Anduril's hyperscale blueprint is all about its alternative business model

Hyperscale is the word that will shape Anduril's next phase of its strategy following the defense technology startup's capture of $1.5 billion in new venture capital funding.

The newly-touted valuation of $14 billion is not what we're talking about here, though it is an important barometer that helps show what investors think of the seven-year-old company and industry it is in.

Neither are Anduril's financial and other goals, although they are obviously important for the company and its investors as they are for any business.

Sands Capital and existing investor Founders Fund led the Series F round announced Thursday. Baillie Gifford, Fidelity and Morgan Stanley's Counterpoint Global division are new investors in Anduril. Altimeter and Franklin Venture Partners are existing investors that also participated in the round.

Anduril will put "hundreds of millions" of dollars from the Series F round toward the development and construction of a future manufacturing facility currently dubbed Arsenal-1, which it will be somewhere in the U.S. More could be stood up around the world.

The company sees Arsenal-1 and future other hubs like it as being able to make “tens of thousands of autonomous weapons systems addressing the urgent needs of the United States and our allies."

Hyperscale for many Washington Technology audience members is looked at through the prism of IT and cloud computing, where an architecture can scale appropriately as increased demand is added to the system.

The way Anduril explains its vision of hyperscale manufacturing should sound familiar when reading its announcement of the Series F round, especially considering the fact that Anduril makes software-centric products.

It makes sense then that software will define so much of Anduril's ramp-up of its manufacturing posture, given how the right kind of tools can help in scaling.

Anduril believes demand for the kind of products it makes will go up and that the U.S. and its allies are not making enough of them, therefore it is adding load to be prepared and ahead of the game.

Ramped up hiring, process enhancements, tool upgrades, supply chain resiliency and infrastructure expansion are also key priorities for Anduril with this new investment.

No company in any industry can meet its growth and profitability goals without having that internal muscle in place, as many small business government contractors looking to move up in size will say.

All of that is happening on Anduril's own dime as it looks to "hyperscale weapons manufacturing using the same agile, rapid, and scalable processes found in the commercial manufacturing sector," the company said in its Series F release.

"Nearly 90 percent of Anduril’s products can be developed and manufactured at hyperscale using commercially available components and materials. Access to this diverse and reliable pool of components reduces lead times and production costs," Anduril added.

Of course, that presents a major alternative production and business model to the handful of blue chip defense hardware companies that hold a lion's share of the market.

That was a major talking point that Bloomberg TV's Emily Chang brought up when she interviewed Anduril's founder Palmer Luckey for an interview aired in May.

The full program is worth watching, and the portion of Anduril versus the blue chips is also worth reading below the video.

EMILY CHANG: You're trying to run a defense company like a startup. How does that compare to like, Lockheed Martin and Boeing, and how do you get Washington to accept that?

PALMER LUCKEY: Most new R&D is done on a cost-plus basis, meaning the contractor gets paid for their time, their materials and then a fixed percentage on top. Of course, that incentivizes you to come up with expensive solutions and to drag it out as long as you can. At Anduril, we're the opposite because we're a defense products company that makes things that work and sell(s) them, rather than getting paid to do work. It means that when we do something faster, it helps our profit margins.

CHANG: You're building products that the government doesn't even know it needs yet, right?

LUCKEY: Very often. It's pretty rare that we work on something that is consensus in the government, where there's widespread belief that what we're doing is the right solution to the problem. Often, we're building things that they've written off as not feasible or not viable. There was a lot of skepticism about applying artificial intelligence to defense, a lot of skepticism about artificial intelligence in general. Chat GPT was one of the most helpful technologies to us because it helped convince people that AI can do things they didn't believe computers could do.