Some call them wackaloons, others visionaries, however any way you slice them the Founders Fund – consisting of Partners Peter Thiel, Luke Nosek, Brian Singerman, Derik Pridmore, Lauren Gross, Bruce Gibney, Sean Parker, Toby Prosky and others — is definitely an unconventional lot.
There is a well-worn saying that the only difference between a crazy person and an eccentric is money. Well, perhaps as a clue as the where the VC industry as a whole is going, Founders Fund just received $625 million (a IV fund larger than all its other funds combined) in order to invest what it holds to be world-changing ideas.
Maybe when you examine that philosophy closely, it’s not that unconventional. Partner Bruce Gibney tells me that Founders Fund basically adheres to the old VC model of “You can make a tremendous amount of money on companies that can solve difficult and important problems, and create durable value.” Gibney holds that only issue is the definition of what constitutes these companies changes over time.
Gibney tells me that the fund intends to create enormous value independent of market conditions, not just dropping cash into a company because Google needs a product or there’s an S-1 bubble.
People are too focused on readily graphable metrics according to Gibney, “The acme of this was a year ago, when you polled people who invested in Groupon, many of them had strong opinions what would happened a year from now, but no opinion about where the company would be in 10 years,” he says. “People have become so focused on near-term metrics, that they don’t consider the long-term prospects for the business.”
Refusing to think ten years ahead because you’re too worried about having a short-term success — essentially optimizing your resume for three years from now — can be disastrous to a VC portfolio. Gibney thinks VCs are more diligent when there’s skin in the game — “When .2% of fund is out-of-pocket, a VC invests with much less seriousness than when its 10% percent.” For the record, Founders Fund’s newest fund is 20% out-of-pocket.
“If you walked up and down Sand Hill Road with a basket of securities, and the business plans not logos, of Google, Apple, Microsoft, Genetich, synthetized insulin, and a basket of derivative follow on consumer Internet stocks, and you asked people on Sandhill Road which basket you’d like to choose … the depressing answer is that they’d take from the second basket.”
Sure the value proposition of big-idea Founders Funded companies like SpaceX, Palantir takes intellectual effort to understand. The problem no longer is “Can we get distribution?” But rather, “Does it work?”
When asked what kinds of companies the new $625M fund is likely to finance, Gibney asserted that Founders Fund wasn’t necessarily against consumer Internet companies despite its outspokenness, “The consumer internet of our time is consumer internet, but it will look like nothing that came before,” he said. “It is ludicrous to think that one of the most powerful technologies that we’ve ever created is tapped out after 15 years. It might be fashionable to say so, but it’s not true.”
Healthcare and AI were also on Gibney’s wishlist, as were “industries that have been practiced for generations as art, yet now we have enough information to practice them as a science.”
“The complexity of the problems we face as a species may exceed our ability to solve them,” Gibney said, urging entreprenuers and VCs to shoot for the difficult problems. “We know a lot of problems, and a lot of people who can solve them. It’s a great time to be in VC but that’s not how people are behaving,” he says.
“Groupon is the acme or nadir of this phenomenon,” Gibney emphasized, bringing up the fact that out of $15 billion of venture capital expenditure last year, one billion went into Groupon, “[This suggests] Groupon either is the best idea ever, –which may be true — or people don’t really know where to put that money.”