Riskgaming

The Lux LP quarterly letter has become an institution for its intricate weave of pragmatic cynicism about human nature and unbounded optimism about the power of human progress in the face of macroeconomic forces. We released the latest quarterly letter on the theme of “From Strife to Strive” just before the collapse of Silicon Valley Bank last week. With more strife than ever in the market, where will entrepreneurs strive next? Joining me (Danny Crichton) to talk about our analysis of what’s coming in 2023 is our own Josh Wolfe, who predicts that Xi Jinping now plays a much larger oracular role for the American economy than even Warren Buffett. China’s competition with the U.S. is forcing venture investors and political leaders to reallocate capital much more aggressively toward the hard sciences — portending important advances ahead. We also talk about open cultures, reconsideration of established truths and loss aversion, the online furor over induction stoves, Lux’s concept of “inner space, outer space and latent space”, the future of ChatGPT and the rise of what Josh dubs “Chatphishing”, the potential terrorism of 21st century Luddites, and finally, macro dynamics and why the chaos of the next two years will lay the foundation for the entrepreneurial striving in the decade ahead.

While much of the venture world has hit a reset in 2023, you’d never know that in artificial intelligence, where fire marshals are shutting down crammed engineering meetups and startups are once again raising at eye-watering valuations. Why the excitement? Because for founders, technologists and VCs, it feels like the everlasting promise of AI dating back to the 1950s and 1960s is finally on the cusp of being realized with the training and deployment of large language models like GPT-3. To hear about what’s happening on the frontlines of this frenetic field, Lux Capital partner Grace Isford joins “Securities” host Danny Crichton to talk about what she’s seeing in 2023 across the AI tech landscape. We talk about her impressions at the recent AI Film Festival in New York City hosted by Lux’s portfolio company Runway, how developers are being empowered with new technologies in Python and TypeScript and why that matters, and finally, how the big tech giants like Microsoft, Google and Amazon are carefully playing their cards in the ferocious competition to lead the next generation of AI cloud infrastructure.

Artificial intelligence has become ambient in our daily lives, scooting us from place to place with turn-by-turn navigation, assisting us with reminders and alarms, and guiding professionals from lawyers and doctors to reaching the best possible decisions with the data they have on hand. Domain-specific AI has also mastered everything from games like Chess and Go to the complicated science of protein folding. Since the debut of ChatGPT in November by OpenAI however, we have seen a volcanic interest in what generative AI can do across text, audio and video. Within just a few weeks, ChatGPT reached 100 million users — arguably the fastest ever for a new product. What are its capabilities and perhaps most importantly given the feverish excitement of this new technology, what are its limitations? We turn to a stalwart of AI criticism, Gary Marcus, to explore more. Marcus is professor emeritus of psychology and neural science at New York University and the founder of machine learning startup Geometric Intelligence, which sold to Uber in 2016. He has been a fervent contrarian on many aspects of our current AI craze, the topic at the heart of his most recent book, Rebooting AI. Unlike most modern AI specialists, he is less enthusiastic about the statistical methods that underlie approaches like deep learning and is instead a forceful advocate for returning — at least partially — to the symbolic methods that the AI field has traditionally explored. In today’s episode of “Securities”, we’re going to talk about the challenges of truth and veracity in the context of fake content driven by tools like Galactica; pose the first ChatGPT written question to Marcus; talk about how much we can rely on AI generated answers; discuss the future of artificial general intelligence; and finally, understand why Marcus thinks AI is not going to be a universal solvent for all human problems.

They say that you miss 100% of the shots you don’t take, but what if each shot costs money and is actually a tradeoff with taking a different shot? Time and money are limited, and that means we must constantly balance investing in our current projects and ideas against seeking out new opportunities. While there has been prodigious work published on how to find the “next big thing”, few researchers have investigated what it takes to just throw in the towel, jump ship, fold and quit in the face of a bad situation. Joining us on “Securities” today is Annie Duke, a World Series of Poker champion who researches cognitive psychology at the University of Pennsylvania. She recently published her new book “Quit: The Power of Knowing When to Walk Away,” which explores the nature of quitting, the cognitive challenges in confronting loss, and the tactics required to identify when to quit — and how to do so. In conversation with Lux Capital’s own Josh Wolfe, the two discuss the challenges of walking away, why professional poker players are better at quitting than amateurs, the geopolitics of war, and the importance as always of premortems for quitting.

Technology’s prime and still growing role in society has led to a crescendo of criticism that it has exacerbated inequality. Critics say that the economic models and algorithms underpinning out apps and platforms are tearing apart our social fabric, fracturing the economy, casualizing labor, and increasing hostility between nations. But for all the negativity around technology, there is a parallel positive story of how technology can empower people to achieve their best lives. Whether it’s dynamically adjusting insulin pumps that allow diabetics greater freedom to pursue their dreams, or reliable algorithms that can reduce human bias in everything from hiring to dating, technology has also added tremendous value to society. That’s the theme of “The Equality Machine: Harnessing Digital Technology for a Brighter, More Inclusive Future,” a new book by Orly Lobel, the Warren Distinguished Professor of Law and Director of the Center for Employment and Labor Policy at the University of San Diego. Lobel joins host Danny Crichton to talk about how her daughter became bionic, why alarmist titles of recent critical tech books belie the comparative advantage of algorithms, the actual black box of human minds, feedback loops in doctor’s offices and the medical professions, and finally … sex robots. Because they have feelings (and algorithms) too.

No technology has as many dual-use challenges as artificial intelligence. The same AI models that invent vivacious illustrations and visual effects for movies are the exact models that can generate democracy-killing algorithmic propaganda. Code may well be code, but more and more AI leaders are considering how to balance the desire for openness with the need for responsible innovation. One of those leading companies is Hugging Face (a Lux portfolio company), and part of the weight of AI’s safe future lies there with Carlos Muñoz Ferrandis, a Spanish lawyer and PhD researcher at the Max Planck Institute for Innovation and Competition (Munich). Ferrandis is co-lead of the Legal & Ethical Working Group at BigScience and the AI counsel for Hugging Face. He’s been working on Open & Responsible AI licenses (“OpenRAIL”) that fuse the freedom of traditional open-source licenses with the responsible usage that AI leaders wish to see emerge from the community. In today’s episode, Ferrandis joins host Danny Crichton to talk about why code and models require different types of licenses, balancing openness with responsibility, how to keep the community adaptive even as AI models are added to more applications, how these new AI licenses are enforced, and what happens when AI models get ever cheaper to train.

Semiconductors are ubiquitous in modern life, powering our appliances, smartphones, cars and electronics. That’s led to soaring demand from consumers, companies and governments much to the chip industry’s benefit, but its centrality to the global economy has also brought heightened scrutiny from analysts concerned by the deep dependency we have on a handful of companies around the world producing these products. The semiconductor industry is now on the front pages of news sites almost daily, but its story and history show that this isn’t a new development, but rather a continuation of decades of globalization and competitions for international economic supremacy. “Securities” host Danny Crichton is joined by Fletcher School professor Chris Miller, whose new book “Chip War: The Fight for the World’s Most Critical Technology” offers a panoramic global view on one of the world’s most important industries. The book has already been shortlisted for best business book of the year by The Financial Times.

We live in a time of tremendous focus on … focus and productivity. Scan the shelves of any self-help section in a bookstore and you’ll find copious volumes on how to focus better, deeper, and longer along with a litany of productivity hacks and habits to efficiently glean. What you will often struggle to find however are books advocating doing nothing. But when it comes to creativity and making deep connections, it’s precisely when we are wandering that we are most focused on invention. To talk more about cognitive science and psychology, I, Danny Crichton, brought local New York City professor Anna-Lisa Cohen on “Securities” to talk about her research into mind wandering and how we balance present actions with future intentions. Her work became a viral hit during the pandemic after a Washington Post op-ed she penned on “mental time travel” struck a nerve (yes, that’s a cognitive sciences pun) for many suffering during the isolation at the heights of Covid-19. We talk about our brain’s default mode network, why mind wandering shouldn’t get a bad rap, peak performance and generating novel concepts, what it means to focus on not focusing, carrying out future intentions and prospective memory, the psychology of film and particularly a look at Alfred Hitchcock’s “Bang! You’re Dead”, cognitive closure and its effect of information seeking, and finally, future simulations. Reference list: The unusual uses task study: https://pubmed.ncbi.nlm.nih.gov/22941876/ The freestyle rapper and fMRI study: https://www.nature.com/articles/srep00834 Hitchcock film study: https://pubmed.ncbi.nlm.nih.gov/26658578/ How the Brain Reacts to Scrambled Stories : https://www.theatlantic.com/health/archive/2016/01/linear-storytelling-psychology/431529/ Reading Literary Fiction makes us better decisionmakers: https://www.tandfonline.com/doi/abs/10.1080/10400419.2013.783735?cookieSet=1 Marginal stupidity: https://www.getrevue.co/profile/lux_capital/issues/securities-by-lux-capital-marginal-stupidity-1209105

Episode reading list: The future of crypto regulation: Highlights from the Brookings event Lux + Tactic funding announcement Fourteen years after the release of the Bitcoin white paper, Web3 and crypto are transitioning into adolescence. Technologies and communities that have collectively been a financial Wild West are slowly but inexorably transforming into mainstream infrastructure powering payments, finance, banking, and even identity and data storage. That transition though is hampered by a data and security stack that remains, let’s just say, well below the norms expected for modern software (which itself is below the expectations for data protection that consumers actually demand). The gap between the visions of a secure Web3 future and today’s current technology is the opportunity to propel crypto through its awkward teen years. I, Danny Crichton, wanted to talk more about where Web3 infrastructure is headed, and so I asked my Lux Capital partner Grace Isford as well as Ann Jaskiw, founder and CEO of crypto accounting platform Tactic, to walk through today’s looming clouds in crypto regulations and why the future is about to get a whole lot brighter. We discuss Grace’s investment in Tactic and how Ann migrated from building secure healthcare technologies to figuring out accounting for the crypto world. We then talk about the Web3 infrastructure stack and its pockmarked reliability, The Merge’s effect on Ethereum’s future and Vitalik Buterin’s leadership role in the energy-saving transition, international dimensions of crypto security, as well as how the SEC is pivoting toward crypto regulation and why crypto founders are increasingly pro-regulation.

Episode reading list:  Forging the Industrial Network the Nation Needs Defense Fordism and AI Rebooting the Arsenal of Democracy The Return of Industrial Warfare America spends more money on defense than ever, with a budget that more than doubled in the wake of the September 11th terrorist attacks. Despite those dizzying appropriations though, America is now down to just 5 big prime defense contractors, consolidated from dozens during the Cold War. It’s a pattern of consolidation, higher costs, and diminished resiliency and flexibility seen in sectors throughout the U.S. economy. As the stakes have grown for American defense, however, there are increasingly acute concerns about what our diminished capacity for defense means for the country’s long-term security. Today, we bring on James “Hondo” Geurts to talk more about the crisis in the defense industrial base. Geurts most recently performed the duties of the Under Secretary of the Navy and formerly was Assistant Secretary of the Navy for Research, Development & Acquisition, in charge of the Navy’s more than $100 billion annual budget. Lux Capital is also deeply interested in recapitalizing the future of the defense industrial base and bringing more attention to emerging threats across all theaters of defense, including cyber, space, networking, and more in both state and civilian contexts. To that end, Hondo and Lux teamed up to create the Lux Security + Tech Index built on Thematic to offer investors a more methodical way to invest in the future of security. Also joining host Danny Crichton is Steve Carpenter, CEO and founder of Thematic. In this episode, we talk about the importance of the new “industrial network” era of defense, the consequences of the 1990s post-Cold War peace dividend, how large projects like the F-35 and the Gerald R. Ford aircraft carrier drive consolidation, the value of simplicity in defense acquisition, the failure of the Defense Department’s high research expenditures, the need to shift from “program of record” to “capability of need”, and finally, details about the new Lux Security + Tech Index and its construction. As a reminder, all investments are risky, and nothing in this episode should be construed as an endorsement of any specific investment product for any individual listener. Always do your own research.