Meet the PayPal mafia

November 26 2007
An inside look at the hyperintelligent, superconnected pack of serial entrepreneurs who left the payment service and are turning Silicon Valley upside down. Fortune's

Max Levchin (left) and Peter Thiel hatched the idea for PayPal over breakfast.

Levchin runs one of the hottest companies on the web, a photo-sharing site called Slide that draws 134 million users a month.

Peter Thiel has a butler. The 40-year-old entrepreneur runs a $3 billion hedge fund. He's the founder of a new venture capital firm that's the talk of Silicon Valley. He's got an early $500,000 stake in Facebook that's now worth about $1 billion on paper. The man has bankrolled everything from restaurants to movies and is lauded by many as some kind of free-market genius.

They'd sign up more than 20 million users and burn $180 million in funding before breaking even and selling out to eBay (Charts, Fortune 500) for $1.5 billion.
And then things got interesting. The eBay deal, remarkable only because it happened in the bleakness of 2002, wasn't so much an exit as an explosion.

Besides Facebook and Slide, there's Yelp, Digg, and YouTube. Thiel and Levchin, the don and consigliere of the mafia, figure that all told, there are dozens of enterprises worth a total of roughly $30 billion - and that value is growing rapidly, as evidenced by Thiel's good fortune with Facebook.

Thiel and Levchin also wanted workaholics who were not MBAs, consultants, frat boys, or, God forbid, jocks. "This guy came in, and I asked what he liked to do for fun," Levchin recalls. "He said, 'I really enjoy playing hoops.' I said, 'We can't hire the guy. Everyone I knew in college who liked to play hoops was an idiot.'"

A bilingual immigrant from Kiev, Ukraine, Levchin is the hypercompetitive son of a playwright father and a physicist mother. He's numerate in the extreme and is an accomplished clarinetist whose athletic pursuits don't typically take him beyond table tennis. He lives to work.

Born in Germany, Thiel has a J.D. from Stanford and did some time as a corporate lawyer. But finance has always been more his thing - Institutional Investor named his hedge fund, Clarium Capital, "global macro fund of the year" in 2005. (He was once ranked among the top under-21 chess players in the country, but he gave up playing competitively.

"Taken too far, chess can become an alternate reality in which one loses sight of the real world," he says. "My chess ability was roughly at the limit. Had I become any stronger, there would have been some massive tradeoffs with success in other domains in life.")

Thiel's leadership style is as unconventional as his worldview. His hallmark management MO at PayPal (at least, pre-IPO) was the all-hands open-book session. Customer logs, revenue flow, fraud losses, burn rate: He'd display it all for every employee to see. This access to information, coupled with the lack of offices, created a flat structure where any idea could win the day.

Recruiting underclassmen from the middle of the country assured Levchin that his charges would have few preconceived notions and fewer social distractions. "Most of them were very introverted anyway," Levchin recalls. "They'd come in, eat crappy food all day, and sleep under their desks.

Of course Google (Charts, Fortune 500) is also famous for a relentless pursuit of brainiacs. But PayPal was no Google. "The difference between Google and PayPal was that Google wanted to hire Ph.D.s, and PayPal wanted to hire the people who got into Ph.D. programs and dropped out," says Roelof Botha, PayPal's onetime CFO who went on to become a general partner at one of the nation's most powerful VC firms, Sequoia Capital, and put the first venture money into YouTube. "It's a different temperament."

The PayPal-ers who didn't possess Thiel's anti-establishment streak as new hires had it by the time they left. The PayPal culture wasn't just antigovernment. It was anti--mainstream thought.

"Good decision-making flows out of details," says former COO David Sacks, who now runs both the online genealogy startup Geni and the Hollywood production studio Room 9 Entertainment, which made Thank You for Smoking. "We did not subscribe to the idea that managers are this special class of employee."