E628: SocialCapital’s Chamath Palihapitiya on the state of the tech industry, politics, diversity, four keys to picking investors, and the changing morality in America at LAUNCH Festival 2016

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about this episode

At 2016 LAUNCH Festival, Jason sits down with Chamath Palihapitiya, Founder and CEO of Social Capital. It’s classic, candid Chamath sharing his insights on the changing morality in America (for better and worse), the insanity of Donald Trump, the critical importance of diversity in venture capital, income inequality, why we should hope that Theranos’ Elizabeth Holmes will prevail, the four things you should look for when choosing your investors, predictions on self-driving cars, which will be the next $300b company — and much more. You don’t want to miss this!

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The Morality of America has Changed

At several points in their conversation about the American political system, Chamath notes how morality has shifted in many significant ways in the past few years — we now value aspects like non-traditional education and racial and gender equality — which has produced opportunities for people like Donald Trump to take the main stage in our two-party system. Chamath goes on to point out that these changes in morality have implications for founders: there are new business opportunities now that wouldn’t have existed even five years ago.

Four Things Founders Should Look For In Investors

In the course of discussing the state of the venture capital industry, Chamath lays down four simple guidelines for picking investors. These are:

  1. Investors who are good “pickers” — people who are good at choosing successful portfolio so that you can be among other high quality founders and companies.
  2. The percentage of the VC’s portfolio that gets follow-on financing — if you want to make it from round A to B and then on to C, looking at the past performance of a VC’s portfolio can give you insight into how long you will likely to be able to receive investing.
  3. Investors who “map to what you are as a person” — sharing the same values and goals makes the investment relationship more enjoyable, and it means you are helping someone succeed whom you want to see be successful.
  4. Investors whom you morally disagree with — if you don’t agree with what your investor stands for, yet your company helps them succeed, you continue to perpetuate that moral.

Chamath recommends building your ranked list of investors based on these criteria, and he also gives a fair assessment of Social Capital on these criteria.

There’s a Long Way to Go to Improve Diversity in Venture Capital

Toward the end of their conversation, Jason and Chamath discuss the ‘report card’ Social Capital produced last year which laid bare the reality of non-diversity in the venture capital industry. Chamath spoke passionately about diversity in the industry, the chasm between the investor and entrepreneur class (which displays far better diversity), and how he’s helping steer Social Capital to ensure the distance between “us” and “them” closes.

Want to hear the whole conversation? The full episode with Chamath Palihapitiya, as well as past episodes are all available on This Week in Startups.

Timestamps

2:16–6:33: Jason asks Chamath about how Donald Trump has seen such success in this presidential campaign, the changing morality of Americans, and how entrepreneurs should try to take advantage of this.

6:33–8:32: Chamath gives his opinions on the two-party system in the US and why he would devote the entire team at Social Capital to Mike Bloomberg’s campaign if he ran for president.

11:49–14:44: Jason asks Chamath about the state of the technology and investment industry, the historical run up of unicorns, massive valuations and massive fundings, and what’s happening now. They also discuss Slack as a good example of a company that controls its own destiny.

14:44–19:02: Chamanth talks about how the best founders emerge in times like this, where investment is harder to come by. He also shows how 2016 fits a pattern for the founding a massive company.

20:55–24:29: Chamath and Jason talk about Zenefits, how the company was morally broken, and how David Sacks will fix it. They discuss Facebook, and how companies can test the boundaries without breaking the rules.

24:29–28:29: Chatham talks about the difficult task Theranos is trying to do, how he hopes that the company is legitimate, and how transparency is crucial to success.

28:29–35:00: In discussing the state of Social Captial, Chamath lays out four things he believes founders should look for in their investors. He also discusses how he is trying to ensure Social Capital is more than just an investment firm.

35:00–39:38: Chamath takes a passionate stand about diversity in the industry, the chasm between the investor and entrepreneur class, and how he’s constructing his business/investments to ensure the distance between “us” and “them” closes.

39:47–45:30: Jason asks Chamath about the diversity report card Social Capital made about the venture industry, and how he’s come to realize how crucial diversity is for making successful venture decisions across all stages of a company.

45:30–48:14: Chamath talks about the Eight Ball they built at Social Capital to shine light on the analytics they use in-house to make better business decisions.

48:14–53:40: Lightning Round: Chamath quickly gives his thoughts on several topics, including Apple vs the FBI; self-driving cars; virtual reality; Uber; and Y Combinator.

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