What's up, everyone? This is Anthony Pompeo. Know most of you know, me as pomp. You're listening to the pump podcast. Simply the best podcast out there. Now. Let's kick this thing off. Key through a boy, is a general partner of Founders fund is one of the most respected Minds in Silicon Valley. Keith is also a co-founder and CEO of open store. He previously was part of the PayPal Mafia served as CEO of square and co-founded real estate company. Opened door. Keith is also invested in many industry, defining businesses, including Yelp LinkedIn and hundreds of
Others
in this conversation, we discuss building tech companies, Great hiring questions, identifying the best Founders, Miami Afghanistan. China open store, Square, Founders fund, and the state of the media. I really enjoyed this conversation with Keith and I hope you do as well. Before we get to this episode, though. I want to quickly talk about our sponsors. First up is block by block 5 provides Financial products for crypto investors. Those products include a high yield interest account a u.s. Dollar loan, product get your coat.
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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. All right, guys, bang, bang. I've got Keith here with me. How are you pleasure to be with you? I feel like there's the mayor of Miami and then like the king of Miami and you may be trying to take over that role. I'm very busy. I don't need
any you roles. Trust me, like, I got plenty of funny, three, two or three jobs to do.
Already my favorite job that I think you have is Barry's instructor, which seems to be. Now, like a thing. You're going to keep doing.
Yeah, once a month. I try to teach a class. It's kind of a good challenge. I get to play DJ. Go onstage. Turn my introverted character into moderate.
Extrovert people love it. So, keep doing it. Haven't seen you in class. No, Dylan keeps trying to get me to go. Delian, is at work hard, trying to get me to. I will go one time. I
promise. Okay, good, then you'll be converted to change your life forever.
Versatile.
That's why I don't want to go is because I know that that is the end State. Founders fund seems to be investing a ton. Companies are all doing pretty well. From what we see in the Press. Like, what's an update in terms of what you guys are doing. It's been three years. Now, since you went to Founders fund for years, two and a half, two and a half. Okay, like good bad indifferent. How do you kind of feel about a your last two and a half years? I've found
Ursula. It's well, it's been an interesting to have years because obviously a joint Founders fun before covid. And then you know what?
And a half years of the two and a half years have been pushed covid said pretty different experience than I would have guessed. You know, obviously we work more remotely a more distributed, obviously embraced Miami and different Gio's. None of this was, you know, sort of on the radar when I joined nevertheless. Most of the people, in fact, almost all the people working Founders fund. I've known for most of my adult life. And, you know, so everything about working with these peoples is pretty much as expected. We've made a lot of, you know, really good investments from the seed stage to growth stage. We now
Run, you know a venture fund about one point four billion dollars growth fund of about 1.5 billion dollars. So we invest what I like to say 1 million to two hundred million dollars per round and you know, do do them equally as rapidly pretty much every week, you know, so anywhere in that range, so, you know, I've been very happy to be an early stage investor and several companies. Since I joined Founders fund. We've now powered money into the growth rounds and several of the companies that I help seed and you know, invest very
The early on a keynote deck. So getting to see the byproduct, you know, two or three years, later of the early stage seed, and series a stuff that I like to specialize
in. How do you think about investing with social large funds, 1.4 million in the traditional Venture fund writing a million-dollar? Check. Most people be like, that's crazy. How do you make that work? Is it more? So you're buying access to the later deals. Is it something where you're actually under writing it? And if you don't win future deals or get extra allocation other than Pro rata, you're okay with the ownership out of the gate. Like, how do you
Think about going like portfolio, construction and initial investment. Most of the
time. I'm trying to invest enough money in exchange for enough equity that if we never let another round again, I'd be perfectly happy as an investor that isn't always the case but 80% of the time, that's what I'm trying to accomplish mostly because I'm typically, personally, a pretty proactive investor meaning I'm actively involved with the founder, sort of service pop psychologists last consigliere to the founder. And so I want, you know, to have the incentive alignment where if a company does well.
And if we add value that ultimately our LPS make money so that worked in door - for example, either the seed round in the very beginning, never let another round. It's probably returned one or two billion dollars to khosla
Ventures. All right, how much have you returned to LPS? Do you think in your career?
You have, your weight is 4 or 5 billion? Okay. There's a, there's definitely a lot more in the works. But, you know, like how much more that doesn't include. Well, it doesn't include stuff. Like, that's clearly going to be.
Super liquid like stripe, there's things, you know, thought spot, there's clear public companies, you know that are going to be worth billions and billions but fundamentally. And then there's the new stuff at Founders fund. But yeah it lags like the problem with Venture is obviously all the stuff that's liquid is is based on decisions. I made in 2013 and 14 like literally. So you don't know whether so making, you know, really smart wise decisions, even if you've had success.
Historically, do you have a way to kind of gut? Check your decision?
Making along the way. So a decision made in 2013. Did you have revisit in 2015? You're like, hey, that was a good decision, bad decision. Or are you kind of make it? Maybe I usually
know, emotionally within about a year. It's a little bit like a cake. You want to let it bake a bit. You don't want to over graded early. You kind of want to sample it like a chef does. But the metric we used to use is subsequent rounds of financing. So you could tell like by the valuation increases in the velocity of increases how. Well the company was probably doing at least, you know, there's a real rough correlation there.
With the market, the way it is in the last, it's called year and a half. I'm not sure. I would use valuation increases as a proxy for Success. There's just too much money. It's just too easy to raise capital for entrepreneurs. So I think it's an art unfortunately artificial metric right now. So we don't I don't have a empirical based one that I would have confidence in right now, but because I'm typically a board member or like usually I'm a pro active investor join the board. I have access to you know, all the metrics the KB is inside more look more. Look at
The business examine the business is very specifically in a detailed way. And have my own conclusion about whether the company is really going to work how well what's the likelihood and probability of success and possibly the
amplitude? Yeah. Do you change the way that people fundraise? Now given the environment change like should invest, should Founders lean into it and go raise more money at higher valuations and kind of capitalize on? It should actually be more nervous and be a little bit more discipline. Like, how do you think about what a Founder can do? Obviously it being dependent on the business, but
It does depend a lot on the business. So there's some companies where they've clearly proven enough, that throwing more oxygen at the problem, will yield incremental success. And there's other companies where they have not yet discovered the paths to success and throwing more money at the problem may make things worse. It may confuse employees about whether they're on the right path or not. It may lead to an artificially High burn rate, which is hard to change later may lead to bloated hiring. There's a lot of disadvantages of too much Capital, but once you're on the path to success often more oxygen is good in the
It is definitely entrepreneur really friendly right now. The cost of capital is very, very low at the margin to companies that appear to be working.
How has one of your court tends to just the people you hire the company, you build and just go get the best people. How has that changed now, there's more remote work and kind of this, like, maybe not complete difference. But there's some companies for sure that are treating employees differently. They're able to recruit different types of employees, has that helped or hurt these businesses. It's
hard to tell. I mean, I certainly still subscribe to the view that the team you build is.
We build more like sports. I think a lot of people get distracted with technology, but it's fundamentally about the people, and the right people solve the problems in the wrong, people get in their way. And what are the problems are? Retarded, the solutions. So, fundamentally, that's still what I aspire to do with companies. I'm involved in whether directly or indirectly in a remote environment, especially in a very remote environment. I think you have to think about ratios approving experience and up-and-coming talent, a little bit differently because it's difficult to teach.
By osmosis. So, the way you would typically build a company from scratch in this is what Peter Gill taught me in November 2000 is you want to hire as many inexperienced people as possible that have high potential High upside and that other larger companies don't know how to evaluate correctly. So basically, you want to lean into Youth and inexperience, but the best way for those people to learn their craft is through, osmosis in a remote environment. It's extremely difficult. If not impossible to teach through osmosis. So if I were building a remote only company or remote,
First company, I might hire a different level of experience, then I would otherwise prefer to
do, does it also change the way that you on board and train those employees as well. Right? So one you may hire a little bit more experience, but you also can't kind of have what I would consider my life of an apprenticeship. You have young people who are just literally in the room every single day. Do you have to be more thoughtful about the systems that you put in place or something to make sure that you're actually offloading that knowledge to you ever?
You can absolutely try that. What I'm what's unclear to me is how you teach through an unstructured.
Curriculum in a remote way. So structured teaching environments that that's very easy to replicate. But I think a lot of the best learnings through, osmosis and apprenticeship are actually unstructured conversations. And I don't really know how to do that in a remote
world. You started open store, which is a great name, given the past success of of, the few of the last Endeavor. What was the idea for this and kind of? How did you think through? You know, why you wanted to start?
So Jack Abraham of atomic came up with the idea for open store and it really was predicated on the idea that, you know, Shopify has exploded the the biggest surprise, probably the last 10 years and technology has been the success of Shopify. Hundred eighty billion dollar public market cap company really displacing Amazon actually is the future of online consumption. And at the end of the day though, not all the businesses on Shopify. There's 1.7 million businesses. Currently our Shopify are going to be venturing.
Herb a couple. In fact, most of them are not many of them are not even debt financeable. And so this long tail of Shopify Merchants. Let's say a million of the 1.7 million really don't have exits or access to liquidity. And so we felt that the best thing we could do was provide liquidity for these merchants and Stitch together. These individual Merchants into one cohesive experience and so by providing access to the quiddity and encourages more people to start Shopify businesses, because instead of thinking you have to run a business for
Or you have to be the 1% of the 1%. That Venture Capital makes sense for you now have pasta to life-changing. Well, so for example, we can buy it open store business for one, two, three, four, five million dollars, which if you don't live in, California is actually a significant amount of money that you get to, you know, change your life. I changed our family's life. And so we're doing that all day long. So, basically, was predicated on a notion that we had at Square, where, before square, if you were a long tail business in America, it was very difficult to get access.
To Visa Mastercard, Amex networks, you had to apply if you're the say we're selling less than $100,000, a year is virtually impossible and you'd have to apply for always known as a merchant account, would take two to four weeks. You'd have to undergo a credit check. Someone would physically come and inspect your store and count your excuse. And we made that instant overnight where anybody could apply instantly be approved, actually, approved 93% of everybody in be under in to process, credit cards and grow their business soon, encourage people to start businesses and encourage people enable people to
Other businesses and that's what we're doing. Basically. In Shopify. We're encouraging people to start new businesses and we're going to give them access to the quiddity. So when they no longer want to run the business they have access to
wealth. Why Shopify and not Amazon Shotwell. So Shopify
stores are actually basically mostly run by the proprietor. Amazon is optimize things to doubt. They are just mice with customer purchase experience to optimize the delivery experience. They optimize the discovery experience, Shopify, Merchant basically acquire their own.
Our own customers, typically through Instagram or YouTube or something social media, and then they basically have to provide the Fulfillment in a lot of the logistical support. So there's a lot of room to improve the businesses after we acquire them. Where's Amazon stores are pretty darwinistic Lee.
Evolved. Yeah, when you think about, after the acquisition is something where you all want to run them. Do you want to offload them and know, we will be running a hundred percent of the businesses. We acquire. Okay. That sounds, very daunting. How do you do that? In terms of I'm assuming you're going to buy across all verticals.
How do you go from? I like your business? You're running it. I'm going to give you money, go away. I just change your life. But now my team is going to take over and do that
over time, productized, most of us. So the goal is to build a scalable technology company that substitutes human labor with technology and product. So some things can be templatized. Some things can be automated. There may be some manual, labor still involved, but think of customer support. There's a lot of things that customer support reps. Do that can absolutely be automated or, or a function of product failures. One of my
My major hypotheses and life, is that every combust customer. Support inquiry, is a function of a product flaw. Someone doesn't know how to do something that you want them to be able to do. So, for example, when you use your microwave oven, you never contact customer support, even when you can't figure out what, you know, crazy features Advanced features and how to activate them properly. There's always a default way to make the microwave oven just work and every product, whether it's an app or website should have that, default experience, and we're going to build that default
experience. So customer support, I think most people can kind of work.
Way through mentally, how you get their ship date that? So right. Now, these long tail
Merchants actually have to kind of basically take someone literally to the FedEx store or whatever. And drop off the package in pay and inflated off-the-shelf rate at scale will have volume discounts, which means we can charge customers less money and they can probably get their
packages faster. And so when you do that that really allows you to buy a business certain multiple gives you better unit economics and the whole model kind of works because you're just driving more and more Revenue, more profitability. It's a better experience for the user. You kind of that alignment with
Those end customers. That's phase one and phase two.
Also, we do intend to take buyers that used to buy just from Keith store and introduce them to the pups new store. And so cross-pollinating buyers, based upon some data also will help improve the value of what we're
creating. How important is it to keep the existing brand. So if I buy Keith store open sore by ski store and you don't buy mine at some point, you come to me and say hey you should join us. And also we're going to rename It Keith store as well or
it's unclear right now for the short term. We're definitely to keep the Brand's alive.
I don't know it, maybe neither. It may not be binary over time. There may be some verticals where the brand is critical and indispensable in to be a fool. It be a foolish thing to do is to destroy that brand value. And there may be other cases where there's not as much brand equity, and it might make sense to have a more unified
brand. I have a friend who's looked at rolling, a bunch of the Amazon store, specifically. And one of the things they told me, which was a little counterintuitive is, it's really hard to be displaced. Once you achieve some level of search results.
Kind of superiority and so is almost like digital real estate, right? Hey, if you're the number one search result for something you win. Is there an equivalent in the Shopify ecosystem? Or is it just pure SEO? And your, there's
not most mostly Merchants are spending money on Instagram ads. It's direct Instagram to Merchants acquisition. So obviously no one's monopolized,
Instagram. And then how do you think about this rise of what I'll call like the Creator Merchants? So it's people who have the big audience already. That's great because you have to spend a bunch of money to acquire users, but it almost changes.
Is the economics of a business, because if they go away, then you're gonna have to spend the money because you don't have access to Their audience team, or do you just disqualify those types of
businesses? I don't think we're generally buying like, influencer based businesses. We're really aiming for a long tail businesses. Say, let's say 10 sub 10 billion dollars in sales. In, most of the least, the most famous influencers are probably exceeding ten million dollars in
sales. Yeah, makes sense. Miami is obviously going very well. I'm here. You're here. A lot of people we know we're here. It seems like more people are coming every day.
It was supposed to be really hot. It's hot but it's not that hot. No, it's much
more pleasant here than let's say New York
agreed. And so it almost feels like people were anticipating a slow down and maybe even a reversal of the trend. People going to go back. It does not seem like that as occurred yet. Maybe does in the future. How do you evaluate success? So far of like Miami being set up as a technology Hub? And how important is it to replicate Silicon Valley versus like build something new
great set of questions. So obviously in Miami as a
Center is way ahead of schedule. Like when I first moved here, December 9th. In announced I was moving here last November. I thought this was going to be a ten year, you know, sort of crusade and which happens to be nice as a venture capitalist. We think in ten year, you know, fun life cycle. So that was pretty normal. But ten years long time. We're now way ahead of the curve. We already have success the funding, you know, just I saw a tweet yesterday that just in the last five weeks, over 452 million dollars have been invested in just Miami and that will continue to accelerate because there's more
More entrepreneurs here. There's more and more high growth opportunities and vicious companies and business Founders. And the ability to raise Capital. Here is actually easier as well. We have several Founders that we've worked with that actually either move to Miami temporarily or permanently to raise Capital because they felt it was easier and they've had a lot of success. We have one company that I don't think the Delian and I worked on together. They don't things announced yet, but had been circumnavigating. Basically the globe trying to find access to Capital had been rejected by over 40. Firms came to
Miami met Delian, Delhi, was instantly interested, basically proposed verbal offer, you know, the same week and, you know, we've closed on, and I think that companies also going to move to Miami now. So, I think that happens more and more. When I first came here, the first Sunday I had dinner with the mayor and probably about 13 entrepreneurs that have already relocated Here. And Now, is about the entire set of people who've already haven't heard already, had success in technology then moved here. Now, it's probably more like a thousand. So,
So, you know, orders of magnitude, you know, just in nine months. And so I think that's amazing this year. Things are accelerating because everybody for every one person who is here. They have 10 friends, family call these that. Also want to move here. So it just grows exponentially in a classic scent, then secondarily last year because a covid, most of the magnets are getting people to try Miami. We're closed down. There wasn't our Basel. There was an ultra, all of these traditional techniques of getting people to experience, Miami and falling in love.
Created a tech week from scratch. There was a hawk week, you know, in August which actually attracted 350, highly qualified Engineers. So we sort of created our own momentum, but this year will be able to tap into the historical Miami momentum. So I expect this year to be like a 10x
year in terms of Technology people. One of the things that fascinated me is people ask me like, why do you enjoy Miami? And the answer I've just arrived at it's like I'm happier here. Yeah, and I don't know how much of it is like vitamin D from just walking around outside versus it feels like you can go to work.
Then when you leave, you could actually leave and go do things, you enjoy and go back to work. The next day. Is there like a one or two sentence pitch? As to like, what you tell people when they call you and they're like, hey, is this real? Should I think
of? So what I tell people that actually are intrigued by a me is please. Come visit for, at least a week or two and not a weekend. The reason why is you want to experience Miami as a real City. If you come for a weekend, it's going to feel like a vacation. So me great. There's a reason why people come myself included used to come to Miami for vacation. However, if you go through an entire normal week,
Your father, you'll see all the benefits. The biggest stark contrast that people notice is absolutely the happiness. You can walk anywhere in Miami restaurant, bar coffee shop office and people are just happy and happiness is contagious. I think the sun vitamin D. Absolutely, has something to do with it, but the contagious nature of, you know, any social network has been proven and studied for your decades actually. And then on third, on top of that, there are just a lot of interesting things to do in Miami. So you get the best of all worlds. You have excellent, whether
You get happy people and you get an environment where there's restaurants retail athletic activities, three of the next in 2020. All four major sports had the number one or number two team. So we're going to regard art. Whatever. Your interests is, Miami is the epicenter of almost all of those
interests, one of the pieces that immediately stands out to most people as they come here and it's debatable. Whether English is the native language or Spanish and it feels very much. Like Miami is the capital of South and Central America always joke, but it seems
People really enjoy that. It doesn't feel like a San Francisco where pretty much everyone looks like talks the same. You can't go anywhere and get away from work or tack or whatever. Is that something that you think is important and you know as people make the decision or is it something that just yeah, there's some subset of people who like that but that's not really one of the main selling
points. It's extremely refreshing to encountered a diversity of thought experiences, life backgrounds in Miami. I think it does the old better success as an entrepreneur. You have to
Think for yourself develop, first principles thinking, be able to articulate your views. Defend your views, which I think is very in. It's quite indispensable to success. Is not for second. I think it the blending of Industries here is more natural and so if using entertainment or real estate or financial services or in Port, export with technology is the future of technology. So the blending of culture and technology is much better done through Miami than any other city in the United States. So I think you're going to see different.
Types of startups emerge. That would be more difficult to succeed. With outside.
Miami last question on Miami is it seems like there's a number of very influential or leaders of investment from set of moved here. We don't need to name them all. How important is that to drawing? Those Founders? Like if it was somebody that represented an organization, but it wasn't the founder or the decision maker. It feels like it wouldn't have as big of an impact. Is that your read as well? Yeah. So you asked a
question that actually didn't answer, which is around. Are you building?
A different version of Silicon Valley or the same. And I'm trying to recreate the parts of Silicon Valley that propelled success. And I think they're different than the let's say mainstream media likes to cover. So, in my diagnosis of the history of Silicon Valley, which is based on lots of study and actually, having access to all, almost, all the people who built the foundations of Silicon Valley of actually interacted with personally, over over my life and my diagnosis is different. My diagnosis is that one of the most important things was investors, so,
Fundamentally Sandhill Road is the most boring place on the plotted. The office Parks our drab dreary cookie cutter. And the only reason Sandhill Road became important in the history of the world was, there was a group of people who had a slightly different risk appetite than you could find its scale anywhere else in the world. And so people from all around the globe, which track to Sandhill Road because they could find risk Capital that was different in differentiated. So my thesis was, well, I'm going to move.
To Miami. And I'm going to bring the risk Capital that's different than you can find anywhere else. And I want to start with Angel Investors because they're actually the scarcest, the people who will give you money, where nothing is proven and they don't expect to get the money back. There's almost no places in the world even today where there's a scaled group of Angel Investors with that risk-reward appetite. If you could concentrate them, then entrepreneurs will gravitate towards them and then we can bring the professional investors here. We're some of the most mobile people on the planet so we can move to the places.
That are most welcoming that have the most aspirational culture. They have the best weather that the best regulatory environment that the best family raising safety profile. And then the entrepreneurs will want to be here. And that's basically what I prioritized and that's exactly what's happened. So we get for example, Founders fund is now investing more actively Latin America than we ever have before and I'm meeting light American Founders who actually prefer to meet me here than me go fly to them. So it's become a magnet for entrepreneurs. Some of them will set up shop here, some of
I may not but they want to meet me here because there's a set of VCS that they can meet all in one efficient week. Then if we all individually flew to Colombia or New Mexico or Brazil,
when you think about meeting them that early, the angel investors obviously have that risk appetite, but how important is that to almost top a funnel recruiting also to get companies to move here, right? If my investor is there, if I think I can hire Engineers there, I might as well go build the company there and then you almost are recreating a flywheel that
As a company succeeds, more people spin out. They want to start companies. They go right back into the same pool. And is that kind of the idea of how you do this? Yeah, one of the reasons why we started open store in
Miami was. I wanted to set an example, first of all, four other Founders, if I believe Miami's best place to start a company, I should start a company here. But secondly, I suspect that lots of people who work at open store have the aspiration of starting their own company. One day. This is exactly what happened at square. There's probably like five or six, very successful companies that you know Square colleagues of mine have now founded. So I want them to start their companies and
Miami, the best way to do that is to have them experience Miami now and if they're happy they're going to start their company here. There's no way there's no way they're going to move anywhere else. So by having a magnet, we now have twenty. Nine employees open store. I'm sure we'll wind up with 50 plus. By the end of the year. Probably a third of them, have some desire to start their own company. So they're going to create their own companies here because they're going to love
Miami. Do you interview all of them?
I tried to, I am probably running at a D+
percent and when you interview them, are you interviewing them for competency? And
Merit of like the job or culture Federal like how do you think about that interview for some of that's be a direct
report? It actually varies by role. What I'm probably focused on. I'm probably interviewing for upside potential is the most common and then partially interviewing for maybe organizational matchmaking, which is what what box, what role should they be in in the short term? So because there's people who have a broad skill set or and not as clearly defined skills are trying to matchmake their talents against problems that come
Any and challenges the company has. So I'm probably usually doing one of those two
things. How do you measure upside potential or try to get at it? Interview it Etc. I know you got some good interview great.
Great question. Obviously, that's the same thing to me. It's all species of the same problem of, how do you decide what Founders to invest in? Because you're not trying to prove, you're not trying to assess. Where is this founder today? You're trying to plot out the future, trajectory three, five, seven, ten years in the future. And so that's what I'm trying to get.
Before, I don't know that there's a one, there's a magic question to ask at a magic answer, you know, Grady,
just like a framework that you use. So the
framework I use is what I'm really looking for is a spike. So the me talk first from an investor standpoint. It's a slightly different perspective from an employer standpoint as an investor. What I'm looking for is a spike and what I mean by that is this person on some Dimension will be in the top 10 basis points. If somebody I've ever met in that Dimension, so they can be the smartest person I've ever
Met, they can be the most tenacious person. They're about the most creative, the most reality distorting salesperson the best, recruiter, the best talent assessor, but a one dimension they will just strike you as I've never met anybody this good before in my entire life. And the reason for that is truthfully, you're going to change the world. It's kind of a ridiculous somewhat irrational goal. The people who wake up in the morning and say I'm going to need transform the entire planet or I'm going to transform this entire industry. You kind of have to have an irrational disposition and the only people I've ever
In succeed are so talented. And so off the charts and at least one dimension that you walk away from the initial meeting. You say, you know, what, there's a nonzero chance that this person could actually change the planet. And if you don't feel that in my view, the chance to actually change. The planet is basically rounds to 0, so I'll just pass as an investor. So and now in the employee context it's a little bit different because you're not going to build a company of just people who are Steph Curry's but you can't actually
really build a company of just Steph Curry as a pastor. You want to just invest this have courage. I was joking the other day that with one of my colleagues. I don't want to fund Andre Iguodala. He's a great compliment. I'd love to hire him but I actually don't want. That's a mistake when I fund him as opposed to someone has potential to be
Steph. When you think about that, one thing that somebody is the world's best at does that immediately have a trade-off of like they're probably really really bad at other things are usually for
well-roundedness. I doubt there's anybody who's truly well-rounded knots.
And so if like they're in the top one percent of everything, so there's usually areas that they're either not interested in or not proficient on the self-awareness is pretty important. So the ones who are best have some self-awareness, this is what I'm awesome at. This is what I hate to do this. What about it? And I'm going to go find somebody who's complementary to me. So that's the pairing. Is part of the art. That's actually one of the roles. I've sort of sort of have to assume as a VC is helping Source assess and recruit that the appropriate
pair.
You have a ton of ideas. You've been very successful building companies. Very successful. Investing. How do you decide when you should put together a team and almost like fund it from the beginning? And it's really an idea that you're handing to a competent team that you think can go do this versus you should start the business versus. Hey, this is somebody else who's bringing me an idea and I should fund it. Like, so
99% of the time and entrepreneurs walking in with an idea that he or she is incredibly passionate about and possibly with a team already, you know, an inchoate team, but at least some team built around the idea.
And that's what I do almost every day. It's very rare and contrast where I have an idea or I'm willing to be the point person for an idea. That's a once, every four or five years kind of, you know, sort of decision for me. So it's extremely rare.
Open store Falls in that
category. And so open store, open door was my idea and I recruited people to join my sort of crusade. Finally, after a decade of trying open store was not my idea was Jack's idea, but it immediately
Parked with me is a very good idea in right down the middle of my specific unique skills that was designed for me to do. This is actually one of the reasons why I joined Square initially was I'd actually been planning to be a VC that summer and got intercepted and asked if I would meet with Jack and what ultimately persuaded me to take a professional. Detour was the Venn diagram overlap of what Jack and square needed was right down the middle of my unique skills, which is some financial services expertise.
Some ability to be Innovative and not at the time in 2010 was a very rare set of skills. Now, its more common. You can find a handful easily of people that could do that. But open store because it uses unrwa try to underwrite assets using just data or trying to acquire very long tail businesses. We're trying to use a combination of math, and data and and people in a very elegant way is are all unique skills that, you know, sort of polished over 20 years.
It's like a key through boy, Playbook right?
There. It is. And well, researched a plea.
Right down the middle. Like, literally, when Jack pitched me, I think one minute into the pits. I conclude this as a great and really awesome and differentiate idea and probably two minutes into it. I was pretty willing to commit to being CEO.
Was he gonna was he there to ask you to be the CEO or is he pitching you for an investor? Like how did that? I
don't know what a so we had breakfast, you know, like always day before Christmas in December last year, and I don't know what he, you know, I don't know what he had in the back of his mind. But by the end of the, by the end of two minutes, I was pretty convinced that I was going to
Pioneer of this one way or the other. We're going to wheel this into existence you need and it required me to be Co, I'd be happy to do
it. Ramp is somewhat like Square in terms of financial services. Seems to be growing incredibly incredibly quickly. Walk us through like how you look at that business. And then, why do you all continue to double? And triple down seems a great time? I talked to Delhi and or you ramp comes up at some point, the
conversation? Ya Rabb is an interesting exception for me because I almost never have a top-down hypothesis as an investor typically, an entrepreneur walks into what used to be.
My office and says hey, I've got the greater the greatest idea ever, you know, going to change the world blah blah blah, you know, I just need some Capital to advise and I'm like, yeah that makes sense in the ramp case specifically. I was actually actively looking to fund something a bunch of entrepreneurs that wanted to tackle, the specific problem. I thought there is a very big opportunity there and that insofar as other people were trying to tackle it. They weren't appropriate appropriately tackling and in addressing it. So we were actively looking at persuading people to tackle this problem and that Deli
I would find and then, as we were doing that dulling intercepted, what was, what became one of the founders playing video games? And he said, I think I found the people, I said, okay, so I met with them and actually call it five minutes into the conversation. I looked at Ellie, who's pretty impressed? And I said, you're right, you found the people to do. They told me, we told him he was, right? Yeah. Oh, yeah. Yeah, definitely like we need weed.
Definitely need to invest. You just found the people to do this. Let's we don't, we don't have to do this ourselves and we don't have to recruit these other crazy people to do
this and was it hard to convince them to do it
or whether they already they somewhat in parallel had their own goal of doing something like ramp and we have been intercepting with we want to fund someone who wants to do something like ramp so is a match made in sort of in heaven, but he had correctly found and accurately found that people who could pull off the vision that we had in the back of our
Means what makes it so special? Like I think now it's a 3 4 billion dollar business. It literally in a three-year period or whatever has just come out of nowhere. Why is it so
successful? Well, I think there was a couple macro trends that they were tapping into which is why we were interested in finding Founders to toggle is problem, which is at the end of the day, almost every company is going to be running on software modern software and it started with small companies running on Modern software thinks ass, you know, this product is service, but the CFO sweet, the financial services, part of the companies are
Running on Legacy software or using manual labor. Like if you look at a public a company that goes public these days to finance department. Typically a hundred people in, this is for a really a fairly small publicly traded company and that makes no sense whatsoever. Almost everything done by Finance can be done with machines and yet nobody built that sweet. And so we really wanted to find someone who understood that Vision that all companies were going to run on software and that someone could Stitch the software together to create value for the CF.
We thought that there was very specific apertures to go to market around access to corporate cards for a variety of reasons, but that was always part of the vision. Always like a step in the vision, I guess a phase in the vision, not the vision. And then we thought that we needed was someone who could stitch together. The value proposition provided by these cards into something that would make sense to the decision makers, within the Enterprise. And Eric and cream had the
Dia specifically around incentive alignment which is we're going to help you save money. And here's how in a very specific tactical way based upon actually some of their experiences in their prior startup. So the combination of the Vision Plus the Practical experiences of being able to connect, the dots was exactly what we
wanted. Also skiers talk about some geopolitical stuff China, we can start there. We talk about the book we can talk about what's going on in China was kind of your ass.
Schmitt, you have not been shy in the past about sharing kind of your opinion. So how do you look at where we are right now?
Well, we're clearly in a very confrontational state with China. And the only, the only the biggest risk is to be in denial about that and being unwilling to admit that China has an agenda, that's very unfriendly to the future of democracy. And China's been very strategic and wise, and to their credit been very clever about using technology specifically to
Achieve their agenda. And so my husband wrote a book. It's going to be published by Simon & Schuster released on October 11th, called wires a war, which details mostly China's success. Both using the front end of technology. I think information content, as well as the back end, the deep end, the Jeep technology elements to manipulate democracies. It also talks a little bit about Russia, but it's fundamentally a book about how China has been manipulating democracy to the benefit of
ISM. And so we're going to we're gonna have to confront this one way or the other, we have to compete. In some Dimensions. We're going to have to invest in the military and other dimensions. This is going to be a very severe problem for the United States over the last decade, in the longer we've neglected at the worst problem is there's an old Concept in political science. That was borrowed from the Soviet Union of when the Russians used to refer to as correlation of forces, which is basically, you should always compare your leverage as a military force against the alternative. And then the ideal time to attack is when
The correlation of forces in your favor and as we've been in the clocked benign or active neglect for the last 40 years. Basically China has been Shifting the correlation of forces to be closer to in their favor than ever
before. I want to kind of bifurcate the conversation for a second. There is what I'll call more of like a military aspect to this. There's a technology actually there. Maybe there's a third category which is like the capital markets. So let's start with capital markets. First of like these a TRS and VI ease.
I was completely unaware of this until recently started looking at it. And for those that don't know, basically Chinese company creates a shell company. In the Cayman Islands. They sell shares in the Cayman Islands. It's named identically, so the u.s. Investor unless you're sophisticated, you think you're buying, you know, caught tencent shares, but actually you're buying a shell company that has some IP or whatever address to it. Is this something where the u.s. Is going to say. Hey China, you have to play by the exact same rules as an American company, or is there going to be this game of like National Security and we're not going to audit you and
You can keep doing this ADR thing. Like how do you see it playing out? I think almost surely the
SEC alone will crack down on this. I think there's some of the stuff is in the works anyway, and you know, the geopolitical reality will maybe accelerate it. I think some of this was there's a lot of people have made a lot of money in China. Many who've served in Republican and Democratic administrations that intentionally cast a blind eye to this, but I think just giving the macro Dynamics, they're not the
Ticks are not going to allow this to be swept under the rug anymore, but it's been abused, you know for a
decade from a technology standpoint if you're president United States, like what do you do as a response to a lot of what they've been doing on that technology front?
Well, I think unfortunately I'd say it's going the backward. It's going backwards from a government perspective and enhancing technology. I think we have to realize that the future of the world is predicated on technology and whichever countries produce the best technology and have the most power in the future.
ER and to the best we can do is encourage Technologies in the best way to encourage Technologies. To get the government out of the way. For the most part. There are some Fields where that's not true, where there's amazing upfront initial investment that's required for Innovation. But those are the exception, not the rule. Most entrepreneurial Pursuits can be created with a very small amount of capital, a very reasonable timeframe. There are some unique projects that require massive investment that are like think in the chips in semiconductor space these days, although the industries were created with a
Small amount of money and actually did pretty well when they had to be entrepreneurial. But fundamentally, I think that's the exception. Not the rule. We also need to truthfully, appreciate entrepreneurial Pursuits. Meaning, like, one of the things I like most about Miami is this is an aspirational culture where people here are taught to emulate success, not, penalized success. And if we want more entrepreneurial success, we should be emulating entrepreneurs. Not criticizing them
from a military standpoint. I think founder fund has funded and array.
Bill and other kind of Technology lead defense approaches. Is that our only response is to basically meet improvement with Improvement or innovation with Innovation and continued to increase the technical capabilities that we have from a military
standpoint. Will surely like, harnessing, private Enterprise entrepreneurial Talent like the entrepreneurial Talent on and oral would be better or on par or better than any other company in the planet like they recruit the best of the best and that's certainly if we're in a competitive Dynamic, we want to recruit The Best of the Best.
That have, you know, our national security interests at heart. I think having a vision that I'm an American company. I'm an American founder, and I want to help the United States of America is a good thing and some of our companies in Silicon Valley have got away from that model. Mantra', We have found our spawn. Love to back Founders, who have that belief about the world that being an American company, is something to be proud of, and something they should brace, and they should recruit on that Dimension. And we're happy to provide the capital of. We're the only ones, the only VC is that want to provide the capital even better.
I almost am laughing as ask you this, are you in
Resting in
China. All right. No. Yeah, we have never invested in China. Nor would
we? All right. Do you want to elaborate as to why not?
Well, I think, you know, maybe not surely, not just me. But several of my colleagues have had this view about China at least since 2015, where I think some of the stuff was obvious. If you're looking, I've actually had this view on China for 20-plus years. That being the u.s. Strategy of entanglement was actually backfiring. So basically, if you look at the history of China,
A policy. And you is really, we started embracing China in 1972 as a counterweight to the Soviet Union, which may have been actually a pretty prudent, strategy truthfully. It's actually somewhat clever Nixon and Kissinger Etc. But after the Soviet Union collapsed 1989 so pretty long time ago, 30 years. No one really. Rethought. What's our strategy with China doesn't make sense where there is, no Soviet Union, and we never really reinvented ourselves and we thought the policy from first principles and then by certainly
1895 1996-1997 the intellectual bankruptcy of our policy was very obvious. So basically it's logged for 20-25 years in the correlation of forces has worked. It started to work against us now because of the neglect of the politicians in the political class and the bribery the actual motivation, economic motivation of people, you know, sort of making money in
China. You're one of the most voracious readers. I know. Is there one book that you would suggest people go read that other than maybe Jake.
There is no other book.
That was cheating. I should have acted that way. Well, I will say to be fair Jacobs. Probably read 50 books on China. So, you know, he's definitely standing on the shoulder of giants, sort of thing. There was a book I used to love. It's a little dated. Now when I was first really studying, China policy written by James man, I forgetting the title off hand, but I will tweet it ja man. But yeah China pretty sure that that was one of the better introductory books I used.
And to write speeches. I'm trying to policy back in the day and have to study this stuff and get quickly up to speed and I felt like that was one of the better ones, but there's there's now a quite serious Library sitting at our house of China books. So, if you want the entire selection, I can walk you through the whole winter. There's missing a wing of our house.
Yeah. All right, Afghanistan is another place that actually now may have some relationship to China. Russia. I mean, it's all all kind of
Together here, but what's your view? As we sit here? We're recording this. The US has decided to pull out the pulling out of troops has been highly controversial. And I think at this point, pretty much widely accepted as not done correctly or well. It may be some people still disagree with that and now there seems to be violence at the Kabul Airport and it's kind of getting worse and worse. So how do you just evaluate? I guess? Like one the efficacy of what we've done so far. And then how do you look at what we're going to do?
Or what we should do. I think it's
certainly debatable about what the right sort of exit strategy from Afghanistan is, or should have been. I think many people with lots of interesting perspectives have disagreements on that. I think it's hard to debate the wisdom and or the execution of, you know, the detail tactical level I think was insane insane and extremely naive and I think that's, you know, getting worse and more clear every day. Obviously. I also feel that
Many of the left-wing people in America are extremely inconsistent with the criticism of US policies, and their willingness to tolerate significant abuse has overseas. So, I made these Point years ago about Saudi Arabia, like, I don't take money from Saudi Arabia. I think it's, you know, they intentionally discriminate against gays. Women Jewish people, Etc. And I think that's shouldn't be something anybody in the
Pearl, you know, World wants to be involved in the Taliban is literally going around executing gay people. God forbid, if you're Jewish you probably get executed twice, you know, so like, I just find it like, inconceivable that the left, tolerate, the idea of the Taliban running a country where they, you know, complain about the labeling of bathrooms in North Carolina, versus stoning gays to death. But I think, what is the significantly greater problem and yet they're totally completely silent or the of the
Liberty's who, you know, whine about this and that and the United States which are pretty tactical differences versus like executing
people. So one of the things that I've started paying a lot more attention to is like the memes of the internet. Really tend to drive like what people feel the truth is and it's almost not everyone can be a comedian. Everyone knows comedians can say whatever they want. Mean it verily it. Well. Yeah, but at least they get away. Tim Dillon has been a fantastic follow for example on on Twitter, but the memes really are kind of that.
The way for a person to say something and no one gets like super, super offended. And so we saw things like the Taliban. Congratulations, guys. You guys aren't wearing masks, right, you know, that type of stuff all the way down to more of them, like, serious things that we're going on and it just felt like America woke up. Like almost overnight to the fact that like we were in a negotiating and you saw soldiers you saw Special Forces. Folks, combat veterans Etc. Be like, wait a minute. We know that they're all in one building and we're not just bomb.
In the hell out of it, like, it just felt like people are waking up to what had probably been going on behind the curtain for a long time. And does that have like, long-standing implications of the way that people trust, you know, one of the things I always go to is like I do not think that my generation of kind of, let's call it 2245. You're going to convince them as the United States to go to war again, right? It feels like that trust has been almost broken. And so you're going to literally have to wait 20 years, until there's like a new generation of people who you could convince on.
Some catastrophic event happened.
Yeah, that's kind of what happened, post-vietnam. And as someone who's old enough to kinda, I didn't grow up until post-vietnam basically, but there is a good decade where it's basically impossible to convince United States, to go to war in any sense. And that's why we wound up with these proxy wars and like, let's say, you know, Central America Etc. And it really wasn't until Midway through Reagan's real auction that that started changing in the United States. So that wouldn't be the first time, it wouldn't be surprising.
Second though. I do think that people are paying more attention to this and I think that was basically where the binding ministration massively miscalculated. They thought this was going to be a niche topic and issue and kind of be either dust it on there and kind of under the radar and it's become top of mine. It's actually crowded out basically almost everything else in the news. And I think the reason why is things that were people were not paying attention to our so starkly.
Consistent with American ideals and history that it's actually causing people to wake up and say, what the hell are we? What the hell are we doing? Why are we doing this? Why are we acting this
way? Yeah. I have a somebody that I know who we're Facebook friends and he's a former Navy SEAL. And he posted recently a photo of him looking at a watch submerged in water. And he said that at one point, he captured a Taliban Soldier, and during that encounter, the Taliban Soldier said to him, you have a watch. But we
Of time, and he members at the time, basically laughing at you like, you're an idiot, whatever. And now, he's basically like, he was right, right. And so I do think that there is whether it's Afghanistan, China, whatever it just feels like the American political kind of system in the cyclical nature. We're just constantly worried about, like, what's happening today? What's happening in six months, whereas some of these countries seem to be maybe some 300 years, but a decade, right? It just seems like there's a very different mentality for some of the stuff, then, the American culture allows.
Yeah. Well, there's a translation to business and start.
Reid Hoffman top and this is just one dimension in any negotiation is time. It is time your friend or Foe and understanding that allows you to calibrate and manipulate other terms in a negotiation. And the same thing is true in
geopolitics, explain more in business. Like we do, for
example, like let's say you're losing money as a start-up. I'll give a very simple example first, but let's say you're losing money to start up. Time is your foe. Right? So every day, The Duel doesn't happen. That would be good for you. This actually
Lee very painful, where's let's say you have market share, and you're an incumbent. Every day that preserves your market share is actually good for you. So you want to go slowly, our give you want to go slow. So just understanding who time helps like what the defaults are in a more conceptual way to think about it. And that's true in geopolitics people with different time. Horizons might act very
differently. Yeah, the media's coverage of the pandemic. The Afghanistan withdrawal, pretty much everything seems to
Be received very differently and politics is probably the, like area where I think people can see it. The most clearly right now is the simple example of like, remove Biden as president, put Trump, if this was going on, it would be like a massacre, right in the media. How do you fix it? Like, I think we're, it's a beating a dead horse that, like, there's problems. How do you actually fix it? Or can you not fix it?
It's a great question. I think.
Some of the sort of cats out of the bag and in some sense, which is Gatekeepers have been removed and that's what the media doesn't like. In my view going back to something evolved or maybe seven ten years ago. The reason why the media is hustle. Technology is we've removed The Gatekeepers and their Monopoly on information. Power and control is basically permanently destroyed and people who are journalists don't like that. So they hate the people who have unlocked, you know,
Democratization of ideas and content and they've been fighting back and you know, someone will losing battle but rearguard action against technology and empowering people. However,
I think the model that does kind of work is when I was living in the UK, you know, there was basically 3G zones of daily Publications. There is the conservative Publications and there were the liberal publication during the intermediate ones. And if you watch people getting on, you know, sort of the subway system in the morning, they would typically by two papers. They'd buy basically their favorite one, which is there a liberal they buy? The little one liberal two choices, if they're conservative, they buy one of the conservative ones and then use
I am middle one and they're basically, you know, reading the stuff. They wanted to read with the angle. They wanted to read, reinforcing their own beliefs, and then your little bit of exposure, you know, to the middle ground sort of thing. And I think, as long as people know what the bias and framework people are starting with is actually can be very a, very useful exercise. Its when the media either masks their bias professors, there is no bias, and then therefore surprises people in shocks people.
That I think it's really unfair and on scalable. So I think we may see more of a Fishel sort of partisan partisan Nation part ization. I don't even know what that word is of the media and that might actually be a fairly stable
solution. One of the things that this is kind of shown itself, as in the financial media, with the whole Bitcoin crypto world is most journalists will say, hey, I can't hold a financial asset because I want to be unbiased, but if you're writing about something that is competitive two dollars, right? Then you're basically holding once
Hope the debate and they don't disclose it. There's bias. I'll stuff a second piece that recently people have started debate is if you were a journalist, you knew about Bitcoin in 2012-2013, but you weren't allowed to buy it. And now it is appreciated quite a bit. You actually may be negatively biased towards it because I could have bought it. I didn't whatever. And so it almost feels like just we all have to accept. There's no such thing as like not being biased and just everyone put your bias out there and move on with the way I
think. Disclosing your bias and perspective is probably the best first.
Versus trying to exterminate it.
But not perfect. I think there are better and worse ways to
reduce bias and I think reducing bias can be helpful to. Yeah, last question or topic is a Bitcoin. Where are you on it right now?
So we that Founders fund been, you know, long-term investors a Bitcoin directly over the last year. We've started really accelerated investing in. Let's say crypto based companies, which is more new to us. We were historically, occasional investors.
Oriented companies and very bullish on bitcoin. And we have now invested in five to ten crypto companies, just in the last quarter to two very active. We just announced, you know, a crypto based company this morning. It's going to hopefully reimagine the music industry, but we also funded several other that I believe are announced crypto companies and a few more in the
works. Tell me, kind of the pitch around Royal. I know, JD did open door with you, you've known
Justin for a while. What's kind of the
well, the music industry is basically broken because it's artifact of History. So here traditionally music labels provided multiple functions to artist, they provide a cash advance up front and then they provide effectively distribution. So the cash advance of front row allowed an artist to live to recruit collaborators, you know think vocalist or background musicians, etc, etc. And then traditionally the label would get, you know, secure procure placements on the radio to get exposure for song.
Knocks a ship albums to retail and provide all of the indispensable ingredients to success for an artist. And in exchange, the economics, kind of work, something like 20% to the artist and 80% to the music label. Well nowadays distribution is not the industry, the current labels provide nothing in terms of distribution. We don't ship, you know record we don't ship records to record stores, don't sell CDs. Even secondly, you know Spotify is algorithms or
Talk or the soul of the artist individual following on social media, whether Instagram or Twitter, it's rides adoption. And nobody's really rethought the economics didn't make any sense. When the label isn't providing distribution. It's just providing a bit of cash upfront, that bit of cash, upfront is basically commodity. And so one of the things Royal will do is fix that in the artist favor. The second thing is obviously fans are critical components.
The trajectory of both songs albums and artists and we want fans to be able to participate in the success. And that's where we're going to chop into the kind of movements you're seeing in and of T's where fans can be both an economic and social collaborator with the artist.
Last question, a much more fun one. I was asking couple people what I should ask you and this question came out twice, but I can tell you from who there is a rumor that you have a fish tank in your house that a scuba diver needs to clean true or false.
I've read that in.
Real estate blogs.
What a great answer. All right, where can we send people to find you on the
internet at Rabbi are a BOS on Twitter, or you can email me Keith the founders fund. If you have a really good investment
opportunity. All right. Thank you for doing this pleasure to be with you.
