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

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1:36Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus along with all of our podcasts at colossus.com.

2:00Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.

2:27My guest today is William Hockey, the founder of Colum. William was also the co-founder of Platt, one of the more famous fintech businesses from the last decade. Colum is his second business, which he's built from scratch and funding it entirely himself and building it his way. I think you will find this conversation utterly fascinating, not just because of the incredible quality of the business that he's built, but how maniacal he is about studying and implementing ideas in this specific field. This is a great example of a founder that is winning because he is willing to do everything.

3:01My favorite example from our conversation today is that he went and found some obscure book about some ancient bank and found one idea buried in the 2,000 pages that gave him a simple idea for his product. He's willing to do that over and over again, and he explains his very different, maybe even heretical views on a lot of what's happening in the world of startups and technology today. He offers a very different way of building that I think will be inspiring and interesting to those that want to build a company. Please enjoy my conversation with William Hockey.

3:33Usually I don't start with a description of the company that someone's building, but in your case, one, I don't think a lot of people are yet familiar with Colum, and I want to fix that. And it's such an interesting beast in and of itself that it'll be our excuse to talk about many fascinating things in the world. Can you just start by explaining what the business is and does? At a high level, we are a software company that also owns a bank. And what we do is we say, okay, we have this interesting regulatory mode.

4:04We have a bank that most other people don't have, and we're going to build this incredible software behind it that nobody else can build because they're not a bank. We started out by serving a lot of software companies that want to get into financial services in the U.S. So with a backend infrastructure that powers the payments, deposits, credit of amazing companies like Built, Wise, Ramp, Brex, Mercury, these type of companies, they run on our software and then our regulatory rails. Then we also expand that to anybody who want to do things with the global dollar.

4:34So that could be international fintechs. That could be a lot of times global banks or banks in emerging markets that need to transact holdings in the dollar. So in the U.S., you have vertical software, people building business software. This is an area that is probably going to get changed as AI kind of rolls through. So people need to go deeper down into the business. Just building software for software's sake is not the case. And so now people actually need to control the underlying finances of business. The Brex, Ramps, the world have proven that you can actually build enterprise software

5:08that also touches the money. But in order to do that, you actually have to control the dollar. You have to control the money, whether it's the lending, money, holding, credit, etc. And so we just expose a set of primitives and APIs to allow anybody to do that super easily. Could you maybe like pick a customer that people might recognize and describe literally what services or products they use and then how they pay you for those products or services? Just really nail it home. So maybe I'll use a company out here that recently relaunched a company called Built, which is a lot of New Yorkers have, a lot of people in the cities have.

5:39If you look at the card in the back, it says issued by column. So we're the one that is actually connecting with the networks, managing the networks, and we're actually the regular entity behind that. And then when you need to go pay your rent or your landlord is going to detect money from your built account, if you look at like, oh, the account routing number there, oh, that's actually a column account routing number. So they build the application, they build the website, they build the consumer marketing, and we're going to handle everything behind the scenes that has to deal with the Federal Reserve or TCH or the card networks or SWIFT.

6:11We're the one that kind of build the software for that and handle all that complexity. We are technically a bank, but unlike banks, we make 90 plus percent of our money off of software. And so similar to any SaaS company, it's a per API call. It's a pure play tech business. And then we pass most of the economics from the actual banks out of the business down to all of our customers. One of the things I love whenever we talk is you've always been somewhere strange and interesting. Kinshasa, I think was the last time we were together. I don't know a lot of founders go to Kinshasa very often. Why are you so often in interesting, bizarre locales around the world?

6:44So this is my second company. I started to apply back in 2012, and it's very easy to stay in Silicon Valley. Quality of life is amazing. There's a lot of money to be had. There's a lot of super smart people. But you can start to get quite isolated, and you can start to get very consensus-focused. Probably a lot of your listeners read Dan Wang's last letter on China. He has this great, and I think accurate, but somewhat harsh criticism where he says the two most consensus societies he's ever been to is San Francisco and Beijing.

7:16And I think that's quite accurate, actually, where San Francisco is probably the most consensus place I've ever been to. And I think that is both a huge clutch for us, but it's also probably the most valuable asset. Because as a founder, if you're building an AI or stable coins or something that San Francisco believes is very consensus, but the world does not believe yet, that's actually a great operating environment. Because you can go and you can have these outlandish ideas that other people are going to believe in that nobody across the world will believe in. And you can build this in a very safe way.

7:48And that's why Silicon Valley and San Francisco is so dynamic, and we're so up front of the curve. But we also have completely lost touch with how the rest of the world operates, everyday American operates. And you've probably seen this smack us in the face over the past decade or two. And so I think it's very important to go to places that don't have that same bias. And I think if you think about emerging markets specifically, the founders who built there, there's the everyday people, they live in this constrained society. They're constrained in a way that San Francisco and New York isn't. And that breeds a different type of creativity.

8:22It breeds a different type of innovation that you really can't get anywhere else. If you go to talk to people in London or Vienna or Mexico City or San Francisco or whatever, people are living in, to an extent, in a world of abundance. And that causes a very specific creation cycle. Why, if you go to Kinshasa, which is the capital, Democratic Republic of Congo, it's going to be the largest city in the world in probably five to 10 years. I think it's already larger than most of the megacities. Wow. Probably 95% of people in Silicon Valley couldn't tell you what Kinshasa is the capital of.

8:52But tens of millions of people that live in a highly, highly constrained society. And so that breeds a sense of creativity, that breeds ideas, that breeds stuff that you can't really get anywhere else outside of emerging markets. So that's one. I think second for my business, the dollar is fundamentally global. And the dollar tends to be strongest in places that we could imagine are relatively dollarized. Places that are dollarized tend to be more emerging markets where they are using the dollar as their main currency, either unofficially or officially, because maybe they can't trust

9:24their central bank. Maybe they have a history of super bad inflation and the country got implicitly dollarized. And so those places tend to actually need U.S. financial services more than, I don't know, U.K. and the GBP is pretty strong or France. Those places don't need American financial services as much as maybe some parts of the emerging world do. So sticking with Kinshasa as the example. So you go there. What are you doing there? What are you discovering? Say more about the constraints you encounter there. Teach us a bit about I've never been to Kinshasa. They operate in a world where there's actually relatively large markets.

9:57CRC, as an example, is one of the largest exporters, not the largest exporter of some critical minerals in the world. So there is a lot of money flowing through there. It's a massive exporter. It's a place where there's a lot of Chinese investment. Africa broadly has had more Chinese investment than anywhere else in the world outside of Pakistan. And so there is money and there's a lot of people doing things. And the population growth is absolutely bananas. I mean, the population growth in Africa is probably larger than Western Europe, North America and parts of Asia combined. And so why they may be GDP per capita quite small, there's still a lot of going on.

10:32Where there is, there are founders that are building super cool things. The large companies actually tend to be quite innovative. And I can talk about that in a second. I talk to them. I meet a ton of people. I'm meeting CEOs of the largest multinational companies there. I'm meeting founders on the ground and I'm talking them through like, what are you building? What is your perception of America? What is your perception of America financial services? How can we be helpful? Honestly, I spend a lot of my time walking around, ideating, just taking in the scenes. And sometimes, a quarter of the time, I come up with a really interesting idea that ends

11:02up building us a cool product or is it a good market? What's an example of that? I've had 90% of my ideas either in the shower or like walking around random emerging markets country. It kind of expands your senses a little bit. If I'm walking down the Marina Green, I'm walking to the mission in San Francisco, the only thing I'm thinking about is, oh my gosh, how is AI going to change things? Because you can't walk around San Francisco and just not get like completely hit with AI FOMO 24-7. But there's other stuff we need to do in order to get people up to like mobile penetration. Take TRC, like mobile phone penetration is still less than 25%.

11:35Banking penetration is still less than 5%. There's stuff we need to do before we think about embedding LLM in everybody's brain. If that penetration is that low, will you and your business naturally benefit from that going up based on the products that you're building? Is that how you think about some of these opportunities where it's much lower hanging and just no one's paying attention? The leapfrogging that happened in Asia is obviously quite well known. China skipped a laptop, went straight to the mobile phone. Most famously, we shipped online e-commerce and went straight to social commerce in China. There's going to be leapfrogging as well. You're going to see the same thing in financial services.

12:06Financial services tend to be most innovative and most progressive in the worst countries. You can see this in Argentina. You can see this in Iran. You can see this in other places. The Iranian financial system, say what you will, it's complicated. They have to deal with a lot of incredible constraints. And thus, they've built a lot of bespoke stuff just for themselves because they do not have access to global financial markets. And when you get to design things from scratch, you end up actually building things a little bit differently. And that's actually quite interesting. If you look at these emerging markets, Africa, for example, they were the first ones to do

12:39mobile payments and pay so decades ago, well before Venmo. If you talk to them, they are actually quite a bit more open. They are used to this, their category being somewhat disrupted. An interesting thing is they have a bit of an access to differentiated capital, which is differentiated talent. If you're in the US, part of the bank, so I should on here, but you do not have access to the top talent. The top talent's going to Anthropic. They're going to Google, et cetera. But if you believe that brains are distributed equally, you're a Congo and there's some proportion

13:10of equally smart people as there are in France. There's no Anthropic to go to. They don't have the ability to move to London and go to DeepMind. But there's still a pretty decent talent pool there. They're going to go to where there is job safety and where there is money. That tends to be in a lot of emerging markets, like the breweries and the banks. That's where the money is. And so the talent, I'd say the mid-level and top, can actually be quite a bit higher than people there. I'd say you take your emerging markets bank executive team, their hands down is way better

13:43than I think probably what you see in the Western world. They also have the ability to verticalize much better than they do in the US. Because we already have amazing software, amazing retail experiences down the entire stack. In most emerging markets or in developed countries, everybody has a bank account. A lot of people who have a phone have a bank account, so they can actually cross-sell there effectively. You and I talked about this before. I think one of the most interesting companies out there is Caspi in Kazakhstan. Fascinating. Can you explain it?

14:13They started out by buying a bank, and then they just built, did everything, did everything. The largest e-commerce company, the largest bank, you pay your taxes on Caspi. You don't like renew your driver's license, it's on Caspi. Because what they realize is where people start is people, okay, maybe people start in social media, but they also start in financial services. And so if we acquire financial services, we can cross-sell and we can distribute products there. The largest bank in Congo is a bank called Raw Bank. Highly sophisticated. Download the mobile app. It's way better than anything we have here in the U.S.

14:44You can upgrade your TV subscription on it. Imagine JP Morgan doing that, a Bank of America doing that, a Wells Fargo doing that, or Candle even like U.S. fintechs doing that. Even if they could build that, there's no market for that. And so their ability to land and expand is fundamentally different. And you know, the good thing for us is in all these countries, the main currency is a dollar. And so our ability to kind of innovate with them is much more akin to what a fintech looks like in the U.S. than maybe a large traditional bank. Do you end up earning similar amounts of revenue from outside the U.S. as you do inside because

15:17of these potential relationships? The U.S. market is so good and fintech is so developed. One of our theses is fintech is probably going to be like the last area that is somewhat maybe disrupted by AI. I think what you'll see is you'll see a collapse in domestic fintech and enterprise software. And you already see in this with the ramps and stuff of the world as they go deeper into the workflow management side. Good thing for us. Some of our customers are growing just so quickly. But the rest of the world is also it's a big part of our revenue. It's something that we're super excited about as well. It could be both like Western Europe or emerging markets. Can you say more about this comment that the Silicon Valley, along with Beijing, is the

15:50most consensus place? Because you traipse around California. What strikes you as the strangest? Like you're building something so different. You spend so much more of your time away from there. You're able to get outside perspective despite being of that place originally. What would you say stands out as the strangest elements of it and its culture today? I'm a product of Silicon Valley. I've been there since I was 21. Started some of the top companies in Silicon Valley. I am a product of that, but I think as you get older and as you travel more, you think you have the ability to probably look back and be more retrospective on the society you

16:22grew up in. In SF and Silicon Valley, it's an elite dominated society, whether we like it or not. It's probably more akin to Wall Street in the 1990s than it is to what we want it to be, which is a research lab in Cambridge in like the 1950s. Maybe that was Silicon Valley in the 90s, but it's not anymore. And what that happens is elites end up building software for elites. And I think that has somewhat made sense because if you look at consumer buying patterns, people buy something that's aspirational and then it moves down market. But when you do that, you can start to drink your own Kool-Aid a little bit too much.

16:52And I think that has probably happened in Silicon Valley because we talk to each other, we build for each other, and we think that the market is each other, but we don't actually look broader than that. And the companies that figure that out, they do really well. Now, if you look at AI, our research labs are doing fantastic because that's a consensus oriented problem. If you take a bunch of people that are super smart and you pretty much lined off everything from the you, and you can all talk and you can all share ideas, and that's like a fantastic

17:23research place. And we are going to win on that alone. But as you think about like applicability to people's everyday lives, people in Silicon Valley don't live everybody else's lives. They don't live their lives as like Americans. They don't live the lives of like others outside the world. And so our ability to actually build software or have ideas or perspectives that resonate is probably like at the low point in the entire time I've been here. Silicon Valley is not a popular place. I think we tend to forget that. We think we're on the top of the world, but I don't know what our approval ratings are, but I think they're probably pretty dang low.

17:56And I think that's for good reason. I think it's something that I at least try to focus on a lot because I have to build software and I have to build products that are applicable to like outside the walls of San Francisco or New York, but that's probably less and less the case.

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19:12Schedule a demo at ridgeline.ai. One of the things that you've done that's so unique is not raise money, but built at a pace and a scale that looks as though you raised a ton of money. This first day is huge. Talk about that decision. What building a company where you and the employees basically own the whole thing feels like relative to having built a marquee company that was venture-backed? I want to go into all the various lessons that you've learned. We've spent a lot of time in this section. But at a high level, why did you choose to do it this way in the first place?

19:43I started applied, and I did the standard Silicon Valley playbook. You have to like ID, you have to build stuff, and then put a deck together, and you go to like these 80 venture capital firms, and hopefully one of them gives you money. And then every year, you move up the alphabet, and I think that works. And Plaza is a very successful company. I'm very lucky to have started it. But the things that Silicon Valley sometimes gets confused by is, okay, you're either like a venture-funded company, and if that's the case, you're like ambitious, and you're going to build amazing software, and you can like maze like amazing products, or you're like a bootstrapper, and you're going to write a lot of thought pieces on Twitter, but you're

20:13going to subscale people, and you're going to grow small amounts, and it's going to be like a cute lifestyle business. And I think you can actually be highly ambitious. I think you can hire like the world's best talent, and you can build like a massive doubling company without actually being able to be addicted to venture money. What we do is we say, okay, we are going to grow by our earnings. We're going to make sure that 100% of employees and myself own the company for the foreseeable future. It makes it a lot harder. It does definitely put some constraints on your business, but not only for the net worth of myself and my employees, but also culturally, it's actually quite a bit more effective.

20:46Because being long-termism is probably a little bit like a trite saying, but I think it does actually help us do that. Yes, Silicon Valley companies are probably more long-term oriented than your average business in the U.S., but I think the hamster wheel of VC doesn't actually allow us to be long-term. Because if you are having to spend a lot of money for employees, and you're burning a rate of you have to raise every year, year and a half, you end up optimizing for that next fund race, and you say, okay, stable coins are cool this year, so I need a stable coin strategy.

21:19Okay, AI is cool this year because I need an AI strategy. And so your business, maybe it's going in the general direction, but it's definitely taken a pretty windy way to get there because you need capital. And so I think it's very rational what you are doing, but that's not going to be the straightest line to your goal. I sometimes make this joke, VC money is kind of like heroin. It feels good. It's amazing. But you got to keep shooting up. It's very challenging at all. I know very few people that have like- Tried heroin once. Yeah. Like, I tried heroin once and they're like, wow, that was awesome.

21:50I'm off, right? It's like, how many people you know have raised like $100 million Series A and then they're like, I'm done. It just doesn't happen. And I kind of think that, man, if you raise $100 million, you should be able to build a couple of billion dollar business after that. Why do you need to keep raising it? And there's a lot of structural reasons for that. And the fact that San Francisco is a bit like a factory, like is by design, I think it can be like quite effective. But I think for the ambitious founder, I actually don't think it's the right thing. And for us, I can invest in things that I think are going to have like a 10-year payback. I'm totally fine with it. If we grow 80% versus 110%, then it doesn't really matter that much.

22:24Because as long as we're profitable, as long as we're building the software we want, and as long as we're growing at the rate that we want, I just don't have the same constraints. And that is, I think, freeing in a way that most companies can't operate. What's an example of something that you've done or made a long-term investment in that you think you wouldn't have done if you had been venture-backed? We bought a regulated bank when we were early. And it's probably like a little bit cooler now in this new administration, but we bought a regulated bank during the first Biden administration. And that required us not grow or like not focus on revenue for two, three years and do

22:56a bunch of stuff that inherently didn't scale. Buying a bank is not a software-defined problem. That's not like a great use of venture capital dollars that you expect to grow. A relatively non-consensus bet at the time. There's just no way that could have happened. There's no way somebody would have been like, oh, we want to buy some money to a company, right? We want you to do stablecoins. We want you to do AI. That's just not a fundable bank. So I think, and then able to just invest behind that for a multi-year period before we actually take on clients, people think they're long-term focused, but it's just not. I think we're able to do weird stuff with employees that doesn't scale. They're like, well, we pay employees like, here's $2,000 a month to go to a rent or mortgage

23:31if you live two miles with the office. Well, like that doesn't inherently scale, but it's massive because now I can get people who live close to the office. They feel great because they're getting like a huge part of all of their housing and stipend in San Francisco subsidized. But like, is that going to be a good use of venture capital? Probably not. So we can just do all this stuff from an employee perspective, from a retention perspective. What we do every single year, we take 25% of our earnings and we just buy back our shares with employees. So we just run our own tender every single year. It's been great for retention, is able to actually get liquidity to employees when they

24:04need it. And it allows people to believe that we're like in this venture grant business. But if you're in a VC business, you're like, hey, you should be using like 100% of that money for growth. We say, well, actually, we don't necessarily think that we're quite profitable, so we can afford it. So we can invest in growth, but we can also invest in employees. That's a really good example. So maybe just to pull it apart a bit more, are you granting equity to people in a similar way that a normal startup would, investing over some period of time and then just every year saying we'll buy back some portion of that to provide, that's how it works literally?

24:34Structurally, we look exactly the same as like a high growth startup, right? We grew up to the same people. We have all the same perks, if not more. So we operate very much like a high growth startup. We happen to just also be like quite profitable. What I can tell people is our profits every year. Imagine that's like our funding round. Each year, like on January 1st, we raise a massive round each year. That's how we view it. There's part of it that's going to be used as like a contender that we're going to buy back company shares and the rest of it we're going to put to growth. Oh, by the way, you also haven't diluted at all. By the way, you also don't have any pref stack.

25:05By the way, like we get to make our own decisions. That's super compelling. So I can hire someone to say over a 10-year period, you're not going to be diluted. I think what some people forget is if you're an early stage founder, you're going to lose probably 50% to 75% of your equity value due to dilution alone. You may lose 10% to 80% of your upside by the preference stack. These are like weird economic things that people don't really understand until they've been doing this for like 5, 6, 7, 8, 9, 10 years or seen an exit. Like with us, we say, hey, just don't worry about that stuff.

25:37What I give you is what you're going to have. And by the way, you have liquidity on a yearly basis going forward. That's like super compelling to people. How have you honed the communication of that idea to a new employee so that they get it? Because I think so often people just say, oh, I got this many shares and this is the valuation. And if it goes to this valuation, I can just be the math. But that's not actually the math of what they'll take home. How do you frame it to people? We're far from perfect. I think one of the things we do is we target people that this is their second company. We're probably not the best place for a new grad to land. These new grads to land, they're going to go through this calculation of where are all

26:09of my friends going? What is the number one company in Hacker News I read all the time? What's all like the thought fluencers talking about on Twitter? And it's like actually like not a bad strategy. Like if you're a new grad, that's probably relatively fair. But you aren't really going to be thinking about some of this kind of nuance. And it's honestly not as hard as you think. It's actually like quite refreshing. We go to people and we're like, hey, we like are super fast growing, but we provide you the liquidity. Oh, by the way, here's some very basic math on preference and dilution. And here's why you can actually make way more money for the same equity value.

26:39It's a hard story for a 21-year-old. It's actually a pretty easy story for a 25-year-old that's been through six rounds and four pivots at their previous company and don't have anything to show for it. Does this empirically show up in employee retention numbers versus Silicon Valley norms? We have almost close to no regretted attrition, which means people that we like to stay end up staying. There's a couple of reasons for that. I think one is, second time around, it's a lot easier. I think I learned from a lot of mistakes at Blatt, and I know where to spend time and where not to. And so I think generally, it's probably a more mature company than your average Silicon Valley

27:11startup. So I think, A, that helpful. We're probably better at picking talent. But also, I think we know what matters to people. I think sometimes, as like founders or VCs, we think that people join companies because they want to become billionaires. Maybe that's true up to a point. But a majority of people join companies because they hit into like their late 20s or the early 30s. And like, what are they optimizing for? I want to send my kids to like a good school and private school. I want to not live with roommates in like a one-bedroom apartment up until like I'm 35. Housing and education, that's super important.

27:42You can't feed that on illiquid stock. So how do you think about optimizing for that? Basic things like team, cultural, that stuff. Like people want to work for somebody who feels like they are taken care of, not just a 20-year period or like, here's your path to being a deca-millionaire. Do they understand my short-term needs? Can you take care of me in the short, medium, and long-term? And I think sometimes we are maybe too long-term oriented. Sometimes they say, hey, yes, of course, come with me, work on this for 20 years, and you're going to be a deca-millionaire after that.

28:12That resonates with a certain type of person, but it doesn't resonate with everybody. And so building a company, building a culture that actually optimizes for every single point of an employee's journey, an employee's life, that's actually quite unique. And that actually can lead to really good numbers. How much of this was just possible because you were already rich at the start and had money to fund something like this? Is this portable advice? Could someone else that hadn't had the experience you had with Plaid do something like this without taking outside money? I think it's hard.

28:42I think it was definitely successful at first. But what I would say is, that couldn't go into too much details. Yes, I started a very large company. I think I was probably less liquid and less rich than probably everybody thought at the time. When I started this, Plaid's a funny story, we attempted to sell it to Visa for $5 billion. And that's the point when I left to go start something. It didn't go through it. We got blocked by the DOJ. And I did not sell my company. Thus, I did not have any money. And so my liquidity versus paper wealth was pretty extreme.

29:13And so I think I got a lot of credibility from people being like, oh, this guy's rich. Easy for this guy to say. Yeah, easy. Yeah. But I did not have any money. Is that going to go into too much of the details of it? Like, I pretty much funded the entire company with debt. Went to a bunch of banks. And I said, here's a bunch of Plaid shares. Please give me money. And the best I got was like a sofa plus 10% loan at 5% LTV. And so I pledged over a billion dollars of stock to get $70 million. Wow. And I bought the bank for $70 million. I haven't had a lot of money in my bank account for a long period of time. And yes, and I ended up, business can become profitable.

29:44I got to pay off that loan a period of time. But in the process, I prodded that margin called three times and almost went bankrupt multiple times. Talk about that stress. I mean, the first three years were definitely the most stress of my life because I had a fundamental thesis that we could pull this off and we could build a business that 100% of employees and myself owned. But to do that in a world where you need to invest and not make money for multiple years is very, very challenging. And if the regulatory climate at the time and the bill to come, it was intense. And I have this loan I have to pay off.

30:15It was probably the most intense period of my life. And as a founder, you have to shelter that from everybody. You need to be transparent, you need to bring people in, but you also need to like not bring people all the ways in. I had pretty extreme conviction myself and I thought I knew 100% of a multi-decade period I can pull this off. But there's that quasic quote of markets can stay irrational longer than you can stay solvent. And it's true. And, you know, I'd look at that quote and I'm like, which side of the ad equation am I on every day?

30:45And we ended up making it through. And I got to an amazing place now. We have a big company that I own. But I think the idea of like, oh, like, you know, billionaire buys thing and self-funds it is probably a little further from the truth than people think. What's it like getting margin called? What is the literal thing happening? How do you manage through that? Surface to say that you owe a bank a million dollars. They owe you. You owe a bank a billion dollars. Like you own them. Like I think that's a little bit. That's true. I mean, there's a reason that like margin lending in private companies is not a great business. Because when you want to take collateral that stock, that's usually the exact time when you do not want to hold that private stock.

31:20Like I have like immense appreciation for the people that did it for me. I'm not quite sure they got like a great deal out of it. And I'm not quite sure I would definitely be in that business. The reason I feel the story is important to tell is that it's these things where so much of the value gets created. The extreme entrepreneurial risks, the act itself, but also the psychology behind it. And I'd love you to just riff one bit more what the psychology was like and how your mind is different after that three-year experience than it was before. Even though I know you'd already been through the entrepreneurial ringer with Plaid.

31:51What changed about your mind, your perspective on the world? How did that experience affect you? I think that the good founders bet on themselves and take an extreme amount of risk to do that. And I think the extreme amount of risk part is something that we no longer have. But when there's literally only one door in front of you, you don't have a choice. You have to go in. And that fear and that innate desire creates another part of you.

32:22It creates creativity. It creates inspiration. It's an extremely valuable part of the founder journey. And in many ways, I think in Silicon Valley, we've actually removed that. Do you think about most founders these days? I talk all the time. Like, hey, you talked to a 23-year-old. I'm like, you know what? I'm thinking about going to be like the 12th employee at this company or starting a company for myself. And I don't know. I'm kind of like mixed. And we've created this incredible environment in Silicon Valley that it's really safe to start a company. And there's like a playbook. And you go through YC. And assuming you're moderately competent and went to the right high school and college, you're going to get like a $3 million seed round.

32:56And worst case scenario, you can go work at a great company as an engineer. You'll get the founder on your resume. Life is good. And that has created a lot of value. But I'm not quite sure it's created a lot of great founders and a lot of great companies because there is no risk in that proposition. And if you go back to even pre-2008 or something like that, you're on the edge of the knife. And I think that creates just so much intensity and creativity and fear that is such a critical part of the founder journey. And I don't know why we don't talk about it more.

33:29We don't create environments where a founder has to bet themselves. And I think if we did that, I think we'd actually be in a slightly different place. I always am somewhat perplexed by I'm a second-time founder, but I'm not alone. Like there's a lot of great founders I shall not name that, you know, have made a bunch of money. And you go dig in. They're like, oh, here's my second company, the third company. And you dig into that. Of the $100 million they've made, they're putting like $1 million to the capital risk. And they've raised $500 million. And I'm always like, why? If you believe in this so much, if you're going to dedicate your life to it, why the fuck aren't you going all in?

34:00And if I'm an employee, I look at them, I'm like, you're asking me to go all in, but you can't go on. Because the weird thing is an early-stage employee takes way more risks than an early-stage founder. Explain that. So let's talk to an example here. So I'm a 24-year-old. I'm making TTC perspective 400K, 500K at Google and Meta or something like that. Okay. And I'm going to go to an early-stage company, and I'm going to go get 1% of this company, and I'm going to make $90,000. Well, I've now changed the trajectory of my life.

34:31I can no longer buy a house. I can no longer go on the vacations I want. So I'm making like a four- to five-year tradeoff where I'm saying, I'm going to make pretty much no money over the next four or five years. But maybe in five, six years, I'm going to make like millions of dollars that I couldn't make at Google and Meta. That's actually a lot of risk. Say, I'm going to live with my friends instead of living by myself. Like I'm making massive, massive changes to my life. But as a founder, you're not. It's a much higher likelihood of the next round, regardless of your company, you'll be able to sell some secondary. You know that if it shuts down, you can go be employed at a great company.

35:04You have a CEO on your resume. That first employee, they have first employed like a failing company. That's actually not a great resume line item. And so we've de-risked the founder, but we haven't de-risked the early-stage employee. And I don't think we should actually de-risk the early-stage employee for what it's worth. I just think we need to increase the risk for founders. I think we need to make failure much more expensive. I think we need to say, hey, you're a second-time founder. You have liquidity. Put all of your money into that. If you're going to be asking this, if employees are just asking for yourself. And I don't think we're having that conversation enough. And I think starting companies is just too fucking safe.

35:36And it's caused a lot of companies to be just super safe companies. Like, hey, we're going to pivot to AI, wrap open AI, wrap anthropic, whatever. Like, that's not bold. That's not ambitious. And it's because we're attracting founders that actually maybe want to be employees. They don't actually think about the long term. They actually don't think, say, hey, if I don't pull this off, I'm going to become bankrupt. My life is over. And I think that's pretty healthy. That's when you bring out the rawness of humanity. And I don't see that very much anymore. How have you felt that in yourself?

36:07So how has your behavior changed or your perspective changed or like just the ways that you show up that are different now than prior to this pretty extreme through your period? I am not the most diversified person on the planet. I own two things. I own Colum and Plaid. That's it. I don't even own a majority of my house. That is truly it. Those are the only two things. And that's motivating to me. At some point in my life, I have a six-month-old son and I do need to probably diversify and so that is a goal for me at some point.

36:37As a 36-year-old, you should probably not be this concentrated. But it's also, that's what makes building companies unique. There's probably a lot of people that look at me and they're like, oh man, billionaire amazing. I think that's what makes it special. I think that's what drives me every day, which is if you don't have something you are driving towards, such as for me, like solvency, it's really hard to be motivated every day. The other thing, though, too, is that very often the thing you own and control in our building might be your best investment. And getting money out of something is costly from a tax standpoint. I know another thing. So in some ways, you're just continue to be all in on what you're building.

37:10Bet on yourself. I'm sure every fancy executive has probably told you that, but I think it is somewhat true. Compounding on yourself is probably the best investment to make. I'm not a generalist. I'm a specialist. I'm probably the best in the world. A couple of small, boring stuff. I'm really good at creating really confusing, boring-sounding companies that's really hard to explain on podcasts. And I think that's like my expertise. That's not my leash. I feel pretty confident in my business because I do not think in my business you want to compete with me.

37:40I'm mean, I'm hungry, and I know my little niche space better than anybody in the entire world. And if I'm investing or doing something else, there's a B on the other side of that trade. I don't want to do that. I'm a builder. I think sometimes there's a trap where builders ain't their investors and investors ain't their builders. There were cases when you can do both. But in a world where it's increasingly competitive, I do think the world for builders is the world of specialists. And you have to go extremely, extremely deep into your area.

38:12And that's where you find value. I probably have read more about the history of my space, the history of financial services. I studied banks in Japan in the 1800s. I read a very boring 2,000-page book on the history of banking in China in the 19th century. And there's stuff I got out of that. What's something you get out of that degree of extreme study? The hard part about this is you probably get one small thing in a 2,000-page book. And so it's probably not efficient unless you own a thing that happens to be that time.

38:44That's crazy leverage on that. And that one little thing can create millions of dollars of value. Two things creates hundreds of millions of dollars of value. And so without going too much into detail on it, that's where you find your leverage. And I'm pretty good at that. This notion of being the best in the world at the thing you do is really interesting to me. It seems the environment today makes that harder than ever because there's so much distraction. Totally. And there's such a high rate and ease of comparison, which is certainly the thief of joy. But it's really hard to ignore people doing other stuff, spending a 30-year day reading about Anthropic or whatever.

39:18It's exciting. What have you learned about how to become, apart from reading obscure 19th-century Chinese banking books, what else have you learned about how to become the best in the world at what you do, assuming that there's lots of people interested in that mission or that idea? I think one of the best determiners for success of founders is can they find the most boring thing humanly possible interesting? And can they find that interesting over a multi-decade period?

39:48Who doesn't find AI interesting? Yes, geopolitics, fantastically interesting. There's all these general topics that are quite broad that is very mass-market interesting. And that's what makes Twitter so fascinating. That's why podcasts are fascinating. It's because people like to feel that they are really smart across a broad swath of categories. But that doesn't really align to company building. So many people right now are thinking about and have a lot of knowledge around how AI is going to disrupt software, how AI is going to disrupt vertical software, how AI is going to be the next six year round.

40:22These are like generalist topics that I can probably find a thousand people that have interesting, compelling ideas and can go pretty deep on that. But you can't create value there. You can create value if you're like, I'm the number one person in the entire world at this little niche thing. And I think this niche thing can generate billions of dollars from ever over time. But the problem is, is those places are really boring. The fun ones like food and like surfing in Thailand or whatever, like those are solved categories. Yes, I would also love to be an expert on hospitality in Thailand and Southeast Asia.

40:54Like that's a fun problem. I could imagine one going niche on that for a more of a decade period, but that's solved problems. But I think finding the extremely boring thing that requires you to read hundreds of thousands of pages that you cannot Gemini deep research your way through, that's where value is, but it's fucking boring for a lot of people. You have to suffer in silence for a huge amount of time. And if you can find that super fascinating, you can like love to learn that, then I think you'll be successful. But I think it's the minority of people.

41:24My partner gives me shit all the time, but like, how on earth do you find that book interesting? What is wrong with you? And I was like, well, like if I don't, you and I are going to be super poor. You said earlier that building a company for the second time is a lot easier than the first time. Yeah. What are the most extreme ways that that's true? What are the things that you've done the most differently this time than the first time? Experience is valuable. I started Plaid right out of college. And I think Zach, who was my absolutely incredible co-founder, we both said like, man, if we would have just worked at a company for like nine months, we would have learned a lot. We probably would have saved like three years.

41:55Because the amazing thing about working at a company, because it's an early stage company. Is you just fail forward all the time. And that's incredible. That's an incredible lesson. But like when you fail forward as a founder, that's a lot of dilution. That's a lot of time. That's a lot of like wasted resources. And if you could do that on somebody else's dime, amazing. Now I think it's like a little bit easier because everybody's YouTube videos on YC Startup School and there's some PDF for everything. And you can probably like Gemini your way through the early stage part of a company. But experiences matter a lot. What about picking talent?

42:25What things do you optimize for now that have been honed because of your prior experience? I mean, people always think about employees and it's like a kind of missionary mercenary framework. You have to look into employee. Like, what do you want to do? There's like the mercenary type, which is okay. Like, super smart, probably super pedigreed. And really what they're doing is they are using your company as a launchpad for something else. They're using their company to collect a bunch of two-year vested options from like the top five companies and hoping one of them goes up. That can be a valuable employee, but you have to have a very specific type of company that is used to that churn and burn in order to take advantage of them.

43:03Then you have the missionaries, which is this person is very mission-focused. Inspiration is super important to them. And if you get that right, they will go to like the ends of the earth for you, regardless of like their short-term benefits. People also have some downsides as well, which is the moment maybe you want to be a little bit more commercially oriented. The moment you have to maybe make trade-offs on your mission or something like that, that can cause a lot of societal unrest inside of your company. Then there's like the third category of employees, which are generally what I think are probably like the best, which is like a combination of everything.

43:34But really what they care about is they care about, yeah, we want a ton of upside, but we also want stability. We also want people that, hey, I like to be friends with my coworkers. I like to be in an environment that is like warm and welcoming, but also gives me like the near-term and long-term financial value. And I'm willing to like work really hard to get there. Everybody has personality types. Everybody has different styles and you have to figure out what is right for your business. But I think it's very challenging to tell that on LinkedIn. Everybody's like, okay, cool. You went to the right New York prep school. Thus, you went to like the right Ivy League school that happens at like this good engineering program.

44:06And then you have these couple of LinkedIn things that are like good for me and boom, done. That can be super successful, but that is also not the right for everything. And so just getting that honed for talent is super important. How much do you care about mission? And it's an interesting part of the equation. You need a mission. Otherwise, people just go work at hedge funds. You need to say like, hey, we are building something bigger. And I think we absolutely are. But I think mission can actually be a little bit distracting. I think a lot of times people focus a ton on, hey, what are like the values of my company?

44:36What good are we doing? And I think that's like an important part of the equation. But I think it's on a list of five things most important. I think it's probably on the bottom end of that five list. And I think a lot of times we can be kind of distracted by that. That's because when you're pitching investors, investors want to feel like they are part of something. They want to feel that, man, I'm not just recycling pension fund money into other capitalists. And that's what we do. Like we want to feel like it's bigger than that. And so I think we've taught people that, man, you need to focus on the millennia journey. You need to focus on the impact that we're doing. And like, yes, numbers go up.

45:08But like numbers go up is only one part of the equation. And I think that's important for employees. But I think it's sometimes not the best. In the end, what do you want to do? You want to convince somebody to buy your product. And like you deliver them enough of an experience that they can't build it themselves. And they're going to pay a lot of their hard-earned money to you. That's the goal. And that person doesn't give a flying fuck about what your mission is. They just care about, does this product create value for me? And am I willing to pay for it? That's it. And if you start to like drink your own Kool-Aid too much, you kind of forget that. It makes me smile to think about your earnings and cash flows.

45:40It's such a novelty that a company like yours would have a bunch of this. So young in its life. And at this scale, how do you pick your margins? How do you think about how profitable to be and why? You mentioned earlier that it's like having a funding round every year. Does that imply that you're actually spending it so you're not paying taxes so that you can spend it on growth? How do you think about earnings in a high-growth technology business? Our customers pay us for safety and our companies pay us for longevity. It's a unique thing around financial services where I'm going to look at you as a customer.

46:11I'm going to be your best partner of like a 10 to 15-year period. Switching costs are really high. And they are putting a lot of your customer trust and risk in you. And so I am playing a longevity and a risk game just as much for me as my customers. I take that extraordinarily seriously. And I think earnings and being profitable and sustainable and not relying on somebody else's decision-making framework is extremely critical for our customers. And that's extremely important to me as well. I tell people the risk falls on me. I can't pass my risk to some other venture fund or like their LPs or something like that.

46:46I want you to be successful. I want you to be successful if we're not, like I'm the one who takes the pain here. That's quite unique in Silicon Valley because at some point your critical vendor could get like acquired or maybe the founder could get like a $20 million offer from Anthropic. It's the rational decision for them to do that. In many ways, we aren't competing with other Silicon Valley companies. We're competing against maybe them doing it themselves or maybe competing with them trying to like build a patchwork of software vendors on top of a legacy bank or something like that. And so I have to show that I am more sustainable than you. And I think that earnings is a critical part of that.

47:16And I think people are like, oh, well, like your margin is my opportunity type thing. And my argument would be like, you run this business at a lot lower margins. You're going to be dependent on somebody else that you probably don't want to be dependent on. You also have to be introspective about your business. Is my business the type of business that if I raise a bunch of money or I have a ton of earnings, I can throw all of that back on growth? And I think a lot of times enterprise software companies, they cannot ingest like a huge amount of capital. Like if you give me like a billion dollars right now, I don't know if I grow it a thousand

47:50times faster than I am right now. And I don't necessarily think I should. And so what we do is we say, okay, of this earnings, what goes to our employees, what's going to go to growth and what's going to go to capital, which is pretty much in case something goes wrong or we have a bad couple of years, NBD, we good, let's keep moving. Down to the extent of now we're like, hey, if something goes wrong for 10 years, how are we like, we're good. There's a lot of societal change going on. There's a lot of crazy stuff going on in the environment. I can totally paint you a picture where like the markets gets insane for the next 10 years.

48:21How do I make sure I can survive that even with a lot of our companies go up or the economies do no changes? That goes back to that or chest because markets go like this. Sometimes like, yes, the line through it goes like this. You forget it when you have one of the good ones. Yes, exactly. And we look at slope, but a lot of times like we have down years and you need to be able to weather through those down years. And there's so many incredible companies that just couldn't survive a couple of bad periods. And you really want to make sure you're not one of those.

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49:52Visit workos.com to skip the unglamorous infrastructure work and focus on your product. If you were in a classroom setting and it was a bunch of founders or would-be founders, and it was a Chatham House Rules off-the-record session teaching them about working with investors and what investors care about, how they behave, things to look out for, what would you tell them? I actually feel pretty lucky where I applied in the early days. I should have a pretty hard time fundraising. The first one, I think we probably chatted with like 80 or 90 investors and we got rejected.

50:25Sometimes I think I have a reputation of being like, oh, like, William's like somewhat anti-VC. It's actually like not for this one, the truth. Plaid would not exist without VCs, straight up. I just don't necessarily think the VC model is perfect for every single type of company. Or maybe a VC owns like 10% of your company or 20% of your company, and maybe it employs yourself on like 8%. There are different cuts of this you can make. But I think for me, picking investors is important. I don't think there's a lot of transparency in the environment on like when investors are seven-year timelines, which ones are 10-year timelines, or which ones are actually truly

50:55super long-term oriented. So I think figuring that out. But I think the most important thing you should do is say, okay, realistically, what does my margin profile look like? What is my revenue growth over time? How should I find a capital structure that matches that? And am I actually going to grow at a consistent enough period? Do I want liquidity in 10 years that the venture model makes sense for me?