Capital as an instrument for change

“Money drives the world for better or for worse. Money is going to be made and allocated — you have a moral imperative to get it and then use it to make a difference.“ — Chamath Palihapitiya

Chamath Palihapitiya at Stanford [Photo credit: Stanford]

Chamath Palihapitiya, a famous investor, has delivered an insightful speech at Stanford in 2017 where he explained his profane opinions on Silicon Valley. Over his career, he has held high-level positions at Facebook — being one of the founding board members and is the founder of Social Capital. Here are some of his opinions on Silicon Valley:

“You can’t eat IRR”

Most investors in Silicon Valley use IRR (internal rate of return) as a standard metric to determine the success of an investment. The problem with this metric is that it tends to focus the attention on short-term gains and can jeopardize the long-term success of a company. It leads to exuberant spending on marketing and sales as every investor demands growth from the company. But rather than spending the investment on more Facebook and Google ads, startups should focus on product-market-fit and creating a sustainable competitive advantage. Venture capital should be used for R&D.

“When you unpack it, what you realize is that fast money returns can completely decay long-term thinking and sound judgment. Moderate growth, moderate compounding, that is the key. That is gold.” — Chamath Palihapitiya

“Fail Fast” doesn’t enable serious projects

“Fail fast” has become the conventional wisdom of Silicon Valley. When it comes to consumer businesses and apps that makes completely sense because you have to keep up the pace with the ever-shifting tastes and desires of consumers. Yesterday, it was Snapchat tomorrow it is TikTok. For Chamath, Facebook as a social media platform is all about “exploiting psychology”. It tries to generate urgency to check it often and stay up to date.

This formula doesn’t work for“anything that really matters”, he says. Real innovation requires people to work on a serious amount of time to create something very valuable. Most people talk about disruption as a revolution when in fact it is a slow but steady moving evolution. This is the only way how we can finally make the promise of a greater future possible. As the current stage is not the completely desired outcome as Peter Thiel famously stated: “We wanted flying cars, instead we got 140 characters” (Peter Thiel).

“It [“fail fast”] is not how you solve diabetes. It is not how you use precision medicine to cure cancer. It is not how you educate broad swaths of the world’s population.” — Chamath Palihapitiya

Lucky Venture Capital

Successful venture capital investment is about identifying winners on a regular basis. This is not a case with most Venture Capital firms in Silicon Valley. In fact, there is a very small overlap in the venture firms that made the first investments in the largest successful startups reaching a valuation of over $50 billion.

“If anybody looks at you and tells you they know what they’re doing, they’re lying.” — Chamath Palihapitiya

Money is an instrument of change

Chamath's last insight has the most impact. It may be fashionable in liberal circles to disdain money but “it drives the world for better or for worse”, says he. Money will be made, allocated and you have a moral obligation to go out and make it and use it to express your world-view. In our society, it multiplies and backs your world-view. Money has to be used as a tool:

“Money drives the world for better or for worse. Money is going to be made and allocated — you have a moral imperative to get it and then use it to make a difference.“ — Chamath Palihapitiya

Currently, a very small number of men (mostly men) are running the world and they are not the tech entrepreneurs according to Chamath but rather oligarchs. They decide how the money flows and how it is distributed. Their worldviews are amplified. Therefore, it is important to become one of them and reallocate in line with your worldview.

“My entire goal now is that. It’s to be in a position to aggregate enough of the capital of the world to then reallocate it [in line with] my worldview.” — Chamath Palihapitiya

So, take the money and use it to express your worldview.

That’s real diversity.

Make a stand!



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