Not Boring Founders: Brandon Arvanaghi, Meow (pt. 3)

0:00Brandon, welcome back to Not Boring Founders. Thanks a lot, Paki. Great to be back. So I think you might be our first third time guest. You keep finding yourself in the middle of really interesting situations. And I continue to be impressed with kind of how you and the company avail of yourselves in the situations. So always love to get your perspective. The most recent one is you are a banking and treasury management company in the middle of one of the most interesting environments for banking and treasury management since the very beginning of my career when I came in right in the middle of the financial crisis.

0:37What's going on out there? Yeah, it's definitely been a wild few months. And thanks again for having me. So yeah, Meow is a fintech. We're not a bank or financial institution, but we partner with a bunch of them, right? And we make it easy to access their services. So SVB, the crisis that happened, we saw over half a billion in inflows to Meow across our products, across the different services that we offer. And it's just been a wild ride. People are starting to think about treasury management in earnest. Boards are getting involved. Investors are getting involved. And that's, in my opinion, how it always should have been, that this is a very, you know, companies take a very thoughtful approach.

1:15And now they're running very long procurement processes as well, which is also a huge positive for companies across the board. So give me a little bit of a breakdown on what Meow does. What are the different pieces of the business and kind of how have they been sequenced in? Yeah. So what's been resonating really strongly with companies is our new maximum checking offering powered by Grasshopper Bank. Now, maximum checking has access to up to$125 million of FDIC insurance, and it's a fully operational checking account. It has free wires and ACHs. And the key part as well is that it pays you 4.55%.

1:51So I don't think access to FDIC insurance is a feature in itself. I think there are people earning yield on your deposits, so you should be earning the yield as a customer, as a business. So it pays 4.55%, access up to 125 million FDIC insurance. And that's done through a cool product, basically. It's called an insured cash sweep. So Intrify powers this. They're the largest bank network of its kind. And basically what happens is say you deposit 10 million bucks, it gets broken up into effectively 250K chunks at different banks, but you only need to deal with one login, right? So instead of having to like open up 50 bank accounts on 50 different portals, you could just deal with your one meow login through grass opera bank, see where your funds are exactly broken down.

2:35And you can even opt out of any bank that you want to with a, with a click of a button. So all the diversification you want, et cetera, just one place. And that's what a lot of companies are looking for right now is not putting all their funds on one financial institution, as you can imagine. So how did the economics of that even work? So if you're actually giving customers most of the yield that they should be earning and doing all this complicated stuff in the background, it seems like there's more work and the banks are keeping less money in this case. So how does that all work? Well, it depends on how you structure your company, right?

3:11So we're not selling this at a loss. We actually make money on this as well, but we're able to pass back the majority of the economics because we like to call ourselves the Costco of financial services. What Meow does is we try to decimate the cost of a product so that we can offer it at the best price to our customers. And how we do that is by having a very lean cost structure ourselves. So we don't need to support a headcount of a thousand people or 500 people. So we're able to basically take, you know, pass back the best economics, have the cost be very low, make money on this, have everyone win, especially the customer.

3:45Can you go more into how that works? Because it feels like in a lot of industries, there's different vectors of competition. There's brand or there's differentiation. And obviously in pretty much every industry since the beginning of time, cost is kind of one of the competitive vectors. So why do you think that hasn't been one that people have attacked in banking, which is such a lucrative space that you would think would have invited kind of like every business model? So it's a great question. Financial services are obviously an enormous market, right? Multi, multi-trillions, maybe the third biggest market, something like that.

4:17FinTech itself is a very new concept. It's only a four or five-year-old industry, right? FinTechs are a very, very small portion of the financial services market, and I think it's only going to grow. Now, there's only been a handful of business banking fintechs, right? Fintechs that allow businesses to bank through their partner banks at the fintech. Many of them, in our opinion at Meow, built their own cost structures the wrong way. And I don't blame them because they kind of pioneered this for companies like Meow, but they might have built the company such that they raised a too high evaluation.

4:50They hired too many people. They did a lot of things that we deliberately took an asymmetric approach to at Meow. So the industry is in its infancy. So we are really the first company, in our opinion, that's trying the alternative, which is kind of being the Costco model, which means keeping the costs low at our company and offering the best economics to the customers and winning from the Costco model effectively. And it seems to be resonating, which we're really grateful for. But it was probably difficult for the incumbent fintechs to predict the way of the world and how the competition would get, basically.

5:24Did you, speaking of predicting things, did you have any inkling or when did you start having an inkling that things were going south at SVB and First Republic and all of these banks? And how did you adjust? I mean, I know you've always been fairly conservative. Like, how did you adjust positioning at all if you did because of that? Yeah. So I've been trying to bring something to market on the fintech side for like one of these insured cash suite products. By the way, these have existed for decades, right? But we were trying to bring it to market as a business banking fintech, like a variation of it for the past six months.

5:56So I wanted to flip a table over that it wasn't ready as SVB was happening. It was ready about a month later. We're kind of early detection for some of the concerns in the market at Meow out because we start to see a huge influx of wires from financial institution A versus B. I think what happened with SVB was there was some seemingly innocuous blog post or a sub-stack article that someone wrote about their balance sheet, their loan. We started to see wires there. And as you know, a lot of things are kind of self-fulfilling. If there's fear about an institution, for example, you'll start to see that fear spread.

6:34And that's kind of the nature of what we saw there. So we started to see an influx of wires there. We saw some from a different institution a few weeks later. I'm not going to say the name of that one. But what we've certainly seen though, Paki, is the climate went from panic to urgency to now top of mind. Treasury management is just in the top of mind territory for companies across the board. Now they're taking thoughtful approaches, long procurement processes with their boards and investors. So that's kind of what we're seeing right now. What is, yeah, I guess the current state, if you can dig in a little bit more now, because I think, you know, as someone who invests in fintechs and is obviously just a big fan of tech and innovation, it was cool on the one hand to see that fintechs were kind of capturing some of the deposits.

7:21Cool is a strong word for a bad situation. Right. If somebody has to capture the deposits, I was glad that fintechs were capturing some of them. But then also a little disheartening to see, and this has been one of the main storylines, that like JPMorgan Chase ends up being the biggest beneficiary. Is that changing? Was that just like an immediate flight to safety that people are pulling back from now? How are people thinking about it now with the benefit of a little bit of calm? Right. So we saw, like I mentioned, half a billion coming to me out. I think the majority went to JPMorgan Chase initially or companies like that, the biggest banks.

7:53Banks across the board do things. They do awesome things, right? JPMorgan Chase does incredible, incredible things on the risk management side, some of the offerings they have. What we've already seen since then, though, is a lot of companies that went to JPMorgan Chase, a month or two since then, right, a month and a half since then, they're dealing with a lot of pain points, like serious pain points that are actually hurting their business. Things like having to travel to a branch to do a wire. Things like having their account frozen without them knowing why. Fintechs are very good at software and distribution and having pleasing UXs.

8:25So there is a hand-in-glove relationship, in our opinion, between fintechs and banks, banks that are compliance first, banks that are innovative, banks that make the right decisions, that fintechs can also partner with and do great things. I don't know that people are going to be going directly to bank websites in the next 10 to 20 years, but I think fintechs are going to be a really key value prop in helping distribute some of the best banks, infrastructure rather, to the world. Well, that's interesting. So I haven't, you know, JP Morgan is not a Blue Ridge bank or, you know, whichever one of the kind of sponsor banks that you run across.

8:59Do you see a world in which JP Morgan ends up moving to the back end? Do you think that's, I guess, one, strategically right for them at some point, but then two, even if it is, do you think they would ever do that? that's honestly our thesis. We kind of think that banks will have to basically compete. There'll be a bit of a marketplace for banks to compete to serve customers, right? Because fintechs are very good at distributing, making customers across the globe aware of their product, right? So it's not going to be enough to not pay interest on a checking account, in our opinion. banks like JP Morgan, I think will ultimately have to partner with, with fintechs to adapt to the, to the new age.

9:41And that's, I think it's a very positive thing by the way, because I think everyone wins in that, in that scenario. What needs to change about their business in order to do that? Cause obviously they make a ton of money when rates are high and when they're not paying out a ton on your, your savings or checking account, what would need to change for that to be the case? Or do you view this as like a, an opportunity for counter positioning with all of these smaller banks that do already partner with fintechs? Yeah. So I think the banks that are partnering with fintechs now are smart to be doing so, but there's still tiers within them.

10:10There's compliance first banks, which I think are really the smartest ones. The ones that are compliance first, they want to disrupt themselves now. They want to be around for the long haul. That's the perfect relationship for fintechs right now. And it's kind of a win-win because there are really great community banks, regional banks that want more people to know about their offering. Now, I'm talking about a situation in a decade or two decades where this gets up to the the biggest banks, but it just seems to be intuitive, right? Like if customers across the country are aware of a product like Meow, for example, if everyone has perfect information about Meow versus a different fintech versus a different bank, for example, we're not a bank, obviously, you would think that they would all kind of make an informed decision based on everything.

10:51And if there's software features that they value, they would maybe choose the fintech. If there was something else they valued, maybe they choose the JP Morgan Chase. But directionally, I'm long software and long kind of user experience. So it just seems to be a natural partnership in the next kind of 10 years, 20 years. Yeah, I didn't make this connection until you just said it, but I wrote a piece maybe a month or so ago on ChatGPT's plugin ecosystem called Potential is All You Need. And one of my theses in there is that I can just look at a lot more factors than an average consumer, even a business consumer would, and just make the best decision kind of regardless of brand.

11:30Obviously, in the case of a banking relationship, you need to take things like risk management and compliance. There's a lot of complicated stuff. It's not just who has the highest rates and the most insurance. But I do think that actually speaks to your thesis here, that if you can be the low-cost provider, give customers the best value, if software is making those decisions over time for people, it benefits whoever can create the lowest cost structure and the best value. Yeah. And maybe it's not the flashiest kind of business model and stuff, but we're not affiliated with Costco, but we love Costco.

12:05I mean, we love shopping at Costco, right? So, I mean, I think it's a pretty awesome, awesome model. I think businesses win across the country. Is there going to be a Meow membership? Because part of the deal with Costco is you pay for the membership and don't show up into the store. And so they make a bunch of subscription revenue. How far does the analogy go? No, I think that's where it ends. We're not doing the membership, but what we do also have, which we're quite proud of, is a runway tool. It's called Meow Runway. Founders can basically connect their QuickBooks and assume other accounting software, and they can immediately see their burn, and they can see how much runway they have, and they can categorize it by expense.

12:44It's in the same place they get their financial services. We want to basically be the operating system for VPs of finance, controllers. They connect their QuickBooks. They see all their expenses and the same place they're earning the yield. They can even see how much their interest they're earning from their offerings on Meow can offset it. So Costco is, you know, you see a lot of things in there. We just want to provide a lot of different options at the lowest cost possible to our customers. We love shopping at Costco. Yeah. And plug for Costco. We actually just ordered some olive oil from Costco just this morning.

13:17So yeah, I drink it to practice now, thanks to Fount. So I'm going through olive oil at a faster rate than I ever would have expected. Even Trader Joe's just doesn't make sense anymore at that kind of volume. Giving away any names, what's the most that a customer of yours is making in interest a month right now? We serve companies from seed to series D. So you can extrapolate. If they're in the maximum checking offering power by Grasshopper Bank, it pays 4.55%, right? So you can do the math on 100 million deposit if there were one. If there was a 20 million deposit, you can do the math there. But even a seed company, right, Paki, even a seed company that wants to potentially extend its run date by three or four months, it can move the needle, right?

13:59Earning 4.55 % on a checking account can move the needle. And a lot of companies are just not aware, which I think is a losing strategy, by the way. They're just not aware that checking accounts can pay interest because fintechs don't offer it. I think it's a losing strategy for those fintechs to rely on customers not being aware of alternatives. I think everyone should adapt to a world in which customers have perfect information and treat the customers as such. We see seed companies extending their runway meaningfully by using the services as well. How do you think about the, because you are in maybe the most competitive, one of the most competitive spaces out there in terms of great teams, a lot of money in the space, like all that kind of stuff.

14:38You know, when people see that you're pulling in half a billion dollars in deposits in very short order. They start trying to copy what you're doing. How do you think about defensibility and the advantages that compound over time? And how do you think about it, assuming that companies also like the market does perfect information and they converge on the best model? Well, we're very proud when customers go through a long procurement process and choose us, right? I mean, there's a lot of things that the incumbent fintechs, they do very well. We would put the offerings on me now against any of them.

15:11And we're very proud when we win those procurement decisions from very sophisticated, you know, BPs of finance, et cetera. So all we can do is just do exactly what's best for the customer and things tend to work out. We really like studying Jeff Bezos on this. It's quite easy. He tells you what to do to build a very successful company. So we just focus on the customer and things tend to work out, thankfully. I think probably the name is maybe the first thing I asked you about in the first conversation. Now that you're selling to like very serious VPs of finance and you're wanting to handle more and more of their kind of financial life of a company, are we sticking with Meow or are we going to like some very like a tree-based name or a rock-based name?

15:53We're absolutely sticking with Meow. We're tripling down on Meow. It's a high ceiling name. It's a very happy name in a hyper-competitive space. It's good to just have a happy name that everyone remembers. And what I'm so proud of, Packy, is that more serious people than ever, especially since the SVB crisis, were meowing for the first time. And I just want to get the entire world meowing soon and it could just be a happy time for everyone. I know it's not particularly low cost as a strategy, but are you sending like CFOs of larger customers now meow gear to walk around in? Or do we have a bunch of finance people rocking cats on their blow day?

16:26We are. The t-shirts are honestly like a secret weapon in part because of the name, but honestly in part because they're very soft. that does like wonders for us and the sales process it just lights me up whenever someone takes a selfie in the meow shirt or something like that just in a very serious space one final thing this is just like more of a curiosity thing just about how the process works so we're getting nuts and baltsy here but right we talked to brexton and series you guys over over kind of sbb week when you're just dealing with like all of this inbound like what does that look like not just like, oh, it was panic and chaos.

17:03But what are the systems? How long does it take to get somebody onboarded? What are the things that break? What are the things that you have in place that work well? Take me inside onboarding half a billion dollars in a few weeks. There are a lot and a lot of lot of signups, right? I mean, sometimes we'd be on the phone with multiple people at once, basically trying to get them onboarded. But we couldn't compromise the onboarding integrity. We have to go through thorough like AML checks on everyone. That's the first thing, it was a period where people were basically looking for a lifeboat. It was a very concerning period for them.

17:34And I hope that no one feels like that again, right? That they feel like they have to move their money off their existing financial institution in a heartbeat, or they can lose their life's work or their investors' work. So we just did our best. It takes less than on a normal day, like less than like eight minutes for us to do all the diligence checks, ask any follow materials that we need, et cetera. But that was a, that was a moment where it was people looking for a new home urgently. We just hope that environment doesn't happen again. We're very grateful that we can win customers now how it should be, which is through a long, thoughtful procurement process and they, they land on me.

18:11I love it. Do you have a personal life right now? Or is it, I think you just like 24 seven on the work side. Yeah. There's different kinds of workloads, right? Like when you're a seed company and you don't have product market fit, there's the workload of trying to find what customers will like. We're in a different world now. We know what customers like. We're just trying to serve as many as possible. So I feel so blessed to, the team feels so blessed to be able to, to, to serve them, but yeah, it's, it's a full-time job, but it doesn't, doesn't quite feel like it. Being in Miami right now helps.

18:41I mean, the sun, getting exposure to sun is helpful for sure. We, we finally, we're in like the one month period where the weather here is just as nice as it is down there. But yeah, it really, it really does make a huge difference. It does. Seriously. Sunlight is so important. I mean, it's, it's key. It makes plants grow. It's key for humans too. It is. Yeah. We'd be, we'd be in big trouble without sunlight. I don't have a lot of people on three times, but I think one of the more interesting things about this is like an ongoing series. Is it probably the first time we met, maybe the first words that you talked about were compliance first at a time when the market was maybe a little bit more go-go.

19:19And that has certainly paid off, it seems like, in spades. And it feels like the market has come to you. Was there a time when you wanted to drop that? Or has that just been a core in the beginning when there are people who are not taking that approach? Or has it just kind of been core and something that you're happy you stuck with? Honestly, Packy, fundraising was new to us. We weren't from the Silicon Valley world. When we raised money, we wanted to do everything the right way to stay in the game for 100 years, right? We think if you stay in the game, you don't invade Russia in the winter, so to speak.

19:57You don't push the extra mile, push the boundaries of what's okay and what's not okay. things tend to work out because you can deliver real value. So it's just, we're not wired to do anything that could get us in trouble, right? We want to stick around for a long time. It's just kind of in our DNA and be conservative. It's just honestly, even if we saw something in the market that was flashier, it was pushing the boundaries, it wouldn't kind of tempt us to try to take a different approach because we couldn't do anything different if we wanted to. It's very cool to see, obviously as an investor, but someone who's just gotten to know you and watch the journey.

20:28It is cool to see that by doing the right thing, you've put yourself in this like really, really good situation now where you've moved from trying to find product market fit to just kind of being where the market wants you to be. It's a good thing. Yeah. The market just wants stability. They want comfort. They want trust. They want transparency. And it's a competitive space certainly, but we're very proud to be playing that game. And I really appreciate the kind words there. Thank you. Yeah. Last question is, what bank is next? okay what bank god i would get in trouble if i don't i have no hopefully no more right hopefully no more but um but yeah well brandon thank you for doing this where can people go find meow and learn more about what you do yeah you can go to meow.co uh i guess it's kind of like cost.co costco but there's no affiliation i want to be very clear we just really like costco but meow.co you can talk to us through the intercom button there you can sign up we'd love to show you the lay of the land, show you our offerings.

21:29And I think if you run a procurement process, you'll settle on me. And we're very proud of that. So hope to chat with you and we'd love to serve you. Sounds great. I'm a happy customer, happy investor, and happy to see all the success you guys have had. Thank you for joining me again, Brandon. Thanks so much, Baggy. Had a blast.