First published in the New Zealand Herald on Friday May 18, 2012
Why is this internet billionaire so keen on New Zealand? And why are we handing him taxpayers’ money to invest? Chris Barton reports.
In JRR Tolkien’s Middle Earth fantasy, the Valar are deities who chose to enter the world they created, to give it order and shape its development.
It’s probably more coincidence than divine intervention that in 2010 Valar Venturesdescended with financial largesse upon New Zealand, the scenic backdrop to The Lord of the Rings movies. Except that, in some circles, Valar’s billionaire president, Peter Thiel – PayPal co-founder and early Facebook investor – is seen as god-like. As a teenager, his favourite book was The Lord of the Rings which he read again and again.
Thiel’s interest in New Zealand began 18 years ago on a 10-day outdoor adventure trip beginning in Queenstown. He enjoyed the “crazy things you can do in New Zealand that you can’t do anywhere else”. But what really impressed him was “how great the people are” – matching his 1993 guidebook’s description of New Zealand as the friendliest country in the world.
Thiel now owns property here, has invested in three New Zealand companies and has started managing a venture capital fund, backed with $20 million of government money.
Despite a series of requests to Valar’s principal Andrew McCormack asking to talk to Thiel for this story, The Business was greeted with silence.
The 43-year-old Thiel – contrarian, futurist, gay, Christian, lawyer, hedge fund manager – is an avowed follower of the libertarian creed that many read into Tolkein’s literary works. In his 2009 essay The Education of a Libertarian Thiel wrote: ”I stand against confiscatory taxes, totalitarian collectives, and the ideology of the inevitability of the death of every individual.”
He’s put his money where his mouth is, plunking down US$2.6 million to support libertarian Christian Ron Paul’s failed bid for the US Republican presidential nomination. Thiel also donates to the gay Republican organisation GOProud and hosted its “Homocon 2010” meeting at his New York apartment.
As they watch the death throes of the libertarian inclined Act Party, the question New Zealanders might want to ask is whether Peter Thiel, now sometimes walking amongst us, is considering bringing its corpse back to life.
Fighting death is another of Thiel’s hobbies. In 2006 he gave US$3.5 million to the Methuselah Foundation and controversial academic Aubrey de Grey to support longevity and research. No matter that a 2005 report by 28 scientists concluded that none of de Grey’s therapies (Strategies for Engineered Negligible Senescence) “has ever been shown to extend the lifespan of any organism, let alone humans”.
Thiel has invested in biotech start-ups focused on anti-aging and curing diseases and is a supporter of regenerative medicine research. At PayPal, he apparently proposed making cryogenic storage an employee perk. In February Thiel told CBS:”To all those people who think death is natural, that it is just part of life, I think nothing could be further from the truth. I think it is the opposite of life.”
Well, yes – it’s death. Thiel makes such pronouncements as though he’s saying something profound, to challenge the status quo and mark his territory as an iconoclast and freethinker. A profile in The New Yorker last year noted that his friends valued his “openness to intellectual weirdness” and his critical thinking “unconstrained by convention”.
Others are less kind; feminist blogger Amanda Marcotte called him a “complete wackaloon'”. That was in response to a particularly unconstrained Thiel view in The Education of a Libertarian: “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.”
It’s not the first time Thiel’s wild ideas have attracted controversy. The Diversity Myth: “Multiculturalism” and the Politics of Intolerance at Stanford, which Thiel co-authored in 1995, defends the behaviour of law student, Keith Rabois who shouted, “Faggot! Faggot! Hope you die of Aids!” outside an instructor’s on-campus residence. Rabois went on to work for Thiel at PayPal. The Diversity Mythsays Rabois challenged fundamental taboos about Aids by showing “one of the multiculturalists’ favourite lifestyles is more prone to contracting the disease and that not all lifestyles are equally desirable.”
In a post headed ”Peter Thiel Is Totally Gay, People”, Thiel was outed in 2007 by Valleywag, the Silicon Valley arm of the media and gossip site Gawker.com. Thiel was not impressed, later calling Valleywag the “Silicon Valley equivalent of Al Qaeda.” But he clearly doesn’t see all journalists as terrorists because the Thiel Foundation has sponsored the Committee to Protect Journalists.
The New Yorker profile indicates Thiel has since softened his Diversity Mythstance: “All of the identity-related things are in my mind much more nuanced. I think there is a gay experience, I think there is a black experience, I think there is a woman’s experience that is meaningfully different.”
Slate’s Jacob Weisberg regards Thiel’s philosophy as “puerile libertarianism, infused with futurist fantasy” that demands attention only because it “epitomises an ugly side of Silicon Valley’s politics”. At a dinner event organised by the Independent Institute in 2004 Thiel told the audience, “We know that the way of politics, and government, and things like that, runs by a sort of murder and madness; that’s a sense in which government is an almost literally demonic entity in the world we’re living in today.”
Which raises the question. Why would the New Zealand government hand over management of $20 million of its money to one who is so anti-government and who no longer believes “that freedom and democracy are compatible”? Come to think of it, how is that such an avid libertarian would be getting into bed with government? The answer: Thiel – wackaloon or not – is a highly successful technology investor, quite possibly the most successful in the world.
His return on investment record is the stuff of legend. Thiel co-founded online payments company PayPal in 1998 which, when it was acquired by eBay for US$1.5 billion in 2002, earning him US$55 million. In 2004 he was the first significant external investor in Facebook, putting up US$500,000 which was converted to a 10.2 per cent share. Thiel sold about half his stake to Digital Sky Technologies in 2009, leaving his remaining share, since diminished by dilution, at 2.5 per cent. Even so that could be worth US$2.5 billion if Facebook achieves its expected US$100 billion valuation when it goes public.
In 2004 Thiel co-founded Palantir, in which he has invested US$30 million, largely through his San Francisco-based venture capital Founders Fund. Today Palantir’s valuation is being talked up beyond $US2 billion. It’s named after the The Lord of the Rings’ mystic “seeing-stones” which are a sort of crystal ball-cum-phone allowing those with the power to peer into any part of Middle Earth. Spookily, Palantir’s software, backed by the CIA’s venture capital firm, In-Q-Tel, and described as “like plugging into the Matrix” does much the same - turning its penetrating gaze on torrents of information to find subtle patterns.
Palantir had some explaining to do last year when it was implicated in a proposalto launch a campaign of illegal cyber-attacks and misinformation against WikiLeaks and its supporters. Odd, as The Nation has pointed out, that such software – used by the American Defence Department, the CIA, FBI, and police departments to track down terrorists, fraudsters, and other criminals – should be developed by those professing libertarian ideas of individual liberty.
The only glitch in Thiel’s glittering career is his hedge fund, Clarium Capital Management, which he started in 2002. At its peak in mid 2008, it managed around US$7 billion, but the fund has floundered ever since, losing 90 percent of assets at end of 2010 according to a Bloomberg report. Following three consecutive losing years – by betting wrong, variously, on rising oil prices and a sinking dollar – the fund sank to around US$460 million last year, including some $200 million of Thiel’s his own money.
New Zealand Venture Investment Fund chief executive Franceska Banga began talking to Valar Ventures about 18 months ago with the idea of filling a gap in the market – a venture capital partnership with international connections. The government fund, established in 2002, to help build a venture capital market here, has NZ$200 million under management. Banga was well aware of Thiel’s reputation. “There is quite a lot of material online. He’s a pretty deep thinker,” says Banga. “He’s a contrarian, often those people see opportunities where others don’t. He’s not going to follow the herd.”
Except that Thiel’s success can in a large part be attributed to doing just that – or rather following herd-like behaviour. His ideas are shaped by French literary critic,Rene Girard who taught him at Stanford University about “mimetic desire”. Girard’s theories give lie to the view that people make choices about what they want in an individual and spontaneous way. What actually happens is that our desires are borrowed from, and are mediated through, other people. In other words we’re like sheep moving in flocks and will copy one another without giving it much thought.
The mimetic propensity for people tending to want the same thing, helps explain the appeal and success of social networking web sites and viral, word-of-mouth marketing. Plus – if he was putting theory into practice – how Thiel saw the commercial potential of both PayPal and Facebook before anyone else.
Thiel’s contrarian thinking didn’t much enter discussions between the New Zealand Venture Investment Fund and Valar, except in relation to what sort investment opportunities Valar was looking for and why. “Where it came into play was looking for technologies that are about what might be happening in the future rather than what people are already investing in – that is, yesterday’s investments, ” says Banga. “We were interested to understand his view, including why some technologies might not be of interest.”
So far Valar Ventures has made three technology investments in New Zealand: $NZ4 million in online accounting firm Xero, in October 2010 and a further undisclosed sum this year; in 2011 an undisclosed amount in Pacific Fibre which isbuilding a second fibre-optic cable linking Australia, New Zealand and the United States; and an undisclosed amount in Booktrack which provides synchronized soundtracks for e-books.
In March Valar’s existing New Zealand investments, totalling $NZ6 million, were rolled into Valar Ventures LP, a new $40 million fund comprising $20 million from the government backed New Zealand Venture Investment Fund, around $5 million from other New Zealand investors, and $9 million of new money from Thiel.
“My prediction is his fund will likely be the first venture fund that exercises the buyout right,” says Andy Hamilton chief executive of Auckland based start-up incubator and angel investor network the Icehouse. “Within a five year period the private investors have the right to buy out the government at a base-plus-interest-rate return. None of the New Zealand venture funds have done that yet.”
Hamilton makes the prediction, because with Thiel at the helm, he’s expecting to see some investments take off, delivering the 25 or 30 percent return venture capitalist here only dream about. “He’s quite mythical in terms of his reputation, but the value he brings is quite remarkable,” says Hamilton of Thiel. “He’s energetic, insightful, restless, driven and pretty focused. My observation is that his personal views of the world are not overlapped exactly with investment.”
Hamilton sees Thiel’s investments here as a “fantastic milestone” for New Zealand, but also part of trend. He points to former Sun Microsystems chief executive officer Vinod Khosla as another who looks globally has found opportunity In New Zealand. In 2007 Khosla Ventures invested $3.5million in LanzaTech New Zealand which develops platforms for producing fuel ethanol. “They [Valar and Kholsa] see an arbitrage opportunity when they look at New Zealand around value and what they can do to assist in execution in the United States market.”
Not everyone was happy about the Valar deal. Jenny Morel, managing director of Kiwi venture capital company No8 Ventures pointed out the New Zealand Venture Investment Fund’s purpose was to develop the local venture capital market and the effect of buy-out clause was that private investors got a subsidy from New Zealand taxpayers. “You would have to ask how does [the Thiel deal] help the development of a New Zealand venture capital industry and are we for some reason subsidising a foreign investor,” Morel told Unlimited.
Surprisingly, Thiel’s overall view of technology is downbeat. In The End of the Future he laments the lack of technological progress in several domains including medicine, biotechnology and transport. “We are no longer moving faster,” says Thiel noting the explanation – the high cost of fuel – points to the much larger failure in energy innovation.
Even computer and information technology, the only sector where technological improvement continues unabated, gets faint praise. Despite internet start-ups being created every day, the immense value created by virtual worlds, and Facebook being radical enough to be outlawed in China, Thiel remains unimpressed by the internet revolution. Overall he says it hasn’t been revolutionary in manufacturing and productivity, has resulted in more jobs, and hasn’t dramatically improved living standards. “Like Alice in the Red Queen’s race, we (and our computers) have been forced to run faster and faster to stay in the same place.”
Thiel wonders whether the internet run out of ideas. “We went from the development of telecommunications to the internet and from the internet to social networking,” Thiel told an audience at the Said Business School in Oxford. “Maybe there is no innovation left any more, and we have to look for it in a completely different direction. Maybe we have to go back to space and science fiction novels.”
Thiel would rather see more effort put into tackling big, challenging problems, like space exploration and longevity. Or preparing for “the singularity” – the day machines become smart enough to make themselves smarter and leave human intelligence behind – another of Thiel’s preoccupations.
One of the reasons we’re not making much technological progress is because our faith in higher education, which Thiel regards as the next bubble. ”A true bubble is when something is overvalued and intensely believed. Education may be the only thing people still believe in, in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”
But Thiel is, as always, unafraid to put his money where his mouth and last year put in place a scheme for 20 fellowships for students under 20 who would be awarded US$100,000 grant to drop out of college and pursue entrepreneurial projects.
The way Thiel sees it, the government should stop standing in the way of technology and progress. “There is so much about the political sphere that has become poisonous – people collectively hating other people. That’s basically what politics is about – collective hatred – and we need to figure out a way to escape from it,” he declared to Reason.tv’s Tim Cavanaugh.
Thiel’s exit plan is a homestead on the high seas – yes, really. “You can try to move onto the internet. There’s the question whether that’s real. You can try to move to outer space. There’s a problem with that being too far away. So the seasteading experiment is a bit of an in-between option.”
The experiment is to “create new acreage on the vast and empty ocean” for libertarians to boldly go where they’ve never gone before - onto oil-rig-type platforms in international waters with lax building codes, no welfare and a relaxed attitude towards guns. Details magazine described it as a ” vivid, wild-eyed dream-think Burning Man as reimagined by Ayn Rand’s John Galt and steered out to sea by Captain Nemo”.
Crazy as it sounds Thiel is throwing money at it – so far some US$1.25 million given to the Seasteading Institute, headed by Patri Friedman, a former Google engineer and grandson of the Nobel Prize-winning economist Milton Friedman. The first stage is Blueseed, which aims to anchor a passenger vessel off San Francisco, allowing start-ups to skirt American visa rules. The cost of climbing aboard the brave new world is about $US1600 a month.
In Thiel’s worldview seasteading makes sense because he believes “the freedom to leave is one of the most fundamental freedoms”. He often talks about whether it’s more important to have a voice or an exit and at what point is the “exit more important than voice.” Seasteading coalesces Thiel’s dissatisfaction with the way things are – whether it’s in the lack of technological progress, the pushback against globalisation, too much government regulation, the failure of education or the inevitability of death – and his quintessentially American dream to start over.
Some have speculated that’s why he’s interested in New Zealand. “What could the famously contrarian investor possibly sees in a country of 4 million people whose economy is mostly based on agriculture and tourism?” asks Business Insider writer Pascal-Emmanuel Gobry. ”Here’s a thought: maybe Peter Thiel wants to turn New Zealand into the next Silicon Valley. Or maybe even the libertarian utopia of his dreams.” Asked about the idea, Thiel told Gobry: “New Zealand is already utopia. But Silicon Valley and New Zealand can learn a lot from each other, and we want to help make that happen.”
So far the New Zealand companies Valar has invested are learning just how useful Thiel’s name can be. Pacific Fibre chief executive Mark Rushworth says it’s been particularly helpful in dealing with the big American telcos. “It adds a layer of credibility and gets a foot in the door. Your introduction has almost been done for you,” he says. “Everyone knows Sam Morgan, Steven Tindall and Rod Drury in New Zealand, but when you are talking to investors in Australia and the United States they don’t know who these people are. But the certainly know who Peter Thiel is.”
Thiel invested in Booktrack when the company was in “stealth mode” – six months before it was live in the market. “One of the key issues in launching into global markets is strategy and that’s where Peter Thiel is masterful.” says chief executive Paul Cameron. “He’s very smart. He exudes confidence and intelligence. It feels like you get a lot of his thought power when you speak with him.”
Trademe founder Sam Morgan who has invested in both Xero and Pacific Fibre also highlights the connections Thiel’s name provides. “We can go into the United States and get any meeting with anyone we want as a result of the various networks that have been built up. Peter is a big part of that. It certainly gets you on the radar.”
More importantly, says Morgan, Thiel and the executives at Valar highlight New Zealand’s lack of expertise. “We are of this deluded view in New Zealand that we have all the best ideas and all that we’re lacking is the capital. Actually we don’t have the management and we certainly don’t have a monopoly on ideas,” he says. “We don’t know what good sales people look like and we don’t know what really good executives and directors look like.”
Morgan believes New Zealand should continue to encourage the type of investing Valar has begun. “If we had 100 Peter Thiels here that would move the needle.” He recognises Thiel has “interesting kind of views on society and politics and government’ but isn’t too bothered. “I’m not part of that club. But we don’t want to say that we don’t want people here who have views that differ from ourselves,” say Morgan. “We don’t want a polarised society, but you need a bit of everything otherwise you become a society that is less interesting.”
What about Thiel wanting less government? “Sure but that’s not his role. We have laws and institutions to protect against that. It’s the role of government and policy to make sure the playing field is appropriate. We clearly don’t want be overrun by people with guns and bibles.”
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