Chamath Palihapitiya: the social scientist at the head of the Spac revolution
“Wall Street has always had its rock stars,” noted the Wall Street Journal in March. But no one has united the two forces that are reshaping markets – the “blank check” boom and the soaring retail trade – quite like Chamath Palihapitiya. The former Facebook executive belongs to “a new class of market influencers – social media specialists who have figured out how to take pictures around the establishment while taking their money.” Amateur traders cling to his every word for clues about his next target “and for the insults he hurls at the high finance elite.”
The moving train begins to roll
The founder of the technology investment firm Social Capital is credited with creating the model of the “Spac” bandwagon. Although they’ve been around for decades, these special-purpose acquisition vehicles “exploded in popularity in 2020” after Palihapitiya partnered with Richard Branson to market his space tourism business, Virgin Galactic, at the end of January. 2019 via a blank check. company, initially known under the ticker symbol IPOA. The share price has tripled in four months. Last year, Palihapitiya raised more than $ 4 billion for five other Spacs – called IPOB, IPOC, IPOD, etc., Bloomberg says. “He says he will eventually make 26 deals, one for each letter of the alphabet.”
The boom has made Palihapitiya a billionaire and a social media star: the ‘King of Space’ has 1.5 million Twitter followers and a popular weekly podcast, All in one, where he discusses technology, politics and investment strategies. Its slogan, “Wet your beak!”, Was once a gangster talk for extortion; he uses it to mean “make tons of money in the stock market and feel good”. At 44, Palihapitiya is “cocky, blunt and seems like the kind of guy who would take pleasure in calling BS on the current stock market hype – if it weren’t for him behind”. Instead, he tends to call traditional investors “morons.” During the GameStop mania in January, when the Robinhood brokerage house temporarily suspended trading in the stock, he said, “These mothers should go to jail.” He’s also a poker player and “voice bitcoin investor,” Forbes says: he used the cryptocurrency to buy undeveloped property in Lake Tahoe.
The child of Sri Lankan immigrants to Canada, Palihapitiya grew up on welfare in Ottawa. In high school, he worked at Burger King and organized a blackjack game in the cafeteria for cash. After studying electrical engineering at the University of Waterloo, he joined the Bank of Montreal before moving to the United States in the dotcom era. Palihapitiya’s first technical job was at AOL where he gained a reputation for his “chutzpah” – and for stealing his boss’s parking space. In 2007, he joined Facebook and persuaded Mark Zuckerberg to make him the leader of growth. In four years, “the company had added nearly a billion users.”
Bite the hand that feeds
Palihapitiya has a habit of getting rid of the groups that advanced his career – including Facebook, venture capitalists and hedge funds that bought his Spacs. But his line is that he’s a social reformer in the money-making business to enact radical change, says the Wall Street Journal. He left Facebook in 2011 to found Social Capital “with a mission to support young start-ups who want to solve the world’s toughest problems” – such as climate change and social inequalities – and once vowed to buy the Hamptons and turn them affordable. housing. In 2007, he announced his intention to join the facility and “do my best to blow it up completely from the inside.” Lately he has been playing with the candidacy of the governor of California. It could be interesting.
Palihapitiya faces a ‘Reddit calculation’
It’s no wonder the Spac boom has gained such traction on Wall Street, Bloomberg says. The way the agreements are worked out makes it “almost impossible” to lose donors. Not only can sponsors keep 20% of the shares for themselves “as a fee,” but because listings are structured like mergers, they can bypass IPO rules preventing them from talking openly about a deal. company before its shares begin to trade. . So, “even an unprofitable business can make lofty projections on all the money it’s about to make” – a windfall for someone with Palihapitiya’s hype skills. Spacs were also low-risk bets for hedge funds due to rules allowing them to redeem their investments at the $ 10 level at which shares of blank check companies are valued “if they don’t like the advertised deal.” “.
At the height of the frenzy, everyone was building up their muscles, from space cadets to famous basketball players. But the boom that has raised more than $ 180 billion since the start of 2020 now threatens to turn into “Spacopalyse now,” says the Sunday Times. Anxious regulators have played a role. After warning the public “against buying celebrity-led deals,” the SEC, the US regulator, “pulled the handbrake” in April with an accounting change that will force “many Spacs to retire. their finances ”- prompting the rush to a screeching halt. Instead of “jumping”, Spacs shares “now generally slide on takeover announcements,” says the Financial Times. “The decline in retail investors has been particularly bad,” said a sponsor of Spac. The market is “dead, dead, dead”.
Palihapitiya’s sidekicks were hit hard by the losses: Virgin Galactic shares, for example, fell almost 75%. But it was the concern surrounding another of his blank check contracts – insurance company Clover Health – that may have contributed the most to the rout, Bloomberg says. In February, short seller Nate Anderson of Hindenburg Research released a damning report titled “How the ‘King of Spaces’ Lured Retail Investors into a Bankrupt Company.” The stock has fallen and the SEC is currently investigating. Anderson believes that the Spac boom “has given the market more frauds to report than at any time in the past decade.” Indeed, “a Reddit account” may be in store for Palihapitiya and her fellow market prophets such as Elon Musk and Cathie Wood of ARK Innovation. Certainly, “Palihapitiya’s ambition to create an alphabet of Spacs may have to wait some time.”