Keith Rabois's formula for startup success: Hire geniuses no one has heard of

During his first week at PayPal, in November of 2000, Keith Rabois went jogging with then-CEO Peter Thiel around the Stanford University campus. On that jog, Thiel laid out a management philosophy that Rabois carried with him from PayPal to companies like LinkedIn, Google and Square.

"You’ve got to be able to find the people who are undiscovered," Rabois said on the latest episode of Re/code Decode, hosted by Kara Swisher. "That’s the core ingredient for a CEO and a startup, being able to find those people and assess them when the rest of the world doesn’t know how to assess them yet."

Now an investor at Khosla Ventures, Rabois said venture capitalists went through a craze of funding startups without doing the due diligence on their teams and sustainability. That has now ended, investors have swung to the opposite extreme and most companies "can’t raise money at any price," he said.

"There was a fear-of-missing-out dynamic that was driving a lot of decisions," he said. "Now it’s shifted to a default state of ‘no.'"

Vjeran Pavic for Re/code

On the new podcast, he also talked about why the so-called PayPal mafia sold their company to eBay and promptly left; how Jack Dorsey’s hat convinced him to join Square; and why those years of easy capital may have created "cultural disadvantages" that will come back to bite wasteful startups in the end.

"There are some trust-fund kids who are incredible," Rabois said. "But there are some bad things that come with inheriting a lot of money."

Listen to or download the episode in the audio player above, or click here to subscribe to Re/code Decode, hosted by Kara Swisher on iTunes; we also just launched on Google Play Music! Or, you can also find Re/code Decode on TuneIn, Stitcher and Clammr.

Kara Swisher will be back in this space next Monday to interview former Texas State Senator Wendy Davis. And on Thursday, don’t miss Re/code Media with Peter Kafka. This week, Peter talks to New York Times Magazine writer Jenna Wortham. Click here to subscribe to Re/code Media on iTunes, or click here to listen on Google Play Music.

You can also hear Kara this Friday on Too Embarrassed to Ask, her podcast with Lauren Goode of The Verge. Click here to subscribe to Too Embarrassed to Ask on iTunes right now, or click here to listen on Google. And you should also check out Re/code Replay, an archive of audio content from our events and interviews by Kara Swisher, Walt Mossberg, Peter Kafka, Ina Fried and more. To subscribe to that, click here for iTunes and here for Google.

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