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

William Hockey is the co-founder of Plaid and the founder and CEO of Column, a software company that owns a bank and powers Ramp, Wise, Bilt, Mercury, and others. He funded Column by borrowing against his Plaid shares and has never raised outside capital. William talks about what owning 100% of his company allows him to do that other venture-backed founder cannot and the personal risk he took to do so. He shares how Silicon Valley's consensus culture produces consensus founders, and why becoming a founder has become too safe. He believes the best builders are specialists and explains with unusual clarity what it takes to become the best in the world at one specific thing. William also spends a lot of time in emerging markets which has given him a unique perspective of the power of the US dollar. For the full show notes, transcript, and links to mentioned content, check out the episode page ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠. ----- Become a Colossus member to get our quarterly print magazine and private audio experience, including exclusive profiles and early access to select episodes. Subscribe at ⁠colossus.com/subscribe⁠. ----- ⁠Ramp’s⁠ mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Go to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠ramp.com/invest⁠⁠ to sign up for free and get a $250 welcome bonus. ----- Trusted by thousands of businesses, ⁠Vanta⁠ continuously monitors your security posture and streamlines audits so you can win enterprise deals and build customer trust without the traditional overhead. Visit ⁠vanta.com/invest⁠. ----- ⁠WorkOS⁠ is a developer platform that enables SaaS companies to quickly add enterprise features to their applications. Visit⁠⁠ ⁠WorkOS.com⁠⁠⁠ to transform your application into an enterprise-ready solution in minutes, not months. ----- Rogo is the AI platform for finance. They're building agents for Wall Street that are trained to understand how bankers and investors actually do work: from diligence and modeling, to turning analysis into deliverables. To learn more, visit rogo.ai/invest. ----- ⁠Ridgeline⁠ has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Visit⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ridgeline.ai⁠. ----- Editing and post-production work for this episode was provided by The Podcast Consultant (⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://thepodcastconsultant.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠). Timestamps: (00:00:00) Welcome to Invest Like the Best (00:02:43) Intro: William Hockey (00:03:49) Column: A Software Company That Owns a Bank (00:06:46) Finding Ideas in Emerging Markets (00:11:58) Why Constrained Societies Are More Innovative (00:16:02) What’s Wrong With Silicon Valley (00:19:28) Building a Business Without Raising Money (00:22:48) What Venture-Backed Companies Can't Do (00:28:39) Getting Margin Called (00:31:41) Starting Companies Has Become Too Safe (00:34:23) Why Employees Take More Risks Than Founders (00:37:09) A Maniacal Commitment to Research (00:39:09) Finding Boring Problems to Solve (00:41:45) Why Building a Second Company is Easier (00:42:36) Missionary vs. Mercenary (00:45:49) Funding a Company with Cash Flows (00:50:04) Perspective on the Venture Ecosystem (00:52:48) The Dominance of the US Dollar (00:58:37) The Future of Financial Services (01:02:06) Why Big, Inefficient Brands Win From AI (01:06:29) The Opportunity for Non-Consensus Founders (01:08:03) The Kindest Thing

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

• 0:01Patrick O'Shaughnessy?

  Ramp is the only platform built to make your finance team leaner, faster, and better, saving businesses 5% annually on average, so you can stay focused on growth. Ramp just opened for business in the United Kingdom, so if you're running a business in the UK, you can now use Ramp's AI-powered finance platform to manage cards, expenses, bills, approvals, and accounting all in one place. I run my business on Ramp, and so should you. Learn more at ramp.com/invest. Rogo is the AI platform purpose-built for financial institutions, serving tens of thousands of bankers and investors at hundreds of leading firms worldwide. Rogo's AI agents autonomously execute large chunk of your firm's workflows. They can screen deals,

• 0:42Patrick O'Shaughnessy?

  draft SIMs, run buyer outreach, and do diligence on data rooms, all with full security and compliance handled. Every action feeds Rogo Intelligence, the firm's context layer, turning years of deal experience into a secure, governed institutional memory that makes each new transaction stronger than the last. To learn more, visit rogo.com/invest. OpenAI, Cursor, Anthy, and Vercel all have something in common. They all use WorkOS. To achieve enterprise adoption at scale, you have to deliver on core capabilities like SSO, SCIM, RBAC, and audit logs. Instead of spending months building these mission-critical capabilities yourself, you can just use WorkOS APIs to gain all of them on day zero. Visit workos.com to get started.

• 1:30Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus, along with all of our podcasts, at colossus.com.

• 1:54Speaker 01

  Patrick O'Neal is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.

• 2:22Patrick O'Shaughnessy?

  My guest today is William Hockey, the founder of Column. William was also the co-founder of Platte, one of the more famous fintech businesses from the last decade. Column is his second business, which he's built from scratch and funding it entirely himself and building it his way. I think you will find this conversation utterly fascinating, not just because of the incredible quality of the business that he's built, but how maniacal he is about studying and implementing ideas in this specific field. This is a great example of a founder that is winning because he is willing to do everything. My favorite example from our conversation today is that he went and found some obscure book about some ancient bank and found one idea buried in the 2,000 pages that gave him a simple idea for his product.

• 3:06Patrick O'Shaughnessy?

  He's willing to do that over and over again, and he explains his very different, maybe even heretical views on a lot of what's happening in the world of startups and technology today. He offers a very different way of building that I think will be inspiring and interesting to those that want to build a company. Please enjoy my conversation with William Hockey.

• 3:27Patrick O'Shaughnessy?

  Usually I don't start with a description of the company that someone's building. But in your case, one, I don't think a lot of people are yet familiar with Column, and I want to fix that. And it's such an interesting beast in and of itself that it'll be our excuse to talk about many fascinating things in the world. Can you just start by explaining what the business is and does?

• 3:49Speaker 02

  At a high level, we are a software company that also owns a bank. And what we do is we say, okay, we have this interesting regulatory mo, we have a bank that most other people don't have, and we're going to build this incredible software behind it that nobody else can build because they're not a bank. We started out by serving a lot of software companies that want to get into financial services in the US. So with a backend infrastructure that powers the payments, deposits, credit of amazing companies like Built, Wise, Ramp, Brax, Mercury, these type of companies, they run on our software than our regulatory rails. Then we also expand that to anybody who want to do things with the global dollar. So that could be international fintech.

• 4:30Speaker 02

  That could be a lot of times global banks or banks in emerging markets that need to transact holdings in the dollar. So in the US, you have vertical software, people building business software. This is an area that is probably going to get changed as AI kind of rolls through. So people need to go deeper down into the business. Just building software for software's sake is not the case. And so now people actually need to control the underlying finances of business at the Brex ramps of the world to prove then that you can actually build enterprise software that also touches the money. But in order to do that, you actually have to control the dollar. You have to control the money, whether it's lending money, holding credit, et cetera.

• 5:11Speaker 02

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

• 5:17Patrick O'Shaughnessy?

  Could you maybe like pick a customer that people might recognize and describe literally what services or products they use? And then how they pay you for those products or services to really nail it home?

• 5:26Speaker 02

  So maybe I'll use a company out here that recently relaunched company called Built, which is maybe a lot of New Yorkers have, a lot of people in cities have. If you look at the card in the back, it says issued by column. And so we're the one that is actually connecting with the networks, managing the networks. And we're actually the regulatory entity behind that. And then when you need to go pay your rent or your landlord is going to detect money from your built account. If you look at like, oh, the account routing number there, oh, that's actually a column account routing number. And so they build the application, they build the website, they build the consumer marketing. And we're going to handle everything behind the scenes that has to deal with the Federal Reserve or TCH or the card networks or SWIFT. We're the one that kind of build the software for that and handle all that complexity.

• 6:09Speaker 02

  We are technically a bank, but unlike banks, we make 90 plus percent of our money off of software. And so similar to any SaaS company, it's a per API call. It's a pure play tech business. And then we pass most of the economics from the actual bank side of the business down to all of our customers.

• 6:25Patrick O'Shaughnessy?

  One of the things I love whenever we talk is you've always been somewhere strange and interesting. Kinshasa, I think was the last time we were together. I don't know a lot of founders go to Kinshasa very often. Why are you so often in interesting bizarre locales around the world?

• 6:39Speaker 02

  So this is my second company. I started Plaid back in 2012 and it's very easy. To stay in Silicon Valley. Quality life is amazing. There's a lot of money to be had. There's a lot of super smart people. But you can start to get quite isolated and you can start to get very consensus focused. Probably a lot of your listeners read Dan Wang's last letter on China. He has this great, and I think accurate, but somewhat harsh criticism where he says the two most consensus societies he's ever been to is San Francisco and Beijing. And I think that's quite accurate, actually. Where San Francisco is probably the most consensus place I've ever been to. And I think that is both a huge clutch for us, but it's also probably our most valuable asset.

• 7:24Speaker 02

  Because as a founder, if you're building an AI or like stable coins or something that San Francisco believes is very consensus, but the world does not believe yet, that's actually a great operating environment. Because you can go and you can have these outlandish ideas that other people are going to believe in, that nobody across the world will believe in. And you can build this in a very like safe way. And that's why Silicon Valley and San Francisco was so dynamic and we're so a front of the curve. But we also have completely lost touch with how the rest of the world operates, how everyday American operates. And you've probably seen this smack this in the face over the past decade or two. And so I think it's very important to go to places that don't have that same bias. And I think if you think about emerging markets specifically, the founders who built

• 8:06Speaker 02

  there, there's the everyday people, they live in this constrained society. They're constrained in a way that like San Francisco and New York isn't. And that breeds a different type of creativity, breeds a different type of innovation that you really can't get anywhere else. If you go to talk to people in London or Vienna or Mexico City or San Francisco, whatever, people are living in, to an extent, in a world of abundance. And that causes a very specific creation cycle. Why, if you go to Kansasha, which is the capital of Democratic Republic of Congo, it's going to be the largest city in the world then in probably five to 10 years. I think it's already larger than most of the mega cities. Wow. Probably 95% of people in Silicon Valley couldn't tell you what Kansasha was the capital of. But tens of millions of people that live in a highly, highly constrained society.

• 8:52Speaker 02

  And so that breeds a sense of creativity, that breeds Ideas that read stuff that you can't really get anywhere else outside of emerging markets. So that's one. I think second for my business, the dollar is fundamentally global. And the dollar tends to be strongest in places that one could imagine are relatively dollarized. Places that are dollarized tend to be more emerging markets where they are using the dollar as their main currency, either unofficially or officially, because maybe they can't trust their central bank. Maybe they have a history of super bad inflation and the country got implicitly dollarized. And so those places tend to actually need US financial services more than, I don't know, UK and the GDP is pretty strong or France. Those places don't need American financial services as much as maybe some parts of the emerging world do.

• 9:37Patrick O'Shaughnessy?

  So sticking with Kinshasa as the example. So you go there, what are you doing there? What are you discovering? Say more about the constraints you encounter there. Teach us a bit about, I've never been to Kinshasa.

• 9:47Speaker 02

  They operate in a world where there's actually like relatively large markets. DRC, take that as an example, is one of the largest exporters, not the largest exporter of some critical metals in the world. So there is a lot of money flowing through there. It's a massive exporter. It's a place where it's a lot of Chinese investment. Africa broadly has had more Chinese investment than anywhere else in the world outside of Pakistan. And so there is money and there's a lot of people doing things. And the population growth is absolutely bananas. I mean, the population growth in Africa is probably larger than Western Europe, North America and parts of Asia combined. And so why they may be GDP per capita quite small, there's still a lot of going on. Where there is, there are founders that are building super cool things.

• 10:29Speaker 02

  The large companies actually tend to be quite innovative and I'll talk about that in a second. I talk to them, I meet a ton of people. I'm meeting CEOs of the largest multinational companies there. I'm meeting founders on the ground and I'm talking them through like, what are you building? What is your perception of America? What is your perception of American financial services? How can we be helpful? Honestly, I spend a lot of my time walking around, vibiating, just taking in the scenes. And sometimes quarter of the time it comes up like a really interesting idea that ends up building us a cool product or is it a good market?

• 11:00Patrick O'Shaughnessy?

  What's an example of that?

• 11:01Speaker 02

  I've had 90% of my ideas either in the shower or Like walking around random emerging markets country. It kind of expands your senses a little bit. If I'm walking down the Marina Green, I'm walking to the Mission in San Francisco. The only thing I'm thinking about is, oh, my gosh, how is AI going to change things? Because you can't walk around San Francisco and just not get like completely hit with AI FOMO 24/7. But there's other stuff we need to do in order to get people up to like mobile penetration. Take DRC, like mobile phone penetration is still less than 25%. Banking penetration is still less than 5%. There's stuff we need to do before we think about that in LLM in everybody's brain.

• 11:37Patrick O'Shaughnessy?

  If that penetration is that low, will you and your business naturally benefit from that going up based on the products that you're building? Is that how you think about some of these opportunities where it's much lower hanging and just no one's paying attention?

• 11:48Speaker 02

  The leapfrogging that happened in Asia is obviously quite well known. Trying to skip the laptop and went straight to the mobile phone. Most famously, we shipped online e-commerce and went straight to social commerce in China. There's going to be leapfrogging as well. You're going to see the same thing in financial services. Financial services tend to be most innovative and most progressive in the worst countries. You can see this in Argentina, you can see this in Iran, you can see this in other places. The Iranian financial system, say what you will, it's complicated. They have to deal with a lot of incredible constraints. And thus they have built a lot of bespoke stuff just for themselves because they do not have access to global financial markets. And when you get to design things from scratch, you end up actually building things a little bit differently. And that's actually quite interesting.

• 12:29Speaker 02

  If you look at these emerging markets, Africa, for example, they're the first ones to do mobile payments and M-Pesa decades ago, well before Venmo. If you talk to them, they are actually quite a bit more open. They are used to this, their category being somewhat disrupted. The interesting thing is they have a bit of an access to differentiated capital, which is differentiated talent. If you're in the US, pardon the banks, I shouldn't on here, but you do not have access to the top talent. The top talent's going to Anthropic, they're going to Google, et cetera. But if you believe that brains are distributed equally, you're a conglomerate. There's going to be some proportion of equally smart people as there are in France. There's no Anthropic to go to. They don't have the ability to move to London and go to DeepMind.

• 13:13Speaker 02

  But there's still like a pretty decent talent pool there. They're going to go to where there is job safety and where there is money. That tends to be in a lot of emerging markets, like the breweries and the banks. That's where the money is. And so the talent, say at the middle level and top, can actually be quite a bit higher than people think. I'd say you take you like emerging markets, bank executive team. Their hands down is way better than I think probably what you see in the Western world. They also have the ability to verticalize much better than they do in the US. Because we already have amazing software, amazing retail experiences down the entire stack. In most emerging markets or in developed countries, everybody has a bank account.

• 13:55Speaker 02

  A lot of people who have a phone have a bank account, so they can actually cross sell there effectively. You and I talked about this before, but I think one of the most interesting companies out there is Caspi in Kazakhstan.

• 14:06Patrick O'Shaughnessy?

  Fascinating. Can you explain it?

• 14:08Speaker 02

  They started out by buying a bank and then they just built.

• 14:11Patrick O'Shaughnessy?

  Did everything.

• 14:12Speaker 02

  Did everything. They're the largest e-commerce company, the largest bank. You pay your taxes on Caspi, you don't like renew your driver's license, it's on Caspi. Because what they realize is where people start is people, okay, maybe people start in social media, but they also start in financial services. And so if we require financial services, we can cross sell and we can distribute products there. The largest bank in Congo has been called Rabak. Highly sophisticated, done with the mobile app, it's way better than what we have here in the US. You can upgrade your TV subscription on it. Imagine JP Morgan doing that, a Bank of America doing that, a Wells Fargo doing that, or candle, even like US fintechs doing that. Even if they could build that, there's no market for that. And so their ability to land and expand is fundamentally different. And you know, the good thing for us is, you know, these countries, the main currency is.

• 14:57Patrick O'Shaughnessy?

  Is a dollar.

• 14:58Speaker 02

  And so our ability to kind of innovate with them is much more akin to what a fintech looks like in the US than maybe a large traditional bank.

• 15:06Patrick O'Shaughnessy?

  Do you end up earning similar amounts of revenue from outside the US as you do inside? Because of these potential relationships?

• 15:14Speaker 02

  The US market is so good and fintech is so developed. One of our theses is fintech is probably going to be like the last area that is somewhat maybe disrupted by AI. I think what you'll see is you'll see a collapse in domestic fintech and enterprise software. And you already see in this with the ramps and stuff of the world as they go deeper into the workflow management side. Good thing for us, some of our customers are growing so quickly. But the rest of the world is also, it's a big part of our revenue. It's something that we're super excited about as well. It could be both like Western Europe or emerging markets.

• 15:41Patrick O'Shaughnessy?

  Can you say more about this comment that Silicon Valley along with Beijing is the most consensus place? Because you traipse around. California, what strikes you as the strangest? Like, you're building something so different. You spend so much more of your time away from there. You're able to get outside perspective despite being of that place originally. What would you say stands out as the strangest elements of it and its culture today?

• 16:03Speaker 02

  I'm a product of Silicon Valley. I've been there since I was 21. Started some of the top companies in Silicon Valley. I am a product of that. But I think as you get older and as you travel more, you think you have the ability to probably look back and be more retrospective on the society you grew up in. And SF and Silicon Valley, it's an elite dominated society, whether we like it or not. It's probably more akin to Wall Street in the 1990s than it is to what we want it to be, which is a research lab in Cambridge in like the 1950s. Maybe that was Silicon Valley in the 90s, but it's not anymore. And what that happens is elites end up building software for elites. And I think that has somewhat made sense because if you look at consumer buying patterns, people buy something that's aspirational and then it moves down market. But when you do that, you can start to drink your own Kool-Aid a little bit too much.

• 16:47Speaker 02

  And I think that has probably happened in Silicon Valley because we talk to each other, we build for each other, and we think that the market is each other, but we don't actually look broader than that. And the companies that figure that out, they do really well. If you look at AI, our research labs are doing fantastic because that's a consensus oriented problem. If you take a bunch of people that are super smart and you pretty much lined off everything from the U and you can all talk and you can all share ideas and that's like a fantastic research place and we are going to win on that alone. But as you think about like applicability to people's everyday lives, people in Silicon Valley don't live everybody else's lives. They don't live in the lives as like Americans. They don't live the lives of like the people outside the world.

• 17:32Speaker 02

  And so our ability to actually build software or have ideas or perspectives that resonate is probably at a low point in the entire time I've been here. Silicon Valley is not a popular place. I think we tend to forget that. We think we're on the top of the world, but I don't know what our approval ratings are, but I think they're probably pretty dang low. And I think that's for a good reason. I think it's something that I at least try to focus on a lot because I have to build software and I have to build products that are applicable to like outside the walls of San Francisco, New York, but that's probably less and less the case.

• 18:03Patrick O'Shaughnessy?

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• 18:48Patrick O'Shaughnessy?

  because of how far ahead RidgeLine's AI features are compared to anything else in investment management software. I've been hearing from a lot of investment managers about AI and they fall roughly into two camps with some unsure where to even start and others convinced that they can build their own order management system over a weekend. The reality is that running an investment firm will always require governance, controls and a single source of truth for your data and no amount of AI enthusiasm changes that requirement. RidgeLine is built on exactly that foundation, which is why I believe that the firms that come out ahead in the AI era will be the ones running on RidgeLine's unified platform. If you're serious about your firm's AI strategy, RidgeLine should be part of that conversation and you can request a demo at ridgeline.ai.

• 19:31Patrick O'Shaughnessy?

  One of the things that you've done that's so unique is not raise money, but built at a pace and a scale that looks as though you raised a ton of money. This, for instance, is huge. Talk about that decision. What building a company where you and the employees basically own the whole thing feels like relative to having built a marquee company that was venture backed? I want to go into all the various lessons that you've learned. We've spent a lot of time in this section, but at a high level, why did you choose to do it this way in the first place?

• 19:59Speaker 02

  I started Plaid and I did the standard Silicon Valley playbook. You have to like idea, you have to build stuff and then put a deck together and you go to like these 80 venture capital firms and hopefully one of them gives you money and then every year you move up the alphabet. And I think that worked in Plaid. A very successful company. I'm very lucky to have started it. But the things that Silicon Valley sometimes gets confused by is okay, you're like a venture funded company. And if that's the case, you're like ambitious and you're going to build amazing software and you can like these like amazing products. Or you're like a bootstrapper and you're going to write like thought pieces on Twitter, but you're going to sub scale people and you're going to grow a small amount. It's like a cute lifestyle business. And I think you can actually be highly ambitious and you can hire like the world's best talent. You can build like a massive Dublin company without actually being able to be addicted to venture money.

• 20:43Speaker 02

  What we do is we say, okay, we are going to grow by our earnings. We're going to make sure that a hundred percent of employees and myself own the company for the foreseeable future. It makes it a lot harder. It does definitely put some constraints on your business. But not only for the net worth of myself and my employees, but also culturally. It's actually quite a bit more effective because being long term is probably a little like a trait saying. But I think it does actually help us do that. Yes, Silicon Valley companies are probably more long term oriented than your average business in the US. But I think the hamster wheel of VC doesn't actually allow us to be long term. Because if you are having to spend a lot of money for employees and you're burning a rate of you have to raise every year, year and a half.

• 21:29Speaker 02

  You end up optimizing for that next fund raise. And you say, okay, stable coins are like cool this year. So I need a stable coin strategy. Okay. AI is cool this year because I need an AI strategy. And so your business, maybe it's going in the general direction, but it's definitely taken a pretty windy way to get there because you need capital. And so I think it's very rational what you are doing, but that's not going to be the straightest line to your goal. I sometimes make this joke, like VC money is kind of heroin. It feels good. It's amazing, but like you gotta keep shooting now. It gets very challenging at all. I know very few people that have like

• 22:03Patrick O'Shaughnessy?

  Tried heroin once.

• 22:04Speaker 02

  Yeah, like it's right here at once. And they're like, wow, that was awesome. I'm off, right? It's like, how many people you know of like raised like a hundred million dollars to your day? And then they're like, I'm done. It just doesn't happen. And I kind of think that, man, you raise a hundred million dollars. You should be able to build a couple of billion dollar business after that. Why do you need to keep raising it? And there's a lot of structural reasons for that. And the fact that San Francisco is a bit like a factory, like is by design. I think it can be like quite effective. But I think for the ambitious founder. I actually don't think it's the right thing. And for us, I can invest in things that I think are going to have like a 10 year payback. I'm totally fine with it. If we grow 80% versus like 110%, then it doesn't really matter that much. As long as we're profitable, as long as we're building this off what we want, and as long as we're growing at the rate that we want, I just don't have the same constraints.

• 22:47Speaker 02

  And that is, I think, freeing in a way that most companies can't operate.

• 22:52Patrick O'Shaughnessy?

  What's an example of something that you've done or made a long-term investment in that you think you wouldn't have done if you had been venture backed?

• 23:00Speaker 02

  We bought a regulated bank when we were early. That's probably like a little bit cooler now in this new administration, but we bought a regulated bank during the first Biden administration. And that required us not grow or like not focus on revenue for two, three years and do a bunch of stuff that inherently didn't scale. Buying a bank is not a software defined problem. That's not like a great use of venture capital dollars that you expect to grow. A relatively non-consensus bet at the time. There's just no way that could have happened. There's no way somebody would have been like, oh, we want to buy this money to go to a business, right? We want you to do stablecoins. We want to do AI. That's just not a fundable bang. So I think, and then able to just invest behind that for a multi-year period before we actually take on clients. People think they're long-term focused, but it's just not. I think we're able to weird stuff with employees that doesn't scale. Like what?

• 23:44Speaker 02

  We pay employees like, here's $2,000 a month to go to a rent or mortgage if you live two miles with the office. Well, like that doesn't inherently scale, but it's massive because now I can get people who live close to the office. They feel great because they're getting like a huge part of all of their housing stipend in San Francisco subsidized. But like, is that going to be a good use of venture capital? Probably not. So we can just do all this stuff from an employee perspective, from a retention perspective. What we do every single year, we take 25% of our earnings and we just buy back our shares with employees. So we just run our own tender every single year. It's been great for retention, able to actually get liquidity to employees when they need it. And it allows people to believe that we're like in this venture grand business.

• 24:25Speaker 02

  But if you're in a VC business, you're like, hey, you should be using like 100% of that money for growth. We say, well, actually, we don't necessarily think that. We're quite profitable, so we can afford it, so we can invest in growth, but we can also invest in employees.

• 24:37Patrick O'Shaughnessy?

  That's a really good example. So maybe just to pull it apart a bit more. Are you granting equity to people in a similar way that a normal startup would, investing over some period of time? And then just every year saying, we'll buy back some portion of that to provide? That's how it works, literally?

• 24:50Speaker 02

  Structurally, we look exactly the same as like a high-growth startup. We grow up to the same people. We have all the same perks, if not more. So we operate very much like a high-growth startup. We happen to also be like quite profitable. What I can tell people is our profits every year, imagine that's like our funding round. Each year, like on January 1st, we raise a massive round each year. That's how we view it. There's part of it that's going to be used as like a tender that we're going to buy back company shares. And the rest of it, we're going to put to growth. Oh, by the way, you also haven't diluted at all. By the way, you also don't have any preference stack. By the way, like we get to make our own decisions. That's super compelling. So I can hire someone to say over a 10-year period, you're not going to be diluted.

• 25:29Speaker 02

  I think what some people forget is if you're an early-stage founder, you're going to lose probably 50% to 75% of your equity value due to dilution alone. You may lose 10% to 80% of your upside by the preference stack. These are like weird economic things that people don't really understand until they've been doing this for like five, six, seven, eight, nine, 10 years or seen an exit. Like with us, we say, hey, just don't worry about that stuff. What I give you is what you're going to have. And by the way, you have liquidity on a yearly basis going forward. That's like super compelling to people.

• 25:59Patrick O'Shaughnessy?

  How have you honed the communication of that idea to a new employee so that they get it? Because I think so often people just say, oh, I got this many shares and this is the valuation. And if it goes to this valuation, I can just do the math. But that's not actually the math of what they'll take home. How do you frame it to people?

• 26:15Speaker 02

  We're far from perfect. I think one of the things we do is we target people that this is their second company. We're probably not the best place for a new grad to land. These new grad to land, they're going to go through this calculation of where are all of my friends going? What is the number one company in hacker news I read all the time? What's all like the thought flusters talking about on Twitter? And it's like actually like not a bad strategy. Like if you're a new grad, that's probably relatively fair, but you aren't really going to be thinking about some of this kind of nuance. And it's honestly not as hard as you think. It's actually like quite refreshing. We go to people and we're like, hey, we like are super fast growing, but we provide you the liquidity. Oh, by the way, here's some very basic math on preference and dilution. And here's why you can actually make way more money for the same equity value. It's a hard story for a 21-year-old.

• 26:57Speaker 02

  It's actually a pretty easy story for a 25-year-old that's been through six rounds and four pivots at their previous company and don't have anything to show for it.

• 27:04Patrick O'Shaughnessy?

  Does this empirically show up in employee retention numbers versus Silicon Valley norms?

• 27:09Speaker 02

  We have almost close to no regretted attrition, which means people that we like to stay end up staying. There's a couple of reasons for that. I think one is second time around, it's a lot of I think I learned from a lot of mistakes at Plaid and I know where to spend time and where not to. And so I think generally it's probably more mature company than your average siliconite startup. So I think, A, that helpful, we're probably better at picking talent, but also I think we know what matters to people. I think sometimes as like founders or VCs, we think that people join companies because they want to become billionaires. Maybe that's true up to a point, but a majority of people join companies because they hit into like their late twenties or the early thirties. And like, what are they optimizing for? I want to send my kids to like a good school, a private school.

• 27:52Speaker 02

  I want to not live with roommates in like a one bedroom apartment up until like I'm thirty five. Housing and education, that's super important. You can't feed that on a liquid stock. So how do you think about optimizing for that? Basic things like team, culture, all that stuff, like people want to work for somebody who feels like they are taken care of. Not just a twenty year period or like, here's your path to be like a decade millionaire. Do they understand my short term needs? Can you take care of me in the short, medium and long term? And I think sometimes we are maybe too long term oriented sometimes. They, hey, yes, of course, come with me, we'll work on this for twenty years and you're going to be like a decade millionaire after that. That resonates with a certain type of person, but it doesn't resonate with everybody.

• 28:32Speaker 02

  And so building a company, building a culture that actually optimizes for every single point of an employee's journey and employee's life. That's actually quite unique and that actually can lead to really good numbers.

• 28:42Patrick O'Shaughnessy?

  How much of this was just possible because you were already rich at the start and had money to fund something like this? Is this portable advice? Could someone else that hadn't had the experience you had with Plaid do something like this without taking outside money?

• 28:58Speaker 02

  I think it's hard. I think I was definitely successful at first, but what I would say is, I don't want to go into too much details. Yes, I started a very large company. I think I was probably less liquid and less rich than probably everybody thought at the time. When I started this, Plaza, funny story, we attempted to sell to Visa for like five billion dollars. And that's the point where I left to go start something. It didn't go through. We got blocked by the DOJ and I did not sell my company. Thus, I did not have any money. And so my liquidity versus paper wealth was pretty extreme. And so I think I got a lot of credibility from people being like, oh, this guy's like rich.

• 29:32Patrick O'Shaughnessy?

  Easy for this guy to say.

• 29:33Speaker 02

  Yeah, easy. Yeah, but I did not have any money. Is that kind of go too much of the details of it? Like, I pretty much funded the entire company with debt, went to a bunch of banks. And I said, here's a bunch of plaid shares, please give me money. And the best I got was like a sofa plus 10% loan at 5% LTV. And so I pledged over a billion dollars of stock to get 70 million dollars.

• 29:52Patrick O'Shaughnessy?

  Wow.

• 29:53Speaker 02

  And I bought the bank for 70 million dollars. I haven't had a lot of money in my bank account for a long period of time. And yes, and I ended up, business became profitable. I got to pay off that loan in a period of time. But in the process, I prided that margin called three times and almost went bankrupt multiple times.

• 30:07Patrick O'Shaughnessy?

  Talking about that stress, let us in the room on that.

• 30:09Speaker 02

  I mean, the first three years were definitely the most stressful of my life because I had a fundamental thesis that we could pull this off and we could build a business that 100% of employees in my self out. But to do that in a world where you need to invest and not make money for multiple years is very, very challenging. And if the regulatory climate at the time and the building company, it was intense. And I have this loan I have to pay off. It was probably the most intense period of my life. And as a founder, you have to shelter that from everybody. You need to be transparent, you need to bring people in, but you also need to like not bring people all the ways in. I had pretty extreme conviction myself and I thought I knew 100% of a multi-decade period. I can pull this off, but there's that quasicrote of markets can stay irrational longer than you can stay solvent.

• 30:54Speaker 02

  And it's true. And then I'd look at that quote and I'm like, which side of the ad equation am I on in my day? And we ended up making it through and I got an amazing place now. We have a big company that I own, but I think the idea of like, oh, like, you know, billionaire buys thing and self funds it. It's probably a little further from the truth than people think.

• 31:12Patrick O'Shaughnessy?

  What's it like getting margin called? What is the literal thing happening? How did you manage through that?

• 31:17Speaker 02

  Surface to say that you owe a bank a million dollars. They owe you, you owe a bank a billion dollars, like you own them. Like, I think that's a little bit.

• 31:24Patrick O'Shaughnessy?

  That's true.

• 31:25Speaker 02

  I mean, there's a reason that like margin lending in private companies is not a great business.

• 31:30Patrick O'Shaughnessy?

  Yeah.

• 31:30Speaker 02

  Because when you want to take collateral of that stock, it's usually the exact time when you do not want to hold that private stock. I have like immense appreciation for the people that did it for me. I'm not quite sure they got like a great deal out of it. And I'm not quite sure I would definitely be in that business.

• 31:45Patrick O'Shaughnessy?

  The reason I feel the story is important to tell is that it's these things where so much of the value gets created. The extreme entrepreneurial risks, the act itself, but also the psychology behind it. And I'd love you to just riff one bit more what the psychology was like and how your mind is different after that three year experience than it was before, even though I know you'd already been through the entrepreneurial wringer with Plaid. What changed about your mind, your perspective on the world? How did that experience affect you?

• 32:14Speaker 02

  I think that the good founders bet on themselves and take an extreme amount of risk to do that. And I think the extreme amount of risk part is something that we no longer have. But when there's literally only one door in front of you, you don't have a choice. You have to go in. And that fear and that innate desire creates another part of you. It creates creativity. It creates inspiration. It's extremely valuable part of the founder journey. And in many ways, I think in Silicon Valley, we've actually removed that. Do you think about most founders these days? I talk all the time like, hey, you talk to a 23 year old and like, you know what? I'm thinking about going to be like the 12th employee at this company or starting a company for myself. And I don't know, I'm kind of like mixed.

• 32:59Speaker 02

  And we've created this incredible environment in Silicon Valley that it's really safe to start a company. And there's like a playbook and you go through YC and assuming you're moderately competent and went to the right high school and college, you're going to get like a $3 million seed round. And worst case scenario, you can go work at a great company as an engineer, you'll have a founder new resume and life is good. And that has created a lot of value, but I'm not quite sure it's created a lot of great founders and a lot of great companies because there is no risk in that proposition. And if you go back to even pre 2008 or something like that, you're on the edge of the knife. And I think that creates just so much intensity and creativity and fear that is such a critical part of the founder journey.

• 33:42Speaker 02

  And I don't know why we don't talk about it more. We don't create environments where a founder has to bet themselves. And I think if we did that, I think we'd actually be in a slightly different place. I always am somewhat perplexed by, I'm a second time founder, but I'm not alone. Like there's a lot of great founders I shall not name that have made a bunch of money. And you go digging, and they're like, oh, here's my second company, the third company. And you dig into that of the $100 million they've made, they're putting like a million dollars to the capital risk and they've raised $500 million. And I was like, why? If you believe in this so much, if you're going to dedicate your life to it, why the fuck aren't you going all in? And if I'm an employee, I look at them, I'm like, you're asking me to go all in, but you can't go on. Because the weird thing is, an early-stage employee takes way more risk than an early-stage founder.

• 34:27Speaker 02

  Explain that. So let's talk to an example here. So I'm a 24-year-old. I'm making TTC Perspective 400K, 500K at Google and Meta or something like that. Okay. And I'm going to go to an early-stage company, and I'm going to go get 1% of this company, and I'm going to make $90,000. Well, I've now changed the trajectory of my life. I can no longer buy a house. I can no longer go on the vacations I want. So I'm making like a four to five-year trade-off, where I'm saying, I'm going to make pretty much no money over the next four or five years, but maybe in five, six years, I'm going to make like millions of dollars that I couldn't make at Google and Meta. That's actually a lot of risk. Say, I'm going to live with my friends instead of living by myself. Like, I'm making massive, massive changes to my life.

• 35:11Speaker 02

  But as a founder, you're not. It's a much higher likelihood of the next round, regardless of your company, you'll be able to sell some secondary. You know that if it shuts down, you can go be an employee at a great company, you have a CEO on your resume. That first employee, they have first employee like a failing company, that's actually not a great resume line item. And so we've de-risked the founder, but we haven't de-risked the early-stage employee. And I don't think we should actually de-risk the early-stage employee for what it's worth. I just think we need to increase the risk for founders. I think we need to make failure much more expensive. I think we need to say, hey, you're a second-time founder, you have liquidity, put all of your money into that. If you're going to be asking this of employees, you should ask it for yourself. And I don't think we're having that conversation enough. And I think starting companies is just too fucking safe.

• 35:53Speaker 02

  And it's caused a lot of companies to be just super-safe companies, like, hey, we're going to pivot to AI, wrap OpenAI, wrap Anthropic, whatever. Like, that's not bold, that's not ambitious. And it's because we're attracting founders that actually maybe want to be employees. They don't actually think About the long term, they actually don't think, say, hey, if I don't pull this off, I'm going to become bankrupt. My life is over. And I think that's pretty healthy. That's when you bring out the rawness of humanity. And I don't see that very much anymore.

• 36:22Patrick O'Shaughnessy?

  How have you felt that in yourself? So how has your behavior changed or your perspective changed? Or like just the ways that you show up that are different now than prior to this pretty extreme career period?

• 36:33Speaker 02

  I am not the most diversified person on the planet. I own two things. I own column and plaid. That's it. I don't even own a majority of my house. That is truly it. Those are the only two things. And that's motivating to me. At some point in my life, I have a six month old son and I do need to probably diversify. And so that is a goal for me at some point. As a 36 year old, you should probably not be this concentrated. But it's also, that's what makes building companies unique. There's probably a lot of people that look at me and they're like, oh, man, billionaire. Amazing. I think that's what makes it special. I think that's what drives me every day, which is if you don't have something you are driving towards, such as for me, like solvency, it's really hard to be motivated every day.

• 37:13Patrick O'Shaughnessy?

  The other thing though, too, is that very often the thing you own and control in our building might be your best investment and getting money out of something is costly from a tax standpoint and other things. So you're in some ways, you're just continued to be all in on what you're building.

• 37:26Speaker 02

  Bet on yourself. I'm sure every fancy executive has probably told you that, but I think it is somewhat true. Compounding on yourself is probably the best investment that makes. I'm not a generalist. I'm a specialist. I'm probably the best in the world at a couple of small boring stuff. I'm really good at creating really confusing, boring sounding companies. That's really hard to explain on podcasts. And I think that's like my expertise. That's on my leash. I feel pretty confident in my business because I do not think in my business you want to compete with me. I'm mean, I'm hungry, and I know my little niche space better than anybody in the entire world. And if I'm investing or doing something else, there's a me on the other side of that trade. I don't want to do that. I'm a builder.

• 38:10Speaker 02

  I think sometimes it's a trap where builders think they're investors and investors think they're builders. There were cases when you can do both. But in a world where it's increasingly competitive, I do think the world for builders is the world of specialists. And you have to go extremely, extremely deep into your area. And that's where you find value. I probably have read more about the history of my space, the history of financial services. I studied banks in Japan in like 1800s. I read like a very boring 2000 page book on the history of banking in China in the 19th century. And there's stuff I got out of that.

• 38:48Patrick O'Shaughnessy?

  What's something that in the story of that book, like what's something you get out of that degree of extreme study?

• 38:53Speaker 02

  The hard part about this is you probably get like one small thing in a 2000 page book.

• 38:56Patrick O'Shaughnessy?

  Yeah.

• 38:56Speaker 02

  And so it's probably not efficient unless you own a thing that happens to be in that space.

• 39:01Patrick O'Shaughnessy?

  Crazy leverage on that.

• 39:02Speaker 02

  And that like one little thing can create millions of dollars of value to the extent it's like hundreds of millions of dollars of value. And so without kind of going too much into detail on it, that's where you find your leverage. And I'm pretty good at that.

• 39:13Patrick O'Shaughnessy?

  This notion of being the best in the world at the thing you do is really interesting to me. It seems the environment today makes that harder than ever because there's so much distraction.

• 39:23Speaker 02

  Totally.

• 39:23Patrick O'Shaughnessy?

  And there's such a high rate and ease of comparison, which is certainly the thief of joy. But it's really hard to ignore people doing other stuff, spending a 30 year day reading about Anthropic or whatever. It's exciting. What have you learned about how to become, apart from reading obscure 19th century Chinese banking books? What else have you learned about how to become the best in the world at what you do? Assuming that there's lots of people interested in that mission or that idea.

• 39:49Speaker 02

  I think one of the best determiners for success of founders.

• 39:55Speaker 02

  Is can they find the most boring thing humanly possible interesting? And can they find that interesting over a multi-decade period? Who doesn't find AI interesting? Yes, geopolitics fantastically interesting. There's all these like general topics that are quite broad that is very mass market interesting. And that's what makes Twitter so fascinating. That's why podcasts are fascinating is because people like to feel that they are really smart across a broad swath of categories. But that doesn't really align to company building. So many people right now are thinking about and are have a lot of knowledge around how AI is going to disrupt software, how AI is going to disrupt vertical software, how AI is going to be the next like CRM.

• 40:38Speaker 02

  These are like generalist topics that I can probably find a thousand people that have interesting, compelling ideas and can go pretty deep on that. But you can't create value there. You can create value if you're like, I'm the number one person in the entire world at this little niche thing. And I think this niche thing can generate billions of dollars from ever, ever time. But the problem is, is those places are really boring. The fun ones like food and like surfing in Thailand or whatever, like those are solved categories. Yes, I would also love to be an expert on hospitality in Thailand and Southeast Asia. Like, that's a fun problem. I could imagine one going niche on that for more than a decade period, but that's solved problems. But I think finding the extremely boring thing that requires you to read hundreds of

• 41:21Speaker 02

  thousands of pages that you cannot Gemini deep research your way through, that's where value is. But it's fucking boring for a lot of people. You have to suffer in silence for a huge amount of time. And if you can find that super fascinating, you can like love to learn that, then I think you'll be successful. But I think it's a minority of people. My partner gives me shit all the time, but like, how on earth do you find that book interesting? What is wrong with you? And I was like, well, like if I don't, you and I are gonna be super poor.

• 41:49Patrick O'Shaughnessy?

  You said earlier that building a company for the second time is a lot easier than the first time.

• 41:52Speaker 02

  Yeah.

• 41:53Patrick O'Shaughnessy?

  What are the most extreme ways that that's true? What are the things that you've done the most differently this time than the first time?

• 41:59Speaker 02

  Experience is valuable. I started Plaid right out of college and I think Zach, who was my absolutely incredible co-founder, we both said like, man, if we would have just worked at a company for like nine months, we would have learned a lot. We probably saved like three years because the amazing thing about working at a company, especially an early stage company, is you just fail forward all the time. And that's incredible. That's incredible lesson. But like, when you fail forward as a founder, that's a lot of dilution. That's a lot of time. That's a lot of like wasted resources. And if you could do that on somebody else's dime, amazing. Now I think it's like a little bit easier because everybody's YouTube videos on Icy Startup School and there's some PDF for everything and you can probably like Gemini your way through the early stage part of a company. But experience does matter a lot.

• 42:40Patrick O'Shaughnessy?

  What about picking talent? What things do you optimize for now that have been honed because of your prior experience?

• 42:48Speaker 02

  I mean, people always think about employees and it's like a kind of missionary mercenary framework. You have to look into employee, like what do you want to do? There's like the mercenary type, which is okay, super smart, probably super pedigreed. And really what they're doing is they are using your company as a launchpad for something else. They're using their company to collect a bunch of two-year vested options from like the top five companies and hoping one of them goes up. That can be a valuable employee, but you have to have a very specific type of company that is used to that churn and burn in order to take advantage of them. Then you have the missionaries, which is this person is very mission focused. Inspiration is super important to them and if you get that right, they will go to like the ends of the earth for you, regardless of like their short-term benefits.

• 43:33Speaker 02

  People also have some downsides as well, which is the moment maybe you want to be a little bit more commercially oriented and the moment you have to maybe make trade-offs on your mission or something like that, that can cause a lot of societal unrest inside of your company. Then there's like the third category of employees, which are generally what I think are probably like the best, which is like a combination of everything. But really what they care about is they care about, yeah, we want a ton of upside, but we also want stability. We also want people that, hey, I like to be friends with my coworkers. I like to be in an environment that is like warm and welcoming, but also gives me like the near term and long term financial value. And I'm willing to like work really hard to get there. Everybody has personality types, everybody has different styles and you have to figure out what is right for your business. But I think it's very challenging to tell them on LinkedIn. Everybody's like, okay, cool. You went to the right New York prep school.

• 44:18Speaker 02

  Thus you went to like the right Ivy school that happens to have like this good engineering program. And then you have these couple of LinkedIn things that are like, good for me and boom, done. That can be super successful, but that is also not the right for everything. And so just getting that tone for talent is super important.

• 44:34Patrick O'Shaughnessy?

  How much do you care about mission? This is an interesting part of the equation.

• 44:38Speaker 02

  You need a mission. Otherwise, people just go work at hedge funds. You need to say like, hey, we are building something bigger and I think we absolutely are. But I think mission can actually be a little bit distracting. I think a lot of times people focus a ton on, hey, what are like the values of my company? What good are we doing? And I think that's like an important part of the equation. But I think it's on a list of five things most important. I think it's probably on the bottom end of that five list. And I think a lot of times we can be kind of distracted by that. That's because when you're pitching investors, investors want to feel like they are part of something. They want to feel that, man, I'm not just recycling pension fund money into other capitalists. And that's what we do, like we want to feel like it's bigger than that. And so I think we've taught people that, man, you need to focus on the millennia journey. You need to focus on the impact that we're doing.

• 45:22Speaker 02

  And like, yes, numbers go up, but like numbers go up is only one part of the equation. And I think that's important for employees, but I think it's sometimes not the best. Like in the end, what do you want to do? You want to convince somebody to buy your product and like you deliver them enough of an experience that they can't build it themselves. And they're going to pay a lot of their hard earned money to you. That's the goal. And that person doesn't give a flying fuck about what your mission is. They just care about, does this product create value for me and am I willing to pay for it? That's it. And if you start to like drinking Kool-Aid too much, you kind of forget that.

• 45:53Patrick O'Shaughnessy?

  It makes me smile to think about your earnings and cash flows. It's such a novelty that a company like yours would have a bunch of this so young in its life and at this scale. How do you pick your margins? How do you think about how profitable to be and why? You mentioned earlier that it's like having a funding round every year. Does that imply that you're actually spending it so you're not paying taxes so that you can spend it on growth? How do you think about earnings in a high growth technology business?

• 46:21Speaker 02

  Our customers pay us for safety and our companies pay us for longevity. It's a unique thing around financial services where I'm going to look at you as a customer. Like I'm going to be your best partner over like a 10 to 15 year period. Switching costs are really high and they are putting a lot of your customer trust in risk in you. So I am playing a longevity and a risk game just as much for me as my customers. I take that extraordinarily seriously. And I think earnings and being profitable and sustainable and not relying on somebody else's decision making for our work is extremely critical for our customers. And that's extremely important to me as well. I tell people the risk falls on me. I can't pass my risk to some other venture fund or like their LPs or something like that. I want you to be successful. I want you to be successful if we're not like I'm the one who takes the pain here.

• 47:07Speaker 02

  That's quite unique in Silicon Valley because at some point your critical vendor could get like acquired or maybe the founder could get like a $20 million offer from Anthropic. It's the rational decision for them to do that. In many ways, we aren't competing with other Silicon Valley companies. We're competing against maybe them doing it themselves or maybe competing with them trying to like build a patchwork of software vendors on top of a legacy bank or something like that. And so I have to show that I am more sustainable than you. And I think that earnings is a critical part of that. And I think people are like, oh, like your margins, my opportunity type thing. And my argument would be like, you run this business at a lot lower margins. You're going to be dependent on somebody else that you probably don't want to be dependent on. You also have to be introspective about your business.

• 47:48Speaker 02

  Is my business the type of business that if I raise a bunch of money or I have a ton of earnings, I can throw all of that back on growth? And I think a lot of times in the press, software companies, they cannot ingest like a huge amount of capital. Like if you give me like a billion dollars right now, I don't know if I grow it a thousand times faster than I am right now. And I don't necessarily think I should. And so what we do is we say, okay, of this earnings, what goes to employees? What's going to go to growth? And what's going to go to capital, which is pretty much in case something goes wrong or we have a bad couple of years? NBD, we good, let's keep moving. Down to the extent of now, we're like, hey, if something goes wrong for 10 years, how are we like? We're good. There's a lot of societal change going on. There's a lot of crazy stuff going on in the environment.

• 48:33Speaker 02

  I can totally paint you a picture where like the markets gets insane for the next 10 years. How do I make sure I can survive that even with a lot of our companies go up or the economies of no changes? That goes back to that war chest because markets go like this. Sometimes like, yes, the line through it goes like this.

• 48:51Patrick O'Shaughnessy?

  You forget it when you remember one of the good ones.

• 48:52Speaker 02

  Yes, exactly. And we look at slope, but a lot of times like we have down years. And you need to be able to weather through those down years. And there's so many incredible companies that just couldn't survive a couple of bad periods. And you really want to make sure you're not one of those.

• 49:05Patrick O'Shaughnessy?

  If you were in a classroom setting and it was a bunch of founders or would be founders. And it was a Chatham House rules off the record session, teaching them about working with investors and what investors care about, how they behave, things to look out for. What would you tell them?

• 49:22Speaker 02

  I actually feel pretty lucky where Applied in the early days issued a pretty hard term fund raising. First of all, I think we probably chatted with like 80, 90 investors and we got rejected. Sometimes I think I have a reputation being, oh, like when it's like somewhat anti VC. It's actually like not for this from the truth. Plaid would not exist without VCs, straight up. I just don't necessarily think the VC model is perfect for every single type of company. Or maybe VC owns 10% of your company or 20% of your company. And maybe it employs yourself on like 8%. There are different cuts of this you can make. But I think for me, picking investors is important. I don't think there's a lot of transparency in the environment on like when investors are seven year timelines, which ones are 10 year timelines, which ones are actually truly super long term oriented. So I think figuring that out, but the most important thing you should do is say, okay.

• 50:06Speaker 02

  Realistically, what does my margin profile look like? What is my revenue growth over time? How should I find a capital structure that matches that? And am I actually going to grow at a consistent enough period? Do I want liquidity in 10 years that the venture model makes sense for me? Because the thing that people forget is yes, growing 100% on a $10 million base or $20 million base or $30 million base. It's not like that hard. Everybody likes to use graphs, not LinkedIn, like we're the fastest company to get to $100 million of all time. That's awesome. But you know what's like much harder? Grow above thirty percent of your half of a billion dollar revenue base. That is ninety nine times harder than going to zero and a hundred million in three years.

• 50:49Speaker 02

  However, the venture model only works if you can grow above thirty percent off of a billion, two billion dollar base. And you have to like really look inside yourself and be like, does my model make sense for that? And can I do that in a way that I can ingest hundreds of millions, if not billions of dollars of capital on the way and put really good use to that? Because like sometimes businesses grow at the rate of the market or businesses grow differently than just dollar in, dollar out. And the venture model is built off of fact of you can make a company like an ATM, which is you put in a dollar, you get a dollar thirty back. That's not the case with most markets. And so I think you have to look really intensely at yourself and your business to make sure that works.

• 51:34Speaker 02

  And there's so many amazing tech companies that works for, and that's why that venture is a really good asset class and Silicon Valley is probably like the best place to accumulate capital of anywhere in the entire world, probably throughout all history. But that's not every single business. And you have to look really intensely at yourself in order to do that.

• 51:49Patrick O'Shaughnessy?

  Given your unique perch, what have you learned about how the world works through the lens of this dollar focus, this demand for dollars being the operating system for the global dollar system? Through the lens of the dollar, what are your takes on the ways the world works or interest you that might surprise people?

• 52:06Speaker 02

  What the dollar does, it connects countries in very interesting ways. They think of the US, when you could pretty much just build a incredible company by the US alone, you lose that perspective. If you look at the official stats, most economies spend less than ten percent of their GDP trading with their neighbors. And that's been a big focus point of the OECD over the while. But when you actually dig into it, the unofficial trade that's going not over government rails, it's actually closer to ninety percent. It just shows like how trade and how money and how like really connects these cultures and connects these societies. And I find that like super fascinating. We can talk about how that's impactful in a lot of ways, but that is something that we don't really get in the US because the US has this very unique luck.

• 52:50Speaker 02

  We can almost somewhat sustain ourselves like you can sustain businesses only building for yourself. U S market is just so fantastic. I am so long the U S as I'm sure anybody building. You can sustain yourself and become a billionaire by like never truly ever leaving America or never interact with anybody outside of America. And that's what it makes America so fucking unique. I don't think we get like how much of a luxury that is. But outside of the world, it is not. And that comes down to trade, that comes to like financial connectivity. That is so impactful and it's so important. I think you also forget how reliant the world is on the U S financial system. Let's take two insanely developed countries. Let's take Qatar and let's take Switzerland. Okay.

• 53:36Speaker 02

  You're shipping gas from Qatar to Switzerland. I would argue right now, but neither one of these countries can love America like a ton.

• 53:46Speaker 02

  That trade is denominated in dollars. The money that's moving from Switzerland to Qatar, Glencore to Qatar, the Qatar Gas Company crosses the U S financial institutions. It's crazy to think about, let's think about, we're maybe our two like quote unquote enemies, like China, Russia. Okay, China is a big importer of Russian gas and oil. It's kind of crazy to think about. That trade is still denominated for a vast majority in the U S dollar. That's mind boggling. That's a luxury and that's such an insane national security strategy that nobody else has. Russia doesn't want Chinese currency. China definitely doesn't want the ruble. They barely have access to it. They almost like hate each other as much as they hate us.

• 54:32Speaker 02

  And the fact that they then choose a dollar is still so critical. Then you could argue that like maybe the dollars are rotting over time and stuff like that, but still in the vast majority, it's like, like 75% of global trade still is in the dollar. That's crazy and we don't recognize that. The soft power the American has or even the hard power the American has with that is so fundamental to our life and the fact that like we have such a strong economy.

• 54:55Patrick O'Shaughnessy?

  Do you talk to your team as though this is part of the mission? That almost like national security is part of the mission because of the importance of the dollar?

• 55:02Speaker 02

  100%. One of the best shifts I think Silicon Valley has done is we now are like, Silicon Valley, we take an active role in the national security of the country. We didn't six, seven years ago, even though like American society, American GDP growth is even more than ever completely indexed on the success of Silicon Valley. Probably too much, it's way too levered in that regard. But now Silicon Valley, whether it be social media, whether it be defense, or whether it be software, whatever, we're starting to recognize our role in the world. And financial services is probably the most important component of that. The US, any general, they have, they want to use a sanction before they use a missile. The great thing about a sanction, the great thing about the dollar, you can enforce American dominance without putting boots on the ground.

• 55:47Speaker 02

  That put anybody at risk. And sometimes you're showing Venezuela, you kind of need both. The reason we were able to go to Venezuela is because we had fundamentally destroyed the economy before. How? Sanctions. We had completely collapsed their ability to export oil. We completely collapsed their ability to actually trade with other people. That friction is real. And so when we went in there, Venezuelan people were probably like, yeah, okay, we good. Well, maybe not going to try to shoot these helicopters from the sky. We're pretty happy here. That is fundamentally so amazing. If France wants to shut down another country in order to go like enforce their will, they have an option, well, they have two options, which is don't drink our wine and here's some missiles. Okay, the missiles can enforce their will. They have a strong military, they're strong special forces, they can go do that.

• 56:32Speaker 02

  But their lives, the special forces on the ground, they're going to have a much harder time because they haven't in many ways controlled that economy before. And that is so, so unique to the US. And I think China's obviously developing this with trade and exports. One of the things that China can do is they can start to enforce their will by shutting down a country from exports. That is real. And so I think China has definitely this increasing might. But the strength of the dollar and that is so fundamental for national security. And in many ways, we don't talk about it because it's a little bit uncomfortable truth. A global bank doesn't want to sit up and say, we're part of the national security strategy because if the government tells us to, we're going to collapse the economy. That's not like a fun narrative that people want, but I think there's a way to tell that. Narrative that says we are a weapon that can be used like when our citizens come to harm,

• 57:16Speaker 02

  when we need to do something that is like super important for the US interest. And we are part of that strategy, just in the same way that Palantir is part of that strategy, Lockheed Martin is part of that strategy, Boeing is part of that strategy. And financial services is a key pillar. You can argue that financial services is like the first end to war to our country. We start with sanctions, we start cutting them off from the US trade. We start with that before we put boots on the ground.

• 57:38Patrick O'Shaughnessy?

  What do you then hope is the future of global financial services? Obviously, you're actively building the technology backbone for it. But if you think big picture, how do you hope the system changes what would be best for it?

• 57:50Speaker 02

  I still hope it's very US bound. And I think we sometimes want to believe this world where there's a lot of people in Silicon Valley that I fundamentally disagree with, that want to put the power of financial services outside of the US. And the US has a lot of problems that we can spend hours talking about. I still think we're the greatest country in the world and we have changed the power every four years. We change our mind on stuff. Yes, there are some problems, but we are still the best place to be. And I think we are the ones that we should still have the nuclear weapons. We should still have the nuclear weapons of financial services, which is we control the world's trade. And I hope that continues to exist. And I think if we don't, I think if it just hands in the power of other people,

• 58:32Speaker 02

  I think that's a scary place and I don't think people have really thought through the ramifications of that. If you look at most countries, financial services is still power, but it ends up just accumulating to government officials. It ended up just accumulating in the public, a very small elite. And say what you will about the US, and there's probably way too much power concentration in certain industries. Financial services is actually quite fragmented. JP Morgan is the largest financial services country in the US, but like, it's not that dominant. It's still pretty diversified. Take Canada. 95% of Canadians have four banks. Take Australians, they're more concentrated. You go to most countries, they're more concentrated than that. We do have a little bit in financial services today, a relatively decentralized financial services system. It's just still keep fragmenting, right?

• 59:16Speaker 02

  We should still disperse the financial power throughout multiple US corporations, multiple US people. We need to do a better job there, but we're actually starting from a pretty good baseline. The other thing I tell people is there's this narrative like, oh, financial services is fundamentally broken. Our institutions are actually pretty damn good. There's this narrative sometimes people talk about it's like, oh, US financial services, it's like built on like Cobalt and stuff like this. It's just not. It's like a fun talking point. Iraq, my hardware, the Federal Reserve and all these like places, there's no Cobalt in a lot of these places. It's actually pretty good. I'll go on the record talking about this. The Fed is a pretty good tech team. Their systems are actually pretty good. You think about the US right now through the Fed has the capability to move money into clear money throughout all these institutions 24/7, faster than stablecoins, faster than crypto.

• 59:59Speaker 02

  Right now, as we speak, we've had that for decades. Systems are very good, extremely reliant. They're fantastic. I think it's very challenging for Silicon Valley to build something better. The problem isn't in the fundamental infrastructure. It's in our implementation of it. The reason why community banks can't send money 24/7 isn't because the technology doesn't exist at the Fed. It's because there are constraints in those business models that make it very challenging for them to do. Give you an example. If you can send money out of your community bank 24/7, well, that bank could run on a weekend. I don't know if you guys have ever like been to a rural community, the community bank with 50 people,

• 1:00:43Speaker 02

  you can't get people to work on the weekends. If you're JP Morgan, if you're Stripe, yeah, you can manage 24/7 liquidity. But if you're a small community bank, you can't have that. It's what I think people conflate. We don't have something. We don't have access to something with, we don't have the fundamental ability to do that. But actually, the reason is implementation, not the underlying infrastructure.

• 1:01:07Patrick O'Shaughnessy?

  I feel like because of your unique setup as a business and your unique focus on the boring problems you describe, you have such interesting perspective on so many things. Is there anything that we haven't covered, either about company building or the way that the world works that you think is interesting that we've missed?

• 1:01:24Speaker 02

  One of the things that... I think about AI is here, we're probably much closer to ASI than people think. And it's going to be on the tidal wave through the economy. You have to think about what's the implications for your business. And I think in my perspective, if you're not a researcher, if you're not a lab, how do you play? I actually don't think quote unquote AI companies are very set up for success. That's actually probably not where value is going to accrue. If I was going to accrue like in two areas, most important area, I think, do you have massive distribution? Cause if you have massive distribution, if you have massive costs, AI is going to be a massive benefit. And so the thing I think a lot about is how do you think about not just from a software perspective,

• 1:02:04Speaker 02

  but from a distribution perspective and a brand perspective that you would best capture to utilize AI? Because I think people talk a lot about the railroads. Yes, the value accrued to the railroads. Yes, the value accrued to the ISPs. Yes, the value accrued to the people like building the mobile phones. But the value actually accrued to the people that could harness that the best. The value in railroads accrued to the oil companies. That's a little bit hard to fundamentally understand. The standard oil is the biggest beneficiary, biggest boon for railroads by an order of magnitude. What is the equivalent area for AI? And I sometimes don't think we're focused on that enough. Hot take here, I think like the biggest, fattest, most inefficient brands are going to be the best beneficiary of AI. Because brands have a massive moat and man, there's a lot of costs to cut there.

• 1:02:49Patrick O'Shaughnessy?

  How do you think AI will most affect financial services? Specifically, maybe even just your own products and services.

• 1:02:56Speaker 02

  Financial services, especially with large banks, they suffer from the fact that the business model is too good. Banks are pretty profitable. Financial services, it's like you're like on a bank and you aren't profitable, like that's a problem. You've clearly done something wrong. Like the business model fundamentally is wicked. That's made them laggards in a lot of ways. But that also I think makes their massive opportunity where I think financial services and legacy banks tend to be the largest inefficiencies out there. They also are very hard to take over. There's not a lot of private equity activity in financial services because it's highly regulated. And so I think the large banks that can actually effectively harness that are going to be some of the largest. Beneficiaries, because banks don't have a lot of physical assets. Places have massive capex and physical assets. It's hard to tell a good AI story there.

• 1:03:41Speaker 02

  How's AI gonna make railroads more efficient? If 99% of your money is spent on fuel, track maintenance, and people like the human cost in railroads is like de minimis. You take conductors down from 1,000 to 500, doesn't like change the equation at all. But if you think about a traditional bank, it's pretty headcount focused and it's pretty technology focused. That's where majority of the money goes to. The actual physical branch infrastructure is such a minority of your balance sheet. I do think they will be either the most disrupted or probably actually like the largest beneficiaries. It's like the banks that are like most effectively run, have the largest distribution of the largest cost structure are going to be the largest beneficiaries. I think the UX of financial services will change a lot because people think, oh, my gosh, my bank is hard to use. My bank is hard to move money. It's like slow to move money.

• 1:04:25Speaker 02

  That's actually a feature, not a bug. I think what fintechs sometimes start with is they start with, hey, we're gonna make it like super easy to like super free to move money all over the place. It actually starts to slow down. The reason it slows down is because fraud is like super expensive. If you make it like really easy for your grandma to send money to somebody in Nigeria, yes, that's great for remittances, but that's like really bad for romance scams. That's really bad for fraud. But I do think with AI, we can actually build those detection models like a lot better. And so it's probably less likely your grandma is gonna fall prey to elder abuse. And if the banks don't have to optimize so much for that, and it comes a little bit for free, we can actually make the UX better for everybody else.

• 1:05:06Speaker 02

  Because we have the technology right now to make financial services almost entirely instant and like entirely friction free. All the friction is actually built to protect the 5% to 10% of consumers that can get hurt. Like people forget that. But I think if we could build models that are just as good at human detecting that stuff, and that can happen instantly, we can actually take that tail away. And it actually is massively beneficial for everybody else.

• 1:05:30Patrick O'Shaughnessy?

  Do you think it's a good time to be a new entrepreneur in financial services?

• 1:05:34Speaker 02

  Anybody who tells you that it's a bad time to be an entrepreneur, that probably means it's a good time to be an entrepreneur. If you look at, there's all these stats on Twitter that I'm sure people have seen, where the best companies are created in the worst environments. And I think that's generally true. It is cheaper than ever to be an entrepreneur. It's probably the least risky time to be an entrepreneur. It's also pretty crowded, but if I look at like the last YC batch, I'm sure like my 90% plus of them were like AI related. So yeah, I think it's actually probably a pretty good time to be a founder in a non-AI related place right now because there's less competition, less smart people. If you want to be successful, you can go look at every single industry. And you can say, okay, who is the dumbest people?

• 1:06:19Speaker 02

  And what makes them most money? And if you go attack that area, probably a pretty good space. The problem is sometimes looking at all the founders, you look and say like, hey, we're all the smartest people. That's maybe like a cool space. That's probably like the most crowded with the smartest people. And so your ability to compete, your competition is pretty intense. YC puts out this request for startups. My recommendation is like, that should be a list of startups you should not start. Because by the time that gets so consensus that this is a good area or super interesting, the amount of capital and the amount of smart people is like moth to light. I would almost go the opposite way. Hey, YC, I love you guys. Please continue to fund our customers. You guys are amazing.

• 1:07:03Speaker 02

  As a founder, I would maybe be a little bit skeptical.

• 1:07:06Patrick O'Shaughnessy?

  I think your perspective is so unique and interesting. I always love talking to you. I always find it very inspirational on the dimensions of just really going your own way, but also just the willingness to fall in love with some part of the world and get devoted to it and just outlearn everybody and stick with it. I love your diversification strategy of illiquid plaid and illiquid column. I think you know my traditional closing question. What is the kindest thing that anyone's ever done for you?

• 1:07:30Speaker 02

  I've had a lot of kind people in my life, but I think it's challenging to not look back and like, oh, like your mom and dad are like the kindest people. My mom and dad did not have the most like straightforward life and not the easiest. And my childhood could have been a lot more difficult than it was because I think they insulated me from a lot of things that were going on. I had a lovely childhood and I feel super lucky for that. And I think, we were talking about a little bit, as a founder, you have to be willing to take on risk. And if you grew up in an environment of fear, if you grew up in an environment where like you were constantly de-risking when you're a little kid, it's very challenging to feel comfortable going up the risk spectrum as you go an adult. And I feel very lucky. My mom and dad did that. They also taught us like, it's okay to fall, it's okay to get punched in the face.

• 1:08:15Speaker 02

  Like, see these? They're all fake. And that time I got punched in the face and I've like lost teeth. It was honestly crazy. It's like embarrassing, but I'm like, you know, I was pretty good at getting punched in the face. And you can only teach that as a little kid. You can only have that childhood that makes it comfortable in a very specific environment. I was a six month old and as I look at my peers and I look at everybody else, we are quite obsessed with creating this perfect environment for our children. We send them to the best schools. They have the nicest people in their lives. And that is valuable, but we may be creating children that can do linear algebra at seven. And I guess is like going to be great AI researchers. But is that what we're going to need in 20 years from now?

• 1:08:59Speaker 02

  Or do we want kids that are going to be pretty good at taking risks? That are going to be pretty good at being punched in the face? And I think my parents did a really good job at that and I feel very lucky for that. If I copy all of my peers, I don't know if that's the path we're going to go down. And I think the fact that I am pretty damn resilient is a complete product of my parents. And I think that's a huge gift and I feel super lucky for them every day. A beautiful place to close. Thank you for your time. Thank you.

• 1:09:24Patrick O'Shaughnessy?

  If you enjoyed this episode, visit colossus.com. You'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus, our quarterly print, digital and private audio publication, featuring in-depth profiles of the founders, investors and companies that we admire most. Learn more at colossus.com/subscribe.

• 1:10:03Patrick O'Shaughnessy?

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