FULL TRANSCRIPT

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Slava Rubin (00:00)

All right. Let's get started. My name is Slava. I'm one of the founders here of Vincent. We are your launch pad for all things alternative investments. Check out our podcast, Smart Humans. We also have our newsletter, which is the alternative investment report. And of course we do this pre IPO series with our friends at Sacra. So today we have Marcelo. So Marcelo, say hi.

Marcelo Ballve (00:24)

Hi everyone, great to be here.

Slava Rubin (00:27)

Amazing. So today's gonna be an interesting conversation. We're gonna be talking about the next generation of defense tech. So defense is hot, very hot. Obviously, there's geopolitical issues out there in the world. There's innovation that's happening. So we've actually already talked about defense on this program before. And we talked about, let's call it the original generation of defense tech.

innovation. And that includes companies like Anduril and Shield, Saronic, etc. And believe it or not, those are considered some of the old school companies now, some of the bigger, more established. And there's a whole new generation that's coming up that's already growing quite rapidly. So we've had a lot of requests to cover these companies. So here we are with Marcelo, and we are excited to talk about the next generation. We're actually going to be talking about like about nine or ten companies.

we're gonna have a lot of names moving around, so we'll see if you can keep track, but rather it's an introduction for many of you to some of these companies and rather a little bit of deeper analysis for some of you others. So of course, like always, this is a conversation, so feel free to use the chat with QA to be able to follow up with any questions. I'll do my best to keep track of what everybody is asking and look to try to incorporate it as appropriate. Let's go to the next slide.

So we did a survey before you joined, and you all are more accredited than ever. We hit 80% for this one. So we got a lot of sophisticated investors. We have nearly 80% in the intermediate or advanced level, which I don't know if it's because you all keep on listening to the program, but you keep on getting more intermediate, more advanced, and more accredited, which is all very interesting. And a nice amount of you are thinking to invest in the next 12 months into pre-IPO. 4% are a hard no.

And about one third are unsure. And now 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 of an offer to buy securities. All investments involve risk and the possibility of loss, including the loss of principal, and neither past performance nor forward-looking information is a guarantee of future results. And now we're gonna dive in in just a second, but

We like to ask our guests about, you know, where they're at with their opinions of this market. So are you thinking to invest into defense tech in the next 12 months for all of you on this call? So we'll give you all 10 seconds, if you could please fill it out.

All right, survey says.

We're looking at whoa. All right. We have some people primed and ready to invest. The question is, what do they want to invest into? All right, perfect. Let's move on. And let's open it up with more on an aggregate level, Marcelo. What is happening in this market and why is this becoming an opportunity now?

Marcelo Ballve (03:24)

Yeah, I think the the demand signal from the Department of War has been very strong in the last couple of years and has been strengthening. So as you can see on the chart, right, we have a base defense budget that's over one trillion. there's also a an additional 350 billion that the White House requested. that's still working its way through Congress. It looks like they won't get all of that. but even if they just get

the last proposal out there was 60 billion of that. but even if they just get a part of that, it's still gonna be a double-digit bump over what it was last year, which was already a very big year for defense and autonomy spending specifically. if all of it was funded, it would be like the biggest defense spending jump since World War II. So these are very big numbers, and you know, all the signals are very strong that this ramp up in spending.

On defense, and particularly on these categories that we'll be talking about will continue being really strong moving forward. you know, you have shipbuilding, missiles, and missile defense, drone and autonomous warfare is a very big line item. the overall proposal is over 50 billion, just for for that category.

In the backdrop though, you know, I think it's important to remember that the big five prime contractors, the names we all know about, Lockheed, North of Grumman, RTX, they still have like quite a strong hold on this market, despite, you know, the emergence of Andurils and Shields and Saronics. so it's important to remember that they still play a big role in this market.

Slava Rubin (05:04)

Great. And in terms of thinking about the TAM, do you think about it as the one point one four trillion is the entire TAM in the US? Or do you think about it as that's just the government spend and the TAM is some sort of multiple bigger than that?

Marcelo Ballve (05:21)

Yeah, I think you have to think about that as the core TAM. Although, you know, A, I think you know, it's important to remember too that some spending is, you know, is classified. so, you know, when you see all these contract numbers that, you know, that we'll be talking about, those are all only like visible contracting activity. There's also dollars that move around, that move around between companies. And we'll talk a little bit about that too.

so you know, let's say Lockheed Martin is spending on CapEx, you know, that ness that wouldn't necessarily show up here. and then you have Allied spending on defense. so you know, the global defense spending is multiples of that one trillion. And and and you know, a lot of companies that we'll be talking about and companies that we know about like Anduril have had a lot of success selling into allies.

so you have to think about that that money as well. but yeah, this is a you know, this is the core budget. but as we've said, it's been growing as well. and it's something that, you know, we'll expect to keep, you know, rolling forward.

Slava Rubin (06:28)

Do have a sense for what the global TAM as it relates to US plus allies is are are we talking a percentage higher or multiples higher of this?

Marcelo Ballve (06:38)

It's like three X is is total. globally, that would be like addressable. Yeah. Like around three trillion.

Slava Rubin (06:46)

So three trillion. So is the right way to think about it when we hear of a company like Anduril, or we talk about any of these other companies soon? Anduril was last valued, I believe, at like sixty billion. There's a rumor of about like a hundred billion. is the right way to think about it is that a hundred billion is potentially like nine percent of US TAM. or it's obviously a hundred billion is, you know, three percent or whatever it is of global TAM. Is that the right way to think about it in terms of market cap?

Marcelo Ballve (07:15)

Yeah, I would think about it more with respect to US TAM. you know, if if an annual TAM is a trillion and then, you know, you have you know, some additional money that's moving horizontally and some you know, maybe dual use applications. Let's say we can add twenty percent to the to the core TAM. The reason I say the you know, international TAM is more like extra credit.

or you know, icing on the cake is because, you know, of all the export controls, you know, the approvals, basically these companies have to collaborate really closely with the Pentagon for any export and allied deals, which, you know, slows that down. So companies have to be pretty high on the maturity curve to have any significant international business, although, you know, it can start maybe five, six, seven years in, with, you know.

in in a significant amount. so yeah, I would rather think about the you know, keep it to a US TAM. And yes, I do think that's the right way to think about it. The valuation is something like, you know, X percent of of the one trillion annually.

Slava Rubin (08:21)

Okay, perfect. And just to state the obvious then, which there puts a lot of pressure then on these high growth valuation companies that either the TAM hopefully continues to increase for one reason or another, i.e. more spend, or there's potential for less spend. And we could get into that as it relates to political risks or any of that in a little bit. Is that fair?

Marcelo Ballve (08:41)

Yeah, no, I think that's absolutely fair. this is a big pie, but it's not, you know, this sort of like, you know, it's not, and even some of the founders that we'll talk about have said that it's not like the defense budget is gonna increase by 10x, right? Which is why a lot of these companies are focused on you know, helping to change the basic economics of defense so that the Pentagon can spend more efficiently. But we'll we'll get into that moving forward.

Slava Rubin (09:05)

Okay, perfect. So let's move on. I just wanna highlight really quickly the companies we're going to cover before we go through them. So first we're gonna talk about Hadrian. then we're gonna talk about Chariot defense, just so we can show it. next we're gonna talk about Castelion and next we're gonna talk about NEROS and

Last we're gonna talk about Havoc the reason I'm doing this Is I imagine there's gonna be some questions about what about this company, what about this company, what about this company? So as part of your QA, just know that we're already gonna cover these five. and those are gonna be the main ones that we wanna highlight for you guys. We have a few more in our kind of extras section, but I just want to make sure everybody knew what we're gonna cover. So let's go with Hadrian first. Talk to us, Marcelo.

What is Hadrian? Yeah. Why is it here?

Marcelo Ballve (09:54)

Definitely. just to back up one second, I do want to kind of introduce like two umbrella concepts. One is is that the military has sort of been shifting in terms of how it thinks about, you know, defense, warfare, and and procurement as well. it recently a top naval officer for policy introduced this concept of small, unmanned, many smarter sums.

and and by small, I think we can think about things being like more affordable. and you know, I I bring that up because the the focus of the Pentagon is really about, you know, making weapon systems more affordable and investing as much in scalability and and production.

as they do in, you know, these super fancy weapon systems, right? The military likes to talk about moving away from equ exquisite platforms, which are like super fancy, like let's say aircraft carriers, and moving to something more like drones, where they can have a lot of them, many, and have them be smart and and have more flexibility and efficiency in how they spend and how they deploy defense systems. And

I think Hadrian is a great example of that because it's really about addressing bottlenecks in in manufacturing capacity. so what it does is it basically, you know, has two revenue lines. It creates smart factories for customers that can produce key components for weapon systems. It's for example, partnered with Lockheed. it's really focused a lot on on missiles and munitions and submarines right now.

But it addresses, you know, both making production more efficient. And then it also introduces software into existing manufacturing facilities to help make them more efficient. So it's all about increasing that throughput of systems like missiles and submarines that are so crucial, but have historically been pretty slow and inefficient in how they produce things.

For example, in submarine manufacturing, often a whole submarine can get held up because you know one part has to be manufactured before another part can be manufactured, and so on and so forth. And so Hadrian's all about addressing those bottlenecks, both at the micro and and macro level. this company has has real revenue. it said it had 30 million in revenue in 2024 at 10x revenue the next year. the CEO has projected about a billion.

he said close to a billion in revenue in 2027. and yeah it's built out this massive factory in in Alabama. But as I said, it it also introduces software into into partners factories. I think the other interesting thing is that it's also addressing a labor bottleneck at the same time. It has this, you know, this approach, this software software-driven approach to training and integrating people into its production lines.

So what they like to say is, you know, we can take someone from McDonald's and put them on a submarine assembly line in like four weeks. so yeah, really interesting company. it, you know, it raised a massive round, 1.4 billion Series D last month at an 8 billion valuation. And it's just been, you know, shooting up in valuation. That was like a five X jump in seven months, for example.

Slava Rubin (13:16)

There, that's a massive jump. you mentioned revenue close to a billion in twenty seven. We're obviously in twenty six and they just raised at an eight billion post rounding up. Do you have a sense of what the twenty twenty six revenues are, let's call it, supposed to be directionally?

Marcelo Ballve (13:33)

Yeah, I mean I think that, you know, directionally they wanna be, you know, I I think they'd wanna be at around at least like around a hundred and fifty million in in twenty twenty six.

Slava Rubin (13:46)

A

hundred and fifty million? No, it has to be more than that. For

Marcelo Ballve (13:49)

Yeah.

Slava Rubin (13:50)

it to hit a billion in in twenty seven. I'm guessing, just to try to triangulate here, if it was thirty million in twenty four, let's call it a hundred million in twenty five, maybe like four hundred, maybe something like that. 'Cause the reason I'm asking here is we're talking somewhere like around maybe like a twenty X revenue in terms of valuation. you know, which is quite

quite expensive, but it it does have a very significant growth rate. and are they doing this all in like one location? you know, or is this multiple locations?

Marcelo Ballve (14:23)

No, no, they they have four factories in the US. Yeah, yeah. And and like I said, they also deployed to customer sites. I think, you know, the the one thing I would say though is that if you know the the way you think about these companies, and we should probably bring this up before we talk about the other companies, is the revenue can be pretty lumpy. you know, because of the timing of partnerships and the way

revenue moves through these companies is typically like on a very calibrated milestone basis. So what often happens with these companies is revenue growth can be slow. And then, you know, once they get qualified, once you know the the you know the keys get turned on a relationship and they move into like, you know, scaled production, which is very difficult, you know, to achieve in all these cases for these companies with

with a lot of execution risk, revenue can shoot up. and and the revenue can be can be lumpy in in terms of when it happens, when it's recognized and and et cetera. So it's it's good to keep that in mind.

Slava Rubin (15:30)

Do you have a sense of how much their revenue, i.e., their customers, is from the new generation of defense, i.e., comes from Andreil or Shield, et cetera, versus how much of it comes from more traditional old school using this new modern factory approach, you know, i.e. coming from Lockheed, Boeing, et cetera. Do you have any sense of that?

Marcelo Ballve (15:53)

I don't have a a really good sense of that. I mean, I I d you know, we we do know that the the the CO mentioned that their software revenue will be around thirty percent of that that close to one billion in twenty twenty seven, which indicates to me that they're deploying quite a bit in in in traditional contractors. The fact that they're really integrated into submarine and missile defense lines also indicates to me that they probably lean heavily towards

the traditional contractor supply chain because those are still, you know, the companies that that have the, you know, the strongest hold on, you know, submarine and and missile and munition supply chains, you know, to date. you know, like if you think about like Tomahawk missiles or Patriot missiles, et cetera, the sort of workhorses in that sector, those are you know, mostly run by by incumbents and submarines as well.

Slava Rubin (16:50)

So perfect. So Anduril is at sixty, rumor of them raising at a hundred billion. SHIELD is at like eleven or twelve. The word on the streets they're about to close at a twenty. Saronic, I think, is like around eight or nine. You know, Hadrian is right on the border of quote unquote being graduated, meaning they're not really emerging per se, but they are in our emerging section. They're also first. You know, they're

really quite established already. So just want to make sure people understand that I mean there could be a lot of growth from here or not. I don't know, not investment advice, but this is not some speculative I hope to make revenue next year or three years from now, sort of business. like Marcelo mentioned, we're talking about a billion potential in revenue in 2027. Okay, great. and you know an obvious question for defense stuff is are they live in theater? This is not really a company that

put stuff in theater per se, right? Cause they're building for others that put stuff in theater. So I guess the short answer is yes, they are in theater, right? That'd be the simple answer, right?

Marcelo Ballve (17:52)

Yeah, absolutely.

Slava Rubin (17:53)

Okay, great. Let's go to the next let's go to the next company, Chariot Defense.

Marcelo Ballve (17:58)

Yeah, so this is one of the earlier companies. Chariot was, you know, I think founded in in 2024. and it is what it's doing is bringing power to the battlefield. It's taking you know, battery technology initially developed commercially, ruggedizing it, making it smart, and bringing it to the edge.

You know what that does is it allows the military to deploy power more efficiently, right? Moving away from like giant generators that they have to drag around, battery systems that might be more noisy. they also have technology that helps make it, you know, quote unquote low signature, which you know makes the technology more secure to deploy at the edge. their pop most popular.

battery units are totally mobile. People can carry it on their in on their backs, or there's one that can be wheeled. they started generating revenue within 12 months of their mid-2025 seed round. the M4A is is their battery unit. It's you know it's deployed and operational with US Army units. these companies and and the Pentagon recently have recent have really been all about that recently in terms of like

Getting the systems into operators' hands, getting operators involved in in trials for these companies, to get strong signals from the field and not just top down. And and this company definitely seems to have some early traction.

Slava Rubin (19:35)

when you have your valuation a hundred fifty million, I don't think that's the latest valuation, right? That's

Marcelo Ballve (19:44)

No, it is. the round was at a hundred and fifty two million dollar valuation.

Slava Rubin (19:54)

Wait a second. We have real time challenge on that, which is

Marcelo Ballve (20:01)

Yeah,

I looked it I looked I looked it up.

Slava Rubin (20:03)

I think they

Marcelo Ballve (20:04)

It does seem weird. Yeah.

Slava Rubin (20:05)

Interesting.

Okay, so clearly a an early one compared to Hadrian.

Marcelo Ballve (20:15)

Yeah, it's absolutely much earlier. It's the earliest company out of this set. I think the reason we chose it is just because it it you know, it it addresses an aspect, a battlefield aspect that people don't think about as often. It's an important one.

Slava Rubin (20:28)

Absolutely getting the energy and the power into the theater. Do you know where they in theater?

Marcelo Ballve (20:34)

no, they've they've they've been tested. They they were they're being tested in like Alaska and you know, in training a et cetera, not in battlefield theaters that that we've heard about.

Slava Rubin (20:47)

And then here's a perfect one to ask, you know, Defense is not really as easy of a market as let's call it B2B SaaS software, right? There's like tons of companies that can buy that. For defense, there's a limited set of clients. how does you know Chariot or really any of these companies, Anduril, whatever, but we just use it for chariots since they're younger, how does Chariot go from quote unquote a couple guys in a garage

to selling to the military and the target audience of clients, which is pretty small.

Marcelo Ballve (21:24)

Yeah, I mean the short answer is relationships, right? It's all about having relationships with the program owners and the program managers at the at you know at the Pentagon. you know, typically what happens with these companies, and and Sherry is a good example, is that they they get you know, small business type technology grants, research and development grants.

know then they graduate to like slightly more mature pathways where it's about like you know prototype development grants you know these are still not considered you know procurement contracts and then eventually they mature into procurement contracts it's really like kind of like this life cycle and all along the way you have to cultivate you know the the program owners

you know, cultivate the people that own the decision-making power at this like huge constellation of different offices with different acronyms and different programs all across the Pentagon. So yeah, I mean it's quite challenging, but I think for all these companies it really starts with with cultivating the right relationships. The other strategy, of course, is to piggyback onto

the huge sales distribution that some of the primes have, some of the big five contractors or other large contractors that that we've already mentioned.

Slava Rubin (22:46)

Okay, perfect. Let's go on to next one. So we're seesawing folks from eight billion to a hundred fifty million to thirteen billion, in case ever anybody's keeping track. So talk to us about Castelion.

Marcelo Ballve (22:58)

yeah. And by the way, I I I did misspeak earlier. I had Hadrian at yeah at 500 million was my assumption about where where they they'd want to be. So yeah, thanks for catching that. so yeah, Castelion. this is I think a very timely company in the sense that, you know, it was founded in 2022.

and it's been maturing right around the same time, of course, that the Iran conflict has played out. And the the shortage of missile and munitions capacity has has been in the news. It's a company that has had the the most momentum, arguably in terms of contracting activity in 2026. it's just stacked contract on a contract over the past 19 months, 700 million in total. This is almost all for the

Blackbeard system. So the Blackbeard system is a hypersonic missile. It has a ground version that you can see in that picture, but it also has a plane loaded version. And the plane loaded version is very important because it's it it's being designed to be deployed on the Super Hornet, which is an aircraft that's very important to in aircraft carrier deployments.

which as we know is very important in the Indo-Pacific, in the Persian Gulf, et cetera. and that and and this company is has been awarded sort of you know what they call program of record status, which means that, you know, it's kind of graduated way up that maturity curve that we talked about what talked about earlier. and it already has an order for

I think 44 Blackbeards this year and then another $150 million worth of Blackbeards next year. and these again to going back to the affordability thing, these are meant to be a lot cheaper than the the hypersonic missiles that are, you know, that have been fielded by incumbents to date. the the aircraft bound the aircraft

mounted one is is a glide munition, meaning, you know, it it it after it's launched, it it glides to its target. and they've done a lot of things to help make it more more affordable and mass producible.

Slava Rubin (25:13)

Okay, so thirteen billion dollar valuation, seven hundred million dollars of contracts in the nineteen last nineteen months, neither of those are a joke, very serious, very legit. Let's just back up a hair. What is a hypersonic missile and what is this product replacing that exists today?

Marcelo Ballve (25:34)

Yeah, so a hypersonic missile is so it travels at Mach five speeds. That's five times the speed of sound. so you know, this is something that you would use for you know, in in a conflict, to strike ground targets, to you know, basically do the kind of thing that we're doing today with

with like you know tomahawk missiles and other missiles that we hear a lot about. the the main thing that Castelion has innovated on is really about designing for scale and designing for like I said before affordability. The reason that the stockpiles for traditional incumbent, you know, hypersonic weapons

Or medium and long range missiles. The reason they get so low is yeah, yeah, sure, they they're being used at at scale, but also because we just can't make them fast enough. and so you know, the whole philosophy behind this company is is we have to create a manufacturing base for these things so that, you know, partly as deterrence against enemies and to maintain a credible threat deterrent.

you have to you know you have to have enough stockpile and you have to have enough manufacturing capacity to you know to generate these and if you want to generate them at scale and and have a depth of inventories you can't have them be you know as expensive as the the traditional ones are so that's that's really been its its niche and I think why the military is you know clearly so excited about it.

Slava Rubin (27:14)

So I think you mentioned the two main things are the speed of the product and the speed at which they can be made, i.e. the cost, right? So my understanding is that the Blackbeard missiles are like five times faster than the Tomahawks, but they take like a fifth or like twenty percent of the cost to make plus minus. Is that fair?

Marcelo Ballve (27:40)

Yeah, no, that's right. the hypersonic, you know, weapons are are still relatively bleeding edge. and so you know, the the you know, the fact that they're coming into this category and coming in with a with a less expensive solution is is really notable and and pretty innovative. yeah.

Slava Rubin (28:01)

So here's a question out of right field, but I think it's perfectly relevant for any of these, but really nice here for Castelion. Defense has been around for a long time, whether it's the B-52 or the Bazooka or the Grenade or people creating these new innovations, but typically they weren't VC funded and it wasn't considered really a VC investment. Why do you think VCs

are now so much involved in defense. And why is it, you know, smart or not smart for the people on this call to be thinking about this asset class as a category? because realistically, fifty years ago, no individuals or institutions were really investing as venture into defense. So so how is that different now?

Marcelo Ballve (28:49)

Yeah, I mean, I think that you know, it's good to think about one is that you know, the big five prime contractors, they've been around for, you know, decades upon decades, right? you know, just to give one example, you know, general dynamics evolved earlier in the 20th century, creating some of the first submarines, right? but these companies have hung around for a long time.

and they've you know kind of co-evolved with the Pentagon to be these very you know from the standpoint of a Silicon Valley kind of point of view like extremely inefficient you know slow to manufacture things really reliant on like sort of for lack of a better word you know non-repeatable designs lots of customization

you know, et cetera, et cetera. And I think what you know Anduril and Shield and Saronic and others showed is that a new entrant can you know create new products that are better that are you know cheaper and and can do so you know with you know relatively speaking you know enough capital efficiency to

Create venture scale outcomes. But I think the the bigger context too is that the, like I said before, the United States needs to change, right? The demand signal comes from the fact that the United States needs to change structurally the economics of of of defense and defense contracting and defense manufacturing. you know, we've realized that, you know, the way the world is now, if you

can't create things that you know are smarter and can be produced at greater scale and are cheaper, you know, we might be in big trouble when we're facing, you know, adversaries that are fielding, you know, drone swarms in the field. you know, or, you know, f likewise, like, you know, a a fairly inexpensive missile could potentially like take out an aircraft carrier, right? So rather than have these

kind of platforms that are like all the eggs in one basket. We want to go for this like asymmetric capability. And that's also pushed the needle towards towards innovation. And the last thing I'll say is is that what Andoril and and Shield AI also have shown is that there's room for a software layer in these solutions.

and of course, once you introduce software into the orchestration and the integration and multi-might modality kind of being the brains for these systems and linking them together, that turns the flywheel for something that looks even more like like a venture scale Silicon Valley company with at least in you know in part of the business software scale margins. So that all adds up to a very interesting capabil

A very interesting opportunity with a large TAM. and you know, and and venture scale returns, as as Anduril has shown. It's not the same as funding software, right? It's it's very challenging, it's atoms, not not bits. it can be slow. but I think the opportunity is there. And you know, that's why these wh why so much smart money has flooded into the the sector.

Slava Rubin (32:07)

Perfect. So with Castelion their missiles, are they live in theater or is this still testing and not yet in theater?

Marcelo Ballve (32:17)

They're testing, but they're moving towards, I think, you know, there is some execution r risk around Castelion. A, they have to show that they can manufacture these things at greater scale and and meet standards. And then these things have to be tested in the field. like I said before, this is meant to go into planes that are deployed in the Pacific.

So, you know, the next step for them is for these things to be tested in, you know, something like battle conditions. but yeah, these are not things, you know, they they've been shown at at at shows and I'm I assume they've been piloted, et cetera, but these are not things that are being, you know, shot out of planes in the Persian Gulf right now.

Slava Rubin (33:01)

Perfect. Let's go to Nero's. Next one.

Marcelo Ballve (33:04)

Cool. Yeah. So Neros again. Neros is about creating you know attributable drones, right? and f first person view drones at at a cost. I think the the drones are are costed around two thousand per unit, at a at a affordable cost, with great performance and at at very high scale.

they have a year-end goal of producing around 100 K of these per year. And you know, the the founder has said all along his his goal is to create you know, a a million drones a month or something like that. they're really going for scale. And unlike you know a lot of the supply chain that historically has gathered around drones, their aim is to make it so that you know almost all critical.

Components move away from China. They're not 100% free of China yet. you know, they've said they still use some copper and some elements that are still coming from China, but they're they're nearly there in terms of building a scaled drone capability. And like Castelion, there's real procurement momentum. One notable thing is that the Pentagon created this thing called the drone dominance program, where it runs companies.

like Nero's and competitors through these gauntlets where they test these systems in real battlefield conditions. and in different scenarios, Nero's has placed at the top or near the top of every gauntlet so far. that led to orders, I think something like 4,000 orders just from that that one competition.

And and that competition is also meant to test economics and scalability. So as NEROS is chosen and brought into this, year after year they will be asked to produce more and more drones to see if they can meet the cost and production and quality requirements over time. that's just one pathway, but it shows how, you know, a company like Neros moves into into procurement type pathways in with the Pentagon.

Slava Rubin (35:12)

So is Nero's kind of like trying to be head to head with DJI in terms of like the China equivalent?

Marcelo Ballve (35:19)

Yeah, I mean I think it's you know, it it unlike DJI, right? DJI, sorry, it's not, you know, explicitly dual use. right. and it was built and designed from from the start. these quadcopters were designed from the start for, you know, for combat use. but but yeah, it's building like you know, like a lot of these companies, like, you know.

part of, you know, you have the product, but part of the bundle is the the factory capacity around it. and that's where Nero's has has put a lot of its effort.

Slava Rubin (35:51)

Do we have a sense on revenue?

Marcelo Ballve (35:54)

Yeah, so no. you know, the the short answer is no. but you know, what we saw this year was a four X production ramp up. Not all of that is going immediately out the door in return for dollars. the founder has said, yeah, you know, we we do accumulate some inventory because that's a big risk for them. They don't want to overproduce, but they don't want to underproduce either as as orders come in. but I think you can extrapolate from four X.

production ramp up for a company like this, that, you know, revenue growth is, you know, is growing, you know, multiple, you know, on, you know, more than a hundred percent per year, probably several times that.

Slava Rubin (36:34)

I the positive and negative with Neros is their seed round, first money in, was a thirty six million dollar post in March of twenty four. I mean, that's not very long ago for a company that's now worth two and a half billion. but also shows the trajectory of which its valuation is growing. okay, next one, Havoc AI.

Marcelo Ballve (36:55)

All right. Yeah. So Havoc is I think the way to think about this is it's a kind of autonomy kit that can be put on anything. basically they started out in the water buying cheap holes, putting this kit on it, software and hardware, and you know, basically making very exp inexpensive you know, couple of hundred thousand dollar, sorry, a hundred thousand dollar.

surf autonomous surface vessels. they had orders from several branches of the military that were clearly testing these things out, not not in combat, but you know, testing them actively. and you know, because they were able to sell directly, which is, you know, kind of unusual.

People buying things off the shelf in the military. Essentially, what they did here, they they had four million in cumulative revenue as of early 2026. they are one of their investors is Lockheed and they have a partnership with them. They're also partnered with Hanwa, which is a defense contractor and shipbuilder out of South Korea. So, you know, good partnerships with incumbents. I think.

The the thing here is that it's a very modular solution. It's not how the Pentagon traditionally likes to buy things. and so that that would be my one caution here. you know, that they clearly have some demand and and and their solution is definitely innovative, but as much as the Pentagon has changed and become more flexible, et cetera, I'm not sure that, you know, this is the best

You know, design solution for this market, but that's just my opinion.

Slava Rubin (38:32)

Okay, great. Well, you're already sharing your opinion. I'm gonna ask you the next question, which is really gonna ask your opinion. You know, we're talking through all these companies, it's hard to compare and contrast them, especially because they're size differently, their products are differently, but we're gonna compare and contrast them, which is just for summary for everybody, we have Hadrian at 8 billion valuation. I'm rounding for all these, Chariot defense at 150 million, Castelion at 13 billion, Nero's at two and a half billion, and Havoc at 800 million. So

In terms of for a dollar to invest, which one would you say is your top choice? Which one's your bottom choice? And then I want you to rank them. And now again, it's if you have a hundred dollars or a thousand dollars or a million, however many zeros we want to talk about, which one do you put in first? And you're not allowed to just say I diversify across. So which one gets your money first? And why?

Marcelo Ballve (39:28)

Yeah, I think I think Castelion gets my money first. obviously the the valuation is already very high, but you know, I think what we're doing here essentially is trying to pick a horse in terms of what which is the company that can break out, as Anduril and Shield did, become a Neo Prime, right, in its own right, a company that can have multiple programs of record, a company that can

carry large contracts directly and scale those, a company that is able to extend from its wedges into adjacent categories and and develop software that can help in terms of the stickiness and the you know the the ability of the product to integrate across systems in the military. And I think Castelion would be my pick for that. I think you know

sort of stole my thunder already, but I think I would put havoc last for the reasons I I cited before. I think it's very innovative and and the asymmetric, you know, aspect is very attractive to have like a hundred million dollar, sorry, a hundred K, you know, drone out of the box, being able to turn things into autonomous vehicles. But again, I think the military likes to buy things that are at least semi integrated, you know, with support.

with sort of validated, you know, integrations of different systems, not something that kind of is is modular and a little bit harder to get, you know, people's heads around. and so yeah, those would be my pick for first and and last. kind of conventional choices. I think Nero's would be my my second pick. and and Hadrian my third.

But yeah, we can talk about those if if we have time.

Slava Rubin (41:12)

go Castelion, Nero's, Hadrian, Chariot, Havoc.

Okay. So believe it or not, for all you listening, we did not talk about this in advance. And my opinion is I have Castelion first as well and I have Havoc last. I don't know if great minds think alike or we're just rubbing off on each other. but my order is a bit different because I start with Castelion then I go to Chariot, because I think Chariot is a unicorn in the making, at a hundred fifty million dollar valuation.

Obviously higher risk, but I think it has the potential for a big pop in the next 12 months. then I would go Hadrian, and then I would finish with Nero's. Sorry, before Havoc. you know, I could see the argument on Nero's at quote unquote only two and a half billion. If it's really going to become the drone prime, let's call it that has potential to be huge. I just feel like drones are just so competitive, so competitive that it's hard for me to pick it towards the top.

But funny thing is we both pick Castelion and I do think Castelion, you know, when we compare against the Tomahawk, the Tomahawk is used regularly. I think it's I'm far from a defense expert, but I think it's just under mock in terms of its speed and it costs quite a bit to make, I believe it's over a million dollars, to make one, to be able to have, let's call it, a faster product, significantly faster, cheaper and scale more rapidly, that sounds like a game changer.

and I do think hypersonic is let's call it one of the trendy words of the moment, kind of like where drones were five, eight years ago. So I think we're gonna hear a lot more about hypersonic, and I think Castelion's gonna get some of that benefit. All right. so just for fun, from the five companies you heard so far, if you could just throw into the QA which one you would pick as your top choice.

And I'll kind of read off to folks and I'll try to see what people say. Okay, let's move on now. We have a little bit more of a buffet of four more companies. again, these are just picked because we thought it'd be interesting to cover. So Marcello, give us a quick color on Chaos Industries, Firestorm Labs, Mach Industries, and Govini

Marcelo Ballve (43:32)

Yeah, sure. I'll I'll just spend a little time on each one. chaos is in another hot category, right? It's again, it's it just it's it's meant to be more affordable and and more distributed and smarter than traditional solutions in this category, but it's basically a counter drone and and like not missile defense in the sense that it can protect against sort of less you know, it's not gonna stop

hypersonic missile, but you know, it can it can detect, it can do missile defense, primarily a counter drone solution. Firestorm Labs, really interesting. it's meant to manufacture parts and components for things at the edge. what you see in in areas like in Ukraine, et cetera, is that you know they're constantly cycling through through drones, things break, things get damaged, etc.

If you have to ship all those things back to a factory in in in a city or another location, you know, that severely slows you down, reduces your capability. So it's doing that through 3D printing and other like sort of smart factories, modular factory type approaches, helping produce comp important components for things like drones in the field. mock industries is doing

It started out as hydrogen powered defense platforms. but what it's doing more of now is is gliding munitions. It's also getting into drones. to Slava's point, you know, it seems like everyone's gotten into drones in some way, shape, or form. So definitely agree it's hyper competitive. it's you know, it it it builds it has one platform that can do monitoring from like the stratosphere.

but it's its main and to my understanding, having sp talked to investors in the company quite a bit, is is the gliding munition, is it's is if it's main product now, I forget the name of it right off the top of my head, but something that can be launched from very high altitude glide to targets. And the advantage there is that it's radar and other detection capabilities have a harder time.

tracking it and spotting it when it's launched from so high up. And then yeah, Gavini, this is only the only kind of like traditional software slash SaaS platform. But as you can tell, there's a lot of changes in how the Pentagon acquires systems in the supply chain, a lot of moving parts, a lot of you know moves away from China and other supply chains and onshoring to try to keep track of all that complexity.

you have a SaaS platform like Gavini already at 100 million ARR, sort of integrated into a lot of government systems already, basically like kind of like an internal marketplaces where folks can sign up for this thing and rack up dollars against a large contract that it has. and and yeah, basically helps folks in the government keep track of all that complexity.

Slava Rubin (46:34)

Thank you. And then in terms of things moving fast, Mach actually just raised last week, well announced it raised that a three point seven. So that's how quickly these things are moving. perfect. And then if you want to just we have a question quickly about Neros if you know do you know what the expected cost per unit is for the drones for their factory?

Marcelo Ballve (46:54)

cost per unit?

Slava Rubin (46:56)

Four yeah. Yeah, what they're trying to target for how much it's gonna cost to make one.

Marcelo Ballve (47:01)

Yeah, I have that two thousand per unit.

Slava Rubin (47:05)

Okay, perfect. Perfect. excellent. Let's go to the next slide. So this is all very exciting. Lots of big companies, lots of growth, lots of valuation bumps. Are we in a bubble? You know, what are the risks here? And I think this is quite timely considering we have the midterms around the corner and what that could imply or not.

Marcelo Ballve (47:26)

Yeah, I mean, I I alluded to this in the beginning, but we had the White House. We we talked about the one trillion, one point one trillion base budget. but the White House requested 350 billion on top of that, which is the reconciliation component. this was done last year and it created this kind of two track budget process, which augmented the base budget quite a bit.

The thing with the 350 billion reconciliation to the extent whatever of it gets approved is that becomes mandatory funding and is typically dispersed more aggressively than the discretionary funding that is in the base budget. So that's good to keep in mind because a lot of these drone autonomy programs tend to come out of the the reconciliation or sort of White House proposed part of the budget. The problem is that.

You know, as Slava said, with midterms, things being very partisan, the Iran war and the cost of the Iran war, you know, concerns about military overreach. the the authorization for the base budget was very polarized, which typically you get a lot of bipartisan support for that money. That didn't happen this year. And so that indicates some, you know, center of resistance in Congress starting to build up against

Pentagon spending without controls and accountability, a growing concern around, you know, whether stuff is being spent intelligently and why. So far, the Congress has indicated that they they have appetite to only fund about 60 billion of that 350 billion. Even so, it's a big run-up versus last year's budget, even if only 60 billion of that gets.

spent, but I think that is a risk on the horizon in terms of like how long will this budgeting bonanza last? And then yeah, these run-ups in valuation, I mean, you know, we didn't reveal a lot of revenue figures, but if you kind of interpolate revenue against contracting and and and where similar companies were at this point in time based on similar contracting numbers.

You know, you have multiples that are like, you know, 65X, over 100 X, you know, very high multiples for a category that has a ton of execution risk, as we mentioned earlier. these are all sort of untested, you know, movements to get things into massive production, whether it's a Castelion missile.

or a near as quadrupt quadcropter. So there's a lot of execution risk embedded in these in these beds that's worth thinking about.

Slava Rubin (50:06)

Yeah, any final thoughts about beyond the risk? Any final thoughts about investing into this market?

Marcelo Ballve (50:14)

You know, I I think that I think it's a great market. I think that if you look at the way, you know, all the stuff we've talked about in terms of how Pentagon doctrine is moving, you kind of have to think about it as a simultaneous overhaul of how you know, defense products are are designed and fielded and how they're manufactured.

so you know, this is part and parcel of the big, you know, manufacturing renaissance that's going on in the United States. I think there will be bumps in the road, but my, you know, my view is that the the political risk will smooth out in the medium to long term. and so there will be winners, you know, out of this cohort of companies we've been talking about, you know, one or two of them will emerge. maybe others will be acquired or

you know, maybe get folded into primes or some such thing. But I think, you know, one or two of them will break out. the question is, of course, which one? but as far as the the macro backdrop, I I do think the signals are still very bullish despite some of the stuff that that we've been talking about.

Slava Rubin (51:20)

Yeah, again, I would echo a lot of what you're saying, the trends of reindustrialization, onshoring, geopolitical risks, wanting to make sure the US is prepared and ready, I think is all very bullish for this market. And I think, like you mentioned, there will be winners and there will be companies that, you know, create significant enterprise value. My watch out is this isn't such a massive market compared to the opportunity for NVIDIA or Microsoft.

or Google, et cetera, because they can go consumer, they can go enterprise, they can go every country, all this stuff. You know, there is a specific market which is very big, very big, but it's not as big as some of these massive hyperscales, et cetera. So I would diversify accordingly and not spend all of my investment dollars in defense only. I think that can go poorly. and I would try to, you know, allocate accordingly a slice of your investment

portfolio into defense and try to pick, you know, a couple few folks to diversify into. But I do think there will be some winners. I would watch out for some of these mass evaluation jumps. You know, it's weird that I'm saying that since I just picked Castelion as my favorite. but you gotta be really careful because some of this could level out, which could leave you in kind of a no growth situation for a year or two or three.

because you overpaid for something. So look out for that. all right. We're just coming up on the hour, which is great. Thank you very much, Marcelo. we haven't had you on the show for a little while, and no surprise, you were amazing. much applause to you. And for all of you listening, thank you very much for joining. Of course this will be archived and have a good rest of your day.

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