Social Capital’s Chamath Palihapitiya on Happiness, Startup Growth, and More – This Week in Startups with Jason Calacanis (Ep. 864)

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Key Takeaways

  • Make sure to pause and reflect from time to time and ask yourself – “Am I chasing someone else’s definition of success, or my own?”
  • “Everyone wants to be validated and in the absence of being able to validate oneself from within, it’s common to seek others to validate you”
  • ~40% of every investment dollar is spent on Facebook/Google/Amazon ads
  • Too many founders and investors are looking for explosive growth which is causing an excess of capital in the VC world and driving artificial startup growth that just isn’t sustainable
    • Even if a startup doesn’t make an exit, VC partners still make millions from fees – so their motive may not be aligned with the founder’s
    • Chamath’s advice to companies – “Grow real, grow slow”
  • A great quote for founders – “You guys are trying to build things, and that’s so hard, and nobody believes in you. It’s so dark and you’re all alone. The last thing you want is someone telling you that you can’t do it. F*ck those people.”

Intro

  • Chamath Palihapitiya (@chamath) is a venture capitalist and the founder and CEO of Social Capital
    • He was an early senior executive at Facebook, joining the company in 2007 and leaving in 2011
    • Chamath is also an owner and board member of the NBA’s Golden State Warriors

Money Doesn’t Equal Happiness

  • Chamath says although he was richer than ever before last year, he just wasn’t happy with his life
    • Why? – He wasn’t passionate about the business he was building
      • Chamath says he also had unresolved trauma from his childhood – he grew up with an alcoholic and abusive father
    • “I felt zero, zero, zero, sense of worth. And so I chased everybody else’s definition of what worthiness and success should mean.”

Building Your Dream vs Somebody Else’s

  • Recently, Chamath realized that part of his professional unhappiness came from building someone else’s company and not his own
    • Something to ask yourself – “Am I building the thing that I want or am I building the thing that someone else wants?”
      • Sometimes people want to become founders, but the temptation of getting paid large sums of money to build someone else’s product is too strong and people put their dreams on hold
    • “Everyone wants to be validated and in the absence of being able to validate oneself from within, you seek others to validate you”

Making The RIGHT Investments

  • When reflecting on his investments, Chamath saw that although the returns were “bananas,” he felt his company (Social Capital) wasn’t focusing enough on having a positive impact
    • “What we are doing today is an attempt to get back to where we started and where we should have always been, which is solving very difficult problems that if solved, matter in the world”
    • “When you measure and quantify the absolute value of progress, it’s way more enormous than measuring the absolute value of discounting cash flows”
    • Chamath plans to put in $2 billion of his own capital into the Social Capital fund
      • “We are investing as much as we need, for as long as we want, in the things that are important”

The Similarities Between VC Funding and Ponzi Schemes

  • Chamath’s example: A startup raises a Series A round, and the investors want the company to grow as fast as possible so they tell the startup to focus on growth. However, raising money doesn’t equal a better product/market fit. So how can the startup just go off and grow quickly?
    • Facebook, Google and Amazon ads and other services – “40% of every investment dollar goes to these companies”
    • Then Series B investors then see the growth of this startup and invest in them. Now, these investors want to see more growth. So once again, the company starts spending its investment money on Facebook, Google and Amazon ads.
      • The cycle repeats over and over again, creating the illusion of successful growth on paper
    • Meanwhile, the Series A and B investors start to think venture funding is easy, so they go out and start their own funds
      • This creates an excess of capital (supply) in the market and gives startups more leverage to ask for more capital for less equity, creating lower returns for all VC funds
        • Meanwhile, the partners at these funds collect fees whether or not they are able to generate a large return (Chamath says that a partner, on average, can make $1 million a year from fees alone)
  • “The incentives in this industry are the most out of whack they’ve ever been. It’s a bit of a charade.”
    • This is why Chamath is waiting for “some of the air to get out of this balloon” before making more investments
    • “I think the charade is dangerous and particularly dangerous to these companies”
  • Chamath’s advice – “Grow real, grow slow.”
    • Look at Amazon – slow consistent growth over decades that has created a $1 trillion market cap company
  • When investing, think of a graph with Capital Heavy to Capital Light on one axis and Obvious and Nonobvious on the other
    • Most investors want obvious and capital light investments (Ex. – The many scooter startups across the U.S.)
    • However, Chamath prefers capital heavy and nonobvious investments (Ex. – Elon Musk with rocket ships and electric cars)

Ignore the Critics

  • “Nobody remembers a critic”
  • You guys are trying to build things, and that’s so hard, and nobody believes in you. It’s so dark and you’re all alone. The last thing you want is someone telling you that you can’t do it. F*ck those people.”
    • “You’re on the field doing things, be proud. That’s amazing, that’s hard.”

These notes were edited by RoRoPa Editing Services

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