I wanted to discuss the Thiel Fellowship and sort of run the idea among our readership to figure out if it was justified or not. Bay Area hedge fund manager Peter Thiel started a Fellowship program in his name about a year ago trying to capitalize not on start ups, but the smart kids who may actually come up with the next billion dollar idea.
Let there be no mistake. Innovation solves problems. Bankers, lawyers and hot shot executives are good for only one thing: managing an existing infrastructure. It is the innovators who turn existing ideas on to their heads and enable breakthroughs. Considering the point above, it makes absolute sense to dole out money to innovators irrespective of anything instead of expecting business school drones to come up with new ideas.
I’m sure Thiel had this very idea in mind when he announced that he was going to give $100,000 scholarships to highly motivated kids for dropping out of college and working on start ups. The Fellowship would run for a period of two years and would include mentor ship from various entrepreneurs, visionaries and investors in Thiel’s network.
Now a little bit about Mr. Thiel. He is a Stanford educated lawyer who co-founded PayPal and took it public making millions in the process. Currently he manages a multi-strategy hedge fund in the Bay Area with around $700 million under management. He is also a managing partner of the $275 million venture capital fund Founders Fund. His master stroke was making a $500,000 angel investment in Facebook for a 10.7% ownership stake in the social network’s infancy. That stake is now well over $1.7 BILLION!! With academic smarts and street cred like that, why should anybody doubt Thiel? For three reasons:
First, the world of start ups is cruel. For every sexy profile you see on TechCrunch, GigaOm and Green & White – there are hundreds, nay, thousands of failures. Even the companies profiled often run out of business. Either the founders lose interest, teams fall apart, funding dries up, Google brings out a similar product etc. – the odds of start up success are unrealistically low.
Second, there are more than 6 billion people on the planet. Companies like Facebook and Google may rake in the dough, but they only impact the population that is literate, has access to the web, a computer, electricity and ideally, cash to spare. What if, instead of targeting the 20% of the population that has access to all of the above; start a scholarship for kids to figure out a way to make life better for the other 80%? For example, if Thiel would offer money to the brightest minds on the planet to figure out a low cost way to light up a village, or bring clean water to an arid area- I think we’d have some fascinating results. The revenues may be low, but I think the sheer amount of customers would be large enough to make a tidy profit.
Third, without a doubt, Peter Thiel is a whiz kid. He started out as a childhood prodigy and went all the way to become a hedge fund manager. There is a possibility, though, that if he hadn’t taken a stop at Stanford for his degrees, he may still be toughing it out at a struggling start up. I think his education gives others the confidence to take a chance on him – be it by making him a CEO of an explosive start up or investing money with him.
Bottom line is – this is a valiant effort by Peter Thiel to find the next big start up. But instead of offering kids to drop out of school to do start ups, maybe he should focus on programs within schools where kids can develop concepts and keep on working on these projects after graduation. In addition, maybe he should really challenge the limits of imagination by asking these kids to solve a social issue while remaining profitable. Simply asking kids to drop out of school to be eligible for this scholarship may just be a little presumptuous.
Particularly, from a Pakistani view point, this is even tougher to do. Pakistan has been blessed the some brilliant minds. But we are also bound by social and cultural norms unheard of in the Western world. We are expected to get an education even if we later go on to start a company. I think if we take the more positive elements from Thiel’s experiment and give it a Pakistani spin by focusing on entrepreneurship labs in universities – we may have an attractive model.