Chamath Palihapitiya Says SPACs Were 'Fueled By A Moment In Time Of Just Enormous Liquidity': What's Next For Private Companies?

Venture capitalist Chamath Palihapitiya was one of the most followed people in the financial world from 2019 to 2022 thanks to his role in the growth of SPACs as investment vehicles to take companies public.

Palihapitiya recently reflected on SPACs, the valuation of private companies and other topics during an investor event.

Chamath on SPACs: When SPACs were one of the most talked about financial vehicles, Palihapitiya was a de facto leader of the movement, even earning the nickname “SPAC King” by some. The former Facebook executive had plans to launch SPACs with tickers IPOA to IPOZ, a plan that has ultimately come up short.

Speaking in a recent interview, Palihapitiya recalls using SPACs to help bring innovative companies public.

“SPACs, we stumbled into this thing because we wanted to raise money for a bunch of our companies that were extremely capital intensive, and we demonstrated something that, in a moment, just caught a lot of wind,” Palihapitiya said, as reported by TechCrunch. 

The investor said his bread and butter for early stage venture companies have been largely health care, software, deep tech and energy transition companies.

“We did six of them. I think there were 650 of them just in 2021, so we (represented about) 1% of the market.”

Palihapitiya said he thinks his SPACs “bought good companies” and also sold well.

“It’s one of these things where it was fueled by a moment in time of just enormous excess liquidity. And now I think we’re sort of back to basics.”

Related Link: 5 Things You Might Not Know About Chamath Palihapitiya

What’s Next For Private Companies: With SPACs and IPOs mostly trading down over the last two years, the valuations of private companies have fallen.

Palihapitiya said the market for late-stage companies has changed.

“At the end of last year, I looked at six or seven (convertible notes). These were all extremely well-known companies, and they all came to me trying to raise converts. And I said, ‘Well, here’s the real market-clearing price of these companies,’ and none of them took my money,” Palihapitiya said.

The investor said we’re now at the point where the boards of private companies are refusing to budge on their valuations.

“So it’s a very difficult part of the private markets right now to invest in, because you will not be allowed to do true price discovery because nobody wants to take the real hits.”

Palihapitiya said that as more venture capitalists leave the market, the companies could be repriced accurately, but that could be three years away.

The investor also said higher interest rates are impacting the private company market.

Chamath On ChatGPT: Palihapitiya also spoke about the growing use cases for artificial intelligence and the rise of ChatGPT from OpenAI. The investor said ChatGPT shows value in allowing computers to help get work done.

“It’s like a calculator replacing the abacus replacing a pen and paper,” Palihapitiya said.

The investor recalled a quote from Warren Buffett, who said the person who invented refrigeration made some money, but most of the money was made by companies like Coca-Cola that used refrigeration to build empires.

“And I view these large language models as refrigeration. Will there be some money made in it? I think so. But the ‘Coca-Cola’ has yet to be built. And those are the companies that are really going to monetize it.”

Palihapitiya added that similar outputs given to different technology companies will all come up with the “same machine learning model.” Adding one extra thing changes the output.

“And those models will become better. We have to let that play out a little bit.”

Read Next: 'The Pain Trade Is To Go Up': Why Billionaire Chamath Palihapitiya Says Jerome Powell Capitulated — And This Could Be Next

Photo: Christopher Michel via Flickr Creative Commons