Chamath Palihapitiya says he never logs into Facebook, and he calls venture capitalists “soulless cowards.” Yet he’s held high-level positions at the social network and is the founder of Social Capital, a venture capital firm focused on social-impact startups. A man of outspoken, sometimes profane, opinions, he rejects Silicon Valley’s conventional wisdom about “failing fast” and inveighs against short-term profit seeking. Money may be an evil, he said during a recent visit to Stanford Graduate School of Business, but he urged students to “get the money, and don’t lose your moral compass when you do.”
This fall, he pioneered the IPO-by-acquisition model, raising $600 million to acquire a still unselected company and then take it public. He recently announced the Capital as a Service platform, which will allow startups to submit an online application and receive up to $250,000 without a face-to-face meeting.
Despite his innovations, Palihapitiya downplayed his creativity during a View From The Top talk in early November. Urging his audience to “be good copiers,” he said: “A lot of my life, quite honestly, is just copying things that I see. There’s not a lot of original thought here.” Here are some of his insights on socially conscious investing and where Silicon Valley gets it wrong.
You Can’t Eat IRR
IRR, or internal rate of return, is a standard metric used to determine the profitability of an investment. But IRR tends to focus attention on short-term gains, not long-term success, says Palihapitiya. “When you unpack it, what you realize is that fast money returns can completely decay long-term thinking and sound judgment. Moderate growth, moderate compounding, that is the key. That is gold.”
“Fail Fast” Fails Serious Projects
“Fail fast” has become the conventional wisdom of Silicon Valley. And when it comes to consumer businesses and apps, that makes sense, says Palihapitiya. Consumer internet businesses like Facebook are about exploiting psychology, and businesses need to fail fast to keep pace with the shifting tastes and desires of consumers. But that formula doesn’t work for “anything that really matters,” he says. “It is not how you solve diabetes. It is not how you use precision medicine to cure cancer. It is not how you educate broad swaths of the world’s population.”
Money Is an Instrument of Change
It may be fashionable in liberal circles to scorn money, but “it drives the world for better or for worse,” says Palihapitiya. Money is going to be made, and you should go out and make it. Then you should use that money to reflect your point of view, he says. “You have a very unique worldview that matters. In the absence of capital, you’re irrelevant; with capital, you’re powerful.”
Luck, Not Genius, Drives Venture Capital
Repeatedly picking winners may be a proof of genius. But if it is, the venture capital community fails that test, says Palihapitiya. He argues that there’s a very small overlap in the venture firms that made early investments in the largest successful startups. In other words, venture firms tended not to pick multiple winners when it came to startups worth more than $50 billion. “If anybody looks at you and tells you they know what they’re doing, they’re lying,” he says.
Beware Social Media
Palihapitiya was vice president of growth at Facebook from 2007 to 2011, where he helped the company add 650 million users. But he doesn't use the platform today, and credits social media for many social ills. "The short-term, dopamine-driven feedback loops that we have created are destroying how society works: no civil discourse, no cooperation, misinformation, mistruth," he says. "It is eroding the core foundations of how people behave by and between each other. I don't have a good solution. My solution is I just don't use these tools anymore."
150 People Are Running the World — Join Them
Like it or not, a very small number of men — and they’re all men — are running the world, and they are not the tech entrepreneurs, says Palihapitiya. Since tearing that oligarchy apart is not likely to happen, Palihapitiya says he wants a seat at that table. “My entire goal now is that. It’s to be in a position to aggregate enough of the capital of the world to then reallocate it [in line with] my worldview.”
American culture, says Palihapitiya, places a premium on know-it-alls. But people who respond to a difficult question by saying “I don’t know” are demonstrating “a self-awareness and confidence that I think is increasingly rare. It’s a really powerful thing to say.”
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