Social Capital’s Chamath Palihapitiya on the Keys to Picking Investors, Why Women are Better at Early Stage Investing, and More – This Week in Startups with Jason Calacanis (Ep. 628)

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

Key Takeaways

  • An interesting fact – Since ~1986, a $100 billion company has been started every 6 years or so
  • “In early stage investing, I think actually women are dramatically better than men”
    • Why? – Men are more likely to have a big ego and lack empathy compared to women
  • Here are 4 things founders should look for when picking investors:
    • Looks for investors who are good “pickers”
      • (People who are good at choosing successful portfolios so that you can be among other high-quality founders and companies)
    • Look at the percentage of the VC’s portfolio that gets follow-on financing
      • If you want to make it from Series A to B, and then on to C, looking at the past performance of a VC’s portfolio can give you insight into how long you will likely to be able to receive investing
    • Pick investors who “map to what you are as a person” 
    • Pick investors whom you morally agree with

Intro

  • Chamath Palihapitiya (@chamath) is the founder and CEO of Social Capital
    • He is also an owner and board member of the Golden State Warriors
  • This conversation took place in 2016 at LAUNCH Festival

Raising Capital

  • Great companies will always be able to raise money – it just not be at the valuation they want
    • During the 2008 financial crisis, Facebook needed to raise capital and was able to, but it was at a 50% lower valuation than their last round
    • Chamath believes there is about “40% of startups out there who never should have gotten funded in the first place”
      • Too many startups get greedy, as do investors hoping for huge returns, and the capital ends up being wasted on “KIND bars” and other perks that won’t help the company create a better product
  • An interesting fact – From about 1986 onward a $100 billion company has been started about every 6 years
    • Like Cisco, Microsoft, Google, Facebook, Uber
  • Some of the best companies are built during difficult economic times because the people who are truly passionate about the idea will stick with their risky startup gig while the non-believers will jump ship to a stable/mature company

Why Women Are Better at Early Stage Investing

  • “We are going to destroy the established venture industry, they are so laggard and old and dead and male, they’re fucked…and in success, we are going to build an amazing organization of people that positively change the world in ways that create more equality, and we will reallocate and redistribute all of that success in fairer ways, and that is inspiring”
  • “In early stage investing, I think actually women are dramatically better than men”
    • Why? – Men are more likely to have a big ego and lack empathy compared to women
      • “The early stage game, in my opinion, is about empathizing with the entrepreneur and understanding their character”
      • Chamath started his venture capital firm Social Capital with just a couple of partners and his wife – he says his wife has been right more often than any of the other partners
        • “She has been right about 100% of the time”

Theranos

  • Chamath talks about Zenefits, a software startup that has a history of workplace sexual misconduct within the company
    • “That company was broken morally and I think that’s the worst kind of broken”
  • Chamath notes that he is okay with pushing the boundaries of the law when developing new products or services, but he is strictly against breaking the law
  • Chamath has spent tens of millions of dollars of his own capital working with Caltech and M.I.T. PhDs to replicate what Theranos claims to have accomplished (extracting a ton of data about your health from a single drop of blood), but his team hasn’t been able to do so
    • “In my heart of hearts, I hope Theranos is real”
      • However, Chamath states several concerns with the company for their lack of transparency for both the public and even their own employees
    • Chamath also points out that the Theranos board lacks any experienced scientists that can validate/explain the company’s claims

The Morality of America has Changed

  • At several points in their conversation about the American political system, Chamath notes how morality has shifted in many significant ways over the past few years 
    • We now value aspects like non-traditional education and racial and gender equality — which has produced opportunities for people like Donald Trump to take the main stage in our two-party system

Four Things Founders Should Look For In Investors

  • In the course of discussing the state of the venture capital industry, Chamath lays down four simple guidelines for picking investors. These are:
    • Looks for investors who are good “pickers” ( people who are good at choosing successful portfolios so that you can be among other high-quality founders and companies)
    • Look at the percentage of the VC’s portfolio that gets follow-on financing 
      • If you want to make it from Series A to B ,and then on to C, looking at the past performance of a VC’s portfolio can give you insight into how long you will likely to be able to receive investing
      • Sequoia Capital has the best track record for this metric
    • Pick investors who “map to what you are as a person”  (sharing the same values and goals makes the investment relationship more enjoyable, and it means you are helping someone succeed whom you want to be successful)
      • “The last thing you want to do is to create a successful person in someone you morally disagree with and you do that by picking the wrong investor”
    • Pick investors whom you morally agree with
      • If you don’t agree with what your investor stands for, yet your company helps them succeed, you continue to perpetuate that moral

These notes were edited by RoRoPa Editing Services

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