Brotopia Page 7

  Unfortunately, networks like the one created at PayPal are hard to get into once they are established. You have to be one of the gang, a known quantity—much like the real Mafia. The power that these groups wield and the business momentum they create are hard to overstate.

  Jeremy Stoppelman and Russel Simmons (both in the Fortune photo) started Yelp, which went public with a $1.43 billion market cap. Max Levchin funded Yelp and later joined as chairman. Chad Hurley, Steve Chen, and Jawed Karim came up with YouTube, which sold to Google for $1.65 billion just a year after its founding.

  In this particular “meritocracy,” whom you know is critical. Michael Moritz of Sequoia, who funded LinkedIn and PayPal, also recruited PayPal CFO Roelof Botha to join Sequoia as a partner after PayPal was sold. One of Botha’s first investments was YouTube. Because he had just returned from his honeymoon with several digital videos and no way to share them, he was primed to see great potential in YouTube’s fledgling site. Luckily, the founders were three of his old PayPal friends. Botha also funded Xoom, the international payment company started by early PayPal investor Kevin Hartz. Xoom sold to, wait for it, PayPal for $890 million in 2015.

  Meanwhile, Youniversity Ventures (now Y Ventures), a fund started by Hartz along with Keith Rabois and Jawed Karim, made an early investment in Palantir, another company co-founded by Peter Thiel. Rabois also worked for Hoffman at LinkedIn and became COO of Square, funded by Sequoia’s Botha. He left Square in the midst of sexual harassment allegations involving a male employee (which he denied) and became a general partner at Khosla Ventures. Between his stints at LinkedIn and Square, Rabois also became executive vice president of the social app company Slide, started by Max Levchin and backed by Thiel’s Founders Fund. It was at Slide that Levchin learned the hard way that having a male-dominated team like PayPal’s wasn’t always a recipe for success.

  MAX LEVCHIN’S DIVERSITY AWAKENING

  Tres, a Mexican bar and restaurant, is located on Townsend Street, in San Francisco’s tech-heavy SoMa district, and the staff of Slide assembled there regularly for happy hour. “There was definitely plenty of alcohol,” Levchin admits. “If the boys want to go out and do happy hour, who am I to tell them they can’t blow off steam?” The introverted Levchin is not one to pound beers at a bar, but many of his employees more than picked up the slack.

  Jason Rubenstein joined Slide as a software engineer in 2008, a point when the company was going gangbusters because of the popularity of its social apps and games on Facebook. Employees were pulling long hours, each day trying to beat the numbers they had posted the day before. Every team had a mini refrigerator stocked with beer, Rubenstein remembers. But the occasional beer often turned into groups of people starting to drink at 3:00 p.m., and many of them were drinking to get drunk. According to Rubenstein, one night an engineer got drunk, pushed code at 3:00 a.m., and took down Slide’s entire website.

  The few female engineers started to feel uncomfortable. “At some point, the alcohol culture led to grabby hands at parties, that sort of thing,” Rubenstein recalls. “If someone says no and it keeps happening, that’s a problem.” A woman who worked at the company told me that Slide felt like a frat house, with an undercurrent of sexism and rumored hookups.

  Given that many Silicon Valley start-ups are founded and staffed by young men straight out of college, drinking at the office is common. There’s beer on tap at most big tech companies, including Google, Facebook, and Twitter, and you’ll often find beer in the refrigerator at small start-ups, to juice those late nights of coding with your buddies. Rubenstein calls Slide’s alcohol problem and “ambient sexism” symptoms of “a culture of immature individuals.” In these kinds of environments, Rubenstein says, “there are all sorts of comments like ‘Gee, that’s gay,’ or ‘Gee, do you have a vagina?’ which I’ve heard far too many times to count.”

  Looking back, Levchin wouldn’t exactly characterize Slide’s culture as Brotopia. “I think Slide originally had what I’d call the occasional moral-vacuum culture,” he told me. “Different people chose very different interpretations of what was appropriate, or even barely acceptable.” His mistake, he admits, was not investing enough time and effort in guiding the culture from the beginning. “That error manifested itself in occasional clashes,” he said, and led to some “plain inappropriate behavior” as well as destructive office politics including backstabbing and a general lack of candor.

  When he realized his company was destroying itself from within, he took aggressive action. He removed or pushed out the bros on staff (“there were definitely a few,” he admits). He apologized to individuals who got “caught in the cross fires,” gave some “we’re all in this together” speeches to the team, and attempted to reset the culture to get Slide on the right track.

  Despite these efforts, the company itself did not succeed, at least by Silicon Valley’s lofty standards. Slide cycled through multiple business models and products until Levchin sold it to Google for $182 million in 2010, after raising $78 million from investors and being valued at $500 million in its final funding round. “I could have done so much better. I built a culture that I didn’t particularly take pride in being a part of,” Levchin told me. He went on to found not only Affirm but another company called Glow, which helps couples combat infertility, and he banned happy hour, in hopes of avoiding his past mistakes.

  “Early on, I was very draconian. I said we will not have happy hour; it’s a recipe for bro culture,” Levchin says. He has eased up slightly on that edict but has also established a core set of values, provided unconscious-bias training, reached out to female coding groups to recruit more women, and set up beneficial work-family policies. “In many ways, I’ve become much more women and employee friendly,” Levchin says.

  “Max has an inherent sense of fairness; his fairness compass is superstrong,” says Christina Miller, a lawyer who works at Affirm. “Equality is very important to him.” Miller attests that, at Affirm, Levchin has built a much more serious, as well as inclusive, culture, one that works very hard to empower women. She also says she has never heard Levchin use the word “meritocracy,” not even once. “That’s not to say we’ve never had any HR issues, but most of them haven’t revolved around alcohol at all. It’s mostly the arrogance of Silicon Valley that’s a bigger challenge.” By that, she means, in an industry that prizes technical talent, some engineers have a tendency to act entitled.

  To build a healthy culture, Levchin, who has been known to wash his own dishes at Affirm, relies on his two decades of company-building experience. “At PayPal, I would argue all of us were so young and running quickly,” Levchin says, while at Slide he made far too many “poor cultural choices.” “With benefit of hindsight, Affirm is very different,” he says.

  Thiel has made no such mea culpas. Indeed, in Zero to One, he embraces the term “PayPal Mafia,” a moniker that is deeply fraught with connotations of misogyny, male dominance, and the brutal exclusion of anyone outside the group. Zero to One has now been read by hundreds of thousands of people worldwide, including many would-be entrepreneurs, all hoping to create their own billionaire mafia.

  A CRITIQUE OF MERITOCRACY

  Believing that they hired on merit from the start, the PayPal Mafia has evangelized that Silicon Valley epitomizes meritocracy. “If meritocracy exists anywhere on earth, it is in Silicon Valley,” David Sacks told the New York Times in 2014. This echoes Rabois’s belief that PayPal’s hiring practices were a “perfect validation of merit.” I’ve enjoyed many a debate with Rabois and Sacks on my TV show, Bloomberg Technology. And in that spirit, I’d like to closely critique their statements.

  The group from the Stanford Review claim to have been outsiders, at college and in the tech industry, and they wear that status as a badge of honor. That they became so successful in Silicon Valley in spite of sticking to their contrarian guns is proof, they contend, that they must have done so through merit. But these we
re young men who started out at one of the world’s most prestigious universities. Claiming to be outsiders, in any meaningful sense, is a stretch. Maybe their bombast in the Review excluded them from certain clubs and parties, but they were insiders in a way Horatio Alger was not, with the platform of a student publication (albeit a less than popular one) and, more important, access to all the powerful and moneyed connections that elite universities provide.

  “I will say I laughed often,” Klement says. “When we were talking about the success of PayPal, the theme I would hear from the men was ‘We were really smart. We worked really hard,’ and the theme I heard from women was ‘God, we were lucky.’” Both claims are no doubt true, but it’s well documented that luck played a crucial role in the company’s success. In 2000, PayPal closed a $100 million funding round as the dot-com bubble was bursting. “You look at all the other companies that tried and failed, all the other companies that didn’t close their Series B funding right before the market crashed . . .” Klement’s voice trails off. What if the crash had occurred a week earlier, before PayPal had that money in its coffers? The answer comes straight from Sacks, who once wrote that if they hadn’t closed that round when they did, the company “would have died.”

  But the men of the PayPal Mafia succeeded often, with many other subsequent companies. Doesn’t that suggest that they earned it through merit?

  The concept of meritocracy dates back to the writings of the philosopher Confucius in ancient China. In the second century B.C., the Han dynasty implemented the first known meritocracy (though they didn’t call it by that name), promoting government officials based on their performance on civil service exams. As Confucian texts were translated during the Enlightenment, the idea spread to Europe and the United States.

  But we didn’t have a term for “meritocracy” until the twentieth century, when the British sociologist and politician Michael Young wrote a book in 1958 warning of how dangerous the world’s relatively new method of establishing status might be. In his novel The Rise of the Meritocracy, Young portrayed a dystopian Britain in which status based on birth and lineage was replaced by status based on education and achievement. Young wasn’t advocating for a return to the old system, but he did see grave dangers in the new embrace of meritocracy, eerily predicting that in this new world, status would still be accessible only to a select few: those who had access to elite education. As a result, meritocracy would produce a new social stratification and a sense of moral exceptionalism.

  Though Young’s book was meant as a cautionary satire, the idea of meritocracy took off, all negative connotations forgotten, as the term for a new equality of opportunity. By the year 2000, at the time of the dot-com boom, the British prime minister, Tony Blair, could be heard extolling the virtues of a “meritocratic” society.

  That’s when Young penned an op-ed for the Guardian in which he confessed he was “sadly disappointed” by his book’s effect. “It is good sense to appoint individual people to jobs on their merit,” he wrote. “It is the opposite when those who are judged to have merit of a particular kind harden into a new social class without room in it for others . . . If meritocrats believe, as more and more of them are encouraged to, that their advancement comes from their own merits, they can feel they deserve whatever they can get. They can be insufferably smug, much more so than the people who knew they had achieved advancement not on their own merit but because they were, as somebody’s son or daughter, the beneficiaries of nepotism. The newcomers can actually believe they have morality on their side. As a result, general inequality has been becoming more grievous with every year that passes.”

  “A new social class without room in it for others”? Young wasn’t specifically describing the tech industry, but he nailed it. That the winners in Silicon Valley deserve all the prizes they have won is an argument that one hears, both explicitly and subtextually, across Silicon Valley.

  Of the many tech billionaires I’ve met, all have seemed to be very smart, creative thinkers and hard workers. Sometimes exceptionally so. But they’ve also been lucky. In some cases, more lucky than good. And in many cases, no more good than many others who were less privileged and less lucky.

  If Silicon Valley were truly a meritocracy, and opportunities were indeed rewarded according to one’s true skill and ability to do the job, that would be great for all workers, men and women. But the reality is, as the PayPal Mafia exemplifies, Silicon Valley is not a meritocracy. More fundamentally, meritocracy is impossible to achieve, because, as Young says, a meritocracy is always based on an imperfect definition of merit and often narrowly defined to favor training, connections, and education primarily available to the wealthy.

  Take Stanford. Because Stanford is filled with students with top high-school GPAs and SAT scores, administrators can pat themselves on the back and say, “We only admit the best students. We’re a meritocracy.” The students are encouraged to think similarly. But is it just a coincidence that the median annual family income of a Stanford student is $167,500 while the national median is roughly one-third that? Did those high-achieving students naturally get high SAT scores, or did they benefit from their parents’ paying for tutors and sending them to private schools? Privilege accumulates as you advance in life. If the college you attend is the basis of your future employment networks, then it is impossible to say that your employment success is solely based on merit.

  The idea of meritocracy is problematic in other ways. Research shows when companies adopt a “merit”-based compensation system, they can actually become more gender biased, awarding promotions and extra money to men over equally performing women. When you are convinced your organization is a meritocracy, the theory goes, you can often forget to do the hard work of rooting out gender and racial biases.

  Journalist Megan Garber put it like this in the Atlantic: “‘Meritocracy’ takes as its core assumption, essentially, an equality that does not exist in America. It is romantic rather than realistic . . . We want to believe that talent will triumph, and that hard work will be the tool of that success. Which is to say: We want to believe that opportunity is evenly distributed. But, of course, that great escalator is far faster for some than it is for others. It is harder for some to get to in the first place.” As a concept, she adds, meritocracy can speak to the “best of who we are” but also “serve as a justification for the worst.”

  Many people in Silicon Valley are greatly invested in the “self-made great man” story. But it is a story always told in retrospect, with little acknowledgment of all the factors that actually contribute to success. Personal connections, timing, and access to funding from influential backers can all make or break a start-up. The social ties that come from attending a school such as Stanford or Harvard can provide an enormous head start (one that I too have benefited from). The fact that Silicon Valley is a highly competitive place in which only a handful of companies in each market sector achieve great wealth does not mean that outcomes are based strictly on merit. At no stage of the game are all players on a level field.

  If Silicon Valley were a truly level field, we’d have to imagine that a smart person such as Peter Thiel could have had the same impact even if he had not gone to Stanford and if he had been female instead of male, or if he was black instead of white. Of course, we’ll never know. We can be pretty sure of one thing, though: alternative Peter Thiel would have had little chance of getting hired at PayPal.

  THIEL GOES TO THE WHITE HOUSE

  Though some of his views have changed since his Stanford Review days, Silicon Valley’s philosopher-king is still a firebrand. In 2009, for instance, he wrote an essay in the online ideas journal Cato Unbound in which he declared, “I no longer believe that freedom and democracy are compatible.”

  His political views are clear. “The 1920s,” he wrote in that essay, “were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast incr
ease in welfare beneficiaries and the extension of the [voting] franchise to women—two constituencies that are notoriously tough for libertarians—have rendered the notion of ‘capitalist democracy’ into an oxymoron.”

  Let’s pause for a second. The man who is one of the main architects of the culture of Silicon Valley in the last twenty years thinks giving women the right to vote has harmed democracy.

  With the dream of a capitalist democracy unattainable, Thiel saw a means to escape. The new frontiers were cyberspace, outer space, and “seasteading.” In cyberspace, he wrote, you could create communities outside the bounds of the nation-state, and the frontiers of outer space were likewise unlimited, although we needed to be realistic about the time horizon, saying it wouldn’t happen before the second half of the twenty-first century. He was perhaps most excited about “seasteading,” a word he coined to describe the creation of floating ocean communities dedicated to innovation and freedom and existing outside the laws of nation-states.

  Thiel can imagine new communities floating on the ocean or in outer space, but when asked about how to get more women into tech jobs, he says simply, “I don’t know what to do about it.” Given his belief that women voters are “tough for libertarians” like himself, he may not be particularly interested in the issue in the first place.

  By 2016, Thiel was largely downplaying his excitement over seasteading, but he had found another horse to bet on: Donald Trump. His support for the then candidate, first with a $1.25 million contribution to Trump super PACs and the presidential campaign itself and then with a speech at the Republican National Convention, lost him many friends in Silicon Valley. In the speech, he revealed that he was gay (though the gossip site Valleywag had reported it years earlier), making him the first person ever to come out at the RNC, but his words also minimized the importance of sexual identity.