Elon Musk, X.com, and the Origins of PayPal

Fresh from the Zip2 sale, Musk put about $12 million of his roughly $22 million windfall into a new company in 1999.^{[1][2][7][11]} Its name, X.com, reflected his ambition: a single online destination for all of a customer's financial needs, from checking and savings to brokerage and loans.^[1][2]

Musk believed banking was ripe for reinvention because money is essentially an entry in a database, and moving it should be as easy as sending a message.^[2] X.com launched to the public in late 1999 and offered bonuses to customers who signed up and referred friends, a tactic that drove rapid growth.^[1][3][7]

Just a few blocks away in Palo Alto, a rival start-up called Confinity had built PayPal, a service that let users send money using an email address. Confinity had been founded by Max Levchin and Peter Thiel, with Luke Nosek and Ken Howery among its early team.^[3][8]

The two companies competed fiercely for the same users and burned heavily through cash on sign-up bonuses. In March 2000 they merged under the X.com name, with Musk as the largest shareholder; he became chief executive later that year.^[1][3][7][9] The combined company was burning money while fighting fraud, and the merger brought together a team of unusually talented engineers and entrepreneurs.^[3]

Tensions ran high over strategy and technology, especially Musk's plan to move the company's systems to Microsoft's platforms. In September 2000, while Musk was away on his honeymoon, the board replaced him as CEO with Peter Thiel.^{[1][3][13][14]}

Musk responded with notable grace. He stayed on the board, remained the largest shareholder, and continued to support the company.^[1][3] In 2001 the company renamed itself PayPal after its most popular product.^[3][9][10]

PayPal went public in February 2002, and on July 8, 2002, eBay announced an agreement to acquire it for about $1.5 billion in stock.^{[3][4][10][15]} Musk, whose stake was around 11%, received roughly $176 million before taxes.^[1][2][11]

Instead of living off the proceeds, he invested about $100 million in SpaceX, $70 million in Tesla and $10 million in SolarCity, his cousins' solar company — at one point borrowing money for rent.^[2][5]

PayPal's alumni went on to found or fund an extraordinary number of companies, earning the group the nickname "PayPal Mafia." Besides Musk's SpaceX and Tesla, they include YouTube, LinkedIn, Yelp and Palantir, and early investments in Facebook.^[3][13]

Jimmy Soni's The Founders argues that the intense PayPal years — fighting fraud, rivals and regulators at once — forged a generation of builders.^[3] For Musk, the experience also cemented a long-held dream: a comprehensive financial platform. Years later he bought back the X.com domain from PayPal, and the "X" name returned when he rebranded Twitter in 2023.^[2][6][12]