The following interview is a conversation we had with Michael Patrick Gibson, Founder and General Partner, 1517 Fund, on our podcast Category Visionaries. You can view the full episode here: Lighting the Paper Belt On Fire: a Discussion on the Failure of Traditional Institutions with 1517 Fund’s Michael Patrick Gibson.
Michael Patrick Gibson
Hey, thanks for having me on, Brett.
Brett
No problem. So we’re coming off the back of some crazy times in tech land here. So Silicon Valley Bank collapsed five days ago, so I’d love to start there. What’s the past five days been like for you as a VC? Take us behind the scenes.
Michael Patrick Gibson
Yeah, pretty wild. So as a fund, weren’t directly in trouble. So we don’t bank with Silicon Valley bank, and insofar as our day to day operations go, that was fine. Where we saw difficulty was with a few of the companies that we’ve invested in. So not only a handful, but still of those, some of them had quite substantial holdings at SVB. So they were in a very dire predicament. They wake up on Friday morning and in some cases, these companies had millions of dollars that were suddenly no longer available. And that was frightening for them. They had payroll to process in the week ahead. They had bills, they had the pay to vendors, so it looked like their business could be completely destroyed just overnight. So that was quite frightening. Add on top of that, just the fact that there was a bank run at SVB meant that there was the possibility, an increasing likelihood of a bank run at any other bank that had a similar balance sheet or profile to SVB.
Michael Patrick Gibson
Probably foremost among those in Silicon Valley is First Republic Bank. They didn’t nearly have the debt on their balance sheet that Silicon Valley bank had, but nevertheless, there was the fear that just in these types of situations, even the slightest doubt is going to lead any depositor to wonder, should I keep my money at that bank? And then once people start thinking that way, then there’s the fear of a bank run at multiple banks, and then after that, you have a financial crisis. So over the weekend, as the FDIC was making what they could of SVB’s situation, trying to find a buyer, there was a time period from, let’s say Friday to Sunday night where the uncertainty was so great, no one knew what was going to happen. And in that situation, as anyone might have seen on Twitter, it was like every single crazy opinion was raised and fought and argued and so on.
Michael Patrick Gibson
So it was quite frightening in the event when the Fed and treasury stepped in to guarantee the deposits. We can go into that debate about banking policy, but it certainly brought a sigh of relief to those companies.
Brett
Let’s talk about that debate, if you’re okay with that. I tweets that you were putting out and would love to understand your perspective. And then maybe if you could just explain to us, like, the other side.
Michael Patrick Gibson
Okay, so we can go back to 2020, 2021, especially in response to the pandemic. The United States government, both on the fiscal side and on the monetary side, with the Federal Reserve, the fiscal side poured tons of money into the economy. On the monetary side, the Fed printed even more money through all the different ways that it can, whether it’s quantitative easing, buying bonds, or through just money printing that flooded the market with capital, certainly changed the macro situation in the US. And a lot of that money filtered its way into various investment asset classes, among which you can count venture capital. And what’s more on top of that is like, there’s not a whole lot going on in the world where investors can find positive returns. And in the global economy, one of the key areas where investors can make returns is in venture, in Silicon Valley investing.
Michael Patrick Gibson
And so in that time period, you saw a massive influx of money into the Valley. A lot of that money made its way into venture capital funds, into startups. And then those startups and funds put who were clients of SBB deposited that money. It created a huge balloon, a huge amount of money into SBB’s operations, their depositors. And with all that cash on hand, they decided at the time to, let’s say it would be far too risky for them to keep that money as cash also wasteful because of inflation. So they came up with this strategy where they bought $95 billion worth of government bonds in order to stabilize the value of those holdings. And those bonds are what are called I forget the duration on them. I think it was something like seven year duration, maybe ten years. And what’s more is they’re the type of bond where they hold them to maturity, so they’re not going to sell them on the market during the time that they hold during the duration of the bond.
Michael Patrick Gibson
And those bonds paid 2% interest. In the meantime, to finance their day to day operations, they would take loans out in order to meet depositors demands, their cash flows, and so on. Now, in 2021, when interest rates were zero or close to zero, this was a winning strategy for Silicon Valley Bank. They’re making 2% on their 95 million, and the rate, interest rates that they’re paying on their short term loans is close to zero. So, in fact, they’re making a little bit money. Okay, now fast forward to 2022. It looks like inflation is not transitory when it comes, it’s persistent. And the Fed is blindsided, the treasury is blindsided, and we hit 40 year highs in the inflation rate. The Fed has to hike rates in order to tame inflation. When it hikes rates, the cost of paying interest on that debt started to increase.
Michael Patrick Gibson
So the short term paying no percent against their long term 2% suddenly changed. Now they’re paying three, four. Currently, up until this week, they were close to 5% interest on the short term loans to finance their operations. And they’re only making 2% on their bond holdings. So that’s anywhere between a two to 3% spread where they were hemorrhaging. The run rate was something like 2 billion. Close to 3 billion run rate and losses. Silicon Valley Bank in January had an equity value of 15 and a half billion dollars. If you’re losing two to $3 billion a year, you’re going out of business. And when it comes to banking, if you’re half dead, you’re a day away from being fully dead, because confidence and credibility are so important. So in this January, 1 of our investors sent us an email warning us about SVB’s position. I had some banking analysts look at it, and they made the case.
Michael Patrick Gibson
Perhaps they can muddle their way through. But our investor was pretty adamant about that. I’m kicking myself for not taking him more seriously, but it just was the case that as the losses were mounting and it looked like SVB wasn’t going to make the right moves to fix their balance sheet, that’s when the bank run started this last week. And it started overnight on Thursday and continued all the way to Friday. Because it’s like if you just have that moment where people think their deposits aren’t going to be secure, then you enter into this nasty game theoretic situation where any individual player, it’s rational and in their interest to defect and not to say. And so the whole group decides to leave instead of maybe cooperating and sticking it out. So that’s sort of the overview of the financial picture of SVB and some of the background as to why it was in the position it’s in.
Michael Patrick Gibson
What I think is overlooked is a lot of the different sides of the political spectrum have just sort of taken the snapshot view of, okay, what happened in the last week. So a lot of people are blaming the initial defectors, the people who decided that their deposits weren’t safe. Some other people are blaming the customers who just had deposits at this bank. So they’re accusing them of not doing the right diligence on their bank and examining its balance sheet. But I think this bigger picture view is what’s lost in the discussion currently in my mind. The Fed and the treasury are partly responsible for this. It’s just everything from the money printing in 2020 to the record breaking interest rate hikes over the last year. Clearly it was going to lead to some bad consequences. And then I think there is responsibility at SBB where that decision to put all that money into these hold to maturity bonds I think was quite unwise.
Michael Patrick Gibson
It was based on the zero interest rate policy and what everyone from economists to analysts just assumed was the new normal, which was that were always going to be in a low interest rate environment. But I think they are certainly responsible there. And then even in the last week when the CEO of SBB made public comments, this helped spur the bank run, I think in his communications, those were quite poor as well. But we can throw blame all around. Okay, so that’s the past. And then you asked about the policy. What is the correct policy in terms of insurance for deposits, bailing out banks and so on? I think one thing that’s clear here that needs separating as well is in the great financial crisis in 2008, the whole banks were bailed out and saved. That meant that the management meant structure in the corporation was left intact.
Michael Patrick Gibson
The depositors were shored up as well. What’s different in the SBB instance is that the company is wiped out. So the management has been fired, the shareholders are zeroed, creditors are zeroed. So it is different in that it is focusing on protecting those depositors. Nevertheless, it does create an issue. If the Fed is going to backstop that now we face the question of moral hazard. Does that create a situation now where anyone who manages a bank can take on greater and greater risk with their depositors money, knowing that the Fed will bail them out when they get in trouble? In the meantime, a bank manager could take their depositors money to Vegas, let it ride, and they can tell the depositors, hey, don’t worry about it, the Fed’s going to backstop this no matter what I do in Vegas.
Brett
Okay?
Michael Patrick Gibson
That’s a scary situation. So now we’re in this tight spot where regulators have to keep finding ways to prevent contagion on the one hand, and then on the other prevent this moral hazard issue. I don’t know if they can do it. I’m more of a radical when it comes to central banking. I think one of the issues is just the fact that we have a central bank that is creating these crises and then trying to solve them creates a sawtooth edge to progress where things seem good for a while and then they snap and we have a massive catastrophe. But that’s a complicated issue too. But yeah, I’m very skeptical of central banks.
Brett
Makes a lot of sense and that’s super helpful background for us. And I think that explains the situation more clearly than I’ve heard anyone else explain it? I think a lot of people have just been consuming, like, little pieces of tweets. Right. You read about it in the BCS, then you read about it in the media. But having the whole story told in one coherent line, was that super useful.
Michael Patrick Gibson
Okay. Yeah.
Brett
I don’t know.
Michael Patrick Gibson
And I think it looks like things have settled down as of today. Yesterday, they were a little choppy still for some of those regional banks. One of the bigger issues, I think, is there was this idea that people were told that only up to 250K was insured in their accounts. But what was strange is that if you think two weeks ago, the people who were worried about the moral hazard issue, they weren’t upset, they weren’t out there protesting that the top four banks didn’t have this problem. So what I mean by that is, because of the financial crisis and just how critical the financial system is to the economy at this point, it’s pretty clear that the top four banks goldman, J, p. Morgan, and so on, that they are too big to fail, and their deposits have always been guaranteed by the Federal Reserve.
Michael Patrick Gibson
And so we had a two tier up until this weekend, we had a two tiered banking system where the top Wall Street banks were fully backed by the government, but these regional banks and smaller banks were not. And so now it looks like the crisis brought it to a head where we’re going to have to decide, okay, what is the whole banking system makes.
Brett
A lot of sense. It’s going to be crazy times, it seems like, for the next couple of weeks and months. So we’ll see how things play out. Now, I’d love to switch gears and talk a bit more about you and the fund and everything that you’re doing there. So to start with, can you just give us a high level overview of what 1517 is?
Michael Patrick Gibson
Yeah. So we are an early stage venture capital fund. Early to us is as early as possible. So we are often the first money into a company. We invest across the board in different types of companies. So we’ve done hardware, software, material, science, fusion, but by and large, the vast majority of our investments, what they all have in common is that the founding team does not have a college degree. So people who have never stepped foot on campus or people who have dropped out. And the reason we do that, Danielle Strakman, my co founder, and I, we helped Peter Thiel start his fellowship in 2010. That fellowship was a grant making program where we gave out $100,000 to 20 people a year. The two conditions to get the grant, one was that you had to be 19 and under to apply. The second newsworthy condition was that you had to not be in school to receive the grant.
Michael Patrick Gibson
So we ran that program for five years. We saw a lot of cool stuff come out of it. The most notable was probably Battalik Booter and was one of our Teal fellows. In 2013, we helped them launch Ethereum. Maybe more recently, people might have heard of Figma, which was acquired by Adobe for 20 billion. We helped Dylan Field, the CEO, start that company in 2012. So by 2015, we’d seen some great it was early days, but we had the sense that, wow, Danielle and I thought we could be making money doing this rather than just running a nonprofit. There’s an investment thesis here, and no one seems to be focusing on this type of demographic. So we launched our fund, and now here we are, eight years in and on our third fund and doing our thing.
Brett
I’d love to ask you about some language I found in your bio. So I’m just going to read it off here. And it says, in DC they print money, visas and laws on paper. In Delaware, companies incorporate on paper. In NYC, they print media on paper, and in Boston, Harvard and MIT print diplomas on paper. Michael is dedicated to lighting the paper built on fire. Tell us about the paper.
Michael Patrick Gibson
Yeah, so in 2013, or thereabouts, one of my friends is Bali Balaji’s Shrinivasan. He’s famous Twitter commentator troublemaker, but also startup founder and venture capitalist. And back in 2012, 2013, because we had started to see the birth of ethereum and bitcoin was starting to pick up and were forecasting different technological trends. We thought that just as the rust belt has come to define those hollowed out industries and some of the social dysfunction of the American Midwest, we thought that paper belt you just described on the east coast was going to face some headwinds. And rightfully so, because a lot of those institutions, while good for the most part, I think that they have all been increasingly failing at their state admission. COVID, I think, revealed a lot of this when it was the case that the FDA wouldn’t let people test at first. The CDC is telling us to wear a mask.
Michael Patrick Gibson
Don’t wear masks, you must wear a mess, all these different things. So our trust institutions has just declined. And what the paper belt is a term indicates is that what’s interesting is they all depend on paper in some way. But what’s curious to me is that with any paper based institution, whether it’s a university or the Federal Reserve, is we trust the people within that institution, the so called experts, to validate that a piece of paper is real, authenticate it, and support the signal that it sends. So it’s like, if I have a diploma from Harvard, they can authenticate it as real. They’re also signaling that whatever that diploma represents is of value. Likewise with the Federal Reserve, as we just saw over the last week, is, you know, SVB had these government bonds on hand. They were saying that they were trying to validate the value as one thing, the markets were saying they were not, and the Federal Reserve was authenticating that fake value just through this strange regulation of hold to maturity where you don’t have to market those bonds.
Michael Patrick Gibson
So that’s another example, okay? These paper based institutions are failing because we need experts to authenticate and validate that the paper is real and the substance is there. So for me, I think, yeah, my mission is to either reform these institutions or build alternatives. And what we do with 1517 is, even though it is a venture fund, we are educational theorists or philosophers at heart, where we see this as an alternative path in education for people. It’s not that we don’t believe in education. We just believe in learning. And certainly with startups, the best way to learn is by doing. But more broadly, I do think we need to rethink a lot of those institutions and the paper belts to plug my own book. So I have a new book that just came out a couple of months ago called Paper Belts on Fire. And it’s a behind the scenes account of the Teal Fellowship, what it’s like to work for Peter Thiel and then to launch our fund.
Michael Patrick Gibson
But it is also an examination of some of these issues that I just mentioned, and that was in that mission statement of mine that you read out.
Brett
And what is it like to work with Peter Thiel? Can you just give us maybe two or three interesting insights or things that you learned working with him?
Michael Patrick Gibson
Absolutely. I showed up the first day of work, and I thought I was unusual because I thought I was going to be an academic philosopher. I was working towards a PH. D. I studied ancient philosophy. I can, you know, ancient Greek and Latin, moral, political philosophy. I became a journalist for a short time. Long story, but somehow I end up on Peter Thiel’s hedge fund. And I thought, oh, I’m just like a weirdo who’s happened to be here. And then, as I quickly learned that Peter hired lots of people who were just like me. In fact, at his hedge fund, there was no one who had a background in finance. Even more so, it was like having an MBA from Harvard or something was a negative signal, an absolute no dough. And so I picked up. Peter is a very different type of manager, especially when it comes to attracting talent and evaluating talent.
Michael Patrick Gibson
Peter is a very eclectic thinker. But one of the interesting things about him is he studied under a French literary theorist at Stanford University, renee Gerard. Gerard is also a bit of anthropologist. He’s famous for his research into the madness of crowds, witch hunts, and scapegoating. And Peter, in his love of Gerard’s work, discovered that when Gerard canvassed all the world’s mythologies and religions and examined the madness of crowds, gerard discovered that there was a certain type of person in the community that the crowd picked to scapegoat and blame for the social crisis at hand. And that scapegoat for Gerard was typically someone who had extreme characteristics, but they also had this sort of paradoxical polarity. To them, it’s like the scapegoat could never be a complete foreigner who could in no way be responsible for the social crisis at hand. And on the other hand, neither could the scapegoat be someone who is so on the inside that they’re like the king’s right hand or something like that.
Michael Patrick Gibson
No. In the event, the scapegoat is often a boundary figure, someone who is both an insider and an outsider at the same time, some kind of paradox about them. So you can look in world literature of examples for this. Maybe like a famous one is like Oedipus. That’s a famous story where there’s a crisis and thebes there’s a plague ravaging the city, and everyone thinks that Oedipus is a foreigner and someone who came from the outside to become king, but in fact, he’s an insider, and he’s married to his own mother. So it’s this very tragic situation. Okay, well, Peter, wildly enough, would use this principle as a way to think about who to hire and who to fund in terms of startups. He would always look for this insider outsider dynamic. So it’s like me with the fellowship. It’s like I was in the inner temple of academia.
Michael Patrick Gibson
I almost had a PhD. So in that sense, I was an insider, but I was also an outsider. And then I had dropped out and rejected the system. And you can go through peter used this as a heuristic. And so to me, it’s like, wow, okay, this is unlike any other CEO I’ve ever worked with. And it really touches on a mystery, which is creativity and the human imagination. I’ve done some research now into that subject, just reading books on the psychology of creativity and so on. And based on that research, it’s all very much a mystery. So I say kudos to Peter for trying to think about the sources of creativity with greater effort and detail and then putting it into practice.
Brett
And Peter has very strong opinions that often go against what others believe, I think, especially in Silicon Valley. And he seems fearless in broadcasting and sharing his opinions and pushing his opinions. And I think that’s gotten him in trouble, or at least it’s gotten him some negative press in the past. And when I was looking through your Twitter, I saw that you have strong opinions as well, and you’re not afraid to share them. Has that ever caused any issues for you? Have you ever had any media blowback for some of the things that you push out?
Michael Patrick Gibson
Yeah, I think not bad, because I’m just such a minor figure. So if I’ve ever said anything controversial, maybe no one’s paid attention. But I do think it’s like I’m just in this. It’s part of that selection effect of like one of Peter’s famous interview questions is tell me something you believe to be true that the rest of the world thinks is false. And what he’s trying to get at there is he wanted to hire people who were comfortable defending a belief in a room where 20 people disagreed with them. And so that didn’t mean you had to fit Peter’s politics, by no means. But it did mean that you had to be used to defending strange ideas. And so, yeah, I think that wasn’t something I learned from him. I think I was just like, filtered in because I already fit that a little bit or a lot bit.
Michael Patrick Gibson
And so, yeah, I’m out there. I was a journalist. I mentioned before I started working for Peter, I continued to write pieces for various magazines over the years. And in 2017 18, San Francisco had started to decline. A lot of those social issues were becoming quite awful and appalling. And so I started documenting that and writing some articles. And I remember because I was so critical of the San Francisco government, I remember some people reached out to me and they said, my God, how can you write this stuff in public? I would be fired from my job if I was saying these things. And that took me aback. And I guess it’s because I’m somewhat self employed as an investor, I am answerable to my investors, but I just think I have to call it like I see it. So far I haven’t received any pressure from my side of the business.
Michael Patrick Gibson
But it is interesting to see that, I think if you are an employee, maybe there is a chilling air to debates these days where the overton window of what’s acceptable to say in public is quite small.
Brett
Yeah, I think these days you have to be careful.
Michael Patrick Gibson
Right.
Brett
You’re always one step away, getting canceled and fired, it seems.
Michael Patrick Gibson
Yeah, exactly. And social media is like a gun in people’s hands that they can quickly sabotage themselves.
Brett
Yeah, absolutely. Now, I’d love to try to paint a picture here or understand what your vision for the future is. So maybe let’s zoom out five years, maybe ten years. I don’t know if you want to go higher than that, but what’s that vision for? Maybe we can say the world or just for America. What do you want the future to look like?
Michael Patrick Gibson
I think that Silicon Valley is partly to blame over the last 1015 years for solution pollution, call it, or just like grandiose statements about making the world a better place. It’s like you’d have CEOs out there. Maybe Adam Newman from WeWork is the master at this and the worst, most flagrant violator where what he was pitching his company as was not the underlying reality. He claimed that WeWork was going to change consciousness and build human community, but in fact, it was just a real estate company. So I think we can depart from that. And I think the more concrete the better. I believe there take a note of outstanding problems that science and technology can solve that indeed will make the world a much safer, peaceful, prosperous place. And I think if we solve these issues, the world undoubtedly will better. But I can also acknowledge that technology and science are not going to answer the most fundamental, profound questions of life.
Michael Patrick Gibson
They’re not going to tell you how to live, how to love, how to cope, or deal with death. But they could make life easier. So, for example, we could just take energy creation. I think whether you’re Republican or Democrat, I think in the long run, everyone agrees we have to discover new ways of making energy. And so it could be that there are unsolved problems in fusion, in nuclear, in wind and solar. There’s a lot of work to be done in these areas. So in the next five to ten years, I think we could actually solve some of these infusion. It’s about containment. It’s like we can create plasma that’s hotter than the sun, that produces energy, but you need things like giant magnets to contain it in order to harness that energy and make it sustainable. So if we solve that problem, we could have virtually unlimited clean energy from now till as long as humanity lasts.
Michael Patrick Gibson
So that could be a really powerful moment in human history if we solve that problem. Or nuclear energy. I think nuclear people are starting to understand how clean nuclear energy is and more importantly, how dense. So it’s like wind and solar could be great sources of power. But the biggest unsolved problem there is that I forget the size of the largest field in the world, but it’s like you need just like, square miles of solar panels to create half the energy of just one nuclear reactor, which sits on a quarter acre of land. But with nuclear, there are unsolved issues with proliferation, with the waste. So it’s like, okay, there’s a lot of work to be done there. Next one. Okay. I live in the American West. I do not have to blame climate change again. It’s like this effect whether or not you think you want to shake your fist at the sky or humanity.
Michael Patrick Gibson
We’re running out of water in the American West, and the riverbeds are running dry. Lake Meat by Las Vegas, the Colorado River feeds into that supplies water to virtually every state in the region. It’s at all time lows. So I don’t think we have a shortage of water. I think we have a shortage of human ingenuity. I would love to see new ideas and desalination. Israel has gone a long way here. They built five plants on their coast recently, I think at a cost of like, 250,000,000. Whereas in the United States, we have one. Desalination plant in California and it took like billions of dollars in ten years to make in Carlsbad, California. So with lots of room to innovate there. And then on the water use side, it’s like if you look at water use in any state about in California it’s 80, 85% is used in agriculture.
Michael Patrick Gibson
Arizona it’s more like 90%. So right now this is more like a social political issue. But it’s like the water rights are just the people, the farmers who have access to this water. They’re not paying market rates for the water. If they were, we would see more innovation in water usage. So again, I look to Israel as an example because they’ve moved away from flood irrigation to pinpoint irrigation, root irrigation, they just virtually drip water into the roots. Whereas in California, for instance, these farmers can still practice flood irrigation for almonds where they’ll flood an entire field with three cubic feet of water. It’s just so wasteful anyway. It’s like, okay, water creation. So I could keep going through these issues. I could get to cancer next or some of these. It’s like we need a lot of research into understanding how the body deteriorates over time, understanding our minds.
Michael Patrick Gibson
It’s wild to me how little we know about depression. We don’t know the cause of schizophrenia. We don’t understand the biological underpinnings of a lot of mental health issues. A lot of research could go into that. So yeah, I don’t know, I could keep going and maybe bore the h*** out of your listeners, but I think as soon as you characterize a problem as, oh, we need more fresh water, I believe in the power of human imagination to solve that problem. And I don’t have to appeal to grand visions. Like in ten years it’s going to look like Tomorrowland and Disney World and we’re going to be flying around in our cars. I think we can all agree that if our water is clean and abundant and we have unlimited energy, we’re going to be in a beautiful, wonderful place.
Brett
Yeah, definitely not boring stuff. This is fascinating. I could ask you another 20 or 30 questions on these topics, but another question here is just on the funds focus. So just at a fund level, how do you divide focus between these big ideas like peace out plants or solving the water crisis and the startups like Loom, which I’ve been paying customer of Loom makes my life better, makes my whole team’s life better. But how do you balance that? Because I’m guessing on the dCELL side. That’s a long reckon. This can take a long time to get off the ground, right?
Michael Patrick Gibson
Well, yeah. So the Loon guys fit our thesis where they don’t have degrees. And why do we do that? Well, because we believe that maybe you don’t need to wait till you’re 22 or 23 to start your career. Maybe you can get out there and build something now and part of that is just this idea that you can get started on things earlier than the world wants you to believe. And so the fact that I think it’s like two of the three founders of Loom didn’t have college degrees, and we helped them get started. Now, that said, of course you’re right, it’s Enterprise SaaS. I think somewhere between 20% to 30% of our investments ends up being in Enterprise SaaS, which is pretty surprising given that if we’re working with 22 year olds, what do they know about some industry? But we’ve been quite successful in that respect.
Michael Patrick Gibson
So as a fund, we have to have a barbell approach where we need to make money for our investors to stay in business. But in essence, we want to create what amounts to an endowment where if we’re making money on things like SaaS, accelerating innovation by getting people out to the frontier faster, then that gives us the resources to take some of these moonshot type ideas, whether it’s fusion or quantum computing. So it’s more of the barbell strategy at work.
Brett
Got it. That makes a lot of sense. And outside of just looking for founders who are college dropouts, what’s the other criteria? Because like you said, you’re getting in there at the very early stage. So what are you looking for? What traits are you evaluating based on? Or how do you know if someone’s going to be a fit? Or what guides your decision making there? How do you make those bets?
Michael Patrick Gibson
That’s something we’ve had to refine over 13 years, and it’s never going to be perfect. But what we realized when we started the Teal Fellowship in 2010 was we had an application, and were way too imitative of college. We asked for things like your GPA, what college you went to, your test scores. And in the event, pretty quickly we discovered that these facts about people were not great predictors of success when it came to entrepreneurship. We certainly had to know that you had the know how and technical chops to build what you were saying. But there were so many other elements that mattered or that contributed to success, they by no means guaranteed it, but it was necessary to have them. So one example that we discovered pretty quickly was just that we met people who were, I don’t know, genius level when it came to engineering, let’s say.
Michael Patrick Gibson
But they were one man shops. Why? Because they were so disagreeable, or they had so little understanding of humans that they couldn’t get co founders, or they couldn’t work with customers to understand their needs. They couldn’t pitch to investors and understand their concerns. They couldn’t make hires. So we quickly realized that, okay, we’re looking for some social emotional intelligence and founders. We back. And it’s a vanishingly small Venn diagram where the types of people who have the technological creativity to invent something new, but also the emotional intelligence to work with other people that can be quite small. Sometimes we see a division of labor, though, where, okay, the CTO is more of the introverted engineer and the CEO is more of the social, outgoing huckster. But nevertheless, the team has to have that. So that was an early, easy one that we saw. What we came to see though, as one of the key factors of success is just commitment in motivation.
Michael Patrick Gibson
We learned early on that fame and fortune are not good motivators for founders. Why? Because it is a grueling marathon. It’s going to be years and years of ups and downs, wins and losses. And if your key motivation is money, well, given the unlikely probability of success, it’s not going to pull you through that long dark night of the soul. You need something deeper. It could be your mission is to solve climate change and that’s your overriding passion and that can be noble. But on the other hand, it could also be something like, hey, you just the band of brothers type thing. You love working with your friends. It’s exciting working on these problems together and that’s going to pull you through. So a lot of our screening process is trying to understand people’s motivations and commitment. That helps with the actually, one of the things about the dropout thesis is that it signals commitment.
Michael Patrick Gibson
It shows us like if you’re willing to walk away from this socially sanctioned path of success and forego that and work on this idea right now, that’s a huge signal that you’re committed to this. And that means it shows a lot that you’re going to pull through those dark nights.
Brett
And last question here CIA. I see that we’re up on time, so let’s talk about what’s next for 1517 and what the next couple of years are going to look like. So is there another fund coming or what else do you have planned for the coming years?
Michael Patrick Gibson
Yeah, in terms of the macro environment, we did get lucky raising our third fund where we closed that last February before markets started getting shopping and rates went up. It could be much harder to raise money in the current environment. So yeah, we’re doing our thing that will deploy this capital over the next few years and then be in a position to raise another fund at that point. What’s on the horizon for us is sort of ties in with the last question where I think we’ve spent over a decade trying to refine our pattern recognition in terms of spotting talent. We sort of have this list of characteristics we go through when we look for great entrepreneurs or at least the contributors to success. What we don’t know a lot about is talent development. So we’re good at talent spotting or at least pretty good.
Michael Patrick Gibson
How do we get into talent development? And so we’re going to start launching some new projects to try to one thing we want to do is get teenagers exposed to frontier technology sooner, just because I can remember from my own high school experience, but certainly true today, I feel like teenagers just don’t have an idea of what the frontiers of knowledge are. And so if you’re 1516 and you meet people, let’s say, working in quantum computing or Desalination or fusion, maybe that might act as a trigger or spark to inspire someone to work on things. So this summer, we’re going to pilot, like, a long weekend where we get teenagers together with some of the mad scientist types. Hopefully, maybe it inspires them a little bit in the long run. I think we want to turn that into possibly a summer program. There are a lot of summer programs now for people who are on that college track to, hey, you’re going to spend a week or two months in college type seminars discussing novels, whatever.
Michael Patrick Gibson
We would love to do that for what we do, where maybe we can build the pipeline out, get teenagers involved in wild science and tech earlier, help them launch their careers, maybe not even as founders. Maybe it’s like, how do we provide an onramp into, like, a network based university where it would be the case, like, through working in this network in an apprenticeship like model, you’re able to launch a career without paying for a college degree, but you’re learning by doing so. That’s sort of our vision in that end, and we’re going to try some stuff out to get there, but we’ll see how it goes this summer with that long weekend first and then take it from there. I love it.
Brett
Super exciting stuff. Michael, we’re going to have to wrap here before we do. If people want to follow along with your journey, where should they go?
Michael Patrick Gibson
Well, certainly if you want to talk to us, just go to the https://www.1517fund.com/ website. We have a submission form. People can pitch us ideas. We love talking to people, even if they’re not building companies, but mainly, if they fit that thesis, they don’t have a college degree. And beyond that, I’m on Twitter. Yeah, I mentioned a couple of times I was a journalist. I joined Twitter in 2007, and I was like, what is this idea? That’s crazy. Is this just for haiku? So my handle is actually a poet. I admire William Blake. At William Blake, people can follow me on Twitter and maybe hear some of those controversial things I’d slowed out there.
Brett
Awesome. Michael, thank you so much for taking the time to come on the show. Share your thoughts and your perspectives. This has been a blast, and I’ve really learned a lot and hope to have you back on again soon.
Michael Patrick Gibson
Okay, Brett. Great shot. And thanks for having me on.
Brett
All right, keep in touch. Bye.
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