Drum major of the Miami parade

Keith Rabois and his next contrarian bet

Keith Rabois is one of those Silicon Valley veterans whose past precedes him, obviating an introduction. More recently, he’s been one of the biggest public supporters of The Whole Miami Obsession that has overtaken techie Twitter. I caught up with him via Zoom as he (what else?) drove somewhere in his new (and my former) hometown of Miami.

As one of the few people who kind of knows Miami and has written about it, and is also part of Silicon Valley, I have been getting so much inbound asking me: is the Miami thing real? And now suddenly I’m in something like four different groups about it, discussing just this topic. I'd love to get your thoughts on it since you sound very bullish on it.

When I announced I was moving here four weeks ago, I would have put my chance of success at like 5-10% . And now I would raise that to 20 to 25%. I told the mayor this last night at dinner, that this is somewhere between 4-5x more probable now. One of the reasons I’ve raised odds so much is that when you’re starting up, a good startup needs to ride other people's waves, to some extent. You can't change the world completely by yourself, there’s just too much inertia. There's a massive amount of momentum behind this.

And I don't believe that it has to be an immediate success. Many things take time. How did we go from boring orchards to the Bay Area tech scene? It's very comfortable for me to think in terms of 10 to 12 years. That’s the time horizon for just one fund, for example. So I think the investment in Miami will pay dividends or is getting increasingly likely to pay dividends. And especially over the extended timeframe, I have found it incredibly easy to convince people to try it. One of the reasons why is the opportunity costs during COVID of trying a new geo are significantly smaller.

Certainly the investors are very willing to move here. If you have a thesis about how much location matters in the history of Silicon Valley, it matters a great deal. Sand Hill Road is about the most boring geographical location on the planet. And the only reason people know about it is because a bunch of venture capitalists co-located there 40 years ago. So some of the high-risk, high-reward venture capitalists are here. Some publicly announced, some not. But I have partners from many, if not most, of my real competitors here now. I don’t think the venture capital community is going to be a limiting factor here. There are entrepreneurs who are already entrepreneurs that are moving here. Like, for example, the CEO of Cameo just moved here. For companies that already have momentum this is already happening. Will the next generation of founders start their companies here? Can they be persuaded to start their company here? I think there's different ingredients and not just one equation. I don’t know if we’ll have an answer for a while. It’s a work in progress.

Obviously, capital can move anywhere. And to the extent everything else is done via remote work, then sure, Miami could be a thing. But what I really wonder is if you can see startups blooming here. In the New York startup scene, for example, you know, there was some obvious crossover with some of the legacy industries there around media and ad tech, rather than just like importing founders, and oh by the way, the weather's nice, and the business climate is nice. Do you see any of that possible crossover happening in Miami?

I did two real-world meetings today, which is about equal to the real world meetings I’ve done in nine months of Silicon Valley. My meeting today is a crossover company. It's a boring business-to-business kind of company, you know, legacy finance: understanding the plumbing, the invoicing, and all those details. That’s definitely here.

I think there's a lot of healthcare innovation here, which I actually like, I like to fund healthcare. So that alone might be an area where I can double down without any complete transformation of Miami.

I think building engineering culture will be harder. I’m less convinced though we need a massive engineering culture here in the short term. I do think you can get designers to want to be here. This is a much better place for designers. The sense of art, style, and design here is so much better than Silicon Valley. It's why I wanted to move here personally, as it’s something that's important to me. And there's none of it in the Bay Area. So I’m pretty excited about that. And if you can get designers here, you can certainly build iconic companies like Airbnb or Square, which are more design driven than engineering driven.

I think that's an easier starting place. The designers, whether they're in New York, whether they're in the Bay Area, whether they're just recent graduates, get them to come here and then build around them. I also think you can build companies that require less engineering. So Cameo, for example, I don’t think they’d mind me sharing, it's basically only 50 engineers for a billion dollar company. So you could build that sort of company here. If you need 1000 engineers, though, that might be a problem.

Miami has changed a lot. I basically bailed for 20 years, and then I had family health issues so I went back. And I was just shocked at how hip it had become. Someone else who’s a prominent VC in tech, who like me was also raised in Miami, shared with me the same reaction after going back. Miami back in the day was definitely culturally cosmopolitan in its own way, but it definitely was not part of the New York/Los Angeles/San Francisco global continuum. And you go there now and it totally is and then obviously, you have things like Art Basel or Wynwood…

We actually recommend companies be based in Wynwood, I think it'll be like, a better vibe than most of the choices in the Bay Area.

It reminded me of SoMa a lot when I went back, actually. So I could totally see that taking off.

It would be better, it would be like SoMa meets the Mission, but without the issues you get in San Francisco. And you can live in biking/walking distance away, there's decent housing just north. I think that there's so many advantages here, that people appreciate it when they try it. And it allows the cost of trying to be almost negligible. I can bring engineers who are employed but already working on their next startup on the side. If I get them to visit me for two months, and they like it here, then what the hell, why not start it here? COVID just allows for things that would have been very difficult to jumpstart before.

Well, one thing that you mentioned that I think is important is that COVID means the opportunity cost of moving here is relatively small. But that may well disappear one day. And the other of course, is summer, which in Miami is not quite as delightful as winter. And I say that having spent many summers there….

I grew up on the East Coast with some degree of humidity, like I grew up in New Jersey, worked in Washington, DC, where I had to wear a suit as a lawyer. But nobody in technology wears suits. Part of it's like the clothing you have to wear to appear formal. It affects you differently if you wear shorts. Also, being in Miami, where there's a couple months of humidity and a temperature that’s not even that high. And when it’s bad here it’s pleasant everywhere in America except like Vegas or Phoenix.

Right. Well, that’s why AC was invented. Singapore does pretty well, even though it's also kind of humid and tropical.

Yeah. Tel Aviv has real heat on the beach. Tel Aviv is probably the second most important technology in a city in the world. You can debate how you want to measure things but in terms of breakthrough technology, it's pretty damn impressive. And it's on the beach and their air conditioning isn't particularly awesome. So that to me, you know, portrays the idea that you can't be successful with a beach and technology is a bit silly.

It's funny, I spent time in the summer in Tel Aviv. And I have to say it reminded me of Miami more than any other city in the world. It was just like Miami.

So a couple years ago, my husband and I did a trip to Israel and we met with some very senior leaders in government and the military. The interesting thing that came out of that trip a few years ago was how much time people from China were spending in Israel, because they wanted to learn how to bring the innovation DNA to China. Someone described it to me as they were jealous that we have 1.5 million people out-innovating 1.2 billion. And so I think that's a good model to copy. What worked in Tel Aviv, why did it work? How do you apply that appropriately?

I've made that Tel Aviv metaphor before in Twitter fights and the response is usually well, but there's world class tech talent in Israel.

I think a lot of the people who’ve been very successful have written a history about it that involves sourcing key tech talent. But when you look, people have been funding, you know, elite graduates in the military there. So that experience might validate other characteristics like say leadership and personality versus pure technical brilliance.

As you said, it’s not like every startup is necessarily pushing some technical frontier; you cited Cameo and their 50 engineers. The radical innovation in a startup (which Cameo clearly possesses) can live somewhere else in the startup construct, not necessarily in the code itself.

I don't think what OpenDoor, which is a great company, does needs cutting edge technical talent, right? They do on the data science side for modeling and data engineering, but otherwise they need good engineers that produce great products and delightful experiences. I don't see anything terribly complex about what an engineer at Opendoor does. If you look at a company like DoorDash, they melt databases, because they’re trying to build algorithms that are trying to get to the right ‘Dasher’ there in real time, and that has a lot of concurrency issues that are cutting edge engineering. OpenDoor, like there are only so many trades, right? Even if we actually processed 100% of all transactions, we would not have peak concurrency issues measured by the 21st century standard.

Just one last question. One thing you conspicuously haven't mentioned in this whole conversation is one of the most salient things about Miami, which is how it exists as an entrepôt between the United States and Latin America. You haven't really mentioned the Latin American angle that one might think is a competitive advantage of the city.

It might be that I don't have any expertise. I don't know. We were relatively early investors in Nubank, so open-minded about it. We’ve got a call with city hall and all my partners later today about interesting companies in Latin America. One of our principals is moving here this week, and he focuses on both Europe and Latin America, so it'll be easier for him now to persuade us to invest in both. I could see the increase for Founders Fund investments that way. There’s certainly talent. One thing that's clearly true is successful European and Latin American founders, either partly or entirely, want to spend time in Miami. They either buy residences here, or they move here after their companies’ seeds. So there's a lot of high-end accomplished talent here.

Yeah, I always make the analogy that Miami is kind of like the Dubai or Singapore of Latin America, where lots of Latin Americans keep a condo and a bank account here, so it’s definitely a center of talent migration.

You’re probably aware of this, but I wasn't aware of this: there's a lot of large companies and gateway offices in America here. Microsoft does. Amazon does. Twitter does. There's a fair amount of large, large tech companies that actually have been sitting here for a while. Can some of those people be recruited into roles and companies that rescale those people? Sure. Do maybe some of those people have aspirations to be entrepreneurs? Absolutely. Now with a capital available, maybe they spin off to start their own companies. What’s missing is the pre-seed, roll-the dice-I-don't-really-care-if-I-lose-my-money kind of angel capital. That doesn't exist here at scale. That's hard to create, because that's usually a function of success. After a bunch of people are successful in the region, they become angel investors and carry it forward to the next generation with that kind of risk capital. Seed investments are something we’re involved in, it's my favorite thing to do, but I don’t know that every VC sees that as their job…

After I left Facebook, I toured some of the startup hubs in Europe, thinking of rebooting myself in Europe. And I noticed that of all the much-lauded startup hubs (save for maybe London), had that big hole as well. There was essentially no angel capital of any sort.

You need angel capital of a very particular temperament which is I’m going to give you the money, and I don’t mind losing it. You can find angel capital for predictable businesses with proven product-market fit, and that can exist in Europe, but the Silicon Valley capital that, say, eschews boring B2B, and invests with particular conviction around just an idea and says I don’t care if this $50,000 or $100,000 just evaporates into the ether, that’s very hard to find anywhere else.

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Disclosure: Keith Rabois is currently a partner at Founders Fund, and the author is currently employed at Branch Metrics, a Founders Fund portfolio company.