Letter #256: Palmer Luckey (2019)
Founder of Anduril, Oculus, and ModRetro | Hacking for Defense Keynote
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Palmer Luckey is the Founder of Anduril, Oculus (acquired by Meta), and ModRetro. After Oculus was acquired, he worked at Meta for several years before starting Anduril. Palmer founded Oculus in 2012, three years after he started building VR headsets as a 16 year old. As a college student, he worked in the Mixed Reality Lab of the Institute for Creative Technologies at USC.
Note: While today Palmer is more known for founding Anduril and Oculus, and ModRetro just launched the Chromatic, ModRetro actually came before the other two—he had founded the ModRetro Forums when he was just 16, creating an online community for “portabilization” (the art of turning old hardware devices such as game consoles and PCs into self-contained portable units mixing new and old technology).
Just last year, ModRetro released the ModRetro Chromatic — a handheld device that can play Game Boy games. If your children or grandchildren (or you) grew up playing Game Boy games, I highly recommend checking it out. (No affiliation — just a fan of the product.)
Today’s letter is the transcript of a keynote Palmer gave for Steve Blank’s 2019 Hacking for Defense class. He starts by giving a quick introduction before laying out the importance of smart people working on difficult defense problems, then giving a little bit more color on his background. He then shares how that background led to the creation of Anduril, highlighting why the approach was not a scalable model for innovation for the entire Department of Defense, pointing out that there were only two defense tech startup unicorns at the time. He wraps up his talk by sharing what drives him to work on Anduril, before expressing excitement to learn more about what the students are working on for the Hackathon, and then answering a few questions on advice for students, the most promising startups in the defense space, and the one thing he would change about the DoD acquisition system.
I hope you enjoy this keynote as much as I do! This was a particularly fun talk because Palmer vocalizes his desire for Anduril to be the first defense tech unicorn after SpaceX and Palantir. Less than half a year later, Anduril announced a $120M round valuing them at $1B. Today, Anduril is a unicorn 14x over, having just raised a $1.5bn Series F valuing them at $14B—all within five years of giving this keynote.
[Transcript and any errors are mine.]
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Transcript
Thank you all for having me. Hello, fellow kids. I'm, for once, the underdressed child in the room. So that's... not actually that new. So my name is Palmer Luckey. I give away money, and I also give away jobs. But what I like to do every day is work on autonomous systems for DoD, primarily Marine Corps and Department of Homeland Security.
I'm here today to talk about--for a few reasons.
First of all, I'm a huge fan of the Hacking for Defense approach. And really, this is not enough. We really need something like 100x more people doing exactly this type of thing, because this concept of connecting really smart people who want to work on these problems with the problems is, I think, the right way to do this. And I'm especially a fan of the way that you guys are hearing these problems from your potential customers, but not necessarily taking what their proposed solutions are as the gold standard. The thing that I've learned working in the defense space--no offense to the people wearing uniforms--you guys are really good at knowing what your problems are, and they're very good at communicating what the problems are, but they're not always the best at coming up with the optimal solution. And that's just because you get more people working on a problem, you're gonna have a lot better solutions.
So a little bit of background: I started Oculus when I was living on my own in a camper trailer. And I stayed there for a few years, we sold the company to Facebook for $3bn, and I made a lot of money that way. And then Facebook fired me after I'd grown it to about 1,400 people. And I decided I wanted to work in the national security space. That wasn't actually a new decision that I'd made, it's something that I knew and known that I wanted to do for years.
Prior to starting Oculus, I worked in an army-funded research lab on a virtual reality exposure therapy program for soldiers with post-traumatic stress disorder--the idea being that you could expose the soldiers to the types of environments that they had problems coping with, and that they could learn to cope with them, and they could learn coping strategies, so that they didn't have to be so dependent on on drugs and just having a bad time.
And while it was there, I realized that a lot of the technology we were using was really bad. I realized that the process for obtaining new technology was really bad. And the whole time that I was at Oculus, I couldn't stop thinking about that. And I tried to help with a few groups, I tried to work with some interesting branches in the government--they were doing some cool simulation stuff. And the process was just really, really bad.
So when I decided that I wanted to work in the national security space, the approach that I decided that I wanted to take was a product-focused approach. So rather than going to our customers with a white paper or a sketch and saying, Hey, here's an idea, here's this rough concept we have, we want the taxpayer to pay for all of the research and development, I wanted to take an approach where we're using our own money to decide what to build, how to build it, when it's done, and then selling it to the customer as an actual product.
The problem with that approach, and the reason that it's not a scalable model for innovation for the entire Department of Defense, is that it relies on me having a ton of money. And this is not a unique problem. If you look at the private sector, there are only two defense companies--I'm not trying to discourage you guys, by the way, if it sounds like I'm being a little downbeat, I'm just being real with you.
There are only two unicorns in the entire venture-backed company community that have become unicorns working with the DoD. And that's SpaceX and Palantir. And as much as I love SpaceX, and I love their mission, you have to admit that their mission is not defense. Their defense work is incidental to their mission of getting to Mars. Now, what do SpaceX and Palantir both have in common? The only two unicorns in the defense product space? Can anybody throw it out there? Yes.
Audience Member: They both sued their primary customer.
That is a really good one. So that is one thing that they have in common. Both of them had to sue their customers and try to get the government to actually abide by the guidelines that the government themselves set. Yes, we had another guess right here.
Audience Member: Both PayPal founders.
Both Pay Pal founders. But even more relevant, they both had billionaire cofounders. So it turns out, like, what's the old joke that you can apply to anything? What's the best way to become a millionaire defense contractor?
Audience Member: Start as a billionaire.
That's right: you start as a billionaire. So this is an approach that you can take when you have an enormous amount of capital, and I did this because I felt like I didn't have a choice. I was friends with a lot of the other people who had been made very wealthy by Facebook, and some of them got into collecting air-cooled Porsches, and some of them are just cruising around the Mediterranean. And I felt like I had a duty to work on these types of problems, because I'm very afraid of what other nations are doing relative to us, I'm very worried that we're falling behind, and I'm worried that there's a lot of talent that's going underutilized working on problems that don't matter, like search engine optimization and advertising optimization. I couldn't take it anymore. I had to work on something really important.
But one thing that I think all of us in this room have in common is we might differ on the details of exactly what's driving us, but I think all of us have that sense. All of us want to work on something that's really important. We want to work on problems that we're not gonna be able to touch if we're working at Snapchat, or Facebook, or these days, Google. And I'm really happy to be here, I can't wait to see what you guys are presenting today. I already know some of the things--I've chatted with some of you before, but I'm gonna see other stuff.
You told me that we could have a couple questions. Is that still true? Do we still have time?
Moderator: You're on time.
All right, we're gonna do two to three questions depending on how fast we can talk at each other. Does anyone want to go first?
Moderator: Any questions? Looking around the room. Come on, one question!
I'm gonna look really dumb if nobody asks a question. Boom.
Audience Member: What advice do you give to us younger students how to become as rich as you and--
I started working on virtual reality because I was fascinated by it. There had never been a successful VR company at that point. I didn't get into it to become wealthy. I know that is cliche, and it sounds trite, but it's true. I got into it because I was passionate about it, and I became extraordinarily lucky to work with the right technology at the right time. I'd say the best advice that I can give you if you want to become wealthy is get really good at understanding what your weaknesses are and then find other people that cover those weaknesses, and trust those people as much as you can. Because if you try to do everything--the whole myth of like the God-boy King CEO of Silicon Valley tech companies is totally a myth. I've seen these people, I've met these people, I've worked with them. They all rely heavily on the people around them. They are usually very good at one specific set of things. And they act like they're really good at everything, and like they're the reason for every facet of success in the business--that's not what you're going to be able to do. You have to find other people, and you have to trust them to do their jobs. So that would be my number one piece of advice. Dude, I'm only 26. I don't have all the answers. All right, next one.
Audience Member: Palantir and SpaceX are the first two unicorns in the defense space—what are the third and fourth?
Well, I like to think that my company is going to be one of them, but--there seems to be a pretty good pattern of billionaires starting defense companies and then being able to bend the system to their will and then it turning out really well. It's less obvious for companies that don't have those resources. Who are the next one's going to be? I think that they're probably going to be companies that have been focusing on enterprise stuff and they're going to pivot into DoD stuff. And I know that's the opposite of what you usually see, like we've had vendors that we work with ourselves who started doing work with DoD, DoD gave them SBIR grants, they gave them a little bit of money here and there, and then as soon as their dual-use product ended up becoming successful in the enterprise space, they completely abandoned DoD. I think that we're gonna see other companies that are pivoting the other direction because DoD is understanding that they're not going to be successful unless they invest beyond these really small SBIRs and these tiny little research contracts that basically lead to like "Innovation Theater," where it's like, I'm gonna do this research project that looks really good, and it films really well, and it goes up on a poster board really well--sound familiar, guys? But not investing enough where it's actually making its way to privatization. And I'm speaking in broad strokes. If anyone says, What about x? Yes, x is great. But everything is not x.
Moderator: Alright, one more question.
As far back as we can go. There we go.
Audience Member: If you could change one thing about the DoD acquisition system, what would you do?
Oh, man. One thing? All right. So I could get into the nitty gritty and suggest some small--some sites like this procurement vehicle should work better, or people should use OTAs for what they're actually supposed to be used for instead of not using them--but I think the best thing that could be done, broadly, if I could just snap my fingers and it happened--Hey, I totally forgot what I was going to say. I think that, broadly speaking, the DoD needs to generate success stories that cause venture capitalists and people who give money to private companies to want to give money to private defense companies. Right now we're in a situation where the only way to raise money from the VC community is to say I have dual-use technology--we're doing all this DoD work, but really, it's this big platform play, and we're going to make all this money off these commercial sectors. And the reason for that is that venture capitalists, at their core, whether they admit it or not, are pattern matches. They don't actually want to invest in things that are completely different. They don't want a weird founder and a weird business and a weird model and a weird product. They want everything to be normal and then there's one weird twist. It's true. They don't want to invest in things that are too different. And as pattern matches, venture capitalists are sane people, and they say, You know what? I'm looking at the landscape. You know how many unicorn defense companies there are? Oh, that's right. There's none. Except for those ones that were funded by those idealogue billionaires that wouldn't even take my money. I think that if I could change one thing about the DoD procurement process, it would be to do a variety of things that would generate at least a few success stories so that venture capitalists would feel like they have--venture capitalists need to feel like they can take money from their clients and put it in defense companies and not get shredded apart by the partners in their firm. Right now, if I'm a venture capital partner and I put a ton of money into a defense company, all my investors are going to come and they're going to be pounding on me, saying, Why did you do that? That's so dumb. It's totally gonna fail. And the statistics show that they're probably right. So, I know that that's a broad thing, but that's what I would say. Thank you guys for give me the opportunity to talk. I look forward to staying in touch. I think that we all want to do the same things here.
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Wrap-up
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