With LinkedIn, outsiders can get in on the PayPal mafia’s racket

For the past half-decade, a gang of well-connected entrepreneurs who worked together at online-payments startup PayPal have quietly built a string of successful Internet companies. At last, with Linkedin, public-market investors can get a piece of the action.

Not since Peter Thiel took PayPal itself public in 2002, ending a post-dotcom bubble drought in the IPO market, has this group produced a publicly traded company. Now LinkedIn cofounder Reid Hoffman is playing a part in a similar revival of the market for hot tech startups.

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Hoffman’s baby, LinkedIn, a social network for business professionals, has finally filed to go public — ending months of speculation as to whether it would beat Facebook to the stock market.

LinkedIn is a social networking site for business types looking to expand their professional networks. The site suggests potential business contacts and lets users build out extensive profiles with work experience and recommendations. The site makes money off its premium services — which make it easier to contact other business professionals — and by slapping advertisements on the site. According to its S-1 filing, the company has lost money for the past several years, but is on track to be profitable this year.

The PayPal crew, so tight they’ve been dubbed a “mafia” by Fortune and others, has seen a good bit of success since eBay bought the company just a few months after it went public, making many of them wealthy enough to back other entrepreneurs. Since starting LinkedIn, Hoffman has invested in the likes of Zynga, Digg, Last.fm, and a number of other startups. Thiel, PayPal’s CEO, was one of Facebook’s earliest investors. David Sacks, formerly the COO of PayPal, started up a collaboration service called Yammer that’s raised $40 million after launching in 2008. Jeremy Stoppelman went on to found local-reviews site Yelp.

So far, though, their success has only touched Silicon Valley’s inside circle. PayPal alumni Steve Chen and Chad Hurley started YouTube, but then sold it to Google, ending the online video’s site independence before public investors could ever get a piece of it. LinkedIn is the first company started by a member of the PayPal crew that has gone public and is open to investors outside that closed circle of investors and players.

PayPal, meanwhile, has become eBay’s growth engine — leaving some early employees with the feeling that they sold out too early.

That chip on the PayPal mafia’s collective shoulders has been a powerful motivator. Instead of resting on their laurels, they’ve pushed to rack up a success that outdoes the deal that made them all healthy. And that kind of bravao, in turn, drives investors in Silicon Valley wild. Will the PayPal mafia find a similar fervor on Wall Street? With LinkedIn’s IPO, we’ll finally get a chance to find out.