Vision
In 40 or 50 years, you’re talking two to three billion people. That’s a big number.
I’d [also] like us to be a part of businesses that are employing at least 10 million.
I’d like for us and our partners to have made a trillion dollars.
All of these things seem crazy, but it gives you a goal that’s far enough away but somewhat tractable in the mind to just stay focused.
I think that part of doing this and building Social Capital is showing a path where we become an alternative to what otherwise is a very paradoxical choice amongst young, smart people, which is for-profit technology company, or a non-profit or government.
I think there’s an interesting thing in the middle where you take the best parts of this — which is the ability to get paid, recognized, and valued, with independence and technical leadership and risk taking — with a large broad based, value-oriented agenda about what needs to happen for societal progress.
I want to pioneer that model. I want that to be a safe harbor for thousands of really smart people, millions of really smart people. Because in many ways, that’s the majority, or silent minority of people that will keep this earth from imploding on itself. I think we need that.
Patience
My 2045 ambition for the organization, as I see it right now. I would like us to employ at least 10 million people, through the businesses that we own. I would like our businesses to positively affect at least a quarter of the world’s population. I would like us to have made, cumulatively, about a trillion dollars. That’s my 2045 ambition.
If we do that, we are the modern face of capitalism, for the next 50 years. So how we do that now becomes really important. If you think about building businesses today that can do any of those three things, you have to be technological. You are not going to build a brick-and-mortar business that gets close to any of those three things.
You have to think very broadly about building things that can stand the test of time. Those businesses are by definition hard and non-obvious. And so they compound in scale very slowly. That’s really counterintuitive to the overriding logic of Silicon Valley which says, “Quick, fast, go.” That kind of premature ejaculation doesn’t work if you’re trying to be around forever. You’ve got to be in the flow, for decades. That is hard. It tests peoples’ patience, resolve, and everybody’s really intellectual incision.
And this is where everybody gives up.
Reset
In these last 10 months, my dad passed away, one of my best friends passed away, and it even more amplified that drift. I was a little disengaged. Emotionally detached from this company I had founded, mostly because of these that were happening in my personal life. Yet at work, things were going so well there wasn’t a lot of impetus to change.
In the last two months, I just dealt with it. I saw a therapist and a grief counselor and I really just unpacked a lot of this stuff, and I got to the other side of it. I was like, “I’m ready to go, I’m ready to get back into this.”
I wanted to reset the firm in many ways. The way that I wanted to do it was I said, “Okay, listen. I want us to reframe our goals so that in the worst case we’ll be the best venture firm, but in the best case, we can really affect human outcomes. We can use technology to really reshape some of these fundamental human needs. That’s an ambition we should aspire to.”
In order to do that, we need massive amounts of capital and we need to be able to take that capital and deploy it really effectively.
Let’s marry that goal with the short term tactic of basically becoming the best venture firm.
Understanding Technology
The future of what we’re trying to build is something that says, “Wherever technology will either create positive disruption, or create some kind of negative implication, we want to understand.”
The minute that you say that, two things happen. First, your team construction is totally different.
There are no financial people at Social Capital. There are product managers and engineers that allocate capital as a byproduct of really good decision making. Those people needed to have done something really important. At Facebook, at Google, at Apple. You name it, we cherry-picked great fantastic people that understand the technology landscape.
The second: we are functionally agnostic about where we allocate the capital. We do seed investing, we incubate businesses, we’ll invest in traditional Series A, we do growth, we have a huge hedge fund. All of that is because that is a tactic of a strategy, and what we try to do is to become really good strategists.
The question is, how do you [become really good strategists?]
The way that we do that is not dissimilar from the team I was a part of at Facebook, which was very data-oriented.
Public institutions have a way of normalizing their measurements. Stock prices are a way, but mostly, gap financials are a way. There’s a very simple way to take an auto industry company, an insurance company, and a healthcare company and say, “Which one is better?” You can make those tradeoffs. But how do you trade off Airbnb, with Pinterest, with a Series A startup that I just invested that’s building a machine learning ASIC?
The thing you have to do is look past cash flows because oftentimes they don’t exist, and look underneath the hood at how these companies really operate. What that requires is a deep technical understanding of how products get built, what is a leading indicator of success, what is a lagging indicator, and putting those together in a complete picture of company formation.
So we’ve taken an agnostic view of capital allocation, we’ve pulled together 35 incredible product managers, engineers, people who know how to think about building really disruptive things. We’ve collected enormous amounts of data. From third party sources, as well as all of our portfolio companies, as well as all these companies that want to work with us.
We use that to create a mosaic that allows us to make, reasonably intelligent thus far, and highly productive capital-allocating decisions.
Fact Pattern as Success
The goal is to now work the rest of my life and leave a great fact pattern for other people to copy. It’s the process now, that’s winning. There’s nothing numerical I care for. There’s no validation externally that I care for. I could not care less. What I care about is: is there a fact pattern that aligns more and more people? Can we create a movement to reframe and rebuild capitalism, bottoms up?
That movement is not something that anyone can ever take credit for, but to be a part of it, to bolster it, and to propel it forward, to me, will be an extremely great thing to be a part of for the rest of my life.
There’s no demarcation. Things, like when we talk about what a success looks like, or what are demarcations, all of those things are the traditional society’s infrastructure of ring-fencing people and putting them in a box. I just don’t want to live my life that way.
I am just as subject to the same weak, ego-driven, thinking as anybody else. I will succumb and be co-opted by these people, if I’m not careful.
I have to remind myself: it’s not about success, it’s about a process and it’s about creating a roadmap that many of us will copy, use, and reuse. It’s not about credit.
https://www.marketplace.org/2017/12/19/tech/source-code-chamath-palihapitiya (12:15)
Knowledge Base for Better Entrepreneurship
It’s a knowledge base. And it’s a knowledge base that grows independent of, and outlives, any current set of partners that may work at Social Capital. That’s the key.
I don’t view my role as instrumental. I view my role as part of a process of creating that artifact. 15 or 20 years from now, there’ll be an entire suite of employees and partners at Social Capital that then continue to build that knowledge base, and then 50 years and 100 years from now.
Because the output of that will be better entrepreneurship. The odds of success go up. Your ability to now differentiate yourself goes up. Then, going back to how we started, it then does the job not just of capitalism, but of governance to the extent that governance continues to be great.
Well, I think economically, actually, it behaves the same way [as glomming on a consulting company to a money giving company] in the following way. This is part and parcel of a comment about what you said earlier as well. Why are VC’s reticent to do it? It’s a money game. When you have nine people running $10 billion, that’s way better than having 90 people run $10 billion because the fee income is so gi-normous that you’d rather just chop it up amongst nine people.
So if you go to the entrenched establishment and say, “Hey, you know what, I think what’s in the best interest of the entrepreneur is not that you make eight million bucks a year, but instead that you hire a bunch of machine learning and data science people to help support them.” The answer is, “Yeah, in theory that’s right, but you know what, they should do that on their own.”
Okay, well the problem is, they can’t do it on their own individually.
And it’s not their fault, you know why? The problem, why they can’t do it? Just in the last five years, do you know how much money has gone into Silicon Valley and China?
One trillion dollars. How does one trillion dollars find a home without the following market conditions emerging:
A bunch of companies getting overfunded, many who should otherwise be going out of business so that the talent can then be attracted to the winners. Now, instead of a two-year life cycle from starting to failure, now you have a four- or five- or six-year life cycle where the outcome is the same.
So any one company now, just statistically has a much lower chance of getting the talent they need to solve these problems. Whereas what I can say is you know what, that infrastructure that can help you do massive amounts of machine learning on top of massive amounts of data to drive real outcomes exists in three companies: Facebook, Google, Amazon.
It just so happens that I was, at the worst case, an accidental tourist that helped build one of them. I can attract the same kinds of people to work with us across 50 companies.
Insights vs. Money
It’s a knowledge base. And it’s a knowledge base that grows independent of, and outlives, any current set of partners that may work at Social Capital. That’s the key.
I don’t view my role as instrumental. I view my role as part of a process of creating that artifact. 15 or 20 years from now, there’ll be an entire suite of employees and partners at Social Capital that then continue to build that knowledge base, and then 50 years and 100 years from now.
Because the output of that will be better entrepreneurship. The odds of success go up. Your ability to now differentiate yourself goes up. Then, going back to how we started, it then does the job not just of capitalism, but of governance to the extent that governance continues to be great.
Well, I think economically, actually, it behaves the same way [as glomming on a consulting company to a money giving company] in the following way. This is part and parcel of a comment about what you said earlier as well. Why are VC’s reticent to do it? It’s a money game. When you have nine people running $10 billion, that’s way better than having 90 people run $10 billion because the fee income is so gi-normous that you’d rather just chop it up amongst nine people.
So if you go to the entrenched establishment and say, “Hey, you know what, I think what’s in the best interest of the entrepreneur is not that you make eight million bucks a year, but instead that you hire a bunch of machine learning and data science people to help support them.” The answer is, “Yeah, in theory that’s right, but you know what, they should do that on their own.”
Okay, well the problem is, they can’t do it on their own individually.
And it’s not their fault, you know why? The problem, why they can’t do it? Just in the last five years, do you know how much money has gone into Silicon Valley and China?
One trillion dollars. How does one trillion dollars find a home without the following market conditions emerging:
A bunch of companies getting overfunded, many who should otherwise be going out of business so that the talent can then be attracted to the winners. Now, instead of a two-year life cycle from starting to failure, now you have a four- or five- or six-year life cycle where the outcome is the same.
So any one company now, just statistically has a much lower chance of getting the talent they need to solve these problems. Whereas what I can say is you know what, that infrastructure that can help you do massive amounts of machine learning on top of massive amounts of data to drive real outcomes exists in three companies: Facebook, Google, Amazon.
It just so happens that I was, at the worst case, an accidental tourist that helped build one of them. I can attract the same kinds of people to work with us across 50 companies.
Risk and Discomfort
The way we balance [risk], is we put ourselves at risk. We’re the largest investors in our funds. 25 cents on every dollar, which is painful, but it forces us to make these important decisions about where we stand on these issues, morally.
If we stand on the side of saying, “We came to this with a mission and a purpose to fix a problem, to create a structural solution to reducing A1C, or to create the pathway for people with asthma and COPD to not suffer from chronic respiratory issues, or people that have cancer to actually get the best quality of care using cutting edge genetics and genomics,” then that’s what we do.
When there’s discomfort, then we have to find other capital partners who believe what we believe.
We can’t capitulate at the 11th hour.
This doesn’t mean everything is going to work, and it doesn’t mean we make all the right decisions all the time.
We’ve done so many things that have made short term massive profits, that’s why we especially have to go to the extreme on the other side. Because if we don’t, nobody is going to be there. And this stuff will die on the vine. That’s not right.
Confidence
We’ve made a bunch of decisions that I deeply regret because they were entirely monetary in nature. What I said to the team was, I’m fine with us making purely monetary decisions, but we didn’t even do those well.
It’s not as if we had a predictable rate of return that said, “We’re going to close our eyes here, double our money, and walk away.”
The reason I brought that up to them: Our decision-making can’t bleed over time. Right now it’s very hard for us, as an organization, to know how much should be mission driven and how much should not. When should we really double down on things that aren’t working, when should we not. When should we just give up?
It is the thing that we are now the most emotionally sensitive to. The opposite may be true: If the diabetes business turns out to work, does the 101st person that works in Social Capital say, “Fuck it, we’re just going to buckle down.” When they’re writing cheques and we’re 50 million deep into something and it’s clearly not going to work, was that it?
I don’t have a really good answer, but it’s the thing that I think about the most.
When do you know, how do you know, to keep going for it? When do you know that it’s too much? When do you know that your decision making is bleeding into a vein that is not constructive? I have no idea.
It’s powerful to be able to say, “I don’t know.”
American culture is a weird thing of know-it-alls. Everybody has to know everything. How the fuck can you ever learn [if everyone has to know everything]? When is that going to be valuable?
Own that one line: I don’t know.
Behind that is a self-awareness and confidence that I think is increasingly rare.
Hard Things
We now need to spend time in hard things. And hard things are dominated by established legacy durable businesses. That’s why they’re hard. They were able to stand the test of time, and they solved things. But they are now going to face an existential crisis.
When people see your results in your portfolio, investors want to come through your door, and want to get to know you. These guys have huge pools of money. I’ll talk about a sovereign wealth fund I was just in. They have $680 billion of assets. And I always start the conversations with the following:
“You should be prepared to understand that every asset you have is either already impaired, or will be impaired. What you haven’t uncovered yet is the technology that’s going to do it.”
I think corporates face many of the same challenges.
Look at the automotive industry. You look at all of these corporate balance sheets, and you look at all of these corporations that have been producing and manufacturing really complicated things in a highly complex supply chain environment at scale for decades, and generating hundreds of billions of dollars of topline revenue: they have a very specific skill, but they’re clearly under threat. The best thing for them to do is to not have some grandiose vision that they present at the board and say, “We’re going to solve this problem ourselves.”
That’s bullshit. Doesn’t happen.
No great engineer is ever going to go work for GM or Ford; it’s never going to happen.
What they can do, is they can find those pools of people in Silicon Valley that can be those magnets, and then partner. They can use their shared balance sheet. That’s where you can create some very innovative ideas and ways of allocating capital that don’t exist today.
It happens a lot in private equity, but it doesn’t happen enough in venture. The reason is because most VCs have a very brittle definition of their job, and, at the end of the day, they aren’t managing their own money. They’re managing somebody else’s money, so their propensity to take risk is non-existent.
Corporates can find a handful of folks — Lonsdale is an excellent example, we’re a reasonable example, and Andreessen with their market development team is a good example — and say, “What are our true strategic problems?” And then you go and have some of us be the actual tip of the spear that goes and actually solves them.
We actually just did this with Ford. Ford has a big autonomy problem. There’s a repeat entrepreneur that made us a lot of money in 2013 and 2014. He’s going to set up the software layer that sits on top of these ADAS (Advanced driver-assistance systems). Us and Ford; it’s great.
They got a right to buy, and we’ll see if they exercise that right. We negotiated a framework that we thought was fair. I would do that 50 times in a row.
A More Flexible Definition
The issue for us: It seems very byzantine on the outside looking in. There’s no really clear way to engage a company with that. Who do you talk to, how do you start those conversations?
I think it has to be the opposite. Yesterday we had a massive insurance company and they have an enormous balance sheet. Now the discussion has quickly transitioned to: How we can use our collective balance sheets to solve some important problems for you, that I care about?
What do they care about? They care about different ways of repricing risk. They care about different ways of process automation. They care about understanding what all this gobbledygook around big data and machine learning are. What I said was, “Here’s some of the things that we’re doing. I could be compelled to learn about those things, but let’s do it together in a way that makes sense, where we share the risk.”
Those can be one-off things, those can be broad balance sheet type discussions.
We have to be positioned like any other smart, strategic, flexible company, with really smart people, who are just trying to build a big business ourselves.
When we are too brittley defined in what we do, like $5 million series A’s, it limits those discussions. Instead what happens is the corporate VC is rendered as the last mile cheque-writer, who often does deals, frankly, that are the crappiest, in really bad structures, and that’s just unproductive.
They’ve actually been solving big, important, problems. We, together, have a better chance at solving some of these big, important, problems.
My experience in building our healthcare portfolio with the corporate VCs we partnered with has been unbelievable. We need them, to exist. For us it’s been a really constructive experience. There’s a trail of breadcrumbs to a much brighter future on how that should work together.
I find that the funds that are not founder-driven are the most open. I also find the ones that are the furthest away from tech are the most open-minded. At the intersection of non-founder-driven and least technology, are actually some of the brightest, most thoughtful, capable people I’ve interacted with.
At the centre are all these dopes that have conflated luck and skill, who think they know what they’re doing, and they are a huge waste of time.
Ecosystem
You need to have a complete view of the ecosystem, and in order to do that you need to understand and spend time with these big public companies: what are their roadmaps, what are they planning?
That allows you to build things that you know can be complementary. But also, when you see things that you know are being built that we are a part of that will dramatically impair what they are doing, you can have some really constructive discussions and/or you can, get on the other side of that.
It forces us to really think, these are all companies, they’re just in a spectrum, at a point in time. Day 1 of a company, day 10,000 of a company. Everything is a very elegant composition of those dots in between. It’s our job to try and figure out what things we’re looking at depending on what day of its life that company is in.
That’s a wonderful challenge because it forces ourselves to not conflate luck and skill. It is constantly changing the way our team has to reevaluate our understanding of the future and then use that to understand the risk.
That’s very important for us because we will hopefully, then, not take ourselves too seriously, and think we’ve solved it.
Strategy
We are not in the business of confusing strategy and tactics. Those are all tactics. What is the strategy? The strategy is that great entrepreneurs are changing the world. They exist all over the world, and they also exist in every single stage of development. Early stage; growth; public. And our business is in the job of supporting them; we are in the business of entrepreneurial finance. Entrepreneurial capital. Entrepreneurial insights. Business acceleration. Growth.
High and Low Touch
War of Ideas
We are in a war of ideas, the arbiter of which, in part, will be the capital that one brings to affecting those ideas and bringing them into being. So when you put all of these things together, if you believe, again, as I do, that we are better off in a more equitable fairly distributed world — and frankly, I come from this perspective not because I’m some bleeding heart that wants to see all of this stuff: I couldn’t care less about any of that.
I’m actually more Darwinian and I’m like, “How interesting would it be for all of us to run a race?” because I suspect some of the people who would win these races are very atypical than the folks that have historically won the race.
And that, to me, that delta and that change and that chaos is really interesting. I just want to be in a position in my lifetime to observe it. I suspect that the sort of prototypical person that would have otherwise gone to a very good private high school and gone to an Ivy league school, then worked at an investment bank, then got an MBA, and all of a sudden is in control of something, is probably not, the person that will be in charge in the future.
That’s a really interesting thing to play out. And it probably won’t be a guy, and he probably won’t be white, and all of these things are actually important reallocations and redistributions of power.
Levelling the Starting Line
The big thing that I wanted to figure out was — right at the time, it was the Arab spring. A year and a half before that, there were riots in Paris. There were terrorist attacks in London.
What I realized along the way was that I didn’t want to be some sort of bitter minority guy who’s like, “I’m getting fucked.” I didn’t get fucked. I got really lucky. But I empathize with that struggle. I empathize with the struggle of women, of other minorities, of LGBT.
The reason is that we all have to deal with signaling that’s telling us, “Here’s the pathway,” and you just don’t fit the pathway. And so you have a choice. My choice was to get enough capital where I could opt myself out.
For each person like me, who can create a safe harbor for their minority class, there are all of these people who are still trapped. They may resonate with you, but they are not empowered to get out.
It came to a head, where I was like, “If I’m going to do something, what are the things that I can do well and what do I want to accomplish?”
There’s a very capitalistic tendency that I have which is like, “I want to win, and I want to win at scale, and I want to prove that I’m one of the smartest people around. Whatever the game is, as the game gets more and more complex, I want to win the game.” I’m not a corpo-fucking-executype.
The more the complexity, and the higher the stakes get, I think I can actually get better and I like that challenge.
I want to be Steph Curry. It’s not good enough to hit 3’s from 29 feet. I want to be the guy that can hit consistent 3’s from 40 feet! Because that’s a dagger. When you’re that guy, you are unstoppable.
The reason that’s powerful is then you get a bully pulpit, where when you say something, it matters and it becomes the de facto expectation.
Whenever I have issues in relationships with people, even when my wife thinks I’m a total jerk, it’s because I sometimes get really Darwinian. Whoever wins the race should just win. But then I realize, how amazing it would be if everybody could run the race?
What if in every single fucking dimension, the best of the best won everything? What if the entrance into Harvard was a pure meritocracy. Total blind admission. You could not put your name. 15 million kids all around the world. Every fucking kid that went to that school would not be the kids going to the school right now.
Those kids [currently at Harvard] know, in their heart of hearts, they’re imposters. They’re there because somebody pulled the string, somebody wrote an essay, somebody packaged them.
The best of the best are not at Harvard. The best of the best are bumbling around, at best they could be at IIT, they could be at Waterloo, but they’re most likely working at a fucking cement factory in Nigeria.
To me, the disruption of upheaving society’s value system became all-encompassing. I think that solves all these problems. It solves people wanting to attack London, people going on shooting rampages in Paris, people lighting themselves on fire. Maybe nothing would change — but wouldn’t it be so interesting to see what happens?
Social Capital is trying to advance humanity by solving the world’s hardest problems. There are systems that are highly asymmetric today, that you can level with technology. You can make them totally symmetric, and in [so doing] you can get more people to the starting line.
Doing this can also make you, literally, trillions of dollars.
In all this technological upheaval there’s going to be massive wealth created, it’s going to get allocated to somebody. Better people with a moral imperative, who have a sense of equality and a sense of social justice, than a bunch of rich douchebags that are already rich.
Also in doing that, you work on the most interesting things.
And, you have a better chance of building them, because people are actually more interested in working on those than the shitty companies that they’d be working at.
And then, you create a system that’s interesting because you don’t know what the outcome is. It’s not pre-determined. And that’s what Social Capital is. We started as a venture firm because it allows us to use money and to invest capital on things that can be really enormous, and really impactful. It allows us in success to really define for people, incrementally, what those really important and valuable things are.