From V for Vendetta…

The world is filled with anxious anger. Widening inequality driven by inflation; soaring geopolitical tensions from Eastern Europe and the Middle East to Asia-Pacific, the Sahel and Latin America; polarizing elections exacerbated by social media (in a year in which a majority of humanity will vote for at least some of their political leaders); escalating climate chaos that’s cleaving communities; and deep-seated fears of automation wiping out breadwinners have made anxious anger the mainstay emotion of our era.

We’ve already seen the blowback, from riots and ruination to calls for degrowth and destruction of critical assets, including oil pipelines and scientific institutes. Often, small numbers of individuals styling themselves as revolutionaries are at the heart of these responses, externalizing their inner demons on an unwitting population.

Few movies (or comic books) capture this spirit better than V for Vendetta, which centers on the antihero V in a Guy Fawkes-mask who parlays spectacular violence against a totalitarian regime snuffing out humanity. V is an anarchist marshaling no army, whose only power is to wield force to destroy the institutions that he sees as morally wrong. Left unseen is any community of uplift or broad solidarity in the pursuit of freedom. V aestheticizes narcissistic violence in a vainglorious quest to prove his own self-worth.

Yet, there is a different approach to assuaging the world’s anxious anger, and it lies with the community of scientists opening the future to further health, prosperity and equality. As Karl Popper argued in his fight against the Vienna Circle, rebellious scientists fight what’s wrong in order to search for what’s right. Falsification isn’t about destruction, but renovating antiquated foundations to secure a stronger future. Far from anarchist antiheros, these scientists form a collaborative community of comrades conscientiously casting around for a cogent consensus.

Examples abound. Behind Oppenheimer lay the thousands of scientists and administrators of Los Alamos who together invented the atomic bomb. Behind Turing lay thousands of computer scientists who shared and built upon his theoretical work to invent the artificial intelligence models at the heart of our current moment. And behind 2023 Nobel laureate Katalin Karikó lay thousands of bioscientists and clinicians who transformed her pioneering mRNA technology into a pandemic-defeating vaccine that saved millions.

Lux funds ambitious rebel scientists working alongside brilliant teams in the collaborative pursuit of the possible. In preview, in spite of all the political polarization, technological upheaval, and market and geopolitical volatility, this quarter’s letter is a clarion call for scientific advancement (and all who foster, find, fund and benefit from it) as the cornerstone of our collective future. It happens that V is the Roman numeral for five, and so across five sections, we will talk more about rebellious scientists, the importance of laboratory culture, the ambition of Lux Labs, the global macro context in venture and finance, and finally, the geopolitical challenge of maintaining American hegemony in the twenty-first century.

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V for Vanguard Visionaries: Rebel scientists and the pursuit of truth

Lux invests heavily in long-term, cutting-edge, science-driven ventures founded by renegade renaissance men and women while continuing a long track record of incubating new companies formed around pioneering entrepreneurs (Lux Labs); increasingly spinning-out well-regarded yet well-shackled teams from the constraints of corporate big tech; and aggressively looking for serendipitous sparks (students, scientists and stalwarts) where capital is scarce today yet future returns can be high. Superior science begets competitive advantage, which begets scarcity of capabilities, which begets distinction and demand from customers, capital markets and countries alike.

We have a new world order, where algorithms can wield as much influence as armies, and where vaccines vie with warheads for strategic importance. The true measure of a nation's strength lies in its ability to harness the power of knowledge to further its own ends. From forecasting the fury of monsoons to tracking the trajectories of missiles, from precisely etching silicon to using those same chips to calculate the complexity of proteins, from preserving our homeostasis harnessing freon to illuminating commerce and cities with neon or human bones and bodies with xenon, scientific knowledge is power.

Since World War II, pathbreaking U.S. scientists have been at the vanguard of world-changing discoveries that have reshaped our reality for the better. Consider: the high-yield wheat developments (1940s-1950s) pioneered by Borlaug that saved a billion lives; the structure of DNA (1953) uncovered by Watson, Crick, and Franklin that laid the foundation for modern genetics and biotechnology; the Polio vaccine (1955), where Salk's breakthrough saved millions from paralysis and death; the LASER (1960), where Theodore Maiman's invention paved the way for everything from CD players to surgical tools; Apollo 11 (1969), in which NASA's successful moon landing showcased American sci-tech prowess; GPS (1978), which provided positioning, navigation and timing services to every industry from logistics and transportation to defense; and onward to the PC, the internet, rapid and cheap genome sequencing, CRISPR gene editing, and more.

Yet, the draw of these careers for America’s vanguard visionaries is always in flux. Cultures get what they celebrate, and what they celebrate changes with outcomes. One barometer of values is what children wish to be when they grow up. A decade ago, “celebrity”, "influencer" and "rich" were rightly criticized for their atomized self-aggrandizement. Thankfully, the spotlight of societal esteem is shifting its shine, updating our most prestigious professions and redefining occupational odysseys. From scalpel-wielding healers and gavel-striking advocates, the doctors and lawyers of yore are ceding high regard and higher pay to: the code-crafting AI architects of our algorithmic aristocracy; the data scientists and cybersecurity specialists safeguarding our digital realms; the life scientists and bioengineers inventing the next generation of therapies; and the rocketeers and defense engineers recommitted to fighting both gravity and our adversaries across all domains. We must celebrate them and encourage these paths even more. From school science fairs to the global stage of the Kavli, Keck, Lasker, Turing and Nobel prizes, we must cultivate a culture that celebrates vanguard visionaries with the same fervor we reserve for athletic prowess.

Scientific technology embodies a cognitively compounding interest where each advancement begets further innovation in a virtuous cycle of creation. DNA begot sequencing begot CRISPR which is now the linchpin for many new experimental therapies. The true alchemy of our age lies not in transmuting lead to gold, but in transforming incisive inquiry into ingenious innovations. Cutting-edge science uncovered by entrepreneurial scientists capable of attracting even more ambitious teams can build new ventures that are the answer to growth, progress, treating terrible disease, sourcing clean energy, advancing our allies as well as deterring, dominating and defeating our adversaries. And this all begins in the minds of those vanguard visionaries who see the world as it is, and not as it is fashionably described.

V for Validating Variables: The longitudinal legacy of the laboratory

No institution is more important for progress than the laboratory, the epicenter of fundamental shifts in our understanding of the world. These were once the workhorse workbenches of autonomous alchemists, from Archimedes' bathtub eureka to Newton's light-splitting prisms, from Curie's radium-rich shed to Feynman's cryogenic playground for superfluidity. These discovery depots have since evolved from solitary scenes of serendipity to enormous energetic ecosystems, like the sprawling synchrotron sources at Argonne and Berkeley home to thousands of scientists, where the dance of subatomic particles illuminates the structure of matter and life itself.

As the layers of humanity’s knowledge deepened, the vanguard visionary suddenly needed a community of collaborators to make progress. Big breakthroughs now cost a lot. Crossing the frontiers of science often means crossing the barriers of fiscal feasibility, frequently leaving only the leviathan treasuries of nation-states to fuel the giant appetites for steel, concrete, electricity and labor for our most audacious explorations. The subatomic symphonies conducted in CERN's 27-kilometer circular stage and labyrinths of particle accelerators revealed the Higgs boson. Construction of the Square Kilometer Array of radio telescopes cost billions to provide us with a means of cosmic eavesdropping. At $10 billion, the James Webb Space Telescope offers a veritable time machine into the birth of the cosmos. And billions have gone into Fermilab's phenomenal discoveries, from uncovering the top quark in 1995 to surveying dark energy, proving it to be a portal into the universe's deepest secrets. While much has become de-atomized to code and cloud, basic science is still geographically grounded in capital-intensive infrastructure found in research parks, national labs and user facilities.

The largest privately-funded exceptions have been by monopolies or megalomaniacs, respectively the legacy of Bell Labs (birthplace of the transistor, laser and information theory — a veritable Alexandria of our modern age) and the Janelia juntos where the Howard Hughes Medical Institute's research campus pushes the boundaries of neuroscience and imaging, scaling up Santiago Ramón y Cajal's humble studio where he sketched the foundations of modern neuroscience.

The U.S. now spends (as a percentage of GDP) about the same on R&D as defense, around 3% (up from around 2.5% at the fall of the Berlin Wall). The growth comes from both the public and private sectors, and it is centered in areas where Lux has long invested: health, technology and defense. Notably, the federal share of total R&D funding went from around 67% in the 1960s to less than 20% in recent years thanks to expansive spending from the private sector, which now accounts for 75% of R&D. Notably, the private sector is doing more basic research, taking share from universities.

What Lux and some forward-leaning companies grasp is that extraordinary commercial potential lies in ambitious and entrepreneurial scientists working in research labs with an explicit resistance to immediate expectations of commercialization. Business models and monetization have proven in the right circumstances to evolve as fast as repositories of code. Indeed, trillions in market capitalization have come from venture-backed startups from just such individuals. Naming conventions of many high-tech venture-backed companies have even embraced this open possibility by appending “Labs” after their names.

V for Valuable Verities: Lux Labs and investment strategies

Over the past two decades, Lux Labs has been an informal initiative that embodies Lux’s commitment to creating companies from scratch in overlooked areas of the hard sciences. From the precision of medical robots to the audacity of commercial rocketry, from the revelatory power of advanced microscopy to the transformative potential of biotech breakthroughs, from the cognitive leap of AI to the sensory revolution of digitizing smell — these aren’t mere technological advancements, but rather lighthouses to guide the evolution of our species' capabilities.

We’ve been at the forefront of de novo company creation, turning research from university labs and internally developed theses into over 20 groundbreaking ventures including: Kurion (a nuclear waste treatment company that aided the cleanup of Japan’s Fukushima disaster), Kallyope (in metabolic disease and obesity), Cajal (in neurodegenerative disease), Genocea (in vaccines), Aera (in genetic medicines) and many more. With dedicated teams and entrepreneurs-in-residence, Lux Labs continues to found and fund companies at the intersection of cutting-edge fields such as AI and biology, manufacturing and space, as well as scientific tools and automation. In recent years, we have co-founded and funded spinouts from research groups at big tech companies like Aeva (pioneering 4D LIDAR for autonomous vehicles emerging from Apple), Osmo (digitizing smell and spun out from Alphabet’s Google Research), EvolutionaryScale (a frontier model in biology and AI originating from Meta), and Physical Intelligence (all-star roboticists emanating from Google and Stanford).

We expect this spin-out and start-up strategy to be repeatable for Lux as big tech companies focus on profitability and cut spending on non-core research projects. As the risk of those groups getting shut down rises, Lux has the opportunity to spin them into standalone ventures with valuable teams, tech and IP. The more scientifically rigorous, unique and technologically sophisticated, the better for us.

Lux-family companies – though diverse across life sciences, physical sciences and computational sciences – are carefully curated with a common denominator: competitive advantage through sci-tech superiority. Take the life sciences. Eikon, based on Nobel Prize-winning work, has pioneered advanced single-molecule tracking technology that captures the complex and dynamic behavior of proteins in living cells with unprecedented precision and scale. It generates petabytes of evidence per day that enable novel machine learning for drug discovery, assisting researchers in finding and characterizing small molecules they would otherwise overlook. Recently emerging from stealth, EvolutionaryScale showed sci-tech superiority in releasing ESM3, a groundbreaking 98-billion-parameter AI model for protein engineering that was trained on over 2.8 billion protein sequences. The model offers generative capabilities for protein design that can be fine-tuned by scientists to accelerate breakthroughs in drug discovery, disease eradication, and environmental mitigation.

Now turn to the physical sciences. In less than three years from founding, Varda has not only built the world’s first commercial orbital manufacturing and re-entry capsules, it has landed the first commercial re-entry capsule on U.S. soil and has sci-tech superiority for Mach 15+ flight-testing. It’s also the only platform that can recover payloads after flights above Mach 6. Hadrian is scaling up automated factories of high-precision production machines for defense and aerospace with 20% of the people needed at 5x productivity. It holds not only a sci-tech superiority against networks of mom-and-pop incumbents, but is also empowering a new generation of American defense competitiveness against adversaries like China. Chromatic will soon show sci-tech superiority in its hearing aids by fusing advanced hardware and software AI to focus and amplify conversations in chaotic noisy environments. For those hard of hearing (and even those of us who are simply overwhelmed in places from a friend’s apartment party to a major concert venue), Chromatic’s hearing aids can transform an embarrassing conversation of nodding along into a fair exchange of ideas.

Finally, turn to the computational sciences. Together AI has created a super-fast AI engine that can train and run customizable open-source models 4x quicker than other top offerings and is up to 2.5x better than big names like Amazon and Microsoft. Their secret? Pathbreaking tech like FlashAttention-3 and more efficient ways of handling data. This makes their inference engine the fastest and most cost-effective option for running large AI applications, handling over 400 tokens per second on top models like Meta-Llama-3-8B. Applied Intuition is using advanced vision intelligence to help its customers re-architect their vehicles to be intelligent, software-defined machines, starting with enabling both carmakers and defense companies to build vehicles with self-driving capabilities across all terrains. Physical Intelligence is expanding upon the pioneering theoretical work of scientists at Alphabet’s DeepMind in their RT-1, RT-2 and AutoRT papers to build a robotic foundation model that can control multiple different types of robots to perform highly dexterous manipulation tasks, from folding laundry to cleaning up a table, using exactly the same model and training code. New tasks can be added entirely by operators without any programming or engineering background. Crucially for its sci-tech superiority, the company has collected almost 6,000 hours of data, and collects more data to train its model per week than the entire training corpus for RT-1.

In every case, Lux partnered with vanguard visionaries with audacious dreams for progressing the future of humanity, and also in every case, these visionaries were magnetic recruiters of similarly ambitious talent who rapidly congregated around these unique companies. The sci-tech superiority of these companies doesn’t just come from a single patent or idea, but rather the community of brilliance they have assembled.

V for Volatile Valuations: Artificial Intelligence and a Global Economy in Chaos

Today’s AI investors are always seeking Yesterday’s Yes: people want to be invested today where they should've been investing years ago. Our early pathbreaking AI investments in Hugging Face, MosaicML (now Databricks), Runway, Together AI, Modal and more are appreciating (with our great appreciation) thanks to the tardiness of others.

In aggregate, the vertiginous ascent of capital infusion into AI yields a hype-hope continuum, where short-term disappointment may yet yield long-term delight echoing the trajectory of the internet's evolution. However, AI isn't a novel distribution platform, which means that many of the gains will accrue to the inertia of incumbency. Take Microsoft, which is using regulatory arbitrage to control OpenAI while also skirting merger scrutiny with Inflection by licensing IP and acqui-hiring its key talent (paying out investors with a modest but not fund-making multiple).

Investments make sense when returns exceed spending. Thus far in AI, roughly $50 billion has been spent on AI systems (based on Nvidia earnings), rounded up to $100 billion in annualized spending inclusive of energy and data center costs. For the industry to double the value of this capital investment, it would need to be valued by the public markets at $200 billion. AI software companies (including many of our own at Lux) are realizing revenue in aggregate of around $4-5 billion in just the last two years, undoubtedly impressive and yet also far short of returning $200 billion given present multiples, particularly with Microsoft resetting investor expectations about a longer-term payoff.

Expectations are always ahead of fundamentals, and the higher the expectations, the faster the capital flows. Overall VC investment in AI represents about 5% of the deals done yet 20% of the capital invested. Lux’s view is that the rate of growth in AI expectations is slowing and even risks reversing, placing a premium on securing ownership in companies with defensible sci-tech superiority against well-capitalized big tech incumbents. We are bullish about a number of our existing portfolio companies, and we are strategically discerning on incremental new AI investments.

The torrent of capital flooding into AI mirrors the venture industry writ large, which demands aggregate returns that stretch the bounds of plausibility. An average of around $125 billion has been invested in U.S. VC over the last two years, and to match the last two decades of liquid NASDAQ performance, these funds in aggregate need to compound at a benchmark of 11%. Factor in fees and an average holding period of seven years, and the math suggests VCs need to secure at least 3x gross multiples on invested capital ($375 billion). With VCs collectively owning about 60% of a typical company at exit, $625 billion of market cap must be created. There are a handful of companies that can realistically reach $20-30 billion or more in valuation (several of which are Lux-family companies), and only a handful of venture firms have access to these top companies. Individual firms can and will outperform, even as mean-reverting returns in VC fall short of the 11% benchmark (a natural phenomenon after excess performance).

We expect LPs to adjust their allocations accordingly, leading to widespread contraction in the number of venture firms and consolidation of LP dollars into fewer, name-brand managers with reputations for both stewardship in up and down markets as well as mentorship of an emerging generation of investors who have earned the right to partner with the most ambitious entrepreneurs attracted to the firm’s and the individual partner’s reputations. Far from being a democratized asset class, VC is and will remain a rarified ecosystem where only a select cadre of firms consistently access the most promising opportunities. The vast majority of new participants engage in what amounts to a financial fool's errand. We continue to expect the extinction of as many as 30-50% of VC firms.

The flood of VC funding adds volatility to the valuations of primary investments, and we expect that volatility to extend to secondaries as well. While secondaries are a trickle today (including entire GP portfolios, continuation vehicles and strip sales of underlying portfolio companies), we expect it may become a flood as many GPs are ill-equipped with reserves to protect their stakes in the most valuable companies while returning little capital to LPs. As more secondary supply comes to market, we expect to see greater and more volatile discounts to NAV — which offer occasional opportunities for strategic and well-capitalized investors.

We say that failure comes from a failure to imagine failure. One other risk facing LPs emanates from Washington. The last administration applied a new 1.4% tax on investment gains from institutions that enroll at least 500 students and have endowment assets exceeding $500,000 per student. Some lawmakers have proposed punitive increases in that tax of up to 35% in a movement to target these institutions; after all, most of us pay a 20% tax on capital gains. Though such a proposal is unlikely to pass nor at such an onerous level, a meaningful tax on investment profits of large endowments would impact not just operating budgets but also asset allocation, perhaps further redirecting capital from long-horizon to more liquid assets. It would be wise for our great universities to stay out of the culture wars and return to their roots in cultivating cutting-edge laboratories driven by the courageous pursuit of truth.

V for Versatile Vigilance: The Complexity Advantage in Geopolitics

With the rise of a new axis of upheaval encompassing China, Russia, North Korea and Iran, politicians are asking a critical question: how can the United States maintain its culture of open science when its adversaries can immediately steal newly-discovered technology through open-access science papers and open-source code held in online repositories?

This frames the problem entirely wrong, because it confuses knowledge with the people who can use that knowledge for productive ends. With the exponentially increasing complexity of technology, studies actually show that the greater the investment in R&D, the harder it is for others to copy.

Vanguard visionaries like Bell, Edison, Tesla and Westinghouse once individually pushed the envelope of science and technology. Today, no lone mastermind — however brilliant — has the requisite knowledge to understand the mind-boggling complexity of modern defense systems. Just as laboratories transitioned from individual workbenches to community institutions, so defense systems represent the culmination of scores of designers, engineers, managers and specialists. In an era of escalating geopolitical and technological rivalry, the implications are profound. Hard-won organizational knowledge — accrued and compounding over years — becomes a pivotally vital wellspring of competitive advantage.

Consider the exponential expansion in complexity of advanced aerospace systems in the past century. In the 1930s, a combat aircraft had a few hundred components. By the 1950s, that number ballooned to the tens of thousands. Fast forward to today, and a F-35 integrates an astounding 300,000 components. Software mirrors hardware. While the F-4 Phantom II (1958) had only around 1,000 lines of code, the F-22 (2006) ran on 1.7 million lines, and today the F-35 codebase is 5.6 million lines. Rival nations can't simply reverse-engineer or pilfer this technology. Copying a state-of-the-art defense system isn't just a matter of industrial espionage — it demands a sophisticated lattice of knowledge embedded not in individuals, but across entire organizations.

Lux’s aerospace and defense investments emphasize rapid deployment of frontier technologies ready for multiple domains of warfare. These range from Anduril (whose present and upcoming offerings include autonomous aircraft, robotic submarines, anti-drone systems as well as battlefield management software) and Saildrone (autonomous drones that can fully navigate through hurricanes and geopolitically-treacherous seas) to Hadrian, Varda, Epsilon3 (orchestrating complex engineering) and Impulse Space (rockets for in-space transportation).

America’s sci-tech superiority demands versatile vigilance. The domains of conflict have expanded from land and sea to air, and now to space, cyber, information, and more. The threat of adversaries like China lie not in their copycatting, but in their own invention in emerging battlefields. China’s PPP GDP is now larger than America’s, and it accounts for nearly half of global patent applications while the U.S. has since fallen to under 20%. If necessity is the mother of invention, America’s export controls have moved China toward indigenizing chips, phones, drones, electric cars, aircraft engines, satellites, lunar landers (China is the first nation to land and return from the dark side of the moon) and more. America must maintain its sci-tech superiority across every domain and not surrender to predestined pessimism.

… To V for Valor


When a Senator asked Fermilab director Robert Wilson what value the pricey lab might bring to the nation’s security in the race against the USSR, Wilson replied, “Only from a long-range point of view, of a developing technology. Otherwise, it has to do with: Are we good painters, good sculptors, great poets? I mean all the things that we really venerate and honor in our country and are patriotic about. In that sense, this new knowledge has all to do with honor and country but it has nothing to do directly with defending our country except to help make it worth defending.”

We don't pretend to predict the future, but we're committed to funding those rebellious scientists who envision it and who attract intrepid colleagues to build it — architects of posterity, not merely tenants of the present. While our long-standing Lux Labs initiatives in founding, finding, and funding investments in cutting-edge biotech, compute, AI, autonomy, aerospace, and defense have positioned us well, we are ever vigilant and humble in our pursuit of what's next. We maintain our focus on the cutting-edge breakthroughs and sci-tech superiority that comes from scientists, inventors and founders relentless in their pursuit of competitive advantage — for their companies, their countries, and all of us. In the coming quarter, we will reveal new investments with incredible breakthroughs narrowing the gap between sci-fi and sci-fact, with ventures that control the nervous system; target neural circuits to direct bone growth; use genetic engineering to supply life-saving organ transplants; and develop breakthrough defense systems in the most conflict-laden regions.

Anxious anger is understandable; what’s not are the vainglorious vendettas of the few who want to compel civilization to retreat into the past. The future will be built by vanguard visionaries seeking out valuable verities amidst volatile valuations. Science marches on, heedless of political, social, or economic tumult. We expect the venture landscape will face upheaval, and yet the steady march of scientific progress and human ambition will continue unabated, forever propelling us forward to a better future. Fiat Lux.