The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch

20VC: Keith Rabois on Why Buy Low, Sell High Does Not Work in Venture, Keith's Biggest Lessons from Prior Crashes, Why Today's Public Markets are not an Over-Reaction, Why Valuation is a Trap & Why Wokeness is a Function of Entitlement

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May 30, 2022

Keith Rabois, a General Partner at Founders Fund, shares his sharp insights on venture capital, including why 'buy low, sell high' is a risky philosophy. He discusses the current public market landscape, suggesting that it's not simply an overreaction. Rabois emphasizes the importance of understanding cycles in investing and the need for scenario planning. He also reflects on the shifting dynamics in Silicon Valley, the importance of meeting founders in investment decisions, and the complexities in balancing personal insights with objective evaluations.

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INSIGHT

Buy Low, Sell High in Venture

Buying low and selling high isn't a strategy in early-stage venture, it's the default.
Early-stage companies have little value initially; success inherently means selling high.

ADVICE

Outcome Scenario Planning

Focus on outcome scenario planning and consider various success levels (e.g., $1B, $10B, $50B).
Visualize the upside case early on, as biggest winners often exceed initial expectations.

INSIGHT

Public Market Comps

Public market comparisons can inform upside cases, especially in later-stage investments.
Current market conditions influence valuations and acceptable entry points.

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Keith Rabois is a General Partner @ Founders Fund, one of the best performing funds of the last decade with a portfolio including Facebook, Airbnb, SpaceX, Stripe, Anduril, the list goes on. As for Keith, he has led the first institutional investments in DoorDash, Affirm and co-founded Opendoor. He has also led investments in Faire, Ramp, Trade Republic, and Stripe. As an operator, Keith has an unparalleled track record as a Senior Exec at Paypal, he then went on to influential roles at Linkedin and being COO at Square. Finally, as an angel, Keith made early investments into Airbnb, Lyft, Palantir, Wish and more.

In Today's Episode with Keith Rabois:

1.) Buy Low, Sell High: What BS!

Why does Keith believe that "buy low, sell high" does not work in venture?
Why would it lead you to very dangerous investment decisions at the early stage?
How does the size of your fund impact the appropriateness of "buy low, sell high"?

2.) The Current Landscape:

Does Keith believe the current state of public markets is an over-reaction or a new normal?
How does Keith respond to the suggestion that Founders Fund has paused new investments given the uncertainty in the market?
How does Keith think about investing through cycles and temporal diversification?
How does Keith advise young investors today questioning whether they are actually any good at this?
What does Keith believe are his biggest fears and insecurities today?

3.) Outcome Scenario Planning and Competitor Analysis:

Does Keith believe outcome scenario planning is important?
Why does Keith believe you can always tell your biggest hits early? What have been the core signs for him?
What have been some of Keith's biggest lessons from Mike Moritz and Vinod Khosla when it comes to upside maximization? What are the right questions to ask?
Why does Keith believe you do need to look through public market comps when investing in startups?

4.) Time Allocation and Losing Faith in Founders:

How does Keith approach time allocation across the portfolio? Spend time with the winners or help the struggling companies? What have been his biggest lessons here?
What does Keith do when he has lost faith in the founder? How does he communicate it to them?
What does Kieth believe VCs do wrong when they no longer believe in the founder or company?

5.) Do VCs Add Value?

What does Keith believe is the acid test for whether he is doing his job as a VC properly?
Why does Keith believe there are only 5 board members that add true value to their companies at scale?
Who is the best board member Keith has ever worked with? Why?
Why does Keith believe that age is not your friend as an investor? How does he combat this?

6.) The Downfall of SF and Wokeness:

Will we see a reduction of wokeness in companies with the public markets correcting and power shifting from employees to employers?
Is Keith concerned by the lack of coherence in the US today when it comes to politics?
What are the core reasons for the downfall of SF to Keith?
Why does he believe it is a net negative to build a company in SF today?

Items Mentioned in Today's Episode:

Keith's Most Recent Investment: Found