Social Capital’s Chamath Palihapitiya – This Week in Startups with Jason Calacanis (Ep. 776)

Check out the This Week in Startups Episode Page & Show Notes

Watch the episode here

Key Takeaways

  • Tools such as AWS (Amazon Web Services) and similar services have made it easier than ever before for people to create companies
  • Anywhere from 30-50% of capital raised by startups goes to Google or Facebook in the form of customer acquisition
  • “Your job as CEO is to build a quality business and when you can, to find the sources of capital that make your business more and more incrementally defensible, not less, and then go public because then you’ll have a liquid currency you can reward your employees with”
    • Employees can work for many years or even decades earning equity, but equity is only words on paper. Employees need to be compensated and thanked for helping build great companies by having the opportunity to sell their equity for real cash that they can spend today.

Intro

  • Chamath Palihapitiya (@chamath) is 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
  • In the second part of this interview, Jason chats with David Eun (@Eunner), the President of Samsung NEXT

Why Did Chamath Buy an NBA Team?

  • Chamath wanted to hedge his investments with “a little insurance policy that I thought could be worth a lot of money so that I could take the rest of the capital and be fearless with it”
    • He adds that there are a limited amount of teams, so supply is fixed and “they compound reasonably well”
      • At the time, the Warriors were winning about 30 games a season – now they win double that

Chamath’s View on VC Funding

  • Tools such as AWS (Amazon Web Services) and similar services have made it easier than ever before for people to create companies
    • However, since there are so many people starting companies now, “there is a lack of concentration of talent”
      • “You get a lot of capital going into too many companies unproductively and that actually breaks the capitalist system”
      • Chamath adds that anywhere from 30-50% of capital raised by startups goes to Google or Facebook in the form of customer acquisition

Why Don’t More Startups Go Public?

  • “Most of these companies don’t go public because they don’t know their businesses. If you can control your business and you know it, you don’t have anything to be afraid of.”
    • “The highest quality businesses that can go public, should go public”
  • “Your job as CEO is to build a quality business and when you can, to find the sources of capital that make your business more and more incrementally defensible, not less, and then go public because then you’ll have a liquid currency you can reward your employees with”
    • Employees can work for many years or even decades earning equity, but equity is only words on paper in private companies. Employees need to be compensated and thanked for helping build great companies by having the opportunity to sell their equity for real cash that they can spend today.

Solving The Illiquidity Issue

  • Chamath is working on solving the illiquidity issue faced by startups/private companies
    • He created a public stock (IPOA), so that if his firm were to acquire a company, that company would instantly be public because it would be given shares of IPOA in exchange for the startup’s equity (like how Whatsapp received Facebook stock when Facebook acquired them)
      • Instead of it taking 12-18 months for a typical startup to go public through an IPO, Chamath can now help a founder/employees sell their equity in 90 days with the IPOA

Market & Politics (2017)

  • In politics, there is always a difference between what politicians say they will do and what they actually get done
  • “It is the scariest time to invest, in my opinion, in the public markets right now”
    • Instead of using debt to buy more assets/investments, Chamath is holding about 40% of his capital in cash
      • Chamath wants to see more companies improving their business models instead of simply spending capital on ads to boost growth

Part 2 with David Eun (President of Samsung NEXT)

  • David was attracted to Samsung after learning that the company sells “two TVs a second.” He imagined TVs would soon start connecting with the internet and could become a new platform for distributing content to millions of people worldwide.
  • Samsung spends between $12-14 billion every year on R&D
    • However, David discovered – “At least on the software side, most of the innovation, historically, has tended to come from startups and not big companies”
      • That is what led to the creation of NEXT (David’s team that focuses on investing in software startups for Samsung)
      • “What we are trying to do is find transformative software and services to complement the hardware”
        • In the last 3 years, Samsung has done 23 acquisitions
  • Being acquired is not the final stage of one’s business – think of the company acquiring you as a big partner who will help you supercharge your growth to the next level.
    • “Think of acquisitions as a form of business development or partnership if you can find the right acquirer. They will absolutely help you realize bigger goals and dreams.”
  • Sometimes startups face a “chicken or the egg” problem
    • Do you build a great product even though there is no market for it or do you wait for a market first and then build a product for it?

These notes were edited by RoRoPa Editing Services

Facebooktwitterredditmail

Don't Miss Out!

The top Takeaways, Lessons, Learnings and Quotes from the BEST podcasts each week in your inbox every Monday

Before You Go, Don't Miss Out!

The top Takeaways, Lessons, Learnings and Quotes from the BEST podcasts each week in your inbox every Monday