What do YouTube, Tesla, LinkedIn, SpaceX, Yelp, Yammer, and Palantir have in common? Besides all being “unicorn” companies valued at over $1 billion, a more impressive phenomenon lies in the shared background amongst their founders, who fundamentally changed the technological landscape that we live in today.
Coined as the “PayPal Mafia”, a majority of the original employees of PayPal left the company after the IPO and acquisition by eBay. These people took what they learned at PayPal and started new companies, financed other startups, or took up senior positions elsewhere in Silicon Valley. It became a complex web of relationships, so bare with me as I work to explain the successes.
While some say these people got lucky twice, I argue their success took a great deal more than luck. The culture at PayPal that shaped the employees ended up shaping what Silicon Valley looks like today, because many of the most successful in tech started out at PayPal. In 2002, PayPal was bought by eBay for a reported $1.5 billion and with this acquisition, dozens of PayPal employees decided to leave. PayPal had a very distinct (what we now would consider a start-upy) culture and those who left felt it did not align with eBay’s more bureaucratic model.
Just as the world was losing faith in technology and encouraging internet startup founders to pursue other interests, PayPal, among others, revitalized Silicon Valley and the tech industry. PayPal, a platform used for money transfers among users, played upon virality and though it was hemorrhaging money in the early 2000s, became widely adopted and successful. Perhaps greater than the success story of the platform itself was the success that followed by its team before the eBay acquisition.
A group among the 220 employees comprised of engineers and managers working in Mountain View in PayPal’s early days went on to create the seven startups mentioned above, and achieved much more. These workers became friends at PayPal because of the intensity of the environment. The company was on the brink of extinction, so it was “do or die” for the employees, and they wanted to see a victory. Being a new technology of online pay, PayPal faced many challenges before and while becoming established. The company had to be agile and move quickly in order to become successful, which resulted in an intense culture, where whoever is best will do the best. Though friendly, the environment was cut-throat competitive where anyone could win, regardless of management status. While this may sound a lot like your typical Silicon Valley startup, keep in mind this wall all happening over fifteen years ago, when the environment looked very different.
There were a variety of factors that culminated to provide an environment where these employees could thrive. The company of PayPal was comprised of extremely talented engineers and innovative entrepreneurs. They were young and ambitious, and many of them were friends before, at Stanford. Co-founder Peter Thiel describes further about the growth of the team, “We didn’t only hire our friends, but we did hire people that we thought we could become really good friends with”. After the dismantling of the original PayPal team, many of its members remained close, both personally and in business.
Because of the relationships built at PayPal based around strong work ethic, but varying in talents and interests, PayPal alumni were set up to create great things. The most successful venture by some standards, YouTube, was founded by Jawed Karim, Chad Hurley, and Steve Chen. As many have seen, the largest video sharing platform in the world was founded by three guys who shot a video at a zoo and shared it, and the rest is history.
Other notable examples of PayPal relationships are Yelp, founded by Jeremy Stoppelman and Russel Simmons, and Youniversity Ventures, founded by Keith Rabois and Jawed Karim.
In addition to founding many successful companies, many members of the mafia went on to become very successful investors. Peter Thiel, for example, founded Clarium Capital, which quickly became a multi-billion dollar hedge fund, and co-founded Founders Fund with Luke Nosek and Ken Howery.
Of course, while some left the company with an extreme sense of companionship, others left just before the door hit them on the way out. Perhaps the most famous example was Elon Musk, who joined after his company, X.com merged with PayPal but had differing opinions and fundamental philosophies than Thiel and the others. Though he was ousted, Musk and Thiel have since made up, and have even invested in each other’s companies. (Harsh) moral of the story: those who did not mesh well with the culture left quickly.
At the end of the day, the “mafia” members may have had their disagreements and went their separate ways, but there are a few lessons we can take away from the company that sparked this explosive success.
Creating an entirely new concept, in the case of creating a form of online currency and altering the course of the internet is difficult and takes time. PayPal founder Peter Thiel (aka “the don”) recalls, “The very important lesson that was learned was that starting a great company is neither easy nor impossible, it is somewhere in between. It’s really hard, but doable,”. Today, we accept and expect online payment methods to be secure and now do not think twice about sending money with two clicks via an iPhone app. At the beginning, PayPal battled daily against fraud, and at one point, it cut into 1% of total transactions, which becomes quite significant with scale. Additionally, like any other application or service, one of the largest challenges is gaining user adoption. PayPal played on virality, allowing account owners to transfer money to non-account owners, forcing those people to create an account. With new technology and ideas come backlash from regulation, competitors, and even those you are working with. PayPal had to establish and keep up relationships with credit card companies, who sometimes were hostile to the new concept, especially when considering the amount of fraud going on. As PayPal was working to combat these challenges and competition waiting for the company to fail, its members persevered and left with more knowledge and experience than they came with, contributing to the startup revolution.
Though there are now various routes to take to make payments or transfers online and PayPal may not even be among the first that comes to mind, the tech landscape would look very different than it does today, had PayPal and its team not existed or succeeded.