He Said No to Goldman Sachs. Said Yes to $3B+ — Michael Paulus' Journey from Underdog to Billionaire Builder | Ep. 192

0:05Hey, everyone. Welcome back to Founder Story. Today we have Mike Paulus, the billionaire founder and CEO of PCMENCore. Mike, normally we kick it off with, tell us how you became an entrepreneur, but I think I want to do something slightly different. How is it when you hear somebody introduce you as Mike Paulus, billionaire, founder, and CEO? It's interesting that I talk to a lot of my portfolio companies now. I love being in the fight and I love being the underdog in industries. and it's funny you know at when I remember after we had sold and and I was was done at Assurance I couldn't play golf for a couple of weeks and I guess was living that like quote-unquote billionaire life and I was kind of miserable I'm terrible at golf and I love building things I love I love being with teams uh so for for me I I like to think of identifying myself still as that kind of gritty entrepreneur and and not as the person that's that's kind of made it and is is is on their yacht in the Caribbean.

1:10You still identify as an entrepreneur. I like that, Mike. That's really good. So let's go back in your story. What even made you start the first company that you had? Yeah, it's a great story. So I grew up on a farm in Washington State, a blueberry farm, and those were long, hard hours. And I knew that wasn't for me. So headed down to Stanford. And that was the first turning point in my life, being in Silicon Valley, understanding technology, getting to meet a lot of really smart people, changing the world. And it's kind of a funny story. I was going to go be an investment banker at Goldman Sachs, and I'd accepted the offer.

1:47I was going to start that summer. And I met Joe Lonsdale, one of the Palantir co-founders, and met him in the Palantir office. And it was the middle of the financial crisis. And he said, man, what could we do to prevent something like this from happening again? And I was intoxicated and went to go work and eventually leave that company. Initially, there was no salary. We were two folks in an apartment in the marina in San Francisco. And it wasn't about the money. It was comparing a very hierarchical banking structure with the freedom and creativity that came from an entrepreneurial journey. Wow.

2:29That's okay. I mean, we got to break this down. So you saw the problem. that needed to be, or you were told about a problem that needed to be solved. I mean, talk about timing, right? I think I've heard so many times, some of the greatest companies have come out of that time or times like that. And then you take no salary. You just grind and hustle. I think that's very common in the beginning. What happened when you started to get traction? Did you have to change? Did the company have to change? When you got some serious traction, I mean, you're growing, whether it's revenue, people, whatever you want to talk about, but was it a change in you or was it a change more in the team?

3:14Yeah, it's a great question. So I think we knew there was thematically a very big problem. And something that's neat about Joe Lonsdale and a lesson I've learned from him is he doesn't attack small problems. He attacks massive problems. And I think like a Palantir, it's a startup sort of 20 years in the making. And Adapar was similar. It wasn't going to be a quick MVP that we could take to market. It was, we need to aggregate all of the assets that these complex investors have so we can better understand the risks they're taking and help them with their portfolio. So it was unique in that we knew there was a bunch of innovation, a bunch of patents, a bunch of work to do just on the infrastructure before we really even had a product that was ready.

4:00And I think that was very invigorating to go. And it was a time where you have things like the lean startup and everyone's talking about MVPs and getting to market very quickly. And I think that for some businesses, and certainly that was the case for my next business, that was the case, that this was the exact opposite. it. I think as a young person, just out of college, these were mission critical systems for the biggest banks and endowments and wealth managers in the world. So in a way, you kind of had to grow up quick. You had to be serious. You had to be someone that they could really trust.

4:33So I think that was probably the biggest change is I think my early 20s probably looked a little different than most other people did maybe enjoying their time out of college. I have a book title for you in case you ever read a book from blueberries to billions. I would read that book. Okay. So you, you, you exit this company for multi-billion dollars. What was the, what was the, that process? Like, I mean, I would imagine I've, I've heard, you know, due diligence processes, you know, some good things, some nightmares, just the process I imagine of exiting something like this. What was that like for you?

5:14Yeah, so there were two big companies I built. So Adapar is still a private company. It's worth about$3.5 billion today. They report on more than$7 trillion in assets. So there my liquidity has really come from tender offers and the secondary market, which is incredibly robust nowadays. It's pretty remarkable. When I started out, that really wasn't a thing at all. My second company, Assurance IQ, that I started after was very different. We had an MVP. We were in business straight away and we were able to bootstrap that. And that was an interesting business where we were a life insurance broker and we were looking to do very innovative things.

5:52And at some point, we needed a major balance sheet behind us. So it really started with the consumer and the problem that we were trying to solve. And in that particular case, the right way to solve that problem and continue that company's mission, we needed to be part of a trillion dollar company that could underwrite life insurance, could do innovative things. It just physically wasn't possible to do as a startup. Even if you raised a billion dollars, you would still be a subscale insurer. And in terms of the process, it was a little unusual in that we were looking for partners. It was very organic.

6:26We didn't send a deck out to 26 people. It was really finding the right person that shared our values that we could really grow and build with. It's a stressful process. I think it's super important. Your banking team, your legal team, those guys are going to be in the foxhole with you. And critically, we had a business that was growing well, that was profitable, that was a great business. And it has to start there with numbers that are very compelling. And thank you for sharing this. I don't think a lot of founders or entrepreneurs know that there's more than just you have your company and you can sell your company to somebody.

7:06Or, you know, obviously you have a company and you make money from profits. You were just talking about secondary markets and other liquidity events. Can you explain that? Because I think a lot of people have no idea that there's other things you can do with a company and on how to, you know, make money or have other types of liquidity events. Yeah, for sure. You know, and I'm seeing kind of all varieties. So, So the first piece is a lot of venture capital fundraisers now have secondaries where employees can take money off the table. There's some funds now that are trying to buy a majority of the company.

7:43The venture capital market, it used to be such a negative sign if a founder was selling anything. And I think now the thought is this could be a 15-year journey. So if we can let you take some capital off the table and have you be motivated for that long term, that benefits us both. You know, we're seeing structured options where you can bring in debt instruments if you've got the right kind of momentum and take some money off the table there. And then there's active brokers. And there's, I think, better and worse brokers that will approach you as an employee with potential buyers for your shares.

8:17And certainly now in a family office setting and advising high net worth individuals, there's a lot of interesting tax efficient options. If you're part of a bigger company like a Microsoft or a Google or something like that, there's things like exchange funds where you can actually get diversification, get into an index without actually selling your stock and incurring the taxes. So it's a space that has really evolved to the benefit of employees in the past 10 years. Thank you for sharing that. So fast forward, you exit the other company, you go golf, you realize you're not good at golfing or you don't enjoy golfing because you want to get back into the grind of entrepreneurship and you decide to start a family office.

9:02How is it being on the other side of the table where you're now the investor? Yeah, it's a great question. So when the golf wasn't working, I went to my wife and she said, hey, we got three young kids. I've seen how hard it is for you to start two companies. So you're not doing that again. So I kind of joke that the next best thing is to be a capital provider and a close advisor to those that are disrupting industries. And I think I really kind of get that same joy. So and I'd say I tried to look at my entrepreneurial journey as an investor. And this is advice I would give to entrepreneurs. I think too many people, when they're looking at a job offer or a business, they don't look at it like an investor.

9:47And I think if you look at being two for two in terms of multi-billion dollar businesses that I spent my time on, it's because I looked at dozens and dozens and dozens of things and said no and didn't settle for a good enough business, but really put my investor hat on and went for a great business. And at Atapar, when I had no money, I took whatever money I had. It might have been$100 ,000. And I invested that in the seed round. Because if I was going to spend my time on this, I was also going to put every penny in. Because for me, time is more valuable than money. And it was the same thing at Assurance.

10:24I was all in. We bootstrapped it. I put every penny in, moved to a new city with the family. So I guess I always like to think of entrepreneurship through an investing lens. Like, is this a really world-class investing? And then I look at my investing with an entrepreneurship lens. And that means, how can I help, right? How can I help this team? How can I help this company? How can I be value-add? So you're making a strategic investment with capital, but then you're putting yourself and your time and efforts behind it. And I do that because I think I don't know how to be anything but an operator and help.

10:56But it's also a cycle where you get access to the best investments because folks know you'll be all in. And you know, you're not just capital, but you'll be beside them and helping them build a business. Yeah, I've never raised money, but I feel like if I did, I would want somebody like yourself versus somebody who might be the opposite of that. That seems very helpful. And with your experiences, who wouldn't want someone that has the experience that you do and the knowledge of going the ups and downs? I'm curious about a challenge. I'm sure throughout this time, there's been some sort of challenges that you have gone through.

11:37Was there a lesson that you tell every entrepreneur based on a challenge that happened to you? Gosh, that's a good question. You know, very early on in my career, I was actually interviewing for a VC role I didn't get. and an investor at Excel gave me a good piece of advice, which was go fish in your own pond. And that's something I've taken. And don't go do what everyone else is doing, zig or other zag. And then I'd say in terms of challenges, I think part of the beauty of bootstrapping is every single month you could go bankrupt. And especially when you're growing quickly, when you're bootstrapping and you're spending millions of dollars of marketing and it makes you very close to your customer.

12:24It makes sure you're only hiring A-plus employees. It makes you paranoid every day around the technology that you're developing and what you're doing. So I think that is, it's both a challenge because every single day, you know, you don't have that cushion, but I also think it sharpens you and it makes you a better entrepreneur. Do you find a difference since you've been working and advising a lot of people? Do you see a difference in somebody who has typically bootstrapped and then maybe they're raising later on versus maybe someone who's never bootstrapped and only raised, or maybe this is their first company that they're raising for?

13:02Yeah, that's a fantastic question. And Entra, who I'm on the board of, is a great example of that. They, for several years, bootstrapped, and then they saw an opportunity to really build out their technology and raise capital. And I love that in an entrepreneur. I think Troy and his team are phenomenal. And what you see is they're way closer to the customer because, ironically, if you're raising capital and you're relying upon capital, your customer is not really your customer. It's a VC. It's whoever's raising your next round. Where if your paycheck, what's going to operate your business is going to come from your customer.

13:38They're truly your customer and they're your entire focus. And I think it creates a product market fit and it creates an obsessiveness because you also look every day and say, how can I serve my customer better? you're not also thinking, how will what I build look to the person that's going to lead the next round? So I love that part. I think you think about your money and hiring so much differently. When every new hire, you have to have the customer revenue to support. You're looking at A plus individuals and you're looking to get the most out of everyone. I think sometimes when you raise a lot of capital early on, it's sort of scaling teams for its own good, right?

14:14And things can be overlooked. you know, not everyone's really operating. So I think there's a tenacity. And I think there's a grit, you know, and I like to think of myself as an underdog. And in any market, if you're bootstrapped and you're new, you are the underdog, right? I think sometimes if you go out and raise a big seed or a big series A from a name brand venture capital fund, I think sometimes it's hard to be the underdog, right? And that's the right approach in some markets, right? At Adapar, we've raised hundreds of millions of dollars. We were solving really big problems. We were a SaaS software or a company, that's going to take a lot of fundraising.

14:49That's the right way to run that business. And something like assurance where we're focused on life insurance and we get upfront commissions from our agencies, that's a business that you can really bootstrap effectively if you're customer centric. So I'd also say that I think a bootstrapping mentality can help every single entrepreneur, whether you're not, you're in a sector and a business model that actually truly supports bootstrapping. I think I've seen a lot of people that have raised capital, but they have that bootstrapped mentality and they treat the investor capital like their own. I like that.

15:24Bootstrap mentality. I'm going to start. I'm going to figure out something that I think there's something there. That could be a book in itself. Bootstrap mentality. So there's a lot of talk around the one person or one employee billion dollar business, a one employee unicorn, because AI is going to enable or is already enabling us one person to do the task of 10. How do you see this in the future where companies with less and less employees are generating more and more revenue? Yeah, I want to say at our time of our exit at Assurance, we were maybe 100 or 120 employees. And we were generating multiple millions of dollars in revenue per employee.

16:10And I think that was really judicious use of technology, looking at what you really need to do in-house and what you can outsource and find partners. I love the Acquired podcast and their focus on do what makes your coffee taste better, I think is becoming more and more true. And I see it like, as I look at my first company, I had a par now, 15, 16 years ago, we had backend guys who were thinking about servers. We were thinking about different operating systems. And you needed a ton of people to build all that. And then you look at the next round and we had AWS. So you no longer needed the backend engineers.

16:49You had microservices. It was a given you were going to deploy these on browsers and you didn't have to worry about all these localized things. You had all these great frameworks to use. So already that was a step function. And I think now with AI, you're seeing the next step function in productivity. so I can see it there I think some of these AI guys are kind of cheating they're like well we're only 5 employees but we've spent 50 million trading our AI models but I do think that you can be more and more efficient I think a lot of what now product and engineering leadership is less around the code and more about creatively thinking about how you can link together all these incredible solutions how the data flows what the needs of the customer are.

17:35But I absolutely think you can do more with less. And I'm a big fan. I'm not convinced. I've seen 15-person engineering teams that are building more than 300-person engineering teams. And I think at a lot of big companies, there's always a, I think Bezos called it his pizza box rule, but there's always a team of 10 or 12 folks, I don't care how big the company is, that's putting that company on their back. And it stands to reason then that people can do a lot more with less. And I do think finding awesome service providers and really thinking through who do I actually need to manage and have in-house and where can I find great partners, you know, recruiting, HR, finance, even sales.

18:16You know, there's really interesting organizations that are just specializing there that are really interesting. When you're looking at companies knowing that they could possibly be disrupted with AI, talking about the cost of services going down, we've had great guests on here that are way more expert than I am when it comes to AI and stuff that they all say the same thing, that the cost of services will continue to go down as the AI and software can do a lot more things. how do you as an investor think about that when people are coming to you with with a product or service in terms of could this product or service in three or four years basically cost zero like the coding you know like there's all these you know no code or there's always software now you don't even need an engineering team so how do you as an investor look at this as a potential if you're investing in something long term will this company even exist in five years because at that time, the service will basically be free?

19:15Yeah, it's a great question. And I, kind of this fish in your own pond or be contrarian, I kind of like to run towards the flame. I think since the first piece of technology, that the Luddites have said that it's going to destroy jobs and destroy value, but by and large, the industries that are most disrupted by technology are the most valuable. I mean, look at chips, right? You take a chip and in two years, it's going to be totally obsolete. And NVIDIA is a trillion dollar business and Apple and Microsoft. So when I look at an industry and you say, hey, there's an opportunity for AI to come and disrupt things, what I see is maybe a low margin service business now becomes a high margin technology business.

19:58And an area I focus on my whole life is man machine symbiosis. And that's really the idea of expert humans working alongside technology. And I think in areas like law or in areas I focus on, you know, like big life insurance decisions, what I do now around wealth management, it's, you have, of course, you need to have AI, data science, the best tools, helping with idealized decision making for folks and bring technology to bear. But these are also really emotional, big life decisions. And that human interface and an expert human is really important. So I think that there's a set of things that AI will just totally kind of get rid of to your point and take it to zero.

20:46But then I think there's a bigger class of problems where the firms that can be the accountant of the future, but with AI, you know, doing 80 % of the grant work or same with law, these kind of human in the loop concepts where you have the right interface to get it done, to make, give people the confidence you're making the right decision to interface the model with the outside world or a negotiating partner, well, you're really, you know, using it and harnessing it are massively important. And, you know, we're using a ton of AI at Hawks Pest Control, for example. You know, no one's going to stop spraying pest control, you know, for a while.

21:24I think that the drones won't be out there. But it doesn't mean that human, you know, AI can't be making the technicians more effective, making the routes more effective, making the customer service more effective. So it's exciting to me because if AI has a role, it means that it's going to be a dynamic industry. And that means that there could be new winners and there could be interesting profit pools. Well, I'm going to take my humanoid and we're going to run into the flame. I like to run straight into the flame. So now you have your family office. You've gained all this experience and success.

21:58Now you're helping other family offices or other families. Can you explain that? Yeah. So after I sold, my first company, I worked with wealth managers and RIAs and knew the industry well. And I really didn't see someone that met my needs for myself and my family. And that's really understanding entrepreneurial families, really getting a highly personalized and sophisticated view of the client and crafting a portfolio around that, taking advantage of all the assets that we have to build a portfolio today. It's not just stocks and bonds. It's let's find 10 or 12 uncorrelated sources of returns, things like infrastructure, things like real estate, things like private credit, private equity, proprietary deals, all of these things.

22:45It just didn't exist out there. So I built it for myself and really spent five years working for myself and my family. And at the end of that, I started to have friends and family members come and say, hey, I see what you're doing. This is pretty interesting. can I come and join you? And that was really when we filed with the SEC and made the decision to take on outside clients. And for me, it's as much about enhancing what I can do for my own family as others. When you're only managing assets for one family, it's hard to get A-plus talent to build out proper teams to really be a scale where now that we're doing it for others, we're getting the best talent, the best engineering talent, the best wealth management talent, the best tax talent to come in and we're having a lot of fun.

23:32And for myself, as I said, what does the next 20 years look like? I love sitting down with someone and talking about their financial life. And it's kind of a puzzle piece and putting those pieces all together and help untangle those problems. Myself and my team, we find it fascinating. One day, Mike, my new vision board, I'm going to have a family office or I'm going to have enough money where I'm going to come to Mike Paulus and I want to be part of your family. It sounds like you have an amazing family, by the way. I'm very inspired by the fact that you talk so much about having a family and that was important to you.

24:10Just in general, having a family, all the things that you've gone through. A lot of the founders that we've had on this show, they had to make the choice of the business and family and they couldn't always balance the two. So I'm glad to see that you've been working on those things, the investments, all the things that you've been able to accomplish are very inspirational. Whenever you write this book, let me know because I will come up with the best headline. But my last question is this. If there's somebody out there, a student who's graduating college right now, or maybe they dropped out of college because it wasn't for them, which happened to me.

24:47What advice would you give them? Should they go get a job? Should they start a business? Should they be, you know, number two employee for somebody else's startup? Yeah, it's a great question. It's interesting about the family too. I think my now wife was really the one that said, don't go to Goldman, go try this entrepreneurial route. So for me, it's never been a choice because I wouldn't have had the business success without my family. And I mean that in a very genuine way. It's interesting. So I think for young people, I would, the best piece of advice I'd have is go work for the most interesting entrepreneurial business that you can.

25:28Um, you know, if you've got an idea for the next Facebook, go for, you know, I had a million side hustles in college. I think, you know, high school, I think it's a common thread of successful entrepreneurs that they, they always found an angle. They were always looking for ways to, to, to get started and make some money. But I think, um, a lot of young people don't have the exposure to the world to solve a problem like out of par, like a portfolio problem that complex endowments and banks have, or something like assurance where the underwriting system for life insurance is antiquated, or something like pest control where the routing and the client selection and the sales process could all be done better with technology.

26:13And I think when you get into an entrepreneurial company, you learn about how to grow, how to recruit great people, just what that feels like. So I think sometimes people are too focused on title. And I would say, find a rocket ship. Don't ask what seat you have, just get on. And I think it's all about learning at that period and having the biggest learning curve. And then the other thing I'd say is I wanted to work with people that as a young person would take you seriously and have a meritocracy of ideas. And if you were right and you were working hard and you had the talent, there wasn't a limit.

26:49I think when I looked at my life at Goldman Sachs, there was a 20-year progression. It's very clear what things look like on day one. It doesn't matter how talented you are or how hard you work. There's a hierarchy and there's a path. And that's right for some people. But I think if you're entrepreneurial, put yourself in a position where, you know, being young is, is not looked down upon and you are uncapped. If you can grow yourself really quickly, you know, work, work really hard and add value. And then, and then I'd say the other side of that is like add value. You know, the first thing I asked Joe wasn't like, how much equity do I get?