From Law Dropout to Billionaire: The Story of Peter Thiel’s Investment Strategy

Peter Thiel

How does someone become a billionaire? The most popular option is to start a company, maintain as much equity as you can, and scale the business to the moon. This is precisely what all of the most famous billionaires did, including Jeff Bezos, Mark Zuckerberg, Elon Musk, Steve Jobs, Bill Gates, and so on.

In fact, many of them only own single-digit percentages of their companies at this point, but it still translates to a massive fortune. Jensen Huang, for example, only owns a little more than 3% of Nvidia, but that itself translates to over $70 billion.

A less common way is to invest yourself up there. Legendary investors like Warren Buffett and Jim Simons were able to compound a modest amount of money into tens of billions over a lifetime of investing.

More recently, we’ve also seen some employee billionaires pop up here and there, like Tim Cook, Sundar Pichai, and Steve Ballmer. No matter how these people made their fortunes, one common thread is that they all worked extremely hard. Most of these people worked to live for decades and still work to live even though they’re already rich.

But what if I told you that there was someone who not only made $1 billion but $10 billion and never really had any real earned income? Well, that’s exactly what Peter Thiel did. You see, Peter never really had a job at his own company or any third-party company. And no, he didn’t inherit his money either. What Peter actually did was align himself with people who did have money and people who did have businesses. He connected the two and made billions in the process. He was basically a trillion-dollar real estate agent.

That’s by no means a knock on Peter. In fact, it’s the exact opposite. Peter worked smarter, not harder. While Peter was never really working to the bone, he did take on insane amounts of risk, stress, and responsibility. He made it such that billions of dollars were working for him so that he never had to.

So, here’s the insane story of Peter Thiel, the man who made $10 billion without ever working.

Completely Lost

But anyway, taking a look back, the story of Peter Thiel takes us to October 11, 1967, in Frankfurt, West Germany. This was during the peak of the Cold War and the race to the moon, so tensions between West Germany and East Germany were at an all-time high. In an effort to create a better environment for his family, Klaus Friedrich Thiel, Peter’s father, moved the family to Cleveland, Ohio when Peter was just 1 year old.

However, this was by no means a permanent arrangement. Peter’s father worked as a chemical engineer for various mining companies, so the family was regularly on the move. At one point, the family even lived in modern-day Namibia. In fact, Peter switched elementary schools seven times, meaning that he didn’t even average one full year at any school.

By the time Peter reached middle school, the family finally settled down in Foster City, California, giving Peter the space to excel. And let’s just say, Peter more than excelled. He was a natural mathematician. In fact, he placed first in a state-wide math competition in California and graduated as valedictorian.

Hearing this, I don’t think you’d be surprised to hear that Peter was accepted into Stanford. But you might be surprised at what he chose to major in. He didn’t major in computer science, engineering, or anything STEM-related. He actually chose to major in philosophy.

This was during the era in which identity politics and political correctness were first starting to make their rounds, which stirred up quite a bit of controversy on campus. Peter was very much against these new ideologies, so much so that he created his own libertarian campus newspaper for Stanford called the Stanford Review. Peter went on to serve as the newspaper’s editor-in-chief for the rest of his undergraduate studies.

Seeing this, you might think that Peter pursued journalism, but that’s not quite how things played out. After graduating in 1989, Peter enrolled in Stanford’s Law School and earned his law degree in 1992. With that big of a commitment, you would think that Peter would pursue a career as a lawyer, but that couldn’t be further from the truth. Peter barely lasted a year in the world of law.

His first job was as a clerk for a judge on the US Court of Appeals in Alabama. He wasn’t a big fan of clerking, though. He thought that finance might make things a bit more interesting, so he quickly switched over to being a securities lawyer for a financial firm in New York, but he only lasted here for seven months and three days. By 1993, he was completely done with the law, citing a lack of transcendental value in the job.

At age 26, Peter decided to make a complete pivot to the finance industry. He took on a job as a currency derivatives trader at Credit Suisse. While there was a lot of money to be made in this field, this too did not fulfill Peter’s need for purpose and meaning. So, he once again left this job and took on a role that was well below his pay grade.

He became a speechwriter for then US Secretary of Education William Bennett, but this too was not what he was looking for. Eventually, in 1996, Peter returned to California completely lost. He had all the intelligence and education in the world, yet somehow, he didn’t have a career. This is when Peter first realized that maybe the traditional 9 to 5 just wasn’t for him, leading us to Peter’s insane pivot.

Thiel Capital Management

While law school didn’t give Peter a career that he actually wanted, it did set him up with an insane amount of connections. Just think about it. He knew dozens of lawyers from Stanford Law School and dozens of finance bros from his time in New York.

In other words, he was surrounded by multi-millionaires and even deca-millionaires, and that gave him an idea. What if he opened up an investment firm, and not just a value investing firm like Warren Buffett or a trading firm like Jim Simons, but the riskiest of all investing firms: a seed venture capital firm?

If you’re not familiar with seed venture capital, it’s basically when a bunch of college kids and young adults come to you with a PowerPoint and ask you to give them hundreds of thousands, if not millions, of dollars to grow their business. Naturally, a majority of these startups will fail, but the idea is that a few of them will end up becoming the next Microsoft or Apple and make all the losses worth it.

Usually, seed and angel investing is a game of billionaires. Once founders make a crap ton of money, they like to get into VC investing, not necessarily to make money, but basically to pay it forward for the next generation of entrepreneurs. A perfect example of this is Shark Tank. All of the sharks are multi-centi-millionaires or straight-up billionaires, and they’re for the most part retired. Investing in all these startups is just something they do for fun, and if it turns out to be profitable, even better.

Peter, however, wasn’t doing this for fun; he was doing it for profit. Also, Peter didn’t have any money to burn either, so he ended up asking all his wealthy friends for money.

The pitch was basically, “Give me some money so that I can invest it in the riskiest places in the world, and by the way, there’s a 90% chance that you lose everything.” The only reason this pitch worked was because his friends had money to burn. It really goes to show the importance of building up a strong and powerful network.

Anyway, Peter managed to raise $1 million from his network, and with that, he established Thiel Capital Management in 1996. Now, you might be wondering, how does Peter make money from all of this? Well, it’s not clear what structure Peter used exactly, but the traditional approach is 2 and 20.

Basically, the fund manager, which in this case was Peter, charges a 2% fee on the total assets under management every year along with a 20% fee on all profits generated from the fund. Peter is often known to charge no annual management fee and make his entire compensation performance-based. For example, one of his later funds, Clarium Capital, charged 0 and 25.

When you’re only dealing with a million dollars, this doesn’t translate to very much money, but if you hit some winners and grow into the tens of millions, hundreds of millions, or especially billions, you start making bank. And let’s just say, Peter was about to have the winning streak of a lifetime.

Winning Streak Of A Lifetime

Peter naturally started off by investing in his friends’ ideas. His first investment was $100,000 in his friend Luke Nosek, who was building a web-based calendar similar to Google Calendar. Unfortunately, this company went bust, and Peter lost the $100,000. However, the investment in Luke was by no means a waste.

After the calendar project flopped, Luke teamed up with one of his tech friends, Max Levchin, and together they created a new company called Fieldlink using capital from Peter. The company aimed to become a cybersecurity company for handheld devices, but this didn’t go anywhere either.

So, Luke and Max pivoted once again into the digital wallet industry with a company called Confinity. You might not be familiar with Confinity, but you’re definitely familiar with what it became. Confinity merged with another fintech company called x.com, founded by Elon Musk and a few others. Together, they created PayPal.

Technically, after the founders had a falling out and Elon Musk got fired from his role as CEO, Peter took over as CEO of PayPal in October of 2000. However, he was by no means your typical CEO. Peter’s job as CEO was not to build out the company, invest in the team, or scale profits, but rather to find PayPal an exit. And that’s exactly what he did.

He took the company public in early 2002, and later that same year, he got eBay to buy the company for $1.5 billion. Due to all the failures, pivots, mergers, and dilution, Peter was watered down to 3.7% by the time the deal closed, but this still resulted in $55 million for Peter.

At this point, most would count their lucky stars and retire, but Peter was just getting started. Now that he actually had capital of his own and status as the don of PayPal, Peter simply doubled down on investments. In 2002, he founded a hedge fund called Clarium Capital, and in 2003, he founded Palantir, which you’ve probably heard of if you were part of the 2021 investing boom.

By far, his biggest play didn’t come until 2004. This is when Peter cemented himself as a legendary VC investor by becoming the first outside investor of Facebook. In August of 2004, he gave Mark Zuckerberg $500,000 in exchange for 10.2% of Facebook. Let me just remind you that Facebook is now worth $1.3 trillion.

Of course, Peter’s 10% stake got heavily diluted with newer investors and stock compensation plans. Also, Peter didn’t hold his entire stake forever; he did cash out over time. But despite all that, Peter’s $500,000 investment turned into billions. Peter used all these returns to invest in a slew of Silicon Valley startups, including Asana, Lyft, Yelp, Airbnb, Zynga, Twilio, Spotify, SpaceX, and Stripe, just to name a few. Peter has over a hundred such investments, so it’s no wonder he made a killing.

But more than all of his startup investments, the one that sticks out the most is his bet on cryptocurrencies. If you didn’t already know this, I think this will blow you away. Peter Thiel is arguably the reason that Ethereum, the $400 billion cryptocurrency, exists.

Roughly 10 years ago, Peter gave Vitalik Buterin $100,000 to drop out of college and go full-time on developing Ethereum. And this was by no means Peter’s first dabble in crypto. In fact, Peter has been predicting that some sort of digital currency will take over the world since 1999.

And I think that right there tells you everything you need to know about how Peter made $10 billion. Peter never worked to the bone coding or doing physics or any of that traditional stuff. But he didn’t need to, because that’s not where his talents really lay, even though he was good at STEM.

Peter was and is a philosopher, a true visionary, just like his degree suggests. He foresaw the internet boom, the social media boom, and the cryptocurrency boom. He’s heavily invested in the AI space as well.

Of course, Peter had tremendous resources to be able to turn his visionary thinking into profit, but that doesn’t change the fact that Peter is one of the most unique billionaires out there. He worked smarter, not harder, and that’s how Peter Thiel made $10 billion without ever really working.