Peter Thiel to Harvard MBAs: Value Mission Over Money

Investor Peter Thiel took his book promotion tour to Harvard Business School last week, predicting the university will be safe from online college degrees and advising entrepreneurs to drive toward a goal besides making money.

In an on-stage interview, Thiel recapped some of the arguments in his book Zero to One: the most successful businesses are monopolies; innovation has stagnated in fields outside digital technologies; big companies eventually stop innovating to protect their turf.

Thiel made his first fortune as a co-founder of PayPal, which eBay acquired, and was an early investor in Facebook. He now invests as a venture capitalist at Founders Fund, which he co-founded with former PayPal partners, and through growth-stage fund Mithril. He also operates a philanthropic foundation and a fellowship, perhaps best known for paying students who eschew college to start companies.

Given his background, it’s hard to find somebody more committed to the idea that technology startups are the engines of economic growth. But at Harvard,
Thiel quickly showed his contrarian thinking and willingness to criticize others. He said too many of his venture capital colleagues treat their “portfolio of companies as a series of lottery tickets,” rather than businesses designed to create wealth.

At the same time, he said the frenzy of investing in digital startups in Silicon Valley is not a bubble. In the 1990s, hundreds of technology companies were going public, which brought the general public into the dot-com hype. Now, there are far fewer tech companies going public, which puts a check on the financial speculation. If there’s a financial bubble, Thiel thinks it’s one created by the federal government’s low-interest rate policy, which creates risks for value stocks—not growth-oriented tech companies.

Founders Fund is notable for investing in high-risk companies taking on difficult technical challenges, which runs counter to the trend among some venture capitalists to put relatively small sums into startups trying to build incremental improvements on existing products. The tagline for the fund is “We wanted flying cars. We got 140 characters.” It’s funded space exploration company SpaceX, data analysis company Palantir, and last month, nuclear power startup Transatomic Power.

Central to its investment philosophy is that the pace of innovation in several industries centered on physical goods and science—energy, transportation, biotech, and biomedicine—has not kept up with digital technologies. “We’ve had 40 years of innovation that’s focused on the world of bits—computers, the Internet, that whole ensemble of things,” he said.

Other industries—or the world of atoms—deserve more technological exploration, he said. That’s particularly true in developed countries because they are most dependent on science and technology innovation for economic growth.

“In the developing nations, there’s not so much a need for innovation because they can do fine by copying [the developed world]. There’s so much room to catch up,” he said. “The developed world—the U.S., Canada, Scandinavia, Israel—is where have the most intense interest in doing new things.”

Thiel didn’t offer any pat formulas for startup success, but he favors investors who were once entrepreneurs and is biased towards companies run by founders, since they have the best vision for the company. “What I do like to see is a company that has a mission that transcends just making money. There’s a sense that if we don’t do it at this company, nobody will,’” he said.

Elon Musk, another former colleague at PayPal, has become a business-world celebrity for starting SpaceX and Tesla Motors and being the chairman of solar installer SolarCity. In each case, Musk is motivated by bigger questions, namely colonizing space and developing sustainable energy.

Thiel did offer some assurances to the students at Harvard, which risks being disrupted by new approaches to higher education, including online courses. Elite schools are harder to replace with online courses because getting into them is like a “tournament” and people go for the networking and prestige of attending.

“I think the top schools are not going to be threatened for quite some time,” he said.

And in another piece of contrarian advice, Thiel told Harvard Business School students to avoid going into the same field as most of their classmates. When the interviewer asked how many students who had come to the event planned to start companies after graduating, about half raised their hands. Thiel’s reaction: “Cool.”

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