13 February 2024
At First In, we invest in entrepreneurs who are building companies that secure our freedom. That encompasses cybersecurity software businesses, defense technology companies, and extends to companies automating industrial processes.
In our world – our digital world – and its security, everything is connected, literally and strategically.
Networks extend across all domains: land, sea, air, space, and cyber. The defense and security capabilities that exist and operate in these domains are interdependent. They are constantly evolving. Whether it’s drones spotting, targeting, and striking troops and tanks on the move in Ukraine with incredible speed and precision, or nation-state adversaries stealing weapons programs’ research and artificial-intelligence (AI) secrets from tech and defense companies through cyberattacks or human engineering, or Iranian-supplied intelligence priming Houthi proxy forces’ armed drones to attack ships in the Red Sea, all domains are connected.
Cyberattacks have been the tool of choice in the ongoing gray-zone conflict amongst nation states and their proxies. The criminal networks and others who participate in cyberattacks do so for similar but often distinct reasons from nation states’ reasons. The sector is always evolving because technology is always evolving. There is always a new way that this technology impacts our lives, and that technology needs to be secured.
In the year ahead, we look forward to hearing from entrepreneurs who are building for a secure future and who balance a big vision with excellence in tactical execution. We are particularly focused on a few key themes in cybersecurity. First, the scourge of ransomware, and its insidious impact on all elements of American society, must be countered. This area is ripe for novel solutions and there is an urgent need to counter ransomware and its effects. Second, the frontier themes that we’ve been looking at for the past couple of years and waiting to have a breakout moment on include not just funding but also budgets, AI’s impact on cybersecurity, post-quantum encryption, cyber-biosecurity, and internet of things (IoT) and operational technology (OT) security. We have seen signs of readiness to spend, with budgets that can no longer ignore these critical elements of cybersecurity. Third, we look for solutions that are proactive, products that are continuous in their analysis, and solutions that are holistic. Products that embrace the automation of security tasks are more necessary than ever before.
Our approach to investing in emerging technologies across the aerospace and defense (A&D) market and industrials generally is to focus on the “how” as opposed to the “what”. We are intensely curious about software and hardware solutions that will impact how A&D products get built and delivered, as opposed to what product categories will be in demand from one year to the next. There is little customer-demand volatility in a mature market like A&D, but we see a trend towards technologies that strip out labor costs from the manufacturing of A&D products.
Direct labor costs often make up more than half of the expense of large-ticket defense articles. Traditional defense contractors have little incentive to change that dynamic; they can bill labor costs to US Government (USG) customers in cost-plus contracts. Not so for non-traditional contractors – they must find and employ methods to reduce labor costs by an order of magnitude to be able to compete. In the mid-term, industrial automation technologies are relevant to traditional A&D contractors also, given the ongoing and deteriorating USG budget pressures. For either case, we see significant upside for scalable industrial automation products – ranging from edge computing to robotics to advanced materials manufacturing – that have the potential to deliver those end-item cost reductions.
Other enabling technologies that we are tracking closely include industrial-specific data pipeline products, modern ETL, and decentralized protocols that can help realize the promise of ML and generative AI in industrial settings. Advanced methods for collecting, transporting, and managing the massive datasets that industrial sites and A&D platforms produce can create tremendous value for AI-enabled edge networks. In the same vein, we see new approaches to identity and authentication as a key driver of faster, cheaper, and more resilient industrial and A&D computing applications.
We live in a multipolar world. That has made geopolitics and economics more unpredictable and has increased risk to Western free-market societies. We continue our mission of supporting those entrepreneurs who spend their time, energy, and resources in building novel technologies to secure our freedom.