HTBV Podcast: PayPal Mafia Insider on Winning In a Tough Market | Jack Selby

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Vertex Ventures Southeast Asia & India is a pioneer in investing in tech start-ups in this region and has helped to build a number of unicorns. In this podcast, we want to share and uncover Hard Truths — raw, unfiltered insights and venture capital experience across Southeast Asia & India. Tune in to hear from leading founders, innovators, venture capitalists and industry experts in the region and to gain industry insights from those in the know.

Our Guest, Jack Selby’s Bio:

Jack R. Selby is the managing director at Thiel Capital. He is a former managing director at Clarium Capital Management LLC.

Prior to Clarium, Jack served as a Corporate Officer and Senior Vice President of PayPal, Inc. (NASDAQ: PYPL), Jack was an original member of the founding PayPal team, and served in a variety of roles during his tenure at the company, including the management of PayPal’s international operations.

Prior to PayPal, Jack worked for GFTA Analytics GmbH, a Dusseldorf-based financial consulting company which provides foreign exchange solutions to financial institutions, multi-national corporations, governments, central banks and institutional investors.

https://www.linkedin.com/in/jackselby

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In this episode,

Join host Elise Tan in this special episode of the Hard Truths by Vertex podcast, as she sits down with member of the PayPal mafia, Jack Selby, venture investor and independent film director. Discover the untold stories of PayPal’s early days, including the merger with X.com and the birth of the pioneering digital payment giant.

Jack shares valuable insights on the current investment landscape, exploring business cycles, and the hard truths for both early-stage founders and investors. Plus, delve into the fascinating world of independent filmmaking and learn why Jack finds it a refreshing departure from the routine of tech and finance. Tune in now!

00:00 | Introduction

02:51 | How did PayPal know about Vertex Ventures in Singapore?

03:56 | Comparing 2000s and now, what has evolved in the area of startup and venture investment?

09:10 | What strategies were implemented to make the PayPal & X.com merger work?

10:53 | What led to the substantial growth of PayPal?

12:17 | Hard truths for early-stage founders and investors

17:25 | Opinions about portfolio value creators

18:50 | What are the emerging trends of 2024?

22:51 | How are filmmaking and investing similar?

Elise: Hi, I’m Elise Tan and I’m your host for this episode of Hard Truths by Vertex podcast. Today our episode is really special because firstly, this is the first time we are doing it during a live event and secondly, we have a really special guest, Jack Selby. Jack Selby is a member of the PayPal Mafia.

Jack Selby is a venture investor and independent film director. He joined PayPal as an early employee and served as the Senior Vice President of Corporate International Development.

Currently, Jack serves as the Managing Director for Peter Thiel’s family office, Thiel Capital, based in Los Angeles.

Elise: I think not many of us know that Vertex Ventures was an investor in X.com, which later merged with Confinity. Confinity is a competitor of X.com. It has a money transfer product called PayPal. After the merger, X.com was renamed PayPal. And this is what we know as the pioneer in digital payments. So we hope you will enjoy today’s episode with Jack Selby.

I’m gonna first start with, you know, what brings you to Singapore at this time?

Jack Selby: So it’s great to be back in Singapore. Thank you all for hosting me. So I ran the corporate and international operations at PayPal and our Asian headquarters was based here because of Vertex. We had Vertex and Temasek and DBS and SingPost and SingTel and basically every corporate investor you can have back in 2000 and So I used to spend a lot of time here. And the reason why I’m back, I came back briefly last November for, there was a big Bloomberg event in the Singapore FinTech Week. So I was here very briefly, but I realised I need to spend a lot more time here because this place seems to be booming. So, I flew in this morning on the red eye from New York.

Elise: Thank you. Singapore is quite far from the U.S. So why, how did, how did, you know, PayPal know about Vertex?

How did PayPal know about Vertex Ventures in Singapore?

Jack: Investors sure. So, as part of our international strategy, we wanted to find banking partners. In all the different markets that we first wanted to explore. And so we had five or six large banking partners in Europe. We had a banking partner in Japan. And then obviously we had DBS as our banking partner here.

And so Singapore, to its immense credit, was very proactive in reaching out to us. I think the group is called EDBI. But they were very proactive in helping us find an office and meet other people. It’s just different ways to collaborate. And so those folks are really the ones that helped kind of drive the process and helped us establish a very large presence here.

Elise: Good to know. We are proud to have supported X.com and PayPal. So, you know, since you had started, it was kind of like in the year 2000s era. So I want to kind of compare the then and now. Right. So I think you, you have been to a few cycles and you mentioned three business cycles recently, right? Since then, lots of experience from both the entrepreneur and investor side.

So how would you compare, you know, in the year 2000 and now? What is different?

Comparing 2000s and now, what has evolved in the area of startup and venture investment?

Jack: Yeah. So I turned 50 next month and so I’m old enough to have seen a few cycles at this point. And it’s, it’s not different this time. So, for us, when we were doing PayPal, actually the majority of the time of our company’s existence was after the dot com crash in March of 2000.

And actually, we closed in our Series C, which is a $100 million round, which doesn’t seem like much now, but it was quite significant back then. We closed on it literally the Friday before the market crashed that following Monday. So we got very lucky. And so many things in life, it’s all about timing and good fortune. So the way it’s different now is that. The cycle is definitely turning down. This is one of the hardest capital raising markets I’ve ever seen. And I think it’s particularly difficult because unlike 2000 coming out of the great financial crisis in 2008, essentially 15 years of very easy, almost free money.

So that easy free money kind of gummed up the works. And so what would otherwise probably be more of the type correction and we already are seeing green shoots in an upside cycle turn. All this free money essentially is coming up the works where it’s more of U than a V (shape) and I think because of that it’s going to be more of an extended recovery as the cycle hopefully turns up soon.

Elise: And I’m curious. So in maybe the 1990s, so that’s the time where we don’t have iPhone, you know, we don’t have smartphones. We were still on the dial up internet. Can you imagine? We had 250 million internet users on earth. And now we have 5 over billion. So, you know, how did you get to know Paypal, X.com, you know, to actually want to join and, you know, all this sending the money through the internet is such a new thing. So what brings you to this?

Jack: So I met Peter Thiel when I was 24 years old. And so Peter and I were both. We both had a background in currency trading business.

So Peter was working for a large bank in New York, trading currencies, and my first job out of college was working for effectively a currency hedge fund. And so we crossed paths through a common friend and the one thing that I knew when I met Peter, I met a really, really, really smart person and I vowed to hold on for dear life.

And so fast forward 25 years later, literally still holding on by a string, but it was one of the luckiest. Most fortunate things. Most people don’t get the ability to bump into someone like Peter Thiel or be able to work with Elon Musk and then the list goes on and on at 24. And so I just like my lucky stars and I realised that and I’m still holding on ever since.

Elise: Sure you are, you’re really humble. I’m pretty sure you’re really people who aspire to be in the circle of all these awesome entrepreneurs. You mentioned how you have met Peter and the other founders. And then we want to kind of know, you know, how was it like before the merger?

We know that at the time, there was quite a lot of coverage about what happened before and after. So how was it like being an employee then?

How was it like being an employee before the merger?

Jack: Joo Hock described it very well. So we were running PayPal. Elon was running X.com. This is the first quarter of 2000. And it was a crazy time in the sense that we, at PayPal were giving people $10 to sign up for the service.

And so our burn rate, although it sounds pedestrian today, was in excess, I think, of $10 million per month, which back in 2000 was a lot of money. And we were back with some great investors. Nokia was our primary investor. As we mentioned earlier, we were enabling people to send money between Palm pilots.

And I’m sure the vast majority of the people in this room are too young to even know what those things are, but they were basically Personal digital assistants, which essentially was a predecessor before the advent of our iPhone or the equivalent. And then Elon (Musk) was backed by Sequoia and Mike Moritz, who’s arguably the most famous venture capitalist of his generation.

And so we were both basically in this arms race where we were going to spend each other out of business. And you know, frankly, it (X.com) probably was more prominently, financially backed. And so our two boards came together and had kind of a meeting of the minds and effectively forced a shotgun marriage between the two companies.

And they came together and, they were pretty different cultures. And so it took us a little while to kind of get acclimated with the two different groups. But it ultimately worked.

Elise: Was there any shift, you know, in terms of culture in order to make the merger work? What strategies were implemented?

What strategies were implemented to make the PayPal & X.com merger work?

Jack: It was a really interesting time in the sense that when we offered, so when we started offering the email payment service, this was, I think, January of 2000. We went from basically no users, to growing at a rate of a million new users per month.

And so it was crazy. And so when you’re, you know, as an example, if you’re selling beanie babies online and you screw up an order, it’s probably not that big of a deal. If you’re growing at a million new customers per month and you’re dealing with people’s money and you screw something up. You know, the next call goes to the district attorney or the attorney general, someone in law enforcement, you can get in trouble really quickly.

And before January 2000, I think we literally had something like seven or eight customer service agents in our Palo Alto offices. And so that wasn’t going to cut it when you’re going at a million new customers per month. So as an example of how we had to kind of adopt or adjust, we had a woman, a senior woman on our executive team who was from Nebraska.

And so thankfully, people may not know this, but Nebraska is very good, in the sense that people speak English in Nebraska, very clearly, and there’s a lot of fibre optics that cross there because it’s literally the middle of the country. So we sent Julie out and essentially rented out the local Holiday Inn or whatever it was.

And 400 people came through the door and we basically hired all those people that came through the door to become our new customer service team. And I think if you fast forward to today, PayPal, if they’re not the largest employer in the state of Nebraska, they’re in the top five or something like that.

But that was an example of one of these kind of crazy adjustments that we had to make on the fly in order to continue to be successful as a business.

Elise: I can’t imagine. And you mentioned how you are giving customers $10, you know, to try PayPal and how the customers are growing at 1 million per, per month.

You know, so what, how did you get there? How do you, how did you, how did, uh, PayPal generate account viral growth?

What led to the substantial growth of PayPal?

Jack: So the $10 was meant to really, that was really kind of the first example of viral marketing. But honestly, we stumbled into a configuration that was frankly just very lucky.

So we were, we were trying all sorts of different kinds of markets to figure out who, what markets would best use email payments. Because when you set up a new payment system, it’s very tricky because usually there’s like a chicken and egg type problem. You have to both appeal to the sellers and the buyers.

And oftentimes these new payment schemes appeal more to one or the other. We were very lucky in the sense that we stumbled upon the eBay market. And so the eBay market is obviously online. It’s very big, it’s very dense, and most importantly, both the buyers and sellers each had a need for a better payment solution.

So if you’re selling a beanie baby, you want to get your money as quickly as possible. So before PayPal came around, The average duration of a time for a payment to settle was like two weeks because you put a check in the mail, maybe it gets there, maybe it doesn’t, maybe the check bounces, maybe it doesn’t.

So it was very complicated. And then if you’re buying the baby, you want to get your beanie baby. So both parties had an incentive for a better payment solution. And so we stumbled upon eBay. It took off like wildfire.

Elise: Really the takeaway for founders here is really not just, you know, for your company organically, resources you have but also to look at, you know, a platform that would use you, your products to help grow your product more quickly. Yeah, thanks for sharing.

You know, you have seen a lot of early stage founders grow and become successful. What are some of the hard truths that you would like to give them, particularly for early stage founders?

Hard truths for early-stage founders

Jack: Sure. So I think with this cycle downturn, it’s kind of a mixed blessing in a sense for people that are on the allocator side of the table.

So the people that have the money that are looking to give money to young people or entrepreneurs. And I think, and I love talking to groups of young people and kind of address questions exactly like this in the sense that it was really hard for people on our side of the table in those 13 years after the great financial crisis.

When all the trees were going to the sky and everyone wanted to be an entrepreneur. So as an example, I graduated from college in 1996 and all my classmates all wanted to be, you know, work at Goldman Sachs and be derivatives traders.

Fast forward to today or those 13 years after the financial crisis, everybody wanted to be an entrepreneur.

However, it became so overblown and almost became like a game show. It’s like, where do I get on the escalator? I’ll get up at the top, the confetti and the balloons will drop, and I want to become a billionaire. I won the game. It’s not how that works.

Being an entrepreneur is not an escalator. It’s more like this. And these bits down here are near death experiences. And some people should go work at an accounting firm and start as a junior analyst and become CEO in 30 years. That’s an awesome, amazing career path. Being an entrepreneur is polar opposite.

And some people just don’t have the temperament, the constitution, so to speak, to deal with these near death experiences, because that might lead to nervous breakdowns or something else negative. And so, but that’s what being an entrepreneur is like. And so some people just aren’t cut out for it. So as an allocator, going back to your question now, essentially, the herd has been culled significantly.

So the entrepreneurs that got into startup land, you know, during those 13 years, a lot of them have kind of washed out and it’s kind of a Darwinian process. And so I think it’s natural and I think it’s frankly good because again, this is a really, really hard time. to be starting a business. This is, you know, to get a balance and to be positive, this is when the next PayPal or Google or the equivalent gets started.

It’s at the bottom of a cycle when the cycle starts to turn, but it’s also really hard. So I think people just need to be eyes, eyes wide open about that

Elise: Thanks for sharing that. Are there any hard truths now, you know, for, for investors, particularly in the early stage that you would like to share?

Hard truths for early stage investors

Jack: So on the investor side, so I help, you know, I work at Thiel Capital with Peter and then I have my own fund in Arizona, Phoenix, Arizona, where I live. For me as an investor, I really focus, it’s very much the jockey, not the horse. It’s all about the entrepreneur. And so. You know, when you invest in a company like PayPal, the business plan changes, you know, seven or eight times. But if you invest in a bad person, however you want to define that, you really have no And so trying to focus on the entrepreneur, making sure that person has the integrity and the character, the intelligence, the ability to think laterally. That’s exceptionally important. And so for me personally, also, um, and this isn’t a dogmatic rule, but first time entrepreneurs.

It also involves a higher degree of kind of babysitting and chaperoning. So all things being equal, I would prefer an entrepreneur that has, that has tried it before, even if they failed, at least it means that they have. the scars and kind of the, they got to the experience and they learned from it, but they learned from it so much that they want to try to do it again.

Elise: Thanks for sharing that. I think definitely people who are less fearful of failure that there’s also, you know, in the same category that Vertex loves to look at in terms of entrepreneurs. So, I’m sure you have difficult moments whether it’s PayPal or when you’re doing investments. What are some of these moments that shaped you as an investor?

Jack: So, I’ll give an example right now in this market. It’s a very difficult market from a fundraising perspective. And so if you’re lucky enough to be able to find capital, I’ve had a couple of deals that have sailed away from us because the entrepreneur was too focused on dilution.

And so there was one deal in particular about a month ago where she wanted to take about 25 percent less capital than we strongly thought she should. And so that means she’s going to be back in the market in probably less than a year, unless everything lines up perfectly, which never happens. And so I guess the point is that in this environment, if you’re fortunate enough to be in a position where you can take capital, get as much of that capital as possible, because this is a “rainy day” time.

And when it’s rainy day, you want to have as much cash in the bank and not worry about dilution because 100 percent of zero is zero. And I think, you know, in Arizona, I think oftentimes our entrepreneurs don’t think big enough. And so one of my favourite phrases that I borrowed from a buddy who’s a partner at Greylock is that you have to have equal parts- grit and grandiosity.

And so grit is probably very clear. But grandiosity is super important in the sense that being an entrepreneur in a startup is so hard. So if you’re going to go through this crazy amount of work, working 24–7 for multiple, multiple years, you might as well be rewarded for it. And again, the idea of being too small minded in this very, very difficult capital environment, I think is a mistake.

Elise: What do you think about portfolio value creators, operating partners? Do you see that working well?

Opinions about Portfolio Value Creators

Jack: Yeah. So I do. I think, investors that are purely financial and have never been operators, and I’m obviously saying this from a biased perspective since we started PayPal, I think you have to have an operating background if you want to have an edge as a venture capitalist. It’s not private equity where you can go to Harvard Business School and learn a bunch of numbers and finance and then just apply that kind of from a rote method.

Venture capital is very different because you’re literally building companies from scratch. I think having an operating background, especially if you’re an entrepreneur and you’re looking at different capital sources, I would personally be biased. Again, it’s a reflection of my background, but I would be biased in favour of someone who could give me not just money, but could give me operational expertise.

Elise: Yeah, we totally agree. I think it’s um, not just capital, being able to help the founders, all the founders finding the investor, giving them help to get to the next stage on, you know, on the way to exit is an important point. Yeah. So thanks for sharing all this.

So I think many people love to ask you, what are the emerging industry trends, especially right now it’s at the beginning of the year.

What are the emerging trends of 2024?

Jack: Yeah. When you do panels or whatever it is, you always get asked, what’s the hot sector or whatever the equivalent is. The honest answer I think is that no one knows. Peter doesn’t know, Elon doesn’t know, I certainly don’t know.

As an example, everyone is talking about AI, which I think is justifiable to a large extent. On that topic, for whatever it’s worth, I think there’s essentially going to be a bifurcation between two different approaches to AI. So one approach is going to be kind of the superpowers of AI. So it’s going to be Google and Microsoft and the Alibabas and Sam Altman and the equivalent, because these very deep-pocketed groups will be able to afford The critical ingredient, which is a world class PhD or the equivalent of doing artificial intelligence research.

And these people are a very, very, very finite number. They’re probably in the thousands globally. And if you’re coming from the U.S. kind of non- China perspective, it’s probably in the low thousands. And because they’re so scarce, they’re very expensive. And so a normal Series A startup is not going to be able to afford these people.

These superpowers are going to be the ones that kind of push the envelope for AI overall for all of us, which is great, but that’s just a different realm, a different echelon that most of us are not going to touch. The other side of the bifurcation, I would argue, is going to be whereas AI is going to effectively become an ingredient in the recipe for most, if not all startups.

So when we look at investments from the Arizona Fund perspective, we make sure to understand how I am playing a role in any investment that we do. And importantly, if AI is not in part of the pitch, we want to understand why that’s the case. And we want full reassurance as to how a competitor can come along and figure out a way to build something with an AI ingredient.

Because I think what’s going to happen is that AI is going to become a ubiquitous ingredient in all startups going forward. And again, it’s not going to be the Sam Altman realm. It’s just going to be helping relatively rote, mundane tasks get done more efficiently. And I think that’s a reality that I think a lot of us, it’s on the investor side, we’re surprised by how quickly this has come about, but it is very real.

Elise: Yeah, I think, you know, AI is definitely really a hot topic right now. So I just want to ask you a bit about how you manage risk, you know, especially when it comes to, you know, technologies, which a lot of people are looking at.

Jack: Yeah. So the venture model is, is, you know, It’s very different from most asset classes.

So you have a portfolio theory, you’re undoubtedly gonna have some zeros, you probably have some middling outcomes, but the way that you pay for your investment approach is that you’re winning. Investments really need to win, and this goes back to my comment that I made earlier, is that you can’t think small if you want venture capital money because in order for me to make money and for my LPs to make money and for be able me to be able to raise my next fund, I need to have outsized returns with my winning portfolio companies.

So if the entrepreneur for the best company in my portfolio is just, you know, just looking to sell the company for $25 million or $50 million or $100 million, which again is an amazing outcome, that’s not a venture capital backed type company. You should go get a loan from a bank or something equivalent that doesn’t need to justify their existence by having these outsized returns.

And so that’s how I think about risk, as I want to make sure that everyone that I invest in understands that we’re trying to shoot for the moon. And so, because again, we’re going to have the zeros, but we want to make sure the ones that succeed have the ability to pay back the losing companies and then make money for our

Elise: Very true indeed. We have come to the last segment and it’s something we want to ask you because you are an independent film investor and director. Yeah, and I think that is really interesting. We saw some of the films that you made. It’s very, um, you know, inspiring. So would you tell us a bit about how did you get into the film industry?

How are filmmaking and investing similar?

Jack: Sure. So we actually, our latest film is in theatres, at least in the U. S., called Memory. Jessica Chastain, who won the Oscar last year for Best Actress. Peter Sarsgaard, actually won Best Actor for this film at the Venice Film Festival last September so fingers crossed on possible award nominations next week.

But to answer your question in terms of how I got involved in the business, I went to a small liberal arts school in upstate New York, Hamilton College. And, I got to know a fellow alum of the college named Thomas Tull, and Thomas became very well known in the film business. He had started a production company called Legendary Pictures.

And Legendary became very well known for a variety of different films, most notably the Dark Knight series, and then the Hangover series, and Inception, and Pacific Rim, and so forth. So I convinced Peter to put a little bit of money with Thomas in the early days, which is very rare for us because we’re kind of a two trick pony in the sense that we trade macro and we make private tech investments.

So investing in a film company is definitely not in either of those buckets. But Thomas went on to sell Legendary, I mean, Thomas is an amazing macro trader in the sense that he kind of top ticked the Chinese interest in Hollywood back in, I think, 2017, or about 16. And sold the company to Wanda for, I don’t know, four and a half, five billion dollars.

So it turned out to be a really good investment for us. But Thomas then brought me into the fold earlier. the first film that he and I did together was called Act of Valor, which is about U. S. Navy SEALs. And then we made a few more films together as well. And then I reconnected with some childhood buddies that I’d grown up with.

I’d literally known these guys since 3rd or 4th grade. And both of these fellows had been in the film business their entire careers. And so we reconnected. And we’ve started this production company called High Frequency Entertainment. And we’re actually shooting three films, this quarter.

We’re actually shooting one film literally right now in Las Vegas called Showgirls with Pamela Anderson of Baywatch fame and Jamie Lee Curtis and a pretty good cast. So, the reason I really like independent film, first of all, it’s a very difficult business. And if you had to compare it to venture, my joke to my friends is that it has the same probability of being a zero, but with a much lower ceiling in terms of the positive outcome.

There’s no analogy to that in film at all. So, it’s a very hard business, but what I really like about it is that, you know, tech and finance, you know, at some point, if you do it for a while, it becomes a bit routine.

Not easy, but there’s a degree to which it is routine. Whereas with film, you truly are making art. And not to sound corny about it, but when you make art, it’s very, very difficult.

Elise: Thank you for sharing a lot of interesting insights and stories.

Thank you for listening to this episode of Hard Truths by Vertex podcast, we hope this has brought you valuable insights. To listen or watch the other episodes, visit www.vertexventures.sg/news/podcast.