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Keith Rabois Interviewed by Dan Primack | Upfront Summit 2020

Keith Rabois
General Partner at Founders Fund
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Upfront Summit 2020
January 30 2020, Pasadena, CA, United States
Upfront Summit 2020
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Keith Rabois Interviewed by Dan Primack | Upfront Summit 2020
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About speakers

I create new products, generate innovative business models, and love to solve intractable problems.

I craft business strategies to navigate precarious business environments.

I specialize in guiding early-stage startups into successful businesses: I joined PayPal when our monthly burn-rate was $6 million; I joined LinkedIn, Slide and Square when we had no revenue. Five companies I helped build are now publicly traded with market capitalizations >$1 Billion. Three others have been acquired for greater than $1 Billion or are publicly traded IPOs.

I served on the Board of Directors of Xoom (NASDAQ: XOOM) from 2003 until 2015 and served on the Yelp Board from 2005-2014 (NYSE: Yelp). I served on the Board of Reddit from 2012-2019. I am a co-founder of OpenDoor and serve as our Executive Chairman.

Prior angel investments include: YouTube, Airbnb, Palantir, Eventbrite, Lyft, Quora, Yammer, Skybox, Counsyl, Weebly, Wish, Eventbrite.

Specialties: Consumer Internet, Business Development, business strategy, competitive strategy, regulatory risk, Government Affairs, payments innovation, mobile payments, Litigation, Politics, network businesses, eBay vulnerabilities, viral marketing, start-ups, online payments, eCommerce, Facebook apps, Facebook, social gaming, social, angel investing.

About the talk

Topic: Business

Keith Rabois of Founders Fund sits down with Dan Primack of Axios to discuss making big bets in venture, how Founders Fund operates as a partnership with unique perspectives, and his views on the upcoming election cycle.

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I'm thrilled to be talkin to keep your boy now at Founders fund the title. If you look in your program, it is building. I think it says building a VC 00:00 firm from scratch. You've never done that at all or even tried doing that. I have a lot of opinions that I've never done so I can 00:10 respond and those who know you or say follow you on Twitter know that you are fairly strong 00:19 willed very opinionated. Both of those firms khosla and found her son are lead and were founded by people who are strong-willed and very opinionated. 00:29

Do you just gravitate towards working for those sorts of people love you look also threw my 13 years has an executive I worked for 00:38 ten Jack Dorsey kind of similar people. So yeah, I've been in pretty good compliment even though I have my own opinions actually work fairly. 00:47 Well with people who have their own Center gravity have very strong opinions. Expressing them interested in launching around VC firm Are you very 00:57 happy being part of a partnership not really and you know, we always have my friends and what would it take to lift symbol transparent answer 01:04

was and I couldn't make the announcement I wanted to make and I couldn't work with me but wanted to work with that would go find a way to do that. But 01:14 obviously a k'da I had the license to make and I was working with people that were actually very challenging, you know, in terms of tell Jim I was 01:21 thinking and teaching me and it sounded fun. I knew everybody I was joining I'd work with everybody for 5 to 30 years and we've been able to hire 01:29 because I obviously like the people working with and you know, I'm being able to make it investment decisions. I wanted to make sure there's no real 01:38

reason to what was the best and worst parts of working with no Tesla. Best part. Is he call me when he's on the board of squares. I got to know if I 01:44 know pretty well with use on the border Square for a few years and he coin this this phrase which is the 10-year old is the company built and a lot of 01:51 people Talk about how old in people in this business or is executive but you really distilled everything to one simple sentence to explain so much of 02:00 Life everybody a lot of times gravitate towards products and Technologies and everything except the people in that pithy statement. He really 02:08

clarified my thinking over 13 years and 10 as we work together in a dusting the same thing is true of like my criteria is if that's there is always 02:16 based upon the quality of the founder and the founding team. And so I think I was the most important thing is he actually helped teach me things and 02:25 I'm investing in startups are computer originally I tend to like to work with people who 02:32 teach me things and you're now speaking here today in Peter's new adopted home. So that's it in and complain a lot. I think about kind of echo 02:41

Chambers. What do you think kind of within the the particular Venture Capital ecosystem call it right. Now. What is the kind of the biggest Echo 02:51 chamber that you that Noise you were that you think is missing the boat was it good news is actually both forms of work with are pretty good at 02:59 staying away from that and culturally both from a DNA perspective from the kind of people we higher and even take Stern staff. So you look at where 03:06 Founders fun is based like our headquarters is in the Presidio. It's intentionally removed from everybody else. And yeah, maybe more people are 03:13

copying us and there's A Couple Of Forevers trying to get real estate there, but the fundamental principle was we don't want to spend time with other 03:21 investors and the same thing was true at KD actually, we had a philosophy of not spending too much time with other investors. That was not part of 03:26 Sandhill Road. 03:34 What 03:37 about this which is most investors are not very good at producing returns. Most investors are more of a Venusaur overheard than original thinkers. And 03:49

if you spend all your time, like there's the studies about you have The Hobbit of the five. We spend the most time with in your life do to help the 03:57 values and how they said people you spend the most time with the same things true with the Masters. If you spend all your time with other investors 04:03 were not doing what you think. You should be doing by definition of cloud your thinking. So we're break horses at both places in probably maybe among 04:08 major institutional investors are probably the two bastet staying away from the crowds. Let me ask about the crowds though. I in this kind of stuff 04:17

you're earlier. He got asked me why they never created second-round caplets or around Capitol and eat though is raising the funds. You can't talk 04:25 about except to say that it is a gross, but you can't can you talk about it? Well, it's been reported that we were using a growth fund right. Seems to 04:32 be in park following the crowd now. No, I think we're going to do it just for this right insofar as we have a growth fund. 04:39 We will use a capital differently than other people. We were given to a foundering they spend it on things. 04:49

That is true because I think 04:56 you'll see the investment strategy out of any new funds be distinct from other people who run across one very large 05:06 or later stage Investments. There's not as if we're taking a very small van and I'll send going to do grocery aisle do the new restaurants for a long 05:15 time and I think Airbnb Metagross around a lot of the best investments produce the returns that people like are not really station. That's what I 05:24 found her son. Last year 2019. It seemed to be 05:34

a little bit of kind of it was kind of the peak of the the called the SoftBank Peak but everything that came along with that and then seem to kind of 05:44 Crash down around we work and now everyone seems to be waiting for the next big thing is their next venture capital Warrior. Do you think that's kind 05:50 of that that that Valley after we work that that wasn't really badly that was one company SoftBank got problems, but kind of that very late stage 05:56 pre-ipo massive investment. That's the last thing we're so excited about meeting growth rounds call it $5,200 checks from Austin to know 06:03

who stands for a larger and looking for this opportunity all across the globe. I have Partners who prefer to be doing those deals and would love to 06:12 find more of them in such a quality of company think they don't think that world has changed Southbank was inflating evaluations on companies and 06:20 always paying your premiums over what other people are offering but at the does more at the margin like maybe 20% premium that didn't radically 06:27 changed within Valley now that emphasis on me. Anyways, every 06:36

person in front of people's behavior. Like I'm involved in a few 06:46 companies that took softbank's money and I don't think they changed the behavior of the company. I think it was a culture. Generally where maybe 06:56 people were dismissing payback time is pretty disciplined and it gave you were extremely disciplined about time to pay back at like I have my own 07:03 internal rules and you know, everybody all my partner's know what they are and there's a certain he's going to come it doesn't matter what they do 07:12

doesn't matter who's running the company and there's a time where there's a judgment call in his time. I'm super excited and we've had that just would 07:19 have found this one for a while that you're an internal consensus of what I think a lot of Masters got removed from now. We're looking at other 07:25 metrics like pure growth in other things and then it's something certainly wasn't the only offender. You tell me I'm wrong. Actually. Is there anybody 07:32 can talk back in the room? Great, you 07:40

spend 07:44 what SoftBank Vision fund did leave aside whether you think it was a corrupting influence and generally speaking because you said you 07:54 are what you co-founded. Were those companies wrong to take their money? Well, I think it's this is important 08:04 station. I'm not the CEO open door, but I know my job is is to get the best possible 08:14 of October 08:24 place to go back to my rules and investor and board member is more like a 08:30 consiglieri or pop psychologist. Like I'm basically asking a lot of questions to the founder of playing back what I hear Elvis in a cartoonish way. 08:40

I'm never almost never making a decision about her spent almost surely never making a decision because we don't file found her at KV. The only true 08:47 decision that you would have to make is are we firing ethnicity up? What do you harvest CEO to CEO is responsible for the decisions of the company. 08:56 Not not the investor board member. Taking their money. Why not for multiple reasons? 09:05 First of all, I would give them a bunch of political race 09:15 different sequences and time and that's more of a judgment call of how much what do you want to reason this charge against what Milestones you can 09:24

achieve I would have financing company slightly differently, but it's also a risk-return type of risk profile question, you know, you can gamble you 09:31 can get to the next Milestone where the cowboy gets cheaper and sometimes other Founders Woodford have more money up front and then that's it. That's 09:40 an artistic judgment call doordash. Can you give me the basic argument for how the economics of food delivery can ever work? Well, they're 09:48 profitable 35 market, so That's a bunch of debt right now. They're 09:58

all expenses 10:04 HQ in their provider based on 10:14 true. It went when they don't publish they 10:16 damn well know how nobody counts the city profitability and 10:26 he's ever talked about a market being profitable has never included 10:30 the capitalized in the shit is 10:40 not profitable that wasn't necessary but not sufficient condition for upside down but never going to 10:49 work. How to transform at once you get to the point where each incremental transaction send some money back against your fixed cost of running the 10:59

business you're in a good place because the faster you go the more money you're going to send back unless the fixed costs keep Rising also obsolete 11:07 rate for the relatively stable or as long as you have more dollars coming back to you you want to win in and grow 11:16 if you're up, turn upside-down stepping on the title is probably the worst thing you can do in almost all cases, 11:26 but it went back to doing deliveries basement recently decided it was going to win the CEO decided to he wrote what I can only describe 11:32

as the first-ever suicide note of every chance to see if we're going to follow doordash. We're going to do this. It's going to destroy us 11:42 was he wrong? Wrong to copy. 11:51 I 11:55 don't realize you don't even know. Libory to the door. So I can eat speak more freely, but I do know that comes from the North End of the team pretty 12:06 well, and I know why they're doing well vs. Their competitors. I mean bastards in Postmates, which isn't doing nearly as well know 12:12 what Ciara 12:22

is your belief it Sunday open door also become public company. If I believe I'll be there should be of how about company. I really would like to be a 12:31 public company today. I'll have this long-standing view that you're very few people other than Bill Gurley is really shared which is that, should be 12:39 public as early as humanly possible by the whole chapter Andy. Gill's high growth handbook explains why so it again, you know the 12:46 vision and the market opportunity to be a public company. Is there a reason why from your perspective Public Market if it were to go public wouldn't 12:55

basically value It Like a Dude 13:05 Zillow basically copied open door so you can see what happened and you have both the 13:13 ups and downs, but you can see how their value and that's a part of it was a lie because they're not 13:23 fundamentally. Valuation is being supported by the potential 13:31 or any of the company over the next 20 years. We're going to have to come for making money on home sales until better example, even though you have to 13:41 change transform Industries. There's a great public company that nobody likes even though it's a $13 public company that's in Phoenix. Nobody pays 13:50

attention to publicly traded for two years and you should look at the stock price. It was like this. 13:58 They went out at like maybe 5 in a training at 13. At exactly is an open door doesn't affect most are metrics are better making my famous any like 85% 14:14 of our nature better than the car vending machine actually didn't invest in your last by the ground and 14:24 stick. There is a rumor that you co-founded Open Door while Avicii at Coastland and I want to go found it another or 14:33

in the process of finding another company in the fintech world true world. Okay, let's try again in the Now not no. No, that's what I had heard. But 14:43 the Nutrition Fitness world is closer to that podcast actually kind of working 14:52 on this for two years of trying to actually literally 10 years from idea from data test of it. Like the first pilot website that has live in the 15:02 company. So I'm kind of worried about this one back forty years. I've been talking publicly about a start of really want to exist and I've been trying 15:11

to find the right people to kind of co-founded with me and haven't exactly got the right co-leader product leader yet. I have someone in mind but have 15:17 never persuade him to do a given your background. Your personal background is is being an operating executive and your interest and found in 15:25 companies. If you found the right people to do with why wouldn't you want to just go do that full-time there's a lot and there's a lot of expenses 15:30 to this job inside to me. But if you're intellectually curious, this is I think the best job Literally every meeting every day 15:40

almost every hour every day. I learn new things about the world is like when I was growing up, I used to have this bad hobby or good Hobby World Book 15:50 Encyclopedia every day to go home and literally read the volume every day. I think that's my job today. I get paid to learn new things and I don't 15:58 think there's any other professional I got nothing to lose but you get the opportunity to learn new things in the second. If you want 16:06 the most ambitious and tells people 16:16

it's a little bit like in a drop off talk about sport. I listen to get to work with the people who are NBA All-Stars or tonight NBA All-Stars pretty 16:26 damn close and when you're operating a running a large organization, you're talking about race shoes in people with different editions different goals 16:35 in life different talents, and it's very very rewarding to work with the best people in the world and once in awhile be able to see the Light up 16:41 because you've been able to add some value to them anytime Founders fund does something and there's a headline. The headline is 16:49

Peter keil's founders of your partners that we ever do it, which we do is text me annoyed. I'm wondering 16:59 how involved it. Can you give me some how involved he isn't Founders Fund 17:06 in particularly in the investment decision process never not be perfect. But 17:16 at different thresholds dollar sizes different numbers and partners and giving them as a GPS need to approve in the basement. So foreign documents 17:26 that are meaningful within our 1.4 billion dollar fund Peter definitely needs to approve the announcement. And what's the what's the actual what's 17:33

meaningful? It's lower than you would guess. I'm not sure. We never shared a very large number. A&B 17:40 you said you said when you do a new deal and this kind of the contrarian a half of my BC friends to laugh at the investment I make you wanna partner 17:49 for Life attitude. That's trickier. Maybe. Pop it like 25% 17:59 as an entrepreneur workout a company or as a VC 18:07 a reasonable number of my smart as friends thought was like ridiculous and that's because things look really ugly or different or you know, there's 18:16

this phrase about being a toy when I fundamentally the companies to become the immediate right. Everybody thought was like actually Brian will tell 18:23 you the story but actually like the idea and nobody else like the idea 18:31 and they all the really good about this feel like that. Now the key is to change Open Door actually, you know Spencer definitely didn't like the idea 18:40 when he first heard about it, but they can change it pretty quickly like two to three years. You should be able to go from like ridiculous absurd to a 18:47

lot of people appreciating you to everybody appreciating you. Most most am I renting a everybody? Not all your partners were Founders 18:54 are executive the company's right confirming that obviously changed a lot over the 19:04 past couple decades. You came out of an operating background Peter obviously 19:14 for State starting adventure for from scratch. How much weight would you put on the idea 19:18 of a prospective partner either lower-level having had operating Spirits weather is a founder or not. I think it's pretty critical. Like I didn't know 19:28

there's a lot of successful investors should not have operating experience and just before anybody & Suites about so-and-so in such name. For people 19:36 who started this job after 2007. There's very few examples. So I think it's a generational thing as you started the question, which is Thursday. I 19:45 think two really good in Oscar's who started the career after 2017. I don't have an operating experience for you too. Well, I'm not going to 19:53 I 19:59 think that right now if you very difficult to compete without that experience, I think for example, you're just going to lose to a lot of people who 20:09

have a different way to frame the value proposition they offer is it possible? No, could I see up hiring someone? Absolutely. Yes, we promote when 20:17 you hide them a senior-level probably not cuz they get promoted. Absolutely there is there's been talk in the valley in particular 20:27 among folks of your kind of associated with either literally put a with her feel soft cleats associated with that. You can't speak. What comes to 20:37 things that are either political or social economic and you can no longer speak your mind and Silicon Valley which is where your basic I'm supposed to 20:45

wear your base and that if you do particulars Adventure capitalist, you will lose business you will lose deals are respectively lose deal. You don't 20:50 seem concerned by that judging by how open you are about your views including political views. Why why why are you not paired with some 20:58 others seemed really claim to be scared of what I think that's true many things in life are 21:08 other people to grow your 21:12 own fears and other people's 21:22 fears. 21:23 Different fundamentally. My job is to give someone the best possible feedback and that's why the people who choose to work with me choose me is 21:32

like I will give him feedback that hopefully Useful to them at some point. If I'm shy in expressing my opinions, I can't do my job. And so 21:42 the people usually come to me or people that want that kind of feedback and I've actually found that actually helps me when investments in a very 21:52 competitive and the other to do ridiculous and offensive and then there was no competitive that we do well both town or fun or me personally people 22:00 appreciate the founders fund style is to be candid and honest today. We will take a position. Even if it's not popular speaking 22:08

at your portfolio Founders fund portfolio General State of Tech Dental state of business 22:16 when you think of the election this November, what's the what do you think is the most important thing to watch for the most important thing that 22:26 could come out of it from a kind of business economics? 22:36 Well, it's early would be my preferred Democratic nominee but fundamental. Why would I vote who I vote for California? It 22:46 doesn't even matter do not vote. I didn't vote in 2016 if you lived in the house if you lived in Pennsylvania, 22:56

who would you vote for Trump versus who 23:06 and when you have to 23:10 vote for Trump over Sanders or Elizabeth Warren Elizabeth Warren, 23:19 I got repeat on over there was a bunch but I got a lot of damned 1 23:25 in part until I got to the end and they all came around to a central theme and I want to set this up on the plane. I was watching this documentary on 23:34 Mike Wallace and the beginning of the story with Mike Wallace Morley Safer systems, like right before you guys asked why are you such a prick? 23:44

Buy a bunch of people on Twitter a very similar question, which is is what is Keith personality on Twitter and act is it sincere and do 23:54 you care that a lot of people on Twitter. Was a prick in reverse order? I don't I don't care the I think it's fairly 24:04 sincere. I mean may not be represented. If you like you can take out contacts or it's out of like, you know, he spend time with you and 24:14 so you can pick out tweet that's like one sentence they'll be like spending two minutes with somebody and say, oh that's what it's like to be in a 24:24

relationship with their obviously like that that it is distorted and see her but maybe not like a 24:30 meeting or 10 hours, you know in a part of me getting whatever probably isn't like necessarily the exact reason. 24:38

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