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Inside the DNA of the Facebook Mafia

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A lot of things about Facebook have been impressive, even by the Silicon Valley standards. Almost no other Valley company has reached so many people around the world so quickly. Few Valley companies have been considered important forces in causes as disparate as planning a party or a political uprising. Rarely has a kid in his early 20s held onto the CEO reins this long. And of course, no other Valley company has been made into a star-studded, over the top Oscar-nominated film.

So it shouldn’t be surprising that the Facebook mafia– made up of high profile alumni responsible for building companies like Quora, Cloudera, Jumo, Asana and Path– has also emerged so early and become so distinct, well before Facebook has come close to a major liquidity event. Like most of the things that make Facebook unique, part of this is due to Facebook itself, and part is due to the time in which the company was formed.

But before we get to the specifics of the Facebook mafia, it bears noting that not all companies produce bona fide mafias. It’s more than just alums doing well. A true “mafia” is a collection of co-founders, early hires and top engineers who’ve been battle-tested together with an enthusiasm and financial resources to start many different ventures immediately. There’s also a communal sense of co-investing in and supporting one another, hence the idea of keeping it “in the family.” While plenty of smart entrepreneurs and angel investors came from or filtered through Google, Yahoo, eBay, Amazon and Microsoft, those gargantuan successes didn’t really create a mafia that catalyzed at a certain moment of time, resulting in an cluster of cool new stuff.

In fact, few big successful, lasting companies spin out mafias, because those companies grow to such a large size that the unique DNA of the culture gets watered down. And for financial reasons, insiders used to be tethered to the company until after its IPO. By then, they’d missed being in the middle of the next big startup wave. Instead mafias tend to fall out of companies that didn’t go as far as they could have. It creates a frustrated sense of still having something to accomplish, or as Peter Thiel said about the PayPal mafia, “You had a lot of smart, competitive people who all needed something to do.”

Think of the most noted mafias in Valley history: Fairchild Semiconductor started it all with a high-profile exodus of core talent that encouraged others to do the same. Netscape was another huge one, post AOL sale. Netscape was such a world-changing company, it was hard for anyone who was a part of it to go back to a regular day job, and Netscapers had more cred than anyone in the dot com heyday. There was Quincy Smith, Ram Shriram and Khosla Ventures’ David Weiden to name a few members of the diaspora. Of course, the biggest result of the Netscape mafia was the angel portfolio of Marc Andreessen and Ben Horowitz, who also founded Opsware selling it to HP for $1.6 billion. That angel portfolio included early bets on companies vital to the early Web 2.0 movement, including Digg, Delicious, Twitter and more. And that angel portfolio led to the formation of Andreessen Horowitz, which has funded everyone from Zynga to Foursquare to Skype.

Excite@Home spawned another mafia. For those who don’t remember, Excite@Home was an ill-thought out $6.7 billion mash-up of two hot companies that proved to be one of the highest flying dot-com disasters. But out of Excite@Home came Joe Kraus who founded JotSpot and is now a partner with Google Ventures, Brett Bullington an angel investor and board member in several Valley companies, Craig Donato of Oodle, David Sze who would fund Facebook, LinkedIn, and help revitalize Greylock’s West Coast brand.

Excite’s mafia may not have founded the next billion dollar company, but they’ve funded several of them. And, like most mafias, they do things collectively. Donato was funded by Sze and Bullington is on his board. Find an industry conference and you’ll find these guys clustered at a back table joking about the good-old-days. Mafias aren’t just about people who had a certain company on their resumes starting something new– there’s the cultural aspect of doing it together that makes them unique.

Of course, the most written about Valley mafia was the PayPal mafia. The three founders alone had a tremendous impact. Max Levchin started Slide which sold for $228 million to Google, and incubated Yelp, which has a good shot at becoming a billion dollar company. Peter Thiel started Clarium Capital and Founders Fund which backed many PayPal mafia companies and most famously, backed an early Facebook when no one else would. Thiel was an important early mentor for Mark Zuckerberg. Elon Musk invested in Solar City, and founded Tesla and SpaceX. Tesla has already gone public and revolutionized the automobile world, SpaceX and Solar City are expected to go public sometime this year. Oh, and the three founders have produced movies too.

And let’s not forget the biggest exit so far of the PayPal mafia: YouTube’s $1.65 billion sale to Google, which cemented the reputation of Sequoia’s then new partner, Roelof Botha– once PayPal’s CFO. Second biggest was IronPort, built by Scott Banister and sold to Cisco for $830 million. And soon, we’ll see the debut of the PayPal mafia’s first IPO, when LinkedIn– founded by former PayPal executive Reid Hoffman– goes public. Hoffman, too, has funded and mentored dozens of Web 2.0 companies.

And let’s also not forget some newer, promising companies from the mafia like David Sacks’ Yammer. Sacks was PayPal’s COO– and the guy who came up with that early viral marketing scheme of paying users cash to refer their friends. And PayPal’s Keith Rabois is one of the top executives at Square, a company leading the next wave of fundamental disruption of the financial industry. eBay loves to trumpet how fabulous PayPal was as an acquisition. But the PayPal mafia has created many more billions and changed the world far more.

I once asked Peter Thiel if PayPal made a mistake selling too early– something we fixate on in the Valley. He answered that he’d wrestled with that a lot, especially seeing how big PayPal has gotten under eBay, and imagining how much bigger it could have become as a stand alone company. But ultimately, he said, looking at all the companies that had been created as a result of those smart competitive people needing something to do, it was hard to argue selling PayPal was a mistake in the macro sense.

You could have the same conversation today about the good and the bad of Facebook’s hundreds of millions of dollars of secondary share cash-outs, which has largely made this early mafia possible. The secondary sales have been a challenge for Facebook, because it makes retaining some of those early employees harder, and I’ve argued before that it contributes to the Valley’s increasingly short-term, instant-gratification, mercenary culture. But if Quora, Path, Asana and others can live up to the early hype, the Valley’s ecosystem will get its cake and get to eat it too: Facebook keeps growing, seemingly unstoppably, to become the biggest company of this generation and we get a wide impact of startups spinning out of it too.

So what does the Facebook mafia look like, and other than its surprising early existence what makes it different? I wanted to examine it, because I was struck by three things: The continuing Valley love-affair with Quora, Dave Morin of Path’s almost incomprehensibly ballsy rejection of Google’s $120 million purchase offer and the many things about Dustin Moskovitz’s Asana that reminded me philosophically of the early days of Facebook, even though the product is decidedly not a Facebook for the enterprise. That got me thinking about other Facebook spinouts we don’t write about as much like Cloudera and Jumo.

So I decided to spend much of the last two weeks interviewing more than a dozen people who were early advisers, investors and insiders at Facebook on and off the record about what it was that was making the companies spinning out of this young mafia so striking, in so many different ways. Here are some of the core characteristics, and how they stand out from startups I’m seeing in the Valley at large.

Not for Sale by Owner

To a person, the early Facebook people I spoke with all mentioned Zuckerberg’s July 2006 rejection of Yahoo’s $1 billion purchase offer as a seminal moment that not only changed Facebook, but changed their thinking personally as entrepreneurs. In hindsight it looks like a no-brainer, but the outside world deemed Zuckerberg arrogant and delusional at the time. Inside Facebook, his decision caused a split within the company.

Dustin Moskovitz remembered several people saying to Zuckerberg at the time, “If you knew you didn’t want to sell, why did you take us so far down this path? Because that’s what was so painful, getting to the alter and then breaking up.” After that, Zuckerberg never went down the aisle again. And similarly, Moskovitz’s company Asana has refused to engage in conversations about a flip, and sources say Quora has the same philosophy.

And then, there’s Path– a mobile photo sharing site that doesn’t even have a million users and turned down a purchase of more than $100 million. As Mike said in his post, Morin is definitely crazy– we just don’t yet know if that’s a good crazy or a bad crazy. During the weekend Morin was agonizing over the decision, he holed up with his biggest angel investor– Moskovitz. Moskovitz was one of the only people who didn’t make Morin feel crazy, and it played a big role in giving him the confidence to do what he knew he wanted to do, turn the insanely generous offer down.

Engineers Are Gods and Education Isn’t what Made Them that Way

These companies all revolve around engineers in almost a cultish way. Their investors and competitors always note how good the team is– which is saying something in a Valley locked in a full-scale talent war. They are insanely picky about hiring engineers and when they find a good one they will pay him nearly anything. Asana gives engineers $10,000 to pimp their desks. Zuckerberg has described Quora co-founder Adam D’Angelo as one of the best — if not the best– engineers he has ever met. And Path’s team was reportedly one of the assets Google was so willing to pay up for.

But unlike companies like Google and Amazon who rigorously hired based on college degrees, GPAs and standardized test scores, Facebook and the companies that have spun out of it have hewed toward sheer, raw, hacker-like genius. That’s created a more entrepreneurial culture inside the company. Justin Rosenstein– who was at Google and then Facebook before leaving to co-found Asana with Moskovitz– says that working at Google is often described as a wonderland for academics, while Facebook’s early days were more of an extension of a messy dorm room full of engineers hacking away all night, then collapsing most of the day.

Rejection of the Lean Startup Ideal

One thing that made Facebook so distinct from its early Web 2.0 peers was how much money it raised and how rapidly it scaled up. In the aftermath of the dot com bust, there was a paranoid fear of taking too much money or doing in house what you could outsource. But Zuckerberg had missed the bubble and the bust, and built the company as he deemed appropriate.

Likewise, some of these companies still have small teams, but it’s not for the sake of being small. They’ve not been shy about raising money, and because there’s not an emphasis on selling the company, they have no problem hiring or raising more when needed. And as the salaries and perks paid to engineers show, it’s not a culture that wastes time nickeling and dimeing the important things.

Efficiency and Organization at the Expense of a Free-for-all

The hallmarks of each of these products are around efficiency, not sprawling messy communities. Quora seeks to organize information to benefit the person answering the question, not the person asking it. As such, some people posing the questions get annoyed that they don’t get the right to retain more control of the dialogue.

Similarly, Path is an efficient way to jump in and out of friend’s photo streams. Like Facebook, the emphasis is on engaging with the app seamlessly throughout a day, not spending hours in it at a time. And Asana controls work flow and collaboration through a core news-feed like layout. The emphasis again, is on living in the app, engaging with it throughout the day, not spending an hour doing things inside of it. It’s that difference between being a “utility” and a “media” property that Zuckerberg talked so much about in the early days.

Controlled Pacing, Not Cheap Viral Hacks.

Here’s a core difference between these companies and many I see in the Valley. Most companies put an implicit value on size for the sake of size, and doing any cheap viral game in the book to get there, even if it means a low percentage of users ever engage with your app or return to your site again. In the last five years the value of a unique user has been almost completely eroded.

Instead, many of these companies take a cue from the way Facebook rolled out with a deliberate controlled pacing that allowed it to scale as it went from just Harvard, to include Ivy League schools, high schools, work places, and eventually the world. Facebook had a confident sense of not being in a hurry, that helped keep its community from becoming overrun and eroded. Likewise, Quora’s press, valuation and influence has far outstripped its user base. Path has a small fraction of Instagram’s users. And Asana has more than 5,000 companies on its waiting list to use its product. These companies may all become huge one day, but that’s clearly not their priority now.

Solving Big, Messy Social Problems Others Have Failed Trying to Solve Before

Perhaps it’s because the founders were at Facebook before, and it would take something big to get them to leave. Or maybe they’re all idealists who want to change the world. But each of these companies has a big sense of mission. None of them started from building a cool app or site for the founder and his friends, they all started to solve a big problem. And what’s more: That problem isn’t typically a new problem. This is where you get these companies biggest haters: The people who say Quora is just Yahoo Answers, the people who say Instagram beat Path before it got the chance to get started, the people who look at Asana and see yet another collaboration software play.

But here’s the thing: The core problems still exist despite billions invested in solving them, particularly in the case of Quora, Asana, and Chris Hughes’ Jumo, an ambitious play to organize the messy world of nonprofits. We can all see the pitfalls these companies will face, because we’ve seen companies fall into them before. But call it arrogance, confidence, delusion or some insight we just don’t understand from the outside, these founders all think they have a key to solving it.

It’s hard not to compare this to Facebook. The biggest reason people wouldn’t fund it in the early days was because of the great flame out of Friendster. Then, when MySpace took off, no one thought Facebook had a chance of catching them. Those naysayers were all wrong.

And like Facebook, companies like Asana, Path and Quora are trying to solve problems that are inherently social. Not social in the capital-S SOCIAL MEDIA! sense of the word, rather social in the sense of the messiness that results from people trying to interact online and bringing all the messy aspects of human interaction, communication and relationships with them. They are problems that machines can’t purely solve and people can’t purely solve, and each of these companies tries to use both to solve them, rather than Google’s slavish love of the algorithm or Yahoo’s early belief in directories and curation. They are all likely problems that have no one solution, but a long road of getting closer.

Moskovitz says it’s less like they’ve all gone their separate ways, and more like they’re all still working in one bigger, deconstructed company that stretches through the Valley. He’s still trying to solve problems he was working on within Facebook, but on a bigger scale and for all companies. He uses Cloudera’s data processing engine and Quora to handle some of their press and messaging, and uses all the others on a personal level.

At the end of the day, this is exactly what makes Silicon Valley irrepressible as an entrepreneur hot spot–more than the money, the universities, and the rest. You can trace a whole lineage of mafias coming out of mafias. Facebook had its roots in the PayPal mafia, which had its roots in the early University of Illinois days along with Netscape and Mosiac. And Netscape grew out of Silicon Graphics. It’s this lineage that has taken decades to develop in the Valley that no government programs or well-meaning civic boosters can replicate.

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