Last week on Methods of Prosperity: Elon Musk created an online banking company called X.com.  Meanwhile, Peter Thiel co-founded Confinity which developed a product known as PayPal. Both startups facilitated peer-to-peer payments for users through email. The rival companies X.com and Confinity merged, with Musk as the largest shareholder under the name X.com. The new company grew, attracting over a million users. Credit card fees, crashes to the website, and heavy fraudulent transactions affected profitability. Musk’s co-founders plotted to remove him as CEO and replaced him with Peter Thiel.  

The following is Methods of Prosperity newsletter number 31. It was originally deployed January 18, 2024. As of September 26, 2024, original subscribers have received up to issue number 67: Phil Knight (continued).

Part 31.

TL;DR

The term “PayPal Mafia” refers to its founders. This includes Musk, Thiel and Hoffman. They went on to invest in and found great companies in Silicon Valley. eBay acquired PayPal for $1.5 billion. After PayPal, Musk revisited his interest in space travel and donated to The Mars Society. Elon Musk wanted to send mice to Mars but needed a rocket. He tried buying refurbished ICBMs from Russians who rejected his $8 million offer. Discouraged, he and his team returned to the US empty-handed. 

Key lessons:

• Own the majority of shares in your company.

• Never give up on your audacious goal.

• Revisit childhood fantasies.

• Build a unique character.

• Mars is a metaphor.

• Don’t be resentful.

“I do not fit the picture of a banker. Raising $50 million is a matter of making a series of phone calls, and the money is there. I’ve sunk the great majority of my net worth into X.com, which is the new banking and mutual funds company on the internet that I’ve started. I think X.com could absolutely be a multi-billion dollar bonanza, because if you look at the industry that X is pursuing, it’s the biggest sector of the world economy.”

– Elon Musk to the film crew of CNN, 1999

This is how investors catch a tax break. They roll their windfall of exit capital into another venture within a few months. Around $12 million of Elon’s $22 million net worth from the sale of his first startup went into X.com. The other co-founders persuaded the board to kick Elon out of the CEO position. They reinstalled Peter Thiel, as the new CEO of the merged company.

Elon was on a delayed honeymoon with his first wife, Justine at the time. The newlyweds put off their honeymoon until December 2000. It was his first vacation in many years. He arranged to take a two-week trip. The first week in Brazil and the second week in South Africa, near the Mozambique border. There he contracted a deadly strain of malaria. He became deathly ill after rushing back to Palo Alto in January, during the PayPal coup d’état. After feeling ill for a few days, Justine rushed Elon to the hospital. Doctors diagnosed him with viral meningitis. He lost the ability to walk as his condition worsened. Near death, consecutive doctors misdiagnosed him. One doctor happened to be visiting from another hospital. This visiting doctor offered the correct diagnosis. If he had turned up one day later, Elon could have died. It took him six months to recover.

“I came very close to dying,” says Elon, “That’s my lesson for taking a vacation. Vacations will kill you.”

– Elon Musk

It became clear that the decision by the board to remove Elon as CEO in favor of Peter was final. Finding it illogical to be resentful, Elon was supportive. The company was doing well with Peter Thiel at the helm. In June 2001, x.com rebranded as PayPal. Musk became an advisor to the company and invested more than any other shareholder. Executives from eBay soon approached PayPal about an acquisition. Elon Musk and Michael Moritz from Sequoia Capital urged the board to reject their offers. They thought it would be better for the team to hold out for more money. In July 2002, eBay offered $1.5 billion for PayPal. Musk and the rest of the board accepted the deal. With the largest stake in the company, Musk made $250 million from the sale ($150 million after taxes).

PayPal survived the bursting of the dot com bubble. After the 2001 attacks, PayPal became the first significant IPO of that era. While the rest of the tech industry was declining, they sold to eBay, making the PayPal mafia rich.

Fortune Magazine journalist, Jeffrey M. O’Brien coined the term “PayPal Mafia”. It referred to this prolific group of entrepreneurs. They continued to make waves in the tech industry after their time at PayPal. The PayPal Mafia remained connected after selling to eBay in 2002. They went on to form new companies and venture firms. They became influential figures in the tech industry. Both Musk and Thiel had a knack for recruiting the best and brightest engineers. Members of this group, besides Elon Musk and Peter Thiel, included Reid Hoffman. LinkedIn, YouTube, and Yelp are a few of their startups. They are legends of Silicon Valley.

After PayPal pushed him out, Elon revisited his childhood sci-fi fantasies. He dreamed of rocket ships and space travel. He studied textbooks about rockets. His conversations started orbiting around space travel (pun intended). The Mars Society is a nonprofit organization founded by Robert Zubrin in 1998. Zubrin’s organization advocates for human Mars exploration and colonization. In 2001, Elon attended a fundraiser, where he donated $5,000,000. Upon joining their board of directors, he donated another $100,000 to fund a research station. 

Elon Musk is serious about humans colonizing Mars. Curious when NASA was planning a mission to the red planet, what he discovered shocked him. NASA had no plans for exploring Mars at all. With no formal business plan, he held a series of salons to bring together the best minds on the subject. His idea to send mice to Mars and back. If nothing else, they could come up with some achievable spectacle. Mars, he believes, is a future destination for the survival of the human species. In his mind, we must become interplanetary or else we will perish.

In 2001, the only place to buy a rocket was Russia. Musk intended to buy a refurbished ICBM from the Russians and use that as his launch vehicle. There was only one person who could help with this job.

There’s no easy way to describe this. For lack of a better word, let’s call it luck – a strange kind of luck. Naval Ravikant describes it this way. “You build a unique character, a unique brand, a unique mindset, where then luck finds you.”

Jim Cantrell is that kind of person. Cantrell is an American entrepreneur and mechanical engineer. He’s known for his significant contributions to the space industry. He possesses an unusual mind and unique character. The US and other governments hire Cantrell for a mix of classified and unclassified work. In 1996, the Russians arrested and accused him of espionage. Vice President Al Gore made some phone calls and worked it out. Still, Jim Cantrell wanted nothing more to do with the Russians. Elon Musk had other ideas for Jim Cantrell.

Elon called Jim, who feared it was an elaborate set-up to get him in trouble again. He agreed to meet Elon in a public place. In case it was a trap, the public place prohibited firearms. They met behind security at an airport lounge. Musk gave him his “humans must become a multi-planetary species” diatribe. Elon urged Cantrell to help him buy a rocket from the Russians.

Convinced, Cantrell agreed. Jim Cantrell, Elon Musk, and Elon’s best friend from University, Adeo Ressi boarded a flight to Russia. It was October 2001. Micheal D. Griffin, a prominent American physicist and aerospace engineer joined them. Meetings lasted most of the day, but they settled no business until the after lunch, over shots of vodka. “What is it you’re interested in buying?” asked an oligarch with a heavy accent. Russians did not think these American entrepreneurs were serious. Jim claims that one of their chief designers spit on them.

Buzzed from the vodka, Elon asked point blank how much one of their missiles would cost. “$8 million each,” the Russians replied. Elon counter offered them $8 million for two. That was unacceptable to the Russians, who didn’t believe Elon had the money. If they knew he was sitting on $20 million for the ICBMs, they likely would have taken it all. Fed up, Elon and his team stormed out of the Moscow meeting, spilling into the snowy street to hail a cab.

Elon would make two more attempts. The third trip was near the end of February 2002. For the third time, they left Moscow empty handed. Disappointed, exasperated, and in silence they rode in a cab to the airport. The Russians had been the only sellers in the world to buy rockets from. Defeated, ordinary men would have lost all hope and abandoned the project. Unlike ordinary men, Elon Musk thinks from First Principles.

To be continued… 

I like you,

– Sean Allen Fenn

Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Your feedback is welcome. For more information about the author, please visit seanallenfenn.com/faq.