Social Capital to invest only internal capital, cease operations as venture firm

  • Why this is important: Social Capital starts its journey as a venture-focused family office

Social Capital said it would cease operations as a venture firm, no longer accept capital from outside sources, and shrink by about 40 percent in size.

The firm, plagued by a steady stream of departures in the past year, including Co-Founders Mamoon Hamid and Ted Maidenberg, provided the news in a blog post and interview published in the Information.

In the post, Co-Founder Chamath Palihapitiya said the seven-year-old firm by year-end would become a technology-holding company investing from a balance sheet of “internal capital only.”

The firm will continue to make new investments of $50 million to $250 million and support existing portfolio companies with capital and growth services, the post said.

In the process, several additional partners will leave the firm.

“As the firm grew, I found us incrementally drifting away from our core mission and our strategy was increasingly that of a traditional investment firm,” Palihapitiya wrote in the post.

“It became harder to take the risks we took in 2011 and it became easier to play the same game as every other VC — raise a fund, collect fees, manage limited partners, deploy the capital in obvious things, rinse, repeat.”

Palihapitiya went on to say in the Information interview that he no longer cared about LP complaints.

“I would rather spend time with the people that are 100 percent aligned with what I want to do and the person that’s most aligned with what I want to do is me,” he said.

He took aim in particular at fund-of-funds investors, who he said appeared unhappy at not being consulted on decisions.

“We had a bunch of stragglers we let in at the last minute, and I think we can flush those guys out and get back to business,” the interview quoted him saying.

Palihapitiya went on to suggest that carry would be plowed back into Social Capital and in the future employees would get shares in the company.

The firm is expected to shrink to about 40 from 70 people at its peak.