PayPal Mafia

Only in Silicon Valley, from the NY Times:

... Since 2002, when dozens of employees left PayPal after it was bought by eBay for $1.5 billion, those workers have gone on to start or join a new generation of Internet companies and other ventures. They have remained a tight-knit group, attending each other’s parties, helping to shape each other’s business plans, backing each other’s companies and recruiting each other for new projects.

Silicon Valley was largely built by networks of people and companies whose interlocking relationships help to spawn new start-ups. But the PayPal alumni have been unusually prolific, especially given the company’s modest size compared to Internet giants like Netscape, eBay and Yahoo.

“PayPal may have the highest ratio of individuals going off to start or finance new start-ups in the Valley,” said Scott Dettmer, a founding partner of Gunderson Dettmer, who has been providing legal advice to venture capitalists, start-ups and entrepreneurs since the 1980’s.

None of the PayPal network’s other offspring is anywhere near to matching the success of YouTube. But the PayPal alumni have started a number of promising ventures, mostly revolving around the Internet.

Among them is LinkedIn, the largest business-oriented social networking site, which was started by Reid Hoffman, a former PayPal executive vice president. It received funding from, among others, Peter Thiel, PayPal’s co-founder and former chief executive. Mr. Thiel himself started a hedge fund, Clarium Capital, which he said has grown from $11 million in assets to more than $2.3 billion in four years. He also runs a small venture firm with other PayPal alumni.

Another new Internet venture is Slide, a company started by Max Levchin, a PayPal co-founder, that makes it easy to publish, find and view slide shows on the Web. A handful of other start-ups are in earlier stages of development.

David O. Sacks, the former chief operating officer of PayPal, started a movie production company called Room 9 Entertainment. Its first film, “Thank You for Smoking,” a satire about the tobacco industry, has grossed more than $24 million at the box office. Mr. Thiel, Mr. Levchin and Elon Musk, another PayPal founder, all helped finance Room 9. Mr. Sacks said he had other film projects in the works, but he is also in the process of starting a new Internet company, for which Mr. Thiel provided some funding.

Mr. Musk started a company called Space Explorations Technology, or SpaceX, that is developing relatively low-cost rockets and is backed with $100 million of his own money.

YouTube was hatched by Chad Hurley, Steven Chen and Jawed Karim, all PayPal alumni, early last year. At a backyard barbecue last summer, Mr. Karim showed the site to a friend, Keith Rabois, a former PayPal executive who now works at LinkedIn. Mr. Rabois later told PayPal’s former chief financial officer, Roelof Botha, who is a partner at Sequoia Capital, the venture firm that has backed Apple, Google and Yahoo, among other big names. After meeting with YouTube’s founders, Mr. Botha got Sequoia to invest in it.

“What happened at PayPal is pretty unusual in that the PayPal alumni have ended up founding some pretty impressive teams and companies,” said Ron Conway, an “angel” or early-stage investor who has backed more than 400 start-ups.

...From the beginning, PayPal hired people whom its founders or other early employees already knew.

Mr. Thiel tapped his network of friends from Stanford, many of whom had worked at the Stanford Review, a libertarian magazine that Mr. Thiel co-founded in 1987. They populated PayPal’s business ranks. Mr. Levchin, for his part, hired engineers in large part from his alma mater, the University of Illinois at Urbana-Champaign, which had earlier been home to the team that developed the software that would be the basis for Netscape’s Web browser.

One of the first engineers Mr. Levchin hired at PayPal, for example, was Russel Simmons, who went on to become a co-founder of Yelp. Mr. Simmons, in turn, helped convince another engineer, Yu Pan, to join PayPal. Mr. Pan went on to become one of the first people hired at YouTube. Other University of Illinois recruits included Mr. Chen and Mr. Karim, two-thirds of YouTube’s founding troika. “YouTube is like a PayPal reunion,” Mr. Levchin said. A YouTube spokeswoman declined to make Mr. Hurley and Mr. Chen available for this story.

The long-standing bonds created an atmosphere of openness and trust, which not only helped PayPal succeed, but also made it easier for members of the network to embrace each other’s post-PayPal projects.

The founding of Yelp in the summer of 2004 is a prime example. It happened after a lunch celebrating Mr. Levchin’s 29th birthday at the Slanted Door, an upscale Vietnamese restaurant in San Francisco’s Ferry Building. There were about 16 people at the lunch, a majority of them ex-PayPal employees, Mr. Levchin said. At one point, the conversation turned to how hard it was to find, say, a good dentist. That got Mr. Simmons and Jeremy Stoppelman, PayPal’s former vice president of engineering, talking about a Web site where people could review local services.

On the walk back from the restaurant to their offices — an incubator for start-up companies run by Mr. Levchin — Mr. Stoppelman and Mr. Simmons discussed the idea further. “We were bubbling with excitement,” Mr. Stoppelman said. “As soon as we got back to the office, we pulled Max aside and pitched him the idea.” Mr. Levchin liked it, and the next day he agreed to back the project with $1 million.