I'm always somewhat amazed that Chamath Palihapitiya doesn't have a much worse reputation:
1. My understanding is that he was the primary initial architect of "A/B testing for engagement" at Facebook that turned social media into a tribalistic, outrage generating machine (nothing engages like hate), and that the rest of SV essentially copied. I think this trajectory would have happened regardless, but he was first, so to speak.
2. He was the primary booster of selling the shit sandwiches known as SPACs as filet mignon. I'm sure he made out, any downstream investors not so much.
The interesting thing is a few years ago (before becoming the "SPAC King") he did a media tour where he criticized Venture Capital as being a "massive Ponzi scheme". [1]
Then he went all-in on SPACs... Which ended up being the ultimate Ponzi.
He also headed the Facebook Phone and Facebook Beacon where the phone is something no one remembers and Beacon had a public apology from Zuckerberg after many lawsuits. But all of this is on his Wikipedia page…
Having a billion dollars in your bank account is all the reputation that is needed. He could murder someone in broad daylight and would still have a long line of Twitter simps and "influencers" cheering him on.
He was also a huge bully at Facebook —- it’s well known that everyone strongly disliked him personally —- and his behavior at SocialCapital was so bizarre that every other partner in the firm quit.
I don't hate on him because for me those SPACs were obvious money grabbers (I won't invest in an IRC client/server architecture. It can be useful but not _that_ useful. Virgin Galactic was also clearly nothing like SpaceX, especially for needing people inside it for manuevering).
I have sent my mom to full body MRI scan partly because of him and other people in her age generally getting cancer.
He's interesting when he's not pushing his own investments.
> I'm always somewhat amazed that Chamath Palihapitiya doesn't have a much worse reputation:
One of the thing he did right was to call out the VCs involved in the FTX scam. They all turned a very blind eye to SBF's wrongdoings while any five minutes googling before investing would have led to posts explaining the very scam SBF was running. VCs basically basically participated in the pump and dump of shit tokens by FTX. To me they're complicit in the FTX scam.
Not even five minutes. Two minutes of googling was all it took to discover who SBF really was. But I take it maybe the VCs knew but still wanted their share of the scam.
Chamath Palihapitiya very clearly talked about this: at best the complete lack of due diligence and amateurism, at worst being complicit in the Alameda/FTX scam.
He used the term "our own brethren" to refer to VCs participating and encouraging the FTX ponzi.
> amazed that Chamath Palihapitiya doesn't have a much worse reputation
Does he? I thought he was clearly Jim Cramer for VC watchers. The brightest light in the All In listener dorm room. His niche is lucrative. But he isn’t taken seriously, particularly given recent questions around his personal and firm’s solvency.
He's smart, he speaks in a way that is very appeasing to news outlet and quite easy to understand and follow, and he seems to understand things really well. This is why he's quite popular.
His SPACs made him billions, and costed a few billions more to the average joe who believed in him.
I think he should be seen as an evil capitalist, from this point of view. I'm not sure if this is the correct way to depict him or not.
Can someone verify - did he really the architect for A/B test at early Facebook? It’s undoubtedly one of the worst Pandora’s box at internet history, but I do have respect for who created this - it’s probably the largest scale statistic application ever.
Are you trying to engage us? :) Get rid of engagement optimization and I'd guess that it still turns bad. It is what grabs attention in a low-agency mood.
This is one of those things that was just totally obvious to professional market participants while it was happening. I was working as an investment analyst at a huge ($10b+ AUM) hedge fund at the time and couldn’t believe the insanity and greed that was being displayed daily by SPAC sponsors and “investors”.
Often the way this game worked was that if you were a large institutional investor who could be relied on to take a large allocation of the shares, you got special treatment and then could dump your shares on unsuspecting (and highly irrational) retail investors, at least while the insanity continued. It was fascinating to see how a bunch of professionals, who should have known better, each of whom were acting rationally (if not exactly ethically, although it was basically all totally legal), could nevertheless result in totally crazy malinvestment and capital destruction.
Of course, it was all possible only because of uninformed retail holding the bag of worthless companies like Virgin Galactic, or real companies that were valued at silly levels because they were SPACs. It was amazing too just how many times the big SPAC sponsors (like Chamath, but also Alec Gores, Michael Klein, etc.) "went back to the well" to do the same thing again and again. The most egregious of all of these that I'm aware of is David Hamamoto, who did the SPAC deal for Lordstown Motors, which was basically an outright fraud (I shorted this one to the bottom in size at the time).
Sadly, I doubt any of the people responsible for these huge losses by the public will ever be held accountable in any way, nor will the legions of professionals (lawyers, accountants, investment bankers, etc.) who enriched themselves while facilitating what they must have known were guaranteed duds for whomever would be left holding the bag (i.e., stupid retail investors losing their meager life savings.)
I had trouble believing that these things were even legal given that we'd made the same mistakes during the 1920s. The very idea of 'let's form a company to get a bunch of money but we're not going to tell you what for' is entirely reminiscent of the south seas bubble language from the 1720s. I'm glad the SEC finally effectively killed these things.
SPACs, in theory, democratized access to late-stage private markets, aiming to give retail investors an early seat at the table. but like many financial innovations, they're tools that can be wielded wisely or poorly. the high failure rate suggests a misalignment of incentives: founders and sponsors capture immediate liquidity, while long-term outcomes get obfuscated by the structure.
I once had a chat with a founder who merged his startup with a SPAC. He mentioned that the allure wasn't just the capital but the perceived simplicity of the process, compared to a traditional IPO. But looking back, he felt that the rigorous scrutiny of the traditional path might have forced his team to address underlying business challenges they'd later face.
in any event the real question here isn’t whether SPACs as a vehicle are intrinsically flawed, but if the market’s appetite for risk, combined with the allure of quick liquidity, blinded many to fundamentals during the 2020 bubble. With any financial innovation, there's often a cycle: initial excitement, over-extension, contraction, and then matured understanding. Perhaps we're in the contraction phase for spacs, but they might still find a place in a more judicious market
> SPACs, in theory, democratized access to late-stage private markets
Working in finance made me extremely cynical about anything that claims to “democratize” finance. It’s a great idea, as you say, in theory; but in practice what gets branded as “democratization” is really selling retail investors on the table scraps that professionals have already picked over.
The funny thing is that this was actually the third SPAC boom. I cut my teeth on Wall Street in 2008 and they were all the rage then too:
"SPACs have a distasteful reputation due to a number of scandals associated with them in the 1980s. But like Frankenstein arisen from the dead, they are back. Initially, when they first reappeared on the scene the major banks and M&A law firms refused to represent them. Morgan Joseph and Ladenburg Thalmann did the hard work of establishing a market." [1]
Also, I don't think anyone launching a SPAC believes they are about democratizing access to certain deals. They're just another structure for raising funds for acquisitions. If the status quo is doing it through private equity firms, an alternative structure is search funds for the small deals and SPACs for the large deals.
> SPACs, in theory, democratized access to late-stage private markets, aiming to give retail investors an early seat at the table. but like many financial innovations, they're tools that can be wielded wisely or poorly.
This is highly misleading IMO. The democratization narrative is a complete marketing ploy — anyone that understands how the SPAC structure works would not call it “democratic” in any sense of the term. Participants in the SPAC fund and buyers of the public market equity are two completely different parties. For one the funders of the SPAC get their capital back (plus interest) if the SPAC fails to find a target. But even when they find one, the funders get many sweeteners over and above the resulting equity shares. In some cases there are minimum payouts and all kinds of other things that create a two tiered system.
The SPAC “craze” can be boiled down to a few causes — overheated stock speculation that caused retail investors to put their money all over the board, and low interest rates that made this kind of risk free betting possible (the opportunity cost was very low when T-bills paid nothing). It was a way for companies to specifically and intentionally avoid public market regulations to sell to a perceived “dumb money” retail pool. There’s absolutely nothing democratic about it. Also why many of the companies using SPACs were “retail friendly” businesses like electric car companies that were perceived to be “exciting businesses” for retail buyers.
Misalignment of incentives is such an understatement.
> But looking back, he felt that the rigorous scrutiny of the traditional path might have forced his team to address underlying business challenges they'd later face.
This is such a politically correct way of saying “we didn’t want to be scrutinized so we took the quick cash and ran instead.”
A more cynical take is that financial innovation is roughly the task of figuring out how to leave retail investors holding the bag while insiders/financial service providers make off with a kings' ransom in commissions.
In that sense a "matured understanding" is just regulation. And it seems a tall stretch to imagine SPACs reaching that when their sole existence is a loophole in regulation designed to protect retail investors from exactly these kinds of losses.
> SPACs, in theory, democratized access to late-stage private markets, aiming to give retail investors an early seat at the table.
I question how that's even true in theory. A SPAC is an elaborate (and expensive) mechanism to bring a private company public with less disclosure; even if it works as designed, you're not letting retail investors invest in early stage companies.
> He mentioned that the allure wasn't just the capital but the perceived simplicity of the process, compared to a traditional IPO.
There's very little simple about a SPAC, which suggests the founder may not have understood them as much as he thought he did. Perhaps he meant easier?
Also, I mean, there is a simple process for going public that does at least partially democratize the process: Direct listings. I've always found it fascinating how unpopular they are.
Whenever I see the term "democratizing access," my spidey-sense starts to tingle and I get a strong suspicion that I'm about to encounter something kinda-to-very skeezy that _really_ needs a good "power to the people" cover story in order to be accepted.
1. Regulated, standardized
2. Less regulated alternative
Which sort of companies are going to dominate in #2?
It's not going to be the ones that could have gone with #1, but decided not to for reasons. It's going to be a lot of companies that couldn't go with #1.
Which will drag down the median of #2, which will increase the cost of using it (because everyone will assume you're a scam by default), which will decrease its attractiveness and cause even more companies who can to pursue #1, GOTO 10.
> With any financial innovation, there's often a cycle: initial excitement, over-extension, contraction, and then matured understanding
I'm a little more cynical, I think the cycle is: a new financial invention comes out, greed causes people to people to pump money into it, eventually the bubble pops or regulators step in. We've seen it time and time again: the dot com bubble, the subprime mortgage bubble, SPACs, and now/soon (IMO) with PE. My question is how many times this has to happen before we stop viewing it as an isolated with specific product and start to see it as a system issue with our financial system.
SPACs also suffer from an adverse selection problem. The people who self select to do a SPAC because they have low tolerance for rigorous scrutiny are more likely to fail when the tides go out.
For some context, looking at traditional IPOs during the same year[1], the median return was 3.3%, the mean -22%. Like SPACs there were a couple outlier that gave high returns. Around 45% of IPOs gave small positive returns, while only 4% of SPACs did. Around 35% of IPOs lost half their value or more, while 80% of SPACs did.
SPAC Boom was coincident with money supply and one the most inflationary times.
Median return of 2022 SPAC mergers was -82%, but so was pretty much all high P/E ratio companies.
Cloudflare is down -72% from ATH in 2022.
Defending against the inevitable strawman: I am not saying anything about whether SPACs are good/bad investments. But, in order to show the full strength of their "badness", the author needs to tell us more about the overall market and contrast that with SPACs.
People don’t like IPOs because the share price often pops immediately, and you feel like you’ve left money on the table. SPACs have 100% solved that problem.
Yup. I generally enjoy some of the topics the guys on that podcast cover, but any time Chamath is on it's fairly cringey.
I've seen enough scammy crap in my life, and unfortunately was part of briefly earlier in life, that when things like SPACs pop up the scams are fairly obvious.
If anyone tries to sell you on something that doesn't make sense even after you spend some time researching it, it's probably in the scam bucket.
Isn't the goal of an SPAC to basically circumvent the IPO auditing and reporting rules to allow them to scam purchasers^w^w "streamline listing the stock"?
Yes. People will try and come up with long winded justifications for them but there's really nothing deeper going on. Failing companies want to dump shares on retail investors but don't want to go through IPO due diligence and reporting, hence SPACs.
Wall Street banks made a lot of money off of that craze and that’s really the reason number one the Fed didn’t tighten its policy when inflation was flashing red. Never trust the Fed. They merely exist to facilitate monetary policies for Wall Street banks.
If the sole purpose of the Fed is to facilitate easy monetary policy for banks then it sure is odd they're continuing to hike interest rates even though most banks are massively underwater on their bond portfolios (some to catastrophic effect) .
The suckers aren’t just investors, but also employees who work at companies that hinted/promised liquidity via one of these transactions. I didn’t work at a company that failed to ipo via spac, but I almost did and although every technical interviewer felt earnest, something felt off about their lack of detail around business and the equity part of the comp.
Too much of it felt like hot air and I went elsewhere. This was two years ago, and indeed some BS press release from a year ago says their “deal” fell apart. Seemingly reputable investors too, wtf.
I’m a quant. If all you care about is the realized return of a equal-weighted portfolio than sure, just look at mean return. If you’re trying to understand a strategy in depth you’ll want to look at the entire distribution of hypothetical returns, precisely because financial returns are fat-tailed and portfolio returns are often driven by outliers. I don’t know about SPACs, but for common stock often the outlier returns are in small illiquid stocks where you couldn’t take a large position.
Looks like it was called SOGU and run by AXS. Seems to have died in June of this year (based on the observation that it's price chart ends). I didn't find documentation as to why, there's bits and pieces like old prospectuses on AXS's website but they've taken down it's page. I haven't found a notice about wrapping up the fund, and I haven't found anything on Edgar. Their last annual report (per archive.org) seems to be a broken PDF.
But I didn't try that hard, I'm sure the documentation must exist somewhere.
hn_throwaway_99|2 years ago
1. My understanding is that he was the primary initial architect of "A/B testing for engagement" at Facebook that turned social media into a tribalistic, outrage generating machine (nothing engages like hate), and that the rest of SV essentially copied. I think this trajectory would have happened regardless, but he was first, so to speak.
2. He was the primary booster of selling the shit sandwiches known as SPACs as filet mignon. I'm sure he made out, any downstream investors not so much.
Ozzie_osman|2 years ago
Then he went all-in on SPACs... Which ended up being the ultimate Ponzi.
[1] https://www.cnbc.com/2018/10/10/start-up-economy-is-a-ponzi-...
zitterbewegung|2 years ago
Now he even regrets his impact on social networks due to unintended consequences … https://en.wikipedia.org/wiki/Chamath_Palihapitiyawprov=sfti...
https://en.wikipedia.org/wiki/Facebook_Beacon?wprov=sfti1
paxys|2 years ago
throwaway4736|2 years ago
xiphias2|2 years ago
I have sent my mom to full body MRI scan partly because of him and other people in her age generally getting cancer.
He's interesting when he's not pushing his own investments.
hckrnrd|2 years ago
TacticalCoder|2 years ago
One of the thing he did right was to call out the VCs involved in the FTX scam. They all turned a very blind eye to SBF's wrongdoings while any five minutes googling before investing would have led to posts explaining the very scam SBF was running. VCs basically basically participated in the pump and dump of shit tokens by FTX. To me they're complicit in the FTX scam.
Not even five minutes. Two minutes of googling was all it took to discover who SBF really was. But I take it maybe the VCs knew but still wanted their share of the scam.
Chamath Palihapitiya very clearly talked about this: at best the complete lack of due diligence and amateurism, at worst being complicit in the Alameda/FTX scam.
He used the term "our own brethren" to refer to VCs participating and encouraging the FTX ponzi.
JumpCrisscross|2 years ago
Does he? I thought he was clearly Jim Cramer for VC watchers. The brightest light in the All In listener dorm room. His niche is lucrative. But he isn’t taken seriously, particularly given recent questions around his personal and firm’s solvency.
simonebrunozzi|2 years ago
His SPACs made him billions, and costed a few billions more to the average joe who believed in him.
I think he should be seen as an evil capitalist, from this point of view. I'm not sure if this is the correct way to depict him or not.
falseAss|2 years ago
stock_toaster|2 years ago
ryanlbrown|2 years ago
VirusNewbie|2 years ago
__loam|2 years ago
eigenvalue|2 years ago
Often the way this game worked was that if you were a large institutional investor who could be relied on to take a large allocation of the shares, you got special treatment and then could dump your shares on unsuspecting (and highly irrational) retail investors, at least while the insanity continued. It was fascinating to see how a bunch of professionals, who should have known better, each of whom were acting rationally (if not exactly ethically, although it was basically all totally legal), could nevertheless result in totally crazy malinvestment and capital destruction.
Of course, it was all possible only because of uninformed retail holding the bag of worthless companies like Virgin Galactic, or real companies that were valued at silly levels because they were SPACs. It was amazing too just how many times the big SPAC sponsors (like Chamath, but also Alec Gores, Michael Klein, etc.) "went back to the well" to do the same thing again and again. The most egregious of all of these that I'm aware of is David Hamamoto, who did the SPAC deal for Lordstown Motors, which was basically an outright fraud (I shorted this one to the bottom in size at the time).
Sadly, I doubt any of the people responsible for these huge losses by the public will ever be held accountable in any way, nor will the legions of professionals (lawyers, accountants, investment bankers, etc.) who enriched themselves while facilitating what they must have known were guaranteed duds for whomever would be left holding the bag (i.e., stupid retail investors losing their meager life savings.)
CraigRo|2 years ago
canvascritic|2 years ago
I once had a chat with a founder who merged his startup with a SPAC. He mentioned that the allure wasn't just the capital but the perceived simplicity of the process, compared to a traditional IPO. But looking back, he felt that the rigorous scrutiny of the traditional path might have forced his team to address underlying business challenges they'd later face.
in any event the real question here isn’t whether SPACs as a vehicle are intrinsically flawed, but if the market’s appetite for risk, combined with the allure of quick liquidity, blinded many to fundamentals during the 2020 bubble. With any financial innovation, there's often a cycle: initial excitement, over-extension, contraction, and then matured understanding. Perhaps we're in the contraction phase for spacs, but they might still find a place in a more judicious market
paulgb|2 years ago
Working in finance made me extremely cynical about anything that claims to “democratize” finance. It’s a great idea, as you say, in theory; but in practice what gets branded as “democratization” is really selling retail investors on the table scraps that professionals have already picked over.
pottertheotter|2 years ago
"SPACs have a distasteful reputation due to a number of scandals associated with them in the 1980s. But like Frankenstein arisen from the dead, they are back. Initially, when they first reappeared on the scene the major banks and M&A law firms refused to represent them. Morgan Joseph and Ladenburg Thalmann did the hard work of establishing a market." [1]
Also, I don't think anyone launching a SPAC believes they are about democratizing access to certain deals. They're just another structure for raising funds for acquisitions. If the status quo is doing it through private equity firms, an alternative structure is search funds for the small deals and SPACs for the large deals.
[1] https://archive.nytimes.com/dealbook.nytimes.com/2008/01/06/...
aabhay|2 years ago
This is highly misleading IMO. The democratization narrative is a complete marketing ploy — anyone that understands how the SPAC structure works would not call it “democratic” in any sense of the term. Participants in the SPAC fund and buyers of the public market equity are two completely different parties. For one the funders of the SPAC get their capital back (plus interest) if the SPAC fails to find a target. But even when they find one, the funders get many sweeteners over and above the resulting equity shares. In some cases there are minimum payouts and all kinds of other things that create a two tiered system.
The SPAC “craze” can be boiled down to a few causes — overheated stock speculation that caused retail investors to put their money all over the board, and low interest rates that made this kind of risk free betting possible (the opportunity cost was very low when T-bills paid nothing). It was a way for companies to specifically and intentionally avoid public market regulations to sell to a perceived “dumb money” retail pool. There’s absolutely nothing democratic about it. Also why many of the companies using SPACs were “retail friendly” businesses like electric car companies that were perceived to be “exciting businesses” for retail buyers.
LapsangGuzzler|2 years ago
> But looking back, he felt that the rigorous scrutiny of the traditional path might have forced his team to address underlying business challenges they'd later face.
This is such a politically correct way of saying “we didn’t want to be scrutinized so we took the quick cash and ran instead.”
duped|2 years ago
In that sense a "matured understanding" is just regulation. And it seems a tall stretch to imagine SPACs reaching that when their sole existence is a loophole in regulation designed to protect retail investors from exactly these kinds of losses.
Lazare|2 years ago
I question how that's even true in theory. A SPAC is an elaborate (and expensive) mechanism to bring a private company public with less disclosure; even if it works as designed, you're not letting retail investors invest in early stage companies.
> He mentioned that the allure wasn't just the capital but the perceived simplicity of the process, compared to a traditional IPO.
There's very little simple about a SPAC, which suggests the founder may not have understood them as much as he thought he did. Perhaps he meant easier?
Also, I mean, there is a simple process for going public that does at least partially democratize the process: Direct listings. I've always found it fascinating how unpopular they are.
DanHulton|2 years ago
SPACs, it would seem, are not an exception.
ethbr1|2 years ago
If there exist two pathways:
Which sort of companies are going to dominate in #2?It's not going to be the ones that could have gone with #1, but decided not to for reasons. It's going to be a lot of companies that couldn't go with #1.
Which will drag down the median of #2, which will increase the cost of using it (because everyone will assume you're a scam by default), which will decrease its attractiveness and cause even more companies who can to pursue #1, GOTO 10.
candiddevmike|2 years ago
mitt_romney_12|2 years ago
I'm a little more cynical, I think the cycle is: a new financial invention comes out, greed causes people to people to pump money into it, eventually the bubble pops or regulators step in. We've seen it time and time again: the dot com bubble, the subprime mortgage bubble, SPACs, and now/soon (IMO) with PE. My question is how many times this has to happen before we stop viewing it as an isolated with specific product and start to see it as a system issue with our financial system.
umeshunni|2 years ago
datadrivenangel|2 years ago
baby|2 years ago
pavon|2 years ago
[1] https://stockanalysis.com/ipos/2022/
epgui|2 years ago
systemvoltage|2 years ago
Median return of 2022 SPAC mergers was -82%, but so was pretty much all high P/E ratio companies.
Cloudflare is down -72% from ATH in 2022.
Defending against the inevitable strawman: I am not saying anything about whether SPACs are good/bad investments. But, in order to show the full strength of their "badness", the author needs to tell us more about the overall market and contrast that with SPACs.
javajosh|2 years ago
Based on the definition, is it proper to call it a "merger"? It seems more like what SPACs do is "acquire".
epgui|2 years ago
Technically there is a merger that does happen, but... it really is a technicality.
NotYourLawyer|2 years ago
geuis|2 years ago
I've seen enough scammy crap in my life, and unfortunately was part of briefly earlier in life, that when things like SPACs pop up the scams are fairly obvious.
If anyone tries to sell you on something that doesn't make sense even after you spend some time researching it, it's probably in the scam bucket.
olliej|2 years ago
paxys|2 years ago
jonathankoren|2 years ago
If it was a viable business, just do an IPO.
lvl102|2 years ago
calgarymicro|2 years ago
duped|2 years ago
d136o|2 years ago
Too much of it felt like hot air and I went elsewhere. This was two years ago, and indeed some BS press release from a year ago says their “deal” fell apart. Seemingly reputable investors too, wtf.
Keep your BS detectors on at all times.
yieldcrv|2 years ago
The money didn’t disappear and those shares created were never worth anything.
quickthrower2|2 years ago
$1 bet. Roll a dice.
If you get 1,2 you get zero Otherwise $1.3
Median return is 30% plus prinicpal.
yellowstuff|2 years ago
throwaway4736|2 years ago
SkyMarshal|2 years ago
cinntaile|2 years ago
riffic|2 years ago
fullshark|2 years ago
danbolt|2 years ago
AlbertCory|2 years ago
gramie|2 years ago
woleium|2 years ago
maxbond|2 years ago
But I didn't try that hard, I'm sure the documentation must exist somewhere.
fomine3|2 years ago