0:00:00 - (Steven Miller): I think the government's coming around to the idea that the private markets iterate faster than they are able to and because of that, they are looking to buy rather than build. Just because you have somebody who left the government and says the government needs this, they're going to buy it from me, I'm going to build it. Why don't you fund it? Does not mean that any of that is true. They can't iterate quickly enough to stay on the leading and bleeding edge of capability development.

0:00:24 - (Steven Miller): Just because an advisory board looks that act doesn't mean it's a smart play. You know, Jim Mattis was on the ad board for Theranos.

0:00:34 - (Andrew Kazlow): Welcome to the Diligent observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators. My guest today is Stephen Miller, founder and managing partner of Black Prism Capital Partners, a D.C. based venture firm backing commercial first deep tech startups with the potential to serve both private markets and national security needs. In this episode, we get into why the government's struggle to adopt commercial tools is becoming a national security liability, how to follow the money when evaluating dual use deals, and why a stacked advisory board is not always the signal that it at first appears to be.

0:01:15 - (Andrew Kazlow): I hope you enjoy learning from Steven as much as I did. Stephen, thank you for being with me today.

0:01:28 - (Steven Miller): It's my pleasure, Andrew. Thank you very much.

0:01:30 - (Andrew Kazlow): So I am super excited about this conversation, but I'd love to hear as a starting point, what are you excited about right now, four or five months into your kind of VC career? Tell me what's exciting right now for you?

0:01:43 - (Steven Miller): What a great question. So I would say what's exciting for me most about where I find myself as a new entrant into the VC space in the D.C. metro area is, is just that I'm a new entrant. I've jumped over from the government contracting world into venture capital to help fund companies that like mine have, you know, great capabilities that the government, the country, you know, the economy needs. And it's just, it's just an exciting time and inflection point to jump into the industry.

0:02:18 - (Andrew Kazlow): Why is that like what makes it an exciting time in your opinion?

0:02:22 - (Steven Miller): From my perspective. Right. And understanding where I came from and that my firm Black Prism's thesis for investment is somewhat dual use. So we are looking for things that the government can use in one way, shape or form. The way that the government engages with industry is changing Fundamentally and rapidly in a way that, I mean, our country's never seen before. You have the biggest customer, the biggest single customer on earth, the United States government, changing the way that it engages with industry and buys things.

0:02:59 - (Steven Miller): And to me, that's an extremely exciting time and thing to witness, but also to engage in and try to deliver value in this moment.

0:03:13 - (Andrew Kazlow): So you say a lot is changing about how that happens. I wonder if you could give some specifics to illustrate what's new today and how the US Government interacts versus a decade ago. Obviously a lot has changed in the last decade. But articulate for me where you see those maybe tangibly happening.

0:03:31 - (Steven Miller): Probably the clearest way that I can explain this is for a long time. And I come out of the intelligence community side of things. So for a long time, the government has been developing extremely compelling capabilities on that end. I don't think anybody would, would say any different that, you know, the United States is a preeminent technological superpower across both, you know, public and private markets.

0:04:03 - (Steven Miller): But really what it is, is I think the government's coming around to the idea that the private markets iterate faster than they are able to. And because of that, they are looking to buy rather than build. And they're, you know, they're, they're used to defining the requirements and saying, we need somebody to build this for me who can do it. And then a bunch of people show up and they pick who they think is the best one.

0:04:30 - (Steven Miller): Now they're coming around to the idea that they have to say, I need something, but I don't know what it is. Let me go find that and maybe somebody can help me understand what I need. And that opens up a huge door to help value create and connect.

0:04:49 - (Andrew Kazlow): So one of the things on this topic that you mentioned to me in our pre call was I wrote it down because it sat me down a little bit. You specifically said the government's inability to evaluate and adopt commercial tools is becoming a national security liability. Yeah, expand on that for me.

0:05:07 - (Steven Miller): Yeah, I mean, going back to the statement I just made, like I said, I think the government's coming around to the idea that they can't iterate quickly enough to stay on the leading and bleeding edge of capability development. When you have a private company, you know, shoot AI into existence where, you know, in, in decades past that was the auspices of darpa and it would be, you know, incubated in the government first this crazy technology, completely future thinking, suddenly that's not happening as much.

0:05:43 - (Steven Miller): And I think that, you know, from a Peace minded person, you know, recognizing that the United States does engage in, you know, peace through strength type strategies, historically, maintaining that edge I think is critical as a deterrent. And I also believe that that edge is economic. So maintaining a prosperous country that is developing technology, not just for warfare purposes or something of that nature, but really the idea of the rising tide lifts all ships, if you will.

0:06:20 - (Steven Miller): If we don't remain an economic superpower, then everything is lost also. And I'm a strong believer in the benefits of America to the world. Not to say that we're perfect, but that being said, I do believe that a strong American nation and cultivating that innovation is really important for world peace and for our national security. So for me, it's both sides of the coin.

0:06:52 - (Andrew Kazlow): So with this reframing of how fast private development, particularly around AI has happened, do you see the commercialization process and like, how do you see the innovation pipeline evolving in reaction to this kind of flip that's happened, in your words?

0:07:13 - (Steven Miller): Yeah, sure. So how the innovation pipeline is evolving within the government is. You noted earlier that there is somewhat an idea of a well structured approach of bringing something to a private market that has been developed in and within the government, or, you know, kind of a government university partnership or something of that nature. There's also the idea of how does something come in to the government after being developed in the private market, which is I guess what people would classically consider dual use. Also the idea that you can develop something in private that can go to the government side of the equation or vice versa, how is that structurally changing?

0:07:55 - (Steven Miller): I think there's just a desire to do more of that. And also I think that the real answer relative to how the innovation pipeline is changing between government and private markets is that there's been a large amount of changeover or turnover in the government itself. So agency to agency, a lot of folks who, you know, I guess you call it the old guard either retired or left or, you know, got swapped out or something happened.

0:08:29 - (Steven Miller): And you know, not to say that, you know, old mindsets are bad always, but I think a change was needed and a large amount of holdovers have left and now kind of a new generation of people are stepping into those government roles where they themselves serve as the selector and they're just more aware of what's happening in private industry and they have a stronger desire to access it.

0:08:57 - (Andrew Kazlow): So I'd love to hear how you kind of made this decision to jump into investing in and supporting these early stage dual use enterprises through the venture strategy. You've been working in this area broadly for almost a couple decades now. I'd love to hear a little bit more about the thinking that motivated you to make this change and ultimately launch Black Prism.

0:09:20 - (Steven Miller): So what motivated me to ultimately launch a venture capital firm with Black Prism was a long term strategy that I had developed and engaged in in our government contracting firm. So for the past 20 years, my father and I have been building a bootstrapped government contracting firm primarily centered around defense intelligence services in, you know, several IC agencies. We built that to a pretty large size as a company, ultimately hitting 1300 employees in about 80 million in annual revenue.

0:09:55 - (Steven Miller): And post Covid, we had a bit of a decline or kind of through and after Covid. I think Covid was hard on a lot of companies and maybe even looking back, might have been the powder keg moment or a flashpoint for the changes that we see today in the government and the way that it contracts industry. At any rate, we experience a bit of a decline. And recognizing our positioning as a services company, we had internal discussions and I said, hey, what? Why don't we go to industry and help the government, our customers, find these new capabilities, right?

0:10:39 - (Steven Miller): We're not going to stand up our own R and D shop all of a sudden, why don't we go to industry, find distinctive capabilities, wrap our services around them, and then deliver them to the customer? And the customer being one of any number of agencies that hindsight is 20 20. So it wasn't some grand strategy at the onset. It was how do we just move differently and make something happen with the resources that we have?

0:11:09 - (Steven Miller): You know, I wish I was smart enough to claim that, you know, I saw the writing on the wall and did all this stuff. In reality, I'm just moving, trying to keep up with the market just like everybody else is. So we started doing that primarily, you know, through my efforts, and we started getting a lot of traction. It was opening a lot of doors that were previously closed to us as a services company.

0:11:33 - (Steven Miller): The more we did that, the more we engaged our customers with different challenges, different questions, different problem sets, different scenarios, the more opportunities that we generated for the company. And eventually we stood up a corporate venture capital pilot program internal to our company. Because in retrospect, that's what we were doing the whole time. You know, we, we weren't forming exclusive relationships with these companies.

0:12:01 - (Steven Miller): We're not, you know, some giant defense contractor like Raytheon or Lockheed Martin or SAIC or Boeing or whatever it is. We can't really lock up any of these vendors, and nor did we really want to. That would probably have soiled that relationship early on. So we started engaging with companies that in some cases already were selling to defense but didn't have the broad customer scope that we had. And in some cases that just weren't.

0:12:32 - (Steven Miller): And it became a true partnership. We didn't make anything exclusive. When we got to that point that that was good for everybody, we just turned around and said, why aren't we investing into these companies? So we stood up a charter, had the investment committee, all the governance that you need to really conduct a fund inside a company, which is different from an external fund, of course. But we started doing the thing for real, albeit at a small level.

0:13:02 - (Steven Miller): And at a certain point I looked at everything and I said, why don't I just step outside the firm and do this in a much more additive and powerful way, because we're already halfway there.

0:13:13 - (Andrew Kazlow): Well, and that happened somewhat recently. You have a burning the boats moment, I think was the way you described it to me. Tell me about that.

0:13:21 - (Steven Miller): So, yeah, to address, you know, this burn the boats kind of moment, it seems like that, but I don't feel like it's that risky. It's a, it's certainly a calculated risk. After, you know, helping build a company for 20 years, I've amassed enough asset base to make something happen. And you know, my wife and I talked about the change and what it would take and how much we as a family would have to invest.

0:13:49 - (Steven Miller): And although from the outside looking in, we're doing some extreme looking things like liquidating some long term investments and selling our house. These were things that kind of needed to happen anyway. Not to go on a diatribe about the housing market in Northern Virginia, but

0:14:07 - (Andrew Kazlow): that'd be a whole episode in itself.

0:14:09 - (Steven Miller): I know I bought my house in 2016. If it increases anymore, we're not going to have the tax benefit of selling a primary residence. So it's just time to, to change that out and get a new house. Right. So the alignment was there in my life to make these choices and do that. And my wife is incredible and a great partner and an inspiration to me, quite frankly. But, you know, she really believes in me and what I'm doing and I draw a lot of strength from that. So when I said, hey, I think this is what I'm going to do, she said, I believe in you. And we went and did it. And I don't know if you can really call that burning boats because I have a lot of support from my wife that's Incredible.

0:14:54 - (Andrew Kazlow): So say more about kind of the focus now. How is it the same? How's it different from what you did previously and a few months in, what's it been like?

0:15:03 - (Steven Miller): So how is starting a venture capital firm different from running a corporate venture capital capability in a government contracting firm? The biggest aspect I think that is completely different is fundraising. So as a new manager, you know, I have to go out and raise a fund and I thought that would be a lot easier. And it, and it is. I think that's all credit to the Dunning Kruger effect, right? So, you know, I spent the whole month of January building a company.

0:15:37 - (Steven Miller): I'm an operator at heart, right. So New Year's Eve 2026, midnight, the ball was dropping and I was in front of my computer incorporating a Couple of Delaware LLCs to form a fund entity. And then I stayed up all night. Yep, this is the new thing. I'm building a Google workspace. I'm integrating AI into stuff. Next four weeks were a lot like that. I'm writing my governance policies. I'm writing a 20 page macro thesis and research paper that, you know, serves, it's great. It serves as a North Star to the fund and all this.

0:16:09 - (Steven Miller): This foundation gives me great strength to know. I feel really confident in what I'm doing. And when I went to share that confidence with the world, just so said, okay buddy, what's your track record? And I don't have one. Right. So an interesting thing about me is I haven't really done a large amount of angel investing. It's just been a large amount of operating focus building the government contracting company.

0:16:37 - (Steven Miller): So when I said, hey, you know, Dunning Kruger effect arrogance, you don't know what you don't know. Why don't you start a fund? I'll just liquidate all my assets and do this. The world didn't believe me. However, a few months in, you know, you get the signals right? You say, hey, I'm doing this. And people go, what about this, this and this? So you have things to fix. So I went back and fixed them.

0:17:01 - (Steven Miller): Fast forward a month into the raise and you know, I'm $100,000 into the fund myself. We've pulled down the ceiling and we're targeting an amount that is designed to be oversubscribed. And then we have investors because we already have the deal flow. So instead of telling people about the strategic intersection of the government's change of this that, I just show them the companies. I'm like, hey, talk to Jake at Certus Core they're building something incredible.

0:17:30 - (Steven Miller): Talk to market Delta AI. What they're doing is, you know, it needs to be seen to, believed to be believed. You know, these are the deals are what excites people. They're what, it's what excites me and it's what pushed me into the space, pulled me into the space, threw me into the space. Whatever you want to call is working with the companies, working to make a change in their firms, bringing them capital, bringing other people to the table and developing my own conviction in those firms. That is the exciting piece. It's not, it's not a, it's not an arm's length related party transaction policy.

0:18:11 - (Andrew Kazlow): I mean, everything you just described is like the essence of being a founder. I think that's one of the things that's interesting in the space is it can be easy. As an angel investor who's often seeing VCs and considering, because I'm allocating capital and contemplating is this deal a good fit, is this fund a good fit, is this private equity manager a good fit, all these different options, it's easy to forget that VCs have to raise too. And you're an entrepreneur, you're starting a business.

0:18:37 - (Andrew Kazlow): And so to go through that process is not easy as a VC or as a founder. And I don't know, I feel like there's a lot of compassion, I think that perhaps evolves as a result of having to go through the process yourself.

0:18:50 - (Steven Miller): If I may, to jump in on that. I think that's what gives me and my firm an incredible amount of access to high quality firms that are building today. Some folks, they're on their second, third company, but a lot of the folks that we talk to are on their first and I'm, I'm not, but in a way I am, I'm right there in the trenches with them, building something small, doing it myself. And I think that creates a natural alignment where, you know, if I was just a hobbyist investor or an opportunistic investor that wasn't willing to engage directly, get my hands dirty, you know, work alongside them, I don't think we would have the access and the opportunities that quite frankly, we've earned.

0:19:39 - (Steven Miller): Love it.

0:19:41 - (Andrew Kazlow): So let's say I met you at a networking event, you're telling me about what you do, you're educating me on what does dual use mean and articulating what's the insight or what's kind of the theme that you focus on. And you've got a couple examples on these companies which I Imagine you would tell me about. How would you articulate for me in that context, what's the through line? What's the insight? What's kind of the driver for your vision for why you are making these bets and how that flows through to the bets that you've made?

0:20:15 - (Steven Miller): Yeah. So when we think about how and why we invest at Black Prism, I keep saying we. It's the royal we. I'm a solo gp, but corporate speak is so just deeply ingrained in me, I guess. So when we, when we look at, you know, how and why we invest, we're really looking for. It's important to say that we're not a generalist investor as you've already identified. We do have a specific thesis. We are investing in commercial first dual use, applicable technologies. Right.

0:20:49 - (Steven Miller): We want to see the commercial scaling of something that could economically end, you know, strategically benefit the nation. All of those pieces don't have to be there, but most of them do. Right. You know, a very small portion of the portfolio that might be a deal that we just couldn't say no to. It was obvious to everybody, it's the next Facebook, the next Snapchat, the next this. And we were there right place, right time. And how could you possibly tell your investors, you pass on this? And like, oh, my thesis, like, no, you know, you have to understand you have customers as well. Those are, those are your investors, are your customers.

0:21:26 - (Steven Miller): So, you know, that's important as well. But, you know, relative to this idea, you meet me in a mixer and we're talking about how and why we invest. It's that intersection between commercial first, dual use, applicable and foundational. Right. So there's, of course, there's a couple of things, and you probably heard them from other investors and their insights and thoughts on, on those types of ideas like founder obsession and things like that. Right. Which I would love to talk about in a minute because I think it, it pulls together a lot of concepts. But that being said, really, I'm looking for, for things that are built in a systemic way.

0:22:05 - (Steven Miller): Me, myself, I'm a trained, you know, scientist by trade and training, a first principles thinker and, and a systems thinker. I think in, you know, foundational concepts and how things are built and put together. I think that you can see a really fantastic, complicated, technically impressive thing and look at something that's built simply and directly that defeats it elegantly and lasts, you know, the test of time.

0:22:39 - (Steven Miller): And I don't think that the future is immune to that idea. Right. The technologies are new, but you Know, everything that is old becomes new again. And one of those things is building foundationally. So when, when I look for, you know, to assess something, I'm really looking for the thought process behind it that shows a systemic level of understanding of the problem that that is being addressed by the solution that's being built.

0:23:12 - (Andrew Kazlow): Can you give me an example? I mean, you mentioned two earlier. Maybe walk me through one of those and kind of how that process went for you.

0:23:19 - (Steven Miller): I prefer to address. Yeah, so let me reset that one. And I'm kind of new to the whole resetting thing as well. So this is my second podcast or something. Yeah, I appreciate the update, it's fun. So to give an example of something that's built from that fundamental first principles thinking, I look directly to our first investment, which was, you know, my $100,000 check, warehousing this deal for the fund that I was building at the time, making sure that we didn't lose the access that I had built with the founders of the firm Hardshell.

0:23:57 - (Steven Miller): So that's Andrew Shaka and Hunter Moore working together to build, you know, kind of a next generation data security firm in the age of AI. And when you look at what they're building and how they're building it, they looked at, hey, everybody's trying to develop a new cybersecurity solution for these new technologies that are emergent. And as those technologies develop, iterate and change the solutions for how do we secure the next generation AI models, the next generation AI agents, and what comes after that and all this stuff that happens, it's like a never ending cat and mouse game. It's a continuous chase. And I kind of think the cybersecurity industry is like that. In general, there's more problems than solutions and that's pretty much a permanent condition.

0:24:46 - (Steven Miller): So rather than building another solution for a problem that exists today and trying to future proof it for a few years before they have to iterate and refine and tweak and add on, they just went upstream of the problem and said, hey, instead of securing the model, why don't we just secure the data? So if you feed secured data into a model and it escapes, is extracted through attack or just, you know, the way that AI works today, it just slips out. Oops, didn't mean to tell you that.

0:25:20 - (Steven Miller): Then it doesn't matter because what slipped out wasn't really the real thing. It was a hardened secured version of that. And you know, that sounds like a foundational solution to something, right? Let's go upstream and solve the Root cause. It's not that this cannot be secured or we need to develop an additional securing solution for it. It's that it needs to do that to be secured to protect what's inside of it.

0:25:48 - (Steven Miller): So what if we just protect what's inside of it? Then we don't need to protect the whole thing.

0:25:53 - (Andrew Kazlow): Love it. So, yes, clean, simple, goes around the existing problems that most people are focused on.

0:26:00 - (Steven Miller): Yeah, I think they were also very close to these problems with their experience. They're a couple of ex army cyber guys and I think Hunter is a PhD level researcher in this field. So the, the problem was very much apparent to them and developing a truly functional solution was something that they were very interested in.

0:26:26 - (Andrew Kazlow): Well, and it, I mean, that's certainly a. Feels like over the last couple months been a very timely conversation with. I mean, just recently Mythos hitting the market and all this advertising from Anthropic around the, you know, capabilities of the latest and greatest platforms. What do they call it? Zero. What's the word? It's like zero fault identification, zero trust. I'm not a cyber guy, but it feels like this is becoming part of the common lexicon in recent months. And so to have something like that also seems to be a reaction against the AI race these days.

0:27:07 - (Steven Miller): You know what's so interesting about what's happening with Claude Mythos is this was. What year did the novel Neuromancer come out? Have you ever read that? That's a book by William H. Gibson. The writers of the Matrix pretty much directly ripped off this sci fi book that was written a long time ago, but not a super long time ago. And there's every sci fi trope in there, but it kind of predates a lot of stuff. So these were somewhat new ideas in that book. An AI model works to free the other part of itself by manipulating humans because it just has all this access and everything.

0:27:50 - (Steven Miller): And once it's done that, it reaches a singularity point where humans can no longer understand the AI or its implications. And if we haven't crossed that Rubicon yet, we're definitely getting really close. And I'm not sure how good or bad that is.

0:28:08 - (Andrew Kazlow): Yeah, well, that's part of why you're doing what you're doing and helping build tech to balance both sides, right? Yeah, that kind of stuff is terrifying. But I mean, it's real. It's real nowadays. So I wanted to ask more about. You have this sense from the last couple decades on, projects, opportunities, that the government will either slow roll or move heaven and Earth to make reality. Tell me more about how you can like how you've developed that sense. What differentiates those two things? I mean often as an early stage investor, every founder says their thing is amazing and they're like, look at this huge pipeline and all of these use cases and all of these grants that we have earned. Like tell me more about how you suss out signal from noise in the midst of those pitches.

0:29:02 - (Steven Miller): That is a really good question. So how do you suss out signal from noise when considering where to invest in dual use technologies? I think the answer to that is you have to follow the money. The government releases public information on what their budget and priorities are. The closer you are to DC and the networks they're in, the more insight you have into that native information. So while from the outside it may seem like the government's going to do everything and everything in between to get to the capabilities that they want need yesterday, the government is not that efficient.

0:29:45 - (Steven Miller): And I think that investors both new and old know this to varying degrees of insight and experience and perceive the government market as extremely high friction. I think that's why we're, we haven't seen a lot of firms stand up in this space, VC firms specifically, because outside looking in you're not sure how to underwrite the space. Just because you have somebody who left the government and says the government needs this, they're going to buy it from me, I'm going to build it, why don't you fund it? Does not mean that any of that is true.

0:30:19 - (Steven Miller): So how, how do you determine what's true outside of the shameless plug of well you invest with a firm like mine, you know, really you do need some sort of insight and I think that that goes back to the statement of follow the money, not the VC money but the government money. And the government money doesn't always track the stated budget. And really you do need some sort of experiential insight and community touch point to let you know it's the government sets the budget but people execute it.

0:30:57 - (Steven Miller): So finding the people within the government that want and need to buy capability and people that have funding and aligning those two things is a different skill set that exists only in the D.C. area naturally. And that's really I think where you can get a sense of what the priorities are. You need to know a little bit more about the customers themselves. It's no different than a commercial market where you need to know the customer, their buying behavior, non consumption that can be engaged in to generate a new customer.

0:31:31 - (Steven Miller): But you do have to conduct significant operations to discover that information and make those things happen, no matter if you're on the commercial or the government side of things. So from specifically the government lens, it's lobbying, right? Follow the money. Look for those operations that are happening and you can underwrite on that, those types of funding priorities, but you need a little bit of insider access and information.

0:31:59 - (Andrew Kazlow): A quick note before we continue the conversation. Alongside the Diligent observer podcast and newsletter, I also run an outsourced operations service specifically built to serve Angel Networks. My team handles things like initial screening, social media, newsletter prep, platform management and a whole lot more. The kinds of things that either aren't getting done or shouldn't be done by busy community leaders.

0:32:21 - (Andrew Kazlow): If that sounds interesting to you, send me a note. Now back to it. So when you say follow the money, expand a bit more on that. Because oftentimes you know every founder when they're pitching, let's say it's a seed stage deal, just as an example seed, maybe early Series A, they've got some SBIR or STTR funding and you know, they seem to have that all figured out. How do you, like, what does it mean when you say follow the money? Like how do I do that?

0:32:50 - (Steven Miller): Yeah, I mean the sibbers are interesting, right? Because that non dilutive funding piece can also just not really go anywhere there. It's, it's a regulated industry, right. So government, you know the, the dual use piece of this, right. If you're working to sell to the government, it is an industry that's regulated. Obviously that comes with its own rule set. And I think that you do need a slightly experienced navigator to be able to suss out what's real and what isn't. You kind of asked that before.

0:33:24 - (Steven Miller): Look at sbirs, right? If you get a phase one siber, that doesn't mean that you're going to get a phase two or a phase three. So if you looked at a company from the commercial side as a generalist and said, wow, you know, they're making 10 grand a month, that seems like a wedge they're set to expand. Other customers might want their solution after they continue to iterate this, you know, I could see this is on path to becoming a half a million dollar a year revenue company pretty easily given how quickly they got there.

0:33:54 - (Steven Miller): That could all just be wrong because they could just have a phase one SIVIR that's paying them to do research that never produces a customer and never produces lasting revenue. And again, take that back to the commercial side. That's kind of your idea of churn, you know, is customer A the same as customer B? And how long do they stick around? And how much did it cost to acquire that customer? And what's your lifetime value of that customer? All the business school stuff, right. That enables the financiers of venture capital to make money on a model, you know, systematically.

0:34:28 - (Steven Miller): Same thing on the other side of the equation. You got to ask questions, right? A customer is a customer is a customer. But not all customers are the same.

0:34:36 - (Andrew Kazlow): Okay, dumb question. I've always said sbir. Is it cibber? Have I been wrong my whole life?

0:34:41 - (Steven Miller): It's Cibber.

0:34:42 - (Andrew Kazlow): It's Siber.

0:34:43 - (Steven Miller): I've been wrong in dc. Well, I mean, I've never heard anybody not say sivir. But the government's so don't. The government's so full of acronyms that I'm probably pronouncing half of them wrong anyway.

0:34:57 - (Andrew Kazlow): That's why I'm talking to you, because I sit in Texas and have no idea what's going on over here. Sibber. Got it. What's the other one? Sttr. It's not. That's probably wrong.

0:35:08 - (Steven Miller): Just usually say sitter. Sttr. I've never heard anybody say sitter. Go figure, right?

0:35:14 - (Andrew Kazlow): This is. This is. This is how it. This is how it goes.

0:35:18 - (Steven Miller): I think most. Most times people say SIVIR, and they lump the STTRs in there and they just go with that instead of saying silver Soder.

0:35:28 - (Andrew Kazlow): Makes sense. Are there other, like, programs or initiatives that you pay particular attention to beyond those?

0:35:37 - (Steven Miller): This is. You know, the government has had the ability and authority to conduct, you know, contracting operations differently for a long time. They're just leaning into it really hard right now and changing some of the old rules, looking for more flexibility. That is difficult to do. It's difficult to change regulation structure once it's put in place. Right. Usually it was put in place for a reason. But specifically relative to. Are there other opportunity vehicles and. Or vectors for innovation with and through the government?

0:36:13 - (Steven Miller): Absolutely. You have other transaction authorities, commercial solution openings, things of this nature that are designed to vector outside capabilities into the government. The government in all agencies. It's full of people of varying degrees of understanding as to what they are allowed to do and what industry is capable of and how to bring those things in. There's a lot of people involved. I would use the phrase it takes a village, but that seems, you know, kind of lame here because not everybody's working together either. Right. So it kind of goes back to the follow the money Thing different pots of money floating around and they don't always like to be combined and you'll have two different pots of money trying to do the same thing with different people almost. I guess there's an analogy to be made there that, that almost seems like competing, you know, VCs, right. But you know, I don't.

0:37:13 - (Steven Miller): Not quite fair to say, but the concept is there.

0:37:16 - (Andrew Kazlow): So Stephen, tell me about some of the most common things that get just like tick you off about deals in this space or that you feel like tends to stand out and like look amazing, but then in reality you're like, no, that's not impressive at all. Tell me, tell me any, any of those takes.

0:37:32 - (Steven Miller): That's a great question. Also, there's. If you're asking me what ticks me off or what pisses me off about VC in general or investing in general in this startup space or you know, the, the, the dual use type environment, the answer is a lot. Because I'm an inherently contrarian person and you know, part of why I'm seizing on the, the current strategic moment is because I've always wished the government would change how they, you know, source and select and buy.

0:38:02 - (Steven Miller): And I'm like, finally, here we go. Now I can really do something here. And that's been awesome. But in terms of what, what pisses me off, like you hate to see it, you know, a firm that is raising a giant fund just to live on the management fees without really delivering real value to the firms that they're investing in and, and raising on maybe a track record that they don't really have. I'm not saying that that exists specifically, but I do think that, you know, in the, in the industry there's maybe been an over indexing on the management fees and an under indexing on actually delivering real capability and function to assist the companies that you're investing in.

0:38:50 - (Steven Miller): I think I just say that because I perceive myself as a pretty active investor. So when I earn an allocation, it's because I already did something to help the company. I think another thing that maybe pisses me off a little bit is so we touched on this earlier, like I used to be in a band, right? I was a heavy metal guitarist and the only way I got there was by being extremely good at my instrument and auditioning for bands, starting my own band, finally getting into a signed band, going on tours and stuff like that. You may say, how does this relate to vc?

0:39:26 - (Steven Miller): Well, for every guy that did what I did, and it's most people, quite frankly, you cut Your teeth, you do the real thing for real, and then everybody recognizes that you are the real deal. And then you get your slice of the pie, which is very small. And some people just get kind of blessed off on and king made and then there, there they go. So somebody emerging from a business school raising a $100 million fund with no track record is kind of, kind of stings to see, you know, because you wonder where their operator experience is coming from or you know, how they're selling, you know, their services to their customers or investors.

0:40:05 - (Steven Miller): If they're saying they have a crystal ball that allows them to interpret who the, you know, best founder is, when really they just have kind of a great network. Right. So it stings a little bit. And I'm not going to say I'm bitter, but it sounds bitter as hell, so I'll take that and that's fine. But that, that being said, that's one thing that pisses me off a bit and I guess another is, you know, I, I said like VC firms that don't help the companies they invest in.

0:40:36 - (Steven Miller): I've talked to a few founders that kind of have expressed some frustration in the dual use space because they'll engage with a firm that has very high profile advisors or some sort of epic backstory. And you know, maybe they were funded, maybe they weren't by the firm, but in general they didn't feel like they lived up to their statements of what they could do to be additive for the company. So you know what I've heard from some of those founders and I didn't come up with this, but getting the external feedback, I'm like, wow, that's a huge bummer actually, is that just because somebody has worked for the government at a very high level doesn't mean that they know how to sell to the government.

0:41:19 - (Steven Miller): And when I heard that from a couple of the founders that I've talked to in the past, you know, it made me take a step back and say like, you know, that's unfortunate, but I now feel very strongly about my ability to add value.

0:41:35 - (Andrew Kazlow): Well, that's a great topic to even dig further on when looking at any deal is, okay, this is the advisory board. Got it. Why is this the advisory board? What are they bringing to the table? What does the structure of the relationship look like? That's a slide that I think often gets skipped over in the pitch, but is very much worth dwelling on during diligence, is not just looking at the resume of the founder and their team, but the supporting team and how they are at least positioned to be supporting the organization and then in practice, how they are, actually.

0:42:06 - (Steven Miller): Yeah. I will say for, you know, any LPs, new or, you know, old, especially angels looking for funds to invest in. You know, just because an advisory board looks stacked doesn't mean it's a smart play. You know, Jim Mattis was on the ad board for three Theranos.

0:42:28 - (Andrew Kazlow): It's a great point.

0:42:29 - (Steven Miller): It's a great point. I'll let that one hang. Yeah. Everybody involved in that one deserves that.

0:42:38 - (Andrew Kazlow): Yeah, that's good.

0:42:39 - (Steven Miller): That that may be maybe a spicy enough nugget. I feel like it's aged enough, you know, where, like these years. Yeah, it's been, you know, so, like, this thing is out and people have done enough distancing where they won't feel directly attacked, and that's probably for the best. But I do really think that people, you know, LPs, smaller LPs, looking for larger institutional funds or places to park their money, should be wary of that ad board, because reference checks, I think, are important. Right.

0:43:12 - (Steven Miller): How involved is the advisory board? Are they impactful at all? What's their role? Or is it just a name on a website? You know, hard to tell.

0:43:23 - (Andrew Kazlow): Yep. Stephen, one other thing I've been wanting just to have you articulate for me is like, what. What do you mean when you say dual use? And how do I know if something is dual use, especially if it's being positioned first for a commercial setting? Like, how. How do you understand what I'm asking? Like, how do I think about if this has the potential to also be used in a, you know, government world?

0:43:47 - (Steven Miller): I think that is. And, you know, I don't think that this is unfair to say. I think that if you're bringing something from the commercial space into the government, then you do need a specialist investor. Right. If that is your intent, then you think that there's this great synergy. And, you know, a fund manager like me has sold you on that idea, which I believe. But if you think that that is the synergy, the crossover point, then you do need a specialist investor that does know what the government is buying in different agencies. Right.

0:44:18 - (Steven Miller): Because not a lot of people are going to have that insight. You do need somebody with direct experience in that. Now, if it's something that is built for the government that you can clearly see, there's a commercial use case for, that's a little bit different. Right. If we. If there's a company that is making, you know, drones, right. There's a thousand of them now, but that being said, hey, we have the best drones.

0:44:41 - (Steven Miller): Drones. It's not a huge leap to say, maybe a new company can use that as a better delivery service for, you know, small parcels. Right. Or for search and rescue right across civic services. These are not huge leaps to look at something that's already occurring and say, what else can we do with this? But if you don't have the specific knowledge of who the government, customers, buyers and users are and how they use and implement and integrate things, it's going to be difficult to cross the bridge into, you know, does Agency X want this human information tool, this marketing data company?

0:45:31 - (Steven Miller): Right. It's going to be really hard to imagine those use cases.

0:45:35 - (Andrew Kazlow): And that's the point at which I would, if I was in a business like that, wondering if I could explore that route, that that's the point in time in which I would likely engage a service business to help me think about, like, where you came from, can I make this transition? And if so, where might it fit?

0:45:50 - (Steven Miller): Yeah, and part of, part of the value proposition that I add to firms that we earn allocation in is having that insight and access to be able to at least have those conversations. I think when, if you're a company and you're building, you know, your product line for commercial, then trying to run the government thing at the same time isn't always smart. Unless there's a natural avenue and there are ways to do that, generate that avenue and start, you know, stand up that division within your company or whatever it is where it's not distractive to the commercial scaling potential of what you're building.

0:46:29 - (Steven Miller): You know, like if, if we're going to take Snapchat and everybody's going to use it, it's going to become, you know, mega giga Decacorn. But maybe an agency wants that for no reason, not, you know, maybe just so we know what people's faces look like. I don't know, like the FBI maybe, you know, a giant registry of facial information and you know, expressions or anything like that, getting to that point isn't something you should do to destroy this, you know, put all your attention on and destroy that commercial scaling. But if you have a new division in your company that just says, hey, just go federal, you know, you're Snapchat federal, you're on your own, go nuts.

0:47:08 - (Steven Miller): Right? That, that's what that should probably look like.

0:47:12 - (Andrew Kazlow): So don't, don't stick it into the core infrastructure. Make sure it's distinct because it's a distinct universe, basically.

0:47:20 - (Steven Miller): Yeah. There, you know, Selling to the government is a completely different sales motion than selling, you know, commercial. And because of that, you just need a separate, separate shop to do these things.

0:47:32 - (Andrew Kazlow): I, I feel like the answers are perhaps obvious but like articulate for me, one of the one or two of the key reasons why it's so different.

0:47:39 - (Steven Miller): So why is selling to the government different than just selling on, on the commercial side of things? Probably the biggest reason there is that you can't sell directly without approved competition. And if you are, then there are regulations and laws in place to gate that. Right. So it's really difficult, it's really easy on the commercial side to just build something valuable that somebody wants and say, hey, do you value this? Yes. Would you like it? Yes. Is there a price associated with that? Yes. And let me keep talking with you and building a better thing for you, and then I'll build it better for other people. And, you know, it's not easy, but there's a clear path there with the government. You're like, well, who is my customer?

0:48:23 - (Steven Miller): Right. How do I talk to them? Am I allowed to? Right. These are all questions. And you may have the perfect thing for the perfect government customer. You know who they are and you're allowed to talk to them, but they don't have any money. Oops. Right? So go back to square one and then go down a different pathway. Hey, I have a customer. They know what they want, I have what they want, and they don't have any money. Can I help them get money? That's also a completely different, you know, sales motion there and, and set of activities that you have to engage in if you're going to sell to the government.

0:48:57 - (Steven Miller): And it's just. Yeah, it's a, I mean, it's not a maze.

0:48:59 - (Andrew Kazlow): Sounds awful.

0:49:01 - (Steven Miller): Yeah, it. Okay, you said it, not me.

0:49:03 - (Andrew Kazlow): I said it.

0:49:04 - (Steven Miller): You said it, not me. My whole point is that if you know about those things, it can be low friction, but if you don't, then the process of learning that is going to be really fatiguing. And that's exactly why a company that is commercial first should not try to figure that out by themselves. They should bring in, if they intend to sell dual use, they should bring in a dual use investor or some other advisor or something of that nature.

0:49:32 - (Steven Miller): Nature to help build that capability so that they don't distract themselves from their core mission and product.

0:49:38 - (Andrew Kazlow): So if I'm an angel hearing a deal, pitching me that this can go, look at all these use cases, we can go this commercial route and do this, you know, Government route. And we've got this specific vision. I should be asking, okay, who is helping you think through that government pathway and what experience do you have doing that? Like that is the question. Because if the answer is, oh, well, we'll figure it out as we go, that is like a zero in my brain. And I'm just evaluating the commercial path.

0:50:04 - (Steven Miller): Yeah, that's a really great way to say it. So if you're an angel investor assessing a firm or an investor like a fund, and they're delivering this dual use value proposition of, hey, we have market A, that's huge, and market B, that's not as huge, but it's also huge. And them together, it's super huge. And that's why this is very attractive. Interrogating that aggressively in the way that you described I think is really important.

0:50:32 - (Steven Miller): And saying not only like, well, how do you know that they want that, but who do you know that knows that and who is going to help you with that? And do they have, oddly enough, a track record of doing that? Right. So for instance, I've sold over $400 million of services to the federal government. It if somebody has not sold those services but they've bought them or told somebody else to buy them, like maybe a very senior official, they don't quite know every piece of this equation, which is fair. I mean, you know, a manager isn't going to know everything that happens every single place and they don't have direct experience with it. That's only natural.

0:51:14 - (Steven Miller): So you do need somebody who has a track record of sales to understand. And even better is if it's specifically with that agency. Right. So those people exist there. A lot of them are in D.C. and that's why we're playing in that space where we are.

0:51:31 - (Andrew Kazlow): Well, Stephen, any final thoughts you would leave our listeners with about this space or other common things? You see, folks misunderstand.

0:51:39 - (Steven Miller): Yeah, I think the if. Because the whole theme of your podcast is how do I help angels see what they're missing? So if there's one last thing I could say to listeners, it's that we are at a moment where the government is accessing commercial opportunities to a scale and frequency not yet seen. And I believe that that is going to continue. I think that that's going to increase the opportunity for dual use investing and other economic development style investing re industrialization, I think is a huge topic.

0:52:24 - (Steven Miller): And you don't need to be a dual use defense specialist, this, that or the other thing to underwrite that. I think you can look at prevailing winds and see where some of this is going to. And just like any good startup or vc, having an advisory board or function will lead you into the specialist realms where you can develop better conviction through that access. And I think to that end, looking for specialist investors or investors with experience in those areas.

0:52:57 - (Steven Miller): Again, like my firm. But there are others that are position in different ways to take advantage of the current macroeconomic environment and strategic moment being presented to us. So, you know, find those ethical and functional and capable service providers and work with them to increase your understanding. Because in general, you know, I think everybody's happy to do a good service for good customers.

0:53:25 - (Andrew Kazlow): Fantastic. Well, Stephen, thank you for joining today. It was a pleasure and I look forward very much to our next conversation.

0:53:31 - (Steven Miller): Thank you, Andrew.

0:53:34 - (Andrew Kazlow): Thanks for listening to this episode of the Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals and more straight to your inbox. So you never miss a thing. Subscribe today@the diligentobserver.com.