In this episode of 20vc, host Harry Stebbings interviews Keith Rabois, who recently made a significant career move from Founders Fund to Khosla Ventures. Rabois, known for his successful investments in companies like Stripe and OpenDoor, discusses his motivations for rejoining Khosla Ventures alongside Vinod Khosla, highlighting both professional and personal reasons for the shift. Rabois reminisces about the collaborative and intellectually stimulating environment at Khosla Ventures, where rigorous debates during partner meetings sharpened his investment acumen. He also delves into the importance of having a competitive advantage as an investor, the art of reserve allocation, and the nuances of growth-stage investing. Additionally, Rabois touches on his investment philosophy, the impact of becoming a father on his worldview, and the future of the venture landscape amidst market fluctuations and regulatory changes.
"There's certain things about, you know, KB that led to that successful track record in KB four, five and six that I kind of missed. And then there's several personal things that just were more appealing to me as a human, you know, aside from my professional aspirations and goals and ambitions. And so the combination made a lot of sense."
Keith is indicating that his decision to move back to Kosla Ventures was based on both professional and personal reasons. He missed the elements that made KB funds successful and found personal appeal in the environment at Kosla Ventures.
"This is 20 vc with me, Harry Stebings, and this Wednesday we had some of the biggest venture news in a long time. Keith Rabois, legendary founders funding Lester, who'd backed the likes of Stripe, Fair ramp and others, was leaving founders fund to rejoin Vinod Kosler and Kosler Ventures."
Harry Stebbings introduces the significant venture capital news about Keith Rabois' move and sets the stage for discussing Keith's reasons and future plans.
"I never really left in some senses, because after I left, I stayed in really significant contact with Vinod, Samir, and David particularly."
Keith explains that his connection with Kosla Ventures remained strong even after his departure, which contributed to his decision to return.
"We had very extensive partner meetings every Monday for hours at a time, and we vigorously debated new investments as well as the impact and the potential upside of the current portfolio."
Keith describes the intense and thorough nature of Kosla Ventures' partner meetings, which he believes improved his investment acumen.
"Founders Fund, especially when I joined, was very much people running their own investment strategies think of as like a PM running their own investment strategies."
Keith contrasts the independent investment approach at Founders Fund with the collaborative and debate-heavy approach at Kosla Ventures.
"The way it really works, in a way the rubber kind of meets the road is sort of like a certain amount of social capital."
Keith discusses the concept of social capital at Kosla Ventures, which influences the decision-making process and the dynamics of partner autonomy.
"I knew that I was on the edge of consensus and I was going to burn a lot of social capital, mostly on should I increase the valuation of a particular offer."
Keith provides examples of how he balanced social capital with conviction in investment decisions, highlighting times he wished he had pushed harder for certain investments.
"Historically I'd say KV has been more price disciplined than Founders Fund, but I think Founders Fund is actually more price sensitive and more disciplined than most people give them credit for."
Keith acknowledges the price discipline at both Kosla Ventures and Founders Fund and the importance of conviction over price sensitivity in early-stage investments.
"One thing that Peter Thiel is really disciplined about is he totally understands these dynamics really well and is always pointing this out internally, sometimes externally, that your returns are not going to be the same as what you expect when that's what's going on in the macro environment."
The quote highlights the importance of understanding and adapting to the macroeconomic environment when it comes to investment returns. Thiel's discipline in this area is emphasized as a key factor in successful investing.
"No, in fact it was quite controversial. I sometimes think that it might have been the most courageous investment I've made as a vc because everybody was so addicted to this breath nonsense and typically not the best strategy to fast follow another startup that has traction."
This quote reflects on the courage required to make an investment that goes against the grain, especially when the market is fixated on a different approach. It underscores the importance of conviction and industry knowledge in making successful investments.
"You do have to take into account what kind of company is this? How much capital is it going to require to achieve certain milestones and depends on what the company is aspiring to do."
The quote emphasizes the need to consider a company's capital needs relative to its goals and the milestones it must reach. This strategic approach can affect the probability of success and is a critical aspect of investment decision-making.
"At KV. There is a more disciplined, let's say, approach to reserves. That doesn't mean better, by the way."
This quote points out that while some firms have a structured approach to managing reserves, it isn't necessarily superior. The implication is that reserve strategies are complex and firm-specific.
"I think the risk reward can be really strong. It's hyper competitive."
The quote acknowledges the competitive nature of Series A investment, suggesting that while the potential returns are attractive, the level of competition can be a significant challenge.
"I think that growth is pretty broken. I think most growth funds were pretty bad at what they were doing."
This quote criticizes the performance of many growth funds, attributing their struggles to poor investment strategies and a lack of fundamental understanding of company growth.
"Sizing a venture fund is one of these other complicated arts in the industry."
The quote conveys that determining the appropriate size for a venture fund is a complex task that requires balancing various factors to align with the firm's strategy and capabilities.
"the guidance I learned and I don't know this is as rigorous as many things, but roughly a good portfolio for a fund should be about 50, 30 to 50."
This quote outlines the typical size of a healthy venture fund portfolio, suggesting that a range of 30 to 50 investments is advisable.
"How many people are going to be high quality investors do you have at any given time in a fund? It's usually a smaller number than you think."
The quote emphasizes the scarcity of high-quality investors within a fund, which affects the fund's strategy and performance.
"Ultimately your fund size does affect your strategy or should. It has to be a recursive dialogue."
Here, the importance of aligning fund size with investment strategy is highlighted, indicating that strategy should evolve based on the fund's capacity.
"The four people that are most senior or know the official mds at KV are the same people I worked with when I was there."
Keith Rabois comments on the stability of senior management at KV, acknowledging that he has a history with these individuals.
"I haven't worked with most of the people that are not at the partner level at KV."
This quote reveals Keith Rabois' limited interaction with the less senior members of KV, which affects his ability to fully assess the firm's dynamics.
"I think the rigor around growth investing actually I've learned this personally."
Keith Rabois acknowledges the importance of a rigorous approach to growth investing, which he has learned through experience.
"the growth team is very dialed in to evaluating those opportunities."
This quote suggests that the growth team at Founders Fund has a methodical process for assessing investment opportunities, which has been educational for Keith Rabois.
"every founder who's successful, every founder who has a shot of being really successful is different."
Keith Rabois highlights the individuality of founders and the necessity for investors to adapt their approach accordingly.
"Being in line with his views allows me to be more effective because when I'm channeling feedback, we're not debating first principles ever."
This quote explains how alignment with a founder's principles can streamline the collaboration process, making the investor's feedback more impactful.
"KV and FF have almost exactly the same ownership. In trauma I believe in Openstore we have the same preferred ownership, KV and FF."
Keith Rabois points out the significant portfolio overlap between KV and Founders Fund, indicating similar investment philosophies.
"A lot of people at KB are founder driven."
This quote suggests that both KV and Founders Fund prioritize founder-driven companies, although KV may also focus on technology and innovation.
"I have occasionally thought about, should I start a fund? There's definitely a lot of drag coefficient associated with that, that I was not particularly excited with."
Keith Rabois expresses his reluctance to start a fund due to the operational complexities and distractions from his core interest in working with founders.
"I don't think you can get rid of the drag coefficient, certainly from scratch."
This quote acknowledges the inherent challenges in starting a fund from the ground up, which can be a deterrent for someone focused on direct founder engagement.
"I really want to have impact in people's lives. And that they really think about it, that it was that impactful, that their life would have been completely different."
Keith Rabois shares his aspiration to be remembered for the profound impact he has had on the lives of others, particularly through his professional relationships.
"That's what motivates me every day."
The quote emphasizes Keith Rabois' daily motivation to make a difference in the lives of founders and entrepreneurs.
"You have to have a comparative advantage, period. And you need to isolate it for you and your fund."
Keith Rabois underscores the necessity of having a unique edge that sets an investor apart in the venture capital landscape.
"If you don't have a strong answer to why you have a comparative advantage, you're going to regress to the middle of the bell curve."
This quote warns that without a distinct advantage, investors risk achieving only average returns, which are not satisfactory in the venture capital industry.
"I think at a fund, the first instinct is, do I have a partner who would be a really good pairing?"
Keith Rabois discusses the initial consideration within a fund to identify the best partner to support a particular founder.
"At Founders Fund, we did it, too, but more on an ad hoc basis, not systematic."
This quote contrasts the systematic approach to partner-founder matching at KV with the more ad hoc method at Founders Fund.
"As a board member, one of the best ways is to ask things in terms of questions, not in terms of answers."
Keith Rabois explains that posing questions rather than providing answers allows founders to arrive at their own conclusions, maintaining their autonomy.
"I almost never ever tell a founder what they really should like. I almost never say, you must do this."
This quote illustrates Keith Rabois' philosophy of avoiding prescriptive advice, respecting the founder's decision-making authority.
"Actually, when you look at the historical data on distributions, there's very small windows where liquidity is apparent and strong."
This quote highlights the sporadic nature of liquidity events in venture capital, emphasizing the importance of timing in realizing returns.
"Obviously square went public when sell. The market didn't really appreciate square fairly for a long time."
Keith Rabois reflects on the internal debates at Khosla Ventures regarding the timing of selling shares post-IPO, highlighting the importance of strategic decision-making.
"He really does see the implications of a new technology way before other people do."
Keith Rabois emphasizes Vinod Khosla's ability to predict technological impacts and his dedication to his craft.
"There are fundamentals about our business that are basically baked into the business, and then what are optional decisions around culture, decision making, hiring."
Keith Rabois discusses his learnings from Founders Fund and how they influence his approach to venture investing.
"People are much more baked and impressionable at earlier ages that dictate how they are when they grow up."
Keith Rabois talks about the formative nature of early childhood and the importance of parental influence.
"People who have irrational success, top ten basis points, one basis point in any field are absolutely making trade off decisions, hopefully intentionally."
Keith Rabois discusses the sacrifices and trade-offs necessary for exceptional success.
"My theory was always from 2013 or 14, that the adoption of bitcoin would globally be inversely correlated to the rule of law in a specific market or specific country."
Keith Rabois explains his perspective on the factors influencing Bitcoin's adoption and value.
"I don't believe that IPO windows really close or open. I think just the criteria for success is different."
Keith Rabois expresses his belief that the opportunity for IPOs is constant, but the standards for success fluctuate.
"The hardest part for me is deciding which first meetings to take."
Keith Rabois discusses the difficulty in filtering investment opportunities and the importance of making informed choices regarding initial meetings.
"I will definitely not be chilling and I will not do my own fund."
Keith Rabois shares his intentions for the future, indicating a continued engagement in the venture capital and technology sectors.