Emerging Technologies and China’s Crackdown on Tech — with Josh Wolfe

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Welcome to the 89th episode of the Prov G Pod. In today's episode, we speak with Josh Wolff, the co founder of Lux Capital, a firm that invests in emerging science and technology ventures. I had dinner with Josh and his wife and Andrew Osorkin and his wife. The only reason I mention that we had dinner with Andrew Osorkin and his wife, Pilar, who quite frankly is more impressive than Andrew, is because him being a celebrity and me having proximity to celebrity makes me feel powerful and important. And my insecurity motivates me to tell people that. Anyway, the thing about Josh, I'm intimidated by Josh. I don't think I'm intimidated by very many people. I resent a lot of people and I hate a lot of people. Maybe that's because I'm intimidated by them. I don't know. I'll figure it out. I'll figure it out. But Josh generally intimidates me because as you'll see from this interview, I feel as if when I'm talking to Josh, I'm like an Intel 286 chip and he's the Pentium 11,000. The guy just thinks at a faster cycle rate than almost anyone I've ever met. Anyways, we talked to him about investing in emerging science and technology ventures. Josh shares his thoughts on tech regulations coming out of China and how investors should be thinking about the macro risk There he also discusses the sectors he's keeping tabs on, including space and the metaverse, and the ones he thinks are over and under hyped. Okay, okay. Before we bust into our conversation with Josh, we're bringing in Pascal Gauthier, the CEO of Ledger. A hardware wallet for crypto assets and full disclosure. I'm an investor, which is why I wanted to hear from Pascal. Pascal explains the technology and shares his thoughts on the future of crypto. So with that, let's get started. Pascal, where does this podcast find you?

This podcast finds me in Geneva. Scott. Thank you for having me.

Geneve.

Genev.

So give us the headline news, the kind of history, background, competitive positioning of Ledger.

Sure, I'll make it snappy. So if you look at your credit cards, you have a chip on your credit card. The chip and PIN technology is actually a French invention, and it's hardware security technology that's been invented to protect secrets. What's on your credit card is actually not protecting your secrets, but it's protecting your bank secrets. But we use the same technology basically to now protect your crypto secrets. So what you have inside the ledger is a chip very similar to what you have on your credit card. And it's been designed to protect your crypto secret because, in fact, when you own crypto, what you own is a cryptographic secret that only you possess and that you cannot share. Because if you share a secret, then by definition, it's not a secret anymore. And so the protection of that secret is paramount to the usage of the crypto, to the ownership and to the usage of the crypto. So at the heart, that's what Ledger technology is. It's a chip and PIN technology adapted to this new crypto world and the protection of your secrets.

And a Bitcoin Conant is what you refer to as cold storage, meaning that you can conduct transactions linked to the Internet, but then you pull it out and effectively it becomes totally secure. There's no access to it. Is that accurate?

Yeah. Correct. I mean, cold storage comes from the fact that very early on, engineers working on those problems and or the community of. Of crypto holders understood that it was a very bad idea to leave those private keys on a phone or on a computer, because phones and computers are not designed for security. And the latest Pegasus exploits is a good indication that you should never leave on your computer and on your phone anything that has value, because people can access it very easily. The cold storage was basically this idea of taking your private keys offline and not leave them on a Computer or on a device that is connected to the Internet. Because as soon as it was connected to the Internet, there was this idea that a hacker could sort of penetrate phone or say computer and then take away your private key from you. And so this is why you needed to store it on an offline device. And that's what Ledger, the Ledger Nano is. But equally the problem then became how do I transact, because okay, it's offline, but how do I connect it back to the web without losing the private key or without the private key being hacked at the moment of transaction? Our devices do the two things. So when you're not using the private key, it's safely secured into your device. But also equally at the moment of transaction. The hardware wallet always protect the private key so it's never fully exposed to the Internet. And so therefore it's not hackable.

And do you see your competition as other hardware or as Coinbase platforms or as legacy financial institutions? Who do you see as your biggest competitive threat?

It's a big question. There are the competitors of today and the competitors of tomorrow. I think the market is evolving, so we believe our competitors of tomorrow would be the Coinbase, the Square, Apple, Samsung. Interestingly, the space is evolving into this combination of software and hardware. I think Square probably understands it best right now than anyone else because they've just announced that they were going to launch competitive product and they understand and they come from sort of more the financial background and transactional background and they understand that these two technologies at some point will merge. You have the transactional software on one side and the secure hardware on the other side merging to sort of deploy a worldwide value proposition. If you read what Coinbase have said recently, they said, okay, the custodian is all good and well and they created a great business. But they also agree that going non custodial for them is important if they want to become a global player, because non custodial is less regulated. And so therefore it's technology that you can deploy at scale everywhere in the world versus regulated custodians that are much harder to deploy. And you know, you need to do it region by region. So if you look at the Square strategy and, or the Coinbase strategy, I mean, we're all pointing into the same direction.

Talk about hardware, wallets and NFTs. Do you see that as a big growth area?

Yeah, I think we think about NFTs and we think about Web3. The Web3 is the web to exchange value and NFT is part of Web3. But interestingly, enough, there are many things that will be web3. Typically email is quite broken right now. If you think about Web2 in terms of security, there are many things that actually don't work. And again, the latest Pegasus exploit is the zero day zero click exploit where basically, basically the only thing I have to know is your phone number, then I can access your phone without even you clicking on anything. That tells you that all these Web2 products and hardware hasn't been designed for security. And so I think something is going on where you need to have secure email. And email in a blockchain is an interesting value proposition. For example, not for every email that you're going to send. Don't get me wrong, if I send you an email to say, hey Scott, are you in town? Let's get a beer, we don't care to put this on the blockchain. Now, if I send you a $10 million contract value and it's an offer, and I want to make it clear to you that it's an offer, then I probably want to put that email on the blockchain. And so we are certain that it's me who sent you the email and that my offer is final and solid. That's an interesting use case. And so if you think about Web3, whether it's the, it's the tokens, whether it's the Bitcoin cryptocurrencies, whether it's CBDCs, whether it's NFTs or any other form of token or any other form of blockchain usage, all of this will need a Web3 enabled device. And so I think NFT is a big opportunity for ledger. But similarly, I think that many other things that are coming in the space are very interesting and Web2 is about to be revolutionized.

To take a viewer, what is your view on various coins? Do you think we'll see a consolidation and there'll be two or three big winners soaking up 90 of the market capitalization, or do you think this is going to be there'll be as many.

Coins as there are startups, you know, coins, it's interesting. The way that I look at this is all of these are public blockchains are sort of rails to exchange value. And in the end, as long as you can swap that value, it doesn't really matter how many coins there are. So in reality there could be an infinity of coins. You can think that any airline could have its own coin. You win air miles and so you could have Air France air miles and that's actually a coin and then you could swap it very easily for a Starbucks coin and so on and so forth. So my view is coin is one thing, protocol is a different thing. So my view is that there will be 10, 20, I mean there will be a certain numbers of like winning protocols that will be, you know, the protocols on top of which coins would be built. I mean if you take Ethereum for example, Ethereum is one protocol. There are hundreds of coins being built on top of Ethereum through ERC20 and or various other subset of the Ethereum protocol. And so if you think in terms of protocol, I don't think that there will be, you know, thousands. If you think in terms of coins build on top of those protocols, I think there will be a thousand or more.

Pascal Gautier is the CEO of Ledger. Previously Pascal worked as a Venture Partner at Mosaic Ventures, a London based venture capital firm focusing on series A stage companies. Pascal is also non executive Chairman of Caico, a financial data website on Bitcoin. He joins us from his home in Geneva. Pascal, thanks for your time and stay safe.

Thank you Scott.

We'll be right back for our conversation on emerging technologies and China's crackdown on tech with Josh Wolf.

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Welcome back. Here's our conversation with Josh Wolfe, the co founder of Lux Capital, a firm that invests in emerging science and technology ventures. Josh, where does this podcast find you?

At the moment I am in Sagaponic just on the outskirts of New York City.

Where are you?

I am in Soho. So yes, we're both New Yorkers. So curiously, I think the biggest story, or the one that's not getting as much attention as it deserves is gaming, tutoring, ride, hailing day, whatever you want to call it. It appears that China has decided that social well being cannot be subservient to economic well being and they have cracked down hard. Curious to get your thoughts here.

Yeah, the first thing is, I think nominally the story, the narrative is that this is protecting the kids and this is about video games. It's not about video games, it's about the VI games, the Vies. And the thing that people have to remember is a few things. One, if you are an investor in Chinese companies, Tencent and Didi and Ali, you don't actually own anything. This isn't like the us. You don't have a claim on assets of these Chinese companies. You don't get to make any demands on management. You don't have an equity stake, you have no governance, influence, rule of law contracts, all the enforcement that we would depend on the US government or sec. You've got Chinese courts and you know how they're going to rule. And you've got this bigger risk which is China can change their mind at any time, which they've done. So you basically had a casino bet that's loosely tied to underlying equity. So that's the first thing that people have to go. Now if you want to go full Mel Gibson conspiracy theory, this may be much more about shielding the books and the banks, the state owned banks and the dealings between these various companies and the ccp. And you've seen this heavy hand. This is not an invisible hand. This is an overt visible hand of taking U.S. and foreign investors capitalizing new tech and then new tech in China, helping to bail out old Chinese state owned enterprise. And that's been going on for a decade. We've lost the touch with the narrative of this, but I think it's all becoming evident right now. So I don't think that there's any moral overpinning here that this is really about the tutoring industry or this is about video games. I think it's a reassertion of control broadly by the government. And I think it's probably a redirection away from what we've considered tech, which I really don't think is tech, which is basically getting people to buy stuff online and delivery and E commerce and social. And you're going to see a shift to hard tech, semiconductors and electronics and the things that are basically important for geopolitical supremacy.

Do you think? So is this a buying opportunity? Is this chill going to continue and China is withdrawing from the global innovation economy around some of the stuff we were talking about, or is this a buying opportunity? I mean, if you look at Alibaba, it's basically kind of has Amazon like growth and dominance and trades at a PE multiple of 20 versus 60. Is this a buying opportunity or is this a signal? Do things get worse from here?

Well, again, anything you're buying, you're buying the geopolitical risk of China, which is now being increasingly assertive and very dominant. So this is not Looking at Amazon vs Facebook vs Uber in the US I mean, this is just a whole different game and I think it's one that that's being skillfully played. I mean, we're playing checkers even as retail investors participating in markets here, versus these guys playing generational. Go Softbank, which you've covered extensively, is actually a really interesting piece here because very famously they invested $20 million in Alibaba, came in, domiciled that $20 million 20 years ago with a 25% stake, goes to $134 billion on paper. Now what are they doing? Okay, so if you want to measure, should we be investing in stuff they're not selling? They took a $10 billion margin loan a few years ago, then they took an $8 billion Alibaba back margin loan another two, three years ago. And now you've got pullback in the shares. Softbanks have come under renewed pressure. Just when we thought that they came out of this first hype cycle curve and they're recovering what started a few years ago, a year and a half ago, two years ago with Jack Ma. I think that this is much bigger. I think it's much more dangerous. I think people are massively underappreciating the geopolitical game that is happening here. And I don't think it's stocks. I think it's about a resurgent CCP.

That.

Is going to be a dangerous competitor peer to contend with.

It has echoes of what MBS did where he invited all the sheiks or wealthy families to the Ritz Carlton and then said, this is your prison unless you give us X amount of money and kind of acknowledge that we're in charge. This feels somewhat similar. I guess the, the question is, it strikes me that it would be unusual for China. They've clearly yanked hard on the choke chain here. They said, okay, we look at the US we're not going to have the type of overrun of tech here. We're just not going to endure it. But do they really want to shut down access to global financial markets given that they have to figure out a way to continue economic growth? That's the biggest threat to the ruling party. And I'm putting forward an investment narrative and that is there's macro risk here, but the chill, there will be a thaw. I don't see the CCP deciding to permanently kneecap these guys. I think they've wrapped them really hard on the knuckles, maybe even taken off a finger. But what is your view from here? I'm a buyer. I think that these companies have taken such a hit and it's hard to time the bottom. But I just can't imagine that the CCP would want to kneecap its innovators.

Well, a trillion dollars of equity value has paralleled that kneecapping. You're not talking about 5 billion or 10 billion, a trillion dollars across these things. I really think that they basically, and this was decrees overnight. I think they basically said this is the way that our capitalism is going to work. This is the way that our capital markets are going to work. And so as long as you understand the game you're playing and you understand that as a casino bet, absolutely. These companies will continue to grow. I mean these companies we talk about and I'm sure we'll touch on defense. Military industrial complex was like this taboo term in the US since Eisenhower. Military civil fusion is an overt CCP mandated policy. All these tech companies are entirely complicit with everything that the government wants to do. And if you're totally comfortable with that, you'll continue to see growth. But it's really gonna be basically a bet on the ccp. Now, would I bet against the ccp? Absolutely not. Do I think that China's gonna be ascendant world power and surpass us in many ways? Absol. If you want an unlevered bet on that, with a high degree of risk about CCP changing its Mind at any time then sure be long but understand the risk you're taking.

Yeah, there's real wicks. So let's talk about Lux Capital and what trends you're following and investing behind.

Well, China plays into one of these but you've got this backdrop of venture capital. So you've got this once cottage industry that was a handful of boutique firms over time and then you'd have generational succession or you have some new firm and some new sector come along and then you've had this complet blurring of capital markets from the big global macro funds and the tigers and the CO2s to the softbanks at all. And it's just this total blur and free for all. Late stage firms going early stage, early stage firms going later, provincial firms going global, global firms going into local markets, seed stage. Everybody, I mean everybody is an investor and arguably for innovation that's a good virtuous thing. More things get funded than should. Most of the stuff is going to fail eventually. We'll see a downturn in a correction. I've been saying that incorrectly every year for the past two years and I'll keep saying until I'm blue in the face for another few years. We continue to bet on the long term trajectory of just cutting edge science and technology.

Give us some examples. Cutting edge science and technologies would be more specific. What areas are you excited about?

Things that are coming straight out of science fiction. You think about some of the companies that we sold or exited recently. We were early investors in a company called Control Labs. This is a brilliant scientist engineer. He happened to be the guy who co invented the Internet Explorer for Microsoft. Bill Gates was right hand guy for a decade. At the age of 33 decides to go and get his undergrad at Columbia and then spends the next eight years getting a PhD in neuroscience. I find my way to this guy and become obsessed with what he's building, which is also along a big thematic approach that we have which is trying to identify directional arrows of progress. You find a directional arrow of progress, you don't know what the entrepreneur is, you don't know what the technology is or who the company is. But you know that this is the way it's trending. And in this particular case we stepped back and said okay, there's this thing that we call the half life of technology intimacy. 50 years ago you had a big eniac computer. You go up to it, you pull some plugs and levers and you're physically standing up to this monolith. 25 years. First half life. Now you've got a desktop. You're tickling the keys. You touch the back of the computer, the beige box. Next half life, 12 and a half years or 12 and a quarter years. Now you've got a laptop. It's physically touching your thighs. I mean you can see the trend of the pattern here. The stuff's getting closer to you. Then six years ago you got your iPhone's the dominant form and then the iWatch and iPods with compute and AI and voice recognition inside the undeniable directional arrow of progress. And all those things is computing is getting closer and closer and more intimate with you. So we hypothesized, hey, voice is already here. You've got Siri, Alexa and Google. Now gesture is going to be the next thing, mostly siloed to Xbox and PS4 and my kids playing Dance Dance Revolution. But if I could just gesture at computers, sort of like Sorcerer's apprentice. Walk into a room and just make a little gesture to turn on the lights or change the Spotify song or swipe from a clap on, clap off. You got it exactly right. I fall in and I can't get up. Straight out of tv, but this is out of sci fi. And sure enough, this guy's developing this at Columbia. He starts his company control, we fund it, Google funds it, Amazon funds it, Facebook buys it. Now we try to stave them off. I tried moral suasion and financial suasion. In the end, Zuck as part of his playbook for Ready Player one and the future of the metaverse that he's now co opting, this is a key piece of it. And it's important actually because Facebook has always had to rely on Apple or Google to access your eyes effectively. They're the gatekeepers to the screens and so they're really going to push into hardware so that they can figure out ways to make consumers. And I don't believe it's going to be VR, but to make consumers beholden to them, to be able to access the Internet and the Metaverse or whatever it might be. So that's one thing, brain machine interfaces. Another thing, and this is interesting as it relates to China is we've got two competitions. You've got a hard power and a soft power competition. Hard power. I think you're going to see a big reversion of pure interest in defense related companies. I mean this was the roots of Silicon Valley. We always think like Silicon Valley is a bunch of vineyards and orchards and all these brilliant nerds that are halting and catching fire in garages.

Livermore Labs.

Yeah, it's just not true. Right? But Silicon Valley tech as we know it was really rooted in 40 years of electronic warfare. Post World War II, in the 40s and the 50s, you've got US government funding universities to do research on weapons technology. And Fred Terman was the dean of Stanford. He's encouraging grad students, professors, go spin your research out into startups and sell those products to defense contractors. The first IPO out of Silicon Valley, 1956. There's a company called Varian which sold microwave tubes for military applications. A year after that you've got Fairchild Semi, and that is born out of Shockley and Bell Labs. And it's really considered like the pioneer of today's Silicon Valley. And its first contracts were all through military. And they built the chips that send us astronauts to the moon and built the missiles that armed the US in the Cold War. And like you were talking Livermore, Lockheed, which was almost non existent, you go back, they set up shop in Sunnyvale, they get a contract to build all submarine missiles for the US and then they go from zero employees to 25,000. Zero to 25,000 in four years. Okay, so this is the roots of Silicon Valley. It was rooted in defense. And we've completely forgotten that when we think about Silicon Valley today as Facebook and Google and Instagram and Snapchat and Clubhouse and Amazon. I mean, it happened to coincide with this zeitgeist of anti defense over the past. So I think we're going to see a reversion to that. We've got a company, Anduril, that is exclusively and unapologetically focused. Hey, we're going to make the best hardware and the best software to be able to provide and sell to the men and women on the front lines of wars as well as our allies around the world. And I think that's a really important technology trend. So that's the hard power trend. And that touches everything from direct military defense, artificial intelligence, drones. We've got a company called Saildrone with fleets of autonomous drones out at sea doing both peacekeeping and scientific research and then military missions. But air, land, sea, space and cyber space is going to be absolutely huge. It already is. You've got launch capabilities, you've got materiel and satellites that are going up for communications, for imagery. Now we've got a company called Varda that's actually manufacturing things up in space in low gravity. So space has a new race that's on and it's at a time with this geopolitical pressure where Russia used to be an ally in space, notwithstanding any conspiracy that you had about any software failures of their recent attachment to the ISS and spinning it out of control for two minutes or so, they've pulled out of the iss. When we said, hey, we're going to go do a lunar base, do you want to do it with us? They said, no thanks, we're doing it with China. So there's this tri party conflict that's happening now between us, Russia and China in space. And it's going to be a huge boon for startups that are selling technology to do pretty much everything that you can imagine in space space. The second piece of that, that's all the hard power stuff is the soft power piece. And soft power historically came from the Olympics. Love your view on it, but my view is no longer relevant. Movies and our greatest exports in music and culture. And then competitions, and the competitions were the Olympics, it was chess, it was these great things, but it was also science, it was prestige, people winning Nobel prizes. So we've got a whole theme at Lux that we call the tech of science, which are what are the instruments, the microscopes, the software that's letting scientists become more productive in this race? Because I think that that is going to be the huge soft power push. So we're looking at these big macro themes and then trying to find the crazy cutting edge stuff that's at the edge of those themes and finding the entrepreneurs to fund them.

Let's talk a little bit about space, because I look at, I think it's difficult to sort of crudely just call it all space and you need to bucket it into. And there might be different ways to segment it. I think of space hauling, basically putting satellites and other stuff into space, space exploration. So Mars, space tourism, Virgin Galactic, and then scientific exploration where we start growing different organisms in space. It strikes me that each of those has different upside or different risks and different potential returns for investors. And I won't buy it. I won't bias this conversation. I think some offer extraordinary returns and I think some are ridiculous and shouldn't be public companies. Do you have any thoughts around which segments of space you think offer the biggest opportunity? Or are you just bullish on the whole thing and say this is something you just want to be in?

I think you're right, first of all. And if you take it from the first piece, which is, let's say, launch. I've colloquially joked that if you want to figure out the playbook for space, go back 150 years and look at the railroads and just turn them vertical. You had people that were laying down hard capital equipment, capex huge indebtedness, laying down rail and then you figured out competition over locomotives and engines. Then you're exploring and then you're creating way stations along the way and sources of commerce and then ultimately communication lines that parallel those and on and on. Okay, the launch capabilities are going to be the most expensive. They're raising and burning billions and billions of dollars. They're heavily dependent on government contracts and they'll largest to the public, save for say Bezos who so far has pocketed done out of his own pocket. I am very critical of Elon as it relates to Tesla and his relationship with the truth in that company. I'm far less critical on SpaceX partly because it's run by Gwynne Shotwell. But it is truly doing things that we haven't done as a country. They are and what they're doing most importantly is again directional arrow of progress. They are lowering the cost per kg, the dollar cost per kg to launch things into space. That opens up, democratizes the ability for one of our companies. Plan Planet was three guys that liked to launch rockets in the desert and they said hey, what if we go and launch. We always hear the story about how the Apollo mission had more. We've got more computational capability inside of our smartphones than they did in this Apollo missions. What if we actually launched a bunch of smartphones into space and about 10 years ago they did that, they launched three of them, they call them Alexander Graham and Bell. That became the early basis for this company. Now they've launched hundreds and hundreds of satellites that are actually doing important work capturing whether it's the Uyghur concentration camps in China, whether it's productive silos that are being developed for nuclear missiles, whether it's measuring commerce and activity inside of parking lots and shipping lanes and all that kind of stuff that in turn is being sold to hedge funds. We have another company called Orbital Insight that's taking that imagery, processing it, running AI and ML to look at patterns of life and changes over time on a temporal basis. So the first thing you have very expensive, arguably monopolistic or oligopolistic is the launch capabilities. Billions and billions of dollars required. They lay down the infrastructure. If you wanted to make an analogy, a loose one, it would almost be like Global Crossing for the Internet laying down the hard capex stuff. In that case, obviously the distrust guys ended up doing much better than the growth equity Investors during that round. This time, I think Elon's smart enough to be able to continue to raise money, whether it's a public company or it has lots of spinoffs, which I think is more likely to be the case. I think it survives and does phenomenally well. You're going to have other launch competitors, so you've got Rocket Lab, you've got Relativity, which was one of ours, and so there'll be competition. What's that going to do? It's going to continue to drive the price down. You drive the price down, you create more availability for payloads, new people, launching, all kinds of stuff. So you start with imagery because that's something that you could sell for profit. Hedge funds, supplemental intel agencies, governments, corporates, they want to figure out what's going on on the graph. And then other places want to prevent you from figuring out what's going on on the ground. Satellite communication, yes. Elon's got Starlink. Key thing he's missing is antennas to be able to capture these things on the move. We and Bill Gates funded this crazy company called Kymeta that makes these flat panel antennas with no moving parts. And they're going to be global, both for military and first responders and the rest of the world. So you sort of see it goes from launch to satellite capability, to communications, and then ultimately to manufacturing. The space tourism stuff, to me, totally irrelevant as a primary product. The byproduct of some of the stuff that might come off, sure, but otherwise, I think it's an attempt to capture people's minds. I actually don't think that young people really care that much about space tourism the way that a prior generation or two did. I think it's going to be some of the sexier stuff. And the sexier stuff to me is more of the Bezos view of space than the musk. Musk is let's get off planet, let's go to Mars and colonize. Bezos says let's take all of our dirty shit off of Earth and manufacture it outside of our atmosphere and bring it back down. Amazon prime, same name delivery. But coming from space, I buy that vision.

Coming up after the break, these two.

Ideas of the mirror world and the metaverse are really important. The mirror world is basically saying we're going to have a layer of reality that's closer to augmented reality, that's going to be capturing all the information around us, making it machine readable and adding value to your everyday. The Metaverse is, you know, our kids are already in it. I mean, Roblox and Minecraft.

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Hey, friends, it's Karamo, talk show host, life coach and your next best friend. You just don't know it yet. I'm hosting a new podcast called Start it on Brotherhoods. We're going around the world to explore male friendships and all the wins, challenges and bonds that are made in WhatsApp group chat. And that's exactly where you can listen to it right in the app. It's streaming on the official WhatsApp channel. Just open the app and go to the updates tab to start listening. While you're at it, message your best friend and make sure they listen too. I'll see you there.

Let's talk about exploring new worlds here on Earth, specifically. Earlier you mentioned the metaverse. Why is it worth paying attention to?

Well, you know, I hate this term because I love it. And I love the term because it's a brilliant one that captures the sort of infinite possibilities and the counterfactuals of people to imagine things. I mean, we live in fictional world today, right? I mean, we simulate our experience through Hollywood movies and the best fiction and literature. And now we get to visualize it and explore worlds that we never could have. I also like Kevin Kelly's term. And the reason I hate the metaverse world, by the way, is because Zuck has now co opted it, right? We're going to be the metaverse company as he does. So there's something that suddenly has this evil valence and tinge to the metaverse. But I like Kevin Kelly's sense of the mirror world. And so to me, these two ideas of the mirror world and the metaverse are really important. The mirror world is basically saying we're going to have a layer of reality that's closer to augmented reality, that's going to be capturing all the information around us, making it machine readable and adding value to your everyday. So the trivial thing you might already experience if you wear an Apple watch or you're, you're traveling about 3D space, it tells you to make a left or a right or a turn or whatever with a little haptic tap. That's going to become much more Rich and visual, particularly if you're wearing very simple goggles or glasses. I think that today's glasses are cumbersome. I don't actually really believe in VR. I think it massively underestimates people's willingness to submit to a 10, 20, 30 minute duration to be in these things. We're still social primates. We want to be connected to each other. I just think that that's going to add an interesting layer. The Metaverse is. Our kids are already in it. I mean, Roblox and Minecraft and any sort of. I mean, you could argue Zoom itself. I'm talking to you through Zoom. I'm not looking at you right. You and I sit and have dinner together. We get to kibbutz and have some drinks and talk and whatever. There's a different je ne sais quoi of the cadence of our conversation. Instead, I'm looking at a Simulacrima view. I'm looking at a bunch of bits that are transmitting nearly at light speed through fiber optic cables, but it's not. Not you. And so I just think we're slowly experiencing this bit by bit, pun intended. And eventually the real and the unreal start to blur. And that, to me, is one of the really interesting opportunities. Who's going to be doing it better? Who's going to be producing the really good content on top of the layers? Who's going to be ingesting reality with ever higher fidelity? And you see this as well. There are companies. We just took one of our companies, Matterport, public. They started off the shelf 3D cams, the kinds that Microsoft, Xbox used. Then they said, wait a second, what if we do this in a array of these cameras and rapidly capture 3D spaces? So, okay, great. Who cares about that? Well, it turns out real estate and real estate is now booming because, particularly during COVID you couldn't go and visit houses. People wanted to buy a house. You take a matterport, you're zoomed into the Metaverse. You get to navigate like you were playing doom3d going upstairs, downstairs, perfect pixel, high fidelity. So that kind of stuff you can see, not just incrementally, but step change is going to keep getting better and better, and I think it's going to become more widely adopted until we're not even calling it something like the Metaverse or the Mirror World. It just is.

Can you think of any technologies that you think are underhyped or overhyped?

Well, overhyped for sure. Is quantum. Quantum anything. Quantum flapdoodle. I'm on the Board of the Santa Fe Institute. Marie Gillman is one of the founders there and he coined this term years ago, quantum flapdoodle. I'm trying desperately to bring it back. Flapdoodle is bs, right? And so quantum is just talked about in every article, every foreign affairs, every think tank. We talk about the rise of AI and 5G and quantum. Why do people invoke quantum? Because it's one of those terms that embodies something that's just over the edge and also has a huge amount of ignorance, arbitrage. People don't understand it. And so when you talk about it, you sound like you're sort of smart. You don't want to sound stupid by saying, but the reality is we've had nothing so far from quantum computing that a supercomputer can't do. I'm not convinced that it's something that is going to be relevant. I was just riffing earlier today. There was some headline that I've seen, probably printed every week or month for the past 30 years. Will quantum computing reveal consciousness?

No.

We take one thing that we don't really understand with great resolution, consciousness, and we take another thing that we don't understand, quantum computing. We put them together into this like spiritual mumbo jumbo, metaphysical flapdoodle. So quantum overhyped. Almost everything that's been funded so far has been fraudulent. And everything else has some weird milestone that nobody else can sort of referenceably care about. Like we just got 300th nanosecond quantum bit entanglement and people are like, oh my God, that's amazing. And then you ask them, what does that mean? And they're like, we don't know. So quantum overhyped, underhyped. I really do believe that AI and biotech, when you look at where AI has gone, it started with speech and text and then you started to see it in pattern recognition and photo recognition again today. I find it amazing still, whether it's surfacing old memories on Google or being able to just type any number of descriptors and pull up old kids photos, that still feels sort of magical. Then AI went into more sophisticated things and DeepMind, honestly has been, I think, doing a good and relatively ethically positive job on this. But the recent news that they had with AlphaFold, which really is an extension if you think going back. And interestingly, both of these technologies came from the gaming world, which is one of the great tenets I love. Both of these technologies being Alphafold and folding at home, both came from gaming. The thing that I love about Gaming. Anytime that an adult says it'll rot your brain, which they typically do with gaming, it always presages the next $10 billion industry. Now of course, gaming itself became huge. But the offshoots of gaming, I already talked about Matterport doing 3D scanning, taking these Xbox cameras and assembling them. Now the same things that when we were using our Xboxes in massively parallel ways or our PS4s to do folding at home to try to decode how a protein actually folds. Alpha Go or AlphaFold from DeepMind is able to, from the called LEGO parts, predict what the structure of a protein is going to be. Now humans have figured out using pretty cutting edge microscopy techniques, about 200,000 of those AlphaFold was able to predict not only the ones that we've already discovered, but another 200,000 or so and they'll be able to do millions and millions more. This to me is a really big deal because it compresses the time. It would have taken decades to be able to predict protein structure. Now protein, protein interactions will be the next thing. We've got a bunch of companies that are focused on that, trying to figure out how the protein goes from its base components into the actual structure, the function that comes from that, moving parts inside of a protein. All of those things are gonna become quite literally, if you take the space analogy, the targets to figure out how a molecule locks onto a protein and then tweaks it and ultimately creates some effect, which is what we call drug. And that's a whole other area where the scientific instrumentation to be able to let us see inside of a cell in real time and see what's happening is just going to be absolutely magical. That's a technology we never had before. I've equated it to looking at a security footage cam of 7:11 and you look at 7am and you look at 3pm and you see that the store was ransacked and you have no idea what happened in between. You just had a starting photo and an ending photo. That's most of what the imagery we do today with drugs or cells is we found a Nobel prize winner, Eric Betzig, who was actually looking out to the stars and had this crazy technique to change the resolution. And if you flip it, instead of looking out to the celestial outer reaches, you look at the inner space of cells. You can actually get below the diffraction limit of light, which is insane. Which means that you can see subcellular structures in real time. You can look online and see the videos of this. This is what do you want us to know about Prizon? We decided, hey, let's start a company around this guy that can sell these machines. Well, we recruited another amazing guy, Robert Tieshan, who was the head of Howard Hughes Medical. And he in turn recruits this incredible guy who ran all of Merck R and D, Roger Perlmutter. And both of them say, yes, geniuses, except we're not going to sell these microscopes, we're going to keep them proprietary so that we can discover drugs. That became a company called Icon E I K O N. And it's absolutely incredible. Now you're looking at that 711 security footage and you see every second of what's happening in the cells. You introduce a drug into the cell, you see how it's metabolizing, how it enters the nucleus. And I just think that those kinds of insights are massively underappreciated. The AI and the instrumentation that's going into science is going to be a big, big deal. Another quick related area, scientific labs are going to be automated. I mean, the same way that we have AWS and we look at the shift from CAPEX decisions of everybody trying to build out their own server farms to go into AWS or Azure or Google Cloud and that became an OPEX decision. The same thing is going to happen in science. Biotech labs, Big pharma are going to take significant portions of their R and D budgets. And instead of having these labs or instead of going to these real estate companies like Alexandria Real Estate equities that are by Cambridge and Route 128 and La Jolla and Scripps and San Fran South Bay, they're going to go to these cheap electricity places in the middle of nowhere that are basically labs that are run by robots. And the scientists will be freed from their white lab coats and their wet benches and they will be sitting on the beach in the Bahamas just like a musician might. And instead of pulling up Pro Tools or Logic or GarageBand and mixing the instruments on their iPad, they will be pulling up centrifuge to titration robot to this speaker and they will be setting instruments the same way that we use these iPad based tools to run science in the future. And I think that is massively underappreciated.

I'm just curious to get your take on a few categories. Well, let's go back. The difference between being a visionary, I've always thought the line between sometimes being a visionary and fraudulent is your next round of funding. What would happen if Elizabeth Holmes had raised another $100 million and registered some progress around that machine. I forget what it was called. Anyways, do you look at any, I won't say individuals, but do you look at any companies right now and think they're bumping up against that line of just kind of. It's starting to feel very, very shaky. It feels like we've reached pretty far into the barrel with a lot of the specs and how just this. It feels like we're surfacing a lot of sediment right now.

Well, one 100% correct. The line between visionary who sometimes can be delusional and somebody who wittingly knows that they are lying is so thin. And by the way, the best con men are women, the best liars. They lie to themselves. And so it's hard for us to even detect that they're lying. Right. And so that's another theme, by the way, that technology plays into, but I'm obsessed with, which is the arms race between deception and detection of deception. Naturally, women are better at it than men. Technology can play a role. Technology also dupes us. But it's a fascinating thing. It's. And it's found in everywhere from sports and business and military and technology, of course. So if Elizabeth would have continued to raise money and by the way, some of her backers, Tim Draper and other people are true believers to this day that she wasn't conning them. It's a very painful thing to recognize. I would say that when the cost of capital gets low, it's like a tractor beam for the future. And you take these far out 20 year projects that become these 20 month frenzied ventures and that's sort of a good thing for society because 99% of those things will fail from the detritus. Things will get picked up. They become the combinatorial fodder for the next thing. Progress continues. As old friend Jim Surowiecki said, in greed and avarice lies the hope of progress. And I've always loved that. We're also, fortunately or unfortunately, because of all of that, in the golden age of fraud. And so I'm friends with a lot of short sellers and they keep me honest. And you look at that, the balance sheets of these companies, and again I mentioned before that I'm very skeptical and critical, very publicly of Elon as it relates to Tesla. There's no doubt in my mind that the games that have been played there over the past 10 years, you can't deny, look, he's making real cars. The fan following is something that it's religion. You never want to really bet against it. But the accounting shenanigans that people have been able to get away with and fake it till you make it, get the money and then cover it up. I just think not just that company but many companies right now. It's like when the tide goes out, everybody's going to be, there's going to be a naked orgy of fraud.

Yeah, it feels the way, by the way, I said exactly that when the Stock was at 50 bucks. But I do agree with you. I put together a prediction stack every year and one of the predictions that I'm feeling better and better about and I haven't officially made it is I think SpaceX is going to be worth more than Tesla within 5 years.

I agree. I thought actually the two companies would merge. It'll be interesting to see what the legal result of the SolarCity bailout acquisition is. But I got to say, despite or not withstanding my criticism, he has done a masterful job. Not one that I respect because in the way I respect Bezos and I know we might differ about that because I think Bezos has been a great capital allocator. He has been perfect. But you cannot argue with Elon's effectiveness at being able to persuade people, capture money, the ledger domain, the misdirection. I mean it is like the prestige, literally it's the modern prestige, totally.

It's become kind of the core competence of CEOs, raise cheap capital and then pull the future forward and make it a self fulfilling prophecy. So I'm curious to get your thoughts on the crypto space.

Look, I think this is another area where there's got to be a shakeout of all of the fraud and the pumping and the hype. I am worried about a few different things here. Obviously ransom, very big deal, very big problem, massive dog whistle invitation for huge regulation. There's no doubt that you're going to see something like $10,000 limits, which also probably means that you're going to see an abundance of 9,999 transactions, dollar transactions in crypto. Gensler I think is just coming out this week and is talking about SEC is going to be looking really to protect the little people who I think are being exploited now in the same way that a company isn't a fraud and as long as they raise their next money, nobody's really being harmed. As long as these things keep going up when they start levering and then all of a sudden there's 50% or 70% drawdowns, it's a big deal. The Other piece of this though, which is more on the conspiratorial side, Good friend Mike Green has outlined this very well into a lot of criticism, but it's also reached some highest levels of government is looking at things like tether and the relationship again with tether and certain foreign sovereigns, their ability to use that to print dollars is just a messy mess. So if you want to speculate for sure, I own Bitcoin, I own Ethereum, I own more of the latter than the former. I do it as a speculative justification so that I can criticize some of the people that are just absolutely hardcore purists. And, and I think that eventually we will see digital US dollar, there will be much more sovereign control. And I also think that you're going to see a continued bifurcation on the currency side between China and the U.S. just as you're seeing a cultural, geopolitical, military, Internet bifurcation between these two cultures. And there's nobody that wants crypto more than China. I mean the complete means of surveilling every transaction and doling out credit and social credit correlated to it. It's just, that's inevitable and worrisome.

But are you saying they want their own nationally sponsored digital currency or they believe crypto would be good because it undermines USD?

No. Any Bitcoin or Ethereum holdings in China will be converted into some digital RMB by mandate. That will be complete sovereign control over their currency.

That's interesting because that's a bearish call on Bitcoin. Whereas I thought some of the stuff, and maybe I'm not thinking about this correctly, I thought some of the recent actions in China would be bullish for Bitcoin as a lot of capital doesn't want to be trapped and goes into Bitcoin.

Well, if you take the maximalist view, nothing is bad for Bitcoin. So every time that China has come down, what do they do? They point to something 10 years ago where China was cracking down. They're cracking down on the miners, they're cracking down on your ability to hold it, they're cracking down on wallets, they're cracking down on. The reality is, I have no idea. I know that there are smart people there in the minority who are very talented and really focused on the technology and the protocols. And I think that those people deserve the attention and the capital and the currency that they're getting. There's all these follow ons and promoters and over time they will shake out and the world will be better for it.

So Josh, I Want to do a hard pivot or turn left? Here I met you and your wife, and your wife struck me as this incredibly impressive person. You're obviously thinking kind of way out around in a very scientific kind of. You just feel like an engineer to me. The way you look at the world, you just look at it through, I don't know, like a cleaner lens somehow as a dad, like, what are your observations on parenting? We have a lot of young men who listen to this podcast. What are your thoughts and observations and advice to dads?

Well, it's interesting because we all try to put this cohesive narrative together of our life, or I think actually relatively happy people do that, right? And we tell ourselves a story about where we came from and where we're going and what we stand for. There are these two quotes that I love and to me, both play this role that are everything that I do professionally. And then as a dad, this mix of total humility and aspiration. Carl Sagan had this quote that was, somewhere something incredible is waiting to be known. And Eden Philpott said this thing. It was very similar. The universe is full of magical things patiently waiting for our wits to grow sharper. Okay, so as an investor, that's what I feel like my mantra is, right? Be able to constantly look at the edge of the circumference of the unknown. I always say lux is Latin for light. You shine a light on something, on the outskirt of that light is a circumference of darkness. It reveals more and more that you don't know. And so there's something virtuous about pushing back that circumference, enlarging the circumference of the spotlight. As a parent, I can tell you with three kids, 11, 8 and 5, I am an amazing dad for an 11 year old girl.

Girl.

I have no idea what to do with a 12 year old girl. I have no idea what to do with a six year old boy. I have no idea what to do with my middle child, a nine year old girl. So I feel like it's like a video game. I level up, I learn the rules, I beat the boss. I could play it again. I got the muscle memory. And then before you know it, boom. They've aged and gone to the next level. And I have no idea what I'm doing. So there's a humility that I feel because every day these kids are changing. I have aspirations for them. I have certain timeless principles that I think will be there. A lot of that has to do with I want them to be empathetic. I want them to be aggressive and assertive, the one thing Lauren and I have not figured out. And she runs Impactive Capital, it's an activist hedge fund. And she's brilliant on the public side. The only thing I ever ask is, please don't short my companies once they go public. But I want them to be happy, of course. But I want them to be really driven. Lauren and I were both really driven. She grew up in a nuclear family, but she was between an older brother and a younger brother, had gender dynamics where she wasn't the one that was expected to be the most successful and she wanted to be the most successful, and she has been. I grew up no dad around, chip on my shoulder. I always say that chips on shoulders put chips in pockets. I like finding people who have that thing that's in them that's broken. Doesn't matter how much money or achievement they get, it's just always going to be this fire inside that's pushing. I mean, you have it. It. Others that we know in common have it. It's actually one of the reasons I always say people in Silicon Valley or elsewhere just to sort of make a mockery of it for a moment. But the mindfulness and meditation, that is great for the individual, it can absolutely give you reflective happiness. It is horrible for society. We need masses of disaffected people that want change, that are not happy with the status quo, that are trying to break out of where they're from. If you had complacency and happiness, you'd have no progress because nobody would be competitively motivated to want to change somebody. And I worry that the kids are growing up with stuff and access that I never had. And so how do I engineer that sort of hardship into them? I have no idea. But that to me is like the biggest problem to solve as a parent.

Any parting thoughts on any advice for young entrepreneurs?

The single best thing that you can do as an entrepreneur is be able to be a good storyteller. Storytelling lets you get people to pick up where they are and move to join you on some mission of something that doesn't yet exist. It lets investors reach into their pocket and decide amongst competing alternatives that you are the one that they want to bet on. It gets journalists and product people and customers to decide that you're for real and that they want to bet on you. So storytelling, because we are the storytelling primates, is the single most important thing that you could do. More important than getting an engineering degree, more important than learning how to model and Excel. Learn how to tell a great story.

Josh Wolf is the co founder and Managing partner the of of Lux Capital, a firm that invests in emerging science and technology ventures. He's also a columnist with Forbes and editor for the Forbes Wolf Emerging Tech Report. He joins us from Sagaponic. Josh, stay safe.

Scott, you too.

Our producers are Caroline Shagrin and Drew Burrows. Claire Miller is our assistant producer. One of the things I love about Claire is she's got an easy name. Well done, Claire.

Well done.

If you'd like what you heard, please follow, download and subscribe thank you for listening to the Prophet POD from the Vox Media Podcast Network. We'll catch you next week on Monday and Thursday.

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