Blockworks exclusive: Palihapitiya appears wary of the lingering bear market for digital assets, according to two sources familiar with the matter
- The anticipated $3 billion fundraise comes after the venture capitalist’s firm, Social Capital, has been largely closed to outside investors for about four years
- Up to 70% of the new vehicle’s capital has been earmarked for its top 10 positions
In an unexpected move to once again start accepting outside capital, Chamath Palihapitiya is angling to raise at least $3 billion for his latest, top-heavy venture capital fund, according to two sources familiar with the matter.
But this time around, the longtime crypto bull doesn’t plan to give digital assets much play. Palihapitiya’s firm Social Capital has effectively functioned as a quasi-proprietary trading firm for the last several years, having pulled the plug on a number of longtime investors to focus on investing largely founder capital.
If Palihapitiya pulls it off, the ambitious multi-billion dollar fundraise would go down as his most ambitious achievement to date and perhaps ease the sting of his latest SPAC woes.
The vehicle would be Social Capital’s fifth to date. Past funds, to various degrees, have taken substantial crypto exposures, including beginning to buy into bitcoin as a firm in 2013. The venture firm has also backed the likes of NFT marketplace SuperRareand Solana’s Saber Labs.
While digital asset-oriented startups — especially emerging play-to-earn gaming and Web3 companies, plus fintech firms trying to bridge crypto and TradFi — ought to remain one area of focus, crypto collectively appears to be overshadowed by other portfolio priorities.
Sources were granted anonymity to discuss sensitive business dealings. The firm declined to comment. Axios first reported Social re-opening to external capital.
The main priorities for Fund V: backing promising startups looking to solve real-world issues across climate, deep technology (including machine learning and artificial intelligence) and cloud computing. While Palihapitiya and his team have at times played up their crypto track record in conversations with potential institutional limited partners, digital assets appear to be taking a backseat, here.
Though TradFi players have been keeping a close eye on crypto’s recent turmoil in the pursuit of vulture-style venture plays and distressed debt opportunities, indications are few asset managers have actually pulled the trigger.
That is true, as it is in Social’s case, because of an uncertainty in calling the bottom for spot cryptoassets — which all but uniformly impact valuations in the private sector — and a reluctance of top would-be investors, such as conservative sovereign wealth funds, to put sizable capital to work in the space.
In other words, the risk-reward profile is not yet there, in the eyes of some.
Fund V kicked off fundraising in recent weeks, with the plan being to launch sometime in the first quarter of 2023, at the earliest — contingent on fundraising. The fund is being marketed as having a 10% general partner commitment, or $300 million, an unusually high allocation in venture capital, where limited partners often gripe that portfolio managers don’t have enough personal skin in the game.
The vehicle is designed to split its capital into three main, equally-weighted buckets: $1 billion for early-stage companies receiving checks of between $10 million to $20 million; $1 billion for late stage companies, with checks averaging $100 million to $200 million; $1 billion for massive checks of $250 million to $450 million for opportunistic stakes in companies at various stages of development.
Fund V’s top 10 positions are earmarked to account for a whopping 70% of its entire portfolio. The term is for 10-years, plus an optional two-year extension, along with an investment period of five years. Social’s management cut is 2% and plans to take 30% of carried interest.
