Lux Capital has backed many of the familiar startup faces in Emerging Tech Brew. Today, the VC firm is launching a new season of Futura, its web series exploring the operations of portfolio companies. Futura S2 includes startups like Anduril, Cala Health, and Saildrone.

Emerging Tech Brew recently caught up with Lux cofounder Josh Wolfe to discuss these investments and more. Note: This interview has been edited for clarity and length.

Thinking about the new season of Futura, why is storytelling an effective way to highlight the projects your portfolio companies are working on?

I think you know this from what you do on a daily basis, but we are storytelling creatures and social primates. Futura tells the stories of the individuals, mavericks, and scientists we like to celebrate and invest in, who believe something that everyone else doesnt believe. Or the guy or girl with a chip on their shoulder and something to prove.

In general, having trusted insider access to people who are quite literally inventing the future is special. Being able to asymmetrically bring that to the masses is the motive for why we do it.

Whats it like researching, investing, and doing diligence in companies that, as you say are, inventing the future?

On the one hand, Im always quite envious of people who have those early revenue metrics and can say heres where well be in a quarter or year later. Oftentimes when we're investing, we like to say that we believe before others might understand, so that has us investing in the cutting-edge.

Were constantly assessing the people first and foremost. Are they for real or full of shit? Thats the number one thing we have to assess early on. Its really hard to know at the moment of inception whether someone is delusional or visionary, if theyre a huckster or someone thats going to go change the world.

Take the person coming out of their garage saying they have some new flux capacitor. Were going to treat that very skeptically, versus a PhD whos highly esteemed by their peers, has lots of polished academic research, and a commercial instinct. Thats way more credible.

How about evaluating or validating the technology itself?

The Lux team is very diverse and very technical, with backgrounds in neuroscience, electrical engineering, mechanical engineering, stem cell biology, and material science. But every technology reveals our own ignorance, so then the most important question is: Does it work?

Its amazing how many investors will invest in something and then become pot-committed. Its the worst kind of psychological biascommitment bias. We ask: How much money accomplishes what, in what period of time, and who will care? Theres usually an Oh wow, holy shit moment where we get very excited to double down. Thats when we go from putting millions of dollars to tens of millions of dollars or more into a company.

When you have that feeling that invokes the Arthur C. Clarke quote [Any sufficiently advanced technology is indistinguishable from magic], thats the greatest risk-reducer of all.

What else is a key differentiator for Lux?

One part humility, one part paranoia. Theres a phenomenon I call 100-0-100. Its a cute way of saying with 100% certainty well be investing in the most cutting-edge stuff people can imagine over the next two years. Zero certainty what those things will actually be. Thats the intellectual honesty. The last 100% is the confidence of where we will find the next investments, which is at the edge of our already cutting-edge companies. One leads to the next one, which leads to the next one.

I hadn't really thought about the tech crossover between startups working on very different problems.

When we invest in one company, it can lead to knowledge that lets us find others. A priori, you never know what the second or third company will be. But just by having a sufficient amount of paranoia and curiositythe confidence of staying at the cutting-edge on this treadmill thats always picking up a bit fasterthat can lead you to the next company.

VC is the only asset class where you can get legal inside information about whats happening. You start to see white space and whos entering it.

Take Cala from Season 2. In CTRL-labs case from Season 1, youre reading from the brain using pretty sophisticated software, sensors, and machine learning. Youre reading what the brain intends to do; its more about intention capture. Cala is the opposite. How do we take the same wrist worn device and instead of reading from the brain write to the brain? How do we take people with essential tremors and through a device give them the stability of motions we all take for granted? Theyre helping restore dignity to someone that suffers, through technology.

Lets unpack a term you use frequentlydirectional arrows of progress. Can you explain that a bit?

Technologies are directionally predictable. The hardest thing to predict is the social piece of a technology. Its not what happens when one person has a phone, its when everyone does. Right now, you can see that with e-commerce, videoconferencing, and online learning.

As for technological arrows of progress, Im a big student of history. I like looking at how technology evolves. There's a directional arrow of progress that reduces entropy. Theres more information content in the next device. Theres less waste. It tends to be more efficient, a higher density per unit of raw material.

Transportation is an example. We went from horses to horse drawn carriages to cars to electric cars to an autonomous car. Were not going back to horses.

Now lets pivot to our current situation. How exposed are your portfolio companies to the coronavirus?

Ill start with the macro and then give you a post-pandemic prescription. Macro, everybody is suffering in some way. Its more than an economic or medical crisis; its a human crisis.

On a more technical and practical matter, weve always been more on the bearish side of things. Its this weird dichotomy where were ebullient optimists about the future but were generally very skeptical about human nature and markets, which are a collective of human nature. Were always admonishing our companies with this line: Failure comes from a failure of imagination.

So theyve been admonished to have rainy day money, expect the worst, and plan for bad scenarios. Now, we never prophesied a pandemic [editors note: us as well], but Ive been amazed at how quickly and swiftly theyve acted. Of the 130 companies we have, Ive seen five where they had financing that was going to close, or was at risk of closing, where the business wasnt going that well. They were likely to succumb.

Weve also seen some companies that have dropped everything to help. Shapeways has been shipping over 10,000 PPE to 10 different NYC hospitals. Desktop Metal is helping produce swabs for testing. It showed in a crisis how you can go from centralized manufacturing to distributed and do it in a very agile fashion.

I know you started as an expert in nanotech. What should our younger readers (potential future entrepreneurs and investors) be focused on? Should students or early-stage career folks focus on going really, really deep on something technical or scientific theyre passionate about?

I think the best thing that can serve you is science and technology. Id read everything Kevin Kelly ever wrote. A good understanding of human nature and psychology also helps. When our companies do or dont succeed, its because of the people. Its never because the technology didnt work.

Anywhere there are structural barriers and therefore competitive advantage is really important to identify. Id emphasize understanding the great competitors and clever things they did to make it harder to compete with them. Some of the greatest entrepreneurs have always been very thoughtful about that. And you yourself have to have a competitive advantage.

Any area we go into, its good to become obsessive. That way, when youre talking to someone with a PhD whos super technical, theyll take you seriously. I knew nothing about brain machine interfaces or nuclear but then became obsessed.

What science fiction are you currently obsessed with?

Currently, I think Chinese science fiction is sweeping and sophisticated. Its rooted in physics, computer science, and astronomy. Its not fantasy. Also the new William Gibson book, Agency. That was outstanding because its a real near-term prognostication of how technology is likely to evolve. A version of Black Mirror.

The gap between sci-fi and when it becomes real is just getting shorter and shorter.

Originally posted here:
A Q&A With Josh Wolfe of Lux Capital - Morning Brew