Luke Nosek

Cofounder of PayPal

• Born: 1975
• Birthplace: Tarnów, Poland

Primary Company/Organization: PayPal

Introduction

Polish-born American Internet entrepreneur Luke Nosek is known for his leading roles in the fields of e-commerce and venture capitalism. He was a cofounder of the payment and cryptography services company Confinity, which merged with Internet financial services company X.com to form the online financial transactions broker PayPal in 1998. Nosek remained with PayPal until its acquisition by online auction site eBay in 2002. PayPal emerged as one of the leading online payment options both within and outside eBay. Meanwhile, Nosek gained renown as a member of the so-called PayPal Mafia, the group of company leaders who had been together since their early days at the Stanford Review newspaper. The PayPal Mafia are known for their innovative approach to business philosophy and methods. After making millions through the sale of PayPal, Nosek turned his attention to his other passion of venture capitalism, utilizing his personal funds through angel investing as well as establishing the Founders Fund in 2005. The Founders Fund pursued a revolutionary approach to venture capitalism through its development of Series FF stocks, which allow start-up entrepreneurs and chief executive officers (CEOs) to recoup some of their investments before an initial public offering (IPO) or company sale. His next venture, beginning in 2017, was the venture capital firm Gigafund.

Early Life

Luke Nosek was born in Tarnów, Poland, in 1975. Little information is publicly available regarding his birth and childhood. He attended the University of Illinois at Urbana-Champaign in the early to mid-1990s, graduating with a bachelor of science degree in computer science. His studies included work on supercomputers. He began his entrepreneurial career while in college, teaming with fellow students Max Levchin and Scott Banister to develop SponsorNet New Media, Inc., in 1995. Upon graduation, Nosek moved from Illinois to the Silicon Valley region of California to pursue a career.

He began his career working in business development at the computer services company Netscape Communications Corporation after spending almost a year getting his footing in the Silicon Valley business world. Nosek served as an evangelist for Netscape, seeking to promote the company's proprietary technology as the industry standard. Nosek also served as an editor of the Stanford Review in his early career. Stanford University Law School graduate Peter Thiel had founded the Stanford Review in 1987 as a student.

Nosek next cofounded Confinity, Inc., with fellow Internet entrepreneurs Thiel, Levchin, and Ken Howery in 1998. Confinity made its name through the provision of online payment and cryptography services for the Palm Pilot (a “personal digital assistant,” now largely superseded by other consumer electronics such as smart phones), in the early days of e-commerce development. Nosek served as Confinity's vice president of marketing.

Life's Work

In 2000, Nosek and the other Confinity founders merged their company with the Internet financial services company X.com, which had been founded by Elon Musk in 1999. The new incarnation was renamed PayPal and was headquartered in rented office space in Palo Alto, California. Many of the business and technological staff of both former companies continued to be employed at PayPal, helping develop the new company into a success. Many Stanford Review alumni also worked at PayPal, where Thiel served as CEO. These alumni, including Nosek, became known as the PayPal Mafia. Nosek served as the company's vice president of marketing and strategy, helping expand the site's customer base to approximately one million after six months of operations. He also developed the company's profitable Instant Transfer product.

PayPal is an e-commerce business that serves as an online financial transactions broker through the processing of online payments and money transfers. PayPal is licensed as a money transmitter rather than a bank in the United States. PayPal Europe became a licensed bank within the European Union in 2007. PayPal users require a PayPal account, a valid e-mail address, and a valid credit card or bank account. Convenience of service and user trust helped PayPal become one of the leading online financial services companies. PayPal protects the confidential information of users and offers fraud protection for buyers and sellers who use the service. Common commercial users include online auction sites and vendors. Buyers are not charged to transfer money to sellers or vendors; rather, sellers or vendors pay a surcharge to receive money.

PayPal's initial business model relied on the interest earned through funds in user accounts rather than its low fees to generate revenue and the payment of new account bonuses to attract users, a model that quickly proved financially ineffective, because most users did not let funds accumulate in their accounts. The company was losing millions each month and was close to going out of business by 2000 before it gained new life through the infusion of $100 million in venture capital. The company's successful 2002 initial public offering (IPO) saw a 55 percent rise in share price and raised $1.2 billion. PayPal also survived a number of legal challenges from banks and local governments.

One of PayPal's largest early customer bases comprised users of the popular online auction site eBay. The growing success of eBay had driven the site to explore online payment options. PayPal had emerged as the first choice of eBay customers for online payment services—topping rivals Billpoint, c2it, PayDirect, BidPay, Google Checkout, Wirecard, and Moneybookers. In October 2002, eBay acquired PayPal as a wholly owned subsidiary for a purchase price of $1.5 billion. PayPal had grown to approximately two hundred employees; its corporate headquarters was relocated to San Jose, California.

When eBay purchased PayPal, Nosek left the company to pursue other business and personal interests. The sale to eBay divided the original leadership team, but they maintained connections with one another. The PayPal Mafia are known for their business innovations, such as the early belief that PayPal could emerge as a type of universal currency. Other successful businesses connected to the PayPal Mafia include YouTube, Facebook, and LinkedIn. PayPal continued its phenomenal growth after Nosek's departure, managing more than 200 million international accounts representing twenty-five different currencies and expanding to include local operations in twenty-one countries by 2011. The company now relies on fees that are determined based on currency, country, amount, payment option, and account type.

Nosek's enjoyed another success when he reteamed with PayPal cofounders Thiel and Howery to launch the Founders Fund in 2005. Nosek was a managing partner of the Founders Fund, along with Thiel, Howery, and Sean Parker. The Founders Fund is a venture capital company based in San Francisco, California, and seeks to bridge the often contentious relationship between entrepreneurs and the venture capitalists that fund their start-up businesses. Its founders believe their experiences as both entrepreneurs and venture capitalists give them a unique perspective.

The Founders Fund is known for its innovative approach, challenging the traditional practices of the venture fund investment field. Most notable among these innovations is the introduction of Series FF stock. FF shares are offered to the owners and CEOs of the companies in which the company is investing, allowing them to convert and sell these shares to investors during later preferred stock offerings. The Founders Fund's partners believe that this system gives them an advantage in seeking investment opportunities among cash-strapped and heavily indebted entrepreneurs, who often have sunk their personal wealth into their businesses and would otherwise have to wait for an initial public offering or company sale to recoup their investments. Other venture capitalists feel that less risk will weaken an owner's drive to maximize the business's success.

The Founders Fund bases its investment priorities on companies whose revenue streams are driven by user subscriptions or product sales as opposed to advertising sales. The company has held stakes in numerous and diverse companies, including social networking giant Facebook, rocket designer Space Exploration Technologies (SpaceX), Internet advertising facilitator Clickable, and robotics manufacturer RoboteX. The company has enjoyed success but has also had to adjust to the impact of the tighter market conditions that accompanied the economic downturn that began in 2008. Ultimately departing from Founders Fund in 2017, Nosek cofounded and began serving as a managing partner for the venture capital firm Gigafund.

Personal Life

Nosek moved to the Silicon Valley area of California in the early 1990s, shortly after his graduation from the University of Illinois at Urbana-Champaign. His main interest outside venture capitalism is travel, which is one of the reasons he left PayPal after its acquisition by eBay made him a millionaire. He also enjoys reading, citing Ayn Rand's novel Atlas Shrugged as having influenced the development of his business philosophy to use the industry to create good. He is also an active financial contributor to political campaigns, such as Libertarian Ron Paul's bid for the Republican presidential nomination in 2012.

Nosek has dedicated his post-PayPal career to the identification, promotion, and mentoring of young entrepreneurs through angel investing, defined as the provision of personal funds to back such businesses or individuals. Nosek has maintained his own entrepreneurial career through the start-up of several Internet-based businesses, founding and serving as president and director of Halcyon Molecular, Inc., in 2009. He has also served on the boards of directors for various companies, including Yammer, Space Exploration Technologies (SpaceX), SSE Labs, Pathway Genomics, Powerset, Zivity, and ResearchGate.

Bibliography

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Bhide, Amar. The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World. Princeton, NJ: Princeton UP, 2008. Print. Examines the link between U.S. venture capital–backed businesses and the global development of technology in the modern economy as well as the roles of scientists, engineers, entrepreneurs, financiers, consumers, and other key players.

Jackson, Eric M. The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of the Planet. Los Angeles: World Ahead, 2010. Print. A history of the company from a former insider, including a description of the site's business strategy and its successes and challenges within and outside eBay.

Roof, Katie. "PayPal Co-Founder Luke Nosek Leaving Founders Fund, Reportedly for SpaceX-Focused Fund." TechCrunch, 28 July 2017, techcrunch.com/2017/07/28/paypal-co-founder-luke-nosek-leaving-founders-fund-reportedly-for-spacex-focused-fund/. Accessed 28 Oct. 2019.

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Shah, Tarang, and Sheetal Shah. Venture Capitalists at Work: How Venture Capitalists Identify and Build Billion-Dollar Successes. New York: Apress, 2011. Print. An overview of venture capitalism through the personalities and business approaches of leading venture capitalists. Discusses how venture capitalists identify and develop entrepreneurs, markets, and products.