Online Payment Service Lives Out Dot-Com Dream
PayPal Inc. is taking tech investors on a trip down memory lane.
By accepting a $1.5-billion takeover offer from EBay Inc. on Monday, just five months after going public, PayPal is living the Silicon Valley dream that went bust for most Internet-related firms in 2000.
PayPal priced its initial public offering at $13 a share in February. At Monday’s closing price of $21.61 on Nasdaq, up $1.61 for the day, the stock is up 66% from the IPO.
That’s a healthy return for PayPal investors, though the stock has been even higher: It reached $30.38 in late May before pulling back with the broad market’s sell-off.
Peter Thiel and Max Levchin, who started PayPal less than four years ago, find themselves with the opportunity to rake in $111 million worth of EBay stock.
Also, Elon Musk, the founder and chief executive of X.com Corp., which merged with PayPal in March 2000, sits on the PayPal board and stands to make $167 million from the takeover, based on share-ownership data from Thomson Financial ShareWatch.
Among the early investors in PayPal, which allows people to make payments online, were Menlo Park, Calif.-based venture capital firms Sequoia Capital and Clearstone Venture Partners, and investment banks Deutsche Bank and Goldman Sachs.
Clearstone was in the second round of PayPal’s fund-raising in late 1999 and once owned about one-fifth of the company. After a number of venture investment deals and the IPO, Clearstone’s stake settled to about 5.6%, making it the second-largest institutional holder behind Sequoia, according to ShareWatch.
“PayPal has kept a pretty low profile as far as their operations are concerned, but it has been on a very steady growth curve since early on,” said Erik Lassila, a managing director at Clearstone.
PayPal was founded in late 1998 as Confinity by Thiel and Levchin, its chief technology officer. They launched as PayPal in October 1999, offering $10 cash to anyone who signed up for the service, and they hitched their wagon early on to EBay, which now provides PayPal about 60% of its customers.
PayPal quickly surpassed earlier innovators such as DigiCash and CyberCash. The firm’s rapid growth caused customer-service problems, but the company still achieved profitability for the first time this year, with $1.2 million in earnings in the first quarter on about $49 million of revenue.
“We looked at a lot of online financial services companies and we thought the models were flawed in many cases.,” Lassila said. “It wasn’t at all clear at the time we invested, but we thought PayPal had the right management.”
Lassila said it isn’t clear whether Clearstone will cash out now or hold the stock in EBay.
“For now, I would say all the kudos go to the PayPal management team,” he said.
