In this episode, we're joined by Jai Malik, GP of Countdown Capital to discuss how we can rebuild America's industrial base.
Transcript:
William Jarvis 0:05
Hey folks, welcome to narratives. narratives is a podcast exploring the ways in which the world is better than in the past, the ways that is worse in the past towards a better, more definite vision of the future. I'm your host, William Jarvis. And I want to thank you for taking the time out of your day to listen to this episode. I hope you enjoy it. You can find show notes, transcripts and videos at narratives podcast.com.
Will Jarvis 0:41
Well, Jay, how are we doing this morning?
Jai Malik 0:44
Hey, good. How are you? Man? Doing great.
Will Jarvis 0:46
Thanks so much for taking the time to come on the show. I really appreciate it. Do you mind giving a brief bio and some of the big ideas you're interested in?
Jai Malik 0:54
Yes, absolutely. So my name is Trey Malik, the GP and founder of countdown capital countdown, we're investing in founders that are rebuilding the American industrial base at the earliest stages. Generally speaking, we think founders building areas of heavy industry are building companies that are both geopolitically important and more commercially viable than ever before. And the right ones will produce outsized returns for us as investors. So we're usually investing in industries like manufacturing, defense, aerospace, energy, construction, mining, etc. Any industry that can be considered as part of heavy industry, we're taking a look at. And we often invest at the pre incorporation and pre seed stages. So oftentimes, we commit to invest as early as an idea with no company formed yet. So that's high level, who we are and what we're doing account out.
Will Jarvis 1:48
That's great. That's great. And you recently raised a new fund, is that correct?
Jai Malik 1:52
Yes, yes, it was a $15 million fund to pretty excited about that.
Will Jarvis 1:55
Very nice, man. It's congratulations. It's no small task to get these things together. Thank you. Yeah, absolutely. This is really exciting. Well, Jay, what has shifted that has made it easier to start these kinds of hard tech, you know, American diamond, diamond ism companies. You know, capital is actually getting more expensive right now, it was really cheap for a while. But what else has shifted that has made it much more it made it easier to kind of build these kinds of companies over the last kind of decade or so?
Jai Malik 2:24
Well, I'm not really sure if if we can say that hard tech is, you know, is has made, you know, has been easier over the last three to six months versus before that, I think, in general, succeeding and hard tech requires a skill set and a founding team that has a different persona than your average SAS founder in general. And so whether that success is harder or not than before, easier or not than before, is up for debate. But I think it is certainly different. And there's certainly a lot more airtime being given to important issues. And so in that sense, it's if you think eyeballs means something is easier than I guess it is. But in my opinion, I don't really think it has been made easier. It's more of a narrative that has been made easier. Gotcha.
Will Jarvis 3:09
That's great. That's great. With the crisis in Ukraine, with the rise of China, do you think it's gotten easier to make the sale here of, you know, leave your SAS job and come work on these these harder, more difficult problems?
Jai Malik 3:23
100%. And I think there's actually some danger and getting, there is some danger in making these problems seem easier than they are. But without a doubt, 100% it's been easier to convince people post Ukraine than before. Got it?
Will Jarvis 3:41
That's, that's great. That's great. I'm curious, how much does automation play into what you invest in? How bullish Are you on industrial automation over the next kind of 20 years? Do you think we'll see a big wave of this? I'm reminded of EB Hadrian, the big, big kind of machine tooling company. My brother worked in a machine tooling shop for a while. He's a mechanical engineer. And he noted how custom and how, just how difficult automating a lot of what these machine shops do is on a day to day basis. So how bullish Are you on using automation to industrial automation? And where we'll go with that over the next 10 to 20 years?
Jai Malik 4:22
It's a very broad question. I think most people in tech, maybe aren't aware of this. But the fact is that industrial automation is already very pervasive across many manufacturing settings and this large contributor to efficiency already in the US economy, right. So the question is not like, am I bullish on automation? The question is, am I bullish on what kinds of automation? And I think, in general, I do not think pursuing automation just for automation sake, is something that is worth pursuing. Primarily because in a lot of ways, it disenfranchises the kinds of people that we need to be Interested in rebuilding the industrial base. And also because it oftentimes it doesn't actually lead to greater operational efficiency compared to using a, you know, a team of people. And so in general, the way I look at automation is if it's if it enables orders of magnitude, better opera, you know, better operations or better margins, go for it, it's something that will definitely be a key advantage for companies that are able to do so. But saying that, you know, you want to automate something, just because you want to automate it and make it seem like, there's some, you know, coolness or sexiness, sexiness towards it, that makes investors interested, I don't think that's worth, I don't think that's a great way of building a business. I'll put it that way.
Will Jarvis 5:46
So you need to be very thoughtful about where to use automation, and where not to where you run into kind of Elon, model three production problem issues.
Jai Malik 5:53
Yeah, and you know, generally speaking to write automation, what most people think about when they think about automation is they think about like a computer reducing the ability of a human being to make a certain decision or to do a certain process. But computers need to learn from somewhere, right? machines need to learn from somewhere. And human beings are going to be a big part of the learning process, whether it's now or 50 years from now, for industrial machines. And so, in general, automation requires knowledge, knowledge of what to cut out knowledge of how to streamline and that knowledge is, is right now concentrated in the hands of humans. And so even the very idea that like, automation is necessary and more automation necessary, more automation is good, requires more knowledge, more great people. And so I, generally speaking, do not think that automation is a zero sum game, like if you want to increase automation, you have to increase knowledge increase people.
Will Jarvis 6:53
Make sense. Make sense? Jay, you invest quite early in, in hard tech companies was really cool. This is this is a narrow vertical. There not many people that do this. What do you look for in successful founding teams and successful founders? That that is a good signal that you'll be able to that they will be successful in the long run?
Jai Malik 7:17
Great question. So there are numerous ways to take this question. I'll answer what we what we are trying to avoid, or specifically, you know, what we what we prefer not to invest in, right, as opposed to what we would like to invest in. And so the big thing for me to start with is that we do not want to invest in founders that are easily able to derive their unique insight, or opinion or secret on the market. Just by looking at the news, we think that earn insights and earn secrets about markets about industries or building a company are done by putting in hard work. And so that means doing hundreds of cold calls, or getting connected with with the highest decision makers in an industry, or simply just working at other companies in the space that you want to build a solution, right? We think it's, we think secrets are earned, we think insights are earned. And we are we're primarily looking for people that have done the hard work to earn their insight, not necessarily just take some sort of talking point out of our research report. So that's number one. Number two, we are looking for a founding founding team or a founder that has thought about the market in a way that doesn't just cover market size, but also covers market dynamics. And what that what I mean by that is like, unlike software, many of these markets, like manufacturing, defense, aerospace, construction, and etc. These are all trillion dollar markets through extremely large. The customer said in a lot of ways is proven out, right. And so the question is like in these industries that are often monopolistic, and we're oligopolistic, how do you penetrate the industry, knowing that the dynamics are going to be quite unfavorable to new entrants? It's not just whether it's big enough, the question is, are these markets open enough? Or is there a right wedge point or entry point, to disrupt? You know, a suite of incumbents. And so the market dynamics and knowing whether a founding team understands those market dynamics is really important to us, as part of the evaluation system. The third sort of metric that we're looking for, and we talked about this earlier in terms of talent, but the third metric we're looking for is the ability to recruit talent. And that is we're looking for people that can either inspire people with a very bold vision, that that, you know, that really gets people excited that that makes them want to work on really hard problems. And or people that have worked on hard problems before that have a track record of hiring people on to work on heartbreaks, right. So maybe they've led teams before at companies like Andrew or SpaceX and they want to start something new, and they're taking that track To record and applying it to found on company, which can be very, very helpful. And so, in general, it's these three factors, its ability to recruit talent. It's market dynamics. It's understanding the founding team, you know, and then their own personality and skill set. on a deep level, it seems to be things that don't matter a lot to us a countdown.
Will Jarvis 10:20
That's great. I mentioned something very interesting there. Early in that earn secrets, it seems like there's there's, there's probably like something like an efficient market for secrets, and that you've got to expend some energy to to to find something someone has missed. And just reading Industry Reports probably won't get there, you need some unique insight from something that's like, more illegible to actually be able to find like this $20 bill on the sidewalk,
Jai Malik 10:45
if that makes sense. Yes. Yes. Cool.
Will Jarvis 10:48
That's cool. So I'm curious. You mentioned something interesting there about market dynamics and needing to understand market dynamics in a very robust way. And earlier, you talked about the political and managing the political, how important is managing the political in when building hard tech companies, I remember reading about me with SpaceX or Anduril having to actually litigate, you know, some federal government purchases, because you know, Boeing, whoever the incumbent is, was was doing shading things or something like that, in order to win deals, how often do you have to actually like, bring in the attorneys to in the BD process, when you're building hard tech companies that sell to you know, entrench government, like interest or things like that?
Jai Malik 11:34
Yeah, that's a good question. Attorneys are obviously a big part of any company. But I think it's it's especially important for our tech companies because of ITAR compliance, sippy has regulations, etc, etc, increasing restrictions around doing business with foreign entities that are adversarial to the United States, right. So from that perspective, bringing attorneys into the process is important. However, waging political battles is not the same as bringing an attorney into the into the fray, right. And I think the political battles that founders need to wage in hardtack are definitely a lot more steep than your traditional software company. You know, for example, if you're an aerospace company that wants to fly supersonic jet, for example, you need to make sure that you get approval from the FAA, you get a certain kind of regulation tweaked in your favor. And so these kinds of quandaries are regulatory quandaries are really, really important for hard tech companies to deal with head on. And therefore the founders of these companies need to have a political bent in some way, shape or form, they must enjoy fighting political battles, and or they must have an eye for hiring people that can fight political battles, it's extremely important if you want to have an unfair advantage in these industries, a but b if you want to make sure you get to market in highly regulated markets. So yeah, that speaks hopefully to the importance of a political balance here
Will Jarvis 12:52
makes it so understanding policy is important. And when we had Eli on the show, who used to run policy for boom, supersonic, and he talked about how important was like just navigating the landscape, even just to test these kinds of platforms, in the real world was really important. I'm curious, what companies are you most excited about in the portfolio? I know, it's like, you know, picking your children, perhaps it's kind of a difficult thing. But are there any that stand out? It's super interesting that you'd like to talk about?
Jai Malik 13:21
Sure. You know, many of them are installed. So I really cannot comment, even though I'm super, super excited about, you know, most of my companies, but the ones that aren't installed that I think are obvious, would be first Hadrian. And you know, Hadrian has obviously done an incredible job over the last couple of years. They recently raised I think, was a $90 million series A infuser prime. And what Hadrian is doing and what Chris powers union, Hadrian is incredible. He's single handedly, in many ways, revitalizing manufacturing tech, in Silicon Valley and beyond. And I'm seeing many, many companies and founders, look at his success and think, why can I do that? Right? And so that's, that's really, really inspiring. And I think, in a lot of ways, that's that is the Elan effect in a very, very small level. And I'm very excited to see how that develops. As Hadrian grows. The second company that is out of cells that I can talk about that I'm excited about is a company called Otis aviation. Otis is building long range, vertical takeoff and landing aircrafts. And I'm very excited about Otis because they are not focused on generic urban air mobility. They're they're working on revitalizing and replacing regional routes. That, frankly, have not been seeing a lot of air traffic recently. But, but I think are going to be crucial to making sure that you know, rural America has access to urban American resources over the next couple of decades. And so, their ability to for example, connect, you know, people in Missouri, to the people in California through a short flight is going to be really important and a way to bridge the gap between the urban rural divide in America
Will Jarvis 15:00
That's great. That's great. I'm really excited about that, that that is a that's a very useful piece of technology and being from rural eastern North Carolina, that this is something that will be the quite appealing that someone like me. That's, that's great. Jay, I want to talk a little bit about China. Now. You know, there's a narrative that's popped up recently, that, you know, there's an incoming demographic demographic collapse in China. And it's something we just we don't have to worry about them anymore. It's something that will kind of pan out, and they're just going to kind of wither away over time. It's not something we have to worry about. How scared should we be about great power conflict with China? And how prepared are we this current moment? I remember reading some reports that it seems to be that we struggle to keep even just a consistent supply of munitions for our aircraft and all these, you know, super expensive weapon systems we have, how prepared are we? And how concerned should we be about great power conflict with China?
Jai Malik 15:54
Good question. So right now, my team and I are actually working on a piece that outlines how we think about this great power competition with China at a high level. In general, I think we are better prepared than some people think we are thinks that the House of Cards that the Chinese economy is built off of, and the economic tools we have at our disposal to disrupt their quality of life. It's pretty substantial at the moment. However, this advantage is eroding in my opinion, as an app, an alarming pace, especially the last two or three years. And we must back our efforts to stave off the CCP with consistency and supremacy in aerospace, defense, manufacturing energy. Right now, today, today's China's pace of increasing scale in these areas, is undoubtedly higher than ours. And the CCP is working day and night to displace the US Dollar as the world's reserve currency. So we have a lot of work ahead of us. And they're certainly aware of the problem in a greater way than we are.
Will Jarvis 16:58
So what do you owe that advantage to AI? Are they just, they have more state capacity? Are they better managers? What do you think's going on there?
Jai Malik 17:07
They have on Mesh Control, right? The reality is that they have on Mesh Control over the country's industrial capacity. I mean, in the last in the 14 years since California launched its high speed rail initiative for SF to La less than 120 511 20 Miles even began construction, right the team at a time, can China constructed close to 25,000 miles of high speed rail, literally its entire country, right. So they are they have unmatched control over the capacity by having a single party state and a communist state. And they are also rapidly developing their hypersonic arsenal. And they're a large outbound investor and through both hard and soft ways, in alternative energy technologies, right. And so, in general, they have unmatched industrial capacity, they're taking a very tactical look at how to support other countries and get access to their resources. And, you know, they are very hyper aware of the fact that they need to solve these problems unless, and if they know, frankly, they will, they will see a huge decline on the world stage in the next 2030 years.
Will Jarvis 18:12
It seems quite quite scary that they're aware of it, and they're working to it. And and it almost seems like is it your sense that the American government is less just seems to have less agency in the I mean, I know we're thinking about this now in a more robust way than we were in the recent past. But but it almost seems like if the narrative is well, they're just going to wilt wilt away over time. And they've got this sense that they can do something about it, and they're trying really hard to do something about it. It seems like a recipe for disaster where we don't prepare enough, and then they actually can find some way to get around these demographic problems and economic problems they have, and remain like a real competitor over time.
Jai Malik 18:53
Yeah, I mean, it's certainly not an ideal mindset to have. I think, as a nation, however, I think the beauty of America has always been that the private sector takes takes things a lot more seriously that that matter for both commercial and geopolitical reasons, then the US government and you know, the private sector will, you know, I think eventually be a stimulant for the US government taking things more seriously. And so I'm bullish in the sense where I think people, you know, like me, hopefully, in VC and startup world, and even more broadly, out in finance in general, will start realizing the importance of making sure that we have enough industrial capacity that of investing in like emerging technologies that matter. And I think, you know, ultimately, us taking it seriously is going to make the US government take it seriously over time. And so that's my, my bull case, at least on where we go from here.
Will Jarvis 19:47
That's great. That's great. Well, Jay, what's next for countdown? What does the future look like for the firm?
Jai Malik 19:54
It's good question. We just respond to so at the moment, we're, we're not planning to fundraise anytime. Soon, we'll be releasing more details publicly soon on similar initiatives. But we're mainly working right now on a new initiative called Countdown collective. Collective is essentially, at least once is fully built out, going to be a modern day industrial guild, we want every single early stage hard tech startup, to start their journey on the hunt for talent with us, especially, especially those in our portfolio, obviously. And as an early evidence of success with the collective, we've helped more than half of our portfolio companies find co founders and early early hires through this initiative. And some of those folks have been successful, you know, well known companies like SpaceX, for example. And so, you know, the collective for us is, is a really big push, we're basically trying to become a calculator. And we're gonna be holding in person and online events that are invite only in the coming weeks to really open up access beyond the folks that are currently involved. So I'm very excited to kick that off.
Will Jarvis 20:55
That's great. That's great. Well, Jay, super excited about what you're working on. I'm glad you're buying this problem. This This helps me sleep better at night. Where can people find you? Where should we send them?
Jai Malik 21:05
Absolutely. You can find me on Twitter. J Malik should be right there in your search bar when you type in my name. My DMS are open and on email. My email address is Jay at countdown off capital always open to
Will Jarvis 21:18
super awesome day. Thanks.
William Jarvis 21:23
Thanks for listening. We'll be back next week with a new episode of narratives
Transcribed by https://otter.ai
128: Jai Malik - Rebuilding The American Industrial Base