S4E3: Katherine Salisbury of Qapital on Disrupting Personal Finance

Welcome to The Room Podcast. My name is Madison McIlwain and I'm a partner for seed stage investments at DefyVC.

And I'm Claudia Laurie, a co-founder of Pryve. We're a founder and funder who are in the room where it happens. If you're a first-time founder or an emerging venture capitalist, we're glad you found us. We share inspiring, authentic, and insightful stories from founders, funders, and operators who have been in the room and provide tactical feedback on their early aha moments and learnings along the way. Before we dive into this week's episode, we have a short message from our partners.

Support for The Room comes from Silicon Valley Bank.

What's next? What if?

Now what?

Silicon Valley Bank understands these questions can keep founders up at night like Claudia. For over 35 years, Silicon Valley Bank has helped high-growth companies through scalable financial solutions, plus insights and expertise that many other banks just can't, which could be why 50% of US-based venture-backed tech and life science companies bank with SVB. Learn more at svb.com/next. Silicon Valley Bank, built for what's next.

Cooley is a global law firm built around startups and venture capital. The firm has been devoted to entrepreneurs and investors, partnering with both to transform breakthrough ideas into successful companies. Cooley works with thousands of entrepreneurs and newly formed companies to ensure that they are structured for growth and long-term success. Since 2005, Cooley has been ranked the number 1 most active law firm. Representing VC-backed companies going public. Learn more about the firm at cooley.com and also at cooleygo.com, Cooley's award-winning free legal resource for startups.

In today's episode of The Room Podcast, Claudia and I sit down with Katherine Salisbury, co-founder and co-CEO of Qapital. Qapital is a mobile banking app designed to help incentivize people to save smarter with acclaimed psychologist Dan Ariely. As the chief behavioral economist, Qapital is leveraging science to propel people into better money habits. Since its inception in 2015, Qapital has helped its millions of users save collectively over $2 billion. But being a fintech founder wasn't always a part of Catherine's plan. Initially, after graduating from Cornell Law, she started her career as a lawyer in New York City, but life took her to Europe where she ultimately founded and ran a sports management company focused on soccer. I mean football. It wasn't until her personal experience with saving that she and her husband George were inspired to start Qapital together. In today's conversation, we explore insights and themes such as navigating raising venture capital with an untraditional background, co-founding your business with your significant other, and when to make your product a paid product in the world of free. Let's open the door.

Katherine, thank you so much for being here with us on The Room today.

Thanks for having me.

We're really excited to dive into your background and your story of starting Capital, but we're going to start at the beginning for you of your career. You went to UChicago for undergrad and then immediately on to Cornell Law right after. How did you settle on going into law?

I majored in Slavic languages and literatures, so I studied several dead Slavic languages and read a lot of Tolstoy and Chekhov. And then basically, as I was getting up to graduation, I thought my What am I going to do next? My friends already thought of this and they're going to investment banking. So I took the LSAT and gave myself 3 more years to think about it.

That's incredible. Glad that worked out for you because you did go on to Cornell. You spent all this time studying ancient languages. What prompted you to fall in love with that history and that study path?

In high school, I had— I went to high school in Exeter, New Hampshire, and there's a prep school down the street. And one of the teachers at the prep school's wives was working at our high school, and she got a government grant to teach Russian. So in 7th grade, I started studying Russian, and then I went on an exchange to the Ukraine in my sophomore year in high school and just fell in love with it. And when I got to the University of Chicago, I was— it was challenging for me, especially at the beginning. I'd never really written a paper before, and a lot of my classmates had taken AP classes. I didn't even know what those were. And so my Russian classes were like my happy place.

So you're knee-deep in Russian history, Russian literature, and the Russian language. Were you at all entrepreneurial in this season of life? Did you ever think you were going to become a founder?

Oh, that's a good question. I don't think I was thinking that far in advance.

Yeah, it feels very far away to think I could— I might start something. And it's interesting, we have different guests who have different perspectives. Some people are, yes, I've been entrepreneurial since I was selling shoes when I was at school or this or that. And others like you are more, yeah, this didn't really cross my path, but here I am. Then for nearly 10 years, you held multiple roles at prestigious law firms. What did you like about being in law? What was that journey like for you?

I really loved it. I especially loved working at White Case. I had just great colleagues there and I still work with them today. We use them as our law firm and just really loved the atmosphere and loved doing deals that were international, the complexity of it, but also I was never in litigation. It wasn't that type of law that I liked. It was putting the deals together. So, to hear the business behind it all was what was really exciting.

Did you ever use your Russian in law?

I did. They sent me to the Moscow office one summer and I absolutely loved it. And we did, I worked on an oil M&A deal, which was fabulous and fascinating and very cowboy-like.

I can only imagine doing an oil deal in Russia would be a life experience. So after the, these 10 years really at the forefront of many different types of traditional law experiences, you took a step back and did enter in on a founding journey starting a sports management company. Was this a departure from your life plan or did you always think something like this would happen? It didn't sound like it, but maybe unpack what, what prompted this decision.

So I had followed my mentor from White Case to Jefferies Finance. I really loved my job at Jefferies, but I ended up with a pretty significant injury handicap in my shoulders that was giving me trouble. So I took a break, and on that break, I wasn't very good at taking a break. So my significant other, George, who's also my co-founder and co-CEO at Capital and Father of 4 of my children. He was, he had played professional soccer and his uncle was chairman of a club here in Stockholm called, and they said a lot of soccer players don't have great representation. You're a lawyer and we have people that need help. Could you help them? And so we started that together actually, and about 3 months into it, George said, I actually like playing soccer, but I don't like running a sports agency. And at that point in time, I just didn't, I didn't know how to quit something I had just started. So I just kept doing it by myself for a number of years and it was And it was pretty wild, actually. I ended up going all over Ghana, Guatemala, Trinidad, Mexico, all over Europe. It was really fun.

Did you happen to watch Ted Lasso this past year?

Yes, I love it. It's fabulous.

Such a good show. And I'm imagining that was a bit what your life was like, although perhaps it's a little Hollywood.

Well, I do live in Stockholm, so I extra appreciate the American in a European environment where everyone thinks you're just a little bit not as sophisticated.

So it seems that you've had some pretty incredible experiences around the globe during this time. What was the aha moment that launched you on the journey to building KAPITAL?

When we were living in New York, George kept saying, where's all your money going, Katherine? You're spending too much money. And I just kept saying, I only have so much good behavior in a day. And when I focus on saving my pennies, something else gives, and that's not my top priority use of my good behavior right now was my rationalization. And but at the same time, I knew I needed to perhaps be better. So I started naming my savings accounts like Trip to Kenya or Piano or Skiing in the Alps. And when I would take— when I'd walk home from Jeffrey's or something like that instead of taking a cab, I would put $15 towards that and it felt like a shopping moment to me instead of a use of good behavior units. And I was exercising at the same time. And when George was here in Stockholm at Avanza, which is a big retail brokerage, I said, you know, let's, let's look at bringing something like this to life, making it just a cooler experience. And he was working, you know, with a fabulous tech team and they showed up in our living room and It went from there, and we had it first in the Stockholm market, and Daniel Ek, the founder of Spotify, bumped into it and used it and loved it and said— and called one of his first investors and said, "These guys have amazing UX. Why don't you take a look at them?" And we were off and running. What we found was, yeah, this really worked well, but it's a point solution. What are we gonna do? How do we not become a one-hit wonder? And so started Googling and researching and found Dan Ariely, who's a behavioral economist out of Duke, and I think I had our first child around then, and George was off at every event he could find to track him down and say, "Do you want to take a look at our app? Do you want to see what you think?" And Dan ended up joining us one of our earliest checks and, and helped us think through additional products since then. He's been really instrumental.

That's incredible. I am a huge fan of Dan Ariely, so that is massive.

Cool.

Let's take a step back for a moment. Could you tell us a little bit more about what Qapital's mission is and a little bit more about the core product?

Sure. We believe that most people have an experience like we do ourselves, which is day in and day out, you're inundated with micro decisions that are trying to— someone's trying to get you to part with your money. Maybe they're also delivering something great for you in the meantime, but their primary goal is to get you to part with your dollars and The environment is just set up so that it's very easy to make those micro decisions in a way that's not aligned with what you really want to do. And so building this experience brick by brick to more and more tools to help you stay focused on what you really want. And that it's really important to us to not be judgmental. If what you want is to spend every penny you make every single year, then that's fine by us. If you want to be traveling or building a business or just having fun with your friends, That's fine as long as that's what you want. And so your behavior's matching it. That's what we're trying to build constantly is reinventing your environment so that when you go out into the world and you're inundated with the, I don't know, $2 trillion marketing industry, you're not too vulnerable to it.

You mentioned one of initial attractions to Capital was how good the user experience is and being a consumer product, that's pretty critical. Can you tell us what it was like designing the first version of that product?

That's a good question. So, we got really lucky with some of the people early on our team. One was one of the first designers at Spotify, and Stockholm has a really high concentration of unicorns. I think per capita, we're second after Silicon Valley, and so you just have great visual designers here. We've struggled with UX writing, but the visual design is really fabulous, and everyone just has— just live and breathe this. A minimalist aesthetic. And so the idea of putting as much as you can really simply and cleanly into an app was just alignment. Everyone had alignment around that.

And that is definitely a design challenge that is a lot harder than it looks. So major kudos to the Capital team. You mentioned of the Spotify founder a couple of times, as well as Dan Ariely, as some of your first backers. What advice do you have for founders who are entering into the technology space or looking to raise for their startup? but might not have necessarily come from the tech ecosystem before?

It's really tough. We didn't know any of them either when we started. It was just a lot of time, effort, energy showing up. It was— I think maybe some of that actually came from the soccer agency. I didn't know a single person in soccer. You just have to start showing up and working on it and be willing to be embarrassed a lot.

Tell us a little bit more about the story of your first institutional pitch. What was that like?

George did a lot of the pitches. We were a little nervous being a couple, and also I wasn't sure how it was going to go after I had my first kid. I was very pregnant, and so we got advice early on to not make people extra nervous about backing a couple on top of it all. And of course, we're unmarried and having our first kid, so George did early pitches, and then when he started roping me into pitches, I'd get text messages in the middle of them. With some pointers, which did have me text message back, you can imagine. And we eventually ironed out the kinks and got a rhythm.

Well, that story really resonates with me because actually Madison is a funder who gave me very similar advice because my co-founder is also my significant other, which dovetails into our next question perfectly. George has been your life partner and also co-CEO. Tell us a little bit about him and what it was like coming up with that leadership structure.

Yeah, George is super product— we both love product. It's probably parenting in a way, co-parenting. He seems to just get the fun jobs a little bit more often sometimes. So he's really product focused and he finds his way to spending, I would say, 85% of his days on product. And we didn't— we weren't always co-CEOs. That's rather new. And part of that was because when we were first starting, I was still working at the soccer agency. Also the optics of it all. And then on top of it, my, my handicap gave us a little nerves at first, but the teams really worked around it so well, and it just seemed to be the right time because we kind of work in the company the same way we work with our kids. It's not like George is the boss, so it seemed strange to keep a structure where it was, do I have to check with George too? No, you don't.

It must be both incredible but also stressful at times to both be working together full-time on a startup which has own uncertainties. You're building a family together. Tell us about how you manage to keep it balanced. Personally, that's— if you have any tips or advice, I'm definitely looking for that.

I actually think it's much easier to both be on the same roller coaster than to be on your own individual roller coasters, because when you have a great day, you both just had a great day, and when you've had a bad day, you both know where the other's at and say, maybe this is a Netflix weekend. Something like that. And so that really helps us have compassion for the other one on the roller coaster. And then we're both just pretty good at turning off, I think, that and just saying, oh, we're gonna go take the girls herring fishing this weekend or something like that.

Yeah, I have to do that with my significant other as well. He's a founder himself, and sometimes we just have to say, pencils down, no talking shop today. We're not going to talk through your raise or anything like that because otherwise it just gets be too much. You have done such an incredible job at Building Capital with George, and I believe you're boasting 2 million members today who— empowering those individuals to make smarter saving decisions. What has really been the most salient part of fueling that growth?

Our users, so they've saved $2 billion on our platform so far, which we're really excited about, and they're very loyal and they spread the word really well to each other. I'm not— I don't want to use the number because I'm sure Dipinder, our head of data, will say, "Ah, you got that— that's maybe not the exact number today," but a lot of our growth is referral and word of mouth and users telling each other, "Oh, I wanted to save for my dream wedding dress and I got there with Capital," and we get a lot of those stories.

That's really powerful, and we talk a lot about that on the investor side of the table. How organic growth and referrals like that are what really help to empower a business to grow, like, with the velocity that you're— but even when things are up and to the right on a slide deck and in the numbers, there's oftentimes some moments that don't go as planned. Could you share one of those moments for you on the capital journey?

Sure. We had some struggles on our cap table, and we were really just new founders. We did not know exactly how to structure a cap table or what to think through, and we did not nail it on the first try, and that caused some real headaches at difficult times. But the positive side of that was that it forced us to really just get back to the fundamentals of the business and think about our customers. Eventually, you want to get to the point where it's your customers that are paying the bills, because then you can build what your customers want and you get to just have true pure alignment. And our team is just so product-focused that we We really want to always stay on that angle of just constantly building new product and innovating. And so if our customers are the focus, and at first there was some real resistance to monetizing and not just having a free product, but the team eventually really got on board with the idea that if our customers are paying us, then we can build for the customers. If we're relying other revenue streams or something like that, then we can't be as aligned with them. And so that was a really great outcome that came out of that really challenging Period.

That's really helpful framework around how to take a hard season and turn it into growing your company. For founders who are listening who perhaps are also wrestling with this freemium model or the opportunity to turn on monetization and the fear that would risk losing customers who believe the product should perhaps be free, what advice would you give to those founders?

We were definitely scaring everyone around us when we said, let's see if our customers are willing to pay for this. And I'm a big researcher. I start with an instinct, but then I have to validate it about 13 different ways so that, that I can always defend the fact that I went with my instinct. So we went to several different pricing experts and ended up— we still have a partnership with Simon-Kucher. They're amazing. And you can do tremendous work around what's going to happen when you throw up a paywall and whether you should go freemium or, or not. And we just tested it like crazy. And in the end, it was within a percentage or two of exactly how everything was going to shake out. It was pretty fascinating. The retention curve, the conversion through the funnel, the tier distribution, the uptake and the behavior within each tier of our product. It was incredibly accurate, really freeing. Now, I, every founder I speak to, I'm like, have you guys done pricing work? You gotta call Simon Kucher. That is my advice to absolutely everyone.

We've talked before on this show about how women are historically less likely to save, and you even alluded to that personal habit yourself before you started Capital. And actually one of our past guests, Jesse Draper, who's the founder of Halogen Ventures, she shared this comment that's really stuck with me, which is the idea that as women we were taught to give money away. We used to run charities as our pastime, and now we're suddenly in the business world making our own money and might not have as much framework or historical lens to think about empowering ourselves to be investors. How do you think about empowering all individuals on their personal finance journeys?

I'm a big believer in focusing on your fishing rod. So I feel I personally have a tension between saving and investing in my ability to have a great career. And I see that a lot, especially when people have kids and childcare is so expensive and the guilt is rather huge. And, and you can really, if you're focused on saving, you can really get off a career track at that moment. So I actually probably still underfocus on savings and focus more on growing and learning and developing skill sets. And when I think of our users and we do skew more female than male in our user base, secretly rooting for them to building their independence in whatever way suits them. And it can be savings, but it could also be going back to school. It can be starting a business, which is very expensive and high risk, and it can be all sorts of other ways. But becoming financially independent in one way or another is just a really big life chapter.

And Qapital is helping individuals do that every step of the way. As you look at the fintech landscape today, as a fintech founder, there can— we believe there continues to be opportunity to disrupt both in the digital-first personal finance space in which you play, as well as just the broader ecosystem of fintech solutions for enterprise. Where are you seeing opportunity?

Even though there's been so much personal finance and other fintechs out there for individuals, we haven't seen much in the couple space, and that's really always been a place that we struggle. George has different accounts than I have, you know, asks me for my login to Charles Schwab, and then he changes it, and then I can't log into Charles Schwab, and I talk about it while I'm brushing my teeth at night, and it's just like totally a mess. So we've been working for a couple of years on a product that we're about to launch. It's in beta that'll address that, but it has us hyperfocused on intersection of financial tech and relationship tech. And I think there's a lot there because money is just— it comes with so many angles and meanings and layers, and one of them definitely affects relationships, including all of your relationships. So that's something we're really interested in.

That's incredibly exciting. I feel like over the past few years I've had multiple conversations with friends who are in relationships trying to get advice on how to deal with financial struggles and splitting finances with their significant other. You know, people are starting to get married. How do you think about a prenup? How do you think about your spend accounts? And I think especially for this new generation that is growing up in significant financial kind of independence for both sides of the relationship, that product will definitely service a really important need. As we go towards the end of our conversation today, I would love to step back and learn a little bit more about what's next for you and where you've come from. What is one lesson that you've learned from being a lawyer, being a sports manager? You've had an incredibly varied background that has really informed who you are as a founder today.

I have basically jumped into so many things where I had no idea what I was doing. I've gotten really used to just saying, sorry, I don't know what a clearing firm does. Can you just to explain that to me, even if everyone on the line is going, "Does she really not know what a clearing firm does?" And I've just gotten so shameless about it. And people, I think, then feel also comfortable asking their dumb questions as well. And I think it's so key because you can just grow so much faster if you just ask your dumb questions and someone answers them for you. You just can move on and you're— it's over in 3 minutes. And I was not so good at that when I first started at White Case. I felt like I should know more, and it probably slowed me down on my learning curve the first year. I definitely had to get over it in soccer. I didn't even know what the offside rule was when I started a soccer agency or the Premier League, and I didn't know what a backend engineer did when we started Capital. So, you can make a lot of headway just by asking your dumb questions.

I feel like being really insistent on learning and understanding what's going on in the room and asking those questions, even if it's not initially comfortable, is definitely something that we hope our listeners for sure here. It's something that I'm still working on, and it's really affirming to hear you explain those learnings and how that's helped you in your career. We have a few exciting things coming down the pipeline with capital and the product and the company, but I would love to learn what's next for you personally.

Well, that's a good question. So I have a 7-year-old, a 4-year-old, a 2-year-old, and an 8-month-old, and they're all girls. And they're super close because they've been at home for a year with, during COVID And I would just love to go on a trip with them soon. We're not that great at taking vacation. I don't really know when we've done that, but not having been able to travel for years also made it really fun again to get on an airplane instead of, oh my goodness, I'm leaving my babies another week, every 2 weeks to go to New York. So I think that with things opening up, we're behind here in Sweden, but with things opening up, it'll be really fun to connect with the 4 of them and go on a trip. And then my, my 7-year-old's starting to read, and I'm a big reader, so that's, that's a really fun journey to start to get into that with her this summer.

I have no doubt those 4 little girls have had an incredible impact on your life and shaping who you are every day. Our favorite question to ask on this podcast is actually, who is a woman in your life that has had a profound impact on you?

I'm so glad you asked this question. I saw it yesterday that you might ask it, and I was thinking, who am I going to and I actually got teary-eyed like every time I thought of someone. This is such a good one. I'm gonna get all teary-eyed again. But if I can't use my mother-in-law or my mother, I think I'm gonna use my nanny, if that's okay, because she's a working mother and she— it's not that easy to get on an airplane and leave your kids. And my third daughter, of course, she couldn't drink a bottle of formula. She was allergic or something. I don't even know what was wrong. So we had to just bring her with us and we were fundraising. So she was on an airplane with us so often that one week we were going to San Francisco and they said, wasn't this baby on the plane last week to New York? I'm like, I'm a terrible mother. She lives in a car seat. And Eugenia was with us. She's, don't be crazy. Don't even, we're done with this. And it was really helpful because when you're having those moments, like I'm trotting along my third child on airplanes and she's waiting in cafes for me to breastfeed her between pitches. And she hasn't crawled yet. Is that 'cause she's in a car seat to have of true support there. This is okay. She's a healthy baby. Go back. Stop worrying. I've got her. It was real support, but it was not just because she was being a nanny. She was being like a real mentor on how to be a working mother.

Thank you for sharing a little bit of that personal story with us and giving it such a helpful example for all the women out there who are wrestling with being working moms or just multitasking in other areas of their lives. Thank you for sharing that and for sharing all that Capital is doing to help empower individuals to have better personal finance Habits. So thank you, Catherine, for chatting with us today on The Room.

Thank you guys so much for having me. This has been really fun.

Thank you for listening to this episode of The Room Podcast. If you're new here, please subscribe, follow, write us a review, or DM us on social. We'd love to say hi. We've had some pretty incredible guests over the past 3 seasons, so go check them out. We'll be back next week, Tuesday, 10 AM Eastern, 7 AM Pacific. See you in The Room.

All opinions expressed by Claudia Madison and podcast guests are solely their own opinions and do not reflect the opinion of The5EC. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

Support for The Room comes from Silicon Valley Bank.

What's next? What if?

Now what?

Silicon Valley Bank understands these questions can keep founders up at night.

Night like Claudia.

For over 35 years, Silicon Valley Bank has helped high-growth companies through scalable financial solutions, plus insights and expertise that many other banks just can't, which could be why 50% of US-based venture-backed tech and life science companies bank with SVB. Learn more at svb.com/next. Silicon Valley Bank, built for what's next.

Cooley is a global law firm firm built around startups and venture capital. The firm has been devoted to entrepreneurs and investors, partnering with both to transform breakthrough ideas into successful companies. Cooley works with thousands of entrepreneurs and newly formed companies to ensure that they are structured for growth and long-term success. Since 2005, Cooley has been ranked the number one most active law firm representing VC-backed companies going public. Learn more about the firm at cooly.com and also at coolygo.com, Cooley's award-winning free legal resource for startups.