Why Founders Are Betting Big on Factories, Mines, and Energy

You don't have a defense industrial base without an industrial base. It's been a real wake-up call that we need to get building again. AI will be a phenomenal tool that can be used in the physical world. The reality is AI cannot turn a wrench yet. The top 10 most valuable companies in the world, like the majority of them are hardware companies. What's it like to visit one of these sites? You're building a physical thing. You're not sitting at a desk on your computer. You're out in the world. It sounds kind of sexy and romantic, but when you're actually doing it, it's rough. When you show up at Mariana, when you show up at Hadrian, when you show up at Castellina, you literally get people who are so passionate about what they're doing. That produces really good results. There's that very famous chart of, like, U.S. power production versus China new energy production. What would it take to close that gap? I don't think that that is a technology problem. I think that that's a... For decades, America moved much of its industrial capacity overseas. Now a new generation of founders is trying to build it back. In this episode, A16Z's Elena Berger sits down with Aaron Price-Wright and Connor Love to unpack this year's AD50, our list of companies shaping American dynamism. They look at the industrial base from end to end, the critical materials and energy that go in, the factories that turn those inputs into products, and the defense, robotics, and other systems that come out on the other side. Aaron and Connor explain why those pieces are increasingly connected. A defense contract can help finance a new American factory, which drives down the cost of components that can later go into robots, cars, medical devices, and other commercial products. And AI is giving workers new ways to reconfigure production lines and rethink processes that have barely changed in decades. They also get into the rise of founders coming out of companies like SpaceX, Anduril, and Palantir, the flood of private capital into physical industries, and why rebuilding America's industrial base is increasingly becoming both a national priority and a major economic opportunity. Connor and Aaron, thank you so much for joining the podcast today. We're here to talk about AD50 and this year's list. And let's just get straight into things. I know a big theme of this year was the American industrial base. Can you talk about what we've learned this year and why that's such a big, important theme right now? We've been saying for a while you don't have a defense industrial base without an industrial base. And I think this year really put that into perspective with conflicts going on in the world and realizing that the hollowing out of our industrial base that's happened over the last several decades actually has real consequences on the battlefield for soldiers, both American soldiers and our allies. And I think it's been a real wake-up call in the United States that we need to get building again. Yeah, I mean, I think it's also something that is not just one factor, but it's multiple factors that are all kind of happening at the same time. And when you take a step back and you say, okay, world conflict, you have kind of a continued evolution of the capital markets, which I'm sure we'll talk about a bit later, about capital flowing into this ecosystem. But I think one of the bigger things is you actually have an entrepreneurial base right now who is effectively raising their hand and saying, I'm going to build in this ecosystem. And I think that's incredibly important, not just for our nation, but also you can build really valuable companies in. So I think it's just this conglomeration of geopolitical factors, of capital markets, and then entrepreneurs that are kind of all just coming together. And I think it's a really interesting time to be building. It's a good time for us to be investing. When we looked at 8050 this year, we thought about kind of where we're at in the history of American dynamism. And we're still early, but I think one theme that has evolved is you really need to start looking at American dynamism companies as a totality from end to end, from the input that comes out of the ground to the factory that makes the thing to the end system. So that's how we've set up 8050 this year, to think through those three lenses. Each one of those pillars is uniquely important to the end product or the end system. But in the end, I don't think people think that way. And a lot of the companies that are addressing things in our portfolio have thought from inputs perspective, from a factory's perspective, and now from a system's perspective. So one theory that a person could develop after looking at the list is, OK, we built out this industrial base for defense, like building missiles and drones. But it's actually a tailwind now that's helping a lot of different industries in America. So there's energy, there's robotics, there's AI. Can you kind of talk about how all of these things fit together? Yeah, I mean, it's funny because if you look back in history, I mean, even 70, 80, almost 100 years ago, if you look at how we've developed technology in America, a lot of times it's very much been from the government. If you look at how we went to space for the first time, if you look at how we developed the Internet, how we developed nuclear energy, it was the government saying we were going to do this for the purpose of the government. And then the long tail of that technology was super valuable for, you name it, the Internet being created, energy being perforated across the world. What's different now, to some extent, is now private industry as well as private capital is saying, we're actually going to be the impetus that develops something. And so to your point, many of these markets is to serve the federal government, to serve the Department of War in some way. But the beauty about these things is when you build an industrial base, either down the supply chain or end systems itself, those inherently have many use cases. I mean, the term dual use is talked about a lot in investing. And to some extent, I think it's a little bit of a folly, like focusing on too many things at once is not good for a startup. But it is 100 percent true of what's happening with any factory that's being built today, any new factory being built, any energy production, anything we touch and kind of minerals or materials in the ground, it's not just going into a defense system. It's going to go into my uncle's car. It's going to go into like my kid's future toy that they have in some way, shape or form. So I do think the tip of the spear is focused on the government. But I think in the long run, to your point, like what's happening is these systems will be used in the way more that we took today or anything else. I think a good example of this to look at is actually DJI in China, which has gone through multiple arcs of its lifetime and its journey, started out building consumer drones and recognized over the late 2010s that there was a large market for drones in both public safety and national defense. And so built out a real high scale drone production business for defense. And now the folks behind DJI are now the largest producers of robots in the world, because what is very similar to a drone motor is a robot actuator, which is the hardest part of building a robot. So you have this company that over the course of growing a large defense business that itself spun out of a consumer business is now the world's leading expert on how to build and produce hardware for kind of the next wave of physical AI, both consumer and industrial. And so I think this technology transfer and process knowledge transfer between military use cases and non-military use cases is really important and has always been how it works. And it's great to have the federal government be a subsidizer for figuring out this process knowledge and figuring out the new technology. And then I think our world's greatest gift in the United States is the discernment of the American consumer, like we are going to push things to be more capable and cheaper than the government ever will. So that symbiotic relationship in the industrial base is actually really important. And we're certainly seeing that on the energy side. We're seeing that on the electronic side. We're seeing that across the entire sort of industrial stack. And to some extent, I don't think this is a super complex topic, but it's important to kind of restate, which is when you build the first of a kind of anything, it's quite expensive. Like when you are building a bespoke, whether it's a military system or a consumer product, zero to 100, it's going to cost a lot. It's going to cost a lot. And to some extent, like we'll get into this a bit later, I bet, but you know, we talked about vertically integrating or using the supply chain base that you have. The beautiful thing about what's happening right now is we have a federal government and an apartment of war is saying, number one, we're going to try to actively rebuild some of this industrial base. And by doing that, they're actually changing that unit economic decision from the start for these companies. So again, it's instead of building 100 things, you can say, OK, maybe build 100, but we're willing to pay a cost that the consumer or the commercial market wouldn't pay. And all of a sudden then that means more machines you can put in your factory, more capex that the government is helping you pay at the start. And then that leads to things that are physically, you know, both like financially viable, but also at a scale that actually can touch the consumer. So I just it's important to identify that. And that is definitely happening, right? Yeah. Like if you're building a new PCB fab in the United States, like that's a pretty expensive operation. Those are pretty expensive pieces of machinery. And if you have a defense buyer as the first buyer to help you kind of pay for or subsidize a lot of that capex investment, that's great because you know what else has PCB boards? Robots. You know what else has PCB boards? Hearing aids. And so the ability to kind of pass on some of that capex to the defense industrial base, I think will be really powerful as we rebuild kind of industrial capacity in the United States. So what specifically are you seeing startups do to drive down costs and move faster? Yeah. I mean, I think like many things we can look to Elon for a lot of answers here. I mean, it's not a crazy statement to say really the few modern day companies that have built anything at scale are probably SpaceX and Tesla. And if you look at how Elon and his team have built those businesses, it's been one very vertically integrated. And look, I take the ideology that you shouldn't vertically integrate everything. I mean, again, if you're building a super exquisite system, like a missile that is doing something very unique, you kind of have to because you have to control the exquisiteness. You have to control the cost. Well, I mean, SpaceX and Tesla were doing first of their kind, like there didn't exist industrial base in the U.S. to support them. And so they had to build it themselves. I think where there are high quality suppliers, like you should use. For sure. Suppliers. Yeah. Yeah. I mean, again, I think the learning, though, is, number one, if you don't have an industrial base that you can rely on quickly, reliably, etc., then you have to do it yourself. And inherently, that is a hard journey. Like that's really hard to do. This concept of saying, OK, I'm going to focus on the end system, I'm going to focus on building the most cost effective, effective system that I can. And oh, by the way, I got to figure out the ball bearing. I got to go figure out the solenoid valve. That's a lot to do. And in the case of Tesla and SpaceX, I would argue the auto industry was a little bit different because there wasn't a battery supply chain. You want how to recreate that. The whole power electronics, the whole drivetrain, you know, they had to really build completely from scratch based off papers that were published in the 70s that, you know, had been collecting dust for 40 years. In terms of companies that we talk about in the AD portfolio, there's Mariana Minerals, which bought a copper mine and is kind of reinventing things. And would they be a good example to talk about here? I think that they recognize that, you know, the existing players in the mining industry just were not going to pick up technology fast enough for it to really make a difference and really move the needle that. And they also recognize that they wanted to actually own the entire value chain to be able to really put their money where their mouth was and capture the end value of the new technology they were bringing. So, yeah, they do everything from, you know, acquiring the asset, developing the asset, mining the asset, operating the asset and refining the material themselves across multiple different, multiple different minerals. And then they sell a final commodity product in the market and have really leaned in. That's another trend I'd point to is how much founders and entrepreneurs building in these spaces are leaning into AI and software as a huge, huge component of their build. Yeah, I mean, I think when you look at the physical world, applying software and AI will look different than what has happened in, say, legal or customer service or any other category where you see AI taking off in a crazy way today. But to Aaron's point, like many times what you have to do is you have to own the asset in order really to change that asset. Not every time, but a lot of times, you know, kind of showing is believing in the physical world, whereas, you know, when you when you're purely a digital AI product, you can kind of just see it and it's very easily transferable and kind of understanding, you know, what Marianne is doing with this copper mine is is really impressive in a lot of ways. It's not just saying, hey, we're going to be better at extracting copper, it's it's rethinking everything. It's a higher end to end process of how you plan, operate, mine and refine materials. And you know, what's cool is once you once you own that process end to end and are using software at every stage of that journey, you actually capture that data and then it feeds back. And this is this is an important point. I mean, this is not just Marianne. But if you look at another business like Hadrian, I mean, this is a perfect example of how one you can utilize software, you know, but but more importantly, it's not one silver bullet that all of a sudden makes a factory or a mine perfect. It's actually 15 or 20 different things. And when you look at what Chris has done at Hadrian, you know, yes, it's kind of upfront what it takes to like, quote, and even take an order of a part. It's you know, it is the actual physical, you know, making of the part. It's how you, you know, inspect it and transfer it. And you know, there's there's all these different interim steps that exist within a factory. And the beautiful thing when you kind of either start from, you know, a fresh slate like Chris has in building his factories or in Marianne's case, when you kind of own the thing and take it over, you can look at every single node from a first principles perspective and say, hey, was this process that's been done the last hundred years the right process? And that's what's happening across every layer of the physical world right now. It's not just mines. It's not just factories. I mean, again, it exists in many different permutations. And, you know, my personal belief and we see this in a lot of our portfolio companies is look, AI will be a phenomenal tool that can be used in the physical world. The reality is AI cannot turn a wrench yet. It will at some point, but we're far off that, you know, again, we can maybe have discussion about the, you know, robotic models and autonomy that we see in the physical world. We're getting closer. I just think that the nuance here and the portfolio companies, many that are on this list or many, many non-portfolio companies on this list, that they understand that the physical world is not about just putting a silver bullet forward, like I said, that some, you know, shiny AI product, it's deep understanding of what a process looks like, you know, physically how to like, you know, manipulate the process or how to, you know, change something that's happening in the world. It's just going to look different. Well, maybe like a specific example or to talk through is like, like low mix, high volume versus high mix, low volume and how, how AI can kind of change, change the game there. So, you know, historically, like if you're spending a lot and setting up a line with a lot of automation, you really need to produce, be producing like a lot of one single thing. And that's how you get the cost down. And that's how you justify the cost of invest, investing in, you know, a pretty bespoke manufacturing line. In the U.S. we do a lot of. omix high-volume manufacturing, which is very hard to automate because it's very expensive when you have to change the line all the time. But what we're seeing across our portfolio is that manufacturing technicians themselves have the intuition and now have the software tools to be able to change the economics of what it looks like to produce low-volume, high-mix on the line. So you can have a manufacturing technician. This is not someone with a college degree. Maybe they are, but not necessarily, who's studied software engineering, is now able to use these tools to reprogram and reconfigure their manufacturing lines on the fly using the fact that they understand the manufacturing process and they know how to do what they're doing in the physical world. They now suddenly have all these tools, so you can retool a line instead of having to call a system integrator, and it takes three months and hundreds of thousands of dollars to kind of reconfigure a line for a new setup. You can have a manufacturing engineer use CLAWD and do that in, you know, 20 minutes. And so that's been a real game-changer across lots of companies that we've seen in this space. And why that's important is, you know, when you look back at how we've articulated AD50 this year, you know, it's kind of three categories. And a lot of times what we focus on, at least, you know, I have and many people in the sector are focused on, is just the systems companies. And look, there's a lot of really interesting systems companies. I mean, Anduril, Serana, Castilian, I mean, you know, the list goes on and on of who's building really good end systems. But the problem is, is if you can't, you know, iterate on that, on the design and iterate on that prototype, you don't not only not get to an end system that is like, you know, different better, but you also just move at a slower pace. So then what happens is by the time you finally fix a production level, you know, missile or plane or kind of whatever, then all of a sudden, then you got to, you know, go back and rejigger and build up all these kind of, you know, subsystems in order to meet the scale. But if you have, you know, a more transferable line, a more adjustable line, number one, you can also build a prototype faster, but then two, you can then, you know, set up each one of these different components in a way where it actually can get to rate production quicker. Yeah, you're, you're designing for, you're designing for manufacturer on the outset. Exactly. Exactly. And that is, again, I keep going back to learnings from, you know, Tesla and SpaceX, in a lot of ways, they had to make those choices because they didn't have any other opportunity. But in the end, it's actually just that mantra of design for manufacturing that now exists within all these systems companies. And to some extent, like, we are now in the age of now seeing them produce, I mean, again, like, go look at what Anduril is built in, you know, in Ohio and now on the East Coast and Baltimore, you know, go look at what, you know, Saronica is built with the shipper. I mean, these are massive, huge facilities that are at some point, you know, in a very soon, soon timeline, going to be producing thousands, tens of thousands, hopefully hundreds of thousands of systems. We haven't done that in America in a long time. Yeah, this is no longer an on paper, theoretical exercise. This is happening in the real world and real stuff is coming off the lines. Something that I think is like special about AB Founders is they make any problem an Elon sized problem. And I'd love to hear sort of that applied to the different industries that we're talking about here. Yeah, I mean, I think when you look at defense specifically, this is actually been one of the most historically hard, you know, sectors to just build the thing that you think the government needs. Because unfortunately, and again, you know, I experienced this in my past, you know, when I served in the army, you know, the buyer is not the user and the buy and the appropriator of the dollars for the buyer is completely removed. So you have all these like disjointed decision makers or groups that matter. So what happens is, you know, companies, you know, back then, we didn't really have neoprimes or ad companies to serve. But what you had is you had primes would just sit there and listen, like, tell me what you want. I'll develop the thing after you give me the money. And you know, the age old problem is, you get a system that's like, actually not, you know, technology forward. You get a system that was involved for 10 years ago. And then, you know, the end soldier gets something that actually is not super valuable to them. What's different now, back to the like, you know, you can think through an Elon problem now is you can say, okay, what does the military actually need? And the beautiful thing is, you know, venture capital and what we do at American Dynamism, but also, you know, the rest of the capital markets is saying, we will actually fund that in advance. And you can build in advance of the government saying, here's the thing for you to build. And the outcome of that is the soldier gets a better product, gets something that actually fundamentally changes the battlefield and helps with deterrence or security or safety. And then more importantly, you get a timeframe of a type of system that is actually built, you know, aligned with the requirement of the market and what technology can do today. So it's a fundamentally different way of like, instead of sitting and waiting for the government to tell you what they want, the government signals and you see it and you build in advance by using private capital. And that just has not happened in the history of defense. So you can build, you know, like Castilian, building a hypersonic missile that does a, you know, not a super exquisite thing, but it's really hard to build a missile that goes that fast and is reliable. And you know, the government, you know, now has given them contracts and kind of, you know, showed up and bought missiles. But if you go look at the last three years of that business, I mean, it was private venture capital. It was, you know, entrepreneurs like taking the risk and building the thing in advance. I think if you see that again and again in defense, you're just going to get better products and fundamentally like, you know, you'll have the neoprimes and the new companies start to take a lot of that market share. But it's not just the defense thing. I mean, Aaron sees it on energy as well. I mean, we're rewriting our entire energy grid right now. And we're, again, like Aaron would know better than I would, but like we are in on the one yard line. We are just starting. We're just getting started. That process. I think, you know, another part of it is it's a little a little more intangible, but like these are really hard companies to build. These are really, really hard problems to solve. You know, when I talk to Turner, who's the CEO of Mariana Minerals, and, you know, he's flying all he's flying to the middle of nowhere, places all over the world to build his company. He's like out where there's no cell phone signal, where there's no electricity, you know, touching dirt, you know, spending like weeks and months away from his family. Like it has to be worth it. You're building a physical thing. You're not sitting at a desk on your computer. You're out in the world. It sounds kind of sexy and romantic, but when you're actually doing it, like it's rough. The travel is really hard. The people you're engaging with, you know, you're not talking to. You're calling up your suppliers. Those are not like other startups who operate in the same kind of timescale and culture as you. These are like really tough people to negotiate with and work with who, you know, have a very different culture. And if you're going to be putting yourself through that, like it better be damn worth it. And so I think people, people really gravitate towards these problems that feel huge and enormous because they're, you know, these are real missionary founders that we see building in this space. And even as even as it's kind of heated up and there's more capital and it's gotten cool, it's still brutal. I think the biggest thing that has changed in American dynamism land in the last few years is we always knew that the companies being built in this category were really important to the fabric of America. I mean, again, like when we talk about defense systems, when we talk about energy, I mean, we talk about building, you know, manufacturing widgets that go into everything and like that stuff's really important. Like it affects our safety. It affects how we live our life. But the biggest change is those companies weren't just the most important thing to us. Now they can be the most valuable companies. And that's like a big distinction that that has happened, which is, you know, it's not just like, you know, solving a problem for safety or security. It's solving a problem for safety and security. And oh, by the way, those can be some of the largest companies that exist in the world. And that's what technology has changed in these industries. I mean, mining has always been a big, big industry. Defense has always been energy. It hasn't been economically worth it for a young, smart person, you know, who has a lot of ambition to go after these categories. But I think companies like Palantir, Anduril, SpaceX have proved that you can build a really big business operating in these categories. And if you I mean, if you look at that, you know, the top 10 most valuable companies in the world like that right now, like the majority of them are hardware companies, they're building a physical product. You know, we've kind of come full circle. So you get the most ambitious founders of our generation who, you know, who want to run towards that hard problem and know it's going to be worth it. And the beautiful thing about many of these industries like mining or, you know, Rio Tinto has been around for a long time. I mean, Boeing's been around for like many, you know, good companies that are building good products. But I think when you take this, you know, first of all, like a first principles technology approach about like what the audacious thing that needs to be built is. And then two, you get entrepreneurs like these these folks that are on this 80-50 list. You're like, yeah, I'm going to rebuild the American energy grid. That sounds that sounds fun. And you just that that didn't exist 50 years ago, that didn't exist five years ago. I mean, it is something that is fundamentally, you know, our America's best and brightest are building towards this category for the first time. And then importantly, like Erin said, like the opportunity is there. You see these examples of these companies that have redefined space launch, that have redefined, you know, kind of military systems are redefining, you know, all these these categories of American dynamism that we care about. Yeah, I think it's exciting. I mean, you know, as as again, as someone who served in the military, you always think of, you know, like what you do is something greater than yourself. I mean, look, like the capital markets exist to, you know, make money like this. We're not a charity. This is a capitalist society. But in the end, a lot of the companies on this 80-50 list are doing something that is both going to be large and valuable, but also going to be really inherently important to the fabric of America. And that's that's pretty exciting. What's it what's it like to visit one of these sites, like a manufacturing site or a mining site or, you know, drone manufacturers, those kinds of sites? I mean, Connor and I have the best job of all time. Yeah, I did have to. I did. I do own steel-toed boots now because the number of the number of site visits I've been to with portfolio companies where they're like, yeah, you got to show up in steel-toed boots. Yeah. I mean, it's not all sexy, to be honest. These are these are locations that are, you know, a lot of times hard to get to hard to get to in the middle of nowhere. And in the end, like we're talking about real physical things that require, you know, earth moving. I used to have in my time in the military used to have this this kind of senior officer who would always tell me, like, the physical world doesn't care about you. So just be careful in the physical world. Like, you know, these are moving, you know, tons of dirt and, you know, massive, you know, these factories being built out, you know, Hadrian or or what Amco will do. I mean, these things are huge and it's impressive. You know, one of my favorite things is maybe you don't see this at the remote sites. Maybe you do. But it's this kind of running competition between these companies who can have the bigger American flag at their site. I actually don't know who currently holds that today. I mean, Hadrian's was pretty big last time I saw it. I think Valor's is pretty big. Is Valor's big too? Okay, good. Yeah, yeah, yeah. And like, again, I mean, that's that's awesome. Like the fact that you have that type of like one passion for something greater than just the product or the economic opportunity that you're building. I mean, again, it drives purpose behind a lot of these teams. When you show up at, you know, Mariana, when you show up at Hadrian, we show up at Castilian, like you literally get people who are so passionate about what they're doing. And, you know, that produces really good results when you have to do something really hard in the physical world. If you have people that are willing to run through walls, sometimes literally to solve that problem, you just, you know, you get really audacious, great outcomes. One of my favorite things to do, you know, is visit the same company sort of multiple times within a 12 month period, whether they're in the portfolio or not, because you learn a lot by how fast a factory build out happens. And so, you know, that's one thing we do is like, you know, you don't just go once. You go once and then you go three months later, you go three months later, you go three months later. And like, I'm not I'm not a manufacturing expert. I spent enough time on the factory floor on a factory floor between my time at Palantir and now doing this job. You know, I like sort of know what some of the machines are and kind of like how a line roughly works. But like, there's just something about seeing stuff accumulate in a factory. And it goes from the process of watching something go from like empty warehouse with epoxy floors and the big American flag and maybe like a couple of pallets. And the founders just really excited to show you their forklift that they built. And they're kind of like, you know, they have the basketball hoop set up or like the gym set up in the corner to like, you know, fast forward six months. And it's just, you know, they're freaking out about how to expand. They're like, oh, we need to get, you know, the the city out to give us more power because we have too many machines plugged in. It's like kind of chaos. There's technicians and operators everywhere, people building stuff. That's really satisfying and really fun and something I think we're lucky to get to see that journey and how quickly that can happen. Yeah. Has anyone ever done like a time lapse of. Oh, there's a lot. It's a whole like category of filmmaking. Nice. And everyone kind of compares theirs. And it's like a, you know, a bit of a. I do. I do like the gym thing. I remember when I when I first visited many years ago, Isaiah and the gundo, he made me do a rap on his. Yeah, they all they all like, oh, yeah, they all have their bed press. Which is cool. Is is there a like a contagion effect to things being made in America where it's like, oh, because the actuator is made here, now we can make this and now we can make that. And sort of when you're able to compress one timeline, you can compress multiple timelines. I don't think it's just timeline. I also think it's cost and quality. I mean, it's interesting because when we look at defense autonomous systems in particular, like what Saronics making a lot of boats, Covenant's making a lot of missiles, Castilian's making a lot of missiles, and Andrew's making a lot of things like when you build many systems, you also require many subsystems below that. And, you know, again, like there are really interesting military systems being built today. The corollary, though, back to the comment we had earlier is like, you know, by building towards defense, you also build for a different industry. We actually don't have a lot of humanoids or robotics that exist in the world today. I mean, there are thousands, maybe. I don't know the exact number. But when you think about the subsystems that go into some of our military systems, it's the exact same subsystems that are going to go into the future robotic systems. It's the actuators like it's the motors. It's the valves and switches and those type of things. And I think when you can build those to quality and to cost, then all of a sudden you make other markets that maybe weren't viable or. all of a sudden makes sense. And again, I think that's going to happen in the robotics world, which is, we're going to spend all this time on-shoring development of all those sub-components. We're going to build for a lot of these military systems, which is good. We need it for security and safety and deterrence. But then all of a sudden, you're going to have this kind of robotic wave that will come in America. I said, AI can't turn a wrench yet. They can, they will eventually. And that will be enabled by all that actuators and switches and subsystems that we built. It's going to serve a different market. And it's going to make it financially viable. And we're not going to have to rely on factories in China. And again, I think that is net good because as you build an industrial base, an industrial base can be used for many things. And down to the component level, I just think we don't have enough of it in America. And it's a decision. You talk to a robotics company today that wants to build some robotic deployment, there's a 99% chance that majority of what they are buying is coming from China in some way, shape, or form. For many reasons, not just geopolitical, want to onshore that purchasing for quality costs, speed of iteration, and geopolitical reasons. I think one thing, it's really over the last three years, even just it's remarkable how much of a supplier ecosystem has developed. Like one of the companies in our portfolio three years ago would order two times the number of PCB boards, PCBs that they needed, because they assumed that they would have to throw 50% of them away for quality issues. They would get the batch from their supplier, they would do the testing, and 50% of them wouldn't pass a quality test. Then startups have emerged in this category and are like, we're going to fix this problem. We're going to use software and modern technology to redo the way PCBs are manufactured in the US. We're going to do it faster, we're going to do it cheaper. And guess what, we're going to do it better. And now that same company buys PCBs from new suppliers and they're keeping 70, 80, 90% passing quality tests. So I think we underestimate how much the close co-location and co-development of some of this technology with the end customer and their suppliers really matters to drive quality higher. So something really interesting is happening, I believe, in the industrial base. Like we talked about earlier, you get this top-down demand signal from these new systems companies. Like we're building new military systems, but oh, by the way, like, you know, Joby and Archer, we're building new planes too. Like we're building new end systems. That is a fact. Like cars are being built different, planes are being built, military systems are being built different. When you build these new systems, inherently the inputs of those systems need to change as well. And when you look at the industrial base in America today, like historically, if you go look at how Boeing makes a 737, you know, Boeing's a great company, important to the fabric of America, but they just pick up the phone and they call Honeywell and Honeywell helps them kind of build all the different subcomponents. And it's not Honeywell's fault, but what Honeywell does is they say, I don't want to build a new landing gear again. We have this landing gear that meets the spec and does the thing. So let's just keep going and doing that same thing again. And again, it's rational. Like, you know, they're going to build more 737s. They're going to get paid the same way if it's a 450-year-old landing gear or if it's a new landing gear. The problem, though, is when you keep iterating on these new requirements for end systems, at some point, the 50-year-old subsystem just doesn't work. And maybe it physically works in terms of meets the requirements, but it's been designed and it's been developed in a way that inherently, you know, we haven't innovated on it. And why does that matter? It's because, you know, we've developed new materials. Like, yes, physics hasn't changed, but the inputs to the physics and the inputs to that design has changed. So I think what's happening or what the opportunity for a lot of these manufacturing companies is to do what I call co-engineering. And, you know, we talked about, you know, the long tail of these, like, sub-tier, you know, suppliers. They've been in receive mode for the last 40 years. Honeywell's picked up the phone. They've said, hey, I need another landing gear. Go make that landing gear. And they've executed on the specs with that IP and building it. When you want a new requirement, that middle layer cannot, you know, think on behalf of Honeywell and change the requirement because, again, they're not in the position to do it. But I think what's gonna happen in the future is you're gonna have this middle layer of supply companies that, you know, will effectively be co-engineers with the NOEM of rethinking, not just what the end system can do by way of speed or kind of, you know, weight or mass, but the individual sub-components will be rethought, will be re-engineered, and will be rebuilt. And so, you know, the end system will change from a top level. The individual parts and components will change. And I think that just hasn't happened in the last 40 or 50 years. So you're gonna see a completely new wave of what I believe, like, will be called, like, the manufacturing middle that will be, you know, co-engineering and pushing design and development upward in the supply chain as opposed to just being in receive mode and saying, okay, I can build the same thing I built 40 years from now. And I just, I think that's an opportunity. I mean, I defined it, you know, previously as like, we're creating the American manufacturing asset class right now. I mean, you know, private equity has been playing in this ecosystem for a long time and looking at an asset and buying it and improving the cost and, you know, selling it off again. That's not fundamentally changing the things that we build. Right now, companies will change the different things that we'll build. A good example of this is kind of the, on the grid. And when you think about sort of like the electronics stack and we're about to go through a huge step change in how we manage and transfer power on the grid, moving from a system of sort of static and mechanical systems that were deployed in large scale across the US in like the 70s and 80s to now sort of modern power electronics, battery storage, architectures, which are much more software native and flexible. And, you know, that is just when you have such a complete step change in technology where the technology that's replacing the previous thing is just completely different. You have this opportunity to rethink the entire supply chain behind that and the way all of that design and engineering work happens. And in the energy world is the same thing that's happening in the defense or the commercial systems world, which is you have this massive amount of demand for, you know, data centers and, you know, new factories and new build. And when you get this top down level, you have the ability to innovate like Erin's talking about and rethink the entire architecture. And look like- Because it's a completely new architecture. Exactly. So, you know, you can't rely on these components that worked in the previous world to just reconfigure. Like you actually have the opportunity to rethink that from the ground up. And another important point here is like, you know, you can be pessimistic and you can say, okay, Connor, all these new military and systems, like not all of them are gonna be adopted. So like that top down demand or Erin, like we're not actually gonna increase energy by four times. Like there's not gonna be that much demand. I actually don't think it matters because I think once you start the snowball of the demand cycle moving in one way, even if you deliver half of that, you know, requirement- You're not going back. You're not going back. And it doesn't make financial sense. And again, it's like when you rethink something first principles and you make the like new design, new engineering decision. And a lot of times that comes with better costs, better efficiency. You're just gonna buy that thing now going forward. Better serviceability, easier to manufacture. Yeah, yeah, you're never going back. I'm curious kind of what you're seeing in terms of founders being second generation and or all or second generation Palantir or something like that. And maybe they see some of these learnings and they see the opportunity to be the middle layer supplier in something that has never been touched since, you know, decades ago. And kind of like, what are you seeing in terms of, you know, those opportunities and those kinds of founders? Yeah, for sure. I mean, a great way to light a fire under an entrepreneur is for them to be banging their head against the wall on a sort of engineering or supply chain problem where they are. And then they're, you know, they're like, well, okay, I really care about this. This is a pain in my ass. I know it's bothering other people. I know it's a problem that I don't just have here at Andorra or SpaceX or Tesla. It's a problem more broadly. I'm gonna go solve that more generally. And the kind of lineage of founders that have sort of lived and breathed this on the manufacturing floor, are not just founders, but even engineering teams who are like, I saw this problem. I solved this, you know, within Andorra or Ceronic or whatever. And I'm gonna actually like go out and build this as a company. And then I'm gonna, you know, I know that everyone in the ecosystem. So I have, you know, automatic access to a customer base that's captive. You know, we certainly see that trend happening. And, you know, this is how ecosystems get built. People make fun of YC for all YC companies kind of selling to each other. But like, that's how it works. Because you have, you know, it's your friends. They're tolerant. They're understanding. They're willing to like work with you and help you and, you know, put up with something breaking because they're working on their own really, really hard problem. And if, you know, the thing you're doing is not the most existential thing to them, they're like very willing to outsource it to you. That's beautiful. That's how Silicon Valley was built. And what's really like, what makes me really optimistic is the extent to which we're starting to see that in these kind of physical world ecosystems and supply chains. Yeah. I think that the few companies you mentioned, you know, the SpaceX's, the Palantir's, well, they weren't overnight successes. Like those companies took a long time to get to both the product scale and just the size and success of the company that they're at. Overnight successes that took 20 years. Exactly. And I think that the learning point, and, you know, we invest in a lot of the entrepreneurs on this list, like come from those ecosystems, is you just learn this like relentless focus to do the one thing as well as you can, you know, down a path until you've succeeded. And like, you know, I've seen this with the Castilian guys, for example, it's like, they focused for two and a half, three years on the first hypersonic missile that was really hard to build. And, you know, other people showed up, oh, be multi-product, go build this small drone here. And they're like, no, we need to do this one thing really well. And I think, you know, that comes from the fabric of SpaceX. I get SpaceX, the concept of being a responsible engineer. I'm like, if this thing doesn't work, like it's my ass, I'm gonna make sure, like, I'm gonna obsess over this thing and again and again, like that's what it takes to build really hard things. And again, like, you know, there will be different, you know, derivations of success. Not everyone will think just like the SpaceX mindset, but if you look at a lot of these businesses, like that, you know, in the physical world, you kind of need to do that to build something really hard. And what you do in doing that is you learn, you know, you learn that process knowledge, you learn how to do it. And so thing two, thing three, thing four are a lot easier. You've developed a supply chain, you have your relationships, you've developed manufacturing for, designed for manufacture processes. You know, you've learned how to build a factory to a high quality, high spec. You've learned how to build that trust with customers. So if you can do that one thing really well, that sets you up to do other things really well, but it doesn't work unless you deliver on that, on that one core thing. So we talk a lot about competition. China, what does the United States do uniquely when it comes to our capital markets that really enables these startups? Well, I think this may arguably is one of the, I mean, Brian Schimpf was talking about it, the founder of Anduril, you know, a couple of days ago, which is this concept that, you know, we have literally trillions of dollars of private capital in our capital markets that inherently follow, you know, success, follow both technology success and, you know, to some extent, like production success as well. And I think if you look at the United States, number one, like we do not have a top-down directed, you know, industrial policy that says the state will put this amount of money in this. And I think to some extent that's a good thing because the money will follow the entrepreneur, the money will follow the success. I think that the distinction though, we've kind of always had a good capital markets in the United States. I think the distinction is the capital markets all of a sudden have said, you know what, the category of AD is really interesting. And, you know, Aaron and I have been living and breathing this for a long time, but if you go look, you know, not just up and down, you know, Silicon Valley and Sand Hill Road, but if you go to, you know, the major banks, I mean, JP Morgan has committed, you know, trillions of dollars towards, you know, both investing in the physical world, not just defense, but factories and other things in the physical world. And you see that again and again and again across not just our venture capital firms, but, you know, private equity now is starting to play in this category in a big way. Big credit firms. Big credit firms. And that's so important because, you know, the reality is many of these companies in the AD world, they require a lot of capital. When you build physical systems, when you build a Falcon 9 rocket, or when you build a CCA and you build a Blackbird missile, those are expensive inherently to build up those lines and build that physical system. So I think part of this is, you know, the capital markets, you know, speak with, you know, where the success happens. And the reality is, is it's the capital markets are not top-down driven by our government, unlike China's. And what that allows is that allows us to be far more flexible, you know, again, to follow success, like I said. And then more importantly, to fund things in advance of it being obvious. And we talked about that earlier, the concept of building in advance of the requirement and the need. You know, maybe we're a little bit late on the energy side, maybe we're a little bit late on some of the defense systems, but look, the capital markets have woken up and we're putting hundreds of billions of dollars, if not trillions of dollars, you know, towards this category for the next, you know, 10 plus years. Yeah, I mean, if you look at just the first half of 2026, more risk dollars went into the defense ecosystem than all of last year combined, which was many times what went into the defense ecosystem in all of the previous year combined. And I think historically there's, you know, in defense specifically, for example, there's been, you know, a narrative around the valley of death and like how you get the government contract to like propel you through this period of needing to build out CapEx. And what's really exciting is that almost, that's starting to disappear with the support of capital markets and of risk capital. And that's certainly extending even beyond the defense ecosystem to energy and robotics and critical minerals and some of these other sectors that are really important, which is super, super exciting to see. Yeah. I had one question. I'm not sure if it's too much of a tangent though, there's that very famous chart of like U.S. power production versus like China, new power, new energy production, like America's line is like basically flat and China's is, you know, up and to the right. Like, I guess some question, around like what would it take to close that gap or how fast can we build new power? Yeah, I don't think that is, I don't think that that is a technology problem. I think that that's a, we need to do some soul searching about our will as an American people. And do we want conforming projects to be built? Do we want to grow? And if we do, I think the technology and the capital will follow. And it's funny because this is not just an energy problem, it's an everything problem. And look, we're optimists inherently. I do think that snowball has started to roll. I think the question is, back to our discussion on capital markets earlier, will there be emergent winners in these categories that then fuels more capital to flow into the ecosystem? And it's this kind of self-fulfilling prophecy that happens. Yeah, if you build it, they will come, but at some point there needs to be a pot at the end of the rainbow. And if there is for a few companies, I think one capital will flow like I mentioned. But I think the last thing I'll say just real briefly is anything in the physical world takes time. To set up a factory at a scale where really you either affect our power generation or you affect our military systems or you name it, you can't take a couple of engineers, throw them in front of a couple servers and computer screens and come up with an answer. I mean, it's moving dirt. It is physically understanding a supply chain. These things take years. And so there's a little bit of patience that we need to have in the capital market side. But again, I think I'm optimistic. I think it's happening. And to some extent, it's ours to lose. It's ours as a government and a nation to mess up and to get in the way of this. And that's a risk, don't get me wrong, but. I do think it's another, will be another long-term benefit of capital markets even if it's short-term painful. People need to feel, I mean, you mentioned that these are physical things. They take time. They're also physical things in that they have a physical manifestation to those people and communities that live around them. And the most important thing is that American society at large feels like they're participating in the economic growth that's coming as a result of this development. Software was sort of, had this ability to be sort of siloed because it really existed in just a few cities. It was kind of this virtual thing. You sort of experienced it in the way that your interaction with digital services got better, a lot better over the last 20 years. But it was a little bit more, it was a little bit more abstract. Physical world, like someone's building a data center, a power plant, a mine in your backyard. And you need to, you have a say and you have a stake in that. You physically see it, it affects your life. And if you don't feel like you have participation in an economic upside, it's hard. I do think that this is one thing that the capital markets long-term will solve really well because companies will figure out how to bring communities along for the journey and make it financially and economically worth it. And I think there are some good examples of that. A few companies on the 80-50 list who like build real things in their communities and show up the right way. There are also bad examples that have existed in the last few years. If you look at what Amca does, they show up to these really small machine shops that exist. They partner with them. They don't cut the management and fire people. They say, how can we build new products and grow the kind of business that you have today? And it's that type of concept of working with communities as opposed to working against them that I think we still need to wrestle with a little bit in the tech world and understand that just because we sit in Silicon Valley, we don't understand everything that's happening in the world. And fundamentally, I think a lot of these 80 companies will build stuff that touches middle America. I mean, it will physically exist in middle America. And I think that's net good. I think that means more jobs, more prosperity. I think that means more energy, an abundance world where we have a safer America. Less concentration of wealth in these pockets, in these elite pockets on the coasts. It's a good thing. Yeah. But it will take time. Well, Aaron, Connor, thank you so much for joining. And everyone can check out the 80-50 list today. Awesome, thanks. Awesome, thanks so much. Thanks for listening to this episode of the A16Z podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review, and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify. Follow us on X at A16Z and subscribe to our Substack at a16z.substack.com. Thanks again for listening, and I'll see you in the next episode. As a reminder, the content here is for informational purposes only. Should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. 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