VCs chased crypto and passed on his “boring” startup—then he raised $385M at a $2B valuation. | with Aaron Schumm, Founder & CEO of Vestwell

0:00Aaron Schumm: You know, we were a few years into that business. Our employees wanted their own 4K program. So I was like, okay. So one of our sales guys had a buddy who is an advisor that sold 4K plans and he gave us a plan. And I was like, this is horrible. How can it be this hard, this clunky, this expensive? And that's really when the light bulb went off. Like, hey, there's a problem you're going to solve here. Where was the business at when you raised that A? Oh, God, it was probably a couple hundred thousand dollars in revenue. But even at the end of 18, I mean, we probably had maximum, you know, half a million dollars in AR.

0:31Aaron Schumm: And now we do that stuff like in a day. When you're bringing in several billion dollars a year of revenue, it will just continue to grow. Right. Is one of those businesses that if the business just stayed stagnant, we brought on no new business. It still grows because you still have people getting paid. You still have contributions coming in. You still have assets accumulating. Right. and it just kind of continues to ride up.

1:21Aaron, welcome to the show, man. Thank you. Thank you for having me. I appreciate it. So you've built Bestwell into a pretty big company,$2 billion latest valuation, just raised a$385 million round, over$200 million ARR. And, you know, the simplest way I can describe what you're doing is you sell software to financial institutions, to advisors that help businesses run their savings plan, like the 401ks and those sort of things, where I'm sure you do a lot more. We're going to talk about all of that. But let's start at the place that really matters to us, which is the product market fit moment.

1:52You told me it took you a few years for you to feel like you found true product market fit. It was probably 2020, 2021. Take us to that time. Tell us what happened then that made you feel like you're really onto something. You really kind of had the thing.

2:05Aaron Schumm: Yeah, sure. Our business, it's retirement, it's savings, it's college savings, disability, emergency, you know, all the tax preferred things you need for life, right? So to get your education, retirement, and healthcare needs. But it's a very complicated industry, complicated business. It's been around 50 plus years from an industry standard. And you can't just show up and have this thing that just flies off the shelf. So it takes a while to kind of entrench yourselves into some of these players. And our go-to-market, as you mentioned, is through channel partners. So we go to market through financial institutions.

2:39Aaron Schumm: We go to market through payroll HCM providers. and we go market through government-sponsored programs out to individuals and businesses across the country. You know, we started the business, it was kind of like, let's test it with a few financial firms, advisors, RAs, and get the wheels going. But it really wasn't until about 2020, 2021, I remember during COVID, where we were able to ink a deal with Morgan Stanley to help be a core component of Morgan Stanley at work and power their financial advisors and all of their businesses that they were supporting through Morgan Stanley onto the platform.

3:16Aaron Schumm: That was really kind of like a point in time where the market realized, oh, wow, these guys, you know, from a Vestful standpoint, as well as a Morgan Stanley standpoint, are really thinking about the future of where workplace savings goes and how this becomes kind of a catalyst for the wealth savings that people are going to have over the course of their career. So obviously Morgan Stanley is a massive brand, But give me a sense of what that meant for Vestwell as a business. Like what was that a certain committed dollar ARR? Was that commitment to introduce you to so many businesses? Like, what did you think in your head when you're like, OK, we've signed this.

3:51This means it's going to lead to what exactly?

3:53Aaron Schumm: Yeah. So what we do typically is we'll do large their long term, you know, five to 10 year contracts. And there's a minimum commitment to that. Right. And ultimately, it's no money out of the pocket of our partners, you know, because we set the bar at a very attainable level where they're just bringing the business onto the platform. But it gives us some assurance of the business is going to show up and we're going to manage and hire and staff according to what the plan looks like. So it gave us a lot of kind of stability and visibility into the future of saying, OK, if we do this, we do this well, everyone's happy.

4:30Aaron Schumm: This thing's going to continue to accrete and grow the business. across all of their advisor networks. So that, you know, when we signed that, it was a multi-year deal with, you know, multi-million dollar minimum commitments year over year that continue to grow. And we've just, you know, since then, we've just continued to expand our partnerships across Morgan Stanley. They're one of our best and greatest partners that we have out there. So multiple questions on this. The next one is, what is the business model, like with Morgan Stanley and Aegis in general? Yeah, so the business model is really, we get paid off of per employer per month fee and a per saver per month fee.

5:07Aaron Schumm: Typically a flat fee is thinking like a pepum. Sometimes there's a basis point component depending, we try not to over index on basis points and look like an asset manager or an advisory shop. But sometimes we will do that depending on the services we're providing. So that's basically, those fees are borne by the employer and the savers on the platform. And then Morgan Stanley really is just committing to continue to bring value. They're not, or our enterprise partners. They're not necessarily going to write a check into us unless they miss the threshold of where we contractually agreed to. So we had Judy Health on the podcast recently, and they talk about, you know, number of lives, right?

5:44Because they're a health-benefit platform. So you're similar as kind of number of savers on the platform. That's kind of the big KPI you're trying to go after. Right.

5:51Aaron Schumm: So we have over two and a half million people actively saving, meaning they have dollars on the platform. They're in there and accruing, you know, some growth out of those. And tell me a bit more, like with Morgan Stanley or a big partner like that, what is it that they don't have that you have that you bring to the table? Because the assumption would be like Morgan Stanley, like, you know, they're going to build all this stuff. They're going to have some product like this in-house, right? So what do they need you for? So they typically have something in-house on the wealth side. The retirement side, specifically retirement, and there's other savings programs too, it's very complex when you get to the sub-accounting and the record keeping.

6:26Aaron Schumm: So traditionally what firms do is they have one of two models. Model one would be they go rent a piece of software from a legacy provider, which would be like an FIS or an SSC. They go hire a bunch of people, a couple hundred people to support the business. And then they hope they have some offering that they can accrue beyond the headcount operational overhead as well as software license fees. So that's model number one. Model number two is you don't rent any software and you just put a bunch of providers on the shelf. So you go out there and you have, you know, maybe a Fidelity and a Empower, you know, pick a name, right?

7:05Aaron Schumm: That's out there, an insurance brand nationwide. And they put a bunch of these on the shelf. And then they say, hey, if it's an advisor sold solution, like here's what you're permitted to go sell. Right. And they frame it or box it in some capacity. The model we took was a bit different and said, listen, why would a large global brand be putting their business with a core competitor that's really just trying to siphon that business away from that brand, be it a Morgan Stanley or whoever it is? You know, our approach was like, hey, you should have the most modern, elegant experience possible. It should be low cost and it should be yours.

7:41Aaron Schumm: It shouldn't be, you know, trying to compete with someone else that you're putting on a shelf because you can't operationalize it yourself. So we said, hey, listen, we'll put you in the market. It's your product. It's your brand. It's your advisors. It's, you know, your asset management if you want it. And we'll do it all front to back and you have zero overhead to do it. And that kind of really flipped the tables with how we were able to engage and got people to say, oh, I can do this myself. Yet I don't have to go hire, you know, an army of people and go rent legacy software and try to grow a business out of it.

8:11So this is the white label software only strategy. Yes.

8:15Aaron Schumm: Yeah, that's a key piece to it. So now that we have this kind of, that's the, maybe not the end state, certainly for you, but for us, product market fit, like that's the end moment, let's say, of product market fit. Let's go backwards. You started this in like 2016. Tell me a little bit more about like your background, like what were you doing in let's say the 2010s or so that led you to start this business? Yes. So I have been in the financial technology world since before like fintech, quote unquote, was a thing, which dates me quite a bit. But most most relevantly, I co-founded a business before this called Fuller Dynamics that got acquired by Investnet.

8:48Aaron Schumm: It used to be a public company. Now it got taken private by Bain. But we were out there. Basically, I ran product development. I ran sales and strategy for that organization. And this is what year, by the way? This, we started this in October of 07. Okay. Horrible time to start because then we're raising our first round of capital in the spring of 08 when everything fell apart in the financial world. And that was one of the most. If you can do it then, you could do it anytime. Right? I always tell people, I'm like, you have no idea how hard it was. Like, this is a cakewalk relative to that. So, yeah.

9:20Aaron Schumm: So, we started that business. We grew that. And really what it was, was an unbottled turnkey asset management platform, a fintech platform that we gave to financial advisors. in the institutions. So broker dealers, banks, RAs, asset managers alike, and we essentially power their wealth book of business. And kind of through that journey, you know, we were a few years into that business. Our employees wanted their own 4K program. So I was like, okay, I haven't really done that before. Let's go do it. So one of our sales guys had a buddy who is an advisor that sold 4K plans and he gave us a plan.

9:51Aaron Schumm: And I was like, this is horrible. How can it be this hard, this clunky, this expensive? And that's really when the light bulb went off. Like, hey, there's a problem you're going to solve here. So we started with 401k is, you know, when I started Bestwell. And now we've expanded to a whole host of different savings programs in the tax preferred lens. But that was really the origination of it all. And tell me a little bit about, as you said earlier, you can't just launch this. There's a lot of regulatory piece. There's a lot of pieces to this puzzle. Take us to the origin of this early 2016. What do you do first?

10:23Aaron Schumm: Yeah, it's a great question. So it was funny because I wasn't a retirement expert by any means. I still wouldn't even classify myself as a retirement expert, you know, a decade into this. I have a lot of them on the team. But for me personally, I was kind of like the tech product person and kind of how I was viewing this and to solve it. But in 2016, what we did, first thing we did was we started kind of designing a workflow for what we thought people would want. Right. So you think about as your business owner, your small business, let's say you got, you know, a handful of employees, you want to set something up.

10:55Aaron Schumm: What would you do? Right. And kind of walking through that decision tree process. I'm curious, actually, just to go maybe deeper on that, like what was the what was current state of affairs for us or for the industry? In general, for the industry, I mean, people obviously been setting up 401ks for a long time. What was the default? So the default was a very hand, you know, kind of like handheld process where someone would say, hey, let's talk through a whole host of options. Let's kind of check a bunch of boxes on a planned services agreement document. Let's stand up that, you know, let's choose your investments.

11:28Aaron Schumm: Let's, you know, do you want safe harbor, elective, non-elective, you know, all of these things. They're like a foreign language to most people, right? Right. And even me, when I was at my prior company, you know, the advisors like, hey, do you want you want to do this or that? And I was like, I don't know. What should I do? And the advisor is like, I can't tell you what to do. I'm like, well, you're an advisor. Give me advice. The whole job. Right. He's like, well, legally, I'm not really allowed to. So then that was when I was thinking like, hey, we could actually help kind of walk people through this on their own.

11:59Aaron Schumm: much more consumable, distilled fashion that allowed people to make conscious, educated decisions without having to be an expert. Because you don't expect someone to be an expert in that space, right? That's going too far. But it's like, okay, how do you give them the confidence and all the information they need to make those right decisions for themselves and for their business, but do so in a really kind of streamlined fashion that doesn't become operationally intensive? So that was a lot of what we saw. But we didn't build the core of it. Like we didn't build the core underlying record keeping sub accounting piece when we started the business.

12:30Aaron Schumm: And that was simply because we didn't know enough. And I didn't know enough. And I was like, if we go down this path, we're going to chew up millions of dollars. We're going to end up with either a half baked solution that doesn't work, or we're going to end up with a solution that's so tightly boxed, it's going to be so hard to kind of open up the aperture of who we want to actually engage over the life of this business. So we kind of slow walked it, if you will. And it was painful to do that. But it also was really eye-opening because we learned so much about what to do as well as what not to do when we were going to build our own.

13:04Aaron Schumm: And then what we started to do over time was lift out pieces of that legacy software and just rebuild it from kind of the inside out. And then eventually just kind of rip and replace and replatform the entire thing. So that was kind of the evolution of it all. But we had to stand up in RIA, right? We had to become an SEC registered advisor. So we started that. I remember we stood up in RAA and we got audited by the SEC, I think, the second we put on our first business on the platform. And I was like, you got to be kidding me. Like, we just, we literally just started this thing and now I got to go through an SEC audit.

13:37Aaron Schumm: But that was also really kind of enlightening. At least you only had one account or a couple of accounts. So much to audit. You know, but it was fun because it ended up being a really positive experience because I started to see like, well, what were the regulators thinking about? And they were actually, they were just trying to be helpful. Like they weren't coming in just trying to needle us, right? They were truly trying to like educate themselves and be helpful about the future of where they saw, you know, regulatory compliance and those aspects going. So it ended up being a great thing at the end of it, but it was pretty nerve wracking to start, right?

14:09Aaron Schumm: You got probably four or five employees at the time maximum. And all of a sudden the SEC is showing up at your door saying, OK, time for an audit. You're like, oh, gosh, we haven't got a starting box yet. So just how it goes. I'm curious to understand more of the pain. Obviously, like part of my debate, it's all about, you know, pain solution and then go to market. But the pain from the business side, like I understand that as the employee, you, you know, get connected to an advisor as part of the forum. don't care, whatever, you're going through that. It's a bunch of things you don't understand.

14:38They're not that helpful. But you're like, okay, whatever. Ultimately, you probably do it and it just kind of happens, right? Why does the business care so much? Like, what is the top of that? I mean, I get it. Like, it's a general business. You want to provide better experience for employees, but like, that's not going to go to the top of your list necessarily relative to all the other things you want to do. Like, what's the thing that shines at the top of the list for a business when it comes to this?

14:58Aaron Schumm: It's a good question. And it depends on the business ultimately, but there's a few key things. I think ultimately the business, it's about recruitment and retention of the employees. And it's also about their own security, right? In the U.S., pension plans don't really exist anymore. There's the big question mark over social security, whether that's going to continue to hold, you know, over the course of the next few decades. This is something where you can kind of put the control of your future in your own hands. And if you can do that and not make it burdensome, You don't want to spend hours doing this a week.

15:31Aaron Schumm: You want to spend a couple of minutes maximum. And it really has become table stakes for employees or people that are out there interviewing, saying, hey, if I'm going to come to your company and work, what are you going to give me? What are your benefit packages, your health insurance, your savings programs and all those? And through all of this, when we were kind of starting the early days of Bestwell, there was a lot of legislation that was being proposed. At the time, there was a DOL fiduciary rule that was having a big weight on how advisors could engage. There was the notion of Secure 1.0 and then Secure 2.0, and now actually they're working on Secure 3.0.

16:05Aaron Schumm: Those have become some of the largest legislative tailwinds that this industry has seen since the inception of ERISA law back in the mid-70s. So it's really kind of transformed and it's kind of shined a light on why people need this. And you see now even with the current administration, some of the things they're rolling out are on the Trump accounts and child savings and IRA programs and all of these different things that people are looking at and say, we have a systemic problem. There is a crack that persists financially in this country. And if we don't start to fill that crack, it is going to widen and get deeper and we're never going to get out of it.

16:40Aaron Schumm: So people are just starting to take action around it. And a lot of it ultimately in this country, you know, most businesses are small and mid-sized businesses. Now, we do everything up and down this. You know, we do large business, we have a lot of large businesses. But from a volume perspective, 95 % of the businesses in this country would be classified as that small to mid-sized business. When you're starting out, you're talking to like donor advisors, financial advisors. What is the pitch you're giving them as to why they should pitch best well to their clients? So it depends on where they sit in the ecosystem.

17:10Aaron Schumm: There's different types of advisors, right? So you have advisors that are primarily focused on wealth. So the pitch to them is like, hey, give this to your private wealth client, right? Who you're already managing your assets, right? And so it's like my financial advisor. It's like if I said, okay, hey, you're already doing my assets. I need a solution for my employees. What can you do? And before that would be they go take one of the providers off the shelf or whatever it is. That's kind of outside and they just say, hey, here's something. It's not the ideal thing, but it's something and you just have to deal with it.

17:40Aaron Schumm: That's what I was told in my last business, right? I was like, this is all you got. And he's like, it's kind of all I can do right now. Sorry. And it was really expensive. So, you know, from that side, it's like, hey, we can give the advisors in that realm something for all of their clients who are entrepreneurs or business owners that is tailored for them, that fits their world, that really, it becomes really a lead gen engine for the advisor to see then not only their private wealth client and their assets, but all the underlying employees that work for them. and who could be a potential wealth client going forward.

18:14Aaron Schumm: So for the advisor, it's very attractive because all of a sudden it's like, hey, I have almost a sales, the Allegiant engine sitting here in front of me that I can start to look and say, oh, hey, you know, Suzy or Lisa over here and they actually have a lot of assets. Maybe they should be a private wealth client and I should go have a conversation with them. Because the advisor, like, let's say I manage your wealth, you run a business. I'm like, hey, you should use Vestwell. Now I get to see the assets of everybody that you put on, all the employees. You see all the employees and you can drill into them.

18:40Aaron Schumm: You could see beneficiary information. You can see a lot of information that can aggregate outside accounts to bank accounts, other investments they have, and pull it into the platform. And then we surface all that up back up to the advisor. And then on the other side of the equation, there's also advisors who only focus on retirement, right? So that is like, that's their bread and butter. That's what they do. They're deep in the weeds when it comes to ERISA and all the regulatory components. So from that aspect, what we do for them is we can give them a solution where we're doing everything from like signing the 5 ,500 as a notion, it's called a 316 fiduciary.

19:16Aaron Schumm: And we could, you know, sign their tax filings. We can give them everything that's for them. We also, you know, give all that data back to the advisors where a lot of other players out there in the industry won't give them data. They're like, no, no, no, it's our data. Cause really what they're trying to do is siphon assets out of the program and bring it in house to themselves. We're not in that game at all. We want to make sure that we're providing the best service possible to all the users in our profile, right? Whether that's an advisor, a home office, an employer, a saver, and a like. So if I kind of say back to you, on the one side, you're creating effectively, like it's a new, like you said, you know, lead gen.

19:50That's really the main ROI for the wealth advisors. You can get new clients by running this motion. And on the other one, it's kind of a time-saving. It's efficiency. It's like, you're already doing this, but a lot of the things are clunky. A lot of the things are inefficient. With this, it's just your life is going to be easier. You're going to keep doing what you're doing. Yes.

20:05Aaron Schumm: And also these programs, like workplace savings programs specifically, they tend to be much larger and grow much faster than an individual wealth client's assets, right? Because if you think about it, it's much easier to go sell a plan, a 401k plan that's going to, let's say it starts at zero and grows past a million dollars. that's going to grow past a million dollars exponentially faster than an individual who shows up with, say,$100 ,000 and tries to grow that to a million. Because you have a base of employees underneath, and you have payroll that's coming in and contributing to these programs every pay cycle, every week, every two weeks, whatever it may be.

20:44Aaron Schumm: So you think about it, and then you start to accrue those assets on top of the investments. They're going to grow much larger. And if for an advisor who's getting paid some element of a percentage of assets, It's quite a lucrative business for them relative to just trying to knock on a bunch of doors to find some affluent clients. So now kind of going back again to that time, I kind of understand the problem solution and the pitch to the people that are ultimately selling this, right, your channel. Tell me a little bit more about what the product was. You know, over 10 years, you built a lot of things, I'm sure.

21:14And you service more and more kind of, you know, subtleties and more types of plans and these sort of things. V1, like what was V1? What was the absolute core that you had to say, we have to deliver at least this for anybody to work with us? What was that?

21:28Aaron Schumm: So it's kind of a funny story. So V1 was how do we create a, let's say, you know, you get two or three flavors of a 401k solution for a micro or small business. So that would be some sort of box. It has an investment lineup that's already set up. It has all the fiduciary services and so on. And then a business could walk and sign up, click a bunch of buttons. I always think of it like a decision tree, right? You're just kind of like, okay, I want this option, I want this option, I want this option, I want this option. At the end of it, it's like, okay, great. Here's your document. Here's everything that's going to be submitted.

22:03Aaron Schumm: There's a lot of other legal stuff that happens behind the scenes. But that was V1, right? So we went through that and people could sign up. Now, it's hard, right? You show up. It wasn't necessarily white labeled right when we started for everyone because we didn't really have anyone to wait there before. We had a couple of little clients, but they're like, who is this company? Who's this brand? Can I trust them? Right. And this is a sensitive topic, right? You're asking someone for arguably the second most sensitive thing in their life outside of their family. You're saying, hey, give me your savings and let me take care of it for you.

22:33Aaron Schumm: So, you know, you want to be a trusted, reliable source for that. So that was the one. Now it's funny. We quickly realized that we had boxed it too tight, right? That people didn't fit into those boxes all the time. And they'd be like, oh, I don't really want that option. I want this option. Can you do this? And then you start to open up the box and widen what you're doing. So we ended up sunsetting that kind of workflow because there were too many options that we wanted to offer that we didn't want to constrain people in that aspect. So we ended up not doing it because it got too messy. Now, fast forward, last year, we rebuilt that same workflow from the ground up.

23:09Aaron Schumm: And it's one of our core things that flies off the shelf right now. So it was kind of like some of these early ideas that we were right with the idea. We were probably a little off with the exact structure of it, but those have kind of come full circle. And now they're actually core to what we do day to day. And that would be like the simplest version. In other words, the simplest version, which didn't really work back then, now you're saying is really taking off. Yeah. It's been like a product led growth perspective, or it's just like, hey, here's the link, just go rip through it and get on board.

23:37Aaron Schumm: And we do that all the time now, especially through our payroll partners. And it works really well. But it took a lot of work. And it took us, you know, we sunset the thing for eight years, and then it came back to life. And then tell me a little bit, because this kind of helps context, just on the fundraising side, like you started this in 2016, do you raise money right away? Like how much? And then the series A, the series B, just walk me through how that played out. 2016, I started going out and raising angel funding. So I spun up a convertible node. It was just, you know, knocking on doors, people asking for, you know,$50 ,000,$100 ,000 checks.

24:09Aaron Schumm: So it did that. I actually had a lot of success doing that. Was able to actually have an overscribed note on it. I actually ended up giving most of that cash back with interest, obviously, because we did our seed round much faster than anticipated. So I think it was September 9th or September 8th, 2016, we closed our seed round. We did four and a half million dollars on that in total. Which would have been, by the way, that's like meeting today, would have been like top decile probably in 2016 is my guess. Yeah, it was. Yeah, it was on the larger side. It wasn't obnoxiously huge, but it was on the larger side.

24:48And then I assume like with your background and the credibility and all that, you know, obviously the idea as well. But that's probably what made that happen.

24:55Aaron Schumm: It helped, right? So I, you know, I just come off a successful exit of selling the last business. It was in a tangential space that, you know, I knew the network. So how to get things going. So, and obviously FinTech was the hottest thing, you know, at that moment. So you had a lot of things that all lined up and we were able to seed the business. Now, we didn't actually launch it until we started putting on test clients in November of that year. And then really didn't launch it until 2017. And then we did our series A, I think it was in, I had to go back and look. I want to say it was probably a year and a half later-ish.

25:31Aaron Schumm: and that was led by one of our investors who had wanted to lead the seed round. We ended up taking another term sheet. I was like, hey, if you want to come lead the A, I'll give you first crack at it. So we went out, priced it, and then said, hey, if you could hit this price, you can lead it. So they ended up doing that. We have tens of thousands of people who have followed the show. Are you one of those people? You want to be a part of the group. You want to be a part of those tens of thousands of followers. So hit the follow button. And where was the business? Crunchbase says October 2017. Does that sound right?

26:03Aaron Schumm: Yeah, that sounds, that's probably about right. Yeah, probably, yeah, somewhere between a year and 18 months. Where was the business at when you raised that A? October 17, oh God, it was probably a couple hundred thousand dollars in revenue in AOR. We had, I don't know, probably 10 employees-ish. I think it was probably about after our A where we started really kind of some of the early partnerships, some of the early RAs, we started to see some inklings that, okay, this flywheel is going to start moving. But even at the end of 18, I mean, we probably had maximum, you know, half a million dollars in AR.

26:36Aaron Schumm: And now we do that stuff like in a day, right? It's wild to see, to go back and look. And I remember one of our investors, he's like, is this thing ever going to make money? And I'm like, it will, it will. I said, just wait. I said, the wheels are moving. And then once they start going, it's really going to take off. But it's going to take a while for them to start going. And it did, right? It's a lot of trust. It's a lot of relationship building. It's about just kind of knowing the whole network and how this stuff works. So we showed up as these wide-eyed kids in kind of an old legacy world. And we're like, hey, we can do this.

27:06Aaron Schumm: And they're like, I hope so, but no one's ever been able to do this. And I was like, no, we're going to do it. And I think people really wanted it to work, but they didn't believe it was going to work. And then we hit that breakout mode and people are like, oh, God, these guys are really doing it. And then everyone just kind of like got behind it. And now they're the wind in the sails that push us. I find, you know, Series A is a particularly like harder round to get, you know, later on. I mean, not to say that they get easier. It's just like it gets a little bit more predictive. If your numbers are in a certain spot, if you're growing by a certain rate, if your retention is whatever, you know, Series C, Series D, they start to be more numbers driven.

27:42Pre-seed and seed, you can kind of fake it till you make it. You know, obviously, if you've got an exited, you know, exited founder, it's a lot easier. But even if you don't, you tell a good story, you end up meeting the right person, right time. It kind of just happens. The Series A, I mean, the stats are probably 40 % of seed raise an A, but it takes like four to five years. Two years in, maybe 20-ish percent, depending on which cohort, raise an A. It's hard. In your case, when you meet, and I meet founders like this, oh yeah, I raised an A because I was going from one to 10 million in a year.

28:08Okay, got it. Like that's, I get it. When you're doing a few hundred thousand dollars in revenue and you still raise an A, I'm curious, what do you think made that happen? Besides the team, which was solid and proven, like what else do you think you got right when it came to the Series A fundraising? just as advice of founders that are trying to raise an A?

28:24Aaron Schumm: Yeah, so I was pretty methodical about who I wanted around the cap table and how I wanted them to participate. So I spent a lot of time kind of curating investors that they didn't necessarily have to be experts in the space, but they brought an attribute to the table that either I didn't have or it was a strong signal that they were very intentful and very bullish on the space. So when we did our A, right? Or you go back to the seed even. So FinTech Collective led it. And I wanted them to leave it because that was kind of where they were focused at the time. And they were obviously focused on FinTech as the namesake.

29:08Aaron Schumm: And they knew a lot of advisors and RAs in the world that maybe I didn't have a direct reach into. So I remember going up to a wedding in Massachusetts and I was like, hey, I'm heading up to a wedding in Massachusetts. like, oh, great. When are you going to be up there? I was like, I'm going, you know, Friday morning. It's like, great. And they would just stack my calendar with meetings. Right. You know, before you even got to the wedding, I had a whole slate of meetings. I was running around, you know, Boston doing. And then I was like, great. Did the meetings then, you know, bounce out to the wedding.

29:35Aaron Schumm: And that was fantastic. Right. So you had that kind of like almost like a biz dev kind of motion. And then also around the cap table, I had the primary guys here in New York, primary venture partners. And they were, Bratz Verluga and those guys were really focused on what they call like seed stage enterprise technology. So they brought kind of a wider lens of how to think through the enterprise landscape because you had to put multiple irons in the fire because one was going to go faster. So the RIAs were going to go faster and the enterprise stuff was going to go slower, but you had to start them simultaneously knowing that, you know, one of these enterprise deals would hit at some point in a year or two.

30:11Aaron Schumm: And then the other name I brought in was F Prime who led our A because they were part of the Fidelity family and obviously knew this whole network really well. And Fidelity is kind of one of the dominant forces in the large market retirement space. So I was like, okay, I got people on the table. Like Commerce was the other one that was kind of a fintech. But did you like nurture these over time well before they happened, like methodically? Well, so I wouldn't say I nurtured them over time. I met them kind of in early 2016 and then was kind of continuing to build. Then they got on the cap table in 2016.

30:42Aaron Schumm: and then it was just continuing to prove it out, right? And they were in the boardroom. They knew what was happening and how the platform was developing. So when I did my A, I didn't really have to go out and educate a bunch of people, right? I already had people around. I had someone who could write the check. They just needed someone to price it. And, you know, and I had the expertise. So that was it. Actually, our Series C during COVID was the hardest round we did. And that was very difficult because everyone's remote. Everyone had ADD and Zoom and doing a thousand pitches a day. And that's mid 21.

31:13Aaron Schumm: That was like peak heat of the market. No, it was, but not for us. OK, it was because we weren't crypto. Right. Yes. And we weren't payments. You're boring 401ks. Yeah. Like this is not hot. Right. That was largely the definition of FinTech. Right. And I was like, well, we're not crypto. We're not payments. So that's your definition of FinTech. We're not it. Right. I was like, this is us. There were so many conversations I had where people would look at this business like, Like, this is such a great business. I have no idea how to think about it. They're like way too complicated for me to wrap my head around it.

31:45Aaron Schumm: And I got a million other things I can just throw cash at in the crypto space. So they were all chasing all the investors were chasing things that I'm like, that's not even a real business. And you're throwing cash. And I'm like, we have a real business. It maybe is less obvious and more complicated than most businesses. But this is a real business, right? Fast forward, right? Sitting here today, I can't tell you how many calls and emails and conference conversations I've had with people, they're like, God, we missed that one. Of course, of course, yes. But, you know, it was just like, you just got to do what you do, right?

32:14Aaron Schumm: And say, hey, I'm going to focus on what we do, and I can't go chase these other things. Well, let me ask you one specific question about fundraising, whether it's A, the B, the C, like size of the opportunity. This is where I see a lot of founders struggling. Some founders are way better than others at this, right? Your revenue is what it is. Your team is what it is. your ability to take something and say, here's why this is clearly a$5 to$10 billion outcome versus here's why this is a$100 million outcome. That's, it's really the story and the way you present it. How did you do it for Vestival?

32:47I mean, on the one hand you say, well, every business has 401ks, we'll sell to everybody. But then it's kind of like not believable. So I'm curious how you kind of crafted that.

32:54Aaron Schumm: And I would say I've gotten better at it, right? I definitely wasn't great when I started. I mean, if you asked me back in 2016, how big this business would be, I'd be like, oh, it probably has an enterprise value of a couple hundred million dollars, right? I mean, that's literally how I thought about it when I started the business. Now, the TAM is huge, right? There's$50 trillion, but at that point, I think there was a little less than$40 trillion that had been amassed. And you still had half the market, over half the market wasn't participating at all, right? So let's say today you got about$50 trillion.

33:26Aaron Schumm: You got a little over half participating, right? So we're making a dent in it. and you got another, you know, and if you tack on the other 50 trillion that's not created, you got a hundred trillion dollar TAM you're going after. The only thing in that, in that kind of stratosphere is healthcare, right? If you go that route. So that's kind of the, how I look at it today. But back in 2016, I didn't look at it. I looked at it kind of a, in just a 401k landscape, which was about 10 to 8 trillion, I think at the time. So it is definitely grown in what we could service and how we do and how we present it.

33:55Aaron Schumm: But now I kind of look at it like it's endless. Not only the core markets that we service today, but there's so many, you know, tangential markets that we can also expand into. And we're obviously not doing today. But if we wanted to at some point, we could probably double that$100 trillion. Like if I were to ask you today how big you think this could be, what's the simplest answer to that? Without saying, you know, in theory, it could be anything just because there's kind of like at least what I've found is it's like this mix between like it's credible, but it's massive. Like, you know, that Venn diagram is that sweet spot.

34:28And it's all relative to today you're at$2 billion. So it's like your story at$10 or$20 is a lot easier than somebody who's at$100 million, right? But you're kind of trying to find that sweet spot where it's, I'm going to share something with you you're going to believe, but that's still massive. And then I've kind of hit the nail on the head sort of thing.

34:41Aaron Schumm: Yeah, I would say if we did nothing, let's just say we sat here and we're now continuing to kind of engage with folks and bring on new partners. You know, this business grows into, you know, a couple billion of top line ARR, right? Right. It was SAS level gross margin. So that's kind of the scale. Like if you're pulling in now, it's not one of those businesses where you're doing a billion dollars of revenue a day. When you're bringing in several billion dollars a year of revenue and it will just continue to grow. Right. Is one of those businesses that if the business just stayed stagnant, we brought on no new business.

35:14Aaron Schumm: It still grows because you still have people getting paid. You still have contributions coming in. You still have assets accumulating. right and it just kind of continues to ride up even though we're you know because we do have some basis point component it's all in most of our pricing so there's an attribute to it where the business grows just sitting here so that that's a kind of a unique thing where you're not just continuing have to sell sell sell you're like just make sure the business doesn't churn our churn rate is you know industry low and we kind of like reset the bar for how the industry operates so we have two tactical areas we want to go deep on let's start with the first one you You mentioned already that you didn't sell direct to businesses.

35:50You sold through advisors. You sold through financial institutions. A lot of startups leverage channels and partnerships to sell. Sometimes they do it exclusively. More often than not, it's kind of like augmenting a direct motion. But in any case, I'm curious because it's different. It's different obviously selling direct and the ROI that you pitch and even just the connection you have to the end customer versus when you're selling through channels and partnerships. Tell me more about how you did it. in mind of an early stage founder that's thinking of doing this, maybe already doing this and kind of lessons learned?

36:20Aaron Schumm: Yeah, so on the enterprise side and the channel partnerships, you know, for better or worse, it was kind of all I knew, right? I had spent my career doing it, living inside of these large organizations. You know, I started my career at Northern Trust on the ERISA side, you know, kind of almost serendipitously, you know, fell into this world. If you asked me back when I graduated undergrad, if I would be in the space, I would have laughed at you. and it's all kind of you know just taking these weird twists and turns and and i ended up here but i i knew how to engage with large institutions right and think through okay what's your tech landscape look like you know what is the business pnl owner think right and how to kind of cultivate those now there are different sides of the house although i sold into advisors in my former life and broker dealers the wealth side operated very differently than the retirement side and i was very adamant of like, why?

37:12Aaron Schumm: I was like, it all should be one. Like, you should think about these as the same thing. And Morgan Stanley, when, you know, to credit James Gorman, when he was running the show over there, you know, he was a visionary and was like, this is the future of how this business works. So you can get a like-minded individual who sees the future that you also see, right? Being able to get that buy-in from an executive level is a lot easier than if you're just trying to convince someone like, hey, this is where the world's going to go. So that was kind of what we did. And then we get a couple of early buys.

37:39Aaron Schumm: Now, I would say, well, if you looked at the first deck I built for Vestwell before we had written a line of code, there was an element of direct-to-consumer, right? Think of like a robo-advisor type thing. And I remember some investors like, pick one or the other. Like, you're not going to do both. Or at least you're not going to do both well. So I was like, well, I don't really know the direct-to-consumer side. I didn't have that performance marketing tilt to my experience. So I was like, let me go the enterprise route because I know how this is going to work. And at least it's way more painful.

38:10Aaron Schumm: The times you get kicked in the gut or you get to the finish line and everything falls apart. I mean, it is like it's heart wrenching oftentimes. So you got to you got to have some thick skin and be able to deal with that. But it's worked out well for us. Well, I'd love to pick one of the two, whether it's the enterprise channel partnerships, like with the big financial institutions or the advisors, which is kind of more of a long tail and just go deep on how you crack that? Like, what is the playbook that you use to get into, like we said, either Morgan Stanley on that side or, you know, the long tail of advisors that fed your business for the first few years?

38:45Aaron Schumm: Yeah, I will the enterprise side, right? Because I think that's kind of closer to my core of what I gauge on. On the enterprise side, you know, there's a lot of it. I think you have to look at some of these deals you do is it's a long road that you're marching down and you may not make the right turn or it may not fall into your lap the first time around, but often they come around if you just continue to do what you do. Interesting example, this was JP Morgan. When we sold out the first time we pitched them, I think it was 2018, 2019, somewhere in there, where maybe 40 people deep and all of us dwell.

39:22Aaron Schumm: And we went in there and we pitched. We got to the finals and it was a big RFP process and you deal with these large banks, the procurement processes, all these things are their own animals, right? And I remember we got to the finals, everyone around the table on their side was like, we want to believe this. But they're like, you guys are like a series A company or something. They're like, I don't know if we can bet on like, we're JP Morton, we're the largest bank in the world. Like, how can we bet on this 40 person startup to carry what we think is going to be the future of a lot of our business, right?

39:54Aaron Schumm: So we lost that, right? And I remember the guy who ran the winning bid, I knew really well on the other side, right? So there, another solution, I don't want to name the name, but he was telling me, he called me and he goes, it was you in the files. And I'm like, yeah. He goes, how the hell did you get there? Like, I laughed because I've known him for decades, right? And I was like, come on, man. I was like, how long have you been known me? I was like, I'm going to show up. I'm going to be there. And he goes, man, he goes, if you're there now, he's like, I'm screwed. He's like, there is no way I'm going to be able to keep up with the pace at which you're moving.

40:29Aaron Schumm: And I was like, no, man, I'm coming for you and I'm going to get this account back. Right. I'm like, I'm going to win JP Morgan. Sure enough, fast forward three years later, that other vendor they selected was falling apart. And I got a phone call and said, hey, you guys have clearly executed on everything you told us three years ago. The market's, you know, singing songs about you guys. Let's go through this again. Right. So we did it again and we won it. And now that they become, you know, our, I think our largest partner, one of our largest partners, I think we run like seven or eight programs across that bank now.

40:58During those three years where you lost it, what did you do with JP Morgan specifically to stay at least somewhat top of mind?

41:05Aaron Schumm: Really, it was kind of like we just, you know, maybe once a quarter, just play, hey, remember this? We said we're going to do this. We did this, right? We said we're going to do this. We did this, right? Nothing grandiose or anything. And then, you know, we'd go out there and we have our typical press releases and posts and everything we do out there, right? So it was just really just like, Like, hey, go execute on what you said you're going to go do. And the business is going to come back around. Similarly, it happened with John Hancock. We pitched John Hancock. We got to the finish line. It all fell apart.

41:34Aaron Schumm: That was out of our control. That was more an internal thing. It all fell apart. And then it all came back around. And now, again, they're one of our largest partners, right? It's like all these things you just kind of, as much as it was painful, and I remember just like being so frustrated. You're like, just do what you do, guys, and it's going to show up again, and we're going to win it the next time around. And that happens a lot. It's expensive and you want it the first time around. But, you know, when it shows up that second time around, there's an element of sweetness to it. You're just like, yes, we did it.

42:03You know, it's something I hear often in enterprise sales. And I guess the lesson is like the bar is low. Most people, if they lose a sale in enterprise deals, especially because the little ones, they really just kind of go away. But, you know, you lose a big bid and you just kind of go to zero. You're like, OK, move on to the next one. And that's it. And all it takes is a little touch point. Like you said, quarterly cadence. and doesn't have to be exactly that, but some sort of cadence, some sort of touch points so you're not completely forgotten because the cycle is going to repeat. And that's just another bad.

42:30And you do this 10, 20, 30 times over, you're going to win some of those back.

42:33Aaron Schumm: Yeah, you get new leadership. Now I've had on the flip side too, where you get there, you want an account, you want a deal, and then there's a riff or something, or some, you know, the leadership gets changed. And then all of a sudden, you're like, oh, I got to start over again, right? So I think it goes both ways. And you think, you know, enterprise sales is very expensive, right? Like it's some of these sales cycles that they're multiple years long. The procurement processes are, you know, so with its surgery, right? And, you know, but if you do it, you do it well. We spent a lot of time up front in our business knowing we were going to do enterprise on making sure our procurement, you know, responses were super buttoned up, right?

43:09Aaron Schumm: We did our security, you know, our audits, all these things that you would typically kick the can on as a business. We pulled forward and got a lot earlier, more expensive on us. but it was a right call because it allowed us to sail through these processes. So the last thing I want to talk about and we have a few minutes here is we talk a lot on this show about hiring, finding the best talent but I want to talk about the other side of that which is firing because as you mentioned to me nobody has perfect hiring, nobody in the world which means if you're doing your job you're looking not just at bringing in the right people but letting go of the people that are wrong for whatever reason.

43:44You have a bit of a 10 % rule or at least a heuristic where you think on a regular cadence about who are the bottom performers and how can we deal with that? Tell me more about that side of the business, the talent side, especially like the, you know, getting rid of bottom performers side of the equation.

44:00Aaron Schumm: Yeah, I mean, it changes over the cycles of a business, right? And how you're maturing. I would say the early days, right? A lot of it is dark check, right? I think the earliest days, it's hard, right? Because I was trying to convince people to come on board. I was literally just paying people out of my pocket. Hey, just come on. I need you for that. I was like, I need a front-end guy. I need a back-end engineer. Yeah, I'll tell you about the early days. It's one thing that for me was always true. You do so much work personally bringing the people on. The last thing you want to do is let go of anybody.

44:29You're like, I just know how much work it's going to take to replace it. And it's so painful.

44:34Aaron Schumm: It's true. It's true. I mean, it's still true in a lot of ways, right? You get key players on the team to a point, and then you're like, oh, I got to cut this person. I got to, you know, re-get, you know, train someone else in this. That is painful. But, you know, one thing I did early was I did not hire people as part of the C-suite. So every hire I made, they were like a VP or SVP or whatever. And what I did was like, hey, I want you to be CTO or CFO or whatever it is, right? But I need to see you kind of grow into that where I feel confident. And I'm going to start you here because if I have to layer you and I have to hire someone above you, I have that space to do that.

45:14Aaron Schumm: It doesn't become like a demotion talk to someone else. So, hey, you're on the team. You're going to get your first crack at growing into these shoes to play this role. But I need to see it. Right. And it's pretty specific what you see. Now, over time, though, there are some people I brought on early that just didn't have it. Right. And I was just like, oh, I'm like, okay, if I can get another three months out of this person, and then I'm going to go hire someone in the background behind there. I did that a lot, right? Where I was just like, they're going to have to move on. I can keep the lights on with them in the seat now, but I got to get someone that brings a different skill set that we're going to need for this next turn.

45:52Aaron Schumm: And that happens a lot. And you got to be honest with people with it. Right. It's like, hey, you may really like someone I have. You know, there is a lot of people on this team that have been here a long time that maybe haven't they haven't just gone up the ranks of the hierarchy of the org chart. But, you know, you have honest conversations with them like, hey, I'm good with that. Like, I only want to be an individual contributor. I only want to do this. And that's fine. Right. So then you just if you have those real conversations, it's easy. You know, it's harder when you get people who don't want to have that conversation or they have an overinflated sense of self that's like, hey, it's not you.

46:26Aaron Schumm: You know, like there are times I remember I worked with people that I go, I should be this or I should be that. Like, no, because I have worked with other people in that role and they'll run circles around you. Right. And, you know, and sometimes you just have that conversation with people. I've had to off board lots of people. I'm just like, hey, it's time. Like, let's let's come up with an elegant kind of off ramp here and we're going to move on. And that's okay. You know, it's like, maybe it's not the way you want it, but it's the right thing for the business. I think that's the key thing is like, you always have to look at the business, say, what is the right thing for this business?

46:56Aaron Schumm: You got to cut your own personal emotions out of it, which is hard to do, but you have to do it because if you don't do it, you're going to make poor decisions. Here's a specific question on that. I have this kind of rule myself, which is if a founder comes to me as the VC partner in that company and says to me, I've got this VPX, VP marketing, let's say. I'm just not sure about them. I think I might let him go. My answer is always like, if you're coming to me with that, you got to do it. Like it's a done deal because if you've having the doubts and the doubts are so high that you're like, I need to ask somebody else about my doubts.

47:27You're already past the doubt phase. You're actually, the decision is made. I don't know if you agree with that just in terms of a gut check.

47:33Aaron Schumm: Yes, wholeheartedly. I think, you know, the old adage, like you never regret firing someone too soon is very true. Like even though it's painful, there is a number of people I remember, especially the earlier days, right? Now we're big, weird, like it's not as noticeable. But, you know, the early days, I remember there were some key people that I'm like, this person has to go. And they're just like, no, no, no, they can't go. They can't go. You know, like they're still good for that. I was like, no, get them out. And then they're gone the next day or whatever. And then all of a sudden they're like, oh, it's not that bad without them.

48:04It's better usually, yeah. Other people shine as a result. There are some people that we've like, oh, you know, even recently,

48:10Aaron Schumm: that it was like a weight was lifted off the business. You're like, oh, yes, thank you. And then people have a lot more open dialogue. And sometimes you got to do that. Perfect. Well, listen, let's stop it there. But I'll ask the question we always end on. What would be like a top piece of advice you find yourself giving early stage founders often? I think stay true to yourself and focus on the outcome is really kind of the key thing. It is so easy to get caught up in noise and lose sight of where you need to go, right? And I'm just as guilty of this, right? Especially the early days, because everything's coming at you and you're just like, you're working endless hours.

48:43Aaron Schumm: And I think you almost have to just cancel the noise around you. Like even me, like social media, all that stuff, like is literally like doesn't exist in my life. I have my family and I have Vestwell and that is it. Right. And I just focus on that because otherwise the rest of it will start to pull you in directions that are just not added to your life. And it's hard. And if you're passionate about it, like I am, like it's a lot of fun, too. Right. And you just keep grinding through it. Aaron, it was great having you on the show, man. Thanks for spending the time. Yeah, no, I appreciate it. So picture this.

49:12It's months from now, years from now. And one of your founder friends, a really close founder friends of yours, guess what? Their startup went bankrupt. And it turns out if you had just shared the Product Market Fit show with them, they would have learned everything they needed to to find Product Market Fit and to create a huge success. But instead, their startup has completely failed. You have blood on your hands. Don't let that happen. You don't want to live like that. It is terrible. So do what you need to do. Tell them about the show. Send it to them. Put it on WhatsApp. Put it on Slack. Put it where you need to put it.

49:46Just make sure they know about it and they check it out.