Closing Bell - Manifest Space: American Dynamism with Andreessen Horowitz’s David Ulevitch 2/1/24

Episode Date: February 1, 2024

Patriotism is cool again in the tech world, but venture capitalists are on the hunt for the next promising space & defense name to develop tech for the U.S. government. Andreessen Horowitz’s new thesis is American Dynamism, or investing in companies advancing U.S. interests including national security and space. General Partner David Ulevitch joins Morgan Brennan to discuss where he's seeing opportunity in the space economy...and where he's not.

In the tech world, patriotism is cool again. Startup success stories SpaceX and Palantir help to set the trend, but venture capitalists are increasingly searching for the next promising space and defense names that can develop tech to sell to the government and help fortify America on the global stage. David Yulevich is one of them. The founder of a cybersecurity company, he sold OpenDNS to Cisco, Yulevich is a general partner at Silicon Valley Heavyweight, Andreessen Horowitz. And he runs the firm's American Dynamism practice.

The mission? Invest in companies advancing U.S. interests, from housing and education to logistics, public safety, national security, and space. The world has changed, and I think that there's a recognition from both founders, startup founders, that they need to be building something that's really something that they think is the highest and best use of their time. And the policymakers and the decision makers in Washington and the people that run our DOD and our intelligence community and our space agency, they all recognize that we need to have the best technology.

And the way you do that is by investing in and working with startups. He was an early investor in defense tech darling Andral Industries, leading their Series B for A16Z, and has funded a flurry of other startups. Yulevich joins me here on the heels of A16Z's recent American Dynamism Summit in Washington, D.C. to break down where he's investing in the space economy and where he is not. I'm Morgan Brennan, and this is Manifest Space. David Yulevich, general partner at A16Z. So great to have you on the podcast. Thanks for joining me. Yeah, it's great to be here. Good to see you, Morgan.

So you're fresh off of the annual American Dynamism Conference Summit that Adresa Horowitz has started hosting. And in many ways, it's your baby. I think let's just start there and talk a little bit about that. And then I want to dive into space with you. Sure. Yeah, we had an all-day summit yesterday. That was the end of January for us. And we've come to Washington, D.C. We think it's important to bring the founders and the Silicon Valley community to Washington to meet policymakers, to meet members of NASA, the DOD, all aspects of our federal government intelligence community to really bring, you know, really, I think that the key thing here is to

bring the voice of startups. You know, a lot of the big companies have lobbyists, they're in Washington all the time. But, you know, the startups don't have a voice here, they don't have the relationships. And the policymakers want to find out about the emerging technologies and what's really happening from the people that are doing the work. So we had the CEO of a nuclear reactor company. We had the CEO of a satellite bus company that's making it easy to launch satellites into space. We had the CEO of a company called Astronis that's putting geostationary internet satellites into space. We had a bunch of the defense manufacturing companies. We had the CEO of Anduril here.

And it was really just a great set of conversations. Then we also had the Deputy Secretary of Defense give a talk. We had FBI Director Chris Wray give a talk. It was really a fun day with the goal just being to build relationships for people who don't usually get to have a presence in Washington. What's so amazing to me is I feel like 20 years ago, maybe even 10 years ago, we wouldn't be having a conversation about a summit where we're talking about defense tech, we're talking about space, we're talking about a startup ecosystem that is interfacing, increasingly

interfacing with government and looking to take on more contracting and disrupt some of these longstanding processes that we've seen, whether it is on the space side or the defense side, or I mean, other sectors too, health, et cetera, energy. But I guess, how does it speak to the way that that startup ecosystem has changed and the role that you and Andreessen Horowitz are playing in it. Yeah. I mean, look, first of all, the origins of venture capital come from the defense industry. In World War II, the origins of venture capital were created to help do research and development, whether it was in microprocessors or in new manufacturing capabilities, communications capabilities, electronic warfare capabilities.

And then, you know, as you think about the rise of the internet and the rise of enterprise software and consumer software and social media and mobile and cloud and all these things, you know, the entire startup ecosystem really shifted away from that defense industrial base and focused on just all these other cool things. And, like, we're the beneficiaries of all that. I have a great phone in my pocket. It's a remote control for my life. I have great enterprise software now. So that's a great database software.

All these technologies are really wonderful. But the world has changed. And I think that there's a recognition from both founders, startup founders, that they need to be building something that's really something that they think is the highest and best use of their time. And the policymakers and the decision makers in Washington and the people that run our DOD and our intelligence community and our space agency, they all recognize that we need to have the best technology. And the way you do that is by investing in and working with startups. And so there's a number of programs in Washington that have now been created to make it easier for

startups to sell to the government. If you think about even just take example, let's just talk about defense for a second. If you think about the fight of the future, it's probably not going to be a fight that is marked by big aircraft carriers and America deciding what day we want to fight. You know, the last 20 years we've gone in the Middle East and we said, hey, you know, it's Wednesday. It's not the right day for us to fight. We're going to we're going to go in and attack on Thursday and do a counterinsurgency on that day. You know, we sort of got to control the battlefield. The fight of the future won't look like that. It looks like what we're seeing in the Ukraine, which is a lot of electronic warfare, a lot

of drones, a lot of autonomy, a lot of very small, very nimble capabilities that, you know, we have just not invested in in this country for our history because we haven't had to. And now we do. And so it's really wonderful to see that there's startups building in these areas and the government's just getting much more open-minded and building the programs to facilitate buying these things, testing these things, and getting these things in the hands of our warfighters. And the same thing is happening

in space. Now that we have SpaceX, it's very easy to put something into space. In fact, I think in January, we had now two dozen launches of rockets into space in January, which is just incredible. And there's a number of people that have now launched satellites into space. You can reliably put the Falcon, you put a satellite on the Falcon 9 and get something into space. We've seen that you can have new communications capabilities with Starlink. And so it's just an exciting time. And I think that we're at this like sort of technology inflection point where we're getting the benefits

of all this new software, commodity hardware that's readily available and a willingness from the government to really support startups and enable them to bring those best technologies into the government sphere. Now, you touched on it a little bit earlier, but what are you investing in then? What's compelling when you look, especially across the space startup landscape, what seems like a really good idea to put money to work right now? Yeah. So, I mean, I would say my main focus areas, which I thought were independent areas, but actually over the last few years, I've realized they're actually all very interrelated.

I would say are defense, energy, space, and public safety. And in space in particular, we want to make it easier for people to put things into space. So we've invested in a satellite bus company to make it easier for people to put things into space. That company is called Apex Space. We have been looking at space-to-space communications capabilities, so laser-based communication that both improves the bandwidth and speed of communicating for satellites and other space-based vehicles in space,

as well as communicating back to ground, that's gonna be increasingly important. I'm very interested, I haven't made an investment yet, but I'm very interested in what we call space domain awareness. So just having full understanding of what is happening in space, both from a safety standpoint,

as well as from a national security standpoint. We want to know what's in orbit. We want to know who's putting things in orbit. What are the capabilities? And then I think there's an entire sort of ecosystem around space. I view space like the new world, which is like once we can reliably get to and from the new world, you know, it opened up a whole economy and space is the same way. It's very easy now to reliably put things into space. And I think very soon we'll be able to reliably bring things back from space.

And once that happens, there's an entire space economy that unlocks that's just super, super exciting. How long do you think all of this takes? You know, I think historically, first of all, as technologists, like I've been a technologist my whole life and I guess professionally for over 20 years and an entrepreneur and an investor. And we're very, very bad at predicting how fast the future comes. And so I think the famous adage is like, you know, the future comes very, very slowly and then all at once. Right. Like take electric vehicles. We didn't have them. We didn like take electric vehicles we didn't have them we didn't have them we didn't have them and all of a sudden now we have them all over the place teslas are everywhere we have rivians and you have priuses it's just like everyone now it's like

has an electric car uh and so it's hard to predict but i think that if you look at the pace of spacex you know these things take about a decade but once they happen once they it like unlocks it happens very quickly so i think bringing things back to from space to earth my hope is that in the next five years we're in a next we're in an exciting place where that's happening and then within 10 years it's just like an everyday occurrence to the point where where we are with spacex where it's just like oh yeah we had we had 24 landings in january bringing payloads back from space whether it's from manufacturing uh oh, yeah, we had 24 landings in January bringing payloads back from space, whether it's from manufacturing or other capabilities. We want to bring things back from space.

I mean, the theme I'm hearing or I'm pulling out in terms of how you're approaching space as an investor is that it's really about space and space economy for the betterment of Earth. Totally. Yeah. And I guess, what do you think of space exploration? I mean, you're starting to see this economy slowly emerge. And I realize that the timeline here might be much longer, but around like a lunar economy, for example.

There's obviously a focus in part, thanks largely to SpaceX, around Mars, beyond that. I guess, how do you think about that? I mean, are those types of opportunities even investable now, or are those in the future looking beyond us being able to bring stuff back to Earth? Okay. I think they're investable for some people. They're probably less investable for me. I think building a company is hard enough that you kind of, I try to avoid things that are still a little bit science fiction-y, but there are a class of investors that really sit on the frontier of investing and will invest in somebody who wants to build,

you know, a mining company for Mars or a lunar mining company. That's still a little bit far out, you know, but maybe something like a lunar rover or better capabilities on the moon. That is something that's reasonable. I think that for me, what's held me back from investing in sort of like the future space economy is that I want a company to be able to be successful on its own and not rely on the kindness of strangers, to use an old expression. And so until we can reliably get things back to Earth, it's hard for me to make a bet on a company that's predicated on that existing. I do think it will exist, but I don't know the timeline. And so I'd rather focus on people that don't need that as a requirement for their success. So putting satellites into space,

that's great. Improving communications in space, space domain awareness, space-based communications, imaging and sensors back to Earth, that's really important. Even imaging and sensing in space is really important. So all those kind of capabilities I think are all investable today. But like, you know, I got pitched to a startup that wants to do in-space refueling. I think that's a tough sell for me today. but I also, I think there's probably another investor out there that will be really excited by that, and I hope they get funded. How important do you think it is to have a government, have government involvement or government support to be able to actually invest in some of these

ideas or invest in this emerging space economy that's taking shape in general? Look, I think what I would say is partnership with the government is critically important. The actual money from the government, I think, is less important. You know, America has always been able to capitalize and fund great R&D projects. And we're really, really good at that. But we're operating in these regulated environments, and what the government needs to do is oftentimes reduce and remove a lot of the regulatory overhead that they've created, and I'll give you an example with nuclear energy, for instance.

You know, we have something called the AP1000, which is a nuclear reactor we just turned on in Georgia, the Vogel reactor. The actual model that we built is called an AP1000. Well, which is a nuclear reactor we just turned on in Georgia, the Vogel reactor. The actual model that we built is called an AP1000. Well, that's a model that anybody who's allowed and has a license can build. And so China has also built an AP1000. They built theirs in six years. It took us more than 15 years to build ours. Ours was like billions of dollars over budget. And that's just because we just make things much more difficult here from a hiring and employment standpoint, from a, you know, you got to like do all these environmental studies. And look, some of these things are really important. Having union workers

might be really important. Paying these people all the right wages is really important. Doing some of the environmental reviews are really important. but I'm not sure that the long list of a thousand things that we have to do, and maybe it's even many thousands of things, is that all of them are actually required and they've just been cascaded and added up over time. And so I think the government role is less about the funding, although that's great when they do that, or it's even better when they're just a customer rather than just funding things. But really, making the regulatory pathways actually navigable by startups so it's not just the big incumbents and there's not this regulatory capture through paperwork, which often happens, is to me much more important.

I'm not too worried about the capital. It's just like you got to let these companies actually have a chance of succeeding. It's such a key point. And I don't think we talk about it enough, especially it's easy to your point to kind of talk about what it means in terms of defense dollars

or in terms of monetary funding or monetary support from NASA or et cetera. But the idea about regulation. I mean, remember, you have to remember SpaceX had to sue there, had to sue NASA. Like, you know, it's terrible when you have to sue like your biggest customer. Yeah, just to compete. Right. I mean, that that is kind of just to me is just like an amazing example of things were so bad that you had to like sell your best customer and partner to sue them. Like that's how bad things are. And, you know, look, that SpaceX was a big enough company at the time and had money to do that. But there's lots of small startups that can't do that. And we just, that's what the government really needs to do is say, hey, look,

our job here is to safely enable technology and capabilities and make sure that we have the best tools and capabilities, not to just constantly add layer upon layer of every department has their own checklist and thing that has to be approved and has their own committee and their own review. And it's just like, come on, this is crazy. I mean, there's been a lot of talk. There's been some movement, perhaps, whether it's on the defense side or whether it's on maybe more so even on the civil space side, you've seen some movement.

Does it go far enough? Is it moving fast enough? No, of course, I mean, look, I'm an entrepreneur and a venture capitalist. So of course I'm gonna say no. What I will say is that I think that what I've noticed over the last four or five years of really increasing the amount of time I spend in Washington, and I'm in a hotel room right now in

Washington, D.C., spending more time in Washington, is that the enthusiasm and appetite and people's understanding of the need for change in our processes, and that many of our institutions and the government have become very bureaucratic and have become too rigid and have sort of atrophied from their original mission and lost some of the muscle of that dynamism and you know how to really support a dynamic sort of technology base and industrial base and space base. There's a sense that they do need to change and they want to change. But he's kind of like, look, if you don't go to the gym for two years and then all of a sudden you're like, it's time to work out, you're going to get hurt. You forget how to do it. You forget how to lift weights. So I think there's a lot of people in our government that want to do

all the right things, but they kind of forget how to do them. They forget how to clear the pathways. They forget how to say, hey, wait a minute. We don't have to do that review. We don't have to do that checklist or process. Like that actually turns out to not be that important. And actually, there's even lots of cases. I'm an investor in a nuclear energy company where they're going to be applying for a special kind of a license that's actually never been granted in the history of the Nuclear Regulatory Commission. And so it's like, there's nobody in the administration, not even just somebody who's retired, they've never actually granted this kind of license. And so they're going to have to figure it out for the first time. And

they need to have this mindset. It's important for these government employees to have this mindset of like, look, I actually want to enable this. I want to do it safely. I want to do it with the right parameters, but I need to enable it, not just say no. And I do think that that has improved a lot over the last four or five years. So I'm, like, I'm an optimist at the end of the day. And I believe that we have people in the government who all want to do the right things. They're very patriotic, but they need to develop that muscle of how do I, how do I like, it's like going to the gym. Like I said, like they they have to develop that muscle, like how do I about space specifically? And I ask that knowing that we had this flurry of exits, if you will, with the SPAC boom, which a lot of debate on whether that

was actually good for the space sector or not. Yeah. Well, look, we didn't participate in the SPAC boom. I think that was, you know, it's like lots of shortcuts in life don't really work out. And I think for a lot of companies, those shortcuts didn't really work out. Companies went public prematurely or they raised the wrong kind of capital or they thought they were going to raise this amount of money. And by the time they got done with the SPAC, they only had a fraction of that amount of money because people had done these redemptions and pulled back the money. So we didn't participate in that.

I think companies have to get the right kind of financing at the right time. Ultimately, the best kind of capital for a company is from customers and its revenue. I think the companies we're investing in, we believe can all be self-sustaining, enduring, really, really profitable businesses. And then they go public or they get acquired. But the goal is to build self-sustaining, great businesses. And we try to find the best entrepreneurs to do that. You know, right now in this country,

we have like a very chilled effect on M&A. So I think most entrepreneurs are not building to sell their company. They're building to build a longstanding, enduring company. We've seen with, you know, Amazon just bailed on their acquisition of iRobot, Adobe bailed on their acquisition of Figma.

So like, look, if you build a great company, nobody can buy you anymore is the current environment, whether it's in Europe or even in the US. And so I think companies now are just like, look, we got to build a great company and be independent and either go public or stay private like SpaceX has and provide liquidity in

other ways. Do you think that changes anytime soon? I don't think that changes anytime soon because even if we have an administration change here in the US, Europe is so proud of their ability to just regulate everything and destroy all productivity. You know, they're currently doing victory laps of all their AI regulation. I'm not sure if they really understand that that's not really the victory lap to be doing. So I don't think that's going to change anytime soon. And honestly, look, it's not ideal,

but at the end of the day, we're trying to back these companies that will be the great, big independent companies of the future. And there's always liquidity for investors when you have a great company. In fact, again, SpaceX has demonstrated a model where they haven't gone public, but they provide liquidity to people. I think roughly every six months they're doing tender offers. OK, so 10 years from now, you and I sit down, we have a conversation.

What do you think the world looks like, especially through the lens of your portfolio? Sure. Well, I think, you know, companies like Anduril have become clearly established great defense primes. Companies like Radiant Nuclear are shipping modular micro reactors that can be transported around the world to support people in the case of a natural disaster, to support people that need enduring and reliable power. We have companies like Apex that are enabling anybody with a great idea

and maybe a little camera or a sensor that they want to put on a satellite bus and get into space in a couple of weeks. I think that we'll be the place where if you have an amazing piece of technology and you say, hey, I want to get it launched into space in two weeks, the combination of Apex and SpaceX will make that possible. I think hopefully in 10 years,

we'll be the place where we can bring things back from space. So if we're doing manufacturing in space, that'll be possible. I'm pretty excited about the future. I think we will have made the shift to a much more electric future. So we'll have a much more reliable electric grid that's a lot less brittle and helps us cope with our insatiable thirst for energy. I think we're going to see massive data centers get built that have massive AI compute. I mean, I think in the tens of billions of dollars, we'll be making semiconductors in North America. I think that's critically important. So we're going to see a massive semiconductor. I think 10 years, maybe that should be the rough timeline to make semiconductors here and have real semiconductor manufacturing in this country. So pretty exciting

time, I think, in 10 years from now. You said you're an optimist. I'm on board with the optimism. I look forward to checking back in and seeing what the world looks like in a decade. In the meantime, David Yulovich, thank you so much for taking the time. Appreciate it today. Thanks. Great to be here. 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.