Keith Rabois: Lessons from PayPal Mafia, $OPEN, & Investing

0:00You have to find what your comparative advantage is in life and then double and triple down on. Each of the people that worked at PayPal that was talented had different skills and traits. The reason why they went different directions is they figure out how to frame themselves. So they're not just the best, they're the only. Peter, not many substitutes for Peter. Max, not many substitutes for Max. David Sachs, I think, has found his own role off. You were a part of PayPal Mafia. I have to ask, do you guys have a group chat? No. One of the two best parts of being a VC is you get to work with the most talented entrepreneurs in the world.

0:30And you get to watch them. I've actually given a whole speech on lessons I've learned from Vinod, Peter Thiel, Reid Hoffman, Max Levchin. But I try to absorb from everybody. What traits do you look for in talented young individuals? What you want to find is someone has a non-zero chance of changing an industry of the world. That's it. You are also very active on X. But I have noticed since joining CoSLA again, your contrarian takes have, I mean, I'm not going to say they dulled down, but like you have gotten a little bit more mellow. Oh my God, I'm getting old. Damn it. My thesis is I ran out of contrarian takes because they've all been proven to be true.

1:03Have you thought about writing a book? I've started to play around with ChatGPT to write a book for me. The outline I came up with is actually pretty damn good. The title was very non-intuitive and kind of edgy, which I like.

1:21One of the common themes that I've noticed around you and your circles and in Doge, the new admin, is embracing young talent. So in Doge, hired really young. Teal Fellowship, hired really young. There's different mafias around this too. But for you, I asked Delian, like, what should I ask Keith? And Delian, he said, he told me to ask you, what do you see in certain young folks that convinces you to spend so much time mentoring them? It's the same thing as investing, truthfully. It's the same formula. What you want to find is someone has a non-zero chance of changing an industry of the world. That's it.

2:02It's really that simple. And it's the same, you're scouting for professional sports, you're scouting for music labels. It's the same basic concept is most people are in the middle of the bell curve and either don't have the skill or ambition to be two standard deviations away. Investing is all about finding those people and giving them either capital or advice or both. The same thing, whether you individually mentor of someone is the exact same formulation as someone who has super high potential and has a shot of transforming the world. So try to find them. It gets harder. The assessment part actually, I think, gets easier.

2:39The identification part is harder. It's not like you get to meet all 4 billion people on the planet. I've yet to find a way to do that. My friend's Daniel Gross and, you know, actually back in the day, tried Pioneer, which is a way of scaling the identification of these people and it had had some success i think but i've found that you need to do it in person which really reduces the scalability of it and the disadvantage is as you age your natural social professional personal networks are more distant from up-and-coming people so you have to find alternatives to that for a while now i'm even too probably dated to use this for a while i used my soccer team as a way as a way to find up-and-coming talent it worked pretty well um hired two at least two people off my soccer team that worked at square they started a company that's a very good company called fair um so but it it was a good magnet for people you can you can try to find new alternatives, but it gets difficult.

3:47You can rely upon friends of friends. And there's some truth to that. The adage that you're the average of the five people you spend the most time with is basically true. So if you find one node, one person who's in a node, the five people that that person spends the most time with, there's probably some pretty other talented people in that group. So you can try that. But the technique of identification, You can read social media, people who are exceptional sometimes publish stuff. My other co-founder at Open Door, Ian Wong, I had actually read his Quora posts and had no idea who he was. I just read some of his Quora posts back in the day.

4:24And then I bumped into him at a professional event in San Francisco. And he introduced himself and asked for career advice. And I said, your only career advice is I have a job for you starting on Monday at Square. And he was like absolutely blown away. like i was like nope you don't have a choice like i've got a job for you and he's like don't have to interview i'm like nope and the reason why i said already read all his content and i could see from his content and like his education that he had a confluence of interesting ideas and backgrounds and i was like if i can't figure out how to make you useful like it's square in my problem not the other way around uh he had he had an electrical engineering and a cs background and a data science background.

5:05I'm like, we do all of those things. There must be something for you to do here. We only have like 30 people. It's unusual that someone with that background walks into my lab, please start Monday. And he did. And he wound up then later co-founding Open Door with me, stayed nine years as CTO. And now he's running a really cool company in Seattle. You're going to bring him back? Sorry? You're going to bring him back? No, his company is doing very well. It's not announced yet, so I won't talk too much about it, but it's got very high potential from what I can tell. Sorcery is brought to you by Brex, the financial stack trusted by more than 30 ,000 companies, including one in three venture-backed startups in the U.S.

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6:49One is you are in the top call one to 10 basis points on some specific trait. And that can be very different. You can be the smartest person I've ever met. You can be the most tenacious person, persistent, best salesperson, best at assessing people. Like you have some trait that's just like, holy cow, I've never seen anybody like that before. Your ears are just like hurt. The only other formulation I've seen is you have this combination of traits that's rare, the confluence of traits. So we talked about Callus, for example, I mentioned he's bold and ambitious, and at the same time, incredibly rigorous and analytical.

7:21Those traits do not usually go together very well, but they happen to be magic. It's not surprising. He was very effective in financial services, building out shop pay, et cetera, because those traits are indispensable for building a payments innovative company. They're also truly indispensable for building Open Door successfully. So you're looking for this rare combination. I talked about Max Levchin is a first-rate technologist and a first-rate business strategist. There's less than five of those people in the world. So if you see these rare traits as a Venn diagram, that can be your top 1 % answer.

7:54So that's what you're looking for. An early talent circle that you were a part of was the PayPal mafia. Yep. We now have multiple mafias. We have the Teal Mafia, the Teal Fellows Mafia. There's now the Palantir Mafia. somehow they all come back to the same people um i have to ask do you guys have a group chat do you have a group chat no do you keep in touch well i keep in touch with the people i like and you know like um like i'm going to max's birthday uh saturday and i'll see i'm sure a select group but uh i would say there's a constellation of maybe from the paypal days 10 to 30 people where we're pretty interactive.

8:37You know, obviously I've worked a lot professionally subsequently with Max and Peter and David Sachs. And so I think there's concentric circles of people who continue to work together, continue to start friends, but not like there was like 254 employees when we sold the company in Mountain View. And I don't keep in touch with most of the 254. What do you think you've learned from watching everyone go on their own path? Like, what are the key lessons that you've taken away from this person went that way, this person went that way? Like, I think more macro of like human behavior. Well, macro human behavior is, I think you have to find, and it's advice I give people constantly, probably every week what people want professional advice and even people don't want it.

9:25And I sort of force them to listen, is you have to find what your comparative advantage is in life. and then double and triple down on it. So each of the people that worked at PayPal that was talented had different skills and traits. And I think the reason why they went different directions is they figured out how they wanted to compete with the rest of the world. So I was mentioning, I grew up reading this autobiography by Pat Riley. And in the autobiography I read when I was probably a sophomore in high school, Well, I saw this quote that he was quoting Jerry Garcia, the Grateful Dead, and said, you don't want to be the best in the world at what you do.

10:05You want to be the only one who does what you do. And so I think that's mostly people who are successful. They figure out how to frame themselves. So they're not just the best, they're the only. So Peter, not many substitutes for Peter. Max, not many substitutes for Max. David Sachs, I think, you know, has found his own role off. You find your own course and you double and triple and quadruple down on it. And that's how you want to be successful. Can I ask for you a little bit more personally, like you have developed some really strong frameworks of understanding and breaking down different situations, very complex situations.

10:39How did you, how did you, how do you like have this like really, I guess, like clear and insightful way of viewing the world that you can distill complex subjects, subjects down so easily? I think my primary role as a venture capitalist is to be a consigliere to the founder. And even as an executive, I think this skill is critical, which is simplifying a complicated set of facts to an actionable framework. That's the best way to give advice and take a step back. Communication, I think, is misunderstood. Communication is only effective. You're only successful communicating if the recipient understands what you're saying.

11:20So it's like throwing a basketball pass. It's the person who throws the pass, the responsibility to make sure the recipient catches the pass. You don't blame the recipient for fumbling the ball. It means you didn't pass the ball correctly. So you want to take into account the qualities and characteristics and attributes of, in basketball, seven foot center, you don't want to give them a pass that's like six inches off the ground. That's your responsibility. So the same thing's true if if you're communicating with people and you're trying to be a useful mentor, consigliere advisor, you need to be able to distill things in a way that the recipient can apply.

11:59And so if I want to be successful as a consigliere, I need to be able to translate things. Is this why you're so popular on All In? Well, we'll see. I mean, hopefully it works. You know, Peter's very good also at Conceptual Frameworks. He's published a whole book that has a bunch of them. But I try to be able to either by metaphor or by framework be able to articulate and translate a fairly complicated topic yeah it's very impressive it's also kind of like it's mesmerizing for example the barrels and ammunition one yes did very well so the the question that i was encountering constantly from founders was basically simplified as i hired all these more people i've raised money I hired a bunch more people, yet I get less done.

12:45And it's very frustrating. Why? And so distilled it into this barrels and ammunition concept that makes a lot of sense why, oh my God, I've hired, you know, I doubled my engineering team, but I'm getting less done or I've tripled my entire team and I'm getting less done. It's because you don't have any more barrels. You're just stacking ammunition behind the same number of barrels. So you're not going to get any more done and you're just going to frustrate people. Have you thought about writing a book? uh i always get asked to write a book before chat gbt i thought the work the effort would be too high i have started to play around with chat gbt to write a book for me so we'll see the actually the outline it came up with is actually pretty damn good do you want to share yeah they had eight chapters they were really pretty good choices the title was very non-intuitive and kind of edgy which i liked it's called dangerous minds so we need to trademark that one quickly Yeah.

13:37Before this podcast airs. Yeah. We're going to get that trademark down. That's really funny. I need to keep accomplishing things. I definitely want to make sure that the book is interesting. Because the tension, the reason why I've always procrastinated other than the effort, the serious reason is if you want to make it actionable, it needs to be specific. But if you make it too specific, it's not like a universal book. Right. There's only so many people in the company and in the world are trying to build a startup from scratch to like IPO or something like that. And so if I dumb it down to be broad, then it's not that useful to people who are aspiring entrepreneurs.

14:17If I make it actionable to aspiring talented entrepreneurs, how many people in the world are going to buy this book? So trying to finesse that balance. Are we going to wait until after the open door turnaround? That might be a good idea. or maybe when Ramp goes public or something or some big moment that crystallizes everything. But I still need to solve this tension of making it useful to a wide set of Americans or worldwide, a wide set of readers, and being specific, tangible, concrete enough that people who are very good, who already know what they're doing, find interesting advice in there.

14:58Well, I feel like you're already there. Business is one of the top-selling categories for books. It is, actually. And I think it could do fine. It would probably do well, but I don't want to do it unless I figure out how to make it both a bestseller and concrete for top-tier founders. In today's high-speed business world, staying ahead means using the smartest tools possible, including the powerful capabilities of artificial intelligence. Meet Turing Intelligence. Turing builds customizable AI systems designed to solve your mission-critical challenges, no matter your industry. From expert guidance to tailored projects, Turing helps top companies realize AI that's more capable, more adaptable, and more effective.

15:44With Turing, discover how AI can accelerate your business growth. To learn more, visit Turing.com slash sorcery. Spelt S-O-U-R-C-E-R-Y. That's Turing.com slash sorcery. you also have to carve time out because i've heard launching a book is like launching another company you have to tour the world yeah i think that's true it's getting some things are easier certainly crafting it uh through chat chubiti like the next step would be for me is to take one of the better chapter titles and ideas and ask it to write that chapter but the more i do the podcast like this and the more i you know do media interviews the more content there is for uh you know, chat you need to train on.

16:27So that's why I'm doing this. I'll give you the transcript. I'll give you the transcript. It's all training data. Uh, well talking about more specifically of like one of your superpowers, it's around culture and shaping cultures. There was one interview that I love. I think I, I tweeted about this. It was one that, um, you did with Mike from Trava and Harry Sevens on 20 BC. Oh yeah, sure. This one was fantastic. This was before like 996 became back in fashion yep which i think is like kind of bullshit i think it's more than 996 but there was one part where you were all talking about building an elite culture you need to build like olympians yep what is your framework for that well the framework is every every it's actually borrowed from peter every successful company is a cult and what a cult really means is you have a view about the world that's different than other normal people and And you're right to be successful.

17:21Like a cult doesn't have to be right. But the startup is a cult that's right. And that's what makes a successful startup. So you have to decide very intentionally from scratch what is your secret in terms of the market, the product, and your secret about people. Stitch them together into a set of beliefs. That's the cult. So the travel cult is pretty unique. They did start with we're doing things in person in 996. before it was cool so this is they started the company in like uh maybe say june 21 um and at the time lots of people said oh you can't do that that's crazy to me it was like duh of course every successful startup i've ever worked with uh from the time i got involved in technology in 2000 how exactly that culture would actually you're right 996 was lazy yeah um i actually make this point to mike all the time like when i said paypal like 996 that would have been like an easy week totally actually when i was a lawyer 996 i would have been like easiest thing ever like i build like 363 hours my last month as a lawyer well it not worked um so yeah so like people want to be successful have always been you know pretty dedicated they have this attribute that they've adopted of olympian work ethic which is also true if you want to be a successful Olympian, usually from the time you're somewhere between six and eight years old, depending on the sport, sometimes you start training and you train constantly.

18:54And you have a shot of qualifying for the Olympics, winning a medal, winning an NCAA championship. They've distilled it that way. You're working together with your team just like people who train to be successful in sports. That's a metaphor that they use, a conceptual framework that they use. Do you think culture has shifted since COVID? Well, generally speaking. No, it shifted, you know, in horrific directions. And but I think it's being brought back. Like in New York City, it truthfully, people were working in office in New York City very fast after COVID. Like at least when I've interviewed people or helped close candidates in New York over the last five years, no one even asked the question if you have an office or you expect people to be in the office.

19:41It actually doesn't even come up. yeah it's just well of course you do or miami same thing um in the bay area it lagged for a long time um for a while including i'd say almost until 18 months ago the only scaled modern company that i think was in office basically all the time was rippling i think now you're seeing startups i know mercores kind of you know very public about it and there's a lot more people building you know at the foundational level that way. But if you look at how almost every successful company was built, it's like heroic effort. And then once you stitch everything together and have a whole speech, I gave a lecture at YC in 2014 called How to Operate.

20:23Eventually, you want to stitch this stuff together so it's a machine. But you need the heroic effort to construct the machine. And there's no substitute for that heroic effort in the beginning. And the beginning can be defined as the first five years, seven years, four years, depends on how good you are stitching everything together and how fast you can build this engine that just runs. Yeah, I think in that interview, you mentioned a quote that build a machine so strong idiots can run it. Yeah, that's a Warren Buffett quote. Eventually, we had a running joke in my PayPal days about we didn't think eBay was very well run and had a bunch of idiots as a management team, which has proven to be true if you just look at the history of that company.

21:01But we had the running joke was we had an over-under bet of if Martians invaded eBay, How long would it take before the world to notice? Because they had a network effect business that the worst executives in the world were screwing up. It's really hard to screw up a network effect business for usually at least a decade. But I remember sitting in a management meeting at eBay after we got acquired, right after we got acquired. And they hired some consulting firm, it was Bain actually, to analyze the threat posed by Google to commerce. and their conclusion as a management team and with the assistance of Bain was, well, there was no threat posed by Google.

21:40Well, these days I haven't looked up Google's market cap, but I can tell you it's like at least 50 X eBay's all because they had management consultants running around and they believe these idiots where I remember seeing the audience with Reid Hoffman and us like looking at each other during this presentation and saying, what the hell is wrong with these people? Like they're going to be toast in a matter of years. And they were toast. They were toast both on two directions, actually. Amazon and eBay both destroyed – I mean, both Amazon and Google destroyed them. And when we sold the company in 2003, they were the leading e-commerce site certainly in the West.

22:15That's crazy. So don't hire Meg Waitman. No. Not that part. We'll leave that one out. You can leave it. Oh, gosh. Okay, so that reminds me. So there's a Calci market that aliens, do you think aliens will say that aliens exist this year? That is a good question. Depends on that. I guess it depends on the definition of aliens. I don't spend too much time thinking about it, but I spend a little bit more time on the UFO stuff, a little less on. What do you spend time on in UFOs? Watching all these documentaries. They're kind of cool and interesting. Which ones? Oh, there's a great one, actually. Netflix had this really good one.

22:57It's actually pretty fascinating. I forget the title of it. you're gonna add it okay um it's pretty compelling is it the one with the pyramids all over the place that one it talks about this uh uh ufo landing in australia in 1963 that they're both all the kids who are very young like three years old all remember the same exact things even 30 years later there's some actually evidence on the ground but anyway uh i let other people like be the ufo junkies and they report back to me. It's kind of a fun dinner conversation. It is a fun. I don't do conspiracy theories very much. You don't know conspiracy theories.

23:34I'm not really now. Okay. So, well, I'm going to still ask you one. Okay. Who do you think is running Elizabeth Holmes Twitter account? Sorry. X account. I don't know if it's pretty good. We should hire them. Maybe get them to do open door media. You should, you should definitely get them to do open door media? We're going to do authentic open door. You may have noticed Shopify executives from Toby to Harley to Kaz actually authentically post on X consistently, and that's part of their culture. And so I think we'd like to embrace that. Embrace retail as a movement. These are our customers. They're on a crusade.

24:11And we should be transparent and use social media to communicate. You are also very active on X. Yeah, I've heard of the product. but i but i have noticed like since joining coastline again your contrarian takes have i mean i'm not going to say they dulled down but like you have gotten a little bit more mellow oh my god i'm getting old damn it um yeah well i have a better answer better thesis on this my thesis is i ran out of contrarian takes because they've all been proven to be true so like for example i used to you know argue uh that stretching is bad for you and everybody I thought I was insane.

24:46Like this is probably the most controversial. And now there's evidence of why you shouldn't stretch. Second, like I remember, you know, Bloomberg wrote this profile of me in 2020, May 2020, where they described my theory on COVID as escaping from a lab as a fringe theory. No quotes, no attribution to anybody, just dismissed it. Of course, that's true. You know, I had like a bunch of contrarian theories about sleep, actually. So I grew up prioritizing sleep all my life. You can read interviews of me back in like 2010 probably when I talked about this and how is the most important thing you could do to be happy, healthy, wealthy.

25:22Obviously, the evidence is incredible now. I don't think anybody would even debate that the best thing you could do for your life is to sleep properly and sleep more up to a certain amount. And so I've been prioritizing sleep. I used to – let's see. Well, I still believe that ketchup is really good for you when you were a kid. Ketchup? Yeah. people who are successfully eating a lot of ketchup when they're young that one still gets a little bit of a shocking weird i haven't quite convinced everybody that yet but if you do uh there's a book that tyler cowan and daniel rose wrote that talks about stellar people and their backgrounds and they get close to that theory um they argue it with a sort of different like food but it's similar malcolm godwell also has a chapter on how ketchup is the perfect uh food Why?

26:12I've just noticed observationally that when I look at my sister and some friends, I'm like, how much ketchup did you have when you were a kid? Really? Yeah. What is your view on the Diet Coke theory? Well, so I've studied this one. I used to be a Diet Coke addict. When I mean addict, I'd have between 8 and 10 every single day all my life, like lawyer, entrepreneur. And I read all the studies. People would say, oh, it's carcinogenic and all this stuff. That's not true. I read every single study that everybody would critique me and like, show me some research and I'll read it. But then I got convinced of one.

26:44There's a really well done study about eight years ago that took people with similar diets, similar body composition, and allow similar calorie sort of intake per day. Allowed one cell of the experiment to drink Diet Coke. And what they showed in the study is that your body still produces insulin resistance. as if it was sugary really so you don't have the calories but your body thinks it's insulin because of some combination of the ingredients and taste and so if you spend all your life doing high intensity training and all these other things i do to avoid insulin resistance it was kind of silly to be drinking diet coke is inconsistent with the goals so i just stopped cold turkey literally i read the study stop cold turkey next day i've not had a diet coke in eight years wow literally not a single one i used to have eight to ten a day like you ask anybody no water Sometimes I run into people and they haven't seen them in a while and they hand me a Diet Coke because I was so addicted to it.

27:41Now I have green tea. Which kind? Any kind. Any kind. Green tea ice. Big matcha guy? And then I do have Celsius. No. Keith, that is worse than Diet Coke. It depends who you ask. Is it because you go to berries and it's there? Celsius is spiking your body a bit with caffeine. Doesn't it have heroin in it? It's a proprietary formula. Nobody knows. look at the can it's like a proprietary formula and the only thing they disclose they use that has one of the active ingredients in green tea oh my gosh or something geez have you tried 10 billion dollar company it's a big company yeah so maybe maybe you know maybe entrepreneurs should be innovating in that space too they should have you tried peptides no no peptides i have not tried any i do have friends who are experimenting with them they seem actually pretty interesting, intrigued with the results they're getting.