Guardians of Innovation: Exploring the Intersection of Military Defense and Tech | The Pair Program Ep42

In this captivating episode, we delve into the dynamic world of military defense and its profound impact on technological innovation. Join our guests, Sean Leahy and Les Craig, as they share their firsthand experiences and insights gained from their distinguished careers in the defense tech space.

Les, a Partner at Next Frontier Capital and a former Infantry Officer and Platoon Leader, brings a unique perspective shaped by his military service and subsequent roles in intelligence and cybersecurity startups. Sean, a seasoned defense and intelligence technologist, offers invaluable expertise cultivated through his diverse roles supporting defense agencies and startups alike.

Together, they explore the evolving landscape of defense technology, discussing emerging trends, the surge in the defense tech industry, and the pivotal role of the military in driving innovation.

About Les Craig

Les has been a Partner at Next Frontier Capital since 2017, where he has led 12 direct investments and serves on the boards of 7 portfolio companies. He is a 2003 graduate of the United State Military Academy at West Point, and served as an Infantry Officer and Platoon Leader in the 173rd Airborne Brigade and 1st Ranger Battalion, as well as an Aide on General Stan McChrystal's staff at Joint Special Operations Command. Post military commitment, Les served as a Technical Operations Officer at the Central Intelligence Agency. He co-founded two start-ups: The Twenty, a data science services company and RedOwl Analytics, a venture backed cyber security software company that was acquired by Forcepoint in August of 2017.

About Sean Leahy

Sean is a career defense and intelligence technologist, currently working as an independent advisor to defense technology startups and investors. He began his career supporting DARPA, JIEDDO, the U.S. Army, and multiple teams within the Intelligence Community. He was Director of Technical Services at Sayari Labs, a dual use technology company. In 2023, he served as a Defense and Technology Fellow in the Office of Senator Steve Daines of Montana. He is a graduate of Columbia University.

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Welcome to The Pair Program from hatchpad, the podcast that gives you

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a front row seat to candid conversations

with tech leaders from the startup world.

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I'm your host, Tim Winkler, the

creator of hatchpad, and I'm

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your other host, Mike Gruen.

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Join us each episode as we bring

together two guests to dissect topics

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at the intersection of technology,

startups and career growth.

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Welcome back everyone to The Pair Program.

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Tim Winkler here with Mike Gruen.

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Mike, um, so I, I was reading, uh, uh,

some random, you know, what's going on

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in the world today, uh, news article.

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And it was talking about, um, Winston

Churchill's false teeth were recently

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purchased at an auction for 22 grand.

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And yeah, the, the, so the dentures

that he used to, he apparently

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had like a, a notorious lisp.

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Uh, and he wore them, uh, during

some of his most famous speeches.

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So led me down this path of, of the

question for you, uh, you know, what is a

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historical piece of like memorabilia that

you'd want to purchase from an auction?

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So,

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Mike Gruen: I mean, I don't think I could

afford anything that I'd really want,

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but I guess I think something from like

the concept under like a hundred dollars.

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Exactly.

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Um, something from like the continental

Congress or like signing the declaration

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of independence, something from,

from that sort of timeframe and from

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America, I think would be in there.

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So I don't know, maybe.

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A pen that was used, or I don't know,

something, although, or the ink bottle, I

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don't know, something along those lines.

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Tim Winkler: No, like,

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I mean, that would be the obvious first,

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Mike Gruen: right?

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Like a, you know, number two,

uh, jersey from, um, Brian Leach

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or something like that from 94.

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Um, I have the, uh, the Ranger's hat over

there in the corner that actually Les

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gave to me back when we worked together.

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That was Les's original.

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That's kind of cool.

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Um, so yeah.

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Um, but yeah, I mean, I have a

lot, I have Ranger's memorabilia.

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So if I was going to go for something with

historic, like something really much more

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historical would be sort of back then.

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What about you?

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Do you give it any thought?

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Tim Winkler: Yeah, I, I went down, uh,

the sports path and then I went down

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like the tech path and I think sports

memorabilia would be kind of cool to have

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like a, um, like a putter, uh, from Tiger

woods, like one of his like original

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Scotty Cameron's from one of his first few

years, uh, winning a major would be cool.

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Um, and then I thought

that like the original.

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Apple one computer, uh, built

by like Wozniak and Steve Jobs

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Mike Gruen: would be pretty cool.

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That would be pretty cool.

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I have a bunch of Mac

classics, uh, in my attic.

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I have like a little museum of computers.

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That's cool.

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Um, next machines, Macs, nice.

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Like

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Tim Winkler: the colored, like

the head, like the colored base.

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Mike Gruen: Uh, no, the color,

like the color of the monitor.

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Yeah, the color monitor, but I

also have the black and white ones.

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Um, and what I'd really love.

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I mean, if we're going to

attack a Lisa would be awesome

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to add to that collection.

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Oh, yeah.

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Uh, they did precursor to the Mac was

Lisa because it would really fit in.

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It's the nice theme of like the

Mac to the all the way through

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next and then the more modern Mac.

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So I have, uh, whatever there's

a reason it's in the attic.

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Yeah, I used to have a little museum in

my office, uh, at home a long time ago.

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And then, you know, I got

married and that changed.

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Tim Winkler: All right.

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He's aged himself on, on

the show here as well.

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Folks.

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Um, cool.

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Let's, let's jump in.

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So.

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Another, another fascinating episode.

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Uh, we're going to continue to kind of

unravel this, uh, tech modernization

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within the government space, uh, mini

series that we've been building and

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going to hone in again on innovations

across defense tech, this will kind of

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bleed into a dual use startups as well.

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Um, so this will be kind of a

hodgepodge episode of some subtopics

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underneath this overarching theme.

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And to, uh, to spit some knowledge

on the topic, we, we recruited

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a couple of heavyweight guests.

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I'm thrilled to welcome to the show.

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So we've got Les Craig, uh, Les is a

general partner at Next Frontier Capital.

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Uh, he's led investments and

transformative tech companies, um,

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Played a pivotal role in shaping

Montana's tech ecosystem as well

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through MSU Innovation Campus and,

uh, 406 Labs Launchpad Accelerator.

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Uh, prior to Next Frontier, he co founded,

uh, the 20 and Red Owl Analytics, which

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is Red Owls, how we were, we got connected

in the first place because you and grew

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and worked together, uh, back in the day.

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And, um, we've got le uh, Sean Lehe.

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Uh, so Sean is a, a technologist

and a leader who's been at the

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forefront of supporting defense and

intelligence missions with, with,

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uh, a lot of focus in data science

intelligence systems and N lp, uh,

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most recently wrapped a Congressional

Innovation Fellowship under Montana.

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Senator Steve Daines.

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Uh, prior to that, he served

as, uh, director of technical

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services at Sayari, which is a

venture backed dual use startup.

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And he first kind of got into, into the,

the world of defense through Booz Allen,

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focusing on, uh, data science initiatives

for defense and Intel customers.

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So.

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Um, pretty, pretty healthy

resumes for both of you guys.

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We're super grateful to have you.

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Thanks for, for joining us on the pod.

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Cool.

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All right.

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Now, before we, we, uh, dive in, we

kick off with, uh, the traditional

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kind of pair me up segment.

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Uh, Mike, you want to lead

us off like you always do.

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Mike Gruen: Yep, sure.

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So, uh, as Tim mentioned, uh, less

than I, uh, used to work together.

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So, uh, I, I use that for a

little bit of inspiration.

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Um, I'm going to go with shared

office space and close friends.

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So less than I actually had to,

uh, share a very small office.

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It was.

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Probably good, good for one person.

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And we had both of our desks in there and

then we eventually moved into a slightly

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bigger space that we nicknamed the dojo.

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But I would say, uh, that having

that experience just brought us

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that much closer, it was an awesome,

like we could, we just bonded

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and became really good friends.

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Um, and I've had that experience a

couple of times over my career with,

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with people where you sort of are in a

tight spot and shared office and I don't

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know, there's just something about it.

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And, uh, It's one of those things

that I sort of miss as we've

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moved to a very remote culture.

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Um, yeah, not just the in

office, but also like sharing

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that sort of the site quarters.

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Tim Winkler: Les, would you

agree with that pairing?

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Les Craig: I was going to say it's a great

pairing as long as you like the pair.

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Like always a great pairing.

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If the pair is good.

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Sure.

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Right.

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Mike Gruen: Cause I can go the other way.

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I think we moved here because

we got along like it wasn't,

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it, it was not a forced upon us

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Tim Winkler: Yeah, you could totally

go shared office space and enemies, you

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know, or terrible, terrible friendship.

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I

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Les Craig: forget why we called

it the dojo, but I, I forgotten.

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I, why, why did we call it the dojo?

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Just because the way

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Mike Gruen: the glass, just the way,

just the feel of it, the door had

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a sliding door, but it was glass.

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It just had a very, Dojo

ish feel when you, you know.

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Yeah.

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Les Craig: And every once in while

I'm envisioning we'd bring a, we'd

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bring a junior engineer in there

and, you know, we'd sweep the leg.

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Right.

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. Exactly.

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Tim Winkler: I, I was envisioning

like, stepbrothers, like, do

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you, you wanna practice karate?

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Like, do we just become best friends?

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? Pretty much.

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That's good.

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Uh, yeah.

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Good stuff.

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I dig that.

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All right.

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Yeah.

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And I agree with you, man.

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It's like, I, I kind of miss those,

those days of, you know, being in a.

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In a, in an office space with, uh, with,

with somebody that you, you know, you

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get along with it's gets a little, little

lonely in the remote world sometimes.

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Um, but, uh, cool.

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I'll jump in.

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Um, so I was recently at a, uh,

last night was at a, uh, old

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Hollywood themed dinner party.

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And I've had this kind of.

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Call it a costume, but kind of

like one of those like newsy caps.

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If you guys are familiar, like that

little newsboy kind of hat, uh, and

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a pair of suspenders that I wore.

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And I had that from previously for a new

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a roaring, roaring twenties kind of party.

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Uh, so twice now I've had the opportunity

to pair these two kind of throwback

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clothing accessories together.

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So I'm going with like that

little newsboy cap and suspenders.

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Uh, and I'll be honest with you.

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I think it's a, I kind of dig that

style and every time it's, it's

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been worn, I feel like it's, it's

a fashion trend that kind of, you

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know, stands the test of time.

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Uh, like, uh, my wedding, we,

we, we kind of had suspenders.

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We didn't wear the hat or anything, but.

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Uh, I think those two things

kind of go, go well together.

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So that's, uh, that's the

pairing I'm going with.

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Have you guys ever been

to like one of these

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Sean Leahy: old school, Tim?

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I think, I think that's a

cool pairing, but I wouldn't

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wear that pairing at the dojo.

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Oh,

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Tim Winkler: hell no.

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You get your ass kicked in the dojo.

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You wear that.

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Um, uh, good stuff.

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All right.

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I'm gonna, I'm gonna pass it along.

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Uh, let's go over to Les.

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How about a quick intro

and you're pairing?

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Les Craig: Yeah, actually I got a

first comment on your pairing, Tim.

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There's actually a photo of me on

the back of a news truck in Erie,

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Pennsylvania, wearing your pair.

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Uh, so if you can find that, if you

can source that, gee, you may, you may

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remember this, you can source that photo.

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I'll buy you lunch.

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All right.

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Um, Yeah, just

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Sean Leahy: leave us on the edge.

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I'm super curious.

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Yeah.

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I had no idea that Les is 127 years old.

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Mike Gruen: I know a lot of

stories from that shared office.

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Anyway, go on.

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Les Craig: So my, I think

you did a great job.

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I don't think there's anything else

left for me to intro myself on,

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but, um, did a great job intro me.

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Um, uh, I'm excited.

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I will just add the one thing I'll

add is, um, you know, I'm really

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excited with, with next frontier

capital, with our fourth fund.

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Uh, as a partner in that fund, uh, my

focus is going to be, uh, on dual use

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defense tech and cyber for this fund.

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So I've, I've historically been

more of a generalist, despite a

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lot of my background and interest

being in those specific fields.

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So I'm really excited about that as we

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fourth fund, um, my pair is I'm kind

of in a bit of a skiing mood right now.

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It's that time of the year in Montana.

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So my pair is.

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Is actually skiing.

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A lot of people might say like

skiing and beer or skiing and

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trees or skiing and powder.

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I'm going to say skiing and free refills.

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Do you guys know what that is?

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Free refills.

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No, I mean, that's when, that's

when it keeps snowing all day long.

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And I love days where it's

like not a great snow forecast,

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but you get the unexpected.

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Uh, kind of consistent snow throughout

the day and everything fills in.

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And it's like, nobody's on the hill cause

it wasn't supposed to be a good ski day.

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Good snow.

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And it consistently fills in.

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It's like.

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I just think there's something

that puts me at peace.

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And I had one of those days recently,

so that's why it's top of mind.

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That's pretty awesome.

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Tim Winkler: Hell yeah.

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What, what mountain do you,

uh, do you frequent out there?

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Les Craig: Uh, I mostly, we frequent

kind of the mountain collective pass.

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Uh, so, uh, like I just got

back from a trip down to Utah.

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We skied Alta, Snowbird and Snow

Basin, uh, with my daughters

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while they were on winter break.

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So.

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So we get all, all up and down the

Rocky mountain, big skies, kind of

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the home resort, but, um, I love

Targhee's actually my favorite.

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And if Jackson has good

snow, that's a close second.

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Tim Winkler: Solid.

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Yeah.

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We just got back from a trip to, uh,

to park city and they had free refills

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happening for three days straight.

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It was no joke, uh, nonstop snow

for like 72 hours, I think they

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got like four feet over 72 hours.

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It was awesome.

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Um, but I've never heard that term before.

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I, I like that because it's like, yeah,

everybody shreds out on it, but it

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just keeps getting refueled good stuff.

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All right.

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Well, good to have you on man.

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Uh, Sean, how about yourself?

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Quick

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Sean Leahy: intro and pairing.

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Yeah.

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Thanks for the intro, Tim.

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Uh, I think you covered most of it.

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The only thing I'll add is, uh,

you know, part of the reason why

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I went to Congress and we can talk

about that fellowship later was.

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To try and move forward some of the

defense acquisition, uh, policy and,

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um, the legislation that's actually

kind of the, the biggest blocker

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to getting good technology, the

hands of war fighters and operators.

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Um, it's an interesting hodgepodge

of folks who ended up in like

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acquisition reform stuff.

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You have hardcore acquisition

and contracting people.

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You have former founders

and startup executives.

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You have operators like, um, my

buddy Mike, uh, who's, who's there

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with me 20 years in Marine Marine

Corps special operations, right?

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So you have all these different people

from these different backgrounds

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coming to try and fix what sounds

like kind of really dry stuff and

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defense acquisition, but they're

all doing it for kind of the same

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mission, trying to move things forward.

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Uh, so I just want to say that I'm,

I'm part of that, that community.

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There are literally dozens of us,

um, but, uh, trying to do, try

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and do some good work out there.

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Uh, for my pairing, I selected

range day and barbecue.

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So I like shooting sports.

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I like shooting guns.

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Right.

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And so you go to the range.

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You know, sling some lead, have a good

time, uh, and then, uh, and then you get

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barbecue because if you're, if you kind

of like squish your brain a little bit, it

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almost feels like you just went hunting.

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You know, you totally did it

because you're in an air conditioned

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range and you have like the

robot target switchers and stuff.

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But now I'm eating some, some like

good brisket and it's like, I don't

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know, maybe, maybe I'll remember

this as the time that I tagged one.

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Right.

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Fresh beef

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Tim Winkler: in Northern Virginia.

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You're missing, uh, some

of that, that Montana beef.

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Aren't you?

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Sean Leahy: I'll say that

Senator Daines is an avid hunter.

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He's a professional in Montana

and there's a whole wall of some

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of his trips and, uh, definitely

interested to get back out there.

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Um, it's, uh, amazing.

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So I had the opportunity

to go three times.

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That's how I met Les.

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Um, and yeah, Montana is just

beyond, uh, beyond beautiful.

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Tim Winkler: That's great.

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Yeah, for sure.

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We're definitely going to tap a

little bit more into that experience

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because I think that's, you know,

at the heart of the discussion here

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is like, how do we streamline this?

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How do we move things forward?

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Um, so obviously a big talking point.

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So excited to pull on

that thread a little bit.

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But, uh, yeah, let's, let's get into it.

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So, yeah.

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Transitioning here into the, uh, the

heart of, of the discussion, you know,

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again, we're going to riff a little bit

on, um, on defense tech, uh, and Sean,

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you previously kind of put it in our email

back and forth, uh, defense tech is like,

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defense tech is almost as hot as NFTs in

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let's just not hope it crashed and burns

a year later, like the NFT market did.

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Um, so I want to start with a little

bit of an overview on the state of

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the market today and, you know, why

it's such a hot market for startups.

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Um, I, you know, I'll, I'll begin my

kind of state and a few of the obvious.

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Factors here, like rising tensions

with us and China, Russia's war in

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Ukraine, kind of dragging on, uh,

developments of the Israel Hamas war.

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But Sean, let's start with you.

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You know, what else is leading to defense

tech having its moment for startups?

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You're not only in Silicon Valley,

but across the country at large.

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So there's, there's

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Sean Leahy: a couple of different angles.

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Um, I'll kind of Jump around, um,

1st ones is from just a very kind of.

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Bare knuckle, almost financial investment

perspective, and I'm I'm immediately

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just stepping on less toes here, but,

um, you know, government dollars, federal

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dollars, and this market, a lot of people

have seen can kind of be recession proof.

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Right?

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And.

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When you have, you know, even

with continuing resolutions

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being what they are, but.

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You know, federal budgets endure, right?

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And so this is something that can be

kind of, you know, counter cyclical.

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It's, it's not related

to the broader market.

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And so there's, there's an

interesting, maybe portfolio kind

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of perspective there as well.

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Number 2, I actually think the,

the bigger of a bigger reason here

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is a generational shift, right?

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Um, you have folks who entered

service following 9 11, um.

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And now it's 20 plus years

later, so they're at the level.

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And they, they're at the level

where they can make decisions.

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They're getting to be, you know,

colonels and, and, and leadership

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within the military, but also

within civilian government.

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And they saw how defense technology

failed them and how these acquisition

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process failed them, how the

lack of commercial involvement.

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You know, failed them during

20 years of, of combat.

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Um, whereas before then you had

folks who joined maybe in the

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nineties or the eighties and all

the nineties was the peace dividend.

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We can talk about the, the

legendary last supper meeting at

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the Pentagon, the early nineties.

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The secretary of defense said,

Hey, there's going to be huge

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consolidation in this industry.

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Get ready for it.

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Right.

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Well, now you're seeing the, the after

effects of that, where you have folks

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who are really motivated and mission

motivated coming out and saying, man,

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I spent five years in Afghanistan or,

you know, six years in Iraq or whatever.

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And we were using stuff that was made

in the 90s, you know, I couldn't use a

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smartphone, even though I've been using

a smartphone in my civilian life forever.

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Right?

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So it's just this kind of

generational shift as well.

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And so people wanted to get back

towards a mission mindset and bring cool

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technology that they see from the Silicon

Valley model that can scale quickly.

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That can.

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Be improved rapidly and trying to

apply that to some, some problems

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that are beyond just B2B SAS, no

offense to B2B SAS, a little bit of

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offense to B2B SAS, but just trying

to do something different with it.

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Tim Winkler: Yeah.

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Yeah.

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I love that insight, man.

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I, um, when we were talking about

over coffee that kind of, yeah,

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it makes your mind spend a little

bit when you're thinking about

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it from that generational change.

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Yeah.

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Um, Les, how about from, you

know, just from, uh, yeah, from

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the investment perspective, like

what, what are you all saying?

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And, you know, with that new fund,

right, you're, you're, you're putting

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a lot of your eggs in those baskets.

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What is it that you're seeing

in the market right now?

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Les Craig: Yeah, I mean, I think, I

think what, what I'm seeing is, uh, you

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know, some really unique, uh, unique

opportunities where founders are willing

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to kind of push traditional boundaries in

this category because there are Complex

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problems that people are trying to solve.

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There's not commercially available

solutions, but I think what, what we

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forget, it's like, why is this, why

are we saying this is so hot now?

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It's always been a hot

space for innovation.

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I mean, like, like, let's not forget what.

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Where did GPS come from?

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Where did the internet come from?

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Satellites, radar, like

even just aviation.

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I was just, I was just reading, uh,

just finished, uh, same as ever.

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And it talks about like the original.

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Aircraft like the, they, they weren't

saying like when, when, when the

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Wright brothers, like, you know,

demonstrated that you could fly an

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aircraft, it wasn't like, Oh, let's,

let's create passenger planes.

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It was like, no, let's figure out

if we can use this thing to drop

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bombs on our adversaries, right?

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Let's figure out if we can,

well, it was more reconnaissance

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first and then bombs later.

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But, but, you know, it's like.

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Like we forget that the military, which

is constantly solving some of the most

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pressing problems where, where there's

lots of budget to do it because our

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very livelihood and security depends on

it, like funds, the innovation, which

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then in the aftermath, we say like,

Oh, well, of course it makes sense

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that like, we can fly from New York

to LA on the same thing that we can

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use to drop a bomb on our adversaries.

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And so like, I think.

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I think it's always been hot.

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I feel like, uh, I feel like we've got,

we've gotten a little bit, um, you know,

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just, just sort of comfortable and more

like consumer and swipe left, swipe right

428

kind of stuff that's not really changing

our lives or innovating our day to day as

429

much as like some of the potential of, of

some of these defense tech applications

430

could, um, But, but I, I think it's, I

get, you know, I get excited specifically

431

right now, um, in terms of the category,

I get excited about autonomous systems.

432

I get excited about cybersecurity

innovations, um, and, and also just, just

433

in general, I think, um, uh, You know,

even, even quantum, I think represents

434

like a next, the next wave within there's

also cybersecurity implications related

435

to quantum advancements, but those are

three kind of dual use defense categories

436

that I get excited about and not just

because of what it means for defense.

437

But what it means for, you know,

additional, the, the dual of

438

Mike Gruen: dual use

439

Les Craig: defense,

440

Mike Gruen: and that's, what's

going to ask a little bit, cause

441

I, part of me wonders if it's also,

I mean, yes, it's always been hot.

442

Like that's just the way.

443

Right.

444

And, um, but also if sort of the access

to the computational power that we now

445

all have access to, when you think about

what problems I can start to think about

446

me personally solving, I have access to.

447

Things that it before I would

have had to have been at DARPA or

448

somewhere to get that kind of access.

449

And now we can now you have that

in more people's hands, potentially

450

looking to how to solve problems

that do tend to be more dual use.

451

Um, so I wonder if there's

some of that as well.

452

Les Craig: Yeah, it's, it's, I think

it's a double edged sword, right?

453

It's like the same, same AI models

that could power, uh, AI based

454

cyber attacks could be used by

cyber firms to build AI defense.

455

It's like, uh, you know, a

castle in a cannon problem.

456

It's, it's, it's, Yeah.

457

I mean, there's, it's, it's scary to

peel that back more, but you're right.

458

The tools are more at

everybody's disposal more than

459

Sean Leahy: ever.

460

So, so, so Mike, to your point, you know,

uh, people like to say nowadays that

461

the world's a smaller place, it's not

the same size, but things move faster.

462

So it feels like it's smaller.

463

And that's the, that's the,

that's the truth of technology.

464

And, um, so you're right in that,

that you can have two guys in

465

a garage who are coming up with

something, maybe, yeah, with LLMs or

466

whatnot, that can have a meaningful

impact, not just on the commercial

467

market, but on a state to state.

468

Uh, competitive market, right?

469

Um, I was in Congress during the 2023

AI wars where all of a sudden every

470

legislative staffer was an AI expert.

471

It's amazing to see happen overnight.

472

Um, but there's a lot of intelligence

in Congress just to tell me,

473

but, uh, is this the part where

I say we should take that out?

474

No, I don't think everybody

would agree with you.

475

Yeah.

476

Um, but there's, yeah, there's

this, it's, it moves faster.

477

And I think that part of the interest

in defense tech is people realizing

478

that technology is moving at one speed

and the DOD and the federal government

479

more broadly is moving at another.

480

And that mismatch now is also

creating a real strategic

481

disadvantage for the United States.

482

So, I mean, this country

is still full of patriots.

483

We have political disagreements, whatever,

but we still want to make sure that we

484

can, you know, have the best possible

technology outcomes capabilities possible.

485

And some of the things that are preventing

that aren't necessarily our avatars,

486

but some broken processes internally.

487

Mike Gruen: So wait, are you

trying to say that like the

488

government's moving like slower?

489

Is that take number

490

Sean Leahy: one,

491

Mike Gruen: number one, you

492

Sean Leahy: know,

493

Tim Winkler: Well, let's

break down why, like, I think

494

that's, that's a big question.

495

Like when we talk about to a lot of,

you know, founders and commercial that

496

are making that transition or trying

to, to make that pivot or, or also, you

497

know, just why, why hasn't, you know,

private capital really, you know, gotten

498

on the defense tech bandwagon and,

and the reality of the fact is like.

499

What we were kind of riffing on when

we first met Sean was that people don't

500

always understand how procurement's

truly done in this environment.

501

And I was reading an article recently.

502

Sean Leahy: The chart's right here.

503

All you got to do is just memorize.

504

Yeah, that's the chart.

505

It's so easy.

506

Tim Winkler: It's

507

Les Craig: like the periodic table.

508

Uh, above your bed, that, that hanging

509

Sean Leahy: dream of

my lessons at my desk.

510

Yeah.

511

Tim Winkler: So, you know, you're

talking about selling to, you know, so

512

in commercial environments, like you're

doing user research, you know, where.

513

The main difference here is right.

514

It was referred to as like the triangle

of death, where the users, the budget

515

and the authority to kind of purchase,

they all live in different places

516

in the DoD and to make it worse,

they don't know about each other.

517

And so it's like.

518

Yeah, that's, that's kind of want you

to, to, to just kind of like pull on that

519

thread a little bit, just to make sure

like that's spelled out for folks that

520

maybe aren't aware of the intricacies.

521

Yeah,

522

Sean Leahy: so I think, uh, a

useful kind of analog here is to

523

use something, some terminology that

people are more familiar with and

524

then, and then kind of draw a parallel.

525

So product market fit

is ubiquitous, right?

526

In technology, you have a product

that solves a customer need.

527

You have a market, which is

hopefully customers who are

528

willing to buy that product to,

to fit that or to meet that need.

529

If, if you're, if you're targeting the

wrong customers, the wrong needs, you

530

pivot, you pivot, you find that product

market fit cool and defense tech.

531

You're talking about

capability and mission, right?

532

And how is capability different

than product capability?

533

There's just a higher level

of support and, and required.

534

If you want us to build a better mousetrap

and just sell it, A little order form.

535

I know quantity 10.

536

Here you go.

537

That's not going to cut it in the D.

538

O.

539

D.

540

You have to support that

thing, whatever it is.

541

And and that means documentation.

542

It might mean, like, actual

frontline support things called F.

543

S.

544

R.

545

S.

546

field support representatives.

547

Right?

548

The level of of.

549

Um, you know, really support

just goes above and beyond and

550

it's not an 800 call number.

551

It's not customer success at Sean's

awesome defense company dot com.

552

So it's way more than that.

553

And then mission is different from

market because in a market you're, you're

554

trying to create value or discover value.

555

How much are customers willing to

pay for perceived delivery of value?

556

In a mission sense, it's, it's

almost univariate where it's

557

like, what are we supposed to do?

558

What is, what is my tech, you know?

559

My program office tasked with doing

are we tasked with developing a better

560

communication system for infantry

units or armor units or whatever

561

you have to nail that mission 1st

and not get too bogged down up front

562

and like a relative value sense.

563

Cost comes in later on in the

pipeline, but you have to understand

564

that mission really, really well.

565

I think that's maybe a

potential weakness for some more

566

traditional Silicon Valley types.

567

But now here's the rub.

568

There's a 3rd part.

569

Mhm.

570

And that third part is the

acquisition, the bureaucracy, the

571

procurement, the contracting stuff,

everything that is on this chart.

572

And it makes everything

so much more complex.

573

And one of the things I try to say to

every defense tech founder, defense

574

tech founder that I talked to, or for

investors is you really have to be

575

prepared to commit to this in a way

that you're not, you're not going to

576

be able to dip your toe in and kind of

like see what the market's all about.

577

If you really want to get into this,

you kind of have to know some stuff up

578

front, commit up front because it's going

to take you multiple years to do what

579

I'm a commercial pure commercial side.

580

Yeah, you can do in,

like, 6 months, right?

581

Um, and that acquisition

stuff is really hairy.

582

Nasty.

583

We can get into that, but I don't

think anybody really wants to.

584

I got into it completely accidentally

in my career, but this is where

585

the rubber meets the road.

586

Um, you know, I'll start, I'll

tap it here by saying that in the

587

defense world, defense tech world.

588

The person who's going to use your thing

is going to use your product is not

589

the person paying for it and the person

who's in the person who's responsible

590

for the capability that you're delivering

to them doesn't own the mission.

591

So there's this fundamental

disconnect between product

592

market or capability and mission.

593

And all the people, all the stakeholders

that you have to approach in order to, to,

594

uh, you know, move your product forward.

595

And if you don't understand how

they, how they actually do integrate,

596

interact with each other, you're going

597

Mike Gruen: to fail.

598

Are there any situations where it's

also, um, probably the answer is

599

yes, but, um, where they're, they're

counter to each other, where the

600

person who, like, I did some work

at a, uh, government agency where.

601

Basically, I was automating

somebody else's job.

602

The person who was in charge of the

project, I was automating her job away.

603

And so there was this like,

tension of, well, what am I

604

going to do once you're done?

605

And I'm curious if you sort

of run into that as well, um,

606

in that sort of bureaucracy.

607

Sean Leahy: Yeah, um, I'd say that

the trap that I see companies, uh,

608

industry fall into is they start to

think that the program management

609

office Is the customer or is the, is,

is the whole point of everything is

610

how do we get this program office to

love our product, love our technical

611

report, our cost information, stuff.

612

No, the people that matter are the users.

613

Those are war fighters.

614

Those are intelligence

professionals, whatever.

615

If you can go out and find that

user level person who is insanely

616

excited about your product.

617

You can find a way then to roll it

back towards that program office,

618

program, executive office, whatever

it might be, and move it forward into

619

a contract and meaningful revenue.

620

Now it's going to take some time and

take some doing, but that's the way

621

to really build something durable

and something that makes sense.

622

If you just try and zero in on the

requirements coming out of like an

623

RFP or something like that, you're

going to build something and might get

624

bought maybe, but that's not durable.

625

That's not long lasting.

626

It's also not going to lead to the kind of

frankly returns and growth and excitement

627

that investors are going to want to see.

628

Mike Gruen: Yeah, we def, I definitely

had that experience where it was one of

629

those, like once we got somebody to buy in

on the end user, the actual person using

630

the software side, it was amazing how

many waivers and other things we were able

631

to get to get our technology, especially

in the research and development phases.

632

Once we got into trying to get it

into more of a production phase, it

633

was now we're talking about real,

real hurdles for real reasons.

634

Like, obviously we need this to meet

those requirements, but if we're just

635

in the R and D phases, which was.

636

Um, yeah, it was amazing how,

once they were excited about

637

it, doors opened, not closed.

638

Oh, absolutely.

639

Absolutely.

640

Tim Winkler: I got a one more quick

follow up on that, uh, on this

641

point, then I want to hear less.

642

I'd love to hear your insights on like,

you know, how you're kind of probing

643

founders on, on, you know, how they're

navigating the waters, but is there

644

a world where the budget authority

would be closer to the end user?

645

If we already know that this

disconnect exists, right?

646

I mean, and, and how, how far out

is something like that to happen?

647

Sean Leahy: So you're, you're, you're

hitting on something that's big and kind

648

of some of the acquisition reform circles,

which is pushing some of that purchasing

649

authority, um, lower in echelons.

650

Right?

651

Because right now to get towards a

program of record, which is where

652

everybody wants to be, you're going up

to a program executive office level.

653

This is like deep in the bureaucracy.

654

This is, these are

generals and SES is this.

655

There's a lot of layers.

656

You got to pass to get to that final boss.

657

Pushing it down lower than

that would be really hard.

658

I mean, you would literally

require changes to US code to law.

659

What I'm seeing, um, I saw this

in Congress and, and there's been

660

moving towards this, um, for a

couple of years now is just trying

661

to spend money a little bit faster.

662

The DoD doesn't have a

budget volume problem.

663

I mean, we're closing on a trillion dollar

DoD annual budget, but it has a money

664

speed problem, which is how long it takes

to cut checks and and write contracts.

665

And you're seeing some really cool,

innovative, um, or innovation programs.

666

I mean, chief among which is the

DIU defense innovation unit, but

667

then you've got air force, TAC

five, strat five got Raider absent.

668

Google all these later on, um,

with the whole point is to just

669

try and get money on contract to an

innovator, to a smaller firm quicker.

670

Right.

671

Cause that starts the

ball rolling forward.

672

Um, and those units and those efforts are

typically a little bit closer to mission

673

and a little bit closer to war fighters.

674

They're not up in the

Pentagon at PEO levels.

675

I mean, a little wishy washy with

that, but generally speaking, that's

676

the vector that's going forward.

677

Um, and they're really promising.

678

They're there's there's

they're bearing some fruit.

679

We're still early in the ball game.

680

I think I like to say the top, the second

inning, but, um, things are moving forward

681

in a way that, that I don't think you

really seen for, for multiple decades.

682

Tim Winkler: Unless is that kind of like

next frontiers making bets on some of

683

those changes happening in the, you know,

call it a near medium foreseeable future

684

because, you know, you're talking to

founders or, you know, banking on runway.

685

Right?

686

And so like, what's their game plan

here to make it five years before

687

they get over that valley of death?

688

Les Craig: Yeah, well, we're, we're

venture capitalists, so we don't make

689

bets, but we do, uh, underwrite and

invest in lots of things, uh, but,

690

uh, but, you know, it's, it's funny,

I, I think, like, what Sean just

691

characterized, I think, was great, uh,

in terms of, like, I, I have kind of a

692

book ended perspec book end perspective

of this cause like I used to, you know,

693

16 years ago, I was the warfighter.

694

Um, and you know, in the words of

Toby Keith, uh, I'm not as good

695

as I once was, but I'm as good

once as I ever was, you know.

696

I remember those days.

697

I remember those days.

698

Uh, and um, even when you're at the

tip of the spear, Like you can get

699

whatever you want, but sometimes that

doesn't mean you're getting the best,

700

you're fielding the best technology.

701

If you work at a, a Bay area growth

stage tech firm, you can not only get

702

whatever you want, but you can get the

best and you know what the best is.

703

And I think one of the challenges with,

with the war fighter on that end and

704

like getting technology, the war fighter

is sometimes they don't even know.

705

What they don't know, they don't even

know what is in the realm of possible,

706

but there are people out there that are

innovating that, that, that do know.

707

And that's where I think like when

I'm looking, when I'm hunting for

708

great tech companies in the space, I

really want to see founders that have

709

a deep rooted sort of understanding and

background as it relates to the operator.

710

Right.

711

I want to see founders that have, you

know, the same, the same great, uh,

712

characteristics as strong technical

founding teams that we invest in and

713

more traditional B2B SaaS companies, but

also they got to check that extra box.

714

They they've got to understand the

needs of the warfighter and, and, and

715

what the, what sort of capabilities

can be leveraged and brought to the

716

warfighter in a more modern way.

717

Because I think that's a gap on

that end, on that end of the book.

718

Yeah.

719

On the other end of the book, and now

I put my investor hat on, I think one

720

of the greatest challenges, uh, in

investing in this space is a lot of

721

people don't understand this about

venture, but every single fund that's

722

out there, I'm not even talking about

a firm I'm talking about a specific

723

fund that the firm has raised that fund

that they're actively investing out of.

724

Has a sort of, you know, performance

metrics that they promise their LP base

725

or that they, they, their, their strategy

that they're trying to deliver on that

726

often backs into when they can invest,

how big their checks are, what their

727

targeted ownership, yada, yada, yada.

728

And then ultimately they, they build

a model and then that has to lead to

729

this return profile of the portfolio.

730

One of the challenges.

731

Of investing in this category is in order

to typically get the type of return, the

732

sort of outsized return that you need

to do in venture as an asset class, you

733

have to go be willing to go really early

and typically in this category really

734

early, there's Other mechanisms and better

mechanisms like, like Sean mentioned,

735

um, some of these programs, you know,

even, even SBIR, STTR programs as well,

736

um, those are great non dilutive funding,

especially for highly capital intensive

737

endeavors, you know, in this category,

um, but at what point, like where as a

738

VC, can you find intersection between You

know, sort of understanding of product

739

market fit or understanding of traction

and that the need is validated and that

740

there's, there's enough momentum to

deploy the right amount of capital that

741

has the potential to yield the right.

742

Return at exit.

743

'cause that's the challenge in the

category is like, who are the acquirers?

744

You know?

745

Yeah.

746

It's an eight, $800 billion tam.

747

You know?

748

And then as you narrow it down, it's

still gonna be, you know, you're

749

still gonna get to something that

makes sense from a TAM perspective.

750

But even if you can capture, you

know, you build a hundred million

751

dollars, you, you know, re recurring

revenue business selling to the

752

government, who's gonna acquire you?

753

Unless you're on a path to become

the next Anduril or the next, uh, or

754

I should say like the next Raytheon,

which is what, you know, like an Anduril

755

is trying to do, unless you're on a

path like that, which even there, it's

756

like, well, then you got to go public.

757

When was the last time a defense

tech company went public?

758

I mean, you could argue maybe, but.

759

You know, it leads to all these downstream

challenges as an investor that I think

760

we, we have to think very hard about

as we're searching and looking, but we

761

also need to sort of, I think as a, a

collective, we, we need to figure out

762

this industry and like who are, who's

going to write the follow on checks

763

and then where do we, where do we end

up, where do these companies end up?

764

In terms of getting liquidity, uh, for,

for these bonds that are backing them.

765

And that's, that's

something, you know, TBD.

766

Tim Winkler: Yeah.

767

It's an interesting, it's an interesting

point because you're also seeing a lot

768

of those bigs that you kind of referenced

like Raytheon, they're, they're building

769

out their own little studios, their

own little labs and, you know, And

770

they've got the money to, you know,

to inject into it equally as, as, uh,

771

you know, private, you know, VC would.

772

Um, so, you know, I, I, I think through,

um, and I think that point is valid in

773

terms of like, when's the last time a

big defense tech company went public.

774

And that was actually one, one of the guys

on our previous episode on palace, uh,

775

from palace advisors was, was saying that.

776

Until something like that happens

and still, until one of those events

777

happen, you know, it's still has this

like hesitancy from venture of, oh

778

yeah, it's time, like, it's super hot.

779

This is it.

780

Did you see what Andrew did?

781

And so, you know, I think there

is still this hesitancy of like,

782

when is it going to happen?

783

And why is it, why hasn't it happened yet?

784

What, what's going on?

785

Les Craig: And, and there's always,

there's always been acquisitions in the

786

space, but typically I think the majority

of acquisitions in this category are,

787

you know, through the defense primes,

you know, typically you look at just the

788

comps and they're not paying much more

than a couple hundred million max usually.

789

Right.

790

Um, so it's, you know, there's,

there's, there's some trickiness there

791

that I think we need to, we need to

see through and, and hopefully, As

792

you know, things seem to be really

heating up in the private investment,

793

uh, opportunities in this space.

794

I, you know, hopefully we'll see

some good precedence, which will just

795

encourage more people to, you know, to,

to, to seek out these opportunities.

796

I think it's what we need.

797

I mean, I, I believe pretty

strongly like national security

798

depends on the success of this.

799

Um, so, you know, I'm, I'm very hopeful

that, that we, we figure it out.

800

Tim Winkler: There's a part of that

conversation that I want to, uh, go down

801

a little bit more of, of that path, which

was, um, you know, you're looking at

802

founders that, yeah, maybe they have the,

the traditional kind of tech founder mold.

803

Um, but if you're going to play in

this space, you know, there's this

804

other key piece, uh, there's this

other key mold that really kind of

805

relates to somebody who understands

the mission at a granular level.

806

Maybe has been in the, in the, uh, the

boots of, of a soldier, you know, as, as

807

a user, uh, Sean, we were going down this

path, uh, previously, I I'd love to, to

808

expand on what does that mold look like?

809

Because there's a lot of these, you know,

maybe commercial startups that are maybe

810

like they, they see a great use case,

but they don't quite understand who they

811

need to hire to be this, Chief product

officer, or maybe even like a COO type

812

that could take them to that next level.

813

What would you describe

as like that ideal person?

814

And then what that looks

815

Sean Leahy: like?

816

Well, the first thing I'm going to

say, uh, for my buddy JP is don't

817

go out and hire an ex general.

818

Right for your, if you're, if you're a

four man startup, don't go find the one

819

star who just separated from service

and be like, Hey man, we're going to the

820

moon and you're going to take us there.

821

We do love generals.

822

Let's just edit my career a little bit.

823

A lot

824

Tim Winkler: of editing.

825

Sean Leahy: So I, there, there are

a couple of different, you know, um,

826

yeah, personas or models you can look

at here, um, deployed military, um, uh,

827

experience is, is close to non negotiable,

um, or, or intelligence professional.

828

If you're going to try and play in

the, in the intelligence market.

829

Um, I I'd say that

there, that, that can be.

830

You can get away with not having

that if you had somebody who

831

frankly grew up around it.

832

I don't mean like as a kid, but

someone whose career path they

833

started at one of the primes or

maybe a little bit smaller and that

834

have like 10 or 15 years into this.

835

That could work too, but really you

need someone who can say, I've stood

836

in front of warfighters, operators, et

cetera, and understood their problems.

837

And you need someone with a cultural fit.

838

And what I, when I'm talking about

that is there's an apocryphal story.

839

I don't think this actually happened, but

everyone tells a story at like happy hours

840

where it was Palantir in the early days.

841

And they sent like their first

delegation to the Pentagon and they

842

showed up in like jeans and hoodies

and a general comes out and is like,

843

learn how to dress like adults.

844

And then we can have the meeting.

845

It didn't happen.

846

Right.

847

That, that's definitely, it was got

like a made up by someone out here, but

848

there is, there is some of that where,

you know, you're going to be talking to,

849

to, you know, multiple combat deployment

type folks, you're going to be talking

850

to people who use acronyms left and

right, who say things like, Hey, this is

851

good for a two shop targeting package.

852

And if you don't kind of know how to

go with some of that, it's going to be

853

a little bit more difficult for you to

get developed that customer empathy.

854

Um, but I'd say that, so yeah, you're,

you know, veterans are critical and

855

also you're doing a good thing there by,

you know, getting veterans, you know,

856

helping them transition out of service.

857

Um, but you also need someone who

understands the industry, right?

858

Like I'll point back to it again, but

like the acquisition chart, it's, it's

859

not just like it's something you can

foist off onto like your legal team

860

or your proposal team or whatever.

861

It's, it's part of your

go to market strategy.

862

Is, you know, which, which PEOs are

in the right budget cycle and the

863

right capability development cycle

that we want to go target them.

864

And the crazy thing about that

is that a lot of veterans never

865

even get involved in that world.

866

Right?

867

So you might have somebody who's

got a great looking jacket.

868

You know, with combat deployments,

but they never understood how

869

the thing that they use on

deployment got into their hands.

870

And so that's an, an even more

rare skillset to have, um, to find.

871

Um, but you need that.

872

I think that like the chief product

officer in a defense tech or even a dual

873

use company needs to have some awareness

of this, so they don't have to be experts.

874

Right.

875

But they need to be able to speak

that language and understand.

876

You know what budget activities

are and what a presidential budget

877

looks like, what a program objective

memoranda is like, because that's

878

how you get to the revenue and

there's no shortcut to this, right?

879

There are ways you can speed run,

but there's no shortcut to it.

880

Yeah,

881

Tim Winkler: it's looking at this

from like a recruiting mindset.

882

Uh, you know, it's a really fascinating

way of, of, you know, outlining to

883

a founder of, Hey, like, why don't

you go and, and, and look at what,

884

you know, a Northup and a Lockheed

hired at these different levels.

885

Um, I would even break that down to

like, not just the bigs, but like, let's

886

look at like the, the, the mid tier.

887

Integrators and who do they have sitting

in their, yeah, in their C suite or

888

like super, you know, EVP levels and

scan those backgrounds and show me,

889

you know, see, start to pick up on

some themes because I'm pretty sure

890

they've all kind of figured it out.

891

They studied from, you know, what did

Lockheed do, you know, and, and, you

892

know, kind of like mimic that in the

earliest of stages and trying to find

893

individuals that have a similar mold.

894

I think it's a really fascinating

thought when you think about.

895

You know, this COO or like this

chief product person, cause it's

896

very different than the chief

product mold that you would look for.

897

And just this, like,

yeah, B2B SAS startup.

898

Sean Leahy: One, one quick addition there.

899

Um, some free chicken is look for

somebody, you know, probably an

900

ex officer, sorry, uh, to enlist

their folks, but ex officer who had

901

like a joint staff to her, right.

902

Who like, who's literally walked around

the Pentagon before that doesn't,

903

that doesn't make them that they

know everything about the Pentagon.

904

Nobody does.

905

But again, it's, they know that

culture, they know some of these

906

systems, some of these, these non

documented ways of getting things done.

907

So, um, that can be really, really

effective, um, as, as, as a resume

908

point, not, it's not always the

golden star, but it's an indicator.

909

What about hiring a lobbyist?

910

Oh, all right.

911

Um, there, you know, big potato

to go with the free chicken.

912

Well, it's, it's also that I'm

coming off of being there for a year.

913

And so I know like a lobby, I have a lot

of lobbyist friends now, so I want to

914

make sure that we still stay friends.

915

Um, I'm like your general friends who,

916

Tim Winkler: yeah,

917

Sean Leahy: I'm going to go get the

years of Lloyd Austin after this.

918

Uh, yeah.

919

My general friends, um, uh, Anyways,

um, a lobbyist is going to be part of

920

what you need to hire at the right time.

921

It's, it's when you're really,

really early on, right?

922

You're, you've got a product, you've

got an idea, uh, you're on a sib

923

or sit or something like that.

924

You're talking to, not even, you're

talking to like next frontier unless

925

you're a little bit before then, not

the time for a lobbyist, but then

926

eventually, yeah, you're going to

need to get there because it's not

927

just about maybe trying to go in

and get some, some budgetary help.

928

You have to watch Congress

every single year.

929

Because they passed the NDA, a National

Defense Authorization Act, it's a huge

930

documents over 1000 pages long, and

it has meaningful changes to law every

931

single year that can impact your business.

932

Right?

933

And 2023 or fiscal year 2024, the

934

of pretty big changes, which we

can talk about for the industry.

935

Uh, and if you're not paying attention

to it, you're going to, you're behind the

936

curve because there's other firms who are

937

Mike Gruen: those other, and there's other

firms that have gotten that legislation

938

put in or got the words put in.

939

I imagine.

940

Sean Leahy: Yeah.

941

Well, you know what?

942

And as, as much as that, it's very true.

943

I mean, the big primes, part of the reason

that they're big primes is they've been

944

playing this game for a long, long time

and they have the head count and the

945

people on the Hill and the people in PEOs.

946

Where they live there, right?

947

And so if you're, if you're a

defense tech startup, you don't

948

have, you can't teleport yourself.

949

Yeah, we're still working

on cloning, right?

950

I think dark was working on it.

951

I'll ask my buddies, but, um, you

can't be more places than one.

952

The big primes have armies of

guys and girls who can, who

953

can be multiple places at once.

954

Right.

955

Tim Winkler: Yeah.

956

Let's, let's talk about that.

957

Um, NDAA, uh, the National

Defense Authorization Act, uh,

958

because yeah, it's, it's, uh, an

all time high this year, right?

959

So what, what is it, uh, break it

down and, and, you know, what does

960

that amount that, that they're

looking at for, for these programs,

961

for these defense programs?

962

Sean Leahy: I mean, I think all in

we are just under 900 billion, right?

963

Um, somewhere in that neighborhood.

964

Um, now that's not just,

that's, that's for everything.

965

That's for, that's for soldier pay.

966

That's for military construction.

967

That's for procuring.

968

That's for O& M for existing programs.

969

That's for new RGT& E.

970

So if you're looking from like a

TAM perspective, Um, it's still in

971

the hundreds of billions, right?

972

It's still a lot of money.

973

Um, but TAM is one thing speed

is another and how quickly you're

974

going to get those dollars.

975

Tim Winkler: Right?

976

Sean Leahy: So RDT& E, right?

977

This is where a lot of startups are going

to find their first levels of revenue.

978

You're in the neighborhood of a hundred

billion dollars all in on that, right?

979

So that sounds like a lot of

money you can go after and

980

capture, but it's not that easy.

981

Um, if, if, if you don't mind,

I kind of want to pivot a little

982

bit into some of the big changes.

983

In the NDA, this, this, this go

around that I think are pertinent.

984

Um, so right, right up top is.

985

There's a demand section 811 of

this year's NDA for modernizing the

986

DOD requirements process, right?

987

So this big monster that I do keep on

my next to my desk that there's now, you

988

know, this effort to try and change it.

989

It's going to be piecemeal.

990

It's not going to be all at once.

991

It's certainly not going to be fast.

992

But this is an explicit acknowledgement

codified in the U S law that we

993

need to change things, right?

994

So this, this is a pretty big signal.

995

I'd think that things are actually

changing at a, at a very fundamental way.

996

Um, number two, there's something called a

pilot program for everything as a service.

997

So now you actually have the DOD using

as a service, like that's a victory guys.

998

We got it.

999

We got to count that one as a victory,

00:50:32,330 --> 00:50:36,560

but the idea is that the DOD can

actually purchase things like SAS,

00:50:36,640 --> 00:50:38,320

like, you know, a usage based.

00:50:38,950 --> 00:50:44,060

Whatever consumption based model,

um, for up until literally this

00:50:44,060 --> 00:50:47,310

year, it's been kind of an open

question if that was possible.

00:50:47,350 --> 00:50:49,988

I mean, legally possible for

the to spend money that way.

00:50:49,988 --> 00:50:52,470

And the answer is, there are

ways to get around it and

00:50:52,470 --> 00:50:53,710

stuff and creative contracting.

00:50:53,710 --> 00:50:58,680

But now it's like codified as we

could go after using that model

00:50:59,180 --> 00:51:01,020

within the D O D, which is huge.

00:51:01,980 --> 00:51:02,380

Um.

00:51:03,040 --> 00:51:06,810

You also have now, um, they're going

to try and put in trend technology,

00:51:06,810 --> 00:51:11,170

transition, um, advisors and every service

level service acquisition, executive

00:51:11,170 --> 00:51:14,900

level, this whole valley of death

concept where you have cool technology

00:51:14,900 --> 00:51:16,600

on the R and D R D T and E side.

00:51:16,610 --> 00:51:17,920

And it doesn't make sense to procurement.

00:51:18,550 --> 00:51:21,920

They're putting someone at the

executive level that is entirely

00:51:21,920 --> 00:51:25,310

responsible for trying to find

tech transition pathways, right?

00:51:25,330 --> 00:51:27,330

So that's, that's now a new stakeholder.

00:51:27,755 --> 00:51:29,565

Every team needs to get their email.

00:51:29,565 --> 00:51:30,745

All right, but they're not in place yet.

00:51:30,745 --> 00:51:34,365

But that's that's a

major, a major part of it.

00:51:35,185 --> 00:51:37,015

Um, yeah.

00:51:37,015 --> 00:51:40,495

And then the last 1 is,

uh, new IP strategies.

00:51:40,825 --> 00:51:44,485

This is getting a little bit into the

weeds, so I'll cut it off here, but, um,

00:51:44,655 --> 00:51:47,855

selling IP to the government's hard and

weird, because if you don't do your IP

00:51:47,865 --> 00:51:49,225

protection correctly, you can end up.

00:51:49,685 --> 00:51:54,915

Um, accidentally over not charging enough

for not protecting your IP correctly.

00:51:55,820 --> 00:51:57,290

Um, it almost happened to a small company.

00:51:57,290 --> 00:52:02,710

I was involved with, uh, but and

especially in the software and

00:52:02,710 --> 00:52:05,630

software as a service realm of

things, not doing a good job.

00:52:05,630 --> 00:52:07,590

Protecting IP can can be really dangerous.

00:52:08,660 --> 00:52:11,450

Departments acknowledging that

and trying to set up new ways to

00:52:11,480 --> 00:52:13,640

protect or to incentivize firms.

00:52:14,130 --> 00:52:17,640

To say it's okay to come and, and, and

give us your IP and sell us, sell us IP.

00:52:20,010 --> 00:52:23,070

Tim Winkler: Yeah, that's, I mean,

it all sounds like really promising.

00:52:23,070 --> 00:52:27,430

I think the, you know, I think what

everybody is like, they want to

00:52:27,450 --> 00:52:31,040

see things in action and, you know,

it's early stage in the year too.

00:52:31,040 --> 00:52:34,450

So it sounds like this is a, these

are all things that we can expect,

00:52:34,660 --> 00:52:38,735

you know, rolling in throughout

the course of the year and, uh, You

00:52:38,735 --> 00:52:39,955

know, it'll probably take about four

00:52:39,955 --> 00:52:42,590

Sean Leahy: years to do all the four years

00:52:42,590 --> 00:52:43,477

Tim Winkler: this

00:52:43,477 --> 00:52:44,365

Sean Leahy: year.

00:52:44,365 --> 00:52:47,027

It'll take four

00:52:47,027 --> 00:52:47,914

Tim Winkler: years.

00:52:48,275 --> 00:52:49,455

But, you know, I guess, yeah.

00:52:49,455 --> 00:52:53,255

Trying to paint a positive light that

there's obviously acknowledgement

00:52:53,255 --> 00:52:57,765

that things need to change and

it's, you know, moving quickly is

00:52:57,775 --> 00:53:00,075

always going to be a challenge,

but at least it's been a knowledge.

00:53:00,205 --> 00:53:02,055

Um, so that's, that's great to hear.

00:53:03,020 --> 00:53:08,490

Um, well, I, I don't wanna, uh, hijack

the entire episode without getting

00:53:08,490 --> 00:53:11,580

to our final, uh, segment here.

00:53:12,000 --> 00:53:12,270

Les.

00:53:12,270 --> 00:53:16,920

Anything else you want to kind of add

to the, the conversation, um, before

00:53:16,920 --> 00:53:18,180

we put a bow on it and transition?

00:53:18,330 --> 00:53:21,750

Les Craig: Yeah, I just think one

more thing I'll just kind of, uh, you

00:53:21,750 --> 00:53:22,890

know, kind of cherry to put on top.

00:53:22,950 --> 00:53:29,430

I think you, you know, if you consider

venture capital, like at its core what

00:53:29,430 --> 00:53:31,680

it's about, it's about, it's about.

00:53:32,105 --> 00:53:36,485

Funding high growth

potential companies, right?

00:53:36,485 --> 00:53:37,135

Businesses.

00:53:37,735 --> 00:53:42,295

And what, what, what if you, if

you, if you just put, you know, DOD

00:53:42,295 --> 00:53:45,505

timelines and bureaucracy and different

administrations and all that other

00:53:45,505 --> 00:53:50,305

stuff aside, I think fundamentally, if

you look at defense tech investments.

00:53:50,995 --> 00:53:55,345

Especially those that

have dual use component.

00:53:55,755 --> 00:54:00,525

If you look at them as independent of

the craziness that can go on and the

00:54:00,525 --> 00:54:04,975

timelines that can slip, I think there's

a lot of, there's a lot of goodness there.

00:54:04,985 --> 00:54:08,705

So like, I'm not looking at like

hypersonics or directed energy weapons

00:54:08,705 --> 00:54:10,095

or space defense or stuff like that.

00:54:10,095 --> 00:54:14,425

But when you look at stuff that

has more dual use capability.

00:54:14,900 --> 00:54:19,790

I think VCs should of all kinds and sorts

should be looking at this stuff because

00:54:20,940 --> 00:54:22,550

when you underwrite these investments.

00:54:23,330 --> 00:54:29,780

The commercialization potential, if it's

there, you can steward it in a, in a very

00:54:29,780 --> 00:54:31,680

positive way towards private markets.

00:54:31,680 --> 00:54:35,940

And the best, the best defense tech

company that you've never heard of was

00:54:35,940 --> 00:54:39,610

a company that we backed that, you know,

has, they had this, it's called, it was

00:54:39,610 --> 00:54:41,100

called Blackmore sensors and analytics.

00:54:41,640 --> 00:54:43,920

They had a, they had a great SBIR vehicle.

00:54:44,290 --> 00:54:46,210

Um, actually at the time they

were called Bridger Photonics.

00:54:46,500 --> 00:54:47,630

They split the company.

00:54:47,950 --> 00:54:52,390

They started a, they use the same

technology to apply to autonomous

00:54:52,390 --> 00:54:57,290

driving, uh, and they were acquired by

Aurora and similarly bridge of photonics.

00:54:57,970 --> 00:55:03,860

abandoned that defense use case and

went down the path of LIDAR gas mapping.

00:55:03,950 --> 00:55:06,630

And now they're one of the,

one of the industry leaders

00:55:06,630 --> 00:55:08,500

in aerial LIDAR gas mapping.

00:55:08,500 --> 00:55:14,960

So there's two incredible commercial

use cases, two companies that have

00:55:14,960 --> 00:55:17,560

created, you know, hundreds of

millions of dollars of enterprise

00:55:17,600 --> 00:55:22,520

value independently of the single

DOD contract that got it all started.

00:55:22,830 --> 00:55:27,685

So I, I think, I think looking at

these investments independently and

00:55:27,685 --> 00:55:31,715

saying like, this is, yeah, this is

a great defense tech application, but

00:55:31,715 --> 00:55:35,895

fundamentally this technology is, is game

changing for commercial markets as well.

00:55:35,905 --> 00:55:38,395

Like that's where we should be

underwriting a lot more investments.

00:55:38,795 --> 00:55:40,105

I think in this, in this space.

00:55:41,215 --> 00:55:43,965

Sean Leahy: Yeah, I want to plus one of

that and in a big way, because there's

00:55:43,965 --> 00:55:47,275

some asymmetries that I think people

miss out on because they get bogged

00:55:47,275 --> 00:55:52,065

down and the bureaucracy defense tech,

but if you're investing in real and

00:55:52,065 --> 00:55:56,365

deep technology or sort of cutting

edge technology and defense tech, you

00:55:56,365 --> 00:55:57,455

don't know where that's going to go.

00:55:57,555 --> 00:55:59,485

Innovation is not linear, right?

00:56:00,095 --> 00:56:04,265

Um, but if you stick with it,

you're going to find, I think, these

00:56:04,295 --> 00:56:07,565

commercial back out applications, right?

00:56:07,565 --> 00:56:09,555

So dual uses one buzz term.

00:56:09,555 --> 00:56:10,875

I like the one of bi directional.

00:56:11,285 --> 00:56:16,045

Where if you invest in defense tech,

you might all of a sudden 3, 4, 5 years

00:56:16,045 --> 00:56:20,445

into that see, oh, wow, this has an

obvious commercial application because

00:56:20,445 --> 00:56:24,035

it got to a new level of technological

advancement that we didn't know 3, 4

00:56:24,035 --> 00:56:28,245

years ago that now we can peel this off

and go back to commercial markets and.

00:56:28,605 --> 00:56:31,575

And get those kind of faster

returns a little bit more,

00:56:31,705 --> 00:56:33,325

um, traditional in the BC.

00:56:33,765 --> 00:56:35,355

And there's no way of

knowing that right now.

00:56:35,365 --> 00:56:36,535

It's an unknown unknown.

00:56:37,115 --> 00:56:40,755

Um, just as I think what people are

focusing right now is all this great

00:56:40,755 --> 00:56:44,755

commercial tech that has obvious defense

applications, bi directional back end.

00:56:45,385 --> 00:56:48,435

So VCs have this incredibly

important part to play.

00:56:48,810 --> 00:56:50,730

Because they can see those 2 worlds.

00:56:50,800 --> 00:56:51,170

The D.

00:56:51,170 --> 00:56:51,260

O.

00:56:51,260 --> 00:56:51,450

D.

00:56:51,450 --> 00:56:53,450

doesn't care about the commercial markets.

00:56:53,520 --> 00:56:54,510

That's not their mission.

00:56:54,560 --> 00:56:55,560

Remember mission, right?

00:56:56,090 --> 00:57:00,350

Um, so you have, you have to have

this, this 3rd party, which is

00:57:00,420 --> 00:57:03,370

kind of the investment, the venture

community, entrepreneurship community.

00:57:03,680 --> 00:57:05,670

They can surf those worlds, right?

00:57:05,680 --> 00:57:07,330

Cause the DOD isn't going

to do it themselves.

00:57:08,230 --> 00:57:11,120

Tim Winkler: I think the other piece

of this too, Sean is like, uh, this,

00:57:11,150 --> 00:57:14,610

you know, we haven't even touched on is

like some of the civilian agency, uh,

00:57:14,640 --> 00:57:19,150

applications because, you know, we, we

kind of, uh, scratched that surface when

00:57:19,150 --> 00:57:22,710

you're talking about the department of

agriculture and the use cases that are

00:57:22,730 --> 00:57:27,590

going to come into play for, you know,

almost like drones and, uh, some of

00:57:27,590 --> 00:57:31,130

those, some of the similar technologies

that are being implemented, like for

00:57:31,130 --> 00:57:36,555

autonomy, um, But, you know, health

and human services, you know, veterans

00:57:36,555 --> 00:57:39,685

affairs, uh, energy, uh, agriculture.

00:57:39,705 --> 00:57:45,055

There's so many other agencies too that

might be, you know, might have some

00:57:45,055 --> 00:57:48,505

similarities in terms of navigating,

but might not be as difficult as

00:57:48,505 --> 00:57:52,435

it would be, uh, you know, getting

into the user of like a war fighter.

00:57:52,905 --> 00:57:53,585

Um,

00:57:54,195 --> 00:57:55,275

Sean Leahy: So, you

know, maybe, maybe not.

00:57:55,275 --> 00:57:57,915

If you wanna, if you wanna go

up against HHS, be my guest.

00:57:57,915 --> 00:57:59,205

I don't, I'm not that man.

00:57:59,655 --> 00:58:01,095

Yeah, I'll stick, I'll stick with dod.

00:58:01,725 --> 00:58:05,140

Show me on the chart how to, um, hhs.

00:58:05,200 --> 00:58:06,780

Oh, there is no chart for that.

00:58:07,570 --> 00:58:08,855

There's that chart for that.

00:58:09,155 --> 00:58:10,385

No, it, it's just the void.

00:58:10,505 --> 00:58:10,895

You just have to,

00:58:13,445 --> 00:58:17,495

Tim Winkler: well, another one that's

got a shit ton of money, uh, to spend.

00:58:17,495 --> 00:58:19,420

If you can figure out, maybe

we'll do that as a follow up.

00:58:19,660 --> 00:58:22,055

Mike Gruen: I know some people who do

the, uh, on the HHS side of things.

00:58:22,060 --> 00:58:23,165

We'll, we'll do that as a follow up.

00:58:24,230 --> 00:58:24,540

Okay.

00:58:24,780 --> 00:58:25,110

Sounds

00:58:25,110 --> 00:58:25,360

Tim Winkler: good.

00:58:26,560 --> 00:58:26,860

All right.

00:58:26,860 --> 00:58:30,370

Well, uh, yeah, I think this has been

a really fascinating conversation.

00:58:30,420 --> 00:58:35,540

Uh, I want to continue to, to tap into

some of those insights, Sean, I know that,

00:58:35,540 --> 00:58:39,840

you know, you, we talked about me having

continued conversations around this and,

00:58:40,290 --> 00:58:43,750

uh, just really, really fascinating and

really helpful for a lot of the folks

00:58:43,750 --> 00:58:45,400

that are tuning into this type of show.

00:58:45,410 --> 00:58:45,430

So.

00:58:46,040 --> 00:58:47,840

Appreciate the, uh, the Intel.

00:58:48,170 --> 00:58:50,560

Uh, let's pivot to the final segment here.

00:58:50,600 --> 00:58:52,290

Uh, it's a five second scramble.

00:58:52,690 --> 00:58:56,010

Uh, Mike and I are going to ask

you both a series of questions.

00:58:56,170 --> 00:58:59,370

You kind of give your

answers within five seconds.

00:58:59,370 --> 00:59:04,590

If, if, if you can, uh, you know, rapid

fire Q and a some business, some personal

00:59:04,620 --> 00:59:08,380

Mike, why don't you lead us off with,

with less and then I'll get to you, Sean.

00:59:09,290 --> 00:59:09,680

All right.

00:59:09,765 --> 00:59:12,765

So here

00:59:12,765 --> 00:59:14,265

Mike Gruen: we

00:59:14,265 --> 00:59:15,765

Tim Winkler: go,

00:59:15,765 --> 00:59:18,215

Mike Gruen: the door's open.

00:59:18,215 --> 00:59:20,645

This isn't closed door,

a dojo to conversation.

00:59:20,645 --> 00:59:23,065

So here we go.

00:59:24,075 --> 00:59:25,975

What's your favorite stage of startup to

00:59:25,975 --> 00:59:26,505

Les Craig: invest in?

00:59:27,405 --> 00:59:28,725

I love seed stage.

00:59:28,725 --> 00:59:31,025

I love kind of the earlier,

the better I don't, we don't

00:59:31,025 --> 00:59:32,565

do pre seed, but I love early.

00:59:34,405 --> 00:59:36,105

Mike Gruen: What do you think

is the biggest challenge facing

00:59:36,105 --> 00:59:37,645

00:59:38,490 --> 00:59:41,750

Les Craig: Uh, I think, uh, raising

capital will continue to be a

00:59:41,750 --> 00:59:46,310

challenge, but I also think, um,

getting, you know, enter enterprise

00:59:46,340 --> 00:59:47,970

customers continue to be hard.

00:59:47,970 --> 00:59:49,320

You know, purse strings are still tight.

00:59:49,320 --> 00:59:50,120

Budgets are tight.

00:59:50,170 --> 00:59:52,570

So raising capital and getting revenue.

00:59:53,785 --> 00:59:56,320

But easy problems, not a big deal

00:59:56,320 --> 00:59:56,770

Tim Winkler: is good.

00:59:59,470 --> 01:00:01,810

.

Mike Gruen: Uh, what's your, uh, favorite part of the culture

01:00:01,810 --> 01:00:03,700

at ne at Next Frontier Capital?

01:00:04,310 --> 01:00:07,160

Les Craig: Uh, I think it's kind of

like, uh, it's a culture where every,

01:00:07,160 --> 01:00:12,230

every idea is like, is given a chance

and, um, it's a very flat organization.

01:00:12,235 --> 01:00:15,710