Venture Capitalists seem to be focused mostly on software, apps, and technology. This dearth of entrepreneurship into the basic sciences created an opportunity that was capitalized on by Josh Wolfe and his partners at Lux Capital. The venture firm was set up to “support scientists and entrepreneurs who pursue counter-conventional solutions to the most vexing puzzles in physical and life sciences.”
In our wide-ranging Masters in Business conversation, Wolfe, a co-founder of Lux, discusses the process of investing in entrepreneurs in basic sciences. He notes it requires a mix of skill and luck, and a diverse thought-process, with a healthy dose of contrarian thinking.
One of Lux’s first investments epitomizes this: In an era of rising alternative energy investment such as solar, wind, biofuels, ethanol, batteries etc., Lux went a different direction. In the face of a green consensus, their variant perception was that nuclear energy was being neglected by the venture community. The biggest issue in the space was the processing and clean up waste products of the nuclear energy industry. Rather than joining the crowded consensus in clean and green alternatives, Lux invested in a high-tech solution to nuclear waste. The work required expertise in a variety of basic sciences, including materials, chemicals, physics, and vitrification. They formed a start-up to address the issue, naming it Kurion (after Marie Curie). Not many firms worked in this space, and when the Fukushima disaster occurred, Kurion played a huge role in the cleanup. It was eventually sold to French energy giant Veolia, returning a 100x on the initial investment.
Wolfe explains the advantages of locking up investor capital for 7-10 years, seeking a 3X return on invested monies. The assumption is that 1 or even 2 companies will return all of the initial capital (1X). The next 5 companies return will similarly generate that sort of 1X return; the next 15 – 20 investments should also return that (1X). All the remaining investments — often a majority — are assumed to most likely to show losses.
His favorite books are here; A transcript of our conversation is available here.
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Next week, we speak with Ron Williams, former CEO of Aetna. He joined the company when it was not doing well, and turned it around, making it profitable, eventually selling the firm to CVS. He is the author of Learning to Lead: The Journey to Leading Yourself, Leading Others, and Leading an Organization.
