Keith Rabois: The End of Woke Capitalism; Time Allocation Tips; Silicon Valley vs Miami | 20VC #891

Three, two, one, zero. You have now arrived at your destination.

Keith, this is such a joy to do. As we were saying, I tweeted and then you commented and then I incredibly regretted my tweet. But my tweet and we're starting straight off, this is exciting, we don't have to do the normal BS intro. My tweet was simple, buy low, sell high, be greedy when others are fearful and fearful when others are greedy and your response It doesn't work in venture. So you're wiser than me, Keith. Why does buy low, sell high not work in venture?

Well, let's start with definitionally what we mean by venture. If one is talking about seed investing and potentially a series A investing, by definition, you're buying low. And if you have any liquidity, you're going to be selling high. When you invest in a seed company, or a series A, the startup is a mess. It's not really even a company usually. It barely has financials, probably has maybe some user metrics or product metrics, may only have a team and a slide. So there is no company, there's no sort of value. It's all art. If you're right and the company works out and turns into a company that produces financials with revenue and ideally with contribution dollars and maybe even one day profits, Then by definition, that company is going to be worth more than what any price you pay to seed round would be or almost surely any price series A. So you are effectively buying low and selling high, but it's more you're just doing any version of venture. There's no such strategy down. I think it's very difficult though in later stages to pursue anything like that kind of strategy because ultimately that's a greater fool's theory. Basically it means that 90% of the time, you're betting that someone else will pay a higher price than what you perceive. Now, if you have asymmetric information, that strategy could be a coherent one. Like, I have asymmetric information about this market, this company, this technology, this person. Then there might be some coherence to a, even a series B or C, buying low and selling higher. But typically, people who are leading these Series C and later rounds have no asymmetry of information. They may have asymmetry of closing, asymmetry of deal flow, but there's no asymmetry of information. And so the only thing you're doing is a risk-adjusted probabilistic bet, which really means you're not really buying low. You may be fooling yourself that you're buying low, but if you adjust for the probability of success, you're actually paying a fairly high price. More importantly, at the end of the day, any early stage investor, unless they are running a billion dollar plus fund, has to depend on future financings. Almost no company you or I will ever finance will be profitable on the first tranche of investment. Probably never. I once joked and quipped that I've never invested in a profitable company. I'm sure that's true. and I'm not even sure that almost any of the companies I've invested in have ever become profitable. Actually some have, but I'm sure Open Door actually is profitable, a firm will be profitable, but usually it's a 10 to 15-20 year journey by the time that happens. So if you're not going to become profitable, the only way you can buy low and sell high is to persuade the rest of the world to buy high. And that means you have to be pretty derivative. Now, if you're running a multi-stage, multi-billion dollar fund, in theory, you could fund a company from beginning to end. But 99% of VCs on Twitter are not running a multi-stage, multi-billion dollar company. So your tweet would be very misleading or dangerous for anybody who's not running a multi-billion dollar fund. I mean, we at Founders Fund do. And so in theory, I could invest at what I think is low price and if I'm right, we can continue to power money in the company and not really care what anybody else in the world thinks about that for a very long time. But if I was a seed investor, I need to know what the world of Series A investors is willing to fund in A. And then if I was a Series A investor, like let's say Benchmark, a very typical Series A only fund, they need to know who's going to fund the company next and what price they're willing to pay. So you have to move from somewhat in Peter Thielian terms, contrarian consensus pretty fast to get a company financed subsequently, unless you're working with a partner like Founders Fund that wants to be contrarian and is willing to back you up for many years in a contrarian mode.

You said about kind of probabilities of success there. I think one thing that I've really changed my mind on is outcome scenario planning, because there's success, but there's different variants of success. There's 1 billion, 10 billion, 50 billion, and that changes everything. But bluntly, your biggest winners you never anticipate to be as big as they will become.

How do you- I don't agree with that, actually. Honestly, I think that's completely false. In fact, I just sent an email to our investment team on a specific company. I actually think that you almost always know, and you always know as soon as you meet the company. Doesn't mean you're right, meaning like there's a probabilities of 30-40% being right, but you can see the upside case. This is one of the most important things I sort of learned derivatively from Mike Moritz is, the most important question is what could this be? The note Coast, Los sort of has a similar version of this where we used to write our internal emails on Investments with articulating upside case. And that was the most important thing. What's the option value or what's the biggest upside case? And I think that exercise is critical. But I knew almost every time, 30 seconds to three minutes in the meeting, that this was spectacular opportunity. And if the things worked, this was a 50 to 100 billion dollar company. Did you really?

I don't mean that by stupidly, but when you look at companies like, I've had, we do the memo, which is where we interview GPs and they talk about investments they've led, like Twilio. People thought it would be a three to five billion dollar company. Jeremy thought Snap would be a three to five billion dollar company.

Twilio last year was 60 billion. I mean, not- well, yeah, I mean, I didn't meet Twilio. I wasn't a VC when Twilio was raising any of the rounds. I don't know how I would have approached that, but I know every time I've invested in a good company, I've known the upside. I knew exactly what the upside was. I knew it was gonna be massive. I think you do need to think through the market comps. So I think one of the mistakes people have been making over the last two, three years is, let's say if Shopify is trading at 160 billion, let's say, then the upside case for things that could be Shopify feels like 100 billion. We Shopify trading at 44 today, your upside case is different. So at 160 writing a check at an early stage company, two or three billion might make sense. Not really stage, but mid stage, growth stage. We Shopify at 40, it's almost impossible to write a check for a potential Shopify at a billion or two.

I'm intrigued. I never think it's worth looking at existing market comps because in so many ways, because in so many ways, We're changing markets, we're reinventing them, we're expanding them. And so it almost is incomparable to compared to a prior generation. To what extent do you think it's valuable comparing a next generation Carvana to Carvana, for example?

It's a good question. Fortunately, most of what I do and most of what I've been successful at are really seed and series A investments, in which case the public multiples don't really matter. And I don't pay too much attention to them. I've also funded a lot of what I call non-comp companies where they're forging a new market completely from scratch that didn't exist, which is also something I prefer to do. That said, I now work as a GP at a very large fund that does a lot of late stage investing, growth stage investing. And so I have to have an opinion on later stage rounds. I don't lead too many. I've only led in nine years of investing three late stage rounds. Later stage rounds, Series C co-led with Stripe, Fair, Series C, I led it founders fund. And then I invested a lot of money in two late stage rounds in a company called Ultima, which is relatively secretive, but should be public, meaning public about the plans and why they're so impressive. Next week or so, those three companies that had incredible asymmetry of information. Strike Fair Ultima. And so it's very rare for me to be doing a growth round, so I don't think about it too much. But the growth team, my colleagues, Brian Singerman, Peter, Napoleon, we're really excellent at this stuff, are constantly taking into account the public comps.

Can I ask, Keith? I speak to a lot of GPs and they say privately, oh my God, this is shit, this is terrible. And then I hear them with LPs and they go, this is the best time to be investing. This is a great time to be investing. Look at the prices, this is going to be great. Which one's right in your mind, honestly?

Well, I mean, obviously the price you pay dictates your returns. And so that's pretty important. Like, I mean, we had an internal kind of analysis that obviously founders fund way before my days generated a lot of returns. I think we produced the most liquidity for LPs or one of the two most liquid, most distributions over the last two years of any fund on the planet. And the reason why was Peter and Brian and some extent a few other partners were leading later stage rounds, Airbnb, Stripe, et cetera, when that wasn't particularly attractive. But the prices, meaning it wasn't popular to lead those rounds. The prices founders fund invested in were more like a billion than like three or four. So one way to think about is to say, well, those types of rounds 2017 or 21, Would have produced great companies, but 1/3 to 1/4 returns. Now that said, if the upside case, and let's say the DataDog's Twilio's was much larger than people forecast, maybe you could offset some of the valuation increase and growth and creep by, you know, power on the upside. That said, I think, you know, that requires you to time the market of your exit too. So a lot of what I've learned recently, that VCs sort of forgot about many VCs, including some of my colleagues, is that if you're going to play the game of high price valuation entry, you also need to be good at exiting trades. It's more like Wall Street. I never had to learn how to exit trades because I invested 5, 10, 15, 20 million post. And so any exit, first-time tech company, is gonna be really, really, really good. But if you're gonna invest a billion or two, it's really important to get out when the company's trading at 100, not when it's trading at 30.

But like, you know, the Lick Preps.

On some of these companies. Oh no, well, I mean, Lick Preference is, you may get your money back and all that stuff, but like, that's a mistake. Like every time you get your money back, as we see, it means you made a mistake in some ways. It doesn't mean you made a mistake when you invested, meaning like, there is no agreed upon framework for deciding without the benefits of hindsight, what's a good decision or what's a bad decision? It's one of the arts in venture is just looking with the benefits of hindsight, things could have been a bad or smart decision that worked out differently. So you want to really read those memos, reread those memos and look at the analysis, the thought, the inputs, not the outputs in some ways. But that said, every time someone says, oh yeah, this look preference, you get your money back, I'm like, yeah, but the opportunity cost of that investment was horrible.

Yeah.

Like I'm spending my time to, you know, in some ways getting money back doesn't really matter. It probably matters for people who do growth funding. You know, you're at a 50, 100, 150, 200 million dollar check. You don't really want to zero on those things. But a 3, 4, 5, 10 million, even up to a $10 million check, a zero doesn't matter in the grand scheme of a very large fund anyway.

You mentioned the kind of the precious nature of time there. The truth is, Time is the most valuable thing that we have as we both know. When you think about time allocation across the portfolio, it's a very nice founder marketing tool to say, no, we care about everyone equally, but we both know that it's your squares, your fairs, your altimaras that drive returns. And actually, you hiring ahead of sales for one of them could move the needle versus a 0.1x improvement on the dog. How do you think about that?

Well, Peter Thiel taught me also in 2000 or 2010, two years ago that people systematically undervalue their time. And so trying to consciously apply that, yes, sort of pre-step to all my time, personal or professional, and really value it and try to allocate it as appropriately as possible. In venture, it's really tricky because actually in some ways you should rationally allocate your time to your best performing companies. It turns, if you're not careful though, the worst performing companies will It will require the most of your time. And while that might help save a few and be really helpful to founders, it's also not going to produce returns for the fund. So there's a sort of irrational distortion in your time in venture because you have a kind of binary sort. The companies that tend to drive the most returns also don't need in quotes the most time. But they could use high leverage time. And then the companies that are definitely not going to drive returns need, quote unquote, the most time, but they're clearly not going to drive returns.

So I'm not being real. How do you advise me, Keith, for the companies that aren't performing? How do you kind of delicately say, hey, super appreciate it, but like it's not going to be a fun impact for us. And actually I have to be conscious of my time.

It's very, very, very complicated. I think the most important thing you can do is agree upon with the founder what the best destination is, meaning given what we know about the company, founder, team, metrics, product market fit, where's the best place this company can go, what's the probabilities of getting there? And then I'd ask the question, okay, let's agree on this destination. What do you think you want to shoot for given the constraints? And then what I can do is help you get there. So I think therefore it structures the conversation around what are we trying to accomplish collectively and I'll do whatever I can within my power and time to get you to that destination if I can increase the probabilities. And then that way when we get there, the founder and team is thrilled if we can get there and it doesn't have this infinite sort of mission creep. And then I do filter by impact. There are companies that for a variety of reasons, I can impact a lot, and for other reasons, I can't. It's not totally correlated with success or failure. But if I'm going to allocate a scarce hour at the end of the day, I'd rather allocate it to an hour that's going to create high leverage for somebody.

I'm really asking the hard questions here, but it's going to save me looking like a twat on Twitter again. What do you do when you lose faith in a founder? I still don't have the answer to this.

Depends, I guess, the cause of that.

I think you question that you question their ability to actually execute and lead the company in the way that you thought they could.

Yeah, well, a founder's fund, there's only one real answer because we don't replace founders. Most VCs would probably try to change the management team, including the CEO. We, you know, ideologically, philosophically, and effectively legally just don't do that. So at that point, we're probably gonna be less actively involved.

Gotcha. And so you'll just say to the founder, hey, from now on, founders fund will take less of a participatory role and good luck.

Yeah, I think we'll be clear that, like, look, I wouldn't count on us for additional capital. If there's things we can do to be helpful, you know, we'll try, but like, we'll give them, you know, a significant advance warning, let's call it, measured in years, not in months. that were unlikely to be the financial backer of the future.

Yeah, we mentioned timing exits. I was chatting to you earlier the other day about benchmarks. That's it with WeWork and chatting to Chamath about not exiting Slack and the haircut that he took on the back of that. In terms of funds now thinking that they should manage beyond privates and into publics, how do you feel about that evolution of the venture fund model of hey LPs, We can actually manage more efficiently than you or public versus just distribute when going public. How do you feel about that evolution? I guess it depends about the skill.

Set of the team. I founders thought, I don't think we would do that very well. We don't have a team that's really constructed to do that. We don't have the legal structure that's really designed to do that. Could someone build a team with asymmetric capabilities? Probably, yes. That said, I think it's a bad idea for venture capitalists typically for a variety of reasons. One is skill set. Second thing is most LPs do not in fact want that. They're hiring venture as an alternative asset class. They already have, if they want, public market, public equities exposure, managers that are professional with track records doing nothing, but that. Now the legal advantage is to some extent, if you are managing companies that you were involved in early as they become and convert into public publicly tradable securities, in theory, you have some asymmetric information that might be below the line of materially non-public information that you could actually trade on legally. And that should drive superior returns actually over time.

Yeah, no, I agree. I do want to ask, in terms of where we are today, will we just in massively inflated times last year, is this a massive overreaction from public markets on interest rates and everything that we're seeing globally? Where is the natural price equilibrium? Because I can't figure it out if massively inflated or overreaction.

How do you analyze it? We analyzed it recently at Founders Fund and it's definitely not an overreaction. Even with the corrections of the last, we'll call it six, seven months, we're only at the 30-year normal average. If you look at multiples, we're exactly at the average. So average also means there's downside and there's other side of that. So, it doesn't mean we're going to go down from here. I'm not explicitly saying that, but I'm saying if you're at the average over 30-40 years, that means you're in normal times, not bad, not worse, normal.

Yeah, I totally get you. How do you think about deployment in times like this? Because I think, again, I speak to a lot of managers and they're like, listen, it's so uncertain right now, we're totally pulling back. Do you just agree with consistently investing through cycles? I heard a little birdie say that Founders Fund was pausing.

I think it depends on the stage. I would invest in seed companies with the right team, with the right vision all day, every day in any cycle. I think in the growth rounds, I absolutely would only invest in things that are priced appropriately because you really do only have a two or three year window. And so you need to be very conscious of where is the market to be successful. In the rounds in between, I think it's a risk return calculation, Series A, Series B, Series C. And on those rounds, it depends on whether founder expectations have been reset to appropriate valuations given the risk. Then secondarily, as we started the conversation, I would wind back to, if I'm the first investor in this company, who's going to fund it the rest of the way? What milestones do we need to achieve? How much capital will it take to get there? Am I willing to be the only person funding this company for a long time? Or do I need derivative other people's money, in which case I need to make sure that we're gonna hit objectives, milestones, goals that in any market other people will fund?

Keith, I think investor psychology is everything. And you've been through cycles before. I haven't. And for the last few years, I felt pretty good at what I do. And now I'm actually questioning whether I'm any good at what I do. When you advise younger people on your team who are suddenly questioning themselves and are very insecure actually on whether they're any good at what they're doing, how do you advise them with the wisdom and experience that you have?

Obviously, unsuccessfully because both Peter and I figured out this market was crashing last summer and we really tried to stop people from investing at ridiculous prices, but even the founders weren't totally successful. And actually had lunch with one of my colleagues two days ago and he said, I think I had the disadvantage of never having been through a negative cycle before, where Peter and I obviously lived through one, and we realized things can go off and they do go down, where I think all my junior colleagues felt things only go up and to the right. Now, it's a little bit like baseball, which unfortunately, you know, I know Europe may not resonate as much as maybe the American audience will. You know, there was a period of time, a considerable period of time, 10, 15, 20 years ago, when a lot of major league baseball players were taking steroids. And you saw these really artificially inflated stats. In fact, there was this fairly mediocre center fielder for the Baltimore Orioles, Brady Anderson, who made 52 home runs one year, which was the signal of, wow. You know, like absolutely impossible for somebody like that to hit 50 home runs. I mean, 50 home runs is a major milestone. It'd be the equivalent of $10 billion, you know, public company. And you had this like very benign, you know, kind of a normal baseball player. hitting 52 home runs. So when everything is boosted by steroids, everybody looks really good on paper. And you can put a baseball card stats like 52 home runs. Now, in his case, they can't take the 52 away from him. There's some asterisks that they've added, but they can't really take it away. The problem for younger VCS or lost three or four, maybe even five years, is with everything inflated, most of that inflation is paper, not real. So unless you were also savvy enough to sell. Those are fake returns. And so depends on whether you distributed. Now, I have a colleague at KB who was involved in one company that was trading really, really well, and he was very savvy and decided to sell. That decision alone returned kv5, which is a 1.3 billion dollar fund. If he had waited on it, it would be still a great company, a great investment. He let it see a day. turned out to be a public company that's always going to produce returns, but it would not have individually returned a $1.3 billion fund.

Oh, well done him. That's a good timing decision. Can I ask, and it's a bit of a strange one, but when we look at companies today, the power is shifting, I think, back from employees to companies, and we see the potential for leaders to be more Brian Armstrong-like. Do you think the correction will kill wokeness within companies?

I think it has, I mean, I think wellness is a function of entitlement, meaning when there's no stress, no work, no perceived risk, then people have distractions and it's like a vacuum, you know, sort of fills up, distractions fill up a vacuum. When people are under stress, when they have to perform, when there is no possibility of future financings, unless you get your act together, it will concentrate people's minds. There's things about crises that tend to produce better returns, better results. And so I think that's going to happen. It's not accidental in my mind. It's not coincidental that the most woke companies are the ones with either network effects or a monopoly.

Are you worried about the US's coherence as a policy?

No, not really. I mean, it's kind of like the Winston Churchill comment of compared to what and where.

Yeah, I think we're looking in from the outside, it's a concern. Do you worry what people say about you, Keith? I'm always terrified about what people say about me.

I got no idea. Well, I think it's a very bad way to be an investor at a minimum. I think the whole point of being an investor is you've got to be perceived as ridiculous and wrong for a long time. In fact, I just saw as we're chatting, one of my friends just tweeted at me about one of my new views. which is pretty amusing. I'm crazy. But that's part of being the art of being an investor. I mentioned on my first appearance on 20 Minute VC many years ago that my acid test for success as a VC is do half of my friends who are VCs laugh at my investments? So I think it's a very useful discipline to be pretty immune from feedback. As a VC now as an executive or CEO, it's very different because you're managing large teams and you need to understand the dynamics of large teams. so you don't want to be quite as contrarian as an executive running a company as you can be as an investor.

What do you think is your craziest belief today?

It's a really good question. I actually do this exercise where I run a CEO, a company called Open Store, where I have about 80 employees. And every Monday I have lunch with a different team and they just fire away random questions, whatever's top of mind. And about a month ago, one of my colleagues asked me this question, what's your most contrarian view today? and I looked up and I said, you know what? Damn it. I don't have any views that are contrarian anymore. Like, because all the stuff that a year ago everybody thought was fringe, you know, is now accepted. Like, you know, Bloomberg dismissed my views about COVID as fringe. And of course they were correct. People thought my views on inflation from January to maybe even as late as October were ridiculous. And of course they were correct. You know, now everything like I believe has become like correct and consensus. So I have to go back to the drawing board. And it's really scary actually to not have any views that are, you know, considered to be absurd. And so the follow-up question, which was instructive from, from a colleague, was, well, how do you derive these views? How do you go get new ones? And I said, I, I read books. And the reason why I read books is if you, if you consume the same content and talk to the same people, you're not going to derive new views. But if you read original sources that are different and divergent from what other people do, you might formulate new ideas. And so I'll give you an idea. It's not super contrarian, but one I've been sort of promoting, let's say, recently is I really want to invest in only companies that are in person. So I think there's a lot of alpha there. I think in-person companies will be the successful startups. I only want to find founders who are working in person. And that's my new investment filter.

I totally get it. I saw your tweet saying it was RRL and then Michael Eisenberg's like, Island?

Yeah, that tweet was probably too ambiguous with what I meant. It was trying to be a little too clever. I should have expressed it more clearly.

Keith, when was the last time you changed your mind on something? And what was it?

Well, I change my mind all the time, actually, maybe surprisingly. The biggest, most obvious one is moving to Miami. So I used to be a Silicon Valley elitist for like 20 years or whatever in my life. I really believe that if you are ambitious and wanted to build a disruptive technology company, that you were sacrificing the probabilities of success by not baking it, building it in Silicon Valley. And then obviously I switched to large, and I now believe Silicon Valley is a disadvantage, not even neutral, it's an actual disadvantage. So obviously that's a pretty high profile switch of views.

Why is Silicon Valley at a disadvantage now? Is it pure? Because I just look at it for sorry, I'm naive. I look at it from the outside. I see Chester, I see the, you know, justice system. But then I also see things like YC now being fully remote. I see all VCs leaving. Is it political? Is it economic?

Is it societal? Like, Well, it's a bit of both. I think many of the most ambitious, talented people, whether entrepreneurs or VCs, have laughed. So I think the network effect has been eroded. Secondly, it's very hard to concentrate on your job when you're confronted by safety issues. Actually, at the end of the day, if you get assaulted, it really just disrupts your week. I can tell you I had my home burglarized when I lived in the Bay Area twice, but the last time was pretty terrifying. And I got no work done the next week. Like this guy broke into my house, got all the way into my bedroom. There was no way I was sleeping the next week comfortably and therefore I wasn't thinking clearly and I wasn't really executing very well. So if you're constantly on guard, defensive, or actually assaulted, you're not going to be very productive. So all these things have come together. I think capital does matter, meaning concentration of capital, most of the beat. Well, actually, I know of only now one VC of all the top VCs that still has their partnership based in the Bay Area completely.

Sequoia.

Now Sequoia now is opening a New York office. I hope I didn't ruin their PR announcement there. I think Coastal is the only one that still has all the GPS living in the Bay Area with the expectation they're going to be in person. every day. Squarespace also has a partner, I think it's public in LA.

Yeah, no, absolutely. Keith, when you look at your track, there's kind of not much that you haven't hit. What's your biggest miss and what did you learn from that miss?

Okay, so the mistake I make is not, I basically almost never, possibly never have made a mistake in passing on a founder I met a person. However, There are several, unfortunately, very successful companies where I declined meeting the founders in advance. And those are incredibly frustrating experiences. Is that commonalities in why you declined meeting them?

Like when you learned that- It's different per company.

I mean, you can't meet them all. You know, some of these that declined meeting while I was running Square, when I was running, you know, companies, so I didn't have an infinite freedom or infinite, you know, control over my schedule. but even as a VC, there's a few I probably declined that I should have met that have done pretty well. And, you know, interestingly enough, there's no easy solution to this, right? The how passing on something you meet and figure out why with benefits of hindsight, like what should I have known, what should I have seen, what could I have done differently, Etc. That's a relatively tractable exercise because you don't have infinite time and there are so many companies that are forming formulated all the time. And especially if you want to go to top of the funnel seed and series A, there's infinite opportunities to take meetings. So trying to figure out what to do about that isn't so easy. I still struggle with it nine years later. Every time I get an introduction to a new company, you know, is this the, you know, whatever, let's say coinbase that I, you know, was introduced to you very, very early by Gary, who really, Gary Tan, who really wanted me to invest and You know, I basically wrote back, I really didn't want to meet them, even though I actually did see a flash or two in their deck, which I pointed out in this email, threw it back to Gary, but, you know, obviously a massive mistake. Now, I wasn't yet a VC, actually.

I was more angel investing, but still clearly a massive mistake. Would you agree with Teal that your biggest mistake is not concentrating capital into.

Your winner, or is it actually not doing a net new? That is a great question. I'm not good at concentrating capital into to successful companies.

I think it's because I always go there just way too expensive, way too expensive, way too expensive. It always looks expensive.

I think there's a couple reasons why I'm not very proficient. First one is I tend to be a very active investor, typically on the board of directors of these companies. And so I kind of know what's not working and what's, you know, less ideal than might be apparent superficially. And so it's really hard to disambiguate that knowledge when we're deciding to invest because outsiders are just looking at the presentation and I haven't figured out how to normalize that. So I generally know the weakness is better than anybody's considering investing. The good news about having colleagues, Brian Singerman particularly, Peter Thiel and Napoleon, who are excellent at powering money into companies, is I can kind of leave it up to them. Like I will typically do this. Maybe this is a surprise for people. even for companies on the board of when we're deciding to double down, triple down, quadruple down, I may have an opinion, but I will usually lead it to one of them to sponsor the investment so I can sort of offset my discount factor.

Yeah. My biggest mistake investing has been relying on other people too much.

Well, yeah, that's a disaster. Yeah. Challenge. I mean, we can talk about this. forever, but fundamentally, most investors are not very good. So if you rely upon other people, by definition, you're not going to be very good.

Do you think VCs add value? We're kind of getting into it, but I sit on boards. But most of the boards I sit on are shit. They don't have you on them. I'm not being rude.

Like, you're great. Well, this is why you get divergent feedback. That's all high fidelity signal from very well meaning and often very successful founders is VCs are not the same. and I think there are a handful of VCs who are very valuable that I would want to work with if I were a founder. And then there's another set of VCs that are fine, meaning some upside, no downside. There's another step that are neutral, and then there's a bigger step that might be negative, you know, negative value. So depending upon who you work with, you're gonna have a very different experience. If you're a successful company, you raise money from multiple different funds, you might be able to compare contracts. so, you know, I serve on the sub-boards where I work with one or two or three other very successful investors, and the founder can see the differences and point the knowledge other Founders when they do reference checks, Etc. But those are typically the rarefied companies that have multiple successful VCs on the same board. Think like Airbnb, doordash, you know, fair, stripe, whatever. Otherwise, it doesn't have a lot of VCs, fortunately for them. But typically companies like that attract a lot of talented VCs affirm. So those founders have a unique vantage point. But typically, I think the reason why you hear very different feedback is there's probably only five to 10 VCs that actually add value at scale.

Can't ask, who's been the best board member that you've worked with?

John from Lennar and Open Door. So John is the COO of Lennar, which is a very large publicly traded home builder. and he got involved in Open Door fairly early, actually. And I, admittedly, I was nervous when we, you know, sort of took strategic money and had a board member join from real, from the real estate industry. But he's fantastic. Absolutely fantastic in every possible way. Insightful management, strategy, everything. So he has been incredible to work with.

Keith, what's your biggest insecurity as an investor today? I always see your tweets and I'm like, you have it all sorted.

The biggest insecurity is I think you do not age gracefully as an investor. I think you get age is not your friend as an investor for lots of reasons, but in complacency is never your friend as a successful person at anything. The combination of aging in venture plus complacency is really bad lethal product combination. So I fear that I'm going to lose the ability to spot high potential founders that are not from central casting at the earliest possible stages of their company, that I need to meet them. So I need to have a network that identifies them. I need to meet them. I still need to find that signal. And Every time I do find one, I see a smile. My friends at college see a smile on my face.

And.

The reason why I react that way is affirmation that I can still do this job. But at some point, I was just mentioning to one of my favorite protégés ever, a dinner recently, that if I ever lose that ability, as soon as I feel I've lost that ability, I'm gonna have to quit.

Can't ask, you've got an amazing relationship with Dallion and you are an amazing mentor to some. What makes you choose those people to mentor and have as proteges?

Well, the one, well, the most, the selfish version is the only way to scale yourself is to find people who can actually provide leverage and do things. So, you know, like, I would, it's not pure altruism. You know, it's like, there's only so many things you can do yourself and you need to find people who are pretty damn talented or you're not gonna be able to scale yourself in an organization or even eventually So that's one is basically find people that you think have the potential to allow you to scale yourself.

I want to move into a quick fire, Keith. I'm aware of the time. So I'm going to say a short statement. You're going to give me immediate thoughts. Sound okay?

Sure.

What's the hardest element of your role with Founders Fund today?

Identifying and hiring potential investors as we age, Peter, Brian, me, let's say the GPs in the venture fund. who's the future of the fund? Do we have them internally or where do we go find them?

Three traits you obviously have now, children. Three traits you most want your children to adopt.

Work ethic, tenacity, maybe those are related and ambition.

What do you know now that you wish you'd known at the start of your career in venture?

The price, the price and value, the price and valuation just doesn't matter in traditional ventures, seed in Series A. It's kind of the Peter Fenton line in your 20 Minute VC of valuation is always a trap, which I didn't totally understand when I listened to it, but I think I now rock it.

What's been your single best returning investment?

I've never actually exactly tracked it, but probably Airbnb.

When did you get into Airbnb seed?

In the seed round with Sequoia, so, you know, call three and a half million post.

I miss those days. What would you most like to change about Venture, Keith?

Great question. I actually don't want to change that much, 'cause that would just mean more competition. Meaning, I like the fact that most Venture is mediocre. It's probably too large, truthfully. I don't think the size, Venture really is designed to be a pseudo cottage industry because there is too much money tracing too few good founders. And I think that causes distortions, which probably creates a suboptimal number of funding successful companies. But I think it's a very complicated dynamic.

So I'm concerned we're going to see the migration of all large growth funds, your D1s, your tigers, your durables to seed, because obviously growth being where growth is. And we're going to see price inflation at seed. Do you agree?

I agree we'll see price inflation if that happens. But I don't worry that they're going to be successful.

Successful.

The skill set required to invest at seed is utterly different and probably completely incompatible with the idea of being a good growth or public market investor. The reason why is at the end of the day, seed companies have no financial metrics. They probably don't have financial metric, product metrics even. And so people who are excellent at diagnosing financial metrics, analyzing financial metrics, are disaster in evaluating Keynote DAC in a team at a vision.

You said the market is at average now. In a year's time, when we have another chat, are we going to be up? We're going to be down. Where are we going to be in a year?

Great question. I can tell you how to derive the answer. I don't know if I know the answer, which is, I think the only thing you need to pay attention to is the inflation rate in the United States. If the inflation, if an inflation rate does not subside, interest rates are going to have go up and if interest rates go up, public market tech companies will have to trade down. If inflation subsides, perhaps interest rates don't have to go up and possibly can go down, which would allow some degree of reinflation of valuations in the public domain.

Final one for you, Keith. What's the most recent publicly announced investment? And talk to me about why you said yes and got so excited.

Great question. So I haven't made a new investment in 2022 in a company that's not already in our portfolio. I have co-led or led new rounds doubling down in companies that are already in the founders fund portfolio.

Why is that? Because you were aggressive in 21. Is it because of the pricing in the market? Yeah.

So I led 13 or 14 new investments or so plus minus in 2021. None, you know, basically halfway through 2022. So that's a sign, you know, something. Maybe it's good, though. Maybe I actually probably should be slowing down anyway, but it's good to have a natural correction. But fundamentally, I think the last one we announced publicly is found, which does bookkeeping, taxes, and payments for SMBs, micro merchants led by Lauren, who I worked with at Square. She was the most important PM in history of Square. So she founded the company, Alfred Lynn from Sequoia led the initial seed series A and I led the series B. Just had a board meeting yesterday. So if you want to join a company, I highly recommend it.

Keith, I always love chatting to you. You should chat to me on shows like this instead of tweet back at me and make me feel terrible.

Sure, whatever you want.

Man, thank you so much, this, you're a star.