Introduction

Patrick: [00:00:49] My guest this week is Josh Wolfe, co-founder and managing partner at Lux Capital. I had Josh on the podcast last year, which was one of the most popular episodes in the show's history. This is a continuation of our ongoing conversation about investing in the frontiers of technology. My favorite thing about Josh and the way that he invests is the mosaic that he and his team at Lux are constantly building to understand the world and where new companies may fit in. We cover a crazy variety of topics, from business model innovation, roles of a CEO, the military, the death of privacy, and arrows of human progress. Please enjoy round two with Josh Wolfe.

Failure of Imagination

Patrick: [00:01:22] One of the things that I'm fascinated about right now is just big coordination problems. You mentioned China specifically, which I think is part of the answer to this next question. I'm curious about your view on our ability, really, as a species to tackle massive-scale problems versus incremental innovation, optimization, efficiency gains that you see in a lot of business today and certainly in a lot of startups. How do you think about that dichotomy of massive-scale projects and our ability to tackle them, and what you want to fund?

Josh: [00:01:52] Well, on this, I'm the opposite of Robert Gordon. I actually believe that it's just a failure of imagination more so than a failure of productivity or technology because we don't know what the thing is that's going to be 10 or 20 years hence. In terms of tackling huge large-scale programs and projects, there's basically one overarching mechanism which exists at the moment, which is a low cost of capital. When you have a low cost of capital, I've equated it to a tractor beam for the future. You would take 20-year far-out projects and basically pull them in Star Trek-like into these 20-month frenzied projects. Now, there's two ways to do that. One is state-driven. And, as you alluded to, that is China. China decrees, in a five-year plan, "This is what we're going to do." And you see roads built overnight, you see bridges constructed, while we lament that it took 11 or 12 years to build the Freedom Tower, or rebuild the Freedom Tower. I think the ability to galvanize people, commandeer resources, in fact, command people to go do something, is something that a state can do.

On the other end of the spectrum, where you have free economies and democracies, you can't will people to do something here in the U.S., per se. You can encourage, you can incent, you can dis-incent. But the kind of person that can is not a China-like leader, but somebody like Elon Musk. And with all I publicly criticized about Elon, the one great virtue is I think he is the paragon of somebody who has been able to paint a narrative and get people to believe in it, almost like a religious leader and follow behind. And what flows from that is human capital, people wanting to work for that vision or that mission. Financial capital, people wanting to part with their dollars and support it. You lower the cost of capital, you lower the slope for somebody to join onto a project. I think both of those things, whether it is state-directed or story-directed, it's a human narrative. They're both powerful things.

But I am hyper-optimistic and confident, even though I'm definitely a cynic. Our ability to do big, grand-scale things is greater than ever before, in part because our communication tools are greater than ever before. To be able to use Twitter and convince people that something is possible, to be able to use the technologies and mediums to communicate, whether it's something like what you and I are doing right now, to be able to broadcast ideas or video. It's super powerful. And 100 years ago, you never had that.

Patrick: [00:03:54] The narrative one is so striking, something that's coming up more and more in my conversations. Especially because just capital is cheap, the cost to distribute a narrative is also cheap. It's easier than ever to do that if you've got a good narrative. It's a great bridge into this question that we had discussed a little bit ahead of time about some of the key roles of leaders, CEOs specifically, and that you have an internal checklist of the most important things that a CEO could be doing. I'd love to explore that list because I know narrative is one of the key components.

Josh: [00:04:20] There's a great checklist which really captures the 90/10 of this, and it's five main things. I can see that this is actually, It's a checklist. It's not a how-to. But it also comes from a friend of our firm, Zander Lurie. Zander was at GoPro, he now leads SurveyMonkey. Incredible culture, incredible guy, super thoughtful. And he's like, "Look, there's basically five things." The first thing, nail down the strategy for the company. Decide what you're going to do, which also means deciding what you're not going to do. The second thing is, deliver the capital to pursue that strategy. Now, there are really smart people, but they can't tell a story. If you can't tell a story, you can't persuade investors to join you, you can't deliver the capital. Having a clear, cohesive strategy, being able to project it and sell it with confidence, I think, is a critical thing for that second step.

Third thing, building a team to execute, and this goes to what we were just talking about. Recruiting people, convincing them to cross the country or cross the ocean and move with their family and drop what they were doing to join you on a mission. Whether that was Shackleton back in the day, or that is a startup today, being able to tell a story and galvanize people into movement is a super powerful trait. Fourth thing, communicate the hell out of it. Be able to tell everybody internally and, of course, importantly, externally. That's telling your partners, telling your competitors, telling the media, telling the press. Anybody that you can, just constantly communicating it. And the more consistent the message, the more powerful it is, because it just redoubles. The best companies, you walk in and you ask a VP or a tertiary person below them, "What's the strategy?" And they give the same answer as the CEO. It's just a phenomenal measure of the effectiveness of the organization. And the last thing, hold people accountable. You can come up with all the narratives you want, you recruit the people, you can set the strategy, you can raise the money. If people are not held accountable, you don't set clear goals and you don't hold them accountable, meaning that they're either getting promoted or fired in extremes, then you don't have an effective organization.

Patrick: [00:05:58] It's just so interesting how much there is about both setting the strategy and then building the narrative around it, how much of it is storytelling. That's something fundamental to what people are and do. Is there anything across, let's say, founders or even established CEOs that you think do this incredibly well? Is there a pattern across those people elsewhere in their lives or their background or their experience that makes this possible? It is one of these skills that, when you see it, you have to be in awe of the raw ability?

Josh: [00:06:25] I was always a horrible storyteller growing up. In fact, my best friends, they literally used to make fun of me. They would literally say, "Beginning, middle, end." I would go on with all these details, like a kid. Some of it is making the point. But what makes a good story? It's memorable, it might have a surprise at the end, it's easy to repeat, it makes you feel smart because you can share it at a dinner conversation. The best stories convey meaning, they convey it in a clever way. They're memorable, they're unique. And I think that comes from reading a lot, it comes from watching a lot of movies, it comes from talking to a lot of people, and you pick up these stories. And some people are just great storytellers, and some of them want to leave people with an emotional reaction. "Wow, that guy's really interesting," or, "She's really smart." Other people, they want to impart with a meaning and a story that you are not going to forget.

There is a great story, and I'll give you this real quick. There was a magician here that was in New York, in Union Square. I'm trying to remember his last name. But it was called In & Of Itself. He did this magic trick with this gold brick. And he's holding this gold brick, and you have no idea what the object is about. And he tells a story about how he's in his house, and he comes in with his best friend, and his mom is there, and she is making out with a girlfriend. And he finds out, at 14 or 15 years old, that his mom was a lesbian. And suddenly, it's like, "Okay." It's this emotional weight as he's telling the story. "Well, okay." The next day, he's in the living room by the front window, eating breakfast, and somebody throws a brick through the window. And on it, it says a mean thing about homosexuals. He's broken, because he knows it's his best friend, and his best friend's told other people, and he's totally shunned socially. He goes on, and he just talks about how he bonded with his mother over this, because suddenly, he loved her even more because she found love, and he didn't judge her.

But this was a life-changing moment, and that brick through that window represented this very meaningful thing. He does this magic trick, and he builds this house of cards as he's telling the story around the brick. And of course, with this elegant motion, he blows on the house of cards and they fall, and the brick is gone. And he tells you, "Name a street," and somebody names a street. And he's like, "I promise you, when you leave this theater, if you go to that street in New York, on Ludlow and Varick or wherever it is, this brick will be there on the corner. But the beautiful thing about it is, thousands of people will pass by this brick and have no idea what it is. They will think it's a piece of trash. But to you, it will have meaning." And that, to me, was super powerful. Putting meaning inside of stories, inside of objects, that's rare.

Patrick: [00:08:49] Your point about the portability of these things, and everyone talks about memes, things that can be replicated quickly and propagate through the world. That seems like people that are talented at creating memes or their equivalence, portable stories, or portable ideas, that seems to be a new superpower. Maybe you can talk about Trump or politicians that harness this, but you see leaders of all types starting to harness this ability. It's such a fascinating idea.

Josh: [00:09:12] But the ability, it isn't clear if it's coming from the individual, or it's the fact that they have an assembled audience, and that audience ascribes to a bunch of shared values, and they themselves are the messengers that are going out and spreading it. Whether those are messages of love and optimism or of hate and negativity, I actually think it's how you aggregate your audience. And you have done a phenomenal job. Why? You start with really interesting people, really interesting content. You get an audience, the audience feedbacks and makes suggestions, you listen to it, you engage with it. Your influence and ability to shape a message and get it out there and also be an open receiver is rare.

Patrick: [00:09:47] The idea of audience aggregation via niche exploration is also interesting. I think applies to companies, too. Strangely, the more specific the episode, let's say, of this, and the longer and the more wonky, the more listens it gets. It's the opposite of what you might expect.

Josh: [00:10:03] No, it's exactly what I would expect, because it's novelty and it's narrow. I don't need to hear somebody else... If you wanted to hear the hand-waving nonsense, you go and put on cable TV, and you can predict what they're going to say. But hopefully, whatever we're going to talk about next, whoever's listening right now doesn't know the thing that we're going to talk about, and we're going to talk about it in a way that's going to be interesting. I just think narrow and novel creates interest.

Abundance of Liquidity

Patrick: [00:10:25] Speaking of narrow and novel, the next thing we're going to talk about is this idea of illiquidity. I love this idea. Again, my favorite thing about talking to you is this smorgasbord of things that interconnect. Talk through this idea and why you've been thinking about it more recently. It hearkens back to our conversations on macro things.

Josh: [00:10:41] Right now, there's an abundance of liquidity. Everybody would say, "My god, money is sloshing around, looking at places.' But part of that is going into very illiquid places. And the setup, to me, of illiquidity, is almost like an enormous amount of leverage. If somebody is coming in and writing a $200 million check in a growth equity round, and they are doing it at $1 billion but the last round was at $100 million, the existing investors have the huge paper writeup. It looks great. But if there's a down-round, the preference stack on that company is owned and dominated by the new investor. It's basically like having a 10%, 20% down-round when you have a massive amount of debt. The creditors own the company. I think that this is happening writ large. I think SoftBank is a great example of this, and we can talk about that. But I think that the thing that will shock people and the current cycle, where we will see a potential downturn, is going to be about illiquidity. People that have all these paper marks, but they're not liquid people that have done subsequent rounds of financing and are expecting the next one, and it doesn't show up. LPs and endowments that are overextended. All my LPs that come in, they say, "Who should we be investing with?" Now, some of this is self-serving, because I'm confident they're going to continue to invest with us, but I tell them, "You should be looking at secondaries. You should not be allocating to venture."

Now, Bill Gurley, who's a friend. Bill, for many years, has been talking money out of the system. He's been saying, "Stop investing, because you're going to keep putting money in, you're going to raise valuations, you're going to ruin returns," and he's been appealing to fear totally unsuccessfully. At the other end of the spectrum, Sequoia, who is absolutely incredible, in my view, was possibly appealing to greed. Look, all this money's going to be allocated. It's better, in a zero-sum way, that it goes to us as opposed to our competitors, so let's create a giant sponge and sop it up. And by the way, we have to do this, because there is an 800-pound gorilla, or Godzilla, depending on your view, and he is a five-foot-something guy named Masa who has this $100 billion fund. And we have to control the fate of our own companies, and we have to be able to write bigger and bigger checks, so we're going to do that now. Either you believe that Sequoia was raising a very large fund because they can put it to work, which I do, other cynical people will say, "Well, it's easier to write $100 or $150 million check from a pied-à-terre than to do a $5 million series A." And both of those things are probably true. But I think the SoftBank thing is super dangerous because they're putting a lot of money in at very high prices, and I think the early investors are just as likely to end up with zombie shares, with total illiquidity, paper marks that they never see to fruition.

When they came into WeWork and then priced up their own round, the again, tinfoil hat theory here. Either on the one hand, they're truly visionaries, focusing on the singularity and trying to build the future. Or they are producing a portfolio of paper assets that serve as collateral against $150 billion-plus of indebtedness at the mother corp, which nobody really talks about. I'm hyper-worried about the illiquidity that may come from that. Tesla, a poster child right now of a horrible balance sheet in illiquidity. Both of those, SoftBank and Tesla, represent the poster children of tech possibility and the future and the vision. Again, this idea of this tractor beam pulling 20 years of ideas forward into these 20-month frenzy projects. If one or both of those companies have a liquidity crisis, my god, the narrative, the story, is shaken to its core.

In the capital markets, we've of course seen, over the past 10, 15, 20 years, a massive shift from active to passive. And you've got a lot of great insights and views on this, and the quantitative piece of this. BlackRock is somebody that everybody thinks is safe. BlackRock, with the ETF complex, they have a lot of leverage. There's a lot that's not discussed, and you can see a situation where they might represent a low-probability, high-magnitude, systemic risk to the financial system. Nobody's talking about that. I look at this current cycle and I say, lot of risk of illiquidity that causes a shock. And some of the evidence that starts me believing this is you see companies that go from a billion-dollar valuation, not down 10% or 20%. There's a discontinuity in the pricing, and they go to zero. These companies are going out of business, and you're starting to see frauds that are being revealed. And almost in a pattern, they're being revealed one after the other. You have Billion Dollar Whale, and you've got the Fyre Festival documentaries, and you got Bad Blood and the movie about Theranos. And all these things are not things that you saw at the bottom of a market. You put all those pieces together in a mosaic, and you say, geez, a lot of illiquidity, a lot of fraud starting to be revealed. I think there's going to be a lot more fraud that shocks the heck out of people, and I think it's going to all be around this idea of illiquidity.

Patrick: [00:14:54] One of the pieces in the middle of all this is, for the first time now in a while, a lot of the big famous private companies are filing S-1s, going public, and from the cheap seats. And we don't traffic in IPOs, and I don't have an opinion on these. I read them, I'm interested, but it certainly seems like there are two classes. There's the Uber and Lyfts of the world, maybe Pinterest would belong in this bucket as well. And then there are the Zooms of the world that seem to be really good. It's not going to be a $500 billion business, but it seems to be a really good, solid, profitable now business. Any thoughts on the types of companies that are going public, and how this might fit into this whole illiquidity thing?

Josh: [00:15:31] Well, I do think it's the same phenomenon. Zoom does not need as big a story for people to buy-in. It's is versus ought. It's making an observation versus a prediction. You can look and observe, this seems to be a good business. They seem to get good returns on incremental invested capital. You cannot make that case for Uber or Lyft. Now, I'm not saying that they couldn't be great businesses in the future, but certainly, the prodigious amount of cash that they are burning on a regular basis depends on the kindness of strangers, depends on investors parting with their cash to believe something. I think that there will be this bifurcation between legitimately good businesses, almost like value tech, that are generating cash, generating profits, able to profitably invest in the future. And people who need to tell a better and better story so as to raise the expectations, so as to lower the cost of capital, to bring cash in to fund operations.

One of the things that I think also captures this whole thing in this illiquidity piece is this idea of the minnows and the megas. The minnows are the thousands now of small funds. Some of these guys are $50 million or less. They're doing seed deals, they're competing for super early-stage stuff. And our view is be friends with them, because they're a source of deal flow, and some of them are going to go and turn into great funds. At the other end, you have the megas, which are SoftBank and Sequoia. And I think that bifurcation between the minnows and the megas is setting up a lot of the structural risk in venture.

Patrick: [00:16:42] The thing that I'm most interested in, looking at early-stage business, are ways in which those businesses are innovating, not just in terms of the value that they're creating, but also the business models, the distribution strategies, all the things that need to come together for a real successful business to take hold. I'm curious, if you think about the most interesting and innovative business models that you've seen, not just in venture, but just period, through history, if you have any thoughts there, because I think this is an understudied topic.

Josh: [00:17:06] Well, I think, of course, some of the best business models are the ones where companies persist today and have for the past four years because it means that the business model actually holds. That there's some deep competitive advantage. I'll give you one that's outside of venture that I thought was pretty clever, and we actually used the same strategy at one of our portfolio companies. And it has to do with sandwiches and soda.

This is a company back in the day called TurboChef. It was a fast-cook convection oven, so faster than a microwave but toasty like a toaster. And the setup was, it was really expensive. You were not going to buy a $4,000 oven for your house. But management figured out, "You know who needs this? Subway." Why did Subway need it? Because they had a competitor, Quiznos. Quiznos had their slow, toasty sandwich. Subway had their nasty cold meat sitting there, iridescent, shiny odd thing. Somebody came in and said, "Okay, let's sell these to Subway. But how are we going to get Subway, in their 20,000-plus locations, to spend $4,000 a location, $80 million, in a purchase order?" They figured out, "Let's appeal to interest, not reason." And they got Coca-Cola to fund the purchase of all of these things for Subway in exchange for the cola contract. This, to me, was a clever deal. This was a clever business model, it was a clever win-win-win. Subway won, they got a competitive counterthreat to Quiznos. TurboChef got an $80 million purchase order, and Coca-Cola got the cola contract away from Pepsi.

We looked at this and said, okay, we have a company called Latch Access. Latch, similarly, was not going to sell their door lock, which was operated remote, by the cloud, from your phone to the average consumer. There were a lot of people that did this. They did direct-to-consumer. You had Amazon that just bought Ring, which wasn't a lock, but it was the doorbell, for $1 billion. These guys were not going direct-to-consumer; they were going to new build and buildings. And right now, they're in one of every 10 new buildings that's being built in the U.S., which is amazing. They did a clever deal with Walmart. Walmart wants to compete with Amazon. Walmart outfits thousands of buildings with the Latch system. Walmart wins, and their division Jet, Latch wins, and the consumer wins, because the consumer now can order something online, they can have a trusted person documented by video, when they came in, how long they were there. It was a win-win-win in the same kind of deal, where Walmart actually paid for the thing for the consumer, and Jet paid for the thing for the consumer. Latch got this big purchase order, and the consumer won. I like these three-way deals that are clever if you can figure out the appeal of the different interests.

Megas versus Minnows

Patrick: [00:19:14] One thing I want to make sure that I don't lose the thread on in this idea of megas versus minnows is advice for LPs. I asked before you came in, how often are you talking to LPs? And I think that right now is a really important time to potentially differentiate yourself as an LP by pursuing good strategies, different kinds of diligence on managers. I'm curious what advice you would give to an LP. Maybe this is venture-specific, but I'm even talking more broadly, just as a GP that's dealt with LPs. Advice that you would have for firms evaluating managers, like a Lux, like some of these other firms that we've mentioned. What do you think matters, maybe that is under-explored by investors?

Josh: [00:19:51] I think this is a classic process versus outcome. There are going to be some firms that get lucky, and they parlay that luck into a great success, and we have had our great share of luck. I will point to any number of our companies and be like, "You know what? In the end, being intellectually honest, we're really lucky. Maybe we're even wrong in our process." But I think being able to go into a firm and double-click and say, "What was the process here, and where did you get lucky? Where were you smart? How did you actually add value to the company? What was it about your network or your decision-making process? What was it about the price you paid or the way that you structured a deal, that in the end, it benefited you and the investors and your founders?" That's one thing which is observable and diligence-able. The other thing is reputational network because in venture, more than in hedge funds... I always joke that if my wife finds a discrepancy between price and intrinsic value, she's a public market hedge fund activist investor. The market doesn't come back and say, "Hey, here's another one." In venture, they do. People come back and say, "Hey, here's another one, because I want to work with you again. I enjoyed our partnership." You get this path-dependent positive feedback effect in venture, which is also observable. How many of the entrepreneurs in their portfolio have been repeat entrepreneurs? And there are some famous VCs, I can tell you, where the entrepreneurs have made money, they will never work with that person again. They think they're a horrible human being. There's a network, and people know who's good people and who's not.

The other is the team. Now, there are sole GPs, and there are teams. There are very large teams that are hyper-competitive, and there are very small teams where they have total equal partnership and economics. There's everything in between in all kinds of different flavors. I think this comes down to a portfolio approach, where an LP is looking and saying, "I want a mix. I want people that are doing super early-stage and they have an advantage at being the first money into a company, and I'm convinced that their reputation is going to lead to a low probability of having high financing risk." Somebody else is going to follow them because of their signal value. There's other people who are really good at looking at the metrics or the actual fundamentals of business and making good investments as growth investors. There's other people who have carved out a niche in a particular sub-sector. Maybe somebody's in fintech, or maybe somebody's in crypto, or maybe somebody's in med devices or biotech. When people invest with us, or if people haven't historically wanted to invest with us, its for the same reason. It's like, "These guys are a little weird. They do funky stuff." We like that.

The other thing that I think is observable is a team. How does the team interact? There are four or five different kinds of tribes that you can observe, whether it's inside of an investment firm or inside of a company, or even across the world. And I think they're really interesting because they're universal, and each one is dominated by a mantra. This is a mental model that comes from Phil Jackson, Eleven Rings, who in turn got it from tribal leadership. The first mantra is, "Life sucks." These are people who feel like they're victims. This is 2% of the population, basically homeless people and people that are in gangs or in jail. The next, which is about 20% or 30% of the population, are people that are basically like, "My life sucks." They're victims, but they show up every day at work, they have no institutional loyalty, they can't wait to come home and crack a beer and basically put their feet up on the couch, be with their family, and just go to sleep. The next is, they like what they do, but they have a mindset of, "I'm great, you're not." They're internally competitive with their teammates, they silo information, they're fighting over status and resources and money and fame and network, and they have no institutional loyalty. They will leave like a free agent the first opportunity they have. The next, which I think is where we are, roughly, as a firm at Lux, is, "We're great, they're not." You are dominated and defined in part by some external competitor. And you can look at Robbers Cave, the classic psychological experiment of this. But how do you get people to bond with a common enemy? Now, that enemy could be a goal, it could be a mission, but oftentimes, it's a competitor, somebody that wrongs you or somebody that, a zero-sum way, takes an allocation from you, or theoretically screws you over. The ultimate one is, "Life is great." Not, "I'm great, you're not," not, "We're great, they're not," but, "Life is great." Mission-driven. And you could argue that the early days of Google or Facebook maybe had that, and it's not clear if it is a cause or an effect of making a lot of money. But when you're making a lot of money, generally, you think life is great. Then, it starts to devolve.

Patrick: [00:23:27] Do you know an example of a life-is-great investment firm?

Josh: [00:23:30] I would almost say Berkshire Hathaway. Maybe I'm giving it too much of a mythology, but I generally think that it is a positive, small culture driven by very simple principles. I know that there's a lot of people that would say, "Well, there's a lot of mythology around that, and neither of them are individually that likable." But that's the first one that comes to mind. You guys seem like a life-is-great.

Patrick: [00:23:51] We're a happy bunch, for sure. It's an interesting paradigm. Your point about enemies or villains or common devil is really fascinating because back to narrative again, if you read Eric Hoffer, Mass Movements, the True Believer, that is the thing. The galvanizing thing is the devil, and without a devil, you don't have a mass movement at global scale. You wonder, is the potential scale the highest for level four? Maybe, because you need a common enemy. I don't know.

Josh: [00:24:16] Sometimes, you invent them. Sometimes, they are not necessarily anthropomorphized or an embodiment of a person. Sometimes, it is something like big oil or another government. One day, it'll be the martians. It's some exogenous threat.

Patrick: [00:24:39] I think, also, maybe if you abstract the devil a little bit, there's an ambition that comes at level four that maybe doesn't exist at level five. The complacency, it sounds like, could exist at level five. Maybe not.

Josh: [00:24:40] Yeah. Visually, you think of it as we're still climbing the mountain, and we're doing it together. We have something to solve, we have a goal to reach. It's again going back to the Shackleton's. We're going there. If you're already there, you're like, wwll...you're right. There's a complacent self-satisfaction.

Patrick: [00:24:52] I love the list. And maybe level four with a noble devil of some sort. Some noble task to be tackling is the perfect psychological state for a business. It's amazing for people that lead businesses out there to try to cultivate up this ladder. It seems like a very good goal, and it fits back to the five roles of the CEO that you talked about earlier. Really, really powerful idea. I'm curious now, with that in mind, specifically within Lux. Last time I was here, we talked about the relative merits of having consensus-type investments versus single person pounding the table. And even having a structure around that so that you make sure that certain people can be the champion of a deal without any consensus. I'm curious what the big internal debates here are today, a year-plus after we first talked. What are the big things that your partners are considering and maybe have opposing views on?

Josh: [00:25:35] One is a judgment-based one, and one is a values-based one. The judgment one is about price. Should we be super disciplined about this on price? And there is a persistent and pernicious pricing discussion. That was really said by Marc Andreessen, who said, "It doesn't really matter what price you pay, because there's only 10 companies that matter in any given year, and you want to be in those companies." That is true, but the problem, the fallacy of that is you don't know which ones of the thousands that are going to come. Either you spray and pray, and you just pay any price for what you believe to be the best children that are going to emerge, or you'd be discriminating.

Now, I think it has led to a very dangerous thing of FOMO and people willing to pay any price, because they say, "You know what? It wouldn't have mattered if we invested in Facebook at $5 billion or $10 billion, or LinkedIn at $3 billion." And everybody saw that LinkedIn deal, by the way, when Greylock did it at $3 billion, and people thought it was a crazy price. Well, in hindsight, it was prescient. I think that's a debate internally when we see things, where somebody comes and raises... "Geez, we're raising money at a $100 million value." See, that's crazy. We're very price-disciplined about a company called Cruise. I'm not sure if we talked about this in the past, but we offered them $20 million at a $40 million pre, so $60 million post. Another firm came in and offered them 20 at an 80, effectively double the price. During the course of diligence, we introduced Cruise to GM to say, "Is this something that you'd be interested in?" GM, 11 minutes later, we lost the deal on price because we were too disciplined, paid 11x, about $1 billion. Now, error of omission or error of commission, we look back and say, "Geez, that was a lost opportunity. We could've made 11 times our money in a year." But as a process, and maybe this is a post-factual thing I tell myself to comfort myself, but we actually believe that was the right thing to do. But we get into those debates all the time, and then you get these reference points. "Well, is this another Cruise? Should we just do this deal?" And I think that once you lose the discipline and start doing that, you have lost all process, and you're throwing darts.

Discipline and Values

Patrick: [00:27:19] Talk more about that discipline. When I think of price, I always think of anchoring it in the public markets. I've got the luxury of deep, long fundamentals, cash flows, et cetera. In your market, I think sometimes that's true. But what is the anchor for price? Against what are you measuring price to be disciplined?

Josh: [00:27:33] Well, this is where the debates come in, because we basically say, "Look, do we think we're going to have another bite at the apple?" Now, in the public markets, you will have another bite at the apple. It's just a function of price. In the private markets, if you turn somebody done, 90% chance they are not coming back to you. You rejected them. Now they're successful, they're not coming back and being like, "Yes, please invest in me now at a higher price after you rejected me." No, more often than not, they send you an email reminding you that you passed, and telling you about the great new round that they raised and how you could've basically made 10x. That's just human nature. I get it.

Avoiding that, it's really a function of human judgment about humans. Do we think that this person is going to execute? Can they raise money? Can they recruit amazing people? And it's really, at that point, will they, with the money that we and others are investing, accomplish enough that other investors, a year or two hence, are going to want to invest? Are they going to get paid? Are we going to get paid for taking the risk of funding them? And if we're passing on somebody, what we're really saying is, "We're not really convinced that we are going to get paid for the money that we're going to put at risk here." That really comes down to a judgment. A judgment about the person, a judgment about the uniqueness of the technology, about the market, about the product-market fit, about their ability to recruit a team, about the financing risk, all those things that we generally think about as risks. And if it's not there, then we just generally feel like this is maybe for somebody else.

Patrick: [00:28:45] The second of the two internal debates. You mentioned price is the first. What's the second?

Josh: [00:28:49] The values one is an interesting one, and it's one that is beyond Lux itself. I think it's an observable zeitgeist, and this is around the morality of what you are funding. We have a big view about the technology of humanity and the humanity of technology, and I generally think that the existence of a technology, the mere existence of a new technology, is almost Shakespearean. "There's nothing either good or bad, but thinking makes it so." I think it's just one basis point, over 50%, that the existence of it creates an option, and that is a virtuous thing because somebody can use that. And the history of technology you can find is often rooted in doing good things for people with disabilities, and we've talked about this in the past. But military is a really provocative topic right now. Should we be developing technology that has potential use for the military, whether it's ours or somebody else's?

We funded a company called Anduril. These are some guys that came out of Palantir, and they're friends, and they're super smart. But it is a super controversial investment internally. Why? Because most of my team is immigrants. We Kashmiri, Iranian, Pakistani, Israeli, Australian, Brazilian. And one of the first technologies that Anduril was focused on was an alternative to a physical wall, a virtual wall, something for homeland defense, and this was super controversial. It hit emotional hot buttons like I've never seen before internally, and completely understandable. We have other companies that are developing drones, that are involved in Project Maven, that are doing AI for image recognition. Now, I would say it's a virtuous thing if you can save a man's life who is carrying a pickax or a shovel and is a dad coming home from work, than if it's somebody who's carrying an AK-47. But those are moral decisions that technology plays a role in. Autonomous vehicles. You can make the argument, on the one hand, that funding an autonomous vehicle might reduce road deaths. 50,000-plus people die a year. Somebody else might say, "Well, wait a second. What about all the organ donors and people that are on these transplant lists?" There's very complicated pros and cons, and what we have come out with is you have to have a nuanced view of this, and you have to see who's affected and when.

But the military piece, to me, is a really complicated one. And why? Because in technology in Silicon Valley, the history and the roots of Silicon Valley were not this orchard which suddenly sprung Hewlett-Packard in a garage developing calculators. The history of Silicon Valley is in radar and electronic warfare and semiconductors for missile intercepts. It was about defense and war fighting. Today, over the past 20 years, you have Silicon Valley increasingly dominated by people that have come from outside the country, much like my team. Indian, Pakistani, Israeli, Chinese. You've seen three presidents, one of which, in Bush II, was jingoistic and fought two wars. You could argue one was just, one was unjust. You had Obama that was a one-policy president, focused on al-Qaeda, bin Laden. You had drone strikes killing innocent people. You have Trump, and politics notwithstanding, none of us here at Lux are fans. But you've got people that are like, "I don't want to develop technology for this administration. I don't want them to be used. This is a hateful, negative administration."

I can understand why people at Google are saying, "We don't want to be involved in those programs." And inside the Lux portfolio, I just did an event at the Council on Foreign Relations, and one of my companies, CTRL-labs, which we may talk about, where the CEO had to read a position statement. And he did, honorably, for his employees, who said, "We want to protest the panel that you're speaking on." And he read a beautiful thing that they wrote. Seated next to him on my other side was Nick Horbaczewski from Drone Racing League. Drone Racing League is a fun league. It's literally a racing league for drones. But they are also working with special operations and the military, and developing drones that can go 80 to 100 miles an hour in half a second, and doing autonomous drones and interesting things. They feel a patriotic duty. They say, "Look, there is no great American drone. The bestselling drone in the world is a DJI drone, which comes from China, has a Russian GLONASS chip in it. It is now prohibited by the military, and we have a moral duty to defend the very people that are defending our democracy."And that has been the position that Microsoft took. Google has taken the opposite position. They have said, "We're going to support anybody that is basically protesting, and we're going to absolve ourselves of these situations." Now, that has benefited some of Lux companies. We have companies that are involved in Project Maven for the AI identification of people that are coming from drone and satellite footage, that we have won in part because Google has lost.

But these are very complicated moral issue, and I don't think that you can be black and white about them. I think you have to be nuanced about them, but they're real. And I actually think they're going to play a bigger, bigger role on the geopolitical stage because China has no wall between the technology industry and the government. It is a pipeline, to and fro. And here, I think it's going to be very complicated, and I think there's going to be a decisive advantage over time. In fact, even in biotech, I talk about how China lacks something that we have. And because of that, because China lacks it, they will be absolutely ascendant in things like CRISPR, et cetera. And that is that we have a regulatory and ethics apparatus that slows things down. We have the moral discussions. And there, they don't have it, so that's why you see a researcher quote-unquote being slapped on the wrist for doing a CRISPR baby. That was absolutely with government decree.

Patrick: [00:33:34] The barriers to entry for experimentation are really interesting when you talk about regulator frameworks. I'm curious how you think about CRISPR specifically. I don't think you and I have ever talked about this. Whether or not that's something, the broad category of gene editing, let's say, or gene manipulation, that you see companies in, and what the viability is from an investment standpoint.

Josh: [00:33:52] There's been two or three companies that have raised a lot of money, and some have gone and will go public. I view it mostly as a tool. There have been big IP fights on both of these sides, between West Coast and the Broad, and I view it is a tool. But I think that the real value is ultimately going to be coming from the drug developments, the novel targets that people find. And maybe I'm trivializing it a bit unfairly, but it's sort of like somebody inventing the cut-and-paste feature on Microsoft Word. The real value wasn't ultimately the feature. It was what it led to in the platforms.

We talked, I think, a year-plus ago about this idea of X-Men. There's a few themes. The gap between sci-fi and sci-fact is one that is always shrinking, and this idea that X-Men, Professor X puts on Cerebro and he can spot the mutants. These are people shooting lasers out of their eyes and fire from their fingers. But this something that we actually started. The company is now called Variant. We started with two Cold Spring Harbor PhDs who quit their jobs and said, "Oh my god, this is all I ever want to do my entire life." And then another amazing business leader, that we met back from Council on Foreign Relations, who left her biotech company to join. We put this founding team together, and they have recruited the crème de la crème, from Nobel laureates to scientists to the former head and CEO of Illumina, and they are going after all the rare populations in the world who have fascinating phenotypes, meaning fascinating traits that have some genetic basis. 23andMe, Regeneron, most of those people have sequenced pale, male, stale, white Europeans, people that look more like us. Why? Because that's where the money is. Nobody is going to Senegal, nobody is going to New Zealand to sequence the Maoris, nobody is going to Tanzania, nobody is going to the weird parts of South America where you have interesting populations. And I'll share one story. I won't tell you where they are or who these people are. But there is a population that they found, there are nine families that remain. I love this. Why? Because I love scarcity. Super rare. Nine families, 1,000 individuals. These are people who, because of where they are, in the middle of the night, their metabolic rate goes up, because the temperature goes down. They have some gene that codes for some protein, and that protein, almost like a heat shock protein equivalent, raises the body temperature.

Think about this. Why do I care? Because a third of the population, half the population is obese in the U.S. Could you imagine if that was a monogenic condition, which means that it might be a drug-able target, that you could produce a pill that people could take at night, that they would be able to basically raise their metabolic rate and burn energy and fat while they sleep? That would be a $10 billion drug. Now, whether or not that actually happens, I can't even handicap that, but I'd say it's very low. But those are the kinds of populations that they're looking for. Where are the mutants that are out in the world that nobody is going to find right now? Let's understand their phenotypes. And most importantly, to this team's credit, talk about the morality of technology. The fourth person that they hired was a computational geneticist. The second and third person that they hired was a cultural anthropologist and ethicist because they want to get it right when they go to these different populations. One of their first was going to the Maoris in New Zealand. They don't want to continue what some people call bio-colonialism, the idea of exploitation. These people should participate in the economics of what they're doing in the same way that Yao Ming gets scouted by an NBA scout and joins the NBA, and his family and his local community and everybody else benefits.

Sci-fi and Sci-Fact

Patrick: [00:36:48] In addition to the debates, I'm always interested in the frontiers of theses inside of Lux as well. You already mentioned this closing gap between sci-fi and sci-fact. I know that's part of it. Talk about the other interesting ideas that describe the edge cases of what you're looking at.

Josh: [00:37:04] Sci-fi and sci-fact is amazing, because you can look at the annuls of this. You've got the tricorder that begot the Startec phone, you've got HAL that begot Siri. When Steve Jobs showed off FaceTime for the first time, it was literally like the video conferencing from 2001: A Space Odyssey. You've got podracing from Star Wars that begot drone racing. You've got this ever-shrinking gap. Either our scientists are becoming more creative, or our sci-fi authors are becoming less creative, but the gap is shrinking.

And Auris. Star Wars, you've got robotic surgery that heals Luke Skywalker's hand after Vader cuts it off. We funded this company, Auris, and this is interesting, not only because it's sci-fi, sci-fact, but also because it fits another theme that we call the four or five most powerful words in investing. People always say that the most dangerous words in investing are, "It's different this time." The most valuable words are, "It will rot your brain." Whenever it will rot your brain, those words are uttered by a parent, it basically presages the next $10 billion industry. You had rock and roll in the '50s, you had TV in the '60s and '70s, you had chat rooms in the late '80s and '90s. The internet, then you had video games. The video game couch potatoes of yesteryear are today's drone pilots and robotic surgeons.

Fast forward. Robotic surgery in Star Wars, it'll rot your brain. We find these engineers that are starting this company called Auris with this guy Fred Moll. Fred was the founder of Intuitive Surgical. Intuitive, $50 billion-plus publicly-traded company, battleground for longs and shorts. And we say, "This is interesting." Now, we did no top-down analysis. There was no white-space analysis of margins. We weren't looking at segment growth. We weren't looking at channels of distribution. We basically just bet on the two-legged mammal. We said, "This guy is a doer, he's going to recruit people, he's going to raise money." And we originally invested, I forget if it was $10 or $20 million, but I'll tell you this. We looked at the investment thesis memo. We were doing, I think, an $8 million investment at roughly a $20 million valuation. We forecast that they would need $60 million of total paid-in capital. We forecast, five years hence, that they would do $90 million of revenue, and that they might get bought for five times revenue, so $450 million. To show you how intellectually honest we are and/or how wrong we are, every one of those things was off by an order of magnitude. This robotic surgery company ended up raising not $60 million, but $600 million+ of equity. We originally came in $20 million, we brought Peter Thiel around 100, we brought Viking in at about 600, we brought Co2 and others in around 1 billion. J&J invested around that price. J&J ended up buying them for just under $6 billion.

It's an incredible outcome for everybody. We made 63 times our early money, it will return over half a billion dollars to our investors, and we've already returned over half a billion dollars to our investors over the past year and a half. People are ecstatic. But our entire process was totally flawed. We thought it would raise 60, they raised 600. We thought it would do 90 million, they did less than 10. Might get bought for five times revenue, it got bought for $6 billion. It just reminds me of the constant truism, which is nobody knows nothing, including us. Auris is a great example of sci-fi, sci-fact, in this idea of it'll rot your brain. And by the way, Drone Racing League, the same thing. Podracing, and video gamers who are now not only competing globally, but also doing, effectively, military tours.

The third thing that I think is really interesting, and this is the timeless one, directional arrows of progress. When you can spot a directional arrow of progress, it does not tell you who the entrepreneur is or what the company is, but it increases the probability that you're going to be right about the sub-sector.We know, that in lighting, we went from a burning flame to a filament bulb to a light-emitting diode. We are not going back to torches in the office. We know that we went from spinning mechanical disks to solid-state memory or hard drives. We are not going back to mechanical disks. Flash memory, and you've got solid-state drives. Same thing with energy. That's what led to our thesis around nuclear. You went from carbohydrates to hydrocarbons to uranium. The trend was undeniably more and more energy density per unit of raw material. You're not going back to an agrarian economy. When you find these arrows of progress, you just ride them.

We had this crazy thesis that I called the half-life of technology intimacy. And I shared this with one of our entrepreneurs. This particular entrepreneur I shared it with is Charles Zuker. Charles is a seductive silver-tongued scientist. He's actually a Chilean scientist, he's one of the highest-paid professors at Columbia. He's a genius, started multiple biotech companies. We met him, and he was hacking your sense of taste. He was able to take a mouse that was sitting there lapping up a sugary water drink and wince with disgust at it, and then go over to this broccoli water that was bitter and disgusting and lick it up like it was ice cream. We were like, "This is amazing." And then he was able to take a mouse that was totally water-sated and not thirsty, and make it drink until its body weight was filled about 50% with water. We said, "We need to be in business with this guy. He's doing magic tricks. This is science. This is amazing." We ended up funding him and his company called Kallyope. What Kallyope was focused on, while everybody in the world was focused on the microbiome, all the bacteria in and on and around your guts, he said, "No, we're going to focus on something nobody's focused on, which is the gut-brain axis." Everything from the sense of satiety when you feel full, or if you have friends that drink Diet Coke, they drink a ton of it. Why? Because it tricks your sugar receptors on your tongue, but not the sugar receptors in your gut. The sense of, "I have butterflies in my stomach," or, "I have a gut feeling," there's a physiological truth to that.

We incubated the company here, we did a $45 million series A, brought in two other investors, and then we did a $60 million series B, and we brought in Jim Simons from Renaissance and Two Sigma, both of whom care about the data. And then I brought in Bill Gates, who put in another $15 or $20 million. And these guys did their first deal with Novo, focused on CNS disorders, because a lot of people were trying to get a drug to the brain by making a small molecule. And these guys said, "Wait a second. What if we can get to the brain through the gut? And we can create a gut-restricted molecule that just sits in the gut, but actually does something in the brain." It's crazy.

Charles is this brilliant guy. I tell that backstory because I share with Charles the thesis that I'm going to share now, which is this half-life of technology intimacy. 50 years ago, you had a giant ENIAC computer. It sat there in the corner of the wall, you physically stood up and you went over to it, you pulled some plugs, you flipped some switches. First half-life, 25 years ago. You have a personal computer on your desktop, you are tickling the keys, you have a mouse under your palm. Gets a little bit closer. 12 and a half years ago, you have a laptop. Now, you have the same keys, you have a track pad instead of a mouse, and now it's touching your thighs. Six and a quarter years ago, now it's your phone. First thing you touch in the morning, last thing you touch at night. Cradling it, swiping it, pinching it, zooming it. And only thing separating it from your body is a thin film of fabric in your pants pocket. Three and a half years ago now, you've got this, the Apple Watch, constant contact with my skin 24 hours a day. AirPods a year and a half ago. The undeniable directional arrow of progress is that technology is becoming more intimate with you. I share with this Zuker. He says, "You have to talk to Riordan." I said, "Who's Riordan?" He introduces me to this guy Thomas Riordan. Now, Thomas Riordan, like any good sci-fi character just goes-

Patrick: [00:43:25] What a great name.

Josh: [00:43:26] He goes by Riordan. It's like Ripley out of Aliens. I go and meet Riordan, and I fell in love. I fell in love with his technological genius, his philosophical genius, what he was accomplishing, and how unique and rare it was. And this was one of those,I think I've called this, last time we spoke, the Pampers effect. You're basically trying to contain yourself while you're talking to this person to not signal how badly you want to fund them. I meet Riordan, and what is he doing? He is looking at every control device around us and saying, "I can get rid of that." A remote control, a dial on a thermostat, buttons on a clock, the touch pad on a phone or on an ATM, a keyboard. He can get rid of that, because, here's his story. He's 17 years old, 1990, one of 18 children, 10 biological and 8 adopted. He's a math and science prodigy, and he's taking classes at MIT in science and math. And this guy named Bill Gates, who we started a bunch of companies with, goes and taps him and says, "I want you to come work with me." He goes to Microsoft, and for the next decade, he's Bill's right-hand guy, and he single-handedly helps to launch the Internet Explorer program. He also is Bill's right-hand guy through the Department of Justice monopoly trial against Andreessen and Netscape. Makes a ton of money, technologically renowned. Now, it's 2000, does another company, sells that. Now, it's 2003, and he does what anybody that's now rich or renowned would do. He decides to go the college and actually get a degree. And he gets a degree in classics and Latin. He's just a polymath, he's interested, he's a sponge, he wants to learn. And then he does that, and then he goes for the next 8 years and gets a PhD in neuroscience. The other thing about the kind of mind of somebody to go do this. After all that success and everything he's done, he goes and gets a PhD in neuroscience. Who is his thesis advisor? Charles Zuker, who we ended up funding originally in Kallyope, who directs us to Riordan.

I meet Riordan, and this was the epitome of the Arthur C. Clarke, "Any sufficiently advanced technology is indistinguishable from magic." It was just magic. You put on, effectively, a wrist strap, and it is able to detect, of the 15 billion-plus neurons that innervate the roughly 15,000 neurons that in turn innervate the roughly 15 muscles in your hand. It can detect every single one of those 15,000 neurons. And why does that matter? Because it can perfectly model everything that my hand is doing as I type or as I turn a switch or flip a button. But what's crazy is, without me actually moving my fingers, just by thinking about moving, it can control it. Which means that I can sit here and just think about turning the thermostat or think about typing, and it will basically form the action. And I said, "This is going to be a universal controller." If I would've told you 10 years ago you're going to get rid of your keyboard and you're going to be typing on a piece of glass, you'd be like, "That's crazy. What I have works." And I'm telling you now, that in the next 10 years, the control system that you interface with, just like the mouse is basically gone, you will be pointing at a device and basically turning and controlling it. You will gesture with your fingers to change the song on Spotify, you'll gesture up to raise the volume and lower the volume. And his big insight was, we don't have an input problem. You can look at Bloomberg screens and you can look at tons of information, you can see everything. We have an output problem. You and I are having a conversation, people are listening to it, but I'm speaking word after word. You type letter after letter, word after word. It's very linear. But the ability to communicate, multiple surfaces, multiple objects, multiple robots around you, is never before been possible. What he's doing is absolutely magical. We led a $30 million series A. Google and Amazon also just invested another $30 million. I did not sleep for three days trying to get into this company. When Lauren finally met Riordan, she was like, "You!" And now, my biggest stress is making sure that he doesn't sell before we realize maximum value, because I am convinced that this could be a $10 billion business.

The Arrow of Progress

Patrick: [00:46:50] Let's take that incredible example. The arrow of progress, I love this half-life of intimacy. It makes you think, okay, great thesis. Go find other firms that might be touching or adjacent to the same idea. You mentioned AirPods. What's the next step there? Implants? Somehow your body charges an implant that's just in there forever? How much do you try to really round out a thesis like that and go fill a portfolio up with companies all on that same directional arrow of progress? Or is it rather, "We just know that's there, so when we see a company that is on it..." You see what I mean? Which way the direction goes in your activity.

Josh: [00:47:26] Sometimes, we let the founder lead us. You can see that arrow of progress, and you knew that gesture and voice were going to be the next thing, because they were both roughly invisible. The technology in all those cases is getting more sophisticated, but they're getting more invisible. You have Alexa, you have Siri, you have Google Now on voice. You can roughly do things, I guess, for the weather or change a song. We talked about this. What do you actually use this for? Gesture today relies on a fixed 3D depth-sensing camera, basically the kind of stuff that comes off Microsoft Xbox or PS4. Your kids are playing Just Dance or Dance Dance Revolution. But for me to have gesture always on and with me was something that never existed.

You've got Elon Musk talking about neural lace, where you actually can put something in your brain. And I'm like, "Come on, this is ridiculous." You want to pair that directional arrow of progress also without Occam's razor. And what something like neural lace underestimates is actually how sophisticated technology is that you never need to do that. You do not need to go and implant something into somebody's brain, because you can read not only the neurons inside their arm, but their intention to move. That is crazy. And that's only possible now, which is another great question to ask. Why now, as opposed to five years ago? Five years ago, you did not have the GPUs, the machine learning algorithms, the data, the ability to detect the sensors. All of those things come together, and all new things come from combinations of old. It is the combination of all those things in the past that now make that setup possible.

Patrick: [00:48:36] It's such an interesting field. Increased intimacy is fascinating to me, and I think we talked about this last time about, to what end? I always love that juxtaposition of Orwell and Huxley. Which one was right? Is it Huxley, that we're just all taking soma and amusing ourselves to death, so to speak? Or are we moving towards something, higher order of wellbeing for people? But it seems undeniable that something like that has just insane broad applications, even without knowing where it will manifest first.

Josh: [00:49:01] I actually believe that there is a moral imperative to invent technology. The moral imperative comes because... Imagine a world in which person X existed and technology Y didn't. Imagine a world in which Mozart exists, but the harpsichord doesn't. In which Hendrix exists, but the electric guitar doesn't. In which Spielberg exists, but the eight-millimeter camera doesn't. Bill Gates exists, but the PC didn't. Every one of these things was an instrument for them to express a form of genius. And there is somebody, whether it's your son or my kids or somebody that's out there now, that is going to encounter technology in 10 years that doesn't exist today, that they will play as their instrument to the world, and the world will be better off because of it. We are better off because Wynton Marsalis discovered the instrument that he did. We are better off because somebody with an incredible voice, Adele or whoever, found the microphone. I'm just absolutely convinced that there's a moral imperative to invent technology.

One of the interesting things, even when you think about technology and family and people saying, "Well, we're becoming less human," I'm really caught by the idea from Tom Stoppard. In The Coast of Utopia, he was basically saying we're losing touch with our humanity. And he has this great quote that I love. He says, "Where is the song after it's sung? Where's the dance after it's danced?" Now, in his world, it disappears into the ether, or into your memory. In my world, because I document everything and I upload it to the cloud, it is basically caught forever, and I have fidelity, whereas memory is this very infidelitous technology. I love that technology increases our humanity. If you could do two moral things, hit that moral imperative to invent so people can find their genius, and then find ways to reduce human suffering.

Patrick: [00:50:36] Do you think that there's enough, given this opinion, of venture investors, early-stage investors, focused on real technology frontiers versus some of the more traditional, let's say, consumer-type categories or something like this?

Josh: [00:50:51] Is versus ought. Is, no. Ought, I hope not. I don't want a lot of competition.

Patrick: [00:50:56] Fair enough. Well, I don't know. That somewhat conflicts with your moral imperative, but I understand the self-serving part. Couple closing ideas, and then a story. The first would be a couple new theses around here that we talked about, one being scarcity veracity, and then the second being death of privacy.

Josh: [00:51:12] I'll add one to that, too, which I'll share very quickly, which is this idea that if you can spot things... I've talked about in the past, what sucks. That's a great opportunity, because anything that sucks, somebody's motivated to want to change. Another one is when you discover something where you're like, "Wait, what?" And if you can find those wait-what moments, it's like a secret piece of information that is staring right in front of you, but just the turns of attention I've not turned to. Right now, for example, 100 million mice in cages and people that are doing drug trials, you literally have a guy with a clipboard that comes and sees, "Is the mouse alive or dead?" And we looked and said, "Okay, wait a second. There's an opportunity for a technology company that can go and basically automate that." Put sensors in cameras, and watch these things 24 hours a day and spot the anomalous activity, because maybe the drug that you're intending to do X might actually have some side effect. That is actually the really valuable thing. That's a crazy example. If you look at document storage, that's another wait-what. You have a company like Iron Mountain, started with mushroom storage and then went to atomic storage against the nuclear and Cold War. And now, became a REIT, because they were making so much money storing documents. Now, they're basically a real estate company. But all the banker boxes that we have, thousands and thousands of documents, all the unstructured data, perfect thing for robots and technology to come and scan all that information so it's accessible. Iron Mountain can't do that. And you're like, "Wait, what? That's what they actually do? That's crazy."

On the new theses, death of privacy, this relates to that idea of memory. I have a partner who... I call it the entropy of information. He tries to protect his privacy in every possible way. Piece of tape over the camera, default opt-out of GPS, won't sign in and post anything on social media. He is an absolute ghost. Almost like Sandra Bullock in The Net, he has erased himself. I have given myself over to the information gods. The worst thing that has happened in my life is when Arthur was being born, and Amazon knew that it was a boy somehow. They sent us Thomas the Train diapers instead of Axe body spray, because they know I'm not a single guy. But by and large, I find that I get way more... And again, this is my philosophy of life, random optionality. I get way more optionality exposing myself to the world.

But I do believe that is observable, that there is a death of privacy. Anything that can be surveilled will be surveilled. You may have private messages of privacy in your bedroom and your bathroom. But by and large, we have speakers that are recording everything, we have cameras that are seeing everything, you have people that are listening. Everything around you is basically a surveillance device. Now, whether it's doing it with malice or intended to make your life easier, this is also the perennial trade-off between convenience and privacy. I have opted for convenience, and I've lived a life which is almost an interesting way. You used to have gods that you appeal to for your morality. Just assume you're always being watched. Front page of the New York Times, you're constantly under surveillance. "We've met the enemy, and he is us." I think it's almost an interesting prescription for morality. By the way, science-fiction, science-fact. There's a great graphic novelist, Brian K. Vaughan, who did Y: The Last Man, and a new called Saga. And he did this side one called The Private Eye, where he imagined a world where basically everything is being surveilled, and it changes the fashion of people in the world because everybody's going out into the streets. And they all look like carnival, they were wearing masks and hiding their identity so that they're able to maintain some anonymity. Death of privacy is one where I think that is a losing battle. I think the death of privacy is a losing battle, where you are going to spend more and more energy trying to fight the inevitable directional arrow that we are basically going to be constantly surveilled, and I think younger and younger generations are going to be comfortable with that. Evidence for this. 15 years ago, don't post on Facebook, you at the party, drinking. Now, nobody cares. Why? Because everybody's done it. It has now been so socially diluted, it's irrelevant.

Patrick: [00:54:27] How does that manifest investing-wise?

Josh: [00:54:29] I've seen a bunch of companies that are actually focused on, "We're going to increase your privacy and your security." And to me, we've basically taken a stance. You want security for industrial operations, you want for SCADA systems and control systems, where when you're manufacturing something, you don't want that kind of stuff to be hacked. But personal privacy, I just think it's a losing battle. Privacy is one.

In the late '90s and early 2000s, you had an abundance of what? Content. And the scarce thing became search, the ability to look through all that content and decide what's valuable. Ergo, in hindsight of course, Google. Of course, in the late '90s, picking Google amongst AltaVista and Lycos and Yahoo and all these others was really hard, but in hindsight, the scarce thing became search. Today, you have more tools than ever before, an abundance of being able to make fake things. Photoshop was the first thing for photos, but now you see videos where you cannot tell the veracity of the video. These were the techniques that were once the domain of $50 million-plus Hollywood movie blockbusters, like Terminator. Today, you need a webcam and some algos and software on your computer, and the average person can do this. I believe that being able to detect veracity in digital content is going to have value. Now, the question is, is this going to be a feature or a standalone product? But I think as the techniques become more and more sophisticated, the ability to detect artifacts and find out whether you're looking at something that is real or fake is going to be valuable.

Patrick: [00:55:44] Sounds like a blockchain potential application, where you could sign with a private key. You're a politician or something, you put a video out, and there's some signing that's independently distributed. Seems like maybe finally an interesting use case for blockchain.

Josh: [00:55:55] The most clever veracity that I've seen in the past six months is not blockchain. It's not some crazy crypto thing. It was Banksy, who's got this clever technique, where he's got a private store. It's the ultimate cryptographic thing, but it's analog. He rips a banknote, the banknote is stored. If you have a banknote, you take a picture, and you show it so that you know if the one that is attached to the Banksy thing actually matches up with this, and only he knows. It's a very clever way of basically confirming the authenticity and veracity of something, but it's so analog, which makes it so clever. Those are two theses that I'm spending a lot of time on.

Patrick: [00:56:29] I thought it would be a fun place to close with your recent adventure with special operations guys. I know you were with them for a week or something. Seemed like, from afar, a really cool trip, so I'd love to hear about the experience.

Josh: [00:56:39] Let me tell you how this starts. It was about two weeks in February this year. In November of last year, I'm in a meeting, and BB, who runs my life, and BB knocks on the door. I'm in a meeting, and I wave her off, because I need to finish the meeting. She persists with some urgency, which is unusual, so I come out. And she pulls me aside and says, "Josh, there are three federal agents downstairs that are coming upstairs and asking for you."

And my face goes white, and I'm thinking, "What the heck did I do?" And she says, "What do you want me to do?" And I say, "Well, let them up." Not that she had a choice, but our elevator opens to an open plan here, and I go to the front. I'm just racking my brain. What could I possibly have been involved in that three federal agents were coming upstairs? And I go to the front, and these guys get out, and sure enough, they're federal agents, and they say, "We're here for Josh Wolfe," and I say, "That's me," and they say, "We're General Tony Thomas's advance team." And I let out the biggest breath, exhale of relief. I'm like, "Oh my god." Then they say, "What did you think you did?" Well, they were here two days before, and unannounced, when I was to meet with four-star General Tony Thomas, who is the head of USSOCOM, which oversees the SEALs and Delta Force and Rangers and a variety of other operators. And we have this amazing meeting, and a bunch of our existing Lux companies serve SOF, the Special Operations Forces. As we've talked about, everything from drones to satellite imagery to AI to communication systems.

And at the end of this meeting, he says, "I'd like to take you out to the edge of the formations." And I said, "Okay." The idea was, actually, on January 2nd of this year, I was supposed to travel with him to Afghanistan, Syria, Iraq, Jordan, Lebanon. And on December 26th, he calls and says, "The president's announced that we're pulling out of Syria, and we are not actually exactly pulling out of Syria, but the tone and tenor of my trip has changed and I need to go and reassure allies, so I can't physically take you with me. But in three weeks, we're going to Asia, and I'd like you to come there."

We ended up going to Asia. We went to Philippines, Thailand, Malaysia, Singapore, Japan, Hawaii, and it was everything from direct action, the kind of stuff that you see in movies, training, coalition forces, snipers, subsea, SEALs, some of the most cutting-edge technologies that I've ever seen. And some of it is eye-opening, in that you're able to look at things that have the ability to do a laser-pointed target on the ground in five seconds. But yet, on the other end of the spectrum, it takes them five minutes to save an email. There is a problem of over-classification. People are complaining about those kind of technologies. And I was basically there to do what I do in my daily venture life, which is to look around the world and say, "What sucks." And from the panoply of portfolio companies that we have, what could help these operators, who are quite literally at the edge of the formation, the tip of the spear? I was so humbled. The intellect, the intensity, the ferocity, the historic grounding. I felt super proud to be there. I felt super proud that our company's involved, and super inspired by some of the threats and the opportunities. There's a big focus on Asia and the Pacific. We were down in Western Mindanao in the Philippines, where there's a lot of human trafficking and drug trade. About a week after the Jolo bombing, which was the biggest bombing in their history. It was Muslim insurgence coming up from Indonesia. And the scope of the opportunity, and for these people who are basically dedicating their lives to the most well-intentioned, to that earlier morality of reduce human suffering, it pales in contrast to what... I came back and I was like, "Whatever my biggest stress is..."

Patrick: [00:59:52] Shut up.

Josh: [00:59:53] "... my day-to-day stress, come on." I was with one guy, Mark Wong . He's a 27-year SEAL retiring at the end of this year, and he accompanied us through most of our trip and helped keep us safe. But he was a guy that trained Chris Kyle and Jocko and all these guys that gone on for some personal fame. But it was absolutely eye-opening and life-changing.

Patrick: [01:00:08] Any thoughts on the personality types of the people that you met? And I ask that question because my best friend from growing up was a green beret for a long time, and there's a very funny picture of me in his wedding where I'm the only non-green beret in the wedding, so it's me in a skinny suit and all the other guys in full regalia with the swords. It's about as small as I've ever felt. But spending time with that group of people, every time I do, is stunningly eye-opening, and I don't want to lose the opportunity to hear a bit more about maybe your impressions of the personality types.

Josh: [01:00:39] Well, first of all, this is a person that is drawn to somewhat what we talked about earlier, which is a narrative. It's a powerful narrative. It's a narrative about a country. You could argue that it's an intersubjective belief about whether the U.S. itself actually exists, but for the fact that we believe in it. But it's something where they've decided that character and honor and integrity and sacrifice are things that I think the world would do better to have more of. What's interesting is if you talk to people that do BUD/S and SEALs training, they will almost uniformly say they cannot tell who will make it through, but they can tell who won't. And the people who won't are almost invariably the ones that are muscular, jacked, have lots of tattoos, all the optical signaling to say, "I'm a tough guy." And the people that do are the ones that might be like me, small or scrawny, but they have the mental toughness, or they have the team camaraderie, or they have something that just psychologically gets them through. And when you meet some of the operators and you see this, you're like, "This is a warrior."

Patrick: [01:01:32] There's a quietness that I always think about with this group that I'm more familiar with, which is remarkable. I'm lucky I get to talk to all sorts of fascinating, smart, talented, successful people, but they tend not to be quiet people. And these people are stunning in their work ethic and their commitment and their talent without commensurate loudness. It's inspiring, so I'm glad you got the experience.

Josh: [01:01:55] It is a stoic intensity, and it is true, because you do not see braggadocio people. Maybe they tell stories 10 years later after they're out, but the stoic intensity is admirable.

Patrick: [01:02:05] This was maybe even more fun than the first conversation, way down into the weeds on a bunch of stuff. Always love spending time with you, so thanks for the time.

Josh: [01:02:11] Patrick, always a pleasure.

Created by @_Nick_Diller