Chamath Palihapitiya, Founder & CEO, Social Capital in conversation with Shripati Acharya, Managing Partner PRIME Venture Partners
photo credit: prime venture partners
Disruption is often associated with startups, finds resonance in new funding theories as well. A session title, well earned. Arguably, the volume of money doing rounds earlier had caused inflationary conditions to prevail. It is also interesting to note how capital is now being allocated. Some of the mandatory norms which got people funding ten years back, has clearly become antiquated. One can get funded even over Linkedin, if the messaging is compelling enough and packaged well. Today, one does not even need a high school education to get funded.
The rise of everything-as-a-service essentially means it’s like a tap. You turn it on when you need it. Why can’t funding be the same way? Why can’t people have access to funds just as easily as they do for software?
Social Capital has invested around 1 billion USD in a whole lot of ventures including Healthcare, Fintech and Enterprise SaaS. Chamath believes that it is imperative to understand the business before investing. Mathematical models can be derived successfully once a deeper understanding is gained, which can also be used for other investment decisions. The insights drawn from Capitalism can be automated to provide systematised learning. There has to be new ways of getting funded without having to give up a substantial stake in business.
Right now the funding ecosystem is buffeted. So far, young entrepreneurs were riding the high GDP growth and not expending enough efforts on building fundamentally strong businesses. Unit economics was yet to kick in for many. Once there is a structurally broken business, it’s almost impossible to claw back. One should strive to create value to derive more “pricing power” and be able to shift the benefits back to customers. The Pricing Sensitivity Model of Social Capital for instance, is also made available to people who don’t get funded.
As an investor, some bets obviously don’t work but one has to be prepared to be flexible. It is most essential to be in a constant state of preparedness where you know you are capable of beating the best. Ego and bias gets in the way when one bets incorrectly or misses an opportunity completely. The real learning should be about divorcing oneself from these negative traits, and not really linger on what has happened. The parameters of deciding whether funding can be made would depend on the business model - whether it is B2B model or a consumer business.
Often there’s a dilemma whether to go with hedge funds or capital markets. Essentially these are different stages in the lifecycle and one has to be prepared that once they go public, VCs are likely to abandon them overnight. Well so be it.
A CEO is an investor. He invests on human capital, finance to create value and ultimately he is in the business of generating returns. The aim should always be to drive down the cost of capital over time. For the investor it is most important to get out of the way and let the CEO run the show.