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Chamath Palihapitiya

@chamath

25 Oct

In investing, so many people seem to have “the solution” but they are incapable of profiting from it themselves so they convince you to pay them fees and carried interest to do it with your money.

This is the principal/agent conflict with most funds.

A few questions you should always ask:

1) How much of the investment/fund is your own capital?

2) How much above the minimum in your LP Agreement is your capital commitment?

3) Over the past 5, 10 years, what percentage of your comp were fees vs carried interest?

Whether you’re an entrepreneur raising money from a GP or a prospective LP investing in a fund (of any kind), the funds/GPs with the most skin in the game will act like a principal and be aligned with you and will seek to make money only when you do.

Read 4 tweets

Chamath Palihapitiya

@chamath

7 Oct

SPAC Dynamics: An interesting turn in SPACs are those SPACs being raised by Venture Funds, Growth Funds or Crossover funds in the hopes of working with an existing portfolio company.

There are a lot of interesting turns that may play out here:

In some private company boards, politics can be intense with "Alpha" Directors and "Beta" Directors.

Also is the issue that the earliest investors are oftentimes the largest owners versus later stage investors who usually own less but have invested a lot more capital

Success of the startup typically amplifies the dynamics of both of these trends.

Now consider when one of the Directors approaches the CEO and the rest of the board with a SPAC:

1. Is it the Alpha Director or one of the other Beta Directors? How will that drive reactions?

Read 5 tweets

Chamath Palihapitiya

@chamath

1 Oct

Running a company in 2020 is hard. It's no longer just about employees and shareholders. It's now also about stakeholders of which there are many:

Regulators, employees, partners, existing users

But the most important, imo, are mass market potential new users (MMPNU).

MMPNUs are critical because they are the only way of achieving a massive outcome. You can build a very good/big company without MMPNUs, but not necessarily world-changing.

If you want to maximize MMPNU demand, you need to understand their psychology.

MMPNUs are not picking features and functionality - that's what early adopters do.

MMPNUs are initially triggered by virality but their choices are cemented by a sensation that the product is aligned with who they are.

When it is, they adopt. When it's not, they churn.

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Chamath Palihapitiya

@chamath

23 Sep

Investing 101: Don’t confuse slugging percentage with batting average.

The former is being the cool kid in high school - you’re a rare thing and everyone wants to know the secret.

The latter is like going to the prom with your mom. Everyone talks about it, but not kindly.

Investing is all about dollars in —> dollars out or the multiple of invested capital (MOIC).

How many good companies you’ve invested in interests no one who knows anything.

How much did you make? What was your entry point? Did you size up or did you shit your pants?

It’s easy to focus on batting average and miss the obvious:

“I didn’t buy $TSLA at $300 so I’ll pass at $1000.”

“$AMZN at $500? Crazy! See you at $200.”

Read 6 tweets

Chamath Palihapitiya

@chamath

21 Sep

Investing 101: Risk management is poorly understood and even more poorly applied.

Here’s a simple framework I use to manage risk.

Imagine a barbell - weights at either end with a thin bar in the middle. In my opinion, risk is best managed in this way.

For me, early stage risk is at one end of the barbell and liquid, public market risk is at the other. In the middle are growth rounds, converts, PIPEs etc. ie anything that isn’t the other two.

For every $100, I divide it into a 45/10/45 allocation in the barbell.

Now here is the hard part...in the early stage bucket, I divide the $45 into 10 years because that’s how long it takes for an early stage deal to get liquid. I also need to hold back 1/3 for reserves (investing your pro rata in future rounds).

Read 8 tweets

Chamath Palihapitiya

@chamath

14 Sep

Investing 101: Successful investing is all about behavior and psychology.

You can have the best model or analysis in the world but if you panic, you lose.

Said differently, everybody has a plan until they get punched in the face.

Let's begin...

The most important thing you can do to maximize the odds of success is figure out what, if any, behavioral advantages you have or can create for yourself.

What rules can you live by that will prevent you from doing something stupid especially when everyone is losing their mind?

Here are my behavioral decisions:

1. I don't trade stocks. I buy companies.

Buying a company is like hiring a great CEO to work for you and your family. You can rest well knowing that Bezos, Musk etc. are on the job. That's not true for all CEOs so decide accordingly.

Read 9 tweets

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