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Good evening and Happy Halloween! I am still recovering from a hangover so today instead of trying to parse the future we’re diving into Silicon Valley history and asking: Who are the Paypal Mafia? And why were they so successful?

Plus, Google profits are down, the Chinese have completed a new space station, and Solugen raised another $200M for oil refineries that run on corn syrup instead of oil.

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SILCION VALLEY HISTORY

Who Are The PayPal Mafia?

We’ve all heard about the PayPal Mafia but if you haven’t, it’s a group of people who worked at Paypal in the early days of the company and went on to become prolific investors and operators.

But who are they exactly? How much did they really amount to? The answer is pretty stunning. The sheer number of household-name companies this team created is wild.

The PayPal Mafia

1. Peter Theil — The Don. Peter Thiel founder of PayPal which was bought by eBay for $1.5B in 2002. In 2003 he founded Palantir and in 2005 Founders Fund. He was also the first investor in Facebook with a $500k check and is still on Facebook’s board.

2. Elon Musk — You may have heard of him. Tesla, SpaceX, and now Twitter.

3. Steve Chen, Chad Hurley, and Jawed Karim - CoFounders of Youtube

4. Roelof Botha — Senior Partner at Sequoia Capital. Since Doug Leone stepped down Roelof is the head honcho at Sequoia.

5. Ried Hoffman — Founder of LinkedIn now at Greylock

6. Keith Rabois — OpenDoor, OpenStore, Founders Fund Partner

7. Max Levchin — Cofounder of PayPal, now Founder & CEO of Affirm

8. David Sachs — Founder of Yammer and Craft Ventures

9. Andrew McCormack — Founder of Valar Ventures

10. Russel Simmons — Cofounder of Yelp

11. Yishan Wong — Former CEO of Reddit

The PayPal Mafia phenomenon has been compared to the founding of Intel in the late 1960s by engineers who had earlier founded Fairchild Semiconductor after leaving Shockley Semiconductor.

A Map of Investments by the PayPal Mafia

Image from Fleximize

First Mover Advantage:

Why was the PayPal Mafia so successful? Yes, all of these guys made out with millions after PayPal was bought by eBay for one and a half billion but that alone wouldn’t guarantee this massive run of new successful companies.

Quibi raised $1.75B from investors, when was the last time you watched something on Quibi?

What the PayPal Mafia had that founders today don’t is the dawn of the internet.

In 2002 when PayPal sold, nothing we think about as legacy tech had been built yet. Videos on the internet? Steve and Chad started Youtube. Professional networks online? Ried starts LinkedIn. Need to pick and find a restaurant? Russel starts Yelp.

I’m not saying it was easy to start these companies but we’re not talking about rocket science* here, these aren’t niche SaaS data interoperability companies. These are the “We just got the internet what should we make?” kinds of companies.

*With the exception of Elon's next ventures. SpaceX was literally rocket science.

Even better, tech was going through a bust cycle in 2002. Not only did the PayPal Mafia had the money to build and invest in tech startups, the field had just been cleared by the dot com bust. The opportunities were endless.

Network Power

Venture capital is all about networks. VCs have to find great companies and founders to invest in. Founders have to find VCs who will invest in them. Friends in common make it much easier for both parties to trust the other. In other words, your network greases the wheels. Which is fundamentally unfair but very human.

Peter Thiel was introduced to Mark Zuckerberg by Ried Hoffman. Jawed Karim, founder of Youtube, told Keith Rabois about the video-sharing startup he was working on, Keith told Rolef Botha at Sequoia, and Sequoia ultimately invested.

For the PayPal Mafia, the power of their network to find investors and find investments was unparalleled. Today it reminds me most of Y Combinator.

Members Only: It is worth noting that the PayPal Mafia is entirely men and almost entirely white. In part, that was undoubtedly because in the ‘90s there were even fewer women writing software than today — this was back in the era when Time Magazine was publishing stories with titles like The Golden Geeks about Netscape founder Marc Andreessen.

But given the Mafia’s prevalence, that lack of diversity likely had an impact on the makeup of Silicon Valley companies for years.

That's not to say that The PayPal Mafia wouldn’t invest in women-led companies given the opportunity, it’s just that they clearly didn’t know any women in tech. If they had there would have been a couple at PayPal and in the Mafia.

Given VC is all about your network, if the PayPal Mafia only had men in their network... You see where this is going.

Aside: Interestingly, companies like Chief are today trying to build their own networks of power brokers, but only within minority groups.

TLDR

The PayPal Mafia spawned a ridiculous amount of incredible tech companies including Youtube, LinkedIn, Affirm, Tesla, SpaceX, Palantir, and Yelp.

Their success came from fantastic timing — they exited PayPal in 2002 when the internet was dawning and after competitors had folded in the dot com bust — and a tight-knit network that served to help founders raise capital and help investors find new opportunities to invest in.

X.com founder Elon Musk with Paypal founder Peter Thiel after the two companies merged. Elon’s hair really grew in since 2000.

EXTRA! EXTRA!

News

The Chinese have completed their space station. The Tiangong, which translates to Palace in the Sky, is now complete. Two more missions will send up the cargo and crew before the end of the year.

In the most glaring sign of a recession yet, Google profits are down 27% in Q3. Google’s profits are directly tied to ad revenue and with an ad platform as prevalent as Google Ad Words it’s basically an index of the economy. Every business in every sector advertises on Google. A drawdown this big means companies are cutting costs hinting at a recession.

Fun Fact: Google’s "Other Bets” category which includes self-driving platform Waymo and drone delivery project the Wing, lost $1.6 billion. But that’s nothing compared to $3.7B Meta lost on VR bets with Reality Labs last quarter.

New York City passed new legislation requiring companies post an estimated salary range on job ads. The law could have impact far beyond New York as all companies with offices and employees in NYC will have to comply.

Chris Dixon at A16Z Crypto says he’s still bullish on crypto — not that he could say anything else after raising $6.7B for two new crypto funds since 2021 — but the Wallstreet Journal reports A16Z Crypto Fund I is down 40% from the start of 2022. It also reports:

“As of the end of last year, the first crypto fund had multiplied its initial investment by 10.6 times after fees, making it the best-performing fund on paper in Andreessen’s history.”

So it sounds like despite a 40% drop A16Z Crypto Fund I still has a fantastic fund return.

Returns on A16Z Funds from the Wallstreet Journal

VC FUNDING

Solugen

Raise: $200M Series D at a $2B valuation

VCs: Lowercarbon Capital, Kinnevik, Refactor Capital

One Liner: Bio-based chemical refinery

Oil refineries produce a ridiculous number of modern products: plastics, chemicals, fertilizers, fertilizer, materials pharmaceuticals, cosmetics. All of which made for a wondrous 20th century until we started to notice the side-effects…

Solugen is a bio-based refinery company. Instead of refining oil, they use coin syrup, water, and genetically engineered microbes. Their plant looks a lot like a refinery and it produces competitive chemical products, but there’s no oil in the loop.

Best, it’s not all that speculative. CEO Gaurab Chakrabarti told Bloomberg, Solugen is on track to do north of $100M in revenue in 2022. They make 10,000 tons of chemical product at their Huston plant every year and are carbon neutral as a company, in some cases carbon negative.

Solugen is one of the biggest winners yet in synthetic biology and is one more step in the transition off of fossil fuels.

Hoxton Farms

Raise: £19.8M Series A

VCs: Collaborative Fund , Founders fund

One Liner: Animal fat without the animals

Hoxton Farms is another alternative meat company but this one is strictly making fat. Using bioreactors and engineered microbes they “grow purified animal fat”, because as their landing page says “Fat is magic: the world needs a clean source of animal fat to create meat alternatives that look, cook and taste like the real thing.”

There are a lot of players in the alternative meat space, and given Beyond Meat is down 84% YoY, I’m not sure demand actually exist in the way VCs and founders would hope.

That said, the technology behind meat alternatives, biomanufacturing, will go through the same tech cost curves as televisions and solar panels and computer chips. In the early days, like now, it will be slow, expensive, and result in a sub-par product, but over time it will get faster, cheaper, and the animal-free meat will taste and feel a lot more like real meat.

So while this industry will undoubtedly see consolidation, Hoxton Farms and all of the alternative meat companies are pushing the industry in the right direction.

Rewind

Raise: $10M at $75M valuation

VCs: David Ulevitch at Andreeseen Horowitz

One Liner: App to record everything on your Mac

Rewind records everything that happens on your Mac and then lets you search or go back and replay something.

That alone is interesting, but the real promise is in building features based on your history. You can imagine anything from AI to summarize meetings to surfacing useful information in a future calls or emails. It could become a kind of operating system for work or a digital assistant.

ONE FUN THING

I feel down a design rabbit hole this weekend and I’m starting to appreciate the design systems behind some of my favorite products. Lesson one, don’t be Steam: