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Unfinished Business: Max Levchin’s Quest To Build the Next PayPal

He cofounded PayPal, helped launch Yelp, and his new startup wants to make the credit card obsolete.

Unfinished Business: Max Levchin’s Quest To Build the Next PayPal
[Photos: Michael Shindler]

A dozen tired engineers file into the basement of Affirm, their consumer-finance startup in San Francisco, for movie night. It’s 7:30 p.m., and the program features a three-and-a-half hour black-and-white Japanese film with subtitles–preceded by a lecture from their boss, Affirm’s CEO and cofounder, Max Levchin. Tonight will mark the 110th time Levchin has seen Akira Kurosawa’s 1954 classic Seven Samurai. He launches into a speech on Japanese cinema, the director’s legacy, and the evolution of its subtitle translations. Then he finally gets to the point, when he reveals that “I’ve never taken a single management class.”

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He hasn’t had to, he explains, because Seven Samurai is the “perfect metaphor for a startup.” It is about “this guy, he has this goal, he’s probably going to fail, he tries to get people to join him, he’s rejected. People show up who are completely incompetent. He wants to build up warriors. There are terrible challenges to overcome. It’s a very sad story.” Yet it’s “fundamentally about supreme strategy and organization to win a war against all odds.” Seven Samurai has so influenced Levchin’s understanding of business that he once considered getting a bracelet that read, “What Would Kambei Do?,” in honor of the down-on-his-luck warrior who recruits six others to help him save a village under attack from 40 marauders.

Building Affirm, which he launched in the spring of 2012, is not Levchin’s first battle. The 39-year-old serial entrepreneur cofounded PayPal. An incubator of his helped launch Yelp. He sold a company called Slide to Google for $228 million. He is one of the tech industry’s most sought-after advisers and investors, and he sits on the boards of Yahoo and Evernote, along with Yelp, where he is still chairman. He’s wealthy, respected, and connected.

But when you compare Levchin’s career to that of his fellow PayPal cofounders, Peter Thiel and Elon Musk, as well as even former PayPal employee Reid Hoffman, there’s a gnawing sense that he hasn’t fulfilled his potential. They are legends. After eBay acquired PayPal in 2002, they went on to have a hand in the creation of several multibillion-dollar companies, reinventing personal communication (Facebook), business networking (LinkedIn), data mining (Palantir), electric vehicles (Tesla), and space exploration (SpaceX). And their impact has spread beyond the tech industry, capturing the public imagination. Levchin, on the other hand, is still searching for a grand second act. As one colleague notes, Levchin has made more money as the shareholder of a company he did not found (Yelp) than from any company he did create.

With Affirm, Levchin is returning to the scene of his first triumph, digital finance. But this time, Levchin says, his goal is even more audacious. PayPal and other companies dabbling in the mechanics of finance, including Square and now Apple, have not tried to “reinvent the system,” he says. “They just built on top of it.” Affirm’s goal is to reimagine the idea of a bank from the ground up.

To do so, Levchin plans to harness big data and smart design to create innovative financial services. The startup’s first product is called Buy With Affirm, which provides short-term loans to consumers at the very moment when they purchase something online. For example, if you order a $1,000 electric skateboard from Boosted, which is one of the merchants that has signed on with Affirm, you’ll get the option to split the total into three fixed installments as low as $338 over three months. (Buyers can also split their payments across six or 12 months.) Rather than simply check your credit score, an antiquated metric that hasn’t evolved in decades, Affirm scans thousands of public and private databases, including social media profiles and histories of cell-phone payments, to determine creditworthiness. It does all this in just seconds and then offers you a loan at a set rate (usually about 15% if it took a year to pay off), with no hidden fees, late charges, or predatory practices. On its own, Buy With Affirm may not yet have terrified big banks out of existence. But it is a novel approach that disguises its daunting technology with a simple interface, and in Silicon Valley, that would be enough for someone to spin a tale of how Affirm is like, say, a noble samurai defending the townsfolk from a pillaging horde of bankers.

Even though he can describe Affirm that way to his engineers, Levchin is not comfortable unspooling that tale for the public. “Avoid the narrative,” he likes to say. “Don’t believe your own story, because typically, as humans, we make up stories to make up for a lack of data.” This is a fascinating techie take on the truth that storytelling originated as a way to explain a universe that once seemed without reason. It is the kind of statement that makes Levchin a refreshing presence in a startup scene awash in hype. But it is also a good example of why he isn’t as famous or successful as Musk and Thiel and others in that constellation. To hit it big, you have to both solve a problem and create a Jobsian reality distortion field that makes people think they can’t live without your solution.

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Levchin gets it. “At the end of the day, you have to be like, ‘We do this!’ That’s harder for me. Jack Dorsey probably rolls out of the bed and says, ‘A beautiful experience for a beautiful day.’ And that goes on the website [of Square, the startup that Dorsey created after he cofounded Twitter] and it just works. He is a great design visionary, and I am the exact opposite.”

Puzzle Love

Pumpkin prices have just dropped 10 cents, and Levchin is ready to buy. We’re at a mobbed sidewalk market in Chinatown a short walk from his office, and as closing time nears, store workers elbow their way to the crates of fruits and vegetables lining the street to affix Post-it Notes advertising lower prices, an exercise they repeat roughly every hour. “This is an awesome model of pricing efficiency!” raves Levchin, picking through the produce. “None of these people went to Harvard Business School. They just know everything must go and start aggressively pricing. It makes me happy.”

We’re here to find a “big-ass pumpkin” he can roast for dinner. But because Levchin likes to quadruple-task, he’s also using the occasion to walk Uma, his beloved wheaten terrier; catch up with Eric Scott, who works with him at HVF, Levchin’s idea incubator; and search for a gong that Affirm’s sales team can sound when they score new merchant partners. As Max scans the market, Scott ticks through several companies that would love to have Levchin as an investor. Levchin never makes eye contact with Scott. In dark sunglasses and a black fleece zipped up to the neck on this hazy day in mid-August, he looks a bit like an FBI informant receiving clandestine instructions. It’s not that he’s disengaged; this is how Levchin processes information, simultaneously downloading data while readying a barrage of questions.

Levchin has cultivated this mechanical personality since childhood, when he earned the nickname “The Robot” for his love of math Olympics and other nerdy hobbies. Born to a family of physicists in Kiev, Ukraine, Levchin learned to program on the Soviet equivalent of a T.I. calculator. For kicks, he’d handwrite lines of code in notebooks. Around the time the Soviet Union dissolved in 1991, Levchin’s family, dead broke from hyperinflation, immigrated to the U.S. Levchin remembers being “shell-shocked” during his first days of high school in Chicago, when he realized math tests featured multiple choice. “I went to my teacher and said, ‘This is ridiculous! Why would you put the answers on the same page as the questions?’ ” he recalls, adopting, as he often does, a stereotypical Russian accent. “In my old school, it was like, ‘Here are three [impossible] questions. If you get two right, you qualify for college.’ ”

Levchin graduated from the University of Illinois at Urbana-Champaign with a degree in computer science in 1997 and took off for Silicon Valley with dreams of striking it rich. Just one year later, he and Thiel, whom he met by chance at a Stanford lecture, cofounded the company that would morph into PayPal. For the next half-decade, the startup consumed his life–Levchin kept a sleeping bag at the office. Building an online payments service when no company like it existed was truly thrilling, and the work challenged Levchin in deep, complicated ways. He developed the antifraud technology that made consumers trust PayPal and that thwarted the Russian hackers who had been trying to break in. He burrowed into payments data, network effects, interminable lines of cryptography code. It was a giant puzzle he played with every day, like an eternal humdinger from the book of 100 unsolved math problems that his parents gave him when he was a child. Investor and entrepreneur Keith Rabois, a former PayPal executive, describes Levchin as a Good Will Hunting–esque prodigy, with a brute-force approach to problem solving. “One day, Max was coming up with all these harebrained schemes to beat the U.S. tax code, and I said, ‘Max, if you try this, you’re going to jail,’ ” Rabois recalls. “But literally 24 hours later, he came up with an idea that easily surpassed everything I’d learned at Harvard Law School.”

Working at PayPal, Levchin got a real-world business education. The company went in and out of bankruptcy; Levchin’s founder’s share was diluted again and again, as he helped raise several rounds of venture capital; and in the doldrums of the tech industry’s post-dotcom crash, PayPal went public and was then acquired by eBay for $1.5 billion. It was a remarkable experience for a kid who former colleagues recall doodling space aliens during board meetings. Levchin earned $34 million from the eBay sale, a pittance by today’s extravagant standards, but he stayed at eBay longer than any other PayPal cofounder to ensure that PayPal would fit into the culture of its new owner.

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The Peril of Pivots

Within days after leaving PayPal, Levchin felt utterly lost. “For three weeks after I left, I would go to the office every day to hang out and go to lunch with the engineers,” he recalls. “At some point, the head of HR said I had to stop showing up. I was like, ‘But where do I go?’ ”

Not having an all-consuming project made the 27-year-old such miserable company that his girlfriend dumped him. “You’re like a drug addict who stopped taking a drug,” complained Nellie Minkova, who later reconsidered and married him. Levchin had a young geek’s version of a midlife crisis. He bought a hard-top convertible with cash, threw parties at his newly purchased loft, and even deejayed a bit. It wasn’t exactly the rock-star life: “It was very tame,” he remembers. “I had catered food.”

To keep busy, he built an incubator. The Valley overflows with these sometimes ungainly mashups of angel investing, consulting, b-school, brainstorming, and coworking. Many are run by former hotshots who advise and invest in startups launched by passionate entrepreneurs while they wait for their own next great project. Levchin called his MRL Ventures, and it eventually led to his most profitable gambit: an investment in Yelp, which was founded by former PayPal engineers Jeremy Stoppelman and Russel Simmons after a lot of brainstorming with Levchin. He gave them their initial funding, and he’s still chairman and the largest shareholder of the company, which has a $5.5 billion market cap. But a mere investment couldn’t satisfy Levchin’s itch–the PayPal void wasn’t filled until he launched Slide in 2005.

Like MySpace, Facebook, and LinkedIn, other startups getting lots of buzz at the time, Slide aimed to become a social media giant. But Slide was really a rebound company, created without the kind of focused ambition of those other firms. Ostensibly, Slide’s mission was to create social games, but Levchin admits that his central goal was to build a company with a larger valuation than PayPal. So Slide swung from one buzzy concept to another as it searched for a reason to exist. “We thought we were going to build a business on slide shows, advertising, music and video licensing, virtual goods, photo printing, merchandising,” says Jared Fliesler, Slide’s former head of business development. “I was there for eight different business models.”

Levchin tried to make something of Slide for five long years. But it was no Facebook, or even Zynga. In 2010, he decided to sell Slide to Google for $228 million, less than half the company’s valuation based on the venture capital he’d had to raise to keep the place afloat. The sales price was also, of course, a fraction of what eBay had paid for PayPal, making the experience a complete failure in Levchin’s eyes.

Bringing in Levchin was the big reason that Google cofounders Larry Page and Sergey Brin wanted to purchase Slide, and he arrived in Mountain View hoping to make an immediate impact on Google’s social strategy. But the company’s big social effort, Google+, was already well under way. When Page replaced Eric Schmidt as CEO in 2011, he quickly shut down most of Slide’s original projects as he pared down the company’s portfolio. Levchin told Page and Brin that he wanted to leave. Page was angry, and while Brin tried to get him to stay–“I’m starting this Google X thing, you should come hang out with me,” he told him–Levchin already had one foot out the door. Looking back, Levchin complains that Google was not intense enough for him. “It was fun, but after a while, you’re like, ‘Where’s the grind?’ ”

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After leaving in the summer of 2011, Levchin was lost, yet again. Even with a growing family–he and Nellie were expecting their second child–he needed another puzzle. “I need things that are very difficult and stressful, otherwise I don’t get my testosterone out,” Levchin explains.

“I need things that are very difficult and stressful,” Levchin says.

“Do you have any ideas?”

Levchin slowly smacks a piece of Trident gum as he brainstorms with Bill Gross, the founder of Idealab, an incubator that has been around since 1996. Like Levchin, Gross is an irrepressible force, nervous energy incarnate. When the two old friends get together, they exchange ideas–as well as contacts and investment opportunities–at the pace of an Olympic ping-pong match. Gross starts off by steering Levchin through a series of new projects he’s working on. Levchin responds with tough questions and sage advice, despite being nearly 20 years younger. He does so while slouched low in his chair, his brow furrowed as he pops another of gum–his sixth in the last half-hour.

The tempo of the conversation heats up even more when Gross asks if Levchin has any new startup ideas he wouldn’t mind sharing. Gross has started a company called IdeaMarket, a Kickstarter-style website where the masses can fund these concepts for equity or even band together to build one. Gross thinks it would be good PR to post a handful of Levchin’s schemes. “Yes!” Levchin exclaims, springing to life. “I can rattle off 10! Even 20!” He whips out his phone, pulls up files he’s meticulously stored in the Evernote app, and rips through a score of possibilities, a wide grin on his boyish face.

This is the Levchin renowned in tech circles for being a top-flight consigliere to Yelp CEO Jeremy Stoppelman and Evernote CEO Phil Libin and for investing in Pinterest, Square, Uber, and more than 70 other startups. Or as Levchin jokes, “I have successfully bamboozled a lot of people into thinking that I’m pretty smart.”

Levchin loves just about everything about great ideas. He loves to concoct them, talk about them, improve them, and even give them away. So it’s not altogether surprising that after selling Slide, Levchin did exactly what he had done before–he founded another incubator. This one is called HVF, which stands for hard, valuable fun. That, says Levchin, is his primary filter for evaluating projects.

HVF is headquartered on the second floor of a three-story brick building near Jackson Square. This is where Levchin advises the startups that have emerged from HVF, such as Glow, a fertility app that is ultimately striving to rethink the health insurance business. The open space is a personal clubhouse for Levchin, somewhere people can feel comfortable in the muddle of thought that precedes all breakthroughs. Levchin once offered space at HVF to an entrepreneur he met in the comments thread of a blog post, and the 25-year-old is now settled in, working on a way for 3-D printers to create livers for transplant. Something may come of that, or nothing may come of that. Either result is fine.

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Affirm is housed in the same building, on the top floor. Here, 35 employees are packed in tightly. On one of the walls, there’s a sign reading “will dance for dolphins.” The sales staff equates accounts with different sea creatures: Whales are huge, minnows are small, and dolphins, the smartest animals of all, are the midsize, healthy businesses run by the kind of tech-savvy bosses who would be interested in signing on with Affirm. Next to it is a newspaper story describing the struggles PayPal and Square are now facing in the crowded digital payments business. To Levchin, it’s a reminder that Affirm’s vision is far more radical and meaningful than anything those organizations are doing now. But he also wants his employees to aspire to grow Affirm to have the millions of customers that they do.

Levchin has a standing desk in the back of this buzzing office, but he’s often downstairs. “At Affirm, people bug me the whole time, so if I need to zone out, I run to HVF,” he says. “But then people complain they don’t see me enough.” As Ryan Metcalf, Levchin’s chief of staff explains, “We try to keep Max upstairs as much as possible, because Affirm is his No. 1 priority.”

Which floor to choose? This is a daily dilemma for him, and represents one of the central challenges of entrepreneurship. Silicon Valley venerates idea creation, but its pantheon is reserved for empire builders, people like Musk, Zuck, Bezos, Thiel, and Page whose grand visions and brilliant execution have had a profound impact not only on business but also society. The greatest minds of Silicon Valley can operate successfully on both floors, and no one is quite sure if that’s true for Levchin. Can he focus on the problem at hand, rather than being drawn into an endless search for the more daunting challenge down the road?

Friends universally describe Max as having a “faster processer.” That’s a good thing, of course, but it has its downsides. Levchin loves meetings with Affirm’s potential merchant partners, but he now eschews them because he finds that he spends more time asking questions about their businesses than he does convincing them to sign on with his. During my visit, he seemed much more at home on the second floor than the third. But he later tells me that this is because his schedule was “engineered” to show me the breadth of his interests. He promises that he spends more time at Affirm.

His friends and peers say that Levchin knows that if he wants to achieve his goals, he must at least compartmentalize his obsession with the beginning of things. “There’s something very special but also very tragic about founding moments, because it can’t last,” says Thiel, who has discussed this topic with Levchin. “If you’re still a five-person startup five years later, that’s no longer exciting or cool. But once you’re a 300-person company, you will have lost some of that early camaraderie. Startups are awesome, but they just have to grow up.”

Change the World and Pick up the Tacos

With his dog in the backseat and French bluegrass on the radio, Levchin pulls into the driveway of his family’s Pacific Heights town house. We’ve just zipped over from a doctor’s appointment and a quick stop for him to pick up tacos for the kids, since Nellie is out of town. Considering how much time he invests at work, it’s easy to forget he has two children–and difficult to imagine where he finds the time to be at home with them. “My relationship with my children involves coming home for dinner three times a week, reading and washing them for two beautiful hours, and then going back to work,” he tells me.

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We pop inside to discover his kids doing arts and crafts with the nanny; they’re excited to see their dad. But we’re only here to drop off the tacos and grab Levchin’s blazer for dinner. “I shouldn’t be home too late, so I can come give you a kiss,” he says to his kids on our way out the door after surveying their drawings. “I am extremely impressed with what you’re doing.”

Levchin’s dinner date is Rupert Murdoch, who likes to pick his brain about tech whenever he visits San Francisco. “He’s extraordinarily impressive. Intellectually, he’s a monster, a giant, really,” Levchin gushes. “When someone like that says let’s break bread and talk about interesting things, I’d be a moron not to.”

He craves even more of this brand of validation. I didn’t realize how much until a former colleague of his shared a revealing, and related, anecdote. In September 2013, Levchin made plans to take his team on a field trip to Elon Musk’s SpaceX headquarters on the outskirts of Los Angeles. “Are you flying down with us?” this former colleague asked Levchin. “He replied, “I’m not sure that I want to go,” Levchin told him. “Whenever I see Elon, I’m reminded that I do not have a billion-dollar business. Peter [Thiel] does. I’m still the little kid that was one of the three PayPal guys. I’m just old now.” (He rejects this characterization, saying that he’s driven to outdo his success at PayPal but not out of envy of his fellow cofounders and friends.)

Levchin doesn’t want their riches. Friends say he isn’t interested in most of the traditional trappings of wealth; he’s content to indulge in his passions for cycling and coffee. “He has the $10,000 bike he wants, he’s got the fanciest coffeemaker on earth,” says the former colleague. “He wants legitimacy.” Or as Levchin once complained to this person, “When Obama comes to town, he calls Elon and Peter, not me.” Levchin wants to be on the bigger stage. He wants to solve the bigger problems. Just like his friend Musk.

Consumer debt may not be colonizing Mars, but it’s a huge issue. Affirm is still very much an early-stage startup, but Levchin and company are already gaining traction. He has signed up 100 trendy online boutiques, including Faraday Bikes, Wildfang women’s apparel, and Casper mattresses, to offer Buy With Affirm at checkout. He’s adding three new customers every week. Levchin boasts that Affirm has already doled out millions of dollars in loans to consumers and predicts that the total will likely reach $100 million in the next 12 months. The company’s next banking product, he tells me, is an “intelligent financial assistant” to sync a user’s bank and credit-card accounts and automate her fiscal life so that she always makes the most prudent decisions. Levchin has raised $45 million to fuel this product and more like it.

During one product-review meeting, I see a sign that Levchin, even amid all the demands on his time, can both focus and strike the right storytelling note. At the end of a conversation about how best to market Buy With Affirm, he reminds his employees that unlike a traditional credit card, Affirm’s service is “transparent, easy to use, and not shitty.” It’s not exactly the poetry of Jack Dorsey, but it’s perhaps a start toward a clear statement of what makes Affirm different.

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He’s aware that the challenges involved in reinventing finance are massive, but he loves that. The reason why PayPal still looms for Levchin and his former colleagues is that they wanted to reinvent currency for the digital age and they didn’t get close. They imagined it, but they didn’t realize their vision. In Silicon Valley, you need to do both.

Ask Levchin about what lies ahead with Affirm and he says, “Slow moving, very regulated, and really difficult to win? My favorite kind of battle. I don’t care if we get spanked by the banking industry. I don’t want to wake up one day never having given it a real shot.”

About the author

Austin Carr writes about design and technology for Fast Company magazine.

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