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This episode of Founders' Field Guide is brought to you by Doc Sent Dioxin is the standard for founders to share their pitch decks with VCs when they are raising capital with Docs and you control who has access to your fundraising materials. And you always know what's happening with your pitch deck after you send it to VCs, actually open it. What slides did they spend the most time on? Did they share it with others? Founders are using docs and to fundraise, but also to share investor updates with their board or to send their sales pitches to prospects for better security and engagement.

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I personally know a number of successful startups that have been able to raise using docs and check out docs and dotcom to start your free trial if you're curious to hear more about docs and stay tuned at the end of this episode where I talk to Docs and CEO Ross Huddleston.

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Hello and welcome everyone.

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I'm Patrick O'Shaughnessy and this is founder, CEO, Guy Founders. Field Guide is a series of conversations with founders, CEOs and operators building great businesses. I believe we are all builders in our own way. And this series is dedicated to stories and lessons from builders of all types. You can find more episodes at Investor Field Guide dot com.

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Patrick O'Shaughnessy is the CEO of O'Shannassy Asset Management, all opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shannassy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shannassy Asset Management may maintain positions in the securities discussed in this podcast.

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I guess this week is Zach Paré, the founder and CEO of Plaid Plaid helps companies build fintech solutions by creating APIs that allow people to connect their financial data to apps and services. In this conversation, we dive into Zack's philosophy on building products, how the financial system works today, how the financial system needs to be updated, and the trends Zach is seeing from the next wave of fintech companies launching unplayed. I hope you enjoy this great conversation with Zach Paré.

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So, Zach, you said something that piqued my interest, which is this notion you got from your parents of great challenges, can you describe what that idea is and why it's relevant for your life?

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My parents are really wonderful and both musicians. So there is me a little bit of a strange way. It was very much a kind of treat the child as a mini adult. They gave me adult books quite early. One of the things that my dad always framed was this concept of great challenges. What are the great challenges out there that you're going to go tackle or go work on? And as a kid, that makes you a really good kid.

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And also really weird, by the way, because you talk about all of these things that none of your friends care about, but a few of the ones that really intrigued me as a kid were interplanetary exploration, for example, for this irrational amount of time, I wanted to be an astronaut, which was fantastically fun, but like to the point that I was like twenty two, twenty three still thinking about how can I become an astronaut. Aging was one that really captured my attention, particularly in college.

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There's a lot of work in the natural sciences focusing, thinking about that, learning, economic empowerment and financial freedom. That's the foundation to plan. And as we ended up founding plan, it was one of the things that really drew me towards the company, towards the opportunity, this concept that we could help consumers live better financial lives and frankly, be happier. If you look at the surveys, the number one or the number two most stressful thing in a consumer's life day to day is money.

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And the ability to help people have greater financial freedom was fantastically interesting. So this concept of great challenges is this little oddity that my father instilled in us has been very helpful in how I think about the world.

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How did he do that? Literally, what was the routine that installed that idea into your brain as a kid? What did he do as a parent? It seems like something good to do for one's kids.

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My dad loved to just ask questions and ask questions and try to go towards the Bay State or get back to first principles is what people talk about now. But for him, it was just like always asking the next question, always asking why. I always ask him what's the bigger picture and how do we zoom out? And he was one of these people that had fantastic depth in so many things. He would take me in a walk and you could walk through the woods and he could name every single tree that was there.

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And then he would start talking about ecological systems and then pull up to why climate change is this thing that we need to be thinking about. And that is another one of the great challenges that we talk about that a little bit more. So I don't know why it I don't know how, but one of the characteristics that he had of raising kids was just constantly asking why, how what happens next? What's the next question? Where does this path go?

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Used another term, I think, for students default consumptive state. Can you describe what that means and how that relates to this constant asking of questions?

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I kind of describe myself or rather perhaps my fiance. It describes me this way as having a default consumptive state where I by default love to understand new systems or learn. So I have always either a book in the hand or listening to a podcast or a book on tape, particularly. Love your podcast. Through that, I get exposed to a lot of different things. It means that I have one percent understanding of many, many topics, so scratching the surface and a lot of areas.

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And when I think about having flomo, it's largely just not having time to go explore many of these much more deeply. But perhaps developing something.

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State status is a negative because it means a lot of things coming at you really quickly all the time. But I found it to be the way that I probably best characterized my downtime.

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Seems like there's probably an unfair advantage for people that like to do that these days because there's so much information out there to be consumed that if you have high energy, your appetite for that consumption, like you just you just get like a default advantage. But maybe there are negatives, too, right? Who knows? I'm curious how both these things, the consumptive state and the great challenges figure into the we'll call it day one of Platt. How did the idea for plaid come to be?

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What are the important early milestones or things that you think back on as important for its founding and the founding idea?

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Plaid was a fortunate series of accidents with a great deal of hard work and a very clear sense of purpose. My co-founder William and I first started working on things in financial services. We didn't have any idea that we would land on this business as it is, nor did we frankly ever have any idea that we would land a real company that could make real money and scale in the way that I did scales. In the earliest days, we set out to just build a series of consumer financial products that consumers would kind of utilize day to day in order to live a more informed financial life.

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You could think of this perhaps as just building Mint 2.0 or building budgeting application 2.0 or something that would give the consumer a bit more data about their financial sector. Today, we didn't think about building a platform. We didn't think about building a B2B service. We thought about building something directly for consumers. And that was kind of through the realization that consumers were fundamentally unhappy with financial services. Our first office was just off of Union Square in New York City, and every day this was 2012.

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Every day we would walk through Occupy Wall Street protests and you would hear people screaming about how they were frustrated with the financial system. They were frustrated with the banks, and most importantly, they didn't. Feel like they were getting the quality of service that they needed or they deserved for us. That was a huge motivating factor. We set out to build a series of consumer financial applications that helps people, again, better understand their money along the way.

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A few things happened. One, no one liked our apps because largely our apps would say things like spend a little bit less or you should save a little bit more, being one that, despite being interested in many things, do not understand consumer psychology all that well.

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We didn't predict that consumers would immediately just delete the app, if that's what I told them in part two was that we had some really wonderful friends, came along and said, hey, know, consumer apps are kind of dumb, but the back end to your consumer apps, which was frankly the hardest thing that we did, which is how do we get data from banks and make it such that the data becomes machine readable and useful? These friends came to us and said, hey, can we license the back into what do we think?

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That would be quite valuable. That led us to this concept of building a platform that enables fintech or digital financial applications to interact directly with consumer data, to allow consumers to directly upload their data into these digital financial applications and then get a great deal of value out of them. One of their friends basically said, hey, look, your consumer apps are we'd like to pay you, though, for your back end. Can you please build that? Being the young, scrappy entrepreneurs that we were, we were completely out of money and had very few prospects for what was next.

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So he said, yes, if someone will pay us to do a thing and we'll go down this path. So in that sense, a great deal of luck led us to this.

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But in realizing that other people were able to build great digital financial applications, despite the fact that we had failed to do so before we landed on this concept of by enabling thousands of digital financial applications to exist, we can fundamentally, in a huge way increase the value that consumers get out of their financial lives because they now have choice, they now have options, and there's competition such that many applications are out there all competing to do good on behalf of consumers, and that for us led us towards this concept of financial freedom, economic empowerment.

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How do we help consumers live the financial life that they want to live long term?

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When I think of that, I often think of the various I'm sure everyone listening done this. They've logged on to some app on their phone. That's a financial application, a million different options. You connect to your bank account, so you connect to Bank of America and the little click through that you do to pick the bank, the logo and then type in your login information. That's plat. That's what you build. That's sort of how I think about it.

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At the simplest level, how do you think about the plaid product original and sort of current lineup? Well, I think that's exactly right.

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What you just described, plaid is a massive infrastructure, a company that has a on our good days five second and our bad days. Fifteen second user experience embedded in every single digital financial application form substantially many digital financial applications. I should say that very small experience is all about allowing consumers to connect their account very, very simply. But then the majority of the work we do is actually on an ongoing basis. So let's say you are, for example, using a budgeting application, what you want in that budgeting application to be able to see how much money you have in your account, how much you're spending, so and so forth.

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That is the backend data that plan is collecting. And all of that comes after that initial user experience of linking the account. But likewise, that same concept of needing to access your own financial data via a different third party application is incredibly prevalent across different portions of financial services. So everything from opening a new bank account, how do you actually go and fund that bank account? Well, you need to link your existing account to thinking about how you might transfer funds to your brokerage by your first Bitcoin, perhaps to even more broadly thinking about how you pay people, how you transact with friends, how you apply for loans.

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Interesting thing that we've had is actually a lot of car dealerships have come to us over the past couple of years thinking about I want to build a new real time way to give on the car loans. We've actually had this saying every company, Xfinity Company or certainly is relying on a fintech company because truly fintech has become so pervasive throughout every enterprise that every enterprise himself either has a financial customer relationship that they have to manage or they have some sort of supplier or they have a payroll service or they have some sort of stored value or something else where they are sitting on top of a stack of digital financial service providers.

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And our hope is that that is enabling many of this.

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It strikes me as an incredibly hard thing to get going the amount of complexity in the early days to say nothing of. We're talking about banks and people's money, very sensitive personal credentials and passwords and all these sorts of things. Can you talk me through how the hell you got through that variety of challenges early on to sort of build trust, I guess, both with consumers and banks and all the stakeholders in the ecosystem?

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Well, there's no magic bullet to doing that. The answer is, frankly, just hard work and continued focus. And the best way to build trust is to constantly deliver on the promise that you make for us. That was finding ways to go build this infrastructure in a way that hadn't been built before. And there's certainly no one had a really high expectation of and deliver on that product promise one by one, and then many by many and then at scale and so forth.

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And so that for us was foundational to building trust. Of course, we built a fantastic security compliance infrastructure team, we focused very closely on privacy and enabling consumers to be in charge of their own data, to put it where they want it to go and then to pull it back when they don't want it to be in that place anymore. And that for us has all been foundational to how we think about this. And really, it ties in with our mission and our focus on financial freedom.

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One of the biggest challenges that plot had along the way is that no one believed that our market would be as big as it ever became when we went out and pitched to VCs for four full funding rounds, many of them, and in some cases almost every single one of them rejected plan because they didn't believe that our market was big enough. There was a trope in this speak over the past few years to say that they wanted to find companies that were attacking really big markets.

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Only in the past 12 months or so, people started to talk about market growth rates. And for us, that was what we pitched the entire time. You said that we believe that digital financial services is going to be really, really important and we believe that nonbanks will be able to build digital financial applications that serve consumers really well. The majority of VCs didn't actually agree with that for a while. And now we're fortunate to have kind of survived that.

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One of the interesting things that a lot of people give in startup advice, which, by the way, I think most sort of advice is generally wrong, but hopefully it makes you think. But one of the things that people do is they tell what I call just so stories, which is a concept that I stole from evolutionary biology. Just so stories are in evolution. You look at the giraffe and you say, why is the giraffe of the long neck?

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And then you say, well, it's obviously because the draft needs to reach the high leaves. Well, it turns out that was actually just randomness and it was kind of randomness piled on top of this problem to prevent this to actually evolve in that way. So the draft didn't start out by having it long. Just one animal had a slightly longer neck and the next same thing and started. So a lot of people say that this started was brilliant because they went and attacked it in this way and they did these specific things when in reality there was some level of randomness probably inside the company and they were going to recognizing that randomness and capitalizing on that randomness as opposed to having this brilliant, unique insight, the beginning.

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And I think a lot of execution in startups and growth in startups is about recognizing the advantages that have been generated and growing on top of this.

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I think this threat is really interesting. The first customer that pulled your backend out of you and that was just your willingness to go that direction, was recognizing that randomness. Is that a fair example?

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Flood has had so many unfortunate events, and I think we've been maniacally focused on scaling out this really important infrastructure focus on this mission. But there are many things that go right. There are many things go wrong. And what I tell the team is it's all about finding and capitalizing on those things that are right and finding a way to compound the gains that we find as opposed to worrying about when things go wrong here and there. I talked to our team about this concept of architects and farmers, and it's really two somewhat contrasting ideas to how you think about building a product as an architect.

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You come up with this ideal plan and then you go try to build behind it and you know where everything is going to go. And you have this thing perfectly set out in your head. And then when it's finished, you hope that someone wants to live in that house. As a farmer, you see a spread on the ground and you water it, you nurture, you cultivate it. And over time you have this big tree when you hope, by the way, that the tree is the thing that you cultivate and you didn't cultivate some weed.

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And I think an ideal product organization does a little bit of both. And truly, it depends on your market as to how much of one versus the other you need to do. But for us, it plett we think about doing a lot of both of those. So architecture really matters when you're trying to create something that is fundamentally different and new. Yes, it might be informed by customer feedback, but oftentimes you have to drive towards what is the customer actually say, or they might be saying that they want this feature.

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But what's the underlying reason for that request? And can I use all that underlying problem, not the symptom, the former site. Likewise, we'll see these elements of randomness, I guess you could say one of our customers coming to us and saying, hey, can I license that back? End was an element of randomness. Then you just go down the path. You see where it takes you. Sometimes it'll take you nowhere, but oftentimes it'll take you to something that is really quite valuable.

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And I think that the best product organizations are able to marry that concept of former architect. I'll have to come up with a catch phrase for that one day.

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What do you think of, apart from the early customer asking for the back end as the first big break or like seminal change in plans, early days?

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Well, beyond that initial request, one of our first major shifts was having Venmo join and use plaid as one of our first major customers.

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Then what was unique in so many respects, and they really created both the peer to peer payments industry, a recreated, you could say, the peer to peer payments industry, but also they reinforce this concept of money being on a mobile device or money being easily accessible on a mobile device.

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If you think back before Venmo, you had bank applications which allowed you to see your balance and you had mint, I guess you'd say, on the budgeting side, and you didn't have much in between. There weren't any really good mobile first, particularly financial applications. And then you had your cards in your wallet and that was how you paid for everything and how you did everything. Venmo was fantastic in so many ways because it put money on the mobile device.

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It then had a direct connection to the bank account on the back end. Was, of course, utilizing plaid, and it had this massive growth across consumers, it really taught people that fintech was a thing in so many ways. And so we feel so fortunate to have gotten a chance to work with Venmo in the early days, which was a great customer, but more importantly was foundational to thinking about money, being on a mobile device, money being something that is Internet enabled and Internet accessible, money being something that is fun for that.

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Financial services felt like it was something that was like you have to do. You have to think about balancing your budget or like all of these icky things that most consumers don't want to think about day to day. However, money with Venmo where you had emoji in all the payments was a fun thing. That for us was a major break, both in terms of usage of our products, but more importantly, in terms of recognition that fintech was a very large market.

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And it really set the stage for many of the mobile first financial experiences that we have today. So when you look at a company, let's take China, which is another customer, for example, China being a fully mobile first mobile only bank, that may never have happened if foundationally we hadn't gotten this massive growth from then on the early days.

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Can you describe the process of convincing them to work with you? How did you get that done? To what do you attribute the ability to sell a large partner like that? I would assume fairly early in your company's trajectory, Venmo is actually a relatively unique thing for us.

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I think it was one of those point in times that just happens to be exactly right. We started working with the Venmo team when there were maybe 30 people, so they'd been acquired.

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They just finished their second acquisition. So they're acquired by Braintree. And then Braintree was acquired by PayPal and they just finished the second acquisition. But the venture team was still extremely small. So 30 years people, we could build very direct one to one relationships with everyone at the end of the team. And for me, who at the time I had been effectively fired from our engineering team for very good reason, and I had to go figure out how to actually sell things.

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I was kind of our only person that was our target customers. It was great because I could go to the Denver office, just spend a bunch of time with them and build personal relationships with a lot of the people on the team, many of which, by the way, still persists to this day. And I'm a big believer as a startup, building very, very tight relationships with your early customers because they give you so much great feedback and they become your champions and so many of these things that pay off quite a lot in the long term.

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For us, it was frankly just really a sustained relationship building and proof points and getting enough small customers to really prove out the fact that this was a good thing and then asking for a very small deal. So I believe in the earliest days of Venmo, our traffic was extremely restricted. We maybe only had one or two of the banks turned on and I think we gave them six months free or something like that on the contract where they literally were just using the product in some sort of format.

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At some point that flipped to our great well, it's actually working. We want to scale it up. But it wasn't without hiccups along the way because we had to deal with all of the scaling challenges as they grew, as they kind of turned on more and more traffic and as more and more users came to the general app. But for us, it was just a very exciting, very fun early customer discovery journey. And they gave us so much product feedback that we still thank them for this day.

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It reminds me of the whole idea that in many ways, as a startup, often you're betting on your customers, you're going to ride their growth rate as it gets bigger and bigger. It also makes you wonder what the dimensions are of building intimate relationships with customers. Like what did you learn about what moved the needle there? Was it literally just time just talking, asking them questions like what were the key things you think in your experience that drive those tight relationships early on?

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I'm not sure that there's a formula to it. I think that we found a couple of things that worked really well. First is treating customers like people, like friends. And as I said, many of the relationships that we built with our early customers, not just Venmo, but many of our early customers, they truly were friendships. The point that I still keep in touch with a lot of them, whether they're still at that company or have moved on, these are just friendships that we were able to build and that added a lot of value because they'd be very direct.

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They say, hey, this thing's not working. I don't like that feature that you just launched or this great idea for. Have you thought of this so really focusing on friendships, having really high levels of customer engagement that was crucial to us. And then for us, we actually found this weird shift where texting with your customers gets you over a certain relationship hump, where people for some reason on email are not always willing to give a ton of direct feedback.

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The early days you get a customers to actually text us, they would give us a ton of direct feedback. Now, that hasn't scale necessarily and also due to the text with our customers, but in the early phases, that actually got us a lot of really great relationship building.

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Really quickly, I'd love to take a step back and have you just describe the system in which you're now a key player. I think people probably don't appreciate the complexity of how money is moved around in the modern day to the key ecosystem. Players are so there's banks, there's merchants, there's credit card companies, there's companies like plaid. There's a lot going on here. If you try to just abstract it and describe what drives this overall system, because I know you're interested in modernizing it, democratizing it, making it better.

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What are the key levers? What are the key ecosystem players here? Well, how much time do you have is the real question is services is deeply, deeply complex. It is layers upon layers and layers of infrastructure that's been built over the years, some of which has been modernized and some of which hasn't.

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As you think about the ways that money moves in the US, it's different than every other country. And every payment system and financial system is unique in the US. Kind of the majority of our money moves, frankly, over transactions which sit on top of a set of servers that are turned off every evening from 5pm to 9am. This system is a relatively slow and old system, yet it's still the foundation for much of the funds transfer credit. Debit card transactions themselves are actually cleared over later.

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Then on top of that layer of the stack wires, which are a little bit separate, you have bank to bank transfers or Fedwire, which is a unique permutation of it. You have credit debit cards, which are again a huge volume in terms of the number of transactions. But in terms of the dollars of transactions, they're still, I think, not as much as each. And then you have all of these more modern kind of peer to peer ways of paying or cryptocurrency.

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And so it's an impossibly complex system that one cannot fully hold in one's head. Where we play in the system is all around. The data side or role in all of this is kind of plugging into plugging into the data sources that a consumer has, whether that data is stored on your financial history at the bank or it's stored by a kind of non bank but bank like application, we integrate with all those and then pull that data together and focus on creating kind of what we think of as a perhaps data network of understanding where all the funds are actually flowing and what's happening in that system.

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Financial services as a whole, though, has been undergoing this really massive shift towards digital. If you think back to the way that you interacted with your money a decade ago, chances are that you were walking into a bank branch and talking to a banker. You probably had one primary banking relationship and maybe you have a second bank, but it was largely in person, in branch interactions. Fast forward to today and everything is fully digital, but in many cases, particularly in the cases of the small and medium or community banks, it's a digital wrapper on top of a largely paper based or analog digital hybrid.

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On the back end, there are on the order of ten thousand plus or minus financial institutions in the United States, including credit unions and community banks and all of these smaller longtail local banks. And so it is almost impossible to fully digitize that system. But it's been fascinating to watch the digitization wave come along for financial services. And you see some countries, particularly the UK, jumps out as an example that is digitized much faster. And then in the US, we are still because of the breadth and the number of financial institutions, still have a lot of work to do.

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One of the ideas I love in just this kind of company in general is the idea that even though you're introducing a new player, you're charging fees, you still can make the market much bigger by virtue of your presence. Like when I studied the early credit card story in the US, I think it was in the 50s or something. You find that it solved a lot of problems for stauss, even though they're charging whatever was seven percent fees back then, it just caused people to do a lot more transactions.

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Is that kind of what you see in the modern system that because of Platt and other companies that are just making it easier to build these applications and interact more, that sort of the market is just growing? Yeah.

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What's the saying about platforms that platforms create much more economic value than they actually capture? We think of ourselves as a business foundationally as a platform for other companies to stay on top of and within the broad realm of B2B. Most people think B2B means SaaS. And I think that there's this weird portion of B2B that really is a platform where by our existence now many people can build products on top of plaid and those products then can have massive distribution. And foundationally, in the early stages, we were just selling to startups because those were the people that were thinking about creating these brand new digital experiences.

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So we working with Venmo, I guess, to the fact that they had been acquired. They still were a very small team. Robin Hood. I think we started working with Robin Hood when they were three or four people through the existence of a platform. Then many of these applications themselves can launch better or different, or sometimes it's a zero to one concept where without the platform, then the application doesn't even exist. As we think about growing our business, we think what is the first derivative of the growth of the fintech market?

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And we hope and believe that our take rate, our platform fee, you could say, is very modest relative to the economic value that we're creating for all of the applications that are built on top of that. And that's not even considering the downstream effect of the net economic value. It's delivered back to the consumer. So I think we're fortunate as a platform to have almost two waves of outcomes created. So the first wave is the applications that are built into the the second wave is the economic outcomes that are created for the consumers, which are the end users of all of those applications.

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It begs the question of like how plaid works as a business. So I assume that it's similar to I don't I'm going to pick Twilio or Stripe. It's sort of a usage based model when someone uses plaid to log in or maybe when a transaction is facilitated in Robin Hood, that has to go through your pipes. I think of you as having kind of built the pipes behind the scenes here. The digital pipes walk me through. What you think about usage based versus recurring revenue, business models and the relative merits of both.

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I couldn't hope to understand the full merits of either. And there are many businesses that have been built in a very successful way, choosing one or the other. In our case, we've chosen to be entirely based on the value that we deliver. So we want to make money when our customers are making money. And frankly, we don't want to make money and our customers are not making money from our perspective, that is entirely driving down a value based pricing model.

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And so for each kind of bit of data say that an application is requesting on behalf of the consumer, we have some relative rate for that bit of data in that search engine going to be there at one time if you're just getting one time data or recurring basis, if you're getting recurring data. Our revenue model, we try to make really, really well tied in with the value that our customers are gaining from the service and importantly, the value that our customers are gaining in their own businesses.

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I think having a business model that is asynchronous with one's customers becomes really difficult in the long term. And so that's why we've chosen to build these things in the way that we did.

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You have to manage a lot of complexity. We've already talked about that. You're piped in to all these different institutions, banks and otherwise. These institutions all aren't static. They change, their settings change or their systems change. And obviously the consumer doesn't care. They just want something to work. Talk me through, like how you maintain all of this in a way that also allows you to launch new products and stay on top of new customer needs.

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That is one of the most difficult questions that many organizations face, which is investing in the core versus investing and so on and so forth. You're right to say that there's an immense amount of complexity behind what we do and we've spent the better part of eight years now figuring out how to deal with that complexity, realizing that financial institutions, if they're are on the order of 10000 thousand financial institutions in the United States, they all are different and they all change from time to time.

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And at any given moment, one financial institution might be their website might be down or their servers might be down for one reason or another. Inevitably, we try to deliver a ninety nine point nine nine repeating bit of infrastructure on top of a bunch of systems that are 98 99 percent uptime on the other side. Inevitably, there are failures and issues with the infrastructure, and a lot of what we have to do is build in very, very smart and intelligent systems on top of these kind of financial institutions that despite their best efforts, many of them don't actually control their own technology.

[00:29:20]

So they're not in control of their destiny. Many of them are outsourcing their back end technology to a core provider or some consulting firm or something like that. For us, it's about delivering a unified user experience and something that if one of the financial institutions is down, we can fail gracefully in a way that allows the user to still complete the task that they want to complete, but perhaps not in the exact way that they'd initially expected it to be.

[00:29:41]

So that is kind of like one of the core layers of complexity, though, of both our industry and financial services in general. Is that because, again, it's digitization built on top of a stack of analog? Not everything works in exactly the way that one might think that it should because you're a platform and other stuff is getting built on top of plaid.

[00:30:00]

You get to see stuff being built even in the very early days and feel like you have probably an interesting window into the types of financial services applications that maybe most of us haven't heard of yet, or just themes and trends in jobs to be done for the consumer that go beyond the very simple things we might think of when we think of our bank or our brokerage app or the stuff that we're all kind of familiar with. What, if anything, is interesting on the financial services frontier when it comes to consumer jobs to be done specifically?

[00:30:28]

It tends to ebb and flow depending on the phase of the economy that we're in as to which types of services are particularly important. If we rewind 12 months, say there was a huge wave of growth in services about student lending focused on can people manage their loans, can people understand how much they have outstanding, can they consolidate so and so forth? And that was a really fascinating and really important wave of companies. And I suspect that that wave will be back.

[00:30:56]

We went into the early part of covid and immediately it all tilted towards savings and investing where you saw the net consumer savings rate go from something like 30 percent, 30 five percent to in the upper 40s and sometimes in certain demographics crossing 50 percent. And everyone was thinking about how do I put my money into a high yield savings account or how do I perhaps invest in the stock market.

[00:31:18]

During that initial period during Q2 of twenty twenty, you actually saw about three hundred percent growth in certain segments around investing. So you can think of this as kind of the investing applications that are out there.

[00:31:29]

And then you fast forward to now and now we see that all of those student loans are in forbearance. Student lending is not as important of an area. It'll be back because forbearance will end at some point. And these days we're seeing consumers think a lot about forward financial planning. What comes next? How do we think about financial planning for the future? How do we think about being really intelligent with how we invest? We're actually seeing a continued emergence of financial automation tools.

[00:31:54]

What are the tools that'll help me automatically pay my bills, make sure that I don't miss something so on and so forth. And then likewise, we're also seeing a big wave of mortgages being issued, people thinking about how do we issue mortgages more intelligently, this homeownership boom or move boom or refinancing boom, and how long is that going to continue? And then consumers themselves thinking about how do I set up the systems I need to actually take care of all these life changes that I might have just made and make sure that all my bills get paid on time.

[00:32:18]

So it really does depend on where we are in the economic cycle, but we tend to see a new wave of digital financial applications emerging every six to 12 months. I can't predict where the economy will go next, but I am very excited to see what the next wave will bring us.

[00:32:34]

What have you learned about how to sell and build relationships with developers specifically? So most of the time that is being used and integrated into another application by an engineering team. So you're facing a very specific kind of customer. What have you learned about serving that type of customer?

[00:32:51]

Well, developers are a fascinating and incredibly rewarding market to work with in the early phases of the company. In 2012 or so, there weren't very many companies that were focused on selling to developers. Some of the better cases are Twilio and Stripe that were already out there that had said, hey, developers are very important part of the enterprise. And you actually saw the Trulia banners certainly all over San Francisco. But I think they were all over many cities that said, ask your developer.

[00:33:16]

That's actually a it, which was a brilliant piece of marketing for so many reasons. One of the things that we believed early on is that we should build products for developers. Now, I wish that we could say that we had this fantastic insight and we really knew exactly what we're doing. But the reality is we built an API for ourselves inside of this consumer app. Really, as we started to expose that API to others, all we knew how to do is build products that we ourselves really wanted.

[00:33:41]

So we got, again, quite a bit lucky in as much as our early customers were, in fact, the developers themselves. What we realized as we continue to grow is that selling to developers is a fascinating hack to sell into the organization. So instead of selling top down, we have these long enterprise sales cycles. You can actually sell directly to the developer. They'll do an install. They'll then show it to a product manager or perhaps to a head of product.

[00:34:03]

And then the party leader will say, wow, how did you do that? Normally, development cycles take so long, but we built supply in a way that was very easy to install, easy to get to demo, such that we could very quickly generate these bottoms up conversations and for a long time, instead of plan, up until basically a year ago, our entire go to market strategy was what I call selling through the basement, finding a way to go and get just a Mini in just a minute use case, something within the organization and then kind of little by little expanding where we start with in transition and then selling up through the organization with a set of champions.

[00:34:36]

And of course, we've had to now marry that with also selling top down because we have many large enterprises that are building on top of planned selling through the basement. When you have a usage based revenue model is actually a fantastic way to get kind of quite large installs over time, because by getting that initial install and then seeing the usage grow, seeing the additional installs come side by side, your revenue model is already mapped to it. It's not like people have to pay you Pursey, to a per kind of an annual licensing fee is just based on what they're doing and what they're using.

[00:35:02]

So for us, that was a very fortunate way for us to do a lot of the early sales.

[00:35:06]

What do you think is the thing that you've learned about business building specifically where let's say now you're good or strong or something? When you started, you were no good at all? What's been the highest rate of change for your learning around just building a business in a very generic terms, perhaps to answer the question in a recursive way?

[00:35:25]

I think the actual thing that I've learned the most in building the business is how to learn. An important correlate to that is how little I actually know about almost anything.

[00:35:34]

There was an early phase of plaid where the founders, you just do things and you have to get things done in your job as individual contributor. The next phase after that in the history of plaid was one in which I actually couldn't do much because I was not the best at anything except for perhaps one or two skills which are basically recruiting and raise money. Now, I would say actually we spend a ridiculous amount of time on recruiting, and that was one of the things that I think we really got right in the organization is learning how to recruit effectively and recruiting great people.

[00:36:02]

But in that early phase of the company, when we kind of went from being able to do things, you know, having people that were either better than me at it or not being as important, I went from having the job of executing to having the job of what I described as like janitor. Almost the job of the opposition at that point was to get one or two things really, really right where we'd hired great leaders. In our case, getting engineering really, really right was crucial and getting initial same customer growth really, really was crucial.

[00:36:29]

We were getting A's in those areas. And then my job was to make sure that everything else was getting a D minus, but not quite enough. I couldn't make it get a C because then I would be spending too much time on the everything else and then something else was getting an F.. So it just kind of getting D minus is across the board and realizing that you are basically almost failing at almost everything you do for a long enough time.

[00:36:47]

It was a great and incredibly humbling experience for us as a company, and it kind of cemented two really important things. First is learning and just admitting that, you know, very little. You can always learn a lot. There's always more that you can do. And, of course, the importance of recruiting as a kind of subset of learning, because the best way to learn is actually recruiting, and it's amazing how they teach you day to day.

[00:37:06]

The second was this concept of orienting towards spikes. So that actually is one of the core pieces of our recruiting philosophy, which is hiring for spikes. And, you know, as we think about ourselves as an organization, we also think about this concept of being a spiky organization where we are amazing at a few things and we really try to capitalize on those few amazing things that we have. And we're OK not being totally well rounded. So if we are fantastic at one thing, it's OK to not be as good at another thing so long as that thing that you're fantastic on is the most important thing for the company.

[00:37:35]

And likewise, in recruiting, we have hiring for Spike. So we talk about can we hire people that are spiky so they have fantastic strengths. It's more about having fantastic strengths in the absence of weaknesses.

[00:37:44]

What did you learn about successful recruiting process to find spiky people? Were there differences or whether that's where you found them, how you recruited them, how you sold them to join you like any part of that process that you found especially effective for people that have concentrated strengths?

[00:38:00]

In our case, it was a lot of just asking the right question in the earliest phases of recruiting as a company, we had basically no network. And William, my co-founder and I, we kind of sat down one day and said, well, we've somehow raised a small amount of money and we have some customers they want to pay us. But we had basically no one inside the organization, aside from this one really wonderful intern who went on to be a fantastic leader and engineering manager inside the organization.

[00:38:26]

But we had basically No one. It was three of us sitting in this massive office. We realized that we had to figure out how to recruit in a way that we had zero network. So we were not going to get referrals. We hadn't worked at the organizations where we could recruit people yet. We basically got very, very good at recruiting. We went down this path of how do we build an outbound reach out process that gets you in front of people that is effective in activating people.

[00:38:48]

We then built a bunch of actually internal software, which now many companies have built better software for a bunch of internal software for how do we reach out to people, how do we track and manage our process and so forth. And then in the interview process, it was really just about asking questions and looking for excellence. So we would ask questions such as what is the one thing that you're the most proud of in your life or what is the thing that makes you the most excited about when you get to do it?

[00:39:11]

We oftentimes ask these relationship oriented questions, which is what characterizes the best relationship you've ever built in your life. In all of that, what we're looking for are depth in the answer and a great deal of caring about the answer. It might be that someone has never had many experiences, but they've had one experience incredibly deeply. And that oftentimes is a huge strength and something that, if you begin to have your information, can be incredibly, incredibly valuable.

[00:39:32]

Now, I will say the one area that we don't compromise is on principle. So we have a set of company principles. You cannot be spiky on principles. You actually have to be relatively well rounded on our principles and that you can't disagree with one or you can't not embody one of them. Hiring for spikes is around skills and abilities, but again, principles. We do think being well rounded is important.

[00:39:52]

You sit in a very unique seat because you see sort of the matrix behind the financial system. The financial system is sort of the backbone of the capitalist system. I'm just curious what your thoughts are at a very high level on what's working well and what needs changing against this very modern backdrop of digital and maybe covid. And as you just zoom out and you're an interested party in sort of capitalism writ large, what are your thoughts there on good, bad and ugly?

[00:40:20]

First, let's start with some things that are working well. So the Internet economy is working well. That is one of the things I've been particularly impressed by and excited to watch and see grow e-commerce has. We can all read the stories about what's happened to e-commerce and covid, but it's been really good shipping and delivery, despite the fact that there were some initial hiccups, has been quite effective in getting items to people. One of the trends that we've been watching is the engagement of the 50 plus demographic in digital financial services.

[00:40:48]

There have been a number of reports released showing that a 50 plus demographic is engaging with digital financial services. For the first time, these people that we never actually imagined would be a part of our market are now actually going and saying, well, I, I need to use Venmo to pay this person this come to cut my hair on my sidewalk because they don't have a card reader. That example is actually incredibly frequent that we find. So they're using peer to peer payments in order to do that then or catch up or choose your peer to peer payments applications that I think has gone particularly well.

[00:41:17]

I'll avoid commenting on anything related to politics and stimulus. I mean, I think there's a lot of opinions there on what we could do better potentially and what has worked. Well, one of the things that I will say is the bringing of the digital financial lenders into the TPP process has been a really good thing. And I think it's really cemented this concept that digital lending is here to stay. And that's been a really exciting trend for us.

[00:41:40]

When you think about other business models out there, yours is one that is extremely modern. There aren't that many like it. It is modern in almost every sense. But when you think just about businesses writ large, more generally, what other business models interest you? This doesn't need to be in software. It doesn't have to be anywhere. I'm just curious what else you've learned about or been inspired by. Concepts that I've particularly enjoyed learning about and thinking about is just foundationally compounding and understanding how actions can have a ripple effect long term of our businesses.

[00:42:13]

We're fortunate because we get to compound as the growth of our customer base, getting customer and then again we grow is the first derivative of that customer, which is really fascinating. There are many other types of businesses you could take, let's say perhaps a salesforce, for example, that has this incredible compounding engine. So they do first order sales and then their customer growth is kind of their second order sales. This concept of a platform or of the kind of tool that enables growth on the back end has been one of the things that I've definitely thought a great deal about.

[00:42:43]

I love Shopify in that respect. Shopify, despite the fact that they've been fantastic at going out and getting businesses onto the platform, the real magic has been the second order effect of the fact that those businesses then grow. It's almost every day that we hear of. The merchant movie started out as a Kickstarter and then they did a million of sales in the next year and then they figured out advertising. They did 20 million, 50 million of sales in that third year.

[00:43:06]

These businesses that are able to enable others in a way that that generates compounding, I find to be fascinating, as you think about the state of the business now, and obviously it's much different than it was the three of you just figuring it out on your own and having the back end pulled out of you. What advice do you have for other builders that are still the three person team? I'm not asking for a formula here. There is no formula.

[00:43:29]

Maybe it's the answer is just hard work. But reflecting back on the entrepreneurial journey you've been on so far, if and when you talk to new and fresh founders, what do you think is the most important things for them to be focusing on?

[00:43:41]

A few months ago, I was invited by ABC to do this talk, which again, given my comment on just so stories previously, I'm fully qualified to do so. But I was invited to give a talk to a bunch of portfolio companies and I don't think they realized it at the time. But the theme to my talk was don't die. And truly, my advice to the companies is don't die. Find a way to fall forward and continue iterating.

[00:44:01]

There were a few times, many times in history plan where we ran into really tough financial circumstances for one reason or another. Either you couldn't close around or in the very early stages of that, we were sued by a competitor for what was a ridiculous lawsuit, but we basically almost ran out of money there. I think there were four times in the history of plaid where William and I had to turn off our salaries just to make sure that we'd make it through that next phase.

[00:44:24]

I think truly the advice that I'd give to founders is don't die. And simultaneously, as you say, work really hard and that combination can get you dramatically further than you might realize.

[00:44:36]

I love it for its incredible simplicity, but there's so much to do it, I think not dying, being willing to sacrifice, being willing to scrap your way through is powerful, simple, but very powerful advice. What now, looking forward as you think about this default consumptive state, what are the things that you don't understand well today that you wish you did?

[00:44:56]

The financial system is obviously a huge complex and very hard to understand. But some of the things that I've been looking at, we're recently going to show some interest outside of financial services. I've been going relatively deep on trying to understand biotech and how that could potentially change the way that we think about drug discovery going forward and the effects on cancer treatment and so on and so forth. And I've had a lot of fun really just learning a completely new field that I don't personally understand all of that well.

[00:45:24]

But I have been fortunate to find a set of good resources and good people to talk to me about it. Actually, I tend to do this every now and then where I just I'll post on Twitter like, hey, does anyone know anything good about X? X could be a new field or a new way of thinking or process or something like that? I would say that one of the great, great advantages of crowds is that someone always has has a good place to point you.

[00:45:45]

If you think about plot and look forward three years, four years, five years, and the business is ten times the size than it is today. So resounding success to what do you think that's most likely attributable? I'll say the true answer, which is our team and our customers, really all of the success that Plaid has had to date has been as a function of the wonderful people who we somehow tricked into jumping on this journey with us. And then truly, we grow at the grace, I guess you could say, of our customers.

[00:46:16]

And the success that they've had has been truly astounding and fascinating to watch.

[00:46:20]

When I think about the dynamics that will create three to five more years of that, which I am incredibly confident in a few of the really important trends to watch. Well, first is going from zero to one in terms of usage on fintech and covered for us, we suspect will be a very long lasting tailwind. So many people that historically went into a bank branch are now having to use digital financial services to complete their day to day financial needs, apply for loans or choose your service that you need.

[00:46:47]

I suspect that what that means is that a lot of people will now be comfortable doing it going forward.

[00:46:51]

We actually ran a survey relatively recently that showed that something like 80 percent of people believe that they might never actually need to go back to. Bank branch, and likewise, I think it was just under 80, maybe 75 percent of people said that they're going to use digital financial services kind of henceforth for all their financial needs, which is amazing in that sense, covid could well be a big seller of our industry. Some of the other stuff that I'm really excited for is continuing to expand and scale internationally.

[00:47:16]

And then likewise, we are currently building a set of products that are very focused on empowering consumers and helping them understand where their data is going, how it's being used and what they could be using in financial services.

[00:47:29]

I've loved learning about this business and I think everyone listening knows I'm a sucker for anything facing developers. That is a platform in the sense that you described it, meaning it lets other people build very interesting variety of things on top of them and represents, let's call it, very small cost center for the thing being built, but is nonetheless tied to the growth trajectory of those other businesses. I just think that's such a neat modern concept. I asked the same question every single week at the end of the episode.

[00:47:58]

I'm excited for your answer. The question is to ask what the kindest thing that anyone's ever done for you is.

[00:48:03]

I really love that you ask everyone this question and I really enjoyed hearing the answers of some other folks. I was thinking about it a bit before and I think I have two answers and I'm going to try to get away from the standard answer people that are required effectively to help you out along the way. My first answer is actually my now fiancee. When I was starting plaid, William, my girlfriend and I were working pretty insane hours and I'd started dating my fiancee maybe six months, maybe, maybe even less than that, maybe three months before we started the company.

[00:48:35]

I'm not sure if it's a feature, a bug, but oftentimes it tends to be a bug about myself is that I become very, very focused to the point where I can focus on one thing and ignore the entire rest of the world around me. At some point in that process of building the company, the early days, I completely ran out of money. We weren't paying ourselves. We didn't have salaries. To the point that I can put your enough money and actually was in a decent amount of credit card debt is putting a lot of stuff on my credit card.

[00:49:01]

My fiancee, when I kind of realized this, I told her she was like, well, just move in with me. That's the obvious answer. I've been dating this person for three, six months. It was just this incredible thing for her to say that for me, I had forgotten about the world. And then one day I realized, like, wow, I can't actually pay my rent. And I was just terrified. Just kind of that first panic moment in your professional life and within five minutes of having this conversation just completely been solved.

[00:49:26]

And so I'll say my fiancee definitely wins that one. The second, if I may, is frankly the kindness of crowds. So I do this thing where I will just send people cold emails. I'll ask them a question or say like, hey, do you have five minutes to chat about something or hey, I'm really impressed you're interested in this thing that you did. Can I ask you about it? Throughout my career, people have responded. In fact, that's the way that I met you.

[00:49:50]

Patrick has sent an email and we had a conversation and it was a great conversation. And one of the things that I found a huge amount of value in is just being willing to say, hey, I'm really impressed by X that you've done. I would love to ask you some questions. And then from you, could you spare a few minutes? And people are surprisingly willing to do that. So the kind of surprise is definitely awesome. I absolutely love that answer.

[00:50:10]

And it actually makes me want to ask just one closing final question. So we started with your dad and mom's notion of great challenges. How do you think someone that likes that idea and wants to find and tackle one of those things can know when they've found one? How do you think someone can know when they found a great challenge?

[00:50:28]

I think it comes when you can't stop thinking about something. You can't stop it. You can't stop maybe even worrying about something. It's one of the things where you wake up in the middle of night and you're thinking about the challenge.

[00:50:40]

A lot of people might say, I don't know if I'm ready to start a company or I don't know if I could really go chase down this thing. And I don't think that the right answer is to wait until you're necessarily ready to start the company or ready to go work on the thing, but rather to find that you truly, truly care about the challenge so much you truly care. But the question, are you really worried about the problem or concerned about the outcome so much that you're going to push until you find the right idea and right leverage point along the way?

[00:51:08]

I think that this concept of financial empowerment and freedom for us was just one of those things that for quite a long time, in the early phases of the company, I would just wake up thinking about it or be on the news or you walk through, as I said, this protest and I just see this thing right in front of your face that you have to think about something. I mean, clearly at the early stages of founding a company, we totally failed at solving it and then through failing somehow ended up succeeding.

[00:51:32]

But I would say just when you find the challenge that you love, that you can stop thinking about, go do it. I love it.

[00:51:38]

A great place to close. So much fun. A ton. Thank you so much for your time, Zack.

[00:51:41]

This is awesome. Thank you so much, Patrick. This episode was brought to you by Doc, sent in this four part mini series. I sit down with Docs and CEO and co-founder Russ Shettleston to hear the origins of docs and the problems that solving and what the future may hold. In this week's episode, Docs and CEO Russ Henson and I discussed the different. User types that used send and how docs and figured out its pricing model. What are some of the favorite things for you that DOCS enables and for what group that weren't possible before it?

[00:52:09]

I'm thinking perhaps of people raising money here.

[00:52:12]

OK, there's a natural tension between me sharing information with you about my business and I need to do that because if I don't, then you might take the meeting and it's a waste of both of our time and I need to share enough information. So you're excited about or you can say it's fit or not a fit. However, I am less likely to share information with you if we don't already have a relationship and you might be the one person to forward it to the other people that I don't want it to go to.

[00:52:36]

So doxxing really enables there to be more trust early on in these relationships, like specifically in fundraising. And we've just become something of a standard for how you send your pitch text and how you share your data rooms, because I can be more honest with you and give you more information so that you can be more efficient with both our times and do that in a way where I'm not really worried about it and what the consequences might be for that. It's funny.

[00:52:59]

It's like when somebody asks you not to share a PDF, there's almost like a perverse, deep need to share it with at least one person. It feels like a like a secret that you need to pass along, but not out of malice, just like, oh, this is cool.

[00:53:12]

I'm not supposed to share this show to somebody else. What is the actual functionality that you think is most interesting for those raising money in the product? So let's say I have a pitch deck, I'm a founder raising money for my startup. Just walk me through sort of the customer journey of how it's used.

[00:53:27]

Yeah. So the workflow for Ponder's, I need to make a list of investors and then I need to send them my paycheck either through a warm intro or just directly and set up a bunch of meetings. So the functionality and them that really changes the game here is of the thirty investors I send it to, I can see who's reading it for how long. I could then look at the aggregate stats and understand like oh my gosh, everyone's getting stuck on page seven or no one's getting past page nine or like what's happening in aggregate, no one's going to bother to share that with you.

[00:53:55]

So having that information is great. It also allows me to focus my time as a founder on which VCs really care. So let's just say that you, Patrick, tell me that you're going to forward to your partners at your firm. And I'm just crossing my fingers. I'm just really hopeful if you do that. And I can see which of those partners look at it that just tells me, hey, Patrick, I actually did that. If you don't, then I know I might need to go off and talk to other people.

[00:54:20]

The specific features that are useful here, I would probably turn off downloading for you so you can't download it. I would put in dynamic watermarking so that it's watermarked just for you. I would probably have to allow list that says only your firm can look at this. So if you're like, oh, cool, and then you forward it outside your firm, I'll get a notification saying, hey, Patrick just tried to share this with this other person.

[00:54:40]

Do you want to give them access? And I might say, sure, that's fine. Or I might say, like Patrick, you weren't supposed to share it externally. No. And then I'd probably authenticate emails. So you would have to confirm that you, in fact, own the email address you're putting in. And that would probably be the set of features. And then let's say we get farther along in the process. I'd send a link to a space or data room, probably same features.

[00:55:00]

If you need to create an investment memo, I would then go back and turn on downloading for you. And if you said no to me later in the process, I could easily go back and talk. Zendejas turn off all the links I've sent to you, because those links are different than the links that I sent to other investors. So it really kind of centralized in one place. All the information sharing that's happening between me and you and between me and every other potential investor in one spot.

[00:55:21]

And that is just a big time saver. And it also gives a lot of peace of mind around like where are we in the process and how likely am I as a founder to get to a term sheet since twenty eighteen?

[00:55:30]

Is there a use case that stands out as the most surprising that you've observed?

[00:55:34]

Oh, there are a lot. I think one of the things I did not realize was the extent to which venture capitalists use stocks and for their own fundraising. So if you go on Twitter, there's a pretty constant stream of tweets of investors saying, send me the PDF, don't send me the dioxin link, which, oddly enough, kind of is just more advertising for us. But in twenty eighteen and twenty nineteen, over half of all venture capitalists that raised a fund successfully used oxen for their fundraising.

[00:56:01]

That was surprising to me. I did not realize we had such a large market share there. And another interesting thing for me is that thirty percent of our revenue is international and we haven't even internationalized the product. But the need is everywhere. Doesn't matter if you're in China or Europe. Everyone, as you put it, is sending attachments is part of their business workflows.

[00:56:20]

Can you talk us through the pricing of docks and how it works, what the tears are, and maybe why you decided on that way of charging people? And because I think it's really something that's charged on a it's for the end user, right? It's on a per user basis. Yeah. Ninety five percent of our revenue is self serve and one hundred percent of our revenue is inbound. So the product really spreads itself. That's our main lever. When we started it, it was free and then we realized we had to charge some things.

[00:56:46]

We just started charging ten bucks a user a month and conversion went up because people didn't trust a free system with the really important documents. And then since then, we realized that actually ten is not enough either. So we added. Standard and the advanced plans, so the personal plan is ten dollars a user a month, I think of that as the send in track a PDF. There should be some software to send in track or PDF. It's not that expensive.

[00:57:08]

The standard plan is forty five dollars user a month. And that's really for like the sales use case or abuse case where the tracking is important and looking professional. It's important, but security is not necessarily as important like this doesn't matter if it's white paper or this collateral gets outside and then the advance plan has dynamic watermarking. The loudest one click ENDESA. That's one hundred fifty dollars per month, but it comes with three users. So there's a flaw, but it's not really up more.

[00:57:32]

It's more expensive than standard. What we realized in our user interviews in twenty eighteen is that people didn't trust us because we weren't charging them enough. So after we came out with that plan, the advanced plan, four hundred fifty dollars a month conversion actually went up, which was really interesting to me that at a certain point, if you're going to be relying on a system this heavily for the most important documents for your business, you kind of want to be paying them enough to feel like it's a trustworthy company and that it's only as good as what you pay for.

[00:58:01]

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