20VC: Wealthfront and Benchmark's Andy Rachleff on Why Delight Is The Greatest Form Of Virality, Why Competition Does Not Matter & What The Future Holds For Automated Personal Finance

From 1995 until 2004 Andy Rachleff was a co-founder and General Partner of Benchmark Capital, who have backed the likes of Twitter, Snapchat, Dropbox, Uber and Instagram. Upon his retirement from Benchmark, Andy joined the faculty of the Stanford Graduate School of Business to teach a variety of courses on entrepreneurship. In 2008 he co-founded Wealthfront Inc, the online financial advisor and investment management solution, where he now serves as Executive Chairman. In just 3 years, Wealthfront now have over $2bn AUM. In Today’s Episode You Will Learn: 1.) How Andy made his way into the world of VC, became the Co-Founder @ Benchmark and what was the origin story behind the founding of Wealthfront? 2.) On rejoining Wealthfront as CEO Andy stated, 'I am an investor, not a CEO but what I did not realize was that I am a founder'. At what point did Andy realize this? Would Andy say that this is a strategic inflection point for Wealthfront with his return? 3.) What are the few elements that will make or break Wealthfront in the coming years? It it the best CEOs that are able to both balance the challenges with the opportunities? 4.) What does the future hold for Wealthfront? What is the exciting news? What does this mean for the road ahead and the world of automated personal finance? As always you can follow The Twenty Minute VC, Harry and Andy on Twitter here! X.ai is AI-poweredered personal assistant for scheduling meetings bringing you Amy or Andrew. The assistant you interact with like you would to any other person and it allows you to avoid the tedious hours of email ping pong in order to schedule one meeting. Even better, there is no sign in, no password, no download, all you do is cc [email protected] beautiful! And you can check it out now on x.ai it really is a must! Workable is the all-in-one recruiting software for ambitious companies. From posting a job to tracking and managing candidates, Workable provides everything you need to hire better. Transparent communication, organized candidate profiles, structured interviews and a full reporting suite gives hiring teams the information they need to make the best choice. Workable is available for desktop and mobile and you can find out more on workable.com where you can try it for free.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  This is the 20 Minute VC with your host Harry Stebbings and if you'd like to see behind the scenes from all things here at the 20 Minute VC, then you can follow me on Snapchat at H Stebbings with two Bs, or check out the new blog mojito vc.com where you can find an article from today's episode with some of the key takeaways. Trust me, there are many. So I'm delighted to say rejoining me in the hot seat today for round two, we have Andy Ratcliffe. Now Andy is the co-founder of Benchmark, where he was general partner from 1995 to 2004. Benchmark are one of the world's leading funds with investments in the likes of Twitter, Snapchat, Dropbox, Uber and Instagram, just to name a few from their incredible portfolio. Upon his retirement from Benchmark, Andy joined the faculty of the Stanford Graduate School of Business to teach a variety of courses

• 0:41Harry Stebbings?

  on entrepreneurship. And in 2008, he co-founded Wealthfront, the online financial advisor and investment management solution, where he now serves as founder and CEO. In just three years, Wealthfront amassed over $2 billion in assets under management. But before we dive into the show today, there are some products that you simply cannot remember what life was like before them. For me, that's X.ai. They bring you Amy and Andrew, their AI-powered personal assistants for scheduling meetings. And the beauty of Amy or Andrew is you interact with them like you would any other person, and it allows you to avoid the tedious hours of email ping pong in order to schedule one meeting. Even better though, there's no sign in, no password, no download. All you do is cc [email protected]. Absolutely fantastic. And you can check it out now at x.ai. It really is a must. And on the topic

• 1:26Harry Stebbings?

  of streamlining traditionally long and cumbersome workflows, you must check out Workable, the all-in-one recruiting software for ambitious companies. From posting a job to tracking and managing candidates, Workable provides everything you need to hire better. Transparent communication, organized candidate profiles, structured interviews and a full reporting suite gives hiring teams the information they need to make the best choice. Workable's available for desktop and mobile, and you can find out more on workable.com, where you can try it for free. However, enough from me, so I'm now delighted to hand over to Andy Ratcliffe, founder and CEO at Wealthfront.

• 2:05Speaker 01

  You have now arrived at your destination.

• 2:08Harry Stebbings?

  Andy, it's such a pleasure to have you on the 20 Minute VC for a second time. Thank you so much for joining me today.

• 2:14Speaker 02

  My pleasure to be back.

• 2:15Harry Stebbings?

  Now, I'd love to get started, and for those that haven't maybe had a chance to listen to the first episode, which is a must, but on the background of you and the founding story for Wealthfront.

• 2:24Speaker 02

  Sure, well, I was a career venture capitalist, my last 10 years at firm that I co-founded called Benchmark Capital, and I reached the point where we had this, this understanding among the partners at Benchmark that the only way to manage an always equal partnership is if you're not willing to go 110%, you have to opt out. And so, having helped create that culture, I believed in it very strongly. In 2005, I was ready to do some other things in my life, most specifically to give back for this amazing life that I've been afforded. I became a teacher at Stanford Graduate School of Business, my graduate school alma mater, I went on the Board of Trustees of my undergraduate school alma mater, and my wife and I started

• 3:09Speaker 02

  a new kind of cancer research funding initiative in partnership with Damon Runyon Cancer Research Foundation. So I was very much focused on giving back. Now, I believe that the premier university endowments are the best managed pools of capital in the world, and one day we were sitting in a presentation for the, with the investment team, and they were telling us how they generate the superb returns that they do, and it reminded me, as I listened to what they were doing, of a challenge many of the people I had recruited to my portfolio companies over time faced, and that was if they went on to financial success because their companies did well, they would often come to me for investment advice, and I could never tell them to do what I do because I'm

• 3:53Speaker 02

  in the fortunate position to afford access to the best investment products and services. And even though they had made even on the order of one to five million dollars, they still couldn't afford access to the best investment products and services. So when the Penn team was describing what they were doing... And the tools that they were using, I don't know why, but it struck me that with software, we could do an eighty twenty on what the endowments do and deliver their capabilities to the masses, thereby solving this problem that I had always been frustrated about. So I went home and started as a hobby and ultimately it turned into Wealthfront.

• 4:30Harry Stebbings?

  Now, I want to start today on a really fascinating point for me personally, because before you said that you thought you were an investor and not a CEO, but what you realised recently is that you were a founder. So I'm intrigued with the recent transition from your role as chairman back to CEO. What was the realisation moment and the reasoning behind the decision to move back into the role as CEO of Wealthfront?

• 4:52Speaker 02

  You know, starting a company is like having a baby. You feel an unbelievable emotion about it. And I think that Adam just did a superb job building a product strategy, about which I'm very excited and I think we're going to talk a little bit more about that in this podcast. But there were a couple of initiatives that I thought were really important to achieving our ultimate goal, that I also thought I was in a far better position to drive. And Adam was a prince about it. He understood my passion for those things. He agreed that I was the more appropriate person to make that happen. And he stepped aside. He stayed on the board of directors, so we still have a great relationship.

• 5:35Speaker 02

  But it was a passion about some things that I really wanted to make happen that brought me back.

• 5:41Harry Stebbings?

  I'm intrigued. What were the considerations and challenges then of making a smooth and successful transition? Having seen many successful transitions with your time at Benchmark and Portfolio Companies, what were the considerations that you really wanted to really contemplate?

• 5:57Speaker 02

  I'm trying to think about what led to a poor transition. I think the poor transitions were the result of the CEO being surprised with being fired. That usually created a lot of consternation. If there were two camps within the company where there were warring factions, where one camp wanted one person to run the company and another camp... Wanted another, that would lead to a poor transition. But if both parties want the transition, that usually goes smoothly. And fortunately, I had been very involved in the business all along as the executive chairman. I spent about a third of my time with the company and had deep relationships with the management team

• 6:42Speaker 02

  and the rest of the people in the company, so it was very natural.

• 6:45Harry Stebbings?

  I'm intrigued, I've just read Andy Grove's Only the Paranoids Survive. And I'm intrigued to ask, would you say this is a strategic inflection point for both you and Wealthfront?

• 6:55Speaker 02

  I'm not sure I'd call it a strategic inflection point. I think inflection points come more from changes in the environment or in the technology that enables a new kind of business. I think that APIs, application programming interfaces, are really the key to enabling a service like Wealthfront. And they're proliferating, which makes it easier for us to develop new services, one which we just introduced. But I don't think that it's necessarily an inflection point. I think it's more continuing down a defined path.

• 7:30Harry Stebbings?

  And staying on the entrepreneurial theme here of you returning to Wealthfront, you previously said the best entrepreneur have a vision to see the handful of things that will make or break them. With that in mind, and with kind of the rise, as you said, of the likes of APIs, which allow for a huge amount of new technology, what are the few elements that you think will both make or break Wealthfront in the coming years?

• 7:52Speaker 02

  The critical bet that we've made is that uniquely focusing on bringing services that were traditionally only available to the winning strategy. We are the only player in the automated investment space that is taking private wealth management, investment and financial services and delivering them to the masses. We spend all of our engineering resources on delivering those value-added features so that everyone can invest like a multimillionaire. That's really what's unique about us. Other people are taking our original investment service and adding scaffolding.

• 8:31Speaker 02

  To make it possible to sell through other channels. We've kept the channel the same, direct to consumer, and added features to make it far, far more compelling. And time will tell whether or not that was the right bet. I think it really allows us to differentiate and adds far more value to our client.

• 8:51Harry Stebbings?

  You you mentioned that competition and differentiation. How do you view competition? It's constantly one that I think about in terms of, is it a row-your-own-race element of focusing on your core product roadmap and how you're going to execute? Or is it a case of, as Andy Grove said, only the paranoid survive and being very much aware of the competition around you?

• 9:09Speaker 02

  You know, it's funny that you should bring up Andy Grove because I teach a case on this subject, does competition matter? And the subject for the case is Netflix, back when they competed with Blockbuster. And the reason that I chose Netflix is I had the good fortune to sit on the board of Reed Hastings Company prior to Netflix. I learn more of of pure software, Reed's prior company, than any other company. And one of the things that Reed really taught me is that competition doesn't matter, that you should spend all of your time focusing on delighting the customer. Now, that sounds obvious, but very few people do it because most people believe in the Andy Grove philosophy of you have to be paranoid about your competition.

• 9:53Speaker 02

  Reed Hastings specifically says that if you're overly paranoid, you're distracted from delighting your customer. And if you don't delight your customer, you don't create a viral effect because delight is the greatest form of virality. So I am very much in the Reed Hastings camp that there is far more leverage from spending your time on figuring out how to delight your customer than react to your competition. I'm from the Ricky Bobby school of management. If you're not first, you're last. Reacting to competition doesn't ever get you to be first. And you can't win from behind in technology.

• 10:29Harry Stebbings?

  Absolutely, I do agree. You you mentioned virality there, and I'm intrigued to hear your thoughts on inherent virality within a product like Wealthfront. And to what extent that truly exists as opposed to kind of consumer players like? Uber where the consumer arrives in an Uber and it's a very viral experience.

• 10:46Speaker 02

  I think people confuse network effects with virality. They're two very different concepts. Network effects often drives virality, but another thing that drives virality is delight. If you love a service, then you're going to tell all of your friends about it. There's no network effect to Netflix. There's no network effect to Google. There's no network effect to a lot of, to Apple products, but you love them. And if you love them, you're going to tell all of your friends about them and that's what defines virality.

• 11:18Harry Stebbings?

  Absolutely. And talking about kind of delighting customers and bringing a great service to customers. I do want to touch on an aspect, very exciting today news. So I'll leave that to you to discuss. So talk to me, what is the news? And what's the exciting updates coming out from you at Wealthfront?

• 11:35Speaker 02

  Well, a couple of weeks ago, we introduced a new service that we call our selling plan. Basically, this creates the opportunity for rank and file employees to have a chance to sell their stock, their concentrated company stock position in a way that only their executives had access to. Typically, executives can work with private wealth managers on something known as a 10B51 plan, which is a way to ratably sell your stock over time. So we created software for employees who receive company stock to sell their stock, number one, commission free. Number two, we do it daily over extended periods of time.

• 12:20Speaker 02

  And by doing this, we make it incredibly convenient because it's a set it and forget it approach. We minimize the taxes associated with those sales. Because we sell over an extended period of time, we minimize the regret someone might feel that they sold at the wrong time. This is a service that traditionally was only available through private wealth managers. And private wealth managers have minimums of 10 or 5, 10 or 15 million dollars. We're making this available to everyone today. Most recently, we just announced a new user interface or user experience for the entire wealth front client base. That's built around financial planning and we call this financial planning experience path.

• 13:05Speaker 02

  So what we've done is made financial planning far more, number one, accessible. Traditionally, you need a million dollar minimum account size to access a good financial planner. Everyone now has access to that and our account minimum's only five hundred dollars. And our service is distinguished from a traditional financial planner in that when financial planners meet with you, they have to interview you to get inputs that they can use for a commercial financial planning software package. And then almost all of them use the same package. So the vast majority of the interview is focused on the inputs that they just need to go back to their office to input. And then they print out the results, schedule a meeting with you in another two weeks.

• 13:49Speaker 02

  You then edit those results, the planner goes back to his or her office, enters the new data, schedules another meeting in two weeks. And so this is not terribly convenient. We've taken advantage of APIs to get all of that information for you. So that there's no need for a meeting. So it's radically more convenient. Number two, if I would ask you how much money you spend or save a month, I bet you don't know exactly what that number is. But if we can access your financial accounts with your permission via application programming interfaces, then we can know accurately how much you spend and save and give you a far more relevant plan.

• 14:31Speaker 02

  And we make it interactive so that you don't need to have these two week periods where you wait for the information. You can play with everything yourself. So just as our investment management service that we first shipped in December of two thousand and eleven was relatively simple but incredibly convenient and interactive and low cost, we've delivered a financial planning experience that's convenient, accurate and interactive. And by the end of this year, it'll have all of the depth of a traditional financial planning service. Service as well, but this is yet another example of us delivering a service that was traditionally only available through private wealth managers.

• 15:10Harry Stebbings?

  Can I ask Andy, with such democratization that you offer now to, as you said, only traditionally available to private wealth managers, what does the future of democratized finance look like to you, potentially in a, in a ideal world, but you know, ten years down the line, what does democratization of finance mean to you?

• 15:27Speaker 02

  Well, it means that everyone has access to the industry standard best terms and services. Software levels the playing field and that's one of the reasons why I loved being a venture capitalist was that, A, I got insight into new technologies that leveled the playing field and B, I got to be part of that. It's a wonderful feeling to do good, to do well by doing good. And, and that's one of the fun things about Wealthfront and one of the things that motivates me about Wealthfront is, I started this company to do a social good. Software is doing an awful lot of good about giving everyone access to services that previously they couldn't afford access to.

• 16:08Harry Stebbings?

  But I, I do wanna deep dive into a quickfire round now. So as you know, I say a short statement and then you give me your immediate thoughts. How does that sound?

• 16:17Speaker 02

  Great.

• 16:17Harry Stebbings?

  So let's do the most challenging aspect of being CEO.

• 16:21Speaker 02

  It's all consuming. This is the part that I didn't appreciate. It's funny that when I was a venture capitalist, I prided myself on being engaged with my portfolio company, understanding what they were doing and being as helpful as I could, but not imposing myself on the company. But I could go home at night and attend a sports event or go out to dinner with my family or watch a movie and not think about it. I could turn it off. When you're the CEO, you can't turn it off. You're always thinking about the business. It's just totally consuming and I tell my former CEOs about this and they laugh at me and say, what did you think we were doing? So that's the part that was really unexpected for me.

• 17:04Harry Stebbings?

  Transparency in organizations. You said about the transition with Adam, it's all about kind of transparency and when it's not a surprise. What extent is good and is transparency ever too transparent?

• 17:15Speaker 02

  The challenge with transparency is if you let someone else set the agenda, it can work against you. So it's really, really important to provide context with transparency. Because if you don't provide context, people will make up their own. And more times than not, they'll they'll assume bad faith or assume the worst outcome.

• 17:38Harry Stebbings?

  And then you're a mentor to many, but who would you say your mentor is? And how did that relationship come about?

• 17:44Speaker 02

  Closest mentor and best mentor is actually a contemporary. It's my partner from Benchmark, Bruce Dunleavy. So I met Bruce when we were classmates in business school. He was amazing in business school to the point that I said to myself, I have to work with that guy. And I entered the venture business directly out of business school in eighty four. I recruited him to join me in nineteen eighty eight or eighty nine. And he has unbelievable judgment and is the best influencer I've ever met. And people just adore Bruce. And I try to learn from him as best as I can. He's two years older than I am, but he's radically more capable than I am as a business person.

• 18:30Speaker 02

  And I have benefited amazingly from the association.

• 18:34Harry Stebbings?

  And then what's been the career highlight for you so far? I'm sure there's many more with Wealthfront ahead, but so far, what's been the the career highlight?

• 18:41Speaker 02

  God, I can't even pick an individual highlight. This has been an amazing career. I've been associated with a number of companies that have grown their revenue to over a billion dollars. It's like picking your children, you can't pick just one, but it's fun to make an impact.

• 18:57Harry Stebbings?

  But I do want to finish then on the next five years for you and for Wealthfront and the vision ahead, particularly with Wealthfront in mind.

• 19:04Speaker 02

  Well, I started this, I co-started this to create a social good. And it only becomes a social good if it's broadly embraced. We have over a hundred thousand clients now, but that's a drop in the bucket, especially relevant to the amount of people who would benefit from a service. Like this. So we need to keep innovating. We need to keep taking services that were traditionally only available to multimillionaires. And through software, make them available to a much, much broader audience. And then we need to be able to, in a cost effective way, in a sustainable way, make more people aware that services like ours exist.

• 19:45Harry Stebbings?

  Absolutely, Andy. But it's been such a pleasure for me to have you on the show for the second time. And thank you so much for joining me today.

• 19:51Speaker 02

  It's my pleasure.

• 19:55Harry Stebbings?

  Such a fantastic interview with Andy there. And what many do not know is that Andy's been immensely kind in helping me navigate my time in the world of ventures. So a huge hand to him for giving me that time, and it means so much to me. Also, if you love the show today, then you can add me on Snapchat at H Stebbings to see behind the scenes footage of the show. Or you can check out the article from today's episode on mojito vc dot com. I'd absolutely love to hear your thoughts and feedback on that. However, before we leave you today, do not forget that everyone needs Amy and Andrew in their life. Yes, this is X dot AI bringing you the AI powered personal assistance for scheduling meetings. And the beauty of Amy or Andrew is you interact with them like you would any other person. And it allows you to avoid the tedious hours of email ping pong in order to schedule a single meeting. Even better though, there's no sign in, no password, no download.

• 20:40Harry Stebbings?

  All you do is super simple, cc amy at X dot AI. Absolutely perfect. And you can check it out now at X dot AI. It really is a must. And the other pain point for startups is always hiring, and that's where Workable come in. Workable is the all in one recruiting software for ambitious companies. From posting a job to tracking and managing candidates, Workable provides everything you need to hire better. Transparent communication, organized candidate profiles, structured interviews, and a full reporting suite. Gives hiring teams the information they need to make the best choice. Workable is available for desktop and mobile, and you can find out more on workable dot com where you can try it for free. As always, I so appreciate all your support and I look very forward to bringing you next week's episodes.