If Chamath is famous for anything,
it's, for lack of a better word, he's a great **** talker.
There are 150, and they're all men, that run the world,
period, full stop.
He's almost becoming one of those one-name people,
at least in financial circles.
Chamath, Chamath, Chamath.
He's brash.
He's not shy about his opinions.
Your behaviors, you don't realize it,
but you are being programmed.
Goldman Sachs sucks.
Who cares?
No smart person goes and works at Goldman.
Some people would compare him to Elon Musk,
which also uses his social media influence
to communicate with investors.
For some target company, that's the appeal
because you get the instant name recognition
once you're associated with Chamath.
So he was somebody that I saw as one
of the biggest boosters of this crazy bubble
and also one of its biggest beneficiaries.
In particular, he was one of the leaders of the boom
for special purpose acquisition companies,
otherwise known as SPACs.
No one quite knows exactly
why the market for SPACs exploded,
but everyone gives Chamath a lot of credit.
When I got back from paternity leave earlier this year,
I saw that markets seemed to have gone totally crazy.
Investors were buying up all sorts of stocks with no regard
for the company's earnings or profits
or any of the sort of traditional things
that boring investors used to look at.
Video game retailer GameStop is set
to continue their head spinning ascent today.
And then of course, there's AMC phenomenon.
We saw this wild ride for AMC investors
on this retail trade driven frenzy.
Everyone was having lot of fun driving stocks up
to the moon, as they say, and I wanted to look
at a promoter who was encouraging this boom.
Startup Grind welcome to Chamath.
Let's hear it right now.
And I found a guy by the name of Chamath Palihapitiya.
I have lore.
I've worked in three of like the top five
internet businesses ever created.
I didn't have to look very hard.
He's super popular on Twitter,
he's got a million and a half followers
and he's always talking about the stocks
that he's taking public, how great these are to invest in.
We are involved in probably 10
to 15 billion dollar unicorn companies.
Palihapitiya likes to tell the story
of his upbringing because it's a bit of a rags to riches,
American dream type story.
Rich or poor?
Well, my parents were kind of ruling class in Sri Lanka
and then in the civil war,
we immigrated to Canada and I grew up on welfare.
My dad struggled to find a job,
worked at a photocopy store for awhile.
When I got my first job, it was at Burger King.
I'd take the money and I'd have to give it to my parents
and we would buy bus passes.
He went to the University of Waterloo
where he studied electrical engineering.
After college, he did what a lot of people do
who are wanting to make some money.
He went into investment banking, traded derivatives.
My first job out of college, I made $55,000.
And the reason I liked that job, again,
it kind of like, it played on my desire to take risk and,
you know, quote unquote, gamble.
But when he didn't get a bonus one year,
got angry and quit, moved to California to seek his fortune
in the first dot-com bubble.
I want it to be emancipated.
I wanted to like find my own path to like, be able to like,
not have to be a subject of the man.
He went over to Facebook headquarters
for what he didn't really think was a job interview,
at least as he's told the story.
He met with one of Facebook's top executives
who was kind of put out by this person
acting like Chamath was there to be interviewed.
And at that time, Facebook was still just starting
to build off its roots on college campuses and high schools
and Chamath convinced founder Mark Zuckerberg,
who was then just about 23 years old,
that what Facebook really needed was a dedicated team
to devote it to growth
and that he was the person to run the team.
By the time he left Facebook in 2011,
the company had almost a billion users
and Chamath had made a name for himself
and also started making angel investments on the side
with his personal money.
It took me into my early forties to say,
"What is gonna change this sort of lingering,
burning sensation in my stomach?"
And so I just went off to fix these things
and professionally, the most important thing is I said,
"I'm building somebody else's company."
And I'm sure all of you guys, founders,
have felt that moment where it's like,
am I building the thing that I want?
Or am I building the thing that somebody else wants?
After he left Facebook, he tore into them.
Palihapitiya burns down what he built,
he's imploding,
what's the story?
He said that they were ripping apart the social fabric
of how society works.
The short term dopamine-driven feedback loops
that we have created are destroying how society works.
In 2011, Chamath left Facebook
to start his own venture capital fund.
He called it Social Capital.
I wanted to make money for people
that I thought were interesting and good.
I didn't want to make money for some other random person,
some endowment, some pension fund, some university
that isn't doing anything good with the money.
He had a plan to automate the investing process
to remove biases.
And he did make several investments into companies
with those aims, but as it turned out, best bets,
the ones that really made money, were more traditional,
more similar to what other firms were doing, like Slack,
the business chat software, or Amazon,
which he said was going to rise sharply
at a time when people thought
maybe it already was overvalued,
got into Bitcoin very early, recommended Tesla.
In 2018, despite great returns at Social Capital.
We're absolutely obliterating the market.
We're probably like, well, like the public side vehicle
is probably like 30 points of Alpha above the NASDAQ.
I mean, it's really good.
The company ran into a lot of trouble.
High-level executive clashed with Chamath and left,
investors complained about a change in focus
and Chamath was left with what was a much smaller firm
managing mostly his own money.
This led him to have more time to devote to a side project
he'd started a year earlier called a SPAC.
Tech SPAC- SPAC-
SPACs.
A SPAC is a shell company that goes public.
They raise money from public investors
and the management team of the shell vehicle
then have two years to find an acquisition.
And during those two years,
the shell company trades publicly on the exchange.
Tell me, from your perspective, is there a limit-
Investors give money to a sponsor who says
that they're going to use it to buy something
and for every $10 that you hand to this sponsor,
the sponsor gives you one share
and these shares are traded on the stock market.
SPAC got a bad name in the 80s
when many of the people running them would raise money
and then just steal it for themselves.
They were rehabilitated by a broker in Long Island
named David Nussbaum,
came up with a important protection for investors,
which was that they would raise the money
and then put it in the bank instead of stealing it.
When a company goes public in a traditional IPO,
they are very limited in what they can say
about their prospects for the future.
The underwriter of the IPO, they project that, say,
we're gonna make a billion dollars next year,
then investors could sue them if it doesn't come true.
One of the biggest advantage for company to go public
through a SPAC is that they can market
forward looking projections,
which really benefits to companies
that don't have any revenue at this very point
that they want to go public.
So Chamath has really become like the poster
of the SPAC boom.
Given the fact that Virgin Galactic now
just directly listed on the exchange
through Social Capital's SPAC,
do you see this as a model
that other companies are going to adopt?
I do, and I hope that this is a really good litmus test
and a case study.
He was the person that kind of started this whole frenzy
in 2019 when he took Virgin Galactic public.
I think that we found the absolute best company,
something that'll thrive in the public markets, and frankly,
something that's gonna capture an enormous amount
of consumer interest,
giving the average person a chance to own a bit of space.
One of his things is every time he does a deal,
he publishes his rationale behind making this investment
and people really love it
and I think as a result,
it really brought to people's attention
that this is not your very complicated
financial engineering, but it is an instrument
that your mom and pop investors could participate.
Investors were so eager to get a piece of Chamath's deal
that even before his SPACs would announce a target,
when they were just piles of money,
people were paying $15 a share.
So you're essentially paying $15 for a $10 bill
with the hopes that Chamath is gonna buy something so great
that you'll make up that deficit later.
To me, at least, much more interesting to say you failed
trying something crazy and huge than something incremental
and just frankly, you know, the fourth order derivative
of something that was done 10 years ago.
In 2019, there was about $12 billion raise in new SPACs
and so far this year, just five months in,
we've seen a hundred billion raised globally.
Now it seems like practically every underemployed rich guy
with some name recognition has his own SPAC.
There's SPACs advised by retired athletes
like Alex Rodriguez or Shaquille O'Neal
and SPACs advised by washed up politicians
like Paul Ryan or John Delaney.
There's even one SPAC that has
both NBA legend David Robinson
and former Senate majority leader Bill Frist working on it.
Palihapitiya has raised six SPACs so far,
more than $4 billion.
His vision is to raise 26 SPACs.
He names his SPACs alphabetically.
So IPO A, and he's now raised up to IPO F.
I researched each of the companies
that Palihapitiya had taken public.
One that really caught my attention was Clover Health.
We are really excited, after months of diligence and work,
to announce a merger between IPO C and Clover Health
to take Clover Health public.
He talked up this company like it was a tech company
that was about to change healthcare.
Clover's already growing two to three times faster
than their next nine nearest competitors.
What that's created is a business
that last year alone did almost $460 million of revenue.
And in 2023, we'll do $1.7 billion of revenue.
Chamath always tweets a one-page thesis
about why you should buy whatever stock he's pitching.
And in the one for Clover,
he said the company had 41,000 members now,
but would have 273,000 next year.
So I decided to dig in a little bit.
Clover had actually been around for almost a decade
when the merger with Chamath's SPAC was announced
and it's lost money the whole time.
It's missed its growth targets.
It was clear that this was really
a smallish insurance company
that almost exclusively sold Medicare advantage plans
to older people in New Jersey.
They were losing a couple hundred million dollars a year.
The company is saying that it's put all that behind it
because it's developed a new technology
that's the culmination of all its research
and this technology is called Clover Assistant.
The Clover Assistant is a web application
and a physician uses it every visit
that they have with one of our members.
Clover says that this technology will enable all doctors
to offer better care.
But I spoke to several former employees of Clover
and they said that the rollout was rockier
than the company had presented it.
And they said that many doctors who are signed up
to use this technology don't actually use it themselves.
And when you look at Clover's financial results,
the type of stuff that you'd be forced to rely on
in a traditional IPO, instead of a SPAC,
you see that every quarter,
the company is spending more money than it makes.
For a while, it seemed like everything he touched
turned to gold
and if you had bought blindly into all of his deals,
you would have made a lot of money.
But sentiment changed.
In February, a short seller published a report
that shocked Clover investors.
It was from a group called Hindenburg Research
and it's really run by a guy named Nate Anderson
out of his apartment in Manhattan.
Anderson called out Chamath
and he said that Chamath had misled investors,
Clover wasn't really a tech company, and that in fact,
doctors didn't like using its software.
Anderson's report proved to be pretty well timed.
The market for SPACs peaked around February
and from February to March,
the average SPAC dropped about 17%
and Palihapitiya's SPACs, which had climbed higher,
also dropped further.
In Virgin Galactic, his first SPAC,
he sold $300 million worth of stock,
more than enough to cover what he put in
and on Clover Health, about doubled his money,
despite the stock dropping quite a bit
since he announced the deal.
I think that SPACs are very much here to stay.
Back in the, you know, using the language of inequality,
it evens the playing field.
It democratizes access to high-growth companies.
Since that initial slide,
some of Chamath's SPACs have recovered a bit,
but most investors who bought in earlier in the year
when the bubble was inflating are still way underwater.
Chamath didn't respond to a request
to be interviewed for this video.
The appeal of Chamath was that if he put his name
on something, it might triple.
Now, it's unclear whether he's gonna be able
to keep raising them or to keep acquiring companies
at the pace that he had.
If a bank like JP Morgan underwrites one bad IPO,
it doesn't affect their brand so much
because they've got so many
that they've done over the years,
but Palihapitiya's brand, his identity was sort of built
on this idea that he can't miss.
And now that he has missed,
it's not clear if he'll be able to keep this up.