- Social Capital is bleeding top investment partners.
- The venture firm, run by legendary investor Chamath Palihapitiya, has lost three partners – Tony Bates, Marc Mezvinsky, and Arjun Sethi – in two weeks.
- Palihapitiya says the firm will shift focus away from new growth opportunities and instead be “doubling down on proven winners.”
Another two partners have left Social Capital in a series of departures from the Silicon Valley venture firm.
On Monday, the firm’s cofounder Chamath Palihapitiya announced that growth equity chief Tony Bates, who is the ex-president of GoPro, and vice chairman Marc Mezvinsky, a former hedge fund manager who happens to be Chelsea Clinton’s husband, will be leaving Social Capital amid an organizational shakeup. Axios first reported the news.
Bates and Mezvinsky are the second and third partners to defect from the venture firm in two weeks. Social Capital announced the departure of Arjun Sethi just last week.
It’s not immediately clear under what conditions the partners left. But the young firm with over $US2 billion under management says it will shift focus away from new growth opportunities and instead double down “on proven winners from our venture funds.”
Social Capital has been bleeding top partners for a year now. Cofounder Mamoon Hamid left suddenly last August to join Kleiner Perkins Caufield & Byers. The firm’s third cofounder Ted Maidenberg appears to be tapping out, as well. He remains at Social Capital as a board partner but did not invest in the latest fund, Bloomberg reported.
In a Medium post titled, “Appetite for Change,” Palihapitiya, the firm’s CEO and formerly an early Facebook executive, describes lessons learned tech investing.
Palihapitiya brought on Bates and Mezvinsky, in part, to help raise and lead a large growth fund that would invest both in existing and promising new Social Capital portfolio companies. The firm also explored starting a credit fund, which offers founders financing through debt instead of equity for scaling their businesses.
“Friends and mentors told me blindly scaling our asset base would distract me. Focus on technology, they said, and stick to what makes you unique vs [sic] what makes you the same,” Palihapitiya said. “I initially thought they were wrong.”
The legendary investor, who made early bets on companies such as Box, Slack, and SurveyMonkey, has changed his mind – or his “appetite.”
“I have realised that excellence doesn’t necessarily come from the novelty of a constant stream of new things, but rather focus and refined repetition of the things that are at the very core of our organisation,” Palihapitiya said.
Social Capital has been a big proponent of blank-check, special purpose acquisition companies, or SPACs. It raised $US600 million in a 2017 IPO for a SPAC firm named Hedosophia with the intent of using that cash to buy well-performing private tech companies.
The firm is also experimenting with a new tool that uses an algorithm to invest in startups. Companies apply through a glorified Google Form and let the AI decide whether or not they’re worth backing. It’s called CaaS (capital as a service), and the firm plans to use it to make 1,000 investments in 2018 and 10,000 next year.
The company did not immediately respond to a request for further comment.
Here’s the Medium post in full:
Since our founding, we’ve never stopped searching for better and better ways to help entrepreneurs win. To do this, we’ve consistently challenged ourselves to explore what the future might look like. By definition, the future may be radically different from the present way of doing things in Silicon Valley. In my post from a week ago, I talked about the product bets we’ve placed that have started to deliver powerful results that we’re now doubling down on - including tools like CaaS to help us find great companies as well as software and services like 8-ball to make them even better.
In parallel to investing in product and engineering talent to build out the Social Capital Platform, I also kicked off a process to test if a traditional approach to scaling our asset base should be part of this solution. It seemed like a reasonable path in the era of Softbank’s Vision Fund and Sequoia’s rumoured mega-fund. To execute this, I brought on two leaders: Marc Mezvinsky as Vice Chairman to lead our capital formation efforts, and Tony Bates as CEO of Social Capital Growth. We also explored what a Credit fund that could provide an entrepreneur with less dilutive forms of capital would look like.
We felt emboldened to try all of this because of our track record in venture capital. Our venture capital funds are at the top of their class and there is little doubt that some of the startups we have backed will redefine this current generation of tech companies. If there was any time to pursue these new strategies, it was, in my opinion, now.
Friends and mentors told me blindly scaling our asset base would distract me. Focus on technology, they said, and stick to what makes you unique vs what makes you the same.
I initially thought they were wrong. And so we embarked on trying to do both: build great products and scale assets across multiple new funds, all at the same time. It’s this last factor that is hard. Ironically, we tell our entrepreneurs all the time to do one thing really well, but found ourselves not following our own advice.
As I internalized this and we got closer to closing some of these new strategies, my gut was telling me to go back to our core. It took some time, but we decided not to pursue the Credit effort, and also to refine our Growth strategy to largely focus on later stage investments in some of our best portfolio companies rather than generically compete in increasingly excessive growth-stage auctions.
Refining our Growth strategy to what will be our second Opportunities fund means there is little point in having a separate Growth leadership team, because doubling down on proven winners from our venture funds is best carried out by our venture partners, since they know these remarkable companies and their founders better than anyone. As such, with this shift, the scope and roles for Marc and Tony became very limited compared to what they and I had originally thought, and we collectively came to the conclusion that it makes sense for them to transition to new challenges and opportunities outside of Social Capital, although we’re exploring ways they can still be involved in our future success as Board Partners or advisers.
It is tough to part ways with great colleagues like Marc and Tony. I am grateful to have had the opportunity to work with them, and know they will go on to do great things - they are A+ and I’m sure we will work together again in the future.
For the foreseeable future, we will stick to what we are truly passionate about: high-touch venture investments and building out our Platform that provides these entrepreneurs with tools and software to build better companies.
The good news is that what we are passionate about is also what we are best at. Our data-driven tools and platform technologies are gaining increasing traction, with CaaS especially promising. Our way of looking at businesses is quickly become industry standard. It’s time to double down on all of these things. Said differently, I have realised that excellence doesn’t necessarily come from the novelty of a constant stream of new things, but rather focus and refined repetition of the things that are at the very core of our organisation.
One of our core values at Social Capital is having an “appetite for change”. We are continually challenging ourselves to make difficult decisions in ambiguity, and to have the courage to change our minds and course correct, with the knowledge that the path to achieving our mission is non-linear. Oftentimes we get these decisions right. But sometimes we get them wrong. And in these moments, it is really important to shine a light on them so we can learn for the future. I am grateful to the Social Capital team and our LPs for navigating this shift with their customary support, focus and determination.
I also want to personally thank Marc and Tony for their contributions. And I hope you continue to follow our journey in complementing the traditional high touch venture investing model (which we remain committed to and passionate about) with increasing levels of automated tools and software to empower entrepreneurs to achieve their goals.