• Palihapitiya said he decided to make drastic changes to Social Capital after becoming "fundamentally not happy."

• The investor said he's taking Social Capital back to its roots by focusing on long-term investments.

• Palihapitiya also criticized the start-up economy's unending appetite for growth, calling it a "charade."

Chamath Palihapitiya, the outspoken Silicon Valley tech investor, called the start-up economy a charade on Wednesday, while also addressing the current the state of Social Capital, his embattled investment firm.

"We are, make no mistake … in the middle of an enormous multivariate kind of Ponzi scheme," said Palihapitiya, at the Launch Scale conference in San Francisco.

Palihapitiya slammed the start-up cycle of raising funding rounds and spending money to boost user growth to attract bigger funding rounds.

"It's all on paper, but it looks amazing," Palihapitiya said. "You've been told to grow, so you're growing. You're doing your job."

Palihapitiya, who grew his personal fortune as one of the early employees of Facebook before jumping into tech investing and becoming a part owner of the Golden State Warriors, has been through his own struggles of late.

Social Capital has endured the departure of numerous employees in recent weeks, and Palihapitiya announced in September that the firm would no longer accept outside investment from limited partners. Instead, Palihapitiya explained in a Medium blog post that the firm would act like a "technology holding company" for long-term investments.

"I will not be a part of the charade anymore," Palihapitiya said. "I think the charade is dangerous. At some point the whole grow, grow, grow at all costs runs out of juice."

Palihapitiya advised entrepreneurs in the audience to "grow real, grow slow," saying he would rather invest in companies that are growing at a steady pace of 20 percent to 25 percent a year for the next 15 years than an eye-popping but unsustainable 400 percent rate that will quickly decay.

Palihapitiya also addressed the recent drama with his firm, saying he was fundamentally unhappy with how Social Capital was being run, in part due to the demands of its LPs. Rather than bow to those pressures, Palihapitiya said he decided to bring Social Capital back to its basics.

"There have to be these moments where you basically circle the wagons and say enough is enough, or you capitulate," he said. "I had to either capitulate or rip it all down, and I chose to rip it all down."

- CNBC