From Zero to One - Peter Thiel at the Innovation Center at Cockrell School of Engineering

Well, good evening, everyone. My name is Greg Fenves. I'm the provost here at the University of Texas. On behalf of President Bill Powers and our own professor of innovation, Bob Metcalfe, we are very pleased to host Peter Thiel to talk about his new book. His book, Zero to One: Notes on a Startup or How to Create the Future. And what better concept in a title than thinking about how to actually do something new. So please, let's give a warm Austin welcome to Peter Thiel.

Thank you very much for that awesome introduction. One of the incredible challenges in teaching entrepreneurship and writing about entrepreneurship, it's one of these subjects where there's no real formula. You're always tempted to come up with a formula. You follow these five steps, and this is how you will build a successful company. And I think that the problem with that is that every moment in the history of business happens only once. Every moment in the history of technology happens only once. The next Mark Zuckerberg will not be starting a social networking site. The next Larry Page won't start a search engine. The next Bill Gates will not be starting an operating system company. And so if you are

If you're copying these people, there's some sense in which you're not learning from them. Science always starts with the number two. Science is about things you can repeat, you can experimentally verify. But I'm of the view that the most important and most valuable businesses are actually very unique and one of a kind and often don't naturally fit into some sort of a pattern. So there's sort of this anti-formula formula that I start with. And then you sort of end up with a question, well, how can you say anything at all about business if it's always inventing something new and something different? I get at it more indirectly with a series of contrarian questions. What great company is nobody starting?

Or, the intellectual version of this is, what do you believe to be true that very few people agree with you on? And this is a shockingly hard interview question, by the way. And even when people can read on the internet that I ask this interview question to people, it's still shockingly hard. And it's hard, I think, for two somewhat different reasons. One, we've all been taught that truth is conventional. It's simply what everyone sort of already believes to be true in one way or another. Because if you think about the dynamics of the question: I'm the interviewer, you're answering it. If you come up with an answer, you say something like God doesn't exist or our education system is screwed up.

These are very conventional beliefs. And so the really good answers are ones that you're likely to be uncomfortable articulating because no one will agree with you on them. And I think we live in a world in which courage is in even shorter supply than brilliance. And you often need some combination of both of these things to come up with interesting answers to these questions, or at least more courage than brilliance often. My book, Zero to One, offers a whole series of these answers about the nature of business, things that I believe to be true that most people do not agree with me on. And I want to maybe share three of those answers with you tonight and then open it up to questions and answers and make it as interactive as possible.

So first answer, and this flows directly out of this uniqueness, one-of-a-kindness of great companies. Most people believe that capitalism and competition are synonyms, and I believe they are antonyms. I believe that a capitalist is someone who's in the business of accumulating capital, whereas a world of perfect competition is a world where all the profits are competed away. As a founder or an entrepreneur, you want to aim for monopoly. You want to have a company that is so different from everybody else that there is no competition at all. If you want to compete like crazy, you should open a restaurant. It is a terrible idea. You will not make any money doing so, but you will get tons and tons of competition.

And if you want to have a very successful company, you want to do something that for some reason has been overlooked, that people are not doing, that they haven't thought of, something like that. Sort of the paradigm example I always give is Google, which has had no competition in the search space since 2002, when it definitively distanced itself from Microsoft and Yahoo, and it's been extraordinarily profitable for the last 12 years. Now, I think this monopoly-versus-competition idea is perhaps the most important idea in business that people don't understand, and there's sort of a failure to understand it for both an intellectual and a psychological reason. The intellectual reason is that the people who have monopolies generally don't talk about it, for reasons that I will leave to your imagination.

And on the other hand, the people who don't have monopolies will often have an incentive to pretend that they're doing something unique and different in one way or another. And the way you do this is, if you have a monopoly, you typically suggest that you're in a much, much larger market than you really are. So if you're Google, you don't describe yourself as a search engine. You describe yourself as a technology company. And you're competing in this vast universe with Apple on the iPhone, and with Facebook on social, and Microsoft on sort of various office products, and the self-driving car you're going to be competing with Detroit, and there's competition everywhere in this vast space called technology, and no, you're not the monopoly that the government is looking for.

On the other hand, if you were to run out this evening and decide to open a restaurant tomorrow, follow my advice and just want to compete and open a restaurant, and you talk to investors about it, they'll typically say, 'Well, we don't want to give you any money because restaurants go out of business, they're bad businesses, we'll just lose our money.' And you'll say, 'Well, no, but this is like really, really different from all the other restaurants. It will be the only British-Nepalese fusion cuisine in Austin, Texas. It will be one-of-a-kind, very, very different.' And so the monopolists obscure the monopoly by exaggerating the size of the market. The non-monopolists obscure the intensity of competition by understating

the size of the market. And as a result, I think this very important truth gets obscured in all sorts of ways. You know, the opening line of Anna Karenina is, 'All happy families are alike; all unhappy families are unhappy in their own special way.' And I think the opposite is true of business. All happy companies are different because they thought of something unique to do that differentiates them from the rest of the world. All unhappy companies are alike because they fail to escape the essential sameness that is competition. So you don't want to be the fourth online pet food company, or the 10th thin-film solar panel company, or the 1,000th restaurant here in Austin. When the Wall Street Journal excerpted my book, and it was a chapter that was entitled, 'All Happy Companies Are Different,' they excerpted that chapter, but they had to sort of retitle it, and they came up with a somewhat punchier title.

It was, 'Competition Is for Losers,' which... which I think gets at sort of the psychological reason that we underestimate this problem. Because we normally think of the losers as the people who are bad at competing. The people who aren't competing intensely enough are the people who lose. So the people aren't quite as competitive on the high school swim team and don't make the cut, the people whose grades or test scores aren't quite right. And we often end up defining ourselves by the competitions that we win in one way or another. So the autobiographical part of this, and this is always the advice that I would give my younger self, is I was personally, when I was a teenager, when I was in my 20s, caught up in all these incredibly tracked, incredibly competitive dynamics.

I've been a critic in some ways of higher education. I would quite possibly still go to college and law school, but I would think about very hard the reasons I was doing it. In eighth grade, one of my friends in junior high school wrote into my yearbook, 'I know you're going to make it to Stanford in four years.' I ended up going to Stanford, went to Stanford Law School, sort of got all the right grades, credentials, and then ended up at a big law firm in Manhattan. And it was one of these places where from the outside everybody wanted to get in, from the inside everybody wanted to get out. And after I left, after seven months and three days, one of the people down the hall from me told me, 'I had no idea that it was possible to escape from Alcatraz,' which was, of course,

it was not that hard to get out. All you had to do was go out the front door and not come back. But there's a way in which people had been so caught up in the competitions they had won that they had lost sight of all these other things. So I think competition always is good at making you better at what you compete on. So if you're competing on the high school swim team, you will get to be a better swimmer. If you compete to get higher SAT test scores and you spend two years taking practice SAT tests, you will have a higher SAT test score, but it often comes at this very high price of losing sight of what is perhaps more important or valuable or meaningful. One of the reasons—I think this is almost sort of like endemic to human nature in some ways—you know, the word 'ape' already in the time of Shakespeare meant both primate and to imitate, and there's always this aspect where we learn through imitation, we learn language, culture gets transmitted, but then this is also how a lot of

forms of insanity happen, how crazy peer pressures develop. It's how you get the madness of crowds, bubble-like behavior, and it's how people end up often not thinking for themselves. So there is this very strange phenomenon in Silicon Valley and around a lot of innovation where so many of the successful companies seem to be started by people who are suffering from a mild form of Asperger's in one way or another. And I often think we need to take this fact and flip it around as an indictment of our whole society. What is it about our society where those of us who are non-Asperger's or socially reasonably well adapted will be talked out of our most original creative ideas before they are even fully formed?

Because we will pick up on subtle cues from the people around us and we will sense, 'Oh, that's a little bit too weird. That's a little bit too strange. Probably shouldn't do that.' And we end up going back to doing something that's sort of conventional, tracked, and relatively undifferentiated, and therefore too competitive. And so we're almost perversely attracted to competition because it gives us this fake sense of meaning. There's then these sort of very strange, interesting studies at Harvard Business School. And I often think of business school students as the anti-Asperger's cohort. So these are people who are like super extroverted, often very low conviction. Hopefully not offending too many people here.

And you sort of put them in a hothouse environment for two years. And they sort of don't know what they want to do, and so they talk to everybody else, and nobody else knows what to do. And at the end of the two years, the largest cohort often ends up doing precisely the wrong thing. They all try to sort of catch the last wave. In 1989, the largest group all wanted to work for Michael Milken on junk bonds a few years before he went to jail. They were never that interested in technology or anything like that, except for 1999, 2000, when they timed the implosion of the dot-com bubble perfectly, and they all showed up in Silicon Valley. 2005, '07, it was all housing, private equity of one sort or another.

And while it's easy to sort of make fun of business school students, I think this is sort of a trap that we're all very prone to. And so this need to think for ourselves is, I think, always extremely banal, extremely easy to say. And I think we always make a mistake of underestimating how hard it is to actually do it for real. A second, somewhat contrarian thought is when people hear this question, you know, 'What is true that nobody agrees with me on?' or 'How many great businesses can still be started?' there's, I think, an intuition that there aren't that many answers left, that most of these things have been found, or that it's almost impossibly hard to get to the point where you can get to something interesting.

You have to maybe spend 10 or 15 years developing some expertise till you can get to some frontier and make some incremental advance. And there's sort of a sense that the space of possibilities has been somehow very explored. And I sort of set up this trichotomy: I describe conventions as truths that everybody already knows; I describe mysteries as things that are impossible for anybody to figure out; and I describe this intermediate form of secrets, of things that we can figure out if we work at it. It's hard to figure them out, but we can work at them. And what I want to suggest is that there are very large numbers of secrets left for us, uh, to find. They're not just—not just, you know, in computer science, which has been sort of an area of extreme innovation, but in many other areas. There are areas where, um, you shouldn't look for secrets. There are certainly fields that have been largely explored. So unlike, say, the 17th or 18th century, if you could look at a map of the world and there were

empty spaces on the map, and you could become an explorer and go there, and this was a dangerous and somewhat hard thing to do, and you could learn secrets about the world. Or, you know, 19th century, you could do basic chemistry and fill in the blank spaces on the periodic table of elements. And so there are certain fields, like geography or basic chemistry, that are more or less complete. But I think most fields are not like that. And I think sort of a belief in the existence of secrets is an extremely, uh, effective truth. Uh, and conversely, if you don't believe there are secrets, then you will not be one to find them or to look for them. And I think we often are discouraged by the sort of globalized world which we live with, seven billion other people; we figure everything's already been thought of by somebody else.

Or it's impossibly hard. So it's either conventional, it's already been figured out, or it's impossibly hard, it's a mystery. There's nothing left that's in between. And I think that that's very much not the case. And I think a lot of companies start with a conviction around some specific area where things can be understood much better. When we started PayPal, there was this idea that there was a lot you could figure out around the intersection of cryptography and money. And even though we didn't succeed in creating a whole new currency for the world, which was sort of our founding vision, it did help us think really well through payments, come up with a whole new architecture, which enabled PayPal to grow in a variety of ways.

And so I do think this belief in secrets is a very effective truth. The frontier, even if the geographic frontier is closed, there are many ways in which the frontier is still very open and there are many unexplored directions that one can go in where you can get to the frontier surprisingly quickly. The one sort of caveat I would give to this—and this is always my—I'm sort of somewhere between an optimist and a pessimist. I'm always very optimistic about how much I think we could be doing. I'm a little bit more pessimistic about how much I think we've dropped the ball as a society over the last 30 or 40 years. And I think that we often think of ourselves as living in a technological or scientific age.

And I think little could be further from the truth. I think we live in a financial and capitalist age, but we live in a society and a culture and a political system that is characterized by an intense dislike, hatred of all things scientific or technological. And I think the easiest way to illustrate this is to just look at all the movies that get produced by Hollywood where they all show technology that doesn't work, that kills people, that destroys things, and that's bad for the world. And you can choose between a future that looks like Terminator or Avatar or The Matrix or Elysium or some other dystopian future you can think of. I watched the Gravity movie a year ago, and it was like you would never want to go into outer space.

I mean, you just want to be back on that muddy tropical island somewhere. And this is why I think that in our time, science and technology is in some sense the real counterculture in our society. It's very much at odds, and the idea that we could be doing a lot more is very much at odds, especially outside the computer IT sector. When Nixon declared war on cancer in 1970, the promise was that it would be defeated by the Bicentennial by 1976. It didn't quite happen. And, you know, we've made some progress in the last 44 years. I think we could be doing a lot more. But we wouldn't even try at this point, I think, to declare war on Alzheimer's, even though one out of three people at age 85 is suffering from dementia.

This seems like a massive crisis. But there's sort of this subtle way in which past failure—there's a hysteresis to failure where if you haven't succeeded, your expectations about what you can do get commensurately reduced. And so we're in a place where we're very optimistic about computer technology, information technology, and we're much more pessimistic about all these other things. And I think it's important for us to think about how to break this cycle and get back to the future in one way or another. One way of getting at this, very big picture and last thought, is I always think that a successful 21st century will involve both globalization and technology. And I always think of these two things as very different trends, and they often get confused.

And I think that's always a big mistake to confuse them. And I always draw globalization on the x-axis. It involves horizontal or extensive growth. It involves copying things that work. It involves going from one to n. China is the paradigm of globalization. It is basically copying things from the West. It's skipping a few steps here and there. And it's a very straightforward plan for China in the next 20 years of what it should do. And then I think of technology as intensive or vertical progress of doing new things, of going from zero to one. And it has sort of a very different kind of a character. It's not mechanistic. It has this more creative, one-of-a-kind feel to it. And when we think about the history of the last few centuries, there have been periods of globalization and periods of technology.

The 19th century was a period of tremendous progress on both—tremendous globalization and tremendous technology. After 1914, with the start of World War I, globalization went into reverse. The world became more fragmented. Parts became communist and became sort of much more disconnected, even though technology continued to progress at a very rapid rate. And then starting in 1971, maybe with the Kissinger trip to China, globalization began again at a ferocious pace in the last 40 years, even though I would argue that technology's been more this somewhat narrower cone around information technology and many of the other areas have been more underexplored. We don't do as much in space travel or supersonic aviation or underwater cities,

turning deserts into farmland and forests, or all the other things people were talking about in the '50s and '60s. And this shift is characterized by the different ways we talk about the world today versus 50 years ago. 50 years ago, you would have divided the world into the First World and the Third World. The First World was the place where there was accelerating technological progress. The Third World was the part of the world that was sort of permanently stuck. Today, we would speak about the developing and developed worlds. And the developing world is that part of the world that's copying the developed world. And so this dichotomy is sort of a pro-globalization convergence theory of history where the world will become more and more similar, more and more alike as there is a sort of convergence that takes place.

But I think it's also an anti-technological dichotomy because when we say that we live in the developed world, we are implicitly saying that we're living in that part of the world where nothing new is going to happen, where things are done, finished—you know, the younger generation should have lower expectations than their parents—and where we should resign ourselves to decades of stagnation in the period ahead. I think this is a characterization we would do well to resist very powerfully, and so I think we should always return to asking and answering the very unconventional question in our time: how do we go about developing the so-called developed world? Thank you very much.

So I'm going to actually just start out with one to warm it up. There's been a lot, Peter, a lot written about the theory of disruption as a way to look at how to develop a new business, a new enterprise. How does the theory of disruption fit into your view of competition versus monopoly?

So I'm always a bit skeptical of all these sort of buzzwords. And disruption is sort of one of these very chronic buzzwords that I kind of dislike. I think the disruptive kid in elementary school gets sent to the principal's office. Disruptive people look for trouble and end up finding it. And so the classic disruptive company was one my friend Sean Parker started in the late '90s called Napster, which set out to disrupt the whole music industry. It had a disruptive name. You know, you nap some music, you nap some kids. So it has sort of a somewhat sinister, disruptive name. And they were on the front cover of Time magazine one year. The government shut them down a year later. And so I think when you set out to disrupt, one of the problems is you already are taking your bearings by existing industries.

And even though there's a lot in our world that's far from perfect, and, you know, we could think of ways to improve it, you know, the goal you should have as an entrepreneur is not to destroy existing things, but to create new things.

Okay, great. Okay, yes, first question.

Hi, Peter. I enjoyed reading your book, specifically the framework of indefinite versus definite optimism and your experience on your path to not being a clerk. As a young engineer trying to decide what's next on life's path, I wanted to learn what kind of questions or litmus tests you ask yourself when choosing what to do next.

You know, I think we live in this sort of world where we think of the future as generally completely indefinite, and there's nothing meaningful you can say about it. And there's sort of all these biases it leads to in the way we approach our lives. And so I think what you end up doing when you think of the future as indefinite is that you pick a job that you think will be good on your résumé, because it will then lead to a different job later on. There's even sort of a credentialing version where you go to grad school, you get a job—at least, you know, a consulting job—and you sort of think of it as sort of this branching tree diagram where you never know, you never really do something that you want to do.

And so I think if you think of the future on maybe three horizons: one is very short-term, there's medium-term, and there's very long-term. So medium-term is how good is it on your résumé? Very short-term is, are you going to be happy and will you be learning a lot? And very long-term is, are you working on something important or meaningful? And so I think we are in a skewed world where we overweight the medium-term and we underweight some combination of the short-term and the long-term. And so I would recalibrate it to focus on some combination of short-term and long-term and forget about the medium-term.

Thank you. Question on the right. Hi, Peter. I heard you talking about PayPal and how you were almost hoping it would turn into a cryptocurrency. So I was wondering what you had to say about Bitcoin and if you had created Bitcoin, what you might have done differently to implement it, and if you think that Bitcoin does have a future in worldwide currency.

There are all these ways that I'm probably slightly biased against Bitcoin because I didn't invent it, and I would have liked to. So with that qualifier, I think there is a way in which Bitcoin achieved the opposite of PayPal. It has actually succeeded in creating a new currency, at least on the level of speculation. I think the challenge is going to be to actually get the payment system to work. So it's still, I think, very hard to use. There are probably some parts of the cryptographic protocols that it's not clear you can ever get it to work seamlessly or super fast, or at least this, I think, is a core challenge that needs to be overcome because if Bitcoin exists only as a currency or as a means to make payments for things that are very illegal, where you go through a lot of hoops to buy drugs or whatever people use it for, that's where you're sort of set up for the government shutting it down.

So I would be more bullish if I saw the amount of legal payments going up more quickly than it is. You know, I keep wondering whether it will just get shut down by the government at some point. You know, I'm sort of politically a little bit libertarian, so I'm always a little bit skeptical of the government. I think one of the ways in which our government is quite dysfunctional in this country is that the fact that it has not shut Bitcoin down doesn't tell you very much. You know, if we had a competent government, it would say, 'This is bad, it's illegal, we're going to stop this.' And because it's so incompetent, you might be under the view that it's perfectly fine and people will change their mind seven or eight years later.

There was a company that we encountered back in the PayPal days called eGold, which had these encrypted gold-linked anonymous certificates. And we sort of made PayPal interoperable with eGold. It turned out it was all used for fraud. People had stolen credit cards and they used eGold to launder their receipts into untraceable gold. And so we sort of disconnected from eGold in summer of 2000, three months after we had connected. There was a press interview I gave in late 2001 where I said it was a sketchy company. They sued me for libel. We settled the libel lawsuit in March of 2000. Whenever you get sued, you never compromise. It's like dealing with terrorists. You never negotiate except in every specific instance.

And so we settled the lawsuit in early '02, and I believe about six years later in '08, the FBI arrested all the people and they all went to jail. So I still have that residual question about Bitcoin, whether it just gets outlawed, even though I'm in general in favor of it.

All right, yes. Mr. Thiel, can you comment on our culture's obsession with safety first? There was once a micro-episode of Dirty Jobs where he talked about how in the real world when people are building things, it tends to be safety second or third. And as a consequence of the safety-first mentality, the regulatory agencies seem to inhibit innovation in our nation and cost us development. That's my opinion. What's your take on that?

Yeah, I'm sympathetic to that view. I think we've had this differential progress between the world of bits and the world of atoms. And I think one of the reasons is software is fairly unregulated. Atoms are fairly heavily regulated. And so if you—it costs you maybe $100,000 to start a new software company. It would cost you maybe a billion dollars to get a new drug through the FDA. And so certainly my intuition is that the regulatory load has slowed things down. And I don't think it's just the regulators. I think there's also all these cultural things that have enabled them to get as much power as they have. Whenever I look at it, I actually think there are many places where the safety first has been pushed so far that it's not that safe.

I don't think you'd ever get a polio vaccine approved today. When they first did the polio vaccine in the 1950s, I think they got the dosage wrong and a few people got polio. If that happened today, it would just get shut down for 20 years. And so you'd never get a polio vaccine today, given what happened. If you're concerned about climate change, I would think that we should be building lots of nuclear power plants. And that's, again, a place where we're too concerned about nuclear safety. And so with all these places where I think you have these trade-offs, we end up getting them very wrong.

Yes, question?

Hi. Yes, for somebody who has been so successful, I'm curious if you've had any major failures in your life and in what ways they were profound.

Well, you know, I've certainly had my share of failures. They were all sort of quite traumatic at the time. Some things that I probably learned from them, but I actually always worry that we exaggerate the significance of failure and we celebrate failure too much. Certainly one of the tragic things where I failed at was when I was 25 and I was applying for a Supreme Court clerkship and they normally interview eight people and four people get them. I got interviews with two of the justices and they both turned me down. And at the time, I was just, you know, completely devastated. And 10, 15 years later, I reconnected with one of my friends who'd helped coach me through the process. And his first question to me was not, 'How are you doing, Peter?'

It was, aren't you glad you didn't get that Supreme Court clerkship? And that's true 10 years later. I think failures are normally just very demotivating and things quite to be avoided. So I'm sort of one of the ways where I have a fairly contrarian perspective is I think there is this cult of failure around a lot of entrepreneurship and it's not clear it's that helpful. One of the questions I often get asked is about PayPal, where we had all these different people who came out of PayPal that ended up starting these great companies. I think $7 billion companies have been started by the roughly 200 people we had in PayPal in Silicon Valley on the core you know, engineering product business team in 02.

And I think one of the reasons people succeeded was because the lesson we learned was—a lot of, we had a lot of challenges, but it was sort of the meta-lesson you learned at PayPal was it was hard but possible to build a great business. And I think that's actually a very unusual lesson to learn. I think the lesson people normally learn is that you are in a company that fails, and you learn that it's impossible to build a great business. And then you apply that lesson, and you aim for something much less ambitious the next time around. And then I think the converse is also true. If you're at a super successful company, like a Microsoft or a Google, you will learn the lesson that it's easy to build a great business, which is also a very bad lesson.

I think easy and impossible weirdly converge. Extreme optimism, "it's easy"; extreme pessimism, "it's impossible"—always converge because extreme optimism tells you that there's no need to work hard, and extreme pessimism tells you there's no point in working hard. And so they converge on not working hard, and they end up being the self-fulfilling thing. So I think failure is overrated.

Okay, yes. Hi, Peter. Question is, you started to mention markets had gone down or crashed, and I don't want to talk about kind of if that'll happen, but if, hypothetically, let's assume that it has and venture markets have dried up a little bit. I'm curious what you think will survive, whether it's different verticals, industries like health tech or social mobile, like what will be left when the investments scale back significantly and there's a turn in the market?

Well, it's always sort of hard to judge these things. I personally don't think that there's a bubble in technology at this point. Certainly, the valuations have gone up some in recent years, but I think these bubbles—it's a natural question to ask because we've had a lot of crazy bubbles in recent decades: a bubble in the Nikkei in the '80s, and tech in the '90s, housing finance in the last decade. I think all these bubbles were these sort of psychosocial phenomena, and so I believe it's a necessary precondition for a bubble to get the public involved. And what's very different in 2014 versus '99 or 2000 is the public at large is not involved because the companies are not going public until extremely late in the process.

There maybe are 30 or so tech IPOs a year in the US versus something like maybe 300 in the late '90s. And you can blame it on Sarbanes-Oxley. There were some cultural changes in Silicon Valley and elsewhere. But basically, the public's not involved this time around. So I'm not that worried about it. Yes.

Hi, thank you so much for giving your contrary view. I'm a healthcare girl. So my question is, if you could turn one thing upside down, besides making people live forever, because that's one of the things that you said before, what kind of conventional wisdom would you tell everybody in this room about healthcare and the industry and how they're going to innovate in technology?

Well, I would like to work on the living forever thing. I should just take that off the table. I don't think it's a simple unitary thing. So there's a lot of different things. There's healthcare IT. There's biotech innovation of one sort or another. Let me just say something about the healthcare IT side. One of the forms of—and we're very good at iterative innovation. We occasionally have brilliant breakthroughs, but I think sort of one form of innovation that we do very little of is innovation that involves complex coordination where you get sort of a lot of different pieces and you pull them together and you build something new. And this, I think, was actually sort of one of the keys to the success of Tesla and SpaceX.

You asked what was innovative about a Tesla car; no single component was really that innovative, but it was that you somehow got all the pieces together in just the right way that you created something that was a—a very new kind of a thing. You know, something like this was true of the iPhone. If you ask me what was the innovation there, there was no single point that was really decisive. It was just the combination of all these things that really worked. And so I think when we think about healthcare IT, we're often a little bit too skewed towards these simple point solutions when what's often needed is a coordination of several different pieces. And this is sort of a more ambitious, somewhat more difficult thing to do.

But one gets the sense that this is sort of what is often needed on that. So one way to think about the coordination problem is always in terms of who are you selling the product to? And so in healthcare, are you selling it to the end patient? Are you selling it to the doctor? Are you selling it to the hospital, to the insurance company, to the government, probably a few other maybe large corporations? So several different people you're selling it to. And I think really great products are ones that somehow involve a sale that's to two or three of these at the same time, which turns out to be unbelievably complicated to pull off. But if you don't sort of change the behaviors of maybe insurance companies plus doctors plus patients all in parallel, you're not going to really

To improve the healthcare system. So one of the companies we just invested in is a company called Oscar, where they decided to sort of redo a lot of the IT, and they decided to just start an insurance company as the way to do it, because it was—and so you'd sort of say, 'Well, you'll sign up for this. You know, are you willing to pay $5 less for insurance if you take a teleconference with a doctor rather than an in-person meeting?' And you sort of—so there are all these ways you can tweak the IT and make the consumer and doctor experience better, but you have to actually coordinate on the insurer level. They thought it was too hard to negotiate with the insurers, so you had to actually just start a whole insurance company and then combine it with the IT company.

So I think complex coordination like that, it's often somewhat capital intensive, but it's a—it's very underrated.

All right. Question? Thank you. Ignoring the obvious influence on Gotham, would you say that you could have started Palantir without PayPal? That is to say, how many of these secrets are we able to unlock if we don't have Peter Thiel's resume?

Oh, boy. You can never run this experiment twice. It's hard for me to precisely answer that question. Certainly, there's always a challenge in building companies that require a long time or a lot of capital. Because then you have always this challenge of how do you convince people to invest in these businesses. And Palantir was one where, you know, it took us four to five years to get the—until we really got traction. So it was sort of an unusually long time horizon in building that one. You know, I would say even PayPal had a sort of fairly crazy arc where, you know, we burned through $180 million before we got to break even. And so I was, you know, I was raising money nonstop for two and a half years.

And every time we stopped raising and we closed, you know, a fundraiser on a Friday and the next Monday was, 'Okay, how do we start the next financing process?' When you start one of these companies, there's always this need to convince other people that it's going to be possible in some combination of investors and employees and customers. And the way my friend Reid Hoffman, who started LinkedIn, describes it is that a successful entrepreneur somehow tells a lot of people something that still has a somewhat fictional character. But if you convince enough people of it, then it will become real. And that's always the sort of self-bootstrapping challenge that one has.

So I'm a Steve Jobs fan, but sort of objectively and emotions aside, do you think he gets too much credit for what Apple has done? And then sort of by extension, do you think individual business leaders generally get more credit than they deserve?

No, you know, there probably are ways in which he gets too little credit. There was all the stuff about Jobs where it was super hagiographic when he passed away in 2011, and you sort of got the sense that there was going to be no more innovation that would come out of Apple now that Jobs was dead. And that strikes me—and I'm not sure people really believe that, but I actually think that was probably true. I think that the founders of these companies, they're not divine beings. They're not omnipotent, omniscient, anything like that. And I think it's a mistake to ascribe divinity to them in any form. But I think the importance for a charismatic leader who can bring out the best in people is something that I think is very underestimated.

And I think what was very powerful about Jobs was that he somehow, in spite of all his many personality traits and personality flaws that have been described elsewhere, he was able to inspire all these different people to bring out the very best. So I do think that's very important. We called our venture fund Founders Fund because we think that these tech companies do best when they're led by founders. I think the big companies where I think there will be a lot of innovation are companies like Google or Facebook or Amazon, which are founder-led. I'm much more skeptical of the tech companies that are not founder-led. I think it's weirdly understated as a problem. So we don't typically draw up a list of tech companies where the founders are running them and tech companies where the founders are not running them, even though I would say that that would be the first approximation that would tell you which ones you can expect to innovate in the future and which ones won't.

Go ahead. Hello, Mr. Thiel. So as the founder of PayPal, I was wondering what your opinions are on the recent announcement that eBay would spin off PayPal and if you would care to share your vision for the future of online and retail payments.

I've not been involved with PayPal for 12 years, since 2002. At the time PayPal was acquired, 75% of the volume was eBay-related. That was down to 50% by 2008. It's down to something like 25% today. So there's been a natural divergence of the core businesses, and I think it does make sense for PayPal to get spun out. I think there is probably, I think there was a long period where there was not that much need for product innovation in the payment space, but I think in recent years there's been somewhat more innovation, there's been a shift to mobile payments, and so I think having PayPal be a standalone company would enable it to focus somewhat better on the new products that need to be built.

Since the reality is humans live in society with each other, monopolies inherently involve centralized power. How should we create monopolies in tech without encouraging everyone to be exactly like everyone else? How do we create a monopoly without that element of centralized power and centralizing social power?

The advice I give is always that as a founder or entrepreneur, you want to aim for monopoly. There's a very different question about what the proper public policy for our society is, and when should we think of monopolies as good? When do we think of them as bad? And I would note that not all monopolies are bad. Even our legal system protects patents and copyrights and intellectual property. We give people a legal monopoly for inventing new things. And I think monopolies more generally are good in a dynamic world where you create something completely new. So when Apple creates the iPhone, the first smartphone that actually works, that's not creating artificial scarcity, but it's creating artificial plenty.

It's creating a new sort of cornucopia of one sort or another. The monopolies become bad in a static, unchanging world where the monopolist becomes like—it becomes like the Parker Brothers board game, or you're like a tax collector, or you're like a troll at a bridge collecting a fee from everyone who comes along. And so I think that's sort of—those are sort of the bad monopolies, and then I think a lot of the net neutrality debates around companies like Comcast and so on are questions whether these are bad monopolies. I think they are bad monopolies. I think it still is an open question, even once you have a bad monopoly, whether you should do something about it, because our government has such a bad history of intervening.

And we've often timed it very badly. So we went after IBM in the late '70s, just as things were shifting from hardware to software, and went after Microsoft in the '90s, just as things were shifting from the desktop to the internet. And so even when there's a bad monopoly and it looks like it's static, we've on a number of occasions gotten this wrong. But I think the public policy question of what you do is somewhat different from the question you should ask yourself as an entrepreneur or founder of a company, where you always want to be doing something where you don't compete.

All right, we've had great questions. We have time for just one more—the young man here on the right.

So you spoke a bit on the importance of not competing. Do you feel that new cryptocurrencies and services like Apple Pay are creating a surge in competition for PayPal? And if so, what would you say the future of currency would be, or what would your assessment of that be?

Well, again, I would say PayPal is not a currency at this point. So the big challenge is actually getting any of these new currencies to really work. I don't think any of them have fully worked yet, and that would be the core challenge. Let me say something a little bit more general. Whenever you have sort of a vast space, I think when we ask questions about competition in that, those are often poorly formulated, poorly formulated ways of framing the issue. The monopoly perspective, one contrarian thing it leads me to when you think about businesses is the conventional business school analysis is you always want to go after large markets. Currency is a vast market when we go after vast markets, but, but actually I think the, the key thing is to go after relatively small markets and take over those markets and ideally the market scale over time. You know, PayPal went after the small market of 20,000 power sellers on eBay, and we got to 30, 35 percent market share in, you know, three, three, four months, and

Facebook's initial market was 10,000 students at Harvard University. It went from zero to 60% market share in 10 days. That was a very auspicious start. It was a market that was so small that it would have never been funded ex ante by an investor. But then it turned out you could build, grow the market in concentric circles. I think we often make a mistake when we define these markets in terms that are too big, or when I see pitches where the markets are defined in ways that are too big, that often involves some sort of cluttered thinking of one sort or another. You know, there's a lot that went wrong with cleantech investing in the last decade, and I think it's an important question for us to figure out what went wrong, what could have been done better.

But one thing that went very wrong was every single PowerPoint presentation that you saw in, you know, 2005 to 2008 on cleantech, you know, one of the first slides would start with, 'We have this giant market. It's measured in hundreds of billions or trillions of dollars. It's called the energy market.' And if you're a minnow in a vast ocean, that's not the place you want to be because you have no idea what else is going on. And so you have to compete with the other nine thin-film solar panel companies. Then you have to compete with the other 90 solar panel companies. And then you have to compete with wind, all these other new technologies. And then Chinese manufacturing came out of left field, and fracking came out of right field in Texas.

And it's just this vast market with vast amounts of competition. And so there is a similar thing when we frame in terms of money or currency or payments. These sound like enormous, enormous markets. And I think the key to adoption is not having something that's incrementally better for vast numbers of people, but finding something that's much better for a small number of people. And that's always the challenge. And so I think the challenge in building a new currency or a new payment system is to find some initial use case that's smaller but intensely valuable. Just as I think the challenge, paradoxically, for building the Energy 2.0 companies of the future, the challenge for them will be to start by thinking small.

Okay. You have been a great audience. Peter, thank you for visiting UT Austin. Thank you.