Reasons to recommend this book
Peter Thiel , co-founder of Founders Fund and key member of many venture capital (Venture Capital). I’ll talk about a famous book written by Peter Thiel. I recommend this book to investors for the following reasons:
- An excellent book to primer for the three major areas of venture capital, startups, and Silicon Valley startups. Although he is a lawyer, but the book is very colloquial and convincing, most people can finish in a few hours.
- In addition to being a member of the PayPal mafia led by Peter Thiel and Musk, the founder of Tesla (ticker: TSLA), Peter Thiel is the founder or early investor of many important technology companies. These famous companies include Facebook (ticker: META), Tesla, SpaceX, Palantir (ticker: PLTR, Please see my other blog post “What kind of company is Palantir?“), PayPal (ticker: PYPL), Stripe, LinkedIn (already acquired by Microsoft, ticker: MSFT), Yelp (ticker: YELP), and he is now the co-founder of the venture capital Founders Fund shows that he does excel in the super unicorns in the technology industry. He shared in the book how he examines and filters countless new ventures from the perspective of investors. For retail investors like you and me, from Peter Thiel’s sharing, learn how to filter startups in the technology industry and spot the next Facebook or Google early.
Key points highlight
Here I want to list some key points Peter Thiel mentioned in this book:
- The return of venture capital does not follow the normal distribution, it is the power law. It means that the investment return of venture capital is not calculated by arithmetic series or geometric series; if the investment is successful, the return will be measured by the power of the invested capital (for example, the two powers and the third power of the initial investment , The fourth power… the tenth power), ranging from tens of times to hundreds to thousands of times, or even tens of thousands of times! Therefore, a good company is worth increasing its proportion in fund allocation. Such a return rate, and the return rate of any secondary market investment (that is, the stock market), can be said to be completely different from the same level. Moreover, the earlier you invest (for example, one or two years away), the difference in reporting rate may be more than tens of times worse. This is why Peter Thiel emphasized that the return of venture capital is the reason for the power law. In short, compared with it, stock returns are only geometrical in the best case (because there are few super growth stocks), and they are not opponents at all. However, venture capital funds usually need to be locked for more than 5 years; the companies invested in are almost all loss-making companies, and the probability of failure (that is, the risk of capital investment) is high.
- Napster used its own technological advantages to develop peer-to-peer song file sharing. It was technically successful. Its failure was due to its inability to gain the approval of major record companies. At that time, it was considered a piracy to challenge copyright because of record companies. No money was received at all (if the record company could receive the money at that time, it would not be a piracy). This principle is the same as BitTorrent! Just like Bitcoin, which is gradually being accepted by everyone, these three are actually representatives of decentralized technology. Bitcoin succeeded, the difference is that the market accepted it.
- When a company is at the start-up stage, the number of people is usually only single digits, the internal cohesion is very strong (and the characteristics of mature companies are bureaucracy and large company diseases), everyone must have a clear professional field, the company does not have the so-called working hour, it’s impossible to have a high salary, stare at each other, and it’s hard to mess around. This is also the reason why the co-founders and start-up employees of the company can allocate a large number of shares, because they are betting on their own future, and the success rate of start-up companies is usually much lower than the single-digit percentage (exactly below 1%).
- Like all venture capital counterparts, Peter
Thiel also mentioned the importance of “sales” or business. Good products are only a basic requirement. If there is no market or things cannot be sold, it will be a failure. In section 2-1 of my book “The Rules of Super Growth Stocks Investing,” this is also a famous saying in the venture capital industry that Eugene Kleiner, the founder of Kleiner Perkins Caufield & Byers said “After R&D is finished, make sure that the dogs want to eat the dog food.” A products without a market are ultimately useless.
If you want to know more about and Peter Thiel, his companies and startups, you can refer to the following three other books by PayPal Mafia members that are influential in Silicon Valley and the venture capital community:
- “The Hard Thing About Hard Things” by A16Z co-founder Ben Horowitz.
- “PayPal Wars” by former PayPal executive Eric Jackson
- “The Alliance” by former deputy general manager of PayPal and founder of LinkedIn Reid Hoffman
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