PETER THIEL: Winning Big By Betting Against Everyone

peter thiel

“What is it about the world that you know is true that everyone else doesn’t understand?”

This is reportedly the key question Peter Thiel asks people before deciding to work with them. It’s also perhaps the best encapsulation of his worldview.

Peter Thiel made big money by making big bets against consensus. He’s lost some bets. But he’s won more.

Some of his contrarian bets have become the stuff of legend in the technology and financial industry. He foresaw the crash of the dotcom bubble and of the housing and financial bubble.

Now he is making more bets that have people scratching their heads: that America is in a “great stagnation” and needs radical technological innovation to fix its problems; that the next big bubble is higher education; that the next startup utopia might be New Zealand, of all places.

Thiel’s accomplishments are almost too many to count: he was the co-founder and CEO of PayPal, the web’s most successful payments company, which he steered through the dotcom bust to a $1.5 billion acquisition; he runs a hedge fund, Clarium Capital, which makes big bets on the future of the global economy, winning (and sometimes losing) fabulous fortunes; he was the first outside investor in Facebook, becoming a billionaire in the process; he founded the venture capital firm Founders Fund, which invests in everything from space rockets to biotech to secretive spy companies to online dating; he is the Godfather of the famed “PayPal Mafia” of investors and entrepreneurs who dominate Silicon Valley.

Perhaps the best way to understand Peter Thiel is to look at his early years. As a teenager, he was a chess prodigy and is still rated a Master. As an undergrad at Stanford studying philosophy, he became acquainted with the French philosopher René Girard, whose mimetic theory holds that imitation is the fundamental mechanism of human behaviour. The reason we want things, is because we want to imitate other people. It’s easy to see how mimetic theory can help Thiel understand and anticipate bubbles, these mass delusions where everyone imitates everyone else.

At Stanford, Thiel founded the conservative/libertarian newspaper The Stanford Review, going against the conventional liberalism that tends to prevail in the Bay Area. Many of his co-founders at the Stanford Review ended up working with him at PayPal and becoming a core of the PayPal Mafia. Already in college he exhibited some of the traits that would define his career: an intellectual contrarianism combined with an entrepreneurial drive to turn his ideas into a real-world challenge of the status quo.

After stints at Stanford Law School, where he still teaches, white-shoe corporate law and securities trading, Thiel ended up as a co-founder of a cryptography company called Confinity, which became PayPal.

The thing to understand about PayPal is that it wasn’t the biggest Silicon Valley success ($1.5 billion at exit probably doesn’t put it in the top 10), but it’s one of the most legendary. PayPal had to fight everything from the Russian mafia hacking into its payments system, to attorneys general trying to stifle it through regulation, to forced mergers and dirty tricks by investors, to eBay trying to crush the startup that used its platform as a launching pad, to the “nuclear winter” that enveloped Silicon Valley after the dotcom bust and 9/11.

PayPal insiders credit the trial by fire of the “PayPal Wars” with giving them the drive and ambition to start and invest in some of the biggest Silicon Valley successes, from YouTube to LinkedIn to Yelp to Tesla Motors.

Thiel is not right all the time, far from it. And no one knows how his next bet is going to pan out. But if nothing else, Peter Thiel’s career proves one thing: you should ask yourself “what is it about the world that you know is true that everyone else doesn’t understand?”

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