Palmer Luckey of Anduril Industries

In the Ops Room with Palmer Luckey | The Next Billion Seconds with Mark Pesce

Check out the Next Billion Seconds’ Episode Page and Show Notes

Key Takeaways

  • The United States does not have a great history of exporting things to countries before conflicts happen 
  • “The big defense primes are not in the position to build the right things, partly because the government has created the wrong incentives for them to do so.” – Palmer Luckey
  • “The point of high-end defense technology is not to win a war that has already started; it’s to deter that war from happening, to make the cost of engaging in that war so high that it never happens.” – Palmer Luckey 
  • “The real reason that these tech companies were not doing work with the United States military, or foreign allied militaries, was that they were afraid of upsetting China.” – Palmer Luckey 
  • Until Anduril became the third unicorn in 2019, there were only two unicorns in the defense industry since the Cold War: Palantir and SpaceX
  • It took billionaire-founders with previous success starting companies for venture capitalists to invest in the defense industry 
  • Russia’s invasion of Ukraine forced many venture capitalists to reconsider their assumptions about investing in defense tech 
  • Some countries are willing to do irrational things that disrupt their economic relationships with other countries; irrational wars and conflicts are prevalent throughout history 
  • “I think the odds of a direct, hot war between the U.S and China are very very low. I think the odds of a proxy conflict over minerals in South America, South Africa, or Southeast Asia are quite high.” – Palmer Luckey 
  • Anduril is the answer to the question: “What would a next-generation Lockheed Martin look like?”
  • Without giving away Anduril’s entire roadmap, the future of defense will have a lot of autonomous things across air, land, sea, subsea, and space all working together
  • Palmer is more concerned about evil people using very basic AI than extremely advanced AI taking over the world in a Skynet scenario 
  • The U.S. must be involved in the technology (nuclear, autonomous weapons, etc.) if it wants to lead and potentially regulate how those technologies are used in the rest of the world 
  • “I want to save taxpayers hundreds of billions of dollars a year while we [Anduril] make tens of billions of dollars a year.” – Palmer Luckey 

Intro 

  • Palmer Luckey (@PalmerLuckey) is a technology enthusiast, writer, and modder. He is the founder of ModRetro, Oculus VR, and Anduril
  • In this conversation, Palmer Luckey discusses Anduril’s role in the Russia-Ukraine conflict, why Anduril is building in Australia, Big Tech’s relationship with China, the importance of technologists returning to the defense sector, why he started Anduril after making billions from selling Oculus VR to Facebook, how Anduril is different from the legacy defense primes, the corrupted incentives of defense contractors, artificial general intelligence, the probability of a hot war between the United States and China, why venture capitalists have been historically adverse to investing in defense, and how Anduril is building the future of defense 
  • Check out these Podcast Notes from Palmer Luckey’s conversation with Joe Lonsdale
  • Host – Mark Pesce (@mpesce)

Palmer’s Visit to Ukraine 

  • Ukraine President Zelenskyy contacted Palmer years ago about using Anduril’s technology to improve his country’s border security 
  • The U.S. is great at exporting weapons and weapons technology, but it is not great at exporting new technology on fast timelines 
  • Anduril ran into bureaucratic problems when trying to help Ukraine improve its security on its eastern border with Russia, not technical problems
  • Palmer admits that he didn’t fight the bureaucracy hard enough, and was devastated to watch Russia invade Ukraine knowing that his technology could have helped 
  • Anduril has had people, hardware, and software in Ukraine since the second week of the conflict 
  • Palmer’s recent visit was to conduct training and to meet with officials on how to remove the red tape about getting new defense technology into Ukraine 

How The Russian Invasion of Ukraine Changes Everything 

  • Following the invasion, government agencies that were operating on peacetime protocols pulled back much of their red tape, and allowed for companies like Anduril to contribute to the cause 

Why Anduril is Building in Australia

  • Anduril is building its extra large autonomous undersea vehicle (XLAUV) in Australia, but will export the system to other Asian and European nations, too 
    • The XLAUV is about the size of a school bus 
  • The United States does not have a great history of exporting things to countries before conflicts happen 
  • “The point of high-end defense technology is not to win a war that has already started; it’s to deter that war from happening, to make the cost of engaging in that war so high that it never happens.” – Palmer Luckey 
  • Australia is not trying to beat China in a toe-to-war; it is trying to make the cost of engaging with Australia so high that it’s unthinkable for China to engage

Palmer Luckey’s Background 

  • Palmer’s career started in a California research lab working on a project called Bravemind, which attempted to help veterans struggling with post-traumatic stress disorder using virtual reality exposure therapy 
  • Palmer was exposed to some of the Department of Defense’s systemic flaws and obstacles while working at Bravemind
    • These flaws stuck with him throughout his time building Oculus 
  • After selling Oculus, he lived in a house in Silicon Valley with 12 other people
  • He had thought that the reason why Silicon Valley didn’t work with the military was because of ideological differences, but being immersed in the valley and engaging with the engineers, he soon realized that most people in Silicon Valley did support the military, and the idea that the United States should have a stronger military than its adversaries 
  • “The real reason that these tech companies were not doing work with the United States military, or foreign allied militaries, was that they were afraid of upsetting China.” – Palmer Luckey 
    • Example: Apple does 95% of their manufacturing in China and has invested hundreds of millions of dollars into their manufacturing capacity in China
    • Apple CEO Tim Cook made an agreement with the Chinese Communist Party to invest another $275 billion in Chinese manufacturing capability 
  • Apple could be erased “with the stroke of a pen” if it does something to upset China
    • Having to relocate its manufacturing capacity elsewhere would have terminal affects on even Apple, one of the most valuable companies in in the world 

Palmer’s Realization That Started Anduril Industries

  • “I realized that we were in a uniquely dangerous period in history, where for the first time in the history of my country, the most innovative technology workers were no longer working for the military. That has never been the case.” – Palmer Luckey 
  • In the lead up to World War II, imagine Ford, Westinghouse, and General Electric refused to work with the U.S. military because they didn’t want to mess with their revenue streams from imperial Japan 
    • IBM built things for the Nazis, but it also built for the U.S. military 
    • Today, many tech companies build for the adversaries and simultaneously refuse to build for the U.S., which is worse than what IBM did, according to Palmer
  • Companies operating in the lead-up to WW2 had optionality because the U.S. had industrial capacity, so they could pivot to exclusively building for the U.S. if they decided to
    • The U.S. no longer has the industrial capacity it once did, so tech companies today do not have the optionality that existed in the past 
  • Questions Palmer asked himself when thinking about the company that eventually became Anduri:
    • “What would a next-generation defense company look like?”
    • “What would a company look like that was able to take bright people out of the advertising industry, the search engine optimization industry, and the augmented-reality-mustache-emoji industry and put them to work on things that were more important?”
  • Palmer wanted to invest in companies that looked like this, but none existed, so he started one himself 

The State of the American Defense Base

  • “The big defense primes are not in the position to build the right things, partly because the government has created the wrong incentives for them to do so.” – Palmer Luckey 
    • This reality, coupled with big tech companies abdicating responsibility, makes it difficult to build a defense startup 
  • Since the Cold War, there have only been two unicorns (private companies valued at $1+ billion) in the defense space: Palantir and SpaceX
    • Palmer adds that SpaceX isn’t a military-focused company; it’s a Mars-focused company whose biggest customer is the U.S. military 
    • Anduril became the third unicorn as of 2019
  • Palantir, SpaceX, and Anduril have something in common: all were founded by entrepreneurs who were coming off billion-dollar exits 
    • Peter Thiel founded Palantir following PayPal
    • Elon Musk founded SpaceX following Tesla
    • Palmer Luckey founded Anduril following Oculus 
  • Venture capitalists were adverse to investing in defense-tech given the low numbers of unicorns to emerge from space
  • Over the same 35-year period since the Cold War, there have been 2 mattress unicorns, 24 fast-casual dining unicorns, 50 gaming unicorns, 50 automotive unicorns, over 100 financial technology unicorns, and 150 biotechnology unicorns 
    • Every other industry experienced much larger-scale success than defense tech, so why would VCs invest in defense startups?
  • It took billionaire-founders with previous success starting companies for venture capitalists to invest in the defense industry 

Anduril’s Impact on Venture Capital Investing 

  • There have been seven new defense unicorns since Anduril became one in 2019
  • “I often joke that other companies have raised a lot more money off our success than we have.” – Palmer Luckey 
  • Anduril proved that a defense product company that spends its own money can be successful 
  • Not only are defense primes launching venture capital funds, but prominent venture capital firms are launching funds dedicated to defense, i.e. a16z’s American Dynamism fund led by Katherine Boyle and Marc Andreessen
  • Palmer believes that the momentum in defense investing is from Anduril’s success and also from what is happening in Ukraine 
  • Russia’s invasion of Ukraine forced many venture capitalists to reconsider their assumptions about investing in defense tech 
  • Palmer was criticized by friends and foes when he first started Anduril, but following the Russian invasion, many of these people told him they now see how weapons can play a positive role in the world 
  • “ESG funds should include defense investments.” – Palmer Luckey 

The End of History is Wrong 

  • The end-of-history and the Golden Arches Theory of Conflict Prevention are wrong
  • Some countries are willing to play a longer a game than the immediate near-term economy 
  • Some countries are willing to do irrational things that disrupt their economic relationships with other countries; irrational wars and conflicts are prevalent throughout history 
  • Nations don’t typically go to war when they think that they will lose, or that it will result in a stalemate; most wars are fundamentally based on a miscalculation  
  • Frameworks and think-tank-theories should not assume that every nation is a rational actor 
  • China invading Taiwan would elicit short-term pain for the Chinese economy, but the CCP operates on long-term time horizons
    • For example, the short-term pain of invading Taiwan may be worth it to them when considering their 100-year or 500-year plan

The Early Days at Anduril 

  • Oculus was built around a product; Anduril was built around an idea
  • Anduril is the answer to the question: “What would a next-generation Lockheed Martin look like?”
  • Another question asked during the early days of Anduril: “What are the sci-fi technologies that we need to start working on today that will dominate 50 years from now?”
  • Sci-fi ideas and technology aren’t just fun, they make sense
    • It makes sense to build autonomous systems across air, land, sea, and space 
    • Using artificial intelligence to fuse data from these different machines into a single, comprehensive view makes sense 
  • “Lattice” was Anduril’s first product, a software operating system that fuses data in real-time from various machines and sensors 
    • Anduril’s subsequent hardware products are built on top of Lattice 

Don’t Move Fast & Don’t Break Things in the Defense Space 

  • Palmer’s former boss, Mark Zuckerberg, instilled a company culture at Facebook to “Move fast and break things”
  • Palmer says that you cannot afford to think that way in the defense industry because there’s so much that is on the line
  • You can’t A/B test products on the battlefield when people’s lives are on the line 
  • Anduril, and other defense technology companies, must put a significant amount of time testing their products prior to people entrusting their lives in these products 
    • This is a stark difference between operating in defense tech versus consumer tech 

How Anduril is Different from the Legacy Defense Primes

  • The legacy defense primes work on a “cost-plus basis”, where they are paid by the government to develop technology using taxpayer money 
    • Cost-plus contracting warps the incentives for the primes
  • Legacy primes are incentivized to create complex systems over long time frames so they can maximize the period in which they are paid
  • People make a lot of money working on complex projects that aren’t leading to much, but go on forever, and ever, and ever… 
    • These people get paid to do work, not make things that work 
  • Anduril is a defense-product company; it uses its own money to create solutions and sells those solutions to the DoD and its allies 

How Private Contractors Dictate Military Technology 

  • The military itself is not always the one putting in proposal requests for new projects, machines, technology, etc. 
  • Proposals are mostly shaped by contractors in the private sector 
    • This is less than optimal because it incentivizes the industry to only talk about things that are possible for their business model, which places all the risk on the taxpayer
  • The average person in the legacy defense industry is not trying to hurt the taxpayer; they are just responding to incentives 
    • For example, the people that promote in these professions are the ones that know how to prolong processes to maximize revenues 
  • Anduril operates on the principle: trust the customer’s understanding of their problems, but never trust their solutions 
    • The customer’s solutions are often informed by what they major primes have told them is the right solution, which tend to complex processes developed over long time horizons
  • Anduril tries to work from first principles, and attempts to solve customer problems with the fastest, most efficiency and elegant solution 

Anduril, Australia, and the AUKUS Deal 

  • About 5-10 years ago, there was a commonly held belief in the U.S. that Australia might fall into the Chinese sphere of influence  
    • Not because it wanted to, but because of geopolitical realities and China’s desire to acquire Australia’s natural resources 
  • In 2021, Australia, the United Kingdom, and the United States signed a trilateral security pact for the Indo-Pacific region
    • This deal is referred to as “AUKUS
  • Anduril is not written into the AUKUS deal, but the same factors that gave rise to that deal is why Anduril is building in Australia 
  • Palmer wants to help Australia stay aligned with its Western allies by providing it the tools it needs to do so 
  • The long-term plan is to have Australia’s sea border continuously patrolled by Anduril’s XLAUVs

Anduril’s Culture

  • Anduril tries to build a culture where its employees are rewarded for solving problems quickly 
    • Palmer notes that some of his friends working at defense primes were punished for solving problems too quickly
  • Fundamentally, Anduril tries to align all the incentives as they relate to career cycles, pay, equity grants, etc. 
  • Palmer highlights an employee sitting in the crowd that started as an intern in 2019, then became the engineering lead for the company’s Ghost program, and is now one of the leads on the Australian submarine project 
  • “If you show that you can kick butt, you are not going to be held back simply because of seniority or because you don’t have the right piece of paper. As a college drop-out, that would also be hypocritical of me.” – Palmer Luckey 

The Future of Defense

  • Without giving away Anduril’s entire roadmap, the future of defense will have a lot of autonomous things across air, land, sea, subsea, and space all working together
    • Having hundreds of robots that have to be individually piloted is not a value-add
  • The mission is to enable small numbers of people to make intelligent decisions with their intent perfectly translated without having to go through many layers of human telephone 
  • “High quality reproduction of intent through autonomy is going to be a big deal.” – Palmer Luckey 

The Geopolitical Threats of Today & Tomorrow 

  • Russia and China are the geopolitical threats of today, but it’s crucial to consider the threats of tomorrow as well 
  • The technologies that Anduril builds enable asymmetric opportunities for small nations to advance at a rate that was previously impossible 
    • This increases the probabilities of smaller proxy wars developing around the world 
  • “I think the odds of a direct, hot war between the U.S and China are very very low. I think the odds of a proxy conflict over minerals in South America, South Africa, or Southeast Asia are quite high.” – Palmer Luckey 

Is the Tech Pendulum Swinging Back to Defense?

  • Defense doesn’t need everybody from the consumer tech and video game industries; it just needs enough people to leave those sectors to work on more important problems that will make a lasting impact 
  • Palmer plants “poison pills” in the brains of recruits working at social media companies, telling them that their job is worthless and that their societal contribution for the next 30 years will be to make rich people 0.1% richer 
  • Palmer takes the fears that he had when working in the games industry and tells recruits what those fears will feel like if they don’t consider more impactful work than designing the next mustache emoji 

Palmer Luckey’s Thoughts on Artificial General Intelligence 

  • Artificial General Intelligence (AGI) is a form of AI that is sentient and has the cognitive capacity to comprehend, learn, and perform intellectual tasks much like humans 
  • Elon Musk believes that R&D of AI weapons should be a war crime 
  • Palmer is more concerned about evil people using very basic AI than extremely advanced AI taking over the world in a Skynet scenario 
  • AGI wiping humanity out is a concern, much it’s at the bottom of Palmer’s list of concerns
    • The garage-bio-weapon terrorist and irrational actors on the gloal stage are more of a threat to humanity that general purpose AI 
  • Anduril always has a human in the machine’s decision-making process 
  • Autonomous systems are being created; it’s better for the world if the people with the most advanced forms of them have ethical standards and morals 
  • “I think autonomy is going to be of similar importance as nuclear power. Imagine if the United States had tried to set international norms around the use of nuclear weapons or nuclear power if we had not had any nuclear weapons or nuclear power.” – Palmer Luckey 
    • The U.S. must be involved in the innovation if it wants to lead and potentially regulate how it is used in the rest of the world 

Advice for Early-Stage Startups in the Defense Industry

  • Meticulously explain exactly how your technology will solve the customer’s specific objective 
  • Example: We have [this tech], you have [this problem or initiative], this is how our solution will directly get you closer to your goal for this specific objective 
  • Integrating with the legacy defense equipment is one of Anduril’s biggest challenges 

Palmer’s Dream Idea That You Are Encouraged to Steal 

  • Palmer’s “dream idea” is a humanoid API bot with the dexterity of a frail old man, but has enough dexterity to operate old defense equipment 
  • Use machine learning to teach the bot how to do things, such as turning the surface-to-air missile launcher on 

Final Thoughts: Anduril, Millionaires, Billionaires, & Taxpayers 

  • Anduril is not a defense contractor; it is a defense product company 
  • It uses its own money to decide what to build, then builds things that work, and then sell them to the government 
  • Working at Anduril will not only be professionally and spiritually fulfilling job, but also a fiscally fulfilling job 
  • One of Palmer’s proudest things in his career is everyone at Oculus becoming a multi-millionaire and financially independent following the Facebook acquisition; from the receptionist at the front desk, all the way up to the CEO
    • Not to sound like a “money obsessed guy”, but he hopes to achieve the same thing with Anduril 
  • “I want to save taxpayers hundreds of billions of dollars a year while we [Anduril] make tens of billions of dollars a year.” – Palmer Luckey 

Additional Notes

  • Un-crewed and autonomous systems are ideal for dull, dirty, and dangerous missions 
  • Anduril’s Chief Engineer in Australia formerly worked at Boeing, and identifies the biggest differences between the two companies as the speed of innovation in which they operate 
  • You don’t need to convince everybody on why it’s important to adopt better tech, you only need to convince a few of the right people 
  • All Joint Domain operations is imperative, meaning that operations and sensor fusion data occurring on land, air, sea, subsea, and space are being shared seamlessly between the U.S. and its allies without the need for human translation 
  • Anduril is trying to empower early-stage defense tech companies and startups to help get them off the ground 
  • Hire good people, create an environment that empowers their abilities, and get out of their way 
  • This conversation took place on August 18th, 2022 in Sydney, Australia at a live event hosted by Anduril Industries
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Notes By Stan Rizzo

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