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Peter Thiel. 

Peter Thiel. 

Invest like a legend: Peter Thiel Add to ...

German-born Thiel left a New York securities law firm to move to Silicon Valley and start PayPal with his friend Elon Musk. Then he became Facebook’s first backer. He is also the chairman of Palantir, the data security firm that helps the CIA track the movements of miscreants (and the rest of us) on the Internet.

“We wanted flying cars—instead we got 140 characters.” Explain the motto of your investment company, Founders Fund.

We’ve lived through a period of relative technical stagnation. You can debate whether flying cars would be a great improvement, but if people wanted to make them work, it could be done. We are not trying as hard, not reaching as high.

As an investor, how do you  choose which dreamers to back?

How many leaps are required for your solution to work? Having to invent one or two major things, that’s doable. More? Doubtful. Also, we look for founders who are good at co-ordinating large teams and convincing them that something that seems impossible is doable. It’s been a decade-long effort for Elon Musk to start SpaceX to reconstruct the American space program—which seemed impossible at the outset.

You’ve invested in three of  the biggest successes in the Internet’s short history. How do you decide which start-ups have legs?

Each great company is geared to capitalize on a particular moment in history. PayPal and Facebook each began by providing a big benefit to a small market. There are only 10,000 people at Harvard, but Facebook had a 60% market share in 10 days. PayPal’s initial market was eBay’s “power-sellers”—maybe 20,000 people. But within four months of launch, we had 25% of the market.

Is tech investing different from other sorts of investing?

It’s incredibly hard to get people to adopt new tech solutions, and you only get adoption of something if it’s 10 times as good as the next best thing. Amazon had 10 times as many books. PayPal was at least 10 times as fast as cashing a cheque.

What metric do you most rely on?

I’ve found a single question to be predictive of a start-up’s success: What is the CEO’s salary? If it’s less than $120,000, with equity a big component of the compensation, there’s alignment between the CEO and the investors. If it’s $150,000 or more, it almost never works.

How do your years of competitive chess-playing help you invest?

Chess champion José Raúl Capablanca said, “In order to improve your game, you must study the endgame before everything else.” Successful businesses have a very long arc. In 2001, we concluded that three-quarters of PayPal’s value would come from 2011 and beyond. The same thing applies to all the big tech companies currently—LinkedIn, Facebook, Twitter. Most of their value comes from the 2020s, 2030s and beyond. And so one of the critical questions is, what does the endgame look like, not how they will do in the next month.

What are your thoughts on the Canadian start-up scene?

We’ve been looking at Canada very carefully—a scene that is shockingly underfunded.

What’s your advice for investors?

We should never underestimate the degree to which investors act in herd-like ways. This leads to all these bubble-like phenomena. It’s difficult to time these things precisely, but understanding extreme irrationality is a good starting point. You need to understand just how far we are from an efficient market.

 

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