EP 68: Immad Akhund (CEO, Mercury) on How Mercury Added $2 Billion in Deposits After SVB Collapse

Immad Akhund is a serial entrepreneur and the CEO of Mercury, a FinTech Platform that was in the headlines recently for being the biggest beneficiary of the SVB crisis. In the 6 days after the crash, Mercury took in over $2B in new deposits from companies leaving SVB and raised FDIC insurance from 1 to 3 to $5M in a week. Immad is also known for being one of the best fundraisers in the game and shared advice for Founders and Investors. Overall an awesome conversation about what’s wrong with banking today. Immad is also known for being one of the best fundraisers in the game and shared advice for Founders and Investors. Overall an awesome conversation about what’s wrong with banking today. (0:00) Intro (1:29) Adam Neumann's couch (4:03) No FinTech background (10:51) What is Mercury? (18:37) What does Mercury do? (27:14) Picking partner or sponsor banks (39:57) Uninsured deposits (50:59) What was the impetus for being so clear in your mission statement? (54:50) FDIC Insurance (1:09:35) Convoluted and esoteric US banking system (1:15:43) The day SVB played out (1:20:33) Why would you bank with anyone but JP Morgan? (1:24:30) The idea for Mercury (1:28:14) Will Mercury become a bank? (1:35:02) Tweeting Keith Rabois (1:40:02) Finding product market fit (1:46:31) Having a big network and strong relationships Mixed and edited: Justin Hrabovsky Produced: Rashad Assir Executive Producer: Josh Machiz Music: Griff Lawson 🎙 Listen to the show Apple Podcasts: https://podcasts.apple.com/us/podcast/three-cartoon-avatars/id1606770839 Spotify: https://open.spotify.com/show/5WqBqDb4br3LlyVrdqOYYb?si=3076e6c1b5c94d63&nd=1 Google Podcasts: https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5zaW1wbGVjYXN0LmNvbS9zb0hJZkhWbg 🎥 Subscribe on YouTube: https://www.youtube.com/channel/UCugS0jD5IAdoqzjaNYzns7w?sub_confirmation=1 Follow on Socials 📸 Instagram - https://www.instagram.com/theloganbartlettshow 🐦 Twitter - https://twitter.com/loganbartshow 🎬 Clips on TikTok - https://www.tiktok.com/@theloganbartlettshow About the Show Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode, Logan goes behind the scenes with world-class entrepreneurs and investors. If you're interested in the real inside baseball of tech, entrepreneurship, and start-up investing, tune in every Friday for new episodes. Executive Producer: Rashad Assir Producer: Leah Clapper Mixing and editing: Justin Hrabovsky Check out Unsupervised Learning, Redpoint's AI Podcast: https://www.youtube.com/@UCUl-s_Vp-Kkk_XVyDylNwLA 🎥 Subscribe on YouTube: https://www.youtube.com/channel/UCugS0jD5IAdoqzjaNYzns7w?sub_confirmation=1 Follow on Socials 📸 Instagram - https://www.instagram.com/theloganbartlettshow 📱 X - https://twitter.com/loganbartshow 🎬 Clips on TikTok - https://www.tiktok.com/@theloganbartlettshow About the Show Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode of The Logan Bartlett Show, we sit down with the people behind today’s most important startups and extract the tactics, lessons, and frameworks they’ve learned the hard way. Conversations span hiring to GTM, product, growth, fundraising and everything in between - collectively forming the ultimate playbook to make you a better CEO, investor or board member. Tap follow and enable notifications to stay ahead of the game.

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

• 0:05Logan Bartlett?

  Welcome to the Logan Bartlett Show. I am your host, Logan Bartlett, and what you're going to hear on this episode is a conversation I have with Ahmad Akhund. Ahmad is the founder and CEO of Mercury, a financial technology company providing banking services to startups. Now, I say that in a very specific way because they are not a bank and can't market themselves as such, which is something that we talk about in a lot of detail of what the difference is between being a bank and being a financial technology. Now, you might have heard of Mercury recently for being in the news as they were likely the largest beneficiary of SVB's failures. So, we talk about what it was like on that day to watch in a very public way your biggest competitor fail in front of your eyes. Ahmad also made news for raising the FDIC insurance that they provided from 1 million to 3 million to 5 million, which is actually how this

• 0:49Logan Bartlett?

  conversation came to be because on Twitter, I made a joke about them subverting the intent of what FDIC insurance was meant for as a marketing tactic. Ahmad is also known as one of the best fundraisers in Silicon Valley, and so he gives advice on how founders should engage with investors. Overall, an awesome conversation, and I really appreciate Ahmad bearing with me as I poked and prodded on their business model, on the state of financial technology, on the banking sector, and SVB in such a gracious way. That conversation you'll hear now. Well, Ahmad, thanks for doing this. Just because we were talking about it, I want to tell you the story of this couch. So, Adam Neumann, when he was at WeWork, I think,

• 1:30Logan Bartlett?

  staffed his wife to go buy like outfit all of the WeWork corporate offices. And so, they bought a bunch of big couches. And then, like, I think, two weeks later, unused, they decided that leather, they didn't want to support leather. And so, they had all these unused huge couches. And I think this is like... I don't know, $50,000 couch or something, just like totally absurd. And they had to fire sale all these like unused couches. And so Josh, my partner at Redpoint, bought this for like, I don't know, five grand or something.

• 2:03Speaker 01

  Great story.

• 2:04Logan Bartlett?

  This is like very nice casual leather couch that we use for filming all this stuff. So that's the backstory on it, which, yeah, so thank you, Adam Neumann.

• 2:13Speaker 01

  Yeah, any Adam story is always funny.

• 2:15Logan Bartlett?

  Yeah, right? Everyone, I think, appreciates that. Well, thank you. Thank you for doing this. So I guess this started, so I was fascinated and also kind of involved in all the SVB stuff. And I was curious about FDIC insurance. And it felt like there was, at one point, a couple, I don't know, a couple of months ago, a couple of weeks ago at this point, loose track of time.

• 2:43Speaker 01

  Yeah, it was only like eight weeks ago.

• 2:44Logan Bartlett?

  Yeah. SVB was?

• 2:46Speaker 01

  Yeah.

• 2:46Logan Bartlett?

  Jeez. It took eight years off my life. At one point, Brex was saying like, we have this much FDIC insurance and you guys went from one to five. And I was like, this feels kind of like subverting the intent of FDIC insurance as a marketing tactic. And so to me, it felt like, I was like, this feels like we're stepping in the area of regulator, or like someone's going to step in and say, hey, we shouldn't do this. So I tweeted something out that was like kind of dickish. You were polite enough to respond to it. We went back and forth a little bit and said, well, I think we should talk about this behind a microphone. So thank you. Thank you for doing this.

• 3:23Speaker 01

  Yeah, thanks for having me. And honestly, I think, maybe I'm just like too like non, what's the term? I don't know. I mostly think when people ask these questions that they're being genuine. Like, that's my default response. So when you tweeted that, like, I was just like, okay, this person's curious about it. And, you know, I would also be skeptical about these things. So whenever, you know, this stuff comes up, I try to go pretty deep in it to go like, okay, is this bullshit or not, right?

• 3:52Logan Bartlett?

  Totally. And you had, I mean, you didn't have a fintech background or like a financial services background before starting Mercury, right? I mean, you've been noodling it for a while, but it wasn't something that was native to you originally. So you probably had to go learn all this stuff from a first principles standpoint as well, right?

• 4:07Speaker 01

  And I think it's None of it's that tricky, right? Like, uh, when I started Mercury, uh, so in two thousand seventeen, I'd sold my previous company and I was, I had this idea for five years or something, but obviously when you're doing a company, you, you, yeah, I always have lots of ideas, but I don't do them. Uh, and then I spent seven months just talking to a lot of people to figure it out. Uh, and I started off with, I mean, all of these things, like, I didn't even know what FDIC was probably at that point, right? Just a vague idea. Uh, and I just kept talking to people, like, mostly actually lawyers are pretty useful.

• 4:42Logan Bartlett?

  How do you go about, and like, what questions are you asking? Like, how do you go about assessing if this is a real thing? Cause you, cause, cause you had this idea back in two thousand thirteen, right? Then there was a company Seed, who, which I don't even remember, but they went after this, this idea, uh, yeah, something similar and didn't work out for whatever reason. Uh, and so then you sell your company and you're like, hey, I still have this kind of itch. And so you find lawyers to talk to and like, what questions are you asking?

• 5:09Speaker 01

  Well, so, you know, I always think of the early stages startups as like de-risking the thing that's the biggest risk. And to me, I knew the product and I knew how it'd get demand and, you know, a lot of the more normal software startup stuff was like, didn't need to be de-risked. So I was very focused on like regulations, like compliance, like all of this kind of legal aspect of it. Um, and like the key mostly, and at least what worked for me is like, most lawyers will talk to you at least twice for free, right?

• 5:41Logan Bartlett?

  It's Legion for their business in some way.

• 5:44Speaker 01

  Yeah, exactly. And then, and then every big law firm has at least one fintech slash banking lawyer. Uh, and then there's a bunch of specialist ones. So, I mean, I wasn't just trying to get free opinions, but what I found is like, you know, you come up with a set of questions, you're like, okay, you know, how, like, how to get chartered as a bank, which I know you want to talk about as well, right? Like, I wanted to like go down all of these kind of mind maps of like, okay, if I did this, like, how would I do this? Uh, and then have a list of questions. And my general view on it was if you ask two separate lawyers the exact same question and you get the exact same response. Then you're pretty much like near the truth. If you get two lawyers and you ask them the same question, you get a different response. Then it's probably gray area in the law.

• 6:31Speaker 01

  And there's a lot of these gray areas. It's actually like surprising, especially like before I started this whole thing. I was like, the law is the law, right? But there's a ton of like gray areas in like, especially like, I think, I don't know, maybe the US deliberately leaves these things gray. But a lot of things about like, are you allowed to do X are like, people are like, I don't know. I mean, obviously crypto is a good example of like, a bunch of people did X and mostly they got away with it for a long time. So.

• 6:58Logan Bartlett?

  In an interesting way, I think like state and federal within the United States is like an interesting ground at which we we experiment as a country, right? Where like, I you go walk around, we're not too far from Washington Square Park and you go walk around and it's basically the whole park is a weed operation at this point, selling marijuana. And it's like, is marijuana legalized in New York? And it's certainly not at a federal level, right? And then it's like, it's not even really legalized in New York for what's going on out there, but we've kind of decided, hey, let's, we're not going to enforce that as a, and we're going to give out a handful of licenses. And now the people that have licenses want enforcement on the people that don't, right?

• 7:41Logan Bartlett?

  And it's this interesting, we're running all these little experiments, 50 in the country, right?

• 7:45Speaker 01

  There's definitely like a magic to it. Like I grew up in the UK and, you know, like things are much more regimented, like even even like cities don't have that much power, like in San Francisco, like the city is just ruining everything. But like, I as a someone from the UK, I'm just confused how a city could like, make like all of these decisions. Like normally it's like the country's decision whether like you're, you know, policing the roads, like it's.

• 8:11Logan Bartlett?

  I sort of went full circle on this philosophically, by the way, I was like fully at a federal level, like, hey, we should just, why are these things being left to states? And and I've sort of come back around on like, we're running all these different experiments. And I think COVID was the big one that did it for me, actually, which was interesting that like. Hey, had we allowed the federal government to mandate everything, we wouldn't have gotten to the right answer as quickly as we did, or at least seen, allowed people to make their own choice of where they wanted to be and how they wanted to act and what made sense in this ambiguity that was whatever. And I went from, I was in New York for the first six weeks of COVID, epicenter of everything going on. And then I went to Florida and just talk about going

• 8:54Logan Bartlett?

  from two different worlds, right? And it was, that was just, it sort of like reframed my whole mind on like federal versus state. But so, so the reason I wanted to do this, besides you being kind enough to talk about this stuff, but so some context on Mercury for people that don't know it. So you founded it in 2017, right? After you sold your prior business, HAZAP, for $45 million. Is that right? You've raised 177 million in equity capital-ish?

• 9:19Speaker 01

  167, yeah.

• 9:20Logan Bartlett?

  167, got it. Most recently, had a $1.6 billion valuation from Co2, and you also have great investors like CRV, Andreessen Horowitz, Eli Gill, and a host of others, which I know you, you, you kind of did the party round thing.

• 9:33Speaker 01

  Full body.

• 9:34Logan Bartlett?

  Yeah, yeah, yeah. And I think probably most interestingly, do you think it's safe to say that you were the, from a business standpoint, maybe the biggest beneficiaries of the SVB outflow?

• 9:47Speaker 01

  Well, probably JPMC was the biggest.

• 9:50Logan Bartlett?

  As a percentage of, of, yeah.

• 9:51Speaker 01

  Probably.

• 9:52Logan Bartlett?

  Probably, right. Yeah, okay. I think that's fair, which I think is interesting, right? I think that's, and that was part of the reason. I had these frameworks, by the way, I get asked a lot from private companies of, of, hey, can we do an episode? Like, we'd love to do it. And I've tried to come up with some heuristics of, of like, what I'll accept versus not, just because I don't want all our portfolio companies trying to get on. And, and so this is kind of an exception because I said, I think I said the bar was like 5 billion in the private markets or something. And now there's a new asterisk that's like, if your biggest direct competitor fails in a very public way over the course of 36 hours. Come on, no matter what your valuation is.

• 10:32Speaker 01

  It's a real privilege being on, I guess.

• 10:34Logan Bartlett?

  No, no, no, no, no. I think Mercury is a really interesting.

• 10:37Speaker 01

  Now we're gonna have to wait for JPMC to fail to come on a second time.

• 10:40Logan Bartlett?

  That's right, that's right. At its simplest form, what is Mercury?

• 10:43Speaker 01

  Mercury provides a bank account to businesses. So if you start a business or you don't like your bank and you need a bank account, we really focus on being your primary bank account. So that's our, that's a primary thing. That's basically the same idea I had from 2013 was like, hey, my bank sucks. I wish someone would make a better one and no one did. So that's what I started.

• 11:06Logan Bartlett?

  So you provide a banking account and one of the things I think is interesting, there's specific phrasing on your website. It says banking for what you're building is like what you guys say, but then you're also pretty explicit that Mercury is a fintech company, not a bank. And you do that very transparently, by the way. It's not hidden, it's, it's, it's not your, you don't brand yourself. It's not the first words on the page, but it's like pretty clear there. What's the difference between banking services and being a bank?

• 11:39Speaker 01

  So from a regulatory perspective, Mercury is a software provider to our partner banks. So the money never touches Mercury. We have no custody over people's money. Like, you know, when we give someone an account number and routing number, it's to one of our partner banks, choice of Evolve. And that is like very strict, right? Like it's not, the privilege of holding people's money and lending against people's money is like, you have to be a bank for that. And there's lots of ways to actually be a charter bank in the US. Like you, to go back to your previous thing, you can have, do it by state by state and that's federal charters. And there's two federal institutions that charter it. So anyway, it's a, it's a complicated thing, but it comes with a lot of rules. And the

• 12:24Speaker 01

  main reason these rules exist, and it comes back to the FDIC thing, is banks do fractional lending. So they'll take a million dollars and they'll lend out $800,000. And obviously, we tried the whole thing about not having rules around that and that went bad and lots of people lost money. So now the US banking system, and every country has a banking system that exists. Actually, finally, like we stopped doing those rules with DeFi yield and crypto and we saw what happened again. So there's a good reason these rules exist. And, you know. So from a regulatory perspective and like the way we can act like we are very much not a bank.

• 13:03Speaker 01

  From a customer perspective, and you know, I think this is like a newish realization that like newer banks basically like realizes, you know, people want a great product, they want inconvenience, they want a great service, they want reasonable pricing, right? All of these things and you just don't need to be a bank to deliver those. You can work with existing banks and you can pretty much do all of that. And when I started in 2017, there was relatively few partner banks and there was relatively few new banks that were innovating with them. So a lot of like what I was trying to figure out is like, you know, can I even build a good enough product with the partner banks that are available? And we will, yeah, this, we can maybe talk about like being too early or too late.

• 13:47Speaker 01

  Like we were basically at the cusp of like enough partner banks existing where you could convince them to build you the kind of thing you wanted. Like we were the first company to have wires as a service for customers, which like I thought was a, you know, I wasn't gonna launch Mercury without wires. Because it's just obvious, but no one else had done that.

• 14:06Logan Bartlett?

  And so partner banking, do you know the history of like why? In my mind, it's basically you're, you're, and correct me if I'm wrong on my terminology, but you're essentially

• 14:18Logan Bartlett?

  you're acting as either the front end or sitting on top of, and your website does a great job of outlining this. The underlying bank itself, which will hold the deposits. Or I've heard it phrased the other way that you're kind of like borrowing the bank license, which I don't think is technically true. But maybe in a simple way of understanding it, you're able to kind of operate like a bank without being a bank. Do you know like the evolution of how or why this came to be?

• 14:49Speaker 01

  A little bit, like not like the exact history, but this, well, I'll say firstly, like abstractly. Like if you think about it, which I have done a lot, like what is a bank, right? Like a traditional bank.

• 15:01Logan Bartlett?

  Yeah.

• 15:02Speaker 01

  And there's actually three, more than three, but three main services that are bundled together. There's the deposit taking side of it, which is like, I will take your money and I will hold it. There's the payment side of it, which, you know, obviously you can now spend the money or you can receive money. And there's various like cards, blah, blah, blah. And then the last bit is the lending side, right?

• 15:24Speaker 01

  And for various historic reasons, you know, you had this local bank, it was, that was just, there was no internet, right? So like the three things kind of got bundled together, right? Over like basically a thousand years.

• 15:39Speaker 01

  And then the partner bank model has, I mean, it's not new, like it's at least 50 years old. Originally it was store cards, right? So your Macy's or Bloomingdale's or whatever, and you want to do cards. And that's obviously combines both storing and payments to some extent.

• 15:59Speaker 01

  And only in the US, actually, this isn't true in every country, in the US, only a bank can issue a Mastercard or Visa card. I think that's a lot.

• 16:07Speaker 01

  So the only way they could do it was to go to a bank and from a bank's perspective, they're like, okay, sure. Like I'm going to make money, you're going to do distribution, you're going to do servicing, like it's a, it becomes like a no brainer, right?

• 16:18Logan Bartlett?

  Got it. I didn't realize that was the evolution. So, so like, cause Discover is a spin out of Sears, right? Uh, I think, and so interesting, so it was, it was cards.

• 16:28Speaker 01

  Yeah, Puddi Show Cards was the first model.

• 16:31Logan Bartlett?

  Got it.

• 16:32Speaker 01

  And then there's payments also, like fintech initially did it with payments, right? So when PayPal and all, all those ilk came along and you want to be able to receive ACH and ACH store money, like all of that stuff is close to features that banks have. And, and again, it goes back to like what's allowed. You cannot be on the Fed network, you can't be on the ACH network without being a bank.

• 16:55Speaker 01

  So apart from the fact that you can only hold deposits and lend against them without being a bank, the, all the payment rails also like kind of enforce being a bank as like a requirement. So the first fintechs, I think, were really payment focused fintechs and those also needed like bank partnerships. So, uh, so that's like kind of the model and the, the whole idea of like depository, kind of taking institutions like Mercury, being able to partner, that's the newest evolution, actually. Like it, it was payments first and, you know, card payments and things like that. And then lending and then like depository is last. And there's good reasons for why depository is last, like A, with payments and lending, you can kind of get away with like ignoring the bank's infrastructure.

• 17:40Speaker 01

  And banks infrastructure, especially in the US, is like one of the main reasons that banks like suck from people's perspective, and I could talk about that in a second, but there's you know, like four core like infrastructure providers, they're all like kind of dinosaur companies, but plugging into them is quite complicated. So it took a long time to get to a stage where like people are willing to expose that infrastructure. And then from a regulatory perspective, you know, the lending side is fairly regulated, but all of the money laundering and like a lot of these laws kick in on the depository side. And I would say lastly, depository is actually just the most complicated because like Mercury has to, we have like five payment types in, five payment types out, we hold

• 18:22Speaker 01

  the money, like, yeah, there's just a lot of complexity to like delivering the full product.

• 18:27Logan Bartlett?

  So you described Mercury and what it is, you described a partner banking model. So what would you say Mercury does? Like of all those different slices we talked about, like what, which of those do you own versus partner with someone else on?

• 18:44Speaker 01

  So from a customer perspective, they, you know, they only have to interface with Mercury. So

• 18:50Logan Bartlett?

  So for customer, it's the totality of those?

• 18:54Speaker 01

  Yes, pretty much. I mean, like you go to mercury.com, you sign up, you get a card, you can make payments, you can receive payments, et cetera. We're a big believer that like anything that touches customers, like we need to basically control the full experience. The bits that get involved with partners, which isn't just banks, like there's other financial institutions we work with as well, are like if we need to send a payment, that goes through someone else's rails normally, or a lot of the kind of compliance and regulatory kind of infrastructure we have, most of it, we

• 19:34Speaker 01

  Built out and run, but it's all kind of monitored and we have to create reports and all of that for our partners.

• 19:41Logan Bartlett?

  You mentioned that that this point in time, like when you started, you were on the cusp of being too early, which I think is an interesting thing in general. It's a maybe a cliched VC question of why now, right? But it's an important one when starting a company. And so what was the the why now for you all that you were able? It sounds like part of it was just banks being willing to expose these APIs and take this level of, is it risk or relationship, I guess, is probably the way of framing it.

• 20:11Speaker 01

  Yeah, and having a built, I mean, there's a few why nows. Number one, you know, we relied on a banking as a service provider initially. And so banking as a service providers are like, basically, if you're a small startup, which we were, going to a bank and saying, oh, let me go integrate to your real backend core. And let me convince your compliance and risk people that this is a sensible thing to do is almost impossible. Right? Some people have managed, but it's really hard. So there's there arose a bunch of companies, like the most, the one we initially used was Synapse. There's another one called Unit. Those two are probably the most popular right now.

• 20:55Speaker 01

  That would pre do this deal with the bank, they would go integrate to the core. And the two things they did for fintech companies was number one, make it so you don't have to integrate to really difficult infrastructure, you could just integrate to normal REST APIs and it was easier. And the second thing, which actually is really almost more important, is they made it so you could rely on the BaaS services, compliance and risk teams. So you don't have to go build like a 20, like at this stage, Mercury has like a 40% like risk and compliance team. You didn't have to build that from day zero. You could just go to the BaaS provider and the BaaS provider would say, hey, sure. If you're going to onboard people, we're going to enforce that there like this.

• 21:40Speaker 01

  If you're going to send these payments, we're going to make sure this monitoring exists. And blah, blah, blah. All of that stuff is actually quite complicated. I had no idea how to build that, especially when I started Mercury. So that's a really big deal. Like the BaaS providers existed and they enabled. Yeah, a lot of people launched neo-banks after us, especially from like the, you know, we launched in two thousand nineteen and twenty. Two thousand nineteen to twenty twenty one was like a very big period for neo-banks and it was really enabled by these BaaS providers.

• 22:06Logan Bartlett?

  It's funny, the level of abstractions that exist, there's the bank, then there would be the BaaS provider, then there would be the end, you know, whatever, consumer of the BaaS. And it's just, it's funny how up and down the stack. But so it sounds like you guys moved off of BaaS.

• 22:22Speaker 01

  Yes, uh, pretty much. Uh, so that's one point and we can maybe come back to why we moved off. And then the second thing is, there was, you know, back in two thousand thirteen when I had this idea, it was hard to raise four million dollars with just an idea without customers, right? Almost impossible, I would say. But obviously by two thousand and seventeen, when we did raise it, uh, like there was, um, you know, the seed ecosystem of funding. It was like mature enough that you could raise five million dollars and then we raised six million initially. And but you really, to do a fintech company, well, it's, it is a lot more complicated than a software company.

• 23:03Speaker 01

  A software company, you can like mostly go, yeah, lean startup MVP, raise a million, or you don't even need to raise anything. But to do a fintech company, you really do need to raise a bunch to like have enough time to go build the thing, but also like to go to these fintech part. Like even with BaaS, if you don't have the money, they don't really want you to like. There's just a bunch of stuff to build and there's compliance and risk. They don't want uh, someone that's gonna like die next month to like go integrate to these services. So that's number two. And then the last thing, uh, which is like on the feature side, uh, you know, ACH for various reasons and has like been around as an infrastructure for fintech companies for a while.

• 23:46Speaker 01

  But no one has really, until Mercury came, I'm pretty sure no one had ever like provided wires as like a feature to customers.

• 23:56Speaker 01

  And you know, my whole thing with Mercury has always been like, we can't have our customers compromised when they use Mercury. Like you were like, it's a real, you know, if we're like, hey, we want to be your replacement primary bank account and you've just missing some basic features that everyone expects from their bank, then that's just like not going to work. So that was like the last piece that like enough had been built that like you could have like a little bit more of a niche feature. And yeah, I mean, we also insisted on having international wires actually, which we were pretty much the first of all as well. And it was kind of funny because like we thought we tested it and we launched and for four weeks, like people were sending international wires, but zero was getting sent. And people were like, actually surprisingly like forgiving of that because I would have

• 24:39Speaker 01

  been really annoyed if someone was like, here's international wires and it didn't work for four weeks.

• 24:43Logan Bartlett?

  So the opportunity both that BaaS provides as well as this partner bank.

• 24:48Speaker 01

  Yeah.

• 24:49Logan Bartlett?

  Is it allows innovation to occur at more of a application level without needing to go through the regulatory elements of becoming an actual bank. Is that a fair characterization?

• 25:04Speaker 01

  Well, like the becoming a bank itself for a small startup, I actually think in the US is impossible. Like it's a couple of people have tried and mostly it has been a disaster in my opinion. And I can talk about, it's not just this part, like actually it's not that expensive to buy a bank in the US. Like you can kind of do it for like 15 million. Like if you have 30 million, you can definitely do it. So it's not like completely prohibitive. It's obviously expensive. But a bank is like an institution that like specifically has to be profitable and should not grow fast. Like those are pretty much the remits of the regulators. Like, yeah.

• 25:47Speaker 01

  One of the reasons that SVB failed is because they grew too fast. So like if you look at like, if you think about the regulatory system as like an immune system, uh, like they're trying to prevent bank failures. Like, that's basically the only thing that FDIC cares about. It's like, they do not want what happened to SVB or any bank, right? And that, this used to happen all the time, right? Like, not even that long ago, like 50 years ago, banks used to fail quite often.

• 26:13Speaker 01

  So there's a big immune system to prevent that and like unprofitable things fail. And startups like that and things that grow really fast also fail. They make mistakes and they, so, so startups like, at least in the sense that we would think of startups which are like unprofitable, fast growing institutions are not, are completely separate from like what you would want as a regulator for a bank. So, so I think like that whole path is just not a reasonable path in the US. Like in other countries, UK, Brazil, Nigeria, uh, there are specific bank charters for startups, uh, which I would love the US to do, but like that's probably not happening. So really actually the only way to get to enough scale to become profitable and not

• 26:58Speaker 01

  need to like keep growing the 3X, uh, is to pursue like these kind of sponsor bank opportunities.

• 27:05Logan Bartlett?

  How do you go about picking partner or sponsor banks? And how did you land on Evolve and Choice? How, how many people can you pick from and?

• 27:17Speaker 01

  Yeah, I mean, this just depends on what your constraints are. Initially, like our constraint was, I guess even with Choice, uh, so initially we went with Evolve and then later on Choice, uh, yeah. Initially, we really wanted some specific features. So the two specific features that I wasn't willing to compromise were wires and I wanted support for immigrant founders. So someone that had a US company, but you know, did not have a social security number.

• 27:45Logan Bartlett?

  Which a lot of people don't do for, a lot of banks don't do.

• 27:49Speaker 01

  Oh, yeah.

• 27:49Logan Bartlett?

  Because of KYC reason, it's just, it's a pain in the ass, uh, I think.

• 27:54Speaker 01

  Yeah, I mean, it's all solvable, but it's also, you know, inherently a risk management system.

• 27:59Logan Bartlett?

  Juice worth the squeeze for some of these banks and a lot of them have said no.

• 28:03Speaker 01

  Yes, so both of those were like actually quite annoying requirements. So, uh, initially, actually, we worked with BBVA, which is, um,

• 28:11Speaker 01

  Long story, but no longer. They sold to Backwest, but they had a banking as a service platform, which was, in theory, was supposed to solve all of our problems, but it turned out to be,

• 28:23Speaker 01

  partly why it took us a year and a half is because we did a full integration with them and then we were like, okay, that doesn't work. We have to now go to Evolve. But really, that requirement was a big blocker to almost everyone else. I don't think anyone else did that for us or was willing to do that or build it out for us. So that was the case there. And then Choice Financial, which we got much later on, I guess like two years ago, we signed that second deal. There, we were basically trying to fill in all the things that were missing with Evolve. So the biggest thing which really mattered to our customers was getting a bank that was on the SWIFT network. So if you're receiving an international wire in the US, it comes through like the SWIFT network.

• 29:08Speaker 01

  And almost all the sponsor banks are not on the SWIFT network because they're smaller banks. So in the US, only the big banks are on the SWIFT network in general. But it just meant that every time someone received a wire from an international source, it was like you have to put in some other bank as a correspondent bank and then you have to further credit off. Anyway, it was a very kind of complicated and error-prone process and it was just annoying people. So I was like, we need to have only a SWIFT bank because I was like, if we're going to do a new bank, it should solve the major problems. So they actually reduced it down to like maybe five or so sponsor banks. And then we talked to them all and this was like our favorite. And one thing we try to do now is, yeah,

• 29:50Speaker 01

  this is a bit difficult to achieve all the time, is you kind of want a sponsor bank that doesn't have too many fintech partners. But you also don't want one that's never had a fintech partner because like you want them to figure it out.

• 30:00Logan Bartlett?

  The Goldilocks thing.

• 30:01Speaker 01

  Yeah, exactly.

• 30:02Logan Bartlett?

  I mean, I guess I was going to ask about this later because in December 22, right? Like Evolve had a bunch of crypto banks and people started to fear.

• 30:13Logan Bartlett?

  The risk of Evolve in some ways, right? And I think you guys had a minor blip of outflows related to Evolve. And so I assume you don't want to be beholden to the crypto ecosystem or other fintechs and the decisions they make and how that might impact an underlying banking partner. Is that probably fair?

• 30:32Speaker 01

  Yeah, there's definitely, there's this concept, it's like broadly, like it's called contagion risk or whatever in like the fintech ecosystem, which is like, you know, you might do everything correctly and follow all the regulation. But if you work with a best provider or, you know, or the bank that does things that are not following the rules or, or maybe they are following the rules, but regulators changed their mind about it, like it might affect you as like the services you can provide. I mean, I would say this Evolve thing, basically just for some background for people, FTX, which everyone knows died, had a debit card program where they gave like, it was just a test, like they'd give debit cards to their customers.

• 31:14Speaker 01

  And Evolve basically powered there, but it was only, I think, 6,000 debit cards that were issued. So it was very minor, no lending, blah, blah, blah. But obviously, at the end of 2022, so many crypto failures had happened. And, you know, it had affected this other bank, Silvergate, which was heavily, heavily crypto banked, like that was basically all they did. And Signature, actually, they were both crypto. Because of that, everyone was like, okay, you know, who else might be affected by this? And Evolve was just kind of caught up by this rumor.

• 31:44Logan Bartlett?

  Banking is a weird perception related industry where you talked about contagion. But if people think something to be true and say it loud enough and spread it enough, it can become true.

• 32:01Speaker 01

  Well, I mean, fractional banking specifically has like this kind of.

• 32:06Speaker 01

  A faith associated to it, right? Like you give it, if like a hundred people give like one million each, like the bank does not have a hundred million on hold. Like they have maybe 10 million or 20 million on hold, right? And the rest of it's been lent out. So you have to like believe that like, yeah, and that's basically.

• 32:24Logan Bartlett?

  We all banked around the corner and we said, hey, I heard the bank doesn't have our money. And we all showed up to go get the money.

• 32:30Speaker 01

  The bank doesn't have your money.

• 32:32Logan Bartlett?

  That's true. It's 100% true. And we wouldn't be able to get our money back, right? Because it's lent out to mortgages or it's lent out to whatever, car loans.

• 32:40Speaker 01

  Yeah, I mean, that's just how the banking system has always worked. But obviously, the problem is like if the bank, if then there's a rumor or it's actually fact that a bank put the money somewhere not sensible, then it becomes a, you know, a game theory thing of like, who pulls their money out first will get it. And like the rest, there might not be enough money left basically in the, in the pot. So there is this inherent like trust aspect to banking. And actually, that was, I would say that was and continues to always be the hardest thing for Mercury, right? It's like when we were launched, I was like, who's gonna like trust us, right? I was, and it's like, we're going to startups. So like I've had, I've had, especially early on, I had these conversations where like, like someone was like, this, like the money I have for my startup is like a million dollars.

• 33:25Speaker 01

  He was, he was like, this is more money than I have ever like had, you know, touched or thought about in my life.

• 33:32Logan Bartlett?

  Totally.

• 33:33Speaker 01

  Like, how can I put it in Mercury?

• 33:37Speaker 01

  And it's a reasonable question, right? It's like, how can I? There's a, so we launched on like a Tuesday. It was a very distinct memory. It was April 17th in 2019. And by Friday, someone had signed up, not spoken to me or my co-founders or anything. And there was only nine of us at this point that signed up and sent a million dollars into a Mercury Bank account. And I was like, this is insane. Like, you know, my perception was that anyone, especially at the start, anyone that would send like a million dollars would like at least try to call us, right? Like we had a number out there, I think.

• 34:10Logan Bartlett?

  And it wasn't someone, someone totally random.

• 34:12Speaker 01

  That totally, I had no idea who this person was. Like some of our initial customers were like. Investments that seed invested or friends of mine, like, you know, that makes a lot of sense. They had like trust in me, but this was completely random. They'd literally probably seen a tweet on the internet and signed up to a bank and sent a million dollars. So that was like crazy to me. But yeah, to come back to the original point, like building trust and building a brand around that has is like always been the most important thing for us.

• 34:42Logan Bartlett?

  And there's kind of an exchange. I mean, the the partner bank is lending you or not lending you, but you're working with them for their bank license reason and you're and they're borrowing or the the exchange, there's some monetary exchange, but there's also like a brand level exchange that like you're helping funnel leads or actual dollars to them as well. Is that a fair characterization?

• 35:12Speaker 01

  Yeah, well, the exchange is actually like a little bit more from their FDIC insurance to like, that's the, you know. So if you think about like trust, right, there's like two levels to the trust. There's like, you know, do I like Immad slash and recent Horowitz who were like original backers? Like, do I trust their brands and therefore I think they will do sensible things, uh, which is like kind of like a moral faith kind of thing. Uh, and then the other level of trust is like, okay, you know, is my money guaranteed slash protected in some way? Uh, so the FDIC like provides the second level. They can say like, you know, originally we launched with 250K and now we have 5 million. But yeah, the 5 million is

• 35:59Speaker 01

  I guess the other level of like trust and guarantee is also like, what are you trusting and guaranteeing against? Right? Uh, and like in that case, it's like this kind of original thing, like if there's not enough money there, will I get money out kind of thing? And the 5 million basically like guarantees that you will get 5 million of your money out. And then there's, uh, you know, you have to kind of go down this like rabbit hole of like, oh, what what else am I trusting her? Like, uh, like, and then I can say, hey, we never touch your money. Therefore, like you don't have to like worry about mercury and, you know, if mercury dies, your money is safe. And so there's all of these layers of trust and guarantees.

• 36:36Speaker 01

  And I would say.

• 36:39Speaker 01

  A lot of things are mostly feelings, like people don't always dig into all of this. Like in moments of crisis, like you know, you asking this question about like, oh, is this FDIC insurance real? And like, that's when people dig in a little bit. But you know, I have always been surprised that like, people didn't really dig in very much from, I mean, it's not just Mercury, right? Like DeFi yields, like, none of it made that much sense if you dug into it. But people were like, really willing to go like, hey, you know, the website looks good. There's a good investor. I'm gonna like, go, go put my money into it.

• 37:17Logan Bartlett?

  There's so many interesting parts of FTX, from my perception, perspective. But the, the brand washing that FTX was able to do through venture firms, through arena sponsorships, through celebrity sponsorships. It's, it's crazy how, and I get it, we all have a finite amount of time in our day. And so getting to the root of these answers is just like, no one can do it for all the things in the world, right? To some extent, and this goes to news media and whatever, you sort of have to trust at some level, you need to pick what you're gonna trust, just because someone's already done the work for you. But inherently, you're gonna understand it far less.

• 38:00Logan Bartlett?

  And, and so the summarization or the, the brand association level trust is obviously,

• 38:08Logan Bartlett?

  it's one element of it. And I get it. It's a mental shortcut that keeps you from having to understand assets and liabilities and FDIC insurance and all this crazy stuff.

• 38:18Speaker 01

  Yeah, I would say like, you just can't, you know, there's plenty of really smart people looking at SVB and they didn't understand all the risks involved, right? So I think it's, it's, it's too much for people to understand. And, and that is why, you know, these things, especially in the world of social media, trust can like flip as well, right? Like panics can happen and all that stuff. So it is a much, you know, it's, the trust element goes both ways as well, which is, you know, kind of an interesting thing to think about. But I do think we're this, we're kind of in this moment where like, There's like three types of like banking right now. There's like the big banks that,

• 39:01Speaker 01

  you know, like GSIBs that have kind of been like somewhat guaranteed by the bank, the government. There's like people like Mercury going like, hey, we'll go above and beyond in FDIC insurance. And then there's everyone else. And if you're in the everyone else bank bucket, and you have a lot of insured, like uninsured deposits, like deposits above 250K, it's kind of like a difficult bucket to be in. And I do feel like the government should do something about like that bucket. Yeah, I know that lots of people are looking at like extending FDIC insurance and Congress needs to do it. So it is, it's not probably not going to happen super quickly, but, but it is like, you know, if I was a customer with a lot of uninsured deposits in the third bucket,

• 39:46Speaker 01

  it's like kind of a weird space to be in.

• 39:47Logan Bartlett?

  I guess to that point, like, why, why should they maintain uninsured deposits in that third bucket versus putting something in a treasury product or something, something else that provides protection? If not the FDIC insurance point, like that was one of the biggest criticisms I heard from my financial service related friends is like, why did all these people just have deposits sitting in their bank account at that level? And so I guess as you think about the debate of the moral hazard of increasing FDIC insurance,

• 40:29Logan Bartlett?

  at what point does it, are there just other products and ways of dealing with this? That FDIC insurance has been marketed and branded in like the safe, secure way that now people feel comfortable at it. But like, there's money markets and treasury things that you can do that are different than that.

• 40:46Speaker 01

  Believe I read, and don't quote me on this, but I'm pretty sure this is accurate.

• 40:50Logan Bartlett?

  We're gonna air this, we're gonna air this, by the way.

• 40:52Speaker 01

  Someone can fact check me then. About 40% of deposits in the US banking system are uninsured. I'm pretty sure that was the number. There is like kind of this interesting point of like, and like it's been happening over the last like few months. Of like deposits leaving the banking system and going to money market and treasury funds. So there's kind of this abstract point of like, okay, what would happen if forty percent of deposits left? Like, I assume, I mean, a lot of banks might not survive that, but also there'd be a massive like lending and credit crunch. Because banks are the main source of funds for consumers and businesses and things like that. So so there's that's one point that like, you know, I don't know if like, we'd have to come up with other ways to fund lending.

• 41:34Speaker 01

  Which, you know, will be more expensive. So like the cost of doing business. Business liquidity in the system. Yeah, liquidity will decrease and the cost will go up. So that's one aspect, but maybe that consumers don't need to care about that or businesses don't. That that like the government probably will.

• 41:51Speaker 01

  The second aspect is, yeah, people do generally care mostly about convenience above other things. To a reasonably surprising level, I would say, there is a small minority of people that are like, you know, these. The card point kind of people, right? Like they're like have seven cards and they're like optimizing this like. But that is not the normal. The normal people have one card and they're just like, I'm gonna use this card and I don't want to think about it. And that's true for most types of services, like banks as well. So, you know, once you get big enough as a company and like Mercury's there, we have like a.

• 42:30Speaker 01

  Maybe five person finance team and yeah, there is enough people there that care about optimizing things and, you know, that's their job. And then you you will make sure you're maximizing yield, putting in treasury, like seeking safety, etc. But that's like a reasonable scale. So as an individual consumer or as like a business without a finance team, which is like most businesses, less than fifty people. You're not doing all of these like sub-optimization. You're mostly like, hey, I have a very busy life. I have a very complicated business to run. I'm gonna put my money here. And, you know, maybe if I get some yield on it, that's great, but like, I'm not going to think about it too much.

• 43:12Speaker 01

  So that's, that's the second aspect. And then third aspect is like the incentives of banks is not to give you access to treasuries, it's not to give you access to more FDIC insurance even. The incentive is to actually try to put, you know, like Chase's incentive is to have as many customers as possible in 0.1% in deposits. Like, then they can do what they want with the deposits, they can lend them out and they can like get a pretty big spread. And in the zero

• 43:39Logan Bartlett?

  Point there, which is an interesting one, is that banks don't make much money on these other products. They make more money on it sitting in deposits.

• 43:48Speaker 01

  Oh, yeah. I mean, the, the difference, especially in this higher interest rate environment is like ridiculous, right? Like, if you put money in, like, especially if you take your money out of the bank and put it in US government T-bills, like, banks aren't making anything. But even if they like facilitate it through sweep networks or whatever, they mostly just give the whole yield to you. So like, that's a very different like dynamic. So banks historically have made all of that stuff quite hard. Like, you have to call someone up, you have to go into a bank branch, like, you know, I actually tried it on my consumer account because Mercury sadly does not do consumer accounts right now. And I tried it and like, I was just like, I just want like T-bill sweep or just money market sweep. Just like, give me the product. And they were just like, here's a really long PDF on like, how, I don't have time to read this.

• 44:32Speaker 01

  Eventually I just went on E-Trade and bought some T-bills myself. But, you know, I was obviously educated to do it. But like, most people just like, banks make it hard enough and provide enough friction and most people just don't bother with it. So.

• 44:48Speaker 01

  Yeah, I think, I think those are like three aspects that play into it. And also lastly, actually, in the zero interest rate environment, it just didn't matter that much. So like, you didn't have the monetary upside really. Like, whether it was deposits in your bank with zero interest rate or And T bills and zero interest rate didn't matter too much. So the dynamic is that kind of knew that there is an alternative where you can get yield and safety.

• 45:14Logan Bartlett?

  You alluded to teams under 50 don't have finance departments. And I would say that non venture backed startups probably do have finance departments at that scale ish or people in finance that maybe are thinking about that.

• 45:29Speaker 01

  Well, probably not like an SMB or something like that. I mean, they'll have someone paying the bills and like checking, but I don't think they have like sophisticated people that are like thinking about risk and yield.

• 45:40Logan Bartlett?

  But certainly at the scale during that period of time of 2020, 2021, as it relates to SVB and probably your business as well, a lot of venture backed companies that were getting decent sums of money in short periods of time and their success or failure was not going to be predicated on the yield optimization or lack thereof or the downside protection of those dollars, right? It's similar to my job. You don't make a lot of money. There's so many things that can go wrong in a startup that is on the path going forward that optimizing

• 46:24Logan Bartlett?

  the downside or the risk just isn't top of mind for founders, right or wrong. We can talk about SVB, which I do want to, but like clearly wrong in that instance, but that was at least the mindset. And so I, I don't blame the venture ecosystem in totality for not encouraging people to think more proactively about this. Clearly in retrospect, it was a mistake, but.

• 46:51Speaker 01

  I mean, was it though? Like I know everyone panicked for four days, but the US backed up the deposits. Like.

• 46:57Logan Bartlett?

  Do you think they should have? Do you think the government should have?

• 47:00Speaker 01

  I think so, yeah.

• 47:02Logan Bartlett?

  Why?

• 47:02Speaker 01

  I mean, ASVB was a big bank and so was First Republic. This is 200 billion, so it's not a small bank. I would say the bank generally didn't do super high-risk things and it was heavily monitored. So, you know, I mean, you could talk about moral hazard, but like really the government could have stopped them.

• 47:20Logan Bartlett?

  Yeah, implicitly, the government signed off on their behavior.

• 47:24Speaker 01

  Like it wasn't secret, I would say. And I just don't think, like forcing everyone to go, okay, which banks is the government willing to bail out on or not? I mean, which willing to backstop or not? And I think that would have caused every, like the thing that I talked about earlier about like this last bucket of regional banks. I think everyone would have left, at least all uninsured deposits would have been heavily incentivized to leave instantly. And that would have put a massive burden on, like way more banks would have failed. So I don't think there was like a choice not to do it. And it's not clear to me that that is a moral hazard, like who is the moral hazard? Like are depositors really gonna check bank health? Like, how will they do that if the regulator is already signing off on it?

• 48:07Speaker 01

  So like, it's just a, it's a weird, like, I do understand like the abstract point that like, hey, you know, if like a bank management team doesn't have to worry about depositors, then maybe they'll make worse decisions. But like in practicality, like I just think the alternative is everyone goes to either like people like Mercury or the G-Subs.

• 48:27Logan Bartlett?

  Yeah, I agree that there needs to be, there's this weird middle, this ambiguity that exists right now beyond, there's the small community banks that can definitely just go under and the government won't step in. Then there's the too big to fail that are protected. And I agree, there's this weird middle bucket that exists that needs some change or oversight. And I think community banking in general has been fantastic for the economy in the US. I, the contagion risk of, in the world of social media and

• 49:10Logan Bartlett?

  And at that acute, because of what SVB had done or not done and their behavior, I do think that the contagion risk was very real and you saw what ended up happening with First Republic. But also on that Monday, I mean, their stock was even still super volatile after SVB was all. And so I do think the contagion risk was real. I just, I wonder at what point should banks fail? Because it used to be a pretty common occurrence, right? And I don't know, I'm sure people have the data on this now, but at this point, it probably would have been 90 cents on the dollar, something like that, 80 cents.

• 49:49Speaker 01

  Eighty to 90.

• 49:50Logan Bartlett?

  Eighty to 90 cents on the dollar. So it wasn't like, and probably some time duration thing. And it does, so 80 cents is, I mean, it's a lot, right? It was what 150 billion in deposits, 200 billion in deposits?

• 50:00Speaker 01

  Yeah, 200, so it was about 20 billion.

• 50:02Logan Bartlett?

  Yeah, so it was going to be a lot, a lot of money to not step in. And I think the contagion risk would have been the bigger concern in my mind.

• 50:10Speaker 01

  Yeah, I don't know what the like end answer is. It's just like, the internet's just changed all of these things, right? Like it was previously, yes, there was a regional bank that would fail, but there'd be another regional bank you'd go to next door. Whereas now, like you can just go on the internet and you can go to like every, the top four banks have like something close to most people. So if we want a world where like the top four-ish banks like suck up like most, most banking and all of these regional banks fail, then like.

• 50:43Logan Bartlett?

  I don't think that's a good world.

• 50:44Speaker 01

  But also we can't have that instantly, like we can't, it would be too much of a shock to the system.

• 50:48Logan Bartlett?

  That's right.

• 50:48Speaker 01

  Move to that too quickly.

• 50:50Logan Bartlett?

  You guys do a great job on your website of outlining all the kind of stuff we did. And so we could probably direct people there if they want to understand all the different products and how this stuff works and that's.

• 51:03Logan Bartlett?

  It's impressive to see. You guys are very upfront and transparent. And I was wondering, because I was trying to figure out when you, like, when did all these interactive things kind of get built out? And you guys have been doing it for a while. I thought like, hey, maybe this is a reaction to SVB, and it wasn't. It looked like it was September, October of last year that you guys really built out and were very, very clear and explicit on that. Was there an impetus? Like, what was the impetus for it and being so clear? Was there someone that said, hey, you guys have to be more explicit about this stuff? Or was it getting out in front of all the stuff that we're now talking about?

• 51:39Speaker 01

  Well, I would say as like just high level cultural principle, we've always had this view that one of the problems in banking is the lack of transparency, whether it's fees or whether it's just like explaining how it works, et cetera. So as a cultural principle, transparency has always been important. And the other thing that like I think is a bit nuanced is like, how do you deliver power, user features and understanding while still being simple? Like, that was the second kind of cultural principle, though I can probably state it a little better, maybe. But yeah, I think like one of the reasons that like other people have not done as well is like they've tried to be like simplicity without the functionality. And we've tried to be simple but fully featured, which is like a hard balance.

• 52:24Logan Bartlett?

  You lead people to the answers as well. If they want to go below, it's like, hey, if what you care about, which I'm sure is 95% of your customers, here's the products we offer. If what you care about is all the details, you actually help explain this to all the people, which I think is really impressive.

• 52:40Speaker 01

  Yeah, so those two like cultural principles, I think, like have always guided us. We did get in trouble, this is a few years ago, but we had our Twitter handle used to be Bank Mercury. I want to say like one and a half years ago. But anyway, so like the California DFPI, they got mad about us having that Twitter handle because you cannot have anything that implies it's a bank. And I was like, I was using it as a verb, but anyway, they didn't appreciate my Twitter handle, which is reasonable. So we, you know, we actually had to go get the Mercury Twitter handle, which I obviously prefer to Bank Mercury anyway. But, you know, it made us like, okay, you know, we have to be really thoughtful about like

• 53:21Speaker 01

  how we use the word and like express what we do and be clear about it. So that was something else. And yeah, from relatively early on, we've, I've always thought about like compliance and risk is like the thing I don't get. So I've always over invested in it. Like we, you know, we had a, we've had a compliance and risk team from very early on and that, you know, a lot of them are from banks and, you know, they're often techs. But anyway, so we've always had that like muscle of like trying to be very correct about things.

• 53:55Logan Bartlett?

  Is compliance and risk, by the way, and if people are still listening to financial service, all this, then I appreciate them bearing with me on this. But the compliance and risk elements of this, are you guys like, are you vetting, is it for your own covering your ass on stuff like that? Or are you actually doing the KYC on behalf of the banks? How does that work?

• 54:21Speaker 01

  Yeah, we do the KYC and KYB, like know your business. So the bank base, I mean, it wasn't always like this, but nowadays the bank looks at our process and signs off on it. We still have to report everything to them, but it's not like every customer that signs up does not need to be signed off by the bank partner.

• 54:40Logan Bartlett?

  How do you think about FDIC insurance? You landed, you were originally at, I don't know where you were originally at. Most recently, you were at a million, now you're at five.

• 54:47Speaker 01

  Yep.

• 54:47Logan Bartlett?

  The genesis for our conversation, the crux of my, my questioning, I guess. How, how do you think about it? We've sort of touched on it in different ways, but how did you land on five? How do you go about getting that? How do you think about that?

• 55:02Speaker 01

  Okay. So practically speaking, how it works is let's say you have $5 million, you send it to one of our partner banks. So it goes to the partner bank.

• 55:13Speaker 01

  But they, in order to provide the 5 million FDIC insurance, they have to distribute it to at least 19 other banks to get the 250k each. Most of the time, this is always true, most of the time, people use a sweep network. So, you know, going back to your layers of indirection, there's like a few of these, the biggest and oldest one is called Entrefy. There's another one called TBS that we work with. There's a few other ones. But anyway, these people have existed for a long time and they basically go talk to banks and the the underlying problem that they're solving for banks is there's some banks that have too many deposits and there's some banks that have too many loans. So

• 55:56Speaker 01

  to go back to earliest thing about banks like bundling these two things together, like there's no reason that's like perfectly balanced. And in the world that it is often imbalanced in, like the sweep networks arose to go like, hey, you need more deposits or you need a slightly cheaper deposits or whatever, like you can buy them off another bank that has too many deposits. So that's like the underlying reason the sweep network exists and

• 56:21Logan Bartlett?

  Do you know the origin of it?

• 56:22Speaker 01

  Yeah, there's a this company, Intify, was previously called Promontory. I think in two thousand and two, they like kicked it off. And this person who started it was like a pretty high up regulator, I think. Anyway, I don't I don't know the whole

• 56:38Logan Bartlett?

  The mechanism.

• 56:39Speaker 01

  But it's really, I mean, in the grand scheme I'm sure before they even started, like banks were doing this one on one.

• 56:44Logan Bartlett?

  Yeah.

• 56:44Speaker 01

  Like, it was almost certainly like a long term existing thing, but it was just like a one on one.

• 56:51Speaker 01

  So I mean, almost every sponsor bank has to live on a sweep network because you know, if you think about a normal bank, it's regional, they kind of have like deposits, et cetera, and like, it's all quite understandable. But if you're a sponsor bank, your deposit inflows can be really big, right? Like Mercury has grown a lot and like we've delivered billions of dollars of deposits to our sponsor banks.

• 57:14Speaker 01

  And these sponsor banks inherently tend to be small because like the whole point of a sponsor bank isn't like they're not a huge lending institution. They're you know, helping with payments or deposits like that's it's just a very different model. So it's tends almost all the sponsor banks are less than 10 billion in deposits. And there's also this Durbin Amendment, which like kind of forces them to be less than 10 billion in assets. So so you have this like interesting aspect where every sponsor bank is has always had a sweep network. Almost everyone that's done this.

• 57:48Speaker 01

  But what was the case when we launched in two thousand nineteen especially is people didn't, they were like, oh, you're FDIC insured. That's all they cared about. It wasn't like, how much is the FDIC insurance? So, so only two hundred and fifty came at it. So even though the sweep networks existed, not that many people were like optimizing for FDIC insurance. And you get like, you know, you get a little bit more flexibility if you don't have to optimize for FDIC insurance. You're like, okay, I'll sweep it, but I don't have to make sure five million goes across twenty banks. Like that requires like a little bit more coordination and, and work. But, you know, over time, we, we'd started growing the FDIC insurance and, you know, it was relative. For a while, we were at five hundred K and that was relatively easy because that's just two banks.

• 58:31Speaker 01

  And then, you know, this SVB thing happened and I was like, okay, you know, how do we get this up to five million? The reason I was targeting five million is I, so we, we also have this other product, Mercury Treasury. So you can get like US government T bill mutual funds. And my view was like, you know, most people should put excess deposits in that. Like that's, you know, to come back to your earlier point, that's like the rational thing to do. It's yield bearing and, yeah, nothing safer. So like, if you think about it, five million, you know, basically like one to two months burn would be like the five million in operational accounts and the rest would be your US government T bills. So, you know, there's not that many startups, hopefully, that are burning five million, one to two months. Definitely the really, really huge ones are.

• 59:17Speaker 01

  And, and they can even move money quicker if they need to. So, so I was like, five million covers like most people and if we can market that, we'll be good. So, you know, SVB happened and like basically Friday happened, right? Like that's Friday was the day where like the FDIC went in. And, yeah, everyone was freaking out. We were freaking out a little bit as well because like we were like, you know, maybe the deposits won't backstop. And the big worry we had was all the VCs will say, put all your money in the big banks, right? Like that was our big worry. So we didn't want to be like, you know, net, net, we turned out to be a winner here, but it could have very easily been the case that we would have been a loser through this. So we were like, okay, you know, how do we go?

• 1:00:03Speaker 01

  And then people would email me and I was talking to customers all day long, basically on that Friday. And people were like, okay, this happened to SVB, why wouldn't it happen to Mercury? And I would say to them, hey, we have one million FDIC insurance, put your money there, put the rest in US government T bills, then you don't have to trust me. You just have to trust me a little bit, but like you don't have to take my word for it, right? Like you can have this kind of confidence about where your money is.

• 1:00:27Speaker 01

  So on that Saturday, I was, yeah, we were like, okay, you know, how do we make this email that I keep sending people? And I had a copy paste, I was sending it into like a product and we launched Mercury Vault. But also we were like, okay, one million is good, but how do we get this up to five million, which we covered like way more startups that were using Mercury. And then, yeah, I had to basically like spend the whole weekend talking to both of all of Enchance CEOs going like, okay, how do we make this happen? And, you know, we managed to by Monday get it up to three million and then by the end of the week it was up to five million.

• 1:01:00Speaker 01

  But that was like mostly like a coordination effort, like making, you know, because we had all the systems in place. We were, they were already sweeping, we already had sweep disclosures and, and obviously going from one million to five million is only positive. There's no downside to that. So, so it was like, you know, you didn't have to get customer sign off or something.

• 1:01:17Logan Bartlett?

  Was IntraFi able to do that or did you have to find a different way?

• 1:01:22Speaker 01

  Well, we don't work with IntraFi, we work with this other one called TBS.

• 1:01:25Logan Bartlett?

  Got it.

• 1:01:26Speaker 01

  On one side and our other partner bank has like their own kind of sweep arrangement. But, you know, finally, in both cases, there were 20 banks involved. It was just like, just making sure the right amount of money was in the right place. Like it was mostly about that rather than like bringing up a bunch of like new banking partnerships and things like that. These networks actually go like pretty deep, like you can get it up to, with our network, like it goes up to like 50 million. IntraFi claims 120 million.

• 1:02:01Speaker 01

  But yeah, I like I think beyond five million, like I don't think it's super necessary. And at least, you know, our partner banks like try to look at like each of the banks in the network and like, you know, even if it's FDIC insured, you still want like a sensible, stable bank and all of that kind of stuff. So like having hundreds and hundreds of them is like, I don't think that's a very necessary thing.

• 1:02:27Logan Bartlett?

  So my understanding, and correct me if I'm wrong, is FDIC insurance is paid out or is paid by the network of banks, right? And it's done, I think it was based on total deposits at one point, and now maybe it's total liabilities is how it gets assessed. And so my only question in this, and as I've learned more and more about the banking sector, the answer is all this stuff is kind of convoluted, misincentive aligned and all that. But is it fair to say that, just based on that, that this whole process of sweeps in FDIC or insurance of five million or fifteen or one or whatever, anything above

• 1:03:09Logan Bartlett?

  250K, I guess anything including 250K, is any uninsured deposits are unduly or inequitably paid out by big banks to cover that insurance amount? Because it's based on total, it's not on FDIC insured amounts, right? But instead it's on total deposits or total liabilities, as is the case today?

• 1:03:39Speaker 01

  The actual maths is actually even more complicated. It's actually like, it's not just liabilities, it's like where, so there's liabilities of deposits and assets and loans in banking. And it's like, actually, what are the assets and what are the liabilities? So the maths is actually like a percentage weighted thing.

• 1:03:55Logan Bartlett?

  I guess no one should be sympathetic to big banks. I'm just sort of asking.

• 1:03:58Speaker 01

  Well, I'm not 100% sure. It is unfair to the big banks because they probably have, as a percentage, they probably have less uninsured deposits than the small banks.

• 1:04:08Logan Bartlett?

  Yes.

• 1:04:09Speaker 01

  To some extent, like, I mean, because. Like, you know, the biggest people at big banks is consumers.

• 1:04:14Logan Bartlett?

  Sure.

• 1:04:14Speaker 01

  Almost every consumer is less than two hundred fifty Ks.

• 1:04:16Logan Bartlett?

  Sure, yeah, yeah.

• 1:04:17Speaker 01

  Yeah, apart from some edge cases, whereas like people like SVB and like other, a lot of the regional banks are much more business focused just because like businesses are the ones that need like, you know, agriculture loans or like commercial loans that like big banks might not do, and they often are like more uninsured deposits. So, yeah, I'm trying to, I think the maths works out.

• 1:04:40Logan Bartlett?

  You think so? You think it's fairly assessed? Okay.

• 1:04:43Speaker 01

  Yeah.

• 1:04:43Logan Bartlett?

  I, I.

• 1:04:44Speaker 01

  I'd be interested to see why it would not work out, but you know, if.

• 1:04:48Logan Bartlett?

  Well, I'm just sort of thinking like if Walmart banks with JP Morgan, for example, and they have, uh, let's say their operating cash flow on a given day is whatever. Fifty million dollars or a hundred million dollars or five hundred million dollars or something. Then, then, uh, they're going to, basically as, as the percentage of insured deposits that are being opened in like multiple banks and small banks and all of that. As that continues to rise, I assume what you guys are doing is enabling the number of insured deposits to go up. Now, we could argue that JP Morgan in general is an insured deposit.

• 1:05:29Speaker 01

  Yeah.

• 1:05:31Logan Bartlett?

  But like in, in practice, what is being assessed to pay for that insurance product that is being spread out among nineteen banks is, uh, is going up through, uh, what, what you guys are able to do through the sweep network. And so therefore, I assume if more and more people have insured deposits, then the premiums are, are being paid out on total amounts, which would.

• 1:05:59Speaker 01

  I see what you're saying. Uh, there's, there's some aspect of that, but if a bank is relying on sweep network deposits to lend out, those are considered brokered deposits. Uh, so FDIC would have a more, they would charge them more anyway for it. Uh, so, yeah, I don't, I don't think that like it creates like weird incentives. Yeah, I think it's probably okay. And I think the, you know, the other point is like FDIC is insurance. So it's all about like, what is the risk of that situation? And if you're, you know, if one bank like,

• 1:06:40Speaker 01

  you know, take SVB has a very large uninsured deposits and it can do things like buy a 10 year MBS with them. Like, that's just like an inherent risk associated. But there's a risk of like the bank run because so many people are in the uninsured bucket. And there's the other risk of like that you're concentrated in one bank's decision making. So if you take the same five million distributor across 20 banks, A, you have much more insurance. There's less likely to be a bank run and less likely for insurance to be needed. And B, you have like 20 banks making decisions. So like, it's not like a concentrated risk kind of factor.

• 1:07:15Speaker 01

  So I think it works out to be like a pretty reasonable thing for insurance to want. But it's kind of an interesting thing. Like, insurance is kind of like an interesting phenomenon in general.

• 1:07:25Logan Bartlett?

  I mean, all this stuff comes to psychological, human behaviors. And do you think 5 million is the right number for FDIC insurance? I, because I, I think when people criticize SVB, I think they didn't offer, or the startups that banked with SVB. I think you needed at least 3 million or whatever to even get access to the treasury products, right?

• 1:07:45Speaker 01

  They had different levels.

• 1:07:46Logan Bartlett?

  Different levels that you could get access to it. So should it be, should there be FDIC insurance up to the level that then you could access treasury amounts?

• 1:07:58Speaker 01

  Well, that was just an arbitrary thing to go back to our previous point that like banks just don't want you to like put your money not in deposits.

• 1:08:05Logan Bartlett?

  But is 5 million the right number, I guess?

• 1:08:08Speaker 01

  I think it depends on like which group of customers that you're targeting, right? So I think, I think 5 million is a pretty reasonable number. Like, you know, if you only have 2 million in Mercury, you don't, like, we don't distribute it to more banks than necessary, right? So 2 million, like the less money you have, the less of the 5 million that you need, right? So, yeah, I don't know. I mean.

• 1:08:29Logan Bartlett?

  I assume the big banks are, I mean, the big banks are quasi.

• 1:08:34Speaker 01

  Covered, yeah.

• 1:08:35Logan Bartlett?

  Covered anyway, right? And so we're mostly talking about these regional.

• 1:08:40Speaker 01

  Yeah, I think the. I think they should split it between consumer versus business deposits. Like, I think that's a little weird that like a consumer would have 250K and a business would have 250K.

• 1:08:51Logan Bartlett?

  Not even the most lavish person's operating cash flow.

• 1:08:54Speaker 01

  Whereas it doesn't take much for a business to be 250K.

• 1:08:57Logan Bartlett?

  No, it doesn't, making payroll.

• 1:08:57Speaker 01

  If you have 10 employees, that's like 200, more than 250K often. So that split is obvious, like whether it's 1 million or 5 million or 10 million. You know, I think the jump from 250K to 5 million would be hard for Congress to do, but I don't know. Like, someone has the exact maths on this, like they can work out exactly what percentage gets insured beyond it. Yeah, 1 million seems like a minimal jump. 5 million or 10 million would be better, but we'll see.

• 1:09:25Logan Bartlett?

  What, um, we talked about a bunch of convoluted and sort of esoteric things in the US banking system, right? And as you alluded to in your accent entails, you're not originally from the United States. What, if you, if I could give you a magic wand to change a thing in this overall system and just make the banking system better and more pragmatic, so we don't necessarily need all these different levels of attraction? Or maybe that's a feature and not a bug of the system. Is there, is there something, you alluded to like a startup bank license that the UK, I guess, has earlier. Is there something that if I gave you a magic wand, you feel like it would make us actually have a better financial service ecosystem?

• 1:10:08Speaker 01

  I mean, it's hard to not be self-serving here. I think the most obvious and useful thing to us would be like if we had a startup banking license. And, you know, the way many of these startup banking licenses work is they, you can take deposits, but you can't lend against them. Which solves most of the problem with like why banking is tricky. Like, if you can't lend against a deposit, like, you know, I think in the UK, like you literally hold the deposits at the Bank of England. And like you can do all the payments, you can take deposits, you just can't lend.

• 1:10:34Logan Bartlett?

  And maybe, maybe explain why lending is how we end up in this very circular problematic state.

• 1:10:40Speaker 01

  I mean, lending is the, is, is the thing that you need to regulate the most. Like, when you take deposits and you do something risky with them, like lend them out. You just need a ton of rules for that because like if you make a mistake there and you like lose 5% of those loans, then

• 1:10:58Logan Bartlett?

  Global financial crisis or SVB or whatever.

• 1:11:00Speaker 01

  Every crisis that happens in banking is because of like a certain placement of the deposits, whether it's lending or buying treasuries or like buying, yeah, I guess the global banking crisis was like lending to like these underwater or risky mortgages.

• 1:11:16Logan Bartlett?

  It's wild, by the way, just like as a as a sense of irony that we went from like very risky home loan lending that brought down the, you know, the banking system in 2008. And now it's like buying treasuries or whatever. What SVB did was like one of the big

• 1:11:34Speaker 01

  No, they also bought MBS. They bought mortgage backed securities. So it was always mortgages.

• 1:11:39Logan Bartlett?

  They bought mortgage backed securities, but that were fully backed by the US government, right? Not risky subprime stuff.

• 1:11:46Speaker 01

  That's true. That's true.

• 1:11:47Logan Bartlett?

  It's always mortgages.

• 1:11:50Speaker 01

  That's kind of funny.

• 1:11:52Speaker 01

  But yeah, so if you can't lend, it's just like you just don't need as much infrastructure and risk control and like compliance and things like that. So so that's one method. And I think it would create a lot of innovation and it would be good for the US consumer.

• 1:12:10Logan Bartlett?

  And all this workaround stuff that we've taught, maybe the FDIC insurance.

• 1:12:14Speaker 01

  Yeah, you could just say, hey, this is held at the US government. Like you don't need to worry about T bills or FDIC insurance.

• 1:12:19Logan Bartlett?

  Be good for your business too. I assume you have to split some revenue with with your sponsor banks as well. So it would be

• 1:12:25Speaker 01

  Yeah, I mean, that's not even that bad. It's just like it would be mostly about like flexibility and like, once you charter, you can potentially do other things and go deeper. So that's one thing. Let's see. I mean, this magic wand seems powerful. I feel like I should use it for something else. That's that's useful. Yeah.

• 1:12:46Speaker 01

  When you're like very deep in a system, it's hard to like see how to like fix it.

• 1:12:52Logan Bartlett?

  I mean, I'm sure anyone listening to this that that isn't deep in this just sounds like, gosh, this is a fucked up Frankenstein-ish system that we've kind of landed in because of just outgrowths of things. And so doing it, I mean, your first principles thinker, I think.

• 1:13:08Speaker 01

  Yeah, one thing that like, I think we're almost there, but you know, in in the UK and EU and like India, like the government tends to like come in and just go like, hey, this is a new payment system. It's going to be real time. It's going to be instant and everyone has to adopt it. In the US, there's like a, the Fed Now is almost there, but even then they're not like, like there's this like element of not forcing people to just go use X, which like, you know, I think you could say is a good thing that like, oh, we're not forcing any. But like, sometimes it's just nice to go like, hey, everyone's going to be on this system. Like, otherwise you get end up with like a little bit of a tragedy of commons where there's like competing systems and like, you know, sometimes like,

• 1:13:51Speaker 01

  I wish the regulators would just do that. Like, it's just everyone's on the system. It's real time. It's done.

• 1:13:56Logan Bartlett?

  Yeah.

• 1:13:56Speaker 01

  Which is like what most other countries have done by this stage that care about like innovating on this stuff. So that's something else that seems obvious, but like maybe Fed Now will like solve it and it's supposed to go on soon anyway. So maybe that'd be an on issue. Oh, I have one more, actually.

• 1:14:10Logan Bartlett?

  Yes.

• 1:14:10Speaker 01

  The weirdest thing in the US system is account numbers and routing numbers have to be secure. Like, that doesn't happen in most countries.

• 1:14:18Logan Bartlett?

  Like encrypted or?

• 1:14:19Speaker 01

  No, like if you give me your account number and routing number, I can pull money from your bank account.

• 1:14:24Logan Bartlett?

  Yes.

• 1:14:24Speaker 01

  I can write a check against your account number. That's just not true in other countries. So like you end up with like this kind of, that's why like Venmo exists, like, and you know, like, you can't give me your kind of routing number, but you can give me your Venmo username and I can like.

• 1:14:39Logan Bartlett?

  How does it work in other banking systems?

• 1:14:41Speaker 01

  Uh, this, the whole like account number, it's in the UK, which is what I understand the most. You can just give me, like, I have my, all my family's account number and routing number equivalent. And I just can't pull money from their bank account. I can just send them money. So it's just purely like, like you want to spread it out far and wide because that's how you receive money. And if some business wants to pull money from you, there's a separate rails for that.

• 1:15:05Logan Bartlett?

  Got it.

• 1:15:06Speaker 01

  It's called direct debit or something like that. It's just like in the U S, they're just like, just like, hey, it's like the same thing that you do with social security numbers. It's just like, this is a secure thing, but you have to give it to everyone. It's just like so silly. It kills me. The social security number like also doesn't exist in most countries. And I found that so funny when I moved out. I was like, okay, so it's secure, but I have to give it to everyone.

• 1:15:27Logan Bartlett?

  Yes, that's right. Yeah. You have to write it down casually and just give it to people that you've never met before at the hospitals or whatever.

• 1:15:35Logan Bartlett?

  The day SVB played out, I guess, to shift gears now that we've spent enough time on, I think, the financial service industry. Where, where were you? Like, what? I mean, there have been rumors of a while. I'm sure you were paying attention to this fact. And then they raised $2 billion or announced they were going to raise $2 billion and shit hit the fan. So where were you when all this was going on?

• 1:15:56Speaker 01

  Yeah. I mean, the rumors started in like December last year, right? There was like some tweets, someone wrote a really good blog post that just like literally played out this whole situation. And most people just ignored them, but some people took it seriously. And then it was a Wednesday when the earnings report, was it earnings report? Like they released this news that they were like doing this capital raise. I think it was outside earnings report, but there was like an aftermarket release. And yeah, I was at home. I work from home mostly. We have an office, but you know, I'm in my bedroom. And I read the news and you know, I'm like, okay, you know, what's, what's going on here? And like some people, it was, it was quietish on the Wednesday. And then Thursday morning, like all hell breaks loose where like, you know.

• 1:16:42Speaker 01

  Just I try to be like available to customers, whether it's on Twitter or email. Like my email is extremely obvious. And and just like the amount of like, I need a bank account today, like and like or like VC's investors saying like, hey, how do I get portfolio companies to get a bank account? Like, how can you get it like today? Like, so I was just like, oh, my God, what's happening? And like, I was like, this is Bonanza, you know, from like, at that perspective.

• 1:17:07Logan Bartlett?

  Yeah, yeah, you're like, this is great. Everyone's reaching out to me.

• 1:17:09Speaker 01

  Yeah, I'm like, OK, you know, I have like literally like, yeah, this Sequoia company, this La Company, like, it's like the kind of thing that like, you know, we have all sales team that tries to get these people. So it was mostly like a positive thing, but at the same time, I was like, you know, I don't want to like, take advantage of them or like spread rumors. So we were very like, I think I tweeted one thing that was just like, hey, if you want a bank account for Mercury, DM me and I'll try to prioritize you. That's all I said, like, I was like, I don't want to get involved in and whatever's going on and it's, yeah, but mostly it was, yeah, SBB had been around for 40 years. I wasn't thinking like, hey, this is, you know, going to be a real big deal. I just thought it was like people freaking out, some people would sign up and we would, you know, we would get more users.

• 1:17:55Logan Bartlett?

  Over the course of the day, how did it escalate from like, hey, this Sequoia company's reaching out to me to, at what point was it like, oh, my gosh, this is, this is.

• 1:18:08Speaker 01

  I mean, I would say it wasn't until the FDIC walked in and shut it down that I thought it was going to be.

• 1:18:12Logan Bartlett?

  So it was the next morning, it was Friday morning.

• 1:18:13Speaker 01

  Yeah, because, you know, you have no idea how many deposits are leaving and, you know.

• 1:18:17Logan Bartlett?

  But I mean, I, I think they've now, they've said now it was $45 billion of outflow. And so I, I assume JP Morgan got the lion's share of.

• 1:18:25Speaker 01

  Yeah, but we didn't get like 40 billion, I would have been like, oh, fuck, we're done here.

• 1:18:30Logan Bartlett?

  Yeah.

• 1:18:30Speaker 01

  But.

• 1:18:32Logan Bartlett?

  But as a person, I mean, you know.

• 1:18:33Speaker 01

  Yeah, it was significant. It was a great day. And, you know, we, we ended up with a backlog at the end of the day. Like, we're trying to like, you know, we had, we were working through the evening to try to process all the applications and answer everyone's questions and things like that. So it's a Friday where I was like, okay, you know, like, this is serious and, you know, it's not all positive either, right?

• 1:18:54Logan Bartlett?

  What was your feeling when it went into receivership? I'm sure that was like, probably the best moment in company history in terms of just like, opportunity and inflow, but also a pretty dark time for the ecosystem.

• 1:19:09Speaker 01

  It was, I never, like, that Thursday, I would say, like, it was a positive time, but Friday was a very negative time.

• 1:19:16Logan Bartlett?

  Dark, somber, even though that might have been the best day.

• 1:19:19Speaker 01

  Well, it's just like, you know, as a, as a startup founder, you want like some level of uncertainty that you can take advantage of. But you don't want too much uncertainty either. And like, it just left a ton of questions, right? It's like, okay, you know, A, there was this whole thing about like, you know, will people trust small banks at all? Like, will they trust Mercury?

• 1:19:41Logan Bartlett?

  Was the data that you were seeing at that point in time?

• 1:19:44Speaker 01

  Oh, and also all the deposits had stopped. So from 2:00 PM on that Thursday.

• 1:19:49Logan Bartlett?

  Cause they cut off all the wires.

• 1:19:50Speaker 01

  It was after the wire cut off and then on Friday, they didn't process any money.

• 1:19:53Logan Bartlett?

  So you actually weren't getting, so in retrospect, the FDIC receivership was a boon for the business. But at that moment in time, you couldn't tell that that was going to be the case.

• 1:20:02Speaker 01

  And they could, you know, there's people saying like, startups are gonna die on mass, like everyone's like, you know, the startup ecosystem is hurt, like, that's obviously bad for us. And that's like 80% of our deposits, like startup ecosystem. Anyway, so, uh, yeah, it was a very, I would say like, we were freaking out as well.

• 1:20:21Logan Bartlett?

  Yeah.

• 1:20:22Speaker 01

  And, yeah, but.

• 1:20:24Logan Bartlett?

  Cause there's an existential question of why, why would anyone, not only your customers could be hurt or future customers could be hurt? Because I'm sure you had some people banking with both, right? But then also there's a question of why would you bank with? Anyone but JP Morgan or Citi, whatever. So what's changed for Mercury in the aftermath of all this stuff? Like, all this has played out, SVB's no more, First Republic's no more. What's different now for you guys?

• 1:20:52Speaker 01

  Yeah, one thing that's like, it's kind of a weird thing for, like, we only launched four years ago, right? So our main competitor disappeared and, you know, we were doing pretty well. I'd say like SVB and us had like probably 50 to 60% of like the early-stage startup markets. So, but it's just weird to go from like the underdog to like, at least for the startup banking space, we're kind of the incumbent now. So that's kind of like psychologically strange for me as an entrepreneur. I've always been the underdog, right? So that's like a little bit of a shift. You know, practically speaking, not that much change. Like, we were actually, you know, we onboard like thousands of customers a month and we tend to have like a much broader aperture than like SVB would like, you know,

• 1:21:37Speaker 01

  any business really can bank with us and 30% of our businesses are e-commerce. And, you know, we have all sorts of like categories that are outside the startup space as well. So, so not that much change. Like, volume is definitely higher and continues to be higher. I think the future opportunity is like kind of interesting. I think, you know, there are ideas that I have that are like, only makes sense when you're like a significant percentage of the market share. So like, if you, yeah, we haven't built this, but like, if you think about like payments and like businesses, right? Like, if you wanted to do like a Venmo-type experience, and there's lots of levels to that with businesses, because they have invoices, they have all these things.

• 1:22:19Speaker 01

  Like, once you have a critical amount of market share, you can build like some of these experiences out. Similarly, with like some like partnerships and platform-type things you can do. So I've always, you know.

• 1:22:31Speaker 01

  Maybe this is like a little bit of hubris, but like the reason Mercury was like a fun idea for me is that banks are kind of like this fun intersection where like every business needs it. If you think about like things that every single business needs, there's only like three or four. It's like payroll, banking, bookkeeping. Maybe that's I guess website, uh, like those four. Uh, so that's kind of cool. And then all your money is there. It's one of the first things you need. So you lead to like a lot of interesting things you can do and those things actually get a lot more interesting when you have like a critical level of market share. Because when you're small, like it's not worth building a bunch of things that are required that network effects. So I think that's like something interesting. We're, we're thinking about like, how do we build a few kind of products that like experiment with this?

• 1:23:17Speaker 01

  Apart from that, uh, let's see other things. So there's a few industries that previously we did not matter too much to. So like take the VC industry, like, you know, between First Republic and First Republic and SVB, I thought it was like pretty well served. Whereas, you know, we had a ton of signups from them and, and now no one's quite serving their needs. So we, you know, we're building some stuff around that. Life sciences as well, like that's another industry where.

• 1:23:46Logan Bartlett?

  There's a big void to sponsor ski trips to like Tahoe and.

• 1:23:49Speaker 01

  Yeah, I don't want to get into that, but we were, we are starting doing a lot more events. So any VCs listening out there, if you want to do a dinner and you need a sponsor, uh, hit me up. So yeah, we're doing a little bit, but yeah, we want to, we don't want to like just copy those models or fill in all the gaps.

• 1:24:06Logan Bartlett?

  Have you hired ex-SVBA or First Republic people?

• 1:24:09Speaker 01

  We're about to, I mean, we have some like previous ones. Uh, we didn't do the whole like, let's go try to put your team.

• 1:24:16Logan Bartlett?

  HSBC playbook.

• 1:24:17Speaker 01

  Yeah, we didn't do that, but there's, there's definitely going to be a couple we end up having.

• 1:24:20Logan Bartlett?

  So I guess going back, uh, to the, the origin, um, how did you actually land on the idea for Mercury and think that this was a good thing to go after?

• 1:24:32Speaker 01

  You know, one thing that's like kind of interesting about Mercury, which wasn't true about my, all my other startups. So this is my fourth startup. Other startups like, you know, I did this all like, oh, let's do a brainstorm of ideas and like, oh, this is my favorite. And I was going, I was like, okay, let's just do it. This one like really fermented for years and years in my mind, which is, and normally I, you know, I. I get bored of ideas. I'm like, oh, this is a good idea. And then I get bored of it. So the fact that it fermented was like quite a good signal for me. There's a few things that led to it. So A, moving from the UK to the US and going, okay, you know, banks were a lot better in the UK, which was a real surprise to me because like I'm always like, you know, I'm moving to Silicon Valley. This is the future, but like you end up going there. And it's like a bunch of things are still pretty backwards, which is kind of funny.

• 1:25:14Speaker 01

  So that was one thing. Number two, as an entrepreneur, like it was really hard to run a company in two thousand and six. So like there was no stripe. I once did authorize.net, which is like a real old school way to try to do card processing. There was no, yeah, I used, we used ADP for payroll and like a person came in our apartment block. Like there was like two of us. We could barely afford anything. Like they came with a flipboard to set up payroll. And I was like, what is this person doing? And why can't I just go to a website to do this? Uh, and yeah, there was no slack. So anyway, everything was hard. So like the fact that banking was hard was not a big deal. Because you're like, okay, it's just hard to do anything as an entrepreneur. And I have to use kind of crappy products to do everything. And then everything kept improving.

• 1:25:56Speaker 01

  So by, you know, by two thousand and twelve or thirteen or whatever, I was like, okay, you know, pretty much everything is like modern products now apart from banking. So that was like, you know, it was just one of these things and I'm, I'm pretty good friends with the Gusto co-founders. So I was like there when they fixed payroll, in my opinion, at least like, you know, it went from like ADP, unusable website to like these weird onboarding processes to like a really nice product. I was like, okay, you know, payroll checkbox. It's like banking was just obvious, like cross. So that was one aspect of it. And then, uh, and this guy probably doesn't even know this. And I don't know if I've even said this on a podcast, but there was this guy. His name is Kai. He was a, he did this company called True Link and it went through IC around two thousand and thirteen.

• 1:26:41Speaker 01

  And they were giving like these debit cards to seniors.

• 1:26:46Speaker 01

  Yeah, there's something powerful about being in Silicon Valley and being in Y C because you see all of these people and you're just like, these are normal people, right? It's not like, you know, when I was in London, I was like, they were like, you know, Y C, like all of these people were like these weird gods, gods of startup, right? Whereas you meet these normal people and you're like, okay, you know, this person, completely normal person like managed to issue a MasterCard, right, to seniors. I was like, wow, if he can issue a MasterCard to seniors, why can't I do it for startups? Right? Obviously, it's not as simple and he, you know, I think he's, if he's still working on it. Um, the, uh, but that made me go, okay, you know, I had this idea for a while and now I could see someone had done it and, yeah. Generally speaking, if I meet someone and they can do it, then I'm like, I could probably figure it out too.

• 1:27:32Speaker 01

  So all of those things kind of came together and then in 2017, I was like, okay, what can I do that I could really do for like 10, 20 years? And I, you know, I had this idea for a long time and actually what the crystallizing thing that really was like, gave me confidence to do is this kind of platform kind of concept. I was like, I really want to do something that's not just one feature and I'm like kind of done. I wanted to do something where like in five years' time, if I was at least slightly successful, then I could do even more interesting things on top of it.

• 1:28:01Speaker 01

  So it came kind of together. It's like, yeah, it's a combination of those factors.

• 1:28:05Logan Bartlett?

  Let's say the startup bank license never ends up happening. Do you think ultimately you become a bank in the future?

• 1:28:10Speaker 01

  Yeah, at some scale, I think it'll be a little bit of a no brainer. Yeah, Square did it when they were about 20 billion in valuation and they've done it in like a nice way where it's like, you know, it doesn't disrupt their normal business and it's like a separate thing. They call it Square Capital, I think.

• 1:28:26Speaker 01

  Like that kind of way of doing it like is, we, basically every year I have someone at the team go like, oh, can you go look at like, can we do this? And then every year they're like, yeah, it's probably not a good idea. So one year they'll come back and say, yeah, let's do it and then we'll do it, I guess.

• 1:28:39Logan Bartlett?

  2010, Paul Graham said, Ahmad is one of the best at fundraising of all the alumni. So whatever he has to say about the topic is worth listening to. What, what fundraising or advice or strategy do you have for, for founders?

• 1:28:53Speaker 01

  Honestly, I didn't think I was even that good in 2010. I think I'm much better now. What's actually the biggest thing that I never understood back in 2010? I think a lot of founders miss out on is, you know, when you get a VC or an angel. A lot of the aspect of it is like, I'm gonna know this person for ten years. Like, as I invest quite a lot since two thousand and sixteen. And like, you know, I talk to someone, I'm like, okay, you know, I'm, I'm, when I invest in something, I'm basically making like an implicit promise that if they email me, or they want a meeting or something like, I'll, I will talk to them, right? Obviously, if I'm busy, it's different, but, but that's like a big commitment to make to someone. When you invest, you're probably like, I'm on the board for ten years. So that's a huge commitment.

• 1:29:37Speaker 01

  So there's all of this kind of rational, like, does the market size make sense? Is the distribution model? But the other side that I think a lot of people miss is this kind of emotional, human connection side. People think of it as like, it's a transaction, I'm gonna get this deal done and I'm gonna move on. Like, how quickly can I close it? And then, like, they just miss out on, like, actually, like, you should just spend some time, like, making sure that you like the person, because if you like them, they'll like you, right? Like, there's this, like, obvious relationship building things that, at least as an early entrepreneur, I had no idea that that was like in the mix. And I mean, now it seems obvious to me, and maybe it seems obvious to most people. But just spend a bit of time going like, who is this person? Like, you know, why would they like me? And like, you know, not game it, like, be authentic about it.

• 1:30:22Speaker 01

  So I would say that's like the biggest, biggest step. I think the, the second thing that I think is, I mean, it's kind of related to this. I mean, I'm an engineer, right? So like, I try to, my base instinct is to be very rational and like, give the facts and walk away. So like, a lot of my learnings from fundraising are like, trying to unlearn my engineering instinct. And the, the second thing is just like, how much the story matters? And it's like, how do you weave the emotional story? It's like, okay, you know, like, even these questions about like, what's the origin story? And like, what is your motivation? And like, you know, how are you gonna like, go from? Like, I mean, if you think about like startup investing at early stages, it's kind of crazy, right?

• 1:31:05Speaker 01

  Like, I talk to some person, they have nothing. They're generally actually quite inexperienced in that space. And now they're telling me a promise that they're gonna in ten years' time sell a billion dollar company, right? It's a crazy kind of bet that people are making. And there's no amount of logic that gets you to, uh, I'm gonna be doing a hundred million in revenue from zero today. Like, the, the, the actual thing that gets you there is the story and the emotion around the stories. Like, you know, how passionate do they get about it? And like, some of it is like performative for investors, but also like, they need to sell. The same story to employees, they need to sell the same story to their customers. So if they can't weave a good investor story, they're not probably not going to succeed. I mean, I'm sure there's exceptions to everything, but so that's like the other part to it.

• 1:31:48Logan Bartlett?

  Would you start with the answer in some ways? I mean, think through what's actually true and like your motivations or your vision or the origin stories or all of those things. Think through what's true and then try to hold that together in a holistic manner.

• 1:32:05Speaker 01

  Yeah, I mean, like it has to be like, sometimes I hear origin stories. I'm like, you just made that up. Like, I mean, it has to be like somewhat authentic and true to the person, right? But I think, I think it's tempting to like not think about like the story arc. So I'm always like, you know, early stage founders, I'm like, oh, what's your story arc? I'm like, okay, you know, firstly, you start with yourself, like set that up as a story and then like twist into, oh, how did you end up in this idea? And then twist into, oh, actually you found out it was a huge market. And then like, oh, you've already built the product and oh, you already have like initial customers. You want to make this oh, oh, oh kind of thing, which makes like a really nice like complete picture. But each part of it is like, should be interesting and like very authentic and convincing.

• 1:32:47Logan Bartlett?

  I know you believe, we were talking before, and the nuance of advice is very specific to each, each situation, but are there, are there broad based things or advice that gets given that you're like, listen, I just think that's wrong in how broadly that gets communicated, right? Like, sure, maybe it's true for a couple of percentage points of the population, but it's been overly extrapolated. And I just don't think that's a good holistic piece of advice to have hanging out there in the technology or startup ecosystem.

• 1:33:24Speaker 01

  And this happened especially in like the 2021 bubble, but like I think we haven't really shed it. There's this like belief that like more money equals more growth. Like I think the valley kind of got obsessed with this idea and like VCs kind of pushed it to some extent, but you know, created like.

• 1:33:44Speaker 01

  And this is probably like fairly controversial, but created like these huge companies that have like,

• 1:33:51Speaker 01

  there's some companies with billions of dollars in revenue that like can't like just be cash flow positive. I just find it like a little weird. I'm like, hey, we're building software businesses. The whole point is like, we don't have humans doing things like, why can't we just build like cash flow positive businesses? And like, if you look at the previous set of businesses, like, you know, Facebook, Google, Microsoft, etc., like this throw off cash flow and like, you know, sometimes people are like, oh, but Amazon is an example of this, but actually, Amazon is not a good example of this because like, A, they were always very cash flow, like positive to some extent, right? Even when they were burning money, they always had a ton of like cash flow from the way their businesses construct. And B, they're dealing with like real things moving like that's an expensive business when you have warehouses like, fine, there's some exceptions to that. But like these software businesses that just can't make money, I just find them really weird.

• 1:34:36Speaker 01

  Like, I think that's probably, I just think we ended up in this weird mindset where like everyone was like, grow, grow, grow, spend as much money as possible. And I, I think there's just a lot of like bloat in there and I don't think the logic makes sense as much as people think it does.

• 1:34:53Logan Bartlett?

  You tweeted recently and it started, I mean, I think you got hit with the Keith or boy wrong.

• 1:35:00Speaker 01

  Oh, yeah, that was amazing. That was my first bad advice.

• 1:35:03Logan Bartlett?

  Yeah, I think it's what he said, friend of the pod, Keith.

• 1:35:08Logan Bartlett?

  Early founders who are not already wealthy should probably take early acquisition offers. In my last startup, we started in 2009 and could have sold in 2011. Instead, we decided to go for a home run, took us another five grueling years to get to only a two X bigger exit.

• 1:35:21Speaker 01

  I don't know if Keith made it to the third tweet in that tweet thread, which I appreciate those tweet threads are annoying. There is a big disclaimer. Like if you have product market fit and like it's smashing your head in with product market fit and yeah, like, I think when people have had that, they know that feeling. And you're in a big market, there's no way you're going to get an acquirer to like give you a reasonable valuation. And that's, that's a big disclaimer. But I would say, I talk to entrepreneurs all the time that like, oh, I'm considering this exit and like 99% of the time, like they do not have that like strong product market fit. Like they have some sales, it's not an unsuccessful product, but they're very far away from like, you know, this is going to be 10 X bigger in two years and I'm like pretty sure of it.

• 1:36:08Speaker 01

  And in that situation, like, you know, if you're poor, especially and like, you know, not everyone is like this, but I, it's not like I like was like poverty, but I never had money, right? Like I had to, and most of the time I've done a startup, I've like had zero in my bank account when I started it and I funded it using credit card debt or whatever. So in that situation, like you actually kind of risk averse a little bit, like the ideas that you think about on as big. You know, I was until basically two thousand sixteen, when I sold my startup, I was always like, my bank account was basically zero all the time, right? I would only pay enough salary to like, just basically survive.

• 1:36:46Speaker 01

  So that first like money really makes a difference, right? Like, I don't think I would have tried it. Like I have two kids now, but I had one kid when, yeah, I guess I was thinking about Mercury. I don't think I would have tried to do something like Mercury if like I didn't have money in the bank. I would have been like, okay, maybe I should take a job or like do something like that's a little bit more obvious. So I do think like it's a little bit of like a place where VCs and founders have like this unaligned incentives. Yeah, diverging interests. Diverging, because like, you know, I had a conversation and I kind of felt bad for this person because like they were like so happy. They were like, hey, you know, I'm going to give you ten X your money.

• 1:37:26Speaker 01

  As an investor, so I was investing in this guy's company is like, I'm going to give you ten X your money. I was like, hey, man, that's, I'm really happy for you. You've made it like a home run for you. You're like set for life. And I didn't want to say it, but like I was thinking, you know, ten X is not like, it barely pays off my other ten nine investments, like if you were doing well, like let's go for a hundred X, right? And that's just the seed, that's just the seed investor mentality is a hundred X, like maybe series A is like more like thirty X is makes them happy, but but it's just a very different like misaligned incentive. So I do think there's like. There's three ways that having your first money makes a big difference. Like A, you know, the the difference between your life between like zero dollars in your bank

• 1:38:09Speaker 01

  and a million dollars is like way bigger than a million to 10 million, right? Because like you just go from like, I don't have to worry about money every day to, yeah, it's very different. B, uh, that that first money is much easier to get. Uh, like selling a business for 10 million is more than 10x easier than selling for 100 million. Uh, because it's just like, there's just less people out there that can buy business for 100 million. And 10 million is like a, yeah, I mean, like for Google, it's not even a bet. Like they just have to like you and then have a vague kind of idea of where it would work and they can spend 10 million on it. Uh, anyway, there's just so many factors where that one million is often the right choice for people. And I just see it often where people just like have this like mentality and like you

• 1:38:53Speaker 01

  kind of have to have like this crazy thing like I'm going to keep going like the perseverance. Like there's all of these like entrepreneurial antibodies to giving up and it feels like you're giving up on yourself for like an exit that only gets you like a million instead of a home run. Uh, but yeah, I mean, if you saw a few VCs were like, oh, this is not good advice. And then all the founders were like, I wish I'd done this and blah, blah, blah. And like, actually, 2021 has left people feeling like pretty, uh, pretty bad about not doing it because, you know, I had one company that sold like right at the peak and I was like, good for you guys. But a lot of people had opportunities to sell, they didn't sell. And now they're looking at this relatively bleak future where like they have overvalued

• 1:39:34Speaker 01

  companies, probably no option to sell for a long time, maybe like, you know, it was growing because of like, you know, everyone was spending a lot of money and they're not growing anymore. And, you know, it's a difficult time for people. So I think that's why I like that tweet really like resonated with people thinking they'd made some like, you know, bad decisions.

• 1:39:52Logan Bartlett?

  You had two very different launches, uh, in ways of finding product market fit. For Mercury, we've touched on a little bit of it, but I do want to ask specifically about the launch where you guys kind of came out like gangbusters, I feel like. Uh, but HAZAP, your prior company, finding product market fit was very different, right? And how you went about that? How did you think about finding product market fit for that business? And how did you knock off the the different ways to getting to that point?

• 1:40:20Speaker 01

  Yeah. Yeah, every time, so my previous company, Haze App, we did four full pivots. And every time we tried to do one of these pivots, we like always made noise. We got a tech crunch article, but like nothing ever happened, right? Like you can do all this thing and then you're like, okay, well, you know, for a couple of weeks, it's like slightly exciting. And then you have to like get figure out like distribution and product and things like that. Mercury was quite different in that we launched and it just like kind of worked.

• 1:40:47Speaker 01

  In the case of of Haze App, you know, we

• 1:40:52Speaker 01

  we ended up in this like relatively niche thing where like you could really only end up with it through this like weird idea maze walk we'd done. We we launched a social network for mobile gamers in like two thousand and eleven. And then that didn't work, but we started showing ads within the network and we're like, oh, you know, why don't we just take these advertisers like there was an advertiser, there was a Japanese company, I forget, it starts with D. Anyway, they gave us like a sixty K check and they were like, give us installs. That was the first money that company ever made. I was like, Jesus, they just gave us sixty K for this like. It was like, it was a wild west back then of like ad attribution and all this stuff. So you're like, okay, you know, if you can get sixty K from a few other people, why don't we just show ads in other people's games and apps rather than just in our own one.

• 1:41:37Speaker 01

  So we launched an ad network and we were like one of the first like nice looking ad networks on Android.

• 1:41:44Speaker 01

  So we did that for a bit and then and then we're like, okay, you know, it's really hard selling ads and like we don't, we don't really like doing the like. Ad networks are just all a sales game, like most ad networks are like ninety percent salespeople and ten percent like product and engineering. And we're like, that's not the kind of company we want, like, that's not even our main differentiation. But there's this like technology called mobile mediation, which like basically if you are a app developer, you want to plug in five different ad networks and like you want to show this one in Turkey, this one in England, you know, you want to do all of these optimizations. And most of the indie app developers don't have time for these optimizations, so they end up doing something dumb like they just put one ad network in.

• 1:42:26Speaker 01

  And she's like, hey, what? And there was a few players in this space, actually the biggest one was this company called Mopub that Twitter had acquired, but like they were like enterprise players. They were not like developer friendly players. So then we were like, why don't we just build this thing? So it was even getting to the idea was like a real idea maze kind of thing that like, you know, outside this space, you would never even think this idea exists, but like you could kind of get to it from there. So we built it. And then, you know, we had like few users, but it wasn't that good. And then what we did is, you know, we did have a smallish sales team that was like five of us. And actually, my, uh, my current co-founder was like the best of them. And, you know, he, I mean, they were all there, like, he was the real driver on the product side. He would go out there and say, okay, you know, I talked to these many people.

• 1:43:11Speaker 01

  They said if this existed, uh, that they would sign up and we would like basically write down every single feature that we could build. Uh. And, you know, it was very practical. It was like, we would talk to someone and they'd say, oh, you know, the thing we really need is like, it's good that you do video ads, but we really need banner ads. Or, uh, it's, you know, it's good that you're doing this optimization, but we need to like, see what the hell you're doing. So you need to like visualize like what the reporting and all that kind of dashboard is. So we wrote down all this list and we're like, okay, you know, this is it. Like we would only care, to some extent, we care about the ones that had like these hit apps that were like the biggest ones. Uh, and we'd say, okay, you know, what are, we'll get to the most, most number of these hit apps. And

• 1:43:54Speaker 01

  like in this world, and actually it's true for like most world, like it's very shocking if like someone asks for something and then you deliver it. Like that, that doesn't actually happen that much in like product development. And, you know, in this world, like none of the other companies were really product companies. They were like much more of this kind of sales archetype. So, so, yeah, we just like made this list and we were just like, do the top one. And then we're like, okay. Sometimes they would buy, sometimes they won't. And we just did this for like nine months straight and it just, there was one day where it just like flipped and the flip was literally like, you know, we just woke up one day and like the top game on iOS or maybe Android, I can't remember which, was using Haze App.

• 1:44:36Speaker 01

  And we hadn't sold to them. Like they'd literally come to us and they'd signed up and they just like ended up using it. Uh, and we were like, whoa, how'd that happen? Because like everything up to then was like us like really trying to like sell this thing to death. Uh, and that's like such a good feeling where it's like, you know, the distribution like becomes like.

• 1:44:55Logan Bartlett?

  And it was just you just kind of got the fullness of feature set that

• 1:44:58Speaker 01

  Fullness of feature set and then like started building up a reputation where people were like, "Okay, you know, this actually works. They deliver." And like, you know, and you know, all of these ecosystem have like networks underneath them, right? Like, so like a, an app developer would use some contractor and the contractor would interact with his app. And then that, that person would go to the next app or game that they were working on. And they'd be like, "Okay, you know, this worked really well. Why don't we just use that?" And you'd end up like with these distribution. And I really think, uh, to come back to the previous point we made about like, why it costs so much like build software, it's like distribution is a real problem. Uh, and actually product market fit is often just, the product's good enough that it distributes itself. That, that's really what product market fit often means, I think.

• 1:45:41Speaker 01

  Uh, like you just want to be so good that you're like the winner in that space. And, you know, and like one thing that people always think about product market fit is like binary. But I do think like you can be product market fit in a niche, right? Like we were, if you were a huge app company and you wanted all of these like complicated like, you know, you had like three or four people that were doing ad optimization at your company. Like it wasn't a, and maybe it would work for you, but it wasn't like the thing that like, we had product market fit. We had product market fit as like, you couldn't afford an ad optimization person and you didn't want to think about it. And you know, we just wanted to integrate and it was done kind of thing.

• 1:46:17Speaker 01

  But yeah, that was a, that was a great feeling. And then

• 1:46:19Logan Bartlett?

  The last, the last one before I want to like, uh, before I'll let you hop, but, um, you, you've had a big network of investors and it seems like you've built good relationships with a lot of different people. How have you used that to your advantage? Why has that been important, uh, in Mercury's success?

• 1:46:34Speaker 01

  So in our seed round, we had 16 investors.

• 1:46:37Logan Bartlett?

  Six zero.

• 1:46:37Speaker 01

  Six zero. And in the series A, I think at 40. And the, the idea that I had, which I think played out quite well was like, A, this kind of earlier point about brand and building trust. I wanted to have as many people that people respected and a variety of them. I had fintech investors, I had like prolific seed investors, uh, and then I had like a few big kind of funds. Uh, so that was one aspect. The second aspect was like, I, I was like, I don't know where I'm going to get distribution like, uh, but maybe if I have lots of investors and they have lots of companies, portfolio companies, they will, you know, push it and sell, sell us to, to their portfolio companies.

• 1:47:17Speaker 01

  The key to getting this many is actually slightly ironic is like is to first get a lead investor. So in both the cases, I first got the lead. It's much easier to go, especially to someone you don't know. If you go to an angel investor, you're like, hey, Andreessen Horowitz is already funding my company. And I think you will be a great person to invest in it. So like, then you can go to pretty successful people and like say that. And yeah, if someone sends me an email like that, I'm like, well, that's like, it's already been vetted. Someone did all the work, like, I'll still talk to them to like, make sure I like it. But like, it's just so much easier to get through the door when you and you can even call me. So that's what I did in both cases, like I had a few investors before the lead. Then I got the lead and then I filled out the round with like small checks.

• 1:48:00Speaker 01

  But it's just nice. I mean, you know, I used to send very, I've stopped for various reasons, but I used to send very detailed investor updates every two months. And I always had to ask at the start. And it's just surprising, like you'd have an investor that you haven't spoken to for 12 months. And they, and you'd say, hey, I'm looking for a designer or a VP of marketing, whatever. And they'd be like, oh, I know a friend and they'd introduce me and I'd be like, okay, you know, you paid, like you gave me money for this. And we also like gave me value add.

• 1:48:26Logan Bartlett?

  Totally. And oftentimes the smallest checks are the ones that work the hardest, right?

• 1:48:29Speaker 01

  Yeah, on a ROI basis, it's amazing. Yeah.

• 1:48:32Logan Bartlett?

  Yeah. Well, that's great. Well, thanks for doing this. I appreciate you making the time and answering all my questions. This was fun.

• 1:48:38Speaker 01

  Yeah, this is really good. I love going deep on this stuff.

• 1:48:40Logan Bartlett?

  Yeah, awesome.