Lux Capital Raises $1.5 Billion for New Startups

Lux Capital Secures Significant Funding for Early and Growth-Stage Ventures

Fundraising activity remains robust within the venture capital landscape. Lux Capital, recognized for its investments in pioneering technologies, has successfully finalized a $675 million early-stage venture fund and an $800 million growth-stage fund. These funds originate from existing Limited Partners (LPs), encompassing numerous foundations, endowments, and family offices that have supported the firm since its inception in 2000.

Strong Portfolio Performance Drives Investor Confidence

The continued support from LPs is readily understandable. In the past year alone, a dozen companies within Lux’s investment portfolio have experienced significant liquidity events, including acquisitions and initial public offerings (IPOs), or have announced intentions to pursue these avenues, including through Special Purpose Acquisition Companies (SPACs).

Notable examples include Zoox, acquired by Amazon, Desktop Metal, which became a public entity via a merger with a blank-check company, and Shapeways, which agreed to merge with a SPAC in April.

Bright Machines and Lux’s Own SPAC

Recently, Bright Machines, a software company focused on manufacturing, announced a merger agreement with a publicly traded shell company, adding to Lux’s successes. Furthermore, Lux itself established a $345 million blank-check company last fall, which is currently seeking a suitable acquisition target.

Incubation as a Key Strategy

Despite a strong track record, Lux Capital acknowledges the competitive nature of the venture capital market. This has prompted the firm to actively incubate over a dozen companies internally, according to co-founder Peter Hebert. He discussed this approach, along with his views on potential market corrections, during a recent conversation with our team from Menlo Park.

Investment Sizes and Allocation

TC: What is the typical investment size from these new funds?

PH: The average investment within the current early-stage fund will be approximately $25 million throughout the investment period. This figure can vary significantly, ranging from $100,000 to as much as $50 million. Our opportunity fund allows for investments up to $100 million, and potentially even larger, though we anticipate at least one investment reaching that scale.

Opportunity Fund Flexibility

TC: Can the opportunity fund invest in both portfolio companies and external ventures?

PH: Absolutely. While the majority of investments are expected to be directed towards companies where we’ve already made an early-stage lead investment, there is no restriction limiting investments to solely Lux-seeded or Series A-backed companies. We have previously invested in companies outside of this scope, such as Thrive Earlier Detection, IronClad, and Everly Health.

Applied Intuition: Lux’s Largest Portfolio Investment

TC: Which company in your current portfolio has received the most funding from Lux Capital?

PH: That would be Applied Intuition, a company specializing in simulation software and infrastructure tools for the testing and validation of autonomous vehicles.

Ownership Targets

TC: What level of ownership does Lux typically aim for?

PH: When leading a Series A investment, we generally target ownership between 20% and 25%, though this can fluctuate. In instances where we create companies from the ground up, ownership can often exceed 50%.

The Significance of Company Incubation

TC: I wasn’t aware that incubating companies was a substantial component of Lux’s operations.

PH: Indeed, it is. A particularly successful example is Kurion, a pioneer in nuclear waste remediation, which we founded based on the vision of my co-founder, Josh Wolfe, and his insights into the future of alternative energy. We assembled a team from MIT’s materials science department and ultimately owned over 30% of the company when it was acquired by Veolia for $400 million in 2016 – all from a $100 million fund.

Increased Focus on In-House Company Creation

TC: How actively are you pursuing company incubation currently? Considering the current high valuations, it seems like an opportune time to launch companies internally.

PH: Over the past two to three years, we’ve significantly increased our activity in new company formation for precisely those reasons. However, we aren’t simply a factory churning out ventures. Inspiration is paramount. Whether it’s identifying a compelling market opportunity or providing a catalyst for promising science and technology, we are eager to take on that role.

Navigating a Rapidly Evolving Funding Landscape

TC: What are your thoughts on the current pace of funding and the rapid increase in company valuations? It appears unsustainable, yet predicting an end to this trend is challenging.

PH: We are cautiously optimistic. The structure of science and technology funding has fundamentally changed. When I began my career in the late 1990s, the venture industry was smaller, more insular, and characterized by a lack of connectivity between financial markets and venture capital decisions.

A Global and Capital-Rich Environment

Today, the landscape is global, and while some may describe the market as frothy, the influx of capital is enabling ambitious companies requiring substantial funding to thrive. This is ultimately beneficial for scientific advancement and technological progress.

Undoubtedly, there will be experimentation, financial losses, and numerous companies that fail. However, this period will also yield significant and lasting transformative change.