CHAMATH PALIHAPITIYA: THE SPAC KING'S STORY
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Here is the article breakdown:
Chamath Palihapitiya and his early childhood and life-story
His carrier before he ventured out on his own
The start of Social Capital and why he’s crowned the SPAC king
So let's start with his early childhood and life-story.
1. Chamath Palihapitiya and his early childhood and life-story
He is a Canadian venture capitalist, An engineer, SPAC sponsor and the founder and CEO of Social Capital. The notable, and always entertaining billionaire Chamath Palihapathiya persevered from flipping burgers at burger king to flipping large deals as the “King of SPACs”. Before journeying into Palihapitiya’s life story, smash the like button and consider subscribing for more content like this.
Chamath was born in Sri Lanka in 1976. His father, a job-hopping civil servant, hailed from a class of writers and intellectuals but in Palihapitiya’s well-educated opinion, wasn't economically successful. His mother, who was a nurse, comes from a considerably more commercially successful family. The two combined to make an unusual couple, marrying in their mid-30s, far later than what is commonplace for the country especially in the sixties. His uncle got his father committed to work in the high commission in Ottawa, Ontario, Canada.
At that point, Chamath emigrated from Sultry, Sri Lanka to Canada at age six with his sister as refugees from the Sri Lankan civil war. Although the breathing room presented itself, struggle strangled the family's financial potential. Chamath's mother became a housekeeper, his father moved between jobs ranging from photocopying to selling vacuum cleaners. As if the vocational volatility wasn't enough, Chamath's father dealt with bouts of depression and alcoholism. Family craved money, as money was tough to come into contact with. His family didn't have a car for a long period of time, so the family took the bus. Public transportation sharply contrasted with the private chauffeuring glamorized by the luxury lifestyle most billionaire show that Chamath idealized at the time.
Above all, Chamath took note of the grind needed to navigate the harsh realities of unwealthy circumstances. The grind led to the grill, but not the grill of a luxury vehicle but rather the grill that cooks greasy fast food at Burger King.
While in high school, Chamath worked and gave the money to his parents for bus passes. Internal and social ridicule compounded the embarrassment. However, Chamath eventually reconciled the situation and found himself setting his life sight on what really matters. That view shaped the rest of his career.
So did the infamous Los Angeles racial riots of 1992. Canada took in many minorities for jobs in order to prevent similar results sparking among the coal countries minorities. Chamath benefited by working for a telecommunications startup company - New Bridge Networks, in an organization run by billionaire Terry Matthews.
This leads us to the second part of this article.
2. His carrier before he ventured out on his own
Here is where you can start to see the early successes of Chamath. Terry Matthews proved to be a very influential figure in shaping Chamath's monetary philosophy. Matthews always utilized money as a unit for enacting change. The philosophy stuck with Chamath and has become one of the prime drivers for his investments now.
Following fruitful footsteps led to walking on Waterloo University’s graduation stage in 1999. Chamath obtained a bachelor's degree in Electrical Engineering, graduating with First-Class Honors. He parlayed the impressive academic success into real-world accomplishment at a rapid pace.
Investment firm BMO Nesbitt Burns hired Chamath as an associate in 1999. The firm tasked the eager employee with creating and trading interest rate derivatives. Like most of his business endeavors, Chamath found success. High achievement often rewards high honors.
In this case, Chamath earned his own proprietary trading account within a year, one of the youngest people in banking history to do so. As too many of us probably know, being good at your job doesn't always equate to being happy. Chamath considered this job a foolish use of his time, going so far to say,
“The biggest thing he realized is bankers are smart enough to be greedy, but not smart enough to be useful.”
Given those comments, it's not a shock that Chamath quit. A new start to a new century begins in a new country. With his business reputation trending, Chamath moved South to the United States in 2000. To lead product and business development at WinApp and Spinner.com. Both companies were acquired by AOL in 2001. It was there Chamath began stitching his permanent mark in the framework of today's business world.
He rose to the ranks of top officials for AOL's instant messaging service AIM and ICQ. Both played a key role as a user guide in AOL's evolution to a complete portal, supported by online ads as opposed to the outdated subscription model.
He joined Facebook in 2007 as an executive. Chamath knew Facebook founding president Sean Parker from Parker's time at Napster. Parker and Zuckerberg met with Chamath at AOL when Chamath suggested AOL buy Facebook. However, the capitalization structure of AOL, Time Warner and the stock situation prevented it. A deal was made to integrate AIM and Facebook. Chamath made $250,000 a year at Mayfield, but he really wanted to work and learn alongside Facebook's leading minds. Determined if he could augment a developing company on his own accord and the market potential in absence of Facebook and Friendster's popularity attracted him.
At Facebook, Chamath focused on measuring, testing and attempting ideas as opposed to focusing on making things go viral. Chamath stuck to core questions of market research, problem solving. The specific questions were how to get people to use Facebook, how to create an “aha moment” with Facebook user base and how to deliver long term core product value and a simple goal solved all those questions.
The solution was, “Get any new individual users to seven friends within 10 days.” From there, personal investment, network effect and social identity constituted core value creation to the user.
Chamath created his own Dream Team for Facebook's user growth. The Dream Team's dream results manifested by expanding Facebook internationally. Chamath knew that when expanding a product to an international scale, one must account for cultural differences that can impact value perception and creation. Only people native to the market, they worked and were hired to ensure culture integrity was maintained during the global expansion. One of the native workers hired under that philosophy answered the crucial question of “Why Facebook wasn't valued in Japan?” The worker suggested that specific parts of Facebook profiles must be unique to create a personal attachment. Hence, he suggested including someone's blood type.
The seemingly bizarre move paid off. Facebook achieved 45 million users and subsequently other international teams suggested culture specific ideas to grow the user base to the eventual 1 billion people.
Chamath regards getting rid of a wild mentality and ego as the most important thing done to grow Facebook. Said another way, views from the top of the mountain sometimes fail to capture the beauty of the climb. Now let's get into how he branched out into his own and started Social Capital.
3. The start of Social Capital and why he’s crowned the SPAC king
Chamath left in 2011 to launch Venture Capital Firm - Social Capital. Social Capital identifies how to solve problems and assembles experts, intellectual property and experiments to solve those problems.
Social Capital invests from a balance sheet of permanent capital to fuel entrepreneurship worldwide at all developmental stages. Chamath champions objective data uses and machine learning over gut feelings to help companies build long-term success. Chamath is making a particularly large long-term impression in the SPACE sector. For viewers who don't know, SPAC abbreviates Special Purpose Acquisition Company. These are large cash generators that enjoy bypassing the roadshow and pesky bureaucracy of initial public offerings (or IPO). The purpose is to locate a private company to purchase and take public without classic restrictions.
Money accumulates months before the mystery acquisition target is identified, earning the nickname blank check companies. If you’re interested in learning more, I have a article explaining what a SPAC is in greater detail on this substack.
Social Capital invested $674 million and Chamath $100 million dollars of his personal net wealth to acquire 49% of this venture at an enterprise value of around $1.5B.
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