E43: Innovative venture strategies, Zymergen's implosion, Square acquires Afterpay & more

Production Board & Fundraising Updates

• Chamath Palihapitiya (Production Board):
  • Announced a $300 million funding round co-led by BlackRock, with participation from Morgan Stanley, Koch Industries, Bailey Gifford, Allen & Company, Foxhaven, Aromark, and Alphabet.
  • Alphabet (Larry Page) invested four years ago, becoming a minority shareholder with a board seat; they contributed additional capital to the recent round.
  • The Gates family office (Cascade) also participated in the new funding.
  • Primary goal: Recruit talent to the 10+ incubated businesses (some previously stealth, including molecular beverage printer "Canna") by showcasing public progress.
  • Strategy: Use internal capital to support deep-tech R&D and commercialization, avoiding premature external raises or asset markups.
  • Founding ownership model: Incubated companies are majority-owned initially, with 40–50% equity reserved for management teams; ownership dilutes over time depending on future investor rounds.
• David Sacks (Craft Ventures):
  • Closed his third fund at $1.12 billion, doubling the size of previous funds ($350M, $510M).
  • Fund focus split: $612 million for C/A/B stages in SaaS; $510 million for Growth rounds.
  • Investment thesis: Apply consumer growth tactics to enterprise software (bottom-up viral adoption) and marketplaces; explicitly avoids "boiling the ocean."
  • Call-In App: Released a private beta for the new social audio/podcasting app; announced an "All-In Syndicate" of 250,000 checks with no fees/carry, funded by Sacks' own syndicate ($1M allocation, $7M requests).
  • Incubated company "Colin" (a crypto company) is the second major incubation (after "Harbor," sold to BitGo for ~$1.2B).

Investment Models & Market Dynamics

• Venture Studio Validity:
  • Jason Calacanis argues studios are effective when hyper-focused on specific verticals (e.g., Friedberg's synthetic biology) rather than generic business generation.
  • Chamath Palihapitiya emphasizes "absolute value creation" over the volume of startups launched, noting that successful studios (IdeaLab, Beta Works) worked due to domain expertise in specific eras.
  • Model comparison: Jack Abraham's "Atomic" and Keith Raboy's "OpenStore" demonstrate the blurring lines between VC General Partners and operating founders.
• Self-Dealing & Markups:
  • Chamath defends firms (Andreessen, Sequoia, Founders Fund) marking up their own books (e.g., Andreessen leading rounds at $100M, $1B, $4B valuations).
  • Rationale: In a capital-saturated market, top firms prioritize "velocity of money" to scale assets under management (AUM); LPs prioritize brand safety and market beta over strict yield constraints.
  • Chamath argues governance suffers when a single firm controls too much capital in one company, reducing board diversity and conflict resolution capabilities.
  • David Sacks notes that while he can double down on incubated companies (like Colin), he prefers third-party leads to set market prices if the incubated company gains traction.

Deep Tech & Market Corrections (Zymergen, Nikola, Theranos)

• Zymergen Collapse:
  • Stock crashed 70–80% post-IPO after revealing product pipeline issues, delaying revenue to 2022, and the founding CEO stepping down.
  • Chamath Palihapitiya analysis: The company failed to achieve product-market fit in both its services phase (selling enzymes to DuPont) and its pivot to products (protective film).
  • Root cause: Deep tech requires precise unit economics and long R&D cycles; hype allowed the company to raise billions before validating viability.
  • Impact: Employees who exercised stock options face tax liabilities on inflated valuations without liquidity, resulting in significant financial loss.
• Fraud & Diligence Standards:
  • Chamath labels Nikola (fraudulent founder, now indicted) and Theranos (executive fraud, trial pending) as clear cases of criminal security fraud, not just failed startups.
  • David Sacks reports that 20–30% of potential investments fail basic diligence (fake revenue, missing bank statements, self-loans).
  • Jason Calacanis cites "Suspension of Disbelief" and the influence of Yuval Harari's Sapiens: Investors buy into compelling narratives rather than data because they lack "skin in the game" (investing others' money).
  • Chamath argues the solution is mandatory milestone-based financing or requiring investors to use their own capital for early-stage checks.
• Specific Fraud Examples:
  • Theranos: Board was composed of "grand poobahs" (90-year-old politicians) lacking technical expertise; CEO Elizabeth Holmes hid the device during interviews with high-level executives.
  • Nikola: Founder Trevor Millette (no longer CEO) lied about nearly every business aspect; under indictment for fraud.
  • Tether (USDT): Chamath suspects a $60B+ scam regarding reserves; NY Attorney General previously fined them $18M; offshore exchanges hold unregulated tethers.
  • WeWork: Not a tech company but a real estate model scaled incorrectly; investors ignored unit economics due to hype.

Fintech Consolidation & Regulation

• Square (Block) Acquires Afterpay:
  • Square acquired Afterpay for ~$30 billion, issuing ~1/3 of its equity.
  • Market reaction: Stock price surged 25% immediately; Chamath views this as "free" growth if the acquisition is funded by issuing stock.
  • Thesis: Buy-Now-Pay-Later (BNPL) is a "feature," not a standalone company; major players (Square, Stripe, Shopify, PayPal, Amazon, Apple) will consolidate to create a full-stack financial ecosystem.
• Future of Fintech:
  • Chamath predicts a convergence of 5 categories: Banking, Lending, Trading, Crypto, and Insurance, led by tech firms with federal banking licenses.
  • Regulatory Hurdle: The Federal Reserve banking license is the critical gatekeeper for consolidation; legacy banks lack the tech agility to compete.
  • Risk: Consolidation creates "financial deplatforming" power (e.g., PayPal banning accounts via ADL/SPLC lists), which Chamath and Jason Calacanis argue is a threat to free speech and economic access.
  • Jason Calacanis warns of a "cartel" of Fintech giants gaining monopoly power to deny access to users, urging Republicans to investigate potential anti-competitive behavior.

Other Notes

• Location: The hosts (Chamath, David Sacks, David Friedberg, Jason Calacanis) are largely in Italy (Florence, Elba, countryside) during the recording; Friedberg is in San Francisco.
• Personal Updates:
  • Jason Calacanis: Moving to Florida (not SF); mentions his first $11M fund could yield 5–7x returns.
  • David Sacks: Confirmed he is a 100% owner of some Production Board businesses but not all; invested in Chamath's Production Board.
  • David Friedberg: Critiqued by Chamath for not being in Italy; mentioned moving out of SF.
  • Outgoing Ban: David Sacks criticizes PayPal for operationalizing "no-buy lists" via the ADL and SPLC, calling for Congressional hearings.