Earlier this week, SECWAR Pete Hegseth announced a major shakeup for how DoW will procure, test, and field unmanned and autonomous systems, establishing a new Direct Reporting Portfolio Manager (DRPM) for UxS (see full memo here). So, as always, David Rothzeid and I have a new episode of the Techquisition Edition of the Mission Matters Podcast to break down what exactly this change means for startups.

We cover:
🇺🇸 What exactly is a DRPM?
🇺🇸 How does this DRPM compare to others like Golden Dome, Submarines, and Critical Major Weapon Systems?
🇺🇸 What falls under the new DRPM's portfolio and what doesn't (mUSV + CCA are not included)?
🇺🇸 The history of U.S. military drone programs from GWOT to Replicator to DAWG to Drone Dominance to JIATF-401

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

Subscribe now

Transcript

Maggie 00:36

In this episode of the Techquisition Edition of the Mission Matters podcast, we discuss the Pentagon’s new memo establishing a Direct Reporting Portfolio Manager, DRPM, for unmanned and autonomous systems, UXS. This is a major shakeup in the way the Department of Defense will procure, test, and field unmanned and autonomous systems. So of course, David and I are here with an emergency pod to break down the memo and what it means for startups. Just as a disclaimer, we’re going to use the term Department of Defense in this podcast. We recognize the department is doing business as the Department of War, but statutorily it’s still referred to as the Department of Defense, so that’s the nomenclature we’ll be using. David, thanks so much for getting this put together on such short notice. I know we were all scrambling to figure out exactly what this memo meant last night and this morning as we were preparing for this podcast. Let’s start with a basic question: can you explain what exactly a Direct Reporting Portfolio Manager is, and why create this new DRPM UXS in the first place?

David 01:46

Yeah. Awesome. Thank you, Maggie. It’s great to be here on an emergency podcast, and I guess I’ll save talking about the US versus Bosnia and Herzegovina matchup for somebody else as we dive into what’s happening in our world. But a DRPM is basically a high-level Pentagon official with extremely wide authority across all the services and other programs that might be doing similar activities. I think the term people like to throw around in the media is a “czar” for a broad acquisition area. This memo from Secretary Hegseth establishes a DRPM for unmanned systems, or as you said, UXS. And it calls this person the single joint integrator for all unmanned and autonomous system programs across the department. In practice, this means this person officially reports to the deputy secretary and oversees every drone or robot program, from micro unmanned aerial vehicles, or UAVs, to large autonomy projects. Though, notably, it did carve out the Collaborative Combat Aircraft, which will still retain ownership inside the United States Air Force, and then the Medium Unmanned Surface Vehicle, MUSV, will still reside, I believe, in the portfolio acquisition executive, or... remote autonomous systems, robotic —

Maggie 03:21

Autonomous systems.

David 03:22

— DAE/RAS, in the Navy.

Maggie 03:26

So how exactly is a DRPM different from, say, a normal PEO, portfolio executive office, which have now been rebranded portfolio acquisition executives, or PAEs, or something like a joint program office?

David 03:41

Sure, yeah. Lots of changes in the acquisition world, and at times like this, things might feel like they remain the same, but certainly the terminology and lexicon is changing all around us. Normally, each service will have its own PEOs. Now, as you identified, PAEs, or across the Fourth Estate you see these joint offices focused on one weapon or platform, and now we’re taking this more portfolio approach. The most famous example of a joint program office would be the F-35, or in the Pentagon we call it the JPO. And they report directly to the Under Secretary of Acquisition and Sustainment. So the DRPM is actually even higher up in the food chain, as they report directly to the Deputy Secretary of Defense. On the PAE side, each service has lots of these, and they’re now organized around these larger buckets of portfolios, whether that’s fighter vehicles on the Air Force side or different sets of technologies grouped together. And they report through their service secretary. On the Air Force side, they’d report through the Assistant Secretary for Acquisition, or as I know it, SAF/AQ. And then, as kind of alluded to, these DRPMs are across all the service chains and can downward-direct on priorities and standards, and even reprogram funding within certain limits as designated by Congress. So in the example of the DRPM UXS, they’ll take precedence on all acquisition matters related to unmanned system programs, and report directly to the Secretary of Defense and the deputy. So effectively, they’re becoming their own milestone decision authorities — almost above your traditional program acquisition and portfolio acquisition executives, who are also milestone decision authorities for their respective programs. So there’s a lot of crosscutting and matrices across these different reporting chains.

Maggie 05:53

So are the DRPMs going to be the organizations in charge of the budgets for these different programs? Are they the ones making decisions on who actually wins these contracts?

David 06:03

So in the short term, yes. They’re going to be working in concert with a lot of these program offices, or PAEs, that are already underway. I recall listening to General Guetlein — that was the first DRPM stood up, for Golden Dome, around our missile defense architecture — and he has highlighted the fact that he can reach into Space Force or into the Missile Defense Agency and redirect a lot of their initiatives and activities to make sure it’s tracking towards a holistic architecture. And in the case of these unmanned systems, whether it’s aerial, ground, or maritime, making sure that we are leading up to certain standards — data links, not allowing the services to have as much autonomy, which then might lead to a situation where certain assets are unable to communicate with each other because those platforms or programs were developed in isolation from the other services. And as we know, in a joint force, if our systems and platforms aren’t able to communicate with each other, then the whole is less than the sum of our parts. And so for this DRPM, the intent is they can downward-direct certain things to occur that maybe otherwise wouldn’t, or would have to be reworked after they’re already fielded, which is a huge problem across the department.

Maggie 07:39

Is there any precedent for this kind of setup?

David 07:42

I like the example of JIEDDO — the Joint Improvised Explosive Device Defeat Organization — which was established in 2006. So go back to 2006, and we’re at the height of the wars in Iraq and Afghanistan, and our adversaries are using a lot of IEDs, improvised explosive devices, and causing havoc across our ground forces. And so JIEDDO was stood up to figure out a solution, and came up with the Mine-Resistant Ambush Protected vehicle, the MRAP. Now JIEDDO no longer exists — eventually it was turned into JIDA, which then got folded into DTRA, the Defense Threat Reduction Agency. I recall at the end with JIDA that they were doing a lot of counter unmanned aerial systems work, counter-UAS. So it’s kind of ironic that now we’re skipping forward, and the department is once again putting forward a joint organization — now what we’re calling a DRPM — to tackle some of these same issues we’ve been dealing with all the way back to the mid-2010s.

Maggie 09:05

And are there any more recent examples of these DRPMs being used?

David 09:10

So I alluded to General Guetlein, who is leading Golden Dome, and that was the first DRPM stood up last year. And then there were a few others. We had the submarine acquisition DRPM, and then in the Air Force, General Dale White — he’s in charge of strategic air systems, which includes the B-21, the F-47, Sentinel, and maybe a few other programs. But essentially, what we’re seeing is a prioritization of certain programs that the deputy secretary has decided to put their thumb on the scale for, taking it out of the services themselves. So with the B-21 and the F-47, you’d expect the Department of the Air Force to have senior control and just report to the deputy and the secretary. But in this case, it’s like: “Not so fast — actually, we’re going to pull it out.” The funding still resides in the budget line of the Air Force in the case of the B-21 and F-47, but OSW, or OSD, has decided we’re going to take a hard, fast look at this alongside you.

Maggie 10:23

What are some of the other changed authorities with this new DRPM?

David 10:27

Yeah, so the memo grants pretty broad planning and oversight powers. The DRPM, for example, will provide oversight and authoritative direction for programming, planning, and budgeting for all unmanned system programs. It gets direct input related to all the different program elements, or PEs, across the president’s budget, and can direct changes to the service budget submissions in coordination with DCAPE and the comptroller. So it certainly gives them a lot of latitude across existing budgets and funding. You might recall that the Defense Autonomous Warfare Group, otherwise known as the DAWG — the president’s budget requested, I think, fifty-four billion for fiscal year ‘27, starting October 1st. We’ll see how that ends up shaking out in the appropriations bill. I know HAC-D came out with a mark, and we’ve seen some marks from HASC and SASC, and it’s not nearly to the level of fifty-four billion. So whether or not the unmanned systems DRPM has the ability to execute across these different lines of effort really depends on whether Congress is putting funding into these program elements that the DRPM is taking oversight and control over.

Maggie 11:52

Let’s back up here for a minute. I feel like every six months or so, there seems to be a new initiative coming out related to how the Pentagon is going to acquire and field drones and other autonomous systems. During the Biden administration, we had Replicator, that ultimately turned into the Defense Autonomous Warfare Group, or DAWG, under Special Operations Command. We had the Drone Dominance Initiative. We had JIATF-401 — that’s the Joint Interagency Task Force 401 — which is specifically focused on counter-unmanned systems. How does this DRPM fit into all those other initiatives, and why is the Pentagon so focused right now on unmanned systems in the first place?

David 12:34

Maybe I’ll answer the second part first. Realistically, drones have gone from fairly niche to ubiquitous, and I think we’re seeing a lot of that because of the war in Ukraine. Certainly on the counter side, we’re experiencing that firsthand with Iran and across the Strait of Hormuz. And so I think this memo is sort of a reflection of that speed — it even calls that out in the memo — to start fielding these systems even faster. Now, whether the problem is organizational or not, I think it just shows the importance the department is putting on getting these unmanned systems out there faster. And as the memo highlights, the DAWG, JIATF 401, and Drone Dominance — given that its focus is on group one, group two UASs — are all going to now fall directly inside the purview of this DRPM. So the Army is going to have a major role, specifically on Drone Dominance, which was also being co-led with the Defense Innovation Unit. Same thing goes for JIATF 401. And then a lot of these unmanned surface vehicles for the maritime dominance domain, which was spearheaded by Replicator and now, I think, falls under the DAWG and Task Force Able — that’s all going to come under the oversight of this DRPM, which I think just gives it more emphasis across the secretary.

Maggie 14:11

One of the things I find so interesting about drones and unmanned systems is this is not a new technology. We’ve been using these unmanned systems in warfare for several decades now, at least since the War on Terror, if not before that, in Vietnam and elsewhere. But the way we’ve used these systems has not really changed, despite there being huge leaps in the underlying technology — the cost of robotics hardware like motors, cameras, actuators. They’re much cheaper, much better than ever before. We have meaningfully better edge compute than ever before. We’ve seen huge improvements in computer vision, in AI, in controls software — and yet we still seem to be treating these systems like the old Reaper and Predator drones we had in Afghanistan, Iraq, and elsewhere.

David 15:02

Yeah, I think you bring up a good point. It feels like we just took a hard paper copy and digitized it — you fill it out the exact same way, just on your computer instead of by pencil — not really taking advantage of the underlying opportunities that being digitally native would provide. And trust me, I’ve been on programs where the MQ-9, the Reaper drone, has certainly gotten better. But it’s a far cry from where we’re seeing commercial technology advancing. And a lot of this comes down to the tactics, techniques, and procedures, and the concept of operations, and how we think about employing these systems. So my hope is that one piece of this unmanned systems DRPM is really thinking through how we exercise and operationalize this technology, and ultimately change the nature of how we train and think about fighting. It’s certainly changed the battlefield in Ukraine, and I’ve got a lot of friends who have just come back from there not too long ago — and certainly we have an investment that was born out of Ukraine in the company called UFORCE. The drones have changed the character of war in a major way, and I’d say this DRPM is maybe getting after that in a more emphatic manner.

Maggie 16:33

What exactly is the Defense Innovation Unit’s, or DIU’s, role in this new DRPM’s initiatives? And more broadly, how is DIU’s role changing in terms of managing autonomous systems and unmanned systems for the department?

David 16:48

Yeah, so going back to one of our earlier Techquisition Edition episodes, we talked about the acquisition transformation memo that had come out, I think, in the November timeframe. Emil Michael, the Under Secretary for Research and Engineering, has been very fixated on consolidating some of the innovation organizations. The Defense Innovation Unit was made a field activity, reporting directly to the CTO, or Emil Michael himself. But for the purposes of this program, the memo actually explicitly calls out DIU at least twice, and the main piece is that DIU will serve as the primary industry engagement interface between the Department of War and the commercial industry for all unmanned and autonomous system programs within the DRPM unmanned systems portfolio. So I think what you’re going to see is DIU playing a front-and-center role — the front door for industry — engaging across a lot of these different contract opportunities, solicitations, and prize challenges — the things DIU does best — as a means to, one day, show off your capabilities to the department, and ideally that results in prototype contracts, production contracts, and maybe, at some point, programs of record.

Maggie 18:15

Let’s talk about the budget. What has Congress actually funded for Replicator, DAWG, JIATF 401, and the other programs that are now going to be under this DRPM?

David 18:27

Sure. Yeah, I think we’ve got to go back to the beginning with Replicator, when it was announced by then-Deputy Secretary of Defense Kathleen Hicks. They had to repurpose fiscal year ‘24 RDT&E funding, and then they tried to reprogram significant other pots of funding. It wasn’t until fiscal year ‘26 that the budget for the Pentagon added $225 million for the DAWG, and now FY27 is coming around. We already mentioned the president’s budget, which tried to ramp it up to over $54 billion — with a B — for the DAWG. At the same time, the JIATF 401 program is getting hundreds of millions of dollars to execute its counter-UAS program. And whether or not programs like the Medium Unmanned Surface Vehicle are tied to any of these is a little challenging to understand and figure out. But needless to say, I think what we’re going to see is significantly more funding going after these projects and programs, and that aligns with the $1.5 trillion top line — the base budget of $1.15 trillion plus the $350 billion in reconciliation. Of course, it’s still yet to be seen how that plays out for FY27. But needless to say, if you’re a company, this is definitely a space to look out for, where I think greenfield activities are going to thrive, assuming your technology works and is poised to scale.

Maggie 20:11

And of course, this all relies on Congress actually passing a budget this year.

David 20:15

Indeed. With the midterms — I’m no prognosticator — but we’ve had a continuing resolution most years, unfortunately a few years with a government shutdown, and very few budgets passed on time. So a betting man would likely say the continuing resolution. I put it to my sweat-equity counterparts a few weeks ago, and most people thought we wouldn’t get a budget until after Thanksgiving.

Maggie 20:46

What should startup founders and investors make of all of this? Any immediate advice?

David 20:53

Yeah, at the end of the day, if you’re a company, ideally you’ve found a champion or a stakeholder somewhere in the department who is aligned to the mission of your unmanned system. Keep them close. But recognize that there are going to be more stakeholders engaged in some of the decision-making. With that burden, I think comes additional opportunity, because these stakeholders are now probably going to get faster-aligned around the meritocratic solutions that are poised to scale. So it might be more work, and things might be a little bumpy in the near term, and it wouldn’t surprise me if certain contracts that were deep into an RFP cycle, and maybe out for negotiations, potentially get held up. At the same time, for those ongoing competitions, seeing additional oversight from OSW and other stakeholders tied to this DRPM probably means that moving to production is going to be of significantly more value. At the same time, we’re in July, so we’re headed towards the end of the fiscal year. The two-year fiscal year ‘25 RDT&E funding is poised to expire, and the FY26 operations and maintenance funding is set to expire. So maybe contracts being negotiated right now will still get awarded because of all these parameters around fiscal law. But come next fiscal year, I’d expect to see some larger programs being announced, and with it, a large, sizable slate of stakeholders. So make sure your program office or your user advocate is engaged in this new DRPM. And if the Defense Innovation Unit isn’t part of your engagement outreach, and you’ve got a capability that’s ready to be demonstrated, you should definitely be engaging.

Maggie 23:07

Great. Well, David, thank you so much for sharing all these insights. As we always end these podcast episodes — what do you think will be the next Techquisition Edition of the Mission Matters podcast?

David 23:19

Well, truth be told, Maggie, I think we’re maybe a little delinquent on behalf of our listeners — we probably should have done one on some of the NDAA bills that came out of HASC and SASC, and then there was a HAC-D bill as well. What I will tell our listeners is Maggie and I are planning something special, which is maybe why it’s taking a little longer. So maybe not an emergency podcast, but it should be fairly informative. That’s what I think our next one will be.

Maggie 23:52

Great. Thanks so much, David.

David 23:54

Thank you.

In the latest Mission Matters Podcast episode, David Rothzeid and I sat down with Oleg Rogynskyy, CEO of UFORCE, Ukraine's first defense tech unicorn, to talk about what it takes to build systems that actually work when lives are on the line.

A few things that stuck with us:
• A PACOM general told Oleg: "If you can't fix it with a coconut on an island, I don't want it." Most Western defense tech can't pass that test.
• UFORCE has flown more combat missions than all Western defense tech companies combined, and is expanding to NATO allies and the US market now.
• Ukraine's acquisition model is outcomes-based in real time. Units rate their weapons like Amazon reviews, updated from missions flown that morning.
• The lessons from the Black Sea are directly applicable to the Strait of Hormuz, the Baltic, and the Indo-Pacific.

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security. 🇺🇸

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

Subscribe now

Transcript

Maggie 01:18

In this episode of the Mission Matters podcast, we’re joined by Oleg Rogynskyy, the CEO of UFORCE, Ukraine’s first defense tech unicorn.

David 01:21

UFORCE builds some of the most consequential battle-tested autonomous systems in the Russia-Ukraine war. Its platforms have executed tens of thousands, nay, hundreds of thousands of real missions in highly contested environments, informing not just autonomy software, but manufacturing, supply chains, deployment, and sustainment at scale.

Maggie 01:44

Perhaps most notably, UFORCE builds the Magura Unmanned Surface Vessel, or USV, the first ever naval drone to sink an enemy warship in combat, destroying eight Russian warships in the Black Sea in its first year of operation and causing hundreds of millions or even billions of dollars of damage to other ships. UFORCE also develops several other defense systems, including the Nemesis Unmanned Aerial Vehicle, UAV, Liut Unmanned Ground Vehicle, UGV, and a command control software platform.

David 02:14

In addition to its Ukrainian customers, UFORCE is expanding to NATO allies and the United States, where it will bring its combat-proven systems to an industrial base in dire need. In this conversation, we dive into what it takes to build defense technology that actually works on a real-world battlefield, the lessons the US, the Middle East, and the rest of Europe should take from Ukraine, what it takes to scale this technology beyond Ukraine and more. And with that, Oleg, thank you so much for joining us. I guess first things first, like how are Ukrainian forces using UFORCE systems today, and where are they creating the biggest operational advantage?

Oleg 02:53

David, thank you for having me here, Maggie. So to your question, we have a number of platforms, and they’re all used in different ways in Ukraine. We’re most known for the Magura USV, and in the beginning when there were still, Russian naval assets in the Black Sea in the open, Magura was used in a number of operations, both as, one-way attack strike platform to strike those ships, but also as a short-range air defense platform to defend the swarms of Maguras from incoming aircraft, incoming drones, et cetera. Magura was also used to find subs, to find sea mines, to deliver UAVs to the enemy shore against the hard targets in fully denied environments, and so on and so on. So that’s just one chapter. The second product we have is Nemesis, which is the workhorse of Ukrainian mid strike capabilities. So every night there is thousands of these drones flying to deliver tens of thousands of payloads, to the distances of 20 to 50 kilometers, return back, reload, and go back out again. All of that driven by software that kind of works like DoorDash, where launch teams just go from spot to spot to spot and relaunch, reload, change the battery of the drones. We also have the ground vehicle, called Liut, that, allows Ukrainian forces to, do first ever, trench assaults without any humans on the line. These are fully remotely controlled UGVs, that have AI capabilities in them, have turrets with guns that both shoot down incoming FPVs as well as help, complete unmanned trench assaults, kind of smoking out enemy soldiers out of the trenches. There’s a mo- a lot more I can tell you, but that’s, those are the three main CONOPs we are running.

Maggie 04:52

Oleg, what are the actual combat effects that UFORCE has had in Ukraine to date?

Oleg 04:59

Great question. So, on the maritime front, we have affected latest count, I believe 19 Russian warships, out of which 14 are verified sunk. And then in terms of aircraft, because as you remember, we do, USV, unmanned surface vessel-based short-range air defense and counter-UAS. We’re the first company ever to take down fighter jets. We got two Su-30s, as well as we have two confirmed and a number of unconfirmed, as in we didn’t film them, helicopter kills, over the Black Sea, and that’s the maritime side. The land side, we have flown over 220,000 missions within all versions of Nemesis drones, and that has allowed us to destroy, over 10,000 Russian vehicles And I mean, the body count is really high, as you can imagine. And then, we’re talking over 2,000 armor, we’re talking number of logistics trucks, very large number of logistics trucks. But more importantly, we have been the artillery hunter for the Ukrainian side. So we mow down that thing all day long, every day, all night long, every, all the time. And then we had the technology that got close to 100% of the kills for the North Korean, howitzers that they gave to Russians. So that’s one of the claims to fame.

Maggie 06:32

You know, I think Oleg, I think UFORCE is probably the first company that we have invested in at Shield that had actually been used on the battlefield before we made the investment. What’s it been like building and operating a defense company in Ukraine during wartime, and how has that environment shaped the culture and urgency of the business?

Oleg 06:53

So that’s really interesting because I’m not a founder. I joined as a CEO, two and a half years into the company when the company was already north of $100 million in revenue, and the difference was stark. In Ukraine, everything is real time. You just go and do it right now. You don’t wait. Obviously, there’s downsides in terms of longer term planning, longer term system thinking, et cetera, but at the same time, the sense of urgency, the sense of why it is right now and why it is extremely important is nothing like I’ve seen before. The systems, the communication patterns, everything else in the company is organized around that real-time communication. And that’s different. Now, if you layer on what I’m trying to do, layer on knowledge management systems onto real-time communication, some really good things are happening.

Maggie 07:46

Can you tell us a bit about the origin story of the company and how you came to lead it?

Oleg 07:50

Yeah, absolutely. So the company came together through a merger of initially two companies. One was making Nemesis drone, another one was making a Magura C Drone. And then as those two came together, then became clear that, they were sharing a C2 system by a third company that got brought in. And then turns out there were other companies like a UGV company running on the same C2. So the interesting part is there was a whole cluster of companies and teams that were operating together even pre-merger that kind of were acting as one team, and it was just a very obvious move to bring those together using Western capital and, identify synergies, create scalability across them, start normalizing the tech stack, code base, training, ConOps, TTPs, business development, and so on and so on. So in the end, we now have, I think the latest count was nine companies that have come together, but they all have been operating as one for a while.

David 08:56

Well, like it’s so interesting, and it feels like very organic and like Silicon Valley-esque, right? That everyone’s doing their thing. They’ve got these core competencies. You find these opportunities to sort of collaborate, and then lo and behold, the whole is greater than the sum of its parts, so you start to incorporate raising money, and obviously now headquartered in London and trying to proliferate the combat-proven technology across multiple domains, multiple geographies. And I guess the basis of my question is like how replicable is this, you know, across the Ukraine, entrepreneurial, you know, which has really shown itself, in a pretty inspiring way. But, you know, is UFORCE going to be a one of one, or is this a model that we’ll see happening over and over again?

Oleg 09:47

So I think there is two answers to that one. From one side, it’s replicable. It has to be replicated because the consolidation to achieve scale, especially as the war in Ukraine ebbs and flows, will need to happen. Like at our size and scale, we can, not only continue leading in Ukraine but also start expanding to other markets. On the other hand, the bottleneck is actually in the leadership talent And there’s only so many, leaders out there who have done, and it’s not just me, it’s my whole leadership team, who have done work with Ukraine before, but have also seen Western large scale companies that allows them to not figure out things on the spot, but also bring in Western governance, scalability, finance, and other capabilities to the bear, to combine it with the product market fit that was achieved by the Ukrainian, ingenuity, iteration, and exposure to a real war.

Maggie 10:51

Yeah, Oleg, I think that’s an interesting point that you make. I know that your experience previous to this was as a CEO of a software company in Silicon Valley. Can you talk a little bit about how you bring some of the principles from running a business like that, which as far as I know, had no connection to defense into this new market area?

Oleg 11:11

Yeah. Running a software in AI company in Silicon Valley taught me a lot. I mean, what’s happening in defense right now is that there is a massive amount of growth opportunities happening all the time, and that means you gotta be hiring fast, but with really, consistent quality. You have to be working with capital markets. You have to be thinking about, capacity models, both on the manufacturing but also on the sales side, on customer support, success, et cetera side. And SaaS and AI were the places where those skills had to be developed at significant, scale because of the templatization of, SaaS industry that happened in between 2010 and 2020 or so. So having learned those pathways, having learned those patterns, has been extremely helpful in order to scale up this business very quickly. I mean, we went from over, from about 800 people to 13, 1400 people in less than Nine months, 10 months, something like that. So the growth is staggering. The bookings growth, I don’t wanna talk about it, but it’s also staggering. And all of that is only happening if you’re able to hire people at consistent, significant scale and consistent quality. And then one more thing to actually to bring to that is we learn how to run efficient companies in Silicon Valley between 2020 and 2024, kind of through the downturn, through COVID, et cetera. And so scaling up a business like UFORCE is very hard on its own, but scaling it up efficiently without lighting massive piles of money on fire on stupid things is a lot harder. And then doing that while introducing AI capabilities in every part of the business, both in terms of personnel efficiency, documentation, engineering, sales, everywhere, is also a challenge of its own, especially in high OpSec environment where every minute Russians are trying to get you, and not just Russians. So it’s been probably the most challenging and the most exciting thing I’ve ever done, but man, it’s a lot of work

Maggie 13:33

Yeah, I mean, speaking of some of those OPSEC challenges and, you know, just actually what it takes to build for real combat conditions, can you tell us about some of the biggest technical and operational challenges that you’ve had to work through in order to actually harden these systems for real-world battlefield deployments?

Oleg 13:51

Yeah. I mean, first of all, in Ukraine, everything is kind of move fast and break things because Ukraine knows, Ukrainian soldiers know that whatever is the weapons are today, it’s not gonna be the same tomorrow. So nobody’s focusing on building that highly certified, highly perfect, highly integrated set of systems, just the rate of change is so fast. And so, on one hand, that leads to, really fast iteration. On the other hand, it leads to kind of more dynamic environment that what Western militaries are used to. And then from OPSEC perspective, you have to approach it very differently. If everything’s changing all the time, you cannot defend your perimeter as well, ‘cause you cannot think through every little bit of operational security. And so what you gotta focus on is a lot more prevention of the lateral movements. You assume they’re in, you gotta stop them from moving to other places. Very different, approach in the West, where you have to really focus on your perimeter security, you have to really focus your interoperability to your NATO certification, other certifications, and other integrations and slow things that you can afford when you’re not at war. So completely two different cultures, and you have to be very conscious about what’s relevant from wartime to peacetime and the other way.

Maggie 15:12

Kind of following up on some of the technical deployments here, you know, something I found interesting when you read about what’s happening in Ukraine, in the news and elsewhere, there’s a lot of discussion of autonomy, you know, completely human out-of-the-loop action. But if you actually look at a lot of the technology being used today, most of it is still mostly remotely operated, you know, maybe there’s some small pieces of autonomy in terminal guidance or elsewhere. What will it take to move towards greater autonomy, and how do you see this future of software-defined warfare and UFORCE role in that?

Oleg 15:46

Yeah. So there is an interesting stat for why autonomy is not picking up in Ukraine, and it’s actually harder for it to pick up elsewhere. There’s not enough targets, and so it would be akin to over-engineering if people went for full autonomy right away. There is pockets of it developing really rapidly, such as terminal guidance in denied, in fully denied environments, autonomous resupply using aerial ground and sea drones, Swarm intelligence, but in a very basic way. Like, how do you queue up multiple drones in case one drone gets distracted to another target, opportunistic target? How do you make sure the others are following and both missions get completed? So kind of mission queuing, et cetera. But nobody in Ukraine is thinking about, “Well, I’m gonna send in drones over there and have them figure it out.” The kill boxes are too undefined, the terrain is too complex, the assets are too sparse, the battery ranges are too low. And so from that perspective, it basically would be an overkill. Now, when you look at Indo-Pacific, for example, where distances are massive, you know roughly you expect better ISR, but then at the same time you expect denial and kind of peer-to-peer, fight, autonomy would play a much bigger role there. And so you have to modulate what’s relevant and where. In fact, that leads to the base mantra that UFORCE carries with it everywhere, which is we start with the customer. I call us, we are the first bottoms-up adoption defense tech company. Other defense techs go and go straight to the ivory tower and push the top down. Okay, capture the Congress, shove down $20 billion of contracts down your throat, and then see what COCOMs do. We try to do the opposite, and Ukraine taught us that. We got the users who love the product and ask for more, and then Ukrainian government has enabled commanders of individual units to have a say in what weapons they get to fight the war, specifically of the type that they are facing. And so that’s the approach we’re taking elsewhere. We have combatant commanders of different theaters in the US being very excited about what we do before the Pentagon figures out. We have individual war fighters of war-fighting leaders kind of ask for our hardware because it works, because it’s battle proven before we show up to the procurement teams. And that has been very different Of an approach, and it’s a much more wartime approach. But unfortunately, the world is becoming less stable than more, so that approach is gonna be taking more and more space.

David 18:47

Yeah. Oleg, I definitely wanna jump into it, and I know you brought up a little bit about the Indo-Pacific Theater and INDOPACOM. And then, you know, saying a little bit of heresy there, that centralized control and decision-making at the world’s largest bureaucracy, the Pentagon, maybe isn’t the best path to creating innovation and combat-proven technology. But before we jump into that, maybe just like one quick anecdote for our listeners about how the Ukrainian acquisition system and its fixation on outcomes-based, capability, development and funding versus this requirements-based that we sort of have here in the US, where you have to think about what it is you want to build, then you go and build it, then you test and you iterate, and then at some point it reaches the operational environment. But in Ukraine, it’s obviously been different ‘cause you don’t have the luxury of test and evaluation. It’s just outcomes-based. So can you maybe just highlight a little bit of that?

Oleg 19:53

Yeah, absolutely. So in Ukraine, you don’t have the time. You don’t have the time to develop a thing and then spend couple years certifying it and getting it, and then perfecting it, et cetera. Everything gets to the front line in Ukraine in days, weeks. It gets iterated within hours, gets upgraded. If you don’t ship code same day as you got the mission data, you’re out. And so that’s the speed at which Ukraine operates nonstop, and that’s the only way to play. And so that speed is actually enabled by a number of inventions that only Ukraine so far has. Now, some of them are only possible because Ukraine is in an active fight, and we... at the same time, we’ve seen lack of those innovations, slow things down in the Gulf, for example And what I mean by that is, so in Ukraine, both vendors and units get points for kill videos that they get submitted. So basically, you fly a mission, you got a kill, you submit the video to a government website. There is like a government Amazon for weapons. And the AI verifies that this video is unique and not AI generated. And then, you basically get points, and you can use those points to buy weapons that you want for your next mission. They even have Amazon Prime for that. You can spend more points to get it by tomorrow. And so that is very interesting because it pushes down the decision-making to a unit commander level, and at the same time, it gives the government perfect data of what works. Because if it doesn’t work, people won’t order it again. There is literally reviews you can go and read on every drone and from missions that were flown this morning. I’m not even talking about, like, last year on a slick sheet. And then from there, the government is now starting to layer on more and more data, like how many missions did this system actually fly? How many kills did they have? How many... What kind of units are using it? What kind of operators are more successful with them? So they are now collecting the ecosystem metadata and segmenting the procurement data about what can be bought with factual battlefield data to an insane extent. And then on the other side of this invention, they have created very tight partnerships between the tech partners like us and the units themselves. And so for example, we are closely paired up with Unit 412 Nemesis, which started as a battalion, and then it became a regiment, and now it’s a brigade. And rumors are, unconfirmed rumors, that it’s gonna become a corps at some point And what it means is we started with 100 operators, which became 1,000, which then became 5,000 operators, who could become 25,000 operators that are sitting and whose job is not just to fly missions, but to deliver feedback to us. And our job is to iterate on that feedback in real time with them. There is tens of thousands of code commits and design changes that happen all the time based on that real-time feedback. So now that you know there are units that can access the data and influence procurement in real time through the government system, and all this kit is being co-developed with people that are trusted in real time, things are changing very quickly and improving all the time.

David 23:17

Yeah. That’s fascinating. I mean, it’s a real markets-based approach to capability development and acquisition procurement, and definitely some lessons that could be learned over here in the United States military. Maybe from, like, the operational standpoint, right? Like, the last couple months, the US has been embroiled in a number of different conflicts. You know, there was Venezuela, which went fairly quickly, and now nobody talks about that. And of course, you know, the situation with Iran, Given where our capability deployments have been, and there was a great chart within the first couple weeks of the Iranian conflict that kind of highlighted that there were very few capabilities developed in the last 10 years that were actually operationally being used, in Iran. And I’m wondering, you know, at some point, did the Pentagon come calling or people in Central Command or European command about, “Hey, how can we get some of this stuff over there?” And then, you know, could Ukrainian combat-developed technology be useful to helping the situation with the Strait of Hormuz?

Oleg 24:30

I can’t really comment on specific engagements, but as I mentioned in one of the interviews, the phone had been ringing and has been ringing off the hook, with interest because when you are dealing with the challenges that we saw in Iran, the lessons from Ukraine are directly transportable. These are the same Shahed drones flying. The tactics and concepts of operations that Iranians are using against Dubai and Qatar is no different than what they’re doing against Odesa in Ukraine. Russians are doing it against Odesa in Ukraine. The mining, demining in Hormuz is no different than when Russians tried to mine the grain routes to bring Ukrainian grain out of Ukraine. So the analogy is all there. Maybe the temperatures are slightly different, but the sea is also similar. Black Sea and, the Gulf both go maximum sea state three, and so on and so on. So lots of lessons to be learned from there. Ukrainian experience is extremely, effective there. As you know, there was a delegation from Ukraine helping take down a number of Shahed drones in Middle East. That has been extremely successful, and lots of lessons learned from there, including in design of interceptor drones. Ukraine was able to change how interceptor drones are designed in less than two weeks to match the Middle Eastern requirements, which was very interesting. So yeah. I think, also there is a very effective knowledge transfer that happened from those examples of how Ukraine fights to people on the ground in Bahrain and other parts of US military installations in Middle East right now. People are learning. We saw the Lucas program. There is many other programs where Ukrainian experience is being implemented right away. Now, when is it gonna arrive to Pentagon? Great question. Hopefully soon.

David 26:30

Yeah. And hopefully, your investor at Shield Capital is helping, you know, accelerate that whole process, which I know can feel a bit mind-numbing. Now maybe just real quick, speaking of engaging with the Pentagon, you just hired your US-based CEO, Sean Planke. Maybe talk a little bit about how you met Sean and what you were looking for in somebody to help sort of, push out the US, UFORCE, exposure.

Oleg 27:01

Yeah. So, we got our introduction to Sean through our investors. And then what’s interesting is at least three of our investors triangulated the same person to us around the same time, which was, a great way to know that we’re talking to someone who is for real, where, all of the US really plugged in defense investors we have on the cap table at once said, “That’s the guy.” And then at the same time, just the level of expertise that we saw, the level of ability to navigate, Washington DC, which is not easy to navigate. But also the knowledge of having served, the knowledge of having met a number of people in a number of missions and just being super mission-aligned is something that really caught our eye. Level of energy is more than mine, which is really hard to imagine. But guess what? We were just in a, literally in a bunker with a number of commanders a couple days ago. It was day eight on the job, and I was sitting in the back of the room. I’m like, “Huh, I’m not really needed here anymore. That’s amazing.”

Maggie 28:14

What have been some of the biggest challenges, you know, or unexpected surprises in scaling UFORCE beyond Ukraine to international markets?

Oleg 28:24

That’s a really good question. So early on, about a year and a half ago, it was financing, not private capital financing, but like walking up to a bank and saying, “Yeah, we want some working capital to make some weapons,” was a difficult thing. In the UK, even opening a bank account was a very difficult thing. We had to go through a chairman of a banking group to get someone to open a bank account for us there. Not an issue anymore. Scaling, talent has been an issue because especially in Europe, where there is much less density of venture scale outcomes and so there’s very few, much fewer people who have seen unicorn growth, 10Xing year over year, et cetera. And so, finding those people was hard. And it’s like I’m juxtaposing them with people who come from defense world, which actually historically has been barely growing has been difficult. How do you get hypergrowth people who know defense? In the US, there is a bit more of that because you have hardware companies that have scaled, they have seen hypergrowth that are not technically defense. But, in Europe it’s very much harder. And even the US defense stuff, like we are talking to number of folks we’re trying to recruit from the larger defense tech companies in the US, and all of them are like, “Yeah, we’ve built shit. Nobody has used it, so we don’t really know if we built the right thing. So we know how to build stuff, we don’t know if anybody’s gonna use that stuff.” And how do you hire that? And they’re like, “And how about hypergrowth? Well, we know how to hypergrow a company on investment capital, but it’s not really revenue-driven hypergrowth.”

Maggie 30:20

Yeah, I think it’s an interesting point that you’re making that a lot of these, you know, international companies have not actually deployed technology yet on the battlefield. And I’m curious, what do you think are some of the things that maybe Western, international defense tech companies misunderstand about what it takes to actually deploy on the battlefield? And what will it take for them to get over that hurdle?

Oleg 30:46

Well, like, everything. There’s only two Western companies that I can think of that have real battlefield effects in Ukraine. It’s Quantum Systems and it’s Tekever, and Destinus. Everybody else, I’m sorry, there’s two wars going on right now, and this is, like, my favorite question for investors to ask other defense tech companies. Ask them how many daily active users they have. Like, there is two active wars right now, and you don’t have daily active users, like people logging in and using your stuff daily? What are you doing? And so to that point, the challenges to deploy are, first of all, just even getting your stuff to the frontline is a whole thing of its own. Like, I was just talking to someone who is like, “Yeah, the, this defense tech company showed up and said, ‘Hey, here is our product. Use it.’ Like, great, I wanna modify something. ‘Oh, you can’t do that. Our agreements and everything doesn’t allow. If you wanna pay us more, we can send in our four deployed techs, and they’re gonna try to do something here.’ Most likely they’re gonna have to ship it back.” That was a real discussion with the top three largest defense tech company in the US. And I’m not even talking Prime, I’m talking, like, hard defense startup company. So that doesn’t work in Ukraine. A general in the PACOM during one of the exercises told me something. He’s like, “Hey, when I’m on an island and you can’t fix your thing with a coconut, I don’t want it.” And so that’s the stuff that Ukraine has figured out, that everything is simple, modular, deployable, doesn’t need experienced MIT PhD field technicians, doesn’t need to be shipped back to the HQ for a software upgrade, or whatnot, and it just works. And unfortunately, defense tech outside of Ukraine is not getting that.

Maggie 32:44

How do you actually scale a manufacturing process or manufacturing facility in the middle of an active war when you yourself as a weapons manufacturer may actually be a target for the enemy?

Oleg 32:58

Well, you approach building manufacturing facilities very differently. Like, nobody in Ukraine builds large, beautiful, brand-new facilities with a big company logo on the roof and kind of people wearing white suits, white space suits or whatever it is, inside, and you can hear a pin drop. Like, in Ukraine, if you do that, you’re gonna get a ballistic missile in 40 seconds, and we’ve, uh... Even without doing that, we’ve lost a number of facilities over the years because you become the prime target. If your kit works, Russia is gonna use their 40 million dollar ballistic missiles to take out the manufacturing facility for your kit. And trust me, every one of the Western factories for weapons is already mapped out by China. It’s already mapped out by whoever needs to map them out, and those things will be gone in the first 30 seconds of a hot exchange. Now, what we do in Ukraine is we use, secondhand or underground facilities for pretty much every critical element so that we can withstand missile strikes. There is a lot of operational security protocols on how to stay under the radar, how to not endanger your people, how to know how to behave when an airstrike is imminent, and how to not use your, not lose your expensive equipment, or don’t use the expensive equipment. So the way we operate our manufacturing processes is it, the factory needs to be built from a local Home Depot using components from a local Best Buy, because you will not have the time to wait for nine months for the machine to arrive, and you’re not gonna have, continuous power, you’re not gonna have continuous supply chain technicians to come fix the machine, et cetera. So it has to be something simple, it has to be something scalable, easy to repair, field deployable, and fast.

Maggie 34:58

How did you all think about designing your systems to be able to be manufactured at scale during this kind of environment?

Oleg 35:06

Well, you take the tools you have, and you build what you can with them, and then when they ask for more, you figure out how to do more of it, and you keep on iterating until you get to large scale. Again, Ukraine doesn’t allow you to build for scale right away has to be... Manufacturing is as much of an iterative process as design and as fielding in Ukraine. You cannot plan for it. Spreadsheets don’t work. You, and the way Ukrainian government is purchasing, it’s all supply-constrained right now. So they walk up to you and they say, “Hey, look, how many can you make? We’re gonna give you margin on top, and we’re gonna buy everything you can make,” versus kinda shelfware and stuff like that.

Maggie 35:49

How have you all thought about managing your supply chain during this conflict? I know today a lot of the systems that Ukraine fields do still come from China or have a lot of componentry coming from China. So how have you thought about that, you know, right now, and then where do you see that going in the medium to long term?

Oleg 36:05

Well, if your stuff really works, your supply chain is gonna be targeted. So we had our supply chain targeted multiple times, and because of that, as a company, we made a decision to insource most of our supply chain. So we make our own drone motors, we make our own cameras, gimbals, battery packs, frames obviously, hulls, you name it. And so, we had to grow up to be fully NDAA compliant and not depend on Chinese and other non-fully aligned national, sources. And so PCBs, circuit boards, all that stuff has to be made in-house. Now, costs are different, but over time you can drive it down, and at our scale, it’s not impossible to execute.

Maggie 36:52

So how are you seeing international demand for battle-tested systems like UFORCE? I guess, you know, geographically, where are you seeing the most demand, and what kinds of products are people most eager to purchase? I mean, it sounds like you have a pretty unique offering on the market as being one of the only scaled or scaling combat-tested defense tech startups.

Oleg 37:15

Yeah. We think about the world in terms of four theaters that are active right now. You have Indo-Pacific, you have CENTCOM, you have EUCOM, and Ukraine, kind of overall. And from that perspective, the, each of these theaters has different problem sets. And so what we are doing, we are figuring out what are the problem sets we can actually solve with the same platform capabilities across the board. It turns out Magura is relevant in all four theaters. In Ukraine, it’s done its job mostly. But in the Baltic and in the Gulf and in the Pacific, Magura can do different things for each one of them. In the Gulf, it’s demining and counter-UAS against Shaheeds. In the Pacific, it’s all kinds of things, from one-way attack to ISR to demining to sub-hunting to C-UAS, you name it. Same in the Baltic. And so, demand is skyrocketing everywhere. There’s a lot more water outside of Ukraine than in Ukraine. At the same time, the distances are much larger, and we are very good at long distances, high endurance, loitering, delivering payloads, working as a truck to get things over there where nothing else can get through. And then the other part is we’re starting to see more and more demand for our Nemesis bomber drones. You know what’s interesting? I don’t think US understands bomber drones. Two days ago, for the first time, I was meeting with a very senior general in the US Army, and he basically for the first time brought up their interest in droppers and how they’re thinking about it. In Ukraine, droppers are Probably more cost-effective than FPVs in some way. And the battlefield damage for droppers is on par with FPVs, it’s just at the longer standoff distance. And so we’re seeing more and more adoption for the dropper technology in Europe. A major European country right now is deploying, is basically upgrading one of their light armor brigades to full CONOPS and TTPs and software and hardware and doctrine we developed for 412 Nemesis, and then rolled out across 40 brigades in Ukraine. And the moment that started happening, other countries with light, started thinking about what is gonna change about what needs to change about their light armored brigades in order to increase their survivability and effectiveness. Because in the world of FPVs, light armored brigades don’t have a future. And so we are seeing a whole queue right now of light armor brigades, which is leading to a whole NATO FLE, the field lethality experiment, which is kind of like a, when NATO as a whole decides, “Hey, we need to change something as a NATO, recommendation across all forces at once.” And so to summarize, demand for Magura where there is more water, outside of Ukraine, and then demand for Nemesis, where they expect a lot of land fighting and a lot of, kind of 20 to 50 kilometer, effects needed.

David 40:29

Well, yeah, I think, what the picture you paint is both terrifying but also in certain respects, like reassuring that opportunity for the US to modernize its capability, its kit, is very much available and very proven. And so maybe just, you know, Oleg, as we kinda come to the end of this, interview, you know, what is the future of UFORCE? We’ve seen some pretty lofty valuations for a couple of these other defense tech companies that have gotten started in the last 10 years, three years in some cases, right? Anduril just raised that, I think 61 billion, and, Saronic raised, I think just sub of 10 billion. Where do you see UFORCE fitting into this picture, across this emerging defense tech landscape?

Oleg 41:19

Well, at some point, customer is gonna ask, “Does this really work?” And that’s kind of where we come in. We’re seeing more and more war fighters and commanders really focus on being combat proven for their kit. And so in terms of valuations cannot comment on it as you can imagine, but, we’re already a unicorn. At some point we’ll be a decacorn, as they say. But the valuation is not the point. What the point is that battle proven kit is how you save war-fighters’ lives and help them achieve their mission. And, the amount of experience we bring to the table is absolutely unparalleled. I think UFORCE has flown together like an order of magnitude more missions than all of the Western defense techs combined and I haven’t done the numbers, but just eyeballing it looks significantly larger. We’ve flown 220,000 combat missions so far. That’s more than all of US forces have flown in, over Iran, for example. Way more. I think it’s, like, 10 times more. And so the future of this is we’re just gonna keep on scaling. We are building stuff that works. It’s not gonna be the most expensive stuff, it’s not gonna be the most exquisite, but you can always rely on it to do the right thing.

Maggie 42:44

Oleg, if you were the American Secretary of War for a day, what changes would you make to the department, the way it buys and what it buys, to ensure that the United States is ready for this next generation of warfare?

Oleg 42:58

That’s a great question. I actually think there are some really good positive dynamics happening at the DOW. The whole team that came in from private equity background is moving fast, and it’s very encouraging. But, what’s less encouraging is just the complexity of procurement with, COCOMs, combatant commanders, basically being in full dependency of Pentagon, where the actual war fighting leaders don’t decide what they need for their region. They can submit a vote, but they don’t really guarantee you get that, is something that needs to change, it needs to change ASAP. Like, Admiral Paparo knows better than anyone else on the planet how to fight the war in the Pacific, and so he should be getting what he wants and needs. Same with the leader of CENTCOM, same with other leaders. And that’s something that I think, only US has for its size. Like, when we work with European countries, the linkage between the combatant commander and the procurement office is extremely tight.

Maggie 44:07

Great. Well, Oleg, thank you so much for coming on the show. We really appreciate it, and we’re super proud to be investors in your business.

Oleg 44:15: Thank you, Maggie. Thank you, David. Appreciate being here. Thank you, Oleg.

A few things that stood out:

• The legacy code problem is bigger than people realize. US weapons systems still run on COBOL, Fortran, and Ada. These are decades-old languages maintained by a shrinking pool of specialists. Modernizing a single codebase has historically taken teams of engineers months.

• LLMs alone aren't enough for safety-critical code. Code Metal pairs AI code generation with formal verification.

• The shift Peter is betting on: Code generation is becoming a commodity. Verification is where the value is moving. Whichever foundation model wins, mission-critical industries will pay for the layer that proves the output is correct.

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

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Transcript

Maggie 00:36

In this episode of the Mission Matters podcast, we sit down with Peter Morales, the CEO and co-founder of Code Metal AI. Code Metal is building the future of code translation. That is taking code written in one coding language and translating it into a different coding language, and then verifying the accuracy of that translation.

Pat 00:57

Code Metal is focused on building code translation and verification tools for several major use cases, including code-based modernization, edge hardware deployment optimization, and code portability. Code translation projects that previously took teams of engineers months of work can now be completed in just minutes with Code Metal. Code Metal’s capabilities are a crucial part of the future of efficiently developing software-defined commercial products and has many military applications, helping engineers build software-defined hardware products and bringing modern software capabilities to the US government and other mission-critical customers

Maggie 01:41

Since it was founded in 2023, Code Metal has raised close to $200 million and signed contracts with groups across national security and commercial sectors, including L3Harris, RTX, Toshiba, and the US Air Force. The founding team has deep experience in building AI tools for defense, hailing from MIT Lincoln Labs, BAE Systems, Microsoft, IBM, Data Miner, and more. Peter, thank you so much for joining us.

Peter 02:08

Yeah, thanks so much for having me, guys.

Maggie 02:10

So I wanna start with just a softball question. Can you tell us, why would somebody actually want to translate code in the first place?

Peter 02:18

Yeah. Um, that’s a great question, and I think, um, you know, we’ve gotten that even, even some of the folks that have been here a long time have gotten that question that worked on some languages themselves, so the authors. Uh, you know, language is essentially really how you talk to the hardware and command what it does, and sometimes you wanna move really fast, and you wanna speak really abstractly, and that’s what we call, like, high-level languages. They’re great for prototyping. They’re great for maybe writing some different algorithms you wanna try. But then sometimes you wanna run really exquisitely fast on hardware. You want it to be really efficient, and that means having a lot of say in how you control things. If you think of C++, that’s a language where you actually get to decide what you do with the memory, where a lot of other languages maybe don’t worry about memory. Um, that level of control gives you optimization, gives you speed, and so being able to translate code into more optimal code, uh, is, you know, one of the hard use cases of what we do.

Maggie 03:15

And I should think of this of, like, if I’m trying to put a computer vision algorithm on a drone or on a satellite or something like that where I may not have access to a whole lot of compute capabilities, that’s where I really care about this kind of optimized code. Is that the right way to think about it?

Peter 03:28

Yeah, yeah. I mean, it doesn’t have to be a drone, right? You want battery life on your phone. You might want battery life on your laptop. But yeah, being able to be efficient is a real reason for translating code. And then on top of that, you might even have different hardware providers, so maybe you’re efficient on NVIDIA, but you wanna be efficient on Qualcomm. Um, having to rewrite your code that, you know, uses their proprietary libraries is a big pain in the butt, but something that I think AI is letting us automate now.

Maggie 03:57

So what does it look like today sans Code Metal? If I am an engineer at a car company or a laptop company or a chip company and I need to build software for these hardware products, or if I’m working in some of these legacy code bases, what does it take to deploy code to these systems, and how can Code Metal fit into accelerating these processes?

Peter 04:19

Well, I, I think there’s a really interesting spectrum here. There’s sort of, you know, I’m building a product and I need to pick and, and really get locked into hardware. So one of the early use cases that came up was folks were asking not necessarily what hardware c- we could get to, but what’s the minimum amount of hardware to make their product as cheap as possible that they needed to run certain code. Um, so, you know, traditionally, that would be maybe you over-spec a bit. You spend a lot of time writing it and hoping it all fits on there, and that means hiring a whole team to do that. Or on the other end of the extreme, we’ve, uh, we’ve talked to companies that actually outsource all of their development. They write specs, and they hire contracting houses that are really specialist in the hardware that they’ve chosen. So maybe they’re gonna write FPGA code on a Xilinx FPGA. They’ve got a favorite shop, and they basically write instructions, wait months for that code to come back, and then have to spend time integrating it back into their product. So it’s a wide gamut, but a really, really slow loop that essentially, you know, our mission is to make that instant.

Maggie 05:21

So I know another major use case you all have hit on is the code-based modernization use case. Could you talk a little bit about some of the customer interest there?

Peter 05:30

Yeah. Where, where we’ve seen a lot of growth, uh, recently is in the Air Force and, you know, DOD writ large or DOW. Uh, you can think of they’ve invested a lot, right? They pay a lot for software. Um, there’s a lot of latent potential in all the different software they’ve spent But these are old code bases. Sometimes they’re reusing systems from the ‘80s, ‘90s, even older. Getting those into something that can be cloud distributed across the entire DOW, uh, is something that I feel like is a consistent use case, where they wish they had access to XYZ tool, um, but right now it takes a specialist with hardware that’s a pain in the butt to get access to, um, and software, and they need to, you know, basically wait months to get answers back. So we’ve been taking a lot of code bases in these sort of older formats, or at least more expert-driven formats, and getting them ready to deploy, uh, you know, sometimes in an easy language like Python.

Maggie 06:22

Pat, I know you’ve talked about how a number of our key weapons systems are written in old programming languages like Ada, which is a programming language from the 1980s. I don’t know how many Ada engineers there still are out there today, but it seems like if we wanna have any chance of modernizing these systems or even just maintaining them, these kinds of capabilities that Code Metal is developing are really going to be crucial.

Pat 06:44

Yeah. Actually, it’s, it’s a mixture of codes. It’s even, it’s not just one old code. It’s COBOL, uh, Fortran, Ada, you name it, uh, uh, develop- large projects the government and industry has developed over many decades is, uh, this in- in- inconsistent, uh, set of, uh, codes that makes it highly inefficient maintaining compilers that are, you know, been out of production for decades, all of that across the board. So that’s, that’s a real world application of this.

Peter 07:16

Yeah, and I, I think you mentioned the mixture of languages, and it’s, that’s, that’s so true ‘cause it’s like they’re... DOW will buy capabilities, and they’re not gonna tell you how to do it. They’re gonna tell you, “Meet these requirements.” Um, and so, you know, some of these systems we’ve built that are mixtures of different code bases, it’s the contractor’s favorite language, and it’s, like, something random like a data science language like R, uh, that they were doing. Uh, uh, I think one of my favorite examples ever is we found a, a, a web app. So it had a Leaflet front end and all these sort of features, but it was an R code base, which is, uh, I guess for all the coding nerds out there, just a very crazy choice that when I tell people, they’re like, “How did that happen?” And it was really ‘cause it was the contractor’s favorite language. That’s what they knew. And they, like, just kinda squeezed the use case into the code base and the, the software tools they knew. So not necessarily always the best choices even to start with. I’ve heard people basically looking to start retraining engineers in Ada ‘cause exactly that. It’s memory safe. They can’t hire enough Rust engineers. There’s enough legacy Ada code that They’re just kind of biting the bullet and, um, for anybody not familiar with Ada, it’s really cool formal methods and, um, sort of security built in, but very old language that never got the momentum of Rust, so not a lot of public support out there for libraries. So really these enclaves of hidden code bases that you kind of have to be an expert in to use.

Maggie 08:38

Yeah. So I want to turn to a couple questions about the technical details of the product you’re building, something that’s really interesting. So unlike a lot of the, the hype out there today, which is, you know, LLMs, AI is everything, you all use a mix of both, you know, LLMs, artificial intelligence, as well as more traditional formal methods and formal verification. So can you talk more about how you architect your system using all these different kinds of technologies to really ensure, uh, trust and verifiability of the code that you’re translating?

Peter 09:11

Yeah, I, I think if you step back and it’s, it’s, it’s really, again, a spectrum of, of validation and verification tools. On, on the high end, you have formally verified. That’s essentially saying, “I’ve proven mathematically these things are equivalent.” And you can’t always do that, but for some use cases, you have to in order to have that confidence. Um, and then on the other spectrum of that, you’ve at least built up enough evidence that you’re giving the customer, you know, sufficient trust that the AI did the right work. And if you think about where we are today in AI, like code almost costs nothing if you’re a company that can use some of these copilots. Where you are spending a lot of time is actually validating now this mountain of code. And so the task has moved to human verification and va- validation of, you know, what the code has written or that the AI has written. And so what we’ve done is we’ve essentially started pairing together, um, these sort of little powerful code generation tools with a suite of test harnesses. That’s where a lot of our IP lives, actually, like validating that these tasks that we think can be fully verified, um, actually are by creating this evidence. This essentially third-party, you know, auditor that isn’t AI-driven that’s able to check the AI in a way that’s automated and lets the teams move really, really fast.

Maggie 10:24

Many of the coding li- languages that you all are working with, and whether it’s Rust or Ada or, um, VHDL or others, these are not super common open source programming languages like a Python or React or something along those lines. How well do these AI models work with the languages out of the box, and how much customization is required to actually get these systems working with these more esoteric languages?

Peter 10:50

Yeah, I think that’s, that’s something that it’s been encouraging to see how much better the language models are getting out of the box with just some form of explanation of the languages. Um, but yeah, there is a huge gap between what it’s used to working with and sort of these more esoteric... I think VHDL is a great example of a, a language that’s more of a hardware spec masquerading as a language, um, that the language models just have trouble grokking because it’s so different than, um, the, the normal languages that they’re used to working with. So What we do is we actually decompose these really difficult tasks using sort of static analysis techniques into really bite-sized, manageable, provable steps. Um, and again, that sort of pulls in the, uh, the non-AI component of the, the product that we’re building. So I think we, we-- You know, our hope is actually that the tools get good enough, the AI tools that is, where we’re not doing as much customization as we are at, ‘cause there’s still the need for validation, verification, all the things that we’ve invested effort in. Um, it’ll just converge a lot faster. So right now, uh, on some of these trickier languages, we do a lot of fine-tuning of models. We do a lot of breaking down the problem into bite-sized steps. We do a lot of, uh, other sort of tricky in-house secrets on getting these things to converge. Um, but you know, we view us to be in synergy with like basically the growth and the capabilities of these models.

Maggie 12:14

And then how do you think about what models to use on the back end? And, you know, maybe carrying a little bit to some of the customers that you work with, a lot of them, you know, are working in air-gapped environments, maybe even classified environments. How do you think about, um, the models that you use that you’re able to actually deploy on those systems, and what are some of the, the trade-offs of deploying in some of those high sensitivity systems?

Peter 12:36

Yeah, and I, and I don’t want to undersell the commercial space either. If you talk to a Japanese automotive company on their treasured code base, like they won’t even tell you what they’re doing. So it feels like you’re, you know-

Maggie 12:46

They’re, they’re not all deployed in the cloud

Peter 12:48

Yeah. It feels like a TSSCI SAP program when like you’re not even allowed to know what they want to do with your, your product. So, um, def-definitely I think writ large our customers want to have a lot of control of where their data’s going, and that means deploying on-prem. I think they’re all looking towards deploying in cloud in some way, and some of the business side has deployed some of those tools. But in terms of like, I’ll call it their treasured code base, like, you know, AMD isn’t putting the IP cores for their, you know, GPUs necessarily in a cloud, um, or at least anything that isn’t locally controlled. So I, I think the way we’ve looked at it is we want to be open to plug and play with any model. Um, you know, from our training stacks to our deployment stacks, we try and support everything. I mean, I think the kind of crowd that we have that work here is The second a model drops, everybody’s excited to immediately plug it into our pipeline and see what the baseline sort of results are. So I think there’s a fun sort of nerdy culture here in terms of like some new diffusion models are dropping, and immediately the team’s figuring out how to get it plugged in and running, uh, benchmarks. But, uh, it, it’s keep up with things. Um, you know, defense definitely wants to run US models, which is getting tougher. Uh, China’s definitely run quite ahead in terms of performance there, so there’s a little bit of a handicap working in that space. But, uh, on-prem and whatever’s the latest is the, you know, the way we’ve taken, uh, our product.

Pat 14:11

Uh, you had mentioned, uh, you are working, uh, in Japan. Uh, what are your thoughts on, uh, navigating international markets that you’ve...lessons learned?

Peter 14:22

Yeah. Yeah. I think for us, that market is one that, you know, we got excited because there is a real hunger for US technology and moving fast, and there’s a lot of socioeconomic reasons where they are looking to adopt AI and looking to adopt new technology. So it’s been a country ready and excited for the types of things we’re working on. All that being said, time zones are hard. Field deployed engineering is hard. Um, you know, and for us that, you know, less than three years old now, um, it, it’s something that I definitely think you wanna go there with a, a, a really sort of locked down playbook. And I think it’s something where, um, we had to kind of slow down the, uh, demand that we had because we wanted to make sure the people that we are working with there, uh, we’re nailing it for them. So we almost, you know, we had to treat Japan a bit like a wait list situation where we’ve got our key sort of tent pole customers, um, that we’re partnering with now. But I think next year we’re gonna be focused on growing that area quite a bit more.

Pat 15:19

Well, speaking about growth, you’re pursuing a, uh, dual use strategy with commercial and, uh, government, uh, customers. Uh, what is the difference you see, and what is your advice on how to manage the, those differences?

Peter 15:36

Yeah, it’s really interesting, and I think it comes into how you talk about what you’re doing. Uh, when I’m talking to commercial space, it really is how are you gonna use Code Metal and sort of fitting to their use case and really focusing in on what our product does. Um, because we’re sort of in the productivity tool suite, a lot of the times when we work with DoD, what makes the things we do possible is our technology, but we’re talking about the capability it enables for them. And so it’s, it’s, I guess it’s a higher level up, um, in terms of when we’re selling DoW versus when we’re selling, um, you know, let’s say Bosch or something. Talking to each client, you know, I have to tell DoW the ultimate use case, the benefit to the warfighter, and it’s just a little bit, you know, higher level in terms of the impact. And with that comes into the way we execute, the way we prepare material, more on site, more sort of, you know, um, longer sort of contract cycles. But all of those things I think, you know, help us because one thing I do think DoW is great for is essentially on those early bets that we’re taking at Code Metal, we’re looking for DoD to sort of springboard and de-risk and build a technology base that then we take to commercial space.

Pat 16:47

And what are the unique challenges you’ve found that, uh, founders should prepare for if they’re gonna work with national security?

Peter 16:54

Uh, well, contracting is something I didn’t realize how little I understood. Um, I think, you know, it was interesting in that like luckily because I have a background in defense, uh, you know, I used to work at BAE Systems, uh, worked at MIT Lincoln Laboratory. Um, but I didn’t-- I wasn’t necessarily on the contracting side. I was in like the make the customer excited by the things we were doing side. And, um, it was interesting when we had customers who wanted to buy and it, it-- When they don’t understand how to buy, and you have to actually go help them navigate, like, their own organization, it becomes really, really interesting. And some of the successful, I think, you know, uh, I’m not sure if neo-primes is the right word, but some of the, the newer defense companies, uh, where I’ve sort of discussed with them and we’ve talked about what’s worked, it’s really being able to help them with that contracting side, helping them with that, like even up to the legislative lobbying side so that they can get what they want. But it’s a really weird situation versus commercial, where you have somebody, like, dying for the thing that you’re doing, and you have to go help them walk all these steps in order to actually pay you for it. So-

Pat 18:03

Yeah. Besides contracting, another area that’s unique to the government that, uh, startups have to str-struggle with is the, uh, working with classified information and the authority to operate. Uh, what was your journey like getting approval for authority to operate on your, for your classified customers?

Peter 18:24

Yeah. I, a lot of this, again, is gonna be driven, and I hate to keep hitting the contract, it’s like we had to do so much work in order to even get the permission to submit for ATOs, um, or submit for classifications, and it was all waiting for essentially the contract to say the words that, like, “You shall need this.” And then that kinda got everything running, which is its own headache, and it, it’s a lot of work, and there’s a lot of great companies, uh, spinning up, I think, to help startups with these problems. But at the core, you need somebody to buy in that, “Hey, Code Metal needs a top secret clearance, and Code Metal, uh, you know, needs to submit it to this, let’s say, cloud provider,” and to really kick off all those processes. And so it was pretty much a crawl in terms of getting these things done, and the second we had the contract in place, uh, I think it was like three months later, we had an FCL, um-

Pat 19:18

Which is a facility clearance.

Peter 19:21

Yeah. And, and I had gone from, you know, basically an inactive TS clearance to now I have my TSSCI. So it was a really fast process once this painful contracting piece had been done in place. And, and friends of mine and, you know, other founders I’ve talked to, similar sorts of journeys in terms of like either getting a prime, maybe they’re subcontracting to you to help them with that, uh, or, you know, their own direct contract.

Maggie 19:46

Yeah. I wanna know, I think you guys have really had a lot of success here just because the customers did get so excited about your product and were ready to go run through walls to help you get the ATO and the FCL. Maybe can you tell us about a moment when you showed the product to a customer and you felt like they really got it, and, you know, what was that experience like and what were they experiencing?

Peter 20:08

Yeah. I think, look, uh, I think as, as venture capital companies in dual use, we have this advantage that we can sort of build ahead of what our customers want and show them and not tell them. And I think a lot of the traditional industry out there is sort of selling through slides, selling through SBIRs. Um, I think you have the advantage of like, you have a customer who has needs, uh, and I don’t see enough founders actually think in the dual use space talking to the customer first. And so we-- I’ll give you an example of, of what really kicked this off We were working a, a project that was more of a, a favor due to expertise of the company to a friend. Um, but the, the customer that they had essentially wanted to come and visit Code Metal. And so as part of that, uh, I briefed them on sort of code translation and what we do before I got into, like, the detail thing we were helping them with. Uh, and sorry to be a little vague. But we, uh, we, we briefed them on the core capability, and the customer asked, like: “Oh, you know, we have this modernization thing. We’re getting bids for about a year to actually take our code base and update it to new. Uh, would you guys be able to do that with your tool?” And I said, “Yeah, sure. Can I get access to it?” And they’re like: “Yeah, it’s Git owned. We’ll send it to you.” Um, and I was... Originally, I was asking for more of, like, a, “Can I, like, see it to scope out the work?” And we just went ahead and did it and sent them back the code. And there was this, like, “Holy shit.” It was that, like, uh, they went from thinking, “We’re gonna take a year to, to modernize this one module,” to like, “Hey, we’ve got about 19 that we wanna do, and, like, we were dreaming about connecting these things and building this bigger platform.” And we were like: “That’s great.” And we, instead of just, like, waiting and trying to do this other end, and, and look, this might not work for everybody, but this is the way we did it. Uh, we just got to work, and we’re like: “We’ll figure out how you guys pay us. We’re just gonna do good work and focus on, on, on starting to build this system.” And, and it’s paid back in spades. So we, you know, I, I can say fast-forwarding to where we are today, um, you know, they’ve done a great job in terms of, like, coming back to us and, and paying for the work and then also expanding the opportunity. And they see it, and the sort of reputation, it’s a small industry, starts rippling around. You know, we were at an event just now supporting and deploying, and folks were coming by from the other services saying: “Hey, you need to come out to visit me. I see the way you guys are here day and night, day and night. Um, I see what you’ve done with them, and, like, this is six months from, like, when we talked to you to IOC that we’re now running. That’s initial operating capability, uh, your platform.” So I think- What I can say is we have an asymmetric advantage in that we’re trying to build, uh, you know, companies that, that scale and, and sort of play this long game. And you have these customers who have needs, so talk to them. Um, don’t try and just invent a thing and then, like, sell it to DOW. Like, there’s amazing problems that they have that, like, I don’t see people tackling. So I guess that’s my advice on selling to them and some of those things.

Maggie 23:06

How have you thought about building trust with some of these mission-critical customers? I mean, I know there’s a lot of distrust out there about AI broadly, so how have you approached that?

Peter 23:18

I think what we get a little bit of inherent in what we do is kind of like a practical thing we’re solving. So we’re not trying to boil the ocean, uh, or, you know, we, we kind of have to limit a bit sort of even the pipelines we do. Like, the North Star is any language to any language. Right now, we have very practical Python to C++, C++ to Rust sort of targets that we’re working. And so I think just hear-them hearing the proof points and sort of all the non-AI bits, um, like sometimes I actually get reminded like, “Oh, you can at least also mention that we’re using AI,” is sort of what we’re selling them. Um, and, and we’ve had pitches and they’ve seen the product where they’ve gone like, “Oh, you’re using LLM, I didn’t know that.” Um, and yeah, I, I think that’s, that’s been some of that trust building, that we’re just really trying to hear what their problem is and focus in on, “Here’s what we do, here’s how we do it, here’s the evidence we show you.” Um, and, and that’s been, you know, a huge part of it.

Pat 24:11

You have a broad experience with, uh, not only national labs but, uh, federally funded research development companies and, uh, academia and industry. Uh, what made you decide to start your own company?

Peter 24:25

Uh, that’s a great question. So I was, uh, I was at Microsoft during COVID working on the HoloLens, very, very frustrated in leadership, working very, very hard, um, to, to essentially solve a lot of problems that CodeML solves today. But, um, uh, 100% transparency, Code Metal wasn’t the first company that I started. I started another one after that, and I was very naive at that point. I was an engineer first, didn’t know anything about startups. I, uh, m-met a fellow who, you know, great sort of partner in business, but maybe not what a VC company would be looking for, and, um, ended up starting a company that, like, got into Techstars accelerator and did these things. And really, I just assumed a startup was like, “Oh, I’m in a job I want and make money.” That was, like, the extent of my business knowledge. Um, I remember being in, like, the Techstars whatever, uh, like, cohort, and they asked me, like, “How’d you get in?” I was like, “Oh, I didn’t know what this was,” but they were talking about stuff I was doing. So, uh, it was, it was a, a big learning curve, and I learned a lot about what a startup was. But the thing I pulled out of that, that, that got me excited was this idea of like, oh, the problems have to be big enough and the founder has to really fit the market to actually, you know, be reasonable as a venture-backed company. And so even though we had a great, you know, I consider it great success that we sold the company that, that I’d started, like, I really got a sense of what is, like, a true venture-backed, venture-scale company look like from that first kinda you know, I’ll call it pseudo failure. Um, and, and, you know, that’s-- a lot of those lessons went into Code Metal. So part of it was the autonomy of tackling the problems I wanted to tackle. Um, that’s a big part of it, like, uh, rather than sort of selling the company to do the things I wanted to do. Uh, and then really understanding that actually that’s a great fit for a venture-backed company. When you have the background, you have a problem that’s big enough to be r- you know, sort of worth venture backing. Um, you know, it seemed like a great fit and all the things I like to do and the ways I like to work.

Pat 26:22

And you mentioned the, uh, challenges of people working in, in venture companies and, uh, uh, venture-backed companies and, uh, uh, dealing with work-life balance comes up a lot, uh, when you’re retaining and growing and motivating, uh, teams. Uh, what have you found is, uh, successful, or how do you approach recruitment, uh, so that folks know, realize, uh, that working in a startup has a huge benefit, but at the same time, it, it’s not a normal nine-to-five, uh, five-day-a-week job?

Peter 26:56

There is a great description of people that fit, um, Valve, which is a video game company that I’ve stolen in, in everywhere I’ve tried to hire, and it was they look for T-shaped people. These are people with, like, a deep expertise through, like, um, you know, one core topic, but, like, broad exposure to a lot of things, willingness to be flexible. And I think, uh, the reason we look for that sort of T-shaped person is we, we look for people that, like, the thing that they like to do is almost their, like, life mission. Like, one of our pillars is passion. And the reason being is, like, I want these people rambling about formal methods or rambling about optimizing some, you know, embedded CPU core and, like, looking for signal on things where they’re doing this in their free time or that they’re, like, taking the extra mile on their own to do it. Because then my job is to give a really good North Star that we can all rally around so that, like, on their off days... I’ll give you an example. We spent a grueling, like, uh, deployment where it was, like, eleven PM, you know, we were wrapping up, and we were back in there at six AM for about two weeks solid and on the weekend. And, you know, coming at the end of that, I told the team, like, “Get out of here. I don’t want to see you for a few weeks. So, like, don’t wait to die. Go, go take a break.” They’re like pushing me things that they like, they still wanted to like fix the problem or, or still work on it. And so I’m getting like architecture ideas or improvement ideas like as they’re going away on vacation. Um, so it’s, it, it’s tough. Like it’s a competitive market. Like you need to have people motivated to put those hours and do that work. Um, I don’t think you can pretend that like you don’t have to put it, but it has to be good work. It has to be thoughtful work. It’s not just work for work’s sake. If you get your work done and you are, you know, you can leave the office, leave the office. Like we take sort of just get your job done attitude to how we do things. So, and a lot of that just comes from passionate people with broad exposure to things.

Maggie 28:47

You’ve worked in the defense space for more than a decade at national labs, at defense primes, elsewhere. What have been some of the biggest changes you’ve seen in the industry over your career, and what are you most looking forward to for the next five to 10 years or most excited about?

Peter 29:01

Maybe this one isn’t as like novel, but it’s still one I think about a lot. Um, it’s been a lot cooler to do defense stuff. And so, um, uh, you know, that, that sort of has its ups and downs. But I remember being, you know, Project Maven kicking off while I was at MIT Lincoln Laboratory and the Google employees sort of walking out, and now you have something similar now with, uh, sort of Claude and what happened, but I think it’s a little bit different. Um, but yeah, I, I think just the fact that people see the sort of value in, you know, doing this work, uh, has been something exciting to me. It’s easy to recruit. It’s, uh, a lot easier to walk on a Stanford campus and, you know, find kids that are excited by the stuff that you’re doing. Um, I think that was one change that I still sort of really appreciate. Uh, the other is I think more recent in this idea of like trying to figure out new ways to actually fix these issues in acquisitions and, and contracting and, um, I’m, I’m actually super excited by it. I think it’s one of the things we are getting right, at least trying things. Um, and so yeah, I’m looking forward to seeing the next two, three years where that goes.

Pat 30:11

Today, you’re having a board of directors meeting. Uh, what are your thoughts about, the benefits or how best to leverage a board for founders and investors that are, um, listening to this podcast?

Peter 30:27

Yeah, I, I think it’s really hard when you’re a founder and you’re waking up every day and thinking, “What’s the most important thing I need to do?” And at some point you’re gonna need to raise funds and build your board. And it’s like, it feels like a luxury when you get told like, “Hey, pick board members you like. Pick-- Work with people that you wanna work with.” Um, I, right now I do, which is what I feel very like lucky that we get to do that. But, um, in terms of like horror stories I hear from other founders and, and things that like basically they blame the company going wrong on, it, it’s a non-insignificant percentage where it’s like board dynamics. So I think it’s, it’s really important to actually like when it feels desperate and you’re like, “Oh man, I really should take this check.” And like I, I get it, as like a founder you might, you know, wanna take money for a certain reason from a certain fund. If there isn’t that fit with like, “Hey, I can work with this person,” um, it, it’s really stupid sort of repetitive advice that every founder gets, but like I’m just stressing it as like, yes, like listen to that. Figure out how to like extend your runway a bit or whatever it takes to like take the right capital in because you are tethered to these people. Um, and at least the way I’ve looked at it is at different stages of the company, we’ve needed different sort of help, and we’ve looked for people that, one, fit the, you know, had the background to provide that type of help, whether it be like technical product guidance or it be, um, you know, sort of moving to commercial is, is another example. Um, you know, giving us connections and top cover as we do defense work. All of those things were the criteria in how we targeted who we targeted, but first and foremost was, hey, I gotta work with this person forever maybe. You know, I have to pick people that I wanna work with.

Maggie 32:15

What lessons, if any, have you taken or has Code Metal taken from overseas conflicts in Ukraine and the Middle East? Or has it changed your approach to the ecosystem and your product?

Peter 32:27

Yeah, I think in, at least in Ukraine, there’s this notion of like, hey, the acquisitions process does not work for a war that’s adapting, you know, every week, every, you know, month. How do we actually start building, uh, ways of acquiring and reacting to, um, immediate sort of situations? So without getting into too much detail, obviously a company that’s like built around like immediately deploying hardware, the latest idea, you know, benefits from, from that sort of change in thinking. So it, it’s one of the things I think DoD still hasn’t quite figured out how to acquire and pay for that consistent adaptivity. Um, but it’s something that’s an open question and, and obviously first and foremost important.

Maggie 33:10

As I say, you guys have done some work as a, a subcontractor to larger primes. Is that right?

Peter 33:15

Yeah, absolutely.

Maggie 33:16

I’m curious how you think about those kinds of arrangements as a way to get access to some of these government customers that might be difficult to access otherwise. Could you talk a little bit about your experience with subcontracting?

Peter 33:29

Yes. There, I mean, there are calls for proposals, customers that you won’t get to see as a startup. Like, they won’t exist to you, they won’t be in the market to you, but maybe you actually solve exactly what they do. Uh, thinking about that early when you’re partnering with the primes, like wanting to be in the room when things get presented, wanting to get that connection is something that maybe when you’re trying to close a deal doesn’t feel like a order one priority, but it kind of is if you’re trying to build a long-term company. So I can say from experience, um, that was one of the things that we pushed back on wanting with some of the agreements that we had. Like, “Hey, we’ll work together on this, but we wanna be in the room for certain aspects of this.” And again, to get exposure to the company or the, the customer who doesn’t have the luxury of... You know, I think there’s a lot of saltiness in the DLE space about like, oh, they’re giving it to the same people or whatever, but they need stability. They need like repeatability. Like they can’t just be trying everything in a lot of these critical industries. So, you know, there’s some empathy to the customer in terms of like going with the same solutions over and over again. And the primes are a great way to actually start bootstrapping that exposure and, and relationship.

Pat 34:39

And what’s your vision for how you see your company growing and the product, the use and adaption, uh, adopting, um, the products that you’ve developed?

Peter 34:50

Yeah. I view we’re starting with a, I think, a really strong baseline in our defense clients, and it’s, it’s just industries that we know it’s a great place for developing, uh, deep tech technology. Uh, but it is a general use technology. Like it doesn’t just impact, uh, DOW. And so you do this first tranche about growth and, and defense of our, you know, sort of core positioning and the things that we wanna care about. Uh, and then, you know, we’ve been growing now out into more sort of initial landing and exploratory work in the industries like automotive, like semiconductor, uh, that skew more pure commercial. So I think that’ll be our phase two. And you know, personally, one of the mantras I’ve said to the team is we don’t wanna be a series Z company. Like we wanna get to, you know, reasonable, predictable revenue and IPO in, you know, three to four years.

Maggie 35:38

What have been some of the biggest surprises building Code Metal?

Peter 35:42

The AI market was moving Fast, but, like I said, the last six months to me have been, like, absolutely insane. So I think, um, I’ve liked it ‘cause we’ve had a clear focus on who our customer is and who our market is, so we’ve gotten to, like, kinda avoid the noise. But man, does it sound crazy out there. So, uh, that’s been, um-- It’s been interesting watching, to tie back to us, like, how smart our customer has gotten in a very quick amount of time. So I can think about two years ago what it was like to talk to them about AI code generation to today, and it’s interesting, like, seeing their evolution across these sort of legacy industries.

Maggie 37:44

Great. Well, Peter, thank you so much for the time, and thanks so much for coming on the podcast.

Peter 37:48

Yeah, thanks. It was great to talk to you guys.

In this episode, we break down the $1.5T FY27 President’s Budget Request, the Pentagon’s infamous “J-books,” appropriations vs. reconciliation vs. supplemental funding, and what all of it means for startups, investors, and the broader defense innovation ecosystem.

We cover:

• How the PBR and J-Books relate to Congressional budget bills (appropriations, reconciliation, Iran supplemental)

• Why the J-books are one of the most important tools for founders building in defense

• Where the DoW is requesting for AI, autonomy, space, and other commercial technologies relevant to startups

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

Some obligatory PBR charts courtesy of Obviant:

And of course, if you aren’t already doing so, you should subscribe to Matt’s newsletter Defense Tech and Acquisition:

Defense Tech and Acquisition

Enabling defense and industry professionals deftly navigate the world's biggest bureaucracy to deliver better solutions faster.

By Pete Modigliani

Transcript

Maggie 00:36

In this episode of the Techquisition Edition of the Mission Matters podcast, we’re diving into an important ritual in the defense innovation ecosystem. That is the president’s budget request, the Pentagon’s program objective memorandum process, AKA the POM, and the release of the infamous J-books, or justification books.

David 01:11

And unlike a lot of defense acquisition conversations that happen behind closed doors, this is one of the few times the government essentially publishes a roadmap of priorities, programs, spending assumptions, and capability needs in plain sight. Though publicly available and well understood are two different things. These budget docs are strewn across multiple websites and dozens of PDFs. Until recently, it took real insiders to understand what was going on and how to make sense of this Byzantine process.

Maggie 01:41

To be clear, the president’s budget request is not the appropriations bill or reconciliation bill. It’s not a law that requires that money is allocated in a particular way. It’s simply what the executive branch is requesting that Congress fund in the ensuing fiscal year. But ultimately, it’s still up to Congress to actually write and pass a budget bill officially appropriating the funds to the executive branch. And while the president’s budget request is a guide to Congress, Congress often does not actually follow the exact numbers written into the request. If you wanna learn more about the congressional appropriations process, check out our past Techquisition Edition episode, that is episode number 17, that we did with Johnny Kaberle, where we really break down how the congressional appropriations process works. But to help us decode the president’s budget request, we’re joined by Matt McGregor, who spends quite a lot of time living inside these budget documents. Matt McGregor and his co-conspirator, Pete Modigliani, are the founders of Creative Defense, and they happen to publish one of the best defense acquisition newsletters out there called Defense Tech and Acquisition News. I personally read it every single week and am a huge fan, have learned quite a lot by reading their newsletters.

David 02:56

Indeed, it is required Saturday morning reading over a cup of coffee. Now, the reason why we are just getting to talking about the president’s budget request is that the timing matters. And while the president’s budget request, or the PBR, has been out for a while, we intentionally wanted to wait until the justification books, or as Maggie alluded to, the J books, dropped, because that is where the budget finally starts to become operationally useful for companies trying to understand where the money may actually flow to. The president’s budget request really talks about a top-line number across the various agencies, not just the Department of Defense, but also including other federal agencies. The J books really start to get into the individual programs to help identify over the next five years or the future year defense plan exactly how much funding is gonna be going and whether or not that budget is intended to increase or decrease.

Maggie 03:53

So today we’re gonna break down how the federal budget process actually works, why the president’s budget matters, what the J books are and how to use them, what stood out to us most in this year’s defense budget, and what all this means for startups trying to navigate the defense market.

David 04:10

And because this is a Techquistion Edition, we’re also gonna talk about where the hype is real and where programs may actually have money behind them, and where founders should be careful not to confuse PowerPoint strategy with executable budget authority.

Maggie 04:23

All right. Well, with that setup, let’s bring in Matt.

David 04:27

Well, Matt McGregor is a co-founder of Creative Defense and a co-author of the Defense Tech and Acquisition newsletter, which has become required reading for a lot of people trying to understand how defense budgeting, acquisition, and modernization actually works.

Maggie 04:42

Defense Tech and Acquisition news, it’s not just a weekly headline roundup. They actually spend an enormous amount of time digging into the underlying budget materials like the J books other, documents that are coming out to really identify where priorities are actually translating into real dollars.

David 05:02

Okay. So with that it’s an honor to welcome my longtime friend, Matt. Welcome to Techquistion Edition.

Matt 05:09

Yeah. Thanks for having me, you guys. Appreciate it.

Maggie 05:11

So Matt, let’s just start out with a basic question. At a high level, how should people be thinking about this $1.5 trillion defense-related spending package? What exactly is the president’s budget request? And then how does this relate to the emerging reconciliation package as well as the annual appropriations bill? What are all these different documents?

Matt 05:37

Yeah. We used to live in a simpler world where there was one budget and we got to track that. And then this year is even a little crazier because there’s gonna be three pieces, I think, that potentially play into what the total ‘27 budget’s gonna be The base budget of course, is 1.1 trillion, so even, by itself that’s still big. If we got that, I think that’d be, a huge win. Definitely getting in the right direction for all the challenges that we have. They added 350 billion on top of that for reconciliation, and then the other piece of that is there’s a supplemental, right? The Iran war. So there will be money in there that will impact the investment accounts for sure on the procurement of munitions. But also some other things in there. I think there is some debate on the Hill. I’m not the expert on all that, but there is some debate on the Hill about is a second reconciliation even possible? ‘Cause they just got the DHS one they’re working now, and there’s a lot of thought that the second one’s gonna be too hard. So there’s some push of well, do we try to cram some of the defense stuff into this first reconciliation bill this year and make that the big package, or do they do a second one and push it, or they push more on the supplemental? So still a lot of moving parts, but the only thing we officially know right now is there, there is a 1.5 trillion, a big part of it, the 1.1 is discretionary. The rest is up for debate on one of these other mandatory accounts.

Maggie 07:12

So just to make sure I’m understanding this right, so we have the president’s budget request, which is out, and this is just a request to Congress. It’s not actually the budget. Then we have the $1.1 trillion appropriations bill, or what we expect would come out in the appropriations bill, which is just the normal spending bill, and then another 3 to 400 billion that would come through some combination of this reconciliation bill, which is not a normal funding process, and then potentially a special bill just for the Iran war.

Matt 07:41

Yeah, the really only difference is that the, for the reconciliation, is that in the Senate you typically need 60 votes to, to pass a bill. With reconciliation you just need a majority. So that’s the difference is the 60 votes in the Senate primarily is the difference.

Maggie 07:57

And so when we look at the president’s budget request, I know one of the big topics of conversation is there’s different colors of money, right? So you have procurement money, RDT&E money, and O&M, which is operations and maintenance money. So maybe could you talk about what are those three different kinds of budget, and what is the breakdown between those categories in this budget request?

Matt 08:20

Yeah. So yeah, the big difference O&M is a big pot of very flexible money. Some of that can be used for, capability for sure especially as we move into an age with buying services, capabilities of services. But generally the O&M, and it does fund a lot of modifications to legacy platforms and things like that, but generally a lot of that goes to sustaining, right? Just keeping the existing things alive maintained, ready, all the readiness stuff, all the, you know- Just general housekeeping kind of things that, that DoD needs to do. But where we really focus, for the founder groups and for all these defense tech companies that are coming out, they’re generally more focused on the investment accounts because that’s where you’re gonna see your RDT&E dollars. This is all your prototyping, moving into a program of record, all the development test is funded on that. There is some big modification money too in there that sometimes, will be maybe become available for founders as they mature a capability that can be fielded on an existing platform. So RDT&E has a lot of potential for people that are entering the defense space. Procurement, of course, is more of those m- mature things where there’s we’re actually fielding them. So that’s the one where it gets down to there’s actually a production line or there are some software kind of things in there too, but generally it’s the big stuff that you see flying around tanks and missiles and all those ships and all those kind of things in there that that are there. But just going back to the overall breakdown, so within the base budget, and that’s the discretionary, there is $1.1 trillion. 218 of that is RDT&E, 257 is procurement, and then a big chunk in O&M, 382, and then some of these other accounts like military personnel and military construction. So of the base budget, you have, basically, 470 billion of the 1 point trillion. But in the reconciliation package, there’s a much bigger chunk. A lot of that is investment.

Maggie 10:37

And then Matt, I also wanted to ask, how do we think about the ratio between procurement to O&M to RDT&E funding? I know this is something that you’ve written about before. What can we read into the ratio of the current budget request?

Matt 10:51

Yeah, no, this one is a really exciting thing because we, we wanna see more in procurement. I know it’s not always the right thing for some of the smaller companies coming through ‘cause they, they really want that RDT&E money to seed some of their products. But as a military force, right, we definitely wanna see procurement to get the joint force up and ready for the future fight. We know in the China fight that there’s, we’re gonna, we’re gonna go through a lot of stuff really fast if that happened, and so we wanna be prepared to be able to stay in the game. So yeah, this year there was a big push towards increasing procurement 80 per, 82%. Now this is combined, combining like we talked about discretionary, mandatory. It’s combining both of those. But when you look at the combined piece, 82% increase in procurement from last year and 62% increase in RDT&E. While the percentages are not totally different from past years, like we always measure that- And they’re still in that roughly 57% procurement, 43% RDT&E. A lit- 1% bump up in procurement. So the ratio is not totally off, but because the numbers are so substantial it’s promising to see that much went into procurement. But a lot of those big procurement dollars were in reconciliation were basically driven by a lot of the missile stuff, a lot of the Golden Dome stuff, a lot of the space stuff, and things like that, that were in those accounts. We definitely need reconciliation for some of these big items.

David 12:18

Yeah, I think that is an interesting indicator. For a long time it seemed like the R&D spending, outpacing procurement not necessarily what, a venture-backed startup is looking for. And there’s almost a recognition that some of the R&D costs can be underwritten by the private capital markets, right? Especially when you introduce OSC that’s de-risking some of these loans, allows more money to pile in. And then really what the signals that are needed from the commercial innovation ecosystem are just buy the thing, operationalize it, use it, right? And that’s where you get the procurement and then O&M funding on the follow-on. But Matt, that was awesome. Thank you for helping us understand the top line, right? I think we call that the TOA, ... inside in, in building parlance. Maybe let’s dive into the actual nitty-gritty of the J books or justification books, which are essentially, the government or the executive branch saying, “This is why I am requesting this amount of money.” Right? What else can you see inside of these J books, and how are they broken down, and what’s useful information to extract from them?

Matt 13:41

Yeah, that’s a really good question because we were talking offline about, if you’re an AI company, for instance it can be a little bit confusing because you could look across all the J books, and I just did a quick search, and there’s 431 lines, right, across artificial intelligence. So clearly if you’re an AI company, there’s... That shows there’s a lot of potential but you do have to do the hunting for where is your particular thing going to fit into one of the broader efforts. So there is some detective work, if you wanna call that here that you have to do. But one of the helpful things with the J books that I would encourage, companies that are trying to figure out where their piece might fit in- Is if you go into the JBook, they can be a little daunting because there’s kind of these PDF files that’s hundreds of pages. But you can, do some keyword searches. Aviant is a company that y- also has a great tool that you can do searching and it’s a little much easier to m- navigate. But if you wanna do it the hard way, go in that PDF file and find s- a line that looks y- like something that you could support. So you’ll have to, you’ll have to flip through and you’ll see things like artificial intelligent reinforcements autonomy AI-enabled tools, AI-enabled DW. Like I said, there’s a little bit of detective work, but when you click in that line that maybe has some applicability, you think, to, to what you’re doing one of the helpful things is that there are m- things called major thrusts. And what that essentially just means is in that bigger budget line that maybe is like $100 million, you can actually go down and see more discrete projects under there, and you can say maybe this project has $10 million against it, this project has $20 million against it, and there’s a little bit more detail about what that’s about. And then sometimes they even have a helpful schedule with some milestones. Their schedules are weak generally, but you can at least see generally the flow of what they’re trying to do. And then I think the next step is if that’s something that really looks like, hey, I could really help here, is go figure out is that something that’s already been awarded? So you can start to tie that information, do some other searching and find out if there’s, already contracts against that. And what’s their period of performance? Maybe they’re coming up for a re-compete, or maybe it was just a prototype and there’s still, there’s still money in the FY DIP that, that you could potentially get after. So I think those the J-books are good signals for companies to be able to filter down and find their target areas for where they can see potential for contracts or maybe target customers. “Hey, I should really talk to this customer a little bit more because they’re planning this big thing that has exactly what I’m working on.” So they won’t tell you everything, but I see them as a signal to direct your attention. But yeah.

David 16:28

Yeah. And as a former author of my own RDocs for specific program elements, PEs, which are associated with these wonky, string numbers and letters, they’re not all, RDocs or R2s, which get down to the specific program elements, are made the same. Some have a lot better detail than others. Oftentimes you can see which other program elements one is related to, and so you can go check out them. And when you’re talking about, looking at the schedules or potential contract structures, it’s in there. I would say, maybe you brought up Aviant. I think a really nice thing about some of these tools that are helping aggregate all this publicly available information Is it’s now also creating the relationships between the budget, the program office, and the contracts. Because in these justification books, it’ll tell you, “This is the money we intend to spend against these priorities,” but it doesn’t necessarily tell you who or where, like what program office. Now, in certain cases it’ll say, Defense Innovation Unit, and Defense Innovation Unit has a program element ascribed to this, like this amount of money. Okay, DIU is expected to execute it. Of course, in those instances it doesn’t necessarily tell you exactly what projects or programs or who the end customers are that are going to be receiving it. This is one piece of the puzzle, but I think if you’re looking for market demand signal from the department about whether or not the technology you’re building is important, you will see that laid out over the future year defense plan if, in fact, it’s expected to grow over years. Well, that was awesome. Thank you, Matt. Maybe we just start talking a little bit about w- where and different line items that we thought were interesting and stood out. And Maggie, maybe if you wanted to start us off here and anything that you found that was interesting, we can go around the table.

Maggie 18:39

Yeah, of course sitting in San Francisco I always have to look for, do my keyword search for artificial intelligence. Where is the department looking to fund that? It’s something the administration has, of course, made a priority. The top line, it says there’s $53 billion for AI broadly. A lot of this was actually going to sovereign AI. They did not specify exactly what sovereign AI here means, but said something like 50, $46 billion for multi-year mandatory investment in a sovereign AI arsenal prioritizing enterprise-scale AI infrastructure investment to build an enduring strategic advantage. They actually have not released the J-books yet for the Chief Data and AI Office, at least as of the time of this recording. So there’s not more details on what exactly that means, but definitely will be interesting to see. Of course, a lot of these big AI data center build-outs, AI training runs are extremely expensive, so it would be interesting to see if there’s a way for the US government to play into some of the investment in American AI development. I also saw AlphaOne, which is one of the platforms that Chief Data and AI Office, CDAO, runs, got a big increase in funding. But then at the same time it appeared that CDAO itself actually got a decrease in funding. So I’m not entirely sure what to make of that. Matt, I don’t know if this is something that you’ve tracked at all or have more insight into.

Matt 20:07

Yeah, I do think with CDAO getting pulled under R&E I think and DIU for that matter- I think both of them are being recalibrated and having a little bit more targeted portfolio. So yeah. So I think, for CDAO, I think you’re gonna see, the OpenDagger stuff continue the guide experiments and the, data integration layer sort of efforts. And then I think AlphaOne, I think that- that’s probably something they’re gonna own as well ‘cause this could have some frontier AI and some theater cloud sort of efforts. So yeah, I still think CDAO is gonna be highly relevant. I wouldn’t take too much signal that they’re losing too much, but I think you’re right that there’s the department, as part of its whole requirements revamp, they definitely have refocused some efforts and so yeah, I think there’s a lot more lot more of that focused on the multi-domain joint operations stuff and long-range kill chains and different things like that, that maybe took a little energy away from CDAO but I think they’re still quite strong. One other interesting thing on the AI front, though since you brought that up, that I noticed is I didn’t see-- I looked at the J-books. The J-books did not-- were... When they when they first released the budget without the J-books, I saw this OSD equipment account, which historically has been ATFWIT money, been the predominant piece of it, and it got this huge plus-up, and I was really excited because I was like, “Oh, yeah, ATFWIT’s finally gonna get its huge bump,” because it’s been in the $100, $200 million range, and I was like, “Oh, maybe that’s gonna go to a billion.” Anyway, I finally saw the details on that, and there’s $29.5 billion that’s going to this effort called Next Generation Technology and Autonomy. And the way it’s described there is that it’s basically to trans- transition from funding scattered clusters of GPUs to more organized AI infrastructure for strategic to tactical AI compute, so in- it’s gonna include SCIFs and data centers and all this stuff. So anyway, that’s something interesting to watch on the AI side is that OSD equipment account which this was buried under.

Maggie 22:17

Yeah, and then maybe something similar I also saw this is actually under the Cyber Command J-books. They have a large line item for AI for offensive and defensive cyber operations. I think it’s $140 million, so maybe not a lot for the DoD, but a lot for some of these early-stage startups. And part of that for them was also building out GPU capability and other compute capability to actually run some of these AI models. I know to date when working with some of these more classified customers, I’ve heard startups talk about literally bringing GPUs in suitcases or in Pelican cases loaded with open-source models to the customer ‘cause they know they can’t rely on the customer having the right infrastructure to run these models. So I think it will be interesting to see just more of the infrastructure build-out for DoD to actually take advantage of a lot of these AI models. And then one more AI related item I’ll call out. I saw Maven’s smart system has $2.3 billion budgeted. This is, of course, one of the big AI initiatives. They have played a large role in Iran in targeting and battle space management. I think there’s also talk that it played a role in Venezuela. This is a Palantir effort, although it also has some Anthropic Claude models built in, and it was announced last month that it’s officially becoming a program of record and now has $2.3 billion going towards it.

Matt 23:42

Yeah, no, I think that’s a good rundown.

David 23:44

Maybe one that I’ll call out right from my alma mater at Defense Innovation Unit. So I think this is a good example of where the president will submit a budget to Congress, but, Congress, as we know, has power of the purse, and they get to then ultimately decide how much funding is going to go into these specific accounts, and then the department is responsible for executing it as authorized, right? We don’t want any Misappropriation Act violations, right, Matt? But if you look at the DIU account, and of course, they haven’t released the specific J books, but we’re seeing the top line program element n- numbers for the OSD accounts. DIU, right, came in at five hundred and twenty-two million. Last year, DIU got one point eight billion, and so you would say, “Oh, well, that’s a far cry from what they got,” except the president’s budget request last year for fiscal year ‘26 was a hundred and forty million. So what we’re seeing is Congress has stated with congressional plus-ups that programs being executed under DIU are very important, and now we’re finally seeing the president’s budget start to catch up, though that is a huge delta between one point eight billion and five hundred and twenty-two. So it’ll be interesting to see if Congress for the third year in a row pluses up the DIU account, right? And that started to really occur I guess j- two years ago when DIU’s budget and program element really got congressional plus-up big time. Those are things that I think are interesting.

Matt 25:21

I was initially discouraged by that one too, David, but then my understanding is that a lot of the DAWG funding, they will be intimately involved with executing. If that passes, they will have more work than they can handle. So maybe taking a little cut to, a little cut in relative terms to the DAWG request maybe it’s not such a big deal ‘cause we’ll have, fifty, fifty billion to possibly do some thing, things with over the next few years.

David 25:51

And that’s why I think seeing the J books is so interesting ‘cause you can start to see how are the different program elements interrelated with each other, right? So like another one that, I think is a closely watched item right now is Golden Dome And, it’s really-- There are definitely some explicit program elements tied to it. In fact, you saw a $1.3 billion request for space-based interceptors, specifically under a PE inside the Golden Dome apparatus. But if you look across a lot of other Space Force programs like Next Gen, Overhead Persistent, Infrared, e- and OPIR, or the, Matt, you referenced the Satellite Defense Network. They’re all talking about how these programs support initiatives within Golden Dome, and that’s a political crutch that you’ll see often within these budget documents, that you tie these programs intricately together so that if Congress wants to just cut one, you know that there’s a reciprocal effect to maybe a higher priority program that they don’t want to impact. And so you see those types of machinations. And again, you can extract that through the J books, where there is just a little bit of nuance across these, otherwise stovepipe program elements. But Matt, you highlighted the Defense Autonomous Working Group, the DAWG, right, which is all about mass and attritable capabilities. Was there anything else, like maybe on drone dominance or the JIATF, the counter-UAS programs that were worth highlighting?

Matt 27:31

Yeah, no, a lot of lot of stuff with the DAWG is definitely gonna be a lot of the autonomous systems, definitely drones, small UAS small USVs things like that. But yeah, if I go through, just if I do a quick run-through of the services maybe just call out a couple things here. One o- one overall is that and this is another one, David, you mentioned about how Congress sometimes steps in and helps, is the S&T accounts. Th- Congress is definitely known for giving more money back in the S&T account, but I do feel like there was definitely some slashing going on there across the Army and Navy. There was a 30% kind of reduction in some of those accounts. But on the Army side, while they slashed a bunch of other things across a bunch of different areas, they really went hard on counter-UAS, counter-small UAS. So I think you’re definitely gonna see more focus on that with all of the things we’ve seen in Iran. Long-range precision fires is definitely a priority, so for the Army and EW. So I think you can start to look at some of these accounts, and even when there’s big reductions overall, when you start to dig in, you start to see, okay, this is where the Army is probably heading. Their leadership is thinking is they need to get after and focus their efforts a little bit more on counter-UAS, long-range pr- precision fires, and EW and then when you look at like prototyping stuff, you can start to see where some of these accounts are starting to be a little bit maybe less prioritized because there’s other programs that are growing, and so maybe they need a little less prototyping money because they’re gonna be programs of record. But you can start to see that they actually do wanna get after some, new types of missiles and improve their ability to do more mobile stuff. So I think that’s one of the big things too, is like there’s a lot more focus now on being able to operate in a distributed manner. I think you guys nailed it with the AI thing about being able to get to the tactical edge and pushing things forward. So some of these things you start to see as they’re really starting to focus 100% on the INDOPACOM theater, and a lot of those things reflect it. And hypersonics is a theme throughout all of this that, if you have anything to do with hypersonics realm, there’s definitely a lot more money going in that direction. Yeah, some of the other cuts you do see, I think there are some opportunities here for some of the legacy programs. I I saw things like the Army Tactical Command and Control where, you know, some of these existing efforts just had money at year after year and there was some big pullback there. So that’s another thing to look for in the J books as an opportunity, is if you see a legacy program that’s maybe gotten a lot less money than it normally would that could be an opportunity for you to step in and maybe offer some solutions that, for that. So yeah. So that’s one I would call out. UAS Launched Effects got a huge plus-up from the Army so four, four hundred and forty-three million there. So if you’re in the loiter ammunition business that’s definitely, a signal that I would take as they’re definitely more serious about that. That’s like over two hundred percent increase from last year. And then yeah, going down to the Navy. Yeah, Navy took a big, real big cut to S&T as well. So Marine Corps, had a big cut on their advanced technology demonstrations, which I think you will see with this administration, and it’s something to expect maybe over the next couple years, is there is a really big focus, I think I think you saw this with the critical technology areas update, where we had sixteen amorphous tech areas, and they really winnowed those down to things that are applied, things that could be fielded, really focusing on getting things out in the field and not doing these sort of long science projects. So I think some of these cuts in the S&T world reflect that. But definitely on the Navy side, big push on shipbuilding. If there’s any contributions that you can have to the shipbuilding helping in the industrial base in any way whether it’s from workforce development, to new kind of materials and new manufacturing processes and things like that, there definitely seems to be a big push to make help in any way on that as part of the maritime industrial base. There was one point eight trillion that was added to this new line called Advanced Shipbuilding Industrial Base and Future Ship Experimental. So that’s something to keep an eye on. Big increases on Marine Corps ground combat support systems. So if there’s-- you have a system that’s more focused on supporting those Marine type, d- expeditionary type units, they’re definitely looking for new ideas. If that’s any indication in terms of how much more money they added there. Directed energy i- is getting a lot more money. You start to see that. There’s more programs coming online. Navy has some, Army has some, so that’s another area if you’re in that business. F-35 probably not a lot there out there for small funders. F-35 definitely got a lot of money this year. EW across multiple accounts got some big plus ups. So I think if you’re in the EW space, there’s probably... You could look across all the J-books, and you could probably find multiple places that you could start to have conversations at the right levels and start to play in that space. EW sup- readiness support was one line in the Navy, one that got a big increase, and then Marine Corps also got a big increase in that line, three hundred and fifty-seven percent.

Maggie 33:12

Yeah. I was gonna say, one thing I was curious about, I think we’ve seen a lot of talk in the last year or so about acquisition reform, moving from PEOs to PAEs, program acquisition executives, and I’m curious to what extent, if at all, that is showing up in the budget. I saw that PAE robotic autonomous systems in the Navy had its own call-out in the Navy budget overview. They had a couple hundred million each for unmanned underwater vessels, small unmanned surface vessels, unmanned aerial vehicles. So I’m curious how we’re seeing the PAEs show up in this budget.

Matt 33:49

Yeah David mentioned the Golden Dome stuff. That was one of the big ones. But yeah, for the so I didn’t see a lot of it at the like the Army and Air Force because i-i-it, there’s a lot of nuance there with those services. The Navy, because they stood up a brand new robotic autonomous system, was a little bit more clear. I think on the Space Force, on some of the new PEs that have been stood up there, like the space-based interceptors going to combat power and then the all the space data transport and AMTI and GMTI going to the SB, space-based targeting PAE. You could start to see some correlations there but I do think you’re right. I think the PAE RAS was the most clear and explicit and they actually laid out the specific programs under that and the amount of money across the FYDP, which was which was really helpful to see, small USVs, medium USVs- the one sad thing about this is that we’re still not seeing the amount of money go. While they called it out and it’s very well organized, we’re still not seeing the increases that we wanna see, so they do have 2.2 billion across all the unmanned accounts, but it’s a lot less than we would’ve liked to see given the focus on building a hedge force. But yeah.

Maggie 35:09

And David, how’s the Air Force looking?

David 35:13

Yeah. So Matt, you talked about all the other services and components except for your alma mater, right? The Air Force- Oh yeah, I was about to-

Matt 35:19

I know. I was about to. I was getting there…

David 35:21

I, well, I have some opinions here, right? So collaborative combat aircraft, which seems to be the Air Force’s big push-

Matt 35:29

Ah. I know. Where’s the money? Where’s the money?

David 35:32

I mean, 1.3 billion in the fiscal year ‘27 request, but that’s less than what the B-52- Yep ... is getting in budget activity seven, I think for their engine upgrades, which is 1.4 billion in RDT&E. So we are spending more money to maintain an aircraft that’s been around for multiple generations, and then when you contrast it to the F-47 right, which is, went from 2.3 billion in FY25, now is up to five billion in ‘27. To me, these are, like, the specific trade-offs between incorporating autonomy versus relying on manned fighter aircraft, and it’s so much more expensive, and we don’t really get to invest the budgets that we need to get to a force structure where we have more mass. And so I don’t know what’s your kind of take on the Air Force overall? I also saw AFWERX got completely decimated. Yes. They’re basically just a SBIR shop at this point, which is really sad to see though there have been some announcements coming out of AFRL that they’re reorganizing and there’s a big meeting happening in a couple weeks to help engage industry. But yeah, curious on your takes with our beloved Air Force.

Matt 36:48

Yeah no, you’re right. I was gonna say that about the AFWERX is I am hopeful that the reorg that General Bartholomew has will hopefully keep the AFWERX mission alive if it’s, if not the organization. No, yeah, I think overall I think there was disappointment that there wasn’t more of a focus on autonomy, but I think you do have to look at where this administration’s focus has been, and it, it has been on mainly building on the, getting the big ships fielded, getting some of these big new aircraft programs going, like the F-47 and accelerating the B-21. And then on the Army side there, there’s, there, there is a shift there at least from the big tanks to moving to- towards more distributed kind of things, but still not fully leaning into the autonomous vehicle space. So I think overall with autonomy, it is a little disappointing. The Air Force put a little bit of down payment there on the CCA, but would’ve liked to see that be triple that. I would’ve liked to seen the Navy go, at least triple to really get after the MUSV, which they just announced a new marketplace. A better demand signal there would’ve been a lot more money next time. And then, yeah, for the Air Force overall, they’re retaining a lot of the same aircraft. They’re gonna extend the B-1. They’re gonna, extend the F-15 EX they’re buying a lot more of. And there’s one other aircraft. Yeah, they’re gonna keep the A-10 till 2033 or something. So yeah, there’s a, there’s definitely a more higher prioritization on the big platforms that historically we thought would be maybe less relevant in the Pacific Theater, but I think they are leaning into that, and hopefully we’ll see in ‘28 that’s the one gonna be the one to watch. If these programs, maybe they were not mature enough to make the case in the building, people could say, “Well, the MUSVs are still haven’t fielded that many of them. We haven’t matured the CONOPs.” Same with CCA, right? The experimental operations unit’s still playing around with the CONOPs piece. So maybe this is the year, ‘26, ‘27 is the year they see data as maturing all that, and then they’ll go hard in ‘28. So I have high hopes for the ‘28 budget on those fronts.

David 39:04

At least they did try to zero out Wedgetail the E-7. But we’ll see.

Matt 39:09

Oh yeah they did kill the E-7. Yeah.

David 39:11

We’ll see. I’m sure Congress is gonna plus that back up, so of course that’s a trade-off, and we’ll see where that goes. But yeah, okay. So I think we, we hit a lot of areas. Of course, for our founders out there, this is certainly far from everything, that’s in this defense tech innovation ecosystem. But again, this is a huge marker to help identify is the thing that you’re building an emerging or an already solved pain point, right? And whether or not there are active programs of record with specific vendors that you would need to break into. This is a good data point to, to bring into your marketing materials, whether you’re trying to raise from investors or talk to customers or differentiate your technology versus what’s currently available. So yeah, this is a big step in the process, but, where do we go, where do we go next? So we’ve got the president’s budget. We’re already seeing senior leaders testifying on Capitol Hill, to defend the budget, and so you’re seeing a parade of generals and senior executive civil servants and appointees articulating the merits of this budget. And then what? Congress goes into a black box, and they start figuring things out. What happens next, Matt?

Matt 40:37

Yeah, I think you’ll see some of the initial markups on the approps bill in the June timeframe. So hopefully we’ll get to see... Yeah, your point on the E7s a great one because, yeah, we know some of these things they will add back in. I think by June we’ll also have a little bit better sense of where reconciliation is going. So one thing that you could see the Hill do is really have to make that balance of if they can’t get that 350 billion, they’re gonna have to fit all of their priorities in with all of the other budget requests. DAWG, maybe DAWG if the reconciliation bill doesn’t look like it’s gonna happen, maybe they take a piece of that. It’s not 43 billion, but maybe they, support five billion or something like that. So you could see some of these accounts shrink, but hopefully move from reconciliation into the base budget. And then, yeah, they’ll pr- they’ll bump up all their priorities, but we’ll probably get a first look at that sometime later in June. And then yeah, we’ll see how things go with the supplemental, which will help, also help inform do they have to move more money to missile accounts to, to compensate if the supplemental hits a snag? Will they try to push maybe some of these really big priorities they know for the President? I don’t know if you picked up on that, but when you looked at the one of the things that I’d never seen before in the budget overview from OSD, they actually had the table, the pi- the pie chart, and they had a slice of it that was, like, presidential priorities, and I think that was, like, maybe a little signal that if you don’t fund these things you’re gonna get a call from the White House. So it will be interesting to see as they’re moving through there what things, what are the, what part of the presidential, President’s priorities move from reconciliation possibly into the base budget, and then what things get decremented. So yeah, I would say June and then there’ll be there’ll be some defense of that, and we’ll see the we’ll see the final hopefully before October. But time will tell.

Maggie 42:30

Great. Well Matt, thank you so much. This was incredibly informative. I know the federal budget process can feel very opaque and archaic to those of us on the outside. I was feeling a little bit of despair last night downloading the J books, trying to figure out what all the different acronyms mean, trying to figure out which of the 900-page PDFs, each item that I was interested in fell into. So it’s always great to talk to an expert like you. And of course I read Defense Tech Acquisition news like the Bible to really help me figure out everything that is happening in this space.

Matt 43:08

Thank you. Appreciate it. Thanks for having me.

David 43:10

Yeah. No better way to start your Saturday. Though I would be remiss not to highlight, right? This, the President’s budget, and we still haven’t seen all the J books come out, very late to Congress, right? Yes. This is something that’s supposed to happen in February traditionally. And so we’ve squeezed Congress who already seems to be-

Matt 43:29

Actually by law.

David 43:31

Okay, by law. So we’ve already squeezed Congress on their timelines- to get out the NDAA and the appropriations bill to do all of their horse trading and back and forth with the department. So all but I can say this is an interesting time for people at the Pentagon as they now have what’s called staffer days, where they start to defend the budgets that they’ve been putting together for the better part of 18 months encapsulating this entire POM process. So yeah. Well, Matt, thank you so much for joining us. It’s a pleasure to have a real subject matter expert like you. We missed having Pete on the podcast as well, but we’ll try to maybe we’ll get him next time for a different topic.

Matt 44:16

You bet. Nice to be here. Thanks for having me.

Maggie 44:19

Wow, Matt was really great. He definitely knows his stuff. The federal budget process can feel incredibly opaque, but conversations like these really help translate what’s happening inside government into actionable insights for the broader defense innovation ecosystem.

David 44:36

And for the founders listening, the key takeaway here is simple: The budget is strategy translated into resource allocation, and if you wanna understand where defense markets may emerge over the next several years, you need to understand where the government is placing its money, not just where officials are giving speeches.

Maggie 44:53

And of course, if you aren’t already reading Defense Tech and Acquisition, you definitely should be. Again, Matt and Pete are seriously consistently doing some of the best work breaking down what these budget documents actually mean. So David, I have to ask the question that we end every Techquistion episode with. What do you think the next Techquistion Edition episode is going to be about?

David 45:14

Well, I think we alluded to it a little bit given that we’ve got three budgets in one that are being bandied about, right? Between the president’s budget or the base budget or the discretionary budget, then you’ve got the mandatory budget or what they’re calling the reconciliation bill, and then this extra funding, geared towards specifically the actions in Iran. And I would imagine that we may be talking about one of the latter two, either the reconciliation budget and what was in it and what does that mean for startup founders and the programs that money’s tied to, or for any supplemental funding that’s tied to the Iran war.

Maggie 45:53

So sounds like there will be no shortage of content for future Techquistion episodes here. Well, David, thank you again, as always, for helping break down some complex issues, and looking forward to the next one of these.

David 46:05

Always a pleasure, Maggie. Thank you.

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Dan has a phrase that stuck with us: “AI drags infrastructure.” Everyone sees the value of AI. The hard part is deploying it where it’s actually needed, like oil rigs, mine sites, aircraft carriers, and national labs. These are places where the cloud simply can’t reach, and that’s where Armada comes in.

In this episode, we cover:

• Why the cloud breaks at the edge (latency, sovereignty, and cost)

• How Armada is enabling real-time AI in fully disconnected environments

• Armada’s role in the DOE’s Genesis Mission, the most ambitious AI project in U.S. history

• Why winning the AI race is just as much about infrastructure as it is models

• What it takes to build mission-critical technology for mission-critical customers

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

One more quick reminder that registration is now open for the third annual National Security Hackathon, taking place May 1-3 in San Francisco! We are partnering with the U.S. Army to award $50,000+ in cash prizes to hackers building solutions to crucial U.S. military problem sets. 🇺🇸 Register now here.

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Transcript

Maggie 00:36

In this episode of the Mission Matters podcast, were joined by Dan Wright and Pradeep Nair the founding CEO and CTO of Armada AI. Armada is building the future of distributed AI at the edge.

Akhil 00:50

Armada is a quintessential company addressing both a commercial and national security pain point, and that is how to get connected compute to the edge, to these potentially remote or disconnected environments for mission critical applications. That’s whether it’s an oil rig, a mining site, or even the US military and its allies. You can think of Armada as orchestrating both the compute via its containerized mobile data centers, as well as the connectivity associated with connecting those together to enable and accelerate AI applications, data analysis, where it is needed and in the timelines in which it’s needed.

Maggie 01:31

I mean, essentially you can think of Armada’s Galleon product as a bunch of CPUs and GPUs in a hardened Conex box with Starlink connectivity and all of the software infrastructure that you need to actually put AI applications on that edge. Armada’s technology is particularly useful in situations where you cannot assume reliable connectivity back to the cloud. Today, if you look at LLMs ChatGPT, the vast majority of these applications rely on having unbroken access to large cloud data centers to do all of the processing that you need to use those AI models. However, you know, you can imagine if you’re deployed out on an aircraft carrier in the middle of the Pacific during a conflict or on an oil rig, or even at a mine site or an oil and gas site, you might not have access to those cloud compute capabilities, but you still want to be able to use these powerful AI models to make your tasks your life easier.

Akhil 02:27

Yeah, Maggie. I think a lot of us here at Shield Capital, whether we served in the military or have been deep in the space, recognize that. A lot of these environments, you just can’t connect back to the cloud and you have to be able to analyze, assess, and compute near the point of friction or the point of influence, so where it needs to be done. Even if you have that connectivity back to the cloud, it’s critical that analysis, that timeliness associated is done nearest to those who are actioning.

Maggie 02:57

Yeah, it’s also valuable having this edge compute capability as it allows you to process the data potentially where it’s actually collected, and it allows you to have those data centers right near your energy sources. Dan and Pradeep have both had long careers as AI and data infrastructure, technology company executives. Dan served on the executive team at AppDynamics and DataRobot while Pradeep was a vice president at Microsoft Azure for 10 years, and a VP of engineering at VMware. Now onto the conversation. Dan and Pradeep, thank you both so much for coming on the Mission Matters podcast. I wanna start out with a question, Dan, where is the Department of War today in terms of AI adoption and infrastructure build out, you know, what’s actually being used? There’s lots of buzzwords, lots in the news right now about how the DOW is actually using ai, but what are you seeing are some of the specific. Use cases that you’re excited about that are driving real value for the war fighter?

Dan 04:01

Yeah, I mean, we have a saying at Armada, which is that AI drags infrastructure and what is meant by that is that typically how things work, not just with the DOW, but with any customer that we work with, is first they see the value of the ai and then they’re like, oh, how do I enable this everywhere? And so that’s kind of the stage we’re at now, where now the DOW has obviously understood the value of drones. I mean, I think everything that’s happened in Ukraine and other conflicts has really highlighted the necessity of not just drones, but drones at massive scale, you know, drone swarms. And then the obvious question becomes how do we process all of that data? Locally, including in these more remote areas. And then on top of that, you see a lot of the foundation model companies now working with the DOW in a very close way that wasn’t happening in the past. And those capabilities too, it becomes, okay, well how do we actually deploy this? So then you heard Secretary Hegseth recently at Star Base talking about, you know, deploying these types of technologies at the edge. So the Edge is now really a focus, but that infrastructure rollout is happening as we speak right now.

Maggie 05:25

Yeah, Pradeep, we’re starting to see some of these use cases expand drones, others, what are some of the existing technical challenges that still exist for actually adopting AI in these mission critical organizations?

Pradeep 05:39

I think a couple of things it’s what we are seeing with a lot of our customers, we are actually deploying into countries or places where there’s an existing cloud region, right? So that, that’s something interesting to notice like most of our deployments are starting to happen and hey, there’s a, you know, one of the existing hyperscaler cloud region, but they want an edge deployment and that’s driven by. Primarily three things. One latency. They want to have you know, the compute close to where the data is generated. The second portion is sovereignty, right? That’s where the AI stuff is very important because if you see what’s happening as Dan was mentioning, a lot of large language models being, you know. But many of the enterprise customers or even government customers want to take it, you know, fine tune it on their you know, confidential or sensitive data and then push it to the in front for the edge, right? So that’s what we are enabling. One of the struggle has been, Hey, I have all these models, but I want to have the compute on the edge. Now how do I bring all this together? Which is one of the pain points we are solving is, Hey, okay, you can have all these AI models, you know, generated in the cloud, but how do you put to action on the edge that requests like, you know, distributed compute, a single amazing customer experience that allows customers to focus, to switch between cloud and edge. So that’s one of the things. And the last one we see is cost as well. Like in terms of the problem we are solving overall. Hey. Yes, I have the models in the cloud. I don’t want to keep pushing all the data to the cloud if I want to like, you know, run inference and get output out the edge and then push the post-process data to the cloud. That’ll save obviously you know, significant on my, cost as well, because you know, people are spending lots still on ai, cost, all the training, et cetera. Now how do we start, you know, optimizing it so that you don’t keep spending just on the large models or the large data and push all of that to the cloud.

Akhil 07:43

Pradeep, you’ve experienced this built on the cloud side and now the Edge side. And Dan, you mentioned I love that sort of statement, AI applications are dragging the infrastructure. I think something we’ve observed, and this is not just in the national security spaces, when that does happen, I mean it takes a hot minute for the, in infrastructure to get developed, in fact, much longer than it does necessarily to take an AI application, right? And to build the potential use cases. And so Pradeep kind of curious on, as we think about the challenges, not just in the application development, but you know, as we think about that dragging infrastructure. What are the challenges of actually building and adopting that scaled infrastructure in a distributed manner for some of these mission critical organizations? And that’s not just national security, that’s oil and gas. These organizations that that, that have similar mandates when it comes to the deployability and challenges associated there.

Pradeep 08:36

Yeah so interesting. I think as a, as you said, I was you know, fortunate to be part of the, you know, building the cloud journey for over a decade. What I significantly saw was what Cloud enabled was, hey, you can think about developers around the world could actually focus on the application and start deploying anywhere in the world, right? They don’t really care where the infrastructure is sitting. It’s just a dropdown for them in the broader experience. And I just go focus on my application deploying that. That is a similar thing we are doing here. Hey, you can think about distributed edge compute sitting across everywhere around the world. You focus on the application now what challenges we see? It’s literally if your application is modernized running on Kubernetes, like you’re able to do that. Then, you know, moving to the edges relatively straightforward. Where we see challenges, if it’s set of legacy applications that have been done that has very legacy dependencies, then you actually have to go through sort of a transformation or the second thing we have seen is. If you are actually too much tied to one of the cloud provider, right? You have so much dependency on some of the cloud services or specific cloud services coming from a cloud provider, then you have challenges transforming. But what we are also seeing a lot of the like, and if you think about you know, journey of multi-cloud like enterprise customers are deploying on multiple clouds, which means that. The app developers are like transforming the application to say that, oh, I should be able to run my applications on an Azure or A GCP or on Oracle, et cetera, right? That’s how they are thinking. Which makes our job easier because, hey, if you have you know, transform your application or you built your application from the scratch, that it can run on primarily any infrastructure, any cloud provider, then running it on engine infrastructure becomes relatively very easy. For example, we are at, we are one of the applications we actually, they were running on Azure. We were able to actually, you know, you know, enable them to run on the edge within less than 24 hours, right? Because it’s all you know, native Kubernetes stuff. So it is very easy for us to, you know, migrate them over.

Akhil 10:51

Thanks for that, that’s great. And I wanna pull on something you mentioned with a lot of these legacy industries. You know, legacy is not necessarily the right word, but with a lot of industries, like in national security. Basic dev tools, infrastructural tool just don’t exist in those environments. And what we’ve been finding, Maggie and I, with our portfolio companies here at Shield Capital that are on the AI application side is they’re allocating 20, 30% of their critical engineering talent. Not to the application, but to the deployability infrastructure and how it relates to the edge. And so I’m curious a little bit about how do you think about working with startups in these. Really advanced AI application companies, figuring out what that edge deployability looks like and maybe taking the burden off of them so that they can focus on, I think as I’ve heard before, focused on just making really good beer or making that really good application.

Pradeep 11:43

Yeah. So super interesting. You know, we, you know, we spend a lot of time between, you know, Nvidia of the world and then, you know, and the cloud providers like Microsoft. If you think about the stack, what we are seeing is there’s obviously the infrastructure layer which is you know, hardware and all of those things. Then you have the past layer with Kubernetes. Then you have a lot of ML ops platforms, and then you have the AI applications, right? That’s. The stack is starting to work, and this is where some of the customers struggle because if they have to do it all by themselves, they have to go all you know, together by themselves. And then there are startups, to your point, is working on couple of these portions and oh, they have a really good ML off platform, or they are, you know, developing really apps. So what we have been is like we think about partnership very key. Like how do we make the experience simpler and easier for our customers? Is the partnership with these, you know, ML ops and AI apps. And we work with the, for example, have a specific team what we call as the marketplace team. What they are actually, their full-time focus is to like, you know, work with partners, onboard them onto our platform, make their deployment very easy. They don’t have to worry about Hey, what infrastructure, et cetera. Very similar as I explained in the cloud. So they can actually scale faster, right? And what that gives us the abilities, Hey, we deploy the infrastructure. The number of ML ops platform integration or the number of AI apps we support goes really well. So that’s and my team is. Deep infrastructure specialists and you bring in the application teams from the, you know, the startups or the app companies is what we are focused on. So that’s really what we are focused on and how we do through is partnership. We see that struggle like very much. They e even for example, even if I’m an app developer company and I can deploy it in cloud, then I don’t know how to move to edge, right? So we actually take care of that easily for them. So that’s really a problem. And through partnership is what we are solving. That

Dan 13:49

Just to piggyback on that, I mean, we say pretty, but I like to say our value prop is the three S’s. Speed, scale, and sovereignty. And the speed part is really important for the end customers that we’re serving, where it’s all about. Hey, I’ve got, you know, mission critical problems in these edge locations. I need them solved yesterday. And you know, for example, with the Navy, and this is public, we did a UNITAS exercise where we were able to rapidly deploy one of our Galleons on a ship. And we were able to show, Hey, you can take these really powerful models and for the first time, it’s never been done before. Run them at scale, you know, totally disconnected from the public cloud in these very remote locations. The speed piece of that is really important. And then once you do that, you create a ton of value, both for the end customer and then these model companies, which also look at us as a fast way to get deployed in these sites. And then you start to scale. And then the sovereignty piece is really important. I mean, I think what we’re seeing is that you need to take a broader lens when it comes to national security. And we work not just with defense, but we work in, you know, energy. Also thinking about like other critical infrastructure, like airports, right? All of it is really national security where you need to be able to do 24 7 monitoring of these sites, secure them, and then run all of these really powerful AI models securely locally at the edge.

Akhil 15:20

That’s awesome. Thanks Dan. And yeah, I think very much aligns with how we think we, I mean, it’s mission critical, right? It’s about how do we. Safeguard and enable the varied use of AI applications with the right associated security measures if and when uncertainties happen. And that could be just a commercial cloud outage, which happens more frequently than we care to admit, or something more nefarious that affects not just the national security domain but our businesses and commercial enterprises. Dan, can you gimme another example? Maybe not from the military. Going to Pip’s comment about how you think about partnering with the best in breed of AI applications.

Dan 15:58

Yeah. One example I really love ‘cause of the impact that it has is the example with Alaska Department of Transportation. And this started with us managing all of the connectivity as well as other connected assets for the state, like drones. They use Skydio drones, which are really great for emergency response, specifically using it for things like avalanches and floods. And obviously Alaska’s a huge, very remote state, and so a lot of times when these natural disaster strike people are affected, stranded in very remote locations and you can’t wait. For intelligence to respond, you need that in split seconds, just like you do in a defense scenario. And so what we did is for the first time, we deployed one of our Galleons, these modular data centers in Alaska, and we were able to cut their latency from over a day to near real time to respond to these things using all the data from the drones. Right, and that’s using AI models that are very, people are very, you know, familiar with. But the difference between deploying those at the edge locally versus deploying those in the cloud is literally, you know, life and death. You know, 2020 over 24 hours. I mean, people cannot wait in that scenario. You have to have the intelligence in the moment for it to be useful if you don’t, responding the moment the data’s almost like useless. And so that is our focus. And I like that example because I think that is something that is true everywhere in the world. And you’d be surprised how many different locations have this same problem around the world. I’ll just give you another example. I’m about to fly out to Australia. We’re making a big announcement with a customer in Australia and. I was talking to one of the former Prime Minister there yesterday in preparation for that trip, and they said, Hey, we have that exact same problem, you know, very remote part of the world. There are no large data centers outside of, you know, maybe Sydney and Melbourne. And you know, when fires break out or you know, even just to provide the opportunity to you know, educate the population, provide infrastructure for education, obviously huge area for mining and oil and gas as well. So going back to energy, your stuff is mission critical and we don’t have anything like it. So we just see a huge amount of opportunity with those types of high impact use cases in these more remote locations that have been underserved. From infrastructure historically.

Maggie 18:50

Yeah. Dan, an another pretty interesting use case. I saw you all announced it was late last year. You announced that Armada is going to be an official collaborator on the Department of Energy’s new Genesis mission. So I wanted to see if you could talk a little bit about what that mission is and the role that Armada will play.

Dan 19:07

We are really excited about Genesis mission. I’ve really advocated for a project like this for my whole career, so I’m just. Pumped that we’re doing this as a country. The things that we’re doing there are twofold. So one is we’ve been working with secretary Wright and Dario Gill and the whole team Anthony Pugliese over there. And they’ve been great about just connecting us to all of the 17 national labs so that we can go there. We can meet with them and we can understand what are the gaps in infrastructure across the labs. Because again, AI drags infrastructure. Genesis’s mission is the most ambitious AI project in the history of the country. We’re talking about doubling productivity when it comes to you know. Science and engineering within a decade. That’s the goal. So if you’re going to do that, you’re going to need to deploy AI at a scale that has never been done before. But you can’t do that unless you have the right infrastructure to enable it. So that’s the first thing we’re doing, is we have gone to all of the national labs and we found out. Where are those gaps in infrastructure? And again, our value prop is speed, scale, and sovereignty. We can fill those gaps in infrastructure right away to enable us to. Accomplish the objectives of Genesis mission, which include getting, you know, big wins this year, right? We can’t wait, you know, years for traditional brick and mortar data centers to be built. So that’s number one. The second thing is there is a goal to create a common AI platform across all of the national labs. They don’t wanna operate in a siloed fashion where each Napa National Lab is doing its own thing, right? The power of Genesis mission is taking all of the data from all of the national labs and bringing it all together and having them work in unison. And so what’s really unique about our platform is the full stack nature of it. The fact that not only can we deploy. These Galleons you know, faster, more flexibly where you can scale up versus overbuilding and do it totally sovereign and disconnected from the public cloud in a way that nobody else can. But the full stack piece of it where each one of these things acts like a node to a distributed private infrastructure that can be leveraged locally, but then also. Coordinated across sites. And a very tangible example, getting into the weeds of this a little bit is take you know, take one of these model companies, right? If you look at who are the collaborators, we’re one of them for Genesis Mission, but also all of the Frontier model companies are part of it, all of the major ones anyway, you’ve got pretty much all of the GPU. Know, companies participating in it as well, but then the question becomes, okay, if I deploy those models on one of my sites for cybersecurity and other reasons, I’m gonna wanna use that locally. It also helps with cost, which is a big issue. Running the models is much more cost effective at the edge versus running it in the cloud. And we can get into that. But then I want to take. All of the improvements that I get, fine tuning the models on all of that data, and there’s a huge amount of data at each one of these labs, and I wanna leverage that across all of my different sites. And so what you can do is you can take one of those models, whether it’s from OpenAI or Xai, or you name it, you can run it on that data locally. You can fine tune it to the data, and then you don’t have to ship all the data back to leverage that across. All of the other labs, you just ship the fine tuned model back and then you leverage that across all of the other labs.

Akhil 22:57

Hey Dan, you hit on something that I think some folks first learning about Armada may not entirely know or have a perception around. It’s not just about the data center in a box, right? Armada is not, Hey, I’ve got this galleon and I’m just gonna plop it somewhere and it’s gonna have some compute, some GP, you know, a couple of server racks. And have some power. The whole thesis is how do you interconnect those in a way that allows for this nearly hybrid compute environment, depending on the type of application and depending on whether you’re optimizing for cost or resiliency.

Dan 23:32

Yeah, exactly. And I’ll let pretty comment on this ‘cause he, he saw this firsthand at Microsoft where, what, like when PIP and I were first talking at the beginning of Armada, the opportunity was. Oh, wow. There’s 30% of the world that has these big hyperscale data centers. But what about the other 70%? There’s all these gaps globally in infrastructure, and that’s why we call ourselves the hyperscaler for the edge. And you know, the Galleons are super cool and they’re very impressive, which in some ways is a big advantage for us. But in some ways, you know, we try to really make it clear it’s not just about one galleon. It’s about. The full stack nature of it in the fact that each one of them is a node to a distributed system that can plug all of these gaps in infrastructure globally, and then allow you to leverage your intelligent across all of your different sites.

Pradeep 24:27

So I think Al interestingly, we talk about the world as, I mean, hey, there is you know, cloud for training. And then there is like what we see the world evolving to fine tuning and inference, right? That’s really it where we are with this thing. So what Armada is really playing a key role as being the platform for fine tuning and inference right now. All the edge boxes we are talking about is mostly for inference deployment. So that’s where we, basically, what we do is. We give the platform, but we also put the entire full stack solution with hardware and with the modeler data center. That’s what we’re doing. And there are cases in fine tuning, we are actually partnering with, you know, data center providers or colo providers where hey, they will actually bring in the hardware and it sits in a colo. And we give the platform, right? So what we are focused on is that customer wants a single platform for both fine tuning and inference, and then I bring down the models from the cloud then fine tune it like on my sensitive data. And then I click a button and I push it to inference for the edge. So that’s really like what. What Dan is talking about, that’s where an edge is actually evolving with that per premises. An edge can be like a small, you know, box sitting in a, you know, department of transportation vehicle, a police car. Then we are thinking about an edge box sitting at the bottom of a cell tower. And then you are starting to expand into a co, right? So that’s really like what we are looking at as, hey. That can be small to you know, a colo. Definitely not a cloud, but how do we have a single platform that spans across multiple? And where we are doing the hardware are both those like ruggedized boxes where we also have partnered with, you know, some of the folks on smaller boxes because they are already deploying those things. Then we want to run our software stack on top of it. So that’s how we are you know, helping customers.

Akhil 26:27

Thanks, Pradeep. I wanna nerd out for a second here on fine tuning and inference, if that’s all right. I think we have a group, and I’m doing this because I think our listeners tend to be somewhat technical, but also a lot of functional experts, right? That recognize that the current models and what the applications look like cannot get to the level of fidelity for their specific use case and deal with the tail of outcomes without some of that. Inference or fine tuning towards the edge, but then comes in all the factors, cost, resiliency, et cetera. So maybe my first question here, Pradeep, is what is wrong with the current state of infrastructure to be able to support this fine tuning and inference and five years from now? What do you want that to look like with, as you said, Dan, with Armada as the edge hyperscaler?

Pradeep 27:13

Pradeep: Yeah so I’ll give you a real example. We work with one of the you know, logistics customer. They had some physical security challenges. They had some like specific worker safety rules. And they had like literally somebody sitting in front of a camera or like a monitor looking to see if they were detecting some sort of violations, right? And they were like, you know, looking at maybe trying to look at their own models, et cetera. And their long-term plan was, Hey, it’s not just developing the models. They have you know, hundreds of sites and all of these models needs to run on those edge sites, right? So this is where hey, they tried a bunch of models. They said, Hey, there’s a bunch of consulting companies who came in, but everybody tries to solve the R piece. They’re like, oh, I will create the models for you, right? And then like then the next thing they have to deal with this. What’s the accuracy of the model, right? How do you keep you know, retraining the models or fine tune the models and then are you going to enable me to deliver it end to end, right? Many companies says, oh no, I don’t do this. You ought to go talk to somebody else and then it’s your job, right? So this is a case where you know, our AI team came in, we, you know, sat with the customer, they gave us like two weeks of data. Like we had we had our base model developed on the cloud. We, you know, we fine tune it or it drained the model on that. We actually pushed it onto the edge and then you won’t believe, like the first week we were able to detect seven out of 10 scenarios. Like before it was like a one or a one out of 10 or maximum two, because when the person looks away from the screen, they don’t see it. And from there we went to seven out of 10. But what the customer loved it and said, Hey, it’s not this one time. I wanna make sure that because new scenarios will pop up. How do you do that continuous training and then make sure that hey you can push it to the edge because we know what is the capacity available on the like edge. So it is not going to be hundreds of GPUs. So that is something which we are seeing, like where people are. Like in some ways when people are developing models, they assume that there’s infinite amount of capacity, right? And now how do you take that and run at hundreds of sites with a finite capacity is like the transition and that’s where. You know, we are helping customers or even partners are starting to look at saying that, yes. Okay, if I say I have got 4G Ps on the site, right? If I take like a small suitcase a deployment, you are barely one GPU, right? How can you like run the same models you know, what you need to optimize is what we are looking at.

Maggie 29:48

Dan. I’m curious, turning back to, you know, what it’s like actually engaging with some of these customers. You know, when I think of oil and gas, national security, energy, I don’t think of the most tech forward-leaning customers. So I’m curious, you know, how much customer education have you all had to do with these customers? How forward-leaning have you found them to be and how do you get them to trust you to actually help them deploy, you know, really valuable, meaningful technology.

Dan 30:17

Yeah. The good thing is when we first start talking to customers in general, they already have a clear set of goals at the edge, and they already have a backlog of use cases that are low hanging fruit. Once we deploy the infrastructure, there is an initial bridge that you have to cross, which is you have to demonstrate the value of each one of those use cases at these sites. And then they also almost every single one of them has a very stringent cybersecurity review that you have to get across. But then once you do that, and once you deploy at one site, going from one to many is much, much easier. And the reason is there is a huge amount of value that directly ties to their objectives. And if you look at what is a common pattern to go to, back to Pip’s point on pattern each one of these. Customers, whether you’re talking about defense or you’re talking about you know, oil and gas, mining, any one of them, they have a common set of things that are happening. So one is they have very distributed remote sites where they have a lot of data being generated and they understand that the value of that data is dependent upon it being used on the site. For primarily latency reasons, but also a lot of these are critical national infrastructure. And for that and cybersecurity reasons, you actually can’t take the data off the site. So you have to do all the data processing locally. And then once you deploy, there’s a huge amount of value to be generated. And I gave the, you know, the defense example and I gave the, you know, emergency response example with Alaska. But if you think about. An industrial example, like a remote oil rig or mine refinery manufacturing facility. I could go on. Each one of those things has a lot of value to be delivered in. Number one, not sending all of the data to the cloud because one, you’re reducing risk and secondly, you’re typically, if you’re, especially if you’re running AI on that data, saving a significant amount in terms of cost. But number two. Just making sure that those sites work 24 7 as they’re intended, has a huge amount of value. Every single one of them, whether you’re talking about an oil rig or a mine, or a refinery or a factory, they have the concept of unplanned downtime and unplanned downtime costs a lot of money. Then at the same time, each one of them is moving towards automation. And so you can help them on that journey as well. And just to give you a sense, like a large energy company, we work with some of the largest in the world. They’re all moving towards fully autonomous operations over the next three years. And so immediately by deploying this, we’re able to avoid unplanned downtime. And a lot of them have. Days or weeks of unplanned downtime every year, which can cost hundreds of millions of dollars or billions of dollars at scale. So that’s an easy business case right there. And then there’s a bunch of other use cases. But then the second thing is all of them are planning to go towards full autonomy at these sites, or nearly full autonomy. Maybe there’ll be one person on these sites. Within the next few years between now and 2028. And the only way to do that is to have local compute. So we have this same pattern across all these different areas. And Akhil, to go back to your point on inference, if you take a step back, that’s why you’re seeing this super cycle shift from just the training of the models now to the fine tuning and the inference of models is that everybody sees that they have now reached A level where if you do that fine tuning on all of that data at the edge. Then you can actually move towards autonomy and the use cases there are through the roof and the values through the roof when you do that.

Akhil 34:18

Super helpful. Dan, lemme just recap for the audience here. What I’m hearing, I think coming into some of these discussions, I think a lot of folks might see this as, hey, this is, you’re really paying for resiliency. You’re paying for whatever it is. What you’re saying is it’s not resiliency, it’s efficacy. There’s a matrix associated with, some people do want that resiliency, right? In a disaggregated, disconnected environment. Others are actually like, wait a second, this is the most effective way to do fine tuning and inference. And to be able to get that last, you know, not to use a football analogy, the last, you know, third and five, the last five yards to the application efficacy. The only way to do that with all the data sovereignty, all of the. Local nuances is to do it at that edge, and you need to be able to do it in a way that is connected across multiple nodes.

Dan 35:05

Yeah, I would almost say it’s first about enabling all of these models, enabling local data processing at the edge in the way that was never possible before, which creates a huge amount of value. And then the resiliency is like a nice bonus. It’s oh, and by the way, these are a part of a really resilient. Distributed infrastructure that if something ever happens with your cloud or something ever happens, even with one of the nodes, you have really resiliency between nodes. But that’s like a bonus. The thing that gets people to say, Hey, I’m all in, is number one, there’s like a huge amount of immediate value to be generated. And then secondly, it aligns with these you know, multi-year initiatives to move towards autonomy in each one of these edge locations.

Pradeep 35:56

Yeah, and I, just to add to what Dan said, we have a mining customer, like they have around 30 mining sites, a large mining customer. They are going through this whole process right now. They have all of these IOT assets sitting in. They all push that to a cloud. It goes to some central region. They were like, Hey. This is not the way I want to do modern edge or modern, like a distributed architecture. So they’re like working with us to re architect the whole thing from a distributed you know, architecture where hey, you want all of these it devices to actually send, you know, data to be processed in the gall. And then post-process data that pushes to the cloud for, you know, you know, for their compliance reasons, backup, et cetera. And that would also be used for larger training as well, right? You get you know, you know, the what the events which are really useful rather than pushing everything to go sit in some storage account and keep paying for the storage, right? So that’s why say, hey, it helps me in also that when you do this. At the edge, you can actually take actions because you’re immediately processed within seconds. You have the output so the people on site can take action. At the same time like I’m not trying to pay, I also, in many of these cases, egress cost is high as well, right? If you think about the network, if you’re pushing all of this data, raw data, it is you know, somewhere you’re paying the network bill too, right? So that’s, those are the way they are reaping at the architecture from a distributed computer is what they’re looking at.

Dan 37:28

Yeah, this was actually a big eye-opener for us and our co-founder John, when we started Armada. You go actually talk to these mining companies just to use that example, and they have what’s called a hard segregation of it and ot it from operations. And you might ask what, why does that matter? What is the practical implication of that? Well, in mining, like in most businesses, especially industrials, time is money, right? And we work with a lot of the largest mining companies in the world. They’re constantly doing exploration for new projects, right? And a lot of times those things can take years. Well, why do they take years? They’re almost all in very remote locations. Then because of this hard segregation between IT and ot, they have to do the exploration work at the site. And then they ship this stuff in batch, like the same way they did decades ago to, you know, hq. And they analyze it and then they send it back. And we talk to a lot of companies where we ask, how long does that take you? Well, every time they do that, it takes them a month or maybe more. And so by actually bringing. Something like a galleon to the edge and deploying it behind the firewall on the site. You go from more than a month to real time, right? Which speeds up these projects, which creates a ton of value and also allows them to out-compete the competition. And so it’s really eye-opening where a lot of people just assume Hey, everybody’s doing things. You know, the kind of real time way now. Not with a lot of these types of businesses because of this hard segregation between IT and ot, and the only way to actually enable real time is to deploy behind the firewall on the site.

Akhil 39:18

Very helpful. And Dan, as you were saying, that can’t help but think about the national security parallels of, you know, your analogy between the IT and OT world, right? We’re listening and observing what has happened over the past couple weeks in the Middle East. We’re recognizing that the ability to quickly sense what is in the environment and make use of it before it gets into the large IT systems or in the process of is absolutely just as critical. And a lot of those systems too are far. I’m reminded by some of the stories Raj here at Shield Capital shared about coming back from, you know, a, a fight or flight, a fighter pilot flight, and you know, manually downloading the sensor data. Just think about the latency associated with that. If you could do that in a way that that did not require that for the immediate analysis that needed to be done.

Dan 40:12

Yeah. And Shield’s, obviously, one of our founding investors, you guys co-led our seed rounds, so thanks for all your support over the years. But I remember talking to RA about that when we started the company. Literally, it’s and that is happening globally. You cannot have a situation where you have. Very important data just sitting there and you have, you know, days or weeks or months of latency to try to do anything useful with it. You have to be able to use it in real time at the edge. And that’s the common thing we see playing out across all of these different areas, whether you’re talking about, you know, defense or you’re talking about energy, or you’re talking about you know, any other area.

Maggie 40:53

Dan, I know that you all recently released a white paper on what it’s gonna take to build US AI dominance, and we know that a lot of our, you know, potentially adversary nations like China are investing very heavily across the stack in talent, in compute, build outs, in mining, in energy. What is it gonna take for the United States to maintain our AI dominance? What are some of the sectors that we’re going to need to invest in over the next five, 10 years?

Dan 41:24

Yeah. It was funny how that played out. We didn’t plan it this way, but when we released that white paper, I was in Washington DC with some of our team and we were at the. Winning the AI race summit that the president spoke at last July, and that was the same day that the White House released its AI action plan. And we had been talking to them a lot and so I don’t think it’s coincidence, but they were very closely aligned our white paper to that. And the idea is number one, one of the biggest blockers to AI is energy, right? And if you look at how that is playing out globally, China has made very fast progress there. And that is a national security risk, right? We have to solve the energy problem. How do you do that? Number one, you use all of the energy that is available to you and I mean all of it. And one of the things that we highlighted is that in the US there’s about six gigawatts of stranded energy. And it’s not being used for ai. Why is it not being used? Well, it’s because we’ve been requiring that energy to somehow travel to these far away data centers, and that is very difficult to do. And so what we are instead saying is, let’s flip the script a little bit and let’s actually bring the data centers to the energy and enable that energy to be used right there. And a nice thing is that’s also where a lot of the data lives. And so that’s kind of our philosophy with Armada. The data centers are an enabler and they should go to where the energy and the data lives, rather than this dynamic where you’re having to have the energy and the data sail to some far away data center. That’s one of the reasons why we call the company Armada, is like each one of these things is a ship sailing to the data. And that’s why we call the data centers galleons. And then the other thing that we need to do is we need to use all different types of energy. And that includes, you know, stranded natural gas that includes things like some of these, you know, micro nuclear reactors. We think that you gotta invest in nuclear, you gotta invest in solar. You gotta, you know, be willing to look at things like data centers in space because the sun is like the ultimate source of energy. We need to use all of these different. Energy sources and then have the data centers go to those energy sources and enable ai. And we need to do it really fast ‘cause China’s moving fast. And so that’s what we’re focused on. The other thing, and this is the third pillar of the AI action plan and also in our white paper is you need to work with allies. The allies also have huge amounts of energy that is available for ai, and we can utilize that. And that also has other good impacts, like making sure that we don’t end up in a 5G situation like we did, you know, with China last time, where you’ve got other nations adopting that technology. We need to make sure that the world does run on the US AI stack, and so you kill two birds with one stone. When you work with allies, you are able to utilize all of that energy. Constantly improve these models, improve the entire stack, and then, you know, five years from now, instead of running on Chinese infrastructure, the world be running on the US AI stack.

Akhil 44:46

Yeah. And the AI race, as we think about in this geopolitical competition, is not just about the large language models, right? It is also about the infrastructure and the deployability across the globe. And I mean, this is what you’re seeing, right? Pradeep, both your prior experiences and what you’re seeing as you deploy Armada, not just. The United States, but across the globe.

Pradeep 45:08Yeah. I think, actually great question. I’ll tell you an example. In 2006 I was working on some of the telecom infrastructure stuff in Africa. What, interestingly I saw was like, you know, Huawei and some of the Chinese providers were actually setting up almost giving away free infrastructure. So they would set up all the telco infrastructure. You know, I didn’t realize that point of time, but they were actually taking sort of the backbone of the country, right? When you have all the infrastructure in your control, you have you know, the data and everything flowing through under sort of your control. I’m actually seeing similar thing. If you look at you know, the minerals industry, the mining, et cetera be like in a, if you have to build a lot of infrastructure to run AI models, you need all the, like silicons you for the silicons, you need all the minerals, right? So it’s a super interesting thing while I look at it as a LLM race, I also think about it’s a, you know, a race. For grabbing control of all the minerals and the mining sites and the oil and gas, right? So it’s very interesting to see that’s what I’m seeing. Hey you want those minerals in hand to produce more compute infrastructure to run better models, but, and also you want those to be deployed. So who has controlled all of this becomes super critical. And that’s where we have been talking about, hey, having a full American AI stack is super important from that perspective.

Akhil 46:39

Yeah, interesting. Pradeep, if you actually tie that line together, you can start with AI dominance and the geopolitical aspect there. Then you go to the infrastructure dominance and then you tie to the use cases. I mean critical minerals, right? I mean we’re talking about that right now. We’ve been talking about it. Your experiences from 2008 honestly predates some of the news around Huawei. And we’re only just now seeing or have for the past couple years the. The real challenges and limitations and the desire to have a critical mineral access point, and all of that is predicated upon knowing where they are and being faster about acquiring those resources.

Pradeep 47:18

Yeah. And I think that’s what to like really underline Dan point. It’s not just about within America, it’s about the allies too, right? You have to help and be partnering there to win the stack. Not because there are a lot of natural resources outside of us two, so we gotta be helping the allies to that.

Maggie 47:39

Last question to wrap up, what advice do you have for founders looking to build mission critical technologies for mission critical customers?

Dan 47:49

I’ll start and then Pradeep you chime in my first piece of advice is very simple. Be clear on what your mission is and write it down before you ever hire anybody. Like the first thing that Pretty, and John and I did when we started our motto before we hired a single employee was we sat in a room at Founders Fund and we said, okay, let’s write down our mission, our reason for existence. Let’s write down our vision and let’s write down our values and let’s make sure that every single thing we do from this moment forward aligns to that. And let’s make sure that everybody who joins our company understands what we’re about. And it’s a simple thing to say, but 99% of companies do not do that. So if you do that, you will stand out and you’ll get the best talent in the world because people want to work for companies that have missions. They wanna work for, especially the best people they wanna work for companies that are solving the biggest, hardest, most complex problems. And so we did that. We, we had our manifesto that we published, you know, while we were still in stealth, people were like, who’s this company? But apparently they stand for something. And then we even did a founder’s film and we did a launch film when we launched outta Stealth. And it was all about our mission. And it’s funny how. You know, those things are now a few years old, but you go back and look at ‘em. It’s all the things that we’re doing now. It’s all the things that we’re talking about in this interview. It’s just real. But being very clear about what you’re gonna do, what you stand for, and then, you know, walking the walk is really critical.

Pradeep 49:27

Yeah. Just to add, actually, as, when we were writing that thing, I remember in in one of our investors office, that time we didn’t even have an office. It’s funny that we actually took some of the hardest industries to go after, right? Because we believed that was the right focus area. And in some of the, you know, some of those industries are very hard to move because as earlier mentioned, they are legacy. So you’ve gotta believe in it and then you gotta be at it every day. So don’t do it if you’re not passionate about it. Because solving the hardest problem, you have to have the belief, passion, and you have to grind through it in many ways.

Maggie 50:07

Great. Well, Dan Pradeep, thank you both so much for your time and for coming on the podcast. We’re super excited to be investors and can’t wait to see what you all do next.

Dan 50:17

All right, thanks a lot. Great talking to y’all. See good. Thanks. Bye.

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In this episode of the Mission Matters podcast, we sit down with Chris Benson, the CTO of Istari Digital and an Air Force acquisition pioneer who was one of the architects behind the modernization of the Small Business Innovation Research (SBIR) program during his time at AFWERX.

We discuss:

• How SBIR evolved from a slow, lab-driven R&D program into a real commercialization pathway

• Why Open Topic and TACFI/STRATFI changed the game for venture-backed defense startups

• What the new Strategic Breakthrough Awards mean for scaling to production

• Why founders need to think about Phase III and production contracts from day one

• How proposal caps, foreign due diligence, and other new rules could reshape the program going forward

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

Subscribe now

Transcript

Maggie 00:19

On this episode of the Techquisition Edition of the Mission Matters podcast, we’re breaking down something that really sits at the center of the defense innovation ecosystem — that is the reauthorization of the Small Business Innovation Research and Small Business Technology Transfer Program, better known as the SBIR/STTR program. Although, for the purposes of this podcast, we’re just going to truncate it down to SBIR, which is how it’s commonly referred to. Additionally, while SBIR is a government-wide program administered by the Small Business Administration and executed at every government agency, we are primarily going to focus on the Department of Defense, which we will just refer to as DoD. And to help us do that, we are joined by someone who has a front row seat to the evolution of the program — Chris Benson, the CTO of Istari Digital. Before joining Istari, Chris served as an Air Force acquisition pioneer and was one of the architects behind the modernization of SBIR during his time at AFWERX, including initiatives like creating the concept of open topic and the extremely popular TACFI/STRATFI program that many startups and investors today see as the best on-ramp into defense.

David 01:51

All right, Maggie, but before we bring Chris on, I think we should level set for our founders listening, because SBIR is one of those programs everyone in defense Tech has heard of but very few people fully understand exactly.

Maggie 02:05

You know, depending on who you talk to, SBIR is either the single most important funding source for early stage defense technology, or it’s this useless bureaucratic maze like program buried somewhere deep inside the federal government. You know, I even heard somebody refer to it once as welfare for PhD students.

David 02:24

Well, that’s some pretty good ramen. But I guess historically, you could say that both of those things have been true. But at its core, SBIR is the federal government’s venture capital program for small businesses. Since its creation in 1982 it has invested more than 77 billion in research and development funding across over 33,000 startups or small businesses supporting everything from defense technologies to medical breakthroughs and importantly for founders, this isn’t just grant money floating around Washington. SBIR is one of the primary mechanisms that the government actually uses to discover, test and transition emerging technologies into real programs of record.

David 03:06

But as you’ll find out later in the podcast, the program has gone through some pretty dramatic changes over the past decade. For a long time, the SBIR program was mostly run out of government labs, places like Air Force Research Lab, Office of Naval Research, Army Research Lab, and until recently, not super conducive to venture backed startups, and candidly, has had a pretty poor track record in transitioning into meaningful war fighter capability. For years, most small businesses that received SBIR funding never meaningfully productized or deployed the technology that the SBIR program funded.

Maggie 03:43

But then things started to change,

David 03:45

So around the late 2000 10s, let’s say 2016 2017 a group of acquisition leaders inside the Air Force, who I am proud to call my friends, including our guests today, began experimenting with new ways to use SBIR to attract these venture backed companies and start to transition the technology. They started with a simple idea like open topic, and upon success, opened up the aperture of funding and established the TACFI/STRATFI program,

Maggie 04:13

if you’re a founder or investor in defense tech. Today, those programs probably sound pretty familiar.

David 04:20

So like those initiatives, essentially turned SBIR from a science project funding mechanism into something much closer to a commercialization pipeline, and now we’re seeing Congress codify a lot of that evolution.

Maggie 04:33

So that brings us to the big news of today, after more than a year of debate and uncertainty, including a multi month lapse in the program when authorization lapsed back in September, Congress has finally passed the Small Business Innovation and Economic Security Act, which reauthorizes SBIR and STTR for five years through 2031

David 04:54

and in addition to extending the program, the bill also introduces several structural changes. Founders. Should understand, and we’ll get into that a little bit later.

Maggie 05:04

All right, let’s bring on our guest for today.

David 05:08

Well, it gives me great pleasure and pride to bring Chris Benson on, who is one of the key figures in modernizing the SBIR program during his time at AFWERX, which is the innovation arm of the Department of the Air Force, and he’s helped shape reshape how the program engages startups

Maggie 05:24

today, he’s on the other side of the table as CTO of Istari Digital, a fast growing dual use defense technology company that’s also leveraged SBIR as part of its growth.

David 05:36

Chris, welcome to the Mission Matters Techquisition Edition podcast. We’re so fortunate to have you on here. It’s definitely great to have a friend and a colleague, and I guess, an Air Force veteran, maybe a quitter as well, join us here. Now that you’re on the private sector side, I guess to start off when you were working inside AFWERX, helping evolve the SBIR program. What problem were you trying to solve then? And what wasn’t working about SBIR at that time? Yeah.

Chris 06:09

Well, first off, thank you so much for having me, and I will second my excitement about the bill that was just passed by the Senate on Tuesday, and then we were just talking about what the House is about to do with that. So I think there’s a lot of really interesting things that are getting pushed forward. And I guess I’m very, very encouraged by Congress continuing to try to improve on the SBIR program. After, I guess, 40 plus years, there’s been a lot of improvements on it since we started working on it back in the 2016, ‘17, and ‘18 timeframe. So going back to your original question — what were we actually trying to do there? If you remember, during that timeframe, that was in the early days of, I would say, a wellspring or Cambrian explosion of many types of innovation organizations, right? So DIU, the original, which you were at, David, as well as a number of other folks. And then we had AFWERX, and then we had NavalX, and there were a few other organizations that were around there as well. And so at AFWERX, when we were working on this, we got brought in and were originally tasked with the idea of trying to encourage innovation within the Air Force. And so we tried to do a number of different things by focusing on individuals and empowering the airmen and the folks inside the organization. But then they also brought us some folks who were working on acquisition — who were acquisition officers — that would include myself and some others, to try to think about, well, what are some of the acquisition tools we have in our tool chest to be able to figure it out? And we — one of the first ones we looked at was the SBIR program. So at the time, that was several hundred million dollars a year of funding that was taken from a large number of different accounts and was spent through kind of a central process, through Air Force Research Lab. And the thing that we noticed with that, that was interesting, was the fact that the number of dollars that we had in that SBIR bucket every year was increasing, which is good, right? Okay, so this is more money for innovation, trying new things within the department. The thing that was concerning was that at the same time, with the dollars increasing, the number of unique companies that were being awarded was actually decreasing. And then so we dug a little bit deeper, and we realized that, oh, actually, not only was the number of companies being awarded decreasing, but the number of unique companies even applying for these ever-increasing number of dollars was decreasing. And so we saw this as a demand problem, or kind of a problem with the solution that we were offering to attract the best companies to work with us. The number one thing we were trying to solve is: if we are getting more dollars, how can we also get that to be given out to more unique types of companies and have more competition for those dollars? And so we went after a couple different things, and we saw really kind of two of the biggest challenges that we heard when we were talking with companies about why they were not coming and working with the SBIR program. The first one being that the process for how they were applying was rather opaque, and so they weren’t exactly sure what they were supposed to be doing with this. It wasn’t clear — there was a whole bunch of “you have to apply for a DUNS number, and you had to go get a SAM account” and all these different kinds of things. And so we tried to spend a lot of time making that process as transparent and as straightforward as possible. The other thing that I think is actually probably the most important one was it was just slow, right? So you would submit an application, you would wait. You would wait maybe three months, and then you would hear something back. Sometimes you would be selected; other times, we would wait six months, and then you might be hearing, “Hey, you’re selected” or “not selected.” And then you might wait another three months to start. And now it’s been nine months, and you’re starting a $150,000 phase one contract, and for a lot of these companies, the timeframe just didn’t work. The two big underlying problems we were trying to solve behind that were the clarity about how companies could engage with the government, and also the speed at which they could engage with the government through that process.

David 10:36

Yeah, that’s great. And I think time to execution is often overlooked and maybe taken somewhat for granted with some of the more recent language and then sort of just the vigor with which AFWERX started to actually work with these companies, which has probably then increased the volume of participants. But you know, to me, I think when the SBIR program really came onto the scene was with this unique concept that you all came up with. And I think you highlighted, you know, the fact that the industry base was shrinking, right? We had less performers, despite the fact that there are more entrepreneurs in the United States than ever before, and yet somehow less are choosing not to participate in the national security environment. Of course, that was a big part of the reason why Defense Innovation Unit was stood up. But you guys kind of took it a step further, and you created this idea called open topic. Seemed pretty radical when it launched, yeah, and I can imagine that there was some pushback. So maybe you can talk a little bit about how you came up with the idea of the open topic. What were some of the reservations behind it? And then how have you seen that maybe proliferate across other parts of government?

Chris 11:52

It’s interesting that you mentioned that the open topic was novel, right? So actually, both the original things we were trying to do — moving fast and trying to have clarified instructions — we leveraged a lot of lessons learned from you all out of DIU to do that for the kind of overarching SBIR reform. And the open topic we actually leveraged from the British. So there was this organization called DASA — which I wish I could remember the full acronym for — in the UK, and they did these open calls for innovation. And so the original open call solicitation for AFWERX was modeled almost exactly off of the open call from the British. Now, you’re right. There was some pushback from folks saying, “Hey, you know, we’ve tried this before.” In the past, there actually had been a topic within AFWERX called a blue sky topic, and it had actually received zero applications in the past because people didn’t know what to apply to it. And that was, I think, in the early-to-mid 2000s or something like that. And so people were saying, “You know what? Fine, go ahead and try it. Last time we did this, we got zero applications.” And so it was actually interesting to see how they let us do it. But the real reason why we did the open topic was really, once again, trying to solve a particular need for the warfighter at the time, right? So we were seeing a bunch of companies — they were starting to apply, it was faster. There were a bunch of companies saying, “Okay, I have this capability. It doesn’t fit in any of the buckets that you guys have, any of the topics that are currently out there.” And I was like, “Okay, well, you’ve got to get to talk to somebody who’s writing these topics — a warfighter, if you will.” And they’d go, “Yeah, no, I have a warfighter. He really wants it.” And they would find an actual operator, right? Who really wanted the solution. But then we realized there was actually a timeline problem, not just post submission of the application, but beforehand. So there was this process where, in order to get into a specific topic we had at the time, you would submit an idea for what an SBIR topic would be, and you could wait — I don’t know, I think between when you submitted the idea, it would go through several gates and checks, which made some sense. But between when I submitted it as a warfighter, or usually as an acquisition person, and when it actually hit the streets for companies to see it, that was between six and 12 months, right? So now add it up. I’ve got an idea as a warfighter, a need as a warfighter or an acquisition person. Now I’ve got to wait, let’s say, 12 months until it actually hits the street. It’s going to be open for one to three months. So now we’re at 15 months. And now between when somebody submits their proposal and they’re actually starting a contract, that’s another nine months. So now we’re at 24 months from when the warfighter has a need. And that is completely outside of the realm of what we were being asked to do by our leadership — which was to move fast. And so we said, “Well, look. If you’ve got somebody who really wants it, then how about you just have them write a letter saying, ‘Hey, I could actually really use this.’ And what if we made a topic that said, ‘All right, if you’ve got somebody who really wants to use something, you’ve got a really interesting idea — then let’s just have an open topic for things that really need to move fast and have a really serious defense need, have some good technical backing, and have a real pathway to commercialization.’”

Maggie 15:23

So Chris, another initiative I know that you worked on at AFWERX was the TACFI/STRATFI programs, and now we see in this new reauthorization bill the Strategic Breakthrough Awards, which award up to $30 million for phase twos. They look very similar to STRATFI in that they have the idea of matching government funding with private capital. So I’m curious, can you talk a little bit about what you were trying to accomplish with TACFI/STRATFI at AFWERX, and now that we see the Strategicbreakthrough award, do you see this as Congress basically institutionalizing that model that you initially pioneered?

Chris 16:01

But, yeah, I think the Strategic Breakthrough Awards are definitely, I think, the spiritual successor of what we started in the beginning with TACFI and STRATFI. And I’ll go back to why we did that originally. It was because we had warfighters, we had acquisition folks who had a demand, right? They came in and said, “All right, well, look, I can write you a letter, and we can get on a phase one or a phase two. But really, in order to make something that’s truly useful at scale — that can cross that valley of death — $2 million is actually not going to cut it.” I mean, some of these programs that go into production — $2 million is a rounding error on some of these very large things. And so we had some folks from the acquisition community who would come and say, “Hey, look, I’ve got a warfighter. I’ve got some money, but $2 million is not enough.” And so we said, “Well, unfortunately, we can’t write that big of contracts.” And then, fortunately, in that case, I was wrong. We went back and looked at it, and it turns out you actually could write larger SBIR contracts if you were able to work with the Small Business Administration to prove to them that, “Hey, this is actually a good use of the SBIR funds, and you’re not concentrating it for no reason.” And so part of our discussion with the folks and a lot of different stakeholders working with the SBIR program and the STTR program at the time was saying, “Hey, look, we are okay with you guys trialing out writing larger awards for things that you think can make strategic impacts for the warfighter or for a particular acquisition. But we don’t feel like it’s right, and we don’t think it’s necessarily the right answer to have the SBIR program take on all of that risk. If there really is going to be a transition, then what you don’t want to do is say, ‘Okay, fine, SBIR program, you build the entire bridge across the valley of death, and we’ll just meet you on the other side — on acquisition land over here.’” Rather, what we said is, “Well, look, how about this? The SBIR program could build a little bridge from one side, and the acquisition folks can build a little bridge from the other side — we can kind of meet in the middle. That way, there’s some skin in the game as you go across.” And that kind of narrative, I think, made a lot of sense to all the stakeholders at the time. And they said yes. And then one thing that actually kind of ended up fitting in the middle is: what if there’s just not enough money? It’s a really hard thing. But actually, private capital can come in, and it ended up working quite well. I mean, I don’t know the transition rate for a lot of the STRATFIs, but I know personally, I think of the first 20 or so, we’re easily in the mid double digits in terms of percentages that are actually transitioning over to programs of record, and that’s what you want, right? You want to be able to place these big bets, to have actual significant changes to how we’re approaching the valley of death and bringing new capabilities to the warfighter.

David 18:55

Yeah, that’s great. So I guess real quick on that — was the leveraging of third-party capital or VC funding not necessarily part of the original recipe when thinking about building larger STRATFI awards?

Chris 19:11

So it was both. When we were talking with folks from the SBIR and STTR offices, they were very focused on commercialization, right? It’s a core commercialization program. They were saying, “Hey, look, we want — if we’re going to put X number of SBIR dollars in there, we want to see you commercialize.” Now, commercialization can happen either through selling to somebody else in the Department of Defense, or selling to somebody like a large defense prime or even a commercial company. And so the — it’s not a perfect measure, but a useful heuristic — is basically non-SBIR dollars to SBIR dollars. And so we found the addition of private capital from, you know, places like venture capital firms or other types of investment firms to be a very useful indicator of the probability of transition to commercialization, whether it’s within the DoD or elsewhere. And it also has the added benefit of saying, “Hey, if I can put in $1 of SBIR, I can actually get two or three or $4 worth of capability.” And what we found actually — if you go back and look at the numbers — I remember we had this chart where it’s like, we would put some money in for all the STRATFI companies, and then very quickly after that, the amount of money they would get from all other sources combined would dwarf the amount of SBIR dollars. And so it was really trying to crowd in that funding — for the political scientists out there, it’s like the idea of: you put a little money in there and it acts as a catalyst to crowd in the other funds. That’s what we were looking to do. And we saw — I mean, I was blown away by the first response to the first open call, and it really was a huge, overwhelming response, both from the private investment community and from the warfighters.

David 21:00

Yeah, no, that’s awesome. Well, so Chris, you know you’re now on the other side as CTO of Istari Digital, building a dual-use defense tech company. Have you been a user of the SBIR program, and what’s it like being on the other side of the table leveraging some of these programs that you helped institutionalize?

Chris 21:20

I mean, I think we like to practice what we preach, right? And so we think that starting with some of those early phase one, phase two pitch day-type SBIR awards, and then as soon as you’re getting on those awards, immediately start thinking about that transition — both to where you’re going to get the non-SBIR dollars and getting over into the commercial sector as well. And I mean, I remember our very first — when our first SBIR phase two started, my first conversation with our program manager was like, “Hey, look, this is only meant to get you in the door. We want to be focusing right now on how to cross the valley of death.” And so we went through the exact same pathway. We kind of mapped out where we started with a couple of those doing this STRATFI, and we have now kind of transitioned out of leveraging heavily SBIR dollars, certainly the last couple of years, but it was very helpful in the first couple to get us off the ground. So the focus now — I always tell startups: “Hey, look, there’s kind of two different go-to-market motions when you’re working in the federal areas. The first is getting in and getting your initial foot in the door, and the second one is going and getting your production contracts.” So the initial ones are phase ones and phase twos; the ones further out are going to be production contracts, and hopefully you’re leveraging the SBIR phase three rights. I will say that I don’t think I’ve seen a lot of people talking about all the stuff the Senate passed — and the Strategic Breakthrough Awards are really, really cool. Love all these things. I think that’s certainly one of the things I’m most excited about.But a sneakily important aspect, I think, of the bill that was passed yesterday was the fact that there’s a requirement for agencies to have templates for the phase three contracts. One of the biggest challenges we still see today in 2026 is the fact that a lot of contracting officers are still not comfortable writing contracts or transactions using SBIR phase three authorities. And the more folks can get comfortable with that, I think the more you’ll see folks be able to transition those things across the valley of death. And so that’s a sneaky, kind of under-heralded part of the bill that came through, from my perspective as well.

Maggie 23:41

So Chris for founders listening, how should they think about SBIR today? What advice do you have for founders to best take advantage of this program?

Chris 23:51

Just know that as soon as you start that first go-to-market motion of getting your foot in the door, you need to start immediately building that muscle of moving to production. You need to start having those conversations right away — talking with the warfighter or program managers about this: “How are we transitioning this? Where’s the PEO line where the funding is coming from? Let’s start talking about SBIR phase three, or production follow-ons, or whatever else you may want to be going through.” And just know that’s a different set of skills than getting your foot in the door. But I will still say that, between what they’re doing with the SBIR program and what David was able to create at DIU, I don’t think there’s been a better time for startups in general to get their foot in the door. But once you get your foot in the door, you immediately need to change your mindset and start focusing on that transition to production.

David 24:43

Oh, absolutely. So I think, yes, production and scaling, that is how we all win. That is how the startups sort of showcase their value. It’s how the war fighters get access to compelling technology with economies of scale. And I mean the ultimately, I think, the taxpayer, you know. Gets better leverage on on what they’re paying in for government operations. So Chris, it’s always a treat to reconnect with you. You know, I should also shout out that Chris is part of the inspiration around sweat equity. So if you read my blog on that, you’ll have noticed his name being mentioned there as well. And you know, you are just kind of, you’re not going to beat me in the beep test this year. Fine. We can do the two-mile race then, I don’t know.

David 25:33

We’ll see — perfect, on reserve duty. Well, Chris, thanks again. Appreciate your time here. Appreciate everything that you’ve done for the SBIR program — taking it out of the doldrums of backwater lab work and into the forefront of innovative, cutting-edge technology. We salute you for that, and thanks for coming on this episode of the Techquisition Edition. Thanks, Chris. Awesome.

Maggie 26:01

now that we’ve heard a little bit about the history of the SBIR program from Chris and how the program came to be such an important part of the defense ecosystem today. Now let’s turn to discuss some of the major changes that were made to the program in the recent SBIR reauthorization bill. So first, one of the big changes made in this bill was that Congress created something called strategic Breakthrough Awards, which allow phase two SBIR projects to scale up to as much as $30 million over four years, provided the company can bring matching funds from another government agency or third party capital provider.

David 26:40

And as you learned, it seems that the origin definitely came from the TACFI/STRATFI model that AFWERX pioneered. So this is the government trying to pair funding from other sources and help accelerate transition, whether that’s with private capital or other government funding.

Maggie 27:00

So the idea there basically is, if I can go get another DoD agency to give me $10 million to fund some project, then I can get another 10 million from SBIR. Is that the right way to think about this?

David 27:14

I think so, yeah. It’s all about — and in certain cases, it’s also looking towards the future. So if you are addressing something that has future funding programmed, you can win a STRATFI now — that funding doesn’t come to you until you’ve exercised that milestone and the matching funding has also been released. But yes, it is all about big-time signaling and leveraging other pots of funding.

Maggie 27:42

Another major change that founders will notice is proposal limits. Agencies now have the authority to cap how many SBIR proposals a single company can submit in one year, which reads like an attempt to prevent what people sometimes call SBIR mills, right?

David 27:58

You are right, Maggie. I mean, it’ll be interesting to see how this one plays out. I certainly feel for the government SBIR evaluators, who are deluged with proposals, and you know, advances in AI mean larger volume proposals — a lot of it being AI slop — and that is a pretty big drain on your evaluators trying to separate the best solutions from the rest. My personal hope is that this will help curb the SBIR mill enthusiasm for submitting to every topic under the sun, even when they’re unqualified. But time will tell, and the agencies will exercise their own autonomy around this. I think it’s also worth noting — and Chris alluded to this in the interview — around improvements for phase three transitions, including some standardized procedures and better acquisition workforce training, so that contracting officers can understand how SBIR technologies can be fielded beyond R&D funding. And like anything, you know, education is absolutely key, and it is a great authority that the SBIR program provides to help companies transition from these R&D stages into something that looks more like production.

Maggie 29:11

And then there’s another area that’s recently gotten a lot of attention that is foreign due diligence.

David 29:20

Yeah, this is a big one. Congress has significantly expanded security screening requirements for companies participating in the SBIR program.

Maggie 29:29

So David, help founders understand what that actually means. You know, if I’m a startup applying for SBIR funding today, what kind of scrutiny should I expect?

David 29:39

Yeah, this is probably the biggest structural change for founders that they need to understand. Congress has essentially expanded the national security screening process for SBIR participants. Under the new rules, agencies now have to conduct due diligence on companies applying for SBIR funding to determine whether they pose a security risk. The government will evaluate things like financial, employment, or technological connections with foreign entities, and whether the company or its partners appear on a number of national security watch lists such as the Commerce Department’s Entity List and the Treasury Department’s Chinese military-industrial companies list. So for founders, the takeaway is pretty simple. SBIR is still very much open to venture-backed startups, including those with international investors, but transparency around ownership, capital sources, and foreign relationships is going to matter a lot more. And if there’s a questionable connection to entities in countries of concern, the agency now has the explicit prerogative to deny such awards.

Maggie 30:43

So we’ve covered what changes made it into this SBIR reauthorization bill, but I also want to discuss what didn’t make it in. There’s been a lot of debate over the last year about SBIR reform. I know David last year, you actually testified in front of the Senate Small Business Committee right as Senator Ernst unveiled the Innovate act to institute more substantial reform of the SBIR program. What were some of the key provisions in this bill that were not passed in the final bill, or what were you hoping might make it through that was ultimately left on the sidelines?

David 31:16

Yeah, good point. And you know, it probably doesn’t do any good to dwell in the past, but a couple elements that Senator Ernst included was this unique phase one, a program which was aimed at helping new entrants on ramp faster into the SBIR program. So it was almost like a carve out before a phase one, and it was only available to first time participants that did not make it into this final bill. Additionally innovate act, wanted to apply a lifetime cap for how much funding an individual company could win through the SBIR program that also did not make it in. And then, personally, I had hoped for some language promoting firm fixed price contract types over cost reimbursement, or at least giving a significant preference from Congress that isn’t in there either. Though I do feel good about a lot of different agencies across the DoD who seem keen on trying to promote firm fixed price, which is far more conducive to a venture backed startup, and you know, just more aligned with how the commercial world does buying in general.

Maggie 32:27

Well, regardless, I think we’re all happy that SBIR is officially reauthorized. The wait is over, and that just means there’s going to be more innovative small businesses getting funding to build the future of defense innovation, which I personally am excited about.

David 32:44

absolutely, and I can maybe stop fielding calls from founders and other investors about what’s going on with the latest with the SBIR at least for the next five years, we don’t have to think about that authority going away, though. I’m sure you know, in four years, we’ll start to re engage and and see how we can make this program even more conducive to just the way technology is developed and where the national security apparatus needs it. So I guess the battle is over for now, but modernization never sleeps.

Maggie 33:18

All right, David, as we wrap up, I want to ask you a closing question. What do you think the next Techquisition Edition episode will be about? If you had to guess?

David 33:28

Okay, great. I did think, I think we got this one correct.

Maggie 33:33

We did get this one correct. We correctly guessed SBIR reauthorization was next. So let’s see if we can keep the streak going.

David 33:39

Well, yeah, and the other one that I think I alluded to was around the President’s budget, so we’ll see if that one transpires, but that’s what I believe will be the next Techquisition Edition.

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Vector isn’t just building drones. They describe their business model as “Modern Warfare as a Service.” Instead of waiting years to push hardware through traditional procurement pathways, they deliver integrated capability — technology, tactics, training, and battlefield feedback loops — under service contracts that tap into O&M funding.

We discuss:

• Why the Pentagon’s $1B Drone Dominance initiative is the clearest USG demand signal for attritable systems yet

• How “Drone as a Service” business model unlocks O&M funding (the largest color of money)

• Lessons from Ukraine & Israel (and why it’s not copy-paste for the U.S.)

• Building a China-free supply chain and re-industrializing American drone manufacturing

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

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Transcript

Maggie 00:38

In this episode of the Mission Matters podcast, we sit down with Andy Yakulis, the CEO and co founder of Vector Defense, a startup building the future of American Drone Dominance.

David 01:22

For an acquisition nerd like me, I get super excited when I get to analyze and dig into a business like Vector. Vector has a pretty unusual business model compared to other startups we’ve had on the podcast. And describes Vector as delivering Modern Warfare as a service, providing war fighters with a full package of modern technology, Battlefield insights, tactics, techniques and procedure development, tactical integrated services and training, rather than solely tapping into research development, training and evaluation or RDT&E funding and procurement dollars, like most companies, Vector also receives operations and maintenance, otherwise known as O&M funding, for their products.

Maggie 02:09

Vector’s first product is Hammer, a long range FPV, that is first person view, drone capable of deep sensing and deep strike. As I’m sure many of our listeners are already aware FPV drones and other attritable software defined systems have proven to be an integral part of modern conflict. FPV drones now cause an estimated 60 to 80% of casualties on the battlefield in Ukraine. However, the US is woefully behind in FPV manufacturing and procurement as China dominates the FPV drone market.

David 02:41

However, late last year, Secretary of War, Pete Hegseth, announced the $1 billion Drone Dominance initiative for the Pentagon to procure hundreds of 1000s of these FPV drones over the next two years. This signals a clear turning point in the Department of War demand signal for FPV drones.

Maggie 03:03

Since it was founded, Vector has raised more than $60 million, and they have an incredible founding team to execute on this vision. Andy, the CEO, spent 18 years as an Army officer, specifically as a helicopter pilot, with time spent at Special Operations Command, Army futures command and the Office of Strategic capital. His co founder, George Matus, began developing novel drone technologies all the way back in high school, and founded Teal Drones, a company he scaled into one of America’s leading drone manufacturers, winning the US Army’s Short Range Reconnaissance program of record, which is one of the first major US military programs related to small drones. Additionally, the founding team includes Matt Long and Larson Jensen, who also spent time in the Special Operations community as Navy SEALs.

David 03:51

This conversation covers everything from the current state of U.S. attritable drone capabilities to the challenges surrounding drone manufacturing and supply chains and how the lessons learned in Ukraine translate to the United States forces.

Maggie 04:06

All right. Well. Andy, thank you so much for joining us today on the Mission Matters podcast. I know one of the big reasons that we decided to do this podcast really trying to spread the word about one of the administration’s new initiatives, which is Drone Dominance, great name. So could you just tell us a little bit about Drone Dominance and the significance of this initiative?

Andy 04:30

Well, Maggie, David, great to be doing this with you. We’re really excited to to go after the Drone Dominance program, or what we call a DDP, the Drone Dominance program is exciting for a variety of different reasons. One, it’s this major demand signal that we’ve been waiting for for many years from the Department of War. You know, I think the relationship with me and David goes back many years. We used to always lament about how we had these unclear demand signals. From the Department. This is the first time where we have a multi year program, multi-year funding, and large budget dollars of congressionally appropriated dollars. And so obviously there’s a lot of risk still in the market, but the Drone Dominance program has taken away a lot of that uncertainty that we usually see in defense.

David 05:18

Yeah, and Andy. I mean, definitely thinking a lot about drones demand signal. What do you think it is like this time and moment today that is allowing the department to announce something like Drone Dominance? And then maybe, where do you think it goes from there?

Andy 05:39

Yeah, it’s a great question. You can’t talk about drones without talking about Ukraine. Obviously, Russia invading Ukraine in February of 2022 set off this revolution in military affairs, where we see drones or unmanned systems used in ways we’ve never seen before, where you can take a drone that used to be used for racing, strap a bomb to it and have this outsized, asymmetric impact on the battlefield. And we as a nation, we as a company, both have been paying very close attention to how unmanned systems, or drones, are used on the battlefield in Ukraine and Israel and all over the world, and the Drone Dominance program is a clear indicator that the Department of War has also been paying attention, and it is now time for America to show its dominance in all areas of technology. For this program, in the drone industry and as the dominant superpower in the world, we need to also have a very resilient supply chain, a very resilient, powerful, competitive drone industrial base, and that’s what this program is incentivizing, is more competition, so more vendors like Vector are competing on that battlefield to build the very best system for our warriors.

Maggie 06:58

I mean, there’s no doubt in my mind, right, the FPV drones have been just a tremendously powerful force in Ukraine. But I know a lot of critics point out the US military and our threat landscape is very different from the Ukrainian military. We have significantly more resources. So how do you see these systems translating to be powerful for US forces in conjunction with our other exquisite systems.

Andy 07:25

Well, there’s a lot to be learned from the war in Ukraine. Maggie, there is a lot to be learned for how the Israelis use unmanned systems on the northern border against Hezbollah and then throughout Gaza and more like an urban setting. What I always tell folks is, there’s not a copy-paste from Ukraine or Israel to the United States military. The United States military has a very specific doctrine, and they are going to use unmanned systems in the way that makes the most sense for them. That doesn’t mean that because the Ukrainians or the Russians use drones in a certain way that there’s not lessons to be learned from them. I think that’s where the innovation of our company and other companies like Vector comes to play is how do we take those lessons learned from the overlap of tactics with technology and apply that to the American military? A lot of what Vector does is not just the production and the manufacturing of an unmanned system, but how that unmanned system is tactically employed. And I think having both sides of the company come together, you know, I think a lot of that is coming ahead in this Drone Dominance program, and having both sides of our company come together is a defining characteristic of this company, but it’s also a defining characteristic of where we see the drone ecosystem going in the United States, where the United States military is playing a little bit of catch-up right now, to be honest, that’s what this program is designed to do, is to rally the drone industrial base. But also, the drone is sort of worthless if we don’t know how to tactically employ it, and so we need to do a lot more work. We, as a military and as an industry, need to make sure that we are leveling up our game on how to tactically employ unmanned systems.

David 09:05

So Andy, I definitely want to build on that. One of the things that you talked about early on with the company, and that really just couldn’t take my mind off of, is the approach you’re taking to the military, right? I think you call it drone as a service, or modern warfare as a service, getting in with the tactics, techniques and procedures, with the special operators and and the standing army as well. What has like tell the audience a little bit about your approach, because I think it is relatively unique to most venture backed startups engaging with the national security system.

Andy 09:47

Yeah, absolutely. David, so when we first met, I was still in the Army. I was at Army Futures Command. You were, and still are, a venture capitalist, but we were always trying to work on this concept of how do we streamline technology through the acquisition system faster? How do we make transitions easier? How do we make sure that we are this dominant technological superpower with our defense technology? And I’ve been working on this problem set for five, six years of how do you push technology through the procurement system faster, so it’s still relevant when soldiers get their hands on it. You know, when I was in the Army, we used to have this saying that we’d get a laugh at conferences. I just don’t think it’s funny anymore, where we give our soldiers yesterday’s technology tomorrow. And that comment has actually turned into a national strategic vulnerability. The technology exists — this is not a technology problem. We’ve got great, innovative companies and amazing entrepreneurs and engineers that can produce great technology. What I kept looking at was, well, this is a contracting problem. This is a procurement problem at times. This is an administrative bureaucracy problem. And I think when you’re fighting sort of a long, sort of bureaucratic process, when you’re fighting the status quo, sometimes it’s a good thing to take a step back and like, why even try to go this way? Is there another way to attack this problem? And that’s when the idea of Vector was sort of born, which is like: what if we didn’t try to sell a drone through the procurement system that could take five, seven, or ten years. What if we attack this problem totally different, and flip the whole concept on its head? And what if we sell a service? What if we sell integration and training? What if we sell the innovation ecosystem that we were developing with those that we are working with? And then, what if we could sell unmanned systems underneath a service contract. And the more that we studied the problem, the more that we studied the Federal Acquisition Regulation, the more we realized this was actually a pretty innovative go to market to achieve a couple of things at once. And if you think about the concept of attritable systems, an attritable system is a consumable piece of technology. When you consume that technology, you have this opportunity to update what was just consumed with a better product. And that sort of fits in this sort of approach of, well, if you’re on subscription contract, or if you’re providing drones as a service, as the drone attrits, why not provide a new, innovative drone than the one that you sold before? And so that’s been our approach ever since we started the company, over 18 months ago, which was actually to attack this as a service contractor, still building products, still selling products, but all underneath service contracts. And I’m proud to say, every drone, every component, every kit that we’ve sold to date has been underneath the service contract.

David 12:38

So you must have just a giant other direct cost contract line item, CLIN, within that contract, is that correct?

Andy 12:46

That’s correct. Yes, that’s That’s correct.

David 12:51

Awesome, because I think I mean, for a venture backed company, you do still have to be mindful of margins. And if you’re doing services, I presume, some somewhat of a time and material type contract, you’re not going to get the types of margins that you’re looking for, but I guess that’s where then the quantity of the types of systems that you’re looking to sell, the constant refresh rate. You could look at your TTP development as a bit of a moat over time.

Andy 13:22

That’s absolutely true, and you’re right on the margins with service contracts. But again, there’s no limit to the amount of systems you can sell underneath a service contract, and so you can sell large quantities of system as long as they’re below a certain price point. This doesn’t work for a tank or a jet fighter, but for attritable systems, the strategy makes a lot of sense, moreover, and I think this is what gets a lot of folks excited about the the business strategy here is, if you get into the different appropriations for what we call different colors of money, you have operations and management dollars, and that’s what we’re talking about right now, service contracts, leverage the O&M budget, which just happens to be bigger than the procurement budget and the R&D budget. But because we’re still building systems, there’s nothing that says I can’t go after procurement contracts as well. There’s nothing that says I can’t go after R&D contracts as well. And most defense technology startups are just in those latter two bins and leave the O&M budget completely alone, but that’s a huge untapped market that most companies aren’t going after, and there’s competition there that for us to go after. But Vector is attacking those three main buckets, those three main colors of money all at the same time, and a lot of times the work that we do on the service side can benefit the work we’re doing, going after different procurement contracts.

Maggie 14:46

Something else that I think makes a lot of sense with this as a service model. You know, when I think about SaaS software as a service, you know, the whole point behind that is that software is constantly changing, so you don’t actually want to buy one static piece of software and then use it forever. You want to pay kind of a recurring fee that allows you to always have the newest, latest, best technology. And I see that applying really well to the drone space. And I think we see on the battlefield in Ukraine, in Israel, people say these drones are changing basically every day. You might actually have to throw out all of your drones every three months, the DOTMLPF is changing all the time, and I’ll just define that for listeners. That’s doctrine, organization, training, materiel, leadership, education, personnel, facilities, and policy. So how are you all keeping up with what is actually happening on the battlefield in the technology space, and how do you bring that back into the tech that you’re building today, into the TTPs and DOTMLPF that you’re discussing with your customers?

Andy 15:51

Yeah, well, let me say first, Maggie, it’s very hard. I mean, it’s very hard to keep up with how fast the Ukrainians are moving, the Israelis are moving. So necessity being the mother of invention, the Ukrainians have gotten so good out of innovating because their survival depends on it. They are constantly trying to find a new way to incorporate advanced technology and the unmanned systems they’re using to keep the Russians at bay, and they’ve done a fantastic job. And the fact that the lines have barely moved over the last four years is is evidence of that. And so we have gone to where the Ukrainians are. We have a team in Ukraine, we have a team in Israel, and we maintain a very consistent leader presence back to those two locations, you know, not to do anything operational, obviously, but to study the tactics, techniques, and procedures, to study the cross section of technology and the tactical implementation of that technology used on the battlefield, we now do a monthly report, which we call the Vector report, which is our learnings from the modern battlefield over that last month, of how unmanned systems or other modern warfare technology was used on the battlefield in different parts of the world, and so it’s been very, very challenging to incorporate all those lessons, to put that into a training course, or put that into the next generation of product development. We use training courses with the United States military to mimic that innovation cycle. And like I was saying before, it’s not a copy paste of what the Ukrainians are doing and what the Israelis are doing with unmanned systems, because the American way of war is different. But we take a lot of inspiration from those battlefields, applying it to your point, David and Maggie, to the DOTMLPF, and the cross section of how the American military will leverage unmanned systems from their doctrine all the way down to the facilities and the policy.

Maggie 17:49

What have been some of the biggest technical challenges that you all have had to work through as you’re trying to build these systems to operate on a realistic battlefield?

Andy 17:59

Yeah, it’s a great question. Maggie, unfortunately now, and I say unfortunately because we need to do better as an industry, but unfortunately now we’re still very much in a one-to-one, one pilot operator to one drone. The next phase of warfare, the next phase of the technological development for unmanned systems, needs to go from one to many. And so it’s kind of interesting, if you if you think back to the global war on terror, where we had multiple individuals piloting, operating, launching drones, predators, reapers and things like that. We are very much in a many to one. Now, for the most part, we’re in a one to one, one operator to one drone. We need to go to the one-to-many concept, and this is a technological challenge to be able to put enough processing power, enough autonomy on a drone, which can be done but a low enough price point. So the unit economics makes sense to realize this vision of what we call a triple mass, again, “triple” being the idea of consumable or throwaway technology, mass being we want to have large quantities of unmanned systems. The economics only work out if you can have just enough autonomy at the right price point on a low-cost system, so you can produce in mass, and the United States military can buy in mass, leveraging the right amount of autonomy and finding that balance, to not put too much R and D into a drone, but still have enough automation and keep the unit economics low enough so the Department of War can buy not tens of thousands, but hundreds of thousands or millions of drones. That’s really the technological challenge, right there.

Maggie 19:35

As we think about this constantly changing technology, as autonomy technology is getting better, electronic warfare, resilient communications is constantly changing and improving. How do you think about the government’s plan to stockpile hundreds of 1000s of these drones? How do we keep them updated and make sure that you know when the war fighter needs these systems, they have the most cutting edge version of them.

Andy 20:01

Yeah, so I think there’s actually two questions in that. One: how do we keep the stockpile current? How do we even have a stockpile? And then, how do we keep it current? To the first part of your question: we learned this lesson the hard way during covid, that our supply chain was not as resilient as we thought, and that’s everything from medicines to toilet paper, to the components that go into drones. And what we have done at Vector, you know, really, over the last 18 months, is to shore up our supply chain, to make sure every component is decoupled from China and, where we can, to lean on the domestic, the US supply chain, which is very, very hard to do when we, as an industry, are trying to create this decoupled, China-free drone supply chain almost overnight. That’s what the Drone Dominance program actually requires, and is designed to do, is to stimulate and energize the drone industrial base, making sure it’s clear and decoupled from China. You know, a lot of money needs to be poured into this ecosystem to make sure the price points can come down so we can realize this concept of economies of scale. Because China is just this manufacturing powerhouse, and they’ve got incredibly cheap labor over there, which is basically very, very challenging to compete on price. And so, you know, I applaud the Department of War for launching the Drone Dominance program, because this program is doing a fantastic job to energize the drone industrial base, to make sure we have the components decoupled from China at a low enough price point so that we can produce drones at scale. So I think that is happening. We need to see even more come from the Department of War and other agencies. But we’re really excited about where this is going on how to keep things current and up to date. I think this goes into our strategy, which is to have a very much more open architecture, a much more modular design. That goes into everything from how we design the drone, how we engineer the drone, how we manufacture the drone — all in a very open-architecture way. We like to say at times, we’re like the Android of drones, where a lot of other companies, for better or worse, are more like the iPhone of drones, very close, very proprietary. Our philosophy is, in order to capitalize on these constant innovations, just as you said, Maggie — the constant evolutions from one piece of software or hardware to the next. The only way to do that is to have a very open, modular architecture, and that’s how we design from the start.

David 22:32

Andy, I think that was really great. I would love to maybe dig in a little bit more on the supply chain and manufacturing and how you all think about that buy versus build conundrum that I think a lot of hardware companies go through right SpaceX, famously completely vertically integrated, and then others, you know, there is a robust supply chain, and you’re picking out different partners for the drone industry specifically, given that a lot of components come from China, I think some of the main ones include the motors and the batteries, and there being kind of a lack of an industry base for those types of sub components, I guess. How do you differentiate your product if you were to go to the same suppliers, that’s, you know, fairly in its infancy. But then too, like, you know, how do you make that decision about this is the thing we’re going to do in house, and this is the thing that we’re going to outsource to a domestic partner.

Andy 23:39

Yeah, another great question, and I think this actually takes us back to, like the evolution of Vector. When we first started Vector, we wanted to be a systems integrator, a tactical systems integrator of unmanned systems. We did not want to build anything, and we started working with a variety of partners and incorporating integrating their drones into different DOTMLPF, going through the DOTMLPF, incorporated them into different war fighting exercises for our customers, we would do mods, we would repackage into different strike kits. But our customers kept asking us to build very bespoke drones for them. They wanted different features that just didn’t exist on the market, so we started manufacturing our own drones in low quantities in probably the middle of 2025 but as we looked into the supply chain to your question, David, we realized that the components that were going into the drones either weren’t getting us the results we needed when we were buying off the shelf, or they weren’t meeting the compliance requirements for the Department of War, especially as they have refined the interpretation of the National Defense Authorization Act, the NDAA compliance scrutiny has definitely grown over the last 18 months, and to that end, we have gotten much more vertically integrated over the last six months, out of necessity, because we had to, because. We could not leave any room for error on compliance. And you know, going back to last year, we thought we understood what was required for NDA compliance, and it wasn’t really until the last six months where we really, really dug in, where we hired some really, really top talent on supply chain. We really did a forensic analysis of our tier two, three and four suppliers, and made sure we understood, we understood exactly down to the resistor, transistor level, where everything was coming from. And so I kind of tell that arc of Vector of getting more and more vertically integrated to say, you know, there’s, there’s certain parts of the drone that we build ourselves, there’s certain parts of the drone that we just have great partners, and we’re really excited to actually announce two of our major partners. Both are domestic suppliers. One is a company, a battery company, actually, that was making batteries for a different purpose, and we brought them into the drone industry. We have actually done this with a variety of our different vendors, where we found vendors that were in adjacent industries, and we brought them into the drone industry, one, because they were decoupled from China, but two, to give us an advantage on supply chain, knowing that there wasn’t a lot of competition for that specific vendor. So we spent a lot of time analyzing the supply chain, a lot of time working with vendors, and a lot of time investing in there. And I think to more directly answer your question, David, is those items that require an increase, increase capital investment, ie, spinning motors that would take a little bit of a capital investment, a lot of time to stand that up. That’s a great that’s a great thing to buy and then assembly into your drone. A lot of the things we do on PCBAs. You know, we’re not printing our own boards here at Vector, but we do a lot of work to design our own boards as well, and that’s also a great thing to contract manufacture out. And so looking at especially the stage we’re at which we’re a post series A company, what makes sense from a capital investment side, what makes sense from an IP side. That’s really how we make our decisions thus far. But we also are taking a hard look at where do we need to have the most control over the components, either for the capability, for the consistency, for the quality and or for the compliance. That’s really what, what drives a lot of our decision making,

David 27:19

And I would imagine also like, what allows you to then scale?

Andy 27:25

Yeah, absolutely. And that’s also a strategic decision based off where the company is, either from a capital raising perspective or a revenue perspective. You know, you can do a lot when you’re on a large contract to further scale. And again, this is what the Drone Dominance program is doing for the industry. It is giving companies like Vector and some of our suppliers a chance to scale, because now they can see the demand coming, really, for the first time in a very long time. So again, we applaud the Defense Department or the Department of War for clearly showing that demand signal.

David 28:02

When you know, talking about this compliance stuff, I think something we hear a lot of from startups, or at least the idea of is who I’ll partner with a defense prime, right? People that have been here done that before you know, if there’s one thing that they’re good at, it is checking all of the boxes around compliance for working with the department. Can the same, is the same true for this particular program, or is there a little bit of a everyone’s at the same starting point, and it’s all about how you execute. So I guess short of the long on this question is, is is Vector partnering with any defense primes, and is that a part of your overall partnership roadmap?

Andy 28:46

It absolutely is. I don’t think you can be in the defense space and not look to the primes for partnership opportunities. And there’s a lot of folks out there that will throw shade on the primes. I’m not one of them. I think the primes are fantastic. They’ve done so much for this nation, and they’ve done so much for a lot of you know, innovative startups like Vector, as they become much more accepting of partnering with companies like like like Vector, because we provide a lot of value to them as well, a lot of the innovation and speed side. So yes, we have partnered with a number of primes. The primes are fantastic for a lot of the compliance, helping us navigate the regulatory environment for, you know, contracting pathways, and so we use them for things like that. And so an invaluable resource. And if there’s any startups out there, or budding entrepreneurs, I would always encourage them to reach out to the primes sometimes that’s a that’s the best way to get started is to is to be a sub for a number of years before you’re even a prime yourself.

Maggie 29:51

Andy, one question that I have is surrounding testing. One of the things that I’ve heard from a couple. Companies building in the national security hardware space is that it can be really hard to actually get access to test ranges where you can realistically test your systems the way that they need to be tested to be resilient in a place like Ukraine, a lot of times, electronic warfare in particular can be difficult to test because of the way that FCC and FAA regulate airspace and regulate the spectrum space. So could you talk a little bit about how you all have approached actually testing your systems to ensure that they’ll be resilient on the modern battlefield?

Andy 30:34

Yeah, it’s a great question. Maggie, I think we’ve been very fortunate in the testing domain. Early in Vector’s history, we jumped into testing as a service of electronic warfare as a service where we had access to very unique ranges here in the United States that did have their FAA and FCC certifications. And so we were able to kind of jumpstart a lot of testing there. One of the things I always asked when I was in the government to companies like a Vector, was, Are your products in Ukraine? Have you tested in Ukraine? And I feel like that’s almost table stakes at this point. Now, here in 2026 where, if you were going to approach the Department of War with a product they’re going to want to know, did you test this in some way in the Ukrainian ecosystem, there’s a lot of great Ukrainian test ranges off the front lines, and they’ve done a fantastic job of setting those up and providing pathways to being able to test your systems there in some very, very realistic scenarios. And so we’ve gone down that path. We’ve used a lot of domestic test ranges, and then, of course, we run a lot of simulation as well. I think the best way to test though, is with your end user. And this is where Vectors business model really comes into play, where a lot of times we get paid to test our products on a service contract with our end user. And that’s sort of part of the contract, and that’s part of what our end users expect is, is they want us to bring them the latest and greatest piece of technology that we think may, you know, give them some sort of exponential value, and they understand that it’s being done in a test environment, and they love that, they love being introduced to something new. And, you know, I think being very honest, and having that relationship with your end user, telling them, like, Hey, this is a prototype. This isn’t ready, but we really want your feedback. Tell us what you think, see if you can break it, see if it flies in this environment. Please give us that feedback. And so we do a lot of that as well.

Maggie 32:38

Something that I think is interesting about Vector. You guys are based in Utah rather than some of the other big defense startup hubs like LA or Seattle or Austin or even San Francisco. Can you just tell us about your decision to build the company there?

Andy 32:53

Yeah, sure. We actually started in North Austin. We still have a satellite facility in North Austin. We probably always will, for a variety of reasons, but we made the decision to move to Utah for a variety of reasons. Nothing against El Segundo or the Bay Area. I actually had a previous startup in the health tech space based out of Silicon Valley. Great experience, but there is this very different startup culture in the bay area or El Segundo than there is here in Utah. In Utah, it’s very collaborative, it’s very founder friendly. The Economics of running the business in Utah is very, very different than in California, and it’s much easier. The taxes are way better. What you pay employees in Utah is very, very different than in El Segundo. You know, it’s hard to make the unit economics work on the drone, on the labor, on the rent and all that overhead that goes into your facility if you’re in California, especially if you’re building attritable systems. And knowing that Vector would probably build hardware at some point, we wanted to be outside of California, just to make the financial aspect that much more scalable for us. The state Government has just been fantastic to us. They’ve been very welcoming Utah for testing. Back to your testing question, Maggie, is pretty fantastic. There’s a lot of BLM land here that we use for long range testing, and there’s a variety of different military bases here that we use as well, where we partner with the military to do a lot of live kinetic testing on our drones as well. And just having easy access to all those ranges has just made this a world class place to build and to test. You know, the summers get to sometimes 105 110 degrees, and the winters get to below zero. So we get to do a lot of environmental testing, high altitude testing around here as well to ensure that the products were put into the to the hands of the war fighter, have been tested in a variety of different conditions, so all of that kind of put together just just made a lot of sense for us, and we’re happy to call Utah Home, and it’s just been fantastic for the team.

David 34:55

Utah is a great place. Do you enjoy skiing there? I’m excited for the innovation. An ecosystem that’s burgeoning. I won’t tell the El Segundo people, you know, how you feel about them when I’m visiting out there later this week, but maybe moving to the international side. You know, you talked about Ukraine, sort of receiving a lot of lessons learned there and doing some testing as well. How do you think about the rest of the international landscape? Right? America still has very strong like foreign military sales, a strong technology culture selling, whether that’s to the Asian Pacific market, out to the Middle East, to other European partners, is it still too early, and right now, we’re just focused on getting this right here at home in the United States, or is Vector also thinking about international expansion.

Andy 35:49

We’re very much focused on the international market as well. Again, we’re excited for some interesting announcements we’ll make here in probably the next 60 to 90 days of some international markets that were opening up for the Vector team. What has been very interesting with the international market, though, that really closely ties into this administration is previously there would be a lot of U.S. aid to our partners and allies. And what this administration has done is sort of flip that script, incentivizing our partners and allies to do more direct contracts with innovative companies like Vector. The other thing that has been an interesting change in the international market is a lot of our foreign partners don’t want to buy all-up systems. They want to do in-country manufacturing, they have seen the same vulnerabilities to supply chain that we learned during covid. And what they’re more interested in is not an all-up system that Vector may build, but more so the components, the raw components, that Vector is designing, and then helping them stand up a world-class unmanned systems factory and drone Center of Excellence. And so everything from support in standing up in-country manufacturing, to teaching and training, their own version of DOTMLPF, their own version of tactics, techniques, and procedures for their military, that is what’s most interesting to our international partners, and that’s how we sort of attack the international market — focusing on those countries that are ready to move dollars toward those types of programs.

Maggie 37:27

Andy, you’ve had a long career, both in the military and national security space and now in the founder startup space. What advice do you have for founders who may not have your years of experience as they’re looking to build startups to support national security customers.

Andy 37:46

That’s a great question. Maggie, so I spent 18 years in the Army. The last five or six years were focused on this market — focused on how you build for defense — not knowing I was going to become an entrepreneur in the space, but I was just fascinated by the defense acquisition process, and so I thought I had a good handle on how to go to market. It’s way more challenging than I ever thought. You know, I look at all the advice I gave entrepreneurs when I was in the military, and I sort of shake my head at myself, because I really had no clue on how hard it really was for the entrepreneur. And so I say that to say, don’t start a company, period. Don’t start a company in the defense space unless you absolutely can’t not do it. And I use the double negative on purpose, like you have to lie awake in bed every night thinking about your idea, thinking about your startup, thinking about the market, thinking about how you want to do all of this, and if you can’t sleep because you’re so captivated by diving in and joining this coalition of entrepreneurs that are trying to build it for defense, then great. But if you have doubts, then it probably isn’t for you, because it’s hard. It’s a slog. Every day I relish in it. I enjoy it very much. I don’t think there’s anything else really worth doing, at least in my professional career, than building for defense. But you have to be ready for the challenge. You have to be ready for the highs and lows. And if you are, then it’s a very, very rewarding sort of industry to be in, but it’s not for the faint of heart.

David 39:19

Yeah, I think that’s well said, it’s definitely a labor of love, not so different than serving in certain ways, right? It’s a grind, and you’ve got to love it for all the right reasons. Beyond the things you’re listening to and reading about in the defense tech space, give the listeners a bold prediction, you know, an Andy special, if you will, on something you see playing out in the next year or five years, but obviously the more relevant to today, even better.

Andy 39:58

Yeah, so, um. I’m not an everyday reader, but I think a book that has changed my perspective and has influenced me a lot is Freedom’s Forge. And I think Freedom’s Forge 2.0 is coming. I think the involvement of the United States government, for better or worse, is going to change the defense ecosystem, especially in the unmanned space, in a way that we could never imagine. I’m seeing a lot of very interesting things come from the United States government, from direct investments into companies, MP Materials, Intel, L3, and a couple others. I think that’s a big signal of how involved the Defense Department wants to be to ensure that we have a Freedom’s Forge 2.0 to ensure that this re-industrialization actually happens, to ensure that we do have the industrial base, to ensure we’re ready for hopefully the next fight that never happens, to ensure that we’re ready for it. So I think what we have seen come out of this administration and the Department of Defense, or the Department of War, is just a signal of much more to come. And I think Freedom’s Forge 2.0 is coming in a big way, and we’re really excited to be a part of it.

David 41:15

Well, that’s awesome. Andy, I’m sure, and I hope that they write a chapter about Vector in Freedom’s Forge 2.0 but just for our listeners out there, that same author, Arthur Herman, he’s coming out with a new book called Founder’s Fire: From 1776 to the Age of Trump, set to release on the 21st of April this year. So I don’t think they’ll write about Vector in that one, but I’m sure, you know, Arthur will be looking you up pretty soon. So with that, Andy, thank you so much for taking the time to come on to Mission Matters. It’s awesome to hear about your story, to see veterans like yourself getting out there, you know, putting their time, their sweat, their energy, right, all their lessons learned, into building a company of consequence. We wish you the best of luck. I can’t wait to hear about how well you do in the Drone Dominance program, right, and that maybe in the very near future, airmen, soldiers, Marines, and sailors, etc, will all be flying your drone. So just awesome. Thank you so much.

Starfish is building “space tugs” that can dock with and move other satellites — extending mission life, disposing of debris, and enabling other national security use cases. Their recent Remora mission autonomously maneuvered one satellite within 1,250 meters of another, validating a core thesis: software can radically lower the cost of operating in orbit.

We discuss:

• Why affordability and scale matter as much as exquisite capability in a contested domain

• The role RPO plays in U.S. military operations

• The current state of our adversaries’ orbital warfare capabilities

• How SBIR → STRATFI can be a springboard to building a scalable business

• Navigating classified work without slowing commercial velocity

• Where LEO, GEO, and cislunar actually fit in over the next five years

• The power of software to conduct complex RPO missions with relatively cheap, simple hardware

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

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Transcript

Maggie 00:39
In this episode of the Mission Matters podcast, we sit down with Austin Link, the CEO and co-founder of Starfish Space. Starfish is building the future of rendezvous proximity operations, or RPO for short, for satellite servicing, beginning with space tugs for satellite life extension missions. Essentially, Starfish satellites are able to attach to other satellites and pull them into a higher orbit in order to extend their lifetime in space. RPO are the maneuvers and technologies that enable one spacecraft to safely approach, navigate around, inspect, dock with, or service another object in space while maintaining precise control and collision avoidance. I know Austin often describes this as two bullets coming together to very lightly kiss without actually touching each other. The same technology for life extension can also be used to clean up orbital debris, otherwise known as space junk, to ensure crowded orbits can be free of clutter from other satellite operators, as well as a whole host of maintenance and US government mission sets.

David 02:03
Historically, RPO missions, like life extension missions, have been prohibitively expensive for most use cases. Of course, before Starfish, the RPO missions would require large, expensive spacecraft outfitted with several complex sensors to conduct the operations. With Starfish, they’re revolutionizing the industry with their Software Defined Platform, which can conduct RPO missions with just one or two sensors and cameras at a tenth or even a hundredth of the price of your traditional RPO satellites.

Maggie 02:34
Since they were founded in 2019, Starfish has launched two technology demonstrator satellites, the Otter Pup One and Otter Pup Two, successfully deployed their software on an Impulse Space satellite, raised more than $50 million, and closed contracts with government organizations like NASA and Space Force, as well as with commercial companies including SES. The founders, Austin Link and Trevor Bennett, are both aerospace engineers who met while working together at Blue Origin.

David 03:03
In this conversation with Austin, we’ll cover everything from the role RPO plays in US military operations, the current state of our adversaries’ orbital warfare capabilities, and, of course, how to navigate the United States government contracting process as a space hardware startup. Okay, Austin, it’s great to have you with us. Thanks so much for joining us on the Mission Matters podcast.

Austin 03:27
Good to be here. Thank you guys for bringing me on.

David 03:31
Yeah, I’m sure you’re a first-time, long-time with this podcast medium, but Maggie and I are just super excited to have you here, so we want to jump into it. In December, you know, as a little pre-Christmas gift—I don’t know, maybe to your investors, maybe to the space economy—you and Impulse came out with a pretty large announcement about your mission, Remora. Can you tell us a little bit about it? I mean, how did it come together, the partnership with Impulse Space? It’s really cool. And then what are the implications for Starfish as a company? And then, I don’t know, maybe wax poetically about the broader space economy.

Austin 04:11
So we did—we announced in December our Remora mission. And on our Remora mission, at Starfish, we put a camera and some software on an Impulse Space satellite, and they allowed us to take control of their satellite and fly it towards another Impulse satellite. And we’re not just flying it from the ground—we flew it autonomously onboard and used our cameras to take pictures of the other satellite. And we got—we got 1,250 meters away, which is close proximity operations when you’re in space. We got some awesome pictures of them, and we got a chance to validate a bunch of our technology and gather a bunch of data to anchor simulations going forward. And this was a big mission for us for a few reasons. Number one, this mission touches on the core thesis of our company, which is we can use software to make it easier to do rendezvous and proximity operations among satellites. And making it easier to do rendezvous and proximity operations is what ultimately allows us to build our Otter satellite that does the life extension and satellite disposal at a price point that commercially works. And it’s what allows us to show up to Impulse Space less than a year before we’re going to launch and drop some software on them, and drop a little bit of hardware from TRL 9 on them, and get to space and have it work and do a proximity operations mission. And so, A, it’s just awesome to announce doing anything in space. That’s always super fun. B, it really validated a couple of our core theses on, “Hey look, we can do proximity operations easier than it’s ever been done in the past.” And then the last thing I would say—it was an awesome chance for our team to showcase their capabilities, and for the Impulse team to showcase their capabilities. They were really a pleasure to work with, and they’re a super impressive team.

Maggie 06:30
Yeah, so it sounds like with this mission, you guys have really demonstrated that you actually can, you know, get two satellites relatively close to each other and take a look at each other, you know, maybe do some servicing. I want to turn to what this demonstrated technology can actually be used for. And maybe the first topic on that is the US government use case. You know, I think previously, it was relatively taboo for the US government to talk much about their space operations. However, I know that’s changed in the past two years, where concepts like orbital warfare, Golden Dome, space control are now actually being discussed publicly by top military leadership. So how does a capability like what you demonstrated with this most recent mission relate to some of these military mission sets?

Austin 07:22
Yeah, sometimes, in trying to describe our company, I say we build satellites that grab and move other satellites. And that always raises the question, “Who the heck wants that? What’s that useful for?” Sure, it’s cool, but how, as a business, do you provide value and through that get money so that you can continue to exist as a business? And for us, with our Otter, there’s really two core commercial missions that we focus on. One of those is the life extension of geostationary satellites. You run out of propellant, we can grab on, hold the satellite in that slot still. And the other one is satellite disposal in constellation. So this satellite has died, it’s occupying a slot, it’s threatening other assets—just get it out of there so that a replacement can be put in and you can continue to operate your critical space infrastructure. Both of those apply to the government the same way that they apply to commercial satellite operators. There are many organizations inside the US and allied governments that operate satellites, and in many ways, they look just like our commercial customers do too. There is also, as you touched on, a variety of mission sets for the US government that are not ones that folks are as interested in commercially, although sometimes they are interested in them commercially. They range from protecting satellites on orbit from—really, usually Russian or Chinese satellites that are nearby. They range from potentially interfering with an enemy asset that is doing services for bad things. They can range to a little bit more complex servicing missions on orbit. So the US government is sometimes a little at the forefront of refueling, sometimes a little at the forefront of on-orbit repairs or assembly or upgrades in a way that commercial companies don’t necessarily have the risk appetite to go bite off at first pass. All of those are areas that the US government expresses interest to us as we develop rendezvous, proximity operations, and docking technologies—we can operate satellites close up to and touch other satellites. I think there’s two challenges for us as a business as we grow into those opportunities. And one of those is to figure out what is going to be fundamentally useful over the long term, because we’re not building a business to go try to grab whatever the shiny contract at the moment is. We’re trying to build a business that fundamentally provides real value to our customers, and that’s true for the government in the same way it is for the commercial side. And then the other factor that we have to decide as we bite off new opportunities is we have an efficient team, and we need to focus on the things that are going to give us the most bang for our buck right now. And so that means that the Otter is always our core focus at the moment, as we build Otters, as we fly Otters, as we grow that line of business. And the next wave of opportunities to take advantage of our technology, we have to tackle bit by bit as they come, as the right ones come for Starfish, and as we can jump and provide a lot of value to our customers for relatively little effort on our side.

Maggie 10:53
Yes, you mentioned some of our adversaries’ actions in space right now—China, Russia. So I wanted to ask, what is the current state of our adversaries’ capabilities as it relates to RPO, orbital warfare? You know, I know there was just an announcement late last year about China demonstrating an on-orbit refueling mission. So how are you seeing our adversaries’ capabilities, and what role does Starfish and other startups play in maintaining US dominance in the space domain?

Austin 11:25
Yeah, so I think there’s not a lot of broad awareness about what goes on with rendezvous, proximity operations, and docking in space, and what can make space a contested domain. And I understand why there’s not always that awareness, because, on the other hand, there’s a lot of incredible things that happen in space. And not to say that some of what’s going on isn’t incredible, but there’s a lot of excitement, and there’s a unique kind of positivity and optimism that often comes with space missions. And sometimes you don’t want to think about, “Oh, this could be a contested domain of warfare also.” But we go talk with government customers and actually commercial customers also, and they’ll talk about, “Yeah, there is 10 to 20 kilometers away from us some Russian satellite or some Chinese satellite, and it has no reason to be there except to be poking around at us and trying to figure out and potentially interfere with what we’re doing.” And these satellites from both commercial and government folks are providing valuable services, and if they went out at the wrong time, that would be a really critical challenge for humans here on Earth. And so they ask us things like, “Hey, could you guys use your proximity operations to help protect our satellite on orbit?” And, you know, that’s something that our technology can lead to, and it’s a real thing that you have to think about, because Russia and China both have proximity operations capabilities, and they have both demonstrated them on orbit. There are multiple Chinese satellites that have docked in geostationary orbit, and there’s some speculation that there is refueling being done as part of it. There are Russian assets that have docked and have gotten close to US assets, and I believe even fired little projectiles at US assets. And those capabilities mean that if you have a US satellite that is relaying communications back and forth to Taiwan at a critical moment, and somebody’s threatening to disable that, that has a huge impact on the safety and well-being of people here on Earth. And that’s something that our technology can help and support. And it’s not that we are the only ones who are capable of doing proximity operations and docking for the US. The US has those capabilities too, but the US has them in a way that’s really expensive. And if—I think we see this in a variety of frontiers of conflict right now—if the US is bringing really expensive capabilities to the theater and adversaries are bringing really affordable capabilities, then over time, the US is losing the economic battle that comes with conflict. And so I think that is where Starfish Space can make a positive impact, the same way that we can make a positive impact on our purely commercial missions by providing more value from the services that we provide than what it takes for us to provide those services.

David 14:43
Well, I gotta say, this whole conversation has made me exceptionally nervous, because it wasn’t that long ago that what we’re talking about is just totally not taboo—Maggie, like verboten, go to jail, like talking about these elements of orbital warfare. So I’m stretching out some of the highest clearances I ever enjoyed in the Department. But it’s good. I mean, we’re seeing this push for these exquisite missions that don’t need to also cost an arm and a leg, right? And I think taking a different, a fresh approach, maybe some might say a first principles approach to doing these various missions is like, right in the wheelhouse. So, I mean, Austin, maybe just talk a little bit to us about the construct of Starfish, right, how your RPO technology serves a lot of different mission applications. And then more so, how do you articulate that to the variety of stakeholders? Because it’s different organizations in the military and the intelligence community who would be interested in life extension versus those that are in orbital debris. But for you as a company building Otter, it’s like, it’s just Otter, like, you know, you don’t need a special widget, you just use it for different purposes. Yeah.

Austin 16:08
I mean, it’s funny. That’s always a tricky challenge, especially for technical founders, but I think for everybody in pitching everything that they work on, you get so involved in the details that you need to do to make it work that that’s what you end up talking about. And in reality, when we’re out there and we’re selling to customers—and for people’s reference, we have Otters that we’ve announced, that we’ve sold their services to the US Space Force, to NASA, to SES commercial company. We’re building all of those now. They’re all getting set to launch over the next year here. And when you go out to sell the services of an Otter, a lot of times, the people that you’re selling to are a bunch of aerospace engineering nerds like yourself. So they’re excited to go and talk about proximity operations, because they think it’s fun, but they’re also good at their jobs, and so they’re ultimately going to make the decision based off of, do they get value out of signing a contract for our services? And on the commercial side, that actually often turns out to be a really straightforward thing to go and talk to people about, especially if they’re a public company. Then the knowledge is kind of out there, and you can go and say, “Hey, you’ve got this satellite or this constellation, you make X amount of money per month on that satellite. We can add five years to that satellite. We’ll charge you Y amount of money per month. X is bigger than Y, and so it is valuable for you to use our services.” And on a commercial side, that’s a pretty straightforward thing. When you’re talking to a commercial company, and then you go and talk to the US Space Force, and we can say, “Hey, you can extend the life of this satellite. We’ll charge you Y money. We’re curious how much money is it worth to you a month to have this satellite?” And people will look at you like, “What the heck are you talking about? Why do you talk about this in terms of dollars?” And so it can be a little bit of a trickier proposition to understand the language of the US Space Force there, and what is the value that they see from life extension. But we try to talk about it in the same way. We try to talk about, you know, the satellite is gathering critical data. The satellite is a key piece of resolving emergencies. And sometimes you can talk about dollars, where you can say, “Hey, if you were to procure a new satellite for these services, it’s going to be like a $2 billion satellite, so you might as well get five more years for a whole lot less money than that.” NASA may be the trickiest of the entities that we’ve needed to talk to, because the ultimate value that the US Space Force wants to provide is pretty clear, even if it isn’t dollars. Ultimately, they want to protect the US as a nation and our allies and our interests. With NASA, there’s some folks there that are going, “We want to explore the edges of outer space.” There’s some folks that are saying, “We want to do as much science as possible.” There are some folks who are saying, “We want to build a technical base.” There are some folks who are saying, “We just want to create American jobs.” All of those are good and valid end goals, but to navigate your way through NASA, you kind of have to understand each group and what their particular interests are going to be. That’s an experience that you can navigate and you can learn, but you also have to be repeating it throughout. Like, “Hey, this is what we all agreed that our goals were going to be at the beginning, and those are the goals that we’re going to pursue.”

Maggie 19:43
So Austin, it sounds like you guys are working with a swath of customers across, you know, military agencies, civilian agencies, as well as completely commercial non-government agencies. I know a lot of the terrestrial tech companies we talk with discuss, you know, some of the specific standards and compliance certifications that they need to get through to work with US government customers, to work on classified mission sets. So I wanted to see if you could talk through, you know, what were maybe some of the bigger surprises or challenges or differences that you’ve had to work through in order to work with some of these government customers on classified mission sets.

Austin 20:26
Yeah, there are, both for classified reasons and unclassified reasons, a variety of licenses or approvals or certificates that you need to get to work with the US government in different stages. Starfish Space does have a facility clearance that we got recently, and it does allow us to work on classified missions or work with classified data. That does unlock a variety of additional mission sets and a variety of additional customer organizations for us. It’s kind of funny to all go through as an organization and have to figure out how to get that. On the back end, I’ve had clearances in previous lives, both at Blue Origin and Lockheed Martin. Both places, I kind of had no idea how it came together that the company could work with me to get those. You’re just sitting there. Then somebody said, “Hey, you should get a clearance.” You go, “Okay, sounds good. I’ll fill out the paperwork.” It is tricky to get a facility clearance, and you have to work with folks. I think that the US government is putting a lot of effort into figuring out how to work with companies like ours. I think they see the value that companies like Starfish Space or Impulse Space or Varda or K2 Space, or a lot of other great space startups that are out there can provide. I think the trick is actually not just getting the FCL, not just getting the clearances for the individuals, but also being careful about how and when you take on classified work. There is a lot of overhead to doing work in a classified manner. And there will be a lot of folks that are tempted to just say, “Hey, everything’s classified. Let’s just be careful and safe here and make sure that everything’s classified.” And you want to be careful, and you really want to protect the sensitive information that allows our nation to defend itself. But you also have to be careful about how much work you’re trying to do in a classified lab, because if you develop some awesome piece of your GNC algorithms that’s really going to make your satellites do proximity operations a lot better, and you develop it in a classified lab to get all of the code and the simulation results and everything back into the unclassified world and apply it to other missions, it’s a whole lot more complicated than it otherwise would be if you’d started off in the unclassified world. And so there’s both the you have to get the paperwork and the approvals, and there’s also the you have to figure out how to operate with it in a way that is efficient for your business and allows your business to continue to do the things that you want to do. Because at the end of the day, I don’t think classified world, I don’t think working with the government world is really that fundamentally different from any sort of business. You’re out there to try to provide value to your customers. You have to build a product that you can actually build, and then it has to deliver that product, or the services of the product, to your customers in a way that is worthwhile for them. And as painful as it can sometimes be to work with the government, oftentimes, when we’re talking about, at least for us, the kinds of sizes of the contracts that we’re working on, the pain of working with the government is a relatively small pain in comparison to the total effort that it takes us to fulfill the mission. Otherwise, probably the biggest challenge is not figuring out how to do it or not doing the paperwork. I think the biggest challenge is that it’s just going to take a really long time, because the government isn’t used to operating at the speed of startups. They’re trying, man, they’re working harder, they’re getting better at it. But there’s still sometimes where you’re like, “Really, that took us six months to pull that off.” There’s a whole lot that can happen in six months at a startup.

David 24:17
Yeah, so, I mean, from a timing and startups and trying to keep the pace of change, you know, ultimately you need to generate revenue, and it seems like a lot of the revenue programs for the military, at least for an early-stage startup, is around some of these non-dilutive R&D type opportunities. So talking about SBIR and STRATFI, can you maybe just like, walk us through a little bit like that approach that you took? How did you find the right stakeholders, and how did you turn that SBIR into a STRATFI?

Austin 24:56
Yeah, SBIR is Small Business Innovative Research contracts are, I think, a really neat thing that the US government does. And a variety of agencies do this—the Department of War, NASA, Department of Energy, the National Science Foundation, they all give out Small Business Innovative Research contracts, although all in a little bit different ways. And these contracts are often broken up into a Phase One and a Phase Two. And a Phase One is on the order of about $100,000, and a Phase Two is on the order of about a million dollars. And when you are two people working from a public library, the idea of getting $100,000 to work on your ideas is like an incredible and overwhelming amount of money. And so that was from the very earliest stages for Trevor and I—one of the early things we looked at was Small Business Innovative Research contracts. And as we were looking into it, we learned there’s kind of a couple of philosophies on how you can use these contracts. You can use these contracts to try to make money and sustain your business. And you can build a company where you’re winning several SBIRs a year, and you have a dozen folks working on these SBIRs, and you can operate for several years like that. Or you can really try to use SBIRs as a springboard, and you can try to use these as a way to become the business that ultimately you’re trying to achieve. And that is actually what the US government tends to want. That’s what the Air Force or the Space Force wants. That’s what NASA wants. They want to use these innovative research contracts to develop technology and teams and business relationships that eventually allows these companies to go fulfill needs for the US government and for the commercial world at a large scale. And so we went into these SBIRs going, “Okay, let’s go into Phase One, let’s go turn it into a Phase Two, and let’s ultimately use that as a way to sell our Otter satellites.” And that played out almost to a T in multiple avenues for us. So our very first SBIR was a $50,000 contract to study some of our proximity operations. Then we turned that, through Space Force Pitch Day, into a, I think it’s like a one and a half million dollar contract at the time. That was real and substantial money for us. And we turned that eventually into a TACFI, a Tactical Financing contract, which is a couple million dollars. And through another set of SBIRs, eventually won a STRATFI, which in our case is $37.5 million coming from the US government to do an Otter mission for the Space Force. And now we aren’t bidding on SBIRs for the Otter or for our key technologies. That’s not what our business is about now, but it really was the springboard to the future. And then it turned out people were really excited that we were trying to use SBIRs in that format. You would go and talk to whoever in the government you thought might buy proximity operations technology or might buy Otters. And they would say, “You know, this is pretty interesting. I’m not going to go give you a $40 million contract off the bat here, but I’d like to work with you a little bit and see what you’re capable of.” And you go, “Okay, well, you know, that’s awesome. We actually know about this SBIR framework where we could go do a Phase One, or we could go do a Phase Two, if you just write us, you know, a letter of support, and we’ll go through the proposal application process.” And it doesn’t always work. These are competitive proposals, but we kind of lead by talking to the customers, and you take it back, and the SBIR process is just a vehicle that allows you to start working with them more closely.

David 29:07
That’s great. And I think, yes, you are using the SBIR program the best way possible. And I wish other companies took that approach and lead, but we don’t need to get into that topic here, but maybe we can just drill in a little bit more. Did you feel like you were educating the customer about what you could do with the Otter and starting to unlock RPO, or did they already have some sort of a knowledge base around it, and they were like, “Oh my God, thank you. I found you. Like, let’s go.” Like, which way was it? Was it a push or a pull?

Austin 29:48
I actually think it was a little bit more us educating, and maybe and definitely not us educating the Space Force on what they would get value from. They’re the ones that can say, “Oh yeah, life extension would be valuable,” or “Oh yeah, proximity operations to do this mission would be valuable for us.” But what we could educate on was what was possible and what was possible in different ways. We’re not the first ones to go to the US Space Force and say, “Hey, how about we do a little bit of life extension?” Many folks have gone and done that before us, but we were the first ones to show up and say, “You know, we could do life extension for this price point.” And the first time we said that to a general, we got some funny looks like, “What are you talking about? That’s totally out of family with all the price points I’ve been told in the past.”

David 30:41
And so they call you a heretic at all? You know, do they say, “I don’t—” Voodoo. Maggie called—

Austin 30:47
Called a heretic, fortunately. But I think that people probably appropriately look at ambitious technology startups and go, “You guys are crazy, like you’re just out here saying stuff. You’re not going to be able to pull that off.” And so you have to fight your way through what is, I think, an appropriate level of skepticism. And to some degree, you can go do that and present to them like, “No, here’s the breakdown. Here’s why we as a business would actually like make money by providing the services to you at the price point we talked about.”

David 31:20
Last question on, like, sort of this general topic. I mean, I’d love to hear, like, how many conversations did it require from you and your team, and probably a very small team, in those early days, to get that Phase One into a Phase Two, that Phase Two, or series of Phase Twos, into a TACFI, and then eventually a STRATFI? And then did you arm yourself with like other third-party consultants, whether they be supporting you through proposal development or lobbying, even?

Austin 31:53
The one that is maybe the easiest to track is going from the Phase One to the Phase Two. In early stages, we had very clear and dedicated pipelines, because that was before we really knew many folks in the US government. Sometimes now we can short-circuit the process a little bit for something like that. We can go, “All right, here’s the three folks that we know that are most likely to support it. Let’s just go and talk right to them.” But when we’re trying to take our first Phase One to a Phase Two, I think we had 30 to 40 dedicated conversations with different folks that we thought might potentially be able to support the Phase Two in the US government. And we had those conversations through all sorts of forums. It would be in person at conferences. It would be through warm connections over Zoom calls. It would be through accelerator or startup mixers. It would be sometimes people that just randomly showed up to one of our SBIR deliverables that we were putting together because they’d heard about us. But I think it was ultimately like 30 to 40 conversations. And then, if you take a look at like, “Well, hey, what does it take to get from the very earliest stages to a STRATFI?” It’s hundreds and hundreds of conversations between Starfish Space and folks in the US Space Force. You want to be careful. You want to be efficient with those conversations. You’re not just talking with the same person over and over 100 times. Like they have things to do too, but you want to cast a wide net and that allows you to eventually find, like, “Here’s the people that are—they’re most interested and can most benefit from what we’re building.” We did and have and continue to, in various ways, work with some third-party organizations along the way. In the very earliest stages, we had no idea how SBIRs worked. I think we lost our first 11 SBIR proposals, and so we started working with some consultants who were really knowledgeable about the SBIR process, and they show up, and there’s some things that they tell you from day one that are like, “Oh, you’re not actually trying to put the most advanced technology descriptions in there, because it’s not scientists that are reviewing the SBIRs. You need to talk about how your business is viable and how what you’re doing would be useful, and that’s what the Air Force likes to go and evaluate SBIRs on.” And so we got some of the tips. We figured it out. We started learning how to win SBIRs. And eventually you get to a point as a business where you go, “Great. We figured it out, and we don’t even need SBIRs as much anymore.” And so these folks that did a great job for us in a certain stage, that particular skill set isn’t as useful for the next stage. So we go, “Thanks for all your help. We’re going to refer other companies to you, and you know, we’re going to move on to the next stage of our development as a company.” And so that’s all sort of what drives us to go, “Hey, we don’t hire and bring some SBIR expert in-house. We hire and bring in really, really capable people who are great problem solvers, generally, in-house, and we’ll bring in a little bit of third-party support along the way.” And we did that in the SBIR stage, and we did that in the STRATFI stage, and we do that now with some of the government affairs or some of the policy work that we’re doing. All of those are supplemental. At the end of the day, only you and your team can tell the story the way that you and your team can. So you still have to get in there and get your hands dirty. You don’t just hand it off, but as advisors, the third parties, I think, can be useful services at times. David, Maggie, what do you guys see other companies do? What do you recommend when you’re talking to some super early founder that is just getting going and saying, “I think I might want some of these?”

David 35:49
I mean, I think what we’ve seen be successful is the founders, especially in those early days, need to be at the vanguard of those conversations and finding their champion. And what I see from the military folks is they really do like talking to founders, right? The people that are going to like build the thing that’s actually kind of novel to them. But as far as, you know, you talked about, “I don’t understand all the elements of an SBIR”—to me, I would advise the startup founder not to go figure it out for themselves. Like that is a lot of effort, and likely wasted effort, and you can pay for those types of services. The key is, can you find a good, trusted source to help you? And that’s where leaning on your investors, who are deeply experienced in this domain, becomes quite clear. And why, you know, as a startup, wanting to engage in the defense ecosystem, you should, you know, pick your investors and your advisors wisely. So, I mean, the way you guys went about it, I think was absolutely perfect, and I think the rewards speak for themselves.

Maggie 37:01
I mean, Austin, another question I had—unlike a lot of the companies that raise venture money, where they’re able to build an MVP in a month, or maybe even a hackathon over a weekend, you guys are building a really complex piece of technology that has taken years to build and prototype and launch and test. So I’m curious, you know, how do you build a go-to-market sales engine while you are still proving out a piece of technology?

Austin 37:34
I think probably fundamentally, the biggest challenge for our business is that we have ambitious goals, and it’s really challenging to build a bunch of satellites that extend and protect and upgrade and improve infrastructure in space. We can’t just go out and be like, “Look at our revenue. It’s going up 30% month over month, and we sell, you know, $10 at a time subscriptions, and it’s a nice hockey stick graph.” You have to get folks of all sorts to buy in on the risk along the way. And that’s customers need to buy in and take some of the risk with you. It’s investors need to buy in and take some of that risk. It’s employees, it’s suppliers. Everybody that you work with is betting on you a little bit in one way or another. And one of the things that you have to do is construct your development plan as a business in a way that allows people to see the risk reducing, allows people to see progress all along the way, and that allows everybody else to buy in a little bit more. And so you might sit there at the beginning and say, “Okay, this is going to cost us $100 million to design and get to flying the first satellite.” But you can’t go out and just get $100 million from your customers, from your investors, when you’re two guys that are sitting in a library. And even if you did, you’re not going to know what are the right things for you to do. You can’t just be like, “Well, I mean, I got $100 million and turn it into a satellite.” You always have to have the steps and the milestones along the way. And some of that is your key technology development, and some of that is pieces of your system architecture, and some of that is demonstration missions. And those are all on the technology side. And some of those are early contracts and conversations with customers. Phase One SBIRs can fit the bill. Letters of interest, or we did something that we call development partnerships with commercial customers. Those can really fit the bill. Early rounds of investment, pre-seed rounds, seed rounds, Series A rounds, those all help do the risk reduction. Hiring great early employees. Sometimes in the proposal process, you go, like, “Okay, well, we just have to make these, we have to send these couple of people’s resumes in, because that’s going to be a key part of why people want to work with us, as they go, ‘Oh, look at this awesome team that you’re building.’” You have to have the little milestones, and you have to buy, get people to buy in on a little bit of risk, and that’s true in basically everything that we do. And so go-to-market is a part of that. The customers that we work with today are generally customers that we’ve been on the journey with for years at this point, and they were the first ones on the commercial side to sign LOIs for us. They were first ones to just pick up the phone when we said, “Hey, we’re a couple of crazy folks in the library, and we just want to pick your brain and see if this would be valuable at all.” And then they were the first ones to dive in on the development partnerships and the first ones to sign up on contracts. And the same way on the government side, you start off with, like, “Who’s willing to talk with you when you’re going through the Hyperspace Challenge accelerator?” And then who’s maybe willing to sign a letter, and who do you talk with on your very first Phase One SBIRs? And there’s a lot of people that start working with you there. And if you buy the risk off along the way, they’re the ones that eventually—maybe they aren’t signing the big contract or the big contracts, but they’re in the meeting in the hallways with those people saying, “You know, you should really take a look at this company. They’ve been doing impressive work.”

Maggie 41:27
Yeah, Austin, since you guys started the company in 2019, you now have launched what, two satellites. You just completed this Remora mission successfully. Can you tell us about some of the lessons learned from each of those experiments testing your technology actually in space?

Austin 41:46
It’s funny, you set out to test the key pieces of your technology, and you do learn things about the key pieces of your technology. You go do some—you go fly some missions. You’re like, “You know what? We actually have some star tracker outages every once in a while, and so we have to update our filters so they’re not expecting measurements on a regular basis. And this is what our GPS error profile actually looks like, and this is the number of dead pixels we’re seeing, or the spurious bright flashes that we see in the background that we need to filter out in our images.” And so there are some technical things that you really learn about your key technology, but there are a lot of other things that you learn about along the way too. You learn about how to operate a satellite, how to get the data down in ways that people can look at it, how to send your commands up in ways that are efficient, and you can move through your testing operations quickly. You learn how to manage a satellite program, even when you’re working with vendors. And we work heavily with vendors to build the components. Just getting the vendors to deliver on time and to talk to each other in a way that everything interfaces correctly, turns out to be a huge amount of effort, and something that we have to pay a ton of attention to as we build the Otters. You learn a little bit about your team and what it takes to be ready for the moments of stress and challenge you have to resolve and what it takes to be ready to do that awesome.

David 43:17
Well, Austin, you’ve been, I don’t know, super generous with your time, and I know you’d probably rather be in the lab building or closing customers, but before we let you go, I think we just kind of love to hear a little bit of you and how you think about the future of space in the next, I don’t know, five to 10 years. Maybe 10 years is too far along, if we really think about what’s happened in the preceding 10 years, but over the next five years. And I know you’re a visionary, you wouldn’t have, like, come up with the name, you know, Starfish in the first place, and all the fun names that you have for all of the componentry, but maybe one area that I would be really curious on your take within this five-year journey is how the various orbits play into each other.

Austin 44:04
It’s easy in the space industry to dream really big and then to not fulfill and follow through on it. And more often than not, when you ask, “What does the space industry look like in five years?” it kind of looks a lot like today. And so I think the areas where it’s changing are the ones that are most interesting to call out. And areas where it’s changing is not necessarily announcements of, “Oh man, we’re going to land humans on the moon in four years.” We announced the same thing, what, six years ago, and didn’t really make that much progress along. And I don’t think we’re gonna have a bunch of people wandering around on the moon in four years, but the areas where you can already start to see the change—the increasingly rapid launch and the landing of rockets, and obviously SpaceX is absolutely at the forefront there. But Blue Origin also recently landed a rocket that took things to orbit, and Stoke Space is working hard on it, and Rocket Lab is working hard on it, and Starship with SpaceX is working on it. And you can already see that progress happening. I think that as more folks enter the launch market, that’s just better and better for people that want to send things into space and get value out of it. You saw a trend for a long time of satellites getting smaller, and now you see a trend of satellites getting bigger again, because people go, “Oh crap, I want to get a bunch of capability into the satellite. I want to have all the data throughput. I want to have the exquisite camera capabilities or compute capabilities.” And all your satellites went down to 3U CubeSats, and now they’re all going back to 1,000-kilogram satellites, and then perhaps even bigger. Some folks are really on the leading edge of that, taking advantage of it. I think K2 Space is an awesome example. And you can see other folks like us, Astroscale is a great company that are going, “Hey, it’s not just a world of CubeSats and really low Earth orbit. There’s a lot of opportunities in geostationary orbit in particular.” And so maybe to touch on your particular question, David, I feel like there are four real orbits that people talk about, at least from a commercial perspective, as potentially having value. There’s low Earth orbit. There is MEO, mid-Earth orbit. There is GEO, geostationary Earth orbit. And then there’s cislunar orbit, which is around the moon basically. And in low Earth orbit, I mean, the biggest thing that’s going on in the space industry right now is Starlink and internet service providers from low-Earth orbit satellite constellations. And Starlink is absolutely very much at the forefront. And what they’re doing is really incredible. And then you see folks like OneWeb and Amazon Kuiper that are following along. There is just tremendous and huge growth going on in LEO, and that’s going to accelerate, accelerate, accelerate. In mid-Earth orbit, the biggest thing going on there is the GPS constellation, and GPS is really critical for what people do in a variety of different ways. From a commercial side, being in mid-Earth orbit, frankly, comes with a lot of radiation challenges that sometimes force you into traditional production lines in the aerospace industry that are long and expensive and very difficult to work with. And so I don’t know that MEO is going to be a very popular place for folks doing new things. Maybe there’ll be some use cases, but boy, the radiation of Van Allen belts can kind of make it difficult. Then you have geostationary orbit, and as you’re building big, exquisite assets that cost millions or billions of dollars, sometimes putting them in a place where they’re over the same spot on Earth and you can trust for them to be there the entire time, turns out to be really valuable. And that was really valuable 50, 60 years ago when people first started launching GEO satellites. And I think it’s still going to continue to be really valuable going forward. And so there’s a lot of folks that are looking at geostationary orbit with a lot of interest, and it’s a key part of what I think we’re building our business around. And then there’s cislunar orbit, and people like to talk about cislunar orbit, but I don’t think we’re going to see a lot of exciting activity in cislunar orbit over the next five years. I really hope that we do someday, because, oh my gosh, how cool to see people on the moon or operating around the moon. I think that, you know, beyond Earth’s realm of orbit, let’s send things to Mars. Let’s send things to Venus. Let’s send things to the moon, to Saturn and Jupiter. That’s so cool. And that’s ultimately some of the absolute most interesting things going on in the space industry. Maybe unfortunately, if you’re trying to build a business around it, you have to take it with a little dose of realism over the five-year time horizon too. And you got to say, “All right, well, we’re not building our business to focus on servicing cislunar satellites right now. Let’s see some satellites there first.”

Maggie 48:59
Great. Well, Austin, thank you so much for taking the time and for coming on the Mission Matters podcast. We’re super excited to be investors in your business and excited to see where you all take it from here.

Austin 49:12
Hey, thank you guys always for having me. Always good to chat with you, and I’m sure I’ll see you somewhere soon.

David 49:18
Have a good one. Thanks, Austin.

We cover:

• How the Appropriations Bill, NDAA, President’s Budget Request, and the reconciliation (the “one big, beautiful bill”) fit together – and where the real funding signal lives

• How startups should engage Congress to advocate for their technology without burning credibility

• What next-generation technologies (AI, autonomy, space, maritime, digital infrastructure) are actually funded in the bill

• The importance of the Joint Explanatory Statement (JES) to understand appropriators’ intent behind the bill

• How to tell whether a budget line is real, available, and competitive, or already spoken for

• How appropriators think about risk, flexibility, and accountability with taxpayer dollars.

You can listen to the podcast on Spotify, YouTube, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know what you think. And please reach out if you or anyone you know is building at the intersection of technology and national security.

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Transcript

Maggie 00:39
On this episode of the Techquisition Edition of the Mission Matters Podcast, we’re joined by Johnnie Kaberle to break down the fiscal year 26 appropriations bill and what it means for startups.

David 01:09
This podcast was originally recorded on January 26, prior to the brief government shutdown and the subsequent congressional compromise that removed the Department of Homeland Security funding bill from the broader appropriations package.

Maggie 01:22
Johnnie is an expert in the world of defense appropriations. She’s currently a senior vice president at West Exec, a well-established government relations firm. Prior to joining West Exec, she served for a number of years as the staff director for the House Appropriations Committee for Defense, also known as HAC-D.

David 01:41
All right, Maggie, before we bring Johnnie on, I think we should level set for our founders listening. Because anytime we say “appropriations bill,” eyes naturally glaze over immediately.

Maggie 01:54
Yeah, this is definitely one of those bills that everyone hears about in one form or another. Everybody knows it’s important. Everybody knows it can lead to things like government shutdowns. But almost no one is totally sure what it actually does, how it comes into being, and how it relates to all these other important documents like the President’s budget request, the National Defense Authorization Act, the reconciliation bill, et cetera. To be fair, it is a 1,000-plus-page document, so it really does quite a lot.

David 02:26
So at a basic level, the appropriations bill is how Congress actually gives the executive branch permission to spend money. Each department, of which there are 12, will receive its own funding bill. Examples include, in addition to the Department of Defense, the Department of Agriculture, Department of Transportation, Department of Labor, Veterans Affairs, as well as the legislative branch, which also depends on funding bills to operate. All the strategies, modernization priorities, and budget requests in the world don’t matter if the money isn’t appropriated.

Maggie 02:57
That’s right. As you might have learned from Schoolhouse Rock, or back in civics class, this is really Congress exercising its power of the purse. And for founders, this is more than just a policy document. It is one of the strongest demand signals the government puts out about what they are actually planning to buy. It tells you where Congress is comfortable putting real dollars behind a mission.

David 03:21
And context matters a lot this year, because last year we were operating under a full-year continuing resolution. Congress was not able to pass a new budget, which basically meant everything was frozen at the previous fiscal year’s funding levels.

Maggie 03:37
So that means that for the past two years, we’ve been operating with a budget tied to government priorities convened all the way back in 2023, which feels like a really long time ago. It seems like a lot has happened since then, right?

David 03:50
You are, Maggie. I think you might have still been in graduate school. But beyond the funding levels, which were tied to decisions made a long time ago, operating under a continuing resolution, or CR, means no new programs that were previously unanticipated in 2023 can begin without explicit approval. I would say this has wreaked havoc on the innovation ecosystem. So when we look at the fiscal year 26 appropriations bill, we’re not just asking what’s in it, but how it’s evolving and what that evolution tells founders about where the system is actually headed.

Maggie 04:23
We’re going to dig into things founders don’t usually hear explained clearly, like how lobbying actually shows up in bill language and why committees like HAC-D and SAC-D, the House and Senate Appropriations Committees for Defense, matter way more than most startups realize.

David 04:39
And we’ll talk about those big, headline-grabbing legislative packages, like the big, beautiful bill, how they fit into this whole process, and how much of that is real acquisition signal versus political noise.

Maggie 04:52
All right, let’s bring Johnnie in. Johnnie, thank you so much for agreeing to be on the Techquisition Edition of the Mission Matters Podcast. You are officially our first external subject matter expert. There’s probably no one better to help us demystify the appropriations bill and help us and our founders understand its value, as well as how they should be thinking about their own government relations strategy to influence and take advantage of the opportunities presented in these kinds of bills.

David 05:24
But first, please tell us a bit about yourself. We know you’re currently at West Exec, a well-established government relations firm, and we know that you were the staff director, as Maggie highlighted. What else should our listeners understand about your experience dealing with the appropriations bill?

Johnnie 05:40
First, David and Maggie, thank you so much for having me on. I have been really looking forward to this. In the year since I left Capitol Hill, my favorite thing has been explaining how appropriations works to people on the outside, because appropriations is really fun when you understand it. I retired after 30 years and 10 months last January, and I actually had a pretty unique background, even by Capitol Hill standards. I worked in personal offices for a variety of members of Congress. I also worked in the whip office in Republican leadership, and then served as the deputy staff director of the entire Appropriations Committee, covering all 12 bills. But my passion, and where I ended up at the end, was as staff director of the Defense Appropriations Subcommittee.

David 06:28
Well, I must say, you know, Johnnie, as we talked earlier before the recording, that this is kind of your first formal podcast out into the ether, and I’m just putting it out there for other podcast hosts: you should definitely bring Johnnie on to your episode. We’re going to focus on founders and the appropriations bill as it lies today, but man, your stories that we were talking about, just a little bit of them, they were incredible. Yeah.

Maggie 06:55
So, Johnnie, top level, what are some of the major highlights that you noticed in this year’s Defense Appropriations Bill? What are some maybe notable new initiatives and funding lines that weren’t present in past bills that people should be paying attention to? Well, I’ll—

Johnnie 07:11
Talk bigger picture. And I think that, again, my passion, and it comes from my previous boss, Chairman Calvert, is the innovation and the pushing of that. Many people get authorization and appropriations confused. And for the founders, what’s important to understand is authorizing without appropriating is just a policy statement. You could get authorized exactly everything you want, but if you don’t get any money for it, is that a win?

Maggie 07:39
And John, maybe could you talk to what even is authorizing?

Johnnie 07:43
So authorizing is giving the permission, giving permission for end strength, giving permission for, let’s say, F-35s or those type of things. However, and I always ask people I do a lot of speaking to, like graduate classes, if the authorizers authorize 90 F-35s and the appropriators fund 100, how many F-35s do you get? One hundred. If they fund two, how many do you get? Two. And so that’s why it’s really important. A lot of founders will relax when they see the authorization bill come out, where, again, if you’re only looking for permission, fantastic, but if money matters, you’ve got to wait for the appropriation.

David 08:26
Real quick, why then do the authorizers even put in a funding table, and how does that interact with the appropriators? Does it influence it in any form or fashion, or are they sort of operating in separate universes?

Johnnie 08:43
I would say, I’m trying to be politically correct, but I still gotta be me. They put a table in so that people can understand what the authorizers’ priorities are, but that doesn’t correspond with funding. Especially if you look at the timing of the bills, we don’t see their tables before other people see their tables. And by “we,” I’m sorry, I still go back into my defense role. The appropriators don’t see that. Staff will talk about priorities and bosses’ priorities and look at the funding levels, but no, the appropriators are not just taking the authorizers’ funding tables and funding them.

Maggie 09:25
Maybe it’d be helpful to actually talk through how the defense appropriations bill comes into being. How does Congress know what the military wants and needs, and how does the appropriations bill and that process relate to the President’s budget request and the J-books, which are supposed to come out earlier in the year to help the appropriators? And just to clarify for listeners, the President’s budget request is the administration’s annual proposal to Congress outlining the President’s funding priorities and plans for the upcoming fiscal year, but of course it’s just a request. Ultimately, Congress is in charge of actually funding those priorities. The President’s budget request is accompanied by the justification books, or J-books, which provide detailed, program-by-program explanations of how requested funds would be spent. They typically include budget rationale, performance metrics, prior year execution, and future plans, and they’re meant to be the primary documents that Congress and congressional staff use to evaluate, question, and modify DoD funding requests. So given all these documents and all these different stakeholders, what does it take to actually get the appropriations bill written and passed?

Johnnie 10:39
So one thing I want to put into context before I start this is the amount of staff. David had mentioned there are 12 subcommittees of the Appropriations Committee. When I was staff director of defense, I had the largest staff of any subcommittee, and that was only 14. And so the defense appropriations bill covers the Department of War, all the military services, and the entire intelligence community. If you were to compare that to our authorizing brothers and sisters, HASC has about 60 staff and the Intelligence Committee has about 60 staff. So we have 14 to 120, just to put that into context. When the President’s budget comes out, there are a lot of budget briefings. There are J-books, though this year, I don’t know how they did it, but the House appropriators had to write their bill without having any of those justifications, which is just amazing that they were even able to pull that off. They go through line by line. They go through the budget request. They have briefings. I know David was one who used to get to give those briefings to the Hill. They ask for specific data, and numbers matter. Numbers really matter to appropriators, because they don’t want to spend money on things that we’re not going to get. They don’t want to fund “hope so.” If they’re looking at how programs perform, and you got X amount of money last year for something and you underperformed, it’s unlikely you’re going to get that much money, or you might even get some money rescinded from the previous year.

David 12:12
Yeah, so those are all good points. And Johnnie, I’m getting a little bit of PTSD thinking about my time at the Pentagon briefing out my program, which I think you’ll appreciate, was $5 billion over the fiscal year. Defense planning, right, the five-year fight, with zero validated requirements. So you can imagine how well that went. Well, you had a lot of fun. You made a lot of friends. I made a lot of friends. Took a lot of cuts. But yeah, specific to fiscal year 26, what were some things that stood out to you? Was there anything in there of true note, and maybe somewhat related to some of the executive branch directives and memos that have been coming out, and whether or not the appropriators are picking up what the executive branch is putting down?

Johnnie 13:04
Well, I think that probably one of the most important areas to look at in the defense appropriations bill that most people skip over and just do a word search on is what we were talking with Maggie about earlier, which is the joint explanatory statement.

Maggie 13:18
And just to clarify for listeners, the joint explanatory statement, often referred to as the JESS, is a document issued by the House and Senate Appropriations Committees that essentially accompanies the final appropriations bill. You can basically think of it as a user manual for how Congress expects the executive branch, in this case the Department of Defense, to execute the appropriations bill, really explaining in plain English Congress’s intent behind the funding decisions written into the bill.

Johnnie 13:49
As we talked about, appropriators like numbers. We don’t use words unless we have to, and so if it’s written there, it really matters. And in one area, it talks about all of the items that were not funded out of the one big, beautiful bill that the department then came to the appropriators to get funded out of base funding. There are also always things that come up throughout the process, new emergent requirements that have to be funded. And I thought that was a really important section of the joint explanatory statement for people to read if they don’t understand, like, well, why didn’t they put more funding here, or why didn’t they put funding there, to understand the pressures that are there. I also think, you know, I hear, and I had a lot of questions, when the administration and the department came out with acquisition reform, which I was thrilled to see. And it’s not easy. It’s not easy when people have been doing something the same way for so many years. It’s uncomfortable, and you need leadership to say, no, it’s okay, we’re doing things differently. And everyone assumed that the appropriators would hate flexibility. Appropriators don’t hate flexibility. It means you have to have accountability. We want to know what you’re doing with it. You’re not getting walking-around money. And appropriators every morning wake up knowing one thing: this is taxpayer dollars. This is not our money. How do you justify spending this money? We want to be able to justify it in the same way that, you know, we push so hard for budgets, for audits. The department should be auditable. These are tax dollars, period.

David 15:25
Well, you’re, I think you’re asking for a few miracles there on the auditing, but maybe.

Johnnie 15:30
Again, this is, maybe it can be done, but it’s not easy, Johnnie.

David 15:35
One thing I wanted to follow up on was the one big, beautiful bill that was passed in July. To me, that was a bit odd, right? The reconciliation bill and its big emphasis and the amount of money that it provided to the department, and of course it was during a continuing resolution. So how should people understand the one big, beautiful bill and its relation to the FY 26 appropriation, and how might it also show up in the bill so that people can kind of see how those priorities are aligned?

Johnnie 16:19
So with the one big, beautiful bill, it was a one-time infusion, and that’s what’s so important. Appropriators will talk about base funding, and that’s the number every year that you look at as base funding. When I was there, it was $833 billion. This year it’s $839, so it’s up $6 billion. Now, when you throw in the one big, beautiful bill, that doesn’t get added to the base. So people that get the money now, in five years there’s not going to be base money to continue something, so it’s not something you can count on for the long term. And I think that is really important for people to understand, that you’re going to need to have other funding mechanisms, or other people within the department or the services that want to pick up the funding, because that money is a one-time shot. And, you know, again, appropriators, we don’t love that. We like to take things into account, to review, to be able to say this is working, this is not working, more money here, less money there. And also, as an appropriator, we don’t love it when authorizers get to write appropriations bills, which effectively happened with reconciliation. But, I mean, it was a great infusion and a needed infusion. It’s just important that people understand exactly what it is and what it isn’t, that it is not adding to the base, it is not long-term additional funds. And even in this situation, there were things that the authorizers did not include in reconciliation that the administration wanted and, as a result, came to the appropriators to fund out of the FY 26 base funding. And what that means to founders is that you have several billion that would have been available to other programs that now had to go into programs that the administration wanted to be funded out of the reconciliation bill, if that makes sense.

Maggie 18:19
So turning gears a little bit to understanding how founders and startups should be interacting with the Hill, with appropriators, and really understanding this bill, the word lobbying comes to mind. I know lobbying can be seen as a dirty word by many, or at best it is a misunderstood word, but a lot of the startups that we work with, and a lot of large companies, leverage lobbying firms to great effect. So how does lobbying show up in the appropriations bill, if at all, and how should startups be communicating with appropriators?

Johnnie 18:57
So I am not a lobbyist. I am a strategic advisor, so I do not go anywhere on behalf of companies. My job is to advise companies exactly on this. How do you communicate? And I think the number one thing is do not assume. Do not assume members of Congress are who you see them as on television shows or movies. They are not all the same. There are show horses, but there are also statesmen. Know who you are working with, and a lot of times that is where hiring somebody from the outside who has actually been in and knows these people can tell you, yes, this person says yes to everybody and does not do anything, or does not have the ability to get things done, or this is something that this member or senator is passionate about. Congress does not fund things because it is a nice thing to do. Again, it is not their money, it is taxpayer dollars. What problems are you solving for? Be very concise. Once you identify what the problem is, and especially with appropriators, does it make something more lethal? Does it mean you are going to produce faster? What does it do to jobs? Does it mean it is going to save money? Highlight that. I cannot tell you, 90 percent of the one pagers I got were just full of buzzwords. After reading it, I understood less than I did before, and it just frustrated me. Make sure you are able to convey exactly what you are doing and be honest. Most of the staff have done this a long time, and Dave and I were talking about how one of the challenges is that committee staff stay there for many, many years. In the department, people are there for two to three years. So you will have somebody from the department come and talk about a program that the committee staff has been working on for ten, fifteen years longer than that person. They really know their stuff.

David 20:54
So Johnnie, if what you are saying is that a startup should go talk to the staff of the Appropriations Committee, go talk to the members who make up the Appropriations Committee specific to your subcommittee, in this case defense. But if you are going to communicate, tell them what your capability is, why it could be good for a certain constituency. But maybe what I am also pulling out is how is it better than what is currently available? So you as a founder need to understand the state of play today and what the military services are employing from other vendors, and why this is a step function better. Because coming in with just your shiny technology, I guess what you are saying is the first thing they are going to ask is, is that being satisfied by something that is already in the base budget? And why should I actually care about this innovative solution, exactly?

Johnnie 21:58
And also, be honest. I cannot stress that enough. These people are used to people trying to work them, and it takes a while to build up credibility. It takes seconds to lose it. I have had members that I worked for see a technology they were just blown away by. It was not always even in their district. They were thinking big picture, national security. And then every meeting, it did not matter who we were talking to, the head of INDOPACOM, PACOM, CNO, whomever, they brought this up. So if you can get them passionate about what it is you do, that is why it is important to know who you are going to talk to and why you are going to talk to them. I see this with some of my clients who have lobbyists. They will send me a list of who they are going to meet with, and I look at the list thinking this is a waste of time. It is not going to help them. Know why you are going in. Are you asking for something? Are you just creating the relationship? What is the purpose? Make sure you understand that. And above all, be yourself. It always made me laugh when people would say they were nervous to come in and see me, because I thought I was the easiest one to talk to. I think you can even tell on this podcast, I will say whatever I think. Just be yourself. If you do not understand it, do not pretend you understand it. What you understand is the tech, so stick with what you know and let the committee and the other people do what they do.

David 23:32
So Johnnie, I mean this is incredible, and thank you. Very helpful, very validating to some of the things I have always thought but never maybe knew concretely. But I want to take a step back. People will always say, hey, I need to get a funding line inserted into the appropriations bill, I have got to get my mark. Maggie is maybe not old enough, but I remember the days of pork, right? And I am sure pork went into the appropriations bill. But we do not do that today, or do we? It is just a little bit different. So how should founders think about the terminology of getting a line item into the appropriations bill?

Johnnie 24:20
So neither the House nor the Senate Defense Appropriations Subcommittee includes earmarks. For this purpose, the definition of an earmark is directed funding for a specific entity. Actually, in the House rules, the definition that the House uses for earmarks is spelled out there. Everything we put in is supposed to be competitively bid if the department did not request it. So if it comes from the department, it is not an earmark. But if Congress adds something, it will be funding a line for a capability. Now, in many cases, you want to make sure you do not come to Congress and say, we have this great capability, make the department take it. You want to be doing your due diligence with the potential customer. You want them to say, we absolutely need this.

David 25:13
Well, what I am hearing you say is that you can talk to Congress and tell us how great your thing is. But if you do not have a customer representative inside the department who is going to advocate for the need for this type of capability that we are ultimately going to compete, whether by the Federal Acquisition Regulation statutes or other transaction agreements or some other contracting mechanism, it is almost like a wasted effort. If you do not have a demand signal coming from the department for this thing, talking to Congress is not really going to help you get a contract faster.

Johnnie 25:55
No, I absolutely agree with what you are saying. As a staff director, I was not going to say, oh, here is this great technology, Navy, you have to buy it. That is just not going to happen. Now, there are times when you talk to the right staff and they see a capability and think, oh my gosh, this would be fantastic for whatever service I am working with, or whomever, and they want to introduce you so that you can let them know what you have. That is something that can happen. But you really need a potential customer who, if they had the money, would want to spend it on that type of capability.

Maggie 26:37
So I noticed that in the bill that was released a few days ago, the word innovation is stated 34 times in the conference report. Following that word were capabilities, everything from solid rocket motors, which had $500 million attached, to DIU receiving $40 million for Pillar Two AUKUS-related fielding initiatives. What clues should startups be looking for in this bill to really understand the signal inside this appropriations bill with respect to emerging and commercial technology?

Johnnie 27:13
I will go back to what I said earlier, which is that appropriators do not like words. If they include a word, it is because it means something. To get into the joint explanatory statement, all four corners have to agree, meaning the House chair, the House ranking member, the Senate chair, and the Senate ranking member. That is a bipartisan, bicameral message on importance. So the fact that this makes it in is a signal to founders about where the priorities are. I was especially happy to see funding for solid rocket motors and those types of things, areas where many of us know there have been issues. That funding is being prioritized to fix those problems, and not just at the prime level. They specifically call out new entrants.

Maggie 28:02
And once a founder sees a budget line for something relevant to them, let us say I build a small UUV, an unmanned underwater vehicle, and I see there is $50 million for small UUVs, what is the next step a founder should be taking to actually tap into that budget line?

Johnnie 28:19
I think that is the point where a founder needs to talk to somebody who understands the process and has worked the process. In some cases, that money might already be spoken for. A line might have been moved. This is where the process does become more opaque. You need to make sure that the money is truly available, who is going to be managing it, and how they are going to get it. There is language in multiple places that says things need to be competitively awarded, except for certain exceptions. You want to make sure this is not one of the places where an exception is going to be provided, and that it really is available. This is very bespoke, and for each case you need someone who knows who to talk to or has the relationships to ask those questions.

David 29:13
So, Johnnie famously, I think the President put out a Truth Social post or a tweet or on X or one of those social media platforms stating that he would like to nearly double the defense budget to one and a half trillion dollars. You know, this is a little over half of the FY26 appropriation. So should we expect that the President’s budget request, when it gets submitted to Congress, will have a top line of one and a half trillion? And if you wouldn’t mind indulging us, what do you think sort of happens from there?

Johnnie 29:50
So I have been trying to track that down too. I don’t know the answer. I have many guesses. I think that it would be difficult to get a base budget at that level. I think there’s a possibility that that would include, but I do not know, another attempt at reconciliation, which I think would be very difficult in an election year, especially for the House. But one of the reasons that it makes me think of having that as the overall base budget is that several years ago, maybe six or eight years ago, we’d gone back to talking about how there are 12 appropriations bills. Historically, the Labor, Health and Human Services bill is, in general, a Democratic priority, and the defense bill has been the Republican priority. And so, as we’ve gone through and gotten close to shutdowns, they’ve started to travel together now. That’s why, for at least six years, you’ve seen them in packages together, and people will talk about parity. So if defense gets a certain amount of increase, then the Labor, Health and Human Services bill needs that increase. There is no scenario where Congress passes a bill with Labor HHS getting that much of an increase. So I often think in terms of three-dimensional chess, and I’m not sure how that would play out. And honestly, I’m not sure how, or if, it’s been decided exactly how that’s going to show up, because we’ve seen this administration get very creative.

David 31:35
Totally. Well, I mean, gosh, thank you so much for sharing your insights and obviously your well-deserved wisdom on the process. I know I definitely learned a lot, and we hope that our founders did as well. Thank you, Johnnie, for coming on. And for those of you that still want to stick with us, Maggie and I are going to highlight some of the winners and losers as we saw from the appropriations bill, based on whether or not Johnnie’s former colleagues decided to mark up or mark down a respective program. So stick with us. But Johnnie, thank you so much for coming on the Techquisition edition.

Johnnie 32:11
Thank you so much. Any time you have questions, let me know.

Maggie 32:14
Thank you so much, Johnnie. All right. Wow. Well, that was a great conversation with Johnnie, clearly a world-class subject matter expert on the world of appropriations. I don’t think I ever fully understood just how all of these different pieces work together, and I definitely learned a lot from that conversation. But I wanted to dive in a little bit here and get into some of the more specific details that came out in this bill that are going to be relevant for startups. Let’s talk through who some of the winners are and who some of the losers are in this appropriations bill that are going to matter for this ecosystem. So, David, maybe starting with some of the obvious ones, how did groups like the Defense Innovation Unit fare, or some of these other innovation organizations, in this bill?

David 33:06
Well, Maggie, yeah, I can never help myself but to do some control F when these types of documents come out and see how the Defense Innovation Unit does, and it looks like they did all right once again, right? They got a significant amount of money in the big, beautiful bill for fielding technology. They got an even larger plus-up from Congress relative to what the President’s budget request was, which was surprising to me. Once again, I think Congress is stating, especially on the appropriations side, that they like the way the Defense Innovation Unit does business. And I think for founders out there, DIU has been kind of a halcyon of an organization that awards contracts to venture-backed startups. So I would be on the lookout for more solicitations, or specifically, if you want a prototype project and you’re moving into production, it seems like there are a lot of line items that are explicitly focused on fielding these capabilities. They got some pretty large buckets of funding around some specific areas.

But I would now be a little bit remiss not to highlight that two sister organizations that are nested under the Defense Innovation Unit did not fare so well. I’m talking about the National Security Innovation Capital and the National Security Innovation Network, NSIC and NSIN, respectively. It looks like they both did get some money in the big, beautiful bill, but both were zeroed out in the President’s budget, and neither were plussed up by Congress. So in my mind, those organizations, as we know them today, are going away. Though I would be remiss not to state that NSIN appears to be morphing into a new entity known as these on-ramp hubs. I know that recently they just did a ribbon-cutting ceremony in Montana for what’s supposed to be an innovation hub out there, and there was a decent amount of money in the appropriations bill for that activity. But enough about the Defense Innovation Unit. Maggie, you write a blog that’s pretty dialed in on all things artificial intelligence as it relates to the department. What did you notice out of the appropriations bill?

Maggie 35:38
So one piece that caught my eye was the Chief Digital and AI Office. Specifically, their Alpha One programs seem to have been a big winner from this bill. This is essentially an AI infrastructure program that they manage to help spread artificial intelligence throughout the department. Last year, Alpha One had a $53 million budget. This year, that was bumped up to $401 million, plus an additional $140 million from reconciliation. So that’s almost, or maybe more than, a 10x increase there. We’ll definitely be seeing a lot more coming out of CDAO.

I’ll also just mention a few callouts. I saw that generative AI was mentioned three times in the joint explanatory statement. I don’t know if it’s ever been mentioned in past explanatory statements. I looked back a year or two and hadn’t seen it before. They’re looking at using generative AI for counter-UAS, looking at using it for mixed reality and immersive simulations, and then one other for real-time operational awareness. A couple of other smaller line items mentioned AI as well, including AI for night vision, multi-domain kill chain automation, cognitive decision aids, and autonomous battle management. Then there was a little bit of talk about using AI for warfighter health, specifically using it to optimize performance under acute stress. So definitely, we’ll be seeing more about artificial intelligence. This all seems to be feeding into the department’s AI strategy, which came out a month or so ago, so it’ll be interesting to see where we go from there.

David 37:27
I was going to say, it’s so good, because I think we talked a little bit in an earlier podcast about GenAI and its ability to help with a lot of different administrative tasks. But now, trying to apply this technology more broadly, I would imagine they’re taking a lot of lessons learned from both Ukraine and Israel on how this stuff could be implemented into the field. So it’ll be exciting to see how different companies implement these technologies, and then how we see it happening in exercises.

Maggie 38:02
Yeah, anything relevant in the world of space, or any of the services that we should be paying attention to?

David 38:08
Well, I’ll touch on space. You know, they were kind of flatlined, all things considered. And I know there are a lot of large initiatives. I guess I will say, Golden Dome aside, the Golden Dome seems like they need to hit the “I believe” button a little bit harder with Congress, because there were a lot of requests for information and understanding around how this is architecturally going to work. So, yeah, I mean, I was a little bit disappointed that space was not as big of a winner. It seems like other areas, like collaborative combat aircraft on the Air Force side, are doing pretty well. I saw on the Navy side a pretty big increase for their warfighting experiments and demonstrations, going from 82 million to 152 million. So you might think a lot about autonomous surface vehicles and underwater vehicles, right, and how they’re performing, and making sure that we’re building that into our concept of operations. Those were a couple other areas that stood out to me.

But I would recommend that founders, within different tech areas or services, look at some of the good materials out there written by outlets that are more professional than us, specifying exactly how things are playing out. Of course, this wouldn’t be a Techquisition Edition without me quickly highlighting the cyber stuff. As of right now, there was nothing in this appropriations bill for it, and in fact there was a section highlighting that if the cyber program isn’t authorized, then there’s money you don’t need to administer it. So the saga continues, yeah.

Maggie 40:00
Will remain to be seen what comes next. And David, just to close out the way that we’ve been closing out these other ones, what do you think our next Techquisition Edition podcast is going to be on, if you had to guess?

David 40:13
Well, I hope that it’s one of two things. It’s either the Small Business Innovation Research reauthorization, and we can talk about that in gory detail, or the President’s budget request, which traditionally is due to Congress in the February timeframe.

We discuss:

• What it means for DIU and SCO to be designated as “field activities”

• What new major AI projects the DoW is starting

• How DoW is investing in data and compute infrastructure to enable rapid AI adoption

• New initiatives in the services and PAEs designed to bring innovation into the hands of warfighters

• And more!

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building at the intersection of commercial technology and national security.

And, we encourage anyone interested to read the AI strategy and innovation ecosystem memos for yourself to get all the details on these policy changes:

• DoW AI Strategy

• Transforming the Defense Innovation Ecosystem to Accelerate Warfighter Advantage Memo

• Transforming Advana to Accelerate Artificial Intelligence and Enhance Auditability Memo

Subscribe now

Transcript

Maggie 00:39
Welcome to the second ever episode of the Techquisition Edition of the Mission Matters podcast. In this episode, we’re going to be discussing some pretty big news that came out just yesterday about the Department of War’s new AI strategy and their new plans for the DoW innovation organizations. Just yesterday, Secretary of War Pete Hegseth announced a series of reforms for the DoW innovation ecosystem during a speech he gave at SpaceX headquarters in Starbase, Texas. He also announced the DoW’s new AI strategy. In conjunction with the speech, the department also released three new memos codifying these initiatives. So David, just to kick it off with the first question, can you cover what were some of the major themes highlighted in this speech and in these memos?

David 02:07
Well, Maggie, it’s a pleasure to be back on with you for this Techquisition Edition emergency podcast. Yes, we’re recording the day after Secretary Hegseth’s speech at SpaceX, which is a pretty cool venue to announce things at. But what did he talk about? He was re-emphasizing the desire for the Pentagon to go fast, find a way to be able to say yes, not be overly reliant on process, grow the industrial base by being creative and leveraging private capital markets. There was also a significant emphasis on leveraging artificial intelligence and on behavioral changes around data sharing, experimentation, and making the department AI-first. Secretary Hegseth also announced new leadership at the Chief Digital and Artificial Intelligence Office, as well as at my alma mater, the Defense Innovation Unit. He created lanes of understanding for how organizations like the aforementioned CDAO and DIU, as well as DARPA, the Mission Engineering and Integration Activity, and the Office of Strategic Capital, among others, are to work in tandem together to support the mission, which, quite candidly, can be confusing at times if you are unwitting to the variety of department organizations.

Maggie 03:32
I know I’ve had to have you explain to me multiple times how all these organizations actually differ from each other.

David 03:38
Yeah, well, you know, it certainly doesn’t help that the acronym soup is always expanding. But to that end, he emphasized some consolidation. We had these innovation organizations that were not tied directly to executing missions or acquiring capability. To that, he called out specifically the Defense Innovation Working Group and the Defense Innovation Steering Group. Gosh, I didn’t know that those were actually different, unique entities, and I’m an interested outsider. I couldn’t tell you what they did. He abolished those in favor of consolidating and then sort of putting the onus back on the services to consolidate as well and figure out how they’re going to engage with this series of memos. Overall, I’d say it’s a similar pattern to what we’ve seen. He is highlighting things that seemingly are working and trying to inculcate them into the system, versus allowing these things to continually operate on the periphery.

Maggie 04:42
So David, speaking of DIU and SCO, or SCO, Strategic Capabilities Office, can you tell us a little bit about what you think of those organizations being named field activities? I mean, what is a field activity? I know that was really one of the major reforms that people have kind of attached onto. Is this new? Is this substantial? Why does it matter?

David 05:04
Yeah, well, and I’m glad you mentioned the Strategic Capabilities Office, because I forgot to mention them as one of the organizations he referenced earlier. Okay, so field activity. Does it matter? Is it new? Field activities, there are lots of them. They are sort of an echelon lower than an agency. You have the departments, the Department of War, the Department of the Air Force, which is where the Space Force and Air Force as branches reside. Under the Department of the Navy, you have the Navy and the Marine Corps as branches, and then the Department of the Army. These are secretary-level organizations, and then you have these things called agencies. DARPA is an agency, DITRA is an agency, and then you’ve got the National Security Agency, which is also an agency and an intelligence community organization, so they are dual-hatted to the Office of the Director of National Intelligence and the Department of War. But what you might call less substantial, though still chartered to do a specific service on behalf of the entire department, are these things called field activities. I’ll actually give a commendation to my good friend Kevin McGinnis, who I worked with at Defense Innovation Unit back in the day. He wrote a paper stating that Defense Innovation Unit should be a field activity all the way back in 2017, and he was quick to remind me of that this morning over a message. We talked about it and asked, what does that mean, and why is it important? I would say for the most part things will stay the same. It does put the onus on Defense Innovation Unit and Strategic Capabilities Office to fulfill the mandate as articulated by Secretary Hegseth, and he’s going to submit that through the appropriate Title authority to Congress to ratify it. But now they are, lock, stock, and barrel, supposed to do exactly what these memos highlighted, and the department, or other organizations within the department, cannot or should not do that work. A good example of a field activity is Washington Headquarters Services. Most people don’t really know who they are or what they do. They support from a back-office perspective, contracting personnel among other things, and they provide that service for all of the Office of the Secretary of War’s needs. Whether you’re in Research and Engineering or Acquisition and Sustainment, and you’re one of those principals tied to doing something, if you need a contracting entity or contracting activity, you must use Washington Headquarters Services. That’s what they’re mandated to do, and that’s what a field activity is getting at. I would also say it will provide those of us interested in the financial machinations much better transparency into what Defense Innovation Unit and SCO are submitting through the President’s Budget. They’ll also now have to defend it. It won’t be locked in with all of the other Office of the Secretary of War activities where you have to figure out after the fact what DIU spent money on. That’s interesting. They’ll have to fight for it through the OSD Comptroller and the Office of Management and Budget, but it will help us understand what they’re spending to execute their mission. Hegseth mentioned that DIU will still have the ability to report to the Secretary, as codified in the Fiscal Year 24 National Defense Authorization Act, which was really important at the time. But their direction is going to come from the Under Secretary for Research and Engineering, Emil Michael, who now also appears to be dual-hatted as the department’s single Chief Technology Officer. For what it’s worth, a lot seems to be getting put on the plate of the freshly minted CTO, and I think we’ll get into that a bit more with the artificial intelligence transformation memo.

Maggie 09:19
Yeah. Yeah. That seems like a major point that Secretary Hegseth made, which was that all of these innovation organizations are now going to be reporting into this single CTO, Emil Michaels, who is really bringing all these organizations and their missions together. So according to Secretary Hegseth’s speech, one of the themes that I really took away is that innovation really can’t just be for innovation organizations like DIU. It needs to be part of warfighters and operators. It needs to become a core part of the way that the services departments and acquisition organizations, like the new program acquisition executives, do business. And there were maybe two major initiatives that he announced as part of that. The first one was this change to PAEs, this innovation insertion increment, or triple I requirement, that he mentioned. So could you tell us a little bit about what that actually means?

David 10:19
Yeah, well, I mean, I’ll say maybe to the first part about where is innovation supposed to happen. You certainly have these organizations where it’s expected to sort of be a front door for commercial entities. But I thought it was really cool that Secretary Hegseth sort of called out that innovation can happen at any echelon. He regaled an anecdote with a captain in the Army who was working on some AI transformation and saying, like, we need to be celebrating these activities and encouraging people who see problem sets in different ways and solutions to go out and do it and be encouraged, and then the command structure ought to support it. But specific to this innovation insertion and increment move, I’ll say off the bat, I think this is going to be really tricky to do, and a lot of that comes down to the budgeting process, known under the whole planning, programming, budgeting, and execution, PPBE. Maybe for the purposes of this conversation we’ll truncate it to how it’s colloquially known in the department, and that’s the POM process, Program Objective Memorandum. The POM process forces program managers to outline with extreme specificity exactly how the funding requested from Congress will be spent two years in advance, to include who the performers are going to be and what contract vehicles they’re going to exercise and leverage well in advance. And so how can the PAEs, across their portfolio, which we assume to be a grouping of related programs, be provided enough flexibility to incorporate innovation? This is going to be a challenge. Today, program offices can use programs like the Small Business Innovation Research, SBIR, or the AFWERX program. They also sometimes leverage the Defense Innovation Unit and some of their funding lines that are a bit more flexible, and then SCO, to do some of these innovative, non-programmed activities. So I think the department will need to negotiate with the appropriators off the bat what sort of a percentage, maybe five or ten percent of a program that is being POMed for, could be available for non-specified experimentation. And so I think it’ll be interesting to see how this plays out and how the services respond. But I do think that there’s an element of funding flexibility that is required in order to get after this mandate.

Maggie 12:55
So just to make sure I’m understanding this right, the way we should think about this triple I initiative is that it’s really trying to force the PAEs to spend a specific percentage of their budget on trying to integrate some innovative new technology into an existing program. So I need to spend some money to put AI on the F-35. But what you’re really getting at is that the way money is spent on a major program today has to be very detailed and submitted to Congress far in advance, and so we’re going to have to see how they’re actually able to get this kind of flexibility. Am I understanding what this initiative is the right way?

David 13:37
I mean, it’s almost as though you could ask me, you know, “David, here’s the NFL schedule. Predict every single team that’s going to win based on paper,” and not be able to take into account injuries or crazy random acts. And if you’re not right, there’s nothing you can do during the season in order to change the plan for how you thought it was going to play out. And I think what Secretary Hegseth is getting after is that the velocity and the pace of technological change are so fast that if we’re not taking advantage of it while the program is still in development, by the time it’s fielded, it’s already going to be outdated. And so if we don’t have these opportunities for innovation to occur, to then insert it and integrate and scale, because we’re not all-knowing, you know, we’re setting ourselves up for failure.

Maggie 14:40
So next, I want to turn to another one of his initiatives that he outlined, both in his speech and in these memos relating to the services. That is, he has mandated that the services need to brief plans for innovation within the next 30 days. So what should we take away from this mandate?

David 14:58
So, just like the Office of the Secretary of War started to consolidate a lot of these organizations or councils or steering groups, he is sort of asking the same of the services. And so I would say that, in some respects, it feels like the services are out in front of this. We’ve seen announcements around the Army FUSE program, and they’ve consolidated a lot of these seemingly related but not connected organizations that are doing innovation, experimentation, and scaling, and that’s now all under one house. The Navy is doing a road show with their new Navy Rapid Capabilities Office, and that seems to be a strong insertion point for innovation to get out to the fleet. They’re doing it in concert with the Office of Naval Research, which has historically been responsible for a lot of early-stage technology readiness level experimentation and working across a variety of national and government labs. And then Space Force, for a couple years now, has had this organization called the Commercial Space Office, COMSO, and they’ve been doing a really good job working with commercial organizations and figuring out how they can apply that to their mission mandates.

And so I guess the one service I didn’t really mention is the Air Force. They have a pretty famous innovation organization called AFWERX, but of late it’s been a little bit unclear exactly how that’s being tied into larger programs like Collaborative Combat Aircraft, which is pretty forward-leaning and leverages innovative companies. How is the Air Force going to be adopting this mandate to be more innovative? I think it’ll be really interesting to see how the services submit their plans. I really hope that, at least in some respect, we can see that at the unclassified level and provide some sort of comment, because one of the things that Secretary Hegseth reiterated is just how confusing and challenging it is for industry to understand all of this. So really what we ought to do is accomplish this transparently and make sure that we’re getting feedback from industry, so that we’re not just recreating the same thing as it was before.

So Maggie, maybe switching gears here, in addition to all these changes across innovation organizations and the need to go faster, Secretary Hegseth announced the Department of War’s new AI strategy. I think you’ve had some time to absorb it, but what were some of the major initiatives and themes from that strategy that stuck out to you and that our founders really need to know about?

Maggie 17:58
Yeah, definitely. I was excited to see a new AI strategy from the department. The last strategy the Department released was back in 2023, and if you can believe it, it did not mention generative AI a single time. Times have definitely changed since then. And I think, as you know, I’ve written about and we’ve talked about in the past that there are a lot of changes the department needed to make to really stay competitive in the AI space, as the pace of innovation has moved so quickly in the commercial sector. Overall, the strategy is focused on how the department can quickly adopt AI at speed to become an AI-first warfighting force. They’re trying to ensure that the entire department has access to leading-edge models on all of its networks, both classified and unclassified. The strategy starts out by detailing what they’re calling seven pace-setting projects, which are essentially, as far as I can tell, pilot initiatives to get the ball rolling on AI adoption within the department. Each of these is going to have a single, accountable leader who has to regularly report progress on aggressive timelines.

David 19:14
What would be a pacing project? Because that does sound pretty exciting.

Maggie 19:19
Yeah, yeah. So they’ve already announced one of these, GenAI.mil. I know, David, you’ve actually had the chance to play around with it, so I don’t know if you want to share anything about what that project is and how it is.

David 19:31
Well, sure. So GenAI.mil, a couple weeks ago when I was doing my reserve duty, all of a sudden one day we had an application on our desktop and we had access to Gemini. When you opened up the application, you could launch Gemini, but it also highlighted that coming soon would be a couple other of the more prominent large language models. And at the event yesterday, AHEG Seth announced that Grok is now available. The other two that I believe I recall seeing were going to be OpenAI ChatGPT and Anthropic. So it seems like the department is getting access to some of these cutting-edge large language models, and it’s really great to see. I will say, during my two weeks of reserve duty, I was using it quite a bit. Because I’m used to using it in my day job, I use OpenAI among others, and I was explaining to my coworkers how they might engage with it and leverage it. So it’s really great to see things that are in the commercial world coming to the department. I mean, I guess three years late, but who’s counting?

Maggie 20:43
I mean, I thought that this was a great initial project for the department to roll out, and they got basically just these basic AI tools in the hands of 3 million folks within the department. They did not overthink it, right? They are just giving people access to the exact same commercial tools that you and I have access to in our day jobs, really allowing people to see for themselves the power of these tools and find for themselves the major applications that are actually going to make a difference in their day-to-day workflows. So that was the first pace-setting project. They have a few more that they have not really released any details on, but they are looking at things like using AI for battle management, decision support, and improving simulation. The next major initiative that they announced is that they are actually going to be investing in more AI compute resources for the department.

David 21:33
I will just interrupt. I mean, that is huge to me, and as somebody who has watched the budgets be developed, it always feels like information technology and infrastructure are always a bill payer. So maybe just a little bit more on how exactly we are going to get to this AI utopia with the resources necessary to make it happen?

Maggie 21:59
Yeah, so I think that really investing in these AI compute resources is going to be one of the major enablers of actually getting this technology into the hands of warfighters, as well as folks in the back office. I have written about this before. One of the major roadblocks to getting AI where it is needed is literally just access to compute, access to GPUs, access to hardware that can run on classified systems or that can run at the edge. You know, some people I have talked to actually talk about bringing GPUs, like an NVIDIA Jetson, just in a suitcase to make sure that they always have it when they need it, because they know that they are not guaranteed to have it. Yep, I have talked to people at our portfolio companies that do this, and I have talked to people in the government that do this. So, you know, what the Secretary has said is that the U.S. military is going to put real capital behind acquiring compute resources. He even went so far as to say that they are going to build data centers on military bases or on federally owned land. We will definitely see what has to come of that. These are going to be secure data centers where maybe we could actually do some AI model training on classified data.

David 23:15
Sounds awesome and definitely needed. I hope that the government is able to strike a deal, because what we are seeing is certain communities resisting data centers, you know, not in my backyard. Well, you know, federal land on military bases, and there are certainly plenty of old, ugly buildings that ought to be knocked down, and we could put some server farms in there. Maybe if the warfighter can get access to it first, that would be wonderful, yeah.

Maggie 23:45
Well, you know, we know there’s a lot of real estate professionals in this administration, so I’m sure they’ll be thinking carefully about where the best spots are to put these centers. The next major piece that I saw in this AI strategy actually harkens back to the 2023 strategy, which was, once again, really focused on data availability for use with AI models. This was the major focus of the 2023 strategy, and the new strategy takes it another step further. One of the major challenges to actually deploying and training AI models in the department is that a lot of data is stored in silos. It’s hard for the Air Force to access Navy data, or even within the Navy it can be difficult for different groups to access data, particularly classified data. And as we all know, our AI systems are only as good as the data they actually have access to. So what the Secretary’s memo does is direct all departments and components within the DoD to release a federated data catalog to the CDAO, the Chief Digital and AI Office, that exposes all their system interfaces, data assets, and other access mechanisms across all classification levels, and it says they need to do that within 30 days. I think it will be interesting to see if this can actually technically be done, just literally whether the technology is there to do this in 30 days. But this is certainly an aggressive mandate to force organizations to get their data into a ready state so it could potentially be used by AI. We also see that the memo directs CDAO to release this data to any user who needs it and who has all the security requirements necessary to access that data. It says that if CDAO wants to deny a request, they have to report it within seven days, and that denial can actually be escalated to the Deputy Secretary of Defense for Research and Engineering, Emil Michael. So it will be difficult for CDAO to deny data requests. This is really about trying to open up these data silos. Related to these data decrees, it also directs the services to accelerate rapid ATO reciprocity, authority to operate reciprocity. I don’t want to get too deep into the details of ATO reciprocity. David, I don’t know if you want to chime in here, but basically this is the idea that if I’ve gone through the full cybersecurity process to deploy my software with the Navy, then I should be able to deploy it with the Army or the Air Force without having to go through that same very rigorous cybersecurity process as a commercial vendor to deploy my software on service networks.

David 26:35
You know, it’s a long time coming. We’ll see if they’re able to exercise this. It seems to have been a thorn in the side, and Secretary Hegseth did mention that there will be no sacred cows, and this would certainly be one I’d be willing to sacrifice. Maggie, maybe just, like, what should this mean for our startups? How should they interpret these announcements around data reciprocity, data access, network reciprocity, network access? I think they maybe mentioned stuff around one of the buzzword bingos of modular open systems architecture, trust and responsible AI. They even, I think the memos talked about Advana. The Secretary didn’t mention Advana in his speech. What does this mean for our startups, or emerging companies that want to do business with the department?

Maggie 27:31
Yeah, well, I think it means that this is the time to really start accelerating your engagements with the department. This is a time when they are actively kicking off new projects to explore how these technologies can be used. I also think this is a time when you can actually help shape the infrastructure that the department is going to need to deploy the applications that startups are building. If you have opinions on what compute resources the department needs, and what data catalogs and data infrastructure they need, or even better yet, if you have a solution to support building out that data infrastructure and that compute infrastructure, this is the time to make your thoughts known. Start engaging with people at CDAO and within R&E. Start engaging with people at each of the services. The service chiefs and combatant commanders are going to start designating AI integration leads; they’ve been directed to do so within 30 days. Find a way to get in front of those people when they’re announced, and then really spend a lot of time with warfighters, with operators, deeply understanding their needs, understanding how your solution can solve a real problem for them, and work your way up from there. Yeah. I mean, David, what do you think? What did I miss?

David 28:47
I think that’s right. I think now is a compelling time. I’d like to maybe go back to talking about the Army FUSE program. They’re doing a series of experimentations with the intent that the things that are working will have on-ramps into programs like Next Generation Command and Control. So I think if you’re a startup, you need to start participating in these activities. I’m not saying that there is a well-worn path to scaling, to becoming like the next Anduril per se, but one thing that I thought was interesting that the Secretary mentioned is that he highlighted two companies that are now a pretty vaunted part of the fabric, Palantir and SpaceX, and said that for them to get a hearing and an opportunity, they had to sue the government, and we need to change that mindset. He also mentioned that the Gen AI application is now available to three million people. While our loyal listeners will definitely be listening to the things that the Secretary said, do not assume that the three million people in the department who now have access to Gen AI will have necessarily heard the Secretary. So I think it is important to take the time to read the memos, and we’re probably going to link them in the show notes, and then make sure you have that with you as you’re engaging with your customers, because they’ll need education about how much this transformation is trying to change the narrative. Again, I would say get active and engage. If you feel like you’re being told no a lot, I would say that people within the Office of the Secretary of War will definitely be hearing their boss loud and clear. If you become the squeaky wheel, it might get that higher headquarters organization to reach down and smack somebody to do the right thing, because these are directives. If there’s one thing that the military is supposed to be good at, it’s taking orders in a very direct, top-down fashion. So I think it’s important to get engaged and to give these new emerging organizations the opportunity to prove you right, that working with the department is the right use of your time and resources, and that you can start solving some of these very vexing national security needs.

Maggie 31:18
So David, what were some of the topics that were not discussed in this memo, in this speech, that you might have expected to be in there?

Top of Form

Bottom of Form

David 31:26
So you certainly covered a lot in a short amount of time. In fact, I was joking with one of my friends that I feel as though Secretary Hegseth sort of recreated all of the greatest hits that a lot of us have been saying for a long time about leveraging private capital, growing the industry base, and being innovative. He talked a little bit about contracting. He talked about authority to operate, okay? But what didn’t he get to? I guess I sort of highlighted a lack of what we’re going to do with funding flexibility, right? That’ll continue to be a thorn in the side of all of these initiatives. So I think we’re going to need to get more creative in the coming year with whoever will listen over at Congress. I was also surprised to hear nothing about personnel clearance, right? How do we get people access so that they can know about things that are happening, so that they can build products that will meet the needs of the warfighter.

Maggie 32:26
It was especially interesting that they didn’t include anything about personnel clearance, because they did make talent such a central part of this strategy. In his speech, the department just announced their new initiative, the Tech Force Initiative, which is really working to get early career technical and AI talent into the federal government in general, but the Department of War in particular, to come help build technology to solve some of their crucial challenges. And the AI strategy also directed organizations to be flexible when it comes to pay and hiring to get talented people in there. And, you know, I think, as many people know, getting through the clearance process is actually one of the biggest barriers to getting technical talent in the door. Totally.

David 33:13
I mean, I’m definitely bullish on Tech Force. I remember when the Defense Digital Service first stood up, and some of the initiatives and the education, honestly, that they provided others in the department around how technology was transforming, or should be transforming, mission sets. I’m very bullish on that. But yes, the personnel clearance and getting people through the pipeline, attracting that talent, is going to be a challenge. Also, the International Traffic in Arms Regulations, ITAR. I know that part of it is with the State Department, but, you know, the Secretary has talked a bit about foreign military sales, and I kind of put those two in a similar bucket of how do we allow our industry base to sell to our partners and allies and make sure that we’re not cutting our nose to spite our face from a market standpoint for the proliferation of some of this technology. So I would have liked to have seen a little bit more there, and then maybe just access to classified spaces. Again, if we’re trying to build trust and communicate, and this touches a little bit on personnel clearance, how are we lowering the barrier to entry to even having these types of conversations in the first place? Again, we need to be growing, and growing the amount of people that are in the tent so that we can solve these vexing problems with people’s imaginative and creative ideas. So that’s what wasn’t stated. But gosh, if there’s one thing we can count on, it’s maybe another emergency pod within the next few months as this administration continues to check through a lot of the things that will help modernize the department.

Maggie 34:51
Yeah, absolutely. There are definitely more changes to come, I have no doubt, over the next few months. I’m curious, David, what do you think our next Tech Position podcast episode is going to be about?

David 35:03
Man, this is kind of like a bit of a sign-off for us, right? Like presuming what’s next. Okay, so gosh, I really hope that we can either talk about an appropriations bill getting funded, and I am going to go out on a limb and say that with that appropriations bill will be a reauthorization for the CIBER program. So we might get two emergency pods within one activity. I’m really hopeful for that. So maybe early February we’ll be back with Tech Position episode three, and maybe four, depending on how we decide to split that baby.

Maggie 35:45
I definitely hope we get both CIBER authorization and a budget passed this year. Well, on that note, David, thank you so much for coming on to record this emergency pod. I know it’s 10:00 p.m. now as we’re finishing this recording, and I really appreciate, as always, learning all of your wisdom on all subjects innovation and acquisition in the Department of War.

David 36:09
I really appreciate it, Maggie. It’s good to do this one in person, so that’s also fun. All right, until next time, until next time.

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• The operational complexity of modern joint warfare and the role of commercial technology

• Why Venezuela has become a key piece of U.S strategy in the Western Hemisphere

• What the operation signals to China, Russia, and other adversaries about U.S. resolve and deterrence.

• And more

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please let us know if you or anyone you know is building at the intersection of national security and commercial technology. Tune in next month for our next episode!

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Lisa 00:36
Thank you for making the time to join this timely discussion of the recent U.S. military action in Venezuela. We’re honored to have with us today SHIELD’s senior advisor and the former National Security Advisor to the President of the United States, U.S. Army General H.R. McMaster. General McMaster has a distinguished four-decade career as a U.S. Army officer, national security expert, and presidential advisor. He served as the 25th U.S. National Security Advisor from 2017 to 2018, where he led the National Security Council and advised President Trump on U.S. national security strategy. During his 34-year Army career, following his commissioning from West Point, he held multiple senior command and leadership roles. General McMaster commanded combat operations, including Combined Joint Interagency Task Force operations in Afghanistan, the Third Armored Cavalry Regiment in Iraq, and the Second Armored Cavalry Regiment during Operation Desert Storm. He is the recipient of numerous service awards. I could go on and on, but they do include the Silver Star, two Bronze Stars, and a Purple Heart. Those are stories that we will get out of him at the next limited partner annual meeting. He holds a PhD in military history from the University of North Carolina at Chapel Hill and a Bachelor of Science from West Point. General McMaster is a prolific author and historian and currently a senior fellow at the Hoover Institution at Stanford. We’re grateful to have his esteemed counsel and support at SHIELD, where the mission matters. And now it’s my pleasure to introduce to you Phillip Bilden, SHIELD founder and managing partner, who will help moderate the discussion today.

Philip 02:14
Thank you very much, Lisa. I also echo your thanks to the SHIELD investors and friends of the firm, our advisors and partners who have helped us build the firm that we have, and certainly our esteemed senior advisor and friend, General H.R. McMaster. H.R., very good to see you. I know that you’re on the Pacific Coast and had to wake up early today. You’ve been very busy since this news broke on Saturday. Amidst your other duties, thank you so much for being here for the SHIELD webinar.

LTG McMaster 02:43
Hey, Phillip and Lisa, what a privilege it is to be part of the SHIELD team and to be with you today as well. It’s a fantastic firm with a mission that I’m so excited about, and the vision you all had years ago to put this together. I think it’s already having a huge impact on our national security. Any time for you guys.

Philip 03:01
Thank you. And you have been there from the very inception of the firm as one of our advisors, helping us think through issues like we are dealing with today, which we are going to be discussing: the relevance of the technologies that SHIELD has been supporting and the companies that bring these capabilities to the warfighters, to our intelligence community, etc. Maybe that is where we should start. H.R., I am actually two miles north of Mar-a-Lago, where a lot of this activity took place over the weekend. You are no stranger to Mar-a-Lago in your duties with the President when you started out in 2017 as his National Security Advisor. But operationally, what was executed in the zero-dark hours Saturday morning? How would you assess this, just on a simple scale, one to ten, in terms of the complexity and ultimately the execution, all the planning that went into that in terms of its operational performance? How would you assess that?

LTG. McMaster 04:07
Hey, Philip, I will tell you, this is a ten in terms of degree of difficulty, if we are going to liken it to Olympic diving or something. And it was a ten score, I think, from all the judges. I mean, you have to look at the broad scale of preparation and then implementation and execution on the objective, on the X, and then the exfiltration. It was done so well, so professionally, and in a very difficult environment. It is Venezuela, which is the beneficiary, the recipient, of all kinds of assistance from the Cuban military and Cuba, Cuban secret police essentially, and intelligence. Russia and China have tried to help them perfect their technologically enabled surveillance and police state, and then you also have Iran active there. So getting into that denied environment, collecting the intelligence necessary to drive the planning, and then conducting that planning with so many different agencies and the joint force, this makes me think of the history of other interventions in the hemisphere, going back to Grenada, which was a successful operation but one that revealed a lot of disjointedness in our joint operations. We are so many orders of magnitude better now than we were then.

Then you look at the professionalism of the forces, from the suppression of enemy air defenses to the cyber activities and electromagnetic activities to blind the enemy as you get into the objective area. Just the number of aircraft conducting these electronic warfare missions and the suppression of air defense assets, and then responding immediately to any enemy fire and immediately suppressing that fire, is extraordinary. To have just one aircraft hit and that aircraft still be able to continue the mission is unbelievable. Just deconflicting the airspace was probably pretty amazing. And then the 1/60th coming in, you know their motto, the Special Operations Aviation Regiment, time on target plus or minus 30 seconds. Well, they did that. The timing was impeccable.

I think what you are seeing also, Phil, from the perspective of SHIELD and SHIELD investors, is that we are going to find out more and more that this operation was enabled by a combination of very highly classified government capabilities and a whole range of newly available commercial capabilities, from satellite imagery to RF collection. I am thinking of Hawkeye 360, for example, and then the big data analytical capabilities, the ability to fuse multiple sources of intelligence, and the cyber tools that allowed us to shut down cameras and shut down communications. So a fantastic operation. Degree of difficulty, ten, and I think the score is a ten.

Philip 07:16
Absolutely. Thank you for that. So this was a multi-jurisdictional, multi-agency combined effort that required an enormous amount of integration. Can you walk us through a little bit of the operational phases? The President did not just wake up after two years and decide that he was going after Maduro. This was in the works for several months. There were CIA human assets on the ground, monitoring through traditional espionage, augmented with technical means, drones, ISR capabilities, in order to get to the point where the President could give the order, which I think was before Christmas, that gave an operational window to our friend General Dan “Razin” Caine to pull the trigger and say, this is the go time. Can you walk us through that sequence a bit, H.R., and maybe focus on some of the elements of these technologies and capabilities that are so important to our emerging national security that we are supporting, how they played into the intelligence collection and then ultimately the extraction?

LTG. McMaster 08:26
Well, I think what you saw our intelligence community and the military give the President were multiple options. Of course, President Trump knew Venezuela was a problem in 2017. He actually said at the time that we were developing military options for Venezuela, when we really were not doing that, but he said it, I think, to try to coerce Maduro during that period. Maduro has become more and more of a threat since then, and I can imagine conversations that occurred very early in the Trump administration, especially with Secretary Rubio coming in, who has tracked hemispheric issues in such detail with his Senate staff. He is the most knowledgeable person on activities and the security and economic situation in the hemisphere. I relied heavily on his staff, actually we did. And Trump won for the Venezuela policy we put into place in 2017, as well as the 180-degree shift in Cuba policy away from the Obama administration and back toward maximum pressure on the Cuban army. So very early in the Trump administration, I am sure the order went out, “Hey, give the President options.” You have to put an infrastructure in place to do that. As you mentioned, you have to get intelligence collection capabilities, human intelligence capabilities, and Title 50 intelligence agency operational capabilities in place. I am sure a lot of that was going on that we will probably never hear about, activities aimed at setting conditions for the raid to extricate Maduro, his wife, and others. Then a range of military capabilities were put together. They did not just come together; they had to organize and put a task force together. I think they probably built a mock-up of the palace somewhere and rehearsed this multiple times across operational distances. That preparation phase probably began soon after President Trump’s inauguration. Then you had the organization and rehearsal phase when Maduro was intransigent. There were some initial efforts, and this is a pattern with President Trump. He wants a deal, he always wants a deal, so he tries the deal first, and when he gets stiff-armed, he considers other options. The rehearsals and organization, I think, began around November and December. These great servicemen and women involved probably did not really have a Christmas. You saw the staging that was happening, some of it in Florida, some in Puerto Rico, and other places. The maritime task force played such an important role in this operation. The preparation phase went through December, and then you are teeing up the option for the President. “Mr. President, here is what we have planned.” President Trump likes to get into the details. Just like he will walk around a construction site for one of his hotels, he wants to talk to people with different perspectives and learn more about it. One thing about President Trump is that he is willing to take a risky decision. I cannot share details, but there were multiple times I brought him an operation involving saving U.S. citizens from a dangerous situation. I would lay out the risks, the potential for failure, and the costs associated with that, and he would ask, “Is it the right thing to do?” I would say yes, and he would say, “Okay, do it, General, do it.” Oftentimes I would call back to the agency and say the President approved it, and they would respond, “Really? That can’t be true. Nobody makes a decision that fast.” I think he probably made this decision based on the advice he was getting, including from his principal military advisor, Dan Caine, a former SHIELD guy for a brief period of time and an amazing officer. Then you had the execution, and now we are in the aftermath.

Philip 12:38
Yeah, absolutely. How did this extraordinary military operation maintain operational security, or OpSec? I mean, you’ve got a flotilla of maritime assets, the Gerald Ford, the Iwo Jima, several DDGs, and other support vessels. It was no surprise that there was a buildup. And then, of course, there was the campaign against the drug boats that have been taken out by aerial means and with kinetic force. So maintaining that operational surprise element is very, very challenging, particularly when you have numerous interagency participants. It’s extraordinary. There’s no leak, no nothing. And as we know, the extraction took place in the wee hours on a Saturday, right after the New Year’s holidays, with Delta Force entering and breaching a highly secure Venezuelan military base where Maduro and his wife happened to be at that time. How do you do that? And across—

LTG. McMaster 13:39
—considerable distances, where I’m sure there was significant aerial refueling going on. Aerial refueling of rotor-wing aircraft, which is not an easy task, and operating off the Iwo Jima, which is the amphib that was committed. I think, Phil, this is a really important question because of the ubiquity of surveillance capabilities, low Earth orbit capabilities, RF collection capabilities. Really, it’s almost as if everything you do is visible everywhere. So what you have to do very early in an operation is desensitize your adversary. Sadly, this would be concerning for us. This is what China is doing right now around Taiwan. How will you know when it’s a real Taiwan invasion, or is it just another one of these live-fire exercises?

So having the maritime task force and the aerial activity that we had in the Caribbean prior, that was part of the desensitization. Then deception plays a big role. Deception can be public statements that you make that might indicate that you’re not really looking at this, that you’re looking at other potential options, and so forth. And you remember the President actually announced the clandestine strike on a port facility before that. But all this, I think, was actually beneficial because it indicated that our approach to what we were going to do militarily was pretty narrowly circumscribed and would really only be in the coastal area or involving these narcotics trafficking boats.

So noise was high, deception, and then you have to go into the blind phase. This is where, I think, we have to really think in terms of future war. We have to be able to blind and deceive our enemies. The reason why the situation in Ukraine is so stagnant is because, with the capabilities that both sides have there, you can’t conduct a sustained offensive operation due to the transparency of the battlefield combined with what each side has in terms of long-range precision strike capabilities, FPV drones, and so forth.

Then you’re into the blind phase, and this is something we’ll probably learn about maybe 30 or 40 years from now in terms of exactly what happened. But I think the implication is that we have pretty considerable offensive cyber capabilities, similar to those that the IDF displayed in the attack against Iran, and we probably assisted with that as well. So the importance of warfare across all domains, the space assets, the electromagnetic assets, the aerospace, the maritime, and of course all the set conditions for what happened on land during that successful raid.

Philip 16:35
Thank you. We’ve talked a lot about unmanned systems and drones. We’ve seen this on display in Europe with Russia and Ukraine and these first-person viewing capabilities, which are pretty extraordinary. It’s like playing a video game, but the consequences are unfortunately very deadly. There was a fair bit of aerial surveillance with drones before the operation and after the operation. But interestingly, what had the impact was 150 fixed-wing and rotary-wing assets, some of which were from our service, the Army, that were in the fight. But they were assisted by the anti-aircraft assets that were supplied, I believe, by the Russians and the Chinese. Those were blinded and those were taken out. How do you think they did that? Because that was similar to what happened in Iran with Operation Midnight Hammer just months ago.

LTG. McMaster 17:38
We had command of the airspace. Yeah, absolutely. There were a range of capabilities that were employed. A lot has been mentioned about electromagnetic effects, and I am sure cyber was employed there as well against UAS capabilities. By the way, it is worth mentioning that there is an Iranian Shahed drone factory in Venezuela. That is part of the problem. Part of the problem with Venezuela that brought us there was how Venezuela had become a platform for our adversaries in the region. Also, with the advanced radar capabilities that we have on our manned aircraft, everything from Army Apache Longbows to F-35s and F-16s, oftentimes it is manned aircraft that are the best counter to these unmanned systems. Your ability to command and control with our aerial command and control platforms, based on the common visibility or picture of the airspace, is critical. I do not think really anybody else can do that but us right now, Philip, in terms of the visibility and the ability to bring multiple platforms to bear. The other time you saw this from a defensive perspective was in the highly successful defense of Israel against the massive ballistic missile and drone assault that Iran launched. It was almost completely defeated. That was tiered and layered air defense, involving, as you are mentioning, manned and unmanned systems, aerial and ground systems. I think that is the answer in the future. In warfare, there is always a countermeasure. So what you need is a range of capabilities. You can play the game of rock paper scissors, but you have to have all three to be able to seize and retain the initiative and to create conditions, like we created across multiple domains, to affect a highly complicated raid like that or any other military operation.

Philip 19:38
Well, this is exactly why SHIELD exists, to stay ahead of those technologies that our adversaries are able to develop on their own, reverse engineer, or steal through cyber means, through espionage, or what have you. This rock paper scissors dynamic, staying ahead of adversary capabilities, really drives so much of what we do from a mission standpoint, quite apart from the fact that it is also going to be a very important economic activity. This is where the future is going. Thank you for that operational breakdown. That is extremely helpful for setting the table for some of the geopolitical issues which you have spent most of your career working on, in and out of uniform, in the Oval Office advising the president, thinking about and trying to create a more stable environment for the United States, trying to avoid unnecessary escalation where that is prudent and feasible, but also creating strategic deterrence. That means trying to get the Chinese, the Russians, the Iranians, and the North Koreans not to do things that we do not want them to do. Let us start in the region, and maybe even go back to when you were national security advisor. What has really changed in Venezuela specifically, and then more broadly in Latin America, from 2017 and 2018 at the beginning of the first Trump administration to now? Where did it get to the point where the president felt compelled to actually go do an extraction of a sitting, if not illegitimate, head of state.

LTG. McMaster 21:16
Well, there’s a lot of continuity. I remember a conversation with President Trump, with a number of other people in the Oval Office, and he said, “General, General, why don’t we just bomb them?” And I was like, “Well, who do you have in mind?” He said, “The labs. The labs in Mexico.” People were shocked. I was with the President multiple times a day, every day, so this is the way he thinks. He thinks out loud, and he’s contrarian and disruptive. That can all be positive at times, but people were kind of freaked out about that. So I huddled with them outside the Oval Office and said, “Hey, you know what he’s saying? What he’s saying is that 100,000 Americans are dying of fentanyl poisoning every year, and what we’re doing now isn’t working. He wants options. He wants options.” The narcotics part of this was always on his mind. What has happened is that with the Cartel de la Solace, Venezuela has gotten deeply involved with the Mexican cartels and deeply involved with the Colombian cartels. He’s a source of strength and support for them in a couple of ways. First of all, it’s good to have a nation-state on your side because you can issue false documents, you can do all sorts of things to provide them with cover, and you can provide your aircraft for them, for example. In Colombia’s case, you can provide the trafficking route to evade our interdiction. He was doing all this, and guess what, he was getting a huge cut for it. That helped him because now he had more cash flow. That circumvents our sanctions and allows him to sustain the criminalized patronage network that keeps him in power, this organized crime network. The other thing that’s changed since 2017 is that he’s provided more and more support for what I would call far-left progressive dictatorships in the region, as well as far-left political parties, with his money. I don’t have the data for this, but I hear this from people in the region. I believe it was a huge source of funding for Petro, for de Silva in Brazil, and for AMLO, and for the far-left party in Mexico as well. He was a big part of this pink wave that also affected Peru and Chile, and it was anti-American. He was providing money to build an anti-American coalition such that the balance of power in the hemisphere had shifted dramatically against us since 2017, 2018, and 2020, because the Biden administration, I mean some of them were actually kind of sympathetic to these guys. I’m not a partisan person, but if you think about the shift in policy between the Obama administration and the Trump administration, President Biden went back to the Obama administration approach. Remember President Obama did the wave with Raul Castro at a baseball game. There was this idea that opening up to them and being more tolerant would work, when in fact these regimes remained very hostile to the United States and were providing platforms for China, Russia, and Iran. There’s also an economic dimension to this. Remember the announcement of the Peruvian port and mineral development, for example, and the deepening ties in Argentina. That could shift back now, because if you’re a country in the Western Hemisphere and you’re thinking, “Oh yeah, I’ll take that Chinese money, I’ll take that Chinese infrastructure,” you might be aware they’re going to use it for coercive purposes and trap you in debt, but now you also have to ask whether you’re going to lose all those investments when the U.S. decides enough is enough. I think the dynamic has shifted favorably in that regard. But to answer your question, there have been big increases in the Cartel de la Solace and their connections to other cartels, the use of Venezuela as a platform for Iran, China, and Russia in the region, and the degree to which Maduro took upstream support from China, Russia, and Iran and distributed downstream support to keep the Cuban army in power in Cuba and to get Daniel Ortega back into power in Nicaragua. Nobody knows this better than Rubio, and I think he saw Venezuela as the linchpin for anti-American influence and activities in the hemisphere. He’s right about that.

Philip 25:58
And he is dual hatted. He had your former hat, or he has your former hat, as NSA advisor, but also Secretary of State, and I think a few other titles have been thrown at him, because he is going to be running Venezuela soon as well. So you have answered a very important question. Why Venezuela? Why Maduro now, as opposed to, say, going after cartels in Mexico, closer to our border, if eliminating narco-terrorism and transnational cartels was the key objective? So let’s talk a little bit about what the key objectives were, and then what the strategic impact is going to be, both in the region but also in Asia and back in Europe.

So the original justification, and this is only a few days old, was that the elimination effort is a judicial effort for an indicted felon under U.S. law to be repatriated to the United States forcibly to face U.S. justice for criminal activity involving transportation and all types of things that narco-terrorists do. Then, as we go into the news cycle of the week, we start hearing the President mention the oil factor and the implications of that. There have been references to the Cuban security presence. There have been references to terrorist ties to Hezbollah. There have been references to the Iranians having activities. There are Russian advisors currently in Venezuela. So there are numerous points that really do not have a direct link to the narco-judicial effort, but certainly are within U.S. strategic interest. You would not want this festering in your hemisphere, on your back door. So can you help us really understand what those objectives were?

LTG. McMaster 27:59
Yeah, well, you know, this is where I think the administration gets, it gets like a grade of improve. How about communicating clearly what the objective is? And I think really what it is, based on all these statements, is kind of all of the above. I would put it under the heading of ensuring that Venezuela is no longer a host or a threat to the United States and our security interests in the hemisphere. That is the overall objective. There are certain components to that, and this is where now you have heard the administration talking about the behavior of the regime. We do not really care what regime is in power, as long as the behavior changes. And the behavior you hear about is everything you already mentioned, which is narcotics trafficking, being a platform for enemies and adversaries in the hemisphere, and the grievance associated with the seizure of infrastructure that was built with U.S. investment and denying profits to U.S. oil companies and so forth. And, of course, the subsidization of other hostile regimes with oil money and the cash flow from oil and narcotics. So those are all sub-objectives.

But I think the fundamentally flawed assumption that President Trump might be operating on is that he can get those outcomes without a change in the regime, and he is not going to get it. The reason is that there are limits to what you can achieve with coercive diplomacy. This is where President Trump has this dissonance between peace through strength, which you just saw with this operation, and an impulse toward retrenchment and really not getting involved in long-term efforts abroad, even in the near abroad here in the hemisphere. He tends to view these options through the lens of the searing experience of the Iraq War. In this way, he has inclinations that are quite similar to those of the Obama-Biden administrations.

The flaw in that thinking is that it is not Iraq. I think there is a misdiagnosis of the complications, the cost, and the length of the wars in Iraq and Afghanistan in terms of what caused them. I think what caused them, in large measure, was our short-term approach to long-term problems. There was a Vietnam-style wrong lesson of saying we just do not want to do that, just get the hell out. What we did not focus on was how to consolidate military gains and get to a sustainable political outcome consistent with what brought us to those wars to begin with.

I think what we are seeing in Venezuela may be a replication, actually on a larger scale, because Venezuela is a much larger country in terms of population, of the Obama mistake in Libya. What the Obama administration did in Libya, in its effort to avoid what it perceived as the mistakes of the George W. Bush administration in Iraq, actually exceeded those mistakes by affecting a change in the regime and then doing nothing to consolidate those gains into a sustainable political outcome. What did you have? You had a continued war in Libya. You had a continued threat of jihadist terrorism. You had a huge migration crisis that funneled through Libya into Europe.

So I think what we are going to see here is a failure of coercive diplomacy, and the President will face a difficult choice of what more do you do. If you look at the leaders in Venezuela and what they are doing right now, they are using essentially brown shirts, I think they are called the colectivos, these brigades of thugs, to go after anybody who might be sympathetic to getting Maduro the hell out of there. They are going through people’s phones. They are increasing the number of political prisoners. They have about 900 political prisoners in Venezuela now.

So we have to be clear about what we are demanding. We have to be clear about how we are creating a sense of urgency among officials in this government, many of whom I know are criminals, indicted criminals. We also have to be clear about what kind of punishment we are willing to mete out to achieve our objectives. For these inducements to work, you have to convince the leadership in Venezuela that you are more committed to that change in behavior than they are to continuing it. They have profited a hell of a lot from it, and Venezuelans are not going to be kind to them if they leave their positions, because they have victimized them. Since Chavez took over in 1999, Venezuelans have been living this hell. Since around 2006, the economy has contracted by about 80 percent. They have driven eight million Venezuelans out of the country, about one-third of the population.

So I think there is overconfidence in the ability to affect meaningful change in the nature of the government and its behavior through just coercive means, or what we might call forceful persuasion.

Philip 33:29
So thank you for that, and for our listeners, I should point out that, H.R., you’re an esteemed historian. While in the Army, you wrote a seminal book on the lessons of Vietnam, which wasn’t career enhancing for a while until it became so. You really do have a wonderful historical perspective. And if it’s not regime change that we’re after, that the President is after, and instead it’s trying to get to better outcomes with the existing political leadership and the existing military leadership, what tools are in the toolbox to do that? I presume economics, oil, political isolation, cutting off ties to some of the adversaries that we want booted out of the region, out of Venezuela.

LTG. McMaster 34:19
Yeah, absolutely. So my colleague, Stephen Coughlin, who’s a hoot, talks like Joe Pesci. I said Joe like he has, he’s from the Bronx. But he says, hey, authoritarian regimes really need five things to stay in power. The first thing you need is cash flow. So what you see is the administration going after that, right, from the narcotics cash flow and the oil cash flow. The second thing you need is security forces. I think this is what our agents on the ground are working on overtime to try to splinter those security forces and to get enough of them, who maybe don’t have the most blood on their hands and aren’t the most corrupt, to break away and then to be part of creating the security space you need for a political transition. Because really, these regimes don’t have to be that strong, they just have to be stronger than any organized opposition. The third thing you need is stories to tell your people. Hey, it’s the Yankees, it’s the gringos, they’re creating all these problems. It’s not us. You need me. You need us to save you, the Chavistas to save you. So you’ve got to counter that. This is where I think we should be a lot more active, in the informational domain and in the battleground of perception. The fourth thing you need is control over life choices. That’s what they’ve done with these criminalized patronage networks. If you have a job in Venezuela, it’s because the state kind of controls it. The cash is flowing down through these pyramid-type structures, and your livelihood is at risk. So you’re incentivized to stick with the regime, because that’s all you really know, even though you’re impoverished. And then the final thing is you need an international system that will sustain that authoritarian regime to some extent. As you alluded to, Philip, that’s exactly what they’re working on from the outside in, isolating Maduro from external sources of strength and support. So how will this play out? We don’t know, but I think it’s going to take a long time. We’re not going to see a quick change here. Sadly, the opposition is fragmented. I wish the President had not made the comment about María Corina Machado, like, hey, she’s not that popular. What we should be doing is helping to bring that opposition together and say, hey, play together like they did in the last election. They did that extremely well. What happened is the opposition got 70 to 80 percent of the vote, and they were able to expose that. So I think what’s missing, and this is why Marco Rubio, I mean, he can’t do everything. You need a National Security Council staff process to coordinate and integrate across the departments and agencies and develop a more coherent strategy and policy at this point. That’s really what’s needed. You see elements of it, everything I’m talking about is out there, but what I don’t see is how these are integrated and how they’ll be evaluated based on measures of effectiveness that would then alert you, hey, maybe this isn’t working, we have to bring other options to the President. I think that lack of clarity is hurting us at this moment.

Philip 37:36
So it sounds like a bleeding-out strategy. It sounds like you’re not anticipating a sustained military operation, the proverbial boots on the ground, or a buildup that’s going to make it very clear that the United States is coming with all of its military might, not just for a decapitation of a leader, but, you know, taking out.

LTG. McMaster 37:56
Expecting the change like in Grenada, you know, where we had about 10,000 troops in Grenada but were going against, you know, 1,500 Cubans. You had, in a very small country, Panama. Panama is a country about one-tenth the size of Venezuela in population, and it’s about one-twelfth the size of Venezuela in landmass, and that was an operation of 30,000 troops to displace Noriega. But importantly, those troops gave you the ability to conduct all those activities necessary to consolidate those gains, right, to reform the police forces, to create a new police force under new leadership, which, by the way, was attacked by the old Noriega crew and had to fight them off at the main police station, with one of my friends, Colonel Jim Steele, in there issuing weapons from the arms room and fighting them off, because he was advising the new police force. We had to revise the judiciary there with them, help them revise it themselves, put an election process in place. There was an election about a year later in Panama.

So what does that political path look like? What does that security path of transition look like? There’s a lot of talk about the economic path to transition, bringing oil companies in, but it all has to come together, because without the security reform, without the political change, you’re not going to get the right conditions for revitalization of the economy, and the oil economy in particular. Going back even further, the Dominican Republic, 1965, Operation Power Pack, another very effective intervention, partnering with significant Dominican forces on the ground. How many troops did we put into the Dominican Republic? Forty-two thousand, you know, in ’65.

So I think the President might choke on the price of that, in terms of a massive U.S. intervention that’s sufficient not only to depose the Maduro regime, but then to begin to set security conditions for security sector reform efforts and getting a path toward reform of the judiciary and reform of the political process, to really restore sovereignty to the Venezuelan people. Now the good news is Venezuela has a tradition of constitutional democracy, so really you’re just restoring the old constitution, but it would take a significant effort to do it. And I think they’ve got to tee up this option for the President, because I think he’s going to try everything short of that before he considers that more direct option.

Philip 40:35
So we just this morning woke up to the news that an oil tanker off the northern coast of the UK, between the UK and Iceland, was seized and taken control of by the United States military. That’s just one of the elements. We’re going to chase down their cash flow. You mentioned the cash flow. So speaking from a business perspective, I can’t imagine too many oil executives, with the possible exception of Chevron, who are still there and operating, wanting to take a 30-year view on the multibillion-dollar investment required to bring that oil infrastructure capability back up so that sometime 10 years from now you’re generating reliable profits and have a stable operating political environment to do that. So that’s going to be one very interesting element.

But now let’s move to China and Russia in particular. The Chinese have had oil-for-cash agreements with the Venezuelans. They had a delegation two days before the operation. Some of them were here in Mar-a-Lago right after, because of sensitivities around that. So what is going to be the calculus for senior leadership of the People’s Republic of China, Xi Jinping specifically, with this action that shows U.S. resolve, U.S. technical ability, and U.S. massive capabilities to execute on a very specific military operation, particularly on the heels of what we just saw with Midnight Hammer in Iran?

LTG. McMaster 42:24
I think what you’re going to see is China, Russia, and Cuba, as the local support there, working together to ensure that the U.S. fails in Venezuela and is unable to get a government in place that is friendly to the United States and welcoming to the vast Venezuelan diaspora to return and rebuild the country. So I think what you’re going to see is a sustained Russian effort to foil U.S. efforts in Venezuela, because this is tied to their broader competition with us. I wouldn’t be over the top on this, but Russia and China are at war with us now already. They really are at war with us right now, and they’re acting against us with hostile intent and trying to get away with as much as they can below the threshold that might elicit a concerted response from us. There’s a reason why the largest Russian embassy in the world is in Mexico City. It’s there because Russia wants to turn Mexico against us and use Mexico as a platform to subvert the United States. The reason China is trying to gain control of critical infrastructure and indebt countries in Latin America is really twofold. One is to displace U.S. influence not only in the Indo-Pacific but globally by creating new spheres of influence internationally. The other is to strengthen its exclusive grip on critical supply chains that it can use for coercive purposes, especially involving minerals, and also to address its major vulnerability from an energy perspective. This is a major geostrategic competition that’s playing out. The worst-case scenario is something we have to be concerned about, which is fragmentation in Venezuela and a sustained civil war in which the Russians, the Chinese, and the Cubans do everything they can to ensure that the U.S. fails to get a change in behavior, as we’re framing it now, meaning a change in the nature of the Venezuelan government such that it ceases its hostility to the United States and nations friendly to us in the hemisphere.

Philip 44:40
We’re going to open up the Q&A to our investors and friends who are participating, and H.R., I’ll share some of those questions with you, but let me get one rolling here. We’ve talked a little bit about Russia. We have an active war and conflict in Ukraine. Vladimir Putin is someone you spent a lot of time thinking about and trying to understand, what drives his motivations, and the advice you were able to give to the president kept the United States out of having to adjudicate a territorial invasion that ultimately happened later under a different administration and after the withdrawal from Afghanistan. So the same question I asked regarding Xi Jinping, how is Vladimir Putin viewing this now?

LTG. McMaster 45:37
You know, I think, I hope it’s given him pause. But really, what has emboldened Russia, I think, with the massive reinvasion of Ukraine in 2022, as you already alluded to, was the perception of weakness associated with the disastrous, what I would describe as a self-defeating, humiliating, and deadly withdrawal from Afghanistan in August of 2021. I think the overall lesson is that it is the perception of weakness that is provocative to this axis of aggressors. And what I think President Trump is facing now, again, which is much different from 2020 when he left office in 2021, is the degree to which this axis of aggressors has coalesced, largely based on their view that the West is weak, divided, and decadent. So I think what this raid shows is that we’re not weak, that we have the resolve to do things. Also, I think this raid, in combination with last year’s operation against the deep, buried nuclear sites in Iran on the back end of the IDF’s successful campaign, confirms that, hey, we’re not weak. But we are divided in their view. And, you know, the President’s comments about Denmark, you know, I mean, guys, I mean, Bill, stop scoring these own goals. The way you frame things, it all matters, because what we want to convey to China and Russia on the back end of this operation is, hey, we’re not weak, divided, and decadent. We’re unified. We’re unified on Ukraine as well. We’re unified on Taiwan and the Indo-Pacific. So anyway, I think there are some tremendous opportunities at this moment, Philip, because of the success of this operation. Again, the long-term prospects are not good. They’re going to be tough in Venezuela, but we could see it through if we want to, if we have the will to do it. But also, to show that we’re not divided, I think, is really important, because this axis of aggressors is actually quite weak at this moment, I believe. Russia’s economy is a disaster. Look at what’s going on in Iran. Their currency has utterly collapsed, the protests that are going on there. I was glad to see the President’s statement, hey, don’t go after the protesters, because they did set a record last year for the number of executions in Iran after the effective campaign against the regime and the nuclear and missile programs. And then, you know, they’re about to run out of water in Tehran. China has created huge vulnerabilities in their economy, in my view, in their race to surpass us. They have some coercive power over our economy, which was really stupid for us to give them. But I think the administration is working now to make those supply chains more resilient. I was really happy to see Secretary Bessent say, hey, we’re going to do this in two years. That’s kind of an American attitude on supply chain resilience. So, hey, we’re in this competition, and we need all hands on deck. So stop kicking Denmark in the ass. Let’s work together.

Philip 48:47
Friends, including some of our friends from that part of the world, on Denmark, in Denmark, Greenland, the Arctic. So what’s behind all of the rhetoric? Is it simply, is it? Why can’t we just have a friendly NATO transaction where we, the United States, supply a certain amount of personnel and capabilities in a treaty partnership with those in Greenland and Denmark? Why do you need to acquire it? Why buy the cow if you get the milk for free, so to speak.

LTG. McMaster 49:22
Yeah, it’s like 50,000 people, right? And so I think what is driving this in part, and this is, I think, a positive observation, is that as President Trump recognizes, even though his National Security Strategy was not as explicit as we were in 2017 about great power competition, he knows he’s facing China and Russia, these revanchist powers on the Eurasian landmass. The part of the globe that is immensely strategically important is that connection through the Arctic. He’s looking at the map. He’s a real estate guy. It’s like, hey, that real estate is pretty important to our defense. And also, he has this agenda for hemispheric security, for homeland security, missile defense. You can’t have effective missile defense unless you defend against missiles coming over from Russia, over the Arctic, for example. He’s seen the first transnavigation of a Chinese commercial ship over the Arctic in the last couple of months, and the so-called exploration they’re doing up there. So I think he understands the importance of it.

But with so many things with President Trump, what he wants is great. Reciprocity in trade, deregulation, economic growth, energy dominance, burden sharing in defense, securing the border, let’s do it. That’s all great. But how he goes about it can be counterproductive. If I had his ear for a minute, I would say, hey, you’re big on sovereignty, which he is. If you go back to the UN speech we drafted for him in 2017, that was the theme. We respect national sovereignty, especially nations that respect the sovereignty of their people. So if you’re concerned about Greenland, you’re concerned about the subversion of Greenland’s sovereignty and Denmark’s sovereignty. Let’s be on the side of that. As you said, set the security conditions by going back to a Cold War–era footprint in Greenland and Iceland, for example, or in Alaska, for Arctic security.

And if you’re concerned about the Panama Canal, be on the side of Panamanian sovereignty. You’ve got a friendly government in Panama. Say, hey, we’re concerned that Chinese companies that are not going to respect your sovereignty are in control of this strategic location. We’re on the side of Panama, instead of saying we’re just going to take it over. So a lot of this is really about the messaging, which I think can be counterproductive. A lot of it is fueled, in part, by a nativist and neo-isolationist impulse. You might say, how does that work? How can you be isolationist, anti-interventionist, and yet say we might have a military option for Greenland? The reason is that it’s tied to hemispheric and homeland defense.

There are a number of people around the President, and everybody kind of knows who they are, who are actually more isolationist than him but also more interventionist than him, because they frame everything through hemispheric defense. They have this nostalgia, a misinterpretation of the John Quincy Adams speech. Think Quincy Institute, think Defense Priorities, think how the Heritage Foundation has been taken over in large measure by people with this worldview. I think it’s a warped and old-fashioned worldview, because the great moats of the Pacific and the Atlantic don’t do for us what they used to do in the age of hypersonic missiles, cyber warfare, and everything else. So that’s where a lot of this comes from, that hemispheric priority. You can see the theme in the National Security Strategy, but essentially this interventionism grows out of a strain of nativism and retrenchment.

Philip 53:39
H.R., we have literally three minutes, and then I have to hand this over to Lisa, who’s going to wrap up in three minutes. Are you fundamentally more optimistic, less optimistic, or no change in your baseline about the state of American interests and the state of strategic deterrence vis-à-vis our competitors and adversaries today, versus when you were in office several years ago?

LTG. McMaster 54:09
You know, I’m more optimistic that we’re now on a better path than we were on several years ago. I’m also more pessimistic because I do think the axis of aggressors is still emboldened based on the perception of our weakness. They base that perception, really, on their belief that we are, again, weak, decadent, and divided within the alliance, which I mentioned, but also divided within our own society. So it’s the vitriolic nature of our political discourse, the tendency of political parties to oppose anything, even good ideas. You know, get rid of Maduro, how could that be bad, right, given what this guy’s done? They think those divisions are indicative of our imminent demise, when in fact I’m optimistic because I believe our democracies are more resilient. I believe these authoritarian regimes are actually quite brittle. And so I think we’re going to win this competition. I begin seeing our society mobilized because we recognize the problems associated with defense. This is a big shift. I think after the massive reinvasion of Ukraine, before that we tended to see a soft-headed cosmopolitanism take over people’s view of the world. They thought we were all just going to get along as an international community. And so when I see companies like SHIELD mobilizing capital to strengthen our nation from a defense perspective, but also an economic perspective, and to maintain our competitive advantages, I think there is no substitute for the advantages of our free-market economy and our unbridled entrepreneurship. So I’m optimistic, but I think we have to get serious and stay serious about investing in defense, making our supply chains more resilient, invigorating our defense industrial base in particular, and regaining some of the strategic depth that is necessary to convince your enemy. As you alluded to at the beginning, Phil, this is a lot about deterrence. It’s a lot cheaper to prevent a war than to have to fight one, but we have to convince our adversaries that we’re capable of defending ourselves, that we’re capable of conducting operations at sufficient scale and for ample duration to deny them the ability to accomplish their objectives through the use of force. And this entails military capabilities, hard power, but it also entails competing below the threshold of a major conflict in the cognitive domain and in the economic domain. But I think we’re up to it. We’re up to it.

Philip 56:43
That’s very encouraging. It’s been a fascinating discussion. Thank you so much. This is the beginning of a dialogue for all of our friends at SHIELD and our investors. We have these types of discussions. There were some questions I was not able to get to. We will answer them and send you written responses in coordination with General McMaster. H.R., thank you so much. You’re a star, so we appreciate it.

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As always, please reach out if you or anyone you know is building at the intersection of national security and commercial markets. And please make sure to subscribe to the Mission Matters podcast to hear more stories of what it takes to build at the intersection of national security and commercial markets.

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Transcript

Maggie 00:19
In this episode of the Mission Matters podcast, we’re joined by John Serafini, the CEO and founder of Hawkeye 360 and a partner at Shield Capital. Hawkeye 360 operates a constellation of more than 30 satellites that detect and analyze radio frequency signals from space, providing insights into activities that can’t be seen with traditional imagery alone.

David 01:13
Radio frequency, or RF for shorthand, is what we use to communicate with technologies like Wi-Fi, AM and FM radio, Bluetooth, LTE, and more. Anytime someone communicates using one of these technologies, a Hawkeye 360 satellite can detect their location, which provides signal intelligence for a wide range of mission sets useful to the intelligence community, the military, law enforcement, and non-government organizations, among others.

Maggie 01:45
For instance, it can help a customer monitor maritime activity like illegal fishing, or help a law enforcement agency gain visibility into trafficking routes or cross-border movements used by illicit networks like terrorists and narcotics smugglers. These actors may rely on tools like push-to-talk radios and satellite phones but can be difficult to detect using satellite imagery alone. Hawkeye 360—

David 02:11
—is the first truly scaled startup we’ve had on the Mission Matters podcast since it was founded in 2015. Hawkeye 360 has launched more than 30 satellites, achieved nine figures of annual recurring revenue from government customers around the world, and reached profitability. They’ve raised more than $400 million and grown to over 200 employees.

Maggie 02:35
John has a long history in the national security industry. After graduating from West Point, he served as an Airborne Ranger-qualified U.S. Army infantry officer for several years. He then received his MBA from Harvard Business School and joined the investment team at Allied Minds, a deep tech venture firm, before starting Hawkeye 360 in 2015.

David 02:56
I’ve had the pleasure of working with John for several years at Shield Capital on our space portfolio, and he is absolutely one of the foremost experts on how to build and scale enduring space startups. In this conversation, we dive into what it really takes to scale a space hardware company, how John evaluates space startups as an investor, the trials and tribulations of working in classified environments and with foreign partners, and along the way, John delivers some hot takes on the current state of the industry.

Maggie 03:26
Now on to the conversation. John, you personally have spent a lot of time building companies, investing in companies, and scaling companies. What would you say is the best piece of advice you’ve received over the years about building a company like Hawkeye?

John 03:45
I’ve been blessed with a wonderful chairman at Hawkeye 360, Mark Spoto from Razor’s Edge. They led our Series A round back in 2017. Mark’s been a great partner to me, and at the time, it was probably more of a flippant remark from his own thinking, but it really stuck with me. I was having a conversation with him a few years after we started the company about what metrics he really wanted me to focus on reporting to the board and what would be our quote, unquote KPIs at the time. I remember thinking through revenue or ARR or ACV, bookings and backlog, et cetera. He kind of stopped me, and again, he’d probably say it was a flippant remark, but to me, it stuck. He said, “John, just build a serious company. Just build a serious company.”

I think that was a really great piece of advice because it forced me to recognize that we’re not building widgets. We’re not building some nameless piece of enterprise software to be deployed by some nameless enterprise entity in the middle of nowhere. We’re building data and data analytics products that are delivered to the warfighter, to the intelligence analyst, to decision-makers who are operating in very difficult circumstances with no margin for error. Accordingly, our technology has to work the first time. It has to work every time. That mindset has to permeate the entirety of the organization and filter up to the KPIs that we care about.

From that small piece of advice grew my own personal thesis on how to build a real, serious company in the defense technology ecosystem. The first thing is you have to be trusted. You have to be trustworthy. This is a hard thing for young companies to understand. If you’re going to sell mission-critical functionality to customers like NGA, NRO, CIA, combatant commands, or their international equivalents, you have to be trusted. You have to do what you say you’re going to do. There can’t be any gap between what your capabilities are and what you claim you’re capable of doing. Customers have to believe not only in you as the CEO and your management team, but also in the integrity of your product.

The second thing is you have to be humble. I don’t mean humility in the traditional sense. I mean recognizing that you are one small component of many different products, services, and technologies supporting the warfighter or the intelligence analyst. They operate within complex systems that are often beyond your full understanding, systems you have to fit into, be compatible with, and interoperate with. Your technology has to be ruggedized. It has to be cyber-hardened. It has to be proverbially camouflaged to work in very austere and difficult environments. I like to say that the sun does not revolve around your startup. The sun revolves around the warfighter and the customer, and your technology must fit into the complexity of the systems they operate.

The third, and hardest for many peer companies to understand, is that you have to be sustainable. To me, that means you have to be profitable, and you can’t be dependent on one or two, or just one, source of revenue or customers. You need high-quality margins, the ability to attract sustainable and consistent capital, and a diverse set of inbound revenue to reduce exposure to any single customer or source. That’s difficult for startup companies to grasp.

When Mark said to me, “You need to build a serious company, a mature company, a thoughtful company,” it meant that we had to be trustworthy, we had to be humble, and we had to be sustainable.

Maggie 08:16
John, what’s a company that you admire, that you think embodies a lot of the principles of being serious and sustainable?

John 08:25
I think, I mean, it’s easy to say a company like SpaceX because they’ve accomplished so much in such a short period of time, but they’ve also had an ungodly amount of capital to grow with. At the same time, I appreciate that their growth has not been linear. Their first couple of years were really challenging, and they were true pioneers. So it’s easy to say SpaceX, but I also have a lot of respect for Peter Beck and what he has built at Rocket Lab. Not only did he build a national security oriented space startup company, but he’s been able to build it out of New Zealand, which is not exactly known as a bastion of defense technologies or a place with a huge local government requirements set for him to naturally fulfill. He’s had to build a company that not only has real functionality that customers can depend upon, but can also export that capability to the United States and other advanced economies where space based launch and other space based capabilities are in demand. None of that is easy.

We take for granted building space related companies today, which is a totally different environment from building a space company ten years ago when he got started. Back then, there were probably five or so venture capital firms that would take him seriously in a seed or Series A round, and even in a Series B round. Today, there are dozens, if not a hundred, that would take that meeting and sincerely consider financing his round. I’m also impressed by how he thinks ahead and how the organization thinks ahead. They’ve not only achieved a great amount of scale in the launch business, which is an extremely difficult business to be in and almost impossible when you’re competing against SpaceX and the scale they have, but he’s also been able to use that initial success in launch to move into other complementary business areas. That includes building spacecraft, building parts of the supply chain, and leveraging access to customers to contemplate becoming a constellation operator in other areas. All of these are complementary to his larger business thesis.

With a relatively small amount of capital and a public listing, albeit via a SPAC, which I think was a challenging path, and one where he could have IPO’d the company the traditional way, he’s built a lot in a relatively short period of time. So I tip my hat to Peter. Of course, I also tip my hat to SpaceX, to Gwynne and Elon, and to what they’ve collectively built. I think both of those companies are great exemplars for us to follow.

David 11:23
Yeah, John, I think that’s a great point on Rocket Lab and SpaceX. They’re certainly preeminent companies in the space economy and may be responsible for a lot of the progress that we’ve seen. You also have to mention that both have been able to orient themselves around the national security environment. You’ve been working in and around government for over two decades, both as an Army officer and now as an entrepreneur. Hawkeye 360 coincidentally started in 2015, the same year that the Defense Innovation Unit, then DIUx, got started. I’m curious whether it’s easier now to work with the Department of Defense and the intelligence community relative to when you started, and if there’s anything you’d like to impress upon other founders as they think about partnering with the department and the broader national security environment.

John 12:21
Well, to answer the first part, which is to compare and contrast the environment in 2015–2017, when we started Hawkeye, versus today. I actually started defense tech investing and company building all the way back in the 2010 timeframe. I could even tell you stories from the 2008 timeframe. Back then, defense technology as a category didn’t really exist. It was about guards, guns, and gates. That changed as commercialization of C4ISR became a thing, particularly with the advent of cybersecurity. When cyber became an investable technology area, people could put capital into what they perceived as enterprise software, see it adopted early by government entities that needed protection, and then use those bona fides to scale into the broader enterprise and into highly regulated industries. From my viewpoint, that was the beginning of the modern defense technology experience.

When Hawkeye was getting started, I would characterize the mindset as getting companies drunk on RDT&E. What I mean by that is there were a lot of RDT&E dollars—research, development, testing, and evaluation capital—sloshing around the system. Pentagon leaders and intelligence community leaders who wanted commercialization equated innovation and moving fast with simply putting more RDT&E capital into the system and seeing what would happen. Ultimately, though, that just created an ecosystem where companies were jumping from one SBIR to an In-Q-Tel work program to a DIU contract and back again. They were never incentivized or provided the capital necessary to reach production contracts, where you could actually take advantage of the value created at TRLs three, four, and five, do the productization at six, seven, and eight, and then deploy that technology to actually help the warfighter.

I like to say that back then you had a bunch of startups getting drunk on RDT&E work, skipping around, and not creating meaningful value. The naysayers would point to this and say, why are we funding all this work to get a company to TRL six, only for them to then need more money, pivot, lose an investor, or simply not be sustainable? What’s the point of the defense ecosystem, the intelligence apparatus, and the national security community starting to depend on these technologies if we can’t trust that companies will make it through the so-called valley of death?

That was the environment from roughly 2015 through 2019 or 2020. There was also a strong mindset that the U.S. government should not be in the business of picking winners. As companies graduated out of the RDT&E phase, even when there were clearly capable firms, the government was hesitant to say, this is the one we need to scale, provide a production contract, and put into a program of record to support deployment to the warfighter community. No one wanted to make that call.

I saw some change during the Biden administration. The overarching philosophy became something like “buy what we can and build what we must.” I think there was a lot of lip service paid to that, but things got much better under the current Trump administration. People really got religion. It wasn’t just a mantra anymore. It became buy what we can, buy what we can, buy what we can. If it’s out there, affordable, capable, and the warfighter wants it, buy it, scale it, and get it to the warfighter as fast as possible. There were no caveats or excessive requirements placed on companies, and far less policy friction that made it difficult to achieve a program of record. It was simply, if you can be successful, we’re going to drop the safeguards and guardrails and put capital behind you so you can create value for the warfighter. That has been exciting.

Today, I think we’re in a golden age of defense tech opportunity, but it comes with a real “peeing in the pool” risk. As the community opens its arms and says we’re going to work with commercial at real scale, if one company screws up, it contaminates the pool for everyone else. It makes it much harder for CEOs and companies doing the right thing and creating real value to succeed. If someone lies, forgets their humility, fails to recognize that the sun revolves around the warfighter, or can’t be sustainable and disappears, the U.S. government won’t trust companies with programs of record if they might not be there a month from now. Best behavior across the entire ecosystem is necessary for all of us to succeed.

So that’s my answer. Back then, it was extremely hard to scale and very difficult to get through the valley of death. Companies made bad decisions, like becoming services providers, just to survive, because there weren’t viable programs of record to allow linear scaling. Today, it’s a very different environment. With a more aggressive and interested customer base comes access to more capital. What we’re really missing now, and I’m sure we’ll talk about this later, is exit opportunities, particularly in space. That has always been the challenge for commercial space: a lack of exits. That’s a natural consequence of having a smaller base of strategic acquirers, and it’s something we’ll have to work through as an industry to be successful long term.

David 18:34
Well, John, maybe we get into it. I know we definitely want to bring things up to the present day with Hawkeye 360 and the success you’ve had working with the national security community. Although I just can’t help myself. We could be in a golden age of defense technology and space technology, or we might end up in a bit of a golden pool. We’ll see how the good actors operate to make that the case. But maybe just talking about the SPACs of 2020 and 2021, right, when we had zero interest rates and money was just flowing from the government into people’s pocketbooks, creating a bit of a market frenzy. A couple of years later, after a bit of a fallow period, we’re seeing a real uptick in the marketplace. One of our portfolio companies, Apex, has raised over a billion dollars. Two space companies raised at three billion. There seems to be some significant momentum coming forward. And of course, how could I forget SpaceX signaling that they may go public in the next 12 to 18 months at one and a half trillion, with a T. So what can this current generation of startups learn from their predecessors who SPAC’d, including Rocket Lab in 2020 and 2021, and how should they think about ensuring they don’t make the same mistakes?

John 20:03
Yeah, so there is a lot of froth in the system. I would point out that you can probably make a case that SpaceX’s valuation is defensible based on cash flows. They have very meaningful cash flows and very meaningful revenue, unlike many of the other companies we’re talking about. Going back to point number three I made earlier, you have to be sustainable. Part of being sustainable is raising capital on the right terms that you can grow into and that allow you to make your investors money and your employees money without setting expectations that are simply unachievable, particularly once the larger macro environment changes.

Some companies, and I won’t point to the ones you mentioned because we have a financial interest in one of them and think very highly of the company, are raising capital simply because it’s available. At some point it becomes, well, if I raise at this level, you need to raise above me to prove a point, and so on. That becomes a tower of cards that’s going to fall down at some point. I think there was some of that in the lead-up to the SPAC boom in 2020 and 2021, where some of these space companies had raised private rounds they were never going to be able to grow beyond just by accessing private markets. They didn’t have access to the scalable amount of capital necessary to build their constellations. They had to start thinking outside the box, and for them, SPAC vehicles enabled a relatively painless pathway to the public markets, where they could market themselves on the basis of forward-looking projections.

That’s no longer the case, but it was at the time. It became an antidote for some of the sins of the past, in a way, allowing them to preserve an up round while getting a public listing and having everyone, quote unquote, make money on paper, at least for a short period of time. Before the 2020–2021 SPAC boom, the only really well-known SPAC success story was Burger King back in the 1980s. It’s just not a sustainable vehicle for accessing the public markets, and you wear that stink as a SPAC company for a long time. No one associates Burger King with that anymore, but companies that SPAC’d and are still around have seen depressed share prices because of their origins, and that’s been very difficult for them to shake.

Probably the two exceptions in the space industry are AST SpaceMobile and their friends at Rocket Lab, who frankly could have IPO’d the regular way, but I think they saw the ease of the SPAC transaction as very attractive at the time. To me, the SPAC boom is indicative of the fact that accessing the public markets is, in some ways, mutually exclusive with too many peer companies doing the same thing. The more companies that access the public markets, the higher the likelihood that overall quality goes down. You get lower-quality companies and less scarcity value on the public exchange for public-style investors.

As more companies SPAC’d, and as more companies contemplate going public in the future, I think it has a marginally deleterious effect on companies that are already public, as well as on those that want to go public later. That’s why you saw the SPAC craze peter out relatively quickly. Some companies that clearly were not prepared for the public markets took that route in late 2021, and that’s when the PIPE market dried up, redemption rates hit 90 percent on SPAC dollars, and it all went downhill in a hurry.

I am concerned about that in today’s environment as well. As companies that may be lower on the quality curve contemplate going public again, and we’ll take SpaceX out of this conversation because it’s a very special case, how are they going to perform in the public markets? If they perform poorly, and I won’t point fingers, what does that do to the companies behind them and their ability to IPO on high-quality terms? And what does it do to their ability to trade sustainably?

Ultimately, it goes back to point number three. If you’re going to sell defense technology companies and applications that matter, you have to be stable. You have to be sustainable. If your stock price looks like a zigzag, going up and down every other day because there’s no basis for the market to value you, no cash flows for the market to associate a fair value with, that’s a problem. That leads you to being the kind of company that could be fly-by-night and gone the next day. You need slow, linear, solid growth up and to the right over time. That’s what I’m trying to solve for at Hawkeye: how we continue to grow by accessing the types of capital available to us in a sustainable manner, for our company, our shareholders, and our customers.

Maggie 25:40
I want to turn back the clock 10 years or so, back to the early days of Hawkeye 360 specifically. I want to ask about how Hawkeye 360 was really formed. I know you were previously an investor at Allied Minds, which focused on investing in companies spinning out technology from academic or federal labs, and that the initial technology for Hawkeye 360 came out of a lab at Virginia Tech. Could you tell us a little bit about the story of taking a piece of IP and turning it into a scalable business, and what some of the challenges and opportunities are when building a company this way?

John 26:22
I had a great partner, a guy named Dr. Charles Clancy. Charles and I had built two other companies together, one called Federated Wireless and another called Optia Labs, that were doing very well in the 2015–2016 timeframe. Charles ran the Hume Center for National Security and Technology, which was a University Affiliated Research Center at Virginia Tech. I did a good amount of classified work on behalf of the National Reconnaissance Office. Today, Charles is one of the senior leaders at MITRE. I believe he’s the CTO and is doing amazing things for our country.

Charles had this idea, and there were two other gentlemen we worked with who helped found the company at the time, one named Christa May and another named Dr. Bob McGuire. The four of us came up with this concept. Ultimately, if you can take pictures from space, a company like DigitalGlobe at the time, now Maxar and since renamed again, was taking pictures commercially, as was Planet, which had just gotten started, and BlackSky, which hadn’t even been around yet. If you can get a license to image from space, whether electro-optical or synthetic aperture radar, and sell that to government and commercial customers, why can’t you also do signals intelligence, which is another highly valued modality of intelligence that can be gathered from space?

From my simple viewpoint, there are three interesting things you can do from a government perspective in space. You can take pictures, you can communicate, both of which have long since been commercialized, and you can analyze signals. We had been doing that for decades, but it had never been commercialized in the way communications and imagery had been. We saw an opportunity to operate in a white space that was unique. We could create space vehicles, satellites that were relatively inexpensive, and this aligned well with SpaceX initiating its transporter missions, where rocket launches became relatively cost effective. That, in turn, began the democratization of low Earth orbit, which previously just wasn’t available because launch capacity at reasonable prices didn’t exist.

We could build satellites relatively cheaply, get them on orbit relatively cheaply, and as long as the regulatory environment was conducive and the stakeholder community was interested, meaning customers across the defense, intelligence, and national security ecosystem, this made a lot of sense for us to pursue. It took us a while to build advocacy, particularly in the intelligence community, and to make sure people were on board with a regulatory environment that would support commercial signals intelligence. We got there over time. It wasn’t immediate. It really was pushing a rock up a hill for a long period of time.

That effort was coincident with our first launch. We got our first satellites on orbit at the end of 2017, early 2018. They were commissioned, and we became truly operational around the 2020–2021 timeframe, when we had enough clusters on orbit to drive down revisit rates. That was when we started to see real adoption, advocacy, and interest from the broader stakeholder community. It took time to build that engagement base. That doesn’t happen overnight, and it’s not just about working with customers. It’s the entire stakeholder environment. It’s engaging the executive branch. It’s spending real time on Capitol Hill advocating for your equities. It’s working closely with the customer base. There’s a whole ecosystem of stakeholders whose interests have to be understood and addressed to make something like this work.

Maggie 30:11
Speaking of the customer base, I know that unlike the vast majority of startups out there, most of the work that Hawkeye does is in the classified space. How can early-stage startups even get started working with classified customers like the intelligence community, and what are some of the technical and operational hurdles you’ve had to navigate to work with those kinds of customers?

John 30:36
Well, part of our value proposition, Maggie, is that we own and operate a constellation of satellites that are ours, right, and we’ve used over $400 million to build them. They’re inherently commercial assets, meaning that the data we collect is inherently commercial and shareable. Yes, we have to get ITAR licenses to be able to sell internationally to our foreign customers, but inside the U.S., what had previously been a highly restricted group of people who had access to signals intelligence data coming from national systems, we could provide our Hawkeye shareable data to them and everyone else inside the U.S. government. Everyone else is a U.S. citizen, and our allies can access it with the appropriate ITAR licenses.

So we do engage in the classified environment because our customers have a lot of classified equities that have to be taken into consideration, and there are requirements and certain information about what they want us to perform that can only be shared in the classified environment. But what we actually produce, the data and the data analytics, nine times out of ten, is an unclassified, totally shareable work product that is sold on an exceptionally high gross margin basis. So that’s the reality of what we do.

To answer your question, though, we did start needing to do a lot of work in the classified environment, and in my viewpoint, it’s exceptionally difficult to build technologies, products, or services that are going to serve the classified environment if you’re not a practitioner. If you’re some guy waking up on an arbitrary Tuesday in Silicon Valley who’s never served, never worked inside the classified environment, doesn’t have a clearance, doesn’t understand the requirements, and thinks you can hang out with your dog in your Silicon Valley garage and come up with some new classified technology that practitioners are going to immediately adopt and say, “This is the greatest thing ever,” you’re just wrong.

You can’t put yourself, the warfighter, or your investors in a situation where you’re trying to push something that might make sense to you, something you came up with in your garage, onto the requirements or conditions of a classified customer, because they’re just going to reject it. It’s going to be a waste of capital and a waste of time. Yet we see this quite a bit, where companies that don’t understand the environment under which these operators are conducting missions try to bring technologies they think will work in the classified environment, but they just don’t know. They don’t have clearances, and they don’t understand the unique circumstances and missions these folks are working under.

So I think the first answer is that you have to be taken seriously by being a practitioner. Ultimately, if you don’t have a clearance yourself, I think it’s really difficult to try to build a capability that will be used by those in the cleared environment. Obviously, if what you’re building is valuable, customers are going to come find you. Probably the best meeting place is In-Q-Tel. If you can get In-Q-Tel to be an intermediary to help vet your technology, match it against classified users, and help secure some kind of work program by which you can further develop and productize your capability and then deliver it to customers who might consider it, that’s a good mechanism. It’s been valuable for many, many companies, particularly those that Shield works with.

But outside of having that kind of intermediary, you can’t expect that there are customers waking up thinking, “Oh, I’ve got to go find the next commercial thing that’s going to solve my problems, and I’m going to give them an FCL so they can have unfettered access to our nation’s classified apparatus.” It doesn’t work that way, and folks need to temper their expectations if that’s what they think will occur.

David 34:28
Yeah, John, that’s great. And I think one of the areas this really boils down to is trust. In-Q-Tel, the investment arm of the Central Intelligence Agency, is certainly a great way to broker trust with the end customer. One other area that’s often talked about, or at least highlighted, especially with some of our other startups, is working with defense primes. For a lot of people, they get a really bad rap. They’re going to steal your intellectual property, they’re going to move slowly, they’re going to be a challenging partner, but it seems like you’ve done a really good job partnering with them. For other startup founders, how would you coach them in thinking about engaging with the defense primes?

John 35:13
People like to use the primes, like a Lockheed or a Northrop, as some kind of proverbial whipping child that they point to as the source of all evils. And the case of the matter is, yes, they move slower. Yes, they have different incentive structures. But ultimately, what they build works. There’s a reason why the M1A2 Abrams tank works like it does. Now, compare that against other countries and their defense industrial base. They may cut corners. They may not have the quality and QA/QC emphasis that ours does, and they may not be anywhere near as effective on the battlefield as the capabilities that we deliver. So what we have to do is find a way to marry the defense industrial base, who move slow and don’t innovate very well but build stuff that works and can be trusted to work in extreme conditions on the battlefield, with the left-hand side, the Silicon Valley–esque mentality where we’re going to leverage innovation, move fast, break things, and leverage private capital and intellectual property to create new functionality. We have to marry that together, taking interesting ideas and creating them in such a way that they can be trusted to work the first time and every time. Again, this goes back to taking care of the warfighter. They need a ruggedized piece of technology that is actually going to work. This isn’t nameless widgets that we’re building for some nameless enterprise customer. So I look at defense industrial base partners as phenomenal investors and phenomenal partners for building better productized capabilities that I can deliver to meet the customer’s needs. The defense industrial base has been working with the warfighter for decades, 50-plus years. They understand the requirements, the missions, the restrictions, and what it’s like to be on the battlefield. That company coming out of Silicon Valley does not. Maybe they’ve got a couple of veterans, maybe they’ve done some work in the past, maybe they’ve been practitioners, but they don’t understand it to the extent that the defense industrial base does. So how do you take the best of the defense industrial base and marry it with the move-fast, innovate-quickly mentality of Silicon Valley? I think part of the rationale is having those defense industrial base entities invest in your companies. For each of our financing rounds, all eight institutional financing rounds that we’ve done, just about all of them included a strategic partner. Some of them led those financings. Raytheon led our A3 round. Airbus led our B round. Leidos and Jacobs were meaningful investors in our C and D financings. We had Lockheed invest materially in our D1 round, and they’ve all been wonderful partners to work with. The idea that these defense industrial base companies wake up wanting to steal some arbitrary startup’s intellectual property and people is asinine. That’s just not how they work. They wake up wanting to take care of the equities of the warfighter and the American public, just as much as this new defense technology company ecosystem does as well. So I’ve taken the perspective that they’re not competitors. To me, they’re not the boogeyman. They’re good people. They know how to build great systems, and if I work with them, they can probably get my technology to the warfighter so I can actually create value faster, better, and stronger than if I tried to do it myself. I would say that strategy has worked for Hawkeye. It’s worked for other companies that we’ve seen replicate it. Awesome.

David 38:52
Well, just for our audience members, John, you highlighted getting an FCL, which stands for facility clearance, and that allows you to do classified work. Another acronym is ITAR, the International Traffic in Arms Regulations, which is the State Department’s program to protect sensitive technology from getting into the hands of our adversaries. For sensitive tech like the stuff that Hawkeye is building, you actually have to get licenses to work with international partners. But what would typically be an impediment or a massive hurdle, you’ve used and gotten through, and now you work with a lot of our allied partners and sell to them. So maybe you can talk a little bit about what that process has been like to allow you to take ostensibly sensitive technology and sell it to our foreign partners, not through something like foreign military sales, but actually going direct to them to provide the type of service and data that Hawkeye 360 uniquely collects.

John 40:00
When I was growing Hawkeye in its incubation stage, one of the things we heard a lot from potential customers and stakeholders was, “Don’t be a ward of the state,” meaning don’t create your company such that it’s highly correlated to the U.S. government purchasing it, because if the U.S. government stops, it goes away. You can’t put the government in that kind of position. Somehow that lesson has been forgotten along the way, and now you’ve got this whole crop of single-use technology companies that, should the U.S. government stop buying certain types of functionality from the defense tech ecosystem, are just going to fall away in a hurry. At the time, if we had architected ourselves to be wards of the state, we would never have gotten dollar one in revenue because we would have been pariahs. By virtue of showing that we could be sustainable outside of government anchor customers, I had to demonstrate that there was a diversity of customers for us. Not wanting to really focus on commercial industry at the time, and I still think it’s not the right area for us to focus, I went naturally to the international markets, and that was a great decision for us. In 2018 and 2019, we were fortunate to pick up a couple of real, meaningful anchor customers early on who wanted access to commercial signals intelligence because they’d never had it before. Some of them might have had rudimentary organic SIGINT overhead capabilities, but they weren’t sophisticated, and they were excited to get access to new forms of overhead signals intelligence. They were willing to spend significant amounts of money and pay a premium on pricing in order to do so, and that’s been a meaningful achievement for our company. I’m very proud of the fact that 50 percent of our revenue comes from U.S. government sources across a diaspora of different agencies and customer types inside the U.S. government. Similarly, there are dozens of customers for Hawkeye on the international side. Recognizing that it’s not easy to do this when you’re ITAR controlled, you have to get licenses, technical assistance agreements, and DSP-5s to be able to market your technology to international customers. You’re certainly at a disadvantage when you’re competing against international entities that can market ITAR-free capabilities and will do so. But the diversity benefit, and being able to command what I would call premium pricing on the international side, is rewarded with very loyal customers. What we’ve found is customers that are very sticky and, in particular, are willing to sign up for longer contract terms than on the U.S. government side. Ultimately, our business is kind of bifurcated. You’ve got U.S. government customers across a number of different buying entities, which tends to be shorter term with very quick turnaround. The sales cycle is literally negligible. It could be hours before we’re on contract, on requirement. On the international side, it’s a longer-term sales cycle. When you sell something to a country like the Philippines, for example, it takes a long time to manage that sales process. It’s not exactly linear, especially for an American company, but the contracts tend to be longer and the pricing tends to be better. It’s an interesting dynamic between the two, and having that diversity in our revenue base has really helped us.

Maggie 43:25
Hawkeye is definitely the most mature startup that we’ve had on this podcast. I know from some other interviews you’ve done that you’re at nine figures in revenue and have several hundred employees. I really want to spend some time talking about what it actually takes to scale a defense tech hardware company in a sustainable way. One of the first questions is, what were some of the unexpected challenges you faced in scaling up your technology, going from that first cluster that you launched to the twelfth cluster you launched earlier this year?

John 43:59
As I mentioned earlier, in 2015 and even into 2020, the number of capital providers for defense technology and space technology was negligible. We are talking about maybe a dozen by the 2020 timeframe. Finding people who were willing to do a Series B round was hard, but it was especially hard for a space technology company in the 2017 timeframe. Being able to go into that Series B round having taken all the technology risk off the table was really challenging as well. If you are going to be a space technology company, the only legitimate way to show that the technology risk is off the table by the time you do your Series B, which should always be the goal, is by having space heritage, putting assets into space, and making sure they work correctly over a long period of time. Today, you are seeing companies raising exorbitant valuations in Series A, Series B, and even Series C rounds without having much space heritage to support those claims, and I think that is a challenge. That dynamic did not exist seven or eight years ago.

We had to think very thoughtfully about how we were going to de-risk each component of our technology architecture. For us, that architecture is pretty complex. You are talking about a space component, the sensor that actually collects the data, which is flying in a collection of three satellites. You have to showcase three assets working in harmony to geolocate a signal from 550 to 600 kilometers in space. You also have to demonstrate the processing of that data, which is entirely complex, including the geolocation, the analysis, and the conversion of that data into something actionable. There is a tremendous amount of different types of intellectual property that has to be proven across the entire continuum of that technology set. It was not linear for us to simply check a box and say it was done and move on to financing. That was a hard thing to work through.

When I think back on what I learned, there are four things that really helped us. The first was starting with a base of employees that was right-sized, made up of thoughtful, mature individuals who were previous practitioners and who deeply understood the technology. Just as importantly, they understood the requirements and the environment the customer was operating in. You cannot have daylight between what you are building and what the customer needs. If you are trying to invent, in your Silicon Valley garage, what you think the warfighter needs and it is not aligned with the reality of what that warfighter actually wants, that is a real challenge. I use warfighter here as a proverbial stand-in for the broader U.S. government customer. Bridging that gap is very difficult, especially if you are trying to get to program-of-record type contracts that ultimately make the entire effort worthwhile. So the first focus was having a small cadre of committed, thoughtful practitioners.

The second was being very careful not to get over our skis and being thoughtful about how much overhead we took on at each phase of the company’s life. I have a just-in-time resourcing mentality. As we achieve milestones with customer X, Y, or Z, or technology milestones A, B, and C, then we take on additional overhead. Then we add headcount, then we open an office, and so on. You do not do it beforehand. A lot of companies get into trouble by growing overhead too fast, and then they find themselves having to reverse course and do reductions in force, which is painful. I never wanted to be in that situation.

The third was the good housekeeping of having a thoughtful fundraising plan and knowing exactly which milestones you need to achieve to unlock the next tranche of capital. That means engaging with a good cadre of investors who are waiting for you to hit those milestones and then actually hitting them on the timeline you told investors you would. Nothing generates investor interest more than someone doing exactly what they said they would do. Every investor should have a logbook that says, when this company comes to me for their Series A, I will look back and ask whether, when they were raising their seed, they did X, Y, and Z as promised. There is always room for explanations like something unexpected came up and we had to work around it or find another technical path, and I will always give people credit for that. But ultimately, if you do not have a track record of achieving the milestones you set, why would I, as a fiduciary of investor capital, provide you with more capital knowing you may not be able to achieve the milestones required to get to the next financing round?

Those were the four things I really focused on: having a small, committed cadre of practitioners; being disciplined and just-in-time with overhead and resourcing; having a well-thought-out, milestone-driven fundraising plan that is executed as promised; and finally, making sure that everything we do is highly aligned with the needs, requirements, and mission expectations of the customer.

Maggie 49:13
Speaking of major company milestones, you said in an interview earlier this year that Hawkeye is officially profitable. When do you think is the right time for hardware startups to focus on profitability versus growth at all costs?

John 49:28
Somehow, we’ve gotten into a mindset that it’s an either-or thing. It’s not. If you go talk to public equity investors, they’ve become almost schizophrenic. They want both value and growth, and you can deliver on that. There’s no reason why you can’t grow at 30 to 40 percent year over year and be profitable. If you’re growing at 60 percent but you’re deeply unprofitable, how does that math work? Ultimately, valuations really should be based on your cash flows. That’s how you ground valuation in reality, on the basis of cash flows and on the basis of EBITDA. We should be valuing later-stage companies, in D rounds and beyond, on a multiple of EBITDA. The only real questions should be the range of that EBITDA multiple and which year you’re using, whether it’s trailing twelve months, leading twelve months, or even two years forward, depending on the financing. To me, a sustainable company starts with an excellent cost structure. What are your gross margins? What is your EBITDA margin? How much are you spending in capex? How is that going to change over time? Are you going to be able to achieve free cash flow breakeven, not just EBITDA breakeven, but free cash flow breakeven? In the space industry, where you’re spending a lot of money on capex, when can you achieve free cash flow breakeven? When can I value you on the basis of free cash flows? Because if you don’t have free cash flows, I can’t really utilize a free cash flow multiple. To me, a company becomes mature when you can value it thoughtfully on the basis of its cash flows.

David 51:08
So John, I think that’s awesome to hear and definitely something other startups should take into account. For Shield Capital, you’re a bit of a talisman. You’re an active CEO and also an investor with us. What are some of the things you’re looking for in early-stage deals that space entrepreneurs should exhibit when trying to raise capital?

John 51:36
There are the obvious things, like whether this is a mature, thoughtful group of people working together in harmony to create something important. You can look at the team. You can look at whether the team has been successful in the past. Do they have a track record, and do they have a track record of working together? You can see these dynamics in pitches and diligence, whether the CEO and CTO are aligned. There are also intellectual property milestones and technology milestones, depending on the phase of development of the company. But beyond the technology and the early adopter metrics that every startup wants to flaunt, all of that can be gamed. Ultimately, what I really care about is this: if you build this thing, does anyone give a shit? Is it a big deal if you create it? If you use potentially hundreds of millions of dollars of venture and LP capital to build this ecosystem you’re conceptualizing in space, and you’re able to develop a commercial product to sell to government customers and others around the world, is it meaningful? Does it solve a real problem? Is it sustainable? Is it a functionality that will exist for a period of time and then be competed away because someone can replicate it quickly or because you lose your economics? That’s what I think about. It’s less tangible and totally intangible at the same time. It’s like that Supreme Court justice who said, how do I know pornography when I see it? I know it when I see it. It’s the same way here. If I can conceptualize what someone is building and know it’s going to be meaningful, that gets me interested. It has to excite me from that perspective.

Maggie 53:26
John, as we close out here, we want to transition to a couple of rapid-fire questions. So my first one is: what is a technology that, 20 years ago, you expected would be further developed today than it actually is?

John 53:40
That one’s easy for me. We built a company at Allied Minds called BridgeSat, which later became BridgeComm. I actually think the company just got acquired by Voyager. Its purpose was to commercialize optical communications, optical comms through lasers, from free space. We pulled a bunch of intellectual property out of Los Alamos National Lab, which were the leaders in developing quantum capabilities and had amassed a significant IP portfolio. What we found was that it was really, really difficult to build high-quality, small transmitters to push optical data, and no one had really invested the time to build the optical receivers needed to support that ecosystem.

You’re seeing that today with the Space Development Agency and the SpaceX Starlink constellation using optical relay networks, and it’s working really well. But it’s not working well for the rest of the space architecture, especially smaller spacecraft that can’t fit a materially sized optical terminal, even with a gimbal. I’ve been surprised that no one has really figured out how to package a small-scale optical transmitter in a way that truly commercializes optical connectivity at the scale we need. The better it is, the faster we can get data down to the ground, and the better the mesh networks will be.

It also amazes me that when I built Hawkeye in 2015, we counted one day and there were over 100 launch companies out there that had raised some amount of venture capital. It could have been seed dollars or something, but still, you would think that with all that innovation, all that capital, all that focus, and with the demand signal being what it is, there would be a lot more fully vetted and highly commercialized launch companies. Instead, you have this kind of monopoly of just a handful. It’s SpaceX, Rocket Lab at a premium, because it costs a lot to use a Rocket Lab dedicated launch, Firefly coming up, and people talk about Stoke, but I haven’t seen it yet because they haven’t demonstrated it. It’s just like, wow, with all that capital that’s gone into the sector, we really haven’t seen the results we were expecting 10 years ago.

David 56:00
Maybe for our next rapid-fire question, launch is certainly an area where we do seem to see a lot more pitch decks, and we’ve sort of stayed out of it given the trials and tribulations of others. What are some of the white spaces in the space domain that you see could be addressed by emerging startups, or what gets you excited about areas that have yet to be tackled?

John 56:24
Yeah, I mean, go back to the optical relay question. I think that’s interesting. There’s a fundamental problem with getting data down to the ground leveraging RF technologies alone. There’s only so much RF, only so much bandwidth, and only so many ground stations. The answer can’t always be ground station densification. The answer has to be more onboard processing in space in order to sort the data, process the data, and only bring down what you really need. And then we need better relay networks. We need better mesh networks that are available to all to get that data to the ground faster, because ultimately constellation companies’ value is highly correlated to speed. The faster you can get that information to the warfighter, the better and more valuable it is. That’s certainly the case from Hawkeye’s perspective, and I’m sure it’s the same for many other intelligence modalities. So I think there’s white space to be developed around trusted relay partners and onboard processing technologies that can be leveraged by constellation companies and would be of interest.

David 57:30
Okay, and for your last rapid fire question, you can plead the fifth, though we’re hoping for the spice. The fate of Hawkeye 360 rests in the hands of working with one specific customer. Are you taking A, the United States Space Force, B, the intelligence community, or C, other?

John 57:50
I mean, obviously that’s a hard one to answer. I think ultimately there are a lot of different stakeholders that have to be addressed. It’s not just the warfighter. It’s the appropriators, and it’s the executive branch. To me, the ultimate customer is those stakeholders on Capitol Hill and in the White House, and the international equivalents for our other customers. So it’s a multifaceted customer situation. I like to say that when we’re doing international sales, we have to sell twice. We have to sell bottom up to the actual warfighter and the person who wants to build the spacecraft and the functionality, and we have to sell top down to get political support. So I’d say that political engagement really matters, and making sure that everyone is aligned with the interests of commercial technologies.

David 58:49
Well, John, you’ve been a successful investor, a great entrepreneur, and clearly maybe you could be a politician moving forward in life with an answer like that. Maggie, over to you to close us out.

Maggie 59:02
Yeah, John, thank you so much for coming on the Mission Matters podcast. We really appreciate your time and all the learnings from the past few years of working with you.

John 59:10
Thank you, guys. Great to spend time.

Akhil 59:13
Hey everyone, thanks for listening to the Mission Matters podcast from Shield Capital. Tune in again next month for another conversation with founders building for a mission that matters. And if you’re looking to build in the national security space, please reach out to us.

Top of Form

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🎧 Introducing the Techquisition Edition — a new sub-series of the Mission Matters Podcast, where David and I break down major defense acquisition news and explain what it means for technology startups building for the national security mission.

Our very first Techquisition Edition episode just dropped (link in comments). In this inaugural conversation, we dive into the NDAA’s most impactful provisions for companies working with—or hoping to work with—the Department of War. We cover:

👉 How the NDAA codifies SECWAR Pete Hegseth’s acquisition reform agenda

🛰️ New guidance accelerating DoW adoption of commercial space capabilities

🚀 What the NDAA signals about Golden Dome

🚨 Key proposals that did not make it into the bill

⚡ And much more...

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

Subscribe now

Transcript

Maggie 00:19
Welcome to the first episode of the Techquisition Edition of the Mission Matters Podcast. Techquisition is a new sub-series of the Mission Matters Podcast that David and I are launching where we will break down major acquisition news and discuss how it will affect tech startups.

David 00:54
Well, Maggie, it’s really exciting to be doing Techquisition with you, and I’m sure we’re going to have Mike Brown joining us on several of these editions. I love a good portmanteau. Today we’re going to be discussing the 2026 National Defense Authorization Act, otherwise known as the NDAA, and we’re going to focus on what this means for tech startups. Over the weekend, the House Armed Services Committee released the full text of the conference bill, which means that the House and Senate Armed Services Committees figured out what they wanted to keep in, what needed to get thrown out, and all the things we call compromise. Earlier today, the House took it to the floor and voted to pass the bill. Next will be the Senate, ideally later this week, at which point it will be sent to President Trump to sign into law. And fun fact, Maggie, that I can’t help but bring up: only once in the NDAA’s history has a President vetoed it and then Congress, specifically the Senate, overrode the veto, and that was just a couple days ago during the first Trump administration.

Maggie 02:13
Interesting. What were they fighting over?

David 02:16
Something very political that we don’t need to get into here, because that’s not what our startups signed up for, but something for them to Google on their own time.

Maggie 02:26
Fair enough. I will say the NDAA holds a special place in my heart. Back in 2021, I was working my very first U.S. government job. I was an intern on the Senate Foreign Relations Committee, and my first assignment as a Hill intern was to read through the whole NDAA and figure out all the reports that the department owed to the Senate Foreign Relations Committee, SFRC. This is a 3,000-page document. This was before the days of ChatGPT, so I was manually searching through this document with keyword search to find all the relevant reports. It was very eye-opening to me about how the U.S. government actually works and how the executive branch actually works. I definitely wish I had LLMs back then. They were very helpful preparing for this episode, actually searching through the NDAA to find some of the key pieces that we are interested in or to identify things that maybe did not make it into this rendition of the bill.

David 03:30
Totally. Speaking of LLMs, big news on the military front. I’m currently doing my reserve duty at the Pentagon, and now there are giant posters of Secretary of War Hegseth pointing at you, doing his best impression of Uncle Sam, saying “I want you to use GenAI.mil,” where we now have access to Gemini. So congratulations to Alphabet and Google for getting Gemini onto the unclassified network known as NIPR. Apparently rolling out soon will be Grok, ChatGPT, and Anthropic in the coming months. I think a lot of legislative liaisons or people who would normally be parsing this document looking for little nuggets can now do more than just PDF keyword searches to figure out how their programs are being impacted by the NDAA. Three thousand pages, lots of reports, lots of authorities, lots of funding tables, lots of everything that we’re going to get into for this.

Maggie 04:40
Fun fact: I used an LLM to count this. The NDAA requests, I think, 122 reports from the Department of War that they’re responsible for providing to Congress in the coming months. But LLMs aside, this year’s NDAA is chock full of provisions relevant for startups looking to sell into the Department of War. It includes everything from acquisition reform to encouraging the use of commercial space assets, a little bit on ATO reform, changes to the Defense Innovation Unit, and much more, all of which we are going to break down in this episode. So let’s get started. David, I’m going to start with the most basic, dumbest question, but it’s one I actually asked you yesterday, and I think some of our listeners may have the same question. What exactly is the NDAA, and how does it compare to all these other mechanisms we hear about, like the budget bill, the reconciliation bill, continuing resolutions, executive orders, and more?

David 05:39
Sure. I’ll give you an unvarnished answer. I’m sure there’s a very well-scripted way to talk about it, but for me, having served in the military, the NDAA essentially gives us the authorities by which we can do our job, specifically in Title 10, which is what the military executes. If the department wants to stand up new organizations, spin down old organizations, retire existing platforms or weapon systems, or if they need new policy or new laws to execute their missions, all of that comes through the NDAA. It is the one bill that gets passed every year through Congress, going back decades. What it has also become is a bit of a catch-all. You’ll see in this NDAA the Intelligence Act, which gives the intelligence community some of their authorities. That really should be its own standalone bill. They have their own committees that go through it, but it gets attached to the NDAA because it’s something everyone will vote on, and more often than not, it will pass because national security is so critical to the U.S. people and to our largest government body.

Maggie 07:16
So just to confirm: we have the NDAA, which basically tells the Department of War what they’re allowed to do, what weapon systems they can field, what authorities they have. And it’s separate from the budget bill, which has not been passed yet, and which actually gives the department the money to do the things laid out in the NDAA. Is that the right way to think about it?

David 07:38
Exactly. The appropriations bill, which hopefully we get this year — last year we did not — is what gives the dollars to programs or activities so the department can carry out its missions as outlined in the NDAA. Something that’s confusing is that the NDAA has its own funding tables against various programs. It matters because it provides a gouge that the Appropriations Committee, specifically the defense subcommittees in the House and Senate (HAC-D and SAC-D), will take into account. But if your organization needs money to execute its mission, it is the appropriations bill that tells you what you get. They do anchor around what the NDAA puts in, which is anchored on the President’s Budget, submitted very late this year as the new administration wanted to put their own tentacles into the department’s priorities instead of using the one the previous administration had been putting together up until they left office.

Maggie 09:06
Got it. So at a high-level overview, we have the NDAA. It has $900 billion for the Department of War. One hundred sixty-two billion of this is going to procurement. One hundred forty-six billion is going to research, development, test, and evaluation. The rest is going to operations, maintenance, and then spending on personnel.

David 09:23
And military construction. Don’t forget about MILCON, its own separate—

Maggie 09:27
Thing. Okay, and military construction, but that’s—

David 09:30
Just an authorization. But $900 billion will probably be somewhat aligned to what the appropriators decide, but they truly have the power to determine how much money and to which programs this budget goes.

Maggie 09:47
Got it. So I want to really dig into the key parts of this bill that are going to be relevant for startups building in the national security space. One of the most relevant pieces of this year’s NDAA for startups, from my perspective, is this section on acquisition reform. Just last month you, me, and Mike Brown recorded a podcast discussing the Secretary of War Pete Hegseth’s new memo on acquisition reform, which is really looking to shake up a lot of the ways acquisitions are done today, like the requirements process and program executive offices. So how does this NDAA complement or add to that memo?

David 10:29
The NDAA codifies in law the concept of portfolio acquisition executives. This was highlighted by Senator Wicker when he originally released the FORGE Act. As the Senate Armed Services Committee Chair, he talked a lot about giving what used to be known as program executive officers—very senior acquisition officials—much wider authority. PAEs are now going to have a much broader range of responsibilities than PEOs ever had. All functional elements, whether finance officers or contracting officers, are now going to fall underneath the portfolio acquisition executives. They’ll be able to make more trade-offs with the resources at their disposal to prioritize based on a more fluid requirements dynamic.

They will still get their requirements from the service chiefs. But another big thing the NDAA codifies, which had been hinted at in other department memos, is the dissolution—or maybe that’s too strong a word—of the Joint Requirements Oversight Council. They will no longer provide overarching requirements that program offices then execute. Instead, portfolio acquisition executives are expected to receive requirements directly from their service chiefs. So Air Force PAEs will get them from the Chief of Staff of the Air Force; Army PAEs will get them from the Chief of Staff of the Army; and so on. To me, this is a huge tectonic shift in acquisition, providing significantly more flexibility across a diversity of capabilities and programs and giving more authority to individuals who previously would have seen it fractured across many other personnel.

Maggie 12:43
So the way to think about this is: previously the JROC was this joint group that led the requirements process, which was the multiyear process of collecting all the specific requirements for anything we wanted to procure. But today the change is that this requirements process no longer needs to be as rigid or as time-consuming as it was in the past. And now, instead of having this joint body in charge, you’re going to have the service chiefs themselves—the CNO and others—in charge of their own services’ requirements. Is that right? Correct?

David 13:24
Yeah, and, I mean, you know, it’s not like the JROC did every single requirement, but certainly for a lot of major programs it drove a lot of timelines. We’re just delegating that authority or responsibility back to the services, and then we’re also giving the senior acquisition officials significantly more latitude and accountability to execute the programs over which they have jurisdiction, all with the goal, as the conference report highlights, to reduce bureaucracy and increase decision making.

Maggie 14:00
And what’s the significance of codifying this into the NDAA rather than just relying on this memo from the Secretary to carry out these reforms?

David 14:11
Now it’s law, right? And so the department has to fulfill this, whereas if it’s a memo directive coming from the Secretary, Congress could actually say, Not so fast, and say, Actually, no, we like it the way that it is, and you’re going against the law and we’re going to double down on the law. Maybe a good example of this and how the NDAA oftentimes differs from the wishes of the Department of War: take the retirement of certain aircraft. I think the Air Force has been trying to retire the beloved A-10 Warthog since maybe before I even joined the military in the aughts. Once again, Congress has said, No, you are not going to be able to spend one dollar to retire the A-10. You think you are, or you would like to, and we’re saying, No, you cannot. And so with this PAE construct, Congress is saying, Go do this versus waiting for, you know, Mother, may I.

Maggie 15:17
So reading through this document, I noticed there was a lot of focus on commercial space and changing the way that the department works with commercial space providers. What were some of the provisions you came across that were most relevant for commercial space startups looking to work with the U.S. government?

David 15:37
It seems like Congress is continuing to march down this road of buying commercial space as a service instead of owning the entire system from soup to nuts as a government-owned, government-controlled system. Instead, it’s continuing to explore different commercial offerings and how we can use the data coming off these satellites to fulfill our mission operations instead of having to own it full saddle. You might think of it as here on Earth: I could buy my car and be responsible for the maintenance of my car, or I could just Uber around where I need to go when I need to be there. I think the Space Force in particular has been moving in this direction, and this NDAA continues to reinforce and emphasize those salient points, because there’s a lot of benefit from a cost standpoint to doing it this way.

We’ll see. There’s one program in particular that’s been bandied about for a while: the tactical surveillance, reconnaissance, and tracking program, which gets into this debate between what the intelligence community does with its Title 50 authorities and what the United States Space Force or the combatant commanders would like in terms of more tactical information coming off satellite vehicles that they would use for their own mission sets. This continues to be an area of interesting debate, and Congress once again seems to be reinforcing the idea that the Space Force, or the services in general, can start to provide some of this outside of the intelligence community, which has traditionally provided a lot of the overhead imagery to the combatant commanders.

Maggie 17:30
So basically, instead of the US government having to own the satellites that are collecting imagery and data, now they can just buy that data from a commercial player?

David 17:41
Exactly. And this is really important, because the department is still a very large buyer in this community. A lot of companies that were built ten years ago were thinking they would have massive commercial businesses of people buying their overhead imagery, whether it was electro-optical or thermal or multispectral or hyperspectral. You name it. It hasn’t really played out that way. The United States government and the national security apparatus have very large budgets to do these types of things, but traditionally those budgets have been tied up in building and launching the asset itself, instead of just getting the good data off the bird in the first place. For us, we have a lot of investments in this area, and we think this bodes well for those companies.

Maggie 18:35
While we’re talking about space, it’s impossible to ignore the elephant in the room, which is Golden Dome. This is a major priority for this administration. What does the NDAA have to say about this initiative?

David 18:50
I think it’s really important that you bring this up, because Golden Dome is the big winner in the reconciliation bill that was passed earlier this year. But I think what Congress looked aside—

Maggie 19:04
David, what is the reconciliation bill? How does that fit into this tapestry of bills?

David 19:10
Oh man, yeah. We talked about this on an earlier, not-yet-called-Techquisition edition of the podcast, so I’d definitely encourage our listeners to go back and brush up there. It was essentially a one-time funding bill pursued by the current administration and passed by Congress to provide, what was it, $110 billion around a variety of things. I think what some members of Congress didn’t like was how little definition was provided to that overall funding pot. Very much the opposite of what we’re seeing with this NDAA and what will be the ensuing appropriations bill, where some might say Congress is micromanaging. The reconciliation bill was quite the opposite.

So for this NDAA, they’re trying to set parameters around what they expect to see from Golden Dome going forward. That includes setting US missile defense policy around deploying and maintaining the next-generation missile defense shield, protecting against different foreign attacks, and ordering a description of a system architecture, which I believe General Gutline, who’s the head of the Golden Dome program, has been putting together for quite some time. Congress is essentially articulating: we expect to see this from you.

Maggie 20:37
Moving on from the world of space, I want to talk about some of the organizations responsible for tech innovation in the department, specifically the Defense Innovation Unit—your alma mater. What, if any, changes did the NDAA make to DIU?

David 20:56
Not a lot. There was one initiative that asked them to set up several hubs around the country, and they gave them a little bit of money for it. But if you looked at the funding table, DIU, through the President’s budget, requested $48 million, and it seems like that’s where HASC and SASC landed. So they’re authorized up to $48 million. Of course, as we’ve already talked about, everything depends on what the appropriators do.

If you recall, in the past couple of years the appropriators have plussed up the DIU budget by quite a bit—some order of magnitude of a billion dollars across a couple of different funding efforts. It wasn’t necessarily totally flexible for DIU to use that money as they wished. Some of it was partitioned off to Replicator, which has now transitioned to another organization.

Another thing mentioned in the NDAA relating to DIU is a discussion on the Blue UAS program. There was some reporting that Blue UAS was moved away from DIU, so there was discussion around that not being needed from them anymore, but Congress still expects more information around Group 1 drone requirements. Overall, things were pretty quiet for DIU relative to past NDAAs. It’ll be interesting to see what happens with the appropriators, as Representative Calvert, the chairman of the House Appropriations Committee for defense, has been a big fan of the organization and has plussed them up in previous years.

Maggie 22:36
There was also something in there about the new BOOST program that’s assigned to DIU. Is that something we should be paying attention to?

David 22:43
When I first read the draft, I was intrigued. But after more reflection and talking to some other sources in the building, it seems BOOST is just the NDAA’s way of codifying what is already transitioning from DIU. There was no funding line associated with BOOST and no new reporting requirement. I think it’s really just: how well is DIU transitioning their prototype projects to production?

In past years DIU has put out annual reports, and within them they highlight a lot of their prototype-to-production transitions and how those move on to different services. We haven’t seen an annual report in a little while, so maybe this is part of that. I don’t know—that’s speculative. I’m just spitballing here.

Maggie 23:42
What did the NDAA have to say about how the Department of War is using AI?

David 23:49
Yeah, well, you know, Maggie, this would be good fodder for your Gray Matters blog, which is always writing about AI. And I think the reality is there wasn’t much in here about it, which I think was surprising. I don’t know—you kind of read a little bit about what was going on in the NDAA. How would you interpret it based on all the research and writing you’ve been doing over the last, I don’t know, two years now?

Maggie 24:15
Yeah, I was surprised that there was not more in here. There didn’t seem to be any major changes made to the Chief Digital and AI Office, the CDAO, even though in the news there’s been quite a lot of discussion about potentially changing the organization. They set up an AI Future Steering Committee to understand how AI and AGI will affect the department. They set up a task force to investigate developing potential sandbox environments for AI testing. There was a little bit in there about ATO reform. It was relatively light, but basically they were directing the different services to find some ways to speed up the Authority to Operate process, which is the process by which software vendors are able to get their software authorized to operate on DoD networks. So it’s not explicitly AI-related, but it will certainly affect AI companies.

But then something I actually did find interesting was when I dug into the document that describes the discussion between the House and the Senate during the conference in which they come up with the compromise bill. It looks like the House version of the bill initially included more on generative AI, trying to force the department to conduct a few pilots, but it was not in the Senate version and was ultimately struck from the final version. So it looks like we actually could have had a more aggressive NDAA when it comes to generative AI, but for whatever reasons—unclear from the document—they decided not to do that.

There was a little bit of justification given. It basically said the Department of War has not yet come out with a comprehensive AI strategy on how they’re planning to use these tools in a responsible and safe way. So Congress did not want to force the department to start experimenting with these tools until they had done their own strategic thinking around how this was going to be used and how it was going to be used responsibly. They were basically saying they want to see a DoW AI strategy before they’re going to force their hand. I guess we’ll see how that turns out in the ensuing years. There are certainly a lot of great people in the department working on AI adoption and a lot of companies building tools looking to improve the lives of end users in the Department of War.

David 26:49
Yeah, well, I mean, obviously we’ve now got GenAI.mil, right? So it seems like the department is reading between the tea leaves that this is something that may be important to Congress in the future and is trying to get out in front of this technology trend that has certainly had a massive imprint on the commercial world. I will also say that, just being in the Pentagon the last few days, there’s a lot of talk around artificial intelligence, specifically generative AI and using it for different work streams. So it seems to be top of mind and present, regardless of what is or isn’t in the NDAA.

Maggie 27:31
So David, what are some pieces that did not end up making it into the NDAA that you might have expected to be in there?

David 27:40
Certainly a number of things. I was surprised because it feels like they have bipartisan support. One of them was access to SCIF-accredited spaces. SCIF stands for Sensitive Compartmented Information Facility. This is where classified conversations or classified networks occur. My understanding is that this was a pretty important thing to the Defense Modernization Caucus, and for whatever reason it did not get in, although it was in the House bill. So it was in the SPEED Act but didn’t quite make it during conference.

Another area that we often talk about as being an impediment to access to government is the Authority to Operate. I would have expected stronger language around ATO reciprocity. We’re getting to a point where the tech stacks are leveraging a lot of the same infrastructure. The differences are at the user application layer, but the reality is approving officials across different weapon systems, commands, and services have the power of the pen, and they’re just not incentivized to leverage another person’s work to quickly bring software onto different network systems. I think that’s a huge miss and clearly an impediment to commercial innovation or really just warfighter effectiveness.

Another thing that didn’t make it in or was controversial—and I recommend people read about it because there were a lot of news articles—was the right to repair. This would give the services the ability to actually fix their own equipment and provide them the technical orders to do so. Despite being in both bills, it seems the defense industrial complex was able to keep that one out. So maybe something to follow in the future.

And then maybe near and dear to my heart, though I was not surprised based on what I’ve been hearing from Congress: the Small Business Innovation Research program was not reauthorized through the NDAA. That means it could either be attached to the appropriations bill, some other bill, or done as a standalone bill. Tough sledding there. A lot of small businesses and startups really depend on SBIR. It’ll be interesting to see how the services respond. The SBIR/STTR program is mandated by Congress, but that doesn’t mean federal agencies can’t execute a similar program on their own. They would just have to do it independently.

We’ll see how different organizations respond. I wouldn’t be surprised if the Army, through FUSE, continues to execute SBIR-like programs even if they’re not technically SBIR. But there are going to be ramifications for that, and we should continue to watch it.

To our listeners—because we did this in our last non-tech edition podcast with Mike Brown—if you have not talked to your congressional representatives or senators and you think SBIR should go the way of the Innovate Act, which Senator Ernst is pushing for, you need to do it. It actually matters, and it’s what gets members of Congress energized and motivated to do things that may not seem intuitively obvious to them. Okay, enough about SBIR, because this is not a SBIR podcast, and there are other things to discuss about the NDAA, but SBIR was not in it.

Maggie 31:44
I called my representative right after we wrote that blog post together, David, so I’ve done at least a little bit of my part.

David 31:52
Amazing. I live in DC, so mine can’t vote.

Maggie 31:56
Well, that’s a whole other can of worms we don’t need to go down on this podcast.

David 32:00
So another area that I thought would have made it in but didn’t was the Economic Defense Unit, which was referenced recently in the big transforming acquisition memo put out by the Secretary of War. This seems to continue building on the theme of leveraging third-party capital as a warfighting instrument. We’ve seen the creation of the Office of Strategic Capital, their work on the Small Business Investment Company Critical Technologies Initiative, providing third-party VCs with leveraged capital to deploy into critical technology areas, and now also the loan authority, which we saw with the MP Materials investment from the government. The Economic Defense Unit just continues to build on that. I believe we’ll see it in the next NDAA, and this is probably just a case of not all of Congress being on board, since we saw it in one house in one bill but not the other.

Maggie 33:10
So what were some other notable provisions in this year’s NDAA, rapid fire, that are going to be relevant for tech startups?

David 33:19
Okay, rapid fire. One thing I think was interesting was key reforms to the Test and Evaluation community, putting a lot of those authorities inside the portfolio acquisition executive and creating an accredited test pipeline to speed up software for continuous improvement on already fielded systems, so you don’t go through a super laborious process. I think that will be key to readiness. Another area was the Modular Open Systems Architecture. A lot of pen to paper on that, which I think bodes well for commercial innovation. There are still a lot of discussions around intellectual property and what the government needs to own versus what will be restricted rights based on commercial technology developed with private or non-government funding. The more MOSA is adopted, the easier it will be for commercial vendors to engage with the department without getting tripped up by the IP debate. Those were a couple of the big things that will definitely benefit the overall acquisition system for startups. Great.

Maggie 34:41
And then last question. What advice do you have for startups, given the way this NDAA came out, to best take advantage of the new provisions that are going to help push them forward?

David 34:55
If you had things that didn’t make it in that you would have liked to have seen, that tells you where some of your lobbying efforts have come up a bit short. You need to pay equal attention to both the House and the Senate, because we saw plenty of areas where one chamber put something in and the other did not, and it didn’t automatically make it into the final bill. That would be one area. Also, continue to work with the department to make sure that when Congress calls up the DoD and says, “Hey, is this important to you? We’re thinking about putting it in the bill,” the department is advocating accordingly. It’s a full-court press. Everyone is your stakeholder, and sometimes you have to bring them together to see things through. You can never start too early on government relations and lobbying efforts. In fact, if you’re waiting until the springtime, you might already be too late for what should be released in the fall’s NDAA. So get going. And we’re happy to provide recommendations here at Shield Capital, as several of our portfolio companies work with some great government relations firms, and that has made a huge difference for them.

Maggie 36:27
Great. Well, David, thank you so much for an amazing first episode of the Techquisition Edition of the Mission Matters podcast. Looking forward to many more to come.

David 36:37
Always a pleasure. Thank you, Maggie. Yes, very excited for this new part of the Mission Matters podcast ecosystem.

Maggie 36:46
And excited to see how the Senate votes in the days to come. Definitely.

Akhil 36:50
Hey everyone, thanks for listening to the Mission Matters podcast from Shield Capital. Tune in again next month for another conversation with founders building for a mission that matters. And if you yourself are looking to build in the national security space, please reach out to us.

Keywords: NDAA, Tech Startups, Acquisition Reform, Defense Innovation, Commercial Space, AI, Military Spending, National Security, Golden Dome, Defense Modernization

In this episode of the Mission Matters podcast, we sit down with the Andrew Puryear, the CTO of L3Harris, the 6th largest U.S. defense contractor, to discuss L3Harris’s “trusted disruptor strategy.” As part of this strategy, L3Harris partners with startups to bring cutting edge capabilities to the warfighter. We cover:

⚡ How software-defined warfare will push the DoD from “months → minutes → microseconds”
⚡ Lessons from Ukraine across EW, affordable mass, maritime drones, and integrated air defense
⚡ Why open systems, digital twins, cognitive EW, and missionized AI will redefine military advantage
⚡ What startups misunderstand about working with primes—and how to get it right
⚡ Where the U.S. is ahead, where we’re behind, and what it will take to catch up

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

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Transcript

Maggie 00:04
In this episode of the Mission Matters podcast, we’re joined by Andrew Puryear, the Chief Technology Officer, CTO of L3Harris, formed six years ago from the merger of L3 Technologies and Harris Corporation. L3Harris is the sixth-largest U.S. defense contractor. It builds a wide array of defense products, including tactical radios, night vision systems, electronic warfare systems, rocket motors, and much more. L3Harris positions itself as the defense industry’s trusted disruptor, combining the reliability and mission understanding of a long-standing defense prime with the speed and innovation of a challenger. The strategy includes partnering closely with startups and emerging technology companies to accelerate capability delivery, break traditional acquisition cycles, and move new technologies into the hands of warfighters faster than the conventional defense industrial model. As part of this strategy, L3Harris established a strategic partnership with Shield Capital to gain access to disruptive innovators for technology transfer, teaming arrangements, direct investments, and partnered contracts. Since establishing this partnership, L3Harris has partnered with dozens of startups, including Shield Capital portfolio companies like SeaSats, Overwatch Imaging, and Code Metal AI. Andrew joined L3Harris three years ago and has been instrumental in driving the company’s trusted disruptor strategy and expanding its partnerships with emerging technology startups. Andrew has had a long career in the national security technology space, having worked as a technical leader at the Stanford Linear Accelerator Center, Sandia National Labs, MIT Lincoln Labs, MITRE, and Ultra Electronics, as well as serving as an Engineering Duty Officer in the Naval Reserves for more than 14 years. Andrew is one of the sharpest thinkers in the defense technology ecosystem, and I have personally learned a tremendous amount from my conversations with him over the past few years about where the industry and technology are headed. In this episode, we cover everything from the future of technologies like electronic warfare, attritable systems, and generative AI in the national security space to how startups should think about partnering with defense primes and much more. Now on to the conversation. All right,

Akhil 02:46
Andrew, thanks so much for joining us today. Super excited to dig in. It’s been awesome to get the chance to work with you over the past years here at Shield Capital. Let me start right now. You’re the CTO managing an amazing portfolio across technologies, but you started thinking on Vassar Street doing your PhD in electrical engineering at MIT, and now here you are leading initiatives across a variety of technology domains, from the traditional communications realm to AI to the platforms and payloads and sensors that make it happen. Let me ask you, when you’re not doing your leadership work and you do have a chance to get behind code or get on a chipboard, what gets you excited, and what do you still want to do technically that maybe you don’t have as much time for these days?

Andrew 03:33
Yeah, that’s a great question. So back to my time in the Stata Center there at MIT, I always loved that MIT was an integral part of inventing radar, right? And given those roots—those deep roots that MIT has in radar—and today’s current trends in artificial intelligence and machine learning, in my off time I build models. I fine-tune models that do everything from, hey, this is how you classify RF, to generating novel waveforms, whether that’s radar waveforms or comms waveforms. It’s just super exciting to apply something that was so important historically—a decisive factor in the winning of World War II—and apply modern technology to that space.

Maggie 04:16
Andrew, are you a vibe coder at all? Are you using Cursor or anything like that?

Andrew 04:21
Yeah, and I love the trend of vibe coding because it really does help accelerate workflows. I actually tell every engineer at L3Harris that they should be looking for how to use AI-enabled tools such as Code Metal, which is a Shield Capital portfolio company. How do you use a tool like Code Metal to accelerate your workflow so that we can be more productive as engineers? What we all want to do as engineers is deliver capabilities into the hands of the warfighter faster, right? And Code Metal allows us to do that. The vibe-coding ecosystem allows engineers and non-engineers alike to start to build code. In terms of whether vibe coding is high quality or not, you see various studies that have somewhat mixed reviews. But one of the things I’ve noticed in my career as I monitor AI is this: every time someone says, “AI does X, but it cannot do Y”—okay, AI can beat the world chess champion today, but it’ll never be able to do complex reasoning. A couple of years later, it’s able to do complex reasoning, but it’ll never be able to pass an eighth-grade science exam. A couple of years later, it passes an eighth-grade science exam. What I’ve noticed is that the time constant between “it can do this” and “it can’t do that” is shrinking over time. And so I’m very bullish on AI and its ability to transform and have a profound impact on the way that companies in the United States operate, the way that we fight wars, and the way that we live our lives.

Maggie 05:49
Andrew, one of the terms that we hear a lot, both in talking with folks in primes, in the government, and at startups, is the term “software defined warfare.” What does that term mean to you, and what role do you see for startups and primes within that future vision?

Andrew 06:08
Yeah, okay, so this is an important one. One of the United States’ enduring asymmetric advantages is that we can innovate faster than anyone else in the world. Full stop. We innovate faster, and that’s incredible for our ability to maintain an asymmetric advantage. So what does innovating faster look like in the midst of the Fourth Industrial Revolution? It means deploying operational capabilities in microseconds, not months. We’ve got to go from months historically, to minutes, to microseconds. Software defined warfare, to me, is all about that: how do we deploy new capabilities into the hands of the warfighter in microseconds?

A couple of real-life examples: the kill web has to turn into code. We’ve got a sea of sensors out there looking for nefarious objects, and then a tremendous number of effectors—kinetic and non-kinetic. The decision logic to connect those together has to optimize for a tremendous number of things. If you have a large number of heterogeneous incoming threats—hypersonic, class-one UAV, cruise missile, and in cases we’ve seen recently, all of them simultaneously—a modern, mature kill web will sense the incoming threats and then optimize effectors for those heterogeneous forms so you maximize your probability of kill at the lowest possible cost. The cost curve is important.

To be able to do that and adapt, as soon as we deploy a kill web it will be obsolete, because the adversary will immediately start to adapt. We have to be able to do over-the-air upgrades. Radars, electronic attack modules—these sorts of things need to be updated with new techniques and new waveforms on the fly so we can act and react faster than any adversary.

I want to give one real-world example of software defined warfare. I’m going to pull from an exercise that was recently run: Talisman Sabre, a joint exercise between the US and Australia and INDOPACOM. One of the challenges they were trying to demonstrate at Talisman Sabre—and an area where we’ve been doing a lot of work with a product called DISCO—is this: currently, from the time an adversary deploys a new RF threat, like a radar we’ve never seen before or a new jammer that’s trying to jam our communications, to the time we detect that novel waveform, classify it, and then create a new electronic attack technique to counter it, takes months. That is far too slow.

With DISCO, if the adversary comes up with a new jammer, we’re able to detect, classify, and then create a new electronic attack technique or waveform on the fly, deploy it back to the edge platform in minutes, and we’re targeting microseconds. Something that currently takes the US and our allies months, we’re trying to compress to minutes and ultimately microseconds in the electromagnetic domain.

Akhil 09:38
That’s great, Andrew, and it’s something we did in the past during the Cold War. It was the blind man’s bluff across all domains. But to your point, it’s just getting faster, and the iterative process is only accelerating. I had two questions on what you just mentioned, which I thought were great. The first is this: you see AI and novel technologies—not even novel anymore, they’re here—in the commercial space and being applied in the perception space from a computer vision standpoint or in the multimodal space. But unlike startups, you’ve seen how this needs to get deployed at scale. What are startups missing when it comes to getting some of these software-defined applications ready for production scale with thousands of camera balls or potentially hundreds of thousands of sensors, which is the ecosystem we should have?

Andrew 10:29
Yeah, it’s a great question. One of the things that we focus on a lot at L3Harris is what I’ll call missionizing capabilities. So a startup will come with a capability, like a SeaSats UAV. It’s a small UAV about the size of a surfboard. How do you take that from “this is a really capable platform” and turn it into something that’s useful to the warfighter? You have to have resilient communications, and you have to have ISR assets, meaning intelligence, surveillance, and reconnaissance. That ties back to the EO/IR balls we talked about earlier, or SIGINT detectors and similar systems.

One of L3Harris’s sweet spots, and one of the reasons we’re so excited about working with Shield Capital portfolio companies, is our ability to work with a startup to operationalize and missionize their capabilities and get them into the hands of the warfighter. That applies to hardware, such as SeaSats or APEX, which we’re also working with, and to software as well. Overwatch Imaging is a good example. The DoD has very specific rules of engagement for authority to operate and related requirements. Thinking through the pipeline from having an eye-watering, world-class capability, through the ATO process, all while having the budget to do so, is critical.

Maggie 11:56
Andrew, I wanted to ask you about Ukraine in particular. What are some of the lessons we should be learning from the conflict in Ukraine, and what are some lessons we shouldn’t be over-indexing on from this conflict?

Andrew 12:12
Oh, that’s awesome. Do learn and don’t learn. Let’s do that. And I think that’s important, because sometimes we overfitted from the Gulf Wars, and we should not remake those mistakes.

So what have we learned, or relearned, from the war in Ukraine and the conflicts in the Middle East? First, mass and cheap autonomy can win. For many years, the focus was on exquisite, low-quantity precision missiles and precision strike. Now we’ve seen first-person-view drones and Shahed-class systems that, simply because of the cost curve, present a formidable challenge. Affordable mass with autonomy is certainly important.

Electronic warfare, or EW, is decisive in modern warfare. In layman’s terms, it’s the ability to jam, spoof, and survive in a contested spectrum. Systems are being jammed into the Stone Age. One way Ukraine has overcome that with FPV drones is by trailing a fiber because they cannot communicate in these contested environments. With the right communications and resilient approaches, it is possible to burn through the jamming the Russians are putting out, but at what cost? FPV drones are cheap. A high-end radio to defeat that jamming is not.

Layered, integrated missile defense works, but it must be affordable. We’ve seen this repeatedly, whether in Iran’s attacks on Israel or heterogeneous strikes involving drones and various missile types. Integrated air and missile defense absolutely works, and the United States and our allies are learning how to optimize these systems for current threats. But again, cost matters. A multimillion-dollar Standard Missile-3 or Standard Missile-6 for a Shahed drone is not sustainable. As a nation, we have to learn to mix effects in an optimal way: high-power microwave, laser, free-space optical laser, and other options combined with exquisite missile defense. The goal is to protect critical assets with the highest assurance possible but at a survivable cost.

Next, maritime drones have changed the naval calculus off the Crimea peninsula. These low-cost USVs, essentially missionized jet skis or Sea-Doos, forced Russian ships to redeploy away from Crimea and took many out of the fight. Some were destroyed, including the flagship, and others were pushed far out. At the same time, we do not want to over-learn this lesson. What works in a confined area like the Black Sea does not necessarily translate to the Pacific or Indo-Pacific theater. In some domains, maritime drones are critical. In a blue-water fight, you have a different operational picture.

Quickly, what do we not want to learn? I’ve heard rumblings that tanks and airpower are obsolete. I do not believe that. You still have to be able to deliver mass and lead on target. Tanks are not dead, but they will die without electronic warfare cover, deception, and combined arms integrated into a sensor-saturated fight. If you deploy a tank by itself, it will die. If you provide EW and the right ecosystem around it, it’s still part of modern land warfare.

We also should not conclude that exquisite systems are unnecessary. We have learned that over-reliance on exquisite systems is brittle against cheap mass and EW, but that does not mean abandoning exquisite platforms. We need a balanced portfolio of high-end exquisite weapons and lower-end, less capable but highly cost-effective weapons.

The key to all of this, and something we’ve talked about already, is intelligence and C2. Those are what allow you to combine effects in a way that keeps things safe at the lowest possible cost.

Akhil 17:01
You talk a lot about some great lessons there, both the ones that we should emphasize and the ones we should not. There’s a lot of learning lessons, and then there’s acting upon those lessons and actually being able to implement them at scale. To you, what are some really good success stories that you hold in high regard from past history where either the US — or maybe it wasn’t the US — was able to quickly internalize a lesson and then field what was needed from a technology standpoint, integrated with what the users and operators needed?

Andrew 17:31
Yeah, it’s a good question. And, you know, we are on a modern podcast here, but I want to go back. The United States has been doing this for a long time. Back in the early 2000s, the United States was fighting wars in the Middle East, and one of the biggest issues was IEDs — improvised explosive devices — which were having an outsized toll on American and Allied soldiers and sailors. I know the US Army had a huge effort to go out there and understand: what is this threat doing, and how is it having such an impact on our soldiers in the field?

What they did was deploy the MRAP, the Mine Resistant Ambush Protected system. It’s basically like a boat, so when one of these IEDs blows up, it vectors the force of the explosion off the side of the hull. Super interesting how they did it, and it was probably one of the fastest acquisitions of a major platform the US has done in decades. The point is that there are now all these new RCOs — rapid capability offices — and DIU doing excellent work, but the United States has been doing this for a long time. When sailors or soldiers’ lives are in harm’s way, we absolutely figure out how to get it done.

I do see OTAs, Other Transactional Authorities, as a great way to move fast. While the authority to use OTAs has been codified in law for a while, the department is expanding their use specifically to buy commercial platforms. This is one of the places where L3Harris really likes to partner. The Defense Department says it wants to buy UAVs, commercial UAVs, commercial drones, these commercial things — but there still has to be someone who really knows how to take that commercial thing and adapt it. In fact, Joby is a great example. They make these commercial flying cars.

Joby is a super innovative company. They build commercial flying cars, and when we talked to Joby initially, we said, “Hey, this is an awesome platform that can bring a lot of capability to the warfighter. We would love to work with you, Joby, to figure out how we put resilient comms in here so that as soon as the adversary turns on the jammers, we’re still able to establish command and control. How do we put ISR assets on there — intelligence, surveillance, and reconnaissance? How do we put things like EW payloads — electronic warfare — on there?” That’s where a partnership between companies like Joby, or more broadly other commercial capabilities, can work with L3Harris through an OTA to get really eye-watering capabilities into the hands of the warfighter more quickly.

Akhil 20:27
Thanks, Andrew. I will say, on the MRAP note and referencing Secretary Gates’ book, it did sort of take the Secretary to emphasize and prioritize initiatives like that. Hopefully things have changed. I’d be curious about your perspective: have you seen structurally, sitting where you are now, that the demand signal — not just from the operator, because you’re staying in touch with what is happening there, seeing how your technology is being used and where the limits are — and then the demand signal from the voices that matter, has it improved and evolved in the way that you would like in the last 20 years?

Andrew 21:06
Yeah, absolutely. It is interesting. At the end of the Cold War, the United States and our allies had a peace dividend, and we built an acquisition system over the years that was really focused on delivering a peacetime military. What’s happened is the increasingly assertive China and a major land war in Europe that, quite frankly, a few years ago was unthinkable. I think it has forced us all to take a step back and look at whether the acquisition system, as it’s structured today, is what we need — not just because the threat is changing, but because the technology is changing so incredibly quickly.

People ask whether this is the fourth industrial revolution or just another technology wave. Why is it actually an industrial revolution? To me, it’s the pace of change that drives why it is having such a profound impact on the United States and our allies.

Maggie 22:01
Andrew, speaking of some of these acquisition trends, one of the big buzzwords we hear with respect to acquisitions and the DoD budget is Golden Dome. I know that L3Harris is intimately working in the sensor space and the space domain. I would love to get your take on what exactly Golden Dome is, what it means in the first place, and where you are seeing opportunities for startups developing new technologies.

Andrew 22:35
Yeah, absolutely. Golden Dome is super exciting. As a technologist, it is super exciting, and I think it is also super important from a national homeland defense perspective. The architecture for Golden Dome is still taking shape, or if it has taken shape, I haven’t seen it yet, but we broadly know what it looks like and what functions it will have to perform regardless of the final architecture. A key part of this is that the earlier you can detect a threat— and not just one threat but many—the better. This is going to drive space sensing and custody. Space sensing and custody will proliferate across LEO and MEO with persistent tracking on orbit, fusion, and crosslinks to do all that.

I mentioned on-orbit fusion because I think it’s really important. Historically, if you didn’t have to operate on timelines that included hypersonics and react at machine speed, you could have an on-orbit sensor that detects a missile launching somewhere, pipe that information down to a ground station, process it, and then decide what to do. Honestly, that is just too slow. There will need to be the ability to deploy things like automatic target recognition to space so you can close the kill chain more quickly. Crosslinks are really important because, preferably, we will have multiple assets tracking these missile launches, and you can improve your probability of detection and correct classification by fusing all this data together. We will see things like optical crosslinks— which are incredibly high data rate—continue to proliferate so that we can do this on-orbit fusion, classification, and detection.

We talked earlier about battle management command and control, maybe in the counter-UAS scenario, but the same thing applies to Golden Dome. You have to have a high-assurance data fabric. The foundation of that will likely be things like optical crosslinks as the physical layer. Once you have that data fabric, you must be able to do AI-assisted track correlation and discrimination. These are easy problems when there is one object in the air, but imagine thousands: some hypersonic, some decoys, some UAVs with warheads. That is why you need AI-assisted tracking and correlation to discriminate between threats, decoys, and civilian air traffic.

Once you have all that and you are connecting the data and fusing it and identifying the tracks you need to prioritize, you must be able to pair those with shooters at a continental scale. This is not just a theater anymore; we are protecting the entire continental United States, Alaska, Hawaii, and hopefully all of North America. Being able to do that sensor-shooter pairing is a non-trivial problem even for AI, especially in an environment with incredibly high state space and sometimes unreliable information. Track quality can vary, there are decoys, and quite honestly, it’s just the fog of war.

So you have to be able to sense and track and then do the sensor-shooter pairing. Once you’ve paired it to a shooter, we cannot afford to have hundreds of millions of dollars’ worth of shooters, where each interceptor is super expensive. We have to have an affordable effector stack. That includes hit-to-kill interceptors— we will still have to hit a bullet with a bullet— but we also need more cost-effective layers. We will need high-power microwave and lasers, particularly for counter-UAS and counter-cruise-missile saturation, so you can use lower-cost effectors and interceptors for volume and reserve the high-end interceptors for exquisite threats.

Underlying all of this is resilient communications and PNT—positioning, navigation, and timing— all incredibly important. I cannot overstate the importance of resilient comms. Back to your earlier question about what we learned and what we should not overfit from past conflicts: one thing we overfit from the Gulf War era was the assumption that we would always have electromagnetic superiority, which means uncontested communications. That will not be the case, and we have seen this in Ukraine. We are going to have to have resilient communications, which means spread spectrum, frequency hopping, and incredibly high-end systems to maintain connectivity.

The last thing I want to mention— because I’m an engineer— is digital engineering and test. This gets to our ability to iterate more quickly. We need national-scale digital twins so we can do everything from testing to, perhaps most interestingly, training sensor-shooter pairing algorithms via reinforcement learning. You only get one chance to do this in real life, so to train these algorithms, you need to run them millions or trillions of times in simulation.

You also asked about how startups can plug in. There are tremendous opportunities. At L3Harris, we are looking for startups to plug in everywhere we are plugged into Golden Dome. Data and AI are obvious areas. AI starts and ends with data and access to data, and to the extent that startups can build capabilities for sensor fusion and discrimination, these can be microservices within a broader architecture, especially when we can provide real datasets. The same applies to training non-kinetic effectors like high-power microwave systems. There are a couple of startups actively working in high-power microwave. And, gosh, I don’t want to sound like Austin Powers— or Mr. Evil— talking about “lasers on sharks,” but high-power laser systems will be increasingly important. In the startup world, that might mean companies developing high-power laser capabilities, but there is an entire system required to actually use them. For example, beam directors: if you have a high-power laser, you then need a mirror with a steerable beam director to aim it at a target.

Digital test ranges and manufacturing technology are also important. There is opportunity across the board.

Akhil 30:00
Andrew, so many awesome things right there—I don’t even know where to start. Let me dive into a couple of them. Let me start with SCA. You mentioned the comm-resilient piece. To you, that golden dome is not new in concept, right? We’ve been talking about it; I think The Economist ran a piece comparing Star Wars to Golden Dome. What has fundamentally changed that might make Golden Dome different today? And is the long pole in the tent, from your standpoint, the technology, the resilient comms, or something else?

Andrew 30:31
No. So I think we have all the technology to build Golden Dome today. That is true. We have everything from solid rocket motors that perhaps could survive in space—material advancements—to the sensors we need to detect these things. Really, it’s a monumental engineering effort to create a missile defense system that covers a continent. To me, it’s probably the ninth wonder of the world. The technology is there; it’s a question of how we integrate it and whether we have the national will. It’s like the space race. It took the will of a president to get to the moon. I think similarly here, it will take the will of a president to drive this forward.

Akhil 31:23
Thanks, Andrew. And on that note, you talk about digital twins. We think of this beautiful nexus between the physical and digital world. Can you unpack a little bit what you mean by digital twin? In the news you hear about the B-21 Raider being designed in the digital world. At the same time, a lot of us who have served or worked in the automotive space know that at some point you need to get the thing out into the world because you’re not going to be able to model everything. How are you all thinking about that?

Andrew 31:52
Yeah, a couple of things. To the extent that we can use digital twins to move faster, so that you can take your lumps in ones and zeros rather than in hardware and a full redesign, that’s where we focus a lot. At L3 Harris we are laser-focused on moving faster. The Navy and other services are saying the fight is tonight, and that’s how we use digital twins.

I’ll say the most exciting place for me in terms of digital twins and simulation is how we can use them for training and fine-tuning AI models. An example is in the RF space. Cognitive EW is increasingly important. Any waveform you deploy—radar or comms—the adversary will figure out how to jam it, and they’re deploying cognitive EW so they can adapt incredibly quickly. We as a nation have to be very good at generating new waveforms, new EA and EW techniques, and so on.

Back to digital twins: as a nation, we probably need to set up an electronic warfare simulation environment. The goal is to create AI agents for electromagnetic superiority. If you have a model you want to fine-tune for this complex space of electromagnetic battle management—where you have to communicate while an adversary jams you and both sides are adapting—you need an EM playground. But EM propagation is so complex that you can never train a model at full fidelity. Even with future computing, you will never do that. So what we’ll need is a digital twin with varying resolution.

You start with incredibly coarse resolution in the simulation environment and use that to get a gross training of your model—you run it a trillion times. Then you turn up the resolution by a factor of ten and fine-tune. Turn it up again and fine-tune. You take this model that started coarse and refine it. Remember how AlphaGo Zero was trained? The first generation of chess-playing AI relied on data scientists hand-coding techniques. Then someone realized it’s more interesting to have one AI agent play another without even telling them the rules. Very quickly, by running trillions of games, it reached superhuman capability. Now my iPhone can probably beat the best chess players because of reinforcement learning in a simulated environment.

Doing the same thing in the RF space will be increasingly important as we move into cognitive EW, cognitive comms, and cognitive warfare.

Akhil 34:57
Thanks, Andrew. Real quick, for those who aren’t as steeped in EW, what is cognitive EW?

Andrew 35:02
Yeah, so cognitive EW can mean a number of things. Very roughly, a waveform is the way that I communicate in the RF spectrum, the way that I communicate with you. FM radio is an example of a particular waveform. AM radio is another. 5G is another; it’s actually a suite of waveforms. Cognitive waveforms can mean a number of different things, and you can think of them in levels. A relatively basic cognitive waveform would be a cognitive frequency hopper. Let’s imagine I’m communicating with you on a certain frequency—one megahertz, for instance. It’s not a good frequency, but let’s imagine it. If someone starts to jam one megahertz, I’m going to jump to two megahertz. If someone starts to jam that, I jump back to one. If they’re still there, I’m going to jump to three. So the most basic cognitive EW involves clever ways to do frequency hopping and clever ways to do your modulation. I might switch from AM to FM, for instance. That would be your lowest-level cognitive waveform.

Some of the higher-end stuff—let’s call them generative waveforms—allow you to create the waveform on the fly, just like generative AI creates a poem on the fly that is optimized for whatever you want to optimize for. In this space, you can say, “I want to optimize for throughput given this specific jamming environment,” or, “I want to mimic 5G or Wi-Fi and hide in the noise.” Because generative waveforms leverage the most advanced AI, you’re able to change the objective function and do essentially limitless things with it. I’ve seen tests where these cognitive waveforms are able to outperform classical waveforms in very harsh jamming environments.

The reason they aren’t deployed to the edge right now is that they are incredibly compute-intensive. It takes quite a bit of compute to do this. But as compute cost comes down, I expect to see these deployed more and more—probably first through SOCOM and other early adopters, and then more broadly across the U.S. as cognitive waveforms and cognitive EW mature.

Maggie 37:30
Andrew, I want to shift gears a little bit and specifically talk about how you view startup–defense prime collaboration. I know L3Harris has really been a leader in this, and it has become a big part of your strategy as the trusted disruptor in the defense space. So maybe the first question I’ll ask is: where do you see opportunities for startups to really excel, versus what kinds of technology areas do you think defense primes will continue to remain dominant in?

Andrew 38:06
Yeah. I’ll say that defense primes, and where I put all of my cycles as the CTO of L3Harris, are focused on operationalizing AI. There’s some really interesting space here where the U.S. technology ecosystem, including venture-backed companies, can work with the larger primes. Why is this a good marriage? L3Harris is really good at having exquisite domain expertise. We spend a lot of time in customer spaces understanding their hardest challenges. We tend to have access to a lot of data—we build EO/IR balls, we build radars, we build radios. All this data can be used to take a model or a capability developed by a startup or partner and fine-tune it for a mission application.

The final thing we have as defense primes is real estate. I helped stand up and was part of one of the premier divisions in the National Lab system that does AI—the AI and Data Analytics Division at Pacific Northwest National Labs. They’re great at AI for national security and high-consequence environments. They have some of the world’s best data scientists and data engineers. Their challenge is access to real estate and access to operational systems. If you’ve got models, whether they’re coming out of the national labs or the venture tech ecosystem, you have to have places to actually deploy those so they can start to have an impact on the warfighter.

Missionizing AI requires us to be really good at selecting the right model. Not every use case is an AI/ML use case. So we need to be good at determining which startup model, open-source model, or partner model we want to adopt, how we fine-tune that model with real operational data, and then how we get it through the ATO process so that we can actually deploy it to the edge. Deployment to the edge is sometimes non-trivial. This is where Code Metal is helping us. It’s pretty easy to deploy AI to GPUs. It’s less easy if you’re in a SWaP-C—size, weight, power, and cost—constrained environment with only access to FPGAs. These systems need to be very power conscious because you’re on the edge, on a radio a soldier has to carry for 10 hours—or really 10 days. It has to operate for those 10 days. Imagine if your iPhone lasted for 10 days. I’d be much happier.

Code Metal helps us translate code from Python or MATLAB into embedded code on the edge—FPGAs and similar hardware. That’s where primes like L3Harris and others are focusing: operationalizing AI. Startups, on the other hand, bring novel AI/ML, edge autonomy stacks, and synthetic data generation. These are spaces where there have been tremendous commercial investments in Silicon Valley and the U.S. technology ecosystem. If you’ve got novel models, particularly ones that could work in SWaP-C environments, we’d love to talk and figure out how we can start the process of missionizing and operationalizing them.

Maggie 42:00
Andrew, how do you all determine when you’re going to partner with another company or startup versus when you’re going to build some of that technology in house? I know L3Harris has what, 10,000 engineers or something employed?

Andrew 42:15
Twenty thousand engineers. Yeah. And so it’s a good question. All right, so we would always rather accelerate, accelerate, accelerate. And the way that I look at partnerships with startups is that we have technology roadmaps, and our technology roadmaps actually don’t start with technology. If anybody starts talking to me about technology for a technology roadmap, they’re wrong. You start with a mission. These are the hard problems that we at L3Harris want to be able to contribute to. So that’s one end of the bound. The other end is what technology we have today, meaning L3Harris capabilities that we have right now. From that, I’ve got two endpoints. I’ve got the mission, the customer problem we’re trying to solve, and the technology we have today. That’s the gap. If there is a company that can accelerate the closure of that gap, then I absolutely want to talk to them today.

Maggie 43:06
What do you see startups most misunderstand about working with a large defense prime like L3Harris?

Andrew 43:14
Yeah, I think there’s sometimes a misperception that large defense primes don’t want to go fast. And to be honest, a company as large as L3Harris is not a monolith. There are parts that will still be slow, but by and large, we care about exactly the same things as everyone else in this ecosystem. We want to go fast and hard and solve hard problems. From the flip side, if I take that question from the other angle, I get a lot of misperceptions from my engineers about startups. Some of the misperceptions they have come from engineers who, particularly if they’ve never worked in a startup, see a startup almost as a supplier. The startup brings a widget, and the engineer says, this is five degrees off from the widget that I needed, sorry, don’t want to talk to you. What they don’t realize is that if they just engaged a little bit with the startup, the startup would be more than happy, on an incredibly short timeframe, to shift that five degrees and build something that is absolutely applicable to the problem the engineer is trying to solve, that gap they’re trying to close. A lot of my internal work at L3Harris is helping engineers understand that you’ve got to invest your time in startups so they understand the problem you’re really trying to solve. You also have to be conscious of their time horizon. If you’ve got a pursuit where it’s going to be a problem in three years and you’ll finally get money for it in eight years, that is not an appropriate place to engage a startup. So we have to be aware of what problems are amenable to startups in terms of what a startup’s traditional run rate is.

Maggie 44:58
What advice do you have for startups to work with a company like L3Harris? What can a startup do well, or what have you seen startups do well? Sort of the flip question to what I asked before, which is what do they not do well?

Andrew 45:10
Agreed. So startups that do well, and this is sort of the flip-side answer, are adaptable and willing to fit into, and I’m not going to say the L3Harris need, but the customer and mission need. That adaptability is incredibly important. I think it’s actually inherent in most startups’ DNA. They don’t run agile. If you talk to a founder about agile, they’ll hit you. It is pivot, pivot, pivot until you find product-market fit. I would advise that startups not confuse a great demo with a deployable capability. You have to understand your concept of operations but also your concept of employment. Give us a call and we will help you understand the concept of employment. A lot of startups don’t have access to SCIFs and high-side information, so we can help shape your product in appropriate ways so that it is actually solving the problem the warfighter has and addressing the threat they’re facing.

Akhil 46:20
Thanks, Andrew. Maybe to flip it again, there’s a perception in certain spaces that the primes are like the Evil Eye of Sauron. They’ve existed for a while, they’re there. But I think there’s this interest from startups in some of the points you’re bringing. There’s also real value in finding the right partnerships at the right time and place to achieve effects ultimately for the mission. My question is, if you’re a startup, how should you be evaluating and what should you be expecting out of a partnership with someone that’s a lot bigger than you, who may have a direct relationship with the customer, when even the startup wants that direct customer feedback and engagement? How do you navigate the limited time a young startup has in finding which partnerships make sense and which ones are actually going to drive value across both organizations, and ultimately for those who need it most from a mission standpoint?

Andrew 47:17
Yeah, absolutely. I think you’re looking for partners who are interested in a true strategic partnership as opposed to a transactional relationship. That is really important. When you talk to various primes, make sure they’re willing to invest their time in you. I’ll give you an example. At L3Harris, we have internal money that we use to run things we call validation projects. If you come in, Akhil, and you’ve got a novel widget that you’ve invented or a software app, we invest our own money at L3Harris to figure out how that app can be used to fill one of those gaps I talked about to solve a hard customer need. That’s an example of a strategic relationship where we’re investing in the relationship, you’re investing in the relationship, and together we’re able to move faster and solve harder problems than we’d be able to do individually. I’m really looking for that. A lot of times when primes engage with startups—and I haven’t seen this at L3Harris, but I have seen it elsewhere—they want to be a bully around IP rights, like “We want to own IP rights.” What they don’t realize is that absolutely kills the startup. It makes them unappealing to investors. So watch your IP rights. Make sure the prime you’re working with is looking to generate mutual value for the prime, for the startup, and for the customer, and not just for themselves.

Maggie 48:48
If you had all the CEOs and CTOs, the senior leadership of other large defense government contractors, in a room, what advice would you give them?

Andrew 48:58
The first thing is definitely focus on open systems. The reason this is important is that the United States’ asymmetric advantage is our ability to innovate faster, and open systems—while they take a bit more time up front—really open up their architecture on the back end. If some startup comes up with a new capability, because it’s an open architecture they’ll be able to plug it in quickly, get it operationalized, and make a real difference. Whereas if we have a closed ecosystem where everybody owns their own IP and data rights and nothing plays well with each other, we’re never going to get to that future where we’re able to rapidly deploy capabilities and iterate more quickly than adversaries.

Akhil 49:47
Andrew, maybe one level deeper on open architecture: is the government providing the right incentives for that ecosystem? And what would be the one policy change you would make? When you think about modular open architecture, people are trying to build a business that’s defensible and not dependent on year-to-year uncertainty about whether their system will survive. There’s a healthy tension between what a company needs to defend its position and what’s required to provide value and create the right incentive structure. How do you see that?

Andrew 50:18
I would say I’m never worried about defending anything. If you have to defend based on a closed architecture, then you’re not moving fast enough. Our strategy is to continue to move faster than anybody can adopt, and we will continue to do that. You also need to really understand where you make your money. You make your money off your implementation of the open architecture. Waveforms are a good example—we’ve talked a lot about communications waveforms. Many of them are open; they are government-owned protocols. That doesn’t mean L3Harris doesn’t make money off them. We still take that waveform, translate it into software, implement it on hardware, and sell an operational capability. Open architecture doesn’t mean you can’t make money.

What we need more of from our customers is consistency. Probably 90% of customers say “open architecture, open architecture, open architecture.” There’s a vocal 10% who say, “Well, with closed architectures we can go faster,” because they see the upfront initial investment—maybe you’re 10% slower—as the impediment. But let’s look at a concrete example. We talked about tanks earlier. You could create a tank that is a completely closed system. You don’t allow anyone to plug in a new EO/IR ball, nobody can plug in a new communications module. You can do that faster; you can deploy a closed ecosystem right now.

But let’s say you spent a little more time and built this on an open architecture, which means you can switch out modules. As a new radio comes online, one of these cognitive radios or cognitive EW systems, you just take out the old one and put in the new one. That could come from the startup ecosystem or from a traditional defense contractor. A new radio comes online, a new EO/IR ball comes online, and it allows a much faster upgrade cycle. In this tank example, you can see how the proponents of closed systems are right that you can get a fixed capability to the field more quickly, but the long-term ability to iterate and upgrade is far better with an open architecture.

Maggie 52:31
What’s a technology that you are bearish on in the short term but bullish on in the long term?

Andrew 52:37
All right, I did mention high-energy lasers and HPM earlier. There is still a way to go before those are real operational capabilities. I think everyone’s seen a couple of interesting prototypes and examples where people have shown, hey, we’re able to kill a UAV or do some other interesting things. Today, weather, power, and beam control are the limiting factors. In the future, these will be indispensable for a layered, cost-effective defense. The other is quantum. People tend to think about quantum in three buckets: quantum sensing, quantum communications and networking, and quantum computing. At some point, quantum systems such as quantum sensing with Rydberg atoms are going to far outperform RF antennas and RF capabilities for sensing, comms, and SIGINT. In the near term, though, I don’t see an impact in the next five or six years. So again, bearish in the near term, but long term these things are going to be differentiators and game changers.

Maggie 53:41
And I know you’ve been in the national security technology space for decades now. What’s the technology that you thought would be further developed than it actually is today, back in your days at MIT or one of the labs or elsewhere?

Andrew 53:56
The technology that I thought would be further along is true CJADC2. For those of you in this field for a while, it was net-centric warfare before CJADC2, and before that it was something different. We still fight in data silos with bespoke messages more than we should. Really being able to bring that “any sensor and every shooter, every sensor and any shooter” capability to the battlefield—I thought we’d be further along. It’s been a huge focus for the DoD for at least two decades, and I hope we continue to make progress around true CJADC2. Less developed but pleasantly surprising is autonomy at the edge. Small teams are absolutely deploying incredible capabilities. Everything from—gosh—we talked about Overwatch AI to Shield AI (not to be confused with Shield Capital) to Overland AI. These are just incredible advances in true autonomy at the edge. What are some tech—

Maggie 55:02
—areas where our adversaries are ahead of us in developing and deploying, and what will it take for the US to catch up?

Andrew 55:13
One place I’ll point out is hypersonics and long-range strike. So PRC and Russia—munitions like the DF-17. I will say that the United States, and we here at L3Harris Aerojet Rocketdyne, have eye-watering, exquisite hypersonic capabilities, with the ability to do computational fluid dynamics and advanced materials. The United States does have some incredible hypersonic capability. That said, in deployed, operational hypersonics, we are behind. We are absolutely behind. That’s the space where we want to keep up. Shipbuilding and the industrial scale and industrial might that China is able to bring to the table—our fleet growth is currently being outpaced by large numbers. Tactical electronic warfare—actually, I’ll lump these next two together: tactical electronic warfare and low-cost drone ecosystems. Currently, Russia is beating us there, and it’s largely because they’re actively engaged in a war in Ukraine. What this does for them is tighten their learning loop. They deploy an EW technique or system, and if it doesn’t work they are forced to continue to update and cycle it. Our EW capabilities aren’t nearly on the war footing that Russia’s are.

Akhil 56:36
Thanks, Andrew. I want to end where we started, with you being a technologist. If you had one extra hour in your busy day—you’ve got a ton of things, the leadership aspects of running the organization, the connecting-the-dockets piece, and then somewhere in there you get a chance to vibe code—what would you spend that extra hour doing, and how would you break that apart?

Andrew 57:00
You know, I think as technologists it’s easy to become enamored with the technology, and I spend an incredible amount of time, like I said, even developing my own models. If I could find an extra hour, I would spend that time with the operators, with the people who are actually using the technology. At the end of the day, as a CTO and technologist at L3Harris, I believe every engineer at L3Harris is here to solve hard customer problems. The better understanding I can have—and that every engineer can have—of what those problems are and how we might be able to solve them more creatively, the better.

I was recently talking with a customer, and they said, “Hey, Andrew, I just need more bandwidth. I need more throughput on these radios.” We talked for a little bit, and it turns out that’s not actually what the customer needed. They needed the right information at the right place at the right time. That drives you to think: yes, I could give you a radio with a bigger power amplifier and make this poor soldier carry around a big dish antenna. Yes, that could be a solution to that problem. But because we sat down and talked and understood the problem and the threat they were facing, it turns out the right answer is deploying intelligent agents to the radios to prioritize the data so they’re getting the right information at the right time to provide decision and information advantage. More time with the customer, more time understanding what they’re facing and what their threats look like so we can create better solutions—that’s where I’d spend my time.

Akhil 58:25
Awesome. Andrew, thanks so much for joining us.

We cover:

• The details of the reforms themselves (abolishing JCIDS, changing PEOs to PAEs, MOSA, and more)

• Why some legacy incumbents may resist these changes

• How to incentivize people within the Department to make these reforms a reality

• How startups should work to take advantage of the reforms

• And more

For more, check out David’s new blog post on the subject.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

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Transcript

Maggie 00:19
Late last week, Secretary of War Pete Hegseth announced a series of reforms to the Department of War’s acquisition system. The reforms range from renaming the Defense Acquisition System to changing the way program executive offices actually operate. Many of the reforms dive deep into the wonky policy weeds, but there’s no doubt that once implemented, they’ll be incredibly meaningful for startups working in this space. So of course, I had to ask my two favorite defense acquisition experts, Mike and David on my team, to join me for a last-minute emergency pod to help explain what these reforms actually mean for startups in the national security sector. David also just wrote an excellent blog post on the reforms that I’ll link to in the show notes, so definitely check that out if you want to dive in further. Mike and David, thank you both so much for making the time on a Saturday morning. I know there’s no way you’d rather be spending your weekend than digging into the details of defense acquisition reform. I think this is going to be really meaningful for those of us who aren’t as deep into the policy weeds to understand what’s actually happening here.

Mike 01:46
Happy to be here, and I think doing this as an emergency pod speaks to the importance of this announcement.

Maggie 01:55
Let’s start with the basics. What are the headlines? Can you give us a summary overview of what the Secretary’s memo and speech actually meant?

Mike 02:08
Before we get into the specifics of the policy changes, I think it’s important to reflect on the themes the Secretary highlighted. It really starts with an acknowledgment that the current system is broken. That recognition isn’t unique to Secretary Hegseth—many secretaries before him and Congress itself have tried acquisition reform. He correctly pointed out that the problem is broader than acquisition alone. It’s really a combination of requirements—what are we asking for; acquisition—how do we buy it; and budgeting—how the money is allocated and how flexible it is. I like that he addressed all three, because changing only one doesn’t get you the desired effect.

The desired effect, which he made clear, is speed. He’s making speed a top priority, and he’s implementing measures to reinforce that. There’s a great piece by Bill Greenwalt and Dan Patt called Competing in Time that highlights just how broken the system is. It takes, on average, 17 years to get a new capability fielded at the Department of Defense. On the fast end, it’s seven years; on the long end, twenty-seven. That’s clearly unacceptable. The implication of moving that slowly is that we put warfighters at risk, forcing them to fight with yesterday’s technology.

He emphasized a few key points: we need to move faster; we need accountability—meaning one person in charge, which ties into his portfolio acquisition executive idea; and we need to focus on outcomes over process. Anyone who’s spent time at the Pentagon knows there’s an almost religious devotion to process compliance, but that doesn’t always produce the best results. He’s saying we should prioritize outcomes that advantage the warfighter through speed. Those were some of the big takeaways for me.

David 04:19
I’d add one other area: a recognition that the defense industrial base is a bit hamstrung. One of the points highlighted, and often forgotten, is foreign military sales. Now, I’ll admit I’ve never worked in a program office, but when you think about the defense industrial base, it’s heavily constrained by ITAR—the export control regime that restricts critical technologies from being sold abroad. That dramatically limits your addressable market. We have many allies and partners who would love to buy technology that helps maintain our military’s edge, but the process is so bureaucratic and slow that it often prevents that.

By putting more emphasis on enabling foreign military sales to happen faster, the department can help the defense industrial base make the production investments they’re currently unable to. That’s a critical, if underappreciated, piece of the reform effort.

Maggie 05:30
Both of you have spent years mired in the Pentagon’s acquisition system—at the Defense Innovation Unit, in the Air Force, and elsewhere. Why are these reforms so important in the first place? What are the implications of maintaining the status quo?

David 05:51
I think what’s interesting about this moment in time—and this memo—is how aligned it is with the things Congress has been asking for for years. Secretary Hegseth is not the first to promote change in culture and process and to emphasize speed. Secretary Carter, who established the Defense Innovation Unit, the Defense Digital Service, the Strategic Capabilities Office, and a handful of other organizations, also recognized these same challenges. But I think what we’ve seen with some of the successes of the organizations I mentioned is how they’ve provided Congress significant proof points, insofar as Congress has been asking for many of the same things through the National Defense Authorization Act.

There’s always a section in the NDAA that outlines a set of changes, updates, and modifications to the overall acquisition system. But since Secretary Carter, there really hasn’t been much emphasis from senior leaders at the Office of the Secretary of Defense—or now the Office of the Secretary of War—to make these changes front and center. Here, we’re seeing significant prioritization through massive policy memos that aim to make wholesale reforms. And again, I think it’s notable how aligned these efforts are with the things Senator Wicker, the Chair of the Senate Armed Services Committee, included in the FORGE Act last December. Similarly, the House Armed Services Committee has advanced the SPEED Act, which now sits on the Senate’s desk awaiting ratification to become part of the FY26 National Defense Authorization Act. These efforts are so aligned and in concert with one another, and I think that bodes really well for the overall acquisition community.

Mike 07:57
Yeah, I’d add that another thing we’ve seen is the growing importance of commercial technology—with a nod back to Ash Carter, who had that vision decades ago. We’re now really seeing it come to the fore, especially in Ukraine. So many of the technologies being used there are produced by commercial companies, whether they’re sensors from space, AI software used for targeting, or autonomy systems. What we’ve seen on the battlefield in Ukraine is commercial technology being used to great effect—not to the exclusion of traditional platforms and munitions, but in a complementary fashion. It’s the first time we can truly say that commercial technology has played such an important role in a war. And we’re not going to be able to acquire the commercial technology we need without the reforms outlined in the Secretary’s speech.

Maggie 08:52
Yes, I think you both mentioned that this is not the first attempt at defense acquisition reform. Secretary Carter had his own initiatives, and Hegseth, in his speech, actually noted that Secretary Donald Rumsfeld had a similar effort more than 20 years ago. In your view, what makes this attempt different, and what do we need to learn from past efforts in order to make this set of reforms more successful?

Mike 09:23
Yeah, well, I think David pointed out a really important factor, which is that we’re getting all the branches of government together at one time, emphasizing the importance of this. We have the House, the Senate, and the administration aligned—the first time I can remember that we’ve had a president get involved and issue four executive orders focused on defense acquisition. I don’t know that that’s ever happened before. It speaks to unifying the branches of government to get behind this as an effort.

I think the fact that Secretary Hegseth referred back to Secretary Rumsfeld right before 9/11 making a speech really shows how hard this is. It’s going to take the entire community of the Defense Department—everyone involved in requirements, acquisition, and budgeting—as well as Congress in support. Secretary Hegseth promised transparency and speed, and he said he’d be looking to Congress for support. How hard this is speaks to the fact that we need everyone with hands joined to make this a success.

One of the things we’ll talk about in a few minutes is what the proof points will be—what will have to happen to make some of these reforms successful. But the fact that everyone is working together, that technology is now so important, and that we have commercial technology from startup companies all point to this being a moment in time when we really need to make these reforms so we can modernize the military much faster and get warfighters not only the capability they need, but also on a timely basis.

David 11:00
I was going to highlight that because of the war in Ukraine, we’re seeing how commercial technology can be implemented, advanced, and iterated upon in real time. There’s a general recognition—right at the beginning of his speech, Secretary Hegseth quoted Donald Rumsfeld and talked about central planning as the adversary. The overreliance on process is the enemy. Knowing that kind of central planning wouldn’t work in a live war like what Ukraine is experiencing with Russia, it’s clear that the old approach won’t hold.

We had overwhelming technological superiority in Iraq and Afghanistan, and we weren’t as concerned about the cost of munitions or the price per kill. Congress continued to provide Overseas Contingency Operations funding in the hundreds of millions of dollars, so the Pentagon and the services writ large didn’t really have to reimagine their warfighting capability to fit what they had at the time. We had overwhelming force, but it wasn’t economical.

Today there’s recognition, especially with a peer adversary like the People’s Republic of China, that if we were to get into a situation requiring kinetic force, the way we operate today would really handicap our effectiveness.

Mike 12:46
The other thing I wanted to mention that relates to this being a moment in time is that we’ve now had a decade since the organizations David referred to—those Ash Carter set up—have been practicing tradecraft in acquisition. We have proof points from those organizations, whether it’s the Defense Innovation Unit, the Army Applications Lab, AFWERX, or the Rapid Capabilities Offices. There are ways we can leverage what’s already been done on a smaller scale to make a much bigger impact when applied to the whole department.

Maggie 13:23
So what will be some of the proof points of a successful implementation of these reforms?

Mike 13:28
Well, I think the ultimate proof point will be whether we can change that 17 years on average to one or two years with commercial technology—and maybe with the establishment of what’s called MOSA, the Modular Open Systems Approach. We should be able to move faster on the larger defense platforms as well. I think it really is about speed. If we look at some of the changes the Secretary is talking about, they’re designed to make speed easier. Whether it’s blowing up the JCIDS process—the requirements portion of the process—and figuring out what we need to buy faster, in fact, we don’t need a JCIDS process for commercial technology. We can buy what’s off the shelf and use some of the faster ways to procure. I’d point to Other Transaction Authority, which was given to the Department a decade ago. DIU used that very effectively, and now many people are taking and using the process DIU pioneered—what David pioneered here on this call—the Commercial Solutions Opening.

Having a single accountable executive is key. It’s not just a name change to go from a PEO to a Portfolio Acquisition Executive; it allows one person to make trade-offs of speed versus traditional cost and performance. The Secretary made the point that he’d rather have new capability—maybe 85% of what we might have specified in a requirement—sooner, rather than wait 17 years on average to get something that meets the requirements fully. Those would be some of the important proof points, and they all come down to: do we get things faster to the warfighter?

David 15:13
Yeah, that’s well said. Maybe moving a little bit more into the specifics—so we keep talking about this thing called Portfolio Acquisition Executives versus Program Executive Offices. At the macro level, it’s really about allowing trade space for a senior leader to move across an entire capability area, whether that be munitions, fighters, or something else, and to look at what’s actually performing well. It’s about getting real-time feedback from the test and operational community about what’s progressing technologically and being able to make trade-offs inside that overall portfolio.

At a procedural level—and if the audience will bear with me—one of the major challenges that the executive branch cannot address on its own is the budgeting process. Every year, Congress appropriates funding to the Department, and unfortunately, they do it through thousands of lines of programs. Each program will have what’s called a “program element” associated with it, and that’s where Congress explicitly says: you are going to spend X amount of money on this thing. Maybe it’s a certain set of munitions, maybe it’s a re-engine or engine upgrade for something like the B-52, or maybe it’s for a ground network system. That structure really handcuffs the executive branch from making decisions and trade-offs.

So for me, my first proof point that this is going to be real and effective is if we see the President’s Budget, as it moves from the Combatant Commanders to the Services, up through the Office of the Secretary of Defense, then on to the Office of Management and Budget, before being signed by the President and sent to Congress—if we see a consolidation of program elements into portfolio elements. What we should see are fewer portfolio elements with much larger capacity and more general statements about the types of capabilities they’re pursuing, highlighted by this new requirements regime that’s moving away from the JCIDS process—the Joint Capabilities Integration and Development System, I think that’s what it stands for—and requirements writ large.

Seeing that shepherded in such a way, if we can, from a systems standpoint, make that happen, will really shock the 36,000 people who work at the Pentagon every day. To me, that will be the massive proof in the pudding that we’re actually changing the system in a meaningful, dramatic way, which will then give ownership and accountability to those senior leaders within these portfolios.

Mike 18:33
Well, I just have to say how important David’s comment really is. If you work in the Defense Department, you see how hamstrung you really are by this inflexibility of money. Nothing happens at the Pentagon unless you can get money aligned with your purpose. Those 1,700 line items are far from oversight—they’re really micromanagement of the Pentagon by Congress. And it’s even worse, because now they break every dollar into a color. I can spend one color on procurement, another on R&D, and operations and maintenance has its own color. The 1,700 line items broken into specific colors mean you have practically no flexibility to move money to a different category—where you might be able to save overall because you’ve identified a new technology that’s cheaper, or you might have an urgent threat. But because the budget process started three years ago and now it’s cut up into these very small granules of program element by color, you’re completely constrained. Addressing the budget component as David did could be a huge benefit, offering a lot of flexibility to move much faster.

David 19:47
I’ll only highlight that it’s actually much worse than Mike described. Within those colors of funding, you have even more granular specification. Within research, development, test, and engineering—RDT&E—funding, you have about seven or eight different categories like 6.3 and 6.4, which further hamstring flexibility. It’s Congress’s way of ensuring that the department spends broadly across many different activities and doesn’t put all its eggs in one basket. But we see how well that’s worked with the Joint Strike Fighter, which last I saw is experiencing about a $1 trillion shortfall. Despite our best efforts to spread out funding to exercise a multidimensional military apparatus, we’re just not good at it. Central planning doesn’t work—we need to admit it and try something different.

Mike 20:48
If we look across history, I don’t think many people were very good at it. True, it’s hard to do.

Maggie 20:53
So maybe, just to make this tangible for a novice like myself—could we walk through what this new process would look like to field a new capability, and how that would compare to the old process? For example, with the F-35, we had to go through the multi-year JROC process to collect requirements, and then it became kind of this inflexible system, as you all were describing. But what might a new process look like to field the next set of air capabilities, or some other technology of your choice?

Mike 21:30
Let’s take drones as an example, where the department is way behind where it would like to be. You only have to look at what’s happened in Ukraine to see that both Ukraine and Russia are producing somewhere between four and five million drones per year. I don’t know what the equivalent number is for U.S. manufacturers or how much the Pentagon is buying, but I’d bet we’re an order of magnitude below that—so way behind what we might need if we were called into a conflict today.

We don’t need to start with a JROC process, which in itself could take a couple of years just to figure out what a joint requirement would look like for a drone. Using the portfolio acquisition executive approach, you could imagine having an office responsible for drones. That means we don’t need to say, “I need 17 types of drones,” and then rationalize all the requirements for different endurance and payloads. Instead, it would be much easier to say, “I need these four or five capabilities,” all managed under one acquisition executive, with that executive making trade-offs between how fast we can get those, what’s available today, and where we might want some development to occur.

That’s a tremendous advantage for the warfighter, for speed, and for the taxpayer. Then, using a commercial solutions opening process—something already proven by DIU and other organizations—we can quickly sample what’s available in the marketplace and put companies on contract. We don’t need to buy based on their promises; they then go into a test program to see how they perform in the field. We could certainly get that capability fielded within one year if it’s commercial technology that already exists and just needs testing.

Of course, we still need to plan for how we’ll train folks to use those systems and what support might be required in the field, but that can obviously happen much faster. And then we have the budgeting benefits—if we see new technology come on quickly, we’re able to evaluate it without waiting for another requirement or budget cycle. You can imagine a much faster iteration for commercial technology, so we can both field it quickly and replace it as technology evolves and improves—all with the intent of getting new capability to the warfighter as fast as possible.

It’s a little more complex if we’re talking about a ship or a fighter aircraft, but that’s where the modular open systems approach comes in. That’s how we buy things in the commercial world—with standards and interfaces among subsystems. If you had a design that included those interfaces and awarded that, then subsystems could be built into that design and competed as soon as technologies evolve. That would allow much faster upgrades for ships and fighter jets, as examples.

Maggie 24:39
So this is the difference between saying we need to have a drone that has a five-foot wingspan and has this specific EW payload and this specific camera system. Now instead, we can say we need to have the ability to conduct ISR within, you know, a 10-mile radius. And now we can field whatever capability could fulfill that mission set, even if it doesn’t have a five-foot wingspan or the exact camera system that we were requesting in the initial set. Is that the right way to think about this?

Mike 25:12
Yeah, I think what you just described illustrated the JCIDS, or requirements process. And then what the Secretary is also calling for is, “Okay, and I want faster buying.” That’s where something like the commercial solutions opening can come in, and then budgeting for that allows for me to shift to different priorities and adopt technology faster. That’s where he’s addressing the budgeting part of this. So all three of those can be accomplished with this set of reforms.

David 25:41
Yeah, I would just maybe add, with the requirements process, because of those specifications, it allowed the budgeting team to figure out what the expected costs were so that we weren’t going and trying to build an unaffordable military, right? But it assumes that everything is going to work out perfectly because we centrally planned it to the widget. And we just know that’s not how things work. What we sacrifice in pretending to have clairvoyance of the future is flexibility—flexibility based on the technological evolution happening in the commercial world.

Because, again, we have to remember that the system acquisition approach was under the assumption that without the Department of War deciding that a technology needed to exist, it wouldn’t. And now it’s flipped on its head. Technology is just happening all over the place because the amount of research and development funding available to the world is no longer in Pentagon coffers. That has all changed.

So maybe, Maggie, to be specific about what this change looks like—in my mind, it is a massive reorganization of the department writ large. Let’s take the Air Force. You have these major commands that are entrusted with organizing, training, and equipping. They help get the fighter pilots trained up, make sure they’ve got their fuel, set their training hours, and create the requirements for what the next generation of a fighter pilot might look like. They also produce these things called 1067s, which are modifications to existing weapon systems. That gets routed up through the Pentagon, the higher headquarters approves it, and then it goes down to the program offices—PEO Fighter/Bomber. Now they’ve got this validated requirement, and then they can go compete it out among industry based on all those specifications laid out through the 1067 process or otherwise.

What I think really needs to happen is an integration of the operational commands and the acquisition commands into cross-functional teams that have the requisite expertise to make decisions around capability tradeoffs based on real-time feedback coming from the combatant commanders. We need to get away from this game of telephone where things come from the field, move all the way up to the Pentagon, then back down to the program office, and then out to industry. We need to create a much flatter organization filled with people who have the responsibility, accountability, and decision-making prowess—with the resident expertise inside their control—to actually make it happen.

And I would say the other thing that stood out to me in the Hegseth memo was the explicit callout of the contracting officer. Today, contracting officers are a functional discipline that awards and obligates the government, and they respond to their own chain of command. So even if you are a program executive officer, you don’t have control over your contracting officers. They work for you from an operational standpoint, but administratively, they work for somebody else.

That’s kind of created its own fiefdom, as they want to protect themselves from doing something that might be out of bounds. But the natural consequence is that you just have these disconnected organizations up and down the entire military apparatus, and all of those friction points continue to insert time into the equation. And time is the one luxury we no longer have, because we are so far behind and our legacy systems are costing so much in operations and maintenance that it’s eroding our military advantage.

Maggie 30:12
So what are the implications of these reforms going to be for the traditional defense primes? And then what are the implications going to be for non-traditional vendors like startups?

Mike 30:23
Well, let’s start with startups, which is what we focus on at Shield Capital. I think the emphasis on speed is a tremendous benefit to startup companies that have been frustrated with how cumbersome and slow it can be to get a contract with the Department of Defense. I think this is part of the genius of these reforms—they’ll encourage a broader set of companies to participate in the national defense industrial base. For startup companies, it’s going to be more interesting to look at what opportunities exist to compete for commercial solutions openings programs at the Pentagon. With this emphasis on speed, there should be a way to find out much quicker whether you’re in the running, where you stand in that competition, and eventually, if you’re selected, to be paid for what you’re doing. We can’t overstate how important that’s going to be. One of the implications that Secretary Drew highlighted was that we need a broader defense industrial base. We need the primes, and we need to take advantage of the tremendous innovation happening across many different technologies—as David pointed out, that innovation is happening in hubs around the country.

David 31:35
Yeah, and I’d say for the primes, this is equally important. Right now, the primes generally receive contracts that are cost-reimbursable, so they’re honestly incentivized to let these programs drag out, because their profit margins are capped at nine to eleven percent. The way they make more profit is by generating more revenue, and you get revenue on a cost-reimbursable contract based on the number of hours of labor applied. I can’t tell you how many times, when I was in a program office—not named the Defense Innovation Unit—no-cost PoP (period of performance) extensions would be levied on these contracts all the time. We know there’s a cost to extending time, but it’s not necessarily obvious to the acquisition system. Of course, we understand there are downstream effects to the operational community.

If we can move the defense primes away from some of these contract types and instead encourage and incentivize speed of delivery, we’ll see significantly more partnerships between the primes and venture-backed startups that can deliver quickly. This allows the primes to be what they truly are: system integrators with incredible insights and understanding of the operational mission. They generally have a deep bench of technologists, and we need them to help these startups gain better access to weapon systems so that the operational community can benefit from third-party capital investments into startups delivering products that work—products that don’t need to be built bespoke to government requirements.

It’s an incredible sea change, and all of these elements need to work in concert—the requirements flexibility, the contracting flexibility, and the budgeting flexibility—to truly reimagine how the department operates.

Mike 34:00
One other benefit for the startup community could be the implementation of MOSA—the modular open systems approach—something Congress put into law about twenty years ago, but the Department really hasn’t moved forward to incorporate on a widespread basis. The basic idea is standards, so that companies could compete for subsystems rather than just the single program of record that one vendor might get for fifty years on a large defense platform. If that gets broken down the same way we think about the computer industry today—where I might mix and match a graphics card and a processor, and maybe someone like Dell assembles it all for me, but I’m not locked into one operating system or one set of components—it would open up large defense platforms to more vendors. Traditionally, it’s been difficult for many suppliers who can only work through a prime. This would open competition and create freer access points for vendors working on subsystems for large platforms. That’ll take years to play out, so it’s not a near-term advantage, but over the long term it should be much better for vendors, expand the defense industrial base, and certainly benefit the taxpayer.

Maggie 35:29
Do we expect any organizations to resist these changes? And if so, how can we protect these reforms from groups that might be opposed to them?

Mike 35:40
I don’t think anyone will be foolish enough to be vocal in protesting this, but of course we might see some folks dragging their feet. It’s human nature not to want change. There are big shifts being called for here, and they’re going to be disruptive—as the Secretary pointed out—to some business models. It’s going to require primes to adapt faster. Honestly, if they do change their business model, they’ll clearly benefit from this, but going through that change could still be challenging.

David 36:17
I’d say there are a lot of different headquarter functions across the Department. Obviously, there’s the Pentagon, which we’d call higher headquarters, but there are also many other elements throughout the organization, each with a bit of local cachet. Many congressional representatives care deeply that their base is the headquarters for a particular function. In this new paradigm, we’ll likely need to shrink some of those overhead organizations that provide support—whether writing requirements or offering Program Executive Office–type functions. If we don’t consolidate the sheer volume of these entities, we won’t achieve the residual benefits of a faster, leaner, more agile system. I could see many bases being very concerned about what this memo portends for their relevance across the Department. This will be a massive challenge requiring compromise and trade-offs, but I hope congressional representatives and local constituencies recognize that we can no longer afford the luxury of a fragmented decision-making system. It’s just not working.

Maggie 37:54
How do we actually implement these changes? I mean, it’s one thing for the Secretary to go up and talk about all the things that are going to change, but obviously the department is comprised of more than a million people. I know a lot of people talk about the “frozen middle” — people who have been there for a long time, doing things one way. How do we incentivize groups, both inside and outside of government, to actually make these changes a reality?

Mike 38:22
A big part of it was discussed by the Secretary in terms of what happens next. Between the Under Secretary for Research and Engineering, Secretary Michael, and the Under Secretary for Acquisition and Sustainment, Secretary Duffy, they’re now going to need to put on paper specific guidance. It’ll be imperative to spell out what changes are needed to get to a portfolio acquisition executive, for example, and what things go away if we’re going to create more accountability in that single person. Those are the kinds of details that now need to be specified. I think the Secretary called for that within the next 90 days, so there will be a more detailed implementation plan.

He also called for a change to the Acquisition University — to make it a Warfighter Acquisition University — and that’s where the training occurs for contract professionals. He wants that training to be more experiential, which I think is a great move. You could imagine an exercise where you’re working on a specific program, whereas before, much of the curriculum was about compliance — compliance with federal acquisition regulations, which the Secretary called out as being onerous. I think it’s about 2,000 pages of Federal Acquisition Regulations, plus another couple thousand pages on how to implement them. It’s a very complex process, and it would be great to simplify that, which has already been called for in executive orders issued by the President. Now it’s about ensuring that the curriculum taught at the Warfighter Acquisition University backs that up and makes it more experiential.

Hopefully, the contracting officers that David mentioned earlier will be part of the cross-functional team at a portfolio acquisition executive’s office, really figuring out how to move faster. We’ll have to see what specific guidance is given and how the training changes. I’d also add that the general counsels will have to be involved — they’ve traditionally been a very risk-averse part of the Pentagon, focused on making sure nobody gets into trouble. But that kind of mindset doesn’t move you forward when you’re trying to take more acquisition risk.

So I think this whole set of folks — the trainers, the leaders, and the general counsels — need to demonstrate the right behavior, reward people who embrace it, and hold accountable those who don’t move forward with the directive that’s been issued.

David 40:53
Yeah, I would hope that within this portfolio scorecard that’s going to be created around this new acquisition paradigm, it not only provides mandatory goals that you have to hit—like small business concerns, or obligating by a certain date or facing consequences in the financial spring execution review—but also that it includes positive incentives. For example, if you deliver these things early and quickly, maybe you’re promoted faster, given more responsibility, or your scope of authority increases. Those kinds of rewards would really motivate the workforce in a way that’s very different from today, where it’s mostly about being compliant, not screwing up, and checking the boxes: going to trainings, accumulating the right experiences, and holding the right roles to get promoted.

We need to shift to outcomes-based performance instead of output-based. That’s a huge task. One area where the military doesn’t always do a great job is celebrating people who do things the right way, achieve incredible results, and then rewarding them with something meaningful—not just a decoration or a day off. Generally, those people don’t even want a day off; they want to keep doing the job. So we have to get creative and apply commercial best practices that resonate, because the workforce is the most important part of any reform effort. If they’re not properly incentivized and motivated, all we’ll have are papers and nice speeches.

Maggie 42:56
Speaking of celebrating organizations that are doing things right, can you talk about some of the existing programs or organizations that are already acquiring technology in a manner consistent with this new policy—ones the rest of the department can learn from?

David 43:14
Yeah, well, Mike and I are obviously big fans of the Defense Innovation Unit and the work we did there. Maybe I’ll just point out—in the blog piece I posted last night, I highlighted the Air Force Rapid Capabilities Office. They were established in 2003, so they’ve been around a long time. The office was developed because a few compelling leaders were unsatisfied with how slow the acquisition system was moving. They knew they could deliver capabilities to various organizations faster, better, and cheaper.

That organization has had a lot of success. I’ve never worked there, so everything I’m saying is based on reputation, but I found it extremely interesting—and I mentioned this in the blog—that they were given the B-21 bomber program, even though there’s already a program office at a base near Dayton, Ohio, with a Program Executive Office specific to bombers. Why would that program go to the Rapid Capabilities Office if, organizationally, it should already have a home? There’s nothing “rapid” about building the B-21. Clearly, there was dissatisfaction with how the existing program office culture was executing.

Instead of addressing that problem head-on, the solution was to hand the program to someone else. That’s the wrong approach. We shouldn’t let a PEO for bombers continue indefinitely if they can’t be trusted by higher headquarters to execute something within their own jurisdiction. And this isn’t an isolated case—it’s happening across the department every day. That’s why we keep creating exceptional offices to go around the system.

One of the things Secretary Hegseth said was that we can’t keep going around the system every time. At a certain point, we have to rebuild the system into what we actually need it to be. That’s going to be a massive undertaking. It’ll upset people and make them uncomfortable, but we already know the status quo isn’t working.

Mike 45:39
It clearly goes to the principle that was called for, which is accountability. We need accountability for decisions. One of the additional comments the Secretary made, or reinforcing mechanisms, is that we’re going to have people in these positions longer. The idea with the portfolio acquisition executive is a four-year minimum term with a two-year extension, in contrast to what traditionally has been a three-year rotation. Anyone who has been around acquisition knows you need to be there long enough to see the implications of the decisions you make. Many people attribute the success of the nuclear submarine program to the fact that Admiral Rickover was there for such a long time—long enough to oversee the program from start to finish—and that had a major impact on how fast capability could be delivered.

Maggie 46:35
What are some of the capabilities where you all think these changes in the acquisition process will make the most difference in getting high-quality technology into the hands of our warfighters quickly?

Mike 46:50
From our experience at the Defense Innovation Unit, we’re excited about the adoption of commercial technology. That’s going to make a huge difference. Everything we’ve talked about—software, autonomous systems, sensors from space, resilient communications—the list goes on and on, because there are more and more commercial technologies that are going to be important in warfare. For all of those, this represents a pathway that’s not only much faster for getting capability to warfighters but also much faster for getting vendors into the Department of Defense, hopefully helping build strong companies in the process. I’m very excited about that.

David 47:33
Yeah, I agree. Anything that deals with autonomous capability is ripe for commercial integration and requires us to rethink the acquisition approach. The private sector has sunk billions of dollars into this space. Think about the Waymos driving around on the streets today—that didn’t come from a small Air Force Research Lab project that got a couple million dollars over five years and suddenly produced autonomous vehicles. We just don’t have the deep pockets within our research and development apparatus to develop these technologies anymore, so partnering becomes absolutely necessary.

What we saw in the space community reinforces that. I still remember in 2016 when now-Major General Steven “Bucky” Butow was highlighting all the great commercial space technology largely created out of the zero-interest-rate phenomenon known as ZIRP. While not all those companies have necessarily succeeded in the public markets, they’ve absolutely had a dramatic impact on the battlefield, especially in Ukraine. The Department was very resistant to working with them in the beginning. Now there are commercial offices up and down the chain, but in those early days it wasn’t easy to get them to partner. We’ve come a long way, but there are still a lot of program offices that refuse to think about anything beyond their traditional system acquisition approach—validated requirements, cost-plus contract types, and awarding things in classified environments to the same traditional defense industry base.

Maggie 49:41
So finally, to close us out, I’m going to ask you both the question that I ask at the end of almost all these podcasts, which is: what advice do you both have for startups in order to navigate this new apparatus, to successfully build technology for the national security domain?

Mike 50:00
Well, the advice will be very similar to what we’ve talked about before, which is that there are going to be many more opportunities in defense. It’s not going to happen overnight—perhaps it will take years for some of these changes to fully work their way through—but the whole investment thesis behind Shield is that there are going to be dual-use opportunities. Of course, that means great commercial opportunities for this technology, but also national security applications. This will turbocharge the Department of Defense in terms of how fast they want to pursue these opportunities and how much they recognize the importance of commercial technologies.

So I would say, keep your eyes peeled for what opportunities come. Many companies in our portfolio—and in other venture portfolios—are already watching what’s happening with Defense Innovation Unit solicitations and rapid capability offices that are reaching out. I think that’s going to become more of the norm, whereas before it might have been the exception relative to total defense expenditures. As that occurs, there’s going to be more opportunity for more companies. It’s going to be a very exciting time. I think we’re at the front end of a secular change in defense spending that’s going to pull through a lot more commercial technologies and new vendors. That’s tremendously exciting.

David 51:28
Yeah, Mike, I think that’s well said. I’m going to take this question in a completely different direction. If I’m a startup, I would say: do not take this level of advocacy for granted. There is going to be a very vocal minority of companies who want things to remain exactly the way they are, and they’ve been partnered with their congressional and Senate representatives for a long time. If you don’t engage with Congress, they don’t know you exist. You need to develop a relationship with them to let them know that these types of changes are absolutely critical to your company’s ability to deliver capability that the warfighter can use operationally.

We all know that technology relevant today is in large part built by venture-backed startups, but those startups do not yet have a seat at the table when it comes to the overall defense industrial base. It’s still early, but these things move a lot faster when the whole industry works together against incumbents who largely want to keep things the same. To put this less abstractly, I’ve been working on the Small Business Innovation Research reauthorization. Senator Ernst has been promoting the Innovate Act to help companies that can deliver capabilities, but this entrenched community of SBIR mills—of which there aren’t that many—has been able to hold a certain side of the aisle hostage because they are so loud, so well-organized, and well-funded enough to hire their own lobbying entities.

As a result, the Innovate Act is stuck and stalled. Many congressional representatives actually have a lot of startups in their communities, but they’re not as organized and don’t realize they’re cutting their nose to spite their face at this point. So, to end it, you need to continue to advocate. We’re all doing this together, but don’t take it for granted.

Mike 53:42
That’s a great point. You have to keep in mind how your congressional representation can help you with your agenda.

Maggie 53:49
Great. Well, David and Mike, thank you both so much for joining last minute to break down what’s happening in the world of defense, warfighter acquisition, and reform. I really appreciate you both coming on. I know I learned a lot—it really helped clarify many of the acronyms and policy changes in this memo. Thank you so much.

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We cover:

• How missile defense actually works, breaking down a) the threats b) the kill chain and c) firing doctrine

• How missile defense has changed over the last several decades

• The role of startups and emerging technologies in the future of missile defense

• The state of our adversaries’ missile and missile defense systems

You can listen to the podcast on Spotify, YouTube, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

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Transcript

Maggie 00:04
In this episode of the Mission Matters podcast, we sit down with Shield Capital Operating Partner, Lieutenant General Pat O’Reilly, to discuss missile defense. Previously, Pat served as the three-star general in charge of the Missile Defense Agency, the Pentagon’s inter-service organization responsible for U.S. missile defense. Before that, Pat had a long career in missile defense. He was the program manager for several key U.S. missile defense programs, including THAAD, National Missile Defense, Aegis, Directed Energy, PAC-3, and radars and space assets.

Matt 01:10
Missile defense is a very popular topic of conversation in national security circles these days, primarily because of the Trump administration’s announcement for a Golden Dome, which is an air and missile defense system that would shield the U.S. from any threat.

Maggie 01:26
Yeah. I mean, I feel like every single time I go to D.C., it’s basically inescapable at any space event from hearing the words “Golden Dome.” But I don’t know, Matt, what do you think? Do people actually have a good understanding of what this might actually mean?

Matt 01:40
Well, before we did this interview, I certainly had gaps in my knowledge about missile defense and what a Golden Dome architecture could look like or cost. And when we started preparing for this interview, we realized just how complicated missile defense really is and how little we really knew about it. One important thing that I now better understand is just how difficult missile defense is to get right. It entails thousands of exquisite technologies working together perfectly for a span of a few very crucial seconds. Our missile defense posture today has roots not only in those technical challenges and what’s technically possible—it’s also been shaped by wider national security policies dating back to the Cold War. And I think those Cold War policy frameworks are still really important for understanding the state of missile defense today.

Maggie 02:31
Yeah, I will say Matt and I are both giant history nerds, so I always love to be able to dig back into Cold War history to understand why our systems are the way they are today. I’ll start by saying, you know, today, the U.S. really does not have a fully comprehensive air and missile defense system. The major policy framework that’s guided U.S. missile defense capabilities was the Anti-Ballistic Missile, or ABM, Treaty, which was signed by the United States and the Soviet Union back in 1972. The ABM Treaty restricted both countries from actually deploying anti-ballistic missile systems with the goal of preventing further acceleration of the nuclear arms—

Matt 03:12
Race. Wait, Maggie, can you explain that? Why would a treaty aimed at preventing an acceleration of the nuclear arms race focus on preventing countries from building up their defensive systems?

Maggie 03:26
Yeah, I think the idea here is that whenever one country built up defenses, another country would build up more missiles in order to actually counter those defenses. So it’s sort of an arms control treaty in reverse—that by preventing you from building defenses, it actually disincentivizes me from building more arms in the first place. The idea was that if neither country could defend against the other’s stockpile, neither would need to develop dramatically more missiles. But the U.S. ultimately pulled out of that treaty in 2001, as other countries like Iran and North Korea started developing their own ICBMs and nuclear programs, and the United States wanted to make sure we could defend against those systems with our own anti-ballistic missile systems.

So really today, the way to think about it is our system is designed to counter rogue threats—that is, a few missiles launched from Iran or North Korea, or a non-state actor, or maybe even an accidental launch from a larger power like Russia or China. But our system is not designed to counter a full-scale attack from a major peer adversary. Instead, we really have to rely on our nuclear deterrent to protect against a full-scale nuclear war.

So that takes us to Golden Dome. Today, a major part of Golden Dome—I think it’s actually officially called Iron Dome for America—is to be able to defend against any threat, whether that is a nuclear launch from China or a small drone launched by a cartel across the border. And in order to actually build out a system that really achieves those goals, it’s going to require new capabilities—and some capabilities that have never been deployed at scale before, like space-based interceptors.

Matt 05:08
And we’ll get into Golden Dome and space-based interceptors and some of these new capabilities. But first, in this episode, in order to understand what the future of missile defense might hold, we actually start with the fundamentals of missile defense. So first, we ask Pat about the types of missiles we defend against, different phases of a missile launch—including when a missile would be most vulnerable to being defended against and intercepted—and what missile defense systems we have to respond at each stage of a launch.

We talk about the different types of defensive systems, including both kinetic and non-kinetic—that’s interceptors versus directed energy—and we cover the core technologies that make missile defense possible along the entire kill chain: how we characterize threats with sensors, algorithms for sensor fusion, and choosing what we want to protect and prioritize with both human and automated decision-making.

Then we talk about why missile defense is so hard. We hinted at that earlier, with all the technologies that have to work well together and the idea of Golden Dome, including new capabilities like space-based interceptors. We conclude by discussing what technologies are still needed to improve and modernize missile defense and where startups and other innovative solutions can help.

And as we said before, throughout the conversation, we gained a much better appreciation for how complicated and difficult missile defense truly is to get right. We hope our viewers and our listeners do too. We’re incredibly grateful to Pat—one of the world’s leading experts in missile defense—for taking the time to explain to novices like us and our audience.

Now, on to the show. Pat, thanks for being here. You had a storied career in missile defense within the Army. How does one even get into missile defense? Did 18-year-old Pat know that he was going to start a long career working on missile defense issues when he started at West Point?

Pat 07:01
Actually, no—and thanks for having me here. But to answer your question, you know, in the Army, you’d see the old saying, “You do what you’re told to do.” And I had just finished teaching physics at West Point as a captain, and the next thing I knew, I was in an organization called the Strategic Defense Initiative Organization in the Pentagon in 1989. That was started by an initiative from President Reagan, and the Army did not have enough officers participating. So overnight, I found myself in the SDI Organization without any training or background. That’s how I got started, and I literally was the junior person in the entire organization.

Matt 07:53
Can you walk us through how you went from being the junior person in the entire SDI Organization to being the senior-most person in all of U.S. missile defense at MDA?

Pat 08:04
Well, like everything, things are controlled by Congress. I went to work one day and found out that the directed energy program that I was the program manager of had lost all its funding overnight. So then I went down the hallway and literally knocked on 100 doors to see if anybody needed help. There was a program called THAAD at the time—Theater High Altitude Area Defense—that was short some people, and I ended up working in theater missile defense. That’s how I shifted from my physics background and directed energy to missile interceptors.

Maggie 08:46
So, Pat, I want to start off just asking a basic question. You know, I think Matt and I seem to see missile defense everywhere these days. It’s in policy discussions in D.C., it’s in every other pitch deck—I feel like we see it especially in the space domain. But what are all the actual moving parts of missile defense? It’s a really complicated system. Can you just break down what actually is missile defense?

Pat 09:15
It actually is extremely complicated. There are thousands of technologies literally working together in real time for these systems to work. It can be greatly simplified, and I always recommend looking at it from three perspectives. One is the class of missile that you’re trying to engage. The second is the kill chain, or sequence of actions that are required to happen in order to destroy a missile. And then the third piece is the firing doctrine you use. So, with those three in mind, you can set up a framework that makes it much easier to understand what does and does not work for missile defense. I just want to comment up front: a lot of times, air defense, which is focused on anti-aircraft and drones, is intermixed with cruise missile defense, which is specific for cruise missiles, and that is also integrated into discussions about missile defense. Those are three different military capabilities, and they require different firing doctrines, different technologies, and different threats.

Maggie 10:32
Maybe we could start with that first piece. What are the different kinds of missiles we might be defending against in the first place?

Pat 10:40
There are two basic classes of these missiles that we’re most concerned about. There’s the ballistic missile, which, by basic physics, means that after it’s been launched and the booster burns out, it then coasts to its target. If it’s short range, it might be a 15-minute flight. If it’s a long ICBM, it could be over 30 minutes of flight, but it is just coasting, and it’s following basic rules of physics and Kepler’s laws, or laws of orbital mechanics. So you can pretty well predict where they’re going to go at any point in time. The other class of threat missile is the maneuvering threat, and they actually have either control surfaces or they have different types of propulsion systems on board that can steer them during flight. So it is very hard to predict where they’re going to be at a certain point in time. Hypersonic missiles that you hear a lot about today are that class of missile. But I will point out maneuvering RVs were introduced by the Russians, or the Soviets actually, in the 1970s, and since then they have been very hard missiles to intercept, because it’s unpredictable what their path is. Each missile characteristic, or a missile, is categorized by its range. You have short-range missiles that are 300 to 1,000 kilometers, intermediate-range missiles which are 2,000 to 5,500 kilometers, and strategic missiles are missiles that travel greater than 5,500 kilometers. There’s a reason they’re broken into those three categories. Number one is the speeds and the altitudes: are they flying inside the Earth’s atmosphere? Short-range typically fly inside the Earth’s atmosphere. Intermediate-range leaves the atmosphere, sure, short for a short period of time, and then it re-enters, and a strategic missile spends most of its time outside the Earth’s atmosphere. You will often ask, “Well, what about 1,000 to 2,000 kilometer missiles?” The reason they’re not covered typically is there was a treaty between the United States and Russia, and the Soviet Union for many years, that banned intermediate-range missiles. So there was very little development done in those areas, and typically the missiles today—there are very few that are in that range.

Matt 13:22
Just to clarify: you mentioned earlier ICBMs — is that the same thing as strategic or 5,500-kilometer-plus range missiles?

Pat 13:32
Yes. A strategic ICBM is a strategic missile. It’s given that range because it’s traveling between seven to ten kilometers a second, and that requires a completely different set of technologies.

Matt 13:48
You also mentioned cruise missiles earlier. Are cruise missiles part of these categories you described, or are they not considered under the same missile defense?

Pat 14:00
They actually have their own class of weapon system, because they’re so unique in having maneuvering airborne capability at the same time as the speed and the ranges of a missile. So cruise missiles are considered separate.

Matt 14:18
Got it. When we talk about missile defense, we’re talking about ballistics and hypersonics.

Pat 14:22
You’re talking about, yes, ballistic and maneuvering missiles of those three ranges: short, intermediate, strategic. Yes.

Maggie 14:31
And now, can you talk a little bit more about that second piece you mentioned, which is the kill chain and command and control?

Pat 14:38
Yes, the kill chain is made up of five different components. First is the sensor, which initially identifies a threat — a missile has been launched — and then starts to track that missile so that over time it can actually predict where that missile is going, especially if it’s a ballistic missile. Those sensors can be land-based, maritime, or space-based. An important part that’s often overlooked is the communication between these different components: they have to be secure, real-time communications that can handle a lot of data. The third piece is the battle management and control system. That’s the overall system that pairs together weapons systems to a particular threat missile that has been launched. The reason that is so important is, as I go back to what I said before, the ranges travel at different speeds and they have different signatures and so forth. Because of that, the interceptor must be paired so that it matches the type of capabilities that the range of the threat missile will have. For example, if you fire a short-range missile, that means it’s traveling most of the time through the atmosphere, so an exo-atmospheric interceptor would not have much capability. Therefore, you marry the Patriot system and the SM-2 missiles, which are built and designed to travel primarily in the Earth’s atmosphere. The intermediate-range missiles require a THAAD system or an SM-3 missile that is designed to travel at higher velocities, has more maneuverability, but operates in the upper atmosphere. And then the strategic missiles require a ground-based midcourse defense interceptor, which is designed to operate in outer space and literally can maneuver many kilometers in order to be able to hit something traveling at 10 kilometers a second. So the important point is to note that if you mix these up, you cannot be very effective: an intermediate-range threat missile, for example, would not be effectively countered with a Patriot system; a THAAD system wouldn’t be very effective against a strategic missile; and a strategic interceptor in GMD would not work well against the short range. So it’s very important that they keep track of what the inventory is, what the threats are, and which weapon system is being paired to which sensor or threat missile. Then, besides C2BMC, once that pairing has occurred, it then hands off the mission to the weapon system in order to allow a fire-control solution to be developed, and then that fire-control system is uploaded into the interceptor. The interceptor is launched; it has to take into account the flight time of the interceptor as well as the closing velocity and the flight time of the threat missile. What’s really important here is the concept of what we call the error basket. The error basket means we’ve tracked the threat missile and we can predict it to a point where we are able to fire an interceptor into this — as you could imagine — a basket, a three-dimensional basket in space, and that interceptor is flying towards that basket. By the time the threat missile arrives, the interceptor should be in the same location with enough maneuvering capability to counter any errors that occur in that trajectory prediction so that it can steer itself to an actual intercept. It’s quite amazing, because you’re intercepting something with closing velocities typically above five kilometers a second, and the size of a threat missile — if you look at them in the press or on TV — you’re trying to hit something that’s less than three feet across, and they’re trying to hit it from often launch points that are five to six thousand miles away. So this is a remarkable amount of technology that has to work in a precise way in order for that intercept to happen. And the final step of the kill chain is the kill assessment. It’s extremely important to determine whether or not you hit the target or whether you have to fire another missile at it. This becomes complicated when you have multiple threat missiles being intercepted in a close location because the destroyed missiles’ debris is flowing in front of other missiles that are still coming in. So that’s quite a challenge to complete the kill assessment, but it’s extremely important. So that’s the kill chain — each one of those five steps.

Maggie 20:06
And maybe one quick question about the different kinds of interceptors. I know we’ve talked about this. There’s both kinetic interceptors and also some of these non-kinetic or directed-energy interceptors. Could you talk a little bit about those different approaches?

Pat 20:24
Yes. Well, the kinetic interceptor is extremely complex, but the technology is in hand in order to launch missiles. You do have to take into account the battle management, the firing doctrine, the flight time, the control of the missile, what altitude the intercept is coming at — all of that has to be calculated, and the interceptor has to be flown in a precise way in order for an intercept to happen. A directed-energy system obviously moves at the speed of light, and because it’s moving at about 186,000 miles a second, the fire control is much simpler. When you hit a missile, the nice part about a directed-energy system is you may not destroy it, but you may disable it. The beauty of that is that then it doesn’t break up and cause debris that makes it harder to hit other inbound threat missiles in the local region. So there’s a lot of benefit with directed energy. The issue has been developing that technology: getting ranges through the Earth’s atmosphere of hundreds of kilometers or longer, and the power required if you base it in space — how do you get that much laser or high-power microwave power in space? Those are all still technical challenges that have not been overcome.

Matt 21:55
So today are we mostly using kinetic interceptors, then, rather than directed-energy solutions? Or is it a mix? You mentioned the technology is not fully, fully ready on the directed-energy side.

Pat 22:10
For missile defense, it’s 99% kinetic interceptors.

Matt 22:16
And just one follow-up on something you said. You mentioned that if a kinetic interceptor intercepts a missile, it creates debris that makes it harder for future interceptors to intercept other missiles. Can you talk more about that? Why does it make it harder for other interceptors to work effectively?

Pat 22:35
Because it’s creating a shield of debris that, if you’re a radar/RF, acts as what we call chaff, and it causes reflections back and makes it very difficult to see through that chaff to determine where the actual oncoming missiles are that haven’t been intercepted yet.

Maggie 22:59
One more clarifying question on the world of the kill chain. Could you tell us a little bit more about the different kinds of sensors that we use to actually track these threats? Then how do we take the data from all these different sensors and actually make sense of it in the first place?

Pat 23:16
That’s one of the greatest challenges of missile defense, and it’s been focused on for decades: how to take not only different sensors, but each sensor has its own angle of looking at the threat target. Each sensor has a different spectrum it’s usually looking at, even the way the data is transmitted — it has different formats. Most of these sensors were either strategic or they’re airborne or they’re on ships, and they were all designed for different missions originally. The C2BMC system, the battle management and control system for missile defense, has to take into account all of these inputs and also the reality of geometry. If you’re close to a sensor that’s not high resolution, but you happen to be in a location very close to the threat missile that’s flying by, it may be your best sensor. Five seconds later, it may be a strategic sensor that’s 1,000 miles away that is your best. So the system has to continually go through and calculate what is the best sensor at that moment to use in order to predict the track so that an interceptor can be fired to it. The last point you made was extremely good: the question on fusing. There’s a lot of definition of fusing. Fusing a lot of times means make sure you pick the right sensor at the right time. But the real definition of fusing is that the accuracy of the combined data from all the sensors is better than any individual sensor. To achieve that is extremely difficult, and the promise of artificial intelligence and AI agents has made that more realistic, where we can come into these very precise calculations of where the missile will be in the future, given its trajectory and flight, just using sensors that have been used for years, and improving on the speed of those calculations and the actual fused accuracy of the resulting trajectory.

Maggie 25:44
And the way you’re describing sensor fusion here, you know, if I have a sensor on some ship somewhere, and then a sensor in space, and then a sensor on land, and I want to be able to combine all the data from all of them to get an accurate picture, like, what is the communications technology needed to manage all that data and make those decisions in real time?

Pat 26:04
Well, the network is extremely important in this architecture. And also you may have not only the particular sensors during the flight of a threat, you may have your best sensor because of its location, but also you may have it because it has an unobstructed view. Long-range missiles, you know, you have to deal with the curvature of the earth, and so a space-based sensor may give its first warning, and the next best warning comes from a sensor that’s at an allied location in another country. We had a recent example when we upgraded our sensors, originally back around 2000 or so. When we turned on some of these new high-fidelity sensors, we actually got some disturbing news when we were watching the space shuttle, where it appeared the space shuttle was cracking, was breaking up on us, and in reality the sensor was so accurate we were getting four or five returns off the space shuttle, whereas in the old ones, using the old algorithms, we’d get one return. So we’ve had a lot of exciting moments during that period of time. But the accuracy of these sensors is getting so good, and like you said, they need to communicate with each other. These networks are designed so that if only part of the network is working, it can still operate, and it’ll take its best guess at where the flight trajectory is on a threat missile.

Matt 27:43
Yeah, so we’ve talked now about the sensor fusion piece, the communications between all the sensors. And you mentioned that AI and agentic systems might be able to better make sense of all those sensors in the future, but today, once you have all that sensing data in one place, once it’s all been communicated with each other, how is the decision made about whether to engage a missile threat? Obviously, you don’t want to engage a threat that’s not actually a threat, like in the space shuttle incident you just mentioned. So how is that decision made, and the decision about which specific interceptor or countermeasure to use against the threat?

Pat 28:24
Well, first of all, there’s pre-planning before a missile defense architecture is established, and the most important part is to determine what are you trying to protect. So you have locations on the ground that are marked off that are what we call the defended area. And if the threat missile is obviously not flying into the defended area, we do not engage. We just let it fly and hit a target on the ground or the ocean that is not seen as an asset that has to be protected. So that’s the first thing. Second, you have to determine the type of missile — try to differentiate the different types of missiles that are out there, the threat missile, and figure out what it is carrying on board based on historical intelligence. And the third piece is to, as I said before, ensure that you have an interceptor that’s capable of intercepting that missile, and when you are going to engage it in flight. So this is all pre-programmed into the missile defense architecture, hopefully before an engagement even occurs.

Maggie 29:46
So we’ve now talked about the threat. We’ve talked about the kill chain. So the third piece that we need to understand about missile defense is the doctrine.

Pat 29:54
It’s the firing doctrine. And the first thing to look at in a firing doctrine is the phases of a threat missile. When a threat missile first takes off, it’s in the boost phase. Obviously its boosters are energetic at that point and usually cause a big infrared signature. Normally a space-based satellite will pick up that thermal signature and indicate a missile has been launched after a few minutes. By observing the missile’s trajectory, even in boost phase, you then determine whether or not it is going into an orbital trajectory, meaning it’s probably a satellite, or if it’s going into a ballistic trajectory, meaning that it’s probably a threat missile. That occurs in boost phase. One of the most important phases is right after boost. Right after boost phase, the threat reentry vehicle usually separates at that point, and you go into post-boost phase that lasts a couple minutes. At that point it’s the very beginning of its long coast towards its target, and that is a phase where you’ve had enough time to track the missile that it becomes predictable of where it’s going to be for the next minute or so, and you actually have a chance, possibly, of hitting a missile during post-boost phase. It’s also where it’s so early in the flight that it’s typically very difficult to deploy decoys or anything, so the missile is most vulnerable right after boost in that post-boost phase. Plus it’s extremely hot because it just flew through the Earth’s atmosphere, so it’s a very bright signature at that point. After it cools down and continues to coast — and sometimes the coast could be for 10 to 20 minutes — it goes into the mid-course phase, and that’s where it’s flying above the atmosphere. An ICBM, like I said, can fly for 10 to 20 minutes even before it starts reentering the Earth’s atmosphere. And when it reenters the Earth’s atmosphere, that’s the terminal phase, and that only lasts a few minutes, and it’s moving at extremely high velocity. You have plasmas being formed around the reentry vehicle; you have all of the disruption. It’s not a smooth flight — a lot of bumpy disruption occurs to those RVs as they’re coming through the Earth’s atmosphere, which makes it harder to hit at that point. So mid-course is a nice spot to hit it; it’s a relatively stable target. Boost and terminal are challenging.

Matt 32:56
Maybe to start to match the systems you mentioned earlier with some of these phases, I assume that you wouldn’t use the same interceptor at any phase of a ballistic missile’s trajectory. So could you talk a bit about what kinds of interceptor options we have at each phase of a ballistic missile’s trajectory?

Pat 33:20
Well, it often comes down a lot of times to geometry. If you happen to have an interceptor launcher that’s near the missile that’s being launched, you’re able to launch it, and you have a good chance of hitting it during post-boost. But that means you have to have a launcher that’s very close to where the threat missile is being launched from, and that is typically an Aegis ship with an SM-3 or an SM-2, or there’s a longer, higher-velocity Standard Missile. That’s what “SM” stands for; we have co-developed it with the Japanese, and that has the opportunity to hit missiles that are not strategic but in the intermediate range and speeds and velocities. So one way is to just be close to where the threat is. You can also do it with land-based systems, for example in the Middle East, where they locate them on the other end. You have what we call goaltending, and it’s like hockey. You don’t have to be at the goal, but it’s best to be in between where the shooter is and where the puck is going to travel past. So another place to focus your missile defense is around the defended area, as I mentioned before, where you want to intercept just as a defender would on a hockey team — a forward hits the goal.

Matt 35:01
Got it. So the first examples you gave where you have your interceptors close to the point of launch was for boost or post-boost phase, and then?

Pat 35:12
Well, post-boost. Boost phase is extremely difficult because you’re hitting something that is accelerating and usually out of reach. It’s being launched from a location that is safe for the threat — your adversary — so it is very rare you’re close enough to actually hit something in boost phase. Post-boost you’ve had enough time and it’s no longer underpowered flight, where you probably have a better chance. The most mobile systems we have for land for that velocity would be THAAD, and for maritime it would be the Aegis system.

Matt 35:55
So the reason that it’s more feasible to take out a missile in post-boost is because it’s now closer to where the interceptor is, or just because we’ve had more time to respond? Or—yeah, don’t totally understand why it’s easier in post-boost than boost phase.

Pat 36:11
Because you’ve had time to respond. You know, the boost phase is usually only a couple minutes, and now the—if you’re in the right location, the post-boost that’s flying near you, and so if you’re located correctly, depending on your intelligence ahead of time, you can be as close as possible. In the post-boost, you’re no longer in powered flight, and it’s fairly predictable where it’s going to fly, and you’ve had enough time, and it’s difficult to deploy decoys in the post-boost phase. You can, but they’re going to eventually become evident that they’re decoys in the terminal phase. Again, if it’s a short—if you’re worried about short-range threats, you can have the Patriot system there. The Navy has the Standard Missile 2 for that and for shorter range, and actually for air defense too, both of those systems. And then for mid-course, it’s either the SM-3 missile with the Aegis system on maritime ships, or the THAAD system for a ground base. Again, these interceptors are being used that way because the characteristics of the interceptor—the seeker on board, its guidance system, its control surfaces—are all designed for operating in a certain part of the atmosphere, and that’s why they’re paired up with threats that fly in that part of the atmosphere.

Maggie 37:45
I know today there is a lot of discussion about what it would take if we wanted to try and hit a missile in the boost phase. Like, is it even possible to do in the first place if that were a goal of trying to take these missiles out before they’re able to deploy multiple warheads or decoys or elsewhere?

Pat 38:04
So the challenge with boost phase is, again, first of all, you don’t know when it’s—once. You don’t know when it’s going to happen, and once it’s launched, you have very little reaction time. So it’s going to have to be an interceptor that can be fed information from a sensor that a launch has occurred and its path has been predicted, and it’s in a location, typically in outer space, that can reach the target within a couple minutes. So that’s extremely fast, which means you have to have a very high proliferation of these boost-phase interceptors on orbit so that they can actually, literally, reach their target within a very short period of flight time. If the threat missiles within that air basket and the interceptor is flying to that air basket, when it gets close to the air basket, the sensors turn on on the interceptor itself—the kill vehicle—and the kill vehicle guides itself into the path of the oncoming missile.

Maggie 39:24
Pat, what is the state of our adversaries’ current missile capabilities? Have there been any major changes over the last couple decades? And, you know, what do we need to be prepared to defend against?

Pat 39:37
Well, the growth—the proliferation of ICBMs, in fact missiles of all classes—is very unnerving. Over the past 20 years, it’s been exponential growth, not just exponential growth on the black market and in indigenously developed missiles themselves, but also their ability to be launched off of mobile launchers. In the old days, very old days, when long-range missiles were launched off of launch pads, you knew where the launch pads were, you knew where to watch, and you could counter those launch pads if you had to. Today, many of the—even ICBMs—are on mobile launchers that can be hidden. They can be moved. They can be camouflaged. It’s very, very difficult to track where they are and know where they are ahead of time. So the system has to be basically able to react to them after they’ve been launched, because it is so difficult to find the literally thousands of long-range missiles that have now proliferated. It’s very well known that Iran has developed missiles, and years ago they tested many tens of missiles being launched simultaneously, so they have that capability. It’s well known. North Korea is continually testing their long-range missiles, although the testing for ICBMs is not that impressive yet, because it basically goes straight up and then comes straight down, which is reminiscent of our early missile tests in the 1950s, but they are making progress. And then Russia is using the historic Soviet missile arsenal that’s been developed. And finally, China has had a very large proliferation of long-range missiles on mobile launchers.

Matt 41:51
You earlier mentioned the Ground-Based Midcourse Defense system, which was, you know, the primary system used to take out some of these very long-range ICBM-type missiles. I guess the question is: is that system—which you mentioned we have some in Alaska and some in California—meant to stop an all-out, high-volume attack from a near-peer adversary like China or Russia? Or, you also mentioned some of the tests from Iran and North Korea, which presumably have significantly less developed ballistic missile capabilities. What kinds of threats are they able to take out in that regard versus not able to defend against?

Pat 42:45
In the case of strategic missiles, the U.S. Ground-Based Midcourse Defense system was set up by law—the 1999 Missile Defense Act stipulated it was designed to counter threats from Iran or North Korea or an accidental launch from Russia or China. The location of the interceptors themselves, especially in Alaska, which has 40 interceptors up there in the open press, and Vandenberg has four more, those are optimized for flights from Iran or North Korea towards the United States. Those locations are not optimized for a launch, obviously—just geometry—from northern directions toward the United States. So there is a limit to how far a missile can go and how fast the missile can go. That’s just basic physics and geometry that does limit the capability of those systems. I would also say that when you look at a missile to defend a city, that missile has to be extremely high—have extremely high reliability—and that is very difficult to achieve in a system that’s made up of over a thousand parts, which they are. All those components have to work perfectly. So statistically, you’re not going to achieve or can count on a 100% reliable missile. What that means statistically is, if you want to achieve 100% reliability, or close to it, you need to fire more than one interceptor at each incoming target. So that’s another consideration they have to have, which is part of the firing doctrine.

Matt 44:44
So, for example, if North Korea could launch 10 ICBMs and there are 40 interceptors in Alaska, that’s something like a four-to-one ratio of interceptors to missiles. But how much does the number of missiles launched matter relative to, say, the types of countermeasures that those missiles have, in terms of the reliability of the interceptors for actually countering that threat?

Pat 45:11
Well, the countermeasures are often described as balloons and other things, but in reality, actually using them is much more difficult. It’s hard to make them appear like an RV over a long period of time. You can fool them for a short period, but over a long, 15-minute flight, it becomes extremely difficult. And so our systems are developed in order to differentiate between the different types of objects that are up there.

That’s one thing. The other is, again, the reliability of these interceptors is taken into account to determine how many interceptors are fired. Part of the firing doctrine can be, if you have enough time, what we call “shoot-look-shoot.” You shoot at the missile and then determine the kill assessment — did you hit it? And if you didn’t, or it wasn’t successful, you have an opportunity to shoot again, the second shot.

Depending on the time of flight, the command and control system very quickly calculates the optimum firing solution, and you try to fire as few interceptors as you need to in order to destroy a missile.

Maggie 46:34
So, Pat, I want to shift the conversation a little bit to the hot topic of missile defense today, which is Golden Dome — or, I guess, the executive order is called Iron Dome for America. In reading this executive order, and I know it’s still kind of a new concept that has not been fully fleshed out yet, from your perspective, what is really the new idea here for this next generation of missile defense that we don’t have in our current missile defense system?

Pat 47:05
I think there have been some technological advances over the past few years with our sensor resolution, and the proliferation of commercial space is making affordable sensors flying at low Earth orbit, called LEO. Many of those satellites can now be put into space at an affordable cost because of the commercial reduction of launch costs. It used to be $20,000 to $30,000 a pound in the 1970s; today, it’s about $1,500 a pound on a Falcon 9, for example.

That’s a tremendous reduction in cost, allowing us to put a great number of sensors up there at low Earth orbit because they’re affordable. They can also be built so they don’t have to last 10 or 20 years — they can have a shorter life, return to Earth, burn up, and be replenished. That gives us a significantly greater amount of sensor capability to monitor the threat.

As we referred to before, the command and control system involves literally tens of thousands of calculations going on simultaneously in any large-scale attack. Using artificial intelligence, neural networks, and agentic systems, it’s greatly simplified the software architecture required and allows the command and control system to take in a much greater amount of input data to calculate.

In terms of the weapons themselves, the propulsion systems and so forth are pretty much standard — they’ve been developed over the years, particularly the kinetic interceptors. The one area I think could be different would be launching the interceptors from space — SBI again. That architecture would depend on what the threat is that it’s trying to counter and how many interceptors you need.

If you’re just trying to conduct a mid-course intercept from space, you don’t need as many space-based interceptors. If you’re trying to hit in post-boost or boost phase, you would need a tremendous amount of space-based interceptors so they’re close enough to the launch.

Those are some of the significant technical advances that have occurred. From the point of Iron Dome — as you referred to — I was involved in that development for many years in Israel. That’s a much smaller piece of ground you’re trying to protect versus, obviously, the geographic area of the United States. You’re fairly certain of where the threat trajectories will come from, so you can do goal-tending and other things.

As I said, to protect the United States, you have to be concerned about threats that could come from almost any direction. And again, if there are short-range threats being launched off, let’s say, barges or submarines or nefarious vehicles, you’re going to need an awful lot of short-range missile defense systems. Just by counting up the number you would need for Patriot, it would be a tremendous number of Patriot systems.

For strategic interceptors, you’d need a much larger number and they’d need to be located in places other than Alaska or Vandenberg. So, it’s a much greater undertaking.

Maggie 51:24
When officials go about designing a new missile architecture, what are some of the trade-offs that need to be made?

Pat 51:32
Well, first of all, it’s driven primarily by the threat — where they think the threat is. Second, it’s driven by what you’re trying to protect. High-value targets — typically military bases or assets that give us the capability to respond and deter a threat — are usually considered high-value targets, as are seats of government and population centers.

All that has to be taken into account to design the goal-tending between where the threat is launched from (or estimated to be launched from) and what you’re trying to protect on the ground. Then you decide where in that trajectory to place your interceptors, sensors, and so forth.

I will say, it’s hard to comment on Golden Dome at this time because the architecture has not been publicly released, so it’s very difficult to determine what factors were traded into that architectural design.

Maggie 52:52
So, as we look toward some of these future missile defense plans, as venture capitalists, of course, we have to ask the question — what role do you see for startups in missile defense?

Pat 53:06
I see several. First of all, we’ve talked a lot about calculations and computations that must go on in real time so that kill chain I described. If there are technologies or algorithms or software modules, genetic agents, things that are set up that can calculate faster and get to a good enough answer—every millisecond matters. That is one area where there could be a significant improvement in the firing doctrine, even using today’s interceptors, due to the speed that the kill chain can operate at.

The second one I would think is associated with that would be the different types of technologies associated with object identification and resolution of existing sensors today. Again, it’s driven by calculations, and so those are the principal ones. Propulsion systems are very capital-intensive, and they tend not to lend themselves to that. You can do it, but it takes—the safety factors are significant—that you have to take into account, and that drives the cost, and that drives the time that it takes to develop. Those are normally done by larger corporations.

Matt 54:51
Whether it’s startups or existing contractors, where do you see the biggest need for investment to improve missile defense technology—to have more reliable systems, systems that can counter a wider range of threats? You’ve mentioned many today that have room for improvement.

Pat 55:12
So, craftsmanship and quality control systems that are in a lot of the factories building the thousands of components that go into interceptors and the different parts of the missile defense system are key. That’s an area that—if you’re building, you know, a car in Detroit off an assembly line—the precision, the requirements for that quality control are tremendously less than trying to build what we would call a space-based or space-qualified component.

Technologies that can improve quality control, for example, may not sound like a flashy technology, but it is critical. The higher the reliability, the fewer interceptors you have to fire, and the greater the probability of defeating a threat launch. So that’s one example right there.

Matt 56:18
We talked a bit earlier about Israel’s Iron Dome, and obviously the executive order for Golden Dome is inspired directly by Israel’s Iron Dome. What are the major differences between the interceptors needed for Israel’s Iron Dome and the U.S.’s Golden Dome?

Pat 56:39
Because of the size of Israel, most of the interceptors used in Iron Dome are short-range interceptors, so they’re lower in cost. You can proliferate the number of them, and the sensors are within line of sight of the threat missiles, typically, so you don’t need a long-range communication chain.

In the United States, it’s obviously many, many times larger geographically, and the threats could come from a far greater number of trajectories. The ranges can vary greatly, and the amount of time you have to respond can be much less. It also requires a mix of interceptor types. The short-range around the coastline—you’d have Patriot or SM-2. Large cities would require THAAD or SM-3 if near a coastline. And ICBMs obviously are the only things that can counter those types of threats.

Maggie 57:58
Going back to looking at the international stage, we’ve talked a little bit about Israel’s current missile defense capabilities, but what do our adversaries’ missile defense capabilities look like? And are there lessons that the United States should be learning from how others have designed their own systems?

Pat 58:20
Well, there are a lot of similarities with some of these systems to ours, which is quite interesting. I have literally shown Russians, many years ago, an intercept that they thought was done by the THAAD system, and it turned out it was a Chinese system. They were surprised by the advancement that the Chinese had.

The basic technologies of command and control and sensors and propulsion systems have reached the point where kinetic interceptor missile defense systems are proliferated, but primarily with only our larger, near-peer potential adversaries. They’re less seen in smaller countries.

The real concern is non-nation-state threat actors such as cartels and others, because of the proliferation of threat missiles being sold on the black market. Associated with that is the use of software and modules—and maybe AI, I’m not sure at that level—but it greatly simplifies the training required to launch a missile. You can be a fairly untrained person and successfully erect and launch a missile bought on the black market. That is a tremendous concern, because now you’re not dealing with a nation; you’re dealing with all of these other, as I said, non-nation-state threats.

Matt 1:00:16
Anytime we think about a new missile defense architecture, or making a change to it—thinking back to the ABM Treaty and limits to the amount of defenses that the U.S. and the Soviet Union would build to maintain deterrence with each other—how should we think about the ways our adversaries might respond to any changes to our missile defense architecture?

Pat 1:00:41
First of all, what I just mentioned is the greatest threat, because it’s really hard to deter a non-nation-state actor—some criminal group or so forth—that may want to hold a region hostage. We recently saw the Houthis, for example, threatening international shipping off Yemen for the last couple of years and the impact that has had. So the architectures now have to be extremely agile and flexible, to adjust to not only defeating missiles coming from a certain region but also focusing on the defended assets, no matter what direction they come from, which is a much greater challenge.

Matt 1:01:33
Great. Well, Pat, thank you so much for being here. We really appreciate it.

Pat 1:01:38
My pleasure. Thanks so much.

We discuss:

• What investment casting actually is and how Rangeview is revolutionizing the ancient manufacturing process

• Why China dominates much of today’s manufacturing landscape, particularly in the world of consumer electronics

• How modern defense manufacturing today differs from the manufacturing we did during WWII

• How industrial policy combined with new technologies can help bring manufacturing back to America

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

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Transcript

Maggie 0:00

In this episode, we’re joined by Cameron Schiller and Aeden Gasser-Brennan, the founders of Rangeview, a startup revolutionizing investment casting through novel 3D printing techniques that are enabling the next generation of autonomous systems and advanced manufacturing. Investment casting is an ancient process—it’s been around for thousands of years—used to create everything from jewelry to jet engine components. But despite its importance in manufacturing critical parts for aerospace, defense, and automotive industries, the fundamental process has not changed much since the 1960s. Meanwhile, the U.S. has lost over 100 investment casting foundries since 2001, creating a strategic vulnerability at a time when our defense systems are becoming more complex and our adversaries are modernizing their manufacturing infrastructure.

Akhil 01:20

What’s particularly striking is how this old-school manufacturing process has become a bottleneck for innovation. As companies like SpaceX, Tesla, and Varda—as well as more established aerospace and defense companies—are pushing the boundaries of what’s possible with modern systems, they’re discovering that traditional manufacturing just can’t keep up. They need components with complex internal geometries that are really impossible to create using conventional casting methods—think turbine blades with intricate cooling channels or missile components that need to be both lighter and stronger than ever before.

Maggie 01:53

Enter Cameron and Aeden, two college students who saw an opportunity to bring this ancient industry into the digital age by combining custom 3D printing with advanced material science. Not only are they making the casting process faster and cheaper, they’re actually enabling an entirely new set of designs that were physically impossible to manufacture before. It’s not just about efficiency—it’s about unlocking new capabilities for America’s most innovative defense companies. Cameron and Aeden, thank you guys so much for joining us.

Akhil 02:22

Awesome, guys. Cameron, Aeden—so excited to be here with you. It’s been awesome to see the journey from your Berkeley lab a couple of years ago to where you are now. It’s been great to see what you’ve built and how you’ve executed. Before we dive into all of that—and honestly, maybe share with a good amount of the listeners what investment casting actually is—let’s actually start geopolitically.

So, over the last couple of weeks, a lot has been happening in terms of geopolitics, tariffs, and the state of the nation’s industrial resilience. To start, where do you think we are in terms of the state of U.S. manufacturing? We can dive beyond generalities since you’re living it on a day-to-day basis. Where are we at? What’s your assessment, and where does your work fit in?

Cameron 03:10

Well, the state that we’re in is—everyone listening, take a look around right now and see if you can find anything you can confidently point to that was made in America. It’s not great. Slowly, over the past 20 years, we’ve let it all slip overseas through globalization and the whole story of how we got here. The truth is, we’ve really hollowed out our industrial base for the promise of more freedom and flexibility—and what we got on the other end was a supply chain that’s more fragile than ever.

The great Americans responsible for making all the stuff underpinning our critical defense systems—and everything else in life—are retiring. Most of them are on their way out or already gone, and there are fewer and fewer people to make the parts we need. Those parts are mostly made overseas. So, for defense and energy applications—where we’re tripling the energy usage needs with the AI boom coming—there’s just no supply chain on the back end of it.

I’m excited to talk about that in more depth today. I think most folks don’t know just how bad it’s gotten, and that could be a real awakening for us if we ever need to pull that lever and start making lots of parts the way we used to.

Akhil 05:02

Definitely. And Cameron, it’s not just necessarily the globalization piece. Having watched you over the last couple of years, it’s also about the ability to innovate—the fast feedback cycle between new, novel systems and platforms, both civilian and military. It’s kind of hard to do that when you’re shipping a part every week or two from somewhere else. The cycle time to accelerate innovation isn’t just about production, but the unique design aspect as well.

Cameron 05:24

Yeah, that’s exactly right. That’s a big point that a lot of people are starting to pick up on now. When you’re building a system, the first thing good engineers do is engineer iteration rates. The easiest way to collapse iteration rates and reach higher levels of innovation is to bring manufacturing as close as possible to the final design space. Some of the most innovative folks out there are actually doing their own manufacturing. They understand the constraints of the system they’re building.

There’s this great art that’s been lost in America now, which is called DFM—or “design for manufacturability.” At a cultural level, it means understanding how something actually gets put together. We’ve lost that a bit. And believe it or not, most innovations happen in the design space of manufacturability. You can’t just make something new—you have to make something new that can move its way into the world. Understanding manufacturing is critical to innovation, and the way you understand manufacturing is by doing it. We need to do it so we can collapse those design iteration rates and really bring the best and brightest designs to the end user—the warfighter.

Aeden 06:31

I think there’s a point to be made here. Early on, when we were starting the company, one of the clear indicators that the old paradigm was collapsing—the idea that we’d do all the design here in the U.S., ship the manufacturing drawings overseas, and make all the money because we controlled the designs and the brand—was the rise of Chinese consumer electronics companies killing their American counterparts.

The greatest example is DJI, right? DJI—which is now obviously extremely relevant militarily—started as a consumer electronics company. Why does DJI do so well? It’s a good question. Why were they so much better than all the American drone companies, at least for a while? The answer is that they could manufacture everything down the street. Their iteration rates were incredibly fast. They could do more technically interesting things at lower cost and get those to market faster.

If you’re a manufacturing company—or a company that makes a product—your advantage is the ability to iterate quickly. That was a clear indication that something was wrong. The theory was that with America’s great universities and engineers, we’d build the best products. But that doesn’t work if you can’t manufacture those products in-house or iterate and develop quickly.

Maggie 07:43

And why is it that we lost so much of that capacity? And, you know, what are the levers that we are actually able to pull to bring that back to the U.S.?

Aeden 07:54

So, I have this kind of saying: the right industrial policy is the one that actually changes the unit economics of manufacturing in your country. Everything else is a short-term solution. As long as it’s actually more expensive to manufacture here, new manufacturing won’t come back.

I’m a bit of an outspoken believer in tariffs because tariffs do this, right? Strictly, it is more expensive to manufacture here. But if you—well, I think China’s a great example. It’s really worth looking at what worked so well. Obviously, it started with labor; that’s why we started sending things overseas. But over time, China’s real advantage today is that they are consolidated and have a ton of things in close geographic proximity. They have this ability to get things quickly, build new things quickly, and deploy new technology out to the factories quickly.

Maggie 08:47

They can literally walk down the street and talk to their friend who’s actually doing the castings or forging. And then redesign a part in the course of a couple days or hours.

Aeden 08:56

Exactly—and not only that, they can go down and buy the ceramics feedstock from their friend three streets over, and the mine that’s making the raw iron is only a few miles away. So this real consolidation of all these different causes in close proximity is the real benefit.

I think this is a huge project to build back in America. We had this—America was the king in manufacturing up until around the ’80s or ’90s. I think you have to start in the places that have some sort of DoD significance, where the interest is already there from the government. You need to start with who actually wants the manufacturing back the most and start building capacity there.

There’s a flywheel to get started: if you start in the processes that are most critical for the people who care, those processes will make it cheaper to do all the other processes here. There’s the idea of a learning curve, but there are also compounding learning curves in manufacturing. The more of everything you do, the cheaper it gets. The more things that are adjacent to what you’re doing, the cheaper it gets because you share labor and equipment, and things are amortized over more parts.

I think the policies the government has pursued have been a little misguided in a few key ways. One is that the government is really good at funding development—they love funding development—but there’s an issue: a lot of things get developed with government money and then never go to production. There aren’t enough incentives to actually build capacity.

If I were to change our industrial policy, it would be less about development contracts or qualification contracts and more about: if you build this amount of installed base capacity, we’ll fund your CapEx, or this becomes a tax write-off, or something to that effect. That actually changes the economics, as opposed to funding a million early-stage development contracts proving out new technology.

This happens again and again—America develops amazing new technology, and China implements it at scale. America invented the CNC machine, and yet, I don’t know what percentage of CNC machines are in the U.S. This will keep happening so long as the government just funds development.

China is a great example: funding CapEx and providing cheap government financing really does drive growth in manufacturing because it’s geopolitically relevant for them. It’s geopolitically relevant for us too. I think we’ll start to see this happen more and more, but historically we’ve focused too much on funding development instead of scaling. What we should really be doing is scaling more similar processes that have less of a technical moat—less difficult to develop—and focusing on building lots of capacity.

Akhil 11:30

Aeden, here we are talking about manufacturing — your focus on investment casting. There are probably folks listening in, or even, frankly, when I first met you, I had to learn a ton about what investment casting was and what you’re doing with it, what’s novel?

Aeden 11:42

Yeah. So I’m going to walk through each step of the process and explain what we do, what an official foundry does, kind of explain it from the customer’s view, right? Because that’s who matters at the end of the day.

So, you’re a customer. You want to make a part. You come with a drawing, CAD file, budget, requirements — density requirements, mechanical properties of the part, what kind of processing is allowed, what shape it is, how we measure that shape — all these things, right?

And you start out at a foundry. We do the same thing. We look at this and say, “Okay, how are we going to make this part? How are we going to set it up? What’s the right process to make this?”

For us, it’s largely similar across a lot of parts. Foundries, though, are actually very different. So, they’re making some tool to start — a big block of metal — and that block of metal has the shape of the part cut into it. Usually it’s actually tweaked a little, because the part might deform or change shape during the process.

The foundry starts by making a wax pattern. Rangeview doesn’t do this. The foundry makes the wax pattern, then assembles a bunch of these patterns together.

If you want to make a spoon, you have a wax spoon. You may take a bunch of spoons and put them together — they’ll have a wax tree feeding them. You’ll see this big wax tree that holds a bunch of wax spoons.

Next, you dip that in a ceramic coating — usually dip, dry, dip, dry — it takes a few weeks. What you’re doing is building up a layer, like a clay layer, on the surface. Then you melt all the wax out, burn the remaining wax again, and finally fire the ceramic shell.

You’ve got basically a big, complex mug — a strong ceramic mold.

What Rangeview does is make the mold directly. We print direct molds, so we skip all those steps — all the manual labor — and, really importantly, we skip all the variability in the final part that comes from human decisions. You want the technical characteristics of the part to be driven by software and machines, because then it’ll do the same thing every time. Your tolerances are much tighter, and you can rely on the process more.

At the end of that whole process, you’ve got a part inside a big ceramic cavity. Then you pour metal into it. There are a variety of different casting processes — Rangeview works with one that produces reactive or very high-temperature alloys. You pour the metal into this mold, remove the ceramic after it cools, and you end up with a single part.

You throw away the ceramic each time and remake it for every new mold. That’s how you make the part.

Then you cut the part off the tree and do a ton of post-processing — you might take X-rays of the part to look for porosity, coat it with a penetrant to show cracks, cut some parts apart to pull mechanical tensile bars and test strength. Then you’ll heat treat, machine, and coat them. Generally, at that point, you’ll have a final part.

So, the whole process traditionally involves all this fixed tooling to make the part. For us, it’s the same process every time — we directly print the ceramic mold. It’s a process we’ve built in-house, and it allows us to make different parts without changing any tooling.

Today, the U.S. has offshored almost all of its investment casting capability. Investment casting is used in enough of these “commodity” capabilities that people have said, “Well, this isn’t defense-critical, maybe we can push this overseas.”

But there are a lot of cases where people actually got exemptions to manufacture critical parts overseas because it was cheaper. Investment casting is full of labor — the traditional process has hours and hours of manual work. You might have 40 hours of labor going into a part that fits in your hand. So, in that case, it really matters if you can save another $20 or $30 per hour of labor. When you have a very unautomated process — which is the traditional method — that’s a huge factor.

Akhil 15:35

That’s awesome. It sounds like the previous instance hasn’t changed for thousands of years — some sort of wax base to ceramic, you pour metal into it, and… great.

Aeden 15:46

Yeah, it started with beeswax and river sand — that’s how this process began.

Akhil 15:50

And critically, now you’re able to, because you’re 3D printing and designing this in a digital foundry way, actually make a whole new set of complex geometries that you can pour whatever you want into, correct?

Aeden 16:01

Yeah, and we’re enabling a whole bunch of designs there that you couldn’t make in the traditional process. Those are some of the most exciting parts we make. And it’s also worth saying that almost every one of those post-processing steps I described are generally done by people.

So, the way you cut the casting off in a traditional foundry is a guy sitting on a saw. This is a horrible job, right? It’s a super dangerous job. It’s super loud, the saws break and send bits flying—you know, people die doing this. It’s really a horrible place to work. It’s not somewhere I’d want to work. It’s not somewhere I’d want my kids to work.

And it’s the same thing with everything else—the person grinding the part, the person heat treating—it’s a bunch of people stacking parts in a big furnace, closing the furnace, opening the furnace. In our factory, almost all of this is done by a machine. The person is programming the machine, setting it up to do a new part, but they’re not the one actually cutting the part or grinding it. That’s all done by a robot, really, at the end of the day.

The traditional process to make any of these parts—and any of the traditional competitors—has a very inflexible process that cannot be changed without huge budgets. You’re making a part, you want to make it slightly differently, you want to iterate on a design—it could take six months, a year, two years.

The second piece is there’s a huge amount of extremely skilled labor that goes into this, and it’s really hard to scale. So, if you’re an investment casting foundry and you want to get bigger, you want to double your capacity—there are no people you can hire. These people have all retired.

So, the things that are built are factories that are not dependent on specialized human labor to make components and are not dependent on tooling to make parts. What these foundries look like is—you want everything to be made by computer. How can you give the computer the tools to make your casting?

We use a variety of different processes that make sure each manufacturing process in our factory is software-defined. This starts with making molds. You want to make sure the molds can be made in a software-controlled way. We’ve done a huge amount of innovation on the process there—in the equipment and the materials—to make sure that when we make a mold, there’s no fixed point associated with it, and you’re forming it all digitally. The same thing applies to every single piece of equipment and process that comes after.

Then you’ve got eight or nine steps in our process internally to do that, and for each one, we have a digital definition. The machine is running with telemetry going back to the system and running to the prescriptive definition that we’ve given it for that process. This includes things like pouring—what temperatures you pour the metal at, how fast you pour it, what kind of environment around the metal, the vacuum levels, and things like that.

The big thing is: our factory is not running on highly specialized labor; it’s running on software-controlled equipment. I can form different parts with just changes in software and without retraining people. So that gives you the high level—I can dive into all kinds of details, and I’m sure Cam can talk to that.

Akhil 18:51

Super, super helpful. Maybe one more high-level—just walk through, if you can, even just a couple of the steps from design to 3D printing to cast. What does that sort of look like?

Aeden 19:01

So, traditional process here—and what an average aerospace customer does—is they want to make a turbine blade. They have some preliminary design, and they want to get into production. First, they have to get to design validation. The goal is they want to be making turbine engines in six years, at rate.

Generally, what will happen is they’ll go out to as many foundries as they can and try to find someone who will bid the part. The first surprising thing is that most of the parts get no-bid most of the time, because most foundries are overbooked and don’t have capacity—and also can’t scale. They’re stuck because of their labor.

So, the first process of design, at least for you as a customer, is to try to find someone who will bid on your part. You might not have a finished design at this point, so you’re going to tell them, “Hey, look, I want to make a few of these. I want to do some prototyping.”

Generally, they’ll give you back two really important quotes. One is your upfront quote, and the other is your piece price. The upfront engineering and tool making might be $300,000 for a part and might last six to eight months. Then you’ll go into that and also provide a huge amount of technical documentation.

For each of these parts, if you’re making a turbine engine, you might have 100–200 pages of technical documentation for a single small part. That’s a contract between the design engineer and their requirements and the foundry. What the foundry is agreeing to is: “I’m going to meet all of these requirements.” It might take many iterations to meet those requirements.

For the foundry, every single one of those iterations means iterating on tooling, retraining people to work on the new parts, and trying to hit those requirements—and that’s what stretches it out.

For us, when we receive something, we’ll ingest it, do some design, and essentially just put it straight onto our printers, which make the molds for the casting—and then get results quite quickly.

Akhil 20:47

And these are 3D printers, right? Standard 3D printers.

Aeden 20:51

So yes, we use a bunch of in-house developed materials and processes to make these castings and molds. Essentially, we’re forming the geometry that’s going to form the part with a printer. The end part is actually just a normal casting. So, unlike a lot of the additive processes—the metal 3D printing processes—there’s no requalification, there’s no retesting. The material properties are the same as these casting alloys that have been developed for 50 years, and then we get a part straight out of that process. Maybe that gives us a high level; I can dive into more details.

Cameron 21:28

Thanks, Cameron. I can come back to you on the discussion we were having around the iteration cycle. Can you walk through an example—whether it’s a real or hypothetical customer—how you would have done here, both Digital Foundry and the novel casting process? The full lifecycle has just allowed for that incredible acceleration in both speed and scale.

Yeah, absolutely. And I’m not able to use direct customer names in the line of work that we do, but I’ll give an example of something that we see happen and how ultimately it results in, you know, American supremacy on the battlefield.

So, as Aeden was speaking about a little bit earlier, when you’re making a part, the end designer is actually just delivering the capability. And that capability may be, you know, let’s build the engine that can fly the furthest. Let’s build an engine that can fly the fastest. And ultimately, that comes into a balance with reality and physics. When you try to put those metal particles through their paces in a jet engine, it’s going to be how hot you can get it.

A really common one that we see—because we do a lot of turbine blade work—is: what is the exact shape of that turbine blade? We’ve gotten good at simulating physics to some level to help us figure out how the air might flow through that turbine blade. But the real way to figure it out is to put it on the test bed and let it run. The simulations are never perfect. Simulations are only as good as the data you feed them, and so there may be a few variations of how that blade should be shaped that a designer is looking to go through. What they’re really trying to figure out is what shape is going to be the best for production on this engine.

Every form of manufacturing has some inflexibility associated with it. The way to think about this in manufacturing—the term is called tooling. Tooling can be hundreds of thousands to millions of dollars to set up a set of machines to do a set of instructions. And this tooling is hardcoded—it’s coded in the actual cavities of the molds that you’re producing. So when you ask that tooling to do something a little bit different—to figure out if that little bit different shape on the blade results in a little bit more or a little bit less performance—you have to pay hundreds of thousands or millions to change it. But once you’re in, you’re good to go.

The qualification process of a lot of these components often involves changes. And when you move that tooling from a physical world to a digital world, you unlock a whole other world of possibilities—not just for cost reduction, but for achieving the optimal design.

Now, there’s this other kind of intricate layer that’s starting to come into play as America becomes more serious about producing. This is maybe a bit more general of a comment on the state of the DoD world right now, but lots of folks are delivering to kind of low-rate initial production. But a lot happens when you go into full production. We’re talking about what is the capability—not just to make engines that fly as far as possible, but how many engines can you really make a year if you had to make every single engine that you could? It’s a different scenario when you have to hit full production.

In many cases, when people are designing today for these flexible manufacturing technologies, they’re using a different manufacturing technology. You might metal 3D print something, because then your tooling is digital. But when it comes time to make full production, you’re moving to a traditional form of manufacturing—you’re moving to casting, you’re moving to stuff that just scales. So one thing a designer has to look at is how serious they are about production. And if you’re serious about production, you’re going to design to the constraints of the manufacturing technology that you use to scale production.

This is one of the core beliefs that we coded into our technology stack. Our technology is capable of iterating on quick-turn qualification to allow that part designer to get the shape and the blade that they want. But at the flip of a switch, they can go to full-range production with the same constraints—the same casting constraints. We don’t have to change our blade thicknesses. We don’t have to change our overhang angles. It’s directly the same manufacturing technology.

And then I’ll give you another one, which is on the tail end of this. We’ve seen this with past sustainment issues before, but at the end of a lifecycle, you store that tooling. And you store that tooling on a wall while you’re making the next, newest, and greatest part. That tooling, believe it or not, will get lost, rust, or wear down. The tools wear down over time. And when you go to pull that part back off the shelf—when you need to make 14 joysticks because a plane is down and that joystick has to be remade to put it back on—you have to build up that $100,000 tool and that million-dollar tooling all over again, just so that you can serve a hilariously low quantity that the industry calls alien castings. They literally call them alien castings, or these onesies, twosies that they need just to sustain stuff.

So you have this other flexibility request on the tail end of these programs. And once again, this is what we’ve designed our production technology to do. And I think the bigger picture, when you zoom out from all of this, is you’re looking at manufacturing holistically. You look at the problem—it’s not just about making one part, it’s about making a process that can consistently make things at scale. And that’s what Rangeview is about.

Akhil 27:35

About. That’s right, and that’s your sort of idea to speak of the digital or cyber founder, Cameron. What’s the Cyber Foundry? What’s the vision for it?

Cameron 27:43

Yeah, Cyber Foundry is Rangeview’s first product. And the Cyber Foundry is simply a factory that is making America’s most critical componentry with the workforce that America has and with the technology that we invent here. So it’s a collection of custom-built processes, materials, and equipment to make a digital file of a part—which we’ve gotten really good at building in America—into an actual part, a real part that can be certified and clicked into a plane, ship, or vessel, and unlock the capability of those systems that we’ve designed so well but have been hampered by not being able to be made. You know, unlock that problem for the U.S., DoD, and our other partners.

Akhil 28:43

Awesome. That’s from digital design iteration, digital manufacturing, and then actually the real hands-on production.

Cameron 28:51

Every stage. I mean, our factory is just as much of a computer as it is a metal-shaping device.

Aeden 29:00

Yeah, I think it’s worth saying a big part of our philosophy is that the next generation of American manufacturers has to have a huge amount of engineering expertise in-house. You’re not going to innovate on process if you don’t have the expertise on how your process works. And it’s really important that the manufacturers—not just the designers, but the actual people designing the process, building the equipment, setting up the factory—know what’s going on and are incredible engineers.

Maggie 29:23

What role do you see for new technologies in accelerating reshoring of manufacturing capabilities to the United States? And what are those technologies that are actually going to drive those trends?

Akhil 29:39

Yeah, and maybe, Maggie, in addition to that, to your earlier answer, Aeden, we can’t necessarily replicate what other nations are entirely doing, right? We have certain advantages here. And you guys, among many other things, are innovating from a technological standpoint—from both a digital and physical standpoint—the software-defined aspect. So, a little bit of an addition to Maggie’s question: how much can we actually rely on technological innovation as part of it, and then what else needs to be done?

Cameron 30:07

So, technology is the way forward. It is the only way forward for us. But that’s a great American trait—America knows how to do that, and it’s not that complicated. The first thing you’ve got to do is pull your manufacturing technology into the 21st century. I mean, it would blow you away if you walked into a foundry today. All the folks—the heat-treat shops, the anody shops—all those folks need to pull their furnaces into the internet. They need to bring laptops into the work and just run it the way a modern company is run. And so I don’t think that’s reinventing the wheel; I think that’s getting more focused into the industry.

So, you know, it’s tough because the factory owners—that was a bit of our origin story. We were just two robotics guys, gonna sell robots to factories. What a journey. You know, we thought that. We thought that manufacturing was further along and was just ready for someone to sell robots. But the truth is, they didn’t even have outlets on the walls. So we had to go down to the studs and start there. So, you know, I don’t think it’s reinventing, no. And there are many companies doing this right now. I mean, go look at SendCutSend—this amazing company that chose their manufacturing technology.

That’s a good way to think about manufacturing too: at a company level, you go to the processes. You know, manufacturing is down bad as it is in the country—it’s actually still a bigger market cap in America than all of tech combined. And so if you think about it, you can’t compare a FinTech company with a healthcare company—they’re completely different sectors and completely different things. And manufacturing—the process—is the sector.

So there’s this amazing process, sheet metal fabrication, where you’re making stuff like doing origami with really strong paper. There’s this company out in Reno that just figured it out. You know, the founder’s a software engineer that came from doing SaaS work, just wanted to help his country out, and he’s built this amazing shop that’s, yes, software-enabled, but it’s just the modern tools of manufacturing put into a process.

I think a lot of this is going to come. I think this is what’s happened elsewhere. There’s this strategy that China used when Xi Jinping was building—it was an actual initiative you can look up—it’s called the “Made in China” initiative. And they very cunningly required American firms, in order to access the cheap labor and other subsidies associated, to partner with a Chinese factory partner to learn what they were doing.

And of course, we now learn what happened: we taught them all how to do it, and then they kicked us out. Uber—this happened with Uber, this happened with Google—they were operating in that market, they told them how to do everything, and then it was just a one-for-one move over. Chinese factories are probably running the best processes right now in the world.

So I’ve seen a few places where you can flip the script and say, well, there are some great Chinese manufacturing approaches—all the equipment is modern. You go buy the best manufacturing equipment. We didn’t just lose our factories, right? We lost our equipment. There are no factories to sell to college or business.

So, if you want to see what a really good piece of modern industrial equipment looks like—natively digital—it’s got an Ethernet plug, goes straight to the modem and the router (which is why you have to be careful). But just go look at the way those machines are built overseas. So maybe there’s an opportunity there.

But we really don’t have to reinvent the wheel. We just need to get a lot of folks interested in doing this again. I think Aeden is totally right—you set that up by getting the unit economics right, and the unit economics are really, really wrong. Technology won’t do it alone, unfortunately. I wish you could innovate your way out.

But, you know, if you do a little bit of Excel, it’s frustrating. You look at some of these parts—the part costs more to make in America, if you just paid for the electricity and the metal, than it does to have a fully turned part in China. Unless you can develop technology that makes the metal free or the electricity free, or a 99% reduction in labor because you have this perfectly automated factory—or equipment that costs $1 because you figured out how to scale this stuff to the moon—it doesn’t matter. You’re still losing. That’s because of subsidies. That’s because of vertical integration. I mean, it’s been weaponized. We’ve totally, totally, totally come up against weaponized industrialization overseas.

Akhil 35:12

Yeah, Maggie and I come from the other part of California, the Bay Area, where you can’t throw a rock without talking about AI. There are aspects of AI—or let’s just call it software-defined generally—but as you look at the sort of AI space, a lot of it’s digital, but fundamentally a lot of it’s moving to the physical world. What actually makes sense? And I hate using AI as a sort of, you know, “we sprinkle it in our coffee,” but where does it make sense to actually apply either a machine learning or some other artificial intelligence capability when it comes to the physical data?

Aeden 35:44

So, the truth is, it’s much harder to build stuff in the physical domain. It’s much harder to build stuff in the physical domain when you have extremely safety-critical applications depending on it, right? And so it’ll be a while before an AI system can make a decision that is accepted by, you know, one of the, as we talked about, conservative aerospace primes. That said, there are so many parts of operating a factory that are not as critical, where it comes in first in places where then things are going to get verified by a human, eventually verified by a test. And so, you know, we do all kinds of things at every level of this—from extremely simple things like how we inspect parts. There’s a whole bunch of things that are normally done by a human, verifying that a certain number is less than a certain number and greater than a different number, right? And we do a lot of that with software and a lot of that with, you know, I don’t want to call it AI, but more sophisticated software systems, often that are trained on a lot of data. And it’s the same kinds of approaches at the very high level. And we’ve started to toy around with, you know, an LLM that has access to a huge amount of the data in the factory. Is it making all the critical decisions today? No. Will the software get there and the technology get there so that it can sometime in the future? I actually think probably yes.

Cameron 36:55

So AI is only as good as the data that it’s fed, and the amount of data that we have, for instance, in something like self-driving cars, is orders of magnitude above the amount of data that we have on part making. The first problem is, part-making data is in the heads of humans that are retiring right now. Like, this is the first problem—let’s get these into the computers, right? And then after that, we can start to put sensors in place and directly train that system. So I think a good goal is for computers to know just as much about part making in a few years as they do about driving cars.

Akhil 37:38

When you talked about addressing this via technology, processes, and people, I want to actually come to the people part—and we can dive into more of the other two. People—I’d love to get your take on talent, what you just talked about. But actually, first, I want to come back to your story of you both in Berkeley, working on robotics. I remember first meeting you all one summer on Shattuck, at UC Berkeley, in, you know, a small little place. Share a little bit about where you came from. You shared that initial story about, you know, wanting to sell robotics, and then you turned into casting. What was that story like?

Cameron 38:15

Yeah when you met us at Berkeley we, you know, we were in a garage—one of the garage startups. So, in a garage before Berkeley, it was a huge upgrade at this old Sprint store in downtown Berkeley. Border does, because Berkeley is a crazy place to build what we’re building. But yeah, you’re right, we met you there—it was a great day. Yeah, yeah. I mean, we wanted to reindustrialize America, and we thought that the way to do it was by building robots. And I think a lot of folks see this right now, where, you know, we just have to add modern technology. We have to automate. We have to bring robots in and have the robots do the human tasks. We charged you that Rangeview was actually Rangeview Robotics—that was our formal name there.

Akhil 39:01

And that came up because you both were robotics champions in high school, right? Two at one point—is that right?

Cameron 39:07

Yep, yep. We were competitors, and Aeden and I have known each other for a very long time. Yeah, we did competitive robotics against each other — you know, Los Angeles BattleBots, the fighting ones on TV. Even before that, Aeden and I did a lot of high school robotics. And by the way, amazing program — talk about getting started early. I don’t know if I’d be doing this, or if you’d be doing this stuff, if robotics wasn’t a big part of the early education system. And it’s amazing. There are some fantastic people who built that whole system out — FIRST, back to robotics. There’s a lot of great stuff. China’s doing a really good job at robotics education too. DJI actually built probably the best robotics student competition in the world called “Masters,” and it’s incredible. You know, there are roboticists in China who are held to the cultural significance of, like, a quarterback in America.

Akhil 40:04

That’s crazy to me. You’ve got Texas football, and then you have a DJI roboticist.

Cameron 40:09

Yeah, a little bit different in America. You know, it’s hard because Aeden and I were definitely on the nerdier side growing up. So, you know, I wouldn’t say that people — put it this way — people weren’t inviting us to parties because we were good at robots. Maybe one day that’ll change. It depends on how much we really need robots to build. I think we really need them to be built.

So yeah, competitive robotics — that was it. But we looked at it and we said, wow, we need to decouple from labor. There’s no way America, with our way of life, will ever be able to support the hourly rates of overseas labor. And if we’re going to automate manufacturing, this is the big question. Everyone wonders, “Why manufacturing in America? Why don’t we nearshore to another country?” But the truth is, if you decouple labor from the manufacturing cost function, it doesn’t matter where you make it from a cost perspective. And where you make it will bring all the jobs — the people that build the factories, the people that build the robots.

That still means that people are critically important, but their value is being accrued in different or complementary portions. Think of it this way: think about a farmer. A farmer is an amazing roboticist. They’re doing the work of thousands of people with one big tractor. The tractor maker didn’t replace those jobs — the farming industry and agriculture created abundance everywhere. And we can go out and specialize and do all these great things. But what you’re doing is giving a human leverage.

The comparison I made on manufacturing in America is that it’s critically important that that leverage becomes American leverage. So we have to build factories here — not factories for everything. We don’t have to make plastic forks. There’s some stuff that, you know, we should share across the globe. But for what we’re working on, we chose very specifically to work on the things that America deserves to be excellent at.

Akhil 42:25

So you went from Rangeview Robotics to Rangeview.

Cameron 42:30

Yeah, we just lost “Robotics.” It’s like, just Rangeview.

Akhil 42:32

It’s cool, but you haven’t necessarily lost that mission, because a lot of the components you’re now providing will absolutely carry forward, whether it’s robotics or just the autonomous systems wave of the future.

Cameron 42:36

Robotics is in our DNA. Yeah, that Rangeview Robotics is in our DNA.

Aeden 42:41

It’s worth saying that the counterfactual between two people losing their jobs to robotics is not actually “automation or no automation, jobs or no jobs.” It’s actually, “We don’t do manufacturing in the U.S., and no one gets any jobs,” or “We do it here, and it supports people at the labor rates that they want to be paid here.” It’s either good jobs or no jobs. That’s the only counterfactual that there really is.

And so it’s a huge part for the factory to have very few low-wage, low-skill positions, right? This is not what Americans want to do. It’s not what the nice factories are going to be like. And it’s not actually how you make good parts at scale. You don’t want to be reliant on people that aren’t that motivated to be there to make your parts.

Maggie 43:23

So, you know, at least my sense from the outside is that the manufacturing industry — the aerospace and defense industry — is a pretty conservative industry. What does it actually take for you guys to build trust with these customers and for them to entrust you with building some of their most critical components?

Cameron 43:40

Yeah, I think Aeden’s got a really good bit on this, so I’ll give it to him. But these systems already exist. Actually, there’s an entire quality industry whose whole job is to take the liability of ensuring that a part does what you say it will do. And that is something from day one we have designed for, because there have been other innovations that have been hung up on this—saying, “Well, if we just make a cool enough thing, people will want it.” The truth is, you have to be able to prove that that part will behave the way you say it will in order for it to have real value over time. So I’ll kick it off to Aeden here for comments on qualification and what that all means.

Aeden 44:23

Yeah, no, it’s actually a good question, because I think there’s a lot of noise that comes from a lot of new manufacturing technologies about how hard it is to qualify. I’m actually a little bit less sympathetic than you’d think to this. I mostly think this is the case of that technology not actually performing. If you actually have the data to show that your process produces parts that are good enough, you probably don’t have a huge issue qualifying. The issue is when you fail spec and you need someone to change their design or redesign their system—and that’s where big problems show up.

And so for us, a big thing is, you know, we’re not doing level three. We’re not doing some new process that requires totally new design allowables and new designers to be trained up. Because the truth is, those adoption curves are extremely long. I mean, that’s what’s happening in metal 3D printing, right? You’ve just seen these companies that have amazing technology—I mean, I love laser powder bed infusion—but it’s not a technology that’s going to scale immediately to cover the whole industry, and it certainly isn’t going to scale to cover the parts that were designed in the ’70s. And you know, the designers are not only unwilling—they’re actually not even working anymore. They’re retired. You’re not going to change those parts.

And so the way that aerospace works, right, is there are these long, long campaigns to make sure that your part meets specifications. There’s this contract between you and the designer, and you just go through the test. If you pass the test, it’s objective. And so for us, the huge thing is always talking to designers to understand what they need before we’re even making parts, and making sure that we’re building a factory that goes in that direction. But the truth is, if you make a technology that has advantages—if you have cost advantages and can meet all the technical requirements—there aren’t actually so many issues. The issue is when you’re trying to do something new that pushes the designer in the wrong direction.

Akhil 46:00

And it’s not just the cost and technical requirements. You are fundamentally, with the way in which you orchestrated your digital range of your boundaries, able to make novel points.

Aeden 46:11

So that’s the biggest thing. The biggest thing is when someone designs a part, goes through a long simulation and testing campaign, and then says, “Okay, we need to make the first prototype,” and they can’t make it. This is a huge problem. It’s the exact same case as the designer having to redo all the work, change the design, reduce capability.

And so the greatest customers that we work with are the ones that went to somebody else who couldn’t make it, and now only have one way to make it—and we’re enabling something huge for them. Not only are we faster and cheaper, but we’re also enabling the missile to have 10% higher thrust, 10% higher range, and higher reliability. Maybe the cost is lower because they can do one part instead of five in some cases. Those are really the best cases for us. That isn’t everything, but when we can do that, it’s a huge benefit for everyone.

Akhil 46:53

Aeden, are you seeing—you mentioned their scalability, right? And the actual ability—and Cameron were discussing earlier Freedom’s Forge, right? For those, I think we’ve talked about it before. Awesome book, and a good complement, a good sister book, is Arsenal of Democracy. The benefit we had during that period was that there was this two- to three-year, if not longer—really ten-year—period before December 7, 1941, where we in the United States, because of what they were seeing geopolitically, were actually already putting in motion the movement toward scale, right? I mean, you saw Ford already start converting some of its plants toward B-24s; you saw the work on Liberty ships. Obviously, that was a different year, different era. But are we seeing—the question I have is—are we seeing on the end-customer side the actual drive and demand beyond low-rate initial production, beyond just prototyping, to actually drive the rest of the manufacturing enterprise upstream to facilitate that?

Cameron 48:01

No, I mean, we gave it all up. It’s not here. When you don’t make consumer goods here because you’ve hollowed out the consumer base, you don’t have that surge capacity anymore, right? Who’s gonna build this stuff? The factories—and the factories for those parts—aren’t here. Even if a Ford is assembled here, they’re getting a Bosch component from a casting house that’s often in Taiwan, or often China, or often Mexico. Once again, a lot of this stuff—they’re screwdriver factories. So when you shut off that spout, like in the case of, you know, if a balloon does go up—I don’t think if a balloon goes up, the faucet’s gonna probably be shut off—and they’re gonna be in the supply chains that exist under the all-American factories that exist today. So, you know, they’re making a car in Detroit, Michigan. That car is not being made with parts that are from Detroit, Michigan. It’s unfortunate, but it’s just the place that we’re in, and so we need to shift that back.

But I don’t blame them, because that part can’t be made on good margins at a good price with the weaponized subsidies that have been leveraged against us—and it really exists in the shadows because we still think that these cars are made in America, for the factories that haven’t moved yet, right? You know, most folks are just looking at that level, saying, “Okay, well, you know what, factories for car making are still in America.” But the ones that are here—Tesla is an outlier, for sure. Tesla makes, I think, something like 70% of their cars with American parts.

But, you know, the hard parts are really—you know, if you just go on a quick deep dive here—neodymium magnet production: almost all neodymium is processed through China, or through some stage of the neodymium process. The furnace step and magnetization step are done almost exclusively in China. There are a few neodymium magnets that are, you know, all through NATO and allied supply chains—and, you know, the prices are more than 15x what you’ll find in America.

But when you talk about these factories and the surge capacity, you aren’t able to say, “Hey, you’re making alternators for a Ford. Now go start making motor components for these new autonomous systems,” or even your old legacy systems. There is no supply chain shift. It just doesn’t exist.

Akhil 50:57

It’s compounding. It’s not only there. The other aspect—I can’t just turn a Model T plant or a Ford car plant into a B-24 production line. It’s just not—if you want American parts, indeed, right? I mean, we’re doing things that are arguably a little bit more complex, but your underlying point is, even regardless of that, we don’t have the capacity. We’ve hollowed out the capacity here to be able to do it all the way upstream.

Aeden 51:23

It’s also worth saying that modern defense systems, I think—the difference between a modern defense system and a car, and a World War II defense system and a car—I think the World War II B-24/Ford maybe a little closer than the modern systems. Like, modern defense is much closer to consumer electronics, right? It’s lots of complex electronics, lots of complex sensors and cameras, navigation, right? This is closer to an iPhone than a car, and we don’t make any iPhones here, right? Maybe we make some cars here, but the consumer electronics supply chain has really been built overseas, and it’s really coming to what the latest defense systems are as well.

Akhil 51:59

Yeah, so if you guys had to—you were czar for a day—and you had two to three things you could do to reshape or reformat the manufacturing base here, what would that sort of look like? And maybe some specific sub-questions there: would it be centralized, decentralized? Would you have edge nodes where it’s closest to the potential user or operational standpoint? Obviously, we’re talking about civilian and military buy capacity—that’s it. It doesn’t matter, whatever incentive structure works.

Cameron 52:34

Buy capacity. Buy as much capacity as possible, and have contractual obligations on that capacity to go make the things that might be needed in the case of, you know, a surge scenario. But there needs to be—like, at the end of the day, someone’s got to make the parts. And the way that parts get made is because you have machines and people that know how to use the machines, and one day they’re cranking out one thing, and the other day they’re cranking out another thing. And that doesn’t exist because of the economics right now. So we have to at least match the subsidies of our adversaries to ensure that we have that when it comes time.

But we have to start doing this now. The lead times on these factories are not a year—they’re not even two years. I mean, in some cases, our foundries are looking at procuring equipment that takes over two years from order to making the first parts. So this is a decision that you have to make even before you want the ability to use it or not. So you have to get on it quick.

But I think the most certain path to maintaining the capability that is required—or building the capability that is required—is to buy capacity. I think the DOD can do this through a series of preexisting mechanisms or through some new mechanisms. DPA Title III is a really great one with good history here, but it needs to be hyper-specific capabilities. So we’re choosing a process, we’re choosing a partner, we’re choosing an application that’s proven to make sure that the execution side of this really works, right?

This is one of the great things about a factory—you can’t really put makeup on a part. The part passes qualification, and you made it in X amount of time with Y amount of throughput—or not. You can buy a factory that makes 12,000 doohickeys of X type for Y platform. In the case that platform needs to be scaled to 12,000 units a month, you don’t have to make that right now. You can use that capacity to build something else with a similar set of requirements, and that will feed back into the American private economy. But you need to have the option to be able to flip that switch. And today, you don’t have that option because you don’t have that capacity.

Maggie 55:04

So I know you all hosted INDOPACOM Commander Admiral Paparro at the factory a couple of months ago. I’m curious—how is DoD thinking about a capability like Rangeview in a future conflict in the Indo-Pacific in particular? And how will a conflict like that need different kinds of manufacturing capabilities than, say, what’s happening in Ukraine or the Middle East or elsewhere?

Cameron 55:33

The Navy can’t get parts right now. I mean, a sub will come back, a ship will come back, and there will be no way to get a part back on that system except by cannibalizing another system. There are some crazy statistics out there for just how bad it’s gotten, but the easiest way to look at it is: for these new programs, there’s a lot of funding behind them—throwing a lot of money at trying to build submarines. And if you look at the difference between the shipbuilding capability that America has versus our adversaries, it’s astonishing.

And if that’s new stuff—if that’s where everyone’s focusing—imagine just how bad the sustainment and maintenance component is. That’s one of the biggest things that Paparro was interested in when he came by our foundry and saw our technology. I think the flexibility of Rangeview—offering a capability that can one day be making critical components for the private sector, then shift when a submarine comes in and needs a ball valve to be able to make that part on the spot—is a massive capability that no other casting technology currently offers the Navy.

Akhil 56:55

Yep, and there’s a litany of congressional reports, and obviously the last reconciliation bill reflected a lot of the need to sort of recatalyze that. Specifically, Cameron, to what you just talked about—if a commander like the Indo-Pacific Commander, or just the DoD in general, wants this flexibility, does it matter where it’s produced?

And what I’m getting at is: do we need some sort of edge manufacturing capacity? Does it matter where it’s put? And does it actually make sense? If we want to try and build that out—exactly—you’re not going to print drones on the battlefield. It’s just, you know, it’s actually more wasteful to send raw manufacturing goods to those printers. Manufacturing doesn’t have an above-100% yield; it has less than that. So there’s waste generated.

Cameron 57:42

Right. So it is more space-efficient and more material-efficient to actually send preprocessed goods to the end-use point than to ship the manufacturing plus the raw goods to that use point.

And, you know, I’ve heard a few arguments—“Well, what if the need changes? What if one day we need a drone that can fly 500 meters, and another day we need a drone that can fly 1,000 meters?” The work that goes into a drone design to achieve those two capabilities is not work that can be done on the battlefield. That’s work that’s done preprocess. They might load up some instruction file to the system, but the truth is that instruction file—whether it’s the printer’s job or the whole factory’s job—can be programmed somewhere else.

And you can, you know, send 500 drones of one type and 200 drones of another, and the difference in that flexibility is far more beneficial than if you instead had an edge-deployed system that touted bringing that flexibility out of you. I don’t think we’ve really seen it—look at Ukraine. Ukraine is not printing drones on the battlefield. Ukraine is shipping shipping containers filled with thousands of these systems, fairly—at least relatively—close by from where those production facilities might be.

Aeden 59:17

I mean, I think there’s a pretty good razor as to when some sort of edge manufacturing makes sense. And actually, there’s great precedent for this, right? We’ve had machine shops on aircraft carriers since they were new—since World War II.

The case that matters is if you have a very, very big, expensive system that can be taken down by one or two spare parts. Those cases are the rare ones when you want a little bit of edge manufacturing, because it will not be cheaper—it will be much more expensive. It will be much more painful to operate. The logistics of getting materials and maintenance to the actual edge manufacturing site are going to be ten times worse than they’d ever be on the mainland.

But it’s occasionally worth it if there’s a really, really big system that needs to be kept up. And so there are some narrow cases. Most of the time, though, you really want a nice, safe, big factory that doesn’t have to worry about operational security, doesn’t have to worry about being bombed, doesn’t have to worry about, you know, the humidity changing because they’re on a tropical island and there’s a rainstorm. That’s what you don’t want.

In general, you want a big workforce. You want to be able to replace people quickly—if someone gets sick, really obvious things. That’s how you get to efficiency, and that’ll be the bulk of all manufacturing forever. There are special cases, though, when for really big, expensive systems you need to keep them up, you need to turn them around quickly—and there, edge manufacturing is a great solution.

Maggie 1:00:33

What do you think is most misunderstood about manufacturing and reshoring from outsiders?

Aeden 1:00:40

I think there’s one thing to say, which is that people picture manufacturing as, you know, just another thing—like it’s just another industry. And I think when you actually start to get into what manufacturing is, manufacturing is building the physical world, right? That is what manufacturing is. The breadth of different kinds of processes, different kinds of things that are done, and the dependency between those—and how much, you know, having a mine in a particular place can affect the price of valves—is mind-boggling to a lot of people. And I think, you know, people forget, it’s not just one process. It’s not just like fixing magnesium supply in America does not fix the magnesium casting supply, nor does it fix the helicopter gearbox supply problem, nor does it have anything to do with the helicopter gearbox inspection problem, which are all distinct, huge problems with thousands of people that work on them in the U.S. And I think it’s often forgotten, just the scale of these things, because, you know, people don’t see factories all the time. They don’t walk down the street. They don’t have friends that work in factories, right? We don’t have this—especially if you go to the coastal cities—this is nowhere to be seen. And so I think people just lose some of the scale effects of what are all the things that are going on, and how they depend on each other, and how complicated it is to change something in manufacturing, right? If you want to change where something is manufactured, there’s a lot of different pieces to it. I think that’s a pretty big one.

Cameron 1:02:01

For some context, helicopter gearboxes are oftentimes magnesium. They’re a very big supply chain problem. So just to connect that a lot—like they’re all magnesium problems—but, you know, there’s probably a billion-dollar business in multiple of those magnesium problems.

Maggie 1:02:20

What advice do you guys have for other founders looking to build either in this manufacturing or national security, defense industrial base space?

Aeden 1:02:30

Never build a cost model. Just do it on vibes.

Cameron 1:02:40

Build a cost model day one. Update it every time anything changes. We’ve already created so many competitors. Like, literally within two days—but, like, literally, we were ready. There’ve only been like two founders that just 100% exist because we existed, right? So, I mean, even if we say build a cost model, don’t go build robots day one—that’s a good one. We’ve really spent hundreds of thousands of dollars on that lesson, right? Like, that’s actually a pretty big lesson. Purchase Rangeview’s system.

Aeden 1:03:12

Don’t build software. Build an actual company that makes parts. You know, build a factory. Those are up there.

Cameron 1:03:19

Yeah. So for other startups—focus on how many parts you make a day. That’s the metric of success that matters. We need parts, not tools for someone else to maybe use. Go make parts. Make parts yourself. Go make a factory. Don’t build software for a factory that may want to use yours. Factories don’t want to use software. This is why we’re in this space. Go build a factory and make lots of parts, and make your internal success metric proportional to how many good parts you’re shipping a day.

Akhil 1:03:48

Who are you looking forward to come join Rangeview?

Cameron 1:03:52

Oh, anybody who’s tired. Anybody who’s tired of, you know, working on stuff that might not matter as much. And not to say—it’s important that the work you do matters. I think you’ve got to wake up and look around and say, beyond the money, what are you doing? Your career is going to take up the vast majority of your life, right? What are you doing with that career? What are you doing with the world? And if you’re an engineer—a really principled, strong mechanical engineer, software engineer—if you love to learn about castings, please, I didn’t want to plug it here, but our website has a careers link. You click on that—we’re expanding our team like crazy. If you want to build custom vacuum induction melters, if you want to come work on the next generation of 3D printers, you know, if you’re excellent at what you do, I would love to speak with you, and we can build this cyber foundry together.

Akhil 1:04:58

Awesome, Cameron. Yeah, where’s the company going to be in a couple of years? What’s the vision?

Cameron 1:05:05

Yeah, I mean, well, we need another Westinghouse, don’t we? You know, we need someone that’s making the world’s stuff. And I think that’s going to end up with folks that understand the new paradigm. I think that’s folks that understand modern technology as it relates to manufacturing and folks that understand automation. I think we’ve got a pretty amazing team here, and I think everyone here is doing it for the right reason. So I’d hope to be making a lot of parts.

Akhil 1:05:33

Awesome, awesome. Well, Cameron, Aeden, this has been awesome. Thanks so much for taking the time. Excited for what you’ve already built, what you’re unlocking both in what can be built going forward, what is impossible, and what can be scaled going forward. Excited to be part of the journey with you.

You can listen to the podcast on Spotify, Apple, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

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Maggie (00:04): In this episode, we're joined by Mike Flanigan, the CEO of Seasats, a startup building the future of autonomous systems for the ocean. I'll say Seasats is definitely one of my favorite portfolio companies, in part because I think it's one of the easiest of our portfolio companies to explain to people who work outside of this industry. They're building some super cool stuff. In short, Seasats builds solar-powered autonomous drone boats that sail themselves thousands of miles across the ocean.

Matt (01:06): Yes, and the Navy has decided it needs a lot of autonomous boats. One thing that struck me learning about this space is that the unmanned surface vessel industry isn't actually new. I mean, you can go all the way back to World War Two, where several major powers used USVs for offensive operations, minesweeping, and even dummy practice targeting. And then 80 years later, you have this operation in the Black Sea in 2022 where the Ukrainians used remotely controlled drone boats to sink part of the Russian Black Sea Fleet, and it's considered this watershed moment in maritime autonomy. And now Congress, the U.S. Congress, is planning to allocate nearly $2 billion for USVs. So I think there's this important question of why now? What about future conflicts makes these platforms so important? And why haven't cheap, unmanned, and autonomous vessels been adopted at a large scale before? Thankfully, today we have Mike on the show to explain this unique moment in maritime history, both technically and geopolitically, and what it all means. Seasats is one of the leaders in maritime technology, so we're super lucky to have Mike here today. Mike, thanks for being here.

Mike: Absolutely, thanks for having me on.

Matt: Let's start there. The USV industry isn't new. So why is there so much momentum for the industry today, both technically and strategically? Why was the Ukraine war the first time that cheap USVs were used for such an important strategic effect?

Mike (02:41): Good questions. Yeah, as you pointed out, Matt, the USV industry has actually been burgeoning or growing for a long time. It's kind of been this building momentum, or maybe tension, of like, okay, the commercial market value has always been there. It's very expensive to do anything on the ocean, which we can get into later. But the technology tipping point, I would say, has been held back. And then one of the interesting things about the Ukraine-Russia war is that full-scale conflict releases some of the rules of engagement. And that actually suddenly crossed us over the point where unmanned systems become incredibly effective and revolutionary, game-changing overnight. I think when the very first videos were hitting Twitter of USVs sinking Russian ships, it was like, okay, the next day at conferences in D.C. and San Diego and California and really around the world, people are talking about this. They're like, okay, we need to change what we're talking about because everything has changed for maritime. So I think that is really what led to the tipping point, kind of unleashing it.

Maggie (03:48): Mike, maybe could you differentiate? I think we have both USVs, unmanned surface vessels, but then also ASVs, autonomous surface vessels. So where actually is the tech today? What's actually being used on the battlefield, and where are we heading?

Mike (04:06): Yeah, that's a good one too, Maggie. So USVs has been the traditional term, particularly for the Navy. They've gone with unmanned surface vehicles or vessels—it changes a little bit. We like to use ASVs to distinguish the autonomy. It's like, hey, you don't always need a human in the loop. I mean, some things are really bad. A human in the loop would be someone needing to take active controls just to continue the mission. Imagine someone who's holding down the go stick—that's a human in the loop. Human on the loop would be someone monitoring to make sure that it's doing the right thing, and that would be a USV. And an ASV would be like, okay, maybe the ASV is conducting its own mission, potentially without communications, and then it's pinging back information and asking for decision-making input. So really, an autonomous system, as far as we know—particularly some of the kinetic USVs that have been used—would probably be properly termed USVs. They're using video feeds to conduct targeting where an operator is watching that feed, directing the vessel, and conducting final guidance maneuvers. And that's both in the Black Sea with Ukraine as well as in the Red Sea with the Houthis, as far as we can tell.

Maggie (05:20): And why move towards ASVs rather than just stick with these remotely piloted USVs?

Mike (05:27): Yeah, so on that one, it's interesting. Ukraine-Russia is totally the modern lab in terms of warfare and what's changing incredibly rapidly. One of the open pieces of contention is people saying, like, hey, don't over-learn from Ukraine. I would say that there's—I'm more usually in the camp of, hey, those people are usually in a traditional camp and have something to lose if things change and everyone wakes up to that. But one example where that's probably accurate is, okay, for a real near-peer competitor, let's say a global threat like China, really you're probably going to be dealing with very sophisticated systems like intensive jamming, intensive electronic warfare. So a USV might not be appropriate because those links are very easy to pick up on in maritime and to cut and to sever and to disrupt. So you might need the autonomy. And I would say in terms of getting to—the second reason for needing autonomy is for persistence. If you think about it, you have this scaling problem. At Seasats, we build these very long-duration, very long-range platforms. If we put out 1,000 USVs or ASVs, sorry, and they're out there for months at a time, well, it's very unscalable to then have a whole bunch of human operators watching. You really want someone doing that command-level intelligence.

Maggie (06:54): So what is the state of tech—I guess first I'll ask—of our adversaries? I know you mentioned China, you mentioned Russia. I know the Ukrainians are using some of these more remotely piloted systems. Where are our adversaries in both developing and then deploying maritime autonomy today?

Mike (07:12): Well, one thing's for sure: definitely China is the manufacturing leader of the world, like it or not. And so, particularly if you look online, the number of USV systems that are getting proliferated by China is actually massive and at incredibly cheap price points. They're not all—or the majority of them don't seem like very sophisticated or useful products. But at the same time, it's kind of like there is a quality to quantity, if there's just thousands of really kind of crappy systems. Well, you do need to contend with those. I think that's one of the things that the U.S. in particular has learned. If we're talking about the state of technology and affairs, we'll go from—let's say we just touched on China, which I'd say is mass manufacturing. In the Red Sea, the Houthis are launching relatively cheap drones, like missiles, and then also USVs, and some really interesting USVs in their attacks on—you know, terror attacks on global shipping. But if you look at them, it's like these are very much like maritime IEDs, like improvised explosive devices. You've got fishing boats loaded with explosives with decoy things in the front to look like a human driver, to create confusion and uncertainty. Unfortunately, even such crude systems need to be countered by usually more sophisticated systems. So the U.S. ended up in this very difficult cost equation where it's like using expensive missiles to shoot down very cheap drones. So that's a problem.

In Ukraine, I would say that they're at a little bit more of a sophisticated level with their maritime technology, where, despite them being remote, they've shown definitely the world's leading implementation of USVs. I mean, they're launching 10 drones at a time to go do things. They're swarming Russian ships, taking out propulsion first, and then striking critical equipment second, and doing follow-on strikes. As well as now, Ukraine has again kind of opened up the history books and made everyone look because they then mounted aerial vehicles and are launching long-range USV missions with aerial strikes at the end into Crimea. And then taking that even further is kind of like, what is the logical counter to USVs? Typically aerial vehicles, and really helicopters are able to match speed and probably have the best gunnery and perspective advantage to stop USVs. Well, then the Ukrainians added surface-to-air missiles and even, I think maybe an FPV—but I might be wrong on that—but at least a surface-to-air missile and took down a helicopter and then took down a fighter jet. So now it's like, okay, even those counters don't make a lot of sense. So definitely, the pace is changing extremely quickly. I would say Ukraine is definitively the leader in this space, even if what they need to do due to their ongoing war is maybe not what the U.S. needs to focus on.

Maggie (10:02): So then, where is the U.S. Navy in this whole ecosystem, in terms of actually adopting USVs and/or ASVs at scale?

Mike (10:14): Yeah, well, there's certainly a lot going on. The U.S. Navy has a lot of folks, a lot of logistical power, and a lot of budget to be spent on trying to solve problems. I would say it's been fractured and very spread out between many different groups, whether that's Service Warfare Centers, autonomy-specific groups, innovation-specific groups like DIU—you name it. It's kind of like this was getting worked on in a ton of different areas. There have been recent big bets with the Replicator program by DIU and Hellscape. I would say that one of the common threads is everyone's aware that it needs to move faster.

And one of the things that I definitely see from the Seasats perspective, because we actually work with a large number of the different Navy groups, both through their exercises, through combatant commands, and through field operations—one of the things that I would say is a common thing that a lot of the folks within these groups know, the service members, is like, oh, we need to be testing in more realistic ways. The whole innovation cycle—the DoD is very focused on solicitations and big bids. Unfortunately, that lends itself really well to lobbying and marketing clout and the fanciest proposal winning, and it does not lend itself well to effective, cost-effective, and mission-success-based products. So when we do see the DoD do kind of testing, I think sometimes the results are surprising. We can't talk about them all right here, but one or two of our customers, more in the special operations side of things, we've seen do straight-up competitions and end up with some very interesting results that are not always the biggest names who have raised the most money.

Matt (11:59): Super interesting. I want to kind of pivot to the platforms that Seasats builds. To your point, Mike, on some of the customers you work with and the platforms that Seasats builds, and what use cases you guys are focused on. So yeah, we've all seen in the news recently that Seasats successfully sailed a Lightfish from California to Japan autonomously, and then separately, I saw you guys released a photo that was a high-resolution image of a Chinese destroyer in the South China Sea. Those seem like a big deal to us who are outside the companies and the government organizations that are working on these problems. But can you contextualize that a bit for us? Are these things that every company is doing, and what do these announcements tell us about Seasats' capabilities and what you guys are designing your platforms for, and why?

Mike (12:53): Yeah, thanks, Matt. It definitely, I would say, is a big deal. It's pretty exciting. Our company was excited, tons of our customers were excited, and tons of people who just follow the industry were excited. I think one of the reasons that this is a big deal is if we look historically at what programs have been able to do cross-ocean missions, they're all large. We're talking about 200 to 300-foot ships, typically. That's the amount of material and resources required to cross multiple thousands of miles.

It's an interesting problem because for the Navy in general, these oceans are both historically a great protector of the United States and any country that has big oceans. It's like, okay, someone has to cross that whole ocean. In the investment world, we use the word "moat" to indicate a very small ring of water around a castle or a defensive piece of technology. It's like, if you have an ocean protecting you, someone has to cross entire oceans to get there, and they need a way to get across. You need heavy equipment to be moved. So typically it's required massive ships and equipment.

I think what was very important and kind of contextually relevant for the Seasats cross-ocean mission was, hey, we're showing that very small vessels can do this. And in today's day and age, with satellite technology, RF sensing, et cetera, big things are very visible. The world's never been so transparent, and so ships that it used to be that aircraft carriers could go hide in the ocean. You know, in the war in the Pacific, Japan and the US were going around and didn't know where each other's ships were. We had to send out scouting planes to spot the fleet and then go engage. Now that's changed. With the proliferation of low Earth orbit satellites and the intelligence agencies getting very good at their jobs, everyone kind of knows where the big ships are. They even know where the bases are. This is becoming a massive problem for the DoD in general.

So for small things to be able to do these missions is very important, because we're showing hey, small things that cannot be tracked are very hard to disrupt and are very inexpensive to build. So the cost equations on our side can be very, very relevant to today's missions, because you can cross entire oceans. You can go put them within a couple feet of a key area with great precision. So it's certainly kind of changing the understanding of what is possible.

Matt (15:19): So it seems like, from what you're saying, the unique value proposition of Seasats is doing these long-range, high-endurance missions that are typically reserved for orders of magnitude more expensive and significantly more visible ships. Really, that's kind of the key advantage you guys have built. Is that fair to say? And are these the types of use cases you'll stick to in the future, or do you plan to expand the technology and product suite to other parts of the maritime domain as well?

Mike (15:53): Yeah, I would say maybe I'll answer the future expansion second. But I think the first part you hit is really good there. It's like, okay, things that were typically much larger and more expensive. So you asked about the Chinese destroyer that we had this 20-minute encounter with on the Pacific Ocean journey. Well, typically, a destroyer like that, once a carrier strike group goes out to sea, they're not going to encounter anything except for other large vessels, maybe occasionally long-distance ocean-going commercial shipping traffic. But it's kind of an empty world, except for these other large capital assets. No ships out to sea are, frankly, as low cost as a Seasats Lightfish.

So the fact that we're able to be out there and say, like, hey, you have to contend now with the fact that you don't just have to have your watch on high alert when you're within 100 miles of coastline. It's like anywhere in the ocean, we can proliferate ASVs and both deliver high-quality, high-resolution, near real-time intelligence, and potentially also layer in offensive effects if necessary. So really, it kind of changes the dynamic. Just looking at that one specific one, a Chinese Type 055 destroyer that costs nearly a billion dollars to build—it's like $930 million. A Lightfish sells for $250,000, so it's actually less than that. But really, the asymmetry there is very remarkable.

Matt (17:26): So on what you guys are sensing in the ocean side, one example is sensing and being able to detect and characterize a Chinese destroyer. What are the other use cases for having this proliferated constellation of really cheap, low-visibility ASVs that you guys make?

Mike (17:53): Yeah, one of the fun things is we started the company very much in the commercial space, and so we've done work from subsea mapping, which is important for construction of offshore oil and gas, offshore wind, for monitoring pipelines. We've done work for the fishing industry, like shellfish monitoring, monitoring water quality. Unfortunately, every year someone gets poisoned by shellfish that have toxic water in them. And so being able to monitor those things in real time is very impactful.

We've talked about industries that drive the maritime economy. There's a whole range of these things. It's a pretty exciting and interesting world. People, particularly on the security aspect, has gone up a lot in recent years. You know, it used to be that folks would build things in the ocean, and then it's like, well, it's safe just because it's in the ocean. Like you lay down an internet cable or a pipeline or build a dam, and it's like, well, no one's gonna mess with this. It's all the way out there. That has certainly changed. There's a lot of gray zone conflict of people sabotaging equipment. And so now we're getting a lot of outreach from commercial companies asking us to do what is essentially very routine security jobs. It's like, hey, we just want data analysis and very timely warnings so that we can protect what ends up being many hundreds of millions of dollars worth of critical nation-state infrastructure.

On that side, it's very fun because we're definitely in the lead in terms of commercially viable technology. Unlike US Navy technology, there's a lot of stuff that's focused on pointy, full-on warfare. However, most of those products don't have the safety systems, the liabilities, or just the commercial viability to be at all relevant to the commercial industry. Many of them talk about dual use, but realistically, we don't see a single sale that they can point to in the commercial space. And that makes sense, because the commercial world is much more sensitive to ROI and actual stuff just making practical sense to a layperson, rather than the harder mission, but a very different mission, of delivering ordnance on a target.

Maggie (19:54): Yeah, Mike, speaking of those commercial use cases, I mean, I think about the autonomous vehicle industry in San Francisco. Matt and I both live in SF. I know we both take Waymos all over the place, and from a non-expert's perspective, this seems like a harder problem—getting cars driving on the streets of San Francisco, where they might hit somebody walking in the middle of the street, or where there's gonna be random U-Hauls just parked in the middle of the street or whatever. The open ocean seems like it would be an easier—which I put in quotes—problem, or technical problem. So I guess, why are we seeing the maritime space sort of lagging behind the ground vehicle space when it comes to deploying autonomy? Is this a regulatory thing? Is it actually a technical thing? Is it just a market-based question? What's your perspective on that?

Mike (20:48): So I would say, to answer that in two different lights, the hardware problem on a lot of the different things, I would put open ocean maritime robotics closer to the space industry, like satellites and such, rather than the autonomous car industry. But I do think the autonomy is directly related to the autonomous car industry. So let's talk about that first.

I think that something that was interesting that we saw with the autonomous car industry is everyone kind of thought that it was gonna be pretty easy—that was like, oh, we can solve this right now, in maybe the 2018 timeframe, kind of the breakout of some of the new machine learning models. It's like, wow, computer vision is so much better, neural nets—we're just gonna smash this. And there's a huge surge of funding and companies, and then, really, none of them solved it. And the only ones we have left are Waymo and Tesla, who are actively duking it out in relatively confined rollouts. You know, Waymo is kind of like a very progressive, building chunk by chunk very reliably, and Tesla is kind of still this big unknown of like, are they suddenly going to unlock full vision-based, incredibly affordable autonomous driving? We'll see.

In the maritime space, we have the same problem. What held them up, what killed all those companies, I would say this is a long tail problem. So the problem is that 99% of the driving is easy and solvable, and they probably all did solve it quite well, but that 1% chance of like, okay, kid runs out from behind a car, and a human driver is incredibly good at identifying in milliseconds and then jamming on the brakes, and we come to expect that out of autonomous systems. We don't want to let an autonomous system out on the road that is just a terrible driver in these really important moments.

Maritime has the same long tail problem. Okay, a kayaker comes up, a jet ski comes up, a tanker is crossing on a windy day through a tight canal, and there's a sailboat coming, and it's like the rules of the road say that one should give way to the other, but a captain or a mariner or pilot needs to make a tough judgment call to say, like, ooh, I would rather let us bump than cause the situation like the Suez Canal or the Ever Given that got stuck. You name these massive maritime disasters—they're really tricky. They're basically these maritime situations that still have really high, critical, important moments, but now it's actually much harder, because instead of having a massive bulk of training data to get through the bulk of this, there's very little. It's very low volume, and it's a false sense of security. Like you can go out and operate for months and say, oh, we have COLREG-compliant software. And it's like, no, they probably don't. They just had very few interactions. And anytime someone gets nervous, they switch on a Starlink and just watch the cameras and do a little nudging if they need to. So I think that long tail problem is the tricky thing that's holding up maritime.

Maggie: Mike, what’s a COLREG?

Mike: COLREG—thanks—the collision regulations. These are a set of guidelines about how vessels on the ocean should interact with each other, and it's the International Maritime Organization, or IMO, that published them, jointly with a bunch of different nations, I don't know, maybe 50 years ago or something. And yeah, ASVs have been struggling with them ever since.

Matt (24:08): Yeah, going a bit deeper on the tech stack, I want to better understand where Seasats comes into this. You talked about being the only company in the military maritime space that also has a commercializable product. You said you started commercial, have commercial customers, and then that would seemingly give you a lot of technical differentiation in the intelligence and surveillance and reconnaissance ISR missions, right? Could you talk a little bit more about what differentiates Seasats technically from other companies in the maritime space or from legacy ship companies, and what are the hardest parts of that tech stack you guys have built? What are the hardest challenges you've had to solve?

Mike (24:58): So I'll start with the traditional companies and then move towards some of the newer companies. I would say the traditional differentiation is that in maritime, to build these ASVs, and I'm going to keep it focused on the offshore, so offshore and longer endurance missions where you need to be out for more than one day, greater than 24 hours, and operating at least a mile offshore. When you do that, you go from hundreds of competitors down to just a handful that say they can do it, and even fewer that have proven they can do it. We're probably talking about a single hand's worth of companies. The field thins dramatically.

Why is that the case? It's because you need to solve a wide array of problems and you need to be competent, or even expert, at all of them. You can't just be good at one or the other. So there are a lot of boat building companies that say they can build autonomous boats, but if they don't have modern software, they don't have great electrical engineers, they don't have the full expertise that these autonomous systems require, then they just don't succeed. It's a good looking boat, but it doesn't actually do what they need.

There are other companies, like in San Francisco, where I've seen some startups that pop up and say we know software and we're going to build a sweet autonomous boat because boats are easy, and it demos really well. But you see 8020 aluminum, which is a very common prototyping aluminum, like rickety stuff bolted together, ripping around for demos in the bay, and that's essentially irrelevant to the real mission. Until those companies recognize that they need to hire really good mechanical engineers, really good naval architects, and even really good electronics and electrical engineers, they won't succeed.

You can't just find off-the-shelf solutions. If you just buy a Jetson, like an NVIDIA Jetson, that typically sucks five to twelve watts. Doesn't sound like a lot, but most PhDs in autonomy have not considered power consumption being a problem. If you're out for days and days and days, you need to manage your power budget. You need to switch things on and off. You need to handle different communications networks. Just the number of problems you need to solve is massive.

Even just communications, which I just mentioned there, if you just run Starlink all the time, it's 60 watts. Now maybe you're having to run a gas generator. But guess what, if you run any type of internal combustion engine like gas or diesel, you typically have a person service those every couple hundred hours to change the oil and change the seals. Even our cars do not run close to that long, even though automotive is one of the highest reliability industries in the world, and they need a lot of servicing.

So I think the problem here, technically, is that there are a lot of things to solve, and it's very easy to start, but it's really hard to finish. It's just another one of these long tail problems. It's really hard to get to the last couple percent, and those end up mattering in the ocean industry.

Matt (27:42): Yeah, I think that's a super interesting point about how to build autonomy. From what you're saying, what I'm taking away is that to build autonomy, it's not just a software problem, but especially in maritime, it's a hardware problem as well. But I feel like we see companies in the space who are saying, "Hey, we know how to build boats. There are a lot of people out there who know how to build boats. We don't need to reinvent the wheel. We're just going to build the software that retrofits those boats, or maybe we make some slight modifications to handle the power, the comms, or the other problems you just talked about. But we're not going to have a proprietary design for our vessel, because people know how to build boats." So could you talk more about why it's really important to be the ones building the boats yourself? Why not just retrofit boats with software kits and maybe a few other things that help you monitor and manage things like power and comms?

Mike (28:41): Yeah, that's a good question. And you know, if we could buy boats off the shelf that did the missions that we needed, we absolutely would. We joke all the time that we would love to outsource more. We wish we could outsource more.

One of the things that Seasats started with was these man-portable boats. Some of our very first government customers were special operations, and they had these hard requirements of, "Hey, we need to be able to show up to a location and with just people, get this thing into the water and start the mission, and do that without lining up a crane or a forklift." So that immediately puts a very hard requirement in terms of how much weight is acceptable.

And so for us, we end up very much in this composite, very compact space, trying to build these really long range, really capable stealth platforms. And they have that weight and size limit. Now because of that, we have to pack all this stuff in and do all this design work. And really, we have to own the entire solution. It's not okay to throw it over the wall and say, "Well, someone else will hopefully solve that," and then have a vendor send it back and it's a little bit too heavy.

That has led us to a point where we're now winning sole source awards, and where our customers tell us, "Yeah, you know, there's nothing else out there that is that size, that capable, with that range and has proven performance. It just doesn't exist." You can look at the trade space, and there are dozens and dozens of companies, and they make big things, they make fast things, they make short range things or small things, but nothing that hits both of those requirements.

The cool thing is, I didn't realize, and I don't think we realized, just how helpful this would be for commercial market growth, because it turns out that shipping around the world is a huge pain. And if you can make something small and portable and very capable, then you can also ship it really affordably. So we get a lot of contracts where they say, "Hey, we need to do this thing in this other country, and we have six weeks to do it." And there just are not many options for what you can actually commercially air ship around the world. We're right at the limits. We already have to have people who are really experts in shipping, logistics, going through customs, doing all this stuff.

So yeah, it turns out the size and weight, I kind of like to think about this like cell phones or computers. You know, it used to be that you had giant computing rooms, and then it was like, "Hey, now it's only the size of a fridge." Then it's like, "Oh, now it's the size of a refrigerator or a microwave," and now it's in our phone. And it's like, okay, if it's smaller, you can scale it better and faster. So really, everyone would do everything as small as possible if they could. Typically, you go bigger if you have to. So the smaller the better. It's just that it requires a lot more engineering.

Matt (31:18): Yeah, I imagine on the US government side, there would be a lot of contested logistics interest in a platform that can not only be shipped overseas easily, but in some cases, can ship itself overseas easily. Is that something that your customers have gotten excited about?

Mike (31:35): Yeah, I think that's a cool one. Because in contested logistics, okay, how do we maintain a fighting force, or standing force when we've got conflict with an adversary and where supply lines are not as easy? You know, you can't just fly a big cargo plane in or send a big boat. It's going to be a target.

Well, the cool thing about the stuff that we're doing, if it's really long range and small, is we can change its logistics balance, both in terms of maintenance. You know, it's like, "Oh hey, that might be difficult to maintain, right?" Well, what if you only have to maintain it twice a year? If you maintain it twice a year, it's like, well now, I mean maintenance every six months, sure, just stockpile a tiny pallet, and you're good for multiple years. So you totally delete this problem by making the things be very, very long endurance and self-reliant.

And then the second one, like you mentioned, is they can just go super far. So it's like, great, you can basically get into contested areas, and the smaller, the better. I think signature management is a huge thing that people are learning in terms of unmanned systems.

Matt (32:33): Yeah, I wanted to ask just another quick question about how you're designing for persistence. The Trans Pacific mission, what was the one where you went from California to Japan? What was the hardest thing to get right technically to make that mission successful, and from a design standpoint, what did you learn from it?

Mike (32:58): Here's the thing about all these challenges - there are the problems you don't want to solve, and those are probably the ones that are most important. You could build the boat lighter, or you could build the boat faster, but you really need it to work day in and day out, so you have to respect those constraints and requirements.

Our vessel is actually a hybrid vessel. Not many people know that. People either think it's an electric motor that's battery powered and forget that all the solar panels actually harvest an enormous amount of energy when you're very efficient with your power budget. For many months, you need solar power. But it's also hybrid - it uses a fuel cell, and that's really important because it has the ability to work for weeks even if it's very cloudy with big storms. For other applications that are carrying high power, high draw payloads like electronic warfare payloads, they require hundreds of watts. You can only do that and then recharge quickly if you have a hybrid system.

That required a lot of engineering. When we did our first prototypes, it was not hybrid - it was pure solar electric. We realized from doing missions that we needed to tackle this hybrid challenge, and we invested in it. It took a ton of engineering. Some of the cross ocean missions actually unveiled things about those hybrid systems that you're only going to learn when you have boats out in massive storms and huge waves. You have to decide how to choose the right level of simplicity versus complexity. If you make the design decision to add some actuator to close some air vents, that adds configuration management, extra parts to build, and extra failure modes. You need to carefully weigh the decisions to add those things. Those open ocean missions are really where we prove that stuff out, where we validate our design and share it with the world so that people know what the status of this technology is.

Maggie (34:53): How do you guys go about actually building some of the machine learning models and tools that you deploy on these systems? I know you mentioned, and we've heard from others, that there is a big shortage of maritime data to train something like a computer vision algorithm. There's only so much real world testing you can do. What does that pipeline look like, from data preparation to training to testing, simulation, and evaluation?

Mike (35:21): Well, I think we're fortunate that the machine learning world as a whole has moved forward massively. We leverage open source models. We take the best in class, and then we have our own data libraries that we've built up. Then we fine tune and train to a maritime perspective that's relevant to our boats, because it's all about matching data distributions. If you take the best Tesla model and then ask it to do something random in your house that it's never seen before, it's probably going to do poorly because it just hasn't actually seen that type of data before. Having on-target data is really important.

Maggie (35:56): Is that just data that you guys have collected, or are you using simulation or synthetic data?

Mike (36:01): Yeah, typically for us right now, we've evaluated synthetic data, but currently we have this advantage where we have boats all over the world, and they've been out there for years. In some cases, we have a lot of data, and we're getting more every day. Our amount of data is accelerating. Currently, the best data is real data. I anticipate eventually we're going to use synthetic data to replicate certain specific things that are really hard to see variety in. But right now, we're sitting on a very good host of data, and we're even doing some data collection contracts for other folks in the industry because they say, "Hey, we don't have a way of getting this affordably." So right now, we're putting out a lot of data.

Maggie (36:41): And then are you doing all real world testing, or are you also doing testing in simulation?

Mike (36:46): We do a ton of simulation, as well as accelerated hardware-in-the-loop testing. That's very common in automotive and aerospace. I will say, with some pride and joy, that back when I was writing software at Seasats in the very early days, one of the things I contributed was writing our simulation engine - our first simulators. That allows us to test a huge amount of our code without the software ever knowing that it's not actually out in the real world. You can simulate sensors, you can simulate comms jamming, you can simulate a lot of things. Then we pair that with real world validation, because certain things like comms degradation - there are tools to simulate them, but a lot of times they're not quite accurate to the real world.

Matt (37:27): You mentioned that you now are actually selling some of these data sets to other customers who want to use it to train their maritime autonomy stacks. To me, that seems like something that can serve the whole industry and potentially be a large part of what your company does itself, just because of the unique data quality and quantity that you're collecting out on the ocean. How do you see that in terms of being part of your product offerings in the future? Is that a big part of it? And secondly, are you planning to deploy missions for the express purpose of collecting data that you can sell, or is this just downstream of having a bunch of Seasats out there conducting missions that you're able to sell the data from?

Mike (38:14): It started as the second, where it was a downstream effect of already having the boats out there doing something, but it's definitely moving towards the first, which is specific missions tailored towards getting specific data and then being able to sell that data stream.

When we started the company, our name - the abbreviation is Seasats, but the long form is C Satellites, C Satellites Inc. We were in a space-based accelerator, Tech Stars, and we had early investors and advisors who were all out of the space industry. They really saw what I fully believe in, which is that this is going to transition to the point where these USVs are very much treated like satellites. We have fleets of them out off coasts, off Economic Exclusion Zones, able to provide continuous, affordable, high resolution data.

The people that need it - Coast Guard, Border Patrol, DEA, mapping services, fishing industries - they subscribe to that data and say, "I need to know when someone crosses into this area." We become the contractor that keeps the satellites working. We maintain the boats, we improve the autonomy, we handle collision avoidance, liability, all these different things, and we just provide uptime. We've done that pretty successfully for the US Navy and for a couple of commercial customers in a few different cases, and they've always been really happy, and we've always been really happy because it's a great business model.

Maggie (39:36): Mike, have you all had to go through the process of actually integrating some of your systems with DoD systems or with Navy systems and some of their data feeds? I know we've heard - we just did a podcast earlier with some technical leaders in the Navy - and they said integration is one of the number one challenges that they see startups and honestly primes alike manage. I'd just love to hear about how you all have gone through that integration process.

Mike (40:04): Yeah, I listened to that episode with Justin and Artem, and I totally agree. The integration problem is super key. Luckily for us, we knew this industry—we'd been in the space for about five to ten years specifically before starting Seasats. And so integration was something we took seriously from the beginning. One way to solve that is making sure that you have very open APIs at the endpoints where they need to be met. So we spend a lot of time writing software to integrate with systems like Minotaur Lattice, L3Harris systems, Copiers, AFS—you name it, all these different common operating and common intelligence or collaborative autonomy systems. And we've integrated with close to ten at this point, and it's always pretty easy for us. We use standards that are well known, government developed, and are easy to work with.

You know, I also really enjoyed that part of the podcast, which asked the question about just how hard it is to get onto Navy ships, or how hard it is to integrate with operational units. And I think one of the things that was recommended on there—I forget whether it was Justin or Artem that recommended it—was to initially go for standalone systems, because it's easier to get the paperwork approved, and then later move to fully mature, super tightly integrated systems. That's the route that we went, and it has been successful. We've managed to get Seasats onto grey hull Navy ships in important parts of the world. And it's always done because, basically, people realize the critical need. They realize the capability that a Seasats system can offer. They look at its size and say, "You know what? We can slap that in this area, have minimal approvals necessary, operate it slightly in parallel, and it offers the military a unique capability." And so that's how we've gone about integration. And then now that we're at the phase of larger sole source contracts, we are bridging some of those tight integration efforts where the government invests in saying, "You know what, this can be something we're gonna have for five to ten years, and we need to wrap it in tighter."

Maggie (42:02): Speaking of some of these government developed standards, I know one buzzword that I hear a lot is MOSA—Modular Open Systems Architecture. I'm curious—I've heard maybe mixed things, both positive and negative about it. I'm curious, is that real? Is that going into effect? Is that something you all are working with? Do you have any thoughts on it?

Mike (42:20): MOSA and UMAA get tossed around a lot. What's UMAA? UMAA is—I'm gonna mess this up a little bit—Unmanned Maritime Architecture, something like that. But I would say MOSA is the closer of the two to being a good, realistic thing. I would say MOSA in intent is excellent. We try to be accurate with our stuff, so we say that we're a MOSA-designed system, because they want to know that it's modular, open systems architecture, and absolutely Seasats—we design everything around that. We've carried probably forty different mission payloads from unique different companies doing unique effects. It's probably higher than that now. I wouldn't be surprised if we're over fifty, but every one of those requires—if you haven't designed in a modular, open way, every one of those is a custom engineering project. I mean, I've had folks from Navy Information Warfare Center say, "Oh yeah, typical sensor integration could be a million dollars and take half a year to a year." We do it in a day or two, and sometimes we don't even charge because, you know what? We just want our library to grow. If it's a mission value-add sensor, we want to add it to our platform. We're just gonna do this as fast as possible. So MOSA is important. UMAA is important. I would say sometimes in the technical details, those things kind of miss the mark. They get a little overwritten, a little over-prescribed, but the intent is correct.

Maggie (43:43): Another technical question that I had was, how are you all seeing LLMs and transformers play a role in maritime autonomy? Are you all actively experimenting with this, and where do you see the most promise for this technology?

Mike (44:02): Yeah, we definitely do experiments because there are certain parts of the autonomy perception stack that we have done LLM-style, or these new large transformer models. And you know, the initial results are super promising. Because this is a long tail problem, they're not quite there where we've deployed them to vessels where it's like, "Okay, we're gonna have to invest some time to get that right." I'm super excited on the LLM side, in particular, because we spend so much time—we get a lot of compliments, we don't advertise a lot about our user interface, but we get a lot of compliments from customers saying, "Oh wow, this is super intuitive. This is one of the best things in the industry." I mean, I've heard this from competitors as well. They say, "Oh man, how'd you guys get that so clean?" I think the future of UX is gonna be LLM-based—you're just gonna talk to this tablet the same way you'd talk to a person. You'll be like, "Hey, it's getting dark. Should you change anything in your sensor behaviors?" And rather than trying to make this intuitive through traditional interfaces, it's just gonna prompt you with the correct settings, or it's like, "Hey, enter a stealthy observation mode. Hey, we're entering a contested area. Set yourself up properly." And I think that will be totally enabled by LLMs. And I'm super excited to see that workflow improve.

Matt (45:17): I want to ask about price and cost. We talked earlier about the Ukrainian drone boats and sinking the Russian Black Sea Fleet. The cost asymmetry there is enormous, and those boats cost around two hundred thousand dollars or something like that. And then, you know, I was reading a Reuters article the other week that was talking about some of the challenges that the DOD has been facing with our own small USV industry. And it was saying that those platforms cost a million to two million dollars, and it very starkly drew the contrast between those costs and the cost of the Ukrainian platforms. Why is there that cost asymmetry between what Ukraine is spending versus what the DOD is spending? Why can't we pay one-tenth the cost that we're paying now and buy ten times the vessels? And then also, just curious, how do you think about the right way to price these platforms more broadly?

Mike (46:14): Yeah. So, you know, I think that Ukraine is in a unique scenario, because they're in an active war—every dollar, every round, every life matters. So they need to make really conscious decisions. They don't have the luxury of time or space to potentially get something overpriced, to invest in something that doesn't have an effect. It's that "a bird in the hand versus two birds in the bush" thing—they're taking birds in hand all day. And so, you know, it's interesting—when they put out their open source, crowdfunded initiative for, I think, the Magura platform, which was the very effective USV for driving back the Russian fleet. According to open source, available information, they're releasing those at two hundred and fifty thousand dollars, I believe. And so it's like, okay, that's a pretty good analog. They wouldn't post that number if they thought that was wildly overpriced, because they're opening up to the world being like, "Hey, help us fund these things." It's not like they're soaking up huge profit margins there. They're trying to drive ahead in a war. So I think that's a good reference point to recognize that maritime is hard. You need a lot of these systems to work. You need waterproofing on almost everything, which drives down the volume and increases human touch time. So maritime is expensive. Ukraine is probably a bottom price—that's probably the simplest systems that you can make, even though, to their credit, they're the most sophisticated in the world in terms of effectiveness.

In terms of the US, you know, I think that article quotes a Saildrone platform at maybe two million dollars—I'm just quoting what they put out there. I think there's some challenges here where it's like, okay, the US DOD is very used to asking for very high-end capability, so it's gonna be more expensive, and they're preparing for very high-end conflict. So it's like, okay, you need really sophisticated systems. They're definitely gonna be more expensive than the cheapest possible systems on the market, which let's just call Ukraine or China. So it's some price between two hundred and fifty thousand dollars and we don't know what the upper end is—maybe it's two million dollars.

How we think about pricing is from a commercial value stance. It's like, okay, could we realistically just replace this boat with people and contractors and go do the mission? And if you're in the millions of dollars range, it gets hard to justify. You can do that really effectively with just commercial solutions. And frankly, yeah, I think that also becomes a crutch. If you think about the liability—I don't know who the CFO is at Saildrone, but if you tell the CFO at Seasats or Saildrone, "Hey, we're going to be driving around a two million dollar asset offshore, unattended. It's just gonna be floating out there for days," they're gonna be like, "Ooh, what's our financial risk liability position on this?" And suddenly it's like, "Well, how about we have a couple hundred dollars a day chase boat out there with a crew to attend it." And now, once you got this chase boat out there, then it's like, "Well, we can also have a backup comm system. We can do all these things." You end up in a totally false, fake, basically testing environment, because you always have someone there to baby the system and to bring it home. You don't need to get good at navigating remotely through channels and difficult things, because you basically have a human to kind of watch it. So I think that's a problem with these really expensive systems—they get expensive, and then they get babied during testing.

So we were really aggressive about keeping our price low. And right from the start, we were doing fully unsupported test missions, and we could only do that when we were bootstrapping and starting this off of extremely small amounts of angel funding. We couldn't put out a multi-hundred-thousand-dollar system because we didn't have hundreds of thousands of dollars. We had to be confident in our equipment at very low price points.

Matt (49:55): Do you think that the fact that the US is looking for boats that have more autonomy capability on the software side is making their platforms more expensive? Or are there parts of the technology stack that are more sophisticated than what the Ukrainians are using that make it necessarily more expensive?

Mike (50:15): More sophisticated? Probably yes. Whether that's more mission effective is the open question. It's like, okay, who can complete missions better? Which is what you need at the end of the day. If you just want a nicer car, then you can always go up. You can be like, "All right, I want a Porsche or a Ferrari or McLaren"—you can spend more money if you've got more money to spend, and if you want nicer things to buy. I don't think inherently the software needs to be that expensive. Yeah, it's not a very hard computer vision problem, so I don't think it needs to be as expensive as it is. I think the prices will come down, and that will put pressure on companies to find viable price points and viable dual-use solutions, or to go out of business or have down rounds. We'll see what happens.

Matt (51:00): Last question on the lessons from Ukraine. You talked earlier about how you balance learning and not over-learning. Are there lessons from Ukraine in the maritime space that you think don't apply, specifically don't apply to a US future conflict, or how the DOD thinks about its posture and maritime autonomy?

Mike (51:25): Yes, absolutely. I think that a lot of folks saw the Ukraine very successful defense and offense with their USVs and said, "Ooh, we need exactly that." I would say it's very worth remembering—Ukraine was a defensive nation fighting a war against a much larger aggressor, and in an all-out war scenario. I like to consider this back to wars in the Middle East, like Iraq and Afghanistan, with roadside IEDs or improvised explosive devices. The IED problem was a massive problem to US forces. But there were not a dozen IED startups that were like, "Hey, we should be building IEDs for the US." It's like, no—cheap defensive weapons are not what the US invests in. We typically are investing in precision strike missiles, aerial systems, et cetera, that also have really advanced safety systems, for morality purposes, like last-minute aborts and things, which drives up the cost.

So I'd say now the US is in the unfortunate situation of potentially facing near-peer conflict where it's like, okay, we can't have as exquisite systems—economics are a real factor. But at the same time, I don't think water-borne IEDs, super cheap, kinetic solutions are really the right place for the US to invest in. I think we need to look at those lessons and build new ones, or build more appropriate things to integrate into US doctrine.

Matt (52:53): Transitioning now to some rapid-fire questions as we get close to closing out here, what's been the biggest surprise building Seasats?

Mike (53:03): Maybe just the number of places and the number of needs and things we'd get involved in. I think Elad Gill's startup handbook, or whatever that book is, talks about not realizing just how big the world is. And that is totally true. There are so many people who reach out to us on literal cold inbound sales, and I'm like, "I did not know they would need autonomous boats."

Maggie (53:25): What's the most surprising one of those, if you can share?

Mike (53:28): Jellyfish detector. We didn't know if this was a joke or not, but it turns out that nuclear power plants are typically by water sources, and they have big water grates. And if you get a big plume of jellyfish that float along on currents, then they'll clog the grate, and suddenly you'll have everyone panicking about a nuclear meltdown because they can't cool the plant fast enough. And so these folks building power plants were very seriously contacting us in the early days, and doing presentations around using fleets of Seasats to provide early warning for underwater jellyfish swarms. And we were like, "Wait, really?" Yeah, we thought it was a joke at first. That's definitely the weirdest.

Maggie (54:04): What's your hottest take about the current state of defense tech or maritime autonomy?

Mike (54:11): Ooh, there's so many hot takes. Okay, here's one. I think that there should be way more testing. Everyone is excited—I think what has really happened, why are defense companies clustering and racing to Ukraine? Besides protecting democracy and helping a nation protect their sovereign borders and stuff, it's because they've become the de facto testing lab for the world in terms of defense systems. What's the big shame to me is that the US has so many regulations that we have failed to create effective test environments in the US. And I've talked to folks in the government about this, and folks who are trying to reshape things, and my conclusion is often like, "Gosh, we should probably raise some money and just purchase some private land, or purchase some areas and just run a commercial testing facility." Because it's crazy that we're so bad at this. I mean, I love looking at Zipline drones. They couldn't get FAA permission to do early UAV stuff in the States, and so they just went overseas to do testing, delivering important medical supplies, where they could do it.

Maggie (55:15): How far out do you think we are from being able to take an autonomous cruise ship?

Mike (55:20): Oh, I love this question. I can't say never, because that surely is wrong, but I'm gonna go fifty-plus years. Oh man, I know that might sound like I'm a pessimist. It's not for technology reasons. It's just like airplanes—commercial airliners have been able to automate the entire flight, the takeoff and the landing, for a long time. But we need pilots for liability, for responsibility—there's so many reasons that humans are so good and versatile. When you're talking about big cruise ships, it kind of just doesn't make sense. Someone's telling me they're gonna get rid of the final crew on these super tankers, and it's like, really? There's only fifteen people on there, and they're transporting—what?

Maggie (56:03): What about a whale watching boat, like there's ten of us on here, sort of thing?

Mike (56:08): Okay, okay. We have toyed about offering around Mission Bay beer cruises, where our autonomous boat just tows people around with tubes and coolers full of beer, because we've done that for ourselves, right? This was kind of a fun gimmick—we should have people get toured around for romantic cruises with no driver. That might be sooner. We could do that kind of whenever you want, if you want to Venmo us, we could probably do it once illegally.

Matt (56:27): Specifically in the USV space, what's the most commonly misunderstood viewpoint about the industry?

Mike (56:39): I think the one—this is just like, over and over, I beat this point—but I would say just that the demos are done on days when everyone wants to go to the water. It's sunny, it's nice. If it rains, it pours, there's bad weather, and then everyone doesn't do it, and it's like, "Oh, that doesn't make sense." And so often the tests are scripted. It's like, "Okay, and now the bad guy is gonna come and we're all gonna point the cameras, point the weapons, and report our duties." It's just totally fake. And so the combatant commands are actually really the point of the spear, in my opinion, on this, because they're out there doing missions in the world, oftentimes that are not scripted. It's like, okay, trying to stop smugglers, trying to stop conflicts and being in kind of more contested zones, even. I saw an article where someone was like, "Hey, we should be using this as a more aggressive testing environment, because we're trying to stop smugglers." And it's kind of separated from adversaries. That makes total sense to me. Anything that can make it more real is critical.

Maggie (57:39): What advice do you have for other founders looking at starting a company in the national security space?

Mike (57:44): Find amazing investors and teammates and advisors who get how long it's gonna take and how hard it is, because maritime defense is a problem where you can't just be good at one thing. You need to be kind of amazing at one thing, which is what gets you your differentiation—that classic startup ten-times improvement, to get people to try it. But then you really can't suck at anything else. It's like, if you're bad at contracting, if you're bad at legal, or if you're bad at some core competency in your technology stack, then it's just kind of doomed for failure. You'll never get all the way there because you basically need to be good enough at everything. And I think the only way to do that is to have a good team, and that counts all the way to the investor network, which, you know, Shield Capital is a phenomenal investor. Nice plug for any startups looking for capital.

Maggie (58:37): Well, on that note, Mike, thank you so much for coming on the podcast. I definitely learned a lot about the world of maritime autonomy, and really appreciate your time.

Mike (58:46): Totally. Thanks for having me on, Maggie and Matt. This is a lot of fun. Glad to be on here and glad to get to share a little bit about what's happening.

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This month on the Mission Matters podcast, we sat down with Justin Fanelli, the CTO of the U.S. Department of the Navy and PEO Digital, and Artem Sherbinin, the CTO of the U.S. Surface Navy to discuss the future software-defined Navy. We cover everything from computer vision deployment in the maritime domain to why technology will matter in a conflict with China to what “software defined warfare” actually means.

You can listen to the podcast on Spotify, Apple, YouTube, the Shield Capital website, or right here on Substack.

As always, please let us know your thoughts, and please reach out if you or anyone you know is building in the national security domain.

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Maggie 00:30

Welcome to the Mission Matters podcast, a podcast from Shield Capital where we explore the technical opportunities and challenges developing and deploying commercial technology to national security customers. In this episode, we're joined by Justin Fanelli, the CTO of the Navy and technical lead for PEO Digital, as well as Artem Sherbinin, the CTO of the Surface Navy. Justin and Artem are two of the key technical leaders bringing the Navy into the 21st Century. Now, Akhil, I figure this conversation probably hit home especially hard for you based on your first hand experience with the current state of technology in the Department of the Navy, from your time as a Marine back in the day.

Akhil 01:31

Yeah, thanks, Maggie. You know, preparing for this discussion did, in fact, remind me of my brief but very memorable time aboard naval shipping and really experiencing firsthand the technical challenges facing our maritime forces, whether that's planning and executing as a disaggregated force under limited communications and, oh, while having to use systems that have to survive the salt water the extreme of the maritime space. I think also what makes this conversation particularly timely is just everything happening in the world right now. Justin and Artem are at the forefront of making the Navy more lethal and capable in confined waters like the Persian Gulf and the Red Sea, as well as being able to do things like maintain presence and deter our adversaries in the vast expanses of the Pacific Ocean. And so this conversation is going to cover all of that, and I'm excited to get into the nitty gritty details of deploying computer vision for maritime to what technology looks like in potential conflicts with peer adversaries, as well as what software defined warfare actually means.

Yeah. Artem Justin, I think this will be a little bit of a unique podcast for us. We've spent the last couple episodes really diving deep technologically into some of it, but I think we'll have a chance to kind of hit that intersection. You guys both come from deeply technical worlds, but are also involved in managing technology adoption. Before we get to the latter, though, we'd love to ask you both a softball question, what's the one tech area, application sort of challenge that keeps you up at night, that you can't read enough about and that you're really trying to get your hands around.

Justin 03:04

For me right now, resilient comms is actually finally starting to get resilient comms. And so resilient comms used to mean like two and now we can be way more diversified in the different inputs, but I'd say that there are a lot of folks who are kind of nascent, or these communities didn't used to talk to each other. And so when I was at Davos this year, we said, oh, it was unthinkable for the space folks and the 5G folks to have conversations just maybe 18 months ago. And so how do all of these different communities of interest blend to solve harder problems together? It's a great time to be a versatilist, and I think there are more of them coming together, and that's going to result in to me, new protocols, new interfaces, and then ultimately new opportunities for deploying capability faster and solving effects problems in more creative ways.

Artem 04:10

If you ask two Navy people, what the hardest technical problem is, the answer always comes back to integration. Integrating with like large legacy capital assets is always hard, especially if they're made by like a prime contractor using whatever it is, resilient, comms, AI, software, hardware, anything, integration will always end up being like the hard problem to solve.

Justin 04:36

Now that said, this could be there are reasons to believe whispers that this could be the golden age of integration, because of what we're seeing with generative AI, because of model context protocol and a few other things that are coming out. And so if I don't know, 70 cents on the dollar goes to integration. And, and folks who are using specifically on the software development side, the vibe coding tools and things like windsurf or other products to go much faster, if we level that up in a significant way for interfaces and we can really go after the bottlenecks across the board. I would love to have someone who's listening to this podcast say, “Hey, we've done this for a defense application, and here is the time we've saved.” We've seen one offs, but benchmarking that and then making that the new baseline would be a real win.

Maggie 05:46

So Justin, you're telling me your vision for the future the Navy is just vibe coating our way into the future of conflict.

Justin 05:55

That is another interesting topic. I think what we said was, if we can 1/10 or 1/20 integration complexity based on applying solutions that we've seen other places, then perhaps the sky's the limit.

Akhil 06:15

That's great. Justin. In order to do that, we actually have to get some of these applications and protocols on network, on the environments that we need to but I concur with you. I mean the future in which we can collapse the data fusion, ETL, network to network collaboration is pretty awesome, but I know both of you work a lot of issues related to actually deploying software and adopting technology at scale to your point. Artem, you didn't really answer the question on integration, on tech area, but is the, is your focus still around the integration piece, or is there a specific tech area that has gotten you excited?

Artem 06:57

Yes, integration is always a focus specific tech area. You kind of hinted at it at the at the end, there is data integration. It's not particularly sexy, like ETL is a somewhat of a solved problem, right? Lots of options, ranging from Qlik to Etlworks to etc. But, you know, Foundry from Palantir, but it's a skipped step, right? The entire department is very hyped up on AI. The entire US government is very hyped up on AI. None of that matters if your data isn't right and if you have not solved the data integration problem. So I would say that's my kind of favorite problem to work on, because it combines sort of all three aspects of my job, technical, policy and, actual implementation. All three of those have a part to play there.

Maggie 07:45

I want to take a step back and really set the stage here. You know, why does all of this matter in the first place? You know, what is the state of geopolitics with our adversaries? What is the Navy's role in a potential conflict and like, like, why does it matter for us to rethink the way we design our force right now? And is there a sense of urgency?

Artem 08:10

Defense tech is really hot right now. I think that's why you guys started a podcast. And there's the reasons for defense tech being attractive to venture capital are different sometimes than I think the reasons that we need new technology, but those two are intersecting, right? If I look at the last, the last five years of venture investing, you had this big peak around 2020, in in SaaS, right, Software as a Service things. And then it just took, like a nosedive right around COVID. That money had to go somewhere, and it conveniently found its way in defense and around 2021, and 2020 to 2023, you see this just huge uptick in VCs investing nearly across that those three years, nearly $150 billion, so nearly $150 billion in private capital invested in defense.

At the same time as that's happening over in the public sector, you see this like big push of, hey, we really, you know, across political parties, across government agencies, whether you're in defense, commerce, the intelligence community, everyone's sort of coalescing around one singular strategic challenge, and that's the at the moment, peaceful rise of the People's Republic of China. And so I think that the reasons that defense tech is hot and the reason that the government said, Hey, China's a problem, were probably different. But now we're all on the same team. Now we've hit the intersection point. We're all driving towards the same problem.

So I think we should really understand that problem well, and I'll break it down like very simply, the leadership of the People's Republic of China, right the Chinese Communist Party, and specifically their president and general secretary of the party, Xi Jinping, has publicly stated that they have objectives to reshape the international world order that's currently led by the United States and our Western allies, and that they publicly have stated that they would like to reunify with Taiwan. Those are two very big strategic challenges of the United States, and so from a national security standpoint, it is our job to field the very best military that we can to deter those potential objectives of the Chinese Communist Party. Why so I think that's why that matters and why those two spaces have come together.

What does all that mean next for these spaces? It means that right now, we're in a really critical time period to do to bring in that technology and execute deterrence. There are a number of factors ranging from more conflict around the world, economic stagnation and deflation inside of China that's potentially driving leaders to make maybe even rash decisions, and a military on the United States side that is more expensive and by uh, by extension, smaller than it ever has been. At the height of the Cold War, we had 800 ships under Reagan in the 1980s today we have under 300 we said we want 350 we only build one and a half destroyers a year, and roughly the same submarines. The Chinese build three. So in this present moment, all of those factors have collided. And so not only is it critical that we get these technologies in, there's also just an immense amount of urgency to do.

Maggie 11:33

So what is the current state, as far as we know, in the open source domain of our adversaries’ adoption of next generation maritime technologies that would be relevant to the Navy, whether that's autonomous systems or AI or others? And how does the US stack up?

Artem 11:52

So the our number one adversary, as we've talked about a lot, is the People's Republic of China, and they have a concept that is actually, you know, riffs off of the US system of winning the Cold War called Military Civil Fusion. Military Civil Fusion is the Chinese looking at how the US won the Cold War, which is through by, you know, world class companies in Silicon Valley bringing technologies like the microprocessor to life, and then the government adopting the microprocessor and sticking it into weapon systems like, you know, cruise missiles and dumb bombs, and making them smart cruise missiles and very smart bombs, right?

So the Chinese looked at this and said, hey, the United States is, like, really good at the diffusion of technology. We should do that too. And so they developed military subtle fusion, which is this idea that Chinese companies work directly for. You know that their work directly supports the technologies being developed for the People's Liberation Army, which is the Chinese military. And they're doing this across the board in in areas ranging from energetics to, you know, rocket propulsion, to AI to autonomy, and you know, some examples include, in the open source you can find Chinese specifications for a software defined warship. In fact, they launched a medium, unmanned surface vessel for experimental purposes that meet some of those specifications. So that's a real example of that partnership coming to bear. The good news is the United States is just far better at this, right? We have a long history of taking, you know, innovation and fielding it for military advantage, and I feel fairly confident that we'll be able to continue doing that.

Maggie 14:00

What do you feel like the US most misunderstands about our adversaries approach to military technology?

Artem 14:10

Man, that's a tough question. I don't think that there's something we don't understand. I think we're just in the middle. It's hard to be number one for a long period of time, right? The United States has not had a competitor peer adversary since the fall of the Soviet Union in 1991 and today we do and when I say peer, I mean, this is, this is the first time I could, you could really say peer competitor. When you look at the Soviet Union by scale of military they were a peer competitor, but in every other aspect of intrastate competition, they were not. They were a near peer. China is most definitely a peer the GDP of China in. Uh, is just a smidge below ours. The GDP per capita is actually, you know, far lower, but the actual overall GDP is is just below ours. So China is the world's second largest economy. They are the world's largest Navy. They are the world's second largest army, right By every metric they are, they are close to us. And we have no institutional memory of facing a competitor like this, since probably the time of the American Revolution, where, you know, Britannia ruled the waves and was the global superpower of the day. So since that time, the US has never faced a competitor that could match us and actually exceed us in areas like industrial output. That has just never been the case. And so it's not necessarily that we misunderstand something about our adversaries. It's that we're facing a completely new kind of adversary.

Maggie 15:54

So one of the big topics of conversation that I know you and I have discussed, and I think is a hot topic right now in the broader defense tech community is, what lessons should we be learning from the war in Ukraine as they apply to a potential future conflict in the Indo Pacific, and what lessons should we not be over learning?

Artem 16:17

So I'll start with the easy one is, what should we be learning, and it aligns well with what I said before: Software Defined platforms are critical and cycle times of change are faster, largely driven by the software defined platforms those changes occur on. We're seeing that across the board on legacy things like tanks which have to be modified, like the physical tank has to be modified because of the advent of first person view drones and top down, you know, top attack munitions, all the way to electronic warfare systems, again, more of a Software Defined Platform than an analog tank. But the chain, the rate of change is just so much faster. And I suspect that any fight in the Indo Pacific would encounter something very similar in this very rapid rate of change.

What lessons should we not be taking away? There's a statistic thrown around all the time that 70 to 80% of Russian casualties today and Russian Ukrainian casualties on the front line are the result of first person view drones. I won't comment on the factual basis for that statistic itself, but the idea that all fires are now based on drones is probably an overreaction and an end and a bridge too far. One of the reasons that Russia just yesterday, from the filming of this podcast, launched over 300 drones at Kiev, and just under 70, I think it was 64 cruise missiles, as reported in the in the economist this morning was that Russia can produce more Shahad drones than they are roughly at a rate of 300 every three days. Then they can produce cruise missiles. So drone warfare is not necessarily just a function of the fact that this is the new way of war. Drone warfare in Ukraine is a function of what those countries can produce. And I suspect a fight in the Indo Pacific would look different. Moreover, the fight in the Indo Pacific will be between large capital assets, primarily armies, are still going to clash on islands, whether that's on Taiwan or other parts of the Western Pacific, but at the end of the day, it will be ships and aircraft that have the lead, and that is just going to be a fundamentally different conflict.

Akhil 18:49

As we maybe switch a little bit to the actual adoption, the actual technology, and then managing technology adoption, I'm reminded by a story from the turn of the 21st Century, a young Lieutenant William Sims, which is a classic case study of the Navy basically rejecting new innovation. Right for the listeners out there who don't know the story, basically, this young lieutenant out in the Philippines, stationed in the western Pacific in 1900 learned about this new technique around continuous aim fire for basically gunnery. The Navy spent a year saying this is probably not going to work. Did their own flawed tests, and it basically took this young lieutenant writing a letter to then Theodore Roosevelt, who was one of the assistant secretaries, to get him to elevate this to a level that needed, needed to be elevated and ultimately adopted. I think there was some wild statistic of a 500% increase in gunnery accuracy in the Navy by this one sort of technique that was initially outcasted. And so I think there's an argument to be said that the Navy, in particular, over its history, the Navy has had a real challenge when it came to adoption of new technology or just new practices, whether that's because of some of the legacy institutional culture or something else.

I'd be curious one, the Navy has changed a lot since 1900 it is actually, in a lot of ways, at the forefront of what geopolitically is happening from an experimentation standpoint, and where the potential points of friction, points of conflict are, and so I'd be curious to get, maybe to start off, a high level take on, how would you would assess the way in which the Navy has tried to adopt new technology or new novel techniques? Where do you think we can still go if there's one or two areas to really spend our time, spend our focus, if you were going to spend only had one hour or one marginal dollar, where you'd spend that time to enhance and increase that way in which we adopt technology.

Artem 20:56

I'll start with the last question. First, if I had to pick one place that I would change how the Navy adopts technology. I would say that every platform should be software defined, right? We historically, you know, we've, we've heavily vertically integrated our platforms, whether that's a ship or an aircraft. It's usually made by some more, you know, Prime Vendor, that prime vendor, will deliver the hardware, and that hardware, in order to put software on top of it, will have some sort of proprietary interface. And occasionally they need to have data rights. Occasionally we won't, even if we have data rights, we'll have to pay for like the decoder ring to be able to like interface. Those two things together, and they're very tightly coupled. And unlike an iPhone, or, you know, modern consumer electronics, benefits significantly from vertical integration. We found that defense things don't so effectively. Building software defined platforms on open source, like protocols with like open source code is, I think, the future, and we already, we already seen this in Ukraine, where software defined platforms ranging from drones to electronic warfare systems are updated overnight with new code, which in turn leads to some sort of operational outcome that should be our gold standard. You know, every night a ship is in contact with an, you know, an adversary potentially in a high end fight, and that ship just gets better because we deploy new code to it. So that's, that's the one kind of vision of the future I have. Going back into the past, the Navy has struggled with technology adoption. I think the sim story is just one of dozens the and I would point to kind of three high level things of what, what makes working with the Navy potentially challenging from a technology integration standpoint. The first is that large capital asset bit that I mentioned earlier. 70% of the Navy's budget goes to, you know, ships, aircraft, carriers, submarines, airplanes, etc. That's different than the other services. Akil, you're a Marine. 65% of your services budget goes to humans, right? So we're used to buying things. We're not used to buying software. And the second is, the Navy has a unique culture of, you know, kind of bottom up innovation, but that means that, you know, top down is hard, and that dates back to the notion of independent command at sea, and the idea that, you know, ship captain goes over the horizon and loses communications with everybody and just has to make decisions on their own. That's created kind of a centralized command and control system and a very hierarchical approach to, like, how our service operates. That's hard. We're working on getting better. Thanks,

Akhil 23:42

Artem, I wanted to pick up quickly on your software defined portion one, I think spending more time in the space. I think folks sometimes get what software defined means to be actually wrong. So I want to really, really distill what to you is software defined in the military context. And maybe as part of that question, you talk a lot about open source and being able to iterate constantly. Are we always going to be at concentration tension with the DevSecOps process of how we ensure whatever that means on the security side, with our ability to continuously iterate and ship and commit code on a nightly basis at scale.

Artem 24:22

So software in the military context, Software Defined warfare refers to the idea that your hardware platforms are getting better on a on a rapid rate, so in hours and days vice months and years because of the deployment of software to those hardware platforms. So just like a Tesla or your refrigerator potentially gets a software update overnight, and that piece of hardware now has new functionality, we want to see that in the military domain and adaptation is, you know, the. Uh, the side that adapts the fastest in conflict wins. Historically, adaptations came in the form of doctrine, tactics, techniques, procedures, or potentially rolling out a new technology. You know, the tank replaces the horse today, adaptation means deploying code, and in turn, the deployment of code drives those other changes. It drives tactics, techniques and procedures. It drives doctrine, it drives training, which is kind of a it's a new paradigm, and it has really changed the character of war.

Justin 25:33

So building off of that just a little bit, Artem is invoking both Darwin and then Krepinevich, right? And so this goes from the species to the Origins of Victory all the way to getting very wonky like DOTMLPF, here's the point: Maneuver warfare became the primary mode of marine philosophy, essentially like execution 1989 that scaling out and applying to technology as we've watched the wave of software grow is something that needs to be more tightly approached. And so what we've seen there is that the this OODA loop that so many people talk about is very measurable in terms of how long it takes to adapt. And so when you mentioned Sims, looked at the 500% there's a lot of talk, there's a lot of activities, but ultimately, the time it takes to turn a ship, or the time it takes to change the way that we are defending or countering is a very measurable thing. And so we talked about software defined warfare. Obviously, that's the fastest moving piece. I'd say just extending that a little bit modular across the board is particularly important.

So depending on how we do interfaces, including hardware, the more of these components that are swappable, the better. So we have a new line of ship builders the ability to navigate for autonomy or with or without GPS, are open questions. The idea of doing this vertically is an open question. And so we've seen some success with, for instance, In Q Tel, taking Anello Photonics and saying, Hey, instead of your Alt-PNT solution, swap that out and then swap in this new piece of hardware like that. Ability to mix and match all the way through hardware is ultimately something that I think is going to be extremely important to adaptation.

And so we have a few adaptation cells. We have one that we work with within the seal community. We have a few back office technical teams, and those are days and weeks mix and match that's extremely important, especially if we're not getting live production contact, and so I would say that watching this and being able to make those trade offs in real time is something that is allowing this bottom up to be pulled all the way through something we already knew there are often really good solutions closer to the problem, right? You're more likely to solve a problem if you're in it than if you're in some building Far, far away. But how long does it take to make through and how many letters do you have to write to Congress or somebody else? Well, we want that to be more data driven.

There's an obvious difference between private sector and public sector. Public sector is not measured on return on investment. Historically, there's no good sense or way of doing that. And so when you say something is five times better, that's really impressive. But like, the denominator is not standard at all. And so we've standardized the denominator to say if you are changing outcomes in a significant way, it's less important where the solution comes from in terms of where in the stack, and more important that you're moving the needle for the war fighter and so like a tactical example of this is occasionally, we'll use KPIs that specify how something works in the requirements document. And so we'll say there needs to be this upload speed and this download speed, but also we're specifying that we need coax cable at this installation. And the reality is we just need connectivity. And so what we've recently done. One is allowed for proliferated Low Earth Orbit and to compete with traditional, wired and so all this across the board, hardware and software, where outcomes are the basis for acquisition and scaling decisions, everyone is better off.

Maggie 30:20

Could you give a story of a time when fielding a software defined system really made a difference in some environment?

Artem 30:31

I think the best real world example for today is Ukraine. We brought that up, but I'll use a relevant example from the US Surface Navy. Our ships since October of 2023 have been an active engaged in active combat operations in the Red Sea against the Houthis, which are an Iranian backed militia movement in Yemen. The that means that our ships, for the first time since World War Two, have been under, you know, inside of the weapons Engagement Zone of an adversary for a consistent period of time. And so we've at, you know, at the filming of this podcast, we have engaged roughly, you know, 300 plus air breathing threats. So that's, that's a lot of data points. And at the start of that conflict, it took us weeks to get data off our ships. We have since gotten that down to days. We want to get that down into hours. And the data from those ships has improved. You know, when it gets back to CONUS to the United States, it has improved everything on the spectrum, from the tactics that those ships are using to shoot down those threats, all the way to the actual radar systems on board the ships where we have analyzed the data, sent a software update back on a CD. You know, ideally it would go over the air, but baby steps, sent it back to the ship, and then and the ship's radar systems have improved. So that's just one example of a software defined, you know platform yielding a measurable, you know impact and in combat.

Justin 32:10

And so there are there EW cases. There are also just infrastructure and connectivity cases that kind of allow everything above those to improve. And so we weren't doing a ton of telemetry a few years ago. And so at this point, the way this works CONUS and OCONUS is we're watching those flows proactively. We can do a cyber example after this, but now, instead of using phone calls or emails as the trigger for where connectivity problems exist, we're extremely proactive, and we can Do hot swap redirects or load balancing proactively, and so in this particular case, this is a re envisioning on how we modernly manage the highway for which all of the cars and bits and flows operate. I would say that prior to a couple of years ago, that wasn't pro grade, and now it's first in class.

Maggie 33:30

As we talk about fielding more of these software defined systems. What does that mean for the current capabilities that we have? You know, does this mean we need to throw away all of our aircraft carriers and F 35 and field just armies and armies of USBs and UAVs. Or does it mean something different? And if it means something different, you know, how do we envision kind of the future of this software defined force?

Artem 33:56

I really love this question, because we hear this, the Navy gets this, I think, more than the other services, because we are so platform centric. We get told all the time that, hey, the character of war has shifted towards autonomous systems that are software defined. You can just throw out all the expensive manned things, the F 35 there was a prominent tweet that suggests that those could be replaced. You know, the $135 million F 35 could be replaced by the $10,000 hobbyist drone, and that just isn't the case.

What we have found in our war games is that generally, when we face off against a peer competitor, that is usually the People's Republic of China, our program of record force, meaning the things we have today, our aircraft carriers, ships, submarines, et cetera. You know, occasionally win, occasionally lose. We want to win every single time. And when we war game that same scenario and add these new capabilities, these software defined capabilities in a hybrid fashion. So the traditional manned platforms operating with an unmanned system. So think in F 35 operating with a collaborative combat aircraft, a large Navy destroyer operating with a medium unmanned surface vessel, which itself has a fleet, its own little flotilla of small unmanned service vessels. When we war game that hybrid force against the, you know, the People's Republic of China, we come out on top more often than not. And so that's the Surface Navy strategy: how do we feel the best hybrid force? And if you and we've had that consistent message for a few years now, because we recognize that you're not going to replace these orange capital assets, but you need kind of a high low mix, which is a Cold War term of a small number of high end exquisite platforms and a large number of low end tradable systems.

Justin 35:47

And so that barbell strategy, I think, applies a number of different places, right? Ultimately, it's as much an economic strategy as it is a technology strategy. But where that plays out, or where that bears, I mean, we can double click on kind of any domain. And so, let's say, from a logistics perspective, how many different government off-the-shelf applications do you need? Ultimately, the way that I'm viewing this, and we have a number of now memos and invitations to say, let's not just let commercial in, but let's do one-to-many replacements. And so we're piloting commercial capabilities, but they go so much better when someone says, “Here are the seven aspects of logistics IT that we can wipe out from a GOTS perspective with one COTS application.” If we don't have time for BASF to do, to harken back to the early 90s, that says we make everything a little bit better but we don't replace anything, that's not good enough. And so we are looking for divestments across the board, even if they're not apples to apples.

Another example of this is software-defined, but perhaps with a little twist. I recently was with the strategic submarine PEO, and they were working with Gecko Robotics. Within that Gecko Robotics example, I asked, “What are you replacing?” They're replacing manual action. They're replacing services. They're replacing, and with that, getting both productivity gains and safety gains. So this is a place where, between maintenance, cleaning, and manufacturing, we had one way of doing things, and we would like to open the door to say: we will give you our problem and you figure it out. Or we will give you how we're doing this right now, and instead of just incremental improvement, what is your horizon three solution for doing this differently?

The hardest part here is that it is not intuitive that there are incentives for people to change the way they work. We know there are mavericks, 10 to 15% of any organization, willing to work against their own self-interest for the greater good. We have an incredible mission, one of the best imaginable. We've catalyzed that into 15 to 20% of groups that are willing to do more work and adopt commercial solutions or think creatively about something. It's almost always more work at first, both for the company bringing it in and for the PM and support staff reimagining all these different pieces. Most people would prefer to do things the way they’ve always been done. But if there are more groups who want to be pilot leads and accelerate commercial adoption, then, as Steve Speer, professor at MIT, says, great organizations always look for the suck. There's suck in every organization, and you can always find the weakest links.

If we're doing this quantitatively, and we're saying either look at the numbers or talk to a sailor or Marine, where are the pain points? Then, how do I extrapolate that to a solvable technical problem and scale it across the board? We can have fewer systems that perform at a higher level, combining hardware and software. This is a time for reinvention, and we can do that quantitatively, even from the outside in. So whether it’s more private than public sector, we are pulling them through, or, like the earlier point, it’s someone at the ground floor who sees something, tries it, and then we scale it. In both cases, we now have the ability to stamp something as an enterprise service. Across the board, those can be apples to oranges, as long as they have calories, as long as they nourish. We're ready to make those trades.

Maggie 40:36

So I wanted to ask this is kind of on a on an earlier point that we were talking about in terms of integrating these new technologies with our existing program of record force. I want to see if one of you guys could maybe tell a story of a startup or company that did a particularly good job doing that, and, you know, maybe what were some of the steps that they had to get through, like, you know, step one, what's required to even integrate with a data source coming off of a ship or an aircraft carrier. What's kind of you know, hardware edge, compute constraints do we have or access do we have? You know, what kinds of AI models do you have? What kinds of data do you have? I know Artem. One of the things we've talked about is computer vision and some of the challenges of doing that at sea. So I wanted to see if maybe you guys could just give us, like a life story, life cycle, of what it looks like to actually integrate a system with the program of records force that we have today.

Artem 41:36

So I'll start with saying it's not a zero or one, like, you're not totally air gapped and you're not totally integrated, right? There is a spectrum in between. And I think the success stories we've seen in the last two years are sit in that middle area where we've delivered some kind of in the case of computer vision, some CV models to our ships and those models you know, live and operate in inference on commoditized commercial hardware, and that hardware, in most cases, is air gapped from the rest of the combat system. Is the best thing possible, like for us to connect those absolutely is, could we deliver the commoditized hardware and the model to the you know, to run at the edge in a month, as opposed to going through a three year long integration process? Yes, and so that's why we chose the like in between solution where an operator is kind of looking at a laptop, as opposed to looking at like their display in the combat information center as part of the Aegis combat system.

So in that particular example, that's a like in between integration story. But we've also seen examples where we've done the full integration work from start to finish, to bring some AI models to our combat system, and that involves working with the prime contractor that delivers that combat system. That means the working with a third party that does the integration work, because that prime contractors code is in, like Ada or in Fortran, which, like, for those that don't know that Fortran is the was the DoD is, like, proprietary code base the so that's why you need, like, all of those moving pieces, and that took a couple years. I'm being non specific on the industry partners, just due to the classification of the work involved. But the we've done both, we're doing more of the first and the first is what I urge most like startups to do right? Startups want to get a product out and make sure it's usable, or get an MVP out. You're not going to integrate with an F 35 or an armor cost destroyer in a month. So get some standalone hardware that maybe has like, one integration point with, like, if you're moving data, maybe you use the ship's routers and switches, but you're not tied into the combat system, or you're delivering a model, but you're running on your own hardware, as opposed to the ship's hardware. Yes, that's a limitation of working with the Navy, but I think it's one that we're working towards overcoming,

Justin 44:17

And then on another ship, example, but not weapon systems, CANES. Within CANES the Consolidated Afloat Network Enterprise Services, this is the largest chipboard network, and it's where between some NIPR and some SIPR. So some some unclass and some classified functions that we have a lot of different capabilities running on one backbone and one set of computing. And in this particular case, we have taken some of the capabilities that are virtualized, and tried to, in a lab, find more efficient ways to do them again, one for the price of multiple and swap those in. And so we've now unleashed some COTS vendors to look at a native capability within canes and replace that in a virtualized fashion, and just kind of hot swap those. And so that's something that we're getting a little bit better at.

We're also doing that with flank speed edge that more modern hardware. And so between those two, here are ways that we can take external software capabilities and pull them in and lower the time to integration on that that is, to me, repeatable. And then this, I'm going to call back to the initial point where we said, like, integration can go way differently. The when I started doing that type of work 18 years ago, when I was actually doing ship installs, we had a binder, and you had to follow all of these steps, and you're in the operating system and you're, you know, swapping from Solaris to like other like lower down components. How all of that goes forward is, is something that we've toyed with streamlining. I think that looks very different in the next year and to this point when we look at what can be replaced, the more that we sandbox that up, and the more that we can invite people through structured challenges to figure out what they can divest, instead of doing a one for one request to divest. Then this became, this becomes like downhill running.

Maggie 47:20

What do people outside of the Navy or the Department of Defense most commonly misunderstand about Navy or DoD tech adoption as a whole?

Artem 47:34

I think the I know we've talked so much on integration, and I hate belabor in this point, but I think people really misunderstand how hard it is to put something on a warship. You are not just like you're not bolting a computer to the side, right? I mean, even to upgrade. Justin, at some point, talked about the afloat OT and IT infrastructure on ships to replace that. That means cutting a hole in the side of the ship, taking out a bunch of server racks and then putting them back in. That's not like a week long process or a month long process. That's 180 day long process. And so technology integration with the DoD is hard. It's not just hard for the for for the technical reasons I just described. It's also hard because of our risk tolerance.

Remember that when you're delivering, you know, if you're a startup and you're delivering a capability to a war fighter, that means that there's a human being, you know, an American sailor, soldier, Airman or marine or guardian from Space Force, who is potentially in close contact with an adversary trying to kill them. And so our risk tolerance and our threshold for something working is just so much higher than deploying an app, and you know it being buggy and potentially not working, and you know you losing some stock points that day on the on the Dow because of that higher risk threshold, you know, we're really, we are going to test, you know, do Test and Evaluation in a way that maybe mimics industry in terms of process, but it has a longer timeline and has some extra steps, and you really have to think carefully about how that technology will be used, especially when it fails, and what failure looks like, because failure can be catastrophic.

Maggie 49:26

So you're telling me all DoD software completely bug free, running perfectly smoothly.

Artem 49:30

Yeah, it's excellent in every regard. No, in fact, what I'll say is the DoD sometimes mistakes process, like, the process through which we follow like, let's say you're getting an authority to operate an ATO, which means your application has been designated as, like, cyber safe by the DoD, because we like, read all of your source code, and then we've like, now, like a human being read all of your source code and then we deploy it to a secure. Environment that doesn't magically like, mitigate cyber risk. Similarly, writing a requirement by committee and having like 10 people on the committee like, say, thumbs up to the requirement in the Navy. We call them requirements, resources boards that doesn't like, magically de risk the technology. And so I would say we mistake our processes as being risk mitigators, and true risk mitigation is like a very sound technical implementation.

Maggie 50:30

Are there any special considerations that startups need to consider when building for the Navy, as opposed to some of the other DoD services?

Artem 50:40

The Navy is very again, because of our, you know, large capital assets occupying most of our budget. And large capital assets are not built by startups. They're built by traditional prime vendors. And the defense primes refer to companies like Lockheed, Martin, Raytheon, General Dynamics, Boeing, etc. When you build for the Navy, you really have to your technology is going to interface with the technologies made by those vendors. You're not just building to interface something with a common API that you can just find the API key online and you're like, good to go. You're building on top of, you know, decades of legacy hardware and software. So you're going to have to, you know, we talked about interfaces are hard. You're going to have to really work with those prime vendors and build partnerships at like a human level, with those engineers who, you know, painstakingly, over the course of decades, have built the world's strongest military, and today are also striving to bring in new technology.

Maggie 51:48

Artem, you know, one of the major themes that we have been discussing this conversation is, how do we get commercial technology that that we already sort of know works, or more or less works, into the Navy and the Department of Defense. Can you maybe share an example of a technology that we think of as mature, but that maybe has some unique considerations or challenges when applied to the maritime domain? Yeah,

Artem 52:17

A problem that's really near and dear to my heart because of my time working on, you know, supporting Maven is computer vision, and I think that this is a largely believed to be a solved problem in Silicon Valley, right? AlexNet, 2010 you know, since then you have, I mean, almost everything, whether it's your iPhone or your vehicle has, like, some sort of CV model, like running very effectively with, like, just great F1 scores. You're detecting everything, and we think of that as a solved problem.

Well, when you pivot that same technology to the maritime domain, it is absolutely not a solved problem. It is on the cutting edge of DoD AI problems, because, for one, you don't just have 1000s of ships going around with cameras producing model ready data that you just feed into an open source model, like YOLO v10 and say, like, oh, look, I now have computer vision at sea, right? So you have an absence of data. You're also not you're also dealing with, like, a really unique environment with significant background noise, atmospheric changes that you just don't encounter in the, you know, the regular just if you're a car driving down a street.

So really great example, computer vision in the maritime domain of a commercial technology that is a solved problem, but requires some additional steps when you're looking to work with the DoD. And this is why partnership is just so important, right? The DoD is the world's largest I'm not 100% certain on this, but I feel confident enough to make this statement. We own the most data of you know, ships floating in the ocean. I feel fairly confident in us saying that, and so you want to do a CV for horizontal motion imagery at sea. Come work with the DoD, right? There's a partnership. Figure out which prime vendors you need to partner with, because they're the ones deploying those electro optical or infrared sensors at sea today, and then figure out which government labs have dedicated, you know, decades of research to this problem that potentially, you know, it doesn't have a commercial application today, and so a normal startup just wouldn't go after it, but the government labs, which have those, like, long, 10, 20, year horizons, did choose to go after and have done a lot of like, great research to really help us feel these capabilities.

Maggie 54:44

So now this is a question I have to ask, because I'm sitting in San Francisco, and all anybody ever talks about is generative. AI, where are you seeing the most interesting and exciting use cases for generative AI, in the Navy today?

Artem 54:59

Man, there's. Much I can say about generative AI. All right, so the first is, the first is that the government is not immune to there are no special like special use cases that are exclusive to the government on generative AI, most of the things that are adding value in the commercial sector, I would say, like RAG as a as an example, right, basically, search your own documents, or, in some cases, right, search your own knowledge base. So instead of doing a SQL query, you're now having a, you know, a conversation with a model. Those are like the areas where the government is seeing the most use, which is a one for one, analogous to what we're seeing the commercial space.

How do I see generative AI more generally, in the competition between the US and China in the military space? I think is actually a more interesting question. The United States labs such as Open AI and Anthropic have really been focused on the model and really being on the cutting edge of model development in China, with the exception of the innovations we saw with deep seek r1 you're seeing a lot of emphasis on the actual commercialization of the technology, and that's a problem, because historically, if you look at how a technology, especially a generalizable technology, like electricity, and today, like AI, has won a great power competition, it was not the country that developed the technology first, or even the country that refined the technology first that won that great power competition, it was the country that was able to diffuse the technology and yield outsize economic benefits as a result. And I'm not so sure whether you're a shareholder of a Fortune 500 company, or you're the leader of a government agency, such as the Department of Defense, you're really seeing that, you know, significant return on investment today, or the diffusion of that technology today. Conversely, on the in China, you're seeing significant diffusion of AI into all sorts of technology verticals. And you know that that that doesn't bode well for long term Great Power Competition,

Justin 57:26

there are still folks who are clinging on to building things in government that probably shouldn't be anymore, and so we've explicitly stated that we're going with a fast follower first strategy as acquisition, as the 18 program executive offices within Department of Navy, five of them have shifted over to portfolios that we can make better buying decisions based on capabilities and effects. As that shifts, we want to both reward the people who are contributing from every aspect of that as well as the ones who are actually doing, making the difference. So doing what we have requested and what the Secretary of Defense has requested and what the President has requested. And so the PM of Lionfish, small and prime small USV and Dragonfish, large UUV. These are cases where PEO, USC and UWS are trying to pull in different things, and that may even compete with something that's happening in a lab or internal development. But those shifts right now are either going into overdrive or we're not moving fast enough.

Maggie 58:45

Yeah. Justin, thank you for naming a few folks that you're seeing who are who are really doing a good job right now when it comes to fielding the systems that we're going to need in this increasingly geopolitically complicated world I wanted to see you know, could you maybe tell us, what about those organizations has been so successful, and what can the rest of the Department of Defense or the Navy learn from some of these success stories?

Justin 59:19

Yeah, so number one, trying to do something new alone, the first time that we endeavor, it rarely works well unless we have a really strong partner. In all three of those cases, Captain Alex Campbell at DIU was involved. This is a person who gets it. This is a person who is bringing the weight of that organization, who has been interacting with industry in a mature way. It doesn’t take a whole program office to agree. What I have seen is that it just takes an O-4, O-5, O-6, or a courageous civilian to say, “Okay, we will figure out how these compare, and we will show that even if it is not a perfect fit, there is likely a requirement or capability needs statement that will allow us to do things differently.” Translating the technology into outcomes where it is affecting results in a more significant way allows us to provide top cover.

I will use a specific example. We had an O-6 who was a CSO on a carrier, and he said, “Send me what you are doing for the ashore systems. Send me a hyper-converged infrastructure stack to my carrier and we will deploy that.” There was a lot of paperwork, like Akil and I were talking about, because this is not how it is supposed to work. Sometimes people get bogged down with emphasizing every aspect of process as opposed to the outcome. This was a combination of heads down, nudging through—it is always more work than you expect—and then wavering and justifying. Part of the way we justified it was by showing the difference it was going to make. This was not just about being the loudest voice. These were two senior people saying, “Here is the baseline for connectivity on ships right now. Here is what that is doing from a quality of life and quality of service perspective. And here is the difference we can make.”

That leap still required influence, but we had the numbers. Captain Kevin White made it happen on one ship, and I believe it was the documentation from that case showing that it was a thousand times better for connectivity and user experience—one of our outcome-driven metrics—that led to deployments on five more carriers, and then to Flank Speed wireless. The capability we are talking about, known as “Sea to Sailor, edge afloat and ashore,” is now turning into a fully scaled capability at a high level, and it happened very quickly.

Artem 1:02:39

The best partnerships in government like to get tech in government are obviously partnering with commercial that's a given. That's partnership number one. And then inside of government, you need kind of three groups, right? And then the so the end user, meaning the war fighter, the sailor on a ship, the Marine in the field, the airman on a maintenance line. And then you need the acquisitions community to help you bring the, you know, the commercial thing, in. And then you need a resource sponsor. So that's somebody sitting in the Pentagon that's willing to do the mountain of paperwork that Justin described in order to make sure that this capability that is clearly measurably better than what we had before actually gets into the budget and stays funded for the long term, you have to have all four of those. And I think we've become really good at a, you know, the flywheel effect of building those teams, you know, be and those, those private, public partnerships,

Akhil 1:03:39

If you had a single slide to articulate one metric for your respective office. What would that metric be?

Artem 1:03:48

We’re in the government. We love slides. If I had to pick one thing–

Akhil 1:03:52

I know, I asked you for a single one slide, not 40 slides here.

Artem 1:03:57

Well, you know, we if I had to pick a metric, it would be how few slides we use to get something across the finish line. Bit of a joke there. But the I would say today, we measure things by what Justin hinted at, cost, schedule, performance and cost is how expensive a thing is. Did we go above or below budget? Schedule is, was it delivered on time or usually, the answer is no. And performance is, did you meet a requirement? And what that means is, did you meet the mark, according to a piece of paper that was likely developed five to 10 years ago, that isn't how we want to judge success. We want to judge success by operational outcomes. And so if it's a piece of software, if it's a user facing piece of software operator input would be like number one, meaning, like, here's how I used to do my job. Here's how I do my new my job now, because right, like, you're delivering a software application, the process is the product you're changing how that that operator is doing something and. Then number two, closely behind it would be like the real world operational impact if I'm delivering a new, let's say, command and control user interface for unmanned systems. Was I able to a group of sailors? Were the sailors able to control 10 robots before this, and now 20 robots, and now the robots can swarm, because it used to take 10 clicks, now it takes two. Those are the kinds of metrics that I'd like to display on that slide, user facing and operational outcomes.

Maggie 1:05:33

Can you tell us about a startup, or maybe a VC backed startup that has been particularly successful building and deploying technology for the Navy, and what can other startups learn from what they did in order to achieve success?

Justin 1:05:49

When you say building and deploying technology for the Navy, let's talk about cases where, like they're building and deploying capability and the Navy is making use of that. So maybe Project Ammo for MLOps, where we had a decent amount of in house software, and then, kind of like a coagulation of COTS, we had companies like Domino Data Labs and Latent AI that were doing commercial work that said, we do this for pharmaceutical and healthcare. We can do ML, we can do machine learning operations for defense functions better than you can build something up yourself. And so there was a Hey, meet this team, work on this problem, take a look at our algorithms. And so that relationship grew. They showed the difference that they were making. They brought that business mindset where they could show, here is the difference that we're making.

And then they did something else, that is an unlock, which is they found other people's money to apply to the problem, and so they applied to the APFIT program, and got a plus up there that was significant, that helped, certainly the Navy, hopefully also the Marine Corps. And as that group showed the difference they were making, understood who the players were, applied their knowledge and experience from other sectors, and then found funding for that valley of death until we can get them into the larger scale, like sustainment budget, like those are the big factors for how they can make that difference, and now they've also bought enough time to show here how outsized effects can come out of their next batch of work.

Artem 1:07:53

I'll use two really quick examples. One is a hardware example. The Navy brought in Saronic to build the prime. Which prime is a DIU Defense Innovation Unit contract for small unmanned service vessels, sUSVs, a year ago, we did not have, you know, 1000s of attractable sUSVs vs a year from now, we will when we actually ran the prime solicitation, Saronic had not built the Corsair, which is the boat that the Navy is buying in mass so, in fact, that company actually did not exist three years ago. And the idea of using a small, fast moving boat to blow up large capital warships didn't exist, you know, at in the same way that it does today. And so Saronic is a great example of a hardware company that's that the Navy has brought in, adopted the technology and is now developing the tactics and standing up, we've actually set up two unmanned surface vessel squadrons, so two new units that didn't exist. You know, even one of them didn't exist a month ago. So that's the rate of change here.

And then the second, a software example that's like, really a success story. Justin mentioned MLOps, I'm an alum of something called Project Maven and DoD, which was the application of computer vision to overhead intelligence gathering satellites, overhead imagery satellites. The success of Project Maven is that the government set up a data environment and gave a bunch of industry partners, ranging from large companies like Microsoft down to small startups like modern intelligence access the same data and said, compete and build us the best models. And so that's a success story for two reasons. One, we brought in a bunch of new entrants into the defense industrial base, companies that previously wouldn't have been able to work with the department defense were because of the technical implementation of this program. And the second is, we're bringing market forces into government, right? So instead of competing, usually, the government can have. One program of record to build a missile. Well, wouldn't it be great if there was one program of record, but like five missile vendors below them, all building and competing with each other, and that's the that's the environment we set up for Maven for the delivery of computer vision models into DoD, and that is now the joint program of record for automatic target recognition in the Department as a result.

Akhil 1:10:22

Justin, Artem, as we're kind of coming up on time here, I wanted to come back to maybe your thoughts and perspectives to give to the startup and sort of industry community. Artem, I thought you made some great points about aligning the right incentives between venture capital that's spending more time in the space the government that has a real need based upon geopolitics and industry who wants to get involved, either because of the mission or something else. Sometimes those alignments can be a little bit unaligned. And so curious to ask you a little bit maybe just generally, I'm a new startup in this space. You know, what are? What are some pieces of advice for startup founders in particular that might be thinking about getting into the government space or working on a really tough and important national security problem set?

Artem 1:11:10

I think it might surprise folks, but the best piece of advice you can give any startup founder, I think, is always know the problem you're solving, and really like, know the people whose problem you're solving, that isn't always super obvious in government, when you look at the government and you look at the DoD, the DoD is the single largest employer in the world, right? So where do you even begin? Like, who is your end user? Which problem? Let's say you're really passionate about solving an electronic warfare problem, you could go talk to a requirements officer in the Pentagon, somebody at the Washington Navy Yard that works in a program office that buys things, or like a Navy SEAL at a unit somewhere deployed forward, deployed in the western Pacific. All three of those could potentially be some semblance of an end user. So it can be challenging to figure out who you really need to talk to. I'd say my number one piece of advice is find, start with that person closest the edge, right, the operator in a camouflage uniform, you know, ideally on, you know, active duty orders somewhere forward deployed, is the is the end user. No matter what, you know, a program office will tell you that they're not responsible for buying things like the person at the edge isn't responsible for buying things. That's okay. You should still be talking to them, because that's whose problem you're solving.

And the second piece of advice is that it's going to be a long, long game, right? Defense is a slow defense is slow moving capital, right? We operate on, on what are called FYDPS, right? So we operate on these, like long capital cycle times. So recognize that you know, if you're solving a defense problem, not only are you choosing to solve one of the hardest problems out there, both from a technical standpoint and from a delivery of a capability standpoint, and also some of the most important problems, I might add, you're also dealing with slow money, so persistence is going to be key. And I would say those are my two big, big pieces of advice.

Justin 1:13:25

On that last piece, it's you have to be impatiently patient or patiently impatient. This to say, like even if it's slow, there is work to do every day, and I would put a bulk of my effort talking with people who get it. And so whether they're we're using unleashed Mavericks, or if they are thinking about problems, traditionally, you're unlikely to change their mind if you want to spend time talking to people who have done things the other way. That is good community service. But if you find people who are fellow travelers, who are wanting to be commercial adopters, who are disruptive, you will notice that, and that's where I would dedicate my time. It's a kind of like table stakes, to have something that is too good to be ignored. It is table stakes to, in my opinion, have something that you can turn off when you find what you're solving and you're close to that problem, and you have people with the light bulb over their head, and they get it with you, then work with them to denote what is severable and what you can carve out in fiscal year 26 fiscal year 27 fiscal year 28 until we get that refined budget, and so we should be turning off or replacing capability and solving problems at the same time. So you have to do the gain creation and the pain reduction at the same time in order to walk the walk. Otherwise, you have to tell your investors, hey, will they really like it, will see something in three years. If this is a contact sport, if you are not severing something in the meantime, then you're probably at the wrong part of the snack.

Maggie 1:15:31

If you were granted three wishes from a genie, and you could only use them to advance the state of DoD tech adoption, what would you wish for?

Artem 1:15:39

Do we both get three, or do we get three total?

Maggie 1:15:43

Okay, you guys can both get three.

Justin 1:15:46

All right, that's a nice Genie.

Artem 1:15:48

That is a nice Genie. I like, yeah, it's like, there's a queue for the genie, and each person gets three wishes. This is great.

Justin 1:15:54

Down. I think we should both get three and then decide a consensus, three.

Artem 1:16:00

I like that. My number one is that the entire that every program manager in the government is tied to the hip to an operator that is ideally, like, under the age of 30, just like brand new thing has not seen how we've always done it, and is just eager to, like, try new things, and so that each program manager, one is tied to the hip to an operator. So they're solving that operators.

Problem number two is that that program manager is doing it with commercial tech. Instead of looking at something in a government lab or looking to do like a five year or 10 year acquisition, they're looking to, like, bring in a thing that's ready to go off the shelf today.

And the third is that the government has more flexibility. And specifically, when I say the government, I mean the executive branch, has more flexibility to move money around inside of the execution year. And what that means is, Justin talked about, like fiscal year 28, 29 that's like, where our heads are right now, like when we're in the Pentagon, we're thinking about those, you know, what we're going to buy five years from now? That's kind of a ridiculous model. We should be thinking about what we want to buy right now, because we don't know what the tech is going to be five years from now. So I hope that genie lets me move different, you know, money around today to divest from Legacy things and recapitalize that money immediately to a new thing using that program manager that's that knows commercial tech and is tied to the hip to an operator.

Justin 1:17:30

I think those are really good. If there's anyone who's listening to the show who either has done Maverick things that we haven't documented or wants to please reach out to us on LinkedIn, if you're outside or Teams, if you're on the inside. We We want to expand the Unleashed base so that we can show just a compounding return on investment from hearts and minds to effects across the board. Now is the time.

Maggie 1:18:04

Thank you guys so much for coming on the show and sharing some of these great success stories.

Akhil 1:18:09

Hey everyone. Thanks for listening to the Mission Matters podcast from Shield Capital. Tune in again next month for another conversation with founders building for a mission that matters. And if you yourself are looking to build in the national security space, please reach out to us.

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Maggie 00:04

Maggie, welcome to the Mission Matters Podcast, a podcast from Shield Capital where we explore the technical opportunities and challenges of developing and deploying commercial technology to national security customers. I'm Maggie Gray.

David 00:16

And I'm David Rothzeid,

Maggie 00:19

And we are your hosts from the investment team at Shield Capital. In this episode, we're joined by Mike Brown and David Rothzeid, two of my teammates from the Shield Capital investment team. Mike and David, are extremely knowledgeable about the state of defense budgeting and acquisitions and contracting. They both hail from the Defense Innovation Unit. Mike was actually the head of DIU for a few years, and David led a lot of their work on acquisitions for many years at the beginning of the unit itself. So in this episode, we're really going to break down what a lot of the news that's coming out about defense budgeting actually means for startups. There's a lot of terms flying around here. You have the NDAA, the Appropriations Act, the President's budget request, the Big Beautiful Bill, reconciliation. So we're going to talk about what that actually means and where we are really seeing opportunities for cutting edge startups. So to start out, I've been seeing all these headlines. They say that there is a trillion dollar defense budget this year. It's a big number, but what if that has actually been passed so far? Where are people getting that number from? Mike? Yeah, over to you.

Mike 01:47

Yeah, there's several different components, and it is complex, because some have been passed and some have not been passed. So there is a normal defense appropriations process underway where we will get a National Defense Authorization Act followed by a defense appropriations that is based off the President's budget request and the targeted amount there is 831 and a half billion dollars, which is pretty close to fiscal year 25 that we're in right now, not passed yet, and that will depend On an appropriations bill funding the entire government for the fiscal year 26 that begins next October, 1. The part that has passed it's a bit unusual, is the Big Beautiful Bill that's a reconciliation bill for the budget of $150 billion for defense. And the unusual feature about that is it can be obligated anytime between now fiscal year 25 and the end of fiscal year 29 usually these appropriations are year by year. And this one has that unusual feature of could all be obligated in the next few months, unlikely or spread out over the next couple of years. And there's been some criticism from Congress that, gee, we'd like to see an amount like that added to the defense appropriation every year, rather than something spread over so many years. With the recognition that we live in a dangerous world, we probably be spending more on defense than we are.

If you add up that trillion dollars, it's actually only 3.4% of GDP, which over the historical time period last 75 years, is really at a relative low point. We've spent as little as 2.9% but if you go back to the Reagan buildup, we were spending 6% of GDP. The additional component, if you took the 831.5 plus 150 billion, Big Beautiful Bill, it leaves a little bit 20 or 30 billion, and that actually is money that is executed by Department of Energy part of DOD stop line for our nuclear program. So that has things in it, like more plutonium pits for nuclear missiles. So that's an additional point that gets you up to the trillion dollars, which in itself, is a record level of nominal spending for defense. So the only part that's been approved would be the 100 and 50 billion so far, DOD can start spending that. The rest still needs more work by Congress.

David 04:14

Mike, I think that was exceptionally well said and well articulated. The only caveat that I would like add into it is what makes this year a little bit more confusing than most the reconciliation, Big Beautiful Bill notwithstanding, is traditionally the President's budget comes out in the February timeframe so that Congress can use it to really help understand where they want to go with both the NDAA and you know, its funding tables, as well as the defense appropriations bill, or as a part of the larger appropriations bill. This year, because of the new administration decided not to use the previous administration's budget build up for fiscal year 26 which will begin one October. Sure, and they just recently submitted it to Congress, not too long ago. So about five months behind schedule, and what would generally really help educate or inform the NDAA and the appropriations bill? So things being happening in parallel, more than usual.

Mike 05:20

One of the things I know we're going to want to talk about Maggie is actually what's in the bill beyond the top line. And I think one of the things we can probably easily agree on is that one, if you add these together, more defense spending than we've seen recently, and there's a lot aimed at what will be beneficial for startup companies, venture backed companies that are focused on new capabilities for the Department of Defense. So that's top line. What's really exciting about, about what's happening with this spending?

Maggie 05:52

Okay, so it sounds like, right now, the one thing that's actually set in stone is this, $150 billion for the Big Beautiful Bill from reconciliation. So what are we actually seeing in both that amount that is actually set in stone and then also from the President's budget? What does all this actually mean for startups, for this next generation of technology? Why did we decide to have a podcast breaking this down in the first place?

Mike 06:20

I think we are seeing the recognition, and it's because of world events, it's what we're seeing in Ukraine that commercial technology is having a very big impact on the battlefield. Is going to be critical for enhancing the capabilities of our military, meaning we're recognizing we need more than the ships, tanks and planes we've had historically, and this means a lot of additional spending for new capabilities, specifically sensors from space, unmanned systems, additional software, cyber and AI, and we're seeing funding lines for the first time dedicated to these items that go beyond research and development. So typically, the department has spent money in what's called RDT&E research, development, test and engineering looking at these, but that hasn't been the same as ongoing funded programs. Now we're seeing dedicated lines for these types of capabilities, and a perfect example would be Golden Dome, which will at 25 billion, is kind of a down payment on what will be 175 billion expected to be spent over the next three years, which really will benefit from sensors from space, a key part of the shield portfolio. David, you might want to talk about how that's going to affect some of the space portfolio companies.

David 07:41

Absolutely so when the first Trump administration broke out the Space Force a lot of it was to ensure that prioritization of space capability, which was more than just a force multiplier for air, land and sea, it was becoming its own contested domain. And what we're seeing with Golden Dome is a significant recognition and an increase in Space Forces funding to get after more novel technology capabilities like advanced mobility in space, additional communications, rendezvous, proximity operations, you know. So these are elements of Golden Dome and a larger emphasis on Space Force and their budgeting capability beyond what was otherwise going to be appropriated in previous presidents budget, which, despite breaking out Space Force from Air Force, you know, both underneath the Department of the Air Force, you kind of saw starting a bit of a flat line in Space Force capability. And so this really does ramp it up.

And for Shield Capital, where we've been investing in several different space technology companies that have good application for the national security apparatus, as well as building bridges to larger and better commercial opportunities. You know, this will just be an acceleration of some of those capabilities, but with Space Force and the national security apparatus really helping bring this to bear, and I think a lot of it is the pressure being put on the space domain, as our adversaries are also exploring, you know, these novel technology concepts and really starting to undermine the United States's dominance and in that era, in that area,

Mike 09:31

And if we look at unmanned systems, there's about $20 billion in total that's being added in a category called expediting innovation to the warfighter. So a number of different initiatives within that 1.5 billion, specifically for small unmanned aerial systems. So the smaller drones that we're seeing to such great effect in Ukraine, we're seeing the Defense Innovation Unit budget doubled again from 1 billion to 2 billion. One, a particular program called APFIT, accelerating the production and feeling of innovative technology has been tripled now up to a billion. All of these, I think, will have a focus on unmanned systems, for example, expanding what DIU has done with a Replicator program over the last couple of years that only had a half a billion dollar budget for the last two years, and now tremendous increase in what we're seeing as a recognition of the importance of unmanned systems in the air, on the surface of the sea, undersea, all of those together.

David 10:34

And I think you know, really what this amounts to is a recognition by the Department of Defense, as well as Congress, in seeing the innovation that's happening in the commercial sector being, you know, underwritten in large part, by the venture capital community that has really moved significant resources to this industry space. And you know now the Department of Defense is starting to buy in quantities significantly larger than in the past, though, Mike, I don't know if you would disagree with me. Probably agree that it's not quite enough, so heading in the right direction. But you know, when you think about the size of the overall defense budget, it's still, you know, almost budget, maybe not quite budget dust anymore, but something larger than that, but certainly not the lion's share.

Mike 11:26

Yeah, I totally agree with you, not dust, because now we're talking about billions of dollars. We used to be talking about 10s of millions, but yeah, we I think there's in the Pentagon, I think there would be general agreement that we are behind with these new capabilities, not yet taking advantage of the tremendous investment that's already been made in the private sector, in unmanned systems, in AI, in cybersecurity and sensors from space. So pitch book says that there's been 150 billion in venture money that's been spent in defense tech since the year 2021 so that gives the Defense Department, the taxpayer, tremendous options in terms of choices of what the different technologies from multiple vendors to go test and see what can be put into production. So it's really incredible opportunity for the military to be able to take advantage of all of the spending that's been done, all the investment and great ideas that entrepreneurs have put into practice.

Maggie 12:29

So we covered space sensors. We covered unmanned systems. What about artificial intelligence, of course, the holy grail of Silicon Valley right now. And cybersecurity. Are we seeing any trends in those tech domains?

David 12:41

Well, I'd say, you know, on the AI side, this is maybe where the Department of Defense still has significant catching up to do, as far as applying AI as part of their fundamental operations in ways that you know are far from this, the fear mongering around killer robots, you know, just thinking about how different enterprises are using AI in their you know, business decision making to help understand the data and increase their decision velocity. You know, if you look at the private sector, you know, over 66% of all venture capital funding in the first half of 2025, has gone to artificial intelligence. There's hundreds of billions of dollars. You know, I would say on the DoD side, we're really still in the single billions of dollars as far as spending on AI capability. Again, a remarkable increase from the days when, you know, you could only look at Project Maven as like the one artificial intelligence program that was doing anything of operational relevance, but still, you know, far, far lagging behind adoption on the size of, you know, commercial trends that we're seeing, and certainly, you know, our adversaries are incorporating this type of technology into their use cases. I would like to highlight, you know, that the Chief Digital Artificial Intelligence office, CDAO, has been releasing several contracts to some of the largest, large language model companies. And I think that is moving in the right direction. But if we're going to actually integrate these types of capabilities, you know, across various components of the DOD, whether it's in supporting a budget build up, or if it's in pre positioning, where assets ought to go, still a lot of green space for the department to lean into these technologies. And that's going to take a lot of training, a lot of you know, a lot of understanding, from a culture standpoint, of like, how to incorporate these technologies in meaningful ways. And then, of course, you know, I think what really needs to occur is more investment in the infrastructure to enable these various data silos to actually communicate in in modern ways that the private sector has enjoyed a. Have since the inception of the internet. I don't like anything else to add there.

Mike 15:04

Yeah, David's absolutely right about this. Data from Obviant, which is a SHIELD portfolio company that is actually bringing a single source of truth to the defense, acquisition, procurement and contracting data shows that artificial intelligence, dedicated spending has actually increased 50% year on year so but it's only gone from 1.5 to 2.2 billion to David's point still a relatively small number, not being adopted by DOD as fast as we see it being adopted by enterprises across the economy, and the still the largest AI project that David mentioned, Project Maven, which is about a decade old now, is really about computer vision. How do we make sense of satellite data? So that means that we're not spending significant amounts either on improving back office operations, which tremendous amount of the Pentagon manpower is spent on, or some of the more forward leaning applications which would be targeting, as well as Decision Optimization. So there's still a long way to go in terms of additional capabilities that we can bring. David is right. It requires also an investment in the infrastructure, because data has to be available, and you've got to have compute and networking capacity to take advantage of AI.

Maggie 16:29

So which technology domains are we seeing still lagging from Department of Defense signal?

Mike 16:39

I say electronic warfare is one of those, because we've seen a $300 million research and development increase in the budget for EW. But given the importance of that and what we're seeing in Ukraine, I'd say we're not spending enough in that area. We saw a lot of us vendors of drones basically be ineffective in Ukraine because we hadn't properly incorporated what we needed to withstand the effects of jamming and have those, you know, small UAS systems be survivable. So I'd say that's one area where we were behind David. What else would you add?

David 17:18

I would still venture that like, you know, autonomy, you know, despite Mike, you are, you know, riffing a lot of different areas where we're seeing an increase, you know, these are force multipliers, where our manpower, you know, we just have these natural shortages. And if we think about the ability to incorporate mass on the battlefield as a form of deterrence, you know, it's not going to be through manned systems. It's really through autonomous capabilities, whether that is for undersea all the way into space, and I think that's an area where significant more investment needs to occur. You know, on the Air Force side, you've got collaborative comrade aircraft. This has been a program kind of in the making for a decade, and we still really haven't started to field anything. And I'd say that there's almost this fear of, you know, perfect testing that is not allowing these assets to sort of showcase their capability. And what that has led to, you know, is the pushing forward of the F-47 NGAD 6^th-Gen aircraft, that's still going to be a man piloted entity, as they say, hybrid, right? So, some will be manned, some will be unmanned, but you know, that's going to be several billions of dollars in development and production. And you know, only becomes an opportunity cost to where you could be pursuing more autonomous solutions that, again, are going to be significantly cheaper and increase the overall mass of your force structure.

Mike 18:53

I think David was really making this point. But I'll just emphasize that the lesson from Ukraine that we should be learning, in addition to agility, how fast technology was adopted on the battlefield is cost. Cost is critical. So as we continue to pursue ever more expensive, large defense platforms like f 47 the opportunity cost is to have that we're not being able to fund large volumes of attritable capability. So this is something we're going to need in a future conflict, high volume attritable systems that can be put in theater, and that those are going to be unmanned systems, not manned systems. So I would agree with David very much on that we're behind there, and that's going to be very important for the military in the future.

Maggie 19:51

What were some of the biggest surprises to you both from the recent bill?

Mike 19:56

Well, I'd say one of the areas of decline. Planes, aircraft. So the F-35 the most capable fighter has the procurement would go from 74 aircraft down to 47 so that decline was a big surprise for me.

David 20:13

Yeah, I would say I am keenly watching the battle for the E-7 Wedgetail radar plane. So again, this is a manned aircraft that's supposed to be able to provide command and control, by some estimates, not super survivable for areas of conflict. That would be of relevance for needing such a capability. The Air Force has come out and said they don't necessarily want this asset. Congress has said, “No, you do want this asset.” And it wasn't too long ago, the Air Force said, “No, we do need this asset.” So, you know, this kind of changing position, this is an area that that I'll be watching from a budgetary standpoint. It also doesn't hurt that when I was my last time in the Pentagon, you know that this was a program of sore contention around the modernization we were trying to do and moving away from some of these legacy wide body aircraft to provide command and control in the air for ground forces and air forces, and whether or not that type of capability could be provided through space assets or other means.

Maggie 21:22

So, it sounds like there's really a lot of opportunity for new players to tap into some of this new budget, $150 billion that maybe was not there in the past. What does it actually take for startups to access that budget? What’s your advice for startups to actually get some of that $150B or more?

David 21:46

I mean, I think first and foremost, you have to have a great ground game and know who are your stakeholders and champions. So, you know, the best way to be able to put funding for your capabilities is to have access to available contracts, right? Because when you think about the overall acquisition system, yes, you do need a requirement or a need. You do need a budget, but you also need the little “a” part, little acquisition, the contracting piece of it. And so if you have those available to you, whether it's through an SBIR Phase II with, you know, additional ceiling, or some sort of a production other transaction agreement, which is another sort of innovative contracting tool, among other types of contract vehicles, you know, having available ceiling and the right amount of scope that's targeting these areas where both the Department of Defense and Congress have said, are areas of need. This is the way that you help, then your stakeholders quickly execute funding against these lines of effort.

The other thing I would advise the startups to do is to make sure that they do have a good government relations entity, and that they are engaging with Congress and the professional staff members to artic to help articulate the need and how they solve a near term problem quickly with the capability that they're bringing to bear, and being able to quickly then inform their investors about how they're going to leverage that venture capital funding to accelerate adoption for the Department of Defense with this $150 billion. Because I recall that you know, some of the some of the concern on Capitol Hill as the reconciliation bill was being pushed was the lack of of detail around where this funding was exactly going to go and you know, so what does that mean? I guess it means that there's a lot of flexibility for the Department of Defense to be able to execute it in areas that they think are of greatest need. And I think it's then incumbent upon the startups, you know, to then help educate and inform their stakeholders about how they help solve the needs that are critical priorities, whether it's to Indo-Pacific Command or European Command, or just general service requirements that have been challenging for a long time.

Mike 24:12

Maybe one way for startups to think about approaching the government is to think about two dimensions. One is, are you a component going into a bigger system, or are you a system that the Defense Department would buy? The Defense Department does not like to buy and assemble things. They like to buy things that are ready for use. Good news is the Defense Department now has a lot more flexibility to buy things as a service, which means you can now sell the data if you're a company that has sensors in space, meaning the government doesn't have to own and operate the underlying asset. So that gives more flexibility. But if you're a component, you probably need to think about, how do you get into that in system? Which may mean I need to be thinking about one of the prime contracts. Actors who will have access to a large government contract versus selling yourself or I might have access to Office of Strategic Capital's loan capability, over a billion dollars, with very flexible loan terms, meaning you might have to, might not have to repay that until you have a liquidity event, could be available to you as a component supplier.

The other dimension, besides component versus Am I system ready to be used by DOD, is kind of what my technology readiness level is. If I'm an idea or I'm early on in developing the technology, I might look more to the Research and Engineering budgets, DARPA, AFWERX, all the other “WERX” that that have budget to provide grants that help you develop a capability. If I already have something that's developed and ready for testing, well now I might be looking to an organization like DIU that could help me help you put something into test and see if you can get on contract much sooner through the mechanism that David talked about, and Other Transaction Authority. So I think spending some time up front, kind of seeing where you fit in the landscape can be very helpful to determining what's the most productive path to getting a government contract

Maggie 26:16

Within these new budget lines, where do we see or where do you see the most opportunity for startups versus where do you think the defense primes legacy players are really going to continue to dominate?

Mike 26:31

Well, the large primes are going to still be putting together larger systems. So if you think about Golden Dome, there's probably going to be a role for, you know, putting together a complete package of sensors and integrating that together, fusing that data together as an example. So that means, is there an opportunity for individual providers of capability? But that might be as part of a larger program. If you're talking about unmanned systems, there's going to be more of an opportunity to be selling those directly to different branches of the military. So still going to be bottom line role for both. We're going to need the primes to be successful on programs they win, and we're going to get a lot more capability from startup companies that the primes can't offer on their own.

David 27:24

Yeah, I'd say, you know, with like, Group 1 drone, so these are, like, kind of small handheld, this seems to be an area where this budget actually starts to put some real funding behind and that might help separate some of the winners who have been building really good technology, which has by and large been coming from sort of the non traditional defense ecosystem, a lot of these venture backed startups. So we've been seeing a proliferation of this type of capability, and the effects that they've had, both in Ukraine and the Middle East over the last few years. And it finally seems as though the government, through a number of different initiatives, is recognizing that that value proposition, and so there's going to be some pretty good opportunity to win significant capital or fund procurement money to sort of advance your technology,

Mike 28:17

Drone and counter drone technology are going to needed by all the services. So you've got, you know, the ability to approach the Marines, the Navy, the Air Force, Army, they're all going to need it.

Maggie 28:27

A big debate in the broader defense tech community is over whether it makes sense to be a defense only focused startup versus to focus more dual use that is, you know, pursue customers within the US government, but also pursue customers outside of the US government. Do you think that this additional $150 billion of budget for the Defense Department should change the calculus for startups to focus either dual use or to go defense only now that the budget is so much larger?

Mike 29:01

Yeah, personally, I don't I think whether you can be dual purpose versus single use is really determined by what technology you're offering. You know, if you're a drone company today, there's not a large commercial market for drones. Now, the President's Executive Order now requires the FAA to do its homework and figure out what capability drone providers can offer this beyond line of sight. So there could be some regulatory changes underway that could accelerate the adoption in the commercial market. But by and large, it's been very slow to develop. So if you're a drone manufacturer, certainly what we've seen with the demand in Europe, based on what's happened in Ukraine, means you're primarily military. If you're AI software, there's no question you should be doing dual purpose. You might need expertise on what does the military need, but you should be pursuing the tremendous market that's out there for AI software, same with size. Uber, I don't know what you say about space. That's probably also a dual use area.

David 30:06

I think that space is, you know, not only the ultimate high ground, but the ultimate, you know, example of how dual purpose technology can really inform both industries. You know, I think one thing to recognize about the national security apparatus is, you know, space is very expensive. There's, if you're going to put something up there, you're going to have to spend money. And by and large, you know, a lot of the use cases are still, still significant needs of the national security environment, and unlike the commercial sector, the DoD is willing to provide non dilutive research and development funding to help you get over some of those costs. So, you know, I think the conglomeration of private capital and non dilutive research and development funding to help put assets in space that are addressing national security needs while also driving down the cost to accessing future commercial markets, creates a really interesting flywheel effect.

In fact, I'll just take this moment to highlight Maggie's recent blog on this very topic that she co wrote with First Lieutenant Nestor Levin, a Space Force officer, as they sort of highlight the historical elements of how the space economy has evolved and the more recent utilization of venture backed startup technology and how it's had An effect on, you know, the war in Ukraine and how it's been used, even to image what happened in Iran with the Florida nuclear blast site, right? And how space technology is really being leveraged by lots of different entities, still predominantly the domain of nation states and national security needs, but more and more with the advent of SpaceX and driving down cost of launch, providing more and more business opportunities for different commercial markets. So to me, I think the rest of the DoD could truly learn from Space Force and their approach to leveraging venture backed commercial technology and incorporating it into their concept of operations. And Mike, something that you had highlighted earlier in the conversation, buying something as a service. You know that is part and parcel to how a lot of these data providers, whether you're Hawkeye 360 whether you're Maxar, Black Sky, Planet Labs, and in the future Albedo, with their first satellite in orbit. Now, these are really great opportunities for the DOD to not have to spend as much money, but get just as exquisite capability,

Mike 32:52

And importantly, be able to continue to improve the capability as those vendors improve their solution. So something we're not used to seeing in the Department of Defense, because we typically buy off one specification and from one vendor for 30 or 40 years with large defense platforms now, buying things as a service means the military can upgrade the capability as the private sector upgrades that solution. That's a that's a huge benefit for us.

Maggie 33:21

Thank you for the shout out. David. So David and Mike, I know there's a few kind of interesting bills moving their way through Congress right now, the FoRGED Act, SPEED Act, are some of the ones that come to mind that have some policy changes that we believe could really be beneficial for startups. David, maybe could you talk about some of those actions that you think are going to be the most impactful that you're most excited about?

David 33:50

Sure, thank you, Maggie, you know, first off the off the top, I'll say, I think this might be the most consequential NDAA since the Nunn–McCurdy Amendment of like, the late 80s, and what that meant for the Department of Defense and reforming acquisition in certain cases, that got us into a little bit of trouble. But I think you know, directionally, it was going in the right, right way, and now we do need, like, kind of a wholesale new approach to recognizing the way that the economy and economic security tied to national security can create, you know, really good opportunities for entrepreneurs and for, you know, America's businesses writ large and so, you know, maybe a little bit wonky, but I'll just highlight two things.

One is this desire to move to, in certain cases, consumption based contracting. So if you think about your energy bill, or the way that startups or large companies pay for compute, you pay for it in the rears, right, as in, you get your bill, and then you pay for it. And for the most part, you know the DOD has to pay ahead of time, and so you need to always be estimating exactly what your spend is going to be. And it's really challenging to do in these dynamic operational environments where your compute costs can scale up or down depending on real world activities or real world needs. And so now having an ability to pay in the rears or based on consumption, I think is a pretty novel thing that Congress is allowing the Department of Defense to do, but it's going to be something that requires a bit of training for the acquisition community.

Okay, so that wasn't nerdy enough. I'm going to get even a little bit deeper, but the other one is the I'm seeing a distaste from Congress around cost accounting standards. And so just a really quick primer, if you operate in the normal world, you are held to GAAP, generally applied accounting principles, and that is how you do a lot of your accounting for business operations in the government, they have a different system. They have cost accounting standards. And for pretty much any large major contract, it is going to be subject to cost accounting standards, which forces you to break out costs between your labor, your overhead, and your GNA. And that can be really challenging from a profit margin when you think about building a piece of software and having to account exactly how many labor hours went into building a piece of software, because for those of us that have been in the venture capital community for a long time, you recognize that you build it once, and then the marginal cost for distributing it goes down to zero, and this is how you get fabulous returns, or fabulous multiples on revenue and EBITDA. But that is sort of anathema to how the government does their accounting, and it sort of is forcing these startups, in certain cases, to measure things that don't make sense for how their businesses operate, and in both the SPEED and FoRGED Acts, they sort of take to task this idea of cost accounting standards, and they want to make it even easier for non traditionals to apply commercial standards to their contracts, so that they don't get forced to comply with something that really was built for government when they were the only buyer in town of any technology that mattered.

And, you know, happy to go into more detail with anybody that wants to after this podcast gets released, but I'll just leave it at that. Those are two things that I thought were pretty compelling coming out of the forge and speed act, among many others. But Mike, maybe over to you for something that you thought was really useful.

Mike 37:48

Yeah, you talked about the cost accounting systems as if they're arcane, and probably the way you implement them are, but it really in layman's terms, is you have to keep two sets of books if you're a company, because I need GAAP for all of my investors and from a public company, that's what the SEC will require. And now I get to keep a separate set of books for the government. And if I'm a small company, that's can be cost prohibitive. So I think that's a major barrier today for many small companies thinking about doing business with the government. Yeah, yeah, in terms of the SPEED and FoRGED Acts, I'll just add one more, which would be the idea that we could aggregate up budget categories into a portfolio or a capability based approach. It another thing that sounds arcane, but is pretty important. So the defense appropriations are basically allocated into 1700 different line items, and those are further divided into what's called colors of money, meaning I can't take procurement money and mix that with R&D or mix it with operations and maintenance money. So you get a very granular system which allows for very little flexibility if I have an urgent need and I need to move money from one category to another, one line item to another, and if I see some exciting new technology I want to leverage, again, I am still hamstrung by the budget process here. So this idea of a portfolio approach is maybe I don't have to specify exactly what I'm buying by vendor by specification, but I might have an entire category, like small drones, and I don't need to upfront specify which spec and which vendor. I could just say I've got a pot of money for that portfolio. And now, as needs change, and as technology changes and different vendors leapfrog each other, I have the flexibility within the Department of Defense to say, okay, Congress has given me money for small drones, but now I can move flexibly from one category to another. I think that's going to be a very key innovation, and it was recommended by the PPB&E Reform Committee on Innovation, which our partner Raj served as a member on.

David 40:05

Yeah, I think that's great, Mike. And you know, when I do reserve time in the Pentagon, we talk a lot about this and one topic that comes up is like, if we could have this portfolio approach, let's take, you know, aircraft modernization, or fighter aircraft modernization, and what you would do is you would pool the F-15, the F-16, the F-22 and the F-35 and all of their modernization money into one portfolio, versus it being broken out by aircraft and as one aircraft, you know, vendor starts to do really poor. Say, still, I don't mean, I don't remember who builds the F-15, but say the F-15 modernization program, for whatever reason, it's just languishing. Well, instead of, you don't have the ability to move that money to maybe the F-16 vendor who's doing exceptionally well and accelerate some of the timelines for modernizing that aircraft. Instead, what you have to do is a mea culpa and hope that through these arcane budgeting processes called below threshold or above threshold reprogramming, BTR and ATR, that somehow you're able to move the money across to something that like at the end of the day, what we're trying to do is have air superiority in the Air Force, but the program executive officer who's in charge of all of the advanced aircraft does not have the ability to move the money across his or her programs to maximally affect readiness in the departments. And that is just like, I think, one good snapshot of how this portfolio approach, still, you know, it's focused on these capabilities, air superiority being one, but allows you to move across these different platforms.

Mike 41:58

Yeah, the way I think about that is, we're asking our military to really achieve, up to now, higher levels of speed and flexibility in what they're doing, but the budgeting process doesn't manage match that. We got a process that basically takes three years to get $1 of spending approved, and now I can't mix and match, as you said, David, from where it was allocated a year or two ago to where it's needed now. So we need the budgeting process to embody that speed and flexibility that will match what we're asking our warfighters to do.

Maggie 42:34

So we've talking a lot about what Congress is doing with the Big Beautiful Bill, with appropriations, but what are we actually seeing coming from the executive branch? I know there have been a couple executive orders that have come out over the last six months or so that are really pushing the needle forward on how innovative startups and non traditional contractors can work with the Department of Defense. Maybe, Mike, could you talk us through some of the EOs that you are most excited about?

Mike 43:02

Yeah, really, a lot of what we've talked about here in this podcast is the “what” of the budget, what would we be spent on, versus what we've spent on in the past, and the recognition that we're now going to be buying some new capabilities, and that will mean new vendors, but there's an equal emphasis from the administration, very positively, on “how” we will buy those things.

So four presidential executive orders so far, and some directives from Secretary Hegseth on the “how” of buying things, which are really if you put those all together, it's how do we reform Federal Acquisition Regulations. 2000 pages of documents that's longer than war and peace, and there's a similarly length, 2000 page document on how to use it and apply it, kind of a guidelines for you. So no one person could comprehend that. And there's a recognition that that should be simplified. I heard that simplified down to 100 pages. I hope that's true. We'll wait to see what that looks like, but the President has basically mandated that the Federal Acquisition Regulations should be rewritten.

There's also an emphasis on more commercial methods, things that we pioneered at DIU, something that David really pioneered, the Commercial Solutions Opening, which is basically how to buy things in a more commercially oriented way, which brings in more competitors and actually test these things before we would agree to buy them. So that process is now well documented and used well beyond DIU an emphasis on commercial first, which the Congress has asked for the last 30 years. Let's not look to how we can make something custom by the military, but as we look at these new technologies that are being developed commercially, how can we use those first, rather than asking for something custom by the military, that's going to result in much better value for taxpayers, and a recommitment to something called modular open system architecture, or approach. Image, which really is the way the commercial world operates. You think about the computer, computer world, where we have interchangeable parts, and if I buy, you know, a operating system from Microsoft, and that goes on a computer, we know that's going to work on multiple pieces of hardware. That same idea applied to the military, I need a modular architecture so that I can mix and match and buy from different vendors and have things working together. So all of these are aimed at more speed and flexibility, more commercial use of technology by the military, which I think can only improve our capability and at lower cost.

David 45:42

Yeah, I think that's well said, Yeah, over my I guess now, over 16 years now, between active duty and reserves. You know, rarely have we seen the executive branch move out ahead of Congress, mandating through something like the NDAA, yeah, the only example really that I can think of is Ash Carter. When he was, you know, the undersecretary of what was then Acquisition, Technology and Logistics, AT&L, then his time as DEPSECDEF, and then his time as Secretary of Defense, he was one of the few that would go ahead and, like, push forward for what made common sense, maybe sometimes just in advance of legislation, or helping, you, know, inform legislation to then sort of reinforce what they what the executive branch was trying to do. I think this is a pretty rare moment where you do have an executive branch highly inclined to do things that would, you would traditionally see in in the business world, right? And trying to apply those good practices to the Department of Defense. So we're all for that, because a lot of it does focus on commercial capability, leveraging private capital markets, you know, providing opportunity for entrepreneurs, all things that are part and parcel to our investment thesis.

Maggie 47:06

So turning back the focus to Shield Capital, where we all work, we are a firm, we're predominantly focused on four technology areas: AI, autonomous systems, cybersecurity, and space. And at least historically, we have primarily focused on investing in more dual purpose companies, companies that have the potential to sell both to the US government but also to the commercial sector. So Mike, do you think that this investment thesis still makes sense? Are there changes that we should be making, in light of both new budgeting and appropriations data, as well as some of these new actions coming out of the administration, and other just trends we're seeing in the market?

Mike 47:53

What I think the changes in administration so we just talked about some of the executive orders on and directives from Secretary Hegseth on how things will be bought, and then most of the podcast on what will be bought, I think, reinforces that thesis we have at SHIELD. So those four domains are all going to directly benefit from the appropriations in FY 26 and probably do a more significant degree than we would have seen in any subsequent year over year change. And I think we're at the start of maybe a decade long trend of where we're going to see investment in these new capabilities to complement the traditional investments we've made in defense, in large platforms, ships, tanks and planes.

So what we're seeing around the world is becoming more dangerous, the need for more defense spending and the need for these new capabilities, because they've already proven themselves on the battlefield. So that makes me feel even more comfortable with the thesis that we have. I think those four domains are ones that are going to continue to be multi billion, in fact, multi 10s of billions of dollars in their market size and grow at double digit rates, meaning there's going to be tremendous opportunity, and they all have significant impact for national security. So to me again, reinforcing the thesis we have at shield, and what we will continue to do is look for companies where we can or technologies too, where we can add value to bringing those technologies into national security establishment. And nobody's better than that at shield than David, who really understands the acquisition process in depth and has worked with a lot of our portfolio companies to make sure that they know what are the mechanisms to get on contract and how to most effectively work the process so that it can be in the best position to be on contract. So I think we're at the very beginning of seeing that strategy really pay off at SHIELD.

David 49:54

Thank you for the compliment, Mike, and I think you covered that exceptionally well. It's true.

Maggie 50:00

Well, Mike and David, thank you guys so much for coming on the podcast and breaking down the very complicated world of appropriations and defense acquisitions, I certainly learned a lot, and I think our listeners will as well.

David 50:15

Thanks so much for having us. Maggie, thank you, Maggie, always a pleasure.

Akhil 50:20

Hey everyone, thanks for listening to the Mission Matters Podcast from Shield Capital. Tune in again next month for another conversation with founders building for a mission that matters. And if you yourself are looking to build in the national security space, please reach out to us.