Josh Wolfe on defense tech bubble risks, sail drone's pivot to gray, and why maintenance is the unsexy investment theme of the decade

Uh, awesome. Uh, we've been wanting to have you on for a while. Yeah. Great. I've been wanting to be on. Yeah. Yeah. Yeah. I'm glad you can make it. Uh, I'm going to disagree with everything that Sean said. I don't even line by line. Line by line. Yeah. He said, "Uh, AI is valuable. " Uh, what what about that?

You're in front of a camera. Can you uh Yeah, I think you're good right there. Yeah. Yeah, you should be good there. Yeah. Yeah. Yeah, that's great. Uh, how's it going? Is this Is this I I I'm wearing a tie. I love it. You're wearing a tie. You look sharp.

Has it been exactly one year since you put on the suit and tie for Hill and Valley last year?

Break down your your first business trip to Washington because I feel like you've been coming to DC for a very long I feel like you've been banging the the you know public private partnership you know drum for a long time a long time and and many of the companies I feel like you know oftentimes I see a new fund raise announcement from a new you know sort of hard tech company and I'm like I I feel like Josh invested in like this exact company like six years ago or something like that company and they raised a lot more money uh yeah no we've been in this for a long time I think we really started with a lot of like uh Intel community facing things so most of that was sort of software maybe sensor sigant uh data collection Then we started working with special operations and it wasn't at the scale that you need to win a big army contract.

Sure. Started doing stuff in space with satellites.

Um, and then I would say like really the first pure play non quote unquote dual use thing which was unapologetic was first round of Ander and uh, you know, I wish that there was like some sophisticated analysis we did for that, but it really was me and Trey at Balthazar in uh, in New York and he's like I'm going to start this company with Palmer Lucky.

I'm like I'm in. I'm in. So, you know, that was that was the that was the diligence.

How have you found uh you know you do you do a a first round in anderole but then and then you're like okay this category is going to be really important so you want to invest more but then there's this issue where the anderol of anderol is probably and yeah it is and so and so have you had to hold back in a lot of instances where you're there there are venture funds and we we compete with them and we partner with them that are sort of a little bit more uh polymerous and they're doing lots of deals with lots of different people we try to be really monogous And so there was one company in particular um I'll say it out loud but it was dive technologies and they came to pitch us and they were doing subc which was sort of complimentary to our company sale drone which is doing autonomous fleets of on and I said you know I think you would really be better off as a part of a platform that has the muscle and the uh mechanisms to be able to win contracts and um scale and manufacturing and think about this as part of a portfolio.

And so at first I think they were a little bit hesitant but then they ended up going to Andreal and I got to say I think it was like 60 or 90 days. We then won the big OAC deal. Yeah. And that to me is just like proof positive of high-tech in the right platform, able to execute. Matt Grim, credit and props to him.

I mean, he picked up his family, moved to Australia, set up this operation, 60 plus people, billion dollar plus contract, like very, you know, but but clear sign of winning. So, we love that.

But yes, it is harder to do something that is in a category as Ander expands because we really want Anderil to just be, you know, is there a different type of underwriting that investors could be thinking about?

Not necessarily, hey, I'm trying to back the next and all and I'm underwriting to a 1% chance of a hundred billion dollar outcome or is there a world where yes, we're building something that might get acquired or might totally go through an M&A process and is that even the is that even the purview of venture at that point?

You go back to Sequoia, Sequoia Fund and Cisco, you know, Cisco, but then Sequoia made a fortune selling company after company to Cisco in the late '90s, right? So if Ander you know ends up being a 50 $200 billion business the ability for them to buy a bill a company for a billion is venture for a lot of fun.

So I think that the ecosystem is growing the right way that it should. We will have a bubble in aerospace and defense. It will happen and it will happen in part because of capital formation which is really interesting.

So you got venture funds like us that us and Sequoia and founders and and KP and coastal a handful of people that are doing you know these kinds of investments. Then you got dedicated specialist funds. Yep. Yeah.

And uh then you got fund of funds and the fund of funds are interesting because you have a bunch of universities and endowments and hospitals that are like we won't invest in the defense category because we are not comfortable being part of a kill chain.

We as a partnership are right but they might not be but we would invest in a fund of funds that is investing in a venture fund that is investing in a company.

So you have this moral remove that is going to provoke more formation of capital but there won't be enough companies in the first few years and so you're going to get a bubble. There's going to be a bunch of frauds. There's going to be a bunch of crashes and disasters.

Is that an argument against building like a dedicated defense tech fund? Have you ever done a segmented fund? I know a lot of big big VC funds have. No, we we uh we have like a little opportunity fund for some of our best defense companies, but not a carveout. We are generalists. We like to have one pocket, one pool.

You can do a $100,000 check. You do a $100 million check. That's great. Uh and you can go sort of all sectors, but um I don't think there's anything wrong with it. If somebody's a specialist and super passionate about it, like go for it. Yeah. Jordan, uh what was your play what was your kind of DC playbook?

What what advice would you give to your portfolio maybe 5 years ago and how is it different than today? You know 5 years ago I think you were working with a lot of lobbyists to try to get meetings on the hill. You'd be lucky if you can get a senator.

You were mostly getting congressman or staffers to know if that today I think everybody wants to be in the conversation because they don't want to be ignorant. You have a lot more alliances between red and blue Republicans and Dems on things like shared adversaries.

China you know that's a question which everybody converged upon. So competitiveness, thinking about the scientists, the engineering, people are going to debate some of the policy stuff.

Should we be cutting science funding, should we be partnering with South Korea or Japan or UK, but everybody wants to be in the conversation. So your access today as evidenced by this conference. I mean, what Jacob and Deli and Christian have done here is just really amazing because it started as this napkin sketch.

It became a crowd. Now the crowd has become sort of a movement, but the caliber of the people that you're getting is both extraordinary. and the politicians sort of keep getting older, but the people that are doing the tech companies that we're looking to fund keep getting younger, and I think that's a beautiful thing.

Are you taking would you say you're taking more a lot more pitches today? I mean, I imagine like in the halls here. In the halls here. No, no, no.

Just in the context of uh I I know you guys have all, you know, been focused for a long time on like, you know, finding like researchers that were developing, you know, things that could be commercialized.

Uh but I imagine like just the scale of inbound as hard tech, manufacturing, defense tech, all these categories like became like hot get heated. I'm assuming like the number of pitches just gone through the roof.

I mean the number of entrepreneurs and by the way the best entrepreneurs frankly are the people that we backed at and we've done two people that have vested and you know sort of with blessing have gone and left and started their own company and so being able to find these fountains of talent that have seen success have seen rapid scaling have seen valuations they understand the venture game they can raise money they can attract technologists they can in license IP develop it themselves those are the people that you can back time and time again so I think we have a decade long run of amazing talent in this ecosystem that isn't going to be just silicon Valley, right?

It's going to be SoCal and it's going to be other parts of the US down in Texas and and uh and maybe even Florida. How do you think about uh and by the way, sorry, and international, too. We did our first two ever Israel investments. Both are defense companies. We did a company in Japan, company in the UK.

So, we're interested in not just American defense also, but American allied defense. Totally. Um, how do you think about uh VCs as a conduit to DC? It feels like potentially low hanging fruit for some sort of value ad.

You know, a lot of VCs would say, "Oh, we'll help you find find your first uh you know, VP of engineering or we'll help you with some comm's puzzle, but uh like almost like light lobbyist uh just making some introductions to the senators and and congress people that you might know.

Is that a more modern form of value ad that's coming out of venture funds these days? " I think partners at firms like ours and others have relationships and they're authentic relationships and you spend time with these folks and you admire them.

There's congressmen who I deeply admire and I think are the future leaders both Republicans and Democrats. People like Richie Torres and Jake Oenclaus and then on the Senate side Young and uh uh Slotkin. I mean these are like real patriotic Americans that are smart and savvy.

Might have been in the CIA, might have been a marine uh but but quite savvy and they are techsavvy and they're young and they want to know these companies and uh and you know they want a future donor base too and their own self-interest. As Ben Franklin said, would you persuade appeal to interest, not reason?

Y but I think understanding that game and also understanding tech moves at this crazy velocity that is hard to compete with. It's why tech wins because they out compete because they move faster. Government does not move that fast. And so you have to be a realist. Government is moving faster than it has in the past.

Particularly in defense. You look at this appropriation bill, this reconciliation bill, trillion dollars, 47 billion plus going to be going towards ship building, autonomous systems. Like that's going to be a big boon for Anderil, for Hadrien, for Varta, for sale drone.

How do you think about uh founders that are trying to time some of these broader structural changes if you were in if you're in ship building at all?

The best time if you want to take advantage of this new bill to start your company was maybe a decade ago because you're sort of ramped and you scaled and you have a great team and you have some credibility.

But how do you think what's your advice kind of early stage founders that are seeing the world change and trying to kind of navigate and see opportunities?

You know, an example being like, you know, I I'm not convinced that like every manufacturing, you know, automation company is like going to do is the right time to start it is now because we don't know very the the future is like murky, right? Like totally a lot of these things are unfolding.

How do how do you help founders kind of understand market timing uh when when there's so much in flux? The honest answer, a lot of it is luck. Yeah. I mean honestly like uh I always say that there's a fiveyear psychological bias that you want to be invested today where you should have been five years ago. Yeah. Okay.

But I'll just give you a few quick examples. Um you think about uh the people that were doing modular reactors. I'm not a personal great believer and I think it's great for society. We're not invested in them. I did a lot of nuclear nuclear waste cleanup. You agree with Sean on that.

You guys doesn't sound like you I hope it happens. More solar bowl or uh it's happening and it's getting cheaper. Like I'm not crap on solar but it's just it's not super exciting. Um but but I'm a huge nuclear bull, you I've renamed it elemental energy.

Uh but but if you were developing modular reactors, you might have been like, okay, it's large base load power. It's better than intermittency, but you weren't anticipating that there was going to be this data center buildup, which is at least part of the narrative. Whether or not gigawatt scale, correct?

And whether or not that will actually see the light of day today. They were able to capitalize and and draft off the hype of that. So that's number one. They're thinking about bringing back Three-Mile Island, Diablo Canyon potentially. There's a lot of big opportunities for a large scale nuclear.

You you look at people that are doing minerals and mining which is not a really sexy area but suddenly you're thinking about supply chain geopolitical conflict with China.

You're thinking about robots and magnets and things that have to go into my question is like you know if you're in if you're doing anything in mining or rare earth obviously great if you started a company 3 years ago and then you get to capture this momentum but will we see do you see potentially enough explosion of sort of demand uh and and new markets that you could still start something today?

You can always start something today and but you got to remember that I think some of the best successes are not just like execution. You follow this playbook, but it's luck. 15 years ago, we started a high techch nuclear waste cleanup company to go after the defense nuclear waste from pre and post cold war bomb.

All of a sudden, earthquake, tsunami, Fukushima disaster. We become the only US company picked for the cleanup to clean up this nuclear disaster. Right? That became a boon for this company. It was a total black swan for Japan. A negative one, a total positive black swan for this company. Yeah.

Uh, today sail drone autonomous fleets of boats. They started oceanographic research and all this kind of stuff. Bright orange ships. The guy that's here, I don't know if you've seen him, Hondo Girtz. He's a big hulking guy. The two of us are together. It looks like the old poster of Schwarzenegger and Dvito.

And he's like, you know, I got a big strategic idea for you. What if you paint these things gray? Yeah. Instead of bright orange and all you open up to this defense market.

But that wasn't in their founding thesis of we are going to make a fleet of autonomous systems from Task Force 59 in Bahrain and expand to the rest of the world. Yeah. Yeah. What what what do you think uh I mean you mentioned some of the other countries that you're investing in.

Um Japan, I think you mentioned Australia. Uh what do you think the future of partnership between the United States and Middle East allies looks like? Huge. Explain. You know, we we call this scitec diplomacy. We brought onto our team maybe six, seven years ago Tony Thomas T2. Okay.

head of SOCOM, 90 people, 90 countries, 90,000, you know, all special operations. Incredible guy, great entre into aerospace defense. Yep. A guy that was on a board of one of our early intel companies that were focused on intelligence community was Brett Mcgherk. Mhm. Yep. Brett just left the administration.

He was in Bush White House, Obama White House, Trump White House, left the Trump White House because he had put together the counter ISIS coalition.

And when Trump surreptitiously sort of pulled out from Syria, he abandoned the Kurds and he had built that allied nation with the Kurds and said that that allied force with the Kurds and said we're going to supply you militarily. He then resigned. Came back in for Biden.

His capstone deal was the Gaza Hamas Israel uh hostage deal. John 20th left, joined us a few weeks later, company Middle East. We met with NBS. We've met with Tanoon and ABZ Abdul Bin Zed. I am so bullish about UAE.

Yeah, UAE is so ideologically righteous on being coexistence, all three major religions, you know, the Abraham Accords, Major Snee, uh, Tech Forward, Cleveland Clinic, NYU, John's Hopkins, uh, the Goo the Guggenheim, the Louve, major cultural institutions.

It's it's incredible and and and they're building it super fast, but they're building it thoughtfully. And the ability to make a decision very quickly, high-tech, you think about G42 and some of these other things, they've decided we're not going to cast our eye with China. We're going with the US.

We're going to build data centers. We're going to partner with the US and it's going to be at like giga scale, hundreds of billions of dollars. Super bullish about UAE. Saudi I think is next both for normalization with Israel. Uh they want to be in the defense umbrella of the US.

They are going to spend a lot of money on AI infrastructure and comput huge. Yeah. So um so so UAE, Bahrain, Saudi next I think uh in the region, but of course Israel. I mean it is a tech mecca. Many of those countries realize it's really far to fly to Silicon Valley but if you can go to Israel it's a big deal.

Tel Aviv is there short of flight. Uh our first two deals like I said defense focused Hamut Meridor who ran Palanteer in Israel. We backed her with Shawn in a company called Kella. Great. So Lux and Sequoia teamed on that and just really bullish uh on the region.

How do you think about uh how quickly information spreads today? It feels like a category you know a decade ago you'd have a category that could be underhyped for a long time. Now, somebody enters a space, they release a video and suddenly like a bunch of new people are pouring in.

Where where are you looking at this point uh just besides your own network for the the next founder that you're going to fund?

So, I have this as a flaw in my personality, which is, you know, I want to know everything that everybody else is talking about, but then I need to understand what's the white space like Sherlock Holmes, what's the curious incident in the dog in the night, the thing that people aren't talking about.

So, I'll give you one because it's unsexy and I've talked about it publicly. Maintenance. Yeah, maintenance is the most boring thing you could think about, but here's the simple logic that I had. It wasn't reactive to a quarter or even a year. It was the basic idea that the cost of capital is going to rise. Y okay.

If the cost of capital rises and you're not funding low interest rate stuff. Yeah. If you think about capex on a financial statement, you've got growth and you've got maintenance. Yep. Everybody's been funding growth.

New data centers, new satellites, new military installations, new HVAC systems, equipments, hospitals, everything. Okay. Now, if you're a CFO or you're a capital allocation committee or you're a board and you're like, "Do we really need to spend another hundred or billion on that?

Do we need another data center or can we maintain the stuff we have? So I think that there's going to be a demand shift from buy the new to how do we maintain the old and that is going to be demand for preventative maintenance, early maintenance detection, robots that can go out into certain things and repair them.

So all of that I think is going to be a big wave. That's the kind of thinking at locks that we're thinking about orthogonally. Everybody else might be tacking here, but how do you find something? Start making some bets and then 3, four, 5 years everybody wants to be in that space. Yeah. Fantastic.

Well, thanks so much for joining us. Hey, come on the show again. Yeah. Yeah, we'd love to go way deeper on a on a proper so much to talk about. Thank you so much. And we're bringing in uh Delian as Bruhoff from Founders Fund, a co-host and co-creator, co-founder of Hillen Valley Forum.

Very excited to have him on the show for the what, seventh time. Uh so let's bring him in. Uh Jordy is posting amplifying the stream, pumping it up, pump up the numbers. Uh how we doing, Ben? Can we get a little review of uh the stream is up, the internet's working.

Uh it was a fascinating I'll give you a little inside baseball here. We brought in something called pop-up Wi-Fi to do this stream. Uh and uh it does not look like something that would normally get through security at the capital. Uh it's locked and only the TSA can unlock it.

Capital security police do not have the key that TSA has. And so uh it was very tricky to get in. They had to x-ray it a bunch. Uh we couldn't get into this locked Pelican case that has a Wi-Fi router and a bunch of uh cell phone uh like modems in there.

Uh but we got it through and we are live streaming and we're very excited to have Delane coming in later. Uh we also have Christian Garrett hopping on to break down the other third co-founder of of the Helen Valley Forum 2025.

And uh Jordy is tagging madly uh all of our guests, getting us into the timeline, promoting the stream. And we have we have an absolutely stacked line lineup. Uh we got Delian and Christian coming on, then Eric Lyman. Lulu should be coming on.

A lot of repeat guests breaking down what's going on in DC uh today at Hillen Valley. And here he is,