Who created PayPal? Here's its history

Bernardo Montes de Oca

It's hard to imagine a world where Elon Musk isn't getting his hands into all things tech. The most recent big splash he's gone through is Twitter, and, in case you've been living under a rock, this purchase is not only because of the money but also because of what he plans to do with it. 

In an ironic closing of a circle, Musk has said that his vision for Twitter is to be a payments app. If he manages to accomplish this, he'd be going face-to-face with a mafia that not only saw him rise to tech stardom but also shaped Silicon Valley as we know it today. 

There's no need for mugshots (though we used them in our video) because this group of nerdy bad boys dominates the startup world. We know who they are. From the founders of this band of misfits to its youngest members, they all have achieved great success. 

They're a contrasting plethora of rebellious nerds, each with their own rules and work culture. They are the PayPal Mafia, and Musk is one of its most recognizable members, but he isn't the only one. In fact, among all its members, this group has helped launch more than 600 startups and changed how we work. 

Who created PayPal?

In 2023, there were 433 million PayPal users, and 20 billion payments had gone through the platform. For many, it's the ideal payment platform, and small businesses have come to rely on it. Still, if you go back to its origins, the execution was anything but perfect. 

It all goes back to the late 90s. Back then, tech entrepreneurs Peter Thiel, Max Levchin, and Luke Nosek wanted to dive into digital payments. We must remember that, back then, e-commerce was just beginning. 

The few businesses venturing into online payments had nothing close to a decent platform to work on. So, Thiel, Levchin, and Nosek took it upon themselves to solve this, and that's how Confinity was born. At first, the three tried many ideas, including a Palm Pilot to Palm Pilot IOU system, which sounded awful, and performed just as poorly. 

Fortunately for them, times were moving very fast. In months, Confinity had gone through several projects and learned enough to land on a payment system called PayPal that would allow users to transfer money digitally. 

Transferring money online with little hassle was the key to success, and by creating a platform where it could be done integrally, the PayPal idea gained strength. At the same time, Confinity made a crucial step. 

In March 2000, Confinity merged with an online bank called X.com and took the latter's name. The founder of X.com was none other than Elon Musk. In April of that year, the controversial South African took over as CEO, with Thiel becoming Chairman of the Board.

Musk's tenure as a CEO was as long (or as short) as a summer love. By October 2000, he stepped down as a CEO, and Thiel took over, with Musk remaining on the Board, but that's not to say his presence didn't have a direct impact. If Musk's leadership has come under fire as of late, with his handling of Twitter, it seems like a reflection of the past. 

As the CEO of X.com, Musk was biased and favored his side of the company instead of the overall idea of Confinity. Heads butted, and it got to a point in which a figurative cout de etat occurred, one of the most dramatic in Silicon Valley history, according to author Ashlee Vance:

A small group of X.com employees gathered one night at Fanny & Alexander, a now-defunct bar in Palo Alto, and brainstormed about how to push out Musk. They decided to sell the Board on the idea of Thiel returning as CEO. Instead of confronting Musk directly with this plan, the conspirators decided to take action behind Musk's back. 

After a successful betrayal (depending on who you ask), the company assigned Peter Thiel as CEO and, in no time, ditched the X.com moniker. Thus, it became known as PayPal in 2001 and was an immediate success. That same year, the company amounted to 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.

While the startup was enjoying impressive numbers, behind closed doors, money was scarce. Its chaotic upbringing meant there was little control, but fortune had it; they would have a stroke of luck. In July of that year, eBay announced it would buy PayPal for $1.5 Billion, finalizing the acquisition by October. Everyone who had been a part of the company walked out a millionaire.

It's a fascinating, fast-paced story that doesn't end with eBay purchasing the struggling startup. In fact, this is just the beginning of the PayPal Mafia, and it all starts with the Don, Peter Thiel, and the loyal Consigliere, Levchin.

Who made PayPal successful? 

The Mafia is all about loyalty. There's a lot of value behind the people you hire, whether in the startup world or the Castellammarese war. Thiel was no different; most of his working methods have rubbed off on other founders. It only takes one quick read about his hiring process. 

"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.

Loyalty, therefore, was essential. Thiel has reiterated that he not only hired his friends but possible friends, as well. Many who worked at PayPal came from Thiel's earliest days as a student at Stanford University. 

Levchin was no different, as he hired many classmates from his college days in Chicago. So, it pays to make buddies at university. That could be the primary value of higher education.

Those entering the company faced formidable challenges. Levchin and his minions were fixing fraud issues and regulatory problems. At the same time, Thiel tried to sort out how to tackle the competition. The goal was to keep the PayPal ship afloat.

That's not to say these were wrong moves. Imagine being put to the challenge with people you don't like. It was a good thing they hired their friends.

Like kids growing up in tough neighborhoods, the guys at PayPal rallied together and took a blood oath, such as refusing outside help. Their hiring process was just as personal. The two co-founders didn't want jocks nor MBAs, or consultants, for that matter. For example, they didn't hire anyone who played basketball because, as Levchin told CNN. "Everyone I knew in college who liked to play hoops was an idiot.'"

So, I guess, sorry, basketball players? 

There were other ways of going about things that were atypical. Here's a list of some of Thiel's hiring practices:

  • Hire people who live and breathe numbers and who speak multiple languages.
  • Recruit from the Midwest.
  • Let everyone, from managers to grunts, see all the data, including traffic, revenue, and burn rate.
  • Make decisions based on facts and argument, not experience.
  • If your strategy isn't working out, be prepared to change your company's direction.
  • Avoid and terminate unproductive meetings.
  • Foster a competitive, hypermasculine work environment, but no jocks. Competing on the ping-pong table instead of the basketball court is better. 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.

So, if this was the list that was hard to fulfill, who did they hire? 

Who were the original PayPal members?

There's no way of knowing if the person sitting next to you will be hugely successful in the future. So, as Thiel said, it's always good to keep in touch after parting ways. That's a valuable tip, but it's not only about what you do after you leave.

It's also about cultivating the same attitude between you and your peers. Many books and articles have covered how a collection of nerdy geniuses fueled a company culture that went 100 mph, promoted cockiness, and stood up to whatever challenges lay ahead.

This attitude was a combination of need and desire. As we explained, times were tough at PayPal's earliest beginnings. You had to like rain, wind, and sleet to stand in the middle of a perfect storm. But this is hard to replicate. One of the biggest challenges is meshing two companies' cultures and making them work. 

And that's what happened. After eBay purchased PayPal, the cultural and corporate differences were just too much. eBay couldn't handle the bro-nerd power.

The PayPal Mafia constantly clashed with eBay's rigid way of doing things. It's safe to say they weren't buddies. So, immediately after the purchase, the exodus occurred.

Thiel, Levchin, and many of PayPal's employees left and went on to become hugely successful. After all, it's easier for young people, in the prime of their careers, with millions in their pockets after a billionaire purchase, to bounce back, and that's what happened with many former employees. Just look at the list, and this is only part of it. So, who are they?

Who Is In The PayPal Mafia?

The Don: Peter Thiel

He'd go on to co-found Founders Fund and finance projects like SpaceX, Airbnb, Facebook, and Linkedin. With his ruthless attitude, comprehensive business knowledge, relentless energy, and thought-provoking ideas, Thiel is a money-making machine. 

He's not only famous for his business side but also controversial, being knee-deep in politics and lawsuits. Yes, the Hulk Hogan Lawsuit.

Consegliere: Max Levchin

An advisor to the boss, Levchin a bit quieter. But just a bit. His demeanor shouldn't take away from his accolades. He was relentless in developing technology to prevent fraud, such as the Captcha test's earliest versions. 

Wait, so the whole fire hydrant thing was his idea? Thanks! 

He then acted as a chairman for Yelp and created other payment platforms. 

The Money Man: Ken Howery

Howery served as PayPal's CFO. He worked with eBay as head of development but left to co-found the Founders Fund with Thiel.

Oh, and by the way, he became the United States ambassador to Sweden under Donald Trump.

The Other Leader: Elon Musk

Yes, the very same, and if we were making a mafia film, his role would be hard to define. After much of the early PayPal days came out, a director would need help placing him. A capo, a negotiator, a businessman, all of the above? 

Musk went on to create so many projects that it's easy to forget his origins. Tesla, Starlink, and SpaceX are only some of his projects, and he's also one of the world's wealthiest. 

Who Else Was In The PayPal Mafia?

Luke Nosek: One of the Confinity co-founders, eventually he created the GigaFund, an investment firm that would, in turn, help raise money for SpaceX. He's also a member of the Board for SpaceX and ResearchGate.

Roelof Botha: He was PayPal's head of corporate development for a while and is now considered one of the world's top tech investors. He works with none other than Sequoia Capital, funding projects within Apple, Instagram, and YouTube. Remember this, the whole YouTube thing.

Reid Hoffman: fast-talking, energetic; Hoffman served on PayPal's Board of Directors in its foundation. Thiel told the NYT that Hoffman was more a fireman than anything else, with a knack for dousing fires in those early days. He co-founded LinkedIn. He has also invested in Facebook, Flickr and joined the Microsoft Board in 2017.

David Sacks: he loved chess and movies and worked as COO of PayPal in 1999. After the eBay purchase, he produced the hit "Thank you for smoking." I recommend it: excellent movie. Then he became an angel investor for Airbnb and Slack, among others.

The trio of Steve Chen, Chad Hurley, and Jawed Karim worked at PayPal. Chen and Karim were engineers, while Hurley was a web designer. You might not have heard of them, but their brainchild is quite popular. They created YouTube and then received funding from their friend, Botha.

Then there's the dynamic duo of PayPal engineer Russel Simmons (no, not the music mogul) and the VP of Technology, Jeremy Stoppelman. After working at PayPal, they left with the eBay purchase. 

The two devised an idea for users to leave reviews of restaurants, cafés, bars, and different businesses. They pitched the idea to Levchin, and Yelp was born.

The family extended to Yishan Wong, eventual Reddit CEO, Jason Portnoy, now a partner at OakHouse, and Eric Jackson, who'd write a bestselling book about PayPal and run two different companies, and the list goes on. 

You will run into astounding figures if you add up the Mafia's impact on Silicon Valley. By 2019, with a considerably conservative approach, Venture Beat magazine estimated that the Mafia members alone had made 1005 investments into 646 companies in the Valley. But all these startups and investment firms have two things in common.


PayPal employees helped created many startups

"PayPal may have the highest ratio of individuals going off to start or finance new startups in the Valley," Scot Dettmer told the New York Times.

That's their key to success. Look at the ring of investments; you'll see it's a tight web. It's so close and so united that it's evident that the first people anyone in the PayPal family will talk to is the family itself.

Suppose you want a visual ride to get to know the family members. In that case, Fleximize does an excellent job of highlighting the connections. 

This close-knit community proved vital in the years after the dot-com bubble burst. How so? People withdrew from investing, and only your bro would believe in your idea, saving many companies. 

When your bros back you up, and they have millions (even billions), it's hard to quantify just how much money they've put into Silicon Valley, but they've helped shape it. And it's logical. They've been through hell and back; they know how each other works, their ticks and quirks, and, most importantly, their talents.

To this day, they follow Thiel's rules twenty years after they met. They've kept it within the family, and it has worked. But that's not to say that the PayPal Mafia is perfect.

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 worse. And while many want to emulate its culture and philosophy, it's not easy.

There's no way of guaranteeing that replicating PayPal's culture will work in today's ever-changing world. Perhaps, a bunch of nerds turned to cocky bros driving McLarens isn't your thing. Perhaps it is. 

But, if we were to rescue one thing, it's about creating bonds that will stand the test of time. So, be sure to work on your own Mafia. Just stick within the legal limits. 


Bernardo Montes de Oca
Content creator in love with writing in all its forms, from scripts to short stories to investigative journalism, and about almost every topic imaginable.
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