#1250 Keith Rabois on How To Build A Billion Dollar Company

What'S up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Keith Rabois is a general partner at Founders Fund. He's a co-founder of Open Door, and he's the current CEO of Open Store. He also was part of the PayPal Mafia, worked at Square, and had many other important roles throughout Silicon Valley. The following conversation came from the Build Summit, where 700 founders came together to listen to folks like Keith about how to operate a startup. Keith goes into excruciating detail about what he looks for in founders, what some of the best traits are in the best companies that he's invested and how Keith thinks about operating in an uncertain chaotic environment, which requires immense focus and a little bit of luck. Here is my conversation with Keith Raboy.

Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy. But only as an expression of his personal opinion. This podcast is for informational purposes only.

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A general partner at Founders Fund, part of the PayPal Mafia, CEO of Open Door, or I'm sorry, the co-founder of Open Door, the CEO of Open Store, and also probably the single best tweeter on all of Twitter.

Kether Boy. How are you? I don't know about-- single best tweeter, Ryan Peterson's doing a really good job.

Wrong. All right, I thought a great place to start is just let's jump in the deep end. There was a peace time, now it is war time. The market sucks, people are having trouble fundraising, people are trying to figure out hiring, product market fit. everything to a founder feels like it could be going wrong, what changes in operating a company from peacetime to wartime?

Actually pretty much nothing should have changed, but people were getting a lot of bad advice. So building startups really hard. My general partner, founders fund, Trey Stevens says, great expression, building startups fucking hard. And people forgot that, or maybe never learned it, but fundamentally there's a three year window when people thought that building a startup was something and easy and that normal people could do it. And that's just not true. In the last 50 years of technology, there's about a six year window when maybe building a startup to some version of an exit was possible for normal people. Typically, it takes someone who has like heroic efforts, heroic intensity, heroic skills to pull people together for five to 10, 15 years to build a startup that matters. And so a lot of people just believe that this is an easy industry. It's sort of, about as likely that you're gonna build an important iconic company as like playing the NBA and make the all-star team. And people thought it was about the same equivalent as like maybe making your high school basketball team. So a lot of people just followed wrong advice. Now that said, the marginal cost of capital has changed. And I think of capital as oxygen, oxygen for a startup, oxygen buildings. And just like we go outside, we don't really think about how much air we're breathing. The cost of capital was basically a marginal cost of effectively close to zero. And now it's expensive. And so if we all were like to run or something at Central Park and we were charged $10 per breath, a lot of people would have to stop running outside. And that's actually true with startups is now that the cost of capital is real, it's something you have to incorporate into your tactics and strategy.

When you talk about intensity, I think something I've learned from you and other people around you.

The board of directors.

The intensity there and just the ruthlessness of like, are we hitting the numbers? Are we not? Are we actually doing the right thing and spending time correctly? Counting the number of days since the company started, right? There's all these kind of little ticks and trips, I'm sorry, tricks and tips that you guys have come up with to kind of keep intensity going. What are some of the things that you do when you're running the company.

That you're like, every single founder should be doing X in order to keep that intensity throughout the organization? Yeah, I think the intensity has to come from the founder, the CEO, not really from the board. Really, what a board member does is almost like a cartoonish mirror. If you've been in a haunted house, it kind of exaggerates your positives and exaggerates your negatives and plays it back to you and say, Is this really what you intend? And so it's a little bit different. In fact, sometimes a good board member can be a cheerleader when things aren't going well. And the toughest critic, the best time to be a tough critic is actually when things are going well. Because obviously when things are mass, the founder definitely knows things are mass. And so adding more stress on top of a founder really doesn't help usually. So there's a little bit of counterintuitive nature to a good board member, but they do point out things that maybe you don't want to hear or maybe things that, you know, you have blind spots too, so it can be very valuable. But setting the pace is really the CEO's job. And I think it's mostly like leadership by example. The reality is there's a lot of tactics like we do use this technique that we borrowed from RAMP of days since launch. Every board meeting sort of has the days since we started the company. It shows you, it talks about time. Time is not your friend. The whole goal of a startup and kind of Reid Hoffman terms is to turn time from your enemy to your friend. So when you're losing money, you're burning money, time is your enemy. At some point, the engine works and you have momentum. You've turned inertia into momentum. And just like the physics concept, the momentum actually gets better and better and better. And then time becomes your friend. Every day gets easier and the company is worth more every day. So until you've inverted the laws of physics, you definitely want to be counting and compressing time. And there are tactics like reminding everybody about every day matters, every hour matters in some startups.

Talk a little bit about another component of time is like money. Literally money and time are almost the same thing in a startup.

People also forgot that.

Well, if you could raise as much as you want next week, then you're good. How do you think about sharing that information with with executives, with the full team, you know, kind of like transparency is this great thing, but also if all of a sudden every single conversation employees want to talk about like, hey, we've got two weeks in the bank, it can be distracting and not have them focus on the product or what they're doing. So how do you think about just.

Like communicating this with the employees? There's probably nothing perfect, but I think all things being equally or better off being completely transparent. So, you know, and there's different tactics like, you know, at Square we use this tactic of literally send notes from meeting to the entire company. Intentionally had conference rooms with glass walls, not, you know, whatever the opposite of transparent walls are. You know, basically so people can see who's meeting with who. We share all the companies I'm involved in. We share the entire board deck with the entire company. Like, the first thing I do after a board meeting is go present the whole board deck unedited to the entire company. The only thing we delete, which we can debate is the compensation slide, you know, like equity grants. But even that, like I think sometimes people overthink that too. Of sports teams, for example, everybody knows who gets paid what on the Yankees or whatever, and it seems to work. So I think people have allergies to that in the startup world, but I'm not sure they're legit. Steve Jobs actually tried this at NeXT where there was like two compensation schemes, there was low and high, and everybody knew what everybody was getting paid. NeXT didn't really work, so but maybe people like confused product market fit in like compensation schemes. In any event, the so try to be as transparent as possible. The reason why is really driven from Netflix. If you looked at Netflix's culture deck, the famous 110 PowerPoint slides, which has been edited on, unfortunately, but the old one basically talks about if you want people to make decisions, they have to have context. What context really means is every single employee has the same information that you have. It's really frustrating sometimes as CEO when people make stupid decisions and you think about it, well why did they make a stupid decision? More often than not, it's because they don't have the horizontal perspective that you have a CEO. So you can't really get annoyed or furious with your colleagues when they make dumb decisions because if you haven't shared them enough data, enough information, enough strategy, enough thinking, of course they're going to make distorted decisions. So the whole point is if you want a cascade decision making down an organization, you want everybody to be sharper, faster, you need to give them the same tools that you have as CEO. And so I'd rather deal with the flip side, which is you're right, when things aren't going well, it's difficult to be transparent. That said, people are gossiping anyway. The reality is in any organization of a certain size, people have concerns, they gossip with their friends, they gossip with their beers, et cetera. And so to some extent, if you're transparent, you know what people are talking about, you're feeding them the real information, so it kind of suppresses gossip. and it's probably better to have a conversation about the reality than like all the versions of reality that cost everybody else. So usually people will talk about the.

Best founders, the best companies, but they have like three years of experience and so you got to kind of, you know, weight their advice very lightly. You've been doing this for 25 years, which is impressive. 23, I'm not that old. Well, because you're only 21 and you've been doing it for 25, so I get it. But in terms of the, you know, two decades or so that you've been doing this, What are the common traits of the best founders? You once said something to me, and I'm so scared to give you any confidence boost, but you once said to me that you've never met a founder that went on to build a multi-billion dollar company and not invest. And so you can have the false positives, but how do you see a founder and know yes?

It's a scary concept because like it's one day I'm gonna screw up and like, just like, don't take any more meetings. There's perverse incentives.

But there is, I mean, it's an interesting thing, right? It's like, it's almost a fighter. who gets knocked out and loses confidence.

There's a coherent philosophy around this, which is, look, the idea of starting a company is irrational. Like the idea that I'm gonna reinvent the world or reinvent an industry with like my college roommate in some proverbial garage somewhere is like borderline crazy and irrational. So if you think about that, well, who actually has a shot of achieving something that's actually borderline irrational? It's someone who's pretty unusual. And so the first thing I'm looking for when I meet somebody or already know somebody and filtering them is whether they'd be a great founder is, Does this person have a non-zero probability of changing the world? If you just ask yourself that question, like it's that simple. Like can this person like have anything other than a zero chance of actually reinventing the entire planet? Most people by definition, it's pretty easy to pass actually because like the chance that like most people are just not going to reinvent an industry. It's true in other fields too. If you met like an athlete and said, is this person going to be the next Steph Curry? It's pretty easy if that's your actual question to say no and be right like almost every single time. Or is this person gonna be the next, you know, Kygo in music? The answer is no. And you usually can tell if someone has a 1-5% probability. Same is true in politics. Like people, there were people who knew politics really well that spotted both Bill Clinton and Obama very early in their career, like talking like 20s. And they're like, this person will probably be the next president, you know, at some point be president of the United States. So you can do this in any field to some extent. And so what I'm usually looking for specifically for a founder is some trade that is like the top 1% or top 10 basis points on some dimension that I've never seen. And my ears just perk. It's like, oh my God, I've never seen anybody like this before. Like it can be, this is the greatest salesperson I've ever met. It can be, this is the greatest, smartest person I've ever met. It can be, this is the most tenacious person I've ever met. It could be, this is the best person that has Assessing talent, like their just ability to evaluate people. There's different dimensions, but you're like, wow, like you're walking out of that meeting like, oh my God, like what just happened? And if you don't feel that spidey sense for early stage investing, this isn't true of growth stage investing, like we're talking like seed round investing, maybe series A. If you don't feel that, you almost surely should not invest.

How much of your operating history and continuing to operate today is sharpening that ability and then also being able to understand who the person is but also what are they trying to build. And talk a little bit about investing and operating at the same time.

Honestly, I'm not sure that operating helps that much because what you're hiring for, so one benefit of operating is you meet a lot of people, you interview a lot of people, you get really good muscle of recruiting. That said, when you're hiring, you're not aiming for just 10 basis points and any CEO tells you that everybody in their company is like top 10 base points is just purely like either stupid or lying. But founders, you actually are looking for something like an outlier of like 10 base points. Now when you're hiring for a company, therefore it means like you can use like a middle of the bell curve kind of assessment technique where you're trying to figure out where on dimensions someone plots on some distribution curve. For founder investing, you kind of want to be an extreme tail. And just like in statistics, actually, if you're looking for an extreme tail, there are different statistical formulas you actually use than when you're trying to look at a normal distribution. So I think sometimes like the recruiting process, the CEO of those three actually makes them bad investors. An example, a tangible one, talk about my friends who run Fair. So both two of the four co-founders, Max and Jeff, CEO, COO, both worked for me at Square. They both played soccer with me before. And when Max was raising money for Fair, which is going to be easily a $10 billion public company, Almost everybody passed because at Square, he actually was a bad employee. I actually liked him, but most people did not. So if you called up around Square and said, I'm gonna do reference checks on this guy named Max Rofes, you would have got pretty mediocre answers. That said, very few people asked the real question. One or two investors were smart enough to call up someone like Jack and say, Hey, what do you think about Max? The right way to frame that question is, what do you think about Max as a founder? And if you've done that, actually, Jack would probably said he's actually probably a good founder. But the employee and founder are different things.

What were they doing that made them a bad employee?

But they wouldn't follow instructions. Disagreeable. That's what I didn't mind, because he was mostly doing things that I found useful. But every other employee in the company was like, why can't you get him to do what he's supposed to do? Which we also could use some data. We had this phrase called 'Nax Data', which is a charitable interpretation. you know, like, but that's part of what you're doing is you're spinning, like you're using, you're not from scratch, like building a product using 50 years of general motor sales data. You're interpolating data to tell a story. And he was really good at that. But occasionally people will call him out on that.

And we'd have little footnotes since Maxine. So a framework that I have is that once a company is going, you probably could not meet the founder or the CEO and you could go spend a day at the business and understand like this is a well operated business or not. if it's a good business or it's not.

So before COVID Roland Bothe, who runs Sequoia, taught me this lesson 15 years ago. You just walk around an office, you can tell everything you need to know. So in fact, what I learned from that lesson was when ideally, I'd rather go to people's offices and have them talk to me about the company there than have them come to my office. Now, COVID, you know, totally blew this theory out because people have multiple offices, if they have an office, It's just not, the world doesn't work that way. But you used to be able to tell really quickly, like what time were people showing up? Are they like focused, dialed in at their computer? Or are they chatting, you know, blah blah blah, what time did they leave? There's a lot of little, little cues, but you can really can't do this at scale anymore.

So maybe we can use Mike Shabbat and Traba as an example. We both invested in it. You got to invest more than I did.

We'll talk about that later.

But one of the things that he first said to me when I met him as he said, 996. And so talk a little bit as to like, I almost think of just like, that's who you're competing against as a startup founder. And maybe explain a little bit how you got to know him and kind.

Of what they're doing. Yeah. So 996, for those who don't know, is kind of an expression mostly driven from Chinese companies that work nine to nine, six days a week. Very, very common in China. It's a relatively popular expression. So when Mike was starting his company, which is in the middle of right after kind of COVID overhang, A lot of people bought into subscribe to Startups are easy. We hadn't yet had the correction. Remote work was a thing, blah, blah, blah, four-day work week, all the stuff is in the ether. And Mike is like the antithesis of all these things on every dimension. He's like, we're doing 996. Actually, when they really started, they were actually more like 997. Mike's my best friend and it's really hard to be best friends with someone who's working 997 actually. But they've dialed it back to 996 in person, like now, you know, maybe one day a week, they like weekends, you might be able to do one day, like, remotely. But it's 996 in the office every single, every single person, every single day. It's very impressive. It's not surprising that the company has done very well, but it is a manifestation of the personality of the founder. Mike is like this kind of everything in his life is like non-stop charge ahead, and it's worked. The company has done phenomenally well. When you invested, you know, it's two co-founders in an idea in a pretty boring and fairly competitive industry. And they're really, really, really doing well. Like we just kicked off our new venture fund, Founders Fund 8, and we wanted to find like the best company in the portfolio to kick off our new fund with. And we just doubled down on Trava because it's done phenomenally well, which I think is their culture. The culture has other attributes in this too. It has other differentiated, potentially attributes. but like the signature one initially. And to show you how this manifests itself, about four months ago, I might just hired this woman who's a great head of finance. And I was asking her this question when I met her. I'm like, so, you know, how did this work out? How did you find, how did you wind up in trauma? And she said to me, well, she was actually like CFO of a Korean company. It was doing really, really well. And she's like, I was looking for something like 996. And so I searched around for an American company that had that culture. Because she's like, this is why the Asian companies succeed. And she found Travelers and she proactively reached out to them. So he wound up having this great head of finance and she's done, you know, phenomenally well, all because the culture was a positive signal to her. And so it actually attracts talent when it comes to accumulating advantage.

So what's interesting is they talk about 996 at that company. Another one of their kind of core values is Olympic work ethic. and this whole idea of like, if you wanted to be an Olympian, you would work your ass off. You would literally obsess over like becoming the best Olympic athlete. Talk a little bit as to the authenticity though of that business or other businesses to say, here's what our values are, knowing it goes against what the public narrative is and kind of like the ability to have the courage to use it as a magnet versus, you know, hey, I'm going to get attacked.

For this and maybe I shouldn't say it. Yeah, I mean, it goes back, it drives from something Peter Thiel taught me like 20 years ago, which is, Every successful startup is a cult. Like you have a belief about the world that's different than other people. And you have a secret. If you read Zero to One, he talks about secrets. Secret is like we believe something about the world that turned out to be true that other people don't understand or reject. So you have to have that. And then when you have a secret, you want to build on that secret. And that's what you do is you double down, you build a cult. So trauma definitely is a cult. They have different dimensions and it holds just like the phrase, in the connotation. It's not for everybody, but you're not trying to hire everybody. I think sometimes Founders forget this. I don't want to hire everybody in the United States. I want to hire a very select group. And as your company scales, going from a hundred people to a thousand people to 10,000 people, there is a regression to the mean. Like, you can't have 10,000 people that look like your first 10 employees. Like, there is some, you know, sort of regression to normal people. But, like, fundamentally, the first 100 be extremely unusual. The first 500, after 500, there's another kind of change after 500, but like fundamentally you can get into the thousands being very selective about who you hire. And so you want to be like kind of anti-selling. So like Troubles is this anti-cell concept, which is they're very explicit about their quality values and the work ethic and all the stuff. And if it's not for you, that's great. Like there's plenty of things to do in the world. There's plenty of other companies in the world. There's plenty of other industries in the world. But for the people who want that, that created that, they want to be a magnet for that kind of talent.

You have started multiple companies now. They've been very successful, regardless of what people on Twitter say. It's always funny, the critics, they never have public companies to yell and scream about, so they have to yell yours. Talk a little bit about your Pin Tweet, which is fragmented markets with low NPS. You basically go build a vertical solution that solves the problem. for those that are trying to figure out, hey, what is my company gonna do?

Yeah, you know, it's actually interesting. This pinned tweet was for like 2017, I think. And I was just sitting on vacation, which is a luxury to have as a VC that I've never had as a founder, truthfully. But I was sitting on vacation and I was thinking about a constellation common or frame across multiple companies that I'd been involved in, maybe some funded ones and maybe some in the Ether that I just watched. And they said, it just occurred to me as I was like, on this proverbial beach, that there's a set of common traits like a fragmented industry, think Square or something like that. There's merchant processors to the left to the right, think Uber, taxi drivers or Lyft if you prefer, taxi drivers, bad MPS, definitely taxi drivers, terrible MPS, merchant processors, terrible MPS. And that if you had a fragmented industry, there's structural reasons why usually. and then B.NPS means customers are not delighted. If you could simplify the value proposition, stitch it together in a vertically integrated way, which is usually how, almost really the only way to really simplify is you have to vertically integrate everything so there are no sort of loose ends and rough edges, then you could actually succeed. And so I sort of said, you know what, there's like 10 or so companies I can think of that are like this. Maybe there's a common formula here that people apply. And so I just tweeted it out and did pretty well.

Do you still believe it?

Yeah, yeah, yeah. It definitely works. I love vertically integrated just to start. I've always loved vertically integrated businesses. They are more difficult to build, but they're more successful in their work. Think Apple. So I'm also a whatever, 30, 40 year old, a 40 year Apple fanboy. And so to me, one of the other lessons of technology that's somewhat counterintuitive is Apple's, you know, the most successful company. What I learned in any industry when I was growing up is if you want to be successful, you emulate the people who are successful. So to me, it's always been shocking that most founders do not emulate Apple. It's like, duh, like, wait, I'd rather be Apple than anything else. Why am I not trying to replicate what worked for Apple? So anyway, so I've been Apple fanboy forever, and Apple obviously has been vertically integrated, which is the secret. There's a reason why, like, it doesn't matter what Google does. not going to affect Apple. Doesn't really matter what Microsoft does, not going to affect Apple. It doesn't matter what Oracle or Salesforce does, not going to affect Apple, because.

They'Re not vertically integrated, so they have no chance of competing. Talk a little bit about Apple as this product company. Everyone loves the products, but they also have this amazing marketing, but it almost feels like they're not marketing. And so in the technology industry, tons of people are focused on building great products, solving people's problems, marketing and sales.

Where does that come in?

And how important is that early on?

Yeah, I mean, so there's a bit of a revisionist hindsight on Apple. There's a couple of good books that I have actually at home that I'd like to look through and flip through. Apple's marketing is not really what propelled the company. You should go pull these books that collect every ad. There's one book I have on my coffee table. That's every ad Apple's ever done, up to, I mean, the book was published probably four years ago, so up to that. And the early ads were pretty ugly, actually, and they're very feature driven. Like, so the company did not get to its IPO, at least, using what we think of Apple marketing today. So I wouldn't try to reverse engineer what you see Apple marketing today as a startup. I would go look at what Apple did when it was like, you know, 100 people building a Mac or something. And there's books you can read, there's books that collect the ads. So sometimes if you try to triangulate, you know, what's made a company successful too late in its arc, you're gonna learn all the wrong lessons. In the beginning, it was very, very different. The simplification, simplicity, that was in the ads. But it was talked about in features and not high design, very much performance marketing. But it was trying to distill things so normal people could do stuff. So I was actually reading something, I think on the plane, yeah, actually on the plane to New York yesterday. It reminded me of this example from Apple where the first use case when literally Steve and Steve pitched Don Valentine and Sequoia for an investment. He asked what the use case would be for a personal computer. This is probably 1975. And Steve actually told Don Valentine that it'd be like a woman at home collecting her recipes. And Don Valentine, the very famous VC, very incredibly successful founder of Sequoia, said that's the worst use case I've ever heard. Nevertheless, he still wrote a check. Why do you think he still wrote the check? I think he, well, I think he A, thought that they were crazy, but like half brilliant, and that is a good formula for potential founders about, and then the home computer did have some potential, even if they couldn't quite put the finger on how it would be used. So it's pretty inspired. Actually, interesting enough, Apple, Sequoia actually their shares in Apple way, way, way too early. So the proverbial craziness sort of of Steve probably cost Sequoia like billions of dollars.

Shook them out.

Not that they're missing the money, but.

Talk about starting a company and either not being the CEO or starting off as CEO and then kind of handing the reins over someone else as a CEO. There's founders in here who are not the CEO or thinking about kind of going into a chairman role, things like that. Like what are some tips or tricks there?

Well, so at Founders Fund, we basically only fund people that we believe are going to be the long-term CEO of the company. Like, that's why we're called Founder Fund. We don't believe in hired management. There's a lot of philosophy there behind that. We never, we're not allowed to vote to fire a CEO, et cetera, et cetera, et cetera. That said, obviously not everybody wants to be CEO of a company, even a great company forever. Like, you know, lots of people step down, Jeff Bezos step down, et cetera. So perfectly fine. You can transition. at some point. But we're really in the business of finding people who whose aspiration dream is almost inconceivable like our friend, like, I can't, I actually literally can't fathom anything that would cause them not to be seated. I mean, maybe if you had like catastrophic health issues. Yeah.

Well, what's so interesting and we're using this because we've talked about it recently, but if I ask you how much is trauma going to be worth, what is your Oh God.

So if I don't say a trillion dollars, I'm gonna get shot because that's part of their cultural, like, dream big ambition.

So it's a reinforcement.

I'll be happy at 100 billion.

But it's a reinforcement, right? It goes back to this idea of a cult, like literally every single person from an EA all the way up to the CEO, if you ask them how much is the company gonna be.

Worth to say a trillion dollars, which sounds insane until you're like, oh wait a second, these people actually believe this. Yeah, yeah, it is a true call. It's a good example because if you don't, generally people don't exceed their ambition. I guess there's another way to restate this. If you aim here, it's not that common, it's not impossible to exceed it. Usually you aim here and you get 85% of the way, it's pretty good. So I think to some extent, but different founders have different styles on this. I do work with a lot of founders who would be very opposed to that kind of philosophy. So there's not a one size fits all culture. That's why each one is unique cold. Like, I have a lot of great founders who would criticize that view like completely and say like, look, the ultimate evaluation doesn't matter, blah, blah, blah. All we need to do is focus on our inputs and the inputs will add up to be a great company. And so therefore we shouldn't even distract ourselves. And then what works for a trial but works for Mike is this big audacious goal that they rally everybody around and motivate people.

Either style can work if it's authentic back to the authenticity. Talk a little bit about monetization. And one of the things that I see founders always talking about, because they've read a bunch of blog posts, is like, don't turn on monetization until you raise money, right? Because the second you do, then obviously you're going to be valued on that. How do you, when you're talking to.

A founder, like, does it actually matter? Is that good advice or is it bad advice? Well, the first piece of advice is don't read blog posts. If you're a founder, you should not be basically not reading blog posts. 99.9% of the blog posts you're going to read are not going to be right. First of all, second of all, you're wasting time, like you'd be better off recruiting, talking to customers, shipping things. So just completely ignore Long Sphere is probably better advice than like reading any specific thing. I used to tell people that literally, like the only thing I read in tech is tech. Literally don't read anything else in tech. I will scan Twitter and look for particularly random intervention. And, you know, once a while, I'll listen to a specific podcast, but there's nothing else I read because nothing else is worth reading. Um, I like to read books because books give you ideas and then you can remix ideas and that's actually very valuable. But anyway, don't get distracted. Now, substantively on monetization, it depends on your business. There isn't, this is another problem with blogs, but there isn't a one size fits all. So if you're acquiring customers by spending money, then you need to monetize right away. Like if I spend, called $100 on cat to get a user or a customer, then I need to figure out what that customer is worth really fast. If I happen to be in one of these businesses that's called an SEO driven business, like Think Yell, that gets customers and users for free, actually I don't really need to monetize it all because any monetization strategy, one cent per axe, is going to be greater than zero. So as long as your axe is greater than what you're paying, it's a pretty good business and can be a great business. But if you're spending here and you're only monetizing here, that's a phenomenally bad business. and you need to figure out really fast either how to get this down here or this up here or both. And so it totally depends.

Fundraising, I see some founders who, they're price takers and kind of the VCs run the show and timelines, et cetera. I see other founders who are like, here's my timeline, I got 100 VCs I'm going to go talk to, and next Thursday we're signing a term sheet. You've been on both sides. What is kind of the best way to approach fundraising? from a process standpoint.

It really depends on the cards you have. If you have momentum, perceived momentum, actual traction, no yellow flags, you can control your destined process really easily. Not everybody, not even very good startups have that. Usually there's proof points. For example, we'll go back to the same story, the Travis story. Seed round couldn't really easily control. It was a very, as I said, boring industry. It's like light industrial stop staffing variable labor for like in light industrial big warehouses. Boring industry. Most VCs don't understand. B, there have been several funded startups direction in a similar space. Not the easiest funding. Even the next one, like not so easy. So can't totally control momentum. This round was a little bit more preemptive in the metrics are coming together in a way that normal investors you can appreciate, the next round will be easy. Like he'll be able to dictate the terms, the process, blah, blah, blah. So it depends where you are in your journey and how much evidence you have. Typically, you're more taking interest from a VC. Let me go to the first piece of advice. Never turn down interest from a VC. If you need money and you decide you want to raise, if you have interest from a senior person at a good VC fund, Do not delay. The reason why is VCs are not like a light switch. You can't reanimate my interest very easily if I've gone on some other thing. But if I'm like dialed into what you're doing or you as a person, that is the best possible time to raise money. And then if you want to get competitive offers, you can bring other people along. So once you feel traction with a senior person, someone you might want to work with, then you can double down and kind of control the process and try to synchronize. One thing that is friendly in some ways to founders is Zoom. It used to be impossible to synchronize all your fund raising, even with the most momentum, like you couldn't get all the VCs to literally meet you the same week. Now with Zoom, there is a reasonable expectation that if you have five people you wanna meet, you just tell 'em like, I'm raising money, I have a term sheet coming in tomorrow, blah, blah, blah, blah, and they will get on a call within 24 hours. The downsides to that is I'm not sure you wanna raise money by Zoom. Like if I was a founder, if you don't already know these people, I would want to meet the investors that I'm going to spend time with for the next decade in person. And if you have an unconventional story, it's pretty critical to meet by Zoom. Like I was just giving a really good friend advice right now. His story's a little unconventional. It's like, stop doing these Zoom meetings. Nobody on a Zoom meeting is going to get why this unconventional story makes sense for the venture capital.

You need to meet in person or just not equal. I apologize for getting a little tactical here, but there's two things that kind of come off of this. So there'll be people who raise rounds and then they have either on announcement or shortly after it closes, more interest. I have seen people open up uncapped notes and basically say, hey, we'll take all the interest we can get, get the dollars on the balance sheet. I've seen other people say, that's a horrible idea. Why would you kind of make decisions that impact your future without having all the information?

What do you think is best? It does depend, A, how much you raise against like what your goals are. Like did you raise 80% of what you thought you needed? 120%? One, two, who are the people that are offering you money? And then three, how much? I think there's a point when you raise incremental money that you do crowd out the next round and make the next round more complicated. So there's some subtle nuance to this, which is there are step functions and perception of how much money you raised against what traction you need for the next round. There's the next set of investors, what ownership they're probably going to so you can't just give a one size fits all answer to should you raise more money. Also, a lot of that was zero interest, you know, phenomena. There's not that many people chasing after companies right now with like uncapped or equivalent term notes.

And then during the fundraising process, let's say that Founders Fund is really excited. What is kind of the right practice to share with other investors that Founders Fund is interested, you're talking to them, should you not share who the other investors are? You've raised a lot of money. And so like, what is kind of best?

Yeah. I think the first thing is I would never tell another investor that so and so is interested unless they basically at least verbally offered you money. The investor world is very insular and it's a cottage industry. Almost every single person I compete with for real is a good friend of mine. And so there's like no secrets. And so you're just ruining it. If it's not true, you're just ruining the chance you raise money from basically anybody. And so that's a bad idea. If it's legit, then there's two ways to play this. And I don't care as much as some VCs about this. I don't actually mind if people tell other investors that we're interested, if it's true. I'm like, you should be choosing me and us because you want us. And so I don't really care if you tell other people, like, they go crazy, whatever. other VCs get very frustrated, very alienated, think it's unethical to do that. Personally, I don't care, but you are playing with fire with a lot of VCs. So the way most founders kind of triangulate this is probably they say something like, I've just got an offer from my top tier fund, so they never name us, but they give like some interest that you're on a shot clock and time is scarce. That is totally acceptable. to almost anybody. Yeah.

Also, top tier fund is a small group. Small group.

I mean, everybody's definition is a little different. And you need to back it up, though. Like, again, I would not lie. If you have a second tier fund, I would not call the top tier fund. Because, again, I may figure out who that is.

I'd be like, oh, I don't trust this founder now. That's a, that's a real problem. The last topic I want to talk about is health and fitness. You go to Barry's, you work out.

All the time, eight sleep. You're on the board still, right? I'm not on the board anymore. Okay. I led the seed in Series A. And then we moved over to Founders Fund. We reinvested with Trey, Stephen's my partner.

And like led the investment. Got it. So talk to us about the importance for you and then also like what is the best thing? These founders are obviously ruining their lives, right, for a number of years to try to build their company. What do you see as kind of best practice?

So let's start. I think there's a stronger connection between your brain and your body than most people realize. And there's more and more evidence if you kind of look under the hood, there's more and more research every the year, but I've just always believed that your body, you're kind of one person and if your body's a mess, your brain's gonna be a mess and vice versa. So I've like prioritized sleep all my life, getting like ideally eight hour sleep every day, almost every day of my life. And I've found techniques to prioritize that. Like I've created my entire schedule around like sleep. I found eight sleep partially because of this ideology. Kind of a friend of mine who is early investor in H sleep sent them to me. Like they were kind of this obscure company that I didn't know anything about. And he's like, you're the perfect, you're the perfect person for this. And I was like, in fact, I am. Like if you can boost people's sleep and the research is pretty compelling about lowering your age sleep lowers your core body temperature as you sleep, which does induce better, deeper sleep, which is really, really helpful. Anyway, so I've always believed that the more sleep, the more sleep you have, the better up to a certain point. and you're going to perform better. Most people did not really believe this until 2008. There's a classic study done on the Stanford basketball team. So for those of you who play basketball, generally speaking, it's really hard to improve elite athletes basketball shooting percentage. They spend all their lives trying to master three-point shooting and free throw shooting. And they still, free throw shooting, maybe gets to the 80 percentile, 85th 90% of them are awesome and they hate to mention March returns. They can't get any better. And then three-point shooting, like block people would do really well. They can improve their three-point shooting by just three percent. Three percent. Three percent. Anyway, so Stanford basketball went through the sleep study where they put players on the team. At the time, Stanford was a good basketball team, like definitely top 20 kind of team. They put players on three regiments, six hours, eight hours and nine hours. the difference, the eight hour plus people literally improved their shooting percentage by 10 points. Like that's insane. Like you could literally take a basketball player and train for 20 years and not get 10 points and improve it. So as soon as you read that study, you're like, holy cow, 98 hours sleep like right now. And so that's basically what I think sleep became more popularized. There's another great book that Matthew Walker wrote. about sleep, which also popularized the importance of sleep on cognitive behavior and cognitive performance. So, if you care about your life, the best thing you can do, if you want to be healthy, wealthy, happy, is actually sleep more. And so, that's first step. Other fitness stuff I do is a mix of, like, there's some life extension benefits, do certain kinds of training, there's a lot of now evidence that, you know, muscle mass predicts like your lifespan or at least your healthy lifespan better than other things. But it, you know, it's a mix of fun and vanity. And for me on the fitness side, I am obsessive about like tools like this, you know, the tracking and I compete with my friends on this. Like I get notifications all day long and we go back and forth and there, you know, it's it, there are dynamics, social dynamics that are kind of cool about it. But sleep is indispensable. The workout stuff is more and more research on it, but it's kind of also a hobby. Last two questions.

What's your resting heart rate? 41 or 42?

He literally knows.

Yeah, generally that's pretty good.

It's slower than your age. Yeah, it's pretty obsessive about it.

The second thing is food. Like, obviously working out, sleeping, that's all great. What about kind of diet and there's all kinds of fads. Founders are always doing all kinds of crazy stuff.

I wish there was more Innovation. Let's start with the founder side first. I do wish there was more innovation here. Like you can work out all you want, but ultimately nutrition and how you eat and all that stuff is gonna be 70 to 80% of the results and both visually like aesthetically and also health-wise. But there's not really a startup that has succeeded in putting you on autopilot to improve your nutrition. It's complicated obviously, soiling Even tracking it correctly. Like I wish there was a product I could use that intuitively would just track what I'm consuming and then give me metrics like, look, my sleep gives me metrics or this watch gives me metrics on workouts. There's nothing out there that's, you know, like simple enough for normal people to use. So I think there's a lot of room there. Someone will crack this code. Secondly, I think that most things, simple advice is better. Just a high protein diet. probably good for most people, like low car, relatively low carbs. You can take it to extremes and stuff, depending on how much you want to chew, but fundamentally basic blocking, tackling, like eating the right amount, you know, no processed foods, blah, blah, blah, mostly protein is going to be generally good for most people. But someone should innovate this, you know, on this dimension. One of the things, one of the ways I learned this, though, 13 years ago, when I was taking what's described as a Keith vacation, I went to train with elite athletes for a week in this facility called EXOS. And this is literally like a vacation for me. They make your food for you three times a meal for every athlete that trains there. Most people want to play in the NFL that go there in some World Cup soccer teams. And so they have a nutritionist who comes up with your program, which is how many calories, what makes a carbs and protein for your goal, blah, blah. And then the chefs make you your meals every day that have the right composition. position. Like our friend Delian, for example, went on one of these programs. My partner, a Founders Fund, went on a couple actually with me. And the first time he was trying to eat a full banana and they took half of it away. Wow, figure. It's hysterical because at the time, Delian weighed like 135 pounds. He's like the skinny guy. And they're like, nope, half a banana for you.

What is your parting message to everyone here who's starting a company and kind of the ambition and just going for it. You've seen some of the most iconic companies in Silicon Valley over the last 20-25 years. You understand what the common traits are of great companies and great founders. Somebody starting out, what's the advice that you give them to kind of motivate them?

I think the most important thing is to figure out what your comparative advantage is. Look at yourself. How do you want to compete against the rest of the world in and your other side of your world, like what's your alpha? You know, like what is your differentiation and double and triple down on it. And then that will lead you to certain markets or certain products. It'll also help you figure out who to compliment yourself with. But it's like really figuring out. So I'll give you a technique since there are a lot of people in the audience. Some people know like what their super power, proverbial superpower is. Other people don't. I'll give you a technique that works for all of you. Go to your five favorite people, friends, and your five people who like you most professionally. And ask them a simple question with a little notebook in your hand. Like, what do you like most about me? Just write down the words. Don't think about it. Just write down the words. Write down the words. You will find common descriptions and that's your superpower. It's really good because like asking people for your weaknesses does not work well. People don't want to tell you what your weaknesses are. It's what your strengths are. People I'm pretty happy to flatter you, but just write down the words like verbatim. Then after you've done this exercise with about 10 people, look for common characteristics in the word umbrella kind of thing, and that would be your superpower.

Ladies and gentlemen, Keith Roi.