Invest Like the Best with Patrick O'Shaughnessy
Darren Farber - The Business of Defense - [Invest Like the Best, EP.417]
Tue, 01 Apr 2025
My guest today is Darren Farber. Darren is a Managing Partner of Albion River, a private direct investment firm focused on acquiring companies that produce highly technical Defense Products & Services. He is a Former special advisor to the Deputy Under Secretary of Defense, a Former member of U.S. Department of Defense Task Force for Business and Stability Operations, and the list goes on and on. Darren is a wealth of knowledge in this space and someone I am grateful to have in the US corner. He shares his perspective on the changing role of the U.S. in global defense and how recent conflicts have shaped military technology and strategy. Darren explains his investment approach at Albion, focused on finding "one-of-one" suppliers and getting as close to the fundamental "molecules" as possible in defense technology. We discuss insights on evaluating the Taiwan situation, the lessons from Ukraine, how the defense budget is allocated, what investors can learn from defense primes, and why technological superiority remains America's greatest advantage. Please enjoy this discussion with Darren Farber. Subscribe to Colossus Review. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Ramp. Ramp’s mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Ramp is the fastest-growing FinTech company in history, and it’s backed by more of my favorite past guests (at least 16 of them!) than probably any other company I’m aware of. Go to Ramp.com/invest to sign up for free and get a $250 welcome bonus. – This episode is brought to you by Ridgeline. Ridgeline has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. I think this platform will become the standard for investment managers, and if you run an investing firm, I highly recommend you find time to speak with them. Head to ridgelineapps.com to learn more about the platform. – This episode is brought to you by AlphaSense. AlphaSense has completely transformed the research process with cutting-edge AI technology and a vast collection of top-tier, reliable business content. Imagine completing your research five to ten times faster with search that delivers the most relevant results, helping you make high-conviction decisions with confidence. Invest Like the Best listeners can get a free trial now at Alpha-Sense.com/Invest and experience firsthand how AlphaSense and Tegus help you make smarter decisions faster. ----- Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com). Show Notes: (00:00:00) Introduction and Show Overview (00:06:23) The Changing Role of the US in Global Defense (00:09:23) Evaluating Defense Budgets and Spending (00:11:41) Commercial Technology in Defense (00:15:37) Challenges and Innovations in Defense Procurement (00:22:36) US Defense Strategy and Global Order (00:37:34) The Future of Warfare (00:42:13) Lessons from the Gaza Contingency (00:44:44) Challenges in Defense Venture Capital (00:47:36) The Importance of Responsible Parties in Defense (00:51:06) Industrial Capacity and Defense Investments (00:53:49) Lessons from US Defense Primes (00:59:48) Supply and Demand in Defense Markets (01:07:34) The Role of Net-Centric Warfare (01:10:33) Hopes and Fears for the Future of Kinetic Warfare (01:14:42) The Kindest Thing Anyone Ever Did For Darren
Chapter 6: What is the future of warfare?
Joby and Waymo and Tesla. That commercial adaptation is going to be very helpful for a defense application. So I think there's a huge benefit where we should be kiting off of... the commercial side of industry. By the way, there's legislation to this. And so I was intimately involved in it because we owned a business that benefited from the real legislation and we advocated for it.
But Palantir, it really turbocharged Palantir as a business. And so this was the National Defense Appropriation Act, where there was a line put in at a bunch of our behest to say commercial off the shelf first, if it already exists. That was a new feature of law. And it said, look, If the capability exists off the shelf, then you must try that first.
Chapter 7: What challenges does defense venture capital face?
And at a minimum, if you decide not to use it or if you use it in some capacity, you can't treat it like a military system and demand P and visibility into cost and pricing and all these other things because it's commercially available.
And I believe that piece of legislation was enormously helpful to Palantir because it was commercially available, although it didn't have the size of commercial business today. And the army was... creating a program at 5x the funding of Palantir to do it their own way. And they were attempting to literally just turn off Palantir, which would have been a huge cost to the government.
And I'm sure the system wouldn't have been as effective.
If I think about our armed forces as a stock of stuff, of assets, of soldiers, of current capability, and as a flow of new dollars being spent on stuff which adds assets to that stock, changes the stock or whatever...
Where do you think if you were doing like a 3G zero-based budgeting style approach, I'm sure there's just tremendous amounts of inertia and a lot of the spending that happens this year is just the same as the spending that happens the year before. But if you were starting from scratch, how differently do you think you would spend the $870 billion if you were in charge versus how it's being spent?
It's so tough. This is a very tough question. Because in your mind's eye, you can say, I think this is where the world's going to go. But the department functions off of these plans, these operational views of how we integrate the force. So they're called OV-1s. And it's a visual concept of planning of how we plan the force.
We haven't come to grips with what we do or don't really need for next generation warfare. The kind of nonlinear warfare may still require... a lot of the old stuff. John Spencer at West Point talks about war is really a combination of old and new. It's never all new and it's never all old. And if you think about the Ukrainian contingency, there are many World War II-esque-like components of this.
155-millimeter shells, small-caliber munitions, bicycle bombs, mines. The minefield in Ukraine is about twice the size of the state of Florida now. Landmines. We're talking about old technology. And so... My concern is I think we're over-indexing to a near-peer threat, maybe, and not thinking about some of the capabilities we may need in, let's say, a nonlinear kind of threat.
Like, what do I worry about? I worry about the ability for... People to make fissile material now with lasers and they don't require centrifuges. And a non-state actor can actually build a nuclear capability. That's pretty concerning. It was usually, oh, you needed these pristine alloys. You needed access to the molecule. That just made it so hard.
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