Doodles, Entropy & Warfare

Change is the only constant. Hear me and fund manager and tech visionary Pip Coburn talk about change and why traditional equity research analysts are doomed (link to the complete video).

But before you watch that, read this. In recent years, investors have picked up on the Kelly Criterion, developed by John Kelly of Bell Labs after interpreting Claude Shannon’s information theory. Known as “Fortune’s Formula”, in short it tells you how much to bet based on when you believe the odds are in your favor. The simple math is 2p-1, where p is your confidence level--which tells you to never bet unless the odds favor you. If you have 60% edge, you’d bet 20% of your bankroll.

Now, Shannon’s information theory is proving as useful in warfare as it is in wagering. It was George Gilder who succinctly described that information is news, when it’s a surprise. And surprise is by definition a message with high entropy (that is, low predictability). Shannon’s calculus showed that a high-entropy message needs a low entropy carrier. Otherwise the signal gets lost in the noise. In analog terms writing a message on a clean crisp blank sheet of paper is way better than one with doodles and scribbles. In digital terms, sending a message (information) by glass and light is the best of all. As Gilder put it, a high entropy message needs a low entropy carrier.

In this new month’s issue we’ll have an exclusive sit-down with a Pentagon insider on the future of war. Notably, it’s been predicted the US will use one-tenth the force, yet 100 times the bandwidth, of prior wars. One company enabling that is Luxtera. Below is an exclusive excerpt from our premium monthly report with Greg Young, CEO of Lux Capital portfolio company, Luxtera who is delivering data at the speed of light.

Greg Young serves as president and CEO of Luxtera [full disclosure: My venture firm, Lux Capital, is an equity investor]. Prior to Luxtera, he was vice president and general manager of the High Speed Ethernet Controller and High Definition Media PC Video business units at Broadcom. While there, Greg led the growth of the Ethernet Controller business unit from concept to hundreds of millions in revenue and the No. 1 market share position. Prior to joining Broadcom, Greg was with Intel, where he held several engineering marketing and leadership positions.

Josh Wolfe: What career path led you to Luxtera?

Greg Young: After trying some startups out of school I joined Intel in the mid-90s, beginning as an engineer and then transitioning over to marketing and running product lines. I worked at Intel until 1999, when I joined Broadcom. I spent eight years at Broadcom helping to pioneer the company's participation in the Ethernet market for the network interface controller business. Ultimately, I helped grow that business to about $350 million dollars a year in semiconductor revenue. Most of my career has been spent building businesses off of advanced transceiver technology (devices that both transmit and receive information), so when I recognized the opportunity within Luxtera, it was easy for me to see how the technology could be built into a large-scale enterprise.

What excited you about the company?

First, some market backdrop here: It's getting harder and harder to send fast signals over copper wires. The world of optics has been sitting out there for a long time as the performance leader, but it has been a very expensive way to get the performance that you need for the same kind of input/output speeds. When I recognized that Luxtera had the ability to create a complete optical transceiver in CMOS technology to take performance to 10 gigabits and well beyond 10 gigabits at a cost point that was previously unachievable, I saw the same kind of opportunity I was given at both Intel and Broadcom.

Put it in perspective--how fast is 10 gigabits?

If you use a cable modem at home, that's about a 1 megabit connection--a million bits per second. We're talking about ultimately transitioning people to the point where they can readily transmit 10 billion bits a second. That's the equivalent of downloading more than 300 songs every second.

Why do photons trump electrons when it comes to broadcasting bits?

When you send an electronic signal over copper wires, there is a relationship between speed, distance, and signal integrity. As you get faster and faster over the same distance of wire, your signal integrity gets worse, and you see distortion in the signal that starts to dominate the signal quality at higher speeds. Because of that relationship, there is a natural limit for how fast and far you can push a signal over a copper wire.

At 10 gigabit speeds, electrical interconnects over copper wires really start to break down--it's hard to transmit the signal even 10 meters. Alternatively, you can send a burst of photonic energy down a low-cost fiber optic waveguide, and you can easily send a 10 gigabit signal over 10 kilometers. You can do it with less power, less complexity, and with Luxtera's technology--lower cost.

An inclusive version of the interview is available on the Forbes website, click here to be linked to the article.