The Exchanges

Q If we're at the apex, where does it go?

A On the capital market side, you see hundreds of billions of dollars destroyed of people that play the same game that you did back in 2000 with fiber optic cables. The counter to that, if you listen to some of my friends would say, well, back then you had dark fiber. Today, there's no dark GPUs. I still beg to differ. What the individual company does rationally, collectively is irrational. There's going to be a glut and there's going to be a collapse. Debt has not really entered the system until now. Debt is the thing that causes bubbles to collapse. You've got Facebook issuing twenty-five billion dollars of debt. You have this crazy structure with Grok and XAI from Elon. You've got CoreWeave. These things are messy. Dave Einhorn had a good recent snippet in one of his recent quarterly letters that was talking about how a dollar of OpenAI revenue results in eight dollars of seeming revenue. It's a dollar to OpenAI. Then they pay Microsoft two dollars, so they're losing money, 50% negative margins. Microsoft then pays CoreWeave. CoreWeave then pays NVIDIA. That one dollar that I'm paying translates into eight dollars of revenue and a hundred dollars of equity market. That's a house of cards that's going to collapse. The next wave that I'm bullish about is going from two-dimensional AI in this current wave, which is pretty much saturated. That is everything from voice, video, imag…

AI assessment note: “There's going to be a glut and there's going to be a collapse.”

Q As that landscape has changed, you have competitors who have decided to be large, and therefore they have big balance sheets that they could attract founders at all stages. How have you thought about changes in Lux's model over time?

A It really is trying to be the first institutional investor in. The difference in this ecosystem between those minnows and the megas, we like the megas. We want them to be in the cap table. We always say we're contrarian. We want people to agree with us later. We want these funds to come in later at a lower cost of capital and higher valuation where we've assumed some risk. We've killed those risks, product, people, finance, technology, market, and therefore created value and a later investor should come in and demand a lower quantum of return. That is the way that we think about it. That has really not changed. It also serves us well because then you have a product that you're generating that other investors want to invest in. The other thing we're doing is hiring a young bench of investors who, I'm 47 years old. My youngest partner is 24. Her name is Lan Zhang. She's a killer. Amazing network of young, bright, brilliant math Olympiad winners in high school that have gone on to computer science at Stanford and MIT, went to work at OpenAI at 19 years old, and then at 22 years old are leaving and starting a company, and our goal is to be the founding investor in those companies. That is what has changed, is go earlier, benefit from this ecosystem where there's an abundance of later stage capital. They're in many ways indexing across the venture landscape, but it benefits you if y…

AI assessment note: “That is what has changed, is go earlier, benefit from this ecosystem”

Q How do you not go down the wormhole of spending 25 hours a day doing that?

A I think I'm pretty efficient with it. My own information diet. I wake up at seven. I'm with our kids until eight 30. So, you know, we get on a train at 7:40. I take them to school, drop off my two older girls, and then I've got 30 minutes with my youngest son, and we go to get coffee and muffin. And then I will either walk or bike back, either listening to a podcast, often yours, or a book or doing calls. I might come in to a board meeting between the board meeting and the next meeting. I might be catching up on Twitter, I read through a ton of papers early in the morning, right before we go to school, and I'm often taking screenshots, which you'll see me post on Twitter, and I'm highlighting things, and, and there's certain themes that I'm drawn towards, right? It's the theme that I think nobody is talking about. I'm very rarely commenting about the thing that everybody is talking about, trending or whatever, and so it's what led me probably six years ago or seven years ago to get very interested in the African continent on both geopolitical, rise of extremism, rise of China, US great game, pursuit of Resources and influence and communication networks and standing up dictators and all of the things that are going to flow from that. It's what got me interested in a whole variety of technologies, including nuclear. And so you go down these rabbit holes and sometimes there are so…

AI assessment note: “I think I'm pretty efficient with it. My own information diet.”

Q sort of known in the partnership as the skeptic, the guy with the chip on his shoulder. So on the one hand, the sky's falling, and anybody could see that. There's just a ton of money. On the other hand, the team might discount you saying it because you're the one who's saying it, and everybody knows that you're the cynic. So how does that get balanced in these meetings?

A I think when you're in a partnership, and it's probably the same thing when you're in a marriage or relationship, you can almost predict what the other person's going to say. The truth is, Probably a third of our partner meetings, any one partner could take it solo, and for the most part, anticipate what Peter would say and the questions that he would ask, what Dina would say and the questions that she would ask, what Adam Goldberg, what I, what Bilal, what Zavin, what Shaheen, everybody can sort of intuit what are the most important things that that partner cares about. For me, it's what are the risks? What can go wrong? What are you worried about? I hate when somebody says, oh, competition is validating, or like, yeah, you know, and I want to know that they're worried so that I won't be. For Peter, it's about their ambition and their ability to tell a story. For Zavin, it's about the technological competitive advantage. For Adam, it's about recruiting. For Dina, it's about recruiting in the marketplace and the partnerships that they can get. And so everybody has this different dimension that they look at things, and I think that they probably discount me. They know, okay, Josh is going to come in, and by the way, in some cases, he thinks that this company is a fraud. He thinks that this person is full of shit, and then they know that. And so if I'm a champion of a deal, I can…

AI assessment note: “everybody has this different dimension that they look at things, and I think that they probably discount me.”

Q So what was your path to starting to read about investing, being passionate about it, finding this great thirteen-year-old marriage between science and options trading to, you know, having your own private equity fund?

A The honest answer is luck. I mean, I always say that the governing force of my life is randomness and optionality. And ex post facto, you explain everything very clearly as this linear chain of events, but it's, of course, this messy amalgam, you know, entropic craziness. I graduated Cornell, went into investment banking. I joke I wasn't smart enough to collect my first year bonus, which proved to be the best thing ever. Partnered with Peter Hebert, who he, I was at Solly. He was at Lehman Brothers in Equity Research. He is the perennial optimist. I'm the perennial cynic. It's this perfect yin and yang. We joke he invented the airplane. I invented the parachute. He looks for, he looks for the best in people. He looks for the best in outcomes of our companies. I, on the downstroke, am thinking, okay, what could go wrong? Let's kill all the things that can go wrong, because every one of those things is a risk. Financing risk, technology risk, market risk, product risk, et cetera. You kill those risks and value gets created because a later investor should be, you know, basically investing and paying a higher price than you and demanding a lower quantum of return for a lower quantum of risk. And so, so we just started to kick around, okay, what areas were totally neglected that people were not looking at? And it really was the physical chemistry, material sciences. And those were h…

AI assessment note: “I graduated Cornell, went into investment banking... Partnered with Peter Hebert”

Q What teaching from your parents has most stayed with you?

A I think high expectations. I think my mother, I would come home with a test, 97, 98, and my two best friends growing up were a guy Jimmy and a guy Adam. What did Jimmy get? What did Adam get? And it was just, it was never enough, and so I, I think that carries over for better or worse, I believe it better, of super high expectations. It's what we do in our family that You know, you can do better no matter what it is that you're doing. I think it carries over into our school at Coney Island Prep, setting the expectations. Young kid, you're in kindergarten, first grade, fifth grade, you're going to college. So I think, I think just the, the pressure of high expectations and ultimately that becoming self-indoctrinated where you expect it of yourself when nobody else is watching.

AI assessment note: “I think high expectations. I think my mother, I would come home with a test”

Q There's this interesting polarity of talking about finding some niche technology that you can invest in. Maybe you're creating from scratch. And then someone like Brett, geopolitical relationships around the world. How do you think about the importance of macro in your investment process at such early stage technologies?

A Some of it is this old joke that I used to tell Scott Bess and a mutual friend of ours would say, why do you care so much about macro? And I would say the act of venture is the most micro thing you could do. You're analyzing a little technology, or you're analyzing an individual. If you were to imagine trying to do this downward selection, not just of a security selection, but an individual or a company, it's the same thing as picking the best dish on a menu, having selected the best menu from the best restaurants in town, and having picked the best neighborhood In which to dine from the best city and all these concatenated decisions. And you're about to take this delicious bite of this delicious morsel of food. And then all of a sudden, Godzilla comes and just steps on you. Ignorance of the macro is no virtue. It plays another way. There's themes and theses that we've developed thinking about what if we bring this technology globally? What if we bring it to the rest of the world? One in particular fits this theme that Brett and I have been working on that we call sci-tech diplomacy. And you think about the diplomatic vectors of military and economic and political, science and technology is another vector for diplomacy. A breakthrough that happens in American university or a breakthrough that happens with an American entrepreneur, and the ability to take that and scale that glo…

AI assessment note: “Ignorance of the macro is no virtue. It plays another way.”

Q So one of the differences today from that period of time, and particularly, you can go back to the 2000, the dot-com bubble, is there's so much capital On the sidelines, particularly in the private markets. So even if we have this correction in the public markets, how do you see behavior playing out among your peers in venture?

A I think that there will be a bifurcation like there is in any ecosystem of the survivors and the people who either do smart or lucky things and then people who continue to just do what they were doing because it had worked and so they continue to do it. So what that means is the people who will continue doing what they're doing is investing in every deal that is coming through and Remember, you're investing in companies where the new normal has been that a company with five or seven or eight or sub-ten million ARR, annual recurring revenue, is getting a billion-dollar valuation. We used to look at things where it was like one or two or five or 10 times revenue, but these are hundred times revenue, and you say, well, the discount is so far in the future that what you're really doing is buying the next five years of growth, but it's just the stories that people have told and the pretzels that they've twisted themselves to justify these prices is really just insane, and it really is just a phenomenon where The belief that other people will believe that other people will believe ad infinitum is what's propping this all up. There's just total cacophony of credulity of people that are just like, bye, bye, bye, bye, bye. So what I think will tip this, and I would put my highest conviction that this is the cause, is LP indigestion. I have an LP who said, we've got a whiteboard here, an…

AI assessment note: “I think that there will be a bifurcation like there is in any ecosystem”

Q We're in the sequence to say, okay, we now have some proposition that allow us to go raise money, or did you just try to raise money and then build this as you went along?

A Putting out the thought leadership, giving speeches, writing articles became a magnet. It became the beacon light where people were suddenly attracted to you. Why? In part, they wanted to be profiled, or they want to be mentioned if you're giving a speech, um, in part because they knew that you were connected to somebody else, and so they wanted access to it, and so that was some of the early deal flow. Over time, we became much more Sophisticated in the approach for how we were hunting for deals, but in the very early days, that's what it started. So you, so you have this opportunity set, and then you went and said, okay, well, we want to invest in this now. And so you have this chicken and the egg problem always. Either you have a good idea and you're able to raise the money and then you're looking for the deal flow. Or in our case, we were able to generate the deal flow and the access and relationships with entrepreneurs who liked and trusted us. By the way, we're out there promoting them and singing, you know, their songs. And, and so all of that sort of just came together and we were able to successfully raise what was our first Fund, really, as a pledge fund from Bill Conway. And we went and said, you know, we want to put our money where our mouth is. And really, very bluntly, we want to put your money, Bill, where our mouth is. And, and he laughed. And, you know, it's on…

AI assessment note: “Or in our case, we were able to generate the deal flow and the access”

Q And how'd you answer those questions over time?

A Some of it was studying history and looking at, okay, what's valuable? And when you look at a company, what do they need? They need to be able to raise future capital. Well, we had no relationships And so the financing risk for a company that we might invest in was going to be very high, right? Because we had no signaling value. Like if Sequoia or Benchmark is investing in a Series A company 10 years ago, the next three rounds were taken care of because you had Sequoia and Benchmark in there, and there was social proof and positive signal value. We had none of that. Network of entrepreneurs, you know, to be able to recruit people in, we had none of that. Intellectual capital, we had a little bit of that because we were early to some spaces and we were providing some thought leadership. So we ended up building these three entities. And we did them out of necessity so that we could point to them and say, these are ways that we can tangibly help you, as opposed to being some cliched BS VCs that say, we're value-add investors. And so we created a public policy group, and we were able to go down to Capitol Hill and influence where legislature and non-dilutive money was flowing so that we could get large sums of cash for the spaces we were investing in and ultimately for the companies we were investing in.

AI assessment note: “So we ended up building these three entities. And we did them out of necessity”

Q Yeah. As you get through it, how do you make decisions as a team when you're making your investment decisions?

A So there's a wide range. There's, um, things where everybody agrees. At the firm, structurally, Pete and I are the final decision makers, but everybody's got a voice and a vote. It is very rare if everybody on the team was totally against something that we would do it. Similarly, if everybody was bullish on it, but Pete and I felt very strongly, maybe on ethical grounds, that it's a space we shouldn't be investing in. Similarly, that we would do it. So, so that's the starting point, which is structurally, you know, sort of the buck stops with the two of us. We have implemented, starting about five years ago, a process where if there's a super strong table pounder, where the vast majority of the team does not agree, but somebody is psychotically passionate about a particular entrepreneur and opportunity, they get one of those in a fund. And the reason that we do that is, number one, we want to avoid a situation where we made an error of omission that this person accurately saw something that the rest of the team didn't, and we, of course, pride ourselves generally as a team of being contrarian and thinking differently from other firms, but at a meta level, if we ourselves are thinking exactly all alike, then something's off. So the reason we only give them one bullet to do that in a fund is mostly because of me, because I can be generally persuasive and a passionate table pounde…

AI assessment note: “Pete and I are the final decision makers, but everybody's got a voice and a vote.”

Q Are there lessons you've taken from your knowledge of public market investing when you think about the other layers of portfolio construction other than sort of time and size?

A Aside from timing and sizing, Different sectors at various times can have counter-cyclicality. You even see this at a existential risk at firms, by which I mean there are people that co-mingle life science investing and IT investing, and sometimes the IT investing is doing very well, and it just happens to be that there's a tailwind, let's say, right now between high-tech and, and FANG stocks, and therefore there's more money going in. You might have companies that stock value has appreciated. They might be more likely acquirers, You might, on the other hand, have more difficulty getting talent because they're very highly prized and they're being very paid very highly. At the opposite end of the spectrum, you might have biotech that's in a doldrum or in a winter, and capital is scarce, and there's been consolidation, and big pharma has more leverage because they're able to acquire companies, so you cannot be ignorant to the market dynamics of where there's consolidation, where capital is scarce, where capital is abundant, where talent is scarce, where talent is abundant, and you sort of have to predict, and I hate the cliche about the, you know, skating where the puck is, but you have to anticipate the thing that everybody believes today is scarce might become abundant and vice versa. And so in the biotech arena, we would look and say, okay, everybody in the public market some …

AI assessment note: “Aside from timing and sizing, Different sectors at various times can have counter-cyclicality.”

Q That sounds like a typical variant perception public market mindset. Does that apply equally to what you're doing today in the private markets?

A I personally think so. I'm inspired by people in global macro. I'm inspired by long, short hedge fund guys. I'm inspired by deep value, Buffett, Munger, you know, Markle type, Klarman. And then I'm inspired by the, you know, the early John Doerr and Pierre Lamond, Kleiner and Sequoia partnership type who were literally investing in people that were inventing the future. And I think that that guard has given way to people that are funding, you know, what I consider fufu apps and You know, mobile stuff that I think has very little relevance, but like real hard technology. It's provable. It's real. It's verifiable. It's not, you know, the things that are sort of prone to fraud. So you often see in other fields and then it's like, okay, simple questions like how much money will it cost to accomplish X and who will care when you accomplish X. And then you get into certain philosophies about risk and value and how they're created or destroyed. Which I think guide how we allocate and how we size things and who we invest behind.

AI assessment note: “I personally think so. I'm inspired by people in global macro.”

Q So let's turn a little bit on that. What is dinner table conversation like at your house?

A Well, it's a mix of, uh, as you can see, like, I love sort of kinetic, frenetic, random thoughts, and so we jump from topic to topic. Um, I've got three kids. My wife happens to be in the hedge fund business, and she's way smarter than I, and, you know, I like to say I do the private market. She does the public markets. She's on public boards, and brilliant. But we'll talk about everything. We'll, we'll talk about life principles. Conversation, you know, that we had earlier in the week was about one of the principles. I, I, I like indoctrinate them with little Quotes. So one is the difference between fitting in and standing out. And this is true of markets. It's true of peer pressure. It's true of life choices that you make in a career sense. But, you know, how do you find the balance between wanting to fit in and do what people want you to do and feeling the confidence and, and self-esteem to stand out? And so we talked about this in the context of, for the young kids, like doing drugs and peer pressure and making good decisions. We'll talk about, in a related area, studying people who make big mistakes. And there are some people, and I disagree with Peter Thiel about this personally, where he says, you really study the successful people. You don't study the failures. And I disagree totally. I think by studying the people who made willful mistakes, you learn an enormous amount…

AI assessment note: “we jump from topic to topic. Um, I've got three kids.”

Q What happens to that dead capital? Let's say the SoftBank money, will somebody create a marketplace to allow those people to kind of exit some of their ownership?

A I honestly believe it's going to ultimately be up to SoftBank. The most skeptical, cynical, borderline conspiratorial view Would be that, you know, if you're investing in WeWork at a twenty billion dollar valuation, putting one or two billion dollars in, and then you're pricing up your own deal six months or a year later and doubling the valuation, what you've done is created paper asset value, and that paper asset could be seen as collateral against, say, an indebted corporation. And so I think, I think people have to, you know, really double click into what's going on there. There's, there's no doubt SoftBank is extremely influential. There is enormous reach. There's enormous Kuratsu. In sort of the Japanese sense of a lot of interconnected things between companies, but, but there's other things and other motives that are going on there that I think people are naive to.

AI assessment note: “I honestly believe it's going to ultimately be up to SoftBank.”

Q So it's not hard listening to you just getting this Good luck to anyone who's trying to listen to some one and a half or two times, right? There's the flow of ideas. I'm kind of curious on Twitter in particular, how do you find the time to put out this incredible flow of ideas that you do?

A A lot of it, thanks to Twitter, is like, I have ideas all day long, and then sometimes I'm mid-meeting or between meetings, and I'm like, huh, you know, and I just put something out there. And it's interesting because at any point in time, somebody could be like, and the more followers I have, the more chance there is for somebody to be like, you're wrong. Or that's not true. Or, yeah, that's false. Or that's a myth. Or, and some people do. There's a handful of people that I get into these debates with about crypto, or about whether current valuations are too high, and then, or about Elon. And so I actually love that debate, because it's this arena where somebody can just, it doesn't matter who they are, they can just reply with a better idea. And I truly believe that intellectual progress happens in this marketplace of ideas, where good ideas are fighting bad ideas, and better ideas emerge.

AI assessment note: “sometimes I'm mid-meeting or between meetings, and I'm like, huh, you know, and I just put something out there”

Q If you take those two theses together, so the shift into a form of venture real assets and this bifurcation of the minnows and the megas, What does it take to fund the generation of companies that have real assets that can't massively scale through the internet?

A We went from this belief of hyper-efficient software. The virtue of that was that you didn't need a lot of money and you could figure out if your product was working and users would adopt it. The reality is some of the most successful software businesses have actually raised billions and billions of dollars. Snowflake and Datadog and Databricks, Quite capital intensive businesses. They've also created a moat around them. It isn't always bad when something is capital inefficient. If you create a moat and can get dominant market share, we do everything at Lux from about a third in biotech and robotic surgery and med devices and another third in aerospace and defense and industrial. The other third on core technology, which is everything from non-invasive brain machine interfaces to everything we do in the AIML computer infrastructure stack and semiconductors and edge inference chips. The defense space takes a lot of capital. Anduril has raised several billion dollars now. There are a few companies that are competing with them. There's a long tail of wannabe next gen defense tech companies, but Anduril is the 800 pound gorilla next prime. You do need capital.

AI assessment note: “The defense space takes a lot of capital. Anduril has raised several billion dollars”