The Mafia That Runs The Tech World- How they got so Powerful
In November 2007, Fortune Magazine published an article titled “The Paypal Mafia”. This article tried to map the success stories of 13 of the most influential men in Silicon Valley.
Paypal is one of the most powerful companies in the world today, one of the few companies that survived the dot-com crash and a company that embodies the startup dream. (It is also one of the first (If not the first) fintech companies in this generation.)
Started by a group of nobodies and grew into a massive exit that reverberated across the entire business world and launched its founders and early employees into superstardom.
Today, if your startup ever achieves massive scale, there’s a close to 100% chance that you have to interact with one of their companies or funds.
They have all directly either led, managed or funded up to 400 companies, and have also invested in Silicon Valleys’ largest funds, giving them a stake in thousands more companies indirectly.
If you are a startup founder reading this, check your captable, there’s a less than zero chance that your investors are connected to them one way or the other.
But what is the Paypal mafia?
Paypal mafia is the term that a group of the former early employees and founders at Paypal jokingly refer to themselves as. A group that includes the richest man in the world, Elon Musk.
As successful as Paypal ended up becoming, for The Mafia, that was only the beginning. They have all gone ahead to build or fund successful ventures like Youtube, Affirm, Palantir, Glow, SpaceX, Tesla, Linkedin, Yelp, and Facebook, to highlight just a few.
Altogether, they have created companies worth around $50 Billion and this is considered a conservative estimate.
So what was it exactly about them or about Paypal that allowed them to create and keep creating such massive value?
How did they get so powerful?
Culture
From the very early days of Paypal, they were extremely deliberate about what kind of culture they wanted at the company and the steps necessary to get them there.
They made it clear they wanted people who were smart, competitive and above all, good at math.
According to Peter Thiel, they wanted people who were smart enough to get into a PhD program and contrarian enough to reject the offer or drop out before graduating.
They also wanted people who didn’t play hoops i.e basketball because according to Max Levchin, everyone he knew who played hoops at school “was an idiot”
In fact, the only sport they were allowed to play in the office was Ping Pong and if you couldn’t play, your chances of recruitment were extremely low.
They made sure there were no unnecessary meetings and one of the earliest employees David Sacks would sometimes patrol the office and quietly sit in on any meeting, after 2–3 mins if he felt like the meeting was unnecessary, he would forcefully adjourn it.
There are unconfirmed reports of company-sanctioned wrestling matches between employees to resolve disputes.
What this did was create a hyper-intellectual work culture with like-minded people who were not afraid to be confrontational about their ideas and who knew how to think against the grain.
Rather than brag about how many people were under them, employees were taught to take pride in how few people they had above them that could stop them from doing what they wanted.
Network
At its core, The Mafia is a tribe, that basic unit of human organization.
We formed tribes as a means to defend ourselves from the world and all the dangers that come with living here, and the tribes who prospered were the ones whose members were able to put the tribe’s well-being above their individual progress and work together in a systematic and coordinated manner for the glory and advancement of the tribe.
Peter Thiel reportedly told Tech Republic “I wanted to create a company where everyone would be really great friends and no matter what happened with the company, the friendships would survive”
Reportedly, after they left Paypal, they all made a pact to always invest in each other’s future ventures, support each other and stay in touch.
A pact that they seem to have largely honoured. Most of them have raised money for their other ventures from within the Mafia.
They are not all very close friends, far from it, many of them despise each other, however, the one thing they have is a healthy amount of mutual respect and loyalty.
Peter Thiel who would be considered the Don has a strikingly different political ideology than the rest of them (and just most people in general), this doesn’t stop them from approaching him for advice, money and introductions when they need it.
Timing
The best time to start a pivotal internet company was in 1998. The internet was about to go mainstream, but only very few people knew it would become as disruptive as it ended up becoming.
Peter Thiel, Max Levchin and Luke Nosek knew.
They wanted to build the currency for this new thing called the internet so that financial transactions would be easy and seamless.
This massive headstart gave them the opportunity to try multiple iterations before they landed on what Paypal ended up becoming, dramatically increasing their chances of success. Remember that for a startup, you are essentially in a race to see how many iterations you can build before either running out of cash or achieving product-market fit.
In fact, the company started out as Confinity, before becoming X.com and finally Paypal.
They burnt through $180 million before getting to the magical land of product-market fit and selling to eBay for $1.5 Billion, making all its shareholders which at that point included founders, investors and early employees super-rich.
These funds enabled them to invest in future ventures which allowed 5 of them to become Billionaires today. The rest are not doing so badly themselves with networths of between $100- 800 million dollars across the entire group.
Summary
In 1998, 4 men came together to build what they hoped would be a paradigm-shifting company.
24 years later, it looks like they have achieved this goal. Hundreds of books, videos, articles and podcasts have been created to try to understand why they were able to achieve such massive success and also build even more successful ventures after Paypal.
Obviously, we can only speculate, but I think if you stripped away all the fancy speak you pretty much land on these 3 factors as to why they got so powerful;
Culture
Networks (Tribalism)
Timing
Interesting facts about the mafia
- By late 1999, X.com run by Elon Musk and Confinity run by Peter Thiel were massive rivals, in fact, the 2 founders described the situation as an all-out war. By February 2000, they realized a bigger issue than each other was the coming burst of the dot-com bubble. They decided to meet at a cafe on University Avenue in Palo Alto and ended up deciding to merge the 2 companies into what ultimately became Paypal and Elon Musk took over as CEO
- Peter Thiel and Max Levchin led a coup against Elon Musk a few months after this merger when he took his first vacation in years. He was reportedly on a flight to Australia when he got the call that the board of directors had ousted him, changed the name of the company to Paypal and appointed Thiel as the CEO. One major reason for this was the culture mismatch between Elons X.com guys and Thiels Confinity guys. Everything came to a head when Elon Musk wanted to change the company from using Unix over to Microsoft tools. This led to what some described as a holy war that ended with Musk’s ouster.
- There are no women in the mafia because reportedly, the initial culture of the company was extremely toxic, so much so that the first female engineer they hired lasted only 6 months.
- Thiel has donated around $3.5 million to the Methuselah Foundation, a life-extension research organization working to help humans live to the age of 1000.
Here’s a complete list of The Mafia and what they went on to do after Paypal;
Elon Musk — Founder and CEO of Tesla, co-founder of SpaceX and Solar-city
Steve Chan — Co-Founder of Youtube
Chad Hurley — Co-Founder of Youtube
Jawed Karim — Co-founder of Youtube
Yishan Wong — Later worked at Facebook and became CEO of Reddit
Premal Shah — Became founding president of Kiva.org
Russel Simmons — Co-founder of Yelp Inc.
Jeremy Stoppelman — Co-founder of Yelp Inc.
Jack Selby — Managing director of Grand-master Capital Management
Dave McClure — Investor in more than 500 startups
Reid Hoffman — Founder of LinkedIn
Andrew McCormack — Co-founder of Vala ventures
Eric M. Jackson — Became CEO of WND Books and Co-founder of CapLinked
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