#1250 Keith Rabois on How To Build A Billion Dollar Company

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/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  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 Roboy 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,

• 0:47Anthony Pompliano?

  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.

• 1:12Speaker 01

  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.

• 1:36Anthony Pompliano?

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• 2:18Anthony Pompliano?

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• 3:04Anthony Pompliano?

  Before we get into this episode, I also want to tell you about a brand new product called Velo. Velo is faster, easier crypto data. Everyone in the industry is always looking for, what's the price? What's going on in the exchanges? Where are assets flowing or not flowing? How is things like open interest and derivatives actually playing out in the market? Well, that's where Velo comes in. It's faster and easier crypto data. You can go to velowaitlist.com today. Myself and a couple of friends, we invested in the business. We're advising the founder and we think it's pretty cool. This one is something that keeps me informed on a daily basis. So you should check them out at velowaitlist.com. That's V E L O waitlist.com.

• 3:48Anthony Pompliano?

  Our next speaker is a general partner at Founders Fund, part of the PayPal Mafia, CEO of Open Door, or I'm sorry, the co-founder of Open Door, the CEO of Open Store, and also probably the single best tweeter on all of Twitter, Keith R. Boy.

• 4:08Speaker 02

  I don't know about single best tweeter Ryan Peterson is doing a really good job.

• 4:15Anthony Pompliano?

  Wrong. All right. I thought a great place to start is just let's jump in the deep end. There was a peace time. Now it is wartime. The market sucks. People are having trouble fundraising. People are trying to figure out hiring, product market fit, like everything to a founder feels like it could be going wrong. What changes in operating a company from peace time to wartime?

• 4:35Speaker 02

  Actually, pretty much nothing should have changed, but people were getting a lot of bad advice. So building startups really hard. My partner, my general partner, Founders Fund, Trey Stevens says this great expression is like, those startups fucking hard. And people forgot that, 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 like heroic efforts, heroic intensity, heroic skills, to pull people together for five to 10, 15 years to build a startup that matters.

• 5:19Speaker 02

  And so a lot of people just believe that this is an easy industry, 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 brat, I think of capital as oxygen, oxygen for a startup, oxygen to build things. 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, like to run or something at Central Park and we were charged, you know,

• 6:00Speaker 02

  $10 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.

• 6:11Anthony Pompliano?

  When you talk about intensity, I think something I've learned from you and other people kind of around you. The board 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, I'm sorry, 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?

• 6:42Speaker 02

  Yeah, I think the intensity has to come from the founder, 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 Hudson house, it kind of exaggerates your positives and exaggerates 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 aren't going well, because, you know, obviously when things are mess, the founder definitely knows things are mess, and so adding more stress on top of founder really doesn't help usually, so 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 know, you have blind spots to, so it can be very

• 7:25Speaker 02

  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 shows you, talks about time, time is not your friend, the whole goal of a startup and kind of Reid 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

• 8:10Speaker 02

  and compressing time, and there are tactics like reminding everybody about every day matters, you know, every hour matters in some startups.

• 8:18Anthony Pompliano?

  Talk a little bit about, another component of time is like money. Literally, money and time are almost the same thing in a startup.

• 8:24Speaker 02

  People also forgot that.

• 8:26Anthony Pompliano?

  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 focused on the product or what they're doing. So how do you, how do you think about just like communicating this with the employees?

• 8:49Speaker 02

  There's probably nothing perfect, but I think all things being 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, you know, whatever the opposite of transparent walls are. You know, basically, so people could see who's meeting with who. We share, all the companies I'm involved in, 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, unedited, to the entire company. The only thing we delete, which you can debate, is the compensation slide, you know, like equity grants. But even, even that, like, I think sometimes people overthink that, too.

• 9:34Speaker 02

  Of sports teams, for example, everybody knows who gets paid what on the Yankees or whatever. It seems to work. So I think people have allergies to that in startup world, but I'm not sure they're like legit. 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. Next didn't really work, so, but maybe people like confused product market fit in like compensation schemes. In any event, the, so try to be as transparent as possible. The reason why is really driven from Netflix. If you looked at Netflix's culture deck, the famous 110, you know, powerpoint slides, which has been edited unfortunately. But the old one basically talks about if you want people to make decisions, they have to have context.

• 10:16Speaker 02

  What context really means is every single employee has the same information that you have. It's really frustrating sometimes as 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. And you give them the same tools that you have as CEO. And so I'd rather deal with the flip side, which is your 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.

• 11:00Speaker 02

  People have concerns, they gossip with their friends, they go out for beers, etc. 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.

• 11:19Anthony Pompliano?

  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.

• 11:30Speaker 02

  Twenty-three, I'm not that.

• 11:30Anthony Pompliano?

  Well, because you're only 21 and you've been doing it for 25, so I get it. But but in terms of the, you know, two decades or something you've been doing this. What are the common traits of the best founders? You 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?

• 11:55Speaker 02

  It's a scary concept, because like it's one day I'm going to screw up and like. Don't take any more meetings. There's perverse.

• 12:04Anthony Pompliano?

  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.

• 12:10Speaker 02

  There's a clear 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 like my college roommate in some proverbial garage somewhere is like borderline crazy, 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 is 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 prime?

• 12:53Speaker 02

  Most people, by definition, it's pretty easy to pass, actually. Because like the chances, like, most people are just not going to reinvent an industry. It's true in other fields, too. If you met like an athlete and said, is this person going to be the next Steph Curry? 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 1, 2, 5% 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 like 20s. And they were like, this person will probably be the next president, you know, at some point be the president of the United States. So you can do this in any field to some extent.

• 13:37Speaker 02

  And so what I'm usually looking for specifically for a founder is some trade that is like the top 1% or top 10 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 salesperson I've ever met. It can be, this is the greatest, smartest person I've ever met. It can be, this is 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.

• 14:21Speaker 02

  If you don't feel that, you almost surely should not invest.

• 14:24Anthony Pompliano?

  How much of your operating history and continuing to operate today is sharpening that ability? And then also being able to understand who the person is, but also what are they trying to build? And like, talk a little bit about investing and operating at the same time.

• 14:37Speaker 02

  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, like, 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 like top 10 basis points is just purely like either stupid or lying. But founders, you actually are looking for something like an outlier of 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 tell.

• 15:20Speaker 02

  And just like in statistics, actually, if you're looking for an extreme tell, there are different statistical formulas you actually use than 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 own a 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.

• 16:06Speaker 02

  That said, almost very few people asked the real question. 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'd done that, actually, Jack would probably said, he's actually probably a good founder. But the employee and founder are different things.

• 16:23Anthony Pompliano?

  What were they doing that made them a bad employee?

• 16:25Speaker 02

  He wouldn't follow instructions.

• 16:26Anthony Pompliano?

  Disagreeableness.

• 16:28Speaker 02

  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?

• 16:37Anthony Pompliano?

  Which would be a good founder trait.

• 16:38Speaker 02

  Data, we had this phrase called Max data. It's a 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 load of sales data. You're interpreting, interpolating data to tell a story. And he was really good at that, but occasionally people will call him out on that and we'd have like real footnotes and some Max data.

• 17:00Anthony Pompliano?

  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.

• 17:11Speaker 02

  So before COVID, Rolup Ocha, who runs Sequoia, 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 when ideally, I'd rather go to people's offices and have them talk to me about the company there than have them come to my office. Now COVID, 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 time are people showing up? Are they like focused, dialed in at their computer? Were 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.

• 17:56Anthony Pompliano?

  So maybe we can use Mike Shabat and Trava as an example. 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 of just 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.

• 18:18Speaker 02

  Yeah. So 996, for those 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 of COVID, right after kind of the COVID overhang, a lot of people bought in to subscribe to startups are easy. We hadn't yet had the correction. Remote work was a thing, you know, blah, blah, blah, where they work. 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. Mike's my best friend and it's really hard to be best friends with someone who's working 997, actually. But like they've dialed it back to 996 in person.

• 19:02Speaker 02

  Like now, you know, maybe one day a week, like weekends, you might be able to do one day like remotely. But it's 996 in the office, every single, every single. 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 on kind of everything in his life. He's just like nonstop 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, Founder's 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 Trava because it's done phenomenally well, which I think is their culture.

• 19:47Speaker 02

  The culture has other attributes in this too. It has other differentiated potentially attributes. But like the signature one initially. And to show you how this manifests out and manifests itself in itself. Um, about four months ago, they just, uh, Mike just hired 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 did this work out? How'd you, you know, find, how'd you wind up in Trava? And she said to me, well, um, she was actually like CFO of a Korean company. It's doing really, really well. And she's like, I was looking for something like nine nine six. And so I, I searched around for an American company. And I like had that culture because she's like, this is why the Asian companies succeed. And, and she found Trava and she like proactively reached out to them.

• 20:31Speaker 02

  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, uh, uh, you know, attracts talent and it comes accumulating advantage.

• 20:42Anthony Pompliano?

  So what's interesting is they talk about nine nine six at that company. Another one of their kind of core values is Olympic work ethic.

• 20:47Speaker 02

  Yeah.

• 20:47Anthony Pompliano?

  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. 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 maybe I shouldn't say it.

• 21:09Speaker 02

  Yeah, I mean, it goes, it derives from something Peter Thiel taught me like twenty 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. You double down, you build a cult. So trauma definitely is a cult. They have different dimensions and it cults, 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 select group.

• 21:51Speaker 02

  And as your company scales, going from a hundred people to a thousand people to 10,000 people, there is a regression to the mean. Like you can't have 10,000 people that look like your first 10 employees. Like there is some, you know, sort of regression to normal people. But fundamentally, the first 100 can be extremely unusual. 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 who hire. 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 their work ethic and all the 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 of 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 town.

• 22:37Anthony Pompliano?

  You have started multiple companies now. They've been very successful, regardless of what people on Twitter say. It's always funny, the critics, they never have public companies to yell and scream about, so they have to yell yours. 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?

• 23:01Speaker 02

  Yeah, you know, it's actually interesting. 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've never had as a founder, truthfully. But I was sitting on vacation and I was thinking about a constellation common or freight across multiple companies that I'd been involved in. Maybe some funded ones and maybe some in the ether that I just watched. And 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. Think Square or something like that. There's merchant processors to the left, to the right. Think Uber taxi drivers or Lyft if you prefer. Taxi drivers, bad MPS, definitely taxi drivers, terrible MPS. Merchant processors, terrible MPS.

• 23:45Speaker 02

  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 it together in a vertically integrated way, which is usually how, almost surely, the only way to really simplify is you have to vertically integrate everything. So there are no 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.

• 24:19Anthony Pompliano?

  Do you still believe it?

• 24:20Speaker 02

  Yeah, yeah, yeah. It definitely works. I love vertically integrated, just to start. I've always loved vertically integrated businesses. 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 counterintuitive 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? So anyways, I've been Apple fanboy forever and Apple obviously has been vertically integrated, which is the secret.

• 25:04Speaker 02

  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. Doesn't matter what Oracle or Salesforce does, not going to affect Apple. Because they're not vertically integrated, so they have no chance of competing.

• 25:17Anthony Pompliano?

  Talk a little bit about Apple as this product company. Everyone loves the products, but they 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 build great products, solve people's problems. Marketing and sales, where does that come in? And like, how important is that early on?

• 25:35Speaker 02

  Yeah, I mean, so there's a bit of revisionist hindsight at Apple. There's a couple of good books that I have actually at home that I like to look through and flip through. Apple's marketing is not really what propelled the company. You should go pull these books that collect every ad. There's one book I have on my coffee table. It's every ad Apple's ever worn up to like, I mean, the book was published probably four years ago. So up to there. 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.

• 26:18Speaker 02

  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 literally Stephen Steve pitched Don Valentine and Sequoia for investment,

• 27:00Speaker 02

  he asked what the use case would be for a personal computer. This is probably 1974 or '75. And Steve actually told Don Valentine that it'd be like a woman at home collecting her recipes.

• 27:17Speaker 02

  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.

• 27:28Anthony Pompliano?

  Why do you think he still wrote the check?

• 27:29Speaker 02

  I think he, well, I think he A) 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, interestingly 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.

• 27:56Anthony Pompliano?

  Chick them out.

• 27:57Speaker 02

  Not that they're missing the money, but.

• 28:00Anthony Pompliano?

  Talk about starting a company and either not being the CEO or starting off as CEO and then kind of handing the reins over to someone else as the CEO. There's founders in here who are not the CEO or thinking about kind of going into a chairman role, things like that. Like, what are some tips or tricks there?

• 28:13Speaker 02

  Well, so at Founder's 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, Jeff Bezos stepped down, et cetera. So perfectly fine to 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 can't, I actually literally can't fathom anything that would cause him not to be CEO. I mean, maybe if he had like catastrophic health issues.

• 28:55Anthony Pompliano?

  Yeah. Well, what's so interesting, and we're using this because we've talked about it recently, but if I ask you, how much is Trava going to be worth? What is your answer?

• 29:05Speaker 02

  Oh, God. So if I don't say a trillion dollars, I'm going to get shot. Because that's part of their cultural, like, dream big ambition.

• 29:14Anthony Pompliano?

  So it's a reinforcement.

• 29:15Speaker 02

  Personally, I'd be happy in a hundred billion.

• 29:17Anthony Pompliano?

  But it's a reinforcement, right? It goes back to this idea of a cult. Like, literally, every single person from an EA all the way up to the CEO. If you ask them, "How much is the company going to be worth?", they say, "A trillion dollars", which sounds insane until you're like, "Oh, wait a second. These people actually believe this."

• 29:28Speaker 02

  Yeah, yeah, it is a true cult. It's a good example, because if you don't drink... Generally, people don't exceed their ambition. I guess there's another way to restate this. If you aim here, it's not that common. It's not impossible to exceed it. Usually, you aim here, and you get 85% of the way, and it's pretty good. So I think to some extent. But different founders have different styles of this. I do work with a lot of founders who would be very opposed to that kind of philosophy. So there's not a one-size-fits-all culture. And that's why each one is a unique cult. Like, I have a lot of great founders who would criticize that, like, completely, and say, like, "Look, the ultimate evaluation doesn't matter, blah, blah, blah. All we need to do is focus on our inputs, and the inputs will add up to be a great company. And so therefore, we shouldn't even distract ourselves."

• 30:11Speaker 02

  And then what works for a trial-bout works for Mike is this big, audacious goal, where they rally everybody around and motivate people. Either style can work if it's authentic, back to the authenticity point.

• 30:23Anthony Pompliano?

  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, is 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 that bad advice?

• 30:38Speaker 02

  Well, the first piece of advice is, don't read blog posts. If you're a founder, you should not be, basically not reading blog posts. 99.9% 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 techery. Literally, don't read anything else in tech. I will scan Twitter and look for 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. I like to read books, because books give you ideas, and then you can read mixed ideas, and that's actually very valuable. But anyway, don't get distracted. Now, substantively on monetization.

• 31:22Speaker 02

  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 a cat 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 it 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 mark, any, any monetization strategy, one cent per ax is going to be greater than zero. So as long as your ax 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.

• 32:07Speaker 02

  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.

• 32:14Anthony Pompliano?

  Fundraising, I see some founders who they're price takers and kind of the VCs run the show and timelines, et cetera. I see other founders who are like, here's my timeline, I got a hundred VCs I'm going to go talk to and next, you know, 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?

• 32:34Speaker 02

  It really depends on the cards you have.

• 32:37Speaker 02

  You know, if you have momentum, perceived momentum, actual traction, no yellow flags, you can control your destiny to process really easily. You know, not everybody, not even very good startups have that. Usually there's proof points like,

• 32:52Speaker 02

  for example, until like, we'll go back to the same story, the trauma story. Seed round couldn't really easily control, it was a very, as I said, boring industry. It's like light industrial staffing, variable labor for like a light industrial warehouses. Boring industry, most VCs don't understand. B, there have been several funded startups directionally in some of our space. Not the easiest fundraising. Even the next one, like not so easy, so you can't totally control momentum. This round was a little bit more preemptive and the metrics should 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.

• 33:38Speaker 02

  Let me, 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 is VCs are not like a light switch. You can't like reanimate my interest very easily if I gone on to 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. 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.

• 34:23Speaker 02

  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 a call within 24 hours. The bads, the downsides to that is I'm not sure you want to raise money by Zoom. Like if I was a founder, if you don't 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 advice right now. His story's a little unconventional. It's like, "Stop doing these Zoom meetings. Nobody at a Zoom meeting is going to get why this unconventional story makes sense."

• 35:08Speaker 02

  You need to meet in person or just not meet the people?

• 35:12Anthony Pompliano?

  I apologize for getting a little tactical here, but there's two things that kind of come off 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?"

• 35:35Speaker 02

  It does depend, A, how much you raise against like what your goals are. Like, did you raise 80% of what you thought you needed, 120%? One, 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 and 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.

• 36:20Anthony Pompliano?

  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?

• 36:35Speaker 02

  Yeah, I think the first thing is I would never tell another investor that so and so's 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 anybody. 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.

• 37:17Speaker 02

  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 a 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.

• 37:49Anthony Pompliano?

  Yeah. Also, top tier fund is a small group.

• 37:53Speaker 02

  It's a small group. I mean, everybody's definition is a little different. And you need to back it up, though. Like, again, I would not lie. If you have a second tier fund, I would not call them top tier fund. Because 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, that's a real problem.

• 38:06Anthony Pompliano?

  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?

• 38:15Speaker 02

  I'm not on the board anymore. I led the seed in Series A. And then we moved over to Founder's Fund. We reinvested, but Trey Stevens, my partner, like led the investment.

• 38:23Anthony Pompliano?

  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?

• 38:36Speaker 02

  So let's start. 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, there's more and more research every year. But I've just always believed that your body, you're kind of one person. And if your body's a mess, your brain's gonna be a mess and 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've worried my entire schedule around like sleep. I found Eight Sleep partially because of this ideology. 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.

• 39:21Speaker 02

  Like if you can boost people's sleep and the, the research is pretty compelling about lowering your, Eight Sleep lowers your core body temperature as you sleep, which does induce better, 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 going to perform better. Most people did not really believe this until 2008. There's a classic study done on the Stanford basketball team.

• 39:47Speaker 02

  So for those of you who play basketball, like generally speaking, it's really hard to improve elite athletes' basketball shooting percentage. Like they spend, you know, all their lives trying to master like three-point shooting and free throw shooting. And they still like free throw shooting maybe gets to the 80 percentile, 85th percentile, 90% of their awesome. And they hit divisional returns, it can't get any better. And then three-point shooting, like a lot of people would do really well, they can improve their three-point shooting by just 3%. 3%? 3% what? Anyway, so Stanford basketball went through this 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 regimens, six hours, eight hours, and nine hours sleep.

• 40:30Speaker 02

  The difference, the eight-hour-plus people literally improved their shooting percentage by 10% points. Like that's insane. Like you could literally take a basketball player and train for 20 years and not get 10% points and improve it. So as soon as you read that study, you're like, holy cow, like 98 hours sleep like right now. And so that's basically what I think sleep behavior 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-wormed. And so that's the first step.

• 41:11Speaker 02

  Other fitness stuff I do is a mix of like, there's some life extension benefits to 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, and other things. But it, you know, it's a mix of fun and vanity and health for me on the fitness side. I am obsessive about like tools like this, you know, the tracking. I compete with my friends on this, like I get notifications all day long and go back and forth. And you know, it's, there 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.

• 41:50Anthony Pompliano?

  Last two questions. What's your resting heart rate?

• 41:53Speaker 02

  Uh, forty-one or forty-two.

• 41:55Anthony Pompliano?

  He literally knows.

• 41:56Speaker 02

  Yeah, generally that's pretty good. It's lower than your age.

• 41:59Anthony Pompliano?

  He'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, uh, there's all kinds of fads. Uh, founders are always doing all kinds of crazy stuff.

• 42:11Speaker 02

  I wish there was more innovation. Let's start with the founder's 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 gonna be seventy to eighty percent of the results. 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. I, it's complicated, obviously.

• 42:38Anthony Pompliano?

  Soiling, I guess.

• 42:39Speaker 02

  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 you metrics, like, like my sleep gives me metrics. Or this watch gives me metrics on workouts. 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, a high-protein diet is probably good for most people. Like low carb, relatively low carbs. You can take it to extremes and stuff, depending on how much you want it to. But fundamentally, basic blocking, tackling, like, eating the right amount, you know, no processed foods, blah, blah, blah.

• 43:20Speaker 02

  Mostly protein is gonna 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, thirteen 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, a vacation for me. They make your food for you three times a meal, uh, for every athlete that trains there. Most people want to play in the NFL that go there, 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 with a partner, a founder's fund, what would be, what would a couple actually would be?

• 44:04Speaker 02

  And the first time he was trying to eat a full banana and they took half of it away. And we're a wild figure, it's hysterical because at the time Delian weighed like 135 pounds. He's like the skinny guy and they're like, nope, half a banana for you.

• 44:18Anthony Pompliano?

  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. You understand what the common traits are of great companies and great founders. Somebody starting out, like, what's the advice that you give them to kind of motivate them?

• 44:40Speaker 02

  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? And 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 compliment 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 superpower, 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, 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?

• 45:25Speaker 02

  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. 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, you know, to flatter you. But just write down the words, like verbatim. Then after you've done this exercise with the not 10 people, look for common characteristics in the word umbrella kind of thing. And that would be your superpower. Ladies and gentlemen, Keith Roy.