[00:04:35] Robert Leonard: You have such a unique background. You studied philosophy before becoming a venture capitalist, and so I really want to start at the beginning of your experience working with Peter Thiel, as you were one of the minds behind the Thiel Fellowship, which has been super successful in identifying and supporting young talent in the tech industry.

[00:04:52] Robert Leonard: So, I was hoping we could start there, share your story of how you met Peter Thiel, and how this whole idea came about.

[00:04:58] Michael Gibson: Yeah, it is a series of unlikely events because as you mentioned, I thought I was gonna become a philosophy professor. When you’re 19 or 18, you can be quite impressionable. And I came across, you know, some of my favorite writers at the time, the poet T.S. Eliot or the novelist Tom Wolfe.

[00:05:20] Michael Gibson: At the back of the book, when you open up and you see the picture and the little paragraph biography, you know, when I was 18, I saw that T.S. Eliot had a PhD in philosophy from Harvard. And then with Tom Wolfe, he had a PhD in American Studies from Yale. So in my mind, I was so naive, I thought, “Wow, these heroes of mine seem to pursue these postgraduate, you know, these graduate degrees.”

[00:05:51] Michael Gibson: And maybe that would give me time to, I don’t know, bone up on my knowledge of literature and philosophy. So that sent me down that course, and I came to love the subject matter for its own sake. So I have a background in ancient philosophy and in moral and political philosophy, but really I always wanted to be a writer.

[00:06:15] Michael Gibson: And after being in grad school for so long, oh God, I’ve lost track of the years. I had just grown tired of academia. I mean, even the subject matter itself. Philosophy had become exhausted as a subject for academic study. It just seemed like people were trying to add decimal points to already existing views, and I was in the basement of a bookstore, and I’m just reading a collection of journalism from the 1960s that Tom Wolfe put together on the new journalism.

[00:06:49] Michael Gibson: So this was the style of writing that broke out in that time, where these journalists realized they could use all the techniques of the novel and the short story to tell true stories, to share the emotional truth of something with people because it just has a richness to what you can do if you’re using those tools of the trade in a way that you can’t in typical journalism where it’s like the pyramid, right?

[00:07:20] Michael Gibson: Where, you know, you read a normal daily news story, that’s the who, what, why, and where in the first paragraph. And then no one finishes the article. So I was reading that collection, I was like, I gotta, I should just write and I dropped out. And I got a job with a magazine that MIT owns called Technology Review.

[00:07:45] Michael Gibson: My girlfriend at the time lived in Boston, so I had moved there, and that magazine is based in Cambridge, so I got lucky getting the job, but it was a baptism by fire into science and technology, and I just had to cover all sorts of different things. And one day, I was assigned a story to interview Max Levchin.

[00:08:09] Michael Gibson: Levchin is the former CTO of PayPal, and this was a retrospective article. I had to, I guess the magazine had awarded Max something like an award in 2002 or something. So this is 2007, five years later. And as a retrospective piece, I’m asking him questions about the past, and I asked him this one where I said, “Hey, is there anything you would tell your younger self to do differently?”

[00:08:38] Michael Gibson: So PayPal was sold to eBay in 2002 for 1.5 billion. And Levchin told me, he said, “I took the year off and I traveled the world, you know, lived on a beach, and it was the worst year of my life.” And so I just remember being on the phone, and I’m looking at the phone like, who is this guy? Like, what do you mean it’s the worst year of your life?

[00:09:08] Michael Gibson: And he says, “All my friends were out there being productive, starting companies, and I was just consuming things.” And then I thought, “Well, who are your friends?” And that’s where I was introduced to what’s become known as the PayPal Mafia. So they were pretty famous then, or maybe just famous. Now some of them have become extraordinarily famous.

[00:09:32] Michael Gibson: Probably Elon Musk is number one, but in 2007, it was pretty surprising to see someone building a rocket ship company and an electric car company. But other members of the PayPal Mafia, it was like Reed Hoffman, founder of LinkedIn, Steve Chen, YouTube, Jeremy Stoppelman, Yelp. I mean, the list is just wild.

[00:09:53] Michael Gibson: And so it was like this group of really creative people who pretty much built the next generation of all the great internet companies. And then last in that list was this guy who’s like a vague, vaguely public intellectual, hedge fund manager, libertarian Peter Thiel, and that’s the first time I heard his name.

[00:10:15] Michael Gibson: And so I learned more about him, just really fascinating individual, so much so that I thought it’d be interesting to work at his hedge fund. I reached out and never received a response actually, and then fast forward like another 18 months or so. And I had been doing some volunteer work for an organization that Peter had funded, this wild, crazy Seasteading idea, and that organization.

[00:10:42] Michael Gibson: So the nonprofit is devoted to trying to help people create communities on the ocean. So these could be everything from, you know, boats strung together to a floating platform at sea. And to get things going, they started a festival and I went to one of these, it was called Ephemeral, it’s in the Sacramento River Delta, and I was just there and met some people who worked for Peter, and they mentioned there was this opening for a researcher, writer, and I was in LA, so I was freelancing at this point. I was writing on the side. I was still writing for Tech Review a little bit, and then they mentioned this opening. I’m like, all right, well, I’m kind of interested.

[00:11:32] Michael Gibson: So I get an interview and then another interview, and before I know it, I’m in a room with Peter and we didn’t talk finance at all. We talked philosophy, we talked about, you know, some of his interests. He’s a student and I guess you could even call him a disciple at this point of the French philosopher, literary theorist, anthropologist, René Girard. So we talked about this kind of stuff. We gelled and then Peter asked me if I would help him teach a class at Stanford Law School that winter.

[00:12:10] Michael Gibson: In the meantime, I could be an analyst at his hedge fund. And I was like, okay, well yeah, maybe I do this for a year, move to San Francisco, and then that’ll, you know, be a very unique experience, and then I’ll go back to my attic apartment and be the starving artist. So that’s how I got hired. Very unlikely.

[00:12:34] Michael Gibson: And then I show up to work. I can tell you the first day, it’s September 27th, 2010. It’s just as you would imagine in a TV show about a hedge fund. You know, there’s a trading floor, the stock ticker going around, and CNBC on, and I sit down at this desk on the trading floor and I’m thinking, you know, why, how did I end up here?

[00:13:02] Michael Gibson: But a moment later, one of my colleagues walks over to my desk and he says, “We’ve got to go to Peter’s house. Last night on the plane ride back from New York, we came up with this idea to pay people to leave college. We’re calling it the anti-Rhodes scholarship. TechCrunch Disrupt is today, and Peter’s being interviewed. So we have to announce the program.” Like, alright, I’m in. I hate Rhodes Scholars, I think they’re insufferable. So whatever the anti-Rhodes scholarship is, I’m in for it.

[00:13:37] Michael Gibson: We go to Peter’s house. We’re waiting in the living room. Peter comes bounding down the stairs. We get in the car, and now we’re discussing, okay, what do we name this thing? How much money is it? The car takes us to the conference. We’re backstage still discussing things. Then Peter’s onstage being interviewed, and you can see it on YouTube. Sarah Lacey, the reporter, is interviewing him and he’s talking about this program as if it’s in the present tense. He’s saying, “We’re taking applications.” You wouldn’t know listening to the interview that this thing is being invented on the fly in the 48 hours before. Or even, you know, the morning of.

[00:14:23] Michael Gibson: So I got home that night and just called my parents and I said, “Wow, this is my first day of work. Wonder what tomorrow’s gonna be like.” So, at the time, the first name of it was “Under 20,” the Thiel Fellowship.

[00:14:40] Michael Gibson: Now it’s just called the Thiel Fellowship, but the program settled on a hundred thousand dollars for 20 individuals a year. Two key conditions in that first year, you had to be 19 and under when you applied, and you had to drop out of school or not be in school. And that was the really big newsworthy condition.

[00:15:04] Michael Gibson: And yeah, so I got swept up into that. Ended up co-running that program with some other people and Peter for five years till 2015. And a pretty crazy experience. So people ask me, how do you get a job in Silicon Valley, like on the investment side, venture capital? And if I relate this story, it’s just, it’s not good advice. I can say like, go to grad school, dropout, become a journalist, do these things.

[00:15:35] Robert Leonard: Series of unlikely events for sure, but a very cool story and such a cool program nonetheless. I want to dive into it a bit more because you’ve been a vocal critic of the education system since working with Peter Thiel, which is kind of interesting looking at your background of being fairly academic.

[00:15:56] Robert Leonard: So let’s dive into the mission behind the Thiel Fellowship a bit more and why you’re paying people to drop out. What do you think is wrong with the education system? What is this program doing better?

[00:16:11] Michael Gibson: Yeah, I guess so. Maybe to tie up some themes about, like, okay, I showed up to work that day and I thought I was unusual, meaning like, here I am, this dropout philosopher. Am I surrounded by experts in finance or technology? And it turns out I wasn’t. You know, I said soon enough, I learned that there were a lot of people just like me, a lot of people on Peter’s team. You know, no one had a serious background in finance.

[00:16:45] Michael Gibson: There were people who were like nuclear engineers, statisticians, mathematicians, English literature scholars, but no Harvard MBAs. And so, what I learned in time is that there was something in René Girard’s work in particular that became a bit of a heuristic that Peter would use when he thought about creativity and then who he backs, whether as a startup founder or who he hires, and what Girard became.

[00:17:12] Michael Gibson: One of the things he’s famous for is his theories about witch hunts, crowd dynamics, the madness of the crowd. And in particular, how social disorder leads the crowd to sacrifice a scapegoat. In Girard’s monograph on the scapegoat, he canvases world literature mythologies. And what Girard discovered was that the type of person that’s chosen as a scapegoat, it’s a very interesting figure. They tend to either be the hero or the martyr. They tend to have extreme characteristics. And the other thing that Girard noticed is they tend to have a paradox about them, a polarity where they’re both insiders and outsiders. So, for example, a famous example is Oedipus.

[00:17:57] Michael Gibson: You know, there’s a social crisis at hand, plague is in thieves destroying the city. So there’s a crisis. And then Oedipus ends up being, you know, spoiler alert, is actually the reason for the plague’s existence, in essence becomes the scapegoat. But he’s an insider and an outsider in that he thinks he’s an insider because he was brought to the kingdom as a baby.

[00:18:24] Michael Gibson: But rather, he left the kingdom as a baby and his parents thought he was dead. And, but you know, everyone thinks he’s an outsider because he came from this other place where he had been abandoned. And so likewise, you know, it’s like with entrepreneurship, for example, I think like there’s a long history of immigrants making great entrepreneurs, great founders, and I think it’s because of this insider-outsider dynamic.

[00:18:52] Michael Gibson: It’s like you’re a US citizen on the one hand. Here you are in America making your way, but on the other hand, maybe you’re fresh from another country, and now even though you’re here, you see things a different way or you’re willing to try on a different set of frameworks to see things. So with Girard, you know, this insider-outsider thing, it’s like you can’t be so outside and foreign that you couldn’t possibly be responsible for the social crisis at hand, but neither can you be an insider so much so that no one would question your loyalty.

[00:19:32] Michael Gibson: Like the scapegoat is always the boundary figure who fits between the two worlds. And so in my book, I wanted to portray the fact how I’m an insider and outsider. It’s like, okay, I thought I was in, you know, unique in the sense of, “Wow, what’s this dropout philosopher doing on this trading desk?” But Peter was collecting these insider-outsiders. So in my, I tell my personal story. I grew up thinking my dad was one person, and then when I was 20, I discovered someone else was.

[00:20:08] Michael Gibson: So it’s like in my own family, I was a, you know, insider outsider. I’m certainly part of the family, but it turns out I have half-siblings. So in some sense, I’m not within the family. And then in the academic realm, to go back to your original question, yeah, it’s like I found my way to the inside of the temple.

[00:20:33] Michael Gibson: I had, you know, seen the most prestigious departments of philosophy and I had seen that the temple was empty in some respects. So when it came to this program, I think one of the advantages I had was that I had been on the inside and now I was on the outside. So I was able to see some of the good things about higher education, but also some of the, some of the bad things.

[00:21:04] Michael Gibson: And in particular, what made the fellowship so powerful is, I think, it’s, I think creativity is a mystery. I mean, I’ve just, you know, rambled on for five minutes about one element that seems to be like, maybe a cause, maybe a symptom, but we don’t really, the creativity is very mysterious. But one thing we know about it is what stifles it.

[00:21:30] Michael Gibson: The theory we had was that with higher education, things are just too slow these days. It’s just taken for granted that you have to master years and years of knowledge before you’re, you know, trustworthy enough to add some new piece of knowledge, to reach that frontier and discover something new. And, you know, we just didn’t believe that. We thought in the rising snap of their youth, you know, it could be the case that someone had already reached the frontier in science or tech. And if we just set them free, maybe they’d be able to make some progress.

[00:22:10] Michael Gibson: So it was more about lifting those constraints and liberating people. So, yeah. Long, long-winded take, but it’s an important question because I think, and in my book, you know, this sounds kind of like, I don’t know, pretentious or something. I wanted it to be a meditation on creativity because it is so mysterious, how that relates to the individual, how it relates to institutions like higher education, how it relates to a creative cluster like Silicon Valley and its actual geographic location, Silicon Valley, San Francisco, and then maybe as a nation as a whole.

[00:22:49] Michael Gibson: So I wanted the book to telescope out a little bit as the story progresses and go through those things. But through my work and the Thiel Fellowship through 1517, the fund I operate now is like the higher education is the main one, and I’m really concerned that it is stifling creativity.

[00:23:10] Robert Leonard: I saw on a talk you did nearly a decade ago now, where you said there needs to be a better form of measurement of success because with college it’s basically just time. You spent the time of four years to get your degree. So that’s kind of the definition of success. You could say, “Look, I committed this time to getting this degree,” but you’ve talked about how there needs to be a better measurement for that. 

[00:23:42] Michael Gibson: Yeah, that came out of some personal experiences where, because I was visiting so many college campuses, I started to see commonalities, and the number one architectural feature that I found on every college campus, just about, was that clock tower. And it is a vestige of the medieval origins of the university. And so that got me into reading up on the histories of universities and how they operate and so on. And then it dawned on me that, yes, we use time as a proxy for knowledge acquisition. You know, it could be just like your courses are measured in hours, take hour-long exams. I mean, there’s almost a fetishization, obsession with the hour as this unit of measurement for knowledge. It’s like, “Oh, how many credits have you taken in this field?” And then with the fellowship, I started to see how experience could be overrated. You know, I met computer programmers who were 18, 19, and they have nine years’ experience. One young man I talk about in the book, he was so frustrated at MIT because they were forcing him to take all these lower-level, medium-level courses as computer science, but he could have tested out of all of them because of his experience and his abilities, but instead they’re forcing him to take those hours. So then, you know, all right, so those things are lining up. And then I got into the economics research of, okay, why is college valuable? And so on, and it’s just so clear that there’s something about marching around that clock tower that the labor market loves, that you are willing to sacrifice four years of your life to undertake a project of great cost and effort, and to demonstrate that you’re willing to complete assignments and follow orders. And so the labor market employers are just basically cheating. So they outsource the screening, ranking, and judgment evaluation on candidates to the universities, and it just makes it easier for them to hire people. They’re not hiring people mainly for the skills that they learn in the university. So I think, yeah, to me, that clock tower became a symbol for all this stuff, and I wanted to.

[00:26:10] Michael Gibson: Like I gave that talk. Yeah, that’s awesome that you looked that up. That’s pretty old out there. But it really struck me that we depend on the clock as a way to say how much knowledge someone has when it could be the case that, you know, maybe they learned something rapidly or maybe it took too long. Then there’s the, the just, yeah, you could look at like chess players or athletes and even, even to some degree mathematicians and other fields. What you see is like more experience doesn’t necessarily make you a better player. So it’s like there is a peak during people’s careers at which they are the best or most productive or creative. And then, sadly, there’s a fall-off. That would be in a theory where you think more and more experience matters. That would not be true. It’s like the best chess players would be like 70 years old. But it turns out, you know, there’s a prime for people. So, yeah. Interesting that all this stuff seems kind of neglected in the mainstream. People don’t really want, I mean, it’s sad that, and worth lamenting that we’re not always our best throughout our whole life and that maybe there is a shorter window than we imagine when we might be at our best. But I think it is worth knowing.

[00:27:41] Robert Leonard: What are some of the biggest names or successes that our listeners might know or be aware of that have come out of the Thiel Fellowship program?

[00:27:48] Michael Gibson: Yeah, so during my tenure, so from 2010 to 2015, we saw some extraordinary things. So the, probably the most famous person is Vitalik Buder, and he’s the creator and inventor of Ethereum. We helped him launch that in 2013, 2014. When I met Vitalik, I, when I was doing research for the book, I was shocked to learn I, cause I was verifying dates that we had lunched with him five days after he had written the original draft of the Ethereum White paper.

[00:28:22] Michael Gibson: So that was wild. We ended up giving him a fellowship a few months later. And you know, I made one of the worst financial decisions in my life because I was, I was on point helping Vitalik out there, you know, it would be periodic meetings cuz the Ethereum group at the time, there were all a lot of contesting egos and different visions for things and those wrinkles needed to be sorted out.

[00:28:52] Michael Gibson: But by. I guess it was the summer of 2013. I may be missing, it could be 14, but when Ethereum launched, I, I was out there marketing it, you know, pushing the, the initial coin offering. But I ended up not buying a single Ether myself for a couple reasons. But I regret that I have a friend who made millions and Danielle, my co-founder, she’s always joking.

[00:29:20] Michael Gibson: She notices like, whenever I go out for drinks with the guy, he doesn’t cover the tabs. She’s like, how is that, you know, he owes you. But yeah, so I mean, Vitalik is, I don’t know, one of a kind. He is just probably one of the most brilliant people I’ve ever met on the planet. I don’t know his iq, I’m sure it’s in the stratosphere, but one of the things I noticed in the early days was he was just typing in his phone in Mandarin and I asked him what he was doing and he said, oh, you know, I’m communicating with the Ethereum developers in China.

[00:30:04] Michael Gibson: I said, well, how’d you learn that Mandarin? And he said he just taught himself. So that’s pretty different type of mind than your typical 20-year-old. But it’s, it’s sort of like meeting the LeBron James of something. You know, people are always asking me about they, I guess cuz they have in mind, it’s like their frame of reference is like their children or their cousin or themselves.

[00:30:32] Michael Gibson: Like, oh, when I was 18, 19, you know, I, there’s no way I could do that. And then when you look at someone like LeBron and he started in the NBA when, I think when he was 18 or 19, it’s like so clear that the guy. Was just a different type of person. So I think the same is true for, for someone like Vitalik.

[00:30:59] Michael Gibson: You know, another person we met in 2012 and helped launch was Dylan Field. Dylan started a company in 2012 called Figma. They just made news in this last fall because Adobe purchased Figma for 20 billion. When that started in 2012, it was just two guys in a dorm room, pretty much. And we helped him get underway, and Dylan is, I love him.

[00:31:25] Michael Gibson: He’s the antithesis of the Steve Jobs archetype. I mean, Dylan is obsessed with product and design the way Jobs was. And, and certainly because Figma is a design tool, but he’s just the nicest, kindest guy I’ve ever met in Silicon Valley. He’s just so sweet and compassionate, and I can’t imagine him, you know, having a reality distortion field.

[00:31:49] Michael Gibson: So if there was anyone who, you know, whose success I think is wonderful and deserving, it’s Dylan. And so it’s been fun to see him grow that company to the heights it’s reached. So those are a couple, you know, some other people are like Rakesh Agarwal started Oyo Rooms in India. That’s still going pretty strong.

[00:32:12] Michael Gibson: You mentioned Luminar Technologies, Austin Russell. We met him in 2012, fellowship in 2013, and I detailed that relationship in the book too. You know, I portray that relationship and seeing Luminar grow. That was pretty cool. So yeah, those five years and the program continues. So Danielle and I, by 2015, Danielle TrackMan’s, my co-founder in 2015, we hired her to help run the fellowship, you know, all of two weeks after I started.

[00:32:42] Michael Gibson: And she’s a former school principal. She founded a charter school in San Diego called Innovations Academy, and that’s still going today. And so by 2015, Danielle and I thought, wow, you know, we’re doing this nonprofit thing. We could be making money, we could be making investments. There’s no one else who has this investment thesis of backing people without college degrees.

[00:33:08] Michael Gibson: Why don’t we give it a shot? So we raised miraculously in my mind, our first fund, and we’ve been in business ever since. But the fellowship has gone on. There are some successes after we departed too. I think, you know, Scale AI is one. That’s right. Big. So the program’s still doing quite well, and we’re making investments.

[00:33:32] Michael Gibson: About 85% or 90% of our investments are in companies led by people who don’t have college degrees. The only time we’ll break our thesis is if we meet a mad scientist who is just like doing something so weird that we call it science fiction tech. So like we backed a quantum computer company, Adam Computing, in our first fund.

[00:33:56] Michael Gibson: So every so often we’ll do that. But yeah, here we are.

[00:34:01] Robert Leonard: Let’s dive into that a bit more, and as a little recap, you left the Thiel Fellowship and started your own fund, 1517, to use those same philosophies and principles from the fellowship on a wider scale to really impact more businesses and more founders.

[00:34:19] Robert Leonard: It seems like your philosophy and principles are unlike anyone else in the industry. So how has that been your advantage, and how has that really been a hurdle for you over the years? Which do you see more of? Has it been more of an advantage or a hurdle, and how has it been your advantage?

[00:34:42] Michael Gibson: It’s an advantage in that I think it’s just weird.

[00:34:46] Michael Gibson: We don’t trust young people as a society. That may seem strange to say, but when you put it in terms of who grant-making bodies give money to, if you look at the National Science Foundation, the National Institute of Health, or so on, it’s like the average age of the recipients. It’s like 38, 39. And what that means to me is that, well, as a society, these institutions don’t trust younger scientists to do anything.

[00:35:16] Michael Gibson: So even though we had seen Zuckerberg, Gates, Jobs, there are these examples of people, entrepreneurs who didn’t have college degrees and started things when they were young. There were also the counter examples of people like Elizabeth Holmes. You know, I can’t tell you how many times people have said, “Oh, but have you seen the dropout?”

[00:35:40] Michael Gibson: I’m like, alright, you keep believing that because we’ve been making money over here following our thesis. And I think we’ve, you know, developed our diligence and honed our pattern recognition for understanding character that I think we would’ve passed on Ms. Holmes. I guess we weren’t put to the test, but yeah, so it’s like another stat that people love to share with me is that, well, if you look at a lot of successful companies, the majority are founded by people who are 35 and 40.

[00:36:15] Michael Gibson: Or between 35 and 40. And my answer to that is, yes, that is true, but it’s a bell curve distribution. And so while most investors are focusing at the center of that bell curve, we are the only ones all the way on the left-hand tail, helping people get started. So it’s been an advantage in that respect. I guess the disadvantage is that it’s like we’re playing with one hand tied, so most investment firms have.

[00:36:46] Michael Gibson: Their job is just to make great investments, and they don’t care where they find them. The fact that we limit ourselves to only backing people without degrees, I mean, that just limits the pool of potential investment quite a bit. So when we interact with other venture capital funds, there’s always this sort of moment where everyone’s like, “Oh, you got any great deals?”

[00:37:12] Michael Gibson: Is there anything you can share with us? And it’s always one-sided with us. You know, we make investments and then we’re happy to talk about them, but we never meet other funds who say, “Hey, here’s this dropout we met. You gotta meet this person.” So yeah, we don’t get a lot of help from the industry.

[00:37:35] Michael Gibson: The name 1517, yeah, names are important. The name of my book, the name of our fund, 1517, refers to our geeky reference to the Protestant Reformation. Not because we’re religious or Protestants, but because Martin Luther was protesting the sale of indulgences. These were pieces of paper that the church sold at great cost.

[00:37:57] Michael Gibson: You know, the people could buy them. And what it meant was you were absolved of sin, you weren’t going to hell, and Luther was quite angry about this. That the church was making money, you know, forgiving people. So he nailed his thesis to the church door in 1517 on Halloween, as tradition has it, although I guess that’s up for debate.

[00:38:22] Michael Gibson: But for us, what we saw is that there’s a piece of paper that are at least America’s obsessed with. Most people think you’re going to hell if you don’t have it, and you have to pay large sums to get it. And it’s called the Diploma. So we like to say we don’t believe in indulgences. And when I was thinking about naming the book, what I realized was that there are a whole bunch of institutions that rely on paper.

[00:38:55] Michael Gibson: And this ties into the question you raised before, which is in the university setting, you have a diploma and that diploma is supposed to signal something of value about you as a person. And we rely on these authorities, universities, to authenticate that that piece of paper is real, that it’s not counterfeit or fraudulent or whatever, but also to underwrite the signal that it’s meant to send to the wider world.

[00:39:25] Michael Gibson: In what I’ve seen over the last 40, 50 years, is that the performance of a lot of our key institutions has been in decline, especially these institutions that depend on paper and its authentication and signaling system. So it could just be, another example would be the dollar. You know, the Federal Reserve prints dollars on paper.

[00:39:48] Michael Gibson: We rely on them to authenticate these dollars as real and to validate that they signal something of substance, of value, never mind that, you know, it’s being inflated away or something like that. So the authorities in these institutions, in my mind, have become less trustworthy and reliable in the university setting.

[00:40:09] Michael Gibson: I think degrees have signaled less and less of value. You know, what they really signal to the wider world isn’t quite clear. And then what’s more, now a lot of these degrees are, in essence, like fraudulent pieces of paper, where quite frankly I think that, you know, zero skills are learned in a lot of degree programs.

[00:40:33] Michael Gibson: And you know, colleges right now are getting away with it. It’s interesting, I find in the debate about the student loan crisis and the Biden administration’s efforts to forgive loans. One of the key things missing in the whole discussion is who’s responsible for all this debt and the worthless degrees and the lowest wages that people can’t pay off their debts with, and it’s the universities.

[00:41:00] Michael Gibson: So yeah, in my mind, the paper belt defines this region in the northeast that from Washington, DC to Boston, where all these paper-based institutions reside symbolically, at least. So in Washington, they print money regulations, visas on paper, Delaware incorporates on paper, New York, Wall Street Journal, New York Times, Madison Avenue advertising, all on paper.

[00:41:23] Michael Gibson: And in Boston, you know, the pinnacle of American higher education, Harvard and MIT print their diplomas on paper. And so I wrote an essay and I eventually put it on LinkedIn where I said, “My mission in life is to light the paper belt on fire.” And my editor saw that and she said, “Wow, let’s go with that title.

[00:41:48] Michael Gibson: That’s provocative,” and I find it tends to polarize people. But the point is that these institutions are failing. If they’re in decline, maybe we can reform them. I hope we can replace them with something new. I think the Thiel Fellowship and what we do at 1517 points the way in education, I think there’s a long way to go.

[00:42:12] Michael Gibson: But then I think we need to look at some of these other institutions too and whether, you know, we can replace or reform them as well.

[00:42:23] Robert Leonard: Now I want to talk about some of the successes that you’ve had with 1517 and some of the companies, and let’s start with Luminar. It’s such a cool company, and it’s a cool story that you highlight in your book, and you talked about Austin Russell.

[00:42:36] Robert Leonard: So let’s talk about the company and Austin and what drew you to both of them.

[00:42:42] Michael Gibson: I met Austin for the first time at an event we held in 2012. We had decided that we had received so many applications for the Thiel Fellowship, that it was a shame that we couldn’t interact and mingle with more of the candidates, rather than just, let’s say, the finalists or even the fellows.

[00:43:04] Michael Gibson: So we decided to put together more or less like a makeshift conference where we invited a lot of the people who had applied, and Austin had been in our orbit. We held it at the Mission High school in San Francisco. We had just rented out a high school. What was weird about it was the high school is so hellbent on getting everyone to college that the result is proco propaganda everywhere.

[00:43:34] Michael Gibson: But Austin approached us, and he, he’s an interesting individual where he had been doing research and playing around in photonics and laser laboratories in Irvine as a teen, and UC Irvine has a very famous photonics laboratory. Austin’s type of lab rat who snuck in and started mixing it up with professors and stuff when he was just a high school student, not even part of the college.

[00:44:01] Michael Gibson: And so he, you know, when we first met him, he had some ideas about how to generate higher power lasers to do different things. And we always have this question when we meet, back then fellows but now founders, is, you know, the question is, is someone crazy or crazy awesome. Sometimes it’s not always easy to tell the difference.

[00:44:26] Michael Gibson: With Austin, we thought, oh my God, this guy with his lasers because he thought he could do, you know, it could be like power transmission or maybe even diagnostics or, you know, what he settled on at the time at the very beginning was using LIDAR systems to replace cameras in Hollywood, you know, especially for movies that use special effects and green screens.

[00:44:52] Michael Gibson: And we did diligence. We, you know, we had people from the physics department at Stanford that we knew, some physicists who interviewed him, and, you know, he checked out. They’re like, “Hey, you know, he’s doing some wild stuff, but he is not outside the bounds of sanity.” So we’re like, “Okay, yeah, we give ’em a fellowship.”

[00:45:15] Michael Gibson: And then pretty quickly around that time, not that long after the mania for driverless vehicles started to pick up, that stemmed from Google’s first, I think, coming out of the DARPA Challenge in the 2000s. But by 2012, 2013, now the wave had started to pick up just because a lot of advances were being made on the software side for the software that would be used in a perception system for some vehicles.

[00:45:45] Michael Gibson: But Austin’s key insight, he saw a huge opening, was because Silicon Valley seemed to be so obsessed with the software and the computation. He realized that, you know, a lot of advances in the hardware had to come about. It’s like, “I don’t care how fast your computer can get, I think, you know, the quality of the eyes and the data coming in matters.”

[00:46:12] Michael Gibson: And that was what Austin saw. He teamed up with a mentor of his to co-found Luminar, and they were on their way. And it took them some time, but there are constraints within the world of perception technologies that they knew they had to overcome. In a way to meet the needs and meet the needs of, you know, what a car company would need in order to operate a driverless car.

[00:46:41] Michael Gibson: And so some of those constraints are like the distance that the system can see or the conditions under which it can operate, or you know, can it distinguish its own lasers from, you know, some other system that’s shooting lasers at it. I mean, there are so many things that have to be done. And so, you know, it took them some time, they were operating in stealth, but they were making progress, and we were alongside the whole time, you know, doing the best we could to offer advice and strategy.

[00:47:18] Michael Gibson: By 2017, 2018, it had become full-blown mania because you had Elon Musk giving an announcement saying that Tesla, you know, there could be a fleet of Robo Taxis by 2021. You had Uber and Lyft building whole departments. I think Uber bought the whole Carnegie Mellon robotics team out of the campus.

[00:47:39] Michael Gibson: And those companies were positioning themselves, a lot of their future cash flows were premised on this idea that they were going to have robo-taxis. So when you look at the valuation of any startups in the autonomy space from 2017 to 2019, pretty astonishing. And Luminar just kept pushing forward.

[00:48:00] Michael Gibson: They kept, you know, they were always on the outside in terms of they weren’t backed by Sequoia, they weren’t backed by Kleiner. We believed in them all the way, and they always just believed. They had that they were building a technological competitive advantage, and they had it. And so now, you know, here we are.

[00:48:23] Michael Gibson: So I do document in the book, like, okay, what is it like a little bit to work with this company? And then I was there the day they went public on the Nasdaq in December 2020. But, you know, underneath that is just this really tremendous story. I mean, that company deserves a book on its own because it was just like a tremendous heroic effort to innovate in a way that would sustain that competitive advantage.

[00:48:54] Michael Gibson: Now, that said, of course, there, it’s like you have Elon Musk still saying that we don’t need LIDAR. He’s gonna have just cameras. They’re gonna use video cameras. That’s the belief that the computers are just gonna become so powerful. It won’t matter that the data is so sparse. I worry about nighttime vision with cameras not as powerful as LIDAR in nighttime conditions.

[00:49:20] Michael Gibson: Or they can be fooled and spoofed easier. So he, I, I think he’s got some obstacles in his path. And then there are some other LIDAR companies that have emerged. Maybe Invis, Ava’s another one. And I think it’s fair to say, just based on public information out there, that Luminar is still far ahead in terms of the technology and now in terms of, you know, the companies they’re working with. Their main customers, Volvo, I forget the model, but this fall Luminar will be on a large number of Volvos, and that’ll expand over the next few years, and they keep announcing more customers coming online.

[00:50:03] Michael Gibson: You know, once COVID hit and then post-COVID, actually it’s really the economic response to COVID and the inflationary economy. The Fed started hiking rates, and what that meant is that any tech company whose future growth was somewhere in the far future, those companies got hit hard in their valuations.

[00:50:24] Michael Gibson: So it’s like you look across tech stocks, just major declines over the last years since the Fed’s been hiking rates. And then if you look at the autonomy space, it’s been hammered. And so it’s kind of interesting to see that it’s just been harder and harder than people think to get to those robo-taxis.

[00:50:46] Michael Gibson: You know, Ford recently announced they’re shutting down their Argo unit and other efforts are shutting down. So I think the path forward in autonomy is gonna be this incremental path where it starts out using these perception systems for driver assist. What that means is keeping you safe in the lanes on the highway, helping you park your car.

[00:51:10] Michael Gibson: Eventually, we’ll get to the point where you can totally hand over the car, and then as these systems are learning and as they learn, they get better and better, some of the hardware will improve. And so I do think we will get to robo-taxi-type things. It’s just gonna take, you know, another 10 years or so.

[00:51:33] Michael Gibson: But Luminar, yeah, their management team is still extraordinary and they’re really building out their manufacturing. So I am still bullish on the company and I’m excited to see what they do.

[00:51:46] Robert Leonard: I’m glad you painted all the color behind the backstory and competitive landscape because I want to know what you think sets Luminar apart from others that it’s competing against.

[00:51:55] Robert Leonard: Like you mentioned, Elon Musk, Tesla, Google, Google’s AI, and some other smaller companies now in the LIDAR technology that are emerging. So what are the advantages that you think Luminar has over everyone else, and what do you think, if we’re being a realist here, what do you think are some of the risks ahead?

[00:52:13] Michael Gibson: I think right now, they still have a technological advantage when it comes to distance, accuracy, and bad conditions. And some of those other weird problems I mentioned, where it could be like sun glare from windshields, because the sensor in a LIDAR is picking up photons. So you have to know how to distinguish your photons from any other source, whether it’s the sun or lasers.

[00:52:40] Michael Gibson: So the proof in the pudding is just that they are acquiring these customers, and some of their competitors are not. And even when their competitors do sign contracts, it’s always for some small number of units for a development fleet, not for production-level units that are going to be out on the highways.

[00:53:01] Michael Gibson: To me, I think they still have that competitive advantage. If you go point by point, the industry is full of a lot of showmanship through press releases, where people will claim that they have a better range on the system. But what they don’t tell you is that they tested that system in a white room against a black object.

[00:53:26] Michael Gibson: It’s a very different situation when you’re on the road at night, and the object has, you know, 10%, 5% reflectivity. So the fact that Luminar has been able to reach these levels of performance, I think is still impressive. Now, of course, I don’t want to deny that people are racing to try to match their performance.

[00:53:49] Michael Gibson: But I still think that they are years ahead right now at this point. As far as Tesla goes, look, I love Elon Musk. I would never bet against him. I think he’s just like a charismatic, randy, and hero. It’s like, you wouldn’t, you couldn’t make up this guy. But I will say when it comes to the so-called full self-driving of Tesla, I think he’s been wading into some murky territory where I wish he did not call it full self-driving.

[00:54:22] Michael Gibson: There are so many accidents that are reported just about every week where someone trusted their Tesla autopilot when they shouldn’t have. And so I think in terms of safety, that’s been unfortunate. I think there’s a long way to go. It’s hard to predict how technology moves. So if we get to some super artificial intelligence that is so smart, it can take weak data and still read the roads, maybe that’s possible, but for me, the most likely path forward is some perception stack that relies upon LIDAR, maybe a little bit of radar for short range, and then, yeah, sure, maybe even cameras too. I mean, it’s not like that has to be ruled out, but I do think it’s going to be a combination of different sensors.

[00:55:14] Robert Leonard: It’s a really interesting company, and it’s still relatively small. So there’s a big opportunity for growth here. The expectations for growth are really high. I was actually just looking at their financials, and I believe I saw that they’re expecting a hundred percent growth in revenues in 2023. So what do you think is driving those revenue numbers? Is it some of the contracts with the major car and truck companies?

[00:55:43] Michael Gibson: Yeah, the Volvo deal is the current strongest revenue stream, and they have these development deals with a lot of other car companies. That’s like if a car company is testing out different systems, they’re gonna buy units from all the different companies in the landscape. But I think what we’re gonna see over the next year is just knocking down more of these production-level deals where it’s clear that a car company has decided, “Okay, we’re going with Luminar as our provider in the supply chain for perception,” and I think that’s where the revenue is gonna come from—selling those units.

[00:56:24] Michael Gibson: And then they’re also on the software side training. So it’s like, imagine—I guess you could compare it to Tesla—Tesla’s vertically integrated, so the whole car is made by Tesla, including the perception system. But one thing Tesla has made famous is that they’re learning. Every single Tesla is feeding information into the motherboard, the mothership, and then that feeds back out to the cars all over the world and trains them to be better. And so just imagine, you know, Luminar is doing the same thing for the cars that they’ll be in.

[00:57:02] Robert Leonard: As a value investor, I’m still kind of wrapping my head around this whole company. You know, it’s not profitable. They’re spending a lot of money. Their revenue is great, but it’s not profitable. So as a value investor, I’m still kind of wrapping my head around it. It’s still on my watchlist for now, but it’s something interesting that I’m keeping an eye on.

[00:57:28] Michael Gibson: Yeah, it’s still a young company. They went public in the heyday of the SPAC, which is, you know, a lot of those companies that went public through that route are really facing a tough time because a lot of their future revenue is far in the future. And the way Wall Street analysts value companies, especially in a high-interest rate environment, puts a higher discounted rate on future cash flows. So when you look at the valuations of any company that’s in that growth category, they’ve just been slammed.

[00:58:04] Michael Gibson: So I think, you know, Luminar, on a relative basis, has been doing quite a good job. But look, that said, I don’t want to pretend there aren’t challenges ahead. They certainly have a lot of runway, but that revenue stream is going to have to pick up by 2024, 2025.

[00:58:24] Robert Leonard: As we get towards the end of the show, Michael, I want to know what you are working on right now and what you are excited about. What are some of your current or most exciting projects?

[00:58:39] Michael Gibson: Well, yeah, so we’re constantly thinking about how to inspire the next generation. We’ve gotten really good at talent spotting because running the Thiel Fellowship and 1517, there are certain character traits that we look for in founders. However, what does the black box of talent development look like? That’s really hard. We have some ideas that we want to try out. We’re looking to pilot maybe a summer program for teens where we want to expose them to frontier technologies. You know, when I was a teenager, I didn’t know about quantum computing or moving objects in outer space. There are all these different areas that are opening up that could be quite inspiring for teens. And then maybe just getting them together with each other, as we find that can be so valuable.

[00:59:33] Michael Gibson: So we’re looking to go younger and younger, figuring out how to expose people and get them inspired to pursue a different path. This effort is called the Invisible College. We’re always giving names to things, and it’s called invisible because it’s not like a normal college. However, we do want to, funny enough, we don’t believe in classroom education, but we do believe in learning. So how do we get people up to the frontier as fast as possible? We’re trying to dream up new ways to do that.

[01:00:09] Michael Gibson: Otherwise, yeah, we’re just in business. I’m constantly meeting new people and trying to understand where they’re coming from and see how we can help them. We do a lot of events in cities and around college campuses. I actually just got back from a massive Midwest tour where I went to Chicago, Ann Arbor, Indianapolis, Champaign, and the whole time, I was meeting younger people who are building stuff. That’s what inspires me. It’s like a dream. I get to meet people who are doing extraordinary things, and I love the challenge of trying to get up to speed on what they’re working on.

[01:00:51] Robert Leonard: I know you’ve said that you have certain qualities that you look for in founders, and I think for investors, even if it’s a public company, it’s important to have a checklist for the CEO or the management team. So what do you look for? What’s your checklist for founders?

[01:01:04] Michael Gibson: Well, when we started the fellowship, we were too imitative of college. We had an application that looked for—we asked for GPA, your test scores, what college you went to—maybe we even asked for AP exams. And in the end, pretty quickly we discovered that these things were not great predictors of success for entrepreneurs. We had to know that you had the technical know-how and smarts to build what you were going to build, but when it came to success, we just saw some other contributing factors. And then we started canvassing through the research literature on creativity, which is very lame, and these observational studies of past greatness in different fields. So we suddenly realized, “Wow, you know, sometimes we may just have to invent our own terms for things.”

[01:01:57] Michael Gibson: So in the book, I go through a number of them. One of them, and that’s the one I start off the bat with, is pretty common. People want to know that someone has the courage, let’s say, to become an entrepreneur. In a lot of the rhetoric and marketing around entrepreneurship, it’s always portrayed as this leap of faith, like an extreme sport. It’s portrayed as jumping out of an airplane. And there is an element of truth to that. But what we decided was that we had to find the sustaining motivation for that courage. This is a term we use—the sustaining motivation—because we found that what was really important was what motivated people to want to work on this problem.

[01:02:46] Michael Gibson: We discovered it couldn’t be fame or fortune. If you’re after money, starting a company is like the worst way to do it because the chances of success are so low and the ups and downs are so high and low. It can be quite the challenge. So the only way to get through that dark night of the soul is to have some sustaining motivation to pull you through.

[01:03:14] Michael Gibson: It doesn’t have to be that the company you’re working on is like this, that the meaning of life purpose, like, “Oh, you know, maybe you’re saving the environment.” I mean, that can work. Okay, I love that. But it could also be something like you just love the excitement and mischief-making of working with your best friends, and that’s gonna pull you through. So I got that term from a book from the Civil War, of all things. I was just interested in motivation and commitment, and I read a book on why people would reenlist in war after they had seen the horrors. This one historian pointed out various sustaining motivations. And since I saw the same thing, it wasn’t gonna be like in the army. It’s interesting; no one joins for patriotism. I mean, maybe you sign up, but that’s not why you reenlist. Why you reenlist is the band of brothers. It’s like you don’t want to let your friends down. And I think there’s something similar with startups.

[01:04:24] Michael Gibson: So I do think it takes courage, but there has to be a motivating character trait there. And for us, when we’re talking to people who are willing to leave school, that’s just such a strong signal of commitment. It shows that this is so important to you that you’re willing to give up this socially sanctioned commitment to college to do something unusual. That’s a big piece of our puzzle. By contrast, sometimes we meet professors, and they’ve got some research coming out of their lab, but they’re not gonna quit their tenure track job or their tenure job to do it. To us, that sounds like a terrible signal. It means you don’t believe in this idea enough to leave your cushy job. So yeah, we’re always wondering about the commitment and motivation. There’s another one we call the Friday Night Dyson Sphere that touches on commitment too because startups combine ambition and practicalness in a way that sometimes leads to confusion and paradoxes. But for us, we love someone who has a Dyson Sphere. It’s this far-flung idea from the physicist Freeman Dyson that one day we’ll harness the whole power of a star by surrounding it with solar cells, basically. So it’s like the grandest vision you could imagine in science fiction.

[01:05:50] Michael Gibson: So the fact is, if we meet someone and they’re working on this on a Friday night on campus when all their friends are partying, and this is the one thing they want to be working on, and they’ve got some ridiculous plan to move from this lemonade stand that they’re currently operating to grow the business and build Dyson spheres in eight years, that’s something we’d love to hear. So yeah, I think entrepreneurship just requires these types of character traits. They don’t guarantee success, but they certainly contribute to it. And the thing I noticed is that the game is the best teacher. Trying to convey and impart this kind of knowledge in a class just doesn’t work.

[01:06:38] Robert Leonard: Before I let you go, where can the audience go to learn more about you, find your book? Remind people what the name of your book is. Just tell people where they can go to connect with you, learn more about what you’ve got going on, and more about your story.

[01:06:58] Michael Gibson: Yeah, if you have ideas or if you just want to chat with us because you’re interested in startups or have an idea you want to nurture, just go to our website, 1517fund.com. We have a contact form that goes straight to me, Danielle, and a couple of other people. Alternatively, you can always reach out to us on Twitter. I’m @WilliamBlake. When Twitter started, I was a journalist and I thought it was a site for Haiku. I was like, “What is this?” So I signed up as a poet. I do admire William Blake, but yeah, you can follow me there.

[01:07:40] Michael Gibson: Also, don’t forget to pick up a copy or listen to my book, “Paper Built on Fire.” It’s available on Audible. Thanks for having me on!

[01:07:50] Robert Leonard: All right guys. That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week. 

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