The Paypal Mafia is known for its streak of impressive successes in the silicon valley. Last summer, I also enjoyed reading the book "the Paypal Wars" by Eric Jackson, one of the early employees at Paypal.
I've jogged down some of my key learnings from Peter's talk, as well as some of my thoughts.
With Founders Fund as the case in point, we discussed problems facing the venture capital industry today:
1) Too much VC money is chasing a limited number of good ideas.
2) While fund sizes grew, costs to start up a company have significantly come down due to better technology infrastructures. There are also more veteran entrepreneurs why rely less on VCs.
3) VCs' interests are likely less aligned with the entrepreneurs' given the large management fee VCs generate from the large fund sizes.
4) VCs often take too many board seats and have limited time to bring real value to each portfolio company. They also have very limited time to respond to new deals.
5) There are fewer liquidity events, making exits hard.
6) Many venture capitalists are professional investment managers who do not have hands-on entrepreneurial experiences and cannot relate well with entrepreneurs.
Founders Fund, founded by Peter Thiel and a few Paypal co-founders, made a few changes accordingly: a smaller fund size ($100-250M), a team of seasoned serial entrepreneurs, an opportunity for entrepreneurs to partially cash out as their companies grow through the Series FF stocks, and the investors' own direct involvements as entrepreneurs outside of Founders Fund.
Peter discussed Founders Fund's approaches:
1) Contrarian: he used SpaceX as an example. Few other VCs would have thought about investing in a rocket company!
2) Partnership with Entrepreneurs: Will not fire original founders. No need for a board seat.
3) Not Constrained by Structures: He discussed his willingness to invest $500K in Facebook and get a <10%>
4) invest in people who are really smart, sectors that are not too crowded, and think hard about why it is a great company and why others do not see it.
I particularly liked a few perspectives he shared:
1) He would invest in "terminal technologies" - technologies that marked the end of an era - such as Google, after which search technologies only experienced incremental improvements rather than breakthroughs.
2) There are two types of business: monopoly and commodity. Google and Microsoft are both monopolies. it's VERY HARD, in Peter's opinion, to unseat a monopoly. In that sense, Google and Microsoft's efforts at "mutual destruction" (Chrome OS and Bing Search) may be just a waste of shareholders' money. I've long thought that if I were at Microsoft, I would not continue to sink money in the direct search battle against Google. Try something else! For example, Microsoft is better at enterprises. Use its know-how and customer base to build a more robust suite of cloud services. For God's sake, move Microsoft Office online and make it 10x better than Google Docs!
3) When asked where he sees opportunities in 2010, he refers to certain hard technology areas which need improvements, ranging from space technology to genomics.
Given Peter's track record at building an all-star team, I couldn't help but ask him about his secret sauce at discovering superstars. Here's his feedback:
driven, motivated, individually talented, teams that work well together
He also suggested a rule of thumb: what's the CEO's salary. If it's above $150K, it'll most likely fail.
Finally, when asked again why the Paypal team was so strong, Peter said that Paypal was a "difficult success". This made the Paypal team special, compared to people from other successes that almost came to easily, from Microsoft to Google.
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