NEW YORK, July 8 (Reuters) - PayPal Inc. (NasdaqNM:PYPL - News) is taking
tech investors on a trip down memory lane.
By accepting a $1.5 billion takeover by eBay Inc. (NasdaqNM:EBAY - News)
on Monday, just five months after going public, PayPal is living the Silicon
Valley dream long after most companies and investors experienced a rude
awakening in April 2000 when technology stocks staggered out of favor.
PayPal's initial public offering debuted at $13 a share in February 2002
and closed up 55 percent its first day to $20.09. Ebay, based on its closing
price on Friday, valued PayPal at $23.61 a share.
Peter Thiel and Max Levchin, who started PayPal less than four years
ago, find themselves with the opportunity to rake in $111 million of eBay
stock in a bygone era of instant dot-com wealth.
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 eBay takeover. Shailesh Mehta, the former chief
executive of troubled credit card company Providian Financial Corp. (NYSE:PVN
- News), who also sits on PayPal's board, will take home almost $20 million,
based on data from Thomson Financial ShareWatch.
Investors who got in on the PayPal IPO doubled their money in a few short
months -- which seemed easy during the go-go days of technology but now
is virtually impossible to do.
"Everyone had been out there believing these crazy predictions about
incredible growth and changing-the-world technology and it didn't happen,
and people got scared and left," said John Kraft, an analyst with
D.A. Davidson & Co. "These two companies are two of the only
ones whose predictions were right. Their technologies are changing the
way people do things."
LOW PROFILE, HIGH RETURNS
Among the early investors in PayPal, which allows people to make payments
online, were Menlo Park, California-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 fundraising in late 1999,
and once owned about one-fifth of the company. Following a number of deals
and the IPO, Clearstone's stake settled to about 5.6 percent, 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, explaining
the firm's continued investment despite the tech bust.
PayPal was founded in late 1998 as Confinity by Thiel and Levchin, its
chief technology officer. They launched as PayPal in November 1999, offering
$10 cash to anyone who signed up, and they hitched their wagon early on
to eBay, which now provides PayPal about 60 percent of its customers.
They quickly surpassed earlier innovators such as DigiCash and CyberCash.
Its rapid growth caused customer-service problems, but PayPal 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. It's easy to look back and
say we made the right decision," Lassila said. "It wasn't at
all clear at the time we invested, but we thought PayPal had the right
Lassila said it isn't clear whether Clearstone will cash out now or hold
the stock in eBay, which he sees as a well-run company.
"For now, I would say all the kudos go to the PayPal management
team," he added. "They deserve all the success they have now
because they worked hard for it, and it's great to have been part of that