Sources: Chamath Palihapitiya was talking about raising LP money for Fund IV in late July

Chamath Palihapitiya
Getty
Images

• Social Capital co-founder Chamath Palihapitiya recently
  announced that his firm would turn into a holding company, and
  would not seek outside investment. 
• Sources familiar with the matter say that Palihapitiya
  was talking about raising outside funding beginning in
  September 2018 as late as July of this year.
• Sources say that many of the firm’s investors were
  unhappy, and that Palihapitiya had trouble
  fundraising.

---

On Thursday of last week, Social Capital co-founder and early
Facebook executive Chamath Palihapitiya
published a Medium post outlining his firm’s new ambitions.
No longer would Social Capital operate as traditional venture
firm, Palihapitiya wrote; instead, it would act as a “technology
holding company” that would invest off of a “a multi-billion
dollar balance sheet of internal capital.”

While Palihapitiya has portrayed Social Capital’s recent
aspirations as what he describes as a “return to the firm’s
founding principles,” some insiders say that Palihapitiya’s
change of heart might have more to do with the firm’s troubles
raising outside capital than anything else.

“It didn’t come out of the blue,”
one person said. “The issue is he can’t fundraise.”

Exactly what led to the change
has become one of the most buzzed about topics inside Silicon
Valley’s startup and investing circles. The abrupt change, at a
firm that had emerged as one of the industry’s most celebrated
new players, has left many scratching their heads
and wondering whether it reflects the iconoclastic streak of
a visionary tech executive or the storyline of a familiar fall
from grace.

A former Facebook
executive, Palihapitiya has raised billions of dollars from
investors eager to benefit from his insight and his connections.
And t
o
hear Palihapitiya tell it, he recently decided that dealing
with outside investors was a hassle he didn’t need.

“By the summer of 2018,”
writes Palihapitiya, “we had finished a
detailed examination of the many ways we could expand…  it
wasn’t about raising more money from outsiders…”

But according to people familiar
with the matter, in the summer of 2018, Palihapitiya was still
very much interested in and actively discussing raising money
from outsiders.

After months away, he arrived in a chauffeured Bentley with some
news

At at an all-hands meeting in
late July, Palihapitiya announced Social Capital’s
intentions to begin fundraising for Fund IV in September 2018, a
person told Business Insider. Palihapitiya had been absent
from the office for many months, but he turned heads by arriving
at the office that day chauffeured in a Bentley and bearing the
news. The firm should get its pitch deck in order, he is
said to have announced.

But new fundraising efforts had
been delayed again and again, sources say, making many insiders
unsure of Palihapitiya’s latest
directive. 
Often, Palihapitiya would say that a
fund was close to being closed, or that a new fund was in the
process of being raised, but nothing would ever come of it,
multiple people said.

While Palihapitiya was something of a golden child in
Silicon Valley when he launched Social Capital, raising money
from big name investors and star-studded tech executives, his
star had recently begun to fade. There were signs that
some investors, including some of the firm’s heavyweight limited
partners, were unhappy, multiple people said. It was well known
that many limited partners had declined to reinvest when Social
Capital raised its third fund in 2015, another person
said.

Multiple people said that many of the firm’s recent
voluntary departures were the result of the on-again-off-again
attempts to fundraise. Those departures created a vicious cycle,
by spooking some investors. Some limited partners had even begun
asking to have their stakes paid out in recent months.

Palihapitiya himself has said that he doesn’t have much
interest in his investors’ input.
In an interview with The Information last week, Palihapitiya
said that he doesn’t review investor feedback.  “Who cares?”
he told The Information when asked his thoughts on his investors’
insight.”It doesn’t matter.”