Michelle Volz launches PAX, a $50M early-stage fund for hard tech and American dynamism founders

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Good to see you. Thank you so much for coming down to the TVP

Ultra. Yeah.

Uh for those who aren't familiar with your venture capital career and your marathon running career,

introduce yourself.

Yeah. So, uh I am Michelle. I was previously at Andre Horowitz. I just launched my own fund pack, which is a $50 million early stage venture fund focused on uh foundational categories. So, I was on the American Dynamism team. And Andre Horowitz, similar themes to that, just earlier stage. biggest lessons from indust first.

Oh yes, we got to hit the gong.

I think I think Michelle should Okay, here we go. Hit the gong.

We're here in person. Go for it.

The mallet's already sort of broke.

You won't break it.

Smash that.

That was good. That was good. Uh anyway, uh let's let's start with like lessons from uh Andrew Horvitz. Like what did you learn? What are your biggest takeaways? what are what's the playbook that you think you will be continuing and then we can go into what you think might be different.

Yeah, I mean I think in the categories that I look at it is common for founders to need to raise a lot of capital.

Okay.

And uh the ability to be able to fund raise for that capital uh ahead of maybe what are traditional milestones in software investing is very important. Totally. You need to be able to be a magnet for capital, for talent, uh, and sell a vision because what you're doing is like very hard with with fewer obvious proof points maybe at the early days. Yeah.

Uh, and I think

identifying that in founders early is something that Andre Horos is very good at.

Yeah. H in in American dynamism companies, hard tech companies, it does feel like there's like high capex requirements, high human capital requirements. you're not going to automate everyone on your supply chain on day one. Uh and so there is this like how you talk about growth, how you talk about uh about scaling and success and finding product market fit. It's it almost feels back to like the okay we we're scaling DAOU and we're let's focus on that metric instead of like profit in software. What does it look like in hard tech? Is that the okay we have a program of record or we have these SBRs coming in or we have this long contract that is very solid but we're not going to draw down on it for a few years so we have a capital need. Uh but how how do you think founders in hardc uh should be talking about what progress looks like at at top line or whatever topline means.

Yeah. I mean I think that's the the hardest part like in software there's such a structured set of metrics that everybody has been trained around like growth rate like weekly act active users revenue

um it is so different company by company in these sectors and that's why the storytelling is important because if you're talking to later stage investors they might be trying to make a pattern recognition off of a pattern that doesn't quite exist yet and so in defense companies like yes there are government contracts you should be trying to get you should be working towards programs of record but there are like different intermediate proof points be before that I usually explain it to founders as like the three things you're trying to make progress on are uh people product and then like revenue or traction and so it's like are you hiring the best people and the people that are experts in the different categories that you need so maybe you need a mechanical engineering hire maybe you need a government sales hire u maybe you need software as well um are you making progress on people are you making progress on product that's tangible like can you show that there's like developments maybe that's like you've built something and it's like test like gotten to a test milestone maybe it's in the hands of users like are you making product progress and then are you getting some sort of signs from customers that like they are willing to pay for this like are you getting contracts are you getting loss like are you getting something that shows that there's a commercial use case for this I think sometimes in like hard tech there's a million names hard deep tech frontier tech American dynamism um I think sometimes people skew more towards thinking It's just deep tech which is like

uh I would exactly like science risk like nuclear fusion is probably like the most extreme example.

Um that's hard like it's like of course there's a customer if you can do this but like

we'll see what the timeline is hopefully soon. Um but I think in a lot of the categories I look at there are commercial proof points you can make like there's usually a latent demand or like or an immediate demand. It's like how do you show that you can get those customers and they can like uh signal that they will buy from you. Yeah, there was this viral Catrini article that said, oh yeah,

software is dead. Sell everything. Uh, how are LPs thinking about hard tech as a category with that backdrop of like the SAS apocalypse? I imagine it makes things easier for you, but has it actually rippled through the LP community to the degree that your investors are more excited than ever to have a hedge against chaos in automatable software, all of that?

Yes. Uh I I will say this with love to all of my LPs. Uh I think founders are typically like leading indicators in categories like they they are at the cutting edge like they are seeing around corners often like great founders will see something before VCs do like VCs are lagging indicators like once something is hypy it's like usually too late to find a good early stage investment.

LPs are lagging lagging indicators that uh once something is very mainstream and there starts to be some signs of returns then they're like we should pay attention to this category. Got it. And so I would say a thing that was more surprising um partly because I live in my own echo chamber and constantly hear about like all of these great companies building in like defense tech, hard tech, and like industrial tech. Um LPS weren't as familiar as I expected. So like there was a level of education. I think there's still some weariness of like there haven't been a ton of exits yet. Um I mean I think that might change if SpaceX IPOs um will be one of the biggest IPOs ever in history. Um, but I would say like the the appetite for it grew over time as I was fundraising

on SpaceX. Uh, yeah. I mean, great point. It's it could be like 1.75 trillion is the number that's being floated. It's it's staggering amount. It's going to return like not just like one venture capital fund. It's going to return like 20 venture capital funds. Like everyone who invested at early stage is going to see their fund return from that. But all the LPs had to go on a 20-year journey with like a million continuation vehicles. How are you thinking about timeline messaging to LPs? Because 10 to 12 years is what I've heard recently is kind of standard, but I've talked to some VCs and say, "Yeah, like most of my LPs want their money back in like 6 to seven years, and yet in hard techch it feels like it might be longer." Are you communicating a particular timeline or is that even a relevant conversation? Yeah, I think like every every fund roughly pitches 10 to 12 years sort of the expectation. Um I think it's actually an interesting catch 22 because if you had um ownership in SpaceX, your LPs actually like were like hold on to that totally like keep that. I think it's going to keep going up. But maybe you would have an option to take some off the table and return some, you know, money to LPS if that's what they wanted. But often if it's like a really really good deal, LPS are like, "Oh, I think it's gonna keep going up." Um, but I think it's like case by case. Like I actually just was talking to LPs about this. Um, and they were like sometimes it makes sense and sometimes like hold on. And I think if you build a lot of trust with your LPs, like they're usually along the ride with you.

What what geos are you spending the most time right now? Obviously the uh it feels like we have so many so many founders that are just like in in our kind of neck of the woods here, but are you spending a bunch of time in Texas, Bay Area? Where where do you expect to deploy most of your dollars?

Yeah, I think like there's five geos. It's San Francisco, LA, uh Austin, New York, and DC. I'm actually seeing like a significant amount of companies in DC.

DC.

Austin, I would say though, is the biggest surprise for me. I know people have been trying to make Austin happen for a while and I I was skeptical and now I think like it's sort of been an explosion of great companies.

It was kind of the same thing with LA like there was this long LA movement a while ago. Snapchat was sort of like the first big like you know public tech company or one of them to come out of LA and then the Elsagundo thing just happened like completely organically without any of those people that were cheering for LA and it just sort of popped up and it seems like uh Austin's going through a similar thing. Uh what's unique about the companies that are building in DC? Are they thinking more demand generation first, more more work on Capitol Hill first and then maybe they'll set up a satellite manufacturing office or work with like a contract manufacturer to deliver their capability?

Yeah, I think like you're seeing founders who are working at companies like like Palanteer for example that have a big office in DC. They've maybe relocated to DC. They're close to their customers and then they spin out start a company. Um, usually these companies will end up opening an office in New York as well. Um, it's just a deeper pool for engineers, but there's a surprising amount of really strong engineering talent in DC that is like pretty fixed. Like they want to stay in DC. They have a life, they have a house, they have a family. Um, so it it can be a very good place to start a company.

What's the view on ship building? Jordy says it's impossible to build a ship in this country. He was saying it can't be done. Is it possible?

We we need to figure it out otherwise you're going to be behind. I think I mean like the optimistic take would be like we can make it possible um when we should make it possible. The pessimistic take is if we don't make any changes into the regulatory environment or the cost of building these things um it might not be and that would be a shame.

Yeah, that makes sense. Uh

strategy with the fund.

Yeah.

Are these like $2 million lead three seed type checks? What what's the deal?

Yeah. um on average$1 to$2 million checks like early stage try to be in like the preede seed occasionally a little bit later uh rounds um like to partner really closely with founders um and and I think the special thing about the early stage which is just my favorite stage of company is you get to be very aligned it's like a significant check for me if I put you know one to$2 million into your company and I'm very motivated to help you be successful to get to the next round and then for that next round, I can be much more strategic in in helping you get there because I can't lead your next round. Whereas, I think sometimes at the multi-stage funds, it can be a little bit tricky to give advice for future fundraisers because you might be able to participate and so you have to be like more delicate about it at a big fund and as a small fund, you just get to like be totally aligned with the founder.

One last question about sort of the the category targeting. uh American dynamism made a lot of sense as like a theme around defense tech and hard tech and you put a manufacturing company in there. One of the interesting subcategories of ad that I always that always popped out to me was something around education

uh like re-educating workforce education also just like education technology broadly. Do you think that that's within your purview or is that something that uh you're sort of carving out and focusing more on the deep tech, hard tech, physical products?

Yeah, I would say I like to look at things that sit at the infrastructure layer of society which could include education and housing, sometimes even healthcare, often things at the intersection of hardware and software or tech and government or just like doing something fundamentally important for like the broad majority of Americans. Um, I think American dynamism is this beautiful phrase that can be an umbrella phrase as well. Um, I I sort of embrace that as well with PAX, but at the early stage like what you're really betting on as people like there is so little to understand except like the team in a dream. Like are you building something in a category that's very exciting? Are you taking the big swing? Do you sort of have a right to win in that category and some sort of unfair advantage? I like founders that have like worked in the industries that they are building in before. Um, and do I believe you can be that magnet for capital and talent and everything?

Yeah. Where where are the big talent pools these days? There's the SpaceX mafia, the Palunteer mafia. Feels like there's an Anderole mafia now. Where else? Base power maybe in Austin.

Austin eventually.

Yeah, I think I think Seronic is starting to see a few things. Basically any company that's that's like reaching escape velocity or like um like escape velocity and product market fit has grown really quickly has hired exceptional people there are some people that really love that zero to one stage and the company gets big like I think we're seeing it at and roll um we saw it at Palanteer we continue to see it at Palunteer um people people learn how to grow quickly and then want to apply that to their own company

amazing well thank you so much