Internet Mafia – How Billionaires Make Money


What does Tesla, LinkedIn, and youtube have
in common? Besides all of them being tech companies,
they were all founded by the PayPal Mafia. In fact, if you just take a look at the silicon
valley, you will find out that the PayPal mafia was involved in almost every major company,
starting from Facebook, Instagram to Uber, Lyft, Airbnb and even Reddit. 
This small talented group of people literally shaped the future of the internet. And in this video, we are going to take a
look at how on earth did so many super talented people ended up working together? How did
they all end up becoming billionaires? How powerful is this mafia today? and why every
single one has left Paypal? What is mafia? When we talk about Mafia, we usually mean,
a violent gang, usually when few families join forces and take control over some illegal
businesses. First of all, there isn’t much competition
because its illegal and not everyone can do that and secondly, even if there will be competition,
you don’t get rid of your competitor by improving your product or service rather, you get rid
of them in a straight and literal meaning. However, as the new century was about to begin
that brought with it an innovation that had the potential to complete reshape humanity,
a small group of people took advantage of it and become the PayPal Mafia. In the late 1990s when the internet was booming,
when investors were throwing money at any company that had .com in its name, Elon Musk
dropped out and moved to the United States to start Zip2 with his brother Kimbal, with
the money he successfully raised from a small group of angel investors. 
Although the company was quite successful and went to obtain contracts with giants such
as the New York Times, The board turned down Musk to become the CEO of the company so he
left with 22 million dollars when it was acquired by Compaq to start X.com in 1999, an online
financial service company. He was so much into this company that he paid
a million dollars just to obtain the name x.com. However, he wasn’t the only one with this
brilliant idea to start online banking. It’s the late 1990s, everybody was trying to turn
any service online and make a fortune. A year before that (1998), Peter Thiel together
with Max Levchin who moved to the US right after the fall of the soviet union founded
Confinity. The goal was to make money transfers simple
and easy online. The prime target were the PDA users, it was
basically the iPhone of that time, a little digital assistant. However, later on, they
realized that they could sync the software with Email and the Web, so with or without
a PDA, the user could transfer money. And they named this product as PayPal. That’s how PayPal was born! Transferring money today seems such a basic
idea, however, in the 1990s, that wasn’t the case, the ability for anyone to transfer
money around the globe was something revolutionary. The rivalry between the 2 companies was fierce
(Confinity vs x.com). To boost up their user numbers, Confinity started offering 10$ bonus
signup and a 10 dollar referral bonus for each new user. It might seem like X.com would offer exactly
the same to stay competitive, however, they raised that number and offered a 20 dollars
bonus for each signup and 10 dollars for each referral signup. You are probably already guessing how it went for both companies. They were bleeding
cash and it was only a matter of time before one of them would go bankrupt. But regardless, it was a brilliant idea, because
no one would mind free money, so the number of users grew dramatically. In the next 3
months, PayPal had already attracted 12 thousand users. However, what really made PayPal so successful
was eBay. It was kicked off a few years earlier and already was at the top of the internet
at that time. Despite its dramatic growth, the only way
to pay for things was through checks, which were extremely inconvenient. that’s why
they chose to integrate Paypal into their system which made Paypal even more popular. On the other side, Musk was in a little trouble
with X.com because his key partner Harris Fricker resigned and many important engineers
left with him. Unlike Confinity who only focused on transferring
money online, X.com was an actual bank with an appropriate license, but of course one
of their major services was transferring money to one another which made the two companies
fierce competitors. The two companies fought to gain eBay users
but at some point, they realized that this competition will hurt them both, On one side
PayPal was much more popular than x.com, but it was bleeding cash while x.com had
plenty of cash around which pushed the two companies to merge under the name Paypal. This decision later came to be extremely crucial.
For the last 5 years, investors were blindly throwing money at every company that added
.com in their name, so next year, in 2001, the bubble burst and most internet companies
literally went bankrupt one after another. and if it wasn’t for that merger, Paypal
or x.com individually wouldn’t survive the crises. 
Paypal was already struggling before the crises, the two teams couldn’t work together efficiently
and the future of the company was quite blurred. Bill Harris was the first CEO, then he was
replaced by Musk, then when Musk was on a vacation, he was replaced by Peter Thiel.
The company was going through a lot of instability. Despite the struggles, in 2002, PayPal went
public and generated 61 million dollars. Shortly after the IPO, eBay made them an offer
they couldn’t refuse, 1.5 billion dollars for the entire company in July of the same
year since PayPal became the payment method used by a majority of eBay users. But eBay changed PayPal to its core to the
point where all the founders left, but they didn’t just leave but founded some of the
innovative companies in the world. Steve Chen, Chud Hurley and Jawed Karim who
kick-started Confinity with Peter Thiel went to start an online video sharing company
that they named YouTube in 2005. The service took off incredibly fast and by
2006 google made them an offer they could not refuse and purchased Youtube for 1.65
billion dollars. Reid Hoffman who was on the board of directors
of Paypal and the executive vice president started Linked in 2002, the first business-oriented
online social network. Today LinkedIn has almost 600 million users
and operates all over the globe. and in June of 2016, Microsoft proposed to acquire LinkedIn
for $26.2 billion in cash, an offer they couldn’t refuse, that also put Hoffman on Microsoft’s
board and made him a billionaire. And then there is Elon Musk, who doesn’t
need an introduction. Since he was the biggest shareholder, he earned 250 million dollars
from this deal, but was only left with 180 million dollars after taxes. 
His ambitions were beyond this world, anyone else would start maybe a company and leave
the rest on an investment fund, but not musk, he started a rocket manufacturing and space
transportation company with a hundred million dollars right after exiting PayPal to colonize
Mars and make humanity multi-planetary species. He Invested another 70 million dollars in
tesla, an electric car company. And the last 10 million dollars he invested in Solar city,
to improve solar energy technology. Despite that SpaceX and Tesla almost went
bankrupt, today they are at the top of the world. He also launched Neuralink, a neurotechnology
company that develops implantable brain-machine interfaces. And the boring company, to dig
tunnels underground to reduce traffic. In fact, he started the company because he couldn’t
take the LA traffic any more. Peter Thiel who was the CFO at PayPal started
a hedge fund – Clarium Capital – with the 55 million dollars he has earned from the
PayPal deal. He became the first outside investor in Facebook. He invested 500 thousand dollars
for 10.2 percent equity. Thiel was not only actively involved in Facebook’s day-to-day
running. but also helped the company to survive the 2008 crush and when Facebook went public,
he sold most of his shares and became a billionaire. Former vice president of Paypal Jeremy Stoppelman
went to start Yelp with few other PayPal employees. Its crowd-sourced review online service that
has a market value of 2.5 billion dollars and as 2017, Yelp reported having a monthly
average of 150 million unique visitors. The rest of the team who worked at PayPal
went to start multiple different startups that became eventually multi-billion dollar
companies. But besides that, they were early investors
in multiple companies that shape our reality today, Uber, Airbnb, Instagram, Dropbox, Quora,
Evernote, Spotify, Reddit, Pinterest, Lyft and many others. These group of incredibly talented people
later came to be known as the PayPal mafia. They are not some kind of an organization
that works together, but more of a network of talented people. I hope you guys have enjoyed this video, give
it a thumbs up if you did and hit that subscribe button and the bell besides.
Thanks for watching and until next time.


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