In the past couple of weeks, The Information has published a series of articles about venture capitalists trying to unload their early stage portfolio including Insight Partners, Tiger Global Management, and Chamath Palihapitiya’s Social Capital. According to the report, Chamath tried to sell stakes in hundreds of young companies in June of this year. The stakes for sale were worth $312 million in total based on the valuations at which the companies last raised money. I asked a couple of investors who specialize in private secondaries. What I heard (but I cannot confirm) is that Social Capital was willing to sell the whole bag at a ~70% discount. There’s some interest in individual companies but no one is really interested in buying the whole bag.
It’s unclear why Chamath wanted to sell the whole bag for presumably < $100M. I thought Social Capital is mostly his family office these days and he doesn’t really have a lot of pressure from LPs for liquidity. Furthermore, isn’t he a billionaire? Why bother with liquidating a < $100M stake? This will cause significant reputation damage and trust issues down the road. Founders would not want to raise money from Social Capital as the firm doesn’t appear to be a long term holder. A non-trivial percentage of my net worth is invested into illiquid startup stakes, which took a big hit after the pandemic boom. But I never thought about liquidating them in a fire sale. I believe some of the early stage companies can grow into big successful companies and as an early stage investor, my job is to be patient and supportive. Chamath seems to get this backward.
Anyways, Chamath has traded his reputation for money during the SPAC boom. It will be very hard for him to dump his bag at this point. Institutional investors are definitely not going to buy the bag. Their LPs will scream at them if they do that. Retail investors are currently super angry with Chamath as their SPAC investments got wiped out and they can’t buy the portfolio since they are not accredited anyway. I suppose the point of this post is that Chamath trying to unload startup stakes is another signal that the VC is bottoming out. The valuation markup game is over. Traders are exiting the market. But the people who remain in the arena are investors who are committed to the startup ecosystem in the long run.