#48 - Delian Asparouhov: Space Manufacturing, Media, and Speed

I've always been obsessed with this idea. The industrialization of space is really what's going to make us a multi planetary species. You can't just build the starships of the world, which you need to also basically build the economic value that you're getting from it. You need to not only be Carnegie building the railroads, but you also need Rockefeller shipping the oil across it. Otherwise tourism alone is not going to make a railroad empire. And so props to Elon for building the railroads. And my hope is that I can.

Be the Rockefeller that is Delian Asparohov. Technically he's the world's first space drug dealer. Delian is the co founder, president and chairman of Varda Space Industries, a company building spacecraft to manufacture materials and microgravity that are difficult or impossible to produce on Earth. Starting with pharmaceuticals. Right now that means sending a capsule up on a SpaceX rocket, manufacturing in orbit and falling back down to earth. Longer term though, things get a lot bigger.

And you know our goal of, you know, the fundamental mission, the one liner is expand the economic bounds of humankind. When we've talked to some of our customers that are the most sophisticated around microgravity manufacturing, so every single one of those four logos has made it very clear we would prefer to do all of our formulas, simulation, screening and microgravity. Fundamental in some ways goal of Varda as the architecture is to eventually build a like industrial park, an industrial city in orbit. But we start off with small satellites.

As if that wasn't enough, Delian's also an investor. He's a partner at Founders Fund, investing in some of the world's best startups. He has the unique view that most software is overrated and that the most impactful future companies will be big, inspiring, capital intensive businesses.

I think people are starting to realize that the falsehood of zero marginal cost of software was actually complete fake news. In that you have zero marginal cost, it also means you have zero moat because it means two Stanford grads can go build the same shitty piece of software and go sell it as well.

Sometimes hard things are easier to do than easy things because people want to work on big important problems. Sci fi esque companies like Varda might be cooler than most software and are exceptional when they work, but getting them off the ground takes hyper specialized dedicated talent. Delian argues we shouldn't be throwing stuff at a wall, seeing what sticks and iterating, but instead casting people at companies like you might in a Hollywood movie.

Just like you cast Tom Cruise for the action rather than like a Tom Hanks he cast the perfect people that would burn down the core four risks of the company. It's just like first 10 employees, whatever your quality bar is there, it's only going to decrease over time. It's never going to increase effectively from there.

We spoke about microgravity manufacturing, the next generation of space companies building things no one else will. The Hollywood model of startups leaning into strengths and an obsession with speed. Speed seems like a bit of an obsession of yours.

Dropping it out. Unfortunately, at day 1001 right now and we have not yet landed, things aren't moving fast enough. And I'm mad. And I'm going to continue to be mad and work hard until I'm happy with how it's going. But right now, I'm mad.

This is the Luois Year Podcast. Welcome to the new narrative. You had your first cup of Coffee in 2012, arguing with a friend debating the merits of your majors. You thought an idea's worth was based on its success of implementation in the real world. And your friend believed that the work she did in theoretical mathematics was pushing the knowledge boundary of humanity and that it would only take time for the rest of the world to be able to understand her ideas and implement them. Over 10 years later, it's 2023. How do you think innovation happens? Do you subscribe to a linear model of innovation where everything's downstream of science, or do you think about it differently?

You know, it's funny, I don't know where you know that story from. It's funny, I don't remember saying it, but that same friend became a social games founder and ditched theoretical, you know, mathematics. So she swung hard in the other direction. I'm actually guessing who it is based off the story. I'd have to go back and like, read my own blog post, but I'm pretty sure that's who it is. So anyways, in some ways the proof is in the pudding. In that I think that if you look at what it's not to say that theoretical physics and things like that don't have merit or value. And if anything, I sometimes ponder an alternate life where I said stuck to academia and focused on that. But if you look at just obviously what impacts day to day life over the course of the following decade, all of it is in this world of taking theory into implementation. And most of the time it is, you know, sort of theory from multiple fields being combined. Whether it's obviously very practically the company that I'm working on, which is a combination of theories in the world of Pharmaceuticals as well as aerospace. And combining the two, I think you find a lot of the interesting sort of intersections there. Or Obviously companies like SpaceX where, you know, you're sort of taking, you know, very specific industry, but, you know, applying theories that everybody's been sort of like too afraid to go and tackle. You know, the idea of like reusable sort of rockets, you know, had been around since, I mean, they were like designs for the Sea Dragon back in the day, being a potential sort of reusable rocket or a variety of other systems. But ultimately nobody was ever really truly willing to tackle it as a sort of private individual. So, yeah, I guess I think I still subscribe to. If you look at whatever happens in the next 20 years, it's all sort of this linear innovation based off of relatively predictable sort of cost curves or performance curves. Whether it's like transistor density, battery energy density, cost of energy, cost of solar panels, etc. You can almost like perfectly sort of model those out and you just need to understand what will the effects of that be. In some ways, you know, Vardo was obvious to people that it was a potential business model even in the 70s. Just if you modeled out where, you know, the economics of launch were, it never made sense until specifically, effectively Q4 2019. And it was obvious that it was going to be possible in Q4 2019 in like 2014. Like if you looked at basically SpaceX's both cost to orbit as well as mass, basically mass and kilograms to orbit, they basically both followed perfect mathematical curves. And so you just model those out and be like, okay, yeah, this business model now viable basically to be started in Q4 2019. Unfortunately nobody was starting it, so I had to wait. But point being that, yeah, I very much subscribe to the, let's say linear and somewhat actually predictable innovation.

This is like a cool segue. I want to set the stage for VARDA here. You guys have a no science rule at varda, so set the stage. What is VARDA and why is it only novel in aggregate?

So VARDA is the world's basically first microgravity manufacturing of pharmaceutical platform or satellite. So we send up what look like very simple satellites to start. They'll get more complex over time. So our first satellite, 300kg, looks no different than a Starlink satellite in a lot of ways. Right? And obviously plenty of people know how to fly Starlink satellites at this point are as though rather than having a really powerful Internet radio that communicates with terminals on the ground, instead basically has a bunch of compounds on board and that are ready to be sort of mixed and processed when they're up there. We then do that up there, solidify them, and then basically bring those finalized solid forms that capture all the basically benefits you have in microgravity down here to earth to distribute to our customers. These sort of no science allowed rule is sort of reflects the fact that there have been a lot of people that have tried to tackle this type of problem in the past, and most of them have focused on the fundamental, basically basic research on microgravity manufacturing, which is very valuable. VARDA would not exist if not for that. But the fundamental thesis is we are not doing basic research that's great for government funded projects that live on the International Space Station. Our goal is basically to like, you know, transfer, commercialization. And so a lot of what we do at VARDA is, you know, pre work so that we know what is going to happen up there. So that it is more of a problem of engineering and solving a problem for our customer than it is, you know, sort of science where you're doing more fundamental guesswork.

Gotcha. Let's talk through some of the more technical details here. Why is solid state manufacturing easier in space and what are the actual like technical thermal and convective differences that you see in 1 versus 0G or near 0G?

I wouldn't say that solid tape manufacturing is easier up there.

Different.

It is different. It is extremely difficult up there. But the different is good. And well, it can be both good and bad, but when it's good, it can be so good that it can warrant the difficulty of going up there. You know, sort of the fundamental analogy that I like to use that starts at a very macroscopic scale to understand the convective differences between when you're down here in a, you know, sort of one gravity field versus zero gravity field is, you know, a candle, where if I light a candle, you know, in front of us here on this table, you're taught as a kid, if you put your hand above it, you feel basically the hot air rising. Well, what is happening on the sort of fundamental sort of physics level, that wick that is inside of the candle is combusting, that combustion reaction is creating thermal energy that gets transferred to the atmosphere around it, right? And that atmosphere is combined comprised of, you know, nitrogen, oxygen and a few other gases. When you have that thermal energy get transferred to that atmosphere, atmosphere around it, it gets transferred into kinetic energy. That kinetic energy basically makes those gas molecules move more quickly, right? They heat up because. Or they Move more quickly. And because they're hot, and they're hot, because they're moving more quickly. When they move more quickly, the gas molecules get further apart from one another. And so that gas effectively becomes a less dense gas because it weighs less on a per unit, basically, volume basis. Anytime you're inside of a gravitational field, when it's a liquid or a gas or potentially actually a plasma, actually not 100 of convective currents apply to plasma, but they don't apply to solids. When you have a less dense liquid or gas, it basically rises within the sort of container or the room that it's in, and the more dense gas settles and collects. And that's what causes everything from sedimentation to your ice floating in a glass, to when you put your hand above a candle and feeling that heat, take that same chemical system of the candle and put it in a microgravity environment where there is oxygen so you can keep the candle flame going. What ends up happening, you still have the combustion in the wick that is still creating thermal energy. That thermal energy is still being released to the room around it, to the atmosphere. That atmosphere increases its average kinetic energy. It increases its speed. It still becomes less dense. But now you just have a candle surrounded by less dense gas. Inside of zero gravity field, there is no basically convective, you know, current or convective pressures because there is no gravity being, you know, basically, you know, force on any of the, you know, liquids or gases. And so instead, basically, that kinetic energy very slowly diffuses itself throughout the entire room. And so the sort of technical term to describe what happens in these chemical systems is the primary mode of transport. Basically why things move inside of this chemical system when you are in a one gravity environment is convective pressures versus or convective transport versus. When you go up into a zero gravity microgravity environment, it becomes diffusive transport or diffusive, basically pressures. And those are effectively much less entropic, basically pressures are much less chaotic. Right. If you think about it, the convective current, when you put your hand above the candle, what's happening is you have this hot air actually rising. It creates a negative air pressure system. So actually, cold air comes from underneath. And you actually basically get these convective currents that effectively form even from a single individual candle, where you have a ton of basically like entropy or chaos in the system. Do that same thing in microgravity instead. It basically steadily diffuses throughout the entire room. And so if you look at the fundamental air currents that are happening It's a much less sort of chaotic environment. One slight tangent. Funnily enough, the reason that the candle actually stays lit in a one gravity environment is because the convective currents actually are constantly bringing net new oxygen into the system because it's obviously generating CO2 as a part of the flame. When you do that same candle, candle in zero gravity, unless you actually have a small fan basically blowing at it to bring in new oxygen, the candle actually typically will relatively rapidly actually, you know, unlike, you know, or you know, the combustion reaction basically stops because it runs out of oxygen around it. And so it's kind of, you know, it's funny to talk about, you know, these convective currents have a lot of downsides when you're down here, but also they do keep the candle lit. So anyways, very mesoscopic, you know, sort of analogy, large scale chemical systems. So why does that apply, you know, to you know, you know, reactions that are relevant to the biopharmaceutical industry? Well, when you go to the very, very sort of, you know, subscale, let's say, not so subscale that you're in the world of like, you know, quarks or nuclear forces, but once you go up to like, let's say, you know, very, very, you know, small molecular systems there, you're so small that effectively, you know, the random motion of molecules or what's known as brain Brownian motion is what dominates. But the moment you get to sort of like mesoscopic scale, think like hundreds of atoms rather than like, you know, 10 atoms, which is the scale at which most pharmaceutical processing occurs. When you're trying to create large scale batches of a particular pharmaceutical there. Now the random motion is no longer the browning motion is no longer basically like the dominant transport. Now these types of macro molecular basically motions like convective pressures, like diffusive pressures, effectively dominate. And if you think back to you know, sort of very simple chemical systems from you know, high school, you might remember this, you know, thing where you basically, you know, apply you know, two molecules, you apply a Bunsen burner to it, that allows you to cross over the activation barrier and basically get into that net new potential. Well, right. Well it turns out in a lot of these more complex systems it's not just a single potential well that you can get into, but there's actually a bunch of different potential wells you can land into. And when you're creating that heat, you can't super precisely apply the basically, you know, energy to the system to say, hey, I want to land in specifically the second well, because again, what ends up happening? Well, one of the molecules is lighter than the other one's heavier. So you get those convective pressures moving around. And so some of the molecules, when they hit, are hitting at slightly faster speeds or slower speeds, et cetera. And so if you look at the amount of basically like, you know, kinetic energy or you know, activation energy being applied to the system, sometimes it jumps to the fourth potential. Well, sometimes to the first one, sometimes to the 20th one. And so because of that you have much less, basically, you know, sort of much less control over these, you know, chemical systems versus again do that in microgravity. And instead you can apply that thermal energy and you can very precisely only have the thermal energy be the thing that applies to the activation energy. And so you say, I want very precisely to go into that basically second activation well, versus, you know, on, on Earth you can't do that. Okay, so we've gone from masoscopic analogy, talking about the microscopic or mesoscopic, you know, sort of scale, you know, why, you know, it's. But why does that matter for a patient? Why does it matter sort of for drugs you produce. So by far the best blockbuster result from the International Space Station was done by this guy Paul Reichardt over at Merck. The keytruda sort of case study there. What they did was they basically had a active ingredient keytruda as well as a solvent. At the time, I believe they used water and they effectively precipitated where you can kind of think of it as the equivalent of boiling away the water. So what's left behind is the salt in the water. It's not perfect, but that's kind of the analogy that works. And what ends up happening when you're in microgrid or when you're down here on Earth when you do that same system. Basically, if you remember one quick, you know, physics analogy that'll, you know, help explain this is if you, have you ever seen those YouTube videos where they take a bottle of water and take it under freezing temperature, but keep it very still. You can actually have the ice water get below freezing temperature, but maintain the liquid, but the moment you basically tap it, it immediately basically freezes. Now what that's known as is what's known as a nucleation point. You're basically nucleating a crystal structure that then immediately starts sp and forming around it. Because now you've basically created that crystal and it's basically self reinforcing. Because when you're you know, below the freezing temperature, that's actually the natural state that it wants to be in. So when you think about what they were doing this experiment is they were basically boiling away the, like, water to leave the crystal structure. And so same thing happens. You basically get these nucleation points where it's only nucleates forms a crystal because the water is getting boiled away. But on Earth, because you're boiling the water away, a bunch of new, basically, like a new active ingredient, the pharmaceutical ingredient will move towards that nucleation point. Rather than basically forming its own nucleation point over here on its own, it gets pushed into this one. And so what ends up happening is you have some crystals that grow very large, some that grow very small. So the distribution of the crystal sizes is very disparate. Or specifically in the Katrudi use case, it was very bimodal, basically. So you had this like, distribute. If you look at distribution of sizes of crystals, you had some that were relatively small somewhere that were relatively large. So now when you send this to a patient, well, it turns out if you inject that into a patient, the large ones break down very differently than the small ones break down. And so if you're not able to control exactly how it basically is soluble in your blood, well, you can no longer just give it to the patient as an injection. Instead it has to be an IV drip, where you're effectively constantly monitoring their dosing to make sure you know how it's breaking down. Now, take that same system to microgravity, do the same thing, right? You basically have this water, you're boiling it away. The moment that a nucleation point forms. Well, there's not that convective pressure. There's not new, what's known as like, solute basically being moved or new active ingredient being moved towards it. And so instead, that active ingredient that previously was moving towards it and nucleating and nucleates on its own over here. Nucleates on its own, nucleates on its own. And it turns out you have a perfect even field of a bunch of individual nucleation points that just suck up enough of the, like, you know, you know, pharmaceutical ingredient that's around it. And they all form the exact same size. If you look at basically the distribution curve of what the crystal size structure is, they are very narrow or monomodal, extremely narrow, basically size distribution. And so now I can predict, I can make a whole batch of this. And I know that it'll break down the exact same way every single time. And so what does that mean for a patient? Instead of having to go to clinic every single day for one to four hours for dosing, now I can send you home with a syringe that you keep in your fridge. You can basically do it whenever you want. And by the way, the amount that I need to produce in space for your, you as a patient, you're getting dose like milligrams. And so inside of my like 40 kilogram pharmaceutical factory, I can produce more than enough for plenty of patients to justify basically the cost of going up there. Because what you see as a patient is you see that IV syringe that you basically inject or not. Sorry, not IV syringe. You see the syringe, right, rather than the IV and the syringe, the entire thing is not drug. If you like injected yourself with an entire syringe of drugs, you're immediately going to like overdose and die. It has like milligrams in there. Most of the rest of it is like effectively, you can think of as like effectively salt water that you're basically injecting. It's not actually salt water, but you know, it's a, it's something that is safe for you to, you know, inject. And so what that means is the amount you actually save on sending, you know, that many patients into IV clinics every day, you save far more from that than like the cost of, you know, producing a small amount of the drug based gain space. Because we just produce the powder, the milligrams that go into it, the syringes and all the solutes and everything else of the solvent that goes into this syringe that all still happens on the ground. So just to give my wrap up macroscopic analogy of a candle, mesoscopic chemical reaction, boil the water away. Instead you get these individual nucleation points rather than a bunch of basically chaotic ones. Means that use a patient, basically get your syringe rather than the IV drip.

Feel like I just speed ran a physics lesson that was crazy fast. Okay, let's zoom out a couple thousand miles here. You have this great, fantastic, amazing analogy I've heard you use comparing Varda to the Chinese and Portuguese empire's navies. And I'd love to hear it from you.

Funnily enough, the person that like highlighted this analogy to me actually did an interview with them earlier today. Really, so, you know, credit to them. It's actually by this, you know, it's by this blog post by this guy Chris. Anyways, it's funny enough, he's like, he Used to be a JPL guy and then now he's like a crypto guy. Chris Szabo or something like that. Nick Szabo? Oh yeah, yeah, Nick Sabo. So he wrote this blog post, like 2004. Very prescient given this, like, you know, Pre Space X, etc. But basically his whole thesis was like, look, why did we get to the moon but never stuck around? It's because there wasn't economic incentive. And he basically found this historical analogy that I really love, which is in the early 1400s, both the Chinese and the Portuguese Empire developed basically naval fleets for the first time. And they took polar opposite approach approaches. The Chinese Empire effectively built these like very large scale flotillas. They would go, you know, to the African coast, gather like, you know, some basically like, you know, ornaments effectively, you know, to bring back to the empire everything from like elephants, tigers, art, et cetera, would bring it back to the Chinese Empire for the emperor to show. Here's like, you know, why you're funding this. Here's this like, you know, amazing thing that you can now put, you know, in your palace as like, you know, a decoration. But there was no real like economic use case for it. It was just pure like decoration in some ways the equivalent of like what the moon rocks were from the Apollo era, where it's like, it's nice decoration, it's great science, but no real economic use case. The Portuguese took the very opposite approach. They built these very small naval, like merchant ships, started off on like the north coast of Africa. And I want to clarify this analogy. They do a lot of slave trade. Not necessarily a fan of that, but it's a helpful analogy. They, you know, start doing everything from, you know, slave trade, goods, et cetera, and bring economic value back to the Portuguese empire. And they start off on the North African coast and then once they establish a single, you know, sort of trading post, then they move 50 miles down and then another 50, and then another 50. Now you fast forward from the early 1400s to the late 1400s. What has happened to these two navies? The Chinese basically decided to become isolationists and actually basically shut down their entire flotilla because the empire emperor was like, why the hell are we spending on this? We're not getting anything of this. Versus the Portuguese now all of a sudden basically have a naval empire that effectively spans the entire globe. And so, you know, I've always been obsessed with this idea, you know, didn't necessarily know this exact analogy, you know, for a long time in that the industrialization of space is really what's going to make us a multi planetary species. You can't just build the starships of the world, which you know, in my mind in some ways are kind of like the Chinese flotilla. You need to also basically, you know, build the economic value that you're getting from it. Or you know, to go to like, you know, sort of 19, you know, late 1890s, you know, 1900s in the United States, you know, Gilded era, you need to not only be Carnegie building the railroads, but you also need Rockefeller shipping the oil across it. Otherwise tourism alone is not going to make a railroad empire. And so in some ways, props to Elon for building the railroads. And my hope is that I can be the Rockefeller.

Okay, a lot to get into there. Firstly, if economic incentive is the incentive that actually makes us a multi planetary species, what's getting us to other planets in the first place? Is it raw materials? Is it just need for space? What does that look like in your opinion?

You know, the first couple steps, you know, easier to perfectly predict, the further out steps a little bit harder. You know, part of why I get excited about Varda is not only obviously, you know, our own success, but in some ways the downstream implications of our success. You know, if you think about the aerospace industry, it was in a, you know, sort of, you know, 40 year stupor from, you know, the, you know, 1972 to, you know, roughly 2012. And you know, Elon Musk awoke us, you know, sort of from that stupor and created the first generation of infrastructure and a couple other companies, right? Rocket lab, planet lab, etc. But a lot of it, you know, sort of credit to SpaceX. That first generation of infrastructure needed to mature for about a decade before it enabled a second generation of companies. I would argue, you know, use cases like Varda, portfolio company of ours, Impulse Space, you know, by Tom Mueller, that enable these new net new business models that just weren't possible without the first generation's infrastructure. What I get excited by by companies like Varda and Impulse is what our success implies in terms of what net new business models will be appropriate. So if you look at both of our companies, both Varda and Impulse, if we are successful, we will be consuming a lot of water, right? Water for my chemical reactions, water for his basically, you know, engine motor. And right now it is significantly more expensive to actually send water up from the gravity well of Earth than it would be to send that from the moon or from an asteroid. And so if Varda succeeds, and that for sure will take us four or five, six, seven years, maybe a decade by 20, 30, it will now actually make sense for venture capitalists actually commercially fund a company that is going after lunar ice mining. And now at the moment you have both economic use cases in low Earth orbit that justify, know, in some case, you know, needing water. But also I think, you know, Varda will be one of the first companies where at a large enough scale of factory, you know, things like Starlink and Planet Labs can stay fully automated indefinitely versus a factory at some point does require some level of human, you know, potential, you know, sort of maintenance. Once you have humans up there, once you have water consumption now it's a lot easier to imagine a lunar ice mining operation that is sending water both to those humans and to that, you know, to those factories. And then all of a sudden it makes sense to actually have, you know, a lunar installation that is not just ice mining, but potentially a base. And eventually you could actually imagine like retirement community up there where you, if your legs are given out, you know, 1G, you know, what's a lot better than that one, 6G. And so you can be 85 and still playing soccer and you know, rock climbing and, you know, running around when you might not be able to sort of do that down here. So I think those use cases, let's say to the moon and to asteroids, you know, very easy, you know, in terms of making sense, I think Mars, it's a little bit harder to exactly peer through what will be that economic use case. It likely ends up being something where, you know, deep asteroid mining ends up being highly profitable. And that just, you know, being further out and further away from the sun makes for a great sort of refueling sort of gas station. I imagine that is likely what it looks like, but probably too hard to perfectly predict. But in some ways, until we have commercial justification for a large scale lunar base, I'm skeptical that we're all going to make a Mars colony, given how much easier it is to resupply and build a Mars colony if you can build large scale rockets and structures from the Moon because it just gets so much easier to send supplies to Mars from the moon rather than from Earth. It's just we're in a very deep gravity well here.

Interesting. Okay, so a quick analogy on like the why now? And kind of the costs associated. In 1993, the National Science foundation owned the Internet backbone and had a rule that prohibited commercial activity on the Internet. In 1995, the rule went away and Jeff Bezos launched Amazon less than 10 weeks later. For you all like the why now is obviously just as important. When the space shuttle program was in operation, getting a kilogram into orbit cost $54,000. SpaceX has brought it down to I think just under 3,000 with Falcon 9. Starship could bring that down even further. Where do payload costs go from here?

Right.

There's no real incentive to go further in my mind because SpaceX is really the only big player here.

Yeah, if you look at, you know, X, China, Russia, mass to orbit, SpaceX represents something on the order of like 99.7 mass orbit. Like it is by far the world's best monopoly. Maybe like, you know, asml, you know, or very small handful of, you know, TSMC and things like that might maybe get close to that level of, you know, sort of monopoly. But you know, everybody else pales in sort of comparison. And so fundamentally the likelihood that, you know, Elon immediately, if Starship comes online, passes on all the those cost savings to its customers, highly unlikely until more competition comes online. You know, I think there's a world with some regulatory action. You start to eventually have the equivalent of what happened in the like airline industry where you broke apart what was originally Boeing and United in one and now all of a sudden the sort of builder of sort of rockets and the operator of rockets have to become different. And so that allows for some level of sort of price competition. I think, you know, if he doesn't get competition from other rocket providers, I would almost guarantee that that type of regulatory action will happen. Not immediately, but call it like 15 years from today. But I think it's more likely that he realistically does start to face some level of pricing competition from some of these net new providers, whether it's rocket lab, relativity, stokespace, etc. They're clearly sort of well funded companies. And I think also in some ways the United States national security ecosystem is incentivized to make sure there's multiple providers that they're not sort of too, too dependent entirely on Elon. And so I think some of those companies by default will succeed because there's just a set of investors and national security contracts that will go their way. So yeah, you know, at Varda at least we're not necessarily big believers in the fact that there's going to be some like massive drop in launch costs over the next call, like five years. There's obviously been a huge drop over the past five, but you know, we're somewhat stagnant if not slightly rising. You know, basically with inflation, you know, over the past, like, you know, Year or so. And even that, you know, number that you quoted $3,000 a kilogram, you know, I believe that's if you fully book out an entire reusable Falcon Heavy, which is basically like the best, best case where it's like the largest rocket that is the most reusable, basically that is not the price that you get, I believe even for a dedicated Falcon 9 as a sort of commercial player. And it's definitely not the price that you get in these like rideshare missions. Although even the rideshare missions, you know, as far as I can tell, SpaceX is basically doing them at cost. And so they're not making a ton of margin because they're actually just like not pushing the performance of the rocket fully to what it's capable of because they can't quite fill them all the way they're I think in some ways just doing that to try and provide some competition to some of the small rocket launch providers. So yeah, our launch costs look a little closer to like 5,500, roughly a kilogram. That's what it looks like for a lot of sort of small satellites that are launching on space today. So yeah, obviously I think we believe that even at those prices we can operate our business model today. And then obviously if it drops in the like seven year time frame only accelerates us. But we are optimizing our engineering, our economics around, you know, the launch cost that stay in that call, maybe it drops to 3,000, but call 3,000 to $5,000 a kilogram, you know, amount not banking on the like starship, you know, hundreds of dollars a kilogram.

Okay, two pronged question here, and they both have to do with like Varda at scale and what that looks like. So first of all like, like how much do you think you'll eventually induce demand for space manufacturing? Like how big is that market actually? And then second of all, physically what does VARDA look like at scale? Like how big is the thing in low Earth orbit?

When we've talked to some of our customers that are the most sophisticated around microgravity manufacturing. So name them by name. But let's say top 20 biopharma that has done stuff on the ISS, call it four logos that have done that. So you'll know who I'm talking about if you look it up. Every single one of those four logos has made it very clear we would prefer to do all of our formulation screening in microgravity. It is a strictly wider aperture in terms of forms and crystalline structures that we can get up there. Why we not just have that be the default screening mechanism? And so my answer would be I don't think there's any reason why at some point, you know, there's this company Luxi, that's you know, based in China, but operates a lot in the United States that basically does mass scale. It's very fee for service, you know, sort of low margin automated business. But they basically do do solid state formulation screening for a lot of top 20 biopharma. Extremely sort of large company. There's no reason why eventually all of what Wuxi does would be happening in space. Now how do you get there from today? You start off in some of the higher end. Right now we're focused on small molecules given the sort of limitations of our spacecraft. And you start off in the higher end oncological neurological compounds that are very high revenue per individual dosage. And so let's say as a rough swag, right now we can tackle call it 2% of the total total, you know, sort of pharmaceutical market. Between our small molecule constraints, you know, and our you know, sort of price constraints that we need to get. But as you start to improve the economics of the business by both investing into reusability, scale, etc. You definitely, there's no reason why you couldn't grow that from like 2 to 20% over the next, you know, call, you know, three, four or five years. And there's no reason why you couldn't get to a basically effectively 100% over the next decade. And so for all, you know, solid state, you know, formulation screening. I think also when you're getting that world world, you maybe expand into some of those alternative materials that people have studied around fiber optics, semiconductors, etc. But I think we'll be pretty laser focused on pharmaceuticals for the next five to seven years. And then you asked how does it look physically? It's a pretty sort of from first principles obvious and linear path in terms of what you would do. You don't need to know anything about Varda. This is just the answer to this architecture which is first you start off with just as they did with Falcon 9, a full end to end disposable system, right. So we send up one time use satellites with manufacturing equipment on board reentry capsules that are also one time use and you bring down the drugs after they're finished. The first thing you want to start doing is investing into reusability across the board. The easiest thing to make reusable is the re entry capsule by default. That already comes down to the ground. It's easy to understand what needs to be over engineered, so refurbishment becomes easier in some ways. I always talk about this. I think the hidden secret of SpaceX is like they're learning so much more than everybody else about rocket engineering because they're the only ones get the rockets back, back as they can go see, like what almost broke, what didn't, where did they over engineer, where did something almost fail, right? They're able to learn and get to the, you know, sort of rate and consistency that they're getting to because they actually get feedback on how their designs performed, not only in simulation but in reality versus if you think about every other rocket designer, they don't get feedback on how close they were. Like how much did they push to the performance, right? Did the metal almost buckle? You know, did the thing almost fail? You have no idea basically because you don't get your rocket back. So anyways, in some ways it's very easy to, you know, engineer. I'm not a piece of cake or anything but. But you know, the engineering of making their, you know, reentry capsule reusable, you know, much more straightforward. Making the satellite, you know, you know, factory, space factory, manufacturing equipment reusable, that's definitely trickier because now what you're talking about is instead of basically sending basically the space factory with the reentry capsule up as a single unit, reentry capsule comes down. Then making the reentry capsule reusable, you just attach it to the next satellite that's going up. But now you're talking about not only reusing the reentry capsule, but now you need to be able to reuse the satellite space vacuum factory. And so what that means is instead you're sending reentry capsules to dock in rendezvous with the space factory. The reentry capsules bring raw materials, exchange it for fabricated and then come back down. That's definitely a more complex, you know, problem where now again you're investing in like autonomous, you know, small scale docking rendezvous which like really hasn't, you know, been done, you know, before. That's definitely a complex problem. But significantly, you know, improves the economics and then sort of the future physical states of art of mostly involves scaling that up initially. What you'll probably obviously is what looks a little bit closer to like a Starlink Planet Labs constellation where you actually have a bunch of disparate satellites. On a constellation, one might be focused on a particular type of small molecule process, one might be biologics focused, et cetera. And then you Just are sending your reentry capsules and landing every day. At some level of scale though, it will start to make sense. Unlike a Starlink and a Planet Labs where they explicitly want, you know, as distributed as an architecture to get as much coverage as possible, we at some scale, once we get to call it like 12 to 15 satellites in the Constellation, we may actually decide to aggregate all of them into a single location so that now maintenance and refurbishments becomes easier because you're just visiting basically a single, you know, location. And so at some point you'll see us go from like, for a little while we'll kind of look like a satellite Constellation company. And then all of a sudden we're suddenly snap everything together. We'll actually look a little closer to like a autonomous space station company. And then one day, you know, call, you know, probably end of the decade, you know, at the fastest, you know, even the most, you know, a lot of the pharmaceutical manufacturing that we do up there is highly automated already down here on Earth. But even the most automated facilities still require like a once every call, you know, know, three months, six months, you know, human maintenance coming in and doing a highly dexterous activity. When you aggregate all of them into a single location, you can now finally have for the first time economic justification for humans in orbit. And you know, our goal of our, you know, the fundamental mission, the one liner is expand the economic bounds of humankind, right? And it's explicitly of humankind. Everything that we do today and for the next like five to seven years is autonomous. But the goal is because that's the way that you get to economic incentives to have a single human in space. So that rather than it's like the US government and like the Saudis and UAE paying to have 12 to 14 humans in orbit at any time, with a Chinese as well. Instead, if you can pay to have one human in orbit, but actually get more value than how much you're paying to have them up there, if you do that for one, you'll be able to do that for 10 for 100, for 1,000. And eventually you have a small scale city up in low earth orbit. And so it's the fundamental in some ways goal of Varda as the architecture is to eventually build a industrial park, an industrial city in orbit. But we start off with small satellites.

Gotcha. Okay, again to the why now Discussion earlier. There weren't a lot of viable business models in space until recently. SpaceX has kind of paved the way the railroad, the first layer of infrastructure, so to speak, right now, looking at the space market, I mean, painting in really broad strokes here we have kind of like imaging, whether that's government or very speculative commercial stuff. As a side note, this is just anecdotal. I know some people that work at hedge funds and one of them was telling me that they will take satellite imagery and measure the length of the shadow of a freighter to estimate how underloaded it is and estimate raw imports and exports from countries. And apparently it works, works well enough that they can keep doing it, which is fascinating to me. Anyway, okay, so that's like one category. The other one is sort of like Leo mega constellations doing like Internet service provision, SpaceX, Amazon, like a couple others, but like super capital intensive, tough to do. What specific markets at like a second or third layer are you do you have most conviction in and are really excited about?

I think it's like relatively limited in any one period of time. You know, just as in the first generation, the only thing that really was viable was, as you said, you know, Earth observation with the early days of Planet Labs, Earth communications and then launch. And that was basically it that made sense. There was like a very nascent, you know, space supply chain, but nothing that I think was like, you know, venture scale, super exciting. Now those first generation of companies succeeded. I think there's effectively, you know, three use cases and we've invested in all three of them, right? Space manufacturing and pharmaceuticals in space, basically, like, you know, servicing and movement, like what Impulse is doing. And now there's enough space companies and enough of a like, you know, sort of established customers base that you can afford to actually significantly expand the supply chain so that rather than like what SpaceX had to do in 08, which is basically built everything in house, now can start to make sense for there to be external providers for solar panels, for reaction wheels, etc. And obviously in some ways, you know, our partner at Varda Rocket Lab has really shown this quite well at this point. You know, their business on like, you know, I think they called the space system side of the business is far larger than they're like, you know, launch business, right? Showing the people, you know, there's a ton of demand for individual, you know, components. And so our probably biggest investment sort of in that field is if, you know, this company Hadrian basically automated, you know, effectively, you know, aerospace manufacturing, manufacturing, you know, sort of machine shops. And so those are really the only three use cases that we're excited about. And I don't see anything else on the horizon for the next three, four or five years now, five years from now, if the first generation and the second generation of work, then again, it might unlock, you know, some of these, you know, sort of out there use cases like asteroid mining, like lunar ice mining, you know, power from space, things like that. But, you know, our sort of thesis right now is these are really the only ones, you know, sort of that makes sense. Like, if you look at Founders Fund, we, you know, invested a ton in aerospace from like 2008 through, like 2000. And we basically took like a decade break where we, like, didn't do anything because, like, there just wasn't anything to be investing in that was actually that interesting. And then in 2020, we basically restarted investing a ton over the, you know, the last three years. And then there was a world where, like, I could see us just taking another decade break, basically, where it's like, yeah, there's just nothing on a risk reward basis that really, you know, makes a ton of sense. And so, you know, we stay, you know, off of the market until the third generation, you know, makes sense, and we invest in the very early nascent players that tackle those use cases.

Gotcha. Okay, again, just sort of like, widen the aperture and take a couple steps for back. I'd like to talk about, like, incubation as kind of the mechanism for a lot of this taking place. So for starters, again, to set the stage here, what's the incubation versus the studio model, and what's the criteria for doing an incubation at Founders Fund?

So, you know, describe companies, you know, like Jack Abraham and Atomic. That's, you know, whatever a floor below us right now. You know, his is very much a studio model where the primary focus of the firm is basically nonstop generation of companies. And those can do it at various paces and cadences. Right. I would say Atomic is probably one of the highest cadence ones. Sutter Hill Ventures, for example, lower cadence, but also, you know, their prime, prime focus. Founders One is unique in that, you know, we obviously do incubations. I think we've had a lot of success, but it's not our, you know, core focus. And there are some firms, you can argue, like Greylock and things like that have, obviously, you had some success, but I think Founders Fund by far stands away in terms of, like, venture firms that are primarily focused on investing, that have had success in incubation because it's not our core focus. I wouldn't claim that there's some very obvious and clear, like, you know, repeatable process in terms of making these happen. Unlike Atomic you know, some of these studios where there's a whole support team, it's what they're constantly thinking about. They're trying to do it on some regular cadence. Here there's explicitly no support. Like if you want to go do this, it is very much an individual, you know, investor on the team that strongly believes in a thesis that wants to go do it. Right. Trey Stevens believed that there needed to be a next generation Defense Prime. I really believed in, in space manufacturing. Keith really believed that like, you know, E commerce could be revolutionized and there was finally an angle of attack, you know, against amplified Amazon. And I think, you know, it definitely differs by the person but I'd say at least for like Train, I think this exists and you know, for Keith some amount. But you know, I think part of what made it, you know, really, you know, work, you know, for me is the incubation that I was interested in starting in had a couple of characteristics that were true. Which was one, it was an idea that if we didn't incubate, nobody else was going to build, right? If you're going to go build this, it's such massive opportunity costs from the investing side of things. Things they're like, you better be sure that you can't just get the same returns by just going off and like finding a founder, like working on it and just investing in them, right? So you know, one, you know, clear sort of, you know, you know, lack of anybody else, you know, working on it. So to justify the opportunity cost, two, it's a field that I was interested in continuing to invest in, right? So I knew that I wanted to continue to invest in aerospace. What better way to just like massively improve top of funnel and conversion rate on the investing side of it than to start one of the most prominent, you know, companies in the field. And that is, you know, very much so, you know, played out, you know, over the past, you know, couple of years. And then third, if you're going to bother having a venture capitalist as a co founder and give up the equity that's necessary for that in order to attract a world class co founder, you know, to that business, you better be sure that that venture capitalist is pulling their weight, which likely means that it needs to be something that is relatively capital intensive business. And so I think if you analyze both and you know, Varda, they both very much squarely fit within that, right? In that, you know, nobody else was going to be starting next generation, you know, Defense Prime. If not, you know, for Trey, he clearly wanted to continue to basically invest in that field and obviously, you know, sort of capital intensive similar to. So I think that's a lot of what, you know, has made Varda, you know, work is, you know, following that set of three criteria. But again, I'd say it's relatively unstructured. Like, I wouldn't say that necessarily all three of those criteria, you know, some of them do, some they don't like. I don't know that Keith is like trying to invest like a ton into E Commerce per se right now. It is capital intensive. That part does work in favor. You know, I think that his angle on it, I don't think anybody's doing. You could argue there were like things like thrasio, et cetera, but you know, very, very different in terms of like, you know, there is no way that thrazio was ever going to be aggregating all the things that they were buying into. Like a, you know, sort of Amazon competitor versus open store. Very much so, you know, has the DNA and you know, angle to do that. And so yeah, I guess, you know, yeah, there's no, I'd say like, you know, broad philosophy and I think Peter in some ways explicitly tries to encourage that in the that he generally believes. Look, if you look at all of our incubations, the ones that work, they all have just like this like magical spark moment that just makes it happen. Nobody was trying to force it. And if you try and force it, you have adverse incentives for people just doing incubations for incubation's sake.

How long do you think it would have taken Varda to start if you didn't go for it?

You know, I think that somebody probably would have founded it in 2023 is my guess. I think like we're roughly in the year where like you're actually seeing, you know, various people now bubbling up, doing like sub components of what we're doing, finally starting to like, you know, raise some like VC that I think if not for Varda probably would have been able to attract a lot more capital, talent, et cetera. I think partially because we've like sucked a lot of the oxygen out of the ecosystem by being so far ahead, by having so much funding, by having such a world class team, by actually flying an actual vehicle versus everybody has been hypothesis about it. I think it actually has made the barriers to entry, you know, a lot more painful for others. But yeah, I think this year would have been the year where there would have been a sort of breakout equivalent. And I think that it's interesting where we were not the first people to tackle this model. Right. There was an equivalent company made in space in some ways in 2012. They were just, I think, in my opinion, in some ways like a decade sort of too early. One could argue that Varda maybe was three to four years effectively too early. And I think there are many alternate paths of Varda that you could see where we were basically dead by today because we were basically too early to the ecosystem or market. Market. I think one of the things that really was a lucky break was the fact that we were able to stumble into this basically like hypersonic testing use case that provided a massive amount of revenue much earlier on in the company's lifecycle, if not for existing. And it only existed because the Chinese happened to launch a missile, you know, in summer 2021. And so, you know, I think in some ways I did start it purposely a little too early, at risk with the idea of like, we might be early to market, but I want to gamble and try it now and see if we can, you know, we have a world class, class, basically founding team, world class capital stack. Maybe you can overcome the adversity of having started a few years too early.

Gotcha. To try and give a little bit of structure to this. There's this idea of maybe in opposition to the more traditional Silicon Valley, we're just going to sit down and iterate and throw stuff at a wall until it works. This idea of the Hollywood model of building startups, when a producer's coming up with a movie, they don't beta test the movie. They're making an action movie. They cast Tom Cruise. Walk me through that in the context of like startup building. What does that actually mean?

Yeah, you know, originally pulled this thesis obviously from how, you know, Keith thinks about, you know, company building in a particular Opendoor being the epitome of this in that Keith knew all of the other, you know, sort of three founders, you know, Ian Wong, Eric Wu and JD Ross before starting Opendoor, but none of them knew each other. And he basically organically put together that team because he basically listed out what were going to be the core four risks basically of, of open door. You know, one was going to be, you needed somebody that just understood the real estate industry, given that you're going to have to operate within that. And Eric Wood basically built that type of company, you know, in the past. Two, you need somebody who was really strong on data science and underwriting so you could actually accurately, you know, price understand these homes. Ian Wong had the perfect background for that. Three, you really want to innovate on just the consumer experience, the product and the software to actually help the back end operations. J.D. russ worked at Addepar. It was the perfect analogy for a company that was like, you know, again, software for highly complex financial transactions, both the back end and the front end, for consumer experience and then for obviously highly capital intensive in that you both have to raise early on a ton of equity as well as obviously over early on and over time, a ton of, you know, basically real estate, you know, debt and equity as well. And obviously, you know, Keith was a perfect, you know, example of that. And so again, just like you cast Tom Cruise for the, you know, action film, you know, rather than like a Tom Hanks or Tom Holland, let's say you, you know, he cast the perfect people that would, you know, burn down the core four risks of the company and put together. He didn't start the company with like his like college buddy or something like that. Right. He analyzed that. And so in some ways that was the same approach that I took at Varda. Basically what were the core key risks of the company and by far the biggest was just like, you know, how do you operate independent of the International Space Station? Build your own reentry capsules. And that was obviously like, you needed to have worked at SpaceX, you need to have worked on the crew and cargo Dragon project, you need to have been a leader, you need to have been charismatic. You need to be able to pull a lot of that team out because it's this extremely specific skill set. Right. The engineering of reentry capsules is not very bright. Like there's a ton of people that do engineering of satellites, but reentry capsules, there's not a whole lot of those. And so you needed somebody that could pull that whole team. And Will Brewing, my now co founder, perfectly, was sort of world class across all of those. And it's not like there's like 10 will brews in the world. There's like maybe three at best, basically. And the other two definitely weren't available because they were starting their own companies already or had. And so that was the approach that I took to Vardo was building that Hollywood sort of cast, not only with my co founder, but on the first day of the company, January 19, 2023, we basically had 10 employees all start full time. And if you look at that roster of 10 employees, it basically covered every single one of the core risks that the company, you know, needed even more broadly beyond just the high level risk that I just Articulated everything from like the thermal engineering of reentry capsules, structures, you know, DoD basically, you know, relation, you know, BD as well as, you know, gov relations. Everything that we needed existed basically on you know, day one.

Got it. So obviously like, I mean this incubation model in general, really tough to do well like I don't know, you guys, Sutter Hill Ventures, maybe like Thrive, APC or really just a handful of people who've proved themselves to be any good at this at all. Do you think this model takes more of a hold over time or no?

I do think that it will take more of a hold less due to more VCs trying it per se. In that I think there are some firms like a Sequoia for example. It's just not in their cultural DNA. It's seems like to do this type of stuff they're very much so like you know, focused on investing and you know, are going to, you know, grind and focus on that. So I don't think there's necessarily going to be a lot more people that try to do it. But I think that if you look at it over the next decade, what types of companies are going to be generating the most returns and have the most impact on society? I think people are starting to realize that the falsehood of zero marginal cost of software was actually complete fake news in that if you have zero marginal costs it also means you have zero five point remote because it means two Stanford grads can go build the same shitty piece of software and go sell it as well. And so it turns out, you know, you have people like Datadog and Snowflake going at each other's throats and continuing to, you know, have decreasing margins when in theory those things should have been the most beautiful business on earth. That's say they're bad businesses or anything, but they're just two, you know, examples of, you know, these things are not totally, you know, sort of non competitive versus you know, I think venture capitalists are starting to awaken to the idea that ultimately what you need to be aiming for is the you know, most long tail of outcomes. And if you look at the you know, called top to five you know, companies in the NASDAQ right now, you know, Apple, you know, Nvidia, Tesla, sure you have companies like Microsoft that maybe do a little less hardware, but non zero and Amazon, which definitely does a decent amount of, you know, real world and hardware people are starting to realize that in order to build these like long tail outcome companies, you actually need to build things that tend to be a little bit more capex intensive. And so that tends to mean that it's something that is easier done when you have a venture capitalist effectively as a co founder. And so I think you'll see some more of it mostly because I think the most interesting companies are going to be more consistent capex intensive over the next decade. And so I think you'll see more company incubating because of that, more so than like it being like the trendy new thing. But is it ever going to be more than like 1% of the companies that are built in Silicon Valley? You know, almost certainly not. I think it's 1% of the companies that are built at Series A. But if you look at the IPOs, it's actually probably closer to like you know, 7 or 10% of the IPOs. So there is a clear correlation between. And it's always just like opportunity costs. But VCs, you know, taking the, you know, time to, to discard a ton of potential investment opportunities instead build a company, it's normally got to be pretty damn good to justify it.

Gotcha. Okay, I want to back up even further and talk about the impetus for any of these things starting in the first place. And that is the role of media in championing technology or painting a picture of technology. So I think there's a few arguments that argue for maybe more of a recent disconnect, whether that's the great stagnation. I think that Peter kind of argues that people are afraid of it or don't understand it in some ways. So you're equating nuclear energy with nuclear bombs or you're equating anything in genomics with gain of function research. I guess I'd ask you, I personally think this is more about us taking cross disciplinary communications and very specific fields for granted. What's your take on this? Where is this headed?

Do you think Peter's thesis is on the right track? And I think, I think there are other, in some ways, maybe even like simpler stories as to why, which is, you know, journalists tend to be left leaning by default and it, you know, in their mind the 2016 election and you know, you know, Hillary's loss in Trump's win was entirely due to Facebook. And so they basically went on a complete about face at that point from you know, basically loving technology generally on a consistent basis. If you look pre the like, you know, you know, 2016 election. Yeah, I'm sure if you did an average sentiment analysis of like a TechCrunch article or you know, even ex TechCrunch, Gizmodo, etc. The average sentiment analysis would have been like 80% positive versus like post that election, it probably goes like 80% negative. Interesting. I think there's a part of it that, you know, is, you know, that bit flipping and then a part of it is that, you know, people starting to realize that especially as we're on this, you know, I'm actually, you know, you know, relatively, you know, vocal critic on the, you know, sort of great stagnation, you know, thesis in that. I think it was, you know, sort of complete fugazi. Even in the time where people were publishing this and talking about in 2010 through 12, you know, battery energy density was continuing to improve quite rapidly. Solar costs were improving quite a bit. EV vehicles were rolling out across the United States, rockets were landing. And so to me, it was just people somehow being, you know, you know, too in the Silicon Valley bubble of seeing all their Silicon Valley friends, you know, fund boring software. But it turns out the world was, you know, marching on, you know, you know, past them and they were just missing out on a ton of returns because of that. And now people are waking up, up to it. But there is something around you, I think, as we're in this period of extreme tech accelerationism that has been going on for quite some time since the Industrial Revolution. But Obviously as that 10% year over year growth in technological capabilities obviously is much more dramatic, the bigger the technological base is. And so I think that's a part of what you're seeing is people had this bit flipping in the 201516 timeframe and now they have more to attack because technology is becoming so capable of capable, whether it's AI, genomics, nuclear, et cetera. So I ultimately, I think blame it more on sort of politics, predispositions and biases and then increasing technological capabilities, making for more compelling critiques.

Okay, interesting. More on the media side of things. There's this author, Robert Zubrin, who wrote the book the Case for Mars in 1996, another book called the Case for Space in 2019. The former apparently got Elon Musk excited with some impetus for SpaceX's founding. He also talks about space manufacturing for goods that you bring back down to Earth. What was like, I guess, the subset of media that really acted as the impetus for starting varda.

My first day at founder Splendor, maybe It was like third day, I did a one on one with Trey Stevens and he had like 15 copies of case for Space in his office and handed me one of them. And it was, you know, I'd been thinking about microgravity manufacturing for quite some time but in it he obviously, you know, sort of reiterates and shows the like economics of it. And this was Q2 19 and it was just one of these moments where I was like, God damn it. Like that idea that I've been thinking about for a while is Briny's right and it's time to you know, sort of go do this. So I would definitely credit to him and some ways for like, you know, say, you know, inspiring me to, you know, finally take Varda, you know, sort of seriously again. It's funny enough, you know, he, you know, communicated with him. I still, you know, haven't met him in person but we exchanged some emails for the first time actually like two weeks ago. So you know, hope to, hope to get to meet him one day. But yeah, I think, you know, if you look at the media that's inspired me, you know, call it, you know, sort of pre thinking about the idea for the first time in 201011 it was just like classic sci fi, Asimov foundation series, et cetera. And then in 2010 11, the real inspiration that got me focused on this industrialization of space was the Google X Lunar Prize, like Peter Diamandis and crew, you know, back then and some of the first generation of companies like made in Space, like you know, sort of Deep Space Industries which is the first like you know, Astro Mining company and then Lunar Express which was like going to be the first like you know, Lunar, you know, Rover and Lunar Ice Mining Company, those three all you know, sort of inspired me of, you know, these ideas are no longer, you know, sort of complete fiction. There are, you know, VCs that are backing these now. Again, all those companies in some ways were a decade to early but it showed me that it was possible to go and try and tackle these problem sets. And then Fast forward from 2011 to 2019 it was Zubrini and his book I think got me. So I'll call it Asimov, Diamandis and then Zubrini. Cool.

Okay, on the topic of talent, now to shift gears for a little bit. An analogy you guys used at Koslo was that building a company's like laying cement right early on. The cement is liquid, it's malleable. You can stir it around. As time passes, it hardens. Once it solidifies, adjustments require a jackhammer and jackhammering leads to cracks and lots of noise. Headcount wise. What's the critical mass for really? Cementing a company's trajectory really early on. What is that number?

Yeah, I think in some ways there's a couple of different sort of cementing points. The very first one is just like first 10 employees. Whatever your quality bar is there, it's only going to decrease over time. It's never going to increase effectively from there. The next point I would say is around the 40 to 60 mark, where you can no longer just do effectively, everybody effectively reporting to a founder. At that point, you need to enable other people to be, you know, managers at the company. And what that means is you are no longer solely responsible for culture. And so whatever the culture is at that point, that is effectively what the culture is going to be on a go forward basis in terms of what behaviors are rewarded, who, what types of people are promoted, how decisions get made, you know, that, you know, very much so, you know, gets cemented. Those I think are like the, you know, the two, you know, sort of most, you know, critical, you know, beyond that, I think everything is, you know, much more minor in comparison. But yeah, talent and then culture.

Also on the topic of recruiting, there's this great saying or adage that doing hard things is easier than doing easy things. I think this is probably very much the case in Varda's case. But for you, you mentioned earlier, the talent pool for the actual competency to work on something of this magnitude is minuscule. How has storytelling and getting people excited about this vision really played in and how have you done that so far? Effectively?

Yeah, I mean, SpaceX in some way had a huge lock on the reentry talent. Given that they were the only ones to build a, you know, a crew and a cargo dragon, that it was actually successful. And so, you know, they had all been pitched by a million companies that were like, I'm gonna make the next rocket company, I'm gonna make the next Starlink, I'm gonna make the next satellite constellation. You know, if you're working at SpaceX, you're like, why would I go from working at the best rocket company to the third best rocket company? Like, it just makes, you know, sort of no sense. And so I think a lot of, of what, you know, made our pitch very compelling was that, hey, this is what reusable rockets enabled. You're working on the next generation of use cases that are enabled by the work that you built over the past decade. And so, you know, I think that sort of one liner message has been extremely effective for the talent that was already, you know, existing within the aerospace industry and Then obviously there's a lot of things that Varda does that can pull from broader talent pools beyond just SpaceX and those just having this type of mission relative to like somebody building like software for planning plumbers makes it just like a much more compelling job for them to pursue. And so I do think that adage does work in that being a deep, mission focused company makes it so that you can recruit people with compelling vision rather than just interesting cash comp.

Okay. You seem to be very much with mindset. I think very similar to Keith said, all that matters is the early team. Right. I've heard you mention as well, you go through the LinkedIn of every single employee at a company that you're evaluating. Now what kinds of things do you find yourself looking for most?

It really varies on a company by company basis. You know, I think if, if I were to provide a sort of organizational framework for it, it kind of relates that Hollywood analogy in that I'm looking for, you know, in the core risk areas where the company needs to be top 1%, are they world class in it, right? So for example, in, you know, biopharmaceutical company, do you need like the salesperson to be world class? If it's a cancer drug that fucking works, it's going to sell off the shelves, you know what I mean? Versus in something that's maybe like an undifferentiated piece of software, all that matters is like, you know, sales and branding. Right? And so a lot of what I'm analyzing there is just like looking at, you know, where is this person either previously studied, what work have they done, you know, you know, where they worked previously. Did that company have a culture of being like, you know, sort of super world class, like, you know, one, you know, generic examples like, you know, Dropbox back in the day, very well known for extremely good product, extremely good engineering, extremely good design, terrible sales. Box, Complete opposite box. Phenomenal at sales, terrible product, terrible engineering, terrible design. Right. And so when I was looking at somebody's resume, it's like, well, if the company was critical, product engineering, design, much better that they, you know, came from Dropbox versus, you know, something like box, right? And so I think a lot of it is having the like historical Silicon Valley instincts on four various companies. Where did they basically differentiate and what was the killer skill set that they had that allowed them to, you know, ultimately succeed. And so yeah, it's mostly, you know, and I do this more, let's say it's series A, right? At C, normally it's just the founders. So I just analyze their backgrounds, but at series A in particular, in some ways I'm no longer just analyzing the background of the founders. It's also who have they been able to attract? Because sometimes you can have these like world class founders with phenomenal backgrounds, but they're just terrible storytellers and recruiters and so they're not able to, you know, recruit great people. And sometimes you have the 19 year old founder that has, you know, Joe Schmo random background, but somehow they're able to recruit like world class talent. And so that's definitely happened a handful of times where it's like, I'm like, the founder is like fine, but like, oh my God, they're like a phenomenal recruiter. And in some ways if they're a phenomenal recruiter, they're a phenomenal founder. Got you.

Okay, I want to talk a little bit more about the why now, but from the opposite side of the table now. Right. So we spoke about how important SpaceX laying that first level of infrastructure has been for Varda. How important across the spectrum of how capital intensive a business is. How important do you think the why now is when you're investing more generally?

I think when I'm looking at a company, I am always, almost always just evaluating the company on the basis of the quality of the founder and the quality of the business and idea and story that they're telling. Is why now immediately necessary in order for that to succeed? Maybe, maybe not. I'd say there are some companies that have very obvious answers for that. There's some that do not. In that Facebook was the 300th social media company, was there any technological revolution somehow that enabled Facebook when it did? It's not like HTML came out with some net new paradigm that made it brilliantly successful. There's clearly not an answer. Same thing with SpaceX. It's not like there's some technological development that enabled it. Whereas on the flip side, Uber has a very obvious answer. Smartphones in everybody's pocket meant that everybody had Internet and GPS in their pocket at all times, making it to the NOW model like Uber, where you're needing to identify where a consumer is live and communicate them to the Internet to send a car to them is now enabled. And so there's clearly times where it is important times where it isn't. But I would say, you know, for the world class founders, if they have a strong or if there is a why now for the idea, they are going to identify it and you know, present a very compelling Sort of case for it. So yeah, I don't think it's always necessary. I think for Varda it was everything was a question of why now. The like, you know, launch costs, even you know, at the time, you know, interest rates and what they were at and cost of capital to, you know, fundraise a ton of equity capital was the only thing that made, you know, basically Varda successful. Like the fact that we were able to, you know, build up a massive balance sheet during, you know, low interest rate times that we now have utilized to make a ton of progress is the thing that allowed us to you know, basically skate to the success that we've had two, three, four years earlier. No way does like you know, first time field founder, junior VC raise the amount of capital that we did. But it was in this like, you know, freak ecosystem and it's like ways. That was both this piece of advice that I got with Keith to focus on incubation and literally this one off pithy tweet that I sent that was in a low interest rate environment. What better time than to build a super capex intensive space company. And then I read my own tweet and I was like, oh God damn it, I know what I have to do.

Got to do it. Okay. I think it's become pretty clear the best returns from an investment standpoint come from deals that are non consensus. There's a framework you use for thinking about this that takes the form of a two by two grid. And you talk about that.

Yeah, this is not my own framework. This is very much a, you know, Peter Thiel framework, but it's one that, you know, I think about, you know, a lot, which is pretty simple. It's non, you know, sort of, let's say, you know, consensus contrarian. Right? Wrong. Pretty simple. You can be consensus and. Right. There are plenty of companies that have been hyper successful in Silicon Valley. They were basically consensus investments even from like the very earliest days. Every single VC was basically competing for them there. You need to just rely on logo, brand, et cetera and the, you know, prices might be be higher, you know, than you'd expect, but it doesn't actually, you know, matter in some ways. You know, you're going to ultimately, you know, make a ton of returns and there's a decent amount of investors that, you know, entirely focus on that. They, you know, think about branding themselves, marketing, they do events, they do founder dinners. They're just non stop focused on just like networking and chasing the hottest deals. Right. There was a, you know, infamous thread From a, I won't name him but you can look it up, you know, thread from a prominent, you know, GP at another firm that was talking about his framework for investing and he explicitly was like, I chased the heat. If a deal is hot, the hotter it is, the more you should be paying up for it and the more excited you should be because the more investors that are looking at, the more likely that it is going to be successful and be able to raise in the future. And you should just pay by far, you know, the highest price that investors returns don't look amazing right now. But you know, it was interesting, you know, sort of thesis. There's, you know, so that's consensus and right. There's contrarian and wrong. Which is where a lot of people get stuck in this intellectual trap where like okay, well I'm not going to do what the consensus people do. I'm going to do the crazy far out there ideas. Well, it's super contrarian today to invest in lunar ice mining and so I'm going to go do that. But ultimately just being contrarian is not enough. Right. You are now going to be wrong about lunarized mining in that it is not commercially viable today. You know, the cost to land on the lunar surface, there's nobody. Is way too high, there's nobody utilizing large scale amounts of water today. And so ultimately you're just fundamentally sort of wrong. And so you can end up wasting a ton of capital because in order to ultimately become successful you do need to transition between con or quadrants. The best transition is if you start from contrarian and right and move to consensus and right, right. Even to the most contrarian investments, things like SpaceX which everybody hated early on as they started to have success, move to consensus. And if you look at any successful company, they need to over time move to consensus. But the place, the place where you have by far the best returns are that contrarian and right. Right. Founders One is one of the very earliest backers of Space X. I think they just basically landed their first ever Falcon 1 or launched their first ever since Falcon 1, you know, back the truck into the company when nobody else was believing in it. At the time everybody thought we were crazy as a venture capital firm backing a private rocket company. No private rocket company had ever made any money. They all had died and lost money. But we were both contrarian and ultimately right because we eventually shifted to consensus and right.

Do you think Varda is consensus yet?

More than it was, you know, three years ago. But I would say consensus. I would Deem by you ask almost any investor is this a company that you wish you had shares in? And the answer is not north of 50% yet. It is more consistent than it was three years ago. But we're definitely not the current thing trademark like Anduril is.

Gotcha. Okay, analytically here, what separates the people in the contrarian and wrong versus contrarian and right quadrants? What is in a way I'm just asking you how to think I think. But any sort of details there you can think of.

It's knowing what skill sets I guess are necessary to evaluate whether you're right or wrong and making sure to focus on that area in that. Keith is a legendary financial services investor. Why? Because as a former world class lawyer he understands the regulatory environment where there's edge cases you can tackle to create innovative net new companies where you're just going to get totally slammed by the SEC and never actually be able to launch anything you're totally fail. And so he can understand the ideas that are contrarian right versus wrong and intensely focuses on those. Like in some ways one of the things that I've learned from Keith the most is the first question you should be asking yourself anytime that you're evaluating investment is why am I going to appreciate and understand this better than anybody else in the world? And so if you're somebody that's never done anything in aerospace but you're just excited to do lunar ice mining because you just think it's like sexy, that is definitely not the right reason to be investing inside of lunar I planning you should have deeply thought through what is my path to liquidity here? What is the path to revenue? How am I actually going to be able to bring this thing to market? And so I think it's hard to expect you to be able to differentiate between contrarian right and wrong across the entire world of ideas. I think the most difficult thing is knowing where you can and what I'd say is by default if you're 23, the answer is basically nowhere. And your job is to make it so that it's more than nowhere over time. And I'd say I think there's a limited set of things that I can do that you know in now I would say aerospace is by far my strongest. Maybe there's a handful of other areas that I'm starting to get decent at. But yeah, having that self awareness I think is the most difficult part.

Got you two pronged question here. One is what lessons have you drawn from your best investments that you now employ as A founder. And secondly, how have you changed your investing style based on things, things you've.

Learned as an operator, you know, based off of the investments that I've made, I think even more so than before, just, you know, having a very clear answer as to why this is going to be their life's work. Like, ultimately, if you look at, you know, sort of my top two investments, Ramp and Sword, I could give you an extremely extensive history of why these founders have been thinking about this problem for an extended period of time and why they are the most perfect people in the world to go tackle this. And so I think it's made me set an even higher bar where in the early days, investing was a little bit more easily swayed by, like, the hot YC company on the trendy thing. But it turns out if it's a hot YC company on the trendy thing, it typically means founder that, like, picked up an AI tool six months ago because he was, like, whiteboarding out what various business models were and was like, I'm going to do this one because I think investors will like it. And the moment they're optimizing for what investors will like rather than what they want their life's work to be, it never turns out to be sort of a great investment. On the operating side, I think it's mostly that I've, like, you know, already had this from my first company that fed into investing, but even more so with Varda, just the importance of resiliency. You know, Varda has been by far the most sort of professionally intense and, let's say, high amounts of responsibility and stress environment that I've ever had in my entire life. And there are many times where we've gotten our feet chopped out from under us. And the thing that has made it work is that we just get up and keep going the next day. And that is not the default personality that most people have. Most people, if they get their feet chopped off, just spiral and just get frustrated and don't pick themselves up and keep working. And even the former version of Delian was like, that. My first company, when we got our feet chopped out from under us, I just gave up. I was just like, fuck this. This is too hard. I'm banging my head against the wall. I'm not solving this problem. I'm just gonna go dick around and not work as hard anymore, because why bother, basically? And I think in some ways, these two factors are somewhat coupled. It's just a lot easier to pick yourself up and dust yourself off when you're like, well, this is the life's work and so what the fuck else am I going to do? Like, I just kind of got to keep going. Like, I don't like that I got punched in the face, but like, you know, just got to kind of keep, you know, boxing or keep walking because, you know, there's nothing else that I can do. And so, yeah, I think it's a lot easier to pick yourself up and have that resiliency when you have that just like fundamental, you know, core answer that in some ways it's like the company is your identity, it is who you are and what you want to.

Do with your life more practically on either side of the table.

Table.

What skill do you wish you developed earlier?

I think that there's a set of founders that even when they're like 19, 20, 21, like college dropouts, have a very prescient understanding for what I'd call just systems thinking. Both incentive structures, decision making, inputs versus outputs into what creates a great business. Not. And I don't think that I had that when I was younger and I think I in some ways learned that through osmosis by, you know, both working with Keith originally at Teespring and then, you know, being his chief of staff versus there's clearly some people where that comes very naturally too. Like I think now I understand the system of, you know, how financings happen, how companies are built, how organizations are structured, how decisions get made across a wide variety of contexts very easily. The former version of Dalian had a really difficult time with that and made what now appear to be like extremely basic eras. The one you know, I'll just give this as a very tactical example, but highlights it is my first company got a ton of great product market fit with small scale basically like autism therapy clinics. And rather than, you know, our acquisition strategy to get more of these clinics was to go to these large conferences and talk to the people that were in the booth at those conferences. Turns out if they can afford a booth, they're not an SMB clinic. They're like a 10,000 plus person employee clinic that could afford the like, you know, massive cost of a booth. And so I was talking to the wrong set of customers. Rather than instead all these like, you know, autism therapists, you know, in the clinics, had it listed in like their Facebook or their LinkedIn et cetera, could have just done some really easy like digital organic marketing. It would have been much better, you know, set of like customers. We could have done it basically entirely self serve. I and my first company, despite having raised $600,000, literally spent $0 on digital marketing to our customer set. And it just like, it just wasn't even an idea that occurred to me. And in some ways I think it just came down to like systems thinking, not thinking, thinking through. You know, I, I wasn't super rigorous and first principled about who am I trying to go after, why am I going after them, and what is the best way to going after, go after them. And if I think I really asked myself and sat down and done those questions, rather than doing the instinctual thing of like, you know, the instinct was, I need to be where autism clinics are, they go to conferences, I'm gonna go there. And it's just like, you know, the first layer thinking is just very wrong. And most people just operate on first layer thinking all the time. Time. In some ways, maybe this is like the Elon sort of like, you know, first principles, you know, sort of thinking. I sort of describe this as like systems thinking.

Got you. I want to shift sort of homestretch here to talking about you. You were born in Bulgaria under pretty much economic crisis, hyperinflation. You moved here when you were really young. What characteristics did this instill in you that are different from most people who were born in the US.

One, how great it is in America and how terrible it is everywhere else, you know, in the world. And you know, the both economic ambitions, capitalism, freedom of speech, all of those just being things that I truly cherished and made sure that I was taking advantage of as much as possible. I think it's very easy if you're just born and live in the United States, to not appreciate what you have here and because of that, not take full advantage of it. And then the second is, I would say, a level of basically discipline and academic rigor that came from being Eastern European mathematics, you know, sort of household, you know, coming home every day after school to then immediately do an additional three, four or five hours, obviously mathematics studying. And then during the summer is going to like, you know, full three month long, effectively summer, you know, mathematics training camps. And so I think that basically, you know, Bulgarian, let's say, you know, culture, you know, gave me an appreciation for the US and instilled in me, I think, this like, you know, sort of work ethic that's very sort of strong in Bulgaria. I think those are probably the two biggest effects.

So you're smart, you're disciplined, you're driven. Than what do you think, some of the less obvious reasons that you've had the Success you have are probably some.

Level of just like, you know, self awareness that grew over time. In that, you know, I have learned that I don't think that I'm a great CEO. I don't necessarily really love managing people. I can be relatively emotionally volatile. I'm very add. I love jumping around and doing all variety of, you know, various things. Those are all things that are much better suited in a role that is, you know, more intellectually diverse. Like the role that I'm in today where I get to bounce between being founder, investor, you know, go to dc, both representing Founders Fund and Varda and speak on, you know, basically both topics. And so I think optimizing, you know, towards, you know, and I've told this to many people, like optimize towards your strengths rather than trying to mitigate your weaknesses. And I think for a long time I was forcing myself to do things that I was inherently weak at rather than leaning into my strengths. And so having the self awareness to know what those strengths and weakness areas are and be willing to give up what was previously a very core part of my identity where, you know, Pre call it 23, 24, I really believed I was like, I need to be a CEO. Founder, CEO, founder, CEO, founder. That's what I'm going to do with my life. And being willing to not have the ego to hold on to that unnecessarily long and instead discard that and recognize, you know what? Fuck this. I'm better as an investor. I'm better as like a chairman. I'm better as the person that is like the, you know, behind the scenes, you know, you know, coach, confidant, can, you know, be the public face if I need to, can go fundraise, but I'm not gonna be the person that's doing like, you know, 12 one on ones on Tuesday days. Fuck that.

So just be honest with yourself. Yeah, okay. Speed seems like a bit of an obsession of yours. I mean, it's reflected by, you know, you count the number of days since the company was founded, days to launch. I think as well drop that out.

Unfortunately, at day 1001 right now, and we have not yet landed.

Dropped out of mit, did a company, worked for a company, did investing, started another company. How do you think about speed and time?

You know, it's funny, it's not something, you know, I think there are times where I reflect on, on a lot of different aspects of life and the decisions that I make. But in some ways, like the speed thing is something that comes more instinctually and that I think it's mostly that I'm just like extremely impatient and just have this, you know, need to, I think just accomplish, improve as much as possible. You know, even from the youngest, you know, age, I was like, I just, I want to be in like the top.0001% and the only way to do that is to get started as soon as possible because this stuff is like so compounding and you need as many shots on bat by the time like you retire and become so 70. And so I just need to get going as quickly as possible. And so, you know, I can't claim that it's something that I reflect a lot. A lot. I think it's more just like core motivation and personality trait that shows up most of the time as impatience. And then I force my impatience onto others through all these like, you know, metrics of, you know, days and time, etc. It's funny, my like, you know, co founder yesterday was just asking me, he's like, Danielle, like you seem a little like high strung, like you know, is everything going on, you know, at home? Are you fine? And I was like, I'm fine. I'm just, things aren't moving fast enough and I'm mad and I'm mad at the world. I'm not mad at any particular person. It's just like it's not, not fast. And I'm going to continue to be mad and work hard until I'm happy with how it's going. But right now I'm mad.

One last question for you. It's the same one I ask everyone at the end of every interview inside or outside the scope of anything we talked about today. What should more people be thinking about?

Yeah, maybe it comes down to that sort of honest truth and self awareness of I think more people should be thinking about rating themselves and maybe using friends, mentors, spouses, partners to rate themselves on basically like what their strongest skill sets, you know, personality traits are and where that lines up with how they can provide the most value in the world. And focusing in on that, I think, you know, I really like this book, what was it called, like Breath or something like that where I think, you know, he basically talks a lot about how early on in your career it can be a huge advantage to basically try 5, 6, 7, basically different professions, activities, et cetera, and then just do the one that feels the least like work. Like I wake up every day and I love coming into the office and like doing my. I do. And it's just like the thing that I want to do. Like, I can't imagine waking up and doing anything else. Like, if anything, like, you know, when I'm forced to not do it. Like, you know, my wife wanted to. We did, like, a baby moon last weekend, week slash weekend. And I had this, like, Friday morning where I was like, I really want to go spend time with my wife. But also, I'm like, I'm so upset that I'm not in the office right now because there are so many things that I want to do. And I think, you know, finding the thing that makes you feel that way rather than the thing that makes you feel like, you know, sort of clocking out. And most of the time, the thing that will make you feel that way is the thing that just comes naturally. People love doing the thing that you're naturally good at. You get to, like, show off by not working that hard. Like, I don't feel that I work that hard in some ways, because I'm just doing the thing that I love to do every single day. And I love, you know, spending 12 hours in the office. Cause it's like, fuck, yeah. Like, I got to show the world that I get to spend 12 hours on the thing that I'm good at, and that's gonna show up. And, like, you know, my metrics and my proof points and my accomplishments and, like, you know, why not do that? It's like, you know, I'm sure Serena Williams, she fucking loves playing tennis. You know what I mean? And, like, that's why she's so damn good at it.

Dallian, that's all I got for you, man. Thanks for doing this.

Thanks so much, man. Thanks for having me. Of course, Sam.