By Eli Levi, Business Editor
In December of 1998, Peter Thiel founded Confinity (a combination of confidence and infinity), which quickly transitioned into a money transfer company in 1999. Around the same time, Elon Musk was selling his company Zip2 and founded a new company called X.com, which was an online financial service and email payment company. Ex.com and Confinity eventually merged with Musk as CEO. Over the next few years, the company experienced multiple struggles and the board members decided to remove Musk from his position as CEO. Interestingly, even though Musk was not CEO anymore he was very invested in the company succeeding due to the fact that he was the largest shareholder in the company. In October 2000, Peter Thiel took over for Musk as CEO and during his time the name was changed from Ex.com to Paypal.
In February 2002, PayPal went public. During this time, eBay recognized that Paypal had tremendous potential as a market fit for their business model and acquired PayPal in an all-stock deal for about 1.5 billion dollars. When eBay acquired PayPal, eBay attempted to integrate PayPal into its existing product. This caused friction between the PayPal employees and eBay management and resulted in many PayPal employees deciding to quit. PayPal remained part of eBay for about thirteen years before Carl Icahn, an American activist shareholder with his own conglomerate holding company, pushed for it to be spun off into its own company again. In July 2015, PayPal became once again its own company ultimately being a great decision for PayPal.
Other than the creation of the company PayPal itself, there were other more important second-order effects resulting from the founding and eBay’s acquisition of PayPal. When PayPal was originally bought by eBay, it gave liquidity and capital to some of the world’s most influential and successful businessmen who would lead the future forward like Elon Musk and Peter Thiel.
The former employees, who quit after Paypal was acquired by eBay, were arguably the core of Silicon Valley and the whole startup ecosystem. Some examples of companies that were founded by former employees of PayPal include LinkedIn, Palantir, SpaceX, Yammer, Yelp, Tesla, and YouTube. Not to mention all of the companies that these former employees were either large investors or the earliest investors in such as Facebook, Uber, Airbnb, Pinterest, Square, and Stripe.
PayPal was integral to the startup ecosystem and was influential in creating some of the core principles used by startup companies. One example of such a principle is viral acquisition; Paypal was the first company to award money for users onboarding more users to the platform. Another principle is having one’s success be completely tied to the success of his or her startup. One of the things that tend to make startups successful is when the founders are completely dependent on their startup succeeding. The PayPal founders were all in on their company, so if the company failed the founders failed.
PayPal set the stage for the modern Silicon Valley startup. Through studying PayPal’s history. so many of the core pieces of founding a startup can be found. So much of our modern technology arguably came about because of the early employees of PayPal.