An Iconic evening with keith rabois & Prof. Yoav Shoham

I've had the pleasure of working with Keith now for over a year now, I think, right? And he's one of the crispest guys. Doesn't waste words. He, as an investor, he has this interesting combination of being mincing no words, not sugar coating anything while being incredibly supportive. So if any of you are looking for an investor, I don't think you should look any further. He's one of the brightest people I know and he has the more elusive property of being interesting.

We're going to test that out pretty soon.

My job will be mostly to fade into the woodwork and let him speak. You'll get a sense for it today, but I encourage you to look online for various places where Keith has spoken and written or written about. For example, at Stanford there's, I think it's called StartX, is or-- Startup School or-- Sam's class. There's some entrepreneurship series where industry mavens speak. You guys probably know more than me. And some very prominent people have spoken. You have to catch Keith's speech there. It's just a class by its own. Is it first round capital who have something online?

Yeah, the first round capital interview and summary. Oh, that is working. This seems to be amplifying. Yeah, so the startup class, Sam Altman organized a class at Stanford in engineering last year. that I tell the class on how to operate, which is kind of a vague topic. If you happen to be running a company, it might be useful. If you're not running a company, I'm not sure it'd waste 45 minutes, but there is a transcript you can read. Not as much.

So part of his biography is undergrad at Stanford, then law degree from Harvard, I think. something on the East Coast. He recently gave a talk at the Stanford Law School about why they shouldn't get a law degree.

There's technically how to leverage your law degree to escape the practice of law.

Like I was saying.

And.

So we spoke about how to structure this talk and there's really no reason to structure it particularly. Just the trajectory of Keith, just if you list the people he's worked with, like we're speaking about who have been your bosses in Silicon Valley since the beginning?

An interesting collection of people I've reported to, Peter Thiel, David Sacks, Reid Hoffman, Max Levchin, Jack Dorsey, and Vinod Khosla. Right.

And the list of companies which are listed in the phenomenal So we thought that we'd just go over the companies and try to extract a nugget from each one. We tried to do it in half the time we have allotted, maybe a tiny bit more, and then leave time for discussion. That sounds good.

Sounds great.

All right. So first question, how many times have you been to Israel?

You know the answer. I've never been to Israel.

Why?

Well, so I was supposed to go this week or last week, but it conflicted with this whole Y Combinator and I couldn't go and I was frustrated. But I've been basically lazy, so I'm going to fix that this year. One question, and then we'll ask you when.

Yeah, when.

But I'm a big fan. We could talk about that, actually. If you read me on Twitter, you'll see.

Actually, it's true. Some of you have seen some other people in the tech world who have not been, who have been sort of somewhat one-sided and not very smart about what they said about Israel and I was actually surprised and gratified to see Keith's comments online on it. So thank you for that support. So why don't we start with the announce program, right? So here, what are the companies? Let's go over them. Roughly in the order that you serve there, PayPal, LinkedIn, YouTube, your the first investor, really. And then LinkedIn, both an investor and, and a, you know, actually worked there at Yelp, a board member for like nine years until recently. Right. And I think I skipped over the slide.

Yeah, skip over slide. Slide over it. We sold to Google. I stayed there two weeks.

Square, a really fascinating story and now Khosla. So why don't we just go over one by one and tell us something interesting about each of those.

Wow, okay. So you asked me like one thing at least that I learned at each place and maybe bridge into other topics. But the most important thing I learned at PayPal was actually how to recruit people. And I remember my first week out here, when I moved back out here after Peter took over as CEO, CEO, like September 25th, 2000, Elon Musk had actually been fired. Peter came back. And then about six, seven weeks later, I think I was desperately seeking a job because the startup I was involved in was failing miserably. And Peter said, well, I could introduce you to lots of people in Silicon Valley, but you should come work for us. And we spent like three days negotiating what I would do, how I'd get compensated. And I was like all excited about this. And then Peter said, by the way, you have to start on Monday. And at the time I lived in Washington, DC. I owned a place and the idea of like this was like Thursday starting on Monday in California and not having a place to live felt like scary. So I was like, Peter, I just can't do that blah, blah, blah. And Peter's like, well, if you can't start on Monday, this whole deal is off. And so we eventually compromised after a lot of back and forth. I started on Tuesday morning at 9:00 a.m. And so I first learned the importance of time, which my brain didn't.

Really process like how every day matters.

And that's always stuck with me. You're saying that time matters? Yeah, well every single day, every single hour in a startup matters. And I really didn't rock that until I joined PayPal and sort of worked with Peter and people like Peter. But the more important thing I learned the first week is after my first week on the, sort of at the company, I went for a jog around campus at Stanford with Peter and he was talking about recruiting. And he made a basic point which is that fundamentally to build a company you have to be able to find people that other people can't find. because when you're starting a company, the reality is you're not going to be able to recruit tons of people who've done X, Y, and Z before. So, you know, I happen to be a sports fan, so I talk about it in terms of baseball terms. You can't really like put out a spec that says, hey, we want a third baseman who bats 300, hits 40 home runs, 125 RBIs, and wins a gold glove. None of those people are going to be available, or most of those people are not going to be available for you to hire. So you've got to be able to find a formula of like finding people at scale that have those skills and can grow into that and be able to, you know, find those people, detect those people, evaluate those people, promote those people. before other people could find them and get really, really proficient at that. And that's one of the bigger reasons I think ultimately PayPal was pretty successful. But I didn't know how to do that for years. And I spent like a lot of time trying to figure it out. And I was actually bad at it. At first I was bad at a PayPal. So 50-50, half the people I hired were terrible, not terrible, were B level people. The other half were decent. But I was like failing and sort of trying to get promoted. And David Sachs at the time said to me, like, I'm not gonna promote you. until you can show that you can get disproportionate leverage from your team. Not just one plus one equals two or two plus two equals four, but you get extra leverage. And so it's like, oh, shoot, this is hard. How do I do this? I can't hire people that well and I need to do this because I want to get promoted pretty badly. So what I started to do is steal people from other people's teams. So I figured out I could identify who in the company was actually pretty good that was under leveraged, generally underused resources of really talented people. and kind of constantly recruited them, which didn't make a lot of friends with some of my colleagues, but I actually wound up having a pretty good team of like young, hungry, talented people that actually started doing stuff. And so I did get promoted, which was cool. And then I was over time trying to figure out, well, if I can learn who in the company, if there are the right people to recruit, how do I figure out who those people are in the external world and go find them? And that's actually what I got actually over time proficient at and probably led to most of the, like stuff that went well is figuring out how to do that better than other people. So I have like four former interns who are, you know, maybe very successful, let's put it that way. Had three former interns who have raised money as a YC founder. I'm getting old, so it's harder to have interns.

I hope it never happens to me.

Yeah, well, if you want to get an internship, you know, we have one at KV, you know, it'd be great.

Think about it. What about the timing of hiring? Because the first sort of end people you hire kind of define the DNA of the group. So how do you feel about that?

My friend Patrick Callahan who runs Stripe actually I think said it best is each of your first 10 employees will multiply themselves 10 times. So think about that criteria when you're hiring one of the first 10. Do you want this person to multiply him or herself 10 times?

All right, let's go, how about if we jump to YouTube?

Oh, this is a good story. So, I happen to be a lawyer. We kind of glossed over that, which is probably good. Sometimes Peter Thiel introduces me as my biggest character flaw, as I stayed at this law firm for three years and five months, and he stayed for five months and four days, and he uses the contrast as a sort of an indication of our character. But so I used to be a litigator and an IP litigator and trust litigator and a little bit of a white collar kind of criminal defense litigator. And so I was at this cocktail party, well actually at a barbecue, that one of my former colleagues at both PayPal and LinkedIn, this guy named Mike Greenfield, who is a nice Jewish name, a nice Jewish guy, I was hosting. And in walks a former engineer at PayPal, Javed. And so I greeted him just like anybody would at a barbecue. He said, Hey, how's it going? And I was like, Great. And I was like, what are you up to? And he's like, well, I just launched a company. I'm like, well, what's it called? He says, YouTube. I was like, well, what does it do? And he said, well, it's like this video sharing thing. I was like, is it coded in Flash? And he said, Yes. And I said, well, does it have amateur videos or professional videos? He's like, no, it's amateur videos. It's like me dancing around. and I asked him a third question about a little bit about distribution, which is a little bit PayPal-y was, is it kind of an embedded thing that you can put on other places? It sort of, we used to call this internally at PayPal, X-Clik. And I was like, is it like X-Clik? And he said, yes. And I said, I want to invest. He's like, don't you ever want to see the site? I was like, yeah, sure. So we went over to, Mike, at the time, nobody had phones. This was like 2005, and you could just look at a site. So Javed went to Mike and said, hey, do you have a computer here? and Mike's like, yeah, there's one in my bedroom. So we went in the bedroom and he showed me every damn video on the site, which was about 30 or 40. So he's had an hour showing me every goddamn video. And I was like, this is the coolest thing ever. I definitely want to invest. But the point about the lawyer was I immediately went to the end of the rope and I was like, this definitely the IP issues like that other people wound up spending a lot of time and attention to get tortured about would eventually work out because I actually had a fair amount of professional expertise in that. So in fact, I sent it after I offered to invest, because at the time I certainly didn't have enough money to write the whole check for an entire round. I started introducing them to people. I was like, Hey, I sent an email literally that day that said to Rohloff at Sequoia, I said, check out youtube.com, end of email for my classic, classic succinctness. And to Rohloff back, it's interesting, you know, Rohloff is like, oh, that's kind of interesting, but how do you think it's a big business? I explained it and it's like, oh, have them come in on Monday. but I actually wound up doing the IP diligence on behalf of the company to Sequoia's outside lawyers and convincing them that they would eventually win any lawsuit. The problem I screwed up actually is I forgot from law school that the music licensing scheme, the statutory scheme that governs music, is actually different than standard IP law. So there's this little problem with YouTube videos that there's music playing in the background and by law in the United States, those artists have to get paid. So it's not accidental. It's actually my fault that the company never really realized that music was going to be the biggest problem. The statute of limitations have totally passed, so I now tell the story a little bit more broadly.

So you also revealed an underlying theme among these seemingly disconnected pieces, which is PayPal, right? Both Roll Off and so, yeah.

And-- Yelp and LinkedIn.

Yeah, so that'd be interesting. Maybe at some point you could also speak a little about the, if it's not too cliche, about the mafia now or later.

Well, I'll start at the back end. So when I was considering going to Square, I didn't actually know Jack very well, Jack Dorsey very well, and we got introduced through kind of a mutual connection, and I hesitated on the offer for like two weeks. And my friend who was on the board and sort of made the introduction, calls me up in the middle, I'm driving somewhere, calls me up, he's like, what is going on? Are you going to take this job or not? And it's okay, we'll still be friends, blah, blah, blah, blah. And I realized that what I was hesitant on, I had never taken a job in Silicon Valley ever, working for anybody that I didn't know extremely well. So when I joined PayPal, I met Peter my first day of my freshman year at Stanford. And then when I joined LinkedIn, I'd obviously worked with Reid. And then when I joined Slide, I'd obviously worked with Knox. I actually didn't know really how to take a job for someone I didn't, like how to evaluate, which is somewhat embarrassing, given I've hired a lot of people. But in, you know, Yelp, like Jeremy was an engineering manager and worked on, you know, one big project with me at PayPal. And even like, like, Venmo was on my board, David Widen was on my board at Slide. So like two of the three other senior people were like board members, so I knew them really well. So I haven't actually taken many jobs. And so anyway, so maybe I'm like lazy that way or maybe I just don't know how to evaluate.

Risk averse.

Yeah, risk averse, exactly. Legal background still suffering.

Sure of your will in your profession. So tell us about LinkedIn.

LinkedIn was interesting. So I invested in the very beginning. When Reid was setting up the company, I invested right away because it made logical sense to me that this would be like there was going to be a professional reservoir of your identity and that there wasn't one and that there would be a future of a resume. and it was good. But then the company didn't really need, back then what I did was mostly like biz dev kind of stuff and revenue kind of generating stuff. And so when the company launched, there was like no job for me to really do. It was mostly about building a product, creating a viral product that would actually spread, like people would send me invites, address book uploading, like it was the only company that built an Outlook uploader, which is actually really messy, as you may know. So there was nothing really to do, so I sat around for like a year and actually literally would check out every single user who joined LinkedIn, every single day, like every single day. Because there was a belief that we would get all, we'd suffer from like massive adverse selection. Like who would join LinkedIn except job hunters? And that wouldn't work because if you have a marketplace, you need people who have jobs as well as people who want jobs. And so I literally audited every single user profile every single day for a year and then sent notes to Reid and the team like, oh my God, did you see this person join? Or it looks like the quality is going up because we have three vice presidents today versus like yesterday. So eventually the company, and the company always grew very slowly. It's now a monster. It's like $30 billion plus company. It's been very successful, but it never actually was anything on anything other than a linear growth curve. Like when I literally joined the company full time, which is roughly 18 months, 16 or 18 months after launch, LinkedIn only had 1.4 million users, which for a social product, almost like rounding error, because it just never hit escape velocity, but it always grew a little bit. So we had no revenue and 1.4 million users when I joined January 2nd, 2005. And what I learned at LinkedIn was a couple of good and bad things. One thing is that I got incredibly frustrated because our engineering team, the original core engineering team was not very good. And trying to change that was almost impossible. The culture, half of them were French, literally French, and they believed you could only work 35 hours a week or you were violating some rules from God. which was insane. But it became self-fulfilling because they would interview candidates who wanted to work hard and they would exclude them because they were too focused or too obsessive. And vice versa, you know, they had this not spot, so it was incredibly, the company was doing well all the time, but I'd go home at night, every night, banging my head against the wall because I had all these features and things we should do and improvements for the product that would just never get built. In fact, Reid and Jack spoke on stage about two years ago. They were going on stage together and Reid made a comment to Jac and said, you know, there's still some features from 2005 that were finally from Keith's wishlist that we're getting around to. They're still there. But eventually, so anyway, I learned like first thing is like I wanted to work with hardcore engineers, which is one of the reasons I chose to go to Slide. So I knew Max confidently could assemble an engineering team. I had no doubt about that. So I didn't have to deal with that because I don't know how to fix that. Then secondly, More interesting investor standpoint is if you're in a marketplace that has true network effects, even with a really ugly product with poor engineering, you can still be very successful. So Craigslist, LinkedIn, eBay, I would put all in that category, which is different than what you're taught traditionally.

Do you think that in today's climate, a company that had the steady but not hockey stick growth, that wasn't led by Reid would get funding? Possibly.

So Series A wasn't a no-brainer. There's only two term sheets that LinkedIn had in the Series A from Sequoia and what time was Nokia Venture Partners, now we were on Ventures. That was it. And Reid knew everybody in the Valley. So it was not like a simple, you know, financing. The Series B was a little bit easier, but still, again, like David Z. was very proactive from Greylock, but it wasn't like a no-brainer Series B. So yes, but even back then it was on the edge. It probably could have got financed, but it was not like, oh, here's our DAC, everybody throw term sheets at me.

In fact, Reid, I think, publishes the-- DAC, the Series B DAC.

Yeah, the Series B DAC, which is a brilliant DAC. I mean, if you haven't seen the Series B DAC for LinkedIn, it is an amazing DAC.

But going back to the question, do you think today's standards have changed so that it would be ever harder to get financing in this space? circumstances?

I think it would be just as difficult or easy, meaning I don't know that the standards have changed other than the rough benchmarks on mobile have definitely changed, but mobile didn't even exist back then. So 10 million mobile downloads or something is the new version of a 1 million. The threshold for what product market fit is certainly on mobile has grown a lot in the last three years. I don't know on the web stuff if it would be any easier or any more difficult.

At some point we have to speak about Slide, so why don't we do it now?

Sure. Well, Slide is an interesting experience because in fact we went through a roller coaster ride. When the Facebook platform launched in May of 2007, Slide already had a pre-existing presence of significant scale, like 100 million plus unique sort of on MySpace and derivative social networks like Bebo and stuff. And then took off and rode the first year of the Facebook platform extremely well. And so we had a huge audience and a huge install base. And then, you know, Mark and the team at Facebook for better or worse reasons, and you can debate this, decided to change the construct of the platform. The original construct of the F8 platform, and go back and watch Mark's speech, it's actually pretty interesting, was we're gonna allow anybody to embed into Facebook on the same-- on parity with Facebook applications. And then they decided a year later they didn't like that for a variety of reasons, which one can debate, but we didn't react very well to that, is one first point. It took us a long time to realize all the implications of those changes. And we lost property rights. I mean, at the end of the day, we actually had a lot of installed users that just kind of disappeared. But fundamentally, I don't think we realized all the implications of the changes fast enough, which is true of most startups. Like when the world's changing underneath you, how fast you react and recognize that there's a fundamental transformation of kind, not degree, is pretty important. So I think we made some cultural mistakes, like for example, and this is important, because it's kind of a mundane example, but I think it's really important. We moved offices. So we used to be in this most compact over fire code office, where everybody knew what everybody else was doing and how well they were doing it through osmosis. And then we moved to a very nice office, but on three, two and a half floors, kind of circular with concrete, you know, kind of a standard elevator set up in the middle. And it created a lot of division among teams. People were like, finger point, like, oh, I don't know what that team's doing. I don't understand their strategy. They don't seem to be working as hard. And it took six to nine months to figure that out, too.

And so between those two things in a very competitive, rapidly evolving world, it became very difficult. I don't remember the exact chronology, but why did Zynga weather the the roller coaster of Facebook and slide lists.

So in fact, the first 18 months, we were way ahead of Zynga. They were trying to negotiate a distribution partnership with us. And then when the feed and the territorial rights on people's profiles changed, it was better to be a social game than it was to be a self-expression type of app, like photo sharing and photo expression. And it's actually changed back on mobile. Being self-expressive is actually probably better than being a game.

All right, you're off the hook on slide now. What, Yelp? Maybe.

Yelp's interesting. So I'll tell you a funny anecdote about Yelp. So Jeremy, after being promoted to director of engineering, then VP of engineering, Yelp decided to go to Harvard Business School, which is a ridiculous idea. But it took him a year to figure that out. So he kind of spent the first summer, like, after business school, first summer between first and second year in business school, figuring out what he wanted to start. Because he's like, I'm not learning anything here. And certainly when they talk about technology and consumer internet stuff, they're like dumb. Like he'd read that case studies and be like, this is embarrassing. But so he had an idea over the summer. He was kind of working with Max in an incubation kind of shop sort of thing. And him and this guy Russ, who's a lead architect at PayPal, came up with this idea, which is kind of like Yelp. today. So they pitched me on it. And I was pretty good friends with Jeremy and moderately friendly with Ross. They pitched me on this and I'm like, this is bad. This is not going anywhere. And it was this old, the design was totally different. The idea was basically you blast out to all your friends by email to get a recommendation. So I want to go to dinner tonight. I'm going on a date. And you blast all your friends. Not surprisingly, it didn't work very well. But Jeremy wouldn't talk to me for four months. Like literally wouldn't talk to me. Like, not, not, like, wouldn't acknowledge that I existed after I gave him this feedback. And so then one day we were at the gym, like there's a gym that we both worked out at at the time in Sports Club LA in San Francisco, and he came over to me, which was interesting in and of itself. And he's like, so I have a question for you. And I was like, okay. What do you do when the morale of your company is really bad? And because like basically the company hadn't done anything in three months, there were no users, and I gave him some feedback, blah, blah, blah. So that was our little detant. And then Mart, but so the company decided, correctly decided to change the product and now create what looks like the modern Yelp, like totally different branding, red, blue to red, the SEO sort of write a review, SEO it, don't ask your friends. And so they sent me a message March of 2006 saying, Hey, you want to meet for a drink? We think this is actually working. I'm like, Sure. So I show up for a drink with Russ and Jeremy and they pitched me on the new idea and a couple They had little data, like 100,000 to 1,000 users in San Francisco were doing interesting things, had this first Yelp Elite party, which went well in terms of encouraging users to write more stuff. I was like, this is actually really good. And they were like shocked. Like, no, no, this is real. We should keep doing more of this. And so over the summer, that summer, a competitor that Sequoia had invested in called Insider Pages raised a fair amount of money, and people were kind of mis-evaluating Yelp. They were looking at it as like a social network through a social network prism and why isn't it growing like this? And why doesn't it have these metrics? And why isn't it virally distributing, et cetera? And so I helped Jeremy sort of reframe it and it did well and we were able to raise money. So I got really roped into the.

Company at that point and joined the board. Maybe this is a good opportunity to ask about metrics by which to evaluate. So I don't know if so, Ev Williams has this piece yeah, and which about, which I thought was very thoughtful about, you know, being thoughtful about the metrics. Anything you want to say about that?

Well, that level of conceptuality, of course it's true. One should be thoughtful about the metrics one chooses. It's a little, right now the question is like, what is that, what are the next, what's the next, next, next step? I don't agree with most of his blog posts after that. Like, I think he basically comes to the conclusion that, okay, so he starts with a non-controversial premise, which is the wrong metrics are a bad idea to optimize for.

Absolutely true.

What's not true next is the way I read the post is, well, therefore you shouldn't use any metrics. But that was the way I read it was like, you shouldn't use metrics to figure out whether you're going to be successful or not, which is not necessarily false in every case either, but it's also not necessarily the best advice to give every entrepreneur. Like, oh, don't worry about metrics because you can't figure out which metrics really matter. Maybe you didn't read it the same way from your reaction.

I can't believe that I'm about to go defend Eve, but I don't think you said that.

Look at the last couple paragraphs particularly. Like towards the end, like the beginning is not, I agree with you.

Oh, you read things.

I actually read the entire thing. Yeah, just because I speak fast and 140 character sentences doesn't mean I can't read. But anyway, so my lesson is, I don't think metrics can guide you to the right solution. I think metrics are good for diagnosing what's wrong or possibly what's right. And I think this is actually related to some mistakes we made at Slide where we were a very bottom up culture. So if things worked like empirically, if users voted with their feet for X, we would optimize for X. And we didn't really have as much of a top down vision of this is what we want to create in the world and this is what we're about, whether or not users like it. And then we're going to make users like it. We're going to figure out how to make users which are very different styles. In fact, sort of course correcting from that, Square is the opposite. Jack is a complete visionary. It starts with a complete vision of the world, where it's going and why it should be a certain way, and then figures out how to build products and eventually persuade users to adopt those products as opposed to watch what users do and then create products for them.

This is a great segue because I don't want to move it along so we leave enough time for discussion. so I want to ask you about Square because that in many ways is different. You already mentioned working for a new guy. Also, financial industry, which it's kind of odd, you're sort of an expert on this, but you hadn't quite worked on it until that.

Yeah, well, so after PayPal, I think nobody wanted to go back to payments. Everybody was burned out. It was a very difficult trying experience. I mean, we went through a lot of difficult experiences, and so people were burned from that. And so in fact, when I accepted the to go to Square, at least half of my friends from PayPal called me up and said, Are you insane? Like, what the hell are you thinking? Like, there's plenty of other jobs in the world. Why are you going back into payments? Little footnote along the way is though, so there was an eight-year gap where I didn't really do much in payments. I had helped start and join the board of a company called Zoom back in 2003, right after PayPal. And Zoom is an international remittance company. It competes with Western Union. It's done very well. It's a publicly traded company now. So I joined the board. March of 2000, actually, March of 2003. And I'd stayed involved in payments because international remittances are fairly complicated things. So I hadn't been like completely removed. I still remembered enough to be dangerous. In fact, I'm still on the board of Yelp. I mean, I'm sorry, Zoom today. So it's been 12 years, which will eventually have to change. So I didn't quite got out of it. But what's interesting to me is how fast the evolution of payments innovation is today. So usually in the last 40 years, I'd say there's one big breakthrough in payments kind of every decade. In the last four or five years, it's been like at some ridiculous velocity. I actually feel-- I felt at Square that if I didn't read the financial services world blog and follow certain people on Twitter, every single day and every single week, I'd actually miss things of substance, which certainly at PayPal, nothing changed on a weekly or monthly basis in the financial financial services payments world. If I just ignored the external world for a quarter, I might not have missed anything.

I don't know how free or desire or desiring you are to speak about this, but about what you think the outlook is for Slide and also Apple Pay.

So Apple Pay, let's say, I break down two things. Most people have tried to do mobile-based payments. There's a ton of friction and a ton of blockers of why they don't get adopted. Apple Pay took a pretty good first draft of removing the blockers, like the things that generally go wrong, like, oh, you have to input a credit card for the first time. B, you kind of have to unlock the device. You have to create a passcode. A lot of stuff that generally, like, users don't want to do. However, it's not totally clear that there's enough-- there's an upside value proposition. So they fixed the downside and got rid of the friction, which sometimes liberalizes people to adopt new things. And it's kind of fun and cool and trendy. And I think with the watch, actually, it will accelerate. like the propensity to pay, the naturalness of swiping like this, will actually take off and people will notice that. So one thing that's cool about Square in the first place was it was observable. This motion of paying with your watch is observable, so when you're in line, people will notice that. And that's a good way to spread a product. It's almost like an old-school viral way. It's like you want it to be observable and you want people to be proud of it and jealous. And so I think that that will work. And I think they'll get better and better at it. But it's done, it's doing fine.

Then you became a VC.

Dark side, yeah.

How did that happen?

Well, you know, I'm old enough, and this is embarrassing, but when I was growing up in Silicon Valley, it was actually cool to be a VC. Like, it was aspirational to be something people wanted to do. And now that's not true. Like, almost anybody I know who's under 30, who's like successful, doesn't want to be a VC. and I have to persuade, I have to beat them up over the head. It's like a painful conversation at dinner or drinks trying to persuade someone to consider being a VC these days. So the world has changed a lot. But I grew up thinking I always wanted to be a VC. It was like, oh no, it was inevitable that I would be a VC. I actually thought about it several different times. Almost took an offer actually in 2010 instead of going to Square. I had an offer from at least one VC and others were talking to me. So I not to do that and to jump into Square. In fact, I remember my first day at work at Square saying, oh my God, I'm the dumbest person on the planet. How did they turn out that job for this? Because it was like we had no users, everything was a mess. The dashboard had like $840 of transactions from beta customers. You need to improve by six orders of magnitude. But in 2007, actually took a serious look at being a VC instead of going to So basically what happened is every time I almost became a VC, some entrepreneur I knew intercepted me and convinced me that they had some vision of the world and I kind of put it on the back burner. And I almost did that again. Actually I thought about it. There's one or two companies I took a strong look at in February 2013. And then I actually thought in the back of my mind, well, if I do it again, I'm never gonna be a VC. It's just not gonna happen. Like if I do another company. So I decided, okay, like I've always wanted to do this. I know I always wanted to do it. it. I'm getting older, not younger. Time to pull the trigger.

And what was surprising once you landed there?

Not as much as I would have, not as much as people think, and this isn't a wishy-washy answer, it's just that I knew the two of the three people really well. I had been invested, I had probably invested in 85 companies as an angel investor over the last decade. So I had a pretty good, I'd been independent board director on two public companies. I had a pretty good feel for what I was getting into. The biggest surprise is a little tactical. I am shocked at how often we counsel people to raise less money, not more. So the stereotype caricature of big institutional venture couples is we throw money at people and force entrepreneurs to raise all this money and then it causes all these problems culturally in terms of acquisitions, blah, blah, blah. 80% of the time I'm trying to persuade entrepreneur. Yeah, 50. 50% of the time, seriously, I'm trying to persuade an entrepreneur to raise a lot less money than they want initially. So that is completely non-intuitive.

And that was just another wonderful segue. Now, that's my last question for you. Recently, you realize that it's not either or, you can be both. So how can you do that? I mean, how can you start, I'll say next door, open door.

Open door.

Tell us about Open Door and how can you possibly be both an entrepreneur.

And investor at the same time? So yeah, so about a year ago, I co-founded a company with three co-founders called Open Door, which allows you to sell, well not you, not anybody in this audience, but most people in America will be able to sell their home in 30 seconds, three minutes online. So all you have to do is type in your address and we'll make you an offer using mostly data science to evaluate the home and then we'll resell it. So basically introducing liquidity into the largest asset class. class of the world that has none. So if you want to sell your home, not in the Bay Area again, but in the United States, it takes 90 days. 20% of people who think they're selling their home listed 90 days, don't even close. It's very expensive. It costs 68%. Blah, blah, blah. Very archaic Market. I actually had this idea right after PayPal. Peter Thiel actually yelled at me to come up with something to do in residential real estate in 2003. And the first idea I came back with was a little bit like Zillow, maybe slightly different. But Peter's like, that's so boring. Kick me out of the conference room. So I went back to the drawing board. He's like, it's got to cut through the clutter. It's got to be different. You don't want to spend money on paid marketing, blah, blah, blah, blah, blah. I went back to the drawing board. And of course I had this young colleague working with me as kind of an intern, right at Stanford. And after commiserating a bit, because he's kind of cynical and skeptical, we actually, he said, well, what have we got? We're going to put home values, like, Silicon Valley does on top of home, they ask this pivoting, well, what if we actually bought the home? And so we actually proceeded to vet whether that's legally possible for a corporate company to do. Could you get like mortgages and could you scale this not just using equity capital? Turns out it was. And we actually built, in fact, Knock actually coded for me a beta site. Chad Hurley did a little bit of a free design. And we had a live site. We were testing this out for a month in September 2003. And for a variety of reasons, we didn't actually do it. at the time, which is probably a big mistake. However, I always had this in the back of my mind and I always wanted to do it. And I kept trying to sell other entrepreneurs on doing this. I'd run into talented people and they were looking for ideas. I'd be like, Hey, I got this great idea for you. The problem was, first of all, it's always hard to sell someone else on your idea. It just rarely works. Second thing is, it's a fairly complicated business actually, and so I only wanted to sell someone who I thought would kind of understand all the moving pieces and the levers and the knobs you have to turn. So, and most of those people are pretty talented. So they have their own ideas of what they want to do. If I gave you the list of people I tried to sell on it, you know, it'd be like, it's a pretty good list. So eventually, I intercepted a couple people who were willing to do this with me and had the right skill. So one of my co-founders, this guy named Eric, had actually, I had invested in him as an angel out of YC in 2009. he was doing a real estate oriented startup and literally he came out of my office at Slide, pitched me and I said, you know what you really should do? I gave him this pitch and he kind of followed the back of his brain and did his mediocre startup. And so, I invested anyway, but he sold it to Trulia. So, learned more about real estate, stayed at Trulia. And then this time after he finished vesting his acquisition, I Trulia left and it's like, okay, this time I'm going to do something for real. He came back to me and said, hey, you know, you're still interested in this. Then I had this other kind of guy I'd always been, I'd want to have been working with. I tried to be hired, I tried to hire for like three years unsuccessfully. And we wanted to find a way to work together, but like I was saying, he's 25, he doesn't want to be a VC, so he's like, there's no way I'm being a VC. So I'm like, oh shit, I gotta find another way to work together. And so it's like, well, what about this idea? And he obviously liked markets and financial services, so he was actually a pretty good fit. And then I had a data scientist sitting around who had I've been the only engineer I'd ever hired in my career just by myself. So I've hired lots of people by myself where I just meet someone. I'm like, you have an offer. I've never done it with engineers before because I don't have the competency to really do that. But there was one I did. And this is data science guy. So he was my first data scientist, first fraud, sort of engineer at Square. And I was like, he was ready to do something else. I'm like, perfect. I need a data science. This is a data science. There's no way to do this without like a world-class data scientist. I got one. So I put the three together. They didn't know each other. I introduced them. They started hanging out and it's like founder dating. So we launched it.

And it's easier, right? You kind of spend 70% of your time on your investments, 60% on this, the rest with your friends and family. Exactly.

Yeah, it's perfect. It's about one day a week. out of six. So I go over there on Tuesday mornings, kind of work on strategy, Friday afternoons, kind of review how things are going, and then a lot of recruiting, a lot of team. And this is also capital intensive business. So being able to raise money, being able to raise debt and equity is pretty strategic to be able to do this kind of company. So it's a pretty valuable skill to have is sort of an understanding of the financial markets.

Stories, everybody's now. Hear you. Here, yeah, you can keep yours.

Just introduce yourself.

I'm Daniel Tonklang, currently at LinkedIn as a data scientist in residence. Good to finally meet. Put your jacket on the back, it's freezing. Yes, we've gotten over some of the early engineering things, thankfully. I'm curious about the asymmetric sort of advantage in hiring because it's almost by definition something that can't scale. So I'm curious, what would you tell your past self that didn't have the necessary skills? What is the way that people who don't have them now make up for them?

I think some of it's trial and error, truthfully. Almost anything in life you have to try, you're going to make some mistakes. There's some, I'm actually, I have a draft blog post, I'm going to publish something about this because it's the number one question I get asked when I speak. This is actually a perfect example of this. It's by far the number one question. It's like how do you actually recruit in today's environment in a hyper competitive market? PayPal, we were kind of lucky because the rest of this world collapsed. So basically anybody got an offer at PayPal accepted. There was no other jobs. EBay was kind of hiring but it was in San Jose. Google is kind of hiring if you have a PhD. but they were like, yeah, super, I mean, they're hiring it from 200 people to like 600 during that era. And maybe Netflix, if you knew where they were and could find them, and there was no other jobs in Silicon Valley. So that made it a lot easier to assemble this critical density of talent and keep people together. But it was only, I mean, not like everybody at PayPal was amazing. It was a smaller set, but it was a reasonable number and collectively. So I think part of it's just like learning. like by mistakes and what worked, what didn't, like any other task. Some of it is philosophy, which is what are you looking for? So the way I like to compare it to sports, to me it's like drafting first round draft picks, probably closer to baseball or football, not basketball, which is very predictable. And there's people who get good at general managers, like scouting and what are you looking for, what kind of attributes, identifying them. figuring out how to test for those attributes. There's usually a spark. At the end of the day, the best people I've hired, I've known it instantly, that there was a chance that they were world class. Not that I knew that they would be, because not all of them are. But there's that spark. You can see something that you just don't get for normal. I can actually see it on Twitter now. There's people I've offered jobs off Twitter. There's one kind of amusing one. I'll tell the story. I didn't know this guy at all. He worked at Box and I saw some of his tweets and I was like, wow, this guy's really smart. insightful, he should definitely be VC easy. He's only like 24, moderately technical. So I gave him an offer. You know who it is. Basically gave an offer on Twitter. And so Aaron, CEO of Box, his friend of mine, laughed a lot. So he actually created a placard of person's name, general partner Coastal Ventures, and put it on his desk. So, but you can see insights on Twitter There's a couple people you can find that just see things that other people don't see, despite the fact of all the people that watch. It's like sort of like if you're a sports fan, if you're a sports fan, you probably read Grantland. I mean, yeah, like Bill Simmons. He just writes, there's a billion people who cover sports and watch sports. He just writes something that nobody else can write. There's no other human being who writes about sports like him. So if you find somebody like that and you see that spark, definitely hire them, even if you don't have a role. there's a funny Peter story of like when we were at Clarium in 2003 about half the people had worked at PayPal and half the other people had not. And people would just hire people without like really a job for them to do. And like it would freak out the non-PayPal people. Like these people just show up in the office like I'm starting work and people are like, well, what do you do? And they didn't have any answer either. PayPal people were kind of a little used to it. And so Peter's response to me was sort of like, well, if you're really good, you'll figure out something to do. and you'll add value because you're not just going to sit there. And if you're not, if you're just sitting there by definition, you're not really good. It's a little, I mean, it's a little peter-y, but it's actually true to some extent.

My name's Hillary. I'm also at LinkedIn, dominating the conversation. You mentioned that 50% of the time you're convinced founders not to raise money? Is that more due to, you know, it's harder to acquire companies when they have raised a lot of money or it's harder to figure out a business model when they have raised?

There's a couple reasons. So I think there's some cultural implications of if you raise actually start spending against that X and that's not always a good thing. More importantly, so there's that is a drag coefficient. The more important thing is like if you raise, let's say, $10 million today, you're raising that capital at the blended cost of that capital, which basically means you're paying a risk discount at your worst risk. So it's a little bit better, certainly for us. So I'll break down for an entrepreneur versus us, it's a little bit different. For us, the way we look at our job is our job is to match capital invested against risk. So we might be willing to write a $4 million check given what's proven and what's not proven. We wouldn't be willing to write an $8 million check. So we think of that as our job is allocating capital against risk. from an entrepreneur's perspective, if for $3 million you can validate certain things and achieve what we call lightly, you know, sort of jargonistically an inflection in how people perceive you, you can raise the next $30 million or $10 million or $20 million at a very high price and so a low cost of capital. So we tend to like look at what can you achieve for X dollars? What are the proof points that it's working? And if you can achieve those, then you should raise the next tranche because then the cost of capital i.e. the dilution to the company has significantly changed. So it's a combination of those two things. And there's a couple of good blog posts recently that I would read. Albert of USV in New York wrote a very good blog post about the post money, I think it's called post money trap, explains some of the other consequences. And then I'd read Josh Koppelman's piece also yesterday in First Round Review about some of these dynamics. Can you tell us a little bit.

About your Jewish background and growing up.

Jewish in Silicon Valley? Oh, I'm Laura Lauder, Lauder Partners partner over here. So, yeah, so I grew up in New Jersey, classic like Jewish, classic Jewish American background. My high school was probably 20-25% Jewish. Moved out here and was actually surprised. So Stanford was not, I don't know what it is today, but Stanford was very non-Jewish compared to peer institutions, probably like four or five, maybe six percent Jewish student body, which is obviously significantly less than Harvard, et cetera. I actually co-founded a Jewish fraternity while I was there, AIPi. So I got into the startup business.

It was a growth industry.

Yeah, it was an interesting experience. Learned a lot about herding cats, which is, very much, you know, a fraternity of like 30-40 Jewish people that are all self-important and try to get them to do what you want them to do. So that was actually a pretty valuable lesson. I forgot about that.

The term hurting cats takes on a different meaning here, right?

In any event, I learned a lot about influence, exercising influence, not authority, because you really couldn't order any of my fraternity brothers to do anything. I grew up like, you know, I was actually very involved in politics early in my life. and I kind of thought my career would kind of go that way. And I was always like a sort of a foreign policy interested person. So I spent a lot of time like studying the Middle East. Actually, I grew up watching Nightline every night with Ted Koppel and Ambassador Ned Nunn at the time. And that's how I learned foreign policy actually. It was mostly those Nightline specials. And then I moved out here and still do some things, but not super active.

We theoretically pass time. If somebody has a burning thing they want to say, now would be a good time before we wind it down. Go ahead.

Hi, I'm Oren Boiman. I'm co-founder of Magisto. We're in the video space. And beyond the fact that all the stories you told are kind of remarkable, what I find remarkable is the timing. It's kind of in almost all those cases it was just on the onset of some inflection point in specific markets, was it video, location, obviously on social networks. Did you sense that? I mean, at the time it was not the best company to work with. It was not obvious, as you mentioned. I mean, the round was not easy. So how kind of, at what point did you sense that?

In some of those cases, the founder actually explained explained it to me. So in the square case, Jack explained very clearly why mobile was going to change the world in ways that other people certainly didn't appreciate then and maybe even don't appreciate now. In the social networking case, actually Max, this is before F8, so before the Facebook platform was officially public, Max actually explained to me that it was going to happen and potential implications of it. So someone actually, actually even the flash that you laughed at. The reason why I asked that question was right after I left PayPal, February 2003, Peter Thiel, who I was working for, dispatched me to go down to Mountain View to meet with Max to figure out the future of technology. Like I literally got the order to go down to Max and learn about the future of technology, take notes, and then we could invest on that basis. So I had coffee with Max. I was like, explain the future of technology. And he was kind of like amused by this, like, but, We wound up talking a lot about Flash, which I didn't really understand before that meeting. And I kind of followed the back of my brain, okay, find things in Flash. And it, like, literally that was like my instruction, go find things in Flash. And it took two years, but it just came out of nowhere. Like, I was like, if it's a Flash, it could actually work. The other thing that was about that timing, though, was this barbecue was July 4th, 2005. I had just come back from visiting New Jersey for my parents' anniversary, which was like the last week in June. And my dad greeted me with like one of these old video things and wanted to show me videos. And I was thinking, as Javed was explaining this to me, I'm like, oh my God, my dad who's a CPA of all things is like capturing videos. Like, huh, if dad's capturing videos, maybe normal people actually might do this. So it was like that, like just random confluence, but usually it's been the founder explicitly explaining it to me. in me kind of gut testing against do I believe this rather than me like sort of that was one of the few times where I actually like put two and two together.

I think this is a good time to really thank Keith for his time, really appreciate it.