Why IPOs and Direct Listings Are Broken, Lessons From Facebook & More | Chamath Palihapitiya on 20VC with Harry Stebbings

Check out the 20VC podcast Podcast Page & Episode Notes

Key Takeaways

  • “Forecasts are pretty worthless because everybody gets them wrong, no matter how much data you have” – Chamath Palihapitiya
    • High-quality investors understand the fragility of forecasts
  • “Integrity compounds infinitely, and capability always decays”  – Chamath Palihapitiya
  • “IPOs are a little byzantine and broken, direct listings are byzantine and broken, they both take 18-plus months to pull-off and then low and behold there’s this tool called a SPAC” – Chamath Palihapitiya
    • The SPAC is only a 90-day process and you go public via a merger 
      • “There’s all these archaic rules you can work around that a SPAC solves. It’s very transparent.” 
  • Investing, in the broad sense, is an infinite game
    • “The only real competitor is yourself because the only thing you’re really fighting…is your own psychology. And if you can manage your own psychology, you have the ability to survive.” – Chamath Palihapitiya
  • Be a first-principle thinker: Keep asking why until you get to the root cause of a problem
  • Chamath keeps a piece of paper on his desk that says: Calm. Humble. Focused. Kind to myself. Vulnerable, Authentic. 
    • “It’s a way of reminding myself everyday who I’m battling and I’m battling myself” – Chamath Palihapitiya

Intro

Books Mentioned

About Chamath

  • Chamath went to the University of Waterloo to study engineering
    • He worked in investment banking for a year afterward
      • He went to work for a startup that was later bought by AOL
        • He rose the ranks and became a vice president at AOL instant messenger 
          • Chamath then joined Facebook in 2006 and created the growth team 

Lessons From Facebook

  • “Forecasts are pretty worthless because everybody gets them wrong, no matter how much data you have” – Chamath Palihapitiya
    • High-quality investors understand the fragility of forecasts
  • Compound interest is an incredible force
    • A lot of small things added up over time, can have a huge effect
  • Identify what product features make up your MOAT and amplify them

The Importance of Integrity

  • “Integrity compounds infinitely, and capability always decays”  – Chamath Palihapitiya
    • The only way to find people of high integrity is to spend enormous amounts of time with them
      • It takes 5-6 months of many hours every week
        • You’ll see it in the way they treat other people 
  • Integrity is weighed differently depending on the position
    • You don’t need an engineer to have super high integrity, you just need them to be technically qualified and know-how to do their job
    • However, for a position like a general partner, you want someone with high levels of integrity
  • Ego tends to be highly amplified in partnership positions
  • The bigger of an investment Chamath plans to make in a company, the longer he spends evaluating its leadership

IPOS & Direct Listings < SPACs

  • From the year 2000 to 2020, the number of companies you could invest in the US equity market shrunk from 8,000 to 4,000
    • “The investable universe had shrunk in half” – Chamath Palihapitiya
      • However, during that same time, the amount of investors has increased 100x and the amount of capital has increased by 1000x
  • Chamath is a fan of SPACs or special purpose acquisition companies
    • “IPOs are a little byzantine and broken, direct listings are byzantine and broken, they both take 18-plus months to pull-off and then low and behold there’s this tool called a SPAC” – Chamath Palihapitiya
      • The SPAC is only a 90-day process and you go public via a merger 
        • “There’s all these archaic rules you can work around that a SPAC solves. It’s very transparent.” 
          • It also helps employees and founders get cash earlier from their equity 

Thoughts on Investing

  • Investing, in the broad sense, is an infinite game
    • “The only real competitor is yourself because the only thing you’re really fighting…is your own psychology. And if you can manage your own psychology, you have the ability to survive.” – Chamath Palihapitiya
      • The best investors have strong emotional resilience 
  • Chamath views Social Capital as a mixture of three organizations:
    • A mix of Berkshire Hathaway in respect to its capital and capitalism philosophy, new developments that are like Koch Industries, and part Red Cross where it’s a selfless organization that tries to do the right thing

Being A Father Changes You

  • Chamath didn’t have much of a childhood because he spent much of it taking care of his father
  • Kids are often the best reflection of ourselves
  • When you have kids, unless you’re a rockstar, it will be the first time that someone truly adores and looks up to you
  • Having kids helps clarify what is important in life
    • “They gave me the courage to change my business” – Chamath Palihapitiya

Additional Notes

  • Just like how you have left and right-leaning media newspapers today, Chamath predicts there will be left and right-leaning social media platforms in the future:
    • Radio stations are political
    • TV stations are political
    • It’s only a matter of time till social media platforms become political
  • Be a first-principle thinker: Keep asking why until you get to the root cause of a problem
  • Chamath keeps a piece of paper on his desk that says: Be calm. Be humble. Be focused. Be kind to myself. Be vulnerable. Be authentic.
    • “It’s a way of reminding myself every day who I’m battling and I’m battling myself” – Chamath Palihapitiya
  • If you’re a new board member, make sure to read any memos that the CEO shares ahead of time so that way you’re prepared for the meeting
  • What’s Chamath’s biggest strength and weakness?
    • Strength: “I think I have a very good mind for understanding risk and what is a good risk”
    • Weakness: “I think my biggest weakness is that I still have these pains because of these self-worth issues I can be somewhat self-destructive” 
20VC with Harry Stebbings : , , , , ,
Notes By Alex Wiec

More Notes on these topics

Top Insights and Tactics From

31 Best Podcasts of All Time

FREE when you join over 12,000 subscribers to the
Podcast Notes newsletter

No Thanks