Tech Scouting, Adversarial Capital, and the Defense Investor Network with Heather Jo Richman

Callye Keen sits down with Heather Richman to discuss the transformation of defense programs into sustainable ventures, the significance of private capital, and the emergence of new players in the defense arena.

They tackle how to create a thriving dual-use company and explore the potential value gap for innovators, where a commercial product can serve the DoD. Heather dives into the importance of embracing failure in the pursuit of national security and the necessity of clean capital in the startup arena. 

They delve into the possibilities of bridging the gap between the DOD and the private capital community, shedding light on the complexities of this process. They discuss the need for trusted relationships and the potential of innovation units. They cover insights learned from Heather's time in Washington. 

Topic Highlights:

00:00 - Introduction
Heather shares her background and what she is passionate about right now.

05:23 - Challenges and Opportunities in Bridging the DOD and Startups
Callye emphasizes the concept of "dual use," where innovations and products developed in the commercial sector can be repurposed for defense applications. This approach could save time and resources by not reinventing the wheel and leveraging already proven commercial technologies.

14:15 - Commercial-Government Relations in Defense
Heather Richman identifies the inefficiencies in commercial-government relations due to frequent personnel changes in the defense department. In 2018, a surge of Chinese capital in Silicon Valley led to concerns about investment sources. This prompted the development of a "trusted capital marketplace" for clearer capital origin transparency.

23:35 - Innovation & Government Challenges
Keen illustrates how the DoD and Intelligence Community face amplified versions of commercial market issues. While organizations like the US Cyber Command have specific areas of interest, these concerns are universally shared but bear greater consequences for the government.

37:12 - Sustainable Defense Programs 
Heather Richman emphasizes the shift from repetitive appropriations to crafting self-sustaining defense programs, underscoring the role of private capital in this transformation.

38:00 - The Reality of Technological Evolution 
Callye touches on the extensive infrastructure development, including software platforms and data centers, that companies like Nvidia invest in to make revolutionary tech applications feasible.

40:04 - The New Face of Primes 
Heather Richman discusses the evolution and significance of prime companies in the defense sector. With evolving war scenarios, the role of primes becomes even more crucial.

43:20 - Role of Venture Capital
Heather highlights the increasing interest of venture capitalists in the defense market, advocating for an incorporation of a national security perspective in investment choices.

43:51 - Opportunities in Startup Defense
Both Callye and Heather extend an invitation for deeper discussions and explorations into the defense startup ecosystem, highlighting its potential and 

Parting Thought

"When you and I wake up every morning, I see the world through a national security lens. and I'd like for people to be thinking about national security as they're making choices." - Heather Jo Richman

Callye Keen - Kform
https://kform.com/ 

Heather Richman - Defense Investor Network
https://www.linkedin.com/in/heatherjrichman/

Transcript

Heather Jo Richman: 0:00

You've got bond companies raising $450 million and around these days it's almost a possibility to say no, thank you. I don't want your $100 million. Check it. Really ridiculously good terms.

Callye Keen: 0:09

Welcome to the startup defense Today I have Heather Richmond. Heather, you have worn many hats so I recognize you from BMNT, but you have some really exciting other things that you've been quietly working on, so I'd love to get into that. Can you tell the audience who you are, what's your background and what you're really passionate about right now?

Heather Jo Richman: 0:31

Kelly, thank you for having me. But you're creating here, I think, is a really important platform for folks like myself who are doing things a little bit out of the spotlight, which is how we like it sometimes, but doing things that are important for our country and building, I'll say, ecosystems that are not traditional, so non-traditional ecosystems outside of government and outside of the Defense Department of Mission Aligned People Touch on that a little bit later, but thank you for having me. I'm a mom, first of all. I've got two daughters who are almost 12 and almost 15. That kind of started my career as an appropriator in Washington DC. I was there for about five years working for Senator Schumer from New York. That spanned from 1999 to 2004, and the middle of that was 9-11.

Heather Jo Richman: 1:06

And so I think a lot of people who are listening or who might be interested in this area of work is where does mission focus come from? Where do you get that passion to do something that matters to you and may be matters to your country? That's where it came from for me, and I think you know, I hear the story quite a bit of people in my generation that were in their 20s and 9-11 happened. That's where it comes from for me? I wake up every day thinking about it. I'm a fair, energetic and happy person, but I think every day about the security of our country, the safety of our country, the safety of my daughters in our country and what their future is going to look like. And so that's where it comes from. And once you kind of have that and you find something, you know whether you're an entrepreneur and you find you know a technology or capability that you know needs to be successful you work your fingers off. You work day and night to make sure that that happens In the world that we work in. I know that you've had my boss, pete Newell, on before and he's one of those people that works day and night and that you don't get exhausted doing it. It's kind of amazing and you meet other people who are like-minded and they give you more energy and more purpose.

Heather Jo Richman: 2:00

I was, like I said, I was in DC, came back out to California, where I'm from. I'm from Southern California. I've spent a lot of time up here in Northern California, but I live right here on St Louis Road, and so I'm right in the middle of this place called Silicon Valley. I like to take it a step further and you know, I think the innovation community, the Silicon Valley, actually then incorporates also lots of innovative places here in the country where private capital is being put to use to support entrepreneurs. But I'll call it for what it's worth Silicon Valley, because that's exactly where I live and got back here and was actually running government relations for Stanford for a number of years, but I had this you know stanfordedu email account, and so I started pinging venture investors and find out what makes investors tick, what makes people who work in private capital wake up every day and do what they do and passionate about what they do, and I learned quite a bit how they diligence and how they look for new opportunities and how I've come to see them as kind of the eyes and ears of innovation and of industry.

Heather Jo Richman: 2:47

And so something that I talk about and we can touch on later is we are kind of been this tipping point in the last five, six, seven years about, you know, more commercial side capabilities being used inside the government, but specifically the military, and how do we find, you know, world-class talent, and then how, frankly, do we convince them to, you know, to maybe take a bit of a different path and to think about national security as they're building their company. And I know I'm going all over the place right now. But there's this concept called dual use. Right, you've got the commercial side and potentially the government and military side. What does that look like? And we can get into a little bit more about that. But I think this idea of building a dual use company even though you might be commercially facing first, you might, you know, put it on the commercial sector, figure out if it works, figure out if it integrates, figure out if it's going to be successful and at that point then potentially go a government route but the way you might build a dual use company from day one might look a little different than if you're building a commercially facing company that then later decides oh, we should be dual use, having some of that intelligence around company building, taking out some of the guesswork, but also a lot of what I do and what. One of the reasons I'm really excited that you started this podcast is honestly just educating each other about the private sector and the commercial sector and then the government sector.

Heather Jo Richman: 4:00

I spend a lot of time translating, whether it's acronyms or even just timelines. You know what you can expect and what investors expect, what entrepreneurs expect and how. We've run into a lot of challenges. I think we've got we use the term Valley of Death right. There's more than one. You know the way an entrepreneur might see that. First Valley of Death is first money into revenue. That's a Valley of Death when you get your first dollars of investment in until you're, until you have revenue. That's a very different Valley of Death than what the Department of Defense talks about. And so I think sometimes just translating that but also educating, and I think one thing that BM&T does very, very well is build upon trust or relationships inside the DOD to help translate what industry is actually dealing with and, frankly, which direction industry is going.

Callye Keen: 4:43

I'm going to pull a couple of great points out of this. One you're the geographic equivalent of what this podcast is about is Silicon Valley. So all of you know our friends in San Jose up to San Francisco and in Fremont and all that and then combining DC. I'm in DC, you're in California. There's no industry that has more acronyms and jargon than DOD. Second, and maybe a close second, is manufacturing and startup world has its own whole vocabulary, not just acronyms, just whole own way of speaking and thinking about things. So a translator is absolutely required and it's great to see people that have venture experience and have DOD experience go out there and say I want to connect these dots together.

Callye Keen: 5:29

The dual use premise I am very passionate about because this is something that I've personally experienced is that when we're going and providing innovation to a group, I noticed that a lot of the other people that we might be competing with or that are operating in the space, they don't actually have product. They have capabilities, which is a different avenue. But as I've worked more with startups, I realized that they don't know anything about the DOD space at all and I could reach out to them and say you have a proven commercial product. It works and I can day zero, bring that right to DOD and say, guys, we don't need to reinvent a radio, we don't need to reinvent this type of encryption, we don't need to reinvent all of these things that you're trying to do. Drones, perfect example. You go on and on sensor systems, everything that's really, really important. It needs upgrading and translating and it definitely needs transformational change and secure supply chain.

Callye Keen: 6:29

And then there's lots of other problems. I'm not saying, hey, this is a one two knockout punch, so simple. But I see a lot of unnecessary invention happening on the DOD side, so very expensive, getting suboptimal products. And then I see a lot of startups on the other side really struggling because of that first revenue in that money and connecting with customers and say, hey, I can take you to a demo and put your MVP product in front of somebody and they're going to fund you right away because what you have is asymmetrically better than anything else in the market. But for a commercial product it's not finished. It's a really fun conversation about dual use. I don't think people really understand the massive chasm of a value gap that there is potentially for innovators. That's why I launched the show, because this is my two big passionate things. I wanna know more about the investor network and really what you've seen, these opportunities bringing dual use companies into DoD and what that looks like from an investor perspective.

Heather Jo Richman: 7:30

I've been taking notes because I wanna circle back on a couple other things too after I talk about the defense investor network. On the entrepreneurial side, or the innovation side, there's a lot of translation between the venture community. What is venture capital? What is private equity? What does private capital mean? What is trusted private capital? What is nefarious capital? All these things that go back to a different vocabulary. You get somebody from the DoD speaking to a venture investor. You're speaking entirely different languages and I've sat in rooms with very accomplished and very successful venture investors and we'll say a three or four star and they're almost embarrassed to speak to one another because there's so much misunderstanding. And that's gotten significantly better.

Heather Jo Richman: 8:09

2018 is when, I think, people started to really have this conversation and it's been amazing to watch, actually, but there was definitely a period of time there where out here in Silicon Valley, everyone's very heads down. You're going as fast as you can. What's your unfair advantage? First, to market all of these sorts of things and you kind of let the market decide who are the winners and who aren't the winners, and then DoD is really changing, I think, holistically. You know, we have a new face of war all of a sudden, and so we you were talking about products and I promise you I'll get to the investors. You were talking about product but for the first time, we were putting blank as a service in front of the DoD, or really I'll say in 2015,.

Heather Jo Richman: 8:43

Cyber, obviously, cyber, ai, these things that you can't necessarily touch and feel with it, are being used as weapons, frankly, against us already, right. And so I remember I'll tell you a quick story we had General Nakasone, the former head of cyber commands, come out and I had this feeling and he brought, you know, members of his team out and they were looking at how are we going to start attacking this problem that is cyber? And you know, for the really the first time you've got a problem that is constantly emollent, constantly changing. It's a dynamic problem. You don't buy a piece of hardware and shoot it. It may not be a better battery, I mean, all those things are very important too, but it was these things that were almost impossible, obviously, to see. But you can see the consequences of it if we weren't doing anything about it.

Heather Jo Richman: 9:24

And his team came out and I kind of had this vision of it, felt like they were standing on the edge of a swimming pool and they so desperately wanted to jump in, but they didn't have a game plan yet. It was such a dynamic and all-encompassing problem and, after having spoken to you, know so many. You know cyber investors and cyber entrepreneurs out here. It was this idea like you just got to jump in, you just got to start dog-hidling and then you're going to build a plane. As you're flying it, you're going to learn how to swim while you're in the pool and you know that's how a lot of things happen.

Heather Jo Richman: 9:51

Out here is people say you know you can't be afraid to fail and that's a term that doesn't always go over so well with the Department of Defense, because you know, when you're talking about failing, you're talking about national security, talking about lives, of life. Sometimes you know you're putting real people in harm's way. So even that little phrase, you know, don't be afraid to fail. I said how about don't be afraid to throw a bunch of stuff against the wall?

Callye Keen: 10:11

Don't be afraid to pilot or POC an idea.

Heather Jo Richman: 10:15

And then to start iterating and to start pivoting and to be is there a reason for failure? You're learning what works and what doesn't. You know. Is that failure? No, not, if you're learning from it. How do we rely on that to just say you know, let's go. And so one of the things that we have even started to realize was you can't have, you know, a three or four person cyber startup present to the head of cyber command and expect that in four weeks the company is going to be mature enough to work with them, or then in four weeks, cyber command is going to be a position I'm just picking on cyber command right now to have a contract back to, kind of the translation piece. How do we just start the conversation and get folks on the DOD side and we can talk about classification in a minute, because it's a big, big barrier. But how do we get folks able to have a conversation or a series of conversations with world-class talent and maybe it's a team that hasn't yet become a company, maybe it is a full-sludge company? In this case, I said what if we put the CISO of Visa in front of them to say how does Visa do this? Because when cyber first started to be what cyber is now. Financial services were the first place they were targeting, and so if you look at who has the best defenses against cyber, it's financial services, and so why isn't our military speaking to all the CISOs and chief cyber officers of all the financial services companies? It makes a ton of sense. And so I said let's just bring Ajit in here and just have the coolest conversation. And there was no pretense, no egos, it was just like you could ask every dumb question that you wanted to ask, and I think providing analysis is sound, very touchy-feely, but sometimes providing those safe places to have conversations where you might feel a little bit embarrassed. As industries moving along with cyber, the sophistication there has got rocketed, but just watching that initial conversation was incredible and the way they completely rethought then how they're going to go after a cyber strategy.

Heather Jo Richman: 12:01

And you mentioned you might have a product or a capability Typically. I mean, why do we have brands? Typically, it takes 20 different solutions, 20 different products, 15 different different capabilities to bring together, to actually create a solution and then to get even more fun. These days, those solutions are then ever changing and dynamic and ever evolving, so you don't get to just glue it together, the hot glue then anymore and say here's your solution Next week is probably obsolete. And I think back to some of the timeline things that we are running into. We're out here watching anywhere innovations going on. It was a DOD A lot of times. A solution will be proposed, no-transcript. And so how do we truly get these two worlds so the commercial sector, world class town and private capital? All events are on patient capital, we can get to that in a minute.

Heather Jo Richman: 12:47

And our Department of Defense and our tip of the spear operators in a world where they can regularly communicate, and so quickly. I mean, you know when we've got RFPs or we've got, you know, different solicitations out there or CSO through DIU. See, here I go, by the time we get the RFP out there and then by the time companies are start a lot to start applying for that. There are many rules still in place where you can't even speak to the team. You know, and out here, you know, investors do. They speak to the team for six months, for 12 months. They try to figure. You know they're investing in the team. You know it used to be. You know how do you invest in a company. Is it technology. Is it team, is it location? It used to be team, team, team location and then, with COVID, it's grapple location and it's just you're investing in the people and especially now, with all the problems national problems that we're looking at, that are so dynamic you're betting on, is this the team that can help us continue to change the way that we are thinking about a solution to this massive problem? I think another to be important.

Heather Jo Richman: 13:40

I think that we've seen in the investor community there was a long time that investors really didn't want their companies entertaining the idea of working with government or defense. It just it took too long, there was no transparency. Frankly, we have all these classification challenges and we can talk more about that. That's a big, big challenge. Also, you know, another thing I think that we don't talk about actually is that the government is turnover, because out here, you know, you build very trusted relationships between entrepreneurs and investors and when investor puts money into a company, it's like a marriage. It really is. You are working together constantly and you've got one variety of resources and one usually providing the technology and then the talent, and so that has to be a trusted relationship. And so I think, when the external, when the commercial sector and the investor community start to build relationships with folks inside the government and inside the defense department and then three years later that person's gone. Or two years later that person's gone. It feels like you're starting from scratch. A lot of times.

Heather Jo Richman: 14:29

Companies, just as we say, just don't have time for that, and so how do we create somehow folks on the inside that can stay enrolled? I know it's very challenging. I've, you know, I've I've been speaking to a two star over at SAF-AQ and he chose not to get promoted because he wanted to stay in the job he was in, because he was really making severe attraction, like in a very positive way, with the investment community and as they were launching, you know, putting together Space Force, and he's like if I leave right now, you know somebody else is going to come in. Who knows if they're going to continue my programs, continue the things that I'm looking to change to help these two communities work together, or if they're going to come in with their own ideas and start out as a big challenge that we're facing. I'll say the last thing and then I promise I'll let you ask another question. But classification is a really big issue and the ability to have. I'm not even going to say top secret, I'm just saying you know conversations that might be a little bit more sensitive.

Heather Jo Richman: 15:16

We started looking at kind of trusted capital and how do we look at? It was really about 2018. It was about $22 billion in Chinese money that came into, we'll say, silicon Valley just along. 2019 was one of the years of the most capital coming into the valley, but then 2019, it was a big wall. People started to say wait a second, what's going on here? There's IP being stolen. The idea of a trusted capital marketplace was born and the idea of how do we know who's trusted and where their dollars are coming from, who their LPs are. The Defense Investor Network was born out of an idea of not building out an opaque government website to do that sort of work, but actually building a network of investors that could trust each other, and then we can bring folks from inside the military and inside the government to talk to this group of trusted investors to say these are the sorts of things that we need.

Callye Keen: 16:01

Yeah, you're absolutely right. I was going to ask you about adversarial capital because for people that are listening, the average startup or entrepreneur doesn't really understand how big of a deal this has been in the past is that a lot of VCs were unwilling to fund defense of any kind because a good portion of the capital coming in from places that we would now deem as adversarial capital, they're not going to invest in Palantir or Shield or Andrell or any of the now defense dardlings that have millions or hundreds of millions of investment in, because they wanted certain relationships with existing capital partners. That conversation has shifted but it's not really something that people think about. They would make an appeal to a moral argument we don't want to be involved with defense or the warfighter, which I think is the flimsy argument. I could give you a million reasons why innovation into defense is an existential requirement and it's really the lifeblood of our economy in a lot of ways.

Callye Keen: 17:12

Nathan Mence was on from Spartan radar and previously Epirus. He was saying with Epirus he went to Joe Lonsdale and Joe said I want you to start this startup. Here's $3 million. Call your job, quit. You're going to do Epirus Because they had this relationship and the capital was there and the mission was there and all those pieces and those relationships with that situation is very special, but really shouldn't be as special as it was at that time, because the needs are there, the opportunities are there and the smart people are there. Honestly, yeah, adversarial capital versus now trusted capital is a conversation that all the startups should be thinking about.

Callye Keen: 17:54

Who is investing in your company? Is it smart money? Is it smart money If I'm thinking about a dual use startup? There's a lot more conversations to unpack now. In the last three years were, quite honestly, hardware defense stars, which is what I do. That's the hot thing. That's what everybody wants to invest in. Now I feel like I have exited a hall of mirrors and I can see the light for once in the last 10, 15 years. Great conversation to have and certainly you're the right person to have this conversation with.

Heather Jo Richman: 18:25

When you talk about the startups are looking for now, cleaner money, and I feel like we put so much of the onus on the startups and I think it's a little unfair. I think we need to put more of the onus on the investors and being upfront about where their money's coming from. Frankly, like you said, making some of those choices, where are they going to take their dollars from and what does that mean? Then, being slightly more transparent in a still litigious way? I spoke recently to AFRL has a quantum portfolio and they said we are getting term sheets for $100 million from an investor that looks nefarious. We're all working as fast as we can and the amount of money that they need is massive. You've got bond companies raising $450 million and around these days, it's almost a possibility to say no, thank you, I don't want your $100 million check at really ridiculously good terms. We know what's going on there, I think, studying some light on it, but then creating ecosystems of vetted investors.

Heather Jo Richman: 19:15

This whole thing started as we were looking to go left of SIFIUS. Let's make SIFIUS stronger, better, great, but why don't we go left of SIFIUS? Why don't we make it so that these companies aren't going to get stuck in SIFIUS, because if you are a startup of a certain size and you get put through SIFIUS review, you can die. That's not an exaggeration. How do we keep all of that from happening? I know that there are a number of folks that I know and trust that have left government and are now doing certain work to help vetted investors, vetted companies. You might have a VP of engineering that is stealing all your stuff. Do we know who's actually running the companies and where they're getting their intel from? There's a lot of it going on. I don't think it's as difficult as we've made it, but we can't just pretend it doesn't exist anymore and turn our head the other way. I think this is the time is now to have a conversation, and part of the investor network is educating each other about where are some good deals.

Heather Jo Richman: 20:04

If you've put some early stage dollars into something that there's national security relevance, there's national security critical, there's just stuff that we need, how do we then bring a network together so that, if you've done a seed stage or a series A for a company and they're then raising other money, how do you know that you're introducing them to folks that do have to save money and that you can work together and Eric can only site some of the national security goals that are really important. That's a lot of it. We joke and they call it Fight Club. There's no newsletter or website. We have a sponsor. I make no money from it. Bmg doesn't make any money from it. It really is just a convening force, a place to come together and actually talk about what are some national security needs. How do we deal with vetting? Frankly, I'll be really honest.

Heather Jo Richman: 20:43

Another piece of it, too, is speaking in market terms. When you've got private investors, what's the size of your market? How large is your market? Is this an investment that we want to make? Is this a large enough market? And what percentage of that can you take over? Basically, our military doesn't speak in market terms, yet it's half our federal budget. So instead of hey, there's a $15 million opportunity for this company, what if we could figure out a way to go across the entire DoD and IC apparatus, if not even the entire federal government? And then let's not even talk about ally governments, international governments what is the true market size for some of these capabilities? And I think if we can start teaching our government and other governments to speak in market terms like that, we're gonna get a lot of a lot of a lot of bleeding edge. Folks who are a lot of investors A lot more cited back to the concept of timeline pay.

Heather Jo Richman: 21:29

Capital is getting more patient. We're seeing that happening. There are traditional venture funds where you're deploying capital the first five years. By your seven, you're expecting some sort of return. I'm seeing funds now that are fifteen and twenty year funds that are in a pretty good out there. You're talking about hardware. That's just hard is a reason to learn where. But even you know quantum is some of these capabilities that are literally change where we live right and and we can get in hypersonics, weapons systems, all you want. You know that some of these things are gonna take a long time manufacturing. You know you started out with that. That's. That's massive.

Heather Jo Richman: 22:01

Talking about conductors, you know let's, how long is that gonna take? I fully believe that there is enough. Clean us patient capital out in our country for people that genuinely want to invest in the safety and security of our country. Speak to them every day and how do we give them opportunities in cream mechanism so that they can put the money their patient capital again isn't philanthropy. These are. These are market opportunities that might take a little bit longer than, say, a quick flash of the pan silicon valley deal. But how do we direct those in the right way? How do we get information to, if not the family or families themselves, to folks that are helping manage? You might have clearances to say. You know these are capabilities that are necessary.

Heather Jo Richman: 22:41

Last thing, and we were talking about you know weapons.

Heather Jo Richman: 22:43

The great is about this is if you look at, the white house has their version of like a fourteen critical tech areas. Dod has their version. There's so much overlap there, but when it's everything you know, when one of those fourteen things is energy, and then what you know, and then one is cyber and then another is a I m, l and these are massive, massive industries. And you know if you are much more comfortable with with batteries or if you're more comfortable with Hydrogen or if you're more comfortable with pumping clean water, like whatever you are comfortable with. And you know, as an investor, it's okay. If you're not comfortable with open systems or weaponizing drones, that's okay. I'm gonna counter drum things that were doing. You know there's a lot of things that we're doing to protect as, in a defensive nature, less offensive nature. It's been amazing to watch this last five years how much more of this is happening. We've also had some economic downturns and the safest industry is the bar. In events you know they were not going anywhere and they typically ramp up during times.

Callye Keen: 23:35

A good example of what you're talking about. I'm gonna pull in something I know that you have experience in this as well. I've worked with department of energy through some of their startup programs solar prize, challenge, what they're doing with american made challenges and with and rel to bring in innovation. And what I tell startups is every problem the commercial market has Do d and I see has that exact same problem, but it's a ten x problem that the tam might not be as big from volume, but the dollar and impact is the same. So We've done a lot in climate justice or energy equity, or from Batteries to aesthetic solar panels, to fieldable power, where the vast majority of the has been directly Something we could translate into d o d with, honestly, with almost no change to the technology at all. But if you're looking for a place to innovate, the government Owns the big problems. You're right, we can pick on us.

Callye Keen: 24:40

Cybercom, they've done a lot better of a job. They released a sheet that said, hey, here's the five areas that were interested in, here's the sub topics. But you read through it you're like, yeah, everybody has these problems. Pretty much. It's just that their problems happen to be existential issues versus, hey, I don't want some Kid encrypt my drives and I can't get my company data. That would be really really bad for my company. Well, that same equivalent is with threat actors in a you know deployable mission. So same problem, but it might have different outcomes. But they're getting better at communicating this and that lets people that are in the commercial sector just working on something normal like zero trust infrastructure, understand like, okay, well, we've got the smart people, can we make a cffc solution with the team that we have? Or is what we're working on like? What is that pathway look like to? You know, solve this specific problem or what's the context of this problem? And then they're solving for context except and Not solving for it doesn't exist for innovation. But yeah, so I've seen this.

Callye Keen: 25:49

Yeah, like you said is a is a great example of this. Is like Building hardware. And then what's the gap between building that hardware for the s will supply chain Mostly, you know having a blue supply chain to run a I m l on something that we knows verified, not an actual listening device, but you know the same thing cyber is this like? How do we vet that? What are the systems of vetting it? And Same thing kind of with with powers like what's the difference? It has to be a rugged, or yeah, there's just this translating effort, but Everything that's available in the commercial world is available in d o d. It's just very interesting to me. I wanna understand from you your experience of this, cuz I know that you've done some work in climate tech as well, and it's always interesting to hear about that yeah, I would love to.

Heather Jo Richman: 26:40

So let's go back a few years. This is a three twelve and I've been doing some work. I said a Stanford and secretary for secretary, the navy rain abyss would come out to the valley. I heard speak at google and he was talking about energy innovation in the d o d and no one was talking about climate or energy innovation. It was this thing that you just you know which I get. It looks Right.

Heather Jo Richman: 27:02

They started with great green plate. They start with biofuels, because if you're shipping in your aircraft carriers, your jets are spewing out, you know, so it's a dirty everything. The rest of it doesn't matter. I mean honestly, like you can put some solar panels on the house, like, if you're, you know, if you've got aircraft carriers burning billions of gallons, you know of crude oil. I mean that's literally what they were Doing and I used to have better day, the top of my head, as far as just the amount of crude oil that was being burns. I started to go over to Hawaii. They were using it over in pay com and they were. They were that's where they were running all these programs. We had some really great, amazing startups here in the valley that we're doing biofuels work, but there was no, no way for them to talk to Big Navy about any of this. I had just had a baby, so I'm schlepping my three months all around. I ended up taking this one specific company out because the state of Hawaii, as part of the Hawaiian Clean Energy Initiative that was a DOE initiative started talking about some grants, some early-stage dollars they had for clean energy companies. It's so much more intertwined than people think. But this was kind of inconvenient truth. The Al Gore movie came out and you say Trillion Dollar Market and I love the adventure. Investors they get really excited about the trillion dollar market but it's hard and it takes a long time.

Heather Jo Richman: 28:16

Back to that patient piece. There's legacy, infrastructure. You need to know utilities. It's not just you don't get to just invest in a storage company and everything's going to be great. Energy is a system, energy is a system and you need generation, you need storage, you need an increase, you need all these transmission, you need all these different pieces. Unless you have all those pieces including the legacy, including the utilities that you have to be working with, it's very challenging.

Heather Jo Richman: 28:42

Pg&e, air, suu, powers, half California, there are a ledger provider and they almost kind of didn't know where to start. They had kind of a test grid over in Santa Ana but we go over to Hawaii and they already had state legislation to get to. Was it 60% renewal by 2030? I get to botching up the numbers a little bit. But Ballpark now they have further legislation to get to 100% renewable.

Heather Jo Richman: 29:05

What does that actually mean? If you went and talked to the utility, they had stopped letting people put solar panels. You put solar panels on your house. This isn't Hawaii where you figure everyone should have solar because it's sunny all the time and they couldn't let people residents connect to the grid because the grid could only withstand about 15% renewable energy before it became destabilized. They said we can't do it anymore. It's worse thinking about like holy cow, there's great green fleet, renewable fuels, that sort of thing.

Heather Jo Richman: 29:32

But Hawaii is a state for a reason. It's pretty strategic. At any point in time. There's about 2.5 days worth of food on it without military surgencies, so you've got food security. You've also got brown apps. I mean constant. If we've got, certain places in Hawaii may have certain specific and sensitive communications devices that we need to communicate globally, how do we make sure that those aren't being affected by brown app, lack of power, that sort of thing. Luckily Connie Lau, the former chairman of HCI, hawaiian Electric Industry she's incredible, very high level, top-gen approach but saying we are a very motivated utility and want to start looking at energy as a system. Use an island much easier to see California, we can buy power from Nevada. If we screw up Hawaii, not so much. How do we start looking at putting investments in all the different pieces of the system that is energy?

Heather Jo Richman: 30:25

I had an amazing opportunity to work with Dom Lippert and Jillsons and the founding team over there in Hawaii. I stayed here, I got to go to Hawaii. I didn't still live in Hawaii. We wanted to make sure there was a bridge built and a sustained bridge back to the investment community here to make sure that, as we are testing out and really like metal in ground, it wasn't these weren't hypotheticals like actually getting stuff in the ground there, taking that data, then running, basically a work program. We didn't intentionally make it look like Incutail, but there's an earlier stage, kind of a phase one. We won't call it that either, but an earlier stage customer discovery, piece of it, small dollars, and then there's actually the demonstration stage, which is again about a million dollars with kind of either a customer or investor match, putting actual capabilities in there, working with startups.

Heather Jo Richman: 31:08

I go back to because you mentioned something about connection and connectivity. What we found was it wasn't just. Here's a nice email, here's the person, the innovation person at the utility and here's a startup. No, it was such massive hand holding and translating it was no, this is what the startup actually needs from you. Big utility Startup. This is what the utility means when they say X and this is what they need you to do. Or maybe everyone gets busy in their own world and somebody's not responding for two weeks. That goes on so much as we're trying to take a commercial sector entity and put it inside of government. There's translation needs, there's misunderstandings, there's tone challenges on emails. Frankly, there's just people get really busy.

Heather Jo Richman: 31:50

Back to an example we had with I'm not going to sell this group out because they came and spoke to the defensive investor network and had about 31 very clearly defined problem statements, which is a dream. That's more than a signaling. This is what we need. This is what keeps us up at night. It was beautifully done, beautifully written. Oh my gosh, so succinct. I'd never seen this list of where do you get this? They said, well, we have a coffee the second Tuesday of the month in Maryland where you get a printed out version of this. I'm like, how's that working out for you?

Heather Jo Richman: 32:20

We said what if we could get these signals, these problem statements, into the hands of people, investors, entrepreneurs? But investors see everything. Something I remind our DOD of if you've got world-class talent with an amazing product or capability, the first place they're going to go to to try to get funding is the investment community. They're going to go ask for money to build out this company. Investors typically see things 18 to 24 months before they're out of, we'll say, stealth mode or they become in a place where they're out in the world and selling product. What if we had that advantage? What if our DOD knew where is the investor community, the private capital community, putting their dollars now? Because where they're putting the dollars now is what's going to be reality in five and ten years. But those conversations weren't happening either. I mean now I think they're storing much more to have it.

Heather Jo Richman: 33:07

I would say this back when, back on the climate energy side, when ARPA-E was being stood up so there's DARPA, and then ARPA-E was the energy version of DARPA. Basically, aruma Jhondar, who's here at Stanford now, was the one that set that up. It did, I think, a tremendous job but at the beginning brought in some venture investors and got reamed for it. But the idea is like you've got these folks that are putting their money where their mouth is and they're looking, but they're seeing what's out there. What are entrepreneurs doing right now? What's you know a lot of? Back to timeline. You know, is this capability ready to be commercialized? Is this capability ready to be inside the Department of Defense?

Heather Jo Richman: 33:43

We had and I'll get, I promise I'll get back to energy in a second but we had a team from Jido come out to the valley a number of years ago and this was probably gosh 2016, maybe early 2017. And they were looking, you know, for AR VR capabilities and gosh. I remember they said kind of their idea was they wanted to go see Oculus. They wanted to, you know, talk to Magically. They wanted to go. And then there were a bunch of other smaller kind of AR VR headset companies and they said we're just going to buy, you know, a bunch of them. And then they wanted to kind of trick out their mindhound which is what they were searching for minds with and kind of trick that out so they wouldn't have to be looking, you know, down in the theater they could be looking up, they could have situational awareness, they could maybe have mapping and figure out where they'd already been. And they had this great idea, these great plans.

Heather Jo Richman: 34:25

And then, you know, the first meeting was actually the head of strategy for Magic Blade. At the time, he'd kind of seen the writing on the wall about where their company was going and they took a lot of money in and will stop there. But he said, if you thought about, most of these companies don't want to be hardware companies, they want to be platform companies and they want to create the content and create the platform. They only are building the hardware so that they have a way to show you their software platform. Give this 12 months, give this 18 months. They're all going to sell their hardware, flextronics. They're going to pick their favorite and then they're going to sell it to the masses.

Heather Jo Richman: 34:55

This was five, six, seven years ago when, if you would have asked anybody in 2023, is everyone going to be walking around with something weird thing on their face for the second time? So Google Glass had already started and not started, but this was kind of the second iteration, like no, this is going to be real and it's still not that real. They were basically saying, just hold up, just wait. And then it was actually the guy for Magic Blade who said and you thought about, how do these platforms actually run? They run on gaming platforms. Who owns those gaming platforms? There's a certain country that owns the two big ones. And then developers do you have developer talent to actually create the sorts of things you're going to need to create specifically for DoD? Do we have that talent? Where is that talent located in the world? And these are just things that they hadn't been thinking about on any level.

Heather Jo Richman: 35:40

I think sometimes we are excited about that. We're excited to come out and to start looking for things, but timing is a really big piece of that. And how is that going to then integrate not only with defense, like assist technologies, but what's happening out in the non defense world? So, getting back very quickly, elemental Accelerator is the program out in Hawaii that has grown beautifully. We actually started with our first cohort back in January 2013. We called the Wolfpack. It was amazing. It was our beta. Amazing group of companies, you know amazing Navy came in and actually put $30 million into the idea of using Hawaii as a test bed for energy innovation and seeing what would stick.

Heather Jo Richman: 36:15

And a gentleman by the name of Rich Carlin is incredible. He bet his reputation on it. He really did. We need that kind of leadership and people who will put their reputation on the line, and we ended up with an incredible accelerator. We're bringing companies out, both Hawaii companies, but also companies from the called the contiguous 48 out the mainland and it also I mean it was incredible to watch what happened there and then they would come back and raise money to figure out the data that they had proven and shown. But to date, I think the number is somewhere about 160 portfolio companies, 30 million. There was another 30 million, I think they got put in. So I think that they ended up with about $60 million of taxpayer dollars, but it's leveraged far over 2 billion in private capital from that initial investment.

Heather Jo Richman: 36:52

And then it's since started something called Moonshap insurance, which is wow, like that's. You know it was the Navy. Money was taking outside. It was set up as a not for profit, just like you can tell, and then originally originally it was going to be kind of a grant program and actually the companies were saying we need you to get in the game, we actually want to give some equity back to this, and so now it's self-sustaining. I mean, which is an incredible way to build a program, whereas, having come from an appropriations world, you'd get the same chin cups coming back every couple of years. Like you know, you gave me $5 million. We spent it. I need five more. What about building a sustainable program in Soviet Shepard? And how do we then use and leverage private capital to do that?

Callye Keen: 37:31

Elemental is a great brand name in the space right. I work with accelerators in climate all over the country and we have people that have been through elementals, so really great program. So it is interesting to see that in your background. It's like, oh, this is a little like another interesting point of connection. And God bless that magic leap guy. Yeah, I think sometimes you just need that engineer to tell you here's what reality is. I do a fair amount of tech scouting and sometimes I get to be the evangelist, but oftentimes I'm more like the person warning you hey, there's the roads out ahead.

Callye Keen: 38:10

You know, like that way you're describing that is the way it's described in Wired Magazine, not in our cohort or in our company, like I would love to build this thing like that. But, to your example, nvidia has put in billions of dollars to build out that ecosystem. So what they were talking about in that situation is like, possibly available now, but there's literally billions and billions, like tens of billions of dollars worth of development that have happened in the last four or five years to create the infrastructure you know, right down to the chips, right down to the data centers, but also all the software platforms and how everything works together just to make applications like that, even proof of concept, feasible. Very good example that I wish. I wish we could get you, get dream fulfillment, but other, before we go, can you give word of advice to ventures or startups that are like, wow, this all sounds great. How do I get started? How do I find these great problems and engage with these amazing organizations?

Heather Jo Richman: 39:15

Before I do that, I promise I will not gonna give a lot of information, so it depends out. But really quickly, when you turn, when you get you know people are I spent a lot of time with the party investor pretty, and the investor network are. You have the venture arms of primes and I think there's a lot of misunderstanding about the role of primes. I think they get, but I think you know they're trying to change. They are a necessary part of our duty system. Again, I joking they call the din fight club, but we've had some fights.

Heather Jo Richman: 39:43

Some conversations are hard to have because you know it was a. It was somebody who is running a multi family office who has very little experience on the side, who started kind of blaming the primes for everything. And then what are the investors from? The prime? You know very politely came back with hey, you know like where. You know they're also a massive aircraft carrier that has to change direction and how does that? You know what does that look like. And so when I hear about you know companies like invidia and what they're doing, I think there's a new face of primes. You know they're building new primes and what does that look like? And how do we Talk about that? Educate folks like that I think they're, you know is, as you know, I hear that and those you know, acquiring another company. That's a way, that's an exit for you know a deal user defense minded start up, and so there haven't been exits like that possible. Like you know, the do's not gonna buy a bunch of companies. They shouldn't do that. How are we reviving or recreating, you know, the role of primes and what they need to look like as the face of work is changing? How do you get in the door? There's so many great portals all call them so. The defense innovation unit is based here At moffat, here in mountain view, california, and so do you. They created I'm gonna get this acronym is cso. I always forget exactly what it stands for a commercial service offering I know that's not right Basically a very rapid contracting vehicles. The way they work is they've got there kind of Repping on behalf of a customer inside the d? O d r I c who has a need, who can come out with it in lambs charms on their website d I? U dot mail, I believe it is and then you can kind of sign up to get their announcements.

Heather Jo Richman: 41:10

Afwarks has done an incredible job the air forces put together and of their innovation arm. Before when you were talking about I called signaling and just staying. These are some problems that were facing. And so when they were starting something called agility prime, which is even calls right so electric vehicle, take off the list flying cars, flying taxis and they realize that giving a one point seven million dollars silver Two company trying to build a flying taxi not so important up and even just the reporting, was gonna be too much. But but just be able to talk, you communicate, like hey, these are ten companies that we are watching and Bring you there in kind, things they can do, like airspace to test right there, things that when you have a trust relationship between some of these worlds, can do some really cool things very quickly. And so after sit and has an amazing job getting Sivers a, getting early dollars to companies quickly to then, and part of their process is then to teach you then how to work with d o d a.

Heather Jo Richman: 42:00

No, ink, you tell is is external but and technically it's the investment arm of the c I a. But they also work with a number of other services and entities and they can actually put dollars in his part of work where you're actually doing a project is not hypothetical. You're putting things to work and you're testing out. Is this something that's needed? They've had a tremendous track record. I believe in the custom. Great folks here in pal also again in dc naval acts is doing incredible things for the navy they bet tech bridges now. So you just type in tech bridges are, you know, scattered over the country, really amazingly qualified people running those and who want to jump in and want to start building relationships with folks and check bridge open up in london and were Elbowing Australia constantly to ask us for one so that we can go office wide looking at that.

Heather Jo Richman: 42:42

But you know, then I, you, the new marine innovation unit that just launched any of these. You know we can get Contact information but they're all active on linkedin and, frankly, the d I? U folks over there can help you out. I'm also happy to help folks out if need be. That's just a smattering.

Heather Jo Richman: 42:56

There's more than that. I'm sure I'm missing a bunch. We have this new Office of strategic capital that set the sd level office of the secretary of fence. I'm just looking at really changing, working closely with the sba and looking at the way changing the way that we might be able to get different sorts of dollars out to get to get matching into leverage private capital. So there's a lot going on. Very exciting there is. You know, the good old fashioned vc folks that I've been just really impressed about. You know how national security is. Again, I'm not, you know, we're not trying to get everyone to change the way they do business, but you know, when you and I wake up every morning, I see the world to a national security lens and I'd like for people to be thinking about national security is there making I hope everybody was taking notes there.

Callye Keen: 43:33

Really great information and, yeah, even vcs now more and more our way to get into the defense market because there's so many people changing their investment thesis. Heather, I feel like we could talk for hours about this and go very deep about a lot of those conversations, but I really appreciate your time. Thank you so much for being on the start of the fence.

Heather Jo Richman: 43:54

Does my pleasure. And, like I said, if you, if you want to go deep, even in the short segment on specific, I'm always gay thank you.