How Peter Thiel Made $10 Billion Without Ever Working
Summary
TLDRPeter Thiel's journey to becoming a billionaire was unconventional. Instead of working tirelessly or inheriting wealth, Thiel leveraged his network and foresight to make strategic investments. He founded Thiel Capital Management, invested early in companies like PayPal and Facebook, and foresaw trends like social media and cryptocurrencies. His ventures, including backing Ethereum's development, exemplify how he worked smarter, not harder, to amass a $10 billion fortune.
Takeaways
- 🚀 Becoming a billionaire often involves starting a company and maintaining equity, as seen with Jeff Bezos, Mark Zuckerberg, and Elon Musk.
- 💼 Some billionaires, like Warren Buffett and Jim Simons, achieve their status through savvy investing over a lifetime.
- 💼 Peter Thiel made his billions by connecting people with money to those with business ideas, acting as a high-stakes 'real estate agent'.
- 🌟 Thiel's success is unique; he never had a traditional job at his own or a third-party company and didn't inherit his wealth.
- 🏡 Born in Germany, Thiel's family moved to the US when he was one, and his early life was marked by frequent relocations.
- 🎓 Thiel studied philosophy at Stanford and later earned a law degree, but found neither field fulfilling in the traditional career sense.
- 💼 After a brief stint in law and finance, Thiel pivoted to venture capital, leveraging his network to establish Thiel Capital Management.
- 💹 His early investments were high-risk, but one of his first, PayPal, paid off when it was sold to eBay for $1.5 billion.
- 🌐 Thiel's investment in Facebook for $500,000 turned into billions, solidifying his reputation as a visionary venture capitalist.
- 🔮 Thiel's foresight into internet, social media, and cryptocurrency booms, along with his investments in AI, demonstrate his philosophical and visionary approach to wealth creation.
Q & A
What is the most popular way to become a billionaire according to Peter Thiel?
-The most popular way to become a billionaire, as mentioned by Peter Thiel, is to start a company, maintain as much equity as possible, and scale the business to a significant level.
How does Peter Thiel's approach to wealth accumulation differ from the traditional method?
-Peter Thiel's approach differs from the traditional method as he made his fortune not by working for a company but by aligning himself with people who had money and businesses, connecting them, and making billions in the process.
What percentage of Nvidia does Jensen Huang own, and what is its worth?
-Jensen Huang owns a little more than 3% of Nvidia, which translates to over $70 billion.
What was Peter Thiel's first investment and how did it turn out?
-Peter Thiel's first investment was $100,000 in his friend Luke Nosek's web-based calendar project, which unfortunately went bust and he lost the money.
How did Peter Thiel become involved with PayPal?
-Peter Thiel became involved with PayPal through a series of investments and company pivots. Initially, he invested in a web-based calendar project by Luke Nosek, which failed. Luke then co-founded Confinity, which later merged with Elon Musk's x.com to create PayPal.
What was the outcome of Peter Thiel's involvement with PayPal?
-Peter Thiel served as the CEO of PayPal and took the company public in 2002. Later that year, eBay acquired PayPal for $1.5 billion, resulting in a $55 million return for Thiel.
What was the significance of Peter Thiel's investment in Facebook?
-Peter Thiel's investment in Facebook was significant as he became the first outside investor, providing $500,000 for 10.2% of the company in 2004. This investment turned into billions as Facebook grew to be worth over $1.3 trillion.
How did Peter Thiel contribute to the existence of Ethereum?
-Peter Thiel contributed to the existence of Ethereum by giving Vitalik Buterin $100,000 to drop out of college and focus full-time on developing Ethereum.
What is the '2 and 20' fee structure mentioned in the script?
-The '2 and 20' fee structure refers to the traditional fees charged by fund managers in the finance industry, where they charge a 2% annual fee on the total assets under management and a 20% fee on all profits generated from the fund.
What is the key to Peter Thiel's success as a venture capitalist?
-The key to Peter Thiel's success as a venture capitalist is his ability to foresee major technological trends and invest in them early, such as the internet, social media, and cryptocurrencies, combined with his strong network and strategic investments.
Outlines
🚀 The Billionaire Blueprint
Peter Thiel's journey to becoming a billionaire is explored, contrasting the traditional path of starting a company and scaling it with Thiel's unique approach. Unlike other famous billionaires who built and scaled their own companies, Thiel made his fortune by aligning himself with wealthy individuals and businesses, acting as a connector rather than a traditional worker. His strategy involved taking on significant risk and responsibility, which allowed billions of dollars to work for him without the need for manual labor. Thiel's story is set against the backdrop of his early life, from his birth in Germany to his family's move to the United States, and his academic achievements, including his philosophy major at Stanford and his brief stint in law.
💼 Pivot to Venture Capital
After a series of career changes and a realization that traditional employment was not for him, Peter Thiel leveraged his network from law school to establish Thiel Capital Management, a seed venture capital firm. Despite the high risk associated with seed investing, where most startups fail, Thiel saw potential in backing the next big tech companies. His strategy involved charging a 2% management fee and a 20% performance fee, a model that could yield significant returns if his investments succeeded. Thiel's first investments were in friends' projects, which, despite initial failures, led to the formation of PayPal. His role in PayPal's success and eventual sale to eBay for $1.5 billion marked the beginning of his winning streak in the tech and investment world.
🌐 Investing in the Future
With his success from PayPal, Peter Thiel continued to invest in a variety of startups, including founding Clarium Capital and Palantir. His most notable investment was in Facebook, where an initial $500,000 investment turned into billions as the social media giant grew. Thiel's foresight extended to the cryptocurrency space, where he was instrumental in the development of Ethereum by funding its founder, Vitalik Buterin. Thiel's investments span across various industries, showcasing his ability to identify and capitalize on emerging trends. His approach to wealth creation is characterized by working smarter rather than harder, leveraging his philosophical and visionary insights to make strategic investments that have led to his status as a unique and successful billionaire.
Mindmap
Keywords
💡Billionaire
💡Equity
💡Venture Capital
💡Philosophy
💡PayPal
💡Founding
💡Investment
💡Seed Capital
💡Pivot
💡Exit Strategy
💡Cryptocurrency
Highlights
Becoming a billionaire often involves starting a company, maintaining equity, and scaling the business, as seen with Jeff Bezos, Mark Zuckerberg, Elon Musk, Steve Jobs, and Bill Gates.
Less common is becoming a billionaire through investment, like Warren Buffett and Jim Simons, who turned modest amounts into billions.
Employee billionaires like Tim Cook and Sundar Pichai have emerged, but all billionaires share a common thread of hard work.
Peter Thiel made $10 billion without significant earned income, aligning with wealthy individuals and businesses to connect and create wealth.
Peter Thiel's success is attributed to working smart, not necessarily hard, taking on risk, stress, and responsibility.
Born in 1967 in West Germany, Peter Thiel's family moved to the US for a better environment, settling in Foster City, California.
Thiel excelled academically, winning a state-wide math competition and graduating as valedictorian before attending Stanford.
At Stanford, Thiel majored in philosophy, opposing identity politics, and founded the libertarian campus newspaper, the Stanford Review.
After earning a law degree, Thiel's career in law was short-lived, as he found it lacking in transcendental value.
Thiel pivoted to finance, working as a currency derivatives trader at Credit Suisse, but sought more meaningful work.
In 1996, Thiel established Thiel Capital Management, a seed venture capital firm, leveraging his network to raise funds.
Thiel's first investment was in a web-based calendar, which failed, but led to the founding of PayPal after multiple pivots.
As PayPal's CEO, Thiel orchestrated the company's public offering and eventual $1.5 billion sale to eBay.
Thiel's early investment in Facebook for 10.2% of the company turned his $500,000 into billions as the social media giant grew.
Thiel's investment philosophy focused on identifying and capitalizing on future trends, such as the internet, social media, and cryptocurrencies.
Peter Thiel's approach to wealth creation was unique, focusing on foresight and strategic investments rather than traditional labor.
Transcripts
PETER THIEL: How does someone become a
billionaire? Well, the most popular option is to start a company, maintain as much equity as you
can, and scale the business to the moon. This is precisely what all of the most famous billionaires
did including Jeff Bezos, Mark Zuckerberg, Elon Musk, Steve Jobs, Bill Gates, and so on. In fact,
a lot of them only own single-digit percentages of their company at this point, but it still
translates to a massive fortune. Jensen Huang for example only owns a little more than 3% of Nvidia,
but that itself translates to over $70 billion. A less common way is to invest yourself up there.
Legendary investors like Warren Buffett and Jim Simons were able to compound a modest
amount of money in tens of billions over a lifetime of investing. More recently,
we’ve also seen some employee billionaires pop up here and there like Tim Cook, Sundar Pichai,
and Steve Ballmer. No matter how these guys made their fortunes though, one common thread is that
they all worked extremely hard. Most of these people worked to live for decades and still
work to live even though they’re already rich. But what if I told you that there was someone
who not only made $1 billion but $10 billion and never really any real earned income? Well,
that’s exactly what Peter Thiel did. You see, Peter never really had a job at his
own company or any 3rd party company. And no he didn’t inherit his money either. What
Peter actually did was align himself with people who did have money and people who did
have businesses and he connected the two and made billions in the process. He was basically a
trillion-dollar real estate estate agent. And that’s by no means a knock on Peter. In fact,
it’s the exact opposite. Peter basically worked smarter, not harder. While Peter was never really
working to the bone, he did take on insane amounts of risk, stress, and responsibility,
and he made it such that billions of dollars were working for him so that he never had to. So,
here’s the insane story of Peter Thiel, the man who made $10 billion without ever working.
COMPLETELY LOST: If you're interested in deeper dives,
interviews with insiders, and exclusive tech analysis, consider subscribing to our free weekly
newsletter. But anyway, taking a look back, the story of Peter Thiel takes us back to October 11,
1967, to Frankfurt, West Germany. This was during the peak of the Cold War and the race to the moon,
so tensions between West Germany and East Germany were at an all-time high. In an effort to create a
better environment for his family, Klaus Friedrich Theil, Peter’s father would moved the family to
Cleveland, Ohio when Peter was just 1 year old, but this was by no means a permanent arrangement.
Peter’s father worked as a chemical engineer for various mining companies, so the family
was regularly on the move. At one point, the family even lived in modern-day Namibia. In fact,
Peter switched elementary schools 7 times meaning that he didn’t even average 1 full year at any
school. By the time that Peter reached middle school though, the family finally settled down
in Foster City, California, giving Peter the space to excel, and let’s just say, Peter more
than excelled. He was a natural mathematician. In fact, he would place first in a state-wide math
competition in California. He would also graduate valedictorian. Hearing this, I don’t think you’d
be surprised to hear that Peter would be accepted into Stanford, but you might be surprised at what
he chose to major in. He didn’t major in computer science or engineering or anything STEM-related.
He actually chose to major in philosophy. And this was during the era in which identity politics
and political correctness were first starting to make their rounds which stirred up quite a bit of
controversy on campus. Peter was very much against these new ideologies, so much so that he created
his own libertarian campus newspaper for Stanford called the Stanford Review. Peter would go on to
serve as the newspaper’s editor-in-chief for the rest of his undergraduate studies. Seeing this,
you might think that Peter went on to pursue journalism but that’s not quite how things
played out. After graduating in 1989, Peter would turn around and enroll in Stanford’s Law School
and earn his law degree in 1992. With that big of a commitment, you would think that Peter would
pursue a career as a lawyer but that couldn’t be further from the truth. Peter barely lasted
a year in the world of law. His first job was as a clerk for a judge on the US Court of Appeals in
Alabama. He wasn’t a big fan of clerking though. He thought that some finance might make things a
bit more interesting, so he quickly switched over to being a securities lawyer for a financial firm
in New York but he only lasted here for 7 months and 3 days. And by 1993, he was completely done
with the law citing a lack of transcendental value in the job. So, at age 26, Peter would decide to
make a complete pivot to the finance industry. He would straight up take on a job as a currency
derivatives trader at Credit Suisse. But while there was a lot of money to be made in this field,
this too did not fulfill Peter’s need for purpose and meaning. So, he once again left this job and
took on a role that was well below his pay grade. He became a speech writer for then US
Secretary of Education William Bennett, but this too was not what he was looking for. Eventually,
in 1996, Peter returned to California completely lost. He had all the intelligence and education
in the world, yet somehow, he didn’t have a career. This is when Peter first realized
that maybe the traditional 9 to 5 just wasn’t for him leading us to Peter’s insane pivot.
THIEL CAPITAL MANAGEMENT: While law school didn’t give Peter a career
that he actually wanted, it did set him up with an insane amount of connections. Just think about
it. He knew dozens of lawyers from Stanford Law School and dozens of finance bros from his time
in New York. In other words, he was surrounded by multi-millionaires and even deca millionaires,
and that gave him an idea. What if he opened up an investment firm, and not just a value investing
firm like Warren Buffett or a trading firm like Jim Simons, but the riskiest of all investing
firms: a seed venture capital firm. If you’re not familiar with seed venture capital, it’s basically
when a bunch of college kids and young adults come to you with a PowerPoint and ask you to give them
hundreds of thousands if not millions of dollars to grow their business. Naturally, a majority of
these startups will fail, but the idea is that a few of them will end up becoming the next
Microsoft or Apple and make all the losses worth it. Usually, seed and angel investing is a game of
billionaires. Once founders make a crap ton of money, they like to get into VC investing, not
necessarily to make money but basically to pay it forward for the next generation of entrepreneurs.
A perfect example of this is Shark Tank. All of the sharks are multi-centi millionaires or
straight-up billionaires and they’re for the most part retired. Investing in all these startups is
just something they do for fun, and if it turns out to be profitable, even better. Peter, however,
wasn’t doing this for fun, he was doing it for profit. Also, Peter didn’t have any money to burn
either, so he would end up asking all his wealthy friends for money. The pitch was basically,
give me some money so that I can invest it in the riskiest places in the world,
and by the way, there’s a 90% chance that you lose everything. The only reason this pitch worked was
because his friends had money to burn. Really goes to show the importance of building up a
strong and powerful network. But anyway, Peter managed to raise $1 million from his network,
and with that, he would establish Thiel Capital Management in 1996. Now, you might be wondering,
how does Peter make money from all of this? Well, it’s not clear what structure Peter used exactly,
but the traditional approach is 2 and 20. Basically, the fund manager,
which in this case was Peter, charges a 2% fee on the total assets under management every year
along with a 20% fee on all profits generated from the fund. Peter is often known to charge
no annual management fee a make his entire compensation performance-based. For example,
one of his later funds, Clarium Capital, charged 0 and 25. When you’re only dealing with a million
dollars, this doesn’t translate to very much money, but if you hit some winners and grow
into the tens of millions and hundreds of millions or especially billions, you
start making bank. And let’s just say, Peter was about to have the winning streak of a lifetime.
WINNING STREAK OF A LIFETIME: Peter naturally started off by investing in his
friend’s ideas. His first investment was $100,000 in his friend Luke Nosek who was building out a
web-based calendar similar to Google Calendar. Unfortunately, this company went bust and Peter
would lose the $100 grand, but the investment into Luke was by no means a waste. You see,
after the calendar project flopped, Luke would team up with one of his tech friends, Max Levchin,
and together, they would create a new company called Fieldlink using capital from Peter. The
company was trying to become a cybersecurity company for handheld devices but this didn’t
go anywhere either. So, Luke and Max would pivot once again into the digital wallet industry with
a company called Confinity. You might not be familiar with Confinity but you’re definitely
familiar with what it became. Confinity would go on to merge with another fintech company
called x.com founded by Elon Musk and a few others and together, they would create PayPal.
Now technically, after the founders had a falling out and Elon Musk got fired from his role as CEO,
Peter would take over as CEO of PayPal in October of 2000, but he was by no means your typical CEO.
Peter’s job as CEO was not to build out the company or invest in the team or scale profits,
but rather find PayPal an exit, and that’s exactly what he did. He would take the company public in
early 2002, and later that same year, he would get eBay to buy the company for $1.5 billion. Due to
all the failures, pivots, mergers, and dilution, Peter was watered down to 3.7% by the time the
deal closed, but this itself resulted in $55 million for Peter. At this point, most would count
their lucky stars and retire, but Peter was just getting started. Now that he actually had capital
of his own and status as the don of PayPal, Peter would simply double down on investments. In 2002,
he founded a hedge fund called Clarium Capital and in 2003, he founded Palantir which you’ve probably
heard of if you were part of the 2021 investing boom. By far his biggest play though didn’t come
till 2004. This is when Peter cemented himself as a legendary VC investor by becoming the first
outside investor of Facebook. In August of 2004, he gave Mark $500,000 in exchange for 10.2% of
Facebook. Let me just remind you that Facebook is now worth $1.3 trillion. Now, of course,
Peter’s 10% stake got heavily diluted with newer investors and stock compensation plans. Also,
Peter didn’t just hold his entire stake forever. He did cash out over time, but despite all that,
Peter’s $500,000 investment would turn into billions. Peter would use all these returns
to invest in a slew of Silicon Valley startups including Asana, Lyft, Yelp, Airbnb, Zynga,
Twilio, Spotify, SpaceX, and Stripe just to name a few. Peter has over a hundred such investments,
so it’s no wonder he made a killing. But more than all of his startup investments,
the investment that sticks out to me the most is his bet on cryptocurrencies. If you didn’t already
know this, I think this will blow you away. Peter Thiel is arguably the reason that Ethereum,
the $400 billion cryptocurrency exists. Roughly 10 years ago, Peter gave Vitalik Buterin $100,000
to drop out of college and go full-time on developing Ethereum. And this was by no means
Peter’s first dabble in crypto. In fact, Peter has been predicting that some sort of digital currency
will take over the world since 1999. And I think that right there tells you everything you need to
know about how Peter made $10 billion. Peter never worked to the bone coding or doing physics or any
of that traditional stuff. But he didn’t need to, because that’s not where his talents really laid
even though he was good at stem. Peter was and is a philosopher a true visionary just like his
degree suggests. He foresaw the internet boom and the social media boom and the cryptocurrency boom.
He’s heavily invested in the AI space as well. Now, of course, Peter had tremendous resources
to be able to turn his visionary thinking into profit, but that doesn’t change the fact that
Peter is one of the most unique billionaires out there. He worked smarter, not harder and
that’s how Peter Thiel made $10 billion without ever really working. If you're interested in
having companies pay you, check out our bond investing app Silo in the description below.
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