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A new breed investing in Internet startups find that the heavy-handed model no longer applies.

Three years ago, Peter Thiel, who runs a small venture capital concern called Founders Fund, plowed $500,000 into a little-known social-networking Web site called Facebook Inc. Later on, his company invested a bit more.

That was a good call. The paper value of Thiel's initial stake has increased more than 50 times. Facebook ranks among the hottest online properties, with some 59-million users and investors such as Microsoft Corp. piling in.

Thiel, the former chief executive of online-payment company PayPal, is making waves in Silicon Valley with an investment strategy that differs significantly from the traditional approach. His company invests only modest amounts of money, sometimes just a few hundred thousand dollars, and focuses on entrepreneurs Thiel and his partners often know personally. He also takes an uncharacteristically hands-off approach to company management.

The gambit has yielded several potential winners like Facebook.

The venture capital world "definitely needs to be shaken up," says the 40-year-old Thiel, an avowed libertarian who helped bankroll the movie Thank You for Smoking, a satire about improving the reputation of cigarettes.

His company also reflects how a new type of venture capitalist is emerging, as startup costs for Internet companies decline sharply. Many startups need a bankroll of no more than a few hundred thousand dollars to get rolling, compared with the millions of dollars required a few years ago.

Other companies capitalizing on this trend include First Round Capital in the Philadelphia suburb of West Conshohocken, Pa., run by former Internet entrepreneur Josh Kopelman, who started online-commerce site and sold it to eBay Inc., and Silicon Valley concerns such as True Ventures and Baseline Ventures. Many of the companies now manage money for outside investors, unlike informal "angel" investors who typically make small, one-time investments with their own money.

Most traditional venture capital companies want to invest larger sums, several million dollars, say, for large stakes in startups and then exert control over the companies' operations. Some demand "liquidation preferences," or guaranteed returns if companies are sold.

Venture capitalists often can be too quick to fire startup founders and replace them with professional managers, Thiel says. He blames a cultural divide: Many venture capitalists "have these very cushy jobs, they get paid a lot," and often can't relate to founders, he says.

With so much money chasing deals in Silicon Valley these days, startups can afford to be choosy in picking their financial backers. They are increasingly turning to companies like his that offer less of a "command and control" model, he says.