e@nu Speaker Series with Peter Thiel: Developing The Developed World

My name is Mike Marasco. I oversee the Farley Center for Entrepreneurship and Innovation based here at Northwestern. And I have the honor of doing a very quick introduction for our guest speaker today. And as I was researching this, I realized that the best thing I can say is something extremely short, which is when it comes to the areas of entrepreneurship, innovation, venture capital, and financing, lots of people talk about it. But there's very few people that when they talk, people listen. And we have the honor today of having one of those individuals with us. So please join me in welcoming Peter Thiel.

Can everybody hear me? Yes, great. Well, thank you for that introduction. It's always a tremendous privilege to be speaking on these different college campuses. I published this book, Zero to One, about two, two and a half months ago, and it's been really fun going around the country talking to all sorts of different audiences in different contexts. One of the incredible challenges, the book came out of a class that I taught at Stanford in the spring of 2012. We sort of took these notes, they went viral on the internet, and then we sort of tried to distill all of it into this Zero to One book. One of the incredible challenges in teaching entrepreneurship or writing about it is that I think there is sort of a sense in which there's no real formula to it.

There's a sense in which every moment in business happens only once. So the next Mark Zuckerberg won't be starting a social networking site. The next Larry Page won't start a search engine. The next Bill Gates won't start an operating system. And so if you're copying these people, you're in some sense not really learning from them. And so the challenge in teaching entrepreneurship is what can you actually say if everything is unique, if there's no formula, if you're actually trying to follow some formula, you're in some sense making a mistake. And I think sort of most business books, I find, sort of make the mistake of, on the one hand, either trying to reduce things to like a five-step formula.

You follow these five steps and you will succeed. Or alternately, they devolve into too much particularity, where it's just telling all sorts of war stories about experiences you had. And I could certainly talk all day today about what it took to build PayPal in '99, 2000. And there may be some lessons to draw from that. But we combined email with money. It was the right thing to do in '99. You could not have done it in 1985, because not enough people were using email. And in 2014, it wouldn't make sense to do it, because PayPal already did it 15 years ago. And so I think you don't want to talk about things in too abstract general categories. And you can't talk about things in a particular way.

And I try to come at this in a somewhat different intermediate approach. And I try to get at this idea through a series of contrarian questions. So the business question I like to ask is, "What great business is nobody building?" to sort of get at this uniqueness. And then the more intellectual version of the question I like to ask is, "Tell me something that's true that very few people agree with you on." And this turns out to be a shockingly hard interview question, even when people know in advance this is a question you're going to ask because they can read on the internet, "This is a question you always ask people when they come in." And it's very hard, I think, for two somewhat different reasons.

One reason is that, one reason is that we've been taught to think that to come up with something original is really hard. The right answers are the answers that everybody knows to be right. And so to sort of push the frontier of knowledge sounds like it requires an incredible amount of brilliance. But the second reason it's a hard question to answer is if you sort of think of the actual question where it's an interview and I'm asking you this question, the correct answer has to be one that the person asking it will disagree with. Because if it's some standard answer like, "Our education system doesn't work very well," or something like that, that's not a good answer. An answer that everyone agrees with is not a good answer.

And I think we live in a world in which courage is in an even shorter supply than genius. And it often requires a certain amount of courage to come up with these contrarian answers. My book, Zero to One, offers sort of a whole series of answers I have to this question. And I want to maybe focus on three of them today. And then we can try to make it as interactive and go into questions from all of you and go in any direction that might make sense. So I'll give three quick answers to the contrarian question. The first one sort of comes out of this idea of the uniqueness of great companies. I think that the standard account of business is that competition and capitalism are somehow synonyms. And I think the opposite is true.

I think they're antonyms. I think that a capitalist is someone who's in the business of accumulating capital. And I think a world of perfect competition is a world where all the capital gets competed away. If you are the founder of a company, an entrepreneur starting a new business, you want to aim for monopoly every single time. And so I think all great companies are monopolies. All failed companies are ones where there's way too much competition going on. We can have a debate at what point this is good or bad for society. But from the inside, you always want to have a monopoly. I think this is not understood for at least two different reasons: one sort of intellectual, one more psychological.

The intellectual reason people don't understand that monopolies are all-important for business is that the people who have monopolies pretend not to have them, for reasons that I will leave to your imagination. And the people who don't have monopolies, who are in incredible competition, will also pretend that there's something unique or special about this. So if the monopolists pretend not to be monopoly, and the ones that are in total competition pretend not to be in super intense competition, the apparent difference is much smaller than the real difference. And let me sort of try to illustrate how this distortion field works. If you're—the company I use as the paradigmatic example of a successful monopoly is Google, where it has monopoly in search, and it definitively distanced itself from the competition back in 2002 when it sort of beat Yahoo and Microsoft, and it's been incredibly profitable for the last 12, 13 years.

And, of course, the rhetorical move you'd make if you're running Google as a business is you don't even talk about the search engine. You define yourself as being in a vastly, vastly bigger space. And you say, "We're not a search company. We're a technology company." And technology is this enormously big space where there's competition everywhere. And so we're competing with Apple with the Android phone. And we're competing with Facebook and Amazon. We're competing with Detroit with our self-driving cars. And it's just this huge space called technology. And there's competition absolutely everywhere you look. And then sort of the opposite example of a very bad business that I give is a restaurant.

So if you're into competition and you want to compete like crazy, you should just open a restaurant. You will not make any money doing so. But if you just like competition for its own sake, that's what you should do. And if you decide to leave this talk today, run as fast as you can to open the next restaurant in Chicago, you know, the problem you'll encounter very quickly is investors won't want to invest money in it because they'll say, 'Well, most restaurants go out of business really quickly, and even if they don't, nobody ever makes any money. It's a really bad idea. I'm not going to invest.' And then you will say, 'Yeah, but this is a totally different restaurant. It's really, really special.'

It will be the only British-Nepalese fusion cuisine in the city of Chicago. And so you make sort of the opposite rhetorical move where you arbitrarily narrow the size of your market to make your market really, really small. And so there are these alternate fictional stories that people tell that I think distort this sort of a question. I think that one of the counterintuitive things this focus on monopoly tells me is that you want to do something where you're dramatically better than everybody else in the world. And if you're starting a company, you want to start with a market that's actually quite small. The monopoly has a large share of a market. Since you start small when you start a company, you want to start with a small market.

And a lot of the successful businesses started with shockingly small markets. Facebook started with 10,000 people at Harvard. It went from 0% to 60% market share in 10 days. That was an auspicious start. And then it turned out you could sort of grow in concentric circles from there. PayPal started with 30,000 power sellers on eBay. Again, sort of a very small subset of a subset of a subset of this much larger payment space that people always talk about. And we got to 25%, 30% of all those people using PayPal within three months. And then you sort of get locked in, and you have a good start for a business. But the second reason—I want to get to sort of a second reason that I think we don't understand this monopoly principle.

It's a little bit more psychological. There's the opening line of Anna Karenina: 'All happy families are alike; all unhappy families are unhappy in their own special way.' And I think the opposite is true of business. Happy companies are different because they found something unique. All unhappy companies are alike because they failed to escape the essential sameness that is competition. There was a chapter in my book titled 'All Happy Companies Are Different.' It sort of got excerpted in the Wall Street Journal. And when a newspaper gets to excerpt this, they get to rewrite this. They had to rewrite the title. They don't get to rewrite the text, but they had to rewrite the title. And they changed it from 'All Happy Companies Are Different' to 'Competition Is for Losers,' which had a little bit more of a punch to it.

And I think in some ways it was actually sort of a more effective title. It's very, very punchy. Because we always think of the losers as the people who are not good enough at competing. We think of the losers as the people who are a little bit too slow to make the high school swim team, whose grades are not quite good enough to get into the right grad schools or whatever. And we never think of the losers as the people who somehow compete the most intensely. Because what I think the distorting effect that competition has is that you do get better at that which you are competing on. You know, if you open, you know, a restaurant in Chicago, you will get very efficient at doing that well, and you will be forced to get to be very good at that.

But it always comes at this incredible price of losing sight of what may be more important, more valuable, you know, more meaningful at large. The competition focuses you on the people around you, and I think a lot of value comes from looking elsewhere. The sort of autobiographical version of this is that I personally was incredibly tracked in all these competitive ways growing up. In my eighth-grade junior high school yearbook, one of my friends wrote in, 'I know you're going to get to Stanford in four years.' I got accepted to Stanford four years later. I went to Stanford Law School, and then started at a big law firm in New York. And from the outside, it was one of these places where everybody wanted to get in.

On the inside, it was a place where everybody wanted to leave. When I left after seven months and three days, one of the people down the hall from me said that he had no idea that it was possible. He was so happy to see me leave; he had no idea it was possible to escape from Alcatraz—which, of course, all you had to do was go out the front door and not come back. But psychologically, this was hard to do because so much of people's sense of identity, of sense of self-worth, was wrapped up in these competitive games they had won for so long that people could not even imagine doing anything different. So, first big thought is: always aim for monopoly and be really careful about getting caught up in these hyper-competitive dynamics.

A second general thought is—one of the sort of intuitions people always have is that, well, there aren't—yeah, that all sounds good, but there aren't really that many answers left to this question of what's true that no one else agrees with, or what great businesses haven't been done. We've already sort of found most of these things, and we sort of live in a world where all the possibilities have been largely explored. And sort of a trichotomy that I set up is between conventions, secrets, and mysteries. Conventions are truths that everybody understands, so they're not really that valuable. They don't give you much of an edge because they're already understood by everybody. Mysteries are things that are impossibly hard for anybody in the world to figure out.

There probably are some things we will never figure out, even if we really work at them. And then secrets are somewhere in between: they're things that nobody yet understands, but if you work at it, you could possibly understand it. And I think that we live in a world where implicitly most people don't think there are very many secrets left. And I want to suggest there are actually a lot of secrets left. There are a lot of interesting things to figure out, both intellectually and in a business context, that other people have not thought about. Now, there certainly are some domains where there aren't many secrets left. So, if you were growing up in the 17th or 18th century, you could just look at a map of the world, and there were sort of these empty spaces on the map where nobody had ever been.

You could become an explorer. You could go there, and you could find out what was there. And so there was sort of a sense that the idea that there were secrets that everyone could find was sort of something that was very readily graspable. And it was sort of dangerous; it was a little bit risky to do it, but there was sort of a way you could do that. And, you know, certainly, if you had ambitions to become a world explorer today, that's probably something your parents would try to talk you out of, because there are actually not many secrets left in geography, at least on the surface of this planet. And then I think there probably are other fields where basic chemistry, the periodic table of elements, has been established.

And you're not going to find any new elements there, unlike you could have still done in the 19th century. But I think most fields are actually ones where a lot more can be done. And we're sort of discouraged from doing it for all sorts of different reasons. And I think there's a lot of good things about globalization. But one of the challenges with it is that when you have 7 billion people in this world, you always get the sense that one of the other people has already gotten there before you have, and so that the world is flat. And therefore, it's either impossibly hard, and no one will figure it out, or it's easy enough someone else will have gotten there before you. And obviously, there's something a little self-defeating about this, since if everybody thinks that every problem will be solved by somebody else, then nobody will work on any interesting problems, and we won't end up solving them anymore.

And so there is this sort of self-defeating character to it. But I think that sort of a mindset is actually really widespread and something we should try to resist very powerfully. I tend to think that when we speak of technology, there are certain domains where it's very natural to resist it. Certainly information technology: computers, software, internet, mobile internet. These are areas where people have found, discovered new secrets, discovered new ways of doing business at a fairly fast pace in recent decades. And so the history of success leads people to think that there's sort of a lot more that could be done. And one of the ways that I'm sort of both frustrated and optimistic is that I think that there are many other domains where we could also be doing this, and that sort of the way in which technology has been narrowed to just mean computers is actually, was not necessary, and that we could be making comparable progress in biotechnology or transportation or energy or many other fields, but that sort of the history of failure

or various other things have come together to make people think that it's too hard to do. So, second big idea: there are a lot of secrets left, way more than people think. A belief in secrets is certainly an effective truth. So if you believe there are no secrets left, if you believe there are no places left to discover in this world, then you will not be the person to discover them. And so actually, the first—and I do think one of the things at the core of so many of these companies is this sort of inspired sense that some specific, somewhat idiosyncratic area is really important and of great value. At PayPal, we had this interest in crypto, cryptography and money. And there was sort of a small set of people working on the intersection of cryptography and money.

We never figured out Bitcoin, which was probably the big thing one could have figured out in that. But that did inspire us to think really deeply about payment systems. And so I think having sort of this passionate interest in some somewhat idiosyncratic substantive area is often a great starting point for uncovering the secrets that are both intellectually valuable and could be great in a business context. Let me end with a third unconventional thought where I sort of tend to disagree with a lot of people. And I think this is sort of a—this one's a little bit bigger picture. So I think, you know, we live in a—I think a successful 21st century will involve both a lot of globalization and a lot of technological progress.

And we often end up using globalization and technology as synonyms. I think they're actually very different modalities of progress. I think of globalization as copying things that work. It's going from one to n. It's horizontal or extensive progress. I think of technology as going from zero to one, vertical or intensive progress. And I often just draw globalization on the x-axis and technology on the y-axis to sort of illustrate the difference. Globalization is going from 1 to 100 typewriters. Technology is going from a typewriter to a word processor. And when we sort of, and I think when you sort of think about the history of the last few centuries, there have been eras of globalization and technology, or both, and it again underscores how these two things are not identical.

The 19th century was a period in which there was both tremendous globalization and tremendous technological progress, so the era 1815 to 1914. After World War I started, globalization went very powerfully in reverse. Global trade collapsed and sort of a lot of—but technology continued to progress very, very rapidly. And so in the '50s and '60s, the era from 1914 to '71 was an era of technology but no globalization. Since 1971, with the Kissinger trip to China, where you reopen China, globalization has been going at a ferocious pace. But I would argue the technology has been somewhat more limited. There's been a lot in computers, in the world of bits, somewhat less in the world of atoms. And so we've had the last 40-plus years of an era of globalization and more limited technology.

And this is sort of reflected in the way that we describe the world. In the 1950s and '60s, you would have divided the world into the First World and the Third World. The First World was that part of the world that was seeing very fast technological improvement. The Third World was that part that was sort of just permanently screwed up. So it was a pro-tech, anti-globalization dichotomy. Today, we would divide the world into the developing and the developed nations. This is sort of a pro-globalization dichotomy. The developing countries are the countries that are copying the developed world and are sort of converging with it. And this is sort of the globalization narrative. But it's also implicitly an anti-technological description.

Because when we say that we're living in the developed world, we are, among other things, saying that we're living in that part of the world where nothing new is going to happen, where things are basically done, stagnant, where it is developed, and where the younger generation should have lower expectations than their parents and possibly even stagnant or declining living standards. And I think this is a bias that we should always resist very strenuously. And so I would end with the contrarian question that I think we should always come back to, which is: how can we go about developing our so-called developed world? Thank you very much.

So Peter has graciously offered to take questions. The only rule we have to follow is this is not Shark Tank. You're not pitching any ideas in questions. Please, these are meant to be—you know, Peter's open to any questions, but please don't pitch your business in a question, okay? So between myself, Caitlin, and Susie, we're going to try to get mics out to you, but if you could raise your hand, and Peter will select folks who have questions.

And clear the aisles, please. We don't want to be running up and down the cement stairway and climbing over you.

All right. Well, go ahead.

You haven't talked about your philosophy of philanthropy, and I wanted to sort of challenge you or explore a little bit your philosophy of philanthropy. For $15, a new combination of relatively new technologies lets you deliver a tree to a malnourished family that will begin producing food within two or three years and start generating a surplus in, say, eight to 10 years, depending on the conditions where they live. 60,000 trees have been delivered so far, and a billion people are hungry in the world. How many trees can I put you down for? Any, or quite a few?

I think that counts as a business pitch. But I'm sorry, I'm not trying to make fun of you here in any way. But I think that, seriously, I think there are vastly more good causes than one can focus on. I would say that, in the abstract, with respect to philanthropy, I think the contrarian questions are perhaps even more important than they are in an intellectual or a business context. And the sort of, the contrarian question that drives my philanthropy is always: what unpopular causes are not getting funded? Because I think that so much about philanthropy is driven by peer pressure, by a search for status. And the things that we should always be supporting are things that are—and I think it's the unpopular good causes that are the most underfunded.

And those are the ones that I set out to support. And so there's some of it that I do publicly. The ones that are really unpopular, I try not to tell people about. But I think that that's sort of the basic framework. I do think one of the standard things that—sort of the two standard questions I normally give people on philanthropy when they pitch me on ideas is, first, tell me why your cause is unpopular, because I'm not supporting popular causes, I'm supporting unpopular ones. And then the second one, I just go back to my sort of globalization versus technology framework: where does the philanthropy fit the globalization narrative? Does it fit the technology narrative? The idea you just pitched me on,

falls well within the globalization narrative. It's something that works. We're going to copy it. We're going to extend it in many ways. And I think there's a lot of room for globalization. I think there's very little that's being done on the vertical philanthropy side of encouraging people to do new things. So, we have the Gates Foundation gives malaria nets out all over Africa, which is a worthwhile cause. Maybe we should come up with a vaccine against malaria, which would be the technology innovation. So, my own bias is we're biased too much towards globalization, not enough towards technology. And that's the reason I would not support that one. Go ahead. Go ahead.

Hi, Peter. So, I was wondering, do you think because of the big success of Facebook, so right now venture capitalists become more interested in investing in something that would produce tangible benefits, like, very quickly, but not in something, like, that could not produce tangible benefits, like, very soon, but it's going to be a huge technology breakthrough in the future?

Let's see. A lot is implicit in that. So, certainly, anything that produces large benefits very quickly probably does deserve to be funded. So, I don't think there's a problem with people putting money into those things. I share your concern that there are a lot of longer-term things that are probably being under-invested in. And it's possible that even some of those things—there probably are some long-term things where it's very hard for people to capture the value, but they would still be very good for society. And that's probably more of a problem of government dysfunction than of a venture capitalist. A venture capitalist—you're trying to make money. So, there are certain kinds of basic research that probably have the attributes of a public good, which aren't amenable to venture funding.

But yeah, I do think anything that has sort of a five- to 10-year horizon is fairly long-term. And that's probably a category that's underfunded. And certainly, as a venture capitalist, as an investor, I always try to ask the contrarian question: what are other venture capitalists not doing? And so I'm very biased to these things with intermediate time frames. 20 years or longer, that's too long. That's probably something that can't really be done on a for-profit basis. But five to 10 years where you have to build something and it's really valuable after a while—that's probably very underfunded. My colleague from PayPal, Elon Musk, started both Tesla and SpaceX, which I think are these very inspiring companies.

They took about a decade to really pull together, and they were incredibly hard to fund. He had made some money himself. We invested in SpaceX as the first outside investors in 2008, and we got enormous pushback on this. It was just so crazy, because why would you invest in a rocket company, even though, I think at this point, it was a really good investment? So I agree with that. Yeah. Yeah.

Liz Gerber, faculty here, and I'm really curious to know what you've learned from that experience. What has been unexpected? What has been expected? And what can we learn from your experience with that? Well, you might need to—I'm not sure if people know what it is.

So I have this program where we've been giving 20 people a year, age 20 and under, $100,000 grants for two years to stop out—not drop out, just stop out—of college to pursue something in entrepreneurship. The colleges will always take people back because they don't want to have a high dropout rate. So you can stop out for a decade and you can always go back, and to sort of get an experience doing something entrepreneurial or innovative or something like that. There probably are a lot of interesting things that we've learned about the program. There's certainly been an incredible number of really talented people that are out there with a lot of great ideas, and the subtle ways we've improved over the last four years—I'd say one super high-level thing that I'll just focus on is that when I announced this program in September of 2010, it was envisioned as a really narrow program.

It was just 20 people. I didn't expect it to generate this enormous amount of controversy. But it somehow hit this incredibly raw nerve, because there's a lot of anxiety around education in our society. And so I've ended up spending a lot of time thinking about the broader education question. I think the anxiety is that education is seen as the absolute be-all and end-all for everything. And then, because it's costing people so much money, a lot of students are graduating with so much debt, there's an awful lot of anxiety: Are people getting what they're paying for? And so somehow it tapped into this much, much broader education debate. And so there are a lot of questions about what can we do to—how does one think about education?

How does one change it? What does education—what will education in the future look like? I think the biggest misconception about it is that, you know, I want to sort of just blow up the universities and have everyone become an entrepreneur. And sort of quite the opposite: I believe the future will not have a one-size-fits-all approach. And I think what is—if there's anything that's sort of unnatural about our current system, it is that it's a one-size-fits-all. You know, you go to Yale or you go to jail. And I think the future will involve an education system where there are sort of vastly different kinds of tracks for different people. The analogy that I've used is that I think the university system today is perhaps—it's sort of like the Catholic Church circa 1500, where it's

It's seen as the only path to knowledge. It's sort of an atheistic church. It's the way you get saved. If you get a diploma, you're saved. If you don't get a college diploma, you will go to hell, or sort of our modern equivalent of that. And there are sort of all sorts of challenges. But I'm not proposing to create some alternate unitary church. And what I think will happen instead is it'll be sort of much more fragmented. And the somewhat disturbing message that I have is that, like the 16th-century reformers, is that you have to figure out how to save yourself, which is the absolute last thing people want to hear. So another question. Yes, go ahead.

First of all, I would like to thank you for being here. Arguably, one of the greatest benefits of the last 15, 20, 25 years from Silicon Valley is how much more accessible the world is to people in Wichita, Kansas, or India. One of the ironic conventions is, although the world is more accessible for innovators and entrepreneurs, the thought is if you're not in San Francisco, or maybe in Boston if you're in the life sciences, you can't be the next PayPal, you can't be the next Apple. What are your thoughts on that convention, and what recommendations do you have for those innovators in Wichita or Calcutta, India?

Yes, so it's always this question. I certainly don't think that all innovation happens in Silicon Valley. It certainly is a place where a lot is happening. There's probably been some degree over the last 15, 20 years where it's actually gotten more concentrated in Silicon Valley. And it's one of the questions we always are asking ourselves: how much is in Silicon Valley, how much is sort of everywhere else? And if I had to make a guess, I think the ratio is probably going to go up a little bit more everywhere else. There are certain pluses and minuses to Silicon Valley. One of the minuses is that it's gotten extraordinarily expensive. One- and two-bedroom apartments are more expensive than in Manhattan.

It's incredibly expensive to hire people because there's so much competition from all the other companies. And so even though three, four years ago I would have encouraged people to go to Silicon Valley, at this point I'm actually pretty neutral on whether you start in Silicon Valley or outside of Silicon Valley. I'd say it's always a very tricky question: what makes Silicon Valley work? Why does Silicon Valley actually work? Whenever you hear a question that starts with the word 'why,' it's normally a hard one to answer. It's normally not a single variable. It's a whole set of different factors that drive it. One factor that people do talk about a lot, and I think has some role to play, is you have this network effect.

You have all these different people in one place. And the benefit that it gives you is that if you're working on something in technology, in some sense, you have to be better than anybody else in the world. And so if you're the best in Silicon Valley, you have a pretty good chance of being the best in the world. If you're the best in Wichita, Kansas, much harder to know if you're the best in the world. Because even though we can communicate and so on, there's still a lot of information that doesn't flow all that well. And so it's been one of the big challenges in alternate ecosystems is that people seem like they have the best, in some sense, but it's often much harder to measure. So that's, I think, sort of a big advantage that Silicon Valley has from the network effect.

The very same network effect, however, can also work out to be something of a disadvantage, because when you have a place where you're sort of talking to all these other people doing stuff, you get a lot of information, but you also have this risk of getting a lot of consensus. The word 'ape', already in the time of Shakespeare, meant both primate and to imitate. And there is this sort of very ape-like, lemming-like, sheep-like, herd-like behavior that happens. And so there is something about Silicon Valley that's probably very bubble-prone. It's very prone to a certain type of consensus-like thinking. And so there are certain times when you're actually better off being in Wichita, having a certain amount of distance, and having the freedom to think for yourself.

So I think the network effects cut both ways. And we're sort of at a point where there are some pros and cons, both for doing it in Silicon Valley and doing it elsewhere.

When you're looking at things, how much emphasis do you put on the people versus the technology?

I always like to say it's like people, technology. I also like to say business strategy is sort of a separate variable. And that's why I talk a lot about business strategy today. So the monopoly question is sort of a business strategy question that's independent of the other two. I would say the people version of it that I think is very important is not the people as individuals, but as a team. And so, if there's something that's very different about a startup from what you typically learn in school, is the things you do in school are always individually focused. And it's you against everybody else. And normally, team projects, group assignments, these are often, sort of, they're not that hard, not that significant.

The things that really matter are the things you do by yourself. And a startup is typically something that's too complicated for one person to actually pull off. And so it requires a team. And it's different from a sports team because the rules aren't set. And what you're doing is different. And you're sort of inventing it. So one of the critical questions is how well people will work together. And that's sort of the—that's why I'm very focused on the team question. The question I always like to ask is the prehistory question. What were—you know, how did people meet? What were you doing before? A bad answer to the prehistory question is, you know, two people starting a company: 'Oh, we met a week ago at a networking function for entrepreneurs, and we started it because we both want to be entrepreneurs.'

And, you know, like saying you want to be an entrepreneur is like saying you want to be rich or famous. You know, it's like you want to do it because you're doing something else, not as an end in itself. A good answer is like, 'Well, we've been friends in college for four years. One of us is more on the tech side, one's more on the business side, and we've been thinking about these ideas for a long time. This is what we're working on.' So I think, sort of, a decent amount of prehistory is often very good for getting at the team question. You know, I used to be, sort of, more focused on the people questions. At this point, I'm often a little bit more focused on the technology and business strategy questions because I've found that good ideas seem to be in greater shortage than seemingly well-qualified teams.

And so there is, sort of, this extreme talent focus where we say, 'Well, we have four people, we're really smart, and we're going to lock ourselves in a room until we think of a good idea.' And that's not the sort of company I'd like to invest in. I'd much rather have one that has a seemingly really good idea. And even if the people don't look that smart, the fact that they came up with a really good idea might tell you otherwise. So that's why I, at this point, sort of think that if you look at the technology and the business strategy, maybe those are proxies. That's the way you evaluate the team itself.

Hi, Peter. Thanks so much for coming and speaking here today. I wanted to know what areas of study do you believe are currently understudied?

You know, it's probably all the areas that don't fit into any conventional categorization. There's a version of this question that I often get about, 'What are future trends in technology?' And it's always sort of a hard question, I feel, to answer because you either give sort of a banal generality, where it's something that's so, that's so abstract, like, 'There'll be more cell phones in the future.' That's not very interesting. Or you give something super particular, which is likely just to be plain wrong. But I think what I always say about everything, areas of trends in technology, and I will also say about areas of study, is they're probably all overrated. So in terms of trends in technology, all trends are overrated.

Education software, healthcare IT software, business enterprise software, really overrated. If you hear the words 'big data,' 'cloud computing,' you should just think fraud and run away as fast as you possibly can. And the reason these things are overrated is because when you have something that can be reduced to a buzzword, it means that a lot of different people are doing it and they're somehow inadequately differentiated within that particular field. The kinds of companies that I think are underrated and undervalued are the ones that are somehow one-of-a-kind, that don't easily fit into some sort of narrative. It's hard to actually explain what they are doing. And so by analogy, we're investors in Airbnb.

So it's like you say, 'What kind of a company is that?' And it's actually just a one-of-a-kind, new hotel lodging sort of business, and it doesn't really fit into—you know, we can sort of fit into categories, but that's sort of—that really misses the uniqueness of the business. So I think great companies always have this one-of-a-kind attribute. And I suspect areas of study, you know, if you sort of, again, if you do the monopoly analogy, if you're just in a big area of study where everyone's studying the same thing, you're not adequately differentiating yourself from other people. So it's probably some somewhat idiosyncratic vertical that you're really passionate, really interested in, and people aren't doing enough of that.

So I think people are spending too much time studying the things everybody else is studying. They're spending too little time studying more particular things that they're really passionate about. Yes.

Hey there, Peter. I had a question of sort of turning the team question more personally to you. When you're trying to develop a new contrarian point of view, how much, if at all, do you factor in expert opinions, your friends, the Silicon Valley conventional wisdom, sort of other external factors, or truly sort of develop an independent point of view?

Well, one of the things that's worth underscoring about having contrarian—most contrarian views are just wrong. So it's always, you want contrarian views that are right. So it's not, 'Tell me something that...'—the question was not, 'Tell me something that nobody agrees with you on,' it's, 'Tell me something that's true that nobody agrees with you on.' So the truth part is kind of important. And now, I do think that often when one has an incredible intensity of belief, I do find where there's just a really, really powerful consensus around something, that often is something I find a little bit scary and implausible. And so that is often something I would look at and try to stay away from. If you hear something that everybody agrees on, that's often an indication that you maybe need to start thinking for yourself.

I was on a venture capital panel in Silicon Valley five years ago, May of 2012. There were five venture capitalists. We were each supposed to give two trends for the future. So that's the sort of question I don't like. And then the other four people were going to vote on the trends. And you had this sort of dinner audience of 200 people. We voted and discussed them. Then the audience voted on them. And there were sort of different trends. Some people agreed. Some people disagreed. The one that was the most unpopular was: one of the people said that there would be more electric cars in five years' time. All four people voted no. The audience was in the middle of Silicon Valley. The audience was 91% no, 9% yes.

And I don't invest in public stocks, but I was thinking to myself, 'Wow, Tesla's probably a really good stock to buy right now.' And that year was the year that was the best risk-reward on Tesla. It went from $25 to $150 in the next year and a half. And so it was not a very profound prediction. There weren't very many electric cars on the road in 2012. There probably were going to be more five years from now. And still, 91% of the people said no. So when you have an intense consensus that people have, it's often worth second-guessing. My answer to the question, the one answer I gave that was at the other extreme, was that I thought there was going to be this convergence between biology and computers, that biology was going to become more of an information science, and a lot of the stuff in genomics was going to have a lot of progress as you had this convergence between these two.

And the other four panelists all voted yes. And then the audience voted 100% yes, 200 to 0. Everybody voted yes. And that sort of triggered me to think, 'Well, if it's 80%, 20%, that doesn't tell you much. But when it's like unanimous, 200 to 0, that's sort of telling you that maybe this is a consensus you have to think about a lot harder.' And I've thought about it a lot more. And I've come to be somewhat more skeptical of the genomic story that we're told. And I think it's either the case that somehow the link, the mapping of the genotype-phenotype, is much harder than people think. And then maybe it's possible the whole thing is just wrong. Because obviously genomics implicitly is taking an extreme view on the whole nature-nurture question.

And maybe it's just wrong. And so if you'd reframed it as a question, 'Do you think there'll be this convergence between DNA and computer science and genomics?' If you reframed it as, 'Is it 100% nature or 0% nurture?' you'd have gotten a completely different answer from the audience. So that's sort of how you get a consensus where people aren't really thinking.

I think we can do just one or two more questions.

We've got one up here.

Hi, so my question is sort of related to what you were talking about: one-of-a-kind ideas, and monopolies and competition. So it sort of seems like whatever your idea is—and I've been in a position recently where I had to sort of come up with a startup idea, and no matter what it is, it feels like somebody's done it before. And I was just trying to figure out how you, you know, sort of decide, like, 'Okay, somebody's doing this, so we shouldn't,' or, 'Somebody's doing this, but we can do it better,' and like, what factors do you use to make that decision, and if you need to have a very unique idea from the beginning to really be successful?

Well, I think you—let's see, you definitely, I would say you need to have some angle on things that are, you know, so if it's just something that, you know, that's very hard to explain how it's different from other people, I always feel that's a limiting—that is a limiting factor. You know, you don't want to be doing, you know, the fourth online pet food company, the tenth thin-film solar panel company, you know, the one-thousandth restaurant in Chicago. And so I would always—I think people do always underestimate that as a challenge. And it is sort of the core thing is to find something that hasn't been done but is actually doable. So it can't be something that's super far in the future that's just impossible.

And then try to pull it together. I think things often... can involve, there are, I think, a number of cases where things seemingly fit into an existing category, but there's something, some component of them that's different in a very essential way. So you could have said that Facebook was just another social networking site. There have been a whole series of social networking sites. What was really different about it? And so if you just categorized Facebook as a social networking company, you would have said, well, it can't be very valuable. It's just going to be another fad like Friendster was, maybe like Myspace is. It's going to blow up and then blow up. It's like a nightclub. Everyone goes in and then everyone leaves.

And actually, it turned out that because of the focus on these colleges, they had solved the real identity problem. They'd gotten people to give a lot of information about themselves, which had not been solved in any of the previous social networking applications. That's also why you have all these privacy concerns and all those issues. So it was the first company to crack real identity. And so I think very often it involves at least getting some one vector like that that's really different. And then you have to explain to people why that vector matters or something like that. But certainly, I do think there's always this narrative element to starting these companies. Because they don't happen in a vacuum.

You have to convince investors. You have to convince employees or other people to work with you. You have to convince customers to buy the product. And some robust differentiation is important to get the narrative right. Why should you work on this? And the great companies have this sort of counterfactual sense of mission, where if we didn't work on it here, this problem will not get solved anywhere. That's very motivating. Whereas if you're sort of fungible, and it's like, okay, if we don't do it, there are 100 other people doing more or less the same thing. That's, I think, much less motivational. And that's sort of what I felt like when I was in the big law firm in New York.

I was just kind of wondering, speaking back to the genomics thing, I kind of like the Human Genome Project. Do you think it would be a good idea if the government did something similar today but with artificial general intelligence? Do you think it would be a good idea? And also if they had a private, I don't know, like an AI Craig Venter, would you fund them in their competition with the government again? Do you think it would have good externalities?

I'm super, super strongly in favor of technology. Probably the one technology I am at least marginally nervous about is if you could build generalized AI. And there's sort of a question what it would be like. I guess sort of, I won't go into all the details of my thinking. I tend to think it's still pretty far away. So I think it's something that's too futuristic at this point to actually develop. I think when people talk about AI, they focus too much on the economic question. Will computers replace people? And will you lose your job? I think if you actually were able to build a generalized AI that was smarter than humans, I mean, this would be the equivalent of aliens landing on this planet.

It would be like a really epochal—and the first question, if aliens landed on this planet, would not be the economic question. It would be the political question. Are they friendly? Are they not friendly? And so I do think that's probably something about if you could build AI that was smarter than humans in every dimension. I think my intuition is there would be something kind of scary about it. And so it's probably the one area I would be nervous about funding.

I think even he would be—he might secretly sabotage it because he might be nervous that he wouldn't know what to do.

Peter, any final thoughts? No, all good. On behalf of Northwestern University as a whole, all the different entrepreneurial organizations within the university that sponsor NU and Northwestern Engineering, I couldn't think of a better way to end this quarter than to have Peter with us. So please join me in thanking him.