TheChek News Flow

The Takeaway

It’s hard to think of a company that faces a bigger perception gap than Anduril. Talk to investors in Silicon Valley, and they will be clamoring to get in on its next round—last priced at $30 billion. Talk to generals and others in the traditional defense industry, and they’ll ask whether the eight-year-old company has any contracts yet. (The answer is they do.)

To get to the truth between the views, I always enjoy chatting with the company’s CEO and co-founder, Brian Schimpf, whom I interviewed on The Information’s TITV this week and find to be a very thoughtful leader.

We discussed what’s behind Anduril’s expected doubling in revenue this year, how the Trump administration is “getting their feet under them;” the government shutdown, the future of warfare and why being a publicly traded defense company leads some to “suboptimal decisions.”

I hope you enjoy.

Jessica Lessin: I am so happy to be here today with the co-founder and CEO of Anduril, Brian Schimpf. Brian, thanks for joining The Information’s TITV.

Brian Schimpf: Hey, thanks for having me on.

It’s been an incredible couple of years for Anduril. I think The Information’s TITV viewers know that Anduril, founded in 2017 now, has been in the defense space focused specifically on bringing down the cost of weapons and other items used in warfare. And as we’ll get to later, there has been a somewhat controversial company over its history. But I think now clearly is a very important moment. So I want to start by asking you about the business. I think my colleagues at The Information reported that last year your revenues were over a billion dollars and growing quickly. What’s happening to growth this year and where is it coming from?

Yeah, so we’re going to see revenue growth over 100% this year. The biggest area of increase has really been on the production side. So we’ve started making a lot more systems, fielding a lot more systems. We’re scaling the hardware production that we do by I think 250%, might actually even be a little higher this year, and expect to see a nearly similar increase next year as well.

And so let’s talk through—every day now there’s a headline about autonomous submarines in Australia, autonomous fighter jets. This might be a little further off. Where is the business now in terms of products and services and where do you think it’ll be in a couple of years?

So when we started off, we worked on a lot of things like border security, which has been a very successful business for us. We’ve had amazing bipartisan support. It started under the first Trump administration, grew tremendously under Biden and [is] continuing to grow going forward. That’s been a very mature product for us. On the counter-drone side, that’s another area where very early on we set out to kind of work on these problems and this is really scaled. We’re doing a huge amount of revenue there. We have fielded systems in combat zones. We’re seeing regular operational use. So it’s been an incredibly successful area. We’re producing a ton of surface-to-air munitions, our Roadrunner system. We’re seeing a huge amount of scale on that front as well. In the last year, we’ve kind of moved into a number of different areas as well. So one has been kind of this class of autonomous platform.

So it’s this autonomous submarine you referenced that we’ve been working on with the Royal Australian Navy. That’s now moved from a development program into a full operational production program as of just in the last couple of months. We’re working with the U.S. Air Force on their collaborative combat aircrafts. This is like a full-size fighter jet that flies along with other fighter jets to provide them support, put them out in front, put it in harm’s way so that the manned platforms don’t have to be at risk. And this is going incredibly well.

We’ll be flying in a couple of weeks here. It’s moving along at an incredible pace for an aircraft program of this complexity. We’ve moved into some space capabilities, which is really exciting. And then one of the areas that I’m particularly passionate about is the area of munitions. This is a major strategic deterrence risk for the U.S. You look at Ukraine, just the sheer volume of munitions that are consumed in that fight, I think is indicative of what the world is seeing in terms of what we need to have to deter aggression from our adversaries. And you look at the production that Russia has been able to ramp up on—it is massive and in many ways outproducing all of NATO combined on the capabilities that they’re fielding. So this is a major issue, and we’ve really focused on exactly what you said. We’re looking at lower-cost, smarter, more autonomous systems, and how can we build the best of modern manufacturing and modern technology and bring it into the defense world and be able to produce these at a huge scale?

When you talk about some of the tailwinds about getting these new items into production and also new categories, when the second Trump administration began, its message was clear, certainly to the tech industry, that it was going to cut the red tape. Has that been your experience?

All these administrations take time to get settled, right? Appointees take time to get in. They have to figure out what’s working and what’s not. They’ve got to clean up things they disagree with, and then make the plan to actually move out and move forward on what the future is. Combine this all with a fairly unprecedented budget structure, reconciliation, all these unique ways that have never occurred before, full-year continuing resolutions. Like, this is just a very unique operating environment for any administration to be able to operate in.

They’re really starting to get their feet underneath them. And what we’re seeing is, you know, a very clear-eyed focus on, where are the problems in the industrial base? What do we need to fix that are the kind of key deterrent capabilities that we need to have against our adversaries? And then really driving those hard in terms of—get results and get results now. And so I think this is a great thing, right? Like, whether that’s us or any other performer in the industrial base is exactly what we need to see: a lot of accountability, a lot of focus on the critical problems. And so I’ve been very bullish on sort of all of those fronts.

It feels like the right set of actions to take as they’re getting appointees in—this is going better. There’s more people to actually run and lead these programs. And so I’ve been very optimistic on that. On the cutting red tape and all these pieces, I think the answer is, like, anytime there’s been discrete obvious issues, so that this doesn’t make any sense, why are we doing it? We’ve had a lot of success just flagging those things and driving the resolution on it. So I think it’s just very pragmatic at the end of the day and a focus on results, which is great. That’s exactly what we want as a company that’s growing fast and just trying to deliver to the war fighter.

How does the government shutdown affect you?

You know, a lot of things slow down, right? You know, a lot of parts of [Department of Defense] are still essential. It’s brutal. I mean, you know, everyone has to play their part, I suppose. Yeah. And so, yeah, so the—you know, it’s just all the things of just the basic functioning of government. How do [you] get contracts written and sign, [how] do you get all these things executed? It all just stalls. And so if it stalls for one, two, four weeks, it’ll take, you know, several weeks to get it back online. So it does have a very meaningful impact. This, you know, progress stalls for us for the year. We were already in a position that we were pretty OK, right? So for a company like us, we’re in a pretty good spot working a lot of continuing programs. It’s fine. The bigger issue is when you’re in rapid growth and you need these new things to go, that is very, very painful. And so I think it probably impacts a lot of the newer defense players a lot more than it hits us.

At this incredibly complicated moment in foreign policy, obviously we’ve got multiple wars around the world, many of them controversial. I mean, I guess all wars are by definition, but you’ve worked across many administrations. But how is this moment in particular affecting Anduril? And how do you balance your business with the values of the U.S. government?

Yeah, so the geopolitical situation is exactly what you said. It is one of the highest periods of regional conflict. And that is frequently when you look back at World War I, World War II, regional instability started to increase, balkanization increased. You know, the amount people would arm themselves increased because you were entering an unstable world. So there’s a lot of precursors. And so that gives us just a lot of fear and pause around, is this going to get better or worse in the near-term period? What we’ve been seeing is this is a continuation of a trend that is independent of Trump, right? And the way this has played out for us has been, you know, international partners and allies really are looking to say, OK, if I’m going to increase defense funding, one, I want to know that I’m actually going to get the equipment that I’m paying for? The backlog on these orders from countries is massive. So for example the foreign military sales backlog to Taiwan is on the order of $20 billion. So, like, five to six nuclear submarines worth. It’s huge. It’s very typical. You look at, like, you want to buy Patriot missiles. It’s a two- to three-year production lead time, let alone the backlog of existing orders and the capacity saturation that exists in the system. And everyone needs these. Everyone wants these right now. And so there’s a very real fear that even if you place these orders, you commit to the U.S. and you want to have the best equipment, which the U.S. has, then you aren’t going to see it in a meaningful time frame. So there’s a lot of fear there. And that’s driving a lot of interest in ways of how do they tap into local supply chains [and] have more control over production, really, [a] lot of these sovereignty concerns. When you marry that with, I’m going to spend a lot of my GDP. I want to see a return in jobs. Like, that is a rational thing for a country to want. So we’ve been seeing just a lot of, you know, kind of shift in how the international partners are viewing this. It’s something that we’ve been very forward-leaning on.

What’s the shift?

Historically it was just buy your American and it’s all gonna work out right, and in a time when you were convinced nobody was going to attack you shoot any missiles or you weren’t really gonna need this stuff. That was all good, right? Like, if it takes five years, it’s all good. Nobody believes they have five years to wait right now. And so just this desire for speed and the urgency that everyone feels is much much higher. We see it the most with Pacific countries—you know, particularly Taiwan, Japan, South Korea. There’s a lot of feeling of urgency. We see this a lot with the European countries that are sort of closest to Russia, right? Scandinavian countries, Eastern European countries, there is a lot of urgency to solve this problem, and they want results fast.

And so there has been a very significant shift in how they view the traditional approach of how they would buy from the U.S. versus sort of where they are today. Like you said, fundamentally, we’re a U.S. company, right? We have to be aligned with U.S. policy. We want to be aligned with U.S. policy. And I think, you know, If anything, this period of instability is reminding everyone around the world that the U.S. is the ultimate backstop of global stability. Like, that is the key. And they know that those alliances with the U.S. are important. NATO does not exist without the U.S. There is not the, you know, anchor to really drive this otherwise. These other countries play a massive role.

But I think this sort of degree of U.S. relationship is very, very important. And the sophisticated policymakers can kind of see through the emotions and the frustrations of, you know, the moment of how they feel like they’re either being treated well or poorly and understand what the long arc of this looks like, which is, this is only going to work if we have a strong alliance. The U.S. is the backstop for that. There is no credible alternative. And, you know, hard power deterrence is more important than ever to ensure that backstop of stability.

And so if you had a crystal ball three years from now, what does the picture look like?

You know, it’s hard for me to imagine that there’s some deal to be done that gets, you know, Putin believing that force won’t work anymore and Xi believing everything’s going to be fine and the status quo works. I don’t see a world that happens, right? Iran is not going to stay still. They’re going to regroup, they’re going to retrench. And the view is very much that, you know, the consequences for using force are comparatively low and that undermining that Western alliance is their best chance of success.

It is hard for me to imagine that changes. I think that will look like more regional instability, more, you know, kind of in many ways you can view Ukraine, Russia as a proxy conflict. I view it as actually China’s buttressing the proxy conflict. Where do you think Ukraine is manufacturing 4 million drones? Like, they’re not making motors, they’re not making batteries. It’s all coming from China. There’s been no restriction on sales. And so the reality is going to be that this stays quite unstable. It’s hard [to] imagine getting less. And I think the imperative is the U.S. has both the capability to deter these conflicts and the will to show that there are rules and we will enforce them. And that’s ultimately [what] will create deterrence. It will create the space to allow more peaceful diplomatic negotiations to go, because people don’t believe that resorting to subterfuge, sabotage, aggressive action or even full-scale conflict will be an effective strategy.

OK, well, shifting gears slightly, Anduril, you’re a VC-backed company. I think it’s been so interesting out here in the Valley to see, first, just the skepticism towards any kind of hardware. But you’ve managed to raise a tremendous amount of capital, at upwards of a $30 billion valuation. Where do you go from here on the capital side? Do you need to raise more money? And where are you going to get it from? What do the public markets look like versus the private markets?

So growing a hardware company at the rate we’re growing at turns out to be really expensive.

When you say doubling revenue—that is not sort of, you know, we might expect that of the ChatGPTs of the world or the OpenAIs doing incredible growth, but it is worth pausing that that is fast growth in hardware.

It’s very hard to do when you’re producing physical things. And so the reality is you’re, you know, you’re building a factory one to two years before you’re getting productive utilization out of it. And that’s even like partial utilization. You get to full utilization over three to five years. You’re doing pretty good. So you’re paying for all that excess capacity up front, inventory and, like, all the working capital. It’s a concept that very few people in finance even think about anymore. It cost me money to build inventory, to sell it. These are very foreign concepts to most people in the Valley. They’re getting capex again. Yeah, they don’t understand. They get capex. Well, now we have the data centers. So they’re starting to understand that concept. Yeah, they get capex, right? And so there’s a lot of these very foreign, very traditional concepts of what it actually takes to run a business like this. So in reality, those are expensive and it’s a good problem to have, right? Like, we’re doing well, our business is succeeding, we’re scaling very fast, customers are demanding the products we have, they’re having great operational success, but it costs money. So will we raise more? You know, I think we will. In terms of where that…

I assume you’re—are you profitable?

We are not profitable yet, right. Again, growing fast, very, very expensive—if we wanted to grow at 20% or 10% a year, I’m sure we could be profitable very fast, but that’s not what we’re doing here. Where this capital comes from, you know, my view is there’s been a tremendous amount of demand flowing into the private, you know, kind of growth-stage funds. There’s a lot of interest from, you know, kind of traditionally public investors crossing over. Most of the mutual funds now cross over into those growth-stage funds. and whether they’re just directly investing or they’re providing capital into other VCs, you know, there’s just a lot of capital flowing around there. And I think the belief is that the private market returns will look a lot like the public market returns have looked like for the last 10 years. The concentration in return is very high on the top 10 companies.

If they go public, I mean, I guess we could do secondaries forever. What do you think about that? I feel like Anduril will eventually be a public company. Is that how you think about it?

I think we will. I mean, but the benefit of this, like, amazing capital market structure that exists in the U.S. is you have all the optionality in the world to make the most effective business you can.

And we can make—we are not constrained into making suboptimal decisions, we can choose the timing that actually makes sense. And for us, our belief is we’re going great. We have access to capital. We can provide liquidity to investors and employees. The demand is sufficiently high that this works out great. And so we’re not in a rush at all. But I think when we prove, you know, kind of beyond a shadow of a doubt that we can scale, we’ve got factories that produce. Our core business model is working again and again and again beyond the handful of places we’ve proved it to date. That will be trivial—easy to go public at that point. But we’re not in a rush, and we don’t need the distraction. We don’t need the volatility.

Truly, easily. I like that. Is there a benefit? Like, is it easier to get contracts if you’re a public company? Or I imagine in theory, you guys might face some restrictions because of the categories you’re in about the, you know, for instance, sovereign wealth is maybe a type of money. I don’t know if there are any sovereign wealth investors in Anduril, but I don’t even know if that would be allowed under the law. Probably not.

Yeah, there’s straightforward restrictions on who can own you and what percentage. It’s pretty simple. It’s a formula. And we’re big enough now that getting 5% of the company, it’s really expensive. Like, there isn’t 5% to 10% float sitting out there. You can’t get it. So I think these are pretty simple things for us from the compliance side.

From the kind of perception side, I think it kind of cuts both ways. So I think historically the view had been, you’re not playing in the big leagues unless you’re a public company. And I don’t think that’s the case anymore. And in fact, the message has been so consistent from the traditional players in the space that their Wall Street incentives are preventing them from investing. And by that, they are dividend stocks where they have accumulated a set of investors who expect a very consistent dividend. Heavy reinvestment, heavy risk-taking is not something that they have sold the investors on, right? And so the predictability of dividends becomes the primary driving factor of—how can they deploy their own capital into investing for growth? They’re not growth stocks, right? They’re growing at 3% to 5% per year. And so it is a different class of investor.

And I think the message of why haven’t they increased capacity on these things, why aren’t they investing is to their credit. It’s, like, unclear the return is there because they historically haven’t seen the return on investment from these things. Like, there’s a lot of reasons for that. But then there’s also a degree of shifting blame on this, which is: I can’t do it. My hands are tied by the investors. And I think that is true. I think that has created a situation where there’s a lot more skepticism of short-term incentives of the public markets. I don’t believe it has to be that way. If you are a growth stock and showing that when I invest capital, I get a good return on it, I’m pretty sure the investors are good to go with that. And they’ve overly focused. [You] get great credit for investing in growth, it turns out.

You mentioned space. Is SpaceX a competitor? What do you make of SpaceX being actually a private and very successful company with a lot of government business?

Unlike a lot of people, we’re not stupid and [we] don’t compete with SpaceX. This is the stupidest thing you could do. Like, why would you do that? Like, it’s very hard. There are—and I’m like, you’re probably gonna lose. Like, it’s just betting against Elon [Musk] is like, a really historically stupid strategy. So why would you do that? And so no, we don’t do the things SpaceX does. We’re not doing a launch. We’re not making Starlink, right? Like, we’re not doing those things. We’re working on a lot more of the DOD’s specific mission sets, right? So this is, you know, really thinking about, the future of—how does space become more of a war-fighting domain, right? Like the Chinese, the Russians have demonstrated the ability, and this has been reported in multiple cases around adversarial things they are doing in space. And so the, you know, satellites going around other satellites, potentially interfering with them, know, hypersonics, like, these orbital bombardment systems, they call them, that go around the world and then land in a specific place—like, these are very serious threats and very serious issues.

The DOD is looking at—how do I counter those? And then what are the capabilities I need to deter these things as well, to show that I can hold them at risk, so they should not mess with us either, right? And so these are the kind of categories of areas in space that we’re really focused on—the very, you know, kind of defense-specific areas that, you know, we’re uniquely going to go after and really fit in the mission of what we’re trying to do.