Talking tech with Peter Thiel, investor and philanthropist (Q&A)
CNET chats with Peter Thiel, billionaire tech investor and philanthropist, on startups, the state of the tech economy, and what he's interested in now.
SAN FRANCISCO--Peter Thiel believes technology will make the world a much better place. He's simply frustrated at how long it's taking.
The billionaire entrepreneur is best known for co-founding PayPal, and, more recently, for his very early investment in Facebook. He founded Clarium Capital Management, a hedge fund, created the philanthropic Thiel Foundation, and co-produced the irreverent 2005 comedy Thank You for Smoking.
In May, the Thiel Foundation announced the first 24 recipients of a fellowship that awards $100,000 each to youth under 20 years old--essentially encouraging them to drop out of college to become entrepreneurs. The Founders Fund, where Thiel is a managing partner, has invested in aerospace, robotics, and biotechnology, in addition to consumer Internet companies including Slide and Spotify.
Thiel's unorthodox take on philanthropy, and keen interest in the pace of technological change, led him to organize a "Breakthrough Philanthropy" event last year at San Francisco's Palace of Fine Arts. Just as entrepreneurs pitch venture capitalists, tech-oriented nonprofits were given a few minutes each to tell the audience why ideas like artificial intelligence, nanotechnology, life extension, and seasteading deserved their financial support.
CNET interviewed Thiel early last month in his offices in San Francisco's Presidio to talk about the pace of technological change, a possible Facebook IPO (he's on the company's board), and the state of tech startups today. Below is the transcribed interview, lightly edited for clarity.
Q: The stimulus legislation spent something like $120 billion on clean-energy tech. Google's previous director of climate change, an assistant secretary of energy under Clinton, called for a new government agency to fund clean-tech companies. Good ideas or corporate welfare?
Thiel: I think it's a bad idea. There's a looking-backward and looking-forward question. Looking backward over the last decade, the question is how badly clean tech has worked out. I think the Solyndra failure is--you normally can't read too much into one company failing. It certainly is dramatic. The amount was large. It was fast. The expectations changed pretty quickly.
The worry is that we'd like to see some real successes too. There's a question of whether there's something wrong with government picking winners, or picking winners and losers, but there's definitely something wrong with the government only picking losers.
The question about clean tech is not whether the government is picking winners, but whether the government is only picking losers. That's the worry people have. There would be no issue with Solyndra if we had just a few things that were just working that you could point to. Even in the tens of billions of dollars, if you could get a few winners that would be worth it. It is not clear what they are. It is certainly not clear where they are on the Silicon Valley venture capital side. I think the people who invested in clean technology have a lot of incentives to talk about the winners. There has been a deafening silence.
It's striking how little one hears about clean tech on the venture capital side over the last year or so. I wouldn't say they are always the smart money. They tend to be the less dumb money. And so that seems to me to be a useful indicator. There's a question about what's gone wrong with clean tech and a question about what goes wrong.
It was incredibly conflated with investment and ideology. It's sort of like social entrepreneurship, where people try to do well by doing good and end up doing neither. There's a strong argument that we needed to develop alternatives to oil. There may be a climate change argument. But that becomes a very dangerous point when you start thinking that you don't need to pay attention to the technology because the government will bail you out.
If I recall your investment portfolio correctly, you stayed away from this.
Thiel: We have not made any investments in it. One of the other things that's been very strange about the clean tech question--there are all these things about it where I think the thinking hasn't been disciplined, you've heard all these ideological conflations and commitments that confused the thinking.
One of the basic questions about clean tech is: Is it driven by a shortage of conventional energy or is it driven by climate change worries? They are somewhat linked. But they may be very different in nature. You could have a scenario where you have plenty of oil and plenty of coal, and you could just produce the coal but it's too dirty. Or you could have a scenario where you're running out of oil and you need to develop alternatives.
One scenario is more economic. One is more environmental in nature. In practice these two things have gotten hopelessly confused and conflated. As the technology and politics have gotten confused, the economics without a concern with the environmental stuff has gotten confused.
The Warren Buffet rhetorical point is his $34 billion investment in late 2009 in a railway, the single biggest investment by Berkshire Hathaway outside of finance. It is an all-out bet against clean tech. It was described as a bet on America, but 40 percent of what gets transported on railroads is coal. You have to look at Buffett's railroad investments as an all-out bet that clean tech is going to fail.
It's a bet that we're going to send coal to ships in Long Beach and send it to China to power Chinese factories to send us stuff. That's not the clean-tech vision of the 21st century.
Thiel: It goes back to the why-things-have-slowed-down question, which is the one that I've tried to avoid.
Unfairly tried to avoid?
Thiel: I'm not sure it's unfair. Because as soon as you get to the "why" question, it gets much more controversial. It makes people lose sight of the what, which is the thing I want people to pay attention to. I think that if we could get people to agree that there's a really big problem in innovation, then we can have a constructive conversation on what to do about it. As soon as we fixate people on why there's been an innovation slowdown, if you're on the right you can blame environmentalism, if you're on the left you can blame Reagan and financial engineering. And we don't even get to the question of whether a slowdown has happened. That's why I'm somewhat resistant to going straight to the ideological or political question.
That being said, with respect to the energy issue, the "what" is that there has been a remarkable failure as well as a reduction of expectations. It's both a backward-looking failure--if you look back over the last 40 years, there has not been a great deal of progress. You look at real oil prices, today they're greater than they were during the Carter catastrophe of 1979-1980. If you look at oil dependency, energy dependency, it's way above where it was anytime during the '70s in the U.S. You can look at things like the famous Simon Erlich bet. [Ed. Note: a well-known wager on the falling price of commodities.] Erlich would have probably been winning for the last quarter century, something like 1985 onwards. That's again not just energy but a failure of innovation on a lot of the upstream commodities and resources.
At the same time this has also, and quite naturally, led to a reduced set of expectations about the future. Nixon's 1974 State of the Union speech was, basically, we would make the U.S. 100 percent energy independent by 1980. Obama, 2011, it's one-third oil independence by 2020.
You're quoting politicians, though, and their promises...
Thiel: But they're reading polls. And the polls tell them what people reasonably expect. And the interesting thing is that, I think, Obama captures the zeitgeist today in the same way Nixon did in '74. And people realistically in the U.S. expected full energy independence in six years. Today they might realistically expect 30 percent independence in nine years. There's been a historic failure, and as a result we have dramatically reduced expectations in the future.
The question about a tech innovation slowdown, the remarkable question is really why this question is not at the surface. If you were to take a very simple Socratic method, and start with just what are the common opinions people have, not in Athens but in America, the common opinion is that things are on the wrong track. That their kids, that the next generation, will not be as well off as the current generation. These common opinions, while they may be right or wrong, are completely at odds with the sort of techno-optimism that is so prevalent in these discussions. And it's at least worth asking why are people wrong to think this.
You once told The Wall Street Journal, referring to President Obama: "I'm not sure I'd describe him as a socialist. I might even say he has a naive and touching faith in capitalism. He believes you can impose all sorts of burdens on the system and it will still work." Is that still true?
Thiel: Yes. I think there is an incredible faith in capitalism--that you can put any burdens on business, and people will just work. It's like people are hardwired to make money and there's nothing you can do to change that, irrespective of politics. In that sense it is an incredible faith in capitalism that I don't quite share.
I think it's also that the left in the U.S., the Democratic Party, is not socialist in the other sense in that there is actually no plan for the future. What socialism and communism was characterized by were five-year plans, these development plans of what you're actually going to do. What's remarkable is how little of a plan there's going to be.
I don't think most of the economy should be planned. But I think to the extent you're going to have large government, it would be good if the government should be planned rather than unplanned. If you're going to invest in alternate energy, you should have a plan of what kind of alternate energy you should be investing in, and you shouldn't be randomly buying lottery tickets. Planning is preferable to buying random lottery tickets or politically motivated lottery tickets, which is the concern with the clean-tech stuff. That's levels worse than having a rigorously centrally planned economy a la Krushchev.
You endorsed Ron Paul for president and you've written for the Cato Institute and have been affiliated with the Pacific Research Institute. Does that make you a libertarian?
Thiel: I self-identify as a libertarian. I don't know if that makes me a libertarian either. I describe myself as a libertarian politically.
Most of the issues, if you had various libertarian-type questions, I'd tend to come out on the correct side of all of them. You might be smart enough to come up with some where I would not.
But on most of them, I'd come out on the generally less restrictive government, more capitalism, more civil liberties, and so on. You can be pretty libertarian without being a purist. The question is not whether we're going to privatize roads or prisons or the military or things like that. It's directionally, there's a directional question. Is there too much regulation, is there too much government, is there too little freedom?
You can believe that the role of government should be reduced without going anywhere near the extreme point that it should be eliminated altogether. We have so much government in our society that you can reduce it a lot. Hong Kong's not really libertarian in the purist sense but from a 15 or 18 percent marginal tax rate, (going in that direction) that would be a very different country from what the U.S. is today.
Why have so many prominent figures in Silicon Valley
Thiel: I'm always nervous about the "why" questions because you're asking me to speculate on people's motivations, why they're doing things.
You don't have to name names.
Thiel: I think a lot of the engineers tend to be pretty libertarian in Silicon Valley. A lot of the nonengineering people tend to be more Democratic, if I had to give the cultural split.
That includes company executives, it includes people who are lawyers, it includes people who work in other capacities, for all sorts of complicated reasons. The actual Silicon Valley demographic, the engineering part of it, is actually quite libertarian. The nonengineering part is more demographic. I think there's a pretty big split between the technical or engineering people and everyone else.
Ron Paul got a very warm welcome at Google during the 2008 campaign, I think especially from the engineers.
Thiel: I don't know the politics at Google specifically, but I suspect that most of the people on the engineering side would be quite libertarian. They might be Democratic in terms of political party affiliation but ideologically they'd be libertarian. The nonengineering people would mostly be party line Democratic, with all sorts of exceptions.
It's also that a lot of the libertarians tend to be socially liberal, fiscally conservative, and so if you're in that quadrant, which set of issues do you prioritize? If you prioritize social issues, you tend to become Democratic. If you prioritize economic issues, you tend to be Republican.
There is a way in which a lot of libertarian Democrats and libertarian Republicans may not disagree about specific issues, but disagree about how heavily to weight various issues. It's more of a weighting disagreement than an issue-by-issue disagreement. This issue, this civil liberty issue, gets a weighting of 10. The marginal tax issue gets a weighting of 1.
Even though in theory we might agree on both, we disagree on the weighting?
Thiel: We disagree on the weighting. You get to very different political outcomes. I think that's what actually happens a great deal: People don't actually disagree that much on the issues. They disagree on how important different issues are, how to weight them.
There's a headline in the UK Daily Mail, referring to your : "PayPal billionaire plans to build a whole new libertarian colony off the coast of San Francisco." OK, so where's this colony? Or did it get a bit mischaracterized along the way?
Thiel: It's certainly been weirdly exaggerated. I've been a supporter of (Seasteading Institute founder) Patri Friedman. I knew his grandfather Milton Friedman. His grandson's been very interested in this question about how does one start new communities, where would one start one? Do you look at oceans? Do you look at other parts of the world? How do we get back to this question of the frontier?
What attracted me to seasteading is, it's linked to the technology question. We have this question about: Where in the world can one do new things? There's a technological version of that, and there's also a "Where can we build new communities and new societies?" All the critiques of utopianism apply to seasteading, just as they do to a lot of people in the tech industry. At the same time, I think there's also a problem of giving up on all utopian ideas and having no theories about how things can be different or better. And saying that, "This is how things are, nothing can ever be different or better."
The reason the seasteading question's been so interesting is that a lot of people do think that we can do much better as a society. And if you run the thought experiment, could we be doing things better in our society, people may disagree on the particulars, but an awful lot of people think things can be done dramatically better.
There is a certain lack of freedom that we have. The founders, when whey wrote the U.S. Constitution in 1789, had the freedom to set all these basic parameters. They got most things right. There are a few things we might not entirely agree with. In California, we have two senators. Alaska has two senators. Is that really a completely just system? It's not something that can conceivably be changed at this point. There is a certain lack of freedom we have in thinking about our society that's very different from what the founders of the U.S. enjoyed.
It's a very parallel question that comes up when people start companies versus working in large existing companies. In a large existing company there are set ways things have happened. Sometimes there's a sclerotic bureaucracy that's taken things over. You can change things at the margins, but you often cannot change the fundamental fabric. The reason people start new companies is because there's a need to have a certain amount of freedom to explore doing new things. That's why you'd start a new business. There's a question: If you can start a new business, why can you not start a new country?
So we need entrepreneurs starting not just companies, but countries?
Thiel: I think it's at least worth thinking about why the question is different. There may be some differences, but I think there are some very interesting parallels between the two questions. And I think that's what attracted Patri, as an engineer working at Google, with libertarian interests and an interest in technology. He saw the two as very parallel. And I tend to think there are a lot of parallels it raises.
You have these questions about the point of origin. There is a sense where you have a lot of freedom at the point of origin. The point where you start something new you have a great deal of freedom. Once things are set, you have less freedom. Going back to the origin, back to the founding moment, is very, very important. The founding moment of a company is important. The founding moment of a country is important.
Is there a way to somehow recapture this? Even if you don't want to move to a boat or platform, which may or may not get built and may or may not be a pleasant place to live in, it is nevertheless a worthwhile question. Whether there are elements of our society that can be refounded, or whether it's like we're living in a company that was created in 1789 where very little has changed. It would be interesting to look at what companies were started in the late 18th Century, and which ones in that category are still extremely dynamic and entrepreneurial? If they are, they've probably changed radically.
And of course seasteads may not be libertarian. You can imagine a religious seastead--this is what traditionally has prompted people to move to the frontier. So there may be very nonlibertarian groups as well.
Thiel: You have certainly a lot of different kinds of communities people would start. They could be socialist. The kibbutz movement in Israel was people moving to a new place, and it was kind of utopian in a socialist way. It is an indictment of the left in the U.S. that people can no longer imagine any sort of utopianism of the left. And so people do not actually think of joining a kibbutz, as one example. I don't know if there's any analogue of that. There's no reason theoretically it couldn't be any number of things.
How did you reach your political views?
Thiel: I think I've had them mostly since I was in high school. It's changed, some pieces (moved) around, some thoughts, some issues. It's an autobiographical version of the "why" question.