Josh Wolfe, Venture Capital's Most Passionate Skeptic
"I am hyper-optimistic and confident, even though I'm definitely a cynic."
The 2011 Fukushima Daiichi nuclear disaster was a turning point for a little-known startup called Kurion. Founded in 2008, the company was a contrarian bet on nuclear waste management by a young venture firm called Lux Capital. Kurion became instrumental in the clean-up of the Fukushima meltdown and in 2016 was acquired by Veolia, earning Lux a 34x return on its investment. It was a key win for the team at Lux which had raised its first institutional fund in 2007 after years of hard work building an integrated investment, research, and media platform.
“The Wasteland. It’s where we went seven years ago in search of new ideas and opportunity,” Lux co-founders Josh Wolfe and Peter Hebert wrote at the time. “What we found was an unmet, inevitable need with no solution in sight.”
“The thing with nuclear that sucked was, what do you do the waste? We started the company from scratch. Named it after Madam Curie called Kurion. In total I think $3 million went in. We sold that to Veolia for $400 million, with $140 million run rate, $40 million of EBITDA, doing nuclear waste cleanup.”
“A fluke low probability black swan in Japan that was negative for that country became a positive black swan for this little company and turned what would have been a phenomenal business into a spectacular one essentially overnight. We became the only US company on the ground in the clean-up, and they were responsible for removing 99% of the radioactive cesium and strontium from that disaster.” Josh Wolfe, Realvision 2016
Since its founding in 2000, Lux has been venturing into the wasteland to find creative contrarian ideas.
“We were born focused on crazy cutting-edge material science, physics, and chemistry when everybody was chasing dot-coms.”
Fast forward to today: Lux manages $4 billion in AUM and according to Barron’s “its funds averaged annualized returns of 30% to 40%” through the end of 2021. It has funded in areas such as self-driving cars, robotic surgery, brain-computer interfaces, and ocean-going drones. Wolfe still has his eyes on nuclear and is on a quest to rebrand it to ‘elemental power’.
Unlike many venture capitalists Wolfe doesn’t shy away from being negative in public. In Lux’s 2021 letter, he warned of an observable “excess of excesses.” “We were born in the tail end of this dot com mania,” he told Motherboard in December 2021, “watching money being spent on ice statues peeing vodka at parties and the Bacchanalia of excess. Today, there is an excess of excesses, and it's not a prediction. It's observable.”
As tech and venture markets came unglued, he wrote about reaching an “entropic apex” and survival as a necessary precondition for growth. A market defined by FOMO was turning into SOBS - the shame of being suckered.
His candor is one reason why I enjoy studying Wolfe. He is also a walking treasure trove of fascinating frameworks. And despite describing himself as a “horrible storyteller growing up,” he is now coining one catchphrase after another in his quest to share compelling ideas.
Wolfe embodies a unique mix of techno-optimism, scientific inquiry, and hard-boiled skepticism of becoming of a Wall Street short seller. He modeled his own approach to learning after the interdisciplinary ideas of biologist E.O. Wilson and value investor Charlie Munger. Wolfe studies venture capitalists, scientists, value investors, and even macro traders. A trustee of the Santa Fe Institute, he set up an internal working group to discuss decision making including Annie Duke, Danny Kahneman, and Michael Mauboussin.
The following is a summary of key ideas I learned from Wolfe (call them Wolfe-isms). A big shoutout to Kevin G whose compilations, including the one on Wolfe, are simply the most comprehensive work on the web.
“I love contrarian thinkers and people possessed by doing things others aren't. I see genius in founders who others might think are just eccentric or strange. I like lifelong learners connecting different disciplines together and take to competitive people with chips on their shoulders because of some unique event in their lives. I see the gap between science fiction once imagined and science fact now realized ever shrinking. I'm both an optimist about the endless frontier of technological possibility and a realist who believes failure comes from a failure to imagine failure.” Product Hunt Discussion with Lux Co-Founders (2017)
Ideas in this piece:
“Avoid boring people.”
“Chips on shoulders put chips in pockets.”
“Passion is the best predictor of success.”
Coney Island Contrarian
“The best way to predict the future is to invent it.”
“The governing force in my life is randomness and optionality.”
“We believe before other people understand. (And we always want them to agree with us, just later.)”
“100-0-100”: Arrogance, intellectual humility, ambition and curiosity.
“Storytelling ability captures the best and worst about humanity.” “Shove it down people’s throats.”
“Failure comes from a failure to imagine failure.”
“The most valuable words are, ‘It will rot your brain.’”
More reading, podcasts, and books
“Avoid boring people.”
If you don’t have time for anything else, I want to leave you with just this one idea. As Wolfe described it: three words, two meanings: Avoid boring people.
“The best advice I ever got was from Jim Watson, who co-discovered DNA. Jim is brilliant, and as many brilliant people are a little bit crazy, and Jim has this admonishment, which is double meaning, three words, “Avoid boring people.” I love it, because what he’s saying is, “Stay away from people who are not interesting,” avoid boring people, and, “Avoid boring people. Don’t be boring to people. Be interesting.” I have information anxiety, because I need to know and want to know something about everything, whether that’s poetry, or literature, or science, or sports, or whatever it is, I need to know something so that I’m never in a conversation and be like, “Oh, okay. Yeah,” nodding my head. I want to be able to converse about everything.”
I like the idea of being intensely curious across disciplines and “information anxiety” is a catchy way to describe it. Avoid boring people is a powerful guiding principle that Wolfe is certainly living up to, having surrounded himself with interesting people and being a fountain of interesting ideas himself.
“Chips on shoulders put chips in pockets.”
This is one of my favorite Wolfe-isms and I’ve started using it all the time.
Wolfe grew up in Coney Island, Brooklyn, and was raised by a single mother, a schoolteacher, who “did everything, sacrificing everything to put me on stable footing.” He attended Cornell to pursue an MD-PhD. However, while working in an immunopathology lab, he observed his mentor trading the markets “making tens of thousands of dollars.”
“I became way more enamored with capital markets, while we're literally spinning a centrifuge down of blood.”
“That lit something in me. I felt I was smarter than certain people. I was just born in different circumstances. And I’m like, ‘I can have that.’”
Wolfe accepts his hunger for more and dissatisfaction with the status quote as a driving force in his life.
“People always tell me you should have this great, positive energy: I think amazing things happen with negative energy. With dissatisfaction. If you want to change and progress someone has to look at something and say that sucks. And then be motivated to change it. I think that comes from negative energy.”
However, this must not be misunderstood as an excuse to be unkind:
“You need to find a balance between having a chip on your shoulder and the ambition and then being mindful that every relationship you have and every person that at some point in the future they’re going to be a call option and you don’t want that to expire. So, be good to people.”
“Passion is the best predictor of success.”
Wolfe started his career in investment banking but left within a year, before collecting his first bonus check, to pursue his dream of working in venture capital. He was only 24 years old and driven by an intense passion which becomes apparent when he talks about his life’s work:
“Venture capital to me is like the perfect hybridization of science and finance. I love science. It's the endless frontier. You're always meeting people that are coming up with new things and inventing new things. And I think all growth comes from this sort of endogenous new things that are happening in science. And finance, it's I think I probably have ADD, and the ability to focus on one particular thing is scarce. And so being able to find all these brilliant scientists and inventors that want to commercialize their ideas is the essence of venture capital.”
“Passion is the best predictor of success: If somebody is psychotically passionate about something then they have the fuel and the energy to go do it.”
Wolfe talked about what motivated him in this incredibly honest thread. Passion, fear, and “chips on my shoulders.”
Coney Island Contrarian
Coney Island and its amusement park left Wolfe imprinted with lasting skepticism:
“I grew up in Coney Island. There were carnie barkers, and hustlers, and con men, and so you just grow up skeptical, right? You don’t make eye contact, and if you do, it’s sort of like half-squinted like, ‘What’s that guy’s agenda? What’s the game he’s running?’ I’m generally skeptical of people and more distrusting.”
“I grew up sort of squinty-eyed, always distrusting, trying to figure out what’s somebody’s agenda and game. I’m always trying to spot the sucker at the proverbial table. If you sit down and you can’t spot the sucker, you’re it, you’re the patsy.”
This turned into a search for understanding what hidden games are being played in markets:
“I think every system at every point is rigged and if you can figure out that little mechanical torque in the machine that’s pulling the con. … ‘99, 2000, people thought you’re just going to pick the winners but the system is rigged. IPOs were rigged. The distribution of IPOs was rigged. Housing market, CDOs, there’s always a game being played and there is a secret that the people who are making the most money keep. They won’t acknowledge publicly until after the fact.”
This attitude shapes how he approaches the business of venture capital and underwriting the rebel scientists who walk through the doors at Lux:
“When I have these crazy, cutting-edge people come in, you don’t know at the moment when they’re pitching you whether they’re going to be the next Thomas Reardon, who’s a guy that we backed that is doing brain machine interfaces, or if you’re going to see an Elizabeth Holmes. My no. 1 fear when an entrepreneur walks in is, ‘Am I going to get defrauded right now? Is somebody going to try to pull one over our eyes?’ To this day, I would say that if everybody at Lux shared my vantage point, we’d probably be a team of cynical short-sellers.”
But not everyone at Lux shares Lux’s skepticism:
Peter Hebert, who both men agree is the opposite temperamentally, does not dispute the analysis. “Josh likes to say that I invented the airplane and he invented the parachute.” The Renaissance Man of Venture Capital
“The best way to predict the future is to invent it.”
The combination of optimism and contrarianism led the founders of Lux away from the popular dotcom startups. Instead, they pursued what they called “matter that matters.”
“In the history of venture capital, every 10 or 15 years there's some secular wave in technology. 1970s was personal computers, 1980s was biotech, 90s was TMT and dot com. And here we are early 2000s, and we're thinking, OK, where are we going to focus? We decided to focus on the chemistry, physics, materials science, the hard sciences.”
“Everybody else was focusing on dot-coms and optical networking. The secular S curves, these biologistic curves that start off slow, rapidly grow, mature, and fade into the next. I thought the next wave was going to be the physical, material sciences, breakthroughs in chemistry and physics and materials science that were coming out of universities that were not MIT and the venture cluster there in Cambridge, or Silicon Valley and Stanford.”
“It started with this sort of definitional focus on an area that we thought was totally neglected, and even the derivation, the etymology of Lux, Latin for “light,” was looking where other people weren’t looking. We said, Let’s go after the chemistry, physics, material science departments.”
Wolfe likes to say that the gap between Sci-Fi and Sci-Fact keeps shrinking. The thesis behind Lux is that it is profitable and important (and fun?) to help make this happen.
Lux had a thesis and a team but it still needed capital.
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