How This Multi-Millionaire Investor Spots Billion-Dollar Ideas | Term Sheet

**Josh Wolfe** (0:02)
I'm not giving up. I am selling the building.

**Allie Garfinkle** (0:06)
The final season of FX is the Bear.
The restaurant is flooded. Everything's either gonna be okay.

**Josh Wolfe** (0:15)
No, stop. Or not.

**Allie Garfinkle** (0:18)
We are outgunned and we are outmanned, but we have each other.

**Josh Wolfe** (0:24)
FX is the Bear, the final season. All episodes now streaming on Disney Plus.

**SPEAKER_1** (0:29)
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**Josh Wolfe** (0:59)
Hundreds of billions of dollars lost, and trillions of dollars of market cap that will be wiped out. You will see the megas go public. You will see the minnows go extinct.

**Allie Garfinkle** (1:08)
Josh Wolfe has been predicting the future of venture capital for 25 years, and he has a track record of being right.
His firm Lux Capital recently closed a $1.5 billion fund, and now manages more than $7 billion in assets. But Wolfe says venture is heading for a reckoning, one that could wipe out thousands of firms.

**Josh Wolfe** (1:28)
Three thousand plus firms that exist today. I think there's going to be a 50 percent extinction rate. And this LP, who's a large and sophisticated investor, said, Josh, that is ridiculous. It's going to be 90 percent.

**Allie Garfinkle** (1:38)
As capital floods the space, everyone wants in to venture right now, and Wolfe says that's exactly the problem.

**Josh Wolfe** (1:45)
What the whys do in the beginning, the fools do in the end.

**Allie Garfinkle** (1:49)
So what's Josh's playbook for success, and how exactly does he spot a winning start up? Welcome to Term Sheet. I'm Allie Garfinkle.
Now on to this week's news. If you watch this show, you know, we are in hot IPO summer. SpaceX has gone public in the largest IPO in history. Stock popped 20 percent the first day, but now the watch is on for both Open AI and Anthropic. When they go public, who goes first, and how it happens will be the defining events of the private markets this summer. Now, one thing to consider, I was talking to an Anthropic investor recently who pointed out to me that it is actually really important who goes out first between these two companies, because the company that goes out first is going to get to tell its story to America about why it is the company for retail investors, the company for the future, and the one to trust. And definitionally, who goes second will be the point of comparison, not the trendsetter. So keep an eye out for not only who is filing, but who is filing first. And if you're really interested in this, we are covering Hot IPO Summer a lot in our Term Sheet newsletter, so please sign up. So who do you think will file first? Open AI or Anthropic? Let me know in the comments. And now on to my interview with Josh.
Josh Wolfe, welcome to Term Sheet.

**Josh Wolfe** (3:05)
Good to be with you.

**Allie Garfinkle** (3:05)
I am excited to have you here because you've been very vocal about a lot of the changes in venture. Recently, Lux raised $1.5 billion, and you've also said that you're expecting to sort of see the extinction of a lot of small firms.
Where is the balance of power in venture capital right now?

**Josh Wolfe** (3:25)
My view is we're witnessing, and this started as a speculation maybe two years ago, but now it's an observation that it's happening, a bifurcation between what I call the minnows and the megas. And I think about this sort of as a giant ocean, the minnows are the small fish, and the small fish are basically sub-scale. You can say that sub-100, sub-300, sub-500, that's sort of where I would cut the line, but a $500 million fund or smaller. And when we first started in the business, I want to say 25 years ago, there were probably 1,000 firms that ballooned up to 2,000 and then collapsed after the.com crisis that took two or three years to sort of play out, down to about 800 firms. So you had net new entrance, but then massive extinction. I made the prediction two years ago that the 3,000 plus firms that exist today that have ballooned from about 1,500 a few years ago, mostly driven by solo GPs, meaning a solo VC that is just one person that raised a $50, $100, $150 million fund, or small funds that were specialists in niches were going to go extinct. Why would they go extinct? Inadequate reserves to continue investing in some of the large companies, failure of succession planning in some of their junior partners, or that they were just in the wrong sector and that they were too narrowly focused and didn't have the range.