The Unwinding: An Inner History of the New America (21 page)

They began to spend time together, getting to know each other by trading puzzle challenges,
mostly math puzzles. How many digits did the number 125
100
have? (Two hundred ten.) One of Thiel’s puzzles involved a hypothetical table in
the shape of a circle: In a game in which two players took turns placing a penny anywhere
on the table without overlapping the others, with the winner the last one to put down
a penny that didn’t hang over the edge of the table, what would be the best strategy
for winning? And did you want to go first or second? It took Levchin fifteen minutes
to figure it out—the key was that the best strategy depended on disrupting the other
player’s strategy (
disrupt
was one of Thiel’s favorite words).

The two puzzle jockeys were trying to figure out if the other guy was smart enough
to hang out with. One night, at Printer’s Inc. Café on California Avenue in Palo Alto,
the duel went on for four or five hours, until Thiel threw out a puzzle that was so
hard Levchin could solve only a small part of it. That ended the marathon evening,
which cemented the friendship and partnership. (Even Thiel’s constructive noncompetitive
relationships were pretty competitive.)

Combining
confidence
and
infinity
, they named their new company Confinity. Levchin’s cryptography idea was a little
vague, but Thiel, who soon joined the company as its CEO, refined it: Confinity would
store money—essentially in the form of digital IOU notes—on devices like the Palm
Pilot, which seemed to be on the verge of taking over the world. With the necessary
password, the infrared of one Palm Pilot could beam the note, linked to a credit card
or bank account, to another Palm Pilot, using a software application called PayPal.
It was a cumbersome and perhaps pointless service, but at a time when venture capitalists
were pouring money into
kibu.com
, an online community for teenage girls, and DigiScents, which tried to transmit smells
through the Web, the idea’s weirdness made it seem innovative and therefore attractive.
One angel investor heard the pitch over Chinese food near Hobee’s and, with only the
foggiest understanding of what the company did but a keen interest in the identities
of other investors, came on board (his fortune cookie sealed the deal).

In July 1999, Thiel scored $4.5 million in financing. Levchin and his engineers stayed
up coding for five nights to get ready for the announcement, which took place in front
of a dozen journalists at Buck’s, a restaurant in Woodside that was already a legendary
site of big Silicon Valley deals. As the TV cameras rolled, venture capitalists from
Nokia successfully beamed their preloaded millions from one Palm Pilot to another.
“Every one of your friends will become like a virtual, miniature ATM,” Thiel told
the press.

His strategy was to scale up as quickly as possible, in the belief that the key to
beating competitors on the Internet was viral growth. Each new customer was given
ten dollars for signing up and another ten dollars for every referral. Confinity kept
track of users via a counter linked to its database that the company called the World
Domination Index—every few minutes, a pop-up box on company computers would refresh
the number with the sound of a ding—and by November 1999, just a few weeks after its
launch, it was growing by 7 percent a day. But it became clear that setting up an
account on the PayPal website, which enabled transactions with anyone who had an e-mail
address, was a far more popular way to send money than trying to get Palm Pilots to
mate on a restaurant table (the mobile Internet was in its earliest, glitch-ridden
stage). The e-mail idea seemed so simple that it would be only a matter of time before
competitors figured it out. The pace grew even more frantic, with hundred-hour workweeks.
The most dangerous competitor,
X.com
, founded by a South African immigrant named Elon Musk, was located just four blocks
up University Avenue. Confinity held daily meetings on the war with
X.com
. One day, an engineer displayed a schematic of an actual bomb that he’d designed.
The idea was quickly shelved.

With his funding Thiel went on a hiring spree. He wasn’t looking for industry experience
but for people he knew, people who were incredibly smart, people who were like him,
Stanford friends like Reid Hoffman,
Stanford Review
alums like David Sacks and Keith Rabois, and Confinity’s cramped, spartan offices
above a bike shop soon filled with carelessly dressed, badly groomed men in their
twenties (Thiel was one of the oldest at thirty-two), chess players, math whizzes,
libertarians, without distracting obligations like wives and children or time-wasting
hobbies like sports and TV (one applicant was turned down because he admitted to enjoying
shooting hoops). Some employees lived on junk food at their desks, others were on
life-extension calorie-restricted diets. The company took out an ad in
The Stanford Daily
: “Think kick-ass stock options in a cool start-up are worth dropping out of college?
We are hiring right now!” It became the first company in the history of the world
to offer cryogenics as part of its employee benefits package.

Thiel was trying to build a successful business that would make him rich, but he also
wanted to disrupt the world—in particular, the ancient technology of paper money and
the oppressive system of monetary policy. The ultimate goal was to create an alternate
currency online that would circumvent government controls—a libertarian goal. The
summer he met Max Levchin, Thiel read a book published the previous year,
The Sovereign Individual
by Lord William Rees-Mogg and James Dale Davidson. It described a coming world in
which the computer revolution would erode the authority of nation-states, the loyalty
of their citizens, and the hierarchies of traditional professions, empower individuals
through globalized cybercommerce, decentralize finance by moving it online with electronic
money, and bury welfare-state democracies, while accelerating inequalities of wealth
(which, in the madcap late nineties, seemed almost inconceivable). At the same time,
local mafias would have wide latitude to inflict random violence. The book sketched
out a libertarian apocalypse, a dream with dark edges, and it was part of the inspiration
for PayPal.

Thiel disliked the human complication and friction of day-to-day management, which
he left to others, but at company meetings he let his employees in on his larger vision.
“PayPal will give citizens worldwide more direct control over their currencies than
they ever had before,” he told his staff. “It will be nearly impossible for corrupt
governments to steal wealth from their people through their old means”—hyperinflation
and wholesale devaluations—“because if they try, the people will switch to dollars
or pounds or yen, in effect dumping the worthless local currency for something more
secure.” He concluded, “I have no doubt that this company has a chance to become the
Microsoft of payments, the financial operating system of the world.”

PayPal was growing exponentially, approaching a million users, while burning through
ten million dollars of operating capital a month with hardly any revenue coming in.
Was it the biggest thing since Netscape, or a Dutch tulip likely to die at any moment?
Netscape itself was all but dead by 1999. Throughout that year, Thiel watched the
dot-com whirl spin faster and faster—the Idaho billionaires showing up in the Valley
looking for someone to give their money to, the brunches at Buck’s and dinners at
Il Fornaio, the thousand-dollar meals that broke entrepreneurs tried to pay for in
company shares, the select e-mail invitation list to nightly launch parties that were
rated with a starred ranking system determined by the fame level of the rock band
playing. There were more than four hundred companies in Silicon Valley, and the average
house in Palo Alto cost $776,000. The parking lot of the Stanford Shopping Center
was full of Audis and Infinitis whose owners were shopping at Bloomingdale’s and Louis
Vuitton.

Thiel sensed that the end might come suddenly and soon. On the last night of the millennium,
at PayPal’s New Year’s Eve party, he listened to Prince singing “1999,” an early-eighties
song that had been like the soundtrack to the whole crazy year—for Prince had somehow
seen it coming years before:

Cuz they say 2000 zero zero party over, oops out of time

So tonight I’m gonna party like it’s 1999

In February 2000,
The Wall Street Journal
gave PayPal a rough valuation of five hundred million dollars. Others in the company
wanted to hold out for a larger figure before the next finance round, but Thiel told
them, “You’re crazy, this is a bubble,” and in March, with a sense of time running
out, he traveled abroad to raise another hundred million. On March 10, the NASDAQ
hit a peak of 5133—it had breached 3000 only the previous November—and then it began
to drop. In South Korea, still reeling from a financial crisis, investors were so
desperate to get in on PayPal’s secret that one tried to eavesdrop from behind a palm
tree on a conversation Thiel was having in a hotel lobby. When Thiel’s credit card
failed to work at the Seoul airport—he had reached his monthly limit— a group of investors,
instead of taking this as a worrying sign about the health of an online payments company,
bought him a first-class ticket on the spot. The next day, they wired PayPal five
million dollars with no terms negotiated, no paperwork signed, and when the company
tried to return the money, the Koreans refused: “We’ve given you the money and you
will have to take it. We’re not going to tell you where it came from, so you can’t
send it back.”

On Friday, March 31, Thiel closed the hundred million dollar round. On Tuesday, April
4, the NASDAQ plunged below 4000, heading south toward 1000, and the dot-com bubble
burst.

PayPal was one of the few survivors. Just before the crash, it had merged with
X.com
. Thiel stepped down as CEO, then returned later in 2000 when Musk was forced out.
In February 2002, PayPal went public, the first company to do so following the September
11 attacks (which proved fatal to PayPal’s libertarian ambition—electronic currency
systems suddenly seemed like ideal ways for terrorists to hide money). At the IPO
party, Thiel took on a dozen employees simultaneously in a round of speed chess. In
2002, PayPal became the method of payment for more than half of eBay’s auction customers,
and after doing everything possible to create a more successful alternative, eBay
purchased PayPal in October for $1.5 billion. Thiel quit the same day, walking away
with $55 million on his $240,000 investment.

What came to be called the PayPal mafia went on to found a lot of successful companies:
YouTube, LinkedIn, Tesla Motors, SpaceX, Yelp, Yammer, Slide … Thiel moved out of
his one-bedroom apartment in Palo Alto to a condo in the Four Seasons Hotel in San
Francisco. Within a week of leaving PayPal, he started a new fund called Clarium Capital
Management. The end of his career as the CEO of a Silicon Valley start-up marked the
start of his life as a technology mogul.

1999

WILD RIDE TO THE TURN OF THE CENTURY
 …
ELOQUENT CLINTON ALLY CHOSEN TO GIVE CLOSING ARGUMENT
 …
when you hear somebody say, “This is not about sex,” it’s about
 …
Bill and Hillary Clinton are experimenting with a trial separation, the DRUDGE REPORT
has learned.
…
Party like it’s 1999. Smell like it’s 1959.
… Investigators, meanwhile, were hunting for a mystery man who fired two shots from
a 40-caliber handgun inside Club New York during the dispute between Puffy’s posse
and …
IS THE INTERNET THE NEW HEAVEN?
…
FOR TALK MAGAZINE, ECLECTIC PARTY AND A “HIP” LIST
 …
Tina must have struck a deal with the gods of weather. It was an incredibly perfect
night for dining alfresco, under the stars, with Manhattan as a dazzling backdrop
and everything dominated by the dramatically lit Lady Liberty. The American flag billowed
magnificently as the crowd danced 
…
CONE MILLS TO CLOSE PLANTS AND TRIM STAFF IN REVAMPING
 …
THE COMMITTEE TO SAVE THE WORLD
The inside story of how the Three Marketeers have prevented a global economic meltdown—so
far
 …
MILLIONAIRES? DIME A DOZEN. MARTHA STEWART’S DOMESTIC EMPIRE HAS MADE HER WORTH A
BILLION
 …
Fuck Martha Stewart. Martha’s polishing the brass on the Titanic. It’s all going down,
man. So fuck off with your sofa units and Strinne green stripe patterns
 …
COUNTRYWIDE BEEFING UP SUBPRIME MORTGAGE LOANS
 … Today’s postfeminist era is also today’s postmodern era, in which supposedly everybody
now knows everything about what’s really going on underneath all the semiotic codes
and cultural conventions, and everybody supposedly knows what paradigms everybody …
US BANKS UNLEASHED
Imminent Death of Glass-Steagall Act Will Create Giant US Financial Firms
 …
The United States seems keener than most countries to celebrate the new millennium
in style: maybe the nation is wealthy and optimistic enough that big parties seem
apropos.
…
COAST-TO-COAST FIREWORKS
 …
“This is a unique moment for our country,” Clinton told a crowd assembled just off
the National Mall, where a gala public celebration was scheduled for later Friday
night. “Light may be fading on the twentieth century, but the sun is still rising
on America.”

DEAN PRICE

In 2003, Dean’s younger son, Ryan, who was eight, began begging his mother to let
him go live with his father in North Carolina. She finally told Ryan, “If you can
remember your father’s phone number, you can call him and have him come pick you up.”
Ryan stayed up all night trying to remember. Around 6:30 in the morning it came to
him and he called his father. By ten o’clock Dean was at the doorstep.