The Outsider
Peter Thiel was born in Frankfurt, West Germany, in 1967. His father Klaus was a chemical and mining engineer. His mother Susanne looked after the family. And because Klaus’s work involved these big international mining projects, the family moved around a lot.
When Thiel was three, the family moved to what is now Namibia. Back then, it was controlled by South Africa and apartheid was still in place.
Now they always spoke German in the home, so in South Africa he went to a very strict German-language school.
There were rigid rules, harsh discipline and corporal punishment.
And Thiel later said that this experience was where his distrust of conformity and authority began—his dislike of institutions telling people what to think and how to behave.
Now, as a young child, Thiel was exceptionally bright—he knew the name of every country in the world by the time he was five.
When he was six, he started playing chess. It suited him. Chess is about planning ahead and outthinking the person opposite you.
The family returned to America in 1977 and they moved to Foster City, beside Silicon Valley.
In his new school, Thiel remained an outsider. He didn’t mix a whole lot.
He was obsessed with Tolkien and read The Lord of the Rings more than ten times. And he continued excelling at chess—by 12, he was ranked seventh in his age group in America. And his chess set had a sticker that said, “Born to Win.”
And this is the thing about Thiel. He is ultra-competitive—and look, we’re all pretty competitive—you have to be if you’re in business, but according to all of his ultra-competitive friends, Thiel's competitiveness stands out. He absolutely hates losing.
Then, in high school, Thiel discovers Ayn Rand. She was this famous Russian-born writer and philosopher who developed a philosophy called Objectivism.
Now, I’m not going to go too deeply into this, mainly because I don’t really enjoy or understand a lot of this stuff.
But why I’m bringing it up is because Thiel takes ideas very seriously. And over the years, the ideas of people like Rand have a huge influence on how he thinks, what he says, how he does business and, of course, how the rest of the world sees him.
So Rand’s basic argument was that people should follow their own ambitions, rather than doing what the government or everybody around them expected.
And for Thiel, who at this stage—and remember he’s just a teenager—is already supporting Ronald Reagan, admires Richard Nixon and hates the idea of simply following the crowd, you can see why this appealed to him.
In his SAT exam, Thiel achieved a near-perfect score.
But interestingly, some of Thiel’s former classmates told Max Chafkin, the author of a book on Thiel called The Contrarian, that Thiel also did the SAT exams for other students and charged them $500 each.
Now, Chafkin’s book contains a lot of stories from people who knew Thiel at school and college. And some former Stanford students claim that he once defended apartheid in this very cold, logical way, looking at it purely in economic terms and, in their view, completely missing the human side of it.
But when Chafkin’s book came out, Thiel strongly denied ever supporting apartheid. But, and why I mention this, is because he never publicly denied the SAT story.
So if we assume it did happen, Thiel was taking an enormous risk. He could have destroyed his chances of getting into college. But look, I'm not going to come down too hard on him for this—I think it’s in every entrepreneur's nature to take risks, and when you’re young you take very stupid risks.
I know I did. I strayed into a few grey areas and beyond grey—so I can definitely understand that mentality. And just to be clear—it’s cheating, it’s wrong—but I’d be a hypocrite if I were to come down heavy on young Thiel for this transgression.
He graduated as valedictorian, top of his class.
Stanford, Girard and Contrarian Thinking
So we’re now into September 1985 and Thiel arrives at Stanford University to study philosophy.
And physically, he began to change. He started going to the gym, lifting weights and bulking up.
But socially, not much changed. Thiel still remained very much an outsider. He wasn’t interested in partying or drinking. Instead, he joined the Stanford College Republicans and found a group of friends who were more interested in politics and ideas.
And it was at Stanford that Thiel encountered another thinker who would have a huge influence on him—one of his professors, René Girard.
Girard’s big idea was something called mimetic desire. And the basic theory was that people don’t really decide what they want for themselves. They look at what everybody else wants and then start wanting the same things—the same university, the same job, the same house or the same position in society.
And once everybody starts chasing the same prize, you get competition. People become so obsessed with beating one another that the rivalry eventually becomes more important than the prize itself.
And this became one of the most important ideas in Thiel’s life.
Because whether he is investing, building companies or getting involved in politics, Thiel is nearly always asking the same questions: what does everybody believe to be true, and what if they are wrong?
So as a result, Thiel is always taking a contrarian position.
John Collison, the co-founder of Stripe—Thiel was one of their first investors—described Thiel like this: “He’s a true contrarian. He just takes the thing that everyone else believes to be true and inverts it. He chases that through to its conclusion, even if it takes you to some odd places along the way.”
Now while he was studying philosophy, Thiel became friendly with none other than Reid Hoffman, who would of course go on to found LinkedIn. Politically and ideologically they are polar opposites. They disagreed on nearly everything, but they respected one another’s intelligence and honesty.
In the first few years at college, Thiel continued to play chess and he obviously didn’t endear himself to other players because fellow players recalled that when he lost a chess game—which obviously didn’t happen very often—he would sweep the pieces off the board and say “Show me a good loser and I’ll show you a loser.”
Now I know his defenders will say, well that’s just his competitive streak—yeah, but, as the former Irish rugby coach Eddie O’Sullivan always says when analysing a game—he’ll ask you to swap the jersey and then say what you see—so in other words, let’s just pretend someone you didn’t know swept all of the chess pieces off the board when they lost—you’d call that guy an asshole—and you’d be right to.
That’s just asshole behaviour.
Anyway, during college he quit playing competitive chess—as he said himself: “Taken too far, chess can become an alternate reality in which one loses sight of the real world. Had I become any stronger, there would have been some massive tradeoffs with success in other domains in life.”
Now, while all of this was going on, Stanford was in the middle of a huge culture war over race, gender and what students should actually be taught. Nothing much has changed, has it?
And it was in response to all of this that Thiel co-founded a conservative student newspaper called The Stanford Review in 1987.
Now, this turns out to be very important because through the newspaper, Thiel builds a network of people who remain part of his world for decades.
The Supreme Court Dream
After finishing his philosophy degree, Thiel went on to Stanford Law School and graduated in 1992.
Because all this time, he had one big goal: to become a Supreme Court clerk—one of the most competitive and sought-after positions in American law, with only 40 places available each year.
So while Thiel was heavily influenced by Girard’s warnings about following the crowd—at this early stage, he obviously wasn’t ready to put those ideas into practice.
Thiel got to the interview stage with two Supreme Court Justices, but both rejected him, and Thiel admitted that he was devastated.
He then joined a prestigious law firm but hated it, and quit after just seven months.
Next, he joined Credit Suisse in New York as a currency trader.
So we’re in 1995, and while Thiel is still trying to work out what to do with his career, he and David Sacks, who had also been at the Stanford Review, published a book called The Diversity Myth. It’s their case against multiculturalism and political correctness at Stanford.
The book caused a huge backlash, particularly for suggesting that some allegations of date rape were actually “seductions that are later regretted.”
Now, Thiel later admitted that his views had been too extreme. And in 2016, he apologised, saying, “I wish I’d never written those things. I’m sorry for it. Rape in all forms is a crime.”
Back to Silicon Valley
So Thiel is working on Wall Street, still involved in campus debates, but you also have the dot-com boom in its very early stages and Thiel rightly believes the real action is in Silicon Valley.
So in 1996 he moved back to California, did some part-time lecturing at Stanford and established Thiel Capital with $1 million raised from family and friends. It’s part hedge fund and part venture-capital firm.
He hires Ken Howery as his first employee—Howery had written for the Stanford Review, while Luke Nosek, who pitched a web-based calendar idea, becomes the first entrepreneur Thiel invests in.
These two guys tell us a lot about who is drawn to Thiel—and who Thiel is drawn to.
Howery was so fascinated by Thiel’s mind that he told his girlfriend—“I think I might work with this guy for the rest of my career.” And he ended up doing exactly that.
Nosek is this very smart and unusual computer engineer who didn’t care what other people thought. When they first met, he told Thiel that he planned to have his body frozen after he died so that he might one day be brought back to life.
Thiel was fascinated. Nosek, Howery and Thiel became lifelong friends.
But here’s the thing. When Thiel’s friends talk about him, and I’ve really dug into this, they talk about his intelligence and his ideas. You hear nothing about warmth, fun or having the craic.
One colleague who knows him well said the following: “He’s very cerebral, and I’m not sure how much value he places on the more intimate human emotions. I’ve never seen him express them. It’s certainly not the most developed aspect of his personality.”
Thiel, for all his brilliance, is, I think, very emotionally challenged.
And I guess you can have friendships based on intellectual respect, but without warmth, affection and laughter, I mean how deep can those friendships really be? Then again, I’m judging his friendships by my own standards—and perhaps that’s unfair.
And regardless of what I think, these relationships that he formed with the likes of Howery and Nosek have been long-lasting and very rewarding financially—by staying close to Thiel, both Howery and Nosek would go on to become billionaires.
The Beginnings of PayPal
Anyway, nothing comes of Thiel’s investment in Nosek’s calendar company. But Nosek introduces Thiel to his friend Max Levchin, a brilliant young computer scientist who has an idea for security software for PalmPilots.
Now, PalmPilots were small handheld computers, and by 1998 more than a million had been sold. Thiel loved Levchin’s idea and immediately put in $100,000. They formed a company called Fieldlink, which became Confinity and eventually PayPal. And just to keep things simple, I’m going to call it PayPal from here on.
And let me just stop for a minute and recommend that you read Jimmy Soni's book The Founders—it has the entire PayPal story and is one of my favourite books ever—brilliant read.
Levchin's original idea was security software, but the company soon began experimenting with sending money between PalmPilots. They then added a way to send money by email for people who didn’t own a PalmPilot—but this email money transfer feature, it’s almost an afterthought—it wasn’t seen initially as being very important.
After raising more money, Thiel and Levchin recruited largely from people they already knew. Thiel brought in people from Stanford, including David Sacks and Reid Hoffman.
Because Levchin wanted to focus on the product, he persuaded a reluctant Thiel to become CEO. And by most accounts, Thiel was good at it. There were no private offices, very little hierarchy and every idea could be challenged.
As Hoffman said, “It was all about, ‘Here are my arguments; here’s my perspective.’
So it was demanding, often ruthless, and everybody worked ridiculous hours. But it also created this us-against-the-world mentality, so under Thiel’s leadership, there was a very strong bond between the team.
And look, I’ve just criticised Thiel for bringing zero emotion into his relationships. Yet at PayPal, without ever talking about emotion, he helped build a team that had this strong, emotional connection with each other that for lots of them has lasted the test of time. And there’s a lot to be said for that.
Enter Elon Musk
Now, while PayPal is developing its PalmPilot product, another company is starting just down the road. And enter stage right, Elon Musk.
Musk had just sold his first start-up for $307 million and walked away with $22 million, and he put $10 million of that into a new company called X.com.
The idea behind X.com was much bigger than PayPal. Musk wanted an online bank where customers could hold money, use a current account and invest. Basically, he wanted to disrupt the entire banking system—a typically huge, ambitious Musk idea.
And just as PayPal had stumbled across an email money transfer feature, X.com developed the exact same product. But neither company saw this as the main business. For Musk, it was just one small feature inside his enormous online bank.
But then eBay changes everything.
Back in 1999, eBay was one of the hottest internet companies in the world. But it stayed out of payments between buyers and sellers. Most buyers paid by cheque or money order, so sellers could spend days waiting for the payment to arrive and then several more waiting for it to clear.
So when eBay sellers discovered X.com’s and PayPal’s email money transfer system, they were delighted.
Now, Thiel had very little regard for eBay. He saw it as this grubby auction site. Musk felt much the same. He didn’t want his grand plan for reinventing banking reduced to handling small payments between eBay users.
But eBay sellers didn’t care—they had found something that solved a real problem, so they piled in and started spreading the word within their community and the numbers shot up.
For example, in November 1999, PayPal had around 1,000 users. One month later, it had 10,000. Two months later, it had 100,000. X.com was growing at a similar rate.
And once PayPal and X.com saw what was happening, they went to war—paying between $10–$20 to anybody who opened an account and then paying them again for referring their friends.
Customer numbers soared—even outside of eBay—but both companies were burning through cash.
The Merger and the Dot-Com Crash
And Thiel realised this couldn’t continue, so he pushed for a merger. Bill Harris, the CEO of X.com, agreed with Thiel—because just as a side note—Musk wanted to focus on strategy and product development, so he brought Harris, a seasoned tech executive, in as the CEO.
The merger was announced in early 2000. The company kept the X.com name, Harris remained CEO, Musk became executive chairman overseeing strategy/product development and Thiel became executive vice-president of finance.
At the same time, the company was trying to raise $100 million. Some of the team wanted to keep negotiating in the hope of getting better terms, but Thiel believed the market was about to collapse and pushed them to take the money as quickly as possible. As one employee remembers him saying, “We have to close on this because the end is near.”
And he was right. They completed the round just before the dot-com bubble burst. Technology companies were suddenly collapsing everywhere, while X.com had $100 million in the bank.
So now they have plenty of cash and a lot of their competitors were wiped out. But it was far from plain sailing—the merger had forced together two workforces that had completely different cultures and that had spent months trying to destroy one another, so there were a lot of personality conflicts.
There was also a fundamental disagreement over strategy. Musk still wanted his big disruptive online bank. Thiel and the PayPal team wanted to concentrate on the one product that was going gangbusters: email payments.
Thiel also became frustrated with Bill Harris, the CEO. He believed Harris was introducing too much corporate bureaucracy and slowing everything down. As Thiel put it, “We were moving too slowly when speed was everything.”
So only a few months after the merger, Thiel resigned. But Musk, Levchin, Sacks and other senior figures were also unhappy with Harris and they forced him out. Thiel returned as chairman while Musk became CEO.
And despite all the fighting over strategy, Musk and Thiel had a lot of respect for one another. Musk said, “My bullshit tolerance is low, but Peter’s is like zero.”
Musk also appreciated Thiel’s ability to think from first principles—to ignore accepted wisdom, return to the basic facts and work from there.
By summer 2000, the company had more than two million accounts and was adding over 10,000 every day—turnover would be $14.5 million for that year.
For context, initially it was totally free to use PayPal, but in June 2000 they began charging a fee of 2.2% plus $0.30 per transaction.
But the arguments over strategy continued. Musk was also sticking his oar into the technical side of the business and this led to huge tension with Levchin.
Something had to give.
The Coup Against Musk
So, four months after becoming CEO, Musk finally left for a belated honeymoon to Australia. He had married eight months earlier but had been too busy to go.
And while he was away, Thiel, Levchin and the other senior figures approached the board demanding that Musk be sacked. The board went with them and Thiel was brought back as CEO.
It was a fairly sneaky way to remove somebody. But Musk’s response was gracious. In an email to staff, he wrote, “Peter is an exceptionally smart guy with a strong knowledge of the issues we face.”
So there is an obvious respect there between Thiel and Musk—but were they ever friends?
There’s a great description of their relationship in the Capital Review: "It is a relationship that has never resolved into anything so simple as friendship or feud, but instead something colder and more durable—a strategic entanglement between two men who understand each other too well to fully trust one another."
So with Thiel back in charge, PayPal makes one crucial but fairly obvious decision. They drop the online bank idea, the X.com name is dropped and they focus solely on email payments.
The Fraud Crisis
But while the customer numbers were soaring, fraud was threatening to destroy the business. Criminals, mainly in Russia, were using stolen credit cards to buy goods through PayPal. The seller received the money and posted the goods, but when the real cardholder reported the theft, the bank reversed the payment—it’s called a chargeback.
The fraudster kept the goods, the seller kept the money and PayPal was left covering the loss.
This was costing the company around $10 million a month. PayPal had only a few months of cash left.
So this became an all-hands-on-deck emergency. They developed systems for spotting suspicious transactions and verifying that bank accounts belonged to the people using them. PayPal also helped bring CAPTCHA—the distorted letters used to separate humans from computer programs—into widespread use.
And it worked. PayPal brought the fraud under control, survived and kept growing.
By 2001, more than 70% of eBay listings accepted PayPal, even though eBay was heavily promoting its own payment service. The problem for eBay was simple: its service wasn’t as good, and its users kept choosing PayPal.
So eBay offered $300 million to buy PayPal. Thiel wanted to sell. And this time, his judgement was badly wrong. PayPal backers, which included Sequoia, the VC firm, rejected the offer.
Going Public
Then in September 2001, PayPal announced plans to go public. This was a pretty ballsy move. The dot-com bubble had burst, technology shares had collapsed and the 9/11 attacks had damaged the markets.
PayPal was still losing money as well. Despite its 2001 revenues coming in at $105 million, up from $14 million the previous year, it had accumulated losses of $283 million.
And it was during the publicity surrounding the flotation that I first became familiar with Thiel and also with how his ideology was very central to who he was, because Thiel was now presenting PayPal as something much bigger than an online payment processor. He linked it directly to his libertarian beliefs, arguing that PayPal could become a vehicle for geopolitical liberation.
Anyway, PayPal floated in February 2002 at a valuation of $790 million. The team celebrated with a keg party in the company car park, where a half-drunk Thiel, wearing a king's crown, played ten games of speed chess simultaneously.
He won nine and lost one—to a delighted David Sacks—and I mentioned this before, there’s a great photo of this moment. Just Google Sacks Thiel Chess Photo.
PayPal recorded its first quarterly profit shortly afterwards. But after four years of fighting fraudsters, eBay and one another, the team was exhausted.
So when eBay comes back with another offer, this time for $1.5 billion—five times what they’d offered just a year before—PayPal accepts. And the deal was announced on July 8, 2002.
Musk made $176 million while Thiel walked away with $55 million.
He resigned as CEO and was about to begin the second chapter of his life. And that’s where I’ll pick up the story, maybe in a few months or a year’s time, when Thiel takes his PayPal millions and uses them to launch a hedge fund, help create Palantir and become the first outside investor in Facebook.
So Where Do I Stand on Thiel?
So where do I stand on Thiel? Well, like every story that I’m breaking into several episodes, I’m not going to give a final assessment until the last episode, when I have a more rounded and better-informed view of him.
And look, I’m sure that when I get to future episodes on Thiel I might be more critical, but Peter Thiel 1967–2002, as mentioned, I think he’s emotionally challenged, an asshole when it comes to losing, and for the most part, I don't agree with his politics.
But I love that we have people like Thiel who are willing to take contrarian views—I’m all for diversity in all aspects of life, including diversity of thought.
And I have to give Thiel a huge amount of credit for making PayPal a success.
Yes, he had lots of very bright people around him, but he hired most of them. The X.com merger, closing the $100 million funding round just before the crash, solving the fraud crisis, building such a strong and cohesive team, doing the IPO.
They succeeded where lots of other companies back then failed. I think a lot of people who aren’t involved in business kind of shrug their shoulders at this, kind of yeah, so what—but doing all of that is so, so hard and Thiel has to be given a lot of credit for that.
And whatever your thoughts on Thiel, he makes for a fascinating story, and I can’t wait to do the next episode on him.