Angel investor Dave McClure assembled several dons of the “PayPal Mafia” on-stage Tuesday night for a Startup2Startup event in San Francisco. The panel included Max Levchin (Slide), David Sacks (Geni and Yammer), and Jeremy Stoppelman (Yelp). With a lineup like that, my CapLinked co-founder Chris Grey and I made the pilgrimage up north from L.A. to catch the show.
Dave capably moderated this group of heavy-hitters — Max only chastised him once for a stupid question — and the audience was treated to some insightful and candid discussion. I jotted down a few highlights from the panel:
Why have PayPal alumni started so many other companies?
By all accounts, it’s a pretty impressive list of companies and organizations started by PayPal people. The group pointed to several reasons. First, the company was “stress tested” by assaults from multiple competitive, legal, regulatory, and operational threats (hence the title of my book). This process promoted innovation and prepared employees for the future rigors of starting their own companies. David Sacks noted that the company’s recruiting was viral — Peter Thiel brought in people from Stanford, while Max hired engineers he knew from the University of Illinois at Urbana-Champaign. This lead to higher quality recruits than if we had relied on recruiters or job placement ads. With one of the best lines of the night, Max pointed to the company’s hiring philosophy as a reason for the Mafia: “The best employees are the ones who feel this is the last time they’re going to work for someone else.”
How did working at PayPal help you innovate with your current startups?
Even though Eric Ries’ lean startup methodology had not been developed at that time, David Sacks said that PayPal had a form of agile development before the concept existed. The product focus was on iteration, not perfection, which let PayPal pivot both its platform (going from Palm Pilots to the web) and market vertical (from person-to-person payments to online auctions). David called Yammer the ultimate pivot, noting that it was a spin-off from an internal tool developed at Geni. Jeremy said that from day one at Yelp he was focused on “what will we have to pivot on,” enabling him to fine tune the company’s business model.
Now that financing is stabilizing, were startups right in rushing to raise money before the crash?
Jeremy lauded prudence when it comes to financing, and said it’s generally wise for entrepreneurs to take advantage of financing opportunities when they have them. Max drew a parallel with PayPal’s experience in 2000. As the NASDAQ neared its peak in April of that year, Peter Thiel rushed to close a $100 million financing round for the company. Within weeks the stock markets began to dive and financing for the tech sector dried up. Had Peter and his team not made that opportunistic decision, the company would not have had a long enough runway to fix the major problems with its business model and get fraud under control. Max said that experience shaped his thinking again in 2007, when he sensed that markets had become frothy and a hard landing was in the offing.
How do you measure success?
I’ve heard Dave McClure make the point that choosing the right metrics is one of the most important things a startup CEO must do, so this question wasn’t a surprise. Max said it was how many lives you impact with your service. Jeremy said it was staying relevant in a constantly changing world. David said it was whether or not your company achieved its mission.
Which company is the most entrepreneurial: Facebook, Google, or Apple? (Hint: Let’s hope Steve Job’s health holds up.)
The panel punted on this question, so Dave took a poll of the audience. Claiming that companies that keep their founders active tend to be the most innovative, Dave asked which of Silicon Valley’s hottest companies was the most “entrepreneurial.” While admittedly an unscientific poll, the results were surprising: Facebook trounced Google in a 2-to-1 landslide. But even more surprising, in a room of over 100 entrepreneurs, Apple didn’t get a single vote. Perhaps Apple’s PR team has oversold the brilliance of Steve Jobs?