How a group of ‘misfits’ became the kings of tech


Since the “PayPal Mafia” term was coined by Fortune magazine in 2007 (amplified by a striking photo shoot in which 13 of the group dressed as mobsters), they have only become richer and more revered.

“We kind of laugh that people portray us as this very powerful group today, it’s really just this group of friends that came together. It’s not like this was seen as a very attractive group to belong to… [we] were misfits.”

Former Paypal COO David Sacks.

Sacks, a venture capitalist, has invested in two of Musk’s ventures, SpaceX and The Boring Company, as well as Thiel’s data analytics company Palantir and Levchin’s Affirm. In turn, Yammer was backed by Thiel and Levchin.

Sacks says the image of the clutch of employees becoming the elite would have been preposterous 20 years ago, when Confinity, as the company was then known, launched PayPal, a way to send money over the internet.

“We kind of laugh that people portray us as this very powerful group today, it’s really just this group of friends that came together,” says Sacks, who was the company’s chief operating officer. “It’s not like this was seen as a very attractive group to belong to… [we] were misfits.”

Thiel and Levchin had stuffed Confinity with acquaintances from Illinois and Stanford universities, creating a competitive atmosphere in its early days that only became more so when it merged with Musk’s online banking start-up x.com in early 2000, the peak of the dotcom bubble.

The combined company settled on the name PayPal, but in other respects was defined by a “creative confrontational style” says Keith Rabois, now a partner at Thiel’s investment firm Founders Fund. Rabois was hired in 2000, shortly after Thiel had replaced the ousted Musk as chief executive and in the middle of the tech crash.

“The company was a catastrophic mess, Elon had been fired and it was burning $US10m a month in a market where you couldn’t raise additional capital.”

PayPal alumni still have immense influence in Silicon Valley.Credit:Zoonar GmbH / Alamy Stock Photo

PayPal survived, unlike many start-ups at the time, but changed when eBay, the auction website where PayPal had first spread, came knocking. The $US1.5b it paid is now small change but in 2002 it rocked the tech world. It was one of the first big deals in the aftermath of the crash, and made PayPal’s founders rich and miserable at the same time.

Eric Jackson, a former PayPal marketing executive, said there was an instant clash between PayPal’s leaders and Meg Whitman, eBay’s chief executive. “[eBay was] very much slow, cautious and consensus driven. You’d have endless meetings.”

Rabois says that in one three-hour meeting, when Sacks flicked through a 120-page slide show ahead of schedule, “you could see the look of horror on their [the eBay executives’] faces”. What resulted was a mass exodus. Musk was already gone, and when Thiel quit, many followed. Rabois pinpoints this as the moment the mafia was made: the smart people and the smart money had left tech, leaving the crew of PayPal outcasts as the only team in town.

“There was this big vacuum, Silicon Valley was going through a nuclear winter,” Rabois says. “We went from these misfits that didn’t have a lot of connections to the only people around. It turned out there were several waves of innovation coming and we were the only ones who believed it. It wouldn’t have been possible if everyone else wasn’t depressed.”

Sacks adds that many of the tricks and tactics developed at PayPal went on to be repeated by the company’s descendants. PayPal had spread across eBay partly due to a simple piece of code written by web designer Chad Hurley that sellers could copy to let them easily take payments. So when Hurley was trying to get traction for his fledgling video website, YouTube, he used the same idea.

Riches followed. Google paid $US1b for YouTube, and Microsoft bought Hoffman’s LinkedIn for $US26b. Thiel’s $US500,000 investment in Facebook in 2004 was worth billions by the time it floated eight years later. Most are now investors, and own stakes in hundreds of companies between them.

The mafia has also been united by controversy. In ultra-liberal Silicon Valley, Thiel has been vilified for supporting Donald Trump, and several members describe themselves as conservatives. There are no women in the PayPal mafia, and two members have been forced to leave jobs after allegations of sexual harassment.

Does the mafia’s enduring success rely partly on being a closed network with undue influence and respect?

“I think that’s the stupidest comment ever,” Rabois says. “We were a bunch of misfits, nobody at PayPal had any connections, we had to forge our own network from scratch.”

Jackson says the criticism of the group is “complete b——-. The number of people whose careers have been launched and advanced, it’s too long a list to ever write. They’ve done so much good over the years”.

Even so, as the mafia has grown richer and more influential, the links between its members seem as powerful as ever. Sacks brushes off the mafia term, saying the group has occasional reunions, but insisting there are no secret underground meetings. “It wasn’t really a mafia, it was more like a diaspora,” he says. “eBay took over, burned down our temple and drove all the people out. And we had to go to other lands and start new things.”

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Telegraph, London

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