Josh Wolfe & Nitin Rao Fireside Chat

Hello and welcome to Cloudflare's birthday week. It's been great through this week speaking with industry leaders we respect, talking about the future of the Internet. I'm really honored to have as my guest today, Josh Wolfe, the founder and managing partner of Lux Capital. I've had the chance to actually meet Josh only once, like almost 10 years ago. So it feels like a chance to catch up and really honored that you could make it. Thanks so much for joining us. Only one of us went gray in those 10 years. So that's good. Well, if you look closely, there's a lot of gray here. So maybe to start off where I thoroughly enjoy following your tweets. It feels like sometimes you're an optimist and you're a cynic and sometimes you're both. So which one is Josh Wolfe? Josh Wolfe contains multitudes like we all do, but I'm generally a wildly bullish optimist when it comes to science and technology and engineering and particularly things that are rooted in truth, people inventing and discovering the unknown. And I'm almost a perma bear or cynic about that one unchanging thing that has lasted for a millennia, which is human nature. We evolve to be petty and competitive and alliance forming and jealous. And in addition to all the things, of course, that we are as humans that make us great. But I tend to be generally long science and scientific progress and very short human nature just because it's always human nature that leads us to a lot of the bad things. So yeah, what you see on Twitter is a mix of me railing against hypocrisy or fraud or deception or misleading. And people often can't reconcile that. Like, how are you this optimist that's this venture capitalist investing billions of dollars in the future, but sort of taking pot shots at people that you think are dishonest. So that's how you reconcile it. And so I remember one of the things you mentioned was that especially early in the journey of a bold idea, it's sort of hard to tell the difference between sort of visionary and fraud. Can you even tell you can't tell until after the fact? And, and particularly if you're, if you're an early engineer who's thinking about joining a startup, how do you tell how do you tell the difference? It's so hard, you know, I mean, we find ourselves as a mantra here as investors saying that we like to believe before others understand. And that by definition, you know, the idea of like believing in something before you have the evidence to do it makes you vulnerable, makes you vulnerable to, you know, to being deluded and, and misled and, and fraud defrauded. So, so I, it's interesting because if you ask my partners, almost every engineer that walks in here, you know, if you ask them, what is Josh thinking? It's usually like, is this person a fraud? And, and it's such a fear of being duped and misled. And thankfully we have a very diverse partnership and there are other people here that are just like full believers in certain things. And if you had an entire firm that was like me, we'd be a bunch of cynical short sellers probably. And if you had an entire firm, you know, that were true believers would be lemmings going off the cliff and investing in, you know, Theranos type things. I think the healthy balance maintains, you know, positive belief in what could be and a healthy skepticism. And, you know, at the end of the day, we take a risk, we take a risk on an individual. And you are absolutely right that at the point of inception or conception, you have no idea whether the person is visionary or they are delusional and whether there's malice and intent to deceive, or it's just naivete. And, you know, you, you make an investment and you figure out what cards you're going to flip over, just like if you were playing a poker game, and then you have to have the intellectual honesty. And usually that comes with a partnership that will hold you accountable to say, okay, wait a second. The thing that we thought was going to happen, hasn't happened. Do we need to revisit this and be intellectually honest? Well, one of the things I found really interesting is that like you look at the list of Lux portfolio companies and they look different from the kinds of lists that you typically see on a venture capital site, a list like these aren't, these aren't apps you can burn over a weekend. These are, these are sort of hard technologies that that take time. Can you talk about like what's the thesis behind that? And why the focus on on a different timeframe and different types of technologies? Some of it is rooted in competitive nature. So I'm psychotically competitive. And I like to invest in areas where I think that other people aren't. And so I personally am a voracious reader. I try to understand what's the consensus in the market and what's the variant perception that other people haven't found. And sometimes that's like arrogance. You know, maybe I'm, I'm thinking that we're smarter in some area or that we've discovered something and it's actually ignorance. So we're sort of intellectually honest about that, but I would much rather invest in an area where there's only five companies. And oftentimes that means barriers to entry and the barriers to entry for, let's say a platform that's robotic surgery or somebody inventing a breakthrough in physics around metamaterials or somebody developing a brain machine interface. There's something that is far harder to to replicate in those examples. It could be that it was the life's work of a, you know, some of a scientist or a principal investigator who got their PhD and spent eight years doing something. And there's intellectual property that is quite literally a moat that prevents somebody else. It could be that there, there's some proprietary or competitive advantage technologically or in the know-how of the people that even if somebody else had $50 million and 50 people, they wouldn't be able to throw resources, you know, at this thing. It's, it's a true unfair advantage. So I tend to find that that exists when there's an asymmetry of the technology. And so I'm sort of competitively always looking for, you know, the area or the technology or where I think everybody else isn't, because as you noted, you know, if it's just an app, there might be 500 competitors in a given space and it might come down to luck or better execution or better relationships or connectivity or a first mover advantage. And none of those things to me are necessarily like, you know, path dependent, repeatable. So yeah, we tend to, you know, end up finding really quirky things. And oftentimes the things that we invest in today, you know, I could never have imagined us investing in two or three years ago. And I know for sure that the things that we will be investing two or three years from now are things I'm not even thinking of today. We're talking about the last 10 years and the next 10 years. So, so maybe first looking back, what, what, what has surprised you over the last 10 years? Well, you know, there's positive surprises and negative surprises and everything is about expectations. So I'd say I positively surprised by just how much, and particularly as I'm getting older, how many brilliant younger people there are, you know, my favorite people, honestly, are people that are sort of like 22 to 32. They're full of life and ambition and energy. And like, I see myself in some of them where they don't know what they don't know. And that is truly a great virtue, particularly when you're starting a company. One of the guys that put me in business was a very famous hedge fund guy. And he was given a large amount of money at a young age. And he said, why, you know, why are you doing this to his mentor? And the mentor, you know, he thought he was really smart and mentors like, look, you know, it's sort of the same reason they put 19 year olds on the front line of war. They don't know better, any better than to charge full speed ahead. So I've been pleasantly surprised and extremely surprised by how all the great new things are coming from younger people. And I was once one of those younger people. And now I am self-aware enough to know that I'm, you know, between the gray hair and whatever, that I'm aging. And so I really want to both nurture and mentor younger people, but everything great, you know, whether it's fashion, music, technology, invention, big ideas, they all come from young people. And you look through history and, you know, it's, it's crazy how many people you look at and you're like, oh my God, that guy died at like 35 or 40 or whatever it was. And like, look at all he created or she created. So, so that's one positive surprise that I just, in sort of a self -awareness that how vibrant and optimistic one can be about young people, even if you still harbor my cynicism for human nature. I see the negative surprise for me has been, I would expect that with the abundance of information, the availability of the democratization of so many things that it was a naive conception that I and others had, I think, ideal, idealistically that we would have, you know, more truth, you know, ability to agree on basic facts. And I think whether it has been exploited by, you know, foreign countries, sovereigns, politicians, business leaders, CEOs, the abundance of misinformation, false information, you know, outright lies is something that I think I, I wouldn't have expected. I think, I think we all thought that, you know, the Internet would be this great digital form of sunlight, you know, revealing all and, and helping make the world a better place. And, and it's had a perverse effect. And, and we were, so one of, one of the guests this week was Scott Galloway. And we were chatting about, about him a moment ago. He talks about storytelling. And, and it feels like the, the companies are about the companies, but the companies are also about the stories the CEOs tell and, and, and, and more and more effort is spent on, on storytelling. I mean, a hundred percent true. And I mean, look, we even tell all of our portfolio companies, you can have the best technology in the world. And in some cases, the technology will speak for itself, but otherwise, you know, technology doesn't move itself. You need people to move technology forward. And therefore you need people to recruit other people. And what are they doing? They're telling them a story. And that story has to be better than another story. It's the same decision you make on a, you know, previously on a Friday or Saturday, when you went to go see a movie or, you know, now when you go through a Netflix queue and you decide what you're going to want, you're trying to pick the best story. You know, I have limited time. I've got limited resources. You know, where am I going to invest my time and attention? And you want to invest in something that is thrilling. A CEO that can tell an amazing story that then an employee that's working for that CEO can go. And when they're back home at Thanksgiving or on the weekends, or talking to a spouse or a partner or a loved one or family member and sharing what they're doing, they want to induce in that person that, Oh my God, that sounds amazing. And so that sort of serial concatenated, Oh my God, that sounds amazing is a deep desire for us to, you know, have amazing stories. So good leaders that tell good stories can recruit people, can raise money, can persuade partnerships, get media attention. All of that is accruing advantage over the person that can tell a good story. And obviously you want your stories to be true, but history and even our contemporary moment is littered with people that tell false stories and get people to believe in them. So what's it like being the, I guess, every organization has it. And, you know, the sort of being the like truth teller in the room, like you probably, I guess, in some settings probably doesn't make you very popular. So there are some people who, you know, I take potshots of certain technological heroes that, you know, other people are inspired by. And they're like, I don't understand, you know, you're beef with us. I'm not the sole truth teller. Lots of other people at Lux keep me honest, you know, from my own biases or my negativity or whatever it might be. But, you know, you have to have a comfort with the discomfort socially. And I think, you know, everybody prides themselves as though I want to think independently or, you know, be a contrarian. And, you know, you get this paradox of everybody's the contrarian and, you know, we're all sort of, but I think it's a comfort with standing out. And it's something, you know, I've got three kids and one of the life lessons I teach them is finding the balance between fitting in and standing out. And you don't want to be so much of a missing prop that, you know, you have no friends and you're lonely in despair. It's a painful, you know, feeling almost akin to physical pain, but you don't want to fit in so much that you're undistinguished and therefore, you know, not valuable. And I always say, whether it's at Lux or elsewhere, that if two people are identical, then one of them is unnecessary. So, you know, even the formation of Lux itself, Peter, my co -founder, who's amazing, is a perennial optimist, a positive person. You know, he's in pastel colors. I'm always, you know, angel of darkness and black and expecting the worst and very comfortable with, you know, the negative side of things. And so it's a nice yin and yang. And I think, you know, every culture that has, you know, some optimists and some skeptics, you know, is a better culture. Can you give us examples of just like ideas you saw, like entrepreneurs you back 10 years ago and sort of like, you know, where the companies are today? Well, let's see. I mean, 10 years is a long time, but, you know, one of the big contrarian things that we did that I was very proud of, because we like to say that we invest in matter that matters, which is the most sanctimonious, self-righteous, you know, sounding thing that you could say. But I like to invest in things that end up having meaning where, again, you know, I go back home in the story that I'm telling my children of like, we funded this thing and it did this thing is very meaningful. And it's interesting because before I had kids, you know, I didn't care about that as much, but now the sense of pride that you have to have these little people that look up to you, feel proud of you is something that I think is a very important governing function. We had a very contrarian view in the alternative energy space, which was hot 10 years ago, and people were finding solar and wind and biofuels. We got excited about an area that nobody was talking about because nobody was talking about, which was nuclear. And then you look around inside of nuclear and you say, what's the biggest unsolved problem? And we had looked at, you know, modular reactors, which are becoming increasingly popular today and, you know, uranium mining and all kinds of things. And we decided that waste management was the biggest problem. And we ended up starting a company because we couldn't find one in high-tech nuclear waste cleanup. And that company ended up getting very lucky when Japan got very unlucky and they became the only company for the cleanup. And with very small amount of money, we ended up making our investors a lot of money, but more importantly, we helped 40 million people in Japan remove 99% of the radiation from that Fukushima disaster. So intellectually and financially, it was very gratifying. And then morally it was, it was very fulfilling. I'm really proud of the team at Control Labs. You know, that was a more recent investment and really begrudging. That was a company I did not want to sell to Facebook, but it was this idea that was born in a thesis we had that we like to find sort of directional arrows of progress. And when you find them, it doesn't point to the particular company, but there's this inevitability to it. And when we find something that has a directional inevitability and it's paired with the perception from other people of impossibility. So when the inevitable meets the impossible, it's like the perfect setup for us as investors. And so here was an idea that was what we call the half-life of technology intimacy. And all that means is, you know, every half-life starting from 50 plus years ago, technology got closer and closer to 50 years ago, you had a giant mainframe. 25 years ago, you had a personal computer. 20, 12 and a half years ago, you had a laptop touching your thigh. Six years ago, it's your iPhone cradled in your hand, then your watch and AirPods and so on. So the technological trend is conforming more to you as opposed to the user interface. So you contorted over a QWERTY keyboard and voice and gesture were the next logical things. Gesture was well saturated between Amazon and Apple and Google and gesture was sort of limited to three depth sensing cameras and video games. And we got very interested in a technology team founded by two guys, Patrick Kaifosh and Thomas Reardon, who goes by Reardon, like a good sci-fi character. And he's an amazing guy. I truly wanted this business to stay private probably for the next 10 years. Facebook made two attempts at the business and ended up persuading the founders to sell and it was a great outcome for everyone. But it's the idea that in the next computing platform, you quite literally are going to just be thinking about what you want to do, whether it's typing or making a gesture to control a system around you. And instead of needing that control interface, which has buttons or knobs or levers, you can just think about moving that thing and it controls it through the computer and it's insane. It's quite literally like magic. So that was a big success. We were the founding investors in a robotic surgery platform that my partner Peter led called AORUS. J&J bought that for $6 billion and none of these things when you fund them turn out the way you want. The things that we are most excited about oftentimes don't have the outcomes that we want and things that we tend to have more tepid interest in in the beginning suddenly get these tailwinds and take off and surprise us to the upside. And so it's constantly intellectually humbling because on the one hand, you're trying to use pattern recognition to identify the traits and characters in entrepreneurs. But at the same time, the backdrop of the markets is ever changing and evolving in this complex adaptive system. And so the market environment today is very different from the market environment even a year ago, let alone five years ago. And so the playbook that you might've had then is totally different. The players, your co -investors, your later stage syndicates, the exits, the public market players. And so it's an infinite game and it's a lot of fun. Yeah, it sounds like you're having a lot of fun. So as a parent with kids, what kind of technologies, I guess, will your kids kind of take for granted, which I guess, folks with progressively more gray hair might not? Well, I'll answer this two ways. One is what I call these sort of one's future relics. So I have all these old things in my house that my kids are like, what the hell is that, right? So a video cassette tape, like we don't have a VCR. There's no way for us to physically play this thing. And so I have like these old home videos from that are like, me as a kid, I can't access it right now. I have to send it away to somebody to actually digitize and put it on. So that cassette tapes, the same thing, old phones, they look at these things, these ones future relics, these things were once futuristic. And now they're like, why would you ever have like a rotary? I don't even understand how this thing works. So watching kids look at old technology and watching old people look at new technology is equally funny. So the one's future relics, I think are really interesting. I happen to have a philosophy against, and maybe this is a bit contrarian as a parent, against the backdrop where everybody was lamenting screen time and how bad technology is. I sort of remembered, I grew up watching copious amounts of TV, playing tons of video games. I really was not a reader until I got to college. And even then I really judged a book by its cover and I would go to the bookstore at Cornell and basically like the things that sort of caught my interest would be the things that I gravitated towards. And I ended up becoming way more enamored with ideas that I discovered through the bookstore of like cool looking books than I did from my classes. And so I have found the expression of their creativity, even in things like TikTok or Roblox, where they spend a significant amount of time to far exceed what I was able to do interactively as a eight-year-old or 10-year-old kid. So I'm generally optimistic about technology. I want them to learn it like any language and to have a good relationship with it. And I think the people that are restricting or prohibiting it are going to end up with sort of weird, perverse relationships with technology all the time. I have a nephew who continues to amaze me by just what he learns on his own that I don't know if you can just like get in sort of put in a curriculum and you can actually plan from. You just come across as a really curious person. So who are some of the folks who have like inspired you over the years and you've learned a lot from? Well, it's always the people that I think are like wildly intelligent where I'm like, you know, what are they reading? It's always people that have something that is this sort of hole in them in some way. It's the people that always inspire me the most. I've never been inspired by people who came from successful families or lived these nice, happy lives. It's always people that were sort of the misfits and the outcasts and they had something broken. They could have been the immigrant in a mostly white, homogenous neighborhood. They could have been the fat kid, the kid with the list, the adopted kid, you know, the transgender, whatever it is. It was like somebody who basically didn't fit in and they had to find joy and stimulation, not in like normal friendships, per se, to start, but in something else that made them unique, you know, where they could stand out. And so for some people, it was skateboarding. For some people, it was music. For some people, it was technology. And so I happen to be very competitive when it comes to playing sports, but I didn't enjoy watching sports. And so, you know, my friends growing up in Brooklyn would watch football for like six or nine hours on a Sunday and I was psychotically competitive and what can I read to learn that they don't know because I could outcompete them in something. Same thing, like I was always a great late night owl, just voraciously reading competitively when I thought everybody else was sleeping. And so I think it's a desire out of competitive nature, which you could argue itself is rooted in insecurity, which is I wanted to be better than others. I wanted to be better than I was. I grew up poor and single mom in Coney Island, Brooklyn, and I didn't want to be poor. And so I was very motivated. And especially when I got to college, when I saw real wealth, because for me, real wealth growing up in Coney Island was like somebody with a house in Brooklyn, right? We lived four people in a two bedroom, one bath, you know, apartment. And then when I saw like people have like house and cars, like that was wealth. But man, when I got to Cornell and I saw like, you know, people had their own car and were going on ski vacations. And I was like, they're no smarter than me. You know, sort of the classic like ovarian lottery, like they were just born luckier. And so that really drove me. So I would say the inspiration, curiosity, you know, anybody that hasn't read all of Charlie Munger's writings is doing themselves a great disservice. You know, I probably first got hooked with the 1994-95 USC speech on obtaining worldly wisdom. But just, you know, that man's desire to understand in a very Renaissance way, so many different subjects, and then how you can reach into somebody else's domain, which, you know, you're often not welcome in. And then the connective tissue between disciplines just gives you an advantage. And I think that's the number one advantage that, you know, Buffett and Munger have had, which is, you know, an insatiable curiosity and desire to be rational. So I think just intellectually curious people, people that are willing to sort of think differently. You know, there's a Nobel laureate, Peter Mitchell. And during his Nobel talk, it was this amazing thing you can find online. He showed a chart, which was the basis for chemoosmosis, which is, you know, when something was going through the cell membrane in transport. But one of the slides he also showed was when all of his colleagues on a map of time, when they finally agreed with him after saying that he was wrong for so many years. And so like that chip on his shoulder, you know, to prove other people wrong. I love people that have a chip on their shoulder. And, you know, on Twitter, you've probably seen me say that chips on shoulders put chips in pockets. So, yeah, I'm inspired by intellectually curious people and people with chips on their shoulder. And when the two meet, it's awesome. It's great. Since we're talking about the future of the Internet, I know there are a number of technologies that are like Lux Capital companies, the companies you follow that are sort of improving the building blocks of the Internet. So from satellites onwards, can you give a couple examples of just technologies that will make the Internet as a whole safer and faster in the coming years? Yeah, I mean, one of the companies that I'm really excited about is subspace led by my partner, Shaheen, really thinking about like a new version of Akamai and sort of global caching and particularly relevant for all the real time proxies that are being used in, you know, gaming and video conferencing and sort of anything that needs, you know, any real time protocol. So that's one that I think is quite interesting. Yeah, anything that's giving connectivity and democratizing it where one's very expensive. Oftentimes, like in a case of a company like Kaimeta, it's something we founded with Bill Gates is making these super thin satellite antennas that as SpaceX and OneWeb and everybody launches assets into space, you still need send and receive capability and you want something that is not a moving dish, but something that is akin to our cell phone antennas that can rapidly switch from Leo or geo stationary satellites. And most of these things often start in the military and, you know, they become sort of critical must have things for special operations and army and others, and then it trickles down into the commercial world. So that's something that I think globally will be, you know, quite literally raining Internet down in a very impressive way. Suburban and rural connectivity, we have another company common networks, you know, sort of beaming Internet through rooftop hardware. So yeah, those are a few of both the hardware and software things. And then there's a whole layer of security around industrial Internet and sort of Internet of things that, you know, I think is is pretty critical as we increasingly see a lot of vulnerabilities there. Where it feels like there are a lot of a lot of sort of smart engineers, they're trying to figure out their sort of relationship with sort of national security technologies. It's like, it's sort of almost binary, either a very good thing or, or something you want to stay really far away from. How do how do engineers figure out whether this is something they want to they want to spend time on? I think reading a combination of history and moral philosophy is actually really useful if you're a technologist, because, you know, I was very anti military growing up. I mean, I was very anti war, I was very anti, you know, hegemony. And then as you read history, and you can read a wide range of history, you can see that even very well intentioned, good people have to contend with, you know, malintention, bad people. And, you know, putting a label on that is itself a value judgment. But there, it would be ideal, you know, if we had a totally peaceful world. But to do that, you would have to get rid of ambition, and jealousy and vengeance, and competition for scarce resources and zero sun, you know, fighting. And, you know, that's something that is sort of time memorial of humanity, unfortunately. So if you don't have common rules, and a sort of Leviathan, as we do, say, domestically in the US, with a monopoly on power, then you have states that disagree over, you know, whose land or whose borders or whose rules should govern. And you can try to reason and negotiate and find means of leverage. And then ultimately, when all that fails, you know, as has been said, wars or politics by another mean. So as it relates to technology in those domains, you know, there's a reason we call it the Department of Defense, as opposed to the dark Department of War, a lot of the most interesting technologies today, let's say, are focused on how do you intercept hypersonic missiles that Russia or China might be developing, you know, for offensive threat, the US is not developing, you know, those kinds of missiles to, you know, go attack and take over another country. But there are other people that are, you know, using that, like, you may have seen over the past 48 hours, with news of the President getting COVID, that there were nuclear, you know, planes that were flying at risk of intersecting intercontinental ballistic missile and ICBM that might be fired by an enemy seeking to take advantage. And that's the kind of thing that like North Korea might do out of, you know, desperation or leverage. So anyway, that's a broad overarching statement. But specifically, and in companies like Anduril, or things that we have that are related to drones are directly involved, quite literally in a kill chain. For us, I think it's an internal debate, by the way, about a lot of this. One of my partners has rightly said, you know, you can sort of twist yourself in a pretzel, morally justifying anything. I've made the case that having better technological resolution ultimately gives you better moral resolution. And so in one case, one of our companies is working on Project Maven, and they're able to discriminate between a farmer who is going home to their son and daughter with a pickaxe on his shoulder, and a person with an AK-47 that's going to a schoolhouse to, you know, shoot up a classroom. That, I think, is a moral decision that you want to help the military make, you know, to save people. And, and then in terms of, you know, supporting, you've seen sort of a bifurcation of, you know, Microsoft that has been Amazon that have been very supportive of the US military, and then, you know, others like Google that have had, you know, more difficult relationships, important in part because the employee base that has protested it. And at the end of the day, if you spend time with military, I mean, these are brilliant men and women who are literally making the ultimate sacrifice so that we can do all the things, you know, video conferences, and playing video games, and watching Netflix. And we get to do that stuff and not think about all the things that they do, you know. And we get to sleep soundly at night because they don't. So one of our partners, you know, is the former head of US Special Operations in SOCOM, four-star general. And, you know, he sent me out to the outer parts of the world with special operations. And I've spent weeks, you know, just seeing what these men and women are doing. And it's very brave. And they should be equipped with the greatest technology because their enemy combatants are. And to put them at a disadvantage is, I think, you know, immoral. Okay. Well, thanks so much for spending time. Thank you for your optimism. Thank you for your cynicism. I think both of them make us better. And so I really appreciate your spending time with us, Josh. Thank you. Great. Great to see you and happy birthday to everybody. Thanks.