3. September 2013–
It’d be hard to think of a way to improve Silicon Valley giant Peter Thiel’s resume. He’s a cofounder of PayPal, the first outside investor in Facebook, and a philanthropist with an accumulated worth of $1.6bn. At the moment he’s focused on investing in startups, mostly as a managing partner of Founders Fund, backer of Asana, Palantir, ResearchGate and Spotify, alongside others dealing with machine intelligence, biotechnology, space travel and health.
Born in Germany but raised in the US, Thiel spent yesterday in Berlin. Addressing over 300 entrepreneurs and investors at an invite-only event with German Minister for Economics and Technology Philipp Rösler, he discussed Silicon Valley versus Berlin, the biggest mistakes founders make and his investment criteria. If you weren’t part of the crowd (or you just didn’t get it because it was all in German) don’t despair – read on for a round-up of Thiel’s top pieces of advice…
Don’t sell too early
Thiel is famously supportive of Mark Zuckerberg’s decision in 2006 not to sell Facebook to Yahoo, despite the company’s $1bn offer. When Zuckerberg, aged 22 at the time, deliberated on what he’d do with so much money, he decided he’d probably just found another social network and apparently told Thiel “I already like the one I’ve just built”.
It’s an attitude Thiel thinks we need more of: “To build a really big firm you need to not sell it. Entrepreneurs need to have the optimism that they can build something together. They shouldn’t dream of an exit too early.”
“If nothing goes wrong, you’re probably not trying hard enough”
When it comes to failure, Thiel’s outlook seems to reflect his American upbringing rather than his German roots. His attitude is pragmatic – failure isn’t good but “if nothing goes wrong, then you’re probably not trying hard enough”. (Berlin could do with a bit more of that Silicon Valley attitude.)
Cloning makes sense for developing countries but we need more innovation
Copying what already works in Europe and the US can work in developing countries but, in first-world countries, Thiel thinks copycats hold back technological progress and innovation. In what was perhaps a sly dig at Berlin-based company builder Rocket Internet, Thiel made it clear he looks for original ideas when investing: “You need to not have the social pressure to copy the people around you.”
“You have to be 10 times better than second best”
Innovative and ambitious thinking is important but founders need to follow-through. “Big thinking is aways a bit dangerous because you have to do something no one else is doing and much better,” Thiel said. “We want to see companies that we can somehow measure and see are 10 times better than what’s second best. It’s no good if you’re one or 10 per cent better.” So if you’re looking for investment from Thiel, better make sure your product is up to scratch.
Don’t target huge markets
Thiel points to a common mistake in entrepreneurs’ pitch decks: claims a startup targets a huge market worth hundreds of billions of dollars. He argues there’s little point going after, for example, the restaurant industry: “Then you only get a tiny part of the revenue and there is lots of competition.” By comparison: “When Facebook started, the market was only 10,000 students but after 10 days Facebook had 60 per cent of the market share.”
Berlin has “the most potential of all cities in Europe”
Maybe he’s biased because of his German heritage, maybe he just thinks there are great companies here – either way, Thiel named Berlin as the European city with the biggest startup potential. Already an investor in Berlin-based science network ResearchGate (alongside Bill Gates), this may mean Thiel is on the lookout for more funding opportunities in the German capital. He did make the point that Silicon Valley is still his favourite, though.
The founder is just as important as the idea
Thiel’s investment strategy puts a lot of emphasis on making sure the founder is trustworthy, regardless of how innovative the idea is. While ideas can be changed, founders can’t – which is why they have to have potential from the get-go.
Screw $50m exits
A statement that made many in the audience gulp, Thiel again dissed too-early exits: “If your company is growing by 100 per cent every year, then don’t exit for $50m. Instead, invest every dollar you have in the firm. If you build something really large, then your firm is worth so much more.”
Clearly, the $1.5bn sale of PayPal to eBay was enough to be worth it for Thiel…
Brand power isn’t everything, but a good name will help
Although having a good brand can boost your company, it isn’t the most important factor. Thiel pointed out that the brand comes when you have the product and the innovation – it’s one part of a package deal. The only thing you really have to get right is the name, Thiel said. Coming up with PayPal was no easy task, Thiel explained: “When we were creating PayPal, we got an expert company to think of 1,000 potential names, and PayPal was by far the best.” He’s a fan of two-word names such as Dropbox, Facebook and PayPal.
There’s an 80 per cent chance Bitcoin will disappear
As an investor in Bitcoin processor Bitpay, Thiel admits he’s taken a gamble on the electronic currency. He appears happy to take the risk – it’s “something that could disappear or become a new way of paying”, he said. “It’s 80 per cent likely it’ll disappear, 20 per cent likely that it’ll become big.”
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