Chamath Palihapitiya (03:54):
And for a long time, I actually thought it was the opposite. And I used to think to myself, “Woe is me, look how hard my life was.” And now, maybe it’s just the fact of getting older as well. I actually see it as the opposite. I was blessed to have the difficulty. I had both boundary conditions work in my favor. One was being an immigrant which caused me to feel like an outsider and the second was because suicidally the issues that we were dealing with, poverty and some mental health issues in my family and alcoholism, et cetera, that made me an outsider.

Chamath Palihapitiya (04:27):
In hindsight, what a blessing, I couldn’t do anything but go up. The bar was so low. So that’s what I try to tell a lot of people about why all of these things are important. Immigration is important for that reason, a social safety net is important for all of these things, it allows you the best likelihood of having people with boundary conditions that can motivate them and pull them forward, but not make those boundary conditions so crazy that they just hold you back.

Chamath Palihapitiya (04:58):
If I could give you another random thought, what I would say is the reason why America does so well at pulling people into its country and allowing them to thrive is that America treats capitalism and democracy as these two very sacrosanct elements of our founding. So if you go all the way back to the 1700s, and you think about what the basis of democracy was, it was all around economics and entrepreneurship. The Boston Tea Party was around taxation, these things were seminally built into the American core.

Chamath Palihapitiya (05:32):
And the thing about capitalism is that it makes very clear the distinction between families and teams, and America has always been let’s feel the best team. Right? So when you’re at the office, it’s about a team. When you go home, that’s your family. And America got that really, really right. Those are some random thoughts on why we’ve been beaten to be successful.

Trey Lockerbie (05:55):
On that last point just to compare, how is it viewed in somewhere like Sri Lanka for example, versus the team versus the family?

Chamath Palihapitiya (06:04):
So I would say that there’s a spectrum of philosophies. And Sri Lanka was a little bit schizophrenic. And the reason is that we were all, 90% of us are from the Buddhist majority. And the religion of Buddhism is quite interesting in that it actually is an extremely selfish religion. So Buddhism expresses value by seeking out Nibbana or Nirvana. That’s a solitary quest by an individual to master their own imperfections and attachment to the physical world.

Chamath Palihapitiya (06:38):
It has nothing to do with how I treat you necessarily, although that’s an important thing along the way. But there is no scripture or doctrine that says even if I treated you poorly, that would hold me back from getting Nibbana doesn’t say that, there’s no punishment in Buddhism. So the country has this individualistic rooting because of the religion. And then as a result, what Sri Lanka could never get right is some form of collective team action. And so it actually manifests primarily in this civil war that my father and my family and I, although I was really young, tried to escape.

Chamath Palihapitiya (07:14):
Because you have 20 million people on an island with no natural resources, it’s kind of hot, it’s really humid, what are you fighting over? And well, what people were fighting over were individual egos. And so there was no way to collectively come together and be pragmatic. So that’s one end of the spectrum. If you look at the other end of the spectrum, you had China which for hundreds and hundreds of years because of Confucianism was very much a collectivist society where literally, I think when Nixon had that very famous summit I think with Deng Xiaoping, the whole idea was everybody had the same haircut.

Chamath Palihapitiya (07:51):
It was a bull haircut, everybody had the same clothes, individualism didn’t matter. But that was way too complicated and way too stifling. And if you push through the Tiananmen crisis after that, you got a more individualistic expression of Chinese Confucianism and a better manifestation of it. So those are the two polar opposites. They don’t work. America is like this amazing shining light around the middle path and that middle path is you have a family at home, where you’re collectivist and you have a team orientation at work.

Chamath Palihapitiya (08:25):
And when you get it right, sky’s the limit, it’s a rocket ship. And when you get distracted by it, that’s when you lose the script a little bit.

Trey Lockerbie (08:33):
Coming up from nothing like you mentioned, it seemed like you were in quite a hurry. You were a billionaire by, I think, age 32. And even Buffett wasn’t a billionaire until 58. And even if we just adjust for inflation, Buffett was maybe at 10 or 20 million by 32. So you’re well ahead of the game in this profession. I guess my question is, this is not and in fact, to be honest with you, I had dinner with Buffett once and he gave me a book to read called Supermoney by Adam Smith and that was the first time when I read that book, about this concept of kind of peeling off equity.

Trey Lockerbie (09:10):
Wealth comes from having this equity that you can then peel off when you need to, to create liquidity and whatever. And I’m just curious, that concept for me came very late. And so it seems like you had that idea possibly very early. I’m wondering if that’s true. And what led you to discover that equity was the key to wealth creation.

Chamath Palihapitiya (09:28):
I’ve always been in a hurry. That is actually true. You said that just a little bit earlier. But I didn’t exactly know where I was going necessarily. But I felt an urgency around the things that I did. So a different way to say this was I knew that I had some raw potential. I didn’t exactly know where and how I could put that best to work. And so I learned to be very experimental. So it didn’t matter the different kinds of jobs I had, my commitment was in this moment, I’m going to try to be the best version of this person and achieve however the metric was.

Chamath Palihapitiya (09:58):
So if you go back to when I was a high school kid and I had an internship at a software company, I worked at the help desk and I was measured by trouble tickets, how many could I close, and it’s like I had to close them all, that was the focus. When I was a derivatives trader, it was measured by how good I could manage risk and make P&L, and I wanted to do the best I could. And there, I actually suffered a lot of losses. But I was introduced right away to this idea of managing risk.

Chamath Palihapitiya (10:25):
And when I was leaving trading, when I was in my early 20s, I had this incredibly lucky thing happen to me. I had been trading stocks on the side and my boss at the time who I had all of a sudden made a lot of money for said to me, and I’ve said this story before, but I love telling it. My nickname on the trading desk was Sherman. Nobody wanted to say Chamath so they called me Sherman.

Chamath Palihapitiya (10:46):
He said, “Sherman, how much debt do you have?” And I said, “I have like 25, $27,000 of debt.” And he wrote me a check and he said, “You go and you pay this debt off right now.” And I walked downstairs and I paid it off and I came back upstairs. And he said, “That’s the value of equity.” It lifted a burden from me, and during that time, even until my early 30’s, every paycheck, I got a third to half would always go back to my family. I was always running uphill. I never really could live my station in life.

Chamath Palihapitiya (11:14):
When I made 50,000 a year, I was like making 25. When I made 100, it was like I was making 50. When I made 200,000 a year, it was like I was making 100 constantly. And then I got this job offer to go work with a small startup company in California called Winamp and it had just been bought by AOL. And they had given me a number of shares as my comp package. So my salary was a lot less, but then it was like 5,000 shares, like a complete nothing burger.

Chamath Palihapitiya (11:38):
But I went back and I built a spreadsheet and I sensitized how much money would this have been had I joined in different years? And Trey, there were a couple of scenarios where it would have been 3 million bucks, $4 million. And I was like, “What is this?” And I didn’t even realize that even when I was trading stocks that I was actually buying pieces of companies, and that equity would create wealth. So that’s how I learned it. I joined that company, I took the 5,000 shares, the stock price went in half, I made nothing from it, but I committed myself to being good. And over time, I was able to negotiate when I went to Facebook that concept.

Chamath Palihapitiya (12:19):
And I remember Mark and I negotiating my comp package, and I said, “I’m optimizing for ownership, give me all the number of ways that I can make money via equity at Facebook.” And one way was he … I remember he gave me, I’m going to get this wrong, but I’m pretty sure this is right, 25 basis points of equity for hiring three directors, three director-level employees. I was a VP, I was in the senior management team. And somewhere along the way I just decided I don’t want to hire directors because these guys are all bozos, and I’d rather recruit from within and promote up.

Chamath Palihapitiya (12:51):
And so then I went back to him and I said, “Well, let’s just tie it to users.” Anyways, those were billion-dollar decisions which weren’t billion-dollar decisions at the time, they turned out to be those things. But it was all tied back to that one moment where my boss Mike Fisher said, “Sherman, go pay off your debt.”

Trey Lockerbie (13:06):
And I think that’s so important actually because it seems your mission is wrapped in solving for inequality as well as climate change, of course, but your approach to inequality is through the capital markets, it’s not like through philanthropy for example, it seems like you’re taking this concept and trying to democratize it a bit further.

Chamath Palihapitiya (13:25):
It is so vital for people to learn what I’ve learned because it’s also something that could have easily not happened for me and I would be a very good mid-level or senior mid-level functionary. But obviously, I’ve had a very different path. But rooted in that path was an understanding of this difference between labor and capital. You mentioned Adam Smith earlier, but these are vital concepts that people need to learn. And solving inequality is not giving everybody the same score at the end of the race.

Chamath Palihapitiya (13:55):
It’s getting everybody to the same starting line at the beginning and then firing the gun so that everybody can do the best they can. And so education matters, the amount that you care about yourself matters the amount that you want to win matters. As I’ve gotten older, I’ve realized because I’ve been surrounded by so many smart people, but not all of them actually want success in what it entails. And in some ways, I have not, and I fought, you fight these mechanisms of self-sabotage or lack of belief in yourself that you have to fight through to get to this next level of success. But these are all learned skills. They’re not born innately in any of us.

Chamath Palihapitiya (14:31):
So I am a huge advocate of that idea that you give people ingredients, but then they still have to have an enormous amount of self-responsibility. Recently I’ve taken a huge break from Twitter and the reason is that I’m shocked at how much hand-holding and spoon-feeding the mob expects. And that was never my intention, and it can’t be anybody’s reasonable expectation. Life is not a kindergarten soccer game where everybody gets to shoot a goal. But life should be an opportunity where everybody can be on the pitch and try out for the team and if you don’t make that first team, you can try out for a different team and work your way up.

Chamath Palihapitiya (15:09):
That is what the whole point of this entire journey is. And so I think that one of my responsibilities is to give my version of what the ingredients are, is to show what I’m doing, and then allow people to make their own informed decisions.

Trey Lockerbie (15:24):
Well, given that this is an investing podcast, I got to ask you some investing principles of your own. I want to start with a really easy one. And this is almost like a pop quiz. But let’s say a business has great people, but a mediocre product versus a business with mediocre people, but a great product, who wins?

Chamath Palihapitiya (15:41):
The latter.

Trey Lockerbie (15:43):
Every time?

Chamath Palihapitiya (15:44):
Every time. In the way that you described it, I’m not picking on you, but I just want to … There is an enormous amount of bias in the way that you describe the alternatives which speak to this concept of not wanting to really see the truth because you’re not really ready to be successful. And I’m not saying you’re doing that, but your example is so beautiful because it comes up so many times.

Chamath Palihapitiya (16:07):
If you have a great product, what has that team actually done? They’ve actually put their biases off to the sidelines. They have found either by listening or by intuition and invention, an ability to create some level of product-market fit that is ultimately giving consumers or their customers, something that they deeply want/need/are willing to pay for. Now, that may manifest, that level of obsession may manifest in a group of people that may seem detached, aloof, rude, arrogant to other people, but to the market and to their customers, they’re incredible. They’ve built a great product.

Chamath Palihapitiya (16:52):
Now let’s take the first part of your example. Here are people that are woke, that are communal, that play soccer together at nights because they like hanging out together, they’re really kind, they’re very supportive, they’re inclusive. But somewhere along the way, they lost the script and forgot that a company is a for-profit expression of intellect. And there is no room for not winning in business. So it’s like things that belonged in a social club or in a family that people mistakenly trundled into the office with.

Chamath Palihapitiya (17:26):
So this is a really interesting investing problem. I probably would be much more attracted to the former. But I have learned to suppress my bias and actually allocate capital to the latter, that’s winning. And you have to decide if that’s what you’re willing to do.

Trey Lockerbie (17:42):
And you talked about that a little bit a Stanford a few years ago where you were talking about moving your investing decision-making into more of a data-driven and unemotional approach. So does that tie into what you’re saying here? And if so, how have you seen that improve over the last few years?

Chamath Palihapitiya (17:59):
It really has. I used to be making decisions in the former, I’ll give you one example of something that I regret. And now he and I are actually decent friends, and we talk a fair amount, but Kevin Systrom who’s the founder and CEO of Instagram. And I remember that Kevin raised … A few months after I left Facebook, Kevin raised a round of capital. And somebody said to me each month, “You should go and invest in Instagram and Kevin, you’re the perfect person, you just left running growth, and mobile and international, you put it all in a soup, that’s what Kevin needs.” And I couldn’t do it. And it was because I was biased. “Oh, it’s a 12 person company. Oh, it’s never going to be as good as Facebook. Oh, it’s not going to grow as fast. Oh this, oh that, all the other thing.”

Chamath Palihapitiya (18:40):
Now it turned out that they raised money at a $500 million valuation and then within six months, they sold to Facebook for like a billion or 2 or something. I missed out on a 2X on my money. So not some crazy thing that I missed, but the error of my decision making was so corrupt if I think about it now, and so corrosive to my future success if I had let that compound, because what was I doing? I was riddled with bias, I had made my decision already, I wasn’t willing to look at the facts, I wasn’t willing to look at it.

Chamath Palihapitiya (19:12):
I wasn’t even willing to try to reach out to him. Now maybe Kevin would have said, “Chamath, there’s no room for you.” Or, “You’re not a good fit.” I didn’t even give him a chance to reject me. I didn’t even come to the starting line. And what I learned from that and I was reflecting on that a couple of years later, I was like, “That is unacceptable.” And if I think about the biggest things that I’ve gotten wrong in investing, it’s never been an investment I made because even if it was unsuccessful, I’ve learned a lot and I’ve refined and tightened how I think about capital allocation and risk management where I’ve made enormous mistakes are the ones of a mission because I didn’t even give myself a shot to be successful and this is what I mean by what I said before.

Chamath Palihapitiya (19:53):
Really successful people, when you look back on it, they didn’t let those things get in the way because those things are artificial. It would have been better to say, “I called Kevin and he said no.” Versus, “I was wrapped up in my own head and couldn’t even reach out.” That is inexcusable if you want to be successful. So how has that informed how I think about capital allocation? I have tried to create a system over the last decade now that is optimized to be very honest with you with my own idiosyncrasies, and my insecurities and my traps, my biases.

Chamath Palihapitiya (20:26):
And so one was that layer of data as you said. We have a very good now protocol, we’re looking at businesses as a numeric way beyond just the P&L, a set of operating metrics and data and rates of growth, and triangle graphs, all these things that we had created at Facebook, but when we applied to investing, it gives us a level of insight that allows us to suspend our bias and get past that first trap. And then the second is I have a system to think about how to invest. And I’ll just give it to you for what it’s worth. But I think about it as a spectrum.

Chamath Palihapitiya (20:59):
On one end of the spectrum, it’s what I would call early-stage decisions. These are… call it no more than $10 million decisions. Okay? So anything from zero to 10 million bucks, I consider it an early-stage decision. And the goal is to buy positive optionality, really smart people in a really compelling space, they may have the ability to be customer-obsessed, and find that product market fit, let’s go. Don’t overthink it, rip the money in, get as much as you can own, and be very proud of that.

Trey Lockerbie (21:33):
Is the optionality coming from the product that could shift and change?

Chamath Palihapitiya (21:37):
Or the idea, yeah. It’s more you’re buying the optionality of the idea. Your downside is 1X on 10 million bucks. Now by the way, that threshold has changed as our AUM has gotten bigger. Before, I would have said that at two or $3 million. And even earlier, I would have said it for $500,000. But the point is rapid-fire fast as you can, do it, do it, do it, you see a good idea, rip it in, bang, bang, bang. You could do two a week. And I would not stop us.

Chamath Palihapitiya (22:04):
Now, we don’t do that in reality, but in my mind, what I think of is, “Can I tolerate that much risk?” The answer is yes. Then as the dollar start to increase, I become, it’s very schizophrenic. Now I go to the exact opposite end. We need to be governed by a propensity for inaction. And I’m just going to sit and every time myself and my team, we come up with an idea or we do diligence. I, but hopefully somebody else, but a lot of the time, it’s me will just introduce all kinds of indirection into the system, all kinds of secondary and tertiary analyses.

Chamath Palihapitiya (22:38):
Sometimes I’ll read team the exact opposite case all to slow things down because there, you need to see the fat pitch. And you won’t really know if you act too quickly, and you swing too quickly.

Trey Lockerbie (22:52):
Does that have a little bit to do with waiting for the phone to ring and playing more defense I guess?

Chamath Palihapitiya (22:58):
Not really. A lot of what we do is pretty much like outbound or sometimes people are coming to us, I guess maybe said differently. We typically don’t find ourselves in situations where there’s five or six other parties, and we’re competing on anything. And so that’s fortunate, and I hope that that continues. But as all this stuff comes in, I’m just trying to in my mind what I’m saying is, “Oh, we’re going to make a $500 million decision? Okay, I’m going to slow it way down and I’m going to make these guys take months to make that decision, months, and months and months.”

Chamath Palihapitiya (23:31):
“Oh, this is a $2 million decision? I don’t want to hear about it, rip it in, talk to me later.” And then in the middle is just about the judgment of getting enough data to see how things are tracking so that they’re actually getting to the right answer past beyond our biases. So that’s how I think about the spectrum. We try to run our business that way.

Trey Lockerbie (23:49):
We have a lot of value “investing folks”, and I like to remind everybody, Buffett himself wouldn’t consider himself a value investor, just an investor, but I loved your take on value.

Chamath Palihapitiya (24:02):
It’s this very funny thing because every time I ask people, “What is the definition of value?” And everybody’s is it’s a word that they can’t define. We all know what it means except when you go to investing. You have the oddest version of what value. The language has been perverted. So I think what value means is it’s worthwhile, it’s useful, it’s excellent, it’s important. That’s what values is.

Chamath Palihapitiya (24:31):
Is the Mona Lisa valuable? Yeah. It’s worthwhile, it’s excellent, it’s important, our airplane is valuable. Yeah, how incredible is this? These things have completely transformed GDP and transportation. They’re useful, they’re important. And then you go into the financial markets and you say, “Is Slack valuable?” They’ll say, “My God, no, it’s so expensive.” “Oh this, oh that. Is snowflake valuable?” “No, my gosh, these things trade at huge multiples. They come up with every excuse.” And then I say, “Well, what is valuable?” And they say, “Philip Morris is valuable.”

Chamath Palihapitiya (25:08):
And then they’ll point to some number, here’s their ROI or here’s their NOPAT or here’s their dividend yield, here’s their free cash flow yield, here’s their multiple of sales. And basically, as long as the number is small, people turn their brains off. Think about it, literally, you could ask a blind monkey on that dimension how to rank growth stocks. And all they would do is just basically rank by ascending order and cut it off before the numbers change into double digits. Pick your metric, that to me seems insane.

Chamath Palihapitiya (25:41):
Philip Morris causes cancer, let’s just be honest about it. Google organizes the world’s information. So my perspective on value is that I think I’m a value investor. I want to find things that are worthwhile, useful, important, and excellent. And I just want to buy them at a fair price.

Trey Lockerbie (26:01):
Determining a fair price, I’m curious, do you do typical discount cash flow, models. If so, what discount rate? Do you have a hurdle?

Chamath Palihapitiya (26:09):
This is also about … This is where we get to this … I think investing is three things, there’s the first part which is like the nuts and bolts, the ones and zeros, being able to do the simple math. Then there is sort of like this part which is what are your biases telling you about the ones and zeros? And then there’s judgment, when to listen to your biases, when to ignore them, and then how to size, and the great investors I think sum those three things together. And it’s a constant, very complicated equation that’s running through their minds.

Chamath Palihapitiya (26:40):
This is why investing is a very individual trade craft because it’s an impossible thing to document, right? I don’t think Stan Druckenmiller or David Tepper’s process is largely documentable. They could tell you to kingdom come how they did something in the past, but it will not inform how they’ll make a decision in the future. Steve Cohen, just add that to the list of all the greats, Buffett. And so I think it’s very important to realize that. I do a lot of Math, and then what I think about is what can go right and what can go wrong and how am I interpreting the math? How aggressively do I want to compound and then I try to make a decision and I size.

Chamath Palihapitiya (27:19):
I’ll give you one example. In 2014, I got on the Amazon train probably before most people at scale. I presented it at IRRs zone, if you had to pick one meaningful money manager of repute, it was on the record pro-Amazon before me, be hard to find. Since then, it’s been easy. And I remember that process, Trey was the following. We did the ones and zeros, and the ones and zeros were very hard to unpack. And the reason was because Jeff didn’t generate a ton of free cash flow at the time.

Chamath Palihapitiya (27:49):
And then instead, what I said was like, “Look, let’s assume that Jeff is a PM inside of a hedge fund, and Amazon is actually a hedge fund. Why don’t we calculate what his actual IRRs are? What’s his return on invested capital?” And there’s a very famous slide in that presentation, which I love to this day, where what we did was we took the P&L, and we looked at every single expense line and we were able to show how it systematically over years migrated to the revenue line, how much they spend on payments became Amazon payments.

Chamath Palihapitiya (28:18):
How much they spent on content became Kindle and Prime Video and a bunch of other things, on and on down the line, compute became AWS. And then all of a sudden, at scales of billions of dollars of invested capital, Jeff had a 44% IRR. And so now all of a sudden, my biases didn’t matter, it was all about sizing. It’s just to give you a sense that there’s the P&L view, then there’s that next level of numerical judgment. And then there’s your innate idiosyncratic way of looking at that data to come to a conclusion.

Chamath Palihapitiya (28:49):
So I do a lot of it, I know when to double down and listen to it and I know sometimes to look around the corner, and then sometimes when to just ignore it.

Trey Lockerbie (28:56):
I’m glad you brought up position size because it’s something I’ve been thinking a lot about recently because I’m a big believer in a concentrated portfolio and I’m just struggling to figure out what does that mean? And I know you’re a big poker player, and I’m curious if you use something like the Kelly formula or anything that you take from that game into this game.

Chamath Palihapitiya (29:17):
So it’s more simplified and this is actually more the part of the job where I allow my emotions to actually dictate. So and I’ll tell you why. On the way in, there’s very little room for emotion because it should be very clinical, but once you’re in, you have to appreciate that your mental outlook and a margin of safety and your own mental health is now then the biggest determinant of success.

Chamath Palihapitiya (29:48):
So going back to this whole thing of like how do people prevent themselves from being successful, it’s not understanding that. So position sizing, one theory of poker is how you play in early position versus late position. And in a nutshell for the non-poker players, essentially if there’s nine seats, and you start in seat one, and you go to seat nine, forget the blinds for a second so that it’s more simple to understand. The earliest position has the biggest disadvantage because they have the least information about what everybody else is going to do.

Chamath Palihapitiya (30:17):
So the number of cards that you play are much smaller and the sizing of the bet needs to be smaller because you have too many events that come after you. Whereas when you’re on the button, when you’re the last person to act, you have perfect information, you’ve seen everybody and what they’ve done before you. And in that situation, now the aperture is wider open, you can play more cards, and you can size differently. Now apply that to investing. When I’m in a position where we are initiating a position, it’s about sizing it to a place where we have the freedom to move around.

Chamath Palihapitiya (30:51):
I can work with the chip stack if you will. We never lever the book. So I never feel that I’m under artificial constraint where we could get margin called or stopped out, that’s an important characteristic for me to be able to manage risk. People have an incredible difficulty in doubling down in success. In fact, it tends to be almost the opposite. People want to find a way to re-underwrite failures. “Oh, I can dollar cost average down. Oh, this is an idiosyncratic drawdown that is not applicable to the name.” Is it? Is it not?

Chamath Palihapitiya (31:19):
Even if it is, the world existed before you, the world is going to exist after you. Who are you to like play in the matrix and hit the pause button and say, “We’re going to rewrite how logic works.” So from my perspective, when we’re initiating a position early on, degrees of freedom matter more than anything else, flexibility, and then as things mature over time, so in the case of a stock and the company that we own, it’s how much data have we seen over how long, how have they proved to be greater capital allocators, and is there still more growth ahead of it? And have they done anything to betray our belief that they’re still customer-obsessed.

Chamath Palihapitiya (31:55):
And you just keep sizing and building and building and building in success. A simple manifestation of that Trey is when you see how we size in our SPACs, there’s obviously this early stock as a sponsor that you get which is very cheap. And then people always ask, “Why are you writing 100 and $150 million checks afterwards? You’re just dollar-cost averaging yourself up to six or seven bucks a share, that’s dumb.” And I say, “It’s not dumb. It’s like you’re learning more about a business and now you can get even more chips on the table with more information.”

Chamath Palihapitiya (32:28):
And then in some situations when the data changes or the markets change, we’re not constrained, we can cut risk, we can be okay, we can reallocate to different pools.

Trey Lockerbie (32:37):
I’m glad you brought up SPACs because I do want to talk about that and I’ve heard you express a desire to do 26 SPACs basically, one for every letter of the alphabet potentially. Where do you think we are in the cycle for SPACs? And what type of companies or industries are you most focused on?

Chamath Palihapitiya (32:55):
Well, I think if you look at that typical adoption curve where you have early adopters, and then you have a trough of disbelief and disillusionment before it slowly grows back, we’re firmly in that phase, we’re in that trough of disillusionment where we need to build trust and credibility. The best way to do that in my opinion is to have more regulation and transparency in the market. I think that there are too many SPAC sponsors.

Chamath Palihapitiya (33:19):
And I think that we could do a lot more to provide signals on sponsor quality, and deal quality. And so I think that’s where we roughly are in the market. With respect to myself, I think we’re one of the five or six groups of sponsors that have now shown that we can do multiple of these things reasonably well in most cases. I do have an ambition to do more of these. It’s from a very selfish desire that I have which is that I think that that’s a great way to buy large pieces of valuable companies. And it allows me to get on the cap tables have these businesses in a really unique way.

Chamath Palihapitiya (33:56):
And what I would encourage people to do is not blindly listen to me, one way or the other is to do their own work and read the prospectuses and understand whether these companies are unique. We are at a point though where I think SPACs are here to stay and I think that that’s a good thing. Historically, we’ve only had one way for companies to raise capital which is a traditional IPO. Then we had a different way, which is a direct listing. Now we have a third way which is a SPAC.

Chamath Palihapitiya (34:23):
And I think generally now you can see the capital markets mature. You’ll have more banks competing to bring these companies public, and they’ll give them a Chinese manual and say pick path A, B or C, each of them will have different costs of capital, each of them will be able to give a company different quantums of capital, and each of them will have different characteristics in terms of future returns. All of that as long as there’s more transparency and good regulation is better for everybody. And so that’s where I think we are, we’re going to learn how to refine the rules, we’ll make it tighter. I think sponsors will become fewer, but there’ll be higher quality in general, but I think it’s one of three legitimate on-ramps to the public markets.

Trey Lockerbie (35:05):
Do you perhaps see it as a means for revenue for social capital, especially social capital 3.0 that what may one day go public?

Chamath Palihapitiya (35:15):
Not really because practically speaking, what that does is creates in the eyes of the 40 Act, the 1940 Securities Act, bad assets. What I mean by that is it is impossible for us to take a basket of assets public, and that’s just the securities law. So if you think about what would we want to take public, we would want to take our ability to allocate the capital of a portfolio of companies where we own the majority, if not, the entirety of the business, a mini version of Berkshire.

Chamath Palihapitiya (35:46):
What this is a mechanism of doing is trying to get an early toehold in businesses with the idea that as we learn more, we can size these positions more and more aggressively. I would love to be in a position to buy more stock of great companies that I know a lot about and this is just a way of expanding the surface area of those opportunities.

Trey Lockerbie (36:06):
Interesting. So that’s one aspect of social capital with the SPACs. And then how do you differentiate between something fully owned versus taking something public?

Chamath Palihapitiya (36:16):
Its sizing. To be honest, it’s really hard to … First of all, we don’t have the money to go buy a $10 billion company outright. And it’s also impossible because these cap tables have all kinds of venture investors and the dynamics of doing that I think haven’t been proven out. Maybe in the future we’ll convince somebody to just sell us the whole company or 80% of it to us and continue to run as an independent company, but we haven’t figured it out to be honest. So what have we bought?

Chamath Palihapitiya (36:46):
We’ve bought companies that are less obvious because that’s where the ARB is. Some enterprise software companies, some healthcare companies, where liquidity was important to the existing investors, where in some cases, the companies had hit a bit of a hiccup and the investors were losing a little bit of confidence. So these are all idiosyncratic ways in which you can then get to 51% of a cap table. Otherwise, as you can see, it’s very, very hard otherwise.

Chamath Palihapitiya (37:13):
Now over time, I’d love to be able to step into the public markets with an offer for a company and say, “Hey, I’ll just buy this whole thing at a tender price.” But we haven’t gotten to that phase yet where we can really do that well.

Trey Lockerbie (37:25):
Well, some of the companies you mentioned you’re looking at are obviously climate change-focused or mission-driven in that regard. I’m curious what industries have become your top priorities?

Chamath Palihapitiya (37:37):
It’s important to note we operate from this vision. And the best way to describe this vision is that we see a world where there’s an even starting line for everybody. So independent of gender and race and religion, your best chance is to live your best life. If you unpack that, how do we contribute to that? Honestly, the way that we contribute is by building and investing in really interesting technology companies. And hopefully, some of those contribute solutions to that equality that we want to see, but some may not.

Chamath Palihapitiya (38:09):
In all cases, these are unique technology businesses. And so I see the world through that lens first and foremost. And I think over time if we can aggregate a portfolio of these kinds of companies that does that, that’s probably the most compelling thing that we can do. Which technology areas matter the most? To be honest, it’s actually a really clinical ranking of where I would say there is the least product market fit.

Chamath Palihapitiya (38:35):
So I’ll give you four examples, they’ll seem pretty obvious as I say it. The first one is healthcare. We spend 20% of GDP dollars a year in the health care system in the United States, but the average life expectancy of white males which is the tip of the iceberg, they are the healthiest and best taken care of population in America is now under 80 years of age. And it’s fallen I think two years in a row. And so if white males are dying under the age of 80 on average, then everybody else is dying an even worse death sooner.

Chamath Palihapitiya (39:03):
That seems to be like a horrendous expression of product market fit. How can you spend trillions of dollars with the number going up more and more every year and getting less and less for it? So clearly, that’s something where if you attack that disparity with technology, you could see some really interesting outcomes. So we spend a lot of time learning about health care. The second one is education. We have trillions and trillions of dollars of US student debt, you have the cost of university education more expensive than it’s ever been. But at the same time, you have fewer and fewer people who are participating in the labor force, you have more and more people who make a living via the gig economy.

Chamath Palihapitiya (39:41):
You have such a labor shortage that the Uber driver in New York now can make $38 an hour, the Chipotle manager who’s willing to commit to three years at Chipotle can make $100,000 a year. We don’t have enough STEM grads, we don’t allow them to come in via immigration. So there’s all of these compounding disparities of labor, that seems to be a very terrible trade-off. How can you spend so much more and have so little? Financial Services is another example.

Chamath Palihapitiya (40:06):
If you look at the growth of assets and the asset inflation we’ve seen in the United States, but the percentage of Americans that actually own those assets relative to everybody else, it’s the largest gap we’ve seen in a long time. If you compare that to ownership rates in the stock market, we’re almost fall … We’re about to fall below 50% for the first time in a very long time. If you look at where most American wealth that’s created, it’s through homeownership, but we have the largest issues of housing and affordability, that seems like a pretty obvious gap and product market fit.

Chamath Palihapitiya (40:35):
Interestingly, if you now look at three of the four deals we’ve done initially through our SPACs, you can see we did a healthcare deal, we did a real estate deal, we did a FinTech deal in part because we think they’re contributing solutions to creating equality. And in climate change, we’re on a pace where we’re burning so many hydrocarbons and most of those hydrocarbons are going to be burned in the developing world that if we don’t figure out new, really compelling technologies that solve our need to be productive as a human species, we’re going to fall off a cliff.

Chamath Palihapitiya (41:06):
Biodiversity is going to fall off a cliff, resource scarcity of food and water is going to fall off a cliff, that again, and we’re spending trillions and trillions of dollars on world GDP on consumption. And yet we have this looming catastrophe. So I always think about it in those terms. Where are we spending a ton getting less and less where there’s a massive gap and product market fit and then just throw solutions against the wall and see if some of these things can really help close the gap.

Trey Lockerbie (41:32):
I’m interested in what you’ve uncovered in the biotech space specifically, I heard you mentioned on your podcast that you said something like fermentation is the future and I have day jobs in fermentation. So that caught my ear and I just, it piqued my interest so I’m curious as to what you’ve got on your mind.

Chamath Palihapitiya (41:49):
I’ll say one thing in the public market’s context about biotech and I’ll answer your question about fermentation or comment. If you go back a decade, which is long enough I think observational period just coming out of the GFC. From 2010 to 2021, had you bought every single one trade without any discretion whatsoever, biotech IPO and held them today, you’d have compounded your money at almost 25% a year, had you shown any skill in picking, you would have actually … You’ve gotten in the top decile, now that takes skill, but you would have compounded at 75% annual IRRs, I found that shocking.

Chamath Palihapitiya (42:27):
And so I started to spend a lot of time learning about biotech, because I was like, “I need to learn about this because there’s returns here.” And so as I unpacked it, I created a little framework for myself which is, “Okay, there’s these four pathways in the FDA, you can break down drugs and targets and methods of action and mechanisms of action, et cetera according to these four pathways. Is it a neuro drug? Is it an organ drug? Is it an immunological drug? Is it a cancer drug, oncology drug?” And then I started to learn about the platforms.

Chamath Palihapitiya (42:55):
And it is where I learned about fermentation which is there’s a wonderful article in The New York Times, you’ll have to search for it, maybe if your producer finds it, they can stick it in the show notes, but it showed how the Pfizer drug was made. And if you haven’t seen it, you should do it because it’s basically a nod to your business, these massive fermentation tanks where you have E. coli bacteria swimming around, it becomes the platform on which this modern mRNA virus was built.

Chamath Palihapitiya (43:23):
And so if you think about scaling up this stuff across a bunch of mechanisms of action and target types, a limiting factor becomes access to fermenters. And there are only a handful of companies that actually have fermentation skill. And so I got very excited about learning about fermenters because I thought, “Okay, hold on a second, you can make a ton of money here, and it would do a lot of good. And so that’s where the fermenting thing came up.” But if you ever wanted to convert your facility and build the AWS of fermentation, you’d have a huge demand.

Trey Lockerbie (43:54):
Okay, before I let you go, I want to just touch on one thing that I’ve really admired about you which is your ability to be incredibly authentic, and especially vulnerable and honest, even in the public eye. I’m curious, as you’ve entered more into the limelight in the last few years which seems almost like a requirement of source for what you’re building, how are you balancing those obligations with some semblance of normalcy?

Chamath Palihapitiya (44:22):
I’m learning along the way. In the last few months like I said, I’ve taken a real step back from Twitter as an example because I just didn’t find it was healthy for me. I think people wanting to index my reputation to their stock prices. And at no point did I tell them to buy anything nor did I tell them to sell anything, nor do I understand their risk positioning and management. I do this for myself, and I share what I do and I’ve tried to be very clear along the way that it’s your responsibility to do your own work.

Chamath Palihapitiya (44:47):
So that was a thing that I learned recently which is that the more limelight you have, the more haters there are. Now that’s no different in some ways to professional sports in a weird way. If you have people that are out there trying to put points on the board, I think what people get mad at is not the scoring of points. I think there’s this weird thing about people that they get mad of how consistently what you’re willing to try. And I think that that speaks to risk tolerance and what the priorities are.

Chamath Palihapitiya (45:12):
And my priorities quite honestly are spending time with my family, being healthy, and then learning things. And inherent to learning is failure. And I don’t think there’s much reputational loss in failure. And so I just keep trying. It just so happens it now I’m more well known so that the failures will be amplified, the successes will be given begrudgingly, but none of those things really motivate me. I want to just learn more and more. I have an enormous obsession with the idea that I can learn and know a lot of things, and I’m obsessed with that, I like learning. I like knowing things about a lot of things.

Chamath Palihapitiya (45:51):
I like breaking them down in my mind and figuring out what the future could look like based on what’s happened. And it’s not to say that I get it right, it’s that I am willing to put myself on the line to figure out whether it’s true and then shape it in small ways in ways that I think are important to me. And as long as I can maintain time with my family and maintain my physical and mental health, I just keep doing it. And I think that’s what people are attracted to is this guy is a competitive person, but I don’t know the answer and I just want to be in the grind, I want to be in the arena.

Chamath Palihapitiya (46:25):
I was an outsider looking in so far away from the arena. When I was a kid, I was reading these Forbes lists because that was a way a simple proxy and a synonym for success and being in the game. And now that I’m in the game, I just want to stay in the game. I just try to shut out the reactions to that because really what I have to amplify is the reactions to the decisions or the decisions good, and are they defensible, because all the other emotional stuff around it is just riddled with bias.

Trey Lockerbie (46:56):
What you just said reminded me of an old stoic quote, something about in order to conquer the world, you have to conquer yourself. And I feel like you’ve done a lot of that and been vocal about that. What’s been your biggest learning that our listeners could really take away?

Chamath Palihapitiya (47:11):
I think that if you go back to the beginning of how you started, there is a thing that I thought was an impediment, which turned out to be a gift, which is now an impediment again. And what that is, is basically self-worth. And I think outsiders generally have low self-worth. And that’s the boundary conditions that you’re born into. And I thought it was an impediment. Why can’t I go to a better high school? Why not this? Why not that? I’m so mad. And then it became a nuclear reactor of energy and motivation.

Chamath Palihapitiya (47:45):
“Oh, I can score? Oh, I can dunk on these guys? Oh, I can be good? I can be as good as them? It doesn’t matter what school I went to? It doesn’t matter the color of my skin? Okay, let’s go.” And so then you’re balling, you’re feeling pretty good. But then it’s like you realize, “Well, all of that success can come at an enormous cost emotionally in one’s relationships.” And then to your point, this next phase is exactly what you said which is really beautiful.

Chamath Palihapitiya (48:10):
It’s like figuring out how to make all of that okay, and how have you learned from it all. And I’m in the middle of that. And I think that if I am to be successful to the degree that I want to be, it will be because of what you just said that I’ve conquered myself, and I haven’t, I feel like I’m top of the first inning. Literally, I feel like it’s the first pitch and it’s like, “Okay, buckle down for this marathon.” But that’s really exciting because again, I’m in the arena. It’s my own arena, but I’m in it. And I like it.

Trey Lockerbie (48:43):
Well, that is incredibly inspiring and I want to just thank you again, for being so outspoken about that. And making I think disrupting stigmas even around it, I certainly look up to that. So I know a lot of our listeners will as well. And you’ve been very generous with your time today and as to be expected, as I would have expected, and I really appreciate it. So I have so many more questions, but I want to let you go and be mindful of your time, and I’d love to do this again sometime soon.

Chamath Palihapitiya (49:12):
Thanks, Trey.

Trey Lockerbie (49:13):
All right everybody, that’s all we had for you this week. If you’re loving the show, go ahead and follow us on your favorite podcast app so you get these episodes automatically every week. And if you haven’t already done so, go to theinvestorspodcast.com, check out all the tools we have there, or just simply google TIP Finance. Go ahead and follow me on Twitter @TreyLockerbie, and reach out with feedback. We’d love to hear from you. And with that, we’ll see you again next time.

Outro (49:37):
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