Frontier Tech Investing | Lux Capital Investor Shahin Farshchi

It's very easy to confuse frontier tech investing with funding projects. And the reality is that we in the venture capital business do not specialize in funding projects. It's big companies, it's governments that do that. And in the case of venture capital, that doesn't quite fit within our mandate. So just to give you some background on who Lux Capital is, So Lux Capital was founded by 2 guys at the bottom of the dot-com bust with the hypothesis that the next wave in great companies and innovation is going to be around innovations in the sciences. So the basic sciences, nanotechnology, materials-based technologies, therapeutics, and life sciences. And that caught the attention of a few interesting people in the investment community, and they personally put up some money for what became LuxOne. And I joined when we were raising Lux2, which became a $100 million fund. And out of Lux2, we invested across healthcare, across technology and energy, and we actually incubated a company in our office by the name of Kurion. So back in 2007, 2008, there was a lot of investor interest in clean tech. How many people remember the clean tech era? Okay, a lot of you weren't around back then. Back in the, say, 2005 to 2010 timeframe, a lot of investors in this area were really excited about renewable energy. They wanted to invest in companies related to solar, related to wind, related to biofuels, and a lot of that money ended up going behind companies that weren't very successful. One notable example is Solyndra, which raised quite a bit of equity dollars and quite a bit of money from in the form of loans from the government, and was not successful. So the few companies that ended up being successful from that era are Tesla, which all of us know very well, and another company that we incubated in our offices called Kurion. So at that time, not a whole lot of investors were interested in nuclear as a clean, carbon-free alternative to energy production. And we built this technology in our office, this company in our office that was leveraging technology that would remove nuclear contamination from water. And in 2011, as many of you may remember, there was an earthquake in Japan, and this company was called to aid in the cleanup of the Fukushima power plant. And as a result of that, this company became very successful, and it was acquired by Veolia, for over $300 million, and Veolia is a big French industrial company. And so that was a huge returner. We owned a third of that company, so that was a huge returner. It returned more than the original fund too, and that really put us on the map as a firm. And so we did our third fund in 2013, and now we're on our sixth fund. So it's a billion-dollar pool of capital. $500 million of that is allocated to do early-stage investing, and the second half is focused on doubling down on our winners, and also doing growth-stage investing. So as a firm, we're now over 9 investment professionals split between Palo Alto and New York, and we focus on very early-stage companies, companies like what you guys in this audience are building, that are leveraging some kind of unique innovation towards going out and building and dominating a massive, massive current or nascent market opportunity. So we've invested across semiconductors and electronics, rockets, satellites, manufacturing automation, computer vision, AI, 3D printing. We've done surgical robotics, therapeutics, medical devices, healthcare services, healthcare analytics. And we focus again on great founding teams like you guys that are leveraging some kind of unique invention to go out and build massive companies. We can cut checks anywhere from a few million dollars to help get a company off the ground to tens of millions of dollars to lead early financings, and we set aside a multiple of that for future financing. So we like to see ourselves as long-term partners with our teams with the expectation of helping you guys achieve a multibillion-dollar outcome. So that's who we are as a firm and what we do. I was asked to talk about frontier tech investing, and most folks didn't talk a whole lot about frontier tech investing until relatively recently. And it's very easy to confuse frontier tech investing with funding projects. And the reality is that we in the venture capital business do not specialize in funding projects. It's big companies, it's governments that do that. And in the case of venture capital, that doesn't quite fit within our mandate. What fits in our mandate is to find opportunities where tens of millions of dollars, or maybe a couple hundred million dollars, can generate many billions of dollars of enterprise value. And we were talking about— when you're talking about building a dam, or building a power plant, or building a refinery, that is— that talks about a portion of generating value, but not the whole story. What we look for are companies or opportunities where we invest this money, something is built, and a business is created that is valued by the public markets or acquirers in the many billions of dollars because of the future cash flow that it's expected to generate. A project in itself does not do that. It's true that a power plant may be able to produce natural gas or oil or some other commodity, but that is not a business. It is a project that fits within the context of a business, and that business that uses that power plant could become, for example, a multibillion-dollar company that would be interesting for venture capitalists, but that is not something that is by default or something that should be taken for granted. It needs to be rationalized as part of a business plan. Okay, so the major takeaway here is to not conflate a business with a project. And just because a business is a frontier tech business, the technology is only a means to an end. The technology or the project is intended to give that business an unfair competitive advantage, something that would give it a long-term dominating position in a market that's exciting, that would create high visibility, Long-term cash flow for the business. Okay.