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

(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."

(laughs)

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?

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.