While Thiel was born in 1967 in Germany, his family moved to California when he was young. Stanford was the school of his choice before he began trading derivatives at the Credit Suisse Group. In 1996, he founded the hedge-fund Thiel Capital Management, and he’s also famous for being the first outside investor in Facebook. Thiel has also donated $3.5 million to the Methuselah Foundation – a life-extension-research organization that believes humans will one day live to be 1000 years old. One of the founders argued that the first human to live a 1000 years is already born.260
Only six people showed up to the lecture at Stanford. After the lecture, Levchin walked up to Thiel. They began to talk. Something clicked so they decided to meet again at the restaurant Hobee’s to continue their discussion. Levchin had some ideas about what kinds of companies he wanted to found, Thiel took the bait and decided to invest in one of the ideas. “Take this idea, because this one is better, and you go start a company around it, and then I can have my hedge fund invest a little bit of money in it,” Thiel said.186
The new company Fieldlink was born. They would later change the name of the company to Confinity – a name that originates from the words confidence and infinity.393 But Levchin couldn’t find a CEO to run the company. He didn’t want to be the CEO himself because he wanted to develop software and recruit programmers. Thiel suggested he could be the CEO and Levchin could be the CTO.186,260
The original idea behind Confinity was to develop security software for the Palm Pilot, which was a popular brand of smaller hand-held computers. Imagine an iPhone with a black-and-white screen you can’t make a call from. To interact with the screen, the user needed the same type of stylus Steve Jobs made fun of when he presented the first iPhone. “Who wants a stylus?” Jobs asked. “You have to get them, put them away, you lose them. Yech! Nobody wants a stylus. So let’s not use a stylus.” But it turned out that Confinity’s idea couldn’t become profitable. “It’s really cool, it’s mathematically complex, it’s very secure, but no one really needed it,” Levchin said. So they decided to change business idea.186
Changing the business idea is common when building a new company. It’s known as “to pivot.” You try a new idea, you kill the idea quickly if it doesn’t work, and move on to your next idea. The first Sony product was a rice cooker – not a television. Nokia used to make boots and other rubber products – not mobile phones. Toyota used to manufacture automatic looms – not cars. “It’s Darwinian there [in Silicon Valley] – you innovate or die.” Elon said.50
Years before Bitcoin became a popular currency, the Confinity team discussed an idea to create a web-based currency that undermined government tax structures.260 But they decided to develop a software where it would be possible to store passwords and other secrets in the Palm Pilot. This idea got some attention, but they decided to pivot once again.186
Now they wanted to create a software called PayPal where you could store money inside of a device and transfer the money to other devices. Do you want to buy a hamburger? Bring up the Palm Pilot and beam the money to the seller of the hamburger who also needed to have a Palm Pilot. The whole process took five seconds. You could also install PayPal on your phone and pager. “All these devices will become one day just like your wallet,” Thiel said. “Every one of your friends will become like a virtual, miniature ATM.”256
To help them developing PayPal, Thiel and Levchin needed the best programmers. “This guy came in, and I asked what he liked to do for fun. 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,’” Levchin said. Most employees were introverted. They worked, read the book Cryptonomicon by Neal Stephenson, ate crappy food all day, and slept under their desks.260 Levchin himself worked so much he didn’t bother to go home, so he also slept in the so-called “lucky building” at 165 University Avenue. It’s the same building as where companies like Google and Logitech had their first offices.252
When the software was ready, they launched PayPal and it was a success. The company took off with 300 new users each day. They also decided to create a website with the same functions as the software on the Palm Pilot.186
Several years earlier, in 1995, Pierre Omidyar created the website AuctionWeb. It was his hobby project where people could buy and sell products. But the hobby became a profitable business when Omidyar sold his broken laser pointer and realized he could charge sellers a percent fee on their sales. He contacted the winning bidder to ask if he understood the laser pointer was broken. “I’m a collector of broken laser pointers,” the buyer replied. AuctionWeb belonged to Omidyar’s consulting firm Echo Bay Technology Group. He tried to register the domain name echobay.com, but it was already taken. His second choice was the shorter name eBay.com.189
Users from eBay began asking Confinity if they could use their website PayPal to transfer money. First, they tried to tell the users from eBay to go away because they wanted to focus on the users with Palm Pilots. Then they realized the eBay users begged Confinity to be their customers.186
The number of people who used Palm Pilots would be considerable less than the number of people who years later bought smartphones. But the number of people who used the website version of PayPal grew every day. While 1.5 million customers used the website, only 12 000 used the Palm Pilot version. As any entrepreneur would have done, Confinity decided to stop developing the software for the Palm Pilots, and instead go full speed ahead with the website version of PayPal.186
X.com and Confinity were cutthroat competitors because both companies were interested in the eBay users. In 1999, the two companies merged with each other. Almost all employees were surprised. First they worked all day trying to kill each other, and now they would cooperate with each other? X.com was the larger company because they had other services like money markets, index funds, and debit cards, but Confinity had a larger market share on eBay.
One of the reasons to why the companies merged was because both spent huge amounts of money on acquiring new users. If they combined their users, the combined company would become, according to Metcalfe’s Law, four times as valuable. The second reason was that Thiel thought only one company involved in payments on the Internet could become a public company. Of the two companies, Thiel thought X.com would beat Confinity in the race to the stock market because X.com had more resources. If X.com became a public company, they would get enough resources to crush the competition. Therefore, Confinity didn’t have any other choice than to merge with X.com.189
The strategy of the new company was that after users began using PayPal, X.com could sell to them their supermarket of financial services. Harris became the CEO, Thiel took a sabbatical year and came back to run the finance and investor divisions, and Levchin became the CTO. “I think this is going to go very well,” Thiel said. “This combined company will just blow everyone else away.” Elon thought the new company could become larger than the online grocery service Webvan, which had a market value of $7.9 billion.189
They kept the name X.com, but would later change it to PayPal because people associated X.com with pornography. Elon, on the other hand, protested against the change. He thought the name X.com was more flexible.189