Interview, Fireside Chat
Keith Rabois: The End of Woke Capitalism; Time Allocation Tips; Silicon Valley vs Miami | 20VC #891
- Defines the "buy low, sell high" strategy as effective primarily in seed or Series A stages for assets lacking financials, while characterizing it as a "greater fool's theory" in later stages where returns depend on persuading others to buy at higher prices without asymmetric information.
- Distinguishes investment approaches by fund size, noting that entities managing less than a billion dollars must rely on future financings since profitability for typical companies can take 10 to 20 years, whereas multi-billion dollar funds like Founders Fund can sustain capital injections regardless of external market sentiment.
- Acknowledges the difficulty in anticipating the scale of winners, noting that investors often underestimate potential, though successful firms claim the ability to identify massive upside cases within 30 seconds to three minutes of initial meetings.
- Critiques the use of current public market comps for valuation, arguing that distorted benchmarks (e.g., Shopify at $160 billion vs. $44 billion) hinder investment at $1 to $2 billion prices because modern companies reinvent markets rather than replicating prior generations.
- Notes that while Founders Fund generates significant liquidity for LPs through later-stage rounds at less attractive prices (e.g., exiting at $100 billion vs. entering at $1-2 billion), attempting to offset high entry valuations requires precisely timing exits to avoid losing money despite liquidation preferences.
- Advises against "worst performing companies" consuming time, recommending rational allocation toward high-performing assets and structuring exits with underperformers based on probability assessments and collective accomplishment goals.
- Outlines a policy of not replacing founders, stating that if faith is lost, the firm will reduce its participatory role and provide years of advance warning regarding future financial backing.
- Warns that managing venture funds into public markets is ill-advised for typical VCs due to skill set mismatches and limited LP interest, while asserting that current valuation levels reflect a 30-year average rather than an overreaction.
- Differentiates timing strategies by stage, suggesting seed investments in right teams/vision occur daily in any cycle, whereas growth round investments require pricing appropriateness within a narrow two to three-year window.
- Identifies the US inflation rate and interest rate trajectory as critical variables determining public market tech valuations, while acknowledging limited success in halting investment during the previous summer's market correction due to junior staff inexperience.
- Describes "wokeness" as mitigated by economic correction, as stress and risk perception shift focus toward performance, and admits to a current lack of contrarian views as previous fringe ideas regarding COVID and inflation have become consensus.
- Establishes new filters for investment, prioritizing "in-person companies" and shifting from a Silicon Valley-centric view to one that views the region as a disadvantage due to eroded network effects and safety concerns, contrasting with few other top VCs remaining fully on-site.
- Expresses concerns about complacency and aging potentially degrading the ability to spot high-potential founders not from "central casting," with a stated commitment to quit if this capability is lost.
- Highlights the critical challenge of identifying and hiring future investors to form the next generation of the fund as current partners age, noting that only five to ten VCs are estimated to have value at scale.
- Predicts potential price inflation at the seed stage if large growth funds migrate there due to conditions, though expresses skepticism about their success due to the incompatibility between diagnosing keynote decks and analyzing financial metrics.
- Confirms no new investments were made in 2022 for non-portfolio companies following an aggressive year in 2021 that led to a "natural correction," with the last public announcement being an investment in "Found," a bookkeeping and tax company for SMBs.