When word began to spread that Social Capital, the venture capital firm run by Chamath Palihapitiya, would no longer accept outside capital, investors began to speculate what that meant for the future of Silicon Valley's brightest stars. Recently, Palihapitiya took to online publishing platform Medium to address some of the rumors that have developed regarding the future of Social Capital.
"Technology Holding Company"
In his post, Palihapitiya explained that, as Social Capital has grown in its 7 years of existence, he has felt that the company has been "incrementally drifting away from [its] core mission" and that it has begun to resemble a traditional investment firm in many ways. Explaining that this is not the path that he envisions for his firm, Palihapitiya revealed that the company underwent a "detailed examination of the many ways we could expand." This process emphasized for Palihapitiya and his core team that Social Capital should be what he terms a "technology holding company that will invest a multi-billion dollar balance sheet of internal capital only." It is for this reason that Social Capital is no longer accepting outside capital. Palihapitiya went on to suggest that the transformation will continue through the end of 2018.
What might a "technology holding company" look like? According to his post, Palihapitiya sees the firm investing in promising tech companies, although he adds that his team will be prepared to "work on the problems we have prioritized...for decades if that is what it takes to solve them." Social Capital will continue to make new investments ranging between $50 million and $250 million per company.
Challenge to the Traditional VC Model
Many venture capital firms operate according to a model in which they raise funds from several limited partners and intend to deliver value on those assets within a window of up to a decade or so. As CNBC points out, critics of this model argue that it drives startups to go public earlier than they might otherwise, although many high-profile startups also remain private for a long time as well.
As part of his refocusing of the Social Capital model, Palihapitiya explained to employees that he would divert a substantial portion of the firm's carry back to the company, distributing shares in the company to employees in the process. Palihapitiya explained that he doesn't "need the external validation," adding that his vision of venture capital was not "Stanford MBAs in fleece vests running around," but rather "money for ventures".