PayPal Mafia

"PayPal Mafia" is an informal term for the community of American businesspeople and investors centered in Silicon Valley, who were founders or early employees of e-commerce service PayPal before founding a series of other technology companies. The PayPal Mafia are often credited with inspiring Web 2.0, and for the re-emergence of consumer-focused Internet companies after the dot com bust of 2001. Some commentators consider these credits to be exaggerated or partly mythologized.

Background

Max Levchin pitched his idea for a mobile device money transfer service to Peter Thiel at a breakfast meeting near Stanford University in 1998. Thiel invested and joined the company as co-founder. Later named PayPal after merging with an early competitor, the company grew to approximately 200 employees, hiring a number of people Levchin knew through the Computer Science department at the University of Illinois at Urbana-Champaign as well as some contacts of Thiel from the Stanford Review, a libertarian magazine Thiel started at Stanford. The company grew to serve the broader market of electronic currency, used in particular for online auctions. It went public in 2002 and was bought by eBay later that year for $1.5 billion, after eBay gave up on its own competing service, BillPoint. The original PayPal employees had difficulty adjusting to eBay's more traditional corporate culture, resulting in a mass departure: within four years approximately half of the original 200 employees, and all but 12 or fewer of the first 50 employees, had left. They remained connected as social and business acquaintances. A number of serial entrepreneurs from the group worked with each other in the following years to form new companies, venture funds, and to make private equity investment in each other's companies, particularly in the fields of social networking service and other Web 2.0 online software services.

It is not uncommon for a company's employees to leave and start successful new companies of their own after their old company is acquired. However, the PayPal alumni are considered singularly prolific. PayPal's $1.5 billion acquisition price was relatively small compared to other technology company acquisitions, yet with less buyout money than other companies PayPal's former employees launched more successful companies in a shorter time than almost any other company in history. Their success has been attributed to a number of factors: their youth (many had never been in unsuccessful companies before starting PayPal, and were not interested in retiring on their company stock gains); the physical, cultural, and economic infrastructure of Silicon Valley, which facilitates rapid company formation and expansion; and the diversity of skill-sets among the former employees (which ensured that the social group has a full range of financiers, engineers, designers, operations experts, marketers and others available to help each other start new companies). By hiring mostly people they already knew, PayPal's founders encouraged tight social bonds among friends who continue to trust and support one another despite their relatively short time together at PayPal. The phenomenon has been compared to the founding of Intel in the late 1960s by engineers who had earlier founded Fairchild Semiconductor after leaving Shockley Semiconductor, Silicon Valley's first successful computer device company.

Other aspects of PayPal's pre-eBay corporate culture were also unique. Company decisions were made according to reasoned arguments rather than executive experience. It was allowed and even encouraged for low level employees to criticize executive decisions and lobby for their own positions. All employees, not just managers, were made aware in detail of company finances and performance. Levchin and Thiel intentionally looked for a specific personality profile in their early hires. They hired workaholic engineers, often graduate school dropouts with anti-establishment leanings, and avoided hiring MBAs, consultants, or people they considered "frat boys" or "jocks". Many employees were multilingual. Recruited from the American Midwest, most were not initially interested in the San Francisco Bay Area's many social distractions. The company was male-dominated and nearly all employees were young men. An intensely competitive environment and a shared struggle to keep the company solvent despite many setbacks, contributed to a strong and lasting camaraderie. All of these have been cited as contributing to the group work ethic that has led to success for so many of their newer start-up companies.

The name

The group's name for itself, "PayPal Mafia", was already a minor cultural meme, but gained wide exposure due to a 2007 article in Fortune Magazine that used the term in its headline and featured most of the members posed at San Francisco's Tosca Cafe in gangster outfits. Others who were not present at the shoot were later photographed separately in gangster attire.

Membership

The PayPal Mafia is not a formal organization, so there is no formal criterion for membership. Many of the group's members do acknowledge that it exists and use the name when referring to themselves. Some have formed various social networking service and other online community groups together.

Members include:

• Founder and Chief Executive Officer Peter Thiel, often called the "don" of the PayPal Mafia, earned approximately $68 million in the eBay buyout. He made a $500,000 early investment in Facebook that was worth approximately $1 billion at the valuation established by Microsoft's investment in 2007. He started The Founders Fund with fellow members Ken Howery and Luke Nosek in 2005. The Founders Fund and its principals collectively made early investments in SpaceX, Facebook, Geni.com, IronPort, Ooma, Quantcast, Rapleaf, slide.com, LinkedIn, Friendster, Yammer, Yelp, Inc., Powerset, Vator, Palantir Technologies, Joyent, and SmartDrive Systems, among others. He also founded Clarium Capital, a $2 billion hedge fund. He was executive producer of Thank You for Smoking and co-wrote The Diversity Myth: 'Multiculturalism' and the Politics of Intolerance at Stanford.
• Founder and Chief Technology Officer Max Levchin invested in IronPort as well, a company founded by early PayPal investor Scott Bannister. With the money he made from the sale of that company to Cisco Systems he founded Slide.com and made the founding $1 million investment in Yelp, Inc.
• Former Chief Operating Officer David O. Sacks later founded Geni.com and Yammer, and formed a movie production studio, Room 9 Entertainment, that produced Thank You for Smoking with funding from Thiel and Hoffman.
• Chief Financial Officer Roelof Botha later joined as a partner of Sequoia Capital, a venture capital firm that has funded many PayPal Mafia companies. Botha personally invested in YouTube, Facebook, Joost, Tokbox, and Xoom.
• Engineers Steve Chen and Jawed Karim, and web designer Chad Hurley founded YouTube, after investigating why it was so difficult at the time to share videos online.
• Elon Musk, who was forced out after losing a fight to run the PayPal service on Microsoft servers, co-founded Tesla Motors, and also founded private space exploration company SpaceX with $100 million of his own money. He made a $10 million founding investment in SolarCity, where he served as chairman.
• Eric M. Jackson, later wrote The PayPal Wars and became Chief Executive Officer of WND Books, the publishing arm of World Net Daily. He then went on to co-found CapLinked, focused on linking companies and investors.
• Russel Simmons, one of the first engineers, and Jeremy Stoppelman, Vice President of Technology, founded Yelp, Inc. in 2004, after a luncheon at the Slanted Door restaurant hosted by Levchin. The conversation turned to why it was so hard to find a good dentist. Levchin discussed the idea with Simmons and Stoppelman on the walk back to Levchin's business incubator office and agreed the next day to fund their company proposal for local business reviews. Yelp has a number of other PayPal Mafia members among its employees, advisers, and investors.
• Product manager Premal Shah became founding president of Kiva.org.
• Daniel Issen became Vice President of Engineering at AdBrite
• Keith Rabois was an early executive who later held positions at LinkedIn and Slide, and invested in Tokbox, Xoom, Slide, LinkedIn, Geni, Room 9 Entertainment, YouTube, and Yelp. He is now COO of Jack Dorsey's payment company Square
• Jared Kopf was an assistant to the PayPal CEO, helped found Slide, and later served as a Director of Clarium Capital before founding several other companies, including a behavioral targeting company, Adroll.
• Former Executive Vice President Reid Hoffman founded LinkedIn in 2002, and was an early investor in Friendster, Six Apart, Zynga, IronPort, Flickr, Digg, Grockit, Ping.fm, Nanosolar, Care.com, Knewton, Kongregate, Last.fm, Ning, Technorati, Tagged and a number of other Web 2.0 firms. When YouTube was first formed, Hoffman housed them in his LinkedIn office which had also been PayPal's office. In 2009 he became a partner at venture capital firm Greylock Partners.
• Other members include Luke Nosek, Ken Howery, and Yishan Wong.

External links

note: links to other company websites and personal home pages may be found on the articles linked to above.

• Room 9 Entertainment - Room 9 Entertainment official site