Old (Pay)Pals: Peter Thiel backs Meg Whitman: September 2010

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When eBay acquired PayPal for $1.5 billion in 2002, it received a lot more than a great system for online payments. The acquisition, like so many in Silicon Valley, also brought in a horde of top-notch talent. But there was one smart guy at PayPal that eBay CEO Meg Whitman didn’t get: Peter Thiel, the CEO.

She’s got him now: In a phone interview this morning, Thiel supported Whitman’s candidacy for California governor, saying he had given her the maximum allowed, $25,900. He said the fact that he didn’t go to work for eBay was only because “CEO is always the single most redundant position in an acquisition.”

The deal worked out well for both of them. Thiel took his money, started a hedge fund and then an investment firm, Founders Fund, and was an early investor in Facebook, among other smash hits. And Whitman continued to ride the eBay rocket. Both of them are on Forbes’ list of the world’s billionaires, Whitman at number 773 with an estimated net worth of $1.3 billion, Thiel at number 828 with an estimated net worth of $1.2 billion.

“EBay was and remains one of the great Internet successes of the 1990s, that whole first wave of Internet businesses,” Thiel told me. “As governor, I believe the most important issues in California are how to get the economy working again, how to create well-paying jobs. I believe the only answer involves the tech industry. There’s no alternative way for California to work.”

In addition, Thiel, who has supported other Republicans, said Whitman “is probably vastly better than (former Gov. Jerry) Brown on the issues.”

As for his investing strategy these days, Thiel continues to look for what he calls “hard technology” — that is, areas where the problems seem particularly difficult: biotech, nanotech, outer space, artificial intelligence and robotics. “Things that people have been talking about for a long time but have not happened,” he said. “Not everything that’s hard is valuable. But it is the case, the things that are not hard, are not that valuable.”

Although Thiel hit the jackpot with an early investment in Facebook, he said he’s not looking for “the next iteration of social networking,” even though he said that “has a long ways to go, and there’s going to be a lot more done, but people are looking at it enough.”

“As an investor, you want something that’s both fundamental and contrarian,” he said. Founders Fund’s biggest investment (about $25-$30 million) is in SpaceX, a company started and run by one of Thiel’s former PayPal cofounders, Elon Musk (also the CEO of Tesla Motors).

Although SpaceX draws the most attention for its ultimate goal of shuttling civilians into outer space, Thiel said the company has a greater potential success within its grasp: reducing the cost of launching rockets, which will open up space to many new uses.

“The idea is to have a rocket that’s something like one-tenth of the cost” of a launch today, he said. “We can do better at almost everything. If you can cut the cost that meaningfully, there are all sorts of things that will become possible that right now people aren’t trying to do, because they don’t think it’s possible.”

“There are about 10 satellite launching companies. If you can be cheaper by an order of magnitude, you have the potential to be, overnight, the leading space company in the world. That’s a powerful platform from which you can innovate a lot more.”

To get to that point takes patience, and a high degree of risk tolerance. Thiel has both.

“It takes longer to build these businesses. They’re slower. They’re harder to build. They take a longer time. But when they work, they’re worth a lot.”

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