Fintech’s Next Frontier: Challenging the Banks with Rex Salisbury

I like to find founders who teach me something about the world that I didn't know.

In the world of AI, attention and trust become incredibly valuable assets.

Financial services often monetizes in ways that are invisible to the end user.

Look for opportunities to learn, right? And that's where you find some of the most interesting opportunities.

So you're doing this work, it's frustrating, it's not interesting, it's incredibly outdated, it's incredibly inefficient. And you realize.

All right, welcome to the venture capital podcast. Today on the show we are thrilled to have Rex Salisbury with us. Rex is the solo GP of Cambrian, a pre seed and seed stage fund laser focused on fintech. Before launching Cambrian as a fund, Rex was a partner on the fintech team at Andreessen Horowitz where he backed and worked with some of the most exciting companies in the space. He's also the founder of the Cambrian Fintech community, one of the largest and most engaged networks of fintech founders, operators and investors. Rex has a sharp eye for the financial where financial innovation is headed and we're excited to dig into all of it today. Welcome to the show, Rex.

Hey, thanks for having me, Peter. Awesome.

Well to get started, love to kind of kick it off to you. You just closed this fund. Would love to hear some of your background and what led you to this moment.

Yeah, so just announced Cambrian Fund to $25 million. I write up to a million dollar checks focused on fintech at the preceding seat. Very happy to have lead co lead participate. I guess my full story is, you know, I've been a software engineer and investment banker and a venture capitalist. And my story starts as similar to many people with working in investment banking and just being incredibly frustrated by how resistant to change the financial services industry is. Specifically I was syndicating large real estate debt. It took like three months, took 20 bankers, took 20 lawyers, a ton of time to basically just make two small changes to a 200 page credit agreement. And it's like this is crazy. Why is financial services so incredibly inefficient? And you come to realize that one, it is a lack of kind of technical acuity of the banks and other companies. But two, there is this incredible incentive to stick to the existing process and inefficiencies because that's how their business models are defined and that's how the bankers get paid. And so you're doing this work, it's frustrating, it's not interesting, it's incredibly outdated, it's incredibly inefficient and you realize everyone's okay with that because that's what makes it work. You're like, that's ridiculous. Like this is not the way that financial services is going to operate for the next 20 years. And what I'm really excited about is I think for the first time we're actually starting to see the whole world change in fintech. So a lot of people are like, oh, you know fintech, the category, it's over, it's dead. Like all the ideas have been tried, there's nothing new to be done here. My perspective, exactly the opposite, which is if you look at Fintech, it's about 1% built. If you look at the previous 15 years of companies getting started in fintech, you've got some great success stories. You've got, you know, the stripes, the wealth runs, the credit karmas, the list goes on. But they really haven't taken customers from the core banks. And what is starting to happen now is that we have these like large at scale fintechs who are finally starting to steal market share for the big banks. That's super exciting and you can see that happening at the growth stage in fintech. But what I focus on is precede and see what I'm seeing are kind of high velocity fintech founders who are native to the category who are building large multi product companies from day zero and going head to head only six months in with incumbents. And that's incredibly exciting to see both, you know, the existing successful fintech stories to start to actually steal customers from the Wells Fargo, the Bank of America's, you know, the JP Morgans of the world and to even be able to see seed stage companies go after customers, whether it's consumer or business customers, that's something that just wasn't possible before. So when some people are like, hey, you know, you know, banking hasn't changed for 15 years. It's kind of this like weird broken thing. I'm like no, no, like this is now just starting to happen and that's incredibly exciting. You know, I think a little people have cottoned on a little bit in that, you know, some of the recent FinTech IPOs have done really, really well. But that's still just a couple of names that have gone out recently. So I think there's a lot more stuff that's going to happen soon. And if you're someone like me who's been paying attention, it's not that surprising. But it's been a little bit surprising I think for some folks recently.

Yeah, well it feels like, and maybe you have a different perspective on this. But it feels like to your point, there was a bit of a wave where you had like the wealth fronts and the stripes and then you had another wave kind of happening in 2020, 2021. Huge valuations, really fast growth, a lot happening in insurtech. On that side of things, you also had the neo banks really springing up and capturing a lot of growth. And then, you know, cheap money kind of went away. And I feel like that had a huge impact.

Pulled a lot of air out of.

The room for a lot of these fintech companies that were really built on a world of low interest rates. And I'm curious one, if you, you know, what your perspective is on that and how things have evolved over time, but also like, why is it now that fintech is maybe starting to have a resurgence? Because interest rates are still pretty high. I wouldn't say that capital is free. And yet there's still a lot of opportunities that are starting to pop up again here.

Financial services is vast. There are parts of the fintech ecosystem that are highly rate sensitive. There are other parts that are not all rate sensitive. I think if you back up and you look at the big picture, the more exciting story is less about rate sensitivity of some fintech business models and more about the story I talked about where you have fintech companies starting to steal market share from big banks. I think we should break that down into both direct consumer businesses, but also B2B businesses. I think the B2B businesses a little more opaque. People don't realize how much is going on there, but it's a little bit harder to grok because it's not as intuitive. So I want to start with the consumer side of things. If you look at companies like I'm going to pick two just to pick two to get started, you know, actually we could pick three. We could do bnpl, we can do wealth run, we can do Robinhood. If you look. And let's start with Robinhood, because I think that's the name people are most familiar with. If you look at Robinhood and you look at where they were call it 10 years ago, they have customers that banks really don't care about. They've got literally a few hundred dollars in an account and they're making tens of dollars per user per year. So banks are like, that's nice. Robinhood is, you know, giving away free trades. They make like $50 per user per year and their account balances are tiny and they're like trying to sell day trading and people don't care. That's never going to be something that competes with us. Right. And so they kind of sat back and then like 10 years went by and not that much actually happened. Well, it's not quite 10 years, but you know, many years went by and they were right. They didn't start to really lose customers. If you fast forward to today, the average account balance at Robinhood is now north of $5,000. But they also have a matching program. The average balance transferred in is close to 100k. They also have a 3% cash back card. They'll do 1% match on assets moved over there to a 3% match on retirement assets moved over that 100k balance transfer. That is 100% a consumer that JPM Wells, bank of America, Schwab care very, very, very much about. And it's a one way street. You know, some people get all bent out of shape in terms of how Robinhood, you know, encourages people to do day trading. And you know, I'm sympathetic to some of those arguments, but if you go from this incredibly frictionless consumer mobile experience and you have to go back and try and interact with a platform like Schwab or Merrell, you're like, oh my God, this is so painful. So it's a one way street. Every time someone falls in, they don't go back because it's just too bad. Like a great example would be Acatz transfers. That's how you move over money from one brokerage account to another brokerage account. If you try and do that on Schwab or somewhere else, like good luck finding the number, figuring out how to do it. Probably have to fill out a paper form maybe, I don't know, like, maybe it actually is digital. But it's going to be like a long flip. If you go into Robinhood and do it, you can just like hit a few buttons, clicks, boom. And then it gives you like clear tracking, says what's going on. So that idea that these kind of toys like Robinhood got started with customers that no one wanted and now they're actually sucking the customers that people really care about out of the ecosystem. And I don't think the banks have still really realized what this looks like because these numbers are still small. If you look at Robinhood's credit card business growing like close to 100% year over year, but I think it's 3 million ish cards issued. So they're still working through the kink, scaling the program. You know, there are hundreds of millions of cards in this country, but you do that for a couple more years, you're like, oh, that's pretty interesting. And so that's a good example of, you know, someone like Robinhood starting to come and take customers that banks actually care about. And I don't think that banks appreciate how ill equipped they are to actually compete now that the competition has started. Then you've also got companies like Robinhood or like Wealthfront that's filed to go public recently. Different approach, you know, different set of users and circumstances, higher average account balance. But their kind of core user has been the exact same. They just are now 10, 15 years older and actually are seeing this huge influx of assets. So you've probably seen some charts out there showing that we're having this massive transfer of wealth from the boomer generation to millennial generation. And what wealth Run has done is like, look, we're going to be this super easy, robo automated way to manage your money, to do your cash account, to have joint checking, to do retirement, to do 529s and similar story. They start out with higher average account balances, like $5,000. They don't charge very much. They charge 25 basis points. And so you do the math. It's the same story where it's like, oh, they're making like tens of dollars per user per year for these tiny balances we don't care about. And then you watch it just like tick along for 10 years and then you see what it looks like. Oh, these millennials are actually the customers we wish were our customers. And they're not going to like, they're. These are just worse experiences, worse business models, worse integrated products. So I think that's another great example of, you know, how consumer is really starting to change and finance again. I'm focused at pre cnc. I think they're really interesting stories happening there, but I'm focused on companies that are looking out another 10 years. So they're kind of. It's a little bit harder to tell a story story that I think your audience really care about or find interesting. But another huge category that is happening is in B2B. And I think B2B is actually largely where the banks are and a lot of the traditional financial services companies are even more challenged. Because if you think, a priori, if you're a small business owner, you're incredibly busy, you just want to run your business. You do not want to have to go to a brink branch, sit down with a banker, give them a whole bunch of information, wait two months, go through underwriting and then maybe get a loan at some point in time also, by the way, they probably won't give you a loan because you need like at least two years of operating history. You need a 1.5x, you know, debt service coverage ratio. Wait, what's a debt service coverage ratio? You might not know. You have to go figure that out. Now what you can get instead today is you can get a business in a box solution. So depending on what kind of small business you are, a canonical example would be like toast for restaurants. Vertical SaaS, they basically will do everything for you now. They'll even do loans for you. They'll do your, your bank accounts, they'll do your payroll, they'll do, they'll do lending. So toast capital, I think is like 20% of their, their gross revenues. Now once you get used to getting capital that way, in a way that's integrated into your, you know, your, the app that runs your entire business, you never go back to the bank. And you might say, well, actually banks have a lower cost of capital. So you will guess what happens over time as you scale a lending operation. The cost of capital goes down. So cost of capital I don't think is a defensible thing for the banks to have right now. And so I think we're going to see is a lot more of what we think of as banking and financial services getting eaten up by vertical SaaS companies. So that's a whole new wave that I think really started in earnest like four years ago. And there's some early folks like Toast. You know, restaurants is about a billion or about a trillion dollars of annual spend. So it's one of the largest verticals in financial services. That has kind of happened a little bit earlier, by the way. I'm invested in a competitor, Toast. I think it's more interesting. So, like, even in some of these defined categories, there's still a lot of interesting work to be done. But I think B2B is another area where banks are like, going to have to funly fundamentally rethink what their products look like and what their distribution looks like in order to compete with folks. So I'm excited, in case you couldn't tell. Peter.

No, no, I think it's great. Yeah. We were investors in Toast and it's fascinating to see kind of that software approach, but totally built as a fintech model from day one. Right. And then like, what's amazing is they have access to all of that data. All of these software companies do. Right. And it's this discussion of like, is the ultimate end state of every software business, really a fintech business, which I know is something that Andreessen's opined on quite a bit. I'm curious, do you think that's true today in the day of AI?

Other people said it first, but they have a great big brand and distribution strategy. Something that's very much in the water. But you certainly would have heard my old firm say it. I will say that yes, financial services is always a great revenue model because financial services often monetizes in ways that are invisible to the end user. Right? So I'm not saying this is exactly toast business model cause they do have SaaS fees. But imagine you go to restaurants, you're like, look, use all this great software for free, great. And you're like, well how do you make money? Well, we do payment processing, we do lending, we do like some other stuff, we maybe do like advertising. You have these invisible monetization layers. And that's like the best pitch in the world is to get to use software that's free but still makes a good amount of money for the person creating the software. I think that's also there's an interesting argument to be made that the fintech as a business model. When I say fintech as a business model, I mean things like payment processing, float, interchange, lending is even more interesting in the age of AI because if you look at the business model of the early web was basically advertising. I don't think, and I'm sure it will work in some ways in some places for some people. I don't think people are going to be super enthused about AI that has an advertising centric business model. Do you want to talk to ChatGPT if you know that advertisers are like influencing the kinds of things you see? Yeah, I don't think so. Now of course Google managed to do that with their five blue links. They put some links up top and like they figured out a way to make it do it. I think it's going to be harder to adopt the advertising model to the age of AI. But I do think that if you're using like an AI operating system for your business, it is incredibly natural and you would in fact want that AI operating system to process your payments, to offer you loans, to control your bank account, to do your accounting. Some of that will be SAS fees, some of that will be kind of financial services fees. So I think AI, the business model for a lot of AI businesses is going to be financial services, which is to say it's not going to be advertising. And then the second big business model shift in the B2B world was moving into SaaS. But now everyone's under this kind of crushing weight of all these SaaS subscriptions. They're like, I don't want to be paying for all these things. So I think especially for small businesses, there's this trend again towards vertical SaaS having one platform that does everything and probably ends up monetizing through financial services.

Yeah, I think one of the things that's interesting too is you brought up this cost of capital question. Right. So banks have a lower cost of capital because they're large finance, you know, they're so big. Right. But I think there's like some of.

These things I would say they had, they still do, but I think that's going to change. That's another very interesting point though to be made.

But I think also outside of whether it changes or not, there are costs that maybe aren't fully appreciated in that cost of capital calculation. For example, if I'm a restaurant and Toast is proactively offering me a loan and I can just click a button and get it and go, right, There is a cost for me to then go and like shop around, apply for all of those other things that isn't fully considered. And I think in the world of AI, attention and trust become incredibly valuable assets. And so as a company, if you can offer, I mean if you have like an advantage around attention and trust, like you can win out regardless of what that cost is. Right. Just simply like being there, front, present, easy to use, ready to go.

I percent I think so. What you're saying, and I agree with, is the cost of capital is this false advantage like you might be able to go to a bank as a restaurant, get $100,000 line of credit and it's like prime plus something not very high, that's great. But you actually might not need $100,000 line of credit. That's going to be mostly undrawn all of the time. And that took you a lot of time to get that line of credit. Now at some scale maybe it makes sense to, to have that. What you might need is a two week loan to cover a short term cash need and it might be in the mid teens, but you're going to, it's going to be made available to you right when you need it. It's not going to take very much time and it's for something you actually need as opposed to an undrawn credit. And so you can actually pay a higher effective interest rate, but still get way more value as the business. So I agree with that. But I think there's another point too, which is I don't think that bank's cost of capital advantage is a given. And in fact we can see that it's not a given. What happened during the pandemic is we had the collapse of svb. Why did SVB collapse? There are a couple different reasons. It's more of a classical bank run. But what precipitated it was not some like nefarious weirdness. It was people had money at SVB and they were not getting paid interest. And they looked up and interest rates were higher and they're like, why don't I move my money somewhere? Where rates were higher. And then it turned out SVB had not modeled the fact that rates would go up. Because we've been in this long term, you know, call it 50 year secular decline of rates going down. And when they did that, they became insolvent and then people realized they were insolvent and then you had a bank run. But the fundamental reason for people to pull their money out of svb, which led to its collapse, was a perfectly economically rational one, which is why would I get paid 0% interest when I could get paid 5% interest rate? And that trickled through the whole financial system. And if you look at it, there were about $20 trillion in bank deposits that pay about 0% interest. That is not going to be the steady state. And since SVB collapsed, we're about $2 trillion short in deposits of where we would expect to be. Whereas that money gone, a lot of it has gone into things like money market funds, which function a lot like bank deposits but actually pay your yield. Or they've gone into bank accounts but higher yielding bank accounts. So if you see this term deposit betas, you'll see that deposit betas are going up for a lot of banks. The biggest banks have been a little bit insulated from that. But especially for regional banks and smaller banks, deposit betas, the cost of interest, how much interest they have to pay their customers to keep their customers or retain or get new customers, that has gone up. And that just makes sense to me. Like we live in the age of information. We, you know, it's embarrassing how slow money moves around the United States versus other countries. Like all the countries in Europe or, you know, UPI in India are picks in Brazil. But we finally have Fed now. We finally have rtp. Yes, we do have like Venmo Cash App and Zelle. Money is going to move faster. And when it starts to move faster and there's less friction and software is mediating more of the payments, there's no reason why $20 trillion of money should be sitting around earning 0% interest and that's effectively a $400 billion revenue, 4% times actually more than that. It's more like 80 billion, 800 billion. That is the kind of foundation of banks cost of capital advantage. So I don't think this is going to be like a thing that like happens overnight, but I think it's going to be a slow bleed where banks deposit betas, keep going up and they actually have to pay a more reasonable rate on the deposits that are being, you know, for those deposits to stay with them. So two things there, the interest rate, like just having a lower interest rate doesn't mean you win the customer because there's other ways to provide value. And two, your cost of capital advantage is being eroded. And that's what really starts to change things. You need a technology shift and you need a business model shift. And I think what we're seeing in fintech right now is there is a massive change in the technology side of things and there are some secular long term trends about the business models of financial services starting to change. And you put those two things together and you don't even have to say the word AI and it gets really interesting. You say the word AI and you make it cheaper to build more software that does more things and launch multi product product companies from day one. Then it gets even interesting more quickly I would argue.

Yep, yeah, for sure, for sure. So want to pull this back to startups. So these, these big trends, big movements, what opportunities are they unlocking today that haven't really been possible before?

Yeah. So I would say let me start with kind of how I approach the types of companies I like to invest in. As an investor I like to find founders who teach me something about the world that I didn't know. So I try and come, I try and show up with a prepared mind. But I think it's a bad idea to be overly thesis oriented as an investor because that forecloses opportunities you may not have been able to find out were there. And in fact it definitely forecloses. Like you as an investor can never imagine all the ways in which businesses might be built. So it is better to come with a prepared mind, build a good network, have you know, a brand, a voice, a set of relationships. So when interesting people are doing interesting things in an interesting area, they want to talk to you. So that's one is I think you need to find founders who are teaching you things about the world. And so in terms of where do I think there are opportunities, I would rather have someone teach me where those opportunities are. So I think the better question is like, how can I as a founder discover those opportunities to be in a place where to teach other people about them? And I think the answer there is, you know, oftentimes the answer is actually relatively simple. It's basically move to the Bay Area or New York. I think if you want to do fintech, New York's a great ecosystem. You want to do tech, generally it's really Bay Area and then everything else is pretty far down New York. Or for fintech it's more 5050 San Francisco, New York. So one move to a talents dense area where there are lots of people working on interesting problems to join a company, a mid sized company with growth. So that could be, you know, usually that series B up to it depends on the exact company call it, you know, pre ipo. Start working at one of those companies in person, especially if you're a junior person. If you are a junior person, the worst thing you can do for your career is work remotely because you need to build those informal relationships as well as just the informal learnings of being around other folks. And, and those don't just have to be the senior folks. Those are the other, you know, go back to my investment banking days, you learn a lot from the analysts you sit next to working long hours and you're able to collaborate and exchange ideas and like, how do you do this in Excel? How do you do that? How do. So you need to work both with your peers but also with your near peers and you know, the people farther up the chain. So move to San Francisco, New York, work in person at a growing company. And then growing companies tend to interact with new and interesting parts of the world and teach you what parts of the world are changing and give you these veins of opportunities to explore. And so the best thing you can do is basically work for these companies, build these relationships, keep your eyes wide open and then start to try and find interesting opportunities based on some of the work that you're doing. And then you can also talk to people outside of work because you're in a dense network oriented area and you can, you know, share a lot of those ideas with other people around you.

So maybe what would be great is can you share some of the things you've learned recently from some of these founders that you found Exciting, right? Whether you funded them or not.

Yeah, that's a great question. Yeah.

What are you learning these days?

What I always struggle with is that I have all this private information. So I show like, what should I share that is interesting but also.

Okay, not confidential. Yeah, no, I get that.

Yeah. Let me. What I can do, because this is a good way to do it, is I'll pull up some of the most recent raises because everything in a raise is public. And then I don't have to worry about. Let's see here. All right. I just have a list here of recent public round announcements. And so I think these, actually, these first two that come up are great examples of areas that, you know, I was not necessarily like, oh, I have a super deep thesis and I have to make an investment in this area. It was more that I met really great founders who taught me something that was new, interesting and exciting. And I was like, I want to back these founders to see if there's a there there. The first one is called Vinyl. I don't know if you're familiar with computer shares or what a transfer agent is. Are you at all, Peter? You should be because you do late stage investing. How do you, Peter, feel about transfer agents?

Oh, they're terrible. Like, I can't believe we're still using them. Right. But. But maybe can you give like a 2 second primer for our guests that may not know?

Yeah. And so the first thing is, if you ask someone if they know a transformation is, there'll be two answers. It'll be no or Yes, I hate them. That. That is pretty good, right? It's like if you know what they are, you hate them. Would you like something that was better? Yes, I would like something that was better. For those of you who don't know, a transfer agent is basically someone who facilitates the transfer of shares from one entity to another entity. So a classic example would be company goes public and then the shares need to be transferred from the company's books or other. You know, sometimes they're secondaries, so from other investors to the new owners. And that's a transfer agent who does that computer share is like, I think they're a $20 billion incumbent that does this. They've grown mostly inorganically since the 1980s. I think they originally started in Australia. And people hate them. One of the reason people hate them, there are a lot of reasons, but a reason that your listeners might be able to like, understand is let's say you're an early employee at one of these companies and you Have a life changing amount of money on the other side of this ipo. And the IPO is this incredibly like celebratory day. You see the stock price goes up. You're like, great, where are my, you know, 10,000 shares? And then you have this email with a 1-800-number and you call it and you're on hold for three hours before you finally get someone who tells you they have no idea where your shares are. That person is a transfer agent. Yeah.

And you get an employee that looks like it was printed out in the 90s.

Yeah, because it was. Right?

Because it was.

Yep. You went from not knowing what a transfer agent was to hating transfer agents. Right. There is no reason that should be the current state of affairs. So the Vinyl team, the founder, Rob, he was, he actually was a lawyer, studied law a long time ago. He was a GM at Flexport and then he was also head of dispersiveness at Angelus. So Angelus is a, you know, investing platform. They had to interact with transfer agents. He dealt with disbursements, had to interact with transfer agents. And he was doing this at scale in a way that other folks often aren't doing it at scale. Might be like, you know, you're just getting one ipo, you're an employee. That's not scale, that's just one transaction. Whereas if your angel is like, this is bad. And so he's building a modern transfer agent, I think the time is ripe for this entire category. And they're kind of an end of one company because there aren't that many other people who are doing this kind of work. Fidelity is incubating something in house that's great, by the way. It's something that can happen in tech or within fintech is like you come with a great idea, the market timing is right. And then you hear that an incumbent has come up with the same idea and the temptation might be like, oh no, that's terrible news. Like now we have to be with the company. My perspective is usually the opposite. That's amazing. It validates market timing. Timing is the most important thing because good ideas if you're too early are bad ideas. So if an incumbent launches something because they're so slow to do things, it probably means you're slightly late to the game, which is perfect as long as there aren't 10 other competitors already trying to do the same thing, which there are in this case. So that's Vinyl. They're building a monitor transfer agent. Hopefully for some folks listening to this at some point in Time, you will be on the other side of the table from a life changing amount of money. And instead of it being a terrible 1-800 number, it'll be vinyl with a modern login. And all this stuff will be seamlessly taken care of for you. So that's final. I'll tell you. 2. This is the second most recent fundraising announcement. Simple closure. Simple closure makes it very easy to shut down a business. This is kind of a fun story to tell because they've gotten a lot of coverage. They've been called like the grim reaper of startups. And then people are like, how can that possibly be a good business if what your business is is helping other businesses shut down? And I think this is also another example of a type of company where I wasn't, I wasn't looking, this was not like, I was like, you know what would be a great business idea? A business that shuts down other businesses. And in fact, when the founder first pitched me on that, I was like, I don't know if that's a good idea. And that's been my experience with a lot of people. When you first describe what the company does, you're like, I don't. Some people are like, okay, first, and this is probably the important insight, I've had to shut down a business. Maybe you've had a shutdown of business. I know a lot of founders who have. It sucks. It is such a pain in the ass to shut down a business and no one wants to do it. Your lawyer doesn't want to do it, your accountant doesn't want to do it. Your investors don't do it for you, in case you were wondering. And so you've had this like terrible experience where you're like having to shut down your business. And then you're like, wait, no one's going to do this. And I might be personally liable if I like screw up shutting down some entity at some state where I at one point had one contractor and that might happen two years after. You're like, this is terrible. This is an absolute nightmare. And so what simple closure does is they do all that work to make it super seamless. So that's the pain point, right? It's like, oh great. This is like this really painful moment. There's a lot of complexity here. Simple closure will make sure it's all done correctly. Also, if you're an investor, it's great because instead of someone just like sending you, you like emailing the founder, like, are you shut down? And they're like, yes, you're like great. Are you really? You get like a comprehensive checklist that says like here are all the things that are shut down, here's like the payout schedule, here's when the money will be coming up. And you're like, okay, so were actually shut down correctly. But why is it also a good business? Well, if you look at one of the great things about the United States is we're incredibly dynamic economy. And what that means is you have a lot of businesses who are created every year, but you also have an almost equivalent number of businesses who shut down every year. And the order of magnitude for that is about 500,000. I think it's actually gone up per year. There's kind of an interesting aside here, which is the rate of business formation post pandemic has shifted up. You can look this up. I think it's about 2x, might even be 2 1/2x. Originally the thinking was oh, this is just Dick's location. Some people are shutting down and they're like, you know, restaurants are closing in central business districts and moving to the suburbs and lots of different stories like that.

Sure.

It's now been several years and this permanently elevated level of business creation has remained. That's probably a very good thing for the US in the long term because it just means you have more small businesses being created. Some of them become big transformational companies. So that's an interesting aside that we've that most people I don't think know is a thing or appreciate how good of a thing it could turn out to be, which is we've seen a noticeable kind of uptick for the last several years of the rates of business formation. But going back to simple closure, if you've got hundreds of thousands of businesses shutting down per year, that's actually quite a large market. And then there are all these different services and things you can attach onto it over time. There's like fitness, continuity insurance. There's other stuff too, without getting into the nitty gritty. But I think the thing that people will find most immediately interest like, oh, I didn't realize there are that many businesses to think about shutting down every year. So those are two of the first one. Again, interesting founders, great backstories, not areas I was looking in but like came and immediately taught me something super interesting. And simple closure is one where I first heard like that's not that interesting. And then like you just. I kept thinking about it all night and I was like, oh, that actually like here's this thing you could do. And that thing you could do and this other thing that makes it pretty interesting. And so ended up, ended up doing that at the pre suit and actually for vinyl, it's a good story because I run a community. I've got a slack community, about 2,000 fintech founders of it. I think it's the largest digital aggregation of fintech founders I know of. I also do co founder matching twice a year and the founders of VYNL actually met through the co founder matching is a cool story. So very cool. Very cool.

All right, so I want to shift gears just a little bit and talk about crypto. So crypto, you know, goes through these cycles. I don't know if we're in a upward part of the cycle or not right now, but I feel like you can't talk about fintech without at least acknowledging crypto or the potential of crypto. And I'm curious, what's your perspective? Does it have a role? Are you seeing it playing more of a role? Is it still just kind of a toy? What do you.

Yeah, so I want to do two things. I want to break down us versus international and then I want to go a little bit deeper on the US because that's probably a context most people listening to this care about. So first, crypto, internationally, especially stablecoins have great product market fit. You know, one of the best financial products in the world is it's the US dollar. You know who doesn't have access to the US dollar? A lot of people who don't live in the US Great product market fit, a lot of infrastructure to build. Think there's a lot of room for stablecoins to grow internationally. All right, let's go to the US do you know who gets to use the US dollar every single day? Americans. It's like you don't even think about it. Like that's what your bank account is. You get to transact in US dollars. So that means the product market fit that things like stablecoins have is not as true in the US not by a long shot. And now in both these cases, I've Talked just about stablecoins. I think a lot of the stocks stuff around Web3 and decentralized stuff, like I'm very sympathetic to the idea that it can be very interesting infrastructure built, but the reality is we just don't have any good examples of that actually coming to fruition. So I think stablecoins are the one area where you can actually see real volumes. Right? And right now it's, you know, volumes might even be the wrong word. Although you can see a lot of, you know, transactional volume on USDC and usdt, but you can certainly see the balances and they're becoming one of the biggest holders of US Treasuries. So I would say internationally, stablecoins, very big thing, will definitely be a big thing in the us. There's a lot less clear of a reason why you would want these things in the first place. But this brings me to a second point, which is I actually am bullish to some extent on crypto and stablecoins within the US because, and this is going to sound like a very negative thing, it becomes a socially, it becomes kind of a shelling point, like a point of coordination for people who want to change how the banking system works. Now some of that means that you get these people who don't understand how finance works coming together and discovering and embarrassingly and in public like why the financial services system is built the way it is and then like something explodes like ftx.

Yeah.

But other times you actually just get enough activation energy from people that care about changing a broken Kluge old system. And one thing that's really cool about stablecoins is you get a store of value and, and a money rail and the ledgering is just built for free. And you can just architect on top of that. If you want to go and build, you know, a banking app today, you have to build your own ledger and you have to reconcile wires and ACH and RTP and all this stuff is like, how much money is in the account? And that can be a surprisingly hard answer. Question to answer. It is a very easy question to answer if you just build on top of usdc. Because there is one thing that blockchains are really, really, really good at and that's ledgering. And so that actually is pretty interesting. Now if we had an incredibly competitive US banking system, which shocker, we don't, we could probably build a lot of these things, like real time payments and other stuff, and we don't really need any crypto at all, but we don't have that. And now that we have people who are supportive of crypto and some people like, oh, it's just a regulatory hack. Unfortunately, regulatory hacks are one of our best ways to actually combat what is essentially an ecosystem that's been captured by incumbents. And if you get enough people coming together and building it, I think we could actually build more systems that are competitive with the status quo. And so in that sense I am still bullish on some of these things within the US Context. I think there's just less strong product market fit than internationally. There's more incumbents you have to fight against, and it's probably going to take a little bit longer.

Yeah, yeah. Why do you think that crypto for infrastructure never really has taken off? Why can't we point if. If crypto's so great at Ledger? Right. Why aren't there some infrastructure plays out there that have been successful outside of companies like Circle with stablecoins?

Yeah. I think the answer is because centralized things are just really, really cheap and easy to coordinate. And decentralized things are very, very hard to coordinate. And sometimes that decentralization cost bears enormous economic fruit, and that's why we have the Internet. Other times, it just turns out to be really, really hard to do. I think sometimes about the daos, and it's like, oh, we have these decentralized autonomous organizations, and they're really benevolent dictatorships in an even greater sense than most corporations are, because you'd have all these people vote. But fundamentally, there's someone who had an LLC and had the bank account and just did whatever they wanted. And so it's also just hard to build these decentralized mechanisms for coordination. It's also really hard to scale them really quickly. I mean, you can look at how long it took to change some of the hashing protocols for Bitcoin. You can like the fallout that happened between, like, Bitcoin cash and Bitcoin and similar things with Ethereum. And so it's just hard to move fast with decentralized systems.

Yeah, yeah, yeah. It's unfortunately, to watch for a long time. And to your point, you kind of have to. It's hard to be decentralized because you either have to create the benevolent dictator that really controls it, or you fall to the tragedy of the commons issue. Right. Where not enough people actually care and things fall apart. So, as we're kind of coming to the end of the podcast here, I want to talk a little bit about your advice, closing thoughts for founders. You know, if you're a fintech founder today, you're building a company. You know, what advice are you giving them? What do you build? What do you avoid? What are you thinking about?

So I think the easiest group of people to answer this for is like, a college student or a recent college grad. And that's the answer I just gave early, which is move to the Bay Area, maybe also New York. Join a midsize company with growth and learn from your peers, your near peers, and folks in and around the ecosystem. Once you start getting more senior, that's when you have your own perspective on the world. And there I think one of the good answers which is, you know, a little bit vague but sometimes it's important to just reorient on is you just need to surround yourself with smart people who are teaching you things every day. And if you feel like that's not the case for whatever job you're doing right now, you should go somewhere where you feel like that is the case because that's going to be how you learn new things. In terms of like giving founders advice on the exact type of business to start. It's like the best way to do that is just go out, have interesting experiences with interesting people. I think there's tons of room to build things and vertical SaaS but you have to like go out and experience why that is. I think it can be dangerous to just sit around and you know, mock things up and not have that real first hand experience. That said, it's never been easier to build software. And so if you think the fastest way you're going to learn is just to go out and build something and try and get a product in customers hands, you will learn more about how the world works. And so I think that's also a perfectly acceptable answer is, you know, go out there knowing that you're naive and just try and build stuff that people want and you'll learn a lot doing that as well.

Well, I love this idea that you've repeated throughout which is look for opportunities to learn, right? And that's where you find some of the most interesting opportunities. That's one of my favorite things about being a venture capitalist is just meeting with really interesting people who teach me all kinds of really interesting things every single day. So thank you Rex for being on the show with us today. It's a super fun conversation, really insightful to see how you're viewing the world of fintech and where the opportunities in the the future reside. So thank you so much.

Thanks Peter, appreciate it.