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Affirm founder and CEO Max Levchin is poised to join Elon Musk, Peter Thiel and Reid Hoffman on the billionaires list, becoming the latest member of the so-called PayPal mafia to add his name to the three commas club.
Affirm, the online lender that Levchin started in 2012, said in its updated IPO prospectus on Tuesday that it plans to sell shares for $33 to $38. At the top end of that range, Levchin’s 27.5 million shares, accounting for about 11% of total shares outstanding, would be worth just over $1 billion.
Those shares are locked up for the next few months, so the actual value of Levchin’s stake will depend on the market’s reaction and Affirm’s performance as a public company. At $38 a share, Affirm would be valued at $9.2 billion.
Levchin, 45, has made a lot of money in the past, if not as much as some of his former colleagues. A few years after leaving PayPal, following the company’s sale to eBay in 2002, he started social application company Slide, then sold it to Google in 2010 for a reported $182 million. He was the first investor in Yelp, co-founded by fellow ex-PayPal executive Jeremy Stoppelman, and was chairman until 2015, while also spending three years on Yahoo’s board.
The term “PayPal mafia” started gaining traction about 15 years ago as early employees from the payments company went on to start YouTube, LinkedIn, Yelp, Palantir and SpaceX. Musk, who started SpaceX, is by far the wealthiest of the crew with a fortune currently valued at $175 billion, primarily from his stake in Tesla, which he’s led since 2008.
Thiel, who turned most of his attention to investing, made over $1 billion from an early check he wrote to Facebook, where he’s still a director, and now has an estimated net worth of $6.6 billion. Hoffman, who co-founded LinkedIn in 2002, is worth about $2 billion, after selling the professional networking company to Microsoft for $27 billion in 2016.
Levchin was born in Ukraine and immigrated to the U.S. with his family as a teenager, settling in Chicago. After graduating from the University of Illinois with a degree in computer science, he moved to Silicon Valley and was introduced to Thiel by Luke Nosek, a college friend. They soon launched Confinity, with Thiel as CEO and Levchin as technology chief.
In 2000, Musk’s X.com merged with Confinity, and the combined entity was named PayPal. EBay bought it for $1.5 billion two years later.
Affirm marked Levchin’s return to financial technology. The project was initially part of Levchin’s incubator, HVF, before spinning out as and independent entity in 2012. The company has grown rapidly in recent years, partnering with online retailers by letting them offer loans at the time of checkout. The service lets consumers pay back the loans over three, six or 12 months.
Revenue almost doubled in the fiscal year that ended in June to $509.5 million. But the cost required to purchase loans from banking partners along with provisioning for credit losses equaled more than half of its revenue, leading to an operating loss of $107.8 million for the year.
Peloton, Affirm’s biggest partner, accounted for 28% of its revenue during fiscal 2020, and 30% in the latest quarter as the ongoing coronavirus pandemic spurred people to exercise at home. In May, during the early months of the crisis, Levchin told CNBC that demand for electronics had doubled and home fitness had grown almost as much. He said merchant signups were “massively up.”
“While travel and ticketing and fashion are all down and we know they’re all down, the super-massive shift from offline to online is powerful,” Levchin said at the time. “People are changing their habits very very rapidly and the most powerful trend is figuring out what can be purchased online instead of having to go outside.”
Less than two years after raising money at a $2.9 billion valuation, Affirm is going public with a market cap close to $10 billion.
Its IPO is set to generate big gains for other PayPal mafia members in addition to Levchin. Founders Fund, Thiel’s venture firm, owns a stake worth about $650 million at the high end of the range. Keith Rabois, who was an early executive vice president at PayPal and is now a partner at Founders Fund, is on Affirm’s board.
Former PayPal CFO Roelof Botha, a partner at Sequoia Capital, is on the board of Unity (along with Levchin), which debuted last year. His firm has big stakes in Snowflake, Airbnb and DoorDash, the three biggest tech IPOs of 2020.