Startups and national security

September 12, 2022

Venture-backed startups have never been more important to our national security. In this defense-focused episode we dive into what it’s like working with the Department of Defense (DoD) and how to accelerate public-private partnerships in such a complicated field.

PODCAST GUESTS

Dan Kliman – Director for National Security Strategy

Sarah Mineiro – Principal, Potomac Advocates

AJ Piplica – Founder & CEO

Zach Shore – VP of Growth

Episode Transcript

Zach: I don't know what to do with my hands.

Dan: Just sit on them, man.

AJ: Just don't. Just don't.

Sarah: Some Anchorman stuff right here.

AJ: There you go. Sarah, I want to apologize ahead of time, it's very kind of awkward to look at you and talk.

Sarah: Right. Yeah, no, it's okay.

AJ: I'll try, but yeah.

Sarah: Don't worry about it. It's all good.

AJ: All right, Dan, what are we all doing here?

Dan: That is a good question. All right, well why don't we get this party started if Michael's ready to go? Awesome. Well I am thrilled to have everybody here for the inaugural Hermeus National Security Podcast.

Zach: Oh wow.

Dan: This is the first of what will hopefully be a regular series of conversations, and as you all know, we are Hermeus Mach 5 startup, building aircraft to radically accelerate the world's travel and in the meantime do some great work for the nation as well. So I'm really excited. We have an amazing guest speaker and some awesome folks from Hermeus. So what I wanted to do is let people self-introduce, but I'm going to ask you to give a little bit of a different type of bio. So not just like your name and your title, but really to explain how did you get here. We are a startup really at the nexus of commercial technology and security and our guest has been very active in this space at this nexus as well. So we'd love to have you kind of explain how did you end up in this field? It's new, it's different, it's exciting. Sarah, over to you first and then we'll just go around.

Sarah: Great. Well first of all, thank you very much for having me. My name's Sarah Mineiro. I am a principal at Potomac Advocates up in Washington D.C. So I got here on about an hour long flight this morning at the break of dawn and it was delightful.

AJ: Just think, in a couple years we could be doing this in Paris and have the same flight.

Dan: Better food.

Sarah: I love it. So how did I get here? Well, I got here into this kind of nexus of national security and startups by a series of unfortunate events and tactical life decisions that apparently had strategic impact. So I've always kind of been interested in national security. I got my master's degree from the University of Pittsburgh doing security and intelligence studies, and at the time, I graduated in 2005 and the intelligence community was on a hiring spree right after 9/11. It was a really kind of formative event for I think everybody of my generation and has really inspired a lot of people to think about how they can creatively contribute to national security and intelligence in a holistic way. So I kind of jumped into that. I worked for the Air Force, and they got me into being an analyst for counter space systems, and at the time I basically knew counter space as things I made cookies on.

Dan: Nice.

Sarah: Then they told me what it really was and it was something much more fascinating and something much more interesting, and it was how other countries were developing systems to delay, deny, degrade, or destroy our space capabilities. So think about most recently the Chinese anti-satellite tests, the Russian anti-satellite tests. I did that in the intelligence community for about five to six years. Then I worked for the Air Force doing international affairs on missile warning and missile tracking, cyber, things like this. I worked for the office of the Secretary of Defense for policy where I did, again, more space and technical kind of policy work, and then I got a tap on the shoulder to go work on the Hill and I said, "Heck no, I'm not working with congress. Those people be crazy. What are you talking about? I love my life." Then I got another tap on the shoulder and I said, "Okay, well I will apply because surely you will have more qualified people than I."

Then there we were and also Space Force. So over my 15 years I've really kind of looked at national security space in this confluence of a really emerging technical market and policymaking from the executive branch and the legislative branch, and then at some point in my career, it became painfully obvious that industry really does have a say in the policy and regulatory framework and the discourse that's going on. I wanted to experience that, and so I made the jump out of government service into the private sector, and I've been kind of advising startups on how to maneuver themselves through these two branches of government ever since. I love it, and it's nerdy and amazing, but the communities are strong and I think the opportunity right now is really fantastic for places like Hermeus and other kinds of startups.

Dan: That's great. I think your transition happened at an amazing time that there is this kind of whole new world being built right now that didn't exist a decade ago and it's super exciting. AJ, why don't we turn over to you. I know our listeners have heard from you before, but we'd love to maybe hear a bit more about your journey. How are you with this nexus?

AJ: Yeah, so AJ. That's all. Zach, onto you. No, just kidding. So yeah, as Sarah was talking and I listened to your question, Dan, I'm kind of thinking, all right, when did I first really get exposed to national security? So coming up through engineering, one of my first internships was down at NASA, Johnson Space Center, and I think the second or third time I went back I was working in a group that was responsible for essentially analyzing space objects to determine whether or not they'd burn up on their way into the atmosphere.

They had a tool that the guy was supporting was kind of the keeper of the code for this thing called ORSAT, the orbital re-entry debris analysis tool. You've probably heard of it.

Sarah: Yep.

AJ: So this was two thousand, I don't know, seven, something like that, and I'm coming into work one regular day and my boss isn't there. I'm like, "Okay, well what's going on?" Well it turns out he was locked in a room determining whether or not this hydrogen tank that was on a satellite that somebody sent a rocket up at was going to demise or not or if it was just going to pour a bunch of hydrogen all over people. So he was in a room with no windows for quite some time figuring out what was going to happen.

Sarah: The burnt frost engagement.

AJ: Yeah.

Sarah: I remember that.

AJ: So that was my first, at least tangential access to national security, but after that, as I got into kind of professional work outside of college, I worked a lot on conceptual design for all sorts of aerospace systems, primarily reusable launch vehicles and hypersonic aircraft. Some for NASA but mostly for the Air Force. So very early stage studies looking at reusable booster technologies, comparing all rocket reusable systems like we have today with vehicles that had air breathing boosters with them, either rocket based combined cycle or turbine based combined cycle, and then did a bunch of hypersonic aircraft work, which that still to this day shows up in Air Force presentations. There's one picture that I made. There was a postage stamp for, I think it was the X43, which was NASA's scramjet X plane that they made this postage stamp out of where I think it was a computational fluid dynamics picture.

Cause I was really instrumental in developing that vehicle and it was kind of one of the first times it really rolled out into mainstream. And this is an awesome picture with these contours of pressure in the flow field and mock number vehicle. Really it was beautiful. So I was a kid straight out of school and was like, Oh okay, I can make a picture like that. So I made one, I was in an Air Force deliverable and to this day that picture still shows up in Air Force roadmaps for hypersonics. I think Zach, Zach saw two weeks ago, I was like, that's my picture. So yeah, I've kind of been working around it from the kind of early stage conceptual level for quite some time and I think that's really helped me get exposed to a lot of the folks who are now leading the company, company, the country's strategy and in hypersonics this little niche of the defense world here.

And then in starting Hermeus it became kind of crystal clear that reusable hypersonics, so hypersonic aircraft, were really going to be a massively important part of the country's future when over the past 10 years we've started to roll behind and behind in this technology area relative to some other countries out there. And I think a lot of people would argue because we did their homework for them a long time ago, decided to publish everything and then decided to not invest anymore because we didn't think it was an important technology.

Dan: We've been too good at that over time.

AJ: Well it turns out it is actually quite important and now we're playing catch up. So, for us at Hermeus we don't like to play catch up, we like to be in the lead. So instead of focusing on the near term priorities where the country is really focused in hypersonics specifically on hypersonic weapons and defense against hypersonic weapons, we're focused on that next step which is hypersonic aircraft. And if we're able to pull the schedule to the left by even a few short years, let alone maybe a decade, that could really be a massively, massively positive impact on the country's national security at the same time as kind of developing and demonstrating and bringing into operational systems the technology that's required to do this for the commercial world downstream. So yeah, that's where my national security brain has been for a while.

Dan: Awesome. Zach, why don't you tell us about your journey?

Zach: Yeah, it's quite a bit to follow from Sarah and AJ. Not a space guy by trade. So I took a different path, was in the Marine Corps, joined the Marine Corps in 2006. Actually, I didn't realize that you and I were on such similar timelines. So that intel community period was the same time where the Marine Corps was taking anybody and they took me and a number of my friends. So was in the Marine Corps from '06 to '11, number of tours in Iraq and Afghanistan, was a SIGINT officer by trade and did all the fun SIGINT-ing in Iraq and-

Dan: What's SIGINT?

Zach: Signals Intelligence. So think national security agency. So the beeps and the boops.

Dan: That's the scientific version.

Zach: That's the scientific version, yeah. Technical for you people watching at home and then an infantry tour in Afghanistan and then got out. And for me as a junior military officer, my cohort getting out of the service back in 2011, the world was very different. You basically went to grad school, thank you GI Bill, and there were really three paths maybe back into government or grad school into banking or consulting. That was the most common paths for junior military officers coming out of the Marine Corps at least. So I did that and I went into consulting and I was doing strategy consulting for a while, did some interesting work on autonomous vehicles and I thought I wanted to get as far away from defense as possible after my time in service. Long story short, I was wrong. I joined the service for a reason, I have a passion for the topic and the area that we're in.

And found my way back to defense in private equity consulting for a company in Boston called Fairmont Consulting Group. Shout out Fairmont Consulting Group, great company. And that's where I started to get into the business of defense. So thinking through how the market was consolidating in particular back then really seeing the primes buying up things, a lot of the mergers and acquisitions, how are those companies valued, thinking about IP, thinking about where are people investing and building and at that point, venture defense was not a thing still. This is 2016 to '18, '19, '17.

Dan: Yeah just as it's being all set up.

Zach: It's just starting to happen. But private equity is still kind of the king in that space and it's really heavily based on, frankly, facilities like this. A lot of manufacturing consolidation and buying a company basically because you're buying their contract. I did that for a while and I learned an absolute metric ton about that space. But you kind of hit a wall of like, okay now what? And so I left and decided, "Hey, I want to go into venture defense." Which at the time venture defense again wasn't really a thing but we were starting to see the Army Defense Venture Fund was starting to kind of try and get its feet under it and some of these things were happening and my timing just was right place, right time and joined a company called Anduril, which is where I know Sarah from and was there really early and spent the last three years there. And for me that was incredibly formative and really seeing that hockey stick moment in defense and technology. So yeah, worked on doing all the main command and control for a long time. ABMS is a scar on my body-

Dan: Can you quickly, for the audience, ABMS what does that mean?

Zach: Yeah, well JADC2 is doing all the main command and control, which is a term du jour in the department these days, and ABMS is the Air Force's program to support that initiative. And that stands for Advanced Battle Management System, I don't know it kind of changes. The original story was supposed to be the recapitalization of J Stars, I believe, that went by the wayside. J Stars was an aircraft that was going to use radars to look at things moving on the ground and they're single points of failure. One airplane takes a missile and there's a big blackout. So can we disaggregate that one airplane into a bunch of drones? And it sort of morphed into a different kind of software first program. And I worked on that very closely.

And then joining Hermeus here for me was really exciting because one, my background in defense from a technical standpoint was more on the software side between the Signals Intelligence and the work I had done at Anduril, and to be able to work on something that was steel and metal and tangible and very clear was really exciting. And also I can barely spell airplane, so I was like "Cool. I should sell one of these things, right"

So in my role-

AJ: I thought you were going to say, I can barely spell UAV.

Zach: Yeah that too. So it was a really exciting challenge for me, I definitely appreciate the mission. The kind of space that we're trying to fill, both commercially and in the defense ecosystem, is very clear. And I think what, and we'll get into this probably somewhat today, but in the defense marketplace, which I have an opinion on as you know about defense market-

Dan: I can see you're ready to get it out. Hold on just a sec.

Zach: Yeah. I'll save that, to bury the lead there, but it's very rare that you find a product market fit that is this clean and unimpeachable and also doesn't have any real crowding. We're a first mover and the degree to which the market will fill up will be a function of our success or failure. So the Coke or Pepsi moment, so to speak, should happen after we succeed. It's very unlikely that we'll see, in my view, a really credible direct competitor in the near term just because what we're trying to do is so Loony Toons.

AJ: So this is Dr. Pepper? Is what you're saying.

Zach: Yeah. Oh yeah, that's right. This is Dr. Pepper.

Dan: I'm a fan of Dr. Pepper.

Zach: Yeah, I don't know what the Pepsi to Dr. Pepper is.

Dan: Not Pepsi. Never Pepsi.

Zach: Yeah, never Pepsi. But anyway, that's my background and super excited be here today.

Dan: Awesome. Well I think it's probably only fair that I quickly answer the question as well cause I posed it to you. So quickly for me, bad life choices, did a PhD, stayed in the library a lot, wrote and thought about US competition with China.

AJ: You're not wrong, Dan. You're not wrong.

Dan: I know. No I'm not wrong. But anyways, thankfully got out of the library and did a lot of work in DC really thinking about the China problem set and then in government. And very quickly DOD and Sarah and I served together, learned a lot from you. It was really clear to me that at the end of the day the competition with China came down to technology and for the US ultimately we're not a command and control economy. And you could see China just throwing resources into technology that was still used for its military, for its civilian sector.

And China, over time, implementing kind of a strategy that would essentially force civilian companies, to the extent they exist in China, to work with the military. And you saw, in my view, this synergy happening on the Chinese side. So, as I was spending time at DOD and really looking at some of the work that was happening at the time, folks like Deputy Secretary of Defense Bob Work, standing up the defense innovation unit in Silicon Valley, it was really clear that if we were going to compete with China in technology, there had to be this nexus, there had to be this coming together of commercial technology companies and DOD and the finding of various mutual complementary. So came out of that, spent time in the think tank world. In my other life, I'm an officer in the Navy Reserve deployed and it was pretty instructive seeing the capabilities that we invested in really for two decades after the global war on terror, that they really had been optimized for a very specific problem set that wasn't strategic competition.

And again, that challenge of kind of high end nation states really requires a different level of technology and capital. To me, coming out of that it was clear that ultimately the US competes building dual use companies. That was what made me super excited to come here. Because at the end of the day, what you can see behind us, this is how we compete. That we have companies like this arise, build NUSA capabilities that are both of used for commercial advantage and then also feed into the DOD'S advantage. So to me this is what competition looks like in a microcosm. That's how I ended up at this nexus.

I wanted to turn to Sarah. Since you spent both time on Capitol Hill and at the DOD and ask you, maybe a somewhat cynical question, which is, why can't we move quickly? Why? It's always, personally as somebody watches China, it's so frustrating to see China moves quickly, they develop new capabilities, they test them, they deploy them and on the US side we always try. We try really hard, but it feels like in the last couple of decades we just haven't done it that well. And so I'd be curious to...what's your take on that?

Sarah: Yeah, I got a couple of hot takes on that. The first one is, I challenge the premise that it used to be quick and all of a sudden now it's not quick.

So I don't know historically if you would look back at programs of record through the Department of Defense, if the challenges that the innovative tech sector has nowadays are significantly different from the historical challenges that they've had and they've tried to address in things like Goldwater-Nichols and insignificant reform efforts. It takes a long time to get there. It takes an even longer time to be able to cross that threshold of actual legal and regulatory action to be able to change some of that. But I think what you would see in a lot of these is that it's a real pendulum of, quite frankly, consistent challenges from the defense industrial base to the bureaucracy and back again.

The second point that I would make is a point that I've been making for a long time that people probably expect to hear from me now. And that is, requirements. So a lot of the defense programs start and everyone thinks that they start at the acquisition process when you decide to actually bend middle and buy the thing. But it actually starts a lot earlier in the requirements definition process. And that is really from the benefit of people like Zach and you, the actual operators who are going to be touching and feeling the capability that they need who know what they need on the ground. And that usually needs to come up through the COCOMs. And then it goes through this laborious process that is facilitated by the joint staff called the J Rock process, the J SIDS process.

Quite frankly, it was really interesting, GAO just released a report...I am a nerd, hardcore nerd, and so I just love me some good GAO report. Shout out to the GAO all day long.... they actually did a report on the J SIDS process to see how long it actually takes to develop and validate a requirement.

And what GAO came back with is...and this is publicly available you can go look at the website for the 30 page report on it...they came back and said, it is impossible to figure out how long it takes the Department of Defense to organically define and validate a requirement because the J Rock does not keep track of that. There is a standard that is supposed to be about 103 days, but at no point do they actually measure all of that and keep track of that through the process. In one program that the Army had actually rescinded from the J SIDS process because they were going to do a middle tier acquisition, which is kind of a rapid prototyping and rapid fielding kind of acquisition, they rescinded their program. It took over 800 calendar days to validate the fact that they had withdrawn themselves from the process, guys. That's not even the requirement-

Dan: Wow.

AJ: That's an impressive statistic.

Zach: I don't want to cry on camera, please stop.

Sarah: But I think that has got to change. So now what we've done is we've recognized some of that problem and we've created these institutional workarounds like JUONs and JEONs, right? These joint emerging operational needs or joint urgent operational needs that the COCOMs have now tried to step back into that role to really advocate for the need of the war fighter and the operator. But at the same time you have to really fundamentally ask yourself why are we institutionalizing workarounds to a process that we understand and recognizes already very flawed.

Dan: It's the classic bureaucratic problem of a bandaid on a bandaid and the actual system just doesn't get fixed.

Sarah: Yeah. I think it'll come out more as we have this discussion. I think a lot of the challenges for the DOD and for innovative tech sector, startups and VC funded startups are really about the misalignment of, quite frankly, risk. Different kinds of risk and risk absorption and how you address that in incentives and what incentivizes each party and how that gets institutionalized into process. And so those are the kinds of things that I'll keep on coming back to.

AJ: So if you look at that holistically, what is the top level requirement for the DOD and how really do they accomplish that? I mean the constitution says, "Provide for the common defense." So, if you could start from the scratch today, what really should it look like?

Sarah: The requirements process or what should be our national defense priorities?

AJ: No, no, no, how we buy things.

Sarah: So again, there was a great defense business board study that was put out in 2012 by a former Senate Armed Service committee staff director. It's a good old Marine, got to love the Marines. And he was asked if you had to fix this acquisition system, the requirements and acquisition system, how would you fix it? And he looked at the interviewer and he said, "I'd put a match to it." He's like, "and it would be a huge"-

Dan: Spoken like a former marine.

AJ: I mean it probably is actually printed on paper so you probably could...

Sarah: I mean he literally had statistics, it's like 900 pages of implementing instructions from DOD 5,000, which is actually a pretty flexible short document. But the implementing instructions, I mean he literally said this would be a bonfire. I don't think it's that drastic. There's clearly a need for oversight and process, but there's also clearly a need to fundamentally rethink about what we're doing and what we're achieving and whether the prioritization of American innovation is helped or hindered by these processes and regulations. And quite frankly, a lot of them when you talk about regulatory framework, is within the authority of the Department of Defense to either change or modify. This is not to say that Congress does not have a role, Congress has had a CR for every year for the past 20 years. Congress has a role. But the Department of Defense also has a tremendous amount of flexibility and authority and maybe even obligation to relook at how they're doing things.

Zach: I just think of the cyber process, right? Phase three justifications exist. Find me that KO who will write one for a large scale program. And so I do think there's some absence of courage or creativity or whatever. It's just easier and safer to exist within the bounds that have always been there. And innovation inherently is about breaking through and challenging the edges of whatever area you're in and we see that tension every day when we engage with the department.

AJ: I was going to say, that goes back to the second thing that you mentioned, Sarah, which is the incentive structure.

Dan: Exactly.

AJ: How are those KOs incentivized, right? Is it by ow quickly did you deliver capability to the war fighter that's new or how many GAO protests did you get?

Zach: Yeah. More likely the latter than the former.

AJ: Yeah.

Dan: And being essentially on time, whatever that was on delivery but not taking a step back. Sarah, I think we could dive deep on any one of the things that you flagged. I wanted to at least ask a question on one area where you pushed back, where you said we've always had a tough time moving quickly. And AJ, you and I have spoken about this the dawn of American aviation in the 1950s, maybe that was the singular moment, but at least I like to think and maybe being an optimist that we can do things differently, that we have. And Maybe AJ, if you can speak a little bit more to, what did it look like when we were building jets in the early days? Cause you have these crazy stories of things on a paper napkin turning into reality and was it just that moment in that we shouldn't see that as what America can do? Or is there something there for us to learn from?

AJ: Yeah, well I mean, I think if you go back to even World War II times when we needed to produce aircraft at scale and at rate because we're at war, we didn't actually go to the aerospace companies to do that. We went to the car companies. So that's an interesting little thing. But there's this mural at the Pentagon that I've talked about a couple times that's a timeline starting basically from the beginning of flight, the Wright brothers, and comes to I think the twenty or the two thousands, maybe the 2010s and has to scale all of the aircraft that were kind of brought into service or taken through R and D on that timeline. And you've got the Wright flyer in the early part of the 1900's and progressed a little bit through World War I and you find a few here and there and of course World War II, a big Boone in fighters and bombers transports.

And then post World War II, the Korean War, the early parts of the Cold War, just so many aircraft that we iterated through and iterate and we built them, we flew them, we crashed them, and we built them again. I mean the X 15, this experimental rocket plane, we built three of them, we broke one in half and we put it back together and flew it again. Do you think we would be willing to take the risk to do that today? I mean we're definitely going to break quarter horse half at some point.

Dan: No person, just to be totally clear.

AJ: Yeah, no people on board for sure. But yeah, I can't remember who it was, but somebody was like, "Yeah, if I project forward in time, the entire nation's defense budget is going to be enough to buy one fighter in like 2050" or something like that. So you've seen this progressive continued increase in costs of development of new...and I'm talking about really aircraft and I'm sure, I'm sure this pops up in other areas of the DOD as well. Just a continued increase in cost to develop new platforms. And I think a lot of folks have leaned to digital engineering as the savior for this. We're just going to design things in the digital world and we'll fly them off against each other and then we'll know what to build when the time is right. We don't actually have to build anything so we can save ourselves money, but unfortunately any simulation that you run is only as good as the inputs that you give it.

And usually if you're trying to extrapolate based on available data outside the bounds of the data that exists, you're not going to come up with anything new. If you're extrapolating a little bit, you might be close, but if you're way outside the data, then you're in no man's land. That really comes back to just having to build things in the real world and do so in a capital efficient way. Most of those new aircraft development efforts have been purely government driven. I think there was one of the follow-ons to the F5 might've been the F20, I can't remember what it was, but it's actually a commercially developed fighter aircraft that unfortunately it wasn't picked up.

I think it was a Northrop aircraft, I can't remember which one it was, but it's been a very long time since the commercial world has been willing to stick their neck out, put in their own money to build platforms, take on the technical risk and try to get that transition to a program because frankly, it's a very hard thing to do. By the time you have a working prototype, then to have to sit around twiddle your thumbs and wait for two years, three years till that requirement comes in and it makes its way through the alphabet soup of processes and approvals that are required both within the department and then on the hill. It's not a very rosy picture, so makes it very difficult.

Dan: It's definitely not a clear journey compared to a pure commercial technology startup and that-

AJ: In commercial sales, there's usually one decision maker that you really have to convince. Most of the sales process is focused on figuring out who that person actually is and then building that relationship and going from there. You have to do that in the DOD, but number one, there's about 50 people and number two, they change it for two years. So yeah, not only do you have to build your relationships for today, you have to build your relationships for five years down the road with people who you think might end up in those positions there. So it's an incredibly challenging and time consuming effort.

Dan: That's kind of the perfect segue for, and this is really question directed at anyone, but Zach and Sarah maybe in particular, which I mean you've seen a lot of ferment within the DOD in the last almost decade, really since the founding of DIU and going forward try to engage commercial technology startups to try to build out a "venture defense ecosystems act", to use your words. I'd love your thoughts. I mean, we have some data at this point a number of years later, and Sarah and Zach what do you see has moved the needle favorably? What do you see are some of the gaps? We can go from there.

Zach: Well, this is when we get into hot take city, I can see you smirking.

Dan: That's why we go to you first, Zach. Really hot take.

Zach: Okay. It's complicated, obviously. I think Trey Stevens, one of the investors at Founders Fund in Hermeus and also in Anduril and I think he's still pretty heavily involved in the department, talks about winning. We'll use Anduril as an example because Sarah and I are from there and they're one of the big dogs. Anduril's had tremendous success and it's performed very well. But if you ask Trey, they still haven't won. Why is that? They still don't have that major program. And part of the reason, in my estimation, is that there's a ton of innovation theater going on. There's a lot of low dollar high volume, everybody pats themselves on the back, but no real capability gets built or delivered to the war fighter. In a commercial environment where there is just way more pressure on returns and actually seeing an outcome, this would not happen.

This would dry up really quickly. But in the defense department ecosystem, which I'll now get into this, it's not a marketplace. I stand by this a thousand percent. I get really frustrated when people talk about the defense market. It's not a market, it's a very complicated customer. But what you see then is these sort of mandated fund flows into DIU and elsewhere, but the dollar amounts are too low to ever see any real impact. Because if you were to look at the systems that actually change America's ability to win or lose a war, and we can use Ukraine as an example here, those systems are still expensive. Even if we make them inexpensively, they're still really expensive.

Dan: Yeah you're looking at High Mars.

Zach: High Mars is a great example. So a 1.5 million dollar SIBUR contract. This is why the venture people are just like, that's a cool story. The utility of a SIBUR contract is not the money. The utility of a SIBUR contract goes to the fact that you've pre-competed that capability and then in theory now you're back to the KO who can write the sole source award, but they won't do it. And so I think the challenge has been that venture capital dollars have flowed in and we've seen private industries say, okay, there's maybe some viability in this marketplace and they've leaned forward and they have a lot of patience, in particular will use founders funds and our investors who have played in the rocket labs and the SpaceX's, and they are committed to longer time horizons. At the same time, what you've seen is a lot of, not less credible but maybe less experienced in this ecosystem, dollars flow in, family offices, small venture funds, small capital raises and push up some of these valuations in these companies.

But these companies don't really have a clear landing place because even if they got the contract, the volume of the contract and the economic outcome will never be big enough to create the impact. And so what we're doing, I think unfortunately, is we're seeding a bunch of built to fail scenarios. And until we actually see the department pick winners to AJ's example of in the commercial space, the ability to go from flash to bang is much quicker because it's one person, if they see the utility, they will take the risk, they will sign the contract, they'll put the dollars down and they'll actualize that outcome. There are a million reasons and I'm actually sympathetic to many of them and the department as to why that doesn't happen but as a result we get the inverse. Which is everybody gets a nickel and then we are wondering why haven't we seen a million primes bloom?

And it's like, well it's just not going to operate that way. So, I think we are in this interesting moment where as the economy is down turned, we're seeing defense spending increase, but you're seeing some of the venture dollars dry up. And so that just means that the department's going to actually have to show up in a bigger way if they want to continue to see this level of involvement because venture capital's not going to be able to support the same level they have over the last five years. And so I do think we'll see again in the next few years who has actually been winning, who has been delivering capabilities.

But to quote Trey, "nobody has won yet". You really can't point to anybody but a handful maybe Palantir who had DCGS where there's a major program of record. Oh by the way, Palantir had to sue their customer. So, that's a pretty tough precedent. So it is a place that I think we all work in. In the ecosystem we work in because we're passionate about the problem set, we're passionate about the people we work with, we're passionate about national security, but there is a little bit of hitting your head on a cement wall at times because no matter how much you quote "win" and how much you demonstrate the capability, it's really hard to point to a use case where it's like they cracked the code.

AJ: So I think this is actually one of the most important things that Hermeus can do.

Zach: Yes.

AJ: Yes, the long term of accelerating the planet is what we want to do from a commercial perspective. But before that, in order for us to earn the right to even try at that, we have to first succeed at doing everything that you just said. And if in doing so we can break through some of those walls so that others can follow in behind, I think that puts the country in a better spot. And it's not just in hypersonics it's in-

Zach: Anything.

AJ: Yeah. We used to have 11 modernization areas, we have 14 now. And all of them, for the most part, have some dual use nature to them. And the threat environments around them are only getting more complex and difficult to deal with. The funding that's available to go to them is only decreasing. I mean, the defense budget, it grew a bunch this year but it didn't even keep up with inflation. There's a lot of fixed costs in there that can't really change. So we have to solve problems that not only are harder but are getting harder with less and less.

Zach: Yeah.

AJ: So, I think the only way that that's going to happen is that you have to Kobayashi Maru the thing and rewrite the rules of the test.

Zach: A thousand percent.

AJ: And somebody's got to be able to get through and do it.

Zach: Oh by the way, the countervailing pressure within that market that's not a market is it's zero sum. If for me to get a dollar, I have to take a dollar from you. Either, actually from your program and senior program be cut or downsized or opportunity cost, your program never comes to fruition. So there is not necessarily a rising tide lifts all boats environment here. That's a fallacy.

AJ: And oh by the way, it's baked in five years ahead.

Zach: Yeah and it's baked in five years ahead. As commercial dollars move rapidly to recognize some of these requirements and demand signals in the commercial space, the department can't keep pace. It's interesting you talk about these dual use lines of effort, and that's true, but the commercial markets are showing up with $2 to $1 way ahead of time and the department can't seem to even understand. They can conceptually get it, but they can't bureaucratically engage well enough to understand that if I spend a dollar on this commercially applicable platform, I'm going to get $3 worth of value. One of my own and two that private capital puts in. But the longer I take to do it, the more that capital dries up. Not even holding fast, the current economic environment. Just the opportunity cost for a venture capital is to say the timelines for return are too long, I will put my dollars elsewhere.

I think actually Katherine Boyle's been pretty articulate about this from A16B being like, "You don't have an infinite window here, Defense department. We, I, the person with the private capital am not going to sit here forever." Oh by the way, that's a blue chip investment fund. They have the dollars to actually move the needle and she's saying, "We're patient, we're here", but at some point you do actually have to take some risk with us, which albeit is going to be significantly less, but just take some and we'll see where things go.

So I am eager in the Hermeus example to see if we can be, and I believe we can be the ones to shake it because as I said before, we hadn't been recording yet, one of the things that's so compelling to me about this business in particular is the product market fit, the timing, the need commercially and national security wise is so clear. We have a conversation, you don't really have to explain why it matters. Once they understand what we're doing, you can just skip the why it matters part, which is a really impressive sort of moment to be in.

Sarah: I will associate myself with the gentleman's remark.

Zach: That's the kindest thing Sarah's ever said to me.

Dan: I'm sure you have some additional thoughts as well. And are there any points for...there's certainly plenty of points for pessimism and I welcome hearing more of that, including your thoughts on different incentive structures from the DOD in the private sector. At the same time I'd be curious...I always think it's important to recognize where progress has been made...to what extent do you see steps forward in the last years as well?

Zach: You ready to start? I'm ready to start swearing now. I think we're there.

Sarah:Oh boy. Here we go.

Dan: There is a disclaimer on this podcast, which hopefully our audience knows. The words may-

Zach: Turn your children away now.

Dan: Exactly.

AJ: Oh well if the technical jargon didn't do it already...

Sarah: I know, right? The technical jargon was enough to drive most people away, I'm sure. Look, I think that there have been pockets of excellence, reasons for hope. I think quite frankly a lot of that happens sparingly and it'll be interesting to see. These kinds of efforts are a lot like shooting a gun...

Dan: Go on...

Sarah: Very small, almost unobservable changes here make very tangible and observable distinctions and differences down range. But you have to give yourself the space to be able to see that. And I think that's a lot of challenge. So the things that I do hold hope for, I think the creation of DIU fundamentally was a good thing. I think it still has a long way to go to understand and help to bridge these challenges of the differences of incentive structures. I think the D O D, what you're seeing is quite frankly a very traditional play into the spray and pray kind of model of VC, which is not particularly tuned to this kind of ecosystem.

AJ: Well the VC spray and pray is like, yes, you spray, but then you double down right of the winners and that's the piece that's missing.

Sarah: Exactly. And so there are frameworks where they're starting to try to see some of this, but they haven't gotten the whole solution and there hasn't been a tremendous amount of use cases where this has actually bridged that valley of death that we talk about so frequently in this kind of ecosystem. I think there have been, over the past three years, a handful of programs that have transitioned from things like SpaceWorks and F Works into supporting programs of record. They're probably less than this many programs, but they have made that. And I think that is hopefully a trend that will continue. I know the space systems command has just recently stood up a commercial front door where they very much realized that a lot of what they were doing was this innovation theater. And so what they're doing now is assigning actual commercial sherpas to be able to help and bring them through the customer set and familiarization, quite frankly with the entire range of people that are important now, but will also be important in two to three years from now.

It'll be interesting to see how that develops. I'm a space nerd and so I look a lot at the space community. I think for the space force and the space community is defense space acquisition reform. Things are still very, very new for them. They just nominated the next chief of space operations, who is a space operator, actually Zach him quite well.

Zach: Yep, mm-hmm.

Sarah: General Saltzman. And I think he will be fantastic for the new Space Force. And so I think what you'll end up seeing is that a lot of this also has to do with culture and how that impacts process and bureaucracy. I am naturally a terribly pessimistic person, so if you asked me to talk pessimistically, I could do that for a long time. I would like to say that I do have a lot of hope that at least in the hardest of the challenges, people acknowledge what the challenges are and there seems to be a fair amount of consensus on what the challenges are. And so the question now becomes, how can we help to fix those with each other? And that implementation is always hard, but at least we're starting from a clear foundation.

AJ: Oh, I hear rebellions are built on hope. That's a very hopeful gaze.

Sarah: I'm trying my best here.

Dan: On space, I'd actually be interested to drill down a little bit on that. I think both on the commercial space world as well as kind of the DOD side, you see space often pioneering models for new cooperation with commercial companies. I'd be curious, and I know AJ you probably have some thoughts as well on kind of the NASA COT side, but Space Force is new, the whole space world and duty is new. Are there broader lessons learned that other services can draw from? I know it's very early days and I'd be interested to kind of pivot a little bit, AJ maybe hear from you about to what extent is the NASA cots model appropriate for the defense venture world?

Sarah: Yeah, I mean look, I love space so I'm happy to talk about it. I think there's a couple of things here that we're seeing in the broader national security space system. One is re-looking at architectures and if you've looked at space architectures, if you looked at the national security space community for the past 15 years, almost every five years is a new organization claiming responsibility for architectures. That being said, I think that is driven in part by the recognition that the commercial world is outpacing and has outpaced the defense and national security space innovation now for years. It is one of the few sectors, and I think hypersonics and defense against hypersonics is another sector that is similar in this respect, where quite frankly the state of technology has outpaced the policy and regulatory framework for which it's been developed. And instead of being afraid of that as an American democracy, I think we should actually cherish that and we should integrate that and celebrate that into the next generation of regulatory reform, policy reform, national security objectives and legislation.

I think that is what makes America truly great, is American innovation. In places where...when the Congress was thinking about Space Force and why is Space Force, one of the things that they looked at was the rate at which commercial space was innovating. This is now about a 280 to 350 billion dollar industry on track to being a trillion dollar industry in the next 15 years. They were looking at programs, quite frankly, where SpaceX has announced that they were going to do Starlink in 2014 and in 2022 they've put up thousands of satellites. And then they were comparing that to programs of record in the DOD where we were literally launching satellites that did not have ground terminals that were capable of actually using the capabilities that were on orbit. That is literally like taking and selling somebody a car without wheels. Literally where the rubber hits the road was not there.

It was things like that, as unfair as those comparisons were, that stood in real contrast for people on the hill and really made people drive for defense space acquisition. It's things like that. SpaceX is a phenomenal company. My personal opinion on SpaceX after watching them for years is they are phenomenal and smart and innovative, but quite frankly, what they're smart and innovative on is doing really high capacity, full scale production quickly. And they have chosen to apply that to space and they've done so brilliantly and to the benefit of our nation.

But at the end of the day, what makes their special sauce special is not just the space portion, it's that manufacturing portion and it's how to do that at scale and how to do that agile. And that's kind of fascinating and I love to see that kind of stuff. And I think the space community is in a really interesting inflection point that it's mirroring a lot of this VC startup. A lot of specs, quite frankly, a lot of bankruptcies in the past three to five years of large companies that are household names. And it'll be interesting to see how they maneuver through this, but they've kind of got everything going for them. There's a lot of reason for hope and potential. It'll be interesting to see how it all pans out.

Dan: I'm happy to coax some optimism from you there, Sarah, that sounded pretty positive.

Sarah: Yeah, I'm really trying for you. Really trying.

AJ: So you wanted to talk about COTS?

Dan: Yeah, I'm curious. I mean, as we think about what are the models out there outside the DOD world that have succeeded in terms of bringing in new entrants, working with venture back firms, COTS always seems like the one that comes up and how replicable is that really in a DOD context?

AJ: Yeah it's a really interesting one. So for those who don't know, COTS is the Commercial Orbital Transportation services contract that NASA had put out. I guess this was, let's see, mid two thousands or so. But it was really the first big contract for SpaceX. They've been trying to work at the Air Force and actually DARPA always likes to say that they gave SpaceX their first contract, which they're not wrong about, but NASA had a modernization challenge. The space shuttle was retiring, they needed a way to resupply the space station with cargo as well as crew. And the decision... there's a large rocket development program going on at the time called Constellation that was an evolution of space shuttle era technology. Some would argue a step backwards, back to a fully expendable system outside of a couple small components here and there, back to a capsule from a wing reentry vehicle, but a very, very complex system, very expensive and built up in a very traditional aerospace way.

And here comes Space X and others at the time as well, SpaceX was certainly not the only company trying to develop space launch capabilities. They're the ones that really made it through, but SpaceX offered a way for NASA to make essentially a very small investment relative to, we'll say, the Constellation program that eventually evolved into the SLS program that we have today. NASA could make a pretty small bet, and by pretty small, I'm talking a few billion dollars over maybe five or seven years, with a crack at getting a domestic launch capability again.

The alternatives that they had were try to leverage Atlas or Delta through ULA, which were very, very expensive it couldn't really meet NASA's cost targets, or buy rides from the Russians. Which is what they did in the interim. The structure of the program was very different than really any of the ways that NASA had acquired launch services in the past and different in by the means of, they weren't actually contracts. They were agreements. They were done under space act agreements, which in the DOD world, similar to OTAs, other transaction authorities, but they basically didn't need to utilize the federal acquisition regulations. They could write what essentially was about as commercial of a contract as you can get from a government agency. So long as you have the impetus on the contracting side to actually write it that way.

Well, that's what they did. They were fixed price development contracts that weren't really paying for development. They were essentially interim milestones and progress payments toward delivering a capability. So that was one of the unique things that they did in that program that was very formative. The other was that NASA, and I can't imagine how much it took for them to swallow their pride and take this off of their plate, they gave up the reins on setting the specifications.

Dan: The requirements if you will.

AJ: Well, no, because they still set requirements, but they were capability based requirements. They weren't specifications because with Constellation and SLS, the requirements is they were specified are very, very low level. Not like deliver this amount of payload to this destination around this price point, something like that capability based requirement.

Dan: Very high level.

AJ: Versus this valve shall have this flow rates and blah blah, blah, blah blah, blah.

And that was a pretty big step back because NASA basically said, We're going to put the design in your hands. Here are our constraints, here is how we need to assess the quality of what you're delivering us and the reliability of it, but at the end of the day this is your vehicle and your capability to go develop and bring to us. Because you have other commercial customers who may be utilizing it as well. So if we can leverage all the private capital that you're pouring in to not have to put it in ourselves so that we can modernize this capability, that's a win-win across the board. But it was really a hedge against what was going on in Constellation. And low and behold, nine years later, on the cruise side, at least now we have domestic launch capability again on SpaceX and hopefully soon with Boeing as well, with their Starliner.

So I think it's fantastic analog for the DOD. A modernization challenge, bringing to bear the authorities that are already there in flexible contracting that approaches as close as you can possibly get to commercial, leveraging private investment in the development and the RND risk that's associated with it, and setting capability based requirements. There is an appendix in the summary report for the COTS program that is kind of like my Bible. I feel like a Jehovah's Witness passing it out all around the Pentagon. Like, "Hey, read this, read this, read this." But really it just outlines, this is how you format a program like this to get the rewards that this program ended up in a bringing.

Now, is it the same challenge for the DOD? No. Can the DOD have a nine year gap in capability? No. Can they buy stuff from the Russians to fill that gap? Also no. So the DOD has the added challenge of having to essentially continue to sustain the current capabilities until those new capabilities come online without other alternatives. So that makes it very, very difficult even to pull those few billion dollars over a few years toward making that bet. That said, the DOD's budget is significantly larger than NASAs is. Probably, not quite an order of...actually more than order of magnitude. Yes. Yes. Significantly larger. So I would argue that they absolutely have the resources to make, in their mind should be a small bet. But for the industries that they're building that they're helping to create and bring into being, it's not small at all. I mean, that one little program and the follow-ons from it that created US domestic launch capability, look at everything else that has come about because of that.

So we talked about Starlink. Well, Starlink wouldn't be here if it wasn't for COTS. And SpaceX signed their COTS contract, which was more than a billion dollar contract before they'd gotten to orbit with Falcon One. Not by much, I think it was like a couple months off. They were close, they'd attempted it, but they hadn't fully de-risked everything. And the vehicle that was going to actually service this contract was on paper at the time. So NASA took some pretty significant programmatic risk and some of their other performers didn't perform to the level that the SpaceX did. They got orbital sciences, SIGNUS capsule out of that, but others weren't able to make it through. So the willingness of NASA to take a risk and I'm sure they were able to take that risk because they could underwrite the downside of it with other solutions. So I think the challenges for the DOD, okay, how do we underwrite our downside risks so that we can make these bets over a period of time? We have the resources to do it, but what happens with the opportunity costs? Well, there are certainly ways to manage that.

Zach: It's interesting when you talk about risk and how the department thinks about risk because I do think, and I come at this from the standpoint of my previous life in the service, first of all financially, let's just think about the amount of OCO funds that were just straight flushed down the toilet during G. Watt. Obscene numbers with truly no return. And everybody was very happy and I was as well as I was deployed to make sure that we had all the things we need. But truly just unabashed spending no questions asked, keep the spigot coming. If you're going to invest a fraction of that, and we've talked to some of the folks in the department about this and how they think about this even just from a defense industrial based standpoint, it's not even a one or a zero. In the case of OCOFT it was a one or a zero. There are dollars that are just completely gone from IG reports. Billions of dollars and nobody knows where they went.

Probably in a bank account in Switzerland somewhere that we all would probably rather not know who has it and why. But let's just use, in the hypersonics case, if they did a COTS type approach and a company doesn't succeed, it's not a net zero failure. Forget even just the learnings that go on that advance the industry, but the training and experience of the industrial base and the talent pool. And there's been plenty written in spoken about the need to, no pun intended, but to hyper energize this space. And so even if you were to do a COTS and it didn't necessarily get you what you wanted right off the bat, you are actually seeding and seeing returns that might not be as clear on a balance sheet but certainly, in a discussion with sober-minded people, certainly more of a return than some of the things we've seen during the G. Watt era.

So for me personally as a G. Watt Veteran in particular, I'm really turned off by some of the excuses that I hear. People say they can't spend that money. This is a choice, this is a risk reward choice and we ask service men and women to take some pretty obscene risks on behalf of the nation. And we have no problem going...the department going and asking for plus up on programs or during a time war and, good we should, but at that same time, I've never understood then why they hide and take this risk conversation is one that is so sacra saying so complicated, so impossible to solve when we see them do so many other things that are riskier and have lower to no rewards. Off my soapbox.

Dan: That's a great point. I mean, if you look at in general the duty modernization priorities, whether it's quantum, hypersonics, anything else, there are areas where you'd want to be getting people in the workforce building up capacity and there's a lot more potential upside no matter how the trajectory is for individual companies than some of the past uses of taxpayer dollars.

Zach: Thank you for supporting me there, Dan. I appreciate that.

Dan: Absolutely. So, I realize we have probably about 20 minutes left and I wanted to flip. We've been having a really exciting, big policy, bureaucratic conversation and everybody here has worked at startups, is with startups. And so if we can put our startup hats on now, I'd be curious from personal experiences...I think we've all kind of agreed like DOD, it's a customer, it's not a market, a ton of different stakeholders, it's challenging...but if you had to pick one lesson you've learned trying to work with DOD and partner, what would be that top lesson for you?

AJ: Oh yeah. Okay. So number one, start early because I alluded to it earlier being like, "things are baked for five years". Especially when you're working on development of a complex system that takes multiple years to develop and has its share of technical risk. You have to paralyze the buydown of that risk. Like I said before, early on, you can't expect it. Get all the way through a prototyping program and then start trying to sell the capability, whether it's the acquisition system to the operators on the hill, you have to start that conversation early. It's a really difficult and intangible thing to do because you don't have a product yet that's ready. I can't point to an aircraft that's flying in the sky. So you really have to be very careful about how you articulate what that future is that you're trying to build and what the path is to get there.

I think it's very difficult to bring new programs into fruition through that path where the product's being developed as you're selling the program. Without those products being able to deliver at least a 10 x improvement. It's the same thing with...a startup should not exist if it's not improving something by 10 x to its customers. It doesn't all have to be in one place. It can be 10 x cost improvement, 10 x schedule improvement or split between cost, schedule risk. But it has to be so blatantly obvious that even if you're 10% successful, it's still better. So, I think that's one of the things that we learned pretty early on. Just How early we had to start telling the story, refining the story. And I don't mean story just in a storytelling sense, but the strategy as to how we're going to get from A to B and then growing through it.

And then on the other side, at the same time as starting early, you can't get too far ahead of yourself. It can be very tempting as a startup that is trying to really grow revenues. You can really easily get off track and start going and grabbing every little SIBUR or little development contract that you want to make the revenues look good but you really have to stay focused on what you're doing. Cause you want to keep alignment with your development alongside what the customer wants. But also you can't get the different parts of your customer too out of phase with each other. You can't let the hill get so excited that they're telling the department what to do. And you can't get the department so gung-ho that things aren't ready to go into the budget and work through. These things, they take time. That's why it's necessary to start early. Phasing all those things, and it's an iterative process as well, you're not going to get it right on the first swing through. So yeah, those are two little things.

Sarah: One of the things that I think is really interesting that you hit on here is risk and different kinds of risk. I've had a couple of workshops and conversations where I've talked to people about the space economy and the COTS example always comes up. One, because quite frankly it is actually the historical precedence for the basis of authority for OTAs in the Department of Defense. It's a hugely favored contractual vehicle and so people forget that that actually did come from the Space Act. And there's been a couple of great papers written on how that was formulated, how that happened. But some of the more interesting papers are really talking about how the COTS structure and the OTA structure shifts different kinds of risks among both the companies and the government in ways that they both find mutual benefit.

And I think that goes back to what I was talking about in the beginning of this podcast about incentives and risk and making sure that those align and realizing that those risk...not only are the risk variables different for the different players, but the risk calculuses that each of those different organizations have are also very nuanced and complex. And so even if you are not the person designing or engineering your technical solution, even if you are the BD person or the GR person or the marketing person, at the end of the day, everybody that contributes to the functioning and success of these companies is a systems engineer because you have to be thinking about all of those variables at the same time, and not just about the variables, but how they interact with one another.

AJ: Yeah, I have said too many times, it starts annoying myself when I say it, but you have to understand the physics of a system that you're working in from first principles. That comes from engineering, but it applies a hundred percent to the DOD world as well. Now, instead of a system that's governed by physics, this one happens to be governed by the far, the DFAR and humans that are by nature irrational, or at least perceptionally irrational. Most humans actually act quite rationally it's, we don't understand the framework by which they're defining that rationality. It's not a bad thing, it's just how humans are. And understanding how to hack or engineer that system to accomplish something that is the big, big challenge. But you can't do it without understanding how it works.

Zach: Oh, we're pointing at me now?

Dan: Zach, we've given you a lot of time to come up with at least one lesson learned from startup.

Zach: Oh, I've got so many fucking opinions. I'm just kidding. There's my first f-bomb, I've been holding that in the whole time. Yeah, I mean, I agree with everything that's been said. I think obviously the one that informs me, and we've talked about...you mentioned, is just I don't think you can approach this ecosystem as a marketplace. And I think you do yourself a disservice a little bit in thinking that way because the nature of competition is just very different. And understanding that when you go in to talk to a decision maker, AJ talked a lot about understanding how to that system works in order to hack it. So who owns the problem doesn't mean that person who owns the problem owns the solution. And so you're trying to create evangelists on your behalf to try and shape the message and influence things. But what you're really also doing is putting decision makers in a position to have to manage risk and trade offs.

It makes it so much more complicated. There are analysis of alternatives that can go for years as they think through these things. And so you might think you have a great product and you may have a great product, but that is not even close to enough. There are so many stories of the perfect solution being built to solve the problem and you just can't get there because you haven't shaped the space. You haven't coalesced people at the same time, on the same bounding of the drum, understanding what their concerns are, that we are not threatening another program or another area of interest. And so they see it as complimentary. The dynamics of that are wildly complicated. You have to have a very clear understanding of how not only your product or your offering can fit into the ecosystem, but how does it add value?

And how can you give an evangelist who's going to have to carry the story for you when you're outside the room, something to buy into because they're going to put their collar on the table for you. They're going to have to. As AJ said earlier, in a commercial environment, maybe you're one, two people away from that signature, you are miles away from 30 signatures in the department. It can get disrupted at any point and oftentimes you don't even necessarily know where that disruption's going to come from. So the level of complexity, the level of endurance required to constantly engage, to get that feedback, to recycle your approach, it just can't be understated. And I don't mean to minimize any other ecosystem or market, but only to state now having worked in this space, the complexities and the nuances of defense technology, especially when you have a really consolidated incumbency that's been incentivized over the last 20 years to come together and put up walls.

So, I think you just have to be very clear eyed, very patient. And I also think there's a component here that's becoming more and more apparent and certainly in the downturn. And AJ as a founder and somebody who's fundraised can likely speak to this far better than I can. But I think it's really important to have the right investors because if we're going to the room with the department and asking or pointing the finger a little bit and saying, this is what we need, this is what we want end X number of dollars over N number of years. The either explicit or implicit statement there is that for the dollar you spend, as we said earlier, you will get two more dollars of value. I need to be pretty darn sure that my investors are solvent enough and committed enough to run that path with me. Because, the second that doesn't happen, the credibility goes away. No different than if the plane crashed.

You have to make sure that all of your ducks are in a row. The department moves at a very particular pace. Right now, while there is a lot of authorities that we can exist within and push people to go on there, there are still red lines. I mean, there are still requirements and laws that we can't go around and that will keep us on a certain pace. So yeah, it's a complicated problem space to operate in. I also think that's maybe one of the most fun things about it if you're a glutton for pain like I am, and certainly I know Sarah is as evidenced by all of our tattoos.

There is something rewarding about going into that space and actually seeing a turnaround and deliver a capability and open the way for other folks. It's wildly complicated and I think sometimes there is a little too much...we are a little too rosy about the state of the ecosystem, frankly. I think the department pats themselves on the back a little bit and you're like, as Catherine Boyles said, this isn't as great a scenario as you guys make it out to be. I hope in five years we look back and we see some companies that have really come through the needle, us being one of them, but to be determined.

AJ: Yeah, this is something that folks will ask me. It's like, how would you advise startups around working with the DOD? And I tell them right from the beginning, you cannot have your cake and eat too with this. You have to put your whole self and your whole company's self into this. It has to be a priority because if it's not, and you will be in SIBUR land forever. It Has to be woven into your company's strategy from the very beginning. Otherwise, you won't put the resources to it at the right time, you'll think you're further along than you actually are, and when push comes to shove, it's not going to move quickly. That can spell disaster for a company that has kind of gone in half will to it. So that said, it's really fucking hard.

Dan: Really hard, really important. Sarah, we are almost at the end of time, just wanted to give you a chance as our guest today, any parting shots? And then I'll wrap up.

Zach:Not at me.

[crosstalk 01:09:44]

Sarah: It's all good. I mean as far as the one lesson that I would carry through in working through these communities, is kind of the life lesson that I've carried through for a long time. And it's just to save some space for grace. Because at the end of the day, businesses and organizations are not just the products or the processes in which they operate, they're very complex gatherings of people. At the end of the day, the reason we do this is for people. The reason we-

AJ: That's why we have "us" in our name.

Sarah: Right? So I mean, I am always looking for companies that one, really embody American innovation and pride, that have very...I'm a fan of vertical integration and supply chain security, which I think will be important in the next five to 10 years, but most importantly I look for places that understand that people matter. And that the people that help support the front end office and the back end office and the people that turning the screws and the people that are thinking the big thoughts, they all contribute to the team.

Everybody's entitled to a bad day but at the end of the day, hopefully everybody is rowing in the same direction and appreciating the opportunity that they've been given. And we've all been through, I think, a tremendous amount in these past couple of years. And I think we would do well as a society, as a country, as a company, just to be able to look each other in the eye and to be grateful for what we have and where we're going. And certainly I think this company has a lot to be thankful for and in a bright future ahead of it.

Zach: Yeah, I could not agree more.

Dan: That is a really eloquent way to end this. I think just to riff on your excellent point, I mean, at the end of the day, government bureaucracy, it's still people.

Zach: Absolutely.

Dan: I think at the end of the day, if I was going to say what was my lesson learned from being at a startup? We can talk about bureaucracy, we can talk about policy, but at the end of the day, there's a lot of good people in government and outside government and companies beyond that really trying to row in the same direction together. That's what makes me get up in the morning. That's why I'm at the end of the day, optimistic that as a company, as a country, we can do it. That there are a lot of good people. I think that's a super important point to end on. So Sarah, thank you for gifting us with your presence on this first national security podcast for Hermeus. AJ and Zach, as always it's a pleasure. We're excited to hopefully have you back down at some point.

Sarah: Oh yeah, I love it. Keep going.

AJ: Great. Will do.

Dan: Awesome. Thanks everybody.

AJ: To the milk.

Zach: To the milk.

Dan: Hear, hear.

Zach: Yeah, cheers.

Sarah: Lactose intolerant.

About Hermeus

Hermeus is a startup developing hypersonic aircraft to radically accelerate air travel. At Mach 5, more than twice the speed of the supersonic Concorde, passengers will be able to cross the Atlantic in 90 minutes. On the path to hypersonic passenger aircraft, Hermeus is partnering with government agencies including the US Air Force and NASA to develop a series of autonomous aircraft that derisk the technology and solve urgent national security challenges. These products provide the data and confidence necessary to certify, produce, operate, and maintain safe and comfortable commercial aircraft. Hypersonic aircraft have the potential to create trillions of dollars of new global economic growth per year, unlocking significant resources that can be utilized to solve the world’s greatest problems.