a16z Podcast | The (Definite) Optimism of Peter Thiel

Come on in, have a seat. Woo, there we go. If you're looking for a seat, it's just like church. There's two more up here in front. Four more over here. The closer you get to the stage, the more likely you go to heaven. So for those of you who don't know me, my name is Charley Rose Jr. I will be interviewing Peter Thiel today. Everybody here probably is aware of Peter by background. I will quickly recap his professional accomplishments as follows: tech founder, CEO, venture capitalist, hedge fund manager, derivatives trader, corporate attorney, chess champion, political activist, book author, public speaker. We are thrilled to have him with us today. I'm really thrilled to be doing this. Peter is one of the people—I'm going to run the risk of embarrassing him.

He's one of the people I respect the most in the world. And there's really three reasons for that. One is Peter is—those of you who have followed him over the years or have known him or read his book—is a truly interdisciplinary thinker. Like, he really draws threads together across fields, and—or you might describe, lateral thinker—always has an original viewpoint, and you always end up learning something. Two is, Peter—I give Peter a lot of credit for what's happening in the Valley right now because I think Peter really raises the bar on the people around him. He raises the expectations of the companies that he works with and the founders he works with, and he raises the expectations, I think, of the thinking that we all do in the Valley.

He's really, you know, substantively elevated a number of debates. And then third is just sheer intellectual generosity. He's a teacher, and he was a teacher before the book. He was a teacher in his Stanford class that resulted in the sort of bootleg notes, Blake Masters' notes, that went viral, and now he is a teacher through the form of this book. The book has come out. The book is called Zero to One. The book tour has been very highly publicized. If you haven't, definitely go on Google News and type in Peter Thiel, and you will get a cornucopia of excitement. The book tour has gone highly viral itself. Many things Peter has said have gone viral, in part because, for some reason, when Peter says something pessimistic or negative, it immediately goes viral.

But Peter also is an enormously optimistic person about many things. And so what I'd actually like to focus on today is the optimistic Peter Thiel. And so the things that Peter thinks are going well, the areas where Peter thinks that things could clearly be improved, and then, in particular, given the nature of this audience, a little bit more of the how-to, which is like, 'Okay, I got the basic idea, but how do I actually do X? How do I make the world a better place? How do I build a fantastic company? How do I build a monopoly?' So we will go through a number of those topics. I would like to start, though, by going back in history to one of my favorite topics, which is PayPal, which is the company that Peter founded and ran.

The PayPal story is amazing. I think everybody here has a general sense of the PayPal story. In particular, the founding story of PayPal has been quite well told, I think, and then also the fact that PayPal, of course, got bought by eBay and now actually will become a separate public company again very shortly. When it splits, estimates are it'll be on the order of a $40 billion public company. So it's a very significant entrepreneurial achievement, business achievement. And then, of course, the PayPal Mafia has become central to Silicon Valley, and the people who were at PayPal have become really formative and foundational people for the modern Valley. What I'd really like to focus on is what I think is the really dramatic part, which is the middle part, which is what happened after the founding, before the sale, because the world was a pretty exciting place.

PayPal is an exciting company. So I'd like to set the stage by asking everybody to recall, if you're old enough—some of you were in elementary school at this time, but some of you will recall March of 2000, which was the high of the NASDAQ in the dot-com bubble, which was possibly the most exciting month of all time, because everything was going up and to the right. Everything was working. Everything was wonderful. All companies could raise infinite amounts of money at higher and higher valuations. The new economy had arrived. Silicon Valley was going to win everything and all was going to be glorious. And so I'd like to start March of 2000 by asking you to describe what was the state of PayPal in March of 2000.

Well, at the start of the month, we merged Confinity and X.com, which was a company started by Elon Musk. PayPal was myself and Max Levchin. And the combined company had $15 million in the bank.

Sorry, $1.5 or $5? $1.5. $15 million.

We had an exponentially growing customer base, because we had these referral programs where if you signed up, you got $10. If you referred someone who signed up, you got $10. So we had a $20 customer acquisition cost. The customer base was growing at sort of a 5% to 7% daily compounding rate, and it hit 100,000 users on February 3rd, 2000, and got to a million by mid-April of 2000. And with the exponentially growing customer base was also an exponentially growing burn rate since we had no revenues and certainly no profits. And so the CFO had the projection that the $15 million was going to run out in about six weeks. People did not seem especially worried about it at the time. But we did.

Oh, the reason they wouldn't be worried is because everybody knew you can always raise more money. You can always raise more money at a higher valuation.

I think, in fairness, Elon, myself, were a little bit worried. And we managed to raise some money that month.

So what was that like? What was fundraising like in March of 2000?

For a company like this? Well, it was much crazier. There's always this talk, are we in a bubble again today? And it's a complicated question. I don't think we are. But I think it's nothing compared to what it was at that time. We had this round-the-world trip. There was one day we were in South Korea. There were three competing investor groups we met with. There was a professor from a university who was hiding behind a palm tree in the hotel to spy on us and steal internet business models from the U.S. It was this frenzied thing. Everybody was trying to get in on the action. One group then took me to the airport, and I was running this new payment system, this new payment technology, and I was not able to buy a plane ticket.

My credit card didn't work. I probably just didn't have enough credit on it or something. This was not disturbing at all. They were really excited. They bought me a first-class plane ticket on the spot. The next day they called the law firm and said, "You know, where do we wire the money?" And the law firm figured, "Okay, they must have signed all the paperwork." So they gave them the account. So they wired $5 million in. They had signed no paperwork. And then sort of the opening negotiation was, "You know, we're not telling you where the money came from. You have to take it. We're not telling you where you can send it back." And so, you know, and so we did end up taking them as investors. But so, but I sort of, and, you know, there had been this period for a year and a half, two years, where things had been getting crazier and crazier.

But there was sort of a sense in March 2000 that it was hard to imagine change, how it could go any crazier. So, people sending $5 million without paperwork. And South Korea was a country where it was really hard to get money out at the time. They still had all these capital controls. It was phenomenal they got the money out. And so we closed on $100 million on Friday, March 31, and the following Monday, the bottom fell out of the market. So then we had some time to build a business.

So the bottom falls out of the market. I know it's always hard to think about these things in retrospect, but kind of the bottom falls out of the market in March or April. A lot of people, I just remember from the time, a lot of people, you know, there were sort of equal arguments of like, 'Okay, this is it.' And I remember like Roger McNamee, I think in particular, came out and said, 'This is it. Like, you guys don't understand. Like, the end is here.' And then other people came out and, of course, the conventional wisdom that had worked in the stock market for the preceding eight years or so had been 'buy the dips.' And so people said, 'Woo, this is great. It's a buying opportunity because everything will go up and to the right again.'

It took a while for it to become clear what was actually happening. What was the view inside the company and how were you and Elon kind of processing through this? Especially given, I assume, the burn continued then. There was...

There was a sense—we did dial back the marketing pretty quickly, although there then emerged this very big fraud problem in rapid succession. And so the burn stayed over $10 million a month all the way through September 2000. So we had sort of seven months in a row of $10 million-plus burn. We kept raising some more money in these additional tranches. And there was... there was a sense, I think, in the few weeks afterwards that everything was over. But then I'd say that by the summer, there was sort of a sense that there was actually still a lot of time left. And I remember having conversations. The two conversations I remember were mid-April. It was a group of friends, and we had this event on a Sunday.

And it was, 'Let's take a picture of everybody on the day the internet ended.' Right. And that was actually, that day was the low. It went from 5,000 to 3,100, and then it recovered the next Monday. But then sort of end of August 2000, I was talking to one of my friends, and I was like, 'You know, the NASDAQ was back at 4,200. You know, it's going to go all the way to 6,000.' And then it was after Labor Day 2000 when it just went straight down for, you know, month after month for two years. Right? And so, yeah, we had sort of all these blocking and tackling problems to deal with. It felt really, really chaotic on the inside. We got on top of the fraud problems starting in fall of 2000. We had all this money, so it's always good to have more capital rather than less, but certainly one downside was perhaps we didn't move quite as quickly in figuring out the business model.

We had, you know, the business model in early 2000 was you were going to upsell people on financial services. And, you know, online banking customers were valued at $50,000 a customer. And so if we could acquire customers for $20 apiece, that was a great arbitrage. Yes. Upsell all of them to $50,000 online banking customers. And then sort of by fall of 2000, we had sort of zeroed in on just payments being the thing to do, and you had to just take a slice of all the money that went through the system.

And is that when really the eBay kind of attach happened? Was that at that stage, or had that already happened? They were sort of... Were you, at that point, the default payment system on eBay? Yeah, we'd started targeting eBay January 2000.

I'd say it was 30%, 35% of the sellers on eBay were using us by April or May. So it was fairly heavily embedded. They had an alternate payment system called Billpoint. It was sort of a joint partnership between eBay and Wells Fargo. Wells Fargo didn't want to take any fraud risk. And so the product was—you can always get a product to be fraud-proof if it's unusable. Right.

And so the bank had a bias to have a—well, it's kind of on both sides. You can always take all the customers if you're willing to take all the fraud. You can always shut off all the fraud if you're willing to shut off all the customers. Yes, so—one could argue there was a little bit of both of those happening.

So we were sort of on the customer side, and eBay was on the anti-fraud side. Yeah. But then you had this very weird dynamic with eBay for the next two and a half years where it was sort of symbiotic, but it was sort of like they ran this big store, and there was a different company that ran the cash registers, and the people running the store could never figure out how to get their cash machines to work. If they just figured it out once, we'd be in trouble. They never seemed to quite be able to figure it out, though, and eventually they bought the company.

So it's fall of 2000 going into winter of 2000, spring of 2001. It is now clear that the nuclear winter has arrived and the money is shutting off. The particular thing I remember very vividly is Marc taking Loudcloud public in March of 2001.

That was about the last point where it shut down.

Our last money came in like March, April 2001. 2001, right. And I remember just we were on the road for three weeks. And while we were on the road for three weeks in March of 2001, the NASDAQ dropped in half. And the significant, or sorry, was it the NASDAQ dropped in half or the tech stocks dropped in half? I think it might have been the NASDAQ might have dropped in half again. But like literally all of our comps, the way you price IPOs is you price based on comparables of existing public companies. And literally we're on the road selling stock and the comps all dropped in half. And then Yahoo blew up and Intel blew up and like all these big technology companies blew up. So it was through that time it was becoming clear that the nuclear winter had arrived.

You guys still had the tiger by the tail in terms of you still had the growth. You had the eBay thing. How did you kind of process through, though? Okay, like, we really now are in a different environment. Like, how different did the business plan get when it became crystal clear that the capital spigot was turning off?

Well, we just, we just dialed up the amount we charge to people. So we had this tagline in early 2000: 'Always fast, free, and secure.' And so the, and so there was a question: how do you charge customers if you say that your product's always going to be free? And so, and so David Sacks, who ran the product team, came up with this idea of upgrading people. And so you were upgraded from a customer to a business account. And then there were all these extra benefits, and you just had to just pay a small 2.9% fee on every payment. You just had to click one button to be upgraded. And one of the things that did work with the payments companies, once you had all these customers, you could actually upgrade people because you already had all the payment information.

So all these other companies had been built on acquiring lots of customers and then upselling them later. And it turned out the day you tried to upsell them, they all left. But in our case, we had very little attrition. Right. And then took the company public? We took the company, so yes, we got to break even in September 2001. We were the first company in the U.S. to file after 9/11, filed end of September. We took it public in February of 2002. And then eBay bought it in July of that year.

So what was it like doing an IPO in February of 2002? It was probably the sky was sort of still falling, but a lot of the sky at that point was on the floor.

Well, there's a lot of crazy things. So there was certainly... certainly the press had become much more hostile in all these strange ways.

That's like the understatement of all time.

I'm not going to get the quotes exactly right, but there was this article, sort of this column in I think it was the San Jose Mercury News around October of 2001 after we'd filed our IPO, and the title was "Earth to Palo Alto: 'Has anyone told these people that you can't have a company in which the average age of the executives in the S-1 is 29 years old? You can't have—we need a company that people think might be used for terrorist money laundering as badly as we need an anthrax epidemic,'" and on and on and on and on. When you file for an IPO, you get these S-1 forms that you have to do with the SEC, and you get a reviewer from the SEC, and there's sort of a spectrum of people. Some are better, some are worse.

And we had this one person named Gottlieb. Our lawyers in advance will say, "Yeah, there's one person who's just terrible if you get this Gottlieb guy." And he sort of ideologically believed companies should not go public. They were all run by crooks. And so it was this crazy open-ended process where it would be things like, "You have to disclose that you're not allowed to do business in Louisiana anymore." It's like, "Oh, well, that's news to us." "Yeah, well, I just talked to them." He was seeking out reasons. So it would be like, "I'm calling from the SEC to the state banking officials in Louisiana. Is PayPal allowed to do illegal banking activity in Louisiana?" Answer: "No. If they're engaged in illegal banking, they're not allowed to do that."

And then he came back to the company and said, "You have to disclose that." So it was sort of a rather crazy process. We somehow got it public, just like you guys got Loudcloud public, in February 2002. And then there was always this complex negotiation with eBay for close to two years. And I think one of the types of negotiation that's always super complicated is when you have a sort of a bilateral monopoly, where you have one person who's a seller and one person who's a buyer. And it did... It actually did make a lot of sense.

And by that, you mean it wasn't like there was anybody else eBay could buy. You were it because you were already the default. Yes. And there was no real number two other than eBay itself. And then there was really nobody else for you to sell to at that point.

Well, nobody else. People would be scared that eBay would shut us off.

So 75% of the volume was on eBay. So we could only sell to eBay. It made a lot of sense to combine the companies because there were actually huge synergies. And so there was always this super complex question: what the price was. Once you had it as a public company, you can just say some percentage premium to that.

Well, let's talk about that for a second. So how many different deals almost happened before the actual merger?

There were, I'd say, five separate. We had—the first serious negotiation was late 2000. There was one in spring of 2001. There was one in fall of 2001. There was one in March of 2002 right after the IPO that looked like it almost came together and that fell apart. And then it was like, you know, going to be this... this crazy eBay-PayPal war that was going to escalate. And then in June of 2002, there was this eBay convention in Anaheim. And it was sort of a big company. We managed to get a booth there, even though they weren't that friendly to us at the time. So we sent 30 people down to the convention, and we handed out all these PayPal T-shirts. And so they saw all their PowerSellers wearing PayPal T-shirts.

And at that point, they decided to buy the company. Did the price go continuously up through the negotiation, do you think? I think it was about the same in June as it was in March. But again, it was in context where the market kept going down.

Okay, right. Because on the one hand, you were growing. eBay was growing. They were trying to compete with you, and they weren't able to. On the other hand, the world was falling apart.

It went up a lot relative to the pre-IPO. If we had not taken it public, it would have been a much lower valuation.

Right, right. So what do you think would have happened had you not sold PayPal? If PayPal had continued as an independent company, what would have happened? It's hard to say.

You know, certainly... Certainly, if you'd been able to keep it going as an independent company, it would be a lot bigger 10, 12 years later. There were sort of a lot of crazy risks. There was an investigation Spitzer started for vice-related payments we were doing. Well, he would know.

Yeah. He was undoubtedly running personal experiments.

Yeah, we did more, not so much the adult, it was more the offshore sports betting sites. And we got the notice, the acquisition was announced on Monday, March—July 8, 2002. We got the notice on Tuesday, July 9. And so if you sort of had the counterfactual experiment, you know, it would have been like, you know, probably the stock would have been hit 20 to 40%. And then the question is, would eBay have tried to take advantage of that to hurt the company? So there sort of are all these scary scenarios had it stayed a standalone company. But certainly, there are all these postmortems. We've debated many times whether it was the right thing to sell or not. It's always a somewhat sad thing when you sell your company because you sort of

no longer running it, you no longer have control over it. It's like, you know, you want to sell your kid or something like that. But I'm still of the view it was the right thing to do. I think most tech M&A deals don't make sense because most of the time there are no synergies. This is one where it made tremendous sense. It was because of the dependency, because of the bilateral. Yeah, and the volume increased tremendously after the acquisition. Right.

So, of course, PayPal now is famous for the PayPal Mafia. And so, you know, just to list names, you know, you and Reid Hoffman and Roelof and David Sacks and, you know, a whole cast of, I mean, the Yelp guys, you know, the YouTube guys, Elon, Max. And, you know, basically, like, you know, there's, I don't know, what, 10 or 12 people who have gone on to do really foundational things, right? And one indication of that, like, the most, like, amazing venture capital portfolio of all time would be if you just simply invested in all the PayPal founders or all the PayPal people for all the new companies. But, you know, that's how we know these people now. And now they're out and about, they're doing their things.

At the time, they were all working for you. So what was it like with all those personalities in that place at that time? We had a lot of strong personalities.

And there were... You know, I think the company had its share of challenges. So, you know, one cut I have is always this question, why were there so many successful companies that came out of PayPal? I think it's a hard question to answer, but sort of one of the lessons you learned at PayPal was it was hard but possible to build a great company. And there were sort of a lot of ups and downs, a lot of challenges, regulatory, fraud, marketing, business model—you had to sort of work out over the two and a half, three years. I think that's actually not the lesson people normally learn in these companies because most of the time people are either in companies that fail. And then the lesson you learn is that it's impossible to build a great company.

And so the next time around, you try for something that's less ambitious. And then you certainly will not build a great company. Or you are in a company where everything works just phenomenally from day one, sort of like Microsoft or Google, where you then learn the lesson that it's easy to build a great company. And there's a way in which both the lesson that it's easy and the lesson that it's impossible are sort of equally wrong. Because both lessons tell you that there's no point in working hard or you don't need to work hard. Impossible, no point. Easy, no need. And so you end up not doing what it takes. So I think there was sort of this intermediate aspect where, even though PayPal was not as successful as some other companies have been,

It was a context in which people got a very good perspective on what you needed to do.

So I think when people, when founders today who have read about you guys or met you guys, I think they view that you guys must have been an incredibly harmonious, organized team that probably worked in lockstep and kind of probably completed each other's sentences and got along really well at all times. Is that how it was?

Not sure if that's precisely correct. I mean, there's certainly always an aspect where all's well that ends well. But certainly there were sort of all sorts of crazy points of conflict. You know, I always think conflict happens when different people want to do the same thing. And one of the challenges in—it's not when people want different things, it's when people want the same thing.

And so the challenge you have as a boss is to try to have people do different things. If you're like a sociopathic boss, what you do is you tell two people to do the exact same job and you'll generate a fight out of nothing, right?

And so if you don't want to... And there are bosses who do that.

And there are some bosses who do that. And so if you want to avoid that, you should always have people do different things. The challenge in a startup is that there's a lot of fluidity in the roles. And so people end up doing a lot of different things in the ways these roles overlap. David Sachs, our head of product, liked to say that the product was a single, seamless whole, which was certainly true on one level, but then, of course, was a recipe for the product team being in conflict with absolutely everybody in the company, since the fraud team thought the product should be different, or the customer service team thought there's certain customer questions that should be answered, and on and on down the line.

But, yeah, there were a lot of crazy challenges. So, one of the defining, kind of industry-defining members of the PayPal Mafia, Elon Musk. And so you had the opportunity—I take it you probably first met Elon when you guys ultimately ended up merging your companies together and then worked with him. And obviously you've known him very well since. And I know you've been very close to, and very close—kind of, you know, you've been tracking very carefully and been involved with in various ways his companies that he's built since. You know, given the prominence that he has in our industry and given how—I mean, my view is he's really shaking up the view of what's possible in Silicon Valley. We could talk about that at length.

So I'd like to kind of probe a little bit into your view on what makes Elon tick, because I think you're kind of uniquely situated to do that. So I'd like to start with, what was—what was Elon like to work with at PayPal? Like, how long did you guys actually work together, and what were the jobs, and what was he like to work with?

Well, he was incredibly smart, incredibly hardworking, and incredibly ambitious. So he was definitely not the person you wanted to compete against. This was—the first encounter we had with him was as this competing company four blocks down the street on University Avenue in downtown Palo Alto. And so I do think one of the really good things we did was to join forces in March 2000. There were all sorts of challenges in getting this worked out in all these different ways. And there's so many different Elon stories I can tell. There was one, I believe this was literally the day of the market peak in March of 2000. And we were driving up to Sand Hill Road to meet with one of our VCs to brainstorm on how to raise some money.

Elon had made a fair bit of money in his previous startup. Most of it had gone into the new startup. It had gone into X.com. $1 million had been spent on a McLaren F1 sports car.

For those of you, this is worth a Google search, this car. Well, it was the first million-dollar sports car. Something like that. It was basically the supercar of its day. It's like, just take the most extreme idea of what a car could be, and this was it.

And we were driving up Sand Hill Road. We were supposed to prepare for the meeting. We just talked about the car. It goes zero to 100 miles per hour in six seconds. He'd taken it up to 180 on Highway 280. It's pretty fast, miles per hour. You know, we got to the part of Sand Hill right past Santa Cruz where it's sort of a four-lane, two-lane each way, 35-mile-per-hour zone. And it was sort of time for a demo, and we can sort of debate who goaded who into doing the demo. But the car was taken from 45 to 85 miles per hour in two seconds flat while changing lanes. Elon, the driver, lost control. It skidded. There was enough torque because he sort of turned the wheel while accelerating really hard that as it hit the side of the road, we sort of achieved...

The car went up in the air. There was about four to six feet between the car and the ground. We did a 360-degree rotation in the air, horizontal, not vertical, but horizontal. And then it crashed into the road. And it was sort of like an unidentified flying object over Sand Hill Road. The first person who stopped told us that she didn't really want to stop that day. She figured the people in the car were just dead, and she didn't really want to deal with that. But it had a crash-resistant driver compartment that Elon had told me all about as we were driving up the road. So it has this Hitchcock-like feel. And the first thing Elon said was, you know, “Wow, that was really intense.” And then it was, you know, “I'd read all these stories about people who made a lot of money and bought sports cars and crashed them, but I knew this would never happen to me.

“And so I, of course, had no insurance on the car.” And then we actually, you know, we both had a little bit of whiplash, but we first hitchhiked and went to the VC meeting and then sort of went to see a chiropractor afterwards. But anyway, we both ended up being, we both ended up quite fine. But there was sort of, so there was always this sense that, and this is what I think is sort of remarkable about the Elon story in retrospect, was there was always a sense that Elon really pushed the envelope. And certainly, you know, certainly on the... Well, by the way, I just want to go back to, it wasn't just the driving.

It was, he put his—this was his liquid net worth? Is that... That he put into the car? I think he had, it was like one-third of it.

Yeah, it was like a significant part. There was one of the investors I talked to years later who talked to us in summer of 2000 and said he didn't want to invest in the company because the CEO, Elon, was living in a one-bedroom condo in Palo Alto at the time. And the CEO was clearly lying to him because he told him that his car was worth more than his house.

It was totally true. Right, right. And so anyway, there were sort of a lot of crazy stories like this. And so I think certainly when Elon went on to start Tesla and SpaceX in sort of 2002, 2003, 2004 time frame, with respect to both companies, I think the conventional wisdom was that they were not going to succeed. It was way too ambitious.

The conventional wisdom was he was out of his mind. Yes, something like that. I mean, you knew two things. You knew two things in life. You knew there would never be another American car company. And you knew that. You knew that because they made a movie about it, right? The last major American car company was called Tucker. And they made a movie about what a disaster it was and why you never, ever start a car company in the United States. And then SpaceX, there hadn't been a new, I mean, rocket ship company in... Yeah. 60 years?

Yeah, so there's always sort of a half-full, half-empty version. I had a conversation with Elon in 2008 when the jury was still far from clear on either Tesla or SpaceX. We ended up investing in SpaceX as Founders Fund in '08, sort of six years into the process. And people thought we were crazy to invest six years after they'd gotten started. And on the Tesla side, Elon's comment was, yeah, there hadn't been a new car company in the U.S. The last successful new car company in the U.S. had been Jeep, which was started in 1941. And so the standard interpretation would be, well, you can't start a new car company. Elon's interpretation was, it's about time for a new car company. And so there's always a half-full, half-empty version of these things.

But I think, I would say if you take both SpaceX and Tesla, what I think did work and was perhaps very underrated for many years. In both cases, you know, I always have this sort of anti-competition bias, and the competition was really weak. And so... Describe what you mean, like, which competition? Well, I think you want to aim... You don't want to go for the things that are the most competitive. You know, sort of opening a restaurant is sort of the paradigm example of an intensely competitive and really bad business idea. And so to the extent you're competing, you want to compete against industries that are somehow, where something's sort of off and you can do something that's very, very different.

And certainly the U.S. car companies were very off. They weren't going to build an electric car ever. And so there was a way in which he picked really weak competition there. And then aerospace was where these sort of weird quasi-government conglomerates that were pretty badly managed by the 2000s as well. So I think there was sort of an opening to do this. Most of the innovation that we do involves some combination of brilliant breakthroughs and sort of step-by-step iteration. We're sort of very good at iteration. We're pretty good at occasionally coming up with brilliant breakthroughs. But I think both Tesla and SpaceX were stories that involved complex coordination, where you needed to get a lot of different pieces to fit together in just the right way.

And so if you ask, what was the real breakthrough with Tesla or the real breakthrough with SpaceX, it was actually that you had everything coordinated. I think something similar was probably true with the iPhone with Apple. There was no single part that was massively better than anything that had come before, but it was actually getting all these pieces together in just the right way. And there was sort of a vertical integration to that that people generally did not do and that I think he pulled off in both cases.

So we have—I want to leave time for audience Q&A, but I want to hit a few more topics before we go to that. So you alluded earlier—let's just do a kind of a situation check on where we are in Silicon Valley right now. So you alluded earlier to—I mean, obviously there's been high concern for some time that there's a new bubble forming. Even some of us who have said there's no bubble have now started expressing public concerns about burn rate and loss of discipline. You know, money, you talked about the $5 million showing up in the account. I haven't heard that specific story happen yet, but I wouldn't be surprised, given some of the activity, especially for money coming in from outside Silicon Valley.

So what's your assessment? Why are you confident when you say not a bubble? How do you think about that?

I'm not sure you can ever be fully confident. And we've had, certainly, a history of all these crazy bubbles for a few decades now. Japan had this crazy bubble in the '80s. You had the tech industry in the late '90s. You had the housing finance one in the last decade. So it's definitely reasonable to ask the question: is there another bubble? I tend to think the bubbles always required the public to be involved in a very big way, and they were these psychosocial phenomena on some level. And the public is not really involved because the companies are not going public until extremely late in the cycle. I've looked at the exact numbers. There may be 30 or 40 tech IPOs a year versus something like 300 in the late '90s.

And so in this entire boom, the public has, in some sense, not really been involved. And is that more because they haven't been able to get involved?

Or because they haven't wanted to?

Well, they probably haven't wanted to. They're probably still burned. They probably haven't wanted to. The companies haven't wanted them. It's all sorts of different factors. But I would say the other thought on this bubble question is, I think if you identify—my candidate for where the bubble is today is it's the government printing money. It's the government bonds. It's minus 2% real interest rates. And so the things that are bubble-like are the things that are most like government bonds. So that's corporate bonds. It's probably housing, which is very powerfully linked to the interest rates. And then, to some extent, it's stocks that act like bonds. So it's stocks that pay very high dividend yields.

It's a lot of the old-tech stocks, like Oracle or IBM or Microsoft, where you financially model them like government bonds, and the most important variable in evaluating them is the discount rate. Most of the kinds of companies we invest in are actually—the main variable that dominates is growth. How fast do they grow? And so if the bubble is centered on the risk-free interest rate, then you have to be careful of assets that are linked to the risk-free interest rate. And things that are actually linked to growth are very different. And so, I don't know, sort of one way I've put it is, you know, probably three-quarters of my net worth is in illiquid tech stocks in Silicon Valley. And it's because I believe there's a giant bubble centered on government bonds.

And this is the furthest I can get from it—government bonds.

Yes, furthest from government bonds. Interesting. So that actually leads me to another. You mentioned companies like Microsoft and Oracle. So you said you've been talking a little bit publicly on this topic. So take us through your theory on what's—I think your nomenclature is tech companies and is it anti-tech companies? Or how do you describe that? Define a technology company and then describe your view of some of the large incumbents like Microsoft and Oracle and why you don't necessarily view them as technology companies.

Well, when you invest in a company, there's always a question: are you investing on the creation of new technology, or are there cases where you're betting against the creation of new technology? And so I would say that there is a whole set of companies in the NASDAQ 100 that are actually bets against technological innovation. So Microsoft is a bet that there will never be anything like Linux. It's a bet that the operating system won't ship to mobile platforms. It's a bet that nothing will change. You know, IBM is a bet that we'll keep the same kludge software from the '70s and '80s and need lots of service people to support it. Oracle is sort of a bet against cloud computing. And so there are sort of a lot of—it doesn't necessarily make these bad investments.

But the fundamental thing you're doing is you are betting against technological innovation. And this is always obscured because the companies themselves have this pro-tech narrative because there was some point in history when they were actually technology companies. Microsoft was a technology company in the '80s, probably still in the '90s. You know, much less so in 2014. But that's, you know, when Microsoft recruits engineers in 2014, it doesn't say, you know, 'You're working at a bank where we're just, you know, money's just flowing as long as nothing happens elsewhere in the world.' And so, you know, General Motors was a technology company in the 1920s. By the '70s and '80s, an investment in GM was a bet against Japanese and German innovation in cars.

And so there's always this—you always have this sort of an arc.

Well, let's probe on that from one more direction. So you've talked in your book and on the book tour, you've talked a lot about your theory of monopoly versus commodity. And in a nutshell, right, Peter's thesis: two kinds of businesses—monopoly, commodity. Monopolies are sort of infinitely profitable and can go on to do all kinds of amazing things. But, being profitable—as a consequence of being profitable, he would argue—can go on to do very amazing things. Commodities inherently are zero profit and the enemy of innovation is, therefore, being zero profit because you can't afford to fund innovation. So commodity companies are not going to innovate. And so, sort of the revised thesis: monopoly is better than commodities.

On the East Coast, the reaction to that has largely been panic and freak-out. On the West Coast, the reaction to that among founders has been, 'Hell yeah, let's go build monopolies.'

This is certainly on the how-to-advice side. If you're an entrepreneur or founder, you always want to build a monopoly. Now, there's a public policy question as to when these things are good or bad. That's a somewhat separate question. Right, which is why you get the East Coast reaction. And those are two different questions, just to be clear. But I think from the point of view of someone starting these companies, you always want to go for monopoly.

So let me ask you this, though. So you describe companies that basically have become, as you said, sort of bank-like bets against technology: Microsoft, Oracle— Right. —and General Motors. I forget if there was a fourth one in there. IBM. Sorry? IBM. IBM. And so you could describe, like, I think you could describe that there was a point at which all four of those companies had become monopolies. Microsoft certainly. Obviously, General Motors at one point was some giant market share of U.S. auto production. Oracle is some giant share of databases with enormous pricing power. And IBM obviously is, like, at one point, actually—well, IBM went through decades of actually antitrust prosecutions over being a monopoly, and even today has a very large monopoly position in sort of the Fortune 500 in terms of global services.

So how do you reconcile your view that monopolies are the enabler to competition? How do you sustain that view in the face of the observation that these companies that were monopolies are no longer innovative?

Well, I think there's always a challenge with these companies staying innovative over time. My claim is not necessarily that monopolies are more innovative for all time. You get to monopoly if you do something really innovative at some point. So the goal should be to do something super innovative where you're so differentiated that you get a monopoly, and then hopefully you keep innovating and you build on that monopoly.

Can we talk about the hopefully part? What's the hopefully? What's the—if somebody becomes a monopoly, arguably today Google in search, or take your pick of the next big company... Well, there's... What's the hopefully? Like, what has to happen—well, you...—for the company to not just evolve into being, as you said, like another bank?

I would say, as long as the founders run the companies, there's normally enough pressure to keep doing things. Once the founders are replaced with politicians who act like CEOs, you end up with much less incremental stuff happening. And so I do think—I don't think Apple was much of a monopoly in '97 when Jobs took over again. But he shifted it from the home computer focus to the consumer electronics focus. And that's something that would have been very hard for someone who was just a politician-CEO to do.

So in historical terms, then, that's sort of a bet on the Great Man thesis as opposed to the historical forces thesis. Because the easiest thing in the world for a monopoly to do, and sort of the default position, is to stop innovating because they don't have to. It's like the motto for every successful monopoly is, 'We don't care because we don't have to.' And every time you deal with your cable company or any monopoly, you experience that.

And most of the time, these things decay over time.

They decay. And so I guess I'm probing you whether you agree with this, which is, by default, monopolies will decay unless there is a great person, a.k.a. the founder. So it has to be an intrinsic motivation on the part of the founder to keep it going, or— Yeah, well, there's always a risk these things decay at some point.

And certainly it's unlikely, you know, I don't think it's necessary for the government to be that involved in regulating them because they normally actually do have some shelf life, at least in a space where you have continued innovation. But, you know, yeah, the goal, if you can get to a monopoly that lasts for a few decades, that's still much better than opening a restaurant. Yes.

So let's just keep it in context here. That I would agree with. Well, it depends on the restaurant. The food supply chain in the world right now is responsible for like up to half of all carbon emissions for the current level of food output and the current kinds of food we consume. Like a hamburger consumes 350 gallons of water in its production cycle. I mean, just these crazy, kind of out-of-control, you know, food supply chain, energy supply chain things that clearly lead to, you know, just massive... I mean, Beijing is already drowning in smog. Right. You can imagine how much worse it could get if these trends continue. It seems like there should be a natural alliance of sort of, sort of very radical, innovative technologists with environmentalists.

It seems like it's, if there's a shared agenda there, and yet that doesn't exist at all. Do you think that that's a bridge that can or should be crossed?

Well, people should be trying to do a lot more on it. Certainly, I think always the people who are concerned about climate change and global warming, I always think they should be much more open to nuclear power. Typically, they're the opposite.

Typically, they want to go, at least seems to me, typically they want less...

I'm hopeful it's a bit of a generational issue where the anti-nuclear people are these boomers, these baby boomers who came of age in the '70s. And once they lose grip on power in the next decade or so, we may be able to have a nuclear renaissance in this country.

Is that a hangover from Three Mile Island or is that...

You know, I think it was not so much the accidents as it was the dual use of nuclear power for both peaceful and military purposes. So people always cite Three Mile Island in 1978 as a critical turning point. I think it might have actually been... when India got the bomb in, I believe, 74 or 75, where we had given India all this reactor technology. We thought it could never be weaponized. It turned out it could be weaponized. And so there was something very scary about nuclear bombs. And it somehow didn't fully register till the late 60s and 70s. And I think that's what really triggered the anti-nuclear stuff.

Are you making nuclear investments?

We've started to look at this, yeah. It's definitely, yeah.

It's all these challenges, but we've started to look at it. Okay, good. So let me thank Peter very much. And thank you all for coming.