Paypal Mafia in 2021: how the Paypal founders shaped Silicon Valley

Caya
April 13, 2021

Do you recognize any of these faces? 

Imagine, you are in this meetup, party, event, and you find yourself face to face with them…

Did it happen to me, no?! And honestly, it’s unlikely to happen to you either. These guys are unreachable these days. 

A more realistic scenario… just, life. If you are a tech entrepreneur, knowing who these guys are is like common culture. An investor or a fellow founder will name drop them; and yeah, you have to know who they are. 

This is a photo by Fortune Magazine on an article that coined the nickname, ‘The Paypal Mafia’. In a certain way, they control Silicon Valley. 

If you are building a company. Or rather, if your company reaches massive scale, chances are you are going to come across one of them.  

This guy is Peter Thiel. According to the article, the Don. He is kind of THE best known investor in the Bay Area. He co-founded Palantir, was THE first investor on Facebook, enough to earn him a scene in the movie. That’s not him, of course.  Thiel is a controversial figure, no doubt, being an open Trump donor and supporter, one of the few outspoken republicans in the liberal spheres of tech. 

And that’s all I have to say related to politics. 

Then, there's Max Levchin. Known as the Consigliere. I don’t know where they get this stuff. He was relentless in developing technology to prevent fraud, such as the Captcha test's earliest versions. 

We kinda owe him the =whole fire hydrant thing? 

This is Jawed Karim; and you are watching this video thanks to him. He’s one of the co-founders of Youtube. The first video ever on Youtube was Karim at the zoo.

This is Jeremy Stoppelman, one of the co-founders of Yelp and still, the company CEO. ; Russel Simmons is also in this photo, another Yelp co-founder and the formet CTO. 

These two guys (Luke Nosek, and Kenny Howery), along with Peter Thiel, are managing partners The Founders Fund; a firm that has invested in Figma, Stripe, Compass, Zocdoc, Airbnb, Facebook and Spotify- among others.

I’m not just saying ‘among others’, their investment list goes on and on. These are some of the most important tech companies in the world. 

This guy is Reid Hoffman co-founded LinkedIn; you might have heard of it. He has also invested in Facebook, Flickr and joined the Microsoft Board in 2017.

This guy, Roelof Botha, is a partner at Sequoia Capital. These guys are investors in Uber, Apple, Airbnb, RobinHood, NVidia, Doordash… 

And what connects them all? They were all early Paypal founders or employees. 

The list doesn’t end there, of course. 

His calendar was already too busy to make it to the photo, but the most well-known member of this gang is no other than Elon Musk. He built this cool electric car company. Made people a lot of money because its stock grew by over 700% the last year, and we might have to thank him in a few years for putting a man on Mars. 

There’s also Yishan Wong, who was CEO of Reddit from late 2011 to 2014. Steve Chen, Chad Hurley- the other Youtube co-founders. I mean what happened. What secret sauce made this group become THE most relevant tech investors and entrepreneurs. There isn’t a secret sauce. It’s all pretty clear if you dive deep enough into the story of Paypal and the type of people that the founders liked to hire. Let’s look into it. Let’s look into the origins of this Mafia. 

OK, some quick stats about what Paypal is today. 377 million users, and a total of 15.4 billion payments had gone through the platform.
A necessary evil is what I would call it. I’ve had my fair share of not so great Paypal experiences. If you want to buy stuff on eBay you sort of have to use Paypal. Not a slick interface. Not the best customer support. A fraudster favorite platform.
But say what you will about Paypal, chances are you have an account. And market reach is even bigger in countries like Germany.

Anyway- it was Peter Thiel, Max Levchin, and Luke Nosek that started this in 1998. The company was originally called Confinity to focus on the world of digital payments.
And remember, this is 1998. The true beginnings of e-commerce. The few small online businesses that existed had nothing close to a good platform for online transactions.
After experimenting with a few solutions, the one idea that stuck was a payment system called PayPal that would allow users to transfer money digitally, which would become the golden ticket.

In March 2000, Confinity merged with an online bank called X.com and took their name. This bank was founded by none other than Elon Musk, who was brought in as CEO.
And Elon Musk’s coming was trouble.
But hold on for a sec.
So far, this sounds like the story of a ‘regular’ startup. Not so different from the other Company Forensics we’ve done. Why was Paypal different?
One of the reasons why Elon Musk didn’t have an easy landing on Paypal was, company Culture.
Company culture is this marvelous thing, one thing founders don’t necessarily pay too much attention to. As of shooting this video, our team at Slidebean is 33 people across 2 countries.

We treasure culture. It comes from the founders but it’s reinforced every day by the managers. It defines who we hire, and how we work. It defines our schedules, and everyone’s responsibilities. And I’ll get back to Paypal now. 

For example, Thiel despised meetings. Rumors say he often walked into meetings in the office and forced them to break if he didn’t feel the discussion required a meeting. 

Thiel had a firm belief in the value of hiring processes. "I wanted to build a company where everybody would be really great friends and, no matter what happened with the company, the friendships would survive," he told Tech Republic.

He reiterated that he not only hired his friends but possible friends, as well. 

Many of those friends who ended up working at PayPal came from his earliest days at Stanford University. 

Levchin was no different, as he hired plenty of classmates from his college days in Chicago. So, it pays to make buddies at university. Perhaps, that's the primary value of higher education.

The two co-founders didn't want jocks nor MBAs, or consultants for that matter. 

This belief extends to today. Thiel founded a Fellowship, which is a two-year program for young people who want to build new things. That’s from their website. 

It says ‘Thiel Fellows skip or stop out of college to receive a $100,000 grant and support from the Thiel Foundation’s network of founders, investors, and scientists’.

$100,000 for dropping out of college. 

Another Paypal example, they didn't hire anyone who played basketball, Levchin told CNN because: "Everyone I knew in college who liked to play hoops was an idiot.'"’

Other practices that are famous. 

  • Hire people who live and breathe numbers and who speak multiple languages.
  • Let everyone, from managers to grunts, see all the data, including traffic, revenue, burn rate.
  • Make decisions based on facts and argument, not experience.

So far so good. But some other practices were less… 

  • Recruit from the Midwest.
  • Foster a competitive, hypermasculine work environment, but no jocks. It's better to compete on the ping-pong table instead of the basketball court. Whatever that means.
  • Force out anyone who disagrees with your values
  • And if you leave, stay in touch with the inner circle and invest in their startups.

This created a complicated culture in Paypal. In his interview for the Fortune article, Elon Musk called the culture “an intellectual pissing contest”. 

Apparently, some disagreements translated into wrestling matches in the early days. 

This Mafia environment was, of course, not very welcoming towards women. Fortune mentioned a case of a female engineer who wasn't good at Ping Pong, so they almost passed on hiring her because she ‘lacked competitive fire’.

You can also judge by the number of women in that mafia picture.  

Many of the x.com employees that came with Musk, left soon after the merger. 

The problem with Elon Musk wasn’t only cultural. Elon did want to make some significant changes in the software infrastructure, and this made everything harder. 

In the fall of 2000, while Elon was on his way to Australia, for apparently, the first vacation he had taken in years. Thiel orchestrated a coup with the Board, and got him fired. 

This didn’t stop paypal by any means. In 2001, the company had 10.2 million users By February 2002, four years after the initial idea, and just months after renaming itself as PayPal, the company successfully went public, going from $13 to a closing value of $20.

A dot com bubble survivor, no doubt, and if you haven’t go watch our video about it

In July 2002, Ebay acquired Paypal for $1.5B.  Everyone who had been a part of the company walked out a millionaire. Many of them wal ked out because of compatibility problems with the Ebay culture. 

So why? Why is the Paypal Mafia so powerful today? 

Do they run Silicon Valley. No. But they are extremely successful and relevant investors and entrepreneurs. You sort of have to know who they are. Chances are you will be connecting with them in your entrepreneurial journey.

We have, BTW. We are a 500 Startups company, 500 was founded by Dave McClure, another ex-Paypal. So I guess we are part of it, right? 

More than the hype, or the cool Photoshop montages we did- the point of all this is the magic combination that these guys have in their hands. 

The group's attitude has drawn heavy criticism for laying the grounds for white-male-under-fifty domination of the Valley. Yes, it works for this demographic, but some have criticized the lack of opportunity for women and people of diverse races and backgrounds. Experts believe it's now hard to change this behavior within the Valley, thanks mainly to the Mafia's strong influence.

We can't deny that the PayPal Mafia has changed how we see the tech world, especially Silicon Valley, for better and for worse. And while many want to emulate its culture and philosophy, it's not that easy.

Experience with a successful startup, from the earliest stage. Experience with acquisitions. Highly technical and analytical people. A very competitive mindset. A network of other people like them, who are well connected in the Valley. And last but not least, money. 

What better combination of attributes do you want for a successful person in the Bay Area? This is a group of people who have an incredible, truly incredible mix of variables to position them to startup successful companies. 

That’s the power of having a network. We’ve talked about it. 

Also the power of money. Wil Shroder, the CEO of startups.com has a cool podcast episode on how selling your company, even if it is for a small amount, can change your life. 

Imagine getting $500,000 when you are 32. You pay out your debt, your mortgage, and create a bucket of money that you can use to invest.

You certainly have to keep a day job, but suddenly, it’s not so crazy to quit your day job and start a new company, if you have something to fall back on. Suddenly, it’s not that crazy to be willing to spend a year without a salary, because you can, to start an idea you believe it. 

The Paypal Mafia got themselves a head start. A head start all of us entrepreneurs dream to have. That’s why they are who they are. 

Read more stories like this here
Caya
CEO at Slidebean/FounderHub. TEDx Speaker. 500 Startups Alum. 40-under-40.
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