Katherine Boyle: NDAA's FORGE bill could be 'sea change' for defense startups by removing past performance requirements

Numero sales tax on autopilot. Spend less than 5 minutes per month on sales tax compliance. Go to numeralhq. com. Let numeral worry about sales tax. Indeed. Sales tax AGI. We have our next guest Katherine Bole in the waiting room. We'll bring her. It's been too long, Katherine. How you doing? It's been too long.

Welcome back. Thank you so much for way too long. Thanks so much for having me. You have been extremely busy. Give us the update. What's new in your world? Gosh, what's new on on our world? Well, the the big news is we we launched dynamic tech defense reform, which I know we're going to get into today.

Um, which is a huge initiative on behalf of all of defense tech, all of the defense tech community.

Um, but also it it's I just returned from Washington last week, had a host of conversations across the Pentagon, across Congress, and it feels like for the first time in probably 10 years since I've been doing this, that everyone is aligned, that we need to see major major changes happen to defense procurement, and not only is that sort of things that people talk about, but it feels like it's finally going to happen in this year's NDAA, um, and that we're on the one yard line, um, sprinting to a finish that I think will will hopefully, um, end up great for for all of the the companies in the defense tech community.

So, we can go further into what's changing, but I always like I I I feel like I'm bringing like actual good policy news like probably like the one thing that everyone in Washington can agree on, Republican or Democrat, uh you know, House or Senate, Pentagon, everyone is aligned that we're Well, not every lobbyist agrees.

Not everyone lo it is remarkably complex.

I remember learning about uh program of record and then SBIRS and then we had Willurd on the show last week and he was telling us that he had an SBIR but then also some some funds allocated for in a bill and it's just like there's seven different pools of capital to pull from probably more than seven probably 200 uh and so some streamlining of that makes a lot of sense.

What does this actually mean for defense tech startups scaleups growth stage companies? I've heard about the valley of death getting from the SBIR to the program of record. Is anything are you optimistic about anything changing in that narrative or is it just easier to get to program record?

Like how should startups be thinking about like the goal that they're like working towards? Yes.

So I think there's there's a lot of changes happening but but the the things that we're most excited about are like very specific changes that are going to help all companies whether or not you are an early stage company with five employees wanting to scale working with the DoD or you are an anderal scale company that has you know that is no longer a startup with with thousands of employees um that still has these problems inside the Pentagon.

the the real issue with the Pentagon is that they still view tech in many cases as as small, right? Like they view us as like small, we are not the primes.

Um, and what I think has changed in the last few years and particularly with this administration, with this Pentagon, and with this Congress, is they're realizing that we cannot achieve the aims of supporting our men and women in uniform.

We cannot win the next battle if we don't have emerging technology and if we don't have it produced at scale.

And so there's a lot of sort of like fine print that still exists in a lot of these contracts, whether it's a program of record, whether it's an OTAA or or whether it's, you know, different types of contracting vehicles, but by changing some specific language in this year's NDAA, it's going to it's going to open the the floodgates for competition in really good ways.

So, I'll give you a couple examples. Um, and this has been something that, you know, our our friends at andural and and our friends at Seronic and others have talked about for years, which is the the past performance requirements, um, which are are often written into a specific contract from the department of war.

So, if you are a company and you are brand new, um, and and in the eyes of the department of war that has been working with companies for, you know, decades, a company like Anderol is seen as a new company.

Um, there is preference given to a company that has been around for 30 or 40 years on contracts often because they have what's known as past performance. Even if it's not in something like AI or something in the contract, even if it wasn't a that great of a performance, right? Yeah.

Even it was terrible performance, they have they have some record of past performance. Um, that that gives them a leg up in the in, you know, in in the competition for that contract.

And so one of the things that the that the forge bill and the Senate, we just we just wrote an op-ed with Senator Wicker today that came out in the Washington Post talking about how important it is that the Forge bill and that really the the House Armed Services Committee and the Senate Armed Services Committee are aligned on.

Removing the past performance requirement from these larger contracts is going to level the playing field where then you're going to have companies that have been around for a long time, if they have the best product, they can prove they have the best product.

And then the companies that are just new on the stage in the last few years if they can perform at a higher level than the companies that have been around forever like they should get that contract despite not having the past performance as written into the requirements because historically a big a big prime would get a contract just because they can but then it ends up being like kind of a rounding error for them and so they don't put that much re it's not like a flagship program and so they can underperform for years on it.

Uh meanwhile, a startup might die even if they would have made it their main thing, right? Yeah. Yeah. Or or it's just like they even if they have an open competition, they're they're they're because they have past performance, they're they're seen as as a more reputable company.

Um and so I think even just having that cultural shift, but having that language removed from the contracts is going to give a leg up to to all startups. I mean, there's other things in it that I think are really important around changing the culture um inside of the Department of War.

Like right now if you are there are extraordinary people in in the Pentagon who stick their neck out trying to do this day in day out and they're not being celebrated. They're not being rewarded for for caring about the war fighter.

And so there's language in forged that that changes the incentives around if you're a procurement officer and you procure the next greatest weapon system and it comes from a startup like you're going to you should be celebrated for that.

And that was something we heard a lot too when when I was in town last week talking, you know, across Senate and across the Pentagon like they want to know who the heroes are.

And so like we're going to start being really loud about who these heroes are inside the Pentagon that are that have been, you know, changing the culture that have really been been pushing things um to get it to to where it is today where startups can work with work with the Pentagon in a much easier fashion than they could even five years ago.

Do you have any thoughts on uh there's this book by Dan Wang um break neck all about how ch America has the lawyerly society and we have maybe too many lawyers working in government? There's been obviously a push at Doge to bring in more computer scientists. We talked to Will Herd.

He's also a computer scientist by training. Uh has there been any shift in DC that you've noticed where I mean at a certain point it's going to hurt startup recruiting but maybe it's good for the country.

Um, but I'm interested to hear your opinion on where things are going or where things should be going around bringing engineers into the government. Yes. Yeah.

Well, well, just to go back to also to to Dan's book, like there there's a part of the book that I, you know, I don't agree with everything that he's stating when um, you know, when it comes to US versus China.

Um but I think the thing that is 100% in agreement that the Pentagon also agrees on um is that production is a real problem in in the US and we really have to rebuild our manufacturing.

Um not not only you know manufacturing across different industries but specifically focused on the defense industrial base and so a lot of our investments are produc what I call production investments. They are things that they're you know investing in companies that are going to be producing things at scale.

Um and for a very long time Silicon Valley didn't touch that category of investment. And so I think um you know the Department of War understands that they understand that we're on the back foot when it comes to things like ship building when it comes to things of really producing in mass.

So I think you know to to to that point um it it is sort of a a crisis moment where we really do need to be you know beefing up our reindustrialization and really um thinking about how to how to produce more in terms of bringing engineers into the government. Uh we we have to make that easier.

um like it is it is something that I think you know I I always say like the the Doge legacy is is is much longer and I think misunderstood in terms of of what that that team did because I think that team really opened up the eyes of a lot of different departments who who now are dozing themselves as they say definitely in the Pentagon that's happening but it's across um you know a wide array of government realizing that we need to bring in people who actually understand engineering and who are actually talented and I think there's a lot of good people in this administration who are thinking through how do we normalize um you know someone someone who is you know early in career coming in for a couple years and and kind of getting over that hump of them you know knowing that they can go back to industry after they've done their tour of duty.

Um we just had Scott Cooper who's who's now the director of of OPM on the A16Z pod. He had been you know the managing partner of of A16Z for 16 years and he's now leading we joked you know we thought we thought he had a big job leading 600 people at A16Z. Now he's leading 2. 3 million people in the federal government.

Um but that's one of his priorities.

Um he has talked a lot about how do we bring emerging young talent into the government and it's actually a major opportunity for the government now because if you're looking at at employment trends and if you're looking at sort of where where are people having a hard time finding a job right now, college graduates with no experience um are are experiencing higher unemployment um than in recent years.

Even CS grads, right? Yeah. Which is crazy. We never thought that would be the case 5 years ago. It was like guaranteed jobs.

it it yeah guarantee job and but it is a huge opportunity for the government because when you look at sort of the the demographics of government it is very topheavy it is very 55 and older heavy in terms of the people who are working in the government and young people don't consider that an option so I think there's a huge opportunity for the US government to to go after those young people and say hey you have an opportunity here and it's not again it's not a forever career like we we want to change the tenure terms around if you go into government you're in government forever but if you come in for two or four years you understand AI, you work on very discreet projects and then you go into industry, it will be celebrated.

And so I think we're going to see a lot of experimentation around that and it's a massive opportunity for for college graduates who may be thinking, okay, what am I going to do in this job market?

Well, go work for the US government for a couple years, serve your country, and then after you have that experience, particularly if you can talk about the projects that you that you've really worked on. Um, you should have a job.

Um, and we should make sure as the private sector that we we celebrate that that that work um, and that we see it as as good and that we bring it into our companies after the fact. On the topic of reindustrialization, I feel like one of the most underappreciated reindustrialization stories that's happened.

There's a lot of projects that are really long-term. Uh, Adrian's doing fantastically.

It's a it's a it's a big tough nut to crack, but we've seen with the NeoClouds with Coreweave and Together and Nebus and Crusoe, like there are American companies building massive multi-billion dollar projects and they've kind of gotten lost in like, oh, they're an AI company, but I feel like there's something there about, wait, we're actually building something and what Elon's doing with Colossus, too.

like we are building crazy huge infrastructure when we're excited about it and the capital markets are you know marketing it at AI multiples but uh is there some sort of narrative reframing or or even just taking the lessons from a core weaver or Crusoe and saying if if Crusoe can build Stargate or if Elon can build Colossus 2 certainly we can make a massive drone manufacturing facility or a boat manufacturing facility and just kind of breaking that that narrative and then also just bringing those skill sets back into other pieces of the manufacturing economy.

Oh, totally. And I and I think you know Cruso is a very good example, but but there's other companies that are really thinking about this from like a modularity perspective, right?

Like how do you build a system as quickly as possible and then build 10,000 of those systems so you can build the data center of the future so that you have, you know, modular energy systems that you can stack on top of themselves.

And I think that that like there isn't actually that much of a difference in terms of like manufacturing theory um that if you build a modular system and you scale it up and you have the manufacturing line so that you can produce at scale as quickly as possible, you know, these companies like Crusoe, like Exawatt, these companies that are really focused on the data center, how do we get energy and how do we, you know, how do we do it in a a very modular way um as quickly as possible.

I think that I think they're going to to to to have lots of learnings that are very applicable for everything that's happening with how do we build drones as quickly as possible in a modular way?

How do we build missiles in a cheaper way that aren't, you know, million-dollar missiles, but maybe there are 50k missiles, right?

Like, how do you bring down the cost because you're not building to these bespoke requirements or building these massive infrastructure projects where you have to work with EPCs and re reinvent the wheel every time that you do it. um and and and you know you get halfway through and it it's not a working system.

So I think the sort of the I mean this comes back from like you know the SpaceX principles of manufacturing which I think are relevant for any company um that's building in in the world of atoms.

You build small and you build it in a modular way and you build it as simply as possible and then you build as many as possible.

Um and whether you're building uh you know a a Starlink constellation or whether you're building um you know you're powering um you know powering data centers as as Cruso is doing like you're you're you're doing it in a way where it's modular where you can just build the the manufacturing systems and then watch watch it scale build as many as you possibly can build as many manufacturing lines to build the same thing over and over again.

Um and I think that's the future that's that's attractable systems that's what the DIB is doing.

Um and it's across every ecosystem and across everything that whether it's the department of war or whether it's these massive hyperscalers like this is how they want to be able to acquire um systems so that they can so that they can work on the important projects they have.

Over the last couple months there's been some not so good jobs data around manufacturing. A lot of people wanting to take a victory lap on and and just say like you know re-industrialization is impossible.

At the same time, we talk to founders every single day that are building manufacturing facilities that are scaling all the all these good things. How do you think of timelines around uh you know with with all the sort of like geopolitical uncertainty and chaos of this year?

You can see why there would be some contraction around manufacturing, but then there's also bright spots early stage and and you can see how there can be expansion over time as as companies like you know Hrien really scale up and and you see that across even if you're a company that manufactures internationally freaked out during the tariff war.

It's like you're not going to be hiring people to make stuff in America within six months. Like it just takes time to actually lease a place and grow. So we could still see that. But I'd love to hear what you have to say. Yeah.

No, I mean I think the one I mean the changes that are happening in this year's NDAA to open up the the production capacity for startups um it's a sea change like everything we're seeing I always say like early stage investors and even you know even late stage investors on the private side they see where the capital is flowing and sometimes that data doesn't make it to the numbers until a little bit later as you're saying um or it doesn't make it to public markets where public markets are shifting how they're thinking about where they're going to manufacture um you know over over several months or years.

Um, but what we're seeing on the early stage side is that production companies are are hot, right? Like investors are investing in companies that have figured out how do I produce one of something and go to 10 and then go to 10,000.

And those companies like they you there used to be sort of even 5 years ago there was sort of this fear of the middle of the market does not want to invest in anything to have to do with hardware. That is not the case anymore.

Um, and these companies are moving a lot faster to use your lingo of the valley of death and and what the Pentagon sees. They're moving a lot faster through a production valley where they're able to produce at scale. It also unlocks debt, right?

Like these companies raise massive equity rounds and then they can they they are credible enough to go out and have debt partners where they can scale their facilities. And so the early crop of companies doing this, you know, maybe they were started in in, you know, around Andural's time of of 2017, 2018.

Gen 2 really started around, you know, I I would say early 2022. Um, but I think you're seeing those companies grow up and scale faster than than even the Gen One did.

And and it's leading to this renaissance and now that we have sort of these regulatory changes where these companies are going to be able to compete on a level playing field that's going to lead to what what I genuinely believe is a manufacturing renaissance.

Um, that doesn't mean all companies are going to succeed, right? Like this is the thing. We always go to the Pentagon and we say like we're not saying that all of these companies are going to be valuable to you.

But instead of just one company being valuable or no companies being valuable, we think that there's there's a very good chance that dozens of companies are going to be able to be the next primes of America. And that's going to lead to a host of manufacturing jobs across the country.

And is a perfect example with their facility in Ohio. Seronic's a perfect example. They bought a shipyard in Franklin. Um the speaker of the house was there to to open it, right? like they're putting people back to work where they used to have jobs.

Um, and so I I think that's one of the things that's really exciting about this is this capital is moving very quickly into places that need it and to places that have talent where they they didn't have manufacturing opportunities before, but but now they do because of private capital. Yeah. Yeah.

That that that was my read too. It's like give it give it a little bit of time. You just have to look at how many companies are now extremely well capitalized. They can't just press a button and hire a thousand people overnight, right? You need to scale, scale, scale.

So, well, thank you so much for taking the time to hop on the show. We really appreciate talking. Let's not let it go another few months until the next one. Yeah. Yeah. Let's do it again soon. Awesome. We'll talk to you soon, Catherine. The rest of the day.

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