Anorak Ventures closes $35M Fund III focused on deep tech and American dynamism

Speaker 2: Yeah. Well, congratulations, and thank you so much for coming on the show.

Speaker 1: Great to hang, Pim.

Speaker 2: We'll talk

Speaker 1: to soon. Bye.

Speaker 2: Have a good one. Cheers. Goodbye. Our next guest is here with us live in person in the TBPN L 3 D. We have Greg Castle from Anorak Ventures. How are doing, Greg? Welcome to the show. Should we get him to hit the gong with the American flag on? Roll the replay camera because you're here announcing a new fuzz. Is this unaware. So throw that on, take that gong, mallet and smash that gong and I wanna see the... It's the replay.

Speaker 1: Woah. Look at that replay. Wow.

Speaker 2: It's actually a gift for you guys. Oh, really?

Speaker 5: I felt like...

Speaker 2: It's crazy. We have...

Speaker 1: Maybe one in the other room but not in this room.

Speaker 2: Thank you so

Speaker 4: much. Well,

Speaker 9: I came in and I I wasn't sure what representation was gonna be and then I'm hit with that giant American flag so...

Speaker 1: Oh, No, but there

Speaker 2: is not in this room. Needs to So be right for those who don't know you, please introduce yourself and the company.

Speaker 9: Sure. Greg Castle, managing partner of Anarac Ventures. We are a early stage deep tech firm. Yeah. Been around since 2017.

Speaker 2: Big success. Closed

Speaker 9: just closed our third fund, which is a $35,000,000 fund.

Speaker 2: A capital allocator. Did you always know you wanted to be a capital allocator? Is that what you dreamed of being as a child?

Speaker 9: Certainly not. I think...

Speaker 2: What what did you wanna be when you grew up?

Speaker 9: I think I was always deeply interested in kind of niche subjects Sure. And different kind of subcultures whether or not it be skating or video games or comics or whatever it is.

Speaker 2: And

Speaker 9: you know, of I think in high school always kind of jumping around from group to group and learning about what they were super excited about was kind of the way I was in high school. So definitely not... Venture

Speaker 1: capital is exactly... That.

Speaker 2: Yeah. Yeah.

Speaker 9: You're exactly right. You're kind of going into different like subcultures if you will Yeah. And really learning everything that you can about them.

Speaker 2: What was the first investment you made? Or like when were you like, okay, I'm going to start investing?

Speaker 9: The first investment I made really was in myself when I Okay. When I founded a company. It sounds kind of cheesy but like...

Speaker 2: No, it's true. It's true. Like your your your opportunity cost, you

Speaker 9: could... Exactly.

Speaker 1: So so I... I'm sorry sorry for hitting a funny sound effect but it's like it's like ask you know, if somebody's gonna start a company ask yourself, are you gonna invest Yeah. You know, some meaningful percentage of your entire life into this idea? Is it that good?

Speaker 9: Yeah.

Speaker 1: Most important. And sometimes it can be a smaller idea and it still makes sense to do but.

Speaker 9: For sure.

Speaker 1: But it's worth thinking about it that way.

Speaker 9: Yeah. And also, you know, I think that there's a lot of different things that you can do just under your own passion, but then there there's a different stage when you actually have to go out to people and ask for money, including your friends and family, which is what, you know, which was kind of I consider my first investment was some of my own capital, some of my parents' capital, and going into a very unrelated field in retail. So in 2014... Oh, sorry, 2014. 2004 Mhmm. I moved over to The UK and started up a retail chain that was kind of similar to Sweetgreen. Sure. And I ran that for six years over We in had about six locations.

Speaker 2: That's cool.

Speaker 9: But then in terms of my first real investment where I wasn't operating, it was in Oculus. Wow. That was really... Yeah. That was the first track. So I figured from, you know, I figured that this is this is easy.

Speaker 1: Yeah. What was...

Speaker 9: This is what I'm gonna do from...

Speaker 2: Did see the Kickstarter online or...

Speaker 9: No. So in 2010 when I moved back to The States, I moved back to work for a friend who I went to college with, whose name was Brendan Erieb. And he had a company which was a software company, which was selling software into game developers. And I was always, you know, he is an amazing salesperson and communicator, and I was always really interested in what he was building. So when the opportunity came around to come and join him at a company that he had dropped out in 2000... 1999 actually, when he dropped out of school to go and do that full time, I was kind of on my own path but was always very interested in what he was building. And so I came back to join him, worked with him, worked with Mike Antinoff, worked with Nate Mitchell. And then a few years later that... Well, that company was acquired by Autodesk and then a few years later we had heard about a kid who was working on a VR headset and that kid was Palmer.

Speaker 2: And that was Palmer Lucky. Yeah. Wow. That's wild. What... Yeah. What a good good start to a venture career. Working with Palmer Lucky is gonna go on and do so many different companies. While we're on the topic of VR, what... How how successful do you think the meta VR glasses will be? And one way to sort of quantify it is when when VR is having a moment, I feel like when Christmas comes, the the v... The app is at the top of the app store. So like the the Quest or the Oculus app would be at the top of the top of the App Store. Like, it it doesn't come out until next spring. I think they're gonna launch it maybe April or May. But it feels to me like they got a lot of the pieces right. How are you feeling about 2027 as a year for VR growth as someone who's been involved in the industry for a long time?

Speaker 9: It's taken a long while. A lot longer than I think we had all hoped. It's interesting to think back of when I first made that investment. That kind of was... That kick started my career in venture. So that was at a time after they were growing like wildfire where everybody in the valley was kind of convinced that people were going to be wearing headsets walking down the street. Yeah. Right? And so it's kind of part of my origin story where I was able to kind of go out and speak on the topic with knowledge and with the relationship to the team. And there was a whole bunch of people who wanted me to... Who kind of were thinking that I was going to start a VR fund. And there were a bunch of comp... There were a bunch of firms actually that started

Speaker 2: Yeah. That

Speaker 9: were just VR focused. Yeah. I always was kind of felt as though it was going to take a lot longer.

Speaker 2: Sure.

Speaker 9: And so it has. I think that, you know, you have this kind of situation where the hype has not... The hype has set expectations that have been very difficult to follow and so therefore you have this kind of disappointment that everybody feels about kind of how everything's transpired.

Speaker 2: Yeah.

Speaker 9: I don't see there being a massive inflection point.

Speaker 2: There

Speaker 9: have been several points in the past where something has come out, be it, you know, the Quest one

Speaker 2: Yep.

Speaker 9: Be it Gear VR. Like, there have been a bunch of different points along the way where people have been like, this is it.

Speaker 2: Yep.

Speaker 9: Like Apple, this is it. Yep. This is when it's all gonna change. Yep. And it just hasn't happened like that. I think Even with question takes

Speaker 1: Yeah. Even with Zuck's Meta Connect presentation, it didn't come across like he was presenting... It it came across as like this incredible technical milestone and like a big step up. Right? But if you compare it to like foundation models. Like it was a big leap but it's not like it actually is a drop in coworker for you. So and and even some of his language in the presentation was like, it's a glimpse of the future.

Speaker 2: Oh, yeah.

Speaker 1: And it's like, well, that like, you don't get a crazy inflection point through glimpses of the future.

Speaker 9: Yeah.

Speaker 1: It's like another it's another milestone....

Speaker 2: A CEO to stand up on stage and say, with this product, you are staring into the future with your eyes wide. Yeah.

Speaker 1: I'm surprised they don't have... They should make I expect...

Speaker 2: You wanna go to Clockwork

Speaker 1: Orange on the future? That's what your goal is? Talk about the the fun strategy. I... A fund this size, I feel like you can probably confidently go to LPs based on the track record and say like, there's a good shot I can four or five x a fund like this. Has maintaining that been super important to you? Because given the track record, I imagine you could scale up.

Speaker 2: Mhmm.

Speaker 1: And then how are you how are you... Like, what what is... What's what's the strategy at the early stage in terms of things like ownership? Are you flexible, inflexible? Just because current market conditions are are absolutely wild and they don't necessarily favor smaller funds in in some ways.

Speaker 9: Yep. Yep. Yeah. It has been very much deliberate keeping the funds small. You know, I started I started angel investing, so after the Oculus investment, after that came to fruition, I essentially quit my day job and and really wanted to answer three questions like one, what does it mean to be a responsible fiduciary of capital? What does this whole VC thing mean? Two, am I any good at this? Yeah. Or was Oculus just a fluke? And three, do I want to do this? Do I want to devote the rest of my life to it? And the answer over those couple of years of deploying my own capital and doing a few SPVs was yes, yes, and yes. And over that time, I kind of developed a network and reputation as somebody who can be flexible with checks and can be really helpful and doesn't have sharp elbows and kind of can like fit into rounds. Yeah. And that worked out for me. That worked out very well with fund one. That worked, you know, that's working out very well with fund two and now hopefully it'll work out with fund three. I am very much of the opinion that every size of fund requires a very different skill set and a very different strategy. And what I proved out and what I'm good at is deploying smaller amounts of capital. Sure. And that's what I want to keep on doing. And I think that, you know, I mean, I think it's very easy to kind of chase AUM and chase those management fees. It helps if you've done decently well in the past and you have like a nest egg and you don't need to stack fees on fees on fees and bigger funds and bigger funds. Yeah. And it just feels like I'm much more aligned with my LP base.

Speaker 2: Does this fund size lead you to a different LP mix or is it the same thing where like you're still going to a sovereign wealth fund but just asking for a smaller slice or endowments? Like how do you think about LP relationships and structuring?

Speaker 9: Yeah. I kind of graduated. I was just looking at my LP list over the... Over time and it was like fund one was like 60 LPs, fund two was like 50 and now I'm at like 22. Sure. Yeah. And and that's been a purposeful move.

Speaker 2: Yeah.

Speaker 9: Yeah. And and, you know, frankly it's pretty...

Speaker 1: Basing to one yourself. Yeah. I mean,

Speaker 9: that would be the dream. Right? Like the hunter Satya model Yeah. Is is I think where every VC ultimately wants to be. Although to be honest with you like I'm... I've got great relationships with my LPs and I love working with them and they also have appetite for later stage rounds. But anyway, to answer your question I would say I started out high net worth individuals, offices. Now it's a lot more family offices and fund of funds.

Speaker 2: Fund of funds, But but yeah, but you don't need to do the road show with like huge endowments and sovereign wealth funds

Speaker 9: No.

Speaker 2: Trips to The Middle East.

Speaker 9: I'm too small for that. And also, you know, I would say, you know, I started out very much as a deep tech fund where it's just like I saw what happened at Oculus and I saw how amazing it was to bring a completely new technology to market and I was just sold. I was like, this is what I wanted. I don't want to be investing in ad optimization. I don't want be... I want to be investing in people who are really fucking moving the needle.

Speaker 2: Yeah.

Speaker 9: And then I had the opportunity because of a relationship with Palmer and Trey to invest in Anduril. Yep. And I always pronounce it slightly differently, Anduril. Sure. That kind of ignited a sense of patriotism in me that I didn't really knew I had.

Speaker 1: Sure.

Speaker 9: And since then, we've been doing a lot more in aerospace and defense, a lot more in kind of American dynamism. Yeah. And so therefore, from a LP perspective, having LPs who are based here in The US is of great importance to me. Yes. I've got we actually brought on our first LP from Luxembourg, this fun.

Speaker 2: Oh, cool.

Speaker 9: Shout out to Mangrove, very excited to have them on board. But for the most part, like the trips to The Middle East, the trips to these places, like I don't need to do them and I don't necessarily want that capital involved How

Speaker 1: excited are you for... To be post SpaceX IPO based in LA, Southern California in general? Because it feels like we're probably gonna get hundreds of companies in the fullness of time that that spin out and and these super talented teams where they've worked together at SpaceX, experienced some, you know, hairy problem and then they want to go solve it?

Speaker 9: Yeah. Yeah. I originally moved to to LA more for my wife than for me. You know, I was in the Bay Area before this and I was kind of reluctant to move down here. And we did this two weeks before COVID and it's worked out really well especially with the areas that we invest I think that the talent just keeps on increasing, the talent pool just keeps on increasing.

Speaker 1: Yeah. Because Long LA completely flopped except that El Segundo and SpaceX happened.

Speaker 9: Absolutely right.

Speaker 1: Absolutely. Like I said, like we we won but Yeah.

Speaker 2: Like... Not the way that we...

Speaker 1: Not the way not the way that we were hoping. It was like thinking like consumer

Speaker 2: Yeah. This this... It was like it was like there will be like a sales force of LA and like many more of those. There's been a few but yeah. It never it never developed into like the New York City style market.

Speaker 9: Yep. Yep. Yeah. And you know, think one of the reasons why I always love being an SF was the fact that everybody comes there to raise capital regardless of where you're building. So my job in many ways is kind of a biz dev job and like just being boots on the ground there. And now it feels like there's also a lot of capital in LA. There are a lot of the VCs from SF who are coming to LA on a regular basis. So there's a lot more capital available I would say down here.

Speaker 2: How are you thinking about the market structure concentration of winners in various emerging new technologies? Like with with Oculus, if you went and did like five other VR headset companies, you probably would have had a pretty bad run. With Andoril if you did, like, five other defense tech companies. Like, at least right now, like, they're all pretty marked up. So it seems like there's, more of an oligopoly there. Some of that's, like, literally a direct order from the government being, like, we won't let a monopoly exist in this category. Whereas, you know, Mark Zuckerberg runs a monopoly and he's like, we're happy to be the only player in this space if we can be. But with some of the newer frontier technologies, how do you think about winner take all dynamics? How... And and then also just like what other frontier technologies are exciting to you? Mhmm. Humanoid robots, industrial stuff, more farther out on the defense side. There's so much space. There's so many different areas. How are you spending your time?

Speaker 9: Yeah. It's interesting. I think I was of the mindset that Andoril will be the Andoril of x and they will just kind of dominate and I think over time...

Speaker 1: Horrible mistake. No. No. I'm just I'm just saying that I've I've done the exact same thing where it's like, yeah, obviously.

Speaker 9: They're just gonna do it.

Speaker 1: They're gonna do this. Yeah. They have all the relationships. They have the capital. They have the talent. But but...

Speaker 2: Also you get you get further out and people will be like, we're the we're the under roll of ovens. We we we make a stove.

Speaker 1: Yeah. Yeah.

Speaker 2: And it's like...

Speaker 1: At some point it gets too niche.

Speaker 2: It's like, no. I don't think under roll is gonna do the stove.

Speaker 1: Yeah. You're winning the... You need to win the whole market and then you need to underwrite the team on like doing a bunch of different product extensions.

Speaker 2: Yeah.

Speaker 1: And they're still going to be like competing.

Speaker 7: Yep. Yeah.

Speaker 9: Yeah. I think the, you know, the government has made pretty clear their desire to diversify and I think rightfully so, and I'm very glad that they are doing so. I think that generally when everybody's looking in one place, I'm trying to look someplace else. I think that partially that's just the job of a VC, but also just like given my fund dynamics and the smaller size of the fund Sure. When everybody is piling into one area, prices get driven up Yeah. You know, rounds get kind of insane. And while, you know, I loosely kind of have ownership targets, I still will kind of... I'm basically looking at can I kind of 100 x my money? Yeah. And I feel like that is more difficult in defense these days. Sure. And so do I think that there are room for other big players in defense? Absolutely. Is that where I am necessarily putting my money at the moment? Not particularly. Like, I think we... I am actually a lot more interested in some really freaking boring areas Sure. In chemical production, in steel production. You know, know you've had Yeah. Zane on the show beforehand. Investors in Knox Metals.

Speaker 2: Love Knox Metals. They're ripping, right?

Speaker 9: Doing phenomenally well. You know, rare earths, magnets, all the boring stuff that's kind of up supply chain Yeah. That we will need in order to achieve our mission as a nation Yeah. Is all stuff that I think is is super interesting. We invested in Atlas. Sure. I think you guys had them on the Yeah. Show as well recently. Yeah. So...

Speaker 2: Have you been surprised that the big defense primes haven't been more acquisitive even on a relative market cap weighted basis?

Speaker 4: I have.

Speaker 2: Because in AI, like, you're seeing these trillion dollar companies take down $10,000,000,000 acquisitions. Yeah. And it's like, wow, that's $10,000,000,000. That's a huge return for the VCs. But it's like, okay, there's... They're throwing around 1% of their market cap. Yeah. You could look at Oculus as a similar thing where Zuck is sort of throwing around

Speaker 1: like 1% of their market cap.

Speaker 2: But Lockheed doesn't seem like they're doing that.

Speaker 1: Founder led companies tend to be like... More acquisitive? Earlier companies tend to be way more acquisitive. Sure. Andriel's been very

Speaker 2: I mean, that that was not true for Elon for a long time until...

Speaker 1: But but even looking at like in the early twenty tens, like the the acqui hires where the like people made money Yeah. Were like much more common. It was Sure. Sure. Twitter's buying. I think didn't Twitter buy like 50 companies?

Speaker 2: Yeah. Yeah. Yeah. Yeah.

Speaker 1: And that's like classic like founder led company.

Speaker 2: Yeah. And I guess that... Does that explain it or do you think something else going on with the market structure in defense tech? Why the primes haven't been more acquisitive?

Speaker 9: Yeah. I I completely agree with what you're saying. Like I I am it shocked as well.

Speaker 1: 79 Yeah. Companies.

Speaker 9: I am shocked as well. Autodesk is another one who has acquired a ton of companies. There are some companies that...

Speaker 2: You'd think they'd want to give Adam Porter Price a harder time instead of being letting him be the only bettor on these things. Instead they're like, if Adam's not buying we're not either.

Speaker 9: Yeah. I I, you know, I wish I had a better answer. I have to think at some point that there's gonna be enough pressure from the board of some of these larger primes that it's just kind of... I mean, there's lots of different reasons why this could be happening. They could be waiting for a dip. There's inevitably gonna be a pullback. Yep. There are inevitably going to be issues, you know, hopefully during peacetime at some point in the near future where these companies just can't raise Yep. And and kind of Lockheed can go and sweep them up. Yeah. I don't know what it is, but...

Speaker 1: I think they need to be flipped by Andrew all first to actually wake up, like Yep. From a valuation standpoint. Like, that actually is gonna be very, like... That's actually gonna just be the moment where the boards are gonna look around and be like, why is this company that has much lower revenue scale than us? And it's like, because the market believes that this company will generate way more value Mhmm. In the future than us even though Yep. Their scale still...

Speaker 2: Lucky could approach it from a different perspective. The Primes could do some sort of like PE roll up joint venture maybe like bending knives. Roll up all the the the deadweight venture failures in defense tech and, you know, try and put them together or something. Raise prices. You never know.

Speaker 1: Bending swords.

Speaker 2: Bending swords would be good too. That one works. I like that.

Speaker 9: I agree though. I mean, I do think... Does it need to materialize in the form of an Andoril IPO or something like that? That would certainly be one way to do it. I can't imagine that the board isn't looking at the ceronics, the Andorils Sure. Etcetera, and and being like, this is okay. Yeah. So, they're also just big freaking companies, right? That are Yep. That are, you know, have lots of bureaucracy and Yeah. Lot and and kind of move slow. Mean...

Speaker 1: The dysfunction that that I've heard through hard tech founders in my portfolio around the way these companies operate is like actually insane. Like, they'll they'll be sitting there like... And like the company is basically like looking at a pile of money, like an existing contract. And then years will pass, and no one just goes and picks up... You know, they're just, like, looking at it. So

Speaker 2: Yeah. Are you starting to look at BYO? It feels like there's a moment where tech is crossing over. Like, it was a crazy idea to do anything industrial or defense or building physical stuff. Like, tech used to mean software, then Oculus was like, okay. We can build a consumer hardware product. Mhmm. Then Andrew approved, like, no. You can build an industrial scale hardware product. And it feels like even though obviously there's a very mature biotech investment industry, it feels like those two worlds are like starting to blur.

Speaker 9: Yeah. It is also a very nuanced area, and an area where there are investors who are better suited to really attack it than me. Yeah. And so I... We kind of more stay in our lane. It is definitely an area that I have been thinking about more and that I've trying to that I've been trying to get smarter in.

Speaker 2: Yeah. There's also the interesting bridge where some companies are doing like the bio defense. It's more Sure. Of like a defense contractor, like

Speaker 9: an as well. Totally. Things like SoluGen.

Speaker 2: Yeah. Yeah.

Speaker 9: So... That are that are definitely interesting. That would be much more something that would be up our alley Yeah. At Anorac than something that is kind of purely a biotech play. I mean, latest... We're we're just about to close in our investment in a in a kinetics company. So, you know, I think I think that things that, you know, I kind of am at this... I feel very good about making investments that have the potential for a big impact on on the future. Mhmm. And defending freedom and democracy is something that I think is of critical importance.

Speaker 2: Yeah.

Speaker 9: And, you know, so I do... You know, I said beforehand we're doing less and less in defense. We are to a degree, but we're also looking at, you know, kind of the second order... Like a NOx Metals? Yes. Companies like NOx Metals, companies like this explosives company that I think are going to be necessary in order for us to kind of, again, achieve our goals as a nation.

Speaker 1: Very cool. Jordy? Last question from my side. As a small firm, how impactful has AI been on your ability to get up to speed on some of these? Because I'm sure you're getting pitches all the time where you're like, I literally have never thought about this part of the economy.

Speaker 2: And then

Speaker 1: you get into it and you realize, oh, that you... Let's say you get a deck and it's somewhat compelling but you know nothing. Is it is it had a meaningful impact? Obviously, you still need to talk to experts and and diligence it. But do you feel like you can like start to build conviction on an idea faster because of being able ask a million questions and and and sort of sort information through these tools.

Speaker 9: Yeah. It's definitely changed the paradigm. You guys had Lo on yesterday, right? And he was talking about this as well, and I completely agree. It is... It's like having kind of a desk of analysts at your disposal.

Speaker 2: Yeah.

Speaker 9: So we are leveraging it. We need to be leveraging it more. You know, to be honest, I mean, you know, I have myself and I have a partner who's based up in SF. So we're basically a two man team with a with a... With an assistant who helps us out. I think that we... You know, this to me, this kind of fund three kind of feels like the transition from us going from... Or me going as kind of... Me going from a fund manager to a firm manager. And so Sure. Really kind of building up the infrastructure to be able to scale, really being able to build something that lives beyond me is something that we're really really focused on now. And certainly AI will be a massive will be a massive part of that.

Speaker 2: Night vision goggles.

Speaker 1: It just sounds like you're getting powered up.

Speaker 2: Yeah. I like it. I like it. Well, thank you so much for coming on the show.

Speaker 1: Dude, it's I can't wait to talk to all the founders. You back. Yeah. I love that you're sticking to your strategy and can't wait to come on in ten years and just walk us through all the fun performance one by one. But I think it's crazy numbers.

Speaker 9: I really appreciate it.

Speaker 2: I love what

Speaker 9: you guys do. It's so cool to be on here and to be in this Yeah. Amazing place.

Speaker 2: It's a great time.

Speaker 1: Close it out.

Speaker 2: Yeah. We'll see you at 11AM Pacific on Monday. Have a great weekend. Have the best weekend ever. Of your life. Just do life.

Speaker 1: It's possible. Lot of

Speaker 2: people Leave us a podcast Spotify. Sign up for news later at tbpn.com, and we will see you on Monday. Boeing Flashback. Goodbye.

Speaker 1: We love you.