How the Thiel Fellowship Succeeded … and Failed

The Thiel Fellowship’s progress so far and how to improve it

Every year for the past ten years, the Thiel Fellowship pays 20–30 people (age 22 and younger) $100,000 to drop out of college and build something. Despite the program being relatively new, companies started by Thiel Fellows have already reached a mind-blowing market cap of $45 billion. Thanks to the Thiel Fellowship, the world now has Figma and Ethereum, and several more businesses and non-profits you will hear about in the next few years.

This is amazing. If you’re young and want to be a founder, you can now get some funding, and bring your ideas to the world years earlier than you would otherwise. You also get access to an amazing network that will help you develop your idea and meet the right people. The prestige attached to being a Thiel Fellow can also open doors for you. Clearly, the Thiel Fellowship has been very successful in (1) showing elite students that college may not be their best investment of time and money, and (2) helping founders start awesome enterprises that change the world.

But…

The reason Peter Thiel started the Fellowship was as part of a crusade against the higher education bubble. Thiel argued (and continues to argue) that college is not for everyone, that kids are too “tracked” and go to college as a default instead of considering their best way to use their youthful years. He also argued that the increasing number of people going to college in the US (higher demand), combined with the artificial scarcity of selective universities limiting the number of students they accept (basically static supply), means that the price of higher education keeps rising. This is very bad for the world for several reasons, including that many people will be saddled by unnecessary student debt for the rest of their lives. Also (and I’m not sure if Thiel said this explicitly), increased student debt means lower ability to take risks, which means more middle-managers and fewer entrepreneurs building beautiful things that fuel economic growth (aka startups). Less economic growth leads to stasis, hopelessness, and eventually violence. Thiel created the fellowship to burst the bubble — to show the world that higher education is not necessary, and in fact can get in the way of accomplishing great things.

Did he burst the bubble? No. It will be interesting if college applications are affected in the long-term by Covid, but at least pre-pandemic, demand for college education kept rising. Applications kept going up. Tuition kept rising, as did student debt. In this sense, the Fellowship has failed.

It’s not hard to see why. The Thiel Fellowship accepts fewer than 0.1 percent of applicants. In other words, they are 50 times as selective as Harvard. When most people make life-decisions, they don’t think “maybe I don’t need to do this; after all, a tiny minority of the most brilliant people on the planet succeeded without a college degree.” Getting 25 people to drop out of college when 20,000,000 others stay in college is not going to change the demand or the supply. Maybe the culture has changed at the edges. Maybe potential founders now at least consider whether to drop out. But demand overall has not changed and going to college for most middle-class families is still the thing everyone does — it’s still automatic.

How could Thiel actually reduce demand for universities? Here’s one idea:

Thiel Fellows who build for-profits should assign 1% equity to the Thiel Foundation, who should hire more Fellows with that extra money. (This may have dissuaded applicants when the Fellowship was getting off the ground, but by now the Fellowship has established itself and needn’t worry about this, I think.) Under this arrangement, given that the market-cap for Thiel Fellow businesses is $45 billion and growing exponentially every year, the Foundation would have gotten 1% which is $450 million. Granted, most of this equity would be “trapped” until a Thiel Fellow’s company makes an exit (IPO, ICO, or acquisition) a few years later, but the Foundation could get 1% of revenues until the exit. It would take a few years from when new Fellows assigned equity until they made exits, but then suddenly the Foundation would have huge influxes of cash. Imagine $100,000,000 revenue per year paying for 1,000 additional Fellows. This could turn into a virtuous cycle, where more Fellows means more successful businesses, with more benefit to the world (new businesses and jobs created) and more revenue to the Foundation to fund even more fellows. Suddenly, you’re an actual competitor with elite universities. Suddenly, it’s no longer automatic that people apply for college — they can apply for the Fellowship instead. Instead of studying AP history or taking SAT prep classes, ambitious high schoolers will be researching entrepreneurship and developing their coding skills.

I have other ideas for reducing the price of college education (they involve college rankings, lobbying, allowing people to donate to the Fellowship, and increasing the supply of spots at elite universities), but my point is this: Rene’ Girard’s mimetic theory predicts that middle class youngsters will want to go to college because everyone else in their social circle wants to go. You can’t fight mimesis. You can only create mimetic alternatives.

I love to find out what I'm wrong about.