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Both Thiel and Rabois came out as gay years later. And in 2011, Thiel told the New Yorker he wishes he’d never written about the Rabois incident. Rabois told me, “It was a stupid thing to say, but I’m not the only person who did something stupid in college.”
Thiel and Sacks have also publicly walked back some of the book’s other arguments, such as their assertion that date rapes were often no more than “seductions that are later regretted.” Thiel commented on that for the first time when his donation to Donald Trump’s presidental campaign (just a week after that Access Hollywood tape revealed Trump boasting about kissing and grabbing women without permission) called attention to the views Thiel had earlier espoused. “More than two decades ago, I co-wrote a book with several insensitive, crudely argued statements,” he told Forbes in 2016. “I wish I’d never written those things. I’m sorry for it. Rape in all forms is a crime.”
In late 2017, however, Stanford Politics (another student publication) published a lengthy article in which undergraduate staff members of the Stanford Review said that Thiel still meets with them on a regular basis, and hosted an afterparty at his home to commemorate the Stanford Review’s thirtieth anniversary. There, one former SR editor said Thiel claimed he apologized only to appease the media, saying, “Sometimes you have to tell them what they want to hear.” A spokesperson told me that Thiel stands by his original statement to Forbes.
Sacks, for his part, told Recode’s Kara Swisher of The Diversity Myth, “This is college journalism written over 20 years ago. It does not represent who I am or what I believe today.” When I asked Sacks about the book myself in 2016, he pointed to women on the executive teams at the companies he’s run to prove how much he cares about their advancement. “I do believe in diversity, and I’ve always sought to create the best teams possible,” he told me.
But twenty years ago, when The Diversity Myth first came out, Thiel and Sacks had little need to defend or denounce the book, because no one took much notice of it. At the time, Thiel was just another conservative up-and-comer, a minor player in the traditional power structures of politics in Washington and finance in New York. That was about to change.
PAYPAL: WHEN “MERITOCRACY” MEANS “PEOPLE LIKE US”
One day in 1998, Thiel was guest lecturing about currency trading at Stanford when a young Ukrainian engineer named Max Levchin sneaked in to, as he told me, “sleep and get some air-conditioning.” Instead, he wound up listening. At the end of class, Levchin introduced himself to Thiel and mentioned that he wanted to start a company. He had already started four that had failed, but he wasn’t about to give up. The next day, the two men had breakfast and hatched the idea for PayPal over a Hobee’s “Red, White, and Blue” smoothie. Suddenly a former securities lawyer with no technical background was the unlikely co-founder of what would become a billion-dollar start-up. And the group that would become the PayPal Mafia began to form.
Sacks became PayPal’s COO in 1999. In early 2000, PayPal (then called Confinity) merged with a competing payments company called X.com, run by a then-obscure entrepreneur named Elon Musk. Rabois became Thiel’s right-hand man. PayPal’s founders, investors, and early employees went on to become a tight-knit and very wealthy group. To this day, Rabois believes PayPal is a “perfect validation of merit” and of Silicon Valley as a meritocracy. “None of us had any connection to anyone important in Silicon Valley,” he told me. “We went from complete misfits to the establishment in five years. We were literally nobodies. People wouldn’t talk to us. Everybody thought we were weird. One tech publication ran a story called ‘Earth to PayPal.’ Everybody thought we were insane.” The early PayPal team would go on to found some of the biggest companies in Silicon Valley, including Tesla, SpaceX, LinkedIn, YouTube, and Yelp. Thiel funded and joined the board of Facebook. Establishment achieved.
HIRING ONLY PEOPLE LIKE US
So who were these “nobodies” without industry connections, and whom—and how—did they hire? While Rabois believes they were devoted to the idea of merit—of hiring only the best—that is simply not what happened.
Thiel and Levchin, in fact, have been remarkably up-front about whom they wanted to employ: people who were a lot like them. Years later, in Zero to One, Thiel would explain their reasoning. Because start-ups have limited resources, he wrote, “they must work quickly and efficiently in order to survive, and that’s easier to do when everyone shares an understanding of the world. The early PayPal team worked well together because we were all the same kind of nerd.” Except for the office manager, who was female, those first employees were all men and all of similar age and educational background.
Thiel admits in the book that when starting PayPal, he didn’t sort through résumés looking for the most talented people. Mostly, he just brought in the buddies he’d worked with at the Stanford Review. Levchin, for his part, hired friends and old associates from his time in the computer science department of the University of Illinois at Urbana-Champaign. In fact, Levchin tells me PayPal’s first fifteen engineers were “basically lifted” straight from a computer graphics group he ran on campus. “There was never any time wasted on how do you do this sort of thing. We had exactly the same approaches to everything,” Levchin says. He points out that these engineers came from a range of ethnic backgrounds but allows that none of them were women, “because we didn’t know any.”
The idea that these men just happened to be personally connected to the most talented people available is simply ridiculous. Even Rabois acknowledges that “it was almost impossible to get a job [at PayPal] without a connection to the company . . . We were very network-driven in hiring. And they were weird networks.” The members of the PayPal Mafia explicitly believed, and some still do, that hiring an ideologically diverse group of people early would slow the company down, when all they wanted to do was move faster. “I don’t think you can have first principles debates in a start-up in the beginning,” Rabois told me. “In the beginning, it’s better to have people who are more similar ideologically than different. Once you have alignment, then I think you can have a wide swath of people, views, and perspectives.”
Amy Klement was one of the earliest women at PayPal—not because Thiel or the others hired her, but because she was working at Elon Musk’s X.com when it merged with PayPal in 2000. Klement told me, “[PayPal] was a high-intensity, driving culture” full of impassioned debate. Socializing took the form of chess tournaments rather than fratty parties. Employees worked eighteen-hour days, seven days a week, as they worked to build a secure online payments system that could rival the global banking industry. “There were tense discussions, at times anger and slamming doors,” Klement said.
But despite their own admission that they were hiring from people they knew personally, Klement confirms that Thiel and other executives often talk about how PayPal was a meritocracy. “We used the word ‘meritocracy’ a lot, and I do feel like we were very conscious of who was really performing,” she said. Klement, one of the few women at the company, became a product manager reporting to David Sacks. “David had a strong point of view on what the product should look like, but I also feel like I would share my points of view and we would work through things.”
As the early PayPal staff rose to prominence, Thiel in particular became famous for his strong views. “I think there is this way in which human beings can act in sheeplike, lemminglike, herdlike ways,” Thiel once told me in a Bloomberg Television interview. “And I think that’s a disturbing truth about human nature that we should try to, try to resist as much as we can . . . I think there is probably something about the general homogenization of our society where people are brought up in increasingly similar ways that probably does limit the amount of creativity one can have.”
Obviously, Thiel didn’t consider himself one of those doomed lemmings. But how does one find other nonlemmings? Just look for unusual behavior. In his book, Thiel notes with pride that “of the six peo
ple who started PayPal, four had built bombs in high school.” In our interview, he told me, “There is something that’s always quite extreme about the personalities that go into starting a company . . . Having some extreme personalities, I think, is a somewhat good thing.”
The beliefs of the PayPal founders—that individual merit is the most valuable metric of human potential and that creativity is deadened by groupthink—have deeply influenced the postcrash tech industry and are consistent with the ideas promoted by Thiel’s cohort at Stanford. There are many counterarguments to this thinking, but I’ll focus on one of its glaring flaws: Peter Thiel, who champions unbridled individuality, is in fact describing a groupthink of his own. From his Stanford days onward, Thiel has largely surrounded himself with Ivy League, antiestablishment contrarians whose opinions are similar to his own. The Review editors might not have been the most popular group at Stanford, but they were a group nonetheless. They took their particular brand of groupthink to PayPal and their subsequent companies, propagating it through Silicon Valley—with consequences far beyond the PayPal walls.
That’s why, when Thiel and his cadre advise companies to focus on individual merit in their hiring, we need to look very closely at how they define the term. What are the metrics they use for determining people’s “merit”? And why does this particular type of meritocracy seem to reward jobs and stock options only to a razor-thin demographic?
Thiel expresses no regret about the narrow criteria he used in staffing PayPal. “I ended up recruiting a lot of people I’d become friends with at Stanford,” he told me; Levchin did the same, hiring from his own alma mater. The co-founders’ example was then repeated, Thiel says, by those hiring at the lower levels. “Let’s get people like us” became ingrained as company culture. “It was always, you know, is this somebody that we’d want to work with and could become friends with over a long time?” Thiel said. “That was a question we always had in the background.”
Levchin, however, admitted to me that his early approach was flawed, recalling a specific moment “where I consciously realized, ‘Wait, we are doing something wrong.’” One day his girlfriend (who later became his wife) told him, “If you don’t hire a woman now, you will never hire a woman. I would look around the office and say, ‘I am not going to be the first woman here.’” By then, hiring had slowed because Levchin was running out of University of Illinois recruits to vacuum up, and he was perplexed about what to do. “We don’t know anyone else. We’ve already hired everyone who looks like us in our little social circle. We realized there was a plateau moment where we had to fix that problem,” Levchin recounts. That’s when PayPal started to cast a wider net and hired a female head of engineering, Jane Manning.
Manning had all the necessary technical skills, but, more important, she enjoyed Ping-Pong. “I was completely smitten with her,” Levchin says. “She came into the interview and said, ‘Let’s play Ping-Pong,’ and I said, ‘Hey, that’s awesome, she is instantly fitting in.’” But just a few weeks later, Manning left for a job at Google.
Reflecting on her time at PayPal, Manning told me, “The problem was a cultural one, not necessarily a lack of women, but if there were more women, the culture might have been better. There was a certain overconfidence among the engineers. I wanted a little more process that could have protected us from mistakes, something that I think women can be more sympathetic to. I do think there can be a sort of macho all-male environment of ‘We don’t make mistakes.’” For example, Manning had to fight to get the team to use a bug-tracking system (and one engineer programmed it to play “The Hamster Dance Song” whenever it loaded). The team, conversely, felt they could keep track of whatever they needed to in their heads. On top of this, Manning never quite hit it off with Thiel. “I was uncomfortable with Thiel’s political views,” Manning told me. “I remember learning that he had met a lot of other early PayPal employees at the Stanford Review and really had a moment of feeling that these were not my people.”
PayPal did manage to hire more women as the company scaled and acquired women like Amy Klement in the merger with X.com, but the team at the top, the one that would go down in history, was all male. As they cashed out of PayPal and dispersed to start new companies and join or create venture funds, they would wield extreme power and influence in Silicon Valley. Many of the companies they went on to found or be associated with became the most successful and highly valued companies of the decade. Anyone who had boarded the PayPal rocket ship early seemed to have a ticket to unprecedented opportunities and automatic success. Every one of them became very rich. Not one of them was a woman.
A photograph of the PayPal Mafia on the cover of Fortune magazine in 2007 pictures the men posing as gamblers with cigars, drinks, and a deck of cards. “It just makes me cringe that there’s not one female in that photo,” says Amy Klement. “It drives me crazy because there were some really successful women at PayPal.” While they might not have been founders, these women, she says, were written out of history.
Did the mythical status the PayPal Mafia acquired perpetuate the idea that successful start-ups were founded by groups of male friends? Was PayPal somehow responsible for this notion that women couldn’t or just didn’t found companies? “They absolutely created a template because having watched what the PayPal Mafia did and how incredibly successful they were. . . . Why wouldn’t you imitate them?” Roger McNamee, co-founder of the tech private equity firms Silver Lake and Elevation Partners, told me. When it comes to the idea of hiring your friends or “people like us,” McNamee adds, “they didn’t just perpetuate it; they turned it into a fine art. They legitimized it . . . These guys were born into the right part of the gene pool, they wind up at the right company at the right moment in time, they all leave together and [go on] to work together. I give them full credit for it, but calling it a meritocracy is laughable.”
THE PAYPAL OCTOPUS
The ultimate reach of the men in that Fortune cover photo is astonishing. After the sale to eBay, the PayPal Mafia unfurled like an octopus and deployed its tentacles all over Silicon Valley. Members were forever bonded by what they’d shared. As Thiel told me in our interview, “There’s something about the set of us, the set of my friends from PayPal, where this was just an intense experience. And I think that those bonds can probably never quite be matched in their intensity.” And as those men dispersed, their relationships became the currency in which they traded. They joined one another’s companies, funded one another’s ventures, defended one another’s controversial public statements, and more.
For Founders Fund, Thiel partnered with two less prominent PayPal co-founders, Ken Howery and Luke Nosek. The partners at Founders Fund invested in their old PayPal buddy Elon Musk’s space venture, SpaceX (Musk also co-founded Tesla). Founders Fund, along with Max Levchin and Keith Rabois, invested in the workplace chat company Yammer, which was founded by former PayPal-er David Sacks. Yammer was ultimately sold to Microsoft for $1.2 billion.
The list of “begats” goes on. Sacks went on to become COO of the fast-growing HR software start-up Zenefits. When the founder of Zenefits, Parker Conrad, was kicked out amid accusations of cheating state compliance regulations and creating a bro-y culture that led to “sex in the stairwells,” according to an internal memo, Sacks was promoted to CEO. Sacks promptly brought in Peter Thiel as a board member. Even though the valuation of Zenefits was slashed amid the cheating scandal, it still reached $2 billion. (Sacks has since left Zenefits.) And this is just a partial list.
The PayPal Mafia became so dominant that in 2017 Adam Pisoni—an entrepreneur who never worked at PayPal but was recruited by Sacks to be his Yammer co-founder—cited what he called the Mafia’s “dynastic privilege” as “one of the major contributors to the lack of diversity” in Silicon Valley. “I am a product of the ‘PayPal Mafia dynasty,’” Pisoni wrote in a Medium post. “I co-founded Yammer with one of the original PayPal mafia members. Yammer had an e
asier time raising capital because of our PayPal connection.” Yammer, like PayPal, had an all-white, all-male founding team, which hired mostly white men from their networks early, who all in turn benefited greatly from Sacks’s Mafia ties. Pisoni continues that it was then easier to raise funds for his next start-up because of his Yammer connection, thus perpetuating the dominance of a selection of white men. Or as Roger McNamee sums it up, “Show me something the PayPal Mafia is not involved in.”
Reid Hoffman also acknowledges how much he benefited simply by knowing Thiel. “Because Peter and I were classmates, that ended up being a huge inflection point in my career,” Hoffman says. Having co-founded the professional social-networking site LinkedIn (which was funded by the prominent venture capitalist Michael Moritz, who had originally been on PayPal’s board), Hoffman has spent a lot of time thinking about how networks can impact diversity outcomes, for better and for worse. “When you’re hiring the first twenty people on the team, you don’t go, ‘Who’s the most different from the other nineteen people that we have?’ That’s not useful,” Hoffman explains. “Should it all be white men of a similar socioeconomic class? Well, no, that’s more likely to run you off a cliff.” The most important thing, Hoffman believes, is that all team members, whoever they are and wherever they come from, cohere quickly on the company mission.
Hoffman eventually sold LinkedIn to Microsoft for $26.2 billion. When I ask him if networking is part of Silicon Valley’s gender problem, he says if he could do it all over again, he would go back to his college days at Stanford and network even more, not less, and especially with women, because he’s seen the incredible benefit of a single friendship.
Klement agrees that dynastic privilege in tech is a problem. “I think it’s gotten worse, where people are hiring from their networks and their friends,” she says. “The money flows easily around [the PayPal Mafia] and hiring flows easily around that group, but I think that’s how labor markets work. The elite are connected with the elite . . . It’s very logical you’re going to invest in people you know and trust more than you’re going to invest in people you don’t know. We should enable ways to break through and enable others to get in.”