Billionaire tech investor Chamath Palihapitiya and the return of centrism
An inside glimpse of the seismic forces that are radically transforming the investment landscape — from SPACs and tokenization to data autonomy and virtual learning
Chamath Palihapitiya is one of Silicon Valley’s most successful tech investors, and he tells Real Vision CEO Raoul Pal that he wouldn’t be where he is today as CEO of Social Capital without failure.
“People have found that there’s a secret that’s hiding in plain sight in Silicon Valley which is that when you fail, you learn,” says Palihapitiya. “The people that are the most respected here are the ones that have had some spectacular failures by conventional measure, but in reality, they are incredible learners, and then that’s caused them to have some huge outcomes.”
He calls it a “feature” in Silicon Valley, whereas it may be viewed as “a bug everywhere else.”
“Everybody else points to and laughs and mocks failure, and whereas here, it’s a real badge of honor,” he says. “The more failures you have means the more knowledge you’re acquiring which means the closer you are to figuring it out.”
The Sri Lankan native moved to Canada at a young age after his family filed refugee status. He reflects on his childhood, growing up on welfare as his father bounced around jobs, and the federally subsidized healthcare and education opportunities he received.
“I had the benefit of every single social safety net possible, and so a lot of my politics and a lot of my beliefs are governance because of that,” he says. “But despite all of that Canada wasn’t super accommodating for somebody like me because I was willing to fail.”
Palihapitiya made his first fortune as an early executive at Facebook, but he started his career as a derivates trader, working for Bank of Montreal and trading cross-currency swaps.
“I started out as a coder kind of like helping to design sort of path models and then was able to be a part of you know running a book and managing risk,” he tells Pal.
But a wake-up call – which he calls his first really big professional failure – changed all of that.
“I thought too much for myself and I was pretty arrogant. I had become not as good as I was when I was hungrier and more humble,” he admits.
Palihapitiya moved to the U.S. in 2000 to return to his engineering skills, working at a number of different startups. He has since multiplied his wealth as an investor with a portfolio of bold healthcare, education, and financial services companies.
Why Chamath Palihapitiya loves SPACs
The outspoken venture capitalist has big bets about the future. He’s been at the forefront of the hot investment trend — SPACs, the acronym for blank check or special purpose acquisition companies. He is behind major SPACs including space tourism startup Virgin Galactic, real estate platform Opendoor, and Medicare insurance startup Clover Health.
He explains how SPACs are a necessary innovation, opening up the investing ecosystem for everyday retail investors.
“I think that there is a democratizing effect here which is very important and powerful,” he says.
Palihapitiya admits that the only place to make money in the private technology market is through a Series A funding round, but the returns are extremely long dated.
“The returns that are available in the private markets are still blocked. There is no access for average ordinary normal folks to get access to that return stream,” he says. “The SPAC basically does that. It allows you to pull forward the IPO, two or three years into the typical decision-making process that the company has, and then you can own that in an exchange tradable, or a market tradable security.”
Not only does speed play a key role in SPACs, but it also allows Palihapitiya to ”act as a principal” while he takes a company public.
“Selfishly for me, I can use my balance sheet to basically empower companies to fulfill a mission that I believe in underwriting, and then I can be a big part of them as they grow in scale,” he tells Pal.
Why it makes sense for an entrepreneur, he says, is because of the SEC Form S–4, which is filed by a publicly traded company to register any material information related to a merger or acquisition and allows you to talk about the future – including future prospects, strategy, and cash flows.
The new world of finance
He sees the coronavirus pandemic as a catalyst that is radically transforming the investment landscape.
“I think that this was an opportunity in the pandemic to actually experiment more with putting money into the hands of individuals, and then observing which businesses that they pick on the presumption that is actually a better implementation of efficient markets theory.”
Palihapitiya argues that old structures of capital formation, which prioritized buybacks rather than Research & Development (R&D) and “efficiency” rather than resiliency, will give way to a new future in which fintech companies will replace “too big to fail” banks.
“It actually should be the opposite,” he tells Pal. “No bank should ever be too big to fail that it matters. We should have many, many small banks of which there can be umpteen failures and the system just moves on and it can self-heal.”
He sees incentives in financial organizations being rewritten.
“I think the banking industry will not have some fatalistic deathblow,” he says. “We are seeing now the emergence of an entire class of fintech companies that are slowly eroding the value proposition of entrenched financial institutions. It will take another 10 or 20 years for us to see it happen in enough scale.”
When it comes to Bitcoin, he calls it “a hedge in a portfolio against the sort of traditionalist financial infrastructure.”
He thinks there is a stigma around Bitcoin because it’s being played up.
“We have to dial it down,” he says. “If you want to see Bitcoin get to mass market scale, the most powerful thing that you can do is describe it in simple pragmatic terms that don’t require zealous belief… This zealous rhetoric and dial up pragmatist rhetoric is what we’ll get your mother and your grandmother to have Bitcoin in their wallets.”
What about tokenization? He says it will serve as a digital ledger for every financial transaction. He thinks it’s more beneficial for shareholders than for the company itself.
“It’s the unit allocation of ownership of things that the companies will want to create to then pass on to its unit holders or stakeholders.”
“I could see a company… with a token that you can redeem for a free vaccination,” he says.
How climate change technology will cause a geopolitical paradigm shift
Palihapitiya is pivoting his own firm to focus on issues like climate change. He views climate change as the great equalizer, calling it the simplest way to fix our problems with Russia, China, and the Middle East.
“I think like the destruction of energy will have the most important impact in reallocating and reassessing geopolitical power. It actually solves most of the big pernicious corrosive issues that we have geopolitically,” he says.
He also believes solving climate change is what will create the world’s first trillionaire, characterizing wealth as a “complete, accidental byproduct of problem solving.”
“Very few people become wealthy by focusing on getting wealthy. Of all the rich people that I’ve met they’ve always been focused on solving a problem. The byproduct is that the bigger the problem is that they solve, and the more powerful the solution is that they deliver, the more wealth that they create,” he says.
The way social media reallocates power
Palihapitiya acknowledges social media is becoming highly fragmented because of the tendency to seek confirmation bias.
“There’s an emerging realization by both the left and the right when it comes to social media, and it’s the idea that social media reallocates power and influence in a way that disrupts the allocation of power and influence.”
He specifically references the U.S. election as a prime example of how the establishment reacts to social media.
“The 2016 election was about castigating Facebook. 2020 has really been the election of throwing Twitter under the bus,” he admits. “Donald Trump I think is the canary in the coal mine. It’s much more likely that future leaders of politics are really people that can coalesce movements online, and in that you’re much more likely for the Rock, or Kim Kardashian, or Charlie D’Amelio to be the next great politician than you are. You know some person who’s steeped in policy and who really understands what to do.”
Palihapitiya sees the return of centrism in this new media landscape. On a broader note, he sees it as a movement that will democratize across the globe.
“Balance, moderation, centrism, pragmatism. It wins. And it’s the boundary conditions for incredible innovation,” he explains.
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