Lessons From Building Mercury with Immad Akhund (Co-founder and CEO, Mercury)

I have like one really embarrassing story. So check this out. So we were raising our seed round for Mercury, and I talked to Alex Rampell, who's our GP there, on a Thursday, and he really likes the pitch. Oh, come in on a partners meeting on a Tuesday. Whenever I went to a partners meeting on Sand Hill Road, there's a Starbucks right there. I had a little ritual where I'd show up early, I'd go to Starbucks, get a latte, you know, get settled in, and then I'd go. So I did that. But obviously, like, I'm a little nervous about this. So I didn't put the lid on my Starbucks coffee properly, right?

Oh, no.

So it's like loosely on top. So I pick it up and I'm with my co-founder. So I pick it up and I go like this and it falls like all over me, right? And this is like 5 minutes before this like pitch. And I'm like, you know, there's no time to like go fix this thing.

Welcome to The Peel, where we explore the world's greatest startup stories. I'm your host, Turner Novak, founder of Banana Capital, your favorite founder's favorite venture capital firm. Today I talked to Ahmad Akhund, co-founder and CEO of Mercury, an internet-first bank built for businesses. We talked about the future of banking, remote work, AI, and crypto. Ahmad shares his 2 biggest lessons from selling his first company for $45 million, the cultural mistakes that most startups make, his secret for getting free legal advice, and finally, the embarrassing pitch that convinced A16Z to lead his seed round. Quick shout out to Sar Gur at CRB. help suggesting questions, and thanks to Imad for coming on the show. Let's jump in after a short word from SecureFrame. It's the automated compliance platform built by security experts. Regular listeners know how SecureFrame helps thousands of businesses get and stay compliant with security and privacy frameworks like SOC 2, ISO 27001, HIPAA, GDPR, and more. Its newest feature, Comply AI, works in real time to quickly generate security and compliance guidance as code. which speeds up cloud remediation and time to compliance. Companies like Ramp, AngelList, and Coda trust Secureframe for all their compliance and security needs. I'm an investor in Secureframe, and I highly recommend it to every founder I meet. Check the link in the show notes for a discount on your first year, and Secureframe's in-house team of compliance experts and former auditors will get you set up. Thank you, Secureframe. And now let's talk to Immad and Mercury. Immad, thanks for joining.

Yeah, thanks for having me, Jonah.

So I kind of want to start off, first question. I'm a Mercury customer, big fan. I think of it as my bank, but it's not technically a bank. Can you kind of explain what that means and how the product works?

Yeah, from a regulatory and I guess licensing perspective, we are just software providers to our partner banks. So if you imagine, actually, like most of the banks you use, whether it's SVB or whatever, like the actual mobile app, the website, it's made by other software providers. So banks don't generally speaking have like engineering teams that build this stuff. So from a licensing perspective, it's fairly similar. We don't touch our customers' money. Like there's no point where like we take custody over your funds. If you raise from LPs, they send money from their bank. It goes straight to the Choice Financial or Evolve Bank and Trust, which is our 2 partner banks. And then when you make an investment, you're like, you basically instruct us to say, hey, I want to send this much money to this other bank account. And we then kind of work with the bank's kind of backend systems to send it. I mean, I had this idea in 2013, when I started in 2017, it wasn't obvious whether you could deliver a great experience by just being software that sat in front of banks. Like a few people had done it, but I thought at some point, I thought by this point, actually, like to whatever we're in 2023, I guess it's, oh God, it's almost been 6 years, I guess. I thought we would need to get our own bank charter to really deliver a great experience. But it's turned out actually, we can deliver a pretty good experience working with these kind of sponsor banks. And that whole ecosystem has really evolved in the last 6 years to enable that.

Would you ever get a bank charter?

I mean, every year we look into it. It's just that, yeah, at some point it's more of an ROI calculation. Like it's actually not that expensive. You know, one of the reasons we don't do it, and I think you as an early stage investor will appreciate this, you know, if you were to think like, what are the 2 characteristics of an early stage startup or high growth startup? Number one, it's unprofitable. And number two, it grows fast, right? Those 2 characteristics are like basically antithetical to what a bank regulator would want of a bank. Like a bank that's unprofitable and growing really fast is like— very scary. And actually, if you look at SVB's failure, you know, we could talk about like, oh, why did they do this, et cetera. But like a lot of it stems from the fact that they grew really fast. So don't quote me on this, but I guess I am being quoted by saying it, but I think they grew from like $90 billion in deposits to $200 billion deposits in 2 years because, you know, 2021 was crazy. And when that happens, like it creates this pressure on Yeah, the CFO at the bank is like, hey, we've grew deposits. What should we do with all this money? And obviously they decided to put it in 10-year MSPs, which turned out to be a bad decision. But like, it is that kind of like high growth pressure that like creates bad decisions at times. Having said all of that, we have been profitable for the last kind of 4 quarters. So at least that part of it we've ticked. We still want to grow fast. So yeah, it's something we do explore. I mean, I really think about it from a customer perspective. It's like, okay, you know. If Turner's using Mercury, would he have a better experience if Mercury had its own bank charter? And at least right now, I don't think that's the case.

Yeah, it's a really, really good product. I mean, I can tell it's all you guys think about. Like, that's why I signed up, because I looked at a bunch of banks and I think it was Todd Goldberg, who I think was an investor, was like, hey, check out Mercury. And I was like, oh man, this is great. Like, I got an account in less than a day. Or whatever the time was and logged in and super easy to use.

You know, one thing that's interesting, which is maybe a good lesson for other people is it was almost accidental that Mercury's onboarding experience was quite so good. So what happened is we started this in like 2017, August 2017 is when we incorporated. We're basically ready to launch maybe August 2018, or maybe let's say November, maybe. But our partner bank at that time, I guess I can say who it was. It was BBVA. But they just like had made these promises to us. They were like, oh, we're going to have wire support. We're going to have like, you know, immigrant founder support. Like they'd made these promises and every month we were like, okay, you know, are we getting them? And then a year later, they had not delivered on them. So we ended up switching partner bank at the last hour, basically. So the designer and the front-end engineering team, which was basically me and another engineer, we had a bunch of time on our hands because we were like, okay, we had the backend, like engineering has to like do this whole integration from scratch. So we redid all of onboarding and we did all the bits that like, you know, when we, you do the initial MVP, you're like, oh, let's skip that bit, et cetera. So we ended up doing a ton on the onboarding, but You know, if you get the onboarding really good, which, you know, at the moment, at that time, I was like, oh, it's a one-off experience. Like, why make it that good kind of thing? But we ended up making it really good. And it really creates this like initial impression that really lasts. And I think if you talk to a lot of customers, like, I don't know how long you've been using Eterna, but everyone's always like, oh, the onboarding was just so seamless and great, even though you've been using it for years. So you could talk about some of the other stuff, but it creates this like first impression that's lasting. And yeah, it's made me reevaluate like how important the onboarding experience is. And now I'm like, okay, it's actually really important. We have a whole— we're about to make the split. So we're gonna have 2 engineering teams that are focused on the onboarding experience.

I was looking a couple— it was probably 2 or 3 months ago. Another bank I was looking at, my email chain with them was 76 emails over the course of a couple months. And I don't think I ever even got an account made. It was just like, that's the other side of the experience. So I've definitely always really appreciated it. Why is it bad for a fintech company or for a bank to grow fast? What are some of the downsides of that? Like, why don't regulators like that?

The reason like banking is regulated in the first place, like more than a software company would be, is that it's based on this kind of fractional reserve model, right? So you, if for normal banks, and this isn't true for Mercury customers, which I can also talk about, but for a normal bank like SVB or whatever, if you put $10 million in SVB, they will take $8 million and they will lend it out.

And that's because they need to make money in order to pay you your interest.

Yeah, to some extent. It's also because they want to make money. And it's the way the— like, that provides a valuable service, right? Like, the $8 million goes to other businesses and consumers. It helps the economy. Like, lending exists for a reason, right? Like, lending does something similar to what VCs do, right? Like, you invest now for a future return. You're helping build something. And that's kind of what lending does. It's like, Most people couldn't afford a house, but if you give a mortgage, it lets them get the house today, get the value of the house, and they pay it off and the bank makes money and they get an output. So that's kind of like the banking model that's existed for 1,000 years or something, right?

But it's changed a lot, or at least the software around it has changed quite a bit.

Sure. And yeah, I mean, you could say the fundamentals of the internet changed it a lot as well. But anyway, so coming back to the original question, If that's the model, it's obvious how depositors would get screwed often if you did not regulate it, because the bank's incentive is to go take riskier and riskier loans or just not be that sophisticated about it. And they would eventually screw it up. And this used to happen all the time, right? Like even in the '70s, there was way more bank failures. And 200 years ago, like this was just the normal, like what, 10% of banks failed.

Yeah.

But anyway, the regulations over time were like, okay, we need to protect consumers. And like, that's why regulations exist. And that's why banks have to be regulated. Yeah, like any sort of regulation, like the FAA or whatever would like look at a plane crash and go, okay, the plane crashed. Like, what were the reasons that that plane crashed? And that's happened over like 100 years with banks. It's like, okay, if you look at banks and they fail, like, what are the reasons they fail? And one of the reasons is they grow fast and they do bad Things like they take riskier loans. It's just like failure is just more likely to occur in this situation where you grow faster. Like if you grow slow, or, you know, you've been doing the same thing for 30 years, there's a term for it, right? Like if you've done the same thing for a long time, you're more likely to like continue to do it successfully. But anyway, if you 2x your deposits, then you will end up doing 2x the loans normally. And that just like, you know, most systems have a hard time absorbing 2x loans. The way Mercury works, which is, you know, relevant and interesting, Mercury as a software company can't lend against those deposits. And the 2 banks we work with are, you know, much smaller than the amount of deposits we send to them. So—

Oh, interesting.

Evolve is about $2 billion and I think Choice is around $3 billion and we have tens of billions of deposits. So Those banks can't actually host those deposits on their balance sheet. And the way they function is they have these sweep networks. So they work with a bunch of, generally speaking, much bigger banks that are in the sweep networks. I was told by at least one of these banks not to name them, but you can actually look up online which banks are in the sweep networks.

That's fair.

But yeah, there's like trillions of deposits in these sweep network banks. So the money is not held by us, even by our partner banks, it's not held by them. It gets swept into a bunch of these banks. And those banks as a whole can lend against the money. Uh, and that's partly why they want it, but because it's distributed, you end up getting more FDIC insurance. So, you know, we guarantee that like, if you have $5 million deposits, it'll get swept to at least 20 banks to give you like, uh, $5 million in FDIC insurance. Uh, so it's a very different model to like a normal bank model.

Yeah, you're almost like lead gen or like deposit acquisition, sort of in a way, like a sexy software layer.

Yeah, there's definitely a piece of that. And there's like, you know, payment volumes and yeah, banks actually are like a weird thing where, you know, they're like a combination of like 3 things at its core. It's like a deposit function, a lending function, and a payment function. And it's like, there's no actual strict reason why like the same company needs to do all 3 of them. I mean, it made sense when like you had to walk into a local branch and there was only one bank in your town, et cetera. But In the modern internet parlance, you would expect that to get unbundled. And to some extent, we do that.

Yeah. And I think we're going to stop talking about the banking system. If anyone's interested in Imad kind of walking through all this, he did a podcast with Logan Bartlett. If you just search Logan Bartlett, we'll throw it in the show notes. You can find it. It's like a 2-hour podcast. He spends the majority of it really digging into all this stuff. So definitely recommend checking it out if you want to hear 10x more going way deeper on this stuff. So how do you think the industry is going to change over the next 10 years? Because that's definitely relevant to Mercury and what you're doing. Like, what are you kind of expecting, thinking about? How are you positioning Mercury? What can we expect on the product side? Anything you can share?

Yeah, I mean, the thesis for Mercury was and is that banks are effectively like delivered via the internet now. Like bank branches, I don't think really need to exist. I don't think anyone enjoys going to them. I certainly do not. Imagine like more advanced ATMs, right? Like I think that's like kind of interesting.

Yeah.

You might want to talk to someone or like deal with cash via like an ATM in a more advanced way. But really like, you know, we deal with tech-enabled businesses on the whole. And yeah, I've been doing startups since 2006, like I'm never really needing to go to a bank branch and like, unless I'm forced to do it because the bank can't do something online. So that's kind of the thesis. And I think it's also like relatively recent, right? Like I would say it's only since like maybe in the last 10 years that people have moved almost completely to bits when it comes to money. So I think in that world, uh, it's hard to believe that these kind of 100-year-old banks will be the dominant player. Uh, when it comes to delivering financial services, I think it will be a combination of like people like Apple and people like Mercury. And, uh, there will still be, you know, if lending, especially like niche kinds of lending, uh, we'll still have like, you know, more traditional financial institutions running it. But I think for the broad set of things that people expect out of banking, credit cards, bank accounts, like Even the basic kind of loan stuff like mortgages, car loans, etc. I just think it's going to be delivered by tech companies on the whole. And that's a really fundamental shift. And I don't want to speak too badly of normal banks. But yeah, if you look at the top 10 kind of companies in the US, none of them are banks. But like, if you look at the next 100, like 20 of them are banks or something. So like, you know, banks are like worth like $2 trillion or something in the US. It's like a lot of money is in banking, but banks kind of make it sound like they're like these poor institutions that hardly make money and it's so hard. The multiples are low. Like, I think they've created this like aura of like, we're not actually successful so that they don't get regulated or something. But yeah, there's a lot of like, you know, as a percentage of GDP, like, you know, it's like banking, defense, like, you know, these things are like big chunks of GDP. And I think there's going to be a big shift in that towards Like, uh, yeah, when we say tech companies, I, I, I kind of think of it as like a customer-first, product-first company, right? Like the, like we really care about like the experience that Turner has. Like, I don't think most banks really care about like the experience their customers have. Um, and that's just like, I mean, they're very, really old institutions that have had like a regulatory monopoly for a long time. So, uh, it's a very different mindset and I think overall It's going to be better for customers. It's probably going to actually reduce the amount of revenue in banking, which is kind of like an interesting point. Essentially speaking, financial institutions are like middlemen that extract money out of the system.

That's the theory, yeah.

And if you bring competition, if you bring kind of the internet and the ability to select a large set of products to things, I think it'll be more convenient for people, but also like probably have less fees associated to it and deliver the same or better product for less cost to consumers. But I also think the whole system will be more efficient behind the scenes as well, right? Mercury doesn't have to pay for an expensive building on every street corner. So that cost saving we have, we can pass on to consumers. So the whole system's just better. Maybe even the net profit in the system will be the same, which is kind of the magic of technology, right?

Yeah. And isn't a lot of the banking systems still run on IBM mainframes and spreadsheets?

Yeah, it's really old school.

So I think you've kind of talked about publicly, you didn't know anything about banking at all. When you got into this, what's kind of the story starting Mercury, coming up with the idea? I know you're not, you're obviously not from the US where you live now, like however far back you want to go to kind of walk through this story, like the journey of Mercury, all the insights that you learned.

So I'm from the UK originally. That's where I grew up. Uh, and I did my first company there and I moved to the US in 2007. Uh, that was like probably like the start of the kindling for this idea. Uh, banks are better in the UK. historically, at least, you know, less monopolies or more? Well, it's weird, actually, more monopolies, but the regulators— this is my external impression, like, I'm not deep in the UK system, but in the UK system, the regulators are like, hey, you now have to adopt this payment rail that makes money move instantly. And they, all the banks adopt it. Or like, they're like, oh, you can no longer charge ATM fees. And then the banks can't charge ATM fees. So it's like much more specific and like, you know, it's, they get into the nitty gritty of it. Let's just say, whereas in the US, my impression is the regulators are like mostly leave alone, like how banks do things, but obviously like get involved in the, on the loan side.

We kind of let crypto happen for years here.

I mean, there's some like magic to it as well, right? There's like thousands of banks in the US and there's only like 20 or something in the UK. But either way, I was like, okay, you know, this is It's kind of weird that it's bad here. I thought like Silicon Valley is supposed to be the future. So that was my first kind of impression. And then—

And did you move for YC? Is that when? Because I know you—

Yeah, I did a YC company in '07 and another one in '09.

What was the first one that you did?

It was called ClickPass. It was a kind of easy single sign-on system for websites before that stuff was like cool.

Okay, so this was like login with Gmail or Facebook?

Yes, exactly. Back 20 years. It was a developer tool that would like help people kind of set that up. Interesting.

Anything interesting happen there? Like any learnings or did you guys get any customers or how did that go?

Yeah, I mean, there's always learnings from all this stuff, right? Yeah, let's hear them. We had a bunch of customers actually. Hacker News was using it. Washington Post was using it. This company called Disqus. Do you remember Disqus? It was like comments system for blogs. And yeah, anyway, there's a, basically there's a few YC companies, uh, and, and some non-YC companies using it. So it was actually had a lot of users, a few million maybe, but we just didn't have a way of making money. So, and we hadn't, we hadn't thought that through very much. Uh, oh yeah.

Always, uh, yeah, the last thing you think about, how do we make money?

So it was like, we were really focused on like, let's get a Series A, but you know, at least back then and maybe now too, uh, you know, just having users and not making money was not like a good way of like, uh, getting a Series A. We also just didn't have a very credible story on how we would make money.

Um, what was the story? Like, what did you tell people?

We went through a ton of different stories. We did this like very, I mean, this was a little more common in 2008, but we spent months and months like fundraising and we would go like, the story is now X, like we're going to go charge, you know, blah, blah, blah. Like we're going to go charge consumers. Yeah, we went through a bunch of stories and none of them. I think one of the interesting lessons was like, if you are not convinced by the story, like you're never going to convince investors. So I think sometimes, Sometimes founders kind of pretend to themselves that they like find their own stories convincing, but like, I think in our heart of hearts, we did not find our own stories convincing. And I think investors can pick that up pretty quickly. We ended up doing a talent acquisition for that company. It felt a little bit like a talent acquisition. It's just getting a high-paid job, which is not what I wanted. So I did another startup after that.

Yeah, right after it sounds like.

Yeah, there was no pause at all.

Okay, and that one was Heyzap, is that how you pronounce it?

Yeah, it was Heyzap, which we did from like basically end of 2008 to when we sold it in 2016.

Okay.

And yeah, don't ask me about lessons from that because that was like 8 years of lessons. It would take this whole podcast.

Yeah, no, I mean, okay, so in terms of what do you think is the most valuable and applicable today?

I mean, there's a ton. One thing that we did a lot better at Mercury, which I had to, I never really understood, but I've finally kind of, I think, figured it out later at Heyzap was like how important culture is and also what is culture. Like people was like, oh, culture, culture, culture. And I was like, you know, your first impression for culture is like, are there beers in the fridge, right? Is that your first impression of culture? That's my first impression. It's like when people say startup culture, right? Beers in the fridge, maybe massages, ping pong table. Exactly. And I think that is like, it's like a symptom of culture, but it's definitely not culture. And I do think, yeah, culture is like a weird word. Like it means lots of different things. I think the bit that is quite important and important to get right very early in a company is like, what are the personalities that you have at the company? And which ones do you hire for? And what personality traits do you encourage? And some of these are like, there's ones that work fine, but are completely contradictory. So like the, you know, the actually like Ben Horowitz books, like What You Do Is What You Are or something like that. That book is pretty good about like, I think explaining what I think culture is. But like, if you take, you know, Uber's culture, whether it's like hypercompetitive, like high ego, you work your ass off and you win no matter what. Like, that worked for them, right? I know people think like Uber is not successful, but like, it's, you know, it's like whatever, $40 billion company or something. Like, it was extremely successful.

I think it's like $100 now. I don't know if you've watched recently, but yeah, they're free cash flow positive in the most recent quarter. Yeah.

So, and I mean, it was built on that culture. Like, they crushed all the competition getting there. Whereas, you know, I'm not like that at all. Like, that's not the culture of Mercury. Like, you know, we are like all about like hiring humble people that want to be helpful, that are low ego. We're all about like ignore competition and just go like focus on customers. So like both cultures work, but you have to be like true to one or the other culture. And you have to like, if half your company is like humble, low ego people and the other half is like, you know, competitive, high ego people, then like it's probably just going to break and you need to build systems around it.

Yeah. That's fair. Maybe it depends on industry too.

Yes, exactly. I think your culture has to be like work within the company, but ideally it's expressed in the product and the customer experience that you deliver. Like we want, you know, I think banks are actually like generally speaking, a little higher ego, a little less like customer-centric. And we want, we don't want that. Like we want the opposite of that. But it has to be like also true to the founders. Like I think culture is, you know, I'm actually generally a believer in like bottoms-up innovation and giving people a lot of like authority and trust and control and stuff. But culture, for whatever reason, is a very top-down thing. If you behave in a certain way, it's hard for like some other way to get like manifested. So it has to be like true to who you are, which is, you know, which involves like, you know, when I was, I guess I was 23 when I started my previous company, I probably just didn't know who I was either. Right. So I think it's hard to—

Yeah.

It's hard to create a good culture when you don't understand yourself, which is like kind of a tricky, tricky aspect of that. So I think that was like the biggest lesson. Like we were, even when there was, I think it was just 4 people at Mercury, like wrote down what we cared about in our culture. And we, ever since then, we've like hired alongside it and come up with ways of testing for it and encouraging it in the company. And I think that's like been a really powerful like part of it because, yeah, people often talk about mission and things like that, which I do think are important. But at the end of the day, who you work with and like, you know, what you do at a company is pretty much the same at most companies, right? Like in front of a computer, like you're a programmer, you're coding or you're designing. Yeah. There's like, those things are like fundamentally like fairly similar between companies, but like the people you work with and the culture that exists at the company is actually like probably more of a defining characteristic of like whether you enjoy more than like the mission. Like the mission matters, of course, but it's probably not going to change what you do day to day and like whether you enjoy it. Like you could be on a great mission, but like hate it because like the people.

I could see them tying in together where it's like, if both of them really click, then that's probably the magical work environment.

So yeah, that was the biggest lesson. I mean, the second lesson, which like, I don't know how fulfilling it is to people, but it is to me, to some extent is, you know, I don't think I was like that much worse of an entrepreneur in my previous company, but Mercury just worked way better. So having like the right idea at the right time, and I think timing is really important, is like just so important. And I think it's so important that like people should probably spend a lot more time on the idea. I had this thought process that like you shouldn't care about the idea so much that like execution was everything. And a good entrepreneur would figure out executing any idea or like be able to twist and turn through the idea maze while you do it. I think it's not true really. I think execution matters, but like, I don't think you can take a bad idea and execute the hell out of it. But I think you can take a good idea and execute it well. I think even if you're like slightly bad at executing a good idea, you can probably like learn, but there's no way to like learn your way into a bad idea. On the whole, there's probably exceptions. Yeah.

And it's probably that, you know, famous, I think it's like a Marc Andreessen blog post where there's like the grid with the 4 squares and it's like good team, bad team, bad market, good market. And it's like you try to find the intersection of really good founders, really good market. It's like, you know, you could have, you could be amazing, you could be the Jeff Bezos, the Elon Musk of the world. But if you're trying to sell software to K-12 schools or something, or one of those markets that everyone knows is just a slog. I don't care who you are, that's tough. So, okay, you've learned all these things from Heyzap. You're thinking about what to do next. I think you've mentioned you ran into this problem that Mercury solved. What was the moment where you decided this is what I'm doing?

Heyzap, my previous company, had a lot of pivots. We pivoted 4 times and it was it was often struggling during that 8 years. So because it was struggling and, you know, I'm like very interested, I like live in San Francisco, I'm interested in startups. So, you know, there'd always be like these ideas that were in the back of my head. And, you know, as an entrepreneur, you always have ideas about like, oh, how do I make my life easier? Right. Those are the easiest ideas to come up with. And, and, you know, I don't, I'm not saying like I came up with these ideas, but Yeah, you could see things that sucked as an entrepreneur. So like, payroll really sucked, right? For a long time. Like I remember, you know, this guy came from, like, we were signing up to ADP and it was like me and my co-founder, we're literally living and working in an apartment in like, you know, SoMa. And this guy comes in, he's got a literal binder and he's like getting us signed up to payroll. And I was like, this is insane. Like it should just be online. And like, how is this like, you know, how does the cost work out that this guy has to physically come here to like sign up 2 guys. Yeah, it's insane.

Did he have like a suit and like a briefcase or just a button-up?

Yeah, yeah, yeah. It was a full-on like, you know, it's like 1990s kind of stuff. So I was like, yeah, I was like, this is just clearly dumb. Like someone needs to improve payroll. And then, you know, Gusto came along and did that. It seemed like there was no Stripe, there was no Slack, there was no, you know, almost everything to do with being an entrepreneur like sucked. Uh, it was all of these like really old school enterprisey companies that were like impossible to use or sign up for. Uh, and banking was just one of these things. So as these things improved, I was like, oh, tick, that's done. Like someone should do X and then someone else did X. And I was like, okay, you know, and then, uh, there's not that many services that every single business uses. Right. So like payroll, uh, like I guess website hosting, AWS, like, yeah. banking, like there's like basically like 10 or so things that like every startup needs. So it was just, it was just one of these things. I was like, okay, it's just going to improve at some point. So I had this idea develop over like years where I was like, someone's going to do it. And then, yeah, I think it was around 2013 where I was like, okay, if I had time, I would just do it. But obviously I'm still working on that startup. But what I started doing, which like, you know, I guess if you have the luxury of years, you could start doing this. It's like, I started like just like collecting contacts. Like, that's what I was doing. I was like, okay, you know, every time I met someone who was in fintech, I would like write their name down or like at least mentally go, okay, you know, this is someone I could turn to if I ever did this. Uh, same with VCs, same with like, you know, there was a lot of, there is like a reasonable amount of like fintech innovation. So there was like people that you could build on the backs of as it was. Uh, and then in 2017, when I did Heyzap, I was like, okay, you know, this is still my favorite idea. I was pretty sure I could build the product and I was fairly sure I could get the customers. The bit that I was not sure about at all was like, how the hell do I do it? And like, is it just completely impossible?

Yeah, because you were starting a bank and that's, well, in your mind, like, okay, I need to start a bank. Very hard to do. I don't know if everyone's seen that chart where it shows like number of bank charters issued over time and it just stops. It goes to zero and 2007 and like no new banks have been created or very few. How did you figure things out? Like what was the process of learning about all this stuff?

I think like that's kind of the power of kind of Silicon Valley and I guess also collecting those contacts. So the 2 most useful people were actually the 2 founders of this company called Standard Treasury that sold to SVB, Zach Townsend and Dan Kimmeling. At that time, they were starting a VC fund that was investing in fintech. So, but they were just great. Like they spent like hours with me going like, oh, you know, what about this? And like, you know, it's not like they knew exactly how to do it, but they were just like further ahead. And like you could just like spend a few hours and absorb all their knowledge. And then the other thing that was really useful, which is like probably unexpected, is like talking to lawyers. So one trick I have for like, if you want to learn something about law and not pay for it is, If you talk to one lawyer, you ask them a bunch of questions and then you'll have some follow-up questions. So you go to the next lawyer and you ask them the follow-up questions to the first lawyer. And then you also like, if you're not sure about something or like there's a surprising number of things in legal that are gray areas. Like before I started Mercury, I was like, the law is the law, right? Like it's like X or Y, but actually like a lot of it's like, you could maybe do this, but maybe not. And no one's really tried it. especially when it comes to like things that are truly new. So I basically got to as many lawyers as possible. So there's a fintech lawyer at every single big law firm, and then there's a bunch of specialist fintech lawyers. So I probably spoke to like 12 or so lawyers, some of them multiple times. They were very generous. A couple of them ended up investing in Mercury. So I wasn't just like, and we also hired a couple of them eventually. So I wasn't just like abusing their time. But yeah, they were very friendly and helpful. But eventually you get to the, like, you just keep asking these questions and eventually you're like, okay, you know, I'm getting the same answers back or like every other lawyer is giving me contradictory answers, which means like I'm at the edge of like the knowledge kind of gap. So that was very powerful. Fintech VCs were quite useful. I talked to a bunch of those guys and girls. Yeah. I mean, it's like anything where I started it, And I remember after like the first few meetings, I was like, wow, I have no idea what the fuck these people are talking about. Because I was just like, someone would say, you know, I mean, now it seems basic, but someone would say like, natcha, right? I'd be like, what is natcha? And I don't want to sound like an idiot and keep interrupting them and going like, what, sorry, what's natcha? And like, but eventually, you know, you, I would write down every time they said something and I would Google it. And eventually it got to the point where I was like, okay, I kind of understand what the hell's going on. And that was like an important point. But yeah, I guess like one lesson there is like, it's worth knowing what you don't know. And like, I think a lot of this kind of pre-seed side of things should be like all about de-risking what you don't know. One's initial instinct here might be to start coding or whatever, but there was like, I knew I could build a product and like we'd built like whatever, 15 years of like product building. So like most investors could like believe I could build a product, right? So there was no reason to de-risk that, like me spending that initial 6 months, like writing code would have like not helped anyone believe anything. So you really have to spend time like de-risking the thing that is the biggest risk, which for a long time was like, how do you even do this? Like, is there, you know, is this allowed? What is the compliance and regulatory framework? And like, eventually I came to this conclusion that, okay, the way you do it is partner with banks. And then— I did a separate, very long process of like locking down a bank partner, which As we mentioned earlier, turned out to be the wrong bank partner.

Yeah. What was the context around? Did they just like at the end, they're like, yeah, we can't do the wires and the no social number. Did they kind of like rug pull you guys or what happened?

No, I mean, like what happened is, so it's a long story, but basically this company had bought Simple, the bank Simple. They were not the bank as well, the software company that was called Simple that provided banking services. And Those people had been tasked to go build open banking, uh, banking as a service platform. So those are, you know, they were good people and they really wanted to be helpful. And, you know, they were like tech people that were like, yeah, we're disrupting banking by like opening up APIs to banks. So they were great and they really wanted to deliver it, but then they were attached to like a pretty old school, fairly big bank, like BBVA is the second or third biggest Spanish bank or something like that. that owned this US subsidiary. And it was just hard for them to get it done. Like it wasn't their fault. Like they wanted to do it. They wanted to, you know, the APIs were actually pretty good. They were like, they knew how to build tech, but like the compliance folk at the bank just like blocked them.

Yeah, it was just like from the top, they're like, once you got past a certain step, they're just like, no, you can't go any further. Yeah.

And like, you know, the way compliance works at a bank is like, I mean, even at Mercury, which is not a bank, you can't go to compliance and say, like, we're going to do this. Like compliance has to want to do it. And like, it's an interesting kind of thing. There's literally people that are like personally liable if they make bad decisions in the compliance team. It's not like they have a very serious kind of role. And the regulators like hold them up to that. It's tricky. Like you can have an exec team, especially at a bigger bank, that's got older school institution. You can have an exec team that's like, yes, we want to go support Mercury and we want to do all this cool stuff. And then you can have like a compliance team that's just like, nope, sorry, like this is a bad idea.

So what was going on with this other compliance team that did say yes? Like, how did you convince them?

So generally speaking, you know, when you're a really big bank, like you have a very different mode of operating, right? You have a whole big business that you're trying to protect. So like having like a fintech company that's tiny that like could grow, but like, you know, it's basically like when, especially when you're like, you haven't even launched yet, like there's nothing that you bring into it. So yeah, to some extent, like there's a, like, is it worth the effort to having like online signup for like non-US residents? Right. Like, and from their perspective, they're like a big bank. They're like, you know, we don't even want to figure this out. Like this sounds scary.

Yeah.

So most of the partner banks, uh, are smaller banks and they're actually like, you know, they really almost not universally, but often their business is partner banking, right? Their business is not like the rest of their kind of lending portfolio or whatever. Most of their business is like being really good at partner banking. So then they're willing to go hire compliance people. They're willing to like go invest in that and figure out like how to actually deliver that. experience. So it's just a very different mindset. Like, I would say anyone who's thinking about doing fintech, especially when you're early on, like avoid working with a big bank. Like you want to work with someone that's like, wants to like deliver a great experience to your customers along with you.

And then I think I heard you mention somewhere else, you have a 40-person compliance team. Maybe you just threw that number out, but that seems like a pretty big number for what I would perceive the size of Mercury. Like, is that a pretty big function?

Nowadays, actually, we have compliance and risk split And actually, for a really long time, no one could give me a straight answer of like what the difference between compliance and risk is. So now I finally do understand it. I can try to explain it to you if it's useful. So compliance is like setting the product and the processes up so that they are complying with the law and with what you've agreed on with your financial institution partners and all that kind of stuff. So it's much more of like a non-operational, like let's set up the things so that like, you know, the right agreements are in place. We collect the right data. et cetera. Risk is like then taking that and like applying it. So let's take a concrete example. The compliance team along with our partner banks have decided we cannot onboard a marijuana company, like a company that deals with marijuana. So when someone applies in the description, if they say we deal with marijuana products, then we have a separate team, which is the risk team that looks at every single application and goes like, oh, actually this is a prohibited industry. If someone's trying to be tricky and they're like, don't put in that they deal with marijuana products. Uh, they're like, oh, we provide like, you know, goods for sale online. Then, then we, you know, the, the risk team will go look at their website and go, okay, you know, actually they're selling marijuana products, so we can't onboard them. So, so those are the 2 differences. Like compliance sets the rules that should obey the law, et cetera. And then risk goes and like implements the rules. Uh, and there's different parts of risk as well. There's like card fraud, which is like, we have a whole team that deals with fraud. We have a team that's like called the financial crimes team. And like, they're literally talking to the FBI and like the whole part of the Secret Service deals with wire fraud and stuff. And so anyway, our compliance team is, I think, like 10 or so people. And then our risk team is much bigger because they're dealing with like kind of operational stuff. And that's more like, I think it's actually bigger than 40 now. It's like 60, 55, something like that.

So the compliance is maybe like frameworks, And then the risk team is like executing on them.

Yeah, much more kind of legal side of things. Like our compliance team is under our general counsel, which is quite common as well. Yeah, very different mindset. But no one could explain that to me for a long time. I don't know why. Maybe I was just being dense.

Yeah, I mean, well, when you're probably thinking about my existing banking experience isn't very good, the last thing you want to do is learn all about why. Because of compliance risk, things that aren't exciting to give people an even better experience?

No, I mean, actually, I would say I was pretty interested in this aspect. So if you talk to a lot of people and you say, okay, what sucks about your banking experience, which I talk to a lot of people, yes, they complain about like, you know, I can't find my account number and routing number on the website, or like they complain about like very specific kind of product things. But a lot of the complaints actually come down to like, I was trying to do X and I got blocked, or like, I couldn't do Y, or it took days to do blah. A lot of them are actually compliance issues. I do think it's a core part of what we solve is we understand our customers really well, and then we try to apply technology and product to compliance and risk issues. So we have, we call it the risk team, but we have a 20-ish person product engineering team That works with risk and compliance. And yeah, this is one of my other things that I like to do, which is like, I think it's, it's good for every major operational team we have at Mercury. We have like an engineering team behind it. Same with like customer support. But anyway, I think it's, it's actually a core part of like, maybe for every fintech service, but definitely for Mercury, it's a core part of like our innovation is like, how do we do a great job here? It's like, do we go back to my earlier thing about like, oh, bank branches are kind of stupid and they cost a lot of money. Like the other thing that's kind of stupid is like the way most banks run like compliance and risk is like they mostly throw lots of people at the problem. Whereas like, yes, you need people to make like judgment calls on like, is this really marijuana or not? But I think like a reasonable amount of product can speed them up. Or, I mean, even if you take this marijuana thing, like, you know, at some point maybe we'll build a scraper that goes and looks at the website and like, Builds like, you know, a little AI summary thing to figure out like, is it a marijuana company or not? But yeah, there's lots of ways you can apply leverage to the system.

Yeah, I'm trying to think of one example. I think so when you go to your checking account on Mercury, or you go to your card, the number is actually blocked out, but there's like a click to reveal where it shows you your number and you can copy your card number. When I think about my existing personal bank, like the numbers are X'd out. So I'm assuming there's probably compliance reasons, like you can't show that information on like a potentially public screen. Like, is that essentially how it flows through in the product?

For most banks, like the system that runs the website has literally no idea on what the rest of the bank numbers are. I mean, the card number is like, I'm not even joking here. Like, these systems are like a hodgepodge of systems that can't talk to each other. And, you know, we insist on building it all ourselves. And then I would also say like, probably like very few people at the bank like care about like making your experience better and giving you the numbers. So there are definitely like risk and compliance issues associated to it. The other one that used to kill me and still kills me when I have to use a bank is like, why can't you search for transactions more than 3 months old? Like you have to go into these PDF statements. It just, oh, it just pisses me off so much. And I really thought for a while it must be a law because like it's universal, like every bank will stop you at 3 months. But yeah, there's no law, just like these systems are just like archaic things and no one's like really trying to improve them.

I have to ask this one question. We kind of, we moved past it, but it's from, uh, Saar at CRV. He said you need to ask about this, and this is maybe a hot topic seen come up on Twitter, um, remote work. So you guys are pretty remote-friendly. How did you make that work? Because a lot of people say it doesn't work.

I think there's a nuance to it. Like, I don't think it works in a lot of situations, but I do think you can make it work if you're very intentional about it. So firstly, pre-COVID, we were about 30% remote. And then post-COVID, we grew from 30 people when COVID hit to like, you know, Well, now we have 500, but we were 400 at the start of this year. We basically just committed to it. And I think it was hard to imagine hiring people with the restriction that you have to move to San Francisco in the middle of COVID right? And we had to grow. So to some extent, it was not a choice. But then you have to kind of lean into it. Okay, so if you're going to lean into it, how do you make it work? So we do a bunch of things. I don't, and it's not perfect, but, you know, we have everyone get together for at least 4 times a year. And, you know, it's not being remote is not cheap. Paying for people to meet 4 times a year is like paying for office space is not that expensive. So it is not cheap, but you get the big benefit of like anyone across the US and Canada. And I'm trying to start hiring in Mexico as well. That's like hundreds of millions of people, right? And there's only a small percentage of people that already live in the Bay Area. I guess we could have a New York office as well, or they're willing to move, right? So like the talent pool is huge. I'm in my bedroom right now. I like working from here. So, you know, I think that works pretty well. I think the big downsides where it doesn't work, which is like actually most companies, I don't think it works. And like, I don't think it's that great. This is my most controversial take is I don't think it's that great pre-product market fit. I think most companies don't know what the hell culture is. I didn't know what it was in my previous company. I think most startups don't know what culture is. And If you don't have a strong culture, you don't know what your culture is, and you don't really emphasize and care about it, like it doesn't work. So whether you're a big company or small company, like you have to have that kind of aspect. And I think the third one is if you really scale, like if you're Google and you scaled up to be like a 30,000-person company before COVID it's hard to like change your culture to work with remote. So I'm not 100% sold like most of those companies it works well on. So, I mean, if you add up all of those companies, like companies with bad culture, companies that are pre-product-market fit, companies that scaled before COVID that's like 99% of companies. So, like, I do think, you know, the people that say on the internet remote doesn't work, I think they have a point. I think the reason it's a little bit of a culture war, if you are a CEO of a company, you're trying to be a not remote company, you need all your employees to be convinced, and you need the talent pool to be convinced that they're willing to like go back to this pre-COVID thing of like moving. their lives to come to you. So you have to try to win, not just like, you can't just make a choice for yourself. You have to try to win public opinion, which is why people like argue about it on the internet. Like they're trying to like get people to change their mind about it. As a remote-first company, I actually don't really care what people think. They should do whatever they want. Like, I'm like, do whatever you want. So I'm not trying to change people's minds about it. So I think that's why it's such— But actually, if you're an employee at a remote company, or you want to be remote as an employee, you do want to change people's minds. Like you, so there's this like actual, I do think there's like a little bit of a culture war happening between like VCs and CEOs that like want to have like a non-remote culture and like employees that want to have like a remote culture. Like as an employee, it's just clearly, I think in most cases better. Like most people want the flexibility to be able to apply from anywhere and do anything. From my perspective, like do what you want and it probably doesn't work for most people, but. I think you can make it work.

I think it's like a, like a phase of life and phase of career thing too. Like if you're super young, no obligations, it's like probably move to San Francisco or move to wherever, work in the office.

You know, we have an office in San Francisco and one in New York and one in Portland. I think there is a reasonable number of people that would prefer being in an office. And yeah, frankly, if I'd just come out of college and I was like, I don't want to be sitting in my apartment in New York all day, I want to be like around people and like, making friends and like working in that environment. So yeah, we try to be like a little flexible, but I would say we're remote first rather than hybrid. Like I think most of the meetings most people have are on Zoom.

On the other end, it's like when you have kids, that's a big piece. So you're like, I need to be as efficient as possible with how I spend my time.

And it's nice to have some flexibility, right? Like you're like, oh, I need to go do this chore. You can just go do it for 20 minutes and come back to work. If you're in office, it's hard to have any flexibility.

So where do you think the mistake is made then in terms of remote work? It's not, it's almost like not choosing the right workplace strategy based on the position that you're in as a company or concept.

I think the biggest mistake that people made and like they are getting screwed by it is like someone like Apple. And I was talking to an Apple employee recently. They always said like, you can go remote, but you have to come back once COVID is over. They like were very deliberate about it. And everyone understood it. I think a lot of companies were either nonspecific about it, they didn't set a policy, or they actually even set a policy that they were like, okay, remote is fine. And people moved away, they like moved on with their life thinking remote was fine. And now they're trying to change that. So I think that creates like the most rancor among people where, you know, now they don't live in the Bay Area or wherever. And now they're expected to like move back or lose their job. And I think that kind of like expectation setting and like breaking is like probably the biggest issue for people. And it's a very valid and relevant issue. And then I think the rest of it comes down to like people trying to change people's minds.

So slightly switching gears in terms of fundraising. So you do this program, it's called Mercury Raise. Essentially, you help startups, I think customers or not of Mercury, raise money. So can you kind of talk through really quick just what that, like what it is, how it works, and maybe we can talk a little bit more about fundraising tactics, strategies?

Basically, we're going to change it around. So this is going to be old information soon. But right now we run it once a quarter. You can apply to it. We run it for free. We have about 3,000 applications to it and we select about 50 companies. using internally, and also we have some external judges that help select the companies. And then we blast those 50 companies out to a set of investors. I assume you're on it, Aurnabh, hopefully. So we have a bunch of mostly seed, pre-seed investors that we send it out to. And the idea from the investor perspective is this is a curated list. We source most of these companies from Mercury customers, and most people sign up to Mercury right when they've just started their company. So we have like a a source of pretty early stage companies. It's actually hard from an investor perspective. And like, this is, I think, partly why YC is so successful. A lot of the time as an investor, you're waiting for like deal flow to like just present itself. Or you have like, you know, you have your Twitter DMs or something, which is like completely uncurated deal flow. So like, those are the 2 levels mostly in the world. It's like completely uncurated, really hard to like find like very noisy kind of deal flow. And then the other side is like, very curated, but like you, very passive, like you're waiting for introductions from other investors and things like that. And we wanted to create a channel, which is like at least a lot more signal, but also like, you know, anyone can get to it.

I always look at the list.

Oh, nice.

Yeah, it's valuable. Yeah.

Yeah. Have you invested in much through it?

I've had portfolio companies that have gotten checks from Mercury Ray. So I know it definitely works. I know people, I know, I feel like you guys have some success stories. I mean, I think it's something like $1.7 billion raised or something.

Yeah, that might be a little bit of a vanity metric of like all the money that all the raised companies have raised. I do think for the 50 that got selected, it's like quite valuable. And this will come back to your fundraising kind of point, like fundraising at seed stage is like all about momentum. I mean, maybe at every stage, but especially at seed stage. Because, you know, if you are, there is like this game theory perspective where like an investor's incentive is to wait as long as possible because like every month you wait, you get an extra piece of data. You also have this like massive disincentive as an investor that you want to be, you don't want to be the only check in the round. And that's happened to me a few times where like, you know, someone's like, oh, I'm raising $2 million. I'm like, sure, I'll give you like $50K. And then like they end up raising $200K. And they don't have enough money to make that startup successful. So my $50K is just like this orphan. And like in 2021, it didn't matter because everyone was able to raise whatever the hell they wanted. But yeah, right now and pre-2020, it was a factor that like you don't want to be the only one in the round or you don't want the round to not be complete. So the combination of those 2 factors, like you get more information over time and you don't want to be the only investor, means that like the incentive for investors is to wait. So the only way the founder can break this incentive is to just talk to so many investors that you create this like momentum that's like self-fulfilling because like—

So how do you do that?

In general, it's hard, but if you're using RaiseSeed by itself, it's maybe not enough. Like we send you to 500 investors, but if you're using it in conjunction with a round, like it can help like give you that extra push. How do you do that? I think step one, which I think a lot of early entrepreneurs miss is like, you want to have a really good network of entrepreneurs. So I think sometimes people try to build a network of investors. I think that's actually much harder as an early entrepreneur, but knowing a lot of entrepreneurs is not that hard. You just show up at events. Most early entrepreneurs are willing to be helpful. Everyone's been through that journey. You find people that are close to your space. Ideally, you go through YC or something like that. That helps a lot. So that's step one, because most entrepreneurs that have raised a seed round know at least 10 investors, right?

Yeah.

So if you know 10 of them and they know 10 investors, that's like maybe 100 investors right there. And most of the time as an investor, I feel like you almost have a legal obligation to look at an email from a portfolio company founder, right? Otherwise, like, what the hell are you doing? So I think that's step 1. Like, you want to have a good network of entrepreneurs that can connect you to investors. And then step 2 is like, you get all your ducks in a row. Like, you write the deck, you go pitch it to some of your friends, you pitch it to your wife, whatever, right? Like, make sure that you're like pretty solid story. You try to de-risk it as much as possible to like make sure you can, you know, ideally you're selling a good product to investors. And then I try to like compress it all down into like a 2-week period where you just go completely crazy. Like ideally you're doing like 5 meetings a day for 2 weeks, right? So that's like 5 times 5 times 2, whatever that is, 50 meetings. And that kind of momentum, like I think, A, your Pitch, at least when I'm pitching something, it just gets better and better. Like if I do it again and again in this like very quick time period, because like they'll ask you questions and then, you know, eventually you get to a position where you've just memorized the pitch. So like you can completely focus on what the investor's saying. You don't need to think about what you're saying. And that's like a very different mode of operating versus like, actually I'm like pitching and I'm trying to remember what I was supposed to say at this point.

They asked the wrong question and it threw me off.

Exactly. Like you want to, you want the pitch to be automatic and like you want to be focused on like like actually answering. When an investor asks you a question, you don't want to answer the question. You want to answer like what the question they're trying to ask. Like if the investor is like, oh, you know, how will you get your first user? You don't want to answer like, how will you get your first user? You want to answer it with like, hey, my distribution strategy is X. Like I'm expecting my CAC to be Y. And like, you know, you don't want to answer the literal question. You want to answer the question behind the question.

Yeah.

But it's hard to do that when you're like very focused on like The pitch part. So that's one part, like your pitching gets way better. And then the second part is you can build up this momentum. If you do 50 things, like, I mean, if all of them said no, you probably got some issues anyway. Even if your hit rate's only 10%, that would mean like in the first 4 or 5 days, you'll get like 3 or 4 like commitments. And then the next week you do the pitching, you're like, hey, blah is in, blah is in, like, you know, then you've got momentum. And then Then the second bit of like the investor mindset kicks in, which is FOMO. And that's what you need to create to get a seed round done. Like, I don't think very many seed rounds get done without some FOMO. Like, you want the investor to go like, shit, like this round is happening. Like, if I don't jump on the train, I'm like, I'm not going to get my allocation. Like, I'm not going to be able to invest.

So do you recommend talking to your favorite, like, let's say you really like, we'll say CRV. Let's say you love Saad CRV, you want him to join your board. Do you go to him first or you go later in that first week, the second week?

I mean, I think the ideal is to try to aim for middle. I mean, it's hard to do this. Like, you want to have your least favorites up front so you can practice. You want your most favorite in the middle, and then you want the rest at the end. Like, that's the rough thing. You don't want the most favorite at the end because like there might not be enough space in the round for them. And you definitely don't want them at the start because your pitch sucks at the start. Like, until your pitch is tested, it will suck. And like every day you should do the pitch and you should say, okay, this is what I screwed up. This is what I need to change about the story, the deck. This is the questions I need to answer better. Like you should be learning from this process. It is intense, but it shouldn't last more than like 4 weeks, I would say. You know, if you don't have like significant momentum after 4 weeks, like, yeah, the reality is an entrepreneur, like you do whatever the hell it takes kind of thing. But like, in the ideal world, you would stop, you'd go like, okay, I'm just not there yet. Like I'm screwing something up. Like either you need to You need to get more product made, you need to get more customers, you need to significantly change your pitch, maybe your valuation's coming in like way too high, although hopefully you figure that out like way earlier than like 4 weeks in. But ideally, you can like step back from it and then reapproach the whole thing after like 6 to 9 months. Like that, I think, yeah, gives you enough time to make progress. And like you can reapproach the same investors after 6 to 9 months and say, hey, this is all we've done. Like this is what you said, this didn't work, et cetera. You can't really come back to them after a few weeks because once someone says no, it's hard to get them to change their mind.

Yeah, I've actually made 2 investments where I didn't— this is a mistake— I didn't invest in the pre-seed. They did get the round done and they came back to me. And it was basically both times I said, eh, I don't even think this is possible. Really cool idea, but I don't think it's going to work. And then they come back, hey, we've kind of got it to work. I'm like, shoot.

Like 6 months later or something?

Yeah, like 9, like 6 or 9 months, exactly what you just described.

I mean, I think every investor does that, right? Like, I think I mean, like when you pass on a company, you're never sure, right? Like it's not like this is a game of unknowns. Like, sure, sometimes I'm like pretty sure I'm like this, I just don't even care what this person does. But a lot of the time I'm like, I don't know. Like there's some part that I'm not sure about. And like even like persistence is like quite a, you know, if someone comes back and they're like, we did this stuff and they're like, you're like, oh shit, like they actually did it. Like that's a— You know, that already puts you in the top 10% of entrepreneurs that you like go do things.

So where do you think people usually trip up throughout that whole process? Is there like a certain part of the funnel or a certain step where they just don't do it correctly? Like, where do you see the most mistakes?

I mean, everything. People make mistakes on everything. I mean, I made all the mistakes, right? I think the fundamental mistake is like having a product that's having a non-venture scale startup, right? It's like there's Because not every company should get funded by investors. And investors are aiming for this fairly unusual company that can have like a 100x return profile. That's just the game being played. And not every company should be playing that game. That's probably like the most fundamental mistake. I think the one that I have made that I think is like a little subtle that I try to convey to people, but it's kind of hard to learn is like, I think it's very easy, especially in the way I just described it, like you're doing like 50 meetings in 2 weeks, it's very easy to treat the investor as like a transactional kind of player. Like, it's like, I need to sell you and you need to believe in this sale. And like, you know, like you don't want to be a salesperson, which is weird because you are selling something. But like somehow in this like short 30 to 1 hour time period, you have to build a connection. Because at the end of the day, when a founder emails me, I will respond to them. So like, that's a big commitment that most investors are making that they're like, They're investing in this relationship as well as in the company. So like, you want to try to not be very transactional about it. If I talk to someone and they're like, obviously trying to create FOMO, right? They're like, oh, blah, blah, blah is in and like, you better make a decision quickly. Like, it's just so off-putting. I'm like, I don't want to work with this person. And there's so many ways that like people do think of it too much as a sale. And they don't think about it as like a long-term relationship So ideally, you spend a little bit of like, you spend enough time like getting to know them, explaining your story and just not being like, kind of a jerk, you know, like you don't want to be a salesy person because like, mostly investors see hundreds of these pitches, right? Like that's most investors' jobs. So like, it's just so easy to say no when someone's a bit of a jerk. Like you don't even have to like pay that much attention to the rest of the pitch. Like, it's just like this person's like selling things and it's just like too much ego, or like, you're like, I don't even know if like they're lying about this. Like, you know, you don't want to have any of those red flags. Like, those are the easiest ones to like lose an investor on. Um, I think especially for early fundraisers, it's very easy to fall into those traps.

Yeah. Do you have any embarrassing mistakes that you've made there? Any stories you can share?

I don't know about like with this one. I have like one really embarrassing story. So check this out. So we were raising our seed round for Mercury. And I talked to Alex Rampell, who's our GP there on a Thursday. And he like really likes the pitch. He's like, oh, come in on a partners meeting on a Tuesday. I don't even know if I've told Alex this story. So whenever I went to a partners meeting on Sand Hill Road, there's a Starbucks right there. And like I had a little ritual where I'd go to the Starbucks, I'd show up early, I'd go to Starbucks, get a latte, you know, get settled in and then I'd go. So I did that, but obviously like I'm a little nervous about this. So I didn't put the lid on my Starbucks coffee properly. Right? So it's like loosely on top. So I pick it up and I'm with my co-founder, Jason. So I pick it up and I go like this and it falls like all over me. Right. And this is like 5 minutes before this like pitch. And I'm like, you know, there's no time to like go fix this thing. Luckily it was like a grayish shirt. So I'm wearing a grayish t-shirt and I have like a massive brownish, like, like latte stain. That's like half of the shirt.

Oh, no.

And I'm like, wow, this is gonna be like, I don't even remember if I had a jacket. I don't think I had a jacket to cover. I had nothing to cover it. So, so I walk in and like, thank God they have the whole room dark because like they have the screen up for the pitch deck. So the whole room is like dark. I'm still like very like, yeah, self-aware of like what the, you know, then like half wet and like it's, you know, it's going to look weird or something. But So the whole room's dark and then I do the pitch and then people ask me questions, but like Marc Andreessen is there and he's just like completely quiet through the whole thing. And I'm like, you know, maybe this is a disaster because obviously like, you know, Marc Andreessen's like the man here. He's the only one who's got this printout of the deck and he's like making notes. I'm like, I don't even know what he's doing. And then he lets everyone ask all the questions and then he spends like the last 10 minutes, he's like, okay, let's go. And then he goes and like asks like like tons of questions.

Do you remember what he asked you?

You know, this is like 6 years ago, and I was probably more worried about my latte stain. So I'm finding it hard to remember exactly what he asked. But I mean, I don't think there was anything that was a super surprising question. It was like the standard set of questions. But, you know, I think generally speaking, Marc Andreessen and Andreessen Horowitz in general is like very focused on like, how big could this be kind of thing, right? That's their Like, you know, how could this be a $100 billion kind of thing? Which, you know, with Mercury, it was easy to paint that picture. But they, you know, they gave me a term sheet that day, so it worked. But it was very, it was the most embarrassing kind of moment going like, I don't know whether this is going to work. And I'm like walking in with this thing.

Did anyone notice?

Did you? No one commented on it. So I don't know, maybe they did and they were just nice about it, but But yeah, it worked.

That's amazing. Uh, was it hot coffee or cold coffee?

Hot. It was very, it was very uncomfortable when it happened.

I'm glad, I'm glad you made it through. So this isn't quite the smoothest transition, but I know we both really want to talk about this. AI, it's the big topic right now. I'm assuming there's, there's probably ways you can incorporate into Mercury. I know you're kind of an investor. Like, how are you kind of thinking through all the AI stuff that's, that's going on right now?

One thing that's interesting is I don't think fintech has like a ton of great AI applications. I do think things will get more efficient. Like customer support is an obvious one where I think AI will help answer like, you know, the first 80% of questions or something like that. And maybe with fraud as well, you could apply. I mean, but AI has been applied to fraud for like a long time. So maybe there's like some extra things you can do. I think, yeah, for fintech and Probably for a reasonable amount of businesses, like the biggest application is like efficiency gains. And like maybe our programmers will get more efficient and like we'll write code faster because of things, which is a little sad. You know, I love being, I would love to come up with like some really sick application and blow people's minds. But yeah, I'm like, I'm a little skeptical on just like doing it for the sake of doing it. Like it has to have its own kind of really interesting thing to it. If you look at a lot of people announcing things in AI, especially existing companies, like it's kind of forced, right? They want to jump on the bandwagon and do it. And that's not really our style.

We've kind of seen that play out every hype cycle.

Every hype cycle. One thing that like, I think it is funny is like, you know, we just got through this crazy 2021. Like everything was a hype cycle phase. And it's just so funny that like we're back in 2022. 2023. And like, we're making the exact same mistakes, like companies getting funded with no revenue, seed valuations at $40 million. I'm like, we just learned these lessons. Like, why can't we just like remember them for any time period?

But it just always happens. It just happens over and over and over again. Yeah.

I think greed is like a much more powerful motivator to human nature than fear. And I think it's just like, this is like one of these kind of But yeah, I think there's like lots of interesting things. I think there's like 2 types of companies that are interesting. And if you're not one of these 2 types, I would probably not touch AI. Like, I think number one is like, you actually know what the hell you're doing. Like you've done a PhD in AI, you're at the cutting edge and you can like do something like, it doesn't have to be a foundation model, but like something more foundational that like really pushes the field forward. And like, especially if you can There's a bunch of people doing vector DBs now. If you can build some of these picks and shovel companies that are really potentially foundational, I think that's an interesting space. But there's not that many people in the world that can do that, I think. And I think the second type that's interesting is people who have this very specific kind of deep knowledge about their space and they can apply these kind of modern technologies to it. So I do think, to come back to the this use case, like the customer service use case, I think probably like Intercom or one of these other existing customer service companies that have all the data, they have all the users, will probably successfully apply AI to them, to their use case. It seems surprising that it'll be a new company that does it. But outside that, if you are a doctor and you deeply understand the process involved in Talking to a patient and coming up with a diagnosis and you want to go encode that into an AI thing that doctors use or something like that. Just picking that example. But yeah, there's a lot of knowledge systems that I do think either will be replaced by AI or be significantly improved by AI. And if you deeply understand those systems, that would be a great startup to start. But most of the obvious ones, there's going to be 100 startups doing it as well. I actually think the contrarian thing to do is start a non-AI startup right now and you'll almost have no competition and you can own that space.

I kind of think about it as if you're doing a startup in AI, you have to go after customers that don't have software yet and the AI is almost the reason they might adopt the software.

What's an example of that?

I don't know, education or something or a landscaping business or like a factory software, like software for the real world, like something that Google, Facebook, Salesforce, you know, insert the long list of existing software companies that have a ton of customers. It's like, oh cool, we made this AI chatbot, we're gonna put it in front of everyone and they're gonna use it. But if someone's not a customer of those products yet because there's no one's ever built software for them, maybe that's the opportunity. Um, I don't know, and it's like categories that no one really talks about. That's kind of how I think about it. And then I also think, I think big winners will be the Google of the world. Like, they're probably gonna add a trillion dollars in market cap related to AI over the next 10 years.

I think Facebook maybe, but I think Google, sadly, Google's like in the business of slowing you down to some extent. Like, they want you to click on ads. Like, I think there's something about like getting an answer quickly that's like slightly disruptive to Google. I don't know if they'll adapt as much as like, I do think Microsoft has like probably the most likely to add the highest kind of amount of market cap because of this. But who knows, maybe Google would up.

That was probably the right company to put in there, Microsoft, not Google, I guess. Because Google too, you think, what are their big products? You've got Google Search, which everyone is kind of starting to chip away at. You have YouTube, which is TikTok starting to chip away at that. I mean, it's a pretty serious competitor. You've got Chromebooks, Microsoft is kind of putting pressure there. Yeah. And then they have cloud too. But again, it's like Microsoft is Kind of, is Microsoft beating them in cloud too? I don't know. I'm not an expert on Google's business, but—

Yeah, I feel like they're third, like behind AWS and Microsoft on cloud.

But when we first met, it was on a panel where I think we talked about crypto, and this was right before FTX. How do you kind of think about how crypto interacts with the finance system and with banking?

Just being around Silicon Valley for This long, like, you know, I was very excited about crypto, like 2011, '12, '13, right? Like it felt like the future, right? Like a system that no one controlled. And you were like, okay, obviously transactions will get cheaper and faster and all of this stuff. Now, I guess like sometimes people think of fintech and crypto on like the other side, which, you know, to some extent they are, but I don't think they strictly are.

You mean as 2 different systems?

No, almost like opposing systems, right? Fintech is trying to fix banking from the inside, whereas crypto is trying to fix it from the outside, effectively. And you kind of realize actually a lot of the things that people complained about with banking exist for a reason, right? You don't really want your money to be sent somewhere and have absolutely no way to recover it. That might sound good, but actually most customers don't want that. They want to be able to shop and be able to dispute that transaction. They don't want to be like, I sent $50 in crypto and I'll never see it again, or someone stole it and there's no way to get it back. So a lot of the things that people think of as like frictions exist in like the banking system, actually like customer protections as well. So that's the trade-off being done there. I also think that a lot of the promise of like instantaneous payments was not really delivered by crypto. Like it takes 30 minutes on most things. Like you can't make enough transactions. Fees are actually really expensive. Like Mercury fees are like basically cheap for any payment.

Yeah.

They're free for almost every payment type. Well, they are free for every payment type apart from international and crypto, you get charged a lot of fees. So having said all of that, I do think there's 2 strong use cases for crypto. Number one is like just a store of value, which like Bitcoin covers pretty well. I think Bitcoin in most ways is better than gold for that. And then I think USDC is actually quite good to like transact with and hold most Other currencies in the world, with some exceptions, are more volatile than USD, and international payments are really painful. So sending and receiving USD instead of having to deal with the SWIFT network is probably better.

Can you explain what that means just for somebody who maybe doesn't know what USDC even stands for or anything that you just said?

So Bitcoin and Ethereum and all of those are tokens. There's a few tokens that are pegged to various currencies.

And these are basically cryptocurrencies. The token is like the US dollar, On the blockchain.

On Ethereum or whichever blockchain. So you can have an Ethereum wallet either on Coinbase or some other tool, or you can have it locally on your desktop, and that can have this token, in this case, USDC. This was founded by Circle and Coinbase, and at any point you can go to Circle and Coinbase and sign up to them and transfer this USDC token into USD. Or you can transfer USD back into USDC. So because they hold the money and they're supposed to not loan it out or anything, they're supposed to put it in like a safe place. There's a 1-to-1 matching between like whether you can at any point convert between USD and USDC.

So it's not fractional reserve like the banking system. It's literally 1-to-1. The money, in theory, is always there. Okay.

Yeah. There's a few people that do these kind of stablecoins, they're called, and I would say USDC is I don't know if it's quite the most popular, but I would say it's the most trusted and regulated. But once you have it, it's quite nice, right? Like, you can use it at these exchanges, but you can also send it to anyone in the world.

And you can convert to different currencies like the Nigerian naira or euro or whatever country.

Well, kind of. I mean, so euros does have like a euro C, which is like a stablecoin in euros. So you can convert easily between that. But like, I don't know if there's a good Nigerian Lira stablecoin. And then on the other side, you still need an off-ramp. So like, if you're sending it to Nigeria, it might be hard to convert it from USDC to like the local currency. But, you know, again, if you're sending it to the US or Europe or whatever, it's not that hard. I think the big bit that this solves is that international payments are really painful. Like we do them at Mercury and it's a very archaic system, like how you send money between like different countries. But, you know, we don't support them right now natively. Like you have to go use Circle or Coinbase or something else to to use it with us. But I do think it's like an interesting use case for crypto that Mercury would eventually support. But overall, like, I do think crypto in general used up a lot of its like hype cycle merits. And like, maybe like people just keep expecting things from it. And a lot of people just promise a lot of things from it. And now we're like 13 years in and like the promises have not been delivered. So maybe in the next hype cycle, we'll have the promises delivered. And like, maybe some, you know, some people would argue that that's a little further on, but I do think like, you know, you can only use this hype cycle so many times. And I think a lot of crypto entrepreneurs kind of overpromised and underdelivered.

Yeah. Well, I feel like that's kind of the beauty of how the Silicon Valley ecosystem works is you use the hype cycle to raise capital to then actually build and execute something that does solve a problem or does become a real company. Because to your point with the whole momentum, the FOMO, like every big publicly traded company at one point was a startup and whether or not they raised venture capital, like they all need to get started somehow.

One of the flaws in crypto, which hopefully you'll appreciate, is like, I think the powers of like a private tech company are like, you can't sell your shares, right? So you really like, when you buy in as an investor and you buy in as an employee, it's this long-term— there is some greed behind it, but it's like you really have to believe in this mission and this vision. And as an entrepreneur, I really have to go deliver something to then at some point get liquidity. It's all delayed gratification. It's the marshmallow test. Most good things come from delayed gratification, in my opinion.

Yeah.

And crypto just flipped that upside down where all these entrepreneurs and investors get like all their money and liquidity upfront. And then they don't have to like deliver their promise, right? Like, even if they're like completely good people and they really care about the problem, the fact that you're like, you know, a $100 millionaire or billionaire before you've had to like actually build a product and like, are you going to struggle to like get it to like the scale that you need to? It's just like against human nature that you're going to work that hard when you've already won the prize. Like, I always was like, I'm like, are you sure this is how incentive structures should work? It's like crypto people are obsessed by incentive structures, but then they construct an incentive structure that is completely not conducive to building a long-term product.

Well, it was basically, when you think about marshmallow tests, it was instead of one marshmallow you have to wait, it was the full bag and you could leave and go to a new room and get another bag of marshmallows and then you could just keep doing it over and over again. Yeah. And it's almost like illiquidity is a feature, not a bug. You need to build the thing and make a company and it needs to produce cash flow, whatever the end state outcome, like it needs to support whatever that is, whether it's like acquired for a certain product, certain customer distribution, cash flow, whatever it is, like it's a long journey. It doesn't take a year or 6 months or—

Yeah, I mean, like, I think most non-crypto investors are like, I'm not going to see any money for 10 years, right? That's like, you know, when I started Mercury, I was like, This is a 10-year journey. And if I nail the 10 years, there's a— obviously I'll have a salary along the way. So it's not like I'm making a massive sacrifice, but the big win is at the end. I do think crypto messed that up. And I think a lot of the bad things that came from crypto were because of that.

Yeah, you had a pretty— I remember you got some heat for this. You suggested to some founders, if it makes sense, especially if you're not really wealthy, maybe you should take an early There's a lot of people that gave you pushback on that.

Honestly, I think rich people gave me pushback on that. If you're born poor from a poor family, like that first bit of money is just so, such a relief. I don't know. I was thinking about this after that pushback. Like I did startups from 2006 to like 2016 when I had my first kind of significant exit. A lot of that time I was in credit card debt, paycheck to paycheck. I would only ever pay myself enough to like survive. It was not It was not fun. It was fine. Like, I'm not complaining, but like, it was such a relief to get like the first bit of money. And like, what the first bit of money does is like, A, you know, the first million is way more important than the next $9 million, in my opinion, right? Like, there's a diminishing return to like what you can do with the money. And like, you know, you just need to get yourself above the waterline as it was. And that makes a huge difference. And then B, it's just way easier to get like the first million than the $10 million. And then C, you're much more likely to do something big that might fail when you're like, don't have to worry about trying to get enough money to like survive. Right. So I just don't, I think most of the time it's almost always the right choice if you're not wealthy and you're like struggling and like you have that initial opportunity. I think the big exception, which I actually did state in the tweet, but you know, it was the second tweet. So lots of people missed it is that if you really have strong product market fit in a big market. it. And like, you know, when you have that, like, it's not a question mark. Like, it's like a certainty. If it's a question mark, you probably don't have it. But if you have a strong product-market fit, like, you know, you're like, fuck, this is the next Stripe or Airbnb or Mercury or whatever. And I think it's quite obvious. Like, most people who've experienced it would say this was obvious. And like, it was nothing like the previous times I thought I had it. Then sure, like, no one's going to give you the money that justifies where you will be in like 5 years' time, or even 1 year's time, maybe. But that is very rare. Like most people, when they're thinking about acquisitions, especially early acquisitions, do not have that feeling. And in that situation, like, I think it's pretty reasonable to consider it. I do think it's like anti the investor incentive structure. Like for investors, you make these bets and you want, especially when they're like, they have inkling of like something working, even if they're not post product market fit, you want them to like stick at it and like get to the Post-product market fit. So I do think there is like, this is one of the few places where the incentive of the founder and incentive of the investor like diverge significantly. And it's much easier as a founder to get that early exit, right? There's way more companies that are willing to spend $10 million on acquisition than $100 million. Just like the number of companies that exist in the world that can even spend $100 million is just like way, way smaller, right? Like it's in the hundreds. Like it's probably More than an order of magnitude more companies that can spend $10 million on an acquisition. So it's just a very different kind of landscape. And if you can save years of your life and you get that early exit, I think most founders should probably take it. But at the same time, I get it. I didn't take it when I had the opportunity. And I'm always like, it feels like giving up. Founders tend to be quite stubborn, and that's the only way you can survive. So there's no judgment on anyone deciding it. But I do think investors should be honest with founders and like say like, hey, this is a tough road ahead if you want to do it and try to go for 10x. But like, this might be a reasonable option for you. And that's what I, you know, whenever I invest, I'm like, hey, this is bad for me. But like when a founder's like, oh, I have an early acquisition offer. I'm like, this is bad for me. But if you want to take it, I completely understand.

Yeah. I mean, I've definitely had that conversation a couple of times over the last couple of months. Like I've had, you know, startup get acquired at cost. by someone, I got some stock in the company that acquired them, or they got acquired, they get like a nice little earnout or something. You know, existing investors don't get much. And again, it's like, this is awesome, this is good for you. But, and I think the balance is like, as an investor, you have to be like, okay, this is the founder's entire thing. This has been their life for X number of years. And for me, this is just a small piece of my portfolio. You need to understand the perspective of the other side and what they're going through.

And often those, those are the people that end up doing like sick companies afterwards. Because they've had enough money, they've learned a bunch of lessons, and they— and like, actually, you know, a lot of my successes as an investor are in that next company. You know, if you're playing the long game, it's like, I think it's fairly reasonable to be supportive of it.

One more question. Do you have a favorite interview question that you like to ask?

This isn't an interview question, but it's an interview situation that we give most of our employees. We call it the presentation interview, but we say, pick a subject that you really love and you're really passionate about, spend 30 to 45 minutes like doing a quick presentation on it, and then like present it to us, and then we'll just talk about the subject that you're passionate about. I found this interview to be like the most illustrative interview, just because, you know, this is something they really care about. So like, you can go really deep and ask them like why and how, and like, you can really get behind like how they think. And for some roles, it's really great, like for sales roles, because, you know, I think it tests their communication skills and like that kind of stuff. We don't do it for engineers, just because like coding exercises and things like that, better time spent. But I really enjoyed that step in our interview process. I think a few companies have copied us on it, but it is like a relatively unique thing. I've tried to encourage other founders to do it since I find it very valuable.

What kind of guidance do you give on the presentation? Did you just say, hey, give me like 10 slides or write a memo?

Well, we're switching to memo. Currently it's like slide-based and we don't spend that much time on the actual presentation. It's like turns into a Q&A quite quickly.

And it's basically you just see the thing that they know a lot about or that they're very passionate about.

Just—

Yeah, exactly.

Like, how do they think about first principles? Do they get defensive? Like, there's just so much you can learn from like that time that I think in a normal interview process is hard to learn. And also like, you know, especially in a remote company, like you're spending so much time like explaining your thinking on Zoom, right? Like it's a very similar test to like what their job will be like. I think it's very valuable. It also fits with our, like one of our core cultural attributes is curiosity, called active thinking. But it's, you know, this is like a perfect alignment with like testing for people that are curious, that think actively about things and are interested and enjoy those discussions.

Well, this has been awesome. I know we went way over on time. Thanks for coming on. What's the best way if people want to try Mercury, reach out to you?

Yeah, you can just go to mercury.com and, you know, on Twitter I'm @Immad. I was kind of expecting spending 1 hour just like shitposting, but like on podcasts, I don't know how that works. I'm a bit disappointed this was a serious conversation, Turner, but yeah, hopefully it was useful to people.

Yeah, next time you come on, we'll just— we'll do like stand-up comedy or something.

Yeah, let's do it.

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