Anderson Speaker Series: Peter Thiel

Welcome to the UCLA Anderson Speaker Series. My name is Max Morrow. I'm the president of the Entrepreneur Association here at UCLA Anderson. I'm also self-aware enough to know you're not here to see me, so I will keep it brief. It is my distinct pleasure on behalf of UCLA Anderson and the Entrepreneur Association to introduce a truly distinguished speaker. Peter Thiel is an entrepreneur and an investor. You know the highlights. He defined a new era of online commerce when he founded PayPal in 1998. In 2004, he made the first outside investment in Facebook, where he still serves as a director. That same year, he launched Palantir Technologies, a software company that is radically changing the fields of national security and global finance.

Mr. Thiel has provided early funding for LinkedIn, Yelp, and dozens of other technological companies. Many of his colleagues have gone on to do amazing things, earning them the nickname the PayPal Mafia. His current fund, the Founders Fund, has invested in companies like SpaceX and Airbnb. Through the Thiel Foundation, Mr. Thiel works to advance technological progress and long-term thinking about the future. His new book, Zero to One: Notes on Startups, or How to Build the Future, is a collection of his notes from teaching a computer science course at his alma mater, Stanford University. Mr. Thiel ignited a national debate and got some front-page treatment here at UCLA Anderson by encouraging young people to put learning before schooling through the Thiel Fellowship.

So whether revolutionizing an industry, investing in innovative companies, or through philanthropy, Mr. Thiel is constantly striving to make the world a better place and truly embodies the values we all love so much about UCLA Anderson. So please, everyone, join me in giving a warm UCLA Anderson welcome to Mr. Peter Thiel.

Thank you very much. One of the great things about writing a book is you get to talk to all these different audiences. And speaking on all these different college campuses the last few months has been a really fun part of the process. There's so many different things we can talk about today, so I'm going to try to just make a few highlights in my comments, and then we make it as interactive as possible, leave as much time as possible for Q&A. One of the incredible challenges in teaching entrepreneurship or writing a book about entrepreneurship is that there's a sense in which there is no real formula in this. The next Mark Zuckerberg will not be starting a social networking company. The next Larry Page won't start a search engine.

The next Bill Gates won't start an operating system. If you are trying to copy these people, you're in some sense not really learning from them. And there is something even more generally: every moment in the history of business, every moment in the history of technology happens only once. There is no science of entrepreneurship because science is something that starts with a number two. Science starts with experiments that you can repeat. But when we're dealing with things that are one-time or singular in nature, it's much trickier to know what to say about it. Things that get taught in a business entrepreneurship context end up having this very pseudoscientific feel, where it's sort of like, oh, this is this formula, you do these five things, you do these seven things, and you will succeed.

And I think that's something we need to always start by resisting and questioning. But then, of course, the question this begs is, well, if there's no formula, if there's no science to it, what can you say at all? So just end the lecture right there. And so the approach I try to take in my class, in my book, is somewhat indirect by starting by asking sort of a series of contrarian or unconventional questions. And the business version of it is always, 'What great company is nobody starting?' The intellectual version is, 'Tell me something that's true that very few people agree with you on.' This turns out to be a shockingly hard interview question, even when people know in advance that this is an interview question because they can read about it on the internet.

This is a question you ask everybody who comes in. And it's still a very difficult question for people to answer because when you ask the question, it ends up—first off, you think you have to have something really brilliant because somehow truth is something everyone already understands. It's all this collective knowledge we have. And it's almost impossibly hard to be that brilliant. But I think even more fundamentally, just think about the literal context of an interview where I'm asking you the question and you're responding. It's sociologically awkward because the correct answer isn't something like, 'Our education system is screwed up,' or, 'Our political system doesn't work terribly well.' These are incredibly conventional answers.

Everybody knows these answers are true. Those are the wrong answers to this question. And the right answers are ones the interviewer will strenuously disagree with you on. And so the right answers are always incredibly uncomfortable. And we live in this world in which courage is in much shorter supply than genius. And so I want to maybe just today give two or three of the answers that I offer to this question as a starting point for the discussion. And so the first answer I give—and this is perhaps the single overarching theme of my class, my book—starts from this theme of uniqueness and singularity. And it's basically that there are—the successful businesses are all singular. They are, in a word, monopolies.

They're doing something nobody else is doing. They're doing it so much better that they have no competition at all. Really bad businesses are ones that have lots of other ones that are doing similar things and that are extremely competitive. I don't think it's too much of an exaggeration to say that there are precisely two kinds of companies in this world. There are companies that compete like crazy and never make any money. And there are companies that are monopolies, and they make an enormous amount of money. And this sort of very basic dichotomy is extremely poorly understood. If you want to compete like crazy, you should just open a restaurant. You'll get tons and tons of competition. You will never make any money.

Sort of the paradigm tech example I give of a successful monopoly business is Google, which definitively distanced itself from everybody else in the search business back in 2002 and has been making enormous amounts of profits ever since. And the reason this sort of monopoly-competition idea is very poorly understood—I think, first off, there's sort of an intellectual reason for this, which is that the companies that have monopolies don't talk about it. And the companies that compete like crazy understate the amount of competition they're in. So the apparent difference is much smaller than the real difference. And so if you're running Google, you don't even talk about the search business, even though it's about 98% of the revenues.

You talk about it not as a search engine. You talk about it as a technology company. And technology is this vast, enormous space where there's competition everywhere. And you're competing with Facebook and with Apple, with your Android phone. And you're competing with Amazon. You're competing with the car companies in Detroit with the self-driving car. And you're in this vast, vast space called technology. And there's unbelievable amounts of competition everywhere. And no, you're not the monopoly the government is looking for. And then sort of at the other end of the spectrum, if you were to leave this lecture hall today and say, 'I am now really determined to open that restaurant, more determined than ever to do it,' you'll very quickly run into a problem as you approach investors.

And they will say, 'Well, it's—this is a really bad business. We're not going to invest in a restaurant. We know most of them go out of business, and even the ones that don't never make any money.' And then you'll say, 'Well, but it's going to be a unique, one-of-a-kind restaurant. It is going to be the only British-Nepalese fusion cuisine in Westwood.' And so if you're a monopoly, you tell a fictionally large narrative about the market you're in. If you are in a commodity context, you tell a fictionally small narrative about the market you're in. And as a result, people are generally confused about this, starting with the people running many of these businesses themselves, or the people in them, and are themselves often quite unaware

of just how monopoly or how competitive these particular businesses are. So I think there is this sort of incredible intellectual distortion that obscures this question very deeply. But I think there's also a psychological reason for this that perhaps goes a little bit deeper, which is, I sort of try to describe the temperament a little bit by describing business as sort of the opening line in Tolstoy's Anna Karenina: 'All happy families are alike; all unhappy families are unhappy in their own special way.' And I sort of describe the temperament of a good company as the exact opposite: 'All happy companies are different because they found something unique that differentiates them. All unhappy companies are alike because they fail to escape the essential sameness that is competition.'

But the psychological element is that I think in some very perverse ways, many of us end up being attracted to competition in all kinds of strange ways because we find it incredibly validating. If you compete with other people, if you're beating other people, this is sort of very, very deeply, deeply validating. The autobiographical version of this that I describe is that I grew up in Northern California in this hyper-tracked, super-competitive context. Already in my eighth-grade junior high school yearbook, one of my friends wrote in that I was going to attend this small provincial college in Northern California called Stanford. And I got in there four years later and went to Stanford. And then I ended up going to Stanford Law School.

And then it was one competition after the other. And then I ended up at a big law firm in Manhattan. 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 get out. You know, when I left after seven months and three days, one of the people down the hall from me told me it was really reassuring to see me leave; he had no idea that it was possible to escape from Alcatraz. And the reality was that all you had to do was go out the front door and not come back. But this was just psychologically not possible for people to do because so much of their identity was wrapped up in these competitions that they had won over time and that they could not imagine doing anything outside of that.

And I think this is sort of a very, very recurrent, a challenging sort of a dynamic that we all face. It was already in the time of Shakespeare that the word 'ape' meant both primate and to imitate. And there is, I think, something very deeply imitative or mimetic in human nature. It's how we learn languages as kids. It's how culture gets transmitted in our society. But it also leads to a lot of forms of insanity. It leads to the madness of crowds. It leads to market bubbles and manias. And it leads to the sort of groupthink and herd-like, ape-like, sheep-like, lemming-like behavior that is so deeply problematic. And I think one always needs to try and resist. There's a sort of very strange phenomenon in Silicon Valley where a surprising number of the very successful companies seem to be dominated by people who are suffering from mild forms of Asperger's in one way or another.

And I think we always need to turn this fact around into an indictment of our broader society and ask the question: what is it about our society where anyone who's not suffering from Asperger's is at a disadvantage? Where, in effect, you're being talked out of your original, interesting, counterintuitive, creative ideas before they're even fully formed. And you're being told, 'No, that's a little bit too weird. That's a little bit too strange. That doesn't make sense. People will think I'm crazy. I better just open that restaurant.' And, you know, I think there's sort of, it's always easy to pick on sort of all these different, you know, different contexts. So since I'm here, I'm going to pick on the audience that's sort of in a business school context.

And you can often think of, you know, one of the challenges in business school is that it's, in many ways, it's an anti-Asperger's demographic. You know, you're sort of super extroverted people. The negative thing would be people would say you're sort of low conviction. We sort of put all of... And you sort of end up with business school as this hothouse environment where you take all these people who don't know what they want to do and you put them in the same place for two years. And then the risk is always that at the end of this two-year process, it's sort of we've all, you know, everyone sort of is talking to everybody else: 'What are we going to do? What are we going to do? What are we going to do?'

And since no one has any clue, at the end of the two-year process, you end up with this dynamic where everyone tries to surf the same wave that actually has already come and gone. And they've done these studies at Harvard Business School where they found that the largest number of business school students systematically went into the wrong career at every point. So if you look simply at what was the largest group doing, it was always the wrong thing. So like in 1989, they all wanted to work for Michael Milken and the junk bonds, one or two years before he went to jail and everything went wrong with that. They were never really interested in tech except 1999, 2000, where they sort of all descended on Silicon Valley and timed the end of the dot-com bubble perfectly.

And, you know, '05 to '07 it was private equity, real estate, things like this. So I think, I think, so, you know, even though this monopoly competition idea sounds really trivial, really banal, I think there are some, you know, some very, very deep things going on. And, you know, it's, it's, there is something where it's always—it's not just business school. I could pick on academics as well. There was the Henry Kissinger line describing his fellow professors at Harvard where he said, 'The battles in academia are so ferocious because the stakes are so small.' And you always think of this: well, it's a definition of insanity. You normally think battles are ferocious when the stakes are big. If they're small,

It takes really insane people to fight like crazy for things that are really, really small. But on one level, it's a definition of insanity. On another level, I think it's actually a description of a logic of a certain situation where, when the differences don't exist, when everybody is sort of similar to everybody else, the competition becomes so ferocious because there are no differences. And then the stakes get smaller and smaller because there are no profits or gains of any sort to be extracted. And so competition—I don't want to say it's all bad; it has all these advantages. It focuses you on the people around you. It makes you get better than the people around you. But it has this negative side effect where you may run the big risk of losing sight of what is important or valuable or more meaningful as a result of this process.

Let me sort of, you know, one other sort of contrarian thought that I have where, you know, we always have this question—and again, coming back to this question: what's true that nobody agrees with you on, or, you know, what great business is nobody starting? I think sort of one very widespread sense we have is, well, everything's already been discovered, or else it's super hard for anyone to figure out. And I think in terms of, again, in terms of truths about the world, I sort of suggest you can have like this trichotomy of three different kinds of truths. There are things that are conventions, which everybody already agrees on. It's like the Earth goes around the Sun. That's true. It's not really interesting, because we already know that to be true.

There are things that are mysteries, which no one's probably going to ever figure out. It may not be that worthwhile to spend too much time on those either; they're too hard. So, things that are too easy, they're things that are too hard. And then there are things that are somewhere in between. And what I describe as in between a convention and a mystery is a secret. It's something that you can figure out if you work at it hard enough, but that people haven't quite thought of working on in one way or another. And I want to suggest that there are still a lot of secrets left. And I think this was in some ways more obvious if you were growing up 200, 300 years ago. You could just look at a picture of the map of the world, and there were some empty spaces left on the map.

And you could become an explorer, and you could go there. And it was kind of a dangerous, not-that-easy thing to do, but you could figure out what was there and you could learn new things. In the 19th century, you could look at the periodic table of elements and there were some empty spaces left, and you could figure out what was there. And certainly, it probably would not be a great idea today to become an explorer or to go into basic chemistry. So there definitely are fields or areas where everything has been discovered and knowledge is more or less complete and nothing new will be found. But I think there are many other areas left where this still exists. And I think we often talk ourselves out of this a little bit too easily.

And I think there is this somewhat insidious effect of globalization in this whole process, where you have 7 billion other people in the world, and it's very tempting to always say, 'Well, whatever idea it is, whatever business I'm working on, someone else has already thought of it before me.' And then that becomes self-defeating very quickly. If you think that you're not going to discover a secret, you certainly won't try, and you will not discover one. So it is sort of negatively self-fulfilling. So in order to discover a secret, you have to believe that you would be able to do so. The kinds of areas that, again, are good at this are ones that people are generally not looking at. So they are often at the intersection of fields that are not that well established.

When we started PayPal, it was often an intersection of finance and cryptography—people interested in both—but the intersection was actually quite small. There weren't that many people working on it. And it really pushed us to think about payments in all these new ways. We did not come up with a Bitcoin company. That remained to be discovered—Bitcoin phenomenon that remained to be discovered by other people 10, 15 years in the future. But this sort of passionate focus on some one specific, somewhat idiosyncratic area is really motivational, and you can really push the frontier. One of the questions that I often get asked in these contexts is: what are some trends I see in technology? Where are sort of areas that I think people should go into?

What's going to be happening next? And I always dislike the question, because I feel it sort of pushes me to give really dishonest answers, like, "In five years, there'll be more people using cell phones." And it's not really dishonest. It's sort of really banal, really banal answers like that. But the general theme that I've come up with is that I think, I think that most trends, just about all trends, are badly overrated. Education software, healthcare IT software—these are very overrated trends. SaaS, enterprise software—insanely overrated. If you hear the words "big data" or "cloud computing," you need to think fraud and run away as fast as possible. And the question is why that is. And it's sort of because—

Because the buzzwords are symptomatic of a business or of a category where many people are doing them. The fact that you've heard this buzzword or certain buzzwords many times before, it's like a tell in poker. It's a tell that you're bluffing, that there's nothing unique in your business. The more buzzwords you have, the less differentiated a business is, because you never want to be the nth in a category. You don't want to be the fourth online pet food store. You don't want to be the 10th thin-film solar panel company. You don't want to be the 10,000th restaurant in Los Angeles. And so if it's a category that people have heard of before, it often makes it easier to tell the story, but it's almost certainly a bad business.

And so again, if there's sort of an anti-pattern pattern to it, it's that if you have some sort of unique story that doesn't actually fit into any of the existing categories, that's often a really good thing. And it's important to figure out. And then one of the challenges I have as an investor or venture capitalist is to try to figure out what are some of these unique stories that might actually work. It's not always as easy as it sounds, because we're always trying to put things into categories. And so often, many of the great businesses have sounded like they were in a category when they were really unique. So I think most people always say they're unique, but they just give it away by telling you all the buzzwords.

So you can tell they're not unique because it's just sort of a litany of buzzwords you've heard before. But occasionally it sort of goes the other way, where it sounds like it's in a category, it's really unique. And when Google started in the late '90s, people said, "Well, it was just another search engine." Facebook was just another social network. Social networking already existed as a category in 2004, where, you know, people have been trying to start social networking companies for quite a while. One of my friends, Reid Hoffman, who ended up starting LinkedIn, started a company called SocialNet in 1997. So they had the idea of social networking seven years in advance. They already had it in the name of the company.

So this was not a new idea. And it was, of course—and they had all these crazy ideas about how to do it. You're going to have these avatars in cyberspace. And somebody would be a cat, and someone else would be a dog. And there'd be all these weird ways you'd interact with other cats and dogs. And it turned out people weren't really that interested in that. And so I would say Facebook was actually not really the first social networking company. But that didn't matter because that was the wrong category. It was the first company to crack the problem of real identity, which was actually a really valuable problem. Social networking, networking in the abstract, not that valuable. You don't really want to network with cats and dogs.

Real identity, that was very valuable, and that was actually the problem that Facebook solved. Similarly with Google, it was the first company to solve machine-powered search. So again, because we're always biased to put things in all these categories, it was mislabeled as a search engine when it was really a machine-powered search engine, which was vastly more powerful and was able to do all these new things other companies were not able to. You want to be in these sort of unique narratives, one-of-a-kind businesses. One very counterintuitive idea that this monopoly theme leads to, and that goes very much against a lot of conventional thinking in business, is that you don't really want to ever start with big markets.

You want to start—you want to get to big market share. You want to have a large share of a market. And so when you are starting a company, you're starting small. And therefore, to get to a big share, you want to start with, ideally, a fairly small market. And then hopefully, you can grow the market or expand into adjacent markets over time. PayPal started with 30,000 power sellers on eBay. And it was sort of this, you know, somewhat idiosyncratic payments problem where it was very—it took them seven to 10 days to clear a check. We were able to solve it, cash check—we were able to solve it very quickly. And we went, we got to about 25, 30% market share in three to four months. It was a really good start.

Facebook started with 10,000 people at Harvard, super small market. And it went from 0% to 60% market share in 10 days. Again, very, very auspicious start. When one looked at all the cleantech companies of the last decade, and you saw all the pitch decks, they made a lot of different mistakes. But I'll just mention one. Almost the first slide in every pitch deck started with, 'We have a vast, vast market. It's measured in hundreds of billions or trillions of dollars. And it's called energy. And then if we get a fraction of a fraction of this market, we'll have a pretty big company.' But it begs the question: Do you have anything that differentiates you? Do you have any pricing power? And so, because you will end up having not just to beat

If you're a thin-film solar panel company, you have to then beat the other nine thin-film solar panel companies. Then you have to beat the other 90 solar panel companies using other types of solar paneling. Then you have to beat the windmills and the natural gas company. And then fracking came out of right field, and Chinese manufacturing came out of left field. And there was just this vast—and whenever it's a big market, it means enormous competition everywhere. You never want to be a minnow in a vast ocean. Oceans are never empty. There's always lots of stuff. You don't really know what's going to hit you. That's not the sort of context you want to be in. Let me end with one slightly bigger-picture version of something I believe to be true that people generally don't agree with me on.

I think that in a successful 21st century, there are going to be these two themes of globalization and technology. And I always think these themes can be described as very different. People always use these words interchangeably, but I think they're actually quite different. I always think of globalization Always draw globalization on an x-axis and technology on a y-axis. Globalization is copying things that work, going from one to n, horizontal extensive growth. China is the paradigm example of globalization. It has a very straightforward plan for the next 20 years. It will copy all these things that are working well in you know, the U.S. and Western Europe. It'll skip a few steps. It'll avoid some mistakes.

But it's sort of a very straightforward development plan. I think, you know, they're doing many things right there. And then technology, however, is doing new things. It's going from zero to one. It's intensive, you know, vertical progress. So, you know, you can think of globalization as going from one to 100 typewriters. Technology is going from a typewriter to a word processor. And so it has this very different character. And we've had eras of technology. We've had eras of globalization. In the last 200 years, the 19th century, 1815 to 1914, was a period of tremendous globalization and technology. After 1914, World War I starts, globalization more or less goes into reverse. You have less trade.

The world sort of breaks apart in all kinds of different ways. Technology still continues apace in a lot of different ways. 1971—I sort of date, you know, Kissinger goes to China—globalization starts again, and the last 40 years we've had a breakneck pace of globalization, whereas I would argue that we've had somewhat less technology. We've had a lot in computers and the world of IT, but it is somewhat narrower than the categories people would have talked about in the '50s and '60s. There's not quite as much in the life sciences, medical devices, space travel, energy, nuclear power. There are all sorts of areas that have been somewhat reduced. And I think we live in a society or a culture that is generally extremely biased against technology and that dislikes technology in all its forms.

And the local version of this, you can just look at all the movies that get made in Los Angeles. And I sort of always challenge people to come up with a single science fiction movie made in the last 25 years that gives a positive image of technology. It's always negative. And it's always going to destroy the world, destroy humanity. It's not going to work. It's going to be bad for people. And the future looks like some combination of *The Terminator*, *The Matrix*, *Avatar*, *Elysium*. I watched the *Gravity* movie recently. And it's like you would never want to go into outer space. You want to be back on that muddy island somewhere. And of course, I think this is not just—I think Hollywood mainly reflects the broader culture.

It's not really—it partially creates it, but mostly reflects it. And I think we do have this very deep bias against technological progress or a future that looks different from the past. In some ways, if you want to describe it in geopolitical terms, it's described in these very different ways we talk about the world relative to 50 or 60 years ago. In the '50s and '60s, the world would have been divided into the First World and the Third World. The First World was the part where you had accelerating technological progress. The Third World was this part of the world where things were sort of permanently screwed up and broken. So it was a pro-tech, somewhat anti-globalization dichotomy. And today we would talk about the developing and developed world.

And the developing world is that part of the world that's copying the developed world and therefore converging with it. So this dichotomy is a very pro-globalization dichotomy. But it is also implicitly an anti-technological dichotomy. Because when we say that we are living in the developed world, we're implicitly saying that we're living in that part of the world that's done, finished, where nothing new is going to happen, where we should resign ourselves to decades of stagnation, where the younger generation should have lower expectations than their parents and grandparents. And I think this is a conception of our world that we should very strongly resist. And so I'll end by returning to the contrarian question that I think we should always ask anew.

How can we go about developing the so-called developed world? Thank you very much.

Thank you, Mr. Thiel, for some very fresh remarks in this setting. I'm Mark Garmaise, a professor of finance here at UCLA Anderson and associate dean for the MBA program. We're going to open up to questions from the audience. Maybe I'll kick off with one, and then there are microphones set throughout the stairs. Please step up and give us a question. I have a question about, you mentioned these secrets that we've got to try to find if we're going to do something very new. It's hard to do. If you find one, then you can perhaps benefit from these monopoly profits and do very well. Globalization, by contrast, is sort of about convergence, maybe a little less exciting. I've got just a broader question, which is,

If you have a few people, and it's hard to find these secrets, you have a few people who find them, who succeed tremendously beyond maybe their wildest dreams, and many other people are trying and failing. As you've seen in your own work as an investor, this is a hard thing to come up with. I see some broader implications for, say, income inequality, that you're going to have a couple of people working, founding the Googles of the world, and enjoying tremendous profits, and most other people. In fact, I see one of the benefits of globalization is that convergence of income. So question for you, number one, is this a problem? Is it a problem that requires entrepreneurial thinking? Or is it something that entrepreneurs just can't worry about?

Well, let's see. There's always a question, are monopolies good or bad for society? And I didn't really answer that question. So I think there's both, let me say, there's both an inside and outside perspective on that. So on the inside, this is always what you want to do as an investor, as a founder, as an employee of a company. You always want to be inside a monopoly. By the way, I don't think that everyone should just start a company. I'm not in favor of entrepreneurship per se as a category. I'd like to see people start more good companies and fewer bad ones. And so I think it's very important to talk about the nature of the businesses people are starting and think of it in terms of these dynamics.

Now from the point of view of society, I think that monopolies—monopolies are good when they create new things and when things are dynamic. They're bad when they become too stagnant and static. Bad monopoly is like the Parker Brothers board game where all the deeds are just, everything's set, everything's fixed. It's sort of like a troll collecting a toll at a bridge. That's sort of the example of bad monopoly. It's maybe some of the—you know, cable companies fit that category. Certainly the post office fits that category. You know, the—and then, you know, good, and we have some antitrust laws, again, are directed against bad monopolies. On the other hand, we also have copyright, intellectual property, patent laws to encourage the formation of good monopolies.

And so there, and so when Steve Jobs invented the iPhone, when Apple created the iPhone in 2005, they had a monopoly because it was the only smartphone that worked in the world for quite some time. They had a long lead. Maybe they now have still a monopoly on branding and some network effects. But this was not a bad monopoly, because people lining up around the block to buy something that previously had not existed at all. So I think in a dynamic world, monopolies are a good thing. If you told me, well, things are going to be completely static for the next 100 years or so, that would be—at some point, that gets problematic, and then it becomes a policy question. When does it go from dynamic to static?

When does it actually become bad? I think in most areas of technology, I don't think these monopolies will be permanent. I think the government's generally gotten it wrong. They went after IBM in the '70s, Microsoft in the '90s, just at the point when these monopolies were naturally going to die. So I think when you start a business, if you aim for a permanent monopoly, that's probably too ambitious a goal. 20 to 30 years, that's still pretty good. Never is somewhat problematic, or it's just going to be crazy competition from day one. Now, in terms of the—the larger inequality debate, I'll just take your question as a data point for our cultural bias against technology, since it strikes me that the main driver of inequality in our world

is in the developed world. And it's always framed, by the way, as a problem within our country. If you looked at inequality worldwide, it's arguably decreased. The Gini coefficient of the world has gone down because people in China are earning more money than they were 40 years ago. But inequality within our societies has gone up. And people always blame technology. It's much more—although I actually think there's a strong case made that the much bigger driver has been globalization. It is competition with labor that's paid much less outside the US. It's not really technology. To frame this somewhat rhetorically, if you said that Silicon Valley was going to invent a robot that looks just like you and that can do your job as dean, and it won't cost us anything, we won't have to pay this robot anything, you'd be right to be a little bit nervous about that.

We have an AI, and we put in a robot that looks just like you. And this is, by the way, this is intuitively why people are nervous about cloning. Because if you have, in the science fiction version, if you have 100 people who are identical to you, they sort of have this intuition that there's going to be this really tough competition. If you have people who are identical to you, you need to be very nervous about them, and they'll drive down your wages, create all sorts of other problems. And of course, but that's just science fiction fantasy. Something like that is 100 years or more away, if it's ever going to happen. Although there is, of course, a certain sense in which that's what globalization represents.

It's not robots, but it's people. They look a little bit different. They're not that different in India, China, other places. And they are getting paid a lot less. And that's where the real competition is. Competition comes from companies or people who are like you, not things that are very different. Computers are completely different from us. Therefore, for the most part, they're not competing. You have to compete with other people. Now, I want to be very clear. I'm not anti-globalization. I don't think we can or should try to stop globalization, but let's be very clear that inequality is primarily coming from globalization, not from technology.

Thank you. Maybe a question from the—yeah, please.

Kind of what are you excited about? Well, it's—I feel like answering, I feel that's sort of a trick question. If I give an answer, I'll be undercutting myself. So, look, I'm always interested in very specific things that are unique, that people, you know, are, are not doing for one reason or another. If I had to—if I had to sort of frame it in terms of categories, if you ask me, well, surely there's entire categories. Are there entire categories you're interested in? It would be entire categories that, for some reason, people aren't thinking about. So it's a little bit harder, because the bigger something gets, the more likely it is that some people are working on it. So you have to have deep social reasons that you have large categories of things that people are not looking at.

This is, you know, somewhat on the biotech and partially on the philanthropy side, but one of the things I am, you know, very interested in is life-extension research and, you know, could we treat aging as a disease to be cured? So that's like a big area, pretty big area since, you know, the most common cause of death are diseases related to aging. If you're age 30, you have a 1-in-1,000 chance of getting cancer in your next year. At age 80, you have a 1-in-10 chance of getting cancer in your next year. And something like that is true of almost all diseases. Almost all of them are linked to aging in one way or another. But it's incredibly underfunded, understudied, and not thought of even as a very big category in one way or another.

And if you had to describe it again in, in sort of mass psychological terms, it's that most people have concluded to deal with death through some combination of acceptance and denial. Acceptance: "I'm going to die, so there's nothing I can do about it." Denial: "I'm not going to die anytime soon, so I'm not going to think about it." And when you combine a psychology of extreme optimism and extreme pessimism, you end up doing very little. Extreme optimism tells you there is no need to do anything. Extreme pessimism tells you there's no point in doing anything. And they sort of, even though they're inconsistent, they sort of have this cumulative effect of adding up to you just don't do anything.

And so I think psychologically it would be much healthier for us to be fighting a little bit more and a little bit less on this hybrid acceptance-denial. So that's like a very, very broad category. Just to pick a little bit on Eric Schmidt here, wearables as a category on the other side would be one that probably something like this will continue to happen, but it is in some ways a super conventional category. It's one everybody in the audience can immediately relate to. It's like you think about what clothes you're going to wear every day. And so that's sort of like a super-natural category. It's one that I would suspect that because it's such a natural category for people to think about that it's probably overexplored.

He may be quite right as a trend or as a technology. I'm always a little bit more pessimistic than him in terms of timing. But as an area for opportunity, it's one that people are probably already very naturally attracted to and is therefore probably somewhat overrated. Well, well, they don't always die naturally. I think at some points they do, some points they don't. I think that as long as there's enough innovation in technology, they will tend to get superseded by other technologies in turn. And so IBM looked like it had a very robust monopoly on the hardware side, but it turned out software was going to be more important. Microsoft had a super robust operating system monopoly in the '90s.

It still is making a lot of money on it, but it is a somewhat less valuable monopoly than it was 15, 16 years ago. And it's because there's been this shift to the internet that Microsoft largely missed. There's a shift at this point to cell phones, where it feels like Microsoft's going to be quite a bit weaker on. And if you look at the market capitalization of Microsoft as a company, it is—it's still somewhat less than it was 15 years ago, much less adjusted for inflation, and much, much less relative to other technology companies. So there's been a big reordering in that world. The cause and effect always gets hard. In the case of Microsoft, you could say that the government's antitrust suit sort of helped.

I would argue it was just a coincidence. These things were going to happen anyway. The antitrust suit ended up getting dismissed against IBM. And so that's sort of a very clean example of one where it really didn't matter. Well, certainly there are analogous versions of the contrarian question—all sorts of contexts. So the entrepreneurial one is: What great business is nobody starting? As an investor, you always want to be asking: What companies are undervalued? And I think it's always some combination of what are great companies that people are not investing in enough. And so the question that I always ask myself as a VC is: What are areas that are not being funded enough, where not enough money is going into in one way or another?

I certainly do think there's something to be said for people being a little bit more adventurous. So we've done a decent amount of investing over the last six, seven years in a variety of breakthrough technology areas. We were the first outside investors in SpaceX, which was founded by Elon Musk, one of my colleagues from PayPal. And that was considered a very unconventional investment when we did that in 2008. So I do think—and it turned out to be quite a good one. So I think there is probably some room for people doing a lot more outside-the-box investing in tech. I would push back a little bit on this sort of later-stage valuation, IT investing as being too high or as being in a bubble.

And in particular, I would say that you can only have a bubble in markets when the public is involved. And there is no bubble in tech today because there are very few IPOs. The public is still largely not involved. In 2014—and this is actually the point you made in your question—the IPOs are happening very, very late. And so there's sort of far fewer IPOs. The public is generally not involved. In 2014, there were, I believe, 47 tech IPOs. In 1999, there were something like 300 tech IPOs in the US. And there's sort of a whole variety of reasons why IPOs are happening much later. You can blame Sarbanes-Oxley on the regulatory side. There's a bit of a cultural change where companies don't want to go public.

It's not seen as a marker of success in the way it used to be. If anything, taking a company public today is an indicator that you couldn't raise money elsewhere, that something was wrong. The super-big tech companies that go public are probably doing it at the point where they need to, but the ones that go public at a market cap of one or two billion are often among the weaker technology companies that were not able to raise money from private investors anymore. From an anti-competition perspective as a VC, if I don't—it's really good for my business that these companies are not going public until a much later stage because the biggest competitor by far is the public at large. It's all the mutual fund investors, all the people who invest in public stocks.

And that competition has been dramatically reduced in the last 15 years, which is why venture capital has been a surprisingly good business that's grown a lot more than people might have expected because this vast area, a vast source of competition, has disappeared.

Time for one more question. One more question. Okay. Well, okay. How about you, sir? Yes, please. Yes.

Competing with several other products.

Let me give a quick answer to the second one. I could spend a lot of time on each of these, obviously. So the sort of quick, slightly too flip answer to the second one is the first step is not to lie to yourself. Because again, people tell these fictional stories all the time about, 'It's the British-Nepalese fusion restaurant in Westwood.' And on some level, that's a fictional story you're telling investors. The dangerous thing with telling fictional stories is you end up believing them yourself. And so the first step is don't fool yourself. Don't tell yourself fictional stories. And it's not the only step. But if you do that, you'll already be way ahead of the competition, or everybody else, or a lot of other people.

Now in terms of the next Apple, and I think it's always, let me try, I certainly don't want to put precise words into Paul Graham's mouth, but I don't think he meant literally create the exact next Apple. So the question's always, to the extent there's something about Apple that worked, what is it that you're copying? Are you going to copy Steve Jobs' black turtleneck sweaters? Is that what you should always wear as an entrepreneur? Or there was a point where Steve Jobs went on a diet for a few months where he ate nothing but apples. Was that really what you should do? Or was he doing it just for health? Or was this a weird marketing gimmick? But if it's a weird marketing gimmick, it doesn't mean that it's literally an Apple-only diet you should do.

If you call your computer company Banana or something like that, you probably don't want an Apple-only diet to go with that. And so I think you have to—even if we go with that idea that it would be very successful if you create the next Apple—the question is, what is it that you're doing? Or is there some pattern there that you can emulate or copy that's different from turtleneck sweaters or Apple-only diets? Let me suggest one. This is somewhat of an abstract form, but I think this is one that was a sort of very unheralded aspect of Apple's success that maybe has been underexplored. So, I think we have—innovation comes in many different forms. In our society, we're very focused on sort of incremental iteration, where it's like something where you're steadily improving things over time.

We occasionally have this form that's more like a brilliant breakthrough, where it's like something like Bitcoin or something like that, which is quite rare. But I think there are some other forms that we don't consider very much at all. And one that I would throw out there is complex coordination of many different pieces, where you take many pieces that already exist and the skill is actually putting them together in just the right way. And so, if you ask, 'What was actually innovative about the iPhone?' I would argue there was no single component that was new or different. It was just that you took all these different pieces and you put them together in the right way. And then, of course, that also included the incredible complexity of getting the entire manufacturing process set up, the entire distribution, marketing.

But it was getting all these different pieces coordinated in just the right way. And for some reason, that's generally quite hard to do. I think, you know, if I—you know, the sort of Elon's Tesla company, I would cite as an instance of complex coordination. So if you ask, 'What was—what's really new about Tesla as a—as a car?' there's no single component you can point to. All these things already exist. But it's actually putting them all together in a completely new package. That's the real creativity. And then, of course, that includes the complex coordination of creating a dealer distribution system from scratch, where the dealers don't end up making all the money, and it gets controlled by the car company instead.

And that's probably what was or remains somewhat underrated about Tesla as a company. And why it will be very hard for other companies to catch up, because you have to somehow rebuild everything at once. And that's something that we're taught not to do or think about. Now, it tends to be quite challenging as a—as an entrepreneur to start these sorts of businesses, they tend to be somewhat more capital intensive. And it doesn't mean they're—I think they would be good investments. So, you know, Tesla was a great investment. You know, the iPhone, you know, maybe it cost like 100 million to, you know, a few hundred million to get started. And then you have a business that's worth tens of billions.

But it's extremely hard to raise that sort of capital because we live in this sort of world where people are a little bit nihilistic. Complex coordination is too hard a story to convincingly tell people that it's going to work. And therefore, it's incredibly hard to finance. It's incredibly hard to get started, which again, paradoxically, is one of the reasons why it's probably extremely good if you can pull it off.

Okay. Well, thank you very much for your time and insights. And there's a book signing outside.