If there’s one thing you get out of this newsletter, it’s this. I’d like to impart the trait that all wealthy people seem to have – that is a certain optimism. It’s not plain, generic optimism. We’re not talking about a glass half full or half empty. It’s not to proceed as if nothing can go wrong. Rather, it’s more of an inclination to take a calculated risk. Jeff Bezos knew there was a chance Amazon.com would fail. That was a risk, but the reward carried more upside. So much upside that, with smart execution mixed with luck, his company succeeded.

In last week’s Methods of Prosperity, we explored the mindset of Jeff Bezos. Despite the high failure rate of startups, Bezos remains optimistic. Embracing his “Day One” philosophy, he contrasts it with the stagnation and decline of “Day Two.” He also questions the use of proxies in business metrics. Jeff warns that over time, companies may misinterpret these metrics. Doing so leads to poor decisions. Bezos advises focusing on enduring customer needs like low prices and fast delivery. Delegate smaller issues. A perfect example is one-click shopping. He distinguishes between reversible (“two-way doors”) and irreversible (“one-way doors”) decisions. He urges careful consideration for the latter. While his success is inspirational, it’s important to recognize survivorship bias. Most entrepreneurs will fail. This week, we’ll explore the PayPal Mafia.

The following is Methods of Prosperity newsletter number 28. It was originally deployed Dec 28, 2023. As of September 5, 2024, original subscribers have received up to issue number 64: Phil Knight (continued).

Part 28.

Peter Thiel.

Godfather of the PayPal Mafia.

TL;DR

Peter Thiel is a German-American billionaire entrepreneur, venture capitalist, and political activist. He co-founded PayPal and was the first outside investor in Facebook. He studied philosophy at Stanford. Philosopher Rene Girard’s concept of mimetic desire influenced Peter. Mimetic desire suggests that imitation of others’ desires shape our own human desires. This can lead to conflicts. Thiel recognizes how mimetic desires influence people. We conform to others’ expectations and lose our individuality. He is also influenced by Ayn Rand’s objectivism. Thiel went on to found other successful companies. This includes Palantir Technologies and Founders Fund. He started his career as a lawyer and derivatives trader. Peter Thiel is co-founder of Cofinity, which later became PayPal.

Key lessons:

• You only have to be right once.

• Understand human desire.

• Don’t romanticize failure.

• Few ideas are original.

• Think for yourself.

Emperors and aristocrats are the exception to this. Every billionaire does two things. They either founded a successful company or own equity in a successful company. PayPal was different. There wasn’t one or two founders that made it the beacon of Silicon Valley startup life. Over 200 people had a role in the story of the PayPal Mafia. For the sake of brevity, we will focus on the main characters.

In the late 1990’s everything was changing. At the start of the decade, the Federal Reserve started to lower interest rates. They did this in response to the looming recession during the Gulf War. The average mortgage rate in 1990 was 10.13%, and it fell to 6.49% by 1998. The dot-com bubble blew up from the excitement of new technology. It burst after the venture capital faucet turned off around 1999.

Netscape was one of the first popular web browsers. It faced tough competition from Microsoft’s Internet Explorer. Microsoft captured Netscape’s market share. AOL acquired Netscape in 1998. From that point Netscape struggled. By 2008, AOL discontinued Netscape. Luke Nosek was one of the co-founders of PayPal. He worked as an “evangelist” for Netscape. That was before co-founding what became PayPal with Peter Thiel and Max Levchin in 1998. Another famous entrepreneur you may have heard of will make an entrance in this story later. His name is Elon Musk.

Now anyone can join our Prosperity club here.

Who is the PayPal Mafia? A group of co-founders and early employees of PayPal. They became successful entrepreneurs and investors in the tech industry. Our story begins with Peter Thiel. He’s a German-American billionaire entrepreneur, venture capitalist, and political activist. Besides co-founding PayPal, he founded Palantir Technologies and Founders Fund. He’s also known for being the first outside investor in Facebook. Peter Thiel is the Godfather of the PayPal Mafia.

Actually, let’s start with the philosophy of Peter Thiel, because it will explain much of his success. He’s not a genius developer or coder like a Mark Zuckerberg archetype. He’s not a computer science and engineering wizard like Bill Gates or Elon Musk. Peter Thiel understands human desire better than anyone else and places bets on it.

Peter Thiel studied philosophy at the undergraduate level at Stanford University. There he became influenced by a philosopher named René Girard. Girard has a concept referred to as mimetic desire. This theory explains how human beings imitate the desires of others.

This theory suggests that human desire is not a linear process. Rather, individuals desire according to the desire of others. According to Girard, desire leads to conflict. The resolution of which takes the form of a scapegoat. The scapegoat acts as the emissary victim. This term describes how society blames their tensions upon an individual or group. As a consequence, the community will expel or sacrifice the accused party. By doing so, the community expects to restore harmony. According to Girard, this is the scapegoat mechanism. It’s rooted in mimetic desire. This perpetuates the tendency to imitate and compete for the same objects. Which leads to conflict and violence within a society. The community holds the emissary victim responsible for this turmoil. Society then sacrifices the emissary victim to pacify the social unrest. Girard’s concept of the emissary victim is central to his theory of the scapegoat mechanism. This was fundamental to the establishment of social order and cultural stability.

Girard’s theory of mimetic desire is the idea that people imitate the desires of others. This imitation of desires can lead to conflicts and rivalries. Individuals want what others want. The theory suggests that we borrow many of our desires from others. This imitation of desires can cause tensions and competition. Both on a personal and a larger scale.

“Man is the creature who does not know what to desire, and he turns to others in order to make up his mind. We desire what others desire because we imitate their desires.”

– René Girard

Imagine if one of your friends told you the following. “I want to run a marathon”, or “I want to invest in bitcoin”, or, “I want to be an artist or investment banker”. It makes you realize that you also want to do those things. Wouldn’t that be a lie? You don’t want to do the same thing your friend wants to do. The truth is, most of us are not that original. We want to go along with whatever other people want. It keeps others from resenting us.

Mimetic desire is part of evolution. A meme is more than a funny combination of text and image popping up on your 𝕏 (fka Twitter) feed. It’s an idea or set of ideas which can affect your behavior. These sets of ideas are inexplicit. If you think about it, most ideas we hold in our minds are inexplicit. These inexplicit ideas contain desires that we don’t articulate. That is mimetic desire, and it affects our whole culture.

For example, the words freedom and knowledge contain inexplicit ideas. Social traditions, culture, and religions have evolved over long periods of time. We pass most of the ideas contained in those things from one person to another. That makes these ideas memes. They are ideas that are replicators. Girard stressed the conflict arising out of memes which emerge from desire. Desire is at the core of the human condition.

Peter Thiel is aware of his mimetic desire. He noticed that, when a student enters school, they bring an individual way of thinking. The student conforms to thinking like everyone else. They continue to pursue the same job as their peers, until they lose their individuality. Their mimetic desire sends them on a path to mediocrity.

The problem becomes that our mimetic desire is unsustainable. No matter how hard we try to aspire to our neighbor’s idea of success, we regress to our baseline. When our desire is not true and authentic to who we are, we’re unsatisfied. We go to school and want to be good students. We go to work and want to be good employees. We buy a mortgage on a house and get a loan to buy a car. Society conditions us to aspire to those things.

Mimetic desire is addictive. Many people think they want to change their life but never do. It’s not realistic to become a billionaire, is it? That would require sacrifices that we may not be ready for.

Let’s go back to Peter Thiel’s origin. He was born in Frankfurt Germany in 1967 to Klaus Friedrich Thiel and Susanne Thiel. His father moved the family to the US where he worked as an engineer. They lived in Cleveland, Ohio, and then Africa for a few years. When Peter was in fifth grade the family moved to California. An avid reader, he read The Lord of the Rings several times. Which could be why he named six of his future companies after things found in Tolkien’s classic novel. He attended San Mateo high school. There he demonstrated hints of his conservative libertarian worldview. In 1985, he graduated as valedictorian of his class. That year he started at Stanford University to study philosophy.

It’s worth mentioning that another philosopher he’s a fan of is Ayn Rand. If you’re not familiar with Ayn Rand, she had an interesting perspective. It’s referred to as Objectivism. According to Rand, Reality exists independently of consciousness. We must use reason to understand the world, not rely on faith or emotion. The individual is the primary unit of moral concern. Each person should pursue their own rational self-interest. Without sacrificing themselves to others or others to themselves. Productive achievement is the noblest human activity. Creating value through work and innovation is essential to a fulfilling life. Reason is the only means of knowledge. We should base our beliefs on evidence and logic, not on feelings or tradition.

While attending Stanford, Peter founded the Stanford Review. It’s a conservative libertarian newspaper that is still active today. The Stanford Review offers an opposing point of view. It provides an alternative to politically correct narratives on campus. He graduated from Stanford in 1992.

Peter Thiel has become known for his contrarian way of thinking. In his book Zero to One: Notes on Startups, or How to Build the Future, he asks the reader:

“What important truth do very few people agree with you on?”

Most people answer with something that lacks novelty. For example: “The education system is broken”, or “There is no God”. Those ideas are not original. Answers like that already have plenty of people who agree with them. To come up with a contrarian answer, you must question everything you think you know. Identifying objective truth is not compatible with group-think.

He doesn’t romanticize failure like some entrepreneurs do. When a business fails, it’s not for the reason it gets blamed on. Then when another failure occurs, it was due to a false cause. The entrepreneur blames their next failure on another false cause, and so on. This parallels Girard’s scapegoat.

“Failure is massively over rated… failure is always simply a tragedy.” – Peter Thiel

For contrast, Jeff Bezos has a different perspective. He says that “conventional wisdom is usually right.”

“Peter Thiel is a contrarian. You have to remember that contrarians are usually wrong. Now, contrarians can get big wins because when a contrarian is right, it’s usually a gigantic win.” – Jeff Bezos

Before founding Cofinity, Peter Thiel worked as a securities lawyer at Sullivan & Cromwell. He worked as a speechwriter for former U.S. Secretary of Education William Bennett. Theil worked as a derivatives trader at Credit Suisse. He also founded Thiel Capital Management in 1996.

In 1999, there were enough people already using email. He recognized an opportunity. Why not link email to payments? What if a user could send money to an email address? That would give the recipient an incentive to sign up. That way they could receive their payment. This became the big idea that would turn into PayPal.

To be continued…

I like you,

– Sean Allen Fenn

Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Your feedback is welcome. For more information about the author, please visit seanallenfenn.com/faq.