Changing the Growth Equation: Welcoming Tony Bates to Social Capital
One of the greatest experiences of my life was the opportunity to create and lead the Growth team at Facebook. Its success, at this point, is well understood and I’m not going to rehash it, but I do want to talk about what Growth means to me now, and where I think we need to go from here as an industry.
Growth, as I thought about it at that time, was a study of the complex and nuanced interactions between product, engineering, marketing and, in some cases, sales that drove demand. It was never meant to be anecdotal but always unapologetically empirical and quantitative. At its best, a smart effort around Growth puts companies into hyperdrive and enables them to raise the incremental capital they need to win. At its worst, Growth drives companies into the ground through the misallocation of resources led by misinformation. However, I’ve now come to realize that it’s time to broaden the definition and practice of Growth for both companies and investors alike.
Today, capital really isn’t an integral part of a company’s Growth equation and late stage fundraising decisions seem to be made with little regard to the nuances of a particular company’s path. In some instances, we see companies raise altogether too much capital. In others, they are surviving on fumes. In each case, I see capital being allocated to growing companies in a sloppy and haphazard manner. Did any operational rigor go into giving Company A $250M vs $50M for Company B? What if the right number for both A and B was $100M? While this frustrates me, it must be completely infuriating and unnerving to the entrepreneurs that feel the brunt of this sloppiness. The impact from either over or under capitalization are equally bad: board dysfunction, pressure to focus on short term objectives to justify the last round, bad or non-existent governance etc.
As far as I can tell, a large reason for this sloppiness in growth stage investing is that most Growth investors lack operational bona fides. While financially savvy, they rarely have the relevant work experiences that enable them to ask the right questions and thus properly allocate the right amount of capital and insights at the right time.
- What do we think about the company’s true demand?
- How will LTV/CAC change over time?
- What pitfalls and hidden costs come with market expansion — things I’ve seen firsthand before?
- How do I think about L12/L1?
- Can they really pull off that specific part of their technical roadmap?
From my perspective, we need to change how this part of the capital structure works on behalf of entrepreneurs. I suspect that answers to the kinds of questions above can help the growth stage investor act more beneficially when they allocate capital. But answering questions like those above is only possible when operators are involved. We need operators who can look at a Series C or D with the same framework and empathy as a Series A or B, with the experience and savvy of having done it before themselves, and the capital and the courage to then scale up the size of the investment.
I’m convinced this will improve the way growth investing happens. And the benefits will be obvious for a broad swath of companies when we have a product and operationally savvy investor class who can not only write $10–25M checks but $100M’s or even $B’s as well.
It is with this realization that I set out to find a Partner who I thought could build this new kind of Growth investing practice at Social Capital. And we found him in Tony Bates.
Tony’s resume and credentials are legendary: from managing many thousands of employees at Cisco to being CEO of Skype and President of GoPro, holding prior board memberships at YouTube, SiriusXM and currently serving on the boards of GoPro, Ebay and VMWare. But more important is his ability to bring the same product, technical and engineering mindset to big and small decisions alike. For entrepreneurs, that means that he will speak your language and then invest as much capital as you need to win.
Specifically, Tony’s role will be the CEO of Social Capital Growth and will be responsible for all private investments greater than $100M. This is a critical part of our strategy as we build the capability to be the full lifecycle partner to companies. Now, not only will we be able to lead great Series A and B investments through our Venture team but also continue to invest capital through their life as a private company via Tony’s Growth team and, eventually, be long term holders of their stock as a public company through our Public Equities team. Simply put, when Social Capital invests, we can be an investor in your company for decades. At the same time, each of our groups are empowered for scale and insights by our Platform. The Platform team brings both our companies and our internal teams the same power of machine learning, data science and data infrastructure to help our companies win that we did for Facebook — and much of it led by some of the original people from that team.
More details of our Growth investing efforts and our Platform will come out over time but in the meantime, I’m excited to know that a highly skilled product and engineering executive and operator is going to rewrite the rules of Growth investing on behalf of Social Capital and for the benefit of the entrepreneurs and companies who choose to work with us.