Max Levchin- Founder and CEO @ Affirm
Max is the founder and CEO of Affirm, a financial services technology company, co-founder and Chairman of Glow, a data-driven fertility company, and co-founder and general partner at SciFi VC, a private venture capital firm. All three companies were created and launched from his San Francisco based innovation lab, HVF (Hard, Valuable, Fun). Max was one of the original co-founders of PayPal where he served as the CTO until its acquisition by eBay in 2002. In 2002, he was named to the Technology Review TR100 as one of the top 100 innovators in the world as well as Innovator of the Year.
“I should just solve the thing that matters. I don't need to worry about the hard stuff, it will show up on its own. And there's plenty of hard problems and the more you work with people, the more you'll realize that the truly hard problems are always about humans, they're never about code.”
- Max Levchin
In 2004, he founded Slide, a personal media-sharing service for social networking sites such as MySpace and Facebook, which he sold to Google in August 2010. Also in 2004, he helped start Yelp, where he was the first investor in and Chairman of the Board from 2004 until 2015. He has served on several boards such as Yahoo!, Yelp, and Evernote. Max is a serial entrepreneur, computer scientist, philanthropist and active investor in more than 100 startups.
Ben Jun - CEO @ HVF Labs
Ben is Chief Builder at HVF Labs (hard / valuable / fun), a fintech startup studio. The lab focuses on areas where technically differentiable solutions can unlock world-changing companies. HVF founders have spun out companies such as Affirm, Divvy Homes, and Yelp.
Ben was co-founder and CTO of Cryptography Research, which provides security technologies for payment systems, mobile handsets, digital content protection, and the manufacturing supply chain. While there, he developed and architected security technologies that shipped in over 25 billion consumer devices. Cryptography Research was acquired by Rambus for $340M in 2011.
Ben Jun: Hi everyone, I am super glad to be here today, and I'm super glad to invite my good friend and our next guest, Max Levchin. A lot of you know Max in a lot of different dimensions so I'll just keep this brief. He's known for starting three companies that have uniquely changed the landscape of finance and how we look at data. That's PayPal, that's Slide, which is now part of Google, and Affirm, the personal finance company. He's also started around ten companies, mostly through HVF Labs, which is his startup studio. He's also invested and advised about 100 companies, mostly through SciFi, SciFiVC, which is his personal venture arm. So why don't we welcome Max up on stage.
While we're doing this, I would like to actually have you have a big say in this next conversation that we're going to have together. I think there are three main channels that we can take, and I want to use the time to listen to that. So, you can pull out your phones and vote.
And I think we're basically going to look at one of three topics. One is technology, I think all of us in this room are here because we think that we can wield the technology effectively through people and teams to do things that have never been done before, so that path number one, if you want that, vote technology. The second one is leadership, Max is celebrated as someone who's used his technology background to be an effective leader, and I think that's a very rare combination as much as we think this is a place of Silicon Valley. And if you want to dive into that, that's your choice number two. The third one is opportunity, and that's what is the lens that Max uses when he looks at new things for people and new companies. So if you wanna pull out your device and vote on one of those three paths. I'll kind of see it up here, and I'll just start going into the first part of the conversation.
So, Max, a lot of people know a lot of aspects about you, but one of the unsung things about you is that cryptography has always been a big love of yours, and I know that PayPal was actually started as a company to bring cryptographic technology to mobile devices. And just like we have the founding story for companies, how did crypto become something that you're passionate about, and why?
Max Levchin: I had this friend in college, named Dave Blumenthal, and he was about four years ahead of me in school, and whatever he did I wanted to do, at least as well. And one day, he left a copy of The Digital Encryption Standard spec on his desk, and I picked it and fell in love, there's no more complicated story than I read through the dev spec and I thought, "Holy crap," like all the spy novels that I read where they say secret codes, that's how that works. That was that.
Ben Jun: And when it came time to start PayPal, you would have already done a number of, you had a side company, you had a side hustle, that was actually writing security tools for I.T people, and then you had a vision of how that would change? Maybe enlighten me a little more on that.
Max Levchin: Sure, so I did, in fact, fall in love with crypto through literally reading one of the, these days horribly outdated but back then, standard way of encrypting information, as that sort of became an obsession, I went out and read more books and took some classes and did more and more. Sometime towards, all the while starting companies in college and failing at them, with sort of an unenviable consistency. So one of the things that I had to do to actually just pay my bills and one of the bill paying gigs that I had on the side, was I admin'd the lab, and being a security guy, newly minted security guy, I was not gonna have just a basic password, I had a two-factor authentication for every spark box that I had admin'd.
Those of you that don't know what spark boxes are, pretty history technology, but beautiful piece of awesome. So anyway, I had a one-time password generator, which back then came in the form of a physical device. So I had a pocket full of these little cards and because the university I went to was cheap, they wouldn't spring for RSA, which was the proprietary one, they used ones from places like Cryptocard and a couple of other companies. And eventually, I accumulated a pocket full of these little credit-card-sized calculators that upon pressing a key, would spit out the next password, just like Google Authenticator today will do in the form of an app, but this is 25 years ago.
And so, at some point, I got introduced to the Palm Pilot, which was the very first real programmable device that you could do things with. And I thought, "Well, why in the world "would I have the carry all these secure key generators "in my back pocket?" Instead, I can just emulate this stuff in my Palm Pilot, so I built an app, which was back then I think, not called an app at all, but I ended up having to reverse engineer a bunch of these cards, some of this involved actually some hardware hacking which was really exciting.
And eventually, I could whip out, somebody would say, "Oh, yeah I have to dig out my Cryptocard," and say, "I don't need to do that, I have a Palm Pilot "that will compute my password for me." and within four, five of these bragging sessions, people said, "Well how much can I pay you, "so that I can have this?" And long story short, I released this thing as a shareware, and made a meaningful number of dollars on it, at the time, it almost paid for recurrent food expenses.
But, I was so committed to my user base that one of the more memorable moments from PayPal history, Peter Thiel walked in on me while I was fixing bugs and answering fan mail/bug fix requests for this thing called Secure Pilot. He said, "What is this thing, what are you working on?" I'm just you know answering my technical support emails for Secure Pilot. What is Secure Pilot? Well, it's my side hustle, I have this little company I built that emulates cryptographic key generators. He said these eyes then the size of plates, "What the hell are you doing, "we're three months behind launch schedule for PayPal, "and you're fixing bugs for a side hustle?" "You gotta get rid of this thing."
But PayPal was founded not as PayPal, but as a company called originally Field link and then Confinity, which stood for confidence and infinity, which was going to bring real cryptography to really really low powered devices like Palm Pilot and then Handspring device, it was full 20 years ahead of its time, because these chips were something like dragon ball, which were horribly low powered chips, that you really cannot do any real crypto on it. But crypto has kind of always permeated my life as a passion and back before crypto was these funny Bitcoiny things that you people trade, no, I'm kidding. But cryptography, not cryptocurrency, which I also admire and think is really cool but this was full 20 years before any Satoshi action.
Ben Jun: Yeah, when I first met you, you had already basically written what I guess we now call Google Authenticator, and at the same time you were talking about building this company to do Palm Pilot to Palm Pilot cash transfers, which was about as foreign as Bitcoin to me. I have to confess, sort of how I got to meet Max, was actually as a bit of a homewrecker, I tried to convince him to leave Peter Thiel to work with me. And thankfully for the world that didn't happen.
Max Levchin Imagine if you will, a tropical location, a bar, drinks with umbrellas in them, and Ben intonating that there's room in his startup for a guy like me, while I and Peter Thiel were sitting in the back of the bar talking to someone else excitedly about this company that he just started with me, to be called PayPal. For a moment I thought, Ben and his friend and co-founder Paul were really cool, I just promised this dude, Peter, to do something with him, I guess that's the one that got away. We joined forces a full 20 odd years later, but stayed friends, and the tropical bar incidentally is real, we were at a conference called, Financial Cryptography, which I think still exists, in a place called Anguilla, which is known for a bunch of things including the fact that it has an extremely lax tax regime and basically affords you all sorts of anonymity and so there were three types of people at that conference, broke students like me, real cryptographers like the R and the S of the RSA were in attendance at that particular session, and a bunch of guys in two-piece suits that spoke with really Eastern European accents and would come up and say, "Can you help me with anonymous transfer?" And you're like. On occasion, I still get calls from investigators saying, "Hey, did you meet this person "20 odd years ago in Anguilla?" I'm like terrified.
Ben Jun: So it looks like America's voted and we're going to talk about leadership and I want to switch right to talking about PayPal. One of the things that I've noticed for the projects that we work on is that if you wait for the TechCrunch article to come out, if you wait for the metric, if you wait to show up in that map of the industry, it's too late to use that feedback in any meaningful way in what you're working on, and so, as you think back to the PayPal days, what were the major milestones in your mind that you were pushing your team towards? And are those the same milestones that were heralded by the world?
Max Levchin: Yes, I would argue that the press appearances are either too late or too early. The more common problem that I really think is a problem is the Silicon Valley's obsession with celebrating dilution. So every time someone raises the round the bigger the better, like, "Oh my god it's amazing," they now have 10% less of their company or 30% less of their company. Sort of think on that before you throw a party, by the way, the money you just got meant that you now own less of your thing and so spending it for a party is probably a mistake.
But, it's my least favorite thing to do is do fundraising celebrations. Or if you're in this 55 logos crammed into 500x500 pixels, you've either already made it and it's past the news cycle and you're on your way out. So neither one of those two is worth celebrating in my opinion. The thing that's really important and sort of PayPal, Affirm, every company I've been a part of or near, one of the most important things you can do is finding metric, ideally one metric, although the more complicated the thing you're trying to build, the harder it is to just pin down the one thing that matters.
Ben Jun: What was that one thing at PayPal?
Max Levchin: So the original metric at PayPal was the number of users. It's actually kind of a cool story. So my really good friend, Russel Simmons, whom I met, not the rapper, the software engineer, future CTO of Yelp, we went to college together, he was our basically first engineer at PayPal, and he was the only one, so all of us studied, all of us learned the same exact set of skills on the Unix prompt. He was the only person who really knew Windows. And I had this idea because we decided that the number of users really matters, I asked him to build a screensaver.
We were all coding on Windows, 'cause Mac was in a temporary desperate situation so there's no Mac Os yet really. So we were building everything on Windows, he built this really cool screensaver that just showed this number, and I would forlornly stare, you know, 102, 102, 103, did anybody sign up? Yeah, I just did. That doesn't count. And so it was a very slow early growth, and then we figured out this idea of incentivizing users to invite their friends. And so you get $10 if you invited a friend and they joined, and they would get $10.
It's a good interview puzzle, by the way, does this institute an infinite sum, or does it not? And what's the true cost of user acquisition? The number of people who got that wrong, including many venture capitalists is kind of unbelievable, but the true answer at the end of the session.
So as we figured this out, the counter starts spinning, faster and faster, and faster and faster, and some point I was like, "Whoa, it just moved by 2000, "in like 50 seconds, what's going on?" At some point, our main database was brought down by the screensavers. Completely true story, where I had to figure out what the hell was going on.
Ben Jun: So you were doing a SQL query that just--?
Max Levchin: You know count is pretty expensive as it turns out. I know I'm among friends when that elicits real laughter. Anyway, so he definitely had to go fix the query and then eventually we had to turn it off, 'cause we could not re-index the table fast enough for temporary counts. The number of users really mattered.
The one important lesson from PayPal by the way, which I took with me to everything I've ever done since. Unless you're building something really really really different, and there are exceptions so this is not a universal metric, but it is really good to measure your impact on the world by the number of lives you've changed. Sounds extremely inflated, and it kind of is, but it all comes down to how many people's lives have you helped or not.
And at PayPal, I think we just thought of it as we need more users, but then we started getting notes from people saying, "Hey you've changed my life, "I can sell things on eBay now, and I'm making a living," and you become more and more inspired. So mapping your work to human impact is pretty profound, and so every time I'm involved in anything I typically try to map it to that.
Ben Jun: When we, and again, maybe an interesting question just based on you have grown personally as a leader, when you look back at, and again, I wanna focus on the PayPal days, but I'm going to follow up asking what it is now, what do you think was in your toolkit then? You had a couple of companies that you had tried to work on, you had a strong interest in puzzles and cryptography, how did you take, as you look back, how should you have taken stock of what you knew, and how should apply that as a leader? And then fast forward, I'm going to ask you the same question with what you're doing right now at Affirm, 20 years later.
Max Levchin: So I definitely have changed a lot over the last 30 years, I think in the early PayPal, what I didn't realize I was actually relatively good at, and I've now heard this feedback and it pleased me greatly, 'cause I didn't think of it as such, at the time I really thought leadership by example, if you expect your team to work, you work harder. If you gotta work the weekend, you stay up all night, not one-upmanship so much as you better be in the same trench as your crew, otherwise, they won't believe you when you say this is important, let's do something. And I think that balanced with empathy of, wait a second I can tell people I'm burning out, we shouldn't be doing this, this is not so important that we need to sprint for this one, let's measure it out.
I think I sort of understood intuitively from doing things like running student groups and just doing a lot of all-nighters in college where I could sort of tell when my roommates were about to murder me for pushing me to do another puzzle. At PayPal, I think it was entirely intuitive management where I just kind of tried to lead by example, write as much code as I would be allowed to, over time it became pretty clear that I was not in fact, the very best programmer in the world, even though I really thought I was for a time.
And then, 25, 30 years later, you realize that a lot of leadership isn't really at all about even so much as trying to establish yourself as the alpha dog, it's actually about transferring responsibility in a way that doesn't guilt-trip for lack of a better term, the person that you're offering responsibility to, but empowers them and inflates them with, or imbues them with the need to prove to their team that they're capable of achieving these results that are expected of them.
And so, I spend most of my free time reading books on psychology these days, because I desperately try to understand what motivated some people to perform these amazing tasks and others appear indifferent. So that's really if you want a prescription for an avenue of growth, understanding how people think, understanding what motivates them, understanding how you get them to align with the vision of the company on their own and to own it, as opposed to taking it, is probably the most valuable thing that I've learned.
Ben Jun: There are two sides to that because to do that means you're giving up something, right. You're giving up the voice, you're giving up control and when you chat with people who are probably newer tech CEOs, I know there's a couple of conversations you have, kind of around helping someone make that transition from being the VPE to a CEO. And I think it's applicable for a lot of the different stages, maybe you can go into that a little bit more.
Max Levchin: I think the most, the most interesting thing to tease out almost every time is what really matters. One, perhaps a circular reference, so HVF stands for Hard, Valuable and Fun, so fun I added many years later but hard and valuable was actually a conversation that I had with Peter Thiel, many of my formative conversations were with him as a manager and as a leader because he, whatever you think of his politics and otherwise, has truly amazing capacity to bring out the very best in people he surrounds himself with.
The one thing that is unequivocally true of Peter is that when you spend with him, when you're in his company when you're in his presence, the first thing that comes to mind is, "I think he believes in me more than I believe in myself, "I can do better, I should do better," it's amazing how much of that he just brings into every conversation and relationship that he has.
And so, one of the things that he taught me in a really amusing conversation, we were working on something, it doesn't really matter what, and he'd ask me, "What is this thing "that you're trying to do here?" And Russ and I probably staying up all night as we usually did back then. I said, "This thing is really hard,"
And I sort of describe it. And he's like, "Huh, but is it valuable?" What do you mean, it's really hard. You know, think of the, of the implication, you can beat your head against a wall and it's pretty hard, and the wall will probably not crack but your head will, does that have any value to anyone?
Now the good news is that anything that's really valuable, unless it's like, oh you backed a truck into a barn and it was filled with gold, it's gonna be pretty hard. So, just focus on the stuff that's truly valuable and the difficulties will come on their own, you don't need to worry so much about solving hard puzzles.
Actually, back then, today it seems painfully obvious, back then to me, it was a revelation, I was like, well, I spend my entire formative years from 17, 18 whatever I was till the end of college learning how to solve hard problems. I took great pride in being a good engineer. I'm not sure I was ever a spectacular one but I loved solving problems, I loved writing code, I couldn't get enough of it, and the harder the better. And the take the easier path seemed like an insult because why would I solve the easy problems? Those are not cool, that's not even in the right dimension, don't worry about cool or not cool, or hard or not hard, solve what matters, figure out what's valuable and go after that.
So, a lot of the leadership conversations that I have today, kind of amazing, but for younger leaders for people who haven't been in the industry very long, the fallacy persists and persists again and again, and I delight in retelling that story because once you grok it, you're like, "Oh, yeah, I should just solve the thing that matters, "I don't need to worry about the hard stuff, "it will show up on its own." And there's plenty of hard problems and the more you work with people, the more you'll realize that the truly hard problems are always about humans, they're never about code.
Ben Jun: So I'm looking at some questions and I'm seeing ones on hiring and how you evaluate people, let me twist this a little bit which is when you have a team, and you have a set of people, how do you think about complementing that team well? If you know you need more resources I think you know what the answer to that is, but when it's like, "Something that's not quite right here, I think I'm missing something, I need us to, or this person really does better in this way, how do I compliment them?" How do you do that?
Max Levchin: I think a lot of it is in asking the team itself the question, what's the biggest blocker? What prevents you from shipping on time? Delivering better quality. One of the things that I learned over the years, which I certainly didn't do ever I think at PayPal, my CTO and another friend from 25 years ago, our CTO at Affirm, Libor, insists on writing a very detailed, brutally honest post mortem for every major or minor screw up that we've ever had. And in those documents, it is brutal, this thing just broke, we went for seven hours trying to find the bug and fix it and undo it and apologize, and deal with the press fallout, you really just want to go to sleep and maybe hideout for a while.
And he's insisted for years that the engineers responsible for causing a problem and fixing a problem get together and write down, physically or type up, what caused this. By the time you're done, if you're honest, there's a glaring story in there that says, we lacked x, and sometimes x is care or testing or things that are pretty technical and obvious. And sometimes it's we don't have anyone who knows how to do this, and we took it on the chin because no one here had that in their field of view. You find out what you need and you look for it in your recruiting efforts. I think that's the most honest, if painful way of doing it.
Ben Jun: So there's a clear trend in the questions here and I think I can summarize it pretty greatly. Who do you want to work with and how do you know? That's what I'm seeing right here in the questions.
Max Levchin: I was actually reminded of this in another ex-PayPal person conversation a few weeks ago. So back in the old days at PayPal, what was known as the Max's aura test, where I knew that I would or would not work well with someone based on the first couple of minutes of conversation and I could never really put it down on paper, sort of explain what it really meant, but I sort of knew that this would be a great addition to the team, or wouldn't be. And I'm not sure I'm, at this point I had to be reminded of the aura test, so it's clearly not stuck with me. But Libor, who obviously has to hire and sometimes fire engineers and he used to manage it all the time, so I remember talking about this, and he said, "Oh, yeah, I call it the hallway avoidance test."
And so that's where you can only do this ex post facto, unfortunately, you can try to get this in your head, but it's hard. Once you bring someone on and you see them in the hallway, and they're just far enough away where you have a choice where you go, "I have something I need to talk to you about," or, "Where's the next conference room I can duck into?" It's the hallway avoidance versus not test. And if it's hallway avoidance you made a terrible mistake, find a way to unwind that relationship, get that person off the team.
I think more practically speaking, you want the right balance between someone who is deeply vested in your success, whether they report to you, or they're your peer, they're your boss, doesn't really matter who they are in the org chart. You want someone around, surrounded by people who look at you and see someone who can do more, who can be even more contributive to the cause of the company, but not so much so that it's intimidating, frustrating, or insulting, so you don't want a taskmaster, you don't want a drill sergeant, you want someone who is a friend, an enabler, and I think most importantly somebody who inspires you.
I think at the end of it all, I said a long time ago, and it got sort of thrown around social media at some point, there's not a whole lot of difference between co-founding a company and deciding to get married. The spouse is someone or your co-founder is someone you're gonna be with so tightly for so long, you want to be inspired, you want to be impressed, you want to try to impress that person, and you feel all those things, that will be a great relationship. If you're settling or compromising, that's true for, certainly don't do that if you're trying to decide whether that's a spouse to have or a co-founder or a report, or somebody on your team. If you feel like, I know what, I'll look past x, it's typically a recipe for disaster, and eventually, it comes back to haunt you.
Ben Jun: Let me close Max with a question that I'm seeing coming up here now. Fintech, I actually fintech and crypto are very related, it's sort of numbers and processing and transactions having real power. I can say this, maybe you can't, there is real evil in the world, and real companies are perpetuating it, and maybe I can name names and you can't in your role. But rather than go that way, you've chosen to work in an area where there are very powerful tools that can help people, but that can also be very oppressive. How do you know you're doing the right thing? And how do you stand up and guide the 500 people in Affirm to do that?
Max Levchin: So the one thing we didn't do with PayPal, which at the time, I certainly didn't think about, it didn't bother me one bit, and in retrospect, I insisted on doing on the very first day of a firm as a concept, was to write down our core values. And PayPal meandered through business plan and purpose, we pivoted as the kids call it these days about six times. So PayPal of day one, and PayPal of today, are very very very different companies, there's almost no similarity other than the founding team is the same.
Affirm actually, I mean it wasn't quite, sort of, pull cloth, what it is, but we started to, we choose to go build, revolutionize to use a long word, the way lending, the way credit is done because we felt that it was at best amoral, and occasionally teetering on immoral, and we wanted to change that. They sort of wrote down the mission of the company which to change lives, back to my counting humans, through financial products.
I said, "Well, that's not enough, "I need to figure out what it means, "what will we do and not do?" And so I wrote down five core values, and then a little bit later I wrote down, a fairly lengthy document titled, Affirm Operating Principles, it's not as long as Ray Dalio's but it's meaningfully length and, it was a, it was a cathartic experience because I'd realized that there will be many ethical questions eventually that will not be black and white, there will be plenty of greyscale in between the answers, and we would have to know how to decide.
And so, going through the process of writing down what is and isn't right, at a conceptual level, not you know, build products, interest is okay, compounding interest is not, differed interest is toxic and evil, and whoever does that should be banned from the industry, these things don't help because there'll always be another question that you're not prepared for. So you have to step back and ask the question, what are you willing to do and what are you not willing to do?
One of the things I wrote down, seven years ago now, making money on other people's misfortune is evil, we will not do that. And I think, thinking like that, forcing yourself to get deep into what are doing this for and what will you not allow yourself and your team to do was profound. And I'm super proud of the fact that our team stuck by those operating principles and it is now such part of the fabric of the culture of the company that I don't think these questions even come up, people know what's right and what's wrong from our point of view, and I don't want to force it onto everyone. And the decisions can be made without consulting the managers, there's no chain of command that decides on morality, people know what the company stands for and how we solve problems.
I'm not sure there's a prescriptive narrative in there beyond the fact that writing down core values was truly essential and I think a lot of companies these days really take it very seriously, 20 years ago, Silicon Valley was not known for its core values. I think today it's much more of a thing, and there's a whole avant-garde of companies that are very very focused on being mission-driven, being benevolent or beneficent, or whatever the fancy word you want to use for it, and I'm very happy that our firm is one of them.
Ben Jun: All right, thank you, Max.
Max Levchin: Thank you.