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Peter Thiel: The Biggest Lesson From 10 Years of Venture Capital

By Peter Thiel · Fundraising · 1 min read

Facebook's Series B was a 12x up round in 8 months — the steepest up in any company we'd been involved in. In retrospect, it was perhaps also the cheapest. It cost billions not to do our full pro rata.

Key Points

When things are working, people underestimate. When things aren't, they underestimate the trouble they're in.
Every big up round by a smart investor was a good idea to do your pro rata. Down rounds were almost always bad.
Facebook's Series B: 12x up in 8 months. The steepest — and in retrospect, the cheapest.

The biggest mess of the last decade was not doing our pro rata — or the full Series B — at Facebook. In retrospect, it was perhaps the cheapest.

People Underestimate When Things Are Working

Thiel: People, once something works, often underestimate. And when things aren't working, they underestimate how much trouble they're in. In most areas of investing, momentum is not that good a way to invest. A stock's gone up, you don't necessarily want to chase it.

But when I've done the back-testing on our portfolio — every time a company had a big up round led by a smart investor, it was always a good idea to do your pro rata. Flat rounds, down rounds — it was almost always a bad idea.

Every big up round by a smart investor was a good idea to do your pro rata. Down rounds were bad.

Facebook's Series B: The Cheapest Round in a Decade

Thiel: The biggest mess of the last decade was not doing our pro rata — or for that matter the full Series B — at Facebook. It was a 12x up round in 8 months. The steepest up in that amount of time in any company we've been involved in.

In retrospect, that was perhaps also the cheapest. One of the reasons it was so underpriced — investors don't want to step up that much.

Facebook's Series B: 12x up in 8 months. Steepest up ever. In retrospect, the cheapest.

On the Inside, It Didn't Feel Like It Was Changing

Thiel: Even the people on the inside often underestimate how much things change. It was still 8 or 9 people at the company. They had this office with horrible graffiti art on the wall. Even though they had these abstract charts going exponential, on the inside it didn't feel like things were changing that much.

You have these subtle but very important points where somehow the leverage shifts, where the dynamics shift very powerfully. And they tend to get very underestimated.

8 people, horrible graffiti art, charts going exponential. On the inside, it didn't feel like it was changing.