Zero to One: Peter Thiel speaks at USC Annenberg

Hi, everybody. Welcome. We couldn't be more excited to welcome you all to Annenberg Hall tonight and to hear from the best-selling author, Peter Thiel. We have a full room here, as you can see, but what's really exciting for us is that we wanted to make Peter's remarks as accessible as we possibly could, so he will be livestreamed to the big screen up in the forum. Many folks are gathered, so let me just take a second to welcome all of you who are watching upstairs on the big screen. I'd like to just take a moment to acknowledge some of our distinguished guests here tonight in the room. Ernie Wilson, of course. Ernie, there you are, Dean of the Annenberg School, who's responsible for this glorious place that we're all sitting in and those great big screens that you're all watching on.

Erica Muhl, Dean of the Roski School of Art and Design, and of course, Executive Director of the Iovine and Young Academy. Great to have you here. Jack Knott, Dean of the School of Public Policy. So welcome. I'd also like to introduce and thank a very special guest, a friend of Annenberg and a friend of Peter's, Alexander Cappello of J.P. Morgan, who really helped coordinate and put this event together for us. He's going to be joining me up here in just a bit after Peter's remarks to do some questions and answers. And after that, we hope to hear from all of you. So, let me just take a moment to introduce Peter. I know that you all know him, but Peter Thiel is an entrepreneur and investor, and now a best-selling author.

He first gained attention for really wanting to replace the U.S. dollar. He started PayPal, didn't quite achieve that initial goal, but he did change the way payments work, and he made it possible for hundreds of thousands of small businesses to thrive on the internet. After taking PayPal public and then selling it to eBay, he's become known as the don of the PayPal mafia since so many of his former colleagues have gone on to start successful companies, Tesla, LinkedIn, Yelp, YouTube among them. In 2004, Peter started Palantir Technologies, a data analytics company that makes tools for national security and global finance. That same year, he made his first outside investment in a little company called Facebook,

where he continues to serve on the board of directors. And today, as a partner at Founders Fund and through his own investing, he works to identify and really to support the next generation of technology companies. He also started the Thiel Foundation and the 20 Under 20 Thiel Fellowship, helping to ignite a debate. I guess we'd call it a debate, Peter, on the differences that exist between learning and formal education. And despite his criticism of the education bubble, in spring of 2012, Peter taught a class in the computer science department at his alma mater, Stanford. And he revised that and has rewritten the class notes from that course into this book that he's going to talk to us about today, Zero to One:

Notes on Startups, or How to Build the Future. So I know you'll join me in warmly welcoming Peter Thiel. Peter, thank you.

Well, thank you very much. There's so many different directions one can go in one of these formats. So I thought I'd maybe make a few comments, then we'd try to make it as interactive as possible. One of the challenges in teaching about entrepreneurship, or writing about entrepreneurship, is that there's no real formula in these things. The standard approach to writing these business books is you have this five-step formula, you follow these five steps and you will be successful. And somehow I think that that's very untrue to the experience of what characterizes great businesses. Because I think that every moment in the history of business, every moment in the history of technology happens only once. The next Mark Zuckerberg will not be starting a social networking site.

The next Larry Page won't be starting a search engine. The next Bill Gates will not be starting an operating system company. And if you're trying to imitate these people, then in some sense, you're not really learning from them at all. In some sense, you could say that science starts with a number two. It starts with things that you can experiment and you can repeat. But the history of business is not scientific in that way because everything happens just once. It has a sort of very singular character. So one of the strange questions is, what can you say at all about entrepreneurship? If every moment is new, if everything's different, what can one really say? And so I try to approach this question somewhat more indirectly by asking a series of contrarian questions to get people sort of into the right space to think about things.

The contrarian business question is something like, 'What great business is nobody starting?' The more intellectual version of the question, which I think is a fantastic interview question, is, 'Tell me something that's true that very few people agree with you on.' And this turns out to be a shockingly hard question to ask people, even when they can read on the internet that you ask this question to everybody who comes in the door. It still is a shockingly hard question. And the reason it's such a hard question, I think, is in part because we've been taught that truth is simply those things that are conventionally understood. Truth is simply what everybody agrees on. And so it sounds like you have to be unbelievably brilliant to have come up with something new that people have not thought of.

But even beyond that, I think there's an aspect of it where it always requires a certain amount of courage to state these things. Because if you think about the literal context of an interview where someone's asking this question, and the correct answer—if you have some conventional answer like, 'Our educational system is screwed up,' or, 'The political system in the U.S. is kind of messed up'—everybody's going to agree with this. These are bad answers. They're not interesting ones. So a good answer is one that the person asking the question probably will not agree with. And that's why I think socially it's always a very uncomfortable situation, uncomfortable kind of a way to get at these things. So what I want to maybe try to do in my brief comments today is share a few of these things that I believe to be true that most people don't agree with me on, and then maybe use that as a starting point for more of a discussion.

So the first one, I think, maybe takes its bearings quite literally from this idea of uniqueness. Most people in business, entrepreneurship, in technology, most people believe that capitalism and competition are synonyms, and I believe they are antonyms. I believe that a capitalist is someone who's in the business of accumulating capital, whereas a world of perfect competition is a world where all the profits are competed away. If you want to compete like crazy, you should just open a restaurant. You will never make any money doing so, but you will encounter an incredible amount of insane competition. And then my sort of example on the other side: the kinds of businesses that are really successful are monopolies.

This is the M-word, which you're not supposed to use in general. And as an entrepreneur or investor or early employee, you always want to join a company that is a monopoly, that is in a category of its own. The paradigm example in Silicon Valley that I give is a company like Google, which has had a monopoly in search since 2002, when it definitively distanced itself from Yahoo and Microsoft, and sort of been printing money like crazy for 13-plus years now. And I think the sort of distinction between monopoly and competition is very poorly understood, in part because, of course, the people inside these businesses don't quite characterize things this way. So if you're running a company like Google, you almost never talk about it as a search engine.

You have 98% share, a huge share of the search market. 98% of the profits come from search. It's about 70% of the U.S. search market. And you instead define it as being part of a much larger market, a market called technology, where there's crazy competition everywhere. Google's competing with Apple with the Android phone. It's competing with Facebook and with Amazon. It's competing with the car companies in Detroit with a self-driving car. And so the official line at Google is that it is a technology company. There's competition everywhere. And no, it is not the monopoly that the government is looking for. Now, on the other end of the spectrum, if you were to leave this talk today and say, 'I've decided, I've figured out what I want to do with my life,'

'I'm going to open a restaurant.' The problem you'd very quickly run into would be that it would be very hard to get investors to invest in your restaurant because they'd say, 'Well, it's a very bad business. Most of them go out of business, even the ones that don't ever make very much money. I'm not going to give you any money.' And then you'd have an incentive to come up with an alternate fictional narrative that's sort of the opposite: whereas monopolies pretend their markets are bigger than they are, if you're in a world of crazy competition, you always come up with a fictional narrative that makes your market smaller than it really is. And so you would say, 'Well, no, it's not just going to be a restaurant.

'It's going to be the only British-Nepalese fusion cuisine within a 10-block radius of the USC Annenberg campus. It'll be one of a kind.' And so you sort of create this artificially small market. And so I think one of the things that one should always try to do as an entrepreneur, investor, someone joining one of these companies, is to try to look beyond the rhetoric, to think for yourself and think about what is the market really, and not the exaggerated market the monopolies pretend or the fictionally small market that people who are in crazed competition pretend. I think this failure to understand the monopoly problem is not just sort of an intellectual failure; I think it's also, on some level, a psychological or sociological sort of a problem.

One way of getting at this is the opening line of Anna Karenina: 'All happy families are alike; all unhappy families are unhappy in their own special way.' And I always think the exact opposite is true of business: all happy companies are different because they found something unique to do; all unhappy companies are alike because they failed to escape the essential sameness that is competition. When my chapter for my book entitled 'All Happy Companies Are Different' got excerpted in the Wall Street Journal, they sort of—you know, you sort of work with them a lot on editing and everything, but they get to retitle it. And they changed the title from 'All Happy Companies Are Different' to 'Competition Is for Losers,' which had sort of a little bit more of a punch to it.

And it has a lot of punch to it because we always think of—sort of very counterintuitive—we always think of the losers as the people who are not good enough at competing. The losers are the people who are a little bit too slow on the high school swim team. The losers are the people whose grades aren't quite good enough to get into the right school or the right graduate school. And we don't think of the losers, potentially, as the people who are just competing like crazy and end up competing for the wrong things in one way or another. Because competition does make you better at that which you're competing on. And so if you're obsessed with being on your high school swim team, you will get to be a better swimmer than you otherwise would have been.

But it often comes at this very high price of focusing too much on the people around you and perhaps losing sight of what is truly valuable, important, or meaningful. Sort of the autobiographical version of this was that I grew up in Northern California in a sort of phenomenally tracked, competitive sort of a context. You know, my eighth-grade junior high school yearbook, one of my friends wrote in, you know, "I know you're going to go to Stanford four years from now." That's sort of that school somewhere in rural California up north. And I went to Stanford. I went to Stanford Law School. I then ended up at a big law firm in Manhattan. It was all these competitions. You had to win them. And when you won the competition, you got to compete again.

And if you won that one, you got to compete against people who were even tougher, and sort of a cycle and repeat. And by the time I ended up at the law firm, it was one of these very strange places where, from the outside, everybody wanted to get in; from the inside, everybody wanted to get out. When I left after seven months and three days, one of the people down the hall from me said it was really reassuring to see me leave. He had no idea that 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 something that people were not capable of doing because so much of their identity was wrapped up in these competitions that they had won in one way or another.

And so it actually felt like as hard a place to escape as Alcatraz, even though this was obviously not quite literally true. You know, already in the time of Shakespeare, the word "ape" meant both a primate and to imitate. And there is—I think there is something very deep in human nature where it is through imitation that we learn languages as kids. It's how culture gets transmitted. It's how a lot of ideas get transmitted in our society. But it is also something that can go very badly wrong. It's what leads to crazy peer pressure dynamics. It's what leads to sort of the madness of crowds, financial bubbles, manias, all sorts of strange things in one way or another. And so I think there is always this very odd observation that one gets the sense that—not all of them, but a surprisingly large number of the successful entrepreneurs in Silicon Valley seem to be suffering from a mild form of Asperger's.

And I think we should take this fact and turn it around as a critique of our society. Because what does it tell you about a society where anyone who's not suffering from Asperger's will be talked out of all of their original, interesting, creative ideas before they are even fully formed? Because you'll be able to pick up on all the subtle cues of the people around you. And you'll get a sense, 'Oh, that's a little bit too strange. That's a little bit too weird. No, people will think that's funny. You better not do that. You better do something else.' And maybe you should just go ahead and open the restaurant. That's very understandable. That's what everybody is doing. And so I think it's obvious that Google's a better business than a restaurant, and yet you have this odd fact that far more people end up opening restaurants than trying to start these truly innovative companies.

I think we have to think through all the ways that the psychology feeds into this in different ways. There's always the anti-Asperger's demographic where I think the most extreme version is probably something like the business school student demo. I'll single out business school students just a little bit. I don't want to single them out too much here. They've done these studies at Harvard Business School where you have a hothouse environment where you have very extroverted people who have no real convictions of their own. They're sort of put into this environment with other people just like them for two years. And they're trying to figure out what to do next with their lives. And at the end of the two years, the largest cohort has generally concluded they should all try to catch the last wave.

And it's always sort of the wrong thing. Whatever the largest number of people does is almost always the wrong thing. In 1989, they all wanted to work for Michael Milken just before the junk bond thing blew up. They were never interested in tech except 1999–2000 when they sort of timed the peak of the dot-com bubble perfectly. It was real estate in the last decade and on and on. So I think when you sort of pull apart this monopoly versus competition idea, you get to sort of some very counterintuitive insights. And it sort of extends in many different directions. One sort of business application of this monopoly idea that goes in a direction that's very different from the way people normally think about businesses, you're normally told to go after big markets.

And I think the key thing is actually to have a large market share. And so it's often better to go after a small market and dominate that market rather than after some enormous market of one sort or another. PayPal, when we started PayPal, we went after the—we went after power sellers on eBay, which was the small, about 20,000 people that had an intense need for a better payment solution. And we got from about 0% to 30% market share in the first three to four months. And that was sort of a very, very auspicious start. When Facebook launched at Harvard in 2004, the initial market was 10,000 people at Harvard. It went from 0% to 60% market share in 10 days. Again, very, very auspicious start. Even though, if you had framed this as a business pitch,

it would have generally not been investable pre-launch. I mean, I didn't even invest until they were already at 20 colleges. If you'd said, 'I'm going to start this site, and it's going to be the service for 10,000 people at my college,' any sort of the conventional business school analysis, or VC analysis even, would have said, 'Wow, that's just a tiny, minuscule market. That can't possibly be any good.' And I think something vaguely like the opposite was one of the mistakes that happened in the cleantech bubble in the last decade, where sort of in the period 2005 to 2008, you had all these companies that were started in cleantech. And some of them succeeded. A lot of different things went wrong. And I think there was a long list of things that went wrong.

But one somewhat idiosyncratic failure was that almost all of them talked about the market in these vast, vast terms. And so it was sort of like we're basically, so the first page of the PowerPoint presentation would be, 'We have a market that's measured in hundreds of billions or trillions of dollars. It's this market called energy. It's this vast ocean. And if we get a fraction of a fraction of that market, we'll still have a great company.' And you never want to be a minnow in a vast ocean, because you will never have it to yourself, and you have no idea what else you're going to encounter, because you will have to then beat not just the other nine thin-film solar panel companies, but then you'll have to beat the other 90 solar panel companies, and then you'll have to beat the wind companies and the natural gas companies and the fracking companies that came out of right field, and the Chinese

cheap manufacturing that came out of left field, and soon enough there was competition everywhere, and, uh, somehow it did not work as a, as a business, um, as a business at all. Um, uh, let's see. So, so I say one. Um, uh, now I do think, um, I do think there's, there are sort of a, um, one of the things I want to underscore, uh, as sort of a second, second contrarian idea is that I, I think there are actually, um, more such opportunities left than we think. And I always like to differentiate, if you describe the answers to my question, 'Tell me something that's true that people don't agree with you on,' 'What great business is nobody starting?' And I think you sort of have a trichotomy of truth. There are things that are conventions, which everybody understands to be true.

These are not interesting things to start with in business. At the other end of the spectrum are things that are mysteries, which are somehow so hard that nobody in the world can figure them out. And I sort of have this in-between category of things that I describe as secrets, things that are hard but possible to figure out. And I think there are a lot of those things left in our world. Now, there definitely are certain areas where probably the domain of human knowledge or the business space is largely complete. If you were growing up in the 17th or 18th century and you looked at a map of the world, there were still some empty spaces on the map. You could become an explorer and go to those spaces.

It was going to be a hard thing to discover these secrets of what was going on there, but there was sort of a way you could go about doing this. In the 19th century, you could have sort of filled in various parts of the periodic table of elements. And so, in the early 21st century, probably geography or basic chemistry are not places where you would actually find new secrets to discover. But I think there are actually, there are actually many of these domains left. And I think it's one of the incredibly self-defeating things that we tell ourselves, that there aren't that many secrets around, that basically it's either already been discovered by somebody else or it's impossibly hard because someone, you know, if you—

If no one's gotten it, it's too hard to figure out. And I think sort of the very first thing one can say to that is that if you believe that there are no secrets left to find, then you will not be the person to find them. And I think the reality is that there are sort of many different fields, and it typically involves something somewhat idiosyncratic. It doesn't involve necessarily pushing the frontier in a conventional field, because when you try to push the frontier in a conventional field, you will again just encounter enormous amounts of competition in all these different ways. It comes much more from some sort of new category that people haven't really thought about. When we started PayPal, we were very interested in the intersection of cryptography and sort of finance.

And there was a small number of people who were interested in financial cryptography. And it sort of was a really motivating idea how we could create a new world currency. We failed to build the Bitcoin protocol, which people did figure out 12, 15 years later, 13, 14 years later. But having some somewhat idiosyncratic area that you're very passionate about is, I think, a way to anchor this sort of a search for secrets. And I think there are a lot more of these than we think. They're not just information technology. I think they're in many other areas. And I think we've told ourselves a lot of somewhat self-defeating stories that the world is flat, everything's already been discovered, or is impossibly hard.

We sort of tend to sort of have this binary account where everything's a convention or an impossible mystery, nothing's in between. And I think there's always a lot in between. So let me sort of describe this in a slightly related way. One of the questions I often get asked, which I don't like that much, but it's sort of, "What are some trends in technology? Where do you see things happening?" And it always feels like this question where I'm not a prophet, I can't really say what's going to happen. It sort of incents me to come up with all these very banal answers. So it's like, well, there are going to be more people using cell phones in five years, or something like that, which doesn't really help you that much.

But the general answer I've come up with is that I believe all trends are overrated. And so if you hear something that sounds like a trend, it's overrated. The more trendy it is, the more overrated it is. And so education software, healthcare IT software, these are common buzzwords, common trends. It's somewhat overrated. Too many people are trying to do things. SaaS, enterprise software, way overrated. If you hear the words big data or cloud computing, you need to think fraud and run away as fast as possible. And it's not that it's inconceivable that something could exist in these areas, but it is that the fact that the buzzword exists, there are tells, like in poker, that someone's bluffing.

And so the more buzzwords people use, the more they're bluffing, and the more undifferentiated their business is. And so if you're just one of 100 big data companies and you define yourself in terms of being a big data company, you fail to differentiate yourself. And again, you don't want to be one of N, you want to be one of a kind. You don't want to be the fourth online pet food company, the 10th thin-film solar panel company, the 10,000th restaurant in Los Angeles. And what I think is underrated, conversely, are these sort of one-of-a-kind companies that don't really fit into any categories at all and that are really somehow very unique and different. We're investors in Airbnb, which sort of describes the sharing economy, but it's really just this very idiosyncratic sort of hospitality service where people can turn their homes into bed and breakfast.

Bed and breakfasts. And so I think all the great companies are sort of one of a kind and they often don't really fit into any categories. One of the challenges as a venture capitalist or investor is of course that people are often, occasionally it happens that people will describe their companies in these conventional categories and they will still be unique. So the rap against Google in 1998 was that it was just another search engine. There already were a whole bunch of different search engines. And I would argue that that was actually the wrong categorization. The correct categorization was that Google was the first machine-powered search. And before that, you just had these human-powered search engines.

So it was very different. But you had to describe it correctly. For Facebook, the rap against Facebook early on and for quite a while was it was just another social network. These things were sort of fads. They all came and went. It was certainly not the first social network. One of my friends, Reid Hoffman, who ended up starting LinkedIn, started a company already in 1997, seven years before Facebook, called SocialNet. And so they had social networking in the name of the company seven years before Facebook. And it had sort of all these ideas. You'd have these different avatars in cyberspace, and maybe you'd be a cat and someone else would be a dog, and we'd have these complicated rules how you'd interact with one another in cyberspace.

And it turned out that didn't really take off. And so I would say that Facebook was the first company to crack the real identity problem. This was not the way it was characterized. It was, I would say, mislabeled as a social network, but it really was doing something that was very different. So I think one of the—one of the temptations you always have is to characterize what you're doing in terms of these set buzzwords, these set labels. It's somewhat easier, but I think it's always very deeply inaccurate. It's a big mistake because you're just, again, going into a space where there's crazy amounts of competition and lack of differentiation. Let me end with one last sort of contrarian thought, something I believe to be true that many people do not agree with me on.

I think that if we sort of think ahead for the 21st century, there's a good 21st century will have both more technological innovation and more globalization. And I think these words technology and globalization often get used interchangeably. And I would argue they're very, very different. And I always draw globalization on the x-axis, technology on a y-axis to underscore how they're sort of different in kind. I think of globalization as copying things that work, doing more of the same. It's horizontal growth, extensive progress going from one to n. I think of technology as intensive growth, doing new things, going from zero to one. So globalization is going from one to 100 typewriters. Technology is going from a typewriter to a word processor.

And when we think about, sort of, the bigger sweep, the history of the last two centuries, there have been eras of globalization and of technology, and they're not necessarily connected. The 19th century was a period of tremendous globalization and tremendous technological progress, the period from 1815 to 1914. 1914, World War I starts, globalization sort of goes in reverse, there's less trade, countries become less connected, technology still continues to proceed very quickly on many different fronts. 1971, Kissinger goes to China, and the last 40 years has been a period when globalization has re-accelerated. And I would argue we've actually had more limited progress in technology, where technology has been just IT.

There's been a lot of progress in computers, less in other things. And this is sort of captured in these very different ways that we describe our world. In the 1950s and 1960s, 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 accelerating technological progress. The Third World was that part that was sort of permanently screwed up. So this was a pro-technology, but no-globalization picture of the world. Whereas today, we would divide the world into the developing and developed world. And the developing countries are those countries that are copying the developed world. They're converging with the developed world.

And so this developing-developed dichotomy is a pro-globalization dichotomy. It sort of says the whole world is going to become more and more alike. It'll become more and more globalized over time. But I think it is also an anti-technological description. Because when we say that we're living in the part of the world that is developed, we're implicitly saying that we're living in that part of the world where nothing new can or should happen, where things are more or less done, where things are going to be stagnant, and where the younger generation should have lower expectations than their parents. And I think this is a conception of our world that we should resist extremely strenuously. And so I will end with the contrarian question to which I think we should always return more often.

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

Peter just got off a plane from Europe, walked right in, and delivered that talk. So among other things, we're appreciative of you for making such a long commute to get here. Thanks.

So as I said, Alex and I are going to field a couple of questions, and then we'll open it up to your questions. So, Alex, you want to start?

Sure. So Peter, I think we wanted to start on the title. And your book talks a lot about doing new things, doing what has never been done before, going Zero to One. For a lot of people in the room that are thinking about their own ideas, there's a lot of what I call entrepreneurial anxiety to be the first, right? To be unique, you have to be the first one out there, the first-mover. But you talk a lot about the last-mover advantage, and I was wondering if you could elaborate a little bit on that. Which one is it? Is it more important to be the first-mover or this last-mover advantage?

Well, you need to be both. You need to be both the first and the last. Let me start with the importance of being the last. We did this exercise at PayPal in March of 2001 where we were looking at how valuable the company was. You do sort of discounted cash flow analysis. And you have a growth rate. You have a discount rate. And it turned out that about 3 quarters of the value of the PayPal business came from profits we would be making in years 2011 and beyond. And if you go through the math, that's roughly what you get for any of these companies. If you look at Facebook, Twitter, any of the next generation software companies today, next generation technology companies, 70% to 80% to 85% of the value comes from profits they'll be making in years 2025 and beyond.

So to have a successful company, both to grow and to endure, we tend to focus too much on growth because it's measurable. We don't focus enough on the question, "Will the company last?" because that's a much more qualitative one. Some indirect qualitative ways one can get at it. But I think it's an extremely important question to get at. So definitely all the great companies are ones that in some sense grew a lot but then also really lasted. It's not enough to just sort of grow fast and then blow up as people get tired of you. You don't want to be sort of a nightclub where it's hot and then it's not or something like that. Now I think at the same time, you also have to be, by definition in some sense, you have to be the first.

Because if someone else had already done precisely what you're doing, there'd be no opportunity to do it. With, again, the caveat that sometimes the categories have to be defined properly. So Google was not the first search engine, but it was the first machine-powered search. Facebook was not the first social network, but it was the first real identity company to crack real identity. So I do think you have to be the first in some important dimension, but then, equally important, you also have to be the last. I think all the great companies have what I describe as this last-mover advantage. The chess analogy is that, you know, in chess, the small advantage is white, but you really win if you win the endgame.

It was Capablanca, the former world chess champion, who said, 'You must begin by studying the endgame.' And I think it's worth having at least a little bit of that perspective when you start one of these things.

Peter, when you talk about vertical progress, Zero to One, how do we make sure that that ability—the ability to create, nurture, support, fund new technologies, new breakthroughs, new companies—is accessible to all? How do we make sure that this Zero to One follows the Silicon Valley model in some ways, but not in the area that is less commendable in terms of its lack of diversity?

Well, let's see. I certainly think, again, I think there's no sort of one-size-fits-all approach for any of these kinds of things. There obviously are all these challenges where there's not enough—it would be good if more people had access to learning computer science, to learning various other engineering disciplines, to various other fields. I'm a little bit of a partisan of Silicon Valley here, and so I do think there's always sort of this way to blame Silicon Valley for not doing more. I like to always blame Silicon Valley for not doing enough on the technology side. So, we have a tagline on our Founders Fund website is, 'They promised us flying cars and all we got was 140 characters,' which is a little bit of a crack at Twitter.

And there certainly are ways you can blame Silicon Valley for being too focused on IT or not doing enough of other things. But I think it's really a problem everywhere else. If you ask me how do we get more diversity in terms of the people in these companies, I think it's often framed as an engineering problem or a problem of getting more executives. I actually think it should be reframed as a question about the founders because I think it's the founders that end up setting the real example and setting the cultural template. There's something extremely special and important about the founding moments of these companies. I don't have an answer to how you do that, but I think so long as we're talking only about employees or executives, we're not even tackling the real problem, which is how do you change the caliber and the narrow range of people who are currently founding these companies.

So how do you do that?

Well, I don't have an answer, but I think that's the question you need to ask. I think until we ask that question, we're not even engaging in the real debate. It's not a straightforwardly political answer, because these founding moments, they often come from people who've worked together for a long time. They've been friends for a long time. One of the questions I often ask teams of founders when they come in is the prehistory question: 'When did you meet each other? How did you start working together?' So, the bad answers are things like, 'We met at a networking event a week ago and we decided to start a company because we both wanted to be entrepreneurs.' These are really bad answers. And then a good answer is like, 'We've been friends for three, four years in college, and one of us is going to be on the business side, and one of us is going to be on the tech side.'

And that sort of organic answer is one that's very promising. And that's the kind of thing one would have to think about doing differently.

But that would, by definition, create a collection of people who think alike. And all we hear today is, no, that's not what you want in your founding team or in your management team. You want a group of people who think really differently, that that builds a better business and grows a better business.

Well, I think you want people, you know, I think, I would always define a company, a great company as one that thinks differently from the rest of the world, but does obviously, you have to have something in common internally. And so it's, you have some agreement on one thing that you understand that nobody else understands. When my PayPal colleague Elon Musk started SpaceX, the founding vision for SpaceX was that we were going to go to Mars and that this was the most important problem in the world for us to solve. Not everybody would agree with that, but the rocket scientists that believed going to Mars was the most important problem in the world were natural people to join SpaceX. So I think great companies are often characterized by having

by being both different and alike, where they have a very powerful idea that's very different from an idea anybody outside them has, but it's one that people on the inside do have and that you don't want someone to say, 'Well, we shouldn't go to Mars, we should just go back to the moon, or maybe we should go to the sun, or maybe we should just go up 100 kilometers like Branson. 100 miles is too much, we'll do kilometers, we'll do the metric system.' And that sort of would not be that constructive at a place like SpaceX.

Are there any current founders or aspiring, you know, growing, fast-growing founders that you find interesting or, you know, everyone kind of points to Steve Jobs, right? And after, you know, his passing and all that, was there somebody that's kind of rising that you see as strong?

I certainly do admire a lot of the people that I've invested in and worked with over the years in Silicon Valley. It's always, you know, you have to be sort of careful to, I think, draw the right balance where we don't, you know, I think the founders are special but not godlike. And so there's sort of some balance in between ordinary and godlike that you want to sort of get the right balance. And so I think they are often very charismatic people, but they end up bringing the best out of a lot of other people around them. And so I think, for example, to just riff on Steve Jobs, my own sense is that he gets constantly misdescribed. The biographies on him, it's like he was this unbelievably mean person.

And he sort of just beat everybody and was this absolutely awful human being. And that sort of probably begs the most important question, which is like, how did it work at all if that's the case? You know, sort of managers that sort of gave the Steve Jobs biography to their employees and was sort of like a warning: 'I'm going to start behaving in a more obnoxious manner because I'm going to try to be like Steve Jobs.' And so, and so when you ask, what is it that you're emulating in a founder, you have to get it quite right. It's not necessarily that you're emulating Jobs' hairdo or his apples-only diet, which he had for a month or so and probably didn't necessarily have anything to do with the fruit apple, per se.

And it's the ability to inspire a group of people to do something extraordinary, new.

So when you invest in companies or when you select your fellows, what do you look for in those founders? I mean, obviously the idea, right—the answer to your question—but what else do you look for?

Well, again, I think it's very rarely a singular founder. So I think most companies require more than one person to succeed. This is probably the single aspect about entrepreneurship that is, I think, most different from an academic context. Because in an academic context, it's extremely individualistic. It's you against everybody. And you have to beat everybody. And when you have group projects, these are normally projects that people don't have to work on that hard. And the thing that really matters are the things that people do individually. And there certainly are certain types of companies where you can do it as a solo person. But I think a lot of these businesses require this coordination, this bringing together of groups of people.

And we've not really learned to do teamwork terribly well, ever. We sort of learned it maybe a little bit in some athletics, but it's always this super-fake, stylized context. And so I think there are all these Zen-like paradoxes. It's like you want people who are really stubborn but really open-minded. So you often have these really strong personalities, and they have to somehow work well together. And so you sort of know it when you see it. There are many cases where it's just way off. But I'm very focused on the team dynamics. I am at this point very focused on the ideas, actually. I used to have this conceit that all it took was a team of people. And if you had a great team, you could do everything.

And I think the sort of model where we have four really smart people, and we're going to lock ourselves in a room, and we're going to come up with one idea after another. And if it doesn't work, we'll come up with another idea, and we'll come up with another one. I don't think that's a terribly good business to invest in. And I think that in some sense, these great ideas are actually pretty rare. And so at this point, I'm very focused on sort of the business strategy, the intellectual property. I think if you have those, that already suggests that you have something really interesting. But it's often these combinations are really hard. In the breakthrough technology area, in the science area, we've done a decent amount of investing, biotech, medicine, medical devices.

One of the great combinations is to have a great scientist with a great businessman. And this is like an unbelievably rare combination to find because the skill sets are so different. The scientists have no idea what a good businessman looks like. The businessmen have no idea what a good scientist looks like. So, you know, a scientist will think that a good businessman looks like a used car dealer. And a businessman will think that a good scientist is someone who looks like Dr. Oz or something like that. It's some sort of fictional caricature of science. And yet getting that combination right is very critical.

So you mentioned Silicon Valley. So I wanted to ask, so entrepreneurship is basically coming up with answers and solutions for daily problems. Why is it that you think that the majority of all these answers or Zero to One innovations have come from a very small geographical area? And then could you ever see L.A. becoming this place of technological advancement as well or some type of leader? Why is it just in Silicon Valley?

You know, any question that starts with the word why is unbelievably hard to answer. We can say there's been a lot in Silicon Valley, empirically. Why that is is really hard to say. Outside of L.A., you could say maybe the weather's nice. Silicon Valley does have—not as good as L.A., but it has better weather than most parts of the world. There was certainly a university infrastructure. There was a history where a lot of people had innovated. It was a somewhat open culture. But—and I think all these things are sort of, are super, super over-determined. You know, I think the—I think one standard, you know, my guess is that one of the things that makes Silicon Valley work is that you have a whole series of these things that go together in just the right way.

So you have this infrastructure, both educational and professional and services. You have, you know, you have the venture capital piece. You have a history of success. You have ways in which people can mentor other people. And somehow you have a lot of these factors that come together in just the right way. But it's possible that a lot of these things also can be negative. The classic version would be that there are these network effects in Silicon Valley. It's a very powerful network. The negative with a network is that you end up just sort of hanging out with people who are just like you. You become more homogeneous. You become more ape-like, sheep-like, lemming-like, and you end up with a sort of wisdom of crowds, which I think always leads people astray.

And so there's also a lot of—there is a dynamic in Silicon Valley where it is very prone to bubbles and bubble-like thinking at this point. My guess is that at this point, I think people could actually start great companies in many different places. I think there are certain advantages Silicon Valley has. There also are disadvantages from a cost perspective and sort of a, a manicness perspective. But I think L.A. is a very promising place. One natural way is that you expect Silicon Valley, you expect sort of adjacent places. And there's a way in which L.A. is actually like an hour, hour and a half away from Silicon Valley. And there's many ways in which it's more natural than, say, Sacramento.

Well, it's, you know, I've been—I've been a fairly big critic of the university system over the last few years. By the way, nobody here has noticed, I'm sure. And I think that it's obviously the case that our universities—they're a magnet where we have a lot of the most talented people go. There is some degree—and I think the question that's worth asking is—I remember my senior year in high school where people had all these incredible aspirations, incredible dreams of what they were going to be doing with their lives. And when you look at a lot of those same people at college plus five years, it's a surprising degree to which that's been beaten out of people. Again, I'm not going to answer the why question, why that happens, but empirically, one of my friends told me that—I think this was from a very unusual perspective, but—his senior year of high school, he was thinking to himself, 'I'm about to go to that place where all of my dreams are going to get beaten out of me because this is what happens empirically to a lot of other people.'

I'm not answering why. I think that that's something certainly that needs to be resisted. I don't think everyone should drop out of college or that nobody should go to college. I'm skeptical of the one-size-fits-all model that we have in our society where you go to Yale or you go to jail. I don't have an alternate formula. So I don't have, like, there's going to be this different formula where, you know, I don't think everyone should be an entrepreneur. I think entrepreneur is actually a terrible label. It's a giant buzzword, bad buzzword. I think that the future will be somewhat more heterogeneous. The analogy I've used is that I think the university system today is in a crisis somewhat similar to that of the Catholic Church circa 1500.

Where you had all sorts of debates and divisions between different universities. You had differences between the Dominicans and the Franciscans and so on. But it was a universal church. It's a universal education system. And it's costing more and more. The system of indulgences was costing more and more. And you're told today that you'll be saved if you have a diploma. If you don't get a diploma, you will go to hell. And I think that the future will not be, I'm not trying to create an alternate church. I think the future, my message is very disturbing. It's like that of the 16th-century reformers. I think people have to figure out how to save themselves, which is the last thing people want to hear.

Great. If you're okay with this, I think we're going to go to the audience for questions. No pitches, but questions.

This is in Shark Tank.

Maybe right down. Marianne, can you come down?

Peter, you recently made a significant investment into the marijuana business, which is contrarian, certainly. I'm wondering why you chose to invest into a fund, given the capabilities of your team, as opposed to making direct investments, and what do you think is going to happen on a federal level with that whole situation?

Yeah, it was a relatively small investment. It got a shocking amount of publicity. What was the size, by the way? We invested $5 million. We have about a billion dollars in our fund. So it's a decent size, but not crazy large. Well, we looked at a whole bunch of different businesses. This seemed like the best group. They'd sort of started a few different businesses in this space. I think one of the, one of the general—let me answer this a little more broadly. I think I'm always very interested—I think the regulatory framework for various industries matters a great deal. And what's often very important is when the regulatory context changes. So if you have things that were heavily regulated or even illegal,

and they're getting less regulated or becoming legalized, that's often a general area where there may be a lot of opportunity. Conversely, if you have something that's getting more heavily regulated, that's often an area that I think people should be very careful and stay away from. So we spend a lot of time on the other, for example, looking at financial technology as another area, thematic area where, on a high level, it seems that there's a lot you could do on the internet with finance and technology. But the worry we keep running into is that we're in a world where the banks are getting outlawed more and more, are getting regulated more and more, and you really want to be going against the current that much?

And I think at this point, marijuana has been effectively legalized in 28 states. You can debate whether it's medical marijuana or marijuana, but it's basically been, and I think that trend is set to continue and accelerate in years ahead.

And on a federal level, rescheduling the drug or whatever, did you do a bunch of due diligence to determine, your best guess, what's going to happen there?

I think they will just not enforce the laws.

Like they do in the Netherlands.

I think our political system is pretty broken. So if you actually wait for the laws to change, you might wait for a very long time. But I think it will just not be enforced.

Hi, Peter. I was just wondering, is there a difference between the Peter Thiel philosophy of starting a business and also investing? The reason why I ask that question is because, obviously, a lot of my friends and I see Zero to One as a Bible. But then we look at some of the investments, and we think there's some sort of discrepancies over there. One company in particular I'm thinking about is Clinkle, which doesn't really fit into the Zero to One model.

Let's see. Well, I don't know if I'd want you to... I'd like you to read my book, even if you don't think it's the Bible. We've probably... We've probably invested in something like 150 to 200 companies over the years. There are certainly some that have done better than others. There certainly are all sorts of contexts where you get pitched on things, where it's incredibly charismatic, incredibly convincing, and then things don't always work out quite as the pitch would have indicated. I don't like telling stories about how great the companies we're invested in are. That feels too self-promotional. But I also really don't like saying negative things, calling companies out by name, because I think it is always very tough.

And even when people make a lot of mistakes and when a lot of things go wrong, they're having a tough enough time without adding to that. So I'd rather leave it at that.

So you talk a lot about vertical growth and horizontal growth. And a lot of the spotlight seems to be on vertical growth. But so many of our technological advancements aren't spread to the vast majority of the world yet, like so many people, billions of people aren't on the internet yet. So what are your thoughts on that horizontal growth? And shouldn't we be more concerned about bringing the rest of the world up to the bar as well?

I think we're doing both. There is a globalization trend and a technology trend. I think I disagree with the premise behind your question. I think our society is geared towards globalization and I think it's geared against technology. I think our culture dislikes intensely all things scientific and technological. And I feel uncomfortable saying this in Los Angeles, but all you have to do is watch the science fiction movies that get produced in this town. And they all portray science and technology that's bad, that destroys things, that's making the world a worse place. And the future is some combination of Terminator or Avatar or Elysium. I watched the Gravity movie the other day. It's like you would never want to go into outer space.

You would be happy to be back on that muddy island somewhere. And I don't think it's unfair to sort of single out Hollywood. It is simply reflecting our broader society and our broader culture, which is generally very, very anti-technological in all sorts of ways. And I think the really countercultural thing in our world is to be in favor of radical innovation. One of the areas I've spoken out about over the years has been the need to do more work on life extension, anti-aging research in one way or another. And this immediately gets you into this sort of bizarrely uncomfortable zone where people think it's weird, it's creepy. And we're sort of dominated by this sort of pessimistic fatalism where

You know, we're all going to die and there's nothing we can do about it. And so if someone actually says, 'Well, no, there's a lot we could be doing and we could be curing cancer, we could be curing Alzheimer's, it's not acceptable that one-third of the people at age 85 are suffering from dementia.' And generally speaking, people don't want to hear that at all, because they've sort of resigned themselves to, 'We are in the developed world. This is it. This is what's done. And maybe there can be some redistribution. And there definitely can't be any more progress.' And I think that's a conception that I want to powerfully resist.

So besides thinking really hard, what are some ways to tell and differentiate between a fictionally small market and an actual market that's small?

Well, there's always a... There's always a... I don't think it's simply an analytic question, but I do think we shouldn't underrate the importance of or the ability to think through things. In general, I think these are not purely empirical questions. If you try to measure it, try to figure it out, that will take you too long and you'll never make it. So I think it often, in my mind, comes down to: is there a really coherent narrative? Do I believe the story? Does the story sort of stick together? And then you ask, 'Well, is the market really the size you say it is?' And so I like very compelling narratives where they work. Certainly, one form this has often taken in the area of tech has been doing new things on somehow a very small scale, where they then build out in concentric circles.

So it's like Amazon started with just a bookstore that had a much broader selection of books, then gradually expanded from there to other forms of e-commerce and sort of built it out in concentric circles. I would say one other dimension besides market size that is perhaps worth stressing is you also need to, whatever market you're going after, what you have to have has to be significantly better than the next best thing. And sort of the vague rule of thumb I give is you should have a product that's at least 10 times as good in some important dimension than the next best product. So alternative PayPal was cashing checks. It took seven to 10 days. PayPal, you could do it well within one day. Amazon, you had a bookstore with 10 times as many books as the next biggest bookstore anywhere in the world.

And so it's important to have this very noticeable delta between you and what other people are doing. If you're sort of half a percent better, 10% better, 20% better, that's not good enough because you're always going to be uphill. You have to, you know, it's always—it's always a combination of technology and the communication of technology. And if you're only slightly better than the next best thing, you're never even going to get started because you won't be able to convince people of it.

So Elon Musk, he started companies in aerospace, automotive, maybe transportation soon, and solar. So those are all, like, super competitive industries. So my question is, why isn't he a wimp? And why isn't he a loser? Because he obviously isn't.

No, I certainly would never describe Elon in those terms at all. There are many, many Elon stories I could tell. Go for it. Just one. They would all have the common denominator that it's—that it's all sort of really crazy in one way or another. I was talking in the summer of 2008 about Tesla. And I was asking Elon, when was the last successful car company built in the US pre-Tesla that had actually worked? And the last successful new car company in the US at the time had been Jeep, which was started in 1941. It was sort of heavily subsidized by the military in World War II, and so there's been no new car company in 69 years. Uh, is that a bad fact or a good fact? And it was, well, it's, you know, Elon's was the glass half-full, quarter-full, one-tenth-full, but it's about time for a new—a new car company now.

Now, what I would say, to answer your question more directly, is that in both space and cars, which are the two main ones—I think SolarCity was a little bit different, but the two big ones were Tesla and SpaceX—I would argue the competition was actually pretty weak. The big car companies in the US massively screwed up on every level. And so he didn't try to create a new search engine. If you're competing up against Google, I would discourage you from doing that. I invested in two search engine companies over the years. It's impossible to compete with Google. Competing with General Motors, Ford—that sounds a little bit more feasible. And then on the rocket side, you're basically competing with these sort of very corrupt, half-government, half-private aerospace conglomerates that have become these kludgy, super-inefficient kinds of businesses.

And so there was actually a real opening for SpaceX to do something new. I think one of the forms that innovation—innovation takes all these different forms, and we often think of innovation as sort of a lot of incremental improvement, which is like you sort of improve things along a curve. This is a very common way that we see innovation. Occasionally you have sort of the brilliant breakthrough, where it's just this eureka moment, you come up with something new. But I think one modality of innovation that's very underrated is what I describe as complex coordination, where you take a lot of different pieces and you put them together in just the right way. And so if you ask what was innovative about Tesla or SpaceX, there was no single component that was actually new.

You had all these different components, but you just redesigned everything from scratch. And that sort of a complex coordination is a form of innovation that's extremely rare. I think that's what Jobs did with Apple with the iPhone. There was no single component of the iPhone that was new. So you pulled all the pieces together, you built the entire manufacturing chain, and you all of a sudden had a smartphone that worked, and you had a giant lead over everybody else. I think having achieved that with both Tesla and SpaceX, I actually think it will be quite hard for any of these companies to catch up because it's not—for BMW or Mercedes to catch up with Tesla, it's not a matter of copying one or two pieces.

It's really re-architecting everything. I think that's not even a mindset people have. And again, Elon said it was not a car; it was the first electric car. So again, there's a category question, too.

Since this is a journalism school, I'd like to ask you a bit more controversial question. You invested in Palantir, as was mentioned. You were partnered with the CIA. You didn't have a customer for three years. The CIA provided what? Not much, but $2 million funding, but they gave you the big contacts in government. As a result, Palantir is now mining the data for the entire national security apparatus and even the Los Angeles Police Department. So here you are, a libertarian who's been suspicious of government. You mentioned the founders, but the founders that gave us our Constitution certainly had a great concern about privacy and individual sovereignty, fear of government. And yet Palantir, your company, is now a private company, so we can't get too much information about it, involved in secret contracts with surveillance agencies, mining the data of not only the American people, but people throughout the world.

And in light of the Snowden revelations, aren't you really a part of this military-intelligence complex that has enormous power and is quite frightening in a democratic society?

A lot of different questions embedded in that. Let me try to answer as many of them as I can. Certainly, as a libertarian, I believe that civil liberties are very important. I believe privacy is very important. And I think that there's something very ambiguous about information technology. And people have had very different views of what the future of the computer age looks like. In the 1960s, people thought it would lead to sort of a centralized, one-world state, where the state got to monitor everything. It was a Star Trek episode from the original series. We had the planet Beta, where it was run by a computer. And the computer has been running the whole planet for 8,000 years. And sort of peaceful, docile, very uncreative, somewhat softly totalitarian place.

By the late '90s, the future of the computer age was seen as sort of cypherpunk anarchy. You'd have encrypted stuff everywhere. Everything would be sort of radically decentralized. And so in the '60s, computers would centralize. By the '90s, they would decentralize. And I think, in a weird way, from, you know, '98 to 2015, we've again come all full circle back where people think of computer technology as having this sort of transparent but centralizing effect where you have a lot of concerns around privacy one way or another. So I do think information technology—it can be used to secure things cryptographically and increase privacy. It can be used to also make things more transparent and in some respects less private.

Now with respect to the national security question in this country, it is my view that if we do not use information technology in the fight against terrorism and things like that, what will happen will be you will get more terrorist attacks and you will get low-tech responses to them, which is what happened after 9/11. And as a civil libertarian, the ACLU will never protect you after something bad happens. Because when you have an event like 9/11, the politics changes and you get something as toxic as the Patriot Act gets passed. At that point, it's always too weak. And so it's imperative from a libertarian perspective that we use these technologies to to try to narrowly focus on suspicious behavior and prevent it before it happens.

And that's how we will have a world that protects more civil liberties in one way or another. Now I have a very different perspective on the on the Snowden NSA revelations more generally. And what I think is remarkable about it is how little was being done with all the data. I mean, you sort of get the sense the NSA was hoovering up like a vacuum cleaner all the data all over the world. But there were no exploding cigars. There was no James Bond-type stuff. Supposedly, Obama had spied on Chancellor Merkel's cell phone. I'm sure that was even news to Obama. So we had this sort of manic data collection that was not actually being used in any actionable way. And what I would suggest, the way you have to think of it is that it was a

sort of bureaucratic momentum where it's like, we're really stupid, we don't know what to do with any of the data, and therefore we get more data. And then you get even more data, even more warehouses full of data, and then you say, well, we still don't know what to do with it, so we need to get even more data. And so that the antithesis to something like the NSA, if you could figure out more sophisticated ways to identify things, then I think you'd have far fewer privacy violations than we do today. I think you have an appalling reduction in privacy in aviation. Air travel is a massive reduction in privacy, very little improvement in security. And that's what a low-tech response to terror looks like.

And so I think I often define technology as doing more with less. And so with respect to this question of national security and privacy, technology means more security with fewer privacy violations. And then again, because we're living in a non-technological world, it always gets framed ideologically. And the ideological debates in our society are never more with less. They're always more with more, or less with less. And so the ACLU version will have less security and more privacy protections. The military intelligence complex would be more security and less privacy. And you're always making trade-offs. So the ideological debates are always about trade-offs. Technology is about finding a way to avoid a trade-off.

In that sense, I think Palantir represents something that's very much at odds with both the ACLU on the one hand and the military intelligence complex on the other, which are just sort of these ideological twins. They believe in the same terms of the debate, whether you're in the ACLU or the NSA, because both sides say it's just a trade-off that you're making, whereas the technological answer is to find a way to avoid making trade-offs. Now, I'm not saying, mind you, that we couldn't imagine bad technologies that would be catastrophic. You could imagine some evil computer that runs the world and is really, really bad. So I'm not a technological utopian who believes that all the technology is simply good, that it's a panacea for all our problems.

But what I do believe is that without more intense technological innovation in this and many other areas, there is no good future, period.

Can I just have one little follow-up? You partnered, In-Q-Tel is a CIA company that invested widely in Silicon Valley. In-Q-Tel invested in Palantir at a time when you were the only other investor. If I were, as a journalist, to ask you, well, what did you agree with the CIA at that time? What did they say? What did you learn? Did you see any excesses? After all, the CIA is not supposed to spy on American people. What influence did you have on them? What are the issues? Are you at liberty to discuss that? Can you talk about your relation to any of the intelligence agencies? So where is the accountability to the American people? This is all basically private activity between you and government agencies, including the LA Police Department.

Well, I think answering all those questions would take us quite a bit of time. I will just start by saying that In-Q-Tel is a venture capital fund funded by the CIA. They act on a standalone basis. They made some introductions for us at the CIA. They act sort of in a quasi-independent manner. And on most of the questions you asked, there was nothing of the sort that was insinuated in those questions.

Peter, thank you. If you ever decide to get back in front of a classroom again, you have a standing invitation here. You have extraordinary colleagues, fantastic students, beautiful weather, great facilities. So just standing invitation if you decide to get back into teaching. And thank you for joining us today. We have book sales outside and Peter will be signing books right outside the door.