Forging a Path in Emerging Tech - Keith Rabois, Robert Hackett (Meridian 2020 - Day 1)

Well, up next we have a treat for you.

We're going to hear from one of.

The smartest guys in startups, Keith Rabois. Keith has established-- I'm Robert Hackett. I'm a senior writer. Biggest brands in tech, including PayPal, LinkedIn, and Square. And he's going to be sharing his experiences with us on disrupting industries and building brands and also what he sees as the future for Stellar. Robert Hackett from Fortune, who writes about all things crypto, we'll be moderating this discussion. I'll hand it over to you. Hello, Meridian. I'm Robert Hackett. I'm a senior writer at Fortune, and I am here with Keith Rabois, who has had a hand in some of the biggest companies in Silicon Valley over his many years in the industry. Keith, thanks so much for being here.

Pleasure to be with you and be with everybody.

So let's kick things off. I wanna ask you something about kind of the way that you have framed yourself just through your entire career as being both conservative and yet also contrarian. I'm wondering how you square those things. They seem like they could be oxymoronic in a way.

There is some ox, I admit there's some oxymoronic nature to be a conservative and a contrarian, but definitionally, a conservative takes advantage of and believes in principles from the past and wants to apply them into the future. And so to some extent, being contrarian is reinventing things and thinking first principles, what doesn't work and trying to innovate really. That said, in the modern Silicon Valley model culture, being conservative and contrarian is probably a, you know, a diagram overlap there of the two concepts. because most people here are not conservative and most people are not that contrarian. So in any event, there's probably, you're right, there's an inherent intellectual sort of contradiction there, but it also is apt for where I feel like I am today in the last 10 years, it's like the devil I would say.

So you've been involved in some of the biggest companies, like I said, from PayPal to LinkedIn, to Yelp, Google, Square. The list goes on and on. I'm wondering what you've learned in your experiences about how to bring a company from sort of its earliest, smallest stages up to, you know, real success.

Well, I mean, I wasn't really involved with Google. I think I worked there two weeks after I got acquired and quit. Putting that aside, yeah, the most important thing is that the people, really at the end of the day, the people, Drive everything. So in Silicon Valley, you can easily get distracted with technology, products, fancy intellectual analysis of all these markets. At the end of the day, it's the team you build, it's the company you build. And so what I've learned is the only thing to worry about is do I have the right people in the right opportunities and the right seats, so to speak. So to speak, basically, if you think of baseball metaphor, the right people playing in the right positions, and if that is true, then everything's going to work out. And if that's not true, it's very difficult to make things succeed. So I focus from the day I get involved in a company, from the day I meet a founder to do they have the right team for the problems they're seeking to solve.

What do you look for in a founder, in a person? What are these sorts of attributes that define a successful entrepreneur or just, you know, business person, tech?

There, I think there are two elements. One is very specific to the particular opportunity. So if one wanted to build space apps, there are different skill sets that build their photo sharing apps to compete with, let's say, Instagram. But there are some general traits that apply to entrepreneurial endeavors. I think tenacity is first. You can define it as relentless resourcefulness, which Paul Graham wrote a great blog post about. So a little bit better, maybe more accurate than tenacity, but they're roughly similar. There's also a book by Duckworth, who's on grit, which is also a similar concept. Something in that category is pretty important and fundamental. Second thing, I actually believe in IQ. At the end of the day, you're trying to solve problems that other people haven't been able to solve and see things that other people haven't been able to see, and that typically is a focus of my view. And then third is the ability to assess people. As I mentioned, basically you're building a team. And team building requires you to be able to accurately diagnose the skills and the growth curve really, of the potential people you meet as you interview them, as you recruit them, and as you have them in your organization and move them around into opportunities where they can really thrive and succeed. Those three things together are usually magical.

So, I mean, the pandemic has had a big effect on everything in the world at this point. How has it affected your job, your ability to do your job, and maybe even what you're looking at, the thesis you might have? how you're evaluating entrepreneurs?

Yeah, COVID's been an interesting, in quotes, opportunity. So I'd say on the negative side, our founders fund were founders driven investors at the end of the day, the most important thing for us is caliber quality of founders. And I think in the Zoom investing world, the remote investing world, it's extremely difficult to gauge the quality of people that you don't already know. It's not that difficult to meet with and engage people by Zoom that you already have some pre-existing relationship with experience with, but it's extraordinarily difficult to go from cold start evaluating somebody not just where they are today, but what their potential growth curve is. It's hard to do this in person period anyway. It's extraordinarily difficult to do this remotely. And so I've found that I feel like I'm at a comparative disadvantage, these are the few people I compete with. And as a firm, we may be at a disadvantage in evaluating close stage opportunities as we've had to and relegated to as Zoom-based investing. So I think that's just a negative, at least for me, for us. Now we'll see how long this persists, is this permanent or temporary, and nobody really knows the answer back that's mostly directed by health, healthcare. Second, though, has it shifted some of the opportunities? Yes. I think there's less inertia. One of the biggest challenges to starting a new company, particularly on the consumer side, but somewhat also to be on enterprise, is inverting inertia. So people have 24 hours in a day and they've already arranged those 24 hours around sleep, family, hobbies, jobs. And so anytime you want something new, you have to reorient people's time. And that basically means replacing something. People forget about this all the time that anytime you want me to adopt a new product, I have to get rid of something and drop something. And that behavior is pretty ingrained in my life usually. Now what COVID has done is force people with a big stick basically you're gonna reinvent your time whether you like it or not. You're no longer going to movie theaters, you're no longer going to concerts, you're no longer going to restaurants, you know, this, this and this is just not happening. And so, well, I've got all this extra time and I'm kind of bored, so I might wanna do something else with that time. So in some ways it's easier to get traction with a new product right now in the last six to nine months, 'cause people had to rethink their prioritization and time allocation, and typically they don't and don't really want to rethink it. So I think that's been a healthy, healthy dynamic, it's been easier to fund maybe innovative things on the consumer side.

Have you seen this across your portfolio? Have you seen an uptick in usage across all of your various investments?

Yes. I mean, some are obviously propelled by COVID, I think DoorDash, you know, people couldn't go to restaurants, so of course they want food delivered. I mean, clear substitution, not in my portfolio, as I wish it was, is like, all on. Obviously, people, there is some preference to going to real world classes, real world gyms, at least for a large fraction of America, not really possible. So people have substituted massively to things like Peloton. We do have in our portfolio a company called Tempo, which is basically strength training at home with a class live instructor kind of like Peloton strength training, and it's done phenomenally well, not unexpectedly propelled by the COVID world. But then there's another category of companies that aren't directly propelled by COVID, but are still thriving. So across our portfolio, across the portfolio I work with, let's say 80% of the companies are better off than they were before COVID And not because the market has made things better, it's because I think it's just better for technology oriented companies to compete against inertia, to compete against incumbents in a remote world. And so therefore, it sounds kind of crazy and anomalous that 80% of our companies would be doing better. But it's actually true. I also think it was just also force some discipline. Sometimes a high-growth company, people are lazy about making tough decisions because everything's kind of up to the right. And so you sort of postpone making hard decisions or painful decisions. And when COVID sort of hit, everybody had to make very dramatic, very decisive decisions bold. And it turns out that was a very healthy thing for the organization as a whole, teaching people that muscle, that ability, that confidence of I can make trade-off decisions. I can prioritize things ruthlessly. The companies as a whole just operate better, and that will lead to a better outcome for huge software companies.

So I've got to ask about this sort of-- what's going on kind of like broadly in business right now? There's this renaissance going on with respect to fintech. There's quite a boom. PayPal is absolutely crushing it, and so is Square. Having been involved with both of those companies early on, I'm wondering how you're viewing this new sort of wave of fintech that's arriving. What's behind it?

Well, obviously the market caps of PayPal and Square are probably a lot of investment. Just like looking at a $200 billion PayPal, a $70, $80 billion square, $40, $50 billion audience, Shopify, which is just moderately fintech, $100 billion plus. Obviously, investors and entrepreneurs react to examples, positive examples that they see and they want to emulate that. Traditionally, we started back in PayPal in 2000. Everybody hated FinTech. I don't even know if that's a term, but they hated financial services meets technology. It was perceived to be a boring, sleepy, low margin, difficult business. It's still a difficult business. I think all the other things may be false. I actually think Square helped propel this sex appeal. of the company. I think financial services was considered boring, dry, a lot of entrepreneurs substitute to things that are fascinating, interesting, kind of a shiny object. And Square sort of made payments cool with design and a bunch of design-driven principles and just had a very different approach. And I think when Square started working, it was perceived to be working on entrepreneurs and investors. It opened up people's eyes to there was a lot more there and there. I remember when I joined Square and decided to join Square in the summer of 2010, it was really controversial with my friends when I sort of made a commitment. There's a lot of my friends have this stereotype, the caricature image of financial service. Why are you doing that? Why are you going back to that? It wasn't all really bad and difficult and boring and all this stuff. And it almost got to me truthfully. It was like literally I cut my friends. Now, I think if you join a company like that, maybe 1%, maybe 5% of your friends would have those views, but they'd be very popular, maybe too popular. You can argue that if anything, it's two consensus to invest in tech, although we're certainly doing more.

I've also noticed that some of these companies have recently made some signals that are kind of bullish when it comes to cryptocurrency and Bitcoin. PayPal having added the ability saying they're going to add it for Venmo next year, Square actually investing in it, $50.

Million.

And the broader macroeconomic world. Bitcoin has been taking off. It's gone up above 10,000. Today when we're filming this, which is not when it's going to be, It's going to be up before or after we've actually done this, but today it was at $15,000, which was quite a signal. I'm wondering what you think about cryptocurrency, whether your opinions about it have changed, whether you're more bullish or bearish. How does a contrarian play cryptocurrency at this point in the game?

It is a very good question. I'd say from a contrarian perspective, we're pretty bullish on Bitcoin. We made the decision years ago to buy Bitcoin directly and to do that. We are looking at alternative crypto investments.

But.

There is some degree of consensus sort of emerging around crypto now again. And so it's hard to be contrarian as the price keeps going up. There may be things orthogonal to Bitcoin's price that might be interesting in crypto again. And then, you know, We can certainly look to fund those. But yeah, it was easier to be sort of contrarian when crypto was crashing. Now, there's-- I think it's somewhat a function of macro environment. There's perceived inflation, for thumping, there's certainly the governments of the world printing money. There's some hedge against potential hedge against volatility and government intrusion and people's lives. And so there's a lot of macro developments that are probably compelling some investment in crypto at the moment.

Are you planning to make more bets in that world or are you sort of sitting back and just waiting and seeing what's going to happen?

I suspect we'll make more bets, but I mean, at the end of the day, as an investor, you're typically reactive to what entrepreneurs want to do. So 95% of the time, we're really funding things that entrepreneurs have decided they want to pursue and we're giving them fuel, rocket fuel, oxygen, to propel them to chase their vision. Very rarely, not never, but very rarely are we actually top down, you know, driving a vision of what should happen and then kind of creating it. We do do that. We did that with Anduril, which has done very well. I founded that previously in Open Door, and we're funding a new internal project right now in a very high-tech deep tech space. So we can do that, but it's once every three to five years. the meat and potatoes of what we do is other people on the planet, who have talent and ambition, come to us and ask for support. So really it's a function of what are the top tier entrepreneurs and crypto entrepreneurs want to do with their time and are they finding interesting, fascinating things to do with crypto?

Have you detected any themes or patterns as to what the most interesting and technically talented people are interested in right now at this moment?

Not necessarily patterns because I think it's pretty fragmented. I think we see innovation and interest in healthcare, not surprisingly given the headlines you read about. If anything, COVID has certainly exposed both the opportunities and weaknesses in our current healthcare system. So entrepreneurs are definitely interested in that. Definitely seen a developer over the last two or three years, this novel interest in climate change and creating innovation that would help address climate change, not government regulation, but like bottoms up innovation, like technology, software, et cetera. So that's become pretty common to see. You do absolutely see a lot of financial services, you know, innovation and versions of the same, you know, sort of taking advantage of what lessons they can glean from successful companies applying them to new verticals or new opportunities. Autonomous driving, there's still interest there figuring that out. I mean, obviously 30, 40,000 Americans die somewhat unnecessarily every year in auto accidents. There's a lot of other benefits to autonomous driving, but safety and life preservation is one of them. So we see that, but we don't really, there's probably a fair amount of innovation in mental health, different versions of mental health, not just the talk to a psychiatrist, psychologist kind of version of mental health, but, you know, and certainly 2020 has been challenging for many people's mental health, you know, from all time, from almost every possible dimension. So, so there's more interest there. I'd say those are probably the biggest obvious deltas from maybe five years ago.

You've been in San Francisco for a while now. Are you gonna stay there? There's been a lot of talk of flight out of cities with the pandemic. What are you thinking?

Yeah, I've lived, well, I've lived in the Bay Area since 2000. I moved out here from New York City, and I've lived in San Francisco, Palo Alto, since 2003, so right after we sold the company. Tina, I moved up to the city. So 17 years. No, yeah, I'm planning to leave San Francisco. I think San Francisco is just so massively improperly run and managed that it's made it impossible to stay here. You know, I've surveyed most of the CEOs I work with just to start a Zoom call on a 101. I think it's been asking what fraction of their close colleagues and friends are in terms of and the last two conversations I've had, one CEO told me that four of, he's married to four of their seven as couples closest friends have already left the Bay Area. And then one other CEO told me of his 20 closest friends, only six are still in the Bay Area. So I think that's actually what's going on under the radar. COVID sort of masked this because it's not quite as obvious where people are moving to. and if they've actually moved to everybody's working remotely. But yeah, we're moving imminently outside California.

Would you have done this if it weren't for the pandemic?

Probably not. I think that the pandemic had an interesting couple of facts. One is, I think that there was a perceived handicap or handcuffs on moving outside of California. that may in fact be more psychological than real. And I think what COVID and quarantine and work remote has done is expose that they may be more psychological handicaps and constraints than metaphysical ones. And I don't know if any of us would have had enough sort of conviction around that prior to working remotely at scale and just watching. Secondly, because of the rules associated with lockdowns, especially in San Francisco and California, you're effectively not getting any of the benefits of an urban environment and you're getting all the downsides of not being in suburbia. So, you know, the reasons why people gravitate towards cities typically like social density, bars, restaurants, think of all the vibrancy that you get in a city and COVID and quarantine rules have basically eliminated that. So you all, all you get are the downsides, which is less space, less outdoor space, you know, all the, all the negatives, but then the upside. So I think a lot of people have shifted if I'm going to live in a suburbia, lifestyle because I have to for healthcare reasons. I might as well get the benefits of suburbia, more space, outdoor space, et cetera. And so I think that's what's led to a lot of the substitution away from San Francisco.

Now, given your work with Opendoor, real estate startup, are you seeing these trends broadly? Is this something that you, you know, is this actually a trend that's happening or is it something that people are just kind of hand-wringing about the death of cities?

Well, people are buying and selling houses at real scale right now. People are shifting their preferences of where they want to live, which is leading to the loss of sales. So you can see this in Zillow data, Redfin data, Open Door data, all this public. That's why Zillow is trading at significant premium over the last year. Redfin's 3X. It's market cap in the last 18 months. It's all propelled by people relocating. As people change their preferences, obviously they expose their current place to buy new ones. And so Open Door is the business of buying selling houses. Obviously that helps Open Door. But we absolutely see the preference changes. You see the rents. Rents are actually faster feedback loops than real estate for a variety of reasons. And the Bay Area, San Francisco particularly rents are in free fall. they're down like 30% year to year. We're probably going to hit the lowest, you know, sort of rental, average rental price in San Francisco in over a decade in October. And this is still masked by things like concessions that don't make it price transparent. You're seeing this in New York City, too, by the way. Rentals in New York are also in free fall. So there's clear substitution going on in people's preferences. How durable it is in another post, you know, do people move somewhere in 2021, 2022, and then realize some trade-offs and want to go back to downtown city, maybe, but that'll take some time to sort out. But it's very clear right now that people are shifting their preferences pretty massively.

Where are you headed?

I'm going to Florida.

And what went behind that decision?

Well, Florida is a very well-run state. Miami is an incredibly beautiful city. Cosmopolitan has an interesting mix of New Yorkers, Latin Americans, Europeans. It's a very pro-business state and city. For example, there's no state income tax and they seem to do pretty well. There's very limited traffic, which is nice, also living in the Bay Area for 20 years. It's just like all the things you wish you had in the Bay Area. I'm a fan of warm weather and water, so it feels like I'm going on vacation.

That sounds nice. Let's talk a little bit about this turn that's happened in politics against big tech. There was the House antitrust report put out. Now the DOJ is suing Google. Recently, they said they're going to try to block the Plaid acquisition by Visa. And of course, Amazon, Apple, and Facebook are in everybody's sites as well. Should these companies be broken up?

Well, most of them, no. I think most of these companies are not by any definition a monopoly. I think you can make a certain case that Google's kind of monopoly power in a relevant market, pretty easy to see Visa as a duopoly, notwithstanding the innovation all around financial services. I think from a market share perspective, it wouldn't be that controversial to show that Visa's got significant market power. And so I think the Google and to some extent the DOJ case against Visa, which was announced this morning, Make a lot of sense. I think everything else is you're basically torturing antitrust principles to try to achieve other objectives. And that doesn't make any sense to me. I think, for example, there's a lot of people on the left that really don't like big technology companies, whether for.

Good or bad reasons.

I think some of it's purely like sort of fake news from 2016. And with Biden winning most likely, I think all of a sudden the left's critiques of big tech are going to be a lot less. because there won't be an election result to play. And then the concerned- Are we filming.

This before the election result, just to clarify?

Yeah, so I suspect that by the time this president of the United States barring a couple subtle changes, which could happen, but more likely than not by a lot. But on the right, you're also seeing a lot of animosity towards technology companies because they are censoring conservative opinions in a disproportionate way. And at some point, the Republicans and the conservatives are not going to tolerate large companies being advocates for the Democratic Party in the United States. Like that's just a non-starter. Any Fortune 500 company knows that. Like if you look at how financial services companies in New York have acted, they know that they cannot be a partisan arm. And technology companies are going to learn the hard way that if Twitter particularly is acting as an ally of the Democratic Party. Eventually, the politicians are going to figure out what to do about that. And I don't think antitrust law is the right solution. There's plenty of other ways to stop Twitter from suppressing conservative opinions.

You mentioned this, that there is maybe some bias coming out of the way that these companies are doing content and conspiracy theories.

They may argue that, but when you allow misinformation from the left and you suppress it from the right, or you allow misinformation from China but don't allow it from President Trump, or you allow it from Iran but not from some Republican press secretary, you obviously have bias. There is just no way you can justify the CCP proselytizing propaganda and suppressing the New York Post.

What are you being a contrarian and also about this sort of problem of big tech maybe censoring information? I wonder what your information diet is like?

That's a great question. Actually, I'm kind of old school and it is a function of my age, but I actually like to read books. I read long form books and that's how I actually find interesting new ideas, new data, because most people aren't actually reading these books. And so, if you read the same information diet as other people, And the people who are going to have effectively the same views usually, and there's at least a distribution curve around them. So I like to go back to original source materials, read books, and find new things to think about. And the good news is books don't get censored nearly as much, which is ironic because to me, the solution of content moderation, disinformation is actually pretty trivially easy. We've had laws around defamation and libel and, you know, porn, obscenity for centuries. Works fine. We have publishing industries all across the world that work fine. And so I don't see why Twitter, Facebook, anybody else, Google, should be innovating. If a piece of content can be published in a book, it should absolutely be publishable on Twitter.

What are you reading now? Anything good? Anything you'd recommend?

Yeah, unfortunately, I have books all around the house. So it depends on your interests. In the business world of reading, you know, a combination. One book I'd recommend for people who haven't read it, I'm a big fan of it. It's on the bookshelf right behind me. It's called Moonshots. It's about how to optimize a current business while propelling innovation at the same time throughout the history of technology. Highly, highly recommend that one. From a completely orthogonal perspective, reading a book about breathing, which may sound boring and dumb, But it's about how you breathe, whether you breathe through your nose or mouth, affects everything about your life, like your immunity to your happiness. It's incredibly provocative, extremely well researched, and actually quite well written. It's not my standard cup of tea, like I don't usually read books like this, but it's fascinating. I already caught myself at night, you know, trying to force myself to breathe more through my nose. It's been that effective in, you know, changing my behavior. And then from a policy perspective, there's actually a great new book, Reading About COVID that highly recommend. Something paradox in creating a title, but just published, it's really good. And it's very timely, obviously, informative, timely, provocative, rigorously researched. And then from a politics perspective, I'm usually reading a biography or so, like something I have a couple right now that I'm like halfway through. There's a new Churchill one I really like, which is actually really difficult to do, write something new and novel about Churchill. There's a new one, a brand new one about James Baker, who I'm just starting, and I think will be fascinating. And then there's one about the rise of Ronald Reagan in 1976, actually, which I find truly fascinating. the world's history could have been very, very different with a couple of little delta changes. It's amazing. You know, as you grow up and actually 2020 is proving this as well, little small changes that were not pre-ordained, how they affect human history, pretty magical. And so the rise of Reagan in '76 is pretty fascinating because it did propel probably 30-40 years of intellectual discourse changes in the US and the UK particularly, but then it affected globally through Soviet Union's collapse, etc. So I find that one pretty good as well. It's based on the name, but Richard Perlman is the author. Excellent.

You've got a wide ranging variety of interests there. I'm quite interested in that Brief Book. I'm gonna be taking some deep breaths on Twitter. So one thing if people want my.

Reading list, what I've decided to do is you go to my media tab, I basically screenshot books I'm reading. And say if you just go to the media tab, they don't, unfortunately Twitter doesn't have a feature where we can relabel it, like I just call the books.

But if you go to my media tab, like I need to tell you what you're gonna see.

We post.

That's fantastic. We'll be checking out your library. And very quickly, just before we sign off, I'd love to ask you, what is the most overhyped thing right now? What's everybody into that you think is just not gonna pan out?

You know, to some extent, I've had this view for 5, 10 years. I still am not the biggest fan of VR. And I think the reality is, if in a COVID world where everybody's locked in their house, you can't really get VR to be mainstream. I think that's sort of proof right there. Like, you know, in the real world, we're back to normal at some point, hopefully. There's so many distractions, so many benefits of real-world experiences versus VR. But with six months of people literally being locked at home and you can't propel VR, I think that's a pretty big indictment.

I think with the rise of Zoom, that that is a truly contrarian take that VR isn't going to be as big as people think it might be. But Keith, thank you so much for your time. Thanks for telling us all of your wide-ranging opinions on so many subjects. And have a good move to Miami.

Thank you.

Thank you, Meridian, for joining us.