Mat Vogels (00:00)
Welcome everybody to another episode of Pirates Only. And today we are not talking with a founder or diving into a particular sector or topic like we usually do. Today I have fellow teammate here at Harpoon and Black Flag, notorious, I'm gonna say notorious, DC insider Clint Brown to talk about the one big, beautiful bill.
A bill that was passed just over two weeks ago that has some real world, real time, instant benefits changes that you as a founder or a VC need to take into consideration.
And I think that what we realized was there was so much confusion, so much unknown with the bill. And certainly from the outside perspective, if you didn't dig deep into it, you might think, well, Elon said this or this person said this. There's a lot to unpack here. So we dive into the specifics on what you can expect as a founder or a VC building for America, critical technologies.
We go to the 30,000 foot view on how the bill came together. A hint in the workings for quite a long time. Clint shares his thoughts, insights what we should keep an eye out for in the future months or years, and how it relates to the success of this bill. We cover it all. So if you are a founder or an investor building for America, this is gonna be a good episode for you to understand, probably one of the biggest pieces of legislation that will happen over the next few years. So let's dive in.
Mat Vogels (01:42)
Clint, welcome to the podcast. One of the newest members of Harpoon and therefore Black Flag. We're excited today to talk about the one big, beautiful bill. And I couldn't think of anybody better to walk us through the process of how it came together and then also answer some of the questions that we've gotten from some of the founders going through the program now. Some of our partners and mentors all had some questions for it.
And I felt like this was the perfect opportunity to shine some light on some of the benefits that the industry as a whole can take from this bill. Well, we'll get critical on potentially some of the downsides and things we need to look out for, but.
I think there's a lot to be excited about and I wanted to highlight some of those today. But let's jump into some introductions first. Clint, could you give a brief overview of your background and what brings you into talking about this bill today?
Clint Brown (02:36)
Well, thanks for having me on, Matt. I'm excited to be on Pirates Only. I hope this means that I'm like officially a pirate now. I'm still trying to figure out like what the process is for recruitment on that, but hopefully this is the last stage of that. So, well, I've always wanted to be a pirate. So my background is I spent 10 years on the Hill. I went to law school, went straight into the Hill from there, worked for a Senator from my home state, Jeff Sessions from Alabama.
Mat Vogels (02:42)
Yep.
Clint Brown (03:01)
I worked for him on the budget committee. So I got to see exactly how things like the one big beautiful bill are made that goes through the budget committee. And it's a unique process on reconciliation. People have heard that term. People often don't know what it means, but they know it means things are different. And I'm happy to explain exactly what that means and what that means for how this money is actually spent. From there, I...
went to run a group called the Senate Steering Committee within the Senate. It's a sort of hidden secret caucus. You don't hear a lot about it. People feel like they've heard of it, but they probably actually haven't. All the senators who are part of it, it's a secret list. So it's very piratey in that way. You can see I've always been trying to be a pirate. It's sort of the shadow leadership of the Senate and the driving heart of the Republican side. There's a Republican Steering Committee and a Democrat Steering Committee.
Mat Vogels (03:39)
Ha ha.
Clint Brown (03:47)
On the Republican side, it is sort of the driving heart of what is it we want to accomplish as a party, as a conference, and what do we not want to accomplish? How do we stop bad things from happening? So got to have some very interesting experiences there. Worked on a couple of impeachments while I was there. In between, I spent some time at a law firm and then went to the Heritage Foundation. My friend was taking over the Heritage Foundation as president.
He's a great guy. That's a fantastic organization. spent a couple of years there. They have a great national security team. They have a great budget team. What they do is they put up policy ideas that are then pursued sometimes immediately, sometimes years later by Congress. People who are not super into the political space have probably heard of the Heritage Foundation because of Project 2025.
If remember way back a year ago, that was a big thing that people were talking about. I don't talk about this much, but I was the legislative lead on Project 2025 where this bill stemmed from that in some ways. We always knew we were going to do it. We were trying to shape how it was done. I did fail on one thing. Our priority was to have two bills, to break this up into two bills. But the president and the speaker of the house looked at the political dynamics and decided they needed to have one.
big, beautiful bill. So here we are with the one big, beautiful bill. And from my time at Heritage, I left about a year ago to run another sort of behind the scenes organization. I don't want to use the term shadowy because it's really not. With a Senator that I used to work for, yeah, yeah. A Senator that I used to work for, we started something on the side.
Mat Vogels (05:23)
supportive behind the scenes.
Clint Brown (05:28)
for doing the conferences and figuring out how to support candidates on one hand and shaping the policy on another. And when McConnell announced that he was retiring from leadership, we decided we had to jump in and sort of shape the narrative on that. So I continued to run the Project 2025 legislative agenda, and I jumped into shaping the narrative on the leadership race. And if you remember back just after the election, if anybody was like,
super up on ex politics. This was a big thing that was happening. We were doing a lot to sort of shape how that happened because it was obvious to us that President Trump was going to win and he needed to have a Republican conference that he could work with. Some things needed to change and how the institution operated in order to be effective. had just grown, again, the institution had grown sort of stagnant with the way that it
got things done and there's always a risk of that, especially when the average age is like 105 of senators stagnation becomes the norm. So we worked on that for until right after the election. And then I was immediately asked to jump into the Trump transition and worked on some DOJ nominations. Most significantly, I was the Sherpa for Cash Patel to be FBI director and walked through that process with him.
It was, it was just me and him for a lot of it. were, there were some other people on the team. had comms people, we had a scheduler, but it was quite a process to get through. And, uh, you know, there's a ton of intersection on things that are happening in the FBI law enforcement space, the intelligence community space and the DOD space that all came up during that process. And frankly, um, well, I'll get to that in a minute, but.
⁓ after that, I went back to running the organization and then about a month ago joined Harpoon. and the reason for that is one Harpoons great, you know, I've, I've met a lot of the guys and thought everybody was awesome and wanted to work with everybody. Our founder, Larsen is like a man from a different era. He's just a superhuman. So it was cool to get to work with him and see how he operates, but on a much bigger scale.
Mat Vogels (07:35)
Mm-hmm.
Clint Brown (07:41)
the reason that I was interested in this space, it actually comes down to this bill and it comes down to what we're building, what a lot of the founders who may be watching this are building. I looked at the scene, the things that had been worried about for the United States of America were the general trend towards lawfare, not to get political, but a lot of people faced things that...
haven't been discussed publicly behind the scenes that were pretty dark. It's a dark trend. It's a slippery slope. I felt like working with cash helped with that. I was worried about Congress and it tends to not function. I felt like that was checked off. And I started thinking, what am I worried about now? Like, what is the thing that is alarming? And what's alarming to me is the technology race on the AI side and the defense side.
And the energy side with China, they're making big moves and the United States is behind. As an aside here, a little weave, I talked to friends at the State Department. I'm Hey, what do you think about where China is on AI? well, they tell me that we're months ahead.
Our technology is months ahead. And any founder knows like that is not enough lead. and. In February of March, February or March of this year, the CCP allocated $140 billion to their own VC fund to promote AI growth. And that includes, energy and, and data centers and everything that goes around it, not just the development of the software.
They're clearly making moves there. And a lot of that comes down to defense tech, who has the best autonomous systems, who has, you know, whatever we need. And if we don't keep up, if we don't accelerate, we're no longer a deterrent. And China wants to become a hegemon in the South Pacific. And that is a red line for the United States of America.
Generally, it's seen as that by the defense establishment. So that's an unavoidable conflict of interests. And the only way to avoid conflict there, and that's what this bill is about, that's where it comes back around, is to accelerate, to build. I think it's really up to founders and it's up to VC. The defense department can't do it all. And this bill is a signal that they can't do it all. And I'd love to tell you about sort of what the signals are on that, but I don't want to jump ahead.
Mat Vogels (09:52)
Yeah, that was was incredible background there. And I think that I two key points I want to pull from that one. There's probably no better person on the planet to talk about this than than you. And I'm excited to dive in to to some of these questions. But I think that what you just said kind of leads into maybe the first one.
Before we dive into maybe what the one big beautiful bill is and maybe what it entails, could you talk a little bit about the process of how it came to be over like the last month? Like what were some of the, the withholds or some of the things on there? You mentioned some of the, geopolitical pieces and, causes to push people to want to get it out. Can you talk maybe about a month leading up to it actually going or even two or three months, what that process was like?
Clint Brown (10:34)
Yeah. Well, I love the 30,000 foot background question. I'm going to take us even a little bit higher. We're to go into the stratosphere a little bit. Um, in order to frame all of this, have, and nobody's talking about it. Nobody understands this. It's not a good clip for, you know, MSNBC or Fox news to discuss it this way. Since we're on a longer form and your founders are technical people who understand these things, the founders who are watching this.
You have to consider the timeline. The president Trump has four years of his administration. Republicans are guaranteed control of Congress, guaranteed. Somebody could die, somebody could quit for two years. That's it. So what happens is in that two years, you have one year that's like full time Washington, well, full time for Congress, Washington DC work where they're here.
most days a week, like three and half days a week. They take it pretty slow. And that second year is an election year. So they're actually working very hard during that year, but they're on the campaign trail. It's not just the members who are up for election. Remember the House is up for election every two years, the entirety of the House, and the Senate every six years. So a portion of the Senate is up for reelection.
Mat Vogels (11:27)
Yeah
Clint Brown (11:48)
⁓ And that portion determines whether Republicans control the Senate, whether the president's party is in control of that institution or not. And so all senators typically go out and campaign for their colleagues on both sides of the aisle. They're not here. They're on the campaign trail. They're in North Carolina. They're in Texas. They're in Tennessee. That's where they are. So you've got a year, maybe months, if you're president Trump, if you're the Trump administration, to get your legislative priorities done.
That is the framing of this. That's the stakes. This is it. This is their one chance. You have a few times a year that you can use a reconciliation bill. A reconciliation bill is normally things in the Senate are set at 60. When you have 53 Republicans, that means it's naturally bipartisan. 94 % of legislation that passes the Senate passes 100 % unanimously bipartisan.
Mat Vogels (12:18)
one chance.
Clint Brown (12:38)
The other remaining 6 % passes by partisan. There's like a .01 % that passes on partisan basis, and it's this. And there's some theories that you could do it up to six times if you really get into the rules and play your cards right. But in reality, you only have the bandwidth to do it one time, maybe two, because of that timeline, because they're here three and a half days a week.
They're back in their state, you know, working with state offices, doing events, that sort of stuff. Going to the Hamptons, whatever the senators do, I don't know. Co-dels around the world. So they don't have the bandwidth to do it more than once. so everybody's pet interest, the thing I talked about, the things that I was worried about.
Mat Vogels (13:11)
Ha
Clint Brown (13:23)
they're worried about.
border, they see that as an existential threat. Remember, we're just talking about the Republican side here because this is a partisan bill. They're worried about the threat in the South Pacific from China, and they're worried about taxes and the economy. These are the four things they're worried about. Debt, deficit, border security, China, and taxes. So all of them got pushed into this bill.
And so you had different factions who were worried about each one of those things. There wasn't much controversy over the defense provisions in the bill. Some people who maybe don't care as much about defense and national security and don't spend a lot of time on it, just sort of saw it as a given. Others who are really focused on that, spent a lot of time crafting this provision. The hot issues came down to a few different things. One.
the overall deficit, how much it was spending versus how much it was saving. Some people saw it as their one chance to return to pre-COVID spending levels. That Senator Ron Johnson was kind of leading on that. He's a great man and he wanted to bring attention to that. Some people were worried that the border security provisions weren't strong enough, but there was general agreement and the force from
administration to take care of that. And other people worried about specific provisions within the tax area. Sub to those, there was an AI provision that a lot of people watching this probably track closely because that's our space. That's what we think about. So what you heard about was full expensing and R &D on our side. That's a tax provision. It comes back into the deficit stuff. Everybody wants that. There's not a lot of disagreement on it, but people are tracking it closely.
You heard about, EV tax credits, the IRA tax credits for wind and solar energy. And you heard about, this AI moratorium. I'll start with the AI moratorium. it would have blocked any regulation by states, any new regulation by states for 10 years on the development of AI. On one side of that.
States want to be able to protect kids from things that come out of AI. It goes back into the provision some states have against obscenities, online age verification for pornography. It all ties back into that. It's sort of rooted in that vision of things. And then there's another aspect of it, copyright trademarks rooted in that. States like Tennessee have a lot.
of artists that want to protect their material and there some conflict on that.
On the other side of that, we all know that AI is sort of like nuclear weapon. States may be able to regulate how nuclear material is transported through their state, how it is used in their state, disposed of in their state, but they can't regulate the development of it. You can't have Rhode Island saying, the smallest state, we need to nuke now. Texas is coming for us.
That's just not happening. Same thing with AI. So some people saw this provision as very targeted towards.
the development of AI and what really they don't want is California, Illinois coming out with regulations that stifle the development and innovation of AI. The big players, Google, et cetera, need to lock down competition from founders, from new companies. So it a big fight over
But there's somebody called the Senate Parliamentarian. She gives advice to the person sitting in the chair. The chair belongs at the front of the Senate. If you're looking on C-SPAN, you see the person at the top, that's the chair. That chair belongs to JD Vance as the vice president.
But other people sit in the chair because he's busy and he's not always there. She gives advice to that person on how to rule on any provision. Reconciliation bills have a lot of restrictions because it's partisan. They wrote in all these restrictions when they developed this process to ensure that it's not blowing up the filibuster, which is the 60 vote threshold, preserving the nature of the institution. These are important things to do. We don't want our institutions constantly blown up and changed, but
The parliamentarian gave some advice. Some people called her to ruling. It's a pet peeve of mine. I can't stand it. She's not, she doesn't rule. She'll tell you she doesn't rule. She's a very nice person. She'll tell you she gives advice. She gave advice that some parts of the AI provision couldn't stand. And this is important for people to understand for how this bill is developed. It's important for the defense provisions and the other provisions. So it changed.
because it couldn't stand under the rules. And then it went down 99 to one, which is with those changes, it was unacceptable, which is somewhat shocking because in the day leading up to it, it was sort of, we going to get 50 or 51? Is this going to pass? Maybe we get 49 and it doesn't pass. Then suddenly it was 99 to one ⁓ because of the changes under the rules. That's important to understand because it shapes those same rules
Mat Vogels (17:53)
Crazy. Yeah.
Clint Brown (17:58)
was drafted. You can't be too specific. The policy can't outweigh the budgetary aspect. These are basically the two top level restrictions that founders need to know to understand this bill. So you'll look at a defense provision and it will just say, you know, 200 billion for the development of unmanned systems for the Navy. It's not very specific. It's pretty open to interpretation.
That's because of these rules. So it's different from a typical appropriations bill that spends defense money. And when you're looking at it and you're trying to figure out what all this means, that's why it's confusing to a of people. That's why we got a lot of questions about it. And we don't always know the answer to these questions because it's not specific. So,
I have ranted about this for quite some time. I want to pause and let you interject and rein me back in.
Mat Vogels (18:46)
Yeah, yeah. That was great. Again, I think the high level 30,000 foot view of it is important and
Maybe now let's get a little more specific and the audience here being startup founders, investors, can you talk specifically on what are some of the key numbers or values that these founders need to be looking at as it relates to how it's going to benefit them over the next what four years until 2029, I guess is when a lot of these things go through. Can you talk specifically about some of the numbers that founders should be looking at within the bill that are going to affect them?
Clint Brown (19:22)
It's four years and three months. Most of the spending in the bill is four years and three months. How the spend this a lot of people are to look at this and say $150 billion. That's nothing compared to the eight billion, $800 billion annual DOD budget. 150 over four years. No big deal. Actually it is. And I'll tell you why. one, 130 billion of that has to be spent in four years and three months. Like I said, so.
You need to know that most of us is very short term, but longer term than the annual defense spending bill. It doesn't have to be renewed every year. The defense spending bill, if it says this program is going to last for 10 years, you have to renew it every single year. So companies that are engaged on those programs have to wait and see, and Congress, they don't have a great track record of like actually doing their bills every year.
⁓ So there's always this tension at the end of the year for people who have been around the space a little bit longer, they know, is my program going to continue? Not the case with this. That's number one. Number two, when your customer is the government.
It's not an economic signal that matters. That is not the demand signal. It's a political demand signal. And the political demand signal shapes the market signal. It's what your market demand is. And this bill, more than anything else, is a political demand signal. Some of these things may not be enough money to develop the program over the long term, but it's shaping the priorities. It's sending the signal to founders that we need to now.
We need to fast. We need to build new things. There's a lot in there on this. 10 % of the bill, $149.9 billion, 14.9, 10 % was for drones, for unmanned systems. That is a huge shift. That is a clear demand signal. It may seem symbolic.
But of course there's real money to back that up. But the symbolism actually matters a lot on political demand signal. Most of the time, how these things play out is number one, I'm actually not pro spending a lot and I am pro this spending. I tend to be against that and a lot of folks who share my background are, because we see the trajectory.
I worked on the budget committee for three and a half years, which is like dog years. It's like 21 years in real life. Very meticulous stuff. How it works in reality is there are people who have interest in defense spending and there are people who have interest in domestic spending within Congress and they never get to a compromise on the levels of that.
rather than looking program by program, rather than deciding is this really needed? What they'll do is they'll negotiate, okay, I'm gonna get a trillion dollars of defense spending and you're gonna get a trillion dollars of domestic spending and we can just pass this bill and move on. And that's how the budget actually works. This is different from that. Because it was, like I said earlier, on a partisan basis, there was none of that gamesmanship here. They said, what are our priorities?
let's spend on those. And those priorities are shaped by two things. One, the needs of the war fighter. Two, geopolitical. And then there's always within that context, I need a new shipbuilding facility in my district. I gotta get some jobs back there. That happens, and that's actually not a bad thing, but often that becomes a race to increase spending.
And it goes back into that one trillion versus one trillion that we just talked about. In this case, it's not. So the gap between what the warfighter actually means, that market demand in reality and the political demand signal, there's an information gap. There's a gap in the kill chain, however you want to phrase it, where the warfighter needs something and the politicals don't know that they need it.
That gap is often filled by the major defense contractors and their lobbyists. Of course, there's some of that here. They're not sitting on the sidelines. They're doing their jobs and they're doing them very well. But because it wasn't this race to the top of spending, it actually fits the needs of the military significantly more because this is Trump's signature bill. The administration had a lot more push on what goes into it.
rather than negotiating on rabbit trails, they're negotiating on the shape of the bill, the entire thing. So I think this probably symbolizes, signifies the most realistic political demand signal that I've seen in my 15 years watching this stuff. On the other side, it's shaped by the geopolitical and
We see a lot of action and endopaycom in this bill. There are a number of exercises that are funded for this bill and endopaycom. It's a signal to China and the CCP of what we're serious about. Of course they can go read this bill too, and they are. And that actually also meets the needs of the war fighter. So those are the two things shaping it. And I think this is the closest to reality you're going to get.
So that is what you have to understand looking at it is if some of the spending in this bill doesn't continue, as you, as you mentioned in the question, it's because of the knowledge gap, because of that information gap and your job as somebody building a company in the space is to fill that information gap as quickly and effectively as you can. When you see there's a gap or somebody else is going to fill it for you and it's not going to work out for you and it's not going to work out for the warfighter.
Mat Vogels (24:38)
I think one of the things you mentioned earlier, which kind of ties into it is.
What makes the bill interesting is that there is kind of this timeline or time gap for it where it's a call to action today immediately Feels like the gates are opening the regulatory aspects are getting lower all these things We have programs like black flag and harpoon that are helping people navigate these it feels as though The opportunity to do these things is now and one of the questions that we've gotten as it relates to this You mentioned a lot of military spending do d department of defense all of that
What are some of the benefits that if you are a non-defense tech specific company, do you see the tailwinds or specific aspects of this bill also helping folks that are maybe building in energy or even climate or other areas that are maybe important to national security, but not directly related to what some people would consider as defense spending?
Clint Brown (25:31)
Right, yeah, if you're sort of in those spaces that you just described, it doesn't matter that they're spending another 30 billion on shipbuilding, or you may think it doesn't matter, but it actually does. So for example, there's a provision in there for autonomous shipbuilding. If you're building in the AI space, that's an influx of capital into the real world usage of autonomous systems, of AI. And you may be building an LLM, but it's going to...
push the development, maybe for your competitors, maybe for you, a lot faster. it's going to, I think it's appropriate to use the metaphor here, rising tide lifts all boats. Ultimately, the technology development that's going to result from this influx of capital is going to benefit everyone. It may create some competition, but that competition, to use another metaphor, iron sharpens iron, it's going to push us all to move faster and better.
So that's one thing to watch. Another of course is like, like I mentioned earlier, the immediate R &D expensing, all the provisions for manufacturing and the bill related to the tax side. That's going to be huge for everybody in the space. There was, there was a lot of play in the climate space on wind and solar energy tax credits. Ultimately that was removed, but part of it was kept in.
⁓ there was a provision sort of slipped in at the last minute that would allow, manufacturing in those spaces to, if you're building, a factory to build solar panels or whatever, or any kind of facility related to it, you can get the tax credit as long as you start construction before year nine. ultimately I think that's a detriment because, when you even playing field and.
we need to grow energy as fast as we can. And we need to see what rises to the top. So that provision doesn't necessarily benefit someone in the nuclear space, but overall, the elimination of those provisions does. It may have put it in a little bit of a longer timeline than we would like, or oil and gas or whatever. Sort of the picking of... ⁓
which of those winners and losers, which of those we like is on the U S government side, is lessened. And so the competition playing field increases. you're building, nuclear, you have a little bit more advantage through the combination of tax credits on R and D, et cetera, et cetera. And by the more even playing field, if you're building in the wind and energy space, you know that that still exists for you.
sorry, wind and solar space, you know that it still exists for you, but you are going to have to push a little bit harder, think a little bit more about what you're going to do without those tax credits in order to compete. And actually that's going to make your company more competitive in the long term and your technology better. It may create some hardships in the short term, but you do have some runway.
Mat Vogels (28:08)
Yeah, I think that the rising tide lifts all boats. Kenny mentioned earlier, I think is something that I've been hearing and feeling from the VC side. We've had a lot of VCs and folks getting off the sideline is maybe something that I've heard or thought of where you're seeing VCs that maybe were a year ago investing into crypto or just B2B SaaS and are now interested because of a bill like this and just the momentum are stepping up and investing into not just military defense applications, but energy, AI,
Clint Brown (28:09)
So.
Mat Vogels (28:37)
infrastructure, logistics, shipbuilding, you name it. Everybody seems to be focused on the national security critical technologies piece as a whole. And if anything, this bill is a rallying cry, I think, for a lot of that.
Clint Brown (28:47)
And if anything, this bill is a rallying
cry, think, a lot about. Yes, absolutely. It is. And I think a lot of people missed it because the headlines, know, lot of people who are casual observers of this, missed it because the headlines were, Elon's mad about the bill, EV tax credits going away, IRA tax credits going away, is it going to pass, AI. And some people missed this whole defense ecosystem that's being built.
as a result of this bill. And I think founders would do well to dig in and look at what's in there. It could be shipbuilding. Let's go back to that because we're on Pirates Only podcast. So, you know, let's talk about ships. ⁓ Yeah, yeah, why not? There's like 35 billion or 30 billion on the bill for shipbuilding. If you have some technology that
Mat Vogels (29:22)
Yeah, let's keep it nautical. Yeah.
Clint Brown (29:34)
It all relates to that. They're moving fast on shipbuilding. An example of this is, you know, it takes like eight years to build a Virginia class submarine and they're way behind. If you have a manufacturing technology or a, some sort of software technology or whatever that could speed up that process, you should think about how you could speed up that process because there's a lot of money out there and there's a huge incentive.
huge and center to move fast. Back to the geopolitical. China said they intend to invade Taiwan. They intend to be ready to invade Taiwan by 2027. That's what DOD is thinking about. That should be all they're thinking about. So they want to move quickly on building these ships. If you can help them move quickly, you should. It's going to be financially beneficial to you. It's a patriotic duty.
that's gonna help in the development of your technology.
Mat Vogels (30:23)
One of the questions that we got in here as it relates to, we're seeing all this money going into certain areas, but we've seen in this bill some areas that people were pointing to as being innovative, like NASA being one of the bigger ones where there's gonna be decrease in some of the money allocated to some of these programs. What do think the reason is behind that? Do you think that?
it's a signal that VC in a way is meant to fill that gap and could fill it better than maybe some of these historic programs. And this is an opportunity to show that. Or what are your thoughts on some of these programs that have decreased some of the spending towards them?
Clint Brown (30:55)
Yeah, yeah, I think it is a signal that private capital and private industry are going to be filling a lot of the gaps there. You know, for a long time, we relied on NASA for new developments in that space, but in recent years, they've been a facilitator of that and private capital has been the innovator. We all know the story of SpaceX. It is re-shifting in some ways though. For example, there's like
3.65 billion in the bill for satellites and satellite protection. 250 million for space lasers, which I mean, I just get so excited anytime we talk about space lasers. It's just such a fun topic. ⁓ Yeah, yeah, exactly. There's a lot in there for space, even though NASA is being moved off the playing field in some ways, it's less about exploration and more about defending our infrastructure in space.
Mat Vogels (31:33)
Star Wars in real life, yeah.
Clint Brown (31:48)
Um, so if you are in, if you're a company who's thinking about how to get, um, Rockets into space faster, this is good for you. If you're thinking about how to protect satellites, if you're thinking about how to make satellites more efficient, how to get them, um, in a more secure position or really. This is good for you. If you're thinking about how to increase communication between satellites and have resiliency, it's good for you.
So it doesn't have to just come through NASA. Some of this is going to come through Air Force and Space Force. And it still promotes dual use. There's a lot of room for your technology may benefit, say, DOD communication satellites. It's also going to benefit T-Mobile's communication satellites. If it benefits one, it's going to likely benefit the other, because those are both key parts of our infrastructure.
As weird as it is to say, we're not very far off from space wars. if anything, long-term history, if it plays out the way we think it could, people are going to look at this bill and say, that was the start of the space Navy. The ships in space doing battle. So it's sort of a reshifting of priorities on things like that. Were there other areas of,
that you thought maybe could affect founders in this space.
Mat Vogels (33:01)
No, I think that there was some different programs and there was NIH and we'll list some of other ones in there too that had some cuts. But I think the biggest piece, the question that we got from a lot of investors was they looked at this as a challenge to venture capital as a whole, as an industry. In a way, we've been saying this for years, where private capital is better than government spending. It's a trial run for that and I think it's
important that VCs look at this as an opportunity as well.
Clint Brown (33:31)
Yeah, yeah. And I think the NIH example is a good one. My hope is that it prioritizes what NIH is spending on and what grants are giving to universities. You know, we all know that some universities are out studying some crazy stuff like how shrimps run on treadmills.
I don't think there's a market for shrimp treadmills. Maybe I'm missing it. I don't think that's something we would probably fund in the private sector. So it forces them to prioritize. And I actually think it gives venture capital a lot more leverage. It's soft leverage in that space because people doing research in those labs, those universities are going to prioritize things that the private sector is then going to pick up and run.
So, and a lot of it's overhead, that sort of thing. There's a lot of debate about that, of how much to give on overhead for these labs and universities. But ultimately, the money is fundable and a reduced overall number forces prioritization and allows private sector to fill the gaps.
That's where we get like an economic demand signal rather than just a political demand signal. It's sort of the inverse of my original thesis here, but I think it works.
Mat Vogels (34:35)
Yeah, I think it does.
Clint Brown (34:37)
Well, you we talked a lot about the defense spending and the bill and like sort of the high level of the bill. But I mean, this actually, I have a question that actually gets into your area of expertise, something you know far better than I do. QSBS, there were some changes there. You've been a founder. What does this mean for founders? What does it mean for liquidity? I think it ties into all this defense spending and everything going on here, but you have first-hand experience with that. What are your thoughts?
Mat Vogels (35:02)
Yeah.
So the QSBS qualified small business stock allows you to essentially,
pay less in taxes if held for five years of time. And we'll link to some of these resources specifically, but there are two big pieces I've been hearing commonly that people are getting excited about. There's probably more and I encourage you to do some, some research as an audience member in maybe some of these things that could affect you specifically. But the two that I keep hearing are historically, I mentioned the five year period, you would have to hold it for five years to then get the 100 % exclusion rate for, for the amount that you've
And then the amount was up to 50 million and that's a number that's changed as well. So the two pieces that are now different, there's now a tiered effect for the years held that you can do. So at year three, there's now a 50 % exclusion instead of a 0 % exclusion before, and then four years, it's 75%. And then if you hold for five years, it's the full 100 as it's always been. So now there's a benefit here to receive earlier benefits.
at year three, where historically it was 0%, you had to go to five to receive the full benefit. What I think that's going to allow are hopefully some earlier liquidity into the ecosystem where founders maybe before other folks before were waiting for the full five year period might now consider liquidity earlier because they can take advantage of some of those benefits. And 50 % is no joke. It effectively puts in a federal tax rate close to 15%.
with 75 % is closer to 7 or 8 % and then go to 5 it's down to 0%. So there's value in holding all through the whole period still, but benefits to selling earlier, which is great. And then the other number that I mentioned, the 50 million number before is now 75 million. So essentially a 50 % increase in what we saw historically. So two big benefits there that again, I think are there to encourage liquidity earlier and the 75 million
million number being additional dollars that are hopefully going back into the ecosystem and put into other companies or different programs. So those are going to be exciting, I think, for the entire ecosystem founders and VCs alike.
Clint Brown (37:18)
So that applies on whether you are acquired, whether you IPO, the whole gamut of exits, right? And so in the real world, we've got this like political demand bat signal out there that the politicals have said, we want to build ships faster. And maybe you're building a technology. I'm saying this so you can tell me where I'm wrong. Maybe you're building a technology that's going to accelerate shipbuilding. But one of the big
Mat Vogels (37:24)
Yep. Exactly right. Exactly right.
Clint Brown (37:44)
contractors, whether it's General Dynamics or whoever that's building the ships, they figure out they need to acquire you rather than just partner with you. And it's a great offer, but the ship building is accelerated for four and a half years. So they need to acquire you before the five years. This is like kind of the perfect opportunity for people like that. The offer may not exist in five years because the ships will be built. Really, they won't be built in five years, but you know, that's kind of the concept is it gives people this.
Liquidity gives them an exit opportunity earlier, it increases liquidity and it accelerates the very thing the political demand signal has been sent to accelerate. Where am I wrong on that?
Mat Vogels (38:21)
No, I think that's exactly right. I think there's two things here. One, might now folks that otherwise were gonna hold out on any sort of acquisitions for five years now might now be more inclined to do so earlier. But I also think that, you know, no one's gonna turn down in some cases when you're being acquired, let's say year three today or even before the bill. You know, a lot of times it's not that you're in a position if you're looking to be acquired, if it's year three, year four, year five, you're not gonna say, you know what, let's wait two years and then open up these conversations again.
But I think the value now is that when those companies are being acquired earlier before the five-year trigger historically now at three years The hope is that there are now less taxes being paid on that to then be injected right back into the ecosystem Which is what we've seen historically with founders and BCs alike When liquidity happens those dollars go right back in to another venture fund another company
Clint Brown (38:51)
Mm-hmm. Yeah.
Mat Vogels (39:16)
and other startup. And what this allows is hopefully more of those dollars instead of going into taxes, going back into the innovators and the investors in the private capital markets that are going to continue to invest back into the ecosystem. So maybe twofold. One, there are now startups that are hoping or looking for liquidity earlier. But two, even if they weren't waiting for the five year mark historically, now if they are acquired earlier, there's just more of those dollars being put
back into the ecosystem and not back into taxes.
Clint Brown (39:47)
Well, that's a great point. And this will have a compounding effect because it's permanent. Unlike the DOD provisions that are four and a half to 10 years, these tax provisions were made permanent. Last time they did this in 2017, it was made for five years. Again, permanent. So you can have this compounding effect three years, three years, three years. Suddenly, you you're up to 12 years and this has happened over and over again and liquidity has increased and we're going to the moon figuratively and literally.
Mat Vogels (39:51)
Mm-hmm. Yep.
Clint Brown (40:13)
So I think that's a huge highlight in this bill.
Mat Vogels (40:15)
And actually that opens up one of the other questions that we had that I love your opinion on. Many aspects of this bill are through 2029 and the political landscapes over the next two to three years, I think are going to be rocky. Regardless of outcomes or how things go, it's going to be an interesting election season next year. Is it next year or two Two years, guess, for the first and then going into four in 2028.
What do we need to think through? What do founders need to think through with potentially, are these short-lived changes? Does the political landscape affect the way that these founders or VCs should be looking at this? how can this be put into a strategy as you think forward?
Clint Brown (40:58)
Yeah. mean, the easiest box to put this in is Republican and Democrat control of Congress and control of the administration. Control of Congress is up in two years. Control of the administration is up in four years. The most likely place that there would be changes is if there's a shift in control of those institutions by party. We all sort of know this. But no matter what happens in two years,
The Trump administration is still in for another three years and six months. So you're not likely to see a huge shift on these. don't see the administration signing off on a bill that shifts this very much. Even if Democrats take control of Congress in two years. That being said, there's always negotiation. Something may be higher priority for the administration and
some provision of this bill may fall in those negotiations. That's very unlikely. An example of this, even with complete Republican control of the political institutions, House, Senate, presidency, the hardest negotiation in this bill was on repealing the IRA provisions. The IRA, the Inflation Reduction Act, was a reconciliation bill just like this one.
done exclusively by the Democrats under the last administration. And the hardest thing to solve for the Republicans was repealing something that's been done. Very difficult to do. So it's unlikely there will be major shifts within the next four years. Beyond that, it's possible. But even then, like I said, we switched complete control.
And was very hard to repeal even just a few provisions of the IRA. Once something is done, it's very hard to undo. It has to be undone statutorily. Now we can get into, you know, if there's a complete shift in control in four years, the executive branch can redirect some of this money. OMB can, office of management and budget in the White House, let's say there's a president.
I don't know, Gavin Newsom in four years, then his office of management and budget can redirect some of this money. But, and it's even more so because it had to be written, remember we talked about it had to be written very vaguely, not super specifically. And when we get to the reconciliation process that leaves more wiggle room to reallocate some of this money. I don't think it's very likely on the defense side because there's general agreement that we need to be
innovating and redirecting towards China. And that's what this bill does. Now, not everybody on the Democrat side, somebody's going to say, yeah, but I heard Senator so-and-so, major Democrats say they disagree totally with this. Not everybody agrees, but generally on the Senate Armed Services Committee, the House Armed Services Committee, they understand and there's agreement. So it's unlikely to shift much in that space.
this money will be spent by then anyway because it's four and a half years and that was not an accident.
So I don't think it's super likely. I don't think it's something that founders have to worry about majorly. If anything, the political demand signal will change. It's more likely that things will be added to the political demand signal. Sort of like we're seeing now, there's always been the political demand signal for China. Under the last administration, there was a significantly greater political demand signal for climate change, even with NDOD.
Mat Vogels (43:53)
Yeah.
Clint Brown (44:10)
And we've shifted away from that, but the demand signal for China remains and it has increased. So there may be some shifts, but when it comes to major geopolitical factors, China's still gonna be there. They've been there for thousands of years. So, you know, it's not gonna shift too much.
Mat Vogels (44:26)
How much, if you could put a number, maybe number's not the right way of looking at it, but what impact did China or the geopolitical nature of this bill have on getting it passed? Yeah, maybe it's as simple as question to that. How much did that play into the urgency of this bill?
Clint Brown (44:43)
Actually, in most cases, something like that would play into the urgency of the bill majorly. But it really didn't in this case. I'll tell you why. It's sort of a given that we need to shift focus there amongst a lot in Congress. But there are other interests. It's a competing interest for, you know, I want to more
F-35 is in my state or my district, whatever it is, that creates a competing interest. This did not have those competing interests because it's not the typical defense spending bill. This was just simply, like I said earlier, what do we want? What do we want to accomplish? What do we want to focus on? It helped where there may have been some people who, you know,
wouldn't have been as enthusiastic of the bill. Maybe they would have had problems with some other provisions. They certainly found that I could have been like, yeah, but I really liked those defense provisions. This was all underlying. The real driving factor was taxes. mean, all Republicans campaign on cutting taxes. That's like bread and butter Republicans, and this was a Republican only bill. And then the border.
Nobody wanted to be seen as opposing President Trump's border spending. It still did come down to some interesting negotiations at the end. This happened in two phases. You have people who are really worried about the deficit. People that I really like personally, they're my people. Ron Johnson, Rick Scott, Mike Lee, Cynthia Lamas from Wyoming who...
folks know from crypto and AI stuff, she's great on that. They were driving a hard line on, we've got to reduce the deficit more. And from their perspective, that's a national security issue too. And they negotiated with Vice President Vance at the last minute. They were like in a room over in the Capitol. I think they all generally wanted to get the bill to pass. They're just trying to be responsible and do...
Mat Vogels (46:22)
It is. ⁓
Clint Brown (46:34)
their due diligence over the entire economic system. The second factor that happened here is on the moderate side. Those guys are more conservative on the moderate side. There's Susan Collins and Lisa Murkowski. And for people in the world that I've come up in who are nerds and watch C-SPAN and stuff like that.
It's really fun for us to sit and watch C-SPAN 2, see who's huddling on the Senate floor, which groups of senators are talking to each other and read the tea leaves of what's happening there. And there were some interesting huddles with Lisa Murkowski, who's on the fence, about to vote no. Are we going to have enough votes to pass this bill? Last time there was a major Republican reconciliation bill.
Well, not the last time. The last time was actually the tax. But the time before that, was, was on healthcare and she, John McCain and Susan Collins all got to know together and killed the bill. So they have long memories in these places because they're a hundred years old and they're there forever. everybody's remembering this in that moment of, no, she killed the bill last time. Is she going to again? And there was a negotiation at the end over.
a number of provisions, mostly centered around Medicaid, Medicare, rural hospitals. And a lot of this ties back to actually ⁓ border and immigration and the funding for hospitals related to that. So there was also some negotiation around IRA and green energy tax credits in there at the end.
it came down to the wire for negotiating with Senate leadership and getting provisions in the bill. All that to say these were the driving factors and the geopolitical is sort of understood. But for many people, that last minute negotiation was like a high stakes on the geopolitical front. If this bill doesn't happen because we understand this needs to be in there, because of Medicaid, because of the deficit, we're
not sending the geopolitical signal that we need to. So it created some urgency to actually get it done. And I think it played a factor in closing the deal. It all comes down to their interpersonal relationships and knowing who they're friends with. We'll have to talk about that some other time, but the friends of the people and the negotiations were all very enthusiastic about the geopolitical, which actually is how stuff gets done. That's how the sausage is actually made.
Mat Vogels (48:47)
Yeah, we're seeing that trend across VC right now as well. I feel like a lot of the pitch decks we see now are also using that as one of the reasons, but all to me, it all just comes around.
urgency and I think going to the point earlier, you know, some of these things might change in 2029 and especially with new leadership, nothing is necessarily set in stone. But like you mentioned, it is harder to undo something that's been done. So hopefully a lot of these things can can stay into effect to have these startups benefit. But if it does change after 2029, it's more of a reason I think to act now and to use this as an opportunity to move with haste across the board. And I think that's
So we'll see.
Clint Brown (49:26)
Absolutely. And I love how you frame that, that we see it on the VC side in terms of urgency. That's what it all comes down to. You know, we talk about offline, the role of a CEO is to inject urgency into his startup or her startup, into their company generally. The same thing is true with our political class. Their job is to inject urgency. And that is a major shift that we're seeing here. Nobody thinks of like government budget spending is urgent.
There's no sense of, we got to move quickly on that. But for the first time in my memory, there is a real sense of urgency. And that sense of urgency is trickling out into the private sector.
Mat Vogels (50:00)
Yeah.
Do you want to talk a little bit about some of the potential negatives that could come from this? What are some of the things that you mentioned there are some folks that were not opposed to it, but were hesitant and wanted to make sure that we were keeping a keen eye on certain things. I think the budget is certainly one of them. And historically, the government has not shown that it is the best spender of money. It's a hard thing to do and it's easy to play, you know, armchair quarterback for politics in a way.
But what are some of the things that you lack look at with this bill that not that could have been changed or should have been different, but are things that we just need to keep a keen eye on in the startup or VC space to make sure they reach the potential that we're hoping for.
Clint Brown (50:45)
Yeah. I mean, this is sort of an ever-present conversation, a debate. Everybody's watching how the economy is going to play out under the Trump administration. And it all kind of relates back to this. And there were a number of members of the House and of the Senate who were very concerned that the bill did not reduce the deficit enough. Because again, it's how this is their one chance. Now how that's going to play out.
There are number of other factors that go into it. It's very dynamic. We have the economic growth that's going to come from this. That economic growth is going to increase tax revenue, which reduces the deficit. There's the tariff situation, which has a lot of downstream effects. A lot of people are nervous about that, how it affects supply chains, how it affects prices. But for the first time ever in June, the US government recorded a budget surplus for the month.
Now there are lot of factors that go into that that can be gained or that are just the result of the natural calendar, how it plays out, when tax revenues are brought in, when spending goes out the door, that on a month by month basis, you can't really say this is a definitive signal. Because say, know, maybe most of the spending happens in September before the budget or the end of the fiscal year.
If we had those tariff revenues in September, maybe it wouldn't have evened out. Maybe it would not have been a surplus. Who knows? Tax revenue comes in in April. Maybe there's enough of that still coming in that it had an overall net effect. So it is a shift and people are watching this. If the economic situation does not improve, if it doesn't accelerate growth the way
the proponents of the bill think it will. And that is something to watch how it affects everything. I know we're sort of all keeping an eye on that and one of the economic trends. Outside of that, as far as the specific bill, there were a number of cuts that people wanted to make that didn't get into the bill. That were just, you have to have 50 % plus one agree. And it's very hard to get like,
50 politicians who agree on anything and reality, like when you put it down on paper. So some of those things just didn't make it in the bill. And then there's an overall larger number of what the bill would spend. To get like nerdy for a second, there was a debate that people may recall or may have noticed over what baseline is being used. that just means like, what?
level of spending are we measuring off of? There's like the current baseline and there's the current policy baseline. There was a big debate about this. How are we going to score this bill? How are we going to measure whether it reduces the deficit? All the tax cuts were set to expire at the end of this year. That's current law baseline. Not anymore since the bill was signed, but leading up to it, that was current law. So there would have been a lot of tax money coming in.
over the next five years because taxes would have gone up. And the people who score this don't take into account macroeconomic factors. They don't take into account whether the economy grows and that reduces revenues. They look at plus and minus more dollars, less dollars. That's all they look at. They don't look at the economic factors. So current policy baseline, measuring it off of that, it did not increase the deficit. actually reduced it by, think, 400 million, something like that, some small number.
But current law baseline where the tax cuts were set to expire, which we all knew they weren't really going to, it would have increased the deficit by like three and a half trillion. A huge number. that is a big part of the debate. That part doesn't matter whether it would have increased because of the taxes. What actually matters is on the current policy baseline, people wanted to see that number go even further down to pre-COVID spending levels. We're still at
COVID spending levels. And that takes a lot of money out of the market that increases inflation, increases the price of everything. $100,000 today, mean, $100,000 in January 2020 is worth $125,000 today. That is the effect of COVID level spending. And that is what they wanted to address. So that is the thing to watch is how all of this ultimately affects inflation.
how the spending and the printing of money to backfill the spending affects the inflation and the prices of things. Because if it's continued at that same rate, we have four and half years for say the defense spending and four years, it will be worth 25-ish percent less. So that's why there's a little bit more urgency to get that spending out at the front. Your dollar is worth a little bit more and the time value of money here. So...
Yeah, build now, build fast and grow the economy.
Mat Vogels (55:19)
Yeah. In a way, the reason I like where the, what the bill is trying to do in some ways, and there's criticism, I think, on both sides, but
If it works out, it will look as if it was one of the more important things that we've done to help us get out of the hole that we've put ourselves in geopolitically. We're behind on so many categories and factors and have been over the last handful of years. And I think with AI, what we're realizing is how quickly these industries are going to start moving. So everything from energy and energy production to aerospace and some of the technology advancements there, but then everything related to manufacturing.
Clint Brown (55:50)
Yes.
Mat Vogels (55:56)
and materials and minerals and we're seeing a lot of mining companies. All these things, not because of AI, but I think AI will certainly just, it's gonna accelerate all these industries in their own unique ways. If we're behind now,
we're only going to get that much more behind if we do not implement some of these radical changes today. And the bet is that by doing this and unlocking some of these things for innovative private capital startups and venture, then that's our greatest hope of leapfrogging where we are today, accelerating as fast as we need to. And hopefully three years from now, we may not even recognize the economy that we are living in. Maybe three years is too
but over the next decade we'll certainly see that and a bill like this is just one of the ways to help us accelerate and really put the fire underneath us to move quickly. actually like that there's this weird time component to it. It's guaranteed until this time period and I think that that's what innovation I think thrives under and what will thrive under as a fund, as a firm, with Black Flag, all these things. it's...
I'm optimistic that these things will work out hopefully in the ways that we want.
Clint Brown (57:07)
Yeah, I think it'd be interesting. Can I take the straw man on that a little bit? On the geopolitical side, you know, we're in this AI race with China. We all know in this space that it comes down to energy. And I think China is growing at like seven and a half percent per year on energy. We're growing at about one to 2 % per year on energy. They produce
significantly more, I don't remember the exact number of terawatt hours, but in the thousands and thousands of terawatt hours more per year than we do. Granted, they have a much larger population, they need more energy. They also don't care if they give people brownouts and blackouts. They're going to power their data centers. They are much more building focus than consumer focus, I guess you can say would be a polite way of putting it.
So if we lose that race, we lose the AI race and $150 billion in defense spending and the R &D expensing and the QSBS, it's really a drop in the bucket compared to what they're doing on a geopolitical scale. It's not enough to get it going, which actually is a call to action. It is the best that our government could do under the current circumstances and it is really good.
But it's not enough. And founders, people building companies right now are the rebel alliance. It's up to them. There's no one coming to save you. You have to build. They've done what they can here and you have to build and you have to win. Everybody's relying on you, no pressure. But hopefully there'll be more coming down the pipeline, you know, from more bills, more innovation and DoD, that sort of thing.
But we are behind and it's not gonna be enough to catch up. There's really nothing they could do from a government side to be enough to catch up, except perhaps really hone in on deregulating some of these things to give us the advantage, to give the founders the advantage in building. And we certainly want them to.
Mat Vogels (58:59)
I think that's a, it feels like a good spot to leave off with it because I think ⁓ it's an inspiring note. And I think if we can leave founders and investors with anything, the time is now to build. And I think that the momentum that we are seeing across the board is something we haven't seen maybe ever, but certainly in a generational type of feel. And ⁓ we're excited that we get to be in the middle of it. So thank you, Clint, for ⁓ hopping on and shedding some light on this.
We'll have to do more of these talks as we go through. Maybe we'll pick a different topic on a monthly basis to get the DC insider version of it. Because I think that over the next decade, it's going to become even more critical the relationship. We're already seeing this between technology, private sector and government. And I think having somebody like yourself be able to walk both lines and talk about it the way you do is going to be amazing for us and for the listeners. So I'm excited
for future conversations.
Clint Brown (59:57)
Well, you know, it's really fun to just let people in to the conversations that you and I are having offline and just, you know, riff here like we do regularly and just like let people see that. So these are the conversations we're having in the VC space. And I think it's, I think we should open that up to other people. So thanks for having me on.
Mat Vogels (1:00:15)
Yeah, more to come. Thank you. We'll talk soon.
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