tl;dr: The PayPal mafia was an artifact of its time. Now entrepreneurship and savvy investment are the norm.
Unlike with the national economy, these are real green shoots.
The PayPal Mafia is infamous, and its influence is pervasive. Last year, David Gelles wrote in The New York Times that the PayPal Mafia helped spawn the next generation of startups:
“Their enduring influence, more than a decade after they made their first fortunes, speaks to the tightknit social fabric of Silicon Valley’s technology industry, and to the trust new entrepreneurs place in those who have succeeded before them. And now, the PayPal group’s close ties with the current crop of unicorns — a collection of some of the most valuable technology start-ups ever seen — suggest its influence is undiminished.”
This diaspora of talent includes Silicon Valley veterans like Peter Thiel (whatever you may think of his politics), multi-company phenom Elon Musk, LinkedIn founder Reid Hoffman, 500 Startups founder Dave McClure, all three founders of YouTube, and a number of other names.
Mafias For Fun And Profit
What is a mafia and how did a consumer payments company accidentally create one? Originally patterned on the “Traitorous Eight” who started Fairchild Semiconductor in 1957, new mafias are christened when an unusually large group of successful entrepreneurs and investors emerge from a particular company, perhaps following a major liquidity event. And the mafia model has spread throughout the rest of the technology industry.
There’s more to it, of course. The necessity of a coherent, place-specific community to encourage innovation is further documented in Ryan Avent’s book The Gated City. Silicon Valley’s ecosystem continues to swell and flourish, thriving on handshakes and big checks.
Is the crop of successful companies and investors that emerged from PayPal a fluke, or should we expect similar outgrowths from newer behemoths like Google, Apple, Facebook, and so on? What conditions are necessary to encourage the existence of a mafia?
Incubation
When I started to write this article, I expected that one of today’s big companies was PayPal’s obvious successor.
But after reading about the new ventures that emerged from many ascendant behemoths, I’ve changed my mind. (Twitter readers weren’t sure, at least not in aggregate.)
These days, it is simply expected for ex-employees to start numerous new companies and invest in just as many.
Rare IRL liquidity event; also, what did the proverb say about single-basket asset distribution?
The company whose former employees have started the most “brand name” ventures is Google, boasting Twitter, Instagram, Asana, Foursquare, FriendFeed, ImageShack, and MoPub. However, Facebook shares Asana with Google, and it also previously employed the founders of Quora, Path, and Cloudera. Apple’s notable offshoots are Android and Nest. Twitter yielded Square and Medium. Salesforce, itself a child of the PayPal mafia, employed the founders of Okta and Zuora.
Large tech companies are filled with engineers, product managers, designers, marketers, and so on—those people catch the entrepreneurship bug (or had it in the first place) and go on to start their own businesses. This is very mundane and unremarkable, but a more grassroots framework for looking at how Silicon Valley operates marks a difference from the mafia model.
Corporate Encouragement
Google is well-known for prioritizing employee satisfaction and encouraging “intrapreneurship,” even after killing 20% time. Perhaps the company hasn’t developed a mafia because employees have so many opportunities to develop new projects within the existing structure. Before Google morphed into Alphabet, it acted as a sort of holding company that contained many divisions.
In my survey of this topic, PayPal’s most-often-proposed successor was Facebook. In early 2011, Sarah Lacy posited a Facebook Mafia, writing:
“[U]nlike companies like Google and Amazon who rigorously hired based on college degrees, GPAs and standardized test scores, Facebook and the companies that have spun out of it have hewed toward sheer, raw, hacker-like genius. That’s created a more entrepreneurial culture inside the company. Justin Rosenstein — who was at Google and then Facebook before leaving to co-found Asana with [Dustin] Moskovitz — says that working at Google is often described as a wonderland for academics, while Facebook’s early days were more of an extension of a messy dorm room full of engineers hacking away all night, then collapsing most of the day.”
The theory being offered here, somewhat obliquely, is that company culture is responsible for the ensuing employee diaspora (or whether there is a diaspora at all).
However, given the volume and caliber of the company-foundings and investments coming out of Silicon Valley as a whole, the Facebook mafia isn’t any more plausible than the Google Mafia or the Salesforce Mafia. Given the size and success level of these companies, it would be odd if ex-employees didn’t found new companies and innovate past the current assumptions.
I discussed this with Mattermark editor Alex Wilhelm, and I want to end with his comments:
“The flowering of mafias in Silicon Valley is perhaps another natural, but notable evolutionary step for startup hubs; aka this sort of reinvestment is how regions improve. Following from that point, we can say that mafias are not necessary for a startup to mature per se, but they are the artifact (in a positive sense) of a startup hub’s maturity; they are the result of that maturity, not the cause. What that means is that a startup scene — say, Chicago post-Groupon — reaches a higher echelon of maturity its biggest hits won’t leave, but will instead stick around and help grow the next generation. So of course mafias are now commonplace in the San Francisco Bay Area as this is the most mature ecosystem.
Conclusion: Spend your time and money at home in your community if you really want to move the needle.”