5 Qs WITH A DEALMAKER
Social Capital CEO Chamath Palihapitiya decided to shake up the VC world in 2017.
In September, he raised $600 million in an IPO for his blank check company, Social Capital Hedosophia Holdings. The idea is that Hedosophia will acquire a large tech company and help it circumvent the initial public offering process. The vehicle will offer faster liquidity for investors and employees, waive lock-ups, and trim the timeline of “going public” to roughly 60 to 90 days.
A few weeks ago, Social Capital announced its new “capital-as-a-service” (CaaS) platform that removes humans from the early-stage investing process by allowing startups to fill out a questionnaire and submit relevant financial data for review.
It’s no surprise that the firm is taking this route. Palihapitiya’s vision has been pretty clear — operational experience coupled with a heavy focus on data. I spoke with Palihapitiya further about his new data-driven investment platform, and his thoughts on some of the sexual harassment issues plaguing the VC industry. Oh, and heads up, there’s some NSFW language to follow. Read the full Q&A here.
TERM SHEET: Tell me about your investment thesis. What do you look for in a company or founder before investing?
PALIHAPITIYA: At the earliest stage, my whole risk management philosophy on investing is just don’t ever look back and say, “Why did we miss that?” When we have the ability to invest anywhere from hundreds of thousands to hundreds of millions, we can manage risk at the early stage a little differently than other folks. My investment philosophy early on is simply — don’t miss.
As we have the ability to invest more capital, my mindset changes pretty fundamentally. In that case, it’s about: Don’t be wrong. You have to use all the different classes of information available to you to get to a much more precise decision. We can’t rely on a PowerPoint presentation or Excel spreadsheet when writing a $50 million to $100 million check. It’s just not enough. You need to use data science and machine learning to get the ground truth of what’s happening inside of a company.
Why did you decide to launch the CaaS platform, and what feedback have you received since you started beta testing it?
PALIHAPITIYA: It’s been a huge eye-opening moment for us. In Silicon Valley, New York, and India, they key to what we do very is all through high-touch, traditional Series A deals. The other thing we’ve done well is incubation. We find ideas no one is investing in and no one’s starting, but ones that we think have value. But capital-as-a service is for everyone else who’s not necessarily in one of those two buckets. If you’re in this business and you want to maximize the chances of winning, you’d want to be global and open 24/7. You can use Facebook, Amazon, Google any time of the day — they’re open for business. Similarly, I would like Social Capital to be open for business 24 hours a day, 365 days a year. So we’ll do high touch stuff, we’ll do incubation, and CaaS allows us to deal with everything that’s not in one of those two buckets in a scalable way.
One finding from the CaaS beta test was that the CEO demographics skewed 42% female and majority non-white. Meanwhile, female founders receive only 2.19% of venture capital funding on average. What do those stats tell you about the state of the industry?
PALIHAPITIYA: There is conscious bias. It’s a bunch of dudes funding other dudes that do dude things. Half the population of the entire world is women, and people are somehow shocked that this entire half is as capable as the other half. It’s not a capability issue, it’s a bias issue. And when you strip the bias out, you realize, “Wow, there are really amazing people that are capable of starting really amazing businesses.” Why are people shocked by this?
We looked at 3,000 companies over the course of six months. We funded many dozens of them, and we did it blind. We didn’t try to figure out if the founders were white, black, Asian, male or female, and we didn’t care which country they were from. We cared whether the business was structurally sound.
Sexual harassment allegations have plagued the VC community in recent months. What are some ways to address and solve this problem?
PALIHAPITIYA: People can’t be fucking scumbags. I mean, I was raised in a house where my mom was the primary breadwinner. It was a dysfunctional house, but she showed tremendous resilience. I also had two sisters who were really strong, I married a woman who’s incredibly strong, I worked at Facebook for a woman who’s very strong. You have to respect people for who they are on a basic level.
Look at what CaaS shows you. People of different kinds, genders, races — they’re as good as you, so stop fucking believing you’re so good and almighty that you can impose your rule on other people. And this refers to all kinds of things, including sexual harassment.
But what about situations where it’s not as black and white? For example, in Uber’s case, the company was growing, but its culture developed into something many would consider toxic. How do you maintain a healthy culture as the startup grows at breakneck speed?
PALIHAPITIYA: It really comes down to the CEO and that senior team and whether they give a shit or not. When things are growing, it’s easy to not give a shit. If things are not working and you’re fighting for your life, it’s also easy to not give a shit. All those scenarios lead to the same conclusion — culture is defined explicitly by people who deem it critical to what it is they want to build. And everybody else allows the culture to develop. At the end of the day, it goes back to: how were you raised, what do you believe, and what is important to you? You need to be very thoughtful about making sure that everything that happens is taught downstream so that it reinforces positive cultural traits.
The CEO has to care to teach and proactively think about it. But there will always be companies coming up with excuses about why it’s the third or fourth priority, which effectively is not a priority.
For more on his views on crypto and other emerging trends, read the full Q&A here.
NEW FIRM ALERT: In January, Rachel Lam stepped down from her role as head of Time Warner’s venture capital arm. She had run the unit since 2003, investing in companies like Maker Studios and Bluefin Labs. At the time, she told Term Sheet that she would take some time off before “one more adventure that will ideally have an impact on the women/diversity equation in venture investing.”
Now, Lam has partnered with Dick Parsons, the former CEO of Time Warner, to launch a new early-stage VC firm called Imagination Capital. They plan to write $250,000 to $500,000 checks in seed rounds using their personal capital. The firm will make 20 to 25 investments over three years with reserves for follow-ons in companies focused on e-sports, big data, machine learning, and digital media.
HOLIDAY READING: Last call for book recommendations: What’s the best business book you read this year and why? Email me at email@example.com or tweet me @polina_marinova. I’ll publish the list this Friday, so you can be armed with reading material for the holidays.
THE LATEST FROM FORTUNE...
• Lessons from A CEO who got fired twice before she turned 30 (by Grace Donnelly)
• Pokemon Go’s creator is making a Harry Potter game (by Jonah B. Firestone)
• Kleiner Perkins partner: ‘We have to do more to support women’ (by Polina Marinova)
• How Zillow made it through the housing crisis (by Anne VanderMey)
• Poshmark, a Redwood City, Calif.-based online service that helps people buy and sell clothing, raised $87.5 million in Series D funding. Temasek led the round, and was joined by investors including Mayfield, Menlo Ventures, GGV Capital, Inventus Capital, Uncork Capital, Union Grove Venture Partners and Cross Creek Advisors.
• EBR Systems Inc, a Sunnyvale, Calif.-based wireless cardiac pacing system provider for heart failure, raised $50 million in funding. M.H. Carnegie & Co. and Brandon Capital Partners led the round, and was joined by investors including Split Rock Partners, Ascension Ventures and Emergent Medical Partners.
• Collective Medical, a Salt Lake City-based provider of care collaboration solutions, raised $47.5 million in Series A funding. Kleiner Perkins Caufield & Byers led the round, and was joined by investors including Bessemer Venture Partners, Maverick Ventures, Kaiser Permanente Ventures, Providence Ventures, Peterson Ventures and Epic Ventures.
• ImmusanT, a Cambridge, Mass.-based developer of treatments for celiac disease, raised $40 million in Series C funding. Investors include ARCH Venture Partners and Vatera Healthcare Partners.
• LeanTaaS, Inc., a Santa Clara, Calif.-based provider of software for healthcare providers, raised $26 million in Series B funding from Insight Venture Partners.
• Torque, a Cambridge, Mass.-based immuno-oncology company, raised $25 million in Series A funding from Flagship Pioneering.
• Logz.io, an Israel-based provider of AI-powered log analytics for enterprises, raised $23 million in Series C funding. OpenView led the round, and was joined by investors including 83North, Giza and Vintage Investment Partners.
• Built, a Nashville, Tenn.-based technology company construction lending company, raised $21 million in Series A funding. Index Ventures led the round, and was joined by investors including Nyca Partners.
• TrueAccord, a San Francisco-based provider of a debt collection platform, raised $22 million in funding. Arbor Ventures led the round and was joined by investors including Nyca Investment Partnership, Assurant Growth Investing, Caffeinated Capital Fund, Felicis Venture, TenOneTen and Crystal Towers.
• Quantum Circuits Inc, a New Haven, Conn.-based quantum computing startup, raised $18 million in Series A funding. Canaan and Sequoia led the round, and was joined by investors including Tribeca Venture Partners, Osage University Partners and Fitz Gate Ventures.
• Xtraction Services, a Clermont, Fla.-based maker of an extraction machine created specifically for cannabis, raised $5 million in funding from Archytas Ventures LLC.
• Nudge Rewards, a Canada-based developer of a team performance management platform for retailers, raised $5 million in Series A funding. Generation Ventures led the round, and was joined by investors including BDC Capital Women in Tech Fund, Brightspark Ventures, and StandUp Ventures.
• Catalia Health, a San Francisco-based patient care management company, raised $4 million in pre-Series A funding. Ion Pacific led the round.
• CleanCapital, a New York City-based online marketplace for clean energy investing, raised $3.7 million in Series A funding. Investors include SeedInvest.
• WireWheel.io, an Arlington, Va.-based developer of a cloud-based data privacy and protection platform, raised $3.1 million in seed financing. PSP Growth and New Enterprise Associates led the round, and was joined by investors including Steve Case.
• Genialis, a Houston, Texas-based builder of genomics software for biologists, raised $2.3 million in seed funding. Redalpine Venture Capital and First Star Venture Capital led the round, and were joined by investors including Pikas d.o.o.
• Morressier, a Berlin, Germany-based platform digitizing academic conferences, raised $1.7 million in seed funding. Redalpine led the round.
• Scipio Bioscience, a Paris-based biotechnology company, raised 1.2 million euros ($1.4 million) in seed funding. Investors include Seventure Partners and High-Tech Gründerfonds.
HEALTH AND LIFE SCIENCES DEALS
• Inozyme Pharma, Inc., a Cambridge, Mass.-based biotechnology company developing medicines to treat rare diseases of calcification, raised a $49 million Series A funding. Longitude Capital led the round, and was joined by investors including New Enterprise Associates,, Novo Ventures and Sanofi Ventures.
• Locus Biosciences Inc, a Raleigh, N.C.-based developer of a CRISPR-Cas platform for precision antimicrobials, raised $19 million in Series A funding. ARTIS Ventures led the round, and was joined by investors including Tencent Holdings Limited, Abstract Ventures and the North Carolina Biotechnology Center.
PRIVATE EQUITY DEALS
• Italmatch, which is backed by Ardian, agreed to acquire Detrex Corp, a Michigan-based maker of high performance specialty chemicals, for $27 per share in cash.
• Envision Healthcare Corp, a Greenwood Village, Colo.-based health-services provider, has attracted buyout interest from Carlyle Group and Onex Corp, according to Bloomberg. Onex has formed a consortium with Clayton Dubilier & Rice and Hellman & Friedman to bid for the company, while Carlyle is bidding alone. Read more.
• Blackstone agreed to recapitalize Cloverleaf Cold Storage, a Sioux City, Iowa-based cold storage warehousing and food logistics company. Financial terms weren’t disclosed.
• Long Ridge Equity Partners made an investment of an undisclosed amount in Ametros Financial Corp, a Burlington, Mass.-based provider of post-settlement medical administration solutions.
• Silver Oak Services Partners, LLC agreed to acquire the assets of Caring People, a Bronx, N.Y.-based operator as a home health care agency. Financial terms weren’t disclosed.
• Long Ridge Equity Partners made an investment of an undisclosed amount in Ametros Financial Corporation, a Burlington, Mass.-based post-settlement medical administration company.
• The Hilb Group, a portfolio company of ABRY Partners, acquired HR Knowledge, a Mansfield, Mass.-based provider of integrated HR services that include payroll, employee benefits and human resources management. Financial terms weren’t disclosed.
• Arlington Capital Partners acquired a majority stake in Grand River Aseptic Manufacturing, a Grand Rapids, Mich.-based provider of sterile parenteral solutions. Financial terms weren’t disclosed.
• H.I.G. Capital acquired Whitney, Bradley & Brown Inc, a Reston, Va.-based provider of program management and consulting services for the U.S. Department of Defense and other federal agencies. Financial terms weren’t disclosed.
• Sodexo (ENXTPA:SW) will buy Centerplate, a Stamford, Conn.-based company that provides food and hospitality services at sports, convention and entertainment venues, for $675 million in cash, according to Reuters. Read more.
• Camposol Holding, a Lima, Peru-based off-season vegetables and seafood supplier, filed for an IPO of up to $345 million.Generación del Pacífico Grupo backs the company. BofA Merrill Lynch and UBS Investment Bank are joint global coordinators in the deal while BTG Pactual and Itau BBA are the joint bookrunners on the deal. The company plans to list on the NYSE.
• SendGrid, a Denver, Colo.-based email marketing company, raised $131 million in an offering of 8.2 million shares at $16 a share. In 2016, the company posted loss of $3.9 million on revenue of $79.9 million. Bain Capital(7%), Bessemer Venture Capital(22.5%), Foundry Group Funds(29.6%), and Highway 12 Ventures(13.9%) back the company. Morgan Stanley and J.P. Morgan are joint bookrunners in the deal. The company plans to list on the NYSE as “SEND.”
• Hudson, a Middlesex, U.K.-based travel retailer, filed for an $100 million IPO(100% insider). Dufry AG backs the company. Credit Suisse, Morgan Stanley and UBS back the firm. The company plans to list on the NYSE as “HUD.”
• Siris Capital Group acquired Intralinks, a New York-based provider of secure data sharing and enterprise collaboration solutions, for about $1 billion in consideration. The seller was Synchronoss Technlogies Inc.
• OMERS Private Equity agreed to acquire a majority stake in Trescal SA, a Paris-based provider of calibration services for the test and measuring equipment market. The deal which values the company at about $787 million. The seller is Ardian.
• Odyssey Investment Partners, LLC acquired TrialCard, a Morrisville, Calif.-based provider of full-service pharmaceutical market access solutions, from Excellere Partners. Financial terms weren’t disclosed.
FIRMS + FUNDS
• Sequoia Capital, a Menlo Park, Calif.-based private equity and venture capital firm, has set out to raise a third scout fund, Sequoia Capital U.S. Scout Seed Fund III, according to an SEC filing. It would seek $180 million, according to Axios. Read more.
• Arrowroot Capital Management, a Santa Monica-based private equity firm, raised $177 million for its third fund, Arrowroot Capital III, L.P.
• Benjamin Kahn joined Exaltare Capital Partners as a managing director. Previously, Kahn was at H.I.G. Growth Partners.
• Grant Beard joined Summit Partners as an executive-in-residence.
• Peter Nortrup joined Turnspire Capital Partners as a principal and head of business development.