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Social Capital's Chamath Palihapitiya. Photo: TechCrunch Disrupt

Two years ago, venture firm Social Capital raised $600 million for its third fund. Today, many of the fund's limited partners tell Axios they are upset – and it has little to do with that unicorn-hunting SPAC. Instead, investors don't believe they're getting what they bought into, when it comes to both strategy and personnel.

Backstory: Social Capital was founded in 2011 by former Facebook exec Chamath Palihapitiya and U.S. Venture Partners vets Mamoon Hamid and Ted Maidenberg. Investments would include Box, Slack and Wealthfront. By last year, however, Palihapitiya had grown disenchanted with traditional, early-stage venture capital, saying both publicly and privately that the model needed to be severely disrupted (including at an annual meeting where he compared his firm to past expanders like Blackstone Group and Berkshire Hathaway). So he continued to manage a side hedge fund, and earlier this year recruited Marc Mezvinsky (Mr. Chelsea Clinton to you) as vice chairman to expand into other financial products. Then came the addition of ex-GoPro exec Tony Bates to run a growth equity unit. Somewhere along the way, Palihapitiya also retitled himself CEO.

While Hamid was on paternity leave this past summer, Palihapitiya basically told Maidenberg that he wanted the venture fund to go in a different direction, with a much greater emphasis on data. The pair did not see eye-to-eye, and reached an agreement whereby Maidenberg would remain for two years to help manage out the portfolio (he and Hamid each have nearly a dozen board seats). What Palihapitiya didn't realize, however, was that Hamid – viewed by most LPs as the fund's major rainmaker – was already deep into discussions to leave for Kleiner Perkins. In other words, the backup plan was bailing. When Palihapitiya told Hamid about Maidenberg's quasi-departure, Hamid disclosed his plans (before having the opportunity to inform Maidenberg). Soon after, the Hamid-to-KP news was announced. Maidenberg continues to manage his portfolio companies, but is no longer hanging out at the Social Capital office, and multiple sources say the lines of communication between him and Palihapitiya are effectively severed.

LP frustration: The issue for LPs is twofold: First, the team they backed is no longer really there. Second, the strategy they backed (i.e., fairly traditional VC) is no longer being employed. Fund III remains less than 70% called, and there continue to be questions about future portfolio monitoring, and whether junior members of the investment team – folks who partially joined to be mentored in venture by Hamid and Maidenberg -- will stick around (a headhunter tells me some resumes are out). "I'm really disappointed in the whole thing," one longtime Social Capital LP tells me. "Chamath is a smart guy, but he's really gone off the rails." Another adds: "It's one thing to want to be Blackstone or Berkshire, but not before putting point on the board in your original business, which we and others underwrote without worrying that the strategy would drastically shift mid-fund."

But... There isn't too much LPs can really do. Fund III doesn't have a no-fault divorce clause, and Palihapitiya is the only key-man listed ("We blew it on key-man," a third LP says). Some LPs would prefer Maidenberg to run the remaining money, but Palihapitiya is said to have not yet been receptive to that plan.

Social Capital statement: "We want to build a modern, scalable organization capable of supporting entrepreneurs and startups all the way from inception to their life as a public company. We are excited about what we are building, and the largest investors in Social Capital are behind our approach."

Social Capital did not make Palihapitiya available for an interview. Hamid and Maidenberg also declined comment.

Go deeper

U.S. grants temporary protected status to thousands of Venezuelans

Venezuelan citizens participate in the vote for the popular consultation in December 2020, as part of a protest against Venezuelan President Nicolas Maduro in Doral, Florida. Photo: Chandan Khanna/AFP

Venezuelans living in the United States will be eligible to receive temporary protected status for 18 months, the Department of Homeland Security announced Monday.

Why it matters: Tens of thousands of Venezuelans have fled to the U.S. amid economic, political and social turmoil back home. Former President Trump, on his last full day in office, granted some protections to Venezuelans through the U.S. Deferred Enforced Departure program, but advocates and lawmakers said the move didn't go far enough.

"She-cession" threatens economic recovery

Illustration: Sarah Grillo

Decades of the slow economic progress women made catching up to men evaporated in just one year.

Why it matters: As quickly as those gains were erased, it could take much, much longer for them to return — a warning Treasury Secretary Janet Yellen issued today.

The Week America Changed

Sandberg thought Zuckerberg was "nuts" on remote work in January 2020

Photo illustration: Sarah Grillo/Axios. Photo: Paul Marotta/Getty Image

Chief operating officer Sheryl Sandberg thought Mark Zuckerberg was "nuts" when he raised the possibility in January 2020 that 50,000 Facebook employees might have to work from home. By March 6, they were.

Why it matters: In an interview Monday with Axios Re:Cap, Sandberg explained how Facebook moved quickly to respond to the pandemic with grants for small businesses and work-from-home stipends for its employees, and how the company has been watching the unfolding crisis for women in the workforce.