Keith Rabois: The End of Woke Capitalism; Time Allocation Tips; Silicon Valley vs Miami | 20VC #891

1. 0:00 – 4:52

   Why doesn't "buy low sell high" work in Venture?

   1. HSHarry Stebbings0:00

      (beeping) Three, two, one, zero. You have now arrived at your destination. Keith, this is such a joy to do. As we were saying, I tweeted, and then you commented, and then I, I incredibly regretted my tweet. But my tweet... And we're starting straight off. This is exciting. We don't have to do the normal BS intro. My tweet was simple: "Buy low, sell high. Be g- greedy when others are fearful, and fearful when others are greedy."

   2. KRKeith Rabois0:28

      (laughs)

   3. HSHarry Stebbings0:28

      And your response? "It doesn't work in venture." (laughs) So, you're wiser than me, Keith. Why does buy low, sell high not work in venture?

   4. KRKeith Rabois0:39

      Well, let's start with definitionally what we mean by venture. If one is talking about seed investing, and potentially Series A investing, by definition, you're buying low. And if you have any liquidity, you're gonna be selling high. When you invest in a seed company or a Series A, the startup is a mess. It's not really even a company usually. It barely has financials, probably has maybe some user metrics or product metrics, may only have a team in the slide. So there is no company, and there's no sort of value. It's all art. If you're right, and the company works out and turns into a company that produces financials with revenue, and ideally with contribution dollars and maybe even one-day profits, then by definition, that company's gonna be worth more than what any price you pay to seek round B, or almost surely any price in Series A. So you are effectively buying low and selling high, but it's more you're just doing any version of venture. There's no, like, strategy there. Um, I think it's very difficult though in later stages to pursue anything like that kind of strategy, because ultimately, that's the greater fool's theory. Basically, it means that 90% of the time, you're betting that someone else will pay a higher price than what you perceive. Now, if you have asymmetric information, that strategy could be a coherent one. Like, I have asymmetric information about this market, this company, this technology, this person, then there might be some coherence to a, even a series B or C, buying low and selling higher. But typically, people who are leading these Series C and later rounds have no asymmetry of information. Um, they may have asymmetry of closing, asymmetry of deal flow, but there's no asymmetry of information. And so the only thing you're doing is a risk-adjusted probabilistic bet, which really means you're not really buying low. Uh, you may be q- fooling yourself that you're buying low. But if you adjust for the probability of success, you're actually paying a fairly high price. More importantly, at the end of the day, any early stage investor, unless they ha- are running a billion-dollar-plus fund, has to do, depend on future financings. Almost no company you or I will ever finance will be profitable on the first traunch of investment. Um, prob never. I once joked and quipped, quipped that I've never invested in a profitable company, or that... (laughs) You know, and I, and, and I'm sure that's true. And I'm, I'm not even sure that almost any of the companies I've invested in have ever become profitable. Um, actually, some have, but, you know, like, I'm sure Opendoor actually is profitable, Affirm will be profitable. But usually, it's a 10 to 15, 20-year journey by the time that happens. So if you're not gonna become profitable, the only way you can buy low and sell high is to persuade the rest of the world to buy high. And that means you have to be pretty derivative. Now, if you're running a multi-stage, multi-billion dollar fund, in theory, you could fund a company from beginning to end. But 99% of the VCs on Twitter are not running a multi-stage, multi-billion dollar company. So your tweet would be very, uh, misleading or dangerous for anybody who's not running a multi-billion dollar fund. I mean, we at Founders Fund do, and so in theory, I could invest at a, what I think is low price. And if I'm right, we can continue to power money in the company and not really care what anybody else in the world thinks about that for a very long time. But if I was a seed investor, I need to know what the world of Series A investors is willing to fund and pay. And then if I was a Series A investor, like let's say Benchmark, a very typical Series A-only fund, they need to know who's gonna fund the company next and what price they're willing to pay. So you have to move from somewhat, in Peter Thielian terms, contrarian consensus pretty fast to get a company financed subsequently, unless you're working with a partner like Founders Fund that wants to be contrarian and is willing to back you up for many years in a contrarian mode.

   5. HSHarry Stebbings4:45

      You said about, kind of, probabilities of s- success there. I think one thing that I've really changed my mind on is outcome scenario planning, 'cause there's success,

2. 4:52 – 7:13

   You never anticipate your biggest winners

   1. HSHarry Stebbings4:52

      but there's different variants of success. There's one billion, 10 billion, 50 billion, and that changes everything. But bluntly, your biggest winners you never anticipate to be as big as they will become. How do you-

   2. KRKeith Rabois5:03

      I don't agree with that, actually. Honestly-

   3. HSHarry Stebbings5:06

      (laughs)

   4. KRKeith Rabois5:06

      ... I think that's, I think that's completely false. In fact, I just sent an email to our investment team on a d- on a specific company. I, I actually think, um, that you almost always know, and you always know, always know as soon as you meet the company. Um, doesn't mean you're right, meaning, like, there's probabilities of 30%, 40% being right. But you can see the upside case. This is one of the most important things I sort of learned derivatively from Mike Moritz, is the most important question is, what could this be? Vinod Khosla sort of has a similar version of this, where we used to write our internal emails on investments with articulating the upside case, and that was the most important thing. What's the option value or what's the biggest upside case? And I think that exercise is critical. Uh, but I knew almost every time, 30 seconds to three minutes into the meeting, that this was a spectacular opportunity, and if the things worked, this was a 50 to $100 billion company.

   5. HSHarry Stebbings6:02

      ... did you really? I don't mean that by it, stupidly. But like, you know, when you look at companies like, you know, I've had... We do the memo, which is where we interview GPs and they talk about investments they've led. Like Twilio, people thought would be a three to five billion dollar company. Jeremy thought Snap would be a three to five billion dollar company. You know, Twilio last year was 60 billion. I mean, not now-

   6. KRKeith Rabois6:19

      Well, yeah. I mean, I don't, I di- I didn't meet Twilio. I wasn't a VC when Twilio was raising, um, you know, any of the rounds. So I don't know how I would have approached that. But I know every time I've invested in a good company, I've known the upside. I knew exactly what the upside was. I knew it was going to be massive. I think you do need to think through the market comps. So I think one of the mistakes people have been making over the last two to three years is, let's say if Shopify is trading at 160 billion, let's say, then the upside case for things that could be Shopify feels like 100 billion. With Shopify trading at 44 today, your upside case is different. So at 160, writing a check at an early stage company at two or three billion might make sense. Not early stage, but middle, you know, mid- mid-stage, growth stage. With Shopify at 40, it's almost impossible to write a check for a potential Shopify at a billion or two.

   7. HSHarry Stebbings7:12

      So, so

3. 7:13 – 8:58

   Is it worth looking at existing market comprables?

   1. HSHarry Stebbings7:13

      I, I'm intrigued here. I never think it's worth looking at existing market comps because in so many ways- (laughs)

   2. KRKeith Rabois7:18

      (laughs)

   3. HSHarry Stebbings7:18

      ... 'cause in so many ways we're changing markets, we're reinventing them, we're, we're expanding them. And so it almost is incomparable to, compared to a prior generation.

   4. KRKeith Rabois7:28

      Yeah.

   5. HSHarry Stebbings7:28

      To what extent do you think it's valuable comparing a next generation Carvana to Carvana, for example?

   6. KRKeith Rabois7:35

      It's a good question. I mean, fortunately most of what I do, and most of what I've been successful at, are really Seed and Series A investments, in which case the public comparables don't really matter and I don't pay-

   7. HSHarry Stebbings7:44

      Mm-hmm.

   8. KRKeith Rabois7:44

      ... too much attention to them. I've also funded a lot of non- what I call non-comp companies where they're, they're forging a new market completely from scratch that didn't exist, which is also something I prefer to do. That said, you know, I now work as a GP at a very large fund that does a lot of late stage investing, growth stage investing. And so I have to have an opinion on later stage rounds. I don't lead too many. I've only led, in nine years of investing, three late stage rounds. Uh, later stage rounds, series C, co-led with, uh, Stripe, Fair Series C. I led at Founders Fund, and then I invest a lot of money in, uh, two late stage rounds in a company called Ultima, which is relatively, uh, secretive, but should be public, meaning public about their plans and why they're so impressive next week or so. Um, those three companies that had incredible asymmetry of information, uh, Stripe, Fair, Ultima. And so it's very rare for me to be doing a growth round, so I don't think about it too much. But my grow- the growth team, my colleagues, Brian Singer and Peter Napoleon, who are really excellent at this stuff, are constantly taking into account the public comps.

4. 8:58 – 12:28

   Is it a good time to be investing right now?

   1. HSHarry Stebbings8:58

      Can I ask, Keith, I speak to a lot of GPs and they say privately, "Oh my God, this is just shit. This is terrible." And then I hear them with LPs and they go, "This is the best time to be investing."

   2. KRKeith Rabois9:08

      (laughs)

   3. HSHarry Stebbings9:08

      "This is a great time to be investing. Look at the prices. This is gonna be great." Uh, which, which one's right in your mind, honestly?

   4. KRKeith Rabois9:17

      Well, I mean, obviously the price you pay dictates your returns. And so that's pretty important. Like I mean, we, we had an internal kind of analysis that obviously Founders Fund, way before my days, generated a lot of returns. I think we produced the most liquidity for LPs, or one of the two most liquidity, most distributions over the last two years of any fund on the planet. And the reason why was Peter and Brian and some extent a few other partners were leading later stage rounds, Airbnb, Stripe, et cetera, when that wasn't particularly attractive. But the prices, meaning it wasn't popular to lead those rounds, the prices Founders Fund invested in were more like a billion than like three or four. So one way to think about is to say, well, those types of rounds, 2017 error to '21 would've produced great companies, but one third to one fourth returns.

   5. HSHarry Stebbings10:11

      Yeah.

   6. KRKeith Rabois10:12

      Now that said, if the upside cased in, let's say the Datadogs, Twilios, was much larger than people forecast, maybe you could offset some of the valuation increase and growth and creep by, you know, power on the upside. That said, I think, you know, that's, that requires you to time the market of your exit too. So a lot of what I've learned recently, you know, that VCs, um, sort of forgot about, uh, many VCs including some of my colleagues, is that if you're gonna play the game of high price valuation entry, you also need to be good at exiting trades. It's more like, uh, Wall Street. I never had to learn how to exit trades because I'd invested five, 10, 15, 20 million post. And so any exit (laughs) -

   7. HSHarry Stebbings10:58

      (laughs)

   8. KRKeith Rabois10:58

      ... for a successful company is gonna be really, really, really good. Uh, but if you're gonna invest in a billion or two, it's really important to get out when the company's trading at a hundred, not when it's trading at 30.

   9. HSHarry Stebbings11:09

      But like, you know, the lick prefs on some of these companies, you know?

   10. KRKeith Rabois11:12

       Oh, no. Well, I mean, lick preference is you may get your money back from all that stuff, but like that's the mistake. Like every time you get your money back as a VC, it means you made a mistake in some ways. Doesn't mean you made a mistake when you invested, meaning like, there is no agreed upon framework for deciding without the benefits of hindsight what's a good decision or what's a bad decision. It's one of the arts in venture is just looking at the benefits of hindsight. Things could have been a bad or smart decision, um, that worked out differently. So you want to really read those memos, re-read those memos, um, and look at the analysis, the thought, you know, the inputs, not the outputs in some ways. But that said, every time, every time someone says, "Oh yeah, this lick preference, you can get your money back." I'm like, "Yeah, but the opportunity cost of that investment was horrible."

   11. HSHarry Stebbings11:54

       Yeah.

   12. KRKeith Rabois11:55

       Like opportunity cost of my time. So, you know, in some ways getting money back doesn't really matter. It probably matters in, for the people who do growth funding. You know, you're right, a 50, 100, 150, 100, $200 million check, you don't really want a zero on those things. But a three, four, five, 10 million, even up to a $10 million check, a zero doesn't matter in the grand scheme of a very large fund anyway.

   13. HSHarry Stebbings12:17

       You mentioned the, kind of, the precious nature of time there. You know-

   14. KRKeith Rabois12:20

       Yeah.

   15. HSHarry Stebbings12:20

       ... the truth is, um, time is w- like, the most valuable thing that we have, as we both know.

   16. KRKeith Rabois12:25

       Yeah.

   17. HSHarry Stebbings12:25

       When you think about time allocation across the portfolio,

5. 12:28 – 15:30

   How do you think about time allocation?

   1. HSHarry Stebbings12:28

      it's a very nice founder marketing tool to say, "No, we care about everyone equally," but we both know that it's your Squares, your Fairs, your Altimas that drive returns. And actually, you hiring a head of sales for one of them could move the needle versus a 0.1X improvement on the dock. How do you think about that?

   2. KRKeith Rabois12:48

      Well, Peter Thiel taught me also in 2000, or 22 years ago, that people systematically undervalue their time. And so, trying to consciously apply that, you know, sort of precept, uh, to all my time, personal and professional, and really value it and, and try to allocate it as appropriately as possible. You know, in venture, it's really tricky because actually, in some ways, you should rationally allocate your time to your best performing companies. It turns, if you're not careful though, the worst performing companies will then... it will require the most of your time. And while that might help save a few and be really helpful to founders, it's also not gonna produce f- uh, returns for the fund. Uh, so there's this sort of irrational distortion in your time adventure because you have a kind of a binary sort. The, the companies that tend to drive the most returns also don't "need" the most time, but they could use high leverage time. And then the companies that are definitely not gonna drive returns "need" the most time, but they're clearly not gonna drive returns. So you definitely-

   3. HSHarry Stebbings13:51

      Are you not being... How do you-

   4. KRKeith Rabois13:53

      Go ahead.

   5. HSHarry Stebbings13:54

      ... advise me, Keith? For the companies that aren't performing, how do you kind of delicately say, "Hey, super appreciate it, but like it's not gonna be a fun impactor for us, and actually, I have to be conscious of my time."

   6. KRKeith Rabois14:08

      It's very, very, very complicated.

   7. HSHarry Stebbings14:10

      Yeah.

   8. KRKeith Rabois14:11

      Uh, I think the most important thing you can do is agree upon with a founder what the best destination is, meaning given what we know about the company, founder, team, metrics, product market fit, where's the best place this company can go? What's the probabilities of getting there? And then I'd ask the question, "Okay, let's agree on this destination. What do you think you wanna shoot for, given the constraints? And then what I can do is help you get there." So I think therefore, it structures the conversation around, what are we trying to accomplish collectively? And I'll do whatever I can within my, you know, power and time to get you to that destination if I can increase the probabilities. And then that way when we get there, the founder and team is thrilled if we can get there, and it doesn't have this infinite sort of mission creep. And then I do filter by impact. There are companies that, for a variety of reasons, I can impact a lot, and for other reasons, I can't. And it's not totally correlated with success or failure, but if I'm gonna allocate a scare, uh, a scarce hour at the end of the day, I'd rather allocate it to an hour that's gonna create high leverage for somebody.

   9. HSHarry Stebbings15:25

      I'm really asking the hard questions here, but it's gonna save me looking like a twat on Twitter again.

6. 15:30 – 16:36

   What do you do when you lose faith in a founder?

   1. HSHarry Stebbings15:30

      Um-

   2. KRKeith Rabois15:30

      (laughs)

   3. HSHarry Stebbings15:30

      ... what do you do when you- (laughs) what do you do when you lose faith in a founder? I, I still don't have the answer to this.

   4. KRKeith Rabois15:37

      Depends, I guess, the cause of that. I think-

   5. HSHarry Stebbings15:40

      So you question that, you question their ability to actually execute and lead the company in the way that you thought they could?

   6. KRKeith Rabois15:46

      Yeah. Well, at Founders Fund, there's only one real answer, um, because we don't replace founders. Most VCs would probably try to change the management team, including the CEO. We, you know, ideologically, philosophically, and effectively, legally, just don't do that. So at that point, we're probably gonna be less actively involved.

   7. HSHarry Stebbings16:08

      Gotcha. And so you'll just say to the founder, "Hey, from now on, Founders Fund will take less of a participatory role, and good luck."

   8. KRKeith Rabois16:14

      Ne- yeah. I think we will, we'll be clear that like, "Look, I wouldn't count on us for additional capital. If there's things we can do to be helpful, you know, we'll, we'll try." But like, we'll give them, you know, a significant advance warning, let's call it, measured in years, not in months-

   9. HSHarry Stebbings16:29

      Right.

   10. KRKeith Rabois16:29

       ... that we're unlikely to be, you know, the financial backer of the future.

   11. HSHarry Stebbings16:34

       Yeah. Uh, uh, we mentioned kind of timing

7. 16:36 – 18:08

   When do you exit a position?

   1. HSHarry Stebbings16:36

      exits. I was chatting to Gurley the other day about Benchmark's exit with, you know, WeWork, and I was chatting to Chamath about (laughs) not exiting Slack and like the haircut that he took on the back of that. Um, eh, in terms of like, you know, funds now are thinking that they should manage beyond privates and into publics, how do you feel about that evolution of the venture fund model of, "Hey, LPs, we can actually manage more efficiently than you, your public," versus just distribute when going public? How do you feel about that evolution?

   2. KRKeith Rabois17:03

      I guess it depends upon the skill set of the team. Um, at Founders Fund, I don't think we would do that very well. We don't have a team that's really constructed to do that. We don't have the legal structure that's really designed to do that. Could someone build a team with asymmetric capabilities? Probably, yes. Um, that said, I think it's a bad idea for venture capitalists typically, for a variety of reasons. One is skill set. Second thing is most LPs do not in fact want that. They're hiring venture as an alternative asset class. They already have, if they want, public market equ- public equities exposure, managers that are professional with track records doing nothing but that. Now, the legal advantage is to some extent, if you're managing companies that you're involved in early as they become and convert into public, publicly tradable securities, in theory, you have some asymmetric information that might be below the line of materially non-public information that you could actually trade on legally. And that would, that should drive superior returns actually over time.

   3. HSHarry Stebbings18:05

      Yeah. No, I, I agree. Uh, I, I do wanna

8. 18:08 – 19:10

   Are we seeing an overreaction in the markets?

   1. HSHarry Stebbings18:08

      ask, in terms of, uh, like where we are today-Were we just in massively inflated times last year? Is this a massive overreaction from public markets on interest rates and everything that we're seeing globally? W- where is the natural price equilibrium? 'Cause I can't figure out if, like, massively inflated or overreaction. How do you analyze it?

   2. KRKeith Rabois18:30

      W- we analyzed it recently at Founders Fund, and it's definitely not an overreaction, even with the corrections of the last, call it six, seven months. We're only at the 30-year normal average. Like, in t- if you look at multiples, we're exactly at the average. So average also means there's downside (laughs) the other side of that. So, um, you know, it doesn't mean we're gonna go down from here. I'm not e- explicitly saying that. But I'm saying if you're at the average over 30, 40 years, that means you're in normal times. Not bad, not worse, normal.

   3. HSHarry Stebbings19:01

      Yeah. I, I totally get you. H- how do you think about deployment in times like this? 'Cause I think, you know, again, I speak to a lot of managers and they're like, "Listen, it's so uncertain right now,

9. 19:10 – 20:35

   Do you believe in investing through market cycles?

   1. HSHarry Stebbings19:10

      we're totally pulling back." Do you just agree with consistently investing through cycles? I heard a little birdie say that Founders Fund were kinda pausing.

   2. KRKeith Rabois19:18

      Uh, I think it depends on the stage. I would invest in seed companies with the right team, with the right vision, all day, every day, in any cycle. I think in, in the growth rounds, I absolutely would only invest in things that are priced appropriately, because you really do only have a two or three-year window. And so you need to be very conscious that where is the market, uh, to be successful. In the rounds in between, I think it's a, a risk retu- or return calculation, series A, series B, series C. And on those rounds, it depends on whether founder expectations have been reset to appropriate valuations, given the risk. Then secondarily, you know, as we started the conversation, I would wind back to, if I'm the first investor in this company, who's gonna fund it the rest of the way? Like, what milestones do we need to achieve? How much capital will it take to get there? Am I willing to be the only person funding this company for a long time? Or do I need derivative, other people's money? In which case, I need to make sure that we're gonna hit objectives, milestones, goals, that in any market, other people will fund.

   3. HSHarry Stebbings20:22

      Keith, I think investor psychology is everything. And, you know, you've been through cycles before. I haven't. Um, and, you know, for the last few years, I've felt pretty good at what I do. Um, and now I'm actually questioning whether I'm any good at what

10. 20:35 – 23:00

    Advice for young investors

    1. HSHarry Stebbings20:35

       I do. Um, w- when you advise younger people on your team who are suddenly questioning themselves and are very insecure actually on whether they're any good at what they're doing-

    2. KRKeith Rabois20:44

       (coughs)

    3. HSHarry Stebbings20:44

       ... how do you advise them with the wisdom and experience that you have?

    4. KRKeith Rabois20:48

       Uh, obviously, unsuccessfully, because both Peter and I figured out this market was crashing last summer. And we really tried to stop people from investing at ridiculous prices. But even at Founders Fund, we weren't totally successful. And actually, I had lunch with one of my colleagues yest- uh, two days ago, and he said, you know, "I think I had the disadvantage of never having been through a negative cycle before." Where Peter and I obviously had lived through one, and we realized things can go up, and they do go down, um, where I think all my junior colleagues felt things only go up and to the right. Um, now, it's a little bit like baseball, which unfortunately, you know, I know you're in Europe, may not resonate as much as maybe the American audience will. Uh, you know, there was a, a period of time, a considerable period of time, 10, 15, 20 years ago, when a lot of Major League Baseball players were taking steroids. And you saw these really artificially inflated stats. In fact, there was this fairly mediocre center fielder for the Baltimore Orioles, Brady Anderson, who made 52 home runs one year, which was the symbol of wow. Um, you know, like, absolutely impossible for someone like that to hit 50 home- I mean, 50 home runs is a major milestone. It'd be the equivalent of $10 billion, you know, public company. And yet this, like, very benign, you know, kind of (laughs) normal baseball player hitting 52 home runs. So when everything is boosted by steroids, everybody looks really good on paper, and you can put up baseball card stats like 52 home runs. Um, now in his case, they can't take the 52 away from him. There's some asterisks that they've added, but they can't really take it away. The problem for younger VCs over the last three or four, maybe even five years, is with everything inflated, most of that inflation is paper, not real.

    5. HSHarry Stebbings22:22

       Mm-hmm.

    6. KRKeith Rabois22:22

       So unless you are also savvy enough to sell, those are fake returns. And so depends on whether you distribute it. Now, I have a colleague at, at KV who's involved in one company that was trading really, really well. And he was very savvy, and decided to sell. That decision alone returned KV5, which is a $1.3 billion fund. If he had waited on it, it would be still a great comp- uh, great investment. He left it series A. It turned out to be a public company, that's always gonna produce returns. But it would not have individually returned a $1.3 billion fund.

    7. HSHarry Stebbings22:58

       Ooh. Well done, him.

11. 23:00 – 24:10

    Is this the end of wokeness within companies?

    1. HSHarry Stebbings23:00

       That's a good timing decision. Uh, can I ask, e- I mean, it's a bit of a strange one, but like, when we look at kind of companies today, the power is shifting, I think, back from employees to companies. And we see the potential for leaders to be more Brian Armstrong-like. Do you think the correction will kill-

    2. KRKeith Rabois23:15

       (coughs)

    3. HSHarry Stebbings23:16

       ... wokeness within companies?

    4. KRKeith Rabois23:18

       I think it has. I mean, I think wokeness is a function of entitlement. Meaning, where there's no stress, no work, no perceived, uh, risk, then people have distractions and it's like a vacuum. You know, it sort of, it fills up. Distractions fill up a vacuum. When people are under stress, when they have to perform, when there is no, uh, possibility of future financings unless you get your act together, it will concentrate peoples' minds. You know, there's things about crises that tend to produce better returns, better, better results. And so I think that's gonna happen.

    5. HSHarry Stebbings23:51

       Yeah.

    6. KRKeith Rabois23:51

       It's not accidental, in my mind, it's not coincidental that the most woke companies are the ones with either network effects or a monopoly.

    7. HSHarry Stebbings23:59

       Are you worried about the US's coherence as a polity?

    8. KRKeith Rabois24:04

       No, not really. I mean, it c- and, you know, it's kinda like the Winston Churchill comment of, compared to what and where.

12. 24:10 – 28:00

    Do you worry about what people say about you?

    1. HSHarry Stebbings24:10

       Yeah. (laughs) I think when looking in from the outside, it's, uh, it's a concern. Do you worry what people say about you, Keith? I'm always terrified about what people say about me. Like, I got no-

    2. KRKeith Rabois24:20

       No. Uh, well, I think it's a very bad way to be an investor, at a minimum. Um, I think the whole point of being an investor is you've got to be perceived as ridiculous and wrong for a long time. In fact, I just saw as we were, as we were tabbing, one of my friends just tweeted at me about one of my new views, um, which is pretty amusing. Um, he thinks I'm crazy. Um, but that's part of being, the art of being an investor is, you know, I, I, I, I mentioned on my first appearance on 20 Minute VC many years ago, that my acid test for success as a VC is, do half of my friends who are VCs laugh at my investments? So I think it's a very useful, uh, discipline to be pretty immune from feedback as a VC. Now, as an executive or CEO, it, it's very different because you're managing large teams and you need, you need to understand the dynamics of large teams. So you don't want to be quite as contrarian as an executive running a company as you can be as an investor.

    3. HSHarry Stebbings25:15

       What do you think is your craziest belief today?

    4. KRKeith Rabois25:18

       It's a really good question. You know, I, I actually do, I have this exercise where I run a CEO, um, company called Open Store. We have about 80 employees. And w- every Monday I have lunch with a different team and they just fire away with random questions, whatever's top of mind. And about a month ago, o- one of my colleagues asked me this question, "What's your, like, most contrarian view today?" And I looked up and I said, "You know what? Damn it, I don't have any views that are contrarian anymore." Like because-

    5. HSHarry Stebbings25:43

       (laughs)

    6. KRKeith Rabois25:44

       ... all the stuff, all the stuff that a year ago everybody thought was fringe, uh, you know, is now accepted. Like, you know, uh, Bloomberg dismissed my views about COVID as fringe, and of course they were correct. People thought my views on inflation from January to maybe even as late as October were ridiculous. And of course they were correct. You know, now everything, like, I believed has become, like, correct and consensus. Uh, so I have to go back to the drawing board. And-

    7. HSHarry Stebbings26:09

       Wh-

    8. KRKeith Rabois26:09

       ... it's really scary, actually, to not have any views that are, uh, you know, considered to be absurd. Um, and so the follow-up question, which was instructive, uh, from, from my colleague, uh, was, "Well, how do you derive these views? How do you go get new ones?" And I said, "I, I read books." And the reason why I read books is if you s- if you r- consume the same content and talk to the same people, you're not gonna derive new views. But if you read original sources that are different and divergent from what other people do, you might formulate new ideas. And so I, I'll give you an idea. It's not super contrarian, but one I've been, you know, sort of, uh, promoting, let's say, recently is I really want to invest in only companies that are in person. Uh, so I think there's a lot of alpha there. I think in-person companies will be the successful startups. I only want to find founders who are working in person, and that's my new investment filter.

    9. HSHarry Stebbings27:03

       I, I totally get it. Um, I, I saw your tweet saying, it was like, "IRL." And then, uh, (laughs) Michael Eisenberg's like, "Island"? Uh-

    10. KRKeith Rabois27:10

        Yeah. No, I, I, I... That, that, that tweet was probably too, uh, ambiguous with what I meant. I was trying to, trying to be a little too clever. I should have expressed it more clearly.

    11. HSHarry Stebbings27:19

        Keith, when was the last time you changed your mind on something and what was it?

    12. KRKeith Rabois27:22

        Well, I change my mind all the time, actually. Surpris- maybe surprisingly. The biggest, most obvious one is moving to Miami. Um, so I used to be a Silicon Valley elitist, uh, you know, for, like, 20 years or whatever of my life. Um, I really believe that if you are ambitious and wanted to build a disruptive technology company, that you were sacrificing the probabilities of success by not making it, building it in Silicon Valley. And then, obviously, I switched writ large. I now believe Silicon Valley's a disadvantage, uh, not even neutral. It's a, a actual disadvantage. So obviously, that's a pretty high profile switch of views.

    13. HSHarry Stebbings27:58

        Why is Silicon Valley

13. 28:00 – 29:39

    Why is Silicon Valley at a disadvantage now?

    1. HSHarry Stebbings28:00

       at a disadvantage now? Is it pu- it's 'cause I just look at it from... Sorry, I'm naive. I look at it from the outside. I see chess. I see the, you know, justice system. But then I also see things like YC now being fully remote. I see all VCs leaving. Is it political? Is it economic? Is it societal? Like, w-

    2. KRKeith Rabois28:15

       Well, it's a, a bit of both. I think, um, many of the most ambitious, talented people, whether they're entrepreneurs or VCs have left. So I think the network effect has been eroded. Secondly, it's very hard to concentrate on your job when, when you're confronted by safety issues. (laughs) Like, actually, at the end of the day, if you get assaulted, it really just d- it disrupts your week.

    3. HSHarry Stebbings28:36

       (laughs)

    4. KRKeith Rabois28:36

       I can tell you, I had my, I had my home burglarized when I lived in the Bay Area twice, but the last time was pretty terrifying and I got no work done the next week. Like, this guy broke into my house, got all the way into my bedroom. There was no way I was sleeping the next week comfortably, and therefore I wasn't thinking clearly and I wasn't really executing very well. So if you're, if you're constantly on guard, defensive or f- or, or actually assaulted, you're not gonna be very productive. So all these things have come together. Um, I think capital does matter, meaning concentration of capital. M- most of the V... Well, actually I know of only now one VC of all the top VCs that still has their partnership based in the Bay Area completely.

    5. HSHarry Stebbings29:19

       Sequoia?

    6. KRKeith Rabois29:20

       That... No, it was Sequoia now who's opening a New York office. I hope I didn't ruin their PR announcement there. (laughs) Uh, I think Coastal is the only one that still has all the GPs living in the Bay Area with the expectation they're gonna be in person every day. Sequoia also has a partner, I think this is public, in LA.

    7. HSHarry Stebbings29:36

       Mm-hmm. Yeah. No, absolutely. C- Keith, when

14. 29:39 – 33:09

    What's your biggest miss?

    1. HSHarry Stebbings29:39

       you look at your track, there's kind of not much that you haven't hit. What's your biggest miss and what did you learn from that miss?

    2. KRKeith Rabois29:44

       Okay. So the mistake I make is not ha- I al- I basically almost never, possibly never, have made a mistake in passing on so- a founder I met in person. However, there are several, unfortunately, very successful companies where I declined meeting the founders in advance. And those are incredibly frustrating experiences.

    3. HSHarry Stebbings30:09

       Is that commonalities in why you declined meeting them? Like, when you look back.

    4. KRKeith Rabois30:12

       Well, they're, it's different per company. I mean, you can't meet them all. You know, some of these I declined meeting while I was running Square, when I was running, you know, companies. So I didn't have an infinite freedom or infinite, you know, control over my schedule. I, uh... But even as a VC, there's a few I probably declined that I should have met that have done pretty well.And, you know, interestingly enough, there's no easy solution to this, right? The how, passing on something you meet and figure out why with benefits of hindsight, like, what should I have known? What should I have seen? What could I have done differently, et cetera. That's a relatively tractable exercise because you don't have infinite time. And there are so many companies that are form- for- formulated all the time and you... Especially if you want to go to top of the funnel seed and series A, there's infinite opportunities to take meetings. So trying to figure out what to do about that isn't so easy. I'm still struggling with it nine years later. Every time I get an introduction to a new company, you know, is this the, you know, whatever, let's say Coinbase that I, you know, was introduced to very, very early by Gary, who really... Gary Tan, who really wanted me to invest. And, you know, I basically wrote back, I really didn't want to meet them even though I actually did see a flash or two in their deck, which I pointed out in this email thread back to Gary. But, uh, you know, obviously a massive mistake. Now, I wasn't yet a VC, actually, I was more angel investing, but still clearly a massive mistake.

    5. HSHarry Stebbings31:32

       Would you agree with Thiel that your biggest mistake is not concentrating capital into a winner? Or is it actually not doing a net new?

    6. KRKeith Rabois31:39

       That is a great question. Um, I am not good at concentrating capital into successful companies. I think it's-

    7. HSHarry Stebbings31:45

       I think it sucks though, 'cause I always go there just way too expensive. Way too expensive. Way too expensive. It always looks expensive-

    8. KRKeith Rabois31:50

       Well, yeah. I, I think there's-

    9. HSHarry Stebbings31:50

       ... because we did it first.

    10. KRKeith Rabois31:51

        I think there's a couple reasons why I'm not very proficient. Um, first one is, I tend to be a very active investor, typically on the board of directors of these companies. And so I kind of know what's not working and what's, you know, less ideal than might be, uh, apparent superficially. And so it's really hard to disambiguate that knowledge when we're deciding to invest, because outsiders are just looking at the presentation and I haven't figured out how to normalize that. So I generally know the weaknesses better than anybody who's considering investing. The good news about having colleagues, Brian Singerman particularly, Peter Thiel and Napoleon, who are excellent at powering money into companies, is I can kind of leave it up to them. Like I will typically do this, maybe this is a surprise for people, even for companies I'm on the board of, when we're deciding to double down, triple down, quadruple down, I may have an opinion, but I'll usually lead it to one of them to sponsor the investment so I can sort of offset my discount factor.

    11. HSHarry Stebbings32:52

        Yeah. My biggest mistake investing has been relying on other people too much. We'll end on that one.

    12. KRKeith Rabois32:57

        Oh, yeah, that's a disaster. Um... (laughs) That's Yeah, but I- ... a challenge. I mean, we could talk about this forever, but fundamentally, most investors are not very good. So if you rely upon other people, by definition, you're not going to be

15. 33:09 – 34:39

    Do you think VCs add value?

    1. KRKeith Rabois33:09

       very good.

    2. HSHarry Stebbings33:10

       Do you think VCs add value? We're, we're kind of getting into it, but like I, I sit on boards, Keith.

    3. KRKeith Rabois33:15

       Oh, ab- absolutely. Absolutely.

    4. HSHarry Stebbings33:16

       But m- but most of the boards I sit on are shit. They don't have you on them. Like I'm not being rude. Like you're great.

    5. KRKeith Rabois33:20

       Oh, no, no, no. Well, this is why you get divergent feedback that's all high fidelity signal from very well-meaning and often very successful founders, is VCs are not the same. And I think there are a handful of VCs who are very valuable that I would want to work with if I were a founder. And then there's another set of VCs that are fine, meaning some upside, no downside. There's another set that are neutral, and then there's a bigger set that might be negative, you know, negative value. So depending upon who you work with, you're going to have a very different experience. If you're a successful company and you raise money from multiple different funds, you might be able to compare contracts. So, you know, I serve on the... some boards where I work with one or two or three other very successful investors and the founder can see the differences and point them out to other founders when they do reference checks, et cetera. But those are typically the rarefied companies that have multiple successful VCs on the same board. Think like Airbnb, DoorDash, you know, Fare, Stripe, whatever. Well, Stripe doesn't have a lot of VCs, uh, fortunately for them. Uh, but typically companies like that attract a lot of talented VCs, Affirm. So those founders, you know, have a unique vantage point. But typically, I think the reason why you hear very different feedback is there's probably only five to 10 VCs that actually add value at scale.

16. 34:39 – 35:20

    Best board member you've worked with?

    1. KRKeith Rabois34:39

    2. HSHarry Stebbings34:39

       Tell us, who's been the best board member that you've worked with?

    3. KRKeith Rabois34:45

       Uh, John from Lennar and Opendoor. So John, John is the COO of Lennar, which is a very large publicly-

    4. HSHarry Stebbings34:52

       Okay.

    5. KRKeith Rabois34:53

       ... traded home builder. And he got involved in Opendoor fairly early actually. And I admittedly, I was nervous, uh, when we, you know, sort of took strategic money and had a board member join, uh, from re- from the real estate industry. But he's f- fantastic, absolutely fantastic in every possible way. Um, insightful management strategy, everything. Uh, so he has been in- incredible to work

17. 35:20 – 36:38

    Biggest insecurity?

    1. KRKeith Rabois35:20

       with.

    2. HSHarry Stebbings35:21

       Keith, what's your biggest insecurity as an investor today? I always, I always see your tweets-

    3. KRKeith Rabois35:25

       Um-

    4. HSHarry Stebbings35:25

       ... and I'm like, "You have, you have it all sorted." Like what does, what does-

    5. KRKeith Rabois35:29

       No, the biggest insecurity is I think you do not age gracefully as an investor. I think you get... Age is not your friend as an investor for lots of reasons, but... And so, and complacency is never your friend as a successful person at anything. The combination of aging in venture plus complacency is a really bad lethal product, uh, uh, combination. So I fear that I'm going to lose the ability to spot high potential founders that are not from central casting at the earliest possible stages of their company, that I need to meet them. So I need to have a network that identifies them, I need to meet them. I still need to fi- uh, find that signal. And every time I do find one, it... (laughs) I see a smile. They're... Like my friends and colleagues see a smile on my face. I'm like... Uh, you know, and the, and, and the reason why I react that way is, is like affirmation I can still do this job. But at some point, I was just mentioning to one of my favorite proteges ever at dinner recently that if I ever lose that ability, as soon as I feel I've lost that ability, I'm gonna have to quit.

18. 36:38 – 37:20

    What makes you choose someone to be a protégé?

    1. HSHarry Stebbings36:38

       Can I ask, you've got an amazing relationship with DeLeon and you, you are an amazing mentor to some. What makes you choose those people to mentor and have as proteges?

    2. KRKeith Rabois36:48

       Well, the one... Well, the most impor- the selfish version is the only way to scale yourself is to find people who can actually provide leverage and do things.

    3. HSHarry Stebbings36:56

       (laughs)

    4. KRKeith Rabois36:57

       So, (laughs) you know, like I, I, I, I, I would... It's not pure altruism, um, you know, it's like there's only so many things you can do yourself and you need to find people who are pretty damn talented, or you're not gonna be able to scale yourself into an organization or even a venture. Uh, so that's one, is basically find people that you think have the potential to allow you to scale it yourself.

    5. HSHarry Stebbings37:15

       I, I wanna move into a quick-fire, Keith. I'm aware of the time, so I'm gonna say a short statement and you're gonna give me immediate

19. 37:20 – 42:00

    Quick Fire

    1. HSHarry Stebbings37:20

       thoughts. Sound okay?

    2. KRKeith Rabois37:21

       Sure.

    3. HSHarry Stebbings37:22

       What's the hardest element of your role with Founders Fund today?

    4. KRKeith Rabois37:25

       Uh, identifying and hiring potential investors. As, you know, we age, Peter, Brian, me, let's say the GPs in the venture fund, who's the future of the fund? Do we have them internally or where do we go find them?

    5. HSHarry Stebbings37:40

       Three traits-

    6. KRKeith Rabois37:41

       (laughs)

    7. HSHarry Stebbings37:41

       You, you obviously have now children. Three traits you most want your children to adopt?

    8. KRKeith Rabois37:46

       Work ethic, tenacity, maybe those are related, and ambition.

    9. HSHarry Stebbings37:53

       What do you know now that you wish you'd known at the start of your career in venture?

    10. KRKeith Rabois37:57

        The price, the price and in value... The price and valuation just doesn't matter in, in traditional ventures, to even Series A. It's kind of the Peter Fenton line in Your 20 Minute VC of, "Valuation is always a trap." Which I didn't totally understand when I listened to it, but I think I now grok it.

    11. HSHarry Stebbings38:14

        What's been your single best returning investment?

    12. KRKeith Rabois38:18

        I've never actually exactly tracked it, but probably Airbnb.

    13. HSHarry Stebbings38:24

        When did you get into Airbnb? Seed?

    14. KRKeith Rabois38:26

        Uh, in the seed round with Sequoia, so you know, called three and a half million post.

    15. HSHarry Stebbings38:32

        Pff. (laughs) I miss those days. Uh, what would you most like to change about venture, Keith?

    16. KRKeith Rabois38:37

        Uh, great question. I actually don't want to change that much 'cause that would just mean more competition. Meaning, I like the fact that most venture is, is mediocre. (laughs)

    17. HSHarry Stebbings38:46

        (laughs)

    18. KRKeith Rabois38:47

        It's probably too large, truthfully. I don't think the size... Venture really is designed to be a pseudo-cottage industry because there is too much money chasing too few good founders. And I think that causes distortions which probably creates a sub-optimal number of funded, uh, successful companies. But I think it's a very complicated dynamic.

    19. HSHarry Stebbings39:07

        So I'm concerned we're gonna see the migration of all large growth funds, your D1s, your Tigers, your durables, to seed because obviously growth being where growth is. And we're gonna see price inflation at seed. Do you agree?

    20. KRKeith Rabois39:20

        I agree we'll see price inflation if that happens, but I don't worry that they're gonna be successful. The skillset required to invest at seed is utterly different, different and probably incom- completely incompatible with the idea of being a good growth or public market investor. The reason why is, at the end of the day, seed companies have no financial metrics. They probably don't have financial metric- uh, product metrics even. And so people who are excellent at diagnosing financial metrics, analyzing financial metrics, are a disaster in evaluating a keynote deck and a team and a vision.

    21. HSHarry Stebbings39:52

        You said the market is at average now. In a year's time when we have another chat, are we gonna be up, are we gonna be down? Where are we gonna be in a year?

    22. KRKeith Rabois40:02

        Great question. I can tell you how to derive the answer. I don't know if I know the answer. Which is, I think the only thing you need to pay attention to is the inflation rate of the United States. If the inflation... I- i- if the, if the inflation rate does not subside, interest rates are gonna have to go up. And if interest rates go up, public market tech companies will have to trade down. If inflation subsides, perhaps interest rates don't have to go up and possibly can go down, which would allow some degree of reinflation evaluations in the public domain.

    23. HSHarry Stebbings40:35

        Final one for you, Keith. Uh, what's the most recent publicly announced investment? And talk to me about why you said yes and got so excited.

    24. KRKeith Rabois40:42

        Great question. So I haven't made a new investment in 2022 in a company that's not already in our portfolio. I have co-led or led new rounds, doubling down on companies that are already in the Founders Fund portfolio, but-

    25. HSHarry Stebbings40:55

        Wh- why is that? 'Cause you were aggressive in '21. Is it because of the pricing in the market?

    26. KRKeith Rabois40:59

        Yeah, so I led 13 or 14 new investments or so, plus or minus, in 2021. None, you know, basically halfway through 2022. So, that's a sign, you know, of something. Uh, maybe it- (laughs) Uh, maybe, maybe it's good, though. You know, maybe I actually probably should be slowing down anyway, but it's good to have a natural correction. Um, but fundamentally, I think the last one we announced publicly is Found, which does bookkeeping, taxes, uh, and payments for SMBs, micro-merchants, led by Lauren, who I worked with at Square. She was the most important PM in the history of Square. Um, so she founded the company. Alfred Lin from Sequoia led the additional seed, Series A, and I led the Series B. Just had a board meeting yesterday. So if you want to join a company, I highly recommend it.

    27. HSHarry Stebbings41:48

        Keith, I always love chatting to you. Um, you should chat to me on shows like this instead of tweet back at me and make me feel terrible. (laughs)

    28. KRKeith Rabois41:55

        Sure, whenever you want. I'm available.

    29. HSHarry Stebbings41:58

        Man, thank you so much for this. You're a star.

Episode duration: 42:01