Interview: Katherine Boyle, venture capitalist
Some thoughts from the pioneer of a16z's American Dynamism strategy
In recent months, a number of people have come out with manifestos declaring that America needs to refocus on building more stuff and creating abundance. Most of those manifestos came from people at think tanks or in the media, but a couple came out of the venture capital firm Andreessen Horowitz. There was Marc Andreessen’s famous “It’s Time to Build” essay in April 2020. Marc put his money where his mouth was, funding a new investment practice called “American Dynamism”, investing in “founders and companies that support the national interest, including but not limited to aerospace, defense, public safety, education, housing, supply chain, industrials and manufacturing”.
Heading that effort were General Partners Katherine Boyle and David Ulevitch. Boyle wrote a manifesto for the strategy back in January, declaring: “We believe technology is the font of this reversal [of pessimism], and the only immediate way to kickstart American renewal is through startups building for critical problems.” In April, Boyle followed that up with a very well-read essay over at Bari Weiss’ Substack, called “The Case for American Seriousness”, in which she called on the American “builder class” to build more:
Build housing for the middle class. Build schools for the kids who want to learn math. Build next-generation defense capabilities with young people who grew up coding. Build PCR tests so that a nasal swab stops the nation from closing businesses at the mere sight of Covid case increases. Build trade schools. Encourage men and women to work with their hands again. Cut the red tape that stops us from building infrastructure fast. Build factories in America. Build resiliency in the supply chain. Build work cultures that support mothers and fathers so they can have more children.
In this email interview, I talked with Katherine about the American Dynamism investing idea, defense spending, U.S. manufacturing capacity, and her idea of what it means for a country to “get serious”. And more. Enjoy!
N.S.: So you're working on a concept at a16z called "American Dynamism", right? You wrote a very bold manifesto about it back in January, which I included in my roundup of "new industrialists". The idea is to apply venture capital to problems involving infrastructure, governance, military tech, and other problems traditionally left to the public sector, right?
K.B.: Yes, we recently launched the American Dynamism practice at Andreessen Horowitz, which we define as companies that support the national interest, a broad definition that includes classical government sectors such as aerospace, defense and public safety, in addition to categories that touch all Americans including housing, education, transportation and manufacturing. Many of these companies either sell to government, compete with government or are instrumental in helping government meet its goals because they touch everyone in America. And the interesting thing we realized about these technology companies is that they have a different trajectory than many venture-backed companies and are often much harder to build in the early days than say, a traditional consumer or SaaS company. But these founders are often so mission-driven and determined (take Elon Musk as the canonical example) that they attract extraordinary talent and grow to be dominant companies in their sectors. And we’re seeing more and more founders who want to tackle these complex sectors—it’s truly a founder-driven movement.
But I have to quibble with part of the question, because we never use the word “governance” and that’s very intentional. “Governance,” is part of ESG (Environment, Social, Governance), a term that was first used in 2005 by the UN at a conference with a bunch of banks to encourage investors to use their impact framework when making decisions. If you ask 10 people what ESG means, you’ll get 10 different answers and measurements. Even the inclusion of the word “Social” is funny because social in the world of technology refers to a real category of companies that emerged at the exact same time “ESG” was coined by the UN Compact. The problem with ESG is that it’s a top-down strategy from the UN, not a real movement built by founders.
Similarly, American Dynamism isn’t impact investing—the history of those practices is to allow for investment in companies that have different return thresholds and therefore need a different pool of investors or capital. American Dynamism companies, however, become very strong businesses that endure for decades after founding once they get through hard technical builds. SpaceX, for example, is a hard business to build in the early days but now one of the most valuable private venture-backed companies on the planet. When these physical companies hit escape velocity, they compound in a way that make them endure much longer.
We very much believe that if we’re doing our jobs right, every venture firm will have an American Dynamism practice, in the same way that no venture firm ignores crypto, games or SaaS today.
N.S.: Got it. That's an important clarification. What's interesting is that you see American Dynamism as something that's in the national interest, but taking a different view of the national interest than the people coming up with concepts like ESG. That naturally leads to the question of: What do you see as America's most pressing needs right now? What are some of our biggest "pain points" as a nation in 2022?
K.B.: The crux of this thesis is the realization that our most talented technologists typically don’t work within government– and as commercial tech has benefitted from venture capital and the rapid pace of innovation over the last 30 years, government has lagged. If we’re going to see improvements in the core functions of government, technology companies are going to have to help.
There are so many “pain points” where software can help government, but there’s not a uniform solution. There are areas where government has outsourced the technological build to the private sector since WWII, such as aerospace and defense, but the systems of technology procurement were built for battleships and tanks, not software. The DOD is perhaps the most forward thinking part of the government and is very aware of the need to modernize and acquire software, but there are still strong incentives to keep working with prime defense contractors, the most dominant of which were founded a century ago. Then there’s other areas of government that don’t have codified legacy incumbents, like public safety, where the software revolution hasn’t yet transformed the sector but is starting to make real dents. You see companies like Flock Safety (an a16z portfolio company) that were only possible because of a decade of venture investments in cheap cameras powered by solar and batteries; now cities across the country that are facing police officer shortages are working with a tech company based in Atlanta to minimize vehicular-borne crimes.
These are only a few examples but you could go through every executive department in DC– Housing, Education, Transportation, etc– and make the case that software companies in the private sector can vastly improve the output of government, either working directly with the government or indirectly. We’re equally excited about those companies that don’t have to sell to government in supply chain and or manufacturing where software solutions can solve payment issues or improve production. But the cool thing about these companies is that the founders see themselves helping their communities– and most of them aren’t coming from Silicon Valley.
N.S.: That's really interesting. In terms of defense contracting, I've suggested that the way to reduce both waste (like the F-35 cost overruns), expensive boondoggles (like the Littoral Combat Ship), and dependence on legacy platforms is to introduce more competition to the space -- to not just dump huge contracts into the lap of Raytheon and Lockheed Martin. Do you share that philosophy, and could the American Dynamism fund and other similar funds get that ball rolling?
Ooof, how much time do we have? I’m in complete agreement that competition is essential to reducing waste and shoring up next generation defense capabilities, but there’s not a lack of competition on the startup side. In fact, Silicon Valley venture firms have invested billions in defense tech startups over the last year. The real problem is that there’s no incentive for procurement officers to work with startups over the Primes—and this message comes not only from the internal bureaucracy of the DOD but also from Congress, the appropriators who have the real say on this.
To give a little more color to the technology crisis in our military—and I’ll go so far as to call it a crisis, as outlined in this fantastic book The Kill Chain by Chris Brose—we have to discuss the consolidation of the defense industrial base over the last 30 years. Beginning in the 1990s after the fall of the Berlin Wall, we saw extreme consolidation due to fear of defense budget cuts, something like half of companies merging or dying by 1996. According to one report, an additional 17,000 companies left or were acquired from 2001 to 2015. This wouldn’t be extremely problematic if the defense primes were good at buying or integrating venture-backed companies with real capabilities. But there’s hardly any investment in R&D from the Primes, and there’s heavy incentive for those companies to buy companies with contracts versus tech companies with real tech capabilities. Worth noting that there was little FTC oversight on any of these mergers because the government erroneously believed consolidation would be a cost-saving measure. Of course, we all know defense budgets ballooned and created a de facto oligopoly that is crushing the DOD’s ability to acquire real software capabilities that come from startups—the method of company building that has built every major consumer tech company of the last 30 years.
So how do we fix this tech deficit? The good thing is the DOD is aware of this crisis, but there’s no culture of betting on innovation in any meaningful way inside the government. DOD leadership likes to say “We’ve invested in 2500 tech companies through SBIR (small business innovation grants)” and my response is always “I can’t think of 25 companies I see scaling to be category defining defense companies, let alone 2500.” The DOD is like a spray and pray seed fund, giving little door prizes to every company that comes across its desk. So the real issue is that the DOD is going to have to pick some big winners from the tech side and allocate capital to them as production contracts and programs of record, not R&D dollars or small business grants.
But I also need to point out that I spend a lot of time with procurement officers who make the day in and day out decisions, and they’re more frustrated than everyone. They know what the warfighter needs and their hands are often tied. They don’t get promoted for working with startups. There’s no culture of championing something new. My fear is that if we don’t see real production contracts and programs of record going to next-generation defense startups in the next 18 months, private capital—and more importantly, the best software talent— is going to go elsewhere.
N.S.: Got it. And from what we've seen in Ukraine, that's kind of a worrying scenario -- war is changing fast, and it seems clear that we need to stay on top of things. In WW2 we actually started building radar, heavy bombers, and even the nuclear bomb before we got into the war -- in some cases, several years before the war even started. If the Ukraine war and tensions over Taiwan are really the start of a new era of conflict, it seems to me we can't afford to be caught without without the next-generation tech in the pipeline.
So what's the political solution here? Do VCs as a class get together and lobby Congress to change how procurement works?
K.B.: Lobbying is a very specific word because it means we’re pushing for a change in policy. We aren’t doing that– we want to help educate and demystify the venture ecosystem so government leadership knows how tech companies are built. One of the things the DOD realized a few years ago is that very few people in government, and the DOD broadly, have business experience that looks anything like what venture-backed business building looks like. And now there are a ton of initiatives– on the private and public sector side– to expose procurement officers and DOD leadership to tech. It’s been very successful and it’s another example of the positive initiatives that have happened over the last few years.
But on specific policies, the major thing founders have been vocal about is that you don’t really have to change the procurement laws or “burn it all down” to fix the problem. There are ways to allocate production contracts and programs to earlier-stage startups– in fact, the DOD is required to give preference to commercial technology! The big problem–and this has been changing– is culture. Every founder knows that culture is the hardest thing to change in a company or an organization. So if it were as simple as “let’s pass a law that ensures we choose the best technology to compete against Russia and China,” we wouldn’t fix the underlying problem. We need a cultural shift in government.
N.S.: Gotcha. OK, here's another thing I wanted to ask you about. The American Dynamism fund invests in industrials and manufacturing. Why has it been so hard for the U.S. to be competitive in manufacturing industries over the last two decades or so?
K.B.: There are many compounding and highly-debated factors related to policy, as you’ve written about. I’ll let your readers look at the important work you’ve done explaining that here and here. But I’ll point out two factors that I think are somewhat under-discussed and within our control, that I’m hopeful my pocket of the universe can help solve. For the last 30 years, we’ve been sold a government-subsidized middle-class dream—on both sides of the aisle by well-meaning people—that your worth in American society was predicated on taking on seemingly cheap government debt to get a four-year college degree. College was the universal marker of status and the people who would have gone into machining or manufacturing jobs were implicitly told that a sociology degree from Middle-State U. was the answer to all their problems. This was wrong. This meme—and we should call it what it was, which is a government-sponsored meme—led to the decades-long labor shortage in manufacturing and adjacent industries that is also now permeating our physical world. Then you add the other parts of this equation—private equity and “cost saving measures” whereby value is created from consolidation and layoffs. Add in a technology sector that was busy building other types of infrastructure and consumer technology and we have ourselves a perfect storm of offshoring, labor shortages, policy shortsightedness, private equity consolidation and a largely absent technology sector. What I hope is happening now is a reversal of these trends whereby we can create physical manufacturing jobs where software is truly the enabling force. Our most recent announced American Dynamism investment is in a company called Hadrian building automated machine shops for the aerospace and defense sectors. The most important part of their thesis is to ensure that high-skilled machine jobs are abundant, high-paying and most importantly, cool. We can’t undersell that tech’s entry into spaces like manufacturing and industrials is not only (in many cases) giving equity to quote unquote blue-collar workers for the first time, but also making these jobs higher paying and higher status. There’s no reason why typing on our laptops should be higher status than machining an aero-grade part in the eyes of government, and a lot of our current policy states that it is.
N.S.: So, just to clarify one point here. I've long argued that manufacturing industries are very important to our economy, but that manufacturing employment isn't going to be the same kind of mass provider of good middle-class jobs that it was in the 20th century. That yes, some people will work in manufacturing, but because the U.S.' strength is fundamentally about technology, our manufacturing advantage would always have to be based on automation. And then basically we'll find other, more labor-intensive industries for mass middle-class employment. Would you broadly agree with that? And if so, is Americans' widespread fear of automation-induced unemployment fundamentally misplaced?
K.B.: There’s two important points here. We strongly believe that bringing automation into manufacturing and other physical industries will create more jobs. Marc Andreessen has spoken at length about how new technologies and any type of “automation” whether the printing press or the automobile, the arc of innovation leads to more job creation and yes, higher-quality jobs. But I think the point of your question is “middle class jobs” and this is a different concern and one that inspired the American Dynamism practice: why is it that we have a more educated population performing jobs that often pay more (even when adjusted for inflation) and many Americans still have a worse quality of life than our parents or grandparents? We believe that one of the main reasons is that the cost of the categories that define the American middle-class dream——housing, education and healthcare—have soared while every category touched by technology and competition has become cheaper. You discuss this at length in your interview with Marc from last year and the AEI chart that depicts the disparity.
On a personal level, I think about this in the story of my own family, which is how most people experience this issue of upward mobility. I grew up down the street from my grandfather, who had an eighth-grade education and drove a truck for a regional carrier in Northern Florida. Trucking has undoubtedly become a much better and more lucrative job for drivers than when he drove a truck, and something like $25 billion venture funding went into the freight and supply chain tech companies in the first three quarters of last year to fund fuel cards, same-day payments, improved carrier technology, loadboard integrators and next-generation brokerages that give more flexibility to drivers. One could argue there’s never been a better time to be a truck driver: there’s more competition for drivers, more enabling services for owner operators, a true long-haul driver shortage that is giving drivers more negotiating power and tools that are getting drivers paid faster, and much, much better entertainment than AM radio. You could see how a Joe Rogan fan or Audible subscriber might view trucking as a far more exciting job than a 9-to-5 at a desk. And YET. These “middle class” salaries—some starting salaries for long-haul truckers are now six figures— are not enough to afford a single-family house with access to decent schools and basic healthcare in much of America.
The sectors that are most regulated and subsidized by government are the only ones where innovation hasn’t driven costs down, and this is in some ways the real focus of where we’re investing. So I agree with your view that these jobs will not look the same even when they come back, but not because of automation in the sector—they look different because the markers of middle class life are only available to the managerial class now, and we must change that.
N.S.: I'd like to talk briefly about a very interesting op-ed you wrote over at Bari Weiss' blog, called "The Case for American Seriousness". You gave a lot of examples of seriousness -- building more housing, less focus on culture wars, fewer failed foreign interventions, etc. -- but admitted that the concept is difficult to encapsulate in its entirety. Would you say that "seriousness" represents a refocusing on growth, national shared purpose, material abundance, and effective international competition? And what would be the two to four biggest policy or cultural shifts you'd suggest in order for America to get serious right now?
K.B.: I’ve never had a harder time defining a word, but it’s clear from the feedback I’ve received that it doesn’t need a true definition. Like Justice Potter Stewart on pornography, everyone knows it when they see it. The simplest definition is that it’s a combination of capability and will that leads to pragmatic problem solving through building things faster, and many of our aging institutions lack the seriousness needed to fix our most dire problems. The biggest criticism I got from the piece, and other times I’ve written about seriousness, is that it doesn’t leave room for frivolity, play or the unseriousness that makes us deeply human. And I empathize with that sentiment, but I don’t think the opposite of seriousness is humor: the opposite of seriousness is irony. And irony is the biggest and most destructive force harming American purpose and will. It is the tone of much of our culture and media class, the internet voice, and the profoundly skeptical academy: that anyone who dares to build or aspire to something noble is naive and foolish, or worse, self-interested. The greatest cultural shift we can push for is a culture that doesn’t celebrate the cynic but celebrates those who dare to build great things, a North Star this country had until a few decades ago. I’ll borrow from David Foster Wallace, because he arguably saw the corrosiveness of an ironic culture before anyone else and is a far better writer than me:
Irony and cynicism were just what the U.S. hypocrisy of the fifties and sixties called for. That’s what made the early postmodernists great artists. The great thing about irony is that it splits things apart, gets up above them so we can see the flaws and hypocrisies and duplicates. The virtuous always triumph? Ward Cleaver is the prototypical fifties father? "Sure." Sarcasm, parody, absurdism and irony are great ways to strip off stuff’s mask and show the unpleasant reality behind it. The problem is that once the rules of art are debunked, and once the unpleasant realities the irony diagnoses are revealed and diagnosed, "then" what do we do? Irony’s useful for debunking illusions, but most of the illusion-debunking in the U.S. has now been done and redone…All we seem to want to do is keep ridiculing the stuff. Postmodern irony and cynicism’s become an end in itself, a measure of hip sophistication and literary savvy. Few artists dare to try to talk about ways of working toward redeeming what’s wrong, because they’ll look sentimental and naive to all the weary ironists. Irony’s gone from liberating to enslaving. There’s some great essay somewhere that has a line about irony being the song of the prisoner who’s come to love his cage. -Conversations with David Foster Wallace, Stephen J. Burn
I try not to focus on policy shifts because I don’t work in policy; I work at a much smaller scale helping talented women and men build small things into big things. But the cultural shift most needed is one where we focus less on the “self” and more on the collective. I’m convinced the culture shifted dramatically around 1973 with the codification of “autonomy of self,” where the individual’s needs were deemed more important than the collective needs of society or the future needs of the country. When I speak of this change in 1973, in particular, many people’s minds go to the other 1973 debate that’s dominating the news cycle today, but I’m most interested in the near-universal praise that Nixon received in 1973 for ending the draft, making the U.S. an all-volunteer military that further stratified the country and changed our definition of public and military service. The change in what was once an equalizing brotherhood of required military service is understudied in my opinion. And if you begin with the idea that much of the language around the rights of the individual came out of this era, you see the emergence of a different culture that prizes the present over the future and the self over the community. So how do we shift a culture back to prioritizing our collective future when these ideas were codified fifty years ago? I think it’s incredibly difficult, but my most optimistic answer has been startups—where every person in the company is a collective owner of a mission, and every day feels like a war against entropy.
N.S.: OK, so let's wrap up with a question about what you and the American Dynamism team are doing over at a16z. What are a couple companies and/or investment themes that you're particularly excited about right now?
K.B.: We recently made an unannounced investment in a company that’s increasing access to alternative K-12 education across the country—and supporting state government’s ability to manage that process. As a mom, I’ve never been more aware of the differences in how children learn and the history of K-12 education. We should take pride that as a country in the 19th century, universal public education lifted generations out of poverty emphasizing literacy as we moved from an agrarian economy to an industrialized one. But this pedagogy and method of operationalizing education was built for the turn of the 20th century, not our current technological age, and the only way we’ll see improvements in universal education is through decentralization away from a dated model. So I’m excited for this trend of government empowering new experiments because covid forced parents to take an interest in the “what” and “how” of primary education, and many parents who never questioned the model are emboldened to do so now.
The other area I’m excited about is digital infrastructure. Universal global access to high-speed Internet is game changing, and I think we’ll look back and see that Starlink is the most important enabling technology of the moment. We haven’t yet seen the impact of the Great Migration post-Covid and how remote work will allow people to work in higher-paying jobs while living in the middle of America. At the beginning of Covid, I wrote a piece called “Can Zoom Save the American Family?” about how remote work might lead us back to multigenerational living, which would allow American families to live in lower-cost areas of the country with a community and family-based focus on childcare. My family left San Francisco for the suburbs of Miami and my own mini-experiment has convinced me that Starlink’s mission to bring satellite internet to the world will have a greater impact on remote work, family life and federalism than probably any other technology today. So I’m generally most excited about Starlink because I see it as the enabling technology for many of the aspects of dynamism we’re exploring.
But to bring it all back to the mission, I’m excited about founders that see building a company as a form of serious public service– to serve the needs of their communities and their country.
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