today's sponsor is audible dot com which is more than 100 and 80,000 audiobooks and spoken word. Audio products. Get a free audiobook of your choice at audible dot com slash decode recode radio presents, recode decode hosted by Kara swisher powered by digital media. Hi, I'm Kara Swisher executive editor of recode. You may know me as the only person who doesn't know who won the N. C. A finals, but in my spare time I talk tech and you're listening to recode decode a podcast about tech and media's key players, big ideas and how they're changing the world we live in, you can subscribe to recode decode at itunes dot com slash recode decode. And while you're there, leave us a review today in the Red Chair is Key three boy an investment partner at Khosla Ventures in a long time entrepreneur who have known for a very long time. He was an executive at Paypal in the early two thousand's and also worked at places like linkedin, slide and square. He joined Khosla ventures in in March of 2013 as invested in companies such as stripe,

health tap and T Spring keith, Welcome to the show. Pleasure to be here with you. You need to top Mammoth from our last, that's gonna be a big challenge, you're kind of mouth. So I think we'll be just fine. He's my inspiration is he, he should be, he's really funny, he did a great job, Let's talk about, you've been around a long time. You've been an entrepreneur, I like mammoth an entrepreneur and venture capitalist. Talk a little bit about your background.

I think people don't really know a lot about where you've been before you got to pay. So I had a pretty eclectic background, which I wouldn't necessarily recommend to other people who aspire to be entrepreneurs. Vcs, I started as a lawyer, went to law school, clerked for an appellate court judge and then worked for the canonical Wall street law firm known as Sullivan Cromwell. And then I hit escape in february because it's a horrible, horrible life. Well, I did in january of 2000, I built 365 hours to our clients that's build not worked, so that had something to do with it. But a lot of my friends from college had been involved in the first generation of the internet, which I really missed and they finally persuaded me to jump into this new novel world and I was kind of jealous actually reading about them in the magazines and newspapers. This is february 2000 and uh,

so I jumped in March of 2000 Exactly, so I have perfect timing the market cross, March 28th 2000, I think I started work on March 1st 2000 for a crazy startup actually that was trying to reinvent news, it's called voter dot com had been funded by a lot of top tier Vcs Carl Bernstein worked there full time. You remember that one, It was doing okay actually until the market collapsed for real and permanently in june and then by accident I started navigating my way back out here in november of 2000 when Peter thiel re became Ceo Of paypal. So Ellen had been fired and Peter took over September 25, 2000. And then when I was considering what to do as voter was struggling, I called up Peter and ask for advice. I met Peter yeah, I met Peter literally the first day of my freshman year in college when he was delivering at Stanford, he was delivering newspapers to my dorm room, literally personally delivering newspapers door by door across the entire campus. And so I have no idea but it's amazing,

you know how serendipity sometimes works. So in any event I wanted over time writing and editing for the newspaper, but long story, this is called the stanford review. Okay, this is the conservative, conservative, conservative, conservative conservative. I still am So in any event, constant surprise. Yeah, you gotta, you gotta defy expectations. But in any event I called and asked for advice and he said, well,

I can introduce you to a lot of people in Silicon Valley, but why don't you come join us? And so six weeks earlier he had joined, he had been promoted as interim Ceo of Paypal. Paypal was some he was bleeding a lot of money and had some emerged with X had fired the first Ceo is a guy named Tim Harris that lasted about a month, Ellen took over, he lasted about three months. Exactly, they're both giving away free money, $10 each to try the service and that Peter felt like that was a race to hell. And so they merged at least wouldn't have to compete on that basis. And then they had a challenge of like turning a very unprofitable business in august of 2000, the company lost over $10 million a month, which back then was a lot of money. I was losing money to fraudsters, had lots of internal challenges around brand and architecture and um,

Ellen went on a trip and was famously replaced. Peter took over Ceo and he wanted to upgrade various parts of the company. So he talked me into joining, you know, Iran originally what we euphemistically called business development, um, what that really meant at first was keeping Visa and Mastercard from killing us, um, negotiating with them and coming up with clever government oriented regulatory strategies to what was the, well, I didn't have a lot of choices like startup was collapsing. I left a very prestigious law firm which kind of works in lockstep basis. So once you get out of the world of elite law firms, it's very hard to go back to something my parents didn't understand when I was just kind of jumping off this cliff. So once I jumped off this cliff into startups, I had to make it work.

And in 2000 there was nobody hiring. Like the only companies hiring out here was netflix. Um, if you wanted to go down to Los Altos google if you had a PhD and that was about it, Ebay was still hiring and so I happened to be lucky that Peter wanted me to join Paypal. I also knew David Sachs pretty well from stanford. Um, so I had some context about what they were doing. The company wasn't doing that well, but at least to cut through the clutter were about the eighth largest brand if you measured at the time, but massively unprofitable and it felt like it was kind of a fun ride. I learned a lot do a lot and who knew what would happen. So max was there, I didn't know max when I joined, I didn't know read when I joined, but I obviously about them very quickly thereafter.

Yeah, it was a very good pool of people, which I didn't totally know, but I kind of triangulated from Peter and um David that they were probably hiring and recruiting and working with other smart people because that was sort of their D. N. A. And then I joined. We were losing a lot of money, Everything was going wrong. But very quickly Peter took control changed a lot of things and we got, you know in months to basically break even. Um, so originally I started with this one project then moved on to keeping Ebay from ruining our business, then moved on to assume control of corporate communications then took on some other projects and eventually came together, ran some power seller um, sort of management on Ebay and it came into a constellation of jobs basically,

that's why I had some fancy long title because it was just a pool of things that Peter found interesting and important but that nobody else was doing well, they just threw them at me and I became like the, you know, sort of recipients of Peter Yeah, Peter you know, famously had this philosophy where every person was responsible for one thing in the company And anything he was uncomfortable with the performance of, he was just assigned to somebody new or different and so I basically got a lot of Peter's projects and they just stuck and so that's what I did, fortunately the company went public after, you know, this whole like turn around and then even after going public though we decided to sell the company to ebay later in 2002. Well, a couple of reasons why there are well effectively the power sellers, a long tail fragmented sellers that sold on Ebay accounted for between 70 and 90% of our revenue depending on how you measure things. So obviously had a massive platform dependency on Ebay secondly, um, we didn't have a lot of traction in new markets back then,

this is before google adwords really took off and google became a home for small businesses on the internet, it was just barely starting to happen. So there wasn't a lot of great places to go, amazon was a closed shop at the time, like they didn't have a third party seller marketplace that was really thriving, they wanted 10% of our company to work with them and you know, that was a non starter, so we didn't have a lot of choices, we don't have a lot of growth areas, we were providing support for internet gaming sites, which the legal regime sort of changed under our feet at the time. So even that became, yeah, we were basically dependent upon Ebay and we didn't know how to fix that and Ebay hated us and was trying to kill us and we felt like we were doing well and stopping that, but all it took was one bullet like Reid Hoffman had a metaphor, which is just because someone shoots a gun at you five times and this is doesn't mean that the sixth bullet doesn't kill you.

So there was a point at which we were running out of potential, like the cat has nine lives getting nervous and so he decided to sell. So he sold his culture was very different than our culture and their culture was more of an NBA power point or consensus driven establishment culture, ours was an iconoclastic technical yeah, Israel Israeli culture, very confrontational, very much things decided by debate, vigorous debate, sort of type a personality, no power point whatsoever. And so there wasn't a good cultural match once we required, even though there's a good product matching market match, so most of the senior people left very quickly. Peter left the day the transaction closed. Reid Hoffman also left the day the transaction closed. David sacks stayed around for two weeks,

I stayed around for three. Roll off both as a partner at Sequoia made it for four weeks I think max made it there for about three months, jeremy Stoppelman for about five. So all the talent sort of left, you know, at one point roll off equipped that there is an inverse correlation between someone's ability and how long they stayed. Fortunately most of these people went on to do other interesting okay, so you're then did well, but without a job, I was without a job, so what does one do? I went back, Peter was setting up this thing called Clary, um which at the time was a combination hedge fund in the beginning of like what became founders fund and help incubate and invest in companies in 2003, you dial back your memory to 2003, almost no one believed in Silicon Valley,

there was gonna be another wave of consumer technology innovation and some people believe there wasn't gonna be any technological innovation Silicon Valley at all. So we were one of the few groups that were actually looking for entrepreneurs to fund and to incubate and so I helped peter do that for a year and eventually navigated my way into linkedin, which I had invested in back when reed was starting it, but actually joined full time job 1st 2005. Right? I remember meeting with him for the first time and it was, it just started, he just left paypal and he was with Matt Cohler, I think. Exactly. So matt was actually partially working with us aquarium and partially working for read and then Lincoln started to show promise. So Matt became a full time employee. And what did you do with Lincoln? Lincoln and I ran business development corp deV Again, we didn't have the regulatory problems in the competitive problems that people had. So what I'm mostly focused on was revenue creation.

So we created some alternative revenue streams like this targeted advertising product in this premium subscription product as well as came up with the idea of indexing your profile into google, which back then was fairly revolutionary. So we drove a lot of traffic to people's profiles, created a pretty good guy growth engine for the company. So it's kind of working on strategic projects. We did that for about 2.5 years and then linkedin hired a new Ceo so I decided to leave and do something different. He was sort of from a very different Yeah, yeah, yeah, the history, Yeah, I remember him very well with the Hawaiian shirts. So you remember this, so, and then you went over and did that very strange startup with max Levchin. Yeah,

so you may see a common theme. He's already apologized for it on the show. Well we learned a lot actually, there's some commonality, slide slide was a company that was building applications on top of social platforms, which is a very good idea in some ways, but you have a significant platform dependency, like, so we have this problem with Paypal which we were able to solve of building on ebay, it was more a little bit more difficult to build on facebook than it was to build on for a variety of reasons, a company of its time, let's just say, yeah, exactly that one. Not that many people remember, some people remember the apps like super poke,

remember column about this, throwing the sheeps, you enjoyed that? So we provided, you know, a lot of laughter and a lot of earth for a lot of people. Um, at one point we had, you know, 100 million or so, you know, monthly users, but it became very difficult for us to compete with the social games. Social games made a lot of money and they used that money to invest in facebook advertising and effectively facebook politics and yeah, and we, we kind of didn't want to compete on that basis.

That wasn't our D N A. We weren't very good at it, even if we did compete at it. So eventually the company was sold and acquired by google in 2010. Yeah. Well there was a logic I think the company just it took a little too long for the deal to consummate as well as integration afterwards. So the idea was to build a mobile photo sharing product. This is before instagram took off. So max's thesis that actually he discussed with like Larry and various other senior people at google was you could beat facebook which was one of the core you know sort of strategies of google and concerns at the time in 2010 by building a photo oriented product for a iphone and actually it's a brilliant idea turns out instagram actually leveraged it perfectly. In fact had instagram not sold. I really believe that they would be beating facebook right now. But by the time the original handshake between let's say max and the google team occurred to the time the deal closes the time the team starts working on projects six months went by and instagram had a network and it was exploding so it's a little too late. And then politics politics politics of certain S. V. P. S.

And I just I just had lunch with one of his least favorite ones. Very nice. It was a very pleasant lunch. So you then again out of a job. Well I was actually at google. They wanted they wanted a new york minute, they wanted me to stay to market this google plus platform was just about to launch and I took a look at the product and I said there's no way I'm personally gonna market this, it's not gonna work and you have to change this, this and this. But the train tracks were kind of laid down in a large company, like google moving around train tracks and something happened. Yeah, so well and I also had an incredibly interesting offer, you know, Gideon, you had put me in touch with Jack Dorsey said Gideon had led,

I spoke on a panel with Jack and I met him at a conference once, but I didn't know him very well, but Gideon knew both of us very well. Gideon had led the series a investment on behalf of Costa in two square exactly Youtube Youtube CFO. Facebook CFO. So I've known Gideon back to his Youtube days and he thought that Jack and I would be a good pairing. So he introduced me and you know, we have a series of lunch dinners, breakfast whatever and decided to work together and so that was an incredibly, you know, attractive opportunity compared to staying at google marketing Google plus, so I decided to do, it was a big leap of faith product launch square head and launched. There's no users whatsoever, looking a little like Zelig keith, what's the sort of there and then these mogul people,

you're there helping the mogul people Yeah, I've created a lot, little bit of ability to work with people who are very passionate about what they're building, if you think about who I've worked for in Silicon Valley, peter, thiel, david sacks, reid Hoffman max and Jack Dorsey, and there's some common denominator, there's like doug stamper on, I just want, I just binge watched the house of cards, I hope you don't kill people, I know I haven't killed anybody yet, but I thought I thought about killing people, I would imagine so,

but you've been there sort of help are almost, do you ever, is that sort of your quality or do you feel like you didn't want to be a ceo, because we talked about it, I remember when you were, I think actually working with someone has a vision of what they want to build is a, is a great job, especially if you share the vision, I don't think it's a good job at all, if you don't share the vision or believe in the vision or agree on first principles, but if you do empowering someone like that to be successful and push the envelope in a way that actually works is an awesome opportunity, so I've been lucky enough to be able to work with people like that and hopefully help them fulfill their vision and so that's a sort of a great opportunity, it's a certain skill set of, you know, working with someone who's very energized, extremely focused,

has very strong views, but not necessarily just doing what they want you to do because I don't think you have that much value then it's like having a filter, but being able to work with much convention paint, not the main person, like it's interesting cause there's a lot of, a lot of people who are successful are successful because the people around them. Well, I think that's true of all companies, we have an adage at coastal ventures, which is the team you build, is the company you build. So one of the most important things I think to be successful in Silicon Valley is to be able to recruit talent, especially in a hot market, which we've seen for the last five years. The only way you're successful is by being a magnet for talent. So identifying talent,

recruiting talent, working with talent enabling talent, empowering talent is one of the first things Peter taught me actually, literally, my first week at Paypal, we went for a jog around the stanford campus, he was kind of asking for feedback, what do you think of the first week and he sort of explained his whole management philosophy And the most important part I remember. So this is from November 2000 was ultimately you can't hire people who are super well established cause every other startup. The googles, the Facebooks will outbid you with money, you've got to be able to find people that are undiscovered and that's the core ingredient for a Ceo and a core ingredient for a startup is be able to find those people assess them when the rest of the world doesn't know how to assess them yet. Yeah, that's very true. Alright when we get back we'll talk more about that with keith right boy who's a well known entrepreneur and investor in Silicon Valley of startups and now he's at coastal ventures. If you're always on the go like myself and don't have time to sit down and read,

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they only have lawyers with 10 to 25 years of experience, which means that you're going to get personal attention from a senior lawyer, not a junior lawyer getting on the job training. They also encourage fixed fees because they believe that when lawyers bill by the hour it rewards inefficiency. So check them out at walker corporate law dot com or you can call the founder scott walker at 4159799999. That's walker corporate law dot com or 4159799999. We're here with keith right boy, a well known Silicon Valley entrepreneur and investor and all kinds of things you do, you're kind of a jack of all trades were just talking about how to succeed sort of behind the scenes at companies, Let's finish up with your career, went to square and then left. You had a difficult leaving of their, which we won't go into in great detail cause I wrote a lot about it more than I wanted to but why did you want to go to somewhere like square? What was the, well the attraction was obviously knew something about payments. My.

Paypal roots, you know we're actually useful. So the Venn diagram overlap the company was looking for was someone who knew something about the financial services world and who was still innovative. That's a very small diagram overlap. So they had struggled for a year to find like a partner for Jack. Um, and then I happened to be one of the few people that actually had the right combination. Yeah, So it was very attractive to me. I took nine years off of payments mostly because I remembered a lot of regulatory regulatory nightmares, competitive nightmares. A lot of sleepless nights. Let's put it that way during my paypal days. So it took a long time and in fact, half of my friends thought I was crazy the day it was announced publicly that was going to square. I literally got texts and messages from half of my friends.

I thought you're insane. Why are you going back to payments? That's such a boring industry. It's so commoditized. Yeah, Now it's super hot. Well partially I think it's hot because Square did a really good job of creating a brand and creating something that was different that consumers really loved. In fact, one of the days, my second week on the job, I actually saw this twitter stream that Jack, not surprisingly had in the office of all tweets about Square and we got permission to ship our 1st 10,000 squares. So it took a year to get permission through the various parties that be to ship these 10,000 squares as a pilot and once we ship them to all 50 states we saw the tweets rolling and people were jumping up and down with glee and I looked at this monitor and I remember walking over to Gideon who had just visited the office on that friday and said you know what, this might actually work. And he's like what do you mean? And I walked him over to the monitor and showed him all these tweets,

I said this never happens in financial services, can you imagine any bank getting a reaction like this? So as soon as I saw that like love and the reaction to the design and the brand and the quality of the product, I thought we had something special which turned out we did but I didn't really know that when I joined. So I thought it would be a kind of a fun ride, it would be a challenging role and you know, combination of all the things hopefully I learned from these various other people that had worked with and that's what it was was a great test of that. And what was Jack Dorsey like he left twitter at this point, he was sort of in that weird limbo land. That's true. So he started the company about a year earlier with a co founder Jim McKelvey um solving a problem, you know, they had worked together back in ST louis and he was pretty passionate about it and wanted to build a company from scratch like and he built it in his own way, which I think is a great opportunity for anybody to take advantage of all the things you've seen, you've seen other people do and rather than inherent that inherit that in those decisions rebuild from scratch so squares really Jack's company. Um so back then,

the, one of the most interesting things I remember was the day I showed up for my first interview, he was wearing a Yankees hat and which is very inconsistent with his current style, but he was wearing a Yankees hat, which is a good omen because I'm addicted Yankees fan for like 40 years. So we talked mostly about the Yankees for the first half hour and so I knew I was going to take the job as soon as that that conversation ended, that's how to make, to make a decision based on a hat, good job. Um, so you left square and you were deciding what to do, there were a bunch of possibilities. Why did you take, you took a moment because you were going to go to some companies correct? Well I decided to compare. So I'd always kind of wanted to be a VC like I grew up in an era where we talked about it sort of,

you were like the dark side, you made fun of Vcs. That's true. So I grew up in an era where being a VC was aspirational for entrepreneurs. So I knew I always wanted to be a VC as you know, I was very active angel investor who was the first investor in like Youtube invested very, very early in Airbnb and a bunch of lift very a set of really good company, not Uber unfortunately, but you can't win them all. But in any event I've been actively investing for a very long time. And why were you doing that? Just because you had some money on you? Yeah. To help people, sometimes it's about helping specific people. So a lot of people invested in were ex Paypal people like Youtube or Yelp or Pelletier.

So common D. N. A. And helping them propel them. Secondly, sometimes you have an ideological perspective on you want to propel the world forward in a certain way and I think it's good. Um so I found that interesting. I found it intellectually interesting to keep sharp when you're in a company, you have almost no peripheral vision, You really have to be focused on exactly what you do and just master that and by at least getting involved in meeting with people who are solving other problems and tackling other challenges. It kept me like mentally aware and so I enjoyed that mostly I was investing very very early. So I tried to be the first investor everywhere I could and that meant basically $6200 which is pretty typical actually in Silicon Valley. The thing I, the number one criteria was always people. So it was very similar to hiring in that sense as I was helping train my brain of finding and identifying extraordinary people because it's the extraordinary people that really propel startups forward. Once you get success,

then you fill in with very talented people and just normally great people. But it's the extraordinary people that really create the initial value because you, you have to invert inertia, inertia in the startup is very bad. Like no one uses your product, nobody wants to use your product, nobody thinks about your product and so you've gotta in alter that. And that usually requires some heroic effort. So I think by investing I got better at predicting who is likely to be extraordinary and then use that while I was recruiting for my own companies and for myself. So it was kind of a synergistic experience. But that gave me the license to be a VC one day because I had a track record of the closest proxy for a VC as angel investing. So you know, and not surprisingly, that was an option. That was, so I went to had the benefit of having a coastal partner on my board for seven consecutive years.

So David Weiden was on our board at slide. So I knew him really well and then Gideon and Janet had joined the board. So I knew him through my experience of running board meetings that square. So I think that's what led to, you know, a very strong relationship both ways. They knew me as an executive for seven years and I knew two of the three senior partners at coastal a very, very well. So I think that was an easy transition, but I definitely considered, you know, joining another company. I mean there's, it was reported about, but there's a, there's a few but I ultimately decided that the companies that I was most interested in.

No, it wasn't twitter, but there are companies I was most interested in had a lot of traction, which is good because there's a lot of levers to control and move and it's a great sort of resource and a great opportunity, but it wasn't like building from scratch and I was inheriting a lot of things and a lot of values in, in the founders own vision and I thought it would be better to go early if I was gonna do a startup or start my own, which turns out we were able to do. So one of the compromises I made is what I joined Khosla was, I didn't want to lose the energy and the adrenaline rush actually of running something and starting something and the stress of that. Like I need some sort of an adrenaline junkie and I need a little bit of that in my bones and being a VC remember visiting at the office and I have that nice. Exactly. And you're like look a nice deck. I'm like, oh my God he's dead. So being a VC is more like being a chief psychologist. So we have an office,

you sit down, you ask people what their problems are. Exactly. So I need something to stress about. So helping create a company on the side gives me just enough stress. But then being a B. C. Has a lot of great attractions so you put in money and stripe and yeah, so we invested in stripe after I joined coastal ventures. We, you know, I love what they're doing and the team is phenomenal. Several of my former colleagues and Friends work there but the most payments area. Yeah, exactly. And I was also on the board for 12.5 years of a company called Zoom which went public and it was acquired by paypal.

So I've been, you know in and out of payments for a while that I don't think of myself as a payments person. But at Khosla, one of the best things is you get to work across the broadest possible set of topics if you're a D. D. Being a VC is an awesome job because every meeting is different. The company's market is different. The problems, the company is encountering the stage of the company. It's like getting to read world book encyclopedia all over again every single meeting. So one hour we'll talk about databases that next hour we'll talk about robots and rockets and then payments and then photos and so it's all over the map. And I've always been intellectually curious. So for intellectually curious people, being a VC is probably the perfect job in the world. And then secondly, the people you work,

the people you work with, the founders, you back, even the founders you don't invest in, but you seriously consider are incredible. I mean, just incredible talent, ambition drive all of those tenacity. All these characteristics. You don't have the ratios you have in a company, you just work with the most awesome people on the planet. Isn't that kind of like being a lawyer? Same thing is like you're not doing it. It's not yours, you do have a stake unlike being a lawyer, we just paid per hour.

Usually this is actually, you have, you know, you have a real econ atomic stake in the company thriving. Um, so, and you join, we're pretty active investors. So we often join their boards. So we're pretty involved. Like there's companies I work with that I meet with twice a week, there's several companies that meet with every week. So you can be part of the team. It's still not the same as being the leader on the team, but you're part of the team. So I like that and it's sort of like,

I know you're not a basketball fan, but working with working with entrepreneurs. Like this is like learning to play basketball by playing with the NBA All Star team. It's not a representative sample of the human population. But if you like like working with super high energy, super ambitious people, the questions they ask you are by definition incredibly challenging. Like if it was an easy question they would already done it and the answer would have been very solved, the company would already be doing X. So when they walk in with this piece of paper and this checklist of questions they want to talk about. These are like the hardest questions on the planet. It's a great entrepreneur than when you're looking for a combination of a couple of things. I think paul Graham wrote a great blog post in 2009 called relentlessly resourceful. I think that's the most important criteria is one way or the other, they solve a problem so they can go over that wall, under the wall,

through the wall, make friends with the wall. Obviate the wall somehow. Somehow or another. Exactly. Somehow another that wall is not going to exist in their mind. And eventually in reality that's number one I think raw I. Q. Does matter because I think you're solving problems that most people either don't see or can't solve and that's usually a function of horsepower times tenacity you take about like just pure ability, times tenacity, that's the number number one combination that's most powerful and then third is they have this concept of an idea maze that Bellaghy wrote about or talked about in a stanford class, Which is they really understand how to go from beginning to end and all the trap doors and the hidden treasures and they can plot that out for you and they just see it, they see the future. One of the most amazing examples recently have you Reread Helen's blog post from 2005? You reread it literally everything in that. He did a Tesla is in that blog post from 2005,

it's like perfect. And so he has a lot of these characteristics conference. I will read it before, you should read it before and ask him about it. Every line is just beautiful. It's rare. Yes. Well, you know like a lot of people, well a lot as you know, a lot of the best entrepreneurs learned very, they have a high velocity of learning so many of them struggled in their first job and I just remember a jerk with the Porsche and then he became really smart, like he was smart the whole time, but it was really a different personality, People learned lessons and you know, everybody makes mistakes and you learn lessons from that.

It's a curriculum that it's very difficult to prepare for this kind of curriculum of running a high growth startup back then there wasn't a Y C either. So there wasn't like a graduate school class, you could take that would get you up that learning curve really fast. You had to do it by trial and error. So I think a lot of founders actually who are awesome and incredibly talented made mistakes and some of them actually got fired and then had to come back and you know, fix everything and they're much better now, but the great ones, ones that improve and Mark Zuckerberg comes to mind the rate of improvement, like one of the things I'm always looking for is when I meet somebody, what's the rate of improvement and you can't always tell because you may have to make a decision week and so you don't see all those dots on the line of the rate of improvement, but if you know someone for a month or a year or several years, you see that rate of improvement, It's just awesome. All the great ones were here with keith right boy, an entrepreneur investor, he's at Khosla Ventures and we will be right back because I'd also like to tell you about recode media

cara have to be kind of quiet because I'm coming to you from Samantha Bee's office, which are oddly in a BMW dealership on the west side of Manhattan, but whatever it's where the funny is, we had an awesome conversation that's going to be up in a few weeks in the meantime we have other awesome interviews. Jason Hirschhorn is going to tell us about his near death experience and also how to build a cool digital business based on other people's work, it's called curation general Wortham was going to tell us how she got this great job with New york Times magazine, writing about things like iphones and queer culture. Oh my God, frank Rich on this week. He's great frank. Rich is the guy who used to be the drama critic at the new york Times, you would know him from that and he was the culture critic for the new york Times. Now he's all about politics critic at new york magazine and I'm in particular sort of a Fanboy for him because he helped make veep, which is one of my favorite shows. It's on HBO this week. It's hilarious. It's mean for some reason you're not watching it.

You should, we talked about all that, you should go to Itunes. You look for me, you look for you, you can subscribe everyone's happy. Thanks Kara,

We're here with keith, right boy, an investor and entrepreneur. He's at Khosla ventures now, but he's been at a zillion company. Seems like all of them. We were just talking about what makes a great entrepreneur. What makes a great B. C. And what's wrong with venture capital would you say? I mean besides the fact the gender disparity, the everything display all the differences. So I think venture capital is just a very challenging job to start. I mean, you know, you've heard the famous adage that if you basically bat 300 you're like a Hall of Famer. So that explains the challenge.

I mean when you're investing in venture capital as opposed to growth capital, you're working with very raw ideas, very raw companies, very raw founders and trying to project the future and getting that right. Just some of the time is really, really hard in a very efficient market. Like it's extremely competitive. I have very smart competitors left and right. Like all the people, all the best people I've ever worked in my career, like he sees almost now and I can be with all of them like Peter and Reid Hoffman and, and matt Cohler roll off all of these people are somewhat competitive with what I do. So you have to compete with like some of the smartest, most talented people of a generation and it's just a really hard challenge to project from the proverbial two kids in a garage, what's going to take over the world. So that's one fundamental just challenge with venture capital.

Second thing is in a very hot market, one of the ways you create a paypal is by assembling a critical density of talent to marshal a lot of talent and hold these people together for a long time and you build amazing things and Apple amazon are great examples of that. That's extremely difficult to do in a super hot market where everybody thinks they can be an entrepreneur and everybody throws money at them because they always think the grass is greener somewhere else. So it's very difficult. It's been very difficult to be an ambassador over the last five years and be super successful because of the propensity of talented fragment. Now that the world has changed, I believe very strongly that the flush of money chasing entrepreneurs has changed starting last summer more conspicuously in the fall and winter and that right now it's not quite as easy to just start a company and get a lot of money or start a company, raise a seed round and then get a series or keep the company going as we're seeing more in the public domain. But things take a while to ease. Why is that happening? I don't know exactly why people point to the public market corrections, but that's not a fully explanatory, fully satisfying, satisfying answer. Surely the public market corrections which have roughly discounted the value of many companies by 40-50% have affected how we do our job and evaluations that entrepreneurs can achieve. However,

most of these companies also can't raise money at any price and that doesn't make sense. That's not a function of just a market value compression. It's actually a change in the philosophy, how investors are looking at investment opportunities, basically there was a fear of missing out dynamic. That was driving a lot of investment decisions in the last three years since I started being a VC and now it's shifted to more of a default state of no proved to me why I should invest. So my inertia, my colleagues inertia, our competitors inertia tends to be default. Yeah, I mean the extreme, there is an extreme, like it's sort of an over steering, you know, john door once coined this great adage, which is Silicon valley,

you know, sort of flows between fear and greed and we're more back into fear mode than the green mode the moment and that has a lot of driven consequences. But some of the consequences are actually good. So I have, for example, more time to do diligence entrepreneurs used to expect me to make an answer on the fly that's not necessarily healthy because sometimes we'd be wrong. Now I have weeks to a month to seriously evaluate almost any company that you know, sort of presents to us and I can dig into the backgrounds of the founders, into the technology, into the market, into their cohorts, the user behavior data in a way that was very difficult to do 22 years ago in a compressed period of time. So hopefully we make smarter decisions and the money is routed more efficiently to better entrepreneurs. What about what's happening with the current company and you're on the board of yelp and talked about to be bought. All kinds of companies are starting at the same time, the Ubers stripes and others,

the world get a lot of slacks get a lot of money. Talk about, you know, why is a yelp in a situation because it could be slack in a couple of years. I mean, so yeah, it's an interesting story. So I spent 9.5 years or so on the board of yelp sending the company pretty well. I think it's personally, I don't know any shares anymore, so I don't have an economic incentive saying this. I think it's wildly undervalued. I think it's still, the monopoly still is a monopoly for making decisions on local purchases for normal americans and actually some parts of the rest of the world and there's no other way that currently exists on the market to make decisions about where to eat, where to go out for drinks, what plumber to use,

that's at scale that you could use every day and help still is. And so I think it's really impressive. I think in travel, there is a, you know, alternative that's done very well, but I think fundamentally, yelp has a monopoly on content that's useful to normal americans. It's a perfect example of something with yahoo. There's someone who is one of the investment possible buyers who was talking to yesterday and they were saying, well, it's just a big Mac, but there's not many, billion user in the world so that you're buying mass scale. So the difference with yelp though is, I think the content is decision worthy and that is a very unique sort of franchise.

Whereas yahoo has a problem of what its vision and what its place in the modern world isn't really clear. Like why would I have a yahoo app on my home screen? I can't even file them having a yahoo actually on my home screen on my phone. And if yeah, who doesn't have a place on my home screen in the modern world, that's not a very valuable place to help. Actually has a lot of power users that have yelp on the home screen and in fact that that iphone app is driving something like 60% of all yelp searches and so that's insulated them from some of the, you know evil desires of google because people aren't dependent upon using google. It is, it should be a great movie, it's the european version. We can, you can have Luther on your show and you can tell you all kinds of stuff but anyway, I think helps. A great company. I think it is doing really well.

I think the economics of the business look very attractive for what I can tell. It's clearly being penalized and I think it's being penalized, google is trying to do more and so there's a discount there. People think that facebook is going to do more and local, maybe, maybe not, maybe not successfully, but there's some discount being applied but then at the same time companies like Uber and stripe and others Airbnb can do no wrong, which makes some sense. I mean it's a bit of tell the way I would think of it now as an investor financial investor is it's a bit of tale of two cities. I think the companies that are doing phenomenally well are going to be magnets for capital and the companies that have slight flaws in their metrics, slight flaws in their team are going to suffer. But if you can get to this massive escape velocity where you're a magnet for talent and people see the future. Airbnb being a great example, slot being the current topic of choice. I think pictures somewhere between,

I think Pinterest does have a lot of users does have an incredible audience. I think it's doing a lot of things really well. It's clearly worth a lot of money. The question is, how much is it worth it, sort of like the twitter question one can love twitter and think it's an incredible product in changing the world every day, which I really believe and still think it's worth $11 billion. That's not an indictment of twitter to say it's worth $11 billion. Most companies, companies, I think. Yes, no, I think it's, I mean look, it's a challenging job for anyone.

I think Elon said this thing is awesome. I mean personally it's, it's a perfect product for me is using twitter and the NFL together. I'm not sure all my friends reading me on twitter are gonna love this, but we'll see about that. But I, I think it's a great idea. So Rupert Murdoch pioneered the idea of using sports to switch normal people's behavior. Sports is one of the few passions that to a lot of people in the world americans, they will actually change what they do to get the sport of choice to direct Tv had the NFL ticket, you know, kind of an exclusive basis and people would insist upon having direct tv because they have to watch the NFL team. Same thing was true in europe did this with the BB something satellite for, you know, soccer matches. So twitter could follow that metaphor.

Certainly it's very murdock asked, are you feeling good about the environment or worried or I'm worried about companies and were certainly involved in some that have a very high burn rate and have raised a lot of capital. I think if they're early stage companies and they're run very efficiently, I think there's great future and technology like it is inevitable that technology plays a greater part in the world and in all of our lives over the next 20 years, like I think there's no doubt that kind of being on the right side of history being an investor in technology is a great thing. Like clearly true that said, I think the companies that were raised in the last generation where oxygen for as a proxy for money was cheap or free have built in some cultural disadvantages that are hard to change, I think. And therefore, yeah, effectively like that actually. And some of them do well, right. Just like some trust fund kids, their parents taught them some really strong values that made them get a job delivering pizza. You know,

there's definitely some trust fund kids that are incredible. But there's some bad things that come with inheriting a lot of money. And the same thing has been true of people who built a company where capital was basically free built a high burn rate with a lot of extraneous features and didn't realize that that's not sustainable and the world's changing on them very quick. And so the faster they realized that the landscape is changing all of our company. We've been urging in that for a while, but fundamentally it takes time and so much appreciated right away. They snap their fingers like moving levers around their editing things and then some weight and those ones with a high burn rate, that weight are gonna have challenges. Right? So the question you said at the beginning, you're conservative. You're also gay to correct. What does conservative mean? Like you hate yourself? Are you a trumpian? No,

no, no, no. You obviously haven't been following me on twitter, not your political, probably the most vocal anti trump person in the valley. We'll compete on that basis. But no conservative means I don't believe that government does things well shouldn't be doing many things, doesn't do the things it does do well. And so I believe that, yeah, that totally libertarian because I believe there's a role for strong foreign policy, strong military to protect us. Yeah, there are actually. And I think being naive about that is,

is very dangerous. So I have an odd combination of free market libertarianism mostly internally in the country and they're very strong military, strong, robust foreign policy. Good question. Mostly by reading growing up, I was very interested in politics actually, a little bit of a reaction to my parents were very liberal. So I grew up like, yeah, a bit like that. I had parents that were kind of democratic activists involved in things like common cause. And then they told me how bad the world was going to be when Ronald Reagan was elected, they thought he was gonna blow up the world in a nuclear holocaust that he didn't like jewish people all these like, you know, kind of crazy ideas and then he got elected and everything got better,

at least from my perspective and sort of sort of undermined this whole world. You're such a disappointment. You know, they really, we have trouble socially, socially liberal. Would you say, what do you think's going in north Carolina, you have to have an opinion about like paypal just pulled out. I saw that. Look, I think there are benefits of allowing people to do what they want to do and that includes people that do dumb things too. So I don't have like a rule that says everybody must adhere to my social views about the world, but I'm mostly more libertarian if you ask me, but I have some quirks in that. Like I believe in capital punishment.

I believe there are evil people that actually need to be executed for a variety of reasons. So I have like, you know, an odd constellation. Yeah, but in north Carolina, you think that companies should be standing up and saying no, none of this. I think it's great because that's a free market reaction. So, one of the things I like about this is it's actually not a government. Yeah, it's not, it's not like they're right, but I like the idea that businesses that businesses should choose and business leaders should choose where they want to do business and the environment in the jurisdictions that have the most attractive laws and that can be a low tax rate or it can be a gay friend. You know,

gay friendly, tolerant society. Whatever the case is that people should move to jurisdictions and companies should move to jurisdictions and do business with a good enough reason to do it because it's the right thing because, you know, we talk a little bit about that, you mentioned a lot of venture capital that all men should there be more of a push to be more diverse, should be doing things just because it's the right thing to do or not. Well I think it's ultimately tested by performance. Like I believe in merit. I mean that's the reason why I'm conservative. I believe ultimately you get valued just like you do in baseball, you have a batting average and slugging average, et cetera. And if you're really good you get in the hall of fame. I think that's true in venture capital. The problem is there's a long feedback loop.

So it'll take me 20 years to figure out how good it was. So the question is what do you do with that? At the end of the day though there was going to be an accident why next to my name, X dollars invested in. You may be missing out on your advantage is that you don't even realize you have. That's true. You know, I think there's I do think it's a fallacy in silicon valley. They think it's a meritocracy. It's just not, it's I call it a meritocracy. You're successful because you're successful because you're with people that think your success, you know what that's true. But the people in it don't realize that I agree with that, but I agree. I think that that is true of every single field I've been involved in multiple fields in my life and every single field is like that.

There's no field and no human endeavor. People strive to change it just to get to bring more diverse people in different ages, different genders different or no, just no, just the way it shakes out. No, I think people should look for competitive advantage. So we would absolutely love to hire so diverse. If it led to better investments, different opportunities that would be successful. We work out all the time, believe it or not, we were recruit well, I have trouble. I mean you may not, may not believe this,

but it's really hard to convince people to be venture capitalist today. Most of the people like we want to recruit don't want to be Pcs and people want to be CS we don't necessarily want. Like as I said, I started this whole conversation by saying when I grew up, it was aspirational to BBC. If you talk to founders today, it is absolutely not aspirational for people, especially the next generation. But I mean we are fairly diverse in a different sense. So if you think about RC four senior partners, two of us are jewish, two of us are indian both immigrated. We have, you know, asian partners. So we have a pretty broad,

we have gay partners. Straight partners. So from a religious standpoint, from a nationality standpoint, from a born in the United States standpoint, we have a fair amount of diversity. It's not perfect, but we recruit a lot and You can't force someone to do this job. Unfortunately there's a 13th and 14th and 15th against indentured servitude. We can we can we can hire you. But you'd say no, right? I couldn't sit in that office. That office scared me. I gotta tell you, I was like,

get me out of here lunch and like a beautiful view and I was like, let me know. I don't know why I put on a pair of khakis and an oxford shirt. No, you've seen bending in our office. He's definitely not wearing out of time. But we definitely are psychologists at the end of the day. Like it's a consulting personal services business. So someone sits down next to my chair and I say, so what can I help you with? And then you know, what are your challenges? And then I basically say, well, have you thought about this? Have you talked to this person?

Have you tried this? And that's really the job. Not some people would like that job and really enjoy it. Other people need to have the levers under their control. And then other unsatisfied last questions we gotta go, um what do you think is the most under hyped area? And the most overhyped very quickly overhyped, possibly. VR partially because I only believe that it may only apply to entertainment, which is a big world and utilitarian, very professional business to business transactions. I'm not sure it's a mainstream consumer activity and then under hyped is still probably the replacement of human judgment with computers, not necessarily human labor. Human judgment. So I mean lawyers, doctors accountants like the high end of human decision and she said we're not gonna need radiologists and we've invested in a company that already has proven that they can read x rays better than humans.

So is that judgment or? Yeah I think that's judgment. It's an easier judgment cause there's what's known as a training set. So there's an objective diagnosis that you can train a machine against the softer judgment. Like a law firm. For example when they write a brief it's not clear how you grade that brief because there's no canonical right answer to the best possible brief. That's much harder being a lawyer. Do you regret leaving mom? No not at all. So after B. C. What you gonna do? Um maybe if I ever do something else will be in sports. It's a hobby of mine. You know passion of mine. If you follow me on twitter I can't stop talking about sports.

But that's a very Different world. If I had grown up 20 years later. So if I was 20 years younger where you can combine math and insight into sports I probably would have went down that path. But I grew up in a generation where yeah analytics and insight based upon math and data as opposed to opinion. But when I was growing up all sports were dictated by a opinion by people who had expert judgment coastal ventures. We don't really believe in expert judgments. That's why we're doing this real estate startup an open door. We believe that we can price a home without any humans better than an agent. And that's that's what we're allowing people to do. We've invested in a company called Utakata that starts being a tool for lawyers, but over time allows you to Weed out some of the worst parts of practicing law medicine. We invest all the time in software that makes doctors better in some cases replaces the need for doctors. So I think we love that theme and that's gonna play out over the next 20 years. So that's the biggest area I think of under investment. People think robots are replacing you know, hourly wage workers.

That's not that's not what we're investing in. We're investing in human judgment is fallible. There's a lot of studies about how bad experts are in any field and we're trying to make math, you know, judgment. So if you're gonna be a doctor in the future, if your kids want to be a doctor, don't have them study biology and chemistry, how them study math and statistics. Perfect. That's a great movie. That's incredible movie. And also just the tenacity of the people who made a lot of money and the contrarian thought like that's actually a very inspirational movie to me as an investor because it would have all the dynamics that made me feel like me. I felt good about being me when I made calls on some companies. That was awesome. Anyway,

thank you so much keith boy, What a fascinating conversation and we'll see where you go in your next career. Thank you very much for having me. Thanks a lot. If you enjoyed the interview as much as I did, be sure to subscribe to the show, be the first to listen to future episodes or catch up on previous episodes, including some really fantastic interviews I've done with max Levchin, Lena Dunham and and whiskey. Just to name a few, you can find all those interviews and more at recode dot net slash decode. Now that you're done with this. Why not try one of our other podcasts. Recode media with Peter Kafka comes out every thursday on Fridays. I host to end ask along with Lauren Goode of the verge and on recode replay. You can find audio from all our events like the Code Conference and Peter Kafka's Code Media.

Thanks for listening. This has been another episode of recode decode. Remember to subscribe to the show and leave us a review at itunes dot com slash recode decode. I'll be back here on monday with another great guest tune in then. This has been recode decode hosted by Kara Swisher powered by digital media for more hard hitting interviews with insiders from the world of tech media and politics. Subscribe to recode replay on ITunes featuring Candid conversations with leading voices, like a O L. Ceo tim, Armstrong Goldman, Sachs's Ci oh marty Chavez, The team behind the hit Tv show, Empire, Shark Tank investor Mark Cuban and presidential candidate Hillary Clinton. They're all on recode replay.