Venmo (live with Andrew Kortina)

Ben & David are joined by special guest and Venmo cofounder Andrew Kortina for our first-ever SF live show! In front of a packed house we chronicle the journey of how two freshman-year roommates from Penn turned a healthy obsession with Craigslist and a fake podcast into an app that facilitated $17B of payments last quarter alone, producing not one but two landmark acquisitions along the way! Note: the audio quality is a little rough due to some A/V issues at the live show. We apologize! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Carve Outs:Kortina: The Myth Of Sisyphus https://www.sccs.swarthmore.edu/users/00/pwillen1/lit/msysip.htm by Albert Camus https://en.wikipedia.org/wiki/Albert_CamusDavid: Startup https://www.amazon.com/dp/B00L0M749M/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 by Jerry KaplanBen: Halide on the new iPhone XS camera and computational photography https://blog.halide.cam/iphone-xs-why-its-a-whole-new-camera-ddf9780d714c

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

• 0:00Ben Gilbert?

  Hey Acquired listeners, we have a big announcement today. We're launching a bonus show. For $5 a month, you can become what we're calling a limited partner and get access to it.

• 0:11Speaker 01

  And for those of you who know or are Googling the term limited partner, we hope you like our creativity on the name.

• 0:17Ben Gilbert?

  We're excited to use this new format to cover all sorts of things that don't fit into our normal episode format and dive deeper into a lot of company building topics. Our first LP bonus show is on the jargon of what venture capitalists say and when words don't just mean what the dictionary says they mean. We've covered some great ones, including sideways credible, and I know this is David's favorite, not raising right now.

• 0:42Speaker 01

  Always a fan favorite. So we are super excited about this, not only because it'll give us an avenue for creating more types of episodes, which we've been wanting to do for a long time, but because it'll give you guys a way to support the show and help make it even better. So to date, on Acquired, we've plowed every dollar we've ever made right back into the show, better equipment, software, ads, travel, et cetera. And we're going to continue to do the same here, which we think will really take things to the next level.

• 1:12Ben Gilbert?

  If you'd like to become an acquired limited partner, you can click the link in the show notes of your podcast player of choice, or go to kimberlite.fm/acquired. That's K-I-M-B-E-R-L-I-T-E.fm/acquired. And with that, on to the main show.

• 1:42Ben Gilbert?

  Welcome to season three, episode seven of Acquired, the show about technology acquisitions and IPOs. I'm Ben Gilbert.

• 1:49Speaker 01

  I'm David Rosenthal.

• 1:51Ben Gilbert?

  And we are your hosts. Today, we are doing another oft-requested episode, the Venmo acquisition, first by Braintree and then shortly thereafter by PayPal. We've been waiting until just the right circumstances, which we finally had. The show you'll hear on this episode was recorded at our very first live show in San Francisco. Go this week with special guest Andrew Kortina, the co-founder of Venmo. Now, we had some AV issues at the live show and very long story short, the only recording that we have of the show is from an iPhone that was placed on the table in front of us. We sincerely apologize for the audio quality. We know it's not quite acquired standards of the episode, but we decided that the the content in the interview with Kortina was just way too good not to not to release to everyone.

• 2:36Ben Gilbert?

  So who is Andrew Kortina? Kortina is a consummate entrepreneur. As you'll hear on this episode, his constant stream of startup ideas and passion for nailing the experience led him to start countless projects from Philafunk to Venmo, both of which we will get into today. To give you a sense of his varied talents, he started his college experience as a CS major at Penn, but after feeling that he could learn more programming outside the classroom than in, he switched majors and ended up graduating with majors in philosophy and creative writing and minors in computer science and logic. He has since gone on, after Venmo, to found Finn with Sam Lessin, which we will talk about later on this show. So get excited to hear Andrew Kortina.

• 3:17Ben Gilbert?

  All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 3:37Speaker 01

  Yep, your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 3:58Ben Gilbert?

  Right, and that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's governance, risk and compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes and cuts the time that you'd spend on vendor assessments in half.

• 4:19Speaker 01

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 4:38Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you.

• 5:05Speaker 01

  All right, now on to the live version of David with the history and facts.

• 5:11Speaker 02

  So David, you want to take us in?

• 5:16Speaker 01

  Yes. So Andrew, you went to Penn for undergrad and your freshman roommate turned out to be very faithful in your life. What was your, what was your, the first time you met Igram when, when you moved into Penn?

• 5:32Speaker 02

  I was at school like a week early because I was like one of the IT like support desk people. And there was like our training for, you know, that team or whatever. So I was there a week early and like, kind of already like out drinking and partying every night. And so when I first met Igram, I was like hungover asleep at like 1:00 PM in the afternoon. And he rolled into our room with his whole family with like this van full of people and like all this shit. And there's like, I like a tennis racket stringer and just all this crazy stuff. They like, why would you possibly have this in a 10 foot by 10 foot dorm room?

• 6:15Speaker 02

  And just like a caravan of people. And I was there kind of just with my computer. And I was like, all right, uh, I'll let you guys kind of like move in and do your thing. I'm going to go like hang out at the gym or something. And then I remember we went to Kmart to like get shit for our room, like, you know, supplies and stuff. And, uh,

• 6:36Speaker 02

  We like, I'm, I don't like shopping. Uh, and so like, I was like, okay, like, I'll get like a refrigerator, like you get a microwave or something. And I remember we were there for like, I don't know, like three hours at Kmart. I was like, what the fuck are we doing at Kmart for like three hours here? And that, that comes towards the end, it's like, you know, I'll, I'll just like take this mini fridge on the subway back, it'll be fine. And they're like, no, like it's, it's cool, like we're about ready. You shouldn't have to carry that in the subway. Um, yeah, anyway, so that was like, kind of like.

• 7:13Ben Gilbert?

  Great question, David.

• 7:18Ben Gilbert?

  What I'd like to know is, when was the first time that you started hacking on stuff together and, and thought, hey, maybe, maybe we could start a company or at least a, a project together?

• 7:29Speaker 02

  I mean, one thing we did was we convinced somebody's like dad or something to let us redo their website.

• 7:39Speaker 02

  And just like, you know, build something, like some sort of like CMS with PHP and charge them way too much money for it. But like, nobody really knew how to program and we kind of like scraped something together. Which wasn't really like a consumer product, it was more like a swindle.

• 7:59Speaker 01

  This was, uh, this wasn't like 1995 when nobody knew what websites were, right? Like, you, you were actually hustling people because this was the mid 2000s and like you could build a, a website, right?

• 8:11Speaker 02

  Well, I mean, this was, you know, we could kind of build a website. I mean, one could build a website, I don't know if we could build a website.

• 8:18Speaker 02

  It was definitely possible. But I, in our senior year, we both loved Craigslist. I'll tell you a good story about the microphone after I tell this story. So we both loved Craigslist and we wanted to do like a, the first kind of like consumer product we worked on, I think this was our senior year, with like three or four friends, we built this thing called My Campus Posts. And the idea was, it was a, a classified site for college students and everybody could like verify that they were transacting with somebody else at the college. And so there was this kind of like trust layer baked into it that you wouldn't have if you were using Craigslist. And we had like a launch party for that and Nickram's band played at the launch party

• 9:01Speaker 02

  and just like all these like flyers that we put everywhere and like. Like, all of our friends were like in all the dorm rooms, like shoving flyers under, you know, every door that they could, which was like totally not kosher with the university. Uh, but I think we heard that like the half dot com guys did that. I mean, actually, we got a lot of people to sign up for that. Um, but the problem was the seasonality of it, like, you know, it's very hard to retain a set of college users on a classified site. Um, but so Craigslist, Iker and I both love Craigslist. Uh, and we wanted to meet Craig Newmark after college. So we, Iker sent him an email and told him that we had a podcast, which we didn't.

• 9:43Speaker 02

  He was like responded to it. And so we flew to, uh, San Francisco to meet him and like did no preparation or homework or anything. And we were like, we had no equipment, we had no equipment.

• 9:56Speaker 02

  Boy, that sounds familiar.

• 9:59Speaker 02

  And, uh, like, we had these laptops that like would just like overheat and turn off.

• 10:06Speaker 02

  And so we emailed Craig Newmark and we're like, yeah, can we come interview you? And we met him at some coffee shop on like the Twin Peaks, because I guess he lives over there. And we showed up and it was like, oh, before we went there too, we were like, we need a microphone. So we went to like Best Buy and got like, we were looking at microphones. We saw this USB microphone that said like podcaster microphone. And we were like, oh, we'll get that one. It'll look legit. And we showed up and just like after, you know, like 15 minutes of hardware failures, we were, we were finally getting to the interview and like Craig Newmark is super pissed off at this point. And then Iker just starts asking these like rubbish questions. They're just like not at all researched. And he was just like, what the fuck is this? It was hilarious.

• 10:54Speaker 01

  So from, from that inauspicious beginning, uh, so I feel like a lot of people, if they don't know you and they don't, well, we don't know you either, but we've done a lot of research on you. Um, and, and they think about Benmo, they're like, okay. Two kids from Penn, you guys must have started this like around this phase. Like it's easy to imagine you were going out for beer, you were splitting pizza. You had to split expenses from that Kmart trip. But you actually did a bunch of stuff after graduation before Venmo. One of which was you worked at an early Y Combinator company, both of you. You guys were like the first two employees at, I think, or first couple of employees at I'm in Like With You, which became OMG Pop, which became Draw Something, which became Zynga.

• 11:37Speaker 01

  How did you guys, you know, two kids from Philly get hooked up with a Y Combinator company?

• 11:43Speaker 02

  Craigslist. Ikrum saw a job post on Craigslist and was like, oh, these guys, this sounds like a cool company. We should move to New York and like try to go work with these guys. And so we like, you know, took a bus up there and met the two founders, you know, like chatted with them. There was like not really a formal interview process. They were just like, yeah, you guys seem smart, come work for us. And they're like, we were totally like not qualified for this job for like real software engineering. But it was cool. We like joined, learned a ton, worked with like, I mean, that team was incredible. It was like some of the smartest people I've ever worked with, that original team. It was really, it was really awesome. But we worked there for a while and it was like this dating website.

• 12:26Speaker 02

  And then they pivoted to do casual games and we were like, ah, that's not really what we signed up for. We're going to go do other stuff.

• 12:31Ben Gilbert?

  So you were at I'm in Like With You. Ikrum was at Ticketleap. So Ticketleap ends up being an important component in the founding of Venmo, or at least the, as far as I can tell, the initial capital. Can you tell the story of how all that went down?

• 12:51Speaker 02

  Well, so Ikrum and I both had part-time jobs when we started Venmo. Well, we had full-time jobs and we started working on Venmo in nights and weekends. Then we kind of like transitioned to part-time as we got a little bit further. And we wanted to get some like advisors who knew how to build a company involved. And so one of those advisors was this guy, Chris, who is the CEO of Ticketleap. And then another was this guy, Sam Lessin, who is a friend of mine, who had both started companies and were like early advisors. After we had kind of like spent many months working part-time, getting progress, getting some of our friends using Venmo. They kind of encouraged us, "Oh, you guys should go work on this full-time."

• 13:33Speaker 02

  And then the first kind of investors were Sam and his dad. And they helped us kind of like find people to put together an early round of financing so we could quit our jobs and go work full-time.

• 13:46Speaker 01

  And we should say, Sam is your current co-founder at Finn.

• 13:50Speaker 02

  Yep.

• 13:50Speaker 01

  Sam Lessin, who was, was he running drop.io at that point?

• 13:54Speaker 02

  Yeah.

• 13:54Speaker 01

  Which ended up being, I think, Facebook's first acquisition? It was either first or like second or third. And then that, let's jump ahead into Venmo. He ends up being super influential to you guys, not just as an investor, but as product feedback and in terms of building the newsfeed within Venmo, right? How did that happen?

• 14:19Speaker 02

  Well, he actually wasn't really involved in the newsfeed part of Venmo. He was more involved in this feature that we had called Trust, which was, it was like friend-ine but more powerful, where you could, like, if I trust you on Venmo, back in the day, then I could just take money out of your account without you having to... It was like, it was awesome and like highly efficient and like a cool relationship, which obviously got... Marriage. Yeah, it was like marriage, but without all the, you know, sort of like legal stuff.

• 14:52Speaker 02

  It was sweet, but obviously got shut down immediately after PayPal acquired us.

• 14:59Speaker 02

  But the newsfeed, the newsfeed came out of like, Iker and I, when we started Venmo, we had BlackBerrys, and we would use Venmo instead of text messaging. And BlackBerry, I don't think even had threaded text messages. And so like our whole text message screen would just be payments that we were making through Venmo. And it was like all this cool shit that we were doing, like going to bars and restaurants and concerts and things. And we just thought like, "Oh, this looks like interesting content. We should just make this part of our app."

• 15:27Ben Gilbert?

  And so, one thing that we skipped over a little bit is the initial idea for Venmo. I take it Venmo wasn't, gosh, you know, it would be great if anybody could transfer money to any of their friends at any time, right off the bat. It feels like there was a little evolution there. How did it start and how did it get to a social payment app?

• 15:45Speaker 02

  Yeah, we worked on a lot of different things. Like, one of the first things that we did was, this was before Square had their point-of-sale software. And so, one of our friends was starting this yogurt shop, like a... Pinkberry, it was called Yogurino. And so like Yogurino needed a point of sale system. And we felt like we could build a better point of sale system than anything that existed. So we built this like browser-based POS with a USB credit card swiper. And we thought maybe we would like do that as a business, but we didn't really like the idea of having to go like door to door to sell point of sale systems, so we decided not to do that.

• 16:25Speaker 02

  Another thing that we wanted to do was make it so you could like, if you go to like a small free concert in a bar, they don't charge for tickets, but then they'll do this thing where they pass the hat. And when they pass the hat around, everybody kind of like throws in a couple bucks. But if you're a musician, you know, like, this is like a super shitty way to make money. And if you have a band of like five people, you make like maybe seventy bucks and five people have to split that, and it's really like peanuts. And we thought it would be cool if you could just like text money to the band to support them while you're at the concert, if you're just like feeling attracted.

• 17:06Speaker 02

  So we worked on that for a little while, and that's kind of how we got into like, okay, we should like figure out how to make something where we can send text messages and like charge money.

• 17:17Speaker 02

  That, we were working on that for a while, and then there was this day when Ikrum was visiting me in New York and he just didn't have any money on him, he wrote me a check to pay me back. And we were like, this is stupid, like, we should be, we use like all these other apps to do everything else. None of our friends like exchange money with PayPal, feels like we should be doing that, but if we're not, something is clearly broken, so like, why don't we just go solve this problem that we are experiencing right now? And that was kind of like the initial idea. So then we went and kind of like... Went back to like find a computer and like do some research and I saw this because you guys sent me this note about Obopay and we found this company called Obopay.

• 18:00Speaker 02

  Looked them up and we're like, oh man, Obopay has raised 70 million dollars to do like phone payments. This is like, we're too late. And then we looked at their website and it was like all these people in suits and a really shitty website that obviously no one was gonna use.

• 18:18Speaker 02

  And so we're like, yeah, okay, we can compete with Obopay.

• 18:23Ben Gilbert?

  Seventy million ain't nothing.

• 18:25Speaker 01

  So, so you guys have this great slide. You, you end up raising a seed round for Venmo of 1.2 million dollars. And you have this slide in your pitch deck. I assume you had been pitching the idea with the, the band payment idea before then. You, you cross out. You had, you had your, your original mission was Venmo enables musicians to accept payments for songs, merchandise and subscriptions via SMS. And then what you guys did is you crossed out a bunch of words in your mission in, in the, in the slide deck and you put instead Venmo enables anyone to accept payments for anything, anytime. And that, I think that's just like such a super cool.

• 19:08Speaker 01

  Like so many startups that, that I've been involved in and we see is like Rover is a great example. In the beginning Rover was like when you're out of town, when you're on vacation, put your dog with a real family instead of in a kennel. Like great, and that was Rover's first chapter, right? But then we started talking, we were like Rover is actually about being the best dog owner that you can be. And there's so much more than that. And like kudos to you guys, like you figured it out and that kind of unlocks the big vision. How was? So I'm curious, like when you were pitching Venmo before versus after, like how did that, how did that change reactions from investors?

• 19:47Speaker 02

  One thing I remember about pitching was we pitched this guy and he was like, I only want to invest in home run opportunities.

• 19:57Speaker 02

  And Iker was like, and he was like, it doesn't make sense to invest in anything other than a billion dollar company. And Iker said to him, "Well, we're gonna make a trillion dollar company."

• 20:11Speaker 02

  And then he just laughed at him, and I was like, "Man, that's not cool."

• 20:18Speaker 02

  So I remember that about funding.

• 20:19Speaker 01

  For context, Venmo did 17 billion in transaction volume last quarter, so, you know, pretty close.

• 20:25Speaker 02

  Yeah, well, I mean, yeah, so it's not the market cap, but, uh, yeah. So, raising money for Venmo was just like, uh, it always sucked. We were always like, you know, there was always like some law changing where we needed tons of money immediately, or we couldn't pay people, or we would be violating some law and be, ended up in jail if we didn't have enough money, which is never a good position to be raising money in. So basically, anytime we did any sort of financing, like, our vesting would get reset, and we would get horrible terms, and it was just like shitty.

• 21:08Ben Gilbert?

  And to walk folks through what that looks like, at least what the recorded history of Venmo's fundraising is, is about 1.2 million in sort of an angel seed round that Sam invested in, and that some others. And then your Series A ended up being, I think, 7 million dollars? And that was led by, was that RRE?

• 21:31Speaker 02

  No, Excel.

• 21:32Ben Gilbert?

  Excel, Excel, so, you know, big first institutional venture capital firm investing. And then, you know, at this point, you guys are growing like crazy. Can you talk about growth as it relates to, how are you guys making money? And how are you dealing with growing so fast, but from my understanding, not bringing in nearly as much as you were burning on how fast you were growing?

• 21:58Speaker 02

  Well, I mean, Venmo never, while I was there, we never made any money. It was just like, we would just be spending tons of money processing transactions. But the idea was, you know, you get enough, you get enough people on there and then instead of charging people to pay each other, you charge businesses to accept payments from people to have Venmo, uh, which is, it's like the PayPal model. But we were never making money, uh, when we, you know, back when I was there. So it was, you know, that was like another challenge with that fundraising situation we always found ourselves in.

• 22:31Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is, uh, no longer the hard part.

• 22:45Speaker 01

  Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 22:59Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 23:09Speaker 01

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 23:26Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 23:42Speaker 01

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 23:59Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 24:08Speaker 01

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 24:19Ben Gilbert?

  So Venmo is like inherently viral from the very beginning. Did you ever try and stop growing so fast? Because the faster you grew, the more users you got, the more engagement you got, the more money you were losing to interchange fees, especially on the credit card side?

• 24:35Speaker 02

  Uh, well, first of all, all this stuff was very intentional. I remember there's this picture of this guy, Shreemant, who was our first employee with it. He was holding like this poster, uh, South by Southwest and said, "You're already on Venmo, you just don't know it yet."

• 24:54Ben Gilbert?

  I love that.

• 24:54Speaker 02

  Uh, so the idea of like a dark account is like a great thing if you're trying to grow really quickly. Um, like what was the other part of the question?

• 25:03Ben Gilbert?

  Uh, so the faster you grow, the more transactions that happen, the more money you lose?

• 25:07Speaker 02

  Um, yeah, well, there are definitely people that said that. And we were like, we were always like, why would you want to grow slower? But the, we would definitely try to like, we did lots of stuff to um, reduce the spending. And so we would always want like more user growth, but lower costs. Um, and so early on, we had a lot of people that were doing payments to each other with credit card transactions. And the fee to us for that was something like 3%.

• 25:37Ben Gilbert?

  And users don't have to pay?

• 25:39Speaker 02

  And you, no, we were just like something like all of that. Um, and so it took a bunch of work to like get a bunch of, like, to get a banking partner that would just do ACH transactions at the volume that we were doing. But then that really significantly like reduced our um, unit economics. And like the, the sort of like cost of processing transactions. And so there was like this point where we were just like spending like way too much money processing credit cards. And one of our board members was like, "Why are you spending all this money? We should be doing this through banking." And we were like, "Yeah, it's a good idea, we'll reduce the costs."

• 26:12Speaker 02

  So it it took a bunch of work to kind of get everything cut over the bank. We killed a bunch of these users that were like from sites such as FlyerTalk.com, which is this like credit card points hustling, you know, underground network, which, you know, is probably something like this on Reddit right now. It's like all these people are just trying to like max out their credit cards. And there were some, uh, people.

• 26:33Speaker 01

  Essentially, uh, running out of points.

• 26:35Speaker 02

  Yeah, yeah. And there were some people that were like, they thought that was like, you know, the only users we had were these like credit card users. And we're like, no, we'll we'll switch people on the bank, uh, which we did. Uh, but we happened to do that transition like right before we went to raise our Series B. And we've had like three, two or three like down months of growth to like get through this transition of like killing all these, uh, crappy users and retaining the good users and getting everyone who's over the bank payments and had like, you know, growth was picking back up, but it was just like not an opportune time to do this transition.

• 27:11Speaker 01

  So B C's are now looking at you for your Series B and they're like, you guys aren't making money, you're losing money on every transaction and you're not growing.

• 27:18Speaker 02

  Yeah.

• 27:20Speaker 01

  Um, which leads into the first acquisition of Venmo. Um, great to meet you, Ben. Actually, before we get to this, I I Jenny would be very upset with me if I didn't bring this up. So I I have to, and now is the right time. Can you tell us a little bit about John Graham, who joined Venmo? I believe he was employee number five.

• 27:39Speaker 02

  Yeah, John, uh, when I met, so for those of you that, I mean, I guess everybody knows who John Graham is.

• 27:47Ben Gilbert?

  So I I definitely didn't.

• 27:48Speaker 02

  For any research.

• 27:51Speaker 02

  Yeah, John Graham, he was on, uh, The Bachelorette.

• 27:55Speaker 01

  Well, he famously famously claimed on this season of of The Bachelorette to have invented the mobile, uh, app for Venmo.

• 28:02Speaker 02

  Well, no, he created the Venmo iOS app.

• 28:08Speaker 02

  So, you know, he his lawyers slipped that one.

• 28:13Speaker 02

  We're not recording, so yeah. Yeah, no, but so he he was on the backside, but John Graham, uh, we met him through this guy Matt Hamilton. And Matt Hamilton is a guy that went to Columbia who when Iker and I were like on the street getting a cup of coffee, or coming back from getting a cup of coffee, and we both had our Venmo t-shirts. And this guy Matt Hamilton sees us and is like, oh, Venmo, I love Venmo. And we're like, yeah, cool, uh, we made Venmo. He's like, what? Awesome.

• 28:42Speaker 02

  And we're like, yeah, what's your story? And he was working on, uh, some this thing called Torby, which was like a Airbnb for tour guides type of thing where you could like, you know, have local tours. I'm sure you have to do cool stuff. Um, and we were like, yo, you should come work at Venmo. Um, and if you're a software engineer, he's like, well, I'm I'm working on this other thing, but I have a bunch of friends you should hire. And so he introduced us to John Graham, uh, and this guy Jesse Penter, who was John Graham's freshman year roommate in college. Uh, and those two guys ended up working for us. And he also introduced us to this guy, uh, Julian Connor, who we went to high school with. We hired that guy. Then we hired this guy, Thomas, that Julian went to high school with also.

• 29:26Speaker 02

  Then we hired, uh, Matt Hamilton himself. Then we hired Matt Hamilton's co-founder at Torby, Derek Fasson, just like all these Columbia kids. And so within a year of-

• 29:34Speaker 02

  So John Graham deserves a lot of credit for working on-

• 29:37Speaker 02

  Well, there's no Matt Hamilton. There's all Matt Hamilton. John Graham comes from Matt Hamilton. So like, from this random encounter on the street, we hired like ten kids from Columbia.

• 29:49Speaker 02

  Just because we were wearing Venmo t-shirts. Uh, yeah, so- I feel like there's a lesson in there. We hired, we did all this non-traditional hiring stuff, because like, nobody would want to, like, nobody knew what Venmo was, except for a few people. And it was not like the type of place you go where it's like all these- Great engineers you can learn best practices from, who's like total nightmare. What do you mean?

• 30:12Speaker 02

  Yeah, so.

• 30:13Speaker 01

  So.

• 30:14Speaker 02

  Way to be scrappy.

• 30:15Speaker 01

  So, okay, given that you've been scrappy, the series that can be fundraised isn't going well. Samir from Excel is on your board, right?

• 30:23Speaker 02

  Yep.

• 30:25Speaker 01

  Excel is also the main VC in a Chicago-based payments company called Braintree. That is, in a lot of ways, the other side of the coin of what you're doing. Where Venmo was working with consumers that use Braintree is up and coming. This is pre-Strike days, or Strike adjusted, apparently.

• 30:46Speaker 01

  Braintree is the payment processor of merchants on the internet. So it's still to this day, Uber, Airbnb, a whole bunch of other, you know, companies we all know use process all the payments through Braintree.

• 30:57Ben Gilbert?

  And for anybody who is using, who is building web apps, or, yeah, I guess web apps would be the thing, and trying to accept payments before Stripe, before Braintree, you'd use companies like authorized.net, you'd like try and cobble together some kind of payment gateway. It was like an unbelievably difficult problem to accept credit cards on the web, let alone in mobile apps. And so Braintree comes along, it's freaking revolutionary, and now we've got Stripe. It's no wonder it's a 4D billion dollar company, but.

• 31:24Speaker 01

  How, so how did the, I'm assuming Braintree was not on your guys' radar?

• 31:29Speaker 02

  No, we did Braintree. We, so actually, we were processing credit card payments through First Data on the Yogurino account, because we took it over from the yogurt shop, because we couldn't, nobody would give us a credit card processing account. So we used that. But then we were using Braintree to process ACH payments.

• 31:52Speaker 01

  But you're using for.

• 31:55Speaker 02

  For a long time.

• 31:56Speaker 01

  Getting.

• 31:57Speaker 02

  To pay out, to pay out.

• 31:58Speaker 01

  Out of Venmo, you're using the Yogurino.

• 32:01Speaker 02

  No, well, no, we were using the Yogurino account to accept credit card payments. And then we used Braintree to distribute money back out via ACH. And Braintree did that like a little bit early on, and then they kind of shut down. And we were like the last customer, and we would get calls every month, be like, you guys really need to like, get off this ACH thing, we're sunsetting this product. And we're like, we're working on a bank deal, just like, give us like one more month to like figure something out.

• 32:29Speaker 02

  And for like, probably like a year, we were just like.

• 32:32Speaker 01

  So they're basically your creditor.

• 32:34Speaker 02

  Yeah, they were just like, doing all this ACH processing for us, uh, and it was like, you know, just. So we knew them well, and like, they did like, a lot of like, nice favors for us to not kill that product while we were like relying on them.

• 32:47Speaker 01

  So how did the, how did then the acquisition talks go? I mean, my understanding is that Bill, the CEO of BrainTrade, was like, a huge tamper for you guys and bought into the vision.

• 32:55Speaker 02

  Yeah. Yeah, I mean, the, um.

• 33:02Speaker 02

  Samir just introduced and was like, you should go talk to the, uh, the BrainTrade guys, um, I think, you know, it'd be a good conversation. And we kind of like, just missed the first meeting, and we're like, well, we have first date on the process credit cards, what do we even talk to BrainTrade about? And after we missed that meeting, Samir was like, nah, just go talk to Bill. Uh, so we went and met him, and, uh, he was talking about how they had all these merchants, but we're interested in like, a consumer wallet type of thing. And we had all these customers and wanted to start making money by allowing the customers to pay merchants. Um, and just kind of got into this conversation where it's like, oh, we have this kind of, we're both trying to get to the same place from different sides. Um, maybe we should try to do it together.

• 33:47Speaker 02

  And this was right around the same time when also we had been trying for like, many months to raise a Series B with no success. We're just like, running out of money, um, you know, there was the point where there was like, the only money left that we had had to be kept in escrow. In order to like, meet, comply with some law in California. Um, and so we're like, totally out of money, and then, uh, no, there was no investor that wanted to do anything. So we, it was either like, shut down the company, or sell it. And we had an offer from Groupon for like, a million bucks, or something shitty like that.

• 34:23Speaker 01

  Wow.

• 34:23Speaker 02

  Um, we talked to the guys at Square, and they were like, nobody here is actually an engineer, why would we acquire you guys?

• 34:34Speaker 01

  I see you talked to Facebook, given the same connection.

• 34:37Speaker 02

  Same story at Facebook, nobody, well, I mean, the Columbia guys all passed the engineering.

• 34:44Speaker 01

  But not Facebook.

• 34:45Speaker 02

  No, definitely not, um.

• 34:48Speaker 02

  Yeah, so and then Bill was like, yeah, like, you know, how much you guys wanna sell the company for? Let's do it. And he, it was even to the point where like, we were missing payroll and he just like wired us a bunch of money. Um, before that, before the deal was closed, the main payroll because

• 35:05Speaker 01

  Wow.

• 35:05Speaker 02

  There was like their CFO was trying to like get the Venmo books to balance, which that didn't even happen before PayPal acquired Venmo.

• 35:16Speaker 01

  This is so funny. This is really sweet. The story was been like, this is crazy when you think about it, taking a step back. Like, Bill is basically, Bill, and he's now the CEO of PayPal, uh, is basically the only person in the entire startup adventure ecosystem that sees the potential for what Venmo is today.

• 35:36Speaker 02

  Yeah.

• 35:37Speaker 01

  Despite all the warrants, right?

• 35:38Speaker 02

  Yeah, yeah, yeah. Bill got it. He's like, he's an amazing dude. I mean, there would be no Venmo without Bill for sure.

• 35:44Speaker 01

  Um, that's, uh, it's great. And so I feel like

• 35:49Ben Gilbert?

  Wait, I got one question. How'd you, how'd you land on the, the purchase price of twenty six point two million dollars?

• 35:55Speaker 02

  We, I remember, this is a good one. You, you'd never be the first person to throw a number out there. It's just a stupid idea. But we were, we were talking to these, uh, those guys from Braintree and they were like, well, how much money are you guys gonna raise in your Series B? And I think somebody was like, well, we'll probably go raise like ten million bucks. And then they just go like napkin bid and we're like, well, if you're gonna raise ten million dollars, this would be like the post money, uh, kind of standard terms. And I think that's how they got to.

• 36:23Speaker 01

  Uh, and back to why Bill was a believer, the, we, we alluded to this earlier, but I think it's worth reiterating for, you know, as Ben and I were researching this episode, we are deep in fintech. And I think probably most of you are deep in fintech and maybe you guys are the only ones who's gonna agree with us anyway, but, um.

• 36:42Speaker 01

  There really is only one business model that makes sense in the long term, right? And that is PayPal's business model, which is you have-

• 36:49Ben Gilbert?

  That's pretty bold.

• 36:51Speaker 01

  Well.

• 36:53Speaker 01

  In the long term-

• 36:55Ben Gilbert?

  It's Visa's business model.

• 36:56Speaker 01

  It's Visa's business model, which is also PayPal's business model. Now PayPal started the same way Venmo did, with a consumer wallet essentially. But you make, you can't make money by charging consumers.

• 37:08Ben Gilbert?

  Right.

• 37:08Speaker 01

  You have to make money by charging merchants. And so thus, you need a two-sided network effect. You need a lot of consumers. You need a lot of merchants who are willing to accept this payment. And then you can charge the merchants a fee for using the system. And it's crazy that like you guys had one half the equation, they had the other half the equation. And actually, I guess there were only, getting to the next acquisition of Venmo, there were only two people in the whole ecosystem that saw this. There was Bill, and then there was PayPal, right? Because it was less than a year later that the combined entity gets acquired by digital, right?

• 37:43Speaker 02

  Yeah, PayPal will be the only company smart enough to acquire Venmo, for sure. Like it's too small. I mean, they get the business model, right? And like understand what it takes to kind of like get to the point where you can convince merchants to adopt your network.

• 37:58Ben Gilbert?

  And it is worth pointing out, like it sounds, you know, when you're just hearing it for the first time, like, "Oh, they're the only ones smart enough to do this," or like, "They were the only company that could." There was almost a revolt inside of Braintree when they were like, "Oh yeah, we're gonna buy a Venmo." I mean, a lot of employees at Braintree, and just sort of came out in research, were like, "Wait, that thing is hemorrhaging cash. It's not even like a real company, you know? Like they're growing so fast, they can't, there's no plan in the future to start making money." Like, we are a payment processor. We make a little bit of money on every transaction. We have a sound business. Like, Bill took a huge chance with his internal team and internal culture in the direction that company was going. And I think it's just worth underscoring, like, now that everyone uses Venmo,

• 38:43Ben Gilbert?

  and that it's inside a big safe company like PayPal, and they're doubling down on Venmo in a huge way, it seems like, you know, it was so logical. But in retrospect, in that time, it really, it really didn't seem like it.

• 38:54Speaker 02

  I mean, it's a huge investment, too. I mean, there's probably been like a billion dollars spent on transaction processing fees. It's a big investment, but, I mean, PayPal's a killer business. And it's, you know, Venmo has the same sort of out of, it's worth it.

• 39:09Speaker 01

  So I'm curious, what is the- Probably within a few months after the acquisition by Braintree Diligent starts by PayPal for the second acquisition. How much time did they spend with you guys? I mean, what's been reported at least and it seems in our research is that like Braintree is a very nice business with PayPal and that's nice. But their biggest worry was that millennials were not using PayPal on the consumer side. And so I imagine there was a pretty big lens trained on you guys.

• 39:42Speaker 02

  They kept us pretty, you know, as far as they could from the.

• 39:46Speaker 01

  The Braintree guys.

• 39:47Speaker 02

  Yeah. Uh, yeah, they didn't wanna screw up that deal.

• 39:52Ben Gilbert?

  Do you know if they were representing, like when, so Braintree sold for $800 million, like are they pitching Venmo, do you think, to PayPal?

• 40:00Speaker 02

  Uh, I don't know if they're actively pitching, I'm sure they're like, you know, talking about, I wasn't involved in any of the kind of like acquisition talks. I'm sure they talked about like the growth rate, um, but even like even on the PayPal side, like David Marcus, I'm sure got it. But a lot, I'm sure a lot of the, um, the rest of PayPal was also similarly like, like we should just shut down Venmo, you know, like why? We already have this, we have a product like this, right? So I don't think there was like a ton of, um, talk on either side about the importance of Venmo.

• 40:36Speaker 01

  So the acquisition does happen.

• 40:40Speaker 01

  Two things I want to cover before we get to acquisition category. One, uh, the acquisition happens.

• 40:49Speaker 01

  PayPal also leaves you guys kind of alone and the best example of this, so that some people may be familiar with this. You guys run an ad campaign in early 2014, uh, right after the acquisition in New York called Lucas Uses Venmo.

• 41:06Speaker 02

  That was during the acquisition.

• 41:07Speaker 01

  During the acquisition, oh wow. Tell us a little bit about Lucas and his use of Venmo.

• 41:14Speaker 02

  Yeah, so at that time, um, Braintree was working with this like hotshot creative agency to do a big rebranding of the company as like super developer focused, the operating system for payments and kind of like up their credibility.

• 41:32Speaker 01

  The Stripe is on the scene.

• 41:33Speaker 02

  Yeah, the Stripe is on the scene.

• 41:36Speaker 02

  And so they were doing that and then they they're like, well, you know, we can have this agency like do some like paid advertising for the holidays for Venmo. And you know, their idea was to like, put some ads on Best Buy and said like, split the gift with Venmo or something like that. And I remember just being in our office in New York with Igram and our creative director Neil and just being, everyone was like, ah, man, this is like, we've never spent money on advertising, like, the thing that we're gonna do is put ads on Best Buy, like, that's just really boring. I mean, I can't imagine there are many Venmo users who actively shop on Best Buy, seriously. No, well, maybe that was part of the point, you know, to like, get people if they're not, yeah.

• 42:16Speaker 02

  Get people to say, yeah. Um, anyway, so I think it was like, if we're gonna spend all this money on ads, we should at least do something fun, like some sort of like out of home, like billboard type of thing. And we're like, yeah, that'd be cool. Uh, and he's like, like, and we just keep it really simple, like, look at, you know, Lucas, he's like drinking coffee, he uses Venmo. And we're like, that's Lucas is a software engineer, right?

• 42:39Speaker 02

  Yeah, and yeah, he was like a dev ops engineer.

• 42:43Speaker 02

  And he was literally drinking coffee.

• 42:44Speaker 02

  Yeah, and we're like, yeah, that, that's cool. And so Neil, um, he photo, he got Lucas's picture off of the, um, and this is all like, it's real time we're doing this, so it's, he like, we're sitting there, it's like one GM, then the Lu, uh, Neil gets Lucas's photo off of the team page. And he puts a Santa hat on him, like with Photoshop for some reason. Uh, and then like puts this little banner on there that says Lucas uses Venmo, and like, that's it, it's just like pure white background, that's like all it is. And then like an hour later, we're in the street, like just showing it to people, and they're all like, what the fuck is Venmo? And we're like, oh, yeah, that's awesome, good.

• 43:23Speaker 02

  And then so we're like, you know, we have to get Bill to approve this, and then Bill has to get PayPal to approve it because it's an expense over a hundred thousand dollars. So we send it to PayPal, and we're like, where's the rest of this, like, I've Did you forget to like attach some assets? I'm like, no, that's all.

• 43:41Speaker 02

  So Bill, I like, Bill was talking to me, he's like, maybe we should like, explain what Venmo is on here. And I was like, no, man, we have to do it, like, this is what it is, I'm telling you, it's gonna be awesome. Like, I'll put it on my credit card, and you guys are not gonna do it, but we have to do it like this, because it's gonna be awesome.

• 43:56Speaker 01

  Dude, you are a nerd.

• 43:59Speaker 02

  And so, so, he was like, ah, I think this is like, awesome part of Bill, he's like, no, you know, I don't get it, but I trust you guys, like, let's do it. Um, and so, one of our people called the subway, uh, folks on Black Friday, and they had inventory during the holidays. And then we did this photo shoot with Lucas, like, he's wearing a Santa hat, and has like, his Movember mustache, that's like, not a very full mustache.

• 44:28Speaker 02

  And he's holding a watering can, and it's just weird. Uh, and there's all these ads that say like, there was like, when you go into the subway, there was this like, huge staircase, where there was a big sign above it, and it just said, Lucas takes the stairs, and like, that's it, like, nothing else. And everyone was like, there was like, these people like, what is, like, who the fuck is Lucas? What's going on? And there would be like, news articles, like, reviled Venmo ads, explaining.

• 44:54Speaker 01

  Also, eBay is, uh, maybe that was part of eBay at this point.

• 44:57Speaker 02

  Yeah.

• 44:57Speaker 01

  So like, uh, John Downey here, Meg Whitman's successor at eBay is probably seeing this, like, what is going on?

• 45:03Ben Gilbert?

  Guys, I can't decide if this is like, so brilliant, or if this is like, perfect product market fit lets you mess up everything else.

• 45:11Speaker 02

  No, well, this ad campaign was like, this, this ad campaign was like, really successful. I mean, there were tons of people, like, the amount of earned media that we got with this, in terms of like, Twitter, Facebook shares, Reddit threads, there were like, people making, um, meme generators, where you can make your own Lucas ads, and like, share it on your friends. It was like, crazy, I mean, there was this guy, he, one of our team was down in Puerto Rico for the holidays, and he came back, and he's like, yeah, people in the, in my pool in Puerto Rico were talking about Lucas. And it was just like, it was insane, like, the number of people talking about it. It was actually, it definitely, we looked at the, uh, the lift in sign-ups in New York versus like, other cities, and it definitely like,

• 45:54Speaker 02

  helped, uh, quite a bit, actually, so, it worked, I mean... We had a feeling like maybe something like this would happen and it kind of far exceeded expectations. But the main reason we did it was just because we thought it was funny. Um, but anyway, we catch your attention, you know, we get you out like saying like, okay, like, I need to go research this thing. But or actually, what you would do is you would ask a friend, like, what is Venmo? Do you know what this thing is? And that's kind of how it worked.

• 46:18Speaker 01

  Well, I think, uh, that's part of my problem, I don't know, A, because it's a great story. Um, but being like, uh, I think as we were doing research on, on this episode, one thing we kept hearing from people is that, um, you know, yes, you guys had product market fit, right? But like, it wasn't like, um, even though with all of the twists and turns along the way, it wasn't like overnight, like Venmo just blew up. Like, you guys actually were really scrappy, like, you were out, like, talking, like, when you came up with, I'll do this, use this Venmo campaign, like, you guys actually went out on the street and tested that with people.

• 46:55Speaker 02

  Oh, yeah, we tested everything on the street.

• 46:56Speaker 01

  And you were always like out telling people to use Venmo. Um, I think it's just such a good story, right? Like, same thing happened with Airbnb, right? Like, a year and a half in Airbnb, Brian Chesky decided to live for a year in Airbnbs. You know, like, that had a big impact on the company, um.

• 47:12Speaker 02

  He came to my apartment in New York and photographed it to put the pictures on Airbnb, actually.

• 47:17Ben Gilbert?

  Wait, you were an Airbnb host in New York during that?

• 47:20Speaker 02

  Yeah, he came and took photos to like, because he didn't like the photos on my list.

• 47:26Ben Gilbert?

  Wait, this is like two pieces of startup lore, like, intersecting. Like, everybody knows the story of, like, Brian go to New York, like, living with some of the early hosts, taking pictures of their apartments for, you were one of the early hosts?

• 47:37Speaker 02

  Yeah.

• 47:38Ben Gilbert?

  Oh, my God.

• 47:42Speaker 02

  Yeah, I think that was cool, like, comms serving was cool, too. It's like, cool, give me cool people for that.

• 47:47Speaker 01

  The only question is, why are you not an venture investor now? But we'll get back to that later. Um, okay, so the, uh, the, the last, the last thing to cover with before we move on here from history max is, Venmo just basically has continued growing at like twenty percent month over month, period, indefinitely. What, do you remember when the acquisition happened? When the PayPal acquisition happened? What gross transaction volume, run rate you guys were at?

• 48:21Speaker 01

  Probably something like a billion annually. Um, that's, that's what I thought it was, but I couldn't get data on that for a bit. Yeah, I mean PayPal just reported earnings last week and the first slide of their earnings deck was BMO's growth turn. And as I alluded to earlier, BMO paid $17 billion in gross rent to accident volume last quarter, which is incredible. And I believe about 10% of PayPal's entire, entire municipal quarter into the transaction volume, which is incredible.

• 48:52Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 49:06Speaker 01

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 49:22Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 49:37Speaker 01

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 50:01Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where a judgment is required.

• 50:20Speaker 01

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 50:50Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you.

• 51:15Speaker 01

  All right. Let's move on to acquisition category. So as you all know, I guess we don't even need to say how it works because you guys all know.

• 51:23Ben Gilbert?

  No, no, I think there's a decent number of people here who are brought by a friend or something.

• 51:27Speaker 01

  Well, go for it, dude.

• 51:28Ben Gilbert?

  All right. So in the next section of this show, that was like the first section. Anyway, we, these go faster. We categorize the acquisitions. So we basically decide, you know, why, and this is sort of obvious by the time we get to this point in the episode, but sometimes it's frustrating. And we decide whether this acquisition was people, technology, product, business line, asset consolidation, or other. And for people who've been listening for a long time, you know that that list just continues to grow. All right. So to me, the differentiation that we make between product and business line is that products get integrated into an existing business and run as a single business.

• 52:11Ben Gilbert?

  So the same sort of, like you could imagine that a product gets bought by Microsoft and then Microsoft Salesforce goes out and continues to pound the pavement and sell that product. A business line on its own is something that completely operates its own engineering to product, to sales, to marketing, kind of as a business unit. And that to me is what this is because what we're seeing some really amazing sort of like PayPal is sort of saying like, yeah PayPal's the old thing, Venmo's the new thing. And they're starting to replace a lot of the PayPal stuff with Venmo. I mean, it's been five years and PayPal's operated completely as an independent thing, albeit subsidized by PayPal's balance sheet. But I'm going business line for Venmo.

• 52:57Speaker 01

  Yes, I'm actually not gonna pick a category. I mean, we're doing a lot of firsts tonight.

• 53:03Speaker 01

  My memory is not good enough to remember how we classified Instagram. But to me, that's the analogy here, right? Like this is, Venmo is PayPal's Instagram, right? Like there's a, is essentially the same business model. On the merchant side, I would assume at this point the same merchant and sales force that's selling to merchants. It is just a different consumer audience that plugs into that on the front.

• 53:30Ben Gilbert?

  So modularized in the back end and the front end.

• 53:32Speaker 01

  Yeah, so like the merchant side, I would assume is integrated at this point. But the consumer side is completely separate. To me, just like Instagram, Facebook. Unfortunately, we have the expert here.

• 53:44Speaker 02

  Yeah, the, let me see the categories.

• 53:51Speaker 02

  Yeah, the business line thing is interesting because Venmo didn't have any business without PayPal. It needed a merchant network.

• 53:59Speaker 02

  And the reason it kind of like took off is by the, just like some of the product tweaks, like the, because it was designed for people to use with their friends, you could reduce a lot of friction that PayPal had because it was designed to transact with people you don't know. And so like the product was actually subtly different in a way that made it grow faster. So I think I would say product.

• 54:28Ben Gilbert?

  That's an important nuance, and I think one worth thinking about for anyone

• 54:33Ben Gilbert?

  doing a consumer startup is that you can have a higher viral coefficient if it's between like slightly more distant, distantly trusted parties rather than people who already have to know each other intimately because you only know so many people super, super intimately.

• 54:52Speaker 01

  Okay, what would have happened otherwise? I think the most interesting question for me in terms of an alternate history here, I don't know if we asked it earlier, do you guys talk to Stripe at all during the acquisition of Meritor?

• 55:07Speaker 02

  Uh, no, we should have, because it's better to have two people trying to buy a company.

• 55:15Speaker 02

  And they lesson number one. Yeah, that's a good, you know, we should have. No, we didn't talk to Stripe, so if we didn't just get acquired by Braintree, we would have just, there would be no Venmo and you'd probably use some like,

• 55:26Ben Gilbert?

  you know.

• 55:27Speaker 02

  Sound or something like that. Or like, you know, Square Cash or some, something like that.

• 55:33Speaker 01

  But what's interesting, I, so if you, it's interesting to imagine a world where if Stripe didn't acquire, because I think, my sense of Braintree was pretty focused on becoming part of PayPal, a lot of people built this. Obviously Stripe is very focused on being a, but imagine if Stripe had Venmo. That would be a very powerful combination, right? Or were there things, was, was, do you think Stripe was too developer focused, like,

• 56:01Speaker 01

  to build out a real merchant network to be kind of like Venmo?

• 56:05Speaker 02

  I think it would have been, uh, in terms of like the, the products that could match. I don't know if the fighting series would have had the stomach to spend like a billion dollars getting Venmo to the point where there was a big enough network of consumers to be interesting to the merchants. But like in terms of like the, the sort of like, the match of the products would probably be similar to Braintree.

• 56:28Ben Gilbert?

  All right, so going into tech themes, I want to use the beginning of this section to do something we haven't done yet in this episode, which is, you mentioned Square Cash. We haven't talked a lot about Square. We've talked a lot about Venmo, but we haven't talked that much about what each of those companies are doing today. And David alluded to something that PayPal has the only business model that wins in the space, the same as Visa. I want to spend a little bit of time sort of unpacking that and trying to talk about what each company is doing and what the strategy is and trying to pattern match what's succeeding and failing across each. So Square Cash launches, so let's take a step back. I think we all know Square. Square is how we're selling t-shirts in the back. It's how any merchant, actually internationally, in the world, can easily accept payments

• 57:11Ben Gilbert?

  and use a point of sales system in their business. So they see that Venmo taking off and saying, "Oh, we need to be in the peer-to-peer transaction business too." They launch Square Cash, which is now rebranded as the Cash App. They had a value proposition around you're going to be able to instantly transfer something to someone else, which is extremely expensive because you're then paying to deposit quickly in other people's banks instead of the very cheap ACH or the free strategy of just transferring something to somebody's Venmo and letting it sit in their Venmo account. Like, that's got to be the dream scenario where David and I both have Venmo, I'm going to Venmo you, you're going to say, "Ah, I'm not going to transfer that to my bank," and so it doesn't cause Venmo anything.

• 57:52Ben Gilbert?

  And so if there's a way to monetize me when it's a closed loop where all the money is just staying in between the two of us, that's great. Now, I want to add a little bit of color to why, David, you were saying the only business is sort of the Visa one, the PayPal one, and also why you're saying that Stripe and Venmo can be a powerful combination. Imagine you have what Venmo has, which is two different parties that are transferring money to each other and do so often enough that they're willing to leave money in Venmo. So it doesn't cause Venmo anything to have that dream scenario where people are moving money around to each other, and most of the time, if they are moving it to their bank account, they're doing so in a relatively cheap way with ACH.

• 58:35Ben Gilbert?

  If you also had all the merchants on that same ecosystem, where you didn't have to ever have costs of goods sold to transfer money to a bank, then you could really have a business on your hands because what businesses are willing to do is pay the interchange for that transaction. So that's sort of where Venmo is today, is where when you see pay with, pay with.

• 58:56Speaker 01

  And it's because you are both Chase or Wells Fargo or whatever have you and Visa. Like you are a credit card and you're paying, so you're not paying fees to anybody. You're just charging 100% first margin fees to merchants.

• 59:09Ben Gilbert?

  Right. I mean, imagine the high velocity, like I use Venmo five, the average, I think, from their earnings is that people use Venmo on average five times a week who use it. So when all those payments are free, there's a 2.9% same as a credit card transaction fee plus 30 cents when you go and pay at a merchant. Now, that's all, that's all sort of free money for Venmo because they don't have to pay anything to the bank until they decide to settle up once a week or once every two weeks or whenever merchants actually move money out of Venmo and into their bank account. So they're not paying per transaction, just a one lump sum. So kind of an amazing, like if Venmo can take advantage of having this payment network and really building it out into a merchant network too,

• 59:54Ben Gilbert?

  that's an unbelievable business model. Yeah, it's PayPal's business model. Yeah.

• 1:00:00Speaker 01

  Yeah.

• 1:00:00Ben Gilbert?

  I know I'm talking a lot, but one other point I want to make here is that it's interesting how three times in a row there have been businesses that try to start in peer-to-peer transactions and then don't find a great business there and then pivot to.

• 1:00:13Speaker 01

  The multi-sided.

• 1:00:14Ben Gilbert?

  Yeah, peer-to, you know, commerce, like paying for things. And so if you look way back at PayPal when they started, that's why it's called PayPal. It's for people to transfer money to other people. But like really their business model is you buying stuff online and then taking a, you know, a cut of you buying stuff online. You look at Square's first business model, great business model. They're just taking a ton of every transaction. They try and start a second business, that is Square Cash. Square Cash kind of ends up pivoting to where they're really changing to be a bank rather than, hey, you should transfer money to your friends with this cash app. They're really a bank for the underbent. And we haven't talked a lot about this yet. There's a whole, and probably follow-up to Square episode coming at some point, but.

• 1:00:57Ben Gilbert?

  If anybody's using the Square Cash App, you'll notice like they're pushing this debit card on you, well, they get a cut of every transaction of the debit card. And so Square and Venmo are sort of taking very different strategies at this point, where Square already has the merchant network. They're now with the Cash App, trying to start a business where they're able to make money on the debit card side of every time one of their users makes a transaction, they make that interchange. And when you look at Venmo, yet again, what we're seeing after all these years now is lining up the merchant network, which is funny, because it's sort of like one of the ideas that you guys had originally, but really, you know, really relevant to that.

• 1:01:34Speaker 01

  The difference is PayPal has two million merchants already on there, so.

• 1:01:38Ben Gilbert?

  Right, so to the extent that, I mean, there's real consolidative power there, a real, what's the terrible word, synergistic power there.

• 1:01:44Speaker 01

  Including Uber, which is now accepting Venmo.

• 1:01:47Speaker 02

  I mean, that was, that was always the idea for the business. Like, we knew there was no business of P2P transactions, like, you don't want to, because you're competing with tech, like, literally, like, you know, hard, physical cash, and there's no fees on that unless you maybe consider an ATM fee. And so we never had a plan to, like, monetize the P2P business. It was all just a, grow that side of the network, and then once you have leverage, go get the merchants onto the network to actually start making money. Makes sense.

• 1:02:17Speaker 01

  Which I think brings us to great, what's great, um, so for me, I mean, I've already made the analogy, like, I think it's the same here. Like, this is, to me, this is an A for PayPal with a caveat of a future A+ that I think is likely, which is, which is, this is the fantech analogy of Instagram. Like, it's PayPal understands this business model better than anyone in the world. It's a fantastic business model with incredible network effects. It's a two-sided network. And they had a major problem, which was that people who were, you know, mobile natives,

• 1:03:00Speaker 01

  quote-unquote, or didn't grow up using PayPal, weren't using PayPal to transfer money. And Venmo became the way to do that. And so now it's all under one roof. But PayPal has the merchant network on the other side of the transaction, so I think this is like, without going into depth on the finances here.

• 1:03:23Speaker 01

  A no brainer, minimum A, and my caveat on the A+ is just further proving out monetization of Venmo over the coming years, which I have no doubt they will.

• 1:03:33Ben Gilbert?

  Well, it's funny, I was just looking up, Visa is effectively three PayPals in market cap, like Visa should probably be the one to be scary, Visa should probably try and make a go for PayPal. And anyway, I mean, that's not grading, but yeah, David, I'm with you. I mean, I think the thing to consider here is like, it's still very speculative, like we're still in the early days because we just now are starting to see a serious effort in the last two quarters of, right, the last three quarters of PayPal deciding to push Pay with Venmo to a lot of the merchants on their network.

• 1:04:10Ben Gilbert?

  We saw, I think that in the earnings report, that 17% of people on Venmo have now participated in a transaction where they were a monetized user, which for the majority of people is means they're paying at a merchant. Some others are paying the fee for instant cash out, but I think the majority of that is probably paying merchants, so you know, there's reason to be hopeful, but you know, I think, I'm in the same camp as you now, A with a future A+, but I think the variance is high because it's definitely predicated on, you know, right now, still losing a lot

• 1:04:49Ben Gilbert?

  of money, still responsible for a super small percentage of revenue relative to all of PayPal's revenue, and it's, you know, it's not totally clear yet whether we're going to be paying with Venmo at Ever7 and all of the place.

• 1:05:05Speaker 01

  Okay.

• 1:05:06Ben Gilbert?

  Kortina, you're probably biased, but you want to weigh in?

• 1:05:10Speaker 02

  Yeah, I like that, I mean, there's that Pay with Venmo integration with Uber, where there's like the button in the app, but there's also like, I think it's cool that they did the Venmo card, because then that wires up any merchant that accepts a credit card payment also as a merchant, which is like far greater than the PayPal merchant network.

• 1:05:33Speaker 02

  Um, I don't know if like people will use the Venmo card, but it is like another way to kind of like instantly cash out. So I can like get the appeal of it and it's certainly like a good way to make all of that uh balance that's sitting around pretty liquid. Um, so that's a cool thing that like would have been tough to do if Venmo was independent, PayPal may not.

• 1:05:55Speaker 01

  Cool. Great transition to you're no longer at Venmo, of course, uh as we alluded to, you had started a thing with original angel investor Sam Lessin. Um, tell us a little bit about how that came together.

• 1:06:10Speaker 02

  Yeah, so after Venmo, I was kind of doing nothing and Sam, who sold his company to Facebook many years ago and was a VP of Product at Facebook for a long time, had left and was also doing nothing. And when we kind of realized neither of us was working on anything, we thought like maybe we should work on something together if we can get excited about something. Uh, the sort of like frustration that we ended up uh sort of like thinking about a lot was your phone. You know, like a lot of times when you're on your phone, you're you're just like, you end up looking at something that you had no intention of spending time doing. Cause there's all these like badges and buzzes and alerts and it's designed like a slot machine to like get your attention on some screen.

• 1:06:54Speaker 02

  Where you, you know, you don't look back at the end of your life and think, I like, I wish I looked at more cat photos when I was younger. Like not, your phone just like doesn't feel like it's aligned with your goals. Um, so we wanted to build something like kind of like realize the potential of the phone, uh which is very high because it's connected to all of human knowledge and allows you to communicate with any other person in the world at any time. So the sort of delta there is pretty big. Um, and we decided we wanted to build this like idea from science fiction where you have an assistant that's like an AI. You know, kind of like it's tapped into your frame of consciousness, always listening, augmenting your sort of knowledge of the world, helping you with whatever you need. But realize that.

• 1:07:37Speaker 02

  Today, the best is like Google Assistant or Alexa, probably Google. And it's like not anywhere near as good as having a real assistant. And so we said like, why don't we build something that like feels like this software from science fiction, but is actually powered by a combination of people and machines and software on the backend. And it feels like the kind of like AI assistant. And so that's kind of what we set up to build. It's called Finn and people, people kind of use it like you would use a full-time VA or personal assistant. But the sort of advantage is it's variable cost. You don't have to spend, you don't have to pay for forty hours of work every week. You probably don't have a workload that's forty hours every week.

• 1:08:20Speaker 02

  So you're paid incrementally by the task. We can kind of, you know, help you out with whatever you need help with. So you can focus on what's important.

• 1:08:30Speaker 01

  Cool.

• 1:08:31Ben Gilbert?

  So Cortina, I know a lot of us are anxious to get our hands on Finn, play around with it. You have a...

• 1:08:38Speaker 01

  I'm gonna get a car around, but go for it.

• 1:08:39Ben Gilbert?

  Oh, you are?

• 1:08:40Speaker 01

  Go for it.

• 1:08:41Ben Gilbert?

  Sorry. So Cortina was generous enough and the whole Finn team to create a really cool custom deal for us tonight. If anybody wants to try it out. So I'll give that to, turn that over to him.

• 1:08:51Speaker 02

  Yeah, if you go to finn.com/acquired, there's a, it'll like get you a promo code where there's no monthly minimum and you get a hundred dollars credit to try it out. So just go to finn.com/acquired.

• 1:09:09Speaker 01

  And related to that, do you really, do you have a car around? Want to play this one?

• 1:09:15Speaker 02

  Oh, yeah, yeah. Yeah, car around. I was doing this event at Berkeley last night for some students there. And I mentioned this book. It's one of my favorite books. It's Camus and it's a treatise on why the meaningless of life does not merit suicide. It's called The Myth of Sisyphus and it's a really good inspirational book.

• 1:09:42Speaker 01

  Oh, man, Camus. You know, well, you don't, listen to me, I was the Prince of Literature, Man, you're a columnist.

• 1:09:48Speaker 02

  Oh, nice.

• 1:09:48Speaker 01

  Man, you're like close to my heart, dude.

• 1:09:53Speaker 01

  I also have a book that I wanted to do today. I wasn't going to do this originally, but given all of the problems. A really new book called Startup by Jerry Kaplan. It's about building a startup in the 90s. Google Corporation, which was the original pen computing company, even before the Apple. This actually was a recommendation, a building early recommendation, this on Twitter. I read it recently and it's like such a good read. Jerry, I believe was also a philosophy major undergrad, I want to say. Anyway, very, very well written and it's about just like the disaster that was building

• 1:10:37Speaker 01

  this pen computing company 20 years too early and the wreckage that gets left. But like really, really fun read and good along the way. Also just like throwback to how far we have come in terms of building startups. Like not only is it coming out of the US, but like funding rounds are like giving up like 40% of the company for like a million bucks in the beginning. And like, it's crazy, so.

• 1:11:03Ben Gilbert?

  Dave, do you know what the difference is between being early and being wrong?

• 1:11:07Speaker 01

  Uh, nothing. Yeah.

• 1:11:12Ben Gilbert?

  Yeah, that's a, that's a haunted. All right. Keeping my brief, I'm super into computational photography. I think what Apple and Google and companies are doing now that are extending, you know, the notion of a photograph far beyond, hey, what was exposed on the film through that glass and doing all sorts of really creative things to make it, you know, the first step is make the photo actually communicate more of the experience like you were actually being there and then layers on top of that, which is capture things that our eyes can see, but was previously really difficult to see on film. And I think that, you know, just with the newest iPhone and the newest Google Pixel

• 1:11:57Ben Gilbert?

  3 are just like. Fascinating playgrounds for developers. And one of those developers is Halide. And Sebastian DeWitt is one of the folks that works there. And he wrote an article on halide.com called "The iPhone XS or iPhone XS, Why It's a Whole New Camera." And their app includes a thing called Smart RAW, which if you're a nerd about this kind of stuff, you should definitely go read this. There's fascinating side-by-side comparisons of like, hey, I took this in RAW with the new iPhone, and then we augmented the RAW in this way. And you can bring out these things in this photograph that you otherwise wouldn't have been able to bring out. And I think the wave that we're in is so interesting. And I think this article is written in such a way

• 1:12:40Ben Gilbert?

  that it's both appeals to the nerdiest of us that are interested in this stuff, but it's also written in a way that anybody who's interested in exploring this area is totally, totally digestible. So highly recommend that article.

• 1:12:54Speaker 01

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:13:00Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:13:11Speaker 01

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:13:31Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:13:44Speaker 01

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:13:55Ben Gilbert?

  All right, Acquired listeners. We will see you again in a couple weeks, or I guess you'll hear us again in a couple weeks. For those of you who have already joined the LP program, the first episode is waiting for you on the bonus show. And for those who want to join, you can click the link in the show notes or go to kimberlite.fm/acquired. That's K-I-M-B-E-R-L-I-T-E.fm/acquired. Thanks.