Closing Bell - Manifest Space: American Dynamism Under Trump 2.0 with Andreesen Horowitz Partner Katherine Boyle 12/13/24

Episode Date: December 13, 2024

Defense tech has gone mainstream with a growing number of entrepreneurs and investors working in the incoming Trump administration. Katherine Boyle, a general partner at a16z, was dubbed an early investor to this trend, co-founding the VC firm’s American Dynamism practice in January 2020. Boyle joins Morgan Brennan from the Reagan Defense Forum to discuss Trump 2.0, the technologies she’s most excited about right now, and the outlook for her investment thesis.

Once relegated to the shadows of Silicon Valley, defense tech is going mainstream. And with a growing number of entrepreneurs and investors from the sector working with the incoming Trump administration, the momentum could be poised to continue. It's a stark shift from just six years ago, when Google employees protested U.S. military work and defense companies were classified by funds as sin stocks. Catherine Boyle was early to this trend. A general partner at A16Z, she co-founded the venture firm's American Dynamism practice in January of 2020. She says this has been a long time coming. So 10 years ago, former Secretary of Defense Ash Carter put out the call with Defense Innovation Unit saying

we have to bring Washington to Silicon Valley. And I think planting that flag from the DOD was really important because it showed that there was a seriousness of there are people inside the department that want to see change. But there's a lot of things that I think happened. It was the success of SpaceX, the success of Palantir. I always joke, people looked back at SpaceX in 2019 when they were talking about Starlink and investors said, how is that ever going to work? And now look at SpaceX today. So I think there's a lot of things on the success side of the companies that were being built,

the enthusiasm from the DoD. Ukraine changed everything, because when I think these young engineers watched a real land war happening in Europe, they looked and said, okay, we actually need to build defense technology. This is real now. It's not just theoretical.

It's something we actually have to focus on. And so when you put all that together, there was just this explosion of new founders, new finance, people putting real capital behind these businesses, and then success stories. Boyle, who joined me exclusively from the Reagan National Defense Forum, notes some of the hottest defense startups, Andral Industries and Shield AI, both Andreessen Horowitz Investments, are nearly a decade old now. And they, plus Palantir and SpaceX, have already helped mint a new generation of entrepreneurs building new startups. Boyle thinks private markets, like the public ones post-election, will see animal spirits in the new year. There is sort of this euphoria in the public markets and in the crypto markets.

We've seen major rallies, and I think you're going to see that in Q1 of this upcoming year you're going to see a lot of venture dollars going into categories that otherwise would have people would have said you know maybe there's too much regulation too much uncertainty I think you're going to see private capital come roaring back to private markets. And it all comes as SpaceX is now valued at 350 billion dollars based on a secondary share sale which puts its valuation higher than any other defense contractor and among the top 25 in the S&P 500 by market cap. On this episode, A16Z's Boyle talks American dynamism, Trump 2.0, and the technologies she's most excited about

right now. I'm Morgan Brennan, and this is Manifest Space. Joining me now, Catherine Boyle of Andreessen Horowitz, A16C. It's so good to speak with you. It's so good to see you. American dynamism. I mean, we're here at the Reagan National Defense Forum. And to me, you were really on the forefront, one of the original investors into this area of the economy. And now it's front and center.

Yeah. Well, I was just taking a picture, actually, of the sponsors list. Because about five or six years ago when I was here, there was like one little startup called Palantir that was on it. And then Andrel had a tiny little name at the bottom that they were sponsoring the forum. And now I think I counted something like 50 startups, 50 venture-backed startups that are coming here, that are sponsors, that are really part of this conference. And Palantir being the biggest sponsor, it shows the enthusiasm. And that really defense is changing. Five years ago, it was a backwater, Silicon Valley didn't want to be a

part of it. And when you look at the number of people that are coming out for this, it's truly extraordinary. So I do think that the movement has arrived. I'm going to ask you the same question I asked Shamsankar from Palantir, and that is, what do you think turned it? Because it does feel like a 180 degree pivot in terms of investor sentiment, in terms of tech sentiment. I think there's a lot of things that came together. Many things came together at the same time. One was that it started a long time ago. So 10 years ago, former Secretary of Defense Ash Carter put out the call with Defense Innovation Unit saying, we have to bring Washington to Silicon Valley. And I think planting that flag from the DOD was really important because it showed that there

was a seriousness of there are people inside the department that want to see change. But there's a lot of things that I think happened. It was the success of SpaceX, the success of Palantir. I always joke, people looked back at SpaceX in 2019 when they were talking about Starlink and investors said, how is that ever going to work? And now look at SpaceX today. So I think there's a lot of things on the success side of the companies that were being built, the enthusiasm from the DoD. Ukraine changed everything because when I think these young engineers watched a real land war happening in Europe, they looked and said,

okay, we actually need to build defense technology. This is real now. It's not just theoretical. It's something we actually have to focus on. And so when you put all that together, there was just this explosion of new founders, new finance, people putting real capital behind these businesses, and then success stories.

I don't think we would be sitting here without Palantir, without SpaceX, and without Anduril. Yeah, and they've been success stories. Do you think we're going to see many more success stories, or do you think we've actually gone from one extreme to the other because there are so many startups out there now, and there are so many, I would say, newer investors to the sector throwing money at it? So I think we're going to see many more success stories. I like to point out, you know, Shield AI, Anduril.

These companies were founded almost 10 years ago. They're not startups anymore. Anduril has 4,000 employees. These are companies that have crossed the chasm, as the DOD likes to say. You know, they're supporting real programs. They've grown up. I mean, that's what we love to see, their defense 1.0. In the same way that there was NewSpace 1.0, and now you have this just explosion of new companies that are going to be built off

the back of Starship. The same thing is happening with defense where you're seeing extraordinary engineers who've worked at Anduril for a very long time say, okay, I want to build something new. I want to build my own startup. And that was the beautiful story of Palantir too. I mean, Palantir is known in the Valley as just a founder mint. People go work there for five, six, seven years and they come out and they build a really difficult company because they've learned so much and that shows

that it's a successful company. That's the spirit of the leadership there and I think it's the same with Anduril and now you have a host of companies that were founded in the last few years that are on the cusp of getting that program, that have real production contracts, they're showing that they can mass manufacture in the same way. And what took Anduril three, four, five years to achieve, because no one believed they could do it, these companies are riding in the wake. And I think that's the gift that SpaceX and Palantir and Anduril have given us, is this real ecosystem that's going to succeed.

What are the companies you're most excited about now? Well, there's a lot of companies I'm excited about, but I'll talk about a few. So I'm very excited about Apex Space, which I know you spent time with them building modular satellite buses. They're here today. They're spending time explaining how they can support the existing defense industrial base by making satellite buses much simpler and by getting things very quickly to low Earth orbit. They like to say they were the fastest from clean sheet design to low Earth orbit in history of satellite buses in terms of doing it, think it's something like 13 months it's an extraordinary timeline and I think you're gonna see a lot more companies want to keep up with with that

execution we're also very excited about Ceronic technologies I'd love to point out that Ceronic is not based in California it's based in Austin Texas and it's become an extraordinary maritime autonomy company you know built with Navy SEALs and Andral executives who wanted to build a new company. And they're focused on how do we become the, you know, basically a prime built for the Navy's needs. And their first use case is USVs, unmanned surface vessels that can operate in very complex maritime environments. And they're doing exceptionally well. So you look at these companies and they all sort of, you know, in many ways they have DNA from the Defense 1.0, but they also look at the success stories and have learned those playbooks and know how to get going very fast.

And I think the DOD is very receptive to these companies. So what do you think Trump 2.0 enables for all of these companies? So Trump 2.0, I actually like that you've used that word because I think it is a very different administration and a very different ethos that we are seeing from this administration and his picks in the previous ones. You know, a lot of people are talking here about Pete Hegseth. They're talking about what does it look like the next version of the DoD? And I think the real answer is change. He has chosen change makers. He's chosen young people that don't have a 30, 40-year career in the defense industrial base and they come from very different backgrounds. There are in many cases millennials who've served.

I think in some ways President Trump set the stage by choosing J.D. Vance as someone who had served in Iraq. That is- Early Andrew L. Investor. Early Andrew L. Investor, but also someone who had served and someone who deeply understands what it means to be a warfighter. But I think that's what we're seeing across the picks for the Secretary of the Army, the but also someone who had served and someone who deeply understands what it means to be a warfighter. But I think that's what we're seeing across the picks for the Secretary of the Army, the Secretary of the Navy.

These are young people who have served. They served in different wars than the people who are in previous administrations have served in. And I think that that sends a strong message, that the warfighter is going to be at the forefront of how this administration makes decisions. What does that mean from a budget standpoint? Because there's also this focus on Doge. There's also this focus on cutting costs and bringing efficiency into government. And you've got to think that some of the old ways of doing things, including in defense, where you have a budget that's closing in, if you factor in aid and supplementals on a trillion dollars, that there's going to have to be some changes. So can we do enough? Can we do what needs to be done to get the military modernized and to actually establish a new era

of deterrence, even if budgets are declining? So seven failed audits, Vivek Ramaswamy and Elon Musk are not going to stand for that. So I actually think that Doge is going to take a very hard look at the Department of Defense and is going to say, why is it that you have all of this incredible innovation, you have young people who are building for programs and not able to get contracts in an efficient amount of time because we have cost plus contracting, we have all of these accounting inefficiencies, logistics problems. There is so much low-hanging fruit inside the Department of Defense

that I think Doge will be very excited to take a look at. And the reason why it is so important that the picks that have been chosen by this administration are young and they're outside of the traditional defense ecosystem is because they were going to be able to take a look with very fresh eyes. And they've run businesses in many cases.

They've built massive businesses in many cases, in the case of Vivek and Elon where they're going to be able to look at this and say this is not how we should be doing business and you know I've been investing in this category for 10 years and what everyone has always told me inside Washington is that do not even ask you're never going to reform procurement it's always been done this way it will always be done this way and I think for the first chance that I've seen in my career we have a chance to change that. It doesn't have to be the case. And you think it happens? I think it happens. So American Dynamism, this is the fund that you've stood up and are a part of

at Andreessen Horowitz. Looking even beyond defense space, are there other areas that you're excited about too as you look to 2025 and investing opportunities? Absolutely. I think that energy is an area that we're looking very hard at. Renewable energy. I think the mandate that we're seeing coming out of this administration and Doug Burgum as a pick for the department, very much focused on how do we become energy independent and any energy. What gets us to almost zero cost energy?

So that's nuclear energy, that's small modular reactors, that's solar. You know, like the president's actually spoken very positively about new, you know, solar thermal batteries. So we've been investing in these categories, looking at where can it be useful for the Department of Defense? Obviously, the department needs to have these solutions that are redundant in many cases, but can operate off the grid. But how can it also be important for data centers? I mean, that is the biggest worry of data centers right now is how are we going to get energy efficiently delivered to these massive data centers that are focused on AI, that are focused on how they can grow. And it's really kind of throwing all options against a wall and seeing what sticks, seeing how quickly we can produce because this energy independence is so important. So we're

very excited by energy as a category as well. Great. Anything else to be thinking about looking to next year and beyond? You know, I think this is a, you know, Mark and Ben have said this very publicly, like this is an optimistic time. Mark said recently that, you know, Mark Andreessen, who's the founder of our firm, said, you know, he's noticed that Silicon Valley is breathing a collective sigh of relief, that everyone is sort of hopeful about what this change is going to take. You know, I think there's a lot of different directions in which the change can go, but it is very clear by the picks of this administration, by the rhetoric that's coming out of Doge, and by the talent that's really going into not only the department, but across the

government, that this is a time for real change and where I think tech can have a huge impact. It also seems like quite a few folks from the venture community, Mark being one of them perhaps, at least his name's been floated out in certain reports, are going to be having a hand in this process too. We're very excited about David Sachs, who I think was recently announced as both the AI and crypto czar. I mean, these are people who have been building in the industry for decades, not just theorists, not people who've sat in, you know, in universities and written about things. These are people who've actually built real companies who are part of, you know, the PayPal

mafia, the original sort of story of, you know, the original inception of PayPal was focused on sort of the theory of crypto. So it's like these are people who have been in and around technology for decades. They understand what it takes to build a business. They understand regulation. So I think we're really enthused that they've heard the call to service and they're coming in. And I think they're going to have a massive impact in Washington. It does seem like, and maybe this is an unintended but pleasant consequence of everything that we're seeing happen right now,

is that all of a sudden being of service to your government is getting cool becoming cool again it is cool government make government cool again i mean that is that is something that i do not think anyone expected uh but yes it you know everything that that frankly elon touches turns cool like right he made he turned around a space industry that was seen as stodgy uh he made cars manufacturing cool um so i think it is wonderful that you're now going to see a generation of you know people who've worked in business go into government, but also a generation of young people who are either building companies in the national interest, or they're saying, you know, maybe I'll go serve my government because it's fun and it's cool and it's exciting to do it again. So it's a wonderful thing for the American people. And I'm very optimistic about it.

Final question for you. The markets, I know you're more focused on the private markets, but it does seem like the animal spirits have been unleashed, at least in public markets. S&P is at another record again today. What are we seeing in the private markets? And do you expect that there's going to be another influx of capital given everything we're talking about? Absolutely. I think it's hard to make big bets when there's that much uncertainty. And so I actually think in Q3, Q4 of this year, private markets were pulling a little bit back. At least that's what we were seeing. I think people were sort of

wait and see, let's see what happens. And then, as you said, there is sort of this euphoria in the public markets and in the crypto markets, we've seen major rallies. And I think you're going to see that in Q1 of this upcoming year, you're going to see a lot of venture dollars going into categories that otherwise people would have said, maybe there's too much regulation, too much uncertainty. I think you're going to see private capital come roaring back to private markets. Katherine Boyle, thank you so much. Thank you.

Great to speak with you. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.