PayPal was founded...
PayPal was founded in December 1998 by recent
college grad Max Levchin and hedge fund manager
Peter Thiel. The company went through several
ideas, including cryptography software and a service
for transmitting money via PDAs, before finding its
niche as a web-based payment system. That service
became wildly popular for online vendors, especially
eBay sellers, who preferred it to traditional payment
methods. PayPal went public in early 2002 and was
acquired later that year by eBay for $1.5 billion.
PayPal was started during the Internet Bubble,
but it was in no sense a Bubble startup. Its success was a direct reflection of the
intelligence of the people who built it. PayPal won because they built a better
mousetrap.
With any new method of moving money comes new forms of fraud. In large
part, PayPal succeeded because it could deal with fraud—and its competitors
couldn’t. The software that Levchin and his team developed to combat fraud
runs quietly and invisibly. To this day, PayPal doesn’t talk much about it. But
Levchin’s software was just as much the reason for PayPal’s success as a more
visible product like the Apple II was for Apple.
Livingston: Tell me a little about how PayPal got started.
Levchin: The company was really not founded to do payments at all. My focus
in college was security. I wanted to do crypto and stuff like that. I had already
founded three different companies during college and the year after, which I
spent in Champaign-Urbana, where I went to school. Then, in favor of not
doing graduate school, I decided to move out to Silicon Valley and try to start
another company.
So I was hanging around Silicon Valley in the summer of ’98 and was not
really sure what I was going to do with my life. I was living in Palo Alto, squatting
on the floor of a friend. I went to see this random lecture at Stanford—given by
a guy named Peter, who I had heard about, but never met before.
The lecture turned out to have only six people in it. It was in the heat of the
summer, so nobody showed up. This guy was like, “There are only six of you,
OK.” Afterwards I walked up to talk to him. He was this really intense guy, and
he said, “We should get breakfast sometime.” So we met up the next week.
I had two different ideas that I was considering starting companies around,
and I pitched him on both evenly. Peter was running a hedge fund at the time.
For a few weeks we kept talking, and eventually he said, “Take this idea,
because this one is better, and you go start a company around it, and then I can
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