Elon Musk, disruptive tech, and the 'Paypal Mafia'

In 1999, Elon Musk founded a company called X.com, which he originally conceived as a “one-stop shop” for financial services. However, he soon became more interested in another startup called Confinity, which had its headquarters down the street from his Palo Alto office. Confinity had developed a clever system for enabling person-to-person email payments, which it called PayPal. 

Above: A look at the so-called 'Paypal Mafia' (Source: Low Down)

It was a concept that had arrived at precisely the right time. Many internet visionaries could see that the possibilities of online commerce were huge, but the missing link was a simple way to enable secure payments—precisely what PayPal provided.

X.com and Confinity soon merged, and Musk reorganized the new firm to focus on PayPal, which became the name of the company in 2001. By this time, PayPal already had four million customers, and was listed as a preferred payment provider for 50% of the auctions taking place on eBay.

The PayPal story offers a foreshadowing of the strategy that Musk later employed to great success with Tesla and SpaceX. He didn’t invent PayPal’s technology, but he thought big and made things happen. He used his expertise in the financial markets to engineer an IPO in February 2002, which gave the company a market capitalization of $1.2 billion—all the more impressive in these days after the dot-com crash, when other internet companies were going out of business left and right.

PayPal was a huge enabler for eBay, and in October 2002, the company decided to make PayPal its own, and acquired it for $1.5 billion in stock. Musk, the company’s largest shareholder, owned 11.7% of the shares, and he took home around $180 million from the deal—part of which he soon used to found SpaceX.

The PayPal story is a historic one for several reasons—the service was one of the major enablers of the e-commerce explosion, and its sale to eBay catapulted Musk into the first rank of Silicon Valley entrepreneurs. Elon’s PayPal indirectly led to the launches of Tesla, SpaceX, the Boring Company, OpenAI and Neuralink, to say nothing of the startup companies around the world that are working on Elon’s brainchild the Hyperloop. However, Musk wasn’t the only tech mogul who emerged from PayPal—far from it. 

#Palantir is now trading as a public company on the New York Stock Exchange under the symbol #PLTR. We're grateful to our employees for their work and mission focus, and to our customers for trusting and challenging us. pic.twitter.com/htVY5drJFy

— Palantir (@PalantirTech) September 30, 2020

Above: Another company with roots in Paypal, Palantir, is now trading as a public company (Twitter: Palantir)

As Avery Hartmans writes in a recent piece in Business Insider, PayPal helped spawn the careers of some of tech’s most famous names—the PayPal Mafia, as some have dubbed them. The latest of PayPal’s progeny to grab headlines is Palantir, a mysterious big data company that recently began trading on the NYSE.

The team that founded Palantir in 2003 included two PayPal alumni: Peter Thiel, a co-founder of PayPal and now an influential Republican power broker; and Joe Lonsdale, who was an intern at PayPal while attending Stanford. The company’s data-mining software, which reportedly was inspired by systems PayPal used to foil credit card fraud, is used by law enforcement, government agencies and firms in various industries to track suspicious activity by finding patterns in massive amounts of data.

The choice of the name “Palantir” is steeped in irony. According to the company, the word has its roots in a Latin word for openness, making it a wryly humorous choice for a provider of software used by the most secretive of agencies. Tolkien fans know that Palantir was the name of a far-seeing crystal ball that was coopted by the Dark Lord in order to feed disinformation to the rulers of the West.

There are several more innovative tech companies that have connections to PayPal. YouTube founders Steve Chen, Chad Hurley, and Jawed Karim were all PayPal employees in the early days. Yelp, the popular business review platform, was founded by two early PayPal employees, Jeremy Stoppelman and Russel Simmons. LinkedIn founder Reid Hoffman was once an Executive VP at PayPal. 

Above: Linkedin's Founder Reid Hoffman talks about the influential team he was part of at Paypal (YouTube: Bloomberg QuickTake)

PayPal cofounder Max Levchin launched Affirm, which offers instant lines of credit to online shoppers, in 2013. The company recently raised $500 million in a Series G funding round. Levchin also founded a startup incubator called HVF—its most famous protégé is Glow, which makes health tracking apps designed to help women through pregnancy and childbirth.

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Written by: Charles Morris; Source: Business Insider