From PayPal Mafia to Investment Empire: The Growth Trajectory of Founders Fund

The term “PayPal Mafia” originated in Silicon Valley and is rooted in the story of a legendary company and the genius investors at its core. Founders Fund grew from this legend, starting with a modest $50 million fund to managing assets worth billions of dollars. Their investment strategy defied conventional venture capital wisdom, achieving the highest returns in VC history through investments in transformative companies like SpaceX, Facebook, and Palantir.

The Moment When Three Geniuses Met

To understand Peter Thiel’s investment philosophy, it’s essential to know how he gathered his top peers. In mid-1998, a lecture at Stanford University became the catalyst for a fateful encounter among three geniuses: Thiel, Ken Howery, and Luke Nosek.

Howery’s “Turning Point” came during his studies in economics at Stanford. Originally from Texas, he moved to California in 1994 and began contributing to the conservative student magazine “Stanford Review,” co-founded by Thiel. On the night before graduation, Thiel showcased his intellectual prowess during a four-hour debate at Sundance, a steakhouse in Palo Alto. From that conversation, Howery became convinced, “I might work with this person for life.”

Luke Nosek, a brown-haired, curly-haired young entrepreneur developing a smart calendar, was also drawn to Thiel. He would later be recognized as an ideal prototype of Thiel’s vision of talent. His abundant talent, independence, and bold pursuit of conclusions that ordinary people might hesitate to consider were qualities Thiel valued above all.

Conflict with Moritz: The Origin of the PayPal Mafia

The history of PayPal is also a story of endless battles between Thiel and Michael Moritz of Sequoia Capital. It took seven years from their first meeting in 1998 to the establishment of a venture capital fund, due to complex power struggles during the PayPal era.

In March 2000, PayPal raised $100 million in Series C funding. Thiel, who foresaw a worsening macroeconomic environment, pushed for this raise. Within days, the dot-com bubble burst, and many companies went bankrupt, proving Thiel’s foresight.

However, Thiel’s bold investment proposal angered Moritz. He suggested that if the internet market declined as expected, the newly raised $100 million could be used for short selling. The board rejected this plan, but as one investor later candidly said, “If we had shorted then, the profits would have exceeded PayPal’s entire operating profit.” Thiel’s strategic thinking clashed with Moritz’s conservative management philosophy, deepening the unity of the group known as the PayPal Mafia.

In September 2000, Thiel, Max Levchin, and Scott Banister staged a coup to oust CEO Elon Musk. Moritz demanded that Thiel remain interim CEO and forced him to find a successor. This power struggle left Thiel with deep scars and laid the groundwork for founding Founders Fund.

When PayPal ultimately succeeded, Thiel had to acknowledge Moritz’s role. In 2001, when eBay proposed a $300 million acquisition, Thiel advocated accepting the offer, but Moritz pushed for further growth. eBay then increased the offer to $1.5 billion—five times Thiel’s initial valuation. This deal allowed Thiel and his colleagues to amass enormous wealth and step into a new investment empire.

From Macro Investing to Systematic VC

The $60 million profit from the PayPal acquisition further fueled Thiel’s ambitions. While expanding his management scale, he continued to pursue macro investments, systematic venture capital activities, and new startups.

Clarium Capital became a core part of these ambitions. Founded by Thiel in 2002, this macro hedge fund pursued a systematic worldview similar to Soros’s. Thiel’s innate talent for capturing civilization-level trends and instinctive resistance to mainstream consensus quickly proved effective in the market. Within three years, Clarium’s assets grew from $10 million to $1.1 billion. In 2003, it achieved a 65.6% profit from shorting the US dollar, and in 2005, a 57.1% return.

Simultaneously, Thiel and Howery began transforming sporadic angel investments into a professional venture capital fund. Their success boosted confidence: “After reviewing our investment portfolio, we found internal rates of return of 60-70%. And this was from part-time investing,” Howery said.

In summer 2004, a fund named Clarium Ventures was launched. Despite an initial small size of $50 million, Thiel personally contributed $38 million (76% of the first fund) to cover the shortfall. “The basic division was Peter providing the capital, and I was doing the work,” Howery recalls.

Pursuing Strategic Monopoly: Establishing an Investment Philosophy

Before Founders Fund, the VC industry was dominated by a different philosophy. Since the 1970s, firms like Kleiner Perkins and Sequoia Capital succeeded by actively intervening in management. This “investor-led” model held that power resided with capital, not entrepreneurs.

Founders Fund adopted a fundamentally different approach. Its core idea was simple yet disruptive: never oust founders. The concept of being “Founder-Friendly” was pioneering at the time and a clear rejection of Silicon Valley norms.

Thiel embodied this philosophy by bringing in Sean Parker as General Partner. Parker, the founder of Napster, shocked the industry and later experienced the failure of Plaxo. While traditional VC investors like Sequoia harbored concerns about Parker’s past, Thiel saw his talent and creativity.

Another key principle in Thiel’s investment strategy is summarized in “Zero to One”: “All successful companies are different and have achieved monopoly by solving unique problems. Conversely, all failed companies are the same—they couldn’t escape competition.”

The French philosopher René Girard’s “mimetic desire” theory underpins Thiel’s thinking. It suggests that human desires stem from imitation rather than intrinsic value. This explains the VC industry’s post-Facebook wave of social product imitation. Thiel focused on hard tech—companies building atoms, not bits.

Victory of Ideological Investing: Palantir, Facebook, SpaceX

The success of Founders Fund’s investment philosophy began with Palantir, co-founded in 2003. Thiel, an angel investor in PayPal with a different vision from the existing management, created a data analysis platform targeting government agencies like the CIA. Initially skeptical, Sand Hill Road VCs, but Palantir secured an initial $2 million outside investment from In-Q-Tel, the CIA’s investment arm.

As of December 2024, Palantir’s investments amounted to $3.05 billion, yielding an 18.5x return.

In summer 2004, Reid Hoffman introduced Mark Zuckerberg to Thiel. The then-19-year-old founder embodied Thiel’s ideal of “social awkwardness characteristic of Asperger’s syndrome.” Thiel agreed to invest $500,000 in convertible bonds. This cautious decision ultimately generated over $1 billion in personal profit, and Founders Fund invested a total of $8 million, delivering $365 million (46.6x) to LPs.

The boldest and most successful investment started at a friend’s wedding in 2008, when Thiel reconnected with Elon Musk. At that time, SpaceX had experienced three failed launches and was nearly out of funds. Industry pessimism was high, but project leader Luke Nosek advocated increasing the investment to $20 million (about 10% of Fund II).

“Many LPs thought we were crazy,” Howery admits. Yet, the team believed strongly in Musk and the technology’s potential. This investment quadrupled the fund’s investments in promising projects.

Over 17 years, Founders Fund invested a total of $671 million in SpaceX. By December 2024, when SpaceX repurchased its shares at a valuation of $350 billion, the holdings were worth $18.2 billion, achieving a 27.1x return.

Transformation into an Investment Empire: Performance Data Tells the Success

In 2006, Founders Fund raised $227 million, reducing Thiel’s share from 76% in the first round to 10%. Led by Stanford University’s endowment, this was the first recognition by institutional investors and marked the empire-building of the PayPal Mafia.

The 2007, 2010, and 2011 funds set records with top-tier performance: investments of $227 million, $250 million, and $625 million respectively, with total returns of 26.5x, 15.2x, and 15x.

This success was driven by the diverse talents of Thiel, Howery, Nosek, and Parker. “Peter has strategic thinking focused on macro trends and valuation. Luke combines creativity and analytical skills. I focus on team evaluation and financial modeling. Sean deeply understands internet product logic and consumer needs,” Howery analyzed.

Former conflicts with Moritz are now history. The PayPal Mafia symbolizes the founders’ victory over traditional VC dominance. When Thiel’s firm demonstrates a founder-friendly approach, Sequoia even warned LPs to avoid investing in it. Ironically, this warning sparked curiosity, leading to questions like, “Why is Sequoia so cautious?”

The Legacy of the PayPal Mafia

As of 2026, the PayPal Mafia is no longer just an investment group but a symbol of Silicon Valley’s ideology. Thiel’s former employees (now US Vice President), old partners from Stanford Review (including the director of AI and crypto in the Trump administration), and the original angel targets (Meta’s founder and CEO) are now at the center of power. Thiel’s strategic thinking and long-term vision have clearly influenced many fields.

Founders Fund evolved from a small side project into one of Silicon Valley’s most influential and controversial companies. In doing so, it fundamentally changed VC investment philosophy and built a new ecosystem centered on founders. As the name “PayPal Mafia” suggests, they emerged from opposition to the existing order, cultivating a corporate culture that seeks monopoly positions, and delivering the highest returns in VC history. The core of their success lies in their pursuit of difference—escaping imitation, seeking true monopoly, and boldly investing in uncharted fields.