Thiel, who co-founded the business in December 1998, expects to raise more than $64 million with PayPal's initial public offering. Yet he makes a reluctant poster boy for the return of the tech-startup IPO. "He doesn't strike you as a loud, boisterous CEO who's extremely rah-rah," says Kevin Hartz, who met Thiel in 1989 at Stanford University when they were both active in student government. Thiel was starting law school and still contributing to the conservative-libertarian student newspaper, The Stanford Review, that he'd founded as a sophomore.
But don't look to Hartz, who now runs a startup based on PayPal's technology, to spill the beans on any crazy campus hijinks. "I don't want to use the term nerdy, but he was more on the cerebral side," Hartz says. "He worked hard on The Stanford Review and winning chess tournaments, as opposed to carousing like the rest of us." Thiel doesn't dispute the characterization. "I'm pretty intense about the things I'm into," he says, noting the chess tournament last summer in which he played 15 hours a day for five days straight. Building PayPal has been even more intense. In a startup environment, "Every month you think you're all going to die," he says, "then every other month you think you're going to take over the world."
With 10.6 million registered accounts as of Sept. 30, the 625-person company controls 90% of the online-payments niche and dwarfs the efforts of its much-larger main competitors, Citibank and Wells Fargo, says Celent Communications analyst Gwenn Bezard. Yet cash isn't king online: This year, credit and debit cards accounted for 92% of online business-to-consumer transactions.
Roughly four of five PayPal users are individual consumers who pay nothing to send money. The company earns most of its revenue from small businesses, which pay 2.2% to 2.9% per transaction. PayPal's strategy is to expand its number of business users and strengthen its position with online auctioneers, particularly eBay Inc., which represents about 70% of PayPal's total revenue. For the nine months ended Sept. 30, total revenue was $64.4 million, compared with $5.6 million for the corresponding period in 2000, and the net loss was $89.2 million, compared with a $127.6 million net loss in the year-earlier period.
Thiel's path crossed again with Hartz's in 1997, after a stint in New York trading derivatives for CS Financial Products and practicing securities law. Thiel returned to Silicon Valley to raise money with Max Levchin, now PayPal's chief technology officer, for the launch of a company called Field Link that would provide encryption software for handhelds. But demand was sparse, so the company renamed itself Confinity and developed an application it called PayPal, which let users of handheld devices beam money to each other. A Web version soon followed for PC-bound users. The PayPal service gained momentum after launching on eBay in early 2000. The company was also trying to make a go of Internet-banking services, but it dropped that effort last year to focus on PayPal.
"You always bet on the team, and [in Thiel] you had a talented, savvy business mind coupled with a technical mind," says Hartz, who invested his own money in PayPal. He left iMinds Ventures in August to start Mollyguard Corp., which provides fee-collection services based on PayPal's technology. "Peter's the only entrepreneur who's ever presented a business plan to me and exceeded the revenue numbers."
Thiel hasn't changed much since college. Says a PayPal spokesman: "There's a foosball table in the office. You don't see Peter at it much. People bring their pets to work. Peter doesn't have one."
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