In this interview, Keith Rabois discusses the current state of private market funding, noting that while traditional fintech financing has cooled, crypto investment has surged, creating artificial price distortions as dedicated crypto funds pour capital into a limited set of companies. He explains Founders Fund's generalist approach, emphasizing that they back world‑class founders regardless of sector and have successfully invested in crypto without maintaining a dedicated crypto fund. Rabois argues that the crypto space is not over‑funded per se, but only a few iconic companies will ultimately matter, making it crucial for investors to secure meaningful stakes on those cap tables. Shifting to direct‑to‑consumer (D2C) businesses, he highlights rising customer‑acquisition costs driven by higher inflation and interest rates, which make targeted advertising increasingly expensive. He stresses that D2C founders must find low‑cost acquisition strategies, possibly leveraging horizontal platforms or new tools, as differentiation becomes harder in the evolving digital marketing landscape.
Chapters
Keith, good morning. It's great to have you with us again. It's interesting. While traditional fintech funding has cooled, crypto funds have absolutely exploded. You have Sequoia as well as Bank Capital announcing funds worth half a billion dollars just over the last few months.
Do you think fintech dollars are moving into crypto and web three? Well, definitely crypto is one of the few hot areas left in private investing. Eventually, though, people are going to have to reconcile the private market valuations of crypto companies with coinbase's multiples that you can't defy reality forever. But right now, because of dedicated crypto funds, these people have nothing to do except spend the money on a certain subset of investment. And that's leading to artificial price distortion.
You said that, Keith, with some, I don't know, is it disdain in your voice? You said they've nothing left to do but sort of increase the valuations of these companies. What is Founders Fund's position? Notably, you guys don't have a dedicated crypto fund.
Yeah, we're generalist investors. We like to find the best founders on the planet with the most ambitious plans and we'll fund them regardless of what they're aiming for. And so we funded crypto companies successfully. We bought Bitcoin directly over the last eight years very successfully and we're looking for new innovative opportunities that leverage crypto like Royal Reinventing Music. But we're not looking for crypto, crypto. We're looking for world class founders, what we call end of one founders, the one person on the planet who can pull off a rearrangement of an industry.
So is the sector overhyped then, Keith? What do you think happens to all of these investments that are being made and these funds, especially from being capital, private equity for firm getting into this?
Well, it's not overfunded per se. It's just that there's going to be one or two or three companies that are iconic and important. And the key is for an investor is, are you on the cap table or are you a material investor in those companies? Having an index doesn't really help you.
Keith, we were just talking about the D2C landscape and how a lot of the companies that have gone public in that space, you know, investors are reconsidering what they're really worth, and I'm reconsidering what their strategic advantage is. You've been doing a lot of thinking about this space and sort of how to aggregate power and platform benefit among these brands. What's your thought now on what's important for them to do as the digital marketing landscape shifts under their feet a bit?
Well, obviously targeted advertising is more difficult, and that means the customer acquisition costs for people who are targeting a subset of Americans is going to be more expensive, perhaps prohibitively more expensive, especially as capital, cost of capital increases because of inflation and implied interest rate changes. Fundamentally, people who want to build a new direct-to-consumer business need to find a low-cost way of acquiring customers, which if you're not a horizontal platform is extremely difficult and challenging and may be impossible in the West in the short term.
But you have some ideas on how they can do that, right? Talk about the strategic levers that are important for them right now. I mean, you see tools, the like of Stripe, et cetera, trying to aid the sorts of companies that are doing this, but differentiation seems harder than it was in the past.
Well, Stripe and Shopify create tools that empower entrepreneurs to start a business, scale a business very naturally, very easily. But can you reach venture scale or public company scale is a very different question. And only a small fraction of companies that use these platforms, whether Shopify, Weather Stripe or equivalents, are not going to be successful independent public companies. That hasn't changed over the last 40 or 50 years. So they do empower people to create cash flow businesses, which can be very successful. It depends on the goals and aims of the company, its founders and its investors. But for venture capitalists, we need breakthrough hits that are worth $10 billion or more. And that's going to be very rare, regardless of what platform choices you choose.
