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Two partners fired by Chamath Palihapitiya’s venture firm Social Capital have hired lawyers to defend against accusations by the “Spac king” that they improperly set up a special purpose vehicle to market an investment in one of its portfolio companies.
Jay Zaveri and Ravi Tanuku, two of the most senior partners at the firm, were dismissed without warning from Social Capital on Sunday night, according to three people close to the matter. Zaveri was head of early-stage and venture investing and had been a partner since 2015, while Tanuku had been head of public markets and M&A since 2020.
Palihapitiya — a former Facebook executive who was one of the biggest boosters of a wave of special purpose acquisition companies in 2020 — fired the two men after he claimed to have discovered during a partner meeting the prior week that they had set up a special purpose vehicle to sell a roughly $1mn allocation in a convertible note issued by Groq, a fast-growing artificial intelligence chips start-up, without his knowledge, according to the three people.
Social Capital has backed Groq since its early days, including funding $52.3mn of that convertible note, which had targeted $60mn, in 2018. Palihapitiya instructed law firm Wachtell Lipton to investigate the matter last week, the people said.
Groq has since soared to a valuation of more than $1bn and has attracted more than $300mn from funds, including Tiger Global Management and D1 Capital, benefiting from a boom in artificial intelligence models that require the kind of chips that it designs.
Both Zaveri and Tanuku have denied the accusation. They said Palihapitiya knew about and approved the special purpose vehicle, and that a number of Social Capital employees invested in it.
“A number of employees invested in and worked on the SPV. Mr Tanuku firmly believes that he has acted with the utmost integrity during his tenure at Social Capital and throughout his career, as will be substantiated when the full facts come to light,” said Scott Watnik, a lawyer at Wilk Auslander who is representing Tanuku.
A spokesperson for Zaveri said his firing was “unfair and undeserved. The firm’s leadership approved and participated in the investment that is now being used as a pretext to fire him.”
He “stands by his 28-year track record of integrity and looks forward to the truth coming out”, the person added. Zaveri has hired the law firm Gibson Dunn to represent him.
The two ex-partners are considering their options to reclaim money they believe is owed to them by Social Capital, which includes tens of millions of dollars of carried interest in its funds, according to one of the people close to the matter. It is not clear whether that would include a lawsuit against Palihapitiya or Social Capital.
Social Capital declined to comment beyond its previous statement on the matter: “We have terminated the employment of two of our employees due to employee-specific circumstances.”
The sudden and very public blow-up is unusual for a Silicon Valley venture capital firm — particularly over such a small sum. Social Capital manages assets of more than $1.5bn.
The rift comes after a volatile few years for Social Capital, which Palihapitiya launched in 2011 when he left Facebook, and which went on to make early investments in companies, including Slack. He slimmed the firm down in 2017 after a series of exits, then in 2022 he returned $1.5bn to investors after failing to find enough deals. Social Capital later attempted to raise a new fund from external 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 are all trading significantly below $10, the price at which investors buy into a Spac.
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