Hsu Untied interview with Keith Rabois, General Partner at Founders Fund

Okay, good morning. This is Richard Shue, host of Shue Untied. This morning, I'm very thrilled and honored to have with me is my guest, Keith Raboy, who's a general partner at the Founders Fund. Keith, did I get that pronunciation right?

That sounds great.

Well, welcome to the program.

Thank you.

So Keith, as you know, I do a series on former lawyers, current lawyers as well, but I'm always interested in former lawyers. So, I thought I'd start by asking you, you know, what drove you to law school? I assume you went there for a reason.

Yeah, unlike most people, I went to law school for a reason, meaning like, I think a lot of people go to law school because they don't really know what to do themselves when they're graduating college and they don't, you know, have a plan. But I pretty much decided I wanted to be a lawyer when I was in sixth grade. So I pretty much was on the pre-law curriculum. from seventh grade on, including college. So yeah, I went to law school assuming I was going to be a lawyer and actually did practice law. I also knew I'd be interested in politics and the combination of law and politics is a pretty conventional one, pretty well-tried and paths to Washington, to Washington DC. And so that was my intent when I was growing up.

Well, did you like law school? I mean, when you got there, was it something you enjoyed?

I actually did enjoy law school. I felt it was intellectually interesting, intriguing. It helped develop my brain in certain ways in terms of rigor of thinking, like a fairly strong intellectual roadmap that can apply to a broad set of problems. Yeah, I mean, I didn't love the winters in Cambridge. They were fairly cold and snowy and things like that, but they made it easier to study at least. Yeah, yeah.

Well, what about practicing law? What kind of law did you practice? What did you do as a practicing lawyer?

So after graduating from Harvard, I clerked on the Fifth Circuit Court of Appeals and then started my career as a litigator at a traditional Wall Street law firm practicing in both New York and DC. Focused on antitrust litigation. some white collar criminal defense, some very large commercial litigation, and some IP litigation that was between very large parties.

And did you like it? What did you think?

I loved being a law clerk. I got the advice from the judge that clerk for that this would be the best job of my legal career. She was right. Could do some bad news of getting that advice when you're 25. But she was totally right. Being a law clerk is tremendously valuable, inspirational, challenging intellectually, definitely developed my skills in writing, in the discipline of writing better than anything else I've ever done. The practice of law, I spent three and a half years post clerking practicing law. I obviously didn't hate it, but I think there was parts of it I really enjoyed. I had amazing clients that I got to work with that were really inspiring. inspiring as companies, entities, business people. And I enjoyed brief writing. I basically specialized in writing appellate briefs and motions to dismiss. Was quite adept and intrigued by those challenges. I didn't love the process of discovery. So we were general purpose litigators. So I had to do a bit of everything. And taking depositions, preparing for depositions, defending depositions wasn't particularly interesting. Reviewing documents was, you know, sort of the bane of any litigator's existence. I was pretty good at avoiding some of those challenges in assignments, but still had to review boxes back then, boxes and boxes of production documents, which I could have avoided. So I think one of the challenges of being a litigator or a general purpose lawyer is you don't get to choose your specialization, at least the firm I worked at, the practice that we were engaged in. And I think business, on the other hand, allows you to figure out what your core competitive advantages are. and just double down on them. Also how to work a lot. The last month as a lawyer, I built 363 hours. The first month as a litigator, I definitely did not see the sun for the entire month. I forgot what the sun time looks like, because I was at work before sunrise and definitely not leaving the office before sunset for a full month. Fortunately, it was December in DC, which is pretty depressing month anyway. it wasn't that bad. But in any event, there's pros and cons. I didn't love the unified compensation scheme. So basically all the litigators, all of us were grouped, both litigators and corporate associates by class of graduation as opposed to by performance. And so that was a little bit frustrating. The corporate associate colleagues and friends of mine would often opt out and become investment bankers with a more differentiated comp structure. but litigators were kind of stuck. So the only way to, you know, sort of get paid what we were worth was to quit law, which I eventually did in February of 2000.

So tell me about that. What, what did the operating present itself? Were you looking to leave?

Were you. I was not looking to leave. I was moderately happy after three and a half years. I was like, basically, I started my fifth year as associate, which is about when you kind of hit your zone strides. so it was pretty comfortable. But fundamentally, many of my friends from college had been involved in the first generation of internet companies that were created in Silicon Valley. And they kept trying to weave me back into Silicon Valley and into their companies from 1996 to 1999. And about once or twice a year, I'd come out to visit, partially for vacation, partially to see my friends and partially to sort of explore what was going on. and I was either dumb enough or smart enough to avoid their sort of recruiting pitches for three years. But on the fourth year, I finally gave in. So in February 2000, I sort of jumped across the Croissant cold turkey, quit the practice of law, and jumped into pure business in a classic startup, like in an early stage startup with probably about 30 to 40 employees.

Which startup was this?

Fortunately, this will be on the Ash heaps of history. It's called voter.com, and it was actually not a horrible idea, just poorly executed in many ways. The environment around the company of raising money and the strategy of what milestones needed to be achieved before raising incremental capital radically shifted around the company after March 28, 2000, and then again in June 2000. the market for technology stocks really cratered. And the company's strategy was predicated on almost infinite access to capital. And so the CEO and others didn't adjust as rapidly as would have been required to save the company. But fundamentally, it was a good learning experience. It was a very good learning experience for me. I chose the company quite consciously because I was working with a friend of mine who I felt like could teach me. everything I needed to know about internet businesses, because I knew literally zero. And so one of the, maybe the most important criteria for me was if I was going to make this radical transformation, how fast could I get up that, how fast could I jump up this learning curve and be competent? And so I chose to work specifically in this area because I had some domain expertise, but more importantly work with this specific person who could teach me everything.

How did you get the job to begin with? I mean, obviously they weren't looking for a lawyer, so I mean, you had no experience in business.

So like, how did you get the job? Great question. It is a sign of the times to some extent behind the internet bubble, everybody is starved for talent. And so people were exploring recruiting people from different fields that might be talented. So whether from management consulting firms, i-banking, PhDs, or even, God forbid, a lawyer. So people were just desperate for talent because everybody was raising money, everybody starting companies, all these companies were growing until the hard break of the market reset, Nasdaq reset happened on March 28th. So I had an opportunity that was unique in time. I kind of knew that too, that the easiest time, or maybe the only time to transition careers would be at the height of a bubble. It was a bubble and I didn't know it was going to burst a month later. I wouldn't have jumped, but I did realize that when things are going really well, is the best time because people need to look for talent at undiscovered places. I knew, but net net, the two more specific drivers were the person who hired me was a friend of mine or a friend of a friend, but friend from college who, you know, who always thought I was like insightful and smart and worked hard, etc. Etc. So he was, you know, trying to recruit me, basically, and then the company was involved in politics to some extent, the margin of translating politics to normal people. I back then knew a lot about politics and was very involved in politics and had a significant amount of expertise in the area. So that was easy to convince people that even the people who worked for the company for a living for 10, 20 years in politics, didn't think they knew more than me about politics, but I definitely knew nothing about business. There's literally zero, like maybe less than zero if there's such a thing. Well, how did you like it?

A lot of lawyers, you know, transition. I was at Venture Law Group in the late 90s, and a lot of lawyers went to business roles, and they kind of actually didn't like it.

A lot of them went back to being lawyers. What was your, what was your. Oh, I loved it right away. I didn't love the, you know, learning how to use Excel, which is challenge is still a challenge. We call Jeff Milbass up. He'll still say, oh my God, teaching Keith's Excel was a nightmare. But fortunately, I figured out how to design my career around not using Excel versus mastering Excel. But generally, I liked it. I liked it was engaging to work with people. It's engaging to work around the team, both internally and externally. The business problem solving was kind of rewarding. you could come up with ideas and ship them, test them out, validate them quickly. You could feel the ability to change the world. Like if you ship something and it worked, it would actually change. You had impact and influence very quickly as opposed to in law, which is very spatially. So yeah, pretty much I knew that other than the macro market correction, I made the right decision within a month or two. And then it was very stressful when the macro market collapsed. I had to figure out now that I made this transition and I liked it, I didn't want to walk it back. You know, I didn't want to walk back to a mooper. How could I make this succeed? How could I make it successful with the world imploding, you know, debris left and to the right everywhere?

And how did you manage to navigate that and end up becoming a successful venture capitalist?

Somewhat fortunate that when This first company, voter.com was exploding. I actually called up my friend Peter Thiel from college and asked him for advice. I actually wasn't really looking for a job. I just basically said, Here's the problem. This company's going to explode because I don't trust the CEO to make decisive changes and cut the burn, et cetera. What do you think I should do? And Peter said, well, I can introduce you to some people in Silicon Valley, you know, blah, blah, that I know, or by the way, you can just come work for us. And he had recently resumed the role as interim CEO of PayPal. So in September, on September 25th, 2000, Peter was appointed interim CEO of PayPal. So I had this conversation with him probably late October, probably about six weeks, five to six weeks after he took over as CEO. And like any CEO, he was frustrated with many things in the startup and frustrated by a reasonable number of people. So he just focused on how to be fixed problems through people. And so he had a couple ideas for me. And that, that's basically what happened was he convinced me to join this crazy bunch of misfits at PayPal that were burning $10 million a month with almost nothing in the bank account. But at least I would go work with people I knew, had confidence in, and, you know, the brand of PayPal had cut through the clutter. We were the eighth doc that day that I had this conversation. PayPal is right. the eighth most widely known brand on the internet. So even if the business wasn't working and it was somewhat of a mess, we'd had three CEOs in four months, which suggests public a mess was. I knew that the brand at least was something that was resonating. People would recognize and that's a pretty important, a pretty important step as you're transitioning careers is to start getting affiliated with brands that people recognize and understand. And so I was like, worst case is I'll learn a lot, work people I knew from college, and that people will at least recognize the name on the resume.

What did you do at PayPal exactly? What was your role there?

Well, initially it changed. I wound up doing a lot of everything. I had the longest title in history of executive titles. I think my final title at PayPal was something like executive vice president of competitive strategy, business development, policy, financial institutions, and something else too. It's literally impossible to write this down. The reason why that long title sort basically Peter would throw me and assign me against projects that he was unhappy with. And then, you know, when the performance started in Priya, Peter were satisfied. I basically keep that part of the organization or that responsibility and they just kind of accumulated over two and a half years. Initially, I worked on two discrete projects. Our competitive strategy with Visa and MasterCard. So back in the day, in 2000, Visa MasterCard were somewhat different animals than they are today. They were private entities. They were basically rule enforcers to defend the current regime for the banks. And they really didn't like our innovation at PayPal, which was designed to undermine the regime of the banks. So they weren't stupid, but somewhat annoyingly, they were asking us and so I had to come up with a way to prevent them from killing us. That was the first project. Second project was some growth opportunities were, underinvested in the company, I guess, is a fair way to say it, meaning there are some people who had some pretty good ideas that weren't being channeled appropriately in the company. I sort of was able to help channel some of those ideas into constructive places and get them shipped. So those are the first two things I worked on. Then eBay started hating us and so had to come up with some ideas about how to keep eBay from killing us, worked on that for a while. Then we wanted to renegotiate in terms of our relationship with the banking system, what we paid, who we've worked with, why we partnered with different people. So sort of starting to get involved with the action of moving of money underneath the hood at PayPal, how we hacked that together, which partners we worked with and what we were willing to pay them. That got me into the core plumbing underneath the financial services team. Then we wanted to upgrade our comms team. we started doing comms internally versus using agencies. That became pretty strategic for us over time. And then lots of other things happened in the world. And so wound up just taking on project after project after project.

Well, tell me a little bit how you ended up getting into venture capital finally. It sounds like there's kind of a route to get there, but why don't we start? Why don't you tell me about how that had finally happened?

Yeah, I guess It's not that maybe original. Back when I was growing up in the early 2000s, Silicon Valley, being a venture capitalist was fairly aspirational for entrepreneurs, for executives, for people who worked at startups. That later changed where it became probably negatively selected to the point that most people didn't want to become VCs. And then it flipped back, I guess, about three years ago to being aspirational again. so I kind of always knew I wanted to be a VC, but that was always my goal. If you're intellectually curious or ADD, being a venture capitalist is a very, very like natural fit. And so I'd always been intellectually curious from the time I was probably in fourth grade. I started reading a different volume of the World Book Encyclopedia every day after school. So venture capital is basically like reading a volume of world book encyclopedia every day or every hour. So it was a pretty natural fit for things that I like to do. But I didn't know exactly how to get there from point A to point B. I didn't have a specific plan. The way it actually materialized was I somewhat by accident started Angel Investing, which is also a very common thing in Silicon Valley for people who have had some success when PayPal exited in Ripo and then subsequent acquisition by eBay, I invested some of that money in startups. Fortunately, some of the debugging money too did pretty well, which gave me the credibility if I wanted to be a venture capitalist to at least consider it. So I kept deferring it. I started seriously exploring it as early as 2005 or 2006, very seriously in '07 and '08, again in 2010, but kept saying no, kept getting diverted, I guess, is probably a more accurate description of I kept being intrigued by being a VC, but then some entrepreneur would redirect my energies and channel them into their projects. So I kept postponing and postponing and postponing. And then finally, by 2013, I realized it was getting old, at least for Silicon Valley, and that if I didn't eventually, if I didn't make the transition then, I might never do it. So in 2013, I decided I went to VC.

And that's when did you start the founders fund or you joined a bunch of people or what?

I joined a fund called Coastal Ventures led by a very successful entrepreneur in Vinod Khosla who started to fund after a something like 18 year, 14 year, 18 year run at Kleiner Perkins, one of the most mainstream traditional venture capital firms ever, and he started his own fund in 2000. five or six. And so he'd been on my board, served as the board director when I was working at Square as an exec. So when I left Square, he recruited me to Coastal Ventures. It's a pretty natural fit. I'd also been, I'd also had a different GP, the other two GPs, one of the other two have also been on a board of mine back in my days, the slide from 2007 to 10. So two of the three GPs at the fund have actually it had been board members of companies I was helping run. So we had a strong track record of working together productively. And then in 2019, yes, March 2019, I moved over to Founders Fund, which was founded back in 2005 by Peter Thiel. And several people I've worked with before in my life were also involved in founders fund for a very long time. So there's a pretty natural transition actually.

So it's all full circle because didn't.

Peter Thiel give you the job at PayPal? Back in the Peter, yeah, 30 years.

So now obviously it's been many years since you were a lawyer. Do you still get the urge to like, you know, draft your own term sheets or like get in the documents.

Or anything like that or you're totally comfortable with that? Never, never, never, never, never. I sort of made the decision that I was quitting law. I was really quitting practice a law. However, there are times when the skill set of having being a lawyer is actually quite useful. So some examples, when the company has a very complicated set of legal issues, I will often get involved in helping quarterback the solution. That may mean just connecting them to the right external counsel. It's very cutting edge in particular cases. I still have a pretty good network of lawyers. The good news about growing up at my age now is I'm old for Silicon Valley, but most of my colleagues that I started my law career with are in the private, their career, both in politics and law, so I can connect people, usually the very senior people at firms that are really true experts. Secondly, I actually still remember some pretty core concepts from law school pretty well, and it's surprisingly rare or useful to actually remember the key principles. Like it was amazing to me for not having looked at any law for 22 years or maybe longer that I can still remember some principles that lots of people forget. And even occasionally some case law that people forget. So it's kind of amusing to pull that back out on people. CC's hate when I do it, but I'm usually right, usually meaning 99% when I'm like, there's a case, you know, you should remember from 1973 blah blah blah.

Funny, funny. so do you think looking back, like, if you'd become a corporate lawyer, though, it would have been different because then you'd be kind of doing, you know, you'd be doing, you know, not doing exactly venture capital work, but obviously a lot closer. You know, if you've been a transactional lawyer, you think you would have seen, obviously, you've seen what transactional lawyers do.

You see the start, Silicon Valley, start lawyers. You think that would have been something you would have enjoyed doing if you had gone into that at the very beginning unclear. So I remember being a summer associate and some of the transactional partners you know, would try to persuade me that I should be a transactional associate. And my general feedback to them, so I resisted it, never really tried it, but my feedback to them was, I think I would actually be enjoying being a transactional partner, but not really an associate. I said, if that opportunity is available, that's fine. The law doesn't work that way. Business would actually be, you could actually have a discussion about whether that would be possible, but law firms don't work that way. But the reason why is like most of what associates do is cut and paste. Literally that's what they're doing is marking up documents and cutting and pasting. And that felt extremely boring to me. It's the last thing I wanted to do with my life. Litigate, being a litigator and drafting documents like most of the stuff is a very creative exercise actually. So I actually enjoyed that part. It's why it actually took three and a half years for me to quit. But I think, yeah, the higher end of transactional work, legal work, it might actually be pretty interesting for someone like me, but the first seven years would have been brutal.

Anything else on your list you want to do? Sounds like you've done it all. You've been a lawyer, you've been an entrepreneur, you've been a venture capitalist. Anything else you see yourself doing later in the future?

I don't know. I mean, every time I sort of either intentionally say, I don't want to do acts, some random opportunities present themselves, and every time I think I'm going to continue to do acts, some random duties present themselves. Like, so I've kind of learned to basically, like, reevaluate every year, like, once a year, like, am I happy with how things are going? Do I feel challenged, stimulated? Should, is there something else I should be doing? But every, every time I've had a so to speak, it's never worked out that way.

Yeah, yeah. Well, Keith, it's been a wonderful conversation. It's always a pleasure to talk to lawyers and former lawyers. If you do decide to do something else, you have to come back and tell me about it.

All right, definitely.

This is Richard Shu and Keith for Boy. Thanks.

Thanks.