How Peter Thiel Knows If A Startup Is Crazy Smart, Or Just Crazy | Disrupt SF 2014

Peter Thiel, of Founders Fund and Mithril Capital, discusses the art of discerning between visionary startups and those that are simply unrealistic. Thiel emphasizes the importance of evaluating the substance of an idea, questioning the technology's viability, the founders' prehistory, and their resilience in the face of challenges. He suggests avoiding biases and one-sentence rules, instead focusing on understanding the core of the idea. Thiel also touches on the philosophy of the new rich in the tech industry, advocating for a different value system and a rethinking of philanthropy. He encourages questioning why certain causes are unpopular and supporting them, rather than contributing to already well-funded popular ones. Thiel believes that the tech industry allows inventors to capture value, which is unusual historically, and he encourages tech founders to use their newfound wealth to make a positive, courageous difference in the world.

Takeaways

• 🚀 **Innovative Ideas**: Peter Thiel emphasizes the importance of evaluating the substance of a startup idea, even if it seems crazy at first, as it could be the next big thing.
• 🤔 **Assessing Founders**: Thiel suggests asking about the prehistory of the founders, their teamwork, and their resilience to determine the potential of a startup.
• 🧐 **Avoiding Bias**: He advises against making snap judgments and encourages keeping an open mind, focusing on the substance rather than being influenced by preconceived notions.
• 💡 **Understanding Vision**: Thiel recommends asking entrepreneurs about their philosophy and long-term vision to gauge their commitment and the likelihood of their success.
• 💼 **Team, Technology, and Strategy**: A successful startup requires a strong team, innovative technology, and a solid business strategy, all of which must work in harmony.
• 🌊 **Philanthropy in Tech**: Thiel believes that technology entrepreneurs should rethink philanthropy and consider supporting unpopular causes that may not be receiving enough attention or funding.
• 💰 **Wealth and Responsibility**: He discusses the perspective that rapid wealth accumulation in tech might lead some to feel a responsibility to give back to society.
• 🎓 **Value Creation**: Thiel points out that historically, many inventors did not reap financial rewards, making the success of tech innovators who do capture value quite unusual.
• 🤝 **Giving Back**: He suggests that tech entrepreneurs who have made fortunes should aim to make a difference in the world through courageous philanthropy.
• 🌟 **Contrarian Thinking**: Thiel encourages contrarian thinking, asking why a cause is unpopular and considering supporting it if it's a worthy cause that lacks attention.
• ⏳ **Capturing Value**: He highlights the rarity of innovators capturing value from their inventions and the importance of doing so in Silicon Valley's context.

Q & A

How does Peter Thiel determine if a startup idea is viable or just a crazy notion?

Peter Thiel evaluates the substance of the idea, asking questions about the technology's functionality, the founders' prehistory, their team dynamics, and their perseverance in the face of challenges. He emphasizes avoiding biases and focusing on the core aspects of the startup rather than making a hasty yes or no decision.

What is the key to differentiating between a seemingly crazy startup idea and one that could be successful?

Thiel suggests focusing on the substance of the idea, which includes the technology, the founders' background, and their ability to work together and persist. It's important to keep an open mind and not to be swayed by preconceived notions of what can or cannot work.

What is Thiel's approach to understanding a startup's potential without being influenced by preconceived notions?

He advises to find something interesting about the startup and then not to rush to a decision. Instead, one should try to understand the substance of the idea and maintain an open mind, focusing on the substance over the process.

What does Peter Thiel consider when evaluating the technology aspect of a startup?

Thiel considers whether the technology works and if the founders have a history of working together. He also assesses their commitment level, questioning whether they will give up at the first sign of trouble.

How does Thiel approach the evaluation of a startup's team and business strategy?

He believes that all three components—team, technology, and business strategy—must work in harmony. If a discussion on one aspect is lacking, Thiel will guide the conversation to cover all three areas to ensure a comprehensive evaluation.

What is Peter Thiel's philosophy regarding the value system of people who become wealthy from the technology industry?

Thiel believes there is a difference in the value system between those who become wealthy from technology and those from traditional industries. He sees technology as a positive force and believes that those who succeed in it have earned their wealth, although they should also aim to give back to society.

How does Thiel view the concept of philanthropy in the context of the technology industry?

Thiel believes that philanthropy should be rethought and that those who have made money in technology should consider donating to unpopular causes that are underfunded but deserving. He encourages being courageous in philanthropy, similar to the courage shown when starting a company.

What is Thiel's perspective on the rapid wealth accumulation in the technology sector?

Thiel acknowledges that the speed at which individuals can become wealthy in technology can feel somewhat random and undeserved. However, he also notes that historically, many inventors have not profited from their inventions, making the tech industry unusual in that innovators can capture some value from their creations.

How does Thiel feel about the concept of the 'giving pledge' and large donations made by tech entrepreneurs?

Thiel supports the idea of giving back to society and believes that tech entrepreneurs, having created something of value for the world, should aim to make a positive difference. He doesn't think they feel they don't deserve their wealth but rather that they have a responsibility to contribute to society.

What does Thiel suggest as a key question to ask when considering supporting a cause or startup?

Thiel suggests asking why a cause is unpopular. He prefers to give to causes that are not popularly funded, believing that popular causes are likely well-funded enough.

What is Thiel's view on the inventors in the history of innovation and their financial outcomes?

Thiel notes that historically, many inventors have not benefited financially from their inventions. He points out that in many cases, the value created by the inventors has not been captured by them, making the success stories in Silicon Valley, where inventors do capture value, quite unusual.

How does Thiel encourage tech entrepreneurs to approach philanthropy?

Thiel encourages tech entrepreneurs to be brave in their philanthropic efforts, just as they were brave when starting their companies. He suggests that they should aim to make a significant and positive impact, not just in a respectable or status-seeking way.

Outlines

00:00

🤔 Evaluating Innovative Ideas: Substance Over Process

In this paragraph, Peter Thiel discusses the challenge of discerning between ideas that may initially seem crazy but have the potential to be successful. He emphasizes the importance of focusing on the substance of an idea, evaluating the technology's viability, and considering the founders' prehistory and their resilience in the face of challenges. Thiel also mentions the temptation to rely on one-sentence rules but advocates for an open-minded approach to truly understand the substance of a startup's proposition. He suggests that when considering an idea's potential, one should inquire about the entrepreneur's philosophy, long-term vision, and their likelihood of success, covering team dynamics, technology, and business strategy.

05:00

💼 Philosophy of Wealth Creation and Philanthropy in Tech

The second paragraph delves into Peter Thiel's philosophy regarding the rapid wealth creation in the technology sector and the responsibility that comes with it. Thiel reflects on the idea that tech entrepreneurs, who can amass wealth quickly, might feel a sense of obligation to give back to society. He contrasts this with more traditional industries where wealth accumulation is often slower and seen as more deserved. Thiel also touches on the concept of 'the new rich' in technology and their potential different value systems. He discusses the importance of contrarian thinking in philanthropy, advocating for supporting unpopular causes that may be underfunded but are deserving. Thiel suggests that the tech industry is unique in that inventors are often able to capture some value from their innovations, which historically has not been the case. He concludes by encouraging tech founders to make a difference through courageous philanthropy, aligning with the boldness they exhibited when starting their companies.

Keywords

💡Crazy Smart

The term 'Crazy Smart' refers to an idea or a person that might seem irrational or unconventional at first glance, but upon closer examination, demonstrates a high level of intelligence or innovation. In the context of the video, Peter Thiel discusses how to differentiate between ideas that are merely outlandish and those that are truly groundbreaking and have the potential to succeed. An example from the script is Thiel's emphasis on evaluating the substance of a startup's technology and the founders' history to determine if they are 'Crazy Smart' or just 'Crazy'.

💡Founders Fund

Founders Fund is a venture capital firm that invests in technology-focused startups. It is mentioned in the video as the firm associated with Peter Thiel. The fund is known for its willingness to invest in seemingly 'crazy' ideas that have the potential to disrupt industries. In the script, Thiel's association with Founders Fund underscores his experience in identifying and supporting innovative startups.

💡Substance over Process

The phrase 'Substance over Process' suggests that the intrinsic qualities or content of an idea, product, or approach are more important than the procedures or methods used to achieve it. Thiel advises focusing on the core elements of a startup, such as the viability of its technology and the resilience of its founders, rather than getting caught up in preconceived notions or shortcuts. The script illustrates this concept where Thiel says, 'you try to really understand the substance, keep an open mind,' highlighting the importance of in-depth evaluation over superficial judgment.

💡Philanthropy

Philanthropy is the act of promoting the welfare of others, typically through the donation of money to good causes. In the video, Thiel talks about the role of philanthropy in the context of wealthy individuals, especially those who have made fortunes quickly through technology. He suggests that these individuals should be courageous in their philanthropic efforts, mirroring the boldness they exhibited when starting their companies. An example from the script is Thiel's discussion about rethinking philanthropy and his preference for supporting unpopular causes.

💡Contrarian Question

A 'Contrarian Question' is one that challenges conventional wisdom or the status quo by asking why something is the way it is or why a particular action is not being taken. Thiel uses contrarian questions as a tool to stimulate thought and innovation. In the script, he mentions asking why a cause is unpopular as a way to identify areas that deserve more attention and funding, which is a key part of his approach to philanthropy.

💡Giving Pledge

The 'Giving Pledge' is a commitment by wealthy individuals to donate a significant portion of their wealth to philanthropic causes, either during their lifetime or in their will. The concept is brought up in the video as Thiel discusses the philosophy of tech industry leaders who have signed the pledge. He reflects on the sentiment that those who have rapidly accumulated wealth in technology may feel a moral obligation to give back to society, as illustrated by his comment, 'they want to give something back to society.'

💡Innovation

Innovation refers to the introduction of new ideas, methods, or products that are considered to be of value. Thiel discusses the history of innovation and how inventors often do not reap the financial rewards of their creations. In the context of the video, he contrasts this with the unique situation in Silicon Valley, where innovators are able to capture some of the value they create. An example from the script is Thiel's observation that 'the history of innovation has been one where most the people who invent things get nothing at all.'

💡Value Capture

Value capture is the ability of an individual or company to obtain a portion of the financial benefits that result from their actions or innovations. Thiel talks about how unusual it is for innovators in Silicon Valley to be able to capture value from their inventions, which is not the norm historically. The script mentions this when Thiel says, 'you have to create something of value for the world and... capture some fraction of the value you create,' emphasizing the importance of both creation and financial success.

💡Tech Industry

The 'Tech Industry' refers to the sector of the economy that deals with technology, including both the development and the use of computers, software, and electronic equipment. Thiel speaks positively about the tech industry and its potential for creating value and making a difference in the world. The script highlights his optimism, as he states, 'I do really believe that there's something generally good about technology and generally very positive about this as an industry.'

💡Seasteading

Seasteading is the concept of creating permanent dwellings at sea, outside the territory claimed by any government. Thiel mentions his attendance at the seasteading festival, which reflects his interest in unconventional solutions to problems. In the video, seasteading serves as an example of the kind of innovative thinking that Thiel finds fascinating and believes can lead to solving problems independently, without waiting for others to act.

💡Equity Structures

Equity structures refer to the distribution and ownership of shares in a company, which can impact how wealth is created and distributed among stakeholders. Thiel discusses how the nature of equity structures in the technology sector can lead to rapid wealth accumulation for some individuals. The script refers to this when Thiel says, 'because of the way that you know equity structures work and how quickly you can get to market and make something really big,' indicating how tech entrepreneurs can quickly become wealthy.

Highlights

Peter Thiel emphasizes the importance of evaluating the substance of a startup's idea to determine its potential success.

Thiel discusses the necessity of understanding the technology's functionality and the founders' prehistory and resilience.

He advises against making quick yes or no decisions and instead recommends a deep understanding of the startup's substance.

Thiel highlights the importance of keeping an open mind and avoiding biases when evaluating new ideas.

When assessing a startup, Thiel suggests focusing on the team, technology, and business strategy.

He questions the value system of the new wealthy in the technology scene compared to traditional industries.

Thiel shares his perspective on philanthropy and the need for rethinking traditional approaches.

He encourages asking contrarian questions, such as why a cause might be unpopular, to identify opportunities for support.

Thiel reflects on the rapid wealth accumulation in the tech world and the feeling that the wealth may not entirely belong to the individual.

He discusses the philosophy of tech entrepreneurs who take the Giving Pledge and make significant donations.

Thiel notes that in the history of innovation, most inventors do not capture the value they create.

He points out the unusual nature of Silicon Valley, where inventors are able to capture some value from their innovations.

Thiel encourages founders who have made fortunes to make a positive difference in the world.

He advises that philanthropy should be as courageous as starting a company, advocating for bravery in donations.

Thiel stresses the need for a thorough evaluation process when considering the potential of a startup.

He shares insights on the unique challenges and opportunities faced by tech entrepreneurs in the modern business landscape.

Thiel's conversation provides a nuanced view of the intersection between technology, wealth, and social responsibility.