FULL TRANSCRIPT
Slava Rubin (00:00)
Hello, my name is Slava Rubin. I'm one of the founders here at Vincent. We are your home for all things alternative investing. We have our Alternative Investment Report, our Smart Humans podcast, and obviously this series where we love to cover all kinds of interesting content, specifically in the pre-IPO world. With us is Jan-Erik from Sacra Jan-Erik, say hi.
Jan-Erik Asplund (00:19)
Thanks for having me, Slava.
Slava Rubin (00:21)
Absolutely. The one and only, we love having you on. Today we're going to be talking about a very, very timely topic, which is defense innovation. There's a lot of uncertainty in the world. There's some conflicts going on, even some active, hot conflicts going on in the world, the Middle East, Ukraine, et cetera. And for the longest time, this was not an area where we would typically talk about innovation. These were legacy players.
And now that is evolving very quickly and there are investment opportunities. So that is the context. Before we dive in, let's get a word from our compliance department, which is nothing in this presentation should be construed as an offer to sell securities or a solicitation from an offer by securities. All investments involve risk and the possibility of loss, including loss of principle. Neither past performance nor forward-looking information is a guarantee of future results. So let's dive in.
for all of you in the audience. Let's start with a simple poll, which is how many of you are thinking to invest in the defense sector in the next 12 months? We'll give you seconds to vote. Let's see where your heads are at.
All right, survey says that this audience is thinking, ⁓ absolutely yes, hot topic for sure. All right, let's move on. We got 90 % that are interested. So let's go right into the overview, which is let's talk about the market. Jan-Erik, contextualize this for us. How big of a market is this? Why is it so hot right now?
Jan-Erik Asplund (01:56)
Yeah, like you said, a few years ago, this was not a interesting market at all. And that's kind of the context in which the biggest company in the space now, Anduril first got started. We were kind of in the 2010s. There wasn't really that much kind of going on from a hot war perspective, as you pointed to. But everything kind of really started to change rapidly after 2022.
couple of massive trends. One was the war in Ukraine, which was the most kind of has become the most important sort of proving ground for military technology has been a huge source of insight into what the next generation of kind of warfare looks like, is, it involves a lot of very cheap commercially available drones. It involves a lot of overall autonomy, counter-autonomy. It involves a lot of signals versus just kind of ⁓
you know, manpower, artillery, the typical stuff you think of with warfare. So it's been a huge step forward that we'll talk about quite a bit more. The second big trend is kind of the, you know, the maritime aspect, right? So there's been rising tensions in the sort of Indo-Pacific for a while, particularly around Taiwan, which has only become more important as a partner to the United States with this sort of AI trend.
Now on the maritimes on the sort of Indo-Pacific, what comes up most often is the kind of the naval gap between what China is producing and what the United States is producing. So the big concern in sort of defense tech and in among U.S. primes is that the U.S. doesn't have enough ships to match China hole for hole. And it's creating massive demand for ⁓ autonomy underwater and on the surface of the water.
So that's a big one. ⁓ yeah, third is kind of, there's been this proliferation or, know, the drone warfare has escaped containment. And so we've seen a lot of drone warfare across the middle East, especially recently, you know, drone strikes on, you know, hotels and military bases alike, Red Sea shipping. It's created this clear recognition that today this is maybe the core threat is, you know, it costs almost nothing to have a drone.
that could fly and destroy almost anything that's physically accessible through the sky, creating this huge need for counter drone technology. So really, think the of the upshot as an investor is that the sort of, know, packs Americana, whatever that lasted from the early 90s. Obviously there's always conflicts, but it's kind of over, right? And we're kind of entering an era of
increased defense spending. We're over a trillion dollars in the Pentagon budget now. It's planning to break another record next year, apparently. increasingly, we're seeing startups being formed here to solve problems, solve these kind of new problems, do them more cheaply. And I think shake these companies like Raytheon and Lockheed up a little bit, make them a little bit less comfortable as they've sort of been for the last.
⁓ century with their existing business model. So that hopefully gives a little sense of where we're going.
Slava Rubin (05:03)
Yeah, I mean, typically, like you said, there's these legacy players, Raytheon, Lockheed, Boeing, et cetera. But those are not the names we're going to talk about today, right? We're going to be talking about names that maybe people haven't heard of at all. Anduril Shield AI, and Saronic are going to be some of the names we're going to cover a little bit more in depth. And there's going be some others that we'll include. But it's really interesting that there's these up and coming companies that are really becoming the norm.
I mean, we're not even talking about little baby companies. These are now worth billions, if not tens of billions of dollars. So should we dive into an overview of those?
Jan-Erik Asplund (05:37)
Yes, let's do it.
Slava Rubin (05:38)
Let's go with Anduril first.
Jan-Erik Asplund (05:40)
Yeah, probably if you know any name.
Slava Rubin (05:42)
Just a quick commercial break, is just like always, if anybody has any questions along the way, feel free to jump in with any questions into the chat in the Q &A section, and I'll look to include it as possible. Go for it.
Jan-Erik Asplund (05:55)
Great. Perfect. Anduril yeah, if you probably, you know any of these companies, probably know Anduril founded in 2017 by Palmer Lucky, who was previously the teenage Brown founder in his garage of Oculus VR, sold it to Facebook for $2 billion. So yeah, Anduril, you know, named after the sword forged for Aragorn and Lord of the Rings, of course, is the company that emerged from kind of this, you know,
very well capitalized exited founder who was hanging out with ex Palantir engineers and decided that you could sort of you could beat Raytheon and Lockheed and other defense primes at their own game by building a defense prime like a software company and building products that you know the government needs and selling the products to the government which sounds very normal except that the normal way you sell in defense is
you know, the government sort of pays for R and D, um, on behalf of the contractor. And then the contractor does the work to figure out how to build that fighter jet, build that missile. And they basically charge, um, uh, 10, 11 % margin on top. And obviously that creates incentives for lots of huge projects, lots of subcontractors, lots of costs, because you want to get that 10 % on top as fast as possible. And that's how,
part of how we've ended up with huge costs and huge defense budgets. So this was kind of the origin story. They started with these sentry towers at the southern border. So this was when Anduril was the most maligned company in Silicon Valley, the most avoided company, and then became a lot more well-known for drones in 2022 as Russia invaded Ukraine. And then Anduril became very trendy.
And now it's sort of in the middle, I think. But yeah, it's been far away the most successful startup in the space, you know, doing over 2 billion revenue, 125, doubling from 2024 and getting into basically all kinds of different markets from drones, counter drones, underwater towers, everything we just talked about there in. And yeah, probably the closest thing we have to sort of a new crime.
A new Raytheon, a new Lockheed, a new really major government partner and contractor, even though on revenue scale, they're nowhere close, of course.
Slava Rubin (08:29)
The revenue growth is quite impressive, going from $150 million of revenue in 2021 and then now over $2 billion in 2025. Can you give a sense of what is the mix of that revenue? Do you have a percentage breakdown of what are the big chunks? Like what are maybe the three main revenue drivers there as to where that revenue is coming from?
Jan-Erik Asplund (08:53)
Yeah, that's good question. me try to pull it up. actually do, we actually did some work on this. this was, yeah, we have a little bit, know, the sort of original border wall stuff was a big part of Andrews early business. That's still roughly a quarter, you know, of their contracts. This data is from 2025. you know, subject to change a little bit, but roughly a quarter of it was still customs and border control. And half of it was,
special operations command, which from our research seemed to be mostly related to both drone and counter drone operations. And then another quarter was roughly split across projects with the Air Force, with the Army, and with the Navy on various things, including ships. So I think our rough breakdown for now would be
like roughly half of revenue coming from sort of drone and counter drone operations, possibly even tilted a little bit in favor of counter drone on that. in terms of the contracts that they've booked.
Slava Rubin (09:54)
Is there a sense for what 26 revenue supposed to be?
Jan-Erik Asplund (09:57)
Yeah, I will. I believe that they have, predicted, you know, doubling again. Yeah. Sorry. Just had to confirm that they, they estimated about 4.3. yeah.
Slava Rubin (10:12)
So I think they did close or are about to close the $60 billion valuation. Do you know if they actually closed it?
Jan-Erik Asplund (10:18)
I don't, I'm not familiar that it's closed, no.
Slava Rubin (10:22)
Got it, so I think they're in the process of closing the 60 billion valuation. Let's assume it's closed for a second. So 60 billion seems expensive, but when you then look at the 2.1 billion of revenue, that's a 28.6 revenue multiple. Compared to the hyperscalers, that's not so crazy, but compared to the legacy defense companies, that probably seems a bit expensive. Can you give any relative appreciation for what kind of revenue multiple that is?
Jan-Erik Asplund (10:47)
Yeah, you're definitely right. If you look at Lockheed Martin, you know, Lockheed Martin did 75 billion in revenue last year. They're valued right now at about 140 billion. So, you know, works less than two X. Yeah, it's basically two X or under for every Northrup, L3 Harris, you know, electric boat. Basically, all these defense contractors have that.
roughly the same thing. And so, yeah, it's definitely expensive compared to those. Of course, know, Lockheed is growing, you know, in the low to mid single digits every year. They all are. And then, you know, as we also said, you know, the margins in this industry are not very high and that's by design. So it's expensive, but yeah, it's growing much faster and it's sort of indexed on the fastest growing.
sectors in defense, is, you know, this kind of automation software drone counter drone.
Slava Rubin (11:44)
Um, and a lot of people talk about all these defense products, like the individual things, the, the drone, the, the, you know, the, um, the actual missiles, the tank, the, uh, the submarine, et cetera. But what people talk about with Anduril is this lattice system. Can you speak a little bit about what is lattice? Why does that make it unique, uh, for Anduril? Like, why is that kind of the connective tissue?
Jan-Erik Asplund (12:14)
Yeah, so Lattice is kind of a key part of this vision of remaking a Prime from a sort software perspective first. So the idea is that instead of all these different missiles and drones and counter drones being sort of separate products, separate hardware that you just sell as hardware, you have a sort of, as any investor loves to see in B &B SaaS, you have a sort of,
Razors and blades kind of model, you you're selling a piece of hardware, but that piece of hardware is connected into a AI powered, you know, command and control software platform for which there's a recurring fee, right? And what the software platform does essentially is connect all of the different hardware pieces such that they have visibility and interaction across.
all these different kinds of devices. to sort of give an example, right, you might have a fighter jet that can see a certain target out in the water. And then you might have a ship miles away with the Patriot missile attached to it that can then fire that missile at the target, even though it doesn't know where the target is.
because the fighter jet has visibility into it and that information is being fed directly from the jet into a software platform that can combine everything together and obviously do much more sophisticated calculations than what I just described, but basically can allow you to interact with the battlefield more as a sort of all-in-one software interface versus old-fashioned
where the jet that sees the target would have to then engage with the target. So that is core. The thing I would sort of say is, know, Anduril built this from the first principles, built it from day one to be compatible. They're not the only ones doing this, right? This is also happening at Lockheed, at Raytheon. They are retooling.
Slava Rubin (14:11)
I
mean, they're creating kind of their version of Lattice.
Jan-Erik Asplund (14:14)
Yes, yes. it's already, you know, the Navy already has like, what I just described is more of a, know, that is something the Navy already can do because this already exists to a degree. So that's the one thing I would caution people on. You know, the software thesis is something that, you know, it's not just Anduril that it's happening across the existing, you know, it's already in action today, military primes, but yeah, it's definitely more of a focus for Anduril
and they can move faster on it as a result.
Slava Rubin (14:44)
So let me ask on both sides of this exact argument. So you have Lockheed Martin and Boeing on one side, which I think they have pretty similar revenues and valuations, right? I think they're in the 70 billions of revenues and like around, let's call it 150 billion in market cap. I believe that's accurate for Boeing as well. So on the one side, sorry, Boeing, sorry, Boeing is like 90 billion of,
revenue. So on the one side you have, you know, one and a half, 2X revenue multiple. On the other side you have, you know, 30X multiple or 15X multiple if you do the forward 12 months. Why is it that these two legacy players are so underpriced that they're moving in with software as well? Or the Android is so overpriced? Or try to make it sense for me a little bit. What's your thinking on this?
Jan-Erik Asplund (15:39)
Yeah, I think, you know, Anduril, yeah, it kind of is priced like a high growth software platform. But if they both, if they all have some form of software, which they do, you know, there's software in every piece of every missile that you see, it would seem sort of at odds with each other. think, yeah, there's part of it is the high growth, right? It's this kind of so far venture style growth curve, and they're sort of expecting that it will continue to double at least next year.
Whereas Lockheed is more predictable, more slow Boeing, similar. I think there's that. think the other part is this excitement about, okay, first of all, there's the excitement of scarcity, right? It's hard to get your hands on Anduril stock. They're not, you know, they're not, they're like, it's private. you know, they're very, there's been some episodes with, with, you know, second, third layer SPVs offering Anduril shares that, you know, have been
Slava Rubin (16:20)
mean, it's hard to actually buy. Yeah.
Jan-Erik Asplund (16:30)
called out directly by the founders. And so there's some definite like anti-secondary scarcity related stuff. You have to also look at the fact that, know, the Anduril co-founder, Trey Stevens was being, you know, one of the top names in contention for top DOD spots when Trump two started. So even if, you know, he didn't end up working there, you still have, you know, JD Vance is very closely sort of linked to a lot of these companies, Anduril
Mostly. And so there's definitely a take that the administration is sort of moving us in a direction of more defense tech innovation, more openness to startups in the Pentagon, that kind of thing. That's part of it. The other part of it, think business model wise is these legacy primes are, like I said, the profit is completely capped. The government doesn't want to be paying ⁓ more than 10 % margins on these massive R &D ⁓ projects. Whereas Anduril
you know, gets 30, 40 % gross margin. They're building on their own balance sheet. They're selling at fixed prices. It's a software hardware bundle, which allows them to, you know, in some, those allow them to sort of get around some of the traditional constraints on defense. So there's like the sort of higher upside potential future combined with growing very quickly being the number one sort of startup in the category by far, I would say.
know, 10X bigger than Shield AI. So yeah, all of that kind of combined.
Slava Rubin (17:59)
That's a good segue to Shield here in just a second, which is my last question related to Anduril. And we're spending the most time with Anduril because it is the biggest player in defense, right? If we didn't have Anduril, we might not be as excited to talk about defense as an entire industry, even though there's good other players. There's a $4 billion round that's being discussed to close at approximately $60 billion valuation. Let's assume that closes. What do you think are the prospects of it going public? Palmer has mentioned that he's pro having a public company.
Are you thinking this happens in 26? You think this happens in 27? You think this is a few years out? How do you handicap it?
Jan-Erik Asplund (18:36)
Yeah, it's funny because we, a few months ago we were talking about open AI and Therapeutic IPOs and I confidently didn't think that they would happen anytime soon. And now they both seem to be on the horizon. So I think given that Palmer actually talks about IPOing, you know, as a positive thing that he wants to do, I would say that, I think, yeah, I definitely could see it happening later, late 2026. For sure. I could see it at the earliest probably.
Slava Rubin (19:03)
Yeah, so I'll be so bold as to say I think it'll be public in the next 12 months. So that's ⁓ my opinion, having no insider information. So let's move on to Shield.
Jan-Erik Asplund (19:13)
Awesome. All right, yeah. So Shield AI, I would say they're a little bit more focused than Anduril, a little bit more narrowly tailored to the question of kind of building the best like AI brain or AI pilot that you can for aircraft. So Anduril building missiles, building submarines, building drones, building counter drones, building this really new Defense Prime.
Shield AI is really focused on this question of creating kind of AI flight. And they started with drones, but kind of being hardware agnostic. So not just drones, but also jets. And it's kind of like this Android of military aviation. It's kind of what they're building. this has obviously been sort of a fortuitous thing to be working on since after the...
Russia-Ukraine war, you saw a lot more interest in drone technology, both domestically and from sort of US, NATO, EU, Indo-Pacific allies, to help them build out drone programs. so Shield AI has been a big beneficiary of that. And yeah, growing very fast. Not as fast as Android or at same scale, but probably number two business in the space in the US.
⁓ and hit 300 million in March last year.
Slava Rubin (20:27)
Yeah, so we don't have into the 25 numbers 2025 numbers.
Jan-Erik Asplund (20:31)
Yeah, nothing reliable, I'd say probably 400 by now.
Slava Rubin (20:38)
Yeah, that's kind of was what I was thinking, which is if you're thinking it's a 30x multiple, then they hit like 400 in 2025, right? Because they just raised or are about to close. I think, has it not finalized like an 11 billion valuation or something?
Jan-Erik Asplund (20:54)
Right, yeah, I'm not sure it's finalized, but yeah.
Slava Rubin (20:56)
What are your thoughts on, let's assume for a second that it is a $400 million 2025. That is showing a little bit of deceleration, right? Because that's like a 50 % growth, let's call it, using that assumption. What do you think about that sort of valuation versus let's call it the way Anduril has been growing in pricing?
Jan-Erik Asplund (21:18)
Yeah, I think it's pretty early, you know, and it was, it has benefited from this kind of number two position behind Anduril. You know, if you think about the overall trend towards more autonomy, there's a lot of efforts ongoing in this administration to increase the sort of make it easier for startups to get through procurement, which is really the big speed limiter on companies like this to grow.
which I think will be really helpful to Shield AI. It's easier for Anduril now because they're so big, but for Shield AI, you can have years like, yeah, I think some of the drag was due to some of these challenges that any startup selling into defense has to deal with around just like how slow, how long it takes, knowing how the procurement process works. Anduril I think is probably
Best in Show, Along the Side, Palantir, and everyone else is kind of catching up. But I think despite those kind of challenges, I think the upside is still there that investors are seeing, is top of the line. They are selling, they have real contracts into the department of war, I should say, and selling drones into the US and other partners.
So think there's a willingness to sort of look past some of the hiccups like that. I think early on they had some leadership changes, know, the co-founder CEO stepping down and being replaced with a more experienced one. I think, yeah, I think there's a lot of upside. I think another interesting thing about Shield AI is that whereas Enderill more so is competing against Lockheed and Raytheon, you know, Shield AI has done a bit more
sales into those kind of major government contractors. like selling their autonomous pilot software to places like Lockheed and Raytheon to help them power experimental aircraft that they're selling. So a little bit wider sort of go to market there.
Slava Rubin (23:04)
So for the audience's benefit, so they actually create software that can replace a pilot in the actual F-16 or in the whatever, the plane that we're referring to. Is that right? The jet that we're referring to. I mean, just like, let's pause it for a minute. That's just like incredible. And you have a bullet here, which is that they actually defeated a human piloted F-16 in a dogfight. Can you give any additional color on that just so people understand?
Jan-Erik Asplund (23:19)
Yeah.
Yeah, I believe this was a simulation that was run to test out. At the time, this was pretty new, a pretty new version of the technology because it started with drones. And so I'm not sure when exactly the AI controlled S16 came out. But yeah, I think it was fairly early on. It was like a bake off sort of between Lockheed
Georgia Tech, a bunch of these other labs that had built AI F16s. so in VR, you had a human go up against them and basically do a bunch of dogfights. And yeah, I think put on by DARPA. so yeah, Shield AI has been a legitimate player in the space and the AI side for quite a few years.
Slava Rubin (24:16)
Amazing. How big do you think Shield AI can get?
Jan-Erik Asplund (24:19)
Yeah, it's a great question. it's a great question because it kind of depends on what the future looks like in terms of, in terms of, ⁓ the ecosystem of defense companies. Like I think about it, it's a lot where you have these $70 billion plus crimes that basically are the, you know, the, main contractors with the government. They do a lot of subcontracting. Are we going towards a future where Anduril becomes another one of those and
And that's it. Or are we coming towards a world where maybe there's a greater distribution of maybe 10, 20, $30 billion companies in the space? I think that would make sense to me that you would have a little bit more of kind of distribution, especially as defense becomes more maybe about software, about AI, about these kinds of qualities that don't necessarily scale.
the way that 20th century warfare did with having a hundred thousand person company, factories in every state, every congressional district. I sort of imagine a future state that would make sense where you have shield AI, 30 billion, 40 billion, doing a lot of autonomous aircraft work for the government, for contractors, for allies, know, Anduril, maybe double the size, you know.
the size of Raytheon today. Yeah, that would make sense to me, but.
Slava Rubin (25:38)
All right, my hot take is three years from now, let's see if it's a standalone company. So, all right, let's go to the next one, which is Ceronic. Super interesting company as well. So we're going from kind of an all-in company with Andriol covering everything. We're trying to cover everything. Then we went to Shield, which is really around flight technology. And now we're going to Ceronic, which is a little bit more about water.
Jan-Erik Asplund (26:03)
Yeah, and like we said, sort of the US Navy has this big problem with ships, which is that we can't, we don't have the ship building industrial base to produce more $13 billion aircraft carriers, $2 billion destroyers. We can't do it because of the costs or because of the physical capability of our shipyards. So I think the only real alternative as it appears to be is
mass producing, you know, smaller surface vessels, which would be autonomous rather than, you know, manned by a crew of thousands and extend the Navy's reach. So basically you don't get rid of all the old ships. You, you know, supplement them with smaller, smaller, more nimble ships that can do reconnaissance, that can go lay mines or identify mines. I can go resupply positions, act as weapons platforms.
and for a fraction of the cost and fraction of the risk of a human crude ship. So, Saronic is sort of the newest, the youngest company on our list here founded in 2022, but very quickly have grown up to these giant contracts with the Navy and obviously a $7.5 billion valuation. And they are focused 100 % on building these kinds of autonomous boats from...
very small, six foot long scout vessels to larger, kind of 24 foot heavier platforms. And yeah, we can talk about more, but yeah, obviously Iran straight of Hormuz is one of those kind classic examples where, I think Trump threatened to send the destroyer in and then Saronic's whole thesis is about why you don't want to send a $2 billion destroyer into a-
straight where a very cheap drone or a very cheap mine can do a lot of damage. You want to send in a very cheap boat to autonomously solve problems. So it has kind of been a great example in real time of the problem that Saronic is going after.
Slava Rubin (28:10)
Who's the legacy player here?
Jan-Erik Asplund (28:12)
Yeah, there's a few. mean, one of the big ones is L3 Harris. There's electric boat, general dynamics. These are some of the more, yeah, focused on water.
Slava Rubin (28:27)
and they're trying to go directly and take their kind of dollars and steal market share from them? Or is there an incremental new market share available given the innovation of the boat?
Jan-Erik Asplund (28:39)
That's a great question. Yeah. And this is kind of true too for Shield AI and Anduril where it less so a little bit less over Anduril now, but in large part, this is like net new dollars that are coming into budgets in 2025, 2026 because of the awareness now of the need for this. you know, from speaking with folks who have worked on the prime side and
DoD side, they see it as like kind of small time, right? Small time stuff that is cool for Anduril or Shield AI or Seronic to work on, but not necessarily worth the squeeze for a big prime. So that's kind of where these companies are all starting. Or you saw Anduril start with the border wall, Shield AI start with these quadcopter drones and Seronic start with these tiny surveillance boats.
So yeah, I would say in general, is like smaller markets, not going directly after, you know, any kind of traditional shipbuilder business quite yet, but that obviously, that would be the future.
Slava Rubin (29:42)
Awesome. So I'm biased, but there's another company in Europe which is less well known called YouForce that's building similar products, doing quite well. They're actually based out of the Ukraine. And again, I'm biased because I'm an investor, but they have a similar product. it's an interesting space. You know, what's going on here between these three companies, Saronic at seven and a half billion.
Shield at let's call it 11 billion or Anduril at 60 billion. How would you prioritize those three? How would you stack rank them first, second and third? For how much return you can make in the next let's call it three years.
Jan-Erik Asplund (30:26)
I would probably have to put Anduril first, Saronic second, and Shield AI third.
Slava Rubin (30:31)
Yeah, give us a little bit of your thinking.
Jan-Erik Asplund (30:32)
Yeah, I think, you know, Anduril is the top, the top player. think if anyone's gonna, um, gonna kind of win, it's likely that they will. And that's kind of where I would personally look to, um, then I think Sironic, you know, has just, they really come out of, you know, come out of nowhere relatively, um, and, and, you know, published 200 million in revenue, uh, for 2025 up from basically nothing in 2024.
you know, probably the fastest sort of ramp up that we've seen across defense tech companies where obviously, like I said, the procurement is really difficult and really challenging. Whereas I think Shield AI is a little bit more in a, know, slightly more of a bump, still growing obviously quickly, but that would be my thinking.
Slava Rubin (31:22)
Awesome. Let's go into the rest of the market. Let's do a quick overview about some of other players.
Jan-Erik Asplund (31:27)
Yeah, great. So the first one here, quantum systems is a, you know, I think Europe is one of the trends that we haven't necessarily talked too much about, but quantum systems is really one of these European standout companies. So this whole, the whole Russia-Ukraine war obviously has created a lot of demand in Europe for homegrown European companies to do defense because ⁓ for various reasons, you know, they don't want to be reliant on US primes or Anduril.
So Quantum Systems is out of Germany, but they have become one of the most widely used kind of higher level recon drones in the Ukraine conflict. And yeah, they did 124 million in revenue in 2024, growing really quickly off of that demand. And they're sort of one of the top companies in this European defense tech wave. Now on the US side of drones,
you have a Skydio, which is, yeah.
Slava Rubin (32:24)
Before
you go there, using that exact narrative, Swarmer which is out of the Ukraine, which is building drone systems also, just went public literally like last week, went public at $5. I think a share popped all the way up quite a bit. And now it's trading at like 30. I think it saw even, let's see here, it saw 55. Now this just shows
you know, the demand for these types of products and to your point about what's happening in these hot sectors, hot battles like the Ukraine. So I think the public is quite ready to try to invest in these things as kind of being the trendy opportunity. So just a perfect example of exactly what you're talking about. So yeah, that in case anybody's interested, I'm not providing financial advice, nor do I know if this is good investment at this price.
but Swarmer Inc. SWMR just went public, popped right off the IPO and now has been settling in still at 6X its IPO price.
Jan-Erik Asplund (33:29)
Yeah, there's been a lot of these companies. I think it's been discussed how Ukraine has become this kind of proving ground or place for drone startups to go and try to prove their product works in reality. yeah, it's interesting. Another one, another sort of drone company, not in Ukraine, but sort of different angle here is Skydio, which is the leading kind of US domestic
drone and autonomous drone company, which is important as of last year when Chinese made DJI drones were banned from all anything that we were selling to the government or to the military. And DJI was previously, you know, by far the market leader. You know, they sort of made the most cheap, reliable drones for a long time. But creating this now, you know, taking this huge market and
you know, ensuring that if you're trying to sell to, you know, department of transportation to do drones, drone surveillance, sort of, surveying that sort of thing or defense, anything that touches the sort of federal budget, you need to use a U S company. Skydio has been one of the biggest beneficiaries of that. so yeah, a hundred, even a hundred million to 180 million, ⁓ 80 % year-over-year basically just after this happened. so it's been a huge boon for,
Yeah, Skydio and other American drone companies that Chinese drones have been banned. But I think from what we've seen, Skydio most of all.
And then last one, at Epirus I think I that right, is a...
Slava Rubin (34:57)
a
yeah, yeah, was pretty wild.
Jan-Erik Asplund (34:59)
Yeah, it's a very different product. Basically, high-power microwave energy used to counter drones. So instead of shooting drones down one by one with missiles, which if you can imagine every missile costing a few million dollars or more, then that's incredibly wasteful. The concept behind Iperus and their product is that you can fire laser
emit this energy and basically fry the electronics of any drone in the area. And so this is kind of, again, pointing to this asymmetrical problem, which is that you need to have a defense against drones that costs less per shot than the drones themselves. You can't have it cost you millions to shoot down a drone because then the enemy can just flood you with DJI drones in waves.
And so this is something that, again, primes are working on. This is very like real technology, ⁓ using lasers to do counter drone. And, you know, I think will be incredibly important for the United States or Western allies, Indo-Pacific allies, because I think generally in the West, the counter drone, it seems to be much bigger to me as an opportunity than drones themselves potentially because of the asymmetric nature of it where.
defending against them become so much more important for these Western militaries than attacking with drones.
Slava Rubin (36:33)
I completely agree. think counter drone is where we're all headed. You know, it's going to be funny looking back five years from now, what it was like to think about, you know, war or defense because of how ubiquitous drones and drone defense becomes. You know, there's all these innovations and dollars being spent and how do you change the equation around drone defense? Like you mentioned, trying to shoot down a $10,000 drone with a $3 million rocket. The math doesn't make sense over time.
So whether it's jammers, whether it's lasers, whether it's microwave, whether it's, you know, just kamikaze drones, which obviously losing one drone against another drone is fine, but that too runs out. At some point you need to figure out how to, you know, take out a $10,000 drone with a thousand dollar product or et cetera, et cetera.
And that's where everybody is really trying to head with the future. So I think this is all super interesting. Is there one of these three names that you really like?
Jan-Erik Asplund (37:37)
Yeah, that's a question. That's good question.
I am partial to, you know, I think what quantum systems have done, I think they had distinguished themselves from researching it, you know, they have been really embedded deeply in Ukraine and, you know, iterating on the product while there for, you know, since 2022 or 2023. And they, yeah, they have seemed to be...
doing really great work, but also kind of building an interesting business with dual use, is, you know, don't just sell to the government or military, but make your drones on multi-purpose so you can sell into commercial use cases, agriculture, that kind of thing. So yeah, I'm bullish there, but at Epirus, I honestly, yeah, I don't know that much about it. We don't have revenue numbers yet. So one I got to look into, but could definitely be excited about.
Slava Rubin (38:32)
So with Trump back in office, defense has gone way up. Obviously, we have Ukraine. We obviously have Middle East happening. Let's go to the next slide. What's the risks? What's happening in the market? What's the concerns as to why this might go sideways or not go as well as the defense investors would like?
Jan-Erik Asplund (38:51)
Yeah, I definitely think that it's worth considering whether this is the best, it's the best political environment that you're gonna enjoy. If you're a fan of Android or Shield AI, we did have Defense Tech under previous administrations, of course, but there are very real possibilities that we get another administration that wants to slow down the growth of the DOD budget.
And that might not be the best for the continued growth of these defense tech startups at the same time. It is a kind of huge budget of which these startups are generally taking small slices. So it's not necessarily a huge deal, but at the same time, think Lockheed, Boeing, Raytheon, they kind of benefit a lot from the status quo, from congressional.
appropriations happening to the companies that have a lot of warehouses and factories in different senators and congresspeople's districts. So there is kind of a tendency towards favoring the big primes, I would say, in the procedure of Congress that I think will continue to be a risk and without forces that are actively pushing for.
more innovation, easier procurement for startups to get involved. think, yeah, you would want to see a little more, you would want to see continuance of eagerness and openness to that kind of innovation. And anything in the other direction could be a risk for sure. Probably the biggest one. And I do think some of the Europe stuff is a risk. I mean, we've seen Anduril continue selling into Europe. This is our
⁓ very humorous visualization of this, but at the same time that European governments were saying they wanted to buy local, Anduril was building these sort of local subsidiaries in Germany, Japan, UK, and so on, hiring local workers and bringing tax money into the local country. So there is some of that going on, but we're also seeing a big push to promote homegrown competitors.
which, you know, it's all competition at the end of the day, but I think it does limit a little bit how big Anduril can get in Europe and Asia potentially, and startups like Anduril. So those are some of the two biggest ones, I think.
Slava Rubin (41:09)
All right, great. And then, so what's your outlook for the next couple of few years? What's your thoughts?
Jan-Erik Asplund (41:14)
Yeah, I think there's a risk here that, that, you know, we sort of, we see continuance of, you know, some experimentation happening, in the, in the Pentagon. but, you know, we don't really see the procurement pathways open up. We don't really see the process get any easier. We see, ⁓ maybe these kinds of, you know, big projects.
kind of go into purgatory. This is the kind of stuff that happens all the time in the world of defense. think like, you know, I sort of put these images here half tongue in cheek, but if you think back to 2010, you know, we had iconic photos of Obama walking with Elon Musk surveying a SpaceX rocket, you know, and 16 years later, you can't imagine relations being worse between sort of Elon and the government. ⁓
you know, or it's complicated, but the point being that administrations can change and, you know, attitudes towards defense tech, towards kind of startups in general being involved in government can change a lot. And so that's, I think that that's definitely a risk. But, know, the sort of optimist case, the base case is more that, you know, these primes continue to build up and get bigger and bigger contracts. And we have seen some evidence of that. So Anduril obviously has gone from the border wall to building, you know,
VR systems for the army to building the counter drone systems, Shield AI also working on AI fighter pilots. So we are seeing evidence that they're sort building up to bigger and bigger contracts and getting more embedded into these like sticky relationships. And I think that that is the sort of bull case, is that these relationships continue to build.
in a positive way as success takes place on the battlefield. So yeah, that's kind how I think about it.
Slava Rubin (43:02)
All right, perfect. Yeah, would agree. I think that there is definitely potential that this is kind of a Goldilocks situation at the moment for defense, both between the political environment, the innovation as well as the geopolitical conflicts. That's not to say that anything has to slow down, but if the political regime does change in D.C. even a little bit, it could slow down the spigot, which could cause just
some of the dollars to tighten up. So just keep that in mind. That doesn't mean that great companies won't stay great companies. I think Anduril will persevere beyond, but you just have to be careful to know that these things could evolve. So make sure you're picking the companies that you want to invest into because of strong fundamentals. And our last slide is really about how do you get into this, right? Can I invest into these just through public stocks today? Is there a proxy that can get into this stuff? Or how do I think about this? So what are some examples?
Jan-Erik Asplund (43:58)
Yeah, we obviously have a, you could speak better to Slava, the Fundrise Fund ⁓ that people might have heard about, but as of when I made these slides, before everything changed, one of the clearest pure play defense tech stock proxies in the public markets available to you was Palantir, which is closely related to Anduril from the sort of founding team.
to the business model, Palantir kind of unlocked the whole startup selling into the government pathway. And a lot of people from Palantir went to go start this at Anduril. So that's an important comp, obviously has done very well in the last year. And then there is also, yeah, there there's ETFs now that you can buy for broader exposure to the defense tech sector. And then, yeah, I think IPO, I think Anduril would probably be
my guess for the first one. And yeah, I like your estimate of it happening inside of next year.
Slava Rubin (44:55)
Yeah, I mean, there's all kinds of public companies that are somewhat proxies, whether it's the Palantir as a pure play. But then there's these kind of venture for all investments, whether it's Robinhood or ARK or the fund-raising investment that just went public called VCX, which is a bit of a wild situation in terms of it going public at 30 and now trading almost at $400. Not investment advice. Be careful there.
And these are all trying to get some exposure to Anduril in different ways. I'm not saying they all have it, but they're all looking to either already have it or to try to get it. So these are just ⁓ opportunities for you to think about. And Jan-Erik any final words?
Jan-Erik Asplund (45:33)
I think you said it. Yeah, great stuff. Obviously, it's a market that will continue to exist as just part of how the world is. I think, yeah, really interesting companies that are trying to solve problems and make stuff cheaper, more efficient, and more aligned to the way the world is now. So, yeah.
Slava Rubin (45:51)
I would agree. 10 years ago, you really couldn't find an innovative company to invest into. You had to kind of stick with the legacy companies. That has transitioned quite a bit. I do think that innovation will stay here for a long time. You should pick the companies that you really like that you will close your eyes and five, 10 years from now, they'll still be crushing it. And make sure you get into a good vehicle at fair price. With that, thank you very much, everybody, for joining. Jan-Erik thank you always for being awesome. Have a good rest of your day.
