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Two partners fired by Chamath Palihapitiya's venture capital firm Social Capital have hired lawyers to defend themselves against accusations by the “SPAC king” that they improperly set up special purpose vehicles to market their investments. An investment in one of its portfolio companies.
On Sunday night, Jay Zaveri and Ravi Tanuku, the firm's two most senior partners, were fired by Social Capital without warning, according to three people familiar with the matter. Zaveri is head of early-stage investments and venture capital and has been a partner since 2015, while Tanuku has been head of public markets and M&A since 2020.
Palihapitiya, a former Facebook executive who was one of the biggest drivers of the 2020 wave of special purpose acquisition companies, fired the two men over what he claimed to have discovered at a partners meeting the week before They set up a special purpose vehicle and sold about $1 million in convertible notes issued by Groq, a fast-growing artificial intelligence chip startup, without his knowledge, the three said.
Private Equity has supported Groq since its inception, including providing $52.3 million in funding for the convertible note, which has a 2018 target of $60 million. Palihapitiya last week instructed law firm Wachtell Lipton to investigate the matter, people familiar with the matter said.
Groq has since surged to a valuation of more than $1 billion and attracted more than $300 million in funding from funds including Tiger Global Management and D1 Capital, benefiting from a boom in artificial intelligence models that require the chips it designs.
Both Zaveri and Tanuku denied the accusation. They said Palihapitiya knew about and approved the special purpose vehicle and that many Social Capital employees invested in it.
“Many employees invest in and work for the SPV. Mr Tanuku firmly believes that he has acted with the highest integrity during his time at Social Capital and throughout his career, and this will be confirmed when the full facts are revealed.” Wilk Auslander, for Tanuku's attorney, Scott Watnik, said.
A spokesman for Zaveri said his dismissal was “unfair and undeserved.” Company leadership approved and participated in this investment, and now it was used as an excuse to fire him. ”
The person added that he “stands by his 28-year record of integrity and looks forward to the truth coming out.” Zaveri hired the law firm of Gibson & Dunn to represent him.
The two former partners are considering clawing back money they believe Social Capital owes them, including tens of millions of dollars in carried interest in its funds, according to a person familiar with the matter. It's unclear whether that includes lawsuits against Palihapitiya or Social Capital.
Social Capital declined to comment beyond its previous statement on the matter: “Due to the employee's specific circumstances, we have terminated the employment of two employees.”
A sudden and public outburst is unusual for a Silicon Valley venture capital firm — especially for such a small sum. Social Capital manages more than $1.5 billion in assets.
The rift comes after a tumultuous few years for Social Capital. Palihapitiya founded Social Capital in 2011 when he left Facebook and went on to make early-stage investments in companies including Slack. He streamlined the company in 2017 after a series of exits, then returned $1.5 billion to investors in 2022 after failing to find enough deals. Social Capital later tried to raise new funds from outside backers but abandoned the plan earlier this year.
Palihapitiya raised about 10 Spacs between 2020 and 2022 through Social Capital, which acquired companies including Richard Branson's Virgin Galactic, real estate group Opendoor and healthcare company Clover Health. They all trade at well below the $10 price investors paid for the SPACs.
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