William Hockey - Building the Operating System for the Dollar and Silicon Valley Heresy - [Invest Like the Best, EP.463]

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Hello and welcome, everyone.

I'm Patrick O'Shaughnessy and this is Invest Like The Best.

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My guest today is William Hockey, the founder of Column.

William was also the co-founder of PLAT, one of the more famous Fintech businesses from

the last decade.

Column is his second business, which he's built from scratch and funding it entirely

himself and building it his way.

I think you will find this conversation utterly fascinating, not just because of the incredible

quality of the business that he's built, but how maniacal he is about studying and implementing

ideas in this specific field.

This is a great example of a founder that is winning because he is willing to do everything.

My favorite example from our conversation today is that he went and found some obscure

book about some ancient bank and found one idea buried in the 2000 pages that gave him

a simple idea for his product.

He's willing to do that over and over again and he explains his very different, maybe

even heretical views on a lot of what's happening in the world of startups and technology

today.

There's a very different way of building that I think will be inspiring and interesting

to those that want to build a company.

Please enjoy my conversation with William Hockey.

Usually, I don't start with a description of the company that someone's building, but

in your case, one, I don't think a lot of people are yet familiar with Column and I want

to fix that.

And it's such an interesting beast in and of itself that it will be our excuse to talk

about many fascinating things in the world.

Can you just start by explaining what the business is and does at a high level?

We are a software company that also owns a bank.

And what we do is we say, okay, we have this interesting regulatory boom or the bank

that most other people don't have and we're going to build this incredible software behind

it that nobody else can build because they're not a bank.

We started out by serving a lot of software companies that want to get into financial

services in the U.S. so with a backend infrastructure that powers the payments to

positive credit of amazing companies like built, wise, ramp, brex, mercury, these type

of companies, they run on our software than our regulatory rails.

Then we also expand that to anybody who want to do things with a global dollar so that

could be international thin text, that could be a lot of times global banks or banks

in emerging markets that need to transact hold things in the dollar.

So in the U.S., you have vertical software, people building business software.

This is an area that is probably going to get changed as AI rolls through.

So people need to go deeper down into the business, just building software for software

sake is not the case.

And so now people actually need to control the underlying finances of business, have the

brex ramps of the world to prove in that you can actually build enterprise software that

also touches the money.

In order to do that, you actually have to control the dollar, if you have to control the

money, whether it's a lending money, holding credit, etc.

And so we just expose a set of primitives and APIs to allow anybody to do that so easily.

But do you maybe like pick a customer that people might recognize and describe literally

what services or products they use and then how they pay you for those products or services

just really nail it home?

So maybe we'll use a company out here that recently launched chemical built, which is

made a lot of New Yorkers have, a lot of them cities have.

If you look at the card in the back, it's issued by column.

So whether one that is actually connected with the networks, managing the networks and

with actually the regular entity behind that.

And then when you need to go pay your rent or your landlord is going to detect money from

your built account, if you look at like, oh, the account routing number there, oh, that's

actually a column account routing number.

So they build the application, they build the website, they build the consumer marketing,

and we're going to handle everything behind the scenes that has to deal with the Federal

Reserve or TCH or the card networks or Swift with a one that kind of built the software

for that and handle all that complexity.

We are certainly a bank, but unlike banks, we make 90 plus percent of our money off

its software.

And so similar to any SaaS company, it's a per API call, it's a pure play tech business,

and then we pass most of the economics and the actual banks out of the business down

to all of our customers.

One of the things I love whenever we talk is you've always been somewhere strange and

interesting, Kinshasa, I think, was the last time we were together.

I don't know, a lot of founders go to Kinshasa very often.

Why are you so often in interesting bizarre locales around the world?

So this is my second company.

I started to apply back in 2012, and it's very easy to stay in Silicon Valley.

Quality life is amazing.

There's a lot of money they have, there's a lot of super smart people, but you can

start to get quite isolated, and you can start to get very consensus focused by a lot

of your listeners.

Red Dan Weng's last letter on China, it has this great, and I think accurate, but somewhat

harsh criticism, where he says the two most consensus societies he's ever been to is San

Francisco and Beijing.

And I think that's quite accurate, actually, where San Francisco is probably the most

consensus place I've ever been to, and I think that is both a huge clutch for us,

but it's also probably the most valuable asset, because as a founder, if you're building

an AI or like stable core, or something that San Francisco believes is very consensus,

but the world does not believe yet.

That's actually a great operating environment, because you can go and you can just outlandish

ideas that other people are going to believe in, that nobody across the world will believe

in.

And you can build this in a very like safe way, and that's why Silicon Valley in San Francisco

is so dynamic and we're so upfront of the curve, but we also have completely lost

touch with how the rest of the world operates within every American operates.

And you've probably seen this smack this in the face over the past decade or two.

And so I think it's very important to go to places that don't have that same bias.

And I think if you think about emerging markets specifically, the founders who built

there, there's the everyday people, they live in this constrained society, the constrained

in a way that like San Francisco in New York isn't.

And that breeds a different type of creativity, it breeds a different type of innovation

that you really can't get anywhere else.

If you go to talk to people in London or Vienna or Mexico City or San Francisco or whatever,

people are living in an extended world of abundance, and that causes a very specific creation

cycle.

Why if you go to Kinsasha, which is a capital, democratic, or public Congo, it's even the

largest city in the world then in probably five to 10 years, I think it's already larger

than most of the mega cities.

Wow, probably 95% of people in Silicon Valley couldn't tell you what Kinsasha is a capital

of.

There are tens of millions of people that live in a highly, highly constrained society.

And so that breeds a sense of creativity, that breeds ideas, that breeds stuff that

you can't really get anywhere else outside of emerging markets.

So that's one.

I think second for my business, the dollar is fundamentally global.

And the dollar tends to be strongest in places that we could imagine are relatively

dollarized, places that are dollarized tend to be more emerging markets where they are

using the dollar as their main currency, either unofficially or officially, because maybe

they can't trust their central bank.

Maybe they have a history of super bad inflation and the country got implicitly dollarized.

And so those places tend to actually need US financial services more than, I don't

know, UK and the GBP is pretty strong or France, those places don't need American financial

services as much as maybe some parts of the emerging world they have.

So sticking with Kinsasha as the example, so you go there, what are you doing there?

What are you discovering?

Similar wealth that constraints you encounter there, teach us a bit about, I've never

been to Kinsasha.

They operate in a world where there's actually like relatively large markets.

ZRC, it's an example, is one of the largest exporters on the largest exporter of some

critical minerals in the world.

So there is a lot of money flowing through there.

It's a massive exporter.

It's a place where there's a lot of Chinese investment, Africa, Baradoles had more Chinese

investment than anywhere else in the world outside of Pakistan.

And so there is money.

And there's a lot of people doing this.

And the population growth is absolutely bananas.

I mean, the population growth in Africa is probably larger than Western Europe, North

America, and parts of Asia combined.

And so why they may be GDP per capita quite small, there's still a lot of going on.

And where there is, there are founders that are building super cool things.

The large companies actually tend to be quite innovative and I can talk about that in

a second.

I talk to them.

I meet a ton of people.

I'm meeting CEOs of the largest multinational companies there.

I'm meeting founders on the ground, and I'm talking them through like, what are you building?

What is your perception of America?

What is your perception of America financial services?

How can we be helpful?

Honestly, I spend a lot of my time walking around, ideating, just taking in the scenes.

And sometimes, quarter of the time, I come up with a really interesting idea that ends

up building a cool product or just a good market.

What's an example of that?

I've had 90% of my ideas either in the shower or like walking around random emerging

markets country.

It kind of expands your senses a little bit.

If I'm walking down the marine agreement, I'm walking to the mission in San Francisco.

The only thing I'm thinking about is, oh my gosh, I was AI going to change things because

you can't walk around San Francisco and just not get like completely hit with AI foam

or 24-7.

But there's other stuff we need to do in order to get people up to like mobile penetration.

Take DRC like mobile phone penetration is still less than 25%.

Banking penetration is still less than 5%.

There's stuff we need to do before we think about Bet and L, I'm an everybody's brain.

If that penetration is that low, will you and your business naturally benefit from that

going up based on the products that you're building?

Is that how you think about some of these opportunities where it's much lower hanging

and just no one's paying attention?

The leapfrog in that happened in Asia is obviously quite well known.

Trying to skip the laptop when it's trading the mobile phone.

Most famously, we shipped online e-commerce and went straight to social commerce in China.

There's going to be leapfrog in as well.

You're going to see the same thing in financial services.

Financial services tend to be most innovative and most progressive in the worst country.

You can see this in Argentina, you can see this in Iran, you can see this in other places.

The Iranian financial system say what you will, it's complicated.

They have to deal with a lot of incredible constraints and thus they've built a lot of

bespoke stuff just for themselves because they do not have access to global financial

markets.

And when you get to design things from scratch, you end up actually building things a

little bit differently.

And that's actually quite interesting.

If you look at these emerging markets, Africa, for example, they're the first ones

to do mobile payments and then paste that decade to go.

Well before I let them know.

If you talk to them, they are actually quite a bit more open.

They are used to their category being somewhat disrupted.

An interesting thing is they have a bit of access to the difference in capital, which

is the difference in talent if you're in the U.S. part of the bank.

So I should on here, but you don't have access to the top talent.

The top talent is going to anthropic, they're going to Google, et cetera.

But if you believe that brains are distributed equally, you're in Congo and there's some

proportion of equally smart people as they're on France, there's no anthropic to go to.

They don't have the ability to move to London and go to DeepMind.

But there's a pretty decent talent pool there.

They're going to go to where there is job safety and where there is money.

That tends to be in a lot of emerging markets like the breweries in the banks.

That's what the money is.

And so the talent, let's say the middle of the top, can actually be quite a bit higher

than people that I'd say take you like emerging markets, bank executive team, their hands

down is way better than I think probably what you see in the Western world.

They also have the ability to verticalize much better than they do in the U.S.

Because we already have amazing software, amazing retail experiences down the entire stack.

In most emerging markets or in developed countries, everybody has a bank account.

A lot of people have a phone, have a bank account so they can actually cross sell there

effectively.

You know, I talked about this before.

I think one of the most interesting companies out there is Caspi, in Kazakhstan, fascinating.

You're explaining it.

They started out by a bank and then they just built, did everything, did everything.

You know, the e-commerce company, the largest bank, you pay your taxes on Caspi.

You're like, we're new, your driver's license, it's on Caspi because what they realize

is where people start is people, maybe people start in social media, but they also start

in financial services.

And so if we require financial services, we can cross sell and we can distribute products

there.

The largest bank in Congo is a bank called Barbeque.

Highly sophisticated downloadable app, it's way better than we have here in the U.S.

You can upgrade your TV subscription on it.

Imagine JP Morgan doing that, a bank in America doing that, a Wells Fargo doing that,

or can't believe in like U.S. fintechs doing that, even if they could build that, there's

no market for that.

And so their ability to land and expand is fundamentally different.

Any other good thing for us is, you know, these countries, the main currency is $1.

And so our ability to kind of innovate with them is much more akin to what a fintech

looks like in the U.S. than maybe a large traditional bank.

Do you end up earning similar amounts of revenue from outside the U.S. as you do inside

because of these potential relationships?

The U.S. market is so good and fintech is so developed.

One of our thesis is, fintech is probably going to be like the last area that is somewhat

maybe disrupted by AI.

I think what you'll see is you'll see a collapse in a domestic fintech in enterprise software.

And you already see in this with the ramps and stuff of the world as they go deeper into

the workflow management side.

Good thing for us, some of our customers are growing just so quickly.

But the rest of the world is also, it's a big part of our revenue.

It's something that we're super excited about as well.

It can be both like Western Europe or emerging markets.

Can you say more about this comment that the Silicon Valley along with Beijing is the

most consensus place because you traipse around California.

What strikes you as the strangest?

You're building something so different.

You spend so much more of your time away from there.

You're able to get outside perspective despite being of that place originally.

What would you say stands out as the strangest elements of it and its culture today?

I'm a product of Silicon Valley.

I've been there since I was 21, started some of the top companies in Silicon Valley.

I am a product of that.

But I think, as you'd older and as you'd travel more,

you think you have the ability to probably look back and be more retrospective on the

society you grew up in.

SF and Silicon Valley, it's an elite dominated society, whether we like it or not.

It's probably more akin to Wall Street in the 1990s than it is to what we want it to be,

which is research, lab and Cambridge in the 1950s.

Maybe that was Silicon Valley in the 90s, but it's not anymore.

And what that happens is elites end up building software for elites.

And I think that has somewhat made sense because if you look at consumer buy and

patterns, people buy something that's aspirational and then it moves down market.

But when you do that, you can start to drink your own coolate a little bit too much.

And I think that has probably happened in Silicon Valley because we talk to each other,

we build for each other and we think that the market is each other,

but we don't actually look broader than that.

And the companies that figure that out, they do really well.

If you look at AI, our research labs are doing fantastic because that's

the consensus oriented problem.

If you take a bunch of people that are super smart and you pretty much lined off

everything from that you, and you can all talk and you can all share ideas.

And that's like a fantastic research place.

And we are going to win on that alone.

But as you think about like a applicability to people's like every day lives,

people in Silicon Valley don't live everybody else's lives.

They don't live in the lives as like Americans,

they don't live the lives of like the throughout set of the world.

And so our ability to actually build software or have ideas with perspectives that resonate

is probably like in the low point in the entire time I've been here.

Silicon Valley is not a popular place.

So I think we tend to forget that.

We think we're on the top of the world,

but I don't know what our approval ratings are,

but I think they're probably pretty dang low.

And I think that's for good reason.

And I think it's something that I at least try to focus on a lot

because I have to build software and optimal products are applicable

to like outside the walls of San Francisco, New York.

But that's probably less than less a case.

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One of the things that you've done that's so unique is not raise money,

but built at a pace and a scale that looks as though you raised a ton of money.

Let's face this is huge.

Talk about that decision.

What building a company where you and the employees basically own the whole thing

feels like relative to having built a marquee company that was venture backed.

I want to go into all the various lessons that you've learned.

We've spent a lot of time in this section,

but at a high level, why did you choose to do it this way in the first place?

I started plod and the standard Silicon Valley playbook.

You have like ID, you have to build stuff,

and then put a deck together, and you go to these 80 venture capital firms,

and hopefully one of them gives you money, and then every year,

you move up the alphabet.

And I think that works in plod as a very successful company.

I'm very lucky to have started it.

But the things that Silicon Valley could sometimes get confused by

is either like a venture funded company.

And if that's the case, you're ambitious,

and you're going to build amazing software,

and you can maze amazing products,

or you're like a bootstrapper.

And you're going to like thought pieces on Twitter,

but you're going to subscale people,

and you're going to grow small amounts,

and it's going to be like a cute lifestyle business.

And I think you can actually be highly ambitious,

like you can hire like the world's best talent.

You can build a massive Dublin company

without actually being able to be addicted to venture money.

What we do is we say, okay,

we are going to grow by our earnings.

We're going to make sure that 100% of employees on myself

own the company for the future.

It makes it a lot harder.

It does definitely put some constraints on your business,

but not only for the net worth of myself and my employees,

but also culturally, it's actually quite a bit more effective

because being long-termism is probably

a little like a trade saying,

but I think it does actually help us do that.

Yes, Silicon Valley companies are probably

a more long-term oriented than your average business in the US,

but I think the hamster reel of VC

doesn't actually allow us to be long-term.

Because if you are having to spend a lot of money for employees

and you're burning a rate of you have to raise every year, year and a half,

you end up optimizing for that next fund risk.

And you say, okay, stablecoins are like,

cool this, you know, spending a stablecoin strategy.

Okay, AI is cool this year because I need an AI strategy.

And so your business, maybe it's going in the general direction,

but it's definitely taken a pretty windy way to get there

because you need capital.

And so I think it's very rational what you are doing,

but that's not going to be the straightest line to your goal.

That sometimes make this joke like VC money is kind of caring.

It feels good, it's amazing, but like you got to keep shooting up.

It gives a very challenging it off.

I know very few people that have like credit here and once.

Yeah, once and they're like,

well, that was awesome, I'm off, right?

It's like how many people, you know,

have like raised like a hundred million dollars

a year a day and then like, I'm done.

It just doesn't happen.

And I kind of think that man,

if you raise a hundred million dollars,

you should be able to build a couple of billion dollar business after that.

Why do you need to keep raising it?

And there's a lot of structural reasons for that.

And the fact that San Francisco is a bit like a factory,

like is by design,

it can be like quite effective.

But I think for the ambitious founder,

I actually don't think it's the right thing.

And for us, I can invest in things

and I think we're going to have like a 10 year payback.

I'm totally fine with it.

If we grow 80% versus 110%,

that doesn't really matter that much.

Because as long as we're profitable,

as long as we're building the software we want,

and as long as we're growing at the rate that we want,

I just don't have the same constraints.

And that is, I think frame in a way

that most companies can't operate.

What's an example of something that you've done

or made a long-term investment in

that you think you wouldn't have done

if you had been venture-backed?

We bought a regulated bank when you were early.

That's probably a little bit cooler now

in this new administration.

But we bought a regulated bank during the first Biden administration.

And that required us not grow or like not focus on revenue for two,

three years.

And do a bunch of stuff that inherently didn't scale.

Buying a bank is not a softer-defined problem.

That's not like a great use of

venture capital dollars that you expect to grow.

But really, something not consensus bet at the time.

There's just no way that could have happened.

There's no way somebody would have been like,

oh, we want to buy this money to go to the bank, right?

We want you to do stablecoins.

We want you to do AI.

That's just not a fundable bank.

So I think, and then able to just invest behind that

for a multi-year period before we actually take on clients,

people they ain't through long-term focus,

but it's just not.

I think we're able weird stuff with employees that doesn't scale.

Like what?

We pay employees like, here's $2,000 a month

to go to your rent or mortgage.

If you live two miles with the office,

well, that doesn't inherently scale, but it's massive.

Because now I can get people who live close to the office,

they feel great.

Because we're getting like a huge part

of all of their housing and stipend

and San Francisco subsidized.

But like, is that going to be a good use of venture capital?

Probably not.

So we can just do all this stuff from an employee perspective,

from retention perspective.

What we do every single year,

we take 25% of our earnings

and we just buy back our shares with employees.

So we just run our own tender every single year.

It's been great for retention.

They're able to actually get liquidity

to employees when they need it.

And it allows people to believe

that we're like in this venture grand business.

But if you're in a VC business, you're like,

hey, you should be using like 100% of that money for growth.

We say, well, actually, we don't necessarily think that.

We're quite profitable, so we can afford it.

So we can invest in growth,

but we can also invest in employees.

That's a really good example.

So maybe just to pull it apart a bit more,

are you granting equity to people in a similar way

that a normal startup would invest

in over some period of time.

And then just every year saying,

we'll buy back some portion of that

to provide that's how it works, literally.

Structurally, we look exactly the same as a high-grace startup.

We grew up to the same people.

We have all the same perks, if not more.

So we operate very much like a high-grace look

about a startup.

We have to just also be quite profitable.

But like, to people is our profits every year.

Imagine that's like our funding round.

Each year, like on January 1st,

we raise a massive round each year.

That's what we view it.

There's part of it that's going to be as a contender

that we're going to buy back company shares.

And the rest of it, we're going to put to growth.

Oh, by the way, you also haven't deluded at all.

By the way, you also don't have any pref stack.

By the way, like we get to make our own decisions.

That's super compelling.

So I can hire someone to say, over a 10-year period,

you're not going to be deluded.

I think what some people forget is,

if your early stage founder,

you're going to lose probably 50 to 75% of your equity value

due to delusion alone.

You may lose 10 to 80% of your upside

by the preference stack.

Is it like weird economic things

that people don't really understand

until they've been doing this for like five, six, seven, eight,

nine, 10 years, or seen an exit?

Like with us, we say, hey,

just don't worry about that stuff.

What I give you is what you're going to have.

And by the way, you have liquidity

on a yearly basis going forward.

That's like super compelling to people.

How have you honed the communication of that idea

to a new employee so that they get it?

Because I think so often people just say,

oh, I got this many shares and it was the valuation.

And if it goes through this valuation,

I can just be the math,

but that's not actually the math of what they'll take home.

How do you frame it to people?

We're far from perfect.

I think one of the things we do is we target people

that this is their second company.

We're probably not the best place for a new grad to land.

These new grad to land, they're going to go through

this calculation of where all of my friends go in.

What is the number one company

and hack a news I read all the time?

What's all like the thought flimsters

talking about on Twitter?

And it's like actually like not a bad strat.

And do you like if you're a new grad

that's probably relatively fair?

But you aren't really going to be thinking

about some of this kind of nuance.

And it's obviously not as hard as you think.

It's actually like quite refreshing.

We go to people and we're like,

hey, we like are super fast growing,

but we provide you the liquidity.

Oh, by the way,

here's some very basic math on preference and delusion.

And here's why you can actually make way more money

for the same equity value.

It's a hard story for 21-year-olds.

It's actually a pretty easy story for a 25-year-old

that's been through six rounds and four pivots

at their previous company

and don't have anything to show for it.

Does this empirically show up in employee retention numbers

versus Silicon Valley norms?

We have almost close to no regretted attrition,

which means people that we like to stay and upstand.

This is a couple of reasons for that.

I think one is second time around.

It's a lot easier.

I think I learned from a lot of mistakes.

I'm glad and I know where it's been time

and we're not too.

And so I think generally it's probably more mature company

than your average Silicon Valley startup.

It's like, hey, that helpful.

We're probably better at picking talent.

But also, I think we know what matters to people.

I think sometimes it's like founders, if you see,

we think that people join companies

because they want to become billionaires.

Maybe that's true up to a point.

But a majority of people join companies

because they hit into their late 20s or the early 30s

and like, what are they optimizing for?

I want to send my kids like a good school and private school.

I want to not live with roommates

and like a one-bedroom apartment up until I'm 35.

How is an education that's super important?

You can't feed that on a liquid stock.

So how do you think about optimizing for that?

Basically things like team, cultural, that stuff.

People want to work for somebody

who feels like they are taking care of.

Not just a 20-year period, or like here's your path

to be able to deck a millionaire,

do they understand my short-term rates?

Can you take care of me in a short, medium, and long term?

And I think sometimes we are maybe too long-term oriented.

Sometimes they, hey, yes, of course, come with me,

work on this for 20 years,

and you're going to be able to deck a million after that.

That resonates with a certain type of person,

but it doesn't resonate with everybody.

And so building a company, building a culture

that actually optimizes for every single point

of an employee's journey and employee's life,

that's actually quite unique,

and that actually can lead to really good numbers.

How much of this was just possible

because you were already rich at the start

and had money to fund something like this?

Is this portable advice?

Could someone else that hadn't had the experience

you had with plaid do something like this

without taking outside money?

I think it's hard.

I think it was definitely successful at first,

but what I would say is that couldn't go too much details.

Yeah, so I started a very large company.

I think I was probably less liquid and less rich

than probably everybody thought it's fine.

When I started this, Plasma Funny Story,

we attempted to sell it to Visa for $5 billion,

and that's the point when I left to go start something.

It didn't go through it.

We got blocked by the DOJ,

and I did not sell my company,

thus I did not have any money.

And so my liquidity versus paper wealth was pretty extreme.

And so I think I got a lot of credibility

from people with me like, oh, this guy's like,

for this guy to say, yeah, easy, yeah,

but I did not have any money.

Is that kind of going too much to details of it?

I pretty much funded the entire company with debt,

went to a bunch of banks,

and I said, here's a bunch of plaid shares.

Please give me money.

And the best I got was like a sofa plus 10% loan

at 5% LTV.

And so I pledged over a billion dollars to stock

to get $70 million.

Wow.

And I bought the big for $70 million.

I haven't had a lot of money in my bank

out for a little bit of time.

And yes, and I ended up business making profitable.

I got to pay off that loan a period of time.

From the process, I brought it up margin called three times

and almost from bank worked multiple times.

Talk about that stress.

What is in the room?

I mean, the first three years were definitely

the most stress in my life,

because I had a fundamental thesis

that we could pull this off

and we could build a business

that 100% of employees in my cell phone.

But to do that in a world where you need to invest

and not make money for multiple years

is very, very challenging.

And if the regulatory climate is the time

and the building comes, it was intense.

I have this loan I have to pay off.

It was probably the most intense period of my life.

And as a founder, you have to shelter that from everybody.

You need to be transparent, you need to bring people in

but you also need to not bring people all the ways in.

I had pretty extreme conviction myself

and I thought I have new 100% of a multi decade period.

I can pull this off.

But there's that quesit quote of markets can stay irrational

longer than you can stay solvent and it's true.

And then I'd look at that quote

and I'm like, which side of the ad equation

am I on it?

We ended up making it through.

And I got an amazing place now.

We have a big company that I own.

But I think the idea of like, oh, like, you know,

Billionaire buys things and stuff,

fun's it.

It's probably a little further from the truth in people that

what's it like getting margin called?

What is the literal thing happening?

How do you manage through that?

Surface to say, you owe a bank of a million dollars.

They owe you, you owe a bank of a billion dollars.

Like you on them?

Like I think that's a little bit of that.

That's the way it's true.

I mean, there's a reason that like margin lending

and private companies is not a great business.

Yeah, because when you want to take collateral that stock,

that's usually the exact time when you do not

want to hold that private stock.

I have like immense appreciation for the people

that I did it for me.

I'm not quite sure they got like a great deal out of it.

And I'm not quite sure I would definitely be

on that business.

The reason I feel that the story is important to tell is

that it's these things where so much of the value gets

created, the extreme entrepreneurial risks,

the act itself, but also the psychology behind it.

And I'd love you to just riff one bit more

what the psychology was like and how your mind is different

after that through your experience than it was before.

Even though I know you'd already been

through the entrepreneurial ranger with Plaid,

what changed about your mind, your perspective on the world?

How did that experience affect you?

I think that the good founders bet on themselves

and take an extreme amount of risk to do that.

And I think the extreme amount of risk part

is something that we no longer have.

But when there's literally only one door in front of you,

you don't have a choice, you have to go in.

And in that fear and that innate desire creates

another part of you, it creates creativity,

it creates inspiration.

It's extremely valuable part of the founder journey.

In many ways, I think in Silicon Valley,

we've actually removed that.

Do you think of my most founders these days?

I talk all the time like, hey, you talked to a 23,

I'm thinking about going to be like the 12th employee

at this company or starting a company for myself.

And I don't know, I'm kinda like next.

And we've created this incredible environment

in Silicon Valley that it's really safe to start a company.

And there's like a playbook and you go through YC

and assuming you're moderately competent

and went to the right high school in college,

you're gonna get like a $3 million seed round.

And worst case scenario, you can go work

at a great company as an engineer,

you'll have a founder in your resume and life is good.

And that has created a lot of value.

But I'm not quite sure it's created,

a lot of great founders and a lot of great companies

because there is no risk in that proposition.

And if you go back to it in pre-2008

or something like that, you're on the edge of the knife.

And I think that creates just so much intensity

and creativity and fear that is such a critical part

of the founder journey.

And I don't know why we don't talk about it more.

We don't create environments where a founder

has to bet themselves.

And I think if we did that,

I think we'd actually be in a slightly different place.

I always am somewhat perplexed by,

I'm a second time founder, but I'm not alone.

Like there's a lot of great founders

I showed up named that have made a bunch of money.

And you go digging, you're like,

oh, here's my second company, the third company.

And you dig into that of the $100 million they've made.

They're pretty like $1 million of the capital risk

and they've raised $500 million.

And I was like, why?

If you believe in this so much,

if you're gonna dedicate your life to it,

why the fuck aren't you going all in?

And if I'm an employee, I look at them and I'm like,

you asking me to go all in, but you can't go on.

Because the weird thing is,

an early stage employee takes way more risks

than an early stage founder.

So let's talk to an example here.

So I'm a 24-year-old.

I'm making TTC perspective, 400K, 500K at Google

and Matter or something like that.

Okay, and I'm gonna go to an early stage company

and I'm gonna go get one percent of this company

and I'm gonna make $90,000.

Well, I've now changed the trajectory of my life.

I can no longer buy a house.

I can no longer go into the locations I want.

So I'm making like a four to five-year trade-off

where I'm saying, I'm gonna make pretty much no money

over the next four or five years,

but maybe in five, six years,

I'm gonna make like millions of dollars

that I couldn't make at Google and Matter.

That's actually a lot of risk.

Say, I'm gonna live with my friends

instead of living by myself.

Like I'm making massive, massive changes to my life.

But as a founder, you're not.

It's a much higher likelihood

of the next round regardless of your company,

you'll be able to sell some secondary.

You know that if it shuts down,

you can go be an employee to a great company

with a seat on your resume.

That first employee, they have first employed

like a failing company.

That's actually not a great resume lie to them.

And so we've de-risked the founder,

but we haven't de-risked the early stage employee.

And I don't think we should actually de-risk

the early stage employee for what it's worth.

I just think we need to increase the risk for founders.

I think we need to make failure much more expensive.

I think we need to say,

hey, your second time founding of liquidity,

put all of your money into that.

If you're gonna be asking this,

if an employee is just asking for yourself.

And then only if we're having that conversation enough

and I think starting companies is too fucking safe.

And it's caused a lot of companies

to be just super-safe companies.

Like, hey, we're gonna pivot to AI, rap open AI,

we're rapping through topic, we're never like,

that's not bull, that's not ambitious.

And it's because we're attracting founders

that actually maybe wanna be employees.

They don't actually think about the long term.

They actually don't think, say,

hey, if I don't pull this off,

I'm gonna become bankrupt.

My life is over.

And I think that's pretty healthy.

That's when you bring out the rawness of humanity.

And I don't see that very much anymore.

How have you felt that in yourself?

So how has your behavior changed

or your perspective changed

or like just the ways that you show up

that are different now than prior to this

pretty extreme through your period?

I am not the most diversified person on the planet.

I own two things.

I own column and plot.

That's it.

I don't have an own majority of my house.

That is truly it.

Those are the only two things.

And that's motivating to me.

That's some point in my life.

I have a six month old son

and I do need to probably diversify.

And so that is a goal for me at some point.

As a 36 year old,

you should probably not be this concentrated.

But it's also,

that's what makes building companies unique.

There's probably a lot of people that look at me

and they're like, oh man,

building they're amazing.

I think that's what makes this special.

I think that's what drives me for day.

Which is if you don't have something

you are driving towards,

such as for me, like solvency,

it's really hard to be motivated every day.

The other thing though too is that

very often the thing you own in control

and are building might be your best investment

and getting money out of something

is costly from a tax standpoint and other things.

So in some ways,

you're just continued to be all in on what you're building.

Better on yourself.

I'm sure every fancy executive is what we told you that.

But I think it is somewhat true.

Compounding on yourself is probably the best investment

that makes.

I'm not a generalist.

I'm a specialist.

I'm probably the best in the world

that a couple small boring stuff.

I'm really good at creating really confusing

boring sounding companies.

That's really hard to explain on podcasts.

And I think that's like my expertise.

That's not my leash.

I feel pretty confident on my business

because I do not think in my business

you want to compete with me.

I mean, I'm hungry and I know my little niche space

better than anybody in the entire world.

And if I'm investing or doing something else,

there's a B on the other side of that trade.

I don't want to do that.

I'm a builder.

I think sometimes it's a trap where builders

think they're investors and investors

think they're builders.

There were cases when you can do both.

But in a world where it's increasingly competitive,

I do think the world for builders is the world of specialists.

And you have to go extremely, extremely deep

into your area.

And that's where you find value.

I probably have read more about the history of my space,

the history of financial services.

I studied banks in Japan in like 1800s.

I read like a very boring 2000 page book

on the history of banking in China in the 19th century.

And there's stuff we got out of that.

What's something done in the story of that book?

What's some of you get out of that degree of extreme study?

The hard part about this is you probably get like one small thing

in a 2000 page book.

And so it's probably not efficient

unless you own a thing that happens

if you have a crazy leverage on it.

And that like one little thing

can create millions of dollars of value

to the exchange, like hundreds of millions of dollars of value.

And so without kind of going too much into detail on it,

that's where you find your leverage.

And I'm pretty good at that.

This notion of being the best in the world

at the thing you do is really interesting to me.

It seems the environment today makes that harder than ever

because there's so much distraction totally.

And there's such a high rate and ease of comparison,

which is certainly the thief of joy.

But it's really hard to ignore people doing other stuff,

spending a 30-year day reading about enthropic,

or whatever, it's exciting.

What have you learned about how to become,

apart from reading obscure 19th century Chinese banking books,

what else have you learned about how to become

the best in the world at what you do?

Assuming that there's lots of people interested

in that mission or that idea.

I think one of the best determiners for successive founders

is can they find the most boring thing

humanly possible, interesting?

And can they find that interesting

over a multi-decade period?

Who doesn't find AI interesting?

Yes, geopolitics, fantastically interesting.

There's at least like general topics that are quite broad

that is very mass market interesting.

And that's what makes Twitter so fascinating.

That's why podcasts are fascinating

is because people like to feel that they are

really smart across the broad swath of categories.

But that doesn't really align to company building.

So many people right now are thinking about

and are have a lot of knowledge around

how AI is going to disrupt software.

How AI is going to disrupt vertical software.

How AI is going to be the next six year out?

These are like generalist topics that I can probably find

1,000 people that have interesting compelling ideas

and can go pretty deep on that.

But you can't create value there.

You can create value if you're like,

I'm the number one person in the entire world

at this little niche thing.

And I think this niche thing can generate

billions of dollars from ever over time.

But the problem is is those places are really boring.

The fun ones like food and like surfing in Thailand

or whatever, like those are solved categories.

Yes, I would also love to be an expert

on hospitality in Thailand and Southeast Asia.

Like that's a fun problem.

I could imagine one going niche on that

for a more the decade period, but that solves problems.

But I think finding the extremely boring thing

that requires you to read hundreds of thousands of pages

that you cannot Gemini Deep Research your way through,

that's where value is.

But it's fucking boring for a lot of people.

You have to suffer in silence for a huge amount of time.

And if you can find that super fascinating,

you can like love to learn that.

Then I think you'll be successful.

But I think it's the minority's people.

My partner gives me shit all the time,

but like, I want to earth you to find that book

interesting.

What is wrong with you?

And I was like, well, like if I don't,

you and I are gonna be super poor.

You said earlier that building a company

for the second time is a lot easier than the first time.

Yeah.

What are the most extreme ways that that's true?

What are the things that you've done the most differently

this time than the first time?

Experience is valuable.

I started plaid right out of college.

And I think because that crew is my absolutely incredible

co-founder, we both said like, man,

if we would have just worked at a company

for like nine months, we're gonna learn a lot.

We've had to receive like three years

because the amazing thing about working at a company,

especially our early stage company,

is you just fail forward all the time.

And that's incredible.

That's incredible lesson.

But like when you fail forward as a founder,

that's a lot of delusion.

That's a lot of time.

That's a lot of like wasted resources.

And if you could do that on somebody else's dime, amazing.

Now I think it's like a little bit easier

because everybody's YouTube videos on YC Startup School

and there's some PDF for everything.

And you can probably like Gemini away

through the early stage part of a company.

But experience doesn't matter a lot.

What about picking talent?

What things do you optimize for now

that have been honed because of your prior experience?

I mean, people always think about employees

and it's like a missionary mercenary framework.

You have to look into employee, like what do you wanna do?

There's like the mercenary type, which is okay.

Super smart, probably super pedigree.

And really what they're doing

is they are using your company

as a launch pad for something else.

They're using their company

to collect a bunch of two-year invested options

from like the top five companies

and hoping one of them goes up.

That can be a valuable employee,

but you have to have a very specific type of company

that is used to that shurn and burn

in order to take advantage of them.

Then you have the missionaries,

which is this person is very mission focused

inspiration is super important to them.

And if you get that right,

they will go to like the ends of the earth for you

regardless of like those short-term benefits.

So people also have some downsides as well,

which is the moment maybe you wanna be a little bit more

commercially oriented,

and the moment you have to maybe make trade-offs

on your mission or something like that,

that can cause a lot of societal unrest

inside of your company.

Then it's like the third category of employees,

which are generally what I think are probably like the best.

There's like a combination of everything,

but really what they care about is they care about,

yeah, we want a ton of upside,

but we also want stability.

We also want people that I like to be friends

with my co-workers.

I like to be an environment that is like warm and welcoming,

but also gives me like the near-term

and long-term financial value,

and I'm willing to like work really hard to get there.

Everybody has personality types,

everybody has different styles,

and you have to figure out what is right for your business,

but I think it's very challenging to tell that only dead.

Everybody's like, okay, cool.

You went to the right New York Prep School.

Thus you went to the right,

I go to the school that happens

at like this good engineering program,

and then you have these couple LinkedIn things

that are like good for me and boom, done.

That can be super successful,

but that is also not the right for everything.

And so just getting that home for talent is super important.

How much do you care about mission?

This is an interesting part of the equation.

You need a mission.

Otherwise, people just go work at hedge funds.

You need to say like,

hey, we are building something bigger,

and I think we absolutely are.

But I think mission can actually be a little bit distracting.

I think a lot of times people focus a ton on,

hey, what are the values in my company?

What good are we doing?

I think this is like an important part of the equation,

but I think it's not a list of five things most important.

I think it's probably on the bottom end of that five list.

And I think a lot of times we can be kind of distracted by that.

That's because when you're pitching investors,

investors want to feel like they are a part of something.

They want to feel that, man,

I'm not just recycling,

pension, fund money into other capitalists.

And that's what we do.

We want to feel like it's bigger than that.

And so I think we've taught people that,

man, you need to focus on the millennia journey.

You need to focus on the impact that we're doing.

And like, yes, numbers go up,

but like numbers go up is only one part of the equation.

And then if that's important for employees,

but I think it's sometimes not the basic.

In the end, what do you want to do?

You want to convince somebody to buy your product

and like you deliver them enough of an experience

that they can't build up themselves

and they're going to pay a lot of their hard-earned money to you.

That's the goal.

And that person doesn't give a phone fuck

about what your mission is.

They just care about,

does this product create value for me

and am I willing to pay for it?

That's it.

And if you start to like drink and cool it too much,

you kind of forget that.

It makes me smile to think about your earnings and cash flows.

It's such a novelty that a company like yours

would have a bunch of this so young in its life

and at this scale.

How do you pick your margins?

How do you think about how profitable to be

and why you mentioned earlier

that it's like having a funding round every year?

Does that imply that you're actually spending it?

So you're not paying taxes so that you can spend it on growth?

How do you think about earnings in a high-growth technology

business?

Our customers pay us for safety

and our company's pay us for longevity.

And so unique thing around financial services

where I'm gonna look at you as a customer

like I'm gonna be your best partner

of like a 10 to 15 year period.

Switching costs are really high.

And they are putting a lot into a customer trust

and a risk in you.

And so I am playing a longevity and a risk game

just as much for me as my customers.

I take that extraordinarily seriously.

And I think earnings and being profitable and sustainable

and not relying on somebody else's decision-making

for teamwork is extremely critical for our customers.

And that's extremely important to me as well.

I tell people, the risk falls on me.

I can't pass my risk to some other venture fund

or like their LPs or something like that.

I want you to be successful.

I want you to be successful.

If we're not like, I'm the one who takes the pain here.

That's quite unique and so conveniently.

Because at some point your critical vendor

could get like acquired or maybe the founder could get

like a $20 million offer from inthropic.

It's the rational decision for them to do that.

In many ways, we aren't competing

without the Silicon Valley companies.

We're competing against maybe then during themselves

or maybe competing with them trying to build a patchwork

of software vendors on top of a legacy bank

or something like that.

And so I have to show that I am more sustainable than you are.

And I think that earnings is a critical part of that.

And I think people are like, oh, like your margin

is my opportunity type then.

And my argument would be like, you run this business

at a lot lower margins.

You're going to be dependent on somebody else

that you probably don't want to be dependent on.

You also have to be introspective about your business.

Is my business the type of business

that if I raise a bunch of money

or I have a ton of earnings,

I can throw all of that back on growth.

And I think a lot of times in a press,

software companies, they cannot ingest

like a huge amount of capital.

Like if you give me like a billion dollars right now,

I don't know if I grow it a thousand times

faster than I am right now.

And I don't necessarily think I should.

And so what we do is we say, okay,

of this earnings, what goes our employees,

what's going to go to growth,

and what's going to go to capital,

which is pretty much in case something goes wrong.

Well, we have a bad couple of years.

NBD, we good.

Let's keep moving down to the extent of now.

We're like, hey, if something goes wrong for 10 years,

how are we like, we're good.

There's a lot of societal change going on.

There's a lot of crazy stuff going on the environment.

I can totally paint your picture.

We're like, the markets gets insane for the next 10 years.

How do I make sure I can survive that,

even with a lot of our companies go up,

or the economy's new changes?

That goes back to that work chest.

Because markets go like this.

Sometimes like, yes, the line through it goes like this.

You forget it when you're in one of the good ones.

Yeah, that's exactly it.

And we look at slope,

but a lot of times like we have down years.

And you need to be able to weather through those down years.

And there's so many incredible companies

that it couldn't survive for a couple of bad periods.

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If you were in a classroom setting

and it was a bunch of founders or would-be founders

and it was a chatham house rules

off the record session teaching them

about working with investors

and what investors care about,

how they behave,

things to look out for.

What would you tell them?

I actually feel pretty lucky

where at cloud in the early days

it should have pretty hard term fundraising.

The first one I think we'd probably

chat with like 80 and 90 investors

and we got rejected.

Sometimes I think I have a reputation

and be like, oh, like when's like someone anti-VC?

It's actually like not for this from the truth.

Cloud or not exists without VCs to straight up.

I just don't necessarily think the VC model

is perfect for every single type of company

or maybe a VC owns like 10% of your company

or 20% of your company

and maybe it employs yourself on like 80%.

There are different cuts that this you can make

but I think for me,

picking investors is important.

I don't think there's a lot of transparency

in the environment unlike

when investors are seven year timelines

which runs their 10 year timelines

at which ones are actually truly super long-term oriented.

So I think figuring that out

but it's the most important thing you should do

is say, okay, realistically,

what does my margin profile look like?

What is my revenue growth over time?

How should I find a capital structure that matches that?

And am I actually going to grow

at a consistent enough period?

Do I want liquidity in 10 years

that the venture model makes sense for me?

Because then the people forget is, yes,

growing 100% on a $10 million base

or a $20 million base or a $30 million base,

it's not like a that hard.

Everybody likes to use graph,

they're not linked in like,

well, the fastest company get to $100 million

of all time, that's awesome.

But you know what's like much harder,

grow above 30% of the $1 billion revenue base.

That is 99 times harder than going to zero

at $900 million in three years.

However, the venture model only works

that you can grow above 30%

off of a $1 billion, $2 billion base.

And you have to like really look inside yourself

and be like, does my model make sense for that?

And can I do that in a way

that I can ingest hundreds of millions,

if not billions of dollars of capital on the way

and put really good use to that?

Because sometimes businesses grow

at the rate of the market

or businesses grow differently than just dollar and dollar out.

And the venture model is built off of fact

of you can make a company like an ATM,

which is you put in a dollar, you get a dollar 30 back.

That's not the case with most markets.

And so I think you have to look really intensely at yourself

in your business to make sure that works.

And there's so many amazing tech companies that works for

and that's why that venture is really good asset class

and Silicon Valley is probably like the best place

to accumulate capital of anywhere in the entire world

probably throughout all history,

but that's not every single business.

And you have to look really intensely yourself

in order to do that.

Given your unique perch,

what have you learned about how the world works

through the lens of this dollar focus,

this demand for dollars being the operating system

for the global dollar system,

through the lens of the dollar,

what are your takes on the ways the world works

or interest you that might surprise people?

What the dollar does,

it connects countries in very interesting ways

that I think in the US,

when you can pretty much just build an incredible company

by the US alone, you lose that perspective.

If you look at the official stats,

and most economies spend less than 10% of the GDP

trading with their neighbors,

and that's been a big focus point of the OECD over the while,

but when you actually dig into it,

the unofficial trade that's going on over government rails,

it's actually close to 90%.

It just shows like how trade and how money

and how lots of like really connects these cultures

and connects these societies,

and I find that like super fascinating.

You can talk about how that's impactful in a lot of ways,

but that is something that we don't really get in the US,

because the US has this very unique luxury.

We can almost just stay in ourselves

like you can use the same businesses

only building for yourself.

The US market is just so fantastic.

I am so long the US, as I'm sure anybody built in,

you can sustain yourself and become a billionaire

by like never truly ever leaving America

or never interact with anybody outside of America.

And that's what it makes America so unique.

I don't think we get like how much of a luxury that is.

But outside of the world, it is not.

And that comes out of the trade

that comes to like financial connectivity

that is so impactful and that's so important.

I think you also forget how reliant the world is

on the US financial system.

Let's take two insanely developed countries.

Let's take Qatar and let's take Switzerland, okay?

You're shipping gas from Qatar to Switzerland.

I would argue right now,

probably neither one of these countries

can love America like a ton.

That trade is nominated in dollars.

The money that's moving from Switzerland to Qatar,

Glencore to Qatar, the Qatar gas company,

crosses the US financial institutions.

Let's crazy think about, let's think about

who or maybe are two like one core enemies,

like China, Russia, China is a big importer

of Russian gas and oil.

It's kind of crazy to think about.

That trade is still denominated for vast majority

in the US dollar.

That's mind-boggling.

That's a luxury and that's such an insane national security

strategy that nobody else has.

Russia doesn't want Chinese currency.

China definitely doesn't want the ruble.

They really have access to it.

They almost hate each other as much as they hate us.

In the fact that they then choose a dollar is still so critical.

Then you could argue that maybe the dollar is eroding

over time stuff like that,

but still in a vast majority of like 75% of global trade

still is in the dollar.

That's crazy and we don't recognize that.

The soft power the American has

or even the hard power the American has,

but that is so fundamental to our life

in the fact that like we have such a strong economy.

Do you talk to your team as though this is part of the mission

that almost like national security is part of the mission

because of the importance of the dollar?

100%.

One of the best shifts I think Silicon Valley is done

is we now are like Silicon Valley.

We take an active role in the national security of the country.

We didn't six, seven years ago.

Even though like American society, American GDP growth

is even more than ever completely indexed

on the success of Silicon Valley.

Probably too much.

It's way too leopard in that regard.

But now Silicon Valley, whether it be social media,

whether it be defense or whether it be software or whatever,

we're starting to recognize our world in the world.

And financial services is probably the most important component

of that.

You know, any general, I have.

They want to use a sanction before they's in this all.

The great thing about a sanction,

the great thing about the dollar,

you can enforce American dominance.

That wouldn't boot something around.

They're putting anybody at risk.

In some times you're showing Venezuela,

you kind of need both.

The reason we were able to go to Venezuela

is because we had fundamentally destroyed the economy before.

How?

Sanctions.

We had completely collapsed their ability to export oil.

We completely collapsed their ability

to actually trade with other people.

That friction is real.

And so when we went in there,

Venezuela and people were probably like,

yeah, okay, we good.

Well, maybe I can trust you

at this all contrast from the sky.

We're pretty happy here.

That is fundamentally so amazing.

If France wants to shut down another country

in order to go like enforce their will,

they have an option.

Whether they have two options,

which is don't drink or wine.

And here's some missiles, okay?

The missiles can enforce their will.

They have a strong military,

the strong special forces, they can go do that.

But their lives, the special forces on the ground,

they're gonna have a much harder time

because they haven't in many ways

controlled that economy before.

And that is so, so unique to the US.

And I think China's obviously developing this

with trade and exports.

One of the things that China can do

is they can start to enforce their will

by shutting down a country from exports.

That is real.

China has definitely this increasing might.

But the strength of the dollar

and the issue of that is so fundamental

for national security.

And in many ways, we don't talk about it

because it's a little bit uncomfortable truth.

If global bank doesn't want to sit up into it,

we're part of the national security strategy

because if the government tells us to,

we're gonna collapse this economy.

That's not like a fun narrative that people want.

But I think there's a way to tell that narrative

that says we are a weapon that can be used

like when our citizens come to harm,

when we need to do something

that is like super important for the US interests.

And we are part of that strategy

just in the same way that balance

here is part of that strategy,

lock you in the martens part of that strategy,

boing is part of that strategy.

And financial services is the key pillar.

You can argue that financial services

is like the first end to war to our country.

We start with sanctions.

We start cutting them off from the US trade.

We start with that before we put boots on the ground.

What do you then hope is the future

of global financial services?

Obviously, you're actively building

the technology backbone for it.

But if you think big picture,

how do you hope the system changes

what would be best for it?

I still hope it's very US bound.

And I think we sometimes want to believe this world

where there's a lot of people in Silicon Valley

that I fundamentally disagree with

that want to put the power of financial services

outside of the US.

And the US has a lot of problems

that we can spend hours talking about.

I still think we're the greatest country in the world.

And we have changed the power every four years.

We change our mind on stuff.

Yes, there are some problems,

but we are still the best place to be.

And I think we are the ones that

we should still have the nuclear weapons.

We should still have the nuclear weapons

of financial services,

which is we control the world's trade.

And I hope that continues to exist.

And I think if we don't,

I think if it just hands in the power of other people,

I think that's a scary place.

And I don't think people have really

thought through the ramifications of that.

If you look at most countries,

financial services is still power,

but it ends up just accumulating

to government officials,

and it ended up just accumulating

the public a very small elite.

And say what you will about the US.

And there's probably way too much power

concentration in certain industries.

Financial services is actually quite fragmented.

JP Morgan's the largest financial services country

in the US, but like, it's not that dominant.

It's still pretty diversified.

Take Canada.

95% of Canadians have four banks.

Take Australia to be more concentrated.

You know, in most countries,

it's more concentrated than that.

We do have a little bit in financial services today

a relatively decentralized financial services system.

Is you still keep fragmenting, right?

We should still disperse the financial power

throughout multiple US corporations,

multiple US people.

We need to do a better job there,

but we're actually starting from a pretty good baseline.

The other thing I tell people is there's this near,

like, oh, financial services is fundamentally broken.

Our institutions are actually pretty damn good.

There's this narrative.

Sometimes people talk about it's like,

oh, US financial services,

it's like built on like cobalt and stuff like this.

It's just not.

It's like a fun talking point.

I rack my own heart with the Federal Reserve

and all these places.

There's no cobalt in a lot of these places.

It's actually pretty good.

I've gone to record talking about this.

The Fed is a pretty good tech team.

Their systems are actually pretty good.

You think about the US right now,

through the Fed, has a capability to move money

and to clear money through all these institutions 24-7,

faster than stablecoins faster than crypto.

Right now, as we speak, we've had that for decades.

Systems are very good, extremely reliant.

They're fantastic.

I think it's very challenging for Silicon Valley

to build something better.

The problem isn't in the fundamental infrastructure.

It's in our implementation of it.

The reason why community banks can't send money 24-7

isn't because the technology doesn't exist at the Fed.

It's because there are constraints in those business models

that make it very challenging and something to do.

Give you an example.

If you can send money out of your community bank 24-7,

well, that bank could run on a weekend.

I don't know if you guys have ever been

to a rural community with a community bank with 50 people.

You can't get people to work on the weekends.

If you're JP Morgan, if you're Stripe,

yeah, you can manage 24-7 liquidity.

But if you're a small community bank, you can't have that.

It's where people can fleet.

We don't have something.

We don't have access to something

with we don't have the fundamentally ability to do that.

But actually, the reason is implementation,

not the analytic infrastructure.

I feel like because of your unique setup as a business

and your unique focus on the boring problem

as you described, you have such interesting perspective

on so many things.

Is there anything that we haven't covered

either about company building

or the way that the world works

that you think is interesting that we've missed?

What are the things that I think about?

AI is here.

We're going to get much closer to ASI than people think.

And it's going to be on a tidal wave through the economy.

You have to think about what's the implications

your business.

And I think in my perspective,

if you're not a researcher, if you're not a lab,

how do you play?

I actually don't think quote-unquote AI companies

are very set up for success.

That's actually probably not where value is going to occur.

The value is going to occur like in two areas.

Most important area, do you have massive distribution?

Because if you have massive distribution,

if you have massive costs,

AI is going to be a massive benefit.

And so the thing I think a lot about is

how do you think about not just from a software perspective

but from a distribution perspective

and a brand perspective that you would best capture

to utilize AI?

Because I think people talk a lot about the railroads.

The yes-to-value accrued to the railroads.

Yes-to-value accrued to the ISPs.

Yes-to-value accrued to the people

like building the mobile phones.

But the value accrued to the people

that could harness that the best.

The value in railroads accrued to the oil companies.

That's got a little bit hard to fundamental understand.

The standard oil is the biggest beneficiary,

biggest boom for railroads by an order of magnitude.

What is the equivalent area for AI?

And I sometimes don't think we're focused on that enough.

Hot take here.

I think like the biggest, fattest, most inefficient brands

are even the best beneficiary of AI.

Because brands have a massive amount

and man, there's a lot of cost to cut there.

How do you think AI will most affect financial services

specifically, maybe even just your own products

and services?

Financial services, especially large banks.

They suffer from the fact that the business model's too good.

Banks pretty profitable.

Financial services, it's like,

if you're like on a bank and you're on a profitable,

that's a problem, you've cleared on something wrong.

But the business model fundamentally is wicked.

That's made them laggards in a lot of ways.

But that also, I think, makes their massive opportunity

where I think financial services and legacy banks

tend to be the largest inefficiencies out there.

They also are very hard to take over.

There's not a lot of private equity activity

in financial services because it's highly regulated.

And so I think the large banks that can actually

effectively harness that are going to be

some of the largest beneficiaries.

Because banks don't have a lot of physical assets.

Places have massive catbacks and physical assets.

It's hard to tell a good AI story there.

How's AI going to make roads more efficient?

If 99% of your money is spent on fuel,

track maintenance, and people like the human cost

and rail raids is like duminimous.

You take conductors down from 1,500,

doesn't like change the equation at all.

But if you think about a traditional bank,

it's pretty headcount focus.

And it's pretty technology focused.

That's where majority of the money goes to.

The actual physical branch infrastructure

is such a minority of your balance sheet.

I do think they will be either the most disrupted

or probably actually like the largest beneficiaries.

It's with the banks that are like most effectively run,

have the largest distribution and the largest cost structure

are going to be the largest beneficiaries.

I think the UX of financial services will change a lot

because people think, oh my gosh, my bank is hard to use.

My bank is hard to move money.

It's like slow to move money.

That's actually a feature, not a bug.

I think what FinTech sometimes start with is I start with,

hey, we're gonna make it like super easy

to like super free to move money all over the place.

It actually starts to slow down.

The reason it slows down is because fraud is like super expensive.

And if you make it like really easy

if you're a grandma to send money to somebody in Nigeria,

yes, that's great for mintances,

but that's like really bad for romance games.

That's really bad for fraud.

But I do think with AI,

we can actually build those detection models

like a lot better.

And so it's probably less likely your grandma

is gonna fall prey to elder abuse.

And if the banks don't have to optimize so much for that

and it comes a little bit for free,

we can actually make the UX better for everybody else.

Because we have the technology right now

to make financial services almost entirely instant

and like entirely friction free.

All the friction is actually built to protect

the five to 10% of consumers that can't get hurt.

And people forget that.

But I think if we can build models

that are just as good a human and injecting that stuff

and that can happen instantly,

we can actually take that tail away

and it actually is massively beneficial for everybody else.

I think it's a good time to be a new entrepreneur

in financial services.

Anybody who tells you that it's a bad time

to be an entrepreneur,

that probably means it's a good time to be an entrepreneur.

If you look at,

there's all these stats on Twitter,

I'm sure people have seen

where the best companies are created

in the worst environments.

And I think that's generally true.

It is cheaper than ever to be an entrepreneur.

It's like the least grisky time to be an entrepreneur.

It's also pretty crowded.

But you might look at like the last YC batch.

I'm sure like 90 plus percent of them,

but we're like AI related.

So yeah, I think it's actually probably a pretty good time

to be a founder and a non-AI related place right now

because there's less competition, less smart people.

If you want to be successful,

you can go look at every single industry

and you can say, okay,

who is the dumbest people

and what makes them most money?

And if you go attack that area,

probably pretty good space.

The problem is sometimes looking at ballet or founders,

you look at say like, hey, we're all the smartest people.

That's maybe like a cool space.

That's probably like the most crowded

with the smartest people.

And so your ability to compete,

your competition's pretty intense.

YC puts out this request for startups.

My recommendation is like,

that should be a list of startups you should not starve.

Because by the time that gets so consensus,

that this is a good area of super interesting,

the amount of capital and the amount of smart people

is like, moth the light.

I would almost go the opposite way.

Hey YC, I love you guys.

Please continue to fund our customers.

You guys are amazing.

But as a founder,

I would maybe be a little bit skeptical.

Then your perspective is so unique and interesting.

I always love talking to you.

I always find it very inspirational

on the dimensions of just really going your own way,

but also just the willingness to fall in love

with some part of the world and get devoted to it

and just out-learn everybody and stick with it.

I love your diversification strategy

of illiquid plat and illiquid column.

I think you know my traditional closing question.

What is the kindest thing that anyone's ever done for you?

I've had a lot of kind of people in my life,

but I think it's challenging to not look back

and back up like your mom and dad

or like the kind of people.

My mom and dad's not have the most straightforward life.

They're not the easiest.

And my child could have gotten a lot more difficult

than it was because I think they insulated me

from a lot of things that were going on.

I have a lovely childhood

and I feel super lucky for that.

And I think when we've talked about it a little bit,

as a founder, you have to be willing to take on risk.

And if you grew up in an environment of fear,

if you grew up in an environment

where like you're constantly de-risking

when you're a little kid, it's very challenging

to feel comfortable going up the risk spectrum

as you're going to do.

And if you're very lucky, my mom and dad did that.

They also act on us like,

it's okay to fall, it's okay to punch in the face.

Like, see this?

They'll think.

The bad time I got punched in the face

and I've like lost teeth,

there's honestly crazy, it's like embarrassing.

But I'm like, you know, I was pretty good

at getting punched in the face

and you can only teach that as a little kid.

You can only have that childhood

and make that comfortable in a very specific environment

at a six month old.

And as I look at my peers and look at everybody else,

we are quite obsessed with creating

this perfect environment for our children.

We send them until the best schools,

they have the nicest people in their lives.

And that is valuable,

but we may be creating children

that can do linear algebra at seven.

And I guess it's like going to be great AI researchers,

but is that what we're going to need in 20 years from now?

All do want kids that are going to be pretty good

at taking risks that are going to be,

pretty good at being punched in the face.

And I think my parents did a really good job at that.

And I feel very lucky for that.

If I copy all of my peers,

I don't know if that's the path we're going to go down.

And I think the fact that I am pretty damn resilient

is a complete product of my parents

and I think that's a huge gift.

And I feel super lucky for them every day.

A beautiful place to post, thank you very much.

Thank you.

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