In conversation - Peter Thiel interviewed by Maria Bartiromo [October 26, 2017 NEW]

Ladies and gentlemen, please welcome to the stage, anchor and global markets editor of Fox Business Network, Maria Bartiromo, and her guest, venture capitalist and partner of the Founders Fund, Peter Thiel.

Good afternoon, ladies and gentlemen. It is great to be with you today, and we have a very special interview right now. Peter Thiel is one of the great investors of our time, literally. He's the founder of Palantir, Founders Fund, and PayPal.

Peter, it's great to see you. Maria, thanks. Yeah, great to see you as well.

Thank you so much for being here and talking to me. What I want to get to is really growth. We're all looking for growth ideas. Here we are in Saudi Arabia hearing about all of the growth stories. Where are you finding growth in the world today, Peter?

Well, I've been investing in the technology space. I'm an entrepreneur and investor over the last 20 years in Silicon Valley. And within the area of IT, it has for the last 10, 15 years in the US and in the world been extremely centered on Silicon Valley. I think that there's sort of a lot of reasons for that, but the question is, where is the growth going to happen in the next 10 years? And what I would tend to think is that it will be more diversified from just Silicon Valley. There was something very paradoxical about it all being in Silicon Valley, because after all, these internet companies are global in scope. They can be built anywhere. You just need some talented people, some capital, the right governance structures.

And so it was always this very odd question why all the companies of this new global technology were built in one specific place called Silicon Valley. And I think the answers for that had to do with network effects and knowledge and role models. But I think at this point, I would bet on places outside of Silicon Valley. The one big place outside of Silicon Valley over the last few years has been China, where there have been some spectacular companies started. And I think the question is where else one might look. And I don't think there's a single other place. It's not a specific

city or specific country, but I think, in general, there's much opportunity outside of Silicon Valley. I want to talk to you about really industries and sectors that you find interesting, because when you first founded PayPal, we were in a different time. Today, we're talking about data, we're talking about the cloud, we're talking about digitizing our life, and technology is the underpinning of every industry, whether it's driverless cars or collecting data. So zero in for us on industries. Where are you finding opportunity to invest in industry?

I'm always uncomfortable with the theme question. So I think there are all sorts of trends in technology, and I'd be happy to talk about them. But I think they're often difficult as a venture capital investor. So the trends are often the buzzwords. So they're buzzwords like SaaS software, cloud computing, big data, virtual reality, augmented reality, artificial intelligence. We've all heard these buzzwords. And even though these trends may or may not happen, as investments, they're often very dangerous. And so when you hear these buzzwords, you often should just run away as fast as you can because it's often an indication that the specifics have not been thought through carefully enough. And so what I think of investing in is never invest in trends or things like that, but always invest in specific companies.

And what I try to find are unique companies that are doing something that can't be done anywhere else and where this is sort of a one-of-a-kind in the world. Whereas if it's a trend, there are many of that kind, which means there are many competitors and they're somewhat undifferentiated. That's a fair point.

Can you give us some examples?

Well, certainly, for example, Airbnb, SpaceX, Facebook earlier on were investments I made. And each of these companies, you can describe them as part of a trend—the sharing economy or social networking for Facebook—but that's a misleading way to describe it. It was much better to think of them as solving a very specific problem. So Airbnb was sort of a hotel room substitute. It's not the sharing economy abstraction; it's the hotel room substitute. It's the only company that's doing that on a worldwide scale, and that makes it a one-of-a-kind company. Facebook somehow figured out real identity. There were a lot of people doing social networking in one form or another. Facebook was the one company that really cracked real identity.

People are not interested in networking. One of my friends started a company in 1997, Reid Hoffman, and ended up starting LinkedIn seven years before Facebook. The company was called SocialNet. They had social networking in the name of the company seven years before Facebook, and they wanted to do abstract networking in virtual cyberspace. And some people would pretend they were dogs, and other people would pretend they were cats. And you had these virtual dogs and virtual cats talking to one another. Turned out, no, that's not what people are interested in. They're not interested in abstract networking. They're interested in real identity. And Facebook was the first one to crack that and have something.

So it's often even defining what these companies are doing correctly, so that you can identify what the one-of-a-kind things are. But I always prefer a bottom-up approach. You meet with the entrepreneurs, you try to think hard about the technology, about the business opportunity, and then it's the ones that are different, that don't fit into any good categories, that are the great ones. And that's something like that's been true. And then when we've invested in trends, which we've occasionally done, that's often, often been much more treacherous, where even if the trend happens, that means you've glossed over details of the specific technology, the specific business, and you've abstracted away too many of the important details.

So it's a really smart approach that you bring up. I want to ask you about artificial intelligence and the risks of it. But before I go there, let me come at that question a different way. You said we're addressing problems. What are the problems in the world that you see today that perhaps you can come up with solutions for?

Well, if I already knew the answer to that, I would have started the company and so on. There are a lot of problems that I find myself very passionate about. One area that we've done a fair bit in for a Silicon Valley venture firm is biotech investing. There are questions: could we really do things to cure cancer? Could we find cures for Alzheimer's, for other diseases? And I think it's been a very challenging area to invest in, but it's one where there's obviously some very natural set of problems that we should be working against. And I think that the fact that progress has, in many of these places, been so slow and so difficult is not just a law of nature. It's that we have often not been trying the right way, we've not been funding the right scientists.

And so I think that's a place where I often think—

There's some very good opportunities, and it can also make the world a much better place. So biotech is something that I think is naturally charismatic in that, in that way, and, and technology has enabled so much in biotech. We're living longer, and now we have this whole theme of sensors. I mean, there's a sensor in your bloodstream, and your phone can call you up and say, 'Your, your arteries are clogged. You need to go to the doctor. You're gonna have a heart attack.' So, what is technology doing to enable longevity and to actually move the needle on biotech?

There are abstract ways of talking about it in terms of bioinformatics or genomics. The specific applications are always very specific. One company we were invested in was a company called Stemcentrx. Using some technology, they had a theory, but then they also had a technology to find better targets for a subset of cancer cells. And so it was an anti-cancer cell, they identified promising targets, and then were developing a whole series of different ways to target them, and it was sort of acquired by AbbVie for about six to 10 billion, sort of an earn-out built in that a couple of years ago. So there are, it's always like a very specific story like that that people are trying to solve. What motivates the great entrepreneurs is to be working on an important problem, and there's a counterfactual sense of agency.

If you weren't working on it, the problem is not getting solved. So if it's a problem that everyone knows about or everybody's working on, that's already a little bit more—

Then you've missed the opportunity.

Like education or healthcare. That's a little too abstract. We all know those are problems. It's the specificity that I think matters.

One theme that we've been talking about. Yes, go ahead. No, please.

One theme that we've been talking about, of course, here is what His Highness is doing with NEOM and all of the technology that is going to be in this new city of the future. Where do you see the opportunities in terms of starting from scratch? When you have a city, what kind of technologies are going to be most needed?

Well, there's a tremendous amount that one can do when one starts something new from scratch, because one of the things that's very striking about the great cities of the world, like London, New York, Silicon Valley, many other places, is that even though there are these incredibly dynamic economic places, it's extremely hard to change things. And so, you know, in New York City, it costs a billion dollars to build one mile of subway or something like that. In San Francisco, um, you can't, uh, you can't build new highways or, or anything new. The transportation grid is set, and, and so there is, there is this very weird transportation problem with, uh, with the big cities where, in effect, it becomes incredibly hard

to build new transportation once the basic city's been built. If the transportation systems are inadequate—and I would say they are badly inadequate in all of our major cities, even in the developed world; emerging world, they're catastrophic; developed world, they're generally inadequate—it ends up meaning that people have either super long commutes or they need to live in small apartments near the city center where they have to spend all their salaries on the apartments. And so I think it distorts the economics in these cities to a tremendous degree. In London, the inelasticity of housing in London is minus two, which means that if you built 1% more housing in London, the average price of the average house would go down by 2%.

Which is a crazy economic reality. So the more housing you build in London, the less the housing is collectively worth. And that's because the transportation systems are in the 19th century, and it's completely stuck. And that's a challenge that I think you could rethink in a very exciting way. And so I wonder if one could do something where you could build a potentially enormous city, but one where the transportation works at every level.

That's a great point. So transportation we've been hearing a lot about, obviously, with ride-sharing companies like an Uber, like a Lyft. What is your take on what transportation will look like in the future? Will it be ride-sharing? Will we have automated and autonomous and driverless cars? What is your vision in terms of transportation and how it changes for big cities?

Well, I think all these things are gradually approaching. It's certainly—just the shift to companies like Uber or Lyft, which I'm invested in, is itself a very big change. The self-driving car trend, it's again, it's a trend, it's a very important trend for the economy, for—for, it'll change consumer behavior tremendously. If you had self-driving cars, maybe you could have a longer commute because you could work in the car, or maybe some things would change. I'm not sure it's a good investment because there are a lot of companies doing similar technologies in self-driving cars, and it's hard to know exactly how differentiated they are. The transportation-related technology that I wonder about more than self-driving cars, though, is, is there some way to do an end run around our broken transportation systems?

And the IT version that people have talked about for decades is telecommuting. And so, would there be some way to—so that you won't need transportation at all and you can just do your work remotely? And for a variety of reasons, this has not worked for the last 30, 40 years that people have been talking about it. But the problem generally is that if people work from their homes, they don't work as hard. And then a lot of the value of work comes from talking to people in various ways. But I think we're starting to see more and more of this telecommuting in Silicon Valley and elsewhere, where people are finding small teams of developers outside of Silicon Valley, there are ways to sort of bundle and put the work in certain packages that you allocate to different people.

And so I think maybe one of the end runs around the transportation system will be telecommuting. I think that's one that would be—that's a trend that's underrated, that's worth exploring a lot more. So you can look at trends that aren't on anybody's radar.

Peter, let's talk about artificial intelligence. We've talked a lot about it this week. And people are worried that the more AI and machine learning you have in a situation, the fewer jobs you have. So, are robots going to be taking our jobs?

Well, one of the things, I'm always nervous about the abstractions. AI is one of the greatest abstractions of all because artificial intelligence can mean the next generation of computers or the last generation of computers or anything in between. So it can mean things that are like a little bit in the future or very far in the future. If you had generalized artificial intelligence, the sort of—where you had a computer that was smarter and more able than you in every way possible, I would say that the problem with that is not economic, but political. It would be like an alien from another planet landing. And the question, if aliens land on Earth, would not be, "What does this mean for the unemployment rate?"

The question would be, "Are they friendly? Are they unfriendly?" Things like that. That's a good point. And so I think, to the extent the economic question's serious, it's much more the political question. Now, the history, of course, of technology has not been one of pure substitution. It's been more complementary. As we've automated things in the Industrial Revolution, it's freed people up to be more efficient and to do other things. People are still mostly employed in our society, just as they were mostly employed 200 years ago. It's just they're not all in agriculture. They're not all working in factories. You know, as agriculture and industry were automated, as you had robots replace humans in factories, it freed people up to do other things.

And so that's been the history. And I tend to think that's still what will happen, that AI, you know, it will make certain sectors more efficient and then it will free people up to do other things. It's mainly a game of complementarity. It becomes a game of substitution only at the end if you have an AI that can do everything better, smarter, and cheaper than any human being. And then that would be very scary, and that's where my intuitions would start to break down.

So what do you think the skill sets are that people need to not just survive but thrive in this new world of machine learning?

Well, I always get asked these questions by young people, "What should I be studying? What should I be studying?" right. And I think it's hard to give general answers, but I think it's always good to start with things where you're not competing directly with computers, where you still maybe have some real skill, where you're thinking very hard about the future, about your place in it. And so the system's answer is to tell people that they don't need to ask those questions. "If you get a college diploma, you'll be saved. Everything will be fine." And I think that's not true. And so I think even though this is very difficult, I think people should be asking these questions much earlier because the universities do not have an answer.

So you say something like, "Don't compete with a computer." I feel like I'm competing with a computer on everything. Are you talking about emotional things?

Maria, you're in one of the safest positions possible. You're not competing with a computer. If we got a computer that looked just like you, that could do your job as well as you could, I mean, everybody in this room would be out of business well before you. So you're the last person in this entire room who has to compete with a computer.

All right, listen, I want to ask you about cybersecurity. Palantir obviously has incredible relationships across the world with governments, and you've done a lot of work on cybersecurity. Talk to us about how significant an issue this is, where the bad actors are, what can we do to protect ourselves in this new world where we feel like everyone's getting hacked and data has become so much more powerful?

Well, there's a tremendous amount that we can do in combining computers with humans. And a lot of the approaches in crime, defense, areas like this, in security, have been that we either have all-human solutions or all-computer solutions. And I think the truth is that there's a lot to be done with these intermediate hybrid solutions. And what we did at PayPal and what we've done at Palantir is figure out a good division of labor between human analysts and automated computer systems. And it turns out that if you get the division of labor right, you can do a lot. When we had fraud at PayPal—this is going back a while—we had a human team and it was like looking for needles in a haystack: millions of transactions, couldn't possibly figure out which ones were fraudulent.

The all-computer model didn't work either because the fraud patterns would change, and the computer wouldn't really figure out the new ones. It was when we figured out a way to divide the labor between the human investigators and the automated computer part that you really got a handle on it. And so I think this hybrid human-computer synergy theme is underrated, because we either want total automation or no computers at all. And I think the in-between thing needs to be explored a lot more, and that's what Palantir, among others, has done.

Are the bad actors trying to hack information an obvious group? Where are they?

Well, I don't think it's an obvious group. We would have probably tracked them down. One of the challenges with cybersecurity is that there is something about it where it's very asymmetric, that in most forms of defense, military technologies, the defense side is pretty good. But in cyber security, it's very hard to defend. It's very easy to attack. And so if you have something where it's incredibly easy to attack, incredibly hard to defend, that creates some very unusual challenges. And I think we haven't quite figured out what to do about them. We certainly are not able to defend as well as we can. We're not willing to take the precautions that are needed. And it really calls out for a lot more work in the decade ahead.

But I think people's intuitions are shaped by their everyday experience, where there's more of a balance between attack and defense. In the world of cyber, there's no balance at all. Attack is super easy. Defense is super hard.

You've been really successful in terms of watching where the growth is in the world and identifying the companies that are solving important problems. What excites you right now? What can you look at in the world today that you feel like, 'Wow, that is a good idea,' or, 'That is really where the growth story is'?

I'm always nervous about being excited about things because that always feels too irrationally exuberant and too emotional.

Like 1999.

Yeah, so I went through '99, so a lot of people were very excited and that was dangerous. If you ask what are the things where there's, you know, what's very charismatic and that people are not paying enough attention to, I think there are these pockets in biotech that I find like that. You know, the one other one that I've been looking at a lot more have been the cryptocurrencies. And while I'm skeptical of most of them, I do think people are a little bit, maybe underestimating Bitcoin. Specifically because it is like—it's like a reserve form of money. It's like gold, and it's just a store of value. You don't actually need to use to make payments, and it's been, you know, there's about 70 billion dollars' worth of Bitcoin in the world, there's nine trillion worth of gold, and if Bitcoin ends up being the cyber equivalent of gold, and...

...and it has a great potential left. And it's a very different kind of thing from what people in Silicon Valley normally focus on—companies, not algorithms or protocols—but this may be one exception that's very underestimated.

Well, people question it. And I know there's been so much debate about Bitcoin, but they question it because what is it based on? I mean, you see that the dollar is based on, you know, the trust of the Treasury, the trust of the U.S. government. What is Bitcoin based on?

Well, the argument, it's based on the security of the math, which tells you that it can never be diluted by government. It can never be, it can't be hacked. And it's a form of money that's absolutely, that's secure in an absolute way. And of course, you could ask the same questions about gold. That's why I use the gold analogy. You could say, 'What is gold based on? Why is gold valuable?' That's true, yeah.

Well, it's a tangible asset, though.

It's a tangible asset, but it's also hard to mine. So if it was easy to mine gold, then it wouldn't be that valuable because we would just have way more gold. So Bitcoin is also, it's mineable like gold. It's hard to mine. It's actually harder to mine than gold. And so in that sense, it's more constrained. And so, yeah, there are a number of things that... that I think make it somewhat similar to gold. And then the question is just, does this become more widely—And it's anonymous, right?

I mean, that's one of the beauties of it. You can be anonymous using Bitcoin.

Yeah, it's half-anonymous, half-not. It's, again, this intermediate thing. There's a question whether that's right or not. But it's a bearer instrument. So if you have the Bitcoin, if you know the key, you can go anywhere. Most of the time, most securities are registered, not bearer security. So it's a very unusual kind of a security.

Peter Thiel, thanks so much for your insights today. Thank you. Great to see you. Peter Thiel.