20VC: Max Levchin on What Makes A Truly Great CEO, Why Self-Awareness Is The Most Important Trait For Entrepreneurs & Why When There Is Doubt There Is No Doubt

Max Levchin is the Founder & CEO @ Affirm, the company that aims to remake consumer finance from the ground up. They have backing from some of the best in the business with over $400m in VC funding from the likes of Founders Fund, Lightspeed, Andreesen Horowitz, Khosla Ventures and Spark Capital just to name a few. Prior to Affirm, Max held numerous exec positions including Chairman of Yelp for 11 years and sitting on the board of directors @ Yahoo. Before that, Max founded Slide, subsequently bought by Google and was the Co-Founder & CTO @ Paypal. In Today’s Episode You Will Learn: 1.) How did Max come to co-found Paypal and how did that serve as the foundations for his founding of Affirm today? 2.) Why does Max believe there is a crucial misalignment between service providers and consumers in financial services? Does Max agree with Bill Clerico that 'we are still in the very early days for Fintech?' 3.) Having co-founded Paypal, Slide and now Affirm, how has Max changed as a leader and CEO? What does Max believe makes the truly great CEOs? Are there commonalities in how they operate and their skills? 4.) What does Max look for in all new hires or when evaluating founders for potential investment? Why is self-awareness so important for entrepreneurs to have? Why does Max want to be slightly terrified by how smart an individual is? 5.) How has having Children changed Max's perception of what is important and what he chooses to spend his time on? How does that reflect in his actions and self-discipline? Items Mentioned In Today’s Show: Max’s Fave Book: The Master and Margarita by Mikhail Bulgakov As always you can follow Harry, The Twenty Minute VC and Max on Twitter here! Likewise, you can follow Harry on Snapchat here for mojito madness and all things 20VC. eShares is the No 1 Cap Table Management platform, allowing for equity management, 409A valuations, and liquidity, all in one place. eShares is made for companies of all sizes with over 5,000 trusted customers including the likes of Squarespace, Kickstarter, and DoorDash just to name a few. To try out the must have service of the industry, simply head over to esharesinc.com it is a must. Fond is the employee engagement suite with 3 core products, rewards: a recognition platform for rewarding achievements and milestones, perks: a premium corporate discounts program to show employees you care about them and then finally engagement IQ, a free employee engagement survey that allows you to measure the health of your organization. To check it out head over to fond.co

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

• 0:00Harry Stebbings?

  We are back for another very special episode of Founders Friday here on the 20 Minute VC with me, your host, Harry Stebbings. You can add me on Snapchat at H Stebbings with two Bs, where you can send suggestions for future guests for the show and suggest questions for future guests. But to the show today, and my word, do we have a very special founder for you. I'm very honoured to welcome Max Levchin to the hot seat today. Now, Max is the founder and CEO at Affirm, the company that aims to remake consumer finance from the ground up, and they have backing from some of the very best in the business with over $400 million in VC funding from the likes of Founders Fund, Lightspeed, Andreessen, Coastler and Spark Capital, just to name a few. Prior to Affirm, Max held numerous exact positions, including Chairman of Yelp for 11 years and sitting on the Board of Directors at Yahoo. Before that, Max founded

• 0:44Harry Stebbings?

  Slide, subsequently bought by Google, and was the co-founder and CTO at PayPal. Now, I do want to say a massive thank you to Brian Singeman at Founders Fund for the intro to Max today, without which this episode would not have been possible, so a big thank you there. But before we dive into today's show, very few pieces of software are a must for the majority of VCs I have on the show, but eShares most certainly is. eShares is the number one cap table management platform, allowing for equity management, 409A valuations and liquidity, all in one place. And eShares is made for companies of all sizes with over 5,000 trusted customers, including the likes of Squarespace, Kickstarter and DoorDash, just to name a few. So try out the must-have service of the industry and head over to esharesinc.com. It really is a must. And once you have all the paperwork tied down with eShares, you can now engage

• 1:29Harry Stebbings?

  with your employees, and that's where Fond comes in. Fond is the employee engagement suite with three core products: Rewards, a recognition platform for rewarding achievements and milestones; Perks, a premium corporate discounts programme to show employees you care about them both in and outside of the office; and then finally Engagement IQ, a free employee engagement survey that allows you to measure the health of your organisation. So to see this fantastic product suite, simply head over to fond.co. But now it's time, I'm very excited to hand over to Max Levchin, founder and CEO at Affirm.

• 2:07Speaker 01

  You have now arrived at your destination.

• 2:11Harry Stebbings?

  Max, it's absolutely fantastic to have you on the show. Huge thanks to Brian at Founder's Fund for the intro, but thank you so much for joining me today, Max.

• 2:18Speaker 02

  Glad to be here, thank you.

• 2:19Harry Stebbings?

  I'd love though to start with a little bit about you and how you came to change the world of finance with Affirm.

• 2:25Speaker 02

  Affirm is a work in progress. Not sure I've changed the world already, but we're working on it.

• 2:29Harry Stebbings?

  What was the founding story?

• 2:30Speaker 02

  As all such things go, it typically has a very accidental founding story. Just a few guys chatting about how the old FICO score, which is what serves as the basis for majority of loans made at this point worldwide, but certainly in the United States and majority of the developed world, has really not changed very much and has not kept up with the fact that the world has gotten a lot faster and more different from day to day, or especially for young people. So the score that represents your creditworthiness, how likely you are to pay back the money you borrowed, was really designed in the 70s and adopted in the 80s. So we sort of kept on, and it was a bunch of nerds. So all of us were into math and data science and sort of posed the question, could we build a better one?

• 3:13Speaker 02

  We thought we did, and then we showed it to a bunch of people that were in the lending business, and the feedback that we've gotten was unequivocally, if you're so sure you have a better lending score, why don't you go lend your own money, see if it performs as well as the traditional? As such things go, we said, alright, why not? And Affirm as it exists today was born. In the process, we realized that the old FICO score actually works fairly well for people that have had a fairly long financial history. And so if you are a well-established, baby boomer aged my parents' age sort of person, then the FICO score probably serves you very well. You will be generally correctly ranked and you will be given the right rate for your loan. It works fine. But if you're young, or a student, or a recent graduate,

• 3:55Speaker 02

  or a new immigrant, or all these sort of people that make the bulk of the future economy, you're typically pretty badly misrepresented by the FICO score because you just haven't had that many financial transactions in your life. And so we really focused on this notion of let's try to include people that will make the future of the economy into the FICO score. Financial world. That's really been the impetus or step one. Step two, as we dug into the financial industry, it becomes really apparent as you start digging in, a lot of products, a lot of services that financial industry, well, worldwide, but certainly in the US, sells have a fundamental misalignment between the customer and the provider. For example, if you're borrowing money, the bank tells you, you should be on time, but it also tells you, if you're not, we'll charge you a late fee.

• 4:38Speaker 02

  Which seems like a reasonable thing to do. You should be responsible and you should have some sort of a carrot in the stick and that's fine. But then there's really nothing preventing the bank from saying, you know what, if I don't remind you and you're a little bit late, I still get paid, but then I also get paid the late fee. And so there's this sort of disconnect where the more kind of you dig, the more you find these pockets of misalignment mismatch between incentives of the customer and the service provider. And the late fee example is actually a very, very benign one. This one isn't so bad, but there's plenty of other ones that are far more insidious. And the more we sort of dug in, the more we realized that those are the ones that really have to change. And the reason young people are staking out of the financial world is because they intuitively don't trust the service providers that created such products. And so our mission really became shining the light of transparency onto all the stuff and building financial services

• 5:22Speaker 02

  where the alignment is always perfect between us and our customers. That's where we are today and that's what we've been doing for the last five years.

• 5:28Harry Stebbings?

  I do have to ask, I had a previous guest, Bill Clerico, founder at WePay on the show. He stated that we're at the very earliest days of fintech. Would you agree with him in his kind of summarization of where we are in the fintech landscape?

• 5:40Speaker 02

  I agree with Bill. He's an astute observer of financial services. I think fintech is kind of a forever changing landscape. I don't know if there's such a thing as a beginning or the end. I think there's a lot of really fascinating and exciting changes happening. Bitcoin is kind of one of the very outer edges of stuff that will create some really interesting value and simplification and efficiency. But then there's also just really basic things like what we're doing. Transparency and simplicity should have been a core feature of every product out there, but somehow it has escaped the attention of the established players. And so there's an opportunity to create a brand new company, brand new story and everything in between. And Bill has built a really cool company, WePay. I think there's the newcomers like Stripe and Braintree and sort of my old gig PayPal was.

• 6:23Speaker 02

  Twenty years ago was seen as a disruptor in financial services and kind of still is today.

• 6:28Harry Stebbings?

  You mentioned PayPal there. I do have to ask in touch on an element of self-reflection almost in terms of obviously a firm not being your first startup. So when looking back, how have you seen yourself change as a leader? And where would you say you're strongest?

• 6:42Speaker 02

  Very hard to judge yourself since you perceive your own change very, very gradually since you're always present. So it's hard to, that's hard to answer. But I think my leadership style has probably not changed that much. I still believe that you have to lead from the front. If there's an emergency, you'd better be there to roll up your sleeves and it's all hands on deck, your hands should be there too. But I think when I was in my early twenties, when I was starting PayPal, I think my point of view has always been not only do I need to be there with my team and work hard, I need to work harder than everyone else. I need to be present at every moment and at every problem. And over time, I realized that there are plenty of young extraordinarily talented, extremely ambitious people that are attracted by big ambitious ideas,

• 7:25Speaker 02

  crazy insurmountable problems. And what they crave is the opportunity to step out and say, you know what? I am going to solve this one. This one is on me. And so as you get older, you realize that you can be there and be present, but you also have to create opportunities or let opportunities create themselves for those that are trying to build themselves into the next wave of entrepreneurs and executives, et cetera. So I've become more aware of what your longer term career objectives are, what longer term progressions are for people that I surround myself with.

• 7:53Harry Stebbings?

  A couple of things to unpack there. In terms of kind of being that present and kind of omniscient leader, in terms of, is it a truly scalable position to be in as the company kind of reaches different inflection points and milestones? Can you always be that leader?

• 8:07Speaker 02

  I think you can. I think you have to be strategic about it. You can't be into plays at once. So at any given time, you need to decide where you'll add the most value. But you also need to be there with your team. Not everybody at a firm reports to me. I have an excellent management team and they have their own management that reports to them. And I think we're a three-layer organization, as they say now. As often as not, being there means sitting down with my executive team and saying, we're facing this huge challenge. It's scary. It's interesting. Thing is complicated, it could kill us, but it can make us stronger. I'm here, how can I help? And let them lead their teams from the front. And so it scales so long as you bring on and train excellent managers.

• 8:45Speaker 02

  The other thing that I think you cannot give up, no matter how large you are, hallmark of a really great leader is someone who can drop down from the sixty four thousand feet into the trenches with the team, roll up their sleeves and do some of the work directly right there with the team. And it doesn't mean, the wrong way of doing this is you get in with the team and bring them pizza while they try to rush out a bug fix. That's great, but that sort of diminishes your contribution, you're just signaling, look, what I'm good for is bringing pizza. And there's nothing wrong with bringing pizza, but you're much better off getting down there and drilling and providing your capacity to reason and logic, even if you don't exactly know every little detail, being able to drop down to the very lowest level where the problem is, is very helpful. For being a leader that people recognize and.

• 9:29Harry Stebbings?

  Can I ask, have there been any inflection points in your leadership where you've kind of significantly altered course or behavior as a result of an event? Or kind of consequently where you see yourself weak as a leader and you'd like to improve?

• 9:40Speaker 02

  There certainly haven't plenty. Most of those are events where things go wrong. And you sort of say, well, I never want to see this happen again. This was a bad outcome, bad situation. I don't want to repeat it. I've had multitudes of those. And the one that comes to mind, not at a firm, but a different company. I had a doubt in integrity of one of my managers. And it was one of these things where I couldn't quite tell whether I was right or not. And the person was really strong technically and they really performed well. I was hesitant to let them go because I thought, well, maybe I'm making a mistake here. Maybe my doubt is not sufficiently substantiated. And it was one of these things where I was dithering beyond the point of reasonable. And when the whole thing fell apart, it fell apart because of the integrity of the person.

• 10:25Speaker 02

  And my walk away was, there's a quote from a movie that I enjoyed quoting, whenever there's doubt, there's no doubt. Learned that one the hard way, probably more than one time. But anytime you're doubting the integrity of someone very close to you, it's almost certainly the case that the doubt isn't without basis and you need to act upon it, or at least. In front of the person and tell them, look, I'm having a real problem with the way the situation is unfolding here. So that's kind of a vague but dramatic sounding story. A simpler, more repeating refrain in my management and leadership life was every time I had told someone with less experience, but extremely high potential, just high processing capacity, you know what, you can do this, go for it. I'll step aside and watch you do your work.

• 11:07Speaker 02

  The natural reaction or natural sort of a self restraint to say, well, this is their first rodeo. What if they screw it up? Nine out of 10 times or 99 out of 100, you will see the person step up to the challenge. And that isn't because everyone has that secret extra gear, but because when you hire really, really carefully and really well, there's always that extra capacity available. That's what you're interviewing for when you're building a team.

• 11:30Harry Stebbings?

  Can I ask, in terms of the people you do take chances on, you've worked with some truly exceptional entrepreneurs. And being one yourself, kind of observing those character traits, what are those which differentiate between high potential individuals who are fantastic to have in the company? And the truly special seeds that you look to nurture and grow to be truly the next game changing entrepreneurs?

• 11:49Speaker 02

  So I think the trait that I look for, first and foremost, self-awareness. And I've always had this greatest trouble describing what that means, but I think it's almost self-descriptive. When you interact with people that seem just really present, really in the conversation, in the moment, able to process and react very, very quickly, basically playing mental ping pong with you as opposed to so much slower sports. I've drawn to those people because they will bring that awareness and that sort of quickness to their work and their teams and their conversations with other people within the company. So that I've always found to be extraordinarily valuable predictor of success. I think just raw IQ obviously is always, you know, if you run into someone, you think, my God, that person is so smart. Slightly terrified of them, that's always a good predictor of future greatness.

• 12:34Harry Stebbings?

  How much of a role does EQ play? I had Tony Conrad from Proion and he was like, EQ is the most important characteristic you can have.

• 12:41Speaker 02

  You know, that's one thing that I probably should have mentioned as well. So over the years, I've gone from shrugging off the value of EQ to being very aware of its importance. And it's progressively more important as the Company scales initially if it's you and three other people in the same room and you're barely sort of awake enough to notice that someone isn't reacting very well to what you're saying or doesn't seem to be fully on the same page with you. It's okay. You can sort of shake them, you know, get them to wake up, get yourself to wake up and get everybody on the same page and go. Once a couple of hundred people, you really rely on your ability to read people and their ability to read their teams and on and on to figure out early signs of trouble.

• 13:22Speaker 02

  If someone isn't sure about something but uncomfortable saying it, you can get a lot of the information in the body language and how they interact. You'll be able to understand what motivates people better. You'll be able to react to their failures. You'll be able to coach them through kind of a down moment and bring them back and build them up. And so what used to be sort of EQ, sure, you know, you don't wanna, you don't wanna be entirely honest. I've now recognized that it's sort of a discipline and important component in its own right that I spent a fair amount of time trying to develop my own because as an engineer and generally fairly dry personality. I tended to overlook it in my youth, but one thing that changed in my life is that I had kids.

• 14:00Speaker 02

  Once you have children, you realize, you know, the amount of communication that happens non-verbally is significantly greater than that that happens verbally. And by that you just sort of realize, you know, this EQ thing is infinitely more important than I give it credit. Some people are naturally gifted in understanding that and I certainly had to come around to that over time.

• 14:19Harry Stebbings?

  One very interesting thing there for me was you mentioned you're having children. Huge congratulations on that. But I had Chris Sacker on the show recently and he discussed how his perception changed. I'd love to hear how you're running and management of a firm and then why does startup thesis altered with children?

• 14:33Speaker 02

  Having children fundamentally changes your perception of what you're working on and how far ahead you're looking. Having children immediately reminds you of your mortality, illustration of passage of time. I think everybody will tell you that once you have children, you realize just how fast the time moves. So as you sort of have experienced all those thoughts, you start thinking, well, what am I behind? What am I leaving behind for them? And you've become a little bit more aware of your impact. You sort of asked the question, you know, yes, this would be a fun project, but will it be an important project? Will this be a long-term positive impact on the world? Or am I just building another cool widget that will not survive the test of time? So I think all of those things are profound and I suspect many, many people will tell you roughly the same story. There's sort of a more practical impact that children have on you, which is actually sort

• 15:17Speaker 02

  of unexpected and to me was fascinating. I was a little bit terrified. So I had children between startups. We had our first kid when I was fairly, fairly far along with Slide, my previous startup. And then the second one was born between Slide and a firm. And so I, when I started a firm and I sort of made a decision to really sort of run it as the chief executive, I was a little bit worried that where am I going to compromise? Am I going to find myself spending less time with my children than I wanted to than I think they deserve? Or am I going to be one of these flyover CEOs? And neither actually happened. What happened is that children, because they require, at least in the early stages, so much extremely regimented attention, whatever you think your level of self-discipline is, it goes up an order of magnitude or two, simply by having kids that need to be put

• 16:02Speaker 02

  down to sleep at this hour, need to be fed at this minute. And everything sort of clicked into a much more robust schedule. So if anything, I think I've become infinitely more organized with children. If you're not home by five fifty, they set out to eat at six, you will miss kids dinner and then your whole schedule is off. So every day I know exactly when I need to get up from work, no matter what I feel like I would like to be doing and on and on. I've become a lot more organized as a result of children.

• 16:28Harry Stebbings?

  Well, I think, I think that's a sign that I need to have some children then. But I would love to hear, before we move into a quick fire round, what's the morning routine? It's always an interesting one for me. How do you organize your routine? You said about kind of changing schedules with children. How do you look to kind of provide the best start to the day?

• 16:43Speaker 02

  So that's actually another thing that happened to me. I used to be a night owl. So I would get up, you know, before children, I would get up in the sort of a nine AM type range, but I'd be working till one or two or three or four in the morning. And one of the things that happens with children is they get up early. And over the years, I've become quite addicted to road cycling. So at this point, my wake up time is somewhere between four and five AM. What I try to do is roll out of bed well before the sunrise, try to figure out what happened in the world while I was asleep, answer some urgent emails and then get on the bike, ride for. Or a couple hours if I can help it, if I have the time. And then, but I'm done with that, I'm fully energized and I'm ready to go to work. I get to the office anywhere between eight thirty and nine thirty.

• 17:22Speaker 02

  Then I'm full on most of my day these days, unfortunately perhaps, but also enjoyably is meeting with all that report to me and sort of other external meetings. And then so long as it's a regular night, I try to get home just a little bit before six or six o'clock. So I can sit down and have a quiet family dinner with my kids, catch up with them, find out what they heard in school, but try to explain what I do for a living to them.

• 17:45Harry Stebbings?

  Every bedtime stories, FICO scores.

• 17:47Speaker 02

  Uh, you know, I, I try to explain the FICO score system to my son.

• 17:51Harry Stebbings?

  What do they say?

• 17:52Speaker 02

  They, they say the funniest things. They're, they're in the age where they're very much into superheroes and comic books. And so the notion of truly transparent and honest, good actor, trying to bring honesty and transparency to actors that are not necessarily completely on the right side all the time, just intuitively understand they, they sort of have good and bad. And they're now starting to understand not really bad, but not really good. And so, you know, people need to be good in their world. And so the fact that I'm working on something that is good and good for people, it's a very powerful way of, for them to make sense of what, what it is they get up for every morning. Uh, anyway, so then I, I do read some bedtime stories to them or play chess. And then they go to bed around eight and I get on my laptop and start working again.

• 18:33Speaker 02

  And then the theories that I'll be in bed at thirty or so, but it's typically more like eleven thirty or midnight. One biological gift I've had taken advantage of is I seem to be able to go fine on five and a half, six hours of sleep, not really need a lot more.

• 18:48Harry Stebbings?

  But I'd love to dive into a quick fire round with you now. So I say a short statement and then you give me your immediate thoughts. So let's start with your favorite book and why.

• 18:56Speaker 02

  Master Margarita by Mikhail Bulgakov, easily the best piece of Russian prose of the twentieth century. It's a Russian language book, but there's plenty of high quality English translations. And I, I've read it both languages and pretty much every translation available. And it's just a great metaphor, extremely ironic description of the human nature and how greed and fame, love, all these different human conditions intersect around a just completely magical backdrop of devil visiting post. Soviet Revolution Moscow. It's a crazy cool book and has a funny side story. I met my wife through the fact that both of us loved that book.

• 19:32Harry Stebbings?

  What do you believe then that most around you disbelieve?

• 19:35Speaker 02

  Willpower and deep desire to make something happen is pretty much unstoppable or almost unstoppable. You can generally achieve what you want if you really, really desire it.

• 19:45Harry Stebbings?

  What's the favourite blog or newsletter? What's the must reads when they come in?

• 19:48Speaker 02

  You know, I tend to hop around in my reading material. I'm very boring in that sense. I read Tech Meme, Wall Street Journal, Money Matters, maybe The Staples. The information is a recent addition to mine. I don't read any one thing every day religiously.

• 20:02Harry Stebbings?

  Penultimate one, biggest mentor and how did it come about?

• 20:06Speaker 02

  So I grew up in a family in the Soviet Union where grandparents and parents lived together. And my grandmother, my maternal grandmother, lived with us, you know, between my birth and her death. And she was an unbelievably willpower, strong woman who basically taught me if you really, really wanted, you can get it. You just have to try extra, extra hard and never give up and never surrender. And in many ways, so my personal hero is Winston Churchill. I have a beautiful Churchill's portrait that I'm staring at right now as a reminder that I shall never surrender. But my grandmother was a mini five foot two Russian language speaking PhD in astrophysics with Churchill in my own household.

• 20:46Speaker 02

  And she was absolutely amazing. Her willpower was always sort of pegging me on to try whatever would come into my crazy head. That was probably an unlikely, but an awesome mentor to him.

• 20:56Harry Stebbings?

  And then let's finish on the next five years for you and for a firm.

• 21:00Speaker 02

  I'd like to see a firm reach and improve the lives of a hundred million people. I think that's the most important goal for us. I care less about revenue or loan volume, but if we have a hundred million satisfied customers, that would be an unbelievable success.

• 21:15Harry Stebbings?

  Max, it's been such a pleasure to have you on the show. Brian told me it'd be a fantastic episode, but I really can't thank you enough for all you've done.

• 21:21Speaker 02

  Thank you.

• 21:23Harry Stebbings?

  And I do want to say a massive thank you to Max, as you heard there, jam packed schedule and so kind of him to give up the time to join us today. And if you want to follow Max on Twitter, you can follow him at M Levchin or you can follow me on Snapchat at H Stebbings with two Bs, it would be fantastic to see you there. But before we leave you today, do not forget that very few pieces of software are a must for the majority of VCs that I have on the show, but EShares most certainly is. EShares is the number one cap table management platform, allowing for equity management, 409A valuations and liquidity, all in one place. And EShares is made for companies of all sizes, with over 5,000 trusted customers, including the likes of Squarespace, Kickstarter and DoorDash, just to name a few. So to try out the must have service of the industry, simply head over to esharesinc.com, it really is a must.

• 22:08Harry Stebbings?

  And once you have all the paperwork tied down with EShares, you can now engage with your employees and that's where Fond comes in. Fond is the employee engagement suite with three core products. Rewards, a recognition platform for rewarding achievements and milestones. Perks, a premium corporate discounts programme to show employees you care about them both in and outside of the office. And then finally Engagement IQ, a free employee engagement survey that allows you to measure the health of your organisation. So see this fantastic product suite, simply head over to fond.co. As always, I so appreciate all your support and I cannot wait to bring you next week's episode.