A trailblazer in the Venture Capital space, CEO Chamath Palihapitiya of Social Capital is changing the way tech venture capitalists support innovation. His first big move came in September of this year when he created Social Capital Hedosophia Holdings, a massive blank check company. The process for tech companies valued at more than $1 billion (the so called “unicorns” of the world) to go public is extremely long and painful. Companies must work with investment banks to conduct an investor road show, incurring significant fees along the way. Social Capital Hedosophia can offer much faster liquidity for investors and employees, trimming the process of “going public” to roughly 60 to 90 days. Thus, Social Capital Hedosophia’s goal is to acquire a big tech company and help it circumvent the initial public offering process. After taking Social Capital Hedosophia public under the ticker “IPOA.U.,” Palihapitiya raised $600 million in the IPO.
Just when I thought Palihapitiya couldn’t shake up the VC world any more, he created “capital-as-a-service” (CaaS), a platform that removes the human touch in early-stage investing. This announcement on October 26 comes days after Softbank’s Masayoshi Son stated that his investment fund will profit on the “information revolution.” He said, “those who rule data will rule the entire world.” The next day, at a conference in Saudi Arabia, MasterCard’s CEO Ajay Banga announced that “data is the new oil.” Now Social Capital has created a self-serve platform that will allow data to drive future investments.
Here’s how it all works in a nutshell: Entrepreneurs will fill out a questionnaire, submit relevant figures such as revenue and raw engagement data, and/or grant Social Capital access to its cloud services. From there, no more direct contact between Social Capital and the firm in question occurs. Social Capital will evaluate the company and either write a check or pass on it and provide constructive feedback.
During a beta test, Social Capital was able to evaluate over 3,000 companies and selected several dozen to fund across 12 countries. The results were shocking. This off-hands data approach yielded CEO demographics of 42% female, the majority non-white. To put things in context, the percentage of female founders that received venture capital funding in 2016 was a mere 2.19%. This new platform completely circumvents the bias that Palihapitiya has seen over the years. He states, “It’s a bunch of dudes funding other dudes that do dude things.” Social Capital doesn’t care if the founders are white, black, Asian, male, or female. It cares about whether the business is structurally sound.
Social Capital’s new CaaS program is a game changing decision in VC. Moving forward, Palihapitiya wants to continue to develop the process. He states, “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.” Social Capital’s innovative mindset fits exactly into Palihapitiya’s vision for the future: “Social Capital to be open for business 24 hours a day, 365 days a year.”