Josh Wolfe – The Tech Imperative - [Invest Like the Best, EP.130]

Podcast Summary

• The Power of Human Narrative in Tackling Massive Scale Problems: Josh Wolf believes that our ability to tackle massive scale problems is greater than ever due to low cost of capital and the power of human narrative. Both state-driven and story-driven approaches can effectively bring people and resources together.

  According to Josh Wolf, the co-founder and managing partner at Lux Capital, our ability as a species to tackle massive scale problems is greater than ever before due to a low cost of capital and the power of human narrative. He believes that both state-driven and story-driven approaches can effectively bring people and resources together to accomplish large-scale projects. The state can galvanize people and command resources through decrees and plans, while free economies and democracies rely on individuals like Elon Musk who can paint a compelling vision and inspire people to join a mission. With the advancement of communication tools, the cost to distribute a narrative is also low, making it easier than ever before to spread ideas and convince people that something is possible. Despite being generally cynical, Wolf is hyper-optimistic about our ability to tackle big projects and believes that the power of human narrative is a powerful tool in bringing people together to achieve great things.

• CEO Storytelling: The Art of Persuasion: CEOs need to be effective storytellers to attract investors, recruit talent, and align their organization around a common goal. They should set a clear strategy, communicate the vision, and hold people accountable.

  Effective leadership, particularly for CEOs, involves more than just strategy and execution. It also requires the ability to tell a compelling narrative. Xander Lurie, a successful CEO and friend of the firm, identified five key roles for CEOs, one of which is storytelling. This involves setting a clear strategy, raising capital, building a team, communicating the vision, and holding people accountable. The ability to tell a persuasive story is crucial for attracting investors, recruiting talent, and aligning the organization around a common goal. Great storytellers make their stories memorable, unique, and meaningful, often drawing from a wide range of experiences and sources. They leave a lasting impression and inspire emotional reactions or impart valuable lessons. Successful leaders like Steve Jobs and Elon Musk are known for their storytelling abilities, which have contributed significantly to their companies' success.

• The power of stories and objects to impact our lives: Discovering hidden truths and sharing meaningful stories amplifies their impact, while illiquidity in investments offers potential risks and rewards

  Stories and objects can hold deep meaning and impact our lives in profound ways. This was illustrated through a personal story of discovering a parent's hidden identity and the unexpected consequences that followed. The ability to create and share such meaningful stories is a powerful skill, akin to a modern-day superpower. It's not clear if this power comes from the individual or the assembled audience, but it's clear that the aggregation of like-minded individuals and the sharing of values can amplify the impact of these stories. Additionally, the concept of illiquidity was discussed as an important concept in today's abundant financial landscape. Illiquidity, or the lack of ease in buying and selling an asset, can create significant leverage and risks, especially in the context of private equity investments. These ideas, like the brick with hidden meaning, may be overlooked by many, but hold great significance to those who understand their deeper implications.

• Potential Crisis of Illiquidity in VC Market: High debt and overextended investors in VC-backed companies may face illiquidity issues, with SoftBank and Tesla as examples. Shift from active to passive investing increases risk.

  The current venture capital market is facing a potential crisis of illiquidity. Companies with high debt and overextended investors are at risk of having paper marks that may never become liquid. SoftBank and Tesla are examples of this issue, with their massive valuations and significant debt. The shift from active to passive investing, particularly with large institutions like BlackRock, adds to the potential risk. As companies go from billion-dollar valuations to worthless, and frauds are revealed, the signs of illiquidity become more apparent. This could lead to a significant disruption in the market.

• Bifurcation of public market landscape: The public market landscape is dividing into profitable, cash-generating companies and those that heavily rely on investor support, reflecting the concept of illiquidity. Innovative business models that create value and secure funding are key to success.

  The public market landscape is seeing a bifurcation between legitimate, profitable businesses and those that heavily rely on telling a compelling story to attract investment. The speaker believes that this trend is linked to the concept of illiquidity, with some companies going public and generating profits, while others burn through cash and depend on the kindness of investors. This dynamic is also reflected in the venture capital world, where there is a growing divide between small funds (minnows) and large funds (megas). The most interesting business models are those that not only create value but also innovate in areas like distribution and funding. A historical example of a clever business model is TurboChef's partnership with Subway and Coca Cola, where Coca Cola funded the purchase of TurboChef ovens for Subway in exchange for the cola contract. This win-win-win situation demonstrates the importance of creative business models in securing funding and gaining a competitive edge.

• LPs differentiate themselves through process, reputation, and team in VC: Successful LPs focus on a firm's process, reputation, and team to build long-term relationships and minimize risk in VC investments.

  Successful Limited Partners (LPs) in venture capital (VC) can differentiate themselves by focusing on a firm's process, reputation, and team. Latch, a smart door lock company, demonstrates this through their strategic partnerships with Walmart and Jet.com, which benefited all parties involved. For LPs, understanding a firm's process, where they've been lucky versus smart, and how they add value to companies is crucial. Reputation is also vital in VC, as entrepreneurs and LPs build long-term relationships. Lastly, the team's composition and expertise in various subsectors can lead to a diverse and successful portfolio. LPs should consider a mix of early-stage investors, growth investors, and specialists in various niches to minimize financing risk and maximize opportunities.

• Understanding team dynamics through 5 tribal mantras: Effective teams thrive with a 'life is great' mindset, fostering unity, collaboration, and shared purpose. Contrarily, negative mindsets hinder success and cohesion. Recognizing these tribal dynamics can help leaders build stronger, successful organizations.

  The dynamics of a team or organization can be understood through the lens of five different tribal mantras, each with its unique characteristics and behaviors. The most effective teams operate from a "life is great" mindset, which fosters a mission-driven, positive culture. This state allows for unity, collaboration, and a shared sense of purpose. Conversely, teams that view life as a struggle or see themselves as victims may lack institutional loyalty and internal cohesion. Understanding these tribal dynamics can help leaders build stronger, more successful organizations. Additionally, having a common enemy or goal can galvanize a team and contribute to its success at a larger scale. Overall, recognizing and cultivating a "life is great" culture can lead to a powerful, unified team that achieves its goals effectively.

• Price Discipline in Venture Capital Debates: The importance of price discipline in venture capital is debated, with some arguing that it doesn't matter what price you pay for a potentially game-changing investment, while others caution against overpaying due to the risk of missing out on future funding rounds.

  In the world of venture capital, there are ongoing debates about the importance of price discipline. Some argue that it doesn't matter what price you pay for a potentially game-changing investment, as only a select few companies will significantly impact the market each year. Others caution against overpaying due to the risk of missing out on future funding rounds if a deal falls through. Ultimately, the decision comes down to human judgment and assessment of a team's ability to execute, raise funds, and recruit talent. The anchor for price discipline varies between public and private markets, with the latter presenting a higher risk as rejected investments rarely return for a second chance.

• Moral judgments in tech investing: Tech investing involves considering moral implications beyond market potential, acknowledging complexities of military applications, and recognizing diverse perspectives in tech development.

  Investing involves making moral judgments beyond just the technology and market potential. The values debate centers around the morality of the technology being funded and its potential impact on society. The history of technology shows both positive and negative uses, and the military application is a particularly complex issue. Silicon Valley's roots are in defense and war fighting, but its current demographic is increasingly diverse, leading to differing perspectives on developing technology for military use. Ultimately, it's essential to have a nuanced view and consider who is affected and when. The decisions are not always clear-cut, and it's important to acknowledge the moral dilemmas that come with technology development.

• Technology and Geopolitics: Moral Dilemmas and Advantages in the Tech Industry: Microsoft and Google debate supporting govts using drones and AI, Chinese tech industry's close relationship with govt could lead to advantages, CRISPR's potential in drug development and platforms, Variant's focus on underrepresented areas in research, science fiction and fact gap shrinking, understanding complex issues crucial for future navigation

  The intersection of technology and geopolitics presents complex moral issues, as illustrated by the debate between Microsoft and Google over supporting governments using drones and AI. The Chinese tech industry's close relationship with its government could lead to decisive advantages, especially in areas like CRISPR and biotech, where regulatory frameworks and ethical considerations are lacking. The potential of CRISPR as a tool for drug development and novel targets is significant, but the real value may come from the platforms and discoveries it enables. Variant, a company focusing on rare populations with fascinating genetic traits, exemplifies the importance of exploring underrepresented areas in research. The gap between science fiction and fact continues to shrink, and understanding these complex issues will be crucial for navigating the future.

• The intersection of science fiction and fact is driving innovation and billion-dollar industries: Investing in visionaries who can make science fiction a reality can lead to groundbreaking innovations and significant returns. Ethical considerations and diverse perspectives are essential for success.

  The intersection of science fiction and fact is leading to groundbreaking innovations and multi-billion dollar industries. For instance, the idea of a pill that could raise metabolic rate and help obese individuals burn fat while sleeping could potentially be a $10 billion drug. Companies like Auris, which combine advanced technology with ethical considerations, are revolutionizing fields like robotic surgery and biotech. The gap between science fiction and fact is shrinking, and the most valuable investments often come from backing the visionaries who can make these ideas a reality. Auris, inspired by Star Wars and robotic surgery, was a successful investment for Lux Capital despite initial inaccurate forecasts. The company, founded by Fred Moll, who previously founded Intuitive Surgical, raised over $600 million and was bought by J&J for nearly $6 billion, resulting in a 63x return on investment for Lux Capital. The importance of considering the ethical implications of technology and involving diverse perspectives, such as cultural anthropologists and ethicists, is also crucial for these companies to succeed and avoid biocolonialism.

• The unpredictability of business outcomes: Successful companies face uncertainties, but identifying and riding directional trends increases chances of success. Stay attuned to technology integration for new opportunities.

  The unpredictability of business outcomes, even for successful companies, serves as a reminder of the uncertainty inherent in entrepreneurship. The Auris Health example illustrates this, as the company surpassed initial expectations in fundraising and acquisition value, but faced challenges in execution. This unpredictability can be seen in various industries, from drone racing to nuclear energy, where progress follows a clear directional trend. In the case of Caliope, a focus on the gut-brain axis, an overlooked area in the field of biotech, led to significant success. Entrepreneurs who can identify and ride these directional arrows of progress increase their chances of success. The "half life of technology intimacy" thesis, shared with entrepreneur Charles Zuker, highlights how technology becomes more integrated into our lives over time. This integration leads to new opportunities and innovations, making it essential for investors to stay attuned to these trends.

• From touch to thought: The future of technology control: Technology is advancing to allow for thought-controlled devices, but we must address the output problem to effectively process and utilize the data generated.

  Technology is becoming increasingly intimate with us, from our phones that we touch throughout the day to wearable devices like the Apple Watch and AirPods. This trend was exemplified by Thomas Reardon, a technological genius who has spent his career eliminating the need for physical control devices and developing a universal controller that can detect and mimic our neuromuscular signals. Reardon, who has a PhD in neuroscience, is an embodiment of the idea that sufficiently advanced technology is indistinguishable from magic. His invention can detect and model the activity of every neuron in our hand, allowing us to control devices just by thinking about moving our fingers. This technology has the potential to replace traditional input devices like keyboards and mice, making our interaction with technology more intuitive and seamless. However, it also raises important questions about the output problem – how we can effectively process and make use of the vast amounts of information that technology provides us. Reardon's insight was that we don't have an input problem, but rather an output problem. As we continue to develop and integrate more advanced technology into our lives, it will be essential to find ways to effectively process and utilize the data it generates.

• New wave of tech innovation: Increasing intimacy and invisibility: Advanced GPUs, machine learning algorithms, data, and sensors enable new tech innovations, making technology more intimate and invisible in our lives, leading to broad applications and potential life-changing impacts.

  We are witnessing a new wave of technological innovation focused on increasing intimacy and making technology more invisible in our lives. This includes advancements in gesture recognition, voice activation, and even potential brain-computer interfaces. Companies like the one mentioned are leading this charge, and investors are taking notice, pouring millions into this field. The combination of advanced GPUs, machine learning algorithms, data, and sensors is making these technologies possible now, when just a few years ago they were unimaginable. This direction of progress, pairing increased intimacy with the sophistication of technology, has broad applications and the potential to significantly impact our daily lives. There's a moral imperative to continue inventing technology, as it serves as an instrument for individuals to express their unique genius and make the world a better place.

• Technology enhances humanity by preserving moments and automating tasks, but comes at the cost of privacy.: Technology enhances human potential and reduces suffering by preserving moments, automating tasks, and addressing problems, but raises concerns about privacy and personal choice.

  Technology, according to the speaker, enhances humanity by preserving moments and information that would otherwise be lost to memory or time. He believes that technology can help us discover new opportunities and automate tasks that were once labor-intensive or inefficient. However, this comes at the cost of privacy, as more and more information about our lives is being collected and surveilled. The speaker personally values convenience over privacy, but recognizes that this is a personal choice and not everyone may agree. He also emphasizes the importance of using technology to discover and address problems, especially those that seem to "suck" or present "wait what?" moments. Ultimately, he sees technology as a tool for increasing human potential and reducing suffering, and believes that investors should focus on real technology frontiers rather than traditional consumer categories.

• The battle for privacy is a losing one: As technology advances and younger generations accept constant surveillance, privacy-focused companies and blockchain's potential for authenticating digital content are worth considering.

  The battle for privacy is likely to be a losing one as technology advances and younger generations become more comfortable with constant surveillance. The abundance of digital content and the ease of creating fake content make the ability to detect veracity a valuable commodity. Companies focusing on privacy and security are worth considering, and potential applications for blockchain in verifying the authenticity of digital content are promising. An intriguing anecdote shared was the experience of unexpectedly meeting with federal agents, which served as a reminder of the importance of being prepared for the unexpected.

• A chance encounter with federal agents leads to a meeting with military leaders: An unexpected interaction with law enforcement opened doors to collaborate with special operation forces, recognizing their critical role in addressing global issues and inspiring a desire to support them with innovative technologies.

  The speaker had an eye-opening experience when he was mistakenly identified as a person of interest by federal agents, who were there to apprehend Josh Wolf. The speaker was relieved to discover that he was not in trouble, and instead, he was invited to join a high-level military meeting with General Tony Thomas, the head of USOCOM. During this meeting, the speaker learned about the challenges faced by special operation forces in various parts of the world, including Asia, where they are dealing with human trafficking, drug trade, and insurgencies. The speaker was impressed by the intellect, intensity, and ferocity of the military personnel he met, and he felt inspired to help these operators with the technologies developed by his portfolio companies. The speaker was struck by the powerful narrative that drives these individuals to dedicate their lives to reducing human suffering, despite the significant risks and challenges they face. Overall, the experience was humbling, inspiring, and life-changing for the speaker.

• Naval Special Forces: Mental Toughness, Teamwork, and Inner Strength: Mental toughness, teamwork, and psychological resilience are the true determinants of success in Navy SEAL and other special forces training, not physical strength or external toughness signals.

  The world could benefit from more character, honor, integrity, and sacrifice, as exemplified by the quiet intensity of Navy SEALs and other special forces operatives. Contrary to popular belief, physical strength and external toughness signals are not reliable indicators of who will make it through rigorous training programs. Instead, mental toughness, team camaraderie, and psychological resilience are the true determining factors. These individuals display an inspiring work ethic, commitment, and talent, often without the need for loud or boastful behavior. Their stoic intensity is admirable, and they are a reminder that true strength comes from within. If you're interested in learning more about these topics and discovering new books, sign up for the Investor Field Guide book club at investorfieldguide.com/forward/bookclub. Remember to leave a review on iTunes to help more people discover Invest Like the Best.