Lessons from Josh Wolfe

“Avoid boring people” is one of Josh Wolfe’s favorite quotes. It certainly shows – his venture capital firm, Lux Capital has invested in a variety of interesting entrepreneurs and endeavours that range from autonomous vehicles to drug discovery platforms. Josh is a co-founder of Lux Capital and a contrarian. He found significant success investing in areas where others believed there was little or no value. He continues to follow this philosophy today.

Josh wasn’t always dead-set on working in finance. He was initially interested in pursuing a career in science and research, and hoped to one day get his MD/PhD. One summer, while performing research in a lab, he was introduced to financial markets by his mentor. He quickly took a liking to trading. He later settled in venture capital (VC) because of the fit between his scientific background and his affinity for capital markets. 

Thoughts on Venture Capital

At its core, there are two kinds of venture capital funds. Josh describes them as spray-and-pray funds (higher returns, higher probability of failure) and wait-and-pay funds (lower returns, lower probability of failure). While neither strategy is better than the other, both types of funds are targeting high returns. Specifically, successful VC funds usually have a 3-4x cash-on-cash return. For a fund, there may be 1-2 companies that return the entire fund 1x over. The next five companies in aggregate may return the entire fund another 1x over. If your portfolio is ~25 companies, you’re now hoping that the remaining companies will return in aggregate 1x the fund, getting you to a 3x cash-on-cash return.

Josh believes that there’s also another way of looking at this. Specifically, most of your returns are driven by a small number of companies and ⅓ of the companies you invest in are likely to be zeros. As a result, many people will point out that returns are driven by luck. 

However, there’s clearly a value of skill – General Partners such as Benchmark, as well as Lux Capital have been very successful in their investment endeavours. To prove the value of skill, turn to another one of Josh Wolfe’s favorite quotes: “invert, always invert.” Rather than asking how to succeed, Josh asks whether or not you can fail on purpose. The answer to that question is yes. Here’s the three ways that you can pick an unsuccessful investment:

  1. Invest in an entrepreneur that absolutely cannot raise money.
  2. Invest in a company that you know is fraudulent.
  3. Invest in a team that you know won’t deliver on promises.

While there’s no doubt that luck plays a role in the outcome of your investments, by avoiding investments that satisfy any of the above three criteria, you can improve your odds of success.

Thoughts on Entrepreneurship

One of my favorite quotes from Josh is that “failure comes from a failure to imagine failure.” Basically, an entrepreneur’s largest risks are the ones that they haven’t thought of yet. There’s different forms of risk: technology risk, product risk, market risk, finance risk. For each of these risks, it’s possible to either reduce it or eliminate it, as long as the entrepreneur puts the time and energy in to reduce it. 

Sometimes there’s a clear reward for eliminating failure. For example, see this tweet from Josh about Wimbledon, which bought pandemic insurance for the last 17 years and recently received a $141M payout from the policy. Eliminating points of failure can be highly rewarding.

Finally, Josh shares two pieces of advice for those who want to become entrepreneurs:

Stay close to the money. Where is money and capital being allocated? Work/create a company in those areas. This relates back to eliminating risk. Founding companies in areas that have easy access to capital, increases the probability that you can continue to raise capital if you run into trouble. However, if you start a company in an area with limited access to capital, no matter how brilliant your idea is, you can run into funding troubles.

Be voracious in your reading. It can be difficult to discover what you’re passionate about. By reading about different topics, you can start to develop your passion and expertise, and begin to differentiate yourself from others.

More from Josh Wolfe

Masters in Business: Josh Wolfe, Lux Capital

Josh Wolfe: Inventing the Future

Josh Wolfe: The Magic of Science

Apple Podcasts


Randomness and Optionality
Advice for Students

Reddit Q&A