Thread by @wolfejosh

1/ Releasing NEW Lux quarterly letter to LPs

our theme: making MEANING + making MONEY

-‘Epistolary Imperative’
-next year 2023 will be “Twenty-Twenty-RE”
(RE-covery -constituting -pricing, -investing)
-“EXTENTIONALISM”
-information in prices
-matter that matters
-& much more…

2/ The point in writing these letters is to
-congeal observations of occurrences, information or events once concealed and now revealed
-crystallize ideas of what may be
-condense them into words for sharing (hey read this!) + signaling (hey we’re no fools!)

3/ MEANING can be powerfully created or destroyed

deeply embedded in objects + technologies
or coldly abstracted + decoupling from them…

Consider Derek DelGaudio’s ‘gold brick’ from In & Of Itself––only those in the know of his story see deep meaning in othewise ignored object

4/ 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…

5/ Observing an excess of excesses

an abundance of once-qualified optimism that begot unguarded greed + a scarcity of good governance + diligent discipline––required no complex calculations nor decimal-point precision…

6/
…only simple estimation that what WAS for a while––
WOULD NOT BE for much longer.

7/ ….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.”

8/
We just had a “CORRECTION”––a euphemism for errors + poor decisions made in the past now evident

When P/E multiples fall📉 so do too-high prices
but history shows in recessions coincident with inflation further CORRECTIONS needed for overestimated earnings (lag in reporting)

9/ Over our past 6 letters our message was mix of
DEFENSIVE prudence
+ OFFENSIVE preparedness to pounce

-Capitalize on current capital markets
-Build warchest balance sheets
-Husband the cash
-Now consolidate

10/ While others pace may slow
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……or ‘DROP’ old ones

11/whether that is
-starting newcos or sourcing special situations
-teaming with top entrepreneurs who choose Lux
-investing in + expanding our team
-analyzing existing investments + adding value with good judgment + governance
-OR…

12/…or working to realize exits + returns for partners we feel fortunate to work for

In recent yrs–– we’ve 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…

13/ as Lux sets our sights soaring to return many multiples more in the years ahead

14/ Our PERSPECTIVE: keep PERSPECTIVE
follow TRENDLINES not HEADLINES

read PRESENT headlines +it may seem like
the WORST of times

read PAST history + it may seem like
the BEST of times

a climax of chaos may yet yield a denounment of detente
the ‘gold brick’ awaits discovery—

15/ After the tension, the muscle relaxes.

The house of cards collapses to the ground….

16/….but the gold-painted brick is out in the world, its full meaning and value to be discovered.

17/
2022 was the year of Entropic Apex

2023 will be “Twenty-Twenty-RE”––as in

…REconstituting the finance of innovation
…REdiscovering meaning of price
…REinforcing our strengths
…REconvening at work
…REthinking inflation
…REwearing suits😜

18/
…REinvesting in the frontier and ‘Matter that Matters’
…REcapturing human ingenuity.

Epistolary Imperative is about finding meaning in chaos
this LETTER is about two LETTERS (re)

+ the optimism that comes from
REcovering what was lost and
REmixing it into something new.

19/ REdiscovering the MEANING of PRICE

when everyone follows the same strategy
-prices synchronize
-underlying diversity breaks down + we get
-crushing crushing convergence
-as behaviors become similar
-amplifying + exacertbating market movements (like a stampeding herd)

20/ Prices should CONVEY information
information CARRIES inferences of expectations

It’s also true that party buses CARRY…drunken fools
And drunken fools CARRY…impaired judgment

Prices provide powerful feedback––and without feedback

CONFIDENCE grows faster than ACCURACY…

21/ Many will have LOST money––and GAINED experience

This time last year––90% of tech companies earned investors positive returns over the prior 12 months

Now–– 90% of tech companies have offered negative returns for investors.

22/ Almost every company (+ many people) is fighting some private struggle + is way more vulnerable in reality than it lets anyone else see or sense––

Consequences for being honest
are often as negative as the truth
So it’s usually a rational risk to bluff to keep up appearances

23/
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 + stepdown announcements we’ll likely see many more of in coming months…

24/
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 + as trusted partners…

25/ on inflation, BIFLATION––
…and “treadmill class warfare”…

26/ "biflation" has been playing out––as the wealthy give up luxuries while the poor can barely afford to cover their needs.

“TREADMILL CLASS warfare”––
those who literally own one + can afford to work from home
VS.
those who figuratively are on them just trying to keep up

27/ Sellers of consumer discretionary stuff see excess inventories + markdowns + liquidations––ultimately deflationary

Hiring freezes + layoffs that employ the middle or upper-middle class may further shock or exacerbate deflationary forces in nice-to-have product categories…

28/ …particularly after so many during the pandemic pulled forward future demand + seized on the time + stimulus money + low interest rates to turn their homes into five-star spas + hotels

Last yr consumers RETURNED an entire DoD budget worth of stuff: $760 billion…

29/ Real risk may not be where all eyes are focused––employment + inflation but where they are not

Like not-widely covered segment of our financial plumbing which could lead to loss of solvency, liquidity and risk that radiates + ripples out with surprise…

30/
this may prove to be a Red Queen trap where––much like the character from Lewis Carroll’s Through the Looking-Glass––the poorest in our society need to run 2x as fast just to stay in place (making the employment picture look rosy obscuring reasons why so many NEED work)

31/ TECHNOLOGY can virtualize, simulate and abstract many things—but NOT our HUMAN essence.

32/
We lucky few––
We tribal social primates who read body language
laugh together
cry
commiserate
whisper secrets
roll eyes
hug + high-5
share meals + stories at the speed of sight + sound
without latency with real-time
360 spatial cognition
cant be algorithmically compressed

33/ 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….

34/ …junior employees who are pledging their lives + time more resentful. There’s something richly rewarding in the pay-it-forward moral duty of remembering we were once mentored––& mentoring those that may not realize they want or need it––investing valuable time in their dev..

35/ If you can phone it in, the world + other people may need you, but not really.

Situational cognition means being present + aware in situations…

36/Its why all sitcoms take place where we social primates convene
-coffee shops w/ friends
-taxi garages
-bars where everyone knows ur name
-the office
-classroom
-school
-hospital
all w/sudden bursts of strangers + serendipity
that create the 🎭 that makes life interesting

37/ Meaning-making + mission-critical jobs can’t be called in

from coveted beachfronts…
or converted basements…

38/
ask doctors, nurses, soldiers, stylists, sanitation workers, pilots, dentists, drivers, barbers, builders, teachers, athletes, mechanics, care- givers, contractors, butchers, bakers, candle-stick makers,

39/ …chefs, chemists, drug-hunters, pharmacists, mechanical engineers firefighters, boat captains, and factory workers…

40/
active intensity of AMBITION
beats laid back indolence of ENTITLEMENT

and diverse gathered groups w/shared goals
different lived-experiences + petty grievances
will achieve more together IN PERSON
than SILOED SELF-SEGREGATING individuals

CONVENIENCE will lose to CONVENING…

41/ On

the return of suits…

how groupthinkg + the herd homogenizes what we wear, watch + listen to

how new ideas always come from DIVERGENT DISSENTERS

And how the next 2 years are about REBUILDING, REFLECTION, RECONSTITUTION like 2000-2002 with range-bound markets

42/ Range-bound markets form from the fatigue of existing investors––and the tension between BULLISH THINKING x PATIENT PRUDENCE

Took 16 years for NASDAQ to reach 2000 highs again

Ensuing years saw rise of value investors, true biz analysts + celebrated long-short hedge funds…

43/One of Lux’s core strategies

is building + launching breakthrough competitively advantaged DE NOVO companies––

with 30 months of cash runway to emerge differentiated + desirable by future investors

Late-stage investors in 2025 may look VERY different
than in recent years…

44/
Lux = latin for light––each new breakthrough we back shines a spotlight on the KNOWN + reveals in the shadows of the circumference––new UNKNOWNS

Our knowledge can only be FINITE
Our ignorance must be INFINITE
in our infinite ignorance we are all EQUAL…

45/We expect our team to be nimble with curiousity + conviction in NEW areas others don’t yet appreciate
—and see what may be

While having keen + clear understanding of market conditions + expectations + liqudity of our peers
—and see what is.

46/
Lux ESCHEWS sector silios
yet ISSUES licenses for partners
—generalists all—to pursue periodic passions

We are only as ever good as our
-last investment
-last decision
-last interaction + impression made

We gain from intentional institutional design decisionsover many yrs

47/ To some ENVY is a SIN––to us it is part of a competitive ambition

for our partners + competitors to describe each functional area (finance, content, marketing, fundraising, corp dev, recruitng) + Lux as a whole as operating with excellence + to be enviably admired…

48/ Having been thru cycles of equity + credit bubbles and contractions––we see 3 main winning strategies

1. Bubble (give newcos 30 mos of cash)
2. Anti-bubble (fund late stage co’s at early stage prices)
3. Consolidation (co’s with cash warchest rollup sector)

49/ EXTENSIONALISM (not existentionalism)

undeniable ‘directional arrow of progress’

the extension + embodiment of our senses + cognition aided and offloaded onto technological systems with their own nervous systems + metabolic systems…

NO, not implants, cyborgs or androids—

50/ One of the most important current themes @ Lux

“EXTENSIONALISM”
“entitlement amnesia”—we forget that each technology had to discovered, go through periods of fiercely intense competition between inventors cajoling + convincing capital +consumers for adoption + amplification

51/ We already offload from our ORGANIC biology our ideas, memories, sights we see + sounds we hear (captured thru external sensors and stored in INORGANIC solid-state media)…

We offload our stomachs to stoves + appliances

*We WILL 100% offload organ production––and SOON(!)*

52/ 4 themes Lux sees BIG opportunity to seize on with the macro + market backdrop

1. Embodied Cognition (Amplified & Digitized Senses)

2. Tech-Enabled Aerospace + Defense

3. Emergent Networked Infrastructure

4. Enhanced Biotech & Tech of Science.

53/ On Lux’s investment theme of

-embodied congition (amplified + digitized senses)
aka “Extensionalism”

Lux funded ventures digitizing almost every human sense
-sight
-hearing
-taste
-touch
…and now SMELL!

54/Lux theme of

TECH-ENABLED AEROSPACE + DEFENSE

DEFENSE is of much more importance than OPULENCE

CCP + Putin have awoken the world as revisionist, nationalistic, dissent-suppressing, near-peer competitors and major military adversaries intent on undermining rule-based order—

55/
Consider:
more people have stepped foot on the moon than on the subsea surface of our planet

>90% of merch flows above sea (on container ships) while over 90% of info flows below sea (in fiber optic cables)

both need protection+assurance of security+freedom from sabotage

56/ On Lux theme of

EMERGENT NETWORKED INFRASTRUCTURE
from @FTX_Official to @VosborExchange to @Anchorage

Infrastructure has different temporal layers with some component changing + reconfiguring RAPIDLY
(software)

& other layers SLOWLY
(subsea fiber optics + outerspace sats)

57/ on Lux theme of
ENHANCED BIOTECH + ‘TECH of SCIENCE’

Computational biology accelerates discovery
BUT still requires wet labs, microscopes + making actual proteins outside of a computer…

58/ Just a price is a signal wrapped in an incentive…

…our technologies are MEANS
wrapped in MEANING––unforseen

The MORE widely spread any invented tech gets––
the MORE invisible it gets

We are BLIND to most of our tech unless it is BROKEN

59/
Lux Quarterly Letter Q2 2022

Full PDF (link to single file 📑) here👇
drive.google.com/file/d/1S3mmGr…