What does an ex-Facebook tycoon with a degree in electrical engineering know about fixing the U.S. healthcare system?
Well, Chamath Palihapitiya knows that healthcare is in need of some drastic reinvention, and that to some extent, this will involve training people to think and behave in new ways—in much the same way Facebook has trained us to think differently about how we spend time online and communicate with our friends.
He’s not afraid to ruffle a few feathers in the process. That’s a good thing, because many of the companies he’s investing in through his Silicon Valley-based venture fund, the Social+Capital Partnership, are out to fundamentally shift the balance of power in healthcare and upend the way diseases get diagnosed and treated—or ideally, prevented. “Empower the edges,” Palihapitiya says. “That is the way you build a multi-gajillion-dollar company.”
Palihapitiya, 36, is famous mainly for having overseen the development of the Facebook Platform, and for coming up with ways to recruit new users during a period when the Facebook community grew from 50 million people to 750 million. When the social network went public in early 2012, Palihapitiya’s shares made him “a centimillionaire several times over,” according to BusinessWeek. He’s plowed much of the money back into the Social+Capital Partnership, which has also raised funds from Silicon Valley luminaries like Reid Hoffman, John Doerr, and Peter Thiel and invests mainly in healthcare, education, and financial services.
I interviewed Palihapitiya on stage last Friday at Fenwick & West’s Digital Health Investor Summit in Mountain View, CA, organized in conjunction with Rock Health. As you’ll see below, his attitude toward the healthcare establishment falls somewhere between irreverence and contempt. “The software is crap, the services are crap, the people are crap,” he says.
So alongside their investments in classic tech startups like Treehouse Island or Survey Monkey, Palihipitiya and his partners Mamoon Hamid and Ted Maidenberg are putting money into three kinds of healthcare companies that they hope can make things less crappy. Palihipitiya (it’s pronounced Polly-hop-i-TEE-ya) labels them “crawl,” “walk,” and “run.”
In the first category are companies like medical billing tracker startup Simplee that hope to make interacting with the system a little less painful. In the second are startups like Glooko, Asthmapolis, and Neurotrack that have ambitious long-term plans to build big subscription-based businesses around better technologies for monitoring and controlling chronic conditions like diabetes, asthma, and Alzheimer’s.
Finally, there are the Hail Mary passes—the companies like nanotech-diagnostics startup Integrated Plasmonics that, if their risky and unproven technologies prove effective, could completely change the economics of the business. It’s clear from talking to Palihapitiya that he loves these “run” companies the best—perhaps because they appeal to his personality as a gambler. To attend the Fenwick & West event, Palihapitiya flew in for the day from Las Vegas, where he was in the early rounds of the World Series of Poker. (In the 2012 series, he placed 101st out of a main draw of 7,000 players.)
Here’s an edited transcript of our conversation.
Xconomy: For those in the audience who might not be completely up to speed on the Social+Capital Partnership, I wanted to start by asking you to describe the firm’s model. To what extent are you trying to fix things about the venture model that you considered to be out of date, or broken?
Chamath Palihapitiya: I think when I was leaving Facebook, my biggest realization was that the appetite for risk has changed, and the types of stuff that really intelligent people are working on has also changed, from really ambitious things to a lot of marginally stupid things. And maybe I was partly responsible for it as well. Building the Facebook Platform was supposed to be this great thing, and the first thing that happens is a bunch of people throwing shit at each other. That’s probably not the first ambition of what we were intending.
The point is, when I went to start this thing, the biggest thing I wanted to do was go back to some more interesting sides of technology—interesting things that were more technically difficult, but meaningful if they worked. So I kind of needed to rewire how everything worked.
The most important thing you have to rewire is your incentives. A lot of your incentives are driven by the people who are giving you money. So I made sure I put the most money [into the fund], so that I’m most at risk if this thing doesn’t work. And the second thing was, I went to individuals and really eschewed the traditional limited [partners], because I think that they are well meaning, but a pension is grinding it out trying to get 7 or 8 percent to meet an obligation for a bunch of people that are about to retire. And so their incentives to take a bunch of risk are very different from my own appetite to take risk, and I just didn’t want to be affected by those people. And so I just went to individuals, except in the case of a couple of specific limiteds. And my passion for healthcare came from one of our specific limited investors, which is the Mayo Clinic.
So that’s what we did—we rewired how the economics work, we rewired who the money comes from, we rewired everything, even our offices. We all sort of work in a bullpen the way we used to work at Facebook, and it’s just about building stuff. We don’t hire traditional business people. We only hire engineers. For EIRs, we only have engineers in residence, we don’t have executives. So it’s just going back to a more technically biased form of ambitious product building.
X: Does the firm work differently from other venture firms? Are you able to move faster, close deals faster?
CP: That’s my understanding, based on people I’ve talked to. It’s only myself and three other partners. We spend enough time together that we’re always in sync. We’ve made really big decisions in a matter of days, like $20, $30, $40 million checks in a couple of days. That’s potentially neither good nor bad, but it’s at least fast.
And I think often times what you can do is, you can basically get things done quickly. The model of venture right now is just a pain in the ass. Anybody who is any good will try to create an auction, because they don’t really understand what the asset class at its best can really do for people. And that’s because most people in the asset class are not actually very value-add. They are basically value-useless. They are just hyper-educated. They don’t really know what they’re doing. So they can’t
