Peter Thiel on being a contrarian

Please welcome Peter Teal. Thank you.

Oh, lot of Peter Teal fans.

Peter, have you ever seen 2,000 of your fans in one place? Is this the largest on the book tour so far? It's like this is over 2,000.

Well, it's uh it depends depends a lot on what context. So, it's 2,000 people here is better than 2,000 people in Orlando Florida.

Yes. Yeah. No offense to Orlando.

No offense to Orlando at all.

But any business plan you get from Florida, you delete immediately.

Correct. That's what I was told when I started angel investing. If it's from Florida, be very suspect.

Well, it's always it's always dangerous to have absolute rules because um you know uh we we once went uh at Founders Fund, we once went through a list of um absolute rules and there were about 20

or 30 of them and they add up and eventually you don't look at anything anymore. So they're

always good shortcuts. Too many

shortcuts somehow goes wrong. Would

Facebook or Palunteer have made it through those 30 rules? I wonder.

Uh you you you always hope so in retrospect. I think I think Facebook

retrospect. I think I think Facebook Facebook would have made it through regardless because um you know it was it was just it was at a point when you know a company like Facebook today would

probably be valued not at 5 million but like more like a hundred million versus at you know having the same metrics when when when I invested back in 2004. Um,

you invested at Facebook at a $5 million valuation.

Uh, yes. Yeah. But they had, you know, they had 100,000 they had 100,000 users.

It was it was growing really fast. Um,

they only needed money to buy more computers because there was so much demand for the service. It's always

that's actually always a pretty good sign.

And Sean Parker introduced you to him to Zuckerberg or he had you Sean Reed Reed had looked at a little bit. So there were a few different

bit. So there were a few different points of contact.

What was the first meeting like?

you know, it was not like a show on Shark Tank. It was Zuckerberg was 19

Shark Tank. It was Zuckerberg was 19 years old. He was still pretty

years old. He was still pretty introverted. Uh Sean did most of the

introverted. Uh Sean did most of the talking. Um so if you, you know, if you

talking. Um so if you, you know, if you base it, people always exaggerate how important these pitch meetings are. Uh

Reed Hoffman, um and I had spent about a year looking at all these social networking sites before that. So we

were, you know, we were ready to write the check before we before we met and didn't really matter what people were going to say. And what was it about that business that made you so convinced it

would be a game changer? Because I

remember at the time, you know, we weren't all convinced. There was

something you guys knew that we didn't know.

Well, um I don't know, there were a few different different pieces, but I think I think there was an intensity of usage that was already very very big, was very promising. Um it had all these network

promising. Um it had all these network effects which I think are never to be underestimated. There was something

underestimated. There was something about the the college market that was probably being underestimated. I think

investors always have a bias to invest in things they themselves use and they undervalue things they don't use. So

there aren't very many investors who are in college. So anything that's just big

in college. So anything that's just big on college will be somewhat underrated systematically. Um you know I I we had

systematically. Um you know I I we had I've been there was a bunch of different things that added up like that. And take

me to Palunteer because this is another one of the major companies of our generation uh of this last wave. What is

that? It's worth $10 billion or something in that range.

Something maybe a little north of there.

A little north of there. And you were an angel investor/cof-founder of this company.

Yes.

And how much was that company worth when you started and invested in it? Well, we

did we did the first angel round like 800,000 valuation and then you know we did a $800,000 went up from there loans went up from there.

So, but you don't angel invest anymore.

You just do venture capital now.

You know, I I don't I don't know if there's really sort of a bright line.

You know, we do I mean um we do everything from seed to series A to B, C, D, you know, all the way all the way up the spectrum. I I would say my my my

single overarching idea both in my book 0ero to1 and in terms of investing is that uh that I believe you know I think most people always tell you most business books most business advice

always how to be better at competing how to compete more effectively and I believe that the key is not to compete at all the key is to do something that nobody else is doing. Um the sort of uh

the politically incorrect word for it is that you should have a monopoly. We can

we can debate at what points monopolies are good or bad for society, but from the inside, if you're a founder, early investor, early employee at a company, uh you always want to aim for monopoly.

And so and so I'm I'm ready to invest at whatever point I'm convinced it's going to be a monopoly.

And Facebook, you felt like this is going to be the dominant social network and there'll be only one major one.

You know, I I'd like to say that I had that that much figured out. I thought it would be I thought it would be dominant on college campuses and that would be worth, you know, a lot more than five million. I didn't I didn't really think

million. I didn't I didn't really think it was going to be quite as big as it turned out to be.

And there are some pretty big fights going on right now. I can think of Android versus iOS. This seems like a fight worth having.

Are they Is that a fight that Google shouldn't be in or Apple shouldn't be in or too soon to tell?

Well, it's it's pretty core to Apple. I

would argue it's not that core to Google. I mean, you know, Google at its

Google. I mean, you know, Google at its is fundamentally just a search engines, just a search company. That's where 98% of the revenue comes from. And then I think um it Google always likes to brand

itself as a all-purpose technology company. They're driving self-driving

company. They're driving self-driving cars. You have Google glasses. You have,

cars. You have Google glasses. You have,

you know, um phone operating systems, balloons in outer space, but um but but really 98% of it's a search engine.

Everything else is is is probably a distraction. And the fight with

distraction. And the fight with Microsoft you talk about in the book became a huge distraction for Microsoft.

Do you think that the apps business, the Gmail apps business has been a distraction for and the and now they have an operating system Chrome. Do you

think that business at Google's not worth them spending too much time on?

They should just keep with the search.

It's always it's always complicated. I

mean and sometimes you do have to fight.

Sometimes it's existential and you have no no choice. But I I think we're always too prone to it. We're always too prone to find conflicts with other people, with other companies. We're too prone to

thinking what's valuable is whatever the other person's doing. And so we have to fight fight them uh for that. And I

think it's all almost always a better question to ask what can I do, what can my company do, what can our company do that nobody else is doing versus what is somebody else doing that's cool that I want to take away from them. That's

that's I think generally a much less constructive approach. Ah, yes. The

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at walkerclaw.com. Okay, let's get back to this amazing episode. I think the other core tenant of the book is really what do you believe that is true that

nobody else believes to be true I guess.

Is that the right way to say it?

Yes. Yes. So it's always it's always the combination of contrarian and true. You

know people always characterize me as contrarian. I think that's that's

contrarian. I think that's that's misleading. You know 1 plus 1 equals

misleading. You know 1 plus 1 equals three. That's a contrarian belief. It's

three. That's a contrarian belief. It's

not interesting. Untrue. Won't get you anywhere.

Right. So, it's always important for it to be something unconventional, no one's thought of, but that also uh has, you know, either is is intellectually true or has some merit to in the business context.

And you're huge investors in SpaceX, Elon's um second company, I guess, in this recent crop. What is it about that business that he got right in sort of that how does he run through the teal

equation as it is?

Well, I'd say um well, it was definitely both Tesla and SpaceX were were companies um where the competition was really weak. So, uh you know, you were

really weak. So, uh you know, you were competing with these decrepit car companies in the US that had barely innovated in 50 years with space. It was

um these these really bad aerospace, half government, half military, uh industrial complex type type entities that were again sort of very bad at innovating, very inefficient. So, uh,

you know, if you're going to start it, you know, starting a search company, that would be tough because Google's a really tough, uh, company to go up against. Um, going up against General

against. Um, going up against General Motors, going up against, uh, Lockheed, you know, that's you're at least picking pretty weak competition. And that was that was an important strategic thing to get right early on.

There were a lot of challenges in building these companies, but but but that that part of the strategy, I think, um, is very underrated. And the fact is nobody believed electric cars were going

to be viable or very few did.

I remember a conversation I had with Elon in uh 2000 summer of 2008 and I asked him when was the last successful car company started in the US and the

answer was a Jeep in 1941. And so it was and sort of the glass half full glass quarterfold version was it was about time after 67 years. How do you feel

about where Tesla's gotten as a company and where do you think they're going to go?

Well, it's been a it's been an incredible success. I would I would

incredible success. I would I would never bet against Elon in anything. So,

I think that's sort of, you know, hard hard rule number one. Um, it's probably, you know, if you sort of ask what is it that the innovation, what's what's been the innovation in SpaceX or Tesla, um,

there are many different forms innovation takes. most common one we're

innovation takes. most common one we're used to is sort of you launch something and then you iteratively improve it.

It's sort of this continuous improvement model. We occasionally have a modality

model. We occasionally have a modality of innovation where you have a big brilliant breakthrough like maybe Bitcoin where someone you know worked on it in a closet for 10 years and then released this amazing discovery to the

world. But I think there's a another

world. But I think there's a another modality of innovation that's that's very underrated is what I describe as complex coordination where you just take a lot of different pieces and the

innovation is to combine them in a new way. So if you ask what is new about

way. So if you ask what is new about SpaceX rockets or Tesla cars, you know, all the components already existed at least in the initial designs and the critical thing was to pull them all

together in a um in a new form. Um and

and that sort of vertical integration um you know is is somewhat capital intensive which is why it's quite hard to get it financed but it's done very little and and so and then once it's

done it's something that tends to get underrated. I think Apple um Apple's

underrated. I think Apple um Apple's iPhone, the first smartphone that really worked, is another example of complex coordination. And when people, you know,

coordination. And when people, you know, people write biographies on jobs, it's it's like, well, he was a jerk. And

that's that's the most interesting thing. And what what really is

thing. And what what really is interesting is how was he able to motivate all these people to build this completely uh new product? And it it was that you could you could do something incredible not by inventing any specific

thing that was new, but bringing all the pieces together in just the right way.

And that's that's what the iPhone represented. That's what Tesla

represented. That's what Tesla represents with cars or um or SpaceX with rockets.

And what is the no pun intended the trajectory of um SpaceX, do you think?

Because he's now gotten um you know to space many times, gotten to the space station uh many times and he's almost landed the reusable rocket. I he's tried

twice and it's it's apparent he's going to get it and that's truly innovative.

Yes. Well, I think I think um I think having built this vertically integrated rocket company um it's now possible to innovate on that in ways that would be much harder if you had this super

complicated uh subcontractor subcontractor system where all the components are bespoke and you can't innovate on the whole thing. So having

integrated all the pieces um you can innovate if they if they get to reusability that is a that is an enormous breakthrough because it would cut costs you know 70 80%.

cutting the cost of 70 or 80 70 80% to get to space.

Sure. If you if if every time you flew an airplane, you had to throw away the airplane, you know, air travel would be kind of expensive.

Yeah. A magnitude more. Um, well, let's talk about some of the other people that you had at PayPal because I think what's fascinating is you were responsible, I believe you weren't responsible for

hiring Elon, you're responsible for mergering PayPal and X, but you hired uh Reed Hoffman,

David Saxs, Jeremy Stppleman, um Dave Mccclure, I think got fired. Um,

who else? Uh we had Chad Hurley and Chadur from from YouTube.

Um yeah, we we had a slew of talented people.

How did did was it the experience of working at PayPal create that group of people? Was it just a moment in time or

people? Was it just a moment in time or was there something about the selection criteria in which you used when you were how many years old? How old were you at that time?

You know, I was was 31 when I started it, 35 when eBay bought it. The PayPal

period was it was a very compressed four years from from start to the eBay less than four years from when we founded the company to when eBay acquired it. Um I

don't know I think it was probably a combination of different things. I think

it was a relatively entrepreneurial somewhat chaotic culture. We had a lot of very strong personalities. Um I think a lot of companies bias towards having people who sort of more just drink the

Kool-Aid which and there's sort of pluses and minuses to both. um you

you'll have a more smoothly functioning company, you'll you'll maybe have less disscent when things are going wrong.

So, we were sort of less smoothly functioning, but a lot of people did feel ownership of the product and would um would raise their voices quite a bit if they felt things were were off track.

Uh certainly in retrospect, 2002, 2003, 2004 were very good times to start new companies. It was sort of a contrarian

companies. It was sort of a contrarian time to start an internet company. Sort

of the macro timing was was quite good.

Um, but I would I would also say that uh the lesson the the the overarching lesson you learned going through a business like PayPal which had a lot of challenges but ended up succeeding the

the highle lesson was you can build a great company but it's hard. And I think the lesson you learn inside of u most startups is very different. If you're at a startup that fails, you will learn the

lesson it's impossible to build a great company. So you should try something

company. So you should try something less ambitious the next time around. Um,

if you're at a startup where things work too easily, which I think was the way most people say at Microsoft or Google would have experienced it, you learn the lesson that it's actually easy to build

a great company. And the less and hard is somehow better than easy or impossible. Because if it's easy, you

impossible. Because if it's easy, you don't need to work hard. If it's

impossible, there's no point in working hard. And so easy and impossible

hard. And so easy and impossible converge to not working hard. Hard tells

you you should have to work hard. And of

that whole group, who do you think like uh I mean they're all kind of your children, so it's a really hard question to ask, but which one impresses you most of that cohort and why? Or which ones

impress you a lot?

You know, I don't I don't want to I don't like ranking people. This is like Yeah. But look, I think I think um I

Yeah. But look, I think I think um I think Elon's super impressive because he's done something outside the IT space, right? And we're we're sort of

space, right? And we're we're sort of we're sort of in a um we're in a world that's that's dominated by it by innovation in in the world of bits much

less in the world of world of atoms. And I think that's that is what makes Elon uniquely charismatic because we do have a sense that it would be good if we were

doing a little bit more in atoms and not not everything in in the world of bits.

Um that being said um I also think it's quite hard to do things in the world of atoms rather than bits. you know, we on on the Founders Fund side back in 2007, we thought, you know, we should start

doing more in biotech, more in, you know, transportation, all these sort of futuristic sci-fi like technologies. And

we've maybe 20 to 25% of the capital's been invested in that. You know, 75 to 80% is still it. And there are a lot of very deep reasons why why those kinds of

businesses tend to tend to work better.

Um, and and why why it's actually quite rational for for most people to focus on those And what have you learned about venture capital, you know, now that you've been doing it for so long? I

mean, the how many you have fund four, maybe fun five fun five now, you know, 10 10 plus years. Um, I don't know, there's sort of a lot of a lot of

different different lessons. One that's

um one that's a little bit of a you know it's not quite a precise start lesson but is that uh is that people once something works people often

underestimated and when things aren't working they underestimate how much trouble they're in. So there's a way in which uh in most areas of investing uh momentum is not that good a good good a

way to invest. You if a stock's gone up you don't necessarily want to chase it.

Um when I've done the back testing on our portfolio, uh I found that um every time a company had a big up round led by a smart investor, it was always a good

idea to do your proa flat rounds, down rounds. Um it was almost always a bad idea. The steeper

the up round, the cheaper it was. You

know, the the biggest the biggest mess of the last decade was not um doing our PRAA or for that matter the full series B at Facebook. It was a 12x up round in

8 months. It was the steepest up round

8 months. It was the steepest up round in the short, you know, in that amount of time in any company we've been involved in. And in retrospect, that was

involved in. And in retrospect, that was perhaps also the cheapest, right?

And um costillions B round.

Yeah.

Um of of Facebook. And and I think one of the reasons it was so so underpriced was that um it it's you know investors don't want to step up that much but then

even the people on the inside often underestimate how much things changed.

So once things start working, once once you have uh that sort of momentum, you know, it was still eight or nine people at the company. They had this office with this horrible graffiti art on the

wall. And so um and so the in even

wall. And so um and so the in even though you had these abstract charts that were, you know, going exponential um on the inside it didn't feel things were changing that much and that's why

people underestimated. And so you have

people underestimated. And so you have these these uh subtle but very important points where somehow the leverage shifts where somehow the dynamics shift very powerfully and they tend to get very

underestimated.

What do you think about Elon's thoughts on artificial intelligence? Larry Pagees

obviously bought Deep Mind. Were you an investor in that?

Yeah, we were we were actually seed investors in Deep Mind. So what is it about that company that has specifically created such a

polarized debate because they were working on some things that spooked some people. Yeah. We had a we had an LP meeting at Founders Fund I

believe in uh 2012 where Demis the Deep Mind CEO spoke and I remember one of our investors told me afterwards that he felt it was the last chance he had to shoot to shoot him and kill him for the sake of humanity

which was the first time for a portfolio company LP to do that have that thought I mean I'm sure venture partners had that thought he wasn't like interested that the company you was gave a very compelling speech he say wow it's going to be a

great investment but the investor reacted in a somewhat different different way. Um I I would say let let

different way. Um I I would say let let me see. I I think probably I I suspect

me see. I I think probably I I suspect the fears are a little bit overdone at this point. I think that uh I think you

this point. I think that uh I think you know full strong AI is still you know in my my judgment somewhat further away than people think. Um that that being

said, I I think it would represent, you know, a a shift that's really drastic for which we don't have a a great conception and and so when you know people talk about computers substituting

for human labor or stuff like that, I think that underestimates the strangeness of AI. It would be like if aliens landed on this planet, you know, the first question we wouldn't ask would be what does it mean for the economy?

The first question would be political.

Are they friendly? Are they not friendly?

Right? And you put AI in that latter category.

I think it's it's if you got full full on, you know, strong AI, it would be like aliens landing on this planet.

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Speaking of which, let's get back to this amazing episode. How far in your estimation as an insider do you think we are from strong AI? Is it something

we're going to see in our lifetimes? I

mean, this self-driving car, we keep talking about it's two or three years away. For the last two or three years,

away. For the last two or three years, feels like 10 years away, maybe. Where

do you think we are with AI and and even backing into the self-driving car? I'm

curious.

You know, I I don't um I'm going to disagree with the premise behind that question. I think the premise behind the

question. I think the premise behind the question is that there's this future that's out there of and there are these things that will happen in the future.

It's sort of like the Ray Curtzwhile, the singularity is near and we have these exponential curves that are just happening and all that, you know, we should be doing is eating popcorn and watching the movie of the future unfold,

right?

And I think um you know I think it's too hard it's hard to know what's what's going to happen. But it's it's the wrong question because I don't think the future is fixed. I think what matters is

a question of agency. And so if we decide to work on it, you know, I think we could build it. If we don't work on it, you know, it will never get built.

It's going to get built.

It's going to get built. I mean, Larry didn't buy it to shut it down.

If everybody thinks it's going to get built, then nobody will feel like they need to do it, and then nobody will build it, and it won't get built.

Okay.

I feel like I'm playing chess against Casper.

No, but it's it's No, look, it's it's it's always it's always an agency question. And

question. And hold on a second.

And we we should not we shouldn't think of the future as this thing that's out there. It's the question that one should

there. It's the question that one should ask especially as an entrepreneur early founders. What is the future you want to

founders. What is the future you want to build?

Right?

And then and then that's a future you should try to work to make happen.

What if the person who builds that future however maybe doesn't have the same um regard for humanity or trying things or what if they're just a little

cavalier or immature? What if the person who decides I'm going to try strong AI is a group of Pakistani students who get flipped and start working for ISIS or something like that? It sounds crazy, I

know, but so did 9/11. I mean, it this technology is not going to be reserved just for Stamford grads. What if it gets co-opted and people start to realize,

hm, cyber terrorism is step one and maybe some strong AI to disrupt the world is another. Um well look I I'm not a technological utopian. I don't think

technology automatically makes the world a better place. I think there has been a you know powerful negative story about the world at least since Hiroshima 1945.

Maybe you can go back even even further.

But I think I think one of the reasons our culture at large is so anti-technological and you know the easy way to see that our culture is anti-technological is you just watch all the science fiction films and they're all about technology that

kills people that doesn't work that's dystopian and the future some combination of Matrix Terminator Avatar Alisium you know I watched the Gravity movie uh year or so ago you never want

to go into outer space you want to be back on some muddy tropical island somewhere and that's and I think there are you know I don't like this pessimism about technology, but I think I respect that there are reasons that people have

it and I think they go back to, you know, all the problems of the nuclear age. So, I think u it's part and parcel

age. So, I think u it's part and parcel of that. I'm I'm hopeful um I'm I'm

of that. I'm I'm hopeful um I'm I'm somewhat hopeful that the the really crazy people are too incompetent to do things, but it's not absolute.

Yeah, they the crazy people have their moments, but you're generally right, the criminals tend to get caught because they're stupid. Um

they're stupid. Um but it's not absolute.

But it's not absolute. We can't put that on the absolute founders fund uh list.

Um what about jobs, efficiency, robotics? This is a very interesting

robotics? This is a very interesting area as well. And I I working less or working what you want to work on could be seen as a positive, right? So having

to have less jobs and having more pursuits in a Star Trek kind of way to evoke a more positive and less dystopian, more utopian uh worldview. It

seemed like everybody there was pretty happy with the fact that they didn't have a job, they had a vocation or a hobby.

Is that where we're going to head as a society now? I mean, automation is

society now? I mean, automation is getting pretty severe and it's happening at a rapid clip. There's less people working at the Tesla factory, self-driving cars, etc. Um, and we

already have large unemployment in a lot of places in the world. As the world goes flat and there's less employment, what's the world going to look like?

What do you think are the positives to that? the positive solutions to that.

that? the positive solutions to that.

Well, um, let's see. I I I do think people have been too worried about technology replacing jobs for a long time. I mean, you had the lites in the

time. I mean, you had the lites in the 19th century where you were worried that, you know, there would be nobody left to work in textile factories and they try to break the machinery. And it

turned out that a lot of the automation and productivity gains freed people up to do other, you know, more more productive sorts of things. So I think you know if we had enormous productivity

gains um enormous GDP growth um it might not be perfectly um evenly distributed but if you had GDP grow by 4% a year I think just about everybody would would

get better off. I think the the challenge is actually that in most sectors we're not having anywhere near those kinds of productivity gains. So,

you know, automation, there's been a lot of automation in manufacturing, but um you have to keep in mind that that's a smaller and smaller part of the economy.

So, even if we're improving manufacturing at the same rate as we were improving it 100 years ago, let's say we're increasing efficiencies 10% a year, um that makes less of a difference

if manufacturing's, you know, 15% of GDP versus say 50% of GDP as it might have been something like a 100 years ago. And

um and what our economy is more dominated by today are service sector jobs which actually have not changed that much. So people working in

that much. So people working in restaurants, people working as kindergarten teachers, people working as nurses or um medical technicians. Um and

um and this is actually why I think there's there's less economic growth than we think because um we've not actually figured out ways to really increase productivity in so many other

sectors. So um in general people people

sectors. So um in general people people always frame uh the worry about technology it's happening too quickly it's too disruptive it's too dangerous and what I worry about is much more the

spectra of stagnation things are not changing quickly enough we don't have enough growth and then when you don't have enough growth that's where I think you have real challenges you know in a world without growth everything becomes

a zero- sum game I'll only get ahead by you falling further behind and that that becomes a much nastier world when you look at the various sectors you're investing in, which one do you

think has the most potential, you know, in the coming years? Healthcare,

robotics, AI. Um,

you know, I'm I'm always I'm always skeptical of of sectors um and trends.

People always ask me, you know, what are some trends that I see happening in the future? And um I never like the question

future? And um I never like the question because again, it's like I'm not a profit. I don't think the future is is

profit. I don't think the future is is fixed in that sort of way. But I also think at this point I think all trends are overrated and and so um you know um

healthcare, IT, education software somewhat overrated. SAS uh software

somewhat overrated. SAS uh software pretty badly overrated. If you hear the words big data, cloud computing, you need to run away as fast as you possibly

can. You need to just think fraud and

can. You need to just think fraud and run away. And and and the reason you

run away. And and and the reason you want to be really careful about these buzzwords, so if I said, you know, I'm doing a a building a mobile platform for SAS enterprises to uh do big data in the

cloud. And if you have sort of like a

cloud. And if you have sort of like a proliferation of buzzwords, um can you introduce me to that company?

Um I I know I know you you you'll invest without asking any questions. So um

if you're investing, yes, I'll have them call you collect. But um

but the but the uh but the the the these all these buzzwords, they're a tell like in poker that the company's bluffing and that it's undifferiated because we've heard the buzzwords before. And so if

you're the nth company in a category that's wellestablished. That's

that's wellestablished. That's problematic. You don't want to be the

problematic. You don't want to be the fourth online pet food company or the uh you know or the 10th thin film solar panel company or the 10,000th restaurant in San Francisco.

So it's harder to describe because there's no buzzword. That's good.

Yes. So I would say Yeah. So, I think the things that are, you know, conversely, the things that are underrated are the ones where there are no buzzwords, where it's it's sort of it doesn't actually fit into any

pre-existing categories. And then you

pre-existing categories. And then you have to always be open to listening to those. And of course, the challenge is

those. And of course, the challenge is that very often I think even the people who are running these companies will describe them in terms of existing categories because that's so much easier to do. So, Google would have been

to do. So, Google would have been described as a search engine in 1998.

People have said, why do we need another search engine? We already have 20 in

search engine? We already have 20 in that category. And what was the first

that category. And what was the first machine powered search and the page rank algorithm was actually the key differentiating thing. And if you simply

differentiating thing. And if you simply labeled it as a search engine, that would have obscured um all the key differences. Or if you described

differences. Or if you described Facebook as a social network, circa 2004, even circa 2015, that's a misleading categorization. There have

misleading categorization. There have been many social networks before Facebook. Uh Reed Hoffman, my friend who

Facebook. Uh Reed Hoffman, my friend who started LinkedIn, started a company called Social Net back in 1997. They

already had social networking in the name of the company and it was sort of these avatars in cyerspace and you'd be a cat and I'd be a dog and we'd have these weird interactions on the internet and um and it turned out so no different than last week when

and it turned out yeah people people aren't interested in networking in the abstract they're interested in real identity and real identity was the key innovation that Facebook had. It was the first one to crack real identity. I

think often um um figuring out the the correct way to think about things in categories for which we don't even have the the proper language is really critical to do.

Let's talk about entrepreneurs, young entrepreneurs coming into the space. Um

what do you think the keys are for them today in 2015? Because this is a much bigger industry than when you and I came into it. There's a lot more noise. How

into it. There's a lot more noise. How

should they look at the entrepreneurial process and just starting their career?

Should they go work somewhere like Palunteer or Facebook and get some, you know, time under their belt? I know that you have strong feelings about college.

Um, or you're rumored to have strong feelings about college. You know, if you had a son or daughter who was 18 and what would you advise them to do?

Well, you know, I um I mean, I probably would still go back to college if I if I had to still do it. It's because I didn't have any ideas of what to do instead. Um, if I had to do it over

instead. Um, if I had to do it over again, I would think a lot harder about why I was doing it, not simply to go to college as as a default. Um, I I don't think there's a right time to start a

company. I think the critical thing is

company. I think the critical thing is to have at least the kernel of a of a really good idea. Um, and that's at at this point that's sort of what I'm, you know, I don't know if you if you say

what's the formula for a company, it's maybe some combination of number one, a talented team that works well together.

So it's the internal dynamics that matter a lot. Um number two um a good product technology and number three a good business strategy. And somehow you

want all three of those to to line up.

Um and if you have those you can have a great company even if you screw up a lot of stuff. You know there all sorts of

of stuff. You know there all sorts of processes people focus on. And I think I think the reality is that most of the companies in Silicon Valley are

somewhere between really badly managed to badly managed. And so if you focus this looked at these companies from an MBA process or from like a Harvard business school thing, there all these

things that are being screwed up in, you know, enormous ways and it often doesn't matter because you have this, you know, this kernel of a good idea. You know,

when I was uh doing when I was I was on uh CNBC back in September as part of this book promotion thing, and they spent sort of all these hours trying to do these gotcha moments to get you to say controversial things

and they sort of got me to say at one point, you know, that I thought there was a lot of pot smoking going on at on Twitter, which um was sort of uh you know, when I left stage, when the the president of CNBC came up and said I did

a great job, they wanted me back on the show, I realized I said a little bit too much, but but the um and you know, the but the You should have just told I know this because I've smoked a lot of weed with them.

Yeah.

And that would have diffused the whole situation. I know. I know. You should

situation. I know. I know. You should

have been like, we have gotten baked at Twitter.

But but the but the but the but the larger the larger context larger context was it doesn't matter. Twitter had such a great fundamental idea that um you know whether it was very badly managed

or somewhat badly managed or whether you're in favor of smoking pot or against smoking pot, it just didn't matter because the um the great um idea

um sort of carried the day on so many other things. And then um and then the

other things. And then um and then the more pessimistic version is if you don't have something like that, it's actually really hard to make up for that even if you get a lot of other details right.

Um, where do you stand on drug uh, reform legalization of pot? Because that

seems to be a fascinating issue. In our

lifetime, we've seen so many trends where people were against gay marriage and against pot and boom, they just switched. How do you feel about

switched. How do you feel about I'm pretty pretty libertarian on all these issues. So, I I think I think it's

these issues. So, I I think I think it's I think it should be legal. I think it will be legalized. I think that uh you know we had a we did our first investment in a marijuana linked uh set

of companies uh among Oh so you're investing in cannabis you know it was it was again it was sort of a they were doing things related to it was not like direct farming or anything like that making UV lights or something or

uh it was sort of a series it was a holding company was doing set of direct investments and um and you know everyone said oh this is really uh crazy and courageous and out of the box and I I actually

think it's not even that controversy ial anymore. I don't think it was anything

anymore. I don't think it was anything that, you know, unusual about it.

Yeah, it seems to me like it'll be the next coffee, like the next crop.

I mean, maybe not consumed that often, but it will be a staple. Sugar,

cannabis, but but coffee.

Yeah but you guys know we put cannabis in the coffee right?

But it's going to be a great afternoon.

This is a good example. Even if this is even if this is a trend, right?

That's true. um it doesn't actually translate into automatically figuring out the business. No, it's like um you know uh you know it's not clear how you make money farming sugar. Um I guess

there's the Florida family that sort of controls all the the sugar crops in the US. But outside of that really hard to

US. But outside of that really hard to know how you make money with sugar. And

so even if there's a trend towards marijuana legalization, you know, maybe it means there'll be less money in it.

maybe you know a lot of the money came from the illegality and from the premium people are able to charge because it was actually illegal and so there are so it's it's we can we can sometimes identify really big trends and so this

is a trend I believe is happening and will continue to happen but um but how that actually translates into a successful business is is quite tricky I suspect there are some opportunities but

um it's uh the details are what matters not the not necessarily the big trend we talked earlier about monopolies and you had mentioned hey we can debate debate that. Let's debate it for a

debate that. Let's debate it for a second. Microsoft, huge monopoly.

second. Microsoft, huge monopoly.

Justice Department tried to go after them. Google, huge monopoly. They claim

them. Google, huge monopoly. They claim

it's not a monopoly. It's obviously a monopoly. Um, and EU, huge problems for

monopoly. Um, and EU, huge problems for Google. America, they seem to have

Google. America, they seem to have skirted the issue. What do you think the government's involvement should be when something hits 95% or 85%, whatever you

would define a monopoly as? What should

the role of government be if anything in your worldview? Well, there's there's

your worldview? Well, there's there's some point where I think monopolies are are bad. Um, and I think they're they're

are bad. Um, and I think they're they're bad. They're sort of bad when they

bad. They're sort of bad when they become static, when they become like a troll that's collecting a toll at a bridge or when you're um when they're sort of u preventing anything from from

fundamentally changing. And so, uh, I

fundamentally changing. And so, uh, I don't know if you have if you have a monopoly where nothing changes in a hundred years, that's probably just attacks and sort of ends up creating

artificial scarcity. Um and that's why

artificial scarcity. Um and that's why we have antitrust laws. On the other hand, we also have IP laws, copyright laws, patent laws that reflect and you

these laws are often poorly designed, but they reflect the intuition that we want to give people a reward for innovating and coming up with new things. So I think I think if you come

things. So I think I think if you come up with something new, if you weren't able to have something like a monopoly in that, um you would never be able to monetize your invention period.

everything was perfectly competitive.

Um, you'd never make any profit. So, the

restaurant industry in San Francisco is perfectly competitive, but it's a terrible idea to open a restaurant. You

will most likely go out of business and if you're extremely good and it's extremely well-managed and run, you'll just barely uh break even because there enough people have figured out how to do

that. So, uh so I do think um you know,

that. So, uh so I do think um you know, I do think that uh on some level these monopolies are are the reward for innovation. Um I think the IT industry

innovation. Um I think the IT industry generally is one that's unusually monopoly prone because if you you know you have the marginal costs of software tend to be close to zero. So you get

incredible economies of scale. Um you

can often get people to adopt something new very quickly and then the customers are relatively sticky. And so um that combination of elements makes um makes

software very monopolyprone extremely lucrative. this and this has this is why

lucrative. this and this has this is why so many talented people are going into it and why there's so much innovation happening in software. There are many other sectors where I think it would be good for society if we had more

innovation but it's hard to get the microeconomics to work. You know I think um it would be good if we had more innovation in clean energy. Um and um and the problem was, you know, you come

up with a new solar panel design, you're competing with 99 other companies doing something in solar, and then you still have to compete with uh wind, and then fracking comes out of right field, and cheap Chinese manufacturing out of left

field. you're a minnow in a vast ocean,

field. you're a minnow in a vast ocean, competition everywhere, and um at the end of the day, the business models um um were really hard to to get to work.

Even though it would be good for society if um if they actually uh if some of these other sectors were a little bit more monopoly prone, too monopoly prone becomes bad. You know, the question if

becomes bad. You know, the question if the government intervening, I think it got mostly wrong with IBM in the 70s.

Things were already shifting to software and the 90s with Microsoft is debatable.

you could say the internet was going to happen regardless or not. It's a little bit of a counterfactual history that's hard to hard to know. But um you know I suspect that if if the EU goes after

Google um this will probably be a sign that uh maybe maybe the search monopolies reaching a natural end since the government seem to time the point at which they intervene when when these things are about to naturally die anyway.

Yeah, perfect perfect timing. What what

are your thoughts on the polarization of wealth in society? I know you're a libertarian, so um I don't think that means a free-for-all. Um but I think it

means generally let the marketplace work it out, but it seems like the marketplace has created a pretty big gap and things like minimum wage don't seem to be keeping up. Cost of living, things

have gotten way out of whack in major cities, people are getting left behind.

There's a little bit of suffering out there, but generally trending in society as less suffering overall. Um what are your thoughts on that polarization of wealth?

I don't think I don't think it's a good thing. Um so I think it's happened to

thing. Um so I think it's happened to some extent. It's you can debate whether

some extent. It's you can debate whether it's happened globally. So let's start let's start with so it's a question in you could argue inequality's actually gone down globally over the last 40 years.

For sure it's gone down. Yeah.

And so um and so it's and it's gone up within countries down globally. Um I'll

grant that it's gone up within countries. I don't think that's a good

countries. I don't think that's a good thing within the US. Um it's much more debatable what the causes are. And then

um and then it's very unclear what the remedies are. So you have it's always

remedies are. So you have it's always three parts. Descriptive, has it

three parts. Descriptive, has it happened? Let's say yes. Prescriptive uh

happened? Let's say yes. Prescriptive uh

then then explanatory why has it happened? Why questions much harder to

happened? Why questions much harder to answer. And then remedy, what do you do

answer. And then remedy, what do you do about it? Much harder. As a libertarian,

about it? Much harder. As a libertarian, I I would say that um it's a lot of the regulations that make things uh so expensive and unaffordable and that are putting so so much pressure on lower

middle class and poor people. So in a in a place like San Francisco, I would not blame the tech industry. I would blame uh much more the sort of weird coalition

of, you know, urban slum lords and the the the the the board of supervisors that's refusing to to build any more housing in San Francisco. And because I think it's the cost of living, the the

biggest single item, you know, if it, you know, I I I don't think San Francisco would be that hard for people to make a living if it was not for the rents. You know, everything would be

rents. You know, everything would be fine. Everything else

fine. Everything else um you you could probably get by on um on on sort of maybe not minimum wage, but you know, somewhere above minimum wage you could get by if you had very cheap rents. And and so I think the

cheap rents. And and so I think the affordable housing issue would be the the single issue I'd focus on. I think

it's always very specific issues you want to talk about, not these issues in the abstract.

Yeah. And and building more housing, people are against it. If do you think this is going to get resolved? And

well, it's it's hard, but that that would be the zoning laws would be an example of a bad monopoly. Yeah. Where

you have a you effectively have a monopoly on land or on the ways you can use land. And monopolies get very bad

use land. And monopolies get very bad when they get reinforced by the government where you know I own these property rights and I'm going to make sure they go up by getting the government to restrict other people's abilities to to develop property and

then cumulatively it's very good for the existing land owners and property owners and bad for everybody else. You um

you've been portrayed twice in fiction now. I wonder how you feel about those

now. I wonder how you feel about those and do you have you seen them? I mean,

obviously Silicon Valley and then in the the Facebook movie. Um, what did you think of the characterization of yourself as like, "Oh my god, please don't go to college."

Cuz I thought it was hilarious.

Well, the the the any resemblance is purely coincidental, I was told.

Yes. So, you can't sue for your life, right? It's coincidental.

right? It's coincidental.

It's totally coincidental. No, it's

Look, it's it's uh it's, you know, it's vaguely flattering. I think it's always

vaguely flattering. I think it's always better to be portrayed as eccentric rather than evil. So, I'll take eccentric anytime. Yeah. Um,

eccentric anytime. Yeah. Um,

ladies and gentlemen, uh, Peter Teal.

[Applause]