Josh Wolfe & Chris Power - Factories of the Future

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (1:43)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:08)
My guests today are Josh Wolfe and Chris Power.
Josh will be a familiar voice to many of you and is the co-founder and general partner of Lux Capital.
Chris is the founder and CEO of advanced manufacturing startup Hadrian.
Most of our discussion centers on the need to modernize the factories that supply our space and defense industries. But given the current market environment, we also talk about capital conditions and the responsibility to build products that really matter. Please enjoy this conversation with Josh Wolfe and Chris Power.
Chris and Josh, this is gonna be a totally different conversation about an area that I don't think I've ever explored before, very keyed in on a certain kind of manufacturing. I'm sure we'll hit bigger themes of on-shoring of manufacturing and just the next generation of this part of the economy. We'll spend a lot of time around precision parts, what Hadrian's doing, why Lux is interested in this area, what Chris, you and your team are building. To set the stage, Chris, it would be great if you could, as you did for me on the phone recently, give an overview of the recent past and what has happened in this world. It's become a topic that everyone's talking about a little bit, but probably doesn't really fully understand the recent intermediate past of manufacturing, where it happens, why it's happened that way. So a little bit of a history lesson would be a great place to start to frame our conversation.

**Chris Power** (3:23)
For advanced manufacturing in general, which I describe as space, defense, semiconductor, eVTOL, energy, medical devices, basically everything in the Jetsons, flying car, future, all has to be domestically manufactured because of ITAR requirements, it's super high precision components. And basically 80% of the manufacturing parts for those industries flows through a high precision network of machine shops. There's three or 4,000 of them, average size is 10 to 12 million in revenue. In aggregate, they do 40, 50 billion in revenue, but it's incredibly fragmented, super low NPS. It's the most perfect Keith Reboy fragmented low NPS vertically integrated structure you could ever possibly think of. Historically, what happened is this was built off the defense primes needing a bunch of suppliers. All these machine shops got built in the first space race or the Cold War. There were businesses that got started 30 years ago by 30 year olds, and now they are 30 year old businesses run by six year olds.
What's happened in the last five years is there's not a lot of slack in the system and generally a machine shop might be making some semiconductor parts, some parts for Boeing and then some parts for like Raytheon, for example. In the last five years, because of the boom in commercial space, which has been largely driven by lowered launch costs, the success of companies like SpaceX and Anderil and then investors like Josh have been putting money into satellite companies, rocket companies, the whole thing.