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Social capital began to invest in startups, the invisible sight

There is little doubt that former Facebook executive and venture capitalist Chamath Palihapitiya really appreciates how startups are funded. Because he's got the hot hand, so to speak, he's able to pull it too.

Last month, for example, the company of Palihapitiya, Social Capital, took the unusual initiative to raise 600 million dollars in connection with an IPO for a SPAC called Social Capital Hedosophia. The shell company will use the money to acquire all or part of a private technology company, thus making it public and bypassing what Palihapitiya considers to be the unnecessarily lengthy, expensive and distracting process of becoming public.

Now, the share capital has another round in its sleeve. He begins to invest in distant startups, invisible.

Entrepreneurs around the world can complete a questionnaire, and then submit the gross registered capital and engagement or transaction records (or both), sometimes with direct access to the cloud services that are available. They use. It's fully self-service. If the social capital likes what he sees, he will pay a check for $ 250,000. If this is not the case, it will give at least a start-up feedback regarding the changes that it might make to its business model. ( Interested entrepreneurs may let the company know here.)

How can social capital know how to improve the business model of a company while it has not even met its founders? Palihapitiya and Ashley Carroll, the partner of the firm that oversees the program – nicknamed "capital-as-a-service" – explain that Social Capital has already built up a huge database over time with the help of its companies more traditional wallet.

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His own internal platform team – of which – was from the Facebook Growth team, including Ray Ko, who reported to Palihapitiya on Facebook, and Jonathan Hsu, who started the practice of data science on Facebook. this information to help business companies define their growth strategies. Now, social capital is simply using this same platform to find and power businesses in more difficult places to reach.

"VC has always been this high-touch business," says Palihapitiya. "When talent was concentrated in Silicon Valley, it worked. But a negative byproduct [of that way of doing business] is that for every company that was funded, [other worthy startups did not] because of bias that does not match. "

Now, adds Palihapitiya, "We can run A / B tests. We can say, here's how we think about cohorts, or here's how you optimize the way you spend money on Google and Facebook. This is [precious] If a company can tell us how it behaves, we know how to help them, and what they look like compared to all the other companies we've seen, now we can see a company in Africa or South America or Southeast Asia … and finance them algorithmically at hyperspeed. "

Staircase stone

True, the founders it funded through the beta program still think it's a great initiative, and there have been a few dozen so far. One of them is Vera Makarov, co-founder of Apli, a Mexico City-based start-up in Mexico City, aged 42 and whose goal is to connect with one another. workers with flexible job offers.

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Makarov has an undergraduate and business degree from Harvard. She worked for Bain Capital. She worked as an investor. She co-founded and was CEO of Carmudi, one of the largest automotive classifieds sites in Latin America. As a result, she says raising an initial $ 640,000 from local investors for Apli was not very difficult.

Things got tough when the company started looking for a Series A round, though .

"Mexico has made a lot of progress over the last four years," says Makarov. "We have very good local funds to fund innovative Mexican businesses, but the size of the funds is still small and their numbers are limited.Also with the connections of Silicon Valley," what Makarov says that she has, "If you are based in an emerging market, forget [attracting attention from Silicon Valley venture firms]."

Makarov describes his social capital experience as "very refreshing". "He literally took a phone call, and then they asked me to download a questionnaire and data so that they could watch our pull.I did not have to fly to San Francisco for It took less than a month from [the call] to receive money from the bank. "Specifically, she says, Social Capital participated in a 1.5 million seed tour. dollars, providing the company with a convertible note.

She adds that she considers the company's involvement as a "stepping stone" to Silicon Valley. His understanding is that the company "will continue to receive data from Apli and monitor our evolution, and they will be the contenders to run our A-Series" in exchange for his help.

Photo: David Paul Morris / Bloomberg via Getty Images

Not surprisingly, the social capital plan has skeptics. Among them, Ian Sigalow, a New York-based partner and co-founder of Greycroft Partners, who does not put too much stock in pure data analysis.

Greycroft maintains its own database, including startup ratings created by its partners that cover a range of factors. "When we look at our own data here," says Sigalow, "the most successful results we've seen are correlated with the people we meet and their presentations."

Invest early in the phase "really put on people," he adds. "People have tried to build an algorithm that [trumps this] but there is none that can replace the degree of recognition of the shapes involved." He challenges putting a bunch of data in a computer and performing a regression above. "

It is not clear that the co-founders of Palihapitiya to Social Capital approve the thought of Palihapitiya, that is. Co-founder Mamoon Hamid left last month to join Kleiner Perkins Caufield & Byers. A third co-founder, Ted Maidenberg, also plans to leave the company before raising his next fund.

Some investors in the firm also grumbled, fearing that Palihapitiya would innovate his way.