Drop out and innovate

The man who financed Facebook is offering 20 two-year $100,000 fellowships to teenagers with big ideas - as long as they leave university. Jon Marcus reports

December 16, 2010

Before he was 21, Peter Thiel was a ranked chess master and founded the Stanford Review, a libertarian newspaper at Stanford University, which he attended.

Now a billionaire venture capitalist and hedge fund manager with a sometimes controversial reputation for pushing unconventional ideas, Thiel is betting that others also can succeed at a young age - and don't need a university education to do it.

The San Francisco-based founder of PayPal and co-founder of Facebook is offering two-year fellowships of up to $100,000 (£63,800) to 20 entrepreneurs or teams of entrepreneurs aged under 20 in a worldwide competition that closes this week.

With the money, the recipients are expected to drop out of university - Thiel calls it "stopping out" - and work full time on their ideas.

"Some of the world's most transformational technologies were created by people who stopped out of school because they had ideas that couldn't wait until graduation," Thiel says. "This fellowship will encourage the most brilliant and promising young people not to wait on their ideas either."

Thiel says the huge cost of higher education, and the resulting burden of debt, makes students less willing to take risks. "And we think you're going to have to take a lot of risks to build the next generation of companies."

But his plan also clearly challenges the ability of conventional universities to foster innovation. "I do think there are a lot of things people learn in school," Thiel says wryly. "I don't think they learn anything much about entrepreneurship."

Thiel, 43, who was born in Germany, is best known as Facebook's first outside financial backer, fronting the company $500,000 and allegedly playing a role in the divisive infighting that ousted some of the original founders. He is portrayed briefly but harshly in the recent film about Facebook, The Social Network.

He also started online payment company PayPal, which he sold to eBay in 2002 for $1.5 billion, and is president of a $2 billion global hedge fund called Clarium Capital and a $5 million venture-capital fund called the Founders Fund.

Ranked America's 377th wealthiest person by Forbes magazine, Thiel has a net worth estimated to be nearly $2 billion. He drives a Ferrari Spyder priced at almost a quarter of a million dollars and a $500,000 McLaren F1, and likes to quote the American football coach Vince Lombardi, who said, "Show me a good loser and I'll show you a loser."

An ardent libertarian, Thiel also underwrites a movement called Seasteading, which seeks to create floating communes free of any nation's legal jurisdiction, and has invested in space-exploration and life-extension technologies. He says innovation has been too slow, and he has been seeking ways "to break the sort of relative stasis we've been in as a society".

But Thiel's latest venture, to encourage young pacesetters to leave school, has attracted particular attention, much of it critical.

Thiel practises "unapologetic selfishness and economic Darwinism", one fellow entrepreneur, Jacob Weisberg, editor-in-chief of the influential Slate Group and columnist for Newsweek, writes on Slate.com.

"A basic feature of the venture capitalist's worldview is its narcissism, and with that comes the desire to clone oneself - perhaps literally in Thiel's case," writes Weisberg. "Thus Thiel fellows will have the opportunity to emulate their sponsor by halting their intellectual development around the onset of adulthood, maintaining a narrow-minded focus on getting rich as young as possible, and thereby avoid the siren lure of helping others or contributing to the advances in basic science that have made the great tech fortunes possible."

History, however, shows that Thiel may be on to something. Seemingly disproportionate numbers of the most successful entrepreneurs of recent decades dropped out of university, including Microsoft co-founders Bill Gates and Paul Allen, Apple co-founder Steve Jobs, Dell Computer founder Michael Dell, Oracle co-founder Larry Ellison, Napster developer Shawn Fanning, Geffen Records and DreamWorks founder David Geffen, Berkshire Hathaway chairman and billionaire Warren Buffett, Richard Branson (who dropped out of school), producer Simon Cowell (who left school at 16) and Roman Abramovich, the richest man in Russia. Mark Zuckerberg was only 20 when he launched Facebook, and he hadn't yet completed his undergraduate degree at Harvard.

"A lot of the great companies have been started by people who have been quite young and we think that actually trying to encourage that is very good," Thiel says.

More chief executives of the Standard & Poor 500 most valuable companies dropped out of university than graduated from any single school other than the University of California, according to a survey conducted this year by the news service Bloomberg. Harvard and the universities of Texas, Missouri and Wisconsin all tied for third.

But there will be nothing to stop Thiel fellows from completing their degrees at some point, says Jonathan Cain, one of the directors of the Thiel Foundation.

"A lot of it depends on the person," Cain says. "Probably a lot of people may take leave of absence from whatever programme they're in. Dropping out has more connotations of failing classes or your grades aren't high enough, so you have to leave school. Most of the people we imagine will end up in the fellowship will be focused on something they're doing and creating, and being a full-time entrepreneur is a tremendous time investment. If you're going to build a company or launch a non-profit (organisation), you need to focus on that rather than on your classes."

Entrepreneurs chosen in the competition will be mentored by high-tech executives connected to many of Thiel's companies, including Facebook and PayPal.

"We'd certainly check in and see how we can help them and make sure they actually are doing something," Cain says.

Universities aren't always set up to encourage entrepreneurship, he adds. "It could be that you have this idea for something that's totally new that the world hasn't seen before, and academia is about passing on wisdom, not necessarily supporting or understanding things people haven't thought of before. If you're an undergraduate, you're not necessarily taking classes with people who are working to push the frontiers of knowledge."

Cain says he is talking generally and that, of course, there are exceptions to these rules. "We're just focusing on 20 fellows. We're not setting out to overthrow the system or saying that it's wrong for everybody."

But ultimately, perhaps, the programme and the attention it has drawn are a sign of the times, in which students - in the US, Europe and beyond - are increasingly questioning the affordability of a university education and debating whether it really equips them for the workplace.

Cain argues that paying rising costs and assuming spiralling debt for their degrees may not be the best route for young people.

"There are millions and millions of kids who take on tremendous amounts of debt and end up unemployed or overeducated or in jobs for which they don't need the degrees they've earned," he says.

Advocates of Thiel's plan agree.

"University is a tremendously valuable experience, but when entrepreneurs are ready to launch, they should do so immediately, rather than sticking around to satisfy expectations of a full four years of college or eight of grad school," says Elon Musk, co-founder with Thiel of PayPal and also co-founder of Tesla Motors, which designs and builds high-end electric cars, and SpaceX, a private space transportation company.

Musk enrolled in graduate school but quit before classes began to co-found Zip2, which develops and hosts consumer websites for media companies. He sold the company to Compaq for $307 million.

"If you have the passion and drive and want to work on a great idea, you should just do it," says Scott Banister, who left the University of Illinois to found ListBot, an email-list-hosting service, and an anti-spam company called IronPort that he sold to Cisco for $830 million.

William Andregg, founder and now chief executive of Halcyon Molecular, was only a teenager when he started the company, which has developed a way to more quickly sequence DNA for use in developing therapeutic products to extend human life. Thiel is an investor in the company.

"When you are trying to create a technological breakthrough, you have to create new knowledge, and there is no way to teach that," says Andregg.

Register to continue

Why register?

  • Registration is free and only takes a moment
  • Once registered, you can read 3 articles a month
  • Sign up for our newsletter
Register
Please Login or Register to read this article.

Sponsored