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Anduril Industries making big news this week, the company raising 1.5 billion dollars is now valued at 14 billion. Our next guest has been investing in defense tech for more than 10 years. He's a board member at the Council of Foreign Relations. To talk more about the space and how investors are thinking about it right now, we're bringing in Nick Beim, partner at Venrock. Nick, it is great to see you. Kind of a bigger, bigger question to start, uh, Nick, which is venture investors now clearly more interested, more excited, Nick, about that defense tech space. Wasn't always like that, but it is now. What changed, Nick?

Yeah, I think there's several changes. First, I think there's a boom in the global defense industry generally. Uh, we've got wars in Europe and the Middle East. Uh, China has adopted a very aggressive military posture toward Taiwan and is trying to leapfrog US military capabilities by investing in tech. And so broadly, the defense industry is booming. Second, and probably most interestingly, it's becoming clear that the character of warfare is changing significantly due to emerging technology. So I think the future of warfare will be much more driven by AI software and autonomous systems at the edge than by the traditional military platforms that are used today. And, and that leads to the third change, which is I think venture-backed companies are now best positioned to provide these critical systems, better position than the traditional military suppliers. So you've got venture investors very eager to invest in the next Anduril, Palantir or SpaceX, and that's become a hot space.

These venture-backed startups though, Nick, you know, ultimately you're, you're competing against these big entrenched giants. I mean, you think Lockheed Martin, North of Grumman. How do they do that effectively?

It's not easy and the playing field is by no means level, um, but I would say generally the traditional primes are hardware and services companies. And if you look in the private sector, how many hardware services companies really got great at providing AI or software? The answer is extraordinarily few. It's very difficult. It's very difficult to attract the talent to do that. And if your core DNA is in hardware, it can often be very good to be great at software and be great at AI. Venture-backed startups on the other hand are mostly software and AI these days. They're able to attract world class talent in these areas. So what I think you're going to see more often is partnerships between the traditional primes and venture-backed startups, because I think that's what the Defense Department wants.

These venture-backed startups, Nick, you know, some of them could get acquired, some of them, um, could try and test the public markets, right? IPO. Do you think there's certain kinds of defense tech startups that are better suited to make, um, make that public market debut that you think would be better received by public market investors?

That's a great question, and I do. I think there are generally two types of defense startups. There are those that sell just to defense customers, and there are those that are dual use, that sell to defense customers and the private sector. I think that latter group is much better suited to the public markets because they have much more predictable revenue and a much broader customer base. They don't have the customer concentration of defense only. And it's interesting if you look at some of the big successes to date, like SpaceX and Palantir, and another company called Dataminer that I'm involved with, they got their start in the military and they got very large based on military contracts. And then they were able to build, build out very significant private sector businesses. Anduril is really looks now to be defense only, um, and I know it's interested in exploring the public markets, but I think generally the dual use companies will have a better time of it.

So, so you know, it's interesting, Nick, we're talking here about how, you know, modern warfare, the nature of modern warfare is changing, right? Of course, tanks, you know, battleships, critical, but you know, much a greater focus now on AI and autonomous systems. How well is the government, the US government positioned to capitalize on that shift?

I think it's headed its harder in the right place, but it's very hard and it takes a long time to change the system. So my personal view is that the government needs to be much more aggressive in adopting emerging technologies and particular in adopting commercial technologies, which have, uh, evolved much more rapidly than those in the defense arena. Uh, there are a number of new reforms in acquisition and in other areas, and they're starting to change, but I, I don't quite see the level of urgency that I think we ultimately need.

Nick, such a fascinating conversation. Great to have you on the show today. Thanks so much.

Thanks for having me.