Chamath Palihapitiya: People in Silicon Valley are deeply unhappy
Recode Decode, hosted by Kara Swisher
Social Capital CEO Chamath Palihapitiya talks with Recode’s Kara Swisher and Teddy Schleifer about an “identity crisis” that pitted his wealth and fame against personal happiness and relationships. In this episode: Social Capital’s attempts to disrupt venture capital; Palihapitiya’s “identity crisis” and search for happiness; nonwhite people aren’t allowed to appear crazy; “to all the people that worked for me ... you’re fucking welcome”; why Silicon Valley has never been unhappier; the lack of heroes and values in modern society; the uneasy balance between a business' mission and its profits; disarming the concept of mental health; why Palihapitiya isn’t a fan of Rep. Alexandria Ocasio-Cortez; why the startup world is a “ponzi scheme”; what entrepreneurs need to ask prospective investors to avoid getting fleeced; the looming debt crisis; the five areas he would invest in now; and the current state of Social Capital.Thanks to Microsoft Azure for sponsoring this episode. Get started with a free account and 12 months of popular free services at Azure.com/trial today.
In this episode
- 07:50 - What put Chamath Palihapitiya on a path to be the Kanye West of Silicon Valley?
- 14:14 - Did Chamath let investors down when he completely restructured his VC firm and essentially quit?
- 14:38 - What kind of a responsibility does a VC have for its LPs?
- 20:00 - How can I have a meaningful conversation with people?
- 23:51 - What is the biggest problem in Silicon Valley right now?
- 25:54 - Why are people in Silicon Valley so unhappy?
- 27:25 - What is so different between SIlicon Valley today and Valley in 2000s.?
- 29:49 - Is money accelerating the pace of unhappiness in the Silicon Valley?
- 33:43 - What happens to a later-stage company when it transitions to maximize revenue and why?
- 35:44 - How do we become a better society?
- 38:03 - Why is it so unpopular to be successful today?
- 40:11 - Is anger a great motivator?
- 41:16 - Why are good ideas no longer getting funded in Silicon Valley?
- 43:21 - Who are the people winning and losing in the Silicon Valley Ponzi scheme?
- 49:57 - When is the next crash going to happen?
- 52:41 - How do you find ideas that make a lot of money?
Smash Notes summary for this episode
What put Chamath Palihapitiya on a path to be the Kanye West of Silicon Valley?
Unlike many poor people who work hard jobs and don't have time to be unhappy, Chamath, with all his billions, was able to find time to rest and to reflect, and to identify whether he is actually living a successful life.
Did Chamath let investors down when he completely restructured his VC firm and essentially quit?
Not at all. He took a few billion dollars under management and turned it into a few more billion dollars. He promised returns, and he achieved them. He did not promise anyone that he would be doing this forever. He sums it up like this: "You are fucking welcome!"
What kind of a responsibility does a VC have for its LPs?
A VC's job is to deliver return, for which they take money, hire competent people, and invest to achieve those return. It is not a VC's job to become anyone's slave and to continue working forever. You can retire any time you want.
How can I have a meaningful conversation with people?
The ability to be emotionally intimate and authentic with other people is really hard and is a skill that can be trained, if it is not something you know how to do naturally.
What is the biggest problem in Silicon Valley right now?
People in the Silicon Valley are the most unhappy they have ever been, they are the least civilly engaged and the most emotionally detached from their lives; they feel empty. To do something meaningful, even in business, you have to have an emotional spark at some point, and if you are internally preoccupied with your own happiness, or the lack of it, then when you get into the office it becomes really hard to create something truly great.
Why are people in Silicon Valley so unhappy?
We have an entire generation of young that grew up in front of their phones, people who don't know how to connect with the real world and how to find happiness. People see the world as they live it, and unhappy people see a world that is overall unhappy.
What is so different between SIlicon Valley today and Valley in 2000s.?
Back in the day people went to Silicon Valley because they wanted to build companies; the offices were run down, and the glamour was none. People were poor, at least to start, but they were all excited about what they were doing. Now every office looks like it came from the Silicon Valley show, but people inside are deeply unhappy.
Is money accelerating the pace of unhappiness in the Silicon Valley?
No, if you were a jerk, then money would just make you into a jerk with more stuff, but that's not the problem. According to Chamath, we have not created a new generation of heroes who can demonstrate a set of values and choices that are worthwhile to live for.
What happens to a later-stage company when it transitions to maximize revenue and why?
A typical company would go through the same stages. A company would start at the "Product market fit" where the goal is to create something people want. It would then move to growth, when the goal is to make sure you can give your product to everyone who wants it. Then eventually when the products line is exhausted, the company will try to get all the revenue it can out of the existing users. In the transition to revenue they do what they are supposed to do for their shareholders, they maximise revenue. The implications of this eventual transition, which are implicitly demanded by the society and the government, are for us to bear.
How do we become a better society?
The society has a responsibility to work on our mental health. We need to start talking about this as a problem, to talk about our issues, be able to share and find support. We need to realize that feelings and emotions are normal and there is an enormous number of people in the world who feel the same way.
Why is it so unpopular to be successful today?
People are not feeling all that happy about who they are, but instead of fixing themselves, they choose to hate on someone else.
Is anger a great motivator?
Anger is a fantastic motivator for getting from 0 to 1, to catalyze progress. It is never the happy people who are able to make huge leaps forward, in Chamath's experience. At some point, however, it is important to transition from anger to making a positive impact, as most people are motivated by positivity and a sense of being able to make change.
Why are good ideas no longer getting funded in Silicon Valley?
There is an enormous tax that we've been paying to big tech startups for hosting and advertising our products. Those costs account for roughly 40 cents on every dollar. Layer in the headcount costs, and it becomes nearly impossible for startups to grow, never mind to become profitable and successful. Only the companies who can raise the most and not die end up succeeding in this environment.
Who are the people winning and losing in the Silicon Valley Ponzi scheme?
The steeper the growth rate of a company, the more appealing is is as an investment, so as long as the company can keep raising money, early investors are made to look like the geniuses.
This dynamic encourages investors to push the company to raise more and more money, and soon enough, the CEO has no choice but to raise more. No money and the companies goes out of business.
The cycle continues, as the company bleeds cash and gets further and further diluted. Startup employees get screwed holding bags of worthless diluted equity, while the VCs are getting rich off the funds fees.
When is the next crash going to happen?
Chamath thinks the next crisis is coming in 3-5 years in the debt markets. When companies start defaulting on their debt, the LPs are going to lose a tremendous amounts of money. When huge loses come in, those LPs are going to start liquidating, starting at hedge funds with easy redemption cycles. It won't be enough because the loses will outpace the bills. At that point the LPs are going to sell their venture investments, and that's when they will start asking hard questions around valuations, and why their money was actually put to play in these worthless companies. This impending crash is why venture capitalists are accelerating their fundraising and investments, raising more and investing more, while they still can.