April 2, 2022 • 11 min read

Notes on Keith Rabois (Seed)

Framer's Component Picker

Table of Content

Table of Content
Investment Thesis
Pitch
Evaluate a Fonder
Advices for Raising
- Take Seed from Top funds, not Normal Seed funds
- Raise Less
Resources

Investment Thesis

I want half of my VC friends to laugh at the investments I make. If half do not laugh it means I am not taking enough risk. I ask myself the questions: What are other VCs not going to like about this? What are they not going to appreciate?

Formula for startup success: Find large highly fragmented industry w low NPS; vertically integrate a solution to simplify value product.

Thesis:

What is anomalous?
What ‘secret’ is the company predicated on?
What could this be? Could this be 1 of the most important companies on the planet?
What is the accumulating advantage?
Can the founder attract the talent requisite to achieve the vision?
Our investor comparative advantage? (Why do I have a comparative advantage here?)

Pitch

A polished deck is all you need

With a prototype? No.
I invest in companies with a keynote deck and a couple people. We funded OpenDoor, Forward, Ever, Even – all with just a keynote deck, a great team and a radical idea. I’d love to fund more companies with just a Keynote deck.
Keynote vs Powerpoint? Banned Powerpoint (especially consumer). Keynote or PDF.
To me, a startup is a movie. You write the script. You cast the actors. You produce [finance] it. Then you make the trailer. That is how you market it. And then you sell tickets.

Storytelling

The key is to have a succinct and powerful presentation of the concept, why it matters, why it’s likely to be successful, and the people who are going to propel it.

Is the message clear?
Why is this product 10x better than the rest of the world?
How are you going to interrupt people in a scalable way to adopt the product?
Why does this team have the DNA to be better than anyone else at making it successful?

You should spend a lot of time crafting a deck – or written paragraphs – that tells the story powerfully. If you can’t tell the story well, it’s not the right time to raise money.

Don’t accept the excuse of complexity. A lot of people will tell you, this is too challenging, this is too complicated, yeah well I know other people simplify but that’s not for me, this is a complicated business. They’re wrong. You can change the world in 140 characters. You can build the most important companies in history with a very simple to describe concept. You can market products in less than 50 characters. There is no reason why you can’t build your company the same way. So force yourself to simply every initiative, every product, every marketing, everything you do. Basically take out that red and start eliminating stuff. - How to Start a Startup (L.14 How to Operate)

Selling the ticket

I think you forge a market or you create a market. You imagine a better future and then you go create it, and then you sell tickets. To me, the best metaphor for creating a startup is like producing a movie. Someone has an idea, and a vision of what this movie could be. Then you write a script that details how will this actually play out, and then you cast the movie, so you need the right people in the right seats.

Then you have to finance it, just like you do in producing a movie. You need to actually raise the proper capital to produce the movie. Then you need to market and distribute it, so you create a trailer, which is basically a value proposition that’s succinct and powerful, and then you distribute the trailer. Then hopefully people buy the tickets.

That’s basically my vision, is someone starts with a vision of how to entertain or how to improve people’s lives, and then they create it, and then they sell the tickets. If the vision’s, not necessarily incorrect but slightly off- Unlike a movie, which is incredibly expensive and difficult to refilm, it’s possible to fix or calibrate the vision a bit to sell more tickets. There is some feedback loop that’s possible, so that’s where the metaphor’s a little bit different. But I don’t think you’re really correcting the macro vision.

Related tweets

Framer's Component Picker

Evaluate a Fonder

I’m a people-based investor. I invest primarily in founders: I’m assessing the opportunity that the people in front of me have of changing the world. It is completely ridiculous to say I’m going to change an industry that has been around for centuries. But it happens all the time.

High intelligence married to extraordinary tenacity. (Relentlessly resourceful)
Excellent Ability to attract talent and assess talent: she/ he has excellent ability to assess other people and has a special spark that suggests this person could transform the world
The founder’s core strengths should map to one of the key risks to the business.
Ability to navigate the idea maze
About solo founder: Normally prefer more than one founder. Of the 119 “unicorns” forged over the last decade, only 17 had solo founders. But there are always exceptions.

Ask: What do you want to do with your life?

I have a pretty standard question that sometimes surprises people when I’m interviewing them. Whether it’s interviewing them for a job or executive role, for founders too.

The question is, what do you want to do with your life? That’s usually my first question. Sometimes it catches people off-guard, but it allows you to quickly understand who they are, what they care about, and calibrate your feedback.

If I’m asked for advice, “Should I do this or that?” Often, the answer is, “What do you care about, what do you want to achieve, what is important to you?” There is no abstract answer. It’s more a function of what’s important. So, I usually start there, which sometimes surprises people.

Fast Learners > Experts

People who are experts tend to know what you can’t do very well. They have mastered the rules. They typically don’t ask enough “why” questions. Why can’t this be done this way?

So I like people who kind of don’t know what they are tackling but are fast learners. Henry Ford had a similar thought. This is a quote from Henry Ford’s biography: “That is the way with wise people—they are so wise and practical that they always know to a dot just why something cannot be done; they always know the limitations. That is why I never employ an expert in full bloom. If ever I wanted to kill opposition by unfair means I would endow the opposition with experts. They would have so much good advice that I could be sure they would do little work.”

Relentless Resourcefulness

Relentless resourcefulness tends to show up from an early age, in sports, academics, side projects – if they’re young, it doesn’t need to be work or professional history. Look at someone’s resume, have them walk through the most difficult challenges in each experience, and how did they solve it.

Ideally, you marry being relentlessly resourceful with high IQ – sheer intellectual horsepower, seeing things other people don’t see, fusing together ideas from different fields and genres. It’s pretty rare to be top 1% in both.

Paul Graham has a wonderful blog post called Relentlessly Resourceful which I really subscribe to. Basically what you want are to hire in your startup, are people who are relentlessly resourceful. I used to use the term tenacity, or tenacious. But I think relentlessly resourceful is a better metaphor, and basically it’s people who when they see an obstacle, like a wall in front of them, will figure out how to go under the wall, over the wall, around the wall, make friends with the wall. They shock you with solutions.

Not every business is VC-backable

Venture capital is a particular type of capital that’s designed to be like rocket fuel – to propel something into orbit, and anything sub-orbit is a failure. Not every business is right for it. There are lots of transport means that are not going to the moon, and there are a lot of businesses that don’t need to go to the moon

Some founders have the objectives of changing the world in some dimension, and the reason they do it through a startup is it’s a powerful way to change the world. Those businesses usually require venture capital.

Ｗe like things with massive upside. The more linear something is, it is very logical and likely to work, I’m probably less excited. If it’s pretty radical and it may not work — but if it works, it’s pretty important — that’s probably a little bit more interesting.

Advices for Raising

Take Seed from Top funds, not Normal Seed funds

There is almost a perfect correlation w what a founder values and the outcome of the startup.
I don’t believe seed funds other than a highly select few like FRC (or Mike Eisenberg in Insrael) are capable of supporting an early stage company properly.
Team building. Future financing probability maximization. Strategic direction/board guidance. Almost impossible to find a $5 b outcome that wasn’t led originally by major VC ( other than FRC w Uber, Floodgate w Lyft and Wework w Mike E).
Improves their odds of success.
Take the $3 m from FF or Sequoia or KV or Lightspeed, though not a normal seed fund.
“Money is the least valuable part of the value proposition we offer.”

Raise Less

Desperation breeds innovation.
“Months of runway is the dumbest concept.”
“…startups die of indigestion vs starvation.”
“I personally believe that scarcity to capital is a good thing, that desperation breeds innovation, and that you need constraints to actually execute well and innovate,” he added. “If someone gives you this pile of money, I think it creates a lot of excuses and soft thinking.”
The mentality of throwing money at companies and making them successful just doesn’t work,” Rabois said. “I’ve never seen real examples of just, you take money and you crown a winner. That’s the philosophy, which I don’t believe that works. I think that’s the whole history of Silicon Valley, is that these upstarts with very limited resources and a bunch of misfits have rearranged every single industry, and they’ve done it over and over again.”
“When I became a VC, the most surprising part of the role was how often I was counseling founders to raise less money.”
“The founders who prefer this will be adversely selected and the companies who operate this way will underperform v. capital limited.”

Example: Check how he turned down Jason’s offer