Prof G Markets: First Time Founders with Ed Elson — ft. Eli Wachs of Footprint

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1:06This week's number, 322 ,000. That's how many hours e-commerce company Shopify is attempting to save by rolling out a calendar on employee calendars that shows how much each meeting costs the company. I have a corner office with a view. I'm a bus driver.

1:35Welcome to Prop G Markets. Ed, what's going on today? We've got something new for our listeners this week, Scott. We spend a lot of our time on this show discussing public companies, macro conditions, and other big-ticket stories. But we wanted to gain more insight into early-stage business and investment. So the team's been working on a pilot of a new concept called First Time Founders. I've spent the last couple months speaking with entrepreneurs about their businesses and what it's like to found a company. And we've got the first of those interviews ready today with Eli Wax, the founder of Footprint, which helps people and companies store and manage personal data online.

2:10We're going to listen to this interview and then we'll come back for your reaction and perhaps you'll give us some advice for the founder. You have started nine businesses after all, so we're hoping to tap into that expertise. Okay. Last year, we wrote a post on No Mercy No Malice about identity, specifically online identity. Scott pointed out that the internet is one of the few places on earth where you can operate with complete anonymity. There are few social media platforms that require you to verify your identity, and on many platforms you can simply pretend to be someone else. This is largely why bots and hate speech are such an issue online.

2:48Now Scott's thesis was that this is a problem, but also a solvable problem. He believes we could fix the internet by requiring identity verification online. And that's a statement many considered controversial, but also one that 80 % of the US population supports. Regardless, if an internet company decided they did want to verify their customers, the question is, how would they do it? Well, I'm pleased to say today's guest is Eli Wax, whose company is answering exactly that question. Eli is the founder and CEO of Footprint, a digital identity and security tool that allows companies to onboard and verify their customers with just one click.

3:26Eli, thanks for coming on. Ed, thanks for having me. I was worried if I got dinner with you enough times, you'd be scared to get to know me. Honored and thrilled you had me on. Absolutely. The dinner was sealed the deal for me. So let's just start with this. What does Footprint do footprint helps companies we say onboard users and offload the cost and risk of storing that data what that also means is we're offloading them storing a lot of your personal information so that's what we do in a nutshell and for people we're the last identity form they ever fill out um as you said it'd be really tedious and burdensome of every time you went to create an account you had to fill along information fill out your information given that presumably it shouldn't change.

4:13And we feel the same way. And that's what we've tried to build over here at Fultprint. How did you come up with this idea? What was the inspiration? I became really interested in privacy back in 2016, around the 2016 election, Cambridge Analytica scandal. There was a lot of talk around what should privacy look like online. And I actually disagreed with a lot of the sentiment. There's a lot around how do we legislate away and regulate data, and kind of, I think there are a lot of people who wanted the world to look like DuckDuckGo and look, it's a great platform, but to me, that is very powerful.

4:49There's a reason why it exists. And I actually became more upset with maybe what Google didn't do with my data than what they did do with it. Google is probably one of the best predictors in the world if we'll get things like Parkinson's from your capture test or your finger tremors and your type rate over time. And around that time, I had a family member get sick and luckily got it early. I became very obsessed with this idea of figuring out how do we put people in control of their data? And that's really what sent me on this path to footprint. You mentioned DuckDuckGo. I'm not sure everyone knows what that is.

5:18Can you explain what DuckDuckGo is? Yeah, it's both a children's song, I believe. And for this purpose, I'm bad with analogies, so maybe it's not. I think it's something like Ring Around the Rosie. And then it's a search engine, which doesn't have any, pretty much, it doesn't collect any data. There are no targeted advertisements. Okay, so you talk a lot about this idea of KYC. that's a big mission statement for the company which stands for know your customer can you give us like the general picture on what kyc is and why it matters on the internet kyc it strangely kind of stems from the patriot act in a way uh so it comes from almost a national defense bill or at least the definition that we use today of it kyc stands for know your customer essentially it's this idea where if you are a fintech or if you're a bank and if you're a fintech you're probably using a bank.

6:08The U.S. wants to make sure that people who have access to banking rails and the ability to move money are quote-unquote good actors. They're people who can be trusted. They're people who aren't going to be using it to launder money. They're not on any sanctions lists. And that's how it started. And I think kind of a level down was it was seen as a way to kind of do we trust the people who are letting to use our platform. I think we've seen in the past maybe 10 to 15 years as there have been companies that have really stepped up to solve KYC. we saw them really just be a checkbox yeah they confirmed that the identity entered matches identity in a database that's not really solving the real issue um whether it's what you spoke about at the intro around are we trusting the people who are on twitter are are real people and it's not really solving the problem of are we trusting uh that my uber driver right uh or is is a trustworthy person all we've really confirmed is that the information they use to sign up matches information in the database yeah and that's kind of what we saw is really wrong kind of to me it's strange that companies that were verifying people also weren't fraud detection companies and it seems disjointed to me and that's what it's done and it's led to what we say this world of looking for like bad actors uh which is inherent like know your customer it's like a sherlock holmes mystery to find the bad people the problem is that it's never ending there's an infinite amount of fake identities to be made conversely there's a finite amount of real people two of us are talking right now we know how many people live in new york we know how many people live in this country and what's going forward is we're trying to make this closed loop ecosystem so that we know the moment a second ed appears one of you two has to be lined because only one of you can have the identity yeah and once you've established that source of truth then you can do other things without needing to fully reprove that again yeah i mean when you look at the way that the entire world works it's like your identity is crucial for literally everything you do, right?

8:02It's like, if you want to buy a car, if you want to drive a car, you got to register all of your information, and they put it on a card, and then you got to show them the card. If you want to get a drink, you have to prove that you're a certain age. If you want to buy a house, if you want to open a bank account, they have to do a credit check, they have to learn about who you are. Why is it that when the internet was built, that we decided that we don't care about that so much? Why is that such a crucial part of the rest of society? And then for whatever reason, on the internet, we don't like to think about identity.

8:41We don't want people to have to prove who they are. It's a really good question. And I would even extend it a step further. In the real world, you kind of described more as a happy scenario where you're trying to rent a car for the summer or you're trying to buy a drink. There's also this scenario where I steal a car. and presumably if I did that, I wouldn't be allowed, it'd be tougher for me to, you know, step within a hundred feet of a Ford dealership. But the internet said, there's really no repercussions. I'd say fraud's close to free. Or fraud's about 50 bucks. That's how much it costs to get like a pack of fake identity trading cards on the dark web.

9:15And that's the other thing. I'd like to say that, you know, everybody's very naive and they just didn't think about this and the footprint team came to save the day. I don't think that's true. I think people have thought about this. I think that the technology hasn't really been there to be able to accommodate it. And that, you know, Footprint, we're known for bringing one-click KYC, where the ability to verify yourself once, and then going forward, you just use Face ID on your phone. That's only possible, though, if you have secure auth. And pretty much the standards we tap into, it's Fido2, which comes from WebAuthn, which out getting too nerdy, is kind of this alliance of Google, Apple, even Microsoft.

9:54and they finally agreed to this common standard essentially of Q4 of last year. So it's not even that long that we've had it. What's interesting is the underlying protocol of WebAuthn, Google implemented it back in 2008. And at the time, Google was struggling with phishing attacks. And since they implemented it, they had no internal phishing attacks. And why that's important is that, you know, when people used to ask me about maybe like, why aren't you doing footprint on blockchain? yeah i mean it's like well i don't want to accidentally send my identity to the wrong person and then it doesn't really do me good that i can see who i sent it to me either because they have my identity i think you actually do need a strong centralized arbiter here right but you need that strong real and that's kind of what past keys have unlocked for us in the past kind of seven months and we do that in conjunction with some other things that that enable us to to kind of have that fidelity because like you said it's strange that the internet's supposed to be about undoing monotonous tasks that we normally have to do physically.

10:54But identity seems to be the opposite of that. Like there are so many things we have to prove our identity for online that we don't even think about in person. Yeah. So a few things. One, you talked about blockchain and it feels like the whole point of blockchain, one of the key, the central points of blockchain was to remove the need for KYC, was to remove the need for basically having to trust someone, like you're describing in a transaction, oh, you won't need to trust them because it's verified and it's on the blockchain. Now, we've sort of seen this play out. That didn't really work. There's probably no industry more fraudulent than the crypto industry.

11:33But it still raises this question of it's a shame and it's a pain and it's annoying that when you transact with someone on the internet, you have to somehow trust them. And it's easier when we transact in real life where, you know, you're face-to-face with someone, you look at the store owner, you pay them the cash, or in any other transaction where there's maybe in banking, where you feel like maybe there's some institutional credibility, you believe that the transaction is real. But you're basically saying, to customers at least, you can trust us. so my question would be why should customers trust you it's a great question so when you say customers it could mean two people it can mean like the businesses that we sell to and it can be their end customers i think that second question is one that we will never be able to fully be happy with and that it's like we have to prove every day yeah uh i said a company is built on trust i publish my very long philosophical investor updates that nobody asked for but i say you know if if you're going to trust me with your ssn you deserve to get to know my rambling thoughts of love and light the shadow self you likely won't like what you find but i think you deserve a chance we publish our pricing we publish pretty in-depth articles about our technology i think it's something that we try to operate with transparency there you know even you can log in and you can it's not going to be that interesting but you can see which company accessed your data for what reason we actually find that companies like that more as like a they know everything they do will be recorded to an audit log and they like that both for accountability and for compliance reasons but i think that's one and then on the other for why can companies trust us you know i guess going back to what you said to start there like i feel more comfortable ruffling the crypto feathers now that like i feel like i don't have to be in like a hushed voice talking about it me too i feel like back into 2021 it'd be like you'd have to say like the password to be like oh this person also doesn't believe in this uh now now we can be more more about it yeah exactly and i think like at the end of the day you had to understand that uh if you're verifying someone's identity regardless if you know it or not experian lexus nexus and the social security administration are probably involved yeah and good luck convincing those folks to uh start kind of theory it's like from the start like it was like there wasn't a a change in my opinion.

14:00And I think the second is that you have to rerun the verification each time. So we even say we don't make KYC portable, we make PII portable. I think that's a very key distinction because we really view ourselves as a data operability platform. So why do companies trust us? I think it's twofold. One is that we do things which become much more valuable than just a checkmark. We work with some companies where they maybe feel like locked into a payment processor. And they'll use footprint. We don't do KYC. we collect information, we give them a flow, they have more options of where they end up going.

14:33I think that the next step I'd go is, and this may be a fun line for a podcast, but I say, and I'd like to qualify this by saying this is an anti-NRA line. But I say that to steal a line that the NRA uses improperly, I'm about to use in context, businesses and bank accounts don't commit fraud people commit fraud yep and that's not a lot of water than we left the air i don't like and we need to ban them but what i think is important is that it's kind of crazy that you know if you go and speak to ramp uh or cap chase about the fraud it's the vast majority is uh like fake three-person businesses which means it's somebody who created a fake three-person business with the interesting money product right if you they're fascinating stories about how hotels and rental car companies like oftentimes like do multi-month moratoriums of chime cards because people will just create a chime account they'll rent the car with the deposit and they'll pull the money in advance aca trot is a fascinatingly kind of easy thing to do because there's no repercussion your chime bank account gets shut down guess what we're in the world of fintech you can create 20 more accounts the next day.

15:49What's more about Footprint is we link those accounts back to the identity. We'll be right back.

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17:39Who are your clients? What kind of company wants to use Footprint? Yes, I mean, companies that we've spoken about today, you spoke about renting a car. We work with a company that helps you lease cars. We work with companies that are investment companies, whether you're looking for real estate, whether you're looking for stocks, all the way through to marketplaces, which you may not even think about. They're not, even though they're facilitating payments, they're more so verifying people to establish trust of the people inside their marketplace. Because as you said, we're transacting with people and now we're doing things like getting in their car, staying in their home.

18:19And you probably want to make sure that there was a bit of a check done. You're going to be in for a surprise if you end up in my apartment. You're going to be sad that I wasn't vetted. and that's not just because of the construction going on above uh and what's interesting is we we scale up and scale down and and that is a very light sentence but let me let me maybe add something to it let's go up footprint is your your footprint grows so if you sign up for a footprint to say hey get a credit card you probably entered your like name your date of birth your address your social security number cool let's say you then go to rent a car you're going to need to submit a driver's license.

18:55When you go to do that, we're going to bypass collecting name, date of birth, address social. We're going to go right to driver's license. You're going to submit that. Then let's say you're going to trade stocks. You need to answer your income, your risk appetite. You're going to answer just those questions. You don't have to answer any of those things ever again. Now, let's say you then go and create just like on a marketplace where they actually don't really care about the other things. They just need access to your name, your email, your date of birth. We can do that. You'll only grant access to those three things, but it's with that fidelity badge that Footprints verified the rest.

19:29So that marketplace, that social media company, they don't need to know that. They don't have access to it, but we've already linked that to a real person. And let's go about Footprint as our technology. We know how many identities are on your device. So if you try to sign up for a second with a second identity, that's a flag to us. And that's how we think about it. And how do you make money doing that? Who's paying you? So companies pay us. If you're onboarding someone, you need to do KYC. So we get paid each time you verify someone, and then we get paid for storing the data. We're a security company, we offload that storage.

20:01We like to think that eventually we're moving KYC from part of your customer acquisition to very small tax of the LTV of the consumer net. We boost conversion a lot, both with trust, by removing friction, by increasing security. And where in the business trajectory would you say you are right now? Like how many employees do you have? How much do you think this thing can grow? Where do you hope to land in the next few years or so? we're a 15 person company today we're about 16 months old we've now been live for about four and a half months we're growing pretty quickly double-digit customers revenue is ramping up a good amount we now have like our line of sight to our like first like million plus portable identities and to me that's always been a extremely arbitrary number i picked as like let's see if we can get here i think next is the goal of you know to me if we're having this chat in double the company history.

20:57Let's say we're in another 18 months. I want to have line of sight to 10 million portable identities, another arbitrary number. I'm plucking under the sky. To me, I've said, obviously a lot of the appeal to footprint is this network effect. And I think people, so from the beginning, how do you think about a cold start problem? And my honest answer has been, I don't go to bed agonizing about a cold start problem. So I go to bed thinking about, you know, how do we build the best onboarding experience? And how do we build the best security for data operability? And that's what our goal is. We want to be like a type form for onboarding.

21:34And we want to be like a segment for your data and do both of those best in class. And if we can do that, that's when I get very excited about, you know, being an identity layer to the internet for both businesses, what it means for them to be able to really trust the people they're letting in be an onboarding platform for all of fintechs and collect all that in just five lines of code. And then for people, I think that there's a lot of long-term stuff that I get really excited about from kind of putting people in control of their identity. I think in the short term, we think footprint kind of at scale becomes like this built-in lifelock as a service.

22:11And that we know when somebody is trying to take your identity, I jokingly call it the dual. I've said that we'll send everybody a jousting uniform and all get to prove that I'm the real Eli. But there's billions of identity theft a year. It often happens to the elderly. It often happens to more vulnerable. That number should start going down. I really view it as a big failure. There are all these big companies in the space that have been operating for 10 years, and their revenue may be going up. But identity theft is also going up. And to me, I don't know another industry where their cardinal metric keeps going up and they view what they're doing as successful.

22:50And I say that I think it's an incentive issue. I think that KYC companies are fraud detection, not fraud prevention companies. Because when they detect fraud, they sell you more products to find more fraud. Footprint by contrast, because we're doing the security too, we're a data operability platform. We're an onboarding platform. We play with different incentives. I think that's important because at the end of the day, we're serving people. And it's also to me by building that trust and by being open and transparent, this becomes a much more solvable numbers game. Like by the time we've done 300 million verifications, we should know who's who, not in a big state way, but just in a like who should be allowed to open accounts way.

23:30There's so many companies in our states that have done far more verifications that, but they don't know that because in a way they're not even incentivized to. Yeah. One thing that it makes me think about is, I mean, earlier you were mentioning the idea of face ID on our phones. And there's this big sentiment among people right now, which is, oh, don't give your data over to big tech platforms. You can't trust them. But then at the same time, we are literally using our biometric identity to open up our iPhones every day. And now we're putting our credit card information into our phones and we're uploading our wallet information.

24:07We're using our phones as basically a tool to do everything. And the only reason that we can do that is because we have decided to trust Apple with our identity, which is a long way of saying, do you fear that Apple could eat your lunch here, basically? That they're just going to double down on storing everyone's data? And if so, how do you overcome that? if apple decides they want to do this and really invest tough day for us at the office i'm i'm gonna be honest about that apple are the most brilliant privacy copywriters in the world and i mean that complimentary and begrudgingly i wrote my whole senior thesis in history about like the history of apple and private oh wow and i think what you said is really interesting which is that if you were to walk up to someone on the street and say who has more of your data facebook or Apple.

25:06I think the common thought is Facebook. They're the ones who did the election stuff. Facebook has nothing. They know that I clicked on one rogue ad. Apple has my health data. They have my payment. They have credit cards. But we trust them. It's because they've really invested in that. Apple, they just used the privacy's iPhone commercial as their legal defense against Epic. It worked. i mean it works the apple apple claimed that they need to charge people a 30 cut because that's privacy that's iphone it's it's it's remarkable now what i'll say is i i in the spirit of transparency i wrote a whole investor update called uh about apple last fall and it's my whole argument laying out why they totally could do it but also i don't think they they will and i think there are a couple reasons i think one is that apple has many things it is currently not an enterprise security company and that's what the other part of this is uh you know it's not just the account creation it's then does apple want to proxy data on behalf of a credit card company to fiserv they may be okay with that uh is it does apple want to uh proxy information on behalf of a broker dealer to irs at the end of the year it's stuff that they haven't done yet more so i think that apple is really smart about having the option to go into a space and purposely not doing it so they can do the bigger space i think apple cares a lot more about uh like apple banking uh and like owning that that then owning like the onboarding ramp to it yeah uh like it's similar to like i think apple cares more about like selling apple devices to enterprises and owning mobile device management so they can claim that they don't own everything that they touch yeah uh and i think then the other thing to keep in mind is android still is pretty decent market share and globally Android has far more market share.

27:01So if you're a company, then even if Apple really goes into this, you're going to need then a vendor for the non-IOS people. And that's something that, you know, just will need to be solved anyway. And I think that's why Apple doesn't present the full solution. I think that they're going to become an increasingly important part of it that we're excited for. I think what Apple is doing with mobile driver's licenses is fantastic. It's going to be a huge milestone for the company. It's why we, from the beginning, have really looked forward to having built what's called App Clips is we can go in and fetch them.

27:32So I think Apple is going to make the identity industry a lot better. If they decide to crush us, that will not be a fun day in the office. But I think there are reasons that they're not going to. Because the other thing is Apple, as masters of PR, they don't want to onboard the wrong person. Or they don't want to block the right person. So it gets into just waters that I think they prefer to stay out of. Yeah, exactly. It also feels like, you know, the incentives from the consumer perspective are, do you want to give your data to the company that's trying to sell phones? Or do you want to give your data to the company who has a financial incentive to protect your data?

28:15And it's sort of like, you've found the right incentives there. At least I, from a consumer perspective, would rather be giving my data to a company whose incentives are aligned. But company aside, I want to move on to just you as a person and as a founder. And that's sort of what this podcast is ultimately getting at, which is what is it like to be a founder? And I want people who are considering becoming a founder to sort of understand what type of journey they're embarking on. so let's start with you mentioned that you uh came up with the business plan in college and then two years later you actually started the business why did you decide that you wanted to start a company in the first place i did not always think i was going to start a company i tell a very clean narrative of how i started to come read a book in ninth grade and then i cold emailed the author and i started a company and then i went to stanford and i started a company there.

29:16And the dots are really clean in hindsight. They were not clean in real time. That's a great way to put it. And I think it's why, you know, when I speak to people and they say, I really want to start a company, I'm not sure if that's the right mindset in that it's tough. And like, I think that's good. I don't say that as a pity thing. I do believe in life that we mostly are what we want and like, we choose what we want. And I said it more so as like, if you're just doing it, because it seems fun like i i think you're in for a bit of a surprise like i will be when apple releases um i think that i was just interested in this space and kind of i remember back my junior year of school like i i got very interested in gdpr and like i signed up for a very nerdy like law class about it could you just allow me just explain what gdpr is for the listeners yeah Yeah, this isn't making me seem fun.