Manufacturing in the US, Building in Open Source… and more | E2154

I mean what it comes down to is we actually build things here and pretty much everyone else in trucking trying to make EVs is mostly in the business of buying things out of a catalog and then selling it to other people. Imagine if when you bought a Silverado, GM like went across the street and bought all the engines from Ford. It would be really tough for GM to compete with Ford's pricing at that point. Right? And like that would make no sense. This is the only place in the United States where a truck OEM is building their own battery modules and battery packs.

This week in Startups is brought to you by netsuite. The business landscape is very chaotic right now. That's why you need NetSuite by Oracle. If your revenues are at least in the seven figures, download the free ebook Navigating Global Trade. Three insights for leaders and at netsuite.com twist retool bridge the gap between AI demos and business impact with technology that's designed for developers and built for the enterprise. Visit retool.com twist and try it out today. And tech say it without saying it. Head to get Tech Twist or your favorite registrar to get a clean sharp dot tech domain today. Hello and welcome back to this week in Startups. My name is Alex Wilhelm, I'm your host and I'm joined today by my comrade in Arms, it's Mr. Lon Harris. How you doing baby?

Doing great. Did not, did not really think about how I was going to be on camera this week. So it's a little bit of a wild hair situation but we're working with it.

Well, I actually did not do my usual hair trim before this morning so we're going casual Monday I feel like today. But let's start with just the opening news of the day which is that stock market hit an all time high today, both the S and P and the Nasdaq and so I think it's time for some champagne and caviar. But no, it really is an all time high today. So if you are in the equities market in any capacity, it's a good day for you. Also long a critical upswing for market comps. So a lot of companies want to list want to go out and get public. The higher the public markets are, the easier it is for them to defend private market valuations, the more enticing a new listing might be to investors. So overall a pretty bullish sign as we go into, I guess what we're going to call the second half of the year's IPO cycle And there's one name in particular, Lon, that's driving the most attention. So tell me just a little bit about Figma.

So Figma, of course, Design Unicorn. It's the vibe coding, it's the web design. It's that incredibly hot sector of startups that we talk about, I feel like just about every day. So Figma's in that, in that range they price to an initial IPO range of about 25 to $28 per share. RenCap calculates that at the midpoint of that range, their, their fully diluted market cap somewhere in the $15.9 billion range. Now that is less than Adobe wanted to buy the company for just a few years ago. So it's sort of a, sort of a mixed signal there, but it's above the $12.5 billion tender price that Figma allowed shareholders to cash out in just last year, in 2024.

Yeah, so I think it's overall a pretty strong number to start. I think Adobe was overpaying for the company to take it off the table. Overpaying is a way of saying premium in more, you know, normal English. But whenever you buy a company and take it off the table, you have to pay for some of its future growth ahead of time. You see this in every, you know, major public market transaction and so forth. Yeah, Figma was a hot company. Adobe wanted it because, well, it's crushing the game and I would say eroding a good chunk of Adobe's market share today and also long term cash flows. Next up on the docket we have polymarket. Polymarket is a place where you can place bets on what's going on in and around the world. Everything from bitcoin prices to who will be the next president of Pick a nation that's having an election. Well, you can make a wager on it. And we like Polymarket here at Twist and Lon and I have picked an excellent market for everyone today. It's entitled what will Trump say during his AI speech on July 23rd? Let's give people some context here. Trump's talking about AI on the 23rd.

Yeah, we've got a co branded event on Wednesday of this week. It is built both an all in podcast meetup. For those of you who just watch this show, Allin is a separate show that Jason hosts with his besties, Chamath Palihapitiya, David Sacks and David Friedberg. Very popular podcast. More popular than this one. I don't know why but it is. So they're hosting a big event this week co hosting it with the White House, of course, David Sachs also, in addition to being an all in co host, our AI and crypto czar here in the US So Trump is going to discuss some aspect of AI during this same event, which is being co hosted by the all in podcast. And we're debating what are the specific things, phrases, words that Trump will say during this big speech. The, the number one, 95% chance that Trump is going to say AI or artificial intelligence at least five times. I think that's pretty reasonable. What do you think, Alex?

I think that's incredibly reasonable. That's kind of one of those like they're selling dollars for 95 cents moments. Yeah. There's a 65% chance, according to Polymarket, that he'll say million, billion or trillion any one of those words at least 15 times. And we love this the most. Lon. There's an 81% chance, or just over four out of five that he'll say China at least seven times. He'll probably say again.

Yeah, he'll probably say it like this. China.

He's never learned how to say the name of that country.

That's how he says it. He just said like, like they're like, like it's very, it's very important that you hear him say China. You got to hear how he pronounces it. Yes, I also thought 61%. Oh, go ahead, go ahead.

61% chance of mentioning Nvidia OpenAI, 57% Biden 79%. And I would say the chance of him saying Biden in a pejorative fashion would be 100% as a subset of. Yeah, President Xi, 60. And then there's some weird ones down there like drill baby drill, 38% and so forth. But I appreciate the poly market folks having a good time.

Yeah, I think, I think it's interesting that there are like other unrelated phrases because that is, that is a thing that Trump does like. He, he doesn't necessarily stay entirely on topic. If he's thinking about drilling during the speech. He, he might like that in another context with a different politician. That would be a bad wager, I think. But in this case, I feel like you got a shot at it. I feel like why not let it ride?

You know what, I now have to tune in because I'm curious to see who's right and who's wrong. But that's the power of prediction markets. You can really have a lot of fun with them. And it's not just zero day options on volatile equities it's also will Trump say hell more than two times during the speech? Well, tune in and we'll find out.

I will say if I was going to participate in this particular market, which it not a huge trade volume, we should say only 53k on the, on the board sort of so far. If I was going to pick any one of these options, I think I would go Biden. I think 79% Biden. That's the smart money on this table. I feel like I'm very, I feel very confident he's going to say the name Biden at least once.

Well, if you make that wager and lose your shirt, you can send all of your complaints to Lawn Harris. This is not possible Factory.

This is not investment advice.

Sounded like investment advice to me.

I said very specifically it's what I was going to do.

We are not going to end with a joke because that's not what we do. Very sober ending point. Now let's talk to some founders and some Twist 500 companies. Lon, we have three interviews for you today. First up is Harbinger, a company that is building EV chassis for the mid size commercial market. Now that sounds a little boring to you? Just keep in mind that not all of the cars out there that we need to electrify are sports cars, hot rods and SUVs. There's an enormous amount of commercial vehicles out there that bring you your Amazon packages, that deliver bread to your store, etc. That really could use an upgrade. And we've seen companies like Rivian work with Amazon on electrifying their fleets. Well, what Harbinger does is just makes the chassis and it turns out as I learned during my chat with the company, that is actually pretty standard to sell essentially a steering wheel and a battery pack and some wheels and some brakes and, and then everyone else kind of builds their top on top of that skateboard looking thing. It's a really interesting company. I think it's going after an enormous market, tens of billions of dollars. Super smart, quick product, velocity. Just love it. That's going to be a treat. Then we're going to talk to Posthog, the company that you may recall recently raised a large round not from Sequoia, not from Kleiner, but from Stripe, the well known unicorn in the payment space. So what is a SaaS company doing raising from Stripe to. Well it all kind of boils down to how cool their website is. And I bring up that, not to say just hey web design matters, but Postdoc is actually a company line that is breaking pretty much every single rule of thumb that we talk about in startup land at once. They cut prices, they avoid vendor lock in, they work in open source. They're just kind of flipping every single thing on its head and it's crushing. So I was really excited to get them on the show. Great interview, Great time if you're a founder especially going to love that one. And then today we're going to wrap up with one of my favorite companies I think in the entire world, which is Alpaca markets. I covered them on back in the COVID era fintech boom back when they were just getting started and their pitch was simple. Everyone wants to trade. This is back during the meme stock Robinhood kind of glow up days and they built a white label service that allows other companies to offer essentially equities trading to their customers. And they went a little quieter during the post 2021 collapse. But as it turned out and as I learned, they were just busy growing and building and are doing fantastically well. So a bit of a full circle moment for me, but another great twist 500 company. And with that lon, I think we can just dive right in. Yeah.

Let's do it. Harbinger.

All right, Harbinger. Ladies and gentlemen, let's go.

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Figures in revenue, when you think about electric vehicles, what comes to mind? You probably think about consumer vehicles like maybe a car from Tesla or the latest supercar from byd. If you're a big EV fan, you might recall that Rivian was building some of its own vans that are out there in the world in a partnership with Amazon. But there are other companies working on EV chassis that are absolutely interesting and they're taking on segments of the market that you might not be familiar with, but that doesn't mean they aren't changing the world. One of these companies is called Harbinger, and I wanted to learn more about what it's building and why and how it's doing it here in the United States. So please join me in welcoming to the show. It's John Harris, the co founder and CEO of Harbinger. John, hey, how you doing?

Good, Alex. Great to be here.

You win for the world's best background. You are currently in your manufacturing facility down in Southern California.

Yeah, that's right.

This is Harbinger's headquarters. And behind me is our battery module manufacturing line.

If you want to prove that you're not building vaporware, I think putting your camera inside the manufacturing facility with people walking around doing things is about as good as it gets. And we're going to get to all that. But I want to start kind of at the beginning. Like I said in the intro, people are familiar with EVs, maybe even in a commercial setting. You guys, however, are building EV chassis for the medium duty commercial segment. So just for starters, what is that kind of market area and why did you guys choose that as the place to bring your EV technology to market?

Yeah, so medium duty is a low volume, high mix segment. It's only about 350,000 vehicles a year sold in the US and that's about half the number of F150 soldier. So the big challenge for big OEMs is that, you know, they have these huge bureaucracies, huge, huge workforces, and when they want to develop a new product, they've got to develop a new product for a segment of 5, 10, 15 million units a year. And so this segment has just sort of sat here with nothing new since it was easier to make new vehicles, which was 30 or 40 years ago.

So it's ripe time to go about this now. What you're not building is an entire vehicle. You're building what you guys call an electric vehicle, stripped chassis. So for folks out there who are not as familiar with that part of things. How does that differ from the consumer EV buying experience? For example.

So when you buy a medium duty vehicle, you're buying really something from two different companies, you're buying a chassis from one company. And that's really the, what I think of as the vehicle part. So you've got this vehicle thing and it's a flat skateboard and then you've got some application specific upfit on top and that could be the RV body, the delivery vehicle body, but it's something that sits on top of that skateboard and it's something that tends to be really, really customized. And it, it ends up looking a lot more like a home building company that does the top half.

The historical analogy here is old school coach building, right? I mean back in the day you would have your car built on top of a chassis from the manufacturer and that's why people had wild car designs. When was this? Back in the 20s or whatever. But that has persisted in the medium duty segment. So essentially you guys provide the batteries, the drivetrain, the steering, the brakes and so forth. And then if UPS wants a slightly different enclosure on top of it, that's up to them. Okay, that makes a lot of sense to me. And just to be clear though, this is the norm for your segment. You're not breaking with standard operating procedure on this, right?

This is how every medium duty vehicle in the US is sold. So we're not, we're not trying to get the customers to do something new and crazy.

Okay. So one of the things that I was very excited about when I discovered Harbinger was your guys set of values. You guys talk about delivering on a cleaner planet, just reducing pollution in and around communities. The things that resonate with me as someone who lives in an urban area with small children, so I care a lot about, you know, clean air and that sort of thing. But you guys also discussed quite a lot about how you want to be kind of price parity or half price parity with diesel vehicles. And so I'm trying to kind of sort out what is, what is the main goal of the company. Is it to, to improve the planet a bit or just to make better vehicles? What's the driving pulse behind Harbinger?

Well, it's both of those things and I think you can't have one without the other. Something a lot of climate companies really struggle to understand. If you don't have revenue, you're not making an impact like that's it. And you're not going to have revenue for Any meaningful length of time in automotive, unless you're selling a product at the right price. The right price for a truck is the current price of a truck. The fact that we want to sell you an electric vehicle doesn't make that vehicle worth two or three or five times more money to the end user. And that sounds extremely obvious, but that is completely like heretical thinking in trucks. If you go and look at an electric truck from Freightliner, you're going to find that it is 2.5 times more expensive than a diesel truck. And then, you know, people wonder why they're not selling.

Well, it's because businesses probably would like to help the climate on the margins, but they're probably more worried about their actual margins in the meantime. So essentially you're saying that reaching price parity with diesel vehicles is one in the same with the company's overall, let's have a cleaner planet push. Because if you don't have a commercially viable ev, then you're not going to sell any. No one uses them whatever. So that raises an interesting point, which is how have you managed to build these skateboards, as you call them, at a price point that is competitive? Because if other EV trucks in the market are two and a half times as expensive, I presume you found some way around enormous cost creep in how you build these things.

What it comes down to is we actually build things here and pretty much everyone else in trucking, trying to make EVs is mostly in the business of buying things out of a catalog and then selling it to other people. Imagine if, when you bought a Silverado, GM went across the street and bought all the engines from Ford. It would be really tough for GM to compete with Ford's pricing at that point. Right, and that would make no sense. This is the only place in the United States where a truck OEM is building their own battery modules and battery packs in house under our own control. So we buy cells, which is a commodity. They come in at that end, and at that end, battery packs exit and go into the vehicle production line. And that's fundamentally how the automotive industry was built 100 years ago. That's why it's called the Ford Motor Company. They actually have the ability to make motors there. It's not called the Ford Seats and Windows Company because no one really cares if you can make seats and windows. Would people care a lot if you can make motors?

So essentially, if you purchase all the components and stick them together, you're always paying someone else's margin along the way. And that adds up to a relatively high cost of materials. Okay, I guess the next question is, why aren't other companies that build EV trucks for the medium duty segment following in your footsteps? Is it just simply harder to do your own battery module and sell, you know, agglomeration in house?

It's certainly harder. I would say. There's. There's the difficulty and there's. There's a greater difficulty that I usually refer to as poverty of the spirit. There's a lot of poverty of the spirit in automotive these days.

Okay. I can't let you just say that and not explain it in more detail. So tell me, tell me why everyone at GM and Ford and so forth have. Have very poor spirits today.

I'm not so much looking at GM and Ford, to be honest, because this isn't a big segment for them. Ford has shown us with the F150 that they can build something that's pretty compelling. They struggle to make money at it, but that's a good product. People enjoy F150 lightnings. They're not building stuff in this segment because this segment is a routing error to those companies. Ford makes 4 million vehicles a year. This whole segment is sub 400,000. The product that we're building here today, the strip chassis, that market is actually dominated by Ford and it's about 0.2% of Ford's production. It's not Ford's fault. Like, if Ford was paying more attention to this segment. Yeah, you would probably have to go back and say, ford, what are you doing? Go pay more attention to F150 Lightning. It's like they're making the right call. Yeah, I'm more talking about poverty. The spirit with the big truck OEMs. Electrification in trucks makes 10 times more sense than electrification of passenger cars because these vehicles consume just staggering amounts of fuel and maintenance. So there's real cost savings opportunities here.

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I mean, that makes. That makes perfect sense to me. My question though, is you found a niche where there isn't an enormous amount of volume and there's an enormous amount of strong competition. Sounds like on the EV side of things. So it makes a lot of sense to build a company there. But are you capped effectively by just how many of these vehicles are sold per year? And does that put a ceiling on what Harbinger is building?

I think a little bit, yes. We are never going to build 5 million vehicles a year here. And to be honest, we're fine with that. I've worked at plenty of places that have higher volume like that.

Yeah.

A market that is that big is too attractive. Everyone comes in and says, oh, we want to sell that too. And naturally it erodes your margins. I don't know if you've ever worked at a business where they have like a 5% operating margin. It sucks. It's the sort of place where like the coffee machine has a cup next to it and you've got to like put a quarter in when you get a cup of coffee. Yeah, I don't want to work at a place like that. I don't want to build a place like that. So this is a segment that it's not that big, but structurally it's basically impossible for people like Ford or GM to come into this segment. It's just too small. We can do it because we're a startup, we're small, we're pretty nimble. And we've done this a bunch of times before. So we can do it more cost effectively.

Yeah. Now, I don't mean to say that what you guys are building is small because you guys noted in May of last year, so just over a year ago that you had at the time $400 million in binding pre orders. So there's quite A lot of dollar value to these and elsewhere on your site. You guys said that just to pick one of your examples, your Model S524, which is a Class 5158 inch strip chassis with 140 kilowatt hour battery, has an MSRP of 103,000. So these are not low cost items. There's quite a lot of revenue to be had here. Does the margin profile of what Harbinger builds match competing companies margins? Because I'm not sure how lucrative the traditional OEM side of the medium duty segment is today.

So that's probably my favorite part about this segment. This segment, because it's hard to access and it's small, the margin potential is much, much higher. This is a segment where costs have been going up just outrageously fast. If we look at what we consider the benchmark product in this segment, it's FreightLiners MT55. MT55, that product has been going up by about 15% a year in cost for the last four years. Yeah, that's wild, right?

Compounding.

Compounding, yes. So when we started the company, we thought that we had to make a product and sell it for about $50,000.

Okay.

And we basically designed the cost structure of the company around selling at $50,000. And we said like, oh, this is interesting, we can probably build this business with like a 20ish percent margin. And since then that product has gone up to about $85,000 in four years. Our cost structure has gone up a little bit, but not by that much. So this market over the last four years has gotten much more exciting. I think when we look at margin profile. Just because the cost of diesel vehicles has gotten way more expensive and that shows no signs of slowing down.

What is pushing up the cost of diesel vehicles today? Because I presume it's inputs, labor, maybe tariffs.

It's mostly rising input costs across a multi tier supply chain. When your labor costs go up by 30 or 40%, which happened last year at big OEMs in the UAW negotiations, that's bad. But when that happens at Tier 1 and Tier 2 and Tier 3 and the OEM, it all stacks. Right. And then all those companies have to make some margin so their costs are all going to get compounded. Tariffs have the same effect at an oem. When we import cells, we pay a tariff because now we pay tariff on everything. But if I have to pay a 10% tariff on $20,000, that's a lot better than me paying a 10% tariff on 60 or $70,000. And that's kind of what everyone else is doing. So those tariffs are having that same compounding effect across supply chains at large OEMs.

I see. I want to talk a little bit about just manufacturing because again, one thing that I liked about your company was just how much it's here. And as you know, we're literally in the factory right now. How much of your components, products are US built? And I know it's slightly a fuzzy term, but maybe the right way to ask you, John, is just how much of your skateboards are really US kind of produced a manufactured or manufactured and assembled. Answer that in the intelligent way, given that I just butchered the question.

So our vehicles are 100% US built and assembled. So the factory I'm sitting in here has three production lines right behind me. You can see the battery module and battery pack production line behind that and you can see some of the white structure there. That's an overhead crane. In the next line, that's the chassis line. And behind that is our motor winding line and drive unit production line. So all the content is built here. The batteries, the electric motors, cabling systems, the complete chassis. So the second part of your question, I think is really, what portion of this is US content?

Yeah.

So it's about 50% right now.

Okay.

Which by automotive standards, I would say is good by standards is really, really high. Most people have a ton of content from China. And then there's like an important correlated corollary to that question, which is how much content do you have from China?

Yeah.

And for US it's under 20% now, which is pretty exciting.

How far could that number go down if you wanted it to in the next handful of years?

I think it probably goes down to somewhere between 5 and 10%.

Okay.

It's possible to get to zero, but it's sort of self defeating. The biggest reason that we have such low Chinese content is just because we're building stuff here. The battery pack in an EV is about half the cost. So if you are everyone else in trucking and you're buying battery packs from cattle, like, there you go, you're at 50% Chinese content right off the bat. As long as you're not doing that, 20% is pretty tolerable. We'd like it to go down a little bit more to just continue to kind of reduce geopolitical risk.

Yeah, I mean, that's a material problem right now. And I think everyone who's been watching the headlines has been perplexed by the back and forth. And I think With a lack of clarity, reducing your risk is just a very reasonable thing to do. So that absolutely tracks with me. I want to talk about growth. So clearly you found something that people want because you had so many binding pre orders last year, you just expanded into a hybrid EV chassis, adding even more range to your product line. So how did the company do last year? What's growth looking like this year? Maybe what's your revenue target for 2025?

So right now we're building strip chassis. We started delivering those actual production units just at the start of this year. So this is our first year of commercial revenue. I hesitate to give predictions with the level of insane volatility we have right now, but something in the $100 million ballpark, I think is on the table for this year for us. Last year we were delivering vehicles, but they were pre production vehicles. So this segment is really defined by durability and uptime. So we actually built three generations of vehicles before we started delivering any to customers and ran them through years and years of validation testing. We were delivering those last year to customers to put into trials, but not actually as full deliveries. Totally from here, we're looking at primarily expanding within this segment. So we'll stay within Class 4 through 6 for the next couple of years, but we'll add a cab. So right now we build strip chassis, we'll move into cab chassis, which is a broader portion of the market. We're also starting to get pretty exciting traction in our components business.

Interesting.

So a lot of people have realized that bringing in, you know, huge portions of your vehicle from overseas is probably bad. Buying, you know, half the vehicle from a Chinese, so probably bad. And so they're starting to look around and say like, hey, where can we buy compelling battery packs and drive units and HP systems?

And so is state owned enterprise, kind of a public company over in China owned by the state, or at least has a large state influence in it, Correct? Yeah. So the components business is super interesting because we were talking earlier about poverty and spirit and people not doing things, and here you are doing them. So does that become, do you think, in time, a material portion of the harbinger business?

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Today, I think it becomes material. I would expect it to always be less. I think it would always be a smaller portion than the vehicles. My expectation is that the components business can potentially be higher volume, but it's lower margin. So we want to keep that balanced. If you have a buyer who's paying a ton of margin on components, that's like a temporary win because inevitably that means they're going to not have a compelling product at the end user. And so eventually they will go out of business.

So effectively, you can't have too much markup on components because then the end result will be uncompetitive and then you're just selling a little bit and then they die.

Okay, Exactly.

Now, on the price point, you guys have an interesting. It's called the IRA Risk Free Guarantee, the Inflation Reduction Act. And essentially, whether or not you guys say the IRA's 45 watt credits stay or vanish, you guys will kind of make that good. And we don't need to get into the technical details, but policies have changed in the last couple of weeks as we sit here together. So I'm curious, has anything in the recent government spending bills, regulations and tax credits created a material headwind for Harbinger, or are you guys going to be able to navigate the new kind of fiscal climate here in the United States without a lot of disruption?

I think it's a little soon to say, but so far I think we expected that the IRA credits would be a bigger tailwind and it really wasn't. So I don't know that it's that much of a headwind. It's just kind of a return to neutral. Ever since the election, most of the customers immediately said, we don't think these tax credits are real. That's, you know, they are real still until September 30th.

Right.

$40,000 seems like a real amount of money to me. But it's been clear all year that customers are not really valuing those credits. So the withdrawal of those credits, I think it has a fairly low impact.

Okay, well, that's great. I was worried because I was thinking to myself, like, here's a cool company that's raising money, moving up the products, getting out into marketing. It would be terrible if the rug was pulled out from underneath you at kind of the last minute when you were hitting your stride and starting to get commercial traction. So I'm really glad that that's not the case, but I want to flip it around. You and I are both fans of electrification of both commercial fleets, and I'm also a fan of personal EVs, just because I think they're a great way to approach the market. What should we be doing as a nation to more quickly transition our various fleets of vehicles towards EVs, towards cleaner energy and so forth that we're not doing? So what can we do to go faster?

We have two goals which are in many cases competing. We want to encourage more electrification, and we want to encourage more domestic manufacturing. Those are both valid, important goals. And 45W, you kind of had to pick one or the other because it was purely encouraging electrification and it didn't have enough defensive US Manufacturing because a lot of that money was just going back out the door to Catl. You know, what we should be doing is we should go back to a similar tax credit, but we should make it much more targeted and say we want electrification, but really only if you're supporting US Manufacturing.

That seems incredibly common sense to me. So I'm not shocked that it didn't make it through a budget reconciliation bill in the United States Congress.

But we wouldn't want any common sense.

Just before I let you go, John, you guys are doing a lot in the United States. It seems possible you previously worked at Anduril. I mean, is American manufacturing coming back at a real pace here, or am I just seeing a couple of highlights around the nation that make me feel excited but might not be indicative of actual progress?

I think American manufacturing is coming back, but people need to better understand what manufacturing means. Manufacturing is what's happening here behind me. Like, we're. We're taking parts and we're making battery modules. Yeah, but we're not like, this isn't a steel mill. We're not turning iron ore into steel. We're in a great position where we get to do the things that have the highest value add and the lowest health and safety risk. There seems to be a lot of government angst around. Like, my God, we're not making enough steel. And I just, I don't know why we want to do that. It's not a job that people want to have. I mean, the government is also unhappy that we're not mining more coal, which is another kind of a death sentence of a job. So I guess we shouldn't be surprised. But the work that we're doing here, the work that we were doing in Anderal, that's super high value at work. That doesn't have to involve like how manufacturing was designed in the 19 or defined in the 1920s in a children's book.

Yes. Well, I think your vision for the future, which I can see and I'm watching literally your staff go back and forth. No one is running, no one is on fire. And everything seems to be going quite well. So it's a future that I can get behind and totally support. John, where can people find you on the great Internet? And also what is a job you are struggling to hire for?

Harbingermotorist.com as well as all your common social channels, LinkedIn, Twitter, Instagram, etc. We're generally hiring for a lot of positions at the moment. We're doing a big expansion of our sales team. So if you're someone who has experience selling trucks, selling capital equipment, we'd love to talk to you.

All right, well, thank you for coming on and when you guys eventually do break into the small consumer electronic truck segment, which I'm sure you'll do down the road to make me happy, we'll have you back on. But in the meantime, John, thank you so much. And keep building here in the States.

Sounds great. It's great to be on Alex, thanks.

Hey everybody. Welcome back to Twist. Today I have an amazing Twist 500 interview for you with a company we have talked about on the show recently. But first I have to rewind the clock. Often when we talk about up and coming startups that are out there changing the world. They're backed by well known venture capital companies. Your Andreessen Horowitz is your indexes, your sequoias. Sometimes though an investor steps up to the plate that we don't expect and in the case of post hog they raise a large round from Stripe. Yes, the well known payments unicorn that caught my attention. I then dug into the company and discovered that it is one of the coolest firms out there today. One of the best startups I think in the world. So please join me in welcoming co founder Mr. James Hawkins. James, how you doing?

Hey. Very well, thank you.

So you guys raised 70 million from Stripe at an announced $920 million valuation. Before we dive deep into product analytics and open source and pricing plans, how the hell did that deal come together?

It all started with Twitter. So basically a while ago, I think it's in 2023, Patrick Collison liked our website and said he was, he thought it was cool on the Internet. And then things really spiraled. So here we are, $70 million later. We've been very, very efficient. We're a product led company. We've been averaging like a two month CAC payback period, for example, for an awful long time. I think we had gotten kind of complacent where I'd say, hey, we can pretty easily grow pretty fast and we didn't really know how to spend money and it kind of took us until about our fifth year of existence to really know actually we can increase our growth rate by spending more and we want to trade off a little bit of efficiency for more speed, basically. So yeah, like change of attitude, like being around the right people at the right time and having a cool website where the three ingredients.

I love that this is just evidence that design actually really does matter. And it totally got me. I was, I've never read so many corporate blogs in a succession on purpose than when I was on the Postdoc site. All right, let's start with what you guys do now. When Postdog was initially put together, Product analytics was the product remit and it had an open source core. You guys have expanded greatly in the intervening years. So tell me and everyone listening what Postdoc builds today.

Sure. So Postdoc provides customer infrastructure. We simply aim to ship every single product that relates to customer data. Today we have about 14 products that relate to mainly kind of product engineering or growth engineering use cases like product analytics obviously, but like a whole list of other tools that are adjacent like session replay, error tracking, feature flag experimentation, data warehouse. This goes on and on and on. And what we're trying to do is instead of integrating a bunch of tools together, we're like, no, we are literally just going to freaking provide all of them. So there's perfect first party data. And as AI has come crashing in to then just automate everything very long term, I'm hoping we provide business autonomy is kind of the end game for us.

Go ahead and define business autonomy for me.

We want to automate every process that happens across every major function that relates to a customer. So within product autonomy would be a subset. This is like, hey, today you tell Cursor or Windsurf or whatever. Like, hey, this is the thing I would like you to build for me, please. You wait 10 minutes, it comes back, you edit it a bunch of times, but you're still deciding what to build as an engineer based on maybe what a product manager told you based on your own knowledge of your customers, whatever your process might be. We are trying to get to a state where we've built AI already that's like chapter data. As you kind of expect, we're starting to get into the bit where you can do things with it like, hey, these are actually the things you should work on. And then longer term I suspect it'll be like, hey, you fire up Cursor in the morning or whatever else. It's like, Here are the 10 things that have been built overnight based on a really deep understanding of customers. It's multi dimensional. It's not just the data you get from event tracking or just the data you have from errors. It's really every color to understand the painting. Basically, I think it is going to be possible to build a better product manager than a human product manager with better understanding from just how effective the models now are of really enabling this when you have this wide range of data. So when we started the company, everyone was like, enjoy the good old days when it's two idiots and no one else to worry about. And now we're like over 100 people. But we've had the complete opposite experience. Gotten much more fun as we've gotten kind of further along. And I think partly that's thanks to the changes in the tech landscape too.

So just to kind of just that down you guys started with product analytics, have expanded to essentially anything you might need for product related work. You've added AI in now and then. It sounded like you're describing essentially some sort of AI agent backend that's going to take on tasks for people that are building products. How did you get from working with your co founder at a financial technology company to founding this, to then building essentially AI driven business automation? It's quite the leap. What was the initial spark?

My last job, I wound up as the VP of sales for the first time in my life and I was selling compliance software to large banks for millions of dollars. I would wear suits in inappropriately hot climates and I would be going up into skyscrapers trying to get people to buy stuff for a couple of million dollars. And I just had this feeling that this approach we're taking feels like. It doesn't feel like the future, it feels like the past. And I could see vendors starting to build enterprise software that had been more focused on the end user. Basically where their go to market in enterprise is like oh, 200 developers insist on using GitHub and now the procurement team has to buy it even though they don't really want to, for example. And so I could sort of feel this. So my co founder and I. My co founder was quite simply the fastest engineer I'd ever met and the best in my opinion, kind of therefore.

So this actually brings me to the open source point because going back to the history of the company, you guys discuss how having an open source posture of building and releasing software helped you get early attention to the company. I've often heard about open source as a great business model, less as a promotional technique. But was the open source starting point critical to finding that product market fit that early?

Yes, I think it was. A constraint that we faced was there's already a bunch of competition in. There's a massive amount of competition for what we're building. Like in product analytics. I think at the time There are probably three companies doing 100 million run rate or more. There's like Amplitude, Mixpanel, Heap have all been pretty successful to some degree or another. And so we can't do cloud, that's off the table already. And we kind of. I am technical enough to be dangerous I would say so I've got a bit of a developer background beforehand. My co founder is extremely technical but he can do the other. He's very on the commercial side as well. But we kind of felt like we really want to build this for developers and what's the ideal thing for a developer? And we started talking to a bunch of more technical people about their analytics stack. We discovered a lot of companies were building self building a lot of things to keep their data inside their infrastructure. So we set off on a real zig before we then zagged across. Actually we can do cloud if we go multi product at the same time. And so we had this very windy journey. But one of the quotes we had early that has, I've understood later from Ali Regani, he's been on board, he was the person that ran the continuity fund at YC when that existed back in the day. And he said when you get bigger you can kind of see round corners. And I'm like what does that mean? Now I know what it means. It was like actually once we have lots of users we can figure out what to build properly. And so postdocs never felt like we've never kind of descended down from the hillside and gone, you know what? This is the future. It's going to be this, this, this. The reason that our strategy is working now is because we had the wrong strategy, but we spotted some things that were working haphazardly along the way and then iterated our way across to something that worked great. So it's been very chaotic looking journey from a product perspective.

I'd say you guys decided what to build in your roadmap in part based on customer and user reactions via like upvotes essentially of certain elements of what you're planning. Have any of those ever led you astray or is that how you see around corners kind of on a day to day basis?

Yeah, it's a love hate. It's an input into the process and it has, I think we. Sometimes it can be painful. Like right now it's painful. We want to build a CRM support platform. We want to do what we're doing for products, for the entire stacks of tools for sales, marketing and support teams too because it's the same customers they're dealing with, so it's the same data. And so our top feature on our roadmap is product tours or we shipped an error product recently. It's been really popular and now we're getting asked for a logging product and we kind of know full well these are getting lots of users asking for them. They make a bunch of money, they'll grow quickly. We don't really want to build them. We want to build. Well, if we can get a CRM being adopted by developers before anyone else exists in a YC company, for example, we can build comets 10 times larger and say okay, well to get from this maximum to the next one, we have to walk down the dip, which is what we're experimenting with. And we can always go backwards and up the hill if we don't like it. So yeah, we kind of. Currently we're in a mode of lifting the fog of war where it's like, okay, let's just see actually how wide we can get away with here. Is it as wide as we believe it is? And that's what we're validating currently.

So it sounds like there's not one single answer. It's constantly listening to users, looking at the market, making decisions and then also seeing what actually generates revenue for the business and then try quadrangling between those elements.

Yeah, the constant I would say is just being quick to do these things and just getting them out and seeing what happens. It's Also a little bit based on the engineers we have, if they are excited to work on something, if I'm super excited, there's an engineer at Postdoc who's super excited. We'll build it literally three or four times as quickly. And yeah, it's very much an art form, I would say for us. We tried to put frameworks in place for this but they haven't felt optimal or we've actually executed them and stuff. So yeah, the core thing really is we just are very willing to embrace a little bit of chaos here and then we'll watch intently what happens. And we're trying to reduce the cost of errors. We won't spend a year trying to ship new products. So for example, we don't really target very top end enterprises hard. We have a bunch of them as customers. But our bread and butter is signing up hundreds of thousands of companies that are a little bit smaller. And that sort of means that you can target releases, you can be more nimble. Because it's not like we have two massive enterprises breathing down our neck to achieve some roadmap item. We're like, we don't offer any rope updates to customers, we don't have any deadlines internally. There's no coordination which the whole company is designed around engineering velocity basically, which is actually the thing that really does matter to us more than anything because we kind of assume that we'll be wrong a lot. And so if we're quick, we'll find good stuff and bad stuff pretty fast.

That's really interesting. On the going to wide point, the first thing that struck me when I was getting to know Postdoc was just simply how many different products you guys have. It is a wide number of things and I presume it's going to go up. Is there an upper maximum to the number of individual things you can have in the market and maintain well and host and support as a business? And are you getting close to that point or is there a lot more room for you guys just to keep building new stuff that people ask for?

It's a million times better than you expect. Like it doesn't. Like you said, what are the number one, what are the most painful parts of a business managing like 14 products at once? Whatever it is, depending on what defines the product, it's just not on the list. And these products will support tens of thousands of customers. We're just not finding it hard to do that. Well, we hire engineers who literally decide what to build, but we don't have product managers determining the Roadmap. So I think because we're willing to let go of control, we hire people that we frame as product engineers internally has made it feel ultra scalable that way around. There are certainly other issues with having a lot of breadth. Like we have a big debate going on about when do we create a platform team, for example. We'd be really hesitant because we're worrying about creating coordination between teams or suddenly having to have meetings and stuff. So yeah, it's not all rosy, I would say, but it does feel to me like we could. Our goal is like 50 plus products minimum, potentially a couple of hundred, depending how we get on. But I think it's going to be very possible to do that. There is precedent. Like aws, for example, has hundreds of products.

Oh absolutely.

They are a little bit bigger than us. But even like we actually looked at Y Combinator, we're like, well, they have 250, whatever, like roughly 250 companies in a batch with only 500 people shipping them or whatever. And there's 250 totally distinct businesses being managed and optimized to a certain extent. And so we're looking at kind of how YC is structured initially and like, why are people so productive in the batch? And then we're also looking at AWS as like a very late stage example of this. And we think AI is massively accelerating this too, which is like needless. We already thought this was happening, like open source software is more available, it's getting quicker to develop stuff anyway. So we already felt like software was going to get kind of commoditized. And I think AI is putting the foot on the gaps here. And we're like, well, rather than hiding from this stuff going into enterprise, we should just drive that change because it's better for users.

We're circling something interesting here, which is with very small teams, nimble engineering and a lack of centralized roadmaping, you can move very quickly and build stuff that a lot of people want to use. I'm actually familiar with several of the companies in the product analytics space. I've been talking to Amplitude since before they went public. So I have a little bit of insight into them and their market and their growth and so forth. I'm just kind of blown away by, by how much you've managed to barge into markets that are filled with, you know, incumbent companies, often public, with lots of money and time and history behind them, and you're able to grab, to grab market share. What makes that possible? Is it that their products are just too Enterprise focused or is it your just engineering velocity that allows you to show up to so many different parties and walk out with a punch bowl?

I think a standard playbook that I think is getting outdated now is you build a product, you get a little bit traction and you build like a 10k a month business. You go raise your seed round, you do a series A and then you're like, man. And then you start getting serious, you're like, okay, I need to keep up my rate of revenue growth. How do I do this? And I think the easiest, most intuitively possible way of doing that is, oh, I need to add more salespeople and go up market because the order values will jump like 10x or something. And we're kind of more competent at this stage. It can handle these enterprises and whatever. And we built companies have all and fast forward and it's like after 20 years of SaaS and VC coming in here and it's like cool. There's now what I would term a fragile mess of tools in enterprise. And so I think our opportunity is like, well, we think it is harder but we won't grow as fast. If we like we could right now just go, hey, we're just going to hold on. Salespeople that are very enterprise focused, we're going to really upmarket. We're not going to invest in going wider. We'll just invest in depth of each product and we'll take a little toolkit we've already built up market and we probably get to 100 million quicker if we did that. But I don't think we'll continue to compound. And so we've just sort of been willing to like, yeah, we're going to lean into engineering velocity above everything else. We'll do some really counterintuitive things there. But it's kind of almost a constraint of going well. If we went up market, we're just going to lose. We're never going to beat Datadog today at enterprise sales or something.

Kind of a dated paradigm really.

Yeah. And I'm like, engineers exist first. They exist when there's two of you starting the startup from scratch. So if we just go in with engineers, we're upstream of every single piece of software that company will ever use. So if we can just offer it all, then they'll buy all of it if we're the best vendor and then we keep doing a good job of looking after people. So there's a few factors there I think that have meant that we're successful. If I'm being Harsh on myself. It's because we can't invent something we've struggled to be. I haven't been given up a product to invent something totally box fresh that has zero competition or whatever. Maybe that would have been better if I could do it, but I haven't been able to. We're now getting to a point where we are starting to innovate and it's proving a lot of fun. But I've had the chance to now hang out with lots of people and learn stuff and spend time with my co founders, done the same thing. And now we're getting a little bit more competent at actual whatever term, actual innovation. But yeah, that's kind of why it's a bunch of things at once. But the main one is we've sort of been forced into being different everyone else because the market is so saturated, which has worked out really well. I think conceptually it's easier to do a better job if something already exists than it is to completely invent something from scratch. And so we're merely doing about what we think is a better job of something that already is out there.

So you mentioned getting to 100 million. I presume you mean ARR by that point. And you said that if you had gone perhaps upmarket originally like the usual SaaS playbook, you might have gotten to that milestone faster, but you will get there. You also said that you're compounding, which I think shows that if you have a wide base early, as those customers grow, they'll grow with you, which makes a lot of sense to me. But you also do some things that that do decrease your revenue, which is an interesting thing that I don't often see. One thing you do, you have side hustle insurance. So if someone blows through usage caps, you don't take their entire house. You guys have done actual price cuts which harkens back to the AWS days of your back when they actually cut prices. If people were kind of think back that far. So I guess my question is how do you balance between what I very politely call extreme customer friendliness and the need as a business to keep the growth coming? Because you do have backers and you do have people that are expecting a certain return from you.

The core one, I mean the core tenant of finance that I think it serves really well. And our core principle is don't need to ensure that we don't need to fundraise basically which means that we can take a long term view on stuff so we don't have to rely on, we don't have the dependency on like, oh God, like if revenue dips and have to fundraise at the same time, we have to explain it to everyone. We'll lose momentum. It'll be hard to do that. But when you don't really care because you're like, well, I just kind of fundamentally we're running the business efficiently enough that we can just get profitability, whatever. We can make moves like this because we think they have a lot of upside and if we screw them up, it's like, oh, it's just knocked us back a couple of months. It still doesn't matter. We've just got a backup set of that. We'll be able to get it back. Yeah, just not feeling desperate. And that's partly why we raised is there's a huge psychological effect of having the ability to take lots of long term views on things and including it comes out. And also the marketing channels you pick, for example, and a lot of the ones that work better in the short run, like paid ads or something, are worse for you in the long run because they're really saturated. I think you just can't be burning a huge amount. You have to fund a pretty efficient business to get away with moves like this so that you can run yourselves in a good financial spot and you have to be able to fundraise in some way, shape or form. I treat finance as kind of like our revenue growth is almost like a constraint on the business where it's like we need to go pretty quick, but we will sacrifice it for more. Again, mentally it's like, well, if we cut your pricing today, you'll keep using us, you'll probably use this more, you'll retain better, you'll probably tell your friends more often about us and then eventually you'll buy another 20. In my head I'm like, you're going to buy 20 more products or have 20 more to sell you, so it doesn't matter. You're like at 2% of your total spend with us over the next 10 years, for example, we should really optimize for that. And that's how we're thinking about these types of changes. I would have said that they don't make our revenue look good in the short run, but that change increased our revenue growth rate, which was so counterintuitive. But basically retention went up, usage went up and growth went up massively, which offset the difference. Even though we cut pricing for a whole existing customer base for our two biggest products, for example, by an average of 60% or something.

What was the total hit to your revenue from that decision in the absolute short term, like day two? What was the.

I don't know what it was run rate wise, but yeah, it was our two biggest products and it was 60% average decrease in spend for all of them. I think it like almost half the. It like halved the average order value of customers signing up, but we tripled the number of customers signing up.

That's what I was going to ask. What was the impact of it, you know, day three?

Yeah, it was skewed towards customers which had a lower. Have higher margin because it was towards the bottom end of our revenue scale, which actually means the revenue impact was like unnoticeable. Sorry, the margin impact was unnoticeable in our numbers. So we make a lot of margin on the bottom end of our pricing scale and much less further up. It was after a long meeting where we were debating doing some ridiculously complicated, let's do a reverse trial where if you put your credit card in and then this and this and this, then you downgrade them. But in this, I'm like, man, this feels like peak midwit meme. If you've seen that, where this pricing thing is so freaking. It's like we're just trying to get around the fact we should be making it cheaper if we want to win. And I think the other thing is we concluded was because we're efficient, we grow inbound, we don't have to pay for a sales team, we have super low cap payback periods. I think we can actually sustain in a pricing battle quite well because of this. So we can kind of afford it in a way that like, if we were very dependent on high overhead to acquire the next customer and so on, we got fundamentally higher operating costs. We can't cross sell it as easily if you just have one product. So we kind of felt, well from first principles we would win if we did a pricing war. And so we're happy to start undercutting our competition.

Yeah. Okay, so last question for me is this. I thought the core trick of Postdoc was going to be open source, because I'm a big advocate believer in open source software companies in general. But listening to you talk about how the company has approached the market and learned and grown, it seems like your lack of burn has provided the most flexibility for postdoc to choose its own path. So is that right? And then also, do you think that's a viable strategy that other startups should emulate?

Yeah, I think that has been an Incredibly important part of our journey. I think it's that and the other one that's worked has been the whole reason we're multi products. We found this alternate path. Like we built a successful like not venture scale. We're building a reasonably successful growing business off the back of self hosting where we were just charging self hosted customers. We're making money off this thing. It just doesn't feel like the business that we could be doesn't feel the best business we could possibly build. Like it's all right, like we're growing fine but we're doing so much support. We don't think this is a great experience from a lot of our customers who are like, because we have to run a lot of support, they have to deal with lots of support requests the other way around as well. And then like. And some customers were self hosting for no reason and we're like, man, if we just like why don't you host it for them? Lo and behold, we have now got a cloud product. Fast forward, you're like wait, the cloud customers are way happier than the self hosted ones and yet loads of people are using it and like I don't know why they're signing up our cloud products. It's just like kind of worse than our competitors ones. But it was like, well it's because it's a different audience and like because our branding and we got away with like a lot of branding and developer just by being really good at handling developers and knowing how to run a company for them meant that even though products were like very similar, ours was even worse at that stage. We just got enough traction that then we could lean it. And the other ingredient that was very important was the whole reason we're multi product is because we let our engineers decide what to build. And one of our engineers randomly built the next. Not randomly like he had reasons for it, but he decided to build Session Replay as a second product and it was just popular immediately. Users had kind of asked for it in our repo and then went oh hang on, I can see how this works out now. If we stay a little bit more down market we can go much wider, much quicker than everyone else because we don't really have to pay for a sales team. All our money we can just put into engineering so we can have more engineers. We'll have a much bigger engineering team than a normal company at this stage. So actually we do have quite a lot of engineering bandwidth because we're not losing money elsewhere. So yeah, having kind of low financial desperation or Whatever has made it super easy to do cool stuff like this. And it also now our marketing works like that too. We can just do really weird brand marketing stuff that sometimes you put something on Twitter and you get more exposure than if you'd spent half. We also do billboards, but you get more views than if you spent half a million bucks on billboards, for example, in one tweet that you spent 25 seconds to write. Or we have a newsletter we're building out that's got 75,000 subscribers. It's new, it's not been going on for very long, but it's really climbing quickly. And we're like, well, this is not going to help us in this year or next year, but in five years, this is probably the most important thing we could possibly do in marketing if it works. And we can see that we're trending into that direction. So we're just continuing to invest in it. And now when we hire candidates and stuff, it's like, cool. We have inbound only recruitment because people already know who we are. They're learning from us. We've managed to get that thought leadership because we're just willing to invest in stuff that is going to suck on a spreadsheet for a long time, basically. So, yeah, that's been very important because it's made us. The key is to maintain urgency when you don't have crippling fear of death coming. But yeah, you have summed this up much better than I'm about to repeat back to you, basically.

No, you're all good. I really appreciate it. And if folks want to learn more, it's posthog.com and James, where can they find you online?

Probably Twitter is the best place. James406, I want to get into why.

That'S your username because we don't have time. But thank you so much for coming on, James. And when you hit product 20, come back on the show and tell me what the next four or five work.

Cool. I will do. Thanks so much.

Thanks, James. Hey, everybody. Welcome back to Twist. This is Alex and we have another Twist 500 interview for you today. This one comes with a little bit of history. I first met Alpaca back when they were a small company raising their first funding rounds. And now here we are a half decade later. The company is scaling and growing, recently raised more money and has a really interesting perspective and take on building fintech in 2025. So please join me in welcoming to the show. It's Yoshi from Alpaca. Yoshi, how you doing man?

Great. It's been great. Like it's been a long time. Alex. It's great to be here.

It's. I asked that because it's 4:30 in the morning in Kyoto where you are and Yoshi got up way before dawn to come record with us today and we're very thankful for that. It's Saturday where he is so Yoshi gets 10 founder points. All right, so it's been a minute since we've talked so I'm out of date. Yoshi, why don't you just tell me and the folks listening what Alpaca does today.

Yes, Alpaca is a brokerage infrastructure company and then also Finra SEC registered self clearing broker dealer. You know it sounds pretty boring but what we do is that we build embedded brokerage product that a lot of fintech applications and then broker dealers and banks all over the world can embed and add investing and wealth services to their end customers.

So the way that I've always thought about this is if you have an application that has a financial bent to it and you want to expand your product offering, you go over to Alpaca, plug into your API or sign a contract and then you can offer equities trading, options trading and a number of other wealth related services to your product as kind of a white labeled solution. Yoshi Sapphire.

Yes, that is correct. You know we take care of all the mid office back office, all the compliance requirements on our side and also the reporting as well and everything comes through the API so the, you know, developers and businesses don't have to worry about backend stuff.

It's interesting because when we used to talk about APIs kind of back when Twilio was blowing up, we would talk about abstracting complexity away and then offering a single developer hook that provides a complex service. That's very easy and it's, I think Alpacas are just a really good example about how that still works because people still want to use API delivered products. It's not all AI today. You know, there is still money to be made. But that's actually where I wanted to start because I was going back through my coverage of your guys's, I think 2020 and 2021 era funding rounds and you and I were going back and forth on how Alpaca made money. And one thing you told me, if memory serves at the time Yoshi, was that you guys weren't charging much directly for the service but were instead splitting payment for order flow revenues generated by end user trading. So I'm Just curious if you could give me an update on how the company makes money today and if you're still doing that revenue split on order flow payments.

Sure. So at the end of the day our business that we do, even though we say this is a brokerage API or brokerage infrastructure, at the end of the day type of the business is the securities clearing and securities custody business. And since we are membership of dtcc, this is the really core semi governmental entity that actually has all the custody of the securities. So we are membership member of that which means that we take care of all the end customers cash and securities on our book on the custody. The business model becomes nothing trivial. It has been something that existed for a long time. So all of those clearing firms makes money of the transactions interest as the kind of main things and the inside of the transaction revenue. There is as you mentioned, payment order flow. Specifically for the United States stocks, equities trading and options trading. There are certain market maker model that connects to a bunch of the exchanges that exist in the United States. And then they create, you know, model that pays back some of the rebates that was not rebates. The money that's been built between the bid and overpriced to be offered back to the broker dealers like ourselves which we can you know, split to the partner broker dealers that we work with.

All right. Now one thing I did notice that you guys have somewhat recently become quote a fully self clearing broker dealer. I kind of know what that means. I'm pretty familiar with market making. Yeah. But it might help just to hear it from you about why it's important that Alpaca is now a self clearing broker dealer. And also if you could just tell folks listening who aren't as familiar what a market maker is and why they matter.

Yes. When someone buys for example Nvidia stocks, the things happens as the trade is executed. Which trade execution means that we're basically deciding the price. When this person a buys the Nvidia stock at what price and then after that that price is decided actual exchange of the Nvidia stocks with the cash that person pays. That process is basically called trade clearing. So in terms of the, you know, the first one, trade clearing like companies like us who are behind the scene, there are multiple layers of the businesses actually that's built up on this financial industry system because maybe while you're interacting with your app or businesses may not have the full integration into the deepest core of the booking records which is the dtcc, the finance services is like it's Always relying on each other. So you outsource these licenses, you outsource these functions. It's really connected everywhere. So with that said, us being very much one stop shop, having all the licenses and membership, it reduces the fees that we have to charge because we're not outsourcing anything to anyone.

Does it, does it also allow for tighter spreads when you offer a price for a particular equity?

So in terms of the tighter spreads it becomes more of the. Yes, exactly, definitely. Because like, you know, when we are pricing back to our partner brokers which who is going to basically charge back to the end customers, the fee that we are getting charged from those systems become basically the lowest in the industry. Because if you own everything in terms of the licenses and then also the systems. And also this is the interesting part, most of the financial services company, like most of them, they outsource the system because they are not tech companies. So they don't build stuff, which means it creates a lot of overhead and unit expense which we don't have. So we can offer the tightest price. Basically, logically speaking, and just to clear.

Up an acronym, the DTCC is the Depository Trust and Clearing Corporation.

That is correct, yes.

And you said you were a member of it. Does that mean you guys have like an equity stake or is it a partnership? How does that work?

Yeah, so it's not like an equity or partnership, but there's so much, so much like an application process that you have to file. So that DDCC basically allows us to be a member. Same as like becoming a bank or becoming a broker dealer. You have to prove and you have to show that you have all the compliance ready, you have all the risk system ready, you have all the right people ready and you have enough capital ready so that DTCC welcomes you as the direct member that's connected to the DTCC system.

All right. So what I loved about Alpaca at the time, back in the day was that everyone wanted to have a broader suite of financial services once they got customers in. All these fintech companies wanted to offer more stuff to them because the more stuff they could offer, the more money they could make. Made perfect sense to me. Time passes. The COVID era, what I call the savings and investing boom, kind of like the early meme stock era and Robinhood blowing up and so forth. We're now pretty far past that. So I'm curious if you could just give me a bit of an overview of the last couple of years of adding new customers from you guys and how they're Adding end users. Just what's it been like in the last two or three years?

Yeah. So surprisingly and thanks to our teams working really hard, we've been more than doubling revenue last several years. I always do admire what Vlad and Bazer did in the Robinhood. Obviously it's always being talked about and paid attention to but they have been always kind of making a way creating new things, really focused on what comes next. I think there is definitely the maturity that's happening for the B2C fintech applications. Maturity means that adding low more service verticals and then I think winners are more becoming winning players and to becoming more of the enterprises. So having becoming more invincible in terms of the market. So that's.

Yoshi, can I, can I jump in? So are you saying that because the upstart companies from a few years ago are becoming the incumbents?

Yes.

It's a good time for Alpaca to be out there helping to power a lot of these companies because essentially your customers are maturing and becoming the new leaders.

Yeah, definitely. And then like, you know, we, I think like the reason why I wanted to bring up the example of the Robinhood is that there is always a continuous innovation on the B2C products and then the players who are good continue to add new things to continue to grow. So that's kind of the proof point that I see from the Robinhood. And the second thing is that by looking at the Robinhood, there are many other following Robinhood types of applications not only in the United States, but also outside the United States. That's are maybe few years behind or five years behind or seven years behind. Which means that the growth curve is happening in a very different diversified way in terms of the revenue assets under custody growth. And that's our built on top of us. So like, you know, we see that growth like you know, very diversified. So like that's why we see like very constant growth of our revenue and assets under custody, regardless of the despite of the situations that we see.

So Robinhood does very well for itself. I just pulled up its stock charts. Currently worth $64 billion, which is more than anthropic. Shout to out. And people around the world have seen this and gone, oh, we need to build the Robinhood for Malaysia and the robinhood for Nigeria, etc. And they're a little bit behind the initial Robinhood curve. But if the curve still goes up, yes, you guys at Alpaca, if you're serving those people do very well. Okay. Is part of the demand for Alpaca services. The fact that people really want access to US equities in particular.

Yes. So 65% of the market cap of the whole, whole equity markets in the world is United States US Stock market. Yeah. And then you know, obviously I don't have exact stats but like you know, computers people use in terms of that Mac, Mac or Windows or Google or even OpenAI or whatever. I think it has like much, much higher penetration which means that like an 8.5 billion people on this earth probably has thought about the United States listed companies the most. So I think that is the reason why we started from the offering the US stocks and then that has been our core asset classes.

But last year you guys added quite a lot. I was going back through your 2024 recap and also looking at your original blog posts. Things like options, high Yield savings accounts, IRAs, fractional shares.

Yeah.

The thing that I'm, that I'm struggling with is what's left to add. I mean do you remember when robo advising was a big deal? Everyone's talking about Wealthfront and the other one that I now forget.

Yeah.

That's now table stakes. So. So Yoshi, how much more stuff is there for Alpaca to build that's like net new in a feature sense?

Yeah, yeah. So I think it probably goes back to again how the Robinhood is adding stuff as well. Right. And then a lot of companies in the world, even in the fintech companies, but also big companies who's are launching a bunch of digital banks and digital arms are looking at what the Robinhood is doing because they are best at growing the customers, best growing the businesses. So again it's not only about the stocks and options. There's those saving accounts products and even fixed income products. There's like money market sweep and then of course there's a prediction markets and then investment advisor products. And this is really showing the shift of the money from just speculation and trading into the more the long term saving and wealth management. So I think it's now coming back to the core thesis of the money is coming from the boomers to the new generation and how we supposed to cover more of the cash. And then that's again happening everywhere in the world. But there's always three years, five years, seven years, 10 years behind. So that we just need to keep building those infrastructure for them to make sure that they can do what they need to do like Robinhood has been doing in the United States as well.

So essentially Robinhood is not just the millennial brokerage of Choice. It is an indication of new generations of humans demanding different services than their parents. Effectively. Back to the boomer's point, that sounds pretty bullish for Alpaca because it means that the companies you're serving that are offering your equities and other trading services to their customers have a lot of growth ahead of them. So I guess the question then becomes amongst your more mature customer set, people you've had for a couple of years that are not new, are they still growing very quickly or as quickly as your more recent customer additions?

Yes, yes, definitely. The growth curve of the existing customers are higher and then those guys. So we work with 220 applications in the 40 different countries. The benefits of the big banks having the new offering, which we serve the infrastructure for as well, definitely the first period of the growth is really high because you can cross sell it. I think that's another thing that we have been seeing is that we now work a lot more enterprise customers, including legacy banks and then legacy incumbents, broker dealers, because they're also fighting against competing against new fintech players and they have to make sure that they have to grow against the new competitors. That's coming up. So we're serving both segments.

I was kind of working my way on the feature point to ask about stablecoins because I feel like everyone's been yapping about them and people want to have access to them. They're not a trading thing as much as equities. They're not really an investment that you hold forever like money market or bonds or so forth. But do stablecoins come into the alpaca world at all? I'm just not sure if they have a fit. But I just wanted to ask definitely.

Like, you know, stablecoins do come into the play because in terms of the money movements, you know, we have to deal with the, you know, traditional rails of like, you know, moving money around. For example, customer in the Saudi Arabia buys, you know, the Microsoft stocks and then it comes to the United States because in order to purchase the stocks the money has to move. So there's a bunch of the corresponding banks and all those payment rails. So when that stable coins happen, definitely like you know, the money movements faster even though we have to on ramp it off, ramp it. But there's definitely the future there in my opinion. So we do definitely follow very, very closely what's happening there to make sure that we can provide the best service for our partners.

Would you consider building your own Alpaca USD coin just for your own internal settlements? Because to me thinking about the example of someone purchasing Microsoft stock in Saudi Arabia, that is far away. Geographically, it's far away. In currency terms, it's not close. And so if I was, if I was you, and this is maybe ignorant, I would think having my own in house stablecoin would allow me to effectively take money from my right hand and give it to my left and skip all those borders and other sticky issues. Is that how it would work or am I oversimplifying to the point of stupidity?

I think there are multiple takes how the future will be in terms of stablecoins. I think some people say that it's going to be predominantly two or few stable coins. I wouldn't say even use the word of a stable coins. It's going to be with a stable dollar in my opinion as a concept. And some people think about building the infrastructure so that so many people can build bunch of the stable US dollar like one money by Brian I think there are multiple futures possibility, but what I think is that both of them are actually right. I kind of think about it more of like ETF, right? So if you see Bitcoin ETFs, there are a bunch of them and then in order to create better experiences, we need to lower the entry hurdle. So we need to create the infrastructure for that edf, those stable coins to be built, made easily. So I think both things have to be happening at the same time. But for alpaca side, we haven't really decided. In a way we're definitely looking at it what is the future. But our focus and priority is to solve the problem. So if the existing environment allows us to solve the problem faster, cheaper, quicker, we'll take that route. If it doesn't, we have to build our own.

So it really just comes down to how good is the offering out there and could we do better internally? Okay, well when you do make that decision, let me know because I want to ask you that question again once you've made it. That is true because I think it'll be illustrative for other. Well, I'm just thinking about other founders who might be thinking along similar lines. And you guys are. I mean you're a series C company, you're pretty mature, you're well established. And so I think there's probably a good lesson there for when you make that choice on that theme of talking to other founders. When we were talking back in 21, fintech was the hottest thing, we were joking before the show that it was, you know, the AI of its time. And then there Was, you know, ZURP ended, everyone freaked out. Suddenly startups had to be profitable. It was all very strange for a while. And now with Circle Etoro, you know, chimes, fintech feels very hot again. So you've gone through a period of time in which your company was out of fashion. What changed operationally for you because fintech lost its luster. And any tips for founders out there who might be building today in a market that is considered less sexy than AI?

I think market cycle always happens. The, the concept that I always like to think about is the, you know, Bridgewaters rate. You continue to talk about short term debt cycle and the long term debt cycle. So I want to always like, you know, kind of step back to see what's really happening in the world and the bird's eye view so that I don't freak out even though I'm freaking out every moment about revenue and growth and client and all the things. So my team members probably say what are you talking about, Yoshi? But I think like, you know, for definitely like there's always a cycle. And I think what really important is that we have to in my opinion react as quickly as possible to what's happening in the world because it's impossible to predict the futures. But what we can do is that we can react as quick as possible to what's happening to beat out our emotional barriers or whatever that stops you from acting. So I think that's one key component I think and the second component is that these things actually allow us to grow and mature us extremely in a good way, to be very strong and very organized of how we run the company. So I always think about those two things as the benefits going through the multiple market cycles.

So essentially because you had to go through a period of time in which investors were no longer showing up in a car with just briefcases full of thousand dollar bills, you had to become a more mature company, probably think about cash a bit more seriously. And so now that FinTech's back at it, I mean your series C was, I know, announced this year actually happened last year but, but with these IPOs, I presume you'll have more investor interest and so forth. Now you are much more stable and just healthy company. Like is my read of what you're saying.

Yes, yes, definitely. Like I think in addition to the healthy, it's more predictable as a business and then more visible and transparent as the business. And I think that's what it matters in my opinion because if there's a visibility and transparency of what we are doing. We can, we can. Like we have many choices, what levers that you pull to expect certain outcomes. And now it's a very nuanced and balanced situation. And I think that's really the role of the CEO that we have to navigate, which direction, which nuances that we have to be taking at the moment.

Yeah, you have to steer the ship and not worry about the little waves, but keep an eye on the bigger waves. All right, one last question, Yoshi, before I let you go and either go back to bed or have a very early breakfast. We haven't seen these fintech IPOs and it's got me very excited because I love an S1, you know, and I would put alpaca in the not going public this year, but maybe the back half of 26 or something because you know, you've been doubling for a long enough time now you're getting big.

Yeah.

But at the same time there's also been a kind of an uptick in M and A. So I'm just curious from your chair, are more people reaching out, kind of testing the waters to see if alpaca wants to exit early? What's it like out there for a founder of, of a mature and healthy fintech startup?

Yes, definitely. Like a lot of inquiries and the conversation that we receive. And then I think it's one thing is that fintech getting the traction but also multiple industries of the fintech are getting traction and getting more capital. Also in the US of course, Robinhood is adding more products and becoming even more cheap and like in a brand name. And I don't think that's only the case only in the United States. If we look at Europe, there's of course Revolut and Monzo and 26 and Klarna and all those guys is also becoming even more winners and adding new things. So that means that those companies are even growing faster. So there's more cash and opportunities they're looking for. So in addition to the fintech as a general, as an industry, but also each of the key players are also becoming bigger. So I think they're also looking at the opportunities, how they can also grow faster. So. So I think this trend will continue and of course I try to be friends with everyone to try to understand what's happening in the world. So I'd love to be talking with as many people as possible always.

All right, well, you heard it here first. No buying alpaca until they go public. I want to see the gosh darn documents. Yoshi, thank you so much. Let me know when you're done with the stablecoin choice. And also, I want to talk to you again at the end of the year just to go over the growth rate and the metrics to see how it all wraps up, because I suspect it's going to be quite good. Thank you very much. And it's Alpaca Markets. Yeah.

Yes, that is Alpaca Markets.

All right. Thank you very much, man. Talk to you soon.

Thank you, Alex.