good evening and welcome to tonight's meeting of inum a division of the Commonwealth club for young professionals with a mission to inspire debate on Civic issues you can find us online at commonwealth. Commonwealth club.org Inforum I'm Brad Stone senior writer at business week and your moderator for this evening tonight we are lucky to have two of silicon Valley's most successful entrepreneurs and deepest thinkers here to share their ideas of what the future holds for High-Tech investment and startups in 2011 Max Levin is one of the creators of PayPal the online payments business the founder of slide one of the first social application companies on the internet last year's slide was acquired by Google where Max is now a vice president of engineering he's also an active angel investor Peter teal is also a PayPal co-founder and is perhaps best known for his early investment in Facebook he is the president of clarium capital a hedge fund and a managing partner of the founders fund a San Francisco Venture Capital firm Peter is also known for his involvement in let's call them unconventional philanthropic causes like anti-aging research the singularity Institute for artificial intelligence and the formation of self-sustaining Sovereign countries out at Sea last October he announced a program to award fellowships to 20 entrepreneurs under the age of 20 under on the condition that they drop out of college to pursue their Venture fulltime as you can imagine that has proved controversial so that clearly gives us a lot of territory to cover let's get started guys there's clearly something remarkable going on with valuations today in Silicon Valley uh Goldman Sachs just invested in Facebook at a valuation of 50 billion Groupon's valuation seems to add a zero to the end of it every time I check is this just optimism in in in the current opportunity that the internet and social media holds or is are things getting a little Unchained from reality I think it's silly to consider it as a broad Trend I think you actually have to look at each individual company and try to make a value judgment at least you should as an investor um if you look at Groupon it's the fastest growing company ever apparently with revenues with in a similar trajectory who knows they're probably undervalued even in the last round there is a startup that uh pitched me about two weeks ago that um has to Engineers a PowerPoint actually sorry to take that back no Engineers a PowerPoint and a really neat name $16 million prev valuation that is an overvalued company it's well it is uh I think I think the valuation question is no it's nowhere near where things were in 99 2000 uh it's very hard for there to be a bubble if you have no IPOs and there still are basically uh basically no IPOs that are uh that are going on and so so I think that uh even though there's a lot of speculation surrounding um a handful of companies it's it's really uh it's really nothing like it was in 99 200000 one of the big changes really over the last two years has been the arrival of digital Sky Technologies a Russ Russian Adventure Capital firm you know who who are very optimistic you know they're they're putting a premium valuation and premium tours uh terms on almost everything um you know how do you compete uh you know with with investors like that Peter uh when you know when they're really when their optimism has no bounds and and it it really seems like terms don't matter a lot to them I don't think they've uh it looks it looks like they've done an extraordinarily good job in their investing so far and so uh so it sort of uh puts certainly puts the question to whether things have been um as overvalued as people think and I think I think one of the things that's happened is people in the US are still extremely burned on the late 90s uh people still do not believe in technology uh and I think that's one of the reasons that were such a big opening for DST to come in as a uh as a later stage uh as a later stage investor um and that's I think that's you know I think I think that uh I think there you know I think the valuations are all over the map there's some things that are cheap some things that are probably expensive some things that are in between but I I don't really think you have a bubble in Tech technology Max DST uh and and Ron Conway a prominent angel investor in Silicon Valley recently announced that they were going to invest $150,000 in every startup that came through a startup program called y combinator you know it sort of sounds from the outside like an undiscriminating approach I you know what as an angel investor what do you make of that of that announcement uh several things in parallel it's a very smart move for them in the sense that if you believe that y combinator has a reasonably rigorous process they're essentially they've just created an index fund where they said well Paul gram and his cohorts have figured out a way to select really good entrepreneurs and I think five years ago or I actually don't remember exactly when it started but it seems like eternity you could make legitim AR legitimate arguments saying why combinator just doesn't have huge companies they're all these little featurettes really of you know a couple of entrepreneurs they didn't know they were entrepreneurs until they went to YC combinator it's really not true anymore if you look at Airbnb and Dropbox these are all sort of YC combinator graduates so these days they are creating companies that are you know are probably going to be quite valuable when they do exit so it's a great Index Fund investment um it is also the case that a huge number of phenomenal companies and S using my previous example to underscore that point do not go through the white commat program so it's not exactly as though DST has show up and said Angels leave the room where the only guys here but it is clearly the case that by offering what is a phenomenal deal to the ycombinator group they certainly shut out certain valuation sensitive Angels which is what competition is all about Peter from your perspective a top the the founders fund do you look at that deal and think that's that's a that's a good move I thought was I thought it was a brilliant move on their part uh it is uh you know I do think there is within the technology space there is a question as to where the right the right place to focus is these days and uh and you know if I had to make sort of any categorical judgments calls it is that uh the internet is somewhat more mature um and um and there are other sectors that are uh that are somewhat more promising to focus on at at an early stage but I think uh it is quite possible that um a greater proportion of the internet companies will be coming out of Y combinator in the future there will be new internet companies created and uh some of them will become very valuable so I think I think it is it is probably going to be a very good investment well it seems to me from from listening to you speak publicly from from Reading uh what you write that you've been a little disappointed in some of the Innovation coming out of Silicon Valley you make a distinction between extensive gains sort of incremental advancements and intensive in innovations that really have the ability to change humanity and you've invested in SpaceX a company that's building actual Rockets talk a little bit about that and you know whether you're impressed with some of the companies and the ideas that come out of silicon valan programs like why combinator well I think uh I I think that there is you know I think there's a lot of innovation happening in Silicon Valley I think there's more Innovation happening in Silicon Valley than elsewhere in the US or probably anywhere else in the world uh that being said there is this open question whether whether it is enough to actually uh take our civilization to the next level 20 years from now and so if you you have sort of this very widespread pessimism the us about the future where people think things will be worse in 2025 years government's racking up too much debt there all these different problems people site and uh if we really had tremendous technological progress um this wouldn't make any sense at all and so I think there is there is something very odd about this disconnect you have between the sort of extreme optimism in certain parts of Silicon Valley and what's happening even 30 mil outside of here in in California where uh the States close to bankrupt and the sort of all these things that have have strangely gone very wrong and so even though I think there is uh technological innovation and a lot of that is is still happening it somehow has not been enough to uh to drive the whole society and you have questions why why that is um and my my own sense is that somehow we're we're not doing enough to really uh to really create major breakthroughs and you have sort of a lot of cultural political social economic questions scientific questions why why that is well a company like Facebook which you invested in early is that to you a sufficiently you know ambitious um initiative expression of optimism does it have the ability to to move the needle on Humanity well I think I think Facebook is uh is an extremely important uh uh company in terms of how it's going to uh impact the world uh and so if you you know I mean it's you debate the precise causal event uh sequence of things that are happening in the Middle East for example the last few weeks but uh but there certainly is a sense that uh the social networking piece has somehow decentralized uh media in ways that uh that may uh May really change uh the world in very significant ways so I think it is it is an extremely important company um but I think you know I think that's I think in a way that's the wrong question the question always gets asked about you know is Facebook going to make money is it overvalued um is this company is this specific company going to be a specific failure or a specific success and the question is um is more uh why are there why is Facebook the company people talk about more than any other company that's been created in the last decade and why is there such a big such a big drop off I mean obviously there's going to be one company that will be the most successful but why is the next one so much less successful where are you know where are all the other companies in that in that list and so I think specifically it will do very well but uh generally speaking we need to do more much more Max I know you've heard Peter say that before do you do you do you agree with that do you think that you know entrepreneurs your fellow entrepreneurs are being s sufficiently ambitious um I think there's lots more room I think the uh one of the things that has been fascinating sort of read about recently for me is the sense of just insane abandon that people had felt during for example the beginnings of the Space Program in this country and Soviet Union where I was growing up during the beginnings of the Space Program um it seemed that people were extremely happy to put their lives on the line every day just to achieve a what seemed relatively incremental task in the service of a larger goal of putting the man in space or putting the man on the moon and I think in recent years I don't see that similar narrative played out anywhere in Innovation not in Silicon Valley not in Natural Sciences not not in any of the area traditionally referred to as a hotbed of innovation we hear a lot about the screen in the iPad 2 today's leaked pictures sound very exciting but uh it is not that radical and the radical Innovation that was seemingly just peppering the early part of the 20th century isn't quite the story of today what's holding it back I think the uh there's just a variety of speculation we can uh we can have right now on that topic um my sense is that um the there's a certain bifurcation that always takes place in um in the minds of entrepreneur and sort of the short-term outcome versus a long-term outcome and the balance has shifted from the long-term outcome to the short term outcome the other thing which you know as a uh Bay Area libertarian which is to say I'm not quite as libertarian as I probably should be um it pains me to say this but uh you know it took Kennedy to uh get out there and say look we're gonna we're gonna go to space we're gonna put the man on the moon or uh or kusf or whoever was on our side to uh to do the same and you don't have that today in the rhetoric of the US government and no other government in the world really except for developing countries or countries that are rapidly coming up to speed but what they're doing is they're basically saying we're going to be just like those Rich guys in America they're not saying we're going to go Way Beyond and put them in on mars or there's no need what they need is to feed their people and get them to the point where they are now competing successfully against the United States and we are sitting pretty we're already there and so it doesn't seem like anyone is that interested in just going way out there well you guys back SpaceX which obviously is is uh fulfilling some of those same goals well look I think there there are uh definitely um examples one can give of these but they are they're striking because they're they're counter examples to this uh this broader Trend that this is this is uh this is not what is happening and I think I think one of the things that's very strikingly different from the 1950s or 1960s is how the future um as in not the Super distant future 100 years from now which we have which is very hard to speculate on or the near-term future 6 months ago which you can probably extrapolate from various growth curves but sort of the intermediate future 15 20 years from now is not really a subject for for serious uh serious discussion and so you know in the 50s and 60s it was like you know we were going to be in space we're go to the Moon you'd have bases on Mars you would um you'd have flying cars you'd have supersonic airplanes there was sort of there was a very specific way people thought that things were going to progress and this was a a subject for for discussion and I think uh today um people can be optimistic about the future but the optimism is very indefinite it is uh it is sort of uh it will be better but it will be better because it's always gotten better because it'll be figured out and so the future is not a problem that people have to work on themselves it is a problem for other people uh to solve and uh and that's been a very efficient way to do things for a long time it's been uh it's been very efficient to have other people do things uh for you uh it's been uh very efficient it's been efficient not even to think in a way it's been efficient to Outsource thinking Outsource all sorts of stuff but it gets very dangerous when um when everybody does that and uh and so if you set if you ask who is actually working on the future uh the people in DC will say well we we don't have any specific ideas but surely it's something that's going on in universities or silicon Val or something like that and then when you drill down um it's it's really unclear where that is uh where that is actually happening but it's not uh it's not a typical topic of conversation and so if you talk about you know underwater cities or turning deserts into you know agricultural uh uh land forms or any sort of massive changes like that that's just incredibly bizarre in U in 1960 there was a very serious proposal someone made uh in the s Francisco Bay Area to uh Dam up the entire Bay Area to fill it with an earth and Dam and basically drain it out and replace it with a freshwater lake and this was you know a congressional hearing there people in Congress who had him come Testify the Army Corps of Engineers did a sort of a miniature model of it um and it sort of it got you know he worked on this and it got a significant amount of traction and thank God they didn't do it and that's that's the perspective today but certainly there were all sorts of other things like that the Hoover Dam was you know in the 1930s the counterargument of the Hoover Dam was um this is crazy we would never need this much electricity and uh and uh and you know today it would it would never something like even the Hoover Dam would not be built today you would not be building the interstate highway system um you know why why do people you know there's no need for people to drive people aren't driving between cities why do you why do you build it so if you you have to uh and I think there's a whole set of things like this that have changed quite dramatically you couldn't I I don't think you could do I don't think the US government could do the space program today I don't think it could do The Manhattan Project I don't think it could even start the Manhattan Project the letter um that you know the letter from Einstein would get lost in the mail room but you you'd like to see entrepreneurs take up that M that that mantle of uh ambitious ambitious projects I think it's a broader problem just entrepreneurs I think it's generally The Narrative of the nation to some extent you know it starts with a president getting out there and saying we're going to build cure for cancer in the next 10 years or we're going to give everyone a flying car or all these things and having that in the fabric of the conversation the front page news drives people to wake up and say I'm going to drop out of college and start a company tomorrow morning because I just heard on the news we're going to have a cure for cancer and by God I'm the guy to do it if you don't have anyone saying that out loud or publishing the front page say well I heard a friend of mine just made 10 million bucks flipping a company before they launched it's not a bad way to go at all I'll do that instead well we we'll get to more provincial topics like IPOs and Facebook and Google in a minute but because we're talking about this you've contributed some money to seing tell us a little bit about that and what what you see is like the real the real potential or practical possibilities well this was a this was a bit of a experimental project that we uh we uh decided to underwrite uh it's the grandson of Milton Friedman who started it Google a former Google engineer and the basic idea was uh was whether you could uh you could uh help create um autonomous communities on um on uh on on the ocean the it's it's an engineering problem uh we we gave it a small amount of money to basically stimulate some thinking about it uh they've uh they've done something called emeri which is uh like a um Burning Man with ships uh and boats in the in in the bay so they they've done very experiments with with it and uh and we're we're we're actively soliciting business plans for uh for seads at this at this time so um so if people have specific ideas they should direct them to the seing Institute Max will you be moving to a sead when they when they exist I get easily uh C6 so probably not good okay so well let's talk let's talk about the the IPO cimment today uh LinkedIn has filed to go public Groupon may go public this year Facebook maybe next year Peter can fill us in on that the the IPO there's there's so much attention paid to it it's sort of seen as as you know a company getting into the end zone and and doing a touchdown dance is that is that the right way to look at it and should these companies be going public now Peter Well I think the uh the Striking thing is that uh it's it's it's they're taking a very long time to do it and uh in some ways I think uh the Google IPO in uh mid2 2004 was a very important turning point where the story that the media wrote about the Google IPO in I believe July 2004 was uh was the IPO window is opening up again companies are starting to go public again but the uh real precedent that Google said was um was actually you don't go public until it's very very late and if you sort of look at when did Google really win the search Wars it was 2002 to 2004 had they been public two three years earlier um Yahoo Microsoft might have been able to track how well they were doing um and probably would have uh competed much more aggressively with Google um there were all sorts of other benefits to staying private but uh but I think that's that's actually the uh that's the precedent we have and uh we're now in a world where you want to defer going public as long as possible uh you have constraints you eventually hit 500 shareholders typically uh you um it eventually gets very very complicated and uh there's some point where uh you have to go public but I think uh I think uh the Google precedent is the one that people are following in in Silicon Valley Peter what did you think of some of the spectacle around Goldman sachs's recent investment in Facebook where really uh Goldman Sachs and its its clients were exclusively allowed to invest in the company I I think it's uh it's probably just uh just a I don't think there's too much to read into it it's probably just a ongoing part of the uh the anti-wall street Saga so uh it's it's assumed that uh anything Goldman does involves um some sort of Nefarious types of Insider dealing and uh people may believe that or not but I think that's that it was basically a story about uh um Mal peasant by Goldman uh so in incorrectly interpreted probably incorrect but that's up to up to people to decide Max you guys had had the experience of of taking a company public with PayPal in 2001 tell me you know what what the process holds for you know LinkedIn you know Groupon maybe Facebook next year it's pretty different these days we were one of the very last companies to go out before the sarbanes Oxley sword hanging over our heads for example uh the entire process is pretty honorous and uh to some extent it's designed celebrations around the IPO time are actually a direct consequence in part anyway of the suffering that leads up to it I remember uh sleeping at the printers for several nights in a row and being a awoken by a uh but of a lawyer who was kicking me awake to ask for some patent related issue but um it's it's a it's a pretty huge process that really derails a lot of the efforts within the company the reason sort of put a little bit more color on what p is saying you know I I agree that it's we are now in the world where people defer going public as long as possible and one of the reasons to do so is you know you swear it's never going to happen to you you tell your employees to just stop thinking about it not look at the stock price but the day your shares become listed instead of having this hypothetical what what am I worth you can now just set up a little script in Excel that pulls the uh the share price at closing or every minute if you like or every second or you can get you know direct quotes with all the contracts going on and calculate to the you know 10th decimal place exactly how much money you have to spend in that new car or house or whatever it is you've been dreaming about and people's attention really shifts from long-term betterment of the company to exceptionally short-term consideration of where they are in their financial wellbe and their mood their ability to execute and their willingness to invest their time in long-term projects really just becomes essentially can be charted and in fact tracks the stock price as you know when the stock goes down you feel down and you sort of feel like maybe should be looking for another job to head your bets and if the stock is a rocket ship you know nothing can hurt you so uh it I don't envy the company's going public because it layers an enormous amount of public scrutiny analyst scrutiny misinterpretation by everyone who has a free moment but most importantly it really derails the employee productivity and focus because they can now busy themselves by contemplating what purchase they're going to make on the day the 180-day lockup is over so does that prend sort of deceleration in in innov absolutely it it slows you down you really should go public once you're essentially on Rails the famous quote from Meg Whitman many years ago is monkeys can run this ship or train or whatever it is she was comparing it to it was generally perceived as a huge insult because she was calling her employees monkeys but what she was really saying is the business model and the network effects of eBay were so strong that even if people worked at half capacity it wouldn't really have mattered for the value generation capacity of the company and that was a huge compliment to give to herself and her crew she basically said look even if people are spending half their time staring at the stock price and figuring out what they're going to do with their money it doesn't matter we're still making tons and tons of money and they did for a very long time so I think before you decide to pull that trigger as to go public you really should get to the point where monkeys can run that train it is um it is unclear when that actually happens though and uh it is it's possible that it takes uh quite a bit longer and so uh you know one of the qu if you sort of you can think of the pre-ipo phase is the Innovative phase and the post IPO phase as the extensive phase so the Innovative phase is intensive you're creating something new the extensive phase is you're just scaling it so 0o to one is pre IO 1 to n is is sort of the post IPO world and um if you think of uh sort of the greatest uh uh most highly valued technology company in the world today is Apple computer um in 1985 Apple got rid of Steve Jobs and replaced them with Scully because they thought selling computers was like selling uh um Pepsi and and that it was basically uh that all the Innovation had been done and it was just a matter of marketing and scaling and uh and uh I think uh you know uh while you you know and I think that probably was not the not the exact correct uh determination with respect to Apple and you wonder you wonder if that's you know that's the correct determination with any of these companies the ones that have continued to do it post IPO are phenomenally impressive so I think the the most impressive of the um of the early internet companies from the 90s is probably Amazon where uh where in some sense uh um you know it's it's sort of psychologically uh you know extraordinary how Bezos has sort of like ignored everything people said uh didn't care about losing money for years um and uh and uh it sort of looks like it paid off but somehow they've they've been able to keep a very long-term Focus uh even with us but that that probably requires uh uh uh just uh an extraordinarily stubborn person so so what's the thinking on the board at Facebook about preserving a kind of intensive Innovation cycle even even when the company is publicly held well I think I think these are um these are reasons that uh that uh that uh the bias has been to try to defer the IPO and then you know it's it's you know there's there constraints there points at which um you hit the the shareholder number and you have you have to go public um so you have over 500 shareholders you become de facto a public company and then you have to start filing um but uh but uh certainly the the idea has been to avoid that as long as possible Max Let's uh talk about what you're up to these days uh last August Google bought Max's company slide for uh I believe more than $200 million what what did Google get when they bought slide I'm staring directly in the face of the uh person one colleu one of my colleagues from Google PR who is uh probably terrified of the things I'm going to say next uh no she actually came from slide so uh but um I think uh you know slide was a uh over 100 person company with a number of products and a five-year Journey Through the Wild and Woolly social space before it was called the social space so probably given the fact that Google is fundamentally driven by the people it has the most important thing Google got from this SL acquisition is the collective DNA and the shared intelligence and you know frankly the war scars and stories that we uh have to share during from from the journey um it also got a few other pretty valuable things that at which which I'm not at Liberty to share anything about being this being Google and all but uh I'd like to believe they got at least their money's worth well I'd like to ask you know what you're working on today part of success of Google of all my six months of uh experience being there is uh their ability to keep secret the things they're working on until the time it's time to talk about them is a key ingredient so seeing how I'm working on things that are secret I have to keep fair enough so let me let me put the question then to Peter you know Peter you're you're you know your your friends and Mountain View you I've created created a tremendous business you know um but an algorithmic based search and advertising business you know what's the opportunity and what's the challenge for them in Social well I think the uh the uh the question is is um is is really whether it's uh whether it's something that's that's that's fundamentally uh fun how different it is from from search and uh and certainly uh the uh the Facebook bias on this would be that uh that uh that uh people you know Google's been focused on organizing the world's information Facebook in some sense has been focused on organizing the world's people um and there's a question how uh how you know how much overlap or how different these kinds of things are um and I think uh the the biases of the of the different companies uh are very differently oriented uh and that's my my own sense would be that uh that uh probably it doesn't make sense for Google to be uh competing in Search and probably doesn't make sense for sorry it doesn't make sense for Facebook to be competing in Search and Google and and social but that's you know that's that's not that's not what's going to happen the you know there's there all these assumptions that things will converge over time um it may or may not be true maybe that you know but that's so it's seen as a it's seen as a uh as a I think the main way in which Google and Facebook are competitive today is not on any sort of a product level or any sort of overlap on that it's mainly on hiring talented people and that's probably why the two companies are are super focused on one another there was a uh there was a shift in um where uh the talented people started going uh not to Microsoft but to Google that was a you know major Point uh uh in Google's ascendancy and I think that's probably uh one of the one of the main things that Google would be extremely focused on so I think it's more the people than the the specific spefic products at this point but it sounds like you think there might be more direct confrontation on the line it's you know it's I think these things are so hard to predict my my my suspicion is that it's it's probably overestimated uh because I I I actually think people are very different from information so I think these these things are really really different uh worlds and organizing the world's information is very different from helping to uh uh get the world's people to share and network with one another and so I they seem like very different companies but I think the the place where you have incredible overlap is on competition for talent in Silicon Valley which is uh is a pretty is at a pretty intense phase now you guys have been friends and colleagues for a long time and on this particular issue you're sort of sitting on opposite ends of the table what's the status of Max Peter relations these days on this topic is the is there a free flow of information um I think uh our friendship predates the uh Google Facebook predicament so uh I think we're fine but I'll let Peter speak for himself no uh Max uh are you still making Angel Investments yes I do what uh what what what kind of companies are you looking at um I try to stay true to my previously stated Viewpoint that there's just not enough radical Innovation so the thing that I'm most interested is something that answers to my uh I believe unfulfilled demand for radical innovation um I typically try to uh be in the Internet space because that's what I know and love on occasion I'll venture out to things that can be broadly classified as non- interet things that benefit from the explosion in cheap Computing resources in other words bio Computing something Computing that sort of stuff um yeah that's my investment profile International a lot of your a lot of your friends I think think think that your future eventually is investing full-time do you do you see yourself you know doing that and if and when you do like are do you see yourself investing like Peter in sort of big ambitious radical you know not just seasteading companies but space exploration really ambitious stuff um so to answer the first part of your question if I knew my future as well as my friends purportedly know it I I would already be there um there's definitely temptation to be on both sides of that story I love working with entrepreneurs ESP special entrepreneurs where I honestly can add value can see someone that wants to do something and I literally have something in the back of and oh just do that and you'll get to your goals it's extremely satisfying to be there on the other hand nothing beats the rush of executing like a well old machine being at the helm of that is just a phenomenal feeling and I love that and I love entrepreneurship and to me that's kind of what American dream is all about and I enjoyed living it every day and kind of look forward to living it as much as I can really um the answer to uh the sort of the investment question or the investment profile is a little bit more nuanced than yes obviously as an investor you want to invest in huge things because those typically return extremely well and you wind up making a lot of money the of course obvious other side effect of this is that if you invest in huge things by the time they're obviously huge you're essential late stage investor and you know you're expecting to make it relatively mod return on something that's probably already pretty well valued things that I found to be really compelling Investments that either work out or don't but when they do work out they work out great are the ones where the IDE is actually relatively narrow and the entrepreneur is really focused on doing something exceptionally well but they're doing this in a market that has just enormous potential one of my more successful Investments is Yelp and when those guys started they really I mean they had all kinds of ambition but the the number one ambition they had at the very beginning was to just make an awesome local review site for San Francisco s is a small Market I less than a million people sort of and at the time I think a lot of my friends told me that's kind of a wacky investment those guys throw local parties you know they rent out bars and you know it's always going to be locked landlocked in San Francisco and um I didn't really mind that although I did have my concerns and you know 5 years later they are an international Jugger not just nailing it with their local review service they were able to figure out the exact formula in San Francisco and replicated it everywhere else in the world Peter what are you looking for today in an entrepreneur to backc well we're uh I I do think uh we're looking for uh companies where there is a very powerful uh narrative around the company where it's uh there's a there's some powerful story as to how they are going to uh really change the world and I think because I think uh you have to as a entrepreneur you're trying to create something new and um obviously you want people who are very smart very talented they're looking at a good business but then beyond that uh there has to be an ability to attract a number of other talented people and that's how you sort of really build the critical mass that uh that uh that builds these these great businesses and uh and so I think normally when we find talented people uh with a power ful story uh that's almost enough for us to invest I think I think that's actually very very rare at this point but uh you have to ask the question what will motivate uh the 20th or 30th or 40th employee to join this company um when it's it's probably not financial and it's probably not uh fame or anything like that and uh and uh it has to be that they they believe that there's something incredibly powerful and valuable about what it's doing a lot of your colleagues in Venture Capital are are rushing to lay down roots in China and of course there have been a lot of incredibly successful internet stories coming out of China Buu 10cent Alibaba but from one of your earlier comments I get the sense that you're not all that bullish about real Innovation coming from Chinese entrepreneurs well this keying off of um uh the um the point that Max made I I do think there's going to be there will be a lot of companies that um copy uh country companies that were developed in the developed world in the Emerging Markets but the uh the issue in most these Emerging Market countries is they have a lot of just very basic things to do that are extremely straightforward and so the uh uh and so in China you know you can probably make a lot of money just starting a McDonald's franchise or I it's not straightforward but there's sort of a lot of basic things you can just copy uh in the developed world it's uh it's much trickier and that's why I think uh I think the incentives are actually for people to try to innovate in the developed World whereas in the Emerging Markets the incentives are for people uh people simply to copy and so to the extent uh people have been investing in Emerging Market countries as an Arbitrage where it's we look at businesses that were done in the US and then we'll invest in similar ones that are starting in other countries that's been quite a good model so you know bu to search engine in China search was valuable in the US we know it's valuable China's big the search engine in China's probably also going to be big that was a very good sort of um good way of thinking about it but there have been relatively few um uh technology breakthroughs that have come out of the uh Emerging Market countries to date that that may change uh my suspicion is that that does not actually change until they become developed or closer to the uh the frontier so do you think your your your colleagues that are opening offices in Beijing and Shanghai are misguided uh not necessarily I think it's it's just I think their model is is is some the they're misguided to the extent it's not an Arbitrage model to the extent it is um to the extent they're looking for a breakthrough Technologies in these countries that seems unlikely to the extent they're looking um to just invest in companies that are very similar to ones that have been uh developed in in the developed world that that might work very well could we call 10cent an exception to that rule I mean they they seem to have innovated quite a bit this is the the second most highly valued internet company in the world and they seem to have innovated quite a bit in Virtual goods and and uh real-time messaging the interesting thing about tensent is that uh their original product that sort of drove their enormous audience aggregation is a copycat of icq so I think it's an exception to the extent that it's a it started as a copycat and developed itself into a much broader set of services the real Innovation that tensed did sort of introduce is they proved quite decisively that you can make an enormous amount of money from an audience that is actually relatively poor by International standards simply by aggregating an enormous audience and selling them things that they seem to Value irrationally like little icons for their instant messenger I wouldn't know anything about that you guys have a a shared history in the in the payment processing world with PayPal and there's there's a lot of innovation right now in payments there's there's Square um and and uh you know mobile mobile phone companies trying to trying to get into the game Google's has been adding some some former PayPal X um you know what do you guys think of of the of the market right now and do you still have interest in that in that industry sure I'm an investor in at least one of those companies and uh I think there's uh Peter I think said a long time ago if you want to make a lot of money you should get as close to money as possible at least that was the uh the model for PayPal and uh we we we did we did all right um I think payment is is a complicated topic for me because I can't talk about it in generalities there's just too much stuff in my head about it for a long time but um there are huge opportunities now even in the cracks between features that PayPal has implemented simply because it's such a large product for so many people there just opportunities by way of PayPal not having enough time to develop everything but there also enormous changes in the world by you know the emergence of smartphones and just the general acceptance of phones and phone payments and trust becoming a much easier commodity to come by in payments on the internet I mean all that stuff is just generating tons and tons of opportunities um it's not entirely clear to me however sort of to put a darker Cloud over it that anything out there right now is really attacking the very core of the payments infrastructure for example The Interchange fees that visa and MasterCard charge and the sort of acquiring and issuing Banks model has been around since the day visa and Mastercard or even before that actually and uh that's no one's really challenging that today as far as I can tell and so challenging that is an opportunity and it is the sort of thing that will probably fail but it's worth trying how about how about Technologies like nearfield Communications which Apple and Google are building into their mobile phone platforms with the idea that the phone can be used as a payment mechanism you know that's uh that story has been in a few newspapers somewhere in the 1960s I think and or maybe 70s and it just keeps coming back how you're going to have something in your pocket that's not going to be your wallet the fundamental judgment call one has to make as an investor looking at such opportunities is is the process easier than pulling a Fiverr out of your pocket and saying here you go and if it doesn't pass that test it's never going to succeed and then the other one that's really important that we figured out long time ago early on in PayPal history if it's two friends at a dinner table at a restaurant and they want to split a bill the solution you're offering those people better be simpler than me saying you know I'll get you next time because that works really well and there's there's not a lot not a lot of market for that product yes my uh my uh sort of uh standard uh postmortem on uh my my standard account on this is uh if I knew as much about payments as I do today we would have never started PayPal um and um and so I'm I'm I'm glad that we started at a time when we didn't know this much about it it is uh the payments business is extremely valuable if you get it to a certain scale it's very hard to get it to scale it's fundamentally a networked business you need to actually create a network unlike most products where you just need to have single uh audience members a payment always has uh two counterparties to a payment and uh and so um there is something about it where you have this very strange chicken and egg problem it's like we're going to create a new currency we're going to create a new uh this whole new system for doing things it may be a lot better but it only works if you get uh a critical mass of people to use that how do you get it started when nobody is using it on on day one and I think that's the uh that's the uh fundamental uh uh challenge every payments company has uh and uh it makes it very hard to start but if you if you succeed it makes them very valuable so this is going incredibly fast we're going to start taking questions in about four minutes and you can line up at the microphone here um max you recently wrote a lengthy post on quora the question and answer site about lessons for young entrepreneurs and number 10 was figure out the one thing each of your investors is genuinely good at and then since they help you with that so that among other things it will save you from their help in other areas now Peter was an investor of course in slide via the founders fund so where did you not want his [Laughter] help um I can tell you exactly where I wanted is help well that's interesting but also I think Peter is probably one of the best uh fundraisers I know and so when we started slide I really wanted to learn how to portray the company really well with investors how to raise money at on good terms with good valuations and so I looked to him for for help a lot um I think one of the nicer things about Peter is that he is not at all interested in helping people in things he doesn't do very well so I never got to experience things that he doesn't do very well because he's never really pushed him on me okay so now an awkward question for Peter Peter you were an investor in slide through the founders fund I get the sense that the sale of slide to Google didn't meet Max's personal goal he had talked about a PayPal scale e exit did did the sale of slide to Google meet your goal for Max uh I think I think that it was well I think these these things are you you look at where a company is at a given point in time and that uh that decides uh that decides sort of how how these how these things uh how these things uh play out I think as an investor what we think of with all our companies is on the one hand we want them to um to uh um do as well as they possibly can and on the other hand you don't want people to uh to have you know to sort of have a company uh try to reach for for more than is is reasonable and I think the uh I think the uh the uh the slide exit to Google was uh was an incredibly good outcome that uh that all the investors and employees um were or should have been happy about well great now we have a a long line of questions here so I invite you all to be very succinct with your queries yes sir um my question is for Mr the and if Max wants to join in that's fine um I submitted solution to the deficit commission that would inol a Wikipedia eBay like website looking at Solutions and getting input from various players in our country and I was wondering if you'd be interested in that I call it the shock and all counterintuitive libertarian approach to solving this problem and could you also comment on Israel's entrepreneur spirit and how it as a social n socialist nation is doing and China as a communist Nation how it's doing in comparison to where the United States is going in this decade in three sentences or less wow those are big questions can we crowd sour uh solutions to the nation's problems uh I think uh I'm not I'm I'm skeptical of that I think that uh the wisdom of crowds has been very overrated and uh and I think that uh that if you're libertarian uh you should be skeptical of the wisdom of crowds as well it's my my sound bite answer and and and the entrepreneurial culture in Israel I guess was uh question number two do Max you can spend more time there um that is probably true um I think it's pretty amazing just having gone there and met the entrepreneurs I literally had to Once give a speech to a what seemed like an enormous crowd of Israeli entrepreneurs under the open Skies which was supposed to be a 20-minute talk W up being a 4 and a half hour I think question and answer session and people just had this insatiable appetite for information about how to start companies How To Succeed what to do in Failure all it's really really sort of G just exciting to be there um I think if you look at return on investments in Israel it actually has not been a phenomenally successful place just judging it objectively on an Roi basis but I think jury's still out um I think the sort of many books articles and essays describe all the interesting specialities of Israeli entrepreneurs probably better than we could this panel but uh the connection to the military is sort of fascinating yes sir my name is Leon nutkin I came to the United States directly from the jail as a refugee this same Marx family came to the United States as a refugee from the same country and my question is are you have invitation from Russian government to participate in their Silicon Valley Project they called the skull and second question are you ready to invest your money to the your native country in Ukraine or Russia thank you um so uh the Silicon Valley in I think it's near Moscow so I'm I'm aware of this project someone from the uh Russian Ministry of Commerce or whatever the equivalent is had contacted me about it at some point or another in Davos maybe a year or two ago and my general sense was that I would love to participate in it if I believed in it but just in those conversations alone I realized that it was probably not going to work I think the way things were being structured the way they were thinking about it just seemed immature and I stated so to the person talking to me on the spot and they haven't talked to me since so I I imagine it it's either doing really well and I missed out or it's not doing very well and I was right but I'm not that much more aware of it than two years ago um I have invested and I believe to date only lost money in Ukraine um it doesn't stop me from investing in the future but I have certainly done it and have not seen the positive results so far I do not restrict my investing to Silicon Valley or any other geography however I restrict my investing to areas that I have sufficient amount of transparency into and as a Libertarian where I believe the rule of law will likely Prevail in important disputes um I certainly don't have a lot of clarity into what's going on in Ukraine these days or for that matter much of the former Soviet block and I have some real concerns about prevailing rule of law in uh certain countries there yes sir hi uh my question center around is going to Cent around of the internet uh we have right now in the United States it seems like that we have a very slow or or very small volume compared to Europe Europe has somewhere had I think they changed the fiber optic something like about 20 years ago we were really way behind and the internet is starting to look more like a telephone like a movie you can get so many things across uh and it's starting to really pick up and now we're hearing about two two-tier systems and the isps and how much they're costing you know and everything going up I noticed I think Peter somebody I believe your company or invest or your uh new I think it's new found of the new Founders invested in a company in fiber optic out in New Zealand and it's going to connect I believe New Zealand with Australia and come across the Pacific to us maybe Hawaii Hawaii I don't know if you're going to hook up China or not but can you tell me how why you invested into it and also are uh what is that how does that actually compare to some like satellite in and do we really need fiber when we have satellites and can they handle the volume why don't you tell us about your your New Zealand project and and you whether whether you see that as a model for you know for for for broadband uh speeds in the US uh I think uh I think that that that specific one was just a very idiosyncratic fact specific set of things we we liked about about that particular bus tell us a little bit about that inv I have um I have I actually have uh I have no strong opinion on uh how fiber changes I think uh there there was uh there's there's something about it uh linking it up across the Pacific where where it's probably a a pretty critical uh thing and there was there was not enough capacity uh it's not and I that that made us think that was that particular one was a good investment but uh but I think you know I think in general there is something to be said for looking at other developed countries and this is uh this is probably uh the area that uh that one you know if you had to have some Geographic constraints that you should you should look at uh there probably there probably are things in Western Europe there probably are things uh you know even places like Japan which no one has invest you know I don't have any expertise in it but there's probably not enough venture capital in Japan okay next question yeah I was just gonna add something to that super grids and power along with just Broadband is extremely powerful there's an article in them U what is the Scientific American November that's what's going to enable next level development my question is a layer up I kind of like the quote by Einstein he said you can't solve a problem at the same level of thinking as it caused it so I'm G to ask you three qu uh one question do you prefer the gordian knot cutting the knot do you prefer actually um getting everybody to pick up the elephant that everybody's blind and sees the problem together like crowdsourcing I kind of hear you don't like that or are you uh find the right Mouse person I'll ask both of you I'm going change the metaphor person that's all right change I uh I I think that uh I'm not sure what i' changed the metaphor to but something uh not like an elephant and not like a knot that you need to cut with a sword but uh I would change the metaphor help me Max with a different metaphor I'm an Outsourcing person I have a metaphor for you I think it's dangerous to mire oneself in meta level discussions about how to solve problems or how to sort of address big questions uh the only metaphor which I found to be painfully correct through my own negative experience in many companies that have been both an investor and an observer if you have a hammer and everything looks like a nail that's a really bad approach right and that's what the sword is it's just execution yeah okay thank you hi I'm Nick I'm founder of a fitness startup here in San Francisco and um I've been actively pitching investors uh recently both angels and VCS and my co-founder and I have sort of made some observations that um a lot of the investors are sort of looking for certain Trends they they want to see technologies that match some of the newest most successful Trends be it realtime social networks or geolocation or what have you um and Max's comment about sort of a revolutionary technology and idea really really kind of uh hit me so I just wanted to hear your guys comment on on that sort of trend and and what do you think that does for for Innovation here in the valley I think you're pitching the wrong investors I think uh if you can quickly identify the fact that an investor is trying to bucke tize you into something that they've already seen and think is a hot space they are just lazy they're not doing their homework they are refusing to understand that you have something different to offer you should shake their hand and go find an investor that actually wants to be outside of what's currently hot for one they're also being dumb because whatever is currently hot is terribly overpriced great thank you let's get to as many questions as we can in our 10 minutes remaining uh so the the whole sort of series a AA seed funding uh Angel funding world has just gotten so uh either more complex or more interesting or whatever you want to call it uh when you guys every day or you know a couple times a day have friends that come to you uh two people heads down on a product they're just you know trying to work as fast as they can what advice are you giving them uh in terms of the financing um to you know what advice you're giving them about how to go about their financing I'm mostly interested in this post this whole start fund uh SV Angel announcement from Friday well it uh it depends a lot on uh I'm not you know I I think that uh we are in a Zone where there is um there is a decent amount of capital I'm not sure it's a it's a complete crazy bubble again but there is there is plenty of capital and so I think the key variable is actually not to focus on that specific thing right now but actually to focus on uh what what a company is doing what it is creating and uh if you can get that that down I think you'll be able to uh to uh to attract a decent amount of capital thank you both of you have uh talked about sort of a lack of innovation a lack of radical thinking how much of that do you think is just basically a decade of bubble after bubble and financial collapse and credit meltdown or or how much of that is structural so is it that people aren't thinking thinking or is it that people aren't getting the money and they're scared because Wall Street is going up and down like crazy I think there's a part of your question that there there's some correlation because it's very clear The Narrative of really really smart classmates you had or I had or all of us had going to hedge funds instead of to startups in Silicon Valley is real I think that story has been covered pretty well but I don't think it's more than that I think the problem is far more structural and fundamental I think it really stems from the fact that the great generation told their kids it's your time to enjoy yourself settle down in a suburbs have two and a half kids have a dog live your life and that was a really great thing to pass on to the children but that's not the life they LED they sacrificed themselves to go to space or to win World War Two or whatever it is they did and the fact that they taught their kids don't do any of that had a profound effect on Our Generation namely we haven't seen any phenomenal innovation in the last 10 15 20 years yeah I I would I would go ahead well I would say that it's uh it's you know I think the sort of the positive version of it is that there have been a lot of other things that have made sense for people to do and then the uh the negative version is that it's been maybe harder to do some of the Innovative things or that there have been barriers to that I I I would say one one of the things is there have been a lot of uh non innovative ways for people to do quite well and that have worked probably for I would say not really just the last decade but probably really the last uh the last 40 years so uh uh probably something like a third of the people in the US who made over $10 million did it in real estate um it's it's something something like that somewhere between a third and a half and that was the most straightforward way for people to make money and it it worked extremely well for an extremely long time and that probably over time really did shift shift things I don't I don't think it was just the last decade hi my question is more for Peter I mean based on your broad-based macroeconomic view I mean how importantly do you view um do you value timing of execution and if you can elaborate a little bit more on the Global Currency Market that your fund is involved with and that'd be great uh I think I think the most important thing is to try to get uh is to try to get things right I mean I think there are there obvious VI L are there's certain contexts where you have to execute super fast uh but uh but it's it's you know there's like a startup investing context where you have to you have to uh be really fast and get to the right thing and their Market context where that's the case but I think generally speaking um it's more important to focus on understanding what's going on and getting into uh getting into the uh into the right uh the right kind of things the uh you know I think uh I don't know I I think there sort of our you know I think there remain a lot of very interesting unbalanced things in the world uh the biggest one is probably the you know the dollar uh versus the Chinese RI and sort of how that how that plays out is uh is going to be sort of a very interesting story that will unfold over the next uh next decade okay we have time for one more audience question hi my name is Anna vital um my question H to both of you is about do you remember the moment when you develop the trust uh in yourself and in your gut that you would know when the right thing comes across that you would be able to recognize it I don't think I've ever developed that I'm constantly uh in search of that exact feeling and I don't think it's ever going to come yeah same here okay I I uh I get to ask the last question it is the newly created in Forum tradition of 2011 that we are asking all of our speakers the following question Max and Peter what are your 62 ideas to change the world you go first I I needs goes first well I have a whole whole series on this but I think uh I think Bas we we basically need to be working on on breakr Technologies in a variety of areas I would focus on applying computer technology to all sorts of areas outside of computers um and that is uh biotech it is uh the Next Generation Um you know we've looked at computers applied to agriculture computers apply to energy computers apply to all sorts of different domains and that's probably uh the sort of thematic area where you could see a lot of uh breakthroughs happen over the next uh 20 years and we have to work on you know we have to make a number of them happen because uh it's not good enough for us to just run and stay in the same place we probably lose ground if we're doing that I think uh a lot of what Peter just said applies to my thinking as well uh to give some more examples I think um in general we need to be willing to take more risks as a civilization I think it's high time we figure out a variant of safer or safe enough nuclear energy because I think we have a real problem on our hands without it I think um it's also uh High time we figure out a lot more about human diseases I think there's an enormous amount of fixes that we can have to our bodies that are currently going frail a lot faster than they really should thank you let's give a big round of applause to Max Leon and Peter Keel for sharing their thoughts with us tonight now this meeting of in forum and the Commonwealth Club is adjourned love the can I Back To Top