Joe Lonsdale, is the co-founder of Formation 8, a top new Silicon Valley venture capital firm, which succeeded in raising one of the largest funds in the Valley in the last decade.
Lonsdale, now 31, got his start studying computer engineering at Stanford University and interning at PayPal.After graduation he joined Clarium Capital, the investment management company founded by Peter Thiel. In 2004 Lonsdale and Thiel co-founded Palantir Technologies; the idea was to create software that found connections, patterns and trends in databases of seemingly unrelated information.
The company, which focuses on analyzing, integrating and visualizing data, was recently valued as high as $8 billion on secondary markets. Lonsdale also founded and serves as chairman of Addepar, a company that is building a digital platform to make private wealth management more efficient. Formation 8 invests in early-stage technology companies and operates mostly between the United States and Asia.
Lonsdale has founded several other start-ups including Backplane, a company he co-founded with his friend Matt Michelsen to help Lady Gaga build a new social networking platform that promises to transform the way pop stars and brands of all sorts interact with their biggest fans. And, he serves as the Chairman of ONEHOPE Wine, a social enterprise that integrates causes into products and services to make a social impact.
Lonsdale recently spoke to Informilo Editor-In-Chief Jennifer L. Schenker about what he sees as big opportunities to use big data to transform big industries.
Q: Fears about government snooping have been accelerated by PRISM but privacy is not only long dead, analytics have become the new engine of economic and social value creation. What sorts of new rules and tools need to be developed to ensure that privacy fears and a post-PRISM backlash don’t hold the market back?
A: There is a lot of fear about the way data is used. Americans worry about the government accessing their data while Europeans worry about what big corporations do with data. Both concerns are legit. And scary things can happen when corporations and governments work together. Not enough effort is put into systems that control who is going to access the data and what they are doing with it — who has touched what. This type of thing is really important for NGOs [non-governmental organizations] compiling databases of human rights activities, for example. It is not a good idea to do something like that without building in the capability of having a full audit trail for the data. It can be done. The important thing is to move forward. The big story to me is how so many sectors can really benefit from leveraging big data and how it will change everything.
Q: You understood the importance of recognizing patterns in vast streams of information before big data was even a catch phrase. What inspired you to co-found Palantir in 2004?
A: Palantir was a response to what we faced at PayPal — figuring out how people work together with computers to leverage information and the things you have to do when investigating lots of data. What part is the person and what part is the machine? People are so much better at determining patterns. There are lots of things computers can do but you need the person. The insight we had was managing that process and applying that to other areas.
Q: Post-financial crisis the focus, particularly among governments and large institutions and regulators, has been on how big data can spot problems and weaknesses. For example, governments are using Palantir’s software to detect fraud and criminal activity and some believe better data, better algorithms and better analysis could help banks create early warning systems that could prevent another meltdown. But big data can also be a powerful tool for spotting opportunities. What sort of opportunities exist for Palantir and for start-ups to help various verticals better map those opportunities going forward?
A: A lot of value is created when work flows and processes are made to work better. If you understand basic work flows and how decisions are made, you can improve the process and leverage a lot more information. There is a key opportunity for the health care sector, for example, to understand where the costs are out of line, to understand where you can provide preventative care and save a lot on treatments. Ultimately everything is a data problem.
Q. Let’s talk about Addepar, which aims to help the very wealthy track, analyze, transfer, and report their finances.
A: I am a very active chairman. The company is addressing a $15 billion to $20 billion market that includes insurance companies, banks and family offices. The way it works right now is a closed system. The world is getting more connected and as that happens, you need to have a platform — a common infrastructure. Historically in finance, a lot of data analysis could only be done in relationship. But with a platform you can write an application once and reach and connect every one of these closed systems.
Q: What other opportunities do you see right now in financial services?
A: One thing everybody understands is payments but I think lots of things in the finance sector are very broken. Take mortgage backed-securities — the largest part of the sector by dollar amount; it is clear you could do things better with data. The same is true in the real estate financial area. It is still a really backwards world. Today it is 100% about relationships but in the future a lot of things are going to happen through data and platforms.
Q: What kind of bets have you placed recently through Formation 8, which has $488 million under management?
A: [Digital education publisher] Shmoop is one. There are so many possibilities to collect data and tailor high-quality education. This is a very exciting space right now.
Q: What do you look for as an investor?
A: As an investor I am looking for a big idea — a platform effect. If you are a consumer company and you tell me you have sold this to 100 people I will ask you what is the network effect? Another thing I look for is a really, really strong technology team — there is a lot of value in the technology side. Top engineers are eager to come in for low salary and for high equity.
Q: How did you end up getting involved in Backplane?
A: The Backplane connection is about the application of big data to the consumer side of things: how brands and celebrity leverage big data and use that to better interact with their communities. Matt Michelsen was working with big brands and celebrities with massive followings like Gaga and leveraging them to create online communities. He wanted to solve data problems relevant to engaging and understanding the communities and change the economics for these brands and I thought it would be fun to help him with this.
Q: Where do you see the biggest opportunities?
A: It is the firms who own the network or the infrastructure that have the biggest impact and staying power. I think the interesting opportunities are to build platforms the right way for the right industries. It was Michael Milken who said there are five key industries in the world: finance, education, healthcare, government and energy. If you can fix these five industries you can impact the prosperity of the world as a whole, do some real good and have real impact so that is what I am focusing on.