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. (
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.
His own internal platform team – of whichthis 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. "
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.
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.
Palihapitiya minimizes any discord, noting that "the overwhelming majority" of the capital that social capital has aroused to this day "comes from myself and from four other people, and we We are all very pleased with the returns so far, which are exceptional. "
Social capital, which is only six years old, now manages more than $ 2.5 billion in assets and has reportedly deployed two-thirds of its third $ 600 million fund, which is expected to be in good hands. it closed in 2015. Due to the time, many of its businesses remain in "scale mode", says the firm, although its outflows include Yammer companies, sold to Microsoft for $ 1.2 billion in 2012, and Box, which went public in 2015.
"What you saw, to be frank and honest," continues Palihapitiya, "was the migration of very traditional LPs that we have admitted, and as far as their realization of how this industry needs to change, they go through the seven stages of sorrow concerning the breakdown of the traditional model, which has to do with a lot of historical decisions that they have taken.
"Where do the humans [investing world is going, where every industry is going, is [pairing] have software and tools to do the best work." That's how you do a surgery.That's how you make loans. That's how you detect cancer, and that's probably how you do VC, too. "
Skeptics and supporters
True, social capital has some support from VCs who also see the winds change. Among them, Matt Turck, a managing director of FirstMark Capital in New York, who has long been intrigued by data-driven venture capital firms.
According to him, "the venture capital model is attacked from different angles, and there are enough issues around it and how the world is evolving that it's worth thinking about and thinking about." 39, try different things. "
Turck thinks Silicon Valley needs to start thinking differently and quickly. According to him, there is "a lot of money in the system, which makes everything incredibly expensive, wages at the cost of living. Companies like Google are becoming more aggressive in every area that people perceive as having an impact on the future, such as artificial intelligence. So it is difficult to make a small business from a big independent company.
Another trend "super interesting if it's pretty obvious at the present time," Turck says, is the globalization of entrepreneurship.
"It's less and less clear to me where the next wave of unicorns will come from," he says. "Indonesia? East Europe? South America? Capturing one that comes out of an unobtrusive international place is not so easy.I think the concept of creating a vast network on a global scale, with this global contributive database, is really very intelligent. "
Featured image: Bryce Durbin / TechCrunch