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NerdTV #2: Max Levchin

Bob: You've just been up all night.

Max Levchin: Yep.

Bob: Why?

Max Levchin: I'm having fun. That's what you do when you have fun. You just don't want to stop.

Bob: Seriously? I mean, this is -

Max Levchin: Of course.

Bob: This is - the sort of nerdly work ethic arises from fun? You're not gonna -

Max Levchin: I think so.

Bob: Get rich, change the world -

Max Levchin: Those are all side effects of having fun.

Bob: Side effects of fun.

Max Levchin: Well, I think you get your energy and your feeling of fun from the thought that you're changing the world and you're making interesting things happen and you're developing something or you're building something really cool, and there may well be a financial gain in the end of it all for you. And that's sort of what keeps the adrenaline going enough not to fall asleep. But also cause usually there's someone else in the office doing the same thing and working on the same problem or same idea, and just feeding off each other's energy.

Bob: So right now it's, I don't know, it's like 10 in the morning, something like that. What has - what was your last 24 hours like?

Max Levchin: I was here 10 in the morning yesterday. I talked to some lawyers about some corporate matters. I looked at the current bug list. I told some people what bugs we need to be fixing. I talked to the designer guy to see what he thought of some features. And then I pick up a bunch of code that I wanted to write or I needed to write, and I've been writing that and debugging it and stress testing the server and looking through the user experience on the client.

And in the end we were up against this really nasty bug which we couldn't replicate, so we wind up staying up all night trying to replicate it in various ways, and in the process wind up load testing the server and writing some load testing code and fixing some UI bugs and drinking lots of coffee. That's the - it's a blur. It's really a blur. And in between I walked my dog a couple of times. And I saw my girlfriend for an hour. Because I went to have - I had some kefir with my girlfriend. You know what that is? Kefir?

Bob: Yeah?

Max Levchin: It's a sour milk drink.

Bob: Mm-hmm.

Max Levchin: It's really good. It's a Russian delicacy. And that was my dinner.

Bob: That was your dinner.

Max Levchin: And I worked out. I went to the gym. And I burned 1,200 calories in half an hour. Which is my new point of pride. Any time you feel like stopping me. I'm rambling.

Bob: Oh, okay.

Max Levchin: I do like to ramble, so -

Bob: So I don't understand necessarily why people have to stay up all night to accomplish something. You did three all nighters in one week. And one of them you just finished.

Max Levchin: Yep. Correct. I think there's something very special about the all nighter ethic, and some people dig it, some people don't. So it definitely varies per person. There's definitely something about the nocturnal lifestyle for engineers specifically that really opens up the chakras of creativity or code writing. And people get slightly sillier, but also maybe a little bit more creative. And they get tired and there's some spirit and camaraderie that wakes up in those hours, and you get more done because you're not afraid to tell people to shove it when they're doing something wrong, and the interactions become more interesting.

But also I think there's this massive value that you harness when you're doing an all nighter where you've gone for presumably 7 or 8 hours of work and you're really getting up to a point where something's about to be born, and then you go for 8 more hours. And instead of stopping to go to sleep and let some of these ideas dissipate, you actually focus on the findings you've made in the last few hours and you just go crazy and do some more of that.

There's definitely a downside, because as you get more and more tired your effective IQ probably drops some. And so you have to start being more careful. But if you've been around the block enough times you do things like mutual code reviews and you look at what you've done and make sure people are sane about it.

But I think a big part of it is just really some sort of an ethic that some engineers have where - it also reminds me of college, I think, which is a sort of a big deal where you've got a deadline. And all nighters frequently are results of deadlines, and in college you have - when you're a CS major you have machine problems and if you're a math major you have some proofs you need to write, and whether you like it or not, you've got to be up all night and finishing it. And there's something very cool about reliving that experience 20 years later or 10 years later. And that's partially why, I think, we do it. But I know engineers who have never done an all nighter and they hate it. They think it's a ridiculous waste of time.

Bob: Wow. I didn't know they existed.

Max Levchin: I know they exist. But I am not one of them.

Bob: So when you're doing all nighters, are you a different person?

Max Levchin: I don't think it's so much all nighters that make me who I am. I think all nighters are the outcome of - or a manifestation of - who I am in my sort of a - in my element. So in my element, I think I am really an engineer trying to solve problems, and these days these problems don't necessarily have to be pure code, since I wind up running companies and running engineering teams and making business decisions or legal decisions. But one of the things that you gain by having an engineering background is you have this level of intensity that some other professions don't necessarily instill in you.

And I think - it's actually true of certain kinds of lawyers, for example. Also definitely true of architects. There are these certain professions where it's much more common than in other crafts, where you just have this increased level of intensity where everything just has to melt away when you're attacking a problem, and you're not gonna give up until there's devastation all around. And all nighters and being willing to just work for long stretches and work weekends and not take holidays is all just a side effect of this intensity that drives you. And I think that makes me happy. And it's important to be happy.

Bob: And how does that work with your relationships? I mean, you have a girlfriend. How does she feel about this?

Max Levchin: I think she's actually happy for me. I think she has seen me between startups and between startups I become a boring, sad person that sits on the couch and laments mistakes of the past, or considers the follies of the future, and I just start relaxing and think I'm boring and not very intense. And intensity's good. So I think she's very happy. I saw her last night for an hour, and -

Bob: Drank kefir.

Max Levchin: Drank kefir with her. And she was like how's it going? And I said, ah, just an all nighter. And I've gotta do it again. She was like, wow. I envy you. She's a trader, which is also a very intense job. So I think she can definitely appreciate the need. She gets up at 5:00 every morning to go see what markets are doing, because we live in San Francisco, and she has to look up the markets that are opening in New York.

But I think as far as my relationship with my girlfriend goes, it's actually - so long as I'm working and I'm in my sort of a super intense mode, that's great. She really likes it and she thinks that I am happier for it. I think people like my parents, for example, probably feel that, especially after my most recent startup turned large company, this would be a good time to move back to Chicago and live with them or at least spend a few hours on the phone every day talking to them. And I don't. I work really hard and call them once a week. Sometimes I skip a week. And I think they're not very happy about that. But I still love them. And I think they still love me.

Bob: I'm sure they do. So you mentioned your last company that was a success, which was PayPal.

Max Levchin: Correct.

Bob: Now, when you and Peter Thiel went into that, what was your goal? Was it let's get rich, let's sell out so I can be depressed on the couch, or -

Max Levchin: No.

Bob: What was it?

Max Levchin: It was - I think it's the same goal it always is. There's this thing that's happening all around us, and it's a wave. We've gotta catch it. And it's never really consciously about let's make lots of money, or - at least certainly not for me. And I think most people who do this for fun a lot of times, even after they sell out, I think it's really not about money after a while.

Money's an excellent measuring stick, though. The reason money's important is not so much that you need to amass it and sort of die with it, but when you look at the world and you ask the question how well have I done, and who is - who do I have to beat to be even better - you can very easily use the number of dollars you have or you've made for yourself or other people as a measuring stick of some kind. You know, something in terms of how many jobs have I created, how many friends did I get to drop out of college. This is all these metrics that I use on myself all the time.

The goal that we had was actually - the initial idea that we had, very different from PayPal, was really - or was handheld devices being made, and they're going to be horribly insecure, because you really, when you enter a new wave of computing, people don't think about security much, they just think about utility, which is the right thing to do, of course. But then somebody's going to have to come in and say hang on everyone, these devices, this data, it's all unprotected. What are you going to do about that? And my plan was to jump out from the back of the sofa or something and say ha! But I have all the security solutions you need.

And at the time I thought, I will just become the guy who provides security solutions for handheld devices. And the handheld devices didn't really go very far as these - not everyone has a Windows CE device in their back pocket these days. So we had to change plans a couple of times. And eventually we wound up with this let's help people transfer money in transactions over the Internet.

And from that point on, it actually became, as Peter would put it, about democratizing the dollar, or democratizing the transactions. Which is a very noble goal to have, because if you're a small merchant or you're trying to pay for something over the Internet, it's really a pain. And especially if you're in some remote country, where you're maybe not even allowed to hold dollars, you have to stuff 'em in your mattress.

So moving all of that pain onto the Internet and into bits turns out to be this complicated but fun task, and it does have a very nice, lofty, philosophical platform that makes you want to do it again and again and wake up every morning and go to work. So it was an ever changing goal.

Bob: You mentioned that money was a way of keeping score, so you would know who you had to beat.

Max Levchin: In a way.

Bob: Who do you have to beat?

Max Levchin: I certainly have to beat me. That's pretty important.

Bob: Does that mean the next project has to be more successful than the previous one?

Max Levchin: Yeah. I think it'd be good. Good - I think it's - I don't necessarily sort of pick my targets or comparisons, and, you know, that guy over there. He's got a lot of money. I've gotta get more. Not really. I think what happens is you - I guess primarily I thought of it in terms of market cap, where I was looking on the - this company is considered a success, and maybe I even know the guy who started it, and he's got 50 friends or 50 employees and of those 15 are friends, and they're all doing things and making money, and that's really cool.

So I think, well, I have to make a company that's three times the size and has _____________ times as many people and friends I know working really hard and being happy. In the sort of more lyrical moments I would think in terms of well, here's my friend that I've known since the first day of high school, and I really want him to be able to buy his first house for cash. Or something lofty like that. And sometimes it works, sometimes it doesn't. But that's sort of a good way to think about money. I realize that I'm starting to sound a little kumbaya, but -

Bob: Well, now, does that mean that the limit to the company that you can envision is set by the total number of friends you have?

Max Levchin: No.

Bob: Or some coefficient applied to that?

Max Levchin: No. I think it's really set by the size of the idea and the potential addressable market for that idea. And that's sort of what I'm gunning for. Maybe more - or a less kumbaya and more hard-nosed capitalist way of thinking about it is to say, well, total market for this service or this product or this thing is ten trillion dollars. I want as much of it as I possibly can have. So you start out with a million, which is sort of a boring, silly little part, despite being a huge absolute number. And you claw your way to however much you can have. And that's maybe a very good way to think about the measuring part.

Bob: You know, one thing that I noticed about you right off years ago when we first met was that unlike a lot of engineers, you think about the business issues. Have - am I incorrect about this? I mean, is everyone in this building thinking about these same issues? Or -

Max Levchin: Some more, some less. I think that's - I think it's not necessarily necessary to have every single person thinking about the business issues all the time. But I think there's a huge benefit to knowing what it is you're working for. And there's definitely - one of the typical pitfalls in the world of engineering - and I don't mean to slight my fellow engineers, but - is this dichotomy of hard versus valuable. And lots of engineers mistake hard for valuable.

And the inverse is certainly true. Most things in the world that are valuable are pretty hard to do. So doing something like Microsoft or eBay or Google is pretty hard to execute, invent, to create, etc., and therefore it's valuable. And that's why these people make so much money, and that's why the company is worth so much on the market.

But if you just pick something really difficult, like breaking _____________ with your thought, it wouldn't necessarily be valuable. And so I think this notion of being an engineer who thinks about the business issues is a projection of this part where I need to make sure that what I'm doing is actually valuable and not just hard.

And I think in college I used to stay up all night a lot because I was doing things that were hard. And in the morning I would be like ah, I have _____________ 80 cycles off this MIPS assembly thing on a made-up processor that will never be used by anyone. And these days I stay up all night thinking if I do this, I might get my user conversion coefficient up by 10 percent, which will be really valuable. So that's the business issue part. I think a lot of people here - I'd like to think that they're thinking about those things. But if they're not I will remind them.

Bob: Well, if they're not, they have you to do it.

Max Levchin: Yes, I will remind them. That was my -

Bob: Yes. Now, you talked about catching a wave. With PayPal, you certainly caught a wave. And in a moment we'll get to talking about the things you're doing now, and presumably there you perceive waves that you're trying to catch. What about a wave that may have passed? Like, is it possible for someone else to start another PayPal today? Or is that opportunity gone?

Max Levchin: I'm not sure. So Google was recently talking smack.

Bob: Talking smack.

Max Levchin: It's another term. I wasn't born in this country. Some of the things I say, I don't even know what they mean. Especially after staying up all night. No, I think - I think it's always interesting or possible to see if a wave has not died down. The specifics of starting another PayPal these days and you need to involve, I think, a very specific and much better understood set of steps.

So five or six years ago when we were thinking about it, it clearly involved this running around and trying to figure out a business model, and fiddling with hand-held devices, and doing stuff that was sort of like ah, that's the path, let's go over there. So a lot of that has been done away with for you by us. And so you can sort of see you go from here to here and then you have a PayPal.

Except that there's a lot of stuff that cannot be done away with because those are the steps that we have distilled down to, and one of them, for example, is this notion of learning about fraud. And the way you learn about fraud is you experience it and you lose lots and lots of money, and hopefully you lose less money than, let's say, we did. But we definitely burned up quite a bit of cash, basically letting the various fraudsters and thieves and online identity dealers take us out to the cleaners as we learned how to stop them.

So Google or PayPal 2.0 or whoever will have to go through a learning process similar to that. And I think this data that you get known as the bads data, where you actually have these bad transactions that you know this and this and this results in a money loss for the company. That's how you get to this knowledge of what do you do to not lose money. And there's no substitute for that. So the no substitute part has got to be pretty interesting. PayPal has gone through at least a hundred million dollars worth of learning experience.

Bob: Hmm. That's a telephone.

Max Levchin: That is a telephone. I don't know why it's -

Bob: It stopped.

Max Levchin: Good.

Bob: PayPal went through a hundred million bucks with people stealing?

Max Levchin: I don't think it was all stolen, so to say. But I think about a hundred million dollars must have been spent all told in various forms of antifraud efforts. So some of it has definitely gone in the hands of various unsavory individuals. And probably even some of them were organized into unsavory groups of individuals. Some of it has gone into developing technologies and developing technologies that were never used, so - but, I mean, that's the ballpark. And this is a lot of money, right?

So I think Google, who is probably or possibly smarter and has lots and lots of PhDs on staff, could spend less money, partially learning from sort of what's been told - what's been said about PayPal and just learning as they go. But it's still gonna be a lot of money and a lot of time and a lot of effort. And that's one of the limiting factors, probably, to building another PayPal.

Bob: But the other is that PayPal exists.

Max Levchin: Oh, yeah. So I'm - in the beginning of this argument I was sort of discounting this whole thing, you know. Maybe PayPal just - is just ripe for the picking. I don't think it is. I think the brand is very strong. And I think we've done a decent job building a good company. I think the fact that it's reasonably well integrated with eBay now makes PayPal the natural choice on eBay, like it was a while ago, but now it's just much more comfortable. So I think it'd be pretty hard to attack. But never say never. You know, AltaVista was this unassailable tower of search engine until this startup called Google came along, and now AltaVista is this sort of a minor arrow in, I think, Yahoo's quiver.

Bob: Does it still exist?

Max Levchin: If you go to, you get to a search engine. I - just the other day I was trying to figure out who owns it. This shows how little I keep track of things. But I think it's owned by Overture Systems, which in turn is owned by Yahoo. So - but the fact that neither you nor I, at least I don't really remember exactly where it went, shows how - I mean, remember all those articles? You know, AltaVista sits on the thickest pipes on the Internet and has -

Bob: They had a blimp.

Max Levchin: They had everything. They had DEC machines doing search queries for them. DEC machines were alphas, the most powerful things on the Internet. Where is DEC now?

Bob: Gone.

Max Levchin: Subsumed.

Bob: Yeah, that's right. Hidden in the bones of HP somewhere.

Max Levchin: Right, exactly. So the alpha chips must be not getting a lot of use these days. So point being, I think an upstart can come and take your lunch away if you're not minding your lunch. And much like my dog would steal it from you if you went into the kitchen.

Bob: Now, so how do you select a new wave? What do you look for?

Max Levchin: I think the thing you do is you sort of try to keep track of what's going on. And you try to learn about or take in the trends that are going on. So I think to take the metaphor further, there are tremors in the ocean floor that are trends of things. Like people watch less TV and use more computers. And people have digital cameras now that cost them nothing because they come with their phones. And these are not really waves, they're just sort of truths about bandwidth being cheaper, etc. And they shake the ocean floor and a wave starts.

And then a wave turns out to be something like everyone needs to share images, cause they're making so much more of them. And everyone needs to do something more than just stare into their computer for Excel and Word, because they're really staring a lot. And everyone needs a better search engine, because they have more time and more bandwidth to spend through their computers. So you sometimes watch those waves emerge and you go, oh, man, that's a big one. As you watch, some company synthesized those trends into a wave, and sometimes, if you're smart and lucky, you say oh, this is - the shaking is going on. I think there'll be a wave over there.

And you get your surfboard out and you paddle, and probably most of the time you realize that you're going exactly the opposite way from wherever you want to be, and you lick your wounds and you go back to the ocean floor watching. But on occasion if you're persistent enough you probably find yourself on top of a wave, or at least somewhere on the crest, and you try to stand on the board. I've beaten the surfing metaphor to death, but I like it.

Bob: You have. You've pretty much -

Max Levchin: Slaughtered it.

Bob: Just slaughtered it, yeah. The thing I wonder about here is, does a wave have to be of a certain size before you'll notice it? I mean, are you looking for a trillion dollar wave, a billion dollar wave, a million dollar wave?

Max Levchin: It's certainly easier - I think your odds of being a successful company are better when the wave is really huge. Because even though lots of people will be trying to ride the same wave, there's enough room. If a wave is something much more narrow, it's just not necessarily true that company number two in a particular market segment will even survive. In something like - well, just the important thing, I'd actually want to be company number two. I always try to be company number one. So perhaps in my case it matters less. Or at least, given my insane ambitions, it matters less.

Bob: Do you have insane ambitions?

Max Levchin: In a good way.

Bob: What are they?

Max Levchin: To change the world for the better. And in the process, make lots of people happy. No. I have not prepared a suitable huge answer for that question.

Bob: That sounds like -

Max Levchin: To pull lots of all nighters.

Bob: Something that you - you know, in the beauty pageant you ask -

Max Levchin: I know, but you don't want to answer that question with some sort of a lame line like I want to get all my friends rich or something like that, so you have to have a suitably large answer, and I haven't prepared one.

Bob: Okay. But we'll get back to you on a later date about that.

Max Levchin: Yeah.

Bob: So now, you've left PayPal, you're in a new business. It is sort of like an incubator.

Max Levchin: Right.

Bob: You're - what are you doing? You're generating ideas on making companies?

Max Levchin: I think it's a little bit better defined than an incubator, and maybe a little bit more narrow, these days, anyway. So the genesis of this where we are now place is, after PayPal I decided that I wanted to obviously start another company, and that's sort of what I think I'm decent at, and PayPal was my fourth or fifth company, depending on how you count, so it's definitely been an occupation.

So I figured the next one I'm gonna start in a new way. And it'll be this rigorous approach where I just sit down, get a bunch of smart friends in a room, and we brainstorm and we prototype and we build things, and if things are good we go take 'em further, and if they're bad we put a cap on their head and just get right back to brainstorming. So this will be a cerebral, more rigorous way of approaching company-starting.

One of the things I had to learn at PayPal, which was sort of going back to your engineering question, is actually engineers and me as an engineer but pretty much any engineer get into this trend of thinking, and they like what they're doing, even if it's not necessarily a business-savvy thing to do. And then when the time comes and you have to change your direction, it's actually very painful. The very specific moment when your business counterpart or your manager, whoever, comes and tells you, that code you've been writing for the last six months, I'm really sorry, but you might as well just erase it now, is really painful. That is a very painful moment for an engineer to stomach.

And so I figured that knowledge, this time around I would like to front load it. I would like to tell my engineering friends that as we're brainstorming about these companies, these really hopefully good ideas, nothing will be sacred. If we build a prototype and it doesn't work, so it goes. And your code will be repurposed, if possible, and if not, it will be erased, or stored away on some backup tape. And I think that helps in some sense. Because at least then people are a little bit more aware of this hard versus valuable dichotomy we're in. They just have to do things that are valuable. Or we're here to do things that are valuable. Not to write really brilliant code that may well be useless.

Bob: Have you had to blow off code yet?

Max Levchin: I think we're pretty efficient about the code, so I don't think we've ever really deleted much. But we've definitely blown off ideas, where we sort of went as far as point X and said, this is really crazy. A big part of what I did at PayPal and what I think I took away as a really valuable skill is what's broadly known as forecasting, I guess, to use the two dollar business term.

And what that really means for things like business evaluations is you sort of build something up real quick, or maybe not real quick, and you launch it, or you show it to people and you get some feedback. Then you say we're right here on this little curve, and how are we going to forecast it out, like this, like this, like this and you make some guesses and you do some things and then you multiply peak of the curve or the area under - you calculate the area under the curve and you multiply it by the dollar per user or whatever your metric is and if out comes something like $2,000, you know that's not a big business. And that's when you have to start telling engineers we're changing directions.

Bob: Yeah.

Max Levchin: And I think these days, and for a while now, I've been pretty rigorous about asking the question how big is the thing we're doing? Is this really big? Sort of big? Or just not big at all? And if it's just not big at all, it might have been fun, and probably was really hard, but it's just not that valuable. And so we don't do that anymore.

Bob: Is there a ritual involved in the death moment?

Max Levchin: Yeah. We pour a 40 on the curb. No. No.

Bob: No goodbye ceremony.

Max Levchin: I'm very - I'd like to think I'm pretty dispassionate about these things. No, in general, you can make it a happy occasion, where you say, look, this thing we were gonna spend six more months on and earn $2,000 if we ever earned anything, let's not do that. And people either go, cool, that's great. Or they say, well, grumble, grumble, and they mean cool but they just don't really want to admit it right now.

So, anyway, so that's the structure, or that was the plan, and the ultimate plan was for me to figure out the one new cool thing that I wanted to do. And in the process, though, it turned out that a couple other ideas emerged that were cool and fun and they stood the test of my forecasting curve test. At least from the viewpoint of if we execute really well and we grab as much of a market as we want to grab, the market is big enough for us to sustain ourselves and make it an interesting story.

And so in the end there were three little baby companies. And I found it in my heart difficult to put a cap in the other two heads. And so there are still three. I think it'll be more one day, but right now there are three. And there must have been another half dozen. They were sort of alive for a while and they were doing things, and some of them have gone off into complete oblivion and some are still in some sort of a back burner or slow burner. But really there are three right now.

So in that sense it's not an incubator. I'm not in the business of waking up every morning and going, what else can I do? It's really more along the lines of am I doing what I'm doing well enough, and might this be the time to revisit that forecasting curve or to put the proverbial cap in the head of the current tenants.

Bob: Now, are you funding these things yourself?

Max Levchin: Actually, the money came from both Peter and me.

Bob: So your co-founder of PayPal, and you, have each put up money.

Max Levchin: Yep.

Bob: Are you eventually going to need other capital? Are you going to go to the VCs? Or -

Max Levchin: Yeah. I think so.

Bob: Okay.

Max Levchin: I think that's actually a really - there are plenty of engineers, in particular, that seem to be disenchanted, so to say, with the VC world. And I neither harbor enormous love and desire to give my shares to VCs for as low a price per share as possible - certainly not - nor do I have any sort of an animosity towards them. I think they serve a very important purpose, namely they take enormous risks on ideas that are unproven, with people that are sometimes completely unproven, sometimes have some record. Like some of the people in this room. But that's their purpose in life.

Bob: Well, it's you and me and I have no record, so it must be you.

Max Levchin: I mean, there's - you have your own record. I've seen your rap.

Bob: Yeah, that's - yeah, maybe, but -

Max Levchin: No, I mean, some of the people outside of my tiny conference room. But - so I think VCs are actually a very, very important cog in this Silicon Valley machine that we are all part of.

Bob: But I think that the later you go to them, the more of the company you get to keep.

Max Levchin: That's frequently true, although it's not quite that linear. There's some sort of a curve that describes the share price versus time. And I think in certain cases you may be too early to go ask VCs for money. Sometimes it may be too late, where you've - at least vis--vis what they would pay for your shares, it's actually possible to come in at a point where you're weaker than you were a few months ago.

There's this sort of a raising money on the story versus raising money on your actual results. And if you raise money on the story, sometimes your story sounds so good they might pay more per share than six months later you came in and said that story I told you didn't quite work out, but I really need money now. And you get to take a haircut in the share price.

But, nonetheless, I think the reason I would like to see my little fledgling ideas go out for VC funding is actually part selfish and part useful to me and the companies themselves. It's essentially external validation. So right now, I'm in this exposed brick Soma office with really high ceilings, which makes one think of the early '99 bubble days, where I'm cooking in my own soup and I look in the shiny faces of people who are working on these ideas that we all come up with, and I may be just drinking my own Kool-Aid.

Maybe these are just crazy bad ideas and this forecasting stuff I just sold you on could be all a crock. So when some dude who's seen it all before comes out and says, "You good. I give you five million dollars to do this", I know that I've fooled at least one more. And presumably they're in the business of not being fooled, which is good. That means they get to tell me that I'm not off my rock and I'm doing good things.

And the flip side, which I think is good for me and for the companies, you get some adult supervision. Which engineers certainly dislike, and I am right up there with them. But it may actually be very useful. And there's all these very complex dynamics that entrepreneurs and their investors have, sometimes very positive, sometimes very negative.

I have certainly known plenty of people who have told me both, and I've had my own interesting board experiences during the PayPal years, but in the end, I think you benefit tremendously from having people on your board who are not your buddies. They are there to mind their money. And when they come into the room, the question that's first and foremost in their head is, I gave you five million dollars. What are you doing for me?

And it sounds harsh. But it's really good for you. Because in that preferred stock that they gave you, its mirror image is your own common stock. So when you're maximizing their value, you're doing the same thing for yourself. And you're doing the same thing for your company and your friends, etc. So the external supervision, or the adult supervision, of beating you over the head every time you're doing something that's not so good for the business, is very healthy. And you sort of - you get used to it and you either get better for it or you fail, and there are some probably lessons to be learned there as well.

Bob: Now, speaking of adult supervision, you're within two weeks of your 30th birthday. I mean, you've done five companies, or you're in your fifth, or maybe it's a -

Max Levchin: I lost count.

Bob: Hydra-headed -

Max Levchin: Right.

Bob: Thing you're doing here.

Max Levchin: Right, right.

Bob: And you've had some success. You've made some money. And you're about to turn 30. Are you going to be doing this when you're 40? When you're 50?

Max Levchin: I cannot guarantee anything. Probably. Not necessarily this. So this concept of let me do more than one thing at a time, initially it seemed like a great idea, and I thought, I can do a dozen things at a time. It would be so much fun, like college. And now I think I'm more of a three things at a time is a lot mindset. So maybe by the time I'm 40 I'll be doing one company. Or maybe I'll be doing some form of investing in companies where I helped with ideas. Or engineering. Or both. But, yeah, I don't really see myself becoming a - opening a barbershop or anything like that.

Bob: Look at the haircut.

Max Levchin: I didn't do it myself. But I have found -

Bob: You don't have a Flowbee?

Max Levchin: I actually was thinking of buying one, to be honest. So this haircut is perfect. This is - you basically tell the hairstylist a number, and the person just applies that number all around your head in equal proportion. There's no interaction involved. You sort of sit there as they shave your head down to a number that you choose. And I've been experimenting with the - by documenting the look on my girlfriend's face as I change the number. So I've experimentally determined that 2 is exactly the right number. So now when I go into a hair salon, I sit down and I say please shave me all the way around to a number 2. And seven and a half minutes I'm out. And it costs me something like $12.00. So therein lies an engineering approach. Very carefully -

Bob: But if you change girlfriends, you have to start over.

Max Levchin: You're right. I have not accounted for that. But I suspect I'll just go through the process again. There are only so many numbers. So -

Bob: Yeah, that's true. Who do you admire?

Max Levchin: I admire you.

Bob: Well -

Max Levchin: I'm serious.

Bob: Why? My mother doesn't. I mean, why should you?

Max Levchin: First - no.

Bob: Or that was - no, this is the Internet. So we can say, that was bullshit.

Max Levchin: No, I admire you. I think you're a good writer. And I think things you say frequently are true, and some people are not necessarily smart enough or at least quick enough to say them. So -

Bob: Oh.

Max Levchin: That's admirable.

Bob: Great. But besides me, who do you admire?

Max Levchin: Lots of people. I think there are lots of really cool people. I generally admire entrepreneurs. I think people who are entrepreneurial, who go for what they think is smart and right and just go at it and see what happens are admirable. I really admire all the guys that I work with. I think the fact that they're willing to stay up all night with me and do stuff is really impressive.

Bob: Do they work with you because they're working with you, or are they drawn by the idea?

Max Levchin: I'd like to think it's some of both. But I really hope it's largely the idea. I don't think there's much of a "Max has a Midas touch" sort of thing going on at all, just because I am always ready to bust out with a story or two or 50 about various insane moments in PayPal history where we got horrendously lucky or did something very stupid or did something that could have cost us the company.

So there's plenty of documented evidence about this I am not unlikely to fail horrendously. Much like I did in many companies before PayPal. So I have this monotonically increasing success rate, except that the first three companies were one, a destruction of my credit rating, and two, a negative $7,000 billed to me personally, and I was just not exactly a born into the _____________ fill in the correct idiom here. Yeah, so I think these guys are doing this because they like the ideas. That's how it should be.

Bob: Would you hire someone just because you like them?

Max Levchin: That's really usually not enough. But a lot of times, I like people because I think I would love to work with them. So the causality may be reversed. But a lot of times I would be talking to someone and thinking, man, if I could figure out how to get this person involved in one of my ideas or one of my companies, I would be extremely happy.

That's actually kind of what happened with Peter. So the whole PayPal founding story was I met this guy randomly. He was giving a lecture, and I went to see the lecture, and it was a free lecture. And at the end I was like, wow. If I ever do something in financial world, that's the dude I wanna hang with, cause he's smart. So I generally like people cause they're smart. And so if they're really smart, and they're in some sort of an applied business, I frequently think, I really like you and I want to work with you.

I didn't prepare a list of specific names I admire.

Bob: No, no, that's fine, that's fine. You're from Ukraine.

Max Levchin: Yep.

Bob: And you came to this country when you were, what, 16?

Max Levchin: Yes.

Bob: So does that - tell us a little bit about what it means to be from Ukraine and especially in technology. Is that a great place? I mean, did you have some super-duper preparation? Are your math skills better than someone else because you're Ukrainian?

Max Levchin: I would certainly not claim any sort of a "me better than X because." I did have what I'd like to think was excellent schooling before I got here. But I had good schooling when I was here as well. In between I had two years of public high school in Chicago, which didn't necessarily improve my math skills, but it was good social interaction training.

Before I got to the States I went to a sort of a smart kiddy school in Kiev, and I think it was good. I had some very fun moments. It was actually one of these schools where you chose a focus, which is sort of like a major, but so you have some concentration on this and that. And my concentration was computer science and physics, which at the time I thought was cooler than math because my entire family is physicists. So I have these sort of three generations of physicists around me. And it was all - it was predetermined. And in later years I realized that I'm really more into math than physics, and this whole notion of having to experimentally observe things is just hard, and I'm not sure if I like it.

But, so I went to this school, and I learned a lot more math than an average kid would my age, and when I got here I could slack off really well, cause I was a couple years ahead of various people in school. But I couldn't really do English very well, so I had very great disparity between my English and math skill scores on very standardized tests. So my first standardized tests were sort of like he's illiterate, but he can do math.

Bob: You looked like an idiot savant. Yeah.

Max Levchin: Oh, yeah. And I was actually - I couldn't understand some of the problems. No. I studied English quite a bit before I got to the States, too, so I was actually reasonably well prepared. I was just very slow. So in the whole reading comprehension in 30 minutes or less you have to read this paragraph with two dollar words and then explain what they mean was very difficult. I think I picked it up over time.

Being from Ukraine in Silicon Valley doesn't - I don't think it means that much. Everybody's from somewhere else. No one's born in Silicon Valley except if you're like an HP lifer or something. Generally I get to tell people that you're Russian, because at least until the whole Orange Revolution thing, no one really knew whether Ukraine is in Africa or in South America or someplace like that. So I generally just say I am Russian. That's not really true. Russians and Ukrainians are very different. Or at least the languages are. And I happen to speak Russian at home. Or with my parents, anyway. So in that sense I'm a confusion in the first place.

Bob: When you were doing PayPal, didn't you have some Russian fraud people? I mean -

Max Levchin: As in people who were attacking us.

Bob: People were attacking you from Russia.

Max Levchin: Yeah, it's one of these things where I never really established whether they were from Russia or from Ukraine. Just like me, they were sort of these nebulous Eastern European types. But, yeah, actually, I think one of the economic explanations for fraud in a financial industry, an Internet financial industry, specifically is this great disparity. And people who live in Eastern Europe are frequently very poor, or at least the levels of poorness or the disparity between the lower class and upper class is much greater than here.

So someone here would be (a) fearful of the law enforcement and (b) probably could find themselves a very well paying job if they could just do things to computers that these Eastern European kids could do. In Eastern Europe, on the other hand, there are lots of really smart people who don't really have jobs. And I think that's all changing for the better, but in particular in the mid '90s or late '90s when we were doing this, it was still rough in places like, I don't know, Slovenia or - that's a random country I just came up with. But Ukraine, Russia, it was tough.

And there were all these really smart kids who could do things with computers that lots of people here couldn't dream of. And so they choose the life of crime, which to them is just life of supporting themselves or their families or whatever. And so, yeah, there are definitely lots of - a disproportionate number of Internet fraud attacks, I think, are still originating from Eastern Europe, precisely for the economic reasons and the - there's also one of the sort of underlying trends in there is this tradition of free education.

So lots of people who were educated for free under the Soviet regime in the '80s and the early '90s have these phenomenal engineering degrees and skill sets that are really great they didn't have to pay for, but as the Communist system collapsed, they're not necessarily great preparation for business or even things like finding a job or securing one. Because maybe they're not available in their native Kazakhstan or something like that.

Still, they wield these tremendous powers just because they can do math in their head and they can write code and - not like we can write code, they can write code on paper in Assembly language and have no bugs, and amazing things like that. And so they sort of go, well, what I can I do, I gotta eat. They say, well, I can just write this little script that bilks Internet people out of their money. And so they do. So I think that's where a lot of -

Bob: So what's the answer to that? How do - is there a macroeconomic way of including them in the - are you out actively recruiting Ukrainians?

Max Levchin: No. I'm not. Because I think it's the - unfortunately, United States immigration and, I don't know the exact term for it, but the labor permission laws make it very difficult to bring someone over who is very smart and desperately wants to do it. It's pretty tough to do things like securing H1B visas, part of it, obviously, having to do with the various national security things.

Bob: Sure.

Max Levchin: But also part of it -

Bob: You don't have to bring them here to hire them, though.

Max Levchin: I'm not really big into outsourcing. I think the whole outsourcing thing is a little - it's a little scary to me. I'm somewhat old-fashioned. That's the one wave where I'm probably paddling away from, for better or worse.

Bob: Yeah.

Max Levchin: Just because, being an engineer, I have the hardest time figuring out how it is that I'm gonna manage engineers if I'm not there pulling all nighters with them.

Bob: Okay.

Max Levchin: So one of my sort of alpha male "I am with you, my people" approaches to management and working is, I gotta see what the guys are up to. I gotta know - and girls, too.

Bob: So that suggests that there's like an absolute limit to the number of people you can manage, and therefore the size of the company you can run.

Max Levchin: No, no. I'm not insane enough to think that I need every single engineer reporting to me directly. But I'm fine expanding the company to middle management, and, God forbid, middle middle management, later on. But I think if I can sort of walk out of my cubicle and see that these guys are here and they're pulling all nighters, or they're not here and they're not happy and the cubicles are getting dusty, I can instantaneously make a judgment about what's going in. Is this company headed the right way or are we screwed?

And I think that's very hard to do if you have a sort of stable of these brilliant Eastern European engineers far, far away and you never meet them. And I think you could go there all the time and sort of look it, but you're still getting the synthesized experience of, ooh, the boss is coming. And you just can't really - at least I don't see how I can get comfortable with that over the long term.

Bob: Now, how many people -

Male: Eight minutes.

Bob: Okay. How many people do you have working here right now?

Max Levchin: I think there are about 22 people here.

Bob: And how many women?

Max Levchin: One, two, three, four, five. Five.

Bob: So about 25 percent, or a little under -

Max Levchin: Yeah.

Bob: 20, 25 percent women.

Max Levchin: Mm-hmm.

Bob: Is that low or high?

Max Levchin: For a startup, I think it's probably average or high. I think - in my experience, it seems to be.

Bob: So, did you consciously seek to hire more women? A lot of people would watch this and think, well, 20 percent women, that isn't very many.

Max Levchin: No. I - for better or worse, I run what I'd like to think is a perfectly meritocratic shop. So if you are smart enough to do the job, you could be a one-armed cat. I will hire you in a heartbeat. And particularly if you're the smartest one to do the job. If you are not, it doesn't help that you're a guy, girl, cat or whatever.

I think there's some weird dynamics that happen if you start a company and you have no women in it at all, because if it grows, at a certain point, because of all the sort of standard, obvious issues, women find it difficult to join an old guys shop. And it's a problem. And I can understand and relate, so I have to be mindful of that.

But that's possibly one of the few considerations that I have on some sort of a public political correctness or whatever that level is. It really is all about just figuring out who the best person is. I interviewed a girl yesterday who seemed really good, and she's a forecaster, math, and sort of an econometrics background. So if we hire her, I will have fulfilled my political correctness duty. I don't know.

Bob: You will? How will you have fulfilled it?

Max Levchin: Well, isn't it -

Bob: You won't have 50 percent women.

Max Levchin: Is it really that?

Bob: I don't know.

Max Levchin: I think before you get to 15 people -

Bob: Yeah.

Max Levchin: You don't have to worry about it too much.

Bob: Okay.

Max Levchin: And I'm not.

Bob: All right.

Max Levchin: I don't know what that means.

Bob: Now, I had a - let's talk a little bit about the future. You're building companies that are sort of two, three, four years from being another PayPal, maybe, in terms of size. It takes time to grow.

Max Levchin: From your mouth to whatever the -

Bob: Yeah, whatever.

Max Levchin: Right.

Bob: Yeah. To God's ear? There we go. And so what's the world that these companies are going to - and feel free to tell us about any of them you want, I just don't know what you want to say - but what's the world that they're gonna live in? How is it going to be different than our world of today?

Max Levchin: So one of the companies that I'm involved in right now in the context of this thing, this incubator-like thing, is called Slide, and I think it lives at the intersection of some of these things that are gonna be part of the future. And I think an obvious part of the future is that bandwidth prices are dropping. And I think very soon you will find yourself just not thinking so much about bandwidth.

So in the past you thought of well, am I online or am I not online. And you'd dial up. And these days you're just always online most of the time, in most neighborhoods. And you'll get more and more online as things like Wi-Fi and WiMax or all these standards become much more commonplace. And then that's - I think that's a really big, important trend, which is very cool. Because there's all these things you can bring to people when bandwidth is not an issue. And price of bandwidth is obviously the limiting factor in a big way.

Another big part of it, I think, your PC will be a source of entertainment in a very different way than it is right now. And I think today you are seeing some glimpses of that with various web sites and not so much products, yet, that are designed to keep you entertained. Yeah, it'll be very different from things like TV, for example, because I don't think it's possible to expect an average human being to watch a 30-minute show staring straight into their monitor 20 cm away from their nose. So I think different forms of entertainment will emerge, and different things will happen.

I think one other interesting trend that'll happen is there'll be more, very creative forms of advertising, where I think - it seems at this point that the Internet is becoming a rightful platform for advertising, and it has been like this for years now, but things like advertising embedded in games and advertising embedded in shows that are only to an extent measurable and actionable in a world of TV are gonna be in the Internet in a really huge way. So I think you'll be playing games and you'll say, oh, that's a - that avatar has the coolest t-shirt. And the game will stop, and the avatar will take it off and give it you and your PayPal account will be debited ten bucks for it. Or some crazy thing like that.

But I think there's gonna be a lot of really interesting changes in those areas.

Bob: So in the future, the winners presumably are the companies that have these great ideas and execute on them correctly.

Max Levchin: Yeah.

Bob: Who are the losers?

Max Levchin: The ones who -

Bob: Have no ideas and don't execute.

Max Levchin: Right. I actually think that a successful startup is 5 percent good idea and 95 percent execution. It's really - it's just one of these things where can you strike the fear of God into your competitors by releasing every two weeks the features that it takes them three months to write. And by the time they're done copying the features that you built last week, you've got three more months on them. And this is really all about execution.

I mean, once you - in particular, once you've hit a stride where your users, when you have enough users or enough customers, maybe even paying customers, that are telling you what to do - they're telling you, here's what we want. If you can just take that and write it, it's like you're strapped to a rocket. And you're just - if you can go fast, no one will ever catch up. If you can't, if you cannot harness the energy that your users are bringing to you, it doesn't matter how good your ideas are. You can't do anything about it. And so I think those are the winners, and the losers are the guys who cannot figure out how to do it.

Bob: So that brings us around to where we started, which is, it sounds like the winners -

Max Levchin: _____________ all nighters.

Bob: The winners are the ones best able to leverage the all nighters.

Max Levchin: Precisely. That's why they're -

Bob: Okay.

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