Q2 2022 Report
Lux Ventures VII, L.P.
Lux Capital
920 Broadway
11th Floor
New York, NY 10010
luxcapital.com
Point of Contact
Adam Kalish
General Partner
(646) 723-0162
adam.kalish@luxcapital.com
Strictly confidential. The information contained herein is confidential,
and may not be forwarded, shared, disclosed, reproduced or used in
whole or in any part for any purpose other than monitoring or assessing
the recipient’s existing or potential investments with Lux Capital.
Letter To Our Partners
Meaning and the Epistolary Imperative
The point in writing these letters is to congeal observations of occurrences, information or events once
concealed and now revealed (as accurately as we can), crystallize ideas of what may be (as clearly as
we can) and condense them into words for sharing (Hey, read this!) and signaling (Hey, we’re no fools!).
While perhaps laden with weary warnings, they are also Lux’s idiosyncratic investment philosophies
and sneak peaks of the novel and curious advances in cutting-edge tech—the cause for our conditional
(not Panglossian) optimism and the panoply of possibility for us all. They are a means to find meaning.
Meaning can be powerfully created or destroyed, deeply embedded in objects and technologies or
coldly abstracted and decoupled from them. During his performance, magician Derek Del Gaudio takes
an ordinary brick painted gold, sits down at a table, and places it in front of him for the audience to
see. He then opens a fresh deck and methodically builds a house of cards around the brick, hiding it
while narrating to the audience a secret story of deep personal meaning. As a young teen living in a
conservative town, he had come home with a friend, opened the front door, and saw his single mother
and another woman kissing in the living room. His childhood friend was shocked, ran home and spread
rumors. At breakfast the next morning, Derek felt happy for his mother and they talked openly––until
a brick came flying through the window wrapped in paper scrawled with a hateful message full of
bigoted profanities. They left town, and Derek lost a friend––but gained a stronger bond with his
mother. As he finishes this story, the house of cards is complete, and he asks the audience for two
intersecting streets in New York City, and then with a flourish, he blows on the house of cards and
shows that the brick inside has now vanished. Here’s the magic: he tells the audience that if they go to
the particular intersection that was volunteered, the gold brick would be lying right there on the corner.
The key point was that thousands of people would pass that gold-painted brick on the corner and
not notice it or if they did, they’d think nothing of it––perhaps mistaking it for trash. Only we, the
ones in the room who had witnessed the meaningful story embedded in the object would know it
and see its value. Heirlooms, totems, old photos, tagged photos, saved voicemails, screenshotted
texts—all contain the meaning we make.
That’s the Epistolary Imperative at work: the pursuit of meaning in a stochastic universe. Last quarter,
we wrote about the “Entropic Apex”––the peak chaos of highly interconnected economic, social and
political systems observably creaking, cracking, in many cases breaking, and in rare cases, being rebuilt.
Our past quarterly letters proved prescient, but they also proved that humble attention to history
can be sufficient to find meaning. While change in technologies, businesses, markets, societies, and
seasons is constant, the one invariance is human nature. Observing an excess of excesses––an
abundance of once-qualified optimism that begot unguarded greed and a scarcity of good governance
or diligent discipline––required no complex calculations nor decimal-point precision, only simple
estimations that what was for a while would not be for much longer.
Yet, chaos is a nihilism, not a narrative. We have reached the Entropic Apex, but entropy isn’t a
directive. It is merely a measure of the state of things. There’s an old joke of a curmudgeonly cassandra
kvetch muttering macabre missives to the eye-rolling nuisance of his neighbors. Before dying, he
demanded his tombstone read only: “I always knew this would happen.”
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Letter To Our Partners
The past few years, the “this” was a “correction”––a euphemism for errors and poor decisions made in
the past now evident. The present pressing question is how much more, how much longer, and for
which companies and investors? In public markets, when price-to-earnings multiples fall lower, so do
previously too-high prices, but as history shows in recessions coincident with inflation, further
corrections are needed for overestimating earnings (which lag in reporting). Over our past six quarterly
letters, our messages were a mix of defensive prudence and offensive preparedness to pounce
(capitalize on current capital markets, build warchest balance sheets, husband the cash, now
consolidate). While others may say their pace is slowing, our pace pulses to a steady beat: there is
always something we can be doing, an opportunity to seize, a risk to reduce, an internal process to
improve. We may dial up or down certain strategies or emphasize certain sectors––whether that is
starting newcos or sourcing special situations; teaming with top entrepreneurs who choose Lux;
investing in and expanding our team; analyzing existing investments and adding value with good
judgment and governance; or working to realize exits and drive returns for long-time partners we feel
fortunate to work for. During recent years we have distributed over a billion dollars to Lux’s trusted
partners––insignificant beyond an internal team nod, knowing it pales in comparison to our
competitive ambitions as Lux sets our sights soaring to return many multiples more in the years
ahead.
Our perspective is to keep perspective: rip from the trendlines and not the headlines. Read present
headlines and it may seem like the worst of times––read past history and it might seem like the best
of times. At present we feel conditionally optimistic––conversely contrary to others who are either
diffidently in denial that anything has changed for the worse or definitively pessimistic that everything
has. Our take: what may feel like a climax of chaos may yet yield a denouement of detente. After the
tension, the muscle relaxes. The house of cards collapses to the ground, but the gold-painted brick is
out in the world, its full meaning and value to be discovered.
If 2022 was the year of Entropic Apex, then we are dubbing next year “Twenty-Twenty-RE”––as in:
REdiscovering the meaning of price, REthinking inflation, REconvening at work and REwearing suits,
REconstituting the finance of innovation, REinforcing our strengths, REviewing our theme of
Extensionalism, REinvesting in the frontier and ‘Matter that Matters’, and finally, REcapturing human
ingenuity. If the Epistolary Imperative is about finding meaning in chaos, then this letter is about two
letters, and the optimism that comes from recovering what was lost and remixing it into something
new.
REdiscovering the meaning of price
Upside booms and downside busts share a common pattern: a diversity breakdown. Liquid and stable
markets are formed by investors with diverse, diffuse and different dispositions, sentiments, styles,
expectations, degrees of patience and time preferences. The proper dissensus of investors transforms
into an aggregated market consensus—chaos becomes meaning. But when everyone follows the
same strategy (say, chasing growth), all prices synchronize, underlying diversity breaks down, and there
is a crushing convergence as behaviors become similar, amplifying and exacerbating market
movements––like a stampeding herd.
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Letter To Our Partners
Prices should convey information, and information carries inferences of expectations. A price may be
an ephemeral equilibrium from equivocal differing views, or perhaps a temporary truce between
buyers’ optimism and sellers’ skepticism. It is also true that party buses carry drunken fools––and
drunken fools carry impaired judgment. Which is to say markets are not efficient, and prices often tell
more about the condition of the pricer (hope and euphoria or despair and fear) than the condition of
the asset. Nonetheless, prices can provide powerful feedback. As social scientist Phil Tetlock says, if
you don’t get feedback, your confidence grows much faster than your accuracy. This year, lots of
people got feedback from plummeting prices. Many will have lost money––and gained experience. The
experience ultimately comes from a wave of doubt or disbelief from others. Retail traders lost all the
money they made during stimmy-stimulated speculation during the pandemic. We previously invoked
Sturgeon’s Law that 90% of stuff is crap. This time last year, 90% of tech companies earned investors
positive returns over the prior 12 months. Since then, the trendline has entirely reversed, with 90% of
tech companies offering negative returns for their investors.
Roughly $1.4 trillion went into companies last year (half private, half public via IPO) which is over triple
the last decade’s average. Public markets are down around 20% as of this writing. The IPO market has
been shut (but may see a few new listings squeak out this Fall) and invested venture dollars are
declining. Public market valuation sentiment has shifted as we pivoted away from growth towards
profitability. This rhymes with Q3 2000, where the shift was from 'eyeballs' to alliterative
admonishments like 'path to profitability' and 'cash is king'. Now, factors like next year's EBITDA
margin as a proxy for profitability have become a greater factor in valuation multiples while growth has
become a smaller factor. Much of what was valued far over historic multiples remains overvalued and
may see further drops.
In private markets (which lag public markets), price discovery for some companies is intentionally
undesired and unsought (as they suspect they won’t like what they learn and don’t wish to know yet)
and for others confidently sought as they will be in high demand and successfully raise at higher
valuations. With public markets down, some LPs in funds may be hit by the denominator effect as
roughly $33 billion worth of LP investments changed hands in just the first half of this year. Almost
every company (and many people) is fighting some private struggle and is way more vulnerable in
reality than it lets anyone else see or sense. Naturally there is a low incentive for a business or a person
to be vulnerable and honest as the consequences can often be as negative as the truth. It is usually a
rational risk to bluff to keep up appearances even if it means they end up going ‘over the bluff’, leading
to the surprise shutdown and stepdown announcements we have already occasionally seen from
companies and people and will likely see more often in the coming quarters. On companies or people
down on their luck: the naive may pray; knaves (and predators) may prey; but the brave (and
practical) will parley––and constructively help those in need and do it both profitably and as trusted
partners.
It’s been said that price is a signal wrapped in an incentive. If a commodity somewhere in the world
has a low price (signaling its cost to extract) and there is high price (signaling high demand) in a far-off
location, there is an incentive for an entrepreneur to do the work to buy from the former and sell to
the latter. Scientific entrepreneurs and venture investors like ourselves team up to do the same,
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Letter To Our Partners
moving inventions not just through physical space but through time, speculating that a breakthrough
not widely known about or valued in the present will be very valuable in the future. The future price
of a cancer drug or a mission-critical defense technology may seem high to some but we argue it
would be much higher if they never existed at all.
After years of prices outcompeting themselves, we are now seeing a slow but steady rebalancing
toward market equilibrium. The REdiscovery of the meaning of pricing will bring the attention of tech
investors both private and public away from the latest price record shattered back to where it should
be: the fundamentals of scientific and technological advances, as well as the proper operation of a
strong business.
REthinking inflation
There is deflation in the quality of our thinking about inflation. After decades of post-1980s
deflationary concerns, Fed officials and the general public are now in a reverse crisis over a
phenomenon unseen in a generation. Headlines blare out the latest CPI figures, while politicians
unironically rename a government-spending bill as an Inflation Reduction Act. When we talk about
ripping from trendlines instead of headlines and finding meaning from chaos, there are few areas of
the economy that offer as much opportunity as inflation.
Consider: while the unadjusted aggregate CPI in July 2022 was 8.5% year-over-year, that singular figure
obfuscates extraordinary variability in the prices of much more granular categories of consumer
spending. In the same period, flour rose 22.7%, eggs jumped 38%, and margarine gained 32.3%. Yet,
other staples actually declined in price year over year. Tomatoes declined in price by 1.4% while
uncooked beef steaks declined by 1.5%. Aggregate energy prices skyrocketed by 32.9%, while
televisions declined by 14.6% and smartphones dropped 20%. Airfares were up 27.7% while car and
truck rentals declined by 11.9%. How inflation affects a consumer depends very much on each
individual’s situation, and our previous written expectation of "biflation" has been playing out––with
a bifurcation in performance between consumer discretionary products and consumer staples as the
wealthy give up luxuries while the poor can barely afford to cover their needs. We see it as a form of
“treadmill class warfare”––those who literally own one and can afford to work from home versus
those who figuratively are on them just trying to keep up.
Sellers of consumer discretionary products have seen excess inventories, with eventual markdowns
and liquidations ultimately having a deflationary effect—the very pattern we just noted with
televisions, smartphones and other consumer electronics. Hiring freezes and layoffs that employ the
middle or upper-middle class may further shock or exacerbate deflationary forces in nice-to-have
product categories (particularly after so many during the pandemic pulled forward future demand and
seized on the time, the stimulus money and low interest rates to turn their homes into five-star spas
and hotels). Consider that last year, consumers returned an entire Department of Defense budget’s
worth of stuff: $760 billion, which is 16% of the goods they bought and double the amount two years
ago. Meanwhile, inflation of consumer staples such as food, fuel and basic necessities hit the working
poor the hardest. The wealthy will likely continue to spend on restaurants and services, keeping lowincome workers in critically high demand (and indeed job numbers and wages are up even if not
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Letter To Our Partners
keeping pace with inflation). But this may prove to be a Red Queen trap where, much like the character
from Lewis Carroll’s Through the Looking-Glass, they need to run twice as fast just to stay in place. The
ones hardest hit with a rising cost of capital are the ones who have the least of it, which means debt
balances and interest payments for cars, homes, credit and more will grow.
The view is that higher interest rates hurt those who need to borrow whereas inflation hurts everyone,
so Powell is set to slay it with a sword even if it slices the innocent. Our recent view has been the Fed
acted too late to tighten and is now risking tightening too quickly or too far. In choosing between
recession or inflation, Powell set his sights on the latter and leaned into Volcker’s playbook. All this
means that real risk may be not where all eyes are focused (employment and inflation) but where
they are not. A more complicated, poorly understood, not-widely covered segment of our financial
plumbing (like money markets or reverse-repo markets) could suffer some serious distortion, an
aberrant spike in yields, the loss of trust, the loss of solvency, loss of liquidity and risk that radiates
and ripples out––with surprise. It’s time for a new generation to learn the mechanics of market
machinery and REthink the meaning of inflation.
REconvening at work and REwearing suits
Technology can virtualize, simulate and abstract many things—but not our human essence. We lucky
few, we tribal social primates who read body language, laugh together, cry, commiserate, whisper
secrets, roll our eyes, hug and high-five, share meals and stories at the speed of sight and sound without
latency and with real-time, 360-degree spatial cognition, cannot be algorithmically compressed. Which
is to say: remote workers and cultures that bias toward them will––especially in a downturn––be
disadvantaged.
Where you stand on the issue depends on where you sit. Sure, if you are an owner, kingpin, boss, chief,
el jefe or otherwise in a position of privileged power and you could retire, then you can work remotely.
Absence might make the heart grow fonder—it also might make junior employees who are pledging
their lives and time more resentful. There is something richly rewarding in the pay-it-forward moral
duty of remembering we were once mentored, and mentoring those that may not realize they want or
need it, investing scarce and valuable time in their development. If you can phone it in, the world and
other people may need you, but not really. Situational cognition means being present and aware in
situations. There is a reason all situational comedy (sitcoms) take place where we social primates
convene: in coffee shops with friends, taxi garages, bars where everyone knows your name, the office,
the classroom, the school, the hospital all with sudden bursts of strangers and serendipity that creates
the comedy and drama that makes life interesting. Meaning-making and mission-critical jobs can’t be
called in from coveted beachfronts or converted basements––ask doctors, nurses, soldiers, stylists,
sanitation workers, pilots, dentists, drivers, barbers, builders, teachers, athletes, mechanics, caregivers, contractors, butchers, bakers, candle-stick makers, chefs, chemists, drug-hunters, pharmacists,
mechanical engineers, firefighters, boat captains, and factory workers. The active intensity of ambition
beats the laid back indolence of entitlement, and diverse gathered groups with shared goals,
different lived-experiences and petty grievances will achieve more together in person than siloed,
self-segregating individuals. Convenience will lose to convening.
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Letter To Our Partners
As a relevant aside, many who had a wealth effect from surging stocks, benefitting in recent years from
inflation (of asset prices) are now reining in spending (luxury, travel, consumer discretionary) and
risking insolvency and illiquidity far more from fast-fallen assets than incrementally rising inflation (of
everyday goods or services). A rush for riches is a rush for freedom, to work for oneself or not at all.
Slacking off in sweats has suited many but suits may yet return: the contrarian take is that Fall fashion
2022 sees a return to the reverence of formal wear—suits and ties as a signal of gainful employment.
REconstituting the finance of innovation
The herd homogenizes––and not just in the big swings seen in market prices (a measure of aggregate
sentiment) but also the big swings in what our culture celebrates. Consider the positive feedback effect
of predictive algorithms used by tech companies (to route us in traffic, recommend entertainment and
further recommend formulas to producers for making more of them), which redirects diverse inputs,
centralizes them and amplifies what may already be popular into nearly-identical products leading to
loops of likes and generalized groupthink which we experience as parallel plotlines, fashion
facsimiles, musical mimicry and songs that sound the same––until an outlier breaks out. New ideas
always come from the divergent dissenters to the mainstream––often deemed dangerous (and often
they are): rock and roll, skateboarding, snowboarding, gangster rap, and nearly every scientific
breakthrough––the very word meaning to pierce a cultural consensus.
When speculating herd-like investors with a big incentive to be right end up wrong, they might
misallocate capital and if they do it repeatedly, they eventually disappear. But some of the
misallocation—the failed companies and half-finished or never-shipped technologies—becomes
combinatorial fodder for the next wave of entrepreneurs and their backers. This is why the answer to
the question, “Would we get more or less innovation with rising rates or falling rates” is a constant
yes. When rates (and the cost of capital) are low, many ideas are funded and most of them fail. When
rates (and the cost of capital) are high, investors are more selective and the more deserving and
disciplined companies focus on more pressing and present problems and prove that necessity is the
mother of invention. All new things are combinations of old things, meaning the virtue of the most
recent excesses is that many of the innovations that didn’t make it and the spare parts that won’t
survive on their own will be adopted and adapted and REconstituted into things we currently can’t
imagine. Many will prove to be stepping stones between ideas that exist and new ones that are inspired
and seem obvious only in hindsight. Matterport (rapidly scanning the real world) was born from an
excess of 3D-depth sensing cameras used originally for gaming consoles. Planet Labs’ satellite imagery
was born out of the availability of an excess of mobile phone components and ever cheaper optics and
processors.
Just as a skin cut heals but the constituent cells are different, there will be a growing diversity and
dispersion of investors, which is healthy for markets and a contrast to the convergence and high
correlations just witnessed that led to the boom and bust. We see good odds that the next two years
are characterized by a period of rebuilding, reflection and a reconstitution of dominant market
investors and investment strategies in what may seem like the 2000-2002 aftermath of the dot-com
boom and bust: days of head fakes and high volatility within ultimately range-bound markets.
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Letter To Our Partners
Range-bound markets form from the fatigue of existing investors waiting to recover paper losses
combined with the trepidation of newer investors, and the tension between bullish thinking and
patient prudence. Market participants must once again find the meaning of a stock ticker or a valuation.
Following 2000, it took a long while for investors to sort themselves out and for post-bubble winners
to emerge (contrary to the buy-the-dip or Fed-put optimists, it would take 16 years for Nasdaq to reach
March 2000 highs again). The ensuing years saw the rise (or return) of value investors, business analysts
and celebrated long-short hedge funds who could differentially distinguish deserving companies to be
long—and terminal zeroes that would go bust to short.
For startups, range-bound markets are challenging, since the normal ambiguities of pricing are further
exacerbated by the heightened tension in the markets. In a post-bubble economy, new companies
need bubble wrap that transports them from the short-term thinking of today to the long-term growth
mindset of investors tomorrow. One of Lux’s core strategies is building and launching breakthrough,
competitively advantaged, de novo companies with 30 months of cash runway to emerge
differentiated and desirable by future investors. We eliminate near- and intermediate-term financing
risk and allow entrepreneurs to focus their full attention on eliminating other risks (technology,
product, people, market). The kinds of later-stage investors in 2025 may look very different from recent
years.
REinforcing our strengths
Lux (Latin for “light”) finds and funds breakthroughs in cutting-edge science and technology that reveals
new truths, raises knowledge and lowers ignorance. Each new breakthrough shines a spotlight on the
known and reveals, in the shadows of its circumference, new unknowns. The opportunities are cause
for optimism because they are as endless as they are inspiring. As Karl Popper noted: our knowledge
can only be finite, while our ignorance must be infinite––and while differing widely in the little bits we
know in our infinite ignorance, we are all equal. In preview: we see bigger than ever investment gains
to be made in making gains in fields from defense, biotech and space to automation, industrial
production, and novel network infrastructure to other interdisciplinary domains that advance (as we
like to say) matter that matters.
Finding breakthroughs means constantly breaking through our own settled pasts. We expect our team
to be nimble with curiosity and conviction in new areas others don’t yet appreciate (and see what may
be), while also having a keen and clear understanding of market conditions, expectations and liquidity
of our peers (and see what is). As H.G. Wells said: adapt or perish, now as ever, is nature’s inexorable
imperative. We are only ever as good as our last investment, last decision, last interaction and
impression made. We must methodically REinforce ourselves, and we see gains from deliberate
institutional design over many years at Lux to compound competitive advantages. This includes
thoughtfully structuring our long-term alignment and incentives; deliberately prioritizing cognitive
diversity in recruitment and team design; always improving our systems for decision-making,
underwriting, investment allocation and reserves processes; and skillfully designing cross-functional
groups in capital formation, finance, operations, editorial, marketing, and legal, all working together
cohesively for Unum Lux. One Lux. By institutional design, Lux eschews sector silos yet issues licenses
for partners—generalists all—to pursue periodic passions. With trust and flexibility to explore new
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areas at the intersection of disciplines without being pigeonholed into narrow niches, we find that
positive feedback loops of activity beget more activity that yield new relationships and exciting new
investable opportunities for the team to evaluate. To some, envy is a sin––to us, it is part of a
competitive ambition to earn not just excellent returns in exceptionally enviable companies (who we
earned the right to partner with due to an unfair and enviable reputation)––but for our partners and
competitors to describe each of our functional areas and Lux as a whole as a partnership operating
with excellence and to be enviably admired.
Lux feels fortunate to have a range of active investment strategies and we see the current market
opportunity through lenses of institutional experience made up of individual and collective learnings
gained over multiple cycles of up and down markets, burst equity bubbles, credit contractions and
expansions––and to be structurally set up to seize on the three main strategies we see as winning in
the years ahead. As a reminder, we call them: (1) Bubble (give newly incubated Lux companies 30
months of cash in a well-protected bubble to keep them immune from the volatility and vicissitudes of
markets); (2) Anti-Bubble (take advantage of the popping bubble to find companies with strong
fundamentals but weak cap tables composed of investors who under-reserved or over-invested their
funds and cannot support the company, which may lead to significant down rounds or recapitalizations
with high future expected returns); and (3) Consolidation (use the strong war-chest balance sheets of
existing and new Lux companies to roll-up talent, distribution channels, product lines, intellectual
property, and more from weaker competitors and adjacent companies).
REviewing our theme of Extensionalism (...not Existentialism)
Seventy-five years ago, a philosophy of ‘existentialism’ was born that emphasized the existence of the
individual acting with free will. But increasingly, we depend not just on ourselves, but on extensions
through the technology we make––technology, both observable and invisible. We call this theme
“Extensionalism”: the extension and embodiment of our senses and cognition aided and offloaded
onto technological systems with their own requisite nervous systems (sensors, solid-state memory and
logic processors, along with actuators and end-effectors that act on computation and programs) and
metabolic systems (energy processing and giving off waste-heat).
It is important not just for its clear directional arrow of progress but for the moral considerations that
must accompany it. Our vision and that of the founders we fund is not invasive implants that turn us
absurdly into cyborgs or androids as in Bishop from Aliens, or Deckard from Blade Runner or the
eponymous The Terminator. The reality is we already know some percentage (roughly half) of us is not
“us” but “other” (organic microbes, bacteria actually alien to our own biology), helping us digest and
metabolize food and fight off viruses and other foreign invaders. Mindful the first test-tube baby is only
a generation old, we are increasingly offloading the ultimate combinatorial process: sex itself, with
artificial insemination, surrogates and incubators and new fertility technologies to empower individuals
and couples as never before. It’s our view that more of “us” will be extended into inorganic objects,
spaces and technologies around us.
As an extended agent working for you, your phone—already closely attached to you—can (without
commanding it beyond initial programming or “training”) run a proximity script when you are near the
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Letter To Our Partners
specific GPS coordinates of your home to turn on your artificial indoor lights, raise or lower your electric
blinds or drapes, adjust the artificial temperature of individual rooms and play music or any other
automated home sequence that you will into existence (that would otherwise require you to run
around flipping switches or turning knobs and dials). We take all this for granted: an “entitlement
amnesia”. We forget that each technology had to first be discovered, and then each often goes
through periods of fiercely intense competition between inventors running adversarial companies
while fighting for standards and attention, cajoling and convincing capital and consumers for
adoption and amplification.
Our own sensors (olfactory bulb in our nose, taste buds on our tongue, cochleas in our ears and retinas
in our eyes) capture, transmit and selectively reduce information from the real world into data, internal
signals, perceptions and memory. We are comfortably unaware of our technological prosthetics
(which enable new capabilities from our devices that serve as artificial extensions that transcend
natural limits and that we have slowly grown to depend upon), just as we are comfortably aware of
technological prosthetics that re-enable capabilities of those with artificial extensions that transcend
natural limbs. It is not hard to see a near future where we even externalize the production and
maintenance of organs––overcoming the awful lottery of transplants that often requires someone to
die so that another can live––specialized and unbundled in the same way our gyms and our cable
content have been.
We invent all kinds of technologies that amplify and extend our senses: like the microscope to extend
our sight to see the very small and the telescope to see the very far. There is something poetic and
awe-inspiring that just a few years ago we had to look to the near future of cutting-edge optics,
satellites, thrusters and astrophysics in well-coordinated combination to launch humanity’s most
advanced telescope to see not just the far reaches of our universe but to see our past. As we wrote in
a recent “Securities” issue: “the [James Webb Space Telescope’s] photos recontextualize each of us
into the grand narrative of our species, our planet, and the universe. They’re a reminder of how small
we are, how tribal, how riven with hatreds and divisions we can be, when really, do those twinkling
stars give a single iota of care at all?” We invent cameras to extend our ability to capture a moment
in time or to see it pass very fast or very slow; microphones to hear and capture sound.
Already our memory of words and images is offloaded and accessible at any time and anywhere (so
long as we have a device with sufficient storage locally or else bandwidth for access remotely––an
external organ with its own nervous and circulatory system of energy and information). We use
inorganic algorithms to query our external memories where we have stored photos (extensions of our
eyes) to recall moments of our loved ones laughing or wearing a very specific color of shoes.
It’s also true that the reliability of the reality recalled is often fallible, unfaithful to fact and met with
criticism. Recall that Plato slammed Socrates for using the invention of writing that he insisted would
atrophy the strength of memory. Thousands of years later a beautiful sci-fi story (Truth of Fact, Truth
of Feeling by Ted Chiang) was written to underscore this theme with two parallel stories: in one, a nearfuture journalist writes about a popular technology called “remem” that records everything in your life
and lets you go back to review high fidelity lifelogs. The journalist, a father, remembers a huge life-
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Letter To Our Partners
defining domestic argument started by his daughter, whom he later came to forgive––but when he
goes back to revisit the memory in “remem” he is shocked he misremembered (maybe as an emotional
coping strategy) that he was the one to blame all this time—he started the argument. The parallel story
is of a member of an ancient tribe who meets a missionary explorer and learns to read and write––only
to also learn that the stories told by leaders of his tribe, through oral tradition, vary subtly in
subsequent tellings making them incompatible with a strict written record. The stories together raise
the troubles with being “precise” (what is actually factually true) versus being “right” (what you feel
and believe to be true)––between facts and feelings.
Technology transcends natural limits like recall and memory, attention and alertness and processing
highly abstract, complex or computationally intensive ideas. The more we invent technology that
reveals the true working of the reality around us (from telescopes revealing the Sun didn’t revolve
around the Earth to the atomic structure of molecules inside our cells that are targets to cure disease)—
the wider the gap and grasp of our natural unaided intuition. “Extentionalism” takes as its thesis the
inevitability of that gap, and the absolute need for technologies to cross it and still imbue every human
with meaning.
REinvesting in the frontier and ‘Matter that Matters’
If you trade headlines for trendlines you can’t help but see the invisible, long-term directional arrows
of progress. Price signals of inflation often delay big, long-term infrastructure projects, availability of
risk capital falls and its cost rises. Valuations fall and expected returns rise. For those with cash (and
deeper reserves to handle heightened financing risk), it will prove to be a time to increase investment
market share of the very best opportunities in what may be a very difficult market for many others.
Lux has always invested at the intersection of cutting-edge disciplines that showcase the decreasing
gap between sci-fi and sci-fact (what was imagined in the past and what has been crystalized into reality
in the present). Lux sees tremendous opportunity to seize on the macro and market backdrop, and
we want to highlight 4 themes we are excited about in emerging areas that may prove to be epic
opportunities to make money, meaning and history: (1) Embodied Cognition (Amplified & Digitized
Senses); (2) Tech-Enabled Aerospace + Defense; (3) Emergent Networked Infrastructure; and (4)
Enhanced Biotech & Tech of Science.
(1) Embodied Cognition (Amplified & Digitized Senses)––”Extensionalism”
As we discussed before describing “Extensionalism”, one of our theses has been the growing
convergence between the biological and technological, the organic and inorganic, man and machine.
Lux has made investments in the digitization, technological capture and amplification of each of the
human senses. Consider vision and speech: we have technology that can rapidly recognize and label
objects from pixels (companies that span defense, biotechnology, manufacturing and transportation
like Clarifai, Recursion, Veo and Zoox) and others that can rapidly generate videos, images and even
more complex language from simple inputs (RunwayML, Primer and HuggingFace). All share variations
of man-made convolutional neural nets and other algorithms running logic operations on synthetic
circuits etched on substrates of silicon semiconductors, locally on edge-inference chips or distributed
in the cloud. We have powered the transmission of these information flows through a global circulatory
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Letter To Our Partners
system of energy and information in companies from Luxtera (last-mile fiber optic interconnects) to
Aurora Solar (rapid design of solar systems for installation). In hearing we have funded companies like
Whisper.ai and Chromatic that are pioneering next-generation hearing aids using new processor chips
and algorithms for impressively eliminating background noise and clearly amplifying voices. In touch
and movement, we funded CTRL-Labs (acquired by Meta) to non-invasively turn neuromuscular signals
(and even intentions to move before literally lifting a finger) into control signals disintermediating the
need for keyboards and switches that sit between our intention and a computer. We also funded Cala
Health, which helps stabilize movements and muscles of those suffering from essential tremor. We
have funded companies founded by brilliant scientific entrepreneurs who have decoded the neural
correlates of our sense of taste (Charles Zuker) and won the Nobel Prize for decoding our sense of smell
(Richard Axel) in Lux family companies like Kallyope and beyond. This last sense, olfaction, is the last
to be given to computers. We will soon publicly announce a new large investment after a decade-long
search for the most credible and unique breakthroughs to enable a ‘Shazam for smell’ for consumers
to record smell the way we use our phones to record photos, videos and sounds––and detect human
health from breath (the way dogs can detect cancer, Covid-19, early biochemical molecule signals of
Parkinson’s or epileptic seizures before they occur). Notably when we were signing the term sheet for
the first real digitization of smell (to predict an odor from the structure of a molecule and vice versa)
as founding investor––after having successfully evaded COVID for two-and-a-half years––one of Lux’s
partners caught Covid-19 and the only symptom was poetically apropos: total loss of smell (since
regained).
(2) Tech-Enabled Aerospace + Defense
At the level of our planet, the ultimate form of offloading production and waste is exporting it to space.
Exceptional ambitions like manufacturing valuable goods in space for consumption on Earth will require
time, which will require capital, which will require belief, which will require exceptional talent to get it
all underway––which in companies like Varda and Hadrian it already is. There are positive and negative
consequences of offloading. Consider the offloading we did with Silicon Valley-invented
semiconductors to the shores of Taiwan and that Europe did with its energy consumption and reliance
on Russian gas. We’ve sent consumer dollars and American jobs overseas for higher profit margins,
lower prices and an abundance of consumptive choice from fashionably fancy shoes and handbags to
fabrics and furniture galore. We are now remembering defense is of much more importance than
opulence as Adam Smith wrote in 1776, the same year as the Declaration of Independence. China and
Russia have awoken the world as revisionist, nationalistic, authoritarian, dissent-suppressing, nearpeer competitors and major military adversaries with interest and intent to undermine the rules-based
order. The latter’s land and air war has attacked Ukraine, Western democracy, order and global food
security, and provoked countermeasures at once measurable by the former who in turn continuously
signals intent to eventually take Taiwan. As was said on a recent Lux “Securities” podcast: the U.S. has
never won a conflict with the hardware that it had going into it. In all domains from air, land, sea and
space, Lux and Lux companies are pursuing cutting-edge technologies. There is a renewed space race
and there will likely be orbital reefs launched, private commercial space stations with suites of
technology yet to be perfected. Even now though, only several hundred people have ever been to the
International Space Station. Space has gone from pure exploration to commercial exploitation, first
spending money and sending assets up and now those assets (satellites transmitting images and
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Letter To Our Partners
information and entertainment) are collecting money. As above, so below. Consider not just deep
space but deep sea: one of Lux’s advisors, the former Undersecretary of the U.S. Navy, noted that more
people have stepped foot on the moon than on the subsea surface of our planet. He also noted that
over 90% of merchandise flows above sea (on container ships) while over 90% of information flows
below sea (in fiber optic cables)–-both requiring protection and assurance of security and freedom
from sabotage or capture.
(3) Emergent Networked Infrastructure
Security and defense also requires resilience and we see big gains to be made in Emergent Networked
Infrastructure. This includes Lux investments in infrastructure whether for crypto assets or tradable
securities (FTX), agricultural commodities (Vosbor), democratized benchmark and index creation
(Thematic), and robust custodianship of digital assets (Anchorage). There’s an emphasis on hardcore
math and computer science which is objective and provable. Some of this infrastructure will be in
markets and much more of it will be in new computational networks and their infrastructure––at the
micro level from novel chip architectures to distributed networks with complex algorithms and
protocols that allow programming, processing, permissioning and providing proof of information; to
the macro-level infrastructure of how information is stored, retrieved and transmitted through land,
air, sea and space––on planet and off. Infrastructure has different temporal layers with some
components changing and reconfiguring rapidly (software) and other layers slowly (subsea fiber
optic networks and outer space satellite relays). Some infrastructure will be financed in waves by
speculators, investors and entrepreneurs––and others will need to be built by governments and other
institutions over multiple generations. Notably: the infrastructure inside human bodies follows a
similar pace-layer structure with certain cells and networks of cells renewing and reconfiguring rapidly,
adaptively and frequently––and others fixed or lasting decades.
(4) Enhanced Biotech & Tech of Science
Which brings us to biology, another area where—like computational architectures and network
infrastructure—objective breakthroughs beat out individual beliefs (it doesn’t matter whether people
believe in it or not—it just is). Lux companies in biotech and techbio are involved in some of the most
objectively important breakthroughs that have won Nobel Prizes in microscopy (Eikon) for their ability
to do single-particle tracking inside of cells; have unearthed ancient viral DNA inside all of us that is
used in memory formation and is a vector for targeted gene therapy (Aera); are pursuing the deep
science that reveals mechanisms for targeting Parkinson’s and other neurodegenerative disease
(Cajal); and can find druggable targets from monogenic conditions found exclusively in certain outlier
populations with outlier traits in outlier parts of the world (Variant). A year ago, DeepMind publicly
released the AlphaFold database with one million predicted proteins, now that number recently grew
to over 200 million (nearly all known proteins in humans and other animals as well as plants and
bacteria). Structure and shape creates function. Computational biology accelerates discovery though
still requires real wet labs and still requires microscopes and making actual proteins outside of a
computer. Precision in silico modeling of proteins gives high resolution but to actually map to realworld data we need precise high-resolution imagery (it’s like making a map of a coastline by hand and
then having a precise gigapixel aerial image of the coastline with all of its fractal crags and folds). That
requires Lux companies like Gandeeva who can get atomic-level resolution of proteins and how they
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Letter To Our Partners
interact with other proteins to design precision drugs, as well as a new generation of automated labs
accessible through the cloud (Strateos) and the cutting-edge software techniques that allow labs to
track, run and analyze experiments that used to take months and can now take minutes (Benchling,
LatchBio).
REcapturing human ingenuity
Just as price is a signal wrapped in an incentive, our technologies are means, wrapped in meaning,
unforeseen. The cotton engine (“the cotton gin”) was a means for making cotton more productively
than hand-separating fibers from seeds––but see it sitting idle in isolation at The National Museum of
African American History and Culture and its meaning is menacing and haunting. The shiny mirrored
aluminum of the Enola Gay was used as a means for fuel efficiency and carrying more weight––and
having dropped the first nuclear weapon, it also carries the dark weight of history.
On the bright side: meaning enlightens and brings hope as in the the chemical reaction N2+3H2 ⇌
2NH3. Unassuming, yes, but it’s nothing less than human ingenuity embedded in an equation for an
invented industrial process that synthesizes ammonia and fertilizer––which would allow humanity to
flourish from 1.6 billion people when it was invented just over 100 years ago to 7.6 billion today.
Whether it was carbohydrates from farming, hydrocarbons of coal or oil––those calling for scarcity
(respectively Malthus, Jevons and Hubbert) all shared one thing in common: they would all be wrong.
Agriculture productivity and oil production is at all-time highs. What they all got wrong is they
underestimated that one inexhaustible resource: human ingenuity. All the stuff we extract from the
environment is all useless without ingenuity––the ideas that turn resources into useful fuel, food,
energy or other inputs. Ingenuity starts as invisibly as all the constant incremental progress that
comes from motivated people pointing at “stuff that sucks” and deciding they will fix it for fortune,
fame or out of mere frustration.
The more widely spread any invented technology gets, the more invisible it gets. The know-how and
the technologies themselves get hidden from plain sight, in our walls, under car hoods, underground,
in server-farms or far-off factories: who could have imagined the mass production of steel, the
harnessing of electricity, the internal sensors and drive motors of an autonomous electric car or a global
network wirelessly connecting every human to each other and to a repository of all knowledge ever
created? We are blind to most technology around us unless it’s broken. What human brains do is
come up with ideas––endless ideas. We cannot know what will come from unthought ideas from
unborn people. What we can forecast with conditional optimism is the combinatorial possibilities of
old ideas creating new ones that become old ones that create new ones, ad infinitum. So: let there be
light, Fiat Lux.
Our job at Lux is to see before others understand. To see the meaning and matter that an object, a
technology, a product can make––not just because it contains the sum total of the struggle of the
founders or inventors but because it produces––and is part of––a narrative, a human story (and if we
are lucky and right, some history) that we get to write with them. It’s our Epistolary Imperative, and
next year as we enter “Twenty-Twenty-RE”, we stand ready to find our own magical gold-painted bricks
lying in wait at some intersection of human ingenuity.
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