The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley
We sat in his living room, but the metaphor still fit. Musk was about to tell me the story of PayPal.
At the moment we met, in January 2019, PayPal—a company he cofounded some two decades earlier—was likely the furthest thing from his mind. The day before, he had announced significant layoffs at Tesla Motors, the electric car company he has led since 2003. And just the week before that, he had cut one-tenth of the workforce at SpaceX, the aerospace manufacturer and transportation firm he started in 2002. With all this present swirl, I didn’t know how much Musk would want to delve into the past, and I was ready for him to trot out a few familiar talking points and send me on my way.
But as he spoke about the internet’s development and PayPal’s origins, the stories spilled out. About his first internship at a Canadian bank. About building his first start-up, then his second. About what it felt like to be overthrown as CEO.
By the end of the afternoon—nearly three hours later—I suggested we pause. We had only scheduled an hour together, and though Musk had been generous with his time, I didn’t want to wear out my welcome. But even as he stood to show me out, he launched into another PayPal story. Forty-seven years old, Musk spoke with the enthusiasm of someone older asked to relive his glory days: “I can’t believe it’s been twenty years!”
It was hard to believe—not just the years that had passed, but how much PayPal’s alumni had accomplished in them. If you have used the internet at all in the last twenty years, you’ve touched a product, service, or website connected to the creators of PayPal. The founders of several of our era’s defining firms—the creators of YouTube, Yelp, Tesla, SpaceX, LinkedIn, and Palantir, among others—were early PayPal employees; others occupy top posts at Google, Facebook, and Silicon Valley’s leading venture capital firms.
Both in the foreground and behind the scenes, PayPal’s alumni have built, funded, or counseled nearly every Silicon Valley company of consequence for the last two decades. As a group, they constitute one of the most powerful and successful networks ever created—power and influence captured in the controversial phrase the “PayPal Mafia.” Several billionaires and many multimillionaires have emerged from PayPal’s ranks; the group’s combined net worth is higher than the GDP of New Zealand.
But to look only at their wealth and impact on technology is to miss the group’s wider imprint: PayPal’s alumni have built world-changing micro-lending nonprofits, produced award-winning films, written bestselling books, and advised politicians at every level—from the state house to the White House. And they’re far from done: Today, PayPal alumni have taken as a mission everything from cataloging the world’s genealogical records to restoring three billion acres of forest ecosystems to “scaling love”—bringing their PayPal experience to bear in each case.
They’ve also been at the center of the biggest social, cultural, and political controversies of our age, including bitter fights over free speech, financial regulation, privacy in technology, income inequality, the efficacy of cryptocurrency, and discrimination in Silicon Valley. For its admirers, PayPal’s founders are a force to be emulated. For its critics, the group represents everything wrong with big tech—putting historically unprecedented power into the hands of a small clutch of techno-utopian libertarians. Indeed, it is hard to find a lukewarm opinion about PayPal’s founders—they are either heroes or heathens, depending on who offers the judgment.
And yet, despite all that, the PayPal days themselves are usually glossed over. If the early years come up at all, they are typically granted a polite paragraph crediting PayPal for making the later, splashier achievements possible. The group’s subsequent successes are so legendary—and their controversies so conspicuous—that they steal the oxygen from the origin story. Space travel, after all, makes for better copy than payment services.
But this seemed odd to me. It was as if these people had grown up in the same tiny town, and no one had bothered to ask what was in the water. It also seemed a shame: To skip PayPal’s creation is to neglect the most interesting stuff about its founders. It is to miss the defining experience of their early professional lives—one that defined so much of what came later.
As I began poking around, asking questions about PayPal’s beginnings, it became clear just how much of the story had been overlooked—and how many of its central figures were absent from the retellings. More than one person I spoke to had never previously been asked about their PayPal tenure at length. And their stories were as rich and revealing as those of the household names.
Indeed, it’s in the recollections of scores of engineers, UX designers, network architects, product specialists, fraud fighters, and support personnel that the story of PayPal comes to life. As one former employee put it, “You have folks like Peter Thiel, Max Levchin, and Reid Hoffman. But when I first got to the company, it was the database administrators who were thought of as gods.”
Whether known or unknown, the hundreds of individuals who worked at PayPal from 1998 to 2002 consider the experience a watershed. It influenced their approach to leadership, strategy, and technology. Several PayPal alumni observed that they’d spent the rest of their careers seeking a team of comparable intensity, intellect, and initiative. “There was something really special, and I think we may not have all realized it at the time,” one member of the product team said. “But now, when I go into teams, I’m just looking for what is that magic that we saw in the early days of PayPal. And it’s rare, but it’s what we keep searching for.”
One employee remarked on PayPal’s butterfly effect—not just in the achievements of people like Musk, Levchin, and Hoffman, whose creations have touched millions, but in the lives of the hundreds present at the creation. “It is… something that defines me and my life, and probably will for my entire life,” he said.
Understanding the PayPal years helps shed light on a remarkable period in technological history and the remarkable people who brought it into being. The more I learned, the more convinced I became that “the attic” was worth rummaging through.
PayPal’s founding is one of the great, improbable stories of the internet age. Two decades later, living and shopping in an era in which the “e” in “e-commerce” is redundant, it’s easy to take a service like PayPal for granted. When a couple taps can summon a car to our doorstep, sending money over the internet hardly seems groundbreaking. But it’s a mistake to assume that the technology underlying digital money transfer was easily built, or that PayPal was destined for success.
The PayPal we know today resulted from the fusion of two companies. One—originally called Fieldlink and renamed Confinity—was founded in 1998 by two unknowns, Max Levchin and Peter Thiel. In the course of finding itself, Confinity built a framework linking money to email, a service dubbed “PayPal” that found an enthusiastic audience on the auction website eBay.
But Confinity wasn’t the only company working on digital payments. Fresh off the sale of his first start-up, Elon Musk had founded X.com, a company that also helped users email money. That wasn’t close to the extent of his original ambition, though. Musk was convinced that financial services needed upending, and that X.com would be the platform to do it. He pitched his new start-up as the single-letter finance website to rule them all, offering every financial product or service available. But a series of strategic shifts led X.com to target the same online payments market as Confinity, with digital payments as the gateway for a bigger financial services play.
Confinity and X.com fought fiercely over eBay market share, a contest that raised the competitive ire of both teams and ended in a fractious merger. For the next several years, the company’s survival was an open question. Sued, defrauded, copied, mocked—from the outset, PayPal was a start-up under siege. Its founders took on multibillion-dollar financial firms, a critical press and skeptical public, hostile regulators, and even foreign fraudsters. In the space of just four years, the company survived the bursting of the dot-com bubble, investigations from state attorneys general, and a copycat product built by one of its own investors.
PayPal also faced a spectacularly competitive market. During its formative years, PayPal saw well over a dozen new entrants to the payments space, while simultaneously defending against entries from legacy players—credit card associations like Visa and Mastercard as well as multibillion-dollar banks. And because it emerged as the primary payment platform for eBay, PayPal found itself a hook in the craw of eBay’s executives, who thought of PayPal as an intruder skimming service fees rightly owed to eBay. eBay acquired and launched its own payments platform to unseat PayPal, a rivalry that defined PayPal’s earliest years.
Perhaps unsurprisingly, stormy seas without did not engender peace within the company. “Calling us a mafia is an insult to mafias,” joked John Malloy, an early board member. “A mafia is far better organized than we were.” During its first two years of existence, PayPal cycled through three CEOs, and its senior management team threatened to resign en masse—twice.
Not that PayPal’s senior management had much seniority in the traditional sense. Many of its founders and early employees joined the company in their twenties; most were fresh out of college. Working at PayPal was their first taste of the professional world. A young workforce alone wasn’t uncommon in late 1990s Silicon Valley, awash in young technologists looking to make a fortune. But even by Valley standards, PayPal’s was an iconoclastic culture. Its earliest hires included high school dropouts, ace chess players, and puzzle champions—often chosen because of their eccentricities and peculiarities, not in spite of them.
At one point, the company’s office featured both an indicator called “The World Domination Index,” which tracked the day’s users, and a banner bearing the words “Memento Mori,” Latin for “Remember that you will die.” PayPal’s oddball team was out to dominate the world—or die trying.
Most observers predicted the latter outcome. In the late 1990s, only 10 percent of all online commerce was conducted digitally—the vast majority of transactions still ended with the buyer sending a check by mail. Many people were dubious about entering personal credit card or banking information online, and sites like PayPal were often thought to be portals for illicit activity like money laundering or the sale of drugs and weapons. On the eve of its IPO, a prominent trade publication declared that the country needed PayPal “as much as it does an anthrax epidemic.”
Bad press could be ignored. World-shattering events could not. Just as PayPal’s founders prepared to take the company public—finalizing the terms of what should have been their greatest triumph—two planes screamed through the New York sky, striking the Twin Towers. PayPal was the first company to file for its IPO after September 11, 2001, as the country and the financial markets were only just beginning to recover from the attack.
On the way to its IPO, PayPal faced a raft of lawsuits and an SEC on the prowl following several high-profile accounting scandals at other companies. After nearly endless setbacks—a brutal merger, tens of millions of dollars lost to fraud, and a tough climate for technology stocks—PayPal pulled off the improbable: a stunningly successful IPO, and its acquisition, the same year, by eBay for $1.5 billion.
Musk would later correct an interviewer who offered that PayPal was a hard company to create. The company wasn’t hard to create at all, he said. Rather, “it was a hard company to keep alive.” Twenty years later, PayPal can claim a rare triumph for companies of its era: it still exists. Eventually, eBay spun PayPal out on its own, and today it’s worth roughly $300 billion—making it one of the largest companies in the world.
Just over two years passed between the X.com-Confinity merger and PayPal’s initial public offering on the Nasdaq, but many employees felt as though they’d worked a lifetime. Many remembered the company as a crucible—cutthroat as it was creative, and unforgivingly intense. One employee saw it vividly on the first hour of her first day. Walking over to her PayPal cubicle, she spotted an industrial-sized cache of Tylenol on her right. On her left, in the next cubicle over, she overheard another employee chastising a frustrated spouse. “I remember her talking to her husband, ‘Listen, I’m not going to get home tonight! So stop asking me!’ ”
Employee after employee described the era as a “blur”—a haze of exhaustion, adrenaline, and anxiety. One engineer slept so little during this period that he totaled not one but two cars driving home late at night from the PayPal office. The company’s CTO described the group as feeling “like veterans of an intense military campaign.”
Still, PayPal’s former employees waxed nostalgic. “It was crazy exciting,” observed Amy Rowe Klement, “I don’t think we even fully realized the rocket ship we were on when we were on it.” Several said they did their life’s finest work during this period. “I felt like I was part of something grand, and I’d never had that before,” said one quality assurance analyst, Oxana Wootton. “To this day,” remarked a fraud analyst, Jeremy Roybal, “I still bleed PayPal blue.”
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|Epub||February 22, 2022|
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