Listen to Episode

Read Episode Transcript

Hey acquired listeners, we have a big announcement today. We're launching a bonus show. For $5 a month, you can become what we're calling a limited partner and get access to it. And for those of you who know or are googling the term limited partner, we hope you like our creativity on the name. We're excited to use this new format to cover all sorts of things that don't fit into our normal episode format and dive deeper into a lot of company building topics. Our first LP bonus show is on the jargon of what venture capitalists say and when words don't just mean what the dictionary says they mean. We've covered some great ones including sideways, credible and I know this is David's favorite, not raising right now. Always a fan favorite. So we are super excited about this. Not only because it'll give us an avenue for creating more types of episodes, which we've been wanting to do for a long time, but because it'll give you guys a way to support the show and help make it even better. So to date, unacquired, we've plowed every dollar we've ever made right back into the show, better equipment, software, ads, travel, etc. And we're going to continue to do the same here, which we think will really take things to the next level. If you'd like to become an acquired limited partner, you can click the link in the show notes of your podcast player of choice or go to kimberlight.fm slash acquired. It's k-i-m-b-e-r-l-i-t-e dot f-m slash acquired. And with that, onto the main show. Welcome to season three episode seven of acquired, the show about technology, acquisitions and IPOs. I'm Ben Gilbert. David Rosenthal. We are your hosts. Today we are doing another oft-requested episode, the Venmo acquisition, first by BrainTree, and then shortly thereafter by PayPal. We've been waiting until just the right circumstances, which we finally had. The show you'll hear on this episode was recorded at our very first live show in San Francisco this week, with special guest Andrew Cortina, the co-founder of Venmo. Now we had some AV issues at the live show, and very long story short, the only recording that we have of the show is from an iPhone that was placed on the table in front of us. We sincerely apologize for the audio quality. We know it's not quite acquired standards of the episode, but we decided that the content and the interview with Cortina was just way too good not to release to everyone. So who is Andrew Cortina? Cortina is a consummate entrepreneur. As you'll hear on this episode, his constant stream of startup ideas and passion for nailing the experience led him to start countless projects from filafunk to Venmo, both of which we will get into today. To give you a sense of his very talents, he started his college experience as a CS major at Penn, but after feeling that he could learn more programming outside the classroom than in, he switched majors and ended up graduating with majors in philosophy and creative writing and minors in computer science and logic. He has since gone on after Venmo to found Finn with Sam Lesson, which we will talk about later on this show. So get excited to hear Andrew Cortina. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders. So we knew there's a natural fit. We know the host of founders. Well, David Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how the group is together. And then they say it's like the best curriculum for founders and executives. And really, as we use your show for research a lot, I listened to your episode of the story of Akiyama Rita before we did our Sony episodes, this incredible primer. You know, he's actually a good example of why people listen to founders and to acquired, because all of his greatest entrepreneurs and investors, they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research to him. But I think this is one of the reasons why people love both of our shows and they're such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders. Listeners, the other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third, fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them. Because in my opinion, the greatest entrepreneur to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes. Who were their heroes? And the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple, but Steve was still able to use those ideas and now he's gone and we can use those ideas. And so I think what requires doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well, listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. All right. Now onto the live version of David with the history and facts. So David, you want to take a stand? Yes. So Andrew, you went to Penn for undergrad and your freshman roommate turned out to be very faithful in your life. What was your, what was your, the first time you met Pickrom when you moved into Penn? I was at school like a week early because I was like one of the IT support desk people. And there was like our training for, you know, that team or whatever. So I was there a week early and like, I'm already like out drinking and partying every night. And so when I first met Pickrom, I was like hungover asleep at like one p.m. in the afternoon and he rolled into our room with his whole family. Just like this van full of people and like all this shit. And there's like a tennis racket stringer and just all this crazy stuff. Like why would you possibly have this in a 10 foot by 10 foot dorm room? And just like a caravan of people and that was there just kind of just with my computer and I was like, all right, I'll let you guys kind of like move in and do your thing. I'm going to go like hang out at the gym or something. And I remember we went to a came out to like get shit for our room, like, you know, supplies and stuff. And we're like, I don't like shopping. And so like I was like, okay, like I'll get like a refrigerator like you get a microwave or something. And I remember we were there for like, I don't know, like three hours at came out. I was like, what the fuck are we doing at came out for like three hours here? And it comes towards me. I was like, you know, I'll just like take this mini fridge on the subway back. It'll be fine. And they're like, no, like it's cool. Like we're about ready. You shouldn't have to carry that in the subway. Yeah. Anyway, so that was like, like, time to like, like, time to like, like, time to like, right? Great question, David. What I'd like to know is when was the first time that you started hacking on stuff together and thought, hey, maybe we could start a company or at least a project together? Um, I mean, one thing we did was we convinced somebody's like dad or something to let us redo their website. Um, I'm just like, you know, build something like some sort of like CMS with PHP and charge them way too much money for it. But like nobody really knew how to program and we kind of like script something together. Um, which wasn't really like a consumer product. It was more like a swindle. Um, this was, uh, this wasn't like 1995 when we do a website, it's more, right? Like you were actually hustling people because this was the mid 2000s and like you could build a website, right? Uh, well, I mean, this one, yeah, we could kind of build a website. I mean, one could build a website, but I don't know if we could build a website. Um, I was definitely possible, uh, but I, in, uh, our senior year, we both loved Craigslist. I'll tell you a good story about the microphone after I tell this story. So we both love Craigslist and we wanted to do like a, the first kind of like consumer product we worked on. I think it was our senior year with like three or four friends. We built this thing called my campus post and the idea was it was a, uh, classified website for college students and everybody could like verify that they were transacting with somebody else at the college. And so there was this kind of like trust layer baked into it. They wouldn't have if you were using Craigslist. And we had like a lunch party for that and Nickham's band played the lunch party and just like all these like flyers that we put everywhere and like, like all of our friends were like in the, all the dorm rooms, like shoving flyers under, you know, every door that they could, which was like totally not kosher with the university. But I think we heard that like half.com guys did that. We actually, we got a lot of people sign up for that. But the problem was the seasonality of it like, you know, it's very hard to retain a set of college users on a classified site. But the, so Craigslist, it can my both love Craigslist. And we wanted to meet Craig Newmark after college. So we, it came from some email and told him that we had a podcast, which we did. He was like responded to it. And so we flew to San Francisco to meet him and like did no preparation or homework or anything. And we were like, we had no equipment. We had no equipment. Well, that sounds familiar. And like we have these laptops that like, which is like over heat and turn off. And so we emailed Craig Newmark and we're like, you know, can we come interview you? And we met him at some coffee shop on like the Twin Peaks. Cause I guess he lives over there. And we showed up and there was like, oh, before we went there too, we're like, we need a microphone. So we went to like Best Buy and got like, we were looking at microphones. We saw this USB microphone that said like podcast or microphone. And we were like, oh, we'll get that one. We looked legit. And we showed up and just like after, you know, like 15 minutes of hardware failures, we were finally getting to the interview and like Craig Newmark is super pissed off at this point. And then I think it just starts asking these like rubbish questions. They're just like, not all research. And he was just like, what the fuck is this? It was hilarious. So from that in all, especially at the beginning. So I feel like a lot of people, if they don't know you and they don't, well, we don't know you either. But we've done a lot of research on you. And they think about Ben Mo. They're like, okay, two kids from Penn, you guys must have started this like around this phase. Like it's easy to imagine you were going out for beer, you were splitting pizza, you had the split expenses from that Kmart trip. But you actually did a bunch of stuff after graduation before Ben Mo. One of which was you worked at an early Y Combinator company, both of you. You guys were like the first two employees at I think, or first couple employees at I'm in like with you, which became OMG Pop, which became Draw something, which became Zingha. How did you guys, you know, two kids from Philly get hooked up with a Y Combinator company? Craigslist. It comes out of a job post on Craigslist and it was like, oh, these guys, this sounds like a cool company. We should move to New York and try to go work with these guys. So we like, you know, took a bus up there and met the two founders, you know, like, chatted with them. There was like not really a form of interview process. They were just like, yeah, you guys seem smart. Come work for us. They're like, we're totally like not qualified for this job for like real software engineering. But it was cool. We like joined, learned a ton, worked with like, I mean, that team was incredible. It was like some of the smartest people I've ever worked with, that original team. It was really, it was really awesome. But we worked there for a while and it was like this dating website and then they pivoted to do casual games and we were like, ah, that's not really what we signed up for. We're going to go do other stuff. So you were at, I'm in like with you. Ikram was at ticket leap. So ticket leap ends up being an important component in the, the founding of Venmo or at least the, as far as I can tell the initial capital. Can you tell the story of how all that went down? Um, well, so Ikram and I both had part time jobs when we started Venmo. Well, we had full time jobs and we started working on Venmo in nights and weekends. Then we kind of like transitioned to part time as we got a little bit further and we wanted to get some like advisors who knew how to build a company involved. And so one of those advisors was this guy Chris who is the CEO of ticket leap. And then other was this guy Sam Lesson who was a friend of mine who had both started companies and were like early advisors. After we had kind of like spent many months working part time, getting progress, getting some of our friends using Venmo, they kind of encourage us, oh, you guys should go work on this full time. And then the first kind of investors were Sam and his dad. And they helped us kind of like find people to put together in early round of financing so we could quit our jobs and go work full time. And we should say, Sam is your current co-founder and fin. Sam Lesson, who was he running draft at I.O. at that point? Yeah. Which ended up being I think Facebook's first acquisition. Was either first or like second or third. And then that, let's jump ahead into Venmo. He ends up being super influential to you guys, not just as an investor, but as product feedback and in terms of building the newsfeed within Venmo, right? How did that happen? Well, he actually wasn't really involved in the newsfeed part of Venmo. He was more involved in this feature that we had called Trust, which was, it was like friending but more powerful, where you could, like if I trust you on Venmo back in the day, then I could just take money out of your account without you having to. It was like, it was awesome and like highly efficient and like a cool relationship, which obviously got you. It was like very fun, without all the legal stuff. It was sweet, but obviously got shut down immediately after PayPal acquired us. The newsfeed came out of like, it can be like when we started Venmo, we had Blackberries and we would use Venmo instead of text messaging. And Blackberry, I don't think even had threaded text messages. And so like our whole text message screen would just be payments that we were making through Venmo and it was like all this cool shit that we were doing, like going to bars and restaurants and concerts and things. And we just thought, oh, this looks like interesting content. We should just make this part of our app. And so one thing that we skipped over a little bit is the initial idea for Venmo. I take it Venmo wasn't, gosh, you know, would be great if anybody could transfer money to any of their friends at any time right off the bat. It feels like there was a little evolution there. How did it start and how did it get to a social payment app? Yeah, we worked on a lot of different things. Like one of the first things that we did was, this was before Square had their point of sale software. And so one of our friends was starting this yogurt shop, like a pinkberry. It was called Yogurino. And so like Yogurino needed a point of sale system. And we felt like we could build a better point of sale system than anything that existed. So we built this browser based POS with a USB credit card swiper. And we thought maybe we would do that as a business. But we didn't really like the idea of having to go door to door to sell point of sale systems. So we decided not to do that. Another thing that we wanted to do was make it so you could like, if you go to a small free concert in a bar, they don't charge for tickets. But then they'll do this thing where they pass the hat. And when they pass the hat around, everybody kind of like throws in a couple bucks. But if you're a musician, you know, like this is like a super shitty way to make money. And if you have a band of like five people, you make like maybe 70 bucks and five people have to split that, it's really like peanuts. And we thought it would be cool if you could just like text money to the band to support them while you're at the concert if you're just like feeling a track. So we worked on that for a little while. And that's kind of how we got into like, okay, we should like figure out how to make something we can send text messages and like charge money. That we were working on that for a while. And then there was this day when Ick Room was visiting me in New York and he just didn't have any money on him. He wrote me a check to pay me back. And we were like, this is stupid. Like we should be, we used like all these other apps to do everything else. One of our friends like Exchange Money with PayPal feels like we should be doing that. But if we're not, something is clearly broken. So like why don't we just go solve this problem that we are experiencing right now. And that was kind of like the initial idea. So then we went kind of like went back to like find a computer and like do some research. And I said, could you guys send me this note about OboPay? And we found this company called OboPay. And looked them up and we were like, man, OboPay has raised $70 million to do like phone payments. This is like, we're too late. And then we looked at their website and was like all these people in suits and a really shitty website that obviously no one was going to use. And so we're like, yeah, okay, we can compete with OboPay. $70 million ain't nothing. So you guys have this great slide. You end up raising a seed round for Venmo of $1.2 million. And you have this slide in your pitch deck. I assume you had been pitching the idea with the band payment idea before then. You cross out. You had your original mission was Venmo enables musicians to accept payments for songs, merchandise, and subscriptions via SMS. And then what you guys did is you crossed out a bunch of words in your mission in the slide deck and you put instead Venmo enables anyone to accept payments for anything any time. And then I think that's just like such a super cool, like so many startups that I've been involved in. You see as like, Rover is a great example. In the beginning, Rover was like when you're out of town, when you're on vacation, put your dog with a real family instead of in a kennel. Like great. And that was Rover's first chapter, right? But then we started talking where like Rover is actually about being the best dog owner that you can be. And there's so much more than that. And like, who does do you guys? Like you figured it out and that kind of unlocked the big vision. How was, so I'm curious like when you were pitching Venmo before versus after. Like how did that change reactions from investors? One thing I remember about pitching was we pitched this guy and he was like, I only want to invest in home run opportunities. And it comes like, and he's like, it doesn't make sense to invest in anything other than a billion dollar company. And it comes said to him, well we're going to make a trillion dollar company. And then he was like, laughed at him and I was like, man, that's not cool. So I remember that about fun. Your context Venmo did 17 billion in transaction volume last quarter. So pretty close. Yeah. Well, I mean, that's, yeah. So it's not the market cap, but yeah. So raising money for Venmo is just like, it always sucked. We were always like, there was always like some lot changing where we needed tons of money immediately or we couldn't pay people or be violating some law and end up in jail if we didn't have enough money, which is never a good position to be raising money in. So basically any time we did any sort of financing, our investing would get reset and we would get horrible terms and it was just like, shitty. And to walk folks through what that looks like, at least what the recorded history of Venmo's fundraising is, it was about 1.2 million in sort of an angel seed round that Sam invested in and that some others. And then your series A ended up being I think $7 million and that was led by, was that RRE? No, Excel. Excel. Excel. So big first institutional venture capital firm investing. And then, at this point, you guys are growing like crazy. When you talk about growth as it relates to how are you guys making money and how are you dealing with growing so fast, but from my understanding not bringing in nearly as much as you were burning on how fast you were growing? Well, I mean, Venmo never, while I was there, it never made any money. It was just like, we would just be spending tons of money, processing transactions. But yeah, you get enough people on there and then instead of charging people to pay each other, you charge businesses to accept payments from people to have Venmo, which is, it's like the PayPal model. But we were never making money when we, you know, back when I was there. So it was, you know, that was like another challenge with that fundraising situation we always found ourselves in. So Venmo is like inherently viral from the very beginning. Did you ever try and stuff growing so fast because the faster you grew, the more users you got, the more engagement you got, the more money you were losing to interchange fees, especially on the credit card side? Well, for any research, all this was very intentional. I remember that there's this picture of the Sky Street out to their first employee. He was holding like this poster, sold by Southwest and said, you're already on Venmo, you just don't know it yet. So the idea of like a dark account is like a great thing if you're trying to grow a little bit. What was the other kind of question? So the faster you grow, the more you get actually the happier the more money you lose. Yeah. Well, there are definitely people that said that. I'm only like, I'm a little bit like, why would you want it to slow? But we would definitely try to like, we did lots of stuff to reduce the spending. And so we would always want like more user growth, but lower costs. And so early on, we had a lot of people that were doing payments to each other with credit cards and transactions. And the fee to us for that was something like 3%. And users don't have to pay. And you know, we were just like, something like all of that. And so it took a bunch of work to like get a bunch of, to get a banking partner that was doing some of the list through ACH transactions at the volume that we were doing. But then that really significantly reduced our union economics and like the sort of like cost and cost and same transactions. And so there was like this point where we were just like spending like way too much money in cross-linked credit cards. And one of my point was, there was like, why are you spending all this money? We should be doing this through bank payments. Yeah, that's good. We reduced the cost. So it took a bunch of work to kind of get everything cut off the bank. We killed a bunch of these users that were like from sites such as flyer.com, which is like credit card points, hustling, you know, underground, network, which you know, it's probably something like this on Reddit right now. It's like all these people are just trying to like max out their credit cards. And there are some people running at the point. Yeah, and there are some people that were like, they thought that was like, you know, the only user we had with these like credit card users and we're like, no, we'll sort of be one of the bank. Which we did. But we happened to do that transition like right before we went to Razor Series B. And we had like two or three like down ones of growth to like get for this transition of like killing all these crappy users and retaining the good users and getting everyone to move into the bank payments and like, you know, growth was picking it back up. But it was just like not an opportune time to do this transition. So BCZ now looking at you for your Series B and they're like, you guys aren't making money. You're losing money on that transaction and you're not growing. Yeah. Which leads into the first time in a position of them, right? But actually before we get to this, I, I, I, Jane would be very upset when we invited to bring this up. So I have to and that was the right time. Can you tell us a little bit about John Graham? Here's John and Venno. I believe he was simply number five. Yeah, John, when I met, so for those of you, I mean, I definitely didn't perform any research. Yeah, John, he was on the Bachelor Ed. But he famously claimed on this season of the Bachelor Ed to have invented the mobile app for a band. He created the Venmo iOS app. So you know, his lawyers looked at that one. We're not recording, so you're not. Yeah, no, but so he was on the Bachelor Ed, but John Graham, we met him through this guy Matt Hamilton. And Matt Hamilton is the guy that went to Columbia who when they come when I were like on the street and I come to coffee or come back to me and I come to coffee and we both had a Venmo T-shirts and this guy Matt Hamilton seemed to see us and was like, oh, Venmo, I love Venmo. I'm like, yeah, cool. We made Venmo. He said, what? Awesome. And we're like, yeah, what's your story? And he was working on some, a single tour being, which was like a Airbnb for tour guides type of thing where you can like, you know, have local tours, I'm sure you have to do cool stuff. And we were like, yeah, you should come work at Venmo. And if you're a software engineer, he's like, well, I'm working on this other thing, but I have a bunch of friends who should go to higher. And so he introduced us to John Graham and this guy Jesse Mentor who is John Graham's freshman year roommate in college. And those two guys are working for us and they also introduced us to this guy, Julian Connor who he went to high school with. We hired that guy and we hired this guy, Thomas that Julian went to high school with also and we hired Matt Hamilton himself and we hired Matt Hamilton. Co-founder of Torgi, David Fasson, just like all these Columbia kids. And so, within a year of desserts, a lot of credit for working with Matt Hamilton. There's a whole lot of credit for that. John Graham comes from Matt Hamilton. And when there's random encounter on the street, we hired like 10 tickets from Columbia just because we were wearing Venmo t-shirts. Yeah. So I feel like there's a lesson in there. So we did all this non-traditional hiring stuff. It's like nobody would want it. Like nobody knew what Venmo was except for a few people. It was not like the type of place you go where it's like all these great engineers you can learn best practices around who's like total like, like, we mean. Yeah, so we don't scrap you. So okay, given that, you've been scrappy. The series that can be fundraising going well. It's a year from Excel is on your board, right? Excel is also the main BC in a Chicago based payments company called Brage3B. That is in a lot of ways, the other side of the coin of what you're doing where Venmo is working with consumers that use Brage3 is up and coming. This is pre-striped days. We're striped with Jasmine Family. Brage3 is the payment process of inheritance on the internet. So still to the same Uber, Airbnb, a whole bunch of other companies we all know use process on the game. And for anybody who was building web apps or the Agas web apps would be the thing. And trying to accept payments before Sprite, before Brage3, you'd use companies like authorize.net, you'd like try and cobble together some kind of payment gateway. It was like an unbelievably difficult problem to accept credit cards on the web, let alone in mobile apps. So Brage3 comes along as a freaking revolutionary and now we even have Sprite. It's no wonder it's a $4D billion company. So I'm just saying Brage3 was not one of your guys radar. No, we do. So actually we were pressing credit card payments through first data on the Yogurino account because we took it over to the Yogur shop because nobody would give us credit card payments for us in account. So we used that. But then we were using Brage3 to process ACH payments. And we were using for people to pay out. To pay out. Out of Venmo. We were using the Yogurino. No, no, we were using the Yogurino account to accept credit card payments. And then we used Brage3 to distribute money back out the ACH. And Brage3 did that a little bit early on and when they shut down and we were the last customer and we would get calls every month. But you guys really need to get off to the ACH thing or sunsetting this product. And we're working on a bank deal. Just give us one more month to figure something out. It's probably like a year. So they're basically your credit. Yeah, they were just doing all this ACH processing for us. So we knew that they did a lot of nice papers for us to not kill that product when we were relying on that. So how did the acquisition types go? I mean, my understanding is that Bill and CEO Brage3 were basically a huge champion for you guys and bought into the vision. Yeah, I mean, the... The Samir just entered us and was like, you should go talk to the Brage3 guys. I think it would be a good conversation. And we kind of just missed the first meeting and we were like, well, we have first data in the process credit cards. What do we do when we're talking Brage3 about? And I asked the repist that me and he said, nah, I just got a touch of pill. So we went and met him and he was talking about how they had all these merchants but we just didn't like a consumer wallet type of thing. And we had all these customers and wanted to start making money by willing the customers to pay merchants. And so kind of gotten to this conversation where we were like, oh, we have this kind of... We're both trying to get to the same place from different sides. Maybe we should try to do it together. And this was right around the same time when also we had been trying for like many months to raise a series B with no success. We're just like running out of money. You know, there's the point where there was like the only money left that we had had to be kept in escrow in order to like meet, comply with some law in California. And so we were like totally on the money and then there was no investment in wanting to do anything. So it was the like shut down the company or sell it. And we had an offer from Groupon for like a million bucks or something. We should do like that. We talked to the guys at Square and they were like, nobody here is actually an engineer. We required you guys. As you talked to Facebook, given the same connection. Same story Facebook, nobody... Well, I mean, the Columbia Council passed the engineering. But not that. But it slipped down. It slipped down. Yeah, so Bill was like, yeah, like, you know, who should guys want to sell the company for? Let's do it. And it was even to the point where we were missing payroll and he just like wired us a bunch of money. Before that, before the deal was closed, the main payroll because like their CFO was trying to like get the Venmo books to balance. That didn't happen before PayPal acquired Venmo. This is so bad. This is crazy when you think about it. It's basically the only person in the entire startup adventure you go to that sees the potential for Venmo today. Despite all the warrants, right? Yeah, Bill, God, he's amazing. I mean, there would never be no Venmo without Bill, for sure. So I feel like... I got one question. How did you lay down the first price in $26.2 million? I remember this is a good one. You never be the first person to throw a number out there. It's just a stupid thing. But we were talking about these, what you guys got from Brain Tree. They were like, well, how much money do you guys need to raise in your Series B? I think somebody was like, well, we'll probably go raise $10 million. And then they just kind of like napkined it and we're like, well, if you're going to raise $10 million, this would be like the post money kind of standard for turn around. I think that's how they got to. The back to why Bill wasn't the believer that we alluded to this earlier. But I think it's worth reiterating for, you know, it's been a New York researching this episode. We are a deep and fit tech. I think probably most of you aren't deep and fit tech. But there really is only one business model that makes sense in the world. That is PayPal's business model, which is you have... That's pretty bold. Well, in the water. It's business business model, which is also PayPal's business model. PayPal started the same way, then voted with a consumer wallet essentially. But you can't make money by charging consumers. You have to make money by charging merchants. And so thus, you need to do two-sided network effects. You need a lot of consumers. You need a lot of merchants who are willing to accept this payment. And then you can charge the merchants a fee for using the system. And it's crazy that like you guys have one half-year person. They have the other half-year equation. And actually, I guess there were only......again to the next acquisition of Venro. There were only two people in the whole ecosystem that's on this. There was Bill and then the PayPal. Because it was less than a year later than the combined entity gets invited by Venro. Yeah, and they were only the only companies who are enough to acquire Venro for sure. I mean, they get the business model. And I understand what it takes to get to the point where you can convince merchants to adopt your network. And it is worth pointing out. Like it sounds... You know, when you're just hearing it for the first time, like, oh, they're the only ones who aren't enough to do this. Or like they were the only company that could... There was almost a revolt inside of Brait Tree when they were like, oh, yeah, we're going to buy a Venro. I mean, a lot of employees at Brait Tree and just sort of came out of research. They were like, wait, that thing is emerging cash. It's not even like a real company. You know, like they're growing so fast. They can't...that there's no plan in the future to start making money. Like we are a payment process. Or we make a little bit of money on every transaction. We have a sound business. Like, built up a huge chance with this internal team and internal culture in the direction that company was going. And I think it's just worth underscoring. Like, now that everyone uses Venmo and then it's inside a big safe company, like PayPal and they're doubling down in Venmo in a huge way. It seems like, you know, it was so logical. And in retrospect, in that time, it really didn't seem like it. It's a huge investment too. It's probably been like a billion dollars spent on transaction and processing. It's a big investment. But I mean, PayPal is a good business. And if the internet has the same sort of thousand-onlyness, yeah. It's worth it. So I'm curious. When the...probably within a few months after the acquisition of the Brait Tree, the deal didn't start by PayPal for the second acquisition. How much time did they spend with you guys? I mean, what's been reported at least and seems to not be surges is that, like, Brait Tree is a very nice business with your PayPal. And that's nice. But their biggest worry was that like millennials were now using PayPal on the consumer side. And so I imagine there was a pretty big lens trade on you guys. They kept us pretty, you know, as far as the 20th and the left. The Brait Tree guy. Yeah. Yeah, they didn't want to screw up that deal. Do you know if they were representing, like, when Super Ancient's over $800 million, like, are they pitching Venmo, do you think, to PayPal? I don't know if they're actively pitching. I'm sure they're talking about... I wasn't involved in any kind of acquisition talks. I'm sure they talked about the growth rate. But you know, like, in PayPal side, like David Marcus, I'm sure, got it. But I'm sure a lot of the rest of PayPal was also similar to like, like, we should just shut down them, you know, like, why we already have this? Like, we haven't tried it like this, right? So I don't think there was like a ton of talk on either side about the importance of Venmo. So the acquisition does happen. Two things I want to cover before we get to acquisition. One, the acquisition happens. PayPal also leaves you as capital-on, and I think the best example of this is that some people maybe familiar with this. You guys run an ad campaign in early 2014, right now to the acquisition in New York. Called Lucas uses Venmo. That was like, that was during... During the acquisition? Oh, wow. Yeah. I don't know. Tell us a little bit about Lucas and his use Venmo. Yeah. So at that time, Brain Tree was working with this like, Hodgeot Creative Agency to do a big free branding of the company as like, superdeveloped with OGRIS, the operating system for payments, and kind of like up their credibility. The strike is on the scene. And so they were doing that, and then they're like, well, you know, we can have this agency like do some like paid advertising for the holidays for Venmo. And you know, their idea was to like put some ads on the best buy, and then like split them, give them a Venmo or something like that. And I remember just being in our office in New York with Icarom and our creative director, Neo, and Spina, and Spina, never was like, man, this is like, we've never spent money on advertising. Like the thing that we're going to do is put ads on the best buy. Like, that's just really boring. I mean, experiments, there are many Venmo's that are actively shot on the best buy. You're serious? Well, maybe that's part of the point. People are not necessarily there. Yeah. Anyway, so I think it was like, if we're going to spend all this money on ads, we should at least do something fun. Like, out of home, like billboard type of thing. I'm really kind of be cool. And he's like, like, and just keep it really simple. Like, you know, Lucas, he's like drinking coffee, Lucas uses Venmo, and we're like, Lucas is a software team. Yeah, he's like a DevOps engineer. He's literally drinking coffee. And we're like, that's cool. And so Neo, he got Lucas in the picture also in the, this is all like his real time. We're sitting there, it's like one TN, and then Neo gets Lucas's photo off of the team page. And he puts a Santa hat on him, like with Photoshop for some reason. And then, like, puts this little banner on there that says, Lucas uses Venmo, like, that's it. It's just like, pure white background that's like all it is. And then, like, now, later we're in the street, like, just showing it to people and they're all like, what the fuck is Venmo? And we're like, oh, yeah, that's awesome. I don't know how to do that. And then, so we're like, you know, we have to get Bill Lue through this and then Bill has to get PayPal approval because of the expense over $100,000. So we send it to PayPal. So, where's the rest of this, like, I'm like, did you forget to like attack some assets? No, that's not really. So Bill, Bill is talking to me, he's like, maybe we should explain what Venmo is on here. And I was like, no, man, I have to do it. Like, this is what it is. I'm telling you, it's gonna be awesome. Like, I'll put it on my credit card and you guys are not gonna do it. But we have to do it like this because it's going to be awesome. I'm sure you're gonna miss it. So, he was like, yeah. And then, this is like, awesome part. He was like, well, you know, I don't get it. The light structure you guys, like, let's do it. And so, one of our people called the subway folks on Black Friday and it had inventory during the holidays. And then, we did this photo shoot with Lucas. He's wearing Santa hat and has like his November mustache that's like not a very full mustache. And he's holding a watering can. It's just weird. And there's all these ads that say like, when he goes to the subway, there was this huge stair face where there was a big sign of movement and just said, Lucas takes the stairs. And like, that's it. Like nothing. And there's like people like, what is, like, who the fuck is Lucas? What is that? And there would be like news articles, like, Reviled Vennel ads, explain. Also, if you made a... It was part E-mail, this point. Yeah. Like, jump down in here, make weapons. Success there, but you guys probably see this. Like, what's this? Guys, I can't decide if this is like so brilliant or if this is like, perfect product market fit lets you mess up everything else. No, well, this ad campaign was like, really successful. I mean, there were tons of people like, the amount of earn we got to this in terms of like, Twitter, Facebook, shares, Reddit, friends. There were like people making meme generators where you can make your own Lucas ads. And there was like, crazy. I mean, there was this guy, he, one of our team was down in Puerto Rico for the holidays and he came back and said, yeah, people in my pool in Puerto Rico were talking about Lucas. And it was just like, it was insane. Like, the number of people talking about it. It's actually, it definitely, we looked at the lift in sun-ups in New York versus like other cities and definitely like, helped quite a bit actually. So, it worked, I mean, we had a feeling like, maybe something was sort of having a kind of far-exceeded expectations. But the main reason we did it was because we thought it was funny. Well, anyway, catch our attention. It would get you out and like saying like, okay, like, I need to go research this thing. Actually, when you do it, you would ask a friend, like, what is that, do you know what this thing is? And that's kind of why it worked. Well, I think that's part of my phone, and I know it's a great story. But the, like, I think as we were doing research on this episode, one thing we kept hearing from people is that, you know, yes, you guys had product market fit, right? But like, it wasn't like, even though with all of the twists and turns along the way, it wasn't like overnight, like, then I'll just blow up. Like, you guys actually were really scrappy. Like, you were at home, like, talking like, when you came up with a little bit of excuses, then, okay, like, you guys actually went out on the street and tested that with people. Yeah, we tested everything on the street. And you are always like, how telling people that you haven't know. I think it's just such a good story, right? Like, same thing happened with Airbnb, right? Like, a year and a half in an Airbnb branch that's been decided to live for a year in Airbnb. You know, like, that had a big impact on the company. He came to my apartment near the photograph to put the pictures on it. Wait, you weren't Airbnb most in New York during that? Yeah, he came to photos to, like, because he didn't like the photos on my list. This is like two pieces of startup lore intersecting. Like, everybody knows the story of, like, Brian, Goody-D.R., like, living with some of the early hosts, taking pictures of their apartments for you. You were one of the early hosts. Yeah. Oh my God. Yeah. Yeah. Yeah. And the time serving was cool too. It's like, cool, unique cool people for you. The only question is, why are you a veteran investor in health? We'll get back to that later. Okay, so the last thing to cover with before you move on to your history of access, Vemmo just basically has continued growing up, like, 20% of the money, pure indefinitely. Do you remember when the end position happened? When the paipology position happened? What gross transaction value and run rate you guys ran? Probably something like a billion annually. That's what I thought was, but we could get there for Vemmo. Yeah, I mean, paipology is reported learning in the last week and the first slide of their index was Vemmo's growth turn. And as I alluded to earlier, Paip Vemmo paid $17 billion in gross transaction value and last work, which was in growth. And I believe about 10% of Paip's health is an entire entire business, the whole quarter of an entity transaction value, which is the growth. All right. Let's move on to that position, category. So as you all probably know, I guess we're not even going to be able to say how it works because you guys all know that. I think there's a decent number of people here who learn from I've run or something. Go for a theory. All right. So in the next section of this show, that was like the first section. Anyways, we these go faster. We categorize the acquisition. So we basically decide, you know, why? And this is sort of obvious by the time we get to this point in the episode, but sometimes it's horse trading. And we decide whether this acquisition was people, technology, business line asset, consolidation, or other. And for people who have been listening for a long time, you know that that list just continues to grow. All right. So to me, the differentiation that we make between product and business line is that products get integrated into an existing business and run as a single business. So the same sort of, like you could imagine that a product gets bought by Microsoft and then Microsoft sales force goes out and continues to pound the payment and sell that product. A business line on its own is something that completely operates its own engineering to product, to sales, to marketing, kind of a business unit. And that to me is what this is because what we're seeing some really amazing sort of like PayPal is sort of saying, like, yeah, PayPal's the whole thing, but it was the new thing. And there's started to replace a lot of the PayPal stuff with them. So I mean, it's been five years that PayPal's operated completely as an independent thing. I'll be subsidized by PayPal's balance sheet, but I'm going to business line for that now. Yes. I'm just not going to be a category. We're doing a lot of firsts. My number is not good enough to remember how we classify this to your own. But to me, that's the analogy here, right? Like this is, that is PayPal's Instagram. And there's a, it's essentially the same business model. On the merchant side, I assume at this point the same merchant sales support that is selling merchants, is just a different consumer audience that plugs into that front. So I'm not modularized in the back, it's in the front. Yes, the merchant side, I assume, is integrated at this point. But the consumer side is completely separate. To me, it's just like Instagram, basically. But of course, we do have the expert here. Yeah, the moment to see the categories. Yeah, the business line thing is interesting, because Vembo didn't have any business without PayPal, it needed the merchant network. And the reason it kind of like took off was probably just like some of the product suites, like because it was designed for people to use with their friends, you can reduce a lot of friction, then PayPal, because it was designed to transact with people you don't know. And so like the product was actually suddenly different in a way that made it grow faster. So I think I would say product. That's an important nuance. And I think one word thinking about for anyone doing a consumer startup is that you're, you can have a higher, higher, viral coefficient if it's between like slightly more distant, distantly trusted parties, rather than people who are used to know each other intimately, because you only know so many people super, super intimately. Okay, what would it have otherwise? I think the most interesting question for me in terms of an alternate history here, I don't think we answer really. Did you guys talk to Strang, at all, during the acquisition of Merit or Holt? No, we should have. There's been two people trying to buy a company. And they listened to Merit. Yeah, that's a good deal. We didn't talk to Strang. So if we didn't get acquired by Braintree, there would be no value. Some like, you know, Zamm or something like that, or like square, perhaps, or something like that. But what's interesting, is that if you, it's an interesting format for Holt, where if Stripe did acquire you, because I think my sense of Braintree was pretty focused on becoming part of the whole of his build, because obviously Stripe is a very focused on being a good pet, but imagine if Stripe had been, that would be a very powerful condition for you. Or were there things, was, was, doing Stripe was to develop or focus the like, to build out real Merit and Holt, to be kind of better than him? I think it would have been, in terms of like, the products of good match. I don't know if the finance series would have had the stomach to spend like a billion dollars getting them those at the point where there was a big nothing network of consumers to be interesting to the Meritians, but like, it turns like, this sort of like, the match of the products would probably be similar to Braintree. Alright, so going into tech themes, I want to use the beginning of this section to do something, we haven't done yet in this episode, which is, you mentioned SquareCatch, and we haven't talked a lot about Square, we talked a lot about Venmo, but we haven't talked that much about what each of those companies are doing today, and David alluded to something that PayPal has the only business model that went to the space, the same as Visa, I want to spend a little bit of time unpacking that, and trying to talk about what each company is doing and what the strategy is, and trying to pattern match what's 60 to 10 failed across each. So, SquareCatch launches, so let's take a step back, I think we all know Square, Square is our self-intitards in the back, it's how any merchant, actually internationally in the world, can easily accept payments and use a point of sales as well as their business. So they see that, you know, Venmo taking off and saying, oh, we need to be in the peer-to-peer transaction business too, they launch SquareCatch, which is now rebranded as the cash app. They had a value proposition around, you're going to be able to instantly transfer something to someone else, which is extremely expensive because you're then paying to deposit quickly in other people's banks instead of the very cheap ACH or the free strategy of just transferring something to somebody's Venmo and letting it sit in their Venmo account. Like, that's not going to be the dream scenario where David and I both have Venmo, I'm going to Venmo you, you're going to sign, I'm not going to transfer that to my bank and so it doesn't cause Venmo anything. And so if there's a way to monetize me when I'm, it's a closed loop where all the money is just staying in between the two of us, that's great. Now I want to add a little bit of color to why David you were saying the only business, the sort of the Visa one, the PayPal one, and also why you were saying that straight and Venmo can be a powerful combination. Imagine you have what Venmo has, which is two different parties that are transferring money to each other and do so often enough that they're willing to leave money in Venmo. So it doesn't cause Venmo anything to have that dream scenario where people are moving money around to each other and most of the time if they are moving as their bank account, they're going so in a relatively cheap way with ACH. If you also had all the merchants on that same ecosystem where you didn't have to ever have cost of goods sold to transfer money to a bank, then you could really have a business on your hands because what businesses are willing to do is paying the interchange for that transaction. So that sort of where Venmo is today is where when you see pay with PayPal. When you have your own business, you are both changed for a Wells Fargo with a hand view and Visa. Your rent rate and your bank, so you're not paying Visa anyway, you're just talking 100% more of those margin of Visa merchants. Right, I mean imagine the high velocity, like I use Venmo 5, the average I think from their earnings is that people use Venmo on average 5 times a week or use it. So when all those payments are free, there's a 2.9% same as a credit card transaction fee plus 30 cents when you go and pay an merchant. Now that's all sort of free money for Venmo because they don't have to pay anything to the bank until they decide to settle up once a week or once every two weeks or whenever merchants actually move money out of Venmo and into their bank account. So they're not paying per transaction just in one lump sum. So kind of an amazing, like if Venmo can take advantage of having this payment network and really building it out into a merchant network too, that's an unbelievable business model. Yes, PayPal is business model. Yeah, I don't talk a lot but one other point I want to make here is that it's interesting how three times in a row there have been businesses that try to start in peer-to-peer transactions and then don't find a great business there and then pivot to the most expensive. Yeah, peer-to-compers like paying for things. So if you look way back to PayPal and they start in a three-inch wide-school of PayPal it's for people to transfer money to other people. But like really their business model is you buying stuff online and then taking a cut of you buying stuff online. You look at Squares first business model, great business model. They're just taking a cut of every transaction. They try and start a second business that is Square Cash. Square Cash kind of ends up pivoting too where they're really changing to be a bank rather than hey you should transfer money to your friends with this cash app. They're really a bank for the under-bent. And we've even talked a lot about this yet. There's a whole and probably follow up to square episode coming at some point. But if anybody's using the Square Cash app you'll notice like they're pushing this debit card on you, well they get a cut of every transaction in the debit card. And so Square and Venmo are sort of taking very different strategies at this point where Square already has the merchant network. They're now with the cash app trying to start a business where they're able to make money on the debit card side. Every time one of their users makes a transaction they make that that interchange. And when you look at Venmo, again we're seeing after all these years now is lining up the merchant network which is funny because it's like one of the ideas that you guys had originally but really you know really good stuff. They got us two million versions already on very good. Right so to be exact that I mean there's real consolidated power there. Real what's the terrible or synergistic power there. Including number of which is now accepting that. That was always the idea for the business. Like we knew there was no business of paid-to-be transaction. Like you don't know. Because you're competing with a little bit like you know hard physical cash and there's no fees on that unless you maybe consider an ATM fee. And so we never had a plan to like monetize the P-to-P business. It was always just the girl that's having the network and then once you have leverage you go get the merchant onto the network to actually start making money. Makes sense. Which I think brings us to great. What's great about them. So for me I mean I already made the analogy like I think it's the same here. Like this is. I made for Paypal with a caveat only in the future a plus that I think is likely. Which is which is this is the FAN technology in the state. Like it's a pal understands this business model better than anyone in the world. It's a fantastic business model with incredible network effects. It's a two-sided network. And they had a major problem. Which was that people who were mobile natives, a quarter-coder or didn't grow up using Paypal or using Paypal to transfer money. And that model became the way to do that. And so now it's all going to move. But Paypal has the merchant network on the other side of the transaction. So I think this is like without going into depth on the finances here. And it'll bring minimum pay. And my caveat on the A plus is just further improving our monetization of demo income years, which I have no doubt any more. Well it's funny. I was just looking at Visa as effectively three Paypal's in market cap. Visa should probably be the one to be scared. Visa should probably try and make it go for Paypal. Anyway, that's not creating. Yeah, David, I'm with you. I mean, I think the thing to consider here is like it's still very speculative. Like we're still in the early days because we just now are starting to see a serious effort in the last two quarters of right, last three quarters of Paypal deciding to push Pay with Venmo to a lot of the merchants on your network. We saw, I think that in the earnings report, that 17% of people on Venmo have now participated in a transaction where they were a monetized user, which for the majority of people is means they're paying at a merchant. Some others are paying the fee for instant cash out, but I think the majority that is probably paying merchants. So there's reason to be hopeful. But I think I'm in the same pan as you now, David, with a future A plus, but I think the variance is high because it's definitely predicated on. Right now, still losing a lot of money, still responsible for a super small percentage of revenue relative to all of Paypal's revenue. And it's not totally clear yet whether we're going to be paying with Venmo at Everett's until the place. So Cortina, you're probably guys, but you're going to win. Yeah, I like that. When there's that thing with Venmo integration with Uber, where there's the button in the app, but there's also that I think it's cool that they did the Venmo card. Because then that wires up any merchant that except credit card payment also as a merchant, which is far greater than the Paypal merchant network. I don't know if people will use the Venmo card, but it is another way to kind of constantly cash out so I can like get the appeal of it and it's certainly like a good way to make all that balance that's in around pretty liquid. So that's a cool thing that like would have been tough to do if that was independent. Paypal may happen. Cool. Great transition to your no longer Venmo. Of course, as we were going to do, you're not starting to think with a rich little investor's exam lesson. Tell us a little bit about how that came about. Yeah, so after Venmo, I was kind of doing nothing. Sam, who sold his company to Facebook many years ago, and was a VPA probably been Facebook for a month, I had left him was also doing nothing. And when we kind of realized the need for us to be working on the same, we thought maybe we were working on something together, if we can get excited about something. The sort of frustration that we ended up thinking about a lot was your phone, a lot of times when you're on your phone, you're just like you end up looking at something that you had no intention of spending time doing because there's all these badges and buzzes and alerts and it's designed like a slot machine to get your attention on some screen where you don't look back at the end of your very life and think, I wish I looked at more cat photos when I was younger. The phone just doesn't feel like it's aligned with your goals. So we wanted to feel something like kind of like realize the potential of the phone, which is very high because it's connected to all human knowledge and allows you to communicate with any person in the world at the time. So the sort of delta there is pretty big. And we decided we wanted to build this idea of some science fiction where you have an assistant that's like an AI, you know, kind of like it's tapped into your fear of consciousness, always listening, augmenting your sort of knowledge in the world, up and even with whatever you need. But realize that today the best is like Google Assistant or Alexa, probably Google, and it's like not anywhere near as good as having a real assistant. And so we said like when we build something that feels like this software from science fiction, but it's actually powered by a combination of people and machines and software on the back end. And it feels like the kind of AI assistant. And so that's kind of what we set up the build. It's called Finn. And people kind of use it like you would use a full-time BA or a personal assistant. But the sort of advantage is it's variable cost. You don't have to spend, you don't have to pay for 40 hours of work every week. You probably have a workload of it's 40 hours a week, so you're paying currently by the task. We can kind of, you know, help you out with whatever you need. Help us so you can focus on what's important. Cool. So Cortina, I know a lot of us are anxious to get our hands on Finn and play around with him. You have to leave the car around. Oh, you are. Go for it. Sorry. So Cortina was generous enough and the whole Finn team to create a really cool custom deal. If anybody wants to try it out, so I'll give that to turn that around. Yeah, if you go to Finn.com slash acquired, there's a, you know, like get your promo code where there's no monthly minimum and you get $100 credit to try it out. So just go to Finn.com slash acquired. And in the police today, did you really, did you own car mail? Oh, yeah. I was doing this event at Berkeley last night for some students there. I mentioned this book. It's one of my favorite books. It's Kamu and it's a, it's a tree. It's on why the meaningless of life does not merit suicide. It's called the myth of Cisophus. And it's a really good inspirational book. I'm sorry. You know, you know, you know, listen to my notes. I was a financial leader in the major in college and the next band here was close to my heart. How do you mix, I also have a book. I wanted to do today. It wasn't going to do this very clearly, but I've given home the problems. It really was called Startup by Jerry Kaplan. It's about building a startup in the 90s, the Go Corporation, which was the original pen to computing company. You were before the capital, you were in the, this action was very conditional and don't really recognize me. I did this on Twitter, and read it recently. And it's like such a good reason. Jerry, I believe was also a philosophy major under the government of the city. It was very, very well written and it's about just like the disaster that was building with pen computing company 20 years too early. And the wreckage that gets left, but like really really fun to read and go on the way. Also just like for a moment, how far do you have problems with building startups? Not only in the US, but like funding rounds, I believe in getting up to like 40% of it coming in for a million bucks in the beginning. And like, it's crazy. So, David, you know what the difference is between being early and being wrong? Nothing. Yeah. Yeah, that's a, that's a hot tip. All right. Keeping my brief, I'm super into computational photography. I think what Apple and Google and companies are doing now that are extending, you know, the notion of a photograph far beyond, hey, what was exposed on the film through that glass? And doing all sorts of really creative things to make it, you know, the first step is make the photo actually communicate more of the experience like you were actually being there. And then layers on top of that, which is caps are things that our eyes can see, but was previously really difficult to see on film. And I think that, you know, just with the newest iPhone and the newest Google Pixel 3 are just like fascinating playgrounds for developers. And one of those developers is, is Halide. And Sebastian DeWith is one of the folks that works there. And he wrote an article on Halide.cam called the iPhone XS or iPhone XS. And it's a whole new camera. And their app includes a thing called Smart Raw, which if you're a nerd about this kind of stuff, like you should definitely go read this. There's fascinating side by side comparisons of like, hey, I took this in raw with the new iPhone. And then we augment in the raw in this way. And you know, you can bring out these things and this photograph that you otherwise wouldn't have been able to bring out. And I think the wave that we're in is so interesting. And I think this article is written in such a way that it's both appeals to like the nervious of us that are interested in this stuff, but it's also written away that anybody who's interested in exploring this area is totally, totally digestible. So I recommend that article. All right, acquired listeners. We will see you again in a couple weeks, or I guess you'll hear us again in a couple weeks. For those of you who have already joined the LP program, the first episode is waiting for you on the bonus show. And for those who want to join, you can click the link in the show notes or go to kimberlight.fm slash acquired. That's K-I-M-B-E-R-L-I-T-E.fm slash acquired. Thanks.