
What went wrong at Social Capital - kaboro
https://www.axios.com/social-capital-collapse-0c3257ab-b599-4047-b5cc-5d465419b373.html
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abakker
"Maidenberg was frustrated by Palihapitiya's push to prioritize data in the VC
investment process, which is traditionally based on a more high-touch,
personal approach."

I think that is a telling line. There are certain decisions that can be
_improved_ with data, and many others where data can be your only criteria,
but, in business, there are also a whole class of problems where data is
basically a pipe dream.

Don't get me wrong, I am not saying that wanting to make decisions with data
is wrong, but, there is a lot of what goes into an investment that is
"unknowable" in the sense that your "data" is very sparse or anecdotal, or,
you simply have more unknown unknowns. It is this fact that causes many VCs to
invest in good teams, that they feel will be able to handle the uncertainty,
rather than investing in purely data backed opportunities.

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not_that_noob
Index funds have beaten most active management over the long run. If you think
about it, YC is a huge index fund in startups. The problem is not data-based
prediction - just that it is impossible to pick winners a priori, no matter
how much data you have. Ergo the clearly viable long run strategy is to invest
in as many as you can. This is why YC is maximizing volume, with the latest
being the Startup School.

The other option of course is to invest large amounts into startups that are
well on their way, but Sequoia and AH have a corner on that market. And now YC
wants to play there as well, with their larger fund.

So there's no oxygen left for a lot of the VC firms in the valley. There's no
shortage of money looking for VC funds, as returns are low in general asset
classes. So you have this imbalanced situation, where dinky startups get
incredible valuations, and there are too few genuine investment opportunities
to go around. SC are one of the marquee victims, but other walking dead
abound, though they dress snappy so it's hard to tell they're really dead.

~~~
nimish
YC is anything but an index fund in startups. They take a very active view on
which startups to fund and which not to. They don't simply hand invest in all
startups that fit externally set, (mostly) transparent criteria.

They are active investors, even with startup school.

~~~
tomnipotent
YC minimizes risk by spreading money across as many startups as possible using
research and and gut instincts to find good deals.

Index funds minimize risk by distributing funds across stocks in an index
using research and gut instincts to find good deals.

YC is different only in that it has a more direct impact on the performance of
its portfolio through active participation and the ability to influence its
management. Both are still similar forms of capital management with different
degrees of freedom.

~~~
2arrs2ells
YC is much closer to an index fund than typical VC (or even other accelerators
- due to YC's much larger scale), but there's a big difference as index funds
don't use any "gut instincts" \- the criteria for a stock to be included in an
index are fixed rules.

A better (though less succinct) analogy for YC in the public markets would be
an "actively managed mutual fund investing in a broad range of early stage
companies with a long-term time horizon."

~~~
tomnipotent
> as index funds don't use any "gut instincts"

Of course fund managers rely on this when relying on computer-assissted
recommendations when deciding how much of each stock to buy. If you don't
think someone opinion & gut instinct is involved, you're going to be
disappointed.

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benwerd
Anecdotally, I'd say that the issues outlined here led to an even worse
problem: the experience of founders pitching to them was poor.

~~~
mathattack
Interesting. My only data point is a founder who said they were very hands off
post-investment.

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imh
>Sources said they had come to believe that Palihapitiya was no longer putting
the firm first in his life

This guy's bad behavior aside, that's a ridiculous bar to hold someone to.
Sounds like he hardly cared at all.

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EpicEng
>that's a ridiculous bar to hold someone to

"The bar" moves around depending on position. Sure, it's ridiculous to expect
a secretary to put the company above all else, but the CEO? A high ranking
government official? The head of a high profile medical department? Not so
ridiculous at all.

~~~
imh
Really? I can't think of how it's good for society to ask anyone outside
public service not to put their job ahead of (for example) their family. I
don't see why the CEO of WidgetCo should put widgets "first in their life."

I might have even respected Obama saying "Joe's in charge today, I need to
take care of some family stuff." I think that a position needing total
dedication of a person is an indicator that the position doesn't have enough
support.

~~~
Noumenon72
Do you have an extraneous not in your first sentence? Didn't you mean to say
"It's not good for society to ask anyone to put their job first"?

It is <i>amazingly</i> good for society when people put their jobs first.
That's how you get people sacrificing their lives as police officers, their
twenties as doctors, their privacy as President, their chance to have kids as
mathematicians.

It's not great for the people, and we should feel bad for tricking them into
such an unfair distribution of society's costs.

~~~
imh
Yup. That "not" was a typo from before I rearranged that sentence. I spotted
it too late to edit :-\

You're right that it's good for some parts of society when other parts make
sacrifices. But those people are part of society too, and it's bad for them. I
personally would rather live in a society where everyone works to live, not
lives to work.

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rossdavidh
Purely hypothetical idea I just made up, just throwing it up here as a trial
balloon: maybe the reason this VC exec (and others working for him) actually
got disinterested, is that they don't see many good opportunities for
investment appearing. Which would mean the real reason they are winding things
down because they think the bubble is popping soon.

No idea if it's true, just putting it up for comment.

~~~
paxys
You would read the same article about every VC firm then

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seibelj
What is it with executives who feel above showing up to work? I worked at a
company where the CEO worked 2 half days a week and the other execs were on
cruise control, then they got angry that all the employees weren’t killing it
(“this is startup! Work like one!”). Hard to enforce that culture when no one
is ever there.

~~~
jarsin
We have replaced Lords with Executives in the modern world.

~~~
jpttsn
Lords stuck around until, if ever, violently deposed. Executives are
accountable for producing something people will part with money to get.

~~~
madeuptempacct
Lords were responsible for defending the land and raising an army. Executives
probably delegate way more than lords did.

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jpeg_hero
And leadership at portfolio companies want to comment?

If a VC leads your round and then goes radio silent it can really hurt the
company.

~~~
mathattack
Many execs appreciate the freedom. Some VCs have great advice, but not all are
helpful.

~~~
stanleydrew
Freedom from constant meddling is appreciated. Not having your lead investor
cheerlead for you externally is not great signaling though.

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bruceb
hired: "Wall Street veteran Marc Mezvinsky (husband to Chelsea Clinton) as
vice chairman."

who had already lost a bunch of money on Greece and enjoys skiing. An example
of failing upwards. Same with Chelsea Clinton who seems like a decently
intelligent, nice person, who has had to put up with lots of ugly
attacks...but who has had positions handed to her, not unlike other connected
kids of Washington/NYC elite.

Not people you want in SV if you are assessing tech startups. Now pulling off
a BioTech scam? Then yes.

~~~
whatok
Semi-related but all I remember the founder for is pitching TSLA converts at
Ira Sohn and just thinking, "I don't think people go to this to hear TSLA
pitches..."

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kaboro
[https://twitter.com/chamath/status/1038096940372619264](https://twitter.com/chamath/status/1038096940372619264)

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megadethz
He also owns 25,000 bitcoins. Made a huge bet in the space.

ref: [https://www.cnbc.com/2017/12/05/winklevoss-twins-head-the-
li...](https://www.cnbc.com/2017/12/05/winklevoss-twins-head-the-list-of-
people-getting-very-rich-from-bitcoin.html)

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owens99
Title doesn't make sense to me. Sounds like Chamath is retiring because he's
made a ton of money. Though his style of communication is clearly horrible.

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village-idiot
I still don't understand why this matters.

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anilshanbhag
Axios style of reporting is unique. Their articles are concise with clear
paragraphs and bulleted points. It is welcome change and I wish more sites
adopt a similar approach.

~~~
chickenfries
I like it too, but the use of bolding is a bit excessive and distracting. I
feel like it makes sense sometimes, but then other times it feels random, like
the bolding of

> By early June, Axios heard that Tony Bates and Marc Mezvinsky

> But even the core business

I feel like if they want to do this bolding to enable skimming, they should
bold entire independent clauses.

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paulcnichols
Businesses fail and life goes on.

~~~
tw1010
You shouldn't be sad by articles like this, but it can prove a valuable lesson
for why things actually fail in practice (rather than in theory), which is why
you shouldn't ignore it.

