Peter Thiel is one of the founders of Paypal, the first outside investor in Facebook, and the largest shareholder in Palantir, a CIA-backed technology company. Here we highlighted Theil’s thoughts on focusing on a small market.
In this video, Peter discusses his meditations on innovation, risk, investing and a few other things. Below are a number of nuggets from the talk.
Thanks to @rileynewport for transcribing these snippets.
Recognizing Intelligent Fanatics @ 11:50 mark
I think the internal story in these businesses is one that’s strikingly not one about ‘Oh we’re going to take crazy risks’ or anything like this. It’s one where ‘it’s destined to succeed and it’s going to happen.’ Let me try to reduce this to a pattern or recognizing entrepreneurs as a venture capitalist. You always want to invest in the ones where they speak in definite future tense. You sometimes have to be careful they’re not totally crazy people, but that’s the sort of person you want to invest in. You do not want to invest in people who are talking too much about probabilities or risks or things like that because my experience has been that the people who think they’re involved in some sort of lottery ticket-like dynamic are already setting themselves up to already somehow get the probabilities wrong and invariably lose.
Luck @ 13:00 mark
There’s always this very tricky question of the role of luck and chance in these things working. There’s this external truth perspective about luck. There is a certain amount of luck that is built in to the nature of the universe and you try to model it. You try to account for it. You try to get the probabilities right, as you assess these things. When people say that luck is involved, this is a statement about the deep nature of our universe.
More on Luck @ 13:30 mark
Whenever we’ve thought that it’s a matter of luck, psychologically, this is often a very bad sign. Where you say, ‘well we don’t know if this is going to work, maybe it works, maybe it doesn’t, so let’s just invest a slightly smaller amount just for our lack of knowledge.’ As a pattern those are investments that have generally gone very badly wrong. It’s something like when you think you’re multiplying a small probability by a big payoff, you’ve sort of psyched yourself into playing the lottery and you’ve psyched yourself into losing because you somehow are being sloppy and not doing that much work. The external account of luck is that it’s something about the nature of reality. The internal account of it, is that you talk about luck when you’re too lazy to think for yourself. You start talking about luck when you’re too lazy to think through the various contingencies. It’s sort of a moral failing and not a metaphysical statement about reality.
On Biotech @ 28:15 mark
The way people think about biology involves a sort of complex systems approach where, our biological systems are these complicated systems with many compounding and cross-reacting variables and it’s almost impossible to sort out what’s going to happen. So, if you’re starting a biotech company, it ends up being it might work, it might not, who knows, nobody knows, the drug development companies often internally have the feeling of a cult where people are worshipping a particular molecule. They’re hoping that it works. But it’s just sort of this purely chance-like thing. Nobody of course would ever give up a tenured position to work on a biotech company, and the other people don’t end up being that motivated, and the cultures of these companies is far more screwed up than the culture of a software company. We’ve seen almost no Life Science venture capital funds left in the United States today. The returns have been too low and they’ve basically gotten defunded at this point.
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