Chamath Palihapitiya says big tech is lobotomizing engineers
Early this month, in an interview on CNBC, Chamath Palihapitiya said, that due to the coronavirus related shut-down of the U.S. economy, workers and staff “…are getting wiped out…rich CEOs are not, boards that have horrible governance are not...What we’ve done is disproportionately prop up poor-performing CEOs and boards, and you have to wash these people out.” Let the hedge funds and billionaire investors in businesses like airlines and hotels, who are the most sophisticated investors, bear the losses, he added. The video has gotten over 11 million views on Twitter, YouTube and other social media.
Again today on CNBC, Palihapitiya repeated his attack on big business, though evading the question of why it was OK for Richard Branson, one of his business partners, to seek funds from the British government to save Virgin Atlantic Airlines.
Mission to advance humanity?
With a reported net worth of over $1 billion, Palihapitiya is founder and chief executive of Social Capital, an investment firm based in Palo Alto, California. Its mission is “…to advance humanity by solving the world’s hardest problems…empowering entrepreneurs who seek to improve the lives of the people around them is the best way to create more opportunity globally.”
Founded in 2011, Social Capital has invested in over 70 start-ups, including Survey Monkey and work sharing software Slack. From 2011 to 2019, the firm has gained 997%, before fees paid to management, compared to a gain of 325% for the S&P 500, according to its 2019 annual report.
In the report Palihapitiya says, “we started Social Capital to tackle hard problems like cancer, space exploration and climate change at a time when few investors were doing so. While many investors fawned over social networks, photo-sharing apps, and other consumer-oriented investments, we invested in healthcare, education, and frontier technology businesses like space exploration and artificial intelligence.”
Obsessed with striking it rich
Palihapitiya was born in Sri Lanka* and grew up in Canada. As a child he dreamed of striking it rich and obsessed over the Forbes' Billionaire List, he told Business Insider,. He graduated from the University of Waterloo, Canada, with a degree in electrical engineering.
He is part owner of the Golden State Warriors which is based in San Francisco. On social media, he has displayed championship rings he got as part of the team, after it won National Basketball Association championships. In 2015, he tweeted that he was the first to order a Renovo Coupe, a car that reportedly cost over $500,000.
Palihapitiya has a podcast which he describes as: Industry veterans, degenerate gamblers & besties Chamath Palihapitiya & Jason Calacanis cover all things economic, tech, political, social & poker. He bets on college basketball and national football games and also regularly hosts poker games.
Facebook & other big tech lobotomizing engineers
Prior to founding Social Capital, Palihapitiya was Vice President of User Growth at Facebook, and is recognized as having been a major force in its launch and growth. He oversaw the platform and the monetization of products, both of which helped increase Facebook’s user base to more than 750 million worldwide. Prior to Facebook, Palihapitiya was a principal at the Mayfield Fund, a venture capital firm. Earlier he headed the instant messaging division at AOL, and at age 26, became the youngest vice president in the company’s history.
Palihapitiya is very critical of Facebook and the other big tech companies. In November 2017, speaking at the Stanford business school, he said “The short-term, dopamine-driven feedback loops that we have created are destroying how society works. No civil discourse. No cooperation. Misinformation. Mis-truth. And it's not an American problem. This is not about Russian ads. This is a global problem. So we are in a really bad state of affairs right now, in my opinion."
"I feel tremendous guilt," Palihapitiya said. While working at Facebook, "In the back, deep, deep recesses of our mind, we kind of knew something bad could happen." A video of the talk on YouTube has gotten nearly two million views.
Facebook, Apple, Google, Amazon, and Microsoft, fueled by “unseemly profitability and hi flying stock prices,” are following an explicit strategy of intellectually lobotomizing smart, young engineers and technologists, he says in Social Capital’s 2019 annual report. “If you can’t innovate but are wildly profitable, wouldn’t you also just pay the incremental talented engineer to work for you on anything versus working for a competitor or, worse still, work for themselves and invent something disruptive that could impact your monopoly? Of course you would...and they have.”
Bitcoins as a long-term hedge against inflation
In 2013, Palihapitiya was an early buyer of Bitcoins, when its price was around $80 per coin. At one point he reportedly owned around 5% of the entire Bitcoin monetary base. Today each coin is worth about $7,500. He says its prudent to hold one percent of assets in Bitcoin as a hedge against hyper-inflation which he expects in about ten years.
“We are driving slowly…towards a cliff,” Palihapitiya told Anthony Pompliano in an interview this month. “And then, we’re going to drive much, much faster down that cliff or down that hill. And at the end of it is a huge brick wall.”
Critical of stock options but benefiting from stock warrants
In the 2019 Social Capital annual report, Palihapitiya says the government should use tax and other measures to make it more expensive for Facebook and the other big technology companies to offer stock options and restricted stock to attract talent. This, he argues, will enable start ups to hire that talent.
Yesterday Social Capital Hedosophia Holdings III, a joint venture between Social Capital and Hedosophia, raised $750 million in a special purpose acquisition vehicle. Like two earlier similar funds, it is a “blank check” publicly listed security, which enable the managers to use the funds to invest in or buy companies.
In 2019, the first Social Capital Hedosophia vehicle completed its business combination with Virgin Galactic, Richard Branson's human spaceflight company. The stock, which has attracted lots of speculators, is at $17. This is 70% above the $10 initial offering price giving the company a market value of $3.6 billion, even though its space flights are years into the future.
In 2017, when the first vehicle went public, Palihapitiya and Ian Osborne, founder of Hedosophia a venture firm, as well as the management firm together owned 17 million shares. They invested only $25,000 for this stake, which is apparently now worth around $300 million, giving them more than a 1,000 fold return. The two founders and the management firm also paid $1.50 each for 8 million warrants, to buy the shares at $11.50. Those warrants give them an additional estimated $50 million in gains.
A technologist philosopher?
In Social Capital’s 2019 report, published in March 2020, Palihapitiya viewed the current era as being the final years of a new Gilded Age. He expects it to “usher in the Progressive Era, (in which) a more civilized culture will hopefully abound. Today, it’s not just the stock market but also the fragmentation, polarization and judgement that are at all-time highs.”
“Is this really the hallmark of a society that is progressive?” he continues. “No. It's the remnants of unhappiness, resentment and anger that personify the Gilded Age. That said, it's so much easier to be happy and see the bigger picture when you focus on what matters. So how does one focus on what matters? I’ve found it possible by asking questions like “what matters to me?” and “what is important to me?” These may sound like the most basic questions but they are also the most critical.”
“For me,” he adds, “I have learned that my family, my health and what I know (knowledge) are the most important things that matter to me. Work, money and friendships are important but come strictly after the first three. What doesn’t matter? Everything else, particularly, what others think about me and my decisions.”
Update March 8, 2021
Chamath Palihapitiya - a hype man?
The stock of Clover Health, a healthcare company taken public through a merger with one of Chamath Palihapitiya’s Social Capital vehicles, has fallen by nearly 60% from its high. This collapse was triggered by a February 4 report from Hindenburg Research that Clover had failed to disclose to investors that it’s “business model and its software offering…are under active investigation by the Department of Justice…which is investigating at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals…”
The Hindenurg report added that “Chamath has done a masterful job marketing himself…to align himself with ‘everyday’ investors – but his public persona strikes us as the sugar that helps the poison go down.”
Chamath Palihapitiya, whose family got by on government welfare payments when he was a child in Canada, is described as “a great salesman,” a hype man, but a poor manager by former colleagues, according to a report in the weekend Wall Street Journal. The newspaper also reported that, while still married to his ex-wife and partner at Social Capital, he traveled with a new woman he was dating, according to people familiar with the matter.
Clover responded that the Hindenburg report “is rife with ad-hominem attacks, sweeping inaccuracies and gross mischaracterizations.”
*In 2015, Chamath Palihapitiya tweeted the photo, carried with this story - he is second from right - with the caption: “I had the honor of spending time with Sri Lanka's new President and key cabinet. The country is poised for greatness.”
