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Lux Capital invests in emerging science and technology companies, making long-term bets on contrarians in the space. Over two decades, the firm has grown to manage $4 billion in assets.
Josh Wolfe is the futurist fund manager leading the charge at Lux Capital. He has an acute read on scientific innovation and technological breakthroughs to which investors should be paying close attention. Wolfe sat down with CNBC’s Delivering Alpha newsletter to discuss his investing outlook, along with where he sees the most promising opportunities right now.
(The below has been edited for length and clarity. See above for full video.)
Leslie Picker: I just wanted to start first with your broader read on the markets right now. Do you think that especially in some of the key pockets of tech, and growth, is this just some air coming out of the tires a bit or a full revaluation of the sector?
Josh Wolfe: I think in some sectors, it’s a mix. I think you’ve got a flat tire in some sectors. We’re looking at probably, in my estimation, a greater than 60% chance that we are in March of 2000 for a broad segment of the market that has been very overvalued. And that means that we’re probably going to, for an 18 month period till, say October 2001, where you saw about an 80% decline in some of the most popular names. And that 80% decline happened by 50 basis points, 1% drops over a long period of time, which was a measure of people’s belief, clinging, that this was going to continue. You’ve had five, six years where buy the dip has been the mantra and it has worked. And I think it’s no longer going to work and you’re going to see revaluation across specifically some segments of the market, but largely across high-growth tech and speculation and the stuff that we specialize in.
Picker: What are you telling your portfolio companies to do in light of this?
Wolfe: Three words: husband your cash. Hold on to the cash that you’ve raised. We’ve had companies that have gone public through SPACs, we’ve had companies that have done direct listings, companies that have gone public through traditional IPOs – the amount of cash that was delivered to balance sheets of Lux portfolio companies, and many companies around the world, is unprecedented. You’ve got hundreds of millions of dollars for companies that are burning, maybe $10 million a quarter, something like that. So you’ve got maybe a decade of cash. What you do with that cash now is the most important capital allocation decision that a management team and a board can make. And in our judgment, the most important thing you can do is husband that cash. Investing now, if we’re going into any kind of recessionary times, is going to be like spitting against the wind, where that cash is going to be ill served going after growth. Instead, make sure you have a fortress balance sheet, look at your weaker competitors, consolidate customers, technologies, positions, I think…
Read More: Lux Capital’s Josh Wolfe on why the buy-the-dip mantra will no longer