Peter Cohan, Contributor
Max Levchin — co-founder of PayPal and Chairman of Yelp (YELP) — has taken a rare path from Ukraine to Silicon Valley — but one that follows a familiar pattern. As a contributor to and beneficiary of the Silicon Valley Start-up Common (SVSC), his successes are a testament to its power to create new ventures.
Max Levchin the Guitar Hero (Photo credit: Joi)
The idea of the Common in economics originated in a field in an English village where everyone brought their animals to graze.
If the community did not over-consume the grass and kept it fertilized and fresh, then it was a useful resource for generations. If a few farmers let their animals eat too much, the whole thing died and the community fell apart. That unpleasant outcome was dubbed the Tragedy of the Commons.
In Silicon Valley, there is a start-up common. Instead of grass, it consists of various ingredients – capital and skills like product development, managing teams, sales and marketing — needed for start-ups to get off the ground and grow. First-time entrepreneurs network to tap those ingredients and if they are successful, then they give back to the common to benefit the next generation of start-ups.
Max’s story illustrates how the SVSC draws in top talent, urges that talent to network to get the capital and complementary skills needed for their venture’s success, and expects start-up winners to replenish the SVSC for the next generation by giving back with enthusiasm.
After my first interview with Max in January, he shared his experience with the SVSC in an August 29 interview. Born in Kiev, Max’s Jewish family — his grandfather was a prominent physics professor there — was not comfortable with Ukraine’s virulent anti-Semitism and had a chance to emigrate in 1991 either to Israel or the U.S.
Since Max’s mother had an uncle in the Chicago area, his family moved there where he spent his last two years of high school. Max’s English skills were developing when he spoke to his high school’s college counselor about wanting to apply to MTI — the English translation of the Russian acronym for MIT.
Since the counselor had not heard of MTI, she suggested that Max apply to “a nearby top-notch school,” the University of Illinois — Urbana-Champaign. That’s where Max earned his computer science degree. That was the right time for Max to be there since Netscape founder, Marc Andreessen, helped develop the web browser, Mosaic, there in 1993.
Max had the urge to quit school and head out to Silicon Valley, but his family would have “murdered him” if he had not earned his Bachelor’s degree. But he did stray a bit — majoring in computer science instead of math or physics which would surely have earned his family’s stamp of approval.
After graduation, he trucked out to Palo Alto where he spent “four years — with a mattress down on the floor in the crappy apartment” of a close friend from college, Scott Banister — he sold his latest company IronPort for $1 billion. Max started “writing code for fun.” But he “hated the web” and enjoyed building utilities for the Unix operating system.
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With encouragement from Banister, Max got the “entrepreneurial bug” and started his first company in 1994. Not all of them were successful. Without getting specific, Max pointed out that “a large number of the companies he started failed.”
One company that he started evolved into a big success — PayPal. Max had hired eight or nine people to develop security software for the Palm Pilot — a so-called personal organizer. Through a mutual friend, Luke Nosek, Max met Peter Thiel. Levchin recruited two engineers from University of Illinois and Thiel recruited Ken Howery from Stanford.
They formed Confinity to build software for an online payments service that ultimately became eBay’s (EBAY) primary payment mechanism. As they were working on this, another company in the online payments space, X.com run by now-Tesla (TSLA) CEO, Elon Musk, was located down the street. X.com approached Confinity and in 2000 they agreed on a “50/50 merger” to form PayPal that eBay acquired for $1.5 billion in 2002.
After PayPal, Max started an incubator/lab — “a way to brainstorm and build prototypes of interesting ideas.” In the summer of 2004, two engineers Max respected — including former PayPal VP of Engineering, Jeremy Stoppelman — told Max that they wanted to build what is now Yelp. Max wrote them a $1 million check “on the spot” on his 29th birthday. Yelp went public in March 2012 and is now worth nearly $1.5 billion.
Max views the SVSC as a collection of valuable start-up resources — such as capital and talent. And Max argues that the SVSC’s values of integrity, talent, and helping start-ups tend to select carefully those who get admitted to the club. Moreover, Max believes that capital puts the right price on talent — offering great rewards to those with top skills and shunting aside the less gifted.
Once they’ve joined, people who fit the bill seem to self-organize by choosing an area of interest and networking to build the collection of skills they need to turn their ideas into real companies. Max particularly values the example set by other SVSC members that “you can do it” and should overcome fear.
Max feels gratitude and takes “satisfaction that [he can] further the culture” of Silicon Valley by helping out the next generation of entrepreneurs. To that end, he advises young people — many talented engineers are introverts — to make a persistent effort to connect with as many people as possible.
Ultimately, the SVSC will persist as long as it attracts the kind of smart, talented, friendly, not-arrogant people that Max believes were so helpful to his start-up journey. Max’s experience shows why the SVSC is the best of what America has to offer the world.