[00:02:16] Rebecca Hotsko: Thank you for joining us today. I’m genuinely thrilled about our conversation. I recently finished reading your book, and I must say, it was fantastic.

[00:02:26] Rebecca Hotsko: I thoroughly enjoyed delving into the captivating 20-year journey of PayPal’s inception. It was fascinating to explore the remarkable stories you uncovered from the individuals involved, who have now become known as the PayPal Mafia. I’m curious to know what initially sparked your interest in this company and motivated you to uncover the events of the pre-PayPal era.

[00:02:50] Jimmy Soni: Yeah, no, it’s a great question because, in some ways, I joke that I’m the least likely person to write this book. I’m not a tech journalist, nor do I have a successful investing podcast. I consider myself a historian who typically writes about deceased individuals.

[00:03:08] Jimmy Soni: This was my first time writing about living people. The inspiration came when I was working on my book “The Mind at Play,” which focused on Claude Shannon, a mathematician and engineer. Shannon had worked at Bell Laboratories in the 20th century.

[00:03:25] Jimmy Soni: It’s difficult to fully capture the immense talent and diversity of individuals at Bell Labs during that time. This sparked the idea in my mind that there must be other clusters of talent out there. So, I started doing Wikipedia research on these different clusters, essentially hopping from one cluster to another.

[00:03:46] Jimmy Soni: A few noteworthy examples include Fairchild Semiconductors, which played a significant role in early Silicon Valley history. Another example is Xerox Park, the research and development wing of Xerox, the copier company. It’s famously known that Steve Jobs drew inspiration, or some might say “stole,” several ideas from Xerox Park.

[00:04:06] Jimmy Soni: But people had done good books on both of those, and I fast-forwarded in history and was like, “Oh, like another place where there’s this insane concentration of talent is PayPal.” And I just naturally assumed, like, “Oh, you know, anything that involves Elon Musk, somebody’s written the book, right? They’ve written the book, they’ve made the t-shirt, they’ve got an app for it, whatever.” And I went on Amazon. I didn’t find anything where it was like an outside voice telling the story, having interviewed everybody involved. And so then I just kind of got obsessed with it. I was like, “This is crazy, like somebody should do this. Like, why hasn’t it been done?” And I kept saying that, and my kind of rule for myself is like, if I say that often enough, I actually have to do something about it. Like, if something doesn’t exist in the world and I want it to exist in the world, I have to follow it until the door slams in my face. And so that’s kind of how this started. I just had an instinct that for us, as wealthy and famous and well-known as some of these people are today, we were just missing a whole chunk of their lives, which was when they were still trying to make it right. And to me, I don’t know about you, but to me, those are the most interesting stories. Like, people get way less interesting when they’re rich, but before they become really wealthy, I’m like, I want to know everything about you.

[00:05:51] Rebecca Hotsko: Absolutely, I couldn’t agree more. And I will say, I am so happy that you did write the book. I couldn’t put it down because it’s like what you said. It’s so interesting learning about their struggles and their individual stories.

[00:06:08] Rebecca Hotsko: And even beyond Elon Musk, I learned so much more about Max Levchin, who we’ll get into, and Peter Thiel. They’re just such interesting, unique individuals. And so, just for reference, for our audience, we’ll be referring to the PayPal Mafia throughout this episode. Can you give us a little background on who they are and who’s all involved in the Mafia?

[00:06:32] Jimmy Soni: Yeah, the important disclaimer on the term “PayPal Mafia” is (and you’ve read this because you’ve read the book): You know, I had this line that I actually cut out in a draft of the book because it just wasn’t good. It was kind of funny and maybe a little too clever, maybe a little cheesy, but I was like, in the telling of this history, the mafia snuffed out the PayPal.

[00:07:01] Jimmy Soni: What’s interesting is that the PayPal Mafia, that term came into existence in 2007. And what happened is they all had this now famous cover photo in Fortune Magazine where they’re all dressed up as Mafiosos. And it was intended to be a joke, a satire, but by that point, you know, Peter Thiel had invested in Facebook. Facebook was taking off, and all these other companies that Yale had come out of, and all these other companies that had come out of that alumni group. And so the writer dubbed them the PayPal Mafia. That term is how we still know them today. It was not a term that was in existence during the periods that I was writing about the company, which is from 1998 to 2002.

[00:07:53] Jimmy Soni: So that’s the disclaimer. The answer to your question is that for a lot of listeners 

[00:07:59] Jimmy Soni: You know, you’ll know some of the names. You probably know the name. I mean, unless you’ve been living under a rock and not listening to podcasts, you probably know the name Elon Musk. He was a member of this group. He was an alum of PayPal and helped to create the company.

[00:08:20] Jimmy Soni: Peter Thiel is likely a name that people know. They might also know Keith Rabois and David Sacks. But what you’re more familiar with, most likely, are the companies that have emerged from this group. YouTube was created by alumni of PayPal. Yelp was created by alumni of PayPal. Palantir, Matterport—like if you’ve ever looked at a 3D image of a house, it might be from an alum of this group. Again and again, on and on, there are just so many. It’s honestly hard to catalog the number of companies that they either invested in or created. And so that whole basket of companies is typically what people refer to when they say “PayPal Mafia.”

[00:09:07] Jimmy Soni: That term was not in existence when I was writing about the period. So that’s generally what people mean. And I’ll add one more thing. Generally, what people say is they’re kind of the people who today are thought to be the top of Silicon Valley, across business, engineering, etc. They’re thought to be the best of the best in that world. There’s some debate about that. I mean, they’ve obviously been successful, but that’s what the term refers to broadly.

[00:09:39] Jimmy Soni: One final thing, the term is not beloved by everybody who’s a member of the alumni group. So there are some misgivings about it, and I document some of the back and forth about it. Most people, if you don’t take it seriously and if you see it as a quick way to brand something, it’s been hugely successful. Because all these other startups around the world have tried to create their own “mafia,” like the Revolut Mafia in Europe, the Flipkart Mafia in India.

[00:10:13] Jimmy Soni: So the whole mafia thing’s kind of taken off, but it’s just about the least mafioso business and sector of American life you can think of.

[00:10:24] Rebecca Hotsko: That is so true, and you said it. They have gone on to build so many other successful companies, and it’s just crazy to think how one group of individuals has done so much, even in different fields, which is interesting.

[00:10:40] Rebecca Hotsko: And they are really brilliant people. I want to go through each individual’s story that contributed to PayPal and its creation. I want to start with Max Levchin. I found him to be such a unique and very interesting individual. So you started off chapter one by talking about him. Why did you decide to start the story with Max?

[00:11:04] Jimmy Soni: I’m glad you picked up on the importance of him as a character, and I can talk through the decision to make him chapter one because it was a bit like… It wasn’t, I wouldn’t say controversial, but it was definitely not what you’d expect. Like for a book like this, you kind of… you know, you sort of expect somebody to lead with Elon, I guess.

[00:11:31] Jimmy Soni: I don’t know. So there were a couple of reasons. One is simply chronological. Just for listeners who may not be super familiar with the story, who haven’t read the book, PayPal is… We know it is the merger of two companies, two separate companies. One is called Infinity, and it’s created by Max Lein and Peter Thiel.

[00:11:54] Jimmy Soni: And if you sort of do the chronology, they kind of really start to build the company in late 1998. Another company created by then a young Elon Musk is called x.com. He really starts that company in early ’99. He’s had the idea simmering for a few years, but he doesn’t really incorporate anything until early ’99 and starts to recruit people, etc.

[00:12:20] Jimmy Soni: And so if you just… In just what I just said, you know, Max really starts this company in late ’98. So if you’re doing… If you’re like faithful to the chronology, you would start there. There’s another reason, which is the more important reason, which is one of the things you try to… Like, if… Like, if… One of the things I always try to do with my books is like I try to throw curveballs.

[00:12:50] Jimmy Soni: Like, I don’t know, you know, I sort of don’t want to be boring. You don’t want to just do the same book that everybody’s done with the same people. And I found that Max had this very interesting… Call it like an arbitrage, like the level of his success is far greater than the level of his public, like public profile.

[00:13:15] Jimmy Soni: So people don’t really know who he is in Silicon Valley, by the way. He’s super well-known. Like, he’s very well-regarded. You know, he’s an engineer’s engineer. People sort of see what he’s done, and he’s been an entrepreneur multiple times over in Silicon Valley. He’s known that way outside of Silicon Valley.

[00:13:36] Jimmy Soni: If you said that name at a dinner table, people are not likely to know who he is. So, to my mind, that was like an opportunity. Like, I was like, “Oh, that’s interesting. If I start with somebody who is lesser-known, it’s very interesting for the reader ’cause they’re learning a story they haven’t heard.” The final reason is this: He immigrates from Ukraine to the United States as a very young person, and, you know, then becomes this huge success in Silicon Valley.

[00:14:10] Jimmy Soni: And at its best. At its best. That is like actually one of the things I think Silicon Valley does exceptionally well. It takes people who are not from here and it gives them opportunity, and they have the chance to build these big businesses, right? And it doesn’t always, like, admittedly, it doesn’t always operate at its best, but I thought of his story as a very classic American story of immigration.

[00:14:40] Jimmy Soni: Of kind of finding his way in a new country, of learning the language, learning sort of mores, and then figuring out his life. And that life happens to encompass these massive businesses. And, by the way, for people who don’t… You know, who don’t… I mean, he’s also invested in everything. He served on the board of Yahoo for many years, right?

[00:15:05] Jimmy Soni: He created a company called a firm that is a public company today. It’s a quintessential like American immigrant story. And as somebody who was an immigrant myself, I was like, you know, that sounds, that’s… This seems familiar to me. I know what this is. Like, let’s start with this.

[00:15:25] Rebecca Hotsko: Yeah, I really loved learning about his story.

[00:15:28] Rebecca Hotsko: I will admit, I didn’t honestly know too much about him before this book, and so I really appreciated that and learning more about his background. And one of the other things I just really appreciated that you captured in this book was uncovering more of their, I guess, journey before they’ve become successful.

[00:15:50] Rebecca Hotsko: So, a lot of people know about what they’ve done now, as you’ve mentioned, but learning about what they did beforehand was so much more interesting to me. And one thing I noticed that was common to all of them is that they failed so many times in the beginning. They never stopped. They just kept pivoting when something didn’t work, even if their entire business model crumbled, which happened a few times for Cofinity, which was Max Loveton and Peter Thiel’s company and…

[00:16:24] Rebecca Hotsko: They just thought of a new business model and a new way to spin the company. So I just thought that was so remarkable and how you just captured those nuances.

[00:16:36] Jimmy Soni: Well, thank you. I appreciate that because it was what I was trying to do, like, yeah, and here’s why. Like, there’s a “why” behind that, right? And the “why” is this.

[00:16:49] Jimmy Soni: It is, there’s sort of two separate “whys.” One is, I just think like once someone, again, sort of cousin into my earlier comment, when someone becomes successful, like we have this default switch in our brain that’s like, maybe a little, like we assumed that they were always this way, or we assumed that it was going to happen, or like we sort of forget that there’s like this long, horrible climb to that level of success.

[00:17:20] Jimmy Soni: Right. And I wanted people to appreciate that the 27-year-old Elon Musk is not the 52-year-old Elon Musk. Like, this is actually somebody who was honestly making decisions about what, like whether to go to grad school or whether to start a company or whether to get a job. And he, like, tried to interview for a job and it didn’t go particularly like he had hoped.

[00:17:47] Jimmy Soni: And it was, but he was conflicted. Right. And when I was around his age and like, I mean people I know now, those are the issues we deal with. Like what decisions are, right. How do I make that kind of decision? Who do I talk to? Who do I turn to for advice? So that was like part of it is I just wanted people to appreciate, like, these people are not like fully formed.

[00:18:18] Jimmy Soni: They don’t, they’re not born at the age of 52 with billions of dollars. Right? Like, let’s appreciate that. The second part of the “why” is that Silicon Valley, and I didn’t really understand this and probably don’t still ’cause I’m not a founder, right? But Silicon Valley is basically like an institution that begins with failure.

[00:18:40] Jimmy Soni: Like it’s like this really interesting thing where like you might have a plan, you might have a PowerPoint deck, and you will throw it out the window again and again and again. And I think we say that and I can say that. But it’s so much harder to grasp until you’re sort of knee-deep in a story about how a business came to be.

[00:19:07] Jimmy Soni: Right. And I think that’s really important. Like that’s actually something that it’s hard to do, right? That’s like really hard work and, and to live with that failure. Like one of the things that’s happened in the aftermath of the book is I’ve connected with all these founders and they’ve described reading the book as therapy because they’re like, look, this is like how I feel every day.

[00:19:34] Jimmy Soni: Like we feel like things are just going to bust up at any moment. And so I wanted some of that uncertainty to kind of come back into the culture.

[00:19:46] Rebecca Hotsko: Wow, that is so interesting. I want to get to some of those post-conversations in a bit. I want to stay kind of chronological in the story so that our listeners can have a grasp of what happened.

[00:20:02] Rebecca Hotsko: And I want to start with Peter Thiel because he was such an important figure in this book and throughout Confinity and then PayPal. So talk a little bit about him. How did he get connected then with Max?

[00:20:17] Jimmy Soni: Yeah, it was about as random as you can get, and it’s one of those now legendary stories, but at the time, it was pretty boring.

[00:20:28] Jimmy Soni: You know, Peter Thiel, at this moment in his trajectory, he has left finance, so he went from law to finance, and he had moved west and sort of begun investing in startups. This is kind of the mid-nineties when startups are all the rage. Netscape has gone public. Everyone’s getting excited about how you could turn the internet into big piles of money, and, you know, also this new technology that could proliferate and all the rest. He is teaching at Stanford, and one of the things that happens is that Max Levchin happens to arrive in Palo Alto, and he’s living in like an efficiency apartment. In the beginning, I believe he was sleeping on someone’s floor, and the apartment did not have air conditioning, and it was a really hot summer in Palo Alto.

[00:21:22] Jimmy Soni: So what Max would do is he would sort of walk around and find places that had air conditioning. And at Stanford, there were always like classrooms that, you know, maybe not today, but at the time were pretty open. Like you could sort of fake it if you looked vaguely like a new college student, you could kind of waltz in.

[00:21:47] Jimmy Soni: And what he told me is that he would just do this all the time just to get, like, some relief from the heat. And he would walk around and he’d see some poster for something or like a little flyer for something, and he’d be like, “Oh, I should go to that class so I can get, so get an hour of air conditioning.”

[00:22:13] Jimmy Soni: And he caught a notice for a class that Peter Thiel was teaching, and it was about global markets and commodities or something, and he decided to go. Now, he had heard his name before through a mutual friend, Luke Nosek, but he was really, purely, I mean not purely, but he was there for the air conditioning, and then he stayed for the lecture, and what he thought would be a big lecture turned out to be a handful of people, and Max just basically kind of found a seat, and he was really impressed by the way Peter was presenting.

[00:22:54] Jimmy Soni: These concepts and that’s where they struck up a conversation. 

[00:22:58] Rebecca Hotsko: Yeah, that meeting story was so interesting, and again, I just love all of those little details in the story about how a big part of this story, and you can correct me if I’m wrong, it seems like it was luck, and I think a lot of them attribute not all of the success, but some of the success to luck.

[00:23:23] Rebecca Hotsko: And it’s just very interesting how you captured that in the story.

[00:23:28] Jimmy Soni: Yeah, I think, you know, it’s difficult because if you ask different people, they have a strong allergic reaction to the word “luck.” Peter has this line, it’s not in the book, but it’s from his other writings where he says, “Luck is an atheistic word for God.”

[00:23:47] Jimmy Soni: But at the same time, my assessment is that so many things happened that could only be ascribed, if you don’t like the word luck, maybe it’s fortune. And in the end, I kind of conclude, like, look, some of this is just good fortune. Some percentage of it. It doesn’t take away from someone’s hard work to say that things worked out well.

[00:24:13] Jimmy Soni: And there’s actually this funny meditation in the middle of the book. I interviewed one of the early employees, his name is David Wallace, and he’s pretty religious. And he said, you know, one of the things that’s in the Gospels, in his teachings, in his faith, they talk about how you can’t just have faith, you have to have good works.

[00:24:37] Jimmy Soni: Like you have to, you know, one without the other is kind of incomplete, right? And so, to my mind, it’s like, yes, PayPal, this group of people worked really hard to make the company successful. They also had their fair share of good luck. And I know people will disagree with that, but I do think that’s a portion of it.

[00:25:02] Jimmy Soni: And luck can come in many different forms. It can come in the form of finding the right person for the right job, timing your product, right. But I think you have to give luck a little bit of its due.

[00:25:19] Rebecca Hotsko: And I guess I want to chat about Elon now because you mentioned this before. You said that, well, I think that you did a great job of humanizing him, making him relatable.

[00:25:32] Rebecca Hotsko: He had a really great story that I had no idea about before I read your book. And so one of the things that I found most interesting was how he’s just really always been so exceptional. Even in his first intern job, I think it was at the Bank of Nova Scotia, where his director gave him an assignment to do, and he was like, “Oh, this will keep him busy.”

[00:26:01] Rebecca Hotsko: And then he got it done right away and he found a way for the bank to make billions of dollars somehow. And they were like, “No, that’s too risky.” And then Elon was like, “Oh, banks are not innovative.” And he got mad and left. And so I love that. I think that was so interesting to learn about his character and also really how I did not know before reading this book how one of his first dreams was revolutionizing the financial industry. And so that kind of works into the first part of his story, which I’m hoping that you can share a little bit with our listeners.

[00:26:45] Jimmy Soni: Yeah. It’s, you know, again, it’s so easy to get wrapped up in the day-to-day coverage of his life or what brand of Kleenex he uses or whatever people happen to be covering.

[00:26:58] Jimmy Soni: Right. Look, that’s understandable. I get why that happens. But his story starts out, and you would never, if I mean, maybe some people would have said, “Oh, this person’s destined for success.” I’m not sure that they could have predicted the stratospheric success that he had. So Elon leaves South Africa to come to Canada, and the internship you’re describing is his first internship in Canada, and it’s at this place called Scotiabank.

[00:27:28] Jimmy Soni: The important thing about the internship isn’t, to some degree, that he interned at a bank. The more interesting thing is that he meets this mentor, Dr. Peter Nicholson, whom I had the great fortune to interview. So I spent a lot of time talking to Dr. Nicholson, and he is this person with a wide range of interests.

[00:27:51] Jimmy Soni: He was in Canadian politics, he had a PhD, so he had scientific training, and Elon cold calls him. When Elon and his brother are new in Canada, they don’t know anyone. And so all they do is just, they, like they talked about in some other setting, they talked about how they just cold call anybody.

[00:28:14] Jimmy Soni: We could just, like, get meetings. Dr. Nicholson, for some reason, is like, “Okay, I’ll take a meeting with you.” And so they have lunch with him, and he said, he’s like, “Look, right away you could tell these brothers were sort of very impressive.” And he had this internship that he was trying to fill. He said, “Look, I got a spot on the team.”

[00:28:41] Jimmy Soni: Elon takes that spot, and he ends up working at Scotiabank for a while. And it’s interesting because the thing you describe is, like, even then Dr. Nicholson said, like, number one, he was very precocious. Like he could sort of, you know, he was thinking about problems in a way that was far beyond his years.

[00:29:03] Jimmy Soni: The other is that he had a huge appetite for risk. And so he proposes this idea that’s very risky for the bank but could be very lucrative. And the bank, who’s it? And Elon’s lesson from that is, as he puts it in the book, very colorfully, he puts it in the book like, banks don’t take any risks. They’re not innovative.

[00:29:29] Jimmy Soni: And if, and his line in the book, I think I’m paraphrasing, but he says something like, “If this is how they operate, then anybody can come in and beat them because they don’t know what they’re doing, right?” And so that lesson or that nugget stays with him. And it’s the reason that the idea of x.com is appealing to him.

[00:29:53] Jimmy Soni: The idea of doing something in financial services with the internet, because what he sees is an opportunity to essentially cut out a lot of the friction and cut out a lot of middlemen within finance.

[00:30:08] Rebecca Hotsko: Yeah, so Elon’s always been such a big dreamer. Before SpaceX and Tesla, he was in the financial industry, and yeah, it was really interesting learning about that part of his journey.

[00:30:21] Rebecca Hotsko: And then I guess let’s merge together the two stories between x.com, which was Elon’s financial industry company that he wanted to, and that he did create, and then Cofinity, and kind of talk about how they were two completely different business models, and then how they eventually came to compete with each other.

[00:30:42] Jimmy Soni: Yeah, it’s the craziest story, right? Like, it’s like, you know, one of these things where the more I dug into it, the more I was like, this is like, I mean, it’s, you know, what is it? Sort of “fact is stranger than fiction.” Here’s what happens, the condensed version: Elon pursues x.com, what he wants x.com to be is the one financial services superstore.

[00:31:09] Jimmy Soni: The only place you need to go if you need to do anything financial. Max and Peter, after several pivots like you described, what they land on is this idea that we want to email money, we want to, like, make emailing money work because nobody had really made it work seamlessly. And what happens is x.com, like emailing money, is just a part of a big portfolio of projects.

[00:31:37] Jimmy Soni: Both of these companies, not, hey, they kind of launch around the same time. They launch the emailing money components around the same time, and both of them take off. And a big part of the reason they take off is because they’re basically giving money away, $10 and $20 bonuses to people who open up new accounts.

[00:32:00] Jimmy Soni: And so you can sort of predict what happens. If somebody walked up to you in the street and handed you $10, you would be like, “Okay, great. Thank you.” You know, that’s essentially the internet equivalent of what they’re doing, and they take root. Both companies, x.com and Infinity, on a platform called eBay, a new-ish auction platform at the time.

[00:32:25] Jimmy Soni: Not, hey, they were a public company but still relatively new. eBay had not figured out how to reconcile payments. And so the idea of a seamless way to email money was really appealing. And so what happens is that both of these platforms are becoming successful. And you have on one side a ferociously competitive person named Elon Musk, and on the other side, you have two ferociously competitive people named Peter Thiel and Max Levchin.

[00:32:55] Jimmy Soni: And they start to essentially fight for dominance on eBay. And I don’t think if you asked any of them, like in January of 1999, if you said to them, “Hey, did you know that by December of 1999, you’re going to be competing against this other company and that company is three blocks down the street from you in Palo Alto, and you guys are just going to spend money like crazy to try to beat each other?” All of them would say, “You’re crazy.” But that’s exactly what happened. And so the story of these two companies and of these people’s lives from roughly October of 1999 through March of 2000 is this unbelievable, very personal, sometimes vicious competition over market share on eBay. In January and February of 2000, they start to realize, like, “Look, we’re just going to spend each other into oblivion.

[00:33:54] Jimmy Soni: And there’s a very complicated series of negotiations and the companies have what I describe in the book, and I think it’s a fair description as like a shotgun wedding that’s concluded in March of 2000. So they essentially go from trying to kill each other. So like being locked together and they all join as one company.

[00:34:11] Rebecca Hotsko: What was also super funny to learn about in the book is how Max Levchin thought that Elon’s idea of x.com, he was like, “Oh, he’s going to drown in regulatory hurdles.” And then Elon was like, “Their idea’s stupid” because at first, Cofinity was the Palm Pilot idea, and they wanted people to be able to, I guess, transfer money via Palm Pilots.

[00:34:37] Rebecca Hotsko: And the email thing came way later. That was an afterthought, and it was funny reading that Max even wanted to scrap that idea at first, the Palm Pilots. So that was very interesting.

[00:34:50] Jimmy Soni: It’s actually like one of the, I’m glad you picked up on that because it’s one of the things. Oh, so two thoughts about it. The first is, if you think about where PayPal ended up, it’s actually a bit of a disappointment to both groups of founders.

[00:35:09] Jimmy Soni: Elon wants to, like, run finance, like defeat all the banks. PayPal did not do that. Max wants to make Palm Pilot money beaming into a thing because Palm Pilots were the rage in Silicon Valley and people thought they would be the iPhone. Right? We sort of have our version of that, the iPhone and mobile phones generally, but that’s what he thought was going to take off, and neither company really succeeds at its ultimate vision, which is kind of funny.

[00:35:43] Jimmy Soni: The more interesting and kind of thing that I think I had the benefit of 20 years of passage of time, so they can say this now. I’m not sure they felt it in the moment. Actually, I think they felt it in the moment. I asked each of them, you know, so tell me, like, what did you really think about this person that you’re competing with?

[00:36:10] Jimmy Soni: And this, what they weren’t being interviewed together. I interviewed Elon separately and Max separately, and Elon said, you know, it was interesting because I had never really come up against people who could compete with me. Like meaning, as quickly worked as much, like worked as hard, were as driven to win.

[00:36:31] Jimmy Soni: He said, but these Infinity guys, I mean, he said, “Man, they can move.” And he actually had this great line, he says, “If you can keep up with me, whoa, respect.” And it was delivered in this kind of funny way. Max, when I asked him about Elon, he said, you know, when we met him, like he’s like, I, he’s like his line in the book, it’s like, he’s completely crazy, but he’s also really smart and I really like smart people.

[00:37:05] Jimmy Soni: And so there was, you couldn’t call it admiration at that point. The admiration, I think, comes later, but there was at least a healthy respect that the people down the street were just as competitive and smart. And I will say, like, I think it is hard for people like this to find people who are as competitive and smart, which tells you something about both groups of founders.

[00:37:33] Rebecca Hotsko: And I just loved all of the struggles learning about everything they did along the way. And I learned so much about the startup industry too. Maybe that’s just a Silicon Valley thing, but the sleeping bags under the desks, the 48-hour nights, and just like full days, they basically lived at the office. So we’ll get into a bit of the culture later, but I am interested for our listeners to kind of learn more about the story, tie the knots together.

[00:38:06] Rebecca Hotsko: These companies were fighting to the death, and then eventually they do merge together, but they still didn’t really want to. So talk a little bit about the decision why they ended up merging.

[00:38:19] Jimmy Soni: Yeah, it was complicated, to be sure. Elon really did not want the merger to go forward. Several people within the executive team on both sides were pretty skeptical.

[00:38:31] Jimmy Soni: They thought they were trying to achieve fundamentally different visions. So you could, like, it’s all understandable. You could sort of see why they’re like, “I don’t want to merge with these people.” But what happens, and this is, I think, partially the credit goes to Peter Thiel. Peter could sort of see the writing on the wall.

[00:38:54] Jimmy Soni: That to two in two ways. One is, Infinity was just going to run out of money. Like Infinity had far less capital than X.com. And the other piece of this is that he could, the markets at this point were starting to teeter. So if people who didn’t live this period, and I was a kid during this period, but what I learned in my research and kind of interviewing people, you know, from 1994 to 1999, if you attach “.com” to anything, you could become successful, and they’re like, this is the era of Super Bowl ads, big parties in Silicon Valley.

[00:39:36] Jimmy Soni: I mean, this is like the era of excess. And in early 2000 is when that excess starts to crumble. And there’s a kind of, in the year 2000, it’s like basically the NASDAQ loses 86% of its value. All of these dot-coms go under in early 2000. Both Elon and Peter see that. Like, that’s going to happen.

[00:39:59] Jimmy Soni: There’s just no way to sustain some of the valuations. A lot of these companies did not have any kind of business model. Even if you did things like sort of discounted cash flow, you just didn’t see how all the math would work. That led Peter to believe that if they did not merge, they could not close a new round of funding and that the company Infinity would ultimately go under.

[00:40:29] Jimmy Soni: So he really pushed his board to try to get the best deal possible for the merger because originally it was supposed to be an acquisition, and it ended up being a 50-50 merger. But in everything I just described, you could imagine, like, they didn’t, this wasn’t well planned. This wasn’t like a year of due diligence.

[00:40:52] Jimmy Soni: And this was like a few weeks of slapping these companies together. And as one executive put it, he said, you know, we never really solved the two X problem. We had two CEOs, we had two C, you know, we had two of everybody. And the goal was just to get the merger done as opposed to make it smooth. And so the next three or four months are pretty chaotic.

[00:41:21] Rebecca Hotsko: And so, eventually, when they did merge together, as you mentioned, they faced the financial troubles with the dot-com crash. And so, what were some of the other challenges they faced when they merged these two competing companies together? There were lots of strong personalities and people with honestly different visions.

[00:41:41] Rebecca Hotsko: What were some of the hurdles that they faced?

[00:41:45] Jimmy Soni: Well, I think within weeks of the merger, they oust their CEO. So the entire employee group and senior executive group essentially threaten to resign en masse. So there’s a CEO who is ousted. He is replaced by Elon Musk as CEO. Within two and a half, three months of Elon being CEO, the employees again threaten to resign en masse, and they oust him in a kind of now-famous moment where he’s on his honeymoon and they say that it’s either him or us, and the board says, “Well, we’re going with the employees.”

[00:42:23] Jimmy Soni: So that’s like problem, you know, issue one. Issue two, you could go down the list. There’s also fraud. So part of what happens is that it’s not particularly, you know, in my descriptions of it from other people, it’s not really that hard to build an emailing money system. What’s hard is making sure you don’t lose your shirt while you’re building an emailing money system. And so they have just like endless amounts of fraud. They’re sort of minor fraud, like if you think about college students creating, you know, elvis.pressley@hotmail.com and using it to get 10 bucks and siphoning that away, that’s relatively minor.

[00:43:05] Jimmy Soni: The more complicated stuff was when people were creating phony transactions to the tune of hundreds and sometimes thousands of dollars and using the PayPal platform as a way to defraud eBay sellers or to just defraud the companies in general. And so you have that, you have regulatory challenges. PayPal is new. There’s never really been a ubiquitous digital payment system. So all of a sudden, what happens if somebody pays for terrorism or pays for weapons or pays for legal drugs, right? The go suddenly PayPal’s intersecting with the government, and the government’s not particularly thrilled about that sort of behavior.

[00:43:47] Jimmy Soni: And then finally, you have the merger, as you described, of two very different cultures, two very different teams, and it’s really like they double the team size. There’s this great line in a kind of concluding chapter of the book where Luke Nosak says, “You know, a merger is really hiring 50 people sight unseen.

[00:44:09] Jimmy Soni: At least that was his experience at the time. And so they have to figure out like, okay, we have two people doing the same job. How do we actually mesh this stuff? The last thing I’ll say, Infinity created a product called PayPal. PayPal was taking off, but Elon and some members of the x.com team were still wedded to the idea that x.com was going to be the brand. So even at the level of the brand, there’s like no agreement. So imagine the summer of 2000, everything I just described is happening, and the bottom is falling out in the stock market. So this is just like controlled chaos for these series of months.

[00:44:56] Rebecca Hotsko: Yeah, and they went through a lot of CEOs, like you mentioned, and I liked reading and hearing how you told the story about it. Elon wasn’t mad. He was mad, I think, but then eventually he kind of came around to it because, at the end of the day, he had such a large stake in the company. I think he just wanted it to do well. And if the people weren’t going to perform well, if he was there, he was like, “I’ll move on to other things,” which he did. And so it was just interesting learning about the culture, and even before that, the previous CEO where he got ousted too, he was very, I guess it seemed like he took it well, the way you wrote it.

[00:45:49] Jimmy Soni: You know, I think it’s always sort of, you have to… What I tried to do, and I hope I did in the book, is not present one-sided stories. So I interviewed all the people who were involved in this drama or these sort of two dramas, and I tried to, for the reader, like… I wasn’t at the company, so I’m not in a position to have firsthand knowledge. What I wanted to do was just present the facts as both sides saw them, right?

[00:46:23] Jimmy Soni: So take the Elon example. There’s a version of the facts that the people who ousted him have, and I present those. The challenges about the brand, the challenges about money, feeling like emailing money was going to be way more successful than a financial services superstore, and more importantly, feeling like they didn’t have time because they were running out of money to do the financial services superstore. They had to stick with the successful product.

[00:46:54] Jimmy Soni: Then I present Elon’s side, and there’s an architectural disagreement as well, a technical disagreement about what platform to build on. Then I present Elon’s side of the arguments, right? Sort of here’s how he is thinking about all of this. And I sort of leave it to the reader to, like, if you want to judge, you shouldn’t judge, but if you want to judge, you can judge based on the facts, right? Here are emails, here are records, here’s sort of what we know about the company.

[00:47:30] Jimmy Soni: And I tried in each case to at least give each side a fair hearing and not be too… have my thumb on the scale either way. But I think one of the things that you pointed out, and it’s very surprising, is in the aftermath of being ousted, the CEO Elon is very gracious. He’s angry, but he is gracious to the people who ousted him, and he continues to serve on the board, and he does not burn the company down in the press. And he doesn’t sort of do funny business. He is upset that he’s not the leader, but he is not upset to such a degree that he’s like, “I’m going to tear PayPal down.

[00:48:18] Jimmy Soni: You know, and there’s a rational reason for that. He had a huge amount of equity, and he wanted the company to be successful. There’s also this part that’s often missed, which is he recruited a bunch of people who worked at the company. He wasn’t going to ruin their careers either. And it’s this really interesting moment because even the people who ousted him will say, he behaved very well in the aftermath of that ousting, and so well that, and this is sort of how I conclude his portion of the story, that when he launches SpaceX, some of the first people to support him financially when they raise big rounds of funding are the people who ousted him at PayPal.

[00:49:07] Jimmy Soni: They didn’t lose faith in his entrepreneurial ability. They didn’t think he was the right leader for that moment in PayPal’s history. But they didn’t say, “Oh, this person’s a bad person or a bad entrepreneur.

[00:49:21] Rebecca Hotsko: And I think that’s one interesting thing: you can be an amazing visionary, have these great ideas, and execute them, but that doesn’t always make you a great leader.

[00:49:33] Rebecca Hotsko: I liked how you expanded on some stories where people didn’t particularly like the way he led. Because he just wanted people to work as hard as he did and see things the way he did sometimes. It was interesting reading all those different sides of the story.

[00:49:52] Jimmy Soni: Yeah, and you know, it’s as true today as it was back then. You can see this sort of maniacal urgency at Twitter, in his own words. I believe it’s real. Honestly, it’s hard for people to truly grasp just how hard he works. People may take shots at him for different things, but one thing you can’t fairly criticize him for is being lazy.

[00:50:18] Jimmy Soni: And that might sound funny, but what I’ve heard from engineers who worked with him at x.com is always a version of the following, and this happened multiple times. They would say to me, “You know, it was the hardest I’ve ever worked. But part of what was inspiring is that the CEO was there at two o’clock in the morning, working with us. It wasn’t someone who was just a suit, someone who didn’t know how to code. We were solving engineering problems together, and he was there, sleeping overnight and working just as hard.” I think it’s an important theme in his career: he puts a lot of pressure on people, but he puts even more pressure on himself.

[00:51:07] Rebecca Hotsko: Yeah, I really like that characterization, and I want to delve more into the culture because both Confinity and x.com had a very unique culture. From their vetting process, where they would often quiz each other with puzzles and logic games just for fun, to the overall atmosphere, it was fascinating to learn more about their story and culture. So, can you give our listeners an idea of what the culture was like at Confinity and x.com, which eventually became PayPal?

[00:51:39] Jimmy Soni: Yeah, it was, you know, you can imagine that with the companies that emerged from this group, like YouTube, SpaceX, and others, they started with a pool of highly intelligent and driven individuals. One specific aspect of the culture that I focused on, which came up repeatedly in my interviews, was puzzle solving. They had a process of interviewing candidates where they would present them with complex math and logic puzzles. This practice was not unique to PayPal, but they took it to the extreme.

[00:52:13] Jimmy Soni: During these interviews, candidates, both on the engineering and business sides, would be challenged with these puzzles. Some people hated this practice then and still do. Max Levchin, in particular, described it in an interesting way. He said, “A lot of these puzzles are problems that test your ability to be an efficient problem solver. In a startup, you don’t have weeks and weeks to work on something. You need to find the shortest distance between two points. When you approach a puzzle or a trick question, if you’re looking at it the right way, there’s usually a little hack, a little trick to it. If you can grasp that, it shows me that you won’t spend ages on a problem when there’s a quicker solution. In a startup, time is your most precious resource, and your advantage is being able to accomplish more in less time, meaning you have speed.

[00:53:13] Jimmy Soni: Right. It’s a significant advantage for Silicon Valley startups that they can operate at a faster pace than their larger competitors. And the foundation of this advantage often lies in these logic games and puzzles. PayPal took this practice a step further, going beyond just interviews. During my research, I came across a collection of emails and weekly company newsletters from that era.

[00:53:39] Jimmy Soni: In these newsletters, they would present a new puzzle each week. The reward for solving it correctly was simply a shout-out in the following week’s newsletter. It’s astonishing how many people would engage in solving these puzzles just for the sake of bragging rights. This illustrates two things: the puzzle-solving and problem-solving culture within PayPal, and the high level of competitiveness among the employees, even when there was nothing substantial at stake besides having your name mentioned in the weekly company newsletter.

And you mentioned in the book how he and Peter would just sit there and do this, and it’s just… They just liked it. They’re cut from a different cloth. And that was, again, just so cool to learn about their stories and more about their personalities and just what makes them so different.

Maybe that’s what makes them so successful. And that’s kind of what I wanted to ask you next because you’ve spent so much time both researching and then being in person with them and interviewing them. Was there anything common in their personality, their traits that you think just really made them so successful?

Not once, but multiple times.

[00:54:57] Jimmy Soni: Yeah, and I think, you know, as with the other question where I attached the disclaimer, one of the important disclaimers to this one is they’re not all the same person. There’s a temptation in Silicon Valley or in writing about Silicon Valley. We’re thinking about it to think like everybody is Elon.

[00:55:18] Jimmy Soni: They’re really not like, these are very different personalities. Right. And I interviewed hundreds of people, so it wasn’t just like sort of these three people giving me all the facts. Here are some common characteristics that stood out to me, and some other things might stand out to other readers.

[00:55:38] Jimmy Soni: One is there is a kind of. Call it like a broad-minded curiosity. So one of the things that happened as I got to know these people is I discovered not just how well-read they were in technology and in their particular business, but how well they were well-read across the board, like the novels they read, the movies they watched.

[00:56:03] Jimmy Soni: Like I was just, I was honestly, maybe I shouldn’t have been surprised, but I was pretty surprised that like Elon in our interview was quoting and citing the Bible as casually as he was. Right. Or that Max Lein had this kind of obsession with Kurosawa’s Seven Samurai, or that, you know, David Sack was a film buff, and I suppose that’s maybe to be expected, but it surprised me. So there’s a kind of broad-mindedness. They read very widely. They’ve learned a lot. And they learned a lot, I would say between the age of zero and 20. Right? Like it was like a real curiosity, and it was a broad-minded curiosity. That’s one. The second is there is a desire to win.

[00:56:53] Jimmy Soni: Like the one thing about the description I gave earlier between the competition between cfii mx.com is that both sides really wanted to win. It was a big deal to them to not lose. And I think if you look at each of the companies and ventures they’ve been involved in.

[00:57:13] Jimmy Soni: Like, there’s a real premium placed on actually trying to win and be successful, and a competitiveness that is just sort of there. It’s like a fire that kind of burns in your conversations with them too. Like, it’s just like, there’s like a twitchy net. Like, it’s like, okay, we have to win. The last thing I would say, and this is a kind of additional comment on the puzzle-solving.

[00:57:41] Jimmy Soni: You know, it was important to the people in this group to try to find answers, to try to find the right answers to things, and to do so somewhat efficiently, but to really enjoy the company of other people who were interested in that same thing. So like, here’s a great example of this.

[00:58:03] Jimmy Soni: There are people in this group who, during that era, were examining life extension, right? Which is sort of fashionable now, but wasn’t really fashionable then. There are people who are interested in, like, there are people who drop out of high school. There are people who, if they showed up, their clothes were disheveled, you know, but they were very smart, but their clothes were disheveled.

[00:58:30] Jimmy Soni: There are people who were socially maybe not the most gracious or didn’t have social graces, but they were razor smart. What I would call this basket of things is like an embrace of weirdness. Like part of what this group does so well is that it is a place where if you came in like Elon did and said, “I want to make mankind a multi-planetary civilization,” that was like, okay, it’s like within the realm of the possible, right? And so there are all these things that I would say are at the fringes in maybe other parts of society or other parts of economic life that are wholly embraced within this group. And I don’t think that’s an accident because I think what you see later is a lot of things emerge technologically and otherwise where someone had to push on a crazy idea and push on it maybe a little farther than other people would go, and it bears fruit.

[00:59:36] Jimmy Soni: And so that embrace or tolerance of weirdness is actually a very important thing. And I’ll add a comment to that. Something that I observed when reading the book was it seemed like they were very direct, both with each other, but then they also were receptive and open to that directness, whether it was a criticism, a comment, or some way that they could make.

[01:00:00] Rebecca Hotsko: The product better or what they were doing. They didn’t shut people down. Like, no, I’m smarter. And so I think that also contributed to their success at PayPal and then eventually in life going on to do other things. I think that just made things go by quicker. 

[01:00:15] Jimmy Soni: Yeah. You nailed it on the head. There is a directness and an honesty and a kind of bracing quality within this group that I think would make, I mean, it would make me uncomfortable.

[01:00:26] Jimmy Soni: I think it would make most people uncomfortable because it’s. It’s massive intellect, kind of in collision with each other. But you’re right, that what they managed to do. And you know, there are a few moments in the book where I kind of have them expound on this or I find quotes where they expound on it, but Max Levchin, in particular, says, you know, “It wasn’t that meetings were almost harmonious. Like it wasn’t actually that we all got along well. We just wanted to be direct. We wanted to be honest.” And what he says is interesting. He says, “You know, there are environments I’ve worked in after where the criticism was happening behind the back, and those are actually worse environments.”

[01:01:16] Jimmy Soni: What was interesting about PayPal? Not always, obviously there were some things that were just personal, but what happened in many cases that I saw is that when people were shouting at each other, they were actually shouting at each other about the product and making the product better. They weren’t shouting at each other because they didn’t like each other. They were trying to figure out what the right answer was. That truth-seeking is a big part of a key ingredient to the company’s success.

[01:01:50] Rebecca Hotsko: Yeah, I wholeheartedly agree. I think that was one of my biggest takeaways from the book. And the last thing that I want to ask you for today is if you could write a sequel to this book or just focus maybe on a post-PayPal story of someone, who would it be about? What would it be about, and why?

[01:02:14] Jimmy Soni: Oh, wow. No, I’ve never really thought about it, but here’s what I would say. Yeah, I think sequels have a place, right? But I think one of the things that I take away from this group is that newness has a very strong appeal. So I wouldn’t be the person that would do this sequel because it’s like, I don’t know, you sort of don’t want to, like, part of what you learn in studying these people is how much a new thing matters.

[01:02:48] Jimmy Soni: Like this is obviously popularly titled or popularly becomes “Zero to One.” This is the title of Peter’s book. The idea of going from nothing to something and something is new. It’s not just a sort of vague improvement on what was there before. So I probably wouldn’t do a sequel, but if I had to, I think, you know, knowing what I know about what’s been written, oh boy, it’s a great question.

[01:03:18] Jimmy Soni: What I think I would focus on is, you know, it’d be almost impossible to do it. Like it’d be so hard to do it. But there’s a school that is at SpaceX called Astra, and my understanding of it, again, just from reading what’s been written, is that Elon essentially wanted to have his children educated in a specific kind of environment.

[01:03:43] Jimmy Soni: What’s been written is that he essentially built a school for his children and then for the children of SpaceX employees, and it’s called Odd Astra. And look, there are like a million other things he’s done. But to me, as somebody who’s a dad, I’m like, what is going on in that school? Like, I want to know everything, right?

[01:04:08] Jimmy Soni: I want to, like, find out what they are learning and how they are learning. Who are the teachers? How do they choose what to teach? I would really be interested in that sort of thing. This would be a short book, and the story is not over yet. But I would be really interested to know what is happening at that school buried in the SpaceX campus. It would be so cool to learn about. That’s one story that I came up with on the spot. That’s the place I would want to go.

[01:04:46] Rebecca Hotsko: You should definitely do that. I’m so intrigued. Yeah. What are they teaching them at this school? But that is fascinating. I would definitely support that book. 

[01:04:55] Jimmy Soni: Well, maybe I’ll pursue it when I have a sufficient break. And maybe, when Elon’s life calms down a bit, I’ll reach out to him and see if he’s interested.

[01:05:07] Rebecca Hotsko: Well, I really appreciate you taking the time to come on today and discuss this amazing story with us. For the listeners who want to pick up the book and learn more about you, where can they go? 

[01:05:18] Jimmy Soni: Yeah, the book, you know, it’s sort of that cliché, like “the book is available everywhere books are sold,” but you should probably just buy it on Amazon because then you can get the audio version if you prefer that, or the Kindle version, or the hardcover.

[01:05:37] Jimmy Soni: As for me, I mean, you know, I’m on Twitter. I’m not the most active person on Twitter, but I’m @jimmyasoni on Twitter, and then I’m just jimmysoni.com. And I love, you know, I love hearing from readers. Like, to me, the best part of doing this is hearing what people noticed, even what you noticed about the book is interesting to me.

[01:06:02] Jimmy Soni: Right, and so I welcome the chance to interact with readers. It’d be great. And thank you so much for having me.

[01:06:11] Rebecca Hotsko: Well, thank you again so much for coming on. I’ll make sure to link all of those in the show notes. Thank you very much.

[01:06:18] Rebecca Hotsko: All right. I hope you enjoyed today’s episode. Make sure to follow the show on your favorite podcast app so that you never miss a new episode. And if you’ve been enjoying the podcast, I would really appreciate it if you left a rating or review. This really helps support us and is the best way to help new people discover the show. And if you haven’t already, make sure to sign up for our free newsletter, We Study Markets which goes out daily and will help you understand what’s going on in the markets in just a few minutes. So, with that all said, I will see you again next time. 

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