53 days to LAUNCH Festival— Spotlights on Chamath Palihapitiya, Social Capital Fund

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This Week in Startups NOTES

19 min readJan 9, 2016

The clock is ticking: March 2nd is just behind the corner.

In only 53 days you’ll finally be able to set your foot inside Fort Mason, San Francisco for the 2016 Launch Festival and hustle your way to more exposure, funding, deals and glory.

@Jason liked my notes so much that he challenged me to write as many of them as possible for his ThisWeekInStartup show episodes. Challenge accepted, Jason. I’m just getting started.

Given the 600+ episodes available, I’ve chosen to focus on the episodes featuring the speakers, angel investors and VC that you will see around at the Launch Festival.

This Launch Series will give you a better understanding of who they are, what they likes to see in founders and what kind of companies they are interested to fund.

You should always be surgical with your pitches and choose wisely who you are taking money from. How you do anything is how you do everythig.

Enjoy the Launch Series and feel free to follow me on Twitter @danperyo

In this installment, the spotlight is on Chamath Palihapitiya, one of the first executives at Facebook and founder of the Social Capital Fund (he owns a share of the Golden State Warriors as well). I’ve gone over the following 3 episodes of TWiS featuring “the best poker player in tech” Chamath and put together the most meaningful points:

(make sure to subscribe to ThisWeekinStartup podcast here for future episodes)

The first 2 episodes have been condensed into one: they go over a lot of similar topics and touch the same points adding more depth and details to the whole story.

The third is from an hackathon that took place the University of Waterloo. What Chamath has to say to students provides a different perspective into his character.

The early years of his career

He graduated from electrical engeeneering at University of Waterloo, worked for a year as derivative trader in Toronto and then quit. Applied to a bunch of jobs, got 3 interviews: Ebay, Tibco, Winamp
At Winamp there was 6 people in their early twenties like Chamath figuring things out and had the most interesting culture
It was the first music platform with a community building plugins, skins for the Winamp music player. Later acquired by Aol.
In 2001 they had about 25M credit cards and tried to sell songs for 99¢, trying to build an Itunes before Itunes, but failed
Two years of meetings to get to a no. Too much burocracy
At Aol Kevin Conroy (now Univision) was his sponsor and look after him as he worked his ass off
When the company had to let go the older executives to save on money, he got promoted as General Manager (he was 24)
At AOL at the same time for a couple of months with Calacanis
Jason was running Weblogs inc (acquired by AOL) , Chamath was running AM and ICQ

How he met Mark Zuckemberg

He first met him through building a contact importer with Plaxo (first viral tool) where Sean Parker was at the time (backed by Sequoia)
Became close with Parker after that, they already knew each other from the Napster and Winamp days
Was introduced to Zuckerberg by him at a meeting on a cold, raining day in November 2005 (FB was still edu-address only) and had about 10–15 employees
Present at the meeting: FB CTO John Mckinly, Parker, Zuck — he didn’t say much, had the north face fleece and he was wearing Adidas flip flops
He thought AOL should buy these guys (AOL response: “no chance, let’s find a deal that integrates each other and get some value”)
They Integrated AOL present on profile pages
A recruiter calls him and asks him if he wanted to get a job as VC but he declined the offer
He then moved to FB and became one of the first executives

Facebook

When he joined FB had 30 million users, pitched the idea of creating a “growth”team to figure engagement and optimize things around engagement and virality
When he left Facebook, users were 750–800 million(july of 2011)
Major focus on growth, his compensation was tied to growth goals
Most people and companies can barely get one thing right: focus constrains optionality and it forces you to have clarity of thinking
it forces everyone to be an expert or know that one thing and nobody can’t talk bullshit

Risk taker

He’s fascinated with being involved with things at the beginning, he loves the art of the start when you try to figure out what makes sense, experiment different ideas, taking lot of risks on (“we are both risk kind of guys”, Jason), love creating
At that stage people care about what they do, they are earnest and love to listen to feedbacks
It’s a rollercoster of success and failure

Poker and startups

He met Jason playing poker and first thought he was a jerk. Then he grew on him, they bonded and now they are good (poker) buddies
Chamath is the best poker player in the technology industry (Jason)
Poker is good cause it teaches you to take risk and you learn to love risk, to make decisions in ambiguity
It’s like the cycle of a startup condensed into 2 minutes
you start with a hand and it’s like you start a company with an idea
You have no idea whether it’s good or not good because you really have no context in knowing everything else that’s out there
You try, you take a bunch of risk, you expend a bunch of capital. Sometimes you win and sometimes you don’t
Another thing he loves is that he really like to understand people and ability to read people is what makes him good at the game
Being an entrepreneur means being able to take swings and losses without tilting and having the courage to keep trying

The art of saying no

He had a romantic view of what a VC is like: when in college tried to get internship, only 2 people responded with a letter (saying no, but it was nice of them)
It’s critical for being an investor to know how to say no
The kind of NO you get is important
He tends to be direct, or blunt in his feedbacks to startups that comes in two ways:
The startup is out Chamath’s fund focus (“we don’t do social consumer stuff”)
It’s in area he likes but he doesn’t believe in the specific idea
Saying NO he always gives list of 3–4 succinct reasons (that will get them to rethink or prove you wrong, if they are good)
Half of the times they founders will just do it anyways
The other half: 2/3 of them debates, 1/3 just goes away
The most interesting people: they will debate
It’s good to give direct, tough feedbacks to see how they react, to see what’s really driving them (if their motives are strong they’ll fight)
You want to test them
There is too much sugar coating today
He’s a “tell like it” guy
“We are veering to a culture where inclusiveness is more important that recognizing and celebrating the actual achievement. It makes people think that just showing up to work is success”
At FB he was known as a tell-like-it is guy and that’s empowering for people if you tell them where they stand, a path to course correct, you celebrate what they did right, what they did wrong
For some it’s a cold shower, but if you hold their hands in the process they’ll get out much more productive most of the times

How things have changed in the past 15 years

When Chamath started to work you were supposed to stay at a company at least 10 years, leaving after 5–6 years was a huge deal for other people, it would look bad on his resume
Jason: nobody cares about your resume now, where’s your blog? Github? What’s your passion project/app on the side? Proof matters

What makes Mark Zuckerberg special

Lot of people are born with immense potential
What differentiates Mark is what Chamath thing is the most important characteristic you should have: immense discipline and ability to listen like nobody else
Mark is constantly listening — in meetings he would take viewpoint after viewpoint after viewpoint
He looks like he’s cycling through all the possible decisions, taking in all this data, what he does better than others: he’s black and white, unemotional, makes really holistic well-grounded decisions and doesn’t do things to play key people
It takes balls to be like Mark

Role of Sean Parker at FB

He was crucial: he found a way to keep Mark in charge, structured the company that way — smartest thing that ever happened to FB
Zuck will go down as the most transformative technological entrepreneur of our generation (Zuck will connect the world)
As transformative as PC, FB has a wide spectrum of value: it allowed to do simple things, stay in touch with people we don’t see often, talking and debating about more serious things, people funding organ donations, lost children, all in one product
At Facebook, no paralyzing burocracy like at Aol. Great culture thanks to Zuck

Facebook privacy issues

with a culture of experimentation, when things are redefining social norms you gonna get some things right some wrong.
The real challenge: learn from them, iterate, refine, never stop
Tagging people of FB sounded jarring to old people, yet the young accepted it and it’s a social norm now
Things that are successful these days tend to create things that you didn’t think were possible before or were sure you needed but then you wanted and they value exceeds whatever you have to put up for it
Example: Uber, its greatness exceeds the occasional overcharge or the car showing up a bit late

View on future

As a society we need to get used with norms getting bent, rules getting broken, some pain in that process
The future: we as a society embrace things that allow us to live in more open connected way
Transparency is a huge deal
In order to avoid social unrest, you need to address the root problem: Wikileaks, Twitter, FB shine a light on it
In a world with lots of inequity, systems like these create transparency and democratization
Technologies are driving a systemic change
He read that Bill Gates saved 7 and half millions lives and was inspired by that he’s started a fund to address these problems: save lives and increase life quality for those saved
These problems will get solved via technology and need to be for-profit to get the best people, the ones with drive
Young generations want to do well doing good, have an impact
Before: doing good was possible only through non-profit; now it’s possible to drive systemic change in a for-profit model

The Social Capital fund

Primary fund: 275 million dollars + unlimited amount of sidecar capital
If you want to disrupt the system of society that are the most broken, we want to empower the most number ofpeople we want to build the next trillion dollar industry
These are the industry you need to attack the pillars of society that haven’t changed for decades:
Healthcare + Education + Financial services (big established players, least effected by technologies)

Different approaches for funds

Most venture funds raised from established and typical sources of capital (university endowments, university funds, funds of funds)
But those institution don’t believe in this change, wanna see this change, wanna take the risks necessary to take the change (do Harvard endowment want to see how education can change without going to college through inexpensive learning on your ipad?)
He went to people that represent the type of change that he wants to see
4 costituents:
Philantropists, people who over the course of their lives as a by product of working on interesting problems have generated a lot of wealth and are now focused on finding ways to create a constructive legacy
People with the ability to put capital to work in successfully ideas (among his partners he has the best equity partner in the world, the best hedge fund in the world, the best angel investor in the world, the best VC in the world)
Technologists: people who had a track record of just doing fantastic products
Corporate partners: people on the right side of the history trying to propagate this change (Facebook
Joe Hewitt, founder of Firefox, Kevin Rose are some of the people taking part
It’s focused on finding the few keys entrepreneurs that embody this vision and helping them

The office

It’s 9000 square foot warehouse in Palo alto that looks like a New York loft, engineers teaming everywhere, building products, their incubations, their investments, nobody has offices, it’s open space
Entrepreneurs walking in feels at home
The source of their capital is important: they ask, who am I getting the funds from? Who am I making rich?
As a founder you should question where the capital is coming from, how are they going to reinvest the money you make them

Angel investing bubble

Too much seed money at high evaluations for lots of startups that can’t show the growth they need
They raise a few thousands to a few millions, then need more in a series A round but investors can’t get in at those evaluations, the risk is too much for the potential
Who takes the most risk get the most compensation and should

Sharing bubble (Why they don’t invest in social consumer apps)

They’ve developed a thesis that there could be a sharing Bubble driven by the belief that mimicking what FB or Twitter did to become huge can turn smaller scope social apps great as well
They prefer to focus on stuff with greater potential, like Facebook in 2006 when not many believed in it
They don’t invest in the tail, they want to be first
A sign they are first: doing deals, making investments in companies where there is nobody else

Mentors he looks up to

Peter Thiel
Vinod Khosla, one of the co founders of sun microsystems and founder of Khosla ventures.
John Doerr
They see the world like nobody else. If there is sparkle in their eyes when they hear about what the fund is investing in, it’s a good investment

Innovation in education

Too many un-employed people without the skills that companies are hiring for, too many vacant positions requiring those skills
Solution: Ryan Carson, Treehouse.com
Education is a path to controlled GDP creation
Engineers generate immense GDP for the world, get to retain not much of it.
The blue collar worker of the 21st century will be a coder

Innovation in finance

Traditional model judges everybody on the same variables, lots of people get lost in it
They are investors in a company that’s rewriting the model of risk and creating a new one taking into account your social profiles lending money against it
People are getting loans at lower rates thanks to that
On top of a new model of risk you can build a lot: car loans, credit card loans, mortgage loans, car insurance, home insurance, crop insurance etc
People then can get the rates they deserve chosen by software instead of dumb or unethical people
Capitalism is good: it aligns interests, it draws talent, it can organize productive outcomes better
There is difference between short-term profiteering and long-term profit. People don’t have patience for the latter. Everyone over-optimizes for the former. 12% over 3 years is less than 7% over 30 years
“Greatest invention of all time is compound interest” (Einstein)
Give people the ability to do right, do well, pay less, be an earnest participate of the economy and they’ll be with you for years and you’ll make money with a more sustainable product, business stream
That person will be a more sustainable, productive, predictable person in society

History and values of Chamath’s family

He is from a prominent family in Sri Lanka
Moved to Canada in 1982, he was 6
His father is “all about the underdog”, do the right moral thing to do
He wrote an article saying they couldn’t fight a war when civil war broke out in Sri Lanka so they had to go to Canada as political refugees
His mom and dad never made more than 30k combined, blue collar people yet gave him lots and were never ashamed of being poor
they are great anchors for him as is his wife

On money

He’s always been thought that money is an instrument of change: use it to change the world for the better
He never cared about what anybody thought, now he truly doesn’t care (he’s financially secure)
Now he needs to find something with the same impact of Facebook to feel satisfied
He wants to be an architect of change and apply what he learnt from the great people
The value isn’t in the exit and people get a cheque — the value is what is the legacy in the tail that’s left over
“I was born poor, I will die poor and the only thing that’s going to be left over is what is the legacy of all that cash”
He doesn’t want to fund the sale of indonesian wood bobbles on the internet
He wants to solve big problems like cancer, diabetes or die poor trying
No inheritance will be left for his kids but he’ll be happy to fund them

Innovation in healthcare

A bunch of scientists he’s funded has come with a novel, clever solution to be able to characterize your saliva and urin through all the things happening in your body using a 5 dollar CMOS sensor, the same sensor of camera phones, turned into a mass spectrometer
They are trying to build a small sub $200 that can replace a $600K machine that you use to analyze your blood
It’ll only need a drop of blood.
sub $1 tests that run on a $100 device
It’s the 21 century version of a stethoscope
Worst case scenario: when you go to the doctor they’ll carry it around
It talks to their iPhone. With a drop of blood it does 200 panels in 3 minutes or less
Best case scenario: you own that $100 device and it gives you the ability every day, week or month to understand everything that’s happening in your body (colestorol, lipid panels, kidney functions, etc)
The point is giving everybody a chance to take control of own health
If you have pain in your chest, you take a test with this little device and a protein is identified to be a precurs of heart disease, call 911 (device talking to the phone or the cloud, alerting you to go see a doctor)
Imagine the impact on healthcare: if you can measure it, you can manage it, change it
What platform could you build on top of that: hospitals, insurance, new form of health insurance
He gets psyched when thinking about the impact of such innovations

On failure

The likelihood of failure for startup is 95-99%
He doesn’t care what you try: you’re probably going to fail and it’s just the nature of startups and how they work
You might as well just swing the bat on something crazy and big and audacious

On non-profits

He loves to put money into non-profit like Mayo Clinic, a quaternary care facility that tries the hardest to save lives
But non-profits are not well equipped to solve a lot of problems
you need the best technologists, the best engeneers that are choosing between Twitter and Google and Facebook and Square and not to go to a non-profit
You need a cap table, you need capitalization, you need the chance to make the millions of dollars and then Then they’ll come work for you

Approach to investments

It’s balanced by investing out of a roughly $300M fund $100M into safe home-runs like Yammer, Box, SurveyMonkey and compound the hell of it
“We’re going to return better than 99% of all these funds”
The rest of the money funds a lot of crazy bets with a high probability that most of that stuff goes to zero
You’re going to be celebrated either for being successful and for failing so you might as well be celebrated for failing at something crazy
You’ll be merchant of progress and that is the sickest thing in the world that you can be
Not being rich, cool or popular but by moving the world forward

(Second part: Jason & Chamath Palihapitiya at Hack the North: money, markets, motivation & mercenaries)

What impressed him from the Hack the North Hackathon

applying unclassified machine learning to understanding genome
Until a few years ago we thought the genome was a linear understood problem but wait there are these dark patches
We were only sequencing the 2%, the other 98% was thrown away and it could be important to analyze to understand the expression of disease (massive data problem, difficult to understand)
The scientists and the folks figuring out these problems in health and in genetics are not gonna be biologists, but computer scientists

On picking a career path

Mercenary culture in Silicon Valley nowadays: lots of new engineers are there for the money and their share of the equity cake and have no passion
Result: not doing such a good as a job and end up not making so much money
He didn’t go to FB for the money, but because he believed in the product he used to explain to friends as “the white pages of the world”
they thought it wasn’t worth it yet resulted in great wealth for him
If money was all he was going for, he probably wouldn’t have gone working at FB
Technology is hard: if you come in motivated by money, you’ll never succeed

On what to build

Try something you yourself want and need (Travis K started Uber for himself, Zuck started FB for himself, Ev started Twitter for himself, Sergej and Page started Google for themselves
Build a solution for a market that’s screaming for solution
You’ll make money doing what you love trying to have an impact than trying to make money
You learn more when things are not working: you know what your effort hasn’t done
If you have success, other variable responsible: timing, skills, effort, accidental PR thing (like Twitter, blew up thanks to Fred Wilson at SXSW — 18 months before no growth, changing CEOs, team fights)
Celebrate failure cause most things won’t work but you’ll learn a lot
Don’t play by the rules of the man, listen to your own gut
Best businesses online took an obvious offline behavior and made it very easy to do online (chat apps, social networks)

Best investment of his life

Joining Facebook and following his gut against what was expected of him, raised in welfare, finally making decent money at AOL as GM
Facebook was a bet on a psychological feeling: the feeling of connection with others by looking what they were up to and sharing
Team at FB the best team he’s worked with
Values of the people chosen to be working there: top 20% percentile smart, aggressive and competitive, high quality bar bordering on perfectionism
By believing those value you self-select individuals that really believe that and do amazing things
Next great company that will built will find a way to thread that magic together, “people magic”

Skills to have for success

Learning how to code, it’s the lingua franca of our time
“Internal confidence that what may have made you different are now the strengths that make you powerful”
Engineers used to be seen as dispensable pawns of a bunch of MBAs, now they are in charge
Young people has to take over or the world is fucked

How to find something meaningful to work on

“Build something you need or if you don’t need anything else, build something for the market or some other people’s problems: give access to the starting line to people that deserve it but can’t get it for some reason”
There are multi-trillion dollar opportunities in disrupting education, health care and finance

Opportunities in healthcare

He started a company to treat diabetes since his dad is dying because of that
If you understand the data you can control how people’s diabetes change
Get the data off the glucometer, send it to the cloud, use machine learning, apply some heuristics and save people lives, it’s shown to be effective
It takes 3–4 years, 5–6 million dollars and it’s a business that has signed contracts in the last 8 weeks to take care of 3 million patients in the US at $100 a patient a year — 300 million dollar business over night, it will be a 50 billion dollar business and he owns half of it
He’ll do the same thing in Asthma and COPD, chronic heart failure and more

Opportunities in Education

“We should celebrate skills and capability instead of letters after a person name”
He wanted a company that ripped the dependency of people from degrees
It should come down to how good you are the job, not how good your talk is
Treehouse is the company, in 3 years it has more students than the entire undergrad CS department in the US
Students are able to get jobs with Treehouse with no degree

On what he looks for in people to fund them

It doesn’t matter if they are good speaker or presenter
They have to care about what they wanna do and it needs to be demonstrable
Naivety and fearlessness
Example: 2 guys from LA starting a marketplace for home care givers for the elderly
They had no shame to learn how win
They went to every single nursing home, shared nursing facility, hospital to understand the market
They signed up on every single service they could find (Uber, Lift, Taskrabbit, Instacart) to improve their onboarding process
He doesn’t care what they did before, he doesn’t know what schools they went

His way of life

All his money will be spent on funding ideas he believes in and will do good
He’s a risk-seeking individual
Spend his money, fail and learn, it’s all good but have ambition and scope

Incubators

The best companies will not come out of incubators: they have never and never will (Google, Facebook, Twitter, Snapchat, Instagram
The risk is that incubators are the new Ivy League colleges where only the people good at checking boxes get in
They can be a tool for you to find the confidence to listen to your own voice

Why he is an investor and doesn’t build companies on his own

He was never good with details or to do a particular thing very well
He wanted a platform to influence positively with a skill he possess that few has: perspective
He can get anybody on the phone and can line things up for success and let an entrepreneur execute

On social stability

If we want stability in the world we do it by giving young people opportunities
With increasing efficiency, we’ll have 30% structural unemployement if we don’t figure how new things, like new form of energies, new forms of materials

Polarization of wealth

Rich people have the obligation to give back: the people that give you wealth purchasing your products and services deserve to be given back
No inheritance for his kids

Affordable Care Act (Obama care)

3 trillions dollars will be relocated as a consequence of that act
Read that act to understand what to do
Many multi-billion dollars business to be built leveraging it

Startup dream team

It would be made of: 2 or 3 sick developers, 1 quasi-dev for the organizational layer, 1 maniac bundle of energy, a designer
Ideally as different as possible but with deep commonalities

If you have no money but want to solve big problems

Take his

If you have enjoyed these notes, stay tuned for more by following the TWiS Notes Medium publication and myself both on Medium.com and Twitter

See you at the LAUNCH festival :)