The Pomp Podcast - #1250 Keith Rabois on How To Build A Billion Dollar Company

Episode Date: September 28, 2023

Keith Rabois is a general partner at Founders Fund, co-founder of OpenDoor, current CEO of OpenStore, part of the PayPal Mafia, worked at Square, and had many other important roles throughout Silicon Valley. This conversation was recored at the BUILD Summit in New York. Topics include common traits of the best founders, operating in uncertain chaotic environments, balancing transparency, fundraising, & more. ======================= Trust and Will has simplified the process of creating and managing your will or trust online. They leverage a data-driven, design-first approach and amazing customer support to help you protect your legacy from the comfort of your home starting at just $159. Sign up today for 10% off using ⁠⁠⁠⁠https://trustandwill.com/pomp⁠⁠⁠ ======================= Get Better Crypto Data: Do you want faster, easier crypto data? Sign up for Velo Data, a new product that we have been working on to solve this problem: ⁠⁠⁠⁠⁠⁠⁠⁠velowaitlist.com⁠⁠⁠⁠⁠⁠⁠⁠ ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Keith Urboy is a general partner at Founders Fund. He's a co-founder of Open Door, and he's the current CEO of Open Store. He also was part of the PayPal mafia, worked at Square, and had many other important roles throughout

Silicon Valley. The following conversation came from the Build Summit, where 700 founders came together to listen to folks like Keith about how to operate a startup. Keith goes into excruciating detail about what he looks for in founders, what some of the best traits are in the best companies that he's invested in, and how Keith thinks about operating in an uncertain, chaotic environment, which requires immense focus and a little bit of luck. Here is my conversation with Keith Roboy. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement

to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by Trust and Will. I've gone through a number of different changes in my life over the last few years. I got married, I had a kid, and I had to start thinking about how could I ensure that my wife and my child would be okay if anything ever happened to me. That's where trust, wills, and estate planning come into play.

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Our next speaker is a general partner at Founders Fund, part of the PayPal Mafia, CEO of Opendoor, or I'm sorry, the co-founder of Opendoor, the CEO of OpenStore, and also probably the single best tweeter on all of Twitter, Keith Reboy. how are you i don't i don't know i don't know about single best tweeter ryan peterson's doing a really good job wrong um all right i thought a um a great place to start is just let's jump in the deep end there was a peace time now it is war time uh the market sucks people are having trouble fundraising people are trying to figure out hiring product market fit like everything to founder feels like it could be going wrong what changes in operating a company from peacetime to

wartime actually pretty much nothing should have changed but uh people are getting a lot of bad advice um so building startups really hard my part uh my general partner founders fund trey steven says his great expression is like those startups hard and people forgot that um like or maybe never learned it but fundamentally there's a three-year window when people thought that building a startup was something easy and that normal people could do it and that's just not true In the last 50 years of technology, there's about a six-year window when maybe building a startup to some version of an exit was possible for normal people. Typically, it takes someone who has heroic efforts, heroic intensity, heroic skills to pull people together for five to 10, 15 years to build a startup that matters. And so a lot of people just believe that this is an easy industry.

It's sort of about as likely that you're going to build an important iconic company as like playing the NBA and make the all-star team. and people thought it was about the same equivalent as like maybe making your high school basketball team. So a lot of people just followed wrong advice. Now that said, the marginal cost of capital has changed. The Brad, I think of capital as oxygen, oxygen for a startup, oxygen buildings. And just like we go outside and we don't really think

about how much air we're breathing. The cost of capital was basically a marginal cost of effectively close to zero. And now it's expensive. And so if we all were like to run or something central park and we were charged you know ten dollars per breath a lot of people would have to stop running outside and that's actually true with startups is now that the cost of capital is real it's something you have to incorporate into your tactics and strategy when you talk about

intensity i think something i've learned from you uh and other people kind of around you or uh the board of directors the intensity there and kind of just the ruthlessness of like are we hitting the numbers are we not are we actually doing the right thing and spending time correctly Counting the number of days since the company started, right? There's all these kind of little tricks and tips that you guys have come up with to kind of keep intensity going. What are some of the things that you do when you're running the company that you're like every single founder should be doing X in order to keep that intensity throughout the organization? Yeah, I think the intensity has to come from the founder and the CEO, not really from the board. Really what a board member does is almost like a cartoonish mirror.

If you've been in a haunted house, it kind of exaggerates your positives and exaggerate your negatives and plays it back to you and say, like, is this really what you intend? And so it's a little bit different. In fact, sometimes a good board member can be a cheerleader when things aren't going well. And the toughest critic, the best time to be a tough critic is actually when things are going well, because, you know, obviously

when things are best, the founder definitely knows things are best. It's adding more stress on top of founder really doesn't help usually. So there's there's a little bit of counterintuitive nature to a good board member, but they do point out things that maybe you don't want to hear or maybe things that you have blind spots to, so it can be very valuable. But setting the pace is really the CEO's job. And I think it's mostly like leadership by example. The reality is there's a lot of tactics like we do use this technique that we borrowed from Ramp of days since

launch. Every board meeting sort of has the days since we started the company. It talks about time. Time is not your friend. The whole goal of a startup and kind of read Hoffman terms is to turn time from your enemy to your friend so when you're losing money you're burning money time is your enemy at some point the engine works and you have momentum you've turned inertia into momentum and just like the physics concept the momentum actually gets better and better and better and then time becomes your friend every day gets easier and the company's worth more every day so until you've inverted the laws of physics you definitely want to be counting and compressing time and there are tactics like reminding

everybody about every day matters. You know, every hour matters in some startups. Talk a little bit about another component of time is like money, literally money and time are almost the same thing in a startup. People also forgot that. Well, if you could raise as much as you want, you know, next week, then you're good. How do you think about sharing that information with executives, with the full team, you know, kind of like transparency is this great thing, but also if all of a sudden every single conversation employees want to talk about like hey we've got two weeks in the bank it can be distracting and not have them focus on the product or what they're doing so how do you think about just

like communicating this with the employees there's probably nothing perfect but i think all things been equally better off being completely transparent so you know and there's different tactics like you know at square we use this tactic of literally send notes from any meeting to the entire company intentionally had conference rooms with glass walls not uh you know uh whatever the opposite of transparent walls are um you know basically so people can see who's meeting with who um we share uh all the companies i'm involved in uh we share the entire board deck with the entire company like the first thing i do after a board meeting is go present the whole board deck uh unedited uh to the entire company the only thing we delete which you can debate is the

compensation slide um you know like equity grants but even even that like i think sometimes people overthink that too of sports teams for example everybody knows who gets paid what on the yankees or whatever it seems to work um so i think people have allergies to that in the startup world but i'm not sure they're like legit uh steve jobs actually tried this at next where there was like two compensation schemes there was low and high and everybody knew what everybody was getting paid uh next didn't really work so but maybe people like confused product market in the compensation schemes in any event um the uh so try to be as transparent as possible the reason why is really driven from uh netflix if you looked at netflix's culture deck uh the famous 110 powerpoint slides

which has been edited down for unfortunately but the old one basically talks about if you want people to make decisions they have to have context what context really means is every single employee has the same information that you have it's really frustrating sometimes the ceo when people make stupid decisions and you think about it well why'd they make a stupid decision more often than not it's because they don't have the horizontal perspective that you have a ceo so you can't really get annoyed or furious with your colleagues when they make dumb decisions because if you haven't shared them enough data enough information enough strategy enough thinking of course they're going to make distorted decisions so the whole point is if you want a cascade decision making

down an organization want everybody to be sharper faster you need to give them the same tools that you have as ceo and so i'd rather deal with the flip side which is you're right when things aren't going well it's difficult to be transparent that said people are gossiping anyway like the reality is in any organization of a certain size. People have concerns. They gossip with their friends. They go out for beers, et cetera. And so to some extent, if you're transparent, you know what people are talking about. You're feeding them the real information. So it kind of suppresses like gossip. And it's probably better to have a conversation about the reality than like all the versions of reality that gossip tells. So usually people will talk about the best founders,

the best companies, but they have like three years of experience. And so you got to kind of, you know, weight their advice very lightly. You've been doing this for 25 years, which is impressive. Well, because you're only 21 and you've been doing it for 25, so I get it. But in terms of the, you know, two decades or so that you've been doing this, what are the common traits of the best founders? You once said something to me, and I'm so scared to give you any confidence boost, but you once said to me that you've never met a founder that went on to build a multi-billion dollar company and not invest. And so you can have the false positives, but how do you see a founder and know yes it's a scary concept um because like it's one day i'm going

to screw up and like don't take any more meetings because there's perversions but there is i mean it's an interesting thing right it's like it's almost a fighter who gets knocked out and loses confidence there's a career philosophy around this which is look the idea of starting a company is irrational like the idea that i'm going to reinvent the world or reinvent an industry with my college roommate in some proverbial garage somewhere is like borderline crazy and irrational so if you think about that well who actually has a shot of achieving something that's actually borderline irrational it's someone who's pretty unusual and so the first thing i'm looking for when i meet somebody or already know somebody and filtering them as whether to be a great founder is

does this person have a non-zero probability of changing the world if you just ask yourself that question like it's that simple like can this person like have anything other than a zero chance of actually reinventing the entire client most people by definition it's pretty easy to pass actually because like the chance that like most people are just not going to reinvent an industry um it's true in other fields too if you met like an athlete and said is this person going to be the next step hurry it's pretty easy if that's your actual question to say no and be right like almost every single time or is this person going to be the next you know kygo in music the answer is no and you usually can tell if someone has a one to five percent

probability same is true in politics like people there were people who knew politics really well that spotted both bill clinton and obama very early in their career like talking about 20s and they're like this person will probably be the next president you know at some point be president of the united states so you can do this in any field to some extent and so what i'm usually looking for specifically for a founder is some trade that is like the top one percent or top ten basis points on some dimension that i've never seen and my ears just perk it's like oh my god i've never seen anybody like this before like it can be this is the greatest sales person i've ever met it can be this is the greatest smartest person i've ever met it can be this the most tenacious

person i've ever met it could be this is the best person at assessing talent like their just ability to evaluate people there's different dimensions but you're like wow like you're walking out of that meeting like oh my god like what just happened and if you don't feel that spidey sense for early stage investing this isn't true of growth stage investing like we're talking like seed round investing maybe series a if you don't feel that you almost surely should not invest how much of your operating history and continuing to operate today is sharpening that ability and and then also being able to understand who the person is, but also what are they trying to build?

And talk a little bit about investing in operating at the same time. You know, honestly, I'm not sure that operating helps that much because what you're hiring for, so one benefit of operating is you meet a lot of people, you interview a lot of people, and you get really good muscle recruiting. That said, when you're hiring, you're not aiming for just 10 basis points, and any CEO tells you that everybody in their company is top 10 basis points is just purely like either stupid or lying um but founders you actually are looking for something

like an outlier on like 10 basis points now when you're hiring for a company therefore it means like you can use like a middle of the bell curve kind of assessment technique where you're trying to figure out where on dimensions someone plots on some distribution curve for founder investing you kind of want to be like the extreme tail and just like in statistics actually if you're looking for an extreme tail there are different statistical formulas you actually use that when you're trying to look at a normal distribution. So I think sometimes like the recruiting process, the CEO goes through actually makes them bad investors. An example, a tangible one, talk about my friends who run FAIR. So both two of the four co-founders, Max and Jeff, CEO, COO, both worked for me at

Square. They both played soccer with me before. And when Max was raising money for FAIR, which is going to be easily a $10 billion public company, almost everybody passed because at Square, he actually was a bad employee i actually liked him but like most people did not so if you called up around square and said i'm going to do reference checks on this guy named max rhodes you would have got pretty mediocre answers that said almost very few people asked the real question um one or two investors were smart enough to call up like someone like jack and say hey what do you think about max the right way to frame that question is what do you think about max as a founder and if you've done that actually jack would probably said he's actually probably a good founder but the employee

and founder are different things what were they doing that made them a bad employee but they wouldn't follow instructions disagreeable everybody i mean that's why i didn't mind because like he was mostly doing things that i found like useful but like every other employee in the company was like why can't you get him to do what he's supposed to do which was a good sound makeup data we have this phrase called max data charitable interpretation you know like but that's part of what you're doing is you're spinning like you're using you're not from scratch like building a product using 50 years of general motor sales data you're interpret interpolating data to tell a story and he was really good at that but occasionally people would call him out on that

and we'd have like real footnotes and some max data so a framework that i have is that once a company is going you probably could not meet the founder or the ceo and you could go spend a day at the business and understand like this is a well-operated business or not it's a good business or it's not so before covid um roll up who runs sequoia uh taught me this lesson 15 years ago you just walk around an office you can tell everything you need to know so in fact what i learned from that lesson was what ideally i'd rather go to people's offices and have them talk to me about their company there than have them come to my office now kovich you know totally blew this theory up because people have multiple offices if they have an office it's just not the

world doesn't work that way but you used to be able to tell really quickly like what was it what time are people showing up are they like focused dialed in at their computer or are they chatting you know blah blah what time did they leave there's a lot of little little cues but you really can't do this at scale anymore so maybe we can use mike shabbat and traba as an example uh we both invested in it you got to invest more than i did we'll talk about that later But one of the things that he first said to me when I met him is he said, 996. And so talk a little bit as to like, I almost think it was like, that's who you're competing against as a startup founder. And maybe explain a little bit how you got to know him and kind of what they're doing.

Yeah. So 996, for those of you who don't know, is kind of an expression mostly driven from Chinese companies that work nine to nine, six days a week. Very, very common in China. It's a relatively popular expression. so when mike was starting his company which was in the middle right after kind of coveted overhang um a lot of people bought in to subscribe to startups are easy we hadn't yet had the correction um remote work was a thing you know blah blah blah four day work week all this stuff is in the ether and mike is like the antithesis of all these things like on every dimension he's like we're doing 996 actually when they really started they were actually more like 997. um mike's my best friend and it's really hard to be best friends with someone who's working 997 actually um but

uh like they've dialed it back to 996 in person like now you know maybe one day a week then like weekends you might be able to do one day like remotely but it's 996 in the office every single every single person every single day it's very impressive it's not surprising that the company's done very well but it is a manifestation of the personality of the founder mike is like this kind of everything in his life is like non-stop charge ahead and it's worked the company has done phenomenally well when you invested you know it's just two co-founders in an idea in a pretty boring and fairly competitive industry and they're really really really doing well like we just kicked off our new venture fund um founders fund eight and we wanted to find like the best company in the

portfolio to kick off our new fund with and we just doubled down on trauma because it's done phenomenally well which i think is their culture the culture has other attributes than this too has other differentiated potentially attributes but like the signature one initially and to show you how this manifests that it manifests and compounds itself um about four months ago they just i might just hire this woman who's a great head of finance and i was asking her this question when i met her i'm like so you know how'd this work out how'd you you know how'd you wind up in trauma and she said to me well um she was actually like cfo of a korean company who's doing really really well and she's like i was looking for something like 996 and so i i searched around

for american company that like had that culture because she's like this is why the asian companies succeed and and she found trauma and she like proactively reached out to them so he wound up having this great head of finance and she's done you know phenomenally well all because the culture was a positive signal to her and so it actually you know attracts talent when it comes to accumulating advantage so what's interesting is they talk about 996 of that company another one one of their kind of core values is Olympic work ethic and this whole idea of like, if you wanted to be an Olympian, you would work your ass off. You would literally obsess over like becoming the best Olympic athlete. Um, talk a little bit as to the authenticity though, of that business or

other businesses to say, here's what our values are, knowing it goes against what the public narrative is and kind of like the, the ability to have the courage to use it as a magnet versus, you know, Hey, I'm going to get attacked for this. And then maybe I shouldn't say it. Yeah. I mean, it goes, it derives from something Peter Thiel taught me like 20 X years ago, which is every successful startup is a cult like you have a belief about the world that's different than other people and you have a secret if you read zero to one he talks about secrets secret is like we believe something about the world that turned out to be true that other people don't understand or reject so you have to have that and then when you have a secret you want to build on

that secret and that's what you do is you double down you build a cult so trauma definitely is a cult they have different dimensions and it holds just like the phrase the connotation it's not for everybody but you're not trying to hire everybody i think sometimes founders forget this i don't want to hire everybody in the united states i want to hire a very so much group and as your company scales going from a hundred people to a thousand people to ten thousand people there is a regression to the mean like you can't have ten thousand people that look like your first ten employees like there is some you know sort of regression to normal people but like fundamentally the first hundred can be extremely unusual uh the first 500 after 500 there's another kind of change after 500

but like fundamentally you can get into the thousands being very selective about you higher and so you want to be like kind of anti-selling so like probably uses this anti-cell concept which is they're very explicit about their company values and the work ethic and all this stuff and if it's not for you that's great like there's plenty of things to do in the world there's plenty of other companies in the world there's plenty other industries in the world but for the people who want that that created that they want to be a magnet for that kind of tone you have started multiple companies now they've been very successful uh regardless what people on twitter say um it's always funny the critics they never have public companies to yell and scream about so they have

to yell yours um talk a little bit about your pin tweet which is fragmented markets with low nps you basically go build kind of a vertical solution that solves the problem like for those that are trying to figure out hey what is my company going to do yeah you know it's actually interesting that this pin tweet was for like 2017, I think. And I was just sitting on vacation, which is a luxury to have as a VC that I never had as a founder, truthfully. But I was sitting on vacation

and I was thinking about a constellation, common or afraid across multiple companies that I'd been involved in, maybe some funded ones and maybe some in the ether that I just watched. And then I said, it just occurred to me as I was like sitting on this proverbial beach that there's a set of common traits,

like a fragmented industry, big square or something like that. there's merchant processors to the left to the right think uber taxi drivers or lyft if you prefer um tax drivers bad mps definitely taxi drivers terrible mps merchant processors terrible mps and that if you had a fragmented industry there's structural reasons why usually and then b bad mps means customers are not delighted if you could simplify the value proposition stitch together in a vertically integrated way which is usually how almost really the only way to really simplify is you have to vertically integrate everything so there are no um sort of loose

ends and rough edges then you could actually succeed and so i sort of said you know what there's like 10 or so companies i can think of that are like this maybe there's a common formula here that people can apply and so i just tweeted it out and did pretty well do you still believe it yeah yeah it definitely works i love vertically just to start i've always loved vertically integrated businesses um they are more difficult to build but they're more successful when they work think apple so i'm also a whatever 30 40 year old a 40-year apple fanboy and so to me one of the other lessons of technology that's somewhat counter-intuitive is apple's you know the most successful company what i learned in any industry when i was growing up is if you want to be

successful you emulate the people who are successful so to me it's always been shocking that most founders do not emulate apple it's like duh like wait i'd rather be apple than anything else why am i not trying to replicate what worked for apple um so anyway so i've been apple fanboy forever and apple obviously has been vertically integrated which is the secret there's a reason why like it doesn't matter what google does not going to affect apple doesn't really matter what microsoft does not going to affect apple it doesn't matter what oracle or salesforce does not going to affect apple because they're not vertically integrated so they have no chance to compete talk a little bit about apple as this product company everyone loves the products

but they're also have this amazing marketing but it almost feels like they're not marketing and so in the technology industry tons of people are focused on like building great products solve people's problems marketing and sales where does that come in and like how important is that early on yeah I mean it so there's a bit of revisionist hindsight at Apple there's a couple good books that I have actually at home that I'd like to look through and flip through Apple's marketing is not really what propelled the company um you should go pull these books that collect every ad there's one book um i have on my coffee table that's every ad

apple's everyone up to like i mean the book was published probably four years ago so up to that and the early ads are pretty ugly actually and they're very feature driven like so the company did not get to its ipo at least using what you think of apple marketing today so i wouldn't try to reverse engineer what you see apple marketing today as a startup i would go look at what apple did when it was like you know 100 people building a mac or something and there's books you can read there's books that collect the ads so sometimes if you try to triangulate you know what's made a company successful too late in its arc you're going to learn all the wrong lessons in the beginning it was very very different the simplification simplicity that was in the ads

but it was talked about in features and not high design very much performance marketing but it was trying to distill things so normal people could do stuff so i was actually reading something i think on the plane yeah actually on the plane to new york yesterday it reminded me of this example from apple where the first use case when uh literally uh steve and steve pitched on valentine sequoia for an investment he asked what the use case would be for a personal computer this is probably 1974 or five and steve steve actually told don valentine that he'd be like a woman at home uh collecting her recipes and don valentine the very famous vc very incredibly successful founder of sequoia said that's the worst case i've ever heard nevertheless he still wrote a check

why do you think he still wrote the check um i think he well i think he he thought that they were crazy, but like half brilliant. And that is a good formula for potential founders about, and then the home computer did have some potential, even if they couldn't quite put the finger on how it would be used. So it's pretty inspired. Actually, interesting enough,

Apple, Sequoia actually sold their shares to Apple way, way, way too early. So the proverbial craziness sort of of Steve, probably cost Sequoia like billions of dollars. Shook them out. Not that they're missing the money, but. um talk about starting a company and either not being the ceo or starting off a ceo and kind of handing the reins over someone else's as a ceo there's founders in here who are not the ceo or

are thinking about kind of going into a chairman role things like that like what are some tips or tricks there well so at founders fund we basically only fund people that we believe are going to be the long-term ceo of the company like that's why we're called founder fund we don't believe in hired management there's a lot of philosophy there behind that we never we're not allowed to vote to fire a ceo et cetera et cetera et cetera that said obviously not everybody wants to be ceo of a company even a great company forever like you know lots of people step down step down etc so perfectly fine you transition at some point but we're really in the business of finding people who whose aspiration dream is almost inconceivable like our like our friend like i i can't i i actually

literally can't fathom anything that would cause them not to be seen i mean maybe they had like catastrophic health issues yeah well what's so interesting and we're using this because we've talked about it recently but um if i ask you how much is trauma going to be worth what is your answer oh god so if i don't say a trillion dollars i'm gonna get shot um because that's part of the cultural like dream big ambition um so it's a reinforcement i'll be happy in a hundred build but but it's a reinforcement right it goes back to this idea of a cult like literally every single person from uh an ea all the way up to the ceo if you ask how much is the company gonna be worth to to say a trillion dollars which sounds insane until you're like oh wait a second these people

actually believe this yeah yeah it is a true call it's a good example because if you don't generally people don't exceed their ambition i guess there's another way to restate this if you aim here it's not that calm it's not impossible to exceed it usually you aim here and you get 85 out of the way it's pretty good so i think to some extent but different founders have different styles on this i do work with a lot of founders uh who would be very opposed to that kind of philosophy so there's not a one-size-fits-all culture that's why each one is these unique cult like I have a lot of great founders who would criticize that you like completely and say like look the ultimate evaluation

doesn't matter but what all we need to do is focus on our inputs and inputs a lot up to be a great company and so therefore we shouldn't even distract ourselves and then what works for a trial that works for Mike is this big audacious goal that they rally everybody around and motivate people either style can work if it's authentic back to the authenticity point talk a little bit about monetization and one of the things that i see founders always talking about because they've read a bunch of blog posts it's like don't turn on monetization until you raise money right because the second you do then obviously you're going to be valued on that how do you when you're talking to a founder like does

it actually matter is that good advice or is it bad advice well the first piece of advice is don't read blog posts your founder you should not be basically not reading blog posts 99.9 percent of the blog posts you're going to read are not going to be right first of all second of all you're wasting time like you'd be better off recruiting talking to customers shipping things so just completely ignore blog sphere is probably better advice than like reading any specific thing i used to tell people that literally the only thing i read in tech is trajectory literally don't read anything else in time i will scan twitter and look for a particularly random intervention and you know once in a while i'll listen to a specific podcast but there's nothing

else i read because nothing else is worth reading um i'd like to read books because books give you ideas and then you can remix ideas and that's actually very valuable but anyway don't get the shotgun now substantively on monetization it depends on your business there isn't this is another problem with blogs but there isn't a one-size-fits-all so if you're acquiring customers by spending money then you need to monetize right away like if i spend call it a hundred dollars on cap to get a user or a customer then i need to figure out what that customer is worth really fast if i happen to be in one of these businesses let's call an seo driven business like think yelp that gets customers and users for free actually i don't really need to monetize at all because

the mart any any monetization strategy one cent per axe is going to be greater than zero so as long as your x is greater than what you're paying it's a pretty good business and can be a great business but if you're spending here and you're only monetizing here that's a phenomenally bad business. And you need to figure out really fast either how to get this down here or this up here or both. And so it totally depends. Fundraising, I see some founders who they're price takers and kind of the VCs run the show and timelines, etc. I see other founders who are like, here's my timeline. I got 100 VCs I'm going to go talk to. And next Thursday, we're signing a term sheet. You've been on both sides. What is kind of the best way to approach fundraising

from like a process standpoint it really depends on the cards you have um you know if you have momentum perceived momentum actual traction no yellow flags you can control your destiny the process really easily you know not everybody not even very good startups have that usually there's proof points like for example until like we'll go back to the same story uh the trauma story seed round couldn't really easily control it was a very as i said boring industry it's like light industrial staff is staffing variable labor for like invite industrial warehouses boring industry most vcs don't understand b there have been several funded startups direction in a similar space not the easiest fundraising even the next round like not so easy so you can't totally

control momentum this round is a little bit more preemptive and the metrics come together in a way that normal investors can appreciate the next round will be easy like he'll be able to dictate the terms, the process, blah, blah, blah. So it depends where you are in your journey and how much evidence you have. Typically, you're more taking interest from a VC. Let me go to the first piece of advice. Never turn down interest from a VC. If you need money and you decide you want to raise, if you have interest from a senior person at a good VC fund, do not delay. The reason why svcs are not like a light switch you can't like reanimate my interest very easily if i gone on some other thing but if i'm like dialed into what you're doing or you as a person

that is the best possible time to raise money and then if you want to get competitive offers you can bring other people along so once you feel traction with a senior person someone you might want to work with then you can double down and kind of control the process and try to synchronize one thing that is friendly in some ways to founders is zoom it used to be impossible to synchronize all your fundraising even with the most momentum like you couldn't get all the vcs to literally meet you the same week now with zoom there is a reasonable expectation that if you have five people you want to meet you just tell them like i'm raising money i have a term sheet coming in tomorrow blah blah blah and they will get on the call within 24 hours the bads the

downsides guys i'm not sure you want to raise money by zoom like if i was a founder if you already know these people i would want to meet the investors that i'm going to spend time with for the next decade in person and if you have an unconventional story it's pretty critical to meet by zoom like i was just giving a really good friend uh advice right now his story's a little unconventional it's like stop doing these zoom meetings nobody on a zoom meeting is going to get why this unconventional story makes sense capital you need to meet in person or just not meet people i apologize for getting a little tactical here but there's two things that kind of come off of of this so there'll be people who raise rounds and then they have either on announcement or

shortly after it closes more interest i have seen people open up uncapped notes and basically say hey we'll take all the interest we can get get the dollars on the balance sheet i've seen other people say that's a horrible idea why would you kind of make decisions that impact your future without having all the information what do you think is best it does depend on a how much you raise against like what your goals are like did you raise 80 percent of what you thought you needed 120 on two who are the people that are offering you money and then three how much um i think there's a point when you raise incremental money that you do crowd out the next round to make the next round more complicated so there's some subtle nuance to this which is there are step functions

and perception of how much money you raised against what traction you need for the next round there's the next set of investors what ownership they're probably going to want So you can't just give a one size fits all answer to should you raise more money? Also, a lot of that was zero interest, you know, phenomena. There's not that many people chasing after companies right now with like uncapped or equivalent term notes. And then during the fundraising process, let's say that Founders Fund is really excited. What is kind of the right practice to share with other investors that Founders Fund is interested? You're talking to them. Should you not share who the other investors are?

you've raised a lot of money and it's like what is kind of best yeah i think the first thing is i would never tell another investor that so-and-so is interested unless they basically at least verbally offer you money the investor world is very insular and it's a college industry like almost every single person i compete with for real is a good friend of mine and so there's like no secrets and so you're just ruining if it's not true you're just ruining the chance to raise money from basically any money and so that's a bad idea if it's legit then there's two ways to play this and i don't care as much as some vcs about this i don't actually mind if people tell um other investors that we're interested if it's true i'm like you should be choosing me and us

because you want us and so i don't really care if you tell other people like they go crazy whatever other vcs get very frustrated very alienated think it's unethical to do that personally i don't care but you are playing with fire with a lot of vcs um so the way most founders kind of triangle like this is probably they say something like i've just got an offer from my top tier fund so they never name us but they give like some interest that you're on a shot clock and time is scarce that is totally acceptable to almost anybody yeah um also top tier fund is a small group not a small I mean, everybody's definition is a little different. You need to back it up though.

Like, again, I would not lie. If you have a second tier fund, I would not call the top tier fund. Cause again, I may figure out who that is. And I'd be like, oh, I don't trust this founder now. And that's a real problem. The last topic I want to talk about is health and fitness. You go to Barry's, you work out all the time,

eight sleep, you're on the board still, right? I'm not on the board anymore. I led the seed in series A and then we moved over to Founders Fund. We reinvested, but Trey Stevens, my partner, like led the investment got it so talk just about the importance for you and then also like what is the best thing these founders are obviously ruining their lives right for a number of years to try to build their company what do you see as kind of best practice so let's start um i think

there's a stronger connection between your brain and your body than most people realize and there's more and more evidence if you kind of look under a hood there's more and more research every year but i just always believe that your body you're kind of one person and if your body's a mess your brain's gonna be a massive vice versa so i've like prioritized sleep all my life getting like ideally eight hours sleep every day almost every day of my life and i've found techniques to prioritize that like i oriented my entire schedule around my sleep i found eight sleep partially because this ideology um kind of a friend of mine who is an early investor in eight sleep sent them to me like they were kind of this obscure company that i didn't know anything about

And he's like, you're the perfect, you're the perfect person for this. And I was like, in fact, I am. Like if you can boost people's sleep and the research is pretty compelling about lowering your sleep, lowers your core body temperature as you sleep, which does induce better and deeper sleep,

which is really, really helpful. Anyway, so I've always believed that the more sleep, the more sleep you have the better up to a certain point and you're gonna perform better. Most people did not really believe this until 2008. There's a classic study done with Stanford basketball team. So for those of you who play basketball, like generally speaking, it's really hard to improve

or lead athletes basketball shooting percentage. Like they spend all their lives trying to master like three-point shooting and free throw shooting. And they still like free throw shooting, maybe get to the 80th percentile, 85th percentile, 90 percentile, they're awesome. And they hit division marks returns, it can't get any better.

And then three-point shooting, like spot people would do really well, they can improve their three-point shooting by just 3%, 3%, 3% points. Anyway, so Stanford Basketball went through the sleep study where they put players on the team. At the time, Stanford was a good basketball team, like definitely top 20 kind of team.

They put players on three regiments, six hours, eight hours, and nine hours sleep. The difference, the eight-hour-plus people literally improved their shooting percentage by 10% points. Like, that's insane. Like, you can literally take a basketball player and train for 20 years and not get 10 points improvement so as soon as you read that study

you're like holy cow like i need to ever sleep like right now and so that's basically what i think sleep sleep became more popularized there's another great book that matthew walker wrote about sleep which also popularized the importance of sleep on cognitive behavior and cognitive performance so if you care about your life the best thing you can do if you want to be healthy wealthy happy is actually sleep more and so that's first step other fitness stuff I do is a mix of like there's some life extension benefits do certain kinds of training there's a lot of now evidence that you know muscle mass predicts like your lifespan or at least your healthy lifespan things but it you know it's a

mix of fun and vanity and for me on the fitness side I am obsessive about like tools like this you know to track it and i compete with my friends on this like i get notifications all day long and we go back and forth and they're you know it's it are dynamics social dynamics they're kind of cool about it but sleep is indispensable the workout stuff is more and more research on it but it's kind of also a hobby last two questions what's your resting heart rate uh 41 or 42 he literally knows yeah generally that's pretty good it's lower than your age yeah it's pretty obsessive about it uh the second thing is uh food like obviously working out sleeping that's all great what about kind of diet and there's all kinds of fads founders are always

doing all kinds of crazy stuff i wish there was more innovation let's start with the founder side first i do wish there was more innovation here like you can work out all you want but like ultimately nutrition and how you eat and all that stuff is going to be 70 to 80 of the results and and both visually, like aesthetically, and also health-wise. But there's not really a startup that has succeeded in putting you on autopilot to improve your, like, nutrition. It's complicated, obviously. Soiling, I guess.

Even tracking it correctly. Like, I wish there was a product I could use that intuitively would just track what I'm consuming and then give me metrics. Like, my sleep gives me metrics, or this watch gives me metrics on workouts. out there's nothing out there that's you know like simple enough for normal people to use so i think there's a lot of room there someone will practice code secondly i think that most things

simple advice is better just a high protein diet is probably good for most people like low relatively low carbs you can take it to the extremes and stuff depending on how much you want to chew but fundamentally basic blocking tackling like eating the right amount you know no processed foods mostly protein is going to be generally good for most people like someone should innovate this you know on this dimension one of the things one of the ways i learned this though 13 years ago when i was taking what's described as a keith vacation i went to train little meat athletes for a week in this facility called exos and this is literally like a vacation for me they make your food for you three times a meal for every athlete that trains there most

people want to play in the nfl that go there and some world cup soccer teams and so they have a nutritionist who comes up with your program which is how many calories what mix of carbs and protein for your goal blah blah and then the chefs make you your meals every day that have the right composition like our friend delian for example went on one of these programs my partner at founders fund what would be it went on a couple actually with me and the first time he was trying to eat a full banana and they took half of it away they're a wow figure it's hysterical because time deli weighed like 135 pounds he's like the skinny guy and they're like nope half of an item for you what is your parting message to everyone here who's starting a company and kind of the

ambition and just going for it you've seen some of the most iconic companies in silicon valley over the last 20 25 years um you understand what the common traits are of great companies and great founders somebody's starting out like what's the advice that you give them to kind of motivate them i think the most important thing is to figure out what your comparative advantage is like look at yourself like how do you want to compete against the rest of the world in in your other side of your world like what's your alpha you know like what is your differentiation and double and triple down on it and then that will lead you to certain markets or certain products it'll also help you figure out who to complement yourself with but it's like really figuring out

so i'll give you a technique since there are a lot of people in the audience some people know like what their super power proverbial superpower is other people don't i'll give you a technique that works for all of you go to your five favorite people um uh friends and your five people who like you most professionally and ask them a simple question with a little notebook in your hand like what do you like most about me just write down the words don't think about it just write down the words write down the words you will find common descriptions and that's your superpower um it's really good because like asking people for your weaknesses does not work well People don't want to tell you what your weaknesses are, typically.

Ask them what your strengths are. People are pretty happy to flatter you. But just write down the words verbatim. Then after you've done this exercise with about 10 people, look for common characteristics in the word umbrella kind of thing. And that would be your superpower. Ladies and gentlemen, Keith Roy.