The story of the rise of Silicon Valley is in many ways captured by the rise of the early internet startup PayPal. Many of the co-founders and early employees at the company, including Elon Musk and Peter Thiel, have gone on to have massive influences in shaping technology, business, and beyond. In this episode of Hub Dialogues, editor-at-large Sean Speer sits down with author and journalist Jimmy Soni to discuss his book, The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley, which tells the story of this young group of entrepreneurs and the world they created.
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SEAN SPEER: Welcome to Hub Dialogues. I’m your host, Sean Spear, editor-at-large at The Hub. I’m honoured to be joined today by journalist and author Jimmy Soni, whose latest book, The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley is generating a massive buzz. The book tells the story of the fascinating group of young entrepreneurs, including, of course, Elon Musk and Peter Thiel, who were behind the creation of PayPal more than 20 years ago, and have since come to shape some of the most successful companies in the world. I’m grateful to speak to Jimmy about his book, including the legacy of the so-called PayPal Mafia. Thanks for joining us, and congratulations on the book.
JIMMY SONI: Sean, thank you so much for having me in for the very kind introduction.
SEAN SPEER: As your book outlines, PayPal was marked by this extraordinary collection of individuals, including Musk, Thiel, Reed, Hoffman, and others who have gone on to shape Silicon Valley for the past two decades. Let’s just start big picture. How did this group come together? And more importantly, how did they manage to work together given the strength of intellect and personality involved here?
JIMMY SONI: Yeah, you know, you’re asking those two questions that led me to the project in the first place. To be honest, I didn’t think that it was an accident that all of these amazing innovators, again, some boldface names, many who you’ve never heard of, all were working at one place at one time, at one company that started on University Avenue in Palo Alto. And how is that even possible, right? Like, it’s sort of at some point you have this strange incredulity. There’s no way this was a coincidence, right? And so, that’s exactly the instinct that led me into the project in the first place. Then the second half, the second part of your question is, how did they work together? I would say it was complicated.
The context matters here: this was not the easiest time for all of these very intelligent, intense personalities that were working together. And the context is, these companies are formed, essentially, in 1999. By early 2000, the market is on the brink, and by the spring of 2000, the market is starting to slide. It comes to be referred to as the dotcom bust. And so, what I would say is it’s not just that. You have the intensity of it, the players and the personalities and the high IQ points and the really razor-sharp minds at play. What you also have is a context in which the sky seems to be falling in on the internet, which, once, internet companies could do no wrong. Now, suddenly, they’re being held responsible for the slide, the NASDAQ and the Dow; you had a start-up born every minute and go public every minute.
Now, all of a sudden, that’s all gone, and we’ve got to go back to brick and mortar businesses, because the internet was just all hype, right? There was this really powerful thing happening—which I think I take in my final analysis as a sort of crucible that shaped this generation of entrepreneurs in this particular group of people—which is that they were at the tail end of the boom, they went through the bust, and they saw that even amid all that chaos you could be successful and build a technology company, and it powerfully shaped our understanding of what came later.
SEAN SPEER: One thing that seems to connect the PayPal group was a shared vision of something bigger than mere wealth and profits. They wanted to create something that fundamentally disrupted the world of payments. How important was this underlying philosophy as a common sense of purpose for the company’s early success?
JIMMY SONI: It’s a great question, and here I would offer a couple of observations. The first is that philosophy is a very good recruiting tool. So, let me offer you two pitches, right? You’re, Sean, you’re gonna join me in a company, and here’s pitch one: Sean, you and I are going to revolutionize finance forever and the banking system will never ever be the same. And pitch two is: Sean, you and I are going to make email payments the greatest thing ever and everyone’s gonna be emailing money back and forth. Now, if you’re like most people, pitch one sounds crazy exciting, super inspiring; a big world-historical vision. And that I would say is a big part of the big vision which is, imagine these two companies; PayPal was fundamentally formed from the union of two companies, Elon Musk’s X.com and Peter Thiel and Max Levchin’s company Infinity.
At the time that these companies are getting going in early 1999, this is the hottest market for engineers in Silicon Valley that I think had ever been seen up at that point. I had an engineer, Santosh Janardhan, say to me, “If you had a pulse, you got a job. That’s the way it was.” So, when you’re in that kind of environment, a very tight labour market, you have to do everything you can to recruit, including selling a big world-historic vision. Then later, that vision hits the hard reality of customer acquisition, product-market fit, where you’re actually succeeding—which in the case of these two companies was the auction ecosystem. eBay is what embraced their emailing money payments product. So, a lot of those broader visions had to be dispensed with just for the sake of survival and exigency and just actually being able to keep the companies alive financially. By the way, I don’t take that to be a bug, I take it to be a feature.
Storytelling is a very big part of Silicon Valley, and I explored it in the book. There are critics of that sort of storytelling, where it can move in the direction of hyper bluster or just outright lying. There’s also real power in shaping a narrative about what a company can be about; potential and possibility, that is, by the way, is why many people join this company. One of the most amazing product leaders I interviewed throughout this process was this woman Amy Roe Clement. She goes on to really be a powerful leader on the team for many people, but an unsung hero—and those aren’t my words, those are Elon Musk’s words about her. She said to me, “I met Elon and he sold this vision, right? The vision was we’re gonna change finance.” And person after person said the same thing. So, I do think of this storytelling, this big vision, as a part of what makes Silicon Valley attractive.
It’s also by the way easily satirized, right? You can tell endless jokes about it. But I wouldn’t be too quick to discount the power of that narrative and of painting a picture of the future that’s plausible. And I think that it’s a fine line between the sort of reality of it and the hype. But hype is a powerful recruiting tool too.
SEAN SPEER: We’ll come back to the subject of the revolution occurring through major sellers on eBay. But before we get there, you mentioned unsung heroes. I’d like you to just unpack that point, if you may. Most of my questions will naturally be about some of the big personalities involved in the early years of PayPal, including, of course, Musk and Thiel. But I think one of the critical insights of the book is that that interpretation of PayPal misses some important points. Do you want to just talk a bit about the really extraordinary team that came to shape PayPal’s success?
JIMMY SONI: Yeah, it was the great joy and privilege of doing this project. I think in the public imagination, you tell stories of Apple and it’s a story about Steve Jobs. You tell a story about Microsoft and it’s a story about Bill Gates. Facebook, Zuckerberg, and so on. PayPal doesn’t have one clearly identifiable personality at the centre of the company. It is a mix of these personalities. Now, some of their names we know, but when I went back and even began interviewing the people at the very top, they would point to the other people that had never really been in the press or in books or on podcasts, and they would say, “Make sure you talk to them.”
I will give you the most vivid example I can, which is almost a direct, call it a mandate, from Elon Musk, and we’re on the phone and he said, “I get enough press. Make sure you talk to the other people who are at the centre of the story because there are a lot of unsung heroes.” Again, his phrase, not mine. And the people he was talking about were people like Sanjay Bhargava and Julie Anderson and Sandy Blau and Roelof Botha. They weren’t in the boardroom at the time making a lot of the kind of decisions that get reported on by the press, but they were the people on the ground actually making things like customer service work, or making banking authentication work, or figuring out the right financial model.
And I took a lot of heart from that. It also was a challenge. You sort of threw down the gauntlet, right? Like go talk to these people. And I had to by hook and crook and across multiple time zones, go and find them and interview them. I will say that what I hope the book achieves very explicitly is at least putting some of the spotlight on people who joined the company early, people who took a risk in their career to join this group of people and push the envelope in thinking about how to develop products and services.
The reason the book is called The Founders, and that it’s not just a specific name, or that the co-founders are listed on some formal document is because I wanted to expand the definition of founders to people who are around at the founding of a company. Meaning that you can be a not named co-founder, but still be hugely responsible for the success and viability of one of these startups.
Honestly, I didn’t come to that with any kind of agenda. It was more just people would say things like, “Oh, Yu Pan was so beyond responsible for some of the early traction we had on auction websites.” Great, fantastic, let me go talk to Yu Pan. You know, Musk himself said without “Sanjay Bhargava’s random deposit, they wouldn’t have been able to authenticate bank accounts.” Great, let me track down Sanjay in India, and let’s have a chat, right? And so, I wanted that part of it to be developed, to be thought out, because here’s the other piece: it’s totally self-interested. Those people tell the best story. They were closest to the individual product achievements, the little tweaks, the fine grain improvements that actually made the company tick, and honestly, I think the book is richer because of it.
SEAN SPEER: Now, I don’t want to risk contradicting myself or your observations there. But it’s notable that Thiel is often described as the so-called don of the PayPal Mafia. What gave him that reputation in your view? And how did his leadership manifest itself in the early days of the company?
JIMMY SONI: Yeah I have a very complicated relationship with the phrase “PayPal Mafia,” and I kind of write about my own personal feelings about it toward the end of the book. On the one hand, it’s an evocative phrase, right? One doesn’t associate mobs with payment service processors, right? So, you have this kind of interesting concatenation there of PayPal and mafia. And there was the famous Fortune magazine photo cover that came out in 2007. Instead of just having them stand in front of cubicles wearing polo shirts, you have them in the Tosca restaurant in San Francisco wearing mob attire. It created a certain freshness. It evokes something, and it’s memorable.
On the other hand, I think there were all of 13 people in that particular photo that became the sort of famous PayPal Mafia myth, and that’s 13 out of several 100 employees across Palo Alto and Omaha that actually made the original PayPal successful. Here’s what I would offer about the sort of designation and Peter’s role. I think a lot of the PayPal Mafia storytelling is about everything that happened after PayPal.
So, it’s actually like the mafia swallowed up the whole story, meaning what gets coverage is everything that happened after 2003. Meaning Peter’s earliest investments in things like LinkedIn, Facebook, SpaceX, etc. Elon’s achievements at Tesla and SpaceX; Max Levchin’s creation of Slide which later sold to Google; Jeremy Stoppelman and Russ Simmons co-founding Yelp. You know, on and on. I think that post-2003 life is what gets coverage. It might disappoint readers, but you’re not going to read much about what happened after 2003 in my book. You’ll have to look for other sources.
I was focused on 1998 to 2002 when at the time Peter Thiel was a global macro investor who meets somebody named Max Levchin, gives them $100,000 loan—by the way, it was a loan, not an investment, a $100,000 bridge loan, and then eventually becomes CEO of the company that becomes PayPal. So, I think that the designation of the don is that he was one of the first investors in many companies that grew out of the PayPal alumni group. But I think the entire PayPal Mafia moniker, it better captures from 2003 on. It does not really speak to 1998 to 2002. And the way you know that is that a great many of the most important people who helped to build PayPal are excluded from that mafia photo, including, by the way, Elon Musk.
SEAN SPEER: Well, let’s come to that point about Musk you mentioned earlier, Jimmy, that understanding PayPal is to understand the coming together of these two separate companies. Can you just help the listeners understand what led to replacing Musk as CEO of PayPal? What were the factors and conditions that led to what at the time was a pretty extraordinary decision?
JIMMY SONI: Yeah, it’s certainly the high point of Shakespearean drama within the story. You do come away with an appreciation for how Shakespeare might have been able to understand Silicon Valley in some fundamental way. As in all things, context matters a great deal here. They merged Infinity, which was Peter Thiel and Max elections company, and X.com. They had very different visions at the outset. And frankly, even in the middle of their competition, that leads to a merger. But the merger is not some sort of glorious union where you have a big happy family; there are still differences of founder vision.
One of the things that, among others, David Sacks emphasized to me is he said, “Listen, you know, Peter, replacing Elon was not about emotion. It was about a difference in founder vision.” And I think the important thing is, Elon had already had a prior success in the sale of Zip2, which was his first startup. He was an early Internet entrepreneur. That company had sold for $307 million; it was a very big win. He wanted something bigger. He wanted to inaugurate a revolution in finance using the internet and using digital technology. Against that, you have Infinity, which has built this hot viral product called PayPal.
The thought is, “Well, all of our customers are using PayPal for email, money transactions, lightweight transactions, where PayPal gets to effectively be what’s called a credit card master merchant. A clearinghouse, making sure that the buyers and sellers are legitimate.” Solving that problem is not easy. And the idea is, “That’s a win. That’s something we can do very well. And a revolution in finance can wait.” There’s again, a difference in founder vision context. The additional context that matters here is the company is losing money to fraud fees. There’s a real risk of a credit line program that had sort of gotten bigger than its britches. And all of these things are happening, while there’s a debate about technological architecture.
I would argue that often the context that’s missing from this moment, or the way the moment has been cast in history, is quote-unquote, Peter made a move against Elon. I don’t think that’s actually what it is at all. I think this was a difference in founder vision; it was a difference in an understanding about technological architecture. I say that because having spoken to all of those parties involved in this moment, both sides actually recognize, particularly with hindsight, what the other side was offering. There are still some disagreements, but at this point, it’s sort of like water under the bridge.
The context matters, And the context is what precipitates a move by some senior executives and some rank-and-file employees against Elon in the summer of 2000. He is removed as CEO and Peter replaced him. But this is critical: Elon remains a very active member of the board. He encourages the employees who are at the company he recruited to stay with the company. And he does not do anything from the sidelines to snipe at Peter and Max. It’s actually a moment of real graciousness. And I would say, even those people who supported his ousting, made sure to emphasize to me “Listen, he was really gracious.” In fact, the email that he sends immediately after Peter’s email announcing his departure, tells the company to support Peter in his leadership and says that he’s sort of grateful he’s not going anywhere. It’s quite something, I think, for somebody to be that gracious in the aftermath of something like this.
SEAN SPEER: That’s a fascinating set of insights. You mentioned that progress in the company is by no means a straight path. Your book documents that it was bleeding money in the early days, and the breakthrough seems to have been this recognition that a growth market was frequent sellers on eBay. How did the group come to see eBay as crucial to PayPal’s growth? And how did it transform the company?
JIMMY SONI: Yeah, I think the three-word answer would be: reluctantly, at first. You know, eBay has this interesting and complicated history of its own. In 1999 they are a somewhat more mature company, they’re trading on public markets, they have a CEO in Meg Whitman who’s an experienced leader, very savvy leader, who knows how to communicate with many different parties, engineers, the press, Wall Street, etc. eBay also has focused, again rightly, on building the best auction mechanisms that can be the best place for auctions on the internet. What it hasn’t done is figure out the payments part of that process, because payments are sort of rife with complexity and fraud and regulations. For their buyers and sellers, they reckoned like, “We will take care of the auction, you will figure out how you’re going to pay each other, whether that’s by cheque, or cash or messenger pigeon, or emailing money from one person to another.” Into that uncertain payment context step a number of start-ups, including x.com and Infinity.
David Sacks kind of gave me the best description of this where he said, “Someone from eBay had reached out to ask us to resize our logo.” And this was like a customer service request. That logo resizing ask led the team to just go on eBay and type in PayPal, and suddenly discover, “Oh, wow, we’re hot here. Basically, they love us and we didn’t know that they loved us.” And so, this was sort of like unrequited love.
Part of what happens is Max Levchin, at first, he described to me, “I was horrified, right? I didn’t want to be the payment processor. We were building mobile technology to do mobile payments. I thought people were gonna be paying money between palm pilots.” And he made some motions to actually stop eBay, the use of PayPal on eBay.
David Sacks and others and the board as well sort of recognizes, like, “Look, you don’t get product-market fit at this level more than once in a lifetime. And so, we ought to focus on this. Really drill down, really make this work.” There was a later CEO of a company that had thought about acquiring PayPal, and he said to me, he said, “Sometimes a solution just finds a problem.” Meaning that PayPal was a very convenient solution for this very specific problem. But it was not something where the creators of PayPal knew from the get-go that they were going to be the foremost auction payment service in the world. That was so far from their ambition.
I would also add to that Musk had always thought of emailing payments as simply like, “Well, naturally, we’re going to do that, but that’s a part of a much bigger product suite.” But as soon as he recognized that X.com was succeeding on eBay, he too focus his energy and attention there and his whole team does.
SEAN SPEER: I’d like to wrap up, Jimmy, if it’s okay, on a couple of big picture questions. First, PayPal isn’t that big of a company, and it’s not even that significant of a technology, yet it’s had this extraordinary cultural significance in Silicon Valley and the world of start-ups and technology more generally. What do you think PayPal’s biggest legacy is?
JIMMY SONI: I think the legacy is in a group of alumni, who went through this very intense process together of building something under duress, struggling to make it successful, and then seeing it succeed, but not having it succeed at the level that they could all go and retire. One person described it to me and said, “We had down payment money, but not retirement money.” And so, you have a kind of, ‘Well, we did well, some of us did better than others. But we’ve still got to go and build things. And oh, look, we’ve had the experience of having built something and it went well, so let’s go do it again.” I would say that’s one legacy. The second legacy is more specific, and actually, it’s probably interesting to folks who are familiar with tech. This company had to think very rigorously about product distribution. Meaning, not just building a great thing, but how do you actually get users to use this great thing, and then encourage that use in different ways for different tools and techniques?
It’s a bit of a nuanced point, but it’s actually hugely important, because a few people told me, “Look, at Google, they have this firehose of traffic. They can just sort of redirect the firehose, wherever they’d like.” Especially in that era. And they said, “We had to figure it out. We were getting hooks into different markets; we were getting hooks into the gambling market, and hooks into this market and that market. And we had to figure out how we were going to actually distribute our product.” All of the leaders, particularly in the product group, who emerged from PayPal have a very hard-won appreciation for the difficulty of product distribution. That’s really important, and it’s a part of the literature that comes out from this group.
I’ll give you the best example. YouTube emerges from this group: the three co-founders of YouTube come out of the PayPal alumni group. YouTube was very savvy in its early days about product distribution, making sure that they were even picking little fights with MySpace. When MySpace would do something, you know, and they would embed YouTube videos into MySpace. A blast from the past. This group learned to be aggressive about that.
But the final thing I would say is there was value in being able to pick up the phone and call members of this community to recruit, to ask for money, to ask for support, ideas. You don’t want to make too much of the network because it was such a big network by the time it finished. It’s not like a small group of ten people, as I hope I described. But Max Levchin invests in Yelp. I found old notes from Reid Hoffman which were sort of the email version of a sketch on a napkin of what LinkedIn could be. And he’s like reaching out to different colleagues saying, “Hey, here’s my idea for LinkedIn, you know, I’d love for you to….” And so, there was a bit of that. Once you’ve been through something this intense with this group of people, you’re naturally going to call them and say, “Hey, I have this idea. Do you think you’d want to work on this?”
To end with Santosh Janardhan—Santosh, he’s got a gig that he’s, he’s working on and he gets a call from his friends who have founded this company called YouTube, and they didn’t even really interview him. They just said, “Just just show up on Monday. We’ll be good, you’ll figure it out, we know you we like you.” He told me he was like, “Yeah, I made the mistake. I showed up at the office early and I’m in the parking lot. The only two people in the parking lot are me and MC Hammer,” because MC Hammer was there to do some deal with them or something. He’s like, “It’s me and MC Hammer, and then the office opens up and like, ‘Oh Santosh! Yeah, great, come, come join us. Come be a part of this.'”
I will say the final piece, and this is relevant to the Santosh story. He had a great, great job where he was. Eventually, when YouTube was acquired by Google, he later gets a phone call for another site that’s starting up that needs some help of the kind that he can offer. And it’s a young entrepreneur named Mark Zuckerberg. He’s got a site called the Facebook, and he gets an offer. It’s much lower than what he would make where he is at Google, and he returns home to his wife and he says to her, “Listen, I’m going to take a big pay cut. I know Google’s gonna try to retain me, but there’s something about the energy of this place that reminds me of that first risk I took when I went to PayPal. We’ve got to do this.” And you know, as they say, the rest is history.
SEAN SPEER: In a world of conformity, are there any lessons from PayPal on how to cultivate a culture of heterodoxy and even weirdness that can contribute to real breakthroughs?
JIMMY SONI: 100 percent, yes, which is sort of an easy pat answer. I think it’s incredibly hard to be comfortable with the fringes and the oddballs and the weirdos of the world. I think part of what happened in the particular case of PayPal is that you had a group of people who were at the founding of the company who were okay with individuals who might show up with the wrong clothes on. Or individuals who maybe were a little surly or introverted, or would say off-beat things. I can’t tell you, it’s in the hundreds, certainly, the number of off-beat observations that these people made even reflecting to me years later. They’ve now become prim and polished, and they know how to do all the right interviews, and they now have the right clothes. But even now, the things they remember are a comment about like Ikea furnishings or some strange thing that one of their colleagues did during an interview.
I think that it’s a lot easier to say, as a company or as a start-up founder or as a recruiter, that you’re going to embrace weirdness, and it’s much harder to do it. So you had people in the PayPal ranks—I interviewed two people: this gentleman Bradley Halbert, and a gentleman named Tom Pytel. Both weren’t just college dropouts, they were high school dropouts. We’re talking about abandoning education in its entirety at that level beyond middle school. And Tom’s telling to me, “I thought high school was kind of stupid, and I wasn’t learning anything. So, I was gonna go write code and build things.” Bradley moonlights, and gets paying work as a high school student writing code and then decides he’s not going to finish high school, either. Boy, selling a no-high school education? I mean, I’m sure that’s easier in our era than it was back then, but we are talking about a fair number of misfits in this story in that way.
I would, I would also argue, though, that it wasn’t just a generic group of people who cut against the grain. It was people who cut against the grain but then read widely, watched films widely, had real intellectual curiosity about the world. So, I would argue that there was something about that in the water. It’s easier to honour in the breach than in the observance. I mean, it’s a lot easier to say you’re going to be good with weird than actually be good with weird.
SEAN SPEER: Let’s just wrap up with one final question. Listeners should understand the amount of research, including primary interviews you did, as part of this project. What would you take away from the interviews you did with this group of founders? Is there any big picture takeaways for you? Or are there any anecdotes or observations that will stick with you long after you’re done promoting the book?
JIMMY SONI: It’s a great question. These were interviews where the preparation for them often felt like a really boring rocky montage. I wasn’t chasing chickens. I was watching YouTube videos and reading old articles from 1999 and 2000.
What I would say is this: The interviews themselves revealed the personality quirks of the people at the heart of the story. I went in and I was trying to be genial and sort of friendly and thoughtful and I’d done my homework. I had to be on my toes because these people called me out regularly mid-interview if I got something wrong, a word out of place and I would hear about it.
I remember once, I was actually on a text thread with two or three of the alumni and I had said something, and they just all called it out. They’re like, “Well, that’s a dumb idea. No one’s gonna go for that.” I’m an outsider. I’m not an alum, but they sort of roped me into the way they do things, which is, it’s not disrespect. If we’re calling your idea dumb, it’s because we respect you so much, and we want you to come up with that. I appreciated, by the end, the level of pushback, because the pushback came from a place of respect for ideas.
You don’t want this in every part of your life, right? Like you definitely don’t want it all the time because it’s hard to live with. But I think what I walk away with is the sense that, can we navigate our way to a place where it’s okay to be critical? And maybe even sharply so, so that someone understands the point? But to do it in a way that sort of comes from this genuine, “Hey, I respect you a lot. This is why I’m going to call you stupid.” To tell me, “You’re wrong about this. And here are the five ways you’re wrong.” I wasn’t writing a how-to book—I don’t have a precise way to cultivate that. I can tell you that it’s one of the most powerful reflections I take away from having done the book.
SEAN SPEER: Well, there are many other reflections contained in the book, which of course, is The Founders: The story of PayPal and the Entrepreneurs Who Shaped Silicon Valley. Jimmy Soni, congratulations on its release, and thank you for joining us today at Hub Dialogues.
JIMMY SONI: Thanks so much for having me.