“Cost plus contracting is another form of socialism. And that's as clear as I can put it. When you give companies a socialist incentive for decades, it's actually not like they want to perform badly. To survive ... they have to charge the Pentagon more for things that don't make sense.”
How I Invest with David Weisburd · Startups & Venture · October 2026
Thornton runs a defense manufacturing startup. The host asks how the Pentagon moved so quickly away from contracts where a supplier's profit rose with its costs. Thornton's view is that the old contractors behaved exactly as those incentives told them to, and that fixed-price deals produce cheaper and better weapons.
Transcript
One, Jake's an incredible guy. He invested in our seed round way back in the day. Look, it's changed. It's changed massively. Frankly, I think it's just gotten better. Now, there's still a lot of change to make happen, but I'll tell you a story. When I first pitched one of our products, Glide, to the Army, they said, hey, this is an incredible thing. We'll roll this into our 2035 plan. And now the way this business works is they show up and they say, hey, we need you to build something. What do you want to build? What can help? And then you have this discussion. You align on what you want to build and then you move out. And that's incredible. It's very necessary right now. It's very, very necessary. We see that our munitions are, our stockpiles are diminished. And we talk about it all the time, but it sounds somewhat detached. I mean, think about us in contacts as a country in Iran shooting a significant portion of our munitions in a handful of weeks. Now, that's not to say the Iran war isn't a war worth fighting. I believe it is, but it highlights the fact that war wasn't a near-peer all-out conflict. And if it's going to take us many years to rebuild from that, we do have a real issue. And so the nice thing is the Pentagon's, one, they're getting faster. Two, they're getting more objective in terms of what technology will actually help folks succeed. And three, they're getting a lot more collaborative. And that's great. And it's kind of non-optional right now as a country because we do need to rebuild our stockpiles. We do need to rebuild our defense industrial base. Yeah, I'd say they've gotten better at those three things. Now, I expect that to continue. And I'm very excited for that. One, it's good for our business. Two, it's good for the American people. Because I also have a fundamental belief that we can actually spend significantly less on procurement if we buy the right thing. Like the nice thing about things that are asymmetric is they're asymmetrically cheap. Now, what I'll tell you is asymmetry for us means more ability to actually manufacture the thing with fewer technicians, with fewer operators, with fewer machines. That's what I mean by asymmetry. Now, along the way, when you focus on that, things do become cheaper. And I am very confident that if we continue this focus as a country, we'll actually get to a spot where we have significantly greater financial efficiency. But asymmetry, actually, in context, what we need to be building as a company and what we need to be buying as a country means the ability to punch above our weight class with our industrial base relative to China.
I'm very curious because it seems like only a decade ago, maybe even shorter timeframe, everything was cost plus. So you had defense contractors that their margin, their overall profit would go up as they spent more and more money on the product. So it was just complete adverse incentive. And today you have these companies like Mock with this asymmetric warfare with very cost-effective weapons that are being sold to the government. How did that change so quickly?
100%. Look, cost plus. Contracting is another form of socialism. And that's as clear as I can put it. When you give companies a socialist incentive for decades, it's actually not like they want to perform badly. To survive, they actually have, they have to charge the Pentagon more for things that don't make sense. I love looking at incentives to understand outcomes. And when you look at the incentives of COX plus contracting, it's actually not surprising how we got here. It's uncomfortable to say you need to be deeply capitalistic to ship great technology. But the thing America continues to do incredibly well is to find the next stage of tech. And 40 years ago, we did have a bigger industrial base than China. We did have better technology on state-of-the-art things than China. Now, a big thing we have as a country is asymmetry. And that's why our venture capital markets are incredibly important. That's why it's actually a very exciting thing to see retail investors getting involved in tech companies as they IPO. Now, we need to be careful because technology is incredibly difficult to predict and you can get booms and busts. But the history is a story of breakthroughs and technology. And frankly, most of those breakthroughs have come from defense. Like we lived in the Iron Age for a while. We're in the Silicon Age now. The Iron Age was defined by people first making sorts. The Silicon Age was defined by Bell Labs first inventing the transistor. And so for us as a company and as a country, I guess what I'm saying to make it super clear is we need to bet on asymmetric technology inside and outside defense. Right now, I deeply believe that the asymmetric tech bets that need to be made are in defense. Cost plus contracting from an incentive structure runs counter to developing excellent new technology. It runs counter to risk. It runs counter to good incentives for companies to actually go out and innovate. That's not a surprising thing. That's why SpaceX won. You actually need to make it a more capitalistic system, which is uncomfortable because you have to deal with the fact that the defense contractors are motivated by money. But capitalism works better than communism. And we've proven this out many, many times throughout history. And so the thing that probably makes me most excited on the government side is that they're thinking deeply about the problem, saying, you know what? For a fixed price, this trust works better. Our products will be cheaper. They'll be more capable. That'll be more reliable for the warfighter. And then in the act, we're going to get a lot deeper pockets involved. And so that's what you see now. That's why you see such a surge in defense tech spending from investors on the VC side. And I'm sure sometime in the next year or two on the public side.
You mentioned China. We're in this Cold War with China. It may turn into a hot war. I think there's a 12% chance that China invades Taiwan one way or another by the end of next year. Where are we in relationship with China? And how do you even quantify the relative military strength of the two countries?
For sure. It's actually kind of a fool's errand, I think, to deeply try and predict military strength or when China will invade Taiwan. I'm curious where you got that 12%.
Polymarket.
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