In the venture capital world, a relatively small group of firms have specialized in funding startups whose tech has applications in defense or intelligence. Lux Capital is one of these firms, and its cofounder Josh Wolfe has built an investment thesis around finding new technologies that could help the U.S. defend itself against threats such as drone swarms or armed satellites. For example, Lux was an early investor in Anduril, a firm started by Oculus founder Palmer Luckey to develop AI-driven anti-drone systems.
Wolfe, and many others in both the tech and defense communities, believe that the Pentagon must reduce its traditional reliance on defense contractors. They think that companies like Lockheed, Raytheon, Boeing, and others may lack the talent and agility to conceive and develop high-tech defenses against the quickly evolving threats of 21st century war.
I spoke to Wolfe twice while reporting and writing the November Fast Company magazine feature “Silicon Valley wants to power the U.S. war machine.” We spoke by Zoom last spring and then in person at the Lux offices in New York City shortly after the anniversary of the 9/11 attacks. The following Q&A includes selected pieces from both interviews. The text has been edited for length and clarity.
Fast Company: I’ve met with a lot of venture capital people, and you’re a little different.
Josh Wolfe: I hope so.
You’re not all buttoned up. You wear black T-shirts. As a VC guy you’ve got a different persona and different style than the Sand Hill Road types who wear fleece vests. What impact does that have? Does it help you get in the door with some startups?
It’s a question for others. If anything, it’s signaling authenticity, like you’re getting what you see. I actually find it sometimes disingenuous or dishonest when I see people in their ties and suits. It’s almost like they’re signaling that they’re honest when there’s something that’s cloaked.
I’ve always seen myself as an outsider. I grew up poor. I resented rich kids, particularly rich kids who I thought were not as intelligent. And I’ve just always had that chip on my shoulder, and I’m drawn towards people who are underdogs. So . . . whether it’s in music or art or engineers or founders, I like people who are outsiders, people who are looking at the system not with an angry irreverence but with “Why should it be this way?” When you tie that to Lux, the epitome of the founder I love to back is this outsider. It’s the person who says, often with arrogance of the highest order, “This is the way the world should be, and I disagree with the way that the consensus is doing it.”
Could you tell me a little bit about how you ended up becoming a VC interested in defense stuff?
I had a penchant for science, a reasonably good personality, and a desire to be wealthy and not poor. Then I realized that investment banking and sales and trading and all those sorts of more traditional finance routes were soulless to me. When I graduated, I went into that for less than a year. I wasn’t even smart enough to collect my first-year bonus.
I ended up founding a venture firm at a time when everybody in the venture world was focused on optical networking and comms during that last boom 20 years ago. I got very lucky and I met my cofounder, Peter [Hébert], who I knew through some common friends. He’s my dispositional opposite. Peter is ebullient and positive. He wears Nantucket reds and I am like the dark cynic who always wears black and expects the worst. I’m always saying that “failure comes from a failure to imagine failure,” which is my way of just anticipating all the bad things that can happen. It’s a protective mechanism from all kinds of things in my own life that I think served me well as an investor.
And then we met a guy, Bill Conway . . . one of the three founders of the Carlyle Group. The Carlyle Group happened to have a lot of early defense-related investments. And former Secretary of Defense Frank Carlucci was chairman. And it actually had a bunch of controversy around it at the time.
Some of our companies ended up getting contracts or money or access and then it just turned me on to some of the applications which I never would have imagined. Then you had the global war on terror and the stealth technology that was involved there. And some of the most impressive people I met were involved in special operations. So a bunch of Lux companies touched on this in various ways. We had things involved in autonomous systems and drones, software, and satellites.
I probably was raised entirely left-leaning, sort of pacifist. And as I understood more about the world in history, I just took a more pragmatic, realistic view of what was going on in the world then, and the sacrifice that people had made that I personally had not. So I felt this gratitude and loyalty on that front, but was never a rah-rah, flag-waving, jingoistic American kind of guy.
And then a series of investments that we made led us to [intelligence] and DoD folks and we grew respect for them and I think vice versa. A few years ago, then-head of U.S. Special Operations Command (USSOCOM) Tony Thomas, a four-star general, came to my office. We hit it off. We became friends. And when he was retiring, I invited him to spend time with us, and he ended up joining us as a partner. He’s been wonderful and we now have [companies in] systems, space, air, sea, land, that are involved in everything hardware and software.
I look at some of the things that we’re funding in what I call the tech of science—the technologies that are enabling brilliant people of all walks of life, but here in this country. We make discoveries that I think are going to be the envy of the world. China and others are racing to do the same thing, so that’s sort of the soft power side of it.
Can you give me an example of what you mean by the tech of science?
I hear about these young guys in San Francisco who want to take these antennas and put them on their little small satellites, and I’m like, how small are these satellites? Because usually satellites are a half a billion dollars to make and they’re the size of a truck or a car. And they said, no, we’re making them the size of a loaf of bread and we’re gonna launch hundreds of them. At the time that company was called Cosmogia. We went and found them in the Dogpatch area of San Francisco and we became early investors.
Now they’re known as Planet. They have thrice-daily sub-50-centimeter pictures of the Earth—every part of the Earth—and they can do 30-frames-per-second video, which is pretty amazing. That has applications, as you can imagine, for supplemental intel, government data, investors and hedge funds, and corporations that want to know what’s going on in the world and where risks might be. They might be able to tell the heights of the shadows on an oil tanker and what that implies about how much oil is there, or whether a caravan in China is going to a productive chemical facility or to a ghost town or a residential area. All that is quite interesting.
And then while we’re in the Planet boardrooms, we hear about the fact that the data that’s coming off of these platforms, the pictures that are being taken all the time, are increasingly going to become a commodity, and the real value might be in the analytic processing of this. And then we get pitched by a company that’s licensing Planet’s data called Orbital Insight and we become a founding investor there with Sequoia and Google and Bloomberg, and they’re running analytics on top of all this data, whatever the source is—satellites or drones or planes.
So one thing leads to the next. In every boardroom we stay really curious, really attentive, and really ambitious, and a little paranoid, and we listen and we follow those bread crumbs as quickly as we can like foraging ants.
It’s common for military brass to retire and go to work for big defense contractors. This gives the contractor added cachet and opens doors to big money projects. Do people like Tony Thomas play a similar role within Lux where they can be that force that levels the playing field in terms of access and influence within the DoD or within Congress?
I would say that [Thomas] is the most relevant both in a timing sense, having most recently led SOCOM. But he’s got a cooling-off period from the time when he leaves to when he can do anything. He’s not approached anybody, but he has a firsthand appreciation of what works in special operations forces, which is a very unique beast versus what works in the traditional forces.
And so if Saildrone (which makes water drones for reconnaissance missions), for example, is trying to figure out, as the Navy shifts from large aircraft carriers to potential fleets of autonomous vehicles, how do we make sure that we’re in front of the right people. And so Tony has been good in saying, “This is the person who you’re going to want to talk to.” And if it comes with a recommendation that we ought to talk to that person, it definitely has more influence. Does it level the playing field versus the primes, who are spending ungodly amounts on lobbying and have entrenched interests and congressional districts? Absolutely not.
And so [a greater reliance on Silicon Valley for defense tech] really . . . has to come from people at the House Armed Services Committee. The motivation will ultimately come from seeing peer competitors like China, and people almost frustrated, questioning, “Why are we not moving as fast as they are? How did they get that competitive advantage?” And then people reactively saying, “Okay, we need to do something faster.” So I think that us and a handful of other venture firms and tech companies are all pushing, but there is a big entrenched system. And it’s going to take time and ultimately probably a shock from a peer competitor that really breaks down those walls.
The Pentagon calls China a peer competitor, but it seems to me that many in the defense community talk about China as something more like a direct threat to U.S. security. The cynic in me wonders if all these defense people are propping China up this way because they want to keep those $700 billion defense budgets coming.
If I were king for the day, it would completely shift from the way that it’s structured now. I would not be some war hawk advocating that we need more money. I think we need to spend less on giant aircraft carriers and more on software and distributed [systems] and autonomous capabilities and space.
We literally have a Holocaust with a million-plus Muslims in western China who are being reeducated and sterilized. And so I think that there are atrocities that if it was just kept there, you could turn a blind eye. But I think that you’re seeing China activity on the African continent, information operations that are happening to undermine democracy here. We know that there are people on Twitter and Facebook that all day long all they do is seek to sow dissent and create divisive boundaries, and exacerbate our differences.
And so that’s much less about, can we have a giant aircraft carrier so that we can fly bombers over Taiwan? And it’s much more about, what systems are going to [have] influence over the world? When Kodak has a photographer that posted on Instagram after visiting the Xinjiang province and describing it in English as an Orwellian dystopian nightmare . . . China told Kodak to take the photo down and Kodak did. That’s a form of suppression that quite literally is Orwellian and dystopian.
When John Cena, a wrestler turned Hollywood actor, takes a knee and pledges fealty and apologizes for calling Taiwan a country, I completely understand his duty to his family as a Hollywood actor, but it’s those little things, bit by bit. . . . When a single tweet from Daryl Morey gets the NBA banned for a year and a half? I mean they are not messing around. And it’s one of those things that’s too weak to be felt until it’s too strong to be broken.
Are there other of your portfolio companies that were just happily doing their commercial business and that you at some point had that conversation with them to point them toward potential defense work?
Anduril is one of the few that is strictly focused on defense. And so they—unlike Palantir, which has always taken an apologetic, “We just developed the software, how our customers use it is up to them” position—were unapologetic. [Anduril] says, “We’re developing things for the warfighter and our allies, and you have to be comfortable that some of the technology that we’re developing may be used in the kill chain.”
And that was a moral question that, as an investor, we had [with] other companies like Primer or Clarifai. Clarifai was a company where we introduced them to Project Maven and they were able to benefit when Google basically said, we’re not going to participate, and so they were able to get some early contracts at our introductions.
At Google, a group of employees objected to the company’s agreement to build technology for defense with Project Maven, which would help the Defense Department develop an open-source computer vision tool that would be used to identify objects in drone footage. Google denied the technology would be used in combat, but later discontinued the pilot program because of the employee backlash. Do you think hesitancy to work on this type of technology, especially among startups, has evolved over the past few years?
I think it has evolved. And I think we went from a zeitgeist really over the past 20 years where you . . . had a very jingoistic Bush; you had a more open-armed, diplomatic, pensive, thoughtful, considered Obama; and then Trump—and we all at Lux have been very anti-Trump, and very honest and overt about that, and very pro-USA.
We are a firm of immigrants who have come from Pakistan and Australia and Kashmir and Iran and Israel and it’s a distinction that’s worth making. But I think the past 20 years you’ve seen this coincide with, increasingly, a liberal social movement of people . . . not wanting to work with the DoD or unjust actions and unjust presidents.
And that’s all very understandable. I even held some of those views. And then when you start to spend time with military folks, and you see that nobody hates war more than they do. Now it’s just striking when you see how somebody who is doing drone surveillance has a lawyer over their shoulder. You’re reminded that even in the heat of combat there’s a morality and ethics that the U.S. has. That is just worth reminding people, to sort of realign their values and what they’re doing.
So anyway, I do think it’s changing. I think that you’re seeing people recognize this as a large problem. It goes from being theoretical to being very practical and actionable, when you see a foreign country hacking our elections, turning people on each other, creating misinformation and disinformation. And you have these two new spheres with cyberspace and space, where your competition is starting to shape up with very clear intent for influence and chaos and dominance that’s very overt.