Financial Freedom, Company Building, More with David Marcus

0:01No big team has ever built in software anything meaningful. It's always a small group of people that has zero process or very little process and flat organizations and those are the best times. Freedom of speech is something we talk a lot about but financial freedom is as important if not more important. Lots of projects are taking risk in building here without the clarity that what their building is actually going to be approved or tolerated by regulators. We shouldn't undersell what it is. If you have digital gold at scale, plus the global money protocol, payment protocol for the internet running on top of this thing, that in itself is huge.

0:49Humanity changing, huge. Every year, our crypto team runs a 12 -week accelerator designed for the specific needs of what three startups. And while only a select group of founders get to participate in crypto startup school, today we're opening up one of these sessions to listeners. David Marcus, the CEO of LightSpark and co -creator of DM, formerly Libra, has had a diverse career journey from tech startups in Europe to leading PayPal and Facebook's messaging unit. But a consistent thread that runs through his roles is a commitment to building and open protocol for digital payments, which he thinks still look like the telecom industry pre -internet.

1:30So today, you'll get to hear David's original pitch to Mark Zuckerberg, something possibly never said publicly before. But also, why the project got renamed so many times, and his take on why Libra didn't work. Together with Web 3 with A16Z host, Sonal Chauksy, you'll also hear David discuss the intricacies of company building, the dynamics of decentralization and centralization, the pursuit of financial freedom, and his take on Bitcoin today. All topics that builders everywhere can take advantage of. This episode does come from a sister podcast, Web 3 with A16Z, so for more episodes just like this, make sure to go check out Web 3 with A16Z or ever you get your podcasts.

2:14I hope you enjoy.

2:20Welcome to Web 3 with A6 and Z, a show about building the next generation of the internet from the team at A6 and Z crypto that includes me, your host, Donald Chaxi. Today's episode is a wide -ranging conversation on company building big to small, including how often and when to ship, to the relationship between centralization, decentralization and platforms, to moving from Web 2 to Web 3 in both crypto and payments, as well as Y Bitcoin, views on remote work, and much, much more. Because it's an interview with David Marcus, CEO and co -founder of LightSpark, which is building infrastructure for the Lightning Network to extend the capabilities and utility of Bitcoin, Marcus was also a co -creator of DM, aka Libra, the cryptocurrency project initiated by Facebook.

3:04Before that, he was vice president of messaging products there, where he ran the Facebook Messenger Unit, and Prior to joining Facebook, Marcus was a former president of PayPal. Our format is a conversation where I just helped kick things off, but I left more time midway for a rich, interesting set of questions from the audience, as this originally took place live on stage at our crypto startup school a couple months ago. As a reminder, none of the following should be taken as investment, legal, business, or tax advice. Please see a6nz .com slash disclosures for more important information including a link to a list of our investments.

3:39Thank you so much for joining us today, David. My pleasure. We're really honored to have of you here today. And just to kick us off, I want to spend some time just laying the ground. When people hear about your career, it seems kind of random, like what ties it all together. I'd love for you to share with us the through line. Yeah, it actually all makes sense. It was a method to the madness. Yes, there is a method to the madness. So basically, look, I started companies, tech startups, when I was back in Europe. And the last one that I did was actually, at the intersection of messaging and payments because it was a payments company that built on top of mobile operators, billing capabilities, and was integrated into premium SMS and mobile messaging.

4:24And in 2007, when the iPhone came out, I was like, okay, we're not going to sell ringtones and wallpapers anymore because you have an actual device that has access to the internet. So I moved to the US, built a company into a payments company that was zoned, that got acquired by PayPal. At the time it got acquired by PayPal, I thought I was going to stick around for a year and then go back to building a startup. But the CEO of PayPal then left to Ranyahu and unexpected to me, I was asked to replace him and run the company. And so I had to go from managing 250 people at most to 17 ,000 people. Wow.

5:03Which was kind of an interesting thing. But then I realized that after a while that actually there's this political campaign expression of shaking hands and kissing babies. That wasn't really for me, you know, just managing processes and just culture and not being closer to the product. So I was ready to go back to building startups when Mark asked me to join Facebook and join him to start building messaging products at Facebook. And so I did that. And then after a few years, it basically reached its cruising altitude. We had about a billion and a half users. We had found a business model for messaging in the West, which wasn't that obvious.

5:48And it felt like it was really going to be doing well on its own. And that's when I got really excited about this idea of building an open payments protocol for the internet with Libra and sold Mark on the idea. And then we tried to actually sell this to governments and regulators who were not super enthused with the idea to say at least. And when we failed, I left to actually come and do what I'm doing now with Lightsport. So it has like a little bit of a method to the madness. I want to probe you a little bit more and some more specific connections between payments and crypto, but before I do, I do want to ask about Libra.

6:28I think many of us in the room are probably very curious. And I know you've talked about it before, but like, why do you think it didn't work? So actually, I don't know whether I said this publicly before, but my original pitch to Mark was actually to do it outside of Facebook and for Facebook to own a minority stake into a company that would go and develop the idea. And I remember saying, actually, if we do it from here, It's going to be a very, very difficult uphill battle. Yeah. And that was in early 2018, and Facebook's reputation after that got even worse for a period of time. I think now it's a lot better, but for a period of time got really worse.

7:10And it was still worth a shot, right? Because when do you get a chance to actually go build a standard protocol that might be adopted in the world because Facebook had 3 .5 billion people using its products every month. And as such, if we were to actually succeed, it would have truly become the open payment protocol for the internet that we all hoped should exist. Right. So it was worth a try. Yeah. And we sure did try. That's the one thing. I feel like I have no regrets. I was about to ask you if you did. I have no regrets because I feel like, first of all, I've learned a ton. Yeah. And it was the most intellectually stimulating, almost four years of my life, hands down.

7:54And I met amazing people, and we went to battle together. And many of these people are actually with me at Lights Park now. And you asked why it failed. I think the association with Facebook was just too much for regulators and governments. And it was definitely a political kill job, 100%. Yeah, based on who was the promoter of the project. That's good to know. Okay. I think that scratches that edge. I have to just also ask a quick kind of curiosity check because a lot of people in the room right now are building their companies. They're probably thinking about branding and naming. Why did the project go from, I don't even know the order, but like Libra to DM to Novi or the other way around.

8:35I often joke that I don't want to rename anything the rest of my life because I've done enough of it. But a lot of people said the narrative was actually a lot around like, oh, this thing got rebranded so that it becomes more palatable, right? Yeah. But actually it wasn't that. It's like, let me put it in a short way. Someone really messed up. Uh -huh. And as such, we needed to change the name. Got it. So given the threat of your career so far, payments, messaging, crypto, in shifting to crypto full time. And of course, you did that at Facebook, but as a startup founder, it's most definitely a different game.

9:14What is the biggest sort of, oh my God, I really didn't expect this for you. So, for me, what matters at the end of the day is, and I think that applies to probably everyone here in the room, is you need to find the thing that really pisses you off about the world, right? The thing that is really broken, that you want to go fix. And for me, I've reached the conclusion that the one thing that I'm going to dedicate the rest of my life to at this point is really making an open protocol for payments on the internet happen. Because it's an anomaly in the world. It leaves too many people behind. It's unfair.

9:55And basically, the world of payments right now looks like the telecoms industry pre -internet. You had a bunch of large companies that were the only ones that had access to the underlying transport network and were able to set the prices. And at the time, we used to pay a dollar a minute for an international call, 25 cents per text messages. And then the internet happened and it enabled the innovation that we're all benefiting from right now and consumers benefited greatly. And right now, the underlying infrastructure that we use for the vast majority of payments in the world today in 2023 was built in the late 60s and 70s.

10:32And that's unacceptable. And so when you find something that really, really fires you up every morning that you want to go fix, and especially if you've had the opportunity, let me put it this way, to be in a position of failure after having tried really hard, then that doubles down the amount of that you want to put in to actually make it happen. Yeah, you really want to make it work. But also what I'm hearing you say there, it feels cliche, but it's not. You have to really believe so strongly in that mission to deal with the ups and downs of a startup. Because if you're doing just like a spreadsheet and then I'm going to identify this business to solve, you may lose your emoji after a while.

11:13A lot you have to do. So on payments, I love thinking about the infrastructure and the analogy, especially of like this is what telecoms were then. But as a user, I am pretty satisfied personally. Like I like going to my store, just Apple Pay. I actually love PayPal. Like what's really broken about payments? Because it feels fine to me. You know, I think that if you'd asked people whether they had a need for better communications at the time they were sending faxes, they would say no, it's fine, it works. I can send a message, it comes out in a piece of paper on the other side of the world. Why would I need email?

11:51and WhatsApp and video messaging and all of these wonderful things, right? And I think the same is true, but you bring up a good point, which is in the US, we have a very distorted vision of what the vast majority of people in the world are experiencing. The vast majority in the world would love a chase account denominated in dollars, but they don't. It's like the vast majority of people around the world are experiencing super -high inflation, hyperinflation, they're experiencing governments that are basically screwing them again and again and again because they're devaluating their currency and they don't have safe and sound money.

12:33They rely on the cash economy. They get mugged all the time because they live in high -prime areas and because there's no technological solution to address this like a good sound safe digital money that you can transmit over the internet, right? And that's the reality that most people, the vast majority of people in the world are experiencing. Yeah. But even in here in the US, like there's still no interoperability protocol for money. If you were using the cash app, then you can send to only other cash app consumers or users, you can't go and send money across apps, the same way you send an email from Gmail to Yahoo or any other domain, right?

13:11Is that a neutral open protocol? Yeah, there's no open protocol for value, for money, for payments on the internet, which is nuts. Yeah, it is nuts. And gosh, what do you think, especially given your former role and what you're doing now of PayPal's moves to essentially deep platform users and payments? I never thought I would see a day where this would happen in the US. Like I was pretty shocked. Yeah, well, I think this is just a sign of times. and why crypto in general is actually very relevant to the world right now. Because you need to decentralize the decision -making on what someone likes or what someone doesn't like, whether it's speech, money, and freedom of speech is something we talk a lot about.

14:00But financial freedom is as important if not more important. Yeah. And, you know, it's one thing that you get censored off of a platform that you use to communicate. It's another if people take your money away. So the work that we're all doing in this space is actually super important for humanity in general for our society. Great contacts. Let's now go a little deeper into the specifics to those of us working in crypto specifically. Another question that's top of mind, and obviously huge Bitcoin fan, but why Bitcoin? What does it give you that you think you can't get elsewhere? As probably the only A16Z investment in Bitcoin, I can talk to that.

14:41Look, I feel like it depends what you're building. If you're building in Web3 and you're trying to build functionality around that, then Bitcoin is probably not the right choice. But if you're building for money and payments, then it's the only choice in my mind. And I have absolute conviction. Tell us why. Well, I mean, first of all, when it comes to money and payments, as we've experienced with Libra, I still like to call it Libra. Yeah. Yeah. You can't offer any surface of attack, because otherwise that's going to be leveraged to stop it. And when it comes to money, people are highly motivated in not enabling money to move in a free way.

15:25And as such, if you look at any other chain, you have people that you can get to, that you can apply pressure to. You have companies that are very prominent and Bitcoin is the only chain that doesn't have a visible leader. I hope we'll never know who Satoshi was or is and is the most decentralized chain out there. And arguably, I think that for money application, proof of work is a far superior consensus algorithm if we can call it that. Yeah. Then, uh, N -E -V -M's and others. So I think that the only way that you build a true open payment protocol for the internet is to build it on something that is as decentralized and as leaderless as Bitcoin.

16:13Yeah. And, you know, just for clarification, I mean, technically any decentralized cryptocurrency is leaderless in that it could operate just fine, but your point is well taken. And again, if you're building NFTs or gaming applications, all kinds of different applications that look for decentralized platform, then Bitcoin is not the place, Ethereum and other EVMs are the places to actually go build that. I think that money is a whole different story and the level of opposition that you'll find if you're building money things is just far greater than any of these other things. Yeah, like what you said about how there's this built -in resistance to money moving around, it immediately made me think of gravity and this idea that money has this inertia associated with it.

17:01Just have to do so much to the system to be able to enable it to move simply because of how nothing is interoperable by default for all the reasons you just outlined. I never thought of it that way. There's a reason why money still moves on infrastructure that was built in the 60s and 70s, and that reason is not technological. Is it regulatory capture? It's, you know, yeah, you can call it that. It's pretty clear that there's a lot of vested interest in things staying the way they are right now. Let's put this way. All right. So a lot of the people in this room are also thinking in terms of product.

17:34When you think about this particular application that you're building and given your entire vantage point of everything you've worked on until now, people tend to say design UX. You talk about in your guy's work, about enterprise grade, what do these things mean? And what do you think builders in this space need to do? And I would love to hear an answer that goes beyond, we need better design in UX. Because I love that answer, but I hear it all the time. And so I challenge us to build better on that. Well, I feel that in our industry, we've taken a very inside -out view of the world. Basically, a lot of times, it's a solution in search for a problem.

18:09Yes. And not something that is actually mainstream. It's also not really internalizing what the expectations of either consumers or enterprises actually are. And so you have to meet people where they are. You have to build a product and an experience that is actually what people need. And so in our case, we're building on lightning, it's a fast, open, interoperable, dirt -cheap protocol for payments that is really great, but it's really amazingly hard to use. It's a channel -based payment system and no one understands what that means to actually lock up liquidity in channels, find other parties to open a channel with them with inbound liquidity so you can receive payments.

18:55All of these things are not things that people or enterprises have come to expect or are prepared to even deal with in terms of the level of complexity. And so you have to go and really see what you need to do to get to mainstream adoption, not what you can do or what you think you should do. And I find that in our industry, not enough people are actually doing that. In some cases, you have crypto products that are so hard to use, come to wonder whether it's almost like a ride of passage, like you can figure it out, you're one of us. Yes. So you can actually use the product, but if you can't figure it out, like you really not.

19:33I think that's absolutely true, especially of on -chain gaming currently. But in the case of payments, that would be absolutely awful. So when you sell your product, then like who are the customers? A lot of people in this room are figuring that out. Yeah. So right now, we don't want to touch consumers. We want to stay at the center of the network and try to make it really, really easy to use this wonderful open payment protocol. And right now, there are a number of builders that are building on top of Bitcoin things that were not existing like, ordinals. and the equivalent of the RC -20 tokens that are being built on top of Bitcoin.

20:08And that's clogging up Bitcoin because it was not really designed for that. And the fees are going up and the mempool is getting backed up. And as such, you need an escape valve and lightning is great for that. So right now, the clients that are onboarding our platform, our exchanges, their wallet operators, and we shipped our product three weeks ago. And then this happened literally last week, and this is amazing. When do you get such a good alignment of stars? Oh, that's really great. So early on, you mentioned that you went from 250 people at PayPal, I mean, to your startup that was acquired by PayPal to suddenly 17 ,000 people.

20:50Then you were at Facebook where you started this separate project, you ran a massive business unit, and now you're at a startup again with 29 people. Yeah. What would you say when you think about this transition from small to big to small? What kind of takeaways do you have for people, especially again in this room? We're all kind of in the same phase of just starting out. That small is great. It's really the best. It's no big team has ever built in software anything meaningful. That's right. It's always a small team. It's always a small group of people. It's always a small group of people that has zero process or very little process and flat organizations.

21:33And those are the best times. For instance, we're very principled in how we hire. We are really hiring only the people we need. And we know we're going to need for a very long period of time, rather than overhiring prematurely, because I think that that in nine times out of ten leads to premature death of companies. And so staying small for as long as possible is really actually a massively underrated competitive advantage. You know, when you scale past a certain stage, you don't have 100 % of the people who are there because they believe in the mission. You start to have people who are there because they think it's a good paycheck and they have stability and good healthcare plans.

22:15And you know, that's when you know that you enter the different phase. but I personally really enjoy no overhead, small teams, hardcore types of experiences, and that's where I have the most fun, and I feel that you get the most stuff done. That sounds like for everyone in this room, this is your time to enjoy that phase. Okay, so lightning round before we open it up to questions, I'm gonna give you like a quick prod or prompt, and I would love to hear like a super quick like lightning style answer. What is the worst advice you've ever received as a founder, either now or in your early days when you were starting out.

22:53I got so many bad advice. Ah! One interesting story. So, at some point, I got an invitation to join in very, very early days, the Board of Shopify, which is a company that I really admire. And I think the world of Toby and the team there. And one of my mentors at the time was like, oh, you shouldn't join a board that's not in the same time zone or in the same place, because otherwise, you know. And so I'm like, you know, this guy has a lot more experience than I do. Oh, no. And so I turned that down at a time where it was pre -IPO, it would have been a great, fun, valuable ride. And I did it. So, you know, that's one advice.

23:35That's terrible advice. I can't believe, honestly, I can't believe you fell for it. I'm sorry, that's terrible time. Yeah, right. And I'm like, what do I do? I'm giving you a hard time. Okay, now what is a piece of advice that you heard over and over again early on, but that you believe that founders will always hear, but they never believe it. When they hear it, they kind of have to experience it in order to really realize this advice. Okay, I think that stuff like I talked about around like really holding your horses on hiring and overgrowing. But then you're in a thing where you've raised too much money.

24:11and you don't have the fear of death of your company at the end of the year or at the end of a period of time, which is a great motivator to actually find product market fit, iterate fast, be hardcore, work nights and weekends and get things done. And you believe that to get to that point instead, you need to hire more people. And then you go in all kinds of other directions instead of being focused on one singular thing. And at the same time, when you hit a vein and you find product market fit and you have the resources to scale, then you need to do it in a responsible way, not in an irresponsible way.

24:49And so just trying to really understand the place you're at in the life cycle of your company is really critical. I think that's one of the things. And then I feel like the one thing that is actually advice that people can hear, especially if you're a startup founder around really manifesting the reality that you want. Because so many times you're actually as a company, you're about to die and you need to make magic happen to actually get your company to the next stage. And you have to believe it yourself. Because if you don't believe it yourself, if you don't project it, if you don't see it yourself, then you won't be able to make it happen.

25:31So really, really trying to project where you're going and see through the wall that you need to actually get through is really a very important ability that successful startup founders have. Great. I want to make sure we leave time for the room. So one quick note before I switch into that, you alluded to it subtly. the regulatory aspects, whether for Libra or regulatory capture in the payments industry or any of these other things. What do you make of the current regulatory environment, especially given where you are now? You've seen it all. Yeah, look, I think that it's a shame for this country to be in a place of non -competitiveness for the lack of a better formulation.

26:19Some of the biggest technological revolutions of our generation happened here in the US. And right now we're not in a place to compete because we don't have regulatory clarity. So lots of projects are taking risk and building here without the clarity that's what their building is actually going to be approved or tolerated by regulators. And in the meantime, you have a lot of other jurisdictions that are really, really driving competitiveness. And like you can see it in Singapore, now in Hong Kong, where you see China really taking 180 on the matter, because they see Singapore leading and they feel like Hong Kong is to be back in the game.