This VC is bullish about American dynamism – ‘the real one’

Wischoff Ventures' solo GP on tailwinds from the CHIPS Act, the US versus China and more

For many Americans, COVID-19 served as a wake-up call: The U.S. was nowhere nearly as prepared to overcome challenges as it should be, and it was overly dependent on China.

Whether the current geopolitical order calls for a new wave of isolationism will depend on your worldview, but the desire for the U.S. to be more self-reliant, solve its most glaring issues and stay ahead of its rivals can be found across the political spectrum.

Will the answer come from the government? Venture capital firm Andreessen Horowitz doesn’t think so. Its co-founder, Marc Andreessen, already said as much in his “Time to Build” call to action, but general partner Katherine Boyle doubled down in January with an essay on American dynamism.

American dynamism, Boyle wrote, is “the recognition that seemingly insurmountable problems in our society — from national security and public safety to housing and education — demand solutions that aren’t simply incremental changes that perpetuate the status quo. These problems demand solutions from builders — and it’s never been more vital that startups tackle these serious American problems.”

As a thesis, American dynamism found resonance in the U.S. tech community. But voices also emerged to question how well this goal was represented in a16z’s portfolio, which is heavier in crypto and SaaS than in govtech, for instance.

Boyle already anticipated some of that criticism, attributing it in part to a false belief “that software only touches the digital world and that we’re wasting valuable talent ignoring the physical.”

But, she retorted, “these critics are missing this current movement to the physical sector and the interplay between hardware and software.” In terms of sectors, Boyle added, “dynamism is neither govtech nor ESG.”

This is where things become interesting: a16z came up with a concept that clearly resonates with other investors, but that they may also define differently. For instance, solo GP Nichole Wischoff recently told TechCrunch that she is hoping to fund “American dynamism … the real one.”

Wischoff is a former startup operator who became an angel investor thanks to the acquisition of her former employer by Walmart. She then went on to raise two venture capital funds — a first of $5 million, followed by a recently announced $20 million fund backed by Peter Thiel and several other high-profile tech figures, funds and family offices.

While Wischoff’s startup experience was mostly in fintech, she decided that this second fund should focus more broadly on “unsexy businesses” — for instance, companies that apply an AI/ML or embedded fintech component to large legacy industries. The latter has to do with the fact that she has a keen interest for “everything that makes up the majority of the GDP in the U.S.,” she told TechCrunch.

In an email exchange, Wischoff discussed her investment thesis, but also the CHIPS and Science Act and semiconductors, the impact of artificial intelligence on jobs and more. Read on:

Editor’s note: This interview has been edited for length and clarity. Some of the linked companies received investments from Wischoff Ventures or Nichole Wischoff.

You said your investment thesis has to do with “American dynamism — the real one.” What do you mean by that? 

American dynamism relates to solving the most pressing problems we face in the United States. Most pressing and in no particular order are housing and construction, industrial automation, aerospace and defense, education, logistics, safety, etc.

By the “real one,” I am referring to the issue that currently, the majority of venture capital dollars are going toward reinventing legacy systems. This applies to fintech, housing, labor, etc.

For example, I am not convinced that rent-to-buy or gamifying home equity is true innovation. We have a massive housing shortage and a crumbling supply chain. Sure, smart homes and fancy tech to make living in an expensive luxury building is cool, but is Flow really making a dent in our housing shortage crisis for the majority of Americans? [Editor’s note: Flow is the controversy-ridden, a16z-backed startup of WeWork founder Adam Neumann.]

Compared to Flow, Culdesac plays a much larger role and is making a dent on the climate front. [Editor’s note: Culdesac is part of Wischoff’s portfolio.]

I actually believe that the Katerra vision wasn’t the wrong one but failed due to trying to build everything at once — and of course, the end was a bit of a mess. If anyone spent a few months digging into how builders/developers procure construction materials, they would be shocked at the inefficiencies and fragmentation.

On the manufacturing front for aerospace and defense, the original equipment manufacturers (OEMs) have complex products that need multi-decade support. The internal support for these systems (semiconductors, mechanical parts, electronic boards) all have shorter life cycles. A lot of these parts become obsolete, harder to procure, or suppliers stop manufacturing them altogether. This is why players like Stell, CogBase, Datum Source and others come into play. [Editor’s note: Stell received Wischoff Ventures’ first investment out of its second fund.]

The U.S. has quite the encumbered existing defense industrial base. Reading China’s 2017 National AI Development plan, it emerges that its leaders believe the U.S. will overinvest in the wrong places and ignore real innovation. China is outspending us. Humans won’t fight wars in the future; AI, drones and the like will. Anduril and Hadrian are both strong players pushing our defense base forward. We need more of this and more on the AI front. The CEO and founder of Scale AI [Alexandr Wang] did a great write-up on this.

There’s been criticism about the list of companies that supposedly embody this concept of “American dynamism.” In your book, what kind of companies would it be? What are some tailwinds for startups tackling major U.S. issues?

For starters and most recently, the CHIPS Act passing is a massive tailwind for startups tackling a major U.S. issue, with $280 billion going toward domestic semiconductor manufacturing, research and design. The purpose of this passing is to boost U.S. competitiveness, innovation and national security.

Out of the $280 billion, $200 billion are dedicated to R&D. This will jumpstart AI, quantum computing, nanotechnology and clean energy. The U.S. used to produce 37% of the world’s semis in the ’90s and is now at 12%. Too many U.S. firms are now beholden to chips made abroad with very fragile supply chains. It is estimated by McKinsey that semiconductor worldwide demand will reach $1 trillion by 2030.

What do you tell people who fear that technology, and AI, in particular, will destroy jobs?

This is likely a fault of how we market AI. The average everyday American has no idea what AI is, and all they see are robots doing their jobs.

Jacob Ruttenberg, a GP at Tinicum Ventures, said this best:

The history of the human race is littered with examples of automation destroying jobs. Generally speaking, however, you can also count on a new class of jobs to emerge following innovation.

Look at what happened in West Texas during the 2014-2016 oil crash. Due to advances in fracking technology and resulting increases in U.S. oil production, oil prices crashed, destroying jobs.

At the same time, however, you saw many solar companies start to retrain and repurpose out-of-work rig hands and pipe fitters for their own operations. Considered in the general trajectory of the changing U.S. energy mix, one could easily argue that solar jobs will only become more plentiful going forward.

As participants in the innovation economy, we must always ask ourselves: “How can we repurpose labor for tomorrow’s economy?”

My impression is that not many venture-backed founders, let alone VCs, have firsthand experience of poverty. What can be done to make sure that eradicating poverty is part of the American dynamism agenda? 

Candidly I think eradicating poverty is one blanket way of representing a lot of things (improving food access, jobs/wages, education, housing). VCs exist to make their LPs (and themselves) money. Venture capital as an asset class isn’t incentivized or structured to back nonprofit businesses from a “do good” perspective. For for-profit businesses innovating on access to education, housing for low- or nearly no-income individuals to be venture-backable and become a part of the American dynamism agenda, there has to be a way to capitalize.

Do you encourage startups to seek funding from U.S. government entities, such as DARPA?

Sure, if there is some form of connection there. It is worth noting that the government also offers really cheap debt via the Department of Energy (DOE) as a strong option.

Some funds have foreign limited partners that are potentially problematic. How do you recommend founders approach this now that the power balance is less favorable to them? 

Even in an environment where the power balance is toward the founder, I don’t really know how you could track down an LP list for a potential VC. The layers to this are complex.

For example, an LP could invest in my fund from the U.S. Three years later, after I have made all initial investments into startups from that fund, they might approach me to tell me they are selling their stake in my fund to a secondary buyer. This secondary buyer might be a foreign LP.

As long as they are legitimate, I don’t know that VCs work that hard to push back here. When working with family offices, for example, you do background screening when they sign sub docs, but it’s sometimes not clear exactly who they are or what family they represent. The short answer is it’s just really hard to track/manage.

What is your favorite unconventional quality in an entrepreneur?

They don’t give a shit what anyone else thinks; they are receptive to feedback and know how to listen, but also know how to brush off the bullshit (there is a lot of bullshit and most founders crumble).

Are you open to cold emails? If so, would you like to share an email address that founders can use to send you a pitch?