The Los Angeles start-up economy seems destined to live in the shadow of Silicon Valley, but PayPal co-founder and venture capitalist Peter Thiel offered some fresh optimism to Los Angeles entrepreneurs and investors. The region's technology industry is the most "underestimated" in the nation, he said, and especially underrated relative to New York City.
The shadow of Silicon Valley, he said, is a good place to be. What he has seen is Los Angeles' proximity to the Bay Area drive an exchange of workers and investors — himself included — that doesn't flow to far-off fellow mega-cities New York and London.
"I'd definitely be short New York and long L.A.," he said.
"There are a lot of great companies that seem to be getting built," he said, offering his own investments in Irvine-based virtual reality headset maker Oculus and Hawthorne spacecraft manufacturer SpaceX as examples.
Thiel spoke to The Times over iced coffee under the shaded patio of a coffee shop in Los Feliz. In town to promote his new book about start-ups, "Zero to One" — a manual of sorts for start-ups, with some libertarian philosophy tossed in — he touched on his own rise and the rise of Los Angeles' technology scene since the days of Myspace, the once-hot L.A. social network that got crushed by Facebook.
Myspace sold to News Corp. for $580 million in July 2005, less than a year after Thiel invested $500,000 in 6-month-old Facebook.
"The anti-L.A. characterization of Myspace was that it was started by people in Los Angeles who wanted to be movie stars, who wanted to pretend to be someone other than who they were on the Internet," Thiel said. "Facebook was started by people at Harvard who wanted to be who they are on the Internet."
California may be overloaded with regulations on business, Thiel said, but it's still a region that embraces risk takers.
Facebook, led by founder and Chief Executive Mark Zuckerberg, for instance, failed to attract funding from several Boston investors in 2004.
"My unproven theory is that the Boston ecosystem somehow thought Zuckerberg was too young [or] too obnoxious," Thiel said. "People didn't want to deal with him. He talked to a few people and no one stepped up. It seemed like a no-brainer at a $500-million valuation."
Claims about a hard-to-like chief executive have also dogged Los Angeles start-up Snapchat as it eyes a lofty valuation, Thiel noted.
He often stares off to the side for several seconds before answering a question, and he chewed on his thoughts for more than a minute before discussing Snapchat.
"There's often a tendency when these valuations go up very fast for these people to be way too negative on these companies," Thiel said. "You never hear anyone say $10 billion is ridiculously low. It's just either impressive or ridiculously high. I don't know what Snapchat's valuation should be, but I do think there's too many people biased against them."
Thiel, a libertarian, doesn't support government subsidies for tech start-ups. But, asked what would help L.A.'s start-up economy to grow, he reiterated a point that he's long made: Creating affordable housing should be the top political priority as it relates to tech because a lack of it hinders growth of the most creative start-ups, which typically compensate employees with stock more so than cash (leaving them in a tighter spot to pay for housing).