Keith Rabois on Rejoining Khosla Ventures | E1102

1. 0:00 – 0:53

   Intro

   1. HSHarry Stebbings0:00

      On Wednesday, Keith Raboy broke some groundbreaking news. (computer trilling) He would be leaving Founders Fund (graphic whooshing) to rejoin Khosla Ventures. Today, we have the exclusive of why Keith decided to move back to Khosla and the plans ahead. Talk to me, Keith. Moving back to Khosla. (screen whooshing)

   2. KRKeith Rabois0:16

      There's certain things about, you know, KB that I kinda miss, (computer trilling) and then there's (censored) . And so the combination made a lot of sense.

   3. HSHarry Stebbings0:23

      Ten years out, is Keith at KV then? Is Keith doing his own fund?

   4. KRKeith Rabois0:26

      I think the two most obvious components to answer are... (screen whooshing)

   5. HSHarry Stebbings0:31

      Keith, I am so excited for this. My word, you decided to save some of the biggest VC news for the start of the year. So thank you so much for joining me today first.

   6. KRKeith Rabois0:40

      It's a pleasure to be with you again.

   7. HSHarry Stebbings0:42

      So, uh, (laughs) talk to me, Keith, moving back to Khosla, um, I- I guess the first question is, why did you decide to make the move back from

2. 0:53 – 6:00

   Moving to Khosla from Founders Fund

   1. HSHarry Stebbings0:53

      Founders Fund to Khosla again?

   2. KRKeith Rabois0:54

      Well, you know, in some ways, so I spent six years, just so everybody has some context, I spent six years from 2013 to 2019 as an MD at Khosla Ventures, and we had a really successful run together. Uh, KB4, KB5, and KB6 were the funds I was a partner in. And we produced, you know, really stellar returns working as a collaboration team between Vinod, Sameer, Kool, David Weiden, and Sven. And, um, I never really left in some senses, because after I left, I stayed in really significant contacts with Vinod, Sameer, and David particularly. We co-invested almost every quarter together. So Sameer invested and led a financing round in the company I run as CEO named OpenStor. Sameer led the series A for a company that you're familiar with, Trauma. Um, you know, he led the series A for Mike's company. So we worked together, we worked, we worked together there. Uh, I led a growth round for one of Sameer's favorite companies called, uh, Ultima, Ultima Genomics. Um, so, you know, it, it's a company I learned a lot about, a founder I knew really well from my days at KB. Sameer also led, you know, an investment round in Varda, uh, Delian's company. I worked very closely with David Weiden on a bunch of companies, including Fair, Bungalow, um, so I felt like I was actually seeing more of Sameer and David than I did when I was at KB for six years and the last five years at Founders Fund. I, because in, in basically when I was at KB, I would see them every Monday for hours at a time, but I didn't really see them Tuesday, Wednesday, Thursday, Friday 'cause we were all go- going meeting with founders, doing one-on-one with founders, attending board meetings, you know, uh, taking pitches, et cetera. Um, whereas over the last five years, actually I was working with Sameer and David basically every single week. Um, and so in some ways, you know, the bridging and bonding got stronger, um, over the last five years than the six years where we were just debating at partner meetings. There's certain things about, you know, KB that led to that successful track record, uh, at, uh, in KB4, 5, and 6 that I kinda missed. And then there's several personal things that just were more appealing to me as a human, you know, a- aside from my professional aspirations and goals and ambitions. And so the combination made a lot of sense, the recombination made a lot of sense. Um, I even spoke at the KB CEO summit, you know, last May, um, so, you know, I- I've stayed in quite close contact with all of the partners at KB. I even helped recruit Nikita originally to KB, so I'm extremely excited to be able to work with them.

   3. HSHarry Stebbings3:21

      Y- you said there about kind of the, the things that you missed that were in- inherent in KV4, KV5, and KV6, and then the personal. If we just take those two, what was it that you missed that was kind of central to the success of those funds?

   4. KRKeith Rabois3:34

      So we had very extensive partner meetings every Monday for hours at a time, and we vigorously debated new investments as well as the impact and the potential upside of the current portfolio. These were very unstructured and very vigorous debates, particularly with Vinod, and Sameer, David, and sometimes Sven. And I felt that they made me a sharper investor, a smarter investor, even though it was ultimately my decision on what to do with the companies that I was championing or the companies that I was on the board of. They made my brain work better by listening to them. And occasionally I made the mistake of over-listening, but it was always my mistake. And I felt like I was doing my job better listening to the stereo surround of, you know, Vinod's perspective, Sameer's perspective, David's perspective. I even carried it with me to FF in- in my brain for the first year, where I could hear their voices. Every time I was thinking (laughs) about an investment, I'd hear David whispering about the financials and the calculation of the contribution margin, and then hear Sameer talking about s- certain things about the founder, and I would definitely think about Vinod talking about the op- option value upside and et cetera, (laughs) and the team, and we needed to get more data science talents in the company. So I was like wandering around with their voices in my head. But I actually think that made me a better investor, and so I miss that. And then on the personal side, as you know, KB is significantly branded, uh, successfully in the deep tech, hardcore technology investing space, and even though that's not my forte and it's not my comparative advantage in life, I felt I was learning something new about the world every week. So for example, after six years of education, I actually understand at a high level the innovation in batteries, so that's hard. You have the theoretical limits of chemistry and physics at the same time. I learned a lot about robotics. I learned a lot about the fundamentals of AI. I learned about liquid biopsy to detect cancer, learned about how, what's difficult about using CRISPR to actually treat humans, like what is mostly the delivery mechanism, for example. I learned so much, and I felt like I was becoming broader as a person, even if it didn't really translate to the day-to-day investment decisions I was making. Uh, so I really miss that. Uh, but it was like getting a free education in the world of technology every week. And as I was growing up, it's not like I could read a... I- I read a lot of books. I'm a voracious reader. But it was like in, um, parallel, I was actually learning by going to partner meetings. And so that wa- that was like a

3. 6:00 – 10:01

   Founders Fund vs. Khosla Strategy

   1. KRKeith Rabois6:00

      free benefit of doing my job.

   2. HSHarry Stebbings6:02

      Can I ask, on the... you mentioned the, the Monday partner meetings there and the rigorous debate. That's what kind of we think of with venture partnership discussions.

   3. KRKeith Rabois6:09

      Mm-hmm.

   4. HSHarry Stebbings6:09

      That's not the way that Founders Fund structures it?

   5. KRKeith Rabois6:12

      No, uh, Founders Fund, especially when I joined, was very much people running their own investment strategies, think of as like a PM running their own investment strategies, and there's a way of syncing and getting a certain number of, uh, critical mass and votes to support an investment at different thresholds of dollar figures. But it really wasn't designed, for the most part, for that kind of analytical rigor. And it, some things have changed over time, and there's more of this or more of that. So it's not quite as binary. But KV had the conventional paradigmatic old school partner meetings every week, and they were quite substantive, quite dense. Even the preparation for those meetings on Sunday. Sunday for me used to be, when I was an operating executive at, let's say Square or LinkedIn, Sunday would be the day that I would kind of do brainstorming and strategy.... pull out my big, large notebook and kinda redesign org charts and things like that, or read. Sunday at KV was a full, dense day of writing substantive memo, emails, reading other people's

   6. HSHarry Stebbings7:16

      Yeah.

   7. KRKeith Rabois7:16

      ... docs and a- an analysis. I didn't have time th- to let my brain wander at all on Sundays because there was so much preparation that, that was going into each Monday partner meeting.

   8. HSHarry Stebbings7:26

      You also didn't have time to do Barrys, my friend. (laughs)

   9. KRKeith Rabois7:28

      Oh, no-

   10. HSHarry Stebbings7:28

       Uh, huh.

   11. KRKeith Rabois7:28

       ... I definitely did Barrys. Don't worry about that. (laughs)

   12. HSHarry Stebbings7:31

       (laughs) Uh, can I ask, I, I, uh, obviously you spoke to Vinod before this and he said in particular, "No one really runs the firm. Partners work closely together. Each MD can decide to make an investment even if the others disagree." How do you think about bluntly listening to people at KV without letting it impact your mindset and decision-making process negatively to the extent where you could say no to something that could be great?

   13. KRKeith Rabois7:57

       You know, and what... The way it really works and the way the rubber kinda beats the road is sort of like a certain amount of social capital. So I have a certain amount of social capital within the firm. If I wanna do something that's very nonstandard or very controversial or not expected, I'm kind of burning and consuming some social capital. Now if I make the right call that, that gets paid back with interest and, you know, the next time I wanna make a controversial decision it's actually even easier. But, Vinod's right in a sense, uh, there were times at KV where I wanted to do X, Y, or Z in my six years there, and there was some critical feedback in... And maybe I listened to it, but it was always my decision to listen to it, so there are times that maybe I regret be- like, actually listening to it, that I should've, you know, had more confidence and more conviction. And then there's times actually counterintuitively, and people sometimes forget this, there were times that I would actually champion an investment, champion a company, and the reaction afterwards would not be critical, it would be more enthusiastic than even I was. Like there, the reaction in the room was like, "Do not lose this investment." Like, doesn't matter if you have to, uh, invest at a higher valuation than we normally and typically would, this is actually really good. So sometimes it would actually cut the other way, it wasn't just like critical, like, "What the hell are you thinking?" It was like, "Oh, no, no, th- this, this one's really special. Like, you're right, and double down right now. Let's sign that term sheet today." So for example, like, I'll give you a couple of concrete examples that are now deeded, so it's, it's worth, it's easy to talk about.

   14. HSHarry Stebbings9:25

       Mm-hmm.

   15. KRKeith Rabois9:25

       I remember when we were considering the first institutional investment in Max Levchin's company at Affirm. And their uniform reaction was, "Keith, make this happen." (laughs)

   16. HSHarry Stebbings9:36

       (laughs)

   17. KRKeith Rabois9:36

       And then so, you know, then the only question was, you know, Max and I had to work out what, what a fair valuation would be. The reaction was like that. Or when I brought in, uh, Opendoor, we were incubating Opendoor, and Eric came in to present, uh, the company. People were familiar and people knew that I went in and incubated it, so there was, you know, a default kind of like leaning in. But afterwards everybody was like, "This is a no-brainer. We absolutely should do this. You know, close this."

4. 10:01 – 14:11

   Investment Regrets at Khosla

   1. KRKeith Rabois10:01

   2. HSHarry Stebbings10:01

      Is there an example... Sorry to ask this. (laughs) Is there an example where they persuaded you not to, and you regret it?

   3. KRKeith Rabois10:07

      I knew that I was o- on the edge of consensus, you know, I was gonna burn a lot of social capital mostly on should I increase the valuation of a particular offer? So it wasn't like should we proceed or not, it was like these terms feel rich, you know, and make sure the risk reward's there. So for example, um, I can think of two or three where I knew that I was at the edge of the valuation range of what coastal ventures would typically accept, and there was enough criticism and concerns about the company that it really was taking a lot of liberties to go further. And once in a while I did, decided to pay, you know, whatever the valuation was required. And once in a while I wimped out. Um, I've told this story publicly before, one of the examples, and probably, you know, the one I lose the most sleep about, you know, after, uh, almost 11 years being at VC is Rick Ling. So Rick Ling came in, Parker came in, um, and we gave a term sheet, that was, you know, obviously controversial at the time, for the, for The Seed, and Garry Tan at Initialize also gave a term sheet. And at the time, there was about a $10 million gap. I probably offered five and 25, plus or minus, from memory, and I think Garry was at like 35. And Parker really wanted me to increase the offer. And I felt like there was just enough consensus (laughs) to get the offer out, um, that if I really moved the needle that, eh, eh, I might be burning a lot more capital than I thought I should.

   4. HSHarry Stebbings11:39

      Mm-hmm.

   5. KRKeith Rabois11:39

      And obviously it's turned out to be an unmitigated disaster for me. Fortunately it's worked out really well for Parker, uh, so, you know, he probably doesn't care very much. (laughs) But I obvi- obviously think about this all the time. And then there was, there's a moment also on a different axis that I've also mentioned publicly before, where I'd already like locked in, uh, a term sheet to lead the series seed for Robinhood, uh, 2 million at 20 post, which was pretty expensive, but they came back and, um, really wanted me to join the board in the seed round. And this was in maybe my second year at KV, so I asked, you know, Vinod and Samir at the partner meeting, "Can I join the board?" And the uniform reaction was like, "No way. You can't be joining like all these boards at seed, like that just won't work." So we decided to part ways, very friendly, you know, I just said, "I can't join the board." And they wound up finding other investors. Obviously another sort of unmitigated disaster. (laughs)

   6. HSHarry Stebbings12:36

      (laughs)

   7. KRKeith Rabois12:36

      Um, but, you know, they were right for the most part that you cannot be an institutional investor in a multi-stage fund constantly joining boards at seed, so you have to be very judicious. So the feedback wasn't wrong, it was just wrong as applied to that company. If it was totally up to me, I would've joined the board. Uh, it was in a sweet spot, an area I know a lot about, I had a lot of conviction about the strategy that they were gonna follow, et cetera. Um, interestingly enough, when the same thing happened four years later, um, I had met another company that I had strong conviction about...... and I was going to lead the seed. It was a company called Fair. Fair came back and said, Max said to me, we, you know, we chatted, I chatted with my co-founders and, you know, we'll say yes but you have to join the board. And having learned and been burned by the, uh, Robinhood experience, I never really told my partners that I was gonna join the board. (laughs) I just said yes. So, uh, they're probably happy with me now but, um, I probably kept that one quiet for about a year.

   8. HSHarry Stebbings13:32

      Which will be a bigger outcome. (laughs)

   9. KRKeith Rabois13:34

      Yeah, no, no, it's gonna, uh, uh, it, Fair is great. It's a wonderful company. And, you know, the logic I had was, it wasn't like I misled anybody, nobody had actually asked me if I wanted to join the board. (laughs)

   10. HSHarry Stebbings13:43

       (laughs)

   11. KRKeith Rabois13:43

       But, um, the logic I had was, Max and Jeff particularly, um, two of the co-founders of Fair, CEO and COO, um, actually had worked for me at Square, we'd played soccer together for years before that, they were gonna be calling and texting me whenever they wanted anyway or, you know, I'd meet with them whenever they wanted. So there wasn't really incremental time commitment. Like, they had me on speed dial, whatever they wanted they were gonna get, you know, in terms of help, assistance, ideas, uh, so I felt like there really wasn't an impact to KV

5. 14:11 – 18:00

   Investment Price Sensitivity

   1. KRKeith Rabois14:11

      and my time allocation by saying yes.

   2. HSHarry Stebbings14:13

      I want to unpack a couple of elements there. You said about price sensitivity especially was rippling, 35 versus 25. Which fund would you say is more price sensitive, KV or Founders Fund? And just pause, is it even good to be price sensitive in the way that it feels-

   3. KRKeith Rabois14:27

      Well, that's the big arg, you know, arg, the whole arg, all right? So, um, historically I'd say KV has been more price disciplined than Founders Fund, but I think Founders Fund is actually more price sensitive and more disciplined than most people give them credit for. Like, I actually noticed this when I joined, the discipline internally is, was much, uh, stronger than I thought from afar, you know, watching the firm. Um, so, and, and I think they're closer. KV has historically been maybe the most price disciplined of any large institutional fund. I think they have, uh, at KV, we maybe now, uh, have relaxed that a bit. I've seen, when I was at Founders Fund I actually saw some term sheets that KV had sent there that I was looking back and saying, "Wow, where are they coming from?" (laughs) Like, that's definitely something that wouldn't happen in my day.

   4. HSHarry Stebbings15:14

      (laughs)

   5. KRKeith Rabois15:15

      Um, but, uh, so, but I think of the major firms, uh, maybe KV and Founders Fund may be the two most disciplined. I think Sequoia has also historically been very price disciplined, uh, to their credit. They've also relaxed on a bit, um, but very, I think very top down and consciously. But I think historically those three might be the most price disciplined. Now, interestingly enough, the more important topic is what, you know, should you be, should you care, how much you care, et cetera, and I still remember this episode you recorded with Peter Fenton-

   6. HSHarry Stebbings15:48

      Mm.

   7. KRKeith Rabois15:48

      ... when Peter said, "Price is always a trap." And, you know, this was early in my career, uh, when, maybe it had even been recorded before I started as VC but I listened to it, and I didn't totally grok it when I listened to that episode that you recorded with Peter. Over the arc (laughs) of my, uh, 11 years, the wisdom behind Peter, uh, uh, his insight has been, is something even more and more. Especially for what I do, which is primarily seed and series A. When Peter, uh, when Fenton was saying that price is always a trap, that's really an excuse for not having conviction, that's basically translated your whole episode with him.

   8. HSHarry Stebbings16:25

      (laughs)

   9. KRKeith Rabois16:25

      Uh, (laughs) , yeah, the short version of that is, he's mostly right that when at seed round or a series A round when you're walking away at price, it is a bit of lack of conviction, and you really should be looking in the mirror and saying, "Why don't I have conviction?" Because if you call, if you make the right call at seed, you're gonna wind up in a pretty good place if that company is iconic. And even at A, if you make the right call at almost any price, you're gonna be pretty happy. At pri- series B, that's not true. At series B, you could pick a good company and invest in it, but if you pay the wrong price, the risk reward is totally out of the, totally out, out of whack, may not even make real money. But I'm primarily leading seed, the first institutional round in companies is, you know, my goal in life, is to be the first institutional investor. So I paid a h- you know, relatively high price for Fair, like 20 million post was actually high, or maybe even 22, um, back then. But haven't looked back, you know, (laughs) since then.

   10. HSHarry Stebbings17:24

       I, I tot- I totally agree with you. Listen, if it all goes to plan, you won't regret it. But when you actually look back at portfolios and see average entry price being 12 and a half, and then five years later average entry price being 25 or 30, you've just halved your returns.

   11. KRKeith Rabois17:38

       Well, yes. So people have forgotten this in, you know, one thing that Peter Thiel's really disciplined about is he totally understands this- these dynamics really well, and is always pointing this out internally, sometimes externally, that your returns are not gonna be the same as what you expect when that's what's going on in the macro environment. And so you can't follow the same strategy with a different kind of

6. 18:00 – 25:29

   Lessons from Investing in Ramp

   1. KRKeith Rabois18:00

      pr- entry price on average at all. But, you know, once in a while, knowing when to stray, so when I invested into Ramp in the seed round, which obviously has proven to be a very good investment, the pricing on that was extraordinarily high for a seed round.

   2. HSHarry Stebbings18:14

      What was the price?

   3. KRKeith Rabois18:16

      It, it probably, it might have been 40 post but it was more than 30.

   4. HSHarry Stebbings18:20

      Wow. I, and respectfully, like, I remember Eric de Palmas before, but, like, it wasn't a, you know, hugely unicorn founder.

   5. KRKeith Rabois18:27

      No, you know, in fact it was quite controversial. I sometimes think that it might have been the most courageous investment I've made as a VC, because everybody was so addicted to this Brex, you know, nonsense, um, and, you know, typically not the best strategy to fast follow, you know, another startup that has traction. I knew that space cold, I knew exactly what Brex was gonna do wrong, and I knew that if we could find the right founders we could absolutely dominate, and that's proven to be the case. Ramp is absolutely gonna be the winner, probably will be two, three, four, five, ten times more valuable.

   6. HSHarry Stebbings19:00

      When you invest at seed stage, do you, and you're concerned about price, do you ask yourself, "Do I really have enough conviction?"

   7. KRKeith Rabois19:07

      I'm try, I try to do that. I really try to apply Peter Fenton's, you know, sort of adage now much more frequently. I do think about though...... capitalization over time, you do have to take into account what kind of company is this, how much capital is it gonna require to achieve certain milestones. Um, and you know, it depends on what th- the company's aspiring to do because if your capitalization is gonna require so much and your first entry price is so high, that company may not be set up for success and that, you know, may decrease the overall probability of being successful, which is a material problem. So in certain verticals like the, the step, there may be, uh, step functions that you have to achieve as opposed to a, a kind of a continuous curve of progress and those step function ones, if you slightly miss and your valuation entry price is too high, that company's dead and that's a real problem.

   8. HSHarry Stebbings19:57

      You said there about, kind of, dilution concerns and sensitivity. The way you protect against that is obviously by continuing to invest. KV obviously have continuous funds now, we'll get into the separate structures. I, I don't like reserves though, Keith, and I don't like reserves, and please educate me but- because it's trash in investing. If I'd done reserves, I would have put money into HOPIN, Clubhouse, and BeReal. That would not have been a good set of inv- that... So t- how do you think about that? And bluntly, proactively allocating ahead of time, especially when you don't know what's coming.

   9. KRKeith Rabois20:29

      Yeah, this is another one of those, there's like three or four things in venture that nobody knew, nobody does super well, obviously (laughs) .

   10. HSHarry Stebbings20:36

       Yeah.

   11. KRKeith Rabois20:36

       Um, it's much more art than science. How to do reserves is one of those topics. At KAD there is a more discipline, let's say, approach to reserves. That doesn't mean better by the way, just it is more top-down like, "What are our reserves? How much are we gonna allocate to company X, Y, and Z? You know, how much should we, how much do, how much total allocations do we have? Should we shave this one, increase this one?" Et cetera. Whereas at Founders Fund, there's n- no explicitly a policy of not reserving and every investment decision is on an ad hoc, case-by-case basis and there's strong merits to that actually, even though most of my investment style may be closer to KV I think, um, closer to the Founders Fund style of you're probably better off not reserving and then making ad hoc decisions, uh, based upon the quality of that particular opportunity which includes who's the investor, what's the traction of the company, what do we believe about the founder, what have we learned about the founder's abilities and traits, and then what's the valuation?

   12. HSHarry Stebbings21:36

       Do you worry that with the second model, being Founders Funds model, when founders say, "Hey, what's your approach to reinvesting?" And you say, "It's a dog fight for it, you've got to prove yourself and it's, you know, it's there to be earned." It's not as enticing in saying, "Oh, we allocate X amount of reserves when we invest." I worry that I'm-

   13. KRKeith Rabois21:53

       I, I think in theory there's, there might have been some truth to that but in practice just absorbing, absorbing Founders Fund before I joined, working there five years, I never saw it be, it never translated into a practical problem with a founder.

   14. HSHarry Stebbings22:06

       Ca- or going back to seed, b- before we kind of move away, you said about kind of risk and Series B being a challenging place in terms of risk and not being paid for it. I don't think you're paid for the risk that we take at seed, Keith. Seed-

   15. KRKeith Rabois22:16

       Well we're n- we're not. We're not at all. Um, but the outliers are s- I think the seed range of, let's, let's assume a seed range these days is, I don't know, 8 million post to 20. Somewhere that probably lower on that spectrum now.

   16. HSHarry Stebbings22:32

       I still see five on 25 daily with-

   17. KRKeith Rabois22:35

       Oh God, yeah-

   18. HSHarry Stebbings22:35

       ... Andrew and G-

   19. KRKeith Rabois22:36

       ... so those I would not be doing-

   20. HSHarry Stebbings22:37

       ... P and YG.

   21. KRKeith Rabois22:38

       ... ab- absent extraordinary reasons. So one of the metaphors I learned, I forget who actually taught me this, it might have been someone at KV but Scott Nolan at Founders Fund also applies this, is you're basically, it's like a playing poker and every round is like a card you're being dealt and there's different informational content and there's a different price point for that round. So what's the information you get from that new card? And then what's the price? Five on 25 from scratch, that card is very expensive for a certain amount of informational content. So that's probably a very rare opportunity that you want to say yes to. Now I will say I, it's not like I holier than thou, I've definitely done that. Um, as I said, you know, I gave a term sheet to Rippling under, you know, with those terms exactly. Um, I closed a deal i- with, for a Miami-based company at FF with a good friend of mine, the CEO that we haven't ann- we haven't announced publicly yet but had those kind of terms too. So I will do it, but you want to know why you're doing it because that isn't, that, that, that card price point is not smart, generally speaking.

   22. HSHarry Stebbings23:43

       It's not at all. Uh, kind of price discipline is one area where you can be disciplined. Like, temporal diversification, the speed with which you deploy is another area you can be disciplined. Founders Fu-

   23. KRKeith Rabois23:51

       The other reason I d- so one of the reasons why I, I did consider, uh, why I will consider it is, the question is where's that five, how's that five calculated? Is the founder reverse engineering from a evaluation expectation which in that case I'm usually gonna barf? Or is five the correct dose to achieve certain accomplishments that will unlock the next round? And there are sometimes some markets where really sub five you can't achieve those milestones so you're kind of fooling yourself. You can give a term sheet at two or three, you know, at a lower valuation but the company's not gonna achieve what it needs to achieve. So the time I pulled the trigger in Miami, five million was the correct dosing, uh, period. If I had been CEO, I absolutely would have wanted to raise five, period. And so I felt comfortable that this was not just an appreciation tactic, it was actually a very coherent strategy and it's proven to be great. The company's doing phenomenally well, we gave, already doubled down and Founders Fund on the company.

   24. HSHarry Stebbings24:47

       You said that's what they need. Truth be told, we're seeing a lot of rounds that are 15 to 30, 40 even, especially in kind of AI with pedigreed founders. What do you make of those? 'Cause when we see those y- you probably don't need 15, 20, 30 to get started.

   25. KRKeith Rabois25:04

       Mm-hmm.

   26. HSHarry Stebbings25:04

       How do you feel about those in this scene?

   27. KRKeith Rabois25:06

       It depends. So one of the, uh, one of the most important pieces of feedback a really good VC can give a founder is, "What do you need to achieve where the rest of the world will then appreciate you?" So that capital is unlocked, subsequent capital will be easy to raise. And it depends on what business you're in, what market you're in, what your team composition is. But one of the things I try to do is calibrate that...... right

7. 25:29 – 31:58

   Ideal Seed Funding

   1. KRKeith Rabois25:29

      away. So, okay, for this kind of company with this team, if we can achieve two of the following three things, people are going to appreciate us, whether it's my firm or someone else's firm. So let's, let's dial in how much time and how much money is it gonna take to get there, and let's make sure we have the sufficient resources. So it's a little bit like the driving the car metaphor of, like, there's some destination you need to get to, certain amount of fuel that's required to get to that destination, but I don't want to overfuel you. That doesn't work. It's like a plane, when you overfuel, you're just like bogging the plane down and it- it sort of creates more resistance. I, there are times when 10 million, like so for example, let's talk about Opendoor. We raised 10 on the seed for Opendoor. That was actually the correct dose. Buying homes at, you really can't prove that you can buy cohorts of homes accurately, like priced accurately and resold properly, in le- for less than about 10 million. Maybe you could make it eight, but eight to 12. Otherwise it's not, it's really not worth trying for less than 10. Like, you're fooling yourself. So 10 million was the proper size round for that particular shot on goal.

   2. HSHarry Stebbings26:32

      Do you think that Series A is the best place to be investing today?

   3. KRKeith Rabois26:35

      I think the risk/reward can be really strong, um, and y- it's hypercompetitive. So one of the other lessons, you know, you kind of take from zero to one and is globally true is you want to be careful about, like, hypercompetition. My belief is I like to lead seed rounds. The reason why I like to lead seed rounds is they're less competitive, first of all, like, because what I'm working with typically is a keynote deck and a team. Most investors are terrified of us testing a team and a keynote deck and handing over 1, 2, 3, 4, 5, you know, million dollars. I actually think that's my comparative advantage is doing that, so I want to do it as often as possible. Secondarily, because I believe I can have some impacts in a company, the earlier I get involved, the less I inherit things that might have been avoidable. Like, I, you know, I've used this metaphor with you about concrete. So early stage companies, it's kind of like liquid concrete. It's very malleable and then it solidifies post-Series B. It's, it's totally solidified. And if you want to change something, you know, that's concrete, we- you have to molt this jackhammer, which is incredibly painful, expensive, noisy. So I don't wanna be manipulating solidified concrete. I want it while it's liquid and malleable. So the earlier I can get involved, the better. So that's where I want to be competing. Series A though, the risk/reward generally speaking can be pretty strong, but you're competing with other people who are very good at what they do. Benchmark's pretty good at what they do. Sequoia's been, you know, historically very good at what they do. Uh, you know, you're running right down the middle of some of the best investors on the planet, whereas in seed you're not, in Series B maybe you're not.

   4. HSHarry Stebbings28:11

      Do you think that still though, when you see the multi-stage firms move so aggressively into seed, and then you look at a lot of the partners who led $20 million Series A checks in years prior go, "Oh, I'm underwater with board commitments, I need to fire sale a load of shit companies." (laughs) Like, "I'm- I don't wanna do new deals." I almost think A is better because they're just saying to all the young ones, "Go, do seed, have fun."

   5. KRKeith Rabois28:32

      I think when you get, I- I do think a lot of funds get nervous and risk averse

   6. NANarrator28:36

      (instrumental music)

   7. KRKeith Rabois28:36

      ... and let, let things go when the market's not particularly attractive. But I think the really best investors, which are really the people I compete with, don't do that. And it- so I think the- the world of venture, we talked about this, uh, you know, the podcast I do with Mike, the world of venture is more stratified that tier two investors are very different than tier one. And I think this is true on the Series A dimension. Uh, you don't want to pull your foot off the gas in Series A if you're, if you're a really strong investor. But the natural reaction of most firms and most partnerships is to do that, which is a, generally a mistake. Um, I think in Series A, if the pri- if you think about the pricing, let's assume that the median valuation for a seed round is between 10 and 20 these days. And let's say a Series A, it's like 30, 40, maybe 50. That's a pretty good... I agree with you that I'd rather pay 30, 40 for all the learnings-

   8. HSHarry Stebbings29:31

      Yeah.

   9. KRKeith Rabois29:31

      ... versus 15 to 20 for no learnings often, but then I have to compete with more people. You know, one of the other things I've pointed out is in about 11 years of doing this, I think there's somewhere between five or six or so term sheets I've extended where I didn't close them, like I lost to somebody. And the reality is that four of the six or two thirds of them are to the same, or to the same people. Um, it's like, it looks like it's a very hypercompetitive world, blah, blah, blah, but at the end of the day, I'm competing with like one or two other people. Um, and so if I wait till the Series A, I know that there's a decent chance that these people have taste, like my taste, and they're actually pretty good at what they do and they can clo- they know how to close and they have, you know, good references to all those things. So if I go seed, most of these people do not love to do seed and I can get involved before they figure out what the hell is going on. Um, that's much better for me even if I have to pay a slightly disproportionate skewed price, you know, to do that.

   10. HSHarry Stebbings30:29

       Keith, you know I love you and think the world of you. You're a competitive motherfucker. (laughs) Why didn't you just beat them at A? Like have you, you must reflect-

   11. KRKeith Rabois30:36

       Well I tried, but like you're, even if you're great at what you do, you're gonna win, call it 50, 60, 70%. You're not gonna close at 100. At seed, I can probably close 100% of the things I want to invest in, um, if I want to, and s- if I want to pay, you know, pay an appropriate price. There's no way that go head to head with the top two or three other investors at Series A that you're gonna have 100% win rate, period.

   12. HSHarry Stebbings31:01

       No, I agree with that. Can I ask you, you mentioned there about like the concrete ga- analogy with regards to culture and kind of processes within companies. We spoke before the show about operators becoming investors. The biggest mistake I see with operators becoming investors is they're attracted to businesses where they think they can help most and they li- like to be needed. Do you know what I mean?

   13. KRKeith Rabois31:19

       Yeah.

   14. HSHarry Stebbings31:19

       And my, my question to you is how do you think about whether operators will make good investors, how you don't become a magnet for, "Oh, they need me and so I want to help."

   15. KRKeith Rabois31:28

       Well, I'm not worried about investing in companies that need me. Um, I actually...... don't mind that. But the art is knowing why they need me and how to be helpful and not crowd out muscle building that the company needs to do. Every great company, it builds its own muscle. It's its own cult. It's its own unique cult. And it needs to be great at lots of things: customer acquisition, recruiting, you know, later it maybe calms, you know, et cetera, et cetera, uh, finance. All these things are really important fundamental

8. 31:58 – 34:45

   Role of Operators in Venture Capital

   1. KRKeith Rabois31:58

      building blocks that you do not want to crowd out. However, I think there are advantages that you can provide as someone who's built companies before and sees the breadth of companies being built, and you can borrow ideas or connect ideas or remix ideas that might be insightful to a founder. And so that's what I try to do, is provide either a conceptual framework, so like Max, for example, at Fair, he never asks me what the right answer is. Like, he'll pose, like, "Here's what's top of mind. Here's the three things top of mind for me," in, you know, this one-on-one. They a- the question is never, "What's the right answer?" It's, the question is always phrased in terms of, "What's a, do you have a useful conceptual framework for thinking through what to do here?" Because the only reason he's raising a topic is there's sharp trade-offs. And then the question is, is there a unifying framework that you can apply? Another question, you know, that I'm like, help with a founder is they might say, "Hey, do you know anybody else who's had to deal with this very specific problem before and has successfully navigated it?" And then I might kno- I might either have dealt with it myself having, you know, run, run stuff for like 13 years, or I may remember having sit on them, you know, having friends who were like, "Well, this company actually had this exact problem, and you know what we did? Didn't work at all, so (laughs) definitely don't do that. But, you know, maybe if we try it over here." So that kind of vantage point can be extremely valuable to talk to your investors. I used to laugh, you know, I remember when I would do, uh, one-on-ones with like Patrick Collins at Stripe. I'd sit down, like typically we'd do it over a meal, like lunch or something or dinner, and he'd have a list prepared, and by the time he got to the second question, I, I'd be like, like laughing, like cracking up, and you know, (laughs) he probably thinks, looked at me mystified why I was laughing, I was like, because by the time he got to the second question, he saved all the hardest damn questions. (laughs) 'Cause obviously all the e- all the easy questions, those guys are so good, they've clearly already moved forward and they never even get on this list. And so, it'd be like, like a walking IQ test of like, "Here's the three or four, five or six most difficult problems. Can you be helpful on any of 'em?" And it, you know, if I could add value on one or two (laughs) of them, I was personally pretty happy, (laughs) just looking in the mirror, like, "Oh my god, thank God." 'Cause like these are really rigorous. Like I tried to go to bed early the night before I'd have dinner, (laughs) with Patrick 'cause I knew like my brain is gonna get like really challenged.

   2. HSHarry Stebbings34:18

      Can I ask, we, we mentioned seed there being, you know, less competitive but harder and people shying away, we mentioned A being the best risk/reward. Growth is pretty dead, as I think we're both seeing. Do we think it'll stay that way and are you excited to be more active in growth or, or not?

   3. KRKeith Rabois34:32

      I think that growth is pretty broken.

   4. HSHarry Stebbings34:35

      Yeah.

   5. KRKeith Rabois34:35

      Um, I think most growth funds were pretty bad at what they were doing and they've kind of died or-

   6. HSHarry Stebbings34:41

      Why were they, why were they bad? 'Cause they were just price insensitive?

   7. KRKeith Rabois34:42

      ... chasing momentum, not really understanding

9. 34:45 – 38:19

   Current State of Growth Funds

   1. KRKeith Rabois34:45

      fundamental company building, thinking spreadsheets dictate results, like, you know, not understanding the inputs versus outputs, that these companies are built by people, not by math. At the end of the day, still, I think most growth funds are either dead or dying. So I think there's a zone there that's pretty non-competitive. It's not what I do for a living. Um, you know, you have to figure out what your comparative advantage is in life and I don't think growth investing is mine. I've made a few growth investments over the last three years and three or four years unfortunately they've worked out, but I'm extremely careful if I'm leading a growth round that I think I have some alpha, some comparative advantage. Like so for example, back in my KB days, one of the better investments I made was co-leading the Series C for Stripe. But I, you know, I worked at PayPal, Square, I understood financial services pretty well, um, so that there's a reason why I was dialed into, um, that price, um, being willing and comfortable investing at that price. At the time at KB, when we invested in Stripe Series C, it was an order of magnitude more expensive than the entry price for any investment in the history of KB. And back to the point though about the partner meetings being sometimes counterintuitive. The k- uh, one of the things that was most valuable was Samir was pushing me, he's like, "You should do this. If you a-" you know, and then David said to me, "Look, I know this is not normally my style to be like price insensitive, but you need to be able to make this call. Like you should be better situated to make this call than anybody else on the planet. Just decide. Don't worry about what my, my normal feedback is." So Samir and David being very enthusiastic that I should lean in if I wanted to gave me more courage and more conviction 'cause this was pretty early in my career. I was either the first or second year there. So that's why sometimes the partner meeting can be exciting in like, give you more conviction and confidence. I don't know that I would have proceeded had they been more cynical actually because it was so early in my trajectory, but they were like, "Nope, this is where, this is what we hired you to do. This is the area you should know better. Make a call." Translating this back, I don't, I rarely do growth. I led a growth in Series C at Fair, but I'd been in the board since the seed round, both of the two co-founders, uh, most senior two co-founders worked for me. Um, I was like, "I nailed this business cold. There's nobody in the world who's gonna understand this business and the founders better than me. I know what I'm doing." (laughs) And it, you know, so like it's rare. I led a ser- a very unusual growth round at Founders Fund at Altima, which is a bio- kind of, uh, genomic sequencing company. The only reason I did that was I'd watched the company grow up at while I was at KB. I had known the founder through my experience at KB probably back to like 2010? And I understood the fundamental science just having walked through all these partner meetings with Samir and the founder, so when it came to the growth round...I didn't have any concerns at all on the science or the innovation or the technology. It was all go-to-market stuff, and that's, that was easy for me to bet. To do reference calls to customers, that's, like, down the middle for any VC. Um, otherwise, I never would have led that growth round. It would have been, like, terrifying to me. So once in a while, but, uh, I think for other people, like for example, Founders Fund could be very successful in growth, because I think most other growth funds are basically not able to compete, and Founders Fund has great talent in the growth side.

   2. HSHarry Stebbings38:05

      When I put on Twitter that we were doing this show, I got a load of DMs and they were saying, "$3 billion in KV fund, seriously?" Like, "How can you make money on a fund that size?" (laughs) So I'd love to put that to

10. 38:19 – 43:05

    Strategies with Khosla's $3BN Fund

    1. HSHarry Stebbings38:19

       you so you can kind of break that down and debunk that.

    2. KRKeith Rabois38:22

       Sure.

    3. HSHarry Stebbings38:22

       How do you respond to that?

    4. KRKeith Rabois38:23

       I, I, so properly sizing, uh, a venture fund is one of these other (laughs) complicated arts in the industry. I think the key is there's a couple inputs. One is, what stage are you investing in? How many opportunities are there likely to be? And, and then C, what's the team composition? Uh, the team, your internal team. Um, so let's walk through this. So KV, although that's a, sounds like a big number, 415 million of that is for seed investing, 1.5 billion or so is for venture, and only about 8 or 900 million is for growth. So as a firm and a, you know, set of partners that really enjoy seed investing, that's the node right down the middle, Samir, right down the middle of what he likes to do, is probably my comparative advantage in life, you have three to five partners that all really, uh, strongly like to lead seed rounds. So $400 million isn't unreasonable at all for a seed fund, of a high conviction, high ownership seed fund. Then you look at the venture side. Okay, you have 1.5 billion, if you're really doubling down pro ratas and reinvesting or leading As in the portfolio of seed, you can consume a decent amount of that. And let's say you compete in the external world for another half of it, it's not that far off, the sizing, when you have five MDs plus a team of partners like Nikita and Alex Morgan, who are really good at what they do. Um, so you could s- you could see with, like, seven, eight kind of lead investors, a $1.5 billion venture fund being moderately appropriately sized, actually. So you ha- by, you have to combine all of these and triangulate a bit.

    5. HSHarry Stebbings40:09

       So I totally get you and agree with you, and this is why I hate bluntly a lot of media and journalism where they just conflate shit and it's wrong. When you look at 400 though, Keith, take out fees, we're at 320 investable, okay? Take... So we can do 100, say, checks, uh, and, you know, they're, what are they? 3.2.

    6. KRKeith Rabois40:30

       You want to be-

    7. HSHarry Stebbings40:30

       That's a lot of check. What do you want-

    8. KRKeith Rabois40:31

       You probably want to be a little less than 100. 100 might be a little bit much, maybe go a little bit more dollars per, but fundamentally-

    9. HSHarry Stebbings40:37

       But if we, but if we were doing reserves to initial, you could do 50 and still have a one to one. 50's a pretty diverse portfolio.

    10. KRKeith Rabois40:44

        That's what you want. I mean, I think the, the guidance I learned, and I don't know if this is as rigorous as many things, but is roughly a good portfolio for a fund should be about 50 like that. So 50's are right, 30 to 50. Uh, so you're in the zone of, like, what most people would advise, you're certainly not outside of it, but it does come down to how many barrels are you shooting through, like I have this metaphor I use in company building about barrels and ammunition. Venture works that way too. How many people are gonna be high-quality investors do you have at any given time in a fund? It's usually a smaller number than you think. There's kind of almost, like, a micro power law within a power law. And so if you have two, three, four, five, six quality investors, you can, you can size the fund, you know, significantly greater than if you have two or three.

    11. HSHarry Stebbings41:33

        I totally get you there. If you think about it, four, five, you've got 12 each, and that's not a huge amount across a three-year fund deployment period.

    12. KRKeith Rabois41:39

        It's not, and it, you know, it depends how you define what the breakpoints are between these various funds, like what's the criteria for seed, what's the criteria for venture, where's the line for growth? As you move those numbers around, you could also see whether the sizing makes sense. So if you look at it like ultimately your fund size does affect your strategy, or should, it has to be a recursive dialogue. So Founders Fund, which has more total assets under management, let's say, or more, the current fund, current funds are probably closer to four bill, um, then three, the allocation's very different though. It's 900 million or so in FF8, and about 3.2 billion, I think, in the growth fund, Growth 2. So it's, it's just different weighting, and you can see it, and then so you need to have a strategy that's coherent around the people, the team, and the weighting of your fund sizes.

    13. HSHarry Stebbings42:30

        Can I ask you, when we spoke last time and I said, "What would you change about Founders Fund?" You said, "We could be younger." Could Khosla be younger? Would the same apply here?

    14. KRKeith Rabois42:40

        You know, good question. I don't know yet. I mean, there's the five senior people, the, the four people that are most senior at, or MDs, you know, the official MDs, at KV are the same people I worked with, um, when I was there. I haven't worked with most of the people that are not at the partner level at KV. I have worked with Nikita before. I mean, that's one of the reasons I recruited him. Um, I have worked closely with Alex

11. 43:05 – 45:21

    Khosla Ventures' Youthful Approach

    1. KRKeith Rabois43:05

       Morgan, lots, lots of, uh, interesting dialogues and debates. So I know those two pretty well. The rest of the team, I don't know very well, so I shouldn't really opine yet.

    2. HSHarry Stebbings43:15

       What do you think KV can learn from Founders Fund?

    3. KRKeith Rabois43:17

       I think the rigor around growth investing. I, actually I've learned this personally. Um, I think FF is very strong at figuring out how to value a growth-stage opportunity, and that translates, the reason why I care more than, like-

    4. HSHarry Stebbings43:32

       What, what, what, what makes them good at it, where the growth investors we mentioned before sucked?

    5. KRKeith Rabois43:37

       That's a great question, actually. Um, and I'm not sure I know the answer other than just watching who produces successful (laughs) investments or not. But, like, the one thing that was most relevant to me to learn is you have to make all these pro rata decisions in your best companies. So, you know, say I lead a seed for DoorDash and the series A, pro rata, that's easy, not- not difficult, but then C, D, E, you know, at different prices are Opendoor, 400 million, 500 million, 600 million, do you- do you do these rounds? How do you think about them? And I don't think back in my day at KB that we had a lot of analytical rigor to those late-stage pro rata decisions. Uh, whereas at Founders Fund, the growth team is very dialed in to evaluating those opportunities and so I felt like I learned a lot about how they do their work that would make me sharper about my own pro rata decisions on the companies I'm most involved with.

    6. HSHarry Stebbings44:30

       Yeah, I- I totally get you. Um, Peter Thiel often says about the decision not to do, I think the B of Facebook, or the A of Facebook, being his most costly mistake.

    7. KRKeith Rabois44:37

       Well, yeah, I mean, it's easy to make a mistake. (laughs) Uh, I actually think that I, you know, I have my own coherent version of this. I actually, you know, have my own set of views about when and when not to do pro rata as applied to the companies I'm involved in, but I- I've learned a lot from, like, working with Napoleon and his team at Founders Fund.

    8. HSHarry Stebbings44:56

       I spoke to Mike, w- you're like, "How the fuck did you speak to so many people before the show, Harry?" We agreed it last night. But I also spoke to Mike at, um, Traba.

    9. KRKeith Rabois45:03

       Yeah. (laughs)

    10. HSHarry Stebbings45:04

        And he asked the question, "Why would founders prefer working with one firm versus another?" And I never wanted this to be, like, a trash talking. It's not at all. It's just different styles.

    11. KRKeith Rabois45:13

        It's a matchmaking exercise at the end of the day. The right founder paired with the right investor increases the probabilities of success for the company,

12. 45:21 – 49:45

    VC Firm Preferences Among Founders

    1. KRKeith Rabois45:21

       in my view. And so every founder who's successful, every founder who has a shot at being really successful is different. Like, Mike is definitely different than other founders. Mike and Jack Dorsey, for example, very, very different. Both extre- gonna be extremely successful. The- the correct pairing for different founders is who's complementary to you? Who- who can you work with and add value, but be on the same page with? And I think, like, so for example, Mike has very strong views on culture, how to run a company, how to build a company. Being in line with his views allows me to be more effective because when I'm channeling feedback, we're not debating first principles ever. But once in a while, I may see something or c- you know, in this cartoonish mirror, like, I can play it back to him, his decisions or what I see and say, "Hey, just applying your own principles, your own philosophy, does this make sense?" Versus debating whether his philosophy is correct. He would- he would be a horrible pairing with someone who doesn't agree with his philosophy. They would just have, like, a constant thrash of useless. Or so let's take another example. Jack. Jack is very design-driven and he wanted to build Square in a design-driven culture, which is, you know, let's say, jargonistically, like, Apple-esque. Most people don't know what that really means, but, like, fundamentally, a design-driven culture. Pairing Jack with someone who doesn't appreciate design would be an unmitigated disaster. Like, the investment in the design, the quality of design, the thoughtfulness, the crafting, the perfectionism across so many different dimensions would just be im- almost unfathomable to someone who grew up in a bottom-up, empirical, you know, everything's about quantifying, A/B testing. So you have to be careful, uh, and that's why I think, you know, speed dating during COVID was a disaster for everybody. It wasn't good for founders to do Zoom-based investing. It wasn't good for investors. And so I think it's healthier to take your time as a founder and find someone who can be insightful but is directionally aligned with your ambition, with your prioritization, and that- that's when you get a match that really works for, like, a decade.

    2. HSHarry Stebbings47:28

       Do you think FF and KV have the same type of founder? When I look at, like, Mike, he fits the founder mold for what I think a Founders Fund founder would be. Run-through walls, very opinionated, very, kind of, hard, and shares a lot of traits with, I think, a lot of other FF founders I know. Do you think KV has an archetype like that?

    3. KRKeith Rabois47:48

       Yeah, I actually do. I mean, I think one of the reasons why you see such a high portfolio overlap is, like, the proof's kind of in the pudding. Um, so, you know, obviously KV and FF have almost exactly the same ownership in Traba. Um, I believe in Open Store, we have the same preferred ownership, KB and FF. I think in, um, AVIN, um, FF f- FF and KV have very similar ownerships. So we all, and well, but, and a lot of people at KV are founder driven. I wouldn't say that's the only criteria at KV. Sometimes KV can be technology driven, innovation driven, whereas FF is mostly founder driven. But the Venn diagram overlap of a successful founder is pretty high, which is why the portfolio overlap. Eight Sleep, you know, more portfolio overlap. Varda, more portfolio overlap. Ultima Bio, as you talked about, more fair, high portfolio overlap. So obviously, the criteria, you know, is clearly similar because you're seeing the manifestation of that in the portfolios.

    4. HSHarry Stebbings48:49

       Can I ask you another one, which is, like, when you were thinking about just this option, always other options come to mind. Did you consider other options?

    5. KRKeith Rabois48:58

       Not with a preexisting fund.

    6. HSHarry Stebbings49:01

       Mm-hmm.

    7. KRKeith Rabois49:01

       I- I felt that at KV, I, you know, knew why we were successful. We were successful. I knew why or at least I think I know why, and I thought that that would be helpful. I think every other fund, the grass may be a little bit greener kind of problem of, like, they have their own bodies, you know, there's- there's more mess, you know, somewhere else. Don't want to fix other people's messes kind of, like, lesson. Um, you know, over the years, and I'd say over the 15-year time horizon, last 15 years of my life, I have occasionally thought about, "Should I start a fund?" Um, there's definitely a lot of drag coefficient associated with that that I was not particularly excited with, which is why...... sort of by definition, I haven't started a fund. Um, I did look at it very seriously in

13. 49:45 – 51:05

    Returning to Khosla and Starting a Fund

    1. KRKeith Rabois49:45

       2010 or so, in 2013 before joining KB. I had a pretty specific idea about a fund, but for lots of reasons, what I like to do is, most importantly, find undiscovered founders, give them the opportunity to be successful with advice, counsel, and capital, and then work with those founders and help them shift the probabilities of success so that they can achieve the ambitions for their company. That's what I wanna do. Everything else is drag coefficient to me.

    2. HSHarry Stebbings50:16

       Why did you not think you could get rid of the drag coefficient? I was the same, but then I'm like-

    3. KRKeith Rabois50:20

       Yeah.

    4. HSHarry Stebbings50:20

       ... I just hired CFOs. So-

    5. KRKeith Rabois50:22

       I don't think you can get rid of the drag coefficient, certainly from scratch. I mean, let's say the first six months, let's say, heavy drag coefficient. Can you later reduce... It's like a high fixed cost. The way one very successful founder, uh, described it to me as I was asking for a little bit of advice. The fixed cost is very high, and once you get over the fixed cost, maybe the marginal cost is, is, is more tolerable. But that first fixed cost is really painful, and I like what I do, um, the reason why I work is I really enjoy meeting these founders, discovering these people and saying, "Yeah, this person's got a shot," and then working with them in helping, you know, unlock their brain once in a while, um, and helping and, and watching their eyes

14. 51:05 – 1:00:21

    Current Motivations for Keith

    1. KRKeith Rabois51:05

       light up and, you know, that, that's what motivates me every day.

    2. HSHarry Stebbings51:09

       Do you ever think about money?

    3. KRKeith Rabois51:11

       (sniffs) Uh, no, not really, honestly.

    4. HSHarry Stebbings51:14

       Yeah, uh, uh, 'cause this was another question that I had, which is, I had in my notes, uh, you know, you have more cash than Rockefeller. So, like, what's, what motivates you today? Like-

    5. KRKeith Rabois51:24

       Um, so I, I have a pretty pithy answer now. So I was at... One of my good friends, uh, who I work with, it had his 30th birthday recently. And, you know, at the dinner for his 30th birthday, the quest- the question on the table is, "What do you want people to kind of say at your yuli- you know, eulogy?" Somewhat morbid, but whatever. Um, and I thought about it, and it, it occurred to me what I want to say, what I want people to say is, "I can't imagine my life without Keith in it." I, I, you know, like, that had that much impact in some ways, and there's different ways you can have impact, obviously. But I was like, fundamentally, I really wanna have impacted people's lives, and that they really think about it that it was that impactful, that their life would've been completely different. And so this is a business version of that, you know, the entrepreneur's version of that.

    6. HSHarry Stebbings52:09

       Can I ask? I spoke to Samir, uh, before, and he said, "What does it take for an investor and a firm to win today after 10 years of bull run?"

    7. KRKeith Rabois52:20

       So I, I think the most important thing is, first of all, and I said this several years ago on your 20 Minute VC, you have to have a comparative advantage, period. And you need to isolate it for you and your fund, like, why me and why us? So for example, like our mutual friend, Mike, when he meets a new investor, he always asks him this question. He loves doing this. It's, he's great at it. He always says to them, "Why, why should a top-tier founder like me take your money?" And you need to have a sharp, differentiated answer to be successful. And the more differentiated, the more true that is, the better. And I think most investors either don't have that answer or forget, and so you don't want to be a commodity. You need to be special, you need to be treated spec- you, you need, you need to have, you know, either difference, like, comparative advantage somewhere. I remember I posted publicly my investment criteria, uh, probably in 2017, and you know, on Twitter, and it was like, you know, kind of that note that I pub- I published. And the last one that confused a lot of people was, the last question was, do I have a comparative advantage? And I take that pretty damn seriously. Like, why me? Why am I investing in this company? Because the general returns in venture are not strong at all. The general returns in 75, 80, and if you normalize against, like, the two hot periods over the last 50 years, like 1996 to '99 and take out like ni- uh, 2019 and '21, the returns are horrific except in maybe the top 2 to 5, maybe 10% of venture. So if you don't have a strong answer to why you have a comparative advantage, you're gonna regress to the middle of the bell curve, and the middle of the bell curve returns are just not acceptable, period. And so I always take that very, very, very seriously, and will often pass if I can't look in the mirror and say, "This is why I have a comparative advantage." So like, we talked about a couple companies. Fair. Both the two, the CEO and COO worked for me. I should be able to assess their abilities better than anybody else on the planet, period. And if I can't do that, I don't know why I'd be at VC. At Stripe, we talked about, you know, I helped build PayPal, I ran a large fraction of Square. I need to be able to understand Stripe pretty much, pretty damn well, or I shouldn't be at VC. You know, Mike was my best friend, like is and was my best friend before he started the company. I definitely knew the traits that would lead to, you know, the way he runs his company, the intentional culture, the tenacity, the re- the resourcefulness. That was all there from, like, maybe the first day I met him.

    8. HSHarry Stebbings54:43

       What, what if you're not the best for it, but you know it is incredible? Are you not gonna do that deal?

    9. KRKeith Rabois54:49

       Great question. I think at a fund, the first instinct is, do I have a partner who would be a really good pairing? And at KV we did do this. Um, I would consciously think, like, "Oh, David Weiden may be a really good partner for this specific, uh, you know, both market and founder." Or Samir might be. There are times when Samir would be a much better partner, for example, than I would be to the, to a specific founder. It depends again. Or Vinod, Vinod can be, or Sven. It really depends what the company's doing and the founder's skill set. So the first instinct would be, "Okay, I don't really feel I have a comparative advantage, but our fund may or someone else at the fund may be. Let's introduce them and see if that, you know, kind of partnership can work really well." Um, so this does work. Now, the answer may be within our fund, whether it's Founder's Fund or KBV.

    10. HSHarry Stebbings55:41

        Do, do, do you think funds actually do that though? I mean, do... We know, we know Midas lists are formed by the-

    11. KRKeith Rabois55:46

        No, we def- Oh, at KV, we absolutely do that all the time, like, like every week, like, really, like, like (snaps fingers) 99% of the time.... instantly. At Founders Fund, we'd do, we did it too, but more on an ad hoc basis, not systematic. But at, at KB it was very systematic, like top down. Even Vinod sometimes would say, let's say something came in to me, he might say, "Hey, don't you think, like Sven or Samir or David would be a better partner?" The way we'd usually resolve it if like, for example, it wasn't clear, sometimes we'd actually tell the founder, "Hey, you get a choice," like at Founders Fund, like we might say, "Hey, you get a choice. Why don't you meet with three or four people and see who you think would be most useful, and who's the right pairing?" So that's my normal default, is if not me, is there somebody else that I have conviction about? And then if not our fund, then it's a much more complicated decision on what to do.

    12. HSHarry Stebbings56:37

        Do you worry about the weight of your words? You look at, and I love Mike and I think he's great, but like you look at someone like Mike, he's younger than you, he's a lot less experienced than you. When you say, "No, we've, this is what I think," do you worry that you have too much impact at points?

    13. KRKeith Rabois56:52

        You have to be v- well, I'll say globally, a VC and a board member absolutely needs to worry about this all of the time. Um, so I've, I've learned from some of the best, Vinod, uh, Roelof, um, taught me some lessons. I'll, uh, I'll articulate a few. Pierre-Lalonde taught me early in my career, like how to do some of these things. So I think Roelof taught me as a board member, one of the best ways is to ask things in terms of questions, not in terms of answers. So you probe by questions 'cause then you're never leading. Um, you may be leading a little bit, but you're never prescribing, and it's a very big difference. So you try and do that. The second thing I've learned is to describe intentionally, carefully, and calibrated your level of conviction. So I will sometimes say to something like Mike, like, um, "My instinct is to do X, but actually I'm not that, I don't have that much confidence that I'm right. Like if you force me to make a decision, this is how I would make the decision. Here's why. But it's a close call in my mind, I'm not sure." Or there's sometimes when I might say to somebody, whether Mike or someone else, "I have about 80% confidence that I, I know, I know the right answer here." So the, you know, being able to communicate the level of conviction, um, can help them just challenge or, or you know, solve it. Some founders also, the other thing I, I do pretty well is reverse engineering the logic. Not always, but 'cause sometimes it's actually hard to, to understand how you got to a conclusion. Sometimes you have this intuitive reaction, and then try to decompose, okay, what's the logic behind that decision? And then so then the founder can like, for example, I work with Saadi at Aiven, he's a really great company, he's a phenomenal founder. He always wants to know the why, it's always why, why, why, why, why. And he does that internally, he does that with me, it's great. So I can walk through the logic underneath it and then he can say, "Oh, that, I buy that logic or I don't buy that logic." And so that's another, you know, sort of instantiation of it. And then the final point is, and I'll give you a, a kind of an amusing anecdote about this. I almost never ever tell a founder what they really should do. Like I almost never say, "You must do this." The, the one example that always occurs to me is there was a time when Mike was building his company, uh, in Miami, that he's incredibly frugal, the company's incredibly financially disciplined. And in Miami the buildings charge a surcharge for running air conditioning, um, past certain hours. And he was hesitant to pay the air conditioning (laughs) , um, even though they were working by ni- like night/night bus. And there was one point in time when I said to him, like, "Well, how much is the incremental air conditioning?" It was like $6,000 or something. And I was like, "Mike, you should pay for the air." He goes, "No."

    14. HSHarry Stebbings59:33

        (laughs)

    15. KRKeith Rabois59:34

        That's about the most direct I've ever been with a founder. (laughs)

    16. HSHarry Stebbings59:37

        I, I love that. That's a, that's such a Mike thing to do. It's like, yeah, that's, that's just hot. They're like, everyone we-

    17. KRKeith Rabois59:42

        Like, like, "You definitely should pay for the air conditioning." (laughs)

    18. HSHarry Stebbings59:44

        Yeah. We should, you know what I hear, say we should charge them for saunas. (laughs) Can I ask you, you mentioned there about venture not being like necessarily a great asset class in terms of returns. I totally agree with you actually. When you look at the historical data on distributions, there's very small windows where liquidity is apparent and strong. And if you don't take advantage of them, it's quite crap, even for the best actually. How do you think about when to sell? My biggest mistake, I didn't sell shit in the last era.

    19. KRKeith Rabois1:00:10

        I'm not sure I have a great answer to this, by the way. And one of the benefits of being a super early stage investor is you don't have to be perfect. I've watched other people make these decisions, and I've seen

15. 1:00:21 – 1:07:40

    Timing for Selling Investments

    1. KRKeith Rabois1:00:21

       brilliance sometimes. So for example, uh, KB before my days, uh, invested $10 million or roughly 10 million in the seed round for Square. After joining KB there was always a question a- and, you know, obviously Square went public, when to sell. The market didn't really appreciate Square fairly for a long time, so there was lots of debate internally. And Vinod had a very strong perspective that proved out to be incredibly valuable, incredibly prescient, predicated on a couple key dimensions, and I won't, I won't share the exact logic. But fundamentally, he had a very strong view that KB should absolutely not sell, period. And it turned out to produce meaningfully different results based upon his insight. And I remember listening to those debates. I wasn't able to participate 'cause I had my own shares, you know, as an executive, so I was completely recused from deciding when to sell. But the logic in his insight was incredibly penetrating, and it led to significantly better returns for KB3. Understanding how to think about that, um, is a real superpower, but I think it's very rare, and I, I certainly haven't mastered it.

    2. HSHarry Stebbings1:01:26

       Can I ask, what makes Vinod so special? 'Cause Vinod, Vinod, sorry, I'm being super honest, he's a, he's weird in the way like him and his brand are like on the ascent again. And it's, respectively it's like, wow.

    3. KRKeith Rabois1:01:39

       So there's a, there's a couple, there's a couple ingredients. Um, first, he is a technologist at heart. He really does see the implications of a new technology way before other people do, and can see the implications in society, the implications of business, the disruptive elements.... a decade, often before other people. He was on the, you know, the AI crusade before I even joined KV in 2013. He published papers about, you know, how AI was gonna replace doctors and medicine, and this is, like, before I joined KV, so way ahead of the curve, really understand- understood the implications and potential of AI, and really masters, like, how the dots connect, and spends lots of time with all the leading practitioners, both in acad- academic, academia and on the ground, you know, in companies. So, that's one. Second thing is just pure input. He still works hard. He loves his craft. He loves working with founders. I've seen him work 8:00 AM to midnight on Sundays sometimes, like taking meetings. This is a Mike Shabbat thing too, you know? Like, him and Vinod, like Vinod still takes meetings. Still outworks most people who are less than half his age.

    4. HSHarry Stebbings1:02:43

       What do you think drives Vinod?

    5. KRKeith Rabois1:02:45

       He lo- well, he, he really does love changing the world through technology. It really motivates him. If he could... You know, the only thing that actually... Sometimes he's so good at seeing the implications that you have to find the founder (laughs) who can actually take advantage of the insight, which is, um, there's only so many founders who are amazing, and like some- you, sometimes you can't take all your ideas to get them in the hands of world-class founders. That's probably the only thing that frustrates me.

    6. HSHarry Stebbings1:03:08

       When you think about kind of reflecting on your time with Founders Fund, what's been your, if we, before we do a quick-fire, what's your biggest takeaway from that time and how it impacted-

    7. KRKeith Rabois1:03:16

       I think-

    8. HSHarry Stebbings1:03:16

       ... your investing style?

    9. KRKeith Rabois1:03:17

       I think you learn... Well, I've, I've had the advantage of being a senior person at two different funds, and I think what you learn from that experience is what's endemic to venture. There are fundamentals about our business that are basically baked into the business, and then what are, what are optional decisions around culture, decision-making, hiring? And then how can you tease those out to be more successful? So, I think having two different vantage points, uh, hopefully will lock in my brain and allow me to manipulate, you know, those decisions to be ideal, you know, ideal to produce the best possible outcome and produce the best possible happiness for me. Um, but it, it's very rare to have, like, those kind of unique vantage points. So, that's my takeaways. I, I mentioned like, for example, I learned significantly more about growth investing and how to be disciplined about figuring out the valuation for a high potential company, et cetera. That I'll take with me. But just how do you make decisions? What's the best way to make decisions? How much time should you spend on a partner meeting versus not? What are the benefits of spending eight hours a week in a partner meeting versus spending 30 minutes a week? Where's that client lo- you know, where's the diminishing marginal returns, et cetera?

    10. HSHarry Stebbings1:04:26

        Did kids change your mindset, Keith, becoming a father?

    11. KRKeith Rabois1:04:29

        I think, (laughs) there's a couple of epiphanies you have at a minimum. I h- strongly believe but have watched it already, my kids are two and a half years old, that people are much more baked and impressionable at earlier ages that dictate how they are when they grow up, at much earlier ages than people realize. They absorb so much, and even if they can't communicate back to you what they're absorbing, they are absolutely absorbing. Their brain, i- it's like, you know, in kind of AI world, their, their inputs are kind of like training their brain, in a kind of machine learning sense. And so you want to be very careful and very thoughtful about what those inputs are, even though y- most parents are not. So, I, I think incredibly conscious about that and just watching what they've already been able to learn and absorb that started almost like from day one.

    12. HSHarry Stebbings1:05:22

        Do you feel the weight of that responsibility?

    13. KRKeith Rabois1:05:24

        Oh, yeah, absolutely. Um, you know, like for example, the downside of having access to resources, like, you know, money, et cetera, is I feel the weight of anti-entitlement. Like, I, I think about this every day, of how do we have kids that are not entitled? Because it's natural, like, they have a lot of benefits, and I, I want them to, I want them to have the work ethic of someone who has nothing.

    14. HSHarry Stebbings1:05:50

        How, how do you think about doing that? I chatted to D- Davide at Nubank, and he was like, "It's the hardest thing I think I have to deal with."

    15. KRKeith Rabois1:05:57

        I, I, I actually discussed this with a lot of people who have su- you know, people that I've watched raise kids that I think are really, you know, successful and inspiring, and asked them very specifically, "What did you do? What did you not do? What did you think about? What did you not?" And try to borrow some ideas. But it's a complicated topic, um, but I, I'm stressed out about it, like, basically every day. (laughs)

    16. HSHarry Stebbings1:06:18

        Can I be honest? I worry with kids that I will not be present. Like, if I want to do what I do to the best and I want to win, just like you, you have to fucking give it everything and you have to be an absolute monster, uh, I think, personally.

    17. KRKeith Rabois1:06:31

        Uh, well, I think there's definitely important ingredients to success, and you need to be thoughtful about what's most important to you in achieving success. But people who have irrational success, top 10 basis points, one basis point in any field, are absolutely making trade-off decisions, uh, hopefully intentionally.

    18. HSHarry Stebbings1:06:57

        100%. You can be like eight out of 10 good and be there for dinner, I think.

    19. KRKeith Rabois1:07:02

        (laughs)

    20. HSHarry Stebbings1:07:02

        But if you want to be like 9.9 out of 10, which you have to be in venture, I don't think you can be home for dinner every night.

    21. KRKeith Rabois1:07:08

        Yeah, I mean, I think there are some VCs who might have been able to somehow do that, but I think they offset it at other times in other ways. And there, there is no short- I don't believe there's shortcuts to success. Like, uh, as I mentioned on one of your sh- uh, one of your recording podcasts before, one of the benefits of just, you know, people knowing me in other fields is I get to watch really successful people in music, politics, and sports, and I was in law, and the common traits that lead to success are sh-

16. 1:07:40 – 1:14:30

    Quick-Fire Round

    1. KRKeith Rabois1:07:40

       or the traits that lead to success are shockingly common, and a lot of it is just pure input.

    2. HSHarry Stebbings1:07:45

       Yeah. No, I, I totally agree. Right. Are you ready for a quick-fire, my friend?

    3. KRKeith Rabois1:07:48

       Let's go.

    4. HSHarry Stebbings1:07:50

       Okay.

    5. KRKeith Rabois1:07:50

       Yeah.

    6. HSHarry Stebbings1:07:50

       So, one from Samir. What do you think about Bitcoin going forward?

    7. KRKeith Rabois1:07:56

       Major question. Um, honestly, I don't know. Um, I've been a multiple...... kind of, bites on this. I think I've had a unifying theme, and then I guess you can apply this, uh, theory and then make a projection for yourself. So my theory was always, from 2013 or '14, that the adoption of Bitcoin would globally be inversely correlated to the rule of law in a specific market or specific country, and I think that's proven to be true. And in fact, I think even in the United States, Bitcoin really took off in terms of valuation, uh, market cap, et cetera, after the election of Trump, and that was perceived by the market as instability or less real law. You can debate whether that's true or false, but there was a perception. And so I think what happens is, in 2024, it somewhat dictates the answer. If people believe the world is more stable and the rule of law is likely to be more robust, Bitcoin doesn't depreciate. But if the world is more tumultuous, the rule of law takes steps back in major markets, then I think Bitcoin appreciates.

    8. HSHarry Stebbings1:09:05

       Keith, which way do you think the world's gonna go? I know I have some...

    9. KRKeith Rabois1:09:08

       Well, I think 2024 is gonna be pretty tumultuous.

    10. HSHarry Stebbings1:09:11

        Yeah, I was about to say.

    11. KRKeith Rabois1:09:12

        It's off to a pretty... It's of- it's certainly off to that start.

    12. HSHarry Stebbings1:09:15

        Is Trump gonna win?

    13. KRKeith Rabois1:09:16

        No. You know, as you've probably seen on Twitter, I don't even believe he's going to be the Republican nominee for president.

    14. HSHarry Stebbings1:09:21

        Okay. Do you think he'll go to prison?

    15. KRKeith Rabois1:09:23

        I don't know. You know, one of the things you learn to do when you focus your time, and I focus my time on investing and working with founders and Garies, I've had to subtract out of my brain a lot of legal interests. Like, I used to be a pretty damn good lawyer or litigator, and I used to have intellectual curiosity about a lot of topics of the law. I just, I haven't read all the complaints, I haven't focused on them. I know they exist, et cetera, I know the general arc of them, but I don't have a strong opinion about the quality of the cases and the likely outcome.

    16. HSHarry Stebbings1:09:54

        Did Figma kill M&A in 2024?

    17. KRKeith Rabois1:09:57

        Well, I don't think it's Figma-caught Figma. I think Figma in some ways was an easier case for the government and the FTC, which has been very aggressive than many other cases. You know, Figma is competitive with Adobe's products. Like, at the end of the day, that's not, like, a stretch. Where the FTC has been taking some crazy positions based upon, you know, 50, 60, 70, 80 years of American jurisprudence, they've been really confronting, um, some acquisitions that really don't have market overlap. This one seems down the li- much more down the middle, as did Plaid and Visa, um, and I think that one, a normal conservative antitrust lawyer like me, like I grew up as an antitrust lawyer, I could see bringing that case. I can also see bringing the Adobe-Figma case. Most of the other stuff the FTC does seems like ridiculous.

    18. HSHarry Stebbings1:10:46

        Will IPO windows open again in 2024?

    19. KRKeith Rabois1:10:50

        Oh, absolutely. So I don't believe that oh, wait, IPO windows really close or open. I think just the criteria for success is different, in that, you know, what the bar is on, let's say, revenue, or what the bar is on your unit economics.

    20. HSHarry Stebbings1:11:03

        But as a founder, do you think you'd wanna go out? You mentioned joining, like, Stripe. Why would I go out in 24? I'm gonna get...

    21. KRKeith Rabois1:11:08

        I- I believe that most companies, you know, and I have a chapter in Elad Gil's High Growth Handbook on the topic, and a, uh, and a fairly lengthy core answer as well, on I believe most companies are better off going public early, period. And so I still prescribe that, I still advise that. I hope, you know, a lot of the companies I work with will take advantage of that advice.

    22. HSHarry Stebbings1:11:28

        Where would y- could you get better as an investor, Keith? If you had one piece of...

    23. KRKeith Rabois1:11:31

        Oh, so my biggest flaw, and, you know, if you have any solutions, I'm all ears 'cause it's still, it's very persistent, is the hardest part for me is deciding which first meetings to take. Like, you know, you get a large amount of inbound interest, introductions, et cetera, and deciding on that pool, you can't take them all. It's, like, not possible in- in, like, seed to literally meet every company, whereas the growth people can meet every company that's ready for a growth round.

    24. HSHarry Stebbings1:12:00

        Yeah.

    25. KRKeith Rabois1:12:01

        You have to decide, and I have made several bad mistakes historically as an angel investor, as a professional VC in declining some meetings. Once you get me in the room with founders, I've made those calls really, really well. Like, I was mentioning the other day that I'm not sure I've ever passed on somebody that's turned out to be building a multi-billion dollar company, but I have definitely declined meetings for companies that turned out to be good. You can try, like, take more meetings, but then is your brain really sharp? You can try to delegate it, but if your founder taste is off, like, the person you delegate to isn't really helping.

    26. HSHarry Stebbings1:12:39

        I would say yes for two things. One, like, I mean this in the nicest way, if someone I hugely respect or like sends me something, I'll jump on it that day and do it myself, or if it's something where I love it, where, like, you may do with, you know, fintech or payments or whatever that may be specifically related to your experience, I'll jump on it, and kind of everything else, I just have, and this sounds awful, but, like, a person in the team who just meets everything else. In that way, I feel no guilt on, like, will we miss it? Because if it's great, they'll send it back to me.

    27. KRKeith Rabois1:13:06

        Yeah. But, but I- I have guilt. I definitely try to fi- I'm trying to find, like, a better way to do it, but, and you know, and Roelof mentioned this to me, I remember talking to him a year after he joined Sequoia, it was probably like 2004, and we had coffee, and I said, "What's the hardest part of the job?" And he said, "Deciding which first meetings to take."

    28. HSHarry Stebbings1:13:24

        Did he give you an answer?

    29. KRKeith Rabois1:13:26

        He probably did, but it hasn't, obviously hasn't worked for me (laughs) .

    30. HSHarry Stebbings1:13:29

        (laughs) Uh, where would you send your kids to college? Samir, again.

Episode duration: 1:15:47