PAYPAL'S FOUNDERS CREATED A STARTUP FACTORY AFTER SELLING THE COMPANY TO EBAY
PayPal was sold to eBay for about $1.5 billion. Then its founders and early employees went on to build a remarkable collection of companies.
In 2002, eBay acquired PayPal.
The deal was worth approximately:
$1.5 billion
At first, it looked like a normal technology acquisition.
eBay got a rapidly growing online payments business.
PayPal's shareholders received eBay stock.
And Peter Thiel stepped down as PayPal's CEO when the acquisition was completed.
But something much more unusual happened afterward.
The people who had built PayPal didn't simply disappear into corporate jobs.
They spread out.
And many of them started building companies of their own.
PAYPAL HAD ALREADY BEEN THROUGH CHAOS
The PayPal story was never particularly simple.
The business grew out of the combination of companies including Confinity and X.com, with Peter Thiel, Max Levchin and Elon Musk among the important figures in its early history.
The company had to deal with:
Then eBay sellers began adopting PayPal because it solved a very practical problem.
An eBay auction could be completed online, but paying by check was slow.
PayPal made the payment almost immediate.
That gave the company an enormous distribution opportunity inside eBay's marketplace.
THEN EBAY BOUGHT IT
In July 2002, eBay announced that it would acquire PayPal.
The transaction used eBay shares rather than a conventional cash payment.
The announced value was approximately:
$1.5 billion.
The acquisition was completed on October 3, 2002.
PayPal remained an independent brand inside eBay.
For most startups, that would be the end of the story.
For PayPal, it was almost the beginning of another one.
THE PEOPLE STARTED LEAVING
After the acquisition, former PayPal executives and employees moved into different companies and industries.
Some founded startups.
Some joined other startups.
Some became investors.
Some did all three.
Over time, this network became widely known as the:
"PayPal Mafia."
The name was originally a humorous description of the unusually large number of successful entrepreneurs emerging from the company.
But the underlying phenomenon was real.
PETER THIEL DIDN'T JUST RETIRE
Peter Thiel went on to become an investor and entrepreneur.
He later co-founded Palantir and became a prominent venture capitalist through Founders Fund.
His PayPal experience became part of a much broader investment career.
Instead of building one company and stopping there, he became involved in financing other founders.
REID HOFFMAN BUILT LINKEDIN
Reid Hoffman had been an executive at PayPal.
After leaving, he co-founded LinkedIn in 2002.
The idea was very different from PayPal.
Instead of moving money between buyers and sellers, LinkedIn focused on something else:
professional networks.
The company eventually became one of the world's largest professional networking platforms.
Microsoft later acquired LinkedIn for $26.2 billion in 2016.
THREE PAYPAL PEOPLE BUILT YOUTUBE
Chad Hurley, Steve Chen and Jawed Karim were all part of the PayPal story.
After leaving, they created:
YouTube.
The company launched in 2005.
That means a group of former PayPal employees had gone from:
online payments
to
online video.
Google acquired YouTube for approximately $1.65 billion in stock in 2006.
JEREMY STOPPELMAN CREATED YELP
Jeremy Stoppelman was another PayPal alumnus.
He later co-founded:
Yelp.
The business focused on something completely different again:
local reviews and recommendations.
PayPal had been about payments.
LinkedIn was about professional identity.
YouTube was about video.
Yelp was about local businesses.
The common connection wasn't the industry.
It was the people.
MAX LEVCHIN KEPT BUILDING
Max Levchin was one of PayPal's key technical founders.
After PayPal, he continued creating technology companies.
One of his later companies was:
Affirm.
Affirm focused on consumer financing and payments.
So Levchin effectively returned to a familiar territory:
financial technology.
But this time, he was building something entirely new.
ELON MUSK TOOK A VERY DIFFERENT PATH
Elon Musk had been involved with X.com, which merged with Confinity during the evolution of what became PayPal.
After the PayPal acquisition, Musk's attention moved elsewhere.
He became involved in:
SpaceX
and
Tesla.
The industries were completely different from online payments.
One focused on space transportation.
The other on electric vehicles and energy.
This is where the PayPal story becomes particularly strange.
A company created to move money online had produced people who went on to work on:
payments
professional networking
online video
local reviews
consumer finance
electric vehicles
space exploration
and
data technology.
IT WASN'T REALLY A "STARTUP FACTORY"
PayPal didn't have a department called:
Startup Factory.
Nobody was deliberately manufacturing new companies.
The "factory" happened because of the environment.
People worked together during an unusually intense period of internet-company growth.
They learned:
How to build products quickly
How to recruit technical talent
How to deal with fraud
How to raise capital
How to survive competition
How to scale a technology platform
How to handle regulators
How to sell a company
How to work with investors
And, perhaps most importantly:
They built relationships with each other.
THEN THOSE RELATIONSHIPS BECAME CAPITAL
This is the part that's easy to overlook.
The network wasn't only useful because former colleagues could give each other advice.
They could also:
Invest in each other's companies.
↓
Recruit each other's employees.
↓
Introduce founders to investors.
↓
Share technical knowledge.
↓
Move experienced executives between startups.
The people themselves became a network through which knowledge, talent and capital could move.
That can be enormously valuable in an entrepreneurial ecosystem.
ONE COMPANY CREATED MULTIPLE GENERATIONS OF FOUNDERS
Think of it as a chain:
PayPal
↓
Former employees leave
↓
They start new companies
↓
Those companies hire new people
↓
Those people eventually start their own companies
↓
Capital flows between them
↓
The network expands
The original company doesn't have to own any of those later businesses.
Its influence can continue through the people who passed through it.
AND PAYPAL ITSELF KEPT GROWING
There is another twist.
eBay didn't simply buy PayPal and watch it disappear.
PayPal became an increasingly important part of eBay's ecosystem.
eBay's own history notes that PayPal experienced strong growth and became a global leader in digital payments during its years inside eBay.
Eventually, eBay and PayPal separated.
In 2015, PayPal became an independent publicly traded company again, returning to the Nasdaq under the ticker PYPL.
So the story came full circle:
Independent PayPal
↓
$1.5B eBay acquisition
↓
13 years inside eBay
↓
Independent PayPal again
THE STRANGE ECONOMIC VALUE OF A COMPANY'S EMPLOYEES
When investors value a startup, they usually look at things such as:
Revenue
Users
Technology
Intellectual property
Market share
But PayPal demonstrated another possible source of value:
the people.
A company can create an environment where employees learn extremely quickly.
Those employees may later leave.
But they don't leave empty-handed.
They take:
skills
relationships
experience
capital
and
ideas
with them.
PAYPAL'S BIGGEST LEGACY MAY NOT HAVE BEEN PAYMENTS
PayPal obviously changed online payments.
But its alumni network created another kind of impact.
Former PayPal people went on to build or lead companies including:
LinkedIn
YouTube
Yelp
Palantir
Tesla
SpaceX
Affirm
The list is much longer, but the pattern is what matters.
One relatively small company became a training ground for a remarkable number of entrepreneurs.
THE $1.5 BILLION ACQUISITION WAS ONLY THE FIRST NUMBER
In 2002, eBay paid approximately:
$1.5 billion
for PayPal.
At the time, that was the headline.
But the more interesting question is:
What did that company produce after the acquisition?
Not just payment technology.
Not just revenue.
Not just intellectual property.
It produced people who went on to create more companies.
And those companies created even more people, capital and ideas.
MAACAT PERSPECTIVE
The PayPal story is usually told as:
"eBay bought PayPal for $1.5 billion."
But that's only the first chapter.
The more unusual story is what happened when the people inside PayPal scattered across Silicon Valley.
One went toward professional networking.
Another toward video.
Another toward local reviews.
Another toward consumer finance.
Others toward software, electric cars and space.
PayPal wasn't literally a startup factory.
But it accidentally became something remarkably close to one.
Sometimes the most valuable thing a company creates isn't the product it sells.
It's the people who learn how to build the next one.
