Josh Wolfe – Caution and Innovation at Lux Capital, Venture is Eating the Investment World 8 (Capital Allocators, EP.236)

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Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access Premium content@capitalallocators.com Marc Andreessen from A16Z famously proclaimed a decade ago that that software is eating the world. His prophecy has proved prescient. Cloud computing enabled the rapid cost effective deployment of software. Startups flourished and venture capital returns have been phenomenal. Venture capital is a fascinating investment area whose many days in the sun shine brightest. This year, institutional portfolios with large venture allocations soared to their best year in history. And yet parts of venture are unique in being both efficient and unactionable. Many believe that Sequoia or Benchmark will produce returns at the top of the pack, but there's not much action anyone can take to participate. This mini series explores the industry, focusing on some favorites of institutional investors who are still investable to those in the loop. Each has a great differentiated story to share and something to prove. That said, this field moves quickly, so as the disclaimer goes past, accessibility is not a guarantee of future capacity. My guest on the eighth episode of Venture Is Eating the Investment World is Josh Wolf, the co founder and managing partner of lux Capital, a $4 billion venture firm that invests in solutions to the most vexing puzzles of our time. Josh described his background in Lux's approach back in 2018 on the show and and that conversation is replayed in the feed. This time around, we dive into Josh's cautious perspective on the venture landscape and how it impacts Lux's investment process. We then turn to updates on companies we last discussed and a handful of directional arrows of progress, including smell, deception and detection, the tech of science infrastructure for the Metaverse, Crypto, Elemental Power, Space, and Africa Ventures. Eating the Investment World is brought to you by Omni. Omni helps private capital investors track and analyze individual deals while providing comprehensive financial and legal insights across their portfolio. It houses the largest database of investment transactions in the private markets extracted directly from executed agreements, including the legal terms, co investor details, liquidity preferences, valuations and round sizes. With that information, investors can make faster investment decisions, benchmark deal terms, understand market trends and enhance portfolio analytics. Omni's clients include leading venture funds, corporate venture groups, family offices, and endowments, including a number of past guests on the show. You can learn more at Omni Fund. That's a U M N I fund. Please enjoy my conversation with Josh Wolfe in the eighth episode of Venture is Eating the Investment World.

Josh, great to see you.

Good to see you man.

So the last time we did this, a couple years ago, you made the comment that you thought there was too much damn money in venture, and I thought maybe we'd start with your perspective on the venture landscape today.

Well, first of all, clearly I was wrong because there had to be a lot more to come in. So yeah, being really is the same thing as being wrong and it's probably triple what it was then when I thought there was an excess of money. There is, as I've described it now, an excess of excesses. And those are really excesses in everything from the pace of capital formation, the amount of venture money that's going in total, the amount of firms that are being founded or formed anew. And so it's crazy. Valuations are through the roof. The velocity of deals being done is through the roof. The amount of diligence being done is inversely proportional. We had a company that tipped off a fundraise to a large growth investor on a Sunday evening through a board member on Monday. They met at noon, at 1pm the meeting ended at 1:12pm they had a market clearing offer in their inbox and accepted it. That was about two and a half times what the most competitive next round term sheet was. So there is too much money. And that means that eventually the great things that we've seen over the past few years, which are exceptional returns, not just unrealized, but realized and returned and distributed cash to LPs, is going to either slow down or reverse and potentially be negative, which is something that few can fathom today.

Let's say we're sitting here two, three years from now. Walk me through upside downside of what that means for this ecosystem.

Well, so take this thought experiment, which is something that we wrote about in our quarterly letter to our LPs recently. Let's imagine continuation of the near present extrapolated into the near or intermediate future, which is everything continues to be great. In fact, not only does it continue to be great, it continues to get better. And so everything qualitative from like a cure for cancer or Alzheimer's Covid completely eradicated. Geopolitical chaos and stress is remediated and people are singing Kumbaya and we have total harmony. Crypto, which was once a speculative asset class, now has true infrastructure embedded in the financial ecosystem. And it has just gone from several trillion dollars to close to $8 trillion of market capitalization. The global index on disruption and innovation and all of the pools of capital that have formed from the Cathie woods et al in Ark Invest continue to just compound and suck in capital and capitalize businesses. Money is flowing in from LPs, endowments, individuals, retail participation is through the roof. And just innovation is just amazing. Right? And so it's this utopia of technology and innovation and speculative exc. Incorrect. Tesla is a $10 trillion business, has acquired Toyota and GM. I mean, okay, so we can continue going on with this absurdity, but the flip side of that and Obviously, I don't believe that that will continue. It is hard for me to actually see a lot of great incremental news that could get better than it is today. Better expectations than people already have baked in today. Fundamentals can surely improve. But it feels hard to me that people's expectations could go much higher than they are today. On the flip side, most people are expecting that you might have a spike in unemployment, you might have a huge spike or persistent one in inflation, you might have currency issues. But generally they are not thinking that there's going to be like a huge absolute blow up of bubble. And when you go back the last time when we formed our firm, it was on the cusp of the dot com boom and bust. Everybody was chasing optical networking and dot coms and we decided to pivot and focus on a different area that nobody else was looking at, which was the physical material sciences and all the crazy stuff we do. But you had a drawdown that wasn't like many people say today. Well, you know, young people just experienced a terrible drawdown. In March of COVID you had a drawdown that went from peak Nasdaq in roughly February, March of 2000 that took two years and a 78% decline. And then it took another 12 years to get back to that point, even including dividends that were invested. And if you add inflation into that, it was like another 17 years. So that was a really painful long band aid being pulled off with hairs being pulled for two years. And so you could see that same sort of thing happening now when you look at like ark invest as one proxy of this or the Russell 2000, I think all but four or five names in her portfolio at Cathie woods portfolio are in bear market territory somewhere between 20% down and 65 or 70% down. And so at some point people start shifting their mindset from buy the dip, which has been the basic inducement that everybody has used over the past few years. And people start looking and saying, wait a second, these losses aren't temporary, they are permanent. There is a rerating. The expectations have been lowered. The incremental capital that was fueling all of these things is not there. And then you see mass divestitures and liquidations and a continued downfall of these things you also haven't seen in close to 14 plus years, at least in my world, meaning 2007, 2008 crisis, rifts, reductions in force, mass layoffs, liquidations, margin calls, even the really tragic macabre things of like suicides and people just feeling like their reputation and they've met financial ruin. And so we haven't seen that kind of stuff. That is the stuff that rings the bell at the bottom. And right now nobody is ringing the bell. But my gosh, the excess of excesses is just absolutely observably abundant.

One of the differences today from that period of time, and particularly you can go Back to the 2000s, 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?

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 5 or 7 or 8 or sub 10 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 ten 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, buy, buy, buy, buy, buy. 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. And on the whiteboard every quarter there's six, seven, eight names that are there of gps that are coming back to market. Those are the people as they plan their budget for their allocation as a percentage of their total endowment or whatever they're investing, that a certain amount is going to go into VC and private equity or VC and P and al. And it used to be eight names. Today he said he was describing the whiteboard and it looks like a scene out of A Beautiful Mind. Every square Inch is covered and the number of people that are coming back to market, the number of thematic funds or geographic or regional funds, their expansion. And it's a rational thing for a GP to do, for the most part to be able to say, look, we want to get mind share. Our peers are expanding, so we have to expand. Our peers are getting bigger, so we have to get bigger. They're competing with larger full life cycle investing. So they're not just seed investors, but they're also there to support your A and your B and your C and a crossover fund and maybe even a public market investing vehicle. And so at some point, LPs say, well, we got to slow down, we can't do this. And so I think what happens is LPs who have gotten access to some amazing GPS that they never could get access to before will be faced with a very hard decision. Do we say no when we've been trying to get in? And by the way, if we do say no, we know that there is a queue, a line of 10, 12 other LPs that will jump and take our place. And so that's going to be a very difficult investment committee decision for LPs to make. For the ones that do, you will see some GP say, okay, wait a second, they're telling us they can't invest now. It's not that they don't want to invest with us, but they're asking, can we delay our fundraise? We just raised six months or nine months, or can we slow our pace or can we just delay the closing? Or can they participate in a second closing in Q1 of next year, 12 months out, or something? Well, if GP say, look, we really value the relationship that we have and then we've built over time, they may decide to delay that. If they delay that, then they're going to say, listen guys, we have to slow our pace. Which means we have to really think about which companies are going out. Because we have to tell those companies, you can't spend the money that the rate that you're spending, because if you keep doing that, we can't participate pro rata in the next round. And so I just see the rush and I can visualize this as like a ton of people just coming to the door and people like the bouncers and a nightclub being like, whoa, whoa, whoa, back up, back up, back up. And slowly, bit by bit, it just trickles down in the opposite direction. And it may happen more slowly but more fiercely than anybody expects.

So until that happens, you don't operate In a vacuum. So you have your capital, you're investing it. How have you gone about the investment process with this wave of capital and competitors looking for the kind of companies that you do?

Well, there's two extreme binary options. One is you participate full bore and you compete with every last incremental dollar trying to top tick people and beat them on price. Or if you're not beating them on price, beat them on something qualitative or reputational where the entrepreneur would choose you over it. Or, and that's not what we do, decide to start companies de novo and have total price control. And so I actually think that in this moment where the thing that is abundant and you can look at this in any situation, right? What's valuable in the desert? Water. So when a resource is scarce, then it's super valuable if you can find it. Right now what's abundant are high prices. Companies that can come in any day. Anybody that can be a venture investor, an early stage investor, everybody's got a roommate who just made a lot of money in crypto or in stocks or in selling a prior equity stake and is now an investor. Everybody's got somebody that they know that's starting a business. So there's an abundance of just deal doing, deal making, high prices and money. What there's scarcity of is new companies being formed that are scientifically rigorous, that are scarce, that are an n of 1 or 2 or 3 or 4 or 5, meaning sub 5 companies that can do a particular thing because they have a true intellectual property moat. There's a Nobel Prize winner that figured out how to make a microscope that can see into cells in real time. There's somebody that developed an engineered capability to launch things into space in a certain way. And so we are spending more and more time on the deeply technical, very hard to do under five competitors and helping those entrepreneurs start those companies because we're not playing in an auction game.

Have you thought about in this, call it power law world, it feels like so much of the interest is software and infinitely scalable technology, Internet, crypto, whatever the case may be, where so much of what you've done is hard science. Do you see that same interest in those being the scarce assets? If you can't really necessarily demonstrate this is going to have infinite scalability like some amazing software would.

We've always been deeply jealous of the people that invest in software companies that on very capital, efficient means can become these multibillion dollar businesses. And you get metrics and you get quick feedback. So the virtue of those Businesses is my God, the scale is just incredible. And you truly have deca billion dollar businesses and $100 billion valuations. And those are game changing businesses where winner can take all and market share can be in excess of 60 or 70%, margins are high and they're great. The problem is there are a lot of competitors in many of those businesses. And often the reasons why one becomes that runaway success, even in the power law, distribution within a sector is sometimes random. Sometimes it's related to lock, sometimes it's related to a key sale, sometimes it's related to executives, sometimes it's related to the capitalization and the momentum and the perception. But it isn't necessarily because of the better technology. The hard sciences are more complicated. So you have fewer competitors that are actually trying to start these businesses, fewer competitors that are actually trying to fund these businesses. Because the time that we sometimes have to wait is two, three, four or five years to get a readout. Does the technology work? Does the chip work on a tape out? Is the drug going to work in biotech? Are you going to be able to actually launch that bus, that vessel or vehicle into space? Will the rocket work? Will the brain machine interface actually connect to people and entice the interest of the big tech companies to want to acquire it? So those are harder questions to ask, but it's in a sense easier as an investor because there's less competition. And so that's always the trade off is do you want to try to compete and have a 1 in 50 chance of the deca billion dollar company? And that's very alluring and particularly the feedback and the information that you're getting. Or do you want to invest with a higher probability, let's say a 20% chance because there's five or fewer companies and maybe you're not going to have a $100 billion outcome, but it might be a $10 billion outcome.

I'm curious how internally, with all of the knowledge that you have and decision science, everything you've done, Santa Fe Institute, how do you turn that into decision process internally, particularly when there's such a fervor in the external environment, a lot.

Of it is where do you find discipline? The timeless thing that I always took from Santa Fe Institute was the balance in ecosystems and organisms that are looking for resources in a scarce environment between exploration and exploitation. So how often are you foraging and looking and then when you find something, when do you double down on it? Now what's interesting is obviously when you have a team in the public markets and the Private markets, there's a different forging function. Public markets, you have a known universe, you have screens, you can find all kinds of things. In the private markets, it's actually a lot harder because you're looking and maybe you're going down this side ravine and then you find this dark tunnel and then there's a bunch of people like, oh my God, there's an entire party of brilliant people that are here that we don't even know were on the map. And so that to me is the most exciting thing is finding people that are off exploring something that nobody else is paying any attention to yet. And that itself is very rewarding. But then you also need, and this is the benefit and it's interesting instructor between public and private markets. In public markets you might have sector specialists and people in deep domains that are reporting to a single portfolio manager. Here we have partners in a partnership that are basically pulling somebody like me back from the ledge and finding disconfirming evidence of like, okay, that's a total waste of time because the market sucks, or the entrepreneurs aren't that great. Or as you were noting before, the financing risk of other investors, interest is going to be very low and therefore the financing risk is going to be very high. So a lot of it, I would say from sfi is the balance of exploration and exploitation. That's the number one thing. The second thing are power laws. And whether this is earthquakes or market movements is just understanding that in any situation it's 20% of the stuff, and in some cases it's 1% of the stuff that's going to account for 80 or 99% of the value. And figuring out what that is. I always think about this, and you and I have talked about this before, but value and risk are like the first law of thermodynamics. Energy is not created or destroyed. Every risk that we can identify, which is really itself a function of imagination. And I've always said that failure comes from a failure to imagine failure. So what's all the stuff that can go wrong? Like if we are wrong in this thesis, if we identify a priori, the people might suck. They might not be able to raise money, the technology might not work. There's a competitor that comes out of nowhere that we weren't even thinking about the customer. Customers won't like the product, let alone far outliers. Like there's a me too issue, or the person dies or whatever those things are. How can we throw time and talent and money at this? And as our network has gotten Better. Our talent that we can throw at people to reduce risks is way better. As our reputation has grown, our ability, once we write a check to somebody to get a series BCD check is just incredible. And then a lot of it comes down to our judgment, which is constantly being refined and often wrong about people. I might look at somebody and be like, wow, they remind me just like Ted. They seem like they're super nice and thoughtful and menchie on a mission and you know, but then maybe you spend time with them and like, wait a second, they're like his evil doppelganger, right? They're the exact opposite. So a lot of it is thinking about how do we reduce the risks and create value by being imaginative and killing them. And in this environment, the amount of diligence that the average investor is doing to identify those risks is cursory at best. It is like showing up for the finals exam if you're in college or you know, your kids and just winging it. People are just winging it on judgment. And I think that they're looking at it and whether it's FOMO or whatever, they're saying, look, on balance, the error of making the commission risk and backing this person versus the error of potentially missing some high flying decacorn or unicorn, it's better to just write the check. And we just disagree with that.

I'd love to circle back when you were last on the show. We talked about two of those wormhole companies, Control Labs with Mr. Reardon and VariantBio, and we'd just love to hear an update. I know Control Labs is no longer in the portfolio. Maybe tell a little bit of that story and then go through Variant.

Well, Control Labs will always be in my heart. Reardon and the team there will always be part of the Lux family. But I tried moral suasion, financial suasion. I tried everything. I literally had my kids sending video messages to try to convince Reardon and the team and the board to not sell to Facebook. Facebook made an initial entreaty, we rejected it. They effectively nearly tripled their offer. It became more financially attractive. And I have to tell you, there's a moment with great regret, like if there's one thing I learned here, it is making sure that your founding team, many of whom in our case are not second time software entrepreneurs that made tens of millions of dollars, but in some cases are scientists that were making 50, 60, $80,000 at best. And this is their first real taste of money. We were, and this was pre Covid on a zoom on a final board approval for the Facebook sale. And I looked at one of the co founders who happened to sit in one of the common seats on the board. And I text Reardon, who is one of his co founders, and I'm like, is he in a dorm room? Is that a bunk bed? Is he in a dorm room? And what I realized was that this was life changing money and the person was going to make 95 or $100 million personally. And I'm sitting there telling him, no, no, no, wait for 400 or 500 million. There's no concept of a difference between 90 and 100 and 400 and 500. And he's sitting in a dorm room at Columbia, still living with bunk beds. And what I realized was what I should have done, which was a colossal and historic mistake, was make sure that we gave some interim liquidity, because if we had put a few million dollars in that founder's pocket early on, the ability to stay the course would have been way higher. So that was a deal dynamic that came down not to the technology, it came down not to the market, came down to the risk preference and the value capture for an entrepreneur that I had completely overlooked. So just a personal life lesson I learned on the technology itself. I'm always looking for these directional hours of progress. This was a very clear directional hour of progress. The way that we were going to compute, it was going to be very intimate with us. The interesting thing about Facebook is Facebook had a very deep motivation to not be beholden to Google or Apple so that they could access you or you could access the Internet. Today, if you access Facebook, you have to pick up an Apple iPhone or you have to pick up a Google Android, or you have to log in on your MacBook or your IBM PC or whatever, or Lenovo PC or whatever it is. And they don't want that. Nor does Zuck want to be known for the person who either reinvented ads or destroyed democracy. He wants to be the person who reinvented computing. And they're not going to necessarily do that internally. They're going to do that through acquisition and then a lot of investment. And that's what they're doing. And they have thousands and thousands and thousands of people up in Seattle recruiting away from Microsoft and Amazon and elsewhere and Facebook Reality Labs, that's now Meta Reality Labs. It truly, I think, is going to push the frontiers of computing and the way that we interact with our hardware and our devices and the conception of computing, which is not us in front of qwerty Keyboards and screens, but just everyday compute that's all around us in an immersive way. In Control Labs, if you watched Zuck's presentation of the metaverse as he introduced it, is wearing one of these wristbands and navigating the world by just making simple gestures. And it was a beautiful thing to see.

How about Variant Bio?

Variant also started with a similar conception. This one born in science fiction, which was X Men. Take the professor X cerebro that goes out in the world and finds these outlier individuals that they call mutants in fiction. And the team hates when I say that, but these are outlier individuals with outlier traits and outlier parts of the world. We recruited an incredible team based on this crazy idea. They crystallized it with scientific credibility. It's incredible combination of computational geneticists, ethicists, anthropologists. I went to the Bill and Melinda Gates foundation and I recruited away their head of investment, a guy Andrew Farnham, who truly is a mention on a mission. He's got a molecular bio background, Princeton, Goldman Sachs, went to work for Chris Hone, ran the foundation there, then went to, was recruited by Bill there for a decade. And every time I met somebody that was like, oh my God, what you guys are doing at Variant? This is what I want to do my entire life. They're an immediate hire. It's just that mission driven. They're not mercenaries, they're missionaries. And it was a beautiful thing. So with that we set forth. They did 14 partnerships in the source of a year and a half even during COVID all over the world with people from the Maoris in New Zealand to groups in Pakistan, India, Ethiopia, the Faroe Islands, South America, all trying to find really interesting targets. They already found their first target. It happens to be focused on liver disease. A very fascinating situation. And they're going to be developing drugs. And then SoftBank and a handful of other investors came in and $105 million financing. I don't even know if that was publicly announced, but they are going to be well capitalized for years and are off to the races and truly going to be a historic mission driven company.

Well, you mentioned directional arrows of progress. It's always fun to talk to you about what your favorite ones are today.

Well, there's near term and long term ones. One that I've talked about a little bit is smell. It is an obsession of mine. I can pick up my phone and I can conjure a car, I can conjure a meal by pressing a button. Your phone is remote control for pretty much every desire you have. And you can also capture moments that are meaningful to you. Sound and video and audio and still photos. And the resolution of those captures keeps getting better and better. The sound quality that you can capture and replay, the visual quality that you can capture and replay is amazing. We cannot capture smell, yet it is physically possible to be able to capture smell. Those are just volatile organic compounds that you could do with mass spectrometry, but it's something the size of a giant desktop or benchtop machine. But if you think about this, when you walk into a cafe or a restaurant and you hear a song and you're curious, what is that song? Those are invisible sound waves that go into your brain and neural signal tells you and lights it up, but you don't know what the song is, but your machine does because of something like Shazam. And so Shazam takes that digital fingerprint of a sound wave and maps it to a central database and say, oh, that's the Drake song. Well, smell will be the exact same thing. You walk in and you can smell, whether it's Annie's Pretzel or Dunkin Donuts and some of those artificial smells, you can recognize that smell. And there will be a central database that when you are on the beach in Brazil, or you are in a citrus farm in California, or you walk into the bedroom from your nostalgic childhood, or you smell the shampoo of the first girl or boy you kissed or whatever it is, there's these salient moments that we will be able to capture to further enrich the analog beauty that is life that is captured digitally. So that is an area that I'm obsessed with finding scientists, technologists, engineers. And that quest may be a 20 year one, or it might be a two year one, I don't know. But the directional arrow of progress clearly points to the ability to capture and eventually replay sent for all kinds of things.

So in that process, when it makes a ton of sense, right, all the other senses are captured on the phone. How do you go about making that into an investable thesis?

Well, the first thing I do is like this. I broadcast it. I tell everybody. Now, a lot of people say, well, why would you tell people your ideas? And the truth is, as somebody once said, that if your idea is any good, generally you have to jam it down people's throats. And so if I signal to the world, I'm really interested in this. And we do this with tattoo technologies and a handful of other things. People start coming out, it's like putting out a call, and you get all kinds of kooky, weird people that are just full of it. And then you get like real scientists. We had the benefit of actually backing Richard Axel, who is a Nobel Prize winner for discovering your sense of smell, the olfactory scent and the neural correlates of that in a company called Caliope. And I've spent time with him and trying to figure out, okay, who are the people that are at the leading edge of this field? And so you develop a network. And then sometimes I might think, oh, this person is amazing. And then I'll triangulate with three other scientists who I really respect. And they say, actually, like, maybe that person has a great silver tongue, but they're. Science isn't so good. And so it's just a process of constantly iterating. And you might find great science or technology and they might say, we can do this on a smaller scale, maybe a tenth of the scale of what mass spectrometry could do. Meaning, like instead of this giant machine, we could do it on something that's handheld. But boy, the components for this are like the big gating factor. The bill of materials is really bottlenecked by this particular thing. When we say, oh, okay, well, we actually know somebody that can develop an asic, a custom chip that might be able to help that. And so if we start to look at the combinatorial possibilities of other technologies or technologists that we know that could put together a solution to something, then that lowers the risk for us and gets us even more excited. So a lot of it for us is just running around talking to people, getting ideas and then combining them and sharing with other people. It's how almost every company that we've ever put together happened. And it is a very nonlinear going back to exploration and exploitation. It's a very nonlinear, chaotic process that slowly, over time reduces entropy and gets organized. And then we end up having enough internal conviction and we write a check.

How about other directional arrows?

Oh, there's so many. One that is near term and I feel very strongly about. And this directional arrow has less to do with a technological progression, but a timeless human nature. One which is the ever and never ending race between deception and detection. You can see deception and detection in the natural world, in animals and organisms. It's the basis for camouflage. It's the basis arguably for a better female instinct versus male. There was a very costly thing for women to be deceived by men. And so they developed a much better lie detector than men. Between sports teams, with trick plays, between businesses, with misdirection and secrecy between politicians, between states. And so there is a timeless, and we have increasingly documented this here at Lux, example after example of how there is an attempt to deceive, an attempt to detect that deception, all in pursuit of real truth. A lot of it happened also with military. And so we are in a new race on a variety of different domains. Air, land, sea, space, cyber, informational, with two main great powers. One that is actually truly a great power, which is China, and it is mostly politically driven, and one which is not really a great power, as maybe a mutual friend of ours, Scott Bessant, has said. This is a guy talking to Putin who is playing the best game of poker with a pair of twos that he's ever seen. And the truth is his actual resources and standing is not that great. But his ability to project power and create chaos on the global stage is just insane, scary in a villainous, evil genius kind of way, but in some cases admirable at how clever he is in a chess playing way. So I think that those two forces are really going to be probably the most important thing to me. More important than climate change, more important than a lot of the things that have captured the current zeitgeist, those things being China's influence globally on the effect of U.S. culture, on the effect of U.S. culture within itself on the African continent, on the technology, the geopolitics, the resource extraction, the commodities, all the rippling implications, particularly on the African continent. And so we are looking at technologies and investing pretty aggressively in every facet of air, land, sea, space and cyber, and information on things that can give the US and our allies advantages. So that is in space, we are doing rockets, we are doing launch capabilities. We have satellites. We have satellites that are capturing imagery, videos and stills. We have AI and machine learning software on top of that imagery that is able to analyze things and detect change, detect missile silos that are happening in China, or detect human rights abuses that are happening in China. Then we have communication networks between satellites and back to ground. And there's just going to be a flood of bandwidth that has rained down on Earth and a great demand for satellite antennas to be able to capture that bandwidth. Because one thing that humanity has always had is an insatiable demand for more bandwidth, which in turn will be get new applications that will suck up that bandwidth. In the air domain, you have a thrust now, an increasing concern whether you accept the DoD at face value that hypersonics were either a total surprise or not a surprise. For hypersonic, there's A standalone aircraft company that we are looking very closely at funding that is focused just on that. And it's entirely for military use. There are drones, large scale and small, and counter drones for aerial as the capability to project power has become democratized. And one of our partners, Tony Thomas, who is the former head of socom Four Star General, talks about the day of the drones when they had air superiority. But all of these thousands of DJI off the shelf Chinese drones were equipped with small bombs and being able to rain down on people. The nature of warfare has changed. On land you have autonomous systems, you have AI for being able to detect threats. At sea you have a shift from large aircraft carriers to fleets of autonomous boats. And we have a company called Saildrone that is now everywhere from the Bering Straits to Middle east and South China Sea. And. And they're going to be in some tricky waters, quite literally. And then you have subsurface autonomous systems in submarines and beyond. So the entire from outer space to deep sea is seeing technological competition in a hard power sense. One of the other technological trends in an hour of progress is adjacent to that is a never ending quest for soft power, for reputation and perception and the ability to project power. That comes from moral superiority, comes from economic superiority. It comes from winning Olympic gold medals, it comes from export of Hollywood and music and entertainment. And the US has really dominated in many of those domains. But it also comes from winning scientific prestige and prizes, Nobel prizes, Lasker prizes, et cetera. And to win prizes, you need cutting edge new tools in hardware and software to be able to do science more productively. Most of the great Nobel prizes that happened, whether it was the discovery of a single cell or the structure of DNA, was some breakthrough like x ray crystallography or some new microscope that let you do these things. So we are funding cutting edge new microscopes that never existed before, letting you see or do things that you could do before. And then we're also funding software like a company like Benchling, which is running the vast majority of the R and D for all the biotech and pharma companies for their productivity. So those are things that I feel like directionally. The demand for tools for science, what we call the tech of science, is going to have a big tailwind. And those companies will not just be speculative technology companies, they will be the future Danahers. And I think you'll end up attracting great compounding value investor types to them. So those are some areas that we're very bullish on time.

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Now back to the show. So when you step away from all of the earthly and to some extent space places, there's this big buzz about everything in the metaverse, the virtual world. I'm curious your take on whether you think that is a directional arrow of progress or not.

It is in part because people are believing in it and are willing it into existence. There's a few ways to think about this. One way to think about we take our screens and we stare at them all day. And you know, you can think about how if an alien came down to Earth, they would just see these people with their heads bowed and like, you know this. We used to complain about carpal tunnel syndrome, right? We shape our technologies and they shape us. And we would sit there with our wrists hurting and our forearms hardening and now we don't do that. But now everybody's heads and necks, you know, they get cranial spinal problems because you're all staring at your phones. We're all staring at your phones. I'm part of that too. But now Zuck et al. And remember in Anduril, which is our one of our top defense companies, it was founded by a guy, Palmer Lucky, who founded Oculus and sold it to Facebook. But the central conceit of virtual reality as part of the metaverse was take this phone and basically just slap it to your face and put it on really tight. And that's what virtual reality is. The virtual reality experiences, particularly if you get the Oculus Quest 2, they're quite magical. Kids love them, they feel special. There's a spatial dynamic where you can define boundaries that don't actually exist. And there's something to that that experientially for short periods of time, is novel. And interesting. And I think that it's a medium just like any other that people will continue to invent on. And I always love that thought experiment of imagine a world in which a person of great genius existed, but the technology didn't. So imagine a world in which Hendrix existed, but the electric guitar didn't, in which Kubrick or Spielberg existed, but the 8 millimeter camera didn't, and so on. You know, Bill Gates existed, but the PC didn't for him to develop an operating system. So virtual reality will be for some, a medium to express their genius and unleash it for the rest of the people. But I am generally less excited about VR. Why? Because I do think that there is this natural analog human desire that is hundreds of thousands of years old since the places seem to be together. So AR to me is more interesting because you and I can be together and I can have a layer of augmented reality. Most of that will be very practical. It'll talk about directions and your next meeting and a quick notification instead of having to look down at your watch, it will just be there. And then from that, it'll be a medium that people will develop upon. The Metaverse is already existing in the form of Roblox and Fortnite, where multiple people are engaged in a virtual world that doesn't yet exist. We had this back from the Sims and then Second Life and now this. So that's where you have the sort of social dynamics of representing a reality that isn't real with ever higher fidelity. In this lost world, digitally, kids actually don't care about the quality. If you ever look at Roblox, it's really crappy happy. It's like pixelated and almost like that's the point. And so there's that whole push. The more interesting thing to me is the infrastructure layers as the demand for those things increase. So one infrastructure layer is a company like Subspace. You can think of that as like the akamai for this web3 and metaverse. And by the way, the buzzwords are just like exhausting and almost on the point of nauseating. But whatever you want to call it, there's increasing infrastructure demands for being able to take regions with super fast Internet and regions with very slow Internet and have low latency between them. So if you're playing Fortnite here and you're playing somebody in the Middle east, those servers are going to be very different. And if you're in the same game, you've got to have technology that can adjust for that. And it's actually Quite complex mathematically. What's interesting about that is the same math that is doing real time protocols to render graphics for you or me, if we're in two different locations with two different Internet speeds, is very adjacent to the same technology that's being used for crypto and crypto itself. We're going to talk about maybe the speculative pieces of crypto and then like the infrastructure piece of crypto. And I think it is true. Everybody will say, well, you know, I don't know about Bitcoin or Ethereum, but I know about blockchain. Blockchain makes sense. Yes. A digital ledger that is distributed that actually tracks an asset or transaction and stores it through consensus of multiple computers makes sense. It's hard to argue against that. It would be like arguing against double entry accounting and say, no, there's, you know, let's go back to the way that it was done, writing it in sand or something like that. But I think the key difference is you have two cultures in crypto that are actually fascinating. One are these computer scientists that are trying to solve real technical problems, often mathematicians, really intrigued by the intellectual challenge of it. On the other end you have people that were basically at Burning man mostly doing psychedelics and hard drugs, that had techie friends that gave them a USB stick with a bunch of Bitcoin on it. They got rich, didn't do anything, became adherents and part of a culture and were like, oh my God, this is amazing, and then just became these sort of perma promoters of it. What's notable about both of these groups is that they've sort of met in the middle, middle and there are teams that are now comprised of people that are math and science geniuses and total burners that are basically like tripping. And they both are asking the same question, which is like, why is the system the way it is now? The people that are doing this for math and science are actually saying there's got to be a better way to do this. Like this is really like settlement on securities or borrowing or the treasury market. Like there's got to be a better way. These people are basically high on drugs and are like, what even is money? What does the world mean? And so they've sort of converged in this way and there is precedent for this. You go back to Stuart Brand, Ken Kesey and Timothy Leary and back in the LSD days of 60s and 70s, you go back to the homebrew hacker club. You always had these sort of misfits on one end and the technical nerds on the other. And they sort of both came together as outsiders. And so you have the same sort of culture here. I, as related to crypto, have come up with two views that I feel like are technologically grounded and can accept that I've changed my mind on. One is on bitcoin itself, which is people used to say bitcoin to the moon. And I became a big critic of all the perma promoters because I was like, at what point are you not taking every incremental hard earned dollar that you have and just converting it from US dollars into bitcoin? And nobody could ever give me an answer. And I finally accepted that if you accept just as a store of value, the total gold market at $11 trillion, half of that $5.5 trillion, if you just had generational shift where people said, you know what, I prefer this in the same way that I prefer Bonobos to Dockers or Vans to Keds or Harry to Gillette razors or whatever. Music today, to music 20 or 30 years ago, then you could see five and a half trillion dollars go into crypto. And today it's depending on the market crashes, two and a half to $3 trillion, predominantly Bitcoin, then Ethereum, then a long tail of Solana and other stuff. The other thing that I've changed my mind on and what's interesting is the biggest promoter or proponent here of crypto was actually the biggest naysayer and disbeliever, incredulously of NFTs. And I sort of wanted to, just to be provocative, take the counter to my partner. And I said, well, where can NFTs actually make sense? And what I came up with was an analogy of gps. GPS is real. We accept it, it's useful, we wouldn't want it to go away. There are four computers in the sky that are triangulating your location based on a chip that is in your hand or wherever it is. And as you move through space and time, those four computers have these invisible tethers that are anchored to that chip with a timestamp. And it tells you that that thing is that place. And it's like a blue dot approximated on a digital map.

Map.

An nft, interestingly, by technological analogy, is basically the same thing. It is a digital artifact, just like that blue dot representing a file or song or movie or scene or JPEG or whatever, that instead of having four computers in the sky, satellites triangulating its location, it has multiple computers triangulating and saying this thing exists at this point in time and it doesn't exist. Somewhere else. And once I came up with that analogy, and I've pushed on a lot of people to see if there's weakness in it, I realized that that fundamental technology, forgetting about the speculative assets that are on top of it of bored ape yacht clubs and chain runners and cryptopunks, that that is going to be useful. So that is to me how all of this comes together. The druggie freaks on the far end, the hardcore math science nerds on the other end, and actually coming up with the protocols in between.

I'm curious how you layer in timing on all this and you could go through it. I know you've talked about it in nuclear as well. Well, where you could be right about a directional error of progress, but it could take so long for either the technology to get there or the crowd to catch up with your thinking that it doesn't actually work.

What's interesting is the discovery of a scientific truth, by which I mean like a molecule that already exists and you learn that this is useful to treat a disease, doesn't depend on whether or not people believe in it. I mean, sure, people might not take a vaccine, they might not take the drug, but like the truth of that molecule's ability to do its thing does not depend on other people. Something like crypto or something like launching a low earth orbit manufacturing operation like we did with a company called Varda, entirely depends on people's willingness to believe that that thing is attainable. And the timeframe is inversely correlated to how quickly you can get people to believe in the thing because it gets them to part with their money and it gets them to part with their time dedicated or committed or invested elsewhere to go do this thing and that becomes an accelerant. And so I actually think that the rush of people into an area is this great tractor beam that pulls the future closer to the present. And it's a very weird thing thing because it depends upon the belief of other people to decide that they're going to vote with their dollars and create the incentive for other people and they're going to vote with their feet to go do this thing. And it's just, it's very different than the industry of science.

That's psychology, super hard to predict. Particularly you're talking about venture timeframes. How about on the science side where, let's take the example of nuclear where you said, look, it could be 30 years from now. Well, if it's 30 years from now, it might still happen. But it's going to be hard to figure out how to monetize.

Nuclear has been here for 60 years. We have 104 domestic base plants. They produce nearly 20% of our electricity. The greatest thing that if any environmentalist really cared about the environment and wanted zero carbon baseload power, reliable, non intermittent, not dependent on batteries, not dependent on the weather, would be nuclear. And if we had a zeitgeist movement which would be generationally fresh and new. And I actually think that there's a good chance of this happening and we rebranded it. It's not nuclear power, it's elemental power. What is elemental power? It includes solar. Hey, we like that. It includes wind. We like that too. It includes hydro. That's good too. And rocks. Rocks are pretty good. What do you do with rocks? We got uranium and we actually refine this rock just like you refine a diamond. And then it produces heat and boils water and turns a generator and produces electricity. Zero carbon. People are like, oh my God, that's amazing. The reason that we've had an anti nuclear stance here and effectively a moratorium, not a regulatory or federally mandated one, but just not enough popular public support and a lot of popular public resistance is because of Neil Young and Joni Mitchell and Three Mile island and China Syndrome. You had a movie in 1979 that coincided with the Three Mile island, which was a nuclear accident. There was no deaths, there were no injuries, but it scared people, and rightly. And then you had an entire generation that conflated no nukes, peace signs up with nuclear war and nuclear bombs and nuclear energy and nuclear war and nuclear bombs, bad nuclear energy, clean and good. And you had rockers that were just like no nukes. And so if you command a stage, those were the tiktokers and the influencers of a generation ago. You had an entire generation that basically became anti nuke.

And so when you think about investing in let's call it elemental power for the sake of it, how do you discount time?

Well, in the case of what we did with nuclear in waste, it was an urgent and it didn't depend on people's belief. It depended on governments and big companies needing to do cleanup work and the amount of money that was already being spent. There was no conviction that you had to spend was 25% of the Department of Energy's budget every year, $6 billion out of their $25 billion budget that was going to places that the public and no newspapers even covered that we uncovered, which was Hanford, Savannah River, Idaho National Lab, Sellafield in the uk, La Hague in France. And so that was like we talked about before, foraging, finding this little crevasse and nobody else was there. We're like, oh my God, like we just stumbled upon this finding. Nobody's talking about this. How does nobody not know that there's this major opportunity? And then that company ended up, which was Kurion getting lucky when the Fukushima disaster, and we happened to be the only game in town focused on this other market and then sprung and pirouetted or pivoted into that market. People that are pursuing nuclear power today at the moment do not count us as investors because I believe that the timeframes are not dependent upon the technology development. They're dependent on popular acceptance. And I believe that there's a good probability, a better probability today than there was five years and better than 10 years that it will come. But that's a bet that is really about betting on influence and influencers and public perception and adoptance and acceptance and getting rid of NIMBY than it is on the technological development. If you take another company like Space Manufacturing, we sat as a partnership and we said, okay, who needs to manufacture anything in space? And everybody's like, well, nobody. We don't even know, like, what you can make in space. And we came up with some things with this founding team at Varsity, with our partners and friends at Founders Fund. And he said, well, there's some things in pharmaceuticals and drugs and there's some things in doped glass fiber, and that's sort of interesting. And maybe there's a market there and you've got this directional hour of progress that the cost per kg to launch stuff has gotten way cheaper and that keeps declining. So what if you flip that? What if you can make really valuable things per kg that are cheaper to make up there and more expensive that you can sell back down on Earth? And that could be really interesting. This was a company that if we waited around for somebody to start or do like, we just decided that we were all going to will this into existence. The founder, his name is actually Will Brewie, who came from SpaceX, just decided, I'm going to raise the money, I'm going to start this company. We're going to start our engineering plans. And within six months they had a bus, which is the vehicle that goes up to space, designed by Rocket Lab, agreed to launch on SpaceX next year this time. So it's going to be Q3, Q4, 2020. They will launch the first manufacturing thing in space and that was wheeled into existence. And so part of it was the Sheer force of human will, determination, belief from investors, belief from people that go do it, that became that accelerant.

So if you turn back to that aspect of it that is effectively tied to brand and people's understanding of this with elemental power, I'd love to twist that and just chat a little bit about how you've evolved in your thinking of your own presence on social media and the impact that's had on lockdown.

I would say that if I can build a reputation and be remembered for certain things that are true to me, it will attract certain people that I like to be in business with. And I've really found this actually from the Santa Fe Institute. I like being around the people that are affiliated with Santa Fe Institute. They have shared values, they're intellectually curious, they are polymaths. They're interested in lots of different things. They have an intellectual humility. They realize that the person that they're sitting next to across from is smarter than them, at least in some ways. Field and they know absolutely nothing about that. And so I like surrounding myself with people at sfi, I get just a thrill being with Bill Gurley and Michael Maubouson and Bill Miller and Dave Krakauer and Jeff west and Cormac McCarthy. It's just Neal Stephenson. This is like a smorgasbord of just geniuses that I feel lucky to be in the presence of. So for me entrepreneurially, those are the same people that I want to be with. When you look at somebody like Caster Yunus who runs our company Applied Intuition, or you look at Rear in who ran Control Labs, these are just geniuses. Their ability to execute and see the vision, they're super high signal. And so to attract more people like that, I surround myself with people like that. And then the messages that I have, I like to speak truth to power. And so whether that's me calling BS on IBM Watson, or on Dalio and Bridgewater, or on Elon Musk and Tesla, I like SpaceX. But I'm very critical about how Tesla is run or Trump or whatever it is that I just find that somebody is being dishonest or their relationship with the truth is very tentative or loose and they are not pursuing truth in the service of something that has attracted a certain kind of friend, peer who say, you know what, I'm really glad that you're saying that. They might not be able to say that. They might not be able to criticize Elon or Ray, but they appreciate that I do. So there's some brand of People that are attracted to that. On the flip side, there are other people that are like, I can't stand you. I can't stand you. Like, why are you so jealous of this person? Or why do you criticize him? It's such a bad look for you. So you get that mix. But I've decided that the people that I enjoy being around are very intellectually curious. They like to be critical. They like to debate a lot. They're often confrontational. There's a humility underneath that intellectual intensity. And so the best entrepreneurs that I like working with are people like that.

So it's not hard listening to you just getting this. Good luck to anyone who's trying to listen to someone. 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 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? 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. 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, and. 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.

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

I think I'm pretty efficient with it. My own information died it. I wake up at 7, I'm with our kids until 8:30. 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 into 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 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 grade 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. 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 some really interesting signals.

I'm curious to just catch up on what's evolved in Lux over the last couple of years. Sort of talked at the beginning about what's happening, the excess of capital. I know you raised a fund in a first opportunity fund last year. How do you think about deploying that in this ecosystem?

We will never publicly come out and say we're slowing down our pace because anybody that does that is going to lose deal flow. But internally, I would say we are being more and more thoughtful about is this next investment that we make incrementally better than what we just invested in. And if you constantly set that bar not only on the quality of the company, but particularly the entrepreneur. I remember we had a company years ago in our second or third fund and we brought it to a top firm that we've since gone on to do a lot of investments with. And. And the partner at the firm asked me a very honest question. He said, is this one of your top five CEOs? And I had an interesting moment because I could say yes and it wasn't true, or I could be honest and say no. And I knew that that would kill the deal and his interest in it. But it was the right thing to do. And it actually made me reflect to say, you know what, like if any company that I'm spending my time on or any company that we're bringing to a peer is not a top five CEO, shame on me. And so. So part of it is heightened expectations that come with heightened responsibilities. We manage more capital, we have to get bigger returns. To get bigger returns, we have to do bigger investments, have more ownership, bigger outcomes. And so the pressure is higher than it ever was. You have Partners that are all very busy, we're all on multiple boards, you're trying to constantly triage. And this is against the backdrop where I remind people not to be excited about the current moment, but to be very scared. We, on our Monday and Thursday meetings have had nothing but good news. And that to me is bad news. Every Monday or Thursday it is about, we just got this term sheet at an uptick. This company's getting acquired by spac, this company's getting acquired by a big tech company. This company's going public. We just got this incredible person to join the board. I mean, everything is good news. And I remember just a few years ago, this CEO is quitting, this CTO is threatening a coup unless we oust this person. This person just had a me too issue and we got to get rid of, we need an investigation of the board here. Syndicate just collapsed there, Major customer just got lost. And so we just haven't seen that. And you have an entire generation or half generation of investors that haven't seen that. And so my admonition almost on a bi weekly basis twice a week is remember those times because they will come again and our competitive advantage will be being prepared for that. So part of it internally is making sure that people's mindset is appreciative of everything that has happened, happening, recognizing that very little of it has anything to do with decisions that we're making today, possibly decisions we made five years ago to get into certain companies. But it's really the kindness of strangers and the public markets and the kindness and benevolence of the Fed that has printed money and inflated valuations. And then it's decision making on the small companies and the new companies that we're doing, which are basically the things that are going to matter in four or five years. And just us always remember that the things that we're going to be celebrating in five years are the things that we're debating and deciding today.

If you peel off one more layer of that, you're sort of known in the partnership as the skeptic, the guy with a chip on his shoulder. So on the one hand, the sky's falling and anybody could see that there's 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?

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 and 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. Fraud. He thinks that this person is full of shit. And then they know that. And so if I'm a champion of deal, I can anticipate if I really want this deal to get done. I'm telling the entrepreneur, listen, when you come into the room, you're going to have seven partners that are sitting there that are going to be really skeptical. Some of them are more focused on biotech and they don't understand the semiconductor aspects of this. Or some of these people are focused on space and they don't understand. And so you have to be prepared for the skepticism that you're going to meet. And I think a lot of the partners prepare the entrepreneurs to say, you're going to meet your Josh and he's going to think that you're a fraud. And you have to establish your bonafides and your scientific credibility very early and impress so that he can get past that and be like, okay, this person's legit. Now let's move on.

All right, Josh, I do have a couple of closing questions for you. Before I ask you that, I'm just going to ask this open ended. There has to be something that you've been thinking about and formulating in your head. One of these theses that you haven't yet talked about on any public forum and curious what that might be.

The thing that has me obsessed at the moment. And I touched on this a little bit about Africa and I don't know if I've talked about this widely publicly, but there is a confluence of factors right now that are making the continent I think the most interesting place to invest and watch for the next throwing out a number is arbitrary. 2 years, 5 years, 10 years, 20 years. And here's why. Way it's mostly neglected by the developed world. There's of course emerging market investors that are looking at it and there's people that have been in and out of the continent and people that have been burned and be like oh yeah, we heard this again 20 years ago. Then you have those dangerous words. It's different this time. You have people that were born and raised in Nigeria and Ghana and Kenya who have gone to Silicon Valley and trained at Stripe and Google and Facebook and Amazon and are coming back. And they're coming back back sent to millionaires. They've made hundreds of millions of dollars in stock. Life changing money for them and their families. They've coming back with networks of talent and access and know how they are bringing peers who are adventure funds and telling them with intrigue. There's real opportunity here and that opportunity is beginning in fintech and logistics and healthcare and healthcare it and sort of low hanging fruit. You can think about much of those three countries in particular Kenya, Ghana and Nigeria as latam five, six, seven years ago, US investors coming down into South America and there's a lot of differences. That's also at a time where you have experiments in crypto that may actually lead to the transcendence of some of the regulatory risks that exist. You may actually see people investing in something like a Dow or some other structure that is not a company that is domiciled in a risky territory where the risk of regulation, which is in some cases legitimate, in some cases it is legal corruption that they see you're making money and then suddenly pass a new law and say we're going to take some of that. That is compounded by China and us in this great game over the continent. China making massive debt investments, now seeing companies and countries default, taking airports and ports, resource extraction, natural resources, labor fights. There's a friend who's making a film about an area called Gashaka, which I never knew about. It's like a Jurassic park in Nigeria. You have Chinese gangs that are coming in and illegally logging. You have park rangers that are being killed, you have Cameroon rebels. It's just this crazy chaos where there's really interesting intrigue. Then you have the Sahel and the Maghreb where you have failed states which become petri dishes for violent extremists. I believe that that will be the next Afghanistan, particularly for Europe. I think that you will have Mali pulling France in, you will have Belgium being pulled in, you will have the UK and other EU countries adjacently being pulled in, the US being pulled in and combination of fight over resources, fight over Islamic terrorism and violent extremists, that it's just going to be this chaotic continent filled with opportunity from returning and rising entrepreneurs that are becoming the next unicorns, multi billion dollar African businesses and geopolitical chaos. And so that area to me is very interesting at a time where particularly the US has been militarily underinvested.

Have you found ways to participate?

We have made a series of what I consider seed investments. Not all the companies are startups. They're in some cases larger. Valuations have been between 20 and 150 million. We've looked at some that are approaching a billion dollars. And I made an admonition internally that we should be investing somewhere between 20 and 25 million dollars just this year into a bunch of companies, companies with a full understanding that we might lose 100% of it, but we will figure out who's for real and who's full of it so that we can double down a very significant way and approach the market with an intention of we're here to learn. We don't know. You will have forgotten more than we will learn and let's just make friends and build alliances and co investors. And so that to me is just a big thrust that has me very intellectually intrigued between the history and the future of the continent. And I just see enormous opportunity and I think done rightly with good partners, it can be enormous. And the first layer will be low hanging fruit technologically. But a meeting I had even earlier today was talking about the next layer about some of the very sophisticated engineers that are rising and they're a much smaller population. But I think that there's going to be great opportunity.

All right, Josh, I got a couple of closing questions for you that I didn't ask you last time around. What is your favorite hobby or activity outside of work and family?

I think because of the recency bias, we're going to Costa Rica as a family. Surfing is my special solitude place. It's the one thing that I can sort of shut down and the risk of drowning and the exhaustion and the peace and the beauty, that's probably my favorite thing. And then Domestically, it really is being with the kids. And because of my own upbringing, being a present father, that to me is my most rewarding thing.

What's your most important daily habit?

It. Well, I would say again, being able to drop my kids off. And I have this game with my son where I drop him off and then there's a window and one of us jokes with the other every morning. Don't forget to wave. Don't forget to wave. And I sometimes hide and I pop out and I wave. And just like that moment to me is like a special thing every morning. It's like our thing, right? And so like developing those little things because I always think about when I'm 80 years old or 90 years old, assume I get to live that long, just like these little memories that they have and all my little, little euphemisms that I keep indoctrinating them with that, you know, when I'm old, they'll remember and appreciate. So there's this long term investment so that when I'm 80 or 90, I'm looking back with no regrets as it relates to the kids. Otherwise, it is copious amounts of coffee and chocolate every day and reading voraciously and being exposed to ideas, knowing that I never know what random article or tweet or email I will stumble across that will suddenly provoke, inspire, change my mind, set me on some new path. And I get obsessive when I discover that. It's that feeling of like, wait a second, this what? And then I get really curious and then I ping some smart people and they don't know anything about it. I'm like, oh, I'm onto something. And so that competitive juice that I get flowing that when I come across a new idea that particularly I think other people haven't come across yet, that is just exhilarating.

What's your biggest personal pet peeve?

You know, Ted, when people use my name, Ted, in a conversation, Ted, it is like, like nails on a chalkboard. And I know that they've read how to Win Friends and Influence People by Dale Carnegie. I know that they think that people like hearing their own name, but my God, it drives me insane when somebody uses my name in a sentence, like, repeatedly.

All right, Josh, let me, Josh, ask you, Josh, which two people have had the biggest impact on your professional life?

Two would really be leaving somebody out because there's three that I really think about and they're all very different and unrelated, although two of them dispositionally are very similar. My wife is amazing because she both does not ever Let me get too full of myself and is constantly cutting me down and keeping me humble. She and I are both very loving but very competitive. She chided me that it took me nearly a decade and a half to reach 2 billion and she did in like two years. And so I'm very proud of her. And obviously she runs a public market fund and I just admire the success that she achieves and just only beg that she doesn't short my companies when they go public. So my wife is working one and just a great balance and a great partner. And we're very different. Peter, my co founder, is very much like Lauren. He, like she and their friends are more of a perma smile. You meet them naturally optimistic. It's a great counterbalance. When I am low, he's high. When he's high, I'm low. We speak ten times a day. It's just I feel very lucky in that partnership. And there are a lot of decisions that I would have made that would have been impetuous, shortsighted, and wrong. And he reigned me in from making them. And he's one of the only people, people that can actually get me to delete a tweet. So if he's like, I would really take that down. Anybody else that typically says it, Other partners here I just like, will scoff at. I'll argue, I'll debate, but he'll be like, do you really want to say that? And so he is very much the rear view mirrors and the side view mirrors and the brake to some of my impetuous gas pedal. And so he's a great balance and Lux wouldn't exist without him. And then the third, which Peter and I are both grateful for, and we were actually both catching up with yesterday together, was Bill Connor Conway. And we always say that we in technologists and entrepreneurs and founders like to believe before others understand. I don't know what it was that day that Bill decided to bet on us, but he believed in us before he understood or others understood. And that changed the trajectory of our life. And if it wasn't for that chance moment or meeting, none of this would exist and none of the people that we funded would exist. And so, you know, sort of in that sliding doors moment, just the circumstances that led to meeting Peter, to meeting and marrying Lauren, to meeting Bill Conway and getting him to invest in us. And Bill is a Carlyle founder. Those are probably the three most important people in my life.

All right, Josh, one more. What's the biggest mistake you've made? And what did you learn from it.

There's so many and most of them I think are around people. There's old friendships that I under invested in that when I look back I regret when I was too focused on business or building locks and I'm spending time rekindling those because again looking back when I'm 60 or 70 or 80 and like that's what I will regret more. It's not the deal that I missed or whatever. It's lifelong friends that I've underinvested in that were my best friends growing up or whatever it was. So that's number one. And then I think having a chip on your shoulder for me has always been this great propellant. But I think that there are just a lot of people that I was zero sum asshole to in my early years that probably if I was a little bit smarter long term greedy, I wouldn't have burned some bridges.

Josh, it's always fascinating. Thanks so much.

Thanks watching for man. Good to see you.

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