Despite new plans to turn Social Capital into a holding company, Chamath Palihapitiya was talking about raising money from outside investors for a fourth fund in late July, insiders say

Chamath Palihapitiya

  • Social Capital co-founder Chamath Palihapitiya recently announced that his firm would turn into a holding company, and would not seek outside investment. 
  • Sources familiar with the matter say that Palihapitiya was talking about raising outside funding beginning in September 2018 as late as July of this year.
  • Sources say that many of the firm’s investors were unhappy, and that Palihapitiya had trouble fundraising.

On Thursday of last week, Social Capital co-founder and early Facebook executive Chamath Palihapitiya published a Medium post outlining his firm’s new ambitions. No longer would Social Capital operate as traditional venture firm, Palihapitiya wrote; instead, it would act as a “technology holding company” that would invest off of a “a multi-billion dollar balance sheet of internal capital.”

While Palihapitiya has portrayed Social Capital’s recent aspirations as what he describes as a “return to the firm’s founding principles,” some insiders say that Palihapitiya’s change of heart might have more to do with the firm’s troubles raising outside capital than anything else.

“It didn’t come out of the blue,” one person said. “The issue is he can’t fundraise.”

Exactly what led to the change has become one of the most buzzed about topics inside Silicon Valley’s startup and investing circles. The abrupt change, at a firm that had emerged as one of the industry’s most celebrated new players, has left many scratching their heads and wondering whether it reflects the iconoclastic streak of a visionary tech executive or the storyline of a familiar fall from grace.

A former Facebook executive, Palihapitiya has raised billions of dollars from investors eager to benefit from his insight and his connections. And to hear Palihapitiya tell it, he recently decided that dealing with outside investors was a hassle he didn’t need.

“By the summer of 2018,” writes Palihapitiya, “we had finished a detailed examination of the many ways we could expand…  it wasn’t about raising more money from outsiders…”

But according to people familiar with the matter, in the summer of 2018, Palihapitiya was still very much interested in and actively discussing raising money from outsiders.

After months away, he arrived in a chauffeured Bentley with some news

At at an all-hands meeting in late July, Palihapitiya announced Social Capital’s intentions to begin fundraising for Fund IV in September 2018, a person told Business Insider. Palihapitiya had been absent from the office for many months, but he turned heads by arriving at the office that day chauffeured in a Bentley and bearing the news. The firm should get its pitch deck in order, he is said to have announced.

But new fundraising efforts had been delayed again and again, sources say, making many insiders unsure of Palihapitiya’s latest directive. Often, Palihapitiya would say that a fund was close to being closed, or that a new fund was in the process of being raised, but nothing would ever come of it, multiple people said.

While Palihapitiya was something of a golden child in Silicon Valley when he launched Social Capital, raising money from big name investors and star-studded tech executives, his star had recently begun to fade. There were signs that some investors, including some of the firm’s heavyweight limited partners, were unhappy, multiple people said. It was well known that many limited partners had declined to reinvest when Social Capital raised its third fund in 2015, another person said.

Multiple people said that many of the firm’s recent voluntary departures were the result of the on-again-off-again attempts to fundraise. Those departures created a vicious cycle, by spooking some investors. Some limited partners had even begun asking to have their stakes paid out in recent months.

Palihapitiya himself has said that he doesn’t have much interest in his investors’ input. In an interview with The Information last week, Palihapitiya said that he doesn’t review investor feedback.  “Who cares?” he told The Information when asked his thoughts on his investors’ insight.”It doesn’t matter.”

A spokeswoman for Social Capital declined to comment. 

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