May 30, 2022 · 42m · news
Keith Rabois: The End of Woke Capitalism; Time Allocation Tips; Silicon Valley vs Miami | 20VC #891 · 20VC with Harry Stebbings
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this deep-dive interview, Silicon Valley investor Keith Rabois shares his contrarian perspectives on early-stage valuation mechanics, the strategic allocation of investor time, and the macroeconomic shifts reshaping the tech ecosystem.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 18.2% of the talking time here. How this is scored →
Harry as informed peer 4.0 Guest teaching 5.3 Guest disagreement 4.4 Harry pushing back 4.1
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 5:03 Immediate Premise Rejection
Keith flatly rejects Harry's claim that investors cannot predict huge outcomes, calling it completely false and stating he knows within minutes if a deal has 100B upside.
Hardest push from Harry ▶ 7:12 Pushback on Public Market CompsHarry directly refutes the utility of public market comps in growth investing, arguing that next-generation companies redefine and expand markets entirely.
Biggest teaching moment ▶ 3:30 Explaining Seed Liquidity RealitiesKeith breaks down the structural mechanics of venture capital to explain why broad advice like 'buy low, sell high' is dangerous for early-stage investors.
Harry holds his own ▶ 6:02 Concrete Counterexamples from GP MemosHarry holds his ground against Keith's upside thesis by citing specific internal GP memo valuations for giant hits like Twilio and Snap.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Why "Buy Low, Sell High" Fails in Early-Stage Venture | 2 | 6 | 5 | 2 | Harry opens by referencing a tweet he made and regretted, asking Keith why 'buy low, sell high' fails in venture. Keith delivers a detailed breakdown of seed versus multi-stage dynamics, noting that advice like Harry's tweet is dangerous for typical early-stage investors without multi-billion dollar funds. | |
| Predicting the Upside Case of Early-Stage Investments | 5 | 6 | 7 | 6 | Harry asserts that investors never anticipate their biggest winners becoming as large as they do. Keith forcefully rejects the premise as completely false, insisting he knows within minutes if a company has 50 to 100 billion dollar upside. Harry pushes back by citing GP memo evidence from investments like Twilio and Snap. | |
| The Utility of Public Market Comps in Growth-Stage Investing | 5 | 5 | 4 | 5 | Harry challenges the relevance of public market comps for market-defining companies. Keith acknowledges that comps matter primarily in late-stage growth rounds, while dismissing liquidation preference security blankets as VC mistakes that ignore time opportunity costs. | |
| Strategic Time Allocation and Managing Portfolio Failure | 4 | 5 | 2 | 4 | Harry asks how to handle time allocation across portfolio companies, noting that top performers drive returns while struggling ones consume attention. Keith explains Thiel's time valuation framework and how he sets clear destination expectations with struggling founders. | |
| When to Step Back: The Founders Fund CEO Philosophy | 4 | 5 | 2 | 3 | Harry asks what to do when losing faith in a founder's execution. Keith outlines Founders Fund's strict philosophical policy against replacing CEOs, explaining how they step back instead. | |
| Woke Capitalism, Interest Rates, and In-Person Work | 4 | 6 | 5 | 4 | Harry probes market corrections and young VC self-doubt. Keith uses a baseball steroid metaphor to describe paper valuations in bull markets, while delivering outspoken takes on corporate culture and inflation. | |
| The Silicon Valley Disadvantage and the Rise of Miami | 4 | 5 | 5 | 5 | Keith states that Silicon Valley is now an actual disadvantage for founders compared to Miami. Harry pushes back on why, prompting Keith to detail crime, safety concerns, and partner departures. | |
| Anti-Portfolio Regrets and the Scheduling Dilemma | 5 | 5 | 6 | 4 | Harry raises Thiel's doctrine on doubling down on winners. Keith transparently admits his flaw in double-down decisions due to knowing board-level weaknesses, and bluntly claims only five to ten VCs actually add real value. | |
| Quick-Fire Round: Valuations, Competitors, and Inflation | 3 | 5 | 4 | 4 | In a rapid-fire round, Harry asks about growth funds entering seed. Keith argues that growth investors lack the skillset to evaluate pre-metric early-stage startups and will fail. |
Statements from this episode (32)
Rabois: Series C and late-stage VCs lack asymmetric information
“Typically people who are leading these series C and later rounds have no asymmetry of information. They may have asymmetry of closing. Asymmetry of deal flow, but there's no asymmetry of information.”
Rabois: Early-stage VCs must depend on downstream funding rounds
“Any early stage investor, unless they have running a billion dollar plus fund, Has to depend on future financings. Almost no company you or I will ever finance will be profitable on the first tranche of investment.”
Rabois: VC investments take 10 to 20 years to reach profitability
“Actually some have, you know, like I'm sure Opendoor actually is profitable, a firm will be profitable, but usually it's a 10 to 15, 20 year journey by the time that happens.”
Rabois: Compressed benchmark comps break mid-stage venture valuation math
“I think you do need to think through the market comps. So I think one of the mistakes people have been making over the last shoot, three years is let's say if Shopify is trading at one hundred sixty billion, let's say, then the upside case for things that coul…”
Rabois: Public market comps are irrelevant for seed and Series A
“Most of what I've been successful at are really seed and series A investments, in which case the public comp rules don't really matter, and I don't pay too much attention to them.”
Rabois has only led three late-stage investment rounds in nine years
“I've only led in nine years of investing three late stage rounds later stage rounds, series C co-led with Stripe fares series C. I led a founder's fund. And then I invest a lot of money in two late-stage rounds in a company called Ultima”
Rabois: Founders Fund generated top global LP liquidity from 2020 to 2022
“I think we produced the most liquidity for LPs or one of the two most liquid, most distributions over the last two years of any fund on the planet.”
Rabois: High entry valuation VC requires active exit management
“Is that if you're going to play the game of high-priced valuation entry, you also need to be good at exiting trades.”
Rabois: Merely getting money back via liquidation preference is a VC failure
“Like every time you get your money back as a VC, it means you made a mistake in some ways.”
Rabois: Write-offs up to $10M do not impact large VC funds
“But a three, four, five, ten million, even up to a ten million dollar check, a zero doesn't matter in the grand scheme of a very large fund anyway.”
Rabois: Spending time on failing startups will not drive VC returns
“In venture it's really tricky because actually in some ways you should rationally allocate your time to your best performing companies. It turned, if you're not careful though, the worst performing companies will, it will require the most of your time. And whi…”
Rabois: VCs must agree with founders on realistic destinations for struggling startups
“The most important thing you can do is agree upon with a founder what the best destination is. Meaning given what we know about the company, founder team metrics, product market fit, where's the best place this company can go? What's the probabilities of getti…”
Rabois: Founders Fund never replaces founders or forces management changes
“Founders fund, there's only one real answer because we don't replace founders. Most VCs would probably try to change the management team, including the CEO. We, you know, ideologically, philosophically, and effectively, legally just don't do that.”
Rabois: Founders Fund gives years of warning before stopping follow-on funding
“I think we'll, we'll be clear that like, look, I wouldn't count on us for additional capital. If there's things we can do to be helpful, you know, we'll, we'll try, but like, we'll give them, you know, a significant advance warning. Let's call it measured in y…”
Rabois: Founders Fund lacks team and structure to manage public equities
“At Founders Fund, I don't think we would do that very well. We don't have a team that's really constructed to do that. We don't have the legal structure that's really designed to do that.”
Rabois: VCs managing public equities post-IPO is a bad idea
“I think it's a bad idea for venture capitalists typically for a variety of reasons. One is skill set. Second thing is most LPs do not in fact want that. They're hiring Venture as an alternative asset class.”
Rabois: Tech valuation multiples have normalized to 30-year historical average
“We analyzed it recently at Founders Fund, and it's definitely not an overreaction, even with the corrections of the last, we'll call it six, seven months, we're only at the thirty-year normal average. Like, if you look at multiples, we're exactly at the averag…”
Rabois and Peter Thiel foresaw the tech market crash in 2021
“Peter and I figured out this market was crashing last summer, and we really tried to stop people from investing at ridiculous prices, but even the founders thought we weren't totally successful.”
Rabois: A single stock sale returned Khosla Ventures' $1.3B Fund V
“Now, I have a colleague at KB who's involved in one company that was trading really, really well, and he was very savvy. And decided to sell. That decision alone returned KB-Five, which is a 1.3 billion dollar fund.”
Rabois: Half of a VC's peers should laugh at their best investments
“My asset test for success as a VC is do half of my friends who are VCs laugh at my investments.”
Rabois will now exclusively invest in in-person startups
“I really want to invest in only companies that are in person. So I think there's a lot of alpha there. I think in-person companies will be the successful startups. I only want to find founders who are working in person and that's my new investment filter.”
Rabois: Building a tech company in Silicon Valley is an active disadvantage
“And I now believe Silicon Valley is a disadvantage not even neutral, it's an actual disadvantage.”
Rabois: Sequoia Capital is opening a New York office
“No, Sequoia now is opening a New York office.”
Rabois almost never regrets passing on founders he meets in person
“I own basically almost never, possibly never have made a mistake in passing on a founder. I met a person.”
Rabois: Passing on an early Coinbase meeting was a massive mistake
“Is this the, you know, whatever, let's say Coinbase that I, you know, was introduced to very, very early by Gary, who really, Gary Tan, who really wanted me to invest. And, you know, I basically wrote back. I really didn't want to meet them, even though I actu…”
Rabois: Only 5 to 10 VCs actually add value at scale
“There's probably only five to 10 VCs that actually add value at scale.”
Rabois: Aging combined with complacency is lethal in venture capital
“The combination of aging in venture plus complacency is a really bad, lethal product. Combination.”
Rabois will quit VC if he loses his founder signal
“As soon as I feel I've lost that ability, I'm gonna have to quit.”
Rabois: Entry valuation does not matter in early-stage venture capital
“The price in value, the price in valuation just doesn't matter in traditional ventures, even series A.”
Rabois: Airbnb is likely his single best-returning investment
“I've never actually exactly tracked it, but probably Airbnb.”
Rabois: Seed investing skills are incompatible with growth investing
“The skill set required to invest at seed is utterly different, different and probably completely incompatible with the idea of being a good growth or public market investor. The reason why is at the end of the day, Seed companies have no financial metrics.”
Shorts cut from this episode
▶ Pro tip: Choose your mentors 🧑🏫 #shorts · 20VC with Harry (@36:50)
▶ When to call it quits as an investor? 🤔 #shorts · 20VC with (@35:34)
▶ Keith Rabois: You must be perceived as ridiculous #shorts · (@24:26)
▶ My biggest insecurity as an investor - Keith Rabois · 20VC w (@35:34)
▶ 2023 PREDICTION: Will the stock market be up or down? · 20VC (@39:53)
▶ The end of WOKE CAPITALISM? | Keith Rabois · 20VC with Harry (@23:24)
▶ An investor must be perceived as ridiculous - Keith Rabois · (@24:26)
▶ Why Silicon Valley is dying · 20VC with Harry Stebbings (@28:17)