Never mind enormous yachts: Peter Thiel is spending his billions on space travel, life extension, artificial intelligence, and paying top students not to go to college
Source: Bloomberg Business Week
By Romesh Ratnesar
(Corrects James B. O'Neill's name.)
On a chilly December night, a few hundred people gathered at San Francisco's Palace of Fine Arts for an event called Breakthrough Philanthropy. For an hour the guests engaged in the familiar social rituals of Silicon Valley, trading business cards and startup ideas over sushi, spring rolls, and pinot noir, before filing into an auditorium to listen to fundraising pitches from eight nonprofit organizations. The groups had disparate agendas, but all shared a fantastic vision for changing the world—defy death through regenerative medicine! Harness intelligence from machines smarter than the human brain! Build self-governing communities on the high seas! They also had a common benefactor: Peter A. Thiel, the iconoclastic, libertarian 43-year-old venture capitalist and macro-hedge-fund investor. When the speakers finished, James B. O'Neill, who runs the Thiel Foundation, introduced his boss as someone "who works every day to reshape the world and focus on solutions to problems other people overlook."
Thiel emerged from backstage, wearing a navy blue striped shirt, jeans, and a blazer. "The future is not an abstraction," he said. "It's something we are all participants in, helping to create and forge and shape." Thiel is not a natural performer. He has a flat, mechanical delivery that instantly deflates his attempts to inspire. After three and a half minutes, he wrapped up his remarks and encouraged the audience to stay, schmooze, and "start building the future for the 21st century."Thiel followed the crowd into the main hall, where a Stanford University freshman named Max Marmer was waiting. Marmer had come to the event in part because of Thiel's latest philanthropic brainchild: a program that will award fellowships of $100,000 to 20 entrepreneurs under the age of 20, on the condition that they drop out of college for two years to pursue their ventures full-time. Marmer, who's launching a business consulting startup with two friends, decided to apply for the fellowship as soon as he heard about it on Facebook. At the Palace of Fine Arts, Marmer introduced himself to his idol. For the next five minutes "it was mostly me talking," Marmer says. Thiel steered him toward a partner in the Founders Fund, Thiel's venture capital firm, who agreed to listen to Marmer's pitch. Marmer has informed his parents that, whether he wins a Thiel Fellowship or not, he is dropping out of Stanford.
Three of America's defining tech geniuses are renowned college dropouts—Bill Gates and Mark Zuckerberg left Harvard University; Steve Jobs hung around Reed College but was enrolled for only one semester—and it has almost become expected that visionary technologists will stop everything to pursue a ripening idea. It's worth remembering, however, that Gates, Zuckerberg, and Jobs are anomalies. Thiel thinks it's the anomalies who matter and thinks he can create more of them. Whether you view his plan as cause for celebration or horror depends on your take on America's future. Are we hobbled by a deficit of risk or too much of it? Does government spending stimulate innovation or obstruct it? Are America's best universities assets or liabilities?
Despite his fund's disastrous recent performance—Clarium Capital Management fell about 23 percent in 2010, the third straight year of declines, according to investors—Thiel is financially set for life. He co-founded PayPal (EBAY) with Elon Musk and Max Levchin, was the first outside investor in Facebook, and owns a stake in a bevy of promising tech companies, from LinkedIn to Halcyon Molecular to Palantir Technologies. He made the Forbes 400 before he reached 40. After being portrayed in The Social Network, Thiel is perhaps the most famous venture capitalist in the world.
Despite all that, he remains troubled. Absent rapid, groundbreaking scientific breakthroughs, Thiel foresees an age when, he says, "people will have a lower quality of life, where people won't be able to retire, where governments are pushed toward more and more austerity. That will lead to a more constrained, pessimistic future. That's a big part of what is happening, and that trend is likely to continue."
Thiel has thus far put his money into the kind of bleeding-edge technologies he says can expand human possibility and stave off the future he fears: nanotechnology, artificial intelligence, robotics, space exploration. A science fiction junkie, he adheres to a worldview shaped as much by French social theorists as by Star Trek. "I wouldn't necessarily categorize him as a pessimist, though he can be," says David O. Sacks, a college friend who worked with Thiel at PayPal and has since founded Yammer, a social networking service. "He is very bullish about technology, but he just doesn't think it's happening fast enough."Even as Thiel pushes for a bolder future, Clarium has conspicuously bet against present macroeconomic trends—and lost. While Thiel's views, including predictions that the U.S. would face the threat of deflation and that the dollar and oil would rise, mostly have come true, the losses reflect poor market timing and risk management, according to several current and former clients. "It doesn't matter if a manager is correct in his long-term views if they don't get the timing right or manage volatility along the way," says Donald A. Steinbrugge, managing partner of Agecroft Partners, a Richmond (Va.) consulting firm that advises investors and hedge funds. Since 2008 the fund's assets have fallen 90 percent. Thiel has closed the fund's New York office and acknowledges the need for stricter risk controls. "If he was Joe Hedge Fund Manager, he would have to live and die by his track record, but that's not the case with Peter," says Tammer Kamel, president of Toronto-based Iluka Consulting Group, which advises clients on investing in hedge funds. "He's got his fingerprints on two of the most successful Web services ever developed."
Still, Clarium's free fall has exposed Thiel to attacks from those who see his investment strategy and his philanthropic ventures as expressions of a reckless, preening vanity. No initiative has provoked more howls than the "20 Under 20" Thiel Fellowship, hatched by Thiel and his foundation staff on a flight from New York to San Francisco last October and announced by Thiel during an appearance at the TechCrunch conference the next day. Writing on Slate.com, Jacob Weisberg condemned the plan as an "appalling," "nasty" idea that will encourage college students to "halt their intellectual development around the onset of adulthood, maintaining a narrow-minded focus on getting rich as young as possible, and thereby avoid the siren lure of helping others or contributing to the advances in basic science that have made the great tech fortunes possible."
Such critiques only help to confirm Thiel's hunch that he is right, in his view. The business credo that a college education is a prerequisite for professional advancement is, he believes, precisely the reason to encourage people to try something else. "I don't think I believe in market efficiency," he says. "If I believed in an efficient market, then none of the stuff I'm doing makes any sense."
In the various accounts of Facebook's founding, Thiel is almost always cast as a remote, brooding master of the universe, the archetypal tycoon in a black wing chair, stroking a cat. In The Accidental Billionaires, the 2009 book that is the basis for The Social Network, Thiel is described as "secretive and incredibly competitive." Also "scary as hell."
The day after the Breakthrough Philanthropy event, Thiel arrives for lunch at a restaurant overlooking the San Francisco Marina in a blue Mercedes sports car. He's modestly built, with angular features, and he has an engaging, if slightly awkward, conversational manner; on several occasions Thiel starts to answer questions while his mouth is half full. Asked about Clarium's dismal 2010 performance, he replies, "We've had a rough year. We've got some things wrong. But over time, I think we've gotten more right than we've gotten wrong." He adds: "It's not the right thing to focus on a six-month horizon. The future happens over a very long period of time. My mindset is to make sense of where things are going over the next decade and to try to think about a set of problems people haven't asked questions about."
One of Thiel's frequent themes is the folly of promoting "extensive" gains over "intensive" breakthroughs. He believes that governments and investors have an "extensive" bias when it comes to science and technology, a desire to replicate or "extend" what has already been shown to work. He perceives a dangerous shortage of the kinds of ambitious, "intensive" innovations he says are ultimately necessary for long-term growth. "My thesis is that the world is too heavily geared in the extensive direction," he says. "It's what everyone would like: a sure thing, something that gets a predictable return. I don't think that model is the right one for our world anymore. But the alternative is necessarily quite risky. And so there's no safe alternative."
Born in Frankfurt, Thiel had an itinerant childhood. His father's career as a chemical engineer took the family to South Africa, Namibia, and Ohio before the Thiels settled in the Bay Area in the late 1970s. (Thiel has a younger brother, Patrick.) At San Mateo High School, Thiel finished first in his class and was a nationally ranked chess master. He majored in philosophy at Stanford, where he studied under René Girard, a French émigré professor who coined the term "mimetic desire," the idea that people want things they perceive as objects of other people's desire, giving rise to a herd mentality. To Thiel, mimetic desire provided a way to explain everything from stock market bubbles to political correctness on campus.
In 1987, Thiel founded The Stanford Review, a conservative newspaper that became an outlet for student jeremiads against multiculturalism, speech codes, affirmative action, feminists, and ethnic and gay campus groups. Sacks, who worked with Thiel at the Review and succeeded him as its editor, says, "We thought the people on campus were way outside the mainstream, and if the people who were funding the university—the alumni, the donors, the American taxpayer—knew what was going on, they would be pretty outraged."
Thiel stayed at Stanford for law school and remained embroiled in the culture wars, co-authoring a book with Sacks in 1995, The Diversity Myth, which decried multiculturalism at the university. He clerked for federal judge James L. Edmonson, wrote speeches for former Education Secretary William J. Bennett, and worked at Sullivan & Cromwell and Credit Suisse First Boston in New York before moving back to California in 1996. In 1998, Thiel met Levchin and, over breakfast in Palo Alto, launched the company that became PayPal. Thiel and his co-founders defined their mission in historical terms. They saw PayPal as a vehicle for realizing the libertarian dream of a global financial marketplace in which transactions took place entirely outside the reach of governments. The company's T-shirts read THE NEW WORLD CURRENCY. "There was an idealistic element to it—that's what everyone within Peter's circle of friends talked about," says Ajay Royan, a PayPal veteran who is now the managing director of Clarium. "The business side was secondary to the vision."
Thiel says that "there were a lot of cool, interesting questions we wanted to engage in, but at the same time we had to develop a very detailed, specific plan" to enable people to buy and sell items seamlessly on eBay (EBAY). It worked: PayPal weathered the Internet bust and went public in February 2002. Eight months later, eBay bought the company for $1.65 billion. Thiel, who had initially invested $240,000, walked away with $60 million, which he used to launch Clarium Capital, the hedge fund, and the Founders Fund, an early-stage venture capital shop. Two years later he agreed to a meeting with Zuckerberg, then a Harvard sophomore, and Sean Parker, a co-founder of Napster who was helping Zuckerberg raise funding for his fledgling social networking site, Thefacebook. Thiel lent Zuckerberg and Parker $500,000 in exchange for a 10 percent stake in the new company. Thiel sold half his shares in 2009, mostly to Digital Sky Technologies. Based on Facebook's current valuation—a number that fluctuates depending on whom you ask and, seemingly, the minute you ask—a conservative estimate of his remaining stake is about $1.5 billion.
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There's no evidence that Thiel's good fortune has softened his edges. After he was subject to ridicule on the Internet for revealing in 2007 that he lived at the Four Seasons in San Francisco and drove a McLaren, he has guarded his privacy and lashed out at those who invade it. When the gossipy website Valleywag outed Thiel as gay in late 2007, he responded by branding it "the al-Qaeda of Silicon Valley" and calling its reporters terrorists. In a 2009 essay titled "The Education of a Libertarian" published on the Cato Institute's website, Thiel wrote, "I no longer believe democracy and freedom are compatible" and that the "broader education of the body politic has become a fool's errand." Most notoriously, the essay suggested that the advent of women's suffrage in the 1920s had "rendered the notion of 'capitalist democracy' into an oxymoron," as women, in Thiel's view, tend not to support laissez-faire policies.
Thiel is now at pains to play down his image as a radical ideologue. "I do tend to think that a libertarian society in which there is more economic and personal freedom is a better society, but there are all sorts of caveats," he says. Take Facebook. "If you believed in radical autonomy and the idea that we're all self-contained individuals—a kind of caricature version of Ayn Rand's world—then the social networking thing would be one of the most ridiculous things imaginable. Why in the world would you care about friends or sharing or being connected with other people? I'm very skeptical of centralized power, and I believe personal and economic freedom are important—but I also believe we are living together on the same planet and that human society exists and that human beings are born into this world and live and develop."
Except for a few donations in the most recent electoral cycle (to Rand Paul and in support of marijuana legalization), Thiel has given up on politics. He says he is "not dogmatic" about whether government should play a role in stimulating the kinds of intensive technological innovations he thinks the country needs, just that he believes the political class isn't smart enough to make it happen. "Only 35 out of 535 members of Congress have any background in science or technology," he says. "That's why I believe the government thing is so hard to fix—the people there don't actually believe these are important problems. Maybe the answer would be to change the other 500 people and replace them with engineers. But then you're not really talking about a practical option."
In Thiel's view, the biggest threats to innovation emanate not from Washington but from a sector Americans tend to view as one of the country's greatest strengths: higher education. His antipathy for its elite universities dates to his time attending one. In The Diversity Myth, Thiel predicted that unless they reformed themselves, institutions such as Stanford would face "massive and unprecedented displacement....New educational venues may arise and meet demands that are no longer being satisfied by the existing institutions." Where once he subscribed to the idea that the system could be fixed from within, Thiel is now certain some students are better off opting out of it altogether. "A necessary condition for a bubble is that [something] is believed to be extremely valuable, but which very few people are thinking about," he says. "And my only candidate for a bubble in the U.S. right now is education." He continues: "People can't do anything entrepreneurial or innovative or even nonprofit—anything that's not safe and well-paying—because they have this mountain of debt. And so education is something that has become a retardant to technological innovation and progress, even though the common perception is the exact opposite."
The Thiel Fellowship is probably the first scholarship aimed at college-age students that stipulates that recipients not go to college. Representatives from Thiel's five-person foundation say they have received a few hundred applications from more than 25 countries. Applicants had to submit two 1,000-word personal statements. One was in response to: "Tell us one thing about the world that you strongly believe is true, and that most people think is not true." The other answered: "How do you want to change the world?" Once selected, the 20 winners will be given $100,000 to cover living expenses in the Bay Area while they spend two years developing the Next Big Thing. Thiel insists that the goal isn't necessarily to find the next Zuckerberg, but rather to prod more young people to question what they're getting out of their college experience.
"The main thing I'd say is that people should think about it," he says. "I certainly did not. I got good grades in high school. I went to college. I got good grades in college, I went to law school. When I look back, I have no regrets. But if I could do it over, I would have reflected on it a lot more rather than it being this thing that I reflexively did."
There is something irksome about Thiel's critiques of a system from which he has benefited so handsomely. And it's easier to extol the virtues of the Silicon Valley entrepreneur's life when you are already leading the fantasy version of it. Thiel's vision of a society full of entrepreneurs and innovators developing life-extending technologies is a seductive one and may well be the only hope for avoiding chronic economic decline. But it's worth asking whether people will truly be better off if more bright young students follow the path Max Marmer has chosen.
A month after meeting Thiel at the Palace of Fine Arts, Marmer has quit school and moved out of his parents' home in San Francisco. He's living in the pool house behind a friend's place in Atherton, near Palo Alto, where he and his partners are working on a startup devoted to developing a "management science" for boosting the success rate of other startups. "Have you seen The Social Network? The house looks a little like that," Marmer says over the phone in early January. "A few people who have come by have actually said, 'Oh, it's just like Facebook.' "
Marmer is waiting to hear whether he has won a Thiel Fellowship, though he's concerned that his age—he turned 20 in September, before applications were due—may disqualify him. Regardless, Marmer says he has found his purpose. "People talk a lot about college as one of the best times of their lives. But it was pretty clear I had to make [a] choice between enjoying campus life or continuing to pursue my passion for entrepreneurship. I tried to do both, and when that wasn't working, I decided to choose this." If all else fails, Marmer says, he can always go back to Stanford someday. "They're really flexible. I can take up to two years leave of absence, and even after that I've heard it's not that hard to get back in. If I change my mind, I know I haven't really closed any doors behind me."
He pauses, then says: "But I don't anticipate that. If this doesn't work out, I'll probably go and start another startup."
With Saijel Kishan. Romesh Ratnesar is a Schwartz Fellow at the New America Foundation.
