PayPal Mafia - Kinetic Energy Ventures

6/1/24, 3:05 PayPal Mafia – Kinetic Energy Ventures
Kinetic Energy Ventures
PayPal Mafia
The PayPal Mafia* (in their own words) on:
Culture
Management
Hiring
Strategy
Product
Internal Dynamics
Industry Dynamics
Lessons
Competition
*Max Levchin, David Sacks, Reid Hoffman, Keith Rabois, Yishan

Wong, Dave McClure
Culture
What key values led to early PayPal’s culture of entrepreneurship?
1/10/2010
Reid Hoffman
1) hiring: youthful, smart, driven people with a strong hunger to win
2) taking no answer at face value — e.g. “this is the way that it is always done”
3) intense need to survive: lots of immediate challenges to ongoing life
4) entrepreneurial execs/teams that create/reinforce culture
5) and, as always, luck, fortune, or whatever you call it…
What key values led to early PayPal’s culture of entrepreneurship?

1/10/2010
Keith Rabois
In addition to the elements that Reid has identified:
https://12mv2.com/investors/paypal-mafia/#paypal-hiring 1/29
1) Confrontational culture: People needed to fight for their ideas against vigorous
critiques.
2) Anti-meeting culture.
3) Internal promotions (nearly exclusively) for executive and managerial roles.
4) Anti-team/collective/committee bias.
Before Google, were there other Silicon Valley companies that provided their
employees with free meals while at work?
5/29/2010
Keith Rabois
Yes, in we provided free breakfast at dinner at 8 pm during the week at PayPal

during 2000 -2002. We also provided free lunch in the 1840 Embarcadero Office,
but stopped serving lunch when we moved to Mountain View off of Castro Street.
Should a student finish college or go work for a startup if given the chance to work
for a YC, TechStars alumni?
6/22/2010
Keith Rabois
Paul Graham’s advice is sound (Students Guide to Startups):

http://paulgraham.com/mit.html
Nevertheless, at PayPal we often urged students to drop-out and some of the best
entrepreneurs I have met subsequently dropped out of school too. Indeed, Caterina
Fake just published an outstanding post advocating that entrepreneurs drop out of
college:
Rob Kalin, Etsy’s founder, never finished college. Evan Williams, Biz Stone, Jack
Dorsey — the founders of Twitter — are not college graduates. Mark Zuckerberg,
Facebook founder, is another dropout. And of course Steve Jobs and Bill Gates. As
an angel investor, I’ve invested in two college dropout founders this month. What
gives?
What strong beliefs on culture for entrepreneurialism did Peter, Max and David
have at PayPal?
2/21/2011
Keith Rabois
A few key elements that were unorthodox:
Extreme Focus(driven by Peter): Peter required that everyone be tasked with
exactly one priority. He would refuse to discuss virtually anything else with you
except what was currently assigned as your #1 initiative. Even our annual review
forms in 2001 required each employee to identify their single most
valuable contribution to the company. (Although I resisted some of this approach
during the PayPal years, I am now a proponent of it and have even devised a theory
of why it is crucial.)
Dedication to individual accomplishment: Teams were almost considered socialist

institutions. Most great innovations at PayPal were driven by one person who then
conscripted others to support, adopt, implement the new idea. If you identified the
8-12 most critical innovations at PayPal (or perhaps even the most important 25),
almost every one had a single person inspire it (and often it drive it to
implementation). As a result, David enforced an anti-meeting culture where any
meeting that included more than 3-4 people was deemed suspect and subject to
immediate adjournment if he gauged it inefficient. Our annual review forms in
2002 included a direction to rate the employee on “avoids imposing on others’
time, e.g. scheduling unnecessary meetings.”
Refusal to accept constraints, external or internal:We were expected to pursue our

#1 priority with extreme dispatch (NOW) and vigor. To borrow an apt phrase,
employees were expected to “come to work every day willing to be fired, to
circumvent any order aimed at stopping your dream.” Jeremy Stoppelman has
relayed elsewhere the story about an email he sent around criticizing management
that he expected to get him fired and instead got him promoted:
I was a 22-year-old whippersnapper, and I remember firing off this e-mail that
disagreed with the entire executive staff,” says Yelp’s Stoppelman. “I didn’t get
fired–I got a pat on the back.
Peter did not accept no for answer: If you couldn’t solve the problem, someone else
would be soon assigned to do it.
Radical transparency on metrics: All employees were expected to be facile with

the metrics driving the business. Otherwise, how could one expect each employee
to make rational calculations and decisions on their own every day? To enforce this
norm, almost every all-hands meeting consisted of distributing a printed Excel
spreadsheet to the assembled masses and Peter conducting a line by line review of
our performance (this is only a modest exaggeration). Even after we had our IPO,
Peter impelled our legal counsel to allow us to continue 95% of this practice
(basically stripping the explicit revenue line off of the printout).
Meritocratic opportunity & opposition to traditional general management: Just

as responsibility for initiatives was frequently re-allocated based upon
performance, so was “management.” Peter and Max crusaded to replace under-
performing senior colleagues, which introduced some fear and less stability into
the office, but, also forged new opportunities for new stars promoted from within
to thrive. Peter and David also were opposed to general managers or hiring people
whose core skill was “managing.” People were promoted based upon their technical
proficiency at a given role–i.e. the best engineers would manage engineering, the
best product people who be running product, etc. I still recall concluding my first
week at PayPal by jogging around the Stanford campus on a Saturday afternoon
with Peter when he explained this philosophy to me; any other approach he argued
would breed resentment by talented employees. This approach was perceived as
radical in 2000, by now it is much more “acceptable” in the consumer Internet
realm, at least.
We did not invest in many other traditional management techniques (which are
poorly suited for managing talented employees anyway). As David
summarized, one’s prestige at PayPal was measured by how few people could
stop you from proceeding with a new idea.
Vigorous debate, often via email: Almost every important issue had champions and
critics. These were normally resolved not by official edict but by a vigorous debate
that could be very intense. Being able to articulate and defend a strategy or product
in a succinct, compelling manner with empirical analysis and withstand a
withering critique was a key attribute of almost every key contributor. I still recall
the trepidation I confronted when I was informed that I needed to defend the
feasibility of my favorite “baby” to Max for the first time.
What were some cultural faux pas when working at PayPal pre-acquisition?
8/29/2011
Keith Rabois
1. PowerPoint (for almost any reason).

2. Suggesting a BD deal, particularly Intuit or MSN.
3. Raising Bill Harris’s name.
4. Criticizing people who play chess.
5. Scheduling a meeting with more than 4-5 people, absent extraordinary
circumstances.
6. Arriving late to a meeting.
7. Praising eBay (don’t think this happened at any point after eBay purchased
Billpoint).
8. Speaking loudly on the phone (I violated this at 1840 and infuriated the design
team).
9. Inquiring, “what happened to [insert name],” VP of Engineering.
10. Suggesting hiring someone who worked at Bank X, Y or Z.
11. “Teams.”
What was it like at PayPal just after the eBay acquisition?

12/5/2011
David Sacks
Peter compared it to the Fall of Saigon.
Why did so many successful entrepreneurs and startups come out of PayPal?
3/26/2012
Keith Rabois
1. Talent: Peter and Max assembled an unusual critical mass of entrepreneurial

talent, primarily due to their ability to recognize young people with extraordinary
ability (the median age of *execs* on the S1 filing was 30). But the poor economy
allowed us to close an abnormal number of offers, as virtually nobody other than
eBay and (in part) Google was hiring in 2000-02.
2. Culture & Ideology: Peter/Max/David (for the most part) had very strong beliefs
in the type of culture that would fuel an entrepreneurial enterprise, many of these
views were unorthodox, but history has proven them to be correct.
3. eBay: Virtually anyone with talent hated working at eBay, so we all left PayPal
rapidly (days/weeks/months) after the acquisition which enabled us to start new
things instead of treading water in a large company.
4. Macro views of the future of the Web: This may be difficult to believe, but in
2003 and even during part of 2004, virtually nobody believed that there was going
to be a new wave of innovation online. Peter and Reid were virtually the only ones
writing substantial checks to finance “crazy” new ventures (Sequoia was, but not
really other VCs). This created a magnet to the PayPal crowd for new
entrepreneurs.
5. Pressure: PayPal was a very difficult business with many major issues to solve.
We were able to see our colleagues work under extreme pressure and hence we
learned who we could rely on and trust.
How did Peter Thiel build such a great team at PayPal?

3/7/2014
Yishan Wong
It’s important to understand that PayPal didn’t assemble some sort of magical
dream team. The early PayPal team has now achieved a sort of mythical
status because of the things they did (I realize that some of my own answers on
Quora have become part of this mythology), not because they started out great and
therefore conquered the challenges they did. It was a talented team, but many
startup teams are talented. My feeling is that the talent was combined with
extraordinary willpower and adverse circumstances to forge a number of otherwise

fairly ordinary individuals into unique personalities who would later come into
their own.
My understanding is that people came in via multiple routes. Peter Thiel recruited
many of the smart people he knew at Stanford (primarily on the business side),
Max Levchin recruited many of the smart people he knew at University of Illinois
and Chicago (technology side), and then various other talented people joined via
random routes. There was an emphasis on hiring smart people regardless of
experience, which is typically a good thing to do in Silicon Valley; it also tended to
avoid the problem of hiring tenured people with good-looking resumes who aren’t
actually very capable.
PayPal also merged early on with X.com, so a number of the staff were from that
company as well. The PayPal name is the one that’s been remembered, because
they chose to go with that brand after the merger because it had more name
recognition (in addition to, in my opinion, being better). (Check out x.com today.)
PayPal was also willing to fire people. Many startups have trouble maintaining the
will to do this after they grow to moderate size (some never do), but I remember
several people being fired due to incompetence throughout the pre-acquisition
time I was there (post-acquisition, eBay pretty much never fired people). This
served the dual purpose of keeping the talent level high and reducing the morale
hit that comes from having less-good people hanging around. For instance, I was
hired alongside about 3 or 4 other new engineers. Six months later, all of them had
been fired.
In general, as I begin to survey more startups, I find that the talent level at PayPal
is not uncommon for a Silicon Valley startup, but the differentiating factor may
have been the level of intensity from the top: both Peter and Max were extremely
intense people—hyper-competitive, hard-working, and unwilling to accept defeat. I
think this sort of leadership is what pushes the “standard” talented team to be able
to do great things and, subsequently, contributes to producing a wellspring of later
achievements.
How did Peter Thiel build such a great team at PayPal?

11/25/2012
Keith Rabois
To supplement Yishan Wong’s answer:
I identified a couple of other critical factors in Why did so many successful

entrepreneurs and startups come out of PayPal?
Peter has an uncanny ability to assess the ability of people. Most people who hire
their friends are not ruthless at evaluating their abilities. If you are going to recruit
primarily friends and scale by recruiting friends of friends (see, e.g., How did
Yishan Wong get recruited to PayPal?) you must possess exceptional discipline in
this.
Peter also enforced the culture by insisting on interviewing all final candidates for a
very long time in the companies history; either he or Max interviewed everyone
who received offers at least until our IPO, I believe.
Peter and Max also avoided MBAs like the plague. Roelof was recruited because
Peter figured we should hire the very best one in the US (in case there was
something we might learn). Peter also refused to hire PhDs, which is a restriction
he might revise today.
What are some of the best pranks you have pulled?

10/26/2011
Yishan Wong
Back when PayPal was headquartered in downtown Mountain View, we had an

underground parking lot. Since the company was expanding rapidly, the lot very
quickly became too small for all employees to park in, so oftentimes when you
arrived there would be no spots available and you’d have to exit and park
somewhere else on the street.
However, on the first level of the lot were two handicapped spots near the elevator.
At the time, PayPal did not have any handicapped employees, so occasionally you’d
see someone lazy parking in that spot instead of leaving and finding an spot
elsewhere outside. After awhile of this, there was a sternly-worded email sent
around admonishing people about it, and asking that people keep that spot free,
because occasionally we had handicapped visitors. After that, we would get
occasional emails asking people to move their cars from the handicapped spot,
with a description of the car and its license plate number, and repeating the
admonishment. These emails would come from one Natasha Gibson, who was in
actuality quite a nice receptionist with very little power, but they were worded very
officially, so people really treated it like a serious matter. For a while, that seemed
to suffice, and there didn’t seem to be any repeat offenders.
PayPal had completed its IPO a few months earlier, and many of the early
employees had made a fair chunk of money. Among these people was Jawed
Karim, who bought a BMW 5-series; this was well-known among the engineering
department—we generally knew who had bought a new car; for example, the
outlandish and colorful Yu Pan had bought a BMW M-series which we all thought
he was going to get himself killed in (Yu Pan is alive and well today) and later I also
bought a minor sports car.
One day we noticed that Jawed was consistently parking his car in that spot and
eventually, there came a day with multiple emails sent out to the office asking
someone to move their car from the handicapped spot. Based on the description of
the car we were all able to tell that it was Jawed’s, but he was apparently in a
meeting or otherwise away and never responded (it got to a point where three
notices had been sent out, so it pretty much caught everyone’s attention), so late in
the day we decided to come up with a prank. We printed up an official-looking
notice that said:
Mr. Karim:
You have been found to be in violation of company policy for parking in a

handicapped zone, and attempts to contact you to ask you to move your car have
been ignored. As a result, your parking privileges for the company lot have been
suspended for a period of 1 week; in the intervening time, please find parking
outside on the street. If you have any further questions, please contact Natasha
Gibson for clarification.
– Facilities
We went down to the garage and put the notice on his car, and then back up to the
receptionist’s desk to inform Natasha, hopefully to get her to collude with us on
this prank. When we got there and began to describe the situation, she asked us,
“Yeah, who’s car is that? They aren’t responding to the emails! Facilities is really
mad!” When we told her it was Jawed, she said exasperatedly, “Jawed! He’s always
parking there! This isn’t the first time it was his car!” We told her about the prank,
and she agreed that she would definitely back us up and if he tried to appeal, she’d
say that he should take it up with Facilities, who was already gone for the day. Our
hope was that we could fool him for at least a day and get him to park out on the
street (where it was actually impossible to find nearby parking).
Nothing happened later that night, as Jawed apparently returned to his car after
Natasha had gone home.
The next day, we saw his car on the street. No one said anything to him.
The day after that, we saw his car on the street. No one said anything to him. There
was a bit of sniggering behind his back.
The day after that, someone (I think Mike Solomon) decided to take a poke at him,
and said something along the lines of, “Hey Jawed, I saw your car out on the street.
That’s a pretty nice car to just park out there on the street; wouldn’t it be safer to
park it indoors?” According to Mike, Jawed gave a sort of non-committal answer.
At the end of the week, we decided to reveal the prank, and managed to get
Natasha Gibson to send out the following email:
Everyone:
Please continue to be advised that the handicapped spots in the garage should be
left open for employees or visitors who have a handicapped badge on their car.
Thank you to everyone who has continued to help keep those spots clear.
The following employees who have been parking out on the street due to a prank
sign on their car now have their parking privileges reinstated:
1. Karim, Jawed
That is all.
– Facilities
It took about 30 minutes for Jawed to see the email. In fact, some nearby engineers
had to say to him, “Hey Jawed, there’s some sort of email about parking that
mentions you, what’s up with that?” to prompt him to check his email (at which
point he burst out laughing). He was a pretty good sport about it and thought it
was a great prank.
Also, the handicapped spot remained open after that.
Management
What are the most important things that David Sacks did while running product
for PayPal? How did this contrast with how product was run before David Sacks
ran product?
3/10/2013
Yishan Wong
Interesting note: when this question was posed, someone asked David
Sacks himself to answer it. A few days later, I get a notification saying that David
Sacks is asking me to answer it. Well, all right, you asked for it.
I never actually worked directly with David Sacks. During the times when we both
worked for the company, he was COO and I was just a new grad engineer working
on various obscure projects. To me, he was a distant imperious fellow who would
make big decisions and influence the course of various projects, sometimes to the
great frustration and consternation of my colleagues, especially the other product
managers and some of the designers. My primary impression at the time is just
that he drove people really hard and got results.
In talking to other people around and since then, I’ve gathered the following
information: basically, the most important thing that David Sacks did while
running product for PayPal is that he ran product.
That is, prior to David Sacks, the company did not have a product organization. He
was put into the position (I don’t know what his exact original title was; shortly
after I joined, I recall an email being sent out praising his work and promoting him
to COO) and created a product organization and split its work along the different
verticals (e.g. customer service, anti-fraud, merchant services, auctions, etc), each
with a couple product managers working on it. His greatest contribution was
bringing a regular and systematic drive to prioritizing and cranking out new
product features and improvements: my impression is that it did not exist before
that time – prior to that, things were described to me as “The Mercenary Age,”
where engineers just sort of picked features off a big list and implemented them. In
the latter part of Sacks’s time running the product organization while I was there,
we had to continually crank and out-execute eBay, which was constantly trying to
do nefarious things to bump us off their platform.
There were plenty of product innovations that PayPal came up with (I think one of
the most prominent ones was “Web Accept,” which is the snippets of code you
could cut and paste into your website so that people could pay using PayPal by just
clicking on a button), but those were primarily originated by individual product
managers or engineers, and David Sacks’s greatest contribution is in providing the
force to drive things hard and getting those innovations or feature improvements
shipped consistently week over week, month over month.
To many people, this is not the “cool” part of running a company – usually that has
to do with brilliant ideas or elegant engineering or “strategy” – but since my own
primary strength is that of someone who wins simply by being able to execute
better than other people, it seems like a pretty valuable (crucial) contribution to
me. PayPal didn’t have the resources or the structural market advantages of eBay’s
platform, but we cranked harder and faster than eBay and our other competitors.
What are the most important things that David Sacks did while running product
for PayPal? How did this contrast with how product was run before David Sacks
ran product?
4/15/2010
Keith Rabois
I joined PayPal while David was still EVP, Product and before he was promoted to
COO, when I moved to report to him. I generally agree with Yishan’s answer, but
will try to break it down into more concrete, specific changes that David instituted:
a) Replacing “product managers” with producers: David converted all PMs into
“producers” as an official title. As he would state, he wanted people delivering
results, not “managing” things. Small cultural signals matter. I believe more start-
ups should replicate this idea.
b) “Accept/Deny”: David figured out the key to converting a popular product that
lacked material revenue into a product that 89% of users would pay for virtually
overnight. As a result, PayPal ended an era of bleeding millions of dollars per
month (-$6 m the month that I joined) into one that one would break-even in less
than 5-6 months and start generating substantial profit. He transposed the idea
from a feature that yahoo email had deployed–basically when a user received a
payment (assume $20), he could “accept” the money and agree to pay our new fees
on this payment and every future payment he received or reject the money and
send it back. Shock–most people claimed the money.
c) Killing BD initiatives: Before David assumed the role of COO, PayPal

consummated several major BD deals (e.g. Intuit) and was pursuing a few others
(Microsoft). David consistently believed these were a folly. He insisted that we
concentrate on enhancing the product as the only acceptable strategy.
d) Culture: As other questions have discussed, PayPal had a unique culture. At a

minimum, David was one of four key drivers of the culture, but it would be
reasonable to ascribe David the most credit for the culture. He used subtle
techniques (re-writing the annual review form) as well as overt tactics to enforce it
(banning meetings with more than 5 people, etc).
e) Error correction: David would insist that specs, UI and products be simple and
elegant, no feature bloat, no extraneous language, no choices for the user that were
not absolutely necessary. He would hand-correct most of the plans until they
(mostly) met this standard. Of course, today the PayPal product is so bloated and
complicated that it is impossible to imagine that it was once as elegant as Quora.
Why did David Sacks crack down on meetings at PayPal?

7/2/2010
David Sacks
I want to add some color to Keith Rabois’s point (“David enforced an anti-meeting
culture where any meeting that included more than 3-4 people was deemed suspect
and subject to immediate adjournment if he gauged it inefficient.”).
Hopefully it’s obvious that an email culture is vastly superior to a meeting culture.
A group of people can make progress on dozens of issues simultaneously by email
in the time it would take to organize their schedules for a single meeting. Also, the
quality of decisions made by email is frequently better because there’s no arbitrary
need to make a decision by the end of the meeting; people can respond when they
are ready, and easily pull in additional participants and information as needed.
What may be less obvious is that PayPal at one point suffered from a meeting
culture. In the wake of the merger with X.com bank, PayPal had twice as many VPs
as it needed (half were former banking executives) and was led by the former CEO
of a big finance company, who set the example by holding excruciating hours-long
meetings of the aforementioned execs. These management issues were eventually
resolved, but the culture had to change as well. The crack-down on meetings was a
deliberate attempt to restore the “true” startup culture of the company. It did not
prevent impromptu collaboration or brainstorming sessions, out of which many of
PayPal’s best ideas came.
The other reason to keep tabs on large meetings was that they could be
symptomatic of an underlying organizational problem. For example, if a dozen
people from product, marketing, sales, etc, are meeting to hash out international
issues on a frequent basis, perhaps it’s time to create an International team
dedicated to solving these issues. Or perhaps people are meeting excessively
because it’s not clear who owns an area. By “popping in” on meetings occasionally,
I got a feel for refinements that we should make to the org chart, such as adding
new teams to cover unmet needs or re-defining roles to avoid overlap in job
responsibilities.
How did David Sacks go about “cracking down” on the meeting culture introduced
by the merger with x.com?
7/4/2010
David Sacks
I can see from your follow-up question that “crack down” was perhaps the wrong
choice of words in the original question because it implies a much more severe and
formal policy than what was actually implemented. A better description might be
cultural course correction. We did not seek to end meetings at PayPal (that would
just be silly) but rather speed up decision making by eliminating the need for
excessive meetings. The most important enabler of this was clarifying areas of
responsibility to heighten individual ownership and accountability and eliminate
overlaps, so that individuals could make decisions within their spheres without the
need to consult with or persuade lots of other people.
What did Keith Rabois do at PayPal?

8/21/2013
Keith Rabois
This is copied from my LinkedIn profile so it has not been edited in 5-10 years:
Promoted to manage BD, financial services, competitive strategy, government

affairs, and public relations teams
Charged with assessing and resolving risks posed to the viability of the business,
including regulatory risks, as well as devising competitive strategy vis a vis eBay
and VISA/MasterCard
Supervised relations with external partners, including Providian, Intuit, Wells

Fargo, UPS, DirecTV, Microsoft, and eBay enterprise sellers
Orchestrated multiple substantial public affairs campaigns to complement

business strategy, including building a multiparty PAC, lobbying more than 70
Members of Congress and 20 U.S. Senators, as well as presenting PayPal’s interests
to the DOJ, FTC, Treasury and several state AGs
Impelled product initiatives to meet key strategic objectives, including devising the
most profitable product feature for the company in ’02.
Hiring
What was the interview process like during the early days of PayPal?
3/19/2011
Yishan Wong
This answer is limited to my experience when I interviewed and (later) when I was
performing interviews. Most of my interviewing experience at PayPal was done
during what I’d call a “middle” period, and only a small amount of it during an
“early” period.
Short answer: It wasn’t really as hard as you might think. These days early PayPal
has a bit of a mythic status about it but it doesn’t mean it was some sort of techno-
Camelot or anything.
When I interviewed, I met with five people, and was asked the following questions:
Erik Klein, now CTO of Thread.com:

– if you have two ropes that burn at an uneven rate, and each takes 30 minutes to
burn through, how do you measure 45 minutes? I got this one instantly, but sat
there “thinking” for about 5 seconds so it wouldn’t seem too absurd.
– a question about linked lists where the insight was to re-write the data in a
pointer in order to do an insert in O(1) time. I got this one instantly.
David Gausebeck, working on some game company (?):

– implement atoi(). I wrote this one out immediately but forgot to implement the
negative case. Gausebeck seemed impressed enough by my speed that he was nice
enough not to dock me for it.
– some questions about array syntax in C, like what a[0], a[1], *a, a, etc referred to,
on a whiteboard diagram. I got one of these wrong, probably “a”, but I’m not sure.
Doug Ihde, later chief architect and now at Facebook:

– a question where I was to write the class methods for a class that represented
rectangles (as in 2D graphics program) and a method that calculated whether two
rectangles intersected.
– write a class method definition using as many “consts” as possible. I got this one
very quickly.
Max Levchin, now CEO of Slide and generally famous:

– Asked me if I knew anything about C++ exceptions. I said I didn’t, so he skipped
to another one.
– Asked me if I knew anything about some other obscure technical topic. I said I
didn’t, so he skipped to another one.
– Again, third topic, same result.
– Generously, this fearsome CTO then flabbergasted me by saying, “Well, I have no
idea how to evaluate your skills, so I’ll just have to rely on the opinion of the other
interviewers.”
(then-VP of engineering)
– told me apparently I’d done well and they were going to make me an offer.
Nowadays, I would consider an interview like that too easy (especially compared to
how hard we would eventually make them, and how hard Facebook’s are today),
but at the time I was just glad to have passed, which enabled me to avoid working
at Lockheed Martin, my only other Bay Area offer.
Interestingly, the interviews I got may have been during a temporary lull in
difficulty due to (this is hearsay) the VP of Engineering who didn’t feel that the bar
needed to be as high as it had been before. I was hired right after PayPal raised
their last round of funding, and they used [part of] it to hire four more engineers,
one of them being me. Six months later, all of those engineers except me had been
fired; I received a raise three months in (this was very motivating for a young
engineer like me, and impressed upon me the benefits of working really hard). So,
that period may have been an odd anomaly, since many of the existing engineers
seemed much better than their relatively easy interview questions indicated: later
when I worked with Doug Ihde and got to know him, I was surprised that the
interview question he’d given me had been so simple. Also, subsequent rounds of
hiring gradually increased the difficulty of interviews, gradually peaking in around
late 2002.
For reference (for the Facebookers who are reading), Facebook’s interview
difficulty at around the same time (I joined Facebook at around 20 engineers,
which is roughly also when I joined PayPal) in late 2005 was much, much easier – I
was actually a little put off by how easy my interviewers at Facebook were on me,
while Facebook’s interviewing difficulty from ~2007 onwards was much much
higher than any PayPal ever ended up achieving.
1/31/2010
Dave McClure
i was a bit of an oddball, since i was being hired for a position that really didn’t
exist. to be accurate: i came in as a consultant for the first 3 months, and was only
hired after it seemed like i was doing something useful, or at least not too [stupid].
the position i was taking was to start & then run the PayPal Developer Network,
which didn’t exist when i got there. i was recommended by Kevin Hartz, an early
PayPal investor and friend of David Sacks & some other PayPalers. i also had a
recommendation from an acquaintance of Peter Thiel, so perhaps that helped.
most of my interview questions weren’t technical, since i was being hired for a
(seemingly) marketing role. everyone was trying to figure out whether i was a
technology person or a marketing person (answer: neither at that point, really i
probably had enough tech background that most folks weren’t 2nd-guessing my
qualifications. since they didn’t know exactly what they were hiring, i guess they
figured they’d give me a test drive and see how it worked.
during the interview, i seem to remember meeting with ~5-6 people including:
– David Sacks (my initial boss, altho only for a few months)
– Bill Onderdonk (my subsequent boss, still at eBay)
– Amy Rowe (now Amy Klement, and VP Product)
– Luke Nosek (now a partner at Founders Fund)
– Eric Jackson (author of The PayPal Wars)
– Peter Thiel (founder/CEO)
i don’t remember too much about the interviews, altho somewhat memorable in
the final meeting with Peter, i think we mostly just talked about economics &
capitalism, and only briefly about PayPal. i don’t know if that helped, but he
seemed to enjoy the conversation (as did I).
in any case, i think i sort of got away with something — they probably should never
have hired anyone as unqualified as me. guess i fooled them. the rest of course is
history. possibly 3 of the most amazing years of my life followed.
1/28/2010
Keith Rabois
Interviews?
I am not sure there were too many of them as Peter hired the smartest friends of
his from college for the business/product roles and Max recruited his
friends/classmates from the University of Illinois crowd (and some high school
colleagues too).
For an amusing depiction of the “process,” read Chapter 1 of Eric Jackson’s book
PayPal Wars. (I am not attesting to the remainder of the book, but he captures this
part well.)
How did Yishan Wong get recruited to PayPal?

6/16/2014
Yishan Wong
I was referred by Jawed Karim, now famous for co-founding YouTube.
Our parents knew each other – our dads worked at 3M, and when his father was
relocated here from Germany, the company (I think) asked my dad to help him and
his family get settled in and we became family friends. Jawed ended up at the same
middle school as me, with our parents carpooling. Jawed once remarked to me that
the “carpool” was really my parents just picking him up and driving him to school;
his parents for some reason never drove my sister and me to school. We were on
the math team together, and I did pretty well on it.
Later we went to different high schools and colleges, but as I was graduating from
college (in 2001, the depths of the first dot-com crash), Jawed found out and
referred me to PayPal – he was already working there, having been recruited from
UIUC and convinced to drop out a year earlier by Max Levchin and the other guys
there (Gausebeck, Klein, Chu, Kang, etc). In college he was already kind of well-
known for having written a few interesting programs, like Jaw3d (a rendering lib –
apparently you can still find this at http://www.jawed.com) and mp3voyeur (a
sort of primitive version of Napster for finding songs on a school network), so he
was known as a good programmer. Later I asked him about why he referred me,
citing the fact that he had never seen any of my programming output, and he
replied that he figured I was smart, owing to my performance on the math
team back in middle school (in high school I was also on math team, but did much
better – in junior year we were all overshadowed by the venerable Michael Korn
(http://dspace.mit.edu/handle/1721.1/16628) but then in my senior year
after he graduated I got to be the top-ranked scorer on the team).
At the time, I had two other offers (one from Harris in “Melboring,” Florida and
another from SEI/CERT in Pittsburgh), neither of which I was enthusiastic about. I
wanted to return to the Bay Area, where I had interned two summers ago for
Echelon, because the weather and civilization was so much nicer. Because there
weren’t many (any) jobs, I relaxed my “never work for the military-industrial
complex” standards and got an interview at Lockheed Martin [the Sunnyvale
offices]. The day before I was scheduled to fly out, PayPal’s recruiter called me and
asked me if I’d be willing to come out to interview and, finding out that I was
scheduled to be out there for Lockheed, asked if they could piggy-back on my trip.
Yes, they managed to get the whole trip for free – perhaps an example of classic
PayPal scrappiness.
I actually had my Lockheed interview in the morning (it was kind of a joke – I was
asked, I think, zero real technical questions) and then went to PayPal that same
afternoon. Lockheed had given me an offer on the spot, so I was bursting with
confidence (or relief, or maybe just caffeine) when I got to PayPal, so I wasn’t
nervous at all – either way, at least I had a ticket out to California (for both
Kimberly and me) instead of having to stay in rainy, drizzly, slushy, backwards
Pittsburgh.
The interview itself is described in What was the interview process like during the
early days of PayPal?
I pretty much took the offer right away; I took two months off after graduation and
went to work at PayPal on July 5th of 2001, reporting to Karen Seto and later
Brendon Foster.
What prompted David Sacks to quit McKinsey and join PayPal?

1/6/2011
David Sacks
The background to this was that I was friends with Peter Thiel from undergrad at
Stanford. We had both been editors of the Stanford Review, and we had written a
book together about political correctness.
In 1999, Peter and I had an ongoing conversation over the course of several months
about what he was trying to do at PayPal. The company was actually called
Confinity then, and it was focused on a mobile application to “beam money” from
one Palm Pilot to another.
In not so many words, I told Peter that it was a dumb idea — there were only 5
million Palm users and beaming money didn’t seem like a compelling need. At
some point the conversation shifted to “what if you could email money?” I told
Peter this was a killer idea and I would quit my job at McKinsey if that’s what the
company was going to do. Peter agreed, and after a quick trip to California to
interview (nobody wanted to hire me but Peter overruled them), I joined.
I don’t want it to sound like the pivot to emailing money only occurred because of
these conversations. Peter was having other conversations at the same time (such
as notably with Max) that were reaching similar conclusions. But the pivot was the
impetus for my joining and the first thing I focused on afterwards.
Are friend-referrals the best way of hiring great engineers?

1/11/2010
Keith Rabois
Yes, regardless of your favorite interview process and technique, interviewing is a

poor proxy for a previous professional relationship in predicting success. At
PayPal, it was virtually impossible to get an engineering offer without a
relationship to a current engineer.
Strategy
What do most people not realize about PayPal?
5/10/2016
Max Levchin
Its cost-of-funds arbitrage business model: when you pay with your bank account,
PayPal’s cost of funds is very low; when you pay with your credit card, it’s
comparatively high. To the consumer, this costs nothing; to the merchant the fee is
always the same: depending on which path the consumer took, PayPal either
makes money or doesn’t on the transaction.
What was PayPal’s most important strategic decision early on in achieving

widespread customer adoption?
4/11/2010
Keith Rabois
Most important:
A) To pay a $10 bonus for signing up plus another $10 per referral….
Second:
B) Merging with X.com in conjunction with a $100 M financing round that closed
3-4 days before the market collapsed.
Third most important:

C) Empowering David Sacks to run product.
What was PayPal’s most important strategic decision early on in achieving

widespread customer adoption?
4/11/2010
Yishan Wong
To launch on the eBay platform:
This immediately brought to bear two enormous advantages:
eBay was a closely-knit community, within which viral adoption could spread
considerably faster than on the internet at large.
The value proposition of PayPal was much greater for eBay users. Whereas for
an average person who might use it to pay back a friend for lunch it would be
barely more useful than handing over some cash or owing a small debt, it
was much more useful for eBay users whose previous best solution was to
send checks in the mail and wait for up to a week for them to clear before
being able to send the product.
What’s the best pivot in business you’ve ever heard?

10/2/2010
David Sacks
PayPal shifted from beaming money over Palm Pilots to emailing money.
Which startups deferred profitability for a long time in order to build a large user
base and then successfully monetized?
9/6/2010
Keith Rabois
PayPal–even adopted the tagline “always free” and motivated users to sign up with
$10 bonuses. Did not effectively monetize until September 2000.
At PayPal whose decision was it to shutdown X.com internet bank business?

7/4/2010
David Sacks
CEO Peter Thiel, ratified by the board.
What is the technology history of PayPal?

8/20/2013
Keith Rabois
I don’t believe any vendors were employed and all technology was developed
internally.
How can I get the referral email copy used by PayPal for its hugely successful
referral program (inviter gets $10, invitee gets $10)?
4/30/2014
Yishan Wong
I don’t think the email copy was the critical part here. It’s the “you get $10” bit.
Focus on that part.
Why hasn’t PayPal done more with offline payments?

5/27/2010
Keith Rabois
Because it would be a bad idea:

a) PayPal has no expertise in these areas and the core asset of PayPal (fraud
modeling) is wholly irrelevant in this offline transactions (merchant does not bear
the fraud loss);
b) Margins are compressed to a commodity;
c) Offline payments are very efficient in the US and Europe with exceptions in
subprime markets, which could tarnish the eBay/PayPal brand;
d) Neither the merchant nor consumer has a major pain that these technologies
solve.
Product
What were the early achievements that drove PayPal’s awesome fraud detection
systems?
12/4/2009
Yishan Wong
Some features include:
1) Development of the “Gausebeck-Levchin Test,” the first commercially-deployed

CAPTCHA to prevent automated signups and other site activity.
2) A GUI system for visualizing sequences of transactions between networks

individuals, allowing a human operator to quickly identify fraudulent account
activity.
3) Fraud models developed in batch-time were implemented directly into code for
runtime execution in order to make real-time determinations of which transactions
or accounts might be potentially fraudulent as they were happening.
4) Advances in rapid-response for customer resolution of restricted accounts -

automated fraud detection had a high false-positive rate, so methods needed to be
developed to allow legitimate customers to quickly and painlessly prove that they
were legitimate.
How was PayPal able to structure the $10 sign-up bonus?

8/11/2010
David Sacks
Initially users just had to sign up, confirm their email address, and add a (unique,
authorized) credit card.* The money was simply added to their account.
This was real money. Users could send it to someone else or withdraw it. So it was
a real cost to PayPal. We must have spent tens of millions in signup and referral
bonuses the first year. (PayPal acquired 1 million users by March 2000 and 5
million by summer 2000.)
The bonuses were gradually phased out, first by reducing them to $5, then by
adding more verification hoops (like bank account verification) so they became
more difficult to get. Then they were eliminated altogether.
* I can’t remember if we went out the door with the credit card requirement or
whether it was added shortly thereafter. If I get confirmation on this point, I will
update this answer.
What are the most successful startups that had a major change in idea/product
direction?
3/7/2010
Yishan Wong
PayPal was famously started as Confinity, which originally meant to build crypto
for handhelds, which evolved into beaming money between handhelds (what the
kids today called “mobile devices”).
Keith Rabois: What was your “baby” at PayPal?

12/18/2010
Keith Rabois
A “wallet” that would auto-complete any payment form on the web with a virtual
debit card linked to your PayPal account. (If you are old enough, you may recall the
old Gator wallet before browsers stored any of this information).
Internal Dynamics
Which individuals deserve credit for PayPal’s success, and why?

12/4/2009
Yishan Wong
The following people are known to have played key roles in PayPal’s success, not
necessarily in any order:
Peter Thiel, later executive leadership, founder of PayPal
Max Levchin, technological and realtime anti-fraud leadership
Elon Musk, earlier executive leadership, founder of X.com (merged with PayPal)
David Sacks, operational and product leadership
Roelof Botha, financial leadership and key later fundraising
How well did the founders of PayPal – the “PayPal Mafia” – actually get along?
With so many really smart, driven type A’s as founders/co-founders, were there
frequent personality clashes?
4/19/2012
Yishan Wong
All of the people in what is today called “The PayPal Mafia” were not equal co-
founders or anything, so yes, there was an obvious and established pecking order
where (at the time of the IPO), Peter Thiel was the CEO and everyone reported to
him, Max Levchin was the CTO and everyone technical reported to him, etc.
Non-technical people whose names you may recognize included David Sacks,
Roelof Botha, Reid Hoffman, Keith Rabois, Luke Nosek, Eric Jackson, Premal
Shah, and Dave McClure. Technical people whose names you may recognize
include Chad Hurley, Steve Chen, Jeremy Stoppelman, Russ Simmons, and Jawed
Karim.
Yes, there was a clash between Elon Musk and the PayPal gang (“led” by Peter
Thiel), and so Elon was CEO for awhile and then left, and then Peter became CEO.
I think they are all friends (at least friendly) nowadays. At least they are certainly
co-investing in each others’ ventures and such.
The culture was very conducive to aggressive Type-A personalities, in that you were
expected to argue vigorously and that was okay. As a young new grad, I liked that
culture, it was a probably a great way to be introduced to the working world.
Was Elon Musk, and not Max Levchin or Peter Thiel, the real reason behind
PayPal’s success?
2/4/2014
Yishan Wong
Wow, I’m being offered 3000+ credits to answer this question!
This is awesome, because I have no idea. I joined PayPal after Elon left, so I served
entirely during the Peter Thiel regime. So I don’t have any special insights.
I suppose I’ll say this: sometimes people appear successful just because they hit the
luck of the draw. You can usually tell people like this apart from the real
contributors if they fail to follow up with any significant accomplishments or
activity afterwards (i.e. “once you’re lucky, twice you’re good”). In both Elon and
Thiel-and-company’s cases, they have all gone on to significant, world-class
achievements. One of them is a key early investor in Facebook and a number of
other significant startups and is influential and active in other ways, and the other
is building electric cars, rockets, and solar energy systems. I consider it pretty
reasonable to assume that they were all exceptionally talented people who made
key contributions at different times. It’s also very reasonable (and common) that
when you put people like that together, sometimes the stresses of the work can
force them into conflict and split them apart.
I mean, it all turned out okay, except for the part where eBay is kind of
mismanaging PayPal now. So you can tell who the real “lucky” one is in the story.
Industry Dynamics
Why did PayPal merge with X.com?
7/2/2010
David Sacks
To consolidate the fledgeling market for email-based payments.
In the months before the merger, Confinity/PayPal and X.com were locked in a
heated competition to gain share on eBay. Confinity initially offered a $10 signup
bonus and a $10 referral bonus for each new user (the referral bonus went to the
inviter). X.com then upped their bonuses to $20. Both companies probably would
have run out of money competing with each other. Immediately after the merger,
we raised $100 million at a $500 million (pre-money) valuation because the
combined company was the undisputed market leader.
Why did PayPal sell to eBay?

9/5/2010
Keith Rabois
There were two key reasons we decided to sell to eBay:
a) Peter and Roelof studied eBay’s core marketplace and came to the conclusion
that it was stagnating. This was our core market, and we had no alternative
markets of sufficient scale that were likely to succeed in a sufficiently short time
horizon. (The rest of the world was still enamored with eBay, but we had unusual
data insight into their performance and while eBay still had another year or two of
international growth, PayPal was less baked into those markets.) As with most
public companies, our market cap was primarily driven by prospects for growth
over the next decade, so our stock would have been punished severely if we had
decelerated in revenue as a result of eBay’s decline.
b) eBay was on a relentless campaign to artificially conscript buyers into using

eBay Payments instead of paying with PayPal. Although we had defeated these
initiatives over the past 12 months, we were not confident that we could succeed
forever or that the government would intervene. (Reid had a pithy means of
describing the challenge: Just because someone shoots five bullets at you and
misses… does not preclude the sixth one from killing you.)
Why did PayPal sell to eBay?

7/22/2012
David Sacks
1. eBay risk.
PayPal had a huge platform dependency on eBay, a site with its own competing
payment solution.
eBay transactions generated two-thirds of PayPal’s payment volume at the time of

the acquisition. The off-eBay volume was growing faster, but would still require
many years to overtake the on-eBay volume. Also, much of the off-eBay volume
was acquired through the activities of eBay merchants on their own websites, so
losing eBay as a customer acquisition channel might have ruined the off-eBay
business as well.
It’s important to realize that losing even half the eBay volume might have
destroyed PayPal as a business (in 2002). Payment businesses are all about
achieving scale. Most have razor-thin margins and large fixed costs so you need
huge volumes to make the model work. (This is the problem with most payment
startup ideas; people don’t realize how big they have to get before they work at all.)
One thought experiment we engaged in was this: if we were running eBay

Payments, could we think of ways to beat PayPal? We were arrogant enough to
believe that we could, but not so arrogant to believe that eBay would never figure
any of these things out.
After all, eBay owned the platform and the checkout line. In hindsight, it’s a
miracle they didn’t thrash PayPal.
2. Visa and MasterCard risk.
The card associations had a dim view of PayPal, which they saw as a potential
future rival that was operating in a grey area of their rules.
This risk was magnified by the eBay risk, because eBay was ginning up the card
associations (through its relationship with Wells Fargo) to clamp down on PayPal
for supposed infractions. If either Visa or MasterCard shut down PayPal, it would
destroy the product’s value proposition because merchants want to offer a super-
set of payment options.
A subtle way for Visa and MasterCard to squash PayPal would have been to
categorize all PayPal payments as “quasi-cash” (a form of currency), which has
huge fees associated with it. Avoiding this categorization was a constant battle. To
this day, you can see the result of our negotiations with the card associations in the
“Send Money” flow on PayPal, which asks the user to categorize what the money is
being sent for. Quasi-cash is one of the options; not surprisingly, users never check
it. From a UI perspective, this was an ideal outcome; we were always concerned
that it was subject to change.
3. Legal risk.
PayPal had begun to be used by a substantial number of online gambling sites.

Although this was perfectly legal at the time, a number of state attorneys general
(including Eliot Spitzer) were looking to make a name for themselves by
investigating whether PayPal was “aiding and abetting” online gambling.
In conjunction with the eBay acquisition, PayPal announced that it was prohibiting
these transactions. This was inevitable even without the acquisition, but as a stand-
alone company PayPal would have been an easier target for politically-minded
prosecutions.
We already had some experience with this: the State of Louisiana had previously
shut down PayPal for a week due to the arbitrary decision of some bureaucrat (I
forget why). This was reversed, but the legal issues seemed never ending.
4. Psychological factors.
The team had been run down by years of fighting the “PayPal Wars”. Today PayPal
is a massive company that faces none of the risks above, but at the time the
outcome was far from assured. The alternative to an acquisition was continued
fighting on all of these fronts with a somewhat exhausted team. Today, because of
PayPal’s success, it’s easy to look back and say that we should have gone for it, but
at the time it certainly seemed like a tough slog.
Who was the cover bidder on eBay’s acquisition of PayPal?

1/8/2010
Keith Rabois
There was no other bidder. PayPal was a publicly traded stock at the time.
Lessons
What is the greatest lesson from PayPal that’s helping you build Affirm?
5/10/2016
Max Levchin
People underestimate the complexity of legacy payment infrastructure. Solid

knowledge of that helps a bunch. More broadly, the greatest lesson is always the
same: people is what makes or breaks every company.
What were some of Keith Rabois’s key takeaways from his time at PayPal?
12/18/2015
Keith Rabois
1. The importance of assembling a critical density of talent.

2. The importance of focus.
3. The importance of learning how to evaluate people w limited “data” on their
resume.
Competition
Can Facebook Credits replace PayPal one day, why or why not?
6/9/2010
David Sacks
I don’t think so. Here’s why:
PayPal is the low-cost provider in the industry. The main reason is that roughly
half of its payments are funded from a PayPal balance or bank account instead of a
credit card, virtually eliminating funding costs for those transactions. Funding
costs (because of credit card interchange fees) are by far the biggest portion of the
expense of processing a payment.
This funding mix was extremely difficult to achieve. It required us to drive a huge
percentage of users to (1) add and verify their bank account so it could be used as a
funding source, and (2) keep money in their PayPal account so it could be recycled
within the system. A bank account was only verified by transferring to it two small
payments (less than $1) that together constituted a 4-digit PIN. Waiting for the
PIN took several days so this was a multi-step/multi-day process. It still amazes me
that so many users completed it; however, we systematically created benefits for
becoming “PayPal Verified”.
PayPal also incentivized balances through money-market interest rates and a

PayPal debit card that made the PayPal account liquid at any ATM. Finally, anyone
could receive payments through PayPal, which meant that ordinary buyers could
accumulate a balance; although P2P payments seem easy, they are actually
extremely risky and require special fraud detection systems. All of these features
would be extremely difficult for Facebook to replicate; even if they did, it’s not clear
users would have the same incentive to verify their accounts.
As a result, Facebook will have higher funding costs than PayPal, which will
prevent it from challenging PayPal on the basis of price. For many companies, like
social gaming sites and apps on Facebook’s platform, this won’t matter. They will
gladly pay more for the additional conversion that Facebook payments will
generate. This is because their margin on each incremental transaction is 100%. On
the other hand, price-sensitive e-commerce sites with thin margins will want to use
the cheapest payment provider. If your margin is only 10%, for example, then
saving a couple of points on payment processing increases your profits by 20%.
Here’s how I see the market breaking down: Facebook will charge a premium fee
for delivering additional convenience, distribution, and conversion to merchants.
This will win over the virtual goods market. But merchants with thin margins (e.g.
sellers of physical goods) will prefer to stick with the low-cost leader for the
majority of their payments.
Keith Rabois: Do you think Square will be the future PayPal, or even bigger?
12/18/2010
Keith Rabois
At Square, we aspire to build a substantially greater independent company. Jack

articulates a powerful and exciting vision for the company every week at our
company meeting. (We are actively recruiting, so send me a message if you want to
join the team.) PayPal is today worth at least $15 Billion, approximately 11 years
after the product was launched, and was valued at about $1.4 Billion as a publicly
traded company (while the NASDAQ was performing miserably) when we agreed
to sell to eBay in 2002.
PayPal was an excellent product for allowing micro-merchants and aspiring

entrepreneurs to accept credit cards for the first time. It also allowed buyers to
fund transactions with balances and via their checking account (ACH), while
providing immediate settlement to the seller. However, PayPal transactions are
nearly exclusively devoted to online purchases, which represent only 5-6% of
commerce in the US. Square empowers the other 95% of commerce.
From a valuation perspective, PayPal was massively discounted because of our
dependency on the eBay market. Depending on the method used to measure,
70-90% of PayPal transactions were sourced via eBay. At Square, we are
acquiring users from a wide variety of (fragmented) channels.
At Square, we are more committed to delivering a magical experience and

developing a Apple-quality brand in financial services . At PayPal, we were
probably more utilitarian, although still obsessive about how our brand compared
to eBay’s in the hearts and minds of power sellers. If we succeed at Square, we
intend to be iconic.
Think The Golden Gate Bridge vs. The Kosciasko Bridge

(http://upload.wikimedia.org/wikipedia/en/5/51/Twinbridges.jpg).
Why has no payment startup emerged as a meaningful challenger to PayPal?

2/16/2011
Yishan Wong
The nominal answer is that PayPal’s business has network effects, creating a moat
that makes it difficult for a new entrants to gain critical mass. Additionally,
PayPal’s brand is (nowadays) quite strong and associated with financial reliability
and trust, and because people are reluctant to trust a newer, smaller company with
something as serious as money, the field is tilted significantly in favor of the
incumbent.
The more complex reason is that PayPal’s own business climate is actually
extremely hostile. This was apparent when PayPal was small and struggling with it,
but not as apparent now because PayPal makes it look easy. The core challenge
surrounding any payment system is the need to simultaneously make the system
easy to use (low-friction) for users while preventing fraudulent transactions. A
payment system has to do both of those extremely well, because (1) if the system is
not easy to use, no one will adopt it and (2) if it is too easy to defraud, criminals
will rapidly bleed you into bankruptcy. Optimizing those two things often come at
the expense of another – one way of preventing fraud is to ask for more verification
of identity from the user, but that increases the friction of use; conversely, making
it easy to use also makes it easier to commit fraudulent transactions – and

therefore requires extremely clever solutions. Surmounting these challenges takes
a blend of skilled product design, technical acumen, and exceptional will and
daring (most startups do not have to contend directly with criminals stealing from
them), and PayPal managed to do this through developing a variety of methods and
technologies and solidified a strong lead in it. In doing so, it has had to engage in
an ongoing arms race with the fraudsters, so that now the business climate is even
more hostile. This makes it more difficult for a new entrant to overcome the
ambient fraudulent activity and reach sustainability than PayPal itself originally
had to – and PayPal burned through a lot of money.
Secondary reasons include:
Almost everyone with the necessary industry experience in overcoming these

challenges is a PayPal pre-IPO alum, and (so far as I can tell) all of them were
so scarred by the experience that none of them want to work on a new
payments system again, thus depriving any potential new startup of people
with operational experience in beating these challenges.
A challenger to PayPal would likely be just an incremental improvement to the
service, whereas PayPal itself was a massive improvement in user value
delivered over existing methods (i.e. mailing someone a check). This affects
how enthusiastically users would embrace a challenger.
PayPal drove a large portion of its early growth on eBay, a closely-knit ecology
of people engaging in high volumes of transactions. Now that eBay owns
PayPal, it has made it the only supported payments system on the auctions
platform, and no other commercial ecologies of comparable size exist for a
new entrant to piggyback its growth on.
Therefore, the challenges are now greater: a new entrant would need to start from
square one without the benefit of experienced veterans, overcome a more difficult
fraud environment than PayPal itself had to, convince users to adopt a product
whose market value delta is incremental rather than substantial, it would need to
fight against an incumbent market leader, and no comparable “giant” exists on
whose back a new entrant could ride to gain market share.
Kinetic Energy Ventures,

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6/1/24, 3:05 PayPal Mafia – Kinetic Energy Ventures

Kinetic Energy Ventures

*Max Levchin, David Sacks, Reid Hoffman, Keith Rabois, Yishan

1) hiring: youthful, smart, driven people with a strong hunger to win

3) intense need to survive: lots of immediate challenges to ongoing life

4) entrepreneurial execs/teams that create/reinforce culture

5) and, as always, luck, fortune, or whatever you call it…

What key values led to early PayPal’s culture of entrepreneurship?

In addition to the elements that Reid has identified:

3) Internal promotions (nearly exclusively) for executive and managerial roles.

Yes, in we provided free breakfast at dinner at 8 pm during the week at PayPal

Paul Graham’s advice is sound (Students Guide to Startups):

A few key elements that were unorthodox:

Extreme Focus(driven by Peter): Peter required that everyone be tasked with

Dedication to individual accomplishment: Teams were almost considered socialist

Refusal to accept constraints, external or internal:We were expected to pursue our

Radical transparency on metrics: All employees were expected to be facile with

Meritocratic opportunity & opposition to traditional general management: Just

1. PowerPoint (for almost any reason).

What was it like at PayPal just after the eBay acquisition?

Peter compared it to the Fall of Saigon.

1. Talent: Peter and Max assembled an unusual critical mass of entrepreneurial

How did Peter Thiel build such a great team at PayPal?

extraordinary willpower and adverse circumstances to forge a number of otherwise

How did Peter Thiel build such a great team at PayPal?

To supplement Yishan Wong’s answer:

I identified a couple of other critical factors in Why did so many successful

What are some of the best pranks you have pulled?

Back when PayPal was headquartered in downtown Mountain View, we had an

You have been found to be in violation of company policy for parking in a

Also, the handicapped spot remained open after that.

c) Killing BD initiatives: Before David assumed the role of COO, PayPal

d) Culture: As other questions have discussed, PayPal had a unique culture. At a

Why did David Sacks crack down on meetings at PayPal?

What did Keith Rabois do at PayPal?

Promoted to manage BD, financial services, competitive strategy, government

Supervised relations with external partners, including Providian, Intuit, Wells

Orchestrated multiple substantial public affairs campaigns to complement

Erik Klein, now CTO of Thread.com:

David Gausebeck, working on some game company (?):

Doug Ihde, later chief architect and now at Facebook:

Max Levchin, now CEO of Slide and generally famous:

How did Yishan Wong get recruited to PayPal?

I was referred by Jawed Karim, now famous for co-founding YouTube.

What prompted David Sacks to quit McKinsey and join PayPal?

Are friend-referrals the best way of hiring great engineers?

Yes, regardless of your favorite interview process and technique, interviewing is a

What was PayPal’s most important strategic decision early on in achieving

Third most important:

What was PayPal’s most important strategic decision early on in achieving

To launch on the eBay platform:

This immediately brought to bear two enormous advantages:

What’s the best pivot in business you’ve ever heard?

At PayPal whose decision was it to shutdown X.com internet bank business?

CEO Peter Thiel, ratified by the board.

What is the technology history of PayPal?

Why hasn’t PayPal done more with offline payments?

Because it would be a bad idea:

Some features include: