# Trae founded Anduril after finding almost nothing to fund

Markdown copy of https://realalpha.app/s/trae-founded-anduril-after-finding-almost-nothing-to-fund/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Trae Stephens](https://realalpha.app/people/trae-stephens/) · Anduril
- Host: [David Friedberg](https://realalpha.app/people/david-friedberg/) · CEO, Ohalo · Founded The Climate Corporation, sold to Monsanto for about $1.1B in 2013.
- Show: All-In
- Episode: [The State of Modern War: Palantir & Anduril Execs on Drones, AI, and the End of Traditional Warfare](https://realalpha.app/v/mjNP5IOzCbA/), Apr 6, 2026
- Moment: 23:58 to 27:47 of the episode (4 min), playing on https://realalpha.app/s/trae-founded-anduril-after-finding-almost-nothing-to-fund/; the episode from there: https://realalpha.app/v/mjNP5IOzCbA/?t=1438

## Quote

> “There was nothing else. And even like looking in retrospect, like we didn't miss anything. There was just **nothing worth investing in**.”
> — [Trae Stephens](https://realalpha.app/people/trae-stephens/) at [24:46](https://realalpha.app/v/mjNP5IOzCbA/?t=1486) · All-In

## Takeaways

1. Trae says he met with hundreds of federal-contract bidders at Founders Fund.
2. He found little worth investing in and proposed starting a new defense company.
3. Shyam points to Fairchild's limit on government-funded R&D as a model.

## About this segment

After screening hundreds of federal contractors, Trae Stephens found almost nothing worth backing and proposed a software-defined hardware prime. Shyam argues founders should keep control of their R&D roadmaps, citing Fairchild.

From “The State of Modern War: Palantir & Anduril Execs on Drones, AI, and the End of Traditional Warfare”, Apr 6, 2026. [Watch the full episode](https://realalpha.app/v/mjNP5IOzCbA/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[24:08](https://realalpha.app/v/mjNP5IOzCbA/?t=1448) Trey, it's worth telling the story of how when you got to Founders Fund, you were looking for defense companies to invest in and hitting so many dry holes is part of what led to the idea. Yeah. I mean, I had, maybe still don't, have any interest in venture capital. And so when Peter asked me to come over to Founders Fund, the only thing I knew to do was just to look at the category of things I felt like I understood pretty well, which was GovTech. And so I, incidentally, you can look up who bids on federal contracts. And so I pulled that list. And then at the time I was using Crunchbase. And then I just started outbounding to companies that were bidding on federal contracts. And I met with hundreds of companies in the first three years that I was at Founders Fund. We ended up making one investment in KDM, which was renamed Expanse and acquired

[24:53](https://realalpha.app/v/mjNP5IOzCbA/?t=1493) by Palo Alto Networks. But otherwise, that was it. There was nothing else. And even like looking in retrospect, like we didn't miss anything. There was just nothing worth investing in. It turns out no one was building in this category. And so I went back to the Founders Fund investment team and said, man, I feel like someone should be building a next gen prime that builds hardware, but it's software defined and hardware enabled rather than being hardware defined and software enabled. And to my surprise, the team was like, yeah, sounds like you're probably the guy that would know that that's the gap. And I don't know, maybe you should start a company. And I'm like, oh, no, you guys hired me to work on the investment team at Founders Fund.

[25:31](https://realalpha.app/v/mjNP5IOzCbA/?t=1531) Like, yeah, that's fine. You can do that too. It's all good. So, yeah, it was kind of an accidental founding in many ways. The capital requirements for hardware business are notably higher. If you didn't have the success you had building the manufacturing facility you're building, and I'm assuming all the R&D cycles are longer and require more capital to get to a point of product, does it make sense for venture capital to be the funder of the next gen of hardware defense tech companies? How does the economics and the capital markets kind of work?

[26:00](https://realalpha.app/v/mjNP5IOzCbA/?t=1560) I'll give a take here. So I think if you back up a little bit, if you look at Fairchild, if you look at integrated circuits in 1968, 96% of all integrated circuits sold were sold to the Apollo program. There was effectively a monopsy. There's one buyer for this thing. But Bob Noyce, who was at Fairchild at the time and co-inventor of the transistor, he was so maniacally committed to a future that semiconductors, integrated circuits would be in everything, that he never let more than 4% of his R&D be paid for by the government. He was going to be like, why should I have some PM tell me what my R&D roadmap, I invented the thing. So he kept executing that.

[26:35](https://realalpha.app/v/mjNP5IOzCbA/?t=1595) And that's he, so he chased Moore's law mercilessly. And that meant in the 80s, when the government needed precision guided munitions for assault breaker to compete against the soviets we had the price performance we needed uh so this idea that you know because when you get stuck inside the government loop of what they want you never hit the price performance by the way there's a good modern analogy which is jensen and NVIDIA right 93 graphics chips sold them as an oe almost like an oem type solution until here we are the one that speaks to my heart as a child who grew up in the shadow of the space coast is shuttle you know shuttle is is a it's beautiful but it's fifty thousand dollars a kilogram to get to orbit starship heavy reuse will be under 20 bucks a kilogram, you know, and there's no way that you will achieve that vision

[27:17](https://realalpha.app/v/mjNP5IOzCbA/?t=1637) if you're in a cost plus world, because every day you're actually deleting your costs, which means you'd be deleting your profit instead of deleting your costs, turning that into margin that you can provide a better price performance on and keep writing that curve down. Right. Although to be fair, SpaceX sued their customer in the Air Force on the basis of the exact same federal procurement law that Palantir did. And so, you know, even with that massive