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Could a small health insurer be similar to a space flight company? The founder of Social Capital, Chamath Palihapitiya, thinks so. In this Motley Fool Live video recorded on November 16, 2020, Bill Mann, director of small cap research with The Motley Fool, talks with Palihapitiya about why he thinks Clover health (NASDAQ: CLOV) is like Galactic Virgo (NYSE: SPCE).
Bill Mann: Still, the market on the day you announced the Clover Health deal brought the IPOC price down to, I guess there, at least, you’re not going to waste any money. How does this big problem think the market is failing?
Chamath Palihapitiya: Well the good analogy is Virgin in many ways. The market adjustment for Virgin’s products was also not well understood in the initial stages and they traded after the period ended I think like eight dollars or seven.
Bill Mann: Yeah, space flights for the rich didn’t appeal to people.
Chamath Palihapitiya: I think we live in a world that cycle media, when I went on CNBC and said, “Download the app by house.” It fits in the box of what people wanted to hear. People really got to embrace it.
When people first heard of spaceflight, point-to-point travel, and hybrid rocket engines, they thought, “What are you talking about?” Instead, they layered space flights for the rich. But over time, as people took the time to understand the business, to hear from Vivek, Andrew and myself, just as they heard about George Bitesize at the time and myself, they understood the truth on the ground and understood what I saw.
Product market fit was the start of the ladder, and a business model that I thought was really exceptional, and they were willing to go that route. Likewise, I think what they’re showing here is that we priced the deal very fairly. Neither too hot nor too cold using the Goldilocks analogy. I think it was right in the middle, and we are negotiating in the middle.
There is nothing wrong with it. Vivek got a good price, and I think what you’ll see over time is that we got a very fair price as well. Again, there are so many options built into this business. The market is huge and growing. The incentives are huge and they are multiplying.
These guys are really the only ones who have found using your language to be a sin, and that sin creates a very obvious dilemma for innovators. It will be impossible for the united and benevolent incentives to decide, to reorient an entire business model for lower costs and better outcomes, as they are offset by higher costs and inflation in health care. Not because they can’t do it.
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