Inside the maximum-security Maryland prison, two inmates Chris Wilson and Stephen Edwards who were imprisoned for murder had a cover story of Fortune magazine pinned on their cell wall. That cover page had a photograph of 8-10 people all of whom had their entrepreneurial origins in one company, PayPal. The article went with an intriguing title: The PayPal Mafia!
Triggered by the article, Chris, who had been incarcerated at age 16 for murder, studied all he could about the founders Elon Musk and Peter Thiel and the entrepreneurial juggernaut PayPal had become. Chris then taught that story to fellow prison inmates — a story of how a bunch of young, unsure, immature immigrants who were good at math built this monolithic company driven by their passion and an urge to win.
Although this tale finds a mention in the epilogue of Jimmy Soni’s Book, The Founders, in reality, it was instrumental in sowing the seeds for writing this book in the first place.
Jimmy Soni is not a journalist, so he approaches the story not from the centre of all the action, but from the sidelines digging into the who’s and the how’s more than the whats and whys. That makes this book, filled with illuminating anecdotes, perhaps far more interesting than if a journalist would have reported it as a tech phenomenon in the making. It becomes a tale of human endeavor and the heights it can achieve.
Unlike Facebook, Microsoft, YouTube, Oracle or Google, or any of the large and successful tech companies, Paypal can’t be identified with one dogged entrepreneur who built the entire company. It is, instead, a bunch of idea-crazed geeks who came together to create a phenomenon that redefined the way the internet would be used.
The PayPal story has obscure, humble origins. Jimmy begins the tale in Ukraine, where Max Levchin was born and learnt to write computer code, but he had to leave the country and migrate to the US. Levchin emerges with an engineering degree from the University of Illinois. As Jimmy recounts the tale, Levchin had founded a photo-sharing site called Slide, and met maverick investor Peter Thiel to share his vision of creating a new world currency.
Called Fieldlink, it started as a palm pilot-based application that one could use to push money to friends by pointing the infra-red ports of phones to each other, later moving to become a service where you could send money to people via email.
Thiel came on board as an early investor and soon they hired hundreds of engineers to form Confinity and merged the company with Elon Musk’s finance start-up X.com to form PayPal. After ramping up to over 20 million users and having burnt $180 million in funding, they sold it to eBay for $1.5 billion in 2002.
Most of PayPal's key employees then left eBay and went on to build various businesses ranging from investment firms, philanthropies, and digital companies like Facebook, Yelp, Tesla, Space X, LinkedIn, Palantir, Digg, YouTube, and dozens of enterprises with a total net worth higher than the GDP of New Zealand. Their clout in the tech industry led Fortune to label them PayPal Mafia in that famous article.
It looks like a fairly standard silicon valley story template. But Jimmy digs deeper below surfaces to find stories of the people and the triggers that built PayPal into what it became.
Elon Musk’s back story is even more interesting. He came from South Africa to Canada and one of his quirks was to thumb through newspaper articles to find interesting people to connect with. One such person he met was Dr Nicholson who was a banker with Scotia bank but a man of many interests and drew Elon’s fascination into the world of finance.
Inspired by him, Elon experimented with a series of start-ups leading to him building out Zip2 which he sold at a tidy profit and used it to build X.com as a payment gateway and financial portal. Eventually, he met Peter Thiel and merged his company with Confinity to form PayPal.
What’s in a name
The story of about how the name PayPal came about it interesting too. Of the names like Cashio, momo, Emoney beam, and Zappio that were bandied about, their creative agent, who had a Harvard MBA and a degree in literature came up with PayPal after interviewing hundreds of people inside the company and users.
You cannot have any Silicon Valley success story without an Indian connection. A few of them make it into the book, the most prominent among them is Sanjay Bhargava. Sanjay Bhargava exited his failed start-up and joined X.com and is credited as the inventor of what we know as ‘Captcha’ now. A sort of pre-verification when you register your bank account to a service, the service sends a code which verifies you as a human and not a robot.
In his research for the book, Jimmy looked for stories about the person closest to the action with a big consequential contribution but who weren’t celebrated names and that is what makes the book very interesting to read.
The other interesting fact Jimmy brings up is the contribution of the University of Illinois which hasn’t been feted much by any of the books on the Silicon Valley successes who focus more on the contributions of alumni from Stanford, Harvard, and MIT instead. Jimmy points out that PayPal, YouTube, and many other start-ups had their origins in the mid-west before their founders moved to the Bay area.
In another anecdote, Jimmy writes about Elon Musk’s penchant for hiring high-quality engineering talent and how he relentlessly pursues the person whom he wants to hire. He invited Sanjay for dinner at 10 pm for an hour, but the meeting went on till 4 am and Elon ended the conversation with ‘Can you come at 7 am and collect the offer letter?’
The reason PayPal was a hotbed for entrepreneurs was that they hired a very homogenous mix of people mostly from the University of Illinois who were all highly competitive, geeky, multilingual individuals with a terrific proficiency in math. In an interesting chapter, Jimmy highlights the differences in the Sculley model and Zukerberg model of operating a start-up. It is very well articulated and quite enlightening to learn.
Jimmy ends this wonderful story in 2002 when PayPal went public for the first time. It was also much before Elon Musk, Thiel or the others became household names with their pathbreaking entrepreneurial journeys. Perhaps he’s saving all those stories for a sequel.
This book is a must-read to understand how the real power of networks works and how relentless hustle can turn an idea into a multi-billion-dollar business.
Naveen Chandra is a media entrepreneur
Check out the book on Amazon.