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Is venture-based real estate development coming to the Bay Area?

Golden Gate Bridge by Mariusz Blach on 500px.com

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Chamath
Palihapitiya
is a Sri Lanka born, Canada educated, venture capitalist in
Silicon Valley, who made a boatload of money as one of the early employees of
Facebook. He now runs a VC firm called Social +
Capital
 and owns part of the Golden State Warriors.

The other
night he was interviewed at a StrictlyVC event in San Francisco and I think
that many of his comments would also be of real interest to the Architect This City
community. He’s super passionate in interviews and always fun to listen to.

Below is what
he had to say about the San Francisco startup scene. It really speaks volumes
about what people will put up with in order to live in an awesome place/city that they love. All of his responses below are from this
TechCrunch article
.

“The city has to be doing more, around
transportation, around housing… You have to get rid of the nimbyism and you
need to quadruple, if not quintuple, the amount of housing. You need to tell
that engineer from the University of Michigan that he can live here on a salary
of $80,000.

[In the meantime], we look at our startups, and
the minute that they start to spend more than 15 percent of their burn – good
money that we give them – on rent, a huge red flag goes up. When they, on a
per-head-count basis, are spending so much, we start looking at the
productivity of the technical team. And if it’s good but not great and they’re
spending this insane amount of money [versus] a different team in Redwood City,
we start to ask ourselves: “Are you so convinced that success is going to
happen in this city at 1.5x the cost?”

Because for every dollar that someone in
Mountain View or Redwood City is raising, you [in San Francisco] have to raise
one-and-a-half to two times that just to get to the same point. So you’re cutting
your half life in half. To prove that you can take an Uber from some fuckin’
shitty bar to another shitty bar? Like, I don’t understand.”

And here he
talks about the possibility of his venture firm also getting into the real
estate development business. I couldn’t resist blogging about this.

“We made a big
decision with our last fund to build an organization that looks really
different than a venture firm, and that organization is going to be this
hybrid, bastard stepchild of Berkshire Hathaway and Blackstone and BlackRock.

What I mean by this is
that we want to have a large permanent capital base and we want to make really
long, discontinuous bets on companies and sectors and trends.

And one of the things
we talked about was having a real estate fund …[because] we owe it to our
companies to alleviate some of these problems when no one else is going to. If
we went and built one million square feet somewhere of mixed use, where you
work and live, and we rethink what it means to have a modular living environment
for a millennial cohort that wants to work at companies and doesn’t necessarily
have kids, we can do that in a way and give that back to our CEOs as a benefit
of working with us.

And you can probably
make the economics work. Because we only really care about the equity of the
company anyways. And the equity in the real estate will take care of itself if
you take the 30-year view. So we’re at the point now where we’re like, wow, we
should raise a few billion dollars and get into the real estate business and
solve this problem systematically for our companies. And maybe in that, it
becomes a blueprint for how others should do it. We’re just basically going to
act as our own city-state and decide how to do it ourselves.”

It’s
interesting to think about what the economics might look like if your primary goal is
simply to provide space to your portfolio companies (entrepreneurs) so that
they get more (financial) runway and, therefore, have a greater chance of success. I’d love to see that pro forma.

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