The little-known story about Elon Musk’s first post-grad internship

As research for my book on the early history of PayPal, The Founders, I dove into Musk’s college and post-college years, and I explored his creation of X.com, which went on to become PayPal.

I interviewed him as well as some of his early bosses and first coworkers about those early choices and how they shaped his future—and today shape ours.

What follows is a chapter from my new book, The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley (Simon & Schuster), available Feb. 22.

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Elon Musk’s adventures in finance began in college. He and his brother, Kimbal, had emigrated from South Africa in the late 1980s, and together they attended Queen’s University in Kingston, Ontario. To fill their empty Rolodex, they started cold-calling people they read about in the newspaper.

At one point, Elon came across an article about Dr. Peter Nicholson, an executive at the Bank of Nova Scotia. Nicholson was educated in physics and operations research and brought his scientific acumen into the world of politics, policy, and finance. He was elected to Nova Scotia’s House of Assembly and served as the deputy chief of staff for policy in the Office of the Prime Minister of Canada. Over a diverse career, Nicholson had worked on everything from punch-card computer problems to rights-sharing agreements among Canada’s fishing companies.

Musk was intrigued, so he contacted the article’s author, who shared Nicholson’s phone number, which Musk promptly dialed. “I think it’s fair to say that Elon is the only person who ever called me out of the blue and asked me for a job,” Nicholson remembered. Impressed by Musk’s gumption, he agreed to meet Elon and Kimbal for a meal.

Over lunch, they discussed “philosophy, economics, the way the world works,” and Musk confirmed his perception from the article that Nicholson was “super smart…a giant brain.” They broached the subject of an internship, and Nicholson said he had one spot on his small Scotiabank team. Feeling that Nicholson’s scientific interests mirrored his own, Elon chose to take the spot, and Nicholson took him under his wing as his sole intern.

Peter Nicholson earned a distinction, too. He’d serve as one of Elon Musk’s only bosses.

***

Musk joined Scotiabank because of Nicholson, not to become a financier. Nicholson joined the bank for similar reasons, lured not by finance but by the firm’s CEO, Cedric Ritchie. Ritchie had installed Nicholson at the head of a small internal consulting team. “We were a little like DARPA [the Defense Advanced Research Projects Agency],” Nicholson remerbered. “We were this little crazy organization off to the side.”

For Musk, the unit’s nineteen-year-old intern, it was an opportunity to see finance from the top perch, and he showed early promise. “He was very bright, very curious,” Nicholson recalled, “and he was already a very, very big-picture thinker.” Outside of work, Nicholson and Musk would spend “a lot of time talking about puzzles, talking about physics and the meaning of life and the essence of the universe.” Even then, Nicholson recalled, one of Musk’s interests stood above the rest: “His real love was space.”

Over the course of Musk’s internship, Nicholson gave him progressively more demanding assignments, including a research project on Scotiabank’s Latin American debt portfolio. Throughout the 1970s, North American banks had lent billions to developing countries, including several in Latin America, believing the emerging markets’ swift growth would earn them a tidy profit. But growth never came, and by the 1980s, both banks and countries faced a looming debt crisis.

Several proposed fixes failed. Many experts, including Nicholson, believed the best solution was to convert the bad debt into bonds—to securitize it. The banks would agree to an extended repayment period at a fixed interest rate. In exchange, the new bonds would be tradeable on the open market and could theoretically increase in value if growth returned. Even if it didn’t, this scenario was preferable to the disastrous alternative: dozens of countries and banks defaulting, sending the global economy into a tailspin.

The U.S. Treasury secretary, Nicholas Brady, put his support behind the proposal, and the resulting bonds were dubbed “Brady Bonds.” De- nominated in US dollars, they were backstopped by the U.S. Treasury, the IMF, and the World Bank. In 1989, Mexico reached the first Brady Agreement, and other countries followed suit. “A secondary market developed for them quite quickly,” Nicholson said.

***

In truth, Nicholson didn’t imagine much coming of the Latin American debt assignment, but he felt it was complex enough to occupy his unit’s hyperkinetic intern. However, no sooner had Musk begun his deep dive into the market for Brady Bonds when he spotted an opportunity.

He calculated the theoretical backstop value of one country’s bonds but found that the debt itself could be purchased from rival banks for much less. Unbeknownst to Nicholson, Musk dialed up U.S. firms—Goldman Sachs, Morgan Stanley, and others—to ask about the debt’s pricing and availability. “I was literally, like, nineteen or something,” Musk remembered. “[I would say] ‘I’m calling from the Bank of Nova Scotia, and I’m curious as to what you would sell this debt for…’ ”

Musk saw a lucrative arbitrage: What if Scotiabank bought bad, cheap debt from other banks and then waited until it converted into Brady Bonds? The gains could be in the billions, and it was theoretically guaranteed by the U.S. Treasury, the IMF, and the World Bank. He took the idea to Nicholson. “I was like, ‘We just buy up all this debt. These people are fools. It’s a no-lose proposition,’ ” Musk said. “‘We could just instantly make $5 billion. Right now.’ ”

The powers that be didn’t see it that way. While other Canadian banks sold their developing-world debt at steep losses, Scotiabank had bucked convention and held, with red ink to show for it. In its CEO’s view, the bank had plenty of Brazilian and Argentinian debt—to the tune of billions of dollars. Having already taken heat from his board for the exposure, he wasn’t about to ramp up risks—particularly for a bet on new and uncertain Brady Bonds.

Musk was dumbfounded. In his view, the past was no guide; Brady Bonds were new, and that was the point. “In fact, that was why the debt was for sale—because there were so many other bank CEOs who had that same absurd notion,” Musk said. “It blew my mind that there was this massive arbitrage opportunity just lying there, and they did nothing.” Nicholson offered a more charitable assessment of Ritchie’s decision.

Because it had held on to its Latin American debt, Scotiabank was far more exposed than its competitors. “What Elon may not have fully appreciated at the time,” Nicholson said, “was that it was bad enough that Scotia wasn’t prepared to sell its debt at a loss. But to think of buying? That would have been a bridge too far.”

To Nicholson, both Ritchie and Musk demonstrated similar foresight—Ritchie in his conviction that Scotiabank keep its developing- world debt, and Musk in his belief that they acquire more. Both were eventually proven right: between 1989 and 1995, thirteen more countries reached Brady deals to exchange debt for tradeable bonds.

For Musk, the Scotiabank internship proved “how lame banks are.” Fear of the unknown had cost them billions, and in his later efforts at X.com and PayPal, he’d return to this experience as evidence that the banks could be beaten. “If they’re this bad at innovation, then any com- pany that enters the financial space should not fear that the banks will crush them—because the banks do not innovate,” Musk concluded.

***

Musk left Scotiabank with a dim view of banks, but with a lifelong friend and mentor in Peter Nicholson. He even followed in Nicholson’s foot- steps, blending science and business studies in school. Musk transferred from Queen’s to the University of Pennsylvania and pursued dual degrees in physics and finance.

Later, Musk admitted to studying business as a hedge. “I was concerned that if I didn’t study business, I would be forced to work for someone who did study business, and they would know some special things that I didn’t know,” he told the American Physical Society newsletter. “That didn’t sound good, so I wanted to make sure that I knew those things, too.” If he redid his studies, he admitted, he might have ditched the business classes altogether.

Physics, he felt, was rigorous. “I was in an advanced securities analysis class,” Musk recalled, “and they were teaching people what matrix math is. I was like, Wow, okay. If you can do physics math, then business math is super easy.” Crucially, Musk’s physics classmates also shared his extracurricular interests: for someone who once referred to himself as “Nerdmaster 3000,” it was a relief to find others who relished Dungeons & Dragons, video games of every kind, and computer programming.

Though he studied it formally at UPenn, Musk’s passion for physics predated college. “I had an existential crisis when I was twelve or thirteen,” he later said, “and [I was] trying to figure out what does it all mean, why are we here, is it all meaningless—that sort of thing.” In the midst of this crisis, Musk discovered a science fiction novel that offered hope: Douglas Adams’s The Hitchhiker’s Guide to the Galaxy.

The novel’s protagonist, Arthur Dent, survives Earth’s destruction and begins an intergalactic quest to locate the planet Magrathea. During his adventures, he learns of an old species of “hyperintelligent, pan-dimensional beings” who had constructed a computer dubbed “Deep Thought” to seek an answer to the “Ultimate Question to Life, the Universe, and Everything.” The Hitchhiker’s Guide to the Galaxy soothed Musk’s existential worries by suggesting that framing the right questions was as important as divining the answers. “A lot of times,” Musk explained, “the question is harder than the answer, and if you can properly phrase the question, then the answer is the easy part.”

To Musk, physics asked the right questions. After Adams, he started to read the work of Nobel Prize–winning physicist Dr. Richard Feynman, among others. Once Musk started college, he immersed himself in physics further; in his Wharton business classes, he wrote well-received papers on the financial case for ultra-capacitors and space-based energy systems.

Musk relished physics questions in his classes, but he worried about the reality of physics work after graduation. “I thought I might get stuck in some bureaucracy at a collider,” he said, “and then that collider could get canceled like the Superconducting Super Collider, and then that would suck.” But what were his alternatives? Many Wharton classmates were cashing in their signing bonuses as new recruits for banks and consulting firms. He’d been there and done that; those traditional routes were even less appealing to him than grinding away in a hapless collider’s hierarchy. Ultimately, Musk selected a path embraced by indecisive under- graduates since time immemorial: graduate school. He applied and was admitted to Stanford’s graduate degree program in materials science and engineering.

***

Dr. Elon Musk. This was the ticket—or was it? Musk knew he wasn’t cut out for corporate life, but even as he gained admission to the prestigious program at Stanford, he considered alternatives to academia.

During his later collegiate summers, Musk worked two Silicon Valley internships simultaneously. By day, he worked at Pinnacle Research Institute, a company researching space-based weapons, advanced surveillance systems, and alternative fuel sources for cars. At night, he was off to the buzzy video game startup Rocket Science Games. “He was the ‘disc flipper’ that came in at night while the game software was rendering,” noted his supervisor, Mark Greenough.

These internships exposed Musk to the world of technology startups, and he found people who, like him, labored around the clock, relished video games, and solved math puzzles for fun. As in his physics classes, to be a nerd here was a feature, not a bug. Most importantly for Musk, though, he saw how his work could marry ideas with impact. At Pinnacle, the researchers weren’t publishing-or-perishing; they were producing—crafting technologies to change cars forever.

Musk’s Bay Area summer spawned blue-sky brainstorming with his brother, Kimbal—they briefly considered building a social network for medical doctors. While the idea amounted to nothing, it planted the startup seed. And they were keenly aware of the opportunity sprouting all around them. Mere months before Musk came west, Stanford graduate students Jerry Yang and David Filo toiled in a trailer and created “Jerry and David’s Guide to the World Wide Web,” which they renamed “Yet Another Hierarchical Officious Oracle” and later shortened to “Yahoo.” In 1994, an ex–hedge funder left New York, moved to the Seattle suburbs with his wife, and launched Cadabra Inc. in their garage. He, too, would later rechristen his company—Amazon.com.

Computer programming wasn’t new to Musk—he’d been coding since boyhood. At age thirteen, Musk sold a coding project, a video game called Blastar, in which the player must “destroy an alien space freighter, which is carrying deadly Hydrogen Bombs and Status Beam Machines.” Entrepreneurship was old hat for Musk, too. During his Canada years, he founded Musk Computer Consulting, which sold computers and word processors. The company was “STATE OF THE ART,” per an ad in the Queen’s student newspaper, and implored customers to call “anytime day or evening.”

From where he sat, the brains behind Yahoo and Amazon were just a few years older than him and surely no wiser. But starting his own venture still felt risky, particularly with a Stanford graduate school acceptance in hand. So Musk sought a middle ground by applying for a job at the hot dot-com of the moment: Netscape.

Musk didn’t receive a reply from Netscape—but he also wasn’t rejected outright. So he decided to venture to Netscape’s offices and loiter in the lobby. Perhaps there, he could start a conversation that would lead to something. This didn’t pan out either. “I was too shy to talk to anyone,” he later told Digg founder Kevin Rose. “So I’m just, like, standing in the lobby. It was pretty embarrassing. I was just sort of standing there trying to see if there was someone I could talk to and then I was too scared to talk to anyone, so then I left.” Netscape off the table, he wrestled with whether to attend grad school or start an internet company. “I was trying to think, What would most influence the future? What are the problems we have to solve?” he said. While at UPenn, he made a short list of the impactful fields of the near future: the internet, space exploration, and sustainable energy. But how would he—Elon Musk—best position himself to influence the fields that would “influence the future?”

He approached Peter Nicholson for guidance. They discussed Musk’s next steps on a long walk around Toronto. Nicholson told him, “Look Elon, the dot-com rocket is ascending. The time is perfect to take your good idea and take a risk with it, because you can always go back and do your PhD. That opportunity is going to stay on the table.” Coming from Nicholson—a Stanford PhD himself—the advice carried weight.

Still, Musk left the University of Pennsylvania in the summer of 1995 intending to start his Stanford graduate program. But upon returning to the Bay Area, Nicholson’s advice grew harder to ignore. “I would spend several years watching the internet go through this incredibly rapid growth phase and that would be really difficult to handle—so I really wanted to be doing something,” Musk said. He requested a deferment from Stanford to begin his program in January 1996 instead of September 1995.

Though cast today as one of business’s consummate risk-takers, the Musk of 1995 was conflicted about abandoning grad school. “I’m not a born risk-taker,” he told an interviewer for UPenn’s Pennsylvania Gazette just years after. “I also had a scholarship and financial aid, which I’d lose.” Upon receiving his deferral, Musk’s Stanford department contact reportedly told him, “Well, give it a shot, but I’ll bet we’ll see you in three months.”

From The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley by Jimmy Soni. Copyright © 2022 by Jimmy Soni. Reprinted by permission of Simon & Schuster, Inc.