This Week in Startups - E1057: Founders Fund General Partner Keith Rabois on stock market bounce back, domain expertise being overrated, US/China issues, 2020 election, recipe for startups success, chaos making way for a new generation of entrepreneurs & much more!

Episode Date: May 12, 2020

0:56 Jason intros Keith Rabois and checks in on his quarantine, Zoom's heightened exhaustion factor & more 5:46 What will the lasting impact of COVID be on Silicon Valley & the startup funding landscape? 8:18 How the early 2000's dot-com bust paved way for a generation of new founders & why the PayPal mafia of outsiders thrived in chaos & became the establishment 14:23 What has happened to intellectual debate during COVID-19? What are first principle thinkers and why are they important to problem-solving? 20:53 Is domain expertise overrated? 22:39 Keith's on his pinned tweet about his perceived recipe for startup success 26:50 In which verticals did Keith find outliers using his low-NPS/fragmented/vertical solution strategy? 32:15 History on US relationship with China, has Trump been right on China threat, should US try and bring manufacturing back from China? 44:41 China's involvement with whistleblowers, benefits of litigation knowledge as a VC, world's reaction to China mishandling COVID info 50:40 Has Biden been soft on China? How will that play into the 2020 election? 1:00:51 Why is the stock market bouncing back so quickly with record-setting unemployment numbers? Will there be another correction? 1:03:59 What is Keith seeing across his portfolio? M&A opportunity for companies like Lyft? 1:09:34 Keith shares thoughts on the right time to go public 1:13:50 Impact of 20% unemployment on startups over the next year, mental impact of lockdown & social isolation 1:20:40 Keith's most positive outlook going forward

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Learn more at SVB.com slash impact. Hey, everybody. Hey, everybody. Welcome to another episode of this weekend. Startups. We are here in, month two on day 56 of my shelter in place quarantine and I'm losing my goddamn mind. This is not easy for me, 100% extroverted on the Myers-Briggs test. But I have found great joy in doing the podcast and continuing on. And it's really great to see how we've really mitigated against the coronavirus here in the Bay Area. And it seems like we're going to start getting to work or going back to work slowly.

And I'm looking forward to that. And today we're going to have a wide-ranging discussion with long-term friend of the pod. Keith Rabeau. He's obviously a general partner over at Founders Fund. Serial chief operating officer, I think, is probably what you're known for just being a great operator and a great thinker. Welcome back to the program, Keith. Pleasure to be with you. How are you holding up under this?

I'm assuming you went into shelter in place in the beginning of March like the rest of us, that second week or so. Or did you go a little earlier, a little later? March 16th, so right on time, not before, not after. I'm going a little bit insane, steer crazy, even though I'm very introverted, being deprived of human beings and any human contact is not particularly productive. I also enjoy working with founders and meeting with them in person to problem solve and consider new investments. And remote board meetings, remote pitches is just not an adequate substitute. it's brutal yeah and and i think people i was talking to ruloff um our mutual friend who you worked with at paypal and is now at sequoia and he told me he feels exhausted like he feels like an hour

on zoom is like three hours in the real world just because you have to look at the camera and it just it feels more exhausting and after i don't know how many what's the largest number of hours you've done on zoom in a day now uh that's a good question um i think it's probably about i try to it's about six or so because it is so exhausting. There's so many more, you have to pay so much more attention to extract information versus all the nonverbal cues that you pick up on when you're in real life with people. You do save some time, at least for broadcasts of information, dissemination of information. It's fairly efficient.

You don't have as much chip chat and distractions. However, for dialogue, discussion, debate, decision making among controversial alternatives, it's definitely not a substitute. And I like the interactive debate, discussion, you know, sort of trying relation to the best possible answer. And video conferencing doesn't work very well. And then also being a founder-driven investor, where I'm primarily evaluating the qualities and characteristics of a founder or founding team,

it really deprives me of my oxygen. I think it's much easier for people who are a technology or market-driven investor to survive in this new world order. but I found it incredibly challenging for myself. It's exactly my experience because I, too, feel like my superpower as an investor is reading people and getting to know people in those subtle tells of like, is this person going to quit? Do they really care about this idea? You know, and Zoom removes all passion or nuance from a discussion.

I just feel like I'm getting no energy. And it really reminds me of online poker players versus in-person poker players. The online poker players are looking at math. They're looking at metrics, just like you're saying. Maybe the equivalent might be a market-driven person. But if you're trying to get a read or a tell on a person and understand the relative strength based on what they're saying and how they're saying it, you just can't do it.

It's brutal. Yeah, I agree. That's probably an out metaphor. I mean, I'm obviously not a very sophisticated poker player like you are, but that seems right to me. So, for example, I have a former colleague of mine who is outstanding and interviewing and assessing people. And truthfully, he actually speaks during most of the interview.

Nevertheless, he always walks away with the most insightful, accurate sort of description of the people I send in. And I'm always confused by this, or it took me years of being confused because I would talk to my friends and they were in candidates and say, you know, when did you think of meeting with X? And they'd say, well, I didn't say anything. But then I'd get this beautifully, you know, articulated summary of people, sometimes candidates I've known for like a decade. and with these bullet points that were so pressing and so accurate. And I was trying to figure out how he does it. And I think what he actually does is he can just watch your eyes. And between how you react, he can tell whether you rock concepts or not

or how fast you pick up on concepts. And he's kind of watching your face and eye motion. And he can completely read you that way. I think that's impossible basically to do in a video conference. It leads me to kind of a related question. You know, you and I think are of a similar. Gen X cohort. And we lived through, got a number of crises from the 2008 financial crises where the stock market people forget. The NASDAQ, I think it was around 5,000. It went down to 1500. I mean,

it was a two-thirds loss, I think much greater than 50 percent at the peak. That seemed like it was, you know, going to be totally cataclysmic. And of course, we came out of that with an incredible run that we've, you know, just finished up, a 12-year run or so, long as bull market of our lifetimes and I think since World War II. And we lived through the dot-com bust with 9-11 after it, which a double whammy. And people say everything's going to change. Everything's going to change. Nothing will ever be the same. And I had this flashback to 9-11 when everybody said nothing would be the same and to 2008 when people said nothing to the same and the dot-com and everything became the same. So is this time a black swan of black swans or are we going to go back to normal?

I suspect this is certainly more like 2000 and 2003, which was a sustained, you know, sort of devastating nuclear winner for Silicon Valley. And then eventually right around 2004 and five, so roughly four to five years later, we emerged actually quite strong and arguably stronger. But, you know, it wouldn't have been that pleasant to be an investor, entrepreneur, or executive or individual contributor from 2000 to 2004. And I suspect that's more like what we're going to see than 2008 was more like a three to six month blip in Silicon Valley and the technology companies. Probably because the financial crisis, the global financial crisis was really a crisis for financial services that had indirect or collateral damage on other fields, other verticals like technology.

Whereas 2000, 2003, it was a direct assault on technology, the quote unquote internet, bubble and therefore it was much more meaningful, much more protracted in terms of its impact on our landscape. Right now, because software has eaten the world, you know, Mark and Drusso is basically right, the entire economy is predicated on technology, software on down, and therefore, anything that affects the economy as a whole absolutely has massive impact in Silicon Valley to entrepreneurs, to investors, to employees. And what was magical about the time period you're talking about, the 2000, you know, post-9-11

emerged the Web 2.0 movement and a whole new cohort of founders who were some of the alumni, of course, of PayPal. You saw Jeremy do Yelp. You and Max were working on, I think, slide in the 2005 time frame about, or is that 2007? Max started in 2005. I joined in like 2007-8. I was at LinkedIn, which is another one example. Absolutely. Launched LinkedIn in 2003.

There's obviously Steve, Chad, and Javid who launched YouTube. You know, the whole PayPal crowd was back to work and back in business pretty quickly, which is actually, you know, the rationale I have of why a bunch of misfits, because most of us were misfits. We weren't really connected to the establishment in Silicon Valley in any. material sense, we're able to move more to the middle of the ecosystem because everybody else was terrified and afraid. They really believed that there wasn't going to be another generation of technology innovation or certainly not a consumer wave of innovation. And so everybody was like literally refusing to write checks other than basically us and very few people were starting

companies. And so the people who were starting companies, we became a magnet for advice and for capital. And because there was another wave, in fact, probably a larger way, it allowed us to become pretty critically important to the entire ecosystem in Silicon Valley. It's pretty hilarious, too, because you define that group as a bunch of misfits. And then, you know, in this last five, ten years, you guys have been coronated the, like, the establishment and the old boys club, as it were, knowing many of you from Elon, on to Peter to Sacks, misfits, a great description.

It's fairly accurate. You guys are a bunch of misfits. Absolutely unmanageable, unable to work for other people, you know, argumentative, chess playing maniacs. And pretty accurate. Yeah, I mean, there's this famous cover story that Peter really liked and still enjoys, I think, telling the stories inedocates about, but there's a cover story of Red Herring, which was Earth to PayPal.

And this was 2001 or two, but it basically conveyed, you know, how crazy the rest of Silicon Valley's establishment, because Red Herring was a Silicon Valley establishment publication. It wasn't like an East Coast media hub. And it was conveying like, these people are crazy. They think they're building a company in post-2000. They think they're going to go public. Post-2000, they think this is going to be an important company. Who are these weirdos?

And, you know, from every angle from our company. confidence and belief to our management style and, you know, the way we operated the company. All of this was very heretical to traditional Silicon Valley norms. Some of this stuff has become, you know, much more common. Some of it was actually ahead of its time and quite fascinating. But in any event, the retro, the revisionist history, which is like the PayPal people, you know, had some network, had some connections. This is simply false. The eBay group was more like the mainstream establishment.

Princeton, MBAs, management consultants. And, you know, we are the Israeli debate society or something. Yeah, no, South African immigrants. Yeah. Just a bunch of... Basically, all immigrants, except me, all immigrants, very confrontational culture. Debate culture. It was the debate club.

It was like a really good, I mean, like, literally the best debates I've had in my life come from my friendships with, I think, that group of people, very independent thinkers, I think, as well, and willing to mix it up, which is obviously a great strategy, but it's sort of like, what's the quote from Game of Thrones Chaos as a ladder? I think is there. I wish I was as talented and articulate at debating as I was back in 2000 to 2003. My e-vails, I occasionally get the chance to an opportunity to read an old email thread and then up to decayed so badly.

Just to keep up with that crowd required a precision of thought, insight, at a whole other level than what I've been doing for the last decade. With SendPro Online from Pitney Bowes, you can simply print postage stamps and shipping labels even when you're working remotely. Yes, for as low as $4.99.

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