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3 Life Lessons From Chamath Palihapitiya's Hugely Successful Golden State Warriors Investment

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3 Life Lessons From Chamath Palihapitiya's Hugely Successful Golden State Warriors Investment

Known for his early work with Facebook Inc (NASDAQ: FB) and Slack Technologies (NYSE: WORK), Chamath Palihapitiya has now become the so-called SPAC king with his numerous offerings under the Social Capital Hedosophia Holdings brand. He may be lesser known for his ownership of an NBA team.

What Happened: Palihapitiya shared the story of how he became a partial owner in one of the most valuable NBA teams.

In 2011, Palihapitiya was 34 and left Facebook to start Social Capital. When fundraising for his first Social Capital fund, he spoke to Peter Thiel about investing. Thiel encouraged Palihapitiya to triple the $20 million he originally was going to put in himself.

Palihapitiya ended up putting in $60 million on a $275 million fund. Palihapitiya kept the carry amount and terms for his future funds the same as this large initial investment gave him control.

Due to the large amount invested and not seeing distributions for several years, Palihapitiya needed to hedge and decided owning a sports team would be a good bet.

Related Link: 5 Things You Might Not Know About Chamath Palihapitiya

Owning an NBA Team: Palihapitiya and a friend met with the NBA commissioner to discuss buying the Sacramento Kings and moving the team to Seattle or Las Vegas.

“How much do you think the team is worth,” Stern asked.

The duo replied with a low amount of $300 million, which angered Stern who slammed his fist on the table.

“Then you’re in the wrong f***ing meeting,” Stern replied.

After feeling dejected by not landing the deal, Palihapitiya lucked into a lunch with friend Phil Hellmuth and Joe Lacob.

Lacob offered the chance to buy a stake in the Warriors to Palihapitiya.

“I have 10% of the team you can buy for $25 million if you want to join our bid,” Lacob said on buying the Golden State Warriors.

The franchise went to five straight NBA Finals from 2015-2019, winning three. The Golden State Warriors are now valued at $5.21 billion, according to Sportico. The team was valued at $450 million in 2010 when they were sold.

Palihapitiya’s investment of $25 million for 10% of the team is now worth $520 million based on the information provided from Sportico and Palihapitiya.

Why It’s Important: The tweet from Palihapitiya shares some important investing lessons:

  1. The investor and entrepreneur shared that if it wasn’t Thiel encouraging him to invest more in himself, the NBA ownership stake would’ve never happened. Even today, Palihapitiya invests his own money in all the SPAC deals that he brings public.
  2. Another lesson is to not give up on the dream or something you want to happen. The meeting with Stern left Palihapitya deflated and could have ended the talks of sports ownership, but another offer came along and Palihapitiya took it.
  3. Perhaps the biggest investing lesson in all of this is to diversify. Palihapitya recognized that he was putting large amounts of his own money into the Social Capital funds and tying up his money.

“I was looking for the most uncorrelated asset possible and in 2011, from what I knew, I thought sports was the best bet,” Palihapitiya said.

Investors who diversify get exposure to different industries and are able to whether potential downside risks. Even in the SPAC world, Palihapitiya is attempting to help investors diversify with talks of a potential Social Capital ETF offering access to SPACs he has led or been part of the PIPE on.

(Photo: Chamath Palihapitiya by Christopher Michel)

 

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