Why Peter Thiel Is Wrong To Pay Students to Drop Out

Stanford Law School grad, Peter Thiel, wants to pay college students to drop out. If typical venture capital odds apply, about 22 of the 24 people who took his $100,000 inducement to drop out and spend two years working in a start-up will fail to build a successful company. For their sake, let’s hope the schools will let them back in. And based on research from the country’s top-ranked school of entrepreneurship, the world will be better off if those whippersnappers stay in school and get 10 years of experience before launching their start-ups. Peter Thiel has a mixed investment record but has come out ahead. Thiel made $55 million as a co-founder of online payment service PayPal when he sold his 3.7% stake in the company to eBay (EBAY) shortly after graduating from Stanford Law School. He then became the first major investor, putting $500,000 into Facebook. But his Clarium Capital has stumbled. It had close to $8 billion in assets at its mid-2008 peak. By September 2010, roughly 90% of those assets were gone. Business Insider reported that by then, the fund’s assets under management were down to around $850 million – “and about half of that is Thiel’s.” Nevertheless, Thiel’s still got enough left to make him comfortable with his oft-reported bargain with college youth. In 2011, Thiel paid 24 teenagers and 20-year-olds $100,000 each “to quit school and embark on their technology-based entrepreneurial ventures with the potential to change the world.” The presence of this prize must terrify the parents who have saved up to give their children the security of a college education. Despite the media’s love of stories about the success of Harvard college dropouts Bill Gates and Mark Zuckerberg, the compelling nature of their stories contributes to the delusion that more average people can suddenly gain the entrepreneurial ability of those two outliers. Bill Bygrave has spent a career researching entrepreneurship as a professor at Babson College (where I teach). U.S. News & World Report ranked Babson the country’s leading undergraduate school for entrepreneurship for the last 14 years. In a June 13 interview with Bygrave, I learned about his research into the characteristics of successful entrepreneurs. In a recent paper, Human assets and entrepreneurial performance: A study of companies started by business school graduates, Bygrave and his colleagues reported the results of a comprehensive study of Babson College’s alumni entrepreneurs. A key finding was that the best performing new ventures were started by alumni with about 10 years of professional experience after graduation. Bygrave believes that this finding puts the lie to what he calls the “whippersnapper theory” — that in entrepreneurship youth trumps experience. Not surprisingly Bygrave counts himself among those entrepreneurship educators and researchers who view as misguided schemes like Thiel’s to encourage teenagers to become entrepreneurs. Bygrave in his paper noted that Vivek Wadhwa, director of research at Duke University’s Center for of Entrepreneurship, harshly criticized Thiel’s program for sending what he sees as the message that anyone can be Mark Zuckerberg. According to Wadhwa’s interview with Daily Mail , “Silicon Valley lives in its own bubble. It sees the world through its own prism. It’s got a distorted view. All the people who are making a fuss are highly educated. They’re rich themselves. They’ve achieved success because of their education. There’s no way in hell we would have heard about Peter Thiel if he hadn’t graduated from Stanford.” I asked Bygrave what students get by staying in school. At Babson, students get what he calls “the mechanics” — meaning techniques for evaluating opportunities and putting together a business plan. And while Bygrave is not suggesting that one causes the other, he points out that start-ups with business plans raised more money than those that did not. Peter Thiel is free to spend his money the way he wants and those teenagers are free to accept the offer to drop out of school. But Bygrave’s research shows that the occasional entrepreneurial success of college dropouts is the exception that proves the rule — stay in college and get 10 years of experience — preferably in a fast growing organization — before launching a start-up. source article : forbes.com