Comparative Advantages | Keith Rabois, Managing Director at Khosla Ventures | Ep. 2

Jack Altman 0:00 [upbeat music] All right, Keith, thanks so much for doing this. I appreciate you making time.

Keith Rabois 0:03 Pleasure to be with you.

Jack Altman 0:04 I know you're busy. I know there's a lot of flying going on, and I'm committed to talking fast to keep up with you during this podcast. [laughing]

Keith Rabois 0:09 Ask the questions as slowly as you like.

Jack Altman 0:11 I will. Very fast, though. Um, okay, so the, the first thing I want to talk to you about is the whole idea of investing in outliers. And, um, I saw you recently talk about something that resonated with me, where you're like, "You know, the top fifteen basis points of people, those are the founders that, like, make the companies that matter, both to the world, probably also, like, to venture returns." The question I have is: how do you marry that with being, like, a very early-stage, pre-product-market-fit investor? And, um, maybe to put a little bit more context around it, we all kind of know what, like, great looks like when you meet, like, a fully developed founder, like the Collisons or Brian Chesky. Like, today, like, I think anybody could walk into the room with them and be like, "This person's amazing." But you operate, for the most part, at the very early stages. And so just talk to me about, like, what makes great... Like, how do you know what great is at those early stages? Like, what's inside your brain as you're, like, saying that, talking about pre-product-market-fit investing?

Keith Rabois 0:57 Well, the reason why I think it's wonderful to be a pre-product-market investor is very few people can do it. So, like, as you point out, as companies grow up, as founders mature, many, many investors can figure out these people are excellent, this company's excellent, the P&L's amazing, et cetera. So in venture, the returns are mediocre across the venture industry. So the only way to produce great returns that are impressive to LPs is you have to have an alpha, you have to have a comparative advantage, competitive advantage of some sort. And so mine is to find founders when they have nothing but a keynote deck, because there is nothing else for people to go on. There's no other-- There's not maybe even a product, so they can't even look at the product. There's almost surely not product metrics and absolutely not financial metrics. So I think this is the most amazing thing for me, because what do other investors do except throw up their hands [chuckles] and kind of barf? Um, so you want to compete, like, you know, kind of a Peter Thiel-ism, compete where there's no competition. Truthfully, there's virtually no competition on a keynote deck and founders for undiscovered founders. Once you've created, you know, X billion-dollar company, you're gonna start your next company, sure, there's competition. You're gonna start another company, I'm sure there'll be competition to invest in you around. But you're talking about people starting their first company from scratch, and they just have a keynote deck and a co-founder, that's awesome, because almost nobody else wants to do what I do. So then the question is, can you do it well? Like, it's kind of like you have to be contrarian and right. [chuckles] Not just bet on people, like, but you also have to be right. And, you know, a reasonable fraction in, in an early stage of investing, call forty percent.

Jack Altman 2:23 Yep.

Keith Rabois 2:23 Forty percent is pretty much hall of fame, you know, Ted Williams kind of stuff, if you can be that accurate.

Keith Rabois 2:29 So then the question is, what are you looking for? And to me, the, the best I can describe it is every founder that really succeeds has a superpower, and that superpower is something like they're in the top one to ten basis points in the world on some trait. So they're the most tenacious person you've ever met in your life. They're the most disciplined person you've ever met. They're the smartest person. They're the greatest salesperson. It can be any one-

Jack Altman 2:53 Yep

Keith Rabois 2:53 ... but they have to have a trait.

Jack Altman 2:54 And it has to match the company?

Keith Rabois 2:56 It ideally matches the company. If you can match it to the company, then it's, like, so set up for success-

Jack Altman 3:01 Yeah

Keith Rabois 3:02 ... that's like, "Please take my money right now, you know, do not pass Go. Don't, don't meet with my partners. Here's the check."

Jack Altman 3:07 Yeah. Yeah.

Keith Rabois 3:07 If it's just the trait without necessarily directly matching the company, it's still probably a pretty good investment, actually. It's like, how many dollars at what price? But if it absolutely matches one hundred percent, like, lean in, lean in, lean in. The other possible alternative is a Venn diagram overlap that you never see, and I'll give you a couple examples, two traits that don't usually go together in people. So I remember when I first started working with Max Levchin in late 2000, [chuckles] um, Reid Hoffman said to me, to prepare me for my first one-on-one meeting with Max, that Max is a world-class technologist and a world-class strategy, business strategist. And he's like, "There's five of those people or less in all of Silicon Valley."

Jack Altman 3:46 Mm-hmm.

Keith Rabois 3:46 And this is amazing. This is December of 2000, so before Max was famous, before PayPal was successful, we were a complete mess. But Reid exactly nailed Max's combination of superpowers, is those two traits don't go together. Jack Dorsey, another very successful founder, Jack actually can do three. He's actually a pretty good technologist, he's a world-class design and has world-class design taste, and he's a very strong business strategist. So you marry three traits that don't go together, that's another reason to invest. But those are the only two, in my experience, is, like, you have to have that. If you think about it, to even globalize this, it's not about founders, it's about anybody who succeeds in a competitive industry. You're a professional athlete. You want to be the best NBA player of all time? You almost surely have some abilities, some traits, some body composition that's very different. Or you want to be a world-class DJ, there's a reason why... Or in politics, there's a reason why Donald Trump has been elected President of the United States twice, despite a lot of people hating him: because he has superpowers. And you can actually-- I've spent the last couple years trying to isolate his superpowers, because I was like: I want to understand, like, why does he keep winning-

Jack Altman 4:46 What are they?

Keith Rabois 4:46 ... despite the whole-

Jack Altman 4:47 Yeah.

Keith Rabois 4:47 So I think there's two. One is he understands marketing, and that's easy to say, but very rare. And I'll give you an illustration, a very specific illustration. Trump actually cares about what his supporters look like. Now, that sounds crazy if you think about politics. You're like: "Wait, wait, why do I care what my supporters look like?" But then, if you turn, turn both our brains on our marketing, of if we're gonna cut a commercial for any one of our companies-

Jack Altman 5:10 Yeah

Keith Rabois 5:10 ... if Nike was gonna cut a commercial for some new, you know, product, would they care what the athletes in the commercial look like? Of course they would.

Jack Altman 5:16 Yep.

Keith Rabois 5:17 So Trump has instincts about what central casting looks like and how that becomes aspirational for other people, and he just applies that to politics, and no other politician I've ever met has been that strong and that instinctive, and it, it pays dividends.

Jack Altman 5:30 Is it instinct, or do you think he could articulate?

Keith Rabois 5:33 No, he can definitely articulate.

Jack Altman 5:34 Okay.

Keith Rabois 5:34 When he first met me, he was very specific about, "Oh, you need to... You know, you look great. Do this, this, uh... I need more supporters that look like you."

Jack Altman 5:41 Yeah.

Keith Rabois 5:42 But when you think about it, like, of course, if we were launching a consumer product, that's the first thing we would think. Like, if we were gonna have a product hero shot-

Jack Altman 5:48 Yeah

Keith Rabois 5:48 ... like, let's- if I was promoting this sweater, if I was, like, promoting my Jack Archer brand pants, of course I would care-... what's the model? What age is the model? You know, even sometimes nationality and race. Like, all these things go into any marketing campaign that any company in Silicon Valley uses. He just applies it to politics. The second thing, and this explains some of his, uh, partnership with Elon, is he just asks a lot of why questions. Why, why, why? And most people in politics don't. There's a consensus in politics that this is the way you do things. This is the way you set a budget, this is the way you do it. And he just doesn't accept that, so he, like, keeps probing, like, "Why? Well, why do we have this deal?"

Jack Altman 6:22 Yeah.

Keith Rabois 6:22 You know, "Why do we pay this money to these people? Why, why, why, why, why?" And usually the answers aren't that great.

Jack Altman 6:27 That's, like, a key hallmark of, like, a beginner's mind, I feel like, 'cause the people who just keep asking.

Keith Rabois 6:31 And they ask it six times. So what makes Elon exceptional is it's not the one or two levels of why, it's like, "Why, why, why, why, why?" Until you get deep to the, quote, unquote, "metal." And usually as you do, you find out that there's some mistakes or some things that can be better. And not always, sometimes there's a Darwinistic evolution of really good ideas, and they're sound, but I bet you in politics, that's less than half the time. And so what Trump's very good at is, and this is unsettling to a lot of people who've made their career in politics, is unsettling the people who've built this consensus. And as he probes, he's like: You know what? This makes no sense. And then, then, of course, you have to find a better solution, and Elon's, you know, been phenomenal over twenty-five, thirty years at finding better solutions. But the first thing is to find out what's wrong, what's broken, what can be better, and why, and then try to build the solution.

Jack Altman 7:16 It's sort of interesting 'cause I, I always felt like during Lattice, I was like: It's weird how we're, like, pretty mechanical, and we try to really inspect all these other things, but then when it comes to hiring, it's just, like, people take this pass. Like, "Eh, I like the guy," you know, "This felt good." And I think the same is true in venture, where people are like, "This founder's spiky. You know, like, I like their vibe, like, I feel good about them." And it's sort of like most people think they're a better-than-average driver. I would think most people think they're a better-than-average picker of people and so, like-

Keith Rabois 7:41 Yeah, most people are much worse.

Jack Altman 7:42 Not many... Right. Yeah, yeah.

Keith Rabois 7:43 Most people are much worse. Your brother happens to be really good at it, right? But there's very few people... I actually think about, uh, I've thought about, you know, I've been in venture and in tech, I guess, combined, for twenty-five years now, and so I've met a lot of people 'cause at, when I start, when I started my career, a lot of people who built Silicon Valley were kind of at the end of their career. So I have, like, a long, you know, perspective of, like, fifty years combined of, like, people at the end of their career-

Jack Altman 8:02 Yeah

Keith Rabois 8:02 ... and now through the people in the beginning of theirs. I can count on, like, one hand the number of people who consistently can identify founder talent from the very beginning.

Jack Altman 8:13 Yep, and that-

Keith Rabois 8:14 And your brother's one of them.

Jack Altman 8:14 He definitely is. And I feel like... Well, and you, you are, too. I mean, you've done it many times. And I feel like so often, the lack of willingness or ability to get specific with understanding this thing that is, like, sort of like the center of the venture craft, and it's just like: I'm gonna go off my feelings. And so I guess one of the things I'm trying to learn as I, like, start now doing this, you know, more and more professionally, obviously, is how do you go from, "This feels good, I'm trusting my instincts," to being really excellent at it? You kind of talked about, like, are they really world-class and excellent at something, but may- maybe to, like, make it concrete, you and Vinod obviously have both... You know, this is two people who really know what they're doing on this. When you guys both meet a founder and, you know, you're trying to decide if this person was good or great, like, what is some of the language you use to sort of, like... What is your discussion like? How do you talk about, is this person ninety-nine, ninety-nine point five, ninety-nine point nine, nine, nine, nine? Like, how do you talk about it?

Keith Rabois 9:03 Well, yeah, it's a great question 'cause Vinod is actually two things, and one of the reasons why he's been so extraordinary. He's a technology investor and a people founder investor, and that's rare. So he understands the implications of new technologies better than most, and so he can make technology-driven investments, too. I can't do that. I don't wake up in the morning and read about some new technology and say, "Oh, my God, I'm gonna go find five new-"

Jack Altman 9:23 So you don't even try that? You don't even think that way.

Keith Rabois 9:25 No, no, 'cause there's so many people that are better than me at seeing a new technology and figuring out all the implications to it. There's people, like, I'd say Vinod is extraordinary at that. Someone like Marc Andreessen is probably pretty good at that. That can be a great way to be an investor if you're better than other people at understanding technology breakthroughs and what the implications are.

Jack Altman 9:41 Can I ask one more quick question?

Keith Rabois 9:42 Yeah, yeah.

Jack Altman 9:42 Do you need to be afraid of not understanding a market then? Or do you... Uh, are you just like, "I'm just gonna be horse blinders. If this person's amazing, I don't care what this market is?"

Keith Rabois 9:50 Yeah, I will learn, learn along the way. [chuckles]

Jack Altman 9:53 Yeah.

Keith Rabois 9:53 Um, I, you know, I think it's kind of interesting... At least let's

Keith Rabois 9:57 divide venture investing into three components. There's meeting the right people, sourcing sort of thing. There's definitely the assessment, evaluating. There's the winning, 'cause some things are competitive, some things aren't, actually. And then there's the, can you increase the probabilities of success or the amplitude of success by being, like, a consigliere?

Jack Altman 10:14 Yep.

Keith Rabois 10:15 I think in areas I know better, I actually can probably help more on the consigliere piece, like financial services, payments, whatever. I can probably be more useful to a founder after I start working with them because I've seen where a lot of bodies are buried.

Jack Altman 10:28 By the way-

Keith Rabois 10:28 I've tried a lot of things by hand.

Jack Altman 10:29 You just mentioned the only thing to help, you just said, by being a consigliere. Is there noth- do you think that's basically all that matters from a VC to help a company, or do you believe in some of the other stuff, too?

Keith Rabois 10:37 I think for the best founders, being a consigliere is, like, ninety-nine percent of the value. So when I pitch a really world-class founder-

Jack Altman 10:43 That's what it is

Keith Rabois 10:44 ... I'm like, "Why take my money versus-

Jack Altman 10:45 It's me as a partner.

Keith Rabois 10:45 It's like, yeah, I'm gonna, I'm gonna be someone, when everything's a mess, who can give you feedback that occasionally is useful. And the really best founders actually ask for conceptual frameworks, not answers. So, like, for example, my friend Max Roads at Faire will always start the question with: "I'm debating X versus Y. Do you have a conceptual framework for navigating that?" And, you know, the answer is sometimes yes. Or, like, someone I remember when I first started working with Patrick Collison in two thousand and thirteen or so, we would sit down for brunch on a Sunday, and he'd come with a list of five to ten questions, and I would go to bed really early the night before to make sure [chuckles] I was very well rested. I'd be, like, in bed by nine o'clock because I knew he was gonna only ask the questions that he was, like, debating or struggling with, 'cause if, if they were easy answers, he would've already executed them, and they were not... He'd never raise them. And then if he's go through the five or six, I would start laughing and, like, hysterically, because I'd be like, "Oh, my God, I can't wait to see what's next," [chuckles] 'cause they're increasing the level of difficulty. But on the five or six, if I could make his eyes light up twice-

Jack Altman 11:41 Yeah, you feel good

Keith Rabois 11:41 ... it'd be, like, the most home run meeting ever.

Jack Altman 11:43 Mm-hmm.

Keith Rabois 11:43 'Cause he's- it's like coaching Steph Curry.

Jack Altman 11:45 Right.

Keith Rabois 11:45 You know, like, Steph Curry knows what he's doing. He's very good at what he does.

Jack Altman 11:47 But a coach can still help.

Keith Rabois 11:48 A coach can occasionally-

Jack Altman 11:49 Yeah

Keith Rabois 11:50 ... you know, light up-

Jack Altman 11:51 Mm

Keith Rabois 11:51 ... and, and, and, and allow the person to reflect on it.

Jack Altman 11:53 That's a good point.

Keith Rabois 11:53 So I think that's what the real goal is, is to be a good consigliere. And sometimes I describe it by metaphor as, like, a cartoon mirror in a haunted house. So sometimes what you're doing is exaggerating the positives or the negatives and playing it back, 'cause, like, the forest and trees kind of thing. So I'm exaggerating what I see and saying, "Is this what's really what you want?"

Jack Altman 12:13 Sorry to stay in this little eddy of the conversation, but do you think that your experience as a COO, where you did that kind of work with founders, was actually more aligned to being a VC in some ways than being a CEO?

Keith Rabois 12:24 Yes, I think so. I think because I never really want to be the visionary, um, for the most part, and I'm mostly-... trying to help someone execute their vision.

Jack Altman 12:33 Yeah.

Keith Rabois 12:33 So you don't have this proverbial conflict. Like, when I first entered venture, people, like, had this, you know, kind of concern that people talk about when successful, you know, executives become VCs, that they're gonna try to control. And it's like, if you're a COO, you've never really been in control, you never wanted to be in control. Like, I partnered with someone like Jack Dorsey, or I partnered with someone like Reid Hoffman, or I partnered with someone like Max Levchin or Peter Thiel, they had very strong will and very strong vision.

Jack Altman 12:57 It's closer to being a board member then.

Keith Rabois 12:58 Yes.

Jack Altman 12:58 Yeah. Yeah.

Keith Rabois 12:59 It, it actually is a good proxy. And, you know, I hadn't really double-clicked on this, but as you think about hiring for here-

Jack Altman 13:03 Mm-hmm

Keith Rabois 13:04 ... if we do hire ex execs, I think it's better to, possibly better to hire num- the number twos than the number ones.

Jack Altman 13:11 Yeah.

Keith Rabois 13:11 Because you don't really want to ever get in the way of a founder's vision, at least in my view. Like, when I choose to invest in a founder, it's because I believe this person is compelling, has these traits, and will be the CEO forever, or for, you know, as long as they... Their health, their family, whatever their obligations will allow for, or I want to invest personally. As a fund, other partners here may invest where they think we're gonna change the CEO at some point. We do a lot of deep tech investing. Some of the deep tech e- emerges from universities. Not all of those professors wanna be a CEO of a large organization forever. So we do have, you know, a reasonable number of our portfolio companies where we do change and add a CEO, but that's not for me.

Jack Altman 13:49 Yeah.

Keith Rabois 13:50 It won't be my investment. I will not be the cheerleader or the point person for those kind of investments.

Keith Rabois 13:54 Back to where you started, though, actually, interestingly enough, I've... Vinod and I have worked together as VCs for seven years now, just over seven, and he was also on my board at Square. Interestingly enough, I don't know if we've ever de- ever really disagreed about a founder's ability. Maybe shades of grades between, like, maybe I'd grade A plus, and he'd say A.

Jack Altman 14:15 And is that because you both read it the same at the f- at the outset?

Keith Rabois 14:17 Yes.

Jack Altman 14:18 Or do you talk, do you talk it through? Do you still, even when you're similar, do you talk about it, or-

Keith Rabois 14:22 We do, we do discuss it, but it's interesting, just generally what happens on, like, a partner presentation level is a p- a company will come in, present, and there'll be, you know, the five MDs here, plus the rest of the investment team. And then after the, you know, founder finishes, we'll discuss, like, "Should we invest, and why?" Vinod and I have had very different opinions on whether we should invest, at what terms, at what price, you know, and which companies, but I can't recall a specific founder where we didn't have the same reaction, which is really fascinating because, like, seven years times partner meetings, fifty weeks a year, hundreds. Um, whereas, like, I definitely can remember very specific illustrations with some of my partners, like Samir, who's a very good investor, or David Widen, who's a very good investor, where we did grade very differently, and, you know, one of us might have been right, the other one might have been right. But interestingly enough, Vinod and I, like, seem to have the same constellation of assessment.

Jack Altman 15:13 I guess maybe the last thing I'm just w- would be interested to tease apart is, besides this concept of we gotta find the thing they're world-class at, is there any other... Is there anything else that's happening, concluding at the same read as Vinod?

Keith Rabois 15:27 On the founder level, no, but then we may discuss, like, the market opportunity, the business opportunity, the angle, the initial entry point, 'cause, like, usually inertia is the worst thing for a startup early stage, right? The world doesn't like you, doesn't nee- think it needs you, and you've got to invert that. Like, you remember this at Lattice, like, you have to create momentum from scratch, and that's the most important thing by an order of magnitude a founder does, is invert inertia, literally in a physical sense, like, the world... You know,-

Jack Altman 15:51 Yeah

Keith Rabois 15:52 ... rust stays around body, rust stays at rest. You've got to create the momentum, and you have limited time and limited energy, capital, and people to do that. Those kind of discussions, Vinod and I certainly can have different views about, like, "Oh, this market makes a lot of sense," or he may see an angle to enter a market that's better than what I would do, or more insightful, or where I'm actually struggling with an answer, or vice versa. Or I may believe in this current founder, their approach actually will pay dividends, and he might not see it. But if you believe in the founder, for a reasonable-sized investment, that can still make sense. So let's say I brought in a founder tomorrow that Vinod thought was stellar, but he thought the market was stupid or the approach was dumb. For two million dollars, we would pro- we almost surely still invest.

Jack Altman 16:37 Yep.

Keith Rabois 16:37 For ten million, we might not.

Jack Altman 16:39 Right.

Keith Rabois 16:39 And for twenty million, we almost surely wouldn't.

Jack Altman 16:41 Yep.

Keith Rabois 16:41 So it depends on the size of investment, how much you can just go with, like, the founder's right, they're great, they're gonna figure this out-

Jack Altman 16:50 Yep

Keith Rabois 16:51 ... versus, like, there's line of sight to something that seems interesting.

Jack Altman 16:55 I wanna talk about decision making now sort of more generally, um, which is, like, you know, on some level, like a VC firm is sort of just like a... You know, the, the whole product is decision making on some level. You know, at Founders Fund, I've seen people talk about how, you know, decisions kind of often will get bubbled up from junior people, or how you have to, like, like, a one million dollar check, a five million, a ten, et cetera, you know, and, and whatever it is. There's, there's a way that decisions happen there. There's, you know, some way it happens at Khosla. First, I'm curious about, like, you know, if you could talk about a little bit of those differences, but then maybe at a more fundamental level, like, how important is the way venture funds make decisions? Like, is that a very important part of, you know, a venture capital firm's activities, or is it just sort of like a, an auxiliary thing, but it's not really, like, the main show?

Keith Rabois 17:36 Well, I think the biggest difference between, like, let's call it sales, is, you know, s- sales, to some extent, you want all your customers [chuckles] right? Like, in, in a target market-

Jack Altman 17:43 Yeah

Keith Rabois 17:43 ... you want as many customers as possible. Assessing or decision making in venture is the key ingredient. For, for a fund that has a brand, you know-

Jack Altman 17:50 For a fund that can win enough good opportunities-

Keith Rabois 17:51 A fund that has, like, a good deal flow, let's say.

Jack Altman 17:53 Yeah.

Keith Rabois 17:53 Just eliminate the sourcing-

Jack Altman 17:54 Assuming you see in, as-

Keith Rabois 17:56 A reasonable fraction of good stuff

Jack Altman 17:57 ... assuming you can win things, then it's about decision.

Keith Rabois 17:58 Then, then it's, like, about decision making. And, like, let's put it this way: when I have sleepless nights, they're ninety percent about work and ten percent everything else in my life. They're mostly about making the wrong call. Like, ma- and I've talked about a few of them publicly on podcasts, where, you know, X v- versus Y, and then I could lose sleep for a decade.

Jack Altman 18:16 And you worry more about past, bad passes?

Keith Rabois 18:18 Well, you try to, um, figure out why, so you don't replicate the mistakes. Let me give you a tangible example I've talked about publicly, because it is one where rarely I made a mistake and was able to learn from the mistake and then apply it to a second company. I've talked about this previously. I had basically a signed term sheet to lead the seed round for Robinhood, and then they came back to me after we had, like, at least a handshake, maybe a signed term sheet, and said, "Would you... We want you to join the board." And this is, like, about my first year as a VC, so I didn't-... have, like, as much authority myself. So I went back to my partnership, and we had a discussion about, you know, should I join the board? And the answer is no, internally, which makes sense. You literally add a VC like KV or any competitor of ours, you can't join the board for every seed company. So I went back and said, "You know, I can't do this, I'm sorry." And they're like, "Well, we really wanna make other choices then, 'cause, you know, you won't be as involved," and blah, blah, blah. Whether or not, good decision. Anyway, so RunUp, not investing.

Jack Altman 19:13 Dang.

Keith Rabois 19:14 Three years ago, and obviously, probably because [chuckles] they're doing really well.

Jack Altman 19:17 That's tough.

Keith Rabois 19:17 Um, so all I would've done is mess it up probably, but in any event, [chuckles] you know, with hindsight, like, an, an insanely stupid decision.

Jack Altman 19:22 It's a good company. Yep.

Keith Rabois 19:23 Two million at twenty post or something.

Jack Altman 19:25 Ugh!

Keith Rabois 19:25 Okay, so yeah, like-

Jack Altman 19:26 Listen, we don't have to-

Keith Rabois 19:26 You can spend a lot of this late sleep-

Jack Altman 19:28 Yeah.

Keith Rabois 19:28 My eight sleep-

Jack Altman 19:28 We could quickly calculate it.

Keith Rabois 19:29 Late sleep has a Robin Hood setting.

Jack Altman 19:30 We can look it up after that.

Keith Rabois 19:31 Yeah.

Jack Altman 19:32 We're doing it.

Keith Rabois 19:32 Uh, in any event, two, two or three years goes by, and my friends at Faire are raising a seed round. Um, Jeff and Max had worked for me, uh, at Square. You know, they were entering YC, so they were getting some attention. They obvious- obviously it was set up for me to lead the seed round, but they came back with the same condition: "You must join the board."

Jack Altman 19:50 Mm-hmm.

Keith Rabois 19:51 And I'm like: Hmm-

Jack Altman 19:52 Yeah, I'm not messing up again.

Keith Rabois 19:52 I've got burned this [chuckles] before.

Jack Altman 19:54 Yeah.

Keith Rabois 19:55 So what I did is, and now the statute of limitations has passed, I said yes without consulting my partners. I'm just like: I'm not gonna tell anybody. I'm just gonna join the board. [chuckles] And so it turns out to have been a very wise decision, and, like, the rationale for actually not telling my partners was obviously I got burned before, but, like, you know, like, I try to be intellectually honest with my partners here. That's why we have a great, like, relationship, and we all work well together, and it's based upon trust, is Max and Jeff were close friends of mine. We were soccer buddies before Square, worked at Square. I was like, "They're gonna text me twenty-four/seven whenever they want. I'm gonna meet with them whenever they want."

Jack Altman 20:26 This is a formality.

Keith Rabois 20:26 So the incremental joining the board for them is, like, meaningless, and so I really felt that intellectually, honestly, that, y- you know, I'm gonna meet... If Max asks for a meeting on Sunday, I'm gonna meet with him on Sunday. If he calls me Monday night at ten PM, I'm definitely gonna, you know, talk to him. So there was no real drag coefficient in terms of effort, where typically a board member there is more. So I felt like, you know, I'm just gonna do this, and then, of course, it's worked out well. The company's great, you know, very happy [chuckles] and everybody here is very happy. [chuckles] But it was... It's rare when you can take the very specific lesson and apply it and not make the same mistake.

Jack Altman 20:58 But so basically, your kind of view is once you get past, you know, a threshold where relative to your fund size, you see enough, you can win enough, decision making really is, like, the main thing to get better at.

Keith Rabois 21:07 Oh, yeah, like, so for example, um, there's one that we should have done here. It's a very well-regarded private company called three to five billion on paper, um, where we had a relationship with the founder from p- his prior life, and we collectively decided not to, not to invest. And then we recently, it's about five years ago, I was here at the time, and we were recently talking about, how did we miss this? 'Cause they came in to present it, and for whatever sort of reasons, we didn't, we didn't invest. So we actually pulled up our partner meeting notes from, like, two thousand, uh, probably eighteen, and read them to see, like, what did we do wrong? Like, why did we miss this? Um, and, you know, so we, we try to learn from poor decisions if we can.

Jack Altman 21:51 When you're meeting some of these early-stage things, like, a lot of times you, like, you know, there... On one end of the spectrum, there's what you just described at Faire, like, these are your friends. You, like, you're sure they're good. There's a lot of other situations where you just, like, don't have the time, where, like, a deal is moving quickly. It, like, looked pretty good, but you're not a hundred percent sure. In my head, what I assume is you must have some gradient where you've got some deals where, you know, whether it's Ramp or Faire, the day you do it, you're like: I know this is good. And then you must have some deals where the day you do it, you're like: I'm actually, like, just genuinely not sure. You know, you mentioned before that, like, forty percent is, like, a stellar hit rate. Do you think of your job basically as a function of, I need to do a certain cross-section of these very sure and not so sure things no matter what? Or if you had a smaller fund, would you only do the things you were very sure about, and then you kinda have to, like, move down the stack as a result of, like, the situation you're in? Like, how do you think about this?

Keith Rabois 22:42 I, I... Yeah, I think it's a fascinating question. Ninety percent of the best stuff I've ever invested in as an angel or as a VC, I was dead sure of. So I think the implication to that is if the fund were smaller-

Jack Altman 22:52 If you had- if your job was-

Keith Rabois 22:53 Less money or less time-

Jack Altman 22:54 If you ran a one hundred million dollar seed fund, would you-

Keith Rabois 22:56 I would probably only go for the, "I'm pretty damn sure." So, like, for example, when, um... I think Lonsdale has told this story publicly, that when they started Palantir, I was the only person who thought it was a good idea, literally other than the four co-founders. I was like: This is so smart. Like, boom. Airbnb, like, instantly.

Jack Altman 23:13 Yeah.

Keith Rabois 23:13 Brian will tell you, like, I, three minute after his monologue, three minutes in, I was like: This is the coolest thing since YouTube.

Jack Altman 23:17 Which, by the way, that's a good example of a hard one that a lot of really smart people passed on.

Keith Rabois 23:20 Everyone, everybody else, like-

Jack Altman 23:21 Yeah

Keith Rabois 23:21 ... was totally wrong. There were people who thought they were cool, interesting founders, like Paul Graham talks about this publicly, but nobody else thought it was a good idea. I was like: No, literally, this is the coolest thing since YouTube, and I was like, three minutes after, I was like, "We need to, I need... We, Kevin Hartz, Javaid, and I, need to invest now." So I knew it right away. YouTube literally took, like, less, less than the barbecue where I found out about it. Like, Javaid actually literally walked me into his bedroom to show me every video at the time, literally every video that was uploaded to YouTube, and I was like: I wanna invest right now. Like, period. Um, so, like, usually, like, I've had that instinct of like, wow, uh, at the time for the really, really best stuff.

Jack Altman 23:56 Have you ever gotten shocked by something that you weren't good-

Keith Rabois 23:58 Yeah, I ca, I ca-

Jack Altman 23:58 ... that turned out to be amazing, or?

Keith Rabois 24:00 Oc- occasionally, but then obviously didn't think it was that not good, 'cause I wouldn't have invested.

Jack Altman 24:03 Maybe asked differently, if you looked at your whole... If every day that you invested, if you said, "Okay, put the, the day you wired the money, put this in a quartile for yourself," do you think that you would accurately predict how good each basket was?

Keith Rabois 24:14 M- mostly yes, or at least barbell wise. Like, the top stuff, yes. And then would there be some stuff actually [chuckles] maybe at the tail that would surprise you? So that would be a, a little bit interesting to actually study.

Jack Altman 24:26 Yep.

Keith Rabois 24:26 Like, actually force the discipline of ranking one to ten. Like, how good is this on day one? And then, you know, five to ten years later, looking at the stuff that really had high conviction, Ramp was a very high conviction incident. Like, they started projecting their notes in, you know, DAC, just notes. In, like, a couple of minutes in, I was, like, in total sales mode-

Jack Altman 24:46 Right

Keith Rabois 24:46 ... like, instantly, like, boom. Same thing, uh, I'll tell you a funny story about this company most people don't know, but it's really phenomenal in, uh, Europe called Trade Republic. It's like a better version of Robinhood, but for Europe, and it's phenomenally-... great company, but I didn't even wanna take the meeting. I was like, "Europe, Robinhood for Europe, blah, blah, blah, blah, blah." So my colleague at Founders Fund, Matthias, found this company in Berlin, and he's like: "You need to meet them." And I kept trying to avoid it, like, literally, "Do I really have to do this? Do I really have..." You know, kind of thing. And anyway, we sit down in this conference room in Founders Fund in February or March 2019, and, um, founder Christian sits over there, and three slides in, I was like: "Oh, my God, this is the coolest thing ever." And so I went the rest of the meeting in full sales mode. Like, full, like: "Yeah, you know, I can help with this, and this, and this, and this," you know, connect the dots. I walk out of the meeting, and so I'd only been at Founders Fund for about a month. I walk out of the meeting, and, like, Matthias kind of taps me on the shoulder. He's like: "What happened to you?" And I'm like: "What are you talking about?" He's like: "You didn't even wanna take this meeting, and, like, you're in love with this thing." [chuckles] I was like: "You just found the best founder in the history of Europe."

Jack Altman 25:51 Wow!

Keith Rabois 25:52 And I knew, like, three slides in, and he will be the best founder in the history of Europe.

Jack Altman 25:55 Wow, that's crazy. Yeah, I, I mean, w- as I'm listening to this, I'm think... W- what was going through my head was connecting back to, um, you know, as an inv- as an individual investor, you have some comparative advantage, and you just need to, like, s- get yourself into that zone of genius as often as possible. And what I was thinking about is, like, as a fund shape, you also have comparative advantages. And so, like, you know, as I, as we were talking about that, I was thinking, well, it's actually, in some ways, a comparative... There, there's a disadvantage that comes from being large, which is that, like, you know, you just, you've got some constraints. And so, like, you know, that would say, maybe to me, as a smaller fund manager, I should... You know, what I would take away from this conversation is just, like, act when you have more confidence. You must have some huge advantages from being, th- like, being a big fund, too. I'm curious what you experience as, like, the comparative advantages, not from you as an investor, but from Khosla as an entity and the size thing.

Keith Rabois 26:42 So let's

Keith Rabois 26:43 talk about... I'll, I'll give you a really concrete one, which is related to AI, which is a very, you know, important topic. I am certainly not a master of AI, um, not an AI investor, per se. Since I've come back to KV, I've made two and a half, like, significant AI-based investments, and the only reason I had conviction and confidence to pull the trigger on two of them was we at KV are very expert at AI. My- I have, like, these three partners here who know AI really cold, Vinod, Sven, and John Chu. And so what I feel I can do is if I find a founder who's in the AI space, I can run my normal Keith algorithm through the founder.

Jack Altman 27:19 Yep.

Keith Rabois 27:20 But I can then get air cover from my technical colleagues, Vinod, Sven, and John, who know AI, and can ensure that this, this product is differentiated, that this is the best approach to solving this product space through AI, and that there's nothing better out there. Two of the companies I invested in, I never would've been able to, with high conviction, lead a meaningful round. Like, I might have led a seed round, but I definitely would've led a Series A or B, uh, without, without John, Sven, and Vinod's involvement. So I get the leverage. Same thing in health, like, we, we have some people here who really understand digital, pharmaceutical, and, you know, actual all versions of healthcare. And so if I find something interesting in health, I run it by one or two of my colleagues, and then I can still apply my normal, "Keith, is this founder amazing?" But I also know I'm not making a mistake.

Jack Altman 28:07 Sean Maguire, when we just did a podcast the other day, just said something that really resonated with me on this, which was basically the analogy was that, you know, in math or chess, if you're, you know, ninety-eighth percentile, you can't tell the difference between ninety-nine and ninety-nine point five. You can't tell the difference between people above you, but if you're ninety-nine point nine, you can tell the difference in people below you, and I thought that was really interesting. And this would be the equivalent, is, like, you would know, like, a... You know, in AI, you might know, like, a charlatan from a reasonable person when you see it, but you wouldn't know world-class from-

Keith Rabois 28:34 Right, exactly

Jack Altman 28:34 ... really very good.

Keith Rabois 28:35 So even when we post-investment, one of the areas we do add value at KV on AI companies is people are building out AI teams, or they need their first leader, of a, a true AI leader, to build out, you know, an AI function. I can't do that. Like, I don't know how to assess, like, is this really the right person? I can look at, you know, some credentials and things like that, and then triangulate, seems directionally right, directionally wrong. But if this is a really important company for us, I will have either Sven or John or Vinod interview the candidate, and then therefore I get the benefits of both, 'cause they can grade ninety-nine point nine, ninety-nine point five, ninety-nine, ninety-eight, where I can't.

Jack Altman 29:11 Are you able to use the fund size itself to your advantage, too, in any cases? Like, the best example to me right now at the moment is, like, the way Thrive is using their fund size to their advantage in a very effective way. There's other things where some funds are, you know, not doing these sort of like, "We do premium assets," and that's the end of the story. I've seen others using, you know, their fund size to do, like, new products and offerings and things like that, but I'm curious if you experienced the relatively larger fund as an advantage directly.

Keith Rabois 29:35 Yeah. The way we think about it at KV, where there is a real advantage, is because we like to back bold investments, bold ideas, ambitious founders, and really early, is not all the things we invest in are gonna move to consent, uh, being appreciated by the consensus of-

Jack Altman 29:54 So you can take it through multiple rounds?

Keith Rabois 29:56 We can take it through multiple rounds, until... You wanna have an inflection. Like, this is a good Peter Thiel point, is you don't wanna stay contrarian forever. [chuckles] Like, to be really successful, eventually, you need consensus that this is a good product, good, you know, good thing to adopt, good thing to pay for. So you wanna convert contrarian to consensus and then take advantage of that momentum. That in-between step, there may not be investors that really appreciate you until you get, uh, you know, somewhere down that curve. So having a lot of, you know, a fair amount of capital, if we have conviction about the opportunity that's better or as good as when we first led, we have conviction about the founder and the team that's as good or better than when we first made an investment, we can double down, triple down. Now, at some point, we're gonna want you to prove that there's a real there there, that the world wants this. Like, eventually, you have to get to the world definitely will want this and appreciate it, and then other people's money is great. But we can definitely do that, and we do it frequently.

Jack Altman 30:47 Which I guess also aligns to you guys doing more sort of hard tech investments.

Keith Rabois 30:50 Yeah, deep tech.

Jack Altman 30:50 Yeah.

Keith Rabois 30:51 Like, the milestones are different. The milestones that other people not, that financial investors can appreciate are gonna be further out. So you need to be able to fund or be able to partner with people that have the same criteria-

Jack Altman 31:02 Yep

Keith Rabois 31:02 ... which is a skill in and of itself. Like, knowing, knowing who to partner with to finance

Keith Rabois 31:06 a c- certain type of round.

Jack Altman 31:07 Totally, yeah. Do, do you worry, just broadly speaking, about, like, the, like, venture as an ecosystem or asset class, as, like, things have gotten so big? Like, there's so much money now. You know, when I was, you know, running Lattice during, like, ZRRP times, like, we had all these crossover funds. They kinda went away, but now it's like, now, like, the, the sort of blue chip funds are, like, big, and, like, there's, like, I think, like, more dollars coming in than out of venture for, like, a while now. Like, are you- d- do you- does this give you any anxiety? Do you think this is, like-... a problem or?

Keith Rabois 31:34 Well, it could be a problem. I think there is a scarce number of founders who have the traits that can build an iconic company.

Jack Altman 31:39 Founder-

Keith Rabois 31:39 That's the scarcest-

Jack Altman 31:40 Founders is the scarcest trait.

Keith Rabois 31:41 Scarcity. Now, what's interesting in AI world is, for any given company, they may be more capital-intensive. So you could say there's still gonna be fifteen companies and fifteen founders in any given timeframe that have high potential, but the consumption of capital at OpenAI-

Jack Altman 31:58 Yeah

Keith Rabois 31:58 ... is off the charts. [chuckles]

Jack Altman 31:59 Definitely.

Keith Rabois 32:00 And doesn't, it doesn't mean it's bad, but if AI companies have that pattern-

Jack Altman 32:04 Yeah

Keith Rabois 32:05 ... then a lot of venture capital can still funnel into the barrels, the proverbial barrels, as founders.

Jack Altman 32:11 Do you think at the, like, application layer, where a lot of this investing is happening now outside of the models, do you think that the, uh... Do you think the capital consumption's gonna be high or low?

Keith Rabois 32:20 It should be moderately low-

Jack Altman 32:21 Yeah

Keith Rabois 32:21 -in theory.

Jack Altman 32:22 That's what it seems like it should be, and I often will meet these companies that, like, raised a seed, and now they're profitable, and, like, everything's fine. But then I'll see a lot of the, like, the current sort of leading app layer companies have all actually raised, like, quite a lot of money, and so I'm not sure what's gonna end up happening, 'cause, like, they will have more competition from each other, so I can't quite tell how it's gonna play out.

Keith Rabois 32:39 Yeah, I, I think at the application layer, it's dangerous to raise too much capital. I think there's reasons why, at the foundation level, model innovation or things that are closer to that infrastructure layer, there's real good reasons. Like, founders walk in and ask us for thirty to fifty million dollars, and, you know, before AI, we would say, you know, "No," [chuckles] and we'd say, "That's, that's totally unreasonable." But then the AI founders at the foundation level, like, have really good reasons why. It's like, "I actually need to spend thirty million dollars, or I can't get to this milestone." And so we definitely have to think about it, and therefore, we have written a lot of those checks in AI. But then what happens, I think there's a distortion at the application layer, is they read about their col... You know, their competitors or colleagues or whatever, friends, running these AI companies, and they're like, "I should get that valuation, too." And so they walk in like, "I want fifty million dollars because so-and-so over here." But they're very different businesses, even though they both have the label AI on them.

Jack Altman 33:26 I mean, one of the interesting things, and this connects to, um, you know, we talked about you need to be contrarian and right. It's obviously sort of like how money's typically made. I think there is sort of an unspoken prevailing wisdom right now, or prevailing thought right now, I should say, that we might be in a moment where you can be consensus and right in a lot of areas, and a lot of people are behaving as though that's true. And so the, like, the way that I see that expressed is there's a lot of ideas that make a lot of sense. You take AI times whatever industry times pick a vertical, pick, like, a department in a company horizontally, whatever. There should be something in X, and so I'm gonna, like, bet on one, and a lot of people then make the bet. A lot of companies are now competing for, you know, those verticals. I think that's part of probably why people end up raising a lot of money is 'cause they're in this, like, you know, eleven-horse race for something that seems consensus and right. Do you think that, uh, it's possible to have moments in time where there's a lot of money to be made in consensus-right things, or is that a mirage?

Keith Rabois 34:18 In the history of venture capital, there's usually these three-year windows where that's true, like the first three years of the internet.

Jack Altman 34:24 Right.

Keith Rabois 34:24 There, there are, there are windows where that's true, but over fifty, sixty years, that's usually not true. So then the art is knowing the valuation, your entry price really matters. So you need to be right, but you also need to get paid correctly for the risk you're taking on. And so the problem is, if you treat all AI companies like they're foundational model companies or robotics or something, even if you pick a really good company in a vertical-

Jack Altman 34:46 It might not be a ten-billion-dollar company.

Keith Rabois 34:47 You may... Yeah, you may not make that much money. Like, you enter at four hundred million, and it's a two-billion-dollar company. You know, it's not terrible, but it's not gonna return, not gonna return a meaning-- it's not gonna really return a fund.

Jack Altman 34:56 Yeah.

Keith Rabois 34:57 And so you have to be disciplined about the price, too, especially series B and up. Maybe in A, plus or minus, you get it right, it's probably good enough. C, definitely make the right call. Company's epic, you know, it's not g- it's not gonna really matter. But I, I do think that the discipline about "we'll pay a hundred million post or whatever versus two hundred million" does matter in the consensus-right world.

Jack Altman 35:21 Is your instinct that we are in one of those three-year windows right now? Like-

Keith Rabois 35:23 I think the vertical-- I think you can apply AI successfully to a lot of verticals and, you know, whether it's hardcore AI... There's, like, versions of AI, like how innovative it isn't, but the demand for intelligent acts that replaces human errors or human costs or human scalability issues, those are the three biggest ones, is very real because humans do make mistakes.

Jack Altman 35:45 Yeah.

Keith Rabois 35:45 They are expensive, and they're hard

Keith Rabois 35:47 to scale.

Jack Altman 35:47 Okay, I wanna go over to, um, tech and the government and politics and sort of like this sort of new moment in time we're in, that I think is extremely interesting. I would say outside of AI, the other place that has a lot of, like, heat and excitement is, like, deep tech-

Keith Rabois 36:02 Yeah

Jack Altman 36:02 ... which is great, I think. A lot of this probably is related to the fact that, you know, tech and the government are involved. Some of it, the causality arrow goes both ways here, of course, and as these companies have gotten more important, the government's taking more notice. So maybe before we get into some of the specific questions, tech and the government are like friends all of a sudden, and there's, like, a relationship now. What's most surprising to me, in some ways, is that, like, that didn't exist over the last ten years. It's not like tech was some underdog for the last ten years. So I guess, what is-- why has this shift happened so dramatically? Like, you know, you could say it's a new administration or whatever, but, like, why are we in this situation now, where, like, tech all of a sudden has this, like, not just like a voice, but, like, a loud voice in D.C.?

Keith Rabois 36:38 Well, I think there's two reasons. One of them may be less negative than the other. The first one is, at the end of the day, the Democratic Party in the United States for the last fifteen years basically has penalized and stigmatized successful people. Just read your average Bernie Sanders speech. That's the representative voice of the Democrats, is if you're successful, you've stolen money from someone. Like Robert, Robert Reich, who used to be labor secretary, uh, you know, posted, like, basically a simplified version of this last week. He's like: "Basically, the only way to be a billionaire is to steal money from people, insider trading, or inherit it," which is obviously completely false, but that's the prevailing view in the Democratic Party.

Jack Altman 37:14 Paul Graham wrote that essay that was like, how people get rich-

Keith Rabois 37:16 Yeah

Jack Altman 37:16 ... and it's like, that's not how any of the people-

Keith Rabois 37:18 No, of course.

Jack Altman 37:18 Yeah.

Keith Rabois 37:18 Like, none of the people we, none of the people we know, like, literally none of the people we know.

Jack Altman 37:21 Yeah, none.

Keith Rabois 37:22 Like, Vinod came over here with, like, forty dollars, like, from India.

Jack Altman 37:25 Yeah.

Keith Rabois 37:25 Like, literally, he couldn't afford to eat anything except McDonald's.

Jack Altman 37:27 Yeah.

Keith Rabois 37:28 Um, you know, so, like, that's how people get rich in the United States more often than not. In Europe, you still have to, like, follow one of these formulas, actually, interestingly enough. But in any event, there's a lot of excitement in tech because no longer are people who are building stuff and creating value for the world and transforming the world in positive directions being-

Jack Altman 37:44 Demonized

Keith Rabois 37:45 ... demonized. And, and so I think that is a very refreshing, you know, change, and so that's, that's positive. Second thing is, like, the reality is the tech world was very skewed and biased against-... let's say conservatives and conservative ideas, and spending a lot of time and money demonizing conservatives and conservative ideas, and Trump particularly. And so I think a lot of people are on their apology tour. Like, you know, Mark Zuckerberg spent four hundred million dollars promoting Biden. Arguably, it was more important in electing Biden than any other person. Reid Hoffman, it's not even public, like, how much money. So there's a lot of people who have business interests that you just can't be that one-sided into politics. Like, no Fortune Five Hundred company in history has ever been that biased. Google, like, ninety-eight percent, I think, of all employees gave money to Democrats. So a lot of this is like: "Oh, we need to get back to closer to equilibrium-

Jack Altman 38:31 Yeah.

Keith Rabois 38:31 -because it's just not gonna work out well for us to be so partisan." So that, that dialing back is definitely driving a lot of this, too.

Jack Altman 38:39 So now that the relationship is closer, what's gonna, like, change for tech companies, if any-- Like, there's so many of these companies, w- some, some of them are the most important companies we've talked about, but, you know, like Anduril, SpaceX, OpenAI, like Airbnb, to some extent. Like, a lot of these most very important companies, like, the government matters. I mean, Uber, too.

Keith Rabois 38:56 Yeah.

Jack Altman 38:56 Like, you know, sometimes it's local, state, federal, but, like, kind of the more important the company is, the more the government seems to matter.

Keith Rabois 39:01 Well, what's happened in the last thirty, maybe fifty years in the United States, is more of what you do in your life is dictated or constrained by law or regulation. It's just like over the last hundred years, it's hard to do a lot of things. You know, you're basically suffocated by law and regulation, so any company needs to navigate that. And sometimes you're right, it's much more local than federal, and sometimes it's much more federal than local. But you're gonna see tech companies having to, uh, you know, sort of navigate a world that is just more constrained, and navigating through a constrained world actually can be very opportunistic. It's one of the reasons why I actually like investing in heavily regulated spaces is, having been a lawyer, I feel like I can kind of, in my own brain, do the probabilistic assessment of risk/reward, and most other VCs kind of have to outsource it to, like, some lawyers.

Jack Altman 39:51 Yeah.

Keith Rabois 39:51 And so I like heavily regulated spaces. But I, I think the world... I-it's interesting enough, I know, you know, you've been talking publicly about having kids and stuff. It's about the only thing you can do in the United States without, like, the government's permission is have a kid.

Jack Altman 40:02 Yeah.

Keith Rabois 40:02 Like, there's literally almost nothing else you're allowed to do. It's actually shocking once you have your kids. Like, it's like, "Oh, I didn't even need permission."

Jack Altman 40:07 In some ways, the situation that we have now with the government is, like, m- almost all positive for tech. I wonder, are there risks to being this close? Like, in some ways, we were kind of just like, la-di-da-

Keith Rabois 40:18 Yeah

Jack Altman 40:18 ... we're over here in Silicon Valley or, you know, wherever we are, we're doing our thing. The government's just, like, not thinking about us, and now it's extremely spotlighted. You know, it's like at the inauguration, it's like, whoa!

Keith Rabois 40:27 Yeah.

Jack Altman 40:27 Like, everybody's there.

Keith Rabois 40:28 Everybody's there. Trump's talking about it.

Jack Altman 40:29 Is this perilous in any way?

Keith Rabois 40:30 Oh, I, I, I think it is, actually. I think it's not accidental that, you know, Silicon Valley is about as geographically distant from DC as possible and, you know, is, like, a feature, not a bug. [chuckles]

Jack Altman 40:39 Yeah.

Keith Rabois 40:40 So I think innovation and a cleverness and disruptive thought and some contrarian, you know, ideas are better and more fertile in areas that are not touched by the government-

Jack Altman 40:52 Well, 'cause it's-

Keith Rabois 40:53 -or not interacting with the government.

Jack Altman 40:53 It's like the government wouldn't know how to regulate, like, crypto or AI, like, in the nascent days, and the closer you are, the-- I would imagine, it's like the sooner they're gonna want to be involved with a lot of these things-

Keith Rabois 41:03 Yeah

Jack Altman 41:03 ... and I worry that that kind of regulation early is very stifling.

Keith Rabois 41:06 It's very, it's very stifling, and also, you know, there's things, like you study in political science about regulatory capture. Incumbents can use the government more easily than a start-up can. So if you have a disruptive technology to some incumbent, it's more likely the, the larger institutions are gonna take advantage of government access to curtail your opportunity.

Jack Altman 41:24 Yeah.

Keith Rabois 41:24 So it's very-- I think it is very dangerous.

Jack Altman 41:26 A lot of these VC firms now, uh, it's not just like, you know, there's, like, some, like, middle person. Like, a lot of the VCs-- it's not like there's a consigliere in the middle. There's, like, the VC firm now has people in DC that are powerful, and at the same time, a lot of these, these, you know, same VC firms have gotten very large, gotten very influential. Do you think that this leads to these firms transforming or playing a different-looking role, or will they still just be VC firms that, like, have a deep connection to the government the way that, like, JP Morgan always has or something like that?

Keith Rabois 41:55 Well, I think, you know, Goldman Sachs always has, like, as a classic example, and so I think maybe VCs or some VCs, uh, you know, adopt that as a differentiation or point of differentiation or, you know, a feature, part of their features, that sort of thing. We'll see how that plays out, 'cause again, I don't know if it's the best thing for early-stage companies. So, for example, yeah, some, like, the next Andurils, where your target customer is the federal government, like, by far, then sure, like, early investment in politics, quote, "politics," makes sense. For most companies, it's probably not great. So, for example, you know, when I'm in DC, people always ask me what I, what I think about DC, and I actually like DC. I used to live there as a lawyer. It's one of my favorite US cities, but it's kind of like junk food for me because the next early-stage, nineteen-year-old, undiscovered talent is not hanging out in DC. The people that are hanging out in DC is, you know, I talked about at a conference recently, is you run into Mark Zuckerberg or Jensen.

Jack Altman 42:47 Yeah.

Keith Rabois 42:47 Like, that's not useful for me-

Jack Altman 42:49 Doesn't help you

Keith Rabois 42:49 ... as an early-stage [chuckles] investor. Um, it's interesting and fascinating, you know, and, like, maybe if I want to M&A one day, like a com- help a company that M&A-

Jack Altman 42:56 Yeah, it probably doesn't even help that much.

Keith Rabois 42:57 But that's not, I'm not finding-

Jack Altman 42:59 Yeah

Keith Rabois 42:59 ... some undiscovered talent like in DC. So, like, you can get distracted with this junk food, where I have to eat real meals, which, you know, [chuckles] great founders are probably everywhere else.

Jack Altman 43:08 Yeah, it's funny that, like, hanging out with Jensen or Zuck would be junk food for you, but when you say it in that light, I guess it really doesn't help you much.

Keith Rabois 43:14 No, I need to find somebody who's never built anything before and has an idea about how to actually disrupt NVIDIA or Meta. [chuckles]

Jack Altman 43:21 I also feel like there's been this transition where investors have been much more comfortable speaking about what they think about politics, where they're much more comfortable just sort of saying what they want to anyway. Like, I feel like there was a, there was, like, a guardedness. Like, even ten years ago, when I was, like, starting Lattice, I didn't feel like investors were, like, expressing their thoughts, and now I think a lot more investors and firms and people in general are willing online to just, like, say what they think kind of fearlessly. You say what you think kind of fearlessly and, like-

Keith Rabois 43:51 Even before it was cool. [chuckles]

Jack Altman 43:52 You did it before it was cool. Yeah, totally. But you definitely still do it now. You say a lot about politic-- I mean, you definitely were always willing to, like, you know, get at it with people online fearlessly, and maybe you were talking about politics for a long time, too.

Keith Rabois 44:02 Not as much.

Jack Altman 44:03 But I feel like lately, you're really willing to, like... You don't seem afraid to say what you think, ever.

Keith Rabois 44:07 I think as a VC, it's a little bit easier for one structural reason, which you'll remember from Lattice. When you run a large organization, you represent a huge constellation of people, so I don't think a CEO should really be engaged in politics unless it affects the company. I'm kind of pretty strict about that. But as a VC, you don't represent a large constellation of people.... uh, you may only represent yourself or small partnership. We have, you know, I have four MDs here, you know, four colleagues who are MDs. So it's a very small, insular group, so I think it, it's easier to express your voices. And then I think the culture has changed, though. You just watch Elon, you know, like, but I think he, as the best founder, you know, of the last hundred years, I think now it's, like, not debatable, but, like, as the most successful founder of the last hundred years, as he's engaging in, you know, intellectual-

Jack Altman 44:51 He lets everybody do it.

Keith Rabois 44:52 Debate. Yeah, it sets an example. Like, we're just like Mark Zuckerberg sets an example for founders in some ways. Steve Jobs set an example. Everybody, Brian Chesky sets examples.

Jack Altman 45:00 I mean, Elon even set an example, not that he's, you know, better or anything like that, but he set an example for Zuck in some ways, it looks like to me.

Keith Rabois 45:06 I think people like, you know... Like, emulating successful people in your field is a very common thing. Like, if you're a great athlete, you look at, like, if, you know, you wanna be- if you wanna be the next great basketball player, of course, you'd watch, like, Michael Jordan or Kobe Bryant or, you know, et cetera. Or if you're, you know, seven foot, you'd watch, like, Shaq or Patrick Ewing and stuff like that. So I think it's very normal to emulate people who are successful. And so as successful founders are more engaged in politics for their own reasons, I think that does create either, you know, a copycat mentality or a license to engage. But I d- I don't think typically it's great for a founder of a large organization to be taking views on issues that do not directly affect their company.

Jack Altman 45:46 Do you think it helps VCs?

Keith Rabois 45:47 It can. I mean, I think VC is interesting 'cause it's a matchmaking exercise, from my point of view as a consigliere. Like, I am not the right partner for every founder. Even internally, like, sometimes someone will come to me, like, it happened actually this morning. I met a founder. Good, I think it's a good investment, actually. I'm not sure I'm the best partner for him, but I think it's a good investment. So what I'm gonna try to do is pair him with a different one of my partners, who I think would be probably better for him. And so there's always this matchmaking exercise. So I think it's fair for founders to know-

Jack Altman 46:14 Yeah

Keith Rabois 46:15 ... you know, who are you partnering with? You're partnering for a very long time, decade, et cetera, and does this person share either values or an, an approach to life or way of thinking that's either complementary or suitable for me and my company? And so it does create, like, an alignment. There are founders who reach out to me very specifically because of, you know, my views on certain things, and they wanna work with me more than other people. And if they don't, great, there's other partners here-

Jack Altman 46:40 Yeah

Keith Rabois 46:40 ... Vinod included, who have very different views on sometimes, you know, sometimes publicly, um, that they can pair with that might be a better fit.

Jack Altman 46:47 I'm actually also on that front. I'm just like... I'm happy that the language is now just in the ecosystem is very much back to, and I feel this with founders, but, like, founders want partners, and I felt this during that. Like, I really valued my board members. Like, I, and I got lucky, I had very good board members, but I really valued them. And there was that weird period where it became this sort of like, feature to sort of invest without being a board member, and that, like, companies don't need boards and all that stuff. And, you know, there's some exceptional founders who are, like, at a point in their career where, like, you're like, Parker Conrad can kinda, like, get away with it 'cause he's-

Keith Rabois 47:16 Sure

Jack Altman 47:16 ... you know, but like-

Keith Rabois 47:17 People want, like... Building a company is always a rollercoaster ride, and having someone who's along for the journey, like, just, like, it's a lonely job. Being a founder is very lonely.

Jack Altman 47:25 Yeah, fully. [chuckles]

Keith Rabois 47:26 Um, you know, the more you're friends with and know founders really well, you actually feel the, the, that.

Jack Altman 47:30 Yeah.

Keith Rabois 47:30 Yeah, they're like, I'm very close to a lot of founders I work with, and I know them very well and have worked with them for years, and sometimes known them for, like, someone like Max Levchin, for twenty-plus years. And so you can actually tell their emotional state pretty well. And so having people that understand what you're going through-

Jack Altman 47:48 Yeah

Keith Rabois 47:48 ... and occasionally can give you, like, feedback. Like, sometimes actually it's counterintuitive feedback, like, when things are tough, encouragement might be the right answer-

Jack Altman 47:56 Yeah

Keith Rabois 47:56 ... not criticism. And then actually the best time to be critical is actually when things are going really well. So, like, understanding that dynamic with the founders you work with, and board members are typically really good at that. The people who are, say you can get the proxy for having other founders you talk to or stuff like that, is they often lack context, like context about, like, how the company's really doing. Who are these people that, you know, this founder's working with? You know, what's going right or wrong? And, like, a board member has to have, like, some level of visibility, sometimes really good visibility, to kind of like can project, you know, sort of your emotional state and why it is what it is.

Jack Altman 48:30 Yeah, I mean, I think a lot of times there's, you know, there, there's a, uh, there's a misconception that like, oh, once you have a board, you have to be, like, buttoned up, and you have to, like, share stuff in these calculated ways, and they're gonna kinda be evalu- And it's like, it's the opposite. Like, you can be much more real with your board members sometimes than with your execs.

Keith Rabois 48:45 With your, with your execs.

Jack Altman 48:46 Like, that's... Sometimes you almost have to be.

Keith Rabois 48:48 Because once you talk to some things about with an exec, all hell breaks loose.

Jack Altman 48:52 Yeah.

Keith Rabois 48:52 Like, you can never show any doubt-

Jack Altman 48:53 It's different

Keith Rabois 48:53 ... to an exec without, like, people, like, suddenly catastrophically moving in a different direction. And a really good, a really good board member, you can have a conversation with, "You know, I'm not sure this part of our strategy is right or this part of the team, or maybe we don't need this, maybe we don't need this team," et cetera. All those conversations are really helpful to have someone to talk to. Some people are lucky, they have a great co-founder, but not all founders either have a great, have a co-founder at all-

Jack Altman 49:15 Yeah

Keith Rabois 49:15 ... or a great one that's on, you know, same plane.

Jack Altman 49:17 There's just something structurally nice, though, about somebody who is in it with you, but also has, like, a lot of other things they care about, too.

Keith Rabois 49:23 Detachment's useful sometimes.

Jack Altman 49:24 Like, if something really bad's happening, even with your exec or your co-founder, it's like, if you're like: "Oh, my God, the sky's falling," and then you tell somebody else who's under the same building, they're like: "Oh, no, the sky's falling on me, too."

Keith Rabois 49:32 It's just gonna amplify the problem.

Jack Altman 49:33 It's just amplified.

Keith Rabois 49:34 Right.

Jack Altman 49:34 Yeah.

Keith Rabois 49:34 Like, we're actually... I, I think this is one of the reasons why I don't always recommend people pairing with younger investors. Because young investors sometimes panic, too. Like, right now, like, let's say-

Jack Altman 49:44 They're closer to being under the same sky.

Keith Rabois 49:45 Well, they, well, yeah, they are because their career's at stake, right? Like, so imagine, imagine one of my companies that we're counting on being successful has a really severe problem. Nobody here is gonna fire me if something goes wrong. So when you call me up and say, "Hey, I've got this really severe problem, what do you think I should do?" Like, I don't react emotionally, 'cause I know I'm just like-

Jack Altman 50:05 You're not worried about your job

Keith Rabois 50:06 ... I'm in problem, I'm in, like, immediate problem-solving mode. And if you call any of the founders I work with, that's like, like, immediately, "Okay, like, what, what can we do about this? What are the options? Which, who should we talk to?" You know, et cetera, et cetera. Versus like: "Oh, shit," like, "my partners are gonna be really mad at me."

Jack Altman 50:19 Right.

Keith Rabois 50:19 Like, then I get in defensive mode or self-preservation mode, which is very natural. Like, I s- I saw this play out during COVID, as an illustration. I mean, I already had this view, um, just having been an executive and having worked with people in their own, you know, sort of own career paths, intersection as VCs. But during COVID-... you know, most founders are under severe stress right away. Like, "What do I do? What does it mean? How long is this gonna last?" Blah, blah, blah. Like, like burns out of control. If you just took the same company with senior partners at the successful VCs and non-successful yet VCs, I think the quality of thinking and the ability to be like a smoothing function, like a cushion, [chuckles] was just highly correlated with how successful is the VC.

Jack Altman 50:59 Right, versus if they were just getting started-

Keith Rabois 51:00 Yeah

Jack Altman 51:00 -or if they were unsure, you're panicked-

Keith Rabois 51:02 Like, look, I don't want any of my companies to fail.

Jack Altman 51:03 They panic more.

Keith Rabois 51:04 And I don't want any of our high-profile [chuckles] companies to suddenly start, you know, underperforming.

Jack Altman 51:09 But if they do, you'll be okay.

Keith Rabois 51:10 But, but if I, but if I do, all I'm gonna do is try to figure out, like, is there a solution to this?

Jack Altman 51:14 Yeah.

Keith Rabois 51:14 Like, what can we do about it?

Jack Altman 51:15 I think this is very important.

Keith Rabois 51:15 Versus, like, worrying about, like, having to communicate at my Monday partner meeting-

Jack Altman 51:19 Yes

Keith Rabois 51:19 ... like, "Oh, my God!" 'Cause if actually, if I did communicate at my partner meeting, and I would, the, the natural reaction by my partners here will be like: "Well, what else can we do to help?" Like, you know, "Keith, have you thought about this or that, or talked to this person, or I saw this twenty years ago, and here's a possible answer," versus like, "Oh, let's, you know, point fingers at Keith."

Jack Altman 51:38 There's nothing worse than if you're anxious as a founder, your investor's getting even more anxious about the same thing, is like a nightmare.

Keith Rabois 51:44 No, and I hate... You know, sometimes on boards with VCs who do it, and I'll actually try to occasionally, I'll run, like, kind of interference for the founder. Like, of like, you know, I'll try to-

Jack Altman 51:54 Fend them off

Keith Rabois 51:54 ... you know, like, send, send some, put like a protective envelope around the founder. But sometimes they just ask for, like, a lot of data. Even that's distracting. It's like, "Oh, my God, like, my partner's just asking me all these questions." It's like: "What's going wrong? Blah, blah, blah." I'm like, the last thing you wanna do is to shock the founder with a bunch of data requests when they're trying to solve [chuckles] an acute problem.

Jack Altman 52:09 Yeah.

Keith Rabois 52:09 But it's a, it's a natural evolution. Now, that said, of course, you know, every VC is a young VC at some point, and so this isn't a one-size-fits-all, but I think you have to be judicious about board members that do amplify your own emotional state, which is not what you really want.

Jack Altman 52:24 Maybe a final topic that's, um, you know, somewhat tangential to this. Yourself, you were an operator for a long time, very successful, you know, obviously, Vinod like was a founder of Sun Microsystems. Same at Founders Fund, like they're rooted around foundership. Also, you've built companies as you've been a VC, you know, you've Opendoor, OpenStore, you know, the same thing happened with, like, Trey and Delian.

Keith Rabois 52:42 Yeah.

Jack Altman 52:42 Like, it's like both of these places, like entrepreneurial investing is like sort of in the DNA. But you've also obviously worked with a lot of investors who are career investors, and you've been on boards with people who are both types. Like, now that you've been doing this for, like, more than a decade on lots of companies, many of which are very important, like, what are your reflections about this difference and how it shows up and-

Keith Rabois 53:02 Well, I think it's most better, much better if you've built things or, you know, aspire to build things to be a VC. Um, firstly, you just understand things at a different level, tactically, emotionally. You, you've just encountered problems, and it, it's pretty native. Um, secondly, it gives you credibility, too, which is useful. Like, why should I believe you, sort of, which is important. Um, so you're right. At KV, you know, many people here have built companies and want to build companies, et cetera, and we encourage it. Founders Fund, you know, think about the brand, um, you know, et cetera, and so I think that's better. Are there exceptions? There's not that many. If I think about, like, when I'm raising capital for my companies, like the ones I've built, and/or our highest-performing companies are asking for advice on subsequent rounds of financings, who do I naturally send them to? It's almost always people who started their career building stuff. Like, you know, we compete, but also are friends with Roloff and Alford. They both-

Jack Altman 54:02 Yeah. They had real jobs.

Keith Rabois 54:03 They both had real jobs.

Jack Altman 54:04 Yeah. [chuckles]

Keith Rabois 54:05 Uh, and they remember, like, what it's like to have a real job, you know? And so they're top of my list often. Um, and so I think that is pretty critical. Are there exceptions? You know, honestly, since 2005, I think there was an era where you could be a professional finance person and be a successful VC. Think Fred Wilson, Peter Fenton-

Jack Altman 54:23 Yep

Keith Rabois 54:23 ... kind of era. Since 2005, I can only name, I think, one good investor who started their career after 2005, who didn't actually, you know, work as an entrepreneur at some point.

Jack Altman 54:35 Who's that?

Keith Rabois 54:36 Mamoon.

Jack Altman 54:36 Oh, yeah. Yeah.

Keith Rabois 54:38 Well, his track record's great, but I don't know of anybody else that I think is exceptional that started their career after 2005. Jeremy Levine would be in the first category. He was also a great investor. He did do a startup, but, like, not like a high-profile one.

Jack Altman 54:49 What do you think for the people... And, you know, maybe there would be some set of people who are eight or ten or twelve years into their career who you wouldn't yet say they're Mamoon, but, you know, if you spend time with them, you'd be like, "Okay, they're- they, they could be on track." When you think about what makes a, a Mamoon situation work, how do those people-- 'cause there's, like, a lot of, you know, I think well and, you know, very, very capable people doing VC and who never sort of built a company or whatever. Like, what does it take for those people to get there? How does that happen?

Keith Rabois 55:15 Well, I think you need to compare... Ultimately, venture comes down to, and this is maybe summing up everything we've discussed, you have to have a comparative advantage. Like, why me? Or why us? Or some combination.

Jack Altman 55:24 Yeah.

Keith Rabois 55:25 Why take my money, or why take our money? And usually it's a mix of, like, the overall brand and the individual, and it's a matchmaker exercise, too. So one way or the other, if you're gonna be a non-founder, non-previous executive, you have to have a really compelling answer to that. So one of the ways some people solved it, including Mamoon, is going after a vertical first that's not super popular. Like SaaS and stuff, when he did Box and stuff, very non-consensus. And so you can create credibility, domain expertise, et cetera. That way, so you have a really good why. Like, "Okay, this is why you should partner with me."

Jack Altman 55:59 Yeah.

Keith Rabois 56:00 And so if you can develop that, now that's hard to do, and it's v- almost impossible to do in hot spaces because of that. But that's about the only formula I know, is you bite off a vertical, you become, like, a true expert, you have success, and that-

Jack Altman 56:15 And you go along with it

Keith Rabois 56:16 ... and that vertical has, like, let's say, legs. There's a wave there, and you can ride that wave for a long time, and then you can parlay that into maybe a broad, you know, investor.

Jack Altman 56:23 Awesome. All right, I'm gonna let you go. Thank you for making time for this.

Keith Rabois 56:26 Pleasure.

Jack Altman 56:26 This was awesome. Yeah.

Keith Rabois 56:27 Cool.

Jack Altman 56:27 All right.

Keith Rabois 56:27 Awesome. [upbeat music]