VC Firm Social Capital Says It's Not Taking More Outside Money

(Bloomberg) -- Chamath Palihapitiya, the co-founder and chief executive of Social Capital, said the venture fund is closing its doors to new money, following months of executive departures and questions about its future.

“We are no longer accepting new outside capital,” Palihapitiya said in a blog post Thursday. “By the end of 2018, we will have finalized a set of changes we began in 2017 and will become a technology holding company that will invest a multi-billion dollar balance sheet of internal capital only.”

Social Capital debuted seven years ago as one of the hottest funds in Silicon Valley, but has recently lost some of its luster. In July, Bloomberg reported that at least five investors would not participate in the firm’s next fund, citing a lack of confidence in a reduced leadership team after a string of exits, making it unclear how much outside capital the firm would have been able to raise. Palihapitiya shuttered the growth fund and the credit facility in June after experimenting with each for about a year before deciding they didn’t make sense, and has said he’s felt constrained by the traditional boundaries of venture capital.

"It became harder to take the risks we took in 2011 and it became easier to play the same game as every other VC," he wrote in the post on Medium. Social Capital has undertaken a number of unusual experiments, including running a hedge fund, raising money to help a to-be-determined startup go public through a nontraditional process known as a SPAC, and building software that would automate the decision-making process for seed investments.

In the post, Palihapitiya says the firm will continue to make new investments and put more capital into existing companies, but just with internal capital.

“Making these changes will allow us to reprioritize operational discussions of investment rounds, dilution, cap tables, etc. in favor of technical discussions about ideas, problems and solutions,” Palihapitiya said.

On top of struggles to raise new funds and questions surrounding the future strategy for the firm, Social Capital also saw a number of high-profile departures, including co-founders Ted Maidenberg and Mamoon Hamid last summer, and partner Arjun Sethi just a few months ago. Others including Tony Bates, Chelsea Clinton’s husband, Marc Mezvinsky, and Jonathan Hsu have also left or announced plans to depart.

“I am proud we keep taking risks and have not gotten comfortable,” Palihapitiya wrote. “Several Partners have left Social Capital to join other VC firms or start their own while several more are in the process of doing so — I am proud to see them use our platform as a jumping off point for their next adventures and I wish them the best of luck,” he added.

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