Death Duet - Lux Capital

Lux Capital’s Q3 Quarterly Letter Highlights

Josh Wolfe has posted highlights of our latest quarterly letter to our limited partners. This quarterly letter centers on “instrumental objectivity,” how the progressive evolution of scientific instruments offers us greater means to comprehend and assess our world (for instance, the James Webb Space Telescope which we covered last year in “Scientific Sublime”). Each new and improved instrument offers us a novel means to see reality more objectively and reduce humanity’s constant flight to bias and error.

Not all instruments are positive, of course: Twitter and TikTok are instruments for seeing our world, but they offer “algorithmic [feeds] that highlights the most heinous activities humanity has ever undertaken even as it suppresses stories of the pervasive goodness radiating from our multitudes of multitudes.” They are instruments that exacerbate bias, and thus, the worst of humanity’s inclinations.

The core theme is one of optimism — which can be a bit surprising. But here’s how Lux sees the world:

Let’s get real. War, death, horrific terror, loss of innocent lives; displaced peoples, refugees from climate and conflict, migrants and immigrants; political dysfunction, rising interest rates, oil prices, inflation, indebtedness. How is it possible amid all the trauma and tragedy, across the never-ending news of negative shocks and surprises and arguably against all reason, that we at Lux are more constructively positive and conditionally optimistic than we’ve ever been?

How? Because we are at a nadir of negativity, where observably everyone we speak to is overwhelmingly and abundantly pessimistic––sands of hope slipping through shaky fingers of despair. The cacophony of chaos overloads our senses with negative inputs, frightening our minds and circumscribing our pursuit of the possible. Yet, the instruments of human progress continue unabated: scientists continue to experiment, engineers find ways to build, and entrepreneurs seek profitable growth. Humanity’s openness to serendipitous discovery is the elusive element in scant supply we’re seizing upon at Lux.

Podcast: Techno-optimism versus techno-pessimism

Thumbnail of podcast episode. Design by Chris Gates.

In addition to the Lux quarterly letter highlights Josh has posted, I also sat down with him for the latest episode of the “Securities” podcast, where we address the furious debate in Silicon Valley between techno-optimism and e/acc against the techno-pessimism of critics that I excoriated last month in “Reckless Regulators.”

Instead of these two extremes, we try to sketch a middle ground of “techno-pragmatism,” taking our lodestar as the optimism of utopian science fiction but mediating it through human experience. Artificial intelligence will have the capability to replace whole categories of jobs (see “Garrulous Guerrilla” earlier this year), but can also be used by governments and terrorists to develop novel pandemic agents. From the invention of fire and bronze to the modern era, humanity has always grappled with the upsides and downsides of new inventions — and has found a reasonable path toward progress.

🔊 Listen to the episode

In finance and foreign policy, a changing of the guard

This week, we marked the passing of two intellectual giants from the American scene: Charlie Munger and Henry Kissinger. Munger, the long-time partner to Warren Buffett at Berkshire Hathaway, transformed his perch next to the Oracle of Omaha into a leading thinker of value investing, engrossing generations of investors all the way to the present day. Similarly, Kissinger, the former national security advisor and Secretary of State who would transition into an extremely lucrative and influential, multi-decade career as a political consultant, transformed the minds of generations of foreign policy thinkers exiting out of American academies like the Harvard Kennedy School.

The two dominated their respective industries with contrasting lifestyles. Munger, the laconic but sharp commentator on finance, left behind a legacy of quips amidst a fabulously wealthy life of relatively deliberate thrift. Kissinger courted the limelight and the luxuries of wealth to the very end, shuttling between foreign capitals and global cities on private jets while, for instance, chatting with Xi Jinping this past summer in Beijing.

Munger’s ideals of value investing have been stressed in recent decades, with rising asset price inflation increasingly making Berkshire’s model a tough proposition. There just weren’t all that many deals to be made, which is why last month the conglomerate announced record cash reserves of $157 billion just waiting for a company to buy. Munger and Buffett’s discipline toward the market was in contrast to the frenzies elsewhere, from WallStreetBets-fueled meme stocks like GameStop and AMC Theaters to the explosion and implosion of crypto to the deflating of SaaS businesses across Silicon Valley.

Munger’s wisdom will stay current, if only because it will always be a reference against the financial trends du jour.

Kissinger, on the other hand, has a much more daunting basis for the legacy of his intellectual ideals. As Yale historian Greg Grandin highlighted in the title of his biography of the power broker, Kissinger’s Shadow, Kissinger held incredible sway over U.S. foreign policy thinking for decades, a miasma of influence that wasn’t persuasive so much as vindictive. Opponents lost their government careers, grad students failed to secure advisors and fellowships, and tenure slots at key universities were repeatedly shuffled toward allies. The penumbra of power around Kissinger was absolute, and reinforced by a lack of willingness of any foreign policy professional looking for a long-term career to rebel against the reign of Kissinger’s realism.

Yet, the eruption of foreign policy debates around Russia’s war on Ukraine and the conflict between Israel and Hamas show that the implacable wall of thought that Kissinger stitched together across institutions and people has already been breached, and is likely to crumble away entirely in the months ahead. The kinds of value-laded foreign policy judgments that Kissinger abhorred — human rights, cooperation, institution building, development, liberal intervention — are back on the table with their chief opponent now sidelined by rigor mortis.

Back in grad school a decade ago, several friends were already ready with their invectives to pounce on Kissinger’s death and annul his record and intellectual achievements. Those takedowns were out within 24 hours this past week, but the real dismantling will happen in the years ahead: with Kissinger unable to personally protect his record, the full effects of his decisions will finally be realized as hushed critics finally release their thoughts publicly.

Yet, Kissinger’s fate in the end is likely to be much the same as Munger’s: a constant referent for the debates in his field. A foreign policy practitioner doesn’t have to agree with Kissinger’s amoral realism any more than an investor has to agree with Munger’s value investing, but either way, they represent a pointed and powerful point of view that can never be eliminated from the discourse.

The passing of both men is a sad bookend to a century of achievement, but it’s also an opening for new intellects to build or dismantle their stances and legacies as appropriate. Finance and foreign policy will never be the same.

Together Funding + Anduril Roadrunner Launch

Two big announcements out of the Lux portfolio this week. First, Together, which develops better infrastructure for generative AI, announced a $102.5 million fundraise led by Kleiner Perkins. We led the $20 million seed check earlier this year in May. Together complements a unique approach to optimized computing with an agnostic stack that can power a range of generative AI models, allowing the company to flexibly adapt to the blistering revolutions of the AI market with alacrity.

Second, Anduril made a major announcement yesterday with the launch of Roadrunner, a multi-year stealth development product designed to respond to the increasing threat of drones to the United States and American allies. As Ashlee Vance writes in Bloomberg:

Developed in secret over the past two years, a Roadrunner is akin to a mini, autonomous fighter jet. Powered by two turbines and equipped with a warhead, it takes off vertically like a rocket and then turns to fly at hundreds of miles per hour like a plane toward its target. And, in a first for this type of weapon, a Roadrunner can return home, land and be reused when it doesn’t engage a target in the air.

We are determined to invest in the realistic balance between the optimism of AI and the defensive pessimism of the coming era of autonomous warfare, and this week’s news was a serendipitous look at that equilibrium.

Lux Recommends

I enjoyed Giuliano Da Empoli’s The Wizard of the Kremlin, newly translated from the original French under the title Le Mage du Kremlin, which won a major French literary award last year upon its debut. The book novelizes the events of Vladimir Putin’s rise from the perspective of Vadim Baranov, a substitute for real-life Russian political advisor Vladislav Surkov. The opposite of farce, the novel takes seriously Baranov’s point of view to explain why Putin did what he did and why it worked, cutting through the layers of moral positioning that’s often in the press to elucidate a uniquely cogent Russian perspective. It’s bone-chilling, and must read.
Tess Van Stekelenburg and a bunch of us here at Lux were entranced by DeepMind’s use of AI to identify millions of potential new materials (the more technical Nature research article is also available). “In the past, scientists searched for novel crystal structures by tweaking known crystals or experimenting with new combinations of elements - an expensive, trial-and-error process that could take months to deliver even limited results. Over the last decade, computational approaches led by the Materials Project and other groups have helped discover 28,000 new materials. But up until now, new AI-guided approaches hit a fundamental limit in their ability to accurately predict materials that could be experimentally viable. GNoME’s discovery of 2.2 million materials would be equivalent to about 800 years’ worth of knowledge and demonstrates an unprecedented scale and level of accuracy in predictions.”
Our scientist-in-residence Sam Arbesman recommends Adam Kirsch’s book from earlier this year titled “The Revolt Against Humanity: Imagining a Future Without Us.” It surveys a spectrum of philosophies from Anthropocene antihumanism to transhumanism and how they describe the end of man’s reign over the Earth, and what it means for us as a species (mostly not good). Once relegated to side rooms at academic conferences, many of these philosophies now have at least a modicum of mainstream acceptance, forcing all of us to consider them squarely.
On the topic of books, structural engineer and writer Roma Agrawal’s new book “Nuts & Bolts: Seven Small Inventions That Changed the World (in a Big Way)” is out, joining others in this genre like Ed Conway’s excellent Material World: The Six Raw Materials That Shape Modern Civilization. Agrawal traces the development of civilization through the stories of lenses, springs, wheels, magnets, nails, pumps, and string. These basic parts become the basis for everything from washing machines to semiconductors, and are a brilliant reminder of how extremely small technologies can have civilization-defining effects.
Sam enjoyed a new research paper and the pile of gorgeous graphics from a trio of researchers at the University of Michigan led by Daniel Geng who use stable diffusion to generate new multi-view optical illusions, which are optical illusions that “change appearance or identity when transformed.”
Finally, The Financial Times has a new investigation into SMIC and Huawei’s breakthrough 7nm chip, which surprised DC analysts for leaping ahead in node size despite export controls from the U.S. One answer appears to be just gulping down sheer economic pain in the pursuit of self-sufficiency. “Production yields for the Kirin 9000S remain shrouded in mystery, with neither Huawei nor SMIC making any public statements on the matter. One person close to Kirin 9000S production in the early days says that the Kirin 9000S achieved yields of more than 30 per cent during the risky volume production phase, the step before mass production. The person describes that as a ‘positive number under tough conditions’ but notes that it is ‘at least a two times increase in cost compared to a production line with a 90 per cent yield, the ideal benchmark for the mobile chips fabrication.’”

That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.

Forcing China’s AI researchers to strive for chip efficiency will ultimately shave America’s lead

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Right now, pathbreaking AI foundation models follow an inverse Moore’s law (sometimes quipped “Eroom’s Law”). Each new generation is becoming more and more expensive to train as researchers exponentially increase the number of parameters used and overall model complexity. Sam Altman of OpenAI said that the cost of training GPT-4 was over $100 million, and some AI computational specialists believe that the first $1 billion model is currently or will shortly be developed.

As semiconductor chips rise in complexity, costs come down because transistors are packed more densely on silicon, cutting the cost per transistor during fabrication as well as lowering operational costs for energy and heat dissipation. That miracle of performance is the inverse with AI today. To increase the complexity (and therefore hopefully quality) of an AI model, researchers have attempted to pack in more and more parameters, each one of which demands more computation both for training and for usage. A 1 million parameter model can be trained for a few bucks and run on a $15 Raspberry Pi Zero 2 W, but Google’s PaLM with 540 billion parameters requires full-scale data centers to operate and is estimated to have cost millions of dollars to train.

Admittedly, simply having more parameters isn’t a magic recipe for better AI end performance. One recalls Steve Jobs’s marketing of the so-called “Megahertz Myth” to attempt to persuade the public that headline megahertz numbers weren't the right way to judge the performance of a personal computer. Performance in most fields is a complicated problem to judge, and just adding more inputs doesn't necessarily translate into a better output.

And indeed, there is an efficiency curve underway in AI outside of the leading-edge foundation models from OpenAI and Google. Researchers over the past two years have discovered better training techniques (as well as recipes to bundle these techniques together), developed best practices for spending on reinforcement learning from human feedback (RLHF), and curated better training data to improve model quality even while shaving parameter counts. Far from surpassing $1 billion, training new models that are equally performant might well cost only tens or hundreds of thousands of dollars.

This AI performance envelope between dollars invested and quality of model trained is a huge area of debate for the trajectory of the field (and was the most important theme to emanate from our AI Summit). And it’s absolutely vital to understand, since where the efficiency story ends up will determine the sustained market structure of the AI industry.

If foundation models cost billions of dollars to train, all the value and leverage of AI will accrue and centralize to the big tech companies like Microsoft (through OpenAI), Google and others who have the means and teams to lavish. But if the performance envelope reaches a significantly better dollar-to-quality ratio in the future, that means the whole field opens up to startups and novel experiments, while the leverage of the big tech companies would be much reduced.

The U.S. right now is parallelizing both approaches toward AI. Big tech is hurling billions of dollars on the field, while startups are exploring and developing more efficient models given their relatively meagre resources and limited access to Nvidia’s flagship chip, the H100. Talent — on balance — is heading as it typically does to big tech. Why work on efficiency when a big tech behemoth has money to burn on theoretical ideas emanating from university AI labs?

Turn to China now, and the story is in a very different place. The Biden administration has placed a series of export controls on advanced computation and semiconductor fabrication to China, including blocking the export of Nvidia’s H100 and A100 chips. Nvidia responded in March by offering tweaked versions that comply with U.S. export controls (with what it dubs the H800 chip), but the general policy remains in force: prevent China from acquiring the best chips that Earth produces.

Without access to the highest-performance chips, China is limited in the work it can do on the cutting-edge frontiers of AI development. Without more chips (and in the future, the next generations of GPUs), it won’t have the competitive compute power to push the AI field to its limits like American companies. That leaves China with the only other path available, which is to follow the parallel course for improving AI through efficiency.

For those looking to prevent the decline of American economic power, this is an alarming development. Model efficiency is what will ultimately allow foundation models to be preloaded onto our devices and open up the consumer market to cheap and rapid AI interactions. Whoever builds an advantage in model efficiency will open up a range of applications that remain impractical or too expensive for the most complex AI models.

Given U.S. export controls, China is now (by assumption, and yes, it’s a big assumption) putting its entire weight behind building the AI models it can, which are focused on efficiency. Which means that its resources are arrayed for building the platforms to capture end-user applications — the exact opposite goal of American policymakers. It’s a classic result: restricting access to technology forces engineers to be more creative in building their products, the exact intensified creativity that typically leads to the next great startup or scientific breakthrough.

If America was serious about slowing the growth of China’s still-nascent semiconductor market, it really should have taken a page from the Chinese industrial policy handbook and just dumped chips on the market, just as China has done for years from solar panel manufacturing to electronics. Cheaper chips, faster chips, chips so competitive that no domestic manufacturer — even under Beijing direction — could have effectively competed. Instead we are attempting to decouple from the second largest chips market in the world, turning a competitive field where America is the clear leader into a bountiful green field of opportunity for domestic national champions to usurp market share and profits.

There were of course other goals outside of economic growth for restricting China’s access to chips. America is deeply concerned about the country’s AI integration into its military, and it wants to slow the evolution of its autonomous weaponry and intelligence gathering. Export controls do that, but they are likely to come at an extremely exorbitant long-term cost: the loss of leadership in the most important technological development so far this decade. It’s not a trade off I would have built trade policy on.

The life and death of air conditioning

Across six years of working at TechCrunch, no article triggered an avalanche of readership or inbox vitriol quite like Air conditioning is one of the greatest inventions of the 20th Century. It’s also killing the 21st. It was an interview with Eric Dean Wilson, the author of After Cooling, about the complex feedback loops between global climate disruption and the increasing need for air conditioning to sustain life on Earth. The article was read by millions and millions of people, and hundreds of people wrote in with hot air about the importance of their cold air.

A few weeks ago, Bloomberg had a great piece about the rising toll of air conditioning under the similarly scary headline, “A Billion New Air Conditioners Will Save Lives But Cook the Planet.” The numbers, as always, are staggering:

Demand for air conditioners is surging in markets where both incomes and temperatures are rising, populous places like India, China, Indonesia and the Philippines. By one estimate, the world will add 1 billion ACs before the end of the decade. The market is projected to
before 2040. That’s good for measures of public health and economic productivity; it’s unquestionably bad for the climate, and a global agreement to phase out the most harmful coolants could keep the appliances out of reach of many of the people who need them most.

This is a classic feedback loop, where the increasing temperatures of the planet, particularly in South Asia, lead to increased demand for climate resilience tools like air conditioning and climate-adapted housing, leading to further climate change ad infinitum.

And there doesn’t appear to be a way out. Scientists have determined that there is a zone of comfort for humans where we can function at peak performance. Much of the industrialized world happens to sit in these temperate zones, which is one argument for their long-term economic success compared to the tropics. But as climate change intensifies, the world’s temperate zones are expected to narrow dramatically, and some countries like India may have next to no temperate zones left to protect its people. Air conditioning is a necessity (with some even calling it a human right), but greener coolant alternatives are still in their infancy. In other words, cooling innovation needs to heat up in a big way.

Lux on the Farm

Josh Wolfe speaking at Nvidia Auditorium at Stanford. Photo by Chris Gates.

Josh Wolfe gave a talk at Stanford this week as part of the school’s long-running Entrepreneurial Thought Leaders series, talking all things Lux, defense tech and scientific innovation. The
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Lux Recommends

As Henry Kissinger turns 100, Grace Isford recommends “Henry Kissinger explains how to avoid world war three.” “In his view, the fate of humanity depends on whether America and China can get along. He believes the rapid progress of AI, in particular, leaves them only five-to-ten years to find a way.”
Our scientist-in-residence Sam Arbesman recommends Blindsight by Peter Watts, a first contact, hard science fiction novel that made quite a splash when it was published back in 2006.
Mohammed bin Rashid Al Maktoum, and just how far he has been willing to go to keep his daughter tranquilized and imprisoned. “When the yacht was located, off the Goa coast, Sheikh Mohammed spoke with the Indian Prime Minister, Narendra Modi, and agreed to extradite a Dubai-based arms dealer in exchange for his daughter’s capture. The Indian government deployed boats, helicopters, and a team of armed commandos to storm Nostromo and carry Latifa away.”
In the happier news department of science, Ina Deljkic recommends “’Quite science fiction’: Brain-spine interface system helps man with paralysis walk again.”
Sam recommends Ada Palmer’s article for Microsoft’s AI Anthology, “We are an information revolution species.” “If we pour a precious new elixir into a leaky cup and it leaks, we need to fix the cup, not fear the elixir.”
I love complex international security stories, and few areas are as complex or wild as the international trade in exotic animals. Tad Friend, who generally covers Silicon Valley for The New Yorker, has a great story about an NGO focused on infiltrating and exposing the networks that allow the trade to continue in “Earth League International Hunts the Hunters.” "At times, rhino horn has been worth more than gold—so South African rhinos are often killed with Czech-made rifles sold by Portuguese arms dealers to poachers from Mozambique, who send the horns by courier to Qatar or Vietnam, or have them bundled with elephant ivory in Maputo or Mombasa or Lagos or Luanda and delivered to China via Malaysia or Hong Kong.”
Finally, Sam recommends Brick Technology’s video of “Making A Billion-Year Lego Clock.”

That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.

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November 18, 2023

Thankful Holidays

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Arctic Absence

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