Entrepreneurs

Scott Galloway Talks Clubhouse, WeWork And Why He Won’t Stop Goading The Venture Capital ‘Pump-And-Dump Mafia’

No online personality seems to drive venture capitalists crazy quite like Scott Galloway. The NYU Stern professor, author and pundit has a knack for sharing personal hot takes and investment predictions that seem to relish controversy — but act like something like chum in the water for certain types of Highly Online investors on Twitter. Promoting an “inverse-Galloway portfolio” has become a sport for these VCs, and for at least one third or fourth investor in Uber, something of an obsession.

One wrinkle: Galloway has founded a handful of startups, taken one public and sold another for $155 million. In March, his online education startup Section4 raised $30 million in a round led by General Catalyst. And Galloway says he’s served on seven public company boards, a dozen private company boards, and invested $50 million of his own money into startups to date.

More so than VC Twitter would care to admit, Galloway is one of them — he just doesn’t talk like it. So why not declare a truce? Earlier this week, Galloway answered our questions in the Midas Touch newsletter. More of the conversation is below, edited for clarity.

VC vitriol

Galloway’s short version of why he seems to antagonize venture capitalists, with whom he admits he has a broadly “strained” relationship: he’s not playing the game. “Hell hath no fury like a venture capitalist who’s worried they might not get their pay,” he says. VC culture forbids investors from dissing each other’s portfolio companies, Galloway argues, for fear of risking relationships or inviting scrutiny on one’s own investments. “When someone comes at me hard on Twitter, I know that I’ve said one of their portfolio companies is overvalued,” Galloway says. “It’s all sort of a pump-and-dump mafia.”

The pundit says he’s not uniformly negative, either, just playing the odds. “You could argue that on a risk-adjusted basis, somewhere around 50% of companies are overvalued, but people don’t want to have that conversation,” he says. And Galloway admits he gets his predictions wrong “all the time.” But why bother calling a company overvalued, as he has Compass, Palantir, or WeWork? “I think it’s an interesting conversation,” Galloway claims. “Even if you’re wrong, it creates dialog.”

The victims, to Galloway, of a discourse that hypes every company as the next great stock are the “tourists at the unicorn zoo” — retail investors. “The consensual hallucination of these valuations can have a really bad hangover incurred by retail investors,” he says. “There’s this tacit agreement among people to keep quiet, and move on to the next.”

Inside job

One potential reason for Galloway’s polarizing effect: his sense of humor. Asked if he considers himself primarily an academic, investor, pundit or entrepreneur, Galloway calls himself a teacher. “The other stuff is just a function of my ADD and my desire to have homes in Manhattan and in Delray Beach,” he quips.

Raising money from General Catalyst’s Paul Sagan and Larry Bohn, both of whom joined the board of Section4, puts Galloway on the VC hamster wheel as much as any entrepreneur. “If we don’t have an exit or liquidity event at half a billion dollars or more, this will be a disappointment for investors,” says Galloway. “Entrepreneurs will talk a stream of bullshit and say, ‘as long as we create a great company, everything will work out.’ But it’s impossible not to think about the outcome and what that means to the strategy of the company in what you’re pursuing.”

In his own startup investments, Galloway says he’s looking to make “citizen trades”: investments that he believes are net-positive for the internet and society. Those include Neeva, a search engine led by Google’s former ads chief building an ad-free alternative; OpenWeb, which manages online comments for websites; Public, a startup unicorn challenger to Robinhood that gave up its payments for order flow practice; and Gannett, which publishes local newspapers. “I’m not doing it because I want to be seen as a saint, I’m a capitalist. But I think there’s a real solid investment strategy around investing in companies that have fewer emissions.”

WeWork SPAC-tacular

In April, Galloway appeared in a documentary about WeWork on Hulu, co-produced by Forbes Entertainment (as did this reporter). With that film taping mid-pandemic in 2020, Forbes asked if Galloway’s take on WeWork has changed since.

While he doesn’t quite qualify himself as a bull, Galloway says he’s much more optimistic about WeWork’s chances. “I think it’s probably got good prospects now,” Galloway says. “It doesn’t have a messiah, it has a manager as CEO, with a background, shocker, in real estate. And in the last year, the market has come to them. If you’re looking at what tenants want in a post-Covid world, they’re going to want more flexibility. They’re going to want a space that’s more communal.”

And with WeWork planning to go public via a special purpose acquisition company, or SPAC, Galloway says he doesn’t see SPACs disappearing anytime soon. “SPACs are like every financial innovation, whether it’s junk bonds or mortgage-backed securities,” he says. “It’s overhyped, and there will be a lot of train wrecks. But it’s probably going to be a static part of the financial community moving forward, and a lot of SPACs will survive and thrive.”

Not in the club

Galloway speaks in soundbytes, tossing out one-liners and sweeping statements on a range of subjects for which he might have a lot, or not so much, direct expertise. In other words, he may get under certain VCs’ skins because he uses the same gift of self-promotion as they do — just not to relentlessly hype companies.

One area where Galloway and his critiques might even agree: that there’s a problem with the news industry. Only for Galloway, his quibble is that business news is too optimistic. For some, technology is a new religion, Galloway claims; its entrepreneurs and billionaires become the new-age saints.

“The media is just a reflection of what America wants. And America wants to believe that we have these new heroes called innovators,” Galloway says. “You need optimists to build a plane, but you need pessimists to demand seatbelts. And there aren’t a lot of pessimists out there.”

But Galloway doesn’t expect VC-backed alternatives to fill that void. He brings up Clubhouse, the voice-based app backed by Andreessen Horowitz, most recently at a $4 billion valuation. And doing so, it’s easy to see why Galloway’s claim that he is simply providing the ecosystem with “thoughtful, civil discourse” is itself a stretch.

“No one, including the investors who put money in there, believes that thing is worth $4 billion,” Galloway says of Clubhouse. “They’re all just trying to maintain it, chasing their hallucination. They’re hoping that somebody else takes another gulp of the Ayahuasca so that they can sell it to Twitter or someone else.”

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