Not that long ago, Bloomberg lauded Chamath Palihapitiya as the "King of SPACs" and the trendiest investor in America. Now, the financial news organization's tone has changed, portraying him more like the pied piper who led an army of retail traders to their doom. Take for example Arnav Naik, a teenaged Michigan residents who parlayed $5K into $35K day trading within 6 months during the pandemic.
After seeing Palihapitiya's tweets about Clover, he decided to take that sum and plunk it down on Clover call options.
While longtime money managers wince at these antics, Palihapitiya’s fan base has been eating it all up. Arnav Naik, a 17-year-old from Troy, Mich., says he got into SPACs after his high school went remote and his swim season was canceled. He started reading the Reddit day-trading forum WallStreetBets and trading stock options, parlaying about $5,000 in savings into $35,000 within six months by betting on an electric-truck SPAC and GameStop.
After seeing Palihapitiya tweet about Clover, Naik doubled down. In January he put almost all his money into Clover call options—an all-or-nothing bet that the shares would go up. If they climbed to, say, $35 he could turn his savings into $130,000. “When you slap a name like ‘Chamath’ on there, it has a lot of potential to rocket up, like how Tesla did with Elon,” he says. “He’s going to join the WallStreetBets meme god pantheon.”
Clover, like many other SPAC stocks, has tumbled this year as investors have come to doubt whether its business model is actually viable. Chamath's Social Capital fund, has, of course, posted enviable returns over the past decade, investing in bitcoin, Tesla, Slack and others. Coming from humble origins (his Sri Lankan parents arrived in Ottawa as refugees), Palihapitiya made his way to work in venture capital, before convincing a 23-year-old Mark Zuckerberg to appoint him head of growth at Facebook.
Despite these successes, Chamath has, since at least 2007, been honing a pitch where he casts himself as the consummate insider who can't wait to break into the capitalist rulers club and upset the existing order. In that time, he has slammed everyone from VCs to consultants - basically everybody he works with.
His targets over the years include Facebook Inc.: “Ripping apart the social fabric of how society works.” Venture capitalists: “A bunch of soulless cowards” who pump money into “useless, idiotic companies.” Charitable giving: It’s done for “branding” and “validation.” Politicians: “They’re all f---ing puppets.” The startup economy: “An enormous multivariate kind of Ponzi scheme.” The traditional IPO process: “Negative value.” Hedge funds: “Those suck.” Big banks: “No smart person goes and works at Goldman.” Government: “Just a large validation of one’s personal ego.” Consultants: “Useless.”
One early boss told Bloomberg that Palihapitiya had more "chutzpah" than tech know-how.
He went into banking after studying electrical engineering at the University of Waterloo, but quit when he received no bonus, he said on a podcast in December. He dreamed of making the Forbes billionaires list, and at his first tech job, at AOL, according to Josh Felser, who hired him, he’d say he expected to hit that number before he turned 30. “He knew little about tech, yet he had chutzpah and was an in-your-face negotiator, which we needed,” Felser says. He adds that Palihapitiya regularly stole his parking spot.
This chutzpah helped him sell SPACs like Virgin Galactic and Clover, one of the sector's biggest disasters, which has drawn short sellers including Hindenburg Research, which originally disclosed a federal investigation into the company. As BBG points out, while retail investors like the teenage Naik will likely lose everything, Chamath and the big hedge funds that invested early will walk away with profits.
Naik, Palihapitiya’s teenage fan, has lost almost all his money and won’t get it back unless Clover’s stock rebounds. But he doesn’t blame Palihapitiya. “He’s doing the best he can,” Naik says. “It’ll keep growing. I really think I’ll get a huge return.” Regardless of the outcome, he plans to become an investment banker.
Unlike Naik, the hedge funds that invested in the SPAC that merged with Clover made money—filings show most sold and pocketed a quick gain around the time the deal was announced. Palihapitiya and his partners did even better. Because they gave themselves 20.7 million shares for putting the deal together, their $171 million investment has almost doubled to $320 million. A week after the Hindenburg report, Palihapitiya said he controlled a $10 billion to $15 billion fortune, triple what he’d told another interviewer 10 months earlier, and compared himself to Warren Buffett.
With his fortune swelling to as much as $15 billion even as an index of SPACs has fallen 17% from the highs earlier in the year, Palihapitiya is already reportedly chasing his next deal with Equinox, the fancy gym chain.
And if anybody knows the gym business, it's Chamath.
You’re welcome. pic.twitter.com/j9pGVEMLwd— Chamath Palihapitiya (@chamath) February 3, 2021