Our analysis of the Space & Aeronautics, Defense and Homeland Security industries from key trends to investment landscape… to perhaps, more importantly, evil vs no evil? Where are we now?

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Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

Nuno G. Pedro

Welcome to Tech DECIPHERED. In today’s episode, Episode 62, we’re going to discuss space and aeronautics, defense and online security. We are going to talk about key trends, why now is such a wonderful time to be looking at this space not only from a startup perspective but also from an investment landscape perspective. We’ll also go into the whole evil versus no evil topic. Specifically, we will discuss why now, and the geopolitics of the industries, aerospace and aeronautics, defense and homeland security, and then we will conclude. Bertrand, why now?

Bertrand Schmitt

Why now? I think this industry, this sector, space, defense, homeland security has seen not just a lot of growth and quite a few very successful companies coming out, but it’s an interesting complete turnaround, if you look at that from an entrepreneur or from a VC investor perspective. Why now? I think there has been, I would say, historically, there was a lot of scepticism, a lot of concerns by entrepreneurs, investors alike, centred around the military industrial complex.

Bertrand Schmitt

We probably all remember the famous Eisenhower’s farewell address where he was sharing his distrust of that military industrial complex. And venture capital shunned these sectors also due to long sales cycle, in some cases only one client, the Department of defense for many startups, as well as ethical debates.

Bertrand Schmitt

At the same time, it’s an evolving landscape. Startup came with disrupting legacy models. It’s not just a cost-plus approach. It’s a product approach. It’s agile. It’s innovation. The debate around, is it evil to is it something we must do in order to address global threats, basically coming to the forefront for investors and entrepreneurs alike.

Nuno G. Pedro

It’s a supply and demand issue. It’s not just that startups are not necessarily interested in it because it always creates this issue around, is it evil? Is it good? Are we doing something good or not? I think there’s a lot of that. There’s a lot of supply issue because of that angle. But it’s also a demand issue. Contracts historically with military take a long time to be hashed out. They depend on doing trials and proofs of concept.

Nuno G. Pedro

I think on the other hand, it’s an industry that historically was very resilient and dominated by services. Particularly the US military want to own everything, and so, therefore, there was this notion that whoever was the provider provided it to provide it as a service for them. There are services that still need to be done today, but the industry has been largely productized, and there are a lot of products. I buy planes, I buy weaponry, I buy a bunch of different software systems that will allow me to operate, but they’re productized. I think that’s one of the big shifts that we’ve seen and why now is a good time to look at it.

Nuno G. Pedro

If I’m a startup, I don’t need to go through 3, 4, 5-year cycles until I sell anything of scale. Then on the plus side, once I sell, it is at scale. There’s a lot of money in the military. We’ll talk a lot about the numbers later on, but there’s definitely a lot of money in the military complex that warrants the focus of startups.

Nuno G. Pedro

The other part is venture capital firms. Venture capital firms, historically, maybe because of the whole evil versus no evil and perceived ethical issues have stayed away from it. But we have more and more active large firms in the space from Founders Fund, Andreessen Horowitz. We ourselves have invested in companies that are around both the Homeland Security and the military complex space. So as a venture capital investor, because then the cycles to sales are better, because then startups scale faster, the economic piece of it has been solved.

Nuno G. Pedro

Then, on the other side, the whole ethical issue has been really put into perspective. There’s clearly a lot of geopolitical tension right now. Defense as an industry. It’s an industry that needs to scale properly where there are geopolitical interests at scale, but you need to put money where your mouth is.

Bertrand Schmitt

We will talk more about it, but I believe also we had one big example of an extremely successful company that really broke the dam in how you see these investments from an entrepreneur or investor perspective and how you can really win against these traditional companies, very entrenched companies. This is SpaceX. SpaceX really shown to everyone that, yes, you can build actually rockets. You can build better rockets. You can build cheaper rockets than everybody’s.

Bertrand Schmitt

That was the poster child of, yes, there is a brand-new market opportunity that until now we thought was impossible to crack for young, talented tech entrepreneurs. Suddenly, everyone could see in some ways that the emperor was naked and that these big defense contractors were actually extremely weak.

Bertrand Schmitt

From my perspective, they became weak. It was a two-way street. Also, the government makes them weak. You have only one supplier. You have only one buyer. At some point, it’s about wining and dining clients. It’s not about solving problem. At some point, it’s garnering political support, not delivering great products.

Bertrand Schmitt

I think there has been a slow path to extreme mediocrity, and mediocrity might be generous term, actually. I think there is, as a reaction to that, again, SpaceX example, shows that you cannot just make things 10% better, but you might make 10x or 100x cheaper and change the whole industry.

Nuno G. Pedro

I do think the example you put forward is a great example on aeronautics and aerospace. On military and online security, Palantir was at that first breakthrough. You could argue it’s still a relatively services-heavy company rather than a product, but it is a startup, it IPO-ed, etc. It’s obviously a company that has done really, really well in the industry. We now have obviously the example of Anduril in the drone space and how that’s scaling.

Nuno G. Pedro

I think we have now a bunch of good examples to your point, Bertrand, as there has been an unbundling of pieces that were typically government-owned or only government pushed like NASA. With aerospace, you have this opportunity like SpaceX that just dramatically changes how things are done, where it eliminates all these inconsistencies and these inefficiencies. I think that’s been true also of the defense and military complex side and how that has scaled.

Nuno G. Pedro

Maybe moving to geopolitics, it’s very clear that the US is the big player, spending a significant amount of its yearly budget on military by any admissions. Probably around 900 billion a year spent on defense in the US, which is incredible. The US GDP is 27.7 trillion as of 2023. This is a significant part of it, so obviously, the budget’s much lower. The use of military in the US and defense is a huge percentage of its not only GDP, but also its yearly budget. US is clearly leading the way, obviously. We’ll discuss other countries and where they’re at.

Nuno G. Pedro

Europe doesn’t seem to have gotten the memo. I think the recent discussions happening around Ukraine and what’s happening there show a little bit that not only it’s lost the plot, but it’s lost the power as well because it lost the plot.

Bertrand Schmitt

I’m French. You’re Portuguese from origin. For me, it’s totally shocking why is Europe… It’s been 35 years since the fall of the Berlin Wall, and it feels like the Europeans rushed to stop investing in their defense. There are some metrics in terms of German investments in defense spending, for instance, where we move from huge quantity of tanks to barely any tanks as Germany can bring into any battle. This is one example of how it moved from being a military superpower, same for France or the UK, to basically the shadows of their former self. It’s quite unbelievable.

Bertrand Schmitt

For me, what’s unbelievable is that even after 3 years of Ukraine war, some Eastern European countries have changed their defense spending. But the Western European countries have not changed much their spending. All these promises about increasing military productions, being able to provide military supplies to Ukraine.

Bertrand Schmitt

Yes, we sold them or gave them “some weapons”, some typically older weapons, but at the end of the day, we are not even able to provide enough artillery shells, which is the bread and butter right now on the battlefield. Same with drones. Most of the parts are coming from China, on both sides of the conflict, by the way. It’s a very, very scary situation.

Bertrand Schmitt

I guess we are recording that one week after JD Vance spending some time in Europe and talking at a Munich conference about European security. It’s very clear that the US is fed up from this perspective. As a result, I would expect actually a change in spending and priorities by Europeans. I guess they will buy some weapons from Europe, but also from the US. There have been some European initiatives like the JEDI initiative to stimulate faster tech adoptions. There are some efforts to change also the way stuff is procured, stuff is manufactured, and we will see what are going to buy going forward.

Nuno G. Pedro

If you look at the US and you think through the numbers, 27.7 trillion GDP, we’re talking over 3% is the expenditure yearly of the GDP. If you then talk about budgets, the budget for the US is around 6 trillion. It could be high or below 6 trillion, at least the numbers I have for 2022 and 2023. That’s like 14%. Nine hundred billion is 14% of 6 point something trillion depending on how you count it.

Nuno G. Pedro

It’s incredible, and that’s before you start talking about the other guys in the rest of the world like Russia and China. China is close to 300 billion in an expenditure from what we know. I’m not sure if those numbers are correct or not. It’s one of those only probably the Chinese know kind of numbers.

Bertrand Schmitt

Only a very well-placed Chinese would know.

Nuno G. Pedro

Only a very well-placed Chinese person would know or Chinese official. It’s second only to the US, China. They’ve been going through 29 years of consecutive growth in spending. They’re very clearly trying to catch up. Then Europe stands in the middle. Again, we have to talk about Russia where we still, again, who the hell knows their numbers? But it’s significant. Europe is between a rock and a hard place. It’s like everyone’s spending except Europe. If we looked at it as a conjoint, as a unified superpower, it’s the only superpower that really is not doing much.

Bertrand Schmitt

Actually, I had similar metrics for Russia where 16% of its government spending in 2023 went to the military. Similar to the US, 16%, maybe slightly higher. But yes, the big problem is countries in Europe like Germany where we are talking about 1% of GDP. So it’s a real problem. For me, what’s really shocking is the disconnect between the talk and what they actually do.

Bertrand Schmitt

When you see the Germans, or French, the UK talking strongly, condemning, attacking Russia, willing to do this and that, but then they don’t invest. They don’t follow the words with dollars on the battleground, with spending, with new lines of productions. It’s totally crazy. I don’t know in which parallel world they live. It’s very shocking, this level of disconnect between talk and reality. I don’t know how to explain at this stage, honestly. Yes, I stopped trying.

Nuno G. Pedro

It’s definitely the king has gone naked. I was just watching a movie. I think it’s called Rumours. I didn’t particularly like it. I think it’s barely funny. It’s supposed to be very funny. But the way they did it, it’s not a punchline. But it’s really a G7 meeting gone wrong with the leaders of several countries and the only thing they’re focused on is writing that perfect announcement at the end. That’s the whole thing that matters during the movie. It’s like end of the world kind of movie but the only thing that matters to them is writing that thing.

Nuno G. Pedro

It feels like that’s what Europe is about. It’s all about posturing. It’s about politics and politicking. It’s like, “Well, you guys…” Again, you and I are European. No power. It’s like you’re talking about stuff. You have no power. It’s like you can’t do much in the Ukraine, and then when push comes to shove, you come and say, “Well, we’re not going to do anything.” Really? It’s next to you guys. It’s a European country.

Bertrand Schmitt

What’s even more shocking to me is that 35 years ago, it was clearly different. There were strong militaries on the continent beyond the US army, but not any more. Basically, all that money, they decided instead of keep investing, protecting peace, basically, said that, “You know what? Let’s stop spending there. Let’s spend this somewhere else.” You can guess, if it’s somewhere else, it was probably into retirement, into healthcare, into all of this “softer” spending. But the reality is that you cannot do that if you live on the European continent. You have to be prepared to defend your country.

Bertrand Schmitt

Now all these politicians decided, “Let’s take that money. Let’s take it away, and let’s invest it into our favourite programs that are going to help us get elected.” I guess that’s really what it is all about. Politicians are staying in power and promising free lunch to their constituents in order to get elected.

Nuno G. Pedro

For those right now listening who’s like, “Oh, are you guys defending war and military and whatever?” No, we’re not. We’re not defending that there should be war in the world. I’m Catholic. In my mind, the world should be at peace. The sad thing is we are human beings and therefore people will go into wars, and we have several ongoing right now. If you are a superpower, let’s say European Union, whatever you want to frame it as, if you are a country within that complex, you have to defend yourselves. It’s at your borders.

Nuno G. Pedro

We are in a geopolitical state right now where, for example, with President Trump in power, it’s not clear the US will come over and do anything, all the recent comments on the war in Ukraine and Russia. So you have to control your own destiny. The point we’re making today is you have to control your own destiny. If Europe cannot control its own destiny—we’ve discussed in a previous episode, defense is one of the biggest Achilles heels of Europe—what happens next?

Bertrand Schmitt

I couldn’t agree more with you. We are absolutely not for war, but we definitely believe that if you don’t want war, you need to be prepared for it. You need to show that you are strong enough to fight off a war. You don’t want to show that through weakness, you are an easy target. Because if you become an easy target, the odds of war increase dramatically. That’s probably the big point we are talking about. You can call it peace through strength potentially.

Bertrand Schmitt

In a way, I think JD Vance, Trump, in some ways, doing Europe a favour by being extremely clear-cut about what they expect from the allies. First, in terms of values, and two, in terms of spending because that’s what you want. You want clarity. You want some equal partnership. Because to be frank, is it fair that the American taxpayer is paying more in order to protect Europe? Because he’s paying more, he’s spending more, he’s getting less free healthcare, less free retirement so that Europeans spend less and can afford more on the other side.

Bertrand Schmitt

People always talk about this topic, “Oh, we have this great stuff in Europe, free healthcare, great retirement, all of these. Americans are crap.” Yeah, but sorry, guys, we’re paying for your security instead. For me, as an American taxpayer, I’m especially angry about this situation, to be frank.

Nuno G. Pedro

I agree with everything you said. Let’s see if he does go after the military defense complex because we haven’t seen any signals that he is going after it. He is saying this and everything he’s saying is fair. Why are we paying for wars elsewhere? We’re not the policemen of the world as Americans. But at the same time, it is the biggest bucket of cuts that he can go into, and I’m not sure we’ve seen anything from him yet.

Nuno G. Pedro

I think until then, I reserve that this is not just a comment on whatever. His recent comments on Ukraine and the war, etc. to be honest are not cool. We’re questioning that the Ukraine started the war and not Russia. Is that what happened?

Bertrand Schmitt

I think at this stage, you have to separate a battle from war. Does a war start with the first bullet, or does a war start when you start to topple a government?

Nuno G. Pedro

Man, I feel on that one, I don’t think we’re going to agree, because I feel there’s a lot of posturing right now from Elon and from President Trump, and I’m like, “Guys, let’s not try and reinvent history now and try to…” Anyway. But again, if he goes after the military complex, I agree. If he goes after the military complex and if there are significant cuts made there… Because that’s the big chunk that you need to go after. It’s that and healthcare. Otherwise, for me, it’s just posturing.

Bertrand Schmitt

But to be clear, I’m not sure he wants to decrease significantly the budget. There has been a new directive a few days ago to reduce the budget of the Department of defense, 8% a year for the next 5 years, but it was not clear to me if it was to make space for new initiatives instead. I’m not 100% clear on that. I think their point was more, “We have a fixed budget. We have to project more power in the Pacific, in Asia. Europeans need to take your part of the budget because we cannot do both at the same time properly.” To your point, I don’t know if it’s more about Americans spending less versus Europeans spending more in order to bear more of the load in Europe.

Nuno G. Pedro

I think there’s, definitely. I’d be shocked if there are no opportunities for improvements in defense spending by the US. I’m not defending that it needs to go to zero, or it needs to go to 1% of GDP, but it definitely, really, really very inefficient as well. Again, we hope with this innovation, and we hope with these startups supplying products, and we hope with these companies scaling supplying products that those efficiencies are captured. But my belief is there are a lot of inefficiencies still there, huge amounts, more than any other industry probably in the US.

Bertrand Schmitt

I think no one questions that. That’s why, again, they launched this order to decrease the budget by 8% for the current budget going forward in order to squeeze efficiency. We are talking about 35% over 5 years, to be clear. It’s not small. The question is more, do you save in order to just cut the fat? Or do you save in order to cut the fat so that you can invest more at ease of budget in order to have more power, more military power? That’s the question.

Bertrand Schmitt

I think no one question at this stage the fact that you should squeeze more of the existing military. But the question is, is it in order to absolutely reduce the budget, or is it in order to give space so that we invest in new stuff, more valuable stuff than today?

Nuno G. Pedro

I think it should be both. That’s my view. It should be both. There should be a reduction in budget, and there should be a renewed focus in terms of activities and projects. That’s my view.

Bertrand Schmitt

Yeah, that’s the question. I don’t have an opinion on this. But I agree with you. We should spend less for sure on some existing initiatives. I’m sure, like everyone in government, there is plenty of fat.

Nuno G. Pedro

Now that we’ve sold off geopolitics, so Europe has to catch up. US, China leading the way. Russia is still doing their thing. We’ll see.

Bertrand Schmitt

I’m hearing US has a lot of F-35 to sell, by the way.

Nuno G. Pedro

Yes. Our GDP also depends on that. Maybe let’s move to something a little bit less arguable, less of a topic where I think we’re going to have major disagreements, which is aerospace and aeronautics. We’ll come back to defense and online security specifically later.

Nuno G. Pedro

On aerospace and aeronautics, obviously, we’ve already talked about SpaceX, a company that really has effectively disrupted how certainly space exploration and space access has been done. We already mentioned it in previous episodes. The company is doing really well. Do you want to talk a little bit about the last fundraising exercise that they did?

Bertrand Schmitt

Yeah. Maybe to talk about SpaceX, let’s remember people what SpaceX is doing now. SpaceX has been building rockets, especially the latest, Falcon 9. Then, SpaceX is building an even bigger rocket with a space vehicle called Starship. In terms of products, they have launched some very innovative products like Starlink, which gives you Internet access anywhere on the globe, on the sea, but also in the air, in space.

Bertrand Schmitt

This is an amazing revolution. If you have tried Starlink, it’s just plenty amazing. Their latest innovation, actually, there was an ad for it during the Super Bowl a few days ago that was announced in partnership with T-Mobile. It’s a new direct to sell initiatives. You don’t even need a Starlink dish in order to receive Starlink.

Bertrand Schmitt

You can use your regular cell phone, and that’s plenty amazing. It’s starting with text, but, of course, it’s going to evolve with full data access, high speed data. It’s going to bring video, and it will work with some of the latest generation of fonts. Not every font, but most of the most recent modern fonts. The big change, it means that suddenly everywhere on earth, you are going to be able to get signal. No more dead zone. No more you’re in the middle of the ocean, too bad.

Bertrand Schmitt

It’s really game changer. If you talk to people who work on cruise ships, for instance, their life was miserable. There was no Internet access when you’re at sea. You pray for Wi-Fi at the port. It’s a big game changer for a lot of people. I don’t think we fully realise the impact. Some of those stuff, for instance, if you think about where you can live now, there are so many new places that open up. Between solar energy plus Starlink, suddenly you have really new opportunities. Personally, I think they have developed an absolutely amazing product there.

Bertrand Schmitt

SpaceX, in terms of fundraising, I think the last fundraise was discussed around 300 billion plus in terms of private valuation. For me, SpaceX is clearly the next trillion-dollar company. There is no question about it.

Nuno G. Pedro

They’ve revolutionised SpaceX and exploration. They have all these other products here on Earth with Starlink one being one of the key ones. Obviously, they are exploring many other opportunities and projects, and we will discuss some of the opportunities I think are about to arise like Moon and Mars exploration, space stations. It’s funny as we mentioned in a previous episode that they had to bail out the Boeing vehicle, and they had to go there, or they’re about to go there. They haven’t gone yet, but they are going to have to bail out to get the astronauts back on earth.

Nuno G. Pedro

In effect, a company that’s doing great. There’s obviously other companies, Blue Origin, with Jeff Bezos going after their own opportunities and really scaling. What’s been going on?

Bertrand Schmitt

They just did a launch with New Glenn, the first successful launch with New Glenn just a few days ago. It’s moving in the right direction. But let’s not forget, they totally destroyed Boeing space program. As you said, the astronauts from the Boeing program were stranded, but that program is destroyed. I think, from what I’ve heard, Boeing is seriously considering cutting everything.

Bertrand Schmitt

To be clear, overall, Boeing is in a fight for its survival just on the regular plane manufacturing. They completely messed up. It makes sense for them to consider abandoning this program, given how much harder it is for them in the space program. It’s quite an amazing reversal of fortune in 15 years to see Boeing from the big guy to basically disappearing.

Nuno G. Pedro

Indeed. This is SpaceX that you’re saying has destroyed Boeing, et cetera. Right?

Bertrand Schmitt

Yes. SpaceX. Sorry.

Nuno G. Pedro

Not Blue Origin, yeah.

Bertrand Schmitt

To be frank, it’s good to see a competitor, but so far, they’re so far away from SpaceX that we should talk about them as a competitor, but they are very, very far behind. What saves them is obviously the Jeff Bezos company. There’s some backing from Amazon. Amazon is actually investing and buying some capacity from Blue Origin. The European Union is also interested to buy some capacity from Blue Origin.

Bertrand Schmitt

Basically, everyone who doesn’t like too much Elon Musk is trying to buy from Blue Origin, but that’s a bit sad if that’s the only saving grace. I’m not sure it would be enough.

Nuno G. Pedro

On a couple of other space topics, the private space station movement, ISS, the International Space Station, is about to retire in 2030. There is obviously a lot of movement in creating a private space station. There is work being done. I think Axiom has a NASA contract to work on it.

Nuno G. Pedro

They say they are going to be free flying orbital platform as early as 2028. We’ll see. Fingers crossed. There are startups going after mini stations like Vast Space. There’s a lot of work being done on that. That’s one area that is definitely exciting.

Bertrand Schmitt

At the same time, I guess you missed the latest twist from Elon Musk, but he just said yesterday that he was going to push the president to retire the Space Station much sooner than expected, so in the next 2 years.

Nuno G. Pedro

He’s going to build one.

Bertrand Schmitt

No, he’s just saying it’s a complete waste of time. It’s useless. He’s saying, “Why are we wasting time there and money? Let’s just go to Mars.”

Nuno G. Pedro

It sounds like a philosophical disagreement, basically. He doesn’t think we should have space stations at all.

Bertrand Schmitt

Around Earth, I think he’s raising a lot of questions. A waste of time, energy. I think that’s a fair question. I can see personally value to learn how to live in space, to learn how to build a base on the Moon before going first to Mars. But I guess he’s thinking otherwise.

Bertrand Schmitt

That’s one to keep in mind. The other piece is that Axiom, considered one of the biggest project for a private space station, is not doing great financially, apparently. It’s not clear where it’s really going, to be frank. If you have Elon Musk positioning so clear about what should be next, maybe it will remove a lot of investing capacity into private space stations.

Nuno G. Pedro

Moving to Moon and Mars because that’s the segue. There is the Artemis program from NASA to go back to the Moon, and this is obviously done with private consortiums. The first one, the uncrewed test flight around the Moon was done in 2022. The next one is set for 2026. The SpaceX Starship has been selected as the lunar lander for Artemis 3, which is planned for 2027. Obviously, we definitely want to go back to the Moon. Obviously, our friend Elon wants to go to Mars as well. We’ll see.

Bertrand Schmitt

Not as well. He doesn’t want to go to the Moon. He doesn’t care about the Moon.

Nuno G. Pedro

He doesn’t care about the Moon, just Starship will be used potentially for the Moon as the lunar lander. Yes.

Bertrand Schmitt

Exactly. He’s happy to sell service to whoever wants to buy service, but for his direction as a business, as a person, he doesn’t care.

Nuno G. Pedro

He doesn’t care. Wonderful.

Bertrand Schmitt

Maybe another piece on the Artemis mission. Obviously, they use some very old, very bad rocket technology to launch their space vehicles. The big question is, we just stop doing this stupid decision and instead replace that with SpaceX rocket. That’s a big question. That’s not clear right now what will happen. But I will bet that they are going to buy from SpaceX instead, their following rockets.

Nuno G. Pedro

Maybe moving to the closer to us kind of space, the on Earth kind of thing. Talk a little bit about drones and uncrewed aircraft. Obviously, a lot of movements around it, only commercial, but also around military, around homeland security, around a variety of other areas. Obviously, historically, there’s been the use of large drones, the Predators and Reapers by the US military for decades, but now there’s a lot of smaller things.

Nuno G. Pedro

The Ukraine war in some ways has been a lot played around commercial drones being repurposed for military purposes. There’s obviously a lot of activity around it. We have an investment in a company that has been trying to work around that space, not for effectively attack purposes, but really for reconnaissance purposes. China is also trying to capitalise on this, so there’s a lot of movement on that. What’s your take on this? Bertrand, it feels that this is going to be the golden age of drones for good and bad.

Bertrand Schmitt

I would say first, I’m very, very angry at the Western regulators like the FAA in the US. I don’t think in Europe they have been so much better because thanks to the unnecessary and overly complex and overly restrictive regulations, they have basically impacted the market very negatively big time. By impacting this market, basically, they have destroyed the ability of local manufacturers to be really successful.

Bertrand Schmitt

As a result, they have opened the gates for Chinese make drones like DJI to become super successful because they were not blocked in their home market by all these regulations. They were able to build a stronger base of revenues at home.

Bertrand Schmitt

I’m looking forward for big change, and I’m expecting that very quickly, to be frank, that the FAA is going to dramatically change the rule around that. I see a lot of opportunities. I hope it doesn’t just all go to Chinese companies, obviously, in the US. I hope that will also stimulate a renaissance of manufacturing and drone manufacturers space in the US or Europe. Because I don’t think there is any of them of notice, except in the military, as you said, with the Predator, Reaper, and all those military drones. But on the civilian market, it has been catastrophic for Western manufacturers.

Nuno G. Pedro

The other movement we’re seeing is, as we mentioned, around more commercial things. One thing is obviously flying taxis. We still don’t have self-driving cars yet, but we’re going to have flying taxis. The technology, one of the key technologies around vertical takeoff and landing, electric vertical takeoff and landing being one of the core technologies that might make sense to deliver it on. There’s been a lot of attempts at it. Lilium in Germany was one of the players around it. I think that they have ran out of cash and went insolvent late last year. Cool.

Bertrand Schmitt

Unfortunately, yeah.

Nuno G. Pedro

There’s Joby, which has received a lot of money. Archer Aviation and a bunch of other companies around the world. China again could have an edge because of battery production we’ll see, but there’s a lot of movements, and we all want really flying taxis and then flying cars. We don’t want cars anymore. At least for me now a guy who loves the sound of an engine, driving an electric car, I might as well get an electric plane.

Bertrand Schmitt

I feel horrible because this is another example of Western regulations that have made it near impossible to develop efficiently, quickly and cheaply an eVTOL. The Chinese, actually, aviation authority was the first to certify an eVTOL. It’s so ridiculous, the situation we’re in. We have regulators who are destroying our industries. That has been happening with eVTOL as well, not just withdrawn.

Bertrand Schmitt

At the same time, to be frank, I’m not so sure about the eVTOL market. We will see. I’m not so sure that electric is the best approach for aviation. It has a lot of constraint in terms of weight. For instance, you cannot go away with a lot of weight when you are flying.

Bertrand Schmitt

If you take eVTOL, it’s not as efficient as a plane. You don’t have wings. It’s not an easy formula. I don’t think people should expect this stuff to take away passenger planes, for instance. But it’s really a much shorter distance type of vehicle that could be interesting, ultimately, if we manage to make the economics work and if we don’t have regulators, I’m assuming these innovators.

Nuno G. Pedro

The other topic is supersonic planes because obviously we all miss the Concorde. Boom supersonic was one of the big attempts at it. It’s not looking great. I think we now have to go back and figure out, how do we get faster transfers with flights here on Earth? Not sure, but definitely the solutions we’ve had thus far are not great.

Nuno G. Pedro

Again, it might be an issue of regulation because of the whole sonic booming thing and how that affects communities, et cetera. But at the end of the day, it feels like it’s an area that has quite a bit of investment that really seems to have not dramatically scaled. We all want to go faster from one continent to the other. It is something that I do feel would have huge implications for consumers and for people, if we dramatically changed how fast we can go from one place to another globally.

Bertrand Schmitt

Let’s not forget that the “issue” on some issues made by supersonic planes. A lot of this was put in place by the US in order to destroy the commercial capability of the Concorde. Basically, they tried to, sadly so, destroy the Concorde program. For some reason, didn’t want that to compete against US alternative.

Bertrand Schmitt

I mean, there was no US alternative up to recently. My point is that some of these regulations were artificially manufactured. If we go forward, one of the big points of the Boom supersonic plane is that actually it generates less noise. They’re actually pushing hard to change regulations that were totally unreasonable. Again, from the FAA and others, it looks like they have the support from Elon Musk because that was a few days ago. Promising to look into some of these FAA regulations, unnecessary ones.

Bertrand Schmitt

I start to be a bit hopeful there that there is indeed an opportunity to build a supersonic passenger plane. It’s also much cheaper to run the boom plane versus the Concorde. They made quite a few significant changes. The cost per passenger is much, much cheaper. Lower noise in supersonic. When you go supersonic, much cheaper. We might have an economic equation that start to make sense if regulators don’t add artificial barriers.

Nuno G. Pedro

Much for that. We’ll see what happens going forward. But we’re still looking for that dramatic innovation that really gets us from point A to point B around the globe faster than the current planes that we have.

Bertrand Schmitt

That’s super exciting. Dividing by two the time it takes to fly somewhere else, it’s amazing.

Nuno G. Pedro

It would be super exciting. It would be ridiculous. A killer of a flight, like 17 hours to Singapore, gets manageable. It’s like 8 hours or 9 hours. A flight from here to Europe in 10 hours, I live on the West Coast and so do you. Bertrand gets 5 hours, which is like, that’s an easy flight. It changes stuff dramatically. It changes everything dramatically. That’s a big deal.

Bertrand Schmitt

You know what will be the next steps? The next step would be to use Starship for airborne transportation. Here, we are talking about 30, 45 minutes. Basically, it’s as fast as an intercontinental ballistic missile, so it will get much faster.

Nuno G. Pedro

We just want to be “Beam me up, Scotty.” That’s what we want to say. We want to go from point A to point A immediately.

Bertrand Schmitt

Yes. That’s the next level.

Nuno G. Pedro

Moving to defense and homeland security. Obviously, there’s a stronger and stronger crossover between homeland security and defense. I’m not sure it’s totally warranted. I’m not sure, again, that our police forces should have tanks and stuff like that. I don’t think so. But there’s definitely a lot of technology that’s cross fitting and cross-cutting across both worlds for all intents and purposes. Some of it, I think, is warranted. Some of the drone usage, I think, makes sense. Some of the elements around software.

Bertrand Schmitt

Cybersecurity.

Nuno G. Pedro

Exactly. Cybersecurity and other elements. We haven’t talked about software much. We’ve been talking about physical things for a bit. But obviously, on the software side, there’s obviously a lot of crossovers that should be manifested. We have an investment in the homeland security space, but it’s really more around police forces and the use of their body cams, in particular for the purpose of training.

Nuno G. Pedro

We feel there’s huge amounts of things that still need to be done around that. There’s a lot of things that you wouldn’t think about that need to be done. For police forces to be better, they need to be able to use what they already have. They have body cams. Why can’t they use it for that?

Nuno G. Pedro

Definitely a lot of interesting things happening, but there’s a huge crossover between international defense and homeland security, so to speak, at this stage.

Bertrand Schmitt

I think there are a lot of opportunities to serve both markets with similar technologies. I think a lot of startups are focused on that. What’s also interesting is some of the big name investors who are investing in that space. In-Q-Tel (IQT) has been one of the most active investors in defense and national security startups. That’s the name that we always see, backed by the US intelligence community. But there is a lot of more traditional VCs like founder funds that are investing in the space.

Nuno G. Pedro

Andreessen Horowitz, we mentioned already Founders Fund, obviously Marc, Peter. We invest a little bit as well. We have some ground rules around what do we consider to be evil, no evil and create some borderlines around our investment thesis. We do have a sort of evil versus no evil piece of analysis when we’re looking at an investment.

Nuno G. Pedro

The investments that I mentioned in this episode before went through very complex analysis internally for us to really be sure that we felt that we were not breaking that rule that we have as a partnership. But obviously a lot more activity in the space in terms of investment framed as we discussed earlier by players like Anduril, like Palantir, like SpaceX.

Nuno G. Pedro

I mean, SpaceX more on the aeronautics and aerospace space. But obviously, this unbundling of what government controls and dominates and does, going into a direction where the private sector can take some of those responsibilities and really innovate much faster than government and these complexes would by themselves. I think that’s the piece of the puzzle that we’ve seen.

Nuno G. Pedro

We also have had some movements with the NATO Innovation Fund. We’ll see what happens with the NATO Innovation Fund. A lot of activity around it, in particular in Europe, and really deploying capital at scale into other funds, into startups, and actually even working on the accelerator side with establishing DIANA, the defense Innovation Accelerator, to connect startups with defense problems. To create this venture building, venture studio element and this open innovation construct with defense departments, et cetera, we’ll see if it bears any fruits.

Nuno G. Pedro

That’s super, super exciting. Even if we don’t have huge massive shifts, but if we create this environment where startups really can engage with the defense ecosystem much more easily.

Bertrand Schmitt

I mean, there has been also this partnership between SpaceX, Anduril, Palantir. Partnerships/alliance in order to better provide a new edge solution to defense and overall homeland security market. I think there is a lot of initiatives, new player working better together, as well as new funds in Europe and US. We cannot talk about defense or homeland security. We start talking about AI.

Bertrand Schmitt

It’s quite clear that AI can bring a lot on the table. It might be about automated image analysis. It might help you pilot automatically your drone. It might help you automatically acquire targets. It might help you go through a lot of quantity of data all at once. I think AI can also, not just can, but is playing and should be playing an even bigger role in the US and European military and defense industry.

Nuno G. Pedro

It’s definitely shifting everything. For good and bad. With AI, we will need to figure out what will happen out of it. It’s not just the physical space, the autonomous vehicle piece, the drones that self-manage. There’s a lot of stuff happening also in the sea, so underwater as well.

Nuno G. Pedro

Not just the physical stuff, but also the software stuff. The software stuff is dramatic. Like planning tools, thinking through intelligence analysis, imaging, and really identifying things much faster. I think that’s a game changer. I’m still to see whether all of it will be positive or not, but it’s definitely a game changer.

Nuno G. Pedro

I think it links well to this notion and this trend that we see in defense and military where a lot of the things that are now addressing military and defense needs and even homeland security to a certain extent are coming from companies that are really deploying them with dual use. Dual use strategies. These are companies that have, so to speak, a commercial side of their business and then a military side of their business. All the companies we invested in have dual use.

Nuno G. Pedro

They have a commercial side where they have commercial uses for the technologies they’re developing, the things that they’re doing, et cetera, but then there are also a use for it that defense could use in effect. Really interesting how we’ve gone from companies that, again, this was a taboo area to companies now that do both commercial and defense alongside. I think that’s going to be a huge driver of tremendous innovation for overall the industry.

Bertrand Schmitt

To be clear, I’m certainly not advocating some of these technologies for civilian use. Some of them are incredibly scary when you think about what could be done once you automate more, once you put more AI into it. I will say for some of this technology, I’m certainly a believer in the defense space. When you think about autonomous target acquisition, for instance, this is such a game changer. Because if you can recognise by imagery alone, video alone, a target and go there all by yourself, this is changing so much how war has been working for the past 70 years.

Bertrand Schmitt

You can see something from far away, decide it’s a fair target and automatically go there with risk of detection being decreased, but also risk of manipulation. Your GPS positioning could be jammed, but if you still see your target, you still go there. Compared to laser that was usually combined with human beings in the loop, it’s also game changer. There is no human beings in the loop. You can totally imagine a swarm of military weapons that are just going in one direction and picking target after target without any human in the loop.

Bertrand Schmitt

I can imagine how war is going to change at scale. That’s, to your point, around defense spending and other stuff, is certainly raising a lot of questions. Do some of the existing programs still make sense in a new type of war?

Nuno G. Pedro

Just to be clear, there’s things that should absolutely not be used in commercial. One example I was thinking about is if you’re developing, for example, a highly-advanced AI methodology that deals really well with edge case scenarios, for example, loss of connectivity or dramatic weather conditions, et cetera. They have great commercial applications for sure. For self-driving cars, for many other things that are being done in the commercial world. But guess what? They also have great applications for, for example, dealing with drones in war environments.

Nuno G. Pedro

I think it’s more around that logic that I’m talking about that the dual use obviously should be used thoughtfully, but in many cases, it makes a lot of sense. That you are developing very advanced technologies that should be used across both worlds.

Bertrand Schmitt

It helps reduce the cost, the spend, leverage R&D. It makes a lot of sense as long as we’re careful about what we are doing at home and still protect freedom and personal privacy.

Bertrand Schmitt

As you have seen, there has been a lot of change in the past 15 years in aerospace, defense, and homeland security industry. There is a convergence in technology, commercial viability, and national security. There are opportunities in dual use tech, in AI, in deep tech manufacturings, and I think startups are already at a tipping point where they start to reshape how national security is achieved, making this, I believe, in a pivotal time for investor.

Bertrand Schmitt

At the end of the day, it’s not all about SaaS anymore. It’s also about what can be done through hardware and software in support of new space programs and defense programs. Thank you, Nuno.

Nuno G. Pedro

Thank you, Bertrand.