Entrepreneur

Peter Thiel promised flying cars; we got caffeine spray instead

Image Credit: Sprayable Energy Indiegogo Campaign

Frustrated that Silicon Valley’s entrepreneurs “were not on focused on breakthrough technologies that will take civilization to the next level,” Peter Thiel announced the Thiel Fellowship in September 2010. He paid teens $100,000 not to complete their college education. His plan was to have them build world-changing companies instead of wasting their time at school and being burdened by “incredible amounts of debt.”

In an article that I wrote when I first heard about this, I pleaded, “Friends don’t let friends take education advice from Peter Thiel.” The best path to success is not to drop out of college, but to complete it, I argued. Stanford Engineering Dean Jim Plummer said he expected that “Thiel’s experiment will increase the probability of success for the students he selects because of the mentoring and the financial help they will receive.”

Indeed, with all the connections and hand-holding that they receive, Plummer and I had both expected that the Thiel Fellows would achieve success exceeding that of other Stanford engineering graduates and dropouts — and of those who joined incubators such as Y-Combinator and TechStars. We thought that because the deck was stacked, there would be many wildly successful Thiel startups — “the extreme examples that we would look at in amazement.”

But three years later, there don’t seem to be any Thiel startups to be amazed at. The few successes lauded seem to be a mirage — or just plain silly. After all, is a “caffeine spray,” which Thiel Fellow Ben Yu developed with venture capitalist Deven Soni, a world-changing innovation that will “take civilization to the next level”? I don’t think so.

The best-known Thiel Fellow is Dale Stephens. What’s his greatest achievement? It’s that he got a book deal to talk about what he achieved by dropping out of school: getting a book deal. Stephens may have gained fame and fortune by persuading other children not to go to school, but it does not better the world.

The much hyped first exit of a Thiel company was the acquisition of GigLocator. This service was founded by James Proud, who supposedly sold it for a six-figure sum. GigLocator aggregated information about artists and the venues they play at. But is this any different from the simplistic Silicon Valley startups that Peter Thiel complains about? And on what basis does a company that was started in 2008 — three years before Proud joined — represent a successful Thiel Foundation exit?

And then there was the disastrous Airy Labs. According to TechCrunch, it wasn’t Thiel Fellow Andrew Hsu who ran the company — it was his father, mother, and brother. No surprise. How can a child with no basic education and no business experience be expected to manage 20 employees and millions of dollars?

That’s not to say that there aren’t a few interesting startups listed on the Thiel Foundation’s website. SunSaluter, founded by Eden Full, built a prototype of a device that rotates solar panels to follow the sun. Paul Gu is credited with cofounding a website, Upstart.com, to help people crowd-fund their education or business — in return for a percentage of their future earnings or revenue. (Ironically, this values a person more highly for better education and pedigree.) And Laura Deming was lauded for working on the development of a cure for ageing.

But Eden Full is back at Princeton pursuing a Mechanical Engineering degree (she says that others are still working on her product). It turns out that Paul Gu didn’t come up with the idea for Upstart but joined some ex-Google executives who had, and Laura Deming abandoned her research to instead become a venture capitalist.

There may be some great Thiel startups that I don’t know about, in stealth mode. And it may well be that some Thiel Fellows achieve success on their second or third attempts. I certainly hope that is the case and we get some world-changing innovations.

But it is certain that the survival rates of Thiel startups pale in comparison with those emerging from Y-Combinator and TechStars — both of which provide hand-holding and mentorship as the Thiel program does. Of the 129 companies that TechStars (which publishes its success rates), for instance, has accepted over the past three years — in the same time frame as Thiel —  98% are still in operation, and 69% were able to raise venture capital. Yes, we are comparing adults with teen college-dropouts, and that isn’t a fair comparison. But wasn’t the point that Peter Thiel was trying to make that he could incubate his own Mark Zuckerbergs by saving children from the tyranny of college?

Three years is a long time in the technology world, and there should have been several notable successes from the batches of 20–24 students the Thiel Foundation admitted. If Thiel had delivered what he promised, these startups should have all been in the category of “world-changing” — and the vast majority should still exist.

The reality is that a bachelor’s degree is an important foundation for success for most entrepreneurs. Yes, a few, such as Zuckerberg, Jobs, and Gates were able to achieve success after dropping out. But they surrounded themselves with very competent adults — and they were very lucky. All three have extolled the virtues of education and encouraged children to finish college. And their companies rarely hire college dropouts.

One good question that Peter Thiel often raises is whether you need to learn the things they teach you in college. My dean at Duke University, Tom Katsouleas, has a great answer. He tells the story of a high-school teacher who was confronted with the same question from his students: “Why do we need to learn this?” The teacher replied, “You don’t. You need to learn to ask just one question.” The piqued students implored him to tell what that was. His answer: “Would you like fries with that?”

Sadly, for the vast majority of college dropouts, the opportunities are sparse. They won’t earn nearly as much as their friends who had the perseverance to finish what they had started. And if they do become entrepreneurs, the companies they start will be far less successful than those started by degree holders.

After three years, Peter Thiel’s experiment is beginning to prove that there are no shortcuts to success.

Let me suggest an alternative experiment to Thiel: Fund disadvantaged kids from non-elite schools. Thiel Fellows such as Eden Full rave about the experience they had in the program. For them this is a nice detour from their elite university. They can always go back to Princeton or Harvard without having lost anything. Why not give the same opportunity to children who have no such opportunities? Brilliant but poor children for whom the experience of hanging out with venture capitalists and industry moguls in Silicon Valley could indeed be life changing. Or better still, provide these children with scholarships so that they can complete their higher education and then fund their startups. I expect this will have a far greater impact and will motivate many others to think big and help solve the world’s problems.

Vivek Wadhwa is vice president of innovation and research at Singularity University and Arthur & Toni Rembe Rock Center for Corporate Governance at Stanford University. 

More information:

Since 2005, Mr. Thiel has been a Partner of Founders Fund, a venture capital firm. Mr. Thiel has also served as President of Clarium Capital Management, LLC, a global macro investment manager, since 2002. In 1998, Mr. Thiel co-founded ... read more »

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