PayPal was started during the Internet Bubble, but it was in no sense a Bubble startup. Its success was a direct reflection of the intelligence of the people who built it. PayPal won because they built a better mousetrap.

Then we had the famous Buck's beaming—at Buck's restaurant in Woodside, which is sort of the home away from home for many VCs. Our first round of financing was actually transferred to us via Palm Pilot. Our VCs showed up with a $4.5 million preloaded Palm Pilot, and they beamed it to us.

Levchin: It was actually sort of a side effect. We had this merger with a company called X.com. It was a bit of a tough merger because the companies were really competitive—we were two large competitors in the same market. For a while, Peter took some time off. The guy who ran X.com became the CEO, and I remained the CTO. He was really into Windows, and I was really into Unix. So there was this bad blood for a while between the engineering teams. He was convinced that Windows was where it's at and that we have to switch to Windows, but the platform that we used was, I thought, built really well and I wanted to keep it. I wanted to stay on Unix.

The thing that kept us going in the early days was the fact that Peter and I always knew that both of us would not be in a funk together. When I was like, "This fraud thing is going to kill us," Peter said, "No, I've seen the numbers. You are doing fine. Just keep at it. You'll get it." On the flip side, when Peter would be annoyed by some investors or board dynamics or whatever, I was usually there trying to support him. That sort of sounds touchy-feely, but I think you have to really have good people. If you have a good team, you are halfway there. Even more importantly, perhaps, you have to have a really strong cofounder. Someone you can rely on in a very fundamental way.

Levchin: We hit it off really quickly. I have this IQ bias—anybody really smart, I will figure out a way to deal with.

It was very positive. Both of us are really competitive and really—not mistrusting, but not willing to assume that the other guy knows what he's talking about. When we met, we sort of hung out socially, and then one night we had this showdown where we sat around in this café for like 8 hours and traded puzzles to see who could solve puzzles faster—just this nonstop mental beating on each other. I think after that we realized that we each couldn't be total idiots since we could solve puzzles pretty quickly.