Real estate's new disruptors: The 'PayPal Mafia'

Led by Peter Thiel, Keith Rabois and other tech kingpins, the so-called PayPal Mafia and a group of Blackstone veterans are remaking the real estate industry in their image

A group of hard-charging, investor-entrepreneurs who have built some of the world’s most iconic tech companies have launched a multi-pronged assault on the real estate industry.

A group of hard-charging, investor-entrepreneurs who have built some of the world’s most iconic tech companies have launched a multi-pronged assault on the real estate industry. A striking number come from two groups: the so-called “PayPal mafia” and private equity behemoth Blackstone Group.

Their combined wealth, experience and commitment to mutual support should cause market incumbents to take their projects seriously, despite the long history of failed bids to fundamentally change the real estate business.

Serving as financiers, managers or a combination of the two, these Silicon Valley and private equity vets — at least four of whom are controversial libertarian billionaires — have helped reshape a number of industries, and they are determined to do the same to real estate. Tying together the fortunes and industry ambitions of many of these players are three real estate startups in particular: Opendoor, Roofstock and Bungalow.

At least five of this coterie, including Opendoor co-founder Keith Rabois and Gawker-slayer Peter Thiel, all hail from the “PayPal mafia,” a group that built the online payments giant PayPal, and later moved on to found or provide key financing to some of the world’s highest-profile tech companies, including YouTube, Tesla Motors, LinkedIn, Yelp, Facebook, Yammer and Palantir Technologies.

A number of others cut their teeth with Blackstone, the private equity behemoth that showed it was possible to buy and manage tens of thousands of single-family homes. Other worthy mentions include former Uber CEO Travis Kalanick and Silicon Valley investor titan Marc Andreessen.

The PayPal mafia

In his critical book of Silicon Valley hotshots,”The Know-It-Alls,” author Noam Cohen described the PayPal mafia as a group of “self-styled survival-of-the-fittest free-marketers commit[ed] to a strategy of collective risk and mutual support.”

To understand how the clique can turn startups into rocket ships, consider LinkedIn. The social network was founded by PayPal mafia member Reid Hoffman; got financing from members Peter Thiel and Keith Rabois; and received office space from another former PayPal colleague, Cohen wrote. Hoffman later paid this help forward to the group of PayPal vets who created YouTube with financing and office space, according to Cohen.

“My membership in a notable corporate alumni group in Silicon Valley has opened the door to a number of breakout opportunities,” Hoffman has said.

Keith Rabois 

Keith Rabois. Courtesy Steve Jennings/Getty Images

Billionaire Rabois is leading the PayPal mafia’s new charge into real estate, with Thiel, also a billionaire, bringing up the rear. In addition to PayPal, Rabois has served in executive roles at LinkedIn and Square, and he’s financed tech winners including Yelp.

Rabois co-founded Opendoor, the well-funded startup that uses technology to rapidly buy and sell homes directly from consumers, and is a managing partner at Khosla Ventures. Khosla Ventures has invested over and over in Opendoor, and recently plowed cash into Bungalow, a high-tech proxy landlord that announced a $14 million round after growing rapidly in stealth mode.

Rabois joined the board of Bungalow and likens the startup to the “renter’s equivalent of Opendoor.” Khosla Ventures is also a major investor in Roofstock, a platform that lets investors buy and sell tenant-occupied single-family rentals.

PayPal’s growth strategy 

At PayPal, founded in 1998, Rabois helped build a company that used aggressive tactics to grow at a break-neck pace. According to Cohen, PayPal paid people for signing up or referring others to the service; used bots to purchase products from eBay sellers on condition that they accept payment through PayPal; merged with competitor (led by Elon Musk); and threatened eBay with legal action when the company tried to marginalize the service — that is, until eBay acquired PayPal for $1.5 billion in 2002.

Baked into the DNA of PayPal — four of whose founders reportedly built bombs in high school — was a libertarian worldview that has spread to other startups launched by PayPal founders.

Rabois is among at least 10 other former editors of the Stanford Review, a right-wing publication founded by Thiel to challenge multiculturalism at Stanford University, who occupied key roles at PayPal, according to Cohen. As a student at Stanford’s law school, Rabois, the Opendoor co-founder, reportedly shouted outside the residence of an instructor: “Faggot! Faggot! Hope you die of AIDS!” in an incident that eventually drove him out of the university.

“The entire point was to expose these freshman ears to very offensive speech,” Rabois has explained.

Peter Thiel 

Peter Thiel. Courtesy Chip Somodevilla / Getty Images

Thiel later came to Rabois’ defense, characterizing the incident as a case of “individual courage in the face of a witch hunt,” The New Yorker reported. Thiel is known for being an early investor in Facebook, for financing litigation that bankrupted news site Gawker, and for being perhaps the most prominent and outspoken Silicon Valley leader to throw his weight behind Donald Trump’s successful presidential run.

He has recently joined Rabois in trying to tackle real estate. Two venture capital firms he’s tied to, Atomic Labs and Founders Fund, have invested in Bungalow. Founders Fund and Thiel personally have also invested in Blend, a fast-growing and well-funded mortgage software startup. In addition, Founders Fund participated in three funding rounds closed by tech-focused brokerage Compass.

Meanwhile, PayPal vets Jeremy Stoppelman, the CEO of Yelp, Max Levchin and David Sacks, a co-founder of Yammer, were all seed investors in Opendoor, while another PayPal mafia member, Salesforce CEO Marc Benioff, was an early investor in Roofstock.

Marc Andreessen 

Mark Andreessen. Courtesy, Justin Sullivan / Getty Images

Along with Thiel, Marc Andreessen is a key backer of Founders Fund, and he has separately poured lots of cash into real estate tech through his venture capital firm Andreessen Horowitz.

While he’s not a member of the PayPal mafia, Andreessen is closely acquainted with the clique and counts Thiel a “friend and intellectual sparring partner,” according to The New Yorker. He co-founded the pioneering web browser Netscape, and like Thiel, was an early investor in Facebook and advisor to its CEO, Mark Zuckerberg.

Dubbed the “father of the Tweetstorm” by TechCrunch, Andreessen took a break from the social media site in September, “not long after having to apologize for posts that praised British colonialism in India as superior to democracy in providing for the poor,” Cohen wrote in “The Know-It-Alls.”

Andreessen Horowitz — voted the most desirable investor for a series A funding round in a 2016 CB Insights poll — has backed real estate tech startups including Opendoor and FlyHomes, a startup that purchases homes on behalf of homebuyers to make them competitive against all-cash buyers. It’s also invested in real estate investment platforms PeerStreet and Cadre, as well as Point, which lets homeowners sell equity stakes to outside investors.

Consolidation potential?

Surveying this activity, a picture emerges of an immensely powerful ring of investor-entrepreneurs who are coming at real estate from a variety of angles; have a history of cross-pollinating each other’s ventures; and have overlapping investments that could easily blend together.

One trio of startups brings these synergies into sharp focus: Opendoor, Roofstock, and, now, Bungalow — all of which now have ties to the PayPal mafia.

Consider how well their goals and technology fit together: Opendoor makes it easy for homeowners to sell their homes; Roofstock lets investors seamlessly scoop up or offload single-family rentals; and Bungalow acts as a proxy landlord.

What if the three merged? Opendoor could convert some of its acquisitions into single-family rentals and leverage Roofstock’s marketplace to sell those units to investors. Bungalow could provide key assistance, managing single-family rentals either for Opendoor or for the investors that purchase them.

The awesome wealth, connections and expertise that this phalanx is bringing to bear on the industry could overwhelm isolated real estate agents and brokerages that may find themselves competing with Opendoor for homesellers, or with Bungalow for property-management business, or with Roofstock for  listings from real estate investors. On the other hand, the agents that partner or work for such startups may have much to gain.

“[A]n economy based on personal networks” — which may now be a fair way to describe the real estate tech space — “undoubtedly disadvantages nearly everyone else, even ambitious, well-educated entrepreneurs,” Cohen notes in “The Know-It-Alls.”

Blackstone alumni 

In addition to PayPal, private equity and real estate goliath Blackstone has also unleashed a wave of savvy investors and entrepreneurs onto the real estate industry.

Blackstone launched Invitation Homes, a company that vacuumed up single-family homes during the housing slump and converted them into rentals, blazing a trail that other institutional investors followed.

Invitation Homes and its competitors could thrive, in large part, because cloud and mobile computing made it possible to manage scattered assets and “run [profit] margins that rivaled apartments,” Roofstock CEO Gary Beasley told Inman. (Beasley once served as the co-CEO of one of Invitation Homes’ largest competitors.)


Brian Bair (left) and Jerry Coleman (right)

Brian Bair (left) and Jerry Coleman (right)

Pioneering this tech-powered real estate investment model for Invitation Homes gave its co-founder Jerry Coleman, and top-selling real estate agent Brian Bair, the confidence to launch their startup Offerpad in 2015 as a competitor to Opendoor and other similar “iBuyers” (companies that buy and sell real estate nearly instantly over the internet and using other new tech, such as mobile apps). Like Invitation Homes, Offerpad quickly snaps up and refurbishes homes. The only difference is that Offerpad quickly resells them, whereas Invitation Homes rents them out.

Blackstone and Invitation Homes also have deep ties to Opendoor. Invitation Homes recently invested in the iBuyer, and the former vice president of maintenance operations at Invitation Homes serves as head of home operations at Opendoor.

Fifth Wall Ventures

Fifth Wall Ventures Team in Venice (Photo: Dave Mullen)

Two Blackstone alumni also pilot one of Opendoor’s major investors, Fifth Wall Ventures. Fifth Wall co-founder Brad Greiwe once served as the chief technology officer of Invitation Homes, while the venture capital firm’s other co-founder, Brendan Wallace, formerly advised Blackstone’s real estate division, which operated Invitation Homes.

In May, Fifth Wall Ventures was on track to have raised more than $400 million, much of it from industry giants, such as Lennar Corporation, CBRE and Lowe’s. Focused on real estate, Fifth Wall wants to serve as the “connective tissue” between “built-world incumbents” and startups and “play kingmaker to a certain extent,” Greiwe previously told Inman.

In one example of how this has unfolded, Fifth Wall helped facilitate Opendoor’s partnership with Lennar, in which move-up buyers can seamlessly sell their old home to Opendoor and purchase a brand new one directly from Lennar.

Fifth Wall has also invested in Roofstock, Blend (the mortgage software startup backed by Peter Thiel), Notarize (an online notarization platform), Pillow (a short-term rental management service), RadPad (a now-defunct rental search site), BuildZoom, Rentlytics and Honest Buildings, among other real estate startups.

Another buzzing real estate startup that can be traced to Blackstone is Cadre, a real estate investment marketplace that’s raised more than $120 million. Its co-founder, Ryan Williams, and managing director, Conor Lewis, both previously worked in the private equity firm’s real estate division.

Travis Kalanick 

Travis Kalanick. Courtesy Steve Jennings / Getty Images

Though he does not come from PayPal or Blackstone, another billionaire tech bigwig that’s recently set his crosshairs on real estate is Uber’s founder and ousted CEO, Travis Kalanick.

Like Thiel, Rabois and Andreessen, Kalanick has conjured both admiration and controversy. He built one of the most valuable privately-held tech companies in the world. But part of how he did this, critics say, was by promoting a ruthless business philosophy and workplace culture that’s given rise to accusations of intellectual property theft, driver exploitation, sexual harassment and disregard for local transportation regulations.

In March, word came down that Kalanick had taken the reigns of City Storage Systems, which focuses on buying, revamping and selling distressed commercial real estate, and poured $150 million into the startup through his new venture fund, 10100.

The only other startup to receive funds from 10100? Opendoor.

Email Teke Wiggin