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

22:45And that is, I think, freeing in a way that most companies can't operate. What's an example of something that you've done or made a long-term investment in that you think you wouldn't have done if you had been venture-backed? We bought a regulated bank when we were early. That's probably like a little bit cooler now in this new administration, but we bought a regulated bank during the first Biden administration. And that required us not grow or like not focus on revenue for two, three years and do a bunch of stuff that inherently didn't scale. Buying a bank is not a software-defined problem. That's not like a great use of venture capital dollars that you expect to grow.

23:19It was a non-consensus bet at the time. There's just no way that could have happened. There's no way somebody would have been like, oh, we want to buy this money for a company, right? We want you to do stablecoins. We want you to do AI. That's just not a fundable bang. So I think in being able to just invest behind that for a multi-year period before we actually take on clients, people think they're long-term focused, but it's just not. I think we're able to do weird stuff with employees that doesn't scale. Like what? we pay employees like here's two thousand dollars a month to go to a rent or mortgage if you live two miles with the office well like that doesn't inherently scale but it's massive because now i can get people who live close to the office they feel great because they're getting like a huge part of all of their housing and stipend and san francisco subsidized but like is that going to be a good use of venture capital probably not so we can just do all this stuff from an employee perspective from retention perspective what we do every single year we take 25 of our earnings and we just buy back our shares with employees.

24:13So we just run our own tender every single year. It's been great for retention, is able to actually get liquidity to employees when they need it. And it allows people to believe that we're like in this venture grant business. But if you're in a VC business, you're like, hey, you should be using like 100 % of that money for growth. We say, well, actually, we don't necessarily think that. We're quite profitable, so we can afford it. So we can invest in growth, but we can also invest in employees. That's a really good example. So maybe just to pull it apart a bit more, Are you granting equity to people in a similar way that a normal startup would, investing over some period of time, and then just every year saying we'll buy back some portion of that to provide, that's how it works, literally?

24:49Structurally, we look exactly the same as like a high-growth startup, right? We grew up to the same people. We have all the same perks, if not more. So we operate very much like a high-growth startup. We happen to also be like quite profitable. What I can tell people is our profits every year, imagine that's like our funding round. Each year, like on January 1st, we raise a massive round each year. That's how we view it. There's part of it that's going to be used as a contender that we're going to buy back company shares and the rest of it we're going to put to growth. Oh, by the way, you also haven't diluted at all.

25:18By the way, you also don't have any pref stack. By the way, like we get to make our own decisions. That's super compelling. So I can hire someone to say over a 10 year period, you're not going to be diluted. I think what some people forget is if you're an early stage founder, you're going to lose probably 50 to 75 % of your equity value due to dilution alone. You may lose 10 to 80 % of your upside by the preference stack. These are like weird economic things that people don't really understand until they've been doing this for like five, six, seven, eight, nine, 10 years or seen an exit. Like with us, we say, hey, just don't worry about that stuff.

25:52What I give you is what you're going to have. And by the way, you have liquidity on a yearly basis going forward. That's like super compelling to people. How have you honed the communication of that idea to a new employee so that they get it? Because I think so often people just say, oh, I got this many shares. and it was the valuation. And if it goes to this valuation, I can just be the math, but that's not actually the math of what they'll take home. How do you frame it to people? We're far from perfect. I think one of the things we do is we target people that this is their second company. We're probably not the best place for a new grad to land.

26:21If you got to land, they're going to go through this calculation of where are all of my friends going? What is the number one company in Hacker News I read all the time? What's all like the thought fluencers talking about on Twitter? And it's like actually like not a bad strategy. Like if you're a new grad, that's probably relatively fair, but you aren't really going to be thinking about some of this kind of nuance. And it's honestly not as hard as you think. It's actually like quite refreshing. We go to people and we're like, hey, we like are super fast growing, but we provide you the liquidity.

26:46Oh, by the way, here's some very basic math on preference and dilution. And here's why you can actually make way more money for the same equity value. It's a hard story for a 21 year old. It's actually a pretty easy story for a 25 year old that's been through six rounds and four pivots at their previous company and don't have anything to show for it. Does this empirically show up in employee retention numbers versus Silicon Valley norms? We have almost close to no regretted attrition, which means people that we like to stay end up staying. There's a couple of reasons for that. I think one is second time around, it's a lot easier.

27:18I think I learned from a lot of mistakes at Bladden. I know where to spend time and where not to. And so I think generally it's probably a more mature company than your average Silicon Valley startup. So I think A, that helpful. We're probably better at picking talent. but also I think we know what matters to people. I think sometimes as like founders or VCs, we think that people join companies because they want to become billionaires. Maybe that's true up to a point, but a majority of people join companies because they hit into like their late 20s or the early 30s and like, what are they optimizing for?

27:48I want to send my kids to like a good school and private school. I want to not live with roommates in like a one bedroom apartment up until like I'm 35. Housing and education, that's super important. You can't feed that on a liquid stock. So how do you think about optimizing for that? Basic things like team, culture, all that stuff. Like people want to work for somebody who feels like they are taken care of, not just a 20-year period, or like here's your path to being a decamillionaire. Do they understand my short-term needs? Can you take care of me in the short, medium, and long-term? And I think sometimes we are maybe too long-term oriented.

28:21Sometimes they, hey, yes, of course, come with me, work on this for 20 years, and you're going to be a decamillionaire after that. That resonates with a certain type of person, but it doesn't resonate with everybody. And so building a company, building a culture that actually optimizes for every single point of an employee's journey and employee's life, that's actually quite unique. And that actually can lead to really good numbers. How much of this was just possible because you were already rich at the start and had money to fund something like this? Is this portable advice? Could someone else that hadn't had the experience you had with Plaid do something like this without taking outside money?

28:57I think it's hard. I think it was definitely successful at first, But what I would say is that kind of go too much details. Yes, I started a very large company. I think I was probably less liquid and less rich than probably everybody thought at the time. When I started this, plaza funny story, we attempted to sell to Visa for$5 billion. And that's the point when I left to go start something. It didn't go through. We got blocked by the DOJ. And I did not sell my company. Thus, I did not have any money. And so my liquidity versus paper wealth was pretty extreme. And so I think I got a lot of credibility from people being like, oh, this guy's rich.

29:31Easy for this guy to say. Yeah, easy. Yeah. But I did not have any money. Is that going to go into too much of the details of it? Like I pretty much funded the entire company with debt. Went to a bunch of banks and I said, here's a bunch of plaid shares. Please give me money. And the best I got was like a sofa plus 10 % loan at 5 % LTV. And so I pledged over a billion dollars of stock to get$70 million. Wow. And I bought the bank for$70 million. I haven't had a lot of money in my bank account for a long period of time. And yes, and I ended up, business became profitable. I got to pay off that loan a period of time.

30:01But in the process, I probably got margin called three times and almost went bankrupt multiple times. Talk about that stress. I mean, the first three years were definitely the most stress of my life because I had a fundamental thesis that we could pull this off and we could build a business that 100 % of employees and myself owned. But to do that in a world where you need to invest and not make money for multiple years is very, very challenging. And at the regulatory climate at the time and the bill to come, it was intense. And I have this loan I have to pay off. It was probably the most intense period of my life.

30:31And as a founder, you have to shelter that from everybody. You need to be transparent. You need to bring people in. But you also need to like not bring people all the ways in. I had pretty extreme conviction myself. And I thought I knew 100 % of a multi-decade period I can pull this off. But there's that quasic quote of markets can stay irrational longer than you can stay solvent. And it's true. And, you know, I'd look at that quote and I'm like, which side of the ad equation am I on every day? We ended up making it through. And I got to an amazing place now. We have a big company that I own. But I think the idea of like, oh, like, you know, billionaire buys thing and self-funds it is probably a little further from the truth than people think.

31:11What's it like getting margin called? What is the literal thing happening? How do you manage through that? Surface to say that you owe a bank a million dollars. They owe you. You owe a bank a billion dollars. Like, you own them. I'm like, I think that's a little bit. That's true. I mean, there's a reason that like margin lending in private companies is not a great business because when you want to take collateral that stock, that's usually the exact time when you do not want to hold that private stock. I have like immense appreciation for the people that did it for me. I'm not quite sure they got like a great deal out of it.

31:41And I'm not quite sure I would definitely be in that business. The reason I feel the story is important to tell is that it's these things where so much of the value gets created, the extreme entrepreneurial risks the act itself, but also the psychology behind it. And I'd love you to just riff one bit more what the psychology was like and how your mind is different after that three-year experience than it was before, even though I know you'd already been through the entrepreneurial ringer with Plaid. What changed about your mind, your perspective on the world? How did that experience affect you?

32:12I think that the good founders bet on themselves and take an extreme amount of risk to do that. And I think the extreme amount of risk part is something that we no longer have. But when there's literally only one door in front of you, you don't have a choice. You have to go in. And that fear and that innate desire creates another part of you. It creates creativity. It creates inspiration. It's extremely valuable part of the founder journey. And in many ways, I think in Silicon Valley, we've actually removed that. Do you think about most founders these days? I talk all the time, like, hey, you talked to a 23-year-old.

32:49I'm like, you know what? I'm thinking about going to be like the 12th employee at this company or starting a company for myself. And I don't know, I'm kind of like mixed. And we've created this incredible environment in Silicon Valley that it's really safe to start a company. And there's like a playbook and you go through YC and assuming you're moderately competent and went to the right high school and college, you're going to get like a$3 million seed round. And worst case scenario, you can go work at a great company as an engineer. You'll get the founder on your resume and life is good. And that has created a lot of value.

33:20But I'm not quite sure it's created a lot of great founders and a lot of great companies because there is no risk in that proposition. And if you go back to even pre-2008 or something like that, you're on the edge of the knife. And I think that creates just so much intensity and creativity and fear that is such a critical part of the founder journey. And I don't know why we don't talk about it more. We don't create environments where a founder has to bet themselves. And I think if we did that, I think we'd actually be in a slightly different place. I always am somewhat perplexed by, I'm a second time founder, but I'm not alone.

33:55Like there's a lot of great founders I shall not name that, you know, have made a bunch of money. And you go dig in, like, oh, here's my second company, the third company. And you dig into that. Of the$100 million they've made, they're putting like a million dollars to the capital risk and they've raised$500 million. And I'm always like, why? If you believe in this so much, if you're going to dedicate your life to it, why the fuck aren't you going all in? And if I'm an employee, I look at them, I'm like, you're asking me to go all in, but you can't go on. Because the weird thing is an early stage employee takes way more risks than an early stage founder.

34:25Explain that. So let's talk to an example here. So I'm a 24-year-old. I'm making TTC perspective, 400K, 500K at Google and Meta or something like that. Okay. And I'm going to go to an early stage company and I'm going to go get 1 % of this company and I'm going to make$90 ,000. Well, I've now changed the trajectory of my life. I can no longer buy a house. I can no longer go on the vacations I want. So I'm making like a four to five year trade-off where I'm saying, I'm going to make pretty much no money over the next four or five years, but maybe in five, six years, I'm going to make like millions of dollars that I couldn't make at Google and Meta.

35:01That's actually a lot of risk. Say, I'm going to live with my friends instead of living by myself. Like I'm making massive, massive changes to my life. But as a founder, you're not. It's a much higher likelihood of the next round, regardless of your company, you'll be able to sell some secondary. You know that if it shuts down, you can go be an employee at a great company. You have a CEO on your resume. That first employee, they have first employee at a failing company. That's actually not a great resume line item. And so we've de-risked the founder, but we haven't de-risked the early stage employee.

35:30And I don't think we should actually de-risk the early stage employee for what it's worth. I just think we need to increase the risk for founders. I think we need to make failure much more expensive. I think we need to say, hey, you're a second time founder of liquidity. Put all of your money into that. If you're going to be asking this of employees, you're just asking for yourself. And I don't think we're having that conversation enough. And I think starting companies are just too fucking safe. And it's caused a lot of companies to be just super safe companies. Like, hey, we're going to pivot to AI, wrap open AI, wrap anthropic, whatever.

35:58Like, that's not bold. That's not ambitious. And it's because we're attracting founders that actually maybe want to be employees. They don't actually think about the long term. They actually don't think, say, hey, if I don't pull this off, I'm going to become bankrupt. My life is over. And I think that's pretty healthy. That's when you bring out the rawness of humanity. And I don't see that very much anymore. How have you felt that in yourself? So how has your behavior changed or your perspective changed or like just the ways that you show up that are different now than prior to this pretty extreme through your period?

36:31I am not the most diversified person on the planet. I own two things. I own Column and Plaid. That's it. I don't even own a majority of my house. That is truly it. Those are the only two things. And that's motivating to me. At some point in my life, I have a six-month-old son, and I do need to probably diversify. And so that is a goal for me at some point. As a 36-year-old, you should probably not be this concentrated. But it's also, that's what makes building companies unique. There's probably a lot of people that look at me and they're like, oh man, billionaire, amazing. I think that's what makes it special.

37:03I think that's what drives me every day, which is if you don't have something you are driving towards, such as for me, like solvency, it's really hard to be motivated every day. The other thing, though, too, is that very often the thing you own and control in our building might be your best investment. And getting money out of something is costly from a tax standpoint and other things. So in some ways, you just continue to be all in on what you're building. Bet on yourself. I'm sure every fancy executive has probably told you that, but I think it is somewhat true. So compounding on yourself is probably the best investment to make.

37:33I'm not a generalist. I'm a specialist. I'm probably the best in the world. A couple small, boring stuff. I'm really good at creating really confusing, boring-sounding companies that's really hard to explain on podcasts. And I think that's like my expertise. That's not my leash. I feel pretty confident in my business because I do not think in my business you want to compete with me. I'm mean, I'm hungry, and I know my little niche space better than anybody. in the entire world. And if I'm investing or doing something else, there's a me on the other side of that trade. I don't want to do that. I'm a builder.

38:08I think sometimes there's a trap where builders ain't their investors and investors ain't their builders. There were cases when you can do both. But in a world where it's increasingly competitive, I do think the world for builders is the world of specialists. And you have to go extremely, extremely deep into your area. And that's where you find value. I probably have read more about the history of my space, the history of financial services. I studied banks in Japan in like the 1800s. I read like a very boring 2000-page book on the history of banking in China in the 19th century. And there's stuff I got out of that.

38:46What's something, not in the story of that book, but what's something you get out of that degree of extreme study? The hard part about this is you probably get like one small thing in a 2000-page book. And so it's probably not efficient unless you own a thing that happens to be that That's crazy leverage. And that like one little thing can create millions of dollars of value. Two things creates like hundreds of millions of dollars of value. And so without kind of going too much into detail on it, that's where you find your leverage. And I'm pretty good at that. This notion of being the best in the world at the thing you do is really interesting to me.

39:16It seems the environment today makes that harder than ever because there's so much distraction. And there's such a high rate and ease of comparison, which is certainly the thief of joy. But it's really hard to ignore people doing other stuff, spending a 30-year day reading about Anthropic or whatever. It's exciting. What have you learned about how to become, apart from reading obscure 19th century Chinese banking books, what else have you learned about how to become the best in the world at what you do, assuming that there's lots of people interested in that mission or that idea? I think one of the best determiners for success of founders is can they find the most boring thing humanly possible interesting.

39:59And can they find that interesting over a multi-decade period? Who doesn't find AI interesting? Yes, geopolitics, fantastically interesting. There's all these general topics that are quite broad that is very mass market interesting. And that's what makes Twitter so fascinating. That's why podcasts are fascinating is because people like to feel that they are really smart across a broad swath of categories, but that doesn't really align to company building, so many people right now are thinking about and have a lot of knowledge around how AI is going to disrupt software, how AI is going to disrupt vertical software, how AI is going to be the next six year round.

40:37These are like generalist topics that I can probably find a thousand people that have interesting, compelling ideas and can go pretty deep on that. But you can't create value there. You can create value if you're like, I'm the number one person in the entire world at this little niche thing. And I think this niche thing can generate billions of dollars from ever, ever time. But the problem is, is those places are really boring. The fun ones like food and like surfing in Thailand or whatever, like those are solved categories. Yes, I would also love to be an expert on hospitality in Thailand and Southeast Asia.

41:09Like that's a fun problem. I could imagine one going niche on that for a more of a decade period, but that's solved problems. But I think finding the extremely boring thing that requires you to read hundreds of thousands of pages that you cannot Gemini deep research your way through, that's where value is. But it's fucking boring for a lot of people. You have to suffer in silence for a huge amount of time. And if you can find that super fascinating, you can like love to learn that, then I think you'll be successful. But I think it's the minority of people. My partner gives me shit all the time, but like, how on earth do you find that book interesting?

41:42What is wrong with you? And I was like, well, like if I don't, you and I are going to be super poor. You said earlier that building a company for the second time is a lot easier than the first time. Yeah. What are the most extreme ways that that's true? What are the things that you've done the most differently this time than the first time? Experience is valuable. I started Plaid right out of college. And I think Zach, who is my absolutely incredible co-founder, we both said like, man, if we would have just worked at a company for like nine months, we would have learned a lot. We probably would have saved like three years.

42:10Because the amazing thing about working at a company, especially an early stage company, is you just fail forward all the time. And that's incredible. That's an incredible lesson. But like when you fail forward as a founder, that's a lot of dilution. That's a lot of time. That's a lot of like wasted resources. And if you could do that on somebody else's dime, amazing. Now I think it's like a little bit easier because everybody's YouTube videos on YC Startup School and there's some PDF for everything. And you can probably like Gemini you away through the early stage part of a company. But experiences matter a lot.

42:39What about picking talent? What things do you optimize for now that have been honed because of your prior experience? I mean, people always think about employees and it's like a kind of missionary mercenary framework. You have to look into an employee, like what do you want to do? There's like the mercenary type, which is, okay, super smart, probably super pedigreed. And really what they're doing is they are using your company as a launchpad for something else. They're using their company to collect a bunch of two-year vested options from like the top five companies and hoping one of them goes up.

43:09That can be a valuable employee, but you have to have a very specific type of company that is used to that churn and burn in order to take advantage of them. Then you have the missionaries, which is this person is very mission-focused. Inspiration is super important to them. And if you get that right, they will go to like the ends of the earth for you, regardless of like their short-term benefits. People also have some downsides as well, which is the moment maybe you want to be a little bit more commercially oriented and the moment you have to maybe make trade-offs on your mission or something like that, that can cause a lot of societal unrest inside of your company.

43:44Then there's like the third category of employees, which are generally what I think are probably like the best, which is like a combination of everything. But really what they care about is they care about, yeah, we want a ton of upside, but we also want stability. We also want people that, hey, I like to be friends with my coworkers. I like to be in an environment that is like warm and welcoming, but also gives me like the near term and long-term financial value. And I'm willing to like work really hard to get there. Everybody has personality types. Everybody has different styles and you have to figure out what is right for your business.

44:11But I think it's very challenging to tell that on LinkedIn. Everybody's like, okay, cool. You went to the right New York prep school. Thus, you went to like the right Ivy League school. That happens at like this good engineering program. And then you have these couple of LinkedIn things that are like good for me. Boom, done. That can be super successful, but that is also not the right for everything. And so just getting that honed for talent is super important. How much do you care about mission? This is an interesting part of the equation. You need a mission. Otherwise, people just go work at hedge funds.

44:39You need to say like, hey, we are building something bigger. And I think we absolutely are. But I think mission can actually be a little bit distracting. I think a lot of times people focus a ton on, hey, what are like the values of my company? What good are we doing? And I think that's like an important part of the equation. But I think it's on a list of five things most important. I think it's probably on the bottom end of that five list. And I think a lot of times we can be kind of distracted by that. That's because when you're pitching investors, investors want to feel like they are part of something.

45:06They want to feel that, man, I'm not just recycling pension fund money into other capitalists. And that's what we do. Like we want to feel like it's bigger than that. And so I think we've taught people that, man, you need to focus on the millennia journey. You need to focus on the impact that we're doing. And like, yes, numbers go up, but like numbers go up as only one part of the equation. And I think that's important for employees, but I think it's sometimes not the best. In the end, what do you want to do? You want to convince somebody to buy your product and like you deliver them enough of an experience that they can't build it themselves.

45:35and they're going to pay a lot of their hard-earned money to you. That's the goal. And that person doesn't give a flying fuck about what your mission is. They just care about, does this product create value for me? And am I willing to pay for it? That's it. And if you start to let drinking on Kool-Aid too much, you kind of forget that. It makes me smile to think about your earnings and cash flows. It's such a novelty that a company like yours would have a bunch of this. So young in its life and at this scale, how do you pick your margins? How do you think about how profitable to be and why? You mentioned earlier that it's like having a funding round every year.

46:09Does that imply that you're actually spending it so you're not paying taxes so that you can spend it on growth? How do you think about earnings in a high growth technology business? Our customers pay us for safety and our companies pay us for longevity. It's a unique thing around financial services where I'm going to look at you as a customer. I'm going to be your best partner over like a 10 to 15 year period. Switching costs are really high. and they are putting a lot of your customer trust and risk in you. So I am playing a longevity and a risk game just as much for me as my customers. I take that extraordinarily seriously.

46:43And I think earnings and being profitable and sustainable and not relying on somebody else's decision-making framework is extremely critical for our customers. And that's extremely important to me as well. I tell people the risk falls on me. I can't pass my risk to some other venture fund or like their LPs or something like that. I want you to be successful. I want you to be successful. If we're not, I'm the one who takes the pain here. That's quite unique in Silicon Valley because at some point your critical vendor could get acquired or maybe the founder could get a$20 million offer from Anthropic.

47:15It's the rational decision for them to do that. In many ways, we aren't competing with other Silicon Valley companies. We're competing against maybe them doing it themselves or maybe competing with them trying to build a patchwork of software vendors on top of a legacy bank or something like that. And so I have to show that I am more sustainable than you. And I think that earnings is a critical part of that. And I think people are like, oh, well, like your margins is my opportunity type thing. And my argument would be like, you run this business at a lot lower margins, you're going to be dependent on somebody else that you probably don't want to be dependent on.

47:43You also have to be introspective about your business. Is my business the type of business that if I raise a bunch of money or I have a ton of earnings, I can throw all of that back on growth. And I think a lot of times enterprise software companies, they cannot ingest like a huge amount of capital. Like if you give me like a billion dollars right now, I don't know if I grow it a thousand times faster than I am right now. And I don't necessarily think I should. And so what we do is we say, okay, of this earnings, what goes to our employees, what's going to go to growth and what's going to go to capital, which is pretty much in case something goes wrong or we have a bad couple of years, NBD, we good, let's keep moving.

48:22Down to the extent of Now we're like, hey, if something goes wrong for 10 years, how are we like, we're good. There's a lot of societal change going on. There's a lot of crazy stuff going on in the environment. I can totally paint you a picture where like the markets gets insane for the next 10 years. How do I make sure I can survive that even with a lot of our companies go up or the economies do no changes? That goes back to that war chest because markets go like this. Sometimes like, yes, the line through it goes like this. You forget it when you have one of the good ones. Yes, exactly. And we look at slope, but a lot of times like we have down years and you need to be able to weather through those down years.

48:57And there's so many incredible companies that just couldn't survive a couple of bad periods. And you really want to make sure you're not one of those. Your finance team isn't losing money on big mistakes. It's leaking through a thousand tiny decisions. Nobody's watching. Ramp puts guardrails on spending before it happens. Real-time limits, automatic rules, zero firefighting. Try it at ramp.com slash invest. As your business grows, Vanta scales with you. automating compliance and giving you a single source of truth for security and risk. Learn more at vanta.com slash invest. Every investment firm is unique and generic AI doesn't understand your process.

49:33Rogo does. It's an AI platform built specifically for Wall Street, connected to your data, understanding your process and producing real outputs. Check them out at rogo.ai slash invest. The best AI and software companies from OpenAI to Cursor to Perplexity use WorkOS to become enterprise ready overnight, not in months. Visit WorkOS.com to skip the unglamorous infrastructure work and focus on your product. Ridgeline offers one unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance, and more all at scale. Schedule a demo at ridgeline.ai.

50:09If you were in a classroom setting and it was a bunch of founders or would-be founders, And it was a Chatham House Rules off the record session, teaching them about working with investors and what investors care about, how they behave, things to look out for. What would you tell them? I actually feel pretty lucky where at Plaid, in the early days, it showed a pretty hard time fundraising. The first one, I think we probably chatted with like 80, 90 investors and we got rejected. Sometimes I think I have a reputation of being like, oh, like, when it's like somewhat anti-VC, it's actually like not for this one, the truth.

50:40Plaid would not exist without VCs straight up. I just don't necessarily think the VC model is perfect for every single type of company. Or maybe a VC owns 10 % of your company or 20 % of your company. And maybe it employs yourself on like 8%. There are different cuts of this you can make. But I think for me, picking investors is important. I don't think there's a lot of transparency in the environment on like when investors are seven-year timelines, which ones are 10-year timelines, or which ones are actually truly super long-term oriented. So I think figuring that out. But I think the most important thing you should do is say, okay, realistically, what does my margin profile look like?

51:14What is my revenue growth over time? How should I find a capital structure that matches that? And am I actually going to grow at a consistent enough period? Do I want liquidity in 10 years that the venture model makes sense for me? Because the thing that people forget is, yes, growing 100 % on a$10 million base or$20 million base or$30 million base, it's not like that hard. Everybody like shows these graphs on LinkedIn, like, well, the fastest company to get to$100 million of all time. That's awesome. But you know what's like much harder? Growing above 30 % of you off of a billion dollar revenue base.

51:48That is 99 times harder than going to zero and 100 million in three years. However, the venture model only works if you can grow above 30 % off of a billion,$2 billion base. And you have to like really look inside yourself and be like, does my model make sense for that? And can I do that in a way that I can ingest hundreds of millions, if not billions of dollars of capital on the way and put really good use to that? Because like sometimes businesses grow at the rate of the market or businesses grow differently than just dollar and dollar out. And the venture model is built off of fact of you can make a company like an ATM, which is you put in a dollar, you get a dollar 30 back.

52:32That's not the case with most markets. And so I think you have to look really intensely at yourself and your business to make sure that works. And there's so many amazing tech companies that works for it. And that's why that venture is a really good asset class. And Silicon Valley is probably like the best place to accumulate capital of anywhere in the entire world, probably throughout all history. But that's not every single business. And you have to look really intensely at yourself in order to do that. Given your unique perch, what have you learned about how the world works through the lens of this dollar focus, this demand for dollars being the operating system for the global dollar system?

53:03through the lens of the dollar. What are your takes on the ways the world works or interest you that might surprise people? What the dollar does, it connects countries in very interesting ways. I think in the U.S., when you can pretty much just build an incredible company by the U.S. alone, you lose that perspective. If you look at the official stats, most economies spend less than 10 % of their GDP trading with their neighbors. and that's been a big focus point of the OECD over the while. But when you actually dig into it, the unofficial trade that's going on over government rails, it's actually closer to 90%.

53:40It just shows like how trade and how money and how lots of like really connects these cultures and connects these societies. And I find that like super fascinating. We can talk about how that's impactful in a lot of ways, but that is something that we don't really get in the US because the US has this very unique luxury. We can almost somewhat sustain ourselves like you can sustain businesses only building for yourself. The U.S. market is just so fantastic. I am so long in the U.S., as I'm sure anybody building, you can sustain yourself. You become a billionaire by like never truly ever leaving America or never interact with anybody outside of America.

54:13And that's what makes America so fucking unique. I don't think we get like how much of a luxury that is. But outside of the world, it is not. And that comes down to trade, that comes to like financial connectivity. That is so impactful and it's so important. And I think you also forget how reliant the world is on the U.S. financial system. Let's take two insanely developed countries. Let's take Qatar and let's take Switzerland, okay? You're shipping gas from Qatar to Switzerland. I would argue right now, probably neither one of these countries love America like a ton. That trade is nominated in dollars.

54:53The money that's moving from Switzerland to Qatar, Glencore to Qatar, the Qatari Gas Company, crosses the U.S. financial institutions. It's crazy to think about. Let's think about who maybe are two, like, quote, unquote, enemies, like China, Russia. China is a big importer of Russian gas and oil. It's kind of crazy to think about. That trade is still denominated for a vast majority in the U.S. dollar. That's mind-boggling. That's a luxury, and that's such an insane national security strategy that nobody else has. Russia doesn't want Chinese currency. China definitely doesn't want the ruble. They really have access to it.

55:34They almost like hate each other as much as they hate us. And the fact that they then choose a dollar is still so critical. Then you could argue that like maybe the dollar's eroding over time, stuff like that, but still in the vast majority, it's like 75 % of global trade still is in the dollar. That's crazy. And we don't recognize that. The soft power the American has or even the hard power the American has with that is so fundamental to our life and the fact that we have such a strong economy. Do you talk to your team as though this is part of the mission, that almost like national security is part of the mission because of the importance of the dollar?

56:07A hundred percent. One of the best shifts I think Silicon Valley has done is we now are like, Silicon Valley, we take an active role in the national security of the country. We didn't six, seven years ago, even though like American society, American GDP growth is even more than ever completely indexed on the success of Silicon Valley. Probably too much. It's way too levered in that regard. But now Silicon Valley, whether it be social media, whether it be defense or whether it be software or whatever, we're starting to recognize our role in the world. And financial services is probably the most important component of that.

56:41Even as any general I have, They want to use a sanction before they use a missile. The great thing about a sanction, the great thing about the dollar, you can enforce American dominance without putting boots on the ground, without putting anybody at risk. And sometimes you're showing Venezuela, you kind of need both. The reason we were able to go to Venezuela is because we had fundamentally destroyed the economy before. How? Sanctions. We had completely collapsed their ability to export oil. We completely collapsed their ability to actually trade with other people. That friction is real. And so when we went in there, Venezuelan people were probably like, yeah, okay, we good.

57:16We're maybe not gonna try to shoot these helicopters from the sky. We're pretty happy here. That is fundamentally so amazing. If France wants to shut down another country in order to go like enforce their will, they have an option. Well, they have two options, which is don't drink our wine and here's some missiles, okay? The missiles can enforce their will. They have a strong military, the strong special forces, they can go do that. But their lives, the special forces on the ground, they're gonna have a much harder time because they haven't, in many ways, controlled that economy before. And that is so, so unique to the U.S.

57:48And I think China's obviously developing this with trade and exports. One of the things that China can do is they can start to enforce their will by shutting down a country from exports. That is real. And so I think China has definitely this increasing might, but the strength of the dollar in the issue of that is so fundamental for national security. And in many ways, we don't talk about it because it's a little bit uncomfortable truth. The global bank doesn't want to sit up and say, we're part of the national security strategy because if the government tells us to, we're going to collapse this economy.

58:13That's not like a fun narrative that people want, but I think there's a way to tell that narrative that says we are a weapon that can be used like when our citizens come to harm, when we need to do something that is like super important for the U.S. interests. And we are part of that strategy just in the same way that Palantir is part of that strategy, Lockheed Martin's part of that strategy, Boeing's part of that strategy. And financial services is the key pillar. You can argue that financial services is like the first end to war-torn country. We start with sanctions. We start cutting them off from the U.S.

58:40trade. We start with that before we put boots on the ground. What do you then hope is the future of global financial services? Obviously, you're actively building the technology backbone for it. But if you think big picture, how do you hope the system changes? What would be best for it? I still hope it's very U.S.-bound. And I think we sometimes want to believe this world where there's a lot of people in Silicon Valley that I fundamentally disagree with that want to put the power of financial services outside of the U.S. and the U.S. has a lot of problems that we can spend hours talking about.

59:13I still think we're the greatest country in the world and we have changed the power every four years. We change our mind on stuff. Yes, there's some problems, but we're still the best place to be. And I think we are the ones that we should still have the nuclear weapons. We should still have the nuclear weapons of financial services, which is we control the world's trade. And I hope that continues to exist. And I think if we don't, I think if it just hands in the power of other people, I think that's a scary place. And I don't think people have really thought through the ramifications of that.

59:42If you look at most countries, financial services is still power, but it ends up just accumulating to government officials. It ended up just accumulating in the power like a very small elite. And say what you will about the US, and there's probably way too much power concentration in certain industries. Financial services is actually quite fragmented. JP Morgan's the largest financial services country in the US, but like, it's not that dominant. It's still pretty diversified. Take Canada. 95 % of Canadians have four banks. Take Australia, it's a bit more concentrated. You go to most countries, it's a bit more concentrated than that.

1:00:14We do have a little bit in financial services today, a relatively decentralized financial services system. It should still keep fragmenting, right? We should still disperse the financial power throughout multiple U.S. corporations, multiple U.S. people. We need to do a better job there. But we're actually starting from a pretty good baseline. The other thing I tell people is there's this narrative like, oh, financial services is fundamentally broken. Our institutions are actually pretty damn good. There's this narrative sometimes people talk about. It's like, oh, U.S. financial services. It's like built on like cobalt and stuff like this.

1:00:41It's just not. It's like a fun talking point. I rack my own hardware at the Federal Reserve and all these like places. There's no cobalt in a lot of these places. It's actually pretty good. I've gone on the record talking about this. The Fed has a pretty good tech team. Their systems are actually pretty good. You think about the U.S. right now through the Fed has a capability to move money and to clear money throughout all these institutions 24-7. Faster than stable coins, faster than crypto. Right now, as we speak. We've had that for decades. Systems are very good, extremely reliant. They're fantastic.

1:01:11I think it's very challenging for Silicon Valley to build something better. The problem isn't in the fundamental infrastructure. It's in our implementation of it. the reason why community banks can't send money 24-7 isn't because the technology doesn't exist at the Fed. It's because there are constraints in those business models that make it very challenging of them to do. Give you an example. If you can send money out of your community bank 24-7, well, that bank could run on a weekend. I don't know if you guys have ever been to a rural community, the community bank with 50 people. You can't get people to work on the weekends.

1:01:50if you're JP Morgan, if you're Stripe, yeah, you can manage 24 seven liquidity. But if you're a small community bank, you can't have that. And so I think people conflate, we don't have something, we don't have access to something with, we don't have the fundamental ability to do that. But actually the reason is implementation, not the underlying infrastructure. I feel like because of your unique setup as a business and your unique focus on the boring problem, as you described, you have such interesting perspective on so many things. Is there anything that we haven't covered either about company building or the way that the world works that you think is interesting that we've missed?

1:02:28One of the things that I think about, AI is here, we're much closer to ASI than people think. And it's gonna be on the tidal wave through the economy. You have to think about what's the implications of your business. And I think in my perspective, if you're not a researcher, if you're not a lab, how do you play? I actually don't think, quote unquote, AI companies are very set up for success. That's actually probably not where value is going to accrue. The value is going to accrue like in two areas. Most important area, do you have massive distribution? Because if you have massive distribution, if you have massive costs, AI is going to be a massive benefit.

1:03:05And so the thing I think a lot about is how do you think about, not just from a software perspective, but from a distribution perspective and a brand perspective that you would best capture to utilize AI? Because I think people talk a lot about the railroads. Yes, the value accrued to the railroads. Yes, the value accrued to the ISPs. Yes, the value accrued to the people like building the mobile phones. But the value actually accrued to the people that could harness that the best. The value in railroads accrued to the oil companies. That's a little bit hard to fundamentally understand. The standard oil is the biggest beneficiary, biggest boon for railroads by an order of magnitude.

1:03:40What is the equivalent area for AI? And I sometimes don't think we're focused on that enough. Hot take here, I think like the biggest, fattest, most inefficient brands are even the best beneficiary of AI because brands have a massive moat and man, there's a lot of costs to cut there. How do you think AI will most affect financial services specifically, maybe even just your own products and services? Financial services, especially at large banks, they suffer from the fact that the business model is too good. Banks are pretty profitable. Financial services, it's like, if you're like on a bank and you aren't profitable, like that's a problem.

1:04:11You've clearly done something wrong. Like the business model fundamentally is really good. that's made them laggards in a lot of ways. But it also, I think, makes their massive opportunity where I think financial services and legacy banks tend to be the largest inefficiencies out there. They also are very hard to take over. There's not a lot of private equity activity in financial services because it's highly regulated. And so I think the large banks that can actually effectively harness that are going to be some of the largest beneficiaries because banks don't have a lot of physical assets. Places have massive capex and physical assets.

1:04:43It's hard to tell a good AI story there. How's AI going to make railroads more efficient if 99 % of your money is spent on fuel, track maintenance, and people like the human cost in railroads is like de minimis. You take conductors down from 1 ,000 to 500, doesn't like change the equation at all. But if you think about a traditional bank, it's pretty headcount focused and it's pretty technology focused. That's where a majority of the money goes to. The actual physical branch infrastructure is such a minority of your balance sheet. I do think they will be either the most disrupted are probably actually like the largest beneficiaries.

1:05:14And so the banks that are like most effectively run have the largest distribution and the largest cost structure are going to be the largest beneficiaries. I think the UX of financial services will change a lot because people think, oh my gosh, my bank is hard to use. My bank is hard to move money. It's like slow to move money. That's actually a feature, not a bug. I think what FinTech sometimes start with is they start with, hey, we're gonna make it like super easy to like super free to move money all over the place. It actually starts to slow down. The reason it slows down is because fraud is like super expensive.

1:05:44And if you make it like really easy for your grandma to send money to somebody in Nigeria, yes, that's great for remittances, but that's like really bad for romance scams. That's really bad for fraud. But I do think with AI, we can actually build those detection models like a lot better. And so it's probably less likely your grandma is going to fall prey to elder abuse. And if the banks don't have to optimize so much for that, and it comes a little bit for free, we can actually make the UX better for everybody else. Because we have the technology right now to make financial services almost entirely instant and like entirely friction-free.

1:06:17All the friction is actually built to protect the 5 to 10 % of consumers that can get hurt. People forget that. But I think if we can build models that are just as good a human at detecting that stuff, and that can happen instantly, we can actually take that tail away. And it actually is massively beneficial for everybody else. I think it's a good time to be a new entrepreneur in financial services? Anybody who tells you that it's a bad time to be an entrepreneur, that probably means it's a good time to be an entrepreneur. If you look at, there's all these stats on Twitter that I'm sure people have seen, where the best companies are created in the worst environments.

1:06:51And I think that's generally true. It is cheaper than ever to be an entrepreneur. It's like the least grisky time to be an entrepreneur. It's also pretty crowded, but you might look at like the last YC batch. I'm sure like 90 plus percent of them were like AI related. So yeah, I think it's actually probably a pretty good time to be a founder in a non-AI related place right now because there's less competition, less smart people. If you want to be successful, you can go look at every single industry and you can say, okay, who is the dumbest people and what makes the most money? And if you go attack that area, probably pretty good space.

1:07:30The problem is sometimes Silicon Valley or founders, you look and say like, hey, we're all the smartest people. That's maybe like a cool space. That's probably like the most crowded with the smartest people. And so your ability to compete, your competition is pretty intense. YC puts out this request for startups. My recommendation is like, that should be a list of startups you should not start. Because by the time that gets so consensus that this is a good area or super interesting, the amount of capital and the amount of smart people is like moth the light. I would almost go the opposite way.

1:08:03Hey, YC, I love you guys. Please continue to fund our customers. You guys are amazing. But as a founder, I would maybe be a little bit skeptical. I think your perspective is so unique and interesting. I always love talking to you. I always find it very inspirational on the dimensions of just really going your own way, but also just the willingness to fall in love with some part of the world and get devoted to it and just outlearn everybody and stick with it. I love your diversification strategy of a liquid plaid and a liquid column. I think you know my traditional closing question. What is the kindest thing that anyone's ever done for you?

1:08:34I've had a lot of kind of people in my life, but I think it's challenging to not look back and be like, oh, like your mom and dad are like the kindest people. My mom and dad did not have the most straightforward life. They're not the easiest. And my childhood could have been a lot more difficult than it was because I think they insulated me from a lot of things that were going on. I had that lovely childhood and I feel super lucky for that. And I think we were talking about it a little bit. As a founder, you have to be willing to take on risk. And if you grew up in an environment of fear, if you grew up in an environment where you were constantly de-risking when you were a little kid, it's very challenging to feel comfortable going up the risk spectrum as you're an adult.

1:09:15And I feel very lucky my mom and dad did that. They also taught us, like, it's okay to fall. It's okay to be punched in the face. Like, see these? They're all fake. And that time I got punched in the face and I've lost teeth, it was honestly crazy. It's embarrassing. But I'm like, you know, I was pretty good at getting a punch in the face. And you can only teach that as a little kid. You can only have that childhood that makes that comfortable in a very specific environment. I have a six-month-old, and as I look at my peers and look at everybody else, we are quite obsessed with creating this perfect environment for our children.

1:09:47We send them to the best schools. They have the nicest people in their lives. And that is valuable. but we may be creating children that can do linear algebra at seven. And I guess it's like going to be great AI researchers. But is that what we're going to need in 20 years from now? Or do we want kids that are going to be pretty good at taking risks, that are going to be pretty good at being punched in the face? And I think my parents did a really good job at that. And I feel very lucky for that. If I copy all of my peers, I don't know if that's the path we're going to go down. And I think the fact that I am pretty damn resilient is a complete product of my parents.

1:10:21And I think that's a huge gift. and I feel super lucky for them every day. A beautiful place to close. Thank you for your time. Thank you. If you enjoyed this episode, visit Colossus.com. You'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn more at Colossus.com slash subscribe.

1:11:06you know how small advantages compound over time that's true in investing and just as true in how you run your company your spending system is your capital allocation strategy ramp makes it smarter by default better data better decisions better economics over time see how at ramp.com slash As your business grows, Vanta scales with you, automating compliance and giving you a single source of truth for security and risk. Learn more at Vanta.com slash invest. Ridgeline is redefining asset management technology as a true partner, not just a software vendor. They've helped firms 5x in scale, enabling faster growth, smarter operations and a competitive edge.

1:11:41Visit RidgelineApps.com to see what they can unlock for your firm. The best AI and software companies from OpenAI to Cursor to Perplexity use WorkOS to become enterprise ready overnight, not in months. visit workos.com to skip the unglamorous infrastructure work and focus on your product every investment firm is unique and generic ai doesn't understand your process rogo does it's an ai platform built specifically for wall street connected to your data understanding your process and producing real outputs check them out at rogo.ai invest