Peter Thiel tells the founding story of PayPal

July 22, 2025

“When you start one of these companies, it’s typically not the case that you get the whole idea fully formed instantaneously,” Thiel begins. “There was this incredibly internet boom going on in Silicon Valley in the late 1990s. It felt like there was this open frontier or gold rush, and one of the natural things to look at was finance.”

At the time, Thiel was very interested in the idea of creating new forms of money.

“There’s always something super mysterious, powerful, and important about money,” He explains. “And we had this general idea to do something with security, money, and payments very early on in the founding of the company. Then you iterate a lot on how to get the idea out.”

Thiel continues:

“The critical question for any consumer internet product is not what the idea is, but ‘how do you get distribution?’ There had been a lot of internet payments companies that had already started and failed by 1998… They would’ve worked if everybody used them, but you could never get even the first person to start. So the challenge was how to make it go viral and how to get something to work where it’s good for the first person, the 10th person, and the 100th person. Once you have millions of people, you have a network and network effects. That was sort of the chicken and egg problem we wanted to solve.”

Eventually the team stumbled on the idea of linking money with email:

“There were already 300 million people in 1999 that had email accounts. So if you could send money to an email address… you didn’t need both counterparts to a transaction to be part of the PayPal network. Only the sender could be part of it, and then the recipient would sign up as they took money out. We started with the 24 people in our office, and they sent money to friends and other people. Then we gave these referral bonuses of $10 if you got someone to sign up, and it just grew exponentially. It grew about 7-10% compounding daily… We had 1,000 people in mid-November of 1999. By the end of December it was 12,000. By February 3, 2000, it was 100,000. By mid-April 2000, it was up to a million.”

The other critical component of PayPal’s success was starting with customers who had an intense need and minimal downside risk:

“One of the natural places that it started was on the eBay auction site where you had small dollar transactions of maybe $40 as the typical amount. If you send a check across the country, that’s a 10 day delay. It’s slow, and most people aren’t set up to process credit cards.”

Thiel reflects on what it felt like to go from 1,000 users to 1 million in just a few months:

“[It felt like] you were at the forefront of some sort of revolutionary thing. It’s incredibly exciting and incredibly scary. It was like ‘we’re going to take over the world’ or ‘we’re all going to die’ and you move between those two several times a day.”

Fraud was a major challenge the company had to solve — especially because making a product hard to defraud is usually at odds with making it easy to use. Thiel also had an interesting perspective of operating in strange regulatory zone with this new form of moving money:

“I often thought of it at the time that we were in a race between technology and politics. The politicians didn’t like us, but if we got the PayPal network to be big enough, it would sort of overwhelm the regulators and they’d have to accept it as a fait accompli… One of the execs at PayPal said we needed to hire a whole bunch of lawyers to tell us what we can or can’t do, and we said no we’re not going to hire them. They’ll just tell us what we can’t do. We have to just go ahead and not hire the lawyers and just do it.”