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If you subscribe to the notion of a PayPal mafia—the handful of entrepreneurs who came out of the online payment firm to help start and fund the Web 2.0 movement—then PayPal co-founder Peter Thiel is the logical godfather of the group. Thiel, 42, appears set up to stay among the top-ranked angels thanks to his early investments in Facebook, Zynga, and LinkedIn—three of the most highly anticipated IPOs, with equally high valuations. (Thiel is an angel investor in YouNoodle, the research company that provided the angel investor ranking.) In an e-mail interview with BusinessWeek.com's Ira Sager, he shared some thoughts about angel investing, Google's (GOOG) angels, and his track record.
Do angel investors have more influence over the direction of new companies or industry trends in today's investing climate?
Angels can have greater influence over industries that are less capital-intensive because their investments can be larger relative to total capitalization. Many sectors have indeed moved in the direction of lower capital intensity. Think of Internet companies, where bandwidth costs have fallen and more code is open-source, or garage biotech, or analytical software.
Why does Google seem to produce so many angel investors?
Angel investing is becoming a larger part of the cultural fabric of Silicon Valley, especially among the current generation of engineers. So, many younger engineers are already more inclined to make angel investments than their elders, especially if they've worked at companies like Google or PayPal that encourage people to work on their own projects. As entrepreneurial engineers leave these companies to found new ones, it's only natural for them to tap former colleagues for cash. And one angel investment tends to lead to two or three other opportunities, and so on down the line.
Looking back over the history of the tech industry—to the early days of Microsoft (MSFT), Apple (AAPL), Intel (INTC), even Fairchild Semiconductor (FCS)—for which company would you have liked to have been an angel investor and why?
Intel, Genentech, or Google made our quality of life so much higher. Perhaps even more than that, these companies and their alumni created industries and markets that multiplied their impact on society. They were also pretty good investments.
But the number of iconic companies—and the number of companies that even aspire to greatness—seems to be dropping. I'm a little worried that things are slowing down, operating well below potential. …We need more Intels, Apples, Googles, Genentechs, and Facebooks. I'm not sure we're going to get enough with venture [capital] in its current state. That's bad because former startups account for about one-sixth of GDP and employ around 10 million Americans. We need more great companies.
Of which angel investments are you most proud?
The most prominent success in my angel portfolio has been Facebook. When I made the first outside investment in the company in 2004, it was a tiny operation basically run out of an apartment. Since then, it has grown into a tremendous company that gives 400 million people greater control over their experiences and their communications. I've been involved with a lot of great companies, like Palantir Technologies, which helped track down cyber attacks on the Dalai Lama's computers, and Causes, which leverages social networks in the service of philanthropy. You always hope for strong returns, but the companies that make you proud as an investor are the ones that produce that return by transforming the world for the better—technologically, socially, and economically.