The Real Deal with Peter Thiel

Earlier this week, before heading off to a business dinner, Peter Thiel gave me a call. It’s not the first time we’ve talked, but Thiel doesn’t typically rush to return phone messages, either; he doesn’t have the time. As most know, the 41-year-old, who made his first fortune as a PayPal cofounder, oversees a New York-based hedge fund, a San Francisco-based venture capital firm, and he sits on several boards, including Facebook’s.

Still, Thiel isn’t too busy to notice that in the blogosphere, he’s been getting dumped on, big time. The gossip site Valleywag, in particular, has been having a heyday with Thiel, suggesting that he isn’t “as rich as he’d like you to think” and, last month, publishing a widely read piece, calling Thiel a “loopy libertarian” bent on denying women the right to vote.

Though responding to those assertions wasn’t the point of our conversation, Thiel clearly wanted to set the record straight after keeping quiet these many months. I ran part of our conversation on Monday. The rest follows here:

In April, you wrote an editorial on a Website run by the Cato Institute that’s gotten you into some trouble. You said, “Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women – two constituencies that are notoriously tough for libertarians – have rendered the notion of ‘capitalist democracy’ into an oxymoron.”

Some — okay, Valleywag — construed that statement as a misogynistic potshot at female voters. What did you mean?

My wording wasn’t thought through as carefully as it should have been. It would be preposterous to suggest that women shouldn’t be allowed to vote, or that their right to vote should be taken away. I was really commenting on the challenge of politically minded Libertarians.

If you go to a party meeting, you’d be stunned by the male-to-female ratio. I was speaking at a Libertarian function in New York a couple of years ago, and 95 percent of the attendees were men. I thought: wow, there is something crazy off here. That imbalance isn’t a problem for women but for Libertarians, who need to think about why it’s so hard to appeal to women. After all, women make up something like 55 to 56 percent of voters.

That’s what I was trying to say, but it got twisted into this misogynistic thing.

What is it about the Libertarian philosophy that alienates women, and what would you want to highlight to attract females to your cause?

I don’t know exactly how one solves the problem. I think in some ways it’d be good if people cared less about politics and didn’t necessarily see [politics] as the solution to all our problems. I suppose my utopian solution would be a world where it doesn’t matter which party wins but where people sort of get on with their lives and do other things.

But are there basic tenets that people misunderstand, particularly women?

People seem to think that Libertarians have an anti-government view, whereas I tend to think of it more as a pro-individual and pro-civil liberties view. It’s both sort of socially liberal and fiscally conservative. I think if people could think of it that way, it would be acceptable to a lot more people. But somehow that doesn’t get through. I haven’t figured out what should be done or what I’d do if I were running for office. But I realized that until you seriously think about these issues, you can’t win an election.

Would you ever run for office?

I don’t think I would. I’m interested in ideas and politics, but I don’t think I’d be good at putting up with the day-to-day life of a politician. I’m very impressed by people who do it. But that day-to-day stuff wouldn’t be appealing to me.
Does being a Libertarian inform how you invest?

I don’t think so, though I try to be contrarian on the investing side and being independent is vaguely linked in my mind to Libertarianism —  though I believe people can be very independent and not Libertarian.

When everyone agrees on the same thing or an area of investment, you’re often dealing with a situation where no one is thinking, and when no one is thinking, it’s often the case that investments are off. You rarely have great investments that everybody sees.

Speaking of, let’s talk about Clarium [Thiel’s hedge fund] for a few minutes. Is it true that the fund is now managing about $2 billion, down from nearly $7 billion at some point in 2008?

I have to be careful in disclosing performance, but in 2008 the fund was down 4 percent overall, which wasn’t a disastrous year. We had a good first six months and a bad last six months. Most of the reductions came from drawdowns tied to investors needing capital. We don’t do any gating and don’t ever plan to do that, and a lot of people were under financial pressure at the end of last year.
How is 2009 looking so far in terms of performance, and how are you capitalizing on what’s happening with the economy right now?

We’re slightly positive on the year. We beat the S&P significantly last year and we’re ahead so far in 2009, at least as of Friday, May 15 [the last closing day before Thiel and I spoke].

Our view continues to be that it’s going to be a really tough few years, with many challenges that aren’t going to be solved that quickly: the end of the housing bubble, people having too much leverage, an energy problem in the background. We think it’s sort of deflationary on the bigger scale and that tends to be a very tough environment in which to invest.

So what do you do?

On the hedge fund side, there are certain things that do well in deflationary environments. You want to be long [on] fixed income, you want to be long the dollar, long the yen on the currency side. Then you want to be very careful about going long [on] equities. We’d probably do everything but go long equities at this point. We think the stock market is overvalued, as weird as that may sound, given how much it’s collapsed. 

On to Facebook: there’s been a lot of turnover. Now comes talk that the company is raising another $150 million, partly to allow Facebook’s older employees to cash out some of their shares. Is that accurate?

I wish I could be helpful but I really can’t talk about Facebook other than to say that the company is doing vastly better than the Valley seems to think.

There’s always this cycle where people are very successful and you then have a dynamic, not created solely by the media per se but also by other companies and VCs who just get sick of hearing about the same companies all the time. People were really bullish on Google in 2003 and 2004, and after the IPO, people were very bearish on it.

I think there’s a similar skepticism about Facebook’s value; people think it’s a fad, it’s not real, it doesn’t make any money, but I don’t see anything like that at all. I’m still extremely bullish on Facebook, and I think the way we overcome that skepticm is just by proving the company is worth it.

And will that take until the company goes public? When might that happen: two years?

I really can’t comment further about Facebook.

What about [Thiel’s venture capital firm] Founders Fund? You’ve had one major exit, the sale of PowerSet to Microsoft [for more than $100 million]. If you had to guess, what might be next in line?

Well, our second, larger fund, closed just a year-and-a-half ago. A lot of the companies seem to be tracking very well, but the venture capital time horizon has gotten even longer given the market and the pace of acquisitions, so verdicts take a long time.

How involved are you with Founders Fund? What percentage of your time is devoted to the startup universe, versus your work with Clarium?

I’ve been splitting my time between the two cities for the last four years. I try to help a lot on strategy [at Founders Fund]. I’m on the boards of three companies, and I’m pretty actively involved with those companies. It’s pretty typical of a VC.

Where are you focusing your attention right now in terms of startup opportunities?

I don’t think there are necessarily good sectors. It’s not so much about business models, either. A lot of what we’re focusing on is trying to identify the best people. In my experience, that’s what drives things.

Does that mean only proven entrepreneurs need apply?

No, but you have to have some reason to think the people will do a really good job. Serial entrepreneurs can be good, too, but you have to make judgments about how much credit they deserve for the success of their previous companies, and that’s a tricky thing. It’s like the old adage that success has many founders and failure has only temporary employees. People will often rewrite the history [of their past involvements].

So you’d never green-light a brilliant idea if it’s coming from someone who’s otherwise kind of meh, unimpressive?

Making accurate judgments about the people is critical, in my view. A lot of VCs will invest in good ideas, where they don’t like the people, and while I think that strategy can work in many cases, it’s not what we do or want to do. We want to invest in companies where we’re comfortable in backing its people all the way.