Keith Rabois | Venture Capitalist and Co-Founder of Opendoor and OpenStore

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Keith Raboy, welcome.

Pleasure to be with you.

Likewise, great to meet you. Thanks for coming on the show. How's Miami life?

I love Miami. I feel like I live in paradise every day. I go to work, get my work done, come back, back in paradise, wake up in the morning, rinse and repeat.

You forgot to mention berries. You're wearing a berry shirt and I heard you're doing almost two a days these days. So how's that going?

Yeah, I try to average 12 berries a week, so pretty good. I just finished last week my 42 hundred class, so I'm trying to get to 5000 as soon as I can.

That's incredible. How do you find time? How do you, what's your day look like right now?

Well, I organize my day primarily around sleep, so I want as close to eight hours sleep as possible. So I typically go to bed fairly early, wake up, prioritize that. And then as soon as I get out of bed, I do my first workout of the day. So usually I'm taking like a 7:10 a.m. Barry's class in Miami. And that way I'm set for success. The second workout's more optional. It depends how the day's going, how many things I'm juggling. There's always unexpected turmoil. Startups are roller coaster ride. So every day is a roller coaster. That's why I like to start with a workout, make sure that the fundamental premise is set, everything's ready to go. And then if it turns out there's more time, usually I'll weave one in in the evening.

Have you always been into fitness or is this something that came more so later in life?

Different kinds of fitness. So, I played a lot of soccer in some fair amount of basketball and we used that as like training for that as opposed to just like aesthetics or life extension and these sort of different goals. But I no longer play very much soccer or basketball. So, now it's mostly for either health or aesthetics.

Love it.

You grew up in Edison, New Jersey. I want to kind of take it back a little bit and talk about young Keith and what he was like. You mentioned being into soccer and basketball. Outside of that, what did you enjoy doing? What was like your, you know, passion, I guess?

Oh, I loved like baseball and sports, both playing baseball, football, tennis. I played almost all sports, American sports, and then would watch. Like, I listened to like 140 Yankee games a year. I was pretty addicted to the Rangers, Knicks, and reading. So the other thing I was addicted to is reading. I read the Encyclopedia from COVID to cover when I was pretty young. I was just happy to learn this morning. I have two kids, one won an award at two years old in his school for being the bookworm of the class. I was extremely proud, extremely excited, because that's what I basically did, is read, read, read as an extremely voracious reader. maybe as early as I can remember, but certainly from fifth grade on.

Yeah.

What did your parents do? What kind of influence did they maybe have on you at a young age?

Well, one of the ways they actually impacted my reading was we were a typical middle-class household and we didn't have a lot of disposable income and you had to be judicious about what we invested and spent money on. But they gave me an unlimited budget for books. So as long as I read the books, I could buy as many as I wanted. What did I do? I substituted my shopping into books and read them and enjoyed them and that compounds. So I have a library I built when I moved to Miami. I built a custom library, which is possibly the only authentic library in Miami. So I've always been addicted to reading and love to read and try to inculcate the habits and friends, family everywhere I can.

Yeah.

Do you remember some of your other favorite books or topics? at that age?

Well, yeah. So the first type of genre that got me addicted was actually what used to be called spy fiction. So it'd be about, like, Cold War spies, you know, in Berlin, you know, a lot of sort of Robert, John le Carré, Ken Follett, Robert Ludlum and people like that. And Tom Clancy, a little bit later, just voraciously read their entire repertoire. so that was the first kind of genre that I was passionate about. But I developed, you know, reading skills through the exercise of reading their fiction. I read non-fiction mostly biographies and autobiographies was kind of my go-to so I really enjoyed that and was also very intrigued by history and politics. So those were the three areas. There's either an autobiography Politics slash history, kind of a fine line there, and spy fiction.

If you didn't live in this era, what other era would you want to have lived in? And who's someone throughout history that you admire, that you would have loved to meet, that you didn't get a chance to meet?

Well, I briefly met her, and not in, unfortunately, in a one-on-one situation, but my hero growing up was always Margaret Thatcher. and I did have the opportunity once to see her speak in an auditorium of about 100-200 people. But I read, consumed everything about her biography, her autobiographies, three volumes, as well as many other biographies about her. So she was who have always wanted to emulate and obviously was too young, realistically, as I was growing up to really spend any quality time with her, but you know, I wish I was maybe a decade older and had the opportunity.

Yeah, that's great. So presumably you were a good student. You ended up going to Stanford studying Poli Sci. What did you kind of want to be before you even got to college at a young age? Because I know you eventually went to law school and got your law degree. But like, did you want to be something else and then eventually switch paths to law once you decided maybe this is a lucrative career? or was that something that was always kind of in the cards for you that, you know, I want to grow up, be a lawyer and do this?

By the time I was in sixth grade on, I wanted to be a lawyer. I was focused from then on, and how do I be a lawyer? You know, like political science is a classic pre-law sort of curriculum. I optimized, you know, sort of my extracurricular activities around, you know, getting into an impressive law school. But I knew I was attracted to law, which also had a blend in the politics. to per my reading habits, you know, I've been intrigued by Paul, and I was interested in politics at least since I was in sixth grade as well. And so paid attention to politics, rather vociferously about politics. And obviously there's a long history of American lawyers going in and out of politics to being effective and appointed to interesting jobs, roles. So I thought that was the trajectory I was aiming for, for, you know, pretty much up to the age of 30. Wow.

So you thought you might eventually become like a congressman or senator or run for president or something like that.

Not necessarily directly run for office. My goal was to be a campaign manager along the lines of like Jim Baker, who's a lawyer and then moved into politics successfully or eventually be like a White House chief of staff or somebody like that. That's kind of the trajectory. I don't think I ever really envisioned running directly for office. But I definitely wanted to you kind of play the Washington lawyer role, which there's a long, probably century long history of lawyers in DC going in and out of government and interesting roles.

Yeah.

So when you're at Stanford, you end up meeting this gentleman named Peter Thiel, which I know eventually would come into play in your career and just life. What was that kind of encounter like, you know, initially and how did you kind of guys become friends and sort of click?

Yeah, so it's one of these stories that's even more amazing than fiction. Literally, I met Peter on the first day of my freshman year at Stanford. And the way I met him was I was sitting in my freshman dorm room and walking for those who know Stanford, and my door was open and Peter was running around the halls delivering the second issue of the Stanford Review by by hand. And he happened to throw this under our door and I picked it up and I was a conservative already self-identified and there's this alternative conservative publication. So I happened to say, oh, that's cool. That's interesting. Chatted with him. He invited me to some meeting, some organizational meeting, and I showed up and started writing for the review. And 30 years later, I'm still stuck in a computer.

Did you feel like at the time that he was going to be someone that would be a lifelong friend and someone that you would work with eventually? Did you see that sort of spark in him?

I did, and I thought more in terms of law and politics, never, never, never in any sense, I think, about business for either myself or for him. But I did think he would, you know, do interesting things in law and politics. He wanted to go to law school, et cetera. But he misedited one of my pieces, so I got very furious with him. So other than that little saga, yes, I I envisioned, like, we wound up going down the same path. He's a little older, a couple of years older, but he wound up clerking, as did I, and then he wound up working actually at the same law firm, the same quintessential Wall Street law firm that I did, although, you know, he was frustrated enough to quit after five months and four days, and it took me three and a half years to figure it out.

Oh, yeah, way too long.

Yeah, he still introduces that as my biggest character flaw. It took me that long to figure out the obvious.

Yeah, what was that experience like for you, you know, being a lawyer? I can imagine you probably enjoyed some parts, but maybe not others. But like, you know, what was that like and how were there any skills that I guess you took away from those few years that helped you be a better executive entrepreneur investor?

Yep, absolutely. So I actually did enjoy practicing law or wouldn't have lasted three and a half years after clerking. So four and a half years as a lawyer. obviously suggests that had some energy and excitement around it. It was back in then and certainly my firm was, it was required, there are two flaws or things that were frustrating. One was you had to be a complete generalist. We didn't allow specialization, so there were parts of practicing a lot that I really enjoyed and parts I really didn't want to do and we fused them together and didn't allow them to be disambiguated. So I think that was draining. And then secondarily, we weren't. We were very meritocratic, but you moved within lockstep per year. So you're a second year associate, your whole identity was around your second year associate. Then you're a third year associate, then a fourth year associate, a fifth year associate. And that was the only way you could progress within the firm was by annual, like cohorts. And so you wanted to be the best within the cohort, but it still takes seven or eight. to sort of become a partner regardless to, you know, pretty much independent of your abilities. And so that wasn't that exciting to me. My corporate, as a litigator says on the litigation side, but my transactional colleagues became frustrated that tended to move into investment banking. So they've started serving on the Commodore like I did, but they had more options. And then they felt that the banking system at, let's say, Goldman Sachs or something like that, and then they like that. was more progressive in terms of merit and that there'd be more separation in terms of career trajectory and compensation. So the best corporate associates would typically migrate into investment banking. As a litigator, I didn't have any of those options. So if I sort of forged my own path.

Yeah.

And so you ended up working in tech startups right around the dot-com boom, from what I understand.

Exactly. Yeah. Unfortunately, the dot-com boom crashed and burned six weeks or so after I joined the tech world. So maybe I'm a bad signal a couple different ways. One is the fact that tech companies were hiring people like me who had no business skills whatsoever. I had never built an Excel spreadsheet in my life. But the companies, there's so much money in being invested in technology companies. There's so many startups all around like Silicon Valley, Boston, New York, et cetera, that there was a fat basically a famine of talented people. So these new startups were desperate for talented people, so they'd be willing to roll the dice, take a chance on someone like me. So I got recruited into this startup by a friend of a friend, maybe a friend from Stanford, who had a pretty good run in the first generation of Internet bubble, was doing a second company and recruited me. And I said yes. then six weeks later, the world blew up. The world of technology blew up. We were literally in a, you know, sort of famine. So I didn't really know what I was getting myself into. I don't think anybody did, actually. But in March, March 28th or so, 2000, the market collapsed. The NASDAQ collapsed particularly. And then six, about two months later in June, like right around June 16th or so, 2000, the NASDAQ collapsed again. And then everybody realized, oh, wow, this is real. The world's this is a completely new world order. So anything you assumed about the future of the internet is up for grabs again. And it took three to five years to kind of wash through that. Kind of a talking point I'll borrow from Peter Thiel is actually if you looked at the height of the NASDAQ just before the market collapsed, it was around 5,000 or so as an index, and it took almost 15 years to get back to that height. So this was like dropping a new, like truly dropping like a nuclear bomb on the technology center. And I was like six weeks in and not really didn't know how to do anything.

Did you think I'm gonna go back to law? I'm done with this.

No, no, I don't really think that way. And I was like, first of all, if we were in a kind of a traditional hierarchical kind of quintessential Wall Street law firm, you can't really just jump in and out so easily. I don't think My friends or family really appreciated how much risk I was taking because they didn't really understand it. They're like, oh, you're a Harvard educated lawyer, click to the fifth circuit, someone's going to want to hire you. But it doesn't quite work that way at the high end law firm and the prestigious law firms. So it wasn't so easy. But yes, some people did. There were a few other lawyers who migrated from prestigious law firms into tech, and some actually did rebound back and some quite successfully. But I just decided I wanted to double down. Actually, the advice I got that I would enjoy this technology stuff in quotes. It was good advice. I was excited, I was invigorated. So I just basically looked at the mirror and said, okay, we're gonna have to figure this out somehow.

Yeah.

So you eventually ended up working at PayPal famously, which, you know, the famous PayPal Mafia and all that. Had you kept in touch with Peter throughout that time and how did you sort of end up there?

Yeah, so it's actually an interesting story about how I went up with PayPal and Here's Peter. So as my first startup was getting itself in trouble as the internet revolution was ending and we had to evolve very rapidly and our 19-year-old CEO was not being decisive enough to save the company, I called up Peter and basically was just asking for advice because I knew he'd founded PayPal, I knew he'd started to get some traction, et cetera, from afar. I was like 3,000 miles away on the East Coast. but would read about PayPal, hear about PayPal occasionally, bump into him or David Sacks or people like that that I knew from college. So I called up Peter asking for advice. Like, hey, this startup, I don't think it's going to make it. Here's why blah, blah, blah. What do you think I should do? And somewhat unexpectedly, he said, hey, this is going to be a verbatim quote, like 20X years ago. He said, hey, I could introduce you to a lot of people in Silicon Valley, but you should just come work for us. And this was totally not expected. I said, well, what would you want me to do? And so we wound up having a conversation about what he was unhappy with. He about six weeks earlier had been reinstated as interim CEO of PayPal. So after Elon had been deposed, the board wasn't confident enough of Peter to give him the real CEO titles, to give interim CEO title. Anyway, six weeks later, this was just September 25th, 2000. Six weeks later, I had this conversation with him. and he's like, you should just come work for us. Here's the role, here's what I want you to do. And I thought it was actually pretty interesting. I thought the company was a mess and it was, it was burning, like when he took over, it was burning like $10 million a month, which back then in 2000 was a lot of money. And the company, it's dire straits, but he turned around the company really fast with the help of people like David Stacks and Max Loboda and Rolla Bodda. The company did really save itself very quickly. But anyway, I didn't know that. I just thought there'd be interesting, smart people there, and at least the brand, they've all heard of the brand, had heard of the brand, and they were bleeding money. So I said yes, and moved pretty much overnight from Washington, DC to Palo Alto, slept on my friend who's a GSB sofa, 'cause I didn't have time to find a place to live. And the real reason I had to do this so fast was Peter was like, Hey, here's the offer, here's the terms. The title and I was like, great, I'd like to start in like, you know, two plus weeks. And he's like, nope, you gotta start Monday or deals off. I'm like, oh wow. So I moved cross country, I owned a home, how to sell it. I wound up negotiating with Peter, which turned into, okay, I didn't start Monday, I started Tuesday morning at 10 a.m. Instead of Monday.

But that's why I was cross with my lawyer.

I put in those lawyer negotiating skills at work. Yeah, my friend Eric saved my career.

By giving me a sofa. you know, I'm curious what it was like being in the room with all these guys. You know, clearly you mentioned working around talented people, some of the most talented people probably ever, you know, have gone on to start, you know, so many successful companies, whether it's Reed Hoffman, Stoppelmann, Sachs, like all those guys, you know, have you like, what was the environment like being around and have you seen that again, like any anywhere else?

So, yeah, it was very meritocratic. It was the density of talent was very stark. I mean, this is not just for the benefit of hindsight. It was pretty stark at the time that, wow, these people are really smart and like a lot of really smart talented people. So the density of talent. Well, I remember Roloff saying something to me in January of 2001. He said, the average person here is smarter than the average at either Goldman or McKinsey places he had worked. And I actually, at first when he said that, I was in disbelief, obviously, like I really sitting there, like, two months, I said. But it proved to be quite pressing and who is actually by far better than the average person at Goldman or McKenzie. But I found that shocking at the moment.

What was he basing that off of? Just. Well, he's.

Well, no, he'd actually worked at those places and he's like, the median person here is just much better. They're smarter, faster. So he's valid comparison. And. But I didn't. I hadn't worked at those places and it was just joining people. but turned out he got that exactly right by probably an order of magnitude. But in any event, the company moved fast. People worked really hard. We're very passionate about succeeding, very debate driven culture. People were very smart. Put them in all petri dish, have very different ideas under pressure. So you had to stand for yourself. You had to debate. very vigorously and constantly for prioritization, for trade-offs. So it's very, very, very vigorous debate by email, in person, constantly.

Yeah.

So you also moved on and eventually worked at some other successful companies like LinkedIn and Square. How did you go about just deciding where you worked, what you decided to spend your time doing, who you worked with, like what was your sort of.

Measure Honestly, it wasn't so intentional. LinkedIn kind of happened because Reid was starting this cool idea. There was a professional network back before people thought in these terms. And since I had actually probably the most traditional sort of background of anybody who worked at PayPal, like actually went to law school and had a clerkship and worked at a prestigious firm, everybody else at PayPal was basically a misfit and hadn't have a to not have a traditional resume. So LinkedIn made so much more sense to me than anybody else Reid was talking to because everybody else he was talking to was like a Silicon Valley entrepreneur type. So it was just intuitive that this should really be valuable and should really work. So I both Angel invested in when he was starting the company but was looking for a role. There wasn't really a business role, which was my real skill set back then was like a business person. There wasn't really a business need until he could get the network working, which is a product driven strategy to create a viral product. So there wasn't really a role until he proved that he can create a growth coefficient above one and he could get to sub scale. So I wound up jumping in once that happened, but I was intrigued from day one, which is why I invested. I literally looked at every single LinkedIn profile every single day for like a year to see the quality people, the caliber of people that were joining the network because there was some concern about would we have out of our selection, et cetera. Recently I was interviewing Max Lutchnik on stage and Max had to equip But explain the LinkedIn experience. Max said, you were the most normal person at PayPal, which both says a lot about me and PayPal. But that's why LinkedIn resonated with me is it's a product for normal people.

Right, right. So I want to talk about contrarianism for a second because I think it's a really interesting topic and something that you've talked about a lot. And I know it's in your Twitter bio or X bio now.

It's in my X bio, although I should point out that I put it there in 2009. It's not been edited. So yeah, so some people are like, oh, that's so bland or whatever. So, you know, it's so banal. And I was like, no, I did it before it's cool.

Yeah, no, I've been following you on Twitter or X for a while and I remember it being there for a long time. And so I could vouch for that. How do you view contrarianism? And so like in terms of is it a deliberate effort? Is it like a framework? Is it a set of principles? What is it?

It's a great question actually. I think that what it really is is that you have a set of principles and as the world becomes tumultuous or goes crazy, your principles are no longer in vogue. So it's not like a reaction to saying I have to be different. It's a the world over the last x years has decayed in my view in many, many ways. And so, since I believe in first principles and a certain set of principles, that's why I'm a conservative. That's why Margaret Thatcher was my hero. I became a contrarian because the world stopped believing in merit. The world stopped believing in a bunch of things that I found fundamental to the history of human race. And so that led to being a contrarian. Now, as it became a VC, which is a lot later, I didn't become a professional investor until 2013. So significantly after I created that bio, To be a successful early stage investor, you do have to be partially contrarian. You have to seek a spark in people or ideas before other people do. Otherwise, there's no alpha. So now it's a little bit more professional, but when I first drafted that profile, it was just, I just reject the modern world in some ways. I don't think we're making progress on some dimensions. And so that led me to feel isolated and hence a contrarian.

Is it an ongoing process for you? Because I can imagine, you know, when you're contrarian about a certain thing and then eventually you end up being right, right? And other people realize you're right, then it becomes conventional wisdom, right? And then now it's like, that's the norm. Now it's like you have to sort of constantly, I guess, maybe reevaluate your beliefs and see, am I thinking about this, you know, how am I thinking about these things? And so is there a process for that for you?

Well, it's kind of amusing because what happens is, if you're right, eventually the world catches on. Like, the history of our, you know, the arc of history does bend towards accuracy. So, for example, let's, let's talk about one that's very live, just the last week, I just believe from day one that covid clearly escaped from a lab in China. And as a matter of fact, it was so controversial that people, like, attacked me constantly on Twitter, like, constantly. nonstop. But Bloomberg, which is allegedly a media outlet, wrote a profile of me in May of 2000, that without citation, without quotation, dismisses my quote, fringe theory that COVID emerged from a lab. So that's how radical this was at the time. Now, I don't, there's almost nobody with a brain that doesn't believe that COVID one way or the other emerged from a lab. It was like so obviously true. But you hope that these things move into the mainstream. Or so, for example, I'll give you a kind of a more amusing one. I've always believed that Apple Maps is a much better product than Google Maps.

I agree wholeheartedly.

Used to drive all my friends crazy. Like completely nonstop. They all thought that it was like losing my sanity. Then I'd run these kind of funny experiments with them. Like, I actually got buried at the location that if you tried to find it on Google Maps, you'd get lost. But on Apple Maps, it worked perfectly. I was like, I actually used that in my actual wedding speech. I'm like, you all got here. If you tried Google, you would never be at the ceremony right now. That's hilarious. But anyway, recently though, Flo on Twitter shared some evidence they had on Twitter. I mean, sorry, on Uber, where they had the best data set ever about directions between ways, Google Maps, Apple, and he actually published this that in fact, Apple Maps is much superior. So I sent it around to all my friends. So I've been on this crusade for a long time. So I try to have these original ideas and then proselytize and then hopefully convince people. I have another, actually when I started this stuff, even some of my dedication to sleep was pretty controversial. And after Matthew Walker wrote this book, why We Sleep, I could give people copies and he sort of prosedized very successfully. So very few people now debate importance of sleep. Like you want to be happier, healthier, wealthier, you should sleep more. Like that's no longer super controversial at all. But I still have a few, like I happen to believe that the more stress you have in your life, the better you're going to be happier, healthier, wealthier. That's still moderately controversial. hopefully people will eventually realize the brilliance behind that theory. I have this one about athletics, about why you shouldn't be stretching. That one drives my friends crazy, about as crazy as the Apple Maps one. So, you know, I try to find new ones, but the goal is to eventually convince people that my views are better, that's the whole point, and that's why I proselytize. And then eventually just get adopted into mainstream society and you have to go back to the drawing board. interesting question is how do you go back to the drawing board? And I was asked this question by one of my colleagues at Open Store at a lunch about a year, maybe two years ago. And I actually thought about it and I realized that it comes back to my history and legacy of being a voracious reader. If you read books and content that other people don't read, you're gonna be exposed to different ideas and different data points and different anecdotes. And that's the raw material that that your brain processes and trains on that allows you to derive independently views. And then once you shape them based upon the evidence that you've marshaled from your reading, then you have a perspective and then you start sharing a perspective. So the more I read, probably the better I do at developing and devising new ideas.

Yeah.

I'm curious what your thoughts on in business and investing, first mover versus second mover advantage or Future movers, right? Because contrarianism, I guess could apply to both because, you know, the first mover is like maybe a contrarian take, you know, it's like, so I'm just curious, like if what you've seen in your career and how you think about both of those.

I don't think there's any, like religious rule about first or second. What I would say in the business context, particularly around being a contrarian is every great startup should start as a cult in a cult by definition is a secret. about the world, a view about the world, the rest of the world does not share. So it's very unique. Then at some point, either with evidence or otherwise, you want to move into the mainstream because you cannot become a massive company, cannot become an iconic $100 billion company unless you're a very mainstream idea, a mainstream concept. So the goal is to be early and right as bold, early. as bold and early as you can as an investor or founder and then transition the world with you to the bearish idea. So Airbnb, people laughed at Airbnb. That's good. But eventually to be the pseudo, you know, close to 100 billion dollar company that Airbnb is today, you need to move Airbnb into the mainstream so that normal people wake up and say, hey, we should consider staying at Airbnb, or maybe we should make some more money and rent placed on Airbnb when we're not home. All of these things you have to transition. So what you really want to do as a founder is start with a secret, build the cult, and then transition the mainstream, which is where you're going to capture the value.

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So I want to talk about open store and what you're working on now. But the sort of the, not predecessor, but like in, in the name of it is sort of the predecessors was open door, which you started in, you know, 2014, which sounds like was a similar sort of concept, not obviously, you know, one is real estate, the other is Shopify Brands. But you. So open door, you were buying and selling residential real estate, making cash offers on homes, essentially flipping them. I buying, right? Which is like the word. What happened there? I know COVID probably had a big impact on that space, but what ultimately was the story with you and Opendoor?

Yeah, Opendoor is a company I founded in 2014. We have three co-founders. who I knew from different parts of my life and history, put them all together and said, we're going to do this finally. I've been working on this idea since 2003. And interestingly enough, it might have been sparked, at least subconsciously, from this ridiculous exercise in moving across the country to go work for PayPal 24 hours. So as I mentioned, I owned a condo in DC. I had to sell it in 24 hours to move to the Bay Area, which I somehow managed to do. so it's not accidental. That whole experience probably has something to do with my Insight that selling a home is both expensive, uncertain and very time consuming. So 20 of homes that list, I said 20 of homes that go in a contract, don't close. It takes, you know, 80 to 100 days on Market. Depends on the market. It's now moved down, blah, blah, blah. But anyway, very difficult to get liquidity for a primary asset. Most people's major asset in life their home, the equity of their home. So I went through this myself. We're gonna do this for everybody. Every asset in the world needs liquidity, and there's premium for liquidity, period. So it was like, okay, now can we do this? Can we value the home? Set it on the scene, blah, blah, blah. Everything took, dialed it in pretty quickly, worked pretty well. It's now in 50, 60 markets in the United States. Some markets, five, 10, a few markets, even above 10 market share. So all homes sold. since you've been doing great. COVID actually helped because it helped clarify like why you'd actually want to sell or buy a home without an agent, which actually is pretty important to the company. But putting aside COVID for a second, as everybody knows, interest rates went up in kind of an unprecedented way, unprecedented in terms of the sequential rate hikes going from a very low interest rate environment, almost negligible interest rate line to a very high one. pretty quickly. The problem with that for open door specifically is that when interest rates go up, the affordability of a home in a short term to a new buyer is very low. So your monthly payment on a mortgage is a function of your interest rate. It's like the size of the mortgage times the monthly payment, which is calculated by the interest rate. When interest rates are one or two percent, it feels very affordable. Because seven percent, that's not such a great check to be writing him about. most people, a lot of people can't afford it. So people can't transact, they can't move. And so open door makes money every time someone moves, every time someone sells a house. So we went from 5.678 million home sales a year to 4.1 or 2 million. So like, it's pretty significant drop. And so open door is kind of caught in that world. So you can almost, it's actually funny, the stock price is almost like tracking exercise in what people believe about the future of interest rates. So when the Federal Reserve says something positive about we might cut interest rates, open door stock goes up a few percentage points, actually. And when people see inflation, which typically means sides of inflation, typically means interest rates are not going down anytime in the foreseeable future, open door stock, you know, goes down. I think there's some misleading elements. I don't think the market as a whole has really understood open door, but I understand why It's so sensitive to interest rates. So when interest rates normalize, i.e. when inflation is no longer a top concern of Americans, Open Door will do really well. Now, the company hasn't innovated that much in the last two years. I think this was very tumultuous. As you might imagine, suddenly your market disappears or becomes very difficult. All of a sudden, that is very difficult for a company to cope with. And I think the company Just got distracted with a lot of challenges related to that. But fundamentally, the company's in good shape. If you look at actually the cohorts of the profitability per home in almost all markets, profitability per home is quite strong right now. But overall, the company needs a lot more transactions. It's easier to grow in a market that's growing and easier to grow than the market that's temporarily contracting.

So let's talk about Open Store, which is your current business. What is the grand vision with that?

So basically what we realized Shopify was massive success that almost nobody was paying attention to. Shopify literally went from zero to $160 billion market cap in a few years. And by powering direct to consumer e-commerce, and too many people were focused on Amazon where Shopify was really the growth engine of DTC commerce. And so, instead of Shopify as this great economic engine, what we realized is that not everybody who builds a Shopify brand wants to run that brand forever. They're caught up in capital constraints. It's not like appropriate for venture capital except in very, very rare cases. There's a lot of effort that goes into running a Shopify brand because they don't do many things like customer acquisition, retention marketing, fulfillment, for most Brands. There's a lot of work for the founder of those Brands to do. So what we decided to do is say, hey, there's 2.6 million of these Brands. When those businesses want to sell, we're going to give them liquidity, like a little bit like the open door story. Now, the difference is we don't plan to take the brand, take liquidity, provide liquidity, and then resell it. We want to stitch those Brands together, take advantage of things like a cumulative advantages, like economies of scale. So for example, our cost per package is quite low in shipping and fulfilling versus these very long tail brands. Like typically we work with brands selling between let's say 400K to like $5 million worth of sales. Their cost of shipping, shipping packages through FedEx is like rack rate. So obviously we send lots of packages so we get discounts.

And just for clarification, yeah just for clarification you mentioned economies so does that mean that you are essentially wholly owning and operating these brands or are they continuing to operate?

No, no, no, we buy them completely. So we stitch them together, which creates economies of scale. There's some other advantages too, like we can invest in technology. So for example, we use customer support classic thing like in e-commerce. You know, I order a size medium berry shirt, doesn't quite fit, you know, blah blah, say I want to talk to somebody. so most of these brands have to invest in customer support, Instagram DMs, Etc. We invested probably starting about two years ago in AI driven customer support. So we were able to take our support costs per order from like something like eight or nine dollars to sub a dollar. So most brands are not going to invest in AI technology, period. Right? Not, not possible. So we can provide therefore for significant cost savings with faster, more immediate, and probably more accurate responses and support. So we keep looking for opportunities to double and triple down. Another example, when we buy a brand, almost all the ads that they're using, running to generate new customers is basically Instagram, Meta, Instagram, and very rarely has that brand owner invested in multiple channels. We will then add that channel and to the channel makes Google, which some do do, but not, not most. We'll add like Snap and TikTok for the right brands. We're going to add other things like SEO, et cetera. So we get add to the chat, we invest in more channels, which allow us to acquire customers in a better blend or at more scale. Better blended or more scale.

And then also, do you also do the fulfillment as well for all these brands?

We do. We do, we do. So it's really important for us to do the fulfillment. We basically, that drives down the marginal cost, which is good for the consumer. It's good for us, it's good for everybody.

Yeah, so like I could buy like a shirt from this brand and then shoes from this other brand and I could have them both shipped together, same package.

Same box, same box. Yep, which saves a lot of money to you or and us actually.

What is your investment sort of philosophy in terms of the brands that you are looking to acquire or actually do acquire?

We've been horizontal. We wanted to match the horizontal graph of Shopify. So Shopify is roughly 40% apparel. We're roughly 43% apparel. Shopify has a home section and has health and beauty. we want to mirror that as accurately as we can.

What are some trends that you're seeing now? You talk about Shopify being 40% apparel, but moving forward, do you see other trends that are sort of maybe going to overtake that eventually? Or what are the big trends right now in e-commerce?

Well, one trend that's pretty stark is the CPM on Meta has been extremely high in the last two months. You see this on Twitter. people in direct to consumer commerce and other places. I don't know the exact driver, but it's pretty conspicuous. So obviously that's going to put strain on the business models of many people both on Shopify and elsewhere. Second, because they may not be able to invest freely in all these other channels require expertise, et cetera. Second, we don't try to guess like, let's say big macro waves in commerce at Open Store, we do notice certain products, they're very ground level, certain products, you know, blow up. So like for example, if you've used Instagram over the last three years, you absolutely will have noticed that cold plunges for your home, cold plunge pools have exploded, like literally exploded, call it like low single digit millions of sales to just south of 100 million in sales for like leading companies in just two years. Things like that happen.

Wow. In terms of the long-term vision, do you ever see retail being a part of it?

Actually, yes. I'm not sure exactly how to sequence that when, but as I've spoken to people who've built independent businesses, Benona, Benonibus, Albert, Warby Parker, a lot of them recommend retail. And there's pros and cons to this, but I could see either open store, qua open store, or some of our signature brands being in retail.

Yeah.

And so do you sort of envision, at least for the shorter term, just building like this online department store of sorts where people can just go in.

And shop from home? In the short term, we'll stitch them together. But I could see a retail environment, probably not, surely not in 2024, maybe 2025, almost surely by 2026, some version.

Yeah.

Moving on to another part of your career, which is investing in venture capital. You're one of the most successful VCs probably of all time, you know, in looking at your investments, which is very impressive to see. You were at Coastal Ventures went to founder fund and then founders fund and then eventually back to coastal ventures. Why did you go back? What was the thing about KV that you wanted to be a part of again?

Well, I think the thesis of KV resonates a little bit more with me, which is bold, early, impactful. That's our brand. Bold, early, impactful. And the impactful part is critical, which is we really believe that our responsibility as an investor is to increase the probabilities those six tasks for the founder. And what that entails can vary by company, by founder, by partner, but that's our goal and it's our mission. So the capital is least important than the venture part. At Founders Fund, which has been very successful, more of the role is to find the most interesting founders on the planet and provide them capital and advice if they ask for it. And it's worked extremely well. as well. Founders Fund, if you just look at the allocation of dollars, is currently about a $900 million seed and venture fund and a $3.2 billion growth fund. KB, we're the opposite size. So we're approximately $2 billion between our seed and venture fund and only $900 million in our opportunity fund. So we're much more skewed investing dollars as early as possible we also love deep technology, breakthrough technology. We have something like 10 to 15 PhDs on our investment team. So if you take it very seriously, some of the technologies are difficult to evaluate without some depth. So deep, bold, early. And I also, we work a little bit more, we're a bit more like a baseball team and less segmented, unless disparate, like we debate very vigorously. So I've learned a lot my first time, actually, in my first, you know, a couple years at KV, there's very vigorous debates among the MTS, which is our term for GPS. We, those dialogues helped shape my thinking and probably made me, oh, sure, maybe a better investor. And so and FFA is how to make more of my own decisions for better or for worse. I actually enjoy having people around critiquing my views. They definitely make me sharper. So I used to try to keep my former partners at KV's voices in the back of my head. And I'm like, David will say this, and Spen will think that, and the notes said this, and Samir won't like this, but that astrophysics at some point. So I was like, Well, great, we'll go back. We'll get the voices back in high fidelity and shockingly, the Node still tells the same stories. Samir still got the same jokes.

And so- I guess that's a good thing, right?

Yeah, it has been very effective. It works better for me. I think it makes me sharper and happy, which is important. But everybody should find, you know, the environment where they can thrive the best. Different people can thrive in different environments. this really works extremely well for me. I also felt like I could learn more. So I learned, I'm learning already just five or so months in. I've learned a lot about AI, a lot, like it's getting to some depth based upon the fact that I have somewhere between three and four colleagues who really understand AI. And so just listening to their debates, what do they appreciate about different companies, why do we pull the trigger? We probably have the broadest, definitely have the best portfolio in AI. Why do they decide to invest in certain companies and not others? And that is kind of training my brain. So I don't have to, I can absorb and learn throughout osmosis. I don't have to try to master AI from scratch, which would be a fool's errand. So I'm taking advantage of that. So, you know, there's a lot of learning that I can deploy. Plus, even when we invest in deep technologies just as a curious person. I feel like I'm reading the World Book Encyclopedia sometimes. We'll talk about innovation in batteries, which I'm not going to lead an investment almost surely. An innovative battery company that's cutting that pushing the envelope on laws of physics and chemistry at the same time. That'd be like a fool's errand, generally speaking, for me. But I get to learn about why are why is battery difficult and why are we at the the precipice of laws of physics in chemistry at the same time. That's actually kind of cool and interesting. It's just a byproduct of watching what we do.

Yeah.

You've talked about being a founder-driven investor in terms of founders that you invest in. What sort of attributes are you looking for and what makes for a good investment?

Well, it's very simple. It really can be still incredibly simple. I want someone who has a nonzero chance of changing the world or reinventing an industry, if you like. Most people, and I say most, I mean 99. X percent of the population have zero chance of transforming the world or an industry. I just need to find the few people that have some chance.

What is that based on? Is it just instinct? Like what you're in the room with them, you feel like, you know, they're passionate about the topic, they know enough about it. Sometimes, you know, sometimes knowledge about a certain topic, I guess, when you look back in history, I mean, you can shine more light on this than me, but when you look at examples like Steve Jobs and Bill Gates, obviously anomalies, right? Like their young kids have never really worked much anywhere. They know a little bit about stuff, but they just had something in them that they went on and changed the world, right? What is your sort of, is it a gut feeling that when you're in the room with them for you?

No. I, I, to be clear, generally at KB and me specifically don't really like expertise. But note has the pithy expression of experts are generally experts in the final model, which is not what we're trying to do. Build new, better security models over the next 10, 20 years. So generally not a fan. What, what I'm looking for is what I've noticed across the board is people who transform an industry are or have a trait that is extraordinary and that they're in the top, call it 10 basis points in the world at that trait. And so all I'm looking for, and the trait can vary, like dramatically vary actually. Like sometimes they could be like the smartest person ever. They could be the most tenacious person ever. They could be the best salesperson ever. They could be the best at ever. my ear just perks and it's like, oh my god, I have never seen this before. That's usually a good reason to invest at least as a seed round. Obviously, if you look, and we are multi-stage VC using kind of the term of art, I don't know if you really like the term, but like fundamentally it's how most people describe us. So we do see lead series A, series B's and occasionally other rounds, but we want to be as early as possible. When you're talking about seed and series A, it's mostly Does this founder have one of those traits for me? Like, is there something special? And that leads to a non-zero chance. Like, and I've noticed, you know, as I've had the luxury of meeting people in other fields that have been successful in athletics, politics, law, sports, music. It's kind of similar that the people who really reinvent those fields typically have a trait that's pretty special too. So basically that's what I'm looking for is why does this person have some chance of succeeding? It's irrational if you think about it, like the proverbial Steve Jobs, let's go with your example, the Steve Jobs Steve Wozniak in a garage in Cupertino or somewhere around there. We're gonna create a personal computer that nobody else really understands what a personal computer is and why you need one. That's kind of irrational. And so the founders who wake up and say, I want to reinvent financial services with my college degree, or my brother, you start with a pretty irrational premise. And so the chance of succeeding requires something special. Is there something special here? And if not, I probably am just gonna nod at asked.

What is a common mistake you see entrepreneurs make and how can they avoid it, if at all?

I mean, obviously there's so many ways to fail. You know, start with very difficult exercises, incredibly challenging, but For among the set of founders who are really talented and quite robust, the single biggest mistake is they worry way too much about competition. I think most companies are either going to succeed or fail based upon the quality of your own ideas, the quality of your thinking, the five-minute thinking, the feedback, speed, execution, and then density of talent you have in your building. And so I mostly obsess on that. And not worry too much about the competition.

Yeah.

I'm not a big fan of the concept of imposter syndrome, but I'm just curious. You've talked about having to constantly reinvent yourself, right? From being a lawyer to an executive in tech to an entrepreneur to an investor, like you're constantly having to sort of be a phoenix, right? And just like rise from the ashes as something new. Do you ever deal with just mentally, like the concept of imposter syndrome, or is that something that you feel like, you know what? No one knows what they're doing and.

I'm just- Neither, neither. No, no, no. I actually believe that you have to challenge yourself to grow. That if you're not growing, you're retarding. You're literally decaying. You're either in motion progressing or you're retarding. And so I think the only way to know if you're challenging yourself is you're biting off something more difficult, more complicated, more complex than you've ever done before. and the way you know is your body actually can feel it emotionally. So I put my point about sports. I used to read, you know, a lot about successful athletes. Turns out, like a lot of athletes who are very, very talented, though, thinking of like Will Chamberlain and Michael Jordan in basketball would get extremely nervous and sick and throw up before, or Bill Russell before games because they knew they were challenging themselves. Their body knows that they're challenging yourself. So to me, that's the signal. You have to put yourself in a place where you're growing muscles. And just like building muscles, too, like, what do you do when you lift weights? You're actually breaking down that muscle. You're, like, putting a lot of stress on it, bringing it out, and then it'll build back bigger, you know, bigger, better, faster, whatever. And that's what you're trying to do. So I'm always looking for kind of cool new challenges. Otherwise, I feel like I'm gonna Decay. Decay means mentally Decay, professionally Decay, actually, I think, Health. with wise decay, one of the ways to stay young, vibrant, sharp is actually constantly challenging yourself. So I'm always looking for new challenges and hence some of the different things I've done in my life. But even sometimes I'll push myself in non-professional ways. So you may know I occasionally teach at Barry's class. Not in my natural DNA, being a fitness influencer, I was gonna say your.

Next business should be called Open Pore because of all the sweat you're around.

That doesn't sound like that.

I know you're also into EDM music, I think, right?

Yeah.

If you had to reinvent yourself, would you ever reinvent yourself as a DJ?

Yes. Yeah, I keep getting threatened with people wanting me to do that.

David Solomon style.

I know, I occasionally get requests. You develop, I think that one of the things I've learned, and this is true when I teach Barry's, is I would only do it if I was taking it very, very seriously. So when I teach a Barry's class, I put an incredible amount of effort into it, like more than would be prudent, to be fair. And especially when I was learning to do it from scratch. I like over studied and over training by a significant margin because I wanted to be at least as good as the average bear instructor, actually probably better than the average, but I didn't know that in the beginning. So it was a real challenge and took like a month to prepare for a class where a normal instructor can prepare for a class in somewhere between 30 minutes, maybe 50 minutes max. I literally put a month into my first class. And so if I ever did do something in music, it would require that level of commitment of time. And I don't currently envision having that level of time commitment. I have developed some music taste, which is a foundation, like understanding which songs are likely to work, somewhat why some songs don't work. That is helpful. And I would need years, you know, of work to be happy with my performance. And I don't have years to invest. But I occasionally, in the treat.

Yeah, you never know. DJ Rob Boy, it sounds, has a good ring to it.

I did. I've played around a little bit. I did get one drop right once. It's like an amateur golfer. You hit like one swing perfectly and you're like, oh my God, I'm quitting. I got my one swing. The ball was perfect. Everyone's like, okay, cool.

I did one great amazing drop once and I was like, I'm done. That's it. Hang in my hat. That's awesome. In terms of, I guess what has always driven you, what ultimately drives you now, and what is perhaps the legacy you hope to leave behind when you look back and say, I, I'm so happy that I accomplished this.

Yeah, I mean, I think there's two kind of ways to think about this. I triangulate from impact on people. You know, we briefly talked about, but finding like up and coming talent, undiscovered talent, and, you know, partnering with them to help build something, whether I partnered with them as an employee sometimes, worked with them as an investor, board member, et cetera. That's the most invigorating thing is giving people some increase in their probabilities of succeeding with their ambition, towards their ambition. And so every time I can find a new person that's, you know, early in their trajectory with high potential, sometimes potential that other people will miss and help them, that's incredibly psychologically rewarding. The output though is I definitely want to be involved in helping create more iconic technology companies than anybody else. That's like the scoreboard version of the goal.

I love it. Well, Keith, this has been such a pleasure and a wonderful conversation. Thanks for joining.

Thanks. I'll send you some sound music for the background.

Yeah, I would love it. Thank you, sir. Appreciate it.

Okay, cool. Pleasure.