Keith Rabois: The End of Woke Capitalism; Time Allocation Tips; Silicon Valley vs Miami | 20VC #891

Investment Strategy and "Buy Low, Sell High"

• The concept of "buy low, sell high" is defined as a coherent strategy only in early-stage (seed/Series A) venture capital, where the investor buys into an asset with no financials or formal company structure, effectively buying "art" that may become valuable financial assets later.
• In later-stage investing (Series B, C, and beyond), the strategy becomes a "greater fool" theory, where returns depend on persuading others to pay a higher price, often lacking asymmetric information about the company's fundamentals.
• Most startups do not become profitable in their first tranche of investment, meaning early investors must rely on future financing rounds to exit, requiring a "derivative consensus" to ensure subsequent investors will fund the company at higher valuations.
• Founders Fund can sustain a contrarian, multi-decade investment strategy because they operate a multi-stage fund capable of leading a company from seed to exit without needing immediate market validation from other investors.
• Seed and Series A investors must anticipate who will fund the next round at what price, whereas multi-billion dollar funds can afford to be contrarian for long periods without external pressure.

Upside Case Estimation and Market Comps

• Investors should identify the "option value" or maximum upside potential of a company (e.g., $50–$100 billion) within minutes of meeting the team, rather than focusing on immediate probabilities of success.
• Using existing public market comparables (comps) for early-stage companies is often a mistake because these investments often reinvent or create new markets that have no direct historical comparison.
• Market comps become relevant only for late-stage growth investments where the market is more defined, but even then, unique "non-comp" companies that forge new markets may render comps useless.
• Investors must account for macroeconomic shifts in valuation caps; for example, a potential $100 billion upside case for a growth-stage company becomes impossible to justify if public market multiples have compressed from $160 billion to $44 billion.
• High-valuation entries require a specific skill set in timing exits to public markets, as getting a return of just the initial capital (1x) is considered a failure due to opportunity cost and the time spent by the investor.

Capital Allocation and Time Management

• Investors systematically undervalue their own time; therefore, time should be allocated to the highest-leverage companies (the "winners") rather than distributed equally across all portfolio companies.
• A rational time allocation strategy suggests helping underperforming companies only up to an agreed-upon "destination" or exit point, after which active involvement should cease to avoid the "irrational distortion" of investing time in low-probability assets.
• Founders Fund generally does not replace founders, even when faith in leadership is lost; instead, they signal a reduced role by warning that future capital support will not be available, effectively "pulling back" without forced management changes.
• Managing a venture fund beyond the private markets into public equities is generally discouraged due to skill set mismatches and the fact that LPs already have access to public market managers and do not view VCs as superior public market investors.
• The perceived "shit" market conditions are largely a result of valuation corrections, but the market is currently trading at the 30-year average for multiples, indicating "normal" rather than "crashing" times.

Market Cycles and Investor Psychology

• Junior investors often feel insecure during downturns because they have never experienced a negative cycle, whereas experienced partners have learned that assets can inflate and deflate, similar to the "steroid era" in baseball where stats were artificially inflated.
• "Fake returns" generated during inflationary periods are not real unless the assets are sold and distributed; waiting for a company to go public without a successful exit timing can result in significant opportunity costs.
• Market stress tends to reduce "wokeness" or corporate distractions, as performance and survival become the primary focus for employees and founders.
• The current investment environment favors "in-person" companies, with a new investment filter prioritizing founders working physically together, as remote work is seen as less conducive to the intensity required for breakthrough innovation.
• Founders Fund has paused new investment announcements in 2022 following aggressive deployment in 2021, leading a 13–14 new investment round in 2021 and zero new investments in 2022 as a natural correction to pricing.

Geography and Silicon Valley Decline

• The investor has shifted from a Silicon Valley elitist to believing that the Bay Area is now a "disadvantage" for building disruptive companies due to eroded network effects, safety issues, and legal system concerns.
• Capital concentration in Silicon Valley is diminishing, with top VCs like Sequoia and Cooley establishing offices in New York and Los Angeles, leaving only Coastal Partners with a fully Bay Area-based partnership.
• Safety incidents, such as home burglaries, are cited as significant productivity killers for founders and investors in the region, disrupting focus and execution.
• The migration of capital and talent away from the Bay Area is driven by a combination of political, societal, and safety factors that make the region less attractive for high-growth tech creation compared to alternatives like Miami or New York.

Board Dynamics and Investment Philosophy

• Most venture capital board members provide no value or negative value; only a small handful of VCs (5–10) provide value at scale to successful companies.
• A notable exception to poor board advice was a board member from Lennar (John) at Opendoor, who provided high-fidelity, insightful management strategy that exceeded expectations for a real estate industry expert in a tech company.
• The biggest investment mistake identified is declining meetings with founders due to scheduling constraints or lack of access, which has resulted in missing massive opportunities like Coinbase and potentially others.
• Concentrating capital into winners is difficult for active investors because they are hyper-aware of internal company weaknesses that outsiders do not see, leading to a tendency to over-invest when external data looks favorable.
• Relying on other investors to lead large rounds is a significant risk, as most investors lack the necessary skill set, requiring a strategy where the lead partner is chosen for their ability to sponsor the investment independently.

Future Outlook and Final Thoughts

• The future trajectory of valuations depends entirely on the US inflation rate; if inflation subsides, interest rates may fall, allowing for the re-inflation of public market tech valuations.
• The investor's biggest insecurity is the fear of aging leading to complacency and a loss of the ability to identify high-potential founders who do not fit the "central casting" archetype.
• The most recent publicly announced investment is Found, a bookkeeping, tax, and payments company for SMBs led by Lauren, whom the investor previously worked with at Square; the firm led the Series B.
• The investor's single best return was an early seed investment in Airbnb (approx. $3.5 million post-money) alongside Sequoia.
• The investor advises against migrating large growth funds into seed stages, as the skill sets required to evaluate early-stage teams and visions are incompatible with the financial metric analysis used in growth and public markets.