Peter Thiel: PayPal, politics & the importance of being individual

So, good afternoon. I'm Peter Tufano. I'm the dean of the school. Peter was asking how many of you are from various places. How many of you are from the business school? OK. For those of you who are not from the business school, shout out where you're from.

Chemistry.

OK, you can get a sense. So we're thrilled to have Peter Thiel here today. We're also thrilled to have you here today, all of you. I was trying to think of why you might be here. You might be here because you think PayPal's really cool, and you wanted to hear about how it was founded. Or maybe if you learned a little bit more about how putting a couple of rival firms together and then kind of trying to capture a new market was exciting. Or maybe some of you like big data and you think that Palantir is a really fascinating firm and you want to learn more about that. Or maybe some of you would be investors and you think that, well, somebody who is able to get in on the ground floor of Facebook

you could learn something from it. And maybe some of you have had the good sense to read Peter's book, Zero to One, and you have found it provocative. For example, I particularly liked the line that says, I think, I'm gonna paraphrase, but it's not about entrepreneurs, it's about founders, and pick a big, important, hard problem and then try to solve that. So for whatever reason you came, I think we're all gonna be benefiting today by having Peter join us. For those of you who are kind of out there in the ether, welcome to you as well. Peter's gonna be in discussion today with my colleague, Teppo Felin. Teppo joined us a few years ago and is a strategy expert. He, for some of you, you know, a professor, studies networks and entrepreneurship and innovation.

He also, before becoming a professor, was a venture capitalist. So I think this is gonna be a great conversation. Peter, thank you for coming. Teppo, thank you for hosting. And everybody, thank you for coming. And on with the discussion. Thank you so much.

So Peter, welcome to Oxford. We're thrilled to have you here. So I was telling some students ahead of time, they were asking me what books to read. And I hate to sort of pitch any best-selling popular press books, because it feels like sort of selling snake oil. But the one exception, and this is going to be a little bit of a love fest, is Zero to One. So here's the pitch. And so I love this book, and that's the reason I invited Peter to come to Oxford, because I think this is sort of a great place for Peter both to see Oxford and us to learn from him. And so we're absolutely thrilled to have you here and to talk about the book.

In terms of the format, so we wanted to make this participatory in the sense that a few weeks ago we sent out sort of an email, shot it off to students, and we told them, we said, "What would you ask Peter Thiel? He's coming to Oxford. What questions would you ask him?" And we used all our ideas, and people submitted questions, and there was a ranking system. And so I've got a set of questions that you've provided for me, and so I'm actually sort of a channel here, and I'll, you know, filter a little bit. But there's also a chance for you to live-engage with this discussion, and we'll try to be savvy about that by using the hashtag #AskPeterThiel on Twitter. As you're listening to this discussion, as you have questions, we'll try to react to some of those and pick them up and go into all the #AskPeterThiel.

Without any further time here, one of the things I love about the book, and it's right at the beginning, and it's the question that you ask every entrepreneur. And the reason I like the book is most books have solutions, so yours has questions that people need to think about, basically. But can you sort of summarize what that question is and why it's important for entrepreneurs to think about it?

Well, it's actually sort of an ensemble of contrarian questions. And I think you always want to be doing something that's both fundamentally true, but that other people are not doing. I think that combination is always very powerful. So the business version of the question is, 'What great company is nobody starting?' The investor version is, 'What great investment does nobody like?' The nonprofit version is, 'What worthwhile but unpopular cause is not being funded?' And then the more intellectual version of it is, 'Tell me something that's true that nobody agrees with you on.' And this is one of those interview questions that's a shockingly hard question, not because it requires some incredible amount of genius to answer.

I think we all actually have answers to this question, but because it's a very uncomfortable question to answer, a good answer is not a conventional answer—that our education system is broken, or that our politicians are clowns, or things like this. These are answers everybody already knows to be true. The answers are ones that the interviewer is likely to powerfully disagree with. And I think we live in a world in which courage is in much shorter supply than genius.

Yeah. So where do these types of questions come from? I mean, educational and other systems sort of reinforce, you know, there's sort of known facts out there that we can all agree on, and that's what we sort of disseminate and impart. And the question is, how do you get stuff—sort of contrarian things from left field—and is there any way to nurture that in some fashion?

Yeah, this is always the paradox of teaching entrepreneurship or teaching innovation because, on some level, there's something paradoxical about trying to offer a formula for how to do new things. There's a sense in which science—you can sort of say that science always starts with a number two. It starts with experiments that you can repeat and do over and over again. But I believe that every moment in the history of technology, perhaps in the history of business generally, happens only once. The next Bill Gates will not start an operating system. The next Larry Page will not start a search engine. The next Mark Zuckerberg will not be starting a social network. And so if you're sort of slavishly copying these people, there's some sense in which you're not learning from them.

And so I don't have a—I don't necessarily have a precise formula for how to answer it, but I always like to maybe start by at least engaging with how problematic it is and how much we should just try to avoid these cliches of trying to find some formula or mechanism for innovation when that probably does not exist at all.

As I was thinking about your question, there's sort of this interesting fine line between it being delusion and maybe truth. And so the question, 'Do you believe something that almost no one else believes?'—that could be sort of the seeds of bias and delusion in some ways. So it's an interesting balance. And I don't know if you can—at what point do you tell which is which when you're, say, talking to an entrepreneur?

Yes, it's a very fine line. It certainly is a very fine line. And I think if you had to give a constellation of traits that make up a lot of the great entrepreneurs, I think a lot of them have these nearly diametrically opposed qualities. They're obviously not precisely A and not-A. That would be contradictory. So you have people who are very stubborn but still quite open-minded. There's a way in which they're somehow both inside the system and outside the system at the same time. So you have a lot of these Zen-like paradoxes.

Interesting, yeah. One thing that I was revisiting the book again yesterday, and one thing that struck me, the philosopher Kierkegaard has this essay that I absolutely love and I've had students read it. It's called "The Crowd Is Untruth." And as I read your book, you have that sense where there's something about the crowd where it's going after things that might already be overvalued. It's going after things that might not be true. And you can sort of think about it in different ways, but it almost kind of links to that. Because you have this nice tension between individuals and society and sort of how we sometimes move in herd-like fashion in terms of how we value things.

Yes. I tend to be quite skeptical of psychosocial crowd manias. You don't necessarily want to simply go against the crowd, which again is maybe a little bit too formulaic. But certainly, if we think about the history of recent decades or the last few centuries, we've had crazy financial bubbles of one sort or another that were driven by the insanity of crowds. You've had dangerous and really bad totalitarian movements in politics that had this powerful crowd dynamic. And so perhaps the antithesis of my book is the clichéd version of Malcolm Gladwell's The Wisdom of Crowds. And I think people always, if you had to give credit to Malcolm Gladwell, the way the argument actually works in The Wisdom of Crowds is that if you have a crowd of people and they independently make a judgment,

and they all independently think something through, you can sort of average it out and you'll get to a pretty good idea. So if you had like a bag of marbles and you asked every single person how many marbles there were and everyone thought about it independently of one another, the average answer would be pretty good. But the problem is that in most cases, the decisions don't end up getting made individually. People are influenced by one another as they make them. And when you have a crowd dynamic, in which people are drawing conclusions because they're looking to one another, that's where the crowd is untruth. Already in the time of Shakespeare, the word "primate" meant both ape and to imitate.

And I think it was Aristotle who said that man differs from the other animals in his greater aptitude for imitation. So this is a very deep part of human nature. It's how kids learn, by copying. Kids learn language by copying their parents. It's how culture is transmitted in our society. But it's also how very many things go wrong. The slightly extreme formulation I have of this is that there's this strange phenomenon in Silicon Valley where so many of the successful entrepreneurs seem to be suffering from a mild form of Asperger's or something like this. And I think we always need to flip this around and ask the question, why is it that the people who are not suffering from Asperger's are at a disadvantage in our society where they are

They're, in effect, talked out of their interesting original ideas before they're even fully formed. And you sort of pick up on all these subtle cues from people: "Oh, that's a little bit too strange. That's too weird. I'd better just go ahead and open that restaurant or do something sort of super conventional, which lots of other people are doing and probably is, at the end of the day, weirdly not going to be that effective." With my apologies to the audience here at Oxford, I often think of the business school demographic as the anti-Asperger's demographic, where it's sort of—I'm not sure exactly what the word for someone who's the anti-Asperger's is, but maybe it's like a business school student or something.

And so it would be the sort of people who are hyper-socialized. They, perhaps, can be criticized for being somewhat low on the conviction level. And if you put all these people in a hothouse environment for a few years and they sort of look to one another and try to figure out what to do with their lives, it's not clear at all that that sort of process gets you to the right answer. They've done these studies at Harvard Business School where they found that the largest cohort of people ends up doing—they sort of all conclude after two years, "We're going to try to catch the last wave." And so in '89, they all wanted to work for Michael Milken one or two years before he went to jail for junk bonds.

And they never were really interested in tech except '99, 2000 when they timed the dot-com bubble ending perfectly. And so I think this is something to be aware of. I think it's unfair to just criticize business school students because we're all subject to this. And it's disturbing how powerful something like advertising is. We always think of advertising, "Who are all these stupid people who watch these TV ads, and how these ads work?" And the disturbing answer is that it's all of us to a much larger degree than it should be.

Yeah. I think you just broke Twitter. I think a few MBA students have something to say about some of those comments, but that's OK. At Oxford, we're different, right?

I don't know. The question of sort of difference—I mean, there's this discussion about sort of how much kind of heterogeneity, or how much difference is, you know, diverse ideas are good, having heterogeneity on a team, founding team, for example, is important. But actually, in your book, you have this quote, and you say—let me see if I can find it—"People should be personally as similar as possible." You're talking about the founding team, and you talk specifically about PayPal and how there were similar interests around certain domains that you guys had on the team there. Can you talk about on what dimensions do you want that similarity, and when do you want the difference? And when does which trump which?

Well, again, I frame it as a paradox. I'm never quite sure the difference is how constructive a metric it is. But if we were to go with this as a metric, I think you want to have very big differences inside the team, but then from the outside you want to be seen as very different from the rest of the world. If you take a company like Elon Musk's SpaceX business—one of my PayPal colleagues started a rocket company—their mission is to go to Mars. And so everybody at the company thinks, "We're the only place in the world where people are going to go to Mars." And that one idea separates it and demarcates it, that everyone there has in common, separates it very sharply from the rest of the world.

So you want to have this commonality that everybody intensely shares that differentiates you from the rest of the world. And then I think within a company, you want the roles to be as differentiated as possible. And one of the challenges in an early-stage business and a startup is that there's a certain fluidity to it. The roles tend to fluctuate a lot. And I think this is sort of the way, I think, conflicts tend to arise and things tend to go wrong. Sort of a conventional Marxist theory of conflict is that conflicts happen when people want different things. And I tend to think it's more the other way around. Conflicts happen when people want the same thing. And if you were a sociopathic boss who wanted to just create conflicts among your employees for no reason at all, the formula for creating conflicts is to tell two people to do the exact same thing.

So you say, 'The two of you are going to work on the website. I'm not going to figure out who has which responsibility. You figure it out amongst yourselves, but you have the exact same job.' It doesn't really matter what the history of those people were. That will be a recipe for conflict. And so I think one of the key management things to always try to do is to differentiate as sharply as you possibly can. And so you want to have roles differentiated sharply within companies. You want to have the mission of the company differentiated sharply from the rest of the world.

So on that differentiated mission that the company has, it feels like there's two schools of thought in entrepreneurship around this, if you look at entrepreneurship centers and other types of things in terms of how people think about this. One of them is, 'Listen to your customer,' minimum viable, lean, that type of thing. Uh, you seem to be suggesting kind of the antithesis of it. Basically, you, you argue in your book later on about, you know, sort of about secrets and things like that. And so, one is sort of ideas based on—I'm caricaturing here, but—ideas based on sort of customer survey in some way, or sort of consumer, user survey, and, and sort of that way will validate what we're doing. And the other is, is, is you're building something. And so, in the book, you have the quote about sort of...

You know, Steve Jobs was about design, but he was about designing a great company, and that was what was central. And so, can you talk about, do you see those two sort of divergent approaches to thinking about startups? One is, again, sort of the minimum viable type approach versus the other. You briefly mentioned in your book, but just if you could talk a little bit more about that.

Yes. Well, there's obviously versions of both approaches that work. Having a minimum viable product, by definition, is probably the minimum what you need. And then it's probably, on some level, you don't need more than a minimum viable product. So there's almost an analytic sense in which that is tautologically true. At the same time, I do think we sort of tend to be dominated by a somewhat nihilistic bias where we claim not to know anything. And when you don't know anything, you end up defaulting too much to the sort of experimental search, A/B testing approach. 'What do we do, A or B? Let's figure it out. Let's ask the customers.' And in the abstract, I would say the problem with that is that the search space is simply way too big.

And you don't have enough time. There's probably not enough time in the history of the universe, much less before your venture capital funding runs out, to do a thorough A/B testing and go through the full search space. So I think, in practice, the problems are not as sort of purely empirical as people like to make them. I think it's often much better to have a good analytic framework: 'This is an important problem that needs to be solved. This is the set of things we have to combine in just this way to do it.' And then once you've done that, there obviously are a lot of ways to sort of fine-tune that, and that's where I think the A/B testing approaches are very useful. So I think that there's definitely room for both.

I would say we live in a world where it's far too skewed to the first and not enough to the sort of vision-driven, mission-driven, vision-driven company.

So maybe practically, have you invested in companies who had that big vision but then—to use, I hate the word, but—sort of pivoted, but then nonetheless were successful, and so they had something that they went after, and at some point, there's a tweak? I guess, any company, there's always sort of tweaks on the margin in terms of what they're doing. But have you invested in companies where you've seen that sort of play out? Any examples come to mind?

There definitely are companies where, again, it's a bit of a term of art, how it counts as a pivot, what counts as a tweak. So all these, we sort of lost the terminology. There definitely are points where things changed quite a bit. I think PayPal, our original business plan was to have payments on PalmPilots, then it was wireless payments, then it was payments linked to email. So we had a few fairly big pivots in the first year. I'm not sure there's anything especially virtuous about that. I think that if you have a dumb idea, it's important to change it. But it's not virtuous to have a really bad idea in the first place.

Right. Very good. In the book, you have this subsection that talks about recruiting co-conspirators, essentially, into what you're doing. And you actually have this interesting discussion about—you've got all these Silicon Valley and other companies competing on perks, basically, competing on lots of, you know, “We'll offer the,” I don't know, “foosball table and the ping-pong,” and so forth, and you say that's not the right way to think about it. What's the right way to think about that recruitment? And you have this interesting discussion also about the sort of thing about the 20th engineer, right? Could you talk about that very quickly?

Yes. Well, there's always this question about corporate culture. And if you define the culture of a company the way an HR person would, that's probably evidence that you have no culture at all. And so there often are these sort of buzzwords that indicate the opposite of what they say. It would be sort of interesting to list all the words that mean the opposite, sort of like “I'm joking,” or “frankly,” “honestly,” “my friend”—all sorts of things that when you say them, they sort of connote the opposite. And there's probably something like this with corporate culture in general. And so I think that you shouldn't think of a culture as having foosball tables or sort of lava lamps in an office or any sort of generic things like that.

It's much better, I think, to always, again, define it around this common mission of the company. I don't think businesses—I don't think they work best when they're just about making money. At the same time, I'm also somewhat skeptical of the sort of social entrepreneurship as a category, and I differentiate that very sharply from mission-oriented businesses. A mission-oriented business is one where you're working on a problem that if you don't work on it, nobody else in the world will. And I think that sort of tends to imbue things with a very deep sense of purpose. “We have this novel approach for curing cancer. No one else believes it makes any sense. If we don't do it, nobody will.” There's something very powerful about that.

Whereas I think social entrepreneurship, where you sort of have this idea that “we will do well by doing good,” you often end up doing neither. And I think one of the sort of things people get tripped up on is that the word “social” is a very ambiguous word. And it can mean, number one, good for society, which I think is a good thing. But it can also mean, number two, good as seen by society, where we get back to the Kierkegaard thing: the crowd is wrong. And when it's good as seen by society, you end up with a sort of copycat, me-too—the 100th microlending company, the 10th online pet food company. And whenever you're in the nth company of a category, that's not a place you want to be.

Yeah. I've wondered about—you're sort of calling for more big ideas, less copying, and I always wonder, do we have sort of a counterfactual, like, is there another world where that could be happening? I mean, in some ways, your book is a call for, like, no, think bigger, but then in some ways there's always a worry that, you know, we have lots of entrepreneurs trying many things, and entrepreneurship inherently, given it's an uncertain environment, inherently we're going to have lots of failure as well. But I've always wondered, so the counterfactual here, what do you think?

Well, counterfactual questions are hard to answer. But certainly, if we sort of telescoped out to a somewhat bigger picture, it is my claim that over the last 40 to 50 years, the story of innovation has been this very two-track story, where we've had a lot of innovation in the world of bits—computers, software, Internet, mobile Internet, that whole ensemble—and we've had much less innovation in the world of atoms, which would be everything from energy, medical devices, biotech, supersonic aviation, underwater cities, all these sorts of things that people would have talked about in the '50s and '60s as the picture of the future. I think there are many different reasons for these parallel tracks, for these different tracks, but I think this sense in which the cone of progress has been this narrow cone around IT,

where the word "technology" has a much narrower definition from what it had in the '50s and '60s, and "technology" basically means information technology and not, say, nuclear power or supersonic aviation or any of the other things people would have used it to mean 40 or 50 years ago. That does suggest to me that there has been this narrowing, and it's been more of a cultural decision—a political, cultural, social decision—than a law of nature that we've simply run out of ideas and these other spaces did not make sense.

Related to this, one of the discussions that's quite interesting in your book is about luck. And what's the role of luck in all of this? There's sort of a school of thought. The mathematician Émile Borel has this thought experiment. If you have enough people sort of flipping coins, there's going to be somebody who's going to flip heads over and over and over. And we can sort of talk to them and say, "Well, what was your strategy? Why did you win?" What are your thoughts on luck versus—what are your thoughts on that sort of argument about success?

It is probably the most important philosophical question in business, in a way, is how much one should attribute to luck or to skill. I think if we're honest about it, it's a very hard question to answer because, again, you don't get to actually do this experiment multiple times. It's not like we don't get to rerun the history of 2004 a thousand times and see if Facebook would have succeeded every time or just this one time. And so it's actually, we can't even run the coin-tossing experiment. What I always like to differentiate are these sort of two different ways that I think luck gets used. One is sort of as this deep metaphysical statement about reality, where it's just in the nature of reality that luck or chance are the ultimate forces in our universe.

The soundbite version of it is that luck is just an atheistic word for God. And it's sort of this metaphysical statement about reality. And then the other way to describe luck is that we use the word luck when we're just lazy and we don't want to think about things. And so the assertion of luck is not a statement about the nature of reality, but about our personal laziness. We don't really want to think things through. And for that reason, I always have a preference to push back on making luck too all-powerful. I found that as a venture capitalist, one of the temptations you always have is to treat every investment as a lottery ticket, which I don't think is a great way to treat people. It's not a particularly good way to invest.

If you set up a table here at Oxford and said, "I have no idea what's going to work. I'm just going to start writing checks to everybody who comes along. It might work. It might not work. I'll just write a small check to everybody." Once you think of it as a lottery ticket, you've already, I think, psyched yourself into losing money. When you think that you're multiplying a very small probability by a big payoff, the answer's normally just zero. And so my preference is always to try to skew more in the direction of higher conviction, more concentration, and against the sort of conventional bias that it's all luck.

There is this sort of interesting, self-fulfilling, almost, prophecy in this, like if you think it's luck, you're not going to take action, versus if you don't think it's luck, you're going to do something. And so there's almost this self-fulfilling where the beliefs themselves sort of get reinforced in your actions and so forth. Is that a good language for it?

Yeah, there probably are all these ways the beliefs and the actions feed on one another. I would say certainly one bias that happens if you think luck is very big is to treat everything as a portfolio. So there's sort of this financialization bias people have where you end up having a portfolio of lots of different lottery tickets. If you think that's less the case, you would end up doing less of that. When we looked at our venture investing over the last 10, 12 years, it's generally been our higher conviction investments have done better, and a lot of the smaller investments have done worse. So when I look back on the thinking, it was often we didn't have that high a conviction, and instead of really working and figuring things out, we sort of compromised by saying, "Well, can't really figure it out."

"Let's just write a smaller check." And I think often there was a sort of laziness that crept in that one should always resist.

So a lot of the questions here on Twitter, and some of them that were sort of voted in the system there as well, did focus on characteristics. Do you have any thoughts on, as you're looking at startups—say you've got a startup of three, four people, it's very early stage—it sounds like you're looking for sort of, well, you're looking for a big idea, basically, but anything else and conviction? Not extroverted; that sounds introverted.

Well, you want, you know, again, you don't want to—okay, so let me just, if I had to reduce it to a formula, let's try to, in contradiction to everything I've said so far, let's try to reduce it to a formula. So I'd say the three-part formula would be that you have a great team. Number two, you have some great technology, since I'm focused on technology investing. And number three, you have a good business strategy. The business strategy in my book is always that you have a story of how to get to monopoly. So you can have a great team and a great technology and no business at all. And most technologies in the history of the world didn't make money. You make money when you create X dollars of value, you capture Y percent of X.

In most cases, people forget that X and Y are independent variables. And that, in most cases, Y equals 0%. The Wright brothers didn't make a fortune in aviation. There were lots of other people who built airplanes. The cumulative profits in the history of the airline industry have been approximately zero. Even though the world is much better off with airplanes, they were a very big innovation and you might have had some great teams. So I do think we want to keep these three things very separate: the team, the technology, and the business strategy. I've put a lot of focus in recent years on the business strategy, the monopoly question, because I think this is a taboo question people are not allowed to talk about.

I think from the inside, the goal of every company should be to achieve a monopoly. We can debate when this is good or bad for society on the outside, but on the inside, this is always the goal. This is not the goal that's discussed. So if you're the CEO of Google, you don't go around saying, "We have the greatest monopoly in the world, much more robust than anything Microsoft ever had in the 1990s." You instead say, "We have this fantastic technology and we have these really, really smart people." So you focus on the talent and the technology. You downplay the business strategy because it's strategic not to talk about the strategy itself, because of the context we're in. Because if you talk too much about what's really working, some people from the government will show up very quickly.

And so I'm not even going to say that it's morally bad what they're doing, but we should at least be aware that that's simply what's going on. So I do think the business strategy part of it is one that often gets downplayed. To the extent we focus on the team question, I would say the one critical variable is that it is, in fact, a team. There are many kinds of things that one can do very well as an individual. You can be a great writer, a great university professor, where it's very much of a solo kind of an effort. Most of these business startups are things where it's a little bit too much for just one person to do. And so you want very talented people who can work very well together. And this is actually not a skill that's generally taught in our society.

You learn it in sort of these weird team sports contexts, which I think have nothing to do with life whatsoever. And outside of that, group projects are normally things that don't really matter in academia. And so this is something that I think tends to get very underdeveloped. A good pre-history question I like to always ask is, "When did people meet? How long have they been working together?" A bad answer to the question is, "We met at a business networking event a week ago, and we decided to start a company because we all wanted to be entrepreneurs." That's sort of, you know... A good answer is, "You know, we've been friends at university for a number of years. One of us is more on the business side, one's more on the technical side."

And so I think the pre-history question—you don't want to get married to the first person you meet at the slot machines in Las Vegas.

Okay, very good. One of the questions—it's both here on Twitter and it came up in the set of questions that were submitted—was around... So, you wrote this piece in the Wall Street Journal titled "Competition Is for Losers." And what you're engaging in, in terms of investing in companies, money is a relatively sort of homogeneous sort of resource. And the question is, can you have a monopoly in investing in terms of—so say you find a good team, is this something that's visible to other investors out there as well? Or is it somehow that there's some way of sort of developing some unique insights about what it is about that team that will then make you a savvier sort of venture capitalist? Because there's others that are at the trough also sort of looking to invest in these companies, and there's competition in there.

Yes, this is a question I always do push us on internally. We're always preaching that you shouldn't compete. And do we practice what we preach? Or is it just endemic to venture capital or finance that it's structurally quite competitive? I think the question is, I always try to phrase it. So again, the contrarian investor question is, "Is this a great company? And is there a reason other people don't see it?" And so I'm always very interested in pushing variants of that second question. Like, what is it that we understand that other people don't? And if you don't have a good answer to that, then maybe it's an OK investment. I think it's unlikely to be a really great investment. There certainly are some cases where

You can be sort of contrarian in a bullish way. You're sort of much more bullish than anybody else, and there's something about the exponential compounding of the growth that's gonna keep going for longer than anyone thinks. One can certainly wonder how much about that people no longer understand today, since we've had—that's been sort of something that's worked really well for the last decade or so. But I think there always are variations like this. And I do think, I do think there are some consistent, systematic blind spots that people have on a surprisingly recurrent basis. So I don't think it's just this super unusual thing. And I think capital ends up getting deployed in surprisingly inefficient ways because you again have this sort of madness of crowds dynamics in the background.

You know, one sort of simplistic way of describing this is that there's a very big difference between investing your own money and investing other people's money. When you invest your own money, you're simply trying to generate good returns. When you invest other people's money, you typically have two objectives. Number one is to get good returns. Number two is to look like you're going to get good returns. And the disconnect between those two is much greater than people think.

Well, I want to make sure I take a question from Twitter, and this came up in a few other questions as well. There's lots of these incubators around in various forms in terms of how involved they get and how large they are and what gets sort of offered in terms of coaching and things like that. What do you think about incubators?

Well, it's always sort of a very—a very specific question: what do they help you that you can't do on your own? There certainly are. I'm fairly bullish on Y Combinator in Silicon Valley. I think they have succeeded at this point powerfully differentiating themselves from all the others. So they've sort of been able to pull off this sort of elite—it's like an elite university where it doesn't really matter whether you learn anything. The fact that you've gotten in is enough of a signal. And so if you get into a place like Oxford, you should go even if you're not gonna learn anything here. Because hopefully we're a little bit along the way. So I think if it's a selective incubator like Y Combinator, you can get that.

On the other hand, if it's one of the 50 other incubators in the UK, you have to always worry whether the signaling is the opposite, that maybe there was something wrong with your company, you couldn't have done it anyway. And so these things can sort of cut very much, very much the opposite direction. I think that the temptation one has as an entrepreneur is always that there are a lot of things—as a founder, there are a lot of things you don't know the answers to, you don't know how to fix. And the temptation is always someone else will fix and solve these problems for you. And I think this is a bit misleading. An acquaintance of mine in Silicon Valley—I'm very careful, I can tell a story as long as I'm very careful not to name any names—said that his comparative advantage over other venture capitalists was that he was better at lying to people, and he was better at telling people how much he'd be able to help them.

And everyone feels they need help. If you can get help, if you're someone who's unusually good at doing this to people, that's some sort of advantage. And I think the disturbing reality is that there are some places where people can—incubators, venture capitalists, accelerators can help you. There are a lot of places where you have to figure this out on your own. And if you're counting on someone to show up who's seven feet tall and is wearing a large capital S emblazoned on their chest to help you out, you're not gonna get Superman, you're gonna get an imposter.

Very good. Are you sure you don't wanna make news and tell us who that venture capitalist is?

Very good. All right, you mentioned education earlier. So you're here at the University of Oxford. You got a degree in philosophy at Stanford. You went to Stanford Law School. Did that influence you?

And of course, I learned a fair bit. I made a lot of really good friends at both undergrad and law school. I think that if I had to do it over again, I probably would still do the same thing. I would ask more questions why I did it. I was just on this sort of super-tracked trajectory, and writing in my eighth-grade junior high school yearbook, one of my friends wrote in, 'I know you're gonna get into Stanford four years from now.' I got into Stanford four years later. I went to Stanford Law School. You sort of win all these track things. I ended up at an elite law firm in Manhattan. It was one of these places where, on the outside, everybody tried to get in; on the inside, everybody tried to get out. When I left after, I sort of had this rolling quarter-life crisis.

I never had a midlife crisis, but I sort of had a rolling quarter-life crisis. When I left after seven months and three days, one of the people down the hall from me said, 'It's really reassuring to see that you're able to escape from Alcatraz. All you had to do was go out the front door and not come back.' But psychologically, this was very hard for people to do because so much of our identity gets wrapped up in these academic competitions that we win. And so I think learning is a good thing. I think the education system becomes problematic to the extent that it becomes a substitute for us thinking about our future. If we say, 'You know, we're gonna get a degree, then we will have options,' we have no idea what those options are.

That feels to me, again, like a sort of a luck-related cop-out that we should be trying to avoid.

Yeah. This is completely unfair here, but you mentioned that the university system is broken. Is there any way to fix it from your perspective? Any thoughts on that? I mean, you're famous for the Thiel Fellowship. But in general, is there a way to fix the system?

Well, I think to the extent there's something broken about it, it is the one-size-fits-all approach. And so if I were to come up with some alternative system, I'm not sure that would make things any better. There's sort of a lot of education-related startups that I've gotten pitched on over the last few years. And one of the things that I think many of them systematically get wrong is there's always a question: what are people actually trying to get with education? Is it about learning? Is it like an investment in the future, which is the way people often talk about it? Is education a consumption decision, where it's sort of like a four-year party to go to college? Or maybe it's an insurance product where you're getting education to avoid falling through the cracks in our society?

I think that's actually the way a lot of parents and young people think about it today, as an insurance product. Or is it, in reality, a zero-sum tournament in which it's fundamentally not a positive-sum learning where, 'I know something and I can teach it to you, and then the body of knowledge is increased,' but is it sort of this crazy zero-sum tournament dynamic? And I think a disturbing amount of it fits the latter category. And so the thought experiment that I always suggest to people is that if you were the president of a university, of an elite university, and you wanted to get lynched for some strange reason, the very easy way that you could get all these students and alumni and faculty to come after you—if you say, 'President of'—we'll use a US context, I won't talk about Oxford—say, 'President of Harvard University,' and you want to get lynched,

You would say, "We have a great education, everyone benefits from it tremendously, so we're just going to triple enrollment in the next decade." Obviously, the world's much bigger than it was 50 years ago, so three times as many people shouldn't be remotely controversial. And it's a very strange question. What sort of an economic good is it where you don't grow the business? It's sort of like, maybe it's like a Studio 54 nightclub: big velvet rope, long line outside, very few people on the inside. And again, it's not a critique of the people who go to these places. If you get into an elite university, I'm not criticizing people for going. I think in many cases it makes sense to go. But we have to realize that something very different is at work from what's advertised.

One of the things that's great here at Oxford, it's almost taking the opposite of—so you've got these MOOCs that are doing things on a massive scale. And here we have things like tutoring, which is on a one-on-one basis, which is almost sort of completely different. It's going the opposite direction, and so that's a refreshing sort of model here. And it has been for 1,000 years—for a long time, anyway. Okay, so one of the other questions that popped up here: you're a libertarian. But what, if anything, can governments do about startup activities? Is there any role for government in enabling technology-related things? What's the role of government in innovation, basically?

Well, I mean, I'll give sort of both a libertarian and a non-libertarian answer, although the second one will be libertarian in disguise. So I'll give... So I certainly think the sort of... limited government critique is always that less regulation is sort of critical. And if I had to give one explanation for why we've had a lot of innovation in bits and not much in atoms is that we live in a world in which bits are unregulated and atoms are heavily regulated. And so if the Food and Drug Administration in the US got to regulate video games, and you only got to manufacture a video game if we determined that it wasn't bad for your brain, didn't do brain damage, and we had to do double-blind, 10-year-long double-blind tests and drug studies, like for a pharmaceutical drug, you'd have a lot less innovation in video games.

So I do think there's been this very heavy regulation of many sectors of technology to the point where there's very little happening in them, to the point that they're no longer even defined as technology anymore at all. And so I do think less heavy regulation would be a good thing. Obviously, people will disagree about this for all sorts of things, but I think if you want to have more innovation, that seems to me to be a very straightforward way to go bring it about. Now, if I had to make sort of a pro-government, sort of more government being more active case, it is that there are certain aspects of science and technology that don't quite fit into a for-profit business model. And we already alluded to this with the, "You create X dollars of value, you capture Y percent of X."

There are many kinds of things. There's basic research. There are many other areas where it doesn't naturally fit into a business, and so it has—it seemingly has the character of a public good where you want government funding, nonprofit funding of one sort or another to really drive the innovation. And I think the challenge for that at this point is that I think our governments have become much less good at doing this than they used to be. We did have a Manhattan Project, the Apollo space program in the US. If you had a letter from Einstein to the White House, it would get lost in the mailroom today. And it would be inconceivable to do anything like this. And so I think if you want a government to have a more proactive role in science or technology, I would say the starting point has to be that the government

has to be made up of people who actually understand science and technology and are able to use their insights in this. And this is a world away from the government dominated by law- and finance-type people that we have today. And so if I gave sort of a case in point, it would be something like the cleantech debacle in the US of the last decade, where it would be good to have innovation in energy. Maybe the business models don't quite work. And then you have this question: How do you fund it? How do you decide which technologies to support? There was this very high-profile bankruptcy of a company called Solyndra. And because our government's dominated by finance and law, it was sort of rationalized in financial or legal terms.

So the Republican critics of the Obama administration said, 'Well, there was corrupt campaign spending. There were all these processes that were violated.' The defense was, 'All the processes were followed. We had a portfolio approach.' So it was a financial portfolio versus sort of a corrupt process. And the question that I think needs to be asked much more is a substantive question: Do you actually think the science would work? And there's a very straightforward case that it should never have worked because if you have a cylindrically shaped solar panel, it's one over pi as efficient as a flat panel. The surface area is two pi r times the height versus versus 2R for a flat panel, you get the same amount of sunlight.

So setting aside even the complexities of 3D manufacturing, you know, high school geometry tells you this would have been one over pi as efficient. The person who ran the Energy Department, Steve Chu, in the Obama administration had a Nobel Prize in physics, is not allowed to use high school geometry to veto spending. And so as long as we have a government in which you're not allowed to use high school math to make judgments on what to do, it's probably not going to be one that will be able to really foster science and technology in a meaningful way.

Just briefly on—you mentioned the importance of basic research. And I still wonder about how do you evaluate the importance of that? There's this Oxford mathematician, G. H. Hardy. Well, he's here at Oxford and also Cambridge, that other school that I don't want to mention. But he was famous for saying, 'I don't want to work on anything practical. I only want to work on beautiful things.' And he had this 'Apology of a Mathematician' or something like that. It ends up that his mathematics in number theory became central for cryptography. And so it's very hard to anticipate the uses that might come out of basic research, which is very hard to evaluate. You have to, I guess, just fund it and have people working at it.

And I guess you already mentioned there's some role for it. The question is, how big is that role, and how does that then feed into technology and startups?

Let's see. Well, it's... You know, I think there's some role. I think the concern I would have is that it somehow works less well than it used to. And so, you know, in a... There was another mathematician, Hilbert—I'm not sure whether he was Oxford or Cambridge, I think he was one of those two places—who in 1900 set out this series of math problems for the 20th century that were sort of unsolved and sort of set the agenda for mathematics. And so I think if you have a... In the 19th, early 20th century, we still had a world in which the really great mathematicians or great scientists understood the whole of their fields. And one of the really deep challenges we have in the early 21st century is these fields have become vastly more specialized.

And so the people who we're counting on to evaluate and make these political funding decisions are much more narrowly self-interested. And the worry is that we've had sort of this Gresham's law at work where people who are nimble in the art of applying for government grants have somehow replaced the interdisciplinary, polymath-type people who've pushed a lot of the progress. And I think the specialization is very tricky. And this is when we look at a lot of these science areas. If you look at superstring theory, you have sort of a community of people doing superstring research. They claim it is the be-all and end-all. No one can question them. As a matter of the science, math, super hard for an outsider to evaluate.

As a matter of the politics of it, I end up being somewhat suspicious that something's gone very wrong. And you can sort of replicate that across many different fields. I don't have a great answer to this problem of specialization, but I think this is a very deep problem in the 21st century that sort of resulted in a much greater degree of politicization than we would have had 100 or 200 years ago.

So we've got a lot of students from the developing world here at the University and lots of folks working on trying to solve problems in the developing world as well. You've provocatively said that we need to develop the developed world. What of your insights here might be applicable in the developing world specifically?

Well, let me just sort of give a bit of a general answer to my book. I sort of differentiate these two different modalities of progress. I sort of draw them on the x-axis. I draw globalization, copying things that work. On the y-axis, I draw technology doing new things. And I do think that in a successful 21st century, we need both globalization and technological progress. Certainly, part of it is for the developing world to continue copying the developed world and to make progress. Another part of it is also for us to have a future in Western Europe and Japan and the United States where we can say that the younger generation will actually be better off than the current generation, will actually continue to progress from where we are.

So I think the question of technology is clearly a problem for the developed world. Without technological progress, it's hard to imagine how things will not get better. With respect to the developing world, I think it's a bit more of an open question. Is globalization alone going to be enough, or do you hit some sort of limits? I think of China as the paradigm case of globalization, where for many decades, it's simply been just copy the West, copy what's worked. We can skip a few steps, so we can do it really, really quickly. And there is probably some limit to it. And I suspect that China cannot even catch up to the West based on globalization alone. I think you will run into environmental constraints.

You will run into resource constraints. If everybody in China—if every second person in China—had a car like in the United States, there probably is not enough oil or not enough conventional resources in the world to power that. I think for living standards in China to simply catch up with the Western world, globalization alone is probably not enough, and you probably also need technological innovation. It's a more complicated question in the developing world than the developed world, but I end up coming down on the side that we need some of both in both contexts. And I think if you telescope out and sort of ask history, we've had periods of both globalization and technology in recent centuries.

The 20th century, the 19th century, I think you had sort of both from 1815 to 1914. 1913 was sort of a high point of globalization. With World War I, communism, et cetera, it went very much in reverse for many decades. And 1914 to '71 was a period of technology, but no globalization. And sort of date '71, Kissinger reopening China, as the date when globalization starts in earnest, and we've had sort of more limited technological progress in recent decades, mostly focused on computers. And my suspicion, although this is hard to prove or say, is that I sort of wonder whether in retrospect the year 2007 will be seen as a high-water mark for globalization, much like the year 1913, where we pushed globalization too hard, we've not pushed technology enough, and the system sort of just hit some natural limits.

And certainly the hope is that it doesn't end as catastrophically as it did in 1913. But I think pushing the accelerator on globalization without anything on technology, I suspect, will not work that well in the decades ahead.

Fantastic. Is there any sense in which it might not be as much these developing countries catching up as potentially doing things differently, where it might actually lead to new innovation? And so it might not be that you'll have as many cars, but you'll have new modes of transportation that might then diffuse, in fact, back to the developed world.

Certainly that's possible in theory. There's no reason this shouldn't be happening, couldn't be happening. In practice, I think there's still a fairly limited amount of that. If you look at most of the venture capital firms that are investing in China or India, they're heavily focused on these sort of clone companies, these copycat business models. They're generally not focused on a sort of technological innovations where you do something that's maybe a little bit worse but much cheaper, which would be the kind of innovation we'd like to see more of.

"OK, fantastic. Well, Peter, thanks for coming to the University of Oxford. This has been a fantastic discussion. You've provoked a lot of people in here, I think, and so we'll continue discussion online, but we appreciate your time. Thank you." "Thanks for having me." "I'll just briefly mention Peter Thiel will be at the Oxford Union giving a talk at 6 p.m. tonight, which you can attend. And he'll also do a book signing right after. And so please feel free to join us there. So thank you." "Super. Peter, that was fantastic. Excellent. That was great."