Zuben Mathews (00:00:00):
There's a lot of research out there. God bless Google, God bless OpenAI, etc. Start to go and see what people have done a lot of work. What is?  What are you going after, right? You have a thesis. You have to go prove the thesis. First, easiest thing to do is literally sitting in front of your computer, going in and doing the work. So you look for academic research, you look for commercial research. Try to figure out how big the market is. That's one aspect. But really try to go deeper in terms of what is the deepest pain point? Always start with the end customer, right? What is the deepest pain point for the customer? Like, are you telling me that the population that is living pay check to pay check in the highest stage of financial stress are getting dinged more, purely because it's easy for the banks and other people to go do so? That is just very, very hard. It was very hard to swallow.

Pablo Srugo (00:00:48):
How would you not be profitable with 15 people and $20 million ARR?

Zuben Mathews (00:00:52):
Well, I mean, the cost of data was, Plaid makes a ton of money, costs, the interest rates were exceedingly high on the balance sheet that we were taking, and we had losses.

Previous Guests (00:01:03):
That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is product market fit.

Pablo Srugo (00:01:16):
Do you think the product market fit show has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders, and it lets us get better guests. Thank you. Zuben, welcome to the show, man.

Zuben Mathews (00:01:31):
Thanks so much for having me. It's a pleasure.

Pablo Srugo (00:01:33):
Dude, so I mean, you just sold your company. Brigit, earlier this year for $460 million, which is a massive exit. And, you know, it's one thing talking to founders who have built great businesses. But it is a different thing talking to those who have kind of gone end to end and either gone public or sold the business just because it's kind of the outcome. Do you know what I mean? Like, every founder, is it starts off, and at some point in that journey, maybe they start off for an exit or to go IPO. But certainly at some point, they kind of wish that that's going to happen to them. And so to talk to someone who's been through it is a big deal, in my opinion. And you grew the company. I mean, the company is doing $100 million in revenue. So let's get into that. Maybe let's start at the beginning. I mean, when year did this start in, and kind of what was the original idea?

Zuben Mathews (00:02:15):
Sure. I mean, we formally started the company with my co-founder in late October, or I guess October 2017. So it's been, give or take, seven years. But the core genesis of the idea in many ways started even when I got to college. I mean, I'm an immigrant. Came to school, came to the University of Chicago from India. I was fortunate enough to get a full tuition scholarship. But despite me, what I realized was me living within my means and my single mother sending me money between her pay checks as well. So again, I can't emphasize this enough. Living within my means over a period of about 30 days. My expenses would always come up before my income or whatever money my mom was sending me. And, you know, when you're 18 years old, spending a thousand dollars.

Pablo Srugo (00:02:58):
And this is when, by the way? At this point, this is what year?

Zuben Mathews (00:03:00):
I'm aging myself, but over 20 years ago.

Pablo Srugo (00:03:03):
Okay, got it.

Zuben Mathews (00:03:04):
20 years ago, and to spend a thousand dollars in overdraft fees 20 plus years ago. Just because I needed money between my pay checks or just before money would come in. And I can't emphasize this enough. I didn't want to borrow money from friends and family because I felt responsible. Again, I was responsible. However, the banks would continue to charge. I think at that time it was $25. Now it's more like $34, $35 every overdraft event. And the stress that I would have. I still remember the financial stress and the just physical stress, quite frankly, was something I still remember till the day I started the company. And the reason why we ended up getting together with my co-founder, Hamel, who's brilliant, by the way, to start the company was he and his family growing up, an extended family, had similar issues. And both of us got together saying, how do we build a company that leverages today's technology, or even, you know, it's still valid today, cash flow technology specifically, which is information on someone's bank account, which is income, volatile income, historical spending, or borrowing patents, all of which come in real time, which is quite fascinating. Versus trying to use FICO to try to give people money. And that was the core thesis of what we wanted to do. And we figured that we had an opportunity to truly help people. The same problem I had, give or take 20 years prior, and hopefully build an enduring business at the same time. It's a rare opportunity to both, and we feel very blessed that way. (Context: FICO is a type of credit score created by the Fair Isaac Corporation that lenders use to assess a person's credit risk based on their credit history.)

Pablo Srugo (00:04:29):
And just maybe a simple question, but back 20-plus years ago. When you talk about the mismatch between the timing of your expenses and your cash flow. Isn't that what credit cards and credit is for, is specifically to manage that?

Zuben Mathews (00:04:42):
Partially, yes. If you get approved for a credit card. I think the problem is even today in the credit scoring system. Again, I politely mentioned FICO. You need to have credit, or you have to be in the credit system to be approved for other places of credit. In my case, again, it's still pretty much the case today. Shockingly, 20-plus years ago, I was an immigrant, and I had no credit history. So trying to get a credit card or build up my credit score, the best way of doing that back then was, in essence. Even today, is get a secured card. You need money to put money in the secured card in order to build credit. So people in finance would call that a circular reference. And unfortunately, that part of the problem still exists today. That is why cash flow data, the information in someone's bank account relative to the old school FICO or your TransUnion Experian Equifax credit score. I would argue, is far more useful for this use case. And which is the only core piece of technology that our company, Brigit, sits on.

Pablo Srugo (00:05:39):
And then you kind of fast forward between that problem and the time you decide to solve it. Which is seven years ago. What happens in that gap, like, high level? What kind of, and maybe especially as you come up with this idea in 2017, what is it that you're doing?

Zuben Mathews (00:05:52):
I appreciate you asking that. I was actually learning how to build a company in many ways or see what investors would want. I used to be an investment banker, and part of being an investment banker is also managing a set of investments on behalf of Deutsche Bank. And what I got to see internally was what it takes, at least, to build a company, to take a company public, or exit a company. That being an investment banking analyst MD, of course, what I was, you get to learn to do. You get to understand how other companies have done it. So you get to see best in class a lot. Also, fortunately, I had a co-reporting role by the time I left Deutsche Bank in about 2014, give or take. Where I was also reporting into the chief operating officer of the bank. And so I started to learn a lot more about how banks function, how they underwrite customers, how they adopt new customers, and how they end up service customers. And whether it's across the world or, unfortunately, even in the United States. Which is the largest, unsurprisingly, the banking market in the world. The segment that would you define as not prime or the medium income. By the way, medium income in the United States on an individual basis is $43,000. People forget that. That segment of the population was not banked or serviced effectively at all. Hence the opportunities for banks to make $35 for a $5 overdraft, right? That's insane because they make all that money not from someone like yourself or myself and where we are today, but the younger Zuben who didn't have other opportunities or other access of credit, or you end up doing payday lenders. Which one would argue are equally bad, if not worse practices than overdrafts. I would argue overdrafts are more expensive, but payday lenders tend to have a different way of looking at the world as well.

Pablo Srugo (00:07:32):
And so you were at this bank when you came up with this idea?

Zuben Mathews (00:07:35):
I was at the bank when I came up with the concept of leveraging cash flow to do things that are differentiated. I think, again, the bank was servicing a different segment of the population. As I pointed out, different use cases. And the initial idea, very, very initial idea, was how to use, again, that same rich, beautiful cash flow data in an individual's bank account that's serviced by companies like Plaid or Finicity, et cetera. And being able to solve problems for people. My initial idea was we got all this information. You know if an investment bank is going to make a bonus, you can predict what that number is. You can predict their spending patterns. If someone loses a job, you can even predict how their spending patterns change, things that we do today at our company at Brigit. And the initial core focus was to leverage that information to give recommendations. What I realized very quickly was that is a great way to solve a problem for people who are already well-off to be even more well-off. And that just wasn't a deep enough problem for me. So that's one of the reasons over a period of time I left my job there to try to figure out what the best use case was. And we landed up on Brigit.

Pablo Srugo (00:08:40):
Did you always know you wanted to start something? Like, were you always thinking about when that would be the right time, or just kind of came to you?

Zuben Mathews (00:08:47):
No, I mean, so I started a company when I was in college. I had left college in Chicago to go back to India when I was 19. And it was the heyday of the internet back then in India. So we got around. It was the equivalent of timeout in the United States. And we had a few cities there. So as a 19-year-old, trying to run a company from college and while being in India was difficult. But fortunately, we were able to sell that to a content aggregator at that point in time. So I always had the impulse or the want to go and build another company. It just took me almost 20-plus years to do it again. But the learnings that I had, whether it was being a financial analyst at an investment bank again, understanding Excel. Even learning how to build spreadsheets or presentations. But most importantly, as I got more senior and got to see best of breed, whether it's IPOs is taking companies public or even being in boardrooms, including that of banks. It was quite, it was absolutely fundamental learning experience. I wouldn't have been able to do whatever little we've done and accomplished if I didn't have that training.

Pablo Srugo (00:09:53):
You know, in finance, it's interesting in all of FinTech because a lot of the. Sometimes, at least as an investor, you're trying to figure out what is truly like an innovation and what are the sort of things that banks purposefully don't do. You know what I mean? Especially because finance is such an old industry where so many things that feel new actually were tried a billion different times and so on. In this case, when you think about the kind of quote-unquote obviousness of using cash flow for lending versus something like a FICO. Which I think many people understand is not even close to perfect. Why isn't, like, maybe you dug in or maybe you now understand. But, like, why isn't that done more by the traditional institutions?

Zuben Mathews (00:10:36):
Yeah, no, it was absolutely an important question for myself, my co-founder to make sure we had a good grasp of it. Not to mention the initial VCs, to get a strong understanding. The reality is when we started our company, banks were making about $30 billion in overdraft fees. $30 billion.

Pablo Srugo (00:10:55):
Wow.

Zuben Mathews (00:10:56):
Just to give you a sense.

Pablo Srugo (00:10:57):
This is in the US alone?

Zuben Mathews (00:10:58):
This is in the US alone. Sorry, I should have said that. And let me add some color. Chase, Wells Fargo, and Bank of America, at that point in time, again, going back to seven years, were each making $2 billion annually. So give or take $6 billion, and almost all of that goes to their nibbets. It's almost all pre-tax profit. And the rationale for that, and when you go a lot deeper, and one of the things we were able to do was we got our hands on a billion cash flow data points to truly understand what the problem was. As well as one of our advisors in the company, Corey Stone, he used to work at the CFPB, and all their overdraft research was done by him and his team. So it really got deeper in that, saying, hey, what's happening here? It turns out that, at least again. This is dated information. That what we saw was the average overdraft borrowing was only about $70, and people were overdrafting twice. So paying about $68, $69 in fees for a matter of four days of borrowing. You know, you want to talk about crazy APRs, etc. Obviously it's, you know, the banks don't want us to talk about that, but, and I could understand what the rationale is, but that's a 5,500% APR. And then you start to see who's paying 80% or 75% of those fees. Who's paying? Is it people who've got $10,000 in their bank account who just made a mistake and didn't transfer money from one place to the other? It's not. It's the hundred plus million Americans, now over 150 million Americans, who live pay check to pay check. Who are thin-file or no-file credit scores? That was the profile of the user who was paying for it. Because if you think about how overdraft works, even for that segment of the population, it was always available. You didn't have to ask for it. And it was super convenient. It was just crazy expensive. So that is the product that was out there. I'm sorry to give you the long-winded answer, but there was no incentive at all, and we saw this from the proprietary area, for the banks to reduce their margins on that unless they had competition. Because just think about it, right? Every year you're churning out $2 billion in profit, unfortunately from the segment of the population who needs the money the most. That's a lot of profit, even for Jamie Dimon. I hate to say it, even for Wells Fargo, Chase, and the big ones. And that was a machine that was printing money for those guys. And we were like, look, here's how we can solve it. And one of the ways the company that Hamel and I, my co-founder and I, started. It's called Brigit, as you pointed out. And our first product is, how do you underwrite this segment of the population? Using again only cash flow data because, again, FICO being not the right data for this data set, this audience for this use case, plus it's also stale data. It's only 30, give or take 30 days old, and being able to not only underwrite these customers. Which other people wouldn't, but still making sure that you can manage risk and do it responsibly, both for the customer and the end company, because you can't keep losing money forever. And the initial use case, when we talk about product market, was we predicted when people needed money, and we would pre-fund the money into their accounts. Again, it was very transparent. It was an opt-in feature, and that helped us to get from our first zero to $10 to $20 million in ARR because people found it significantly cheaper, as you can imagine. It was a $10 monthly subscription for all you can eat. And there are other products in the app that I'd love to talk about at some point, if you like. But it was all you can eat a subscription for $10 a month. And it was the convenience of an overdraft. And it really helped push us in the first few years of our company.

Pablo Srugo (00:14:26):
It's interesting the problem side because, yeah, you do like, if you're above that. Let's say median, like for me, I think about, like, overdraft, like maybe it's happened once or twice in my life because I messed up or something like that. But you don't. It's not the sort of thing you realize that people are effectively borrowing, consistently borrowing funds that way. Like you said. Amounts to an extreme interest rate.

Zuben Mathews (00:14:48):
And it was for, again, having the data that we were able to procure from our partner. Plus the individual insights we got from our CFPB advisor at the time. It was all for responsible purchases. It was for, I'm going to call cell phone bills responsible. I think it's fundamentally important, gas, food, utility bills. That was the gap. And when you understand the stress that someone. It all goes back to stress, that stress that someone has to go through and say, okay, I'll pay my $35, $60 in overdrafts so I don't run out. My electricity doesn't get cut off. So I can get to work because that's a spiralling effect. It's a pretty harsh reality. And as I pointed out, whether it was seven years ago, unfortunately, today, we are the single wealthiest country in the world. Get the number of people, get over a hundred million adult Americans, are living pay check to pay check in a state of financial stress continues to increase.

Pablo Srugo (00:15:46):
Have you looked at that $30 billion? Has that gone down? Has that gone up over the lifetime of the company?

Zuben Mathews (00:15:52):
Thee, I mean, over the lifetime. $30 billion is what all banks pay.

Pablo Srugo (00:15:57):
Yeah, so the question is, are they still making that much today? Or has that gone down as competitive pressures have kind of.

Zuben Mathews (00:16:02):
The good news is a lot of noise from competitors. A lot of noise from Washington has helped reduce those numbers. In fact, now the numbers are less, it's harder to get what the actual numbers are because there's less people publishing reports on that. But it's very clearly reduced, which is a positive sign. 

Pablo Srugo (00:16:20):
So walk me through. Going back to the storyline. So the problem is there, you understand the problem, what do you build first, and how do you go to customers? What's that first kind of MVP, and just thinking around it?

Zuben Mathews (00:16:34):
Sure. I mean, the first part is just fundamentally understanding. From, at least this is the way we did, and I would still do a lot of things similar, a lot of learnings as well. One of the things that we continue to do is just look at market research. There's a lot of research out there. God bless Google, God bless OpenAI, etc. Start to go and see what people have done a lot of work. What is? What are you going after, right? You have a thesis. You have to go prove the thesis. First, easiest thing to do is literally sitting in front of your computer, going in and doing the work. So you look for academic research, you look for commercial research. Try to figure out how big the market is. That's one aspect. But really try to go deeper in terms of what is the deepest pain point? Always start with the end customer, right? What is the deepest pain point for the customer? Is it pricing? And it could be a bunch of things. Is it convenience? Is it accessibility? Etc, etc, so that was part of the overall research that we had gone through. Plus trying to make sure from a business perspective, looking at it from a different vertical, what are the things that would kill our business? Can we get access to the data? What can banks do to shut us off? Will they do? In fact, you just asked that question as well. So those are the two things you wanted to balance. And after you do some external research, you got to do the work. You got to pick up the phone. You got to go meet people and, actually, ideally, ask them questions in a non-leading manner. One of the things I realized very quickly, and again, God bless my co-founder for pointing that out, was that I was trying to lead the answers. But you don't want to do that, right? You want unadulterated questions you're asking to your potential customers, the interviews you're doing, to get actual feedback. And you start to, hopefully over a period of, I'd love to do 100. But the reality is 10, 20, hopefully more than 10, 10, 20, 25 odd interviews. Which takes a whole lot of time. Let's call it 20. You start to develop patterns. I mean, there's always a, so hopefully you're being rational and not coloring it from your own biases. But there's a little bit of biases that'll probably come in because you're coming in from a thesis, but doing your best to really understand what is the deepest pain point. Because if you can't create a product that someone really wants, I don't know how to sell it. Somebody else can do a better job in marketing and selling it. So being very clear that for us, it was like, how do you create the most convenient product, easiest onboarding as possible at that point in time? While being fundamentally transparent that it was seven odd years ago, a newer product. While making sure at the same time you're delivering the highest probability of someone being approved and you're not using your shirt.

Pablo Srugo (00:19:11):
And what were the specifics just on the customer discovery? How did you get the people? Who did you get to talk to? And what sort of things were you asking?

Zuben Mathews (00:19:20):
I mean, who did we get to talk to was actual potential users of the product? One of the things we did was we created a website that you could log in, and the system would see what your overdraft fees were. So we started collecting tons and tons of people's contact information, and we had the right to contact them. And again, the QuickPort Pro was like, they sign up, we took a cost. We literally show them what their bank expenses were.

Pablo Srugo (00:19:45):
And you sign up, and you use Plaid or something like that to get all their.

Zuben Mathews (00:19:48):
We use Plaid, yeah. Yeah, we use Plaid to do that. And we would summarize individuals' bank fees. I can't remember the name of the URL, but that's literally what we did. We got thousands of people. We did a little bit of advertising there as well. So now.

Pablo Srugo (00:20:00):
Do you remember, were you shocked by some of the stuff that you saw then?

Zuben Mathews (00:20:02):
Oh, yeah. I remember being at an offsite with one VC. And I just pulled out my phone, and I said, well, here's these, you know, the PII was not shared. Obviously, but here's this individual who spent $200 a month. This is their income. This is what they do. Here's a month, a year. Here's another person, and it shocked me. I thought that number was wrong. Who spent $3,000? But the number of people who were spending $1,000, between $900 and $1,100 a year, was shocking. So yes, it was mind-boggling. And with that, we developed a great list of people to pick up the phone and call. That's one aspect. The other aspect is, look, there are websites even back then you could go to and say, hey, I need to interview people. This is the criteria I'm looking at. So it was a combination of those. But nothing is better than customer number one. And nothing is better than one, than customer number 100. And there's a lot of learning between so much learning between one and 100. And then you start to scale out. Right. But that point of having customer number one who could actually call and say, hey, what are the issues you're going through? How is this? How is that? And then being able to do that for the next 15, 20 odd people who are really using the app. That is, that's critical. It is fundamentally critical. I would say we did some of our, I mean, unsurprisingly, some of our best work and most critical work between number one and number 100.

Pablo Srugo (00:21:24):
What do you go out and build? Once you find out that, you know, you can do 10 or 20 of these interviews and you find out, yeah, OK, these people are spending a lot of money on overdraft fees. You know, you validate maybe just a question on that, actually. What are you even validating in those customer interviews? Because, and this is a problem with going backwards. Like hindsight 2020, some of the stuff is like, yeah, obviously, if you're paying a thousand dollars in overdraft fees, you don't want to do that. So. 

Zuben Mathews (00:21:48):
At that point, we were pretty clear that there was a need since we started to see it in real people. From there, the question was twofold. What are the feature sets, and what is the core focus that we should have in building out that product? That's what I was trying to do. And how do we sell that product to them? So every aspect of that, and I would argue a lot of product and marketing, go hand in hand because you're both learning. Whether it's product or marketing, learning from that same customer. What are the core feature sets? What are the issues they're having today besides just being able to approve them at lower loss rates? Which is more of a backend data underwriting problem? But how do you help them connect their bank account? At this point in time, there were very few companies out there that were helping people at this scale trying to connect their bank accounts. What are the triggers that you can help them convince them to do so? At what point in the onboarding process will they get tired and not go on to the next stage? And once they get access to, hopefully, an advance, or EWA advance as we call it, what are the key criteria for them to make sure that they get it in time? Is it price? Is it what they need to see on the screen? How do they come back? There's no point having somebody using it only once, etc, etc. All of those key functional aspects, as well as how you market to that customer. Was critical at that point in time. Because we could have gone from one to a hundred. I think that's generally easy for almost any product. You find that the right early adopters can get there. But to scale beyond that, it was all the learnings we had prior to that.

Pablo Srugo (00:23:21):
You mentioned, by the way. EWA, Earned Wage Access, was in 2017. Were their competitors already doing this? Or what did that market look like?

Zuben Mathews (00:23:28):
The phrase "earned wage access" didn't fundamentally exist anywhere close to that at that point in time. The three companies that existed, including us. In some form trying to solve this problem, and we were all doing it differently. The business models. We never had tips. For example, and our core focus was just only using cash flow data, including being able to predict when someone needs money and pre-fund them. So there were differences. But three companies, including us, that existed was Dave and Ernan at that point in time.

Pablo Srugo (00:23:56):
Were they big enough that you worried about them? Were they big enough that you kind of positioned against them? Or were they kind of not that relevant relative to the opportunity that it's denied?

Zuben Mathews (00:24:03):
No, I mean, as a founder, you worry about everything, man. Like, you're paranoid. I mean, if I don't find a paranoid founder. I'm personally not investing in them. It's in some different levels of paranoia. No, you have to see what the competition is doing. I mean, the whole idea there is to provide a better service and a differentiated service for the competition. So yes, we absolutely kept an eye on them back then, as I know they did with us as well. It turns out very, very, very closely. And we all wanted to beat each other in one form or the other. Now, beating doesn't necessarily, to me, mean only the largest, highest amount of revenue. The fastest growth rate, or potentially the fastest profitability. I'm sure all of us have different meanings of what "better" means. For us, it really was a question of overall customer service. I mean, if you look at us, we've always only been a subscription package, right? We've never, as I've wondered, have any tips. And then when you look at the entire package, if you combine everything that we offer. It's by far the cheapest package among the three. It's just packaged differently as well. So yeah, absolutely. Always focus on beating the competition and whatever matters to each one.

Pablo Srugo (00:25:13):
And so, post these interviews. What is it that you build? What does the MVP look like, and how do you go to market with it?

Zuben Mathews (00:25:18):
So I'll answer the first part first. It was making sure that the individual would have trust in this app. Which would help people help them get, we could underwrite them effectively using cash flow data and ideally be able to give them access to capital or liquidity. Which is what they needed. Right? That was pretty much the baseline. And just again, I know it sounds trivial today, but underwriting using cash flow only data. So do we feel comfortable giving this individual money, and you want to, do not give them a bad experience? That's you want to do, that, but also being able to take the money back in a manner that's responsible. That is fundamentally clear to them when you're when the money is being taken back. What the overall fees are, as I pointed out, was a subscription. So that was on the easier side and very, very transparent. and being able to make sure they can use it again if they so feel. That was the core while still trying to build a level of trust. Because believe it or not, even if you're giving away advances for helping people be more liquid and save money between pay hecks, etc. People are very, very worried about new apps. Especially then, when they have to give you their personal information. So that was the core of what we were trying to do in the MVP. Again, sounds maybe more simplistic, but that's the reality of it.

Pablo Srugo (00:26:31):
And that cash flow, was it tied to earned wages, like you verified payroll, or you just? It was mainly just the ins and outs and just kind of building a timeline.

Zuben Mathews (00:26:41):
It was a combination. I mean, the reality is it's. Back then it was a little bit more simple. Where we had knockout rules if this person didn't have persistent income. So on and so forth. Obviously, in terms of where we are today, it's a far deeper regression model, multivariable regression model, that we use. But even then it had to be a combination of making sure what is the. Is it high-level? What's the length of the account? What's the activity in the account? What's the balance of the account? And is there persistent income?

Pablo Srugo (00:27:13):
And was it a mobile app right away, or was it a website first?

Zuben Mathews (00:27:16):
Mobile, mobile. The website was more in the first part that I told you how we helped to understand and find people to talk to about the product. But no, this is fundamentally a mobile app. Like even today, well over 90, let's just say 95 plus percent of our activity is on the app. We're in app phase. a mobile-first company by far.

Pablo Srugo (00:27:33):
Had you raised at that point, or when was your first fundraise?

Zuben Mathews (00:27:37):
I was fortunate enough with my banking. I was able to, for the first four months, even after founding the company. Four or five months, was able to fund it myself. And then we raised our seed round, led by DCM at that point in time. Who were also investors, and SoFi, Figure among others, in January 2018.

Pablo Srugo (00:27:56):
How big was it?

Zuben Mathews (00:27:58):
It was three and a half million. Approximately.

Pablo Srugo (00:27:59):
And was this after you launched or before?

Zuben Mathews (00:28:01):
This was before our launch. Because our, our, our, our beta. I mean, our early, our customer number one was six months or something post that. And we did our Series A in 2019, but by that time we had gotten 10-plus million in ARR.

Pablo Srugo (00:28:17):
So January 2018, you raise and then you spend some time kind of building the first version of the app. So tell me about the going to market part.

Zuben Mathews (00:28:27):
Oh, sorry. Yes. Look, I mean, the reality is we ran some Facebook ads. That's what we did. We had a process. We're trying to figure out how to do marketing. What are the catchphrases that would work or the marketing phrase that would work? What are appealing to the people? As I said earlier, when we're doing these interviews. Whether it was number one or number 100, number 15, whatever, being able to get that kind of input was great. Throwing that out there in Facebook land. Trying out different message tests, trying out different creative tests, etc, really helped us get to the initial traction as well. And it is, at least back then, and I think it's there today. It is unbelievable the power of Apple. Because we were initially launched on the App Store, just people searching for keywords. That is, you know, people forget how powerful it is on Apple as well as not just Google.

Pablo Srugo (00:29:16):
You love this show. You don't want to miss the next episode. Why would you? So hit that follow button. Trust me, it's in your own best interest. Do you remember those ads? What ultimately worked really well? What catchphrases? What was the kind of positioning that really took off?

Zuben Mathews (00:29:32):
It's been a while, but it always comes down to the deepest need. Which is really being able to make sure that you have money in your bank account between paychecks. That some version of that, being able to access liquidity at a fair price and in a transparent manner. Those are the key things. So even today, if you look at our space, it really comes down to, hey, we give you access to liquidity, it's transparent, and we don't impact your credit score.

Pablo Srugo (00:29:59):
And maybe just on that, because the problem is really important. Did most people that have the problem know they have the problem? Because the overdraft kind of happens automatically. So I'm just curious, how much do most of those people recognize that they're really getting dinged by overdraft fees versus the ones who kind of never really took the time to realize how big of a deal it is?

Zuben Mathews (00:30:20):
Yeah, so here's the good thing about those user interviews. That was one of the questions that occurred to me that we had asked. Almost everybody knew that they had a problem. It was very, very clear. They knew that they were out paying their banks. They had no clue how much. They just knew that it was unfair, but it was just part of the process. And I hate to say this, this is something phrase that I haven't said in a while because it's coming back to the old days. At least for us, it was a cost of living for them. They considered the overdraft as a penalty just because that is the situation they were in. That is heartbreaking. Like, are you telling me that the population that is living pay check to pay check in the higher stage of financial stress are getting dinged more purely because it's easy for the banks and other people to go do so? That is just very, very hard. It was very hard to swallow. But that's the reality. They knew they were getting dinged. They didn't realize just how much. And if they found a solution that would give them what they needed in a cheaper and easy way. The convenience part, as I pointed out in the onboarding, being important. That was fundamentally important for our version one all the way down to, obviously, even today, but the early versions in the app.

Pablo Srugo (00:31:33):
Was there like a freemium version, or it was always just like pay $10 and no more overdraft fees? That was always the trade?

Zuben Mathews (00:31:39):
We have a freemium version that helps people understand and budget. Get access to tips. So, for example, this is what we have today. If we see someone's, let's use an example. Electricity bill goes up, we will send them personalized content and tips say, hey, we noticed your electricity bill this month was this. Your prior month was this. Here's a few things you can do from our content library again. It's personalized to that individual.

Pablo Srugo (00:32:01):
But this is now, like even back then, or this is more new stuff?

Zuben Mathews (00:32:04):
This is new. Back then we had budgeting tools. But the core app, in terms of being able to access the features that we just talked about, the EWA type features, was a subscription.

Pablo Srugo (00:32:14):
And where did you get? This is the other part of, like, you know, any sort of lending business. Did you just lend out of your balance sheet at the beginning, or how did you structure that side?

Zuben Mathews (00:32:23):
In the beginning, yes. Early, early beginning, yes. So we're talking about users 1 to 100, maybe 200, 500. But early on, this goes back to what I talked about. Some experience in the financial world, or in this case. Being an investment banker, we got some investors, including equity investors and some individuals, to put money in a credit facility. So we had our own, if I remember correctly. The first facility we did was about five, six million with some actual institutional investors. Equity side and credit side, as well as individual investors, come in and pay, and we paid them a coupon. So we were, for a pre-seed company and even at Seed Company. We were a little bit ahead of the curve because of the experience that I had to do so. And soon after that, we raised a hundred million dollar. Approximately a hundred million dollar credit facility from a social impact fund called SEMP, who've been great partners with us.

Pablo Srugo (00:33:16):
One of the things I'm curious to take on is, like, you know, with product market fit. Whenever you see a lot of demand, that's typically a great signal that there's real product market fit. Except I find with lending businesses. Because, if you offer people money, a lot of people want that money. How do you think about product market fit when it comes to a business like yours and generally, like just lending businesses more generally?

Zuben Mathews (00:33:38):
But as one of my investors told me previously, to your point, it's easy to give money away. It's hard to get it back. And using that concept, I mean, for us, one of our early investors or our Series A lead. Lightspeed, and Jeremy Liu in particular, put the concept of making sure our unit economics were exceedingly tight. So for us being a subscription business. Even though we had an EWA and other products in there. It really focused on unit economics, so LTV CAC, and being able to make sure that you can get to a point where LTV CAC is 3x, 4x, 5x. Whatever you can get to, or be able to believe you have the leverage to go do so and balance growth over LTV CAC. I mean, one of the things that happened early in 2020. Which, is not surprising to anyone, was COVID. And so we were on this fundamentally, I have to admit, rocket ship trajectory back then. 15 people, $20 million odd in ARR, and COVID hits. And at this point, we've never been profitable because there were very few Series A companies at that point in time we were thinking of profitability, and neither were we.

Pablo Srugo (00:34:43):
How would you not be profitable with 15 people and $20 million ARR?

Zuben Mathews (00:34:47):
Well, I mean, the cost of data was Plaid makes a ton of money. The interest rates were exceedingly high on the balance sheet that we were taking, and we had losses. And to be clear, we were focused on building the next product and the next product. And we had. We spent a ton of money on marketing as well, right? So those are your costs that go down into actually running a business. And like I said, a lot of those things, especially being early on, people are not willing to give you scaled pricing when it comes down to your data, partners, etc. So there was definitely quite a bit of costs associated with that. Including loan losses and marketing, because we were growing 20-25% a month. So that was, you know, there was a lot of growth even at that level of scale. Again, not 15-20 million. 20 odd million at that time. But to your point, like COVID happens, and then all of a sudden we're like, oh my God. This is kind of an experiment because we only use cash flow data. We have a very strong thesis. We're being able to give money effectively. Now comes this black swan event, this experiment, quote unquote, cash flow experiment needs to be proven out. So we did have a couple of months of negative revenue. But that's when we started to say we really. Really focused also on the business while managing what needed to happen. Which is being fair to customers who are the most stressed individuals at the same time. So what we did was we took that opportunity to work effectively with our partners, tighten up our ship a little bit more, and focus more on unit economics. And we came through that for a long period of time to being profitable. That's when we found out, hey, not only can we give access to money, but we were able to effectively take it back and bring enough money back into the house to make sure that this is a viable business in the future. So that hopefully gives you the answer to the question. It's easy to give money back, but it is harder to take it.

Pablo Srugo (00:36:40):
Yeah, walk me through that time, actually, in 2020, like when people lose. I guess, you know, their jobs freeze. I assume that's the issue. Obviously, in a sense, the macro was solved pretty quickly because there was crazy government intervention at a faster rate than we've seen in 2008 or 2000 or any of the other kind of downturns. But I assume that was the issue, that the cash flow kind of stopped. And then what happens in that situation? Somebody's paying you $10 a month, but they're borrowing a couple hundred, and now they're not paying you back. Is that just a loss for you? How does that play out?

Zuben Mathews (00:37:08):
Yeah, so I mean, like for us, we were pretty clear. We don't report to the credit agencies. We don't sell these advances to a third party or do third party collections. So we're, again, trying to be as transparent as possible to a segment of the user who we've already talked about the most stressful. So unfortunately for us as a company, if someone can't pay back, that's it. We take a 100% loss. And the way we do it from an accounting basis, we take it then and there. But we did give several months of free subscription to individuals because the reality is most people, by default, are good people. You know, you are looking for two elements in any kind of advanced or lending business. You're looking for a willingness to repay. Which I would argue most of our users, as I pointed out at the beginning of our chat, these are responsible individuals, including me 20-plus years ago. It was just a matter of circumstance. So they had the willingness to repay. Did they have the ability to repay once they had their jobs back or, you know, just had more money because of the stimulus or spending less? The willingness and ability to repay came in. And we just leveraged off of that and were more effective in terms of an improved business as we went forward.

Pablo Srugo (00:38:18):
How do you, by the way. How do you deal with fraud? Like people that, you know, the 1% or whatever it is, sub 1% that just takes advantage of the system. I'll pay $10, get 200 bucks, cancel, turn out, and move on.

Zuben Mathews (00:38:28):
Yeah, we haven't talked about. We haven't talked a lot about this, but we, the entire thesis. I guess we did talk to some degree when we started. Was truly say, hey, how do we use cash flow data? And that bank account data, and what can that show us? So the good news for us is that the underwriting and the fraud tools that we built all in-house. Combined with the data that we use, again, only cash flow. Help us restrict fraud to well under. The way we would define it. Under it was 20 bps of all our losses. So the good news is the team built around my co-founder, etc., and the core thesis is very much intact, where if you see all these beautiful, rich patterns of someone's bank information, you can start to cut the truly bad actors very early on. It's also a lot of effort for someone to start an account, have the kind of information, etc. To try to defraud our type of product, but even if they do. Which a lot of them fundamentally do, especially over the years. We've been, at least until now. We've been able to avoid that, just purely based on the regress model.

Pablo Srugo (00:39:34):
What is that? Yeah, I'm curious, actually, what, like, maybe at a high level, obviously, this is a complicated algorithm, but, like, at a high level, what are you looking for when it comes to somebody who has those, because in a sense, some part of fraud is just a bad intention, you know what I mean? Like, you might have a clean history, but it's like, ah, you know what? This is an easy way for me to get $200 bucks. I'm gonna do it.

Zuben Mathews (00:39:51):
Yeah, I mean, some of that we obviously missed, but it really comes down to the patterns that we've talked about in no particular order. Because again, it is a gradient tree fundamentally of persistent income, history of the bank account, the number of transactions, the balance after pay checks, and just. In essence, just being able to have a pay check. All of those things done in a certain manner help you weed out at least the people who have no willingness to repay.

Pablo Srugo (00:40:16):
And so the rest you just is, part of the kind of the way you price things out. But you've minimized it to a way where it's just, you know, to cause doing business. But it's as small as it can be. And it's not, you know, let's say, material.

Zuben Mathews (00:40:25):
I mean, it's absolutely not the smallest. Smallest it could be. It's the, it goes back to the LTV CAC, right? Because we can cut down our losses, or most lenders can cut down their losses to pretty much as small, as little as they want. They also cut down their approvals. So the impact is on growth, right? So being able to find the right balance of still being able to grow 100, 50, whatever, 30-odd percent. Again, our numbers are higher than at least 30-plus. Well over 30-plus percent growth even today. But it's that finding that balance of what level of profitability do you want and what level of growth do you want.

Pablo Srugo (00:41:02):
And then going back to those early days. That first year, first two years, what, if anything, was broken? What was the hard part of this business?

Zuben Mathews (00:41:10):
I don't think we have enough time for that. The hard part, let's say day one, finding a co-founder. Day two, finding the second person. Day three, having an agreement. Clearly, this was fortunately on the easier part of what to build. Building it, being able to find the first person. Deciding what those. As you asked, what are the steps that are required to go build it? Making sure we have a set of lawyers. Oh my God, lawyers are so expensive. Paying the lawyers to make sure you're doing everything absolutely correctly. Making sure that you have enough customer service because the last thing you want to do is deal with someone who has a state of financial stress, and not being able to answer any questions that they have increases that level of stress. I mean, from a product perspective, that was part of our mantra is how do you take this individual who is living in a state of stress. And our goal is to help them reduce that. I know it sounds more qualitative than quantitative. Don't get me wrong. I've got enough quantitative stats as well. But being able to help impact that person's level of stress and checking all those boxes was fundamentally stressful. You get access to somebody else's money after you've been spending your own money. First, you're spending your own money and saying, Oh my God, I'm going to run out of money here. And you get somebody else's money. That stress changes into, oh God, I'm a custodian of somebody else's money. I better be effective.

Pablo Srugo (00:42:24):
So, I mean, yeah, that all makes sense. But I guess my question is more like, you raise that three and a half million seed. You put out the product, and then it's. It sounds like it was just kind of COVID aside, just up and to the right. I'm curious if there were parts of that, of the business. Especially in those first two years where you're like, if we don't figure this out, it's not going to work. You know, sometimes it's the early growth, but it doesn't sound like it was the case. Maybe it's retention. Maybe it's the pricing. You know what I mean?

Zuben Mathews (00:42:50):
There were small elements of each. The good news is, at least for the first two years, you're right, we did have it reasonably easy. The hardest thing for us to do in the first year, let's call it, was actually getting seed funding. In 2017, when we were knocking on people's doors, we barely got access to Plaid. We had an investor who, this is NICA, God bless them, before they became our investor, got us access to a payments rails at Silicon Valley Bank. Again, this is not like pick up the phone. You've got 15 BaaS vendors out there. Every bank wants to take a call, no worries, especially if you're pre-funded back then. Just getting and begging Silicon Valley Bank or any payments provider just for us to get hooked on, was the only way that happened was because Hans Morris made a phone call from NICA to Silicon Valley saying, hey, do me a favor. These guys seem legit. Let's give them a shot. That's how we got that. That was fundamentally stressful. But just the amount of effort we had to take to get our seed round And it wasn't New York City. We did some meetings in New York. We were spending most of our time in Silicon Valley. Menlo Park, we literally put our flagpole up and said, let's go around Sand Hill Road and try to get money here. Because that was very, very stressful when you're just a PowerPoint and a couple of people. Yeah, that was probably the most stressful part. And yes, post that, things were a little bit easier. Look, we had a bump in terms of marketing. GAC doubled. The good news is GAC was really small. It's like, can we manage this? I mean, how are we able to grow, et cetera, to redo all our forecasting? So there was always bumps in time. And there was another issue right after. This is still the first two years, but right after our Series A. Facebook decided that some aspects of FinTech. They didn't understand, so they just shut them off. So our main acquisition channel, good news, it wasn't just us, fundamentally shut off. And we had to figure out other ways to continue to grow from a paid marketing perspective. But also at the same time knock on the door and say, guys, we are fundamentally a social impact company. Here's the list of our investors who, you know, what are we doing here? So there was it's a lot. It was, there a lot of more heartaches lasting. The good news is it didn't last more than six months each. But there's a lot of pain as a founder, one way or the other.

Pablo Srugo (00:45:14):
And then walk me through the exit. Where did that come from? How did that, you know, I don't know how much you can share, but, you know, just that story of, you know, meeting the acquirer. When that relationship started and how you ultimately got that across the line.

Pablo Srugo (00:45:28):
Sure. We were. We started to spend some time talking to partners because one of our focuses was like, look. There's an opportunity to work with companies who have even much larger audiences than us already but are synergistic products. But not competitive products. And we had spoken to a couple of companies. One was the remittance space. The other one was just a large subscription company as well. As well as UpFound, who ended up being our eventual acquirers, and some others. Quite a few others as well. But those conversations, especially with UpFound. Naturally turned into, hey, we want to be able to do a partnership. Here's how we can think about a partnership. We have a very similar customer profile where they have a fundamental need of improving their financial health. And this is what we can do. Let's come up with ways to cross sell our users or even embed. This was the initial idea. Embed our core technology into one of these partners. And that was the core process. That conversation, as you started to get to know the people. You realize the opportunity was even bigger than we thought in terms of their audience. Again, with a similar demographic profile, that fundamentally changed rather quickly into a potential acquisition conversation. And that's how things naturally worked out. And if we didn't like the team. They also gave us the opportunity of keeping the brand as well as autonomy while still leveraging off of the large corporate structure that they have. So we can continue to focus on new product build out and growth versus less more operational things is one of the reasons why we got together.

Pablo Srugo (00:47:01):
What is their business model?

Zuben Mathews (00:47:03):
They're a holding company. They own other assets, including Acima, which is a digital lease-to-own business. It's about $2 billion in revenue, and Rent-A-Center as well.

Pablo Srugo (00:47:12):
And so there's like a cross-selling or cross kind of opportunity between the products?

Zuben Mathews (00:47:16):
Fundamentally. It's just the user demographic is almost 100%. The demographic profile is almost 100% overlap, but the overlap of the actual customers is only about 10%. So it's a massive crossover, generally. and the millions.

Pablo Srugo (00:47:31):
What did it feel like? I went through. I mentioned before, but I went through, like, a near acquisition. I was young. I was like 20 something years old. Got all the way to definitive docs, and then it got pulled out last minute. I cried like a little baby because I just couldn't handle the ups and downs of that. And so I'm always curious for the ones that got through it like you did. What is the day like? When it truly closes, money gets wired. Your bank account changes by a material amount. What is that feeling like?

Zuben Mathews (00:48:01):
Yeah, I mean, it's, you know, I think everybody has their own feelings. I think for me. It was, to be completely honest. It was a sense of satisfaction that one part of what we had focused on. And as you pointed out, part of starting a company is making sure that you can take it to the next stage. This, for us, was one of the next stages. So there's a sense of accomplishment. The sense of excitement because you could actually go and work a lot faster and do the things that were slowing you down because you didn't have a larger company to support you and cross sell to. So that was there as well. At the same point, there's a little bit of apprehension because this is your baby, and now it's the next phase of that. So it was absolute accomplishment, delight, and a little bit of fear.

Pablo Srugo (00:48:46):
Awesome, perfect. Well, we'll stop it there. I'll ask the last. The three questions we always end on. The first one is for you. When did you feel like you had real kind of product market fit?

Zuben Mathews (00:48:57):
User 10,000. I was in a cab. I just finished a VC meeting. Heading back to our janky office. And you're on your iPhone, refreshing, refreshing, refreshing, snapshot, 10,000. It made me feel happy. I came back to the office. My co-founder already knew, and we hugged.

Pablo Srugo (00:49:16):
That's awesome. Was there any point where you truly thought that things might not work out? Maybe you would just fail?

Zuben Mathews (00:49:25):
Yeah, there's always an element of that, but you gotta cut through it. Again, having, honestly, it took me almost a year to find my co-founder. So I was working on this idea. Let's call it about nine months. I knew I needed to find a co-founder who had experience in cash flow data. And finding the right individual. Because this is going to be my life, right? I'd given up a, what one would define as a lucrative career in investment banking to go do just this. And this is going to, no one was going to stop me. But the hardest times, hard, by far the hardest times, there are lots of, lots of elements of doubt. Was simply just trying to find my partner, who I realized needed. I could do this. I needed somebody else to do this, and that was the hardest part. Being solo and alone, trying to find someone is hard.

Pablo Srugo (00:50:10):
And you mentioned you invest in startups. I'm sure. I'm sure you work with a lot of early stage founders. What's the some of the most common pieces or piece of advice that you tend to give early stage founders?

Zuben Mathews (00:50:22):
The, it's very simple. Somebody actually gave me that piece of advice. Always ask for help if you need it. Because I guarantee you no one's going to give you help if you don't ask for it because they might not even know. So that's a it sounds like a simple thing. But it's always ask, what is the worst someone's going to do? Say no. Disappoint you. You know, just always ask.

Pablo Srugo (00:50:44):
Awesome. Perfect. Well, Zuben, thanks for jumping on the show, man. It's been great.

Pablo Srugo (00:50:47):
No, thank you so much again. It's been a pleasure to go down memory lane.

Pablo Srugo (00:50:52):
85% of people who listen to the show just started listening to it this year. You're probably one of those people. In fact, the odds are 85%. Guess what? You need to go back because there are over 100 other episodes that you need to check out that are just as good, if not better, than this one. Don't miss out.