Lux Capital’s Josh Wolfe on why the buy-the-dip mantra will no longer work

Josh Wolfe is the futurist fund manager leading the charge at Lux Capital.

VIEW IN BROWSER | SUBSCRIBE In This Issue Exclusive: $4 billion tech investor on the recent sell-off, future for VCs The oversaturated SPAC market got hit by massive losses, scrapped deals Seth Klarman calls inflation 'a real danger' The Sharpe Angle Interview: Josh Wolfe Lux Capital's futuristic fund manager on why the buy-the-dip mantra will no longer work   WATCH THE INTERVIEW   Venture capitalists are known – even mimicked in some circles – for their unbridled optimism. But Josh Wolfe is a self-described contrarian venture capitalist.    The managing partner and co-founder of Lux Capital, a $4 billion firm that focuses on emerging science and technology ventures, tells it like he sees it. And he's not as keen about the prospects in the near-term for many of the high-growth pockets of the market.    Wolfe says in an interview for CNBC's Delivering Alpha Newsletter that he believes there's a greater than 60 percent chance that we're in an environment akin to March of 2000, a period followed by 18 months' worth of declines in previously popular names. And while the January selloff hasn't taken large aim at the private markets quite yet, Wolfe thinks that will happen as crossover hedge funds and late-stage growth investors become "more discriminating" about how they allocate capital.    "Instead of FOMO – Fear of Missing Out – it's what I call SOBS, the Shame of Being Suckered," he says. "People do not want to be 'suckered' in this current moment."    It's an acronym he's used before, but a market accustomed to a "buy-the-dip" mentality has prevailed for half a decade or so. Wolfe thinks this time is different.    "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," he says.    As a result, he thinks there will be a "pruning" of some of the newer investors that have come into the venture market. His prediction is that between 50 to 75 percent of the active investors in private companies today will disappear within the next few years.    And that has a circular effect on the capital that startups can obtain. Wolfe says he's being more discriminating on price when he invests in companies, and he's not participating in competitive auctions that tend to drive the price higher. He is urging his current portfolio companies to hold onto the cash that they've raised in recent years.    "Investing now, if we're going into any kind of recessionary times, is going to be like spitting into the wind, where that cash is going to be ill-served going after growth," he says.    Despite a difficult macro backdrop, Wolfe does see opportunity, particularly in the space economy – such as satellites, antennas and communication. He also likes, what he calls, the "tech of science" – technologies that improve things like microscopes and lab-automation software.   But regardless of the quality of his investments, Wolfe says he's constantly assessing whether they can withstand the various macroeconomic forces.     "It's sort of like, in our business, trying to pick the best meal on a menu after you've selected the best menu in the best restaurant in the best city in the best state in the best country," he says. "And you're about to eat a morsel of that delicious bite that you've selected and all of a sudden, Godzilla comes and steps on the restaurant."    In other words, just because one has found the perfect investment doesn't mean they can ignore the macro. Leslie Picker | Reporter, CNBC @LesliePicker SPAC market starts 2022 with abysmal losses, abandoned deals The oversaturated SPAC market is continuing to get crushed in the new year as speculative stocks with little earnings fall further out of favor in the face of rising rates, while a growing number of deals were abandoned in the tough environment.   Companies that went public via blank-check deals have been among those worst affected by January's tech-driven sell-off. Meanwhile, faced with unfavorable market conditions, many sponsors have been forced to scrap their proposed deals, sometimes even before the SPACs got listed.   "The SPAC bubble is bursting," said Chris Senyek, senior equity research analyst at Wolfe Research. "SPAC shares are extremely volatile due to their speculative nature."   The proprietary CNBC SPAC Post Deal Index, which is comprised of SPACs that have completed their mergers and taken their target companies public, tumbled 23% in January, even more abysmal than the tech-heavy Nasdaq Composite's 9% loss when it suffered the worst month since March 2020. Some of the biggest losers last month included clean energy player Heliogen, self-driving related companies Aurora Innovation and Embark and 3D technology company Matterport, which all tumbled more than 50% in a single month.   SPACs stand for special purpose acquisition companies, which raise capital in an initial public offering and use the cash to merge with a private company and take it public, usually within two years.   The market enjoyed a record year with more than $160 billion raised on U.S. exchanges in 2021, nearly double the prior year's level, according to data from SPAC Research. Investors once piled into shares of these empty corporate shells hoping they would hit a home run.   After a year of issuance explosion, there are now almost 600 SPACs searching for an acquisition target, according to SPAC Research. As the market gets increasingly competitive, some announced deals failed to make it to fruition.   The planned merger of Fertitta Entertainment and the blank-check firm Fast Acquisition Corp was called off at the end of last year. Recent deals that have been abandoned also included online grill retailer BBQGuys, fintech firm Acrons and cloud software platform ServiceMax.    Meanwhile, there has been a growing number of SPAC listing withdrawals, meaning the sponsors decided to pull the plug on their listing after filing the initial S-1. There were nearly 20 such cases in the month of January, a jump from only single digits in the prior two quarters, according to SPAC Research. Yun Li | CNBC Markets and Investing Reporter @YunLi626 Delivering Alpha Headlines Big thoughts from the big money Seth Klarman says inflation is a 'real danger' Baupost Group's Seth Klarman said surging inflation poses a big threat to the markets and he's hedging against outsized price gains. "We don't know how bad the current bout of inflation will be, but we believe that mounting inflation and the related possibility of materially higher interest rates are posing a real danger to financial markets," Klarman in an investor letter. "To protect against continuing inflation and the prospect of rising rates, we have purchased hedges that stand to gain in such an environment," he added. Cathie Wood is buying Tesla again after steadily trimming position for months Cathie Wood is again buying Tesla stock after a hiatus since June, signaling shares of the electric car maker may have fallen to a level the innovation investor finds attractive.Wood, founder, CEO and CIO of Ark Invest, scooped up 27,556 shares of Tesla in her flagship fund ARK Innovation on Monday, a position worth roughly $25.8 million, based on Tesla's closing price of $936.72. Monday's purchase adds to the 27,799 shares Wood purchased of Tesla last Thursday. The pair of purchases marks the end of a long freeze in buying for the long-time Tesla bull. Last week was the first purchase of Tesla in ARK Innovation since June of 2021. Fundstrat's Tom Lee says get ready for a 'violent rally' in February Fundstrat's Tom Lee said the stars are aligned for a massive risk-on rally in February after stocks declined sharply to start the new year. "The set-up looks like the 'V' for February is not Valentine's but violent rally," Fundstrat's co-founder and head of global research told CNBC. Lee said several contrarian signals have reached levels that suggested a strong buy signal, including retail sentiment, which hit its worst level since 2013."When institutional investors are cautious, retail basically priced in a bear market and sentiment's worst in eight years, you could have a huge rally," Lee said. Unsubscribe Manage Newsletters Terms of Service Join the CNBC Panel Digital Products Feedback Privacy Policy © 2022 CNBC LLC. All rights reserved. A property of NBCUniversal. 900 Sylvan Avenue, Englewood Cliffs, NJ 07632 Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes and Market Data and Analysis. Data also provided by THOMSON REUTERS