Hoffman on Paypal: We Didn't Know What We Were Doing, But We Learned

By Erin Griffith , written on August 9, 2012

From The News Desk

It's difficult to imagine the founders of a large, successful company like Paypal didn't have a clue about the industry they were entering. But according to Reid Hoffman, a founding director and then employee at Paypal, they didn't even know what a chargeback was starting out. The company's founders were just as clueless about the difficulties and costs of fraud protection, he said.

"When you lack the experience, you run into the minefield, so the ability to navigate and learn was critical," he told a crowd at this month's PandoMonthly in San Francisco.

Peter Thiel actually told Hoffman to join the company even before it had a business model because he anticipated it would be acquired in six months. At least that was the plan before the dotcom bubble burst, September 11 happened, and the mood in Silicon Valley became somber.

Paypal had multiple near-death experiences on its road to IPO, Hoffman said. Costs were so high that the company was hemoraging money.

"If we had been throwing hundred dollar bills over the edge of the building, we would have been spending money less fast than we were spending on the company," he said. "You could predict the hour that the $100 million we had raised was going to run out."

By the time the company did manage to figure out its business model, get a handle on fraud, and take itself public, the team let out a giant sigh of relief. "It felt good, but it felt like we had fought through a world war in getting there," he said.