20VC: Chamath Palihapitiya on Why IPOs and Direct Listings Are Broken, Turning Social Capital Into A Combination of Berkshire Hathaway, Koch Industries and The Red Cross, Why Forecasts Are Worthless, What Creates True Defensibility & Why You Have To Be Pr

Chamath Palihapitiya is Founder & CEO @ Social Capital, the organisation on a mission to transform society by using technology to solve the world’s hardest problems. Social's portfolio includes the likes of Slack, Yammer, Front, Intercom and Carta to name a few. As for Chamath, prior to founding Social, he spent an incredible 4 years at Facebook including as the original exec in charge of FB Platform as well as being responsible for overseeing core growth components and overseeing FB's mobile efforts. If that was not enough, Chamath is also an owner @ The Golden State Warriors & Chairman @ Virgin Galactic. In Today’s Episode You Will Learn: 1.) How Chamath made his way into the world of tech and startups, came to be a VC with Mayfield before joining Facebook and then starting Social? 2.) What were Chamath's biggest takeaways from his team building the growth team at Facebook? Why does Chamath believe that forecasts are worthless? What should founders focus on instead? What did Facebook teach Chamath about defensibility and moat building? 3.) What was the realisation moment for Chamath that the venture firm he was building with Social was not what he wanted to build? Why does Chamath believe the biggest mistakes he made were "compensation and partner selection"? How would he do them differently now? What does he look for most in partners today? How does he detect for integrity? 4.) Why has Chamath doubled down on the SPAC model? What are the core benefits both to the founders and investors? What are the core challenges with both direct listings and IPOs? How does Chamath think about scaling his SPAC strategy? What are the core challenges in doing so? 5.) Facing alcoholism and psychological challenges with his parents, how did Chamath deal with becoming a carer sooner than expected? How has becoming a parent changed Chamath's operating mentality today? How does Chamath analyse his relationship to money today? Items Mentioned In Today’s Show: Chamath’s Fave Book: Liar's Poker: From the author of the Big Short As always you can follow Harry and The Twenty Minute VC on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Welcome back to the 20 Minute VC with me, Harry Stebbings. Now, this show I've wanted to do since I started the podcast over five years and 2,000 episodes ago. So diving straight in, and it's a huge pleasure to welcome Chamath Palihapitiya to the hot seat today. Now Chamath is the founder and CEO of Social Capital, the organisation on a mission to transform society by using technology to solve the world's hardest problems. Social's portfolio includes the likes of Slack, Yammer, Front, Intercom and Carter, to name a few incredible companies. As for Chamath, prior to founding Social, he spent an incredible four years at Facebook, including as the original exec in charge of Facebook platform, as well as being responsible for overseeing core growth components and overseeing Facebook's mobile efforts. If that wasn't enough, Chamath is also an owner at the Golden State Warriors and chairman at Virgin Galactic.

• 0:44Harry Stebbings?

  And I do also want to say a huge thank you to Shaq for some fantastic questions. As always Shaq, you are the best. But before we move into the show today, I'm sure you've heard about it, but my word, this is a product I love, Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com/20vc to get 10% off. More than 800,000 employees and shareholders use Carter to manage hundreds of billions of dollars in equity. And Carter now offers fund administration, so you can see in real time data in the Carter platform and work with Carter's team of experienced fund accountants. Again, go to Carter.com/20vc to get 10% off. And speaking of amazing products that you've heard about with Carter there, last month I had Jeff Sibber and Wayne Chang on the show from Digits.

• 1:29Harry Stebbings?

  Simply put, they're two of the best founders that I've ever met, and they're creating the most intuitive financial software that you've ever seen or used, automatically analysing your company's spend and visualising it for you as it happens. Hone in on recent activity, trends, anomalies, or any question that you have in just a few clicks. And unlike every other financial software, the integrations is not weeks, it's just a few clicks. I have to say the product is absolutely beautiful, which is not something I ever thought I'd say for financial software, but you have to check it out and you can do so at digits.com. That's at digits.com. And finally, did you know there will be 1.4 million job openings for developers in 2020 alone? Well, that's when my friends at Terminal come in. Terminal is a remote team's end.

• 2:10Harry Stebbings?

  For fast growing companies, connecting you with global talent to deliver the product building powerhouse your business needs to grow. They provide services and infrastructure in a complete solution that allows businesses to build and scale their remote engineering teams from the ground up without sacrificing experience or quality. From workspaces to community to on the ground support, they take the guesswork out of remote so that you can really thrive. But really, don't take my word for it. Just ask high growth businesses like Gusto, Chime, Earnin and Hims, all trusting Terminal with their remote teams and you can find out more today at terminal.io. That's quite enough from me though. So now I'm very excited to welcome Chamath Palihapitiya, founder and CEO at Social Capital.

• 2:55Speaker 01

  You have now arrived at your destination.

• 2:59Harry Stebbings?

  Chamath, I've wanted to do this episode for five years since I started the show, so I cannot thank you enough for joining me today.

• 3:05Speaker 02

  I'm excited to be here and quite honestly, congrats to all of your success. You're a dynamo.

• 3:10Harry Stebbings?

  Well, that is very, very kind of you. I think I'm more just lucky to love what I do. So I really appreciate that. But I would love to start with a little bit on you. So if anyone that's been really living under a rock for the last decade, how did you make your way into the world of tech and come to found Social Capital?

• 3:23Speaker 02

  The short version of the long story is that I, like most people, went to school to do what my parents told me to do. And those choices were to be a lawyer, a doctor or an engineer, and I chose to be an engineer. So I went to the University of Waterloo and I studied electrical engineering. But also like a lot of kids, I went into the industry that at the time seemed the sexiest, which at the time was investment banking and derivatives trading. And I worked for an investment bank for a year. But eventually reality kind of caught up with me and I realized I hated the job. Or not so much hated the job, but I really felt underutilized. And so I moved to Silicon Valley and I worked for a small music startup called Winamp,

• 4:04Speaker 02

  which was bought by AOL and became part of AOL Music. And I rose through the ranks there on the product side and the business side until I was sort of like one level below vice president. By this point I was 24, 25. And then I became the general manager of AOL Instant Messenger by the good grace of my boss at the time, Kevin Conroy, who was my mentor. Very important to have those kinds of people in your life. And then I ran AIM and ICQ. And during that period, I thought about acquiring or trying to acquire a company called the Facebook.com, which I had met through my colleague Sean Parker. Because when I was running Winamp, Sean Parker ran a company called Napster. And the long and the short of it was that AOL was not in a position to do any sort of acquisition. So I did a business development deal between AIM and Facebook.

• 4:48Speaker 02

  And then when Parker left, Zuck called me and asked to unwind the deal and we got to know each other. And then I joined the company in the 2006, 07 timeframe. And was one of the principal executives there until I left in 2011. And when I was there, I created the growth team. That's probably the thing that I'm best known for. But also oversaw Facebook platform, our early monetization products, all of mobile, launched product globally in every market of the world outside the United States. And then I started social capital more to invest in interesting, hard problems outside of traditional consumer technology. Because at that point, you know, I had been working in consumer tech for a decade. And so I was a little bit exhausted and I wanted to work on things that I felt were more important for society. So healthcare, education, fintech, climate change, rocketry, stuff like that.

• 5:33Harry Stebbings?

  And what a journey it has been with social. I do want to slightly unpack chronologically there because you mentioned your time at AOL. And I spoke to Chris Frelick at first round before the show. And he asked, what did you learn from AIM at AOL that helped you at Facebook, do you think?

• 5:46Speaker 02

  Well, it was the second product that I worked on deeply that had a network effect. The first one was Winamp. Winamp had 100 million users. And we were able to use those users to create two ecosystems. One was for skins, which was sort of the UI layer that sat on top of the media player. And one was for plugins, which was all this incremental third-party technology, acoustics and other things that you could use to make the product better. And why that was interesting is it basically showed me the power of a distributed and leveraged team. Because Winamp was eight of us, nine of us. Yet we had hundreds of people building hundreds of skins and plugins to make the product better. At AIM, it was a similar kind of idea where you had these tens of millions of users. And because of those users.

• 6:30Speaker 02

  We were able to keep the product afloat even during times when the product quality was quite poor. The product strategy wasn't very crisp, our execution was marginal. And despite all of that, the users would number into the tens of millions on any given day. And so when I put those two ideas together, it very much cemented the value of a network effect, which was not very well trod ground at the time in 2005, 6 and 7, and not well understood. Now, obviously relatively obvious to most people.

• 6:56Harry Stebbings?

  Absolutely. And I do want to ask, then you obviously moved to Facebook and probably some of the most transformational years of your career. And I have to ask, in terms of the lessons that you learned there, what lessons did you learn at Facebook, maybe specifically building the growth team that you still use today, do you think?

• 7:11Speaker 02

  You know, the first is that forecasts are pretty worthless because everybody gets them wrong, no matter how much data you have. When we were trying to project the impact of some of the things that we did, we were frankly off by an order of magnitude. We thought success would be getting the product to 100 million users plus. And lo and behold, the product now touches 3 billion users, largely using the same compounding effects and growth rates that were driven by a handful of features that we created very, very early on. So that's the first thing, which is that forecasting is really not that helpful. So you have to be in the bowels of a company building. The second is the value of compound interest, which is to say that a lot of things adding up by very small numbers of basis points tends to be the thing over time that makes things work at scale.

• 7:56Speaker 02

  There are very few panacea silver bullet features in life. And I think a lot of people spend a lot of time trying to find the one thing without realizing that disciplined execution over large stretches of time that are really about thoughtful tactics really go a long way. And that's something that I've taken away. And then the third thing that I've taken away from my time there that has been immensely helpful is trying to study and better understand what creates a moat and being able to be more thoughtful about identifying these moats and amplifying these moats with product features. And I think we've become, my team and I have become pretty decent at doing that.

• 8:34Harry Stebbings?

  You mentioned forecasting there. I expected this to go off schedule, but I didn't expect it this early. But you mentioned forecasting there. I work with a ton of early-stage founders and they're often concerned about creating forecasts. As you said, it's highly unpredictable. It's very difficult to forecast in the first place. And then also investors bash founders if you don't hit your forecasts. How would you advise founders in terms of forecasting in the early days when everything is so transient?

• 8:54Speaker 02

  Get better investors. I think the high-quality investors also understand the fragility of these kinds of things. And so as a result, don't demand this kind of fake work. And it makes for a much more useful conversation. You know, what I tell the people that I work with at the earliest stages, what I want to see are thoughtful documents that really lay out, ideally in prose versus deck form, what they intend to do. And then what I want is a very simple and elegant way of measuring those impacts and being able to then double down on the elements of those that they think are the most impactful. And what it does is it allows us to not work backwards from something that we know is inherently faulty,

• 9:36Speaker 02

  i.e. a forecast, and work forwards by having a very reasonably detailed product plan along with a way of demarking success and iteration. And I think that that's just a much healthier dynamic to give an early-stage founder. The people that rely on forecasts should really be more in the later stages once a business is much more mature and predictable. But at that point, these are things that then get reduced to DCFs and discounted cash flows. And at that point, the investing mindset is very much different. So I think the early-stage founder needs to really use something like that as a litmus test for the quality and the intellectual curiosity of the investor that they're going to work with.

• 10:14Harry Stebbings?

  Yeah, absolutely. I always say if you don't think the founder's been worrying about hitting that forecast but weeks before the board meeting when they have to say they haven't, then you've got another thing coming in terms of the investor. I do want to ask the final thing on Facebook. And I've been oscillating on it for the last few weeks. And it's kind of with Trump and the lack of their redacting his posts, unlike Twitter maybe, comes about the question of discussion on really platform versus publisher and whether you can be both. To me, maybe I shouldn't say before I hear your answer, but to me, you can't be both. And maybe Mark was right. How do you view maybe the decision of whether you can be both platform and publisher? And how maybe you would have acted?

• 10:49Speaker 02

  I'm not sure about the semantics, Harry, but here's what I will say. I think that all of these online social networks are coming to a fork in the road. And the fork in the road is balancing the morality of the employees and the board and the shareholders and the rest of the stakeholders. And in that balancing act, different sites will make different decisions. And I think what you're going to see is a distribution of outcomes where you will have more left-leaning sites, more right-leaning sites, and more centrist organizations. And they will reflect their moral and ethical view into the product and the business decisions they make as a result of it. And I think that that's no different than what you see in the media landscape today offline.

• 11:33Speaker 02

  So you have left-leaning papers, right-leaning papers, centrist papers, libertarian papers. You have the same for radio, you have the same for magazines, you have the same for broadcast television. And I think it stands to reason that what's really happening right now is the same decomposition and fragmentation of the online landscape that frankly has happened to, use TV as an example. We used to have one or two or three broadcast channels. And fast forward 70 years later, you have 700 channels. And it's probably true that there isn't a one-size-fits-all social networking product for information consumption for everybody. And as a result of that realization, fragmentation probably creates more flexibility and rules for everybody. So I suspect what happens at Facebook specifically

• 12:16Speaker 02

  is you'll have certain properties that are much more right-leaning or libertarian, if you will, and other properties that are much more left-leaning. And I think that that's probably how, for them to maintain market cap, they'll have to acquire or build sites is with a view to different parts of the demographic makeup of society that they don't have a good grasp on. And I think that's the same for Twitter, and it's the same for Snap and everybody else.

• 12:40Harry Stebbings?

  I think it's a really interesting property to compare it to the early days of TV there. I do wanna kind of move on to social and discuss what has been a fascinating journey. If we start at the earlier days, you had an awesome portfolio, you had fantastic people. Everything was going great. I remember being in the valley when I was 18 and social was absolutely the top topic in Silicon Valley and bluntly, every venture fund was worried about you coming in. So I guess my question is, with everything's going so great, what was that realization moment that the way that you were building it at the time wasn't what you wanted to build?

• 13:09Speaker 02

  I think it was exactly that. When everybody is clamoring to do the same thing and copying, I thought to myself, what have I really done? And I think what I had done was build a very capable and very competent asset gathering machine. The problem is that that would have required me to give up the rest of my life to become the manager of said asset gathering machine. And in order to run that machinery, I think that there's a fundamental element of sales and a fundamental element of traveling and a fundamental element of storytelling that you need to fall in love with. Now, the latter I do love. I think I really love communicating and getting my ideas across to people. But to be very honest with you, the first two were not things I was very passionate about.

• 13:49Speaker 02

  I wanted to build a kind of organization that, you know, in some ways was a mixture between Berkshire with respect to its capital and capitalism philosophy. Bit of elements that are like Coke Industries with respect to its view on amalgamation and building conglomerates. And frankly, a view that's in part like the Red Cross or Doctors Without Borders, which is sort of a selfless, mission-driven organization that is trying to do the good and right thing all around the world. And those goals and ideals were just not possible with the lens with which I was viewing the world when I was running a traditional venture capital organization. So it was a very difficult decision to make.

• 14:30Speaker 02

  I think it left a lot of my partners, unfortunately, in a position where they had to bounce back and find something else to do. But the good news is that I think they all landed on their feet, they're all doing wonderful things. The other practical reality is they all made a lot of money and I'm very happy for them.

• 14:45Harry Stebbings?

  Can I ask you, Chamath, and sorry, this really is off schedule. That's a very compassionate and more humble description than I've heard you say before. Has your mindset changed as to those days when you just...

• 14:56Speaker 02

  I think honestly, Harry, as I grow older, I become less insecure and I'm less driven by the inferiority complex of the moment. What I would also tell you is that I made some enormous mistakes in some of the people that I hired, that I think that there were a couple of people, and they know who they are, who have huge integrity issues. And I optimized for capability over integrity. And I've said this many times, but integrity really does compound infinitely, and capability always decays. So I didn't know that. And I wasn't secure in myself to hire someone who was more mission-aligned or morally-aligned over someone who was just capable. Now, those capable people ended up becoming lone warriors and in it for themselves. And that

• 15:38Speaker 02

  was a mistake. I also made enormous issues of compensation. And all of these things, I think, created schisms between me and a few of the folks that worked for me that we could never really overcome. And when I was much more blunt, it was because I was also still angry because those feelings were raw. You know, fast forward to June of 2020, I'm feeling pretty good about things. I can be a little bit calmer, I guess.

• 15:59Harry Stebbings?

  Yeah, absolutely. It's a much calmer conversation than I anticipated. So that's super nice. I do have to ask, in terms of the integrity element there, I'm really interested, when you think about human psychology, the human assessment, how do you assess for this level of integrity when evaluating either people to join Social State, founders to invest in? Are there kind of leading indicators, signals that you've learned signal high-integrity people?

• 16:20Speaker 02

  Well, one of the things you have to decide is whether you're hiring for functional role and competence, or whether you're hiring for a set of behavioral markers. If you're hiring for the former, for example, like, you know, you're going to hire an engineer, and you need to understand whether they're a good front-end engineer or not, or they understand a very specific tool chain better than other people, the concept of integrity actually doesn't have much place in the world in the hiring decision. And the reason is because the service area with which they exhibit integrity doesn't really exist. I mean, I suppose that they could, you know, produce a bunch of fake check-ins, but at the end of the day, if you can't build features properly, or you've completely lied about your capabilities, you'll get fired. The judgment is in the technical execution, but those are very binary outcomes, things that you write other work or don't work. If however, you're hiring for what I was hiring for, which are partners,

• 17:05Speaker 02

  open-ended thought partners who will be there, then it's much more about character. And the only way that you can find people with high integrity is to spend enormous amounts of time with them over a longitudinal period of time. So it's not about two weeks of 10 hours a day. It turns out to be five or six months of many, many, many hours every week. And the reason is because eventually their integrity shines through slash their lack of integrity eventually seeps to the surface because you just can't hide it forever. And you see it in the way they treat other people. You'll see it in the way that they approach problems. You'll see it in the way they eventually let their guard down. And in those decisions, you 100% have to go with your instincts. And you know, at first, my instincts also weren't that good.

• 17:50Speaker 02

  And so when I was starting Social Capital, I didn't really frankly have a high sense of self-worth. And so the idea that people wanted to work with me really won me over. Now, what I would say is I'm pretty sure I'm a reasonably good person to work with. And I'm convinced that I'm pretty good at what I do. And so now I'd rather take my time and really find people that are morally aligned with who I am as an individual. And if that means that I lose people, so be it. It's not the end of the world. And if that means that it takes six months to a year to hire somebody to work with, so be that too. For the right person who's willing to make that time commitment, it'll be worthwhile for them and for us.

• 18:24Harry Stebbings?

  I'm totally with you on the time commitment. Honestly, though, Jem, the thing I'm struggling with is like the velocity of funding rounds today is so fast that you don't have the time with the speed of rounds and the execution of them to really understand the psychology of the founder and determine the integrity between the two of you. How do you think about like the velocity of rounds? And is that not a fundamental challenge to the determination of their integrity?

• 18:45Speaker 02

  It's a fundamental challenge. And I think that the reality is though, that the surface area again is relatively small for these kinds of decisions. So I don't worry about it as much between the founder and the investor. I think between the investor and his or her partners, it's a much more important decision. And the reason is because again, it's much harder in 2020 to start a company and fundamentally cheat and lie. You can't steal money or embezzle as Easily as you could have in the past. You can't fake a product. You can't fake customers as easily as you could in the past. So the basic questions of integrity, I think, are relatively well answered because the work product is so iterative and tactical. And there are so many things on a constant basis

• 19:30Speaker 02

  that an entrepreneur has to do to make a company successful, that it's very hard to lack integrity. That being said, to be a partner in a venture capital firm, it's very easy, frankly, to lack integrity because there are no points of demarcation. And you only learn about your fellow partners in very sporadic bursts over very, very long periods of time, largely when it comes to money and credit. So ego and compensation tend to be these things that are highly amplified in these traditional partnership structures. And it just takes a long time. So if I was a VC, what I would tell myself, my job is to make sure I don't miss. And this may be sort of a jumping off point as well to talk about my investing philosophy. But when I'm talking about investing hundreds of millions to a billion dollars plus,

• 20:15Speaker 02

  I tell myself that I have to be completely predisposed to inaction. And so I force myself to do nothing, Harry. And the bigger the check, the longer I need to wait. And I force myself to bide my time. And the reason is because optionality, when you're writing really, really big checks, the optionality comes from doing nothing. Because once you spill out a billion dollars, in my case, I'd only have three left. And so 25% of my capital goes out the window. So I have to be very careful. But if I'm writing a $5 million check, then the predisposition has to be towards action. Because 5 million over 4 billion is just not a lot of money. And so we need to be in the game. And we need to make sure that we have enough chips on the playing field so that if something works out, we get lucky to be a part of it.

• 21:00Speaker 02

  So what I would tell myself if I was a venture capitalist is I'm in the ladder game. I'm in the action game. I have to take my fund, allocate 25% to reserves and the other 75% and divided by the number of months I want to go before I raise a new fund, typically 18 months. And that's how much money I'm writing every month. And I would just keep doing it ad infinitum as long as I could raise. Now, that's where I started. Now, I'm in the business of inaction and doing nothing. So it's mostly thinking and reading and trying to decide how to reflect my worldview in adequate ways where I can retain optionality and not go broke.

• 21:32Harry Stebbings?

  Can I ask, do you like to structure those moments of inaction in terms of the structuring of the research, the structuring of the work that you do in that time? And has there been like a couple of lessons that you've drawn from maybe specific occasions where your mindset has changed either positively or negatively in those moments of inaction?

• 21:47Speaker 02

  Yeah, in fact, so inaction doesn't mean you sit around doing nothing, you're working out, or you're playing bridge online. I wish my life were that easy, but it's not. The things that we work on are complicated enough that at least for me, I don't know them well enough. And so I am trying in a short burst of time, i.e. three to six months, become expert enough to make qualified decision on a large quantum of capital. And so the way that I break down my periods of inaction is essentially a learning process. And what we're first trying to do is understand the broad landscape. And then we're trying to refine very specific ideas that we then go deep, deep, deep into. And we find experts all around the world, whether they're university professors, or scientists, or other entrepreneurs. And we just try to learn and we, you know, we ask as humbly as possible for them to teach us.

• 22:31Speaker 02

  And that process takes another two or three months. And then we take all of that information from the first four months. And then I essentially try to write a narrative that explains an understanding of a market or a particular opportunity in a way where it becomes investable, because then that narrative, six or seven pages of single spaced writing, become my way of distilling many months of knowledge and inaction into some potential action. So that's how it works for me. I'm not saying it's the best and I won't refine it and change it. But it's definitely the process that I've honed in on over the last few years that work best for my style. But that's what I do. It's very, very, very time consuming and it's very structured, although it many cases results in doing nothing.

• 23:12Harry Stebbings?

  Yeah, I know. I absolutely understand. I do want to talk about kind of the structures through which you do invest it. Because you've championed the SPAT model very recently and you've been doing it for the last few years. And I think social being the holding company that it is, why did you choose the SPAT model? And why do you think it's profitable over the other models that are in play today?

• 23:30Speaker 02

  So I think that there's not a lot of first principles thinking in many things. And I think the best entrepreneurs will tell you, or people will describe them as really great first principles thinkers, which is basically to keep asking why enough times where you get to the root cause where the answer is, I don't know. And so if you start asking the question, why, as it relates to IPOs, you very, very quickly get to an I don't know moment. Now, here's what I've learned, Harry, before I set up sort of this IPO 2.0 platform and tried to kind of create this as an ongoing product that other companies can use. So the first is that from the year 2000 to the year 2020, the number of companies that you could invest in, in the United States equity markets,

• 24:13Speaker 02

  has shrunk from 8,000 to 4,000. That's a combination of bankruptcies, M and A, consolidation, et cetera. But that's an incredible thing to understand, that the investable universe has shrunk in half. At the same time, the investors, so the practitioners of capital, have increased about 100x. There's, you know, 100x the number of hedge funds today that there were in 2000. And what's even more interesting is that the amount of capital has increased by 1,000x. So here you have these interesting market dynamics. And so again, if you start to ask some first principles questions, you'd say, my gosh, like, won't the public capital markets be better for young tech companies? And the answer is yes. Why? Because you have 1,000 times more capital multiplied by 100 times more participants,

• 24:58Speaker 02

  who are all seeking growth. Why? Because the backdrop is that interest rates in the meantime, over the last 20 years, have gone to zero, which means that if you need to buy an asset that can grow for the next three or four years, you actually need to buy an asset that can grow over the next five to seven, or seven to 10. And the minute you do that, what you end up is looking at technology companies as the last bastion of investable surface area. Yeah. So from my perspective, it just seemed pretty obvious, if you looked at the problem that way, that a more liquid, efficient market for founders would actually be found in the public markets and not the private markets. And so that's why we created SPACs. Now, why a SPAC specifically? Well,

• 25:40Speaker 02

  Again, if you go to first principles and you say, what's the goal and who's the customer? Well, the first goal to just do it as simply and as efficiently and as transparently as possible. And number two is you do it for the founder and the employees who are the real customers of this thing. And the thing with the SPAC is that it does both of those two things. Traditional IPOs are very fraught with principal agent problems by the banks, who try to feed cheap stock and, you know, poor price performance to other customers of theirs, namely the prime brokerage customers of their trading business. Direct listings are very complicated because they are equally as burdensome in terms of time and equally litigious in the sense that typical IPOs are fraught with shareholder lawsuits. So are direct listings increasingly.

• 26:25Speaker 02

  On top of that, the ability for directors to get DNO insurance via direct listing is next to impossible. And I went through this at Slack, so I can tell you firsthand. Meanwhile, you can't raise primary or secondary capital. So IPOs are a little Byzantine and broken. Direct listings are Byzantine and broken. They both take 18 plus months to pull off. And then lo and behold, there's this tool called a SPAC where you pre-bake it. You know, that's what I do. I pre-bake the IPO already and get the SEC approvals, et cetera. Now, all of a sudden, it's a 90-day process. You go public via a merger, which means that you can actually spend time with Wall Street. You can create a forecast. Did you know that you cannot create a forecast when you go public through a traditional IPO?

• 27:07Harry Stebbings?

  No.

• 27:08Speaker 02

  You cannot show a multi-year projection of what you think the business can do. So there's all these arcane rules that you can work around that a SPAC solves. It's very transparent. You can add any amount of money to the IPO that you want. You can do any mixture, primary and secondary. You can remove all the lockups so that the employees and the founders are free to get liquidity from day one. I didn't invent the SPAC, so I can't take credit for it. It's been around for decades. I just think it was pretty simple first principles thinking.

• 27:35Harry Stebbings?

  Can I ask for you, though, when you think about kind of rolling this out and doing it a lot more aggressively or just moving forward, using it more as a structure, is it not frustrating that it's like one at a time and you have to raise them one by one? And how do you think about kind of gaining velocity of SPACs over time?

• 27:49Speaker 02

  I can't say that I have the answer. The reality is that the SEC has very strict regulations with how many of these you can do at the same time. So to your point, it's not as if software could automate this where you could have a thousand, or even a hundred, or even 10. But I think that that's also right, because I think that if that happened, you'd have a bunch of fly-by-night folks who viewed this largely as a scheme to get rich. And I think whenever that happens, a market can get perverted by those kinds of actors. The reality is, these things take time, they're a little bespoke, each one, they are handcrafted. And so they take people who have an interesting cross-section of skills. You have to be, particularly if you're going to work with a tech founder, you have to be, on the one hand, relatively savvy on the capital markets and a decent

• 28:33Speaker 02

  investor, but on the other hand, a good translational layer that can explain the product and the technology and help the CEO transition them into being public. So that's a unique skill set that I don't think many people have. I do think some people, and a handful more than I, but I think it's a unique enough thing where if we can do our part in getting that 4,000 closer to 8,000, I think we'll all be better off.

• 28:55Harry Stebbings?

  The other big question I have when I thought about the SPAC strategy that you have is like, in your mission to really make social into the birth of our generation, which I've heard you say before, is the SPAC strategy one step on the milestone process to getting there? Or is it the step which scales with the size of the SPAC itself? How do you think about the milestones to get to that end goal of the birth of our generation?

• 29:15Speaker 02

  It's sort of a tool. It's not the end in and of itself. I think what I do with these SPACs is continue to refine our toolkit of investing, continue to understand how to punctuate long periods of inaction with things that are highly accretive. I think that's a definite skill. If you think about investing more broadly speaking, it's an infinite game. And the only real competitor is yourself because the only thing you're really fighting is not really market gyrations, but it's your own psychology. And if you can manage your own psychology, you have the ability to survive. And when you're trying to win an infinite game, the only marker of success is survival, right?

• 29:57Speaker 02

  Because by definition, if you get sort of to the end of your life and you're still in the game, you've won. And it doesn't matter how much you have or how much you lost. It's just that you never lost the game. And unfortunately, I think a lot of people treat investing as the opposite, which is a finite game where you're trying to sum up something, your net worth or your assets or whatever. And I just don't think that's what it is. I think the financial markets are a beautiful test of your ability to self-actualize and to psychologically evolve and survive and to build true emotional resilience. Because if you do it, I think the best investors have that. And you know Buffett is a perfect example. So when I talk about wanting to build Berkshire,

• 30:42Speaker 02

  in many ways, it's a selfish way of defining a goal for myself that is frankly, a lot about me and moving to a better place where I psychologically have a better handle on my emotions. I understand when I have these bouts of inferiority. I find a way to just constantly become a little bit calmer, a little bit more humble, a little bit more focused, find a way to be kind to myself. Like I've had opportunities to make money, I've given them up. I've had opportunities to sell instead of held shares of a company that I believed in and lost money. I can really punish myself or I could learn to be kind. And it's been a great test. You have to be very vulnerable. You have to be super authentic. You don't know the answers. And so all of these things, if I describe those things,

• 31:26Speaker 02

  you could go to a therapist, which I do. But I mean, you could go to a therapist with these things as personal evolution. But in this crazy way, Harry, it's also a professional evolution. So by taking social capital public, what I think I will have said to myself and then said to you and other people is that I feel like I Have gotten to a point where I am no longer my own worst enemy, which means I would be very comfortable with you entrusting me with some portion of your capital for the rest of our lives. That's an, it's just a different level of risk and responsibility that I have that I didn't have when running social capital because I viewed it more as a finite game.

• 32:07Harry Stebbings?

  Can I ask, you mentioned that the investor psychology. I'm really interested, given your success, given the experience that you've had, given the financial elements that you've enjoyed. Everyone can tell you you're wonderful and how smart you are and how brilliant you are. How do you like manage your own psychology, especially, and I don't mean this kind of sycophantically, but when you get to your stage when everyone can suck up to you and be nice to you and tell you those nice things, how do you check yourself at the door almost?

• 32:31Speaker 02

  It has become less and less of an issue because it doesn't really hit me. Meaning if somebody gives me a compliment, I know enough to be thoughtful and gracious to accept it. But if you could walk through what's happening in my mind, imagine there's me standing there with a big glass dome and somebody's throwing something at me and what I hear is bing, it just bounces off. And the reason is because I've really come to believe that the only person I'm really trying to impress is myself. It doesn't mean that I don't care what others think or that I can't be a good honorable person to the people around me. That's not what it means. But it just means that if I look at my desk, I have one piece of paper

• 33:14Speaker 02

  and I've written on it the following things, which, and I just told you what they are, but I'll say them again. This one piece of paper on my desk says the following things. Calm, humble, focused, kind to myself, vulnerable, authentic. And it's a way of reminding myself every day who I'm battling. And I'm battling myself to find an incrementally better self on these dimensions every day. So that's how I kind of think about it.

• 33:40Harry Stebbings?

  No, I mean, I absolutely love that. And I really think over time, kind of strength through vulnerability. I'm really interested. You also said about the emotional resilience there, and I hope it's not too personal, but you've spoken a little bit before about kind of growing up and seeing elements of alcoholism, depression, psychological abuse. I guess the question I have was like, how did you deal with that? And bluntly to map, and you know, I open up on the show sometimes maybe too much, but my mom's got MS, multiple sclerosis, and it's super tough to go from being the child to being the adult much earlier than you thought. How did you deal with it? And how did you get through it?

• 34:10Speaker 02

  It's a really thoughtful thing you just said. You know, I was robbed of my childhood, Harry. And that may seem like a really dramatic statement, but when I see my children, there's a level of lightness that my children have as they approach their day to day life. They can run and jump and swim and play and they don't live with a scepter of fear. And my childhood was largely about making sure that I understood where my dad was in his psychological state. And that was the only way to protect myself physically as well as psychologically. So it robbed me of a childhood of that lightness. But what it also did, it forced me to become extremely superficial

• 34:52Speaker 02

  in the sense that I didn't learn how to build any intimacy with people. What I was taught very early on was that adults will let you down. What I was imprinted inside me was that I was pretty worthless. Because why else would somebody treat you like that? You must not be a very worthwhile individual. And all of those things created enormous dysfunction that cascaded into my adult life. What I would tell you now, though, is that I wouldn't have changed it for the world because it was in that struggle that I've learned that these are the things that really matter. And in fixing it, I found things that I never thought existed in the world. So emotional intimacy,

• 35:30Speaker 02

  deep sort of sensations of like love and kindness and the ability to be just a wonderfully loving parent or friend. Those were things that I fundamentally didn't understand and probably in many ways disrespected in my mind because I thought that they were signs of weakness. And it's allowed me to get to a much better place. So I am now, what I would say is my dad did the best he could. And my mom did the best that she could. And it took me many years of therapy where it started off from bewilderment and then anger. And then, you know, though all the stages of grief. But now I've kind of accepted it. And I said, despite all the things that they may have done wrong, they did one fundamental thing right, which is they gave up their entire life.

• 36:13Speaker 02

  They moved from Sri Lanka to Canada and they did whatever it took. And at the end of the day, that has made the single biggest important impact in my life. Because I don't think I could tell you that I would be here talking to you had I not grown up in Canada. So I owe them everything. But it's made me realize that the things I didn't have, I didn't have many material things, but it didn't really matter. What I really didn't have was a childhood. And now I, the only thing I can do is try to give that to my kids and use it as a way to just, again, go back to the things that I'm trying to be and reward myself with this kind of psychological progress.

• 36:52Harry Stebbings?

  Can I ask, did having children change your perspective and your reflection on your own childhood? And also, how did having children change your operating mentality? Because it's such a life transition.

• 37:02Speaker 02

  I think that children in many ways are the best and worst reflections of you as a parent. So what they can give you is complete, unfiltered, nonjudgmental love. They look up to you like a hero. And it's an incredible sensation because probably in most of our lives, unless we were some famous singer or athlete or whatever, we probably weren't adored by anyone really until we had a child. And when you have a child and you see them look at you, you are the single solitary thing in their life. And it's an incredible, incredible feeling. And so for me, it was a realization, actually, Harry, about how much I didn't have growing up emotionally.

• 37:46Speaker 02

  And it was what really said to me, I have to go on this journey and figure out what all of this means. What does it mean to have grown up the way that I did? What does it mean to not have had a childhood? How do I think about giving a childhood that's light and free and full of possibility and love to my children? That's the best gift that I'll give them. So they did that for me. The other thing that they did was really helped clarify for me what was important. Because what wasn't important was then any sort of monetary or other demarcation. What was really, really important was The ability to sort of allocate my time so that whenever I was making sacrifices for my family, it was resulting in something that mattered to them.

• 38:31Speaker 02

  And what matters to them is that their dad is happy because then their dad gives more happiness back to them. And the way that I'm happy is not by making more money, but is when I feel like I'm learning and I'm psychologically evolving around these dimensions. So they gave me the courage to change my business. They gave me the courage to be able to tell you confidently that I go through long periods of time doing nothing. Reading, thinking, meeting, but nothing. But it's okay because it makes me a person that they are more proud of and that's very good for me.

• 39:01Harry Stebbings?

  Final one before the quick fire, but I do have to ask it. And I said to you before the show, I've listened to many, many hours of you speaking before. Now you sound completely at peace with yourself and where you're at mentally and where you're at professionally, family wise. Do you feel that now?

• 39:15Speaker 02

  Not yet. I think that it still ebbs and flows and I think that two things will happen. So one, that's an outside in is when my business is public and I can really feel like I'm doing right, not just by me, but the people that have aligned beside me. And then the second is when I don't need this piece of paper on my desk. Because the one thing I didn't tell you about the note is that there are those things, but then there's a word that's written before it, which is the word be. And so I really kind of told you a half truth. The real note, it says be calm, be humble, be focused, be kind to myself, be vulnerable, be authentic, which is just a reminder that I'm not always those things.

• 39:57Speaker 02

  So, you know, one is a responsibility towards others and then the other is a responsibility to myself. So when the business is public and I don't have this note on my desk, I know that sounds crazy, but I will feel like I've really accomplished something.

• 40:09Harry Stebbings?

  Listen, I think I'm going to be adding that note to my desk and trust me, it's going to include be as well. So don't worry about that one. I do want to move into my favorite though, which is the quick fire round. I've so enjoyed this discussion. So thank you for that. But I do want to do the quick fire round. So I say a short statement, Shemah, and then you give me your immediate thoughts. Does that sound okay?

• 40:26Speaker 02

  Fabulous.

• 40:26Harry Stebbings?

  Okay. So your favorite book and why?

• 40:28Speaker 02

  I'm not a huge book reader, to be completely honest with you. The book that I'm reading right now that I found is really brilliant is the Shane Parrish, The Farnham Street, one that breaks down mental models. I think that that's wonderful, but probably my favorite book is something fun. It's called Liar's Poker, written by Michael Lewis. It's about the bond trading desk at Solomon Brothers in the eighties. Wonderful, fun, guilty pleasure.

• 40:49Harry Stebbings?

  Most memorable board member you've sat on a board with and why?

• 40:52Speaker 02

  Easy one. So when I was thirty-three years old, I joined the ownership group of the Warriors. I bought ten percent of the business. I was one of six major holders of the business. And my first board meeting, you know, I was one of the first minorities to join the ownership ranks of a professional sports league. So I was checking a lot of firsts, but the first board meeting I ever had at the Golden State Warriors was incredible. I was sitting beside Jerry West. If you don't know basketball, he's the logo on the NBA and it's just this enormously large, imposing figure. And again, you know, he's the logo. This is the entire league is built around Jerry West at some level. So Jerry West couldn't give a fuck. He will talk whenever he wants to talk. He talks about whatever he wants to talk about.

• 41:33Speaker 02

  He's Jerry West and I had a brilliant, brilliant time and it was the honor of my life to sit beside him. And he would, you know, whisper to me constantly about things that he was thinking. It was incredible. It was incredible.

• 41:44Harry Stebbings?

  I have to take this opportunity to ask this. I've just joined my first boards over the last two years. Fundamentally, I'm very, very insecure about it. I sit with people who've been doing it for twenty years and sound very smart. What advice would you give me, really looking to be the best board member that I can be?

• 41:58Speaker 02

  I think that governance really matters, especially as a company scales, because people will use success as a reason to not compound integrity. So I think learning from someone who really understands that integrity is not a question of leverage. It's sort of a binary decision. And so I would make sure that you really understand what's right or wrong. And you stand up for yourself because there is no board that's worth sitting on when they start to behave in a way that violates your moral compass. It's just not worth it. And invariably, the best CEOs see it and then they appreciate it because in many ways, a lot of CEOs test the boundaries almost in a curious way to see who has the balls to tell them no. And I think that's a really important thing to learn.

• 42:42Speaker 02

  The other thing is that I would really encourage you to get the CEO to write a multi-page prose memo before every board about what he or she is thinking about the company. And I would study that and I would be really prepared. I think that not enough CEOs do it and then as a result, not enough board members are really prepared to really help understand their point in their own psychological journey in running a company.

• 43:09Harry Stebbings?

  What's your biggest strength and your biggest weakness, do you think?

• 43:12Speaker 02

  My biggest strength is that I think I have a very good mind for understanding risk and what is a good risk and what is a bad risk and how to make risk-adjusted bets. And, you know, I played poker for a long time and I've refined it there where I put people to the test for huge decisions, huge amounts of money, and vice versa, I've been put to the test. And so I've learned to really assess risk and what I know and what I don't know. So I think I'm pretty good at that. I think my biggest weakness is that I still have these pangs where because of these self-worth issues, I can be somewhat destructive and I give myself a harder time than I need to. And so I have these inferiority complexes and that's probably my biggest weakness still.

• 43:57Harry Stebbings?

  What would you most like to change about the world of venture that you see today?

• 44:01Speaker 02

  I would love to take away the management fee and I would love to replace it with a little bit more carry so that we really see the dynamics of when you have to work for decades to get paid like the founders and employees of companies.

• 44:15Harry Stebbings?

  If you could form a board of personal directors for your personal life, who would get the two to three seats and why?

• 44:21Speaker 02

  I would put my friend Rob Goldberg. He was a really instrumental part of my friend circle. And then one of them passed away, Dave Goldberg, his brother, four years ago. And what I would have told you about Rob before was that he was kind of the goofball in our group. And over the last four or five years, as I've gone through my journey, what I've realized is he is the most empathetic and emotionally intelligent person that I've really met in my life as a man. He has been instrumental so that it's helped me build valuable relationships with other men. Because otherwise, everything else was basically like a dick measuring contest, which was about, am I superior to you or are you superior to me? And it's not healthy. Sometimes we need relationships that are deescalated. So that's one person.

• 45:05Speaker 02

  My second is my partner. She has been transformational in my life, Nathalie Dompe. She has a level of emotional intelligence and compassion and empathy that it's just, it's unique. She's got an energy meter that I've never seen before. And so she's really helped me be kind to myself and at a very basic level, love myself a little bit more. I think those two would be the principal people. And then if I had to add one more person, I would probably choose somebody that didn't like me.

• 45:33Harry Stebbings?

  He doesn't like you.

• 45:36Speaker 02

  I think, I think a lot of people dislike me, but for the wrong reasons. I think that, I think the initial UI that I give some people perturbs them. I think the reality, though, is, Harry, that a lot of people hate in others what they hate the most in themselves. And when a lot of people are angry or judgmental about something, what they're really judging is something in them that they would want to fix. And so I would want somebody like that because it's a good, again, barometer of how fast I'm evolving. And eventually, when that person isn't mad at me anymore or doesn't hate me, again, it probably means that I've gotten to a place of peace. So that's an abstract idea of a third person, but that's who I would want.

• 46:18Harry Stebbings?

  No, I like that addition. And penultimate one, what is the future of Silicon Valley in your mind? Is it always going to be the center of tech? Are we seeing the decentralization of entrepreneurship?

• 46:27Speaker 02

  I think we are seeing the decentralization of entrepreneurship. I think that entrepreneurs come in all forms, genders, races, colors, sizes, sexual orientations, and they all come in every geography. And I think there are really great initiatives like Y Combinator, Startup School, things that are sort of abstracting the fundamental building blocks of being an entrepreneur to something that can be consumed by many, many people all around the world. And in that, I think that there is an enormous momentum and pendulum that's swinging towards global innovation. The thing that I think people need to realize is as that happens, returns will decay. And it happens in every market when you expand. So, real estate used to generate thirty percent IRRs. Now they generate high single-digit IRRs.

• 47:12Speaker 02

  But the asset class and the category is a hundred times bigger than it's ever been. Private equity used to generate thirty or forty percent IRRs. Now, again, high single-digit IRRs. But the asset class is bigger than it's ever been with trillions of dollars. Similarly, I think we want innovation and startups and company building to be a global endeavor, where we can absorb hundreds of billions of dollars a year, trillions of dollars a year. I think the reality that people need to confront themselves with though is that this is going to be a business that generates single-digit IRRs. But that's good because the net impact for society will just be that much greater. Which is why I think, again, going back to what I said earlier, dispensing of the management fee and getting people to be career-oriented, I think really gets people who are invested in the process and have a love for company building.

• 47:56Harry Stebbings?

  Sorry, and this is a penultimate one, I promise you. But if you remove the management fee, I'm totally with you. How do you get paid? I mean, does it not make venture more exclusive because you have to have existing money?

• 48:06Speaker 02

  Well, I think when you look at the compensation of venture funds, if you took a five-person venture fund and raised five hundred million dollars, that's ten million dollars a year in fees. I don't think that that's required to pay five people two hundred and fifty thousand dollars a year. So, the reality is that if you had just a very simple budget-based approach, I ran my fund as budget-based. I never ran it as a flat fee. Now, I ended up using the two percent because I had many, many tens of people. I had data scientists, we had HR, we had PR, we had all these outsourced resources. All those things consumed capital. But what I didn't have was a situation where I was paying myself three, four, five, six million dollars a year. Many venture firms are set up that way.

• 48:46Harry Stebbings?

  Sure.

• 48:46Speaker 02

  And so, the idea is if you basically crush the fees down to virtually nothing and you made people have to transparently disclose what they made, then I think entrepreneurs would demand That they pay themselves no more, no less than the CEO themselves, which is fairly reasonable. And you really only make money when you can actually help build a company for success.

• 49:04Harry Stebbings?

  Yeah, no, listen, I I do agree with that, but very pleased to hear about the budget base as well. Final one, what do the next five years hold for you and for social? How do you think about that exciting roadmap ahead?

• 49:14Speaker 02

  In the next five years, what I would really like to prove to myself is that I can do these large concentrated investments in a repeatable way, meaning I can learn, I can refine a decision-making process. And one or two decisions a year or every eighteen months, I basically have a very, very high hit rate. That's what I would like to prove over the next five years. And I think at that point, it's a really good demarcation where if I think that I can continue to grow as a person at the same rate or even half the rate that I had over the last couple, then I think I'll be in a really good position to take that next step, take the business public and get this piece of paper off my desk.

• 49:53Harry Stebbings?

  Chamath, as I said at the beginning, I've wanted to do this ever since I started doing this show. This has been such a pleasure, so thank you so much for joining me today.

• 50:01Speaker 02

  It's a real pleasure, Harry. Thank you.

• 50:04Harry Stebbings?

  I have to say, that was one of my favorite shows that I've ever recorded. For me, I I love it when we go beyond the world of venture and actually really touch on a lot more personal aspects. I want to say huge thank you to Chamath for being so open. If you'd like to see more from Chamath, which is a must, then you can find him on Twitter at Chamath. Likewise, it'd be great to welcome you behind the scenes here. You can do so on Instagram at H Stabbings nineteen ninety six with two Bs. However, before we leave you today, I'm sure you've heard about it, but my word, this is a product I love, Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com forward slash two zero VC to get ten percent off. More than eight hundred thousand employees and shareholders use Carter to manage hundreds of billions of dollars in equity. And Carter now offers fund administration, so you can see in real time data in the Carter

• 50:49Harry Stebbings?

  platform and work with Carter's team of experienced fund accountants. Again, go to Carter.com forward slash two zero VC to get ten percent off. And speaking of amazing products that you've heard about with Carter there, last month I had Jeff Seibert and Wayne Chang on the show from Digits. Simply put, they're two of the best founders that I've ever Ever met and they're creating the most intuitive financial software that you've ever seen or used, automatically analysing your company's spend and visualising it for you as it happens. Hone in on recent activity, trends, anomalies, or any question that you have in just a few clicks. And unlike every other financial software, the integrations is not weeks, it's just a few clicks. I have to say the product is absolutely beautiful, which is not something I ever thought I'd say for financial software,

• 51:30Harry Stebbings?

  but you have to check it out and you can do so at digits.com, that's at digits.com. And finally, did you know there will be 1.4 million job openings for developers in 2020 alone? Well, that's where my friends at Terminal come in. Terminal is a remote teams engine for fast-growing companies, connecting you with global talent to deliver the product-building powerhouse your business needs to grow. They provide services and infrastructure in a complete solution that allows businesses to build and scale their remote engineering teams from the ground up without sacrificing experience or quality. From workspaces to community to on-the-ground support, they take the guesswork out of remote so that you can really thrive. But really, don't take my word for it, just ask high-growth businesses like Gusto, Chime, Earnin and Hims,

• 52:13Harry Stebbings?

  all trusting Terminal with their remote teams and you can find out more today at terminal.io. As always, I so appreciate all your support and I can't wait to bring you a fantastic episode this coming Friday.