One morning last October, as wildfires raged across Northern California, President Donald Trump convalesced from Covid-19, and Congress debated how big of a stimulus bill would be needed to rescue the economy, Chamath Palihapitiya went on TV to pitch investors on the latest stock he was taking public.
In a blue blazer and glasses, and accompanied by a bulletpointed slide deck, the Facebook-executive-turned-venturecapitalist explained how Clover Health Investments Corp. uses powerful machine-learning software to recommend treatments that keep people healthier. He predicted confidently that the insurer’s revenue would triple in two years and that its stock would increase tenfold in a decade. He granted that, yes, he’d received a stake in Clover for setting up the deal to take it public, but he said his interests were aligned with those of other investors, because he and his partners had also put about $171 million into the company themselves. “There is no way that I can win unless the stock goes up,” he told CNBC’s Squawk Box, slicing his hand through the air to punctuate each word. “This is not some get-rich-quick scheme, at least for me.”
What Palihapitiya said was partially true, in that someone who’s already wealthy enough to be part-owner of the Golden State Warriors can’t by definition get rich quick. But the way the deal was structured made it almost impossible for him to lose. Even as investors who bought the stock after watching him on TV would lose 28%, as of May 11, Palihapitiya and his partners would almost double their money, much of which was borrowed to begin with.
This kind of financial virtuosity has made Palihapitiya a billionaire, not to mention a hit on social media. He has 1.5 million Twitter followers, a popular weekly podcast, and an audience of day-trading millennials and zoomers who hang on his every word. He’s 44, cocky, blunt, and seems like the kind of guy who’d take pleasure in calling BS on current stock market hype—if he wasn’t the one behind it.
Instead, Palihapitiya argues that traditional value investors, who say some stocks are massively overpriced, are morons. Markets, he says, are all but guaranteed to go up as long as the Fed keeps printing money, and individual investors who buy popular stocks are outsmarting Wall Street. His take may be questionable, but it’s entertaining as hell.
In late January, when sober-minded financiers warned that the mania around GameStop Corp., the once- beleaguered video game retailer beloved by Reddit users, would end badly, Palihapitiya took the fun side of the bet. He invested in it himself, then criticized the brokerage firm Robinhood Markets Inc. when it temporarily suspended trading, causing the price of the company’s shares to fall. “These mother f---ers should go to jail,” Palihapitiya said on his podcast, All-In, where he and several friends talk about technology, politics, and investment strategies. Their catchphrase—“Wet your beak!”—was once gangster slang for extortion. As used by Palihapitiya it means “make tons of money on the stock market and feel awesome about it.”
Social media influencers of Palihapitiya’s stature and charisma tend to monetize their following by promoting some sort of salable product—say, a detox tea or a line of home goods. Palihapitiya has the SPAC, or special purpose acquisition company; the Clover investment was one of them. When he called for the incarceration of Robinhood’s C-suite, he suggested his fans pull out their money and put it into a competitor, Social Finance Inc., better known as SoFi, which is merging with another one of his SPACs.
Think of a SPAC as a pile of money with a ticker symbol. An investor puts in $10 and gets back one share of publicly traded stock. Then the SPAC’s sponsor uses the stash to merge with a company like Clover, taking a shortcut around the IPO process and turning a private company public. Besides the speed, the structure offers two other important advantages: First, the sponsors get to keep 20% of the stock for themselves as a kind of fee. And second, unlike in a traditional initial public offering, even an unprofitable company can make ambitious projections about all the money it’s about to make. With SPACs, pretty much any amount of boasting goes.
Although they’ve been around for decades, SPACs exploded in popularity in 2020, after Palihapitiya’s first blank-check company—originally known by the ticker symbol IPOA—saw its stock price triple four months after merging with Virgin Galactic, a Richard Branson-founded enterprise that aims to blast tourists into space. Palihapitiya has since started five more SPACs—known as IPOB, IPOC, IPOD, and so on—raising more than $4 billion. He says he’ll eventually do 26 deals, one for every letter of the alphabet.
Today it seems almost every rich, underemployed man with a bit of name recognition has raised, or is raising, a SPAC, seeking to earn a big payday by finding a company to buy. There are SPACs advised by retired athletes (Alex Rodriguez, Shaquille O’Neal), SPACs advised by washed-up politicians (Paul Ryan, John Delaney), and one SPAC advised by a dream team of NBA great David Robinson and former Senate Majority Leader Bill Frist. About 600 SPACs have raised more than $186 billion since the beginning of last year. Some double or triple in price even before announcing any plans as investors trade tips about which electric-truck or flying-taxi startup the SPAC might buy. Palihapitiya “created a template that all SPACers could follow,” says Mark Cuban, the Shark Tank host and fellow NBA owner. “He knew what made them work and created a narrative that new investors could understand.”
Palihapitiya’s ego has seemed to expand along with the market for the hot new investment structure. In November he bought a $75 million Bombardier Global 7500, the longest-range business jet available, according to public records. On Dec. 30, 2020, he tweeted that when the price of Bitcoin—another one of his interests—hit $150,000, he’d buy the Hamptons and turn the whole region into affordable housing. In January, he hinted at a run for governor of California and began funding a campaign to recall current Governor Gavin Newsom. In February, when someone on Twitter praised JeffBezos’ physique, Palihapitiya replied with a shirtless selfie. “You’re welcome,” he wrote.
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.”
Continue reading your story on the app
Continue reading your story in the magazine
Young U.S. Jews Shift on Israel
Millennial and Gen Z progressives question American support of Israeli policies, a point of tension for the Democratic Party
A British tonic maker aims to conquer the U.S. with its premium mixers
Welcome to the Trump Coast
The former president’s strategic retreat to Mar-a-Lago has helped turn Florida into a new home base for Republicans
THE SEDITION HUNTERS
Amateur sleuths pore over photos and videos online to ID Capitol rioters
The FOMO Economy
From AMC to Dogecoin to houses, buying seems driven as much by anxiety as by hope
KING OF CARDS
Sports trading cards are having a moment. And no one promotes the industry like Ken Goldin
Pay Attention to the Man Behind the Curtain
Vladimir Putin’s tolerance for criminal hackers will be on the agenda when he meets with President Biden on June 16
It's TEQUILA O'CLOCK In NYC
Jimmy Buffett’s Margaritaville is a hit song, a chill state of mind, a billion-dollar marketing empire, and the new best worst attraction in Times Square
Is Streaming the Limit for Sky?
As its content providers start online services, the broadcaster pivots to create its own shows
China's Dangerous Diplomacy
Why the Wolf Warriors won’t change course