A Venture Capitalist on Investing in Science, China, and More | At Barron's
Summary
Investment Focus: Lux Capital invests in high-tech ventures across healthcare, aerospace, defense, and core technology, avoiding traditional VC areas like social media and mobile apps.
Venture Capital Landscape: The venture capital industry is highly cyclical, with a potential mass extinction of smaller firms due to under-reserving and a challenging funding environment, while larger firms may go public.
Scitec Diplomacy: Lux Capital is pioneering "scitec diplomacy," leveraging scientific and technological breakthroughs to form strategic global partnerships, particularly in defense and healthcare.
Global AI Competition: The global race in AI development is likened to a modern space race, with significant geopolitical implications, particularly between the U.S. and China.
Science Funding Initiative: Lux Capital's science helpline aims to support scientists whose funding has been cut, emphasizing the importance of science for national advantage and economic progress.
China-U.S. Rivalry: The podcast discusses the strategic importance of maintaining technological leadership over China, particularly in AI and semiconductor access.
Personal Drive: Josh Wolf's personal background and drive are highlighted as key motivators in his pursuit of investing in future-defining technologies and supporting underfunded scientific research.
Transcript
[Music] Hello everyone and welcome to At Barons. I'm Andy Serur and welcome to our guest Josh Wolf, venture capitalist, co-founder and managing partner of Lux Capital. Josh, welcome. Great to see you. >> Andy, great to be with you. >> So, first off, maybe give us a thumbnail sketch of Lux Capital. What do you guys do there? Oh, we invest in people who are inventing the future. And um we do high-tech ventures. So about a third of what we do is healthcare. That's like uh robotic surgery, med devices, biotech, healthcare, IT. Another third is aerospace, defense, pretty cutting edge things in air, land, sea space, and cyber, pretty much every domain, manufacturing, industrial. And then the final third is what we would generally call core technology, which is more defined by like what we don't do. So very little that most VCs might do in internet and social media and mobile and advertising and video games. We don't really touch that. And we do more sophisticated things like cutting edge semiconductors and edge inference chips and non-invasive brain machine interfaces and things that sometimes seem like they're sort of closing the gap between sci-fi and sci-fi. >> Yeah. I want to ask about what you exclude just quickly because you know for a while of course social media and all those apps you know for dogs and stuff was the rage. Not so much. Now, we'll get to that. But why did you never go down that path? >> Well, part of it was competitive advantage. Uh, you know, if if we wanted to be able to win the right to partner with a founder, we needed to be distinguished. And for most of the people that were already existing VCs when we were starting, we had no shot to compete. So, we had to carve out a niche that other people weren't. And um, it was it was really out of necessity. >> And you're a New York firm. That's another differentiator because so many of the people are out in Sandill Road and all that. How does that work plus and minus? >> Well, natively New York uh we we started here but now half the team is actually uh succumbed over the past I don't know 15 years and uh half the team is Menllo uh in Silicon Valley and half the team is New York. But interestingly we studied all these VC firms when we were starting my co-founder Peter Abear who's amazing partner. Uh why do they fail over time? And it's not just because they didn't have good returns. It's sometimes because they had geographic silos and you had like a biggie Tupac East Coast versus West Coast kind of thing and um the East Coast partners, you know, had a different style than the West Coast partners and eventually maybe the returns went west and the partners lost status and clout and they end up splitting or sometimes they were sector siloed. So the biotech guys were in their own little pod and the IT guys were in their own little pod. And so we decided even though I live in New York and half the team is in New York, I'm on more West Coast boards than I am east coast boards. That's sort of institutional design. And then the same thing, my west coast partners are more East Coast boards or European boards or Asian boards. And um and that's also by design. So we operate what we call UNM locks, one locks, where everybody's flowing between offices on a Monday, a Thursday partner meeting. If you came in and sat in, you'd be like, "Wait, I just saw them in Menllo and now they're in New York." And and then we are also all generalists. So, um, people have personal passions and proclivities. There are areas I'm really obsessed with at any given moment, but people are free if they want to do a Nobel Prize winning biotech company or they want to do a cutting edge aerospace and defense company. There's no swim lanes. Uh, it's just find the best opportunities and the best people. >> I love the East Coast rap versus West Coast RA thing. And yeah, then West Coast Jazz is really good. Now, that's a whole other thing. >> So, tell me about the business right now, the venture business. I mean, maybe it's hard to generalize, but how are things going? >> Well, if you're in AI and you're in aerospace and defense, they're going amazingly well. And if you're in SAS and some enterprise software, you're probably seeing margin compression. And some of the companies that were high-f flyers, you know, maybe are not doing so well. Broadly, venture is one of the most cyclical industries there is. And, you know, we always say at Lux, that we believe before others understand. But once we believe and then others understand and then there's a bubble in some space you know you either get out or um or you don't. But the history of venture is every 10 or 15 years there's some secular wave in some area of technology. In the 1970s it was uh PCs, personal computers and you saw the rise of like Dell and well that was actually earlier but you saw um compact computer and Microsoft and and then in the 80s you had biotech and you had the rise of Amgen and Janentech and then 90s of course you have internet and TMT and uh technology media telecom and then our hypothesis was like the next wave would be the intersection of many of these areas and you would have Nobel prize winners in chemistry and physics and material science that nobody was really paying attention to partially because They weren't at the clusters of venture money on the east coast in Route 128 in Cambridge or they weren't in the clusters of Silicon Valley, but they might have come from like Rice University or Cornell or Georgia Tech. So that was one thing. Um then you zoom out and and you compare sort of the 2000 boom bust around the time that we were starting but focusing on a different area to today. You had the same phenomenon with a huge proliferation of the number of venture firms and then a dramatic collapse. And so today there's close to 3,000 small firms that I would call the minnows like in an ocean the small fish. I was talking to one of my very large LPs and I said you know if history doesn't repeat it rhymes as the cliche goes I think 50% of these firms might disappear in the next few years. Why? Because you know they're under reserved meaning they don't have adequate funds to keep funding their portfolio companies. um the environment has changed and the cost of capital is higher and there's fewer growth investors to continue piling on money and pricing up their deals and maybe returns are low and then you get the Shakespearean infighting or partners who just don't like each other and you know all that sort of when you're not making money becomes more apparent and he this uh LP said 50% that's ridiculous it's going to be 90%. So there's going to be a mass extinction amongst the small firms who don't have adequate money to fund their companies and also can't really attract the best entrepreneurs because the best entrepreneurs want deep pocketed investors. Now at the other end you have the megas which are like the giant whales and this is like SoftBank and Tiger over the past 5 years they were turning companies into unicorns and at first they had coveted capital. Everybody wanted their money and today it's almost taboo. It's like well do you really want to take that capital? You know is it a negative signal? Other firms I think like Andre Harowitz, Lighteed, General Catalyst, General Atlantic, all great firms run by great people. I think they're taking the playbook from private equity from 2009 to 2014 where they're probably going to gear up to go public. They're approaching about hundred billion dollars under management each diversified platforms. they can have the staying power as a public company and um and they can create sort of generational wealth, you know, and figure out their succession to their junior partners. So, you have the minnows that are going to die, the megas, a handful that are going to go public. And then you got this nice middle part and I think there's 10 firms that really matter. I of course think Lux is one of them in a very significant way. But, you know, our partners at Founders Fund and Thrive and Seoia and Kla, all great firms. they can write a small check and it can meaningfully return the fund and they can write a large check and be pretty concentrated in their high conviction winners. So that's how I see the venture landscape today. >> That is really um really excellent analysis and >> we'll see if I'm right. We'll see if I'm right. >> Yeah, I hadn't really thought about it that way. That's that's really great. Josh, I want to ask you a little bit about the marketplace though, sort of coming around to what you do, right? So, you know, you talk about science and there's just a ton of stuff kind of coming that way. I know that you're involved in some uh key areas and endeavors you're keen on. One is sort of a global AI competition and uh scitec diplomacy. Talk to us a little bit about that. >> So, the idea of scitec diplomacy really started first with one of our partners who joined about six years ago, Tony Thomas. Tony very special guy. He goes by T2 like Terminator. um he ran SOCOM, special operations command, US SOCOM. He was the 11th commander overseeing 90,000 troops in 90 countries and um you know really remarkable guy and and when he joined he had sent me out to the Pacific to Indopaccom which is um an you know area of operation theater of Japan, Singapore, Malaysia you know sort of thinking about the counter China dynamics which is a top headline today and he said you know go out there and tell me what sucks and that's everything from looking at soldiers in the Philippines in jungle under triple canopy without the ability to have satellite communication. They couldn't do what you and I can do with our family and friends using an iPhone, you know, find my friends with the blue dot tracking. So, what kind of technologies could help fix that? Um, other technologies for energy uh with low signature so that an enemy couldn't see it or for navigation through electric boats and all kinds of crazy stuff. And I came back, reported it out and he was really impressed, ended up joining us. And and that was one key pillar, especially as we pushed into sort of international defense investments, US and our allies. And then we added another partner, Brett Mcgherk. And Brett had been on the board of one of our companies in signal intelligence, focused basically on the intelligence community, selling to CIA and DIA. And he had gone back into government uh after that. It was his fourth White House administration. First Bush to then Obama, then Trump, and then Biden. and he had a very important portfolio of some of the most high stakes negotiations globally ending in January really with the Hamas Gaza Israel hostage deal. He joined us a few weeks later and um has played a really key role particularly in shaping our strategy around the Middle East thinking about the Emirates, thinking about Saudi, thinking about the uh important infrastructure that's going to be happening between India and the Middle East and Europe and where can we make technology investments and find the right partners there. And so this came all together and coalesed in an idea we call it scitec diplomacy. Most countries have diplomacy on a military level and an economic level. But where we specialize is in the engineers and the founders and the university professors who might have a breakthrough at Harvard or Massgen or MIT or UT Austin. And then we can take that technology and say who's the right global partner to do something really cool with. So like as one example we have a company called e Genesis and E Genesis it's like out of science fiction you know to put this in perspective you have 8 billion people in the world billion five in India billion four in China 350 million give or take in the US there's eight people up in space right now you know floating around in the international space station and there's two people there's two on earth who are alive today because they got a kidney transplant and saved their life but not from a human from an which is like out of sci-fi. And what happened is one of our companies called E Genesis genetically engineered pigs so that their organs would be more human compatible and not be rejected. Mass Gen did the the procedure. One of the patients uh throughout the first pitch 3 months ago at uh Fenway for the Red Sox opener, it was pretty cool. Um the second uh patient that got this is uh 3 4 months out of surgery. They're all doing well and alive because of this. And so we said, well, you know, is there a partner globally who might want to bring this there? And particularly in the Emirates where they have John's Hopkins and NYU and Cleveland Clinic that they've brought there with some amazing transplant surgeons, but not the organ donor base. It's an opportunity not only for in country, but sort of region and scaling to the world. So that's an example of scitec diplomacy. How do you take a a science and technology breakthrough >> that's in the mind of an individual or in a lab in the US and then work with venture capital to basically scale it globally with the right partners? So that's a that's a big theme. >> Yeah. And and I mentioned that the world sort of come to your door. Do you think is that a coincidence? Is Josh a genius? >> Josh is Josh is aggressively competitive and and intellectually insatiably curious. My job is finding the brilliant people and the right partners and you know good high ethics high integrity thoughtful long-term greedy kind of people and um we allocate the money as entrepreneurs and founders and we recruit many of them to our team as partners and and we let them do the work >> and and so what about this global AI competition though that's something you're also keen on >> huge uh I mean it is um the biggest race today you know if there was a space race in the sort of postcold war you know 6070s Um, you know, this is a defining era probably not only in the technological capability and the decisions that people are being made and it's very complex and very fast moving, but also how countries decide they're going to use AI and is it going to be open- sourced or closed? Are they going to try to ban their kids from using it or encourage them to be competitively advantaged? It's a lot of complex layered questions within AI. If you start with the hardware stack where things really all started, I had a front row seat in 2015. We had invested in a company at Stanford that was doing self-driving cars and we put about 25 million into this. They were sort of in a secretive area of the Stanford linear accelerator uh on campus and it was based out of a firehouse. There were six people. Uh, one had won the DARPA Grand Challenge doing self-driving cars. And we thought they were geniuses and we gave them money. And this was before, you know, the autonomous vehicle thing was a thing. And there's two people over in the corner that look like they're playing video games. And I got upset and I said, you know, we just put 25 million in. What? Why are these guys not working? And the CEO said, no, you don't understand. Outside you see our secretive cars going around. The company was called Zuks. Zoo X for Zu for Robotics. We sold it to Amazon for a little over a billion dollars. Uh these cars are going around and they have sensors and they have optics and they have vibrational sensors and thermal sensors and radar and LAR and they're processing all that information at the rate of 1 second per second. What you and I Andy would call reality. But those guys are not playing video games. They are actually training the machines on thousands of simulations a second. And it looks like they're playing Call of Duty or Grand Theft Auto, but it's using real-time physics engines to be able to generate simulations to train the machines, and they don't know the difference between reality and simulation. And I said, "Well, what kind of chips are those? Are those Intel chips?" And they said, "No, no, those are Nvidia chips." And I said, "From the gaming company?" And they said, "Yeah." And so Nvidia at the time was a $15 billion market cap company. And I remember I pitched it that fall as a as a at a charity event in Chicago and basically said I think this is the pair trade of the century you know sort of long uh Nvidia short Intel and a lot of my LPs and people that were in the audience to this day you know are very grateful that they made a small fortune or large fortune because of that. Um, that was the seed kernel where something that was used for PlayStations and Xboxes got repurposed by cutting edge researchers and AI to be able to do massive processing uh that begott what we use today in our large language models and training and inference uh where we're doing our prompts whether you're using JBT or claude anthropic or open AI perplexity or croc or whatever your tool is um as well as the ones that are generating through diffusion techniques the images and the videos that you know amaze um and and frankly give people uh a new instrument to express their genius and creativity which I think is you know a great democratization. So that was the chip layer. Then you have all the model layers many of which I just named and that's been a global race too. We funded a Japan company called Sakana AI which is their leading sovereign. Uh we're not investors in but there is a a similar company in France called Mistral. The US of course has open AI and anthropic and so there's a global race between these leaders. Uh and then of course you have these giant uh models that are being developed more cheaply whether they're borrowed or stolen or copied or uh developed in China and uh China is facing a restriction on export of chips and there's ways that they're ending around that and now they're getting different H20 Nvidia chips. So there's the hardware piece, there's the model layer, there's the debate between open source and close source, there's the applications using this in finance, using this in medicine, using this to discover drugs, um using it in aerospace and defense. So it really is on one hand the wild west. There'll be a lot of failure, a lot of capital destroyed like in every boom. You know, I remember reading your street life when we were starting our career and it detailed all this during the internet, you know, boom and bust. Um, and it was a big inspiration for me and um, but but you know, we're we're living through a new version of that. Uh, and and the scale of the dollars are huge and and the stakes are huge. >> I mean, should we be paranoid about China or is it just it's just another, you know, front in this endless battle, this endless geopolitical competition and rivalry? Well, uh, you know, if you take a jingoistic America stance and you say, you know, we've got to beat China, I think restricting them from getting access to semiconductors is only going to mean that they'll find clever ways around our restrictions. You know, necessity being the mother of invention. If you say we're fighting for global influence in the world and who uh whose models the world uses is of critical importance, then I would agree that that's a a contest worth winning. And what I mean by that is you know if we have open source models the virtue of open source like the virtue of science like the virtue of journalism is this very Carl popper-l like philosophy you know you have a idea it's a conjecture it's a hypothesis it's a speculation and you put it to the market and with free speech it gets battle tested and gets criticized and you evolve and you correct and and so there's error correction it's one of the great mechanisms of how we get progress and knowledge and truth and democracy and all that. if you restrict access to information and you only have you know sort of 1984 style George Orwell you know newsspeak and um um if for example you're using Chinese models and you ask about Tianaan Square you ask about Shinjzing province or you ask about the weaguers um you know you're not going to get honest answers and so censorship is sort of the enemy of the evolution of truth and information and so that's where I think we have battlegrounds because there's huge opportunities for propaganda and influence there's huge opportunities to affect the sentiment of a populace. Um, you think about Tik Tok, you know, some people say, "Oh, you know, concerns over Tik Tok are just overblown. It's just a social media thing." I banned it in my own household 6 years ago, you know, not waiting for the government to to ban it. Um, I've got three kids and they're impressionable. Um and and we didn't want them being influenced because when you see the social media that China gives its brilliant young minds, it's STEM oriented science and technology and engineering and math celebrating those kinds of heroes. And you look at the kinds of things that our people get fed on the algorithms and it's, you know, these death spirals and pushing people into depression and loneliness and drug use and addiction with makeup and fashion and and nonsensical things. And it's unfortunately a great information weapon. So I do think that China is a real rival. There's brilliant people there. You have a state-directed economy that can do things very fastly that a democracy and messy capitalism can. We have the virtue of trending towards an asmtote of truth closer to what they may do. Um but there is a real contest for sort of global influence. >> Right. Another area that you've been active in right now, especially recently, is a Lux's science helpline, which is providing monies uh to scientists whose funding has been cut off recently. It talk to us about that and and why is that so important right now? >> Well, uh science like Viver Bush said, you know, is this endless frontier. It is driven not by people always in the virtuous pursuit of truth. Sometimes it's the vain glorious ego-driven pursuit of higher status or winning a Nobel prize or getting tenure, you know, being a named author on a paper. But as an old friend of mine, James Suriki wrote, "In greed and avarice lies the hope of progress." I've always loved that line and um sort of an adjacent line that I think speaks to the scientist which I've been obsessed with and I think describes why I hope I get to do what I do at Lux with my partners until they wheel me out of here. Um is this old quote from Lionus Pauling. He won a Nobel Prize twice. Once for peace, once for um chemistry. And he said, you know, I know something that the rest of the world doesn't know, like a scientific secret. And they won't know until I tell them. And that's really powerful. And I love that feeling. You know, it's the same feeling as a journalist that gets a a a break or a leak or, you know, some insight that nobody else knows and they won't know until you write that story and hit send and publish it. It's the same thing for me finding a scientific breakthrough or scientist that hasn't yet revealed to their world their secret. and I have an opportunity to fund them and have a a stake in it for my investors. So, science is critical and um it it gives national advantage. It creates economic progress. It creates job opportunity. It creates very democratization for people in different social stratus to be able to access capabilities that they never had from mobile phones and video production to um you know for refrigeration and electricity. So it's important. Um we've had a problem in the past few years where I don't know the you know 40 of the top 44 scientific areas China is beating the United States in and that's new. Um they have in some cases more scientists. They celebrate science. It's a national imperative. So that's number one. Number two, you've had in the US declining funding for political reasons across multiple administrations, Democrat and Republican, but the budget for the NIH or the NSF, the National Science Foundation or the National Institutes of Health has been declining over time. The average age of scientists is like 45 when they get their, you know, their grants. And it is in my world with lots of exhibits to prove the young and the naively ambitious who actually are the ones that come up with, you know, the great things. they they ask why and and uh you know why not why why want to work um whereas the older folks are grizzled and hardened and are they're too practical you know and and so younger people are needed to sort of run full speed ahead and and and charge um and then when you add in the recent political um stresses that people have felt universities have sort of created not safe environments for many students current administration is is slapping them and saying you got to get your act together and you have research scientists who are suffering because of that and it's sort of a weird thing because you have pure research institutions like La Hoya Scripts and um uh the Cavali Institute and um Howard Hughes Medical Institute and then you have you know Harvard and Stanford and Colombia who have research uh uh researchers but also undergrads and the undergrads are protesting and univil behavior and so these things are getting conflated and you have people that are suffering because are losing their funding to do their scientific research. In some cases, it's for very silly reasons where, for example, people were working on brain research, studying neurotransmitters, and because somebody searched for trans for political reasons and said, "We're cutting everything to do with trans, neuro research is getting cut." So, you know, it it it's it's frustrating. Uh you have to believe the pendulum will swing back. people will understand the competitive nature of why the US has to be dominant in science because this is really one of the greatest selfones if you care about being a hawk against China to seed this kind of advantage to them. So we said at Lux maybe at 10% of what we do in every fund is starting companies from scratch with scientists and Nobel Prize winners and university professors and their postocs and their PhDs but let's let's double that. Let's go close to 20% and take earlier stage science risk where we might know a scientist and maybe they're not fully mature because their funding just got cut. Maybe we can step in and either license their work to an existing company or we can come in and start a company around them and take some of the more scientific risk than we might normally take, but can we be a sort of helpline to say we're here as a source of funding out of capital interest, not philanthropy. >> Right. >> But we think it's it's doubly virtuous. >> Yeah. So, you've stepped up. And final question here, Josh, you grew up in Coney Island. >> Yes. >> Not with a silver spoon in your mouth. and tell us about what drove you and what's driving you to this day. >> Well, um I had an amazing mother uh still alive who was an educator. She taught special ed in public school and she had high expectations for me, which I think is the most important thing that a parent can can do aside from unconditional love. Um but I also was exposed to people that had money when I had none. And it was around high school when I started noticing people like, you know, wait, they're traveling where? I didn't even know where that place was. I don't think I left the country until I was like 21. I never had sushi until I was like 22. Like, you know, it was hot dogs and French fries and, you know, Coney Island kind of boy. And uh and and I didn't have money and I wanted money. And the other thing was I felt I was reasonably intelligent, but you know, I grew up around peers mostly black and Latino. Um and a lot of people just lost the John RS ovarian lottery. you know, they they might have the aptitude, but they were born into a life station or circumstance that that um you know, put them at a real disadvantage. Uh there was an army recruiting station, you know, three blocks away in Coney Island. When I visited friends in Main Street in Greenwich, Connecticut, there was no army recruiting station. So, you know, there were big differences culturally and and socioeconomically and I was driven by that. Um I think I always had a chip on my shoulder. My parents split when I was young and it's one of the great virtues of entrepreneurs that I look for. I always like to say that chips on shoulders put chips in pockets. And whether you're the gay kid in a mostly straight Friday Night Lights football town or you're a minority in a mostly white, you know, affluent neighborhood or whatever it might be, your parents split and you know, you lost your father at a young age or your mom at a young age. I find that those people, no matter how much money they make or how much fame they get, they have this perennial fire in them that's burning to achieve. And I think society progresses because of that. It's not great for the individual, but it's good for society. So, I wanted capital. I wanted money. I thought I was intellectually more intelligent than some of the people that I saw born with the silver spoons in their mouth. And I've always been very sort of intellectually competitive about that. And um and then I've always loved science fiction. I love technology. I've loved the frontier. And so I feel like I'm the luckiest person in the world because I get to do something that I love, which is find brilliant people who are inventing the future. And I have no idea in two years what the most cool cutting edge thing is going to be, but I'm sure that we'll be at that nexus, you know, chasing these people down and and trying to partner with them and and deliver their technology to the rest of the world before others know about it. >> Josh Wolf of Lux Capital. Thank you so much for joining us. >> Andy, honor to be with you. Thank you. >> This is at Barrens. We'll catch you next time.
A Venture Capitalist on Investing in Science, China, and More | At Barron's
Summary
Transcript
[Music] Hello everyone and welcome to At Barons. I'm Andy Serur and welcome to our guest Josh Wolf, venture capitalist, co-founder and managing partner of Lux Capital. Josh, welcome. Great to see you. >> Andy, great to be with you. >> So, first off, maybe give us a thumbnail sketch of Lux Capital. What do you guys do there? Oh, we invest in people who are inventing the future. And um we do high-tech ventures. So about a third of what we do is healthcare. That's like uh robotic surgery, med devices, biotech, healthcare, IT. Another third is aerospace, defense, pretty cutting edge things in air, land, sea space, and cyber, pretty much every domain, manufacturing, industrial. And then the final third is what we would generally call core technology, which is more defined by like what we don't do. So very little that most VCs might do in internet and social media and mobile and advertising and video games. We don't really touch that. And we do more sophisticated things like cutting edge semiconductors and edge inference chips and non-invasive brain machine interfaces and things that sometimes seem like they're sort of closing the gap between sci-fi and sci-fi. >> Yeah. I want to ask about what you exclude just quickly because you know for a while of course social media and all those apps you know for dogs and stuff was the rage. Not so much. Now, we'll get to that. But why did you never go down that path? >> Well, part of it was competitive advantage. Uh, you know, if if we wanted to be able to win the right to partner with a founder, we needed to be distinguished. And for most of the people that were already existing VCs when we were starting, we had no shot to compete. So, we had to carve out a niche that other people weren't. And um, it was it was really out of necessity. >> And you're a New York firm. That's another differentiator because so many of the people are out in Sandill Road and all that. How does that work plus and minus? >> Well, natively New York uh we we started here but now half the team is actually uh succumbed over the past I don't know 15 years and uh half the team is Menllo uh in Silicon Valley and half the team is New York. But interestingly we studied all these VC firms when we were starting my co-founder Peter Abear who's amazing partner. Uh why do they fail over time? And it's not just because they didn't have good returns. It's sometimes because they had geographic silos and you had like a biggie Tupac East Coast versus West Coast kind of thing and um the East Coast partners, you know, had a different style than the West Coast partners and eventually maybe the returns went west and the partners lost status and clout and they end up splitting or sometimes they were sector siloed. So the biotech guys were in their own little pod and the IT guys were in their own little pod. And so we decided even though I live in New York and half the team is in New York, I'm on more West Coast boards than I am east coast boards. That's sort of institutional design. And then the same thing, my west coast partners are more East Coast boards or European boards or Asian boards. And um and that's also by design. So we operate what we call UNM locks, one locks, where everybody's flowing between offices on a Monday, a Thursday partner meeting. If you came in and sat in, you'd be like, "Wait, I just saw them in Menllo and now they're in New York." And and then we are also all generalists. So, um, people have personal passions and proclivities. There are areas I'm really obsessed with at any given moment, but people are free if they want to do a Nobel Prize winning biotech company or they want to do a cutting edge aerospace and defense company. There's no swim lanes. Uh, it's just find the best opportunities and the best people. >> I love the East Coast rap versus West Coast RA thing. And yeah, then West Coast Jazz is really good. Now, that's a whole other thing. >> So, tell me about the business right now, the venture business. I mean, maybe it's hard to generalize, but how are things going? >> Well, if you're in AI and you're in aerospace and defense, they're going amazingly well. And if you're in SAS and some enterprise software, you're probably seeing margin compression. And some of the companies that were high-f flyers, you know, maybe are not doing so well. Broadly, venture is one of the most cyclical industries there is. And, you know, we always say at Lux, that we believe before others understand. But once we believe and then others understand and then there's a bubble in some space you know you either get out or um or you don't. But the history of venture is every 10 or 15 years there's some secular wave in some area of technology. In the 1970s it was uh PCs, personal computers and you saw the rise of like Dell and well that was actually earlier but you saw um compact computer and Microsoft and and then in the 80s you had biotech and you had the rise of Amgen and Janentech and then 90s of course you have internet and TMT and uh technology media telecom and then our hypothesis was like the next wave would be the intersection of many of these areas and you would have Nobel prize winners in chemistry and physics and material science that nobody was really paying attention to partially because They weren't at the clusters of venture money on the east coast in Route 128 in Cambridge or they weren't in the clusters of Silicon Valley, but they might have come from like Rice University or Cornell or Georgia Tech. So that was one thing. Um then you zoom out and and you compare sort of the 2000 boom bust around the time that we were starting but focusing on a different area to today. You had the same phenomenon with a huge proliferation of the number of venture firms and then a dramatic collapse. And so today there's close to 3,000 small firms that I would call the minnows like in an ocean the small fish. I was talking to one of my very large LPs and I said you know if history doesn't repeat it rhymes as the cliche goes I think 50% of these firms might disappear in the next few years. Why? Because you know they're under reserved meaning they don't have adequate funds to keep funding their portfolio companies. um the environment has changed and the cost of capital is higher and there's fewer growth investors to continue piling on money and pricing up their deals and maybe returns are low and then you get the Shakespearean infighting or partners who just don't like each other and you know all that sort of when you're not making money becomes more apparent and he this uh LP said 50% that's ridiculous it's going to be 90%. So there's going to be a mass extinction amongst the small firms who don't have adequate money to fund their companies and also can't really attract the best entrepreneurs because the best entrepreneurs want deep pocketed investors. Now at the other end you have the megas which are like the giant whales and this is like SoftBank and Tiger over the past 5 years they were turning companies into unicorns and at first they had coveted capital. Everybody wanted their money and today it's almost taboo. It's like well do you really want to take that capital? You know is it a negative signal? Other firms I think like Andre Harowitz, Lighteed, General Catalyst, General Atlantic, all great firms run by great people. I think they're taking the playbook from private equity from 2009 to 2014 where they're probably going to gear up to go public. They're approaching about hundred billion dollars under management each diversified platforms. they can have the staying power as a public company and um and they can create sort of generational wealth, you know, and figure out their succession to their junior partners. So, you have the minnows that are going to die, the megas, a handful that are going to go public. And then you got this nice middle part and I think there's 10 firms that really matter. I of course think Lux is one of them in a very significant way. But, you know, our partners at Founders Fund and Thrive and Seoia and Kla, all great firms. they can write a small check and it can meaningfully return the fund and they can write a large check and be pretty concentrated in their high conviction winners. So that's how I see the venture landscape today. >> That is really um really excellent analysis and >> we'll see if I'm right. We'll see if I'm right. >> Yeah, I hadn't really thought about it that way. That's that's really great. Josh, I want to ask you a little bit about the marketplace though, sort of coming around to what you do, right? So, you know, you talk about science and there's just a ton of stuff kind of coming that way. I know that you're involved in some uh key areas and endeavors you're keen on. One is sort of a global AI competition and uh scitec diplomacy. Talk to us a little bit about that. >> So, the idea of scitec diplomacy really started first with one of our partners who joined about six years ago, Tony Thomas. Tony very special guy. He goes by T2 like Terminator. um he ran SOCOM, special operations command, US SOCOM. He was the 11th commander overseeing 90,000 troops in 90 countries and um you know really remarkable guy and and when he joined he had sent me out to the Pacific to Indopaccom which is um an you know area of operation theater of Japan, Singapore, Malaysia you know sort of thinking about the counter China dynamics which is a top headline today and he said you know go out there and tell me what sucks and that's everything from looking at soldiers in the Philippines in jungle under triple canopy without the ability to have satellite communication. They couldn't do what you and I can do with our family and friends using an iPhone, you know, find my friends with the blue dot tracking. So, what kind of technologies could help fix that? Um, other technologies for energy uh with low signature so that an enemy couldn't see it or for navigation through electric boats and all kinds of crazy stuff. And I came back, reported it out and he was really impressed, ended up joining us. And and that was one key pillar, especially as we pushed into sort of international defense investments, US and our allies. And then we added another partner, Brett Mcgherk. And Brett had been on the board of one of our companies in signal intelligence, focused basically on the intelligence community, selling to CIA and DIA. And he had gone back into government uh after that. It was his fourth White House administration. First Bush to then Obama, then Trump, and then Biden. and he had a very important portfolio of some of the most high stakes negotiations globally ending in January really with the Hamas Gaza Israel hostage deal. He joined us a few weeks later and um has played a really key role particularly in shaping our strategy around the Middle East thinking about the Emirates, thinking about Saudi, thinking about the uh important infrastructure that's going to be happening between India and the Middle East and Europe and where can we make technology investments and find the right partners there. And so this came all together and coalesed in an idea we call it scitec diplomacy. Most countries have diplomacy on a military level and an economic level. But where we specialize is in the engineers and the founders and the university professors who might have a breakthrough at Harvard or Massgen or MIT or UT Austin. And then we can take that technology and say who's the right global partner to do something really cool with. So like as one example we have a company called e Genesis and E Genesis it's like out of science fiction you know to put this in perspective you have 8 billion people in the world billion five in India billion four in China 350 million give or take in the US there's eight people up in space right now you know floating around in the international space station and there's two people there's two on earth who are alive today because they got a kidney transplant and saved their life but not from a human from an which is like out of sci-fi. And what happened is one of our companies called E Genesis genetically engineered pigs so that their organs would be more human compatible and not be rejected. Mass Gen did the the procedure. One of the patients uh throughout the first pitch 3 months ago at uh Fenway for the Red Sox opener, it was pretty cool. Um the second uh patient that got this is uh 3 4 months out of surgery. They're all doing well and alive because of this. And so we said, well, you know, is there a partner globally who might want to bring this there? And particularly in the Emirates where they have John's Hopkins and NYU and Cleveland Clinic that they've brought there with some amazing transplant surgeons, but not the organ donor base. It's an opportunity not only for in country, but sort of region and scaling to the world. So that's an example of scitec diplomacy. How do you take a a science and technology breakthrough >> that's in the mind of an individual or in a lab in the US and then work with venture capital to basically scale it globally with the right partners? So that's a that's a big theme. >> Yeah. And and I mentioned that the world sort of come to your door. Do you think is that a coincidence? Is Josh a genius? >> Josh is Josh is aggressively competitive and and intellectually insatiably curious. My job is finding the brilliant people and the right partners and you know good high ethics high integrity thoughtful long-term greedy kind of people and um we allocate the money as entrepreneurs and founders and we recruit many of them to our team as partners and and we let them do the work >> and and so what about this global AI competition though that's something you're also keen on >> huge uh I mean it is um the biggest race today you know if there was a space race in the sort of postcold war you know 6070s Um, you know, this is a defining era probably not only in the technological capability and the decisions that people are being made and it's very complex and very fast moving, but also how countries decide they're going to use AI and is it going to be open- sourced or closed? Are they going to try to ban their kids from using it or encourage them to be competitively advantaged? It's a lot of complex layered questions within AI. If you start with the hardware stack where things really all started, I had a front row seat in 2015. We had invested in a company at Stanford that was doing self-driving cars and we put about 25 million into this. They were sort of in a secretive area of the Stanford linear accelerator uh on campus and it was based out of a firehouse. There were six people. Uh, one had won the DARPA Grand Challenge doing self-driving cars. And we thought they were geniuses and we gave them money. And this was before, you know, the autonomous vehicle thing was a thing. And there's two people over in the corner that look like they're playing video games. And I got upset and I said, you know, we just put 25 million in. What? Why are these guys not working? And the CEO said, no, you don't understand. Outside you see our secretive cars going around. The company was called Zuks. Zoo X for Zu for Robotics. We sold it to Amazon for a little over a billion dollars. Uh these cars are going around and they have sensors and they have optics and they have vibrational sensors and thermal sensors and radar and LAR and they're processing all that information at the rate of 1 second per second. What you and I Andy would call reality. But those guys are not playing video games. They are actually training the machines on thousands of simulations a second. And it looks like they're playing Call of Duty or Grand Theft Auto, but it's using real-time physics engines to be able to generate simulations to train the machines, and they don't know the difference between reality and simulation. And I said, "Well, what kind of chips are those? Are those Intel chips?" And they said, "No, no, those are Nvidia chips." And I said, "From the gaming company?" And they said, "Yeah." And so Nvidia at the time was a $15 billion market cap company. And I remember I pitched it that fall as a as a at a charity event in Chicago and basically said I think this is the pair trade of the century you know sort of long uh Nvidia short Intel and a lot of my LPs and people that were in the audience to this day you know are very grateful that they made a small fortune or large fortune because of that. Um, that was the seed kernel where something that was used for PlayStations and Xboxes got repurposed by cutting edge researchers and AI to be able to do massive processing uh that begott what we use today in our large language models and training and inference uh where we're doing our prompts whether you're using JBT or claude anthropic or open AI perplexity or croc or whatever your tool is um as well as the ones that are generating through diffusion techniques the images and the videos that you know amaze um and and frankly give people uh a new instrument to express their genius and creativity which I think is you know a great democratization. So that was the chip layer. Then you have all the model layers many of which I just named and that's been a global race too. We funded a Japan company called Sakana AI which is their leading sovereign. Uh we're not investors in but there is a a similar company in France called Mistral. The US of course has open AI and anthropic and so there's a global race between these leaders. Uh and then of course you have these giant uh models that are being developed more cheaply whether they're borrowed or stolen or copied or uh developed in China and uh China is facing a restriction on export of chips and there's ways that they're ending around that and now they're getting different H20 Nvidia chips. So there's the hardware piece, there's the model layer, there's the debate between open source and close source, there's the applications using this in finance, using this in medicine, using this to discover drugs, um using it in aerospace and defense. So it really is on one hand the wild west. There'll be a lot of failure, a lot of capital destroyed like in every boom. You know, I remember reading your street life when we were starting our career and it detailed all this during the internet, you know, boom and bust. Um, and it was a big inspiration for me and um, but but you know, we're we're living through a new version of that. Uh, and and the scale of the dollars are huge and and the stakes are huge. >> I mean, should we be paranoid about China or is it just it's just another, you know, front in this endless battle, this endless geopolitical competition and rivalry? Well, uh, you know, if you take a jingoistic America stance and you say, you know, we've got to beat China, I think restricting them from getting access to semiconductors is only going to mean that they'll find clever ways around our restrictions. You know, necessity being the mother of invention. If you say we're fighting for global influence in the world and who uh whose models the world uses is of critical importance, then I would agree that that's a a contest worth winning. And what I mean by that is you know if we have open source models the virtue of open source like the virtue of science like the virtue of journalism is this very Carl popper-l like philosophy you know you have a idea it's a conjecture it's a hypothesis it's a speculation and you put it to the market and with free speech it gets battle tested and gets criticized and you evolve and you correct and and so there's error correction it's one of the great mechanisms of how we get progress and knowledge and truth and democracy and all that. if you restrict access to information and you only have you know sort of 1984 style George Orwell you know newsspeak and um um if for example you're using Chinese models and you ask about Tianaan Square you ask about Shinjzing province or you ask about the weaguers um you know you're not going to get honest answers and so censorship is sort of the enemy of the evolution of truth and information and so that's where I think we have battlegrounds because there's huge opportunities for propaganda and influence there's huge opportunities to affect the sentiment of a populace. Um, you think about Tik Tok, you know, some people say, "Oh, you know, concerns over Tik Tok are just overblown. It's just a social media thing." I banned it in my own household 6 years ago, you know, not waiting for the government to to ban it. Um, I've got three kids and they're impressionable. Um and and we didn't want them being influenced because when you see the social media that China gives its brilliant young minds, it's STEM oriented science and technology and engineering and math celebrating those kinds of heroes. And you look at the kinds of things that our people get fed on the algorithms and it's, you know, these death spirals and pushing people into depression and loneliness and drug use and addiction with makeup and fashion and and nonsensical things. And it's unfortunately a great information weapon. So I do think that China is a real rival. There's brilliant people there. You have a state-directed economy that can do things very fastly that a democracy and messy capitalism can. We have the virtue of trending towards an asmtote of truth closer to what they may do. Um but there is a real contest for sort of global influence. >> Right. Another area that you've been active in right now, especially recently, is a Lux's science helpline, which is providing monies uh to scientists whose funding has been cut off recently. It talk to us about that and and why is that so important right now? >> Well, uh science like Viver Bush said, you know, is this endless frontier. It is driven not by people always in the virtuous pursuit of truth. Sometimes it's the vain glorious ego-driven pursuit of higher status or winning a Nobel prize or getting tenure, you know, being a named author on a paper. But as an old friend of mine, James Suriki wrote, "In greed and avarice lies the hope of progress." I've always loved that line and um sort of an adjacent line that I think speaks to the scientist which I've been obsessed with and I think describes why I hope I get to do what I do at Lux with my partners until they wheel me out of here. Um is this old quote from Lionus Pauling. He won a Nobel Prize twice. Once for peace, once for um chemistry. And he said, you know, I know something that the rest of the world doesn't know, like a scientific secret. And they won't know until I tell them. And that's really powerful. And I love that feeling. You know, it's the same feeling as a journalist that gets a a a break or a leak or, you know, some insight that nobody else knows and they won't know until you write that story and hit send and publish it. It's the same thing for me finding a scientific breakthrough or scientist that hasn't yet revealed to their world their secret. and I have an opportunity to fund them and have a a stake in it for my investors. So, science is critical and um it it gives national advantage. It creates economic progress. It creates job opportunity. It creates very democratization for people in different social stratus to be able to access capabilities that they never had from mobile phones and video production to um you know for refrigeration and electricity. So it's important. Um we've had a problem in the past few years where I don't know the you know 40 of the top 44 scientific areas China is beating the United States in and that's new. Um they have in some cases more scientists. They celebrate science. It's a national imperative. So that's number one. Number two, you've had in the US declining funding for political reasons across multiple administrations, Democrat and Republican, but the budget for the NIH or the NSF, the National Science Foundation or the National Institutes of Health has been declining over time. The average age of scientists is like 45 when they get their, you know, their grants. And it is in my world with lots of exhibits to prove the young and the naively ambitious who actually are the ones that come up with, you know, the great things. they they ask why and and uh you know why not why why want to work um whereas the older folks are grizzled and hardened and are they're too practical you know and and so younger people are needed to sort of run full speed ahead and and and charge um and then when you add in the recent political um stresses that people have felt universities have sort of created not safe environments for many students current administration is is slapping them and saying you got to get your act together and you have research scientists who are suffering because of that and it's sort of a weird thing because you have pure research institutions like La Hoya Scripts and um uh the Cavali Institute and um Howard Hughes Medical Institute and then you have you know Harvard and Stanford and Colombia who have research uh uh researchers but also undergrads and the undergrads are protesting and univil behavior and so these things are getting conflated and you have people that are suffering because are losing their funding to do their scientific research. In some cases, it's for very silly reasons where, for example, people were working on brain research, studying neurotransmitters, and because somebody searched for trans for political reasons and said, "We're cutting everything to do with trans, neuro research is getting cut." So, you know, it it it's it's frustrating. Uh you have to believe the pendulum will swing back. people will understand the competitive nature of why the US has to be dominant in science because this is really one of the greatest selfones if you care about being a hawk against China to seed this kind of advantage to them. So we said at Lux maybe at 10% of what we do in every fund is starting companies from scratch with scientists and Nobel Prize winners and university professors and their postocs and their PhDs but let's let's double that. Let's go close to 20% and take earlier stage science risk where we might know a scientist and maybe they're not fully mature because their funding just got cut. Maybe we can step in and either license their work to an existing company or we can come in and start a company around them and take some of the more scientific risk than we might normally take, but can we be a sort of helpline to say we're here as a source of funding out of capital interest, not philanthropy. >> Right. >> But we think it's it's doubly virtuous. >> Yeah. So, you've stepped up. And final question here, Josh, you grew up in Coney Island. >> Yes. >> Not with a silver spoon in your mouth. and tell us about what drove you and what's driving you to this day. >> Well, um I had an amazing mother uh still alive who was an educator. She taught special ed in public school and she had high expectations for me, which I think is the most important thing that a parent can can do aside from unconditional love. Um but I also was exposed to people that had money when I had none. And it was around high school when I started noticing people like, you know, wait, they're traveling where? I didn't even know where that place was. I don't think I left the country until I was like 21. I never had sushi until I was like 22. Like, you know, it was hot dogs and French fries and, you know, Coney Island kind of boy. And uh and and I didn't have money and I wanted money. And the other thing was I felt I was reasonably intelligent, but you know, I grew up around peers mostly black and Latino. Um and a lot of people just lost the John RS ovarian lottery. you know, they they might have the aptitude, but they were born into a life station or circumstance that that um you know, put them at a real disadvantage. Uh there was an army recruiting station, you know, three blocks away in Coney Island. When I visited friends in Main Street in Greenwich, Connecticut, there was no army recruiting station. So, you know, there were big differences culturally and and socioeconomically and I was driven by that. Um I think I always had a chip on my shoulder. My parents split when I was young and it's one of the great virtues of entrepreneurs that I look for. I always like to say that chips on shoulders put chips in pockets. And whether you're the gay kid in a mostly straight Friday Night Lights football town or you're a minority in a mostly white, you know, affluent neighborhood or whatever it might be, your parents split and you know, you lost your father at a young age or your mom at a young age. I find that those people, no matter how much money they make or how much fame they get, they have this perennial fire in them that's burning to achieve. And I think society progresses because of that. It's not great for the individual, but it's good for society. So, I wanted capital. I wanted money. I thought I was intellectually more intelligent than some of the people that I saw born with the silver spoons in their mouth. And I've always been very sort of intellectually competitive about that. And um and then I've always loved science fiction. I love technology. I've loved the frontier. And so I feel like I'm the luckiest person in the world because I get to do something that I love, which is find brilliant people who are inventing the future. And I have no idea in two years what the most cool cutting edge thing is going to be, but I'm sure that we'll be at that nexus, you know, chasing these people down and and trying to partner with them and and deliver their technology to the rest of the world before others know about it. >> Josh Wolf of Lux Capital. Thank you so much for joining us. >> Andy, honor to be with you. Thank you. >> This is at Barrens. We'll catch you next time.