets on the coast.” Elena Burger concludes the conversation by urging listeners to explore the newly released AD50 index tracking the top 50 companies leading this industrial revitalization across America.
## Notable quotes
> `00:00` We've been saying for a while, you don't have a defense industrial base without an industrial base. — Erin Price-Wright
> `10:00` The reality is AI cannot turn a wrench yet. — Connor Love
## Mentioned
AD50, Elena Burger, Erin Price-Wright, Connor Love, SpaceX, Tesla, Anduril, Palantir, Castelion, Hadrian, Mariana Minerals, Saronic, DJI, Varda Space Industries, Chris Power, Turner, Joby Aviation, Archer Aviation, Boeing, Honeywell, Rio Tinto, JPMorgan, Brian Schimpf, Department of Defense, Claude, Blackbird, Falcon 9, Collaborative Combat Aircraft (CCA)
## Video description
America’s defense, energy, manufacturing, and robotics booms are increasingly becoming one story: the rebuilding of the country’s industrial base. This year’s AD50 highlights the companies building across that stack, from critical materials and factories to the systems they ultimately power.
a16z’s Erin Price-Wright and Connor Love join Elena Burger to unpack what has changed. They discuss how defense demand can help finance manufacturing capacity that ultimately serves much larger commercial markets, why AI is changing the economics of American factories, and how a new generation of founders is applying lessons from SpaceX, Tesla, Anduril, and Palantir to mining, energy, manufacturing, and defense.
They also make the case that these companies are no longer simply important to America. With private capital increasingly willing to fund physical infrastructure and production before government demand is guaranteed, they can become some of the most valuable companies in the world.
Investors Erin Price-Wright and Connor Love argue that revitalizing the American industrial base requires rebuilding the entire physical stack, from energy and critical minerals to factories and end systems. Under the AD50 framework, venture-backed startups are deploying private risk capital to absorb upfront manufacturing costs ahead of government contracts, creating shared capacity for defense and commercial markets.
Defense Contracts Subsidizing Commercial Manufacturing CapEx (5:00)
Manufacturing novel hardware involves punishing upfront capital expenditures and steep per-unit costs across the initial production run. While foundational American technological breakthroughs historically relied on direct state grants, private venture capital now assumes early platform risk, with defense procurement serving as an indispensable early buyer. Price-Wright and Love explain that military customers willingly pay per-unit premiums that commercial markets cannot bear, effectively subsidizing the expensive tooling and precision machinery required to establish domestic production lines.
Once capital equipment is operational and output expands, factories lower their marginal costs, unlocking commercial applications across consumer robotics, autonomous vehicles, and medical devices. The hosts cite China's DJI—which leveraged consumer drone manufacturing to become a dominant public safety supplier and a leading producer of robot actuators—as evidence that defense and civilian manufacturing bases are fundamentally shared.
AI-Empowered Shop Floors and High-Mix Tooling (14:48)
Domestic manufacturing has long struggled with high-mix, low-volume production, where retooling assembly lines historically required hiring third-party systems integrators for hundreds of thousands of dollars and enduring three months of downtime. Price-Wright highlights that generative AI is transforming this dynamic on the shop floor: manufacturing engineers and technicians are now using frontier models like Claude to modify PLC logic and reconfigure robotic cells in approximately 20 minutes.
This agility accelerates scaling for systems builders such as Hadrian, Anduril, and Castelion. However, Love stresses that software cannot replace physical execution, observing that "AI cannot turn a wrench yet." Transforming heavy industry requires restructuring operations from first principles—exemplified by Mariana Minerals acquiring and operating a physical copper mine directly rather than merely licensing exploration software.
Inverting Procurement by Funding Risk Ahead (17:51)
The legacy prime contractor model relies on rigid cost-plus awards that separate field warfighters from congressional appropriators, routinely creating 10-to-15-year development cycles that deliver outdated systems. In contrast, venture-backed defense startups are inverting procurement by financing and manufacturing production-ready systems ahead of formal government programs of record. Castelion, for example, invested private capital over several years to develop its Blackbird hypersonic missile before securing military purchase contracts.
This proactive deployment of capital helps eliminate the historical defense "valley of death"—the multi-year funding gap between building prototypes and winning formal contracts. Price-Wright notes that more risk capital entered the defense ecosystem in the first half of 2026 than in all of 2025 combined. Broader institutional allocators, including Wall Street balance sheets, private equity firms, and credit funds, are now financing physical factories, power gear, and assembly lines as an institutional asset class.
Co-Engineering and the Modern Manufacturing Middle (32:32)
A second generation of founders departing SpaceX, Tesla, Palantir, and Anduril is launching venture-backed suppliers to address hardware bottlenecks encountered during earlier production scaling. Moving beyond legacy machine shops that operated for decades in passive "receive mode"—fabricating unchanged components from static prints—this emerging "manufacturing middle" actively co-engineers subsystems alongside electric aviation and defense primes to optimize weight, structural geometry, and software integration.
Co-locating advanced suppliers with system designers is already yielding measurable quality improvements. In domestic printed circuit board (PCB) fabrication, software-enabled manufacturers have raised passing inspection yields from a historical 50% scrap baseline to between 70% and 90%. The hosts note that domesticating subsystem manufacturing is critical for commercial robotics, where approximately 99% of contemporary prototype bills of materials still originate in China.
The program concludes that industrial revitalization combines generational enterprise returns with widespread economic upside across Middle America. However, systemic challenges persist: reversing America's decades-long flatline in power generation compared to China's rapid expansion is framed not as a technological bottleneck, but as an unresolved question of national regulatory appetite and cultural will to construct heavy physical infrastructure.
[0:00] Erin Price-Wright: We've been saying for a while, you don't have a defense industrial base without an industrial base.
[10:00] Connor Love: The reality is AI cannot turn a wrench yet.
Original transcript
[0:00] You don't have a defense industrial base without an industrial base. It's been a real wake up 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. You're out in the world. It sounds kind of sexy and romantic, but when you're actually doing it, it's rough. up at Mariana, when you show up at Hadrian, when you show up at Castellina, 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 U.S. 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... For decades, America moved much of its industrial capacity overseas. Now a new generation of In this episode, A16Z's Elena Berger sits down with Aaron Price-Wright and Connor Love to unpack this year's AD50, our list of companies shaping American dynamism. They look at the industrial base from end to end, the critical materials and energy that go in, the factories that turn those inputs into products, and the defense, robotics, and other systems that come out on the other side. Aaron and Connor explain why those pieces are increasingly connected. of components that can later go into robots, cars, medical devices, and other commercial products. And AI is giving workers new ways to reconfigure production lines and rethink processes that have barely changed in decades. They also get into the rise of founders coming out of companies like SpaceX, Anderil, and Palantir, the flood of private capital into physical industries, and why rebuilding America's industrial base is increasingly becoming both a national priority and a major economic opportunity. Connor and Erin, 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. 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 with conflicts going on in the world and realizing that 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 American soldiers and our allies. And I think it's been a real wake up call in the United States that we need to get building again. 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 falling 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. So I think it's just this conglomeration of geopolitical factors, of capital markets, and then entrepreneurs just coming together. And 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 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 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. So that's how we set up 8050 this year to think through those three lenses. Each one of those uniquely important to the end product or the end system. But in the end, I don't think people think that way. And a lot of the companies that are addressing things in our portfolio have thought from an inputs perspective, from a factory'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 defense, like building missiles and drones, but it's actually a tailwind America. So there's energy, there's robotics, there's AI. 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 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 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 are going to do this for the purpose of the government. And then valuable for you name it, the internet being created, energy being perforated across the world. What's different now to some extent
[5:00] is now private industry as well as private capital is saying, we're actually going to be the impetus that develop something. And so to your point, 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 an industrial base, either down the supply chain or end systems itself, those inherently have many use cases. I mean, the term dual use is talked about a lot in investing. And to some extent, 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 new factory being built, any energy production, anything we touch and 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 toy that they have in some way, shape or form. So I do think the tip of the spear is focused on the government. But I think in the long run, to your point, like what's happening is these systems will be used in the Waymo that we took today or anything else. Especially DJI in China. Yeah. Which has gone through multiple arcs of its lifetime and its journey. 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 a real high scale drone production business for defense. 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 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 this technology transfer and process knowledge transfer between military use cases and non-military use cases is really important and has be a subsidizer for figuring out this process knowledge and figuring out the new technology. And then I think 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. We're seeing that on the electronic side. We're seeing that across the entire sort of industrial stack. complex 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, 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 then to some extent, like we'll get into this a bit later, I bet. But you know, we talked about vertically integrating or using the supply chain base that you have. The beautiful thing about what's happening right now is we have a federal government and an department of ore is saying, number one, we're going to try to actively rebuild some of this And by doing that, they're actually changing that unit economic decision from the start for these companies. So, again, it's instead of building 100 things, you can say, OK, maybe build 100, but we're willing to pay a cost that the consumer or the commercial market wouldn't pay. And all of a sudden, then that means more machines you can put in your factory, more capex that the government is helping you pay at the start. And then that leads to things that are physically, you know, both like financially viable, but also at a scale that actually can touch the consumer. So I just it's important to identify that. And that is definitely happening. Like if you're building a new PCB fab in the United States, like that's a pretty expensive operation. Those are pretty expensive pieces of machinery. And if you have a defense buyer as the first buyer to help you kind of pay for, 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 kind of pass on some of that CapEx to the defense industrial base, I think, will be really powerful as we rebuild kind of industrial capacity in the United States. you seeing startups do to drive down costs and move faster? Yeah. I mean, 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 his team have built those businesses, it's been one, very vertically integrated. And look, I take 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 unique. You kind of have to because you have to control the exquisiteness. You have to control the cost. Well, I mean, SpaceX and Tesla were doing first of their kind. Like there didn't exist an industrial base in the U.S. to support them. And so they had to build it themselves. I think where there are high quality suppliers, like you should use suppliers. Yeah. Yeah. I mean, again, I think the learning, though, is number one, if you don't have an industrial base that you can rely on quickly, reliably, et cetera, then you have to do it yourself. And inherently, that is a hard journey. Like that's really hard to do. This
[10:00] concept of saying, okay, I'm going to focus on the end system. I'm going to focus on building the most cost-effective, 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. That's a lot to do. And in the case of Tesla and SpaceX, I would argue the auto industry was a little bit different because there wasn't a battery supply chain. You want to know how to recreate that. Well, the whole power electronics, the whole drivetrain, they had to really build completely you know, had been collecting dust for 40 years. In terms of companies that we talk about in the AB portfolio, there's Mariana Minerals, which bought a copper mine and is kind of reinventing things. And would they be a good example to talk about here? 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 acquiring the asset, developing the asset, mining the asset, operating the asset, and refining the material themselves across multiple different minerals. And then they sell a final commodity product in the market and have really leaned in. That's another trend I'd point to is to AI and software as a huge, huge component of their build. Yeah, I mean, 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 any other category where you see AI taking off in a crazy way today. But to Aaron'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 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. What Mariana is doing with this copper mine 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 rethinking everything. The entire end-to-end process of how you plan, operate, mine, and refine materials. that data and then it feeds back. And this is an important point. I mean, this is not just Mariana, but if you look at another business like Hadrian, I mean, this is a perfect example of how, one, you can utilize software, you know, 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 Hadrian, you know, yes, it's kind of upfront what it takes to physical, you know, making of the part. It's how you, you know, inspect it and transfer it. And, you know, there's all these different interim 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 perspective and say, hey, was this process that's been done the last hundred years the right process? And that's right now. It's not just mines. It's not just factories. I mean, again, it exists in many different permutations. 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. The reality is AI cannot turn a wrench yet. It will at some point, but we're far off that, you know, again, we can maybe have a discussion about the, you know, robotic models and autonomy that we see in the physical world. We're getting closer. I just think that the nuance here and the companies, many that are on this list or many, many non-portfolio companies on this list, that they understand that the physical world is not about just putting the silver bullet forward, like I said, that some, you know, shiny AI product. It's deep understanding of what a process looks like, you know, physically how to like, you know, manipulate the process or how to, you know, change something that's happening in the world. It's just going to look different. 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. 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 U S we do a lot of
[15:00] low mix, high volume manufacturing, which is very hard to automate because it's very expensive when you have to change the line all the time. But what we're seeing across our portfolio is that manufacturing technicians themselves, have the intuition and now have the software tools to be able 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. So they can, you know, you can retool a line instead of having to call a 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 game changer across lots of companies that we've seen in this space. And why that's important is, you know, when you look back at how we've articulated AD50 this year, you know, it's kind of three categories. focus on at least you know i have and many people in the in the sector are focused on is just the systems companies and look there's a lot of really interesting systems companies i mean andrel serrana castilian 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 uh iterate on that uh on the design and iterate on that prototype you don't not only not get them 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 a 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 from the outset. Exactly, exactly. And that is, again, I keep going back to warnings from, you know, Tesla and SpaceX. In a lot of ways, they had to make those choices 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 Andrel's built in, you know, in But, you know, Saronica is built with a shipper. I mean, these are massive, huge facilities that are at some point, you know, in a very soon time line, going to be producing thousands, tens of thousands, hopefully hundreds of thousands of systems. We haven't done that in America in a long time. Yeah, this is no longer an on-paper theoretical exercise. This is happening in the real world and real stuff is coming off the lines. an Elon-sized problem. And 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 sectors to just build the thing that you think the government needs. Because unfortunately, and again, I experienced this in my past when I served user and the bot 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. And so what happens is, you know, companies, you know, back then we didn't really have neoprimes or 80 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 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. 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 the beautiful thing is, you know, venture capital and what we do in American Dynamism, but also, you know, 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 the outcome of that is the soldier gets a better product, gets something that actually fundamentally changes the battlefield and, you And then more importantly, you get a timeframe of a type of system that is actually built, you know, aligned with the requirement of the market and what technology can do today. So it's just, it's a fundamentally different way of like, instead of sitting and waiting for the government to tell you what they want, the government signals and you see it and you build in advance by using private capital.
[20:00] And that just has not happened in the history of defense. So you can build, you know, like Castilian building a hypersonic missile that does, you know, 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 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. defense, you're just going to get better products. And fundamentally, you'll have the neoprimes 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, Aaron would know better than I would, but we are on the one-yard line. We are just starting that process. I think another part of it is there's 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, he's like, I don't know. Okay. 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. It sounds kind of sexy and romantic, but when you're actually doing it, it's rough. The travel is really hard. The people you're engaging with, you're not talking to, you're calling up your suppliers. These are not like other startups who operate in the same kind of timescale and culture as you. These are really tough people to negotiate with And if you're going to be putting yourself through that, it better be damn worth it. And so I think people... And people really gravitate towards these problems that feel huge and enormous because these are real missionary founders that we see building in this space. Even as it's kind of heated up and there's more capital and it's gotten cool, it's still brutal. 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. energy. I mean, when we talk about building, you know, manufacturing widgets that go into everything, 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 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 has changed in these industries. I mean, mining has always been a big, big industry. Defense has always been energy. But 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 companies like Palantir, Andrel, SpaceX have proved that you can build a really big business. are operating in these categories. And if you look at the top 10 most valuable companies in the world right now, the majority of them are hardware companies. They're building a physical product. We've kind of come full circle. And so you get the most ambitious founders of our generation who want to run towards that hard problem and know it's going to be worth it. And the beautiful thing about many of these industries like mining, Rio Tinto has been around for a long time. I mean, Boeing's been around for good companies that are building first of all, like a first principles technology approach about what the audacious thing that needs to be built is. And then two, you get entrepreneurs like these folks that are on this 80-50 list. Who are like, yeah, I'm going to rebuild the American energy grid. That sounds fun. And you just, that didn't exist 50 years ago. That didn't exist five years ago. I mean, it is something that is fundamentally, you know, America's best and brightest are building towards this category for the first time. And then importantly, like Erin said, like the opportunity examples of these companies that have redefined space launch, that have redefined, you know, kind of military systems, you know, all these categories of American dynamism that we care about. And yeah, I think it's exciting. I mean, you know, 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 exist to, you know, make money. Like we're not a charity. This is a capitalist society. But in the end, a lot of the companies on this 80-50 list are doing something valuable, but also going to be really inherently important to the fabric of America.
[25:00] And that's pretty exciting. What's it like to visit one of these sites, like a manufacturing site or a mining site or, you know, drone manufacturers, those kinds of sites? I mean, Connor and I have the best job of all time. I do own steel-toed boots now because the number of site visits I've been to with portfolio companies where they're like, yeah, you got to show up in steel-toed boots. Yeah. I mean, it's not all sexy, to be honest. 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 real physical things that require, you know, earth moving. 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. do. I mean, these things are huge. And it's impressive. You know, 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, Hadrian's was pretty big last time I saw. I think Valor's is pretty big. Valor's big too. Okay, good. Yeah, yeah, yeah. And like, again, I mean, That's awesome. The fact that you have that type of one passion for something greater than just the product or the economic opportunity that you're building, I mean, again, it drives purpose behind a lot of these teams. 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 build-out happens. And so, you know, that's one thing we do is like, 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 a manufacturing expert. I spend enough time on the Palantir and now doing this job. You know, I like sort of know what some of the machines are and kind of like how Align 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 is really excited to show you their forklift that they did. And they're kind of like, you know, they have the basketball hoop set up or like the gym set up in the corner to like, you know, 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 city out 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 really fun and something I think we're lucky to get to see that journey and how quickly that can happen. Yeah. Has anyone ever done like a time lapse? Oh, there's a lot. It's a whole category of filmmaking. Nice. 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. Yeah, they all have their bench press set up. Which is cool. 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. I don't even think it's just timeline. I also think it's cost. And quality. And quality. I mean, it's interesting because when we look at defense autonomous systems in particular, like, look, Cerronex making a lot of boats, Covenant's making a lot of missiles, Castilian's making a lot of missiles, you know, Andruil'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 corollary, 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. systems. It's the actuators. It's the motors. It's the 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
[30:00] 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 shoring 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. Then all of a sudden you're going to have this, you know, kind of robotic wave that will come in America. I said, you know, AI can't turn a wrench yet. They can. They will eventually. 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 it's going to make it financially viable. And we're not going to have to rely on factories in China. And again, I think that is net good because as you build an industrial base, an industrial base can be used for many things. And down to the component level, I just think we don't have enough of it in America. And it's a decision. You talk to a robotics company today that wants to build some robotic deployment, there's a 99% chance that majority of what they are buying is coming from China. And so they, for many reasons, not just geopolitical, want to onshore that purchasing for quality costs speed of iteration yeah and geopolitical reasons I think like one thing it really over the last three years even just it remarkable how much of a supplier ecosystem has developed like one of the companies in our portfolio um it 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 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. Then startups have emerged in this category and are like, we're going to fix this problem. We're going to use software and modern technology to 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 now that same company buys PCBs from new suppliers and they're keeping 70, 80, 90% passing quality tests. So it's, I think like we underestimate how much the close co-location and co-development of some of this technology with the end customer and their suppliers really matters to drive quality higher. So something really interesting is happening, I believe in the industrial base. Like we talked about earlier you get this top down demand signal from these new systems companies Like we building new military systems but oh by the way Joby and Archer we building new planes too We're building new end systems. That is a fact. Cars 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. When you look at the industrial base in America today, historically, if you go look at how Boeing makes a 737, Boeing's a great 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. 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, it's rational. They're going to build more 737s. They're going to get paid the same way for a 50-year-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. And maybe it physically works in terms of meets the requirements but it been designed and it been developed in a way that inherently you know we haven innovated on it And why does that matter It because you know we developed new materials Like yes physics hasn changed but the inputs to the physics and the inputs to that design has changed So I think what 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 tail of these like sub-tier, you know, suppliers. They've been in receive mode for the last 40 years. Honeywell's picked up the phone. They've said, hey, I need another landing gear. go make that landing gear. And they've executed it on the specs with that IP and building it. When you want a new requirement, that middle layer cannot 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 will effectively be co-engineers with the end 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 reengineered, and will be rebuilt. And so, you know, the end system will change from a top level, the individual parts and components will change. And I think that just hasn't happened in the last 40 or 50 years. So you're going to see a
[35:00] completely new wave of what I believe will be called the manufacturing middle that will be co-engineering and pushing design and development upward in the supply chain as opposed to to just being in receive mode and saying, okay, I can build the same thing I've built 40 years from now. And I just, 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, 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 different things that we'll build. 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 U.S. 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, 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 in the energy world, it's the same thing that's happening in the defense or the commercial systems world, which is you have this massive amount of demand for data centers and new factories and new build. When you get this top-down level, you have the ability to innovate like Aaron's Because it's a completely new architecture. Exactly. So, you know, you can't rely on these components that worked in the previous world to just reconfigure. Like, you actually have the opportunity to rethink that from the ground up. And another important point here is, like, you know, you can be pessimistic and you can say, okay, Connor, all these new military-earn systems, like, not all of them are going to be adopted. So, like, that top-down demand or, Aaron, like, we're not actually going to increase energy by four times. Like, there's not going to be that much demand. 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 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 costs, better efficiency. You're just going to buy that thing now going better serviceability, easier to manufacture. Yeah. Yeah. Yeah, you're never going back. I'm curious kind of what you're seeing now. in terms of founders being second generation Anderle or second generation Palantir or something like that. And maybe they see some of these learnings and they see the opportunity to be the middle layer supplier in something that has never been touched since, you know, decades ago. And kind of like 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, OK, I really care about this. This is 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 Andrel or SpaceX or Tesla is a problem more broadly. I'm going to go solve that more generally. engineering teams who are like, I saw this problem. I saw this, you know, within Andrel or Sironic 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 that everyone in the ecosystem. So 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 for all YC companies kind It's your friends. They're tolerant. They're understanding. They're willing to work with you and help you and put up with something breaking because they're working on their own really, really hard problem. And if the thing you're doing is not the most existential thing to them, they're very willing to outsource it to you. That's beautiful. That's how Silicon Valley was built. And 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. Um, Well, they weren't overnight successes. Those companies took a long time to get to both the product scale and just the size and success of the company that they're at. Overnight successes that took 20 years. Exactly. And I think the learning point, and we invest in a lot of the entrepreneurs on this list, like come from those ecosystems, is you're
[40:00] 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 seen this with with the Castilian 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, I'll 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. doesn't work, like, it's my ass, I'm going to make sure, like, I'm going to obsess over this thing 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 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. And but what you do in doing that is you learn, you know, you learn that process knowledge, easier. You've developed a supply chain, you have your relationships, you've developed manufacturing for design for manufacture 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. 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 really enables these startups? Well, I think this may arguably is one of, I mean, Brian Schimpf was talking about it, the founder of Anderle, you know, a couple of days ago, which is this concept that, you know, we have literally trillions of dollars of private capital in our capital markets that inherently follow, you know, success, follow both technology success and, you know, to some extent, like production success as well. 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 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 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. time. But if you go look, you know, not just up and down, you know, Silicon Valley and Sand Hill Road, but if you go to, you know, the major banks, I mean, J.P. Morgan has committed, you know, trillions of dollars towards, you know, both investing in the physical world, not just defense, but factories and other things in the physical world. And you see that again and again and again across not just our venture capital firms, but, you know, private equity now is starting to play in this category in a big way. Big credit firms. Big credit firms. And that's so important because, companies 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 Blackbird missile, those are expensive inherently to build up those lines and build that physical system. So 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 what that allows is that allows us to be far more flexible, again, to follow success, like I said, and then more importantly, to fund things in advance of it being obvious. 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 some of the defense systems. But look, the capital markets have woken up and we're putting hundreds of billions of dollars, not trillions of dollars, you know, towards this category for the next, you know, 10 plus years. 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 you get the government contract to like propel you through this period of needing to build out CapEx. And what's really exciting is that's starting to disappear with the support of capital markets 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. Yeah. I had one question. I'm not sure if it's too much of a tangent, though. Just there's that very famous chart of like U.S. power production versus like China, 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 I guess some question...
[45:00] around like what would it take to close that gap or how fast can we build new power? Yeah, 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 soul searching 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 technology and the capital will follow. Yeah. And it's funny because, you know, this is not just an energy problem. It's, you know, it's an everything problem. It's an everything problem. And look, I, you know, 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 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, 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 flow, like I mentioned. real briefly is, But anything in the physical world takes time. You know, to set up a factory, you know, at a scale where really you either affect our power generation or you affect our military systems or you name it, you can't take a couple of engineers, you know, throw them in front of a couple servers and computer screens and come up with an answer. I mean, it's moving dirt. It is physically understanding a supply chain. 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. 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 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 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 those people and communities that live around them. 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 interaction with digital services got better, a lot better over the last 20 years. But, you know, 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 to, But you have a say and you have a stake in that. You physically see it. It affects your life. And if you don't feel like you have participation in an economic upside, it's hard. I do think that this is one thing that the capital markets long term 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. Emka does, like they show up to these really small machine shops that exist. They partner with them. You know, they don't 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 the tech world and understand that just because we sit in Silicon Valley, I mean, 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 touches middle America. I mean, it will physically exist in middle America. And, you know, I think that's net good. I think that means more jobs, more I think that means more energy and abundance world where we have a safer America. Less concentration of wealth in these pockets, in these elite pockets on the coast. It's a good thing. Yeah. but it will take time. Yeah. Well, Aaron, Connor, thank you so much for joining. And everyone can check out the 8050 list today. Awesome. Thanks. Thanks so much. dot sub stack dot com. Thanks again for listening and I'll see you in the next episode. As a reminder, the content here is for informational purposes only should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. Please note that
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