Where Do Business Mafias Come From?

The PayPal Mafia has produced SpaceX, Palantir, Tesla, LinkedIn, YouTube, and others far exceeding PayPal’s value. How did Elon Musk and Co. do it?

Byrne Hobart
Marker
Published in
10 min readOct 17, 2019

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Illustration: Minet Kim

“T“The PayPal Mafia” is rightfully famous for producing a slew of valuable companies — SpaceX ($33 billion), Palantir ($26 billion), Tesla ($42 billion market cap plus or minus a few billion dollars depending on the most recent press releases and late-night CEO tweets), LinkedIn (acquired for $26 billion), YouTube (acquired for $1.65 billion and worth as much as 100 times that).

Collectively, these companies are worth over 100 times PayPal’s $1.5 billion acquisition price.

Why aren’t there other similarly successful mafias? There are plenty of former Google and Facebook employees who have gone on to start successful companies, but the network isn’t as dense. In fact, most PayPal-sized exits don’t produce anything remotely like the PayPal Mafia. What’s going on?

The best way to look at this is to consider the closest analogy to the PayPal Mafia: the Tiger Cubs. Coatue, Tiger Global, Lone Pine, Maverick, Samlyn, Steadfast, and Viking — once again, the companies founded by former Tiger employees manage vastly more money than Tiger did at its peak.

Tiger’s alumni network isn’t quite as distinctive as PayPal’s; in finance, there’s a longer tradition of spinoffs, perhaps because it’s easier to start a company that competes with your former employer without competing head-to-head. The Goldman Sachs arbitrage desk produced several successful funds over the years (Perry Capital, ESL, Och-Ziff, and TPG-Axon), and Commodities Corporation seems to have produced a disproportionate share of the 1980s and early ’90s best macro traders — Paul Tudor Jones, Louis Bacon, and Bruce Kovner¹.

Hedge funds naturally produce spinoffs because of their structurally high turnover. The two things most hedge fund managers can’t stand for long are portfolio managers who lose money and portfolio managers who make more money for the fund than the fund manager does.

If you want your organization to produce a really effective alumni network, you absolutely…

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Byrne Hobart
Marker
Writer for

I write about technology (more logos than techne) and economics. Newsletter: https://diff.substack.com/