The two questions I receive the most:

1) Is Peter Thiel gay?

I have no idea and I don't know why I get this question so often. Who cares?

2) Do I know Peter Thiel's address?

Yes, I know his address because I have been invited to a couple of cocktail parties at his home in association with his hedge fund (Clarium Capital), but I'm not going to hand out his address without his permission because that would be a little fucked up.

The January 2007 article in Bloomberg Markets

Si quieres saber quien es Steve Ballmer, Mitchell Baker, Jeff Bezos, Sergey Brin, Larry Page, Eric Schmidt, Jeff Clavier, Paul Graham, Arianna Huffington, Joi Ito, Steve Jobs, Jonathan Kaplan, Loic Le Meur, Jack Ma, Matt Mullenweg, Rupert Murdoch, Craig Newmark, Gabe Rivera, Kevin Rose, Sheryl Sandberg, Jon Stewart, Peter Thiel, Maria Thomas, Anssi Vanjoki, Jimmy Wales, Evan Williams o Jerry Yang, y que han hecho para merecer estar en este ranking, echa un vistazo a la presentación de diapositivas para descubrir por qué todos ellos tienen el mayor impacto en la web durante estos días. 

The lower the CEO salary, the more likely it is to succeed.

The CEO’s salary sets a cap for everyone else. If it is set at a high level, you end up burning a whole lot more money. It aligns his interest with the equity holders. But [beyond that], it goes to whether the mission of the company is to build something new or just collect paychecks.

In practice we have found that if you only ask one question, ask that.

This is the kind of stuff that keeps me sane when I work with asshats.

Interesting article on TechCrunch about a new startup called Inigral:

"Back when Facebook was a social network only for college students, one of the most popular features was the ability to see not only who was in your class, but who else was taking the same courses as you. (It must have been great for coming up with insightful pick-up lines). Facebook did away with that feature as it broadened beyond the college market. But now another startup is looking to fill the void that Facebook left behind. It is called Inigral and it is backed by the Founders Fund , the same group of angel investors who first invested in Facebook (Peter Thiel of the Founders Fund is still on Facebook's board)."

Read full article here

Peter was listed in the "Whippersnappers - Legends in the making" category in this 2007 New York Magazine special feature ranking some of the best hedge-fund managers.

On interesting bit of info I found in the article is that Peter Thiel happens to have executive produced of the 2005 movie Thank You for Smoking. Didn't know about that before!

Jim Breyer, an investor and director at Facebook, has told me several times that he thinks the world of Cohler. "Cohler is a rock star," Breyer told me several months ago. "He is one to watch."

Kara Swisher reports that Cohler was not pushed out, and I have to believe that is true. That Cohler will remain a "special advisor" to Zuckerberg and the company's management after he leaves is pretty good proof that this is an amicable separation. Cohler, a really smart, cool and nice guy, was very popular at Facebook, and always seemed to know his role as Mark's consigliere and didn't step over those bounds (unlike some other execs). When I asked him a few months ago what advice he gives Zuck, Cohler wisely replied: "I ask him questions and that elicits things." A guy with a golden touch, Cohler will be a great asset at Benchmark, helping them suss out Internet investments.

Cohler joined Facebook in the summer of 2005 at Peter Thiel's request. Here's an excerpt from an interview I did with Matt from June 2007 when he spoke about how he joined Facebook. It shows you the tightness of the Silicon Valley network. He was an exec at LinkedIn at the time but felt that Facebook was a "once-in-a-lifetime opportunity" that could not be passed up.

"In August 2004, Mark came in to meet with Peter Thiel, Reid’s old boss, to raise some angel money to keep the company expanding quickly," Matt told me. "Reid and I were in Peter’s office an hour before. Peter said sit in and listen to this Mark Zuckerberg guy. I sat in on the conversation. Right away I was floored by what I was hearing. The quantitative data that Mark was getting, about the user uptake. I started tracking the company. Peter invested in September of 2004 and became a director. A few months later, Peter asked me to join Facebook. I felt it was a once-in-a-lifetime opportunity. I officially joined in spring of 2005. There were 5/6 employees."

One key question now is this: Who will take over product management when Matt leaves in the fall? Product management is still arguably the most important job at Facebook. It will be interesting to see if Mark Zuckerberg takes it over, or if he appoints someone else from inside the company. It's hard to see Facebook bringing in an outsider to take over product development at this point, given its importance and the uniqueness of the company's culture.

Peter Thiel (twórca PayPal, inżynier Google, były programista Sun) przekazał 500 000 $ na rzecz Seasteading Institute, organizacji, która chce umożliwić tworzenie niepodległych, niezależnych społeczności na oceanicznych platformach. Jednym z twórców organizacji jest wnuk Miltona Friedmana. Może im się uda?

Miejmy nadzieję, że się uda. Szczególnie, że takie pomysły były już wcześniej. Zaś teraz mamy konkretne działania.

Which will Humans Colonize First: the Oceans or Space?

De strijd in het Midden-Oosten leidt ook tot een onoverbrugbare kloof binnen de extreem-rechtse gelederen in Nederland. Wie moeten zij het meest haten: de joden of de moslims?

Het doet me denken aan diezelfde gespletenheid bij de rechtse Vlaams-Nationalisten. Niet dat die ook interviews weggegeven hebben bij het zestigjarig bestaan van Israël - even rondsurfen op Facebook is voldoende. Je vindt er zo direct een paar tientallen leden van KHVH, NSV Vlaanderen (en Leuven en Antwerpen), met onderling heen- en weergekriebel, activiteiten en vriendenlijsten.

Terug naar Israël nu: bij (de in het Vlaamse blogwereldje bekende) Tanguy Veys staat bijvoorbeeld:

Maar een hem bevriend KVHV'ertje vindt dan weer:

Nu hebben die jongens wel meer problemen éénmaal ze over de grenzen kijken... Tegelijk vriendjes zijn met Baskische separatisten (die van oudsher Vlaamsgezinde sympathie meedragen, maar eigenlijk zelf links zijn) en uiterst-rechtse Spanjaarden van Opus-Dei signatuur... of analoog, met de Britisch National Party-aanhangers die spugen op die IRA-honden, of Servische nationalisten en Kosovaarse onafhankelijkheidsstrijders, je moet het maar doen.

Maar het meest bevreemdende van al is de ongecomplexeerdheid waarmee deze aanhangers van de traditionele waarden zich in het Sodom en Gomorrah van Facebook bewegen. Een uitnodiging voor een Latijnse mis volgens de oude ritus (screenshot) tussen de pokes en de bitch slaps... "Supporters of the old regime" ("where God is the center, where nobility, both of birth and of action, is honored", zie screenshot) die verder de alomtegenwoordige Boob Pics, Youtube virals en Fun Wall kettingforwards op hun profieltjes staan hebben.

Bovenstaande verdedigers van de "oude christelijke en volkse waarden", flirtende Saoudische meisjes met profielfoto's in Nikaab, of (gewaagd of zelfs levensgevaarlijk!) een stukje voorhoofdhuid met één haarlok zichtbaar, Europese jonge moslims die zoeken naar een invulling van hun geloof, allemaal zitten ze samen op Facebook, allemaal hebben ze hun identiteit, onderlinge connecties, ideeën, dromen en aspiraties toevertrouwd aan één en dezelfde gigantische database. Verbaast het dat sommigen hierin de hand zien van de CIA? (Zie onderaan dit artikel voor de link tussen de vroege Facebook financiers en een CIA investeringsvehikel.)

En als het al geen meesterstuk is van de CIA, dan zijn Zuckerberg en Peter Thiel er toch in geslaagd om al die tegenstanders van het liberale kapitalisme in kaart te brengen om ze met gepersonaliseerde advertenties... meer te doen consumeren.

But here's what Facebook CFO Gideon Yu told me: Facebook has had 4 rounds of equity capital financing and two rounds of debt financing. Here are its investors:

Microsoft: $240 million
Li Ka-shing: $120 million
Group of individual investors: $15 million

Before that Yu says Facebook raised another $37.5 million from a "B" round venture investment from Accel Partners and a "C" round investment from Greylock Partners and Meritech Capital Partners.

$12.5 million came from Accel Partners in May 2005. And in April 2006 $25 million came from Greylock Partners, Meritech Capital Partners and Facebook’s existing investors Accel Partners and Peter Thiel also participated. Lastly, published reports have said that in late 2004 Peter Thiel invested $500,000 in angel money in Facebook.

That comes out to a grand total of $413 million. Add in the $100 million it got from TriplePoint at that brings you to $513 million. But that still does not include the first round of debt financing. I don't know how much that was for.

An excerpt:

The most straightforward explanation begins with the view that all of these bubbles are not truly separate, but instead represent different facets of a single Great Boom of unprecedented size and duration. As with the earlier bubbles of the modern age, the Great Boom has been based on a similar story of globalization, told and retold in different ways — and so we have seen a rotating series of local booms and bubbles as investors price a globally unified world through the prism of different markets.

Nevertheless, this Great Boom is also very different from all previous bubbles. This time around, globalization either will succeed and humanity will achieve a degree of freedom and prosperity that can scarcely be imagined, or globalization will fail and capitalism or even humanity itself may come to an end. The real alternative to good globalization is world war. And because of the nature of today ’s technology, such a war would be apocalyptic in the twenty-first century. Because there is not much time left, the Great Boom, taken as a whole, either is not a bubble at all, or it is the final and greatest bubble in history.

But because we do not know how our story of globalization will end, we do not yet know which it is. Let us return to our thought experiment. Let us assume that, in the event of successful globalization, a given business would be worth $ 100/share, but that there is only an intermediate chance (say 1:10) of successful globalization. The other case is too terrible to consider. Theoretically, the share should be worth $ 10, but in every world where investors survive, it will be worth $100.25 Would it make sense to pay more than $10, and indeed any price up to $100? Whether in hope or desperation, the perceived lack of alternatives may push valuations to much greater extremes than in nonapocalyptic times.

Is this the dark side of the Great Moderation? Perhaps globalization didn't so much make markets more efficient as it guaranteed that "there are no good investments in a twenty-first century where globalization fails."

I think there may be one fallacy here: Thiel doesn't consider the possibility of an avoidable global catastrophe. The essay is built on the intuition that the "secular apocalypse" would be something like thermonuclear war. But capitalism could also fail through climate change, if it results in hunger, mass migration, and widespread local conflict over scarce resources. A potentially preventable catastrophe is different from what Thiel has in mind, since (as knowledge disseminates) investors might be able to bet on industries likely to improve our chances. The thought experiment only works if we are all really in the dark; and I'm not sure we are.

A lot of questions here -- it's really worth a read. Thiel is president of Clarium Capital Management, co-founded PayPal, and is chairman of the board of Palantir Technologies: a pretty impressive biography. Though maybe we should wonder about too many claims of prescience?

Needless to say, I am excited. Yet a part of me tells me that it will result in something like what one commenter predicts:

It sounds like a great idea, seeing as anyone with a boat could hook up to whichever jurisdiction they wanted, giving them that almost zero cost of movement.

However, I guarantee--guarantee--that as soon as stuff like this was set up and people were going for drug holidays and cocaine was being moved through them and weapons were sold willy-nilly and gambling and prostitution and all of it, the big countries would just get together and come up with an Oppression Pact, change the maritime laws, and shut it all down.

Facebook has 59 million users - and 2 million new ones join each week. But you won't catch Tom Hodgkinson volunteering his personal information - not now that he knows the politics of the people behind the social networking site.

I despise Facebook. This enormously successful American business describes itself as "a social utility that connects you with the people around you". But hang on. Why on God's earth would I need a computer to connect with the people around me? Why should my relationships be mediated through the imagination of a bunch of supergeeks in California? What was wrong with the pub?

And does Facebook really connect people? Doesn't it rather disconnect us, since instead of doing something enjoyable such as talking and eating and dancing and drinking with my friends, I am merely sending them little ungrammatical notes and amusing photos in cyberspace, while chained to my desk? A friend of mine recently told me that he had spent a Saturday night at home alone on Facebook, drinking at his desk. What a gloomy image. Far from connecting us, Facebook actually isolates us at our workstations.

Facebook appeals to a kind of vanity and self-importance in us, too. If I put up a flattering picture of myself with a list of my favourite things, I can construct an artificial representation of who I am in order to get sex or approval. ("I like Facebook," said another friend. "I got a shag out of it.") It also encourages a disturbing competitivness around friendship: it seems that with friends today, quality counts for nothing and quantity is king. The more friends you have, the better you are. You are "popular", in the sense much loved in American high schools. Witness the cover line on Dennis Publishing's new Facebook magazine: "How To Double Your Friends List."

It seems, though, that I am very much alone in my hostility. At the time of writing Facebook claims 59 million active users, including 7 million in the UK, Facebook's third-biggest customer after the US and Canada. That's 59 million suckers, all of whom have volunteered their ID card information and consumer preferences to an American business they know nothing about. Right now, 2 million new people join each week. At the present rate of growth, Facebook will have more than 200 million active users by this time next year. And I would predict that, if anything, its rate of growth will accelerate over the coming months. As its spokesman Chris Hughes says: "It's embedded itself to an extent where it's hard to get rid of."

All of the above would have been enough to make me reject Facebook for ever. But there are more reasons to hate it. Many more.

Read the rest of the article here.

Article by Tom Hodgkinson. First publsihed in The Guardian, Monday 14 Jnauary, 2008. 

First of all, you probably need co-founders. A quick analysis of all the recent success stories points to 2 or 3 being the optimal number. For example, Bill Gates had Paul Allen at Microsoft [current team of CEO Steve Ballmer and Chairman Bill Gates above left] , Larry Page has Sergey Brin at Google and Mark Zuckerberg initially had Andrew McCollum and Dustin Moskovitz at Facebook.

Setting up a business on your own occasionally works e.g. Jeff Bezos with Amazon, but the process of bouncing ideas around just isn’t possible in the same way. Finally, if the core team start off as 4 or more, people often end up dropping out due to having differing expectations or effectively becoming a ‘spare part’ due to there being an overlap of skills within the team.

A good way to improve your understanding of these sort of relationships is by reading Founders at Work (by Jessica Livingston, Partner, Y Combinator) – a collection of 32 candid interviews about the early days with founders from the likes of Apple, Hotmail, Yahoo!, PayPal and Firefox.

Having read the book myself, it seems that a common pattern emerges - complimentary skill sets. Guy Kawasaki (Author, The Art of the Start) explained the dynamic well at the annual TiE conference in 2006:

“If you’re a great engineer, you need to find a great marketer. If you’ve got a great engineer and a great marketer, then maybe you need to find someone who’s good at operations. If you’re a youthful young visionary, then you need to find adult supervision.”

OK. The last sentence is slightly tongue in cheek, but the point is clear enough and you can draw upon analogies from any number of sporting teams. However, it’s not necessarily essential to cover every single base of skills in the initial team. You’ll learn and develop skills on the job. For example, with GroupSpaces I started off having done a couple of banking internships and an alumni fundraising campaign which furnished me with reasonable finance and sales skills; and my co-founder Andy Young started off with several years of Web development under his belt. After working together for a couple of years, Andy’s developed into a top graphic designer and my understanding of management, marketing and corporate law has developed tremendously. That’s now resulted in us having pretty much all the bases covered

The other thing to bear in mind is quality. You need to “Keep the A-team the A-team”. In the speech mentioned above, Kawasaki also touched on the rationale behind this saying:

“A-team players hire A-team players, B-team players hire C-team players, C-team players hire D-team players and if that happens, before you know it, you’ve got Zee-team players.”

And finally, remember - lots of people have exciting ideas, but they’re worthless without good execution– it doesn’t matter how fantastic your idea is if you don’t have a sufficiently talented team to make it happen.

I’ve got a team, who else do I need?

Find the right mentors. For any first time entrepreneur, this is absolutely crucial. Unfortunately entrepreneurship isn’t something you can learn by studying, you learn by doing. I remember a Harvard MBA saying something particularly memorable to me while we were having dinner at Smollensky’s in Oxford last August:

“Business is a trade; you learn with an apprenticeship and you improve by practicing.”

Where this school of thought derives from is mistakes. You learn about how to start a business by trying stuff out and making mistakes. Gradually you realise what works and what doesn’t and this is called “experience”. This is where the mentor comes in particularly useful. Any good mentor will have lots of experience and can hopefully share the lessons from many of the mistakes which they themselves have made in the past so that you don’t have to make them yourself.

The PayPal Mafia are a prime example of the benefit which good mentors have. PayPal’s original CEO Peter Thiel invested $500,000 in Facebook when Zuckerberg went to meet him in June 2004, 5 months after they launched the website. Having already taken PayPal from zero to a $1.5bn sale to eBay in 2002, Thiel clearly knew his way around Internet business. Now that Facebook has over 50 million users and has been valued at 10 times this figure ($15bn) with 23-year old Zuckerberg and Thiel still composing 2 members of the 3-man board, most would credit Thiel’s guidance significantly.

Further evidence of the value of mentors and experience is provided when one realises that of the original PayPal team, Reid Hoffman (former Executive VP, Business Development) founded LinkedIn, Chad Hurley and Steve Chen (former developers) founded YouTube, Max Levchin (former CTO) set up Yelp and then Slide, and David Sacks (former COO) has recently started Geni. With a combined valuation in excess of $5bn, it’s not hard to see the value in sharing lessons learnt in setting up particular types of business.

At a more mundane level, it can make a big difference having someone with experience to call on when you want to incorporate a company, draft a shareholders’ agreement or even just write important letters.

My idea needs money to make it happen. Where do I go?

1. You’ve probably heard of Venture Capital. VCs (Venture Capitalists) give entrepreneurs cash in exchange for shares in their company. Generally, Venture Capital investments are £500,000+ and firms often don’t want to invest less than £1M in companies for their portfolio. In the UK, VCs tend to only invest in proven concepts; now this could be the entrepreneur running the company (i.e. he/she’s been successful before) or it could be that the company already has a well-developed product and lots of customers. It takes time to get to this sort of stage and a VC would almost certainly want the entrepreneurs they invest in to work full-time on their company. Therefore, this one’s unlikely to work for you.
2. Angel Investors are affluent individuals who provide capital for start-ups and they typically invest their own funds. This is in contrast to VCs, who invest the pooled money of others via a professionally managed fund. Investments of £50,000-£500,000 are typical angel territory, and like VCs, they probably want shares in your business. Connecting early-stage companies and angel investors can be difficult outside of personal networks, so angels often get together in “angel networks”. Formed out of a group of angels, these function like a real-time version of Dragon’s Den. Once every couple of months, a few lucky entrepreneurs get to pitch their idea to the network at a presentation and they are subsequently asked questions. Hopefully they end up receiving offers of investment too. Popular angel networks in the UK include London Business Angels (LBA), Oxford Investment Opportunity Network and Oxford Early Investments (OION & OEI) and the Great Eastern Investment Forum (GEIF).
3. Micro seed funding (as oppose to “seed funding” which is synonymous with “angel-level funding”) has been pioneered by Y Combinator (YC) in recent years. It is a biannual scheme with an intensely competitive application process: first, hundreds of entrepreneurs around the world submit answers to 25-30 questions; next, a chosen few teams are interviewed; finally, around 10 receive funding each cycle. For the chosen ones it was well worth running the gauntlet – not only do they receive somewhere between £5,000 - £15,000, but the teams also spend 3 months living in a start-up hub, get the opportunity to meet many successful entrepreneurs and at the end pitch their ideas and products at an Investor Day. In addition to YC which runs in Boston each summer and Silicon Valley each winter, Techstars (Colarado) and Seedcamp (London) have also launched micro seed funds.
4. If all the above options sound like too much hard work or you don’t feel confident of going through the gruelling process necessary to get financed through one of them, you can always resort to the Three "Fs":

   >> Friends
   >> Family
   >> Fools

   Typically, people in these groups might give you up to £50,000. The great benefit here is that you're unlikely to have to do lots of legal work agreeing everything and you can work under a more relaxed arrangement

In terms of student entrepreneurs receiving funding, Oxford Entrepreneurs society (OE) seems to be leading the way in the UK. Having spawned 5 companies who have received at least 6 figures of funding since its inception in 2003, they are developing a reputation for deal flow. As Thomas F. A. Whitfield (Founder, Miomi.com) said:

“Entrepreneurs build companies; OE builds entrepreneurs.”

And with highly motivated alumni such as Sumon Sadhu (currently on Y Combinator in Silicon Valley) graduating and setting up Imperial Entrepreneurs in 2006, the future looks bright. Today - LSE, KCL, Warwick, Bristol, Bath and a growing number of other universities also have societies using similar models. So if you’re looking to raise some money to help make your idea happen, the entrepreneurship society at your university should be one of your first ports of call.

Now you’ve got an idea, you’ve worked out what product or service you’re going to provide, you’ve formed an initial team, got your mentor(s) in place and hopefully raised a little bit of start-up capital. Surely this is great news? But wait. Don’t you still have a degree to do?

Coming up next week: How do I balance my degree with my business?

You can view the original version of this article on page 8 of this week's edition of The Gateway.

"Does Facebook really connect people? Doesn't it rather disconnect us, since instead of doing something enjoyable such as talking and eating and dancing and drinking with my friends, I am merely sending them little ungrammatical notes and amusing photos in cyberspace, while chained to my desk?A friend of mine recently told me that he had spent a Saturday night at home alone on Facebook, drinking at his desk. What a gloomy image. Far from connecting us, Facebook actually isolates us at our workstations."

C'mon, I think you're supposed to be working at your workstation, not socializing and if you're wasting your days on the computer and not getting out to see your friends that's bloody well not Facebook's fault.

And then he goes on with this ridiculous comment,

"Like PayPal before it, it is a social experiment, an expression of a particular kind of neoconservative libertarianism. On Facebook, you can be free to be who you want to be, as long as you don't mind being bombarded by adverts for the world's biggest brands. As with PayPal, national boundaries are a thing of the past."

Join the internet revolution, friend, where borders are a thing of the past and pirates, pornographers, and neocon libertarians are out to eat your children. Are adverts nefarious suddenly?

Then after criticizing Peter Thiel's libertarian philosophies and free market politics he goes on to say

"Facebook is profoundly uncreative. It makes nothing at all. It simply mediates in relationships that were happening anyway."

Yes, and it has been able to connect people better than any other site developed so far.

He then goes on a rant about Thiel's futurist goals of personal enhancement which I won't go in to here at but but he concludes with this barn-burner,

"So by his own admission, Thiel is trying to destroy the real world, which he also calls "nature", and install a virtual world in its place, and it is in this context that we must view the rise of Facebook. Facebook is a deliberate experiment in global manipulation, and Thiel is a bright young thing in the neoconservative pantheon, with a penchant for far-out techno-utopian fantasies."

This is a ridiculous distortion that barely deserves comment. He also devotes a fair bit of column space to Thiel's 'absurd' wealth.

Further paragraphs in the article mention investment capital from the CIA (a bit frightening) and then a personal commitment to get more in touch with nature. Yes, Tom, I think a bit of fresh air will do your head some good

Read the rest of Tom's article here.

Privacy concerns with sites like Facebook are certainly legitimate and any savvy net user will be very prudent about what personal information he/she puts online. Facebook is a private company and owns whatever info you give them. If that gives you the creeps, it's best to stay away.

By Rebecca Buckman, via A VC.

Three years ago, Peter Thiel, who runs a small venture-capital concern called Founders Fund, plowed $500,000 into a little-known social-networking Web site called Facebook Inc. Later on, his company invested a bit more.

That was a good call. The paper value of Mr. Thiel's initial stake has increased more than 50 times. Facebook now ranks among the hottest online properties, with some 59 million users and investors such as Microsoft Corp. piling in.Peter Thiel clicked wisely with his Facebook investment.

Mr. Thiel, the former CEO of online-payment company PayPal, is making waves in Silicon Valley with an investment strategy that differs significantly from the traditional approach. His company invests only modest amounts of money, sometimes just a few hundred thousand dollars, and focuses on entrepreneurs Mr. Thiel and his partners often know personally. He also takes an uncharacteristically hands-off approach to company management.

Already, the gambit has yielded several potential winners like Facebook.

The venture-capital world "definitely needs to be shaken up," says the 40-year-old Mr. Thiel, an avowed libertarian who helped bankroll the movie "Thank You for Smoking," a satire about improving the reputation of cigarettes.

His company also reflects how a new type of venture capitalist is emerging, as start-up costs for Internet companies decline sharply. Many start-ups now need a bankroll of no more than a few hundred thousand dollars to get rolling, compared with the millions of dollars required a few years ago.

Other companies capitalizing on this trend include First Round Capital in the Philadelphia suburb of West Conshohocken, Pa., run by former Internet entrepreneur Josh Kopelman, who started online-commerce site Half.com and later sold it to eBay Inc., and Silicon Valley concerns such as True Ventures and Baseline Ventures. Many of the companies now manage money for outside investors, unlike informal "angel" investors who typically make small, one-time investments with their own money.

Most traditional VC companies want to invest larger sums, several million dollars, say, for large stakes in start-ups and then exert control over the companies' operations. Some demand "liquidation preferences," or guaranteed returns if companies are sold.

'Cushy Jobs' of VCs

Venture capitalists often can be too quick to fire start-up founders and replace them with professional managers, Mr. Thiel says. He blames a cultural divide: Many VCs "have these very cushy jobs, they get paid a lot," and often can't relate to founders, he says.

With so much money chasing deals in Silicon Valley these days, start-ups can afford to be choosy in picking their financial backers. They are increasingly turning to companies like his that offer less of a "command and control" model, he says.

Mr. Thiel and his fund's other partners, including two other PayPal co-founders, Ken Howery and Luke Nosek, also claim an advantage because of their front-line experience starting companies themselves. Mr. Thiel also runs a hedge fund, Clarium Capital.

The Facebook coup was one of several Founders investments that have generated "a healthy amount of envy" from other venture capitalists, says Max Levchin of Slide Inc., a start-up maker of software called widgets, or mini-applications used to decorate Web pages. In 2004, Mr. Levchin invited Mr. Thiel to be one of Slide's first investors, meaning bigger venture companies such as Mayfield Fund and Khosla Ventures could only invest later, for more money.

Heart in San Francisco

Mr. Thiel, who based Founders Fund in San Francisco rather than the traditional VC hotspot of Sand Hill Road in suburban Menlo Park, Calif., is structuring deals differently from how traditional venture capitalists do. Significantly, the fund often buys only a 5% or 10% stake in a company and sets up a special class of stock that start-up founders can sell while they are building their companies -- and before venture-capital investors see profits. That way, the thinking goes, the company founders can reap some financial reward and stay motivated to build the company before an IPO or company sale, which can take years.

Some traditional investors don't think founders should make money before backers do, since early paydays might distract them from the task at hand.

All of this is causing traditional VC firms to re-examine the way they invest in tiny tech start-ups. VC concerns including Trinity Ventures, for example, are now letting a few of their entrepreneurs "take money off the table" early on by selling stock.

Many big venture firms have also started looking at much smaller deals. Accel did six deals less than $1 million this year, although the company says that was in response to increasing valuations for larger-sized investments.

About a year ago, Charles River Ventures announced a program to offer $250,000 loans to fledgling Internet start-ups, far smaller than its usual investment size. Charles River is now also making equity investments in companies through its QuickStart program.

Partner George Zachary said his company launched the program because it was encountering many companies that didn't need a traditional, multimillion-dollar VC investment and the attendant hand-holding.

Just how successful Mr. Thiel's investing tactics are remains to be seen; Founders Fund hasn't yet seen any payout from the Facebook stake. However, it recently collected a big return when one of its investments, computer-security and antispam concern IronPort Systems Inc., was sold to Cisco Systems Inc. for $830 million.

Some Backlash

Mr. Thiel acknowledges his company faced resistance from blue-chip investors when it set out to raise money for its latest, $220 million venture-capital fund. One large institutional investor, who declined to be named, said he was put off by Founders Fund's anti-establishment pitch. Others wonder whether Founders Fund could soon tap out its close-knit network of entrepreneurs and run out of companies to fund.

"The early-stage venture game has always been about getting in early and getting in cheap," says Founders Fund partner Sean Parker, who helped start companies including online-music service Napster and online address-book company Plaxo Inc. "Some of those deals are now going to funds like ours."