History of Famous Startups. PayPal

much more prominently—and

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much more prominently—and we had all these other ideas that we wanted to
do, which we later on threw out. But we started the board meeting basically
saying, “Hi, John. Hi, Pete”—the new VC guys—“We changed our business
plan.” And these guys were like, “What?” They just put down $4 million to see
something happen, and we said, “Sorry, we’re not going to do that; we’re going
to do this.”
To their credit, they were like, “All right, you guys are smart. Let’s do it.”
Usually VCs get freaked out by that, but these guys were like, “OK. You’re so…

Max Levchin 15

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Max Levchin 15
pack up and being replaced by these people that you’d fought all this time with.
The mothership has capitulated, and they’re replacing us with the people we’ve
been fighting against.
Livingston: What can big companies do to preserve a startup culture?
Levchin: I don’t know. Less PowerPoints. I think PayPal—even by the time we
were acquired—still felt really startup in a variety of ways. But not as much as
originally. People were definitely grumbling about how the startup culture was
being lost, even internally. But then, when we got to eBay, which was three
times the size,...

to prepare much

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to prepare much more thoroughly. The whole boy-genius thing had to be discarded
for the much more serious attitude and language.
Livingston: Looking back, is there anything you would have done differently?
Levchin: No.
Livingston: You didn’t make any mistakes?
Levchin: There are all sorts of tactical decisions that we made here and there
that played out to be wrong, but it’s not like I could have predicted it. It’s not
one of these things that I’m now smarter and therefore I could have done it
even better. I think, given the information available at the time, I would have…

Levchin: There are

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Levchin: There are different segments to running a startup. Different people
taught me different things. A lot of the top management people at PayPal were
really good. It was very fun and meaningful to work with them and pick up their
various interests and skills.
I never really paid much attention in college in econ, and I never really took
any accounting classes. One night I came over to our CFO’s office, and I said, “I
really don’t understand a lot of the balance sheet math and all this stuff. I’m
pretty good at math, so I should be able…

are doing it

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are doing it completely alone, it’s really hard. It’s not impossible, in particular if
you are a loner and introverted type, but it’s still really hard.
One of the ways PayPal changed me is that I used to be really introverted,
and I sort of still am, but not anywhere near to the extent that I used to be. A
big part of it was that I had run a company before PayPal, alone, and I thought
it was fine. I could deal with it. But, you only can count on energy sources and
support sources from yourself. There’s really…

20,000 new active

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20,000 new active users every day. The transactional growth is exponential
because people are sticking around. It’s not like people came in, did one thing,
and left. They came in, did one thing, and stayed. And they kept doing more.
Livingston: Was the growth viral?
Levchin:We built the system to be viral from day one. The idea was: I can send
you the money, even if you aren’t a member. If I send you $10, you get an email
saying, “You have $10 waiting for you. Sign up, and you can take it.” That’s the
most powerful viral driver there…

anyone with a

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anyone with a substantial public visibility announcing that they are suddenly
bleeding out $10 million a month in fraud would send serious shocks through
the investor base. But I think, even if they did that, it’s likely they wouldn’t have
been successful because—we had talked to a lot of them both as a potential
acquirer and as partnership potential—none of them had actually ever gone to
the sort of stuff that we did for our anti-fraud work.
Max Levchin 11
The default of how you do these things is very powerful, if you’ve been in
the industry for a long…

you are a

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you are a very safe user. But by then you are also not a user, because for
every step you have to take, the dropoff rate is probably 30 percent. If you take
ten steps, and each time you lose one-third of the users, you’ll have no users by
the time you’re done with the fourth step.
The point is, the startups didn’t realize there was this risk. We didn’t really
realize there was this risk component either when we started. But we were just
lucky enough . . . Maybe I should be thankful for that happy year of…

Livingston: Did you

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Livingston: Did you patent this technique?
Levchin: I didn’t really want to patent it because, for one, I don’t like software
patents, and, two, if you patent it, you make it public. Even if you don’t know
someone’s infringing, they will still be getting the benefit. Instead, we just
chose to keep it a trade secret and not show it to anyone.
After a while, IGOR became well known to the company, like all the other
tools that we had built early on. We had patented some of it, and some of it we
said, “OK, it’s open for wide…

then eventually became

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then eventually became the manager of the whole center. When the fraud
group operations moved to Omaha, that made it a lot cheaper for us to run. She
was working on the human management part—all the investigators—and I
would be supplying her with software. Between those things, we got fraud
pretty well under control in about a year.
Livingston: So the fraud solution was a combination of humans and software?
Levchin: Depending on who you ask. I think Sarah feels that it’s probably more
humans and the coders think it’s more technology. It’s one of those things
where, in the…