The PayPal mafia

Author and biographer Jimmy Soni’s book on PayPal is not the first detailed account of its early history. That distinction would probably go to The PayPal Wars: Battles with eBay, the Media, the Mafia and the Rest of Planet Earth written by a former PayPal marketing executive Eric M Jackson, which was published in 2004. But Mr Soni’s book —which took over five years of reporting though he had originally estimated that he would finish it in half that time —is important not just because of its exceptional reporting but also because it puts the PayPal story in perspective of that era in Silicon Valley. It also offers a fascinating glimpse of what the American Dream can be for exceptionally bright immigrants —and many of the key people in the PayPal story were immigrants.

The gist of the PayPal history is known to those who follow Silicon Valley history. Two sets of bright founders built two rival digital payment firms. Max Levchin and Peter Thiel had set up Confinity. Elon Musk had started up X.com. The visions of the two companies were not exactly similar. Mr Levchin had started by creating a way of transferring money from one PalmPilot user to another —a product called SecurePilot. He would, with the help of a young Peter Thiel, set up Confinity and with PayPal as its product. Messrs Thiel and Levchin only wanted to dominate the digital payments arena. Mr Musk’s X.com was planning to become a digital financial powerhouse that would offer the same array of services as banks. Both would build a simple way of transferring money via email —and both companies ended up competing fiercely to become the preferred payment service for merchants in eBay.

Both companies were led by fiercely competitive people who wanted to kill the rival firm in the marketplace —but eventually were forced into a merger that Mr Musk didn’t want. Then CEO Bill Harris told Mr Musk, who was in the middle of a funding round, that he would quit if the latter did not agree to merge with Confinity.

The shotgun merger seemed destined for failure. A palace coup forced Mr Harris out shortly after the merger. Mr Musk became CEO. He too was ousted in another board coup when he was on his honeymoon.

PayPal had every reason to fail. It had a huge burn rate. It was dependent on credit cards who charged a hefty fee and on eBay, which was trying its best to kill it. eBay had built its own payment service and wanted to get rid of both Confinity and X.com and, certainly, the merged company. 

Meanwhile, frauds were rising to a point that the company could go under if it were not brought under control. Worse, the two firms used entirely different payment platforms —with Confinity using Linux while X.com had opted for Microsoft. There were constant clashes at the management level.

Despite that, it became a household name and the de facto payment method on eBay. It raised money just before the dotcom crash, which killed off most of its rivals. Though its IPO got hit by 9/11, it managed to do very well. eBay finally decided to buy it out —giving all founders and early employees a handsome payout.

The PayPal founders and employees went on to set up other companies —including LinkedIn, Tesla, YouTube, Yelp, Square and Palantir, among others. They earned the sobriquet of the PayPal Mafia. Messrs Musk and Levchin were prolific serial founders already —the digital payment outfits were the second companies both founded right after college. Mr Thiel had decided to become a venture capitalist in Silicon Valley even when he had hardly any money and no credentials. 

PayPal has not lived up to its initial promise, possibly because eBay had a limited vision for it. It could have been the dominant fintech company in the world —a financial equivalent of Amazon.com, as Mr Musk had originally intended. But its founders have an outsized influence in Silicon Valley and have become legends.

Mr Soni’s book is a pleasure to read because the tale is littered with exceptionally bright people, the anointing and deposing of CEOs, co-founders, star employees and partners and egos that would not fit into a “conference venue”. It gives a glimpse of Mr Thiel’s and other venture capitalists’ investment philosophies – they bet on bright people, never on clearly thought-out business plans.

This is a thoroughly enjoyable book, though the reader is left with a question. If the PayPal founders had not sold to eBay, would they have created a fintech powerhouse that could dominate the global world of finance? Or would their internecine battles of the egoistic founders have made the company flame out and its tale become another cautionary tale of Silicon Valley excesses?

The reviewer is Former Editor, Business Today & Businessworld and Editor, prosaicview.com