Start-up economy is usually a ‘Ponzi scheme,’ says Chamath Palihapitiya

Chamath Palihapitiya, the outspoken Silicon Valley tech investor, called the start-up economy a charade on Wednesday, while also addressing the current the state of Social Capital, his embattled investment firm.

“We are, make no mistake … from the middle of an enormous multivariate kind of Ponzi scheme,” said Palihapitiya, at the Launch Scale conference in San Francisco.

Palihapitiya slammed the start-up cycle of raising funding rounds in addition to spending money to boost user growth to attract bigger funding rounds.

“the item’s all on paper, however the item looks amazing,” Palihapitiya said. “You’ve been told to grow, so you’re growing. You’re doing your job.”

Palihapitiya, who grew his personal fortune among the early employees of Facebook before jumping into tech investing in addition to becoming a part owner of the Golden State Warriors, has been through his own struggles of late.

Social Capital has endured the departure of numerous employees in recent weeks, in addition to Palihapitiya announced in September that will the firm would certainly no longer accept outside investment via limited partners. Instead, Palihapitiya explained in a Medium blog post that will the firm would certainly act like a “technology holding company” for long-term investments.

“I will not be a part of the charade anymore,” Palihapitiya said. “I think the charade is usually dangerous. At some point the whole grow, grow, grow at all costs runs out of juice.”

Palihapitiya advised entrepreneurs from the audience to “grow real, grow slow,” saying he would certainly rather invest in companies that will are growing at a steady pace of 20 percent to 25 percent a year for the next 15 years than an eye-popping however unsustainable 400 percent rate that will will quickly decay.

Palihapitiya also addressed the recent drama with his firm, saying he was fundamentally unhappy with how Social Capital was being run, in part due to the demands of its LPs. Rather than bow to those pressures, Palihapitiya said he decided to bring Social Capital back to its basics.

“There have to be these moments where you basically circle the wagons in addition to say enough is usually enough, or you capitulate,” he said. “I had to either capitulate or rip the item all down, in addition to I chose to rip the item all down.”

WATCH: Palihapitiya fires six people at Social Capital

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