00:00come on in have a seat whoo there we go
00:05if you're looking for a seat it's just
00:08like church there's two more up here in
00:09front four more over here um the closer
00:13you get to the stage more likely you go
00:15to heaven so for those my my name is
00:21Charlie Rose jr. I will be interviewing
00:24Peter teal today everybody here probably
00:28is aware of Peter by background I will
00:30quickly recap his professional
00:32accomplishments as follows
00:34check founder CEO venture capitalists
00:36hedge fund manager derivatives trader
00:39corporate attorney chess champion
00:41political activist book author public
00:44speaker we are thrilled to have you with
00:49us today I'm really thrilled to be doing
00:50this Peter is one of the people I'm
00:53gonna run the risk of embarrassing him
00:54he's one of the people I respect the
00:56most in the world and there's really
00:58three reasons for that one is Peter is
01:01those of you who have followed him over
01:02the years or have known him or read his
01:04book is a truly interdisciplinary
01:05thinker like he really draws threads
01:07together across fields and or might
01:10describe lateral thinker always has an
01:13original viewpoint and and you always
01:15end up learning something - is Peter I
01:18give Peter a lot of credit for what's
01:20happening in the valley right now
01:21because I think Peter really raises the
01:23bar on the people around him he raises
01:25the expectations of the companies that
01:26he works with and the founders he works
01:28with and he raises the expectations I
01:30think of the thinking that we all do in
01:32the valley he's really you know
01:33substantively elevated a number of
01:35debates and then third is just sheer
01:36intellectual generosity he's a teacher
01:39and he was a teacher before the book he
01:41was a teacher in his Stanford class that
01:43resulted in the the sort of bootleg
01:44notes the Blake masters notes that went
01:46viral and now he is a teacher through
01:48the form of this book the book has come
01:51out the book is called zero to one the
01:55book tour has been very highly
01:56publicized if you haven't definitely go
01:58on Google News and type in Peter teal
02:00and you will get a cornucopia of
02:01excitement the book tour has gone highly
02:06viral itself many things Peter said have
02:08in part because for some reason when
02:10Peter says something pessimistic or
02:13immediately goes viral but Peter also is
02:18enormously optimistic person about about
02:20and so what I'd actually like to focus
02:22on today is the optimistic Peter teal
02:24and so the things that Peter thinks are
02:26going well the areas where Peter thinks
02:29that things could clearly be improved
02:30and in particular given the nature of
02:33this audience a little bit more of the
02:35how to which is like okay I got the
02:37basic idea but like how do I actually do
02:39X how do I make the world a better place
02:40how do I build a fantastic company how
02:42do I build a monopoly so we will go
02:45through a number of those topics I would
02:48like to start though by going back in
02:50history to one of my favorite topics
02:52which is which is PayPal which is the
02:54company that Peter founded I ran the
02:58PayPal story is amazing I think
02:59everybody here has a general sense of
03:00the PayPal story and particularly the
03:02founding story of PayPal has been quite
03:04well told I think and then also the fact
03:05that the PayPal of course got bought by
03:06eBay and it's now actually will become a
03:08public separate public company again
03:10very shortly when it goes when it splits
03:13estimates are it'll be on the order of a
03:14forty billion dollar public company so
03:16it's a it's a very significant
03:18entrepreneurial achievement business
03:19achievement and then of course the
03:21PayPal mafia has become central to
03:23Silicon Valley and the people who were
03:24at PayPal have become you know really
03:26formative and foundational people for
03:28the modern valley what I'd really like
03:30to focus on is what I think is the
03:31really dramatic part which is the middle
03:33part which is what happened after the
03:35founding before the sale because the
03:37world was a pretty exciting place PayPal
03:39is an exciting company so I like to set
03:41the stage by asking everybody to recall
03:43if you're old enough some of you are in
03:45elementary school at this time but some
03:48of you will recall March of 2000 which
03:51was the high of the Nasdaq in the.com
03:54bubble which was possibly the most
03:56exciting month of all time because
03:59everything was going up into the right
04:00everything was working everything was
04:01wonderful all companies could raise
04:03infinite amounts of money at higher and
04:04higher valuations the new economy had
04:07arrived Silicon Valley was going to win
04:08everything and all was gonna be glorious
04:11and so I'd like to start March of 2000
04:14by asking you to describe what was the
04:16state of PayPal in March of 2000 well we
04:20we at the start of the month we merged
04:23con Finity and XCOM which
04:25company started by Elon Musk PayPal was
04:28myself and Max Levchin and and the
04:31combined company had 15 million dollars
04:33in the bank just r-25 reflects what one
04:36five fifteen million dollars we had a we
04:39had a exponentially growing customer
04:41base because we had these referral
04:43programs where we you got a new if you
04:46signed up you got $10 if you referred
04:48someone who signed up you got $10 so it
04:51we had a $20 customer acquisition cost
04:53the customer base was growing at sort of
04:56a five to seven percent daily
04:58compounding rate and it hit a hundred
05:00thousand users in on February 3rd 2002
05:04million by mid April of 2000 and with
05:07the exponentially growing customer base
05:09was also an exponentially growing burn
05:10rate since we had no revenues and
05:14certainly no profits and so the CFO had
05:17the projection that the 15 million
05:19dollars was gonna run out in about six
05:22people people did not seem especially
05:25worried about it at the time but but we
05:30we did so the reason they would be
05:32worried is because everybody knew you
05:34can always raise more money
05:35he's always more evaluation I think I
05:37think in fairness Elon myself were were
05:39a little bit worried and we we sort of
05:43we managed to you know manage to raise
05:47some money that month so what was that
05:49what was that like what was fundraising
05:50like in March of 2004 a company like
05:53this well it was it was it was much
05:57crazier there's always this talk are we
06:00in a bubble again today and and it's a
06:02complicated question I don't think we
06:04are but but I think compared it's it's
06:07nothing compared to what it was at that
06:09time so we had this round-the-world trip
06:12there was one one day we were in South
06:13Korea there were three competing
06:15investor groups we met with there was a
06:18professor from a university who's hiding
06:20behind a palm tree and in the hotel to
06:22spy on us and steal internet business
06:24models from the US there was this
06:25frenzied thing you know everybody was
06:27trying to get in on the action I was one
06:30group then took me to the airport and
06:32and I was you know I was running this
06:34new payment systems new payment
06:36technology and I was not able to buy
06:39a plane ticket my credit card didn't
06:41work I probably soon have enough credit
06:42on it or something they meet and this
06:45was not disturbing at all it was it was
06:48they were really excited they bought me
06:50a first-class plane ticket on the spot
06:51the next day they called the law firm
06:54and said you know where do we wire the
06:55money and the law firm forgot he must
06:58have signed all the paperwork's they
06:59gave him the account so they wired five
07:01million dollars in that's high no
07:03paperwork and then the and answered the
07:06opening negotiation was you know we're
07:08we're not telling you where the money
07:10came from you have to take it we're not
07:12telling you where you can send it back
07:14and so you know and so we did it we did
07:18it ended up taking in his investors but
07:20but so but I sort of and you know there
07:24had been this this period for a year and
07:27a half two years where things have been
07:29getting crazier and crazier but there
07:30was sort of a sense in March 2000 that
07:33it was hard to imagine how it could go
07:37any crazier so you know people sending
07:39five million dollars without paperwork
07:41okay Hartman and South Korea was a
07:43country was really hard to get money out
07:45at the time they saw like all these
07:46capital controls so it was phenomenal
07:48they got the money out and and so we
07:52closed on yeah we closed on a hundred
07:53million on Friday March 31st and the
07:56following Monday the bottom fell out of
07:59so then we had some time to build the
08:02business so the bottom falls out of the
08:05market and it's always hard to think
08:07about these things in retrospect but
08:08kind of the bottom falls of the market
08:09of March or April a lot of people I just
08:12remember from the time a lot of people
08:14you know there were sort of equals
08:15arguments of like okay this is yet and I
08:17remember like Roger McNamee I think in
08:18particular came out and said this is it
08:20like you guys don't understand like the
08:22end is here and then other people came
08:23out and of course the conventional
08:24wisdom then it worked in the stock
08:26market for the preceding eight years or
08:27so had been by the dips
08:29and some people said wow this is great
08:31it's a buying opportunity because
08:32everything will go up into the right
08:33again it took a while for it to become
08:35clear what was actually happening what
08:37was what was the view inside the company
08:38and what how were you an Elan kind of
08:40processing through this especially given
08:41the assumed the burn continued that
08:43there was there was a sense on we did
08:47dial back the marketing pretty quickly
08:48although there was there was a the
08:51then there then emerged this very big
08:53fraud problem in rapid succession and so
08:56the burns stayed over ten million a
08:58month all the way through September 2000
09:01so we had sort of seven months in a row
09:03of ten million plus burn
09:06we kept raising some more money in these
09:09additional tranches and and there was
09:14you know there was a sense I think in
09:16the few weeks afterwards that everything
09:18was over but then I'd say the that by
09:22the summer there was sort of a sense
09:24that you know there was actually still a
09:25lot of time left and I remember remember
09:28having conversations the two
09:29conversations I remember which were were
09:32mid April was a group of friends and we
09:36had this event on Sunday and it was
09:39let's take a picture of everybody on the
09:41day the internet ended right and and so
09:44and that was actually that day was the
09:46low it went from 5000 to 3100 and then
09:48it recovered that the next Monday but
09:51then sort of end of August 2000 it's
09:54talking with my friends and it's like
09:55you know the Nasdaq was back at 4200 you
09:58know it's gonna go all the way to 6,000
10:00and and then it was after Labor Day 2000
10:03when it just went straight down for you
10:06know a month after month for two years
10:09and and so so yeah we we and we had sort
10:16of all these blocking and tackling
10:17problems to deal with it felt it felt
10:19really really chaotic on the inside we
10:23got on top of the fraud problem starting
10:25in fall of 2000 we had all this money so
10:30there's always it's always good to have
10:32more capital rather than less but but
10:34certainly one downside was perhaps we
10:36didn't move quite as quickly and
10:38figuring out the business model we had a
10:40you know the business model in early
10:412000s you're going to upsell people on
10:43financial services and you know online
10:46banking customers were valued at $50,000
10:49a customer and so if we could acquire
10:51customers for $20 a piece that was a
10:53great arbitrage yes upsell all of them
10:55to $50,000 online banking customers and
10:58then and then sort of by fall of 2000
11:02we'd sort of zeroed in on Jeff
11:05payments being the thing to do and he
11:07had it you had to just take a slice of
11:09all the money you that went through the
11:10system and is that when they're really
11:11that like of eBay kind of attached
11:13happened was that at that stage sure had
11:14that already happened they were they
11:17were sort of well you were at that point
11:21the default payment system on eBay but
11:23yeah we'd started targeting babe January
11:27I'd say was thirty thirty-five percent
11:29of those sellers in eBay were using us
11:31by April or May so it was it was fairly
11:33heavily embedded they had an alternate
11:36payment system called bill point it was
11:39sort of a partner partnership between
11:40eBay and Wells Fargo Wells Fargo didn't
11:43want to take any fraud risk and so the
11:46product was you can always get a product
11:47to be fraud proof if it's unusable right
11:50and so the bank had a bias to have a
11:52it's kind of both sites you can always
11:54you can always take all the customers if
11:55you're willing to take all the fraud you
11:57can always shut off all the fraud if
11:58Roland shut off all the customers yes so
12:00one can argue there was a little bit of
12:01it you know a little bit we were sort of
12:04on the customer side and eBay was on the
12:07anti-fraud side but so yes there was it
12:10was this very uh but then you had this
12:12very weird dynamic with eBay for the
12:14next two and a half years where it was
12:17sort of symbiotic but it was sort of
12:19like they owned ran this big store and
12:21there's a different company that ran the
12:22cash out registers and the people
12:24running the store could never forget how
12:25to get their cash machines to work if
12:27they just figured out once we'd be in
12:29trouble they never seemed to quite be
12:31able to figure it out then eventually
12:32about the company so it's so it's
12:34followed 2000 going in a winter of 2000
12:35spring of 2001 it is now clear that the
12:38you know the world the nuclear winter
12:39has arrived and the money is shutting
12:42off you know my particular thing I
12:44remember very vividly is you know did
12:46the Create taking Loblaw coupling in
12:47March of 2001 yeah that was all about
12:50the blast point where it shut down
12:52yeah our last money came in like March
12:54April 2001 2001 right and so it never
12:58just we were on the road for three weeks
12:59and while we were on the road for three
13:00weeks in March of 2001 the Nasdaq
13:02dropped in half and the significant
13:04sorry it was it the referendum for the
13:06tech stocks wrapped in half I think it
13:07might've been the Nasdaq might have
13:08dropped in half again but like literally
13:10all of our cops the way you price IPOs
13:12is you price based on comparables of
13:13existing public companies and literally
13:15we're on the road selling stock and the
13:16comps all dropped in half and then yeah
13:18who blew up an intel blew up and like
13:20all these big technology companies blew
13:22up so it was through that time it was
13:23becoming clear that the nuclear winter
13:25had arrived you guys still had the tiger
13:27by the tail in terms of you still had
13:28the growth you had the eBay thing how
13:30did you kind of process through the okay
13:32like we really now are in a different
13:33environment like how different did the
13:34business plan get when it became crystal
13:36clear that the capitalist figure was
13:38turning off well we just we just dialed
13:40up the the amount we charged to people
13:42so we had this tagline in early 2000
13:46always fast free and secure and so the
13:50and so there was a question how do you
13:51charge customers if you say that your
13:53products always going to be free and so
13:57and so David sacks who ran though the
14:01product team came up with this idea of
14:04upgrading people and so you were
14:06upgraded from a customer to a business
14:08account you know and then there were all
14:10these extra benefits and just had to
14:12just pay a small 2.9% fee on every
14:14payment you had to click one button to
14:17be upgraded and one of the things that
14:19did work with the payments companies
14:21once you had all these customers you
14:23could actually upgrade people because
14:25you already had all the payment
14:27information so they were had know all
14:28these other companies have been built on
14:29acquiring lots of customers and then
14:31upselling them later and turned out the
14:34day you try to upsell them they all left
14:36but in our case we had very little
14:39attrition right and they took the
14:41company public we took the company on
14:43CSV and we got to break-even in
14:45September 2001 we were the first company
14:48in the u.s. to file after 9/11 filed end
14:51of September we took it public in
14:54February of O 2 and then eBay bought it
14:57in July of that year so what was it like
14:59doing an IPO in February of 2002 it was
15:02probably the sky was sort of still
15:04falling but a lot of the sky at that
15:05point was on the floor well there's
15:06there's a lot of yeah there are a lot of
15:08crazy things so there was um certainly
15:10um certainly the press had become much
15:14more hostile in all these all these
15:16strange ways it's like the
15:17understatement of all time so there was
15:19um I'm not at the quotes exactly right
15:22but there was this article on this so
15:25this column and I think was a San Jose
15:27Mercury News around October of 2001
15:30after we'd filed our IP
15:32it was the title was earth to Palo Alto
15:35and has anyone sent told these people
15:39that you know he can't have a company in
15:43which the average age of the executives
15:45and the s-1 is 29 years old you can't
15:47have you know we don't we need a company
15:50that people think might be used for
15:52terrorists money-laundering as badly as
15:53we need an anthrax epidemic right and on
15:56and on and on um we we had we had as we
16:01you know when you when you file for an
16:02IPO you get these s-1 forms that you
16:05have to you have to do with the SEC and
16:08you get a reviewer from the SEC and some
16:12spectrum of people some are better some
16:13are worse and we had this one person
16:17named Godley there are lawyers in
16:19advance oh yeah there's one person is
16:20just terrible if you get the Scott liebe
16:22guy and we and he sort of ideologically
16:24believed companies should not go public
16:26they were all run by crooks and so it
16:29was this this crazy open-ended process
16:31where it would be things like you have
16:34to disclose that you're not allowed to
16:36do business in Louisiana anymore it's
16:37like oh well that's news to us yeah well
16:40I just talked to them and you know he
16:42was seeking out reason so it would be
16:44like I'm calling from the SEC it's the
16:46state banking officials in Louisiana it
16:49is PayPal allowed to do illegal banking
16:51activity in Louisiana and serve no if
16:53they're engaged in illegal banking
16:55they're not allowed to do that
16:56and then he came back to the company and
16:58said you have to disclose that so it had
17:00it was sort of a grout the crazy process
17:02but we we somehow got it public just
17:06like you guys got out clogged public and
17:08February oh and then and then there was
17:11you know there was always this complex
17:12negotiation with eBay for for close to
17:15two years and I think I think one of the
17:18types of negotiation that's always super
17:20complicated is when you have a sort of a
17:22bilateral monopoly where you have one
17:25person who's a seller and one person
17:27who's a buyer and it did it actually
17:30didn't make a lot of sense and by that
17:32you mean by that I mean it wasn't like
17:33there was anybody else eBay could buy
17:34you were it cuz you were already the
17:36default yes and there was no real number
17:37to other than UBS self and then G there
17:40was really nobody else for you to sell
17:41to at that point but nobody else people
17:43would be scared that he would shut us
17:44off right 75 percent of volume
17:46on eBay right so we could only sell to
17:47eBay it made a lot of sense to combine
17:49the companies because there were
17:50actually huge synergies and and so there
17:54was always this this super complex
17:56question with the what the price was you
17:59know once you had it as a public company
18:00you just say some percentage premium to
18:02that well let's talk about that for a
18:03second so how many how many different
18:05deals almost happen before the actual
18:07murder there were there were I'd say
18:10five separate we had the first serious
18:13negotiation was late 2000 there was one
18:16in spring of o1 there was one in fall of
18:20o1 there was one in march of o2 right
18:24after the IPO that looked like it almost
18:26came together and that fell apart and
18:29then it was like you know gonna be this
18:31this crazy eBay PayPal war that was
18:35gonna escalate and then in June of 2002
18:40there was this eBay convention in
18:42Anaheim and it was sort of big company
18:45we managed to get a booth there even
18:46though they weren't that friendly to us
18:48at the time so we sent 30 people down to
18:50the convention and we we handed out all
18:52these PayPal t-shirts and so this was
18:55and so they saw this sort of all their
18:57power sellers wearing PayPal t-shirts
18:59and they and at that point they decided
19:03by the company yeah did the price they
19:06did did the prate did the price go
19:08continuously up through the negotiation
19:10you think um I think was about the same
19:12in June as it was in March but again I
19:14was gonna contact with the market kept
19:15going down okay right because on the one
19:17hand you were growing you Bay was
19:18growing they were trying to compete with
19:20you and they weren't able to on the
19:21other hand the world was falling apart
19:22it when it went down it went up a lot
19:24relative to the pre IPO if we had not
19:26taken it public it would have been a
19:28much lower valuation right right so what
19:32do you think would have happened had you
19:33not sold PayPal PayPal I continued is it
19:36independent company what would have
19:37happened it's hard to say you know the
19:39the certainly on certainly if you'd been
19:43able to keep it going as an independent
19:45company it would be a lot bigger ten
19:47twelve years later there were you know
19:50there were serve a lot of crazy risks
19:52there was a there was an investigation
19:54Spitzer started for vice related
19:56payments we were doing well he would
20:02he was undoubtedly running personal
20:04experiments yeah we did more not so much
20:07the adult is more the the the the the
20:09the offshore sports betting sites and
20:13and we got the notice the yet
20:17acquisition was announced on Monday July
20:228 2002 we got the notice on Tuesday July
20:259 and so if you sort of had the
20:29counterfactual experiment you know it
20:32would have been like you know probably
20:34stock women hit 20 to 40% and and then
20:39the questions would eBay have tried to
20:40take advantage of that of that to hurt
20:41the company so there's sort of our all
20:43these scary scenarios had it stayed had
20:46it stayed stayed a standalone company
20:50but certainly they're all these
20:52post-mortems and we've you know we've
20:54debated many times whether it was the
20:57right thing to sell or not um you know
20:59it's always a somewhat sad thing when
21:01you sell your company because you don't
21:03you sort of no longer running it you no
21:06longer have control of it and it's like
21:08you know um I'm gonna sell your kid or
21:10something like that but it's I'm slow
21:15the view was it was the right thing to
21:16do I think I think most tech M&A deals
21:19don't make sense because most the time
21:20there's no there no synergies this is
21:22one word made tremendous sense you know
21:24it's because of the dependency because
21:25of the yes yeah and the volume increased
21:28tremendously after the acquisition so so
21:31of course PayPal now is famous for the
21:32PayPal mafia and so you know just to
21:34list names you know you and Reid Hoffman
21:36and David Sachs and you know a whole
21:39cast of I'm a domme you know the old
21:41guys you know the YouTube guys kind of
21:44autumn acts and you know every basically
21:46like you know there's I don't know what
21:48ten or twelve people who have gone on to
21:49do really foundational things right and
21:51and and for in in the case of that like
21:53the most like amazing venture capital
21:55for a fill of all time would be if you
21:56just simply invested in all the PayPal
21:58founders are all the PayPal people for
22:00all the new companies um
22:01but you know that's how we know these
22:03people now and now they're out and about
22:04they're doing their things at the time
22:05they were all working for you so what
22:07was it what was it like with all those
22:09personalities in that place at that time
22:11we had a lot of strong person
22:13analogies and there were you know I I
22:19think and I think the company had its
22:22share of challenges so you know one one
22:24cut I have on there's always this
22:26question why was why were there's so
22:28many successful companies that came out
22:29of paper I think it's a hard question to
22:32answer but but sort of one of the
22:33lessons you learned at PayPal was it was
22:36hard but possible to build a great
22:38company and there was sort of a lot of
22:40ups and downs a lot of challenges on
22:42regulatory fraud marketing business
22:45model you had to sort of work out over
22:47the two and a half three years the I
22:51think that's actually not the lesson
22:53people normally learn in these companies
22:55because most of the time people are
22:57either in companies that fail and then
22:59the lesson you learn is that it's
23:00impossible to build a great company and
23:03so the next time around you try for
23:04something that's less ambitious and so
23:07and then you certainly will not build a
23:09great company or you are in a company
23:12where everything works just phenomenally
23:15sort of like Microsoft or Google where
23:18you then learn the lesson that it's easy
23:20to build a great company and there's a
23:22way in which both the lesson that it's
23:25easy and the lesson that it's impossible
23:27are sort of equally wrong because both
23:31lessons tell you that you don't there's
23:33no point in working hard or you don't
23:35need to work hard you know impossible no
23:37point easy no need and so you end up not
23:41not doing what it takes so I think there
23:43was sort of this intermediate aspect we
23:45even though PayPal was not as successful
23:46as some other companies have been it was
23:49a context in which people got a very
23:51good perspective on what what you needed
23:53to do so I think when people with
23:54founders today who are you know I've
23:56read about you guys or if I met you guys
23:57I think they view that you guys must
23:58have been an incredibly harmonious
23:59organized team they're probably working
24:02lockstep and kind of probably completed
24:04each other's sentences and got along
24:06really well at all times is that how it
24:07was not sure if that's precisely correct
24:12I mean there's certainly there's
24:14certainly always an aspect where all's
24:16well that ends well and and but but
24:21certainly there were sort of all sorts
24:23of crazy points of points of
24:26like you know I always think conflict
24:29happens when different people want to do
24:31the same thing and one of the challenges
24:33in it's not what people want different
24:35things it's when people want the same
24:37thing and and in us and so the challenge
24:41you have as a boss is to try to have
24:43people do different things if you're
24:44like a sociopathic boss what do you you
24:47know what you do is you tell two people
24:49to do the exact same job and you'll
24:51generate a fight out of nothing right
24:52and so if you and there are bosses who
24:55do that and there are some bosses who do
24:57that and so if you want to avoid that
24:59you should always have people do
25:00different things the challenge in a
25:02start-up is that there's a lot of
25:04fluidity in the roles and so people end
25:05up doing a lot of different things or
25:07ways these roles overlap David Sachs our
25:11head of product like to say that the
25:13product was a single seamless whole
25:15which was certainly true on one level
25:17but then of course was a recipe for the
25:19product team being in conflict with
25:21absolutely everybody in the company
25:22since the fraud team thought the product
25:25should be different or the customer
25:26service team thought you know there's a
25:28certain customer questions that should
25:29be answered and on on down the line but
25:34but yeah another were there were a lot
25:36of a lot of crazy challenges yeah so one
25:39of the defining kind of industry
25:41defining members of the PayPal mafia
25:42Elon Musk and so you had the opportunity
25:45I take it you've probably first met Elon
25:47when you when you guys ultimately into
25:49merging our companies together and then
25:51work with them and obviously you've
25:53known him very well since and I know
25:54you've been very close to and very kind
25:56of you know you've been tracking very
25:58carefully and been involved with in
25:59various ways his companies that he's
26:01built since you know given the
26:03prominence that he has on our industry
26:05and given how I mean my view is he's
26:07really shaking up the view of what's
26:08possible in Silicon Valley we could talk
26:10about that at length so I'd like to kind
26:12of probe a little bit into like a your
26:14view and what makes you on tech because
26:15I think you're kind of uniquely situated
26:17to do that so I'd like to start with
26:19what was what was the only liked to work
26:21with at PayPal like how long did you
26:22guys actually work together and what
26:24were the jobs and what was he like to
26:25work with well he was incredibly smart
26:31incredibly hard-working and incredibly
26:35ambitious so it was definitely not the
26:36person you wanted to compete against
26:38this was the first encounter we had
26:40as this competing company four blocks
26:42down the street on University Avenue in
26:44downtown Palo Alto and so and so I do
26:48think one of the really good things we
26:50did was to was to join forces in in
26:52March 2000 there were all sorts of
26:55challenges in in getting this work
26:57worked out and in all these different
26:59ways you know and there's so many
27:01different elan stories i can tell there
27:03was there was one i believe this was
27:06literally the day of the market peak in
27:08march of 2000 and we were we were
27:11driving up to Sand Hill Road to meet
27:13with one of our VCS to brainstorm on how
27:17Elon had made a fair bit of money his
27:20previous startup most of it had gone
27:21into Hagin in tax calm 1 million dollars
27:25has been spent on McLaren x1 sports car
27:27for those of you this is worth a Google
27:30search this car well this it was the it
27:32was the it was the first million dollar
27:33sports car something like it was it was
27:36basically the supercar of its it's like
27:38just take the most extreme idea of what
27:39a car could be and this was it and we
27:41you know and we we were driving up Sand
27:44Hill we're supposed to prepare for the
27:48meeting we just talked about the car you
27:50know goes 0 to 100 miles per hour in six
27:52seconds he taken it up to 180 on the
27:54highway 280 s pretty fast miles per hour
27:57you know we we got to the part of Sand
28:00Hill right past Santa Cruz which sort of
28:02a four lane to Lane each way
28:0535 mile-per-hour zone and was sort of
28:08time for a demo and we can sorta debate
28:10who go to who into doing the demo but
28:15the car was taken from 45 to 85 miles
28:19per hour in two seconds flat while
28:23Elon the driver lost control it skidded
28:26there was enough torque because he sort
28:28of turned the wheel while accelerating
28:30really hard that as it hit the side of
28:32the road we sort of achieved a cart went
28:35up in the air there was about four to
28:36six feet between the car and the air we
28:38did a 360 degree rotation in the air you
28:41know horizontal not vertical but
28:42horizontal and then it and then it
28:44crashed into the road and it was sort of
28:47a it was sort of like an unidentified
28:48flying object over Sand Hill Road
28:51the the first the first person who
28:53stopped told us that she didn't really
28:55want to stop that day she figured the
28:57people in the car were just dead and she
28:58really want to deal with that but it had
29:02a you know how to it had a price
29:04resistance driver compartment that Ilana
29:05had told me all about as we were driving
29:06up the road ahead with his Hitchcock
29:09like feel and as we uh and and the and
29:14the first thing you'll instead was you
29:16know well that was really intense and
29:18then and then it was you know I'd read
29:22all these stories about people who made
29:23a lot of money in both sports cars and
29:24crashed them but I knew this would never
29:26happen to me and so and so I of course
29:30had no insurance on the car and then and
29:33then we actually you know we both had a
29:36little bit of whiplash but we first
29:37hitchhike and went to the VC meeting and
29:40then and then sort of went to see a
29:42chiropractor afterwards but we were both
29:47ended up being we both ended up quite
29:49fine but but there was sort of so there
29:52was always this sense that and this is
29:55what I think is sort of remark about the
29:56the on story in retrospect was there was
29:59always sense that Elan really pushed the
30:01envelope and certainly you know
30:03certainly uh on the weather I just wanna
30:06go back to that was just the driving it
30:07was he put his this was it's like what
30:09net worth is that did he put it out of
30:11the car I think he had it was like one
30:13third of it yeah it was like a
30:14significant part there was one of the
30:16investors on I talked to years later who
30:19talked to us in summer of 2000 and said
30:21he didn't want to invest in the company
30:23because the CEO Elin was living in a
30:25one-bedroom condo and Palo Alto at the
30:27time and the CEO was clearly lying to
30:30him because he told him that his car was
30:32worth more than his house totally true
30:37right and so anyway there were sort of
30:40there's a lot of a lot of crazy stories
30:43like his but I think yes I think I think
30:44on and so I think the I think certainly
30:47when Elon went on to start Tesla and
30:50SpaceX in sort of Oh 2 O 3 o 4 timeframe
30:57and with respect to both companies I
31:00think the conventional wisdom was that
31:02they were not going to succeed
31:04was it was way too ambitious the
31:07conventional wisdom was he was out of
31:08his mind yes something like that I mean
31:11either what you knew two things you knew
31:13two things in life you knew there would
31:14never be another American car company
31:15and you knew that he knew that because
31:17they made a movie about it
31:18right the the the last major American
31:20car company was called Tucker and they
31:21made a movie about what a disaster it
31:23was and why you never ever start a car
31:24company in United States and then SpaceX
31:27there hadn't been a new I mean a rocket
31:29ship company in yeah 60 years yes
31:31there's always there's always sort of a
31:33half-full half-empty version I had a
31:35conversation with Elon in 2008 when
31:37who's still the jury was still far from
31:39clear on either Tesla or SpaceX and we
31:43ended up investing in SpaceX as founders
31:45fund in Oh a was sort of six years into
31:47the process and people thought we were
31:49crazy to invest six years after they'd
31:52gotten started and on the Tesla side
31:55yeah Ewan's Khan was yeah there hadn't
31:57been a new car company in the US the
32:00last successful new car company in the
32:03US had been Jeep which was started in
32:051941 and so you know the standard
32:09interpretation would be well you can't
32:11start a new car company eelain's
32:13interpretation was it's about time for a
32:15new car company right right and so
32:17there's always a half-full half-empty
32:18version of these things but I think you
32:21know I would say if you take both SpaceX
32:23and Tesla what what I think did work on
32:27and was perhaps very underrated for many
32:30years in both cases um you know I always
32:35have the sort of anti competition bias
32:36and the competition was really weak and
32:39so I described what you mean like well
32:41which competition well I think I think
32:43you want to you know you want to aim on
32:45you you don't want to go for the things
32:47that are the most competitive um you
32:49know you know you sort of opening a
32:51restaurant is my sort of the paradigm
32:53example of an intensely competitive and
32:55really bad business idea and and so to
32:59the extent you're competing you want to
33:00compete against industries that are
33:03somehow where something sort of off and
33:05you can do something that's very very
33:06different and certainly the u.s. car
33:09companies were very off they weren't
33:10going to build an electric car ever and
33:12so there was a way in which he picked
33:14really weak competition there and then
33:16aerospace was where these sort of
33:18weird government quasi government
33:20conglomerates that were pretty badly
33:22managed by the 2000s as well so I think
33:25it was sort of an opening to to do this
33:28the the thing that's you know most of
33:32the innovation that we do involve some
33:34combination of brilliant breakthroughs
33:36and sort of step by step iteration which
33:39are very good at iteration we're pretty
33:41good at occasionally coming up with
33:42brilliant breakthroughs but I think both
33:45Tesla and SpaceX were stories that
33:48involve complex coordination where you
33:50needed to get a lot of different pieces
33:51to fit together in just the right way
33:54and so if you ask you know what was the
33:55real breakthrough with Tesla or the real
33:58breakthrough with SpaceX it was actually
34:01that you had everything coordinated I
34:02think something somewhat spiked with the
34:04iPhone with Apple there was you know no
34:06single part that was massively better
34:09than anything that had come before that
34:10was actually getting all these pieces
34:12together in just the right way and and
34:15there was sort of a vertical integration
34:16to that that people generally did not do
34:19and that I think he pulled off in both
34:21cases so we have I want to leave time
34:23for audience Q&A but I want to hit a few
34:25more topics before we go to that so you
34:28alluded earlier let's just do a kind of
34:29a situation check on where we are in
34:30Silicon Valley right now so you alluded
34:31earlier to I mean obviously there's the
34:33high consumers been high concern for
34:35some time that there's a new bubble
34:36forming even some of some of us who have
34:38said there's no bubble or if now started
34:40expressing public concerns about burn
34:41rate and loss of discipline you know
34:44money you talked about the you know the
34:45five million dollars really count I
34:46haven't heard that specific story
34:47happened yet but I wouldn't be surprised
34:49given some of the activity especially
34:51for money coming in from outside Silicon
34:52Valley so what's your assessment what's
34:54at but why do you say what why are you
34:56confident when you say not a bubble like
34:57how do you think about no I'm not sure
34:58you can ever be fully confident but I
35:01think I think these and we've had
35:03certainly a history of all these crazy
35:04bubbles for a few decades now you know
35:06there was the Japan had this crazy
35:08bubble in the 80s you have the tech
35:10industry in the late 90s you had the
35:12housing finance one in the last decade
35:14so it's definitely reasonable to ask the
35:16question is there another bubble um I
35:19tend to think the bubbles always
35:21required the public to be involved in a
35:23very big way and there were these
35:24psychosocial phenomenon some level and
35:27and this the public is not really
35:32the companies are not going public till
35:33extremely late in the cycle on there
35:35maybe I look the exact numbers maybe 30
35:37or 40 tech IPOs a year versus something
35:39like 300 in the late 90s and so in this
35:43entire boom the public has in some sense
35:45not really been involved um it is that
35:49more because they haven't been able to
35:50get into I have millions they haven't
35:51been able to because they haven't wanted
35:52to well they probably haven't wanted to
35:53price still burned they probably haven't
35:55wanted to the company's having one of
35:57them you know it's all all sorts of
35:59different factors um but I would say the
36:01other the other thought on this bubble
36:03question is I think I think if you
36:05identify my candidate for where the
36:07bubble is today is it's the government
36:10printing money it's the government bonds
36:12on its on - 2 % real interest rates and
36:16and so the things that are bubble like
36:19are the things that are most like
36:21government bonds that's corporate bonds
36:23it's probably housing which is linked to
36:25very powerfully linked to the interest
36:27rates and then to some extent it's
36:30stocks that act like bonds so it's
36:33stocks that pay very high dividend
36:35yields it's a lot of the old tech stocks
36:38like Oracle or IBM or Microsoft where
36:41you need financially model them like
36:44government bonds and the most important
36:46variable and evaluating them is the
36:48discount rate most kinds of companies we
36:51invest in are actually the main variable
36:54that dominates is growth how fast do
36:56they grow and so if the if the bubble is
36:59centered on the risk-free interest rate
37:00then you have to be careful of assets
37:02that are linked to the risk-free
37:04interest rate and things that are
37:06actually linked to growth are very
37:08different and so so I didn't sort of one
37:10one way I've put it is you know I
37:12probably three-quarters of my net worth
37:14is in illiquid tech stocks in Silicon
37:17and it's because I believe there's a
37:18giant bubble centered on government
37:20bonds and this is the furthest I can get
37:23yes furthest from government bonds
37:25missing so that actually leads me to
37:27another you mentioned companies like
37:28Microsoft Oracle so you said you've been
37:30talking a little bit publicly on this
37:31topic so take us through your theory on
37:34what's you I think I think you're you're
37:37I think your nomenclature is tech
37:38companies and is it anti tech companies
37:40or how do you describe that you see a
37:42technology company and then just
37:44your view of some of the large
37:46incumbents like Microsoft and Oracle and
37:47why you don't necessarily view them as
37:49technology companies well when you when
37:51you invest in a company um there's
37:53always a question are you investing on
37:55the creation of new technology or are
37:57you or are there cases where you're
37:59betting against the creation of new
38:01technology and so so I would say that
38:05there's a whole set of companies in the
38:07nasdaq-100 that are actually bets
38:09against technological innovation so
38:12Microsoft is a bet that there will never
38:13be anything like Linux it's a bet that
38:15there will be that the operating system
38:17won't ship to mobile platforms
38:19it's a bet that nothing will change you
38:21know iBM is a bet that we will keep the
38:23same kludgy software from the 70s and
38:2580s and need lots of service people to
38:27support it Oracle is sort of a bet
38:30against cloud computing and so there are
38:35sort of a lot of it doesn't necessarily
38:36make these bad investments but the
38:39fundamental thing you're doing is you
38:40are betting against technological
38:42innovation and this is always obscured
38:44because the companies themselves have
38:47this protec narrative because there was
38:50some point in history when they were
38:52actually technology companies Microsoft
38:54was a technology company in the 80s
38:56probably still in the 90s you know much
39:00less so in 2014 but that's you know when
39:03when Microsoft recruits engineers in
39:052014 it doesn't say you know you're
39:08working at a bank where we're just you
39:09know money's just flowing as long as
39:11nothing happens elsewhere in the world
39:12and so General Motors was a technology
39:16company in the 1920s by the 70s and 80s
39:20investment in GM was a bet against
39:22Japanese and German innovation and cars
39:24and so there's always this that you
39:27always have this sort of an arc right
39:29well let's let's probe on that from one
39:30more direction so you talked in your
39:33book and on the book tour you've talked
39:34a lot about your theory of monopoly
39:35versus commodity and in a nutshell right
39:37Peter's thesis two kinds of businesses
39:39monopoly commodity monopolies are sort
39:41of infinitely profitable and can go on
39:42to do all kinds of very problems the
39:46consequence of being profitable he would
39:47argue can go on to do very amazing
39:49commodities inherently are zero profit
39:51and the enemy of innovation is therefore
39:53is being zero profit because you can't
39:55afford to fund innovation so commodity
39:57companies are not going
39:58innovate and so you know sort of the
40:00sort of advice thesis monopolies better
40:02than commodities on the East Coast you
40:05know the reaction of that has largely
40:06been panic and freak out on the west
40:08coast the reaction to that among
40:09founders has been hell yeah let's go
40:11build monopolies certainly advice that
40:15is certainly on how to advise site if
40:18you're an entrepreneur founder you
40:19always want to build a monopoly now
40:20there's a public policy question as to
40:23when these things are good or bad that's
40:24a somewhat separate question right which
40:25is like it's East Coast reaction but so
40:27those are two different questions
40:28just to be clear but I think from the
40:30point of view of someone starting these
40:32companies you always want to go from an
40:33operator so let me ask you this so so
40:35you describe you describe companies you
40:36describe companies that basically have
40:38become as you said sort of Bank like
40:39bets against technology Microsoft Oracle
40:41and General Motors and forget there was
40:45a fourth one in there sorry I'd be IBM
40:48IBM and so you could describe like I
40:50think you could describe it it there was
40:51a point at which all four of those
40:52companies had become a tough place
40:53Microsoft Microsoft certainly obviously
40:56General Motors at one point was some
40:57giant market share of US auto auto
40:59production Oracle is some giant share of
41:02databases with enormous pricing power
41:03and IBM obviously is like it's IBM at
41:06one point actually well at IBM went
41:08through decades eventually have to trust
41:10prosecution's over being a monopoly and
41:11even today has a very large monopoly
41:13position and sort of it's the fortune
41:15500 in terms of mobile services so how
41:19do you reconcile your view that
41:20monopolies are the enabler to
41:21competition like what like how do you
41:23sustain that view in the face of the
41:25observation that these companies that
41:26that were monopolies are no longer
41:29innovative well I think there's always a
41:32challenge with these companies staying
41:33innovative over time whether and that
41:35doesn't you say um my claim I shot my
41:38claim is not necessarily the monopolies
41:40are more innovative for all time okay
41:43it's um you get to monopoly if you do
41:45something really innovative at some
41:47point so so the goal should be to do
41:50something super innovative where you're
41:52so differentiated that you get a
41:53monopoly and then hopefully you keep
41:56innovating and you you build on that
41:58monopoly could we talk about the
41:59hopefully part what's what's the
42:00hopefully what's the somebody becomes a
42:01monopoly arguably today Google and
42:03search or you know take your pick of the
42:06next big company well there's um what's
42:08the hopefully like what has to happen
42:11for the company to not just evolve in as
42:14long as the founders run the companies
42:16there's normally enough pressure to keep
42:18doing things once the founders are
42:20replaced with politicians who act like
42:24CEOs you end up with much less
42:29incremental stuff happening so and so I
42:32do think you know sorry I don't know I
42:34don't think Apple was much of a monopoly
42:3797 when Jobs took over again but you
42:40know he shifted it from the home
42:41computer focus to the consumer
42:42electronics focus and that's something
42:44we've been very hard for someone who was
42:46just a politician CEO to do so from in
42:50historical terms then it's a that's sort
42:51of a bet on the great man thesis as
42:53opposed to the historical forces thesis
42:54because the easiest thing in the world
42:56for monopolies to do as sort of the
42:57default position is to stop innovating
42:58because they don't have to write it's
43:00like the the model for every successful
43:01monopoly is we don't care because we
43:03don't have to write and every time you
43:05deal with your cable company or any
43:06monopoly like you experienced and so in
43:08most of time these things decay over
43:09time baby Kay and and and and so and so
43:12I guess I'm proving you whether you
43:14agree with this which is by default
43:15monopolies will decay unless there is a
43:17great support great man a great person
43:19aka the founder so it has to be an
43:21intrinsic motivation on the part of the
43:23founder to keep it going or yeah well
43:25there's there's always a risk these
43:26things DK at some point and and
43:29certainly on it's unlikely you know I
43:32don't think it's necessary for the
43:33government to be that involved in
43:35regulating them because they normally
43:36actually do have some shelf life at
43:39least in a space where you have
43:40continued innovation but but you know
43:43yet the goal the goal that can get to
43:44monopoly would last for a few decades
43:46that's still much better than opening a
43:48restaurant yes that I would agree with
43:52well depends on the restaurant the food
43:54supply chain in the world right now is
43:56responsible to like up to half of all
43:57carbon emissions for the current level
43:59of food output and the current kinds of
44:00food we consume like a hamburger
44:02consumes 350 gallons of water in its
44:04production so I don't need just these
44:05these crazy kind of out-of-control
44:06you know food supply chain energy supply
44:09chain things they clearly lead to you
44:10know just massive I mean Beijing is
44:12already drowning in smog right you can
44:14imagine how much worse it could get if
44:15these trends continue it seems like
44:17there should be a natural alliance of
44:18sort of sort of very radical innovative
44:21technologists with environmentalists it
44:23seems like it's if there's a shared
44:25yeah that doesn't exist at all do you
44:27think that that's a bridge that can or
44:29should be crossed well people should be
44:31trying to do a lot more on it you know
44:33certainly I think the I think always the
44:35people who are concerned about climate
44:36change and global warming
44:38I always think they should be much more
44:40open to nuclear power sort of
44:41logistically they're the opposite
44:43typically they want to go Italy seems to
44:44be typically they want to revert their
44:45less I'm hopeful it's a bit of a
44:47generational issue where the the
44:49anti-nuclear people are these boomers
44:52these baby boomers who came of age in
44:54the 70s and once they lose grip on power
44:57in the next decade or so we may be able
45:00to have a nuclear Renaissance in this
45:01country is that a hangover from Three
45:03Mile Island or is that you know it's I I
45:07think it was not so much the accidents
45:09as it was the dual use of nuclear power
45:12for both peaceful and military purposes
45:14so people always cite Three Mile Island
45:161978 is a critical turning point I think
45:20it might have actually been when India
45:22got the bomb and I believe 74 or 75
45:24where we had given India all this
45:26reactor technology we thought it could
45:28never be weaponized it turned out it
45:30could be weaponized and so there was
45:31something there was something in a very
45:32scary about nuclear bombs and it somehow
45:35didn't fully register till the late
45:37sixties and seventies and I think that's
45:38that's what really triggered the
45:40anti-nuclear stuff are you making
45:42nuclear investments we you know we've
45:44started we started to look at we started
45:46look at this yeah yeah it's definitely
45:47yeah it's it's all these challenges you
45:50know that we started looking at it yeah
45:51okay so let me thank you very much okay
45:54thank you all for coming
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