SpaceX, Palantir, Anduril & Onodrim | The Return of Conglomerates

Molly O'Shea 0:00 This year has really been the year of SpaceX.

Christian Garrett 0:02 It's a company we've invested in for 16 years. It's our largest position, and they grew top line, like, 160%. They posted $4.4 billion in net income, $8.8 billion of EBITDA. A $2 trillion company that is dominant provider in multiple critical industries. It's clearly a very exciting company. Just a handful of companies drive all the returns. That's obviously how we built the firm to capitalize on that.

Molly O'Shea 0:21 Cognition is recently at 48 billion, and Anduril at 90 billion.

Christian Garrett 0:25 How does, like, return of the conglomerate sort of thesis right now? The defense primes of China, 68% of their revenue comes from the commercial sector. Palantir and SpaceX are the only examples of this, but I think we need to return to the, like, dual-use conglomerates. General Mills made cereal and weapon systems.

Molly O'Shea 0:38 [upbeat music] Christian Garrett,

Molly O'Shea 0:50 welcome back to Sourcery.

Christian Garrett 0:51 It's good to be here.

Molly O'Shea 0:52 I know we're in this lovely spot in a secret location, as always.

Christian Garrett 0:56 [laughs]

Molly O'Shea 0:56 But it's great to have you here. We have so much to talk about. I know I've talked about you, or talked with you a bunch over the last year or so, whether it's at Hill & Valley or on the podcast, and we've talked about SpaceX and Anduril and vertical integration and all these things, but this year has really been the year of SpaceX, and so I'd love to hear from you how that's evolving and how the business model is forming now that it's a public company.

Christian Garrett 1:23 Yeah, so I mean, it's a company we've obviously been invested in for 16 years, um, and it's our largest position, and was a great win, not just for us, but for many folks from Sequoia, VY, uh, Founders Fund, Valor, go down the list. Um, so a lot of people are very happy in the ecosystem. Uh, the business is honestly just getting started. Um, they obviously just had their Q3 earnings, uh, and as you saw, huge acceleration in the business, and they grew top line, like, 160%. They, you know, posted $4.4 billion in net income, $8.8 billion of EBITDA. Um, it's pretty wild given the just growth of the business. The core business, yes, it's still growing. You look at Starlink, and that's moving way faster, particularly on the D2C side. And then obviously on the compute side and the AI side, whether it's from Cursor or Grok, Grok bots, right? They're showing the ability to productize and monetize their AI products. And then if you go down the compute stack, they've been able to build infrastructure and use it for the-- that capacity for themselves or obviously sell it. I think the thing that's been most interesting has been what's underappreciated is, one, the company is clearly going the route of a hyperscaler. They're building out more software and services around that compute stack, new infrastructure. Uh, they're committed to this business. This is not just a one-off thing. Uh, and they are the best in the world at building this capacity and building it the fastest. I think that gives one, like, more durability and visibility into this business. The second piece I think that's most interesting is the fact that they reiterated continually on earnings calls they're getting sub 12-month payback periods, right? Which is obviously a signal for demand. It's hard to forecast again long term, right? Whether you look-- I mean, this is what the markets are struggling with, right? If you look to, you know, four or five years out. But right now, there clearly is not enough supply to match demand. And I think the other piece that's fascinating is if you're going to invest anywhere within this space, you probably want to own the vertically integrated players, which they are, right? From the ability to monetize at the app layer, the model layer, all the way down to monetize compute. Uh, that gives you some bit of a risk-adjusted, uh, sort of, uh, uh, investment because whether you have a shift towards open source, right, and that changes, right, the economics on inference and compute, or you continue to see the closed source models, you know, win out, they kind of benefit either way. Which I think the hyperscalers, if you've seen a Google Cloud or gone AWS, they've seen huge growth across that regardless of sort of the shift in volume mix of models. And then the other piece I think is you also have the ability to shift capacity towards your own products if demand slows down in the outer years. This demand's not going away, so it's not a deterioration of the core business. It just changes maybe the growth forecast and the CapEx risk, but I think there's nominal risk if you can use capacity for yourself. And then also if you build these things fast, you can pull back on these things really fast, right? And so your CapEx investments are on shorter duration cycles, which means you're gonna get a payback period on the sort of outlay, and then if the markets shift, you can shift quickly. I think they're clearly, like, running leaps and bounds around the neo cloud market and stepping into being a true hyperscaler. Um, so I think that was particularly exciting. And then obviously you continue to see more investment in scaling out Starship, which is kind of the core, right, business around launch. Starlink is not just compounding, but moving faster into D2C. So you see a business that, that's pretty impressive. I think Elon's probably forecast maybe were very aggressive, um, but you know, I think, uh, he's always been right, uh, depending on what timeline you pick, um, or de- on what timeline plays out. But I think, you know, if you look at this business now, consensus EBITDA just based off of Q3, it's a business that's trading anywhere from 20 to 30 times 2027 EBITDA. For a $2 trillion company that is dominant provider in multiple, uh, critical industries, it's, it's clearly a very exciting company.

Molly O'Shea 4:50 I have so many

Molly O'Shea 4:51 different paths I'm, like, going through in my mind right here. I think number one is, you know, the story about SpaceX from... or SpaceX SI, you know, from the beginning was launch space, getting to Mars, getting to the Moon, like, a, a increasing launch capacity, that kind of thing, to what you're mentioning is this dramatic shift to almost becoming a hyperscaler, uh, if not they already are, even in their earnings or their S1 and that kind of thing. The story was they're an AI company. And so I think in their earnings it was reported over 50% of their revenue is attributed to AI in some capacity. So, like, what do you make of that? And I guess, like, secondary to that question is what would their market comps be now, and, like, what will they be?

Christian Garrett 5:32 It's sort of an ode to the great companies of the past that I've sort of become more and more obsessed with. But, you know, you look back at these large conglomerate type businesses, right, that were in the '80s. You always had the benefits, there's negatives to those businesses, which I don't think are attributable to the next generation ones like SpaceX, um, which we can dive into, but one of the benefits of the businesses is you had multiple business lines that had exposure to different industries that at times, you know, would provide diversification, right? If an industry cyclically was growing much faster, right, than another one, then you, you know, at the top co level, you know, continue to have compounding. And I think here you're just seeing one business line that has ex- So exponential demand, it's growing extremely fast from a small base, um, compared to other parts of the business, whether on the connectivity side or the launch side that are in the beginning of another S-curve in our view. Um, but those just play out over different time horizons. And so yes, right now the AI business is exploding and moving very fast, and they're carving out a huge part of that market for themselves. But if you look at launch and Starlink in particular, I think once again, underappreciated is that Starship is working, right? They actually legitimately got it launched and had payloads delivered to space that are delivering compute, right, on the V3 satellites for Starlink. You're having the next generation of the constellation built out, which people really don't understand the, the scale. I mean, that launch on just a handful of Starlink V3s delivered like 1% of the world's, right, internet capacity means it's insane, right? And they're gonna deploy tens of thousands of these. Um, and then obviously the DDC side. I think over time you'll see this revenue mix adjust, right, and shift around as these other businesses grow. Um, and so, you know, what-- with Starship as a platform, it's, it's unclear how just the core launch business, you know, grows. I mean, I think it could be much, much larger than it is today and a much larger percentage of revenue. Um, Starlink similar, right? With DDC, with obviously V3s and there's various other products they're continuing to build. I think people generally don't appreciate that these are all just moments in time, and this is a business that is taking a multi-decade or century view. And I think the revenue mix will sort of shift and adjust as it does for all businesses, right? I mean, every business that's in the early days, which is hard to s- to fathom for a 20-year-old business that's in the early days. You'll see this kind of revenue split suggest, right? Just based on demand across their different industries, particularly when you have a company with sort of exposure to multiple industries that are in their own different kind of growth curves.

Molly O'Shea 7:51 Well, it's interesting because

Molly O'Shea 7:52 everybody's in the early days now. It's like everyone's trying to grab on to inference revenue or compute revenue or all this kind of stuff and like build out their business models and we're seeing this, and I don't know if this has led to like delays in IPOs or whatever, but trying to figure out, okay, we have a lot of this growth. How do we then backfill in this valuation if we just have one line of revenue? Meanwhile, SpaceX incredibly durable company has like 10 or whatever or how many have they-- that they have and like different ways to pull on different strings in case one thing falls or one thing they need to like lean into for more momentum. We were just at Starcloud in Seattle and so, uh, Philip, the CEO there, we were walking through... We saw Starcloud One on the screen, we saw Starcloud Two being developed, and we saw the early iterations of Starcloud Three, which will go on Starship. And so we were talking about what actually breaks the ability to switch over to compute in space, in orbit. And it's really the economics of Starship and what that leads to then of like unlocking an entire market of what is really constrained on Earth and terrestrial compute. And so whether what they're doing with, uh, you know, like TerraFab, Colossus, all these other projects they're doing. I'm curious how you're thinking about that capacity and like the hyperscaler side of things and when we'll start seeing the compute in space.

Christian Garrett 9:17 They've delivered their timeline publicly, uh, that they're trying to, to launch some of the first orbital compute satellites, um, you know, within the back half of next year, I believe it is. They seem to be on track to delivering that. Uh, I think this is once again project that is going to be successful. Um, you can never accurately forecast timelines, right, or capacity or all these things. But they, they have a history of, uh, underwriting complex engineering projects at SpaceX, and when they have conviction on something, they deliver it. Um, and so I think this will be no different. And you've seen this. I mean, Google just obviously tested a version just recently deployed in orbit. Uh, obviously you have companies like Starcloud being built out. Um, this is clearly gonna be a category and a sort of business that, that's going to be quite successful. And you see all the constraints on Earth around these things, particularly with power and everything else. And the clear solve is data centers in, in orbit. It's another example of benefiting SpaceX vertical integration, but exactly as you said, which is a drive down in costs for infrastructure allows people to build things on top. And for launch, we saw that even with Falcon 9, right, go down to the sort of exponential increase in the number of launches and how much capacity was delivered to space because of SpaceX driving costs down. We had companies that we've been invested in for a long time, like Varda, right, which, uh, you know, our friend Delian started along with Will Bruey and, uh, they have built a successful business on top of the ability to have a lower cost of launch, um, which allows them, right, to deliver, uh, uh, valuable capabilities and services to the pharmaceutical industry and to the, uh, uh, defense industry. Um, and I think Starship will not just drive launch costs down order of magnitude, which probably then will lead to an equal rise in the number of companies that can be built. And, um, it's very hard to forecast these things because a lot of the business models that we're talking about today within SpaceX were not even thoughts just, you know, one, two, three, four, five years ago. And so I think that's the power of vertical integration and also the importance of what they're doing, which is driving costs down around critical infrastructure. And yes, that's in AI like we're seeing, but it's also, uh, clearly within what they've been doing for decades, which is around launch and once again, early days as Starship continues to build out. The iteration of Starship that we see today is a fully functioning launch platform compared to everyone else, right? I think the goal for them is to get to fully-- full reusability, which is gonna have that real impact on cost, uh, and launch cadence. But if you compare to every other launch vehicle today, they're completely viable, right? They can launch, they can deliver payload. Uh, just because the entire thing isn't fully reusable doesn't really necessarily sort of hit the benchmark compared to the rest of the industry 'cause everyone else is not. And so I think, you know, same thing, just like this is probably underpriced that like the next phase is just getting this thing to being fully reusable and then continuing to open up launch capacity for the market. That takes time. Also, we're on the early iterations of Starship vehicles, right? They're going to continue to iterate, make them larger, make them more performant. I mean, this is once again not the-- what we see today of the Starship kind of version is, is, is definitely not what it will look like, you know, five, 10 years from now in capabilities, in size, uh, and everything else. So yeah, we're-- we remain very excited. Um, we've been excited for almost two decades. Uh, we're not the only ones. I mean, Sean Maguire is so excited he put a model out on Twitter, which was awesome, and I love Sean.

Molly O'Shea 12:19 I-- It was the best financial model I've ever seen.

Christian Garrett 12:21 So great. I love Sean.

Molly O'Shea 12:22 [laughs]

Christian Garrett 12:22 Um, so I mean, but that shows the like level of excitement people have that have been close to this company. And I think now in the public markets, more people can understand and start to learn this business more and, um- I just, yeah, it's... If, if you ask me today, it's, it's, it's still the company we are most excited about and I think the most important company in the world.

Molly O'Shea 12:39 Incredible

Molly O'Shea 12:40 story, and just demonstration of [laughs] like how to navigate markets when it's completely changing. It's completely changed. Um, on the hyperscaler standpoint in this neo cloud environment, this is something I wanna dig into 'cause I know you, you monitor all of this stuff and, like, you take w- like an economist view, but, like, you also, like, understand the financings behind it. Like, Elon had recently put out a tweet on the constraints of financing in this market, and the debt, and the access to it, and we saw this with, like... I know CoreWeave have s- some issues there, different ones, but, like, how are you seeing this market play out in terms of, like, financings and, and debt?

Christian Garrett 13:22 You've seen in the public markets, uh, and in the debt markets, uh, a lot of volatility more recently. Everything is everything. Um, you know, like there's just so many that are conflated with this 'cause you also have a lot of macro volatility, you have an election cycle, so, you know, all these... You have a gen- generic de-grossing in Oc- in, in October that's pretty consistent. And so some of that also plays a role. Um, but I will say that there was clearly, uh, sort of questioning, um, on people's ability to either, one, uh, underwrite where revenue's coming from, uh, to support the sort of spend commitments, or for companies' abilities to grow based on their access to capital, right, to match those commitments. It's ironic that... And this just goes to show you, like, market structure matters, and sometimes these things just don't make any sense. But in some sense, those are the beneficiaries of the spend also dropped, but then those that are the spenders dropped too, and so it's a little unclear, um, how both companies could, could, could drop. But one thing to, to definitely pay attention to is in order to really build out this capacity, um, once again, like speed and payback period is everything, and then cost of capital is a huge part of it because a lot of this is funded by the debt markets because it's the most efficient form of capital to go do it. And I think the similar thing you're just seeing is people's, uh... people are questioning the ability, um, for folks to build out that capacity, and I, I think it's a valid question. I think you've seen folks maybe get, uh, an unfair treatment. I think you've seen a lot of noise around people's access to capital. Um, but at the same time, Elon's 100% right that, you know, y- there are certain companies that have a huge advantage, right, and a lower cost of capital, and they're also gonna suck up a lot of that demand at, you know, better rates. And so, you know, it, it's, it's another reinforcement on why I think they're extremely well-positioned in this category. I think there's a lot of dynamics going on in the market that are driving all these things, but there is a real question, right, around certain, uh, certain parts of this market. Um, and I think it's a question that, you know, has continued to surprise to the upside if you look over the last few years 'cause we've been asking these questions. But obviously, it, strange market dynamic where as time passes, the questions are still there and they're getting, you know, even harder, right, to have a view on. And so I think that's what makes investing in this market so exciting and so difficult, right? It's just you don't really know what market dynamics are gonna be like in the next three months, let alone the next three years, and it's very hard to know kind of steady state market structures too as well, right? Which is whether it's model pricing, whether it's volume mix of open source or closed source, whether it's, you know, compute pricing or it's gonna be the cost of capital, right, or the ability to build data centers, right, and access power. It's fascinating to watch. It's a fun time to invest in, but it's also incredibly difficult. How to price a company, uh, uh, is, is gonna be entirely driven on by your ability to believe in some out years of earnings, and that's really hard right now. It's hard to believe in the next two years, right, of earnings, right, let alone the next 20. Um, and so, you know, that's, uh, I think a fun time as an investor and a difficult time as an investor.

Molly O'Shea 16:12 Yeah, I wanna push on that more

Molly O'Shea 16:14 before we get into the portfolio because, like, you mentioned a couple of these areas of things that you're working on or looking out for in market dynamics and the structure there. So of those, like, I don't know, five or six pieces that you laid out, like, what are the most vulnerable parts? And then at the end of the day, is pricing just based on momentum and stories? Or, like, how much of that is really tied to the numbers?

Christian Garrett 16:36 It's hard to say. I mean, I think, you know, there are areas that we've focused on with higher conviction, and we've tried to, you know, look for companies that we felt had more durability and defensibility, which is always our focus on underwriting. Um, so, you know, we've obviously invested quite a bit in cognition. We've just co-led, uh, Hex's round, which is a company we've been investing for a long time. Um, and, you know, both of those sit sort of at the harness layer and the app layer. Um, we have not done a ton there, but those are companies that we felt were pretty well-positioned within sort of having the third-party structural positioning, which is very beneficial. You know, not every company wants to be reliant on a lab for certain types of products. Definitely on security, definitely on coding we've seen, right, and being able to route to different models. Um, and we think also in analytics, which is where, you know, Barry, uh, uh, in a lot of data workflows, which is where Barry and Hex sit. I think those companies, uh, once again, we believe have, you know, good structural positioning, and it's easier for us to underwrite, uh, some of the durability of the business. And then second is we're just backing growth. I mean, all those companies are growing extremely fast, right, both of them. I think you've obviously seen, whether it's, you know, with xAI and SpaceX, the ability to see the value accrue to the hyperscaler and the compute layer regardless of outcomes. Um, we believe that, you know, open source is clearly going to be a large percentage of models and deployment just like it is within, uh, software. You know, where do you pick your bets? How do you size those bets? Not been easy. Um, and there's been certain categories we have not done right or invested as much, and that's less of a view of how well the companies are doing. It's just been harder for us to sort of think about and grasp the durability of the growth, uh, and what market dynamics will look like in the future. So in essence, I mean, a couple areas we've made bets in, a couple areas that we're still spending time getting more conviction in. I don't think I have any more better informed view than someone else. Um, uh, and I think, you know, this is, this is something that, you know, we're all spending time underwriting. Um, I will say, though, that, uh, clearly, um, you've had an incredible, uh, set of companies that have been built at layers that we've, you know, we haven't invested in. But, uh, you know, if you look, I mean, OpenAI and Anthropic are two of the most impressive businesses that have been built, uh, in, in a generation, and incredible products that we're all using today. And, you know, just- Because there's a moment in time of volatility or questioning, you know, sort of what the out years of growth will look like, what the economics will look like. That's gonna happen with the sort of fast-moving and transforming market, uh, uh, and a lot of disruption. You're gonna have all these things kinda shake out. But on the other side of the volatility, uh, you can sort of peer into, because just look at right now, I mean, I'm sure we all have family members that are using ChatGPT, right? And using forms of agents and Muse and Dot and Grok bots, and I mean, I'm still impressed by seeing, you know, cousins and friends and, you know, grandparents using these products. That's a clear sign that, you know, these obviously have a lot of runway on impact in the world and are still early in their diffusion. Um, and you know, like all things, markets over extrapolate the good and the bad, and so, uh, you just wanna focus on, you know, p- being right on bets and picking businesses that can survive these cycles.

Molly O'Shea 19:28 So what

Molly O'Shea 19:29 are the growth rates that you're looking at, and how has that changed over time? Like, what are the metrics you're looking at?

Christian Garrett 19:33 I mean, it depends on the type of business, right? I mean, there are businesses that are not, you know, uh, consumer internet scale, right? And that can't grow as fast as something there. For us, it's gonna be much more the sort of, uh, strength and quality of that growth, right? So a business like SpaceX, you know, compounded for, like, 40% for 20 years. Now, 40% on a standalone year is good, right? But it's not incredible, right? What's really amazing about that is the length, right? Right, the duration of that. 20 years is insane, right? And I think people back on the power of compounding, right? Like 9% growth rate, which is like the standard kind of S&P, average growth rate in the S&P. 9% over, over 30 years, right? Is like a 13X, right? I mean, like, it's incredible how really duration is what matters the most within that. And so I think for us mostly, it's, it's about the duration of growth. And so when we've made big bets and when we really concentrate, uh, it's in companies where, you know, over time we've built that conviction and we really understand that this is a business that can compound for a long time. And in our asset class, we can't control duration, right? I don't know how long we're gonna be investing in this business. When we make an investment, we wanna have a view that, like, we wanna be in this business for decades because we don't control it. We're minority shareholders. And so we wanna be excited about it 10 years from now, 20 years from now. And the businesses that we've backed, uh, particularly the businesses that we've really, like, uh, concentrated in, um, SpaceX, Anduril, uh, these are businesses that, you know, the, the duration of that compounding and that revenue growth is, is... was very clear, uh, and the runway of opportunity is very large. Um, versus, you know, the growth rate within a year is, is important data point, uh, and it's supportive to your math, but it's not the only factor.

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Molly O'Shea 22:50 to learn more. So at the stage in which 137 invests, you guys are on the later stage. There are some, like, earlier bets, but I feel like every company now is at least a $2 billion company for whatever reason. We, like, moved the floor up to $2 billion, like, the last couple companies. It's like, I guess everyone's just gonna be a $2 billion company. Um, so it's like... But with that in mind, like, the prices just keep getting pushed up. I just had Shardul from Index on, and he just thinks the prices are gonna continue going up, and they're fine paying a 20 per- seven-- or like 25% premium. Like, they're like, "If it's 25%, we're good. If it's 2X, we need to reconsider." But, like, there is, like, some momentum play of just fueling with capital, and you have a handful of portfolio companies that have been on this capital train of just, like, been able to snowball more and more money. Whether that's Cognition that, you know, is recently at $48 billion and rumored to be in another round to get to, like, $70 billion or something crazy like that, 60 or 70. Ramp is at 60. I'm sure they're gonna get to 100 billion soon. [chuckles] And, um, Anduril at 90 billion. So all these companies are reaching that mark, and so it's like we're seeing a lot of growth externally from these valuations being pushed up and the money being fueled into them. And how much of that is, like, a concentration play of, like, these are just clear winners in the market, and how much of that is the growth of those businesses?

Christian Garrett 24:18 It's a funny quote that you bring up, uh, from earlier from Shardul. It reminds me of a quote my godfather, um, Teddy Forstmann had, which was basically that, uh, this was in the private equity industry in the '80s, and he was like, "Everyone likes to walk around and say that they don't pay premium prices. They pay good, fair prices." Meanwhile, every single day they pay and overpay for things, right? In your personal life, all the time, you're overpaying for something. And the reality is, is you'd much rather own a quality asset that's a 5X and pay a 25% premium to buy it than to own a, um, shitty asset, right, and pay a 25% discount to buy it. You wanna make that trade all day, uh, which I think is true. Today's market, I think, is a mix of both things, right? Which is there is incredible growth, and functionally you have the markets backing that growth, right? And these companies have delivered extensively, uh, uh, on building incredible businesses that continue to compound. You know, Ramp is a company we've been invested in for years, um, and, uh, they're a case study of just continuing to not just expand the purview of, of the business and continue to launch new, new products. The, the core thesis from our first investment has completely played out in their ability to just consolidate more and more of the sort of financial operations stack in the back office, um, and they're continuing to move into more and more things. Um, they're still under-levered, uh, on a lot of parts of the business, meaning they're underpricing on things. They're not monetizing things as much. There's other products they can move into they haven't yet. So there is a lot of runway for this business, and I think you've seen obviously the investor base continue to back that growth. And at the same time, there's a lot of capital, right, that's flooding into certain categories, and there's not many companies, right, particularly in the growth stages to back. And so that just leads to pricing and market dynamics, right? In order to access these businesses, you're gonna have to pay a certain price, and people are willing to clear it when there's just a lot of capital. I think our asset class always goes through that, right? Uh, there will always be a sort of more capital than there is supply of opportunities. But the power law within our industry more than pays for these opportunities, right? And I think we need to somewhat revisit the past

Christian Garrett 26:08 to, like, learn these things. You know, I look at there was a no shortage of capital that was flooding into fintech, right, just a couple years ago, right, during the COVID boom. A ton. And there's a lot of companies that are on the, on the sort of graveside right now, right, in the graveyard.

Molly O'Shea 26:19 They're all dead. [laughs]

Christian Garrett 26:20 All dead. Except if you look at Stripe, right, Revolut, right, hundred-plus billion dollar opportunities, right, and outcomes. Uh, you look at obviously Ramp, right, which is on its way to becoming that size of outcome. And going down the list, the fintech category produced massive wins, right, that have performed extremely well, right, and that are all doing billions and billions of dollars of profit. So that capital was not wasted, right? It's just there's a power law, only a couple companies, right? New bank, I mean, going on, there's many others, right? But I mean, there's just a power law, and I think that's how this will play out across many categories. Definitely in AI, definitely in aerospace and defense. So yes, things will be mispriced 'cause there's too much capital chasing too few opportunities. The power law will probably pay for that amount of capital. As an investor and as an LP, you probably wanna make sure that you're in the power law of outcomes because that's just how our industry works. And even at growth, it's the same dynamic. Portfolio construction looks very similar, uh, within growth, um, particularly from a returns perspective. Uh, just a handful of companies drive all the returns, and that's obviously how we've built the firm to capitalize on that, and I think, you know, the current setup today is, uh, is clearly just representing how sort of our industry's set up.

Molly O'Shea 27:23 Let's talk about Anduril.

Molly O'Shea 27:25 So is everything computer?

Christian Garrett 27:26 [laughs] Uh, it's funny. This is something that, that Palmer's been obsessed with for quite a long time, so it's really cool to see him actually do something here. Um, and you know, obviously part of an overall trend, which is repatriating more and more capacity that we should not have given away, and this is just another example of that. I also, uh, particularly like seeing things that are... You know, sometimes you need industrial policy to bring that capacity, and then sometimes companies, 'cause they see a commercial opportunity, will just do it themselves. And, uh, Anduril's a great example of that, and it's pretty cool. Um, so but the thing I really appreciate is this is something Palmer's been talking about for a long time, and it's one thing you can appreciate about founders like that who are generational founders, it's, it's they, they tend to be early and on the ball. Um, and the best part is in our job, we get to partner with them in tiny capacities as they do need capital and resources to go deliver on that, and Palmer's done that continually, uh, along with, uh, you know, everyone else in the Anduril founding team. And computers, bringing that computer capacity and manufacturing, this is, is, is another example of that.

Molly O'Shea 28:26 But Anduril's also in your bucket of conglomerates. So, like, speak to that a little bit more-

Christian Garrett 28:31 Yeah

Molly O'Shea 28:32 ... as it relates to them.

Christian Garrett 28:33 Yeah, so I, I was saying earlier, it's something I've been more and more obsessed with, which are in ways led to a big crash in the '80s.

Molly O'Shea 28:39 [laughs]

Christian Garrett 28:39 But, but, uh, but there's a reason why those companies were very different. But this is... I think they would... I would just like return of the conglomerate sort of thesis right now. And I think what's different about today's conglomerates are twofold. Uh, but traditionally, the conglomerates of the past, uh, like I mentioned, were a bunch of disparate sort of subsidiary type of businesses. And you had the benefit of exposure to different industries, real scale, cost of capital advantages. There are some operational advantages. Um, the negative, uh, and diversification, which I think is valued. The negative, which in some ways was the sort of inverse of those benefits, right, was, well, because they're so diversified, it's hard to do, uh, some of the parts analysis and value these things. You actually didn't have a lot of operational synergies among these businesses, so there was no shared common operating platform. They were super disparate. So maybe you started to get diseconomies of scale, and then certain segments of those categories were, uh, significantly less value than others, right? And they were a drag even on the business that was actually profitable and doing well. Today's conglomerates look different. One, they actually have a core common operating tech platform, um, and so there actually is synergies and operations between them. Um, or, and sometimes and, uh, they actually are vertically integrated, right? And so, you know, whether you look at Apple, right, which has a ton of consumer products, and it has vertically integrated on top and built a massive business across obviously the App Store and the Apple layer to be a platform or their own services even on top. Uh, SpaceX is an example kind of of both, right? But SpaceX obviously is vertically integrated, even though they have completely different sort of industry exposure, business lines, right? It's built on the same, right, platform. And then they also and sometimes have a common sort of operating layer, um, and, and they use technology to manage disparate businesses, particularly obviously on the AI side, and that has obviously worked very well. Anduril is, is another version of this where although you have a sort of, I call it like lowercase C conglomerate 'cause they're not across sort of sectors like traditional kind of dual use conglomerates, which I wanna hit on, um, they are hitting after what most of the largest, the largest primes are conglomerates like this, right? Where they are multi-product, right, a multi-capability type, multi-system. What has made Anduril unique among that, and I think also giving the sort of economies of scale benefits at the even operating level, is the fact that they, one, use technology in their operations extensively, uh, and two, they've actually built the same core backend infrastructure, right, from a software and AI perspective, right, with Lattice, which powers kind of everything. Um, and so every marginal product sold, right, makes the value of the other ones go up. Um, and that's something that has been, you know, critical to the story of the business, you know, uh, was critical to, to the investment thesis when we were spending time there back in the day. And, um, it's, it's I think what differentiates them. Um, where I think we need to go, uh, particularly from a resiliency perspective, and I think where value's gonna accrue, is I think we need to, and quite frankly, I think Palantir and SpaceX are the only examples of this, but I think we need to return to the, like, dual use conglomerates. You know, General Mills, right, made cereal and weapon systems. That's something I think that's important. You know, the def- the defense primes of China, right, like 60%, 80% of their revenue comes from the commercial sector. Shyam Sankar from Palantir talks about this all the time. You know, Palantir, right, majority of the revenue is coming from the commercial sector now for this last earnings we saw. SpaceX, right, um, majority of the revenue is coming from the commercial sector. I think we're going to need these types of businesses where you can get real scale because of the exposure to com- commercial sector. I think the markets will value the diversification, and that scale allows you to subsidize and maintain capacity and capabilities that are critical to defense sector and also throttle up and down as needed. And I think, you know, industrial policy can only do so much, and it's really good, some of that we're doing. But quite frankly, to have the type of capacity that we really need from a defense perspective, you're going to need to be dominant in the commercial industry, or else it just won't work. And shipping is your greatest example of that, right? That's why, uh, China's leading, uh, prime there, right, is so dominant because they're dominant commercial ship manufacturer in the world, and then they also do defense products. I think we need to see more of that. So, you know, I say lowercase C conglomerate is the best way to build a defense business or any type of business in your category as being multi-product because it just increases the TAM, right? And you can continue to expand and sort of suck up more and more and more of a, of an opportunity set. I think from a sort of larger point, we need these capital C conglomerates that are across commercial, the private sector, and public sector They're selling across commercial and, and, and government, um, in order to kind of build out the level of scale that I think we need that I don't think the government's gonna be able to subsidize alone. And so like I said, Palantir and SpaceX really represent those. I think those are next-generation companies that are going to embrace that. And I think a lot of defense companies are either, one, not building like the, the, the first like lowercase c conglomerates, right? And that's why Anduril I think is gonna be, you know, by far the power law outcome in this category. And then also a lot of companies are not building, you know, real true kind of dual use capability sets. And the best success stories probably are those that are in the commercial sector that are dominant that are then crossing over in the defense industry, right? And you see a lot of that in enterprise software and infrastructure and cybersecurity. I think you'll probably need to see more of that within sort of the aerospace and defense category.

Molly O'Shea 33:21 One of those next-generation companies is Onodrim.

Molly O'Shea 33:24 And so we had the pleasure of interviewing Isas at the Strike conference in Monaco. It was like... It was tech- technically CapFrat, but like... So he had some great points, and he was very spicy, and he was the first employee or second employee-

Christian Garrett 33:39 I think he's second, yeah, the one we know

Molly O'Shea 33:40 ... second employee at Palantir in Europe. Um, but you co-founded this company, so can you walk through the story of Onodrim and the big announcement you guys are coming out with?

Christian Garrett 33:48 Yeah. So, um, Onodrim is an aerospace and defense scale-up platform. Um, we wanna use technology to buy and acquire businesses all across, uh, uh, Europe within critical industries, deploy technology into them, uh, scale them up, uh, uh, and grow them. Very large businesses built in the US doing this, whether you've seen sort of, uh, supplier consolidators like TransDigm, Teledyne, HEICO, Honeywell, cross-capability sets. Uh, you've seen even very successful roll-ups in the defense category that acquire kind of smaller systems, scale them up. Um, that has not happened. Oh, and then obviously the primes are super acquisitive here in the US, right? So a lot of the defense industrial base are not the large scale primes. They're the thousands of suppliers, right, across the stack, right? They are the smaller kind of complementary systems, right? They're these other capability sets. They're dual use companies, right, that are probably dominant in the commercial industry, but 30% of their capacity is, is selling, or 30% of their revenue is selling to the defense industry, and it's pretty critical capability, right? Most of it has either been consolidated or owned by private equity. In Europe, you have not seen that level of consolidation. It was not a growth market, number one, right? And so the primes were not super acquisitive as such. Uh, private equity was not super acquisitive as such, and there was definitely no roll-ups or definitely not a HEICO of Europe that was consolidating suppliers and services in these categories. It's surprising given you have a mature aerospace supply chain and industry, right, 'cause of Airbus being the dominant, and you had capabilities that were pretty valuable, not just to the European ecosystem, even the US defense ecosystem. Um, and you had an industrial sector that was extremely strong in Europe. This is the backdrop of opportunity, which is, uh, there right now as there's an influx of spend in Europe and they're rebuilding their industrial base. You have sort of the rest of the defense industrial base, which are these, you know, litany of hundreds of thousands of, of small companies and businesses that need to be scaled up. And the hard part with infrastructure within Europe is because it is fragmented, right? It's, it's not a single market. It becomes very hard for these businesses to do that, um, let alone their ability to adopt technology, right, or their ability to even have partners to help them with the right incentive structure to scale their businesses, right, or expand their products. So what we do is we come and we partner these businesses. We acquire them. We are long-term holders. We're partners with management and with the team. We invest in them, whether it's CapEx, right, whether it's new products, which we can develop engineering resources and capital to support, whether it's obviously deploying technology to modernize their manufacturing, their operations, uh, and help them scale to become pan-European, hopefully global champions. We think that supporting the reindustrialization and rearmament in Europe is the most important mission right now. I think it's critical for the West. I'm obviously half European, half American, uh, and I think it's deeply important for America that this goes successful as well as deeply important for Europe. And it does represent, I think, where we think a lot more value is going to accrue. Right now there's a lot of money chasing after the neo-prime route, and those players and winners we think are established. And obviously with the benefit of being in, in, in I think the largest one in Anduril, but, uh, if you look even in Europe from Star, Quantum, Helisync, go down the list, Cambridge, there's all these companies that have received backing that have some structural sovereign advantage within their country that has a deep, you know, large enough budget. Um, and

Christian Garrett 36:51 now there's 4,000 drone companies in Europe. Clearly that this is like, this is overfunded, right, and too crowded. What has not received as much support is the layer below, right? Who's supplying all these companies, right? Where are they getting their, their key components, right? Where are they getting an aerostructure manufacturer, right? Um, where are they getting their engines, right? All of that is a layer below that needs to be scaled up. Um, and we think, uh, particularly also we wanna partner with companies that are dual use, right, that are large in the commercial sector, maybe repurpose them to the defense sector, right, or have, you know, the majority of the revenue in one sector or the other. Um, I think that's pretty important for durability as a business, but also on this point of maintaining capacity, um, particularly because industrial policy alone is not strong enough to kind of support, uh, the economics that are gonna be needed sometimes to maintain the level of capacity we need. And so that's kind of the platform we wanna build. Most of the business is focused on buying suppliers and services, and kinda consolidating that market, uh, and scaling it up. And then, uh, we will look at other opportunities as well, maybe s- like, smaller, kinda complimentary systems on the defense side or things like that. And it's funny, this, this concept, although ours is, is different, but you've seen a lot more excitement about this. Uh, not just the AI roll-up world, which is kind of very different, right, in automating services, but you know, Amca, Valinor, who I'm big fans of Jay, uh, and Julie. They're awesome, and friends, and, um, they're building awesome businesses here, right? Solving different pockets of the same issue that everyone's realizing, right? Which is, like, there's this layer below, right, there's this universe of smaller companies that are critical, right, to the defense industry, and the funding and the talent has been flooding towards one area, and then now there's too much [laughs] chasing it because, you know, they saw a big outcome, so everyone else thinks they can have a big outcome. But I think, uh, this is a layer that's probably underappreciated, and we wanna go after it. And so that's, that's what we're doing. Um, we'll announce some of our first acquisitions soon, and, uh, uh, excited to hopefully be a really big partner in the ecosystem there. Um, and we also have some partnerships with, uh, leading companies, leading prime type of companies across the defense and commercial sector that we'll be announcing soon as well. And, um, hopefully we can build, uh, what we think is Europe's largest technology scale-up platform, um, uh, focused on this sector, um, and, uh, support the ignition.

Molly O'Shea 38:59 How do you access talent in this layer that's underappreciated?

Christian Garrett 39:03 There's two layers of talent for us, right? There's talent we recruit into the company, which we've done a great job of, uh, and I think will. And if there's any talented Europeans, uh, that wanna work on this, uh, please, you know, reach out. And we've, you know, brought DNAs together I think are very unique. You know, our company consists of folks that come from private equity, uh, aeros- traditional aerospace and defense, uh, government, and the technology sector, right? We have people from Palantir, SpaceX, uh, uh, Rheinmetall, uh, McKinsey, uh, um, go down the list, um, which is, I think, really unique, and it's been kind of fun. We also have, like, I think, like, nine nationalities as well, which I think deeply represents Europe, uh, which has also been fun. It, it probably makes, uh, our Slack and group chats very interesting 'cause you have a lot of views, uh, and cultural differences that we learn and appreciate, but really bring together. Um-

Molly O'Shea 39:44 Some people are a little bit more direct than others? [laughs]

Christian Garrett 39:46 Yeah, yeah, uh, d- definitely. I've learned a lot about Eastern European humor. Uh, and-

Molly O'Shea 39:50 Oh, really?

Christian Garrett 39:50 ... I think a lot of people have learned a lot about, uh, Italian, uh, schizophrenia. So, [laughs] so it's been, it's been good. Which I think matters most, right, the companies that we partner with, right, uh, are people who've built, you know, incredible businesses, many of them multi-generational or, or, or have been around for over a decade. Um, and I think what we're looking for are management and companies that have these same characteristics that, uh, you know, I think I look for from an investment hat, and we look for at 137, right? These are businesses that are durable, right? What's the quality of the revenue, right? Have they been doing this for a long time? Is there a low churn, right? Which just shows that this is a high-quality business. Do they have capacity that's critical, right, to the industries that we care about, particularly on the defense side? Even if m- a majority of the revenue is coming from aerospace or industrials, right, is that capacity and is there a business line that we think should be growing and can grow on the defense side? Does it solve a critical bottleneck? That's something we really focus on, right. Where are the bottlenecks for this build-out? The contracts have been going to all the primes, but you've been seeing that production is the big bottleneck right now, and a lot of that's because of the supplier level. Whether it's their ability to scale, right, who's gonna take the risk on CapEx, right, how do we modernize our operations to deliver faster? Um, or the sad part is a lot of the capacity is repatriated away, right, and it no longer exists in Europe, and you see the same dynamic in the US, right? They both exist. So these are the kind of things we look for, and then obviously we want, uh, to partner with management that we think knows their category extremely well, and we wanna empower them. Um, and many of these companies exhibit those characteristics, and it's been really great, uh, to be working this business the last year, and we're really excited to partner with some of the first set of businesses. And, uh, we're very early, uh, in proving it out. I think we have a very strong thesis. We have an incredible team, great backers. Um, now we just need to go execute. Um, and, uh, so, uh, that's the next phase for us.

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Christian Garrett 42:43 Not at all.

Molly O'Shea 42:43 Do you guess it's

Molly O'Shea 42:44 helped you become an investor or a better investor? Like, how do you think about all this for yourself?

Christian Garrett 42:48 It follows a similar MO to, uh, another company that my partners were a part of helping co-found, Alex and Justin, uh, um, and help, uh, put together, uh, and incubate Armada, which Dan Wright and John Runyon founded, and, and you know them really well. And, uh, you know, that initially started with, with, uh, uh, my partners Alex and Justin coming up with an idea that they wanted SpaceX to do. Um, and SpaceX said it was viable, it's a good idea, but we're... We have too much going on. You should just go do this. And obviously we don't, we don't [laughs] start companies. That's not really our MO. And then that led to conversations with Dan, uh, and then Dan was thinking about something related. Dan spoke to John, spoke with SpaceX, and then Dan really ran off and, and, and started the company, uh, Dan and John, and it's, it's done extremely well. This is somewhat similar. Uh, you know, I was spending a lot more time in Europe and, uh, working with a lot of our companies that are there. Um, you have some good relationships out there, and that just led to, like, learning the ecosystem, and it became pretty clear, uh, some of the, the-- that this was one of the biggest problems there, um, and was, like, critical to being successful. It was not gonna be how much money Europe spends. Uh, it was not pub- going to be solved the way that I think it was, which was, hey, let's just give a bunch of contracts, uh, all across disparate. Let's have multiple different types of systems, and production's gonna be very slow, and you have a window right now where you're just going to be behind and very vulnerable. Um, and so what's the best way to support that from a mission perspective? And clearly, it was solving this production issue. And then that just led to going down the rabbit hole more and more. Um, and then the unfortunate reality was, like, I may be the person to put this together probably because, you know, I was close to the problem, close to the ecosystem, right, on both sides. The, the defense ecosystem consists of the US and the European prime and neo-prime companies, right? Those were all the products that are being bought are, and I was close to that ecosystem, and I was part European as well. And so, um, that kind of led to, you know, uh, talking to Isis and Alex, who, you know, were extremely well-known, well-respected, and well-regarded, right, in our circles from the Palantir side, given we've been invested in that company almost 20 years as well, and, um, and kind of, uh, led to the formation of Onodrim. In essence, no, like, I did not want to start a company. It's, it's not what I think is my superpower skillset. I'm glad to be a minority co-founder in the company, and Isis and Alex are building it, and I help where I can. I think it does represent, look, if you are-- if there's a great idea, most times you're not the person to go do it. If it's a weird case where you're the person to go do it, then by all means, go and do it. And so I'm, I'm open to that, and, uh, and I, I think I just treat it like I'm, you know, the most helpful and involved investor, but my workflow's the same, which is I just help where I can. Uh, I try to get deeply involved. I will spend a lot of time, um, but you know, I do not rest on my laurels of being an incredible operator, or I wanna go run these things. That's, that's not my MO. Uh, I love sort of my skillsets and my superpowers as an investor, and I think I can apply that as a co-founder in a company if it's, if that seems to be the case that I need to be. And so it's been exciting to go work on something that I think is important and, uh, and work closely with the ecosystem as well, which we get to do. You know, as the primes and these large commercial companies that, you know, I have close relationships with, that we have close relationships with, uh, they are our customers most of the time based on the companies we're buying or our partners sometimes on, on, on opportunities, and so that's, that's been pretty fun. The most valuable thing, as you said, which, you know, I didn't appreciate unlike my friends, you know, Trey, who's a mentor of mine, who's always talked about this, but Delhi, he's one of my close friends, Scott Nolan, first person I met in venture. These are people I'm extremely close with, but you know, Josh has co-founded a company from Thrive and go on a list a lot of people have, right, in our world as partners.

Molly O'Shea 46:08 Did you have FOMO?

Christian Garrett 46:10 I didn't have FOMO.

Molly O'Shea 46:10 [laughs]

Christian Garrett 46:10 What I appreciated was more so that I knew that they were-- they viewed the opportunity as, like, the most intellectually fulfilling thing because you got to go really deep, whereas in venture, you kinda get more breadth and, like, pockets of depth, but you don't get to go just, I mean, like, multiple layers well. And then, uh, which Trey talks a lot about, and then it just makes you a better investor, 100%. There's just things you understand and appreciate and know, uh, that, uh, I think just, yeah, definitely make you, um, better at the job. Uh, and I think also you can just relate to founders in a different, in a different way. Different layers of pressure, right? I mean, not being the CEO of a company, right? Is, is being CEO of a company and not being CEO is different, but I think there's, there's a lot to relate. And so, um, it definitely has. I think

Christian Garrett 46:49 the biggest thing is it's made me just appreciate the annoying things that venture investors do.

Molly O'Shea 46:53 [laughs]

Christian Garrett 46:53 That's actually like-

Molly O'Shea 46:54 Really? What do they do?

Christian Garrett 46:55 Number one, I-- Just various things. We, we get a little manic sometimes-

Molly O'Shea 46:59 [laughs]

Christian Garrett 46:59 ... and worried. Yeah, like, there's just stuff like that, right? Or just like, uh... Yeah, I- that's probably the biggest, you know. Um, but there's just a lot of things that I think I've, uh, I'm really glad that I've, I've been able to be on the other side.

Molly O'Shea 47:11 Do you find yourself withholding from certain actions you used to do beforehand?

Christian Garrett 47:15 Definitely.

Molly O'Shea 47:15 Yeah?

Christian Garrett 47:15 I mean, some of that's with age, you know-

Molly O'Shea 47:17 Okay [laughs]

Christian Garrett 47:17 ... for sure. Um, and just learning-

Molly O'Shea 47:20 You're in your 50s now

Christian Garrett 47:20 ... you know, you just learn. [laughs]

Molly O'Shea 47:21 Is that what it is? [laughs]

Christian Garrett 47:22 No, I mean, but you know, you start in your 20s, and you're just, you're, you're, you're trying to make it happen and, and you're younger and... But uh, no, I think, I think there are a couple things for sure, um, that I just appreciate more, you know. And there are also things that I understand now on both sides. I understand when fundraising, right, how investors are thinking and how to talk about the company and all that. Like, it's great because it's just a very honest and real conversation, right? Um, and I think, you know, people who have done this before me obviously have, have known this for a long time. Uh, but then the other piece too, like when talking with founders about companies, like you just, you understand, right, like what's actually going on, right? Uh, like what's the real story? Um, what's c- like what's, what's difficult? Uh, you understand like what's most helpful, right? Um, you know, at the end of the day, like venture investors, uh, can be helpful at times. We try to be as a platform. You know, we, we embed pretty deeply with our companies. We have operating partner Ashley, who goes and works through our companies. Like, we do a lot, but we know at the end of the day, like that's not our MO. We back people that know what they're doing, right? And that's it. A bad investor can destroy your company. A good investor won't make your company, right? Which my partner Justin always says. But at the same time, there are areas where you know and you really want your investors to be helpful in, and they're simple, but it just turns out it's like, you know, I need revenue and I need talent, right? And it's like, "Can you help with these?" Um, and a lot of investors promise that they'll help with things, and they really don't, you know. Um, and there's various reasons, right? It's just, I mean, like none of that's nefarious, right? It's just I think you learn these things, uh, in a deeper way, I think, uh, uh, when you're on the other side for sure. And so yeah, I think it makes you a better founder, makes you a better investor. Um, and uh, for me, you know, obviously my focus as an investor, uh, I've been grateful to have the experience, um, of, uh, getting some operating experience and exposure and, uh, hopefully being able to, you know, support, uh, Isis and Alex in the company and help us deliver for ultimately the European ecosystem. Uh, I think the defense industrial base of the West, right? 'Cause a lot of our partners are also that, that we sell to and partner with will be the US companies, and um, it's a big mission. Um, so we're excited to do it. Uh, it's also impacted my thesis on other areas, right? It's made me more excited about things that are being built here. Like I mentioned, you know, Amca and, and, and Valinor are really exciting companies. Um, uh, it's made me more excited about deploying technology in industrial manufacturing. You know, we've been close to it from obviously Palantir really pioneered this, deploying software into legacy manufacturing from shampoos to planes. But also companies like Hadrian and others, right, have started to adopt these things, and you just, you learn. You're like, man, there's low-hanging fruit, like automating paperwork, um, but then there's real incredible things that you can start to do now, particularly AI is improving. Um, your ability to start integrating into PLCs is significantly faster, which allows you to do a lot of interesting things with machines. Go down the list of stuff, and so it's made me a lot more bullish on how technology can be used, uh, in manufacturing and industrials. And so-- And I can go down a list of other things too as well.

Molly O'Shea 50:07 Sure.

Christian Garrett 50:07 That's, that's kind of, I think, helped, uh, some of the conversations we have as investors now at One Three Seven.

Molly O'Shea 50:11 Yeah, I know we didn't get to talk about them, but Applied Intuition is also an incredible-

Christian Garrett 50:15 100%

Molly O'Shea 50:15 ... example of this.

Christian Garrett 50:16 Yeah, 100%. They're, uh, a company that we've, that we've been investing in and, and really excited about, um, and that's solving, uh, uh, hard problems and deploying technology into a legacy, but one of the most massive industries in the world, right? The automotive industry, but they've expanded across industries and kind of all things, robots on wheels and vehicles, right, across the OEMs, um, construction, mining, trucking. That's a business as well that, you know, actually we were just there at the offices the other day, um, and it's incredible to see a company that is, uh, you know, not just deploying software to, and selling software to maybe engineers, uh, across these, the- these companies, particularly the automotive sector, but they're also, you know, touching the electronics of these vehicles, right, and simplifying all the processing units, right, and, and, and all the controllers, uh, and the wiring and, like, improve the cost structure of these vehicles, right? And then that allows you to then actually use technology more in the vehicles, right, and have a better experience, whether for maintenance, right, or whether from your, your in-cabin experience or obviously deploying autonomy. Um, and so it's been pretty incredible to see people, uh, not just take maybe the operating playbook of venture, but also particularly find technology in hard industries. And, uh, it continues to surprise me, you know, the limit of that. You know, you think the automotive industry is one that's been successful, but you know, if you look at General Matter, which is another company we're really excited about and, and, and have been investing in, and I mentioned, you know, Scott's actually the first person I met, uh, in venture, um, a long time ago. That company, uh, I can go on for a bit, but similar thing, like they're once again sort of re- they're bringing back an important critical capacity in uranium enrichment, but they're also reinventing the playbook for how to do it, right, and applying technology in minor ways you wouldn't expect. Even just applying sensors to things where there wasn't sensors, right? Because most of this capacity with state-owned actors that are still using Cold War technology. Now we can kind of re- re- rebuild some of that and apply some of, uh, of the latest tooling. And so, you know, that's another area where, like, it turns out even uranium enrichment, right, we can kind of reinvent. Um, it makes you appreciate, however, and Scott actually is the one that, that said this, which is really good, but you realize how incredibly smart people were back in the '60s.

Molly O'Shea 52:15 I think about this all the time-

Christian Garrett 52:16 It's insane

Molly O'Shea 52:16 ... and it's so simple.

Christian Garrett 52:17 They did a lot of this-

Molly O'Shea 52:18 I was like, I don't know why I woke up this morning-

Christian Garrett 52:19 It's insane

Molly O'Shea 52:19 ... and I couldn't sleep, and I was thinking about how violins were made, and I was like, "Why am I thinking about this?"

Christian Garrett 52:25 These people were definitely smarter than us. They-

Molly O'Shea 52:26 But, like, they made violins without us, and now I'm being like-

Christian Garrett 52:28 They were-

Molly O'Shea 52:29 ... oh, well, AI can generate new types of instruments. I'm just thinking about [chuckles]

Christian Garrett 52:33 They, they were definitely smarter than us. I mean, they were doing stuff with hand and instrumentation. I mean, it's incredible. Um, but we have new types of tools and technology that I think can make us, you know, continue to drive not just the performance or unlock new capabilities, but also how efficient these things are. And so that's the trade-off. But it is pretty incredible, um, that, you know, so many of the things, of these things work, and it was done without the kind of modern tools and, uh, uh, that we have today. Um, but yeah, I mean, that's another example of a company, right, that's, uh, actually using technology to improve one of the hardest, you know, types of processes in the world. And I think there's no limit to this. How that plays out in margins, right, how that plays out in sort of, uh, uh, business quality and outcome, right, is varied, right? Just because you deploy software into a business doesn't necessarily make it a technology business. But it has real impact. Um, and as we're re-industrializing, this is the fun part, I guess, of this, uh, we get to invest in, most people get to build in, right, that we get to partner with, the operators, um, is, you know, we can reinvent kind of how we did things from the old world. Um, and I think that's the exciting part and the difficult part.

Molly O'Shea 53:37 Yeah. It's so cool. I know we're, we're

Molly O'Shea 53:39 a bit over time. It's like 9:06 right now, so we'll try to wrap up in, like, five minutes. But so there were a couple other things, um, that were on your list of things to talk about that I think are quite interesting. Like, I would love to quickly go over the trend of political weaponization and then also how lucky we are in tech to not be zero-sum.

Christian Garrett 54:02 I've been thinking a lot more about, um, mainly because they're things I do not want to see happen because it alters what was really special in the industry and what allow the industry to, I think, you know, continue to grow and gain more and more share of global economy and, uh, and continue to touch and impact and transform, uh, many types of industries, right? Not just what was purely technology, right? Maybe from, you know, transistors all the way to computers and software and cloud. Like, now technology is touching all sectors, right? Energy, we talked about manufacturing, defense. I'll, I'll start in reverse, but you know, I think our industry is unique in that it's not zero-sum, and it's something that I think we all know but don't think about a lot. Like, if you go in other industries, you realize the difference in culture, in behavior, in incentive structure, uh, in how they do business. I mean, it's wild, so different, and it's n- it's small but nuanced, but it really is I just think the zero-sum. Now, probably the pessimistic take is the only reason we are not zero-sum is because we're in a high-growth industry, and many of these industries are not, right? But I do think it's a little bit cultural too. And, uh, you know, I think, uh, that's something that I just think is deeply important to preserve. Um, and I guess the more I see petty fighting and arguing and behavior, uh, uh, within our ecosystem, it makes me a little sad. I mean, maybe I'm naive, um, and you know, I came in the industry as such a fan, right, from a kid, um, and looking up to some of these people, and I just don't want, I just don't like, I particularly don't like it, and I see what happens when you have an industry that stops growing and loses its zero-sum kind of- mentality. It makes me concerned. Um, I, I don't think we're there, but it's something I think is, is something we should really, uh, uh, cherish and protect. And the other side is on the weap-

Christian Garrett 55:42 political weaponization. You've started to see this, I think with social media was the beginning, right? Of there to be more of a concern and how do we sort of interact with these companies that have such clinical power, um, in this category. Uh, and I think it's starting to turn where now it's becoming politicized of, you know, if you as a founder or a company are on one side or the other politically, right, then, then we need to do something about it. And I think that is, is really disappointing. Um, and you've seen it, uh, on both sides, right? Um, and with, you know, companies we've talked about today. And it's just, one, it's incredibly misguided because it's ironic because these companies usually are made up of people and management and founders that have completely different [laughs] political views, right? These companies are working on things that are nonpartisan, right? They're benefiting the entire economy of the world. They're some of the largest job providers in the world, and they're pretty critical to national security and resilience. If you did not have some of these companies, we would not be competitive at all. We'd be totally screwed from a GDP growth perspective, right? From a jobs perspective, from a just capabilities perspective. Um, and I, I think it's just a, a bad precedent to start to set. Um, and you've just seen it evolve slowly, whether it was we need to break up big tech not too long ago, right, and regulate them for social media, whether it was, uh, you know, people burning Tesla cars down, which is insane. Uh, you see people, you know, flipping out at Anthropic, right? And it's like, "Oh, I won't use their product," right, because of this. And I, I think, you know, there's a weird nuance where the- these worlds are blending more, and so maybe that does mean we need to reunderwrite actually our thinking of this. Maybe I'm wrong. But also I do think it's, it's a dangerous precedent too as well. Um, and I think consumer, uh, decisions and I think, uh, policymakers' decisions shouldn't be influenced by the politics of the people involved in these companies. They should just be influenced by the merits of the business and the importance of the business and the product that they offer to the markets. Um, and the markets have their own mechanism of sorting these things out, right? If people don't like a product, they cannot buy it. Um, they need to burn the product down or try to kill the CEO. That's a little much, but you can just not buy the product. Um, and there's a good feedback loop, right? Or you cannot use a model, right? Or you cannot use, uh, you don't have to use Facebook, it turns out. [laughs] No one's forcing you to. Um, and so yeah, that's, that's my view. Um, I think is it open for debate. I think there's nuances. I'm not saying I'm 100% right, but generic point, uh, I think, you know, we really do not want, uh, there to be a sort of weaponized, uh, political attack on companies in our sector, and we don't wanna support it on either side. Um, and I think we just benefited and we never wanna lose, um, you know, the fact that we don't have a zero-sum mentality. And, uh, and I think a lot of that's 'cause the industry has been growing, but I think a lot's cultural. And, um, those are awesome things. And, you know, at the end of the day, we are all in the same industry that's, you know, driving real value of the world. And, um, I just, yeah, tearing ourselves from within, uh, at each other is petty and stupid, and I've seen it in many sectors, uh, or companies. And maybe a, a warning to, to the outside, which is just the tearing this industry from outside because of political reasons, uh, it will backfire. And so, uh, you know, I would like to see maybe the, the tone and things kind of maybe, uh, uh, uh, calm down a bit, um, because right now is some of the most important time periods in the world, and we literally had a flying car just a couple weeks ago, and yet we also have all this volatility. And so I, it would-- I would like to see things maybe change. Um, but maybe they don't. Uh, but you know, for me, I think those are pretty critical, at least for our industry to cherish.

Molly O'Shea 59:09 I mean, quite the thought-provoking way to end the conversation, which is, has been awesome. Like, really thoughtful. I really appreciate everything that you share from the portfolio to SpaceX, how you think about conglomerates. Like, all of these things are really interesting. And, uh, I do think we just live in a terror society, and we just, like, live in this world where we have too much access to information. We were talking about this beforehand. It's like, we don't need to be knowing all these things. We don't need to be involved in all these things. Like, how about we just had one newspaper that gave us the news each week? That would be a little bit more peaceful, but we don't have that. Um, but anyways, Christian, thank you so much for taking the time. I love having a catch-up and seeing what's going on in the growth stage markets with you and, um, I'm excited for the next Hill & Valley. When's that?

Christian Garrett 59:53 Uh, spring. So March or April usually. It depends on the congressional calendar and, um, but we will, we will have a date soon, usually by the end of the year or early in next year. Um, and, uh, yeah, it's, it's been awesome. The next one, we definitely need to have you there. We'll do a lot together. Um, and I know, you know, Delian, Jacob, and I are, are super excited. Uh, and we have some, some good things that are in the works, um, uh, that we're excited to announce soon, so.

Molly O'Shea 1:00:17 Cool. Awesome. Well, thank you, Christian.

Christian Garrett 1:00:19 Thanks, Molly.

Molly O'Shea 1:00:19 Hey, it's Molly. If you enjoy our interviews, check out our newsletter, Sourcery.vc, where we deliver a once-a-week top deals and tech headlines email, and also go deeper on our podcast interviews. Subscribe to Sourcery today. And don't forget to subscribe to the podcast on YouTube, Spotify, Apple, or wherever you listen. Link in description to sign up.