PayPal: Max Levchin (June 2022)

Transcript from https://podmenti.com/t/48f317d7efb85e77

Hey everyone, it's Guy here. So this week we're bringing you a potentially top episode from The Vault. It's my conversation with Max Levchin, one of the founders of PayPal, and of course, another one of those founders who founded a company called X, which then merged with PayPal, has been in the news a lot, and his name, of course, is Elon Musk. And you will hear some fascinating stories.
about many of the founders involved with PayPal, including some about Elon Musk. Anyway, our conversation covered so much ground that we couldn't fit it all into one episode, so this is just part one. For part two, just go back to your podcast feed and type in Max Levchin or Affirm
And you can listen to that one after.
Okay, enjoy the show.
2001 for me was largely a year of trying to scale this thing as it was just blowing the doors off with its growth.
Every week the growth would just be so much more than the systems could handle.
Every Monday when eBay auctions would settle.
This would just go down for multiple hours. And at some point our head of database scalability, who was also a very accomplished blues singer and guitarist, brought his guitars.
to the office and would play the Munda Blues because we all knew
The site would crash.

Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements.
They built.
I'm Guy Roz and on the show today, how Max Legend took an idea nobody cared about
transformed it into PayPal.
A brand that embodied startup culture with its rapid rise.
hairpin turns, and world famous founders.
There are just a few companies in tech whose overall impact
Went a lot further than just the products they produced.
Hewlett-Packard is a classic example. It's not the computers they made that matter, but the fact that David Packard and Bill Hewlett were pioneers who laid the foundation for what is now known as Silicon Valley.
Atari is another one.
Sure, Nolan Bushnell's video games and consoles were cool, but what matters more is how Atari ushered in the video game revolution, that's now a massive force in global entertainment.
And then there's a company called
Hey pal.
Yes, it
may be convenient to pay someone using PayPal, but its products aren't nearly as important as the legacy that came out of it.
The group of people who helped launch PayPal back in the late 1990s would go on to either found or fund companies including YouTube.
Tesla, Facebook, Yelp.
Flickr, LinkedIn, Mozilla, Palantir, and many more.
You may have heard the phrase PayPal Mafia.
A term popularized by Fortune magazine in an article that came out in 2007.
The PayPal story is full of public drama and private intrigue.
And not surprisingly, has focused on its three best known founders.
Peter Thiel, Reed Hoffman, and Elon Musk.
But the guy who actually had the earliest idea for PayPal
is Max Levchen.
Max is a gifted computer scientist and coder who founded his first companies as a student at the University of Illinois.
In nineteen ninety-eight, he launched a tiny cryptography company with Peter Thiel that would evolve into PayPal.
Max would eventually go on to help start several other companies, including a firm.
A payment platform that lets you pay for things in installments.
Max's story is so rich, so full of anecdotes of the now famous founders he once worked with.
And so full of lessons for anyone hoping to launch anything of value that
As the two of us were talking,
I kept wondering how we were gonna keep it all to a single episode.
So
We decided not to try.
Instead, we're gonna tell Max's story in two parts.
In this episode, part one
You'll hear about its early years, the launch and growth of PayPal, and its eventual sale to eBay.

Max Levchin was born in the mid-1970s in Ukraine when it was still under Soviet rule.
As a Jew family, the older generation of the Lebchin clan faced a lot of hardship.
Both my grandmother and grandfather come from
fairly large Jewish families.
My grandfather came from a family that was largely
Incarcerated.
by the Soviet State.
during the 1930s persecution of Jews and other intellectuals.
all throughout the sort of first half of uh twentieth century
My grandfather's family found
It's uh
various members in the gulags.
And so
By the time I met my grandfather.
he'd already lost most of his brothers and sisters.
And
The reason he and my grandmother survived.
They were both physicists, and they were both involved.
In
Some
defense related work for the state.
So as the Germans approached Kiev
They're
Both sent.
very far off into Siberia.
to help the war effort from
Far away from the front lines.
Hm.
And from what I understand when when you were growing up
Uh
Your mom.
was also a physicist, right?
Yeah.
She was employed at the
Food sciences research institute, which sounds very boring.
But she had a really cool job. She was measuring foods for radioactive contamination and before Chernobyl
That was the very boring job. And then after Chernobyl became a very exciting job.
No not in the good away.
Um so
Your mom uh worked for the state and uh was a scientist and and w and your dad was a
But he was a writer.
Although he too had a uh
A a chemistry degree, as a matter of fact. But uh his calling was uh fine arts.
And did you speak Russian at home or did you speak a Ukrainian dialect?
Uh we spoke Russian
And my grandparents who lived with us spoke Yiddish to uh
Have an encrypted channel.
From the uh from the young ones.
W was your family at all religious?
Jewish identity or or did did they s sort of stay away from it because it was you you could be persecuted.
in the Soviet Union if if you
Practiced religion and or Judaism, right?
I I definitely identified as Jewish, but had
Zero understanding of
the religious identity or or really the historic identity. So I I knew nothing of Jewish holidays, but
Amusingly enough.
W one of the things that happened.
So I first of all I guess I was in the
track program most of my
Life.
Get into this.
Math and science.
special track and
Inevitably because
at least Soviet Jews were so obsessed with education.
I would get to this new class and it would be like
Half Jewish.
And
One time.
A teacher.
made a joke and i it was very much an anti Semitic slur.
And
All of us kind of were.
Little stunned because like normally it came from other kids, didn't come from teachers, but
It also.
just happen all around us, so it wasn't like that huge of a deal.
Then after class, some kind of a spontaneous
movement began, we're like, you know what, we we shouldn't put up with this. Like a
This this isn't okay.
And so we somehow talked ourselves into submitting.
A formal complaint to the school about anti Semitism.
At the time we seemed just completely misguided, because like maybe still get kicked out of school.
But I think both the school and the teach were so shocked by all these preteen, early teen Jewish kids.
Getting worked up about being called
you know, the equivalent of uh unprintable word in class.
The ultimately censured the teacher.
And we're like yeah you
can't really teach this class anymore.
Which
In retrospect, I think my parents were like, what are you doing? You're gonna get kicked out, like this is gonna jeopardize your chance of getting into a good university.
And in Russian spec, yate me. That was cool.
Hm.
Okay, so I I've read that as a kid.
uh in Ukraine.
you were you were already getting into computers, right? Like you were already learning about
About programming, right?
Yeah.

whole collection of really lucky coincidences. So as my mom joined this
food science research institute.
The state gave her.
in order to learn how to program.
And she wrote me into it and basically said, Look, you know, I'm not really sure I understand how this stuff works.
Help me out.
And so that was my first kind of rabbit hole into programming. And within a few months, I was a better programmer.
than my mom and then better programmer than her.
colleagues and I was just gorging myself on all all the knowledge that I could get from
with leg translations of various computer science books. And so by the time I got to the US, I was completely hooked on the idea of
writing software and I I knew that I wanted to be a software engineer. I knew I wanted to go somewhere, sort of beg, borrow and steal, get my way to a keyboard and the monitor.
Soviet Union collapses in nineteen ninety one, officially in Ukraine.
would would become an independent state. Um and today we're seeing the
The the long tail of that story
Your parents decide to emigrate.
to the United States. Um
First of all, what did they I mean
What were they gonna do when they got to the what was their plan?
When they got to the US.
I'm pretty sure they had no plan.
But they just knew what they wanted to get out. So a couple of things led to it. So
My grandfather in particular, but also my grandmother
What
Generally speaking, apparently
quite dissident in their views.
And
I wouldn't know it even though they lived with us.
So my grandfather
He and my grandmother have been scheming to get out of the country.
since maybe the seventies, but certainly all through the eighties.
And
Two things happened.
In nineteen eighty six, my grandfather died.
Quite suddenly.
And my grandmother.
And she completely disappeared from the spotlight. She was she was an internationally known uh astrophysicist.
And
Yeah, actually one of the coolest things I found.
after I came to the US is my grandmother's research papers.
in the Harvard Library.
Which was like a
Wow. I I did not know this this was the thing, but your physics royal.
I am I'm a physics.
Royalty adjacent.
But uh she she was an amazing woman and uh it's it's completely appropriate that she has papers in the hard library, but uh
My grandmother decided that she would get us out, the entire family. And so she engineered this mass exodus of the Left Chin clan.
While
Basically
dying. She she had breast cancer that was
fairly aggressive all throughout this process. And she just sort of said, you know what, screw this, we're getting out. And so I don't think they had a plan. They just had an opening where they realized that Soviet state was falling apart.
She had to
bribe a Soviet official to give her
a new birth certificate.
Yeah.
Suddenly we found ourselves on a plane to New York.
Well.
So you you were let out?
Um and you land in Chicago.
Uh in nineteen ninety one. So what did your parents do for a living when they got there?
My father
Man of arts.
spent a bit of time painting signs for um shops on Devon Street, which is kind of a main drag in north side of Chicago.
And my mom babysat.
for the first uh I think ten years of our life in the US.
And did they speak English?
My mom spoke decent English and my dad did not.
You were a sixteen year old kid. Did you speak English?
Yes. They started me on it at
two, I think. They're they're tapes of me try to speak English as a two year old.
Well.
All right, so you could integrate into the school system in your brother. You're a
A junior high school.
Basically.
And was h was it hard for you?
When you got to school?
So
Academically was not.
I
Definitely had my fair share of
You're not from around here.
type conversations. Yeah. Uh but I was fortunate in the sense that
I
Went to
A
very normal inner city public high school in Chicago.
It was something like thirty percent black.
Thirty percent Asian.
Thirty percent everything else.
ten percent people you didn't know existed. Is it just s some sort of a
very, very, very integrated mix of
Anyone and everyone. And so
This was not a
Oh wow, you're not from around here. It was more of a, oh, you're one more of these people who speaks with a funny accent and
Does math really well and plays clarnet. Okay, you know, we have three of you over there in the corner. Yeah.
Ha.
I try for every stereotype.
Um
So I read a story that you
You you knew about MIT.
And that was your dream to go to MIT.
And um you
Talk school counselor about it, but
you you were steered in a different direction.
Not to MIT.
Yes. This is a uh
One of these.
You laugh, you cry, you end up in a different university stories. So
I don't remember actually whether this was the way it was formally translated or the way I translated it.
But
in my from English to Russian back to English translation of MIT.
It became MTI.
So you so you talked to your counselor and said you wanted to go to MTI?
Yes, I I was Baring System. I really want to go to MTI and she said, Well, I just don't think I know the school. Who's heard of MTI? The Montana Technical Institute. I I think my my counselor may not have heard of that one either.
But um she basically said, like you've never taken an A C T, you've never taken an S A T
Yeah.
As fresh of the boat as they come.
Just like, you know, get your bearings and then you'll, you know, you'll you'll you'll get to the right university. And so I I was quite discouraged, uh, but fortunately I met this
Great.
Guy named Eric who's still one of my very closest friends.
It's all right. I'm
I really want to go do computer stuff.
Where do I go? And he said, you know, the the brightest kids from this school.
get into University of Illinois or Ban of Champagne and that's where I'm gonna try to get into.
No, if you want I'll I'll show you how to get the paperwork.
And that's how I ended up at U of I.
Alright, so you get to school and you are
determined from the day you get there.
Two
To what, to become a software engineer when you graduate?
Or to start your own software company or both I mean
From what I've read it sounds like
knew what you wanted to do when you got there, is that is that true?
Uh
a little bit after I got there. So I got there.
I was still very much under the spell of my grandmother who was with us. She she actually managed to
survive long enough to see the family move to Chicago.
And so on my way to college.
She was quite ill, like really, really ill by that point. And she basically said, Look
I think you should probably consider being a professor.
And that that was my plan when I entered UI.
But uh midway through sophomore year I ran into a couple of guys that were starting
their first company and they sort of infected me with the entrepreneurial Wonderlust and that that's when I knew.
I just needed to write code and
Build.
companies and products and businesses.
I mean I mean this was kind of an a a a heady time at the University of Illinois. Um
I think Netscape was Mark Andreessen came out of there, right? And and and
And so you know it was
It wasn't MIT, it wasn't Stanford, but
But it was
Uh not far behind in terms of like the
the innovators that that would come out of there.
Um but it's it's still
the mid nineties, right? It's still like early internet days.
Um but
you probably had access to to see
Or to be exposed to technology that
Maybe
ordinary people weren't exposed to yet, even as a as a computer science student.
Yeah, that that's exactly what happened. And so so all of us
Were
kind of realizing that we're in the middle of this
maelstrom of innovation and we couldn't we we couldn't know and didn't really know
Exactly what was happening, but suddenly
there was lots of attention to this mosaic project that Mark Andreessen started at National Center for Supercomputing Applications and there are all these people visiting campus and looking and
The graphical browser.
So Mosaic V one launched
in ninety three when when I entered campus. And so
I was thrust into this, like the future is being made right here. Nobody knows what it looks like, but it's definitely being created right in front of you.
Do you by the way, do you remember getting on that browser for the first time and and
'Cause I remember it just seemed like something totally
What is this?
Pennsylvania Avenue Residences Hall computer lab downstairs to the left.
Uh second computer for first row. Yeah.
That's where I was when I saw my first uh
Copy of mosaic.
And uh
I actually remember thinking well this isn't that big of a deal.
Except the embedded are
crazy cool. Like this is just like
All these other
Text, sort of hyperlink navigating things that I've seen before, but the images right alongside the text is just like a complete different experience. It's like reading a book.

And that was
Pretty amazing.
While you were in college, you
You already started to
Connect with other
students just to found to like start businesses.
Right.
So I think a lot of the the immediate reaction to two things, that the the launch of mosaic and kind of the like, oh my God, this is different and important and everything will change now.
Plus.
Wow, Mark and
Five other people just
Upton left campus and went to Palo Alto, California, which seemed like
You know, going to the Mars.
to start a company and
That that construct was so cool and so
Inexplicably.
Desireable.
I ran into these people who were kind of hanging around the same computer science circles and they're like, Hey, we're gonna go start a company.
you should join us because you're one of these guys who doesn't sleep, doesn't he just write code and I was like, That sounds great. I don't really know what we're gonna do and yeah, we don't know either, but we're just gonna go start a company. Doesn't matter what it's gonna do.
And what we kept on trying to do
is answer the question, okay, so the world today looks like this.
Now add web.
So advertising exists on TV, it exists when you drive highway fifty-seven from Chicago to Champaign.
What happens to advertising when everyone has a web browser?
We should build a company around that.
And I know you started a number of companies around this period, um
Which didn't quite work. But what w what were some of the ideas that you came up with?
So the first one
was in fact a web advertising I think may have been the very first web advertising company
Failed miserably.
uh for lack of funding and lack of understanding of how advertising industry really worked.
Uh next one was an attempt to reimagine.
Classified. So I I looked at a back of a newspaper. I was like, oh classifieds.
In a newspaper.
How about classified?
Plus the web.
That's actually kind of vaguely successful. It's a great idea.
I thought so. And in successful in which way? Like like people were paying money for it?
Uh yeah, uh my friend and I started that and uh he would literally call small regional newspapers like in
Upper Peninsula, Michigan newspaper with
circulation of
Two hundred.
And would say
Do you guys have a website? And they'd say, Yeah, we just got on the web ourselves. We have a website. It's like great. You need a classified package because right now you sell you you make money by selling classified space in the back of the newspaper.
Surely you will want to sell some classified space on your website.
And so we would actually charge them.
SAS fees.
Like twelve hundred dollars a year, I think.
But none of these companies that you started
Really.
Went anywhere though, right? Like you didn't walk out
of college with a big chunk of cash in your wallet.
No, I walked out with student learns.
Right. Got it. Okay.
But you you walked out of college
Clearly
Like
Fire up.
to to to start something.
Yeah, I
The the very
Seminal moment.
sort of like this is what I'm gonna do with for the rest of my life.
was when the very first company failed.
We
drove up to Chicago the four of us to try to raise money.
And were rejected. It was the the advertising
Web business.
We actually went to um
I think Leo Burnett, one of the large advertising agencies of the time.
And they're sort of like
Yeah.
You guys have no idea what we're talking about. It's not gonna hunt. And so and this was our last
Ditch attempt to save the company. So we were driving back to Champagne completely silent, the four of us in one car.
And just kinda like this this is it. Like end of the road, we're dead.
And
All I could think about was what is the next company I'm gonna start? Like I I could not even
Like I I was trying to convince myself that's like this is a moment of grief. You need to feel bad about the death of your
first company.
Yeah.
Bright.
But I'm not. I'm
I just can't wait to figure out what the next one is gonna do. And so when I left college
I was just sort of on this kick of like well, number one, number two, number three, number four, they've all failed, but surely number five will succeed. And I just
Couldn't wait to get started.
Well and we come back in just a moment.
How Max moves out to Silicon Valley.
It's an up and coming small time investor named Peter Teal.
and starts a brand new business that initially
goes absolutely nowhere.
Stay with us, I'm Guy Raz, and you're listening to How I Built This.
Hey, welcome back to How I Built This. I'm Guy Raz.
So it's nineteen ninety seven and Max Lepchin has just graduated from the University of Illinois with a bachelor's degree in computer science. He's already walked away from a few businesses that he couldn't raise money for, and now
His former co-founders are telling him to go west.
Mm.
My co-founder number one and two.
Upton left for Palo Alto because they knew you had to go there because that's where the action was. We failed to raise money, Silicon Valley was chock full of venture capitalists that were interested in giving money to people like us, and so they said, you know what?
This college thing is overrated. We can drop out and go. And
Because these two guys, Scott and Luke, moved to Palo Alto, I knew
And we were all kept in touch and I
I've gotten nonstop stream of Oh my God, it's mecha for star ups here and you're riding away in Champagne Urbana. Get out here as soon as you can.
This is Luke Nosick and Scott Bannister, right? Yep.
They come back into your life.
uh uh uh well in nineteen ninety eight,'cause you you move out there to kinda
Hang out with them.
Yep.
Exactly.
four hundred sixty nine Grand Avenue apartment Q, I was crashing on Scott's floor, and Luke was in apartment P across the hallway.
And
When you got there, what did you do?
Uh I sort of j because I was hanging out with Scott, I promptly became his brainstorming partner.
I I knew programming and I thought myself a pretty great software engineer.
But I knew that most of my
failers as a uh
Startup.
CEO, C T O whatever I thought I was
Or because I would build things that I thought were
Good and
Easy to use. And then I would show them to someone like the classified soft firm. People are like, this is really great, but I have no idea how to make it work. It's so complicated.
So I decided that my next sort of development
phase in life would go hang out with people who are really good at product design.
And Scott happens to be
Just eat.
genius product designer type thinker. And so I sort of attached myself to him and would just roam around wherever he would go and say, All right, I have a product idea and
He'd tell me, All right, you know, tell me your product idea and I'd tell him and he'd rip it apart and show me why it's a stupid idea and
All the things that are wrong with it.
And uh it was my
Crash course education product design.
So you were kind of trying to come up with different ideas.
And I guess in
in August of ninety eight, a fateful and certainly
Fortunate.
Encounters.
Um
We went to a lecture.
At Stanford.
By Peter Teel.

He was at the time presumably just a
kid, you know, he he g I think he went to Stanford and law school and worked in finance and
and left finance and at that point he had raised some money.
to start a a hedge fund. I don't think it was a huge hedge hedge fund. I think it was relatively small.
I think it was ten million dollars.
Yeah, compared to what it it would be today.
lecture. What was a lecture? And and c you were not a student at Stanford, but I think it took place on the campus.
Yeah.
Uh it's a it's a it's a funny story. So so Scott's apartment had no air conditioning, as many apartments in Palo Alto.
Do not.
But it had a heater.
Wh
Turn on.
based on some magic incantations and rules that I couldn't understand.
but that it was mostly on somehow and 98 summer was unbelievably hot.
And so as much as I could, I would go find an air conditioned room.
to just like not be
Drenched in my own sweat.
And Stanford has all these wonderful classes during the summer. And they don't really check IDs. You just kind of roam, at least back in the 1998 time frame. Yeah. At the time, I would just
Kinda wander into a room, any room, and
sleep in the back. If the lecture was big enough, nobody cared.
I was sort of half conscious of this guy named Peter Thiel because Luke told me that
This young hedge fund Peter Thiel.
he thought was really brilliant because among other things he was this
super crazy libertarian quote unquote
And so as I was roaming through Stanford looking for a lecturer to crash and sleep,
I saw Peter's name.
like oh all right well if the lecture is boring I can sleep and if the lecture is interesting
I could listen and see who this
What what do you talk about?
Uh, he talked about currency trading, which was fascinating because I never even knew
That hole.
Genre of this existed.
And more than anything, I just thought he was really bright. He was obviously very, very smart person.
Did you um I mean uh from from everything I read about you, you were
Little bit awkward.
Um
Uh maybe you still are today, uh a little bit.
Uh which is okay. No no shame there.
Um
But you did did have the c summon the courage to go talk to him.
By the way, w was it a packed lecture hall? Was it like hundreds of people?
No, actually the the reason I didn't sleep is because it was literally six people in a tiny little room. It was about as big as a broom closet. I was like the my first reaction I remember very vividly going like, Oh my God, I can't walk out. I can't even sleep because lecturer, this Peter guy will see me in
probably mock me or something. So I I just kinda sat there and listened.
Ah he had another person who came up to him afterwards.
And you could tell from the look on his face that he was not enjoying the conversation. He just looked absolutely miserable at while he was being
sort of interrogated slash.
talked at by some random person. And so
I sort of decided that my my move would be to free him from the grasp of this uh
this person who was interrogating him, so I sort of came up and said
Hi, Peter. I'm Max, I'm Luke's friend.
And I think he probably didn't necessarily know which Luke I'm talking about, but he was like, Oh, Max, yes, great, great. Oh, I'm so sorry, I have to talk to this person. And so he just kind of abandoned the guy who was torturing him.
And uh started talking to me.
And what did you
T what did you talk to me? Just do you remember? Did you say I liked your lecture or
I I became my awkward self and basically said, Well, I'm I'm I'm Max. I just moved here from Champagne.
So it it was like a weird kind of a
zero content conversation. And then he asked me what I'm up to. And I said, I'm I'm definitely going to start a company again.
And they said, Oh.
That's cool. We should definitely talk about that.
Let's meet for breakfast.
Okay. And how about tomorrow?
Which is very indicative of how Peter Teel generally does things that Peter Teel does.
So next day you guys meet for breakfast. Where where was it?
Was it Hobies on Embarcadero and um uh?
Yeah. Alright, so you go for breakfast at Hobie's.
Legendary uh Silicon Valley diner.
Cafe. Um
And uh and you're like twenty two, twenty three, he's probably close to thirty. So he's like the
Yeah, you probably you're probably thinking, Oh, this guy's
Knows where it's at.
Uh
He says,
And what did you
What'd you tell?
I I came prepared. I had two ideas. Um
One was based on a consulting gig I did while I was in Champagne.
There was this company in Chicago.
They would gather
Everything from like short clips
of commercials from T V and um
photographs or like ripped out pages from magazines advertising, typically consumer packaged goods.
And they would gather this whole thing up into a database, which I would code for them, and then they would sell that database.
to major brands.
And this was sort of like you know, illegal way of gathering competitive intelligence.
And nothing like this existed on the web. There are all these companies now that were marketing
things on the web. And I thought this should be a competitive intelligence company for for the web.
So that was my idea number one.
And I pitched that to Peter and
It was sort of like
Okay.
And I I could tell he just was not impressed. I I thought it was the coolest idea in the world.
And then he asked me like all right, so like what's your other idea? He said he had two.
And
Before I fully, fully that I wasn't gonna get
a master's or doctorate.
I was very hard at work on cryptography. So the idea of secret codes and you know breaking and making codes. And that that's that's what I wanted to do if I were to go get a PhD.
And
I had this sort of half-formed idea that
The world eventually
would have small devices. Everybody would have a small device in their pocket. This is long, long, long pre-iphone.
But this is right around the time of the heyday of the palm pilot. The palm pilot, yes. And then I looked at the security design of the palm pilot and was sort of flabbergasted to know that there was no way to encrypt anything. You could communicate
With other pump pilots, but
people could sniff the communication and just steal your secrets.
And so I have the second idea called secure pilot.
which was going to be cryptographic software for palm pilots.
And I was very reluctant to share this because like this is a niche within a niche. Like the crypto, you know.
security, like most people don't care about this stuff.
And palm pilots are still in their infancy. There's maybe one million of them sold.
So I kind of blurred that one out and Peter was super excited about it. Like this is the greatest thing ever. Like you should absolutely start this company and I would I would like to invest.
And it was like I the exact opposite of what I expect expected in every dimension, but
Sure, I'll I'll take your money. This was y'cause with Palm Pilots, uh you could like
Exchange addresses inf thro infrared, right? You point them at at each other.
And that basically if you want if you knew how to, or was it was relatively easy to just suck
Information from to someone else's palm pilot.
Yes.
And you're like, this is a security flaw. We should develop the technology and and
Alright, so he says I like this idea.
I think we can maybe fund invest in this. Yeah. He literally offered to invest on the spot. It was it was actually like the amount of time it took him to go from that's a cool idea and I'd like to invest.
was like fewer than a sip of his smoothie.

Nanoseconds. I was actually startled and was sort of like, okay, well I guess I'm starting this company because I have an investor.
Which by the way, th this was the very first investor interaction I've ever had in my life that wasn't
Get out, this isn't gonna work. And and what did you know about like did he did he'd say like I'm gonna give you
A hundred thousand dollars, like how much money was he was he willing to give you?
Uh, he asked me how much money I thought I needed to get this off the ground. And I said, I think I need about a half a million dollars. Said, Great, I'll invest three hundred thousand.
What?
Okay.
So pretty great.
And and a
fortuitous meeting for Peter Thiel as well,'cause he was he had a ten million dollar fund at that point. I mean
Not bad, but it's not great. Not not necessarily guaranteed to make money.
What what
Was it about?
I don't know Peter Thiel, I only you know, I've read a lot about him and and obviously his his reputation precedes him in
Some of that may be caricaturi caricature and and some might not, but um but even as a student of Stanford he was um

What why
Did you trust him?

really badly. And he could have
you had no experience dealing with cap venture capital investments like
You didn't
probably know how to structure the terms or your equity
What what was it about him?
that connected with you.
I think the sort of the pragmatic answer I
Absolutely nothing to lose. There was nothing to take from me.
And so in terms of risk reward, it was sort of like
The worst that can possibly happen is I I'll go from
Nothing too.
Nothing.
So it there's there's just very little downside.
The thing about Peter that I think most people who don't know him
Just
Can't
fully relate to
He has this amazing ability.
Two
C
What you
are great at.
And he gets so excited.
on your behalf.
to be your best self, as the kids will call it these days, that you can't
Just not.
Get infected.
Become
This ball of energy because this guy Peter Thiel you barely met.
is just so excited about how talented you are in this one area and you will change the world and and and he wants to be a part of it and he wants to be an investor in it, he wants to be a partner and your friend. And he's clearly genuine in it. And kind of go like I didn't even know I am that good. And this guy is telling me he can see it and he's like doing it with his entire body. He's that excited.
And
I was
still knee deep in my various impostor complexes at the time. I was this immigrant kid. I wasn't quite sure if I'd drop my accent fully and
was supposed to be a PhD in computer science, but
I just got a bachelor's and ran away and
And
He was just so genuinely excited.
to build this thing and to help me build it and
And uh I think that it's the his superpower is that he enables you to be your very best self.
Well.
So
What what was the next step? I mean
With a three hundred thousand dollar investment.
Did he say go and raise the other 200? Did he say go start working on this? What what what is did he say go hire somebody? What did he what did you do?
I think he originally thought that I kind of had a plan and he would just sort of write me a three hundred thousand dollar check and then off you go. And he did say like look you need to go line up the rest of the money because
This isn't gonna be enough. You just told me you need
at least half a million dollars.
And so
I sort of immediately owned up to the fact that this is my first and only successful fundraise. So I probably could use some advice on how to do it.
So okay, well I'll maybe I'll help you out. And he had this guy
That worked for him in
Teal capital management.
kind of his his second in command named Kenny Ken Howry.
Uh yeah yeah, Kenny will help you. Kenny's very good at uh fundraising. He helped me.
And so Kenny
got to work and made me a pitch deck.
And then I went into
pitch some randomly selected venture capitalists and they
We're all one by one telling me how this will never work. It's a stupid idea and
Yeah, it was just like rejection upon rejection. So at some point I went back to Peter and said, All right, something's not working. Like you you
bought this and can he help me with the deck?
What?
It's just
not landing with anyone, what do I do? And so I said, fine, I'll help you. And so he started coming with me on these venture capital pitches.
So so basically it wasn't the content of the pitch, it was you. You just sucked at it. You weren't good at it.
I think it may have been me.
Yeah.
And he was charismatic and and more confident than you.
Yeah, I I was very awkward and this totally did not work.
in venture capital where I would show up like with a
Disheveled hair and a T shirt that said Microsoft sucks or something like that. And people like all right, this is not a serious person. At that time.
At that time.
that well that would change, of course, but at that time it it was like right,'cause you
The uh probably venture capitalists were used to people with MBAs pitching them.
Yes. I think they very much wanted to
hear from someone who went to like a
top tier school and could speak financial language and definitely
had shoes on instead of flip flops.
Right. But even with uh w even if your pitch skills weren't great,
I I'm still skeptical. I'm also skeptical about this idea. I don't I would not invest in that idea. It doesn't seem that promising to me. I'm uh so i I guess I I I mean if Peter
T was behind you and he probably he already had some connections.
Maybe that gave other investors confidence, but what were they investing in?
I am not sure.
I I guess the honest answer.
I think more than anything
F first of all
I mean, just to give you a sense for the success rate of these pitches.
We ran out of venture capital kind of the sandhill road.
classic blue chip venture capitalist community.
Very quickly. I think we were roundly rejected by one hundred percent of those pitches. We drove up and down Sand Hill Road and
Got absolutely nothing. And then we started pitching people kind of
In the
outskirts of the broader Silicon Valley.
place called I think it was called Red Roof Ventures or something something red rather and it was a very long drive. And Peter first drove me around because I didn't have a car.
And um
this was a particularly memorable meeting because these people basically threw us out. They're like, this is a stupid idea. We don't understand anything about it. We know we have another fifteen minutes in the clock, but you're wasting your time and ours too. So please leave.
And so we we were not successful even with Peter's cachet. And so we we pretty quickly into these like friends and family.
wealthy people Peter knew
and maybe raise money for his hedge fund. And so th this was definitely not a professionally sourced seed capital, nothing like today.
Alright, and and this company that you launched was was this was this the company that you called Field Link?
The the very original name was Field Link because the idea was you would have all these salespeople in the field.
And they would have secrets on their palm pilots and you would have to encrypt those secrets.
That was the uh the encrypted field link. And then
That was kind of an awful name.
even by my unsophisticated measure and so I decided I wanted to give it a new name.
I spent a lot of time thinking about it and came up with confinity, which was confidence and infinity combined.
And I was very proud of this. And then I pitched Peter and he was like, sure, whatever, like we have bigger problems, we need to raise money.
And then I told someone else and they're like, oh, like a long con.
Like, okay, you're gonna sell me security software by company.
with the word con in it. That's terrible.
And so we kind of knew from day zero that Confinity wasn't gonna last, but uh that was the placeholder name for a while.
Uh but but I think in in any case you you
at this time do get some funding from from friends and family, and I think you you managed to hire your friend, uh from the University of Illinois, Luke Nosick, right? Like to to come out and help you. Yep.
And did you get office space? Did you like get rent a a a place and and
you know, put computers in and get a fast T one line in and
Start.
You know, clamoring at the keys on the on your computer.
Basically.
We got our first office for this newly renamed Confinity.
On University Avenue.
Which Peter actually placed at the time
a lot of significance on like having a cool address. Like you don't wanna be in some
Random.
Crappy.
off the grid office. You want to be on University Avenue because that signals that you're important. You're you're in the mix.
So we got that uh three ninety four university.
uh suite two.
And we had
A bunch of IKEA furniture that we self assembled.
And we started typing. And and at some point
I think pr pretty s soon after, Peter Thiel uh
He
he became the CEO of of this company that you started. Did you ask him to be the CEO or or did he sort of say, you know, I I should I should probably be the face of this thing'cause
I'm a little bit better at presenting.
Uh it was very much my uh my effort. I I remember
Talk to him.
Toward the end of ninety eight, I think I was
paying off a parking ticket. He made me get a car because he was tired of
driving me around. So I had to uh
buy a car and Luke had to be my co signer because I had no credit.
And so I I promptly got in my first parking ticket and so I had to
go to the courthouse in Palo Alto, I think, or or City Hall or something like that, to pay off my ticket. I was standing on the steps of City Hall.
Basically telling him about yet another failed attempt at fundraising and
The fact that
I really should just be writing code.
And
He was telling me like, No, no, no, you're you really should be recruiting your friends from college. Like this will not work out if it's just you writing code all the time. You must know some smart engineers, go get some. As we talked, I was sort of like, You clearly know what we should be doing as a company, and I just want to build this thing.
Like, maybe you should be the CO. And I sort of said it out loud and he was like, uh.
No, that's a terrible idea. Like I don't want to do this. I have this fun. This is doing really well.
And I sort of like, No, no, no, that's exactly what you need to start wanting to do. And so I went into this
mode of must persuade Peter Thiel to be the CEO of this company.
So Peter is a CEO.
And you are
Presumably the the head of technology.
And you're
You're you're s trying to develop this.
you know, this crypto
um software that will encrypt
Data between palm pilots.
But at some point clearly this shifted to a completely different business. So
T Tell me about how you came to the realization that maybe that wasn't the right
Thing to focus on.
So the the sort of the backdrop
Peter and I and Kenny and Luke.
our whole kind of roaming around Silicon Valley trying to see if there's demand for the software that we're building.
Right. And it's becoming clearer and clearer that there really isn't.
And we there's no nicer way to put it, that no one really cares.
And I remember talking to uh
Jeff Hawkins who uh created Pompilot.
And his executive team.
And they're like, uhhuh, yeah, you know, security, like we we totally thought about it. It it'll it'll get on a roadmap one day.
But it's a consumer product right now. It's like address books and like nobody's clever enough to steal things through these IR beams. And I can show you a demo where I can do that. Yeah, but you're like a weird kid who wants to steal things from IR beams. And so it just wasn't really
Of value.

to the market. And uh we basically shifted
kind of back to the brainstorm mode where
Scott Bannister and Luke and Peter.
and Reed Hoffman, who was Peter's friend from Stanford.
and a handful of others would just stay up really late at night and brainstorm
You know, w what else can we do with this tech before we call it a day?
And
Reed was one of the more prescient
Green.
who was sort of like hey
you can secure other things. Maybe you can like secure invoices or secure IOUs or
You know, secure something that kind of is valuable in and of itself.
And that kind of pushed us close enough to this idea of an electronic wallet. And then that was a very short throw from that to well, what if we just secured money?

And that that's kind of the the starting point of APL.
Reed Hoffman, who's been on the show f was on the show a few years ago, and um and if you want to hear a story you should go back and and check out that episode who he went on to to found.
LinkedIn. Um
Was he kinda just hanging out as a friend or was he
Did Peter like bring him on as an employee of of this company?
And he was running this company called um
Social net, I think it was called, and it was failing. I actually remember visiting Reed at
his company and it was like one of these
stark kind of a visuals. Like I I'd already failed four times, so I was perfectly comfortable with failing companies.
But I'd never seen a large scale failing company. And I walked into this office and it was dark. It was middle of the day. And it was just like no people there at all, lots of desks. And I was like, wow.
This is so depressing.
And that's when Peter sort of said, Look, you should
join her board and maybe she join our company. And so eventually Reed, of course, joined PayPal as a full time employee, but at the time he was a board member and so he was
Mostly hanging out with us and brainstorming.
And so you begin to kind of pivot into
into this idea that maybe you should focus on in encrypting
money transfers. Is it is it a year before you you you make that pivot, or is it faster?
Fast true.
I think by
kind of mid spring, late spring ninety nine.
We were
Full steam ahead on we're gonna encrypt money.
And you and and you changed the name to PayPal at that point.
Yep.
We well, we started the name change process. We s it took a couple of months to get there.
All right, at that time in in this is n n nineteen ninety nine, your PayPal
It's not yet.
PayPal that we would know of as PayPal. It's still the concept is still
Like
If I were just I don't know, if I was just meeting you at at a at a party somewhere and I was not a tech person, I'd say all right, well what are you working on? Explain this


First of all, he would have walked away thinking, wow, that guy's a nerd, he cannot explain what he works on, and boy is he awkward.
Um so I'll I'll try to do a better job.
I I'm not gonna channel my uh twenty three year old self, otherwise it'll it'll just be long and boring and awkward. But
The story I would use is like hey, so imagine you and your best friend are going out to dinner.
And
Who anyway carries cash these days? Cash sucks. Nobody has cash. Nobody wants to have cash. Nobody carries cash. Nineteen ninety nine. We're all carrying cash. Of course. And yes, I I frequently would get called out like what are you talking about? I have cash in my pocket. Do you not have cash in your pocket?
I say, Well, what if you don't have cash? Well what if you forgot? What what if you need to split the bill? What if it's a business dinner and it's like three people, it's complicated.
So what you need is an IOU, but IUs are super awkward. You're not gonna write them down.
But if you have a palm pilot and they have a palm pilot
You can just beam them.
Essentially a promisory note.
that compels you to pay them back if they cover dinner.
And and the promissory note would be tied to your bank account?
It would be a cryptographically secure.
message that you could later on
connect your pump pilot to a computer
the message would automatically get processed and then it would go against your bank account or your credit card.
Oh wow. Okay. I like that. That's cool. You're very generous. Yeah. No, I like it. I like it'cause you know why you know why I like it? Because I know that there's still people out there that probably owe me at least a hundred bucks. They're like, Oh, pay you back next week.
You know, you paid for somebody's movie or something. I'll I'll hit you up later. But I don't remember and I'm sure I owe people like a hundred, two hundred bucks too.
So that would have been great. There you go. And presumably the business model w would be around taking a fee. Yeah. Every time the money got transferred. Okay.
But at that time there were other products out there. There was something called DigiCash, I think.
Right.
There were
Companies that were focused on
you know, ways to transact and and send money back and forth
In an encrypted way.
So didn't they already solve the problem that you were trying to solve?
I think they
Thought they did.
But
Actually, funny enough, one of my more memorable Silicon Valley inaugural moments, I went to the DigiCache.
Shutdown party.
Okay.
They started this company, it was really well funded. It was supposed to be the digital currency.
And it just completely died and like it didn't succeed in in the market. So I actually went to the party where they wound it down. It was on Stanford campus of all places kind of outdoors around this picnic table and
They asked me like who are you and what are you doing here? And I was like, Oh yeah, this idea of like moving money through Ether with digital signatures sounds so cool. And they're like, Oh, it's a terrible idea. We just failed at a company doing this.

But the reason all the prior experiments failed is really easy to summarize. They were just entirely user-un friendly. They they were awfully difficult to use as a consumer. And
If it's
Not easy.
It's just not gonna work with money. Money works pretty well when it's in paper form and it works really well when it's a card form. So if you're trying to push it into an application or into a mobile device, it better be easier and quicker than the existing systems.
So how are you guys gonna solve that problem? How are you going to make this
you were gonna basically make it so easy that you could just beam
A digital promisory note to someone else at the dinner table and then
that would be it. They connect to their computer and then it would connect to their bank account and then they would get the money deposited in their account.
Yeah.
I remember uh
Literally.
Drawing.
Buttons.
Like special on screen buttons for the Pump Pilot app that we built.
To be more
Bubbly. Like
like b buttons that look like they have three D to them to make them friendlier, to make them look like it's easy and inviting to tap the amount of dollars you get a beam to your friend.
'cause I wanted it to be friendly and easy to
Trust and and consume.
But what what I'm trying to figure out is it doesn't I mean, it's still there is still friction there. Like you you gotta beam the thing, then dock your device, and then probably connect to the
Like it doesn't sound like it was a seem it was gonna be a seamless process.
But this is maybe why you have not most likely used the PayPal.
On your palm pilot.
The the the simplest user interface always wins.
So
November ninety nine.
PayPal sort of begins operations.
What as a consumer at that time
What did that mean? Was it a website?
Or was it still focused on
Doing it through palm pilots.
So it was primarily focused on upon pilots. You would go to the PayPal website and you would see that you can download
This
application compiled for your pump pilot.
And because not everybody had a pump pilot just yet, you could do cool things like hey
I will promise you to pay for my Pompilot.
But you don't actually have to have a Pump Pilot. It'll just reach you via email and then you would sign up, create an account.
So it we kind of made it cross.
Compatible
Palm to web, palm to palm.
And as a a footnote, we had a web to web.
with very much a demo quality product that I threw together to just show how this works if you just don't happen to have any palm pilots around.
And it's that demo that took off like crazy.
So initially the idea was it was peer to peer, like
I send you money, you send me money, promise I know.
And and by the way, I imagine that
'Cause e commerce really took a long time for e commerce to take off.
for people to trust it, you know, seven or eight years.
So it still when you launched it, it must have been a tiny number of people who were like, Yep, I mean it must have been really like
early adopters who were confident and and felt secure with this.
Yeah.
One of our very first engineers, Russ, made a screen saver.
That
Was just
floating this number on a screen that showed how many users we had.
In total.
Who would ever sign up?
And he was like seventeen.
Seventeen.
If I could go home, come back the next morning, but still seventeen.
So it was growing about that fast.
When we come back.
How in the space of a year
PayPal goes from 17 users.
to hundreds of thousands, and how in the space of three years?
It goes through a merger.
A management shakeup, an acquisition,
And an IPO.
Stay with us.
I'm Guy Raz, and you're listening to How I Built This.
Hey, welcome back to How I Built This. I'm Guy Raz.
So it's nineteen ninety nine and Max and his partners have built a new peer to peer payment system soon to be called
PayPal.
And almost right away.
The service starts to attract one very important user group.
People who use eBay.
Back in ninety nine.
There really isn't a way to
take a credit card payment online if you're trying to sell things.
For a business, there are a couple of companies that
Kind of provided that service.
But
If you were a like a normal person just trying to sell something on eBay,
It was not a thing. Like you could not sign up for a business account and process credit cards.
And PayPal was this peer-to-peer system that had a web only interface, which we made as a demo.
And you could just tell somebody, hey, type in your credit card number and I will
Charge your card as many dollars as we agreed.
And
It was like
had had an effect of a a minor explosion in the eBay community.
And I think we should be clear here, which is you
You'd mostly created this thing to be used to
I mean, I think it's not a good thing
But but where the explosion was happening was on the web.
Right. So I mean so the web version
that you'd originally launched almost as an afterthought.
I mean I think that ended up
Being like adopted by like
A hundred thousand users.
in January of two thousand. Yeah, that's right. And I think by March of that year
something like a million people were using PayPal. So how did it grow so quickly? I mean this is not
This is not a time where there's social media marketing, right? Like were you were you advertising or was it just
People discovering it.
So the
Ebay seller community.
It was unbelievably
self observing.
So anyone able to sell things on eBay with constantly
Optimized for selling things more and faster. People are starting to make careers out of it. And so the second a seller would see it.
on someone else's site. There's like, what is this PayPal button? Oh, you click on this and it asks for a credit card number. Like amazing.
And so that was a very important
Growth vector.
And then
Luke came up with the original viral marketing idea where he had said
Hey, what if we gave every new user who signed up
Twenty bucks.
But not just twenty bucks for signing up.

twenty bucks to the person who invited them.
And so college students in particular were I think going on these absolute benders of inviting their friends and
Getting us to give them
twenty dollars. But the eBay growth was entirely natural and it was really based on just sellers spotting other sellers using it.
I know you were focused on um on the technical side, but y you know, you were probably clued in to to all parts of the business.
How did you guys convince
the credit card companies and the banks to cooperate.
Some combination of
Asking forgiveness versus permission.
And
Just the overall naivety and
headiness of the time were
We showed up and said, Hey, we're gonna do this and we promise
nothing really bad will happen. We'll do just enough KYC to make sure
There's no money laundering and bad people doing things and
They've sort of said, Okay, well
I guess.
Commerce is good. Credit card processing is good. We like it.
But keep in mind this is pre nine eleven and the world is very, very innocent relative to today back then. This is a
This is before Patriot Act, before extreme
Focus on things like
money laundering and terrorist financing, et cetera, et cetera.
But
One of the biggest challenges you guys face at the beginning w w once you launched was fraud, right? I mean they were I mean the company was like losing millions of dollars a month from
Prosters um who were who were
trying to f figure out how to out wit.
The system.
Yeah, we we started noticing kind of all these
Maybe illegitimate transactions, maybe people kind of
buying things from themselves and then taking the money out of the system. And then we'd realize that oh the credit card they use was actually not theirs. It was stolen.
And then
It just hit very, very hard sometime in April of Two Thousand.
we saw just this enormous attacks primarily from my former homeland, uh, or generally region, like all the sort of the eastern bloc countries.
basically realizing that this is a
very loosely secured financial system at the time.
the sort of idea of securing private information, things like payment credentials and
what's now called PI personal identifiable information, was really in its infancy. And so
Bye.
Mid
June.
Yeah, I think I was starting to sort of
Become aware of the fact that we're probably losing tens of millions of dollars to these
fraudulent activities per quarter. Wow.
Yeah.
Alright, so
As as you start to see more and more people adopt this thing.
And I don't quite understand this part of the story I I uh and and what what was going on, but
There was a another
I guess competing company.
that was founded around the same time called X dot com.
By Elon Musk.
We all know who he is.
And
Um, he was
trying to do I guess a similar kind of thing.
And uh and I know this'cause'cause Jeremy Stoppelman, who went on to found Yelp, and we'll get to that later and Jeremy's been on the show in the past. He was working with Elon.
And and to to him
Paypal, you guys were like the enemy.
It was it was a battle to the death.
I but the the two companies merge in March of two thousand. How did that marriage happen? Who
Wh what do you remember about that?
Definitely uh
a long and uh
Winding.
Sorry.
So the very short version is not only is X.com extremely concurrent.
to
Pay pal.
It's also literally in the same exact building.
We were three ninety four university.
Sweet two. They were sweet one.
Which we did not know about and well, we realized that our number one competitor was literally our next door neighbor.
and that had the super charismatic guy Elon Musk running it. He'd already sold zip to and so he was both successful and wealthy, and he had succeeded in pitching Sequoia Capital.
And they came at payments a little bit after we did, but they had some really good ideas that we didn't have so
Very quickly we start just
looking at each other and going, oh that's a good idea, we'll copy that and and vice versa.
And we were in a market just
beating each other up as hard as we could, primarily by way of offering more aggressives to eBay sellers and buyers to join. That's when the the intensity really goes up in like late April, early May 2000.
And
As this happens
Elon hires this guy, Bill Harris.
To run
X.
And he was one of these guys who could sort of see one plus one equals three.
obviously these companies need to merge instead of beating the crap out of each other in the market.
And so he was kind of the primary force behind that merger.
You guys are mortal enemies and all of a sudden
You become

You know, X dot com and and PayPal are
the same company. Um
D w did you do you remember just thinking, Wait a minute.
This is crazy.
Do you remember how you felt about that?
Um
It was definitely
A little bit of a
adjustment, if you will, in terms of
I mean, we by by then we knew some of the main characters and I'm sure they knew us and so we'd sort of
Yeah, appropriately demonized them and made ourselves to to hate them.
So we we have to kind of get to know these people that we merged with and
adjust our thinking from one of us will die to uh actually we need to make it work now.
It wasn't without tension. We definitely some uh interesting, very loud debates between engineering teams on religious matters between
Window and Unix, but uh it it actually
I I I remember it kind of feeling
Initially very awkward and then not feeling very awkward very quickly.
Was there was there kind of relief about that in a sense it instead of competing against
people like Elon and and his team
That you're
Now all kinds of
you know, harnessing your collective power.
Yeah.
Think so.
My main concern at the time, I think Peter's as well.
Was this notion that it was just so completely irrational for these two companies.
to try to kill each other while the opportunity was so vast. And there were plenty of other competitors, including huge banks, that were saying, Hey, you know what, we're gonna get into payments online too.
And just the the ability to tell capital markets, hey, there's there only one bet you need to make, there's only one company you need to consider funding, etcetera. That that was
Extremely productive.
Well when when the two companies merged, how do you this is around
sort of mid two thousand. Do you remember how many employees total now?
this merged company had.
I would say on the order of a couple of hundred in aggregate, maybe less than two hundred, but not a lot. Okay. You could definitely know everyone. Okay, so you knew everyone.
And then
Pretty soon after the merger.
Uh Elon.
Come on.
becomes a CEO.
and you're in the number two position as CTO.
So how did you find uh

S
combination of amazing and infuriating.

Yeah.
He is very smart.
Ye can
B.
extremely charming and
loves debate. He he has an engineer's mindset. So it for an engineer, which I certainly am
It's a
Great.
person to agree or disagree with because it's always rational. It is never, well, you know what, I have a
I've made a decision and uh now we're gonna go left.
which I think a lot of engineers find extremely difficult to work with.
He and I disagreed on about a million different things, but the debate was always
intellectual and
Civilized.
Did did I mean it you were younger, you're younger than than Elon and Peter and and did you
Were you comfortable with with sort of him
you know, kinda running the show and and from what everything I've read about, and there's a new book of course about
PayPal and all all the people who came out of out of it. Um
was that he really kinda saw this as X dot com was the sort of the the senior
partner in this relationship and he was the boss.
Yeah, if if I'm entirely honest, uh, it was never
Entirely.
The perfect arrangement for me.
Up until that point, I'd never actually worked for anyone in my life.
That's it.
You know I I had never
felt a moment of
Disrespect.
or resentment towards Elon, in a sense that I'd I'd always found him to be
Incredibly impressive.
And
intellectually honest. And so I didn't
Enjoy.

The now do it I say.
But I did not question
The
capabilities of the person saying it.

Um, I mean clearly there were tensions growing within
PayPal. I mean Peter Peter was out of the picture kind of. Um, you were still there.
Um and
October of two thousand Elon Musk becomes the CEO
By the end of that calendar year.
Uh the board ousted him. They fired him.
Uh, what do you remember about that? I mean he there it was this was not a personal thing, or maybe it was, but it was from what I understand, it was really
just a fundamental difference in how to operate.
the company.
Yeah.
Um
Yeah, I I I remember plenty since I was very intimately involved. Uh

It it's fairly hard to unpack, I think, to the sort of
Uninitiated, I guess.
On the one hand, there's all these raging emotions and you hate each other and then you merge and it's a fifty-fifty merger, which means just no one knows who won. And that that's by the way, sort of the the root of all
complexity at PayPalX dot com story is that because we sort of settled on this while
There's not really a senior partner, equity's just sp split evenly.
There was no sense of well, who gets to pack up and go home, basically. And so a as this sort of thing unfolded and unfolded and unfolded.
The emotions ran very high and people were meeting clandestinely in coffee shops.
But it it was certainly not personal, in fact.
What are the sort of most telling
Things about Elon.
Is that after
the board coup essentially left him.
Without the CEO job.
Uh he wanted to meet one on one and sort of he and I met
But
parking lot of of PayPal.
And
He starts that on the curb.
I I didn't doubt the validity of
What just transpired, but I
felt incredibly sad for him and all he said, like why did you do this?
So you know, I it just seemed like the correct thing to do for the company and I'm really sorry.
The way it all went down.

I understand, but I don't understand. And uh
Then we didn't speak for a few years.
Except for for formal interactions on the board.
He stayed on the board and it was extremely awkward to be in board meetings with Elon where he would sort of
Sometimes glare at me as I would.
Same thing all here. But uh
And then PayPal went public.
And he took me out to this extremely nice dinner and I sort of like
Where's the grudge, man?
Exactly
Ah, what's the point of holding grudges?
Yeah, it ended well for all of us. It's all good.
Hm.
Well uh I'm curious.
Max, what what was your lifestyle like?
I mean it
I mean it seems like it was such an intense period. Like I I've read about
like how you would s you would sleep in in your office, like under your desk or or like in a sleeping bag. By the way, did you did you do that often or was that
Was it sort of like o off and on again?
Uh
I
Did it quite a bit. I I will have to admit to this.
I had a very strange lifestyle which
In retrospect probably.
took a few years off my expected lifespan, but uh
Certainly slept in the office.
Restron downstairs from our second office.
And I knew that it would close at ten PM. And so the
nine fifty eight and a half minutes I would sprint down the steps to just get under the door of this restaurant and get my first meal a day.
And so on. So th this was definitely extremely unhealthy lifestyle. But
I
Needed the time to work.
Tell me a little bit about the
I mean I I I think
One of the benefits of
early success but also downsides is
You get um quoted.
when you're young. And I you know, I have some of that myself. But um so
So you know, I've I've read quotes
Or articles about this time.
at you know, PayPal and it sounds
I don't wanna caricature but it sounds like a little bit of a frat culture, you know, and I know that you didn't
One of the things that you did not want, I think specifically were quote unquote fret boys, but
There was a kind of a
a confrontational style and uh
And this expectation to just
Fully.
like live this thing all the time.
Or is that is that not accurate?
I think there's some truth.
To it and some misunderstanding. So you're totally right. One of the interesting accusations that sometimes is leveled against the early PayPal crew is that.
It was
this idea of a frat culture, it's actually quite the opposite.
If anything, we were screening against.
This idea of sort of self righteous privileged
Person.
Who would come in and
Assume they're right.
We wanted to have
Extremely honest.
Like w one of the thing that was
really telling about the PayPal culture, we would sometimes
Slow down.
A release or a feature or even a a decision because we wanted more debate.

That said, it did lead to some extremely intense personalities and
Blow out arguments and people.
shouting at each other.
The thing that's really, I guess, important to understand is
There were
On my memory at least.
Basically zero.
Personalizations of these debates. Somehow we all respected one another.
Enough to never say and and
Therefore you're stupid.
How did how did PayPal survive the dot com crash?
Of two thousand, two thousand one.
That squarely goes to the brilliance of Peter Thiel in his uh
Who became the CEO, I should say, after Elon was ousted.
So Peter
has this unbelievable ability.
to sniff.
market crashes in the air as they approach.
And I remember him telling me
It's all going to
get very ugly for startups. Like we're we're going to have to raise money. We're going to have to be
paired financially and he went on this sort of a quest.
of fundraising, but it was very rough.
one of the more stark visuals I have from those days.
The cafe.
where Peter and I
with hang out and like some of a more important recruiting pitches took place there and some important negotiations took place there. It was suddenly closed. It was boarded up.
And then
all these other shops in Palo Alto were closing up because the startup ecosystem wasn't really around anymore to support them.
Well.
So you you guys had cash on hand because Peter had raised that money which enabled you to survive it.
Yeah.
Um
Alright, so now um Elon is out.
It's two thousand one.
Peter Thiel is CEO again.
And
Um
And PayPal is is is is growing. I mean you're doing fine despite the the sort of the
Collapsing tech world around you.
It felt okay within PayPal. There was no kind of
Nervousness or panic?
No, I think we were too busy.
To be scared.
I I would love to
Tell stories of existential dread, but I think my primary
concerns were
Can we keep the site up?
In two thousand and one for me
was largely a year of
Trying to scale this thing as it was just
blowing the doors off with its growth. Every week the growth would just be so much more than the systems could handle. Every Monday when eBay auctions would settle.
This would just go down for multiple hours and at some point our head of
database scalability.
who was also a very accomplished blues singer and guitarist, brought his guitars.
to the office and would play the Monday blues because we all knew the cyber crash. And it it was this surreal thing. And and then he would come back up and we would
And
CNN would write a story about how PayPal goes down again and it was just this thing that would repeat itself. And so as the world was burning in terms of startup, you know, in two thousand and one.
I was just trying to keep the thing going.
The company went public in
February of two thousand two and I think on on like day one the shares were up like fifty five percent. It was amazing.
debut um on the Nasdaq.
D when it went public you were a CTO, Peter was uh CEO, I
believe. Did you
Did you envision your future? I mean you were still
Twenty six, twenty twenty seven. I don't mean, you know, you were
Very on.
Did you think that
Uh this was the beginning of the end for you, like you were now
sort of mentally moving on to something else, or did you still see PayPal as your career?
I was definitely
Not thinking any of those thoughts. I I was still very much in the execution mode.
I I remember s sitting down and thinking, Okay, so now
I'm at least on paper very wealthy.
but I'm still working just as hard. Like I fell asleep in my car.
Right before driving home and then woke up four hours later.
try to figure out where I was. It's like nothing's changed except we're now publicly traded. How weird is that
I I knew that something was gonna change, but I also just
was so busy in the the war with all the various competitors and eBay was trying to shut us down while also trying to sort of cooperate with us because their seller ecosystem depended on us so much. But the thing that I started registering is that the team
was very tired and kind of the the the reason ultimately eBay
was able to acquire us is because the team
was so
overloaded over the four years of of previous life.
Alright, we know that eBay would acquire you just a few months after you went public, but
But
What you just said is is also just uh unbelievable, right, which is
eBay was trying to shut you down.
Explain that. W why?
Um so in the
I don't remember who came up with this uh metaphor, but it's a good line.
So someone I think from eBay said
PayPal is throwing a party
In eBay's backyard.
In charging attendance.
And I think that's pretty accurate in a sense that we're providing a service to
А мільян плюс і бесер.
helping them collect credit cards online.
And charging them.
What we thought was a fair price for it.
eBay did not have a revenue share arrangement or just a service available to eBay sellers and buyers.
Except they had their own service that they had.
fully acquired or acquired and then built up.
called Bill Point, right around the same time as PayPal was founded.
They had tried and tried and tried. They they did all sorts of really
kind of obvious.
Things like
Hey, if you use billpoint, it's free for six months. And then you have to turn off PayPal and

Reed Reed would send a note to the general counsel saying, Hey, I just received this disturbing email in my inbox. It this seems to be prime for uh you know antitrust investigation just saying.
And so it was kind of a race which they should have absolutely won because they had a
product that was supposed to do what we did.
That they owned. That could be built in.
You know, could be promoted much, much, much better than we could.

They could have completely crushed your bottle. They could have said we can only use billpoint on eBay. Uh and they tried it various times. And uh
PayPal.
Fans.
in the cellar base basically protest it. And eBay was always very, very careful
Not too
Step
Um
So their sellers toast too much because that's where all the revenue came from.
And I think at the time they were
very concerned that if payable were to get turned off.
Commerce would slow down and eBay would make a lot less money.

So even after you went public, you kinda depended on eBay, you needed eBay. You needed to keep them happy, but she also knew they didn't like you.
And presumably you had to start thinking about diversifying your
Revenue streams,'cause you were so dependent on eBay and and you're a public company and your share price would have tanked if eBay kicked you off. So
W what did you s I mean, what were you guys doing to prepare for that possibility?
That was the great uh unspoken
Or maybe spoken in in the papal halls.
Concern.
So we were the first thing very rapidly. We were
Going international, we were trying to figure out what PayPal offline looks like, so maybe you could go into a
Best buy and use PayPal to buy things.
from the shelves instead of from the virtual ones.
And signing up all these partners outside of eBay, and yet eBay itself was growing so quickly.
all of our attempts to diversify away from the dependency on eBay volume.
kind of futile. Like imagine you have a company that's just
growing a hundred percent year on year.
And you're providing payments.
you better find something that grows even faster and there wasn't a whole lot.
Like that going on. Yeah.
I think one of the things that sort of prepared me for
Life of an entrepreneur after
Was this
multi year period where
On any given day.
we expected eBay to call us and say, okay, you're done.
Get off. We don't mind losing all the volume because we're ready.
And we had all these
double secret and triple secret plans of what we'd do then.
But in reality we all knew that
this would be pretty catastrophic and so
Brace for impact correctly.
I mean what an incredible
opportunity that you had at such a young age to experience that kind of uncertainty and volatility.
Because that was gonna serve that w obviously would serve you well.
as you as you advanced in your life and career, but
I mean it's almost like
Um
you know, business school class except
consequences are a little different. You're not gonna get a bad grade. You're gonna lose all your money.

Yeah. Uh I think the
Backdrop of
coming to the US with nothing, just trying to survive as a
Multi time start up failure.
Once you get some barnacles of good life on you.
That's when you start getting scared until you have
Something to lose.
It's not that scary to to be in this
Permanent concern state.
Like I I certainly remember being really scared, but
Not so scared that I would
Go.
Height or something like that.
Hm.
Um
In two thousand two.
Right.
When when eBay announced that it was
Acquiring PayPal.
Uh I mean clearly you were clued in on this'cause you were part of the leadership team at PayPal
W was that surprising when they came and when they said, Hey, you know
Uh m maybe we should maybe we should just acquire you. No, actually it was kind of the opposite of a surprise, in fact.
It was becoming very, very clear that
they were completely dependent on us at this point. And
Every move they would make.
Was just another
Point of proof that
We were succeeding.
in their own internal systems was not.
Sure enough, this is well before the IPO, they came to us and said, Hey, how about we just buy you guys?
And
So of course initially we just said no we're we're doing fine thank you very much then they came back again.
And the sort dance began and
R right as we file to go public.
They came in and said
Hey um
We'll uh we'll buy you, don't go public.
And we we said no.
And
Peter said, Well, I think this is the last time. I really don't think that they're gonna come back after we go public. By the way, PayPal had a an amazing betting culture. We would bet each other all sorts of things all the time. But um I bet Peter a dollar that they would come back in
Less than six months.
And
I think twice the amount or something like that.
And I won one half of that bet. It took longer than six months, but
the evaluation was in fact.
dictated by the market. So it it was better than better than two X.
Yeah.
They paid one and a half billion dollars.

PayPal, they acquired PayPal in in October of two thousand two.
You're twenty seven.
You walk away with.
On paper.
Something reportedly about thirty million dollars. You're set.
Yeah.
And I left uh
A few months after the acquisition.
Um
But
I I read that um there's an article that was written in the Times about you in two thousand seven um and and you
You've been quoted in that article saying that the year a after
eBay purchase PayPal is the worst year of your life.
Tchau.
Which which that sounds nuts, right? Because you're you got all this money and
You're young and you can do whatever you want.
Um, I think you had a girlfriend at the time who's now your wife.
What
And I don't I'm not asking this like with a sense of judgment, I'm just curious.
Can you explain how that became the worst year of your life?
I think it was the first time when I had
No.
Clear.
Which
quickly became
No clear sense of direction.
And I would literally wake up in the morning and
Set.
In the PJs that I slept on my newly acquired couch, I would flip open a laptop and
stare at it and think, I'm gonna start a company. That that's the only thing. That's the only thing I want to do.
And then I would just sort of sit there and my girlfriend would go to work.
And then she would come back and she would find me in the same place and
And it went on for a long time. And it was sort of a
I you know, I'm I I'm not sure that qualifies for depression and I I have a lot of empathy for people who actually do suffer real
Mental health issues, but I'm not sure.
That's about as close as I came to
Just spinning out entirely mentally out of control and
That that was a long year.
W why didn't you um go I mean a lot of a lot of the
Folks that you worked with.
When
into investing. I mean obviously Peter Thiel m
Famously most famously. Um
Did you try that at all? I I did.
This is this part of the story I don't know if ever told anybody.
So
Rolof, who is now of course a he's the mist Mr. Cigar Capital at this point. He's kind of the the front man of the band there, invited me to spend
Some number of months, maybe more.
It's a great capital.
Rulf was your he was your your your head of finance, right? At PayPal. Yeah, he was our CFO.
So I started going to Sequoia every day and it was great. I started sitting in on pitches. So I would meet entrepreneurs that were kind of like me.
But
Yeah, four years prior.
And then I start noticing that
I was really good at ripping into people's ideas. They would bring in this really cool
concept. And of course it was half baked. It was just, you know, some
Right, I kid.
Freshly
out of college thinking about here's what they're gonna build.
And I would immediately explain to them why it would fail.
And I gotten so good at stabbing them in the heart.
That one day I went home and told Nelly my my now wife
I don't think I can do this. Like I've I've become so cynical. I'm now taking out my anger about not being in a startup.
on other startup founders.
You you were quoted at the time and I'm sorry to to read this quote to you,'cause again, if I was quoted when I was twenty seven, I was
Oh, he said some stupid things, I would be embarrassed, but you said

I took this perverse pleasure in seeing if I could make someone cry.
Which does sound a little bit mean.
Yeah, I I am not sure I was very nice at all at that time.
And you think they came from this this place of like
I need to be doing this. Why am I not doing this?
In retrospect, it was probably just envy.
I wanted to be defending my idea against all
Enemies foreign and domestic.
I want it to be them.

That's PayPal co-founder Max Levchin.
You can find part two of our conversation in your podcast feed where you can hear all about the businesses that Max built.
after leaving PayPal.
That was sort of this moment of truth where I was like, Oh, I know
the class of companies I'm going to start. And then I showed to Ellie and she said, you you f you finally figure yourself out. Just give yourself permission to go build something that's like another PayPal but better.
Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in new ideas, insights, and lessons from some of the world's greatest entrepreneurs,
Sign up for my newsletter at gyros.com or on Substack.
This episode was produced by Alex Chung with music composed by Ramteen Erablui. It was edited by Neva Grant with research help from Claire Murishima. Our production staff also includes Carla Estevez, Casey Herman, JC Howard, John Isabella, Chris Massini, Sam Paulson, Carrie Thompson, and Elaine Coates.
I'm Guy Roz, and you've been listening to how I built this.