The Exchanges

Q And then final question, and it's the most recent public investment for you, and why you said yes?

A I think it was a company recursion that, and it's interesting because our internal partnership debates are usually the fiercest over the smallest dollars of what we have low conviction. When we have high conviction, our dollar checks are the highest, and everybody is near consensus. And Recursion is a company based out of Utah, Salt Lake City. It's a special team. They're in a unique place, both in technology and geographically. And this was led by one of our colleagues, Zavin Dar. It mixes artificial intelligence and pattern recognition with phenotypic discovery. So it's looking at the structural nature of biology and cells and trying to use that to discover disease and then drug targets. And that's sort of turning things upside down because most people are trying to use genetics and the information and informatics behind that to look at Individual personal genomes and drug interactions, and this is doing almost a one-eighty. So we thought that was pretty clever approach, and they're meeting with great traction, but that was, uh, one of the most recent.

AI assessment note: “we thought that was pretty clever approach, and they're meeting with great traction”

Q Absolutely. No, that's, uh, incredible to hear, but I'd love to hear your favorite blog or newsletter. What are the must reads for you when they come in?

A I used to love Sam Arbisman, but, uh, we loved him so much we hired him, so he became our scientist in residence. Um, he's just, he's wonderful. He's a polymath. I'm a trustee at the Santa Fe Institute, which is this birthplace of complexity theory, and Sam has been a fellow there and involved, and it's just, it's an amazing group, and he likes to think very diversely, uh, and as we do. Another one, I, I love Jason Hirshorns. So all his, uh, re-defs, media, sports, technology, I think he does a great aggregation with a little bit of commentary and snark, and I find he's got a great, uh, net to capture and filter a lot of stuff.

AI assessment note: “Another one, I, I love Jason Hirshorns. So all his, uh, re-defs”

Q Saying we haven't seen anything like this often requires quite a, quite a significant amount of learning, then, to get up that knowledge curve. I'd be really intrigued with your kind of Uh, heavy focus on hard sciences and investing in hard science. I'm intrigued. How do you look to scale the learning process then and become familiar with relatively unfamiliar industries? What is the methodology? Teach me here, Josh.

A So there's actually a rule here. I call it a hundred percent, zero percent, a hundred percent rule. And it's a mix of ambition and humility. And you might mistake the ambition for arrogance at points. The hundred percent part is basically saying I have a hundred percent certainty that Lux will be investing in the most cutting edge areas That you can imagine over the next one or two years. The zero percent is that I have close to no idea what those things will be. And then you say, okay, well, what's the last hundred percent? It's the certainty that I have about where they will come from. And so where they will come from is the cutting edge of our already cutting edge companies. And I can give you a few examples here. It was an interest in a cutting edge area in physics that we studied for many years, reading things like science and nature and proceeding to the National Academy of Sciences and Chemical and engineering news, things that are not your traditional daily publications, and we learned about a phenomenon called metamaterials. And metamaterials, actually, the British media got really excited about the possibility of creating these invisibility cloaks, sort of Harry Potter style. Now, it turned out that wasn't actually practical or really accessible in the near term, but there were implications for being able to take materials, which in technical terms have a negative ind…

AI assessment note: “where they will come from is the cutting edge of our already cutting edge companies”

Q Saying we haven't seen anything like this often requires quite a, quite a significant amount of learning, then, to get up that knowledge curve. I'd be really intrigued with your kind of Uh, heavy focus on hard sciences and investing in hard science. I'm intrigued. How do you look to scale the learning process then and become familiar with relatively unfamiliar industries? What is the methodology? Teach me here, Josh.

A So there's actually a rule here. I call it a hundred percent, zero percent, a hundred percent rule. And it's a mix of ambition and humility. And you might mistake the ambition for arrogance at points. The hundred percent part is basically saying I have a hundred percent certainty that Lux will be investing in the most cutting edge areas That you can imagine over the next one or two years. The zero percent is that I have close to no idea what those things will be. And then you say, okay, well, what's the last hundred percent? It's the certainty that I have about where they will come from. And so where they will come from is the cutting edge of our already cutting edge companies. And I can give you a few examples here. It was an interest in a cutting edge area in physics that we studied for many years, reading things like science and nature and proceeding to the National Academy of Sciences and Chemical and engineering news, things that are not your traditional daily publications, and we learned about a phenomenon called metamaterials. And metamaterials, actually, the British media got really excited about the possibility of creating these invisibility cloaks, sort of Harry Potter style. Now, it turned out that wasn't actually practical or really accessible in the near term, but there were implications for being able to take materials, which in technical terms have a negative ind…

AI assessment note: “So there's actually a rule here. I call it a hundred percent, zero percent”

Q What is the inflection point that you'd like to go on in the kind of R&D process of the company? Because obviously, very early on, there can be a lot of processes and testing to continue. Is there an inflection point where there's a kind of consumified, ready-to-go, go-to-market for the product? Or do you know what I mean? What is that inflection point for you where it's ready?

A It depends on the industry. It's a really good question. So obviously, in biotech, you've got different clinical milestones, right? Phase one, phase two, two, A, two, B, and so on. In hardware, some of it really depends on a simple thing, and it's amazing because I think a lot of people have done hard tech and lost a lot of money because they fail to ask the first and most important question with the ante that you're putting in the proverbial poker table to turn over the card, and that's, does it work? Ok, so some of the big blow-ups and flame-outs you saw was just the technology didn't work. So we're willing to take technical risk, and we're willing to take market risk. On the technology risk, we're going to fund up to the point, does it work? Now, I think where investors make mistakes is they keep funding it, but it hasn't worked. Maybe they want to believe, Maybe they're being lied to, but I think that's the most important thing. Then the second thing after, does it work, is can we make this at scale? So you take that company, Chimeta, it started off, not with science risk, but with technology risk. Would it work? Could we make 20 to 30 gigahertz Large spectrum that could get one to two gigabits a second on an antenna about as thick as an iPad. Okay. Now you can do that in the lab. Great. Now can we manufacture it? And now they're manufacturing at scale and they happen to be…

AI assessment note: “Then the second thing after, does it work, is can we make this at scale?”

Q Mentioning harder and longer things there, despite that Kind of longevity of, of sometimes hard science outcomes. I'm intrigued then. Do you think that potentially we need longer fund cycles?

A I think as long as you can make money for your investors, then investors are going to be okay with a traditional ten-year fund. The idea that you might be doing something longer than that says one of two things. You were betting on exogenous outside market events. You were hoping that the public markets would be there. You were hoping that balance sheets of large companies would be there to acquire you. We're not funding true science risk, right? Those are things that are coming Maybe five, 10, 15 years incubated, often publicly funded government science out of universities, but there reaches a point where you can see that they're starting to do something in a small scale, and that's the time when you can scale something up for venture, and I think that hedges against the idea that you're going to be doing five years of science and then trying to do five years of commercialization. If you can get it at the point, and that's a big part of our assessment, what amount of money is going to accomplish what, in what period of time, and who will care? So when we're making a decision to write a check and size that check, that's really the most important question or series of questions that we're asking.

AI assessment note: “investors are going to be okay with a traditional ten-year fund.”

Q I haven't seen multiple cycles, so this really is me asking you with the hindsight. You said about kind of working with Aminos there many years ago. I'm intrigued. Do you agree with the thesis that we're now kind of at the very frontiers of a whole range of new breakthrough technologies, be it VR, AR, Bitcoin, Drones. Or do you think we've kind of continuously seen these cycles throughout?

A You know, I think it's sort of the same way that people pine for nostalgia of yesteryear. You know, if you went back 10 or 15 years ago, one could probably argue, um, or let's say even 20 years ago, that the rise of the internet and, um, mobile communication and websites and portals, you know, people would have said, oh my god, I've never seen anything like this. And so I feel like the next great thing, we'll look back and say, oh my god, we feel like we're at the cutting edge and this precipice of uncertainty and all these commentatorial possibilities. So, In one hand, saying this time is different is sort of dangerous, but on the other, you are correct in that the combinatorial possibilities, the more technologies that we create, the more things can be put together and remixed in different ways, and so you definitely do feel, even looking at the scientific frontier, that the incremental discovery gets more and more specialized. It used to be that a single person like Ben Franklin could do geometry, and he could do arithmetic, and he could do cosmology, and look out into the stars, and today, if you're gonna make an incremental discovery in a field, you have to be so specialized in that field And so I think the same thing is sort of happening in the entrepreneurial community on the one hand, where to make that incremental advance, you have to be really specialized, but because…

AI assessment note: “saying this time is different is sort of dangerous, but on the other”

Q I'm clearly sticking to the schedule here, obviously, but I'm just too intrigued. Saying of specialization there, in particular with regards to science, what do you make of the specialization within VC? Potentially kind of the vertical specialization that we're seeing most commonly today. What do you make of that?

A Well, it has its pros and its cons, right? So obviously people, you know, generals fight the last war. So if you are successful in a particular field, let's say you were an enterprise software investor and you had a big hit. Well, now you've got this halo and the best entrepreneurs are going to come to you and equate your prior success with the increased probability that they're going to have success. And so very easily you can get locked into being a vertical specialist. And then if something changes in the capital markets where the thing that you were invested in suddenly becomes passe or out of favor, then you start to reinvent yourself and you're on to the next thing. And so I think that's a natural cycle of people reinventing themselves. But generally, I think, Going off into these frontier areas, and I think that there are a lot of tourist VCs who are in these domains that are going to lose a lot of money, but I think that's always been the case. There's always somebody that's going off in some speculative future, whether it was clean tech or green tech 10 years ago, or people doing more hardcore tech and frontier investing today. On the other hand, there are people that are just absolutely passionately obsessed and dedicated to this, and whether it's inside our firm at Lux, at the partner level, or the entrepreneurs that we're investing in, I have a colloquialism that Pa…

AI assessment note: “Well, it has its pros and its cons, right?”

Q Again, I'm so not on the schedule, but when you say weird and out there, often that would relate to a market that's not, not in existence at the moment. How do you view market creation then when it comes to truly weird and wacky inventions that I'm sure you've seen?

A It's interesting because you have some firms that will say, we don't take market risk, and you have other firms that say, we don't take technology risk, and we'll actually take both. There is no comp that you can find for some markets where technology just didn't exist before. Right now, again, new things come from combinations of old. So you can take one technology and mix it with this other technology and create something. But sometimes it creates a demand or a market niche that you just never saw before. And I think some of the greatest inventions, some of the greatest technology, some of the greatest companies, and some of the greatest venture investments came when you had that combination of a novel technology into a new market. So oftentimes we'll say, well, what's the comp for this? And once we start asking that question, we actually know that we're onto something because some of the best Most examples in history, there were no comps. What was the comp for Microsoft before it existed? What was the comp for Facebook? I mean, maybe you could argue Friendster. What was the comp for, um, some of the optical networking companies? So, so I think this is a pattern in VC that itself, you know, just when you're confident and think you've got it figured out, you say, well, wait a second, we haven't seen anything like this, and that's a clue, and we pay attention to that.

AI assessment note: “we haven't seen anything like this, and that's a clue, and we pay attention”

Q Mentioning harder and longer things there, despite that Kind of longevity of, of sometimes hard science outcomes. I'm intrigued then. Do you think that potentially we need longer fund cycles?

A I think as long as you can make money for your investors, then investors are going to be okay with a traditional ten-year fund. The idea that you might be doing something longer than that says one of two things. You were betting on exogenous outside market events. You were hoping that the public markets would be there. You were hoping that balance sheets of large companies would be there to acquire you. We're not funding true science risk, right? Those are things that are coming Maybe five, 10, 15 years incubated, often publicly funded government science out of universities, but there reaches a point where you can see that they're starting to do something in a small scale, and that's the time when you can scale something up for venture, and I think that hedges against the idea that you're going to be doing five years of science and then trying to do five years of commercialization. If you can get it at the point, and that's a big part of our assessment, what amount of money is going to accomplish what, in what period of time, and who will care? So when we're making a decision to write a check and size that check, that's really the most important question or series of questions that we're asking.

AI assessment note: “investors are going to be okay with a traditional ten-year fund.”

Q What was the big takeaway from being and working alongside Bill Gates with the experience?

A He would listen and sit And think, and then it would be the ninety-ten of it, meaning he would get to the 10% of the subject matter that had 90% of the value. He was exceptionally tuned in to supporting founder, CEO, very astute on the economics of product, of technological development, and what the big picture was. Also, I've got to tell you a quick story. Maybe two years ago, we were in his board meeting, and the Forbes list had just come out, and I think it was for the 22nd or 23rd year in a row, Bill was the richest man in the world. And I'm sitting there, and my wife makes fun because I have a very pedestrian palate. Grew up in Brooklyn, you like pizza, you like Coney Island, Nathan, hot dogs, and I'm sitting there, and I say, you know, you just made my day. And he says, why? And I said, you know, the Rich List just came out. There you are again, you know, second decade plus, and we're sitting here eating this. And what was it? California Pizza Kitchen. So I, I manage money for a lot of very wealthy people, and I've met a lot of very successful wealthy people. Everybody's got the same issues. You know, it's, it's, Bill is not buying one billion pairs of pants. He's got means to do great things in the world, but most People are fundamentally similar.

AI assessment note: “he would get to the 10% of the subject matter that had 90% of the value”

Q What would you most like to change your altar in VC and startups?

A I think that there is a culture that talks about praising and prizing failure, but I think it's disingenuous. I think people pretend to wear failure on, you know, as this badge, and every time you ever see an entrepreneur and you ask, oh, how are things going, you know, they're like, it's amazing, everything's amazing, and they feel like they have to keep this false front up, and then two weeks later, you hear that their company just went completely under, and so I think that there's this fronting that goes on, which is unnecessary, and I think that there could be much more honesty and The culture could change to be more open. You don't have to fake it so much, and I feel like so many people are out there just faking it, and you'd have more authentic relationships, you'd have more honest dialogues, investors would be spun less. Of course, when you are starting out, you've got to pitch something that doesn't yet exist, but there's a thin line between that and a con game, and I think that there's a lot of people out there that are just totally faking it.

AI assessment note: “there could be much more honesty and The culture could change to be more open.”

Q What would you most like to change your altar in VC and startups?

A I think that there is a culture that talks about praising and prizing failure, but I think it's disingenuous. I think people pretend to wear failure on, you know, as this badge, and every time you ever see an entrepreneur and you ask, oh, how are things going, you know, they're like, it's amazing, everything's amazing, and they feel like they have to keep this false front up, and then two weeks later, you hear that their company just went completely under, and so I think that there's this fronting that goes on, which is unnecessary, and I think that there could be much more honesty and The culture could change to be more open. You don't have to fake it so much, and I feel like so many people are out there just faking it, and you'd have more authentic relationships, you'd have more honest dialogues, investors would be spun less. Of course, when you are starting out, you've got to pitch something that doesn't yet exist, but there's a thin line between that and a con game, and I think that there's a lot of people out there that are just totally faking it.

AI assessment note: “The culture could change to be more open. You don't have to fake it”

Q I haven't seen multiple cycles, so this really is me asking you with the hindsight. You said about kind of working with Aminos there many years ago. I'm intrigued. Do you agree with the thesis that we're now kind of at the very frontiers of a whole range of new breakthrough technologies, be it VR, AR, Bitcoin, Drones. Or do you think we've kind of continuously seen these cycles throughout?

A You know, I think it's sort of the same way that people pine for nostalgia of yesteryear. You know, if you went back 10 or 15 years ago, one could probably argue, um, or let's say even 20 years ago, that the rise of the internet and, um, mobile communication and websites and portals, you know, people would have said, oh my god, I've never seen anything like this. And so I feel like the next great thing, we'll look back and say, oh my god, we feel like we're at the cutting edge and this precipice of uncertainty and all these commentatorial possibilities. So, In one hand, saying this time is different is sort of dangerous, but on the other, you are correct in that the combinatorial possibilities, the more technologies that we create, the more things can be put together and remixed in different ways, and so you definitely do feel, even looking at the scientific frontier, that the incremental discovery gets more and more specialized. It used to be that a single person like Ben Franklin could do geometry, and he could do arithmetic, and he could do cosmology, and look out into the stars, and today, if you're gonna make an incremental discovery in a field, you have to be so specialized in that field And so I think the same thing is sort of happening in the entrepreneurial community on the one hand, where to make that incremental advance, you have to be really specialized, but because…

AI assessment note: “saying this time is different is sort of dangerous, but on the other”

Q Again, I'm so not on the schedule, but when you say weird and out there, often that would relate to a market that's not, not in existence at the moment. How do you view market creation then when it comes to truly weird and wacky inventions that I'm sure you've seen?

A It's interesting because you have some firms that will say, we don't take market risk, and you have other firms that say, we don't take technology risk, and we'll actually take both. There is no comp that you can find for some markets where technology just didn't exist before. Right now, again, new things come from combinations of old. So you can take one technology and mix it with this other technology and create something. But sometimes it creates a demand or a market niche that you just never saw before. And I think some of the greatest inventions, some of the greatest technology, some of the greatest companies, and some of the greatest venture investments came when you had that combination of a novel technology into a new market. So oftentimes we'll say, well, what's the comp for this? And once we start asking that question, we actually know that we're onto something because some of the best Most examples in history, there were no comps. What was the comp for Microsoft before it existed? What was the comp for Facebook? I mean, maybe you could argue Friendster. What was the comp for, um, some of the optical networking companies? So, so I think this is a pattern in VC that itself, you know, just when you're confident and think you've got it figured out, you say, well, wait a second, we haven't seen anything like this, and that's a clue, and we pay attention to that.

AI assessment note: “we haven't seen anything like this, and that's a clue”

Q I'm clearly sticking to the schedule here, obviously, but I'm just too intrigued. Saying of specialization there, in particular with regards to science, what do you make of the specialization within VC? Potentially kind of the vertical specialization that we're seeing most commonly today. What do you make of that?

A Well, it has its pros and its cons, right? So obviously people, you know, generals fight the last war. So if you are successful in a particular field, let's say you were an enterprise software investor and you had a big hit. Well, now you've got this halo and the best entrepreneurs are going to come to you and equate your prior success with the increased probability that they're going to have success. And so very easily you can get locked into being a vertical specialist. And then if something changes in the capital markets where the thing that you were invested in suddenly becomes passe or out of favor, then you start to reinvent yourself and you're on to the next thing. And so I think that's a natural cycle of people reinventing themselves. But generally, I think, Going off into these frontier areas, and I think that there are a lot of tourist VCs who are in these domains that are going to lose a lot of money, but I think that's always been the case. There's always somebody that's going off in some speculative future, whether it was clean tech or green tech 10 years ago, or people doing more hardcore tech and frontier investing today. On the other hand, there are people that are just absolutely passionately obsessed and dedicated to this, and whether it's inside our firm at Lux, at the partner level, or the entrepreneurs that we're investing in, I have a colloquialism that Pa…

AI assessment note: “Well, it has its pros and its cons, right?”

Q concerned in the paradoxical view in terms of aqua hires and the consolidatory nature of it being so IP heavy and so technically advanced That it's, that it's a natural acquisition target and an aqua hire target for the big incumbents today. To what extent does this kind of aqua hire IP heavy nature concern you with the industry? As you said, there was an exit there after 12 months.

A In some cases, it's a protection on the downside. In some cases, it's a cap on your upside. So, it really depends. In that case, I think we would have loved, collectively, amongst the other syndicate investors as well, that maybe we waited for You know, a year or two, because we probably, instead of selling for four hundred million to Intel, could have sold for four billion. The difference, obviously, this is life-changing money for founders, and you got to take that into consideration. And so, I think, you know, if we can have a lot of those, everybody will be really happy, and I think it speaks to the fact that you've got large corporations, despite having huge amounts of cash, both domestic and overseas, are not heavily investing in R&D, so they are looking to acquire it. And so, if you can do the kinds of things that you used to see in the Bell Labs and the Intels and the IBMs and even Microsoft researchers, Being done in startup land, I think that's a net positive. Now, the other thing on the time aspect, which I think is pretty interesting, is thinking about how GPs are focused or LPs are focused, and this is an interesting phenomenon because I think the shorter your time cycle, the more competition there is. You know, if everybody's looking for the thing that's going to show big user growth in the next year, it's just easy for hundreds of investors to be able to evaluate…

AI assessment note: “In some cases, it's a protection on the downside. In some cases, it's a cap”

Q concerned in the paradoxical view in terms of aqua hires and the consolidatory nature of it being so IP heavy and so technically advanced That it's, that it's a natural acquisition target and an aqua hire target for the big incumbents today. To what extent does this kind of aqua hire IP heavy nature concern you with the industry? As you said, there was an exit there after 12 months.

A In some cases, it's a protection on the downside. In some cases, it's a cap on your upside. So, it really depends. In that case, I think we would have loved, collectively, amongst the other syndicate investors as well, that maybe we waited for You know, a year or two, because we probably, instead of selling for four hundred million to Intel, could have sold for four billion. The difference, obviously, this is life-changing money for founders, and you got to take that into consideration. And so, I think, you know, if we can have a lot of those, everybody will be really happy, and I think it speaks to the fact that you've got large corporations, despite having huge amounts of cash, both domestic and overseas, are not heavily investing in R&D, so they are looking to acquire it. And so, if you can do the kinds of things that you used to see in the Bell Labs and the Intels and the IBMs and even Microsoft researchers, Being done in startup land, I think that's a net positive. Now, the other thing on the time aspect, which I think is pretty interesting, is thinking about how GPs are focused or LPs are focused, and this is an interesting phenomenon because I think the shorter your time cycle, the more competition there is. You know, if everybody's looking for the thing that's going to show big user growth in the next year, it's just easy for hundreds of investors to be able to evaluate…

AI assessment note: “In some cases, it's a protection on the downside. In some cases, it's a cap”