Hedge Fund Titan Peter Thiel and Linkedin Reid Hoffman Share The Secrets of Breaking Into Tech’s Most Exclusive Network

He who builds the best network wins, and Reid Hoffman and Peter Thiel have spun two of the finest webs in Silicon Valley.

Peter Thiel and Reid Hoffman

Six months after hedge fund titan Peter Thiel cofounded PayPal’s earliest predecessor, Confinity he and founding board member Reid Hoffman faced a dilemma.
Thiel and his cofounders had done what was supposed to be the hard part and hatched an idea to link money, email and e-commerce. But with the company taking off, how was PayPal supposed to find the right people and programmers to develop the product, they asked.

“We wanted people who wanted to win,” remembers Hoffman, who sat down with Thiel and FORBES at Stanford University in April for a lengthy conversation.

In a dense Silicon Valley, there can be no shortage of ideas. The trick, according to two of tech’s biggest entrepreneurs and venture capitalists, is finding the right people to nurture them.

In the 14 years since founding PayPal, Thiel, who says he has invested in nearly 200 companies in the last 10 years, has tested his own methods on how to separate the best from the rest for a job or for funding. Having vetted people from Facebook’s Mark Zuckerberg and Spotify’s Daniel Ek, Thiel says interviews are “overrated” and that he tends to better trust an individual’s résumé and network.

But if you do find yourself sitting across from the Founders Fund cofounder some time in the future, he says you can expect one curveball from him: “Tell me something that’s true that almost nobody agrees with you on.”

“It sort of tests for originality of thinking [and] for your courage in speaking up in a difficult interview context where it’s always socially awkward to tell the interviewer something that the interviewer might not agree with,” says Thiel, with a wry smile.

LinkedIn cofounder Hoffman is a strong believer in combing his own network and says he does not invest in anyone who does not come through a reference. Seeing “someone run the slalom course” and “navigate the minefields” to develop connections is much more meaningful to him than the impression from a 30-minute interview, he says.

According to the two, with companies like Facebook, LinkedIn and Twitter linking the world and providing transparency, it’s harder for “bad actors” to qualify for important positions without being outed by the network. Thiel estimates that “30% to 50% [of business leaders and politicians]  are borderline really bad people.”

“I think you can get away with [being a bad worker and person] in a world where you jump between places and people don’t really know who you are and where things are very transactional,” Thiel says. “In a world that’s more networked and more transparent,  I think that’s going to be much harder.”
REID HOFFMAN: Do you remember the exact way we first met? I ­remember we were introduced.

PETER THIEL: I believe it was sophomore year. We were in the same class at Stanford, the core philosophy class—Philosophy 60, I believe.

HOFFMAN: Actually, I think it was Philosophy 80. It was Mind, Matter and Meaning.

THIEL: It was winter quarter, ’86 to ’87 school year. We ended up spending an hour or two on the quad arguing about life, the ­universe and everything.

HOFFMAN: Yes, exactly. It was the beginning of decades of more or less taking any sophisticated intellectual position that one of us had and [the other] taking the negation of it.

THIEL: I don’t think it was oppositional. We were always looking for what the truth is.

HOFFMAN: Not only trying to find the truth, but those are the years where I began to formulate the theory that the U.S. needs more public intellectuals, people saying what the truth could be or might be in order to shape where we should be going. That was part of the reason we ended up combining our campaigns for student senate.

Finding New Entrepreneurs

THIEL: One of the really cool events that we did at Stanford ­together was in early 2005, post-PayPal. You were getting started with LinkedIn. The social networking movement phenomenon was just really getting started. There was this panel [with] you, myself, Sean Parker on where were the next great companies going to be started. I was suggesting this was a difficult search problem. To simplify the search I suggested you should look within a 5-mile radius of Stanford.

How much do you think things have changed in the years since we were here?

HOFFMAN: One thing that has happened is the whole blossoming of the entrepreneurial scene. It was known there were startups, that [Stanford] was a place to start things. But it wasn’t something that undergraduates were in particular thinking, “I’ll leave university, and I’ll go start a company.”

THIEL: Yes. I’m teaching a class on how to start companies this quarter at Stanford. We had 300 people sign up for it within the first week. It’s back to an intensity that you saw briefly in the late nineties, but it feels much more real this time.

HOFFMAN: Yes, because the cost and the revenue model is ­entirely different. Is it a bubble like Web 1.0? No, because the costs of running these businesses is substantially lower , and the possibilities of revenue are higher.

Prelude to PayPal

THIEL: I remember it was end of ’94. We spent a week up at your grandfather’s place on the coast, in northern California. Netscape was just taking off, and we were brainstorming what kinds of things could be done in the Internet.

HOFFMAN: There were two different trips we did at that place. One was where we read The Tempest and talked about its ­implications in life. The other one was when we were with [PayPal cofounders] Max [Levchin] and Luke [Nosek], and we were talking about what do we do with PayPal.

THIEL: So the big PayPal insight that we came up with in the summer of 1999 was the idea of linking money and e-mail. It seems really simple in retrospect, although we’d spent six, seven months in the business without thinking of that.

It’s one of the things that’s very difficult about teaching entrepreneurship in general. There’s maybe 20% or 30% of cases in which you should follow certain rules, and there are processes for doing things. But 70% to 80% of it is about doing something that’s never been done… The next Bill Gates will not start a desktop operating system. The next Steve Jobs will not be building a smartphone.

Silicon Valley, Center of the Tech Universe

HOFFMAN: One of the things that has been really interesting about putting our two networks together is we expose each other to a lot of different people. One of the key [questions] is, where is the next massive entrepreneurial talent going to come from? Technically, you’d think, “Well, it’s human ingenuity, it can be from anywhere in the world.” But one of the reasons why it’s good to focus on just a couple areas is that entrepreneurs move to where they need to be in order to start interesting companies. So, if you’re thinking about doing a consumer Internet company and you’re not thinking about moving to Silicon Valley, that’s—

THIEL: A red flag. If you go into politics, you should go to D.C. If you go into finance, New York. Movies, probably still L.A. And tech is Silicon Valley.

“We wanted people who wanted to win.”

THIEL: [At PayPal] we were very focused on figuring out the right way to build a company culture, getting people on the same page, oriented towards—

HOFFMAN: Kind of high analytic clock speed. Learn fast, collaborate with the team, [that] kind of a predisposition. We tend to hire very entrepreneurial people. I mean, this is the whole PayPal mafia.

THIEL: We wanted people who wanted to win.

HOFFMAN: Yes. Part of the key thing was that predisposition to accomplishing something every day and every week. One of the phrases that you gave in a talk at PayPal that I reuse every so often is “In the entrepreneurial journey, I’ve never learned so much except for maybe between the ages of 2 and 3.” That ability to learn at that speed is, I think, pretty key to the vast majority of the people that we were proud to hire.

On Making Impressions

THIEL: I’m always unsure about how much one can learn from interviews, beyond people’s résumés plus references. I think if you have great references and a great résumé, that’s probably all you need. One of the interview questions that I have turned to asking in recent years that always leads to at least a very interesting conversation is “Tell me something that’s true that almost nobody agrees with you on.”

HOFFMAN: Yeah, I love that question. It’s so rare that sometimes it takes people a bit to think about it.

The other thing that you said that I would emphasize is: I think interviews are simply a chemistry check on the background of references. That the references are far and away the most dispositive information about [whether] someone [is] capable of doing amazing things. It’s one of the reasons why, as an investor, I almost never meet with anyone that doesn’t come to me through a reference.

THIEL: Do you think that the world’s become more networked in this way, where “networked” is linked to using references?

HOFFMAN: Not only has it become more that way, it’s becoming more that way at superlinear speed. It used to be very difficult to get network information. Now we have all kinds of ways to try to get better information from the network about a person, a company, a transaction, that sort of thing.

THIEL: One of the related themes to this is that we’re heading towards a much more transparent world. People are often ner­vous about it, because privacy’s being lost. On the other hand, it’s a more open world. What strikes me as very good about this increased transparency world is that certain types of bad actors will find it much harder to get away with it. You have a disturbingly large number of politicians and business leaders [who] are sociopaths and psychopaths. Something like 30% to 50% are borderline really bad people. You can get away with that in a world where you jump between places. That’s going to be much harder in a world that’s more networked and more transparent.

HOFFMAN: I agree entirely. Once how you treat people, how you work and how you live becomes part of your network image, then all of a sudden you have an incentive to be good in each of these circumstances because you live with it for years and the decades to come.

HOFFMAN: Well, we would’ve invested, except that the [financing] round got away from us.

THIEL: One of the big misses has been not investing more when companies worked. That’s when you often need to be doubling or tripling down. I probably invested in close to 200 companies over the last ten years. In every case where there was a significant up-round led by a top-tier venture capitalist, you should’ve always [invested more]. I don’t ­believe there was a single case where you lost money.

Read More: Forbes

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