In 2013, the Bank of England revealed a decision to encourage new banks to start in their banking market. The goal was to introduce competition into the industry and respond to consumer demands for greater transparency and better services.

In contrast to the United States, there were very few banks in the United Kingdom during the financial crisis. Their regulatory thinking was that the crisis was the result of light-touch financial regulation and misaligned incentives. Once the crisis hit, the impact was made much worse because of the concentrated market. The banks were "too big to fail". This result of this oligopolistic market and they wanted to encourage more banks to create a more stable system in the future.

The landmark new rules by the Bank’s Prudential Regulation Authority (PRA) stipulated a simplified two-step process for setting up new banks called “Option B”.

I frequently find that the financial technology community here in the United States is only vaguely aware of the new challenger banks in the UK, what they are doing, and the lessons to be drawn. Given that my partner Dan and I spend some of our time and capital investment in the UK, we have been tracking them quite closely. The purpose of this post is to give an overview of some of the new banks, how they are approaching the market and their innovations.

The new banks have many implications for the continually growing fintech market in the UK and point the direction for some of the innovations we hope to see in the United States if new technology-first banks are ever chartered (For example, I’m hopeful for Varo and some other unannounced new banks in the US).

The new age of banking

With the change in the rules, the regulation enabled the authorization of more than a dozen new banks between 2013 and 2016, which has led to a visible change in the market. About 8 or 10 new banks are basically savings-and-loans companies targeting older people who have a lot of savings (e.g. Oak North, Paragon, Charter Court, etc). They raise fix-term deposits competing solely on price and then lend into interesting niche markets.

Then there are a few banks really focussed on transactional accounts, targeting millennials via a smartphone app. These are a new breed of banks: built for a mobile, primarily millennial, market and designed for customer service and user experience. Their offering includes personalized products and intelligent services that are accessible at the touch of a button, and genuinely useful to users.

The Bank of England noted the positive impact and innovation of these new banks, "whether it be the service they provide, the customers they target, the products they sell or the technology they use." These new banks were able to avoid the legacy brand and technology debt of established institutions. Untarnished by the financial crash and negative consumer perception, they were able to start afresh from both a reputational and technological standpoint.

The banks have designed a delivery strategy that centered around consumer expectations, and purpose-built their technological infrastructures from scratch (or at least their user experiences and user interfaces). They provide an entirely digital banking experience, which saves them the costs of maintaining inefficient legacy systems and expensive brick and mortar branches.

Not only do they deliver powerful capabilities like spending analytics, instant transfers and overdrafts, and intelligent money management, they do so in a way that’s intuitive, visual and immensely user-friendly.

Who are some of the challengers?

I’m going to go over who I think are the five most interesting new entrants to the market.

There are four new digital-first consumer banks -- Monzo, Starling, Tandem, and Atom banks. At the highest level, it's interesting to compare and contrast here. Monzo and Starling build core systems from scratch and were able to launch current accounts relatively early. Atom and Tandem chose to outsource, which appears to have slowed down their product launches. Monzo, Starling, and Tandem are all aiming to be "transactional hubs", while Atom is savings-and-loans.

The fifth bank is ClearBank, which is the first new clearing bank in the UK in more than two centuries.

1. Monzo: a focus on user acquisition and growth in consumer accounts

Arguably the most trendy of the digital-only challengers, Monzo is designed for “people who live life on their mobiles” and targeted to millennials: half of its users are under 30, and a further quarter are under 40.

Monzo was launched in 2015 and made history with its first round of crowdfunding in March 2016: the company raised £1m in 96 seconds, the fastest crowdfunding campaign ever. In 2017, it received another £71m in funding and was granted its full banking license. As of December 2017, it had almost half a million UK customers, who have spent more than £800m on the platform. They recently passported to Ireland as well.

Monzo’s offering is a current account with a contactless debit card and a mobile banking app. They started their offering with a bank account (originally just a prepaid card built on someone else’s infrastructure) and are now working on ways to monetize their customer base through lending products and cross-selling.

Users don’t receive interest, there’s no cash incentive or offer to join, and although it offers attractive savings on spending abroad, as Monzo’s CEO and Founder Tom Blomfield acknowledges, “For something like 90% of our customers, the free foreign exchange is nice, but they might go on holiday once or twice a year”. So, what’s driving all the user acquisition: as Blomfield points out, it is not about the tangible offering. It’s about “the feeling of visibility and control”. The app’s standout features include intelligent spending notifications, real-time balance updates, and clear, dynamic budgeting and financial management.

2. Starling: searching for a niche

Like Monzo, Starling Bank specializes in current accounts. Like Monzo, it’s built for the “millions of people who live their lives on their mobile phone”. The similarities are undeniable - and they’re not incidental.

Founded in 2014 by Anne Boden, the former chief operating officer of Allied Irish Bank, Starling went through a major management change in 2015/6 when members of the founding team left to set up rival Monzo.This included former Starling CTO, and current Monzo CEO, Tom Blomfield.

Harald McPike, an American quantitative trader, agreed to a tiered fundraise with Starling from their earliest days. A year after the major management change, the company received its banking license and the bulk of the $70 million in funding from McPike. The bank received a restricted license in July 2016 and started allowing current accounts in March 2017. In 2017, it also announced the expansion to Ireland.

Despite similarities with Monzo, Starling claims to offers a different focus and unique value proposition: personalized services with intelligent analytics. In addition to consumer current accounts, they are testing the waters on a number of other products, including a business current account. They’re partnering with lots of early-stage financial technology companies, and working on credit card processing to compete with the likes of Stripe (and potentially mirror Chase Paymentech at scale). All of this would be impressive but it seems to have led to relatively little customer uptake --  I've yet to meet someone who actually has a Starling account whereas I see Monzo cards everywhere in London.

3. Atom Bank: focused on savings and mortgage without a current account

Atom Bank was the first of the digital-only banks to start offering products.

Atom Bank was founded by Anthony Thomson, who also launched Metro Bank, the first high street bank in a century when it opened six years ago. Atom was authorized to take customer deposits in November 2015 and launched in full offering and mobile app after the lifting of regulatory restrictions in 2016. The challenger is backed by the veteran City investor Neil Woodford while Spanish bank BBVA has a 29.9% stake.

Atom’s first products were a one-year fixed saver offering an interest rate of 2% and a two-year savings product with a 2.2% rate. In 2017, it announced it was suspending the planned launch of current (i.e. checking) accounts for at least a year. Their decision to postpone the checking accounts was because of high growth in the savings and mortgage products (and because of IT problems with their outsourced core banking system supplier) despite the lack of a checking account.

Their big investment in brand, early marketing (the "AI future of banking") and channel (primarily through a smartphone app) is totally at odds with their main product -- a fixed term savings account. They're much more like the other savings-and-loans banks like OakNorth and Paragon. Their biggest depositors will be 55+ years old, but all their marketing choices seem like they're going after young people.

This raises interesting questions about whether a checking product is necessary for a consumer bank or whether it can offer a more a la carte menu without it, and focus (like many non-bank financial technology companies) on offering a niche, focused product, although with a cheaper cost of capital off the balance sheet. I find the approach pretty interesting: raise a lot of money and start lending immediately, making your business stable without necessarily having to worry about acquiring massive amounts of customer deposits.

Later last year, it partnered with Deposit Solutions to offer retail deposits in Germany.

4. Tandem: smart savings

Although less well established than its rival Monzo, Tandem bank is designed with similar goals in mind:  to help users manage their finances and save money in an easy and intuitive way.

Tandem was founded in 2013 and received its license in 2015, becoming the second digital-only bank after Atom Bank to get approval from the UK financial authorities. In 2017, Tandem lost their banking license due to the collapse of a deal that would have seen them gain £29 million in funding, and regained it in early 2018, after taking over Harrods Bank.

Ricky Knox, Tandem’s CEO, claims that the app’s aim is designed to find ways for users to save money on services and providers, and “ figure out how we can get you a better deal on all the stuff you're buying, whether it's your utility bill, whether it’s a credit card or your mobile bill.”

According to Knox, Tandem is different as it is “not designed for finance geeks” but for people "who are a bit rubbish with their money and can’t be bothered to spend Saturday afternoon budgeting.”

The company’s products reflect this. A bare-bones approach means that their app and credit card are simple to use and conditions are transparently presented. In early 2018, Tandem launched the credit card, which offers holders 0.5% cashback on purchases above £1 and access to borrowing services. As with Monzo, a part of the card’s appeal is the fact that it doesn’t charge fees abroad.

Unlike its competitors, Tandem’s app doesn’t just track spending on its own card. Instead, users can add any bank account on to an app that lets users track their spending, gives them updates on their bills, and enables them to switch service-providers if a better deal exists elsewhere.

5. ClearBank: UK’s first new clearing bank in 250 years

The UK’s first new clearing back in 250 years is the new venture of Nick Ogden, founder and former CEO of WorldPay. The bank was set up in 2015 with an investment of £25 million from PPF Group and CFFI Ventures in addition to investments from the founding management team. The bank was granted a license at the end of 2016 and launched in 2017.

ClearBank does not offer retail banking services. It is a bank for banks and (FCA-regulated) financial technology companies, offering open access to payment, current account, and transactional clearing services for all UK Financial service organizations including both incumbent and challenger banks.

ClearBank claims that “the improved efficiency delivered by [its] built-for-purpose technology” can save users £2-3 billion on their transactional banking, annually. It has a custom-built, integrated core banking system, known as ClearBank Core, and APIs that allow it to offer services free from the constraints of legacy technology.

What lessons do we learn from these and other challenge banks?

1. A mobile market: banking branchless

It’s no surprise these neobanks choose to operate on a digital-only platform and mobile-focused approach. They’re building their platforms to capitalize on a seismic market shift from banking at branches to banking through digital channels. The British Bankers Association (BBA) reported 19.6 million U.K. consumers used banking apps in 2017, an 11 percent increase from 2016. These numbers are set to reach 32.6 million by 2020. In addition, the use of banking apps rose 356% between 2012 and 2017, as a result of customers using apps more frequently, and for a greater number of transactions and tasks.

Prior usage for banking apps had focused on simply checking balance and bills, while as of 2017, 62% of U.K. adults prefer to conduct all of their banking activity online instead of at a branch.

2. Digital delivery: built for a better consumer experience

Monzo CEO Tom Blomfeld is candid about the philosophy behind Monzo’s intuitive design and user interface: “[Monzo is] built for the way we live today… it’s an app that’s designed in the same way that WhatsApp, Citymapper, Uber and Amazon are. It just works the way they expect” Atom Bank has a similar design philosophy, promising to make banking “easier, intuitive and there whenever you need it, all on your mobile.”

Like most in-demand apps, Monzo, Atom Banks, and other digital banks have designed their delivery channels with customer engagement and seamless user experience in mind.

Their front-end interfaces are designed to be intuitive, enhancing both functionality and usability.

Opening bank accounts in the United Kingdom has historically been very difficult. Unless you're dealing with Metro Bank it can take weeks to get an appointment (to open a current account, say), and then you have to present tons of paperwork and spend hours getting grilled by bankers. Business current accounts are even worse - generally takes months to open an account.

By contrast, you can open a challenger account in about five minutes on your phone and get a debit card in the mail a week later. The degree to which customer experience is awful really inspires a potent distaste for banks and bankers here and young people want something new.

The intuitive interface bely the complexity of powerful back-end platforms that offer artificial intelligence layering, predictive analytics, cash flow forecasting, biometric security, and open API integrations. The focus on user interfaces and consumer experiences are certainly paying off: these digital-only newcomers outperform traditional banks in customer service, customer loyalty, and referrals.

3. Leaving behind legacy architectures: the advantages of modern software development methodologies

As challenger banks are the first to acknowledge, it’s their lack of legacy architecture that allows them to deliver their innovative technology and customer-centric approach. According to Stewart Bromley, Atom Bank COO, big banks have “tied themselves up in knots” with their sprawling, often patchwork technological structures. He notes that “The technology [big banks] use is typically 50 to 60 years old, and that in itself is a massive inhibitor to changing anything.”

Nick Ogden, ClearBank Executive Chairman, echoes this concern. He believes “the industry will never truly move forward while it’s constrained by the challenges of legacy operational structures” Banks typically spend 80% of their IT budgets on maintaining outdated, inefficient, and aging systems, as opposed to investing in innovation, which gives a real opportunity

When banks do innovate or make expensive updates in order to meet regulatory requirements, they usually add more technology to their stack, further adding to the complexity of the outdated systems they will one day need to replace. As Bromley points out, “Most banks have layered technology onto technology onto technology, [making it] very difficult for them to move off of those legacy platforms.”

Due to the sheer volume of customers at big banks and their huge bureaucracies, it is difficult for these institutions to make disruptive changes to their technology environments, which can take as long as 18 months.

With legacy-free modern architectures that are already modular digital-only banks have been built like startups. They’re are designed for innovation, with agile operating models and technical architectures in place for rapid scaling.This allows them to choose a niche in the value chain to specialize and excel in while integrating offerings and data from third parties.

4. Open platforms and marketplaces

Starling, for example, is emphatic about its chosen niche: “current accounts - nothing else”, according to Anne Boden. “We are going to give the best current account in the world, and when they want the best mortgage in the world we are going to offer it, but through somebody else, not us". This vision is made manifest in Starling’s Marketplace platform.

Monzo takes a similar approach, writing that “the bank of the future is a marketplace”. By offering APIs that allow partners and third parties to integrate their services within the Monzo app, it’s positioning itself to capitalize on that future.

An open approach is clearly supported by consumer demand: as of 2017, 39% of customers are willing to share financial data in order to receive benefits such as an integrated view of all their accounts, and tailored offerings from third-party providers.

Platforms and marketplaces also face uncertain monetization paths, as no one has quite figured out the right path to sustaining revenue in the space.

The challenges faced by challenger banks

Ultimately, the success of the challenger banking model depends on the trust banks are able to build with their customers. Challenger banks are quick to empathize with and address consumers loss of trust and dissatisfaction with big banking: it’s what helped build their business model and brand position.

Their brand philosophy is built on the insistence that they’re not like those banks.They’re making a fresh start.

Monzo, addresses the issue head-on, acknowledging that “banking has been obtuse, complex and opaque” and that they aim to be radically different and “build a new kind of bank.” Anne Boden of Starling is a little blunter: “banking is broken… and the only way to fix it is to start from scratch.”

However, when it comes to the question of storing, sharing, and securing highly sensitive personal and financial data, these new banks face a greater disadvantage than established institutions. While starting from scratch may mean a fresh beginning, this lack of legacy proves a double-edged sword for these revolutionary new banks.

Although established banks are mired in the morass of their reputational and technological legacies, they also have centuries of history, billions of capital, and lifetime relationships with millions of legacy customers: before the introduction of a switching service in 2013, consumers would, on average, stay with ‘their’ bank for 17 years. Even with the switching service, very few customers switch their primary banking relationship every year.

Challenger banks lack history, trust, and the loyalty of customers -- critical factors that take a long time to develop. This means that despite the meteoric rise of the challengers, established banks still dominate the market today. For example, although Starling and Monzo both specialize in current accounts- with arguably better service and delivery - more than 80% of the UK current accounts market is ‘owned’ by the five big banks: Lloyds, Barclays, HSBC, the UK arm of Santander and Royal Bank of Scotland. It not clear how much that is changing -- I have been unable to find any data on how well the challenges have done in getting people to use them a primary checking account rather than as something to try on the side or only use for particular value like free foreign ATM withdrawals. (Simple.com ran into the same problem in the US -- many people signed up for novelty, not to replace their primary bank relationship).

Challenger banks will need to demonstrate sustained long-term growth, prove that their technologies are secure, remain committed to their current level of service and innovation, and, by the way, prove they can get real revenue. Many are focused on low-value customers and they need to prove out how their customer value will grow over time (and the impact that interest rates will have on their businesses). Challenger banks also struggle to acquire and build awareness with customers, and typically lack the capital required to build brand visibility or incentivize acquisition with loss-making offers.

In addition, like with any entrepreneurial venture and emergent business model, there are no guarantees. As Tom Blomfield acknowledges, “The investors who put their money in Monzo know they’re taking a big risk for an outsized return. But - there’s a really big chance you’ll lose everything.”

That thought is one that venture investors are quite comfortable with, but when it comes to where consumer put their money, it can be a challenge even though the Financial Services Compensation Scheme protects every dollar.

The future of finance: APIs and the move to Open Banking

Having said that all banks can no longer delay major reform of legacy architectures. Financial services in the United Kingdom as an industry is fast moving towards an increasingly open structure and API-based modular architectures as it evolves to meet consumer demands for a personalized, integrated, and seamless customer experiences.

In 2018, two key pieces of regulation come into effect that will mandate banks to make the move to “opening” their APIs to third parties. Open Banking rules have forced the UK’s nine largest banks to open APIs to share their data with licensed startups. While the Second Payment Services Directive (PSD2) will require all banks to allow third parties access to their payments infrastructure and customer data assets by opening their APIs.

To me, the future of challenger banks is uncertain in the United Kingdom. The market becoming more open is great -- and will allow more financial innovation. Customers historically have not switched primary banks at all easily, the 2003 attempts to promote bank switching in the UK - including allowing customers to port their routing and account numbers to new banks, achieved very little. Almost no one switched. So, the more focus these banks on lending and payment products, the better. Getting people to switch their primary checking account has proven very difficult.

Having said that, as the majority of these banks are now licensed, they’re attractive targets for partnerships, investments, and acquisitions. Investments by legacy banks, like BBVA with Atom, are likely to continue. As the financial services industry becomes more open, these challengers can attract many partners to their platform, and perhaps create lasting brands at the center of consumer’s financial lives.

(This article originally appeared as an op-ed in the Financial Times published Monday, April 15th). 

The writer is a partner at Deciens Capital, a venture capital firm focused on early stage financial technology

My recent thoughts on housing policy (Broken Promises: The Housing Market in San Francisco (And Ten Ideas to Fix It)) have gotten a big response — positive and negative — on Reddit, Hacker News, Twitter, and my email box.

This post comes from the frequent question: "what can be done, if anything?"

The political situation can be changed. Below I outlined how I believe there is a political majority for change, the three policies necessary to actually move the affordability needle, what to do in the next few months — vote in the June 7th primary for pro-housing candidates! — and what I think needs to be done to build a more permanent, structural change. That change likely starts with an in-person organizing meeting, sign up here or at the bottom this post to get more info in the future. 

The Unorganized Majority Wants To Address Affordability Through More Housing

Some have criticized me for being disconnected from the politics of San Francisco. I do not agree. Though you would be forgiven for disbelief after watching the Trump circus these many months, there are still some of us that believe politics should be about real policy. That isn’t to discount messaging, media, and all of that, but the fight is supposed to be about ideas.

There are many San Franciscans who want to solve the housing affordability problem, and create a more fair and functioning city. This problem has known, quantifiable solutions. I didn’t invent the solutions — they are composed of common sense approaches that have worked in other big cities. Some people, those that have been sucked into the San Francisco political dynamic as it exists today, consider these solutions politically unfeasible.[0]

I believe these people are wrong. This is a classic story in politics: of an entrenched, vocal, well-organized, and self-interested minority defeating an unorganized majority. Who is opposing this housing? Many activists opposing new housing are the very landowners that benefit from the resulting scarcity. These "housing activists" oppose housing, because they focus on affordability and neighborhood character so much that they curtail supply. It is difficult to overstate this. There is also an entire cadre of land use attorneys that specialize in opposition to housing projects of all shapes and sizes, dating back 20-30 years and even penetrating the ranks of the San Francisco Board of Supervisors. Rich homeowners are making San Francisco a gated community, some intentionally and some accidentally. The majority needs to take back San Francisco and make it affordable again.

And it is an unorganized majority: I’ve seen polling that 60% of adults in San Francisco would agree with a “Manhattanization” of the city if it meant solving the affordability crisis. The problem is that we aren’t voting: the number drops to the 40s amongst voters in the most recent election. The solution is simple: let’s get organized, let’s get out the vote, and let’s take San Francisco back from those that would continue down the road of an unequal and unjust city.

The Three Policies To Create Housing Affordability

There needs to be a concerted effort to pass at least three housing policies and those ideas need to be presented as a single, holistic package that is big and bold enough to solve the affordability problem. Of the ten ideas from my last post, these three get the most bang for the buck. 

One of the things I learned when working with city governments early in my career was that sometimes bigger policy ideas are easier to get done than smaller ones. It's just easier to sell the bigger dream that’s right than the smaller, incremental one. This fact is because big ideas can plausibly solve big problems.[1] So, I try think about the truly desired world and figure out how to fight for that.

The three easy-to-explain ideas that together are significant enough to largely end the housing affordability problem[2]:

1. As-of-right zoning. We've spent dozens of years and millions of dollars formulating community zoning plans throughout the city, with intense outreach and engagement efforts, only to have those very plans challenged and re-opened when finally approved and/or enacted. Let’s end that process and allow people to build when it complies with the zoning already in effect.

2. Build a taller city by upzoning for more height.

3. Allow for the creation of more units by lowering or eliminating density limits. This is not about unlimited expansion of the building envelope but rather about encouraging more smaller units. (Sometimes called form-based zoning).

Near Term: Vote For Housing June 6th

When I talk to my friends, who live across the ethnic and socio-demographic profile of the City, they are disengaged and discouraged. “Things are screwed up” they say, or “politics is broken”. These people actually do care, want a diverse and affordable city, but don’t know what to do.

I want to change that.

Let’s start by voting in this June's SF election. Click here to see who to vote for. Tell a friend who agrees with you to vote.

Also, there are many organizations investing and fighting for big and small policy changes in housing — SPUR, SFHAC, SFYIMBY, GrowSF and SFBARF are amazing. I’d suggest joining at least one of them. 

Long Term: Creating Structural Change

A repeated, proactive, planned narrative, will animate voters clearly. It would be a single campaign with a clear message: make housing affordable.

The BMR debate, the density bonus, inclusionary targets, etc, none of it means anything to a normal person and none of it is going to move the affordability needle. Worse still, pro-housing advocates always seems to be responding rather than pushing policies forward.

We need to integrate the short-term, small stuff into a larger singular movement toward a big change. Above there are three big (simple) ideas that can actually solve the massive housing problems facing San Francisco. We need to start fighting for the big things we believe in rather than playing defense against anti-housing, anti-affordability forces. 

I’ve begun some of these conversations and am starting to clearly see the political and campaign path forward.[3] I’d like your help in putting together a plan, organizing around one narrative, one campaign, one moment, one set of things to remember that we believe is big enough to solve the affordability problem — that’s the only way to make others people believe it too.

So let’s get organized. Let's raise money. Let's knock on doors. Let's change things for the better in San Francisco. 

Who’s in?

I’m serious, shoot me an email or sign-up here.

ENDNOTES

[0] The political machine makes them unfeasible. The real, underlying story here, is that the "Moderate" forces in the city are shockingly unorganized. Self-admittedly so. The "Progressives" really do meet in dark rooms, conspire, get organized, make plans, and stay on collective message. The "Progressives" are a real machine, corrupted toward their own goals over the needs or desires of the city-at-large and they even have the villainous Boss Peskin, and his well-known intimidation tactics.  

[1] We need a lot of housing. Even if Mayor Lee's policies got us his 30,000 (wait, some of that is refurbished, right?), that's a big number, but it is not big enough. Mayor Lee's efforts, although admirable, always seem to have a shoulder shrugging: “it's as big as we can get. It will help. But this is beyond anyone’s capacity to solve (politically).”

[2] There are a range of other problems and ideas too. There is everything I wrote about in my last post and more. Some ideas apply to just San Francisco, my current focus, other apply to the entire Bay Area or to all of California. For example, local and state regs (CEQA and others) that actually enable virtually endless challenges and expansive definitions of "environmental impact", affecting privately and publicly funded projects. There is prop 13, as some commentary on HN pointed out. But, despite the multitude of problems and potential solutions, I believe these three policies would get us very far in San Francisco.

[3] Perhaps for obvious reasons, I don’t think sharing all the details publicly is wise. It requires people and money, though, so I could use your help. 

Almost everyone who visits San Francisco falls in love with it. People love the character of the city. To me, that spirit isn’t contained in the way the buildings look or even the beauty of the Bay. The city’s greatness comes from its diversity and its attitude. It’s the combination of the collection of people here and the space provided to be weird, to be different, and to be experimental.

When I talk to my friends and acquaintances throughout the community, though, people feel like something is off these days. My recent blog post on housing policy seemed to hit a nerve for many. I was surprised about the people who reached out to me who didn’t care much about the specifics of the housing policies. They were more interested in chatting about the first few sections, where I talk about the type of city I want: multicultural and economically diverse. I believe in Cities for Everyone and fighting for the policies that make that possible.

We all want a fair and functioning city. We don’t have one now. Between housing costs, school quality, and underperforming public services, it is starting to feel like the city is slipping away.

What I have the hardest trouble understanding, though, is the folks in San Francisco who seems more interested in dividing people into factions. Some people want to make it tech vs. the rest. Others want to divide us into the business community vs. the incompetent who don’t get it.  We have a chattering political class that talks about problems and points fingers, rather than bringing us together to solve very real problems. They seem to confuse activity with accomplishment.

I believe the tech founder and the teacher, the doorman and the designer, and most every San Franciscan believe in the same things: an affordable city, a diverse set of jobs and an education system that makes it possible to attain them, and the wise use of public funds.

I know what’s it’s like for many in the City, my single Dad and I struggled to make ends meet when I was growing up, even with the help of things like free school lunch and other programs. He was on-and-off unemployment until recently. I got lucky, I tested into a great public high school, and went on to a great university. But you shouldn’t have to get lucky. I’ve spent my career trying to address the problems I’ve seen: human trafficking in Rhode Island, improving public services in New York City and Newark, NJ, and taking on the financial system at Standard Treasury.

I’ve always been the squeaky wheel, the argumentative one, the one whose elementary school teachers told me I should be a lawyer, even when no one in my neighborhood knew any. And I have found some measure of success built on my personal mission to combine a passion for the serving the public and that fight in myself.

I built and sold a company targeting the rot I saw in the financial system, and I hope to continue to focus (at least my writing and my free time) on targeting the problems I see in San Francisco, building community, togetherness, and a shared focus on fixing problems and not just talking about them.

Got a problem? Come tell me. Maybe we can figure out how to make the city fix it. I am the first to admit that I have a lot to learn. If you’re reading this post, and care about what I’m talking about, I’d love to meet with you to chat. Coffee or tea is on me. Shoot me an email by taking the first letter of my first name (z) adding it to my last name (townsend) at Gmail.

(Also see my follow-up post on getting organized, and sign up to my tiny letter to get contacted about fixing housing affordability in SF). 

San Francisco’s housing system is broken. The only way to fix it is through a radical change in our housing policy: a change that encourages (a lot of) building.

Failed public policy and political leadership has resulted in a massive imbalance between how much the city’s population has grown this century versus how much housing has been built. The last thirteen years worth of new housing units built is approximately equal to the population growth of the last two years.[0]

Last Wednesday I moderated a panel where two housing experts made arguments that were surprising in two ways: first in how disconnected they were from the causes of the housing crisis and second in how distant they both were from genuine solutions. This post is my response to their arguments.[1][2]

Simply put, the laws of supply and demand do apply to our housing market and I conclude this post by proposing 10 policy solutions that might actually increase the supply of housing in San Francisco in the face of an unprecedented and largely ignored demand. Some of the ideas are large shifts in public policy, but we’ve waited too long for anything less than bold action to work.

(0) San Francisco is moving toward a dystopian future

If we do not change our current housing strategy, the natural result will be a type of cultural destruction. It's easy to point to individual cases of displacement that pull on the heart-strings — a tech family is throwing out grandma to convert a duplex into a mansion (which is genuinely sad and should be prevented!) — but the real displacement is happening at a macro level. We are on a self-imposed path leading to only one place: a city that is entirely rich and, more or less, entirely white. That isn't the fault of any one person on either side, but it is the fault of those that refuse to allow any rational policy response to people's desire to live here.

In time, housing and everything else will become so expensive that we will price every working- and middle-class person out of the city. The gentrification wave will keep rolling. A bubble might burst here or there, but ultimately San Francisco is so self-destructively finite that all the regular people will be pushed to the East Bay, to Pacifica, to Daly City, etc.

Housing demand will only increase with time. Younger folks, like me, want to live in urban centers, and many don't want cars. Companies are moving back to cities as their workers do. In the technology sector, startups and investors will continue to migrate up to the city, as an ecosystem built around proximity and the sharing of ideas (the things that have always made "Silicon Valley" so successful) is even more compelling with urban density.

(1) My goal for San Francisco is a diverse city

In my first job out of college in 2009 I earned $45,000 a year, more than either of my parents had ever made at the time. To many that would seem like a lot of money for a single guy, but by no means was I affluent. I loved the Brooklyn neighborhood I lived in before moving to San Francisco, on the edge of a few different neighborhoods, right where Windsor Terrace becomes Kensington below Prospect Park.

One of the things, if not the thing, that I loved most about that neighborhood was that it felt like what a diverse urban landscape could and should feel like. Within blocks of my building and inside it, there were Russians, Ukrainians, Poles, yuppie white folks like me, Hasidic Jews, African-American and West African blacks (nearby Flatbush is one of the largest black neighborhoods in New York City), Ecuadorians, West Indians, Puerto Ricans, Dominicans, Pakistanis, and more, with wonderful, family-owned restaurants and shops to match these many micro-communities.

I want to live in a beautiful, multiethnic, socioeconomically mixed community. A city where people of low, moderate, and high incomes live together, and people of different ethnicities interact. That's my dream. That's why I love cities: people mixing together, cross-pollinating perspectives and experiences.

That's not San Francisco right now. It might have been in the past, but it certainly won't be in the future — unless we get over ourselves and start building much more housing. Everywhere. Immediately.

(More public transit, too, but that's another post).

(2) A little self awareness about my my role and position in San Francisco

I am perceived to be part of the problem. I'm aware of that fact. I'm a white, male, Ivy League-educated, startup founder who sold his company to a bank (even if my goal was infrastructure for financial empowerment). My office is in SOMA, and I live in a rent-controlled apartment near Dolores Park in the Mission. I eat at expensive restaurants on Valencia Street and buy my groceries at Bi-Rite or Whole Foods because the marginal cost of food doesn't matter much to me.

But I am also the son of a waitress and a (intermittently unemployed) former postal employee, I participated in the free-lunch program at my public schools, and I grew up in a working-class neighborhood. My interest in public policy stems from a deeply-rooted belief that society is often pretty screwed up, the market often fails, privileges (class, race, gender, and more) alter people’s lives and are not just punch lines, and justice is something to be sought.

(3) The cause of our housing problem is huge demand in the face of limited supply

People love living in San Francisco. People want to live here. People like it here. They flock here. They also like to have second homes here. People from all over the world still move to San Francisco for the same good reasons that they have since the city's founding in June 1776: location and industry. The benefits of living in San Francisco are easy to see: fascinating culture and wonderful cultural institutions, a diverse dining scene, a robust economy, immense natural beauty, good weather, and a rich history.

How do we respond to this demand? So far, by putting our heads in the sand. By saying: "No, no, no, no, no. The city should not change. The city cannot change.”

News flash: the city is changing and only for the worse. The city is forcing people out. Only the rich can live here because of the policies created by so-called progressives and so-called housing advocates.

"Preserving neighborhood character" might as well be code for "don't build any affordable housing in the city" and, more bluntly, "don't build any housing that doesn't look like mine or has people living in it who don't look like me". Or, more cynically, “don’t build anything that could possible make my house less valuable.” This city is full of folks who are millionaires by virtue of a house they bought, but they feel middle-class. Amazingly, at the same time, they feel entitled to hold the view that the city needs to be more diverse and inclusionary AND it's everyone's fault but their own.

People like to wrap themselves in the flag of keeping things as they are, but that's the attitude that, when combined with people's desire to live here, is screwing over regular people. To only blame a subsection of the people who want to live here — whether they work in tech or whatever — is to blind oneself to the reality that that is only half the story. The other half of the story is how many people refuse to let anything get built.

Yes, to appropriately respond to demand, many blocks in this city need a high-rise building. We're going to have to deal with that fact if we want to solve the problem, rather than just talk about it.

(4) Incorrect claim 1: There are so many empty units out there that we don’t need to build anything

Some folks claim that we do not have to build a single additional unit of housing to solve the affordability crisis.[3] They say that we could solve the problem only with existing units that are currently vacant (for example, full-time Airbnbs or would-be landlords holding out for higher prices).

Let's pause for a moment and consider how absurd that notion is when subjected to any rational examination. The size of the housing crisis and the degree of excess demand is nearly unfathomably large and, in the face of that, some city residents think nothing has to change in the physical development of the city? That's illogical.

I’ve heard estimates, including from a city planning commissioner, that there are over 10,000 empty units, but I’ve never seen any hard data or firm citations to support this. There are actually more units than that vacant right now. In 2014, the Census Bureau estimated 31,686 vacant units. Roughly 3% of rental units and 0.9% of owned units were empty then, fractions of the national average of 6.9% of rental units (4.6% in California) and 2.1% of owned units nationally (1.6 in California).

Why are these units empty? Because units are sometimes empty! Renters move out, others move in, people do renovations, people are showing the house for sale, etc. We have far fewer vacant units than the national average and a similar amount to other booming tech cities like Austin and Seattle. These units can’t be miracled into the housing supply because they already have been, which is why our vacancy rates are so low.

The people who cite the number of vacant units are often unwilling to accept any increase in density or, it seems, even the notion that building matters. I don't know how to deal with that level of denial: by all objective standards, we don’t have that many vacant units and unit owners have few rational reasons to keep their units empty when prices are so high.

(5) Incorrect claim 2: Investment capital will never build affordable housing

Many in the city spend time railing against the apolitical nature of investment capital and how it doesn't care about people: only the highest possible returns.[4] Focusing on capital easily misrepresents the problems we face in the city, and is an easier punching bag in an era where people are outraged about anything that sounds like finance.[5]

Capital is generally impersonal and seeking returns, no doubt, but capital is actually complicated, multi-faceted and diverse. Capital does not necessarily seek out the highest returns but rather the highest risk-adjusted returns. There are many different capital sources out there, all of whom are seeking different risk and return profiles. There are people who would build lower return, lower risk housing in San Francisco if anything could be built at all.

Capital would invest in San Francisco if we had better housing policies: not necessarily higher returns. Big investors in long-term real estate projects nationally include patient capital, like pensions funds, including CalPERs and CalSTRS, who actually want low-risk, consistent returns. They invest in affordable housing elsewhere. But those types of investments are hard to make in San Francisco because the risks aren’t low and the consistency isn’t there: any investor would be scared by a city currently considering whether to retroactively applying new affordable housing laws.

It’s claimed that the fact that projects that had entitlements in 2008-10 and weren’t built was because capital couldn't get the return they wanted. That's inaccurate. Nothing got built in 2009/10 not because there was no demand or returns in San Francisco it didn't get built because the world was falling apart. It was ultimately a liquidity crisis not a lack of returns.[6] People weren't squabbling about market rent vs. below-market rent, they were worried about whether they were going to be in business the next day.

Further, if we had a process that didn't take so many years, some of the entitled housing in 2008/9 could have gotten built before the financial collapse of the national housing market. Instead, whenever we get to a point in the cycle where there is boom, there is no responsiveness because the process takes so goddamn long. Worse still is when we can harness the market to build, that’s the time when some housing activists stop all building because ... they don't like the profile of the people who want to live in this city.

The reason that only expensive housing gets built is because that's the only housing it makes sense to build in a city where the costs of building are so high and the process is so drawn out (which creates additional and unnecessary financial risk for investors). There is no willingness to grapple with the fact that if costs — personal, political, and literal — were lower, it would make more sense to build a diversity of housing. Low- and middle-income housing gets built in other places, which suggests that we should compare San Francisco’s policies to those municipalities’ rather than claim that we're a unique snowflake dealing with unprecedented problems. The only thing unprecedented about our problems is our unwillingness to rationally respond to them.

(6) Incorrect claim 3: This is all the demand side’s fault

Many claim that tech is evil, foreign investors are evil, pieds-a-terre are evil, and Airbnbs are evil. It's all too simplistic. The forces behind those aren't singular movements or collectively one movement alone. They're the practical results of individuals making decisions that make sense to them. By making them singular it creates a simple enemy, but even if Ron Conway dropped dead, we'd still have a housing crisis. Even if Airbnb stopped operating, we'd still have a housing crisis.

(By the way, AirBnB was invented in 2007, and there was definitely a housing cost problem then too. That’s why it was founded. Airbnb can’t explain trends that old. Either way, most Airbnb hosts are not landlords systematically renting apartments on their platform — I've never seen that although I'm sure it exists — but rather individuals who cannot afford to live here without renting a bedroom out. I have friends who are an older couple who live in Eureka Valley, and the only way they are able to afford to retire is to rent out a bedroom that used to be occupied by one of their now-grown children.)

There is a direct relationship between the amount of building and the cost of housing. The following graph from Trulia perfectly illuminates that fact:

Here is the accompanying commentary:

San Francisco’s high home prices are extreme – but so is the lack of construction. Since 1990, there have been just 117 new housing units permitted per 1,000 housing units that existed in 1990 in San Francisco. That’s the lowest of the 10 tech hubs and among the lowest of all the 100 largest metros (see table 3), even with the recent San Francisco construction boom. Relative to San Francisco, Raleigh and Austin have ten and eight times as much construction, respectively. Geography limits construction in the Bay Area – it’s hard to build in the ocean, in the bay, or on steep hills – but regulations and development costs hurt, too.

(7) Incorrect policy solution: limit job growth

I have heard several folks say that we need to stop creating new jobs in San Francisco. The arrogant privilege required to say that we need to constrain job growth is startling. They should go to the Rust Belt and say that out loud and see what the reaction is to the sentiment. But that idea takes our revealed policy preferences to their logical conclusion. Every one hundred new jobs at Bay Area startups or technology companies are attracting more people here, which in turn raises prices, strains our public transit system, and displaces people. If the Bay Area is unwilling, as a matter of policy, to grow the housing stock and the transit capacity, do we have an ethical obligation to begin, as a matter of policy, slowing job and economic growth?

The first time I heard someone propose the idea, though, something switched in my head. I had been thinking about housing as a combination of social justice and of local economic implication: San Francisco and the Bay Area won't reach their highest moral or economic potential because of urban policy. But it's far bigger than that: the foolishness we exhibit locally means that California and the United States won't reach their economic potential — due to "Silicon Valley's" outsized role in state and federal economic growth and innovation.

(8) NYC example: harnessing market force to increase the affordable housing supply

We need to build much more housing immediately. We need to do that so that we can have a diverse city: ethnically and socioeconomically. If we choose to kill new housing in the face of the demand, we choose to destroy neighborhoods rather than adapt them. We choose a certain Victorian aesthetic, one that is only owned by the rich homeowners, over a truly multifaceted city.

We need to understand the true forces in the market (and the true financial constraints therein) and harness the market to build a large amount of diverse housing.

San Francisco’s policies are out-of-line with building almost anywhere else. For example, nowhere in San Francisco do you get density bonuses for affordability (like in New York City) and nowhere in San Francisco can you build as of right (like in almost every other municipality). And, perhaps most importantly, no where else is there a belief that you can solve a housing affordability crisis without encouraging the building of more housing.

I believe in inclusionary housing. New York City's recent sweeping housing policy changes have been cited in many recent housing conversations I have been in. But the flip side of that inclusionary bargain everywhere else in the world, and especially NYC, is more units, more density, and more housing. The AP article on the NYC change last week starts the way: "Many of New York City's residential neighborhoods will feature denser and taller development as part of a sweeping housing plan that will mandate the construction of more affordable housing and rewrite the city's decades-old zoning to enable more residential development" (emphasis added).

New York City’s new inclusionary housing policies are amazingly progressive, and I understand the simple desire to look at them and say that we could institute similar mandatory requirements. But the program in NYC only applies when a development needs a land use action (some type of variance to existing zoning)[7]. In New York City, and most other jurisdictions, if your proposed projects meets the zoning requirements, the approval is an administrative process: the public policy has already been described, debated, and decided in the zoning process. That is, most development in New York City occurs as-of-right. Developers can still build without these mandatory requirements, and, either way “In exchange [for the affordable housing increases], developers can be allowed to build taller structures and obtain low-interest financing and tax advantages.”

A 20% inclusionary requirement, or whatever that number should be, of every new building should include a diverse set of affordable housing for low and moderate incomes (teachers, public servants, service sector workers, the list goes on). But, with this requirement, the only thing that matters is how much total housing gets built. If it's 33% inclusionary and that means projects are upside down on their economics, then nothing gets built. Or, zero affordable units.

We need to set the inclusionary requirement at a rate that makes economic sense and, again, focuses on the only thing that matters: the total number of units that needs to get built. For example, the controller's recent report around Prop C says that increasing the inclusionary percentage to 25% will cause a 13% decrease in overall production. That is a backwards policy.

(9) Ten policy ideas to increase the supply of housing in San Francisco

Generally, I would approach this problem by setting an aggressive target for new building and then design incentives or eliminate restrictions to reach that goal.[8]

Let me quickly mention ten ideas that would have an positive impact on housing in the city:

1. Zone for more housing across the entire city. The city needs to upzone in terms of both density and heights in many parts of the city, particularly along transit corridors.[9] This upzoning should be targeted to specific blocks and lots within communities, but not just in underdeveloped (which is often code for poor and minorities) neighborhoods. There need to be denser, larger buildings in Pacific Heights and Presidio Heights, too.

2. Allow as-of-right building. We should have the same in San Francisco: which would reduce the costs of building and the time-to-market when a developer is building within the existing zoning requirements. Beyond this, we should also simplify and shorten the variance process. That doesn’t mean eliminating democracy (quite the opposite) but it does mean creating one-unified coherent set of policies and associated timelines (like NYC’s Uniform Land Use Review Procedure (ULURP)).

3. Reexamine bulk, parking, setback, and backyard requirements to encourage more density. For example, require much less parking, encouraging that space and money to be used for housing while also investing much more in public transit.

4. Continue a high, economically sustainable, inclusionary requirement for affordable housing. Affordable housing is absolutely critical and the best way to get more affordable housing is through a combination of a reasonable requirement coupled with as much building as possible. With this approach, we could easily double or triple the number of below market rate (BMR) units in the city within a decade. If we prevent building, the number might scarcely increase at all.

5. Increase investment in public housing by renovating and preserving the units, building more public housing in neighborhoods across the city, and set aside money when the economy is good to build public housing when the economy is bad.

6. Allow for smaller more affordable units to be built, what SPUR calls “Affordable by Design.”

7. Allow for an increase in the legalization of in-law and secondary units (even if they are going to be used for Airbnb - better these spaces be used than larger, higher occupancy ones).

8. Rezone underutilized industrial and commercial zoning to housing.

9. Create incentives for replacing underutilized sites throughout the city, including upzoning and a simplified permitting procedure.

10. Consider big ideas that have worked elsewhere. For example, developing a Mitchell-Lama Housing-like program by building public-private partnerships so more housing can be built. That program had a ton of flaws and would need to be significantly reworked, but you couldn’t fault it for a lack of ambition.

I would also like to consider larger, bolder solutions that haven’t been tried yet. Maybe there is a grand bargain between the “sides” or maybe the pro-housing side just needs to win a political victory. Either way, we need a grand bargain that builds much more housing — over 100,000 units are needed by some estimates — in San Francisco, with a large chunk of it being affordable.

Endnotes

[0] Census Bureau Estimates of San Francisco County’s population over the last three years:

2013: 840,715

2014: 852,537

2015: 864,816

So, in each of the last two years, San Francisco’s population grew by approximately 12,000 people. The city’s housing stock has increased by approximately the same amount -- 24,000 units at least according to Scott Weiner’s blog post cited below -- since 2003. That’s with over 100,000 people moving to the city since 2003.

[1] This blog post is born from an event last Wednesday evening (March 23). I organized a panel called “Affordable Housing - What's the Right Answer?” at the Eureka Valley Neighborhood Association, of which I’m on the board. The idea behind the panel was to have a selection of perspectives within the entire spectrum of perspectives on housing in San Francisco. The panel guests were Peter Cohen from the Council of Community Housing Organizations and Dennis Richards from the San Francisco Planning Commission. We had invited Tim Colen from the San Francisco Housing Action Coalition, to have a wider range of perspectives, but he was unable to attend at the last minute.

I left the panel energized but only because I disagree with both of the panelists that came. I wish that Tim was there. It it might have been less civil but it might have been more constructive. Overall, I ended up finding the conversation quite frustrating. I did my absolute best to keep my perspective to myself — I didn't talk very much — and just asked questions. But after the meeting, I couldn't contain myself and sent a long rant to the EVNA board. This post is an edited version of that email.

[2] Many sources have influenced my overall thinking about housing. Starting with my time working with and around city governments (particularly New York City, and also Newark, NJ) but also a ton of great reading out there, like, my Supervisor Scott Weiner on how "Yes, Supply & Demand Apply to Housing, Even in San Francisco", SPUR President Gabe Metcalf's writings, including, "What's the Matter With San Francisco?", subtitled “The city’s devastating affordability crisis has an unlikely villain—its famed progressive politics", or, of course, Kim-Mai Cutler's well-known posts on the history and realities of housing in San Francisco and California, for example, "How Burrowing Owls Lead To Vomiting Anarchists (Or SF’s Housing Crisis Explained)".

[3] Planning Commissioner Dennis Richard claimed this fact last Wednesday night on the panel: that we don’t need a single new unit of housing built in the city. I just cannot believe it. Peter could not believe that claim either, and that's saying something!

[4] This is a favorite argument of Peter Cohen that just sounds so sweet, but...

[5] Even I’ve written about big banks needing to be punished, but finance or financial services companies aren’t monolithically good or bad. They’re complicated. They’re different. Many investors are pension funds or university endowments.

[6] I recommend this amazing recent book on the financial crisis for a good rendition of monetary system design in this regard.

[7] Things are a little more complicated than I’m saying, but not much. “Land use actions” include both “private rezonings”, which are variances for individual projects and, I believe, the more important point here. “City neighborhood plans” also must include mandatory affordability, but those don’t happen particularly frequently.

[8] One thing that I do agree with housing advocates around is preventing speculation on real estate: policy should discourage it and encourage inexpensive housing. This post is about building a lot more housing, though, not discouraging housing speculation.

While it has been technically illegal to pay women less than men for doing the same job since the Federal Equal Pay Act (EPA) of 1963, women still earn substantially less than men in the United States. According to the American Association of University Women (AAUW), in 2014, women in full-time positions earned 79 cents for every dollar paid to men—and the numbers only get worse for women of color and older women.

The California Fair Pay Act of 2015 is a huge step forward in closing the pay gap, which hovers around $.84 for every dollar in our state. But despite the progress, California still has work to do if we are going to lead the nation in reducing gender-based pay disparities.

The California Fair Pay Act was signed into law as of October 2015 to revisit how comparisons are made between jobs to determine whether they trigger a requirement to pay men and women equally. Instead of the traditional and narrowly defined “equal work” standard, the Act requires equal pay for men and women performing “substantially similar” work.

Under the “equal work” definition, men and women could be paid differently for performing similar functions under different job titles or performing similar functions in different offices controlled by the same employer. Thanks to California’s FPA, jobs that are “viewed as a composite of skill, effort, and responsibility,” require equal pay for men and women. The law puts the responsibility on employers to prove that any differences in pay are a result of a bona fide factor such as “a seniority system, a merit system, a system that measures earnings by quantity or quality of production” or similar, and that the relevant factor or combination of factors must clearly justify any differences in male and female employees’ pay.

Additionally, the FPA mandates that businesses can no longer destroy pay records after two years—they are now required to keep these records for at least three—and it explicitly prohibits employers from preventing or discouraging workers from discussing their pay rates. Both clauses make it easier for women to uncover and document discrepancies in pay rates within the statute of limitations. Unlike many labor laws that exempt smaller businesses from compliance, these rules apply to every employer.

But does the California Fair Pay Act go far enough? Indeed, it covers some of the issues described in the National Equal Pay Task Force’s 2013 report, including a prohibition on employer retaliation against employees for discussing wages and a requirement that employers prove any discrepancies in pay rates are related to legitimate business reasons and not gender.

However, there are critical missing pieces. First, the Act doesn’t consider jobs that are primarily staffed by women. When there are no male employees to compare against, the law cannot be applied—even if pay is unreasonably low compared to industry standards. Second, there is little support for smaller companies that have neither the experience nor the resources to effectively analyze company-wide pay rates and correct gender-based discrepancies. Larger companies usually have the resources, but more complex pay structures and job descriptions make analysis a nightmare.  Finally, the act does not deliver services directly to girls and women. For example, the Act could set aside funds to teach pay negotiation skills, which would be an effective tool in reducing gender-based pay differences.

(This op-ed originally appeared in the Sunday Insight section of San Francisco Chronicle on Sunday, February 14, 2016).

My background

While I was growing up my Dad was a postal clerk. Being a mailman is a decent blue collar job, all-in-all, and we were fine financially. But when I was twelve or thirteen, my Dad took a huge risk.

An avid reader, a curious soul, he felt stifled by his work. My Dad filled our house with books and our weekends always included a trip to the local library. He got an Associates degree by night, and then got a grant from (the NJ?) Department of Labor to go get a BA full-time. He quit his job. He spent all of his savings, retirement and otherwise, on graduating with a 4.0 GPA from Rutgers. Passionate about research, he went on to get an MA and PhD. He raised me through my high school years on his stipend alone. Coupon-cutting and free school lunch got us through those years. 

Through this time, my mother was completely out of the picture: I didn't see her between ages 10 and 18. Having said that, she's spent most of her career working in restaurants though: server, cook, etc.  

But it all seems worth it. My dad taught me that taking risks in pursuit of one's dreams was worthwhile, even at a deep economic expense. Since then, the post-great-recession era has not created the best academic market. My Dad has oscillated between short-term academic posts and unemployment. 

Needless to say, neither of my parents comes from any serious money. I didn't fall backwards in to a trust fund. Yet somehow I found a way to be an entrepreneur.

Entrepreneurs come from families with money?

Because of that fact, I was annoyed by the framing and conclusion of this article in Quartz "Entrepreneurs don’t have a special gene for risk—they come from families with money". Although the article is nearly a month old, it's sloppiness bothered me and it's holier-than-thou (counter-cultural?) argument against entrepreneurs is becoming more prevalent. That's fine, lot's of entrepreneurs are entitled, arrogant people — so are many journalists — but I find referring to large communities monolithically so commonplace, and so annoying, that I wrote this short essay.

The article makes a common mistake in journalist reflections of academic research: it turns a statistical fact ("On average, and holding all else equal, entrepreneurs are more likely to have received a gift or inheritance") and turn it into a categorical fact. The absolute divisions make better copy, sure, but reality is messy. I could likely spend my whole life pointing out these types of errors, but this particular instance got under my skin because I'm a fine but by-no-means-atypical counterexample to the "all entrepreneurs come from family money" claim.

The article is so poorly written on so many fronts that maybe I shouldn't be so upset. It convolutes so many different arguments, and makes so many different arguments that sound the same but are not. I do not come from a family with any financial stability. On the other hand, I am white, male, and highly-educated. "Earned" or unearned, I have a huge amount of privilege, pedigree, and connections.[1] I was able to take risks that many people couldn't because of these facts, but it does a disservice to suggest that all the people in a group share the same characteristics. If the author had just written the word "most" or "more than average", etc., then the article would have been well on its way to accuracy. 

The research on entrepreneurship that the article cites is interesting though and it points to some deeper policy points than throwing up your hands and saying you have to come from money to be an entrepreneur. I'm going to write a different article in the future about policy prescriptions, but let me analyze the four research citations given related to entrepreneurship.

Blanchflower and Oswald, "What Makes An Entreprenuer?", 1998.

Linked to from this sentence in the article: "But what often gets lost in these conversations is that the most common shared trait among entrepreneurs is [access to financial] capital—family money, an inheritance, or a pedigree and connections that allow for access to financial stability. "

 Four conclusions from this study:

1. "consistent with the existence of borrowing constraints on potential entrepreneurs, we find that the probability of self-employment depends markedly upon whether the individual ever received an inheritance or gift"
2. "when directly questioned in interview surveys, potential entrepreneurs say that raising capital is their principal problem"
3. "consistent with our theoretical framework's predictions, the self-employed have higher levels of job and life satisfaction than employees"
4. "childhood personality measurements and psychological test scores are of almost no help in predicting who runs their own business later in life. It is access to start-up capital that matters."

Let's dive in here though. Firstly, the study uses the National Child Development Study (NCDS): "a longitudinal birth cohort study that takes as its subjects all those living in Great Britain who were born between the 3rd and the 9th March, 1958". Before I say anything else about this study, might it be that there are differences between the UK and the US? Those inheritances might have had a larger impact in that society at that time than they might in the US now? That there might be large differences in these facts for between people born in 1958 and 1988?

Putting all that aside, although people who received an inheritance of over GBP5000, the cut-off in their analysis, are twice as likely to be self-employed, most self employed people did not receive a big inheritance. In fact, there are more self employed people who received absolutely no inheritance (1,142) than there are people who received over GBP5000 (692) altogether! [2] If you took a random entrepreneur from the data and asked the question in reverse than Blanchflower and Oswald [1998] does -- how likely are you to have received an inheritance -- the data shows the opposite of the Quartz article's claim.

So, the study cited does not support the sentence that links to it.

Ernst & Young, "Nature or nurture? Decoding the DNA of the entrepreneur"

Linked to from this sentence in the article: "While it seems that entrepreneurs tend to have an admirable penchant for risk, [it’s usually that access to money] which allows them to take risks."

To quote the study, "In the struggle to build momentum and grow their businesses, survey respondents and interviewees agree that founders face three main challenges: funding, people and know-how. And of those three, the biggest obstacle is funding." No doubt that it's true, raising money is difficult. But the citation says nothing about the article's central claim that entrepreneur come from money or have easy access to it. You might well conclude the opposite: so many entrepreneurs note that funding is their biggest obstacle so they must not have access to huge pools of family money or easy cash from connections.

Xu and Ruef, "The myth of the risk-tolerant entrepreneur", 2004.

Linked to from this sentence in the article: "While it seems that entrepreneurs tend to have an admirable penchant for risk, it’s usually that access to money which [allows them to take risks.]"

This is a particular egregious citation. It suggests, on my initial reading, that the linked to article would show that access to money allows entrepreneurs to take risks. The study has nothing to do with that claim! It doesn't relate to the argument one bit. The goal of this article is to "investigate whether entrepreneurs can be assumed to be more risk-tolerant than the general population". Their conclusion: Entrepreneurs are not more risk-tolerant. They found business organization for "non-pecuniary" reasons, like being their own boss. They are in fact more risk-averse because they're trying to peruse profits quickly so they can "lower the risk of business closure" and stay as their own boss. Xu and Ruef [2004] doesn't talk about the backgrounds of entrepreneurs at all, family or otherwise.

Levine and Rubinstein, "Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?", 2013.

Paragraph from the article: "University of California, Berkeley economists Ross Levine and Rona Rubenstein analyzed the shared traits of entrepreneurs in a 2013 paper, and found that most were white, male, and highly educated. “If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit,” Levine tells Quartz.

This study is the one that’s closest to supporting the central claim of the Quartz piece, but, again, the categorical nature of the claims is not supported in the empirics — or in Professor Levine's comments. On family background: mothers' education tends to be one year longer (12.6 vs. 11.7 years) for the incorporated self-employed (Levine and Rubinstein's proxy for entrepreneurship[3]), stable two-parent families are true for 83% of entrepreneurs vs. 76% in the general population, and average income for the family is 13k higher, which is a lot (70k vs. 57k). They also do tend to be whiter (83% vs. 70% of the population in the study), more male (72% vs. 52% of the population of the study), more educated by a half year (14.2 years vs. 13.8 in the general population), and slightly more college educated (36% vs. 30% in the general population). The study has some really interesting logit estimates on the probabilities of all of these things, but I'm not going to go in to all that.

I agree that the research here shows that most entrepreneurs are white, male, and highly educated (for some definition of that). But part of the point of all this is to say that statistical significance is not a proxy for actual significance. Saying in an academic paper that the backgrounds of entrepreneurs have more privilege than average, with the numbers plainly available to see, is one matter. Writing a sensational gotcha article that claims that "entrepreneurs ... come from families with money" feels like another.

This isn't even the big take-way from the article though: the big takeaway is that even when you control for whiteness, and richness, and maleness, it still takes something else to be an entrepreneur. We live in a racist, sexist, classist society, I don't think anyone doubts that, but the takeaway from this study — which is almost exactly what the Quartz article is trying to dismiss, is that:

as teenagers, the incorporated tend to have higher learning aptitude and self-esteem scores. But, apparently it takes more to be a successful entrepreneur than having these strong labor market skills: the incorporated self-employed also tend to engage in more illicit activities as youths than other people who succeed as salaried workers. It is a particular mixture of traits that seems to matter for both becoming an entrepreneur and succeeding as an entrepreneur. It is the high-ability person who tends to “break-the-rules” as a youth who is especially likely to become a successful entrepreneur.

Conclusion

There are also some big problems with the datasets looked at, which tend to be longitudinal in nature: they leave out the thriving entrepreneurial spirit in, for example, immigrant communities. To be in the two studies cited above which have serious data, you had to be born in the UK or live in the US at a young age, respectively. That data just does not account for a lot of the entrepreneurship I see. 

Sometime next week, I hope, I'm going to come back to this train of thought and articulate policy ideas around encouraging more entrepreneurship given the observations in these studies. 

Footnotes

[1] "Privilege" can end up an endless enumeration, but let me mention a few others: my vaguely being a Christian is I think not irrelevant, along with my being American (I felt fairly comfortable where I grew up and in all communities I have been part of, well, except Brown to start, but that's a different story); my being cisgender has helped me fit in with men in positions of power; my father valued education which is a privilege, etc. 

[2] This is basic Bayes Theorem reasoning. The conical example is usually given in terms of a medical test. Let's say you have a test that is 99% accurate but a disease that exists in 1% of the population. You use this test on a million people. 10,000 of them actually have the disease of which 9,900 are correctly identified as having the disease and 100 are not. 990,000 people do not have the disease, of which 9,900 are falsely identified as having the disease and 980,100 are correctly identified as not having the disease. So, if I get a negative result from the test, I can be pretty sure I don't have the disease (only 100/980,200 false negatives). But, if I have a positive result, there is only a 50/50 shot I actually do have the disease (9,900/19800)!

[3] This is an imperfect proxy, obviously. 

We're proud to say that Silicon Valley Bank (SVB) has acquired the assets and team of Standard Treasury. More information can be found in the press release. 

Dan and I started Standard Treasury a little more than two years ago because we saw that APIs would become the dominant way that commercial clients connect with their financial institutions. Since then we have had the honor to collaborate with leading bank's in the US and Europe in their goal of creating open APIs for their customers. We have also worked with hundreds of start-ups around the world to understand how they consume banking services and how doing so over secure RESTful APIs would dramatically improve their business processes.

Last year we decided that the best way to bring the Standard Treasury vision to fruition was to build our own bank. That's a big dream. Earlier this year, primarily because of concerns around regulatory and geographic risks, we were unable to raise a Series A funding round against that goal. With that door closed, we decided the next best thing was to closely align ourselves with one bank, in order to build a richer, more full featured, set of API based services for customers. The more we learned about SVB, the more we believe this partnership will be a faster, better, way to create the impact that we sought to create. 

We've been working with SVB since almost the very beginning of Standard Treasury. Bruce Wallace, Megan Minich, Seth Polansky, and numerous others at the bank have been some of our strongest advocates. When Bruce approached us about being acquired earlier this year, we knew that SVB would be an ideal partner. SVB is the bank of the innovation economy and we couldn't be happier to join them in making their vision of a global digital bank for the world's most innovative companies a reality.

We are proud of the great technology we have built and the positive feedback we got in private user sessions: APIs for payments and account information, a developer dashboard, a range of SDKs, and AML and transactional fraud detection tools for the volumes that we expected our API to handle. We are looking forward to transforming these products for the SVB context and launching some versions of them. We want to thank our past and present team — Brent Goldman, Keith Ballinger, Mike Clarke, Jim Brusstar, Erin Odenweller, Chris Dean, and W. David Jarvis. They were the true creators of our products. 

The past two years have been quite the ride and we are so grateful for the many people that support our efforts: Y Combinator, Index, RRE, Columbia Nova, Susa, Promus, and all the angels believed in Dan and I when we were only a powerpoint deck. The FinTech Innovation Lab, and specifically Maria Gotsch, gave us an incredible platform for sharing our vision with the world.

We're looking forward to continuing to push forward the future of financial services and will have lots to share (and show) in the coming months. 

Dan and I wrote this post collaboratively.

We have some news upcoming about Standard Treasury. But before that...

Almost every week, I get thank you notes for publishing our YC application. It is one of my most viewed blog posts ever. Those notes remind me over the large, supportive community of entrepreneurs. It's been one of the more heartwarming lessons about running an early stage company: there is a supportive conspiracy between all founders against the world (and, well, investors in particular).

That support — of lessons learned, or how to improve your pitch, or tidbits on investor's quirks, or how to manage psychology, or how to fail — is often private but is sometimes public. Whether its about a second seed round, laying off a large part of the team, or selling your company, many founders are quite generous about passing their learnings forward, good or bad.

One thing I found very useful while fundraising was to look at published fundraising decks, both successful and unsuccessful (Mixpanel, Dwolla, and LinkedIn come to mind on the successful side). Since almost all of the "ideas" from our deck have published elsewhere, either on our website or in the Standard Treasury as Bank post, we decided to publish our Series A deck. It's imperfect (slide 7 is inaccurate, we got asked a thousand times to explain slide 14 (it's in '000s), the appendixes tend to be too long, we did not focus enough on the already built product), but Dan and I think it might be instructive for others.

In time, we'll be able to talk more about this process and the things that did and didn't work. Lots of lessons learned. To start though, here is the deck. 

I have posted on my blog exactly twenty times since September 2013 when Dan and I and Standard Treasury got out of Y Combinator and raised our seed round. Some of the posts have been quite business related while others have been deeply personal. 

All in all, I've had a couple hundred thousand uniques on the blog (my most popular post is about weight loss). Recently I got concerned about Svbtle, the blogging platform I was using. Svbtle is the brainchild of Dustin Curtis, and it's pretty well-designed. But it seems like a side project, and I just don't know much about its long-term viability. 

So, I have decided to switch over to Posthaven. 

My reasons: 

(1) Permanence. I believe that Posthaven, my content, and my links will be here a long time. The pledge says forever, but a decade or two would be nice.  

(2) Inexpensive. Five dollars a month is pretty damn cheap. I am also actually more comfortable paying for something than not: I know they're covering their costs.

(3) Trust. I know Garry personally through my time in YC. I trust that the pledge is real and he always try to do the right thing by us users. 

What I lose:

(1) Time. Posthaven doesn't seem to take markdown, so I had to convert all my markdown to HTML. There are some other basic administrative annoyances. 

(2) Kudos. On Svbtle, if someone enjoyed your post they could give you "Kudos". On Posthaven they can "Upvote". For good reason, I can't set the number of upvotes myself, so that's all gone. 

Over the summer, I wrote two articles on mental health and startup founders. One was on how the mental health problems of the founders I know often extend beyond depression and another was about how many founders I know have trauma and mental health issues.

These posts seem to have hit a nerve with a lot of folks, as every week I get a few emails from folks discussing their own struggles with mental illness as founders and asking me to share my story (as promised in both posts). Mental health issues are incredibly common but not talked about enough. They are prevalent almost everywhere and perhaps even more so in Silicon Valley. I hope by sharing my story people might be able to relate to the problem more, share their own stories, or even seek help if they need it.

Taking so Long to Write: Embarrassment and the Too Simple Story

I've really struggled with my write up for two primary reasons.

First, I find my story embarrassing. Not because mental health challenges are embarrassing, but because the critical event that finally forced me to seek help was a prolonged series of stupid mistakes. To mix the illness and the errors together too casually does a disservice to both. I am not sorry for being sick; I am ashamed of my actions. It's the same story, though, and I will trust the reader to have generous intentions.

Secondly, my story ends up tidy. Too linear. Fall, recovery, redemption. It’s true, but it also feels trite to me. I was depressed for a long time. That was terrible. I sought attention by doing something public and stupid. I got caught, I took time off from college, and I went to therapy four times a week for nine months. I had the luxury to address my depression.[1] I made the choice to not take a psychiatric medication, which isn’t an option for many people. I haven't been depressed since. Afterwards I lucked out professionally. So in short, things worked out for me pretty well.

But I have many friends and family members who haven't been so lucky: some have spent years on what clearly in retrospect was the wrong medications or with the wrong diagnosis, some have had terrible times with therapists, some have been hospitalized, some have had their lives put on hold for years, some struggle so profoundly right now that they think their VCs, their employees, or their families would abandon them if any knew their challenges.

Reminder

A month or so ago, a few people sent me a copy of an interview with William Deresiewicz in the Atlantic called The Ivy League, Mental Illness, and the Meaning of Life. The essay touched a number of nerves for me. I was just such a student that he points to: the elite school, the sense of grandiosity, the deep depression, the fear of failure, the strong desire to do more than I was capable of doing, not asking why I was doing things (good and bad), and a very superficial understanding of myself.

That all changed when I took those nine months off from Brown in 2007. I went to therapy four days a week for nine months. I read the entire Contemporary Civilization and Literature Humanities course requirements of the Columbia Great Books curriculum. I built a language of reflection. I asked myself why I was motivated to do the things I did. I changes the trajectory of my mental health and my life.

Crisis

But to get to that utopian outcome, I made an incredibly stupid and embarrassing set of mistakes. I had been a columnist in the Brown Daily Herald, and, over a number of columns and a number of years, I plagiarized. I also plagiarized in a letter to the New York Times.

This ended up being a very important moment in my life. I had been depressed for several years before then. My therapists later described my condition as "long-lasting, complex, deep and persistent."

It's easy to say that my depression had it's root in a complicated relationship with my mother when I was young, or in being raised by my dad from ages ten to eighteen. As I wrote elsewhere:

In my case, my parents had me when they were incredibly young and promptly got divorced. I lived with my mother, an alcoholic, until I was ten. At that point, we had gotten in so many drinking-related car accidents together, that my stepfather was asking for a divorce and child welfare agencies demanded I move to live with my father. I didn’t see my mother again for eight years.

It can also be too easy to cast simple stories for complex realities. It can be easy to blame someone or something. It's not particularly useful, though -- it can often just be a shorthand to describe things to other people. There was some interaction of my childhood and everything else I'm sure of: not feeling completely at home at Brown, coming from such a humble background[2], not being comfortable with my weight[3], being popular in high school, but never being sure why that was, moving four times as a child and feeling like an outsider frequently, etc., etc.

I had what therapists call dysthymia. It's a mild but long-lasting form of depression. It was not so severe that I could not go to school or have outward success. In fact, I had too much of the outside world, I was successful. However, under it all were symptoms of fatigue, despair, trouble concentrating, overeating, and a sense of worthlessness. I did not know where to turn and my friends did not know how to help. I could not identify my problem and had no idea how to treat it.

Depression can be simplified too far. Often, when people are talking or thinking about depression they oscillate between two characterizations: one being severe depression and the other being the blues, a mild today-is-not-a-good-day mood. However, what I suffered was in between those ends. As my therapist put it once, it was a "low-grade, smoldering bad depression". I cannot recall, late in my high school years or during my college years, a time when I was happy -— at least in the ways others describe happiness.

Plagiarism came from a hope to get the help (I knew deep down) I needed. This is not to excuse my actions -- I think they're inexcusable -- but merely to explain them: In my own head, I needed to find a way to get someone to notice that I was unwell and unhappy, not moving through life as fine as I seemed. Many might turn to alcohol or drugs, but my outlet was as subtle as my condition. It was as self-destructive, too.

When talking to a boss about this, years later, she noted that "plagiarism just comes from laziness, and you would have to do a lot to convince me otherwise." In all but one case I was not lazy though, I wrote almost every sentence with my own ideas but then, hoping that I would get caught, I would add a sentence or two verbatim from an outside source. In retrospect, it does not make any sense. I sought attention, not for glory, but in the hope that someone would say to me that I had a problem, and would help me.

I did get caught. I did get help. I did get exactly what I wanted: for my world to fall apart and for me to build a new one, built on a better foundation.

Reflection

Analysis was a life-changing experience for me.

I began by finding a therapist that I jived with well. Not an easy task anywhere, made harder by living over an hour from the nearest city. Finding her, we agreed upon a commitment of four days a week.

So began the most difficult time of my life: a slow exploration of who I was, what I had done, and a difficult childhood. Every day, I traveled an hour and half, each way, to go through talk therapy. The drives themselves became part of the therapy. Beforehand, I would think about what I wanted to talk about that day. While on the drive back I would reflect on, or "consolidate", what I had talked about.

We named the problem. I remember the moment I said to myself, "I am depressed and it is treatable." Comfortable with this prognosis, I made the personal choice to avoid medication. Although nothing came easily or simply, we talked through the various destructive behaviors in my life.

There is no easy way to explain my analysis. It was slow: somehow both methodical and chaotic. Sometimes nothing much would happen in a session, sometimes a lot of progress would be made and I was upset the hour was over. It's exhausting. It's hard work. It can be yelling or crying. Sometimes my therapist seemed like my best friend, sometimes incredibly distant. Neither is factual but both were true for me.

A lot of work in therapy is, in a way, getting to know yourself. It was learning about my past, sometimes remembering things long forgotten. Acquiring a sense of why I do the things I do, where they came from. Sometimes all of this is simply labeled cognitions or "the mental action or process of acquiring knowledge and understanding through thought, experience, and the senses." Mental action is a nice way of putting it while in practical reality it can be a pretty brutal process to figure things out.

And that goes on. Four days a week, every week for months. There were rarely big revelations. One day doesn't seem much better or worse than the last, but one month to the next often seem better. Slowly, steadily, I was feeling better. I was more emotionally and physically active. I was growing to know myself better.

It was also a moment where I had a uniquely large amount of time on my hands and could read all those books. At the time I thought I was just using my spare time wisely, but, in retrospect, reading those books was part of my therapy. The Iliad is about wounded pride and hubris. Hard to read the Confessions without thinking of one's own sinful youth, as it were.

Where I Am At Today

It's been almost seven years now and I can't underestimate how helpful it is to seek help and address one's issues, no matter how hard that might be. Today it can almost be hard to relate to who I was before the analysis. All in all, I appreciate how far I have come, how differently I feel, and how happy I am that I went through the process, especially at that fairly young age.

I would not say I know myself fully, but through analysis I gained a much better idea of how I feel and why I feel the way I feel. My friends who knew me, before and after, noticed that I became a little more quiet, a little more thoughtful, a lot happier, and much surer of myself, not in arguments or intellectually, but in a deeper, who I am, sense.

Mental Health Beyond Myself

Stigma around mental illness, which is pervasive through academic and success-driven communities, is difficult to overcome. Sometimes, I feel like I should be a mini spokesman around mental illness. One in four students in college is clinically depressed at some point in their college career. I was one of them. I wouldn't be surprised if the numbers are similar among startup founders, and even though I haven't been depressed in over six years, I sort of wish I could do more to support those folks. To help them seek treatment without a crisis like the one I manufactured for myself.

People need to be more candid about mental illness. They need to be more forward. They need to be less embarrassed -- it isn't something to be embarrassed about.

More people need to have more understanding and acceptance. To do that, people need to speak up. The treatment around mental illness in this country could use a lot of help, which is difficult when it's so hard to talk about it publicly.

And on, and on, and on. My depression's public manifestation is the worst thing I've ever done in my life. It makes me feel like I am the wrong person to push these issues much farther. But maybe it gives me the ability to be more public about my mental health. Maybe I can work to address these problems by creating a discourse and finding ways to help.

Side Note: Consequences

I am not going to plagiarize again. It's a stupid, now unnecessary thing to do, and I obviously write so much now that these essays are unmanageably long. But I wouldn't take back the plagiarism, per se. It was a necessary precondition to get the help I needed.

It was a very important, if overly public, period of my life. It's the fourth or fifth link on a Google Search for my name, so it definitely comes up.

Obviously, I've since gotten in to Y Combinator, convinced people to work with me on building Standard Treasury, and gotten normal jobs/internships at Stripe, the City of Newark[4], Bennett Midland, and the US Department of State[5] as well as fellowships at Harvard and NYU. In all of these situations, I've had to discuss this history in a lot of detail with my employers.

On the other hand, there are some jobs I have been seriously considered for that I haven't gotten -- particularly government appointments, both for the Federal Government and the City of New York -- because, well, I did do something very stupid and very public in college. Although most people's reaction seems to be that we all do stupid things in college, most avoid doing them so publicly.

I do hope to, one day, hold another position of public trust beyond being Mayor Booker's Senior Technology Policy Advisor, but that might be a hard thing to do.

Footnotes

[1] I moved to live with my father, who was incredibly supportive. He had moved to teach in Kansas and had an extra bedroom. My maternal grandmother gave me some money for food, etc., and my therapist saw me for nearly free during her lunch hour. I was also 22 and had no real responsibilities to anyone really.

[2] Things got complicated here. When I was growing up, my Dad was a postal clerk and my mother a waitress/chef. When I was fourteen, Dad went back to get a BA at Rutgers and then stayed on there for an MA and PhD. This leads to two simultaneous complications: (1) My Dad and I intellectually matured at the same time and (2) My Dad made...whatever PhD students make...until months before I took time off to go to therapy. I grew up in a small, working class town in New Jersey and without very much money: Brown was a culture shock for me in some ways.

[3] See Losing 58.3 Lbs for Science

[4] Part of my job in Newark was to break some eggs, so, one of my adversaries leaked my appointment and plagiarism to the New Jersey press. Some folks chatted with Mayor Booker's Chief of Staff and Chief Policy Advisor, and everyone decided it was a non-story.

[5] I applied for my internship at the Department of State before leaving Brown in 2007. They let me know in May 2008 that they'd like to do my security clearance. I passed the clearance and showed up for an internship, after deciding with my therapist that I was ready. On the third or fourth day, I told my bosses at the Office to Monitor and Combat Trafficking in Persons. Quite conveniently, they were all Christians and Bush-appointees, and they definitely responded to the story as one of redemption. Ultimately, they thought hard about firing me, but felt that if I had worked so hard to put my personal life in order then they would help me put my professional life in order. That, they did: it definitely mattered to the first person who hired me after college that I had that internship after the plagiarism.

This morning was my final data collection for a randomized diet experiment I have been participating in for the last year. Here is a graph of my near-daily weigh-ins on Withings:  

(This started as an email to the Standard Treasury team to summarize the many conversations that my cofounder Dan and I had with them over lunch, dinner, coding, and a ton of product discussions. The team thought it made sense to share it publicly.)

I often get asked to tell the story of Standard Treasury: Why are we building it? What is our vision? How did we come to this thing over all others?

When asked questions like that one, I think it can be easy to fall into simple narratives or platitudes: we are revolutionizing banking, and have been, since day one! I'm not exactly sure what that sentence means, and nothing worth doing actually comes in a flash of genius. Certainly not by folks like us, who have always gotten on in the world through persistence first, and smarts a distant second.

The bigger problem is that I never have the time to tell the folks who ask the questions all that is on my mind, so I ended up telling them bits and pieces. This [blog post] is designed to tell much of the story although I still haven't captured it all by any means.

The Underbanked and Engineering Financial Operations

For me, the genesis of Standard Treasury was based in the two experiences I had in the year before founding the company.

The first was when I was working in public policy and civic technology in New York City and Newark. Particularly when I was working for Cory Booker and staff in Newark, I became curious about underbanked people — or the problem of financial empowerment as it is sometimes called. I talked to a ton of people about their use of payday lenders and check cashers. What I found was surprising to me (in my ignorance): most underbanked people or small business owners are familiar with banking products, their use, and their relative value over the options they were using.

So, why didn't they use banks? The answers fell into one of two buckets. The first is that they wanted lending products they couldn't get, since the banks considered them too much of a risk. The second was that banks just wouldn't offer them other products even if they had nothing to do with lending. I found this second answer rather perplexing, so, I went to talk to a bunch of banks. What they told me was simple: it cost money to maintain bank accounts — serious money — and if you weren't going to cross-sell customers something, it didn't make sense to bank them.

That surprised me. The more research I did with banks, the more I realized that it was their legacy technology that led to their cost structures. Cost structures that prohibit them from banking some people. In essence, there are folks that banks don't market to and avoid banking because the banks' business models makes those people unprofitable customers.

The second experience was when I was working at Stripe. I won't go into a huge amount of detail here — I try to be careful about my nondisclosure requirements. Having said that, financial operations is a serious engineering challenge at Stripe (see CTO Greg Brockman's Quora answer and the section on financial operations). While working there, I got to see, firsthand, how difficult it was to operate in systems, protocols, and technologies that were designed and built in the 1970s.

Starting Standard Treasury: Commercial Banking API

Standard Treasury started because we experienced the difficulty of working with banks firsthand. Way before the company started, Dan and I had been thinking about why ACH is flat-file driven, slow, and seemingly from a different technological age. Having worked on issues of the underbanked, I realized the real-world impacts of legacy technologies, and working at Stripe highlighted how much of the credit card system was driven by similar technology. The same ideas were highlighted for Dan when he was working on pre-paid cards and stored value.

Standard Treasury was born.

We were focused on the problems we knew firsthand, and used the cases we understood best from our friends. In the early days, we talked to nearly one hundred folks about their banking experience. Some were running small companies, others were the treasurers of Fortune 500 companies. They all said roughly the same thing: "The technological interfaces around my commercial banking experience are terrible and limit my capabilities." Many mentioned Twilio, Stripe, AWS, and Heroku as models of what they wish their banks would be: technology platforms providing services.

From that, we started working on a white labeled commercial banking API platform. This first product was clear to us: companies, big and small, want to build financial functions — primarily on information about their accounts and cash payments — directly into their applications. In the coming months, we will finally be able to see the result of all that work as more than our Make Believe Mutual demo site: after a series of proofs-of-concept we have the option to launch our first, full production platform.

Developers, with a bank account at the bank in question, will be able to go to developers.[bankname].com and use an API platform, developer portal, and SDKs in half a dozen languages to interact with their bank accounts programmatically. Hopefully, a number of our other proofs-of-concept projects will convert into full production platforms with some of the biggest banks in the country and around the world.

Taking Steps Beyond V1.0 of the Commercial Banking API

From there, some product expansions in commercial banking will be inevitable: more information reporting, more cash payments, liquidity management via API, and other banking functions like foreign exchange and lending against receivables (factoring).

The most exciting thing that we've built, however, is an OAuth service that allows commercial customers — some of whom will have no idea what an API is — to use the bank's authorization service to delegate access to the API to third-party developers. With that service, developers will be able to build apps that access their financial information and cash payments, just like Facebook Connect allows granular, secure access to the social network. We hope that folks like Xero and Intuit will build apps, but we are starting to get to the real goal here: allowing developers to think of banks as platforms.

Broadening the Vision

In investor meetings and in candidate pitches when we got into YC, we made the idea of Standard Treasury bigger by abstractly focusing on the idea of bank software being broken. We did not really know what that meant. It was a hard-to-unpack intuition from the state of online banking, rather than something we really understood in particular. Something was wrong. We would find it, and we would fix it.

Over the last year, though, we have learned a great deal about the particulars. We have picked the brains of bankers; fund managers; treasurers of big corporations; startup founders working on finance; startup founders trying to avoid finance who, nevertheless, touch it more than they'd like; executives at our competitors; academics; journalists; experts and leaders from card networks and credit card processors; folks concerned about financial access like the Gates Foundation, Cities for Financial Empowerment, and Omidyar Network; and many more. I read the Financial Times and books on obscure parts of the financial system every day. Dan and I also went through Silicon Valley Bank's and MasterCard's joint product accelerator, Commerce.Innovated, and the NYC FinTech Innovation Lab where banks choose the companies in the program which they are going to mentor. The banks that chose to mentor us were Goldman Sachs, Credit Suisse, Morgan Stanley, and Deutsche Bank, who have been very helpful in highlighting areas of expansion for us.

In that deluge, several things became clear. First, we learned that bank software is a very big market. Even bigger than the number I made up with some back-of-the-envelope math for my YC Demo Day pitch!

Second, we learned that the market is dominated by large public companies that no one in Silicon Valley is aware of, much less really competing against. Banks, almost universally, have bad things to say about the technology and the pricing schemes of these vendors.

Third, we learned that API Banking is much more than a cool feature for banks to have for corporate clients: anywhere that customers interact with their banks is a place that a bank might imagine a well-built API. Banks have approached us about building white-labeled API platforms for lending, sales and trading execution, broker/dealer settlement and exception handling, prime brokerage, card processing (acquisition and issuing), custody accounts, fund administration, retail banking, private wealth banking, repo and other money markets, trade finance, know your customer and anti-money laundering procedures, risk management, and more. (What keeps me up at night is the possibility that we're passing up opportunities by not scaling much bigger, much faster.)

Fourth, we learned that as we build interfaces for external customers to access legacy systems, banks are facing internal and external pressures (e.g. stress test requirements) to build cross-functional interfaces for their own use. Some of the biggest pain points that banks face is talking to their own internal systems.

Fifth, we learned of this platform's potential impact on the world. Every week Dan and I get referred to folks who are starting financial technology companies or not-for-profits. None of them want to be in our business, but nearly every one of them would be able to make their work easier, faster, and better if banks used our products. Despite all that is happening in fintech, there is a lot of pent-up developer and technological potential — potential that would actually help banks, which their unwieldy technology keeps them from enabling.

Banking Today and Tomorrow

There are two types of common innovations happening around financial services: tools that provide some gateway into the financial system, but abstract it away (like Stripe, WePay, Plaid, Spout, WealthFront) and shadow-banking alternatives to a common financial product (Lending Club, OnDeck, Upstart, LendUp, ZestFinance).

We are doing something different: we are working to build the next generation financial infrastructure by building products, interfaces, and developer tools directly.

No matter what changes will happen in the next 10-20 years in finance, we believe that: (1) Banks are here to stay. Banks will exist in the future. The center of the financial system will include banks. (2) Banks need 21st-century technology. (3) Standard Treasury is uniquely positioned as a Silicon Valley startup focused on banking infrastructure to sell to that need.

Enabling the Next Generation of Commerce

So why does all this matter? Well, partially, it matters because I already have friends who are building mobile apps for underbanked folks that are built directly on abstractions that we're helping them with. That really matters to me; it's a huge part of what originally got me into this business. But beyond that, at a more abstract level, we care about building the financial infrastructure because banks are at the center of commerce.

Sometimes, it is easy to think that banks are an end unto themselves and all they do is extract wealth through speculation or innovative wizardry to screw their clients. They do far more than that, too.

Financial and payments systems — including the money markets, foreign exchange, credit cards, ACH, CHIPS, FedWire, debt markets — are all designed to facilitate trade. However, trade is hampered because, although we've entered the Internet age, the technology at and between banks is often in the Sputnik age.

Standard Treasury aims to improve the ways that companies and households do their financial business. We hope to enable developers of all types to build the next generation of tooling on top of banks. We want to improve the ways that clients interact with financial institutions; financial markets; financial market utilities; and payment, clearing, and settlement systems. We build systems to increase global trade, global commerce, and maybe global GDP.

That is an audacious goal and comes with a core thesis: if we improve interfaces inside banks, between banks, between banks and customers, between banks and (technologically sophisticated) resellers of financial services, and between banks and other counterparts, then we can change the very nature of trade and commerce. We can reduce friction. We can lower transaction costs: both the literal costs of transactions and just the pain that exists in the financial system. Ideas that were impossible become possible. Businesses that didn't make economic sense suddenly do. People that were unbanked before suddenly become bankable customers for someone.

Our goal is to make it easier to run businesses — online or off — in the United States or around the world. And as we serve as a data, abstraction, and tooling layer between different banking systems and between different parties that are doing banking, we become a permanent feature of the banking system. That last part is good for us and our investors, sure, but I hope it's also good for the world.

What's next

Through Dan's prodigious marketing and sales efforts, we have come to own a lot of "mindshare" around API banking. That ownership allows us to dream what I've written above: to build the coming generation of financial infrastructure.

We have also done something that is nearly impossible: we are a seven-person company that is being paid by a bank for a product that is loved by nearly everyone we've shown it to. Tons of feedback, yes. Tons of feature requests, yes. But our potential users, nearly universally, loved its execution and, perhaps, more importantly, its potential.

Thank you, all of you, for helping to take this crazy idea and make it a reality.

A conversation seems to be slowly starting about mental health and Silicon Valley, or at least mental health and starting one's own company. And in a more serious fashion than "you'd be crazy to do it". Sam Altman on Founder depression started the conversations. TechCrunch continued by noting that We Need to Talk about Depression (which also has a good list of links to other similar articles) and Founders on Depression.

In my earlier post, Founders and mental health I wrote primarily about the range of mental health issues that founders can face. We should remember that depression isn't the only manifestation of mental health challenges.

Many people emailed me, talked to me in person, and even wrote a Quora question on one particular thought from that post though: that lots of startup founders I know have experienced some trauma in their past and that that trauma is often a strong factor in their motivation. Sometimes that trauma is a root cause of depression or anxiety or motivation, sometimes it is just present and something to deal with, and obviously sometimes it doesn't exist at all.

I thought I would explain the idea a little more though.

Over the last year I have found that most startup founders had some deep personal trauma in their early lives. Not all people but more than I might expect. Glen Moriarty, the founder of 7 Cups of Tea, and I have discussed it at length but it has also come up with many folks both inside and outside the YC community. It's a topic that someone resonated as something to talk about when you're stressed out and bonding late after one of YC's Tuesday dinners.

The trauma theory made immediate sense to me as I have made a similar observation about many, if not most, of my friends and classmates at Brown. Either they had screwed up childhoods and were motivated by that somehow, or that had intensely attentive parents and were trying to live up to expectations. Either way, I did not find many settled content geniuses who found their way there.

There is a fundamental difference between schools and startups though: in one you know the goalposts and in the other you don't. At school, you are told what targets to hit for success while startups are much more chaotic and kinetic. To me, the idea that some deep, often traumatic, motivation is a powerful catalyst for success, made all the more sense in the world of startups. You have to really want it for whatever reason.

And that reason is often something from one's childhood.

Perhaps I shouldn't use such a broad brush to paint so many people with so common a set of neuroses. It's certainly not the case that everyone that succeeds in life has trauma. (And not all trauma leads to success obviously). But I wouldn't doubt the predictive power of the idea either. As I talked with new friends in YC, throughout Silicon Valley, and beyond about deeply personal topics the theory seemed more accurate. Or at least I had more data supporting the idea. (Although this could all be a selection bias).

In my case, my parents had me when they were incredibly young and promptly got divorced. I lived with my mother, an alcoholic, until I was ten. At that point, we had gotten in so many drinking related car accidents together, that my step-father was asking for a divorce and child welfare agencies demanded I move to live with my father. I didn't see my mother again for eight years.

You know, perhaps if my startup succeeds my mother-of-1997 will treat my ten year old self better? I'm partially joking and partially not.

Dan, my-cofounder, his father died when he was one. His mother was in a coma for some time and had to learn how to talk and walk again. Hopefully his father will be proud of his first billion dollar company.

Time and time again, there are similar stories that come out from co-founders I meet, mostly because I can be candid about my background and this theory. Some with less intensity perhaps but no less motivating to the individual. Some with a lot more intensity but with less motivation. I don’t necessarily feel empowered to share their specific stories here but they're often there, serious, and touching. The speed and positivity with which folks, many profoundly publicly successful, respond to this idea further suggests that it hits on some truth about the startup community.

Ultimately, I spent years of my college life in a path of depression, crisis, and then renewal that have made me stable, happy, and sure of who I am. In many ways I am fortunate that that happened so early in life and not when the consequences of my errors affected many people beyond myself. But at other times I wonder if I lost a little something. Something that people who haven't faced down their demons still have. After all, I was amazingly productive and won many collegiate awards in 2007, all the while self-destructing.

This is correct in the sense that what I do now is no longer compulsive (i.e, unconscious). I was succeeding out of an unconscious drive or push. Now that I have awareness, I can see that I still have this same drive and push, but I can choose where to focus it. It isn't compulsive now.

A number of friends and many people who emailed me after the last post asked me about my experiences through depression and therapy. That write up will be my next post.

Last week Sam Altman wrote about Founder Depression. Catherine Shu followed on, among others, with a candid telling on TechCrunch of her struggles with depression. I applaud them both.

Many startup founders I know aren't depressed though. They are anxious.They are on the spectrum of anxiety disorders. Real existential concern about whether they'll make it. Whether they're doing the right thing. Whether they'll raise money. Actually that last one isn't anxiety: strictly speaking anxiety is generalized and unfocused fear. A lot of people who are running startups fit that bill though, they have terrible unspecified fear (of failure). You can get pretty far down the anxiety spectrum and just seem like a founder who cares. That is dangerous.

Highlighting depression is useful but also limiting. It can demarcate people who have had certain problems without highlighting others. I believe our community — Silicon Valley, Y Combinator, startup founders, or all ultra-high-functioning professionals — should be having a conversation about mental health more generally, about the sources (sometimes quite dark) of our motivations, about pathologies, about depression, about anxiety, and about other problems. Or, at least, be more comfortable having those conversations privately.

I know founders who are on the depressive spectrum too, which can range from the blues to deep clinical depression. I have a history of depression myself. I have not had a serious depressive episode since I took a year off from college and invested in intensive therapy, but most people don't have that luxury — or they are not comfortable taking that much time given how taboo mental health can be. I remember when I was in the depths of my depression spending eighteen hours in bed with a dreadful sense of melancholy. That's a serious case — I couldn't have run a startup when I was depressed — but depression hits people in different degrees. Someone who seems fine often isn't.

Depression and anxiety are just two examples of the challenging mental health that startup founders can have. Anxiety and depression are often described as opposites, which is too simple a story, and they need not be opposites in our mind. Either can be dangerous and destructive. We need to talk about both. The names of anxiety and depression can sometimes just obfuscate things more: We need to talk about much more too. I know a few (medicated or not) bi-polar founders. I know a few diagnosed with OCD.

No matter the diagnosis or the name, founders can feel isolated by their mental state. They can feel alone, which can make them more depressed, more anxious, more obsessed or whatever. But whatever your particular problem is, I promise you, other people have it. People in the community have gone through it. Many people have gone through it, in fact.

Over the last year I have also found that many startup founders had some deep personal trauma in their early lives. Glen Moriarty, the founder of 7 Cups of Tea, and I have discussed this idea at length and it has come up with many folks both inside and outside the YC community: startup founders insatiable motivation often comes from trauma.

We are all unique but most of our problems are not. Startup founders are so often a community that helps one another with introductions or advice. I hope that in time we can all be as comfortable talking about our mental health. That we could be as comfortable giving advice about our depression or our anxiety as we are about fund raising.

I might write a lot more about this soon. I don't know. Some of my friends, colleagues, and investors have cautioned me against being too public about my own history and my own traumas, but any founder should feel they can contact me, if no one else, whether they're depressed or anxious or something else (or use 7 Cups of Tea).

Banks have a nearly one-size-fits-all product model which leaves value on the table. For instance, when a bank releases a new online or mobile banking system, it will often be an identical system, with the exact same interface, for all clients of a particular segment. But oil companies like Chevron have different banking needs than do retail companies like Home Depot, even though they may be the same size. This type of mass standardization and lowest-common-denominator mentality applies even more to the retail customers — usually there are just two online and mobile banking options: one for normal customers and one for private wealth clients.

Technology that is new to banking is ushering in an era where mass customization is feasible, safe, and profitable.

Banks of all sizes have spent the last half-decade cleaning themselves up in the wake of the financial crisis. They have been implementing new requirements from the European Banking Authority, the United States Consumer Financial Protection Bureau, and other regulators, as well as adapting to Basel III and other new capital requirements. Many have built new risk management and compliance frameworks in response to sector-wide malfeasance.

Now, though, banks are refocusing themselves on growing top-line revenue. Many banks have organized new teams focused on revenue growth through “the innovation agenda” and “customer experience”. Technology is understood to be a potential driver of the sought-after revenue growth. One such technology will be “API banking” – a concept that, though it seems to have achieved buzz-phrase status, represents a new and revolutionary way of thinking about bank services and how to deliver them to customers.

API refers to the Application Programming Interface: the standards and protocols which allow outside software developers to build applications on everything from Apple’s iOS platform to Facebook’s social graph. This technology and the attitude of open development that goes along with it are now second-nature at Silicon Valley’s leading companies. Apple, Facebook, Amazon, and others capture the imagination and skill of tens of thousands of software developers through an open platform and simple profit-sharing.

With their new compliance and risk management systems, banks are now positioned to open themselves up just as technology companies have. They can build similar platforms for innovation and customer-facing customization. These financial innovations will not be used to obscure risk (as most innovations of recent years have done) but rather to improve how customers, both commercial and retail, experience banking.

We are entering an era of technologically customized banking. Trusted risk-and-regulation-sensitive financial institutions will provide the core financial services via APIs. Then they will leave many of the last-mile implementation details to trusted partners and software developers. Millennial bank customers could have their customized mobile banking with special tools focused on paying down their student debt, while Boomer customers would have an entirely different online banking suite, which could be focused on either building up or spending down their retirement, depending on individual circumstances.

Developers, and the technology that they bring, can make the unprofitable profitable for the platform provider. Just as it might not be profitable for Apple to build and then acquire customers for a variety of bird-focused games — Angry Birds, Flappy Bird, Tiny Wings, et al. — it is also not profitable for banks to build the skill sets necessary to acquire and optimally serve every potential customer. With API banking, specialized third-party developers can profitably provide services that banks couldn’t afford to build, by giving both banks and the new developer companies access to swathes of the banking market, including the underbanked.

As in the Apple App Store, bank clients will be able to find and experience banking in the manner that makes the most sense for them, in a co-branded and protected environment. Customer satisfaction increases with a more personalized user experience, and revenue increases as banks are able to target and display their offerings more precisely.

Crédit Agricole and Deutsche Bank are the only major banks with APIs and app stores in the market right now. But APIs are one of the best and most talked-about ways to increase top-line revenue in the face of decreasing fee and interest income. Many banks are working toward releasing their own this year.

Amid this renewed focus on innovation and customer experience, using APIs and the mass customization they foster is just the first of many lessons that banks will learn from technology companies in the coming years.

Republished from BankInnovation.Net.

“The skill of making and maintaining Commonwealths consisteth in certain rules, as doth arithmetic and geometry; not, as tennis play, on practice only: which rules neither poor men have the leisure, nor men that have had the leisure have hitherto had the curiosity or the method, to find out.” ― Thomas Hobbes, Leviathan

Jack Gavigan wrote a blog post yesterday titled "What would a disruptive bank look like?" Read it. It is well worth the time.

I basically have the same blog post written. I actually also have the same blog post written as a detailed fifteen-page business plan ready to pitch Marc Andreessen. I outline the technology needed in a bank, the product offerings and their rollout, the legal structure I'd use, the capital structure, relevant bank regulations. Ah and therein lies the rub.

Regulation. I know I am supposed to be a big, bad startup entrepreneur who spurns restrictions of all kind. Particularly those restrictions put on me by the government. But that's just hard to do in this case since you need a license to operate.

Banks don't often fail. They don't often fail because there are real limitations on who can buy a bank and how one can run a bank in the US. Those two ideas – hard-pressed to fail and deeply restrictive operations – are two sides of the same coin.

So, how does that manifest directly for the bank-running entrepreneur?

1. Maddening capital and other ownership restrictions;
2. Deep restrictions on personnel and hiring;
3. Writing a initial seven year business plan and sticking with it for seven years; and,
4. Deep restrictions in the operations of a bank.

The key problem of restrictive category number (4), and why I walked away from spending so much time on building a bank, is that regulators artificially restrict a bank’s growth rate. The number one historical indicator of a shady bank is rapid, radical growth. Very good lawyers, regulatory advisors, and current regulators at the FDIC, Fed, and the FFIEC have all told me that any new bank would be restricted from growing more than 25% a year. Is that enshrined in law? No. However, latitude and discretion is.

25% a year. A good startup grows 25% a month for years.

I think you're left with four choices then:

1. Figure out how to bring technology into the banking sector in a high-margin, fast-growing way (that's Standard Treasury);
2. Build a bank and hold it for a long-time or buy an already big bank (despite all I've said, several investors have approached us about this);
3. Build a bank someplace in the developing world that has less restrictive laws and then port it back to the US later (ready to talk when you are Marc); and,
4. Avoid banking, per se, altogether. Build out different parts of banking like lending (Lending Club, SoFi, Capital Access Network, On Deck) and payments processing (Stripe, bitcon startup du jour).

Last year, I shared our story of applying, our application, and some advice on the YC application. Now that the Winter batch is in full swing and the application is open for the summer, I thought I would share our story of going through YC and nine lessons I learned in the process.

I have had a lot of trouble writing a post about going through YC. It was one of the best and most productive experiences in my life; it was also one of the most difficult and stressful experiences in my life. As I have attempted to write, I've faced some difficulty in avoiding both what could be a boring recitation of facts that are widely known and a sensationalized portrayal of the experience.

YC left me more scared and yet with more optimism and excitement than any other three-month period I have lived through. YC is hard. You're stressed out. You're underslept. You think your company is on the verge of collapse (and the companies of some of the people around you are). The partners' advice is brutal — brutally honest and unvarnished in its delivery. YC is relentless. Difficult. Stressful. Thrilling. Unforgettable. Worthwhile.

The best metaphor for YC is a slow-cooker. Every week YC cooks a meal for fifty companies (now seventy) in a bunch of slow-cookers. That's all it takes: time, heat, and a pressing deadline for delivery. Sometimes you throw all the ingredients in and get a good dinner or a good company. Sometimes it's crap. No one seems quite sure beforehand which it is going to be.

If I ever found another company I would do YC again. Well, if they’d have me.

Lesson 1: Do YC if you can. It's worth it, but it isn't easy. (I promise the other lessons are more surprising!)

But let’s go back to the start.

If you get into YC, they call you the same night as the interview. The phone call is brief: do you want to accept the offer to join YC, and can you do an introductory talk on Wednesday in Mountain View? We said, "Yes".

Orientation

The orientation involved two parts: one where Paul Graham (PG) talks and one where Kirsty talks. This may change now that Sam Altman (Sama) is YC's president, but the gist will likely be the same.

PG condenses the most important lessons of YC into about two hours. It's a dizzying talk, even though most of what he says are in his essays. The most important piece of advice is to "start now". The day you get into YC you can start going to office hours, and you're told when Demo Day is. In effect, YC is on, even if the dinners don't start for a few weeks. Get working. There are a fixed number of days between acceptance day and Demo Day. Anything you do before Demo Day you can use to impress investors on Demo Day. Anything you do after Demo Day still matters to investors, but it likely won't matter until much later.

Kirsty Nathoo spends the second half of the day describing the basics of corporate setup. She goes over all of the associated paperwork, the YC investment, the YCVC notes, and advice on what to spend money on. It was a fast, expert primer on corporate law, corporate finance, startup financing, benefits, payroll, and more.

Part of being a startup founder is learning tons of stuff which you might not be comfortable starting with. That's what's great and what's challenging. One thing we learned early on is to embrace all the learning: being a startup founder is about constantly doing new things outside your comfort zone.

Lesson 2: Be comfortable doing anything. Learning anything. Working on anything. Most parts of founding a startup are unglamorous. Like talking to your lawyer about how to get the best strike price on your options for your employees. Or making sure that payroll taxes get paid. But that's what a great company is: a thousand carefully, but quickly, made decisions.

Moving to Mountain View

YC recommends that you live close to YC for the duration of the batch. They say that this is because they’ve found a high correlation between startups that attend YC events and those that succeed.

It’s also the case that there is a lot less to do in the Valley than in San Francisco if you’re young and childless. You will work more. Part of PG’s advice is to do little other than code, talk to users, sleep, eat, and exercise. That advice is much simpler to follow when you’re living in Mountain View; there is only so much you can do on Castro Street.

Lesson 3: Avoid distractions when starting a new company. Find a way to build and do little else. Go to the wilderness — by which I mean Mountain View — if you have to.

Dan and I lived with Kai and Claire from True Link Financial in a small house that has passed from YC company to YC company for a few years. Claire and Kai have become some of our closest friends, more broadly. They’re both amazing people, dear friends, and quite well-rounded in their interests. They also became reviewers and supporters of our work, with a much deeper understanding of working in fintech than most of our other friends.

Living with another team with whom we grew so close was critical for us. Otherwise, I think we would have torn ourselves apart. I'm not sure it’s necessary for everyone, but for two guys from New Jersey anything else would have led to a steel-cage death match.

Dan and I spent a huge amount of time together over the summer, but one rule we had is that we spent Saturday apart. We needed that time.

Lesson 4: Don't give up all human contact — just most. Do what it takes not to murder your co-founders in their sleep.

Idea iterating

We spent most of the first few weeks trying to figure out what we were going to build. Whether this is what YC meant by "start now" could be up for debate.

We were trying to figure out — in the abstract — what our business model would be. We spent most of this time just talking to businesses about what they found annoying in dealing with their banks.

In order to think through this, Dan and I walked around the same block in Mountain View several hundred times.

Over the approximately six weeks between orientation day and Prototype Day, we iterated through six ideas in sequence while talking to nearly a hundred potential customers: APIs for commercial banking (what we applied with), WealthFront for businesses, near real-time cross-bank settlement, financial reconciliation support, building a bank from scratch, and API gateway for commercial banking sold to banks. Given his experience and passion, Brent was most interested in the platform ideas.

The details of those business ideas, except the last, aren't so important to the story, but the process was helpful. We were not building anything — which I don't recommend — but we were making use of lots of potential customers to figure out what they would pay for and what their pain points were in the interface between their businesses and their banks.

Almost everyone we spoke with said: (1) we don’t like our bank, (2) we want a technology-forward bank, and (3) we want working with our bank to be as simple as working with new payments companies like Stripe, WePay, Balanced Payments, etc.

And then we just got lucky.

Our product

Starting in October 2012, about six months before we incorporated and eight months before we started YC, Dan and I had been talking to banks about an API for ACH. Our plan was to connect a bunch of banks and then have a cross-bank same-day settlement system. We were talking to J.P. Morgan, Capital One, Wells Fargo, Silicon Valley Bank, City National Bank, Citi, et al.

Then, while we were endlessly flailing around in circles in Mountain View, several of those banks came back to us and said that they wanted an API gateway. Would we sell the experience we were describing to them as a white-labeled or co-branded experience?

We were in the bank software business. Our first product was an API platform-as-a-service for commercial banking.

Lesson 5: Always be willing to iterate and always, always, listen to someone willing to pay you for your product. Paying customers are hard to find and they're often right.

Prototype Day

Prototype Day is one of the best days of YC. It's like a mini Demo Day. The order of the companies is randomly chosen and every company has a few minutes to present. It’s early on and you still don’t know most of your batchmates all that well. Prototype Day lets you learn about what everyone is doing and a little bit about every person in your batch.

The partners tell you not to prepare. However, we found preparation to be focusing, and we chose to put together a presentation. We used that as an exercise to figure out how we would pitch our idea and company to a large group of people.

After each presentation, PG tells the company's founders some of the things they did wrong. It's useful, although it's best not to be randomly chosen to go first or second. It's your first introduction to how investors might react to your pitch.

Prototype Day ends in a vote. Every founder gets to vote for two companies, then the vote is tallied, and the top ten companies are announced. I can't find any of the published results of any past Prototype Day, so I don't want to give any results, but we did fine.

Dinners

YC hosts a dinner with a prominent startup founder (or Ron Conway) every Tuesday evening. The talks are interesting — more inspiring than informative. A frequent theme is how to not get screwed by your venture capitalists. YC dinners are off-the-record, so I won't share any of the details of the talks we experienced, but they're enjoyable.

The most significant value of the Tuesday dinners is that it's the one time each week when YC turns into a co-working space. Companies arrive hours before dinner. You have many of your office hours for the week, you chat with Kirsty or the Levys (YC's two lawyers) about a random question you have, you catch up with everyone in the batch, and you get as much user feedback as you can get in the hours before dinner starts.

Lesson 6: Set deadlines for yourself. Always have something to fight towards, even if it's not concrete. Measure your progress even if the measurements are artificial.

The dinners are weekly milestones. Most people work their butts off all week culminating in Tuesday. Report back. Rinse. Repeat.

The Batch

One of the most important aspects of YC is that they fund companies in batches. And not just so YC can have dinners with good speakers. Batchmates make fast friends who stick with you long after YC is over. Dan, Brent, and I each invested in several companies in the batch!

You go through an adventure together. Batchmates are always willing to offer help with a product question or support you when you're down (and there will be times when you're down). It's hard to come out of Tuesday dinners without feeling energized because you've gotten that emotional lift (and competitive spirit) from your batchmates.

Office Hours

There are now seven different types of office hours. The regular and group hours are the only ones that happen frequently, so I'll describe them.

In regular office hours you meet with a partner for ten to twenty minutes. You talk about the progress you have made in the last week or so, discuss the particular problems you're facing, and ask any questions you have. In our batch, each company selected a partner or two as its primary partner(s), but now I think they assign one of the full-time partners to each company. We chose Geoff Ralston, who was perfect for our personalities: direct, to the point, and no-BS.

Group office hours happen every two weeks. Our group partners were Paul Buchheit, Kevin Hale, and Kirsty. Group office hours are like regular office hours, except they're public and shared. Each startup takes a turn giving an update and interacting with the partners. This is useful because it allows you to see the problems that others are facing (and also how they solved them!).

Selling Software to Banks: Slow Weekly Progress

Selling big, complex software to big, conservative institutions is hard. It is slow. During our YC batch we almost always thought we were just a couple of weeks away from having a deal: next week we will sign a deal with bank X, we said. We said that every week. We told investors that. We told YC partners that. We told friends that. We believed it. We were wrong.

Now that we have signed proof-of-concept deals that we are only now negotiating into definitive agreements, I can say with confidence that we were naive. We didn't know how enterprise sales worked. Experience has educated us. Harsh experience.

However, I think this made us look bad to YC. In retrospect, we were like boys who cried wolf. PG has said that the best way to tell which startups are going to make it is to look at their weekly progress. We did a lot every week: tons of meetings with banks, product and security reviews, etc. — but I am not sure any of it looked like progress.

Lesson 7: Every YC company (every company!) is a shitshow in one way or another, even if you often think it's just you. There's power in realizing that that's OK. It took many of our batchmates too long.

In December, I voiced my concerns about crying wolf to PG in an email when he asked about our progress (I think he emailed the entire batch). He said:

Don't worry too much. Deals of this sort are always slow.

If I were in your shoes, I'd focus on sales of whatever type I could get. As soon as you reach breakeven, everything changes. Slow customers are no longer fatal once you're profitable; they can decrease your growth rate, but they can't kill you, and if the market is big you'll eventually get big.

Deals of this type are slow. All enterprise sales are slow. YC was amazing, and I tell all my friends to apply, but it is also difficult for companies like ours - companies where a small number of large deals define them. Those types of companies may be on the path to success, but they aren't like consumer companies that can show that desired week-over-week growth.

It is an expectations-versus-reality disconnect. What is possible for other companies was never possible for ours. Yet YC holds up a mold for all companies to fit into. As YC grows and includes more enterprise companies, I'm curious to see how they manage that challenge.

Fundraising Too Early Before Demo Day

YC tells you to avoid doing it in the first two months. We did it too early. It was a mistake. In fact, we screwed up our entire fundraising process. Three friends told us that normally people who mess it up so badly can't recover; we somehow still raised a healthy seed round. I'd say we fucked the whole thing up, except we did end up with millions of dollars. If I ever find the time, I'll write another post on what not to do, but YC is right: don't raise money until you're ready.

I think that the ideal time is likely about two weeks before Demo Day; at that point you may or may not feel ready, but you're going to have to be so it's time to start acting like you are. People ask on Demo Day how much money you've raised, and the answer shouldn't be zero. But if the answer is that you closed the round (or that you got too many "No"s, too early), then that might be just as bad.

Lesson 8: Take advice. Sometimes your friends and advisors are right even if you think they must be wrong. Don't go with the crowd but try to do the right thing for your company at the right time. We didn't have the confidence to refuse introductions and meetings with big VCs until we were ready.

Rehearsal Day

Roughly a week before Demo Day you have a Rehearsal Day where every company goes through their initial pitch. Every company presents, there is a vote at the end, and you get in-stream advice. In fact, this time PG will just interrupt you with advice. This is the beginning of a week long sprint that culminates with Demo Day.

You have to practice this presentation so much that, despite its being scripted to the word, down to the second even, you sound perfectly natural. This proved not to be a strong point of mine. I can give good, if not great, off-the-cuff presentations — in fact, I relieved my stress by giving everyone else's presentations (sometimes in a joking tone) and helping batchmates come up with new phrasing, new ideas, new ordering, etc. But getting down the exact wording that I agreed to with PG? That took me all week.

Demo Day

The night before Demo Day is Alumni Demo Day in the same venue; I did not do well. I felt like I spent every single waking moment between that and our presentation on Demo Day practicing. I walked to the Computer History Museum from our Mountain View house giving the presentation to myself over and over and over again.

I think the first time I gave the presentation perfectly on stage was on Demo Day itself. It was a good time to peak.

When not presenting at Demo Day, you are surrounded by investors. It's ten solid hours of answering questions, discussing valuation, and trying to close some deals.

It was exhausting. It was exhilarating. But that's YC for ya.

Lesson 9: Enjoy yourself. Building a company is exhilarating, even if it's exhausting. You are building something through grit and persistence, so it's best to have some fun while you're doing it.

Thank you

Thank you to those who helped edit and advise me on this post — my co-founders, Brent Goldman and Dan Kimerling; my batchmates Aaron Feuer, John Gedmark, Glen (Professor) Moriarty, Claire McDonnell, Jake Heller, Nathan Wenzel, Patrik Outericky, and Maran Nelson; and the best-damn-proofreading-friend there is, Kate Brockwehl. I am always in debt for her countless suggestions of great value: and for all the present semicolons.

It is hard to hire people. It is very hard to hire great people. Our core team is amazing. I hope that by telling the stories of how we hired our team, haphazard as they are, others might get a sense of how to put together a good team.

Yesterday I told the story of how Standard Treasury's founders knew each other and today I am telling the story of hiring our first three employees. With that story I share five lessons learned about hiring: get your message straight, start now, do whatever it takes, be aggressive, and create a process.

I have talked to a number of YC founders that are at much later stages than us. They admitted they had a terrible time hiring at the beginning. They just didn't have access to top-tier talent. They didn't necessarily know at the time what top-tier talent was. Some didn't go to fancy schools and didn't have great networks. Some did YC when it wasn't what it is perceived to be now.

Once money is no longer your biggest problem, hiring is. They succeeded through grit, persistence, and a healthy willingness to fire people when they needed to.

We made offers to our first two hires before we quite finalized bringing Brent on as our third co-founder. As two only quasi-technical co-founders Dan and I have just gotten lucky at their quality and we have learned some lessons along the way.

I have a good sense of whether someone is an asshole or not, whether they can break out and plan tasks well, whether they get or are interested in our business, or whether they're completely full of shit technically. But, whether they can abstract classes well, can deliver high-quality software, can keep to our bank-imposed deadlines without sacrificing too much, or can write good test coverage...well, I'm flying blind other than that I know enough to ask the questions and see if my full-of-shit-meter goes off.

One thing we did have though was a great message. We have a big idea that scared most people away, and a network big enough to run references on almost everyone that came our way.

Lesson 1: Get your message straight. Think about how to message your company as much to candidates as you do to customers. We realized that Standard Treasury is potentially a big business but all the challenges were in relatively boring, if complex, topics like building against legacy interfaces and presenting unified APIs despite those crazy backends. We embraced the boringness and made it a strength: you can work on a big serious problem or with the others guys. To us, having a boring idea made it so the excited candidates were genuinely excited.

As one of my co-founder says, I know enough to be dangerous in all things, but it's clear to me that if you ran the simulation a thousand times, we likely wouldn't have gotten the outcome we did very often. We hired three great engineers to our core team without doing any technical screens.

The Infrastructor

One of those two initial offers was to Mike Clarke. Mike was in charge of infrastructure at Disqus, where he helped to serve more than a billion 'uniques' a month.

Mike and Dan knew each other from their days in Chicago (having been introduced by the great John Fox), but stayed in touch when they both moved to San Francisco. They ran into each other a lot, on the line for Senor Sisig (a food truck that's often on 2nd and Minna), and Dan would always say "When I found my company, I'm going to hire you!" Mike thought Dan was crazy. Dan had no idea just how good Mike was.

I looked through my emails and found that we started the conversation by Dan emailing Mike the TechCrunch launch article with the subject line: "Leaving disquess and joining Standard Treasury." Correct spelling wasn't critical to Mike.

A few long conversations later, Mike joined the team. Mike has ended up being the perfect early-stage engineer: a great coder, dedicated, thoughtful, fast, willing to take on anything, and with a skill set that has been critical to launching within banks.

Lesson 2: Start now. Always be recruiting. In the case of Mike this meant even before we started the company. You know who your best engineering buddies are. You know who you can work with every day all day. Start recruiting them even before you start your company. Maybe even years before. Recruiting takes time.

The Bank Integrator

Keith Ballinger proved easier to find, but, we were even less thoughtful about whether he had the right technical chops. We fell into him being a killer engineer. Keith worked for many years at Microsoft, including as an original core contributor to C# and .NET (although no one hates what it's become more than Keith) and then worked at a series of startups. He's our go-to expert on crazy enterprise software. He and I often handle all our bank integration meetings together.

Keith applied through Hacker News' jobs page along with a couple hundred other people last summer. Dan and I both met him once or twice. He seemed competent and didn't set off any of our red flags. We did a few reference checks that came back positive, but never did a technical interview. Then we offered him a job. I don't suggest that as a model for hiring employees.

Lesson 3: Do whatever it takes to find great candidates. Posting on job boards creates a lot of resumes and a lot of work. It isn't efficient but finding a needle in the haystack is worth it. Great engineers multiply your productivity and value exponentially, so spend time doing whatever it takes to find great people.

The Platformer

Last, but not least, Jim Brusstar rounded out our core team. Jim's the only one we hired who we knew was good — Brent had worked with Jim for years at Facebook. After Jim left Facebook to work as an engineering lead at Sidecar with his college buddies, he and Brent kept in touch. And when Brent told Jim he was founding a company, Jim was eager to learn more about the idea and meet the team. Jim joined thereafter.

Jim is the core author of our API infrastructure and is every bit as fanatical about code quality as Brent. Which makes sense, since he's the first person we hired based on knowing whether he was good or not — and he's been great. He keeps us all focused on the question of what will developers — and not necessarily our paying bank partners — want in the API. He's critically focused on building an excellent product experience and rounds out our core team perfectly.

Lesson 4: Be aggressive. Reach out to everyone you would love to work with. No matter how senior or junior. No matter how comfortable they may seems. You never know. Think through everyone you've ever worked and would like to again. Reach out to them as soon as you start your company. Some great candidates will jump, like Jim, others will take time but either way you're letting people know you're looking and you're setting people up to think of you when they do want to jump.

Hiring Moving Forward

Now, hiring is much more of a process. We've iterated through a ton of different technical questions and screens. With almost every candidate, we use the same process: a 15-minute intro phone call, followed by a 45-60 minute coding screen (usually on a call with a virtual whiteboard, but sometimes in person), then a 4-hour coding challenge / homework assignment, concluding with a 4-hour on-site interviews. The top of our funnel had hundreds and hundreds of resumes, we've done dozens of coding screen, we've had seven or eight full on-site loops, and we've made two offers.

Lesson 5: Create a process. Even at a small startup, process is important. We are inundated with applications that need to be sifted through and lunches with old friends. The only way one can manage it and feel like one is being fair and polite to every candidate is to create a process. A process allows you to move quickly, give people feedback, and seem like you have it together.

We've also been able to articulate, make known, and get a lot of feedback, on our values, which seem appealing to the types of candidates we find attractive:

• Excellence. We are building a team of great women and men who work hard, have a passion for perfection, and don’t tolerate bullshit.
• Candor. We practice internal transparency, and are candid about our finances, business development, and planning processes.
• Quality. We build bank software - our motto is more “slow and steady wins the race” than “move fast and break things”. Our critical technical values are security, reliability, consistency, maintainability, and craftsmanship. We emphasize tremendous attention to detail and build software that lasts.
• Collaboration. We use Phabricator and support each other with code reviews. We have a healthy culture of debate without argumentation.
• Entrepreneurship. We encourage people to set their own direction. We are looking for senior engineers who can lead product decisions. All engineers are able to suggest, research, and lead architectural changes, contribute to, and suggest, revisions to our road map, and create new coding guidelines and have them enforced.

If those sound interesting to you, or if you're just interested in joining a place that (by sheer dumb luck) has a great core team, then check out our jobs site.

The number one way that startups in Y Combinator fail is through founder disputes and divorces. It often turns out that people cannot work together or one of the founders can't really work on startups at all. So picking who to work with is one of the most critical things you can do to ensure that your startup will get through the early stages.

Y Combinator applications just opened for this summer's class. It seems like a good time to talk about how Standard Treasury's co-founders knew each other and laid the foundation for sticking together, raising a seed round, launching a product, and building a good team.

My two co-founders and I know each other in much different ways that basically mirror the two ways one should find co-founders. With Dan, we have been friends for over a decade. We have discussed founding a company together for years. We know each others habits, strengths, and weaknesses inside and out. We knew we could work together.

With Brent, we knew each other for only months before we started working together and we were constantly assessing whether we could work together, figuring each other's style out, and ultimately deciding we could be partners carefully and over time. We vetted each other in-person and through friends and professional contacts. We came to know we could work together.

If you're going to found a company with someone, I'd suggest having one of these two stories: old friends or careful decision. I have never seen anything rushed or careless work out well for the startup or the team. I have never seen it work out just because folks can agree on an idea. Startups are more hectic and trying then that. In that way, the story of how I know Dan and Brent can be instructive to the ways one should know and vet their partners.

This is the first of two posts on building our team at Standard Treasury. The second post will be on our first three engineers. Building a team is the most important priority of a startup. With a great team, one can get through most troubles. With a bad team, even the best startups can fall apart.

Two Argumentative, Balding Friends from New Jersey: Dan and I

Dan and I met at Harvard Summer School in 2003. We were not instantly best friends. I remember quite vividly the first day of our first class, Introduction to American Government. Dan was then quite similar to how he is now, at least in this one respect: we met because he walked into the classroom and, without any compunction, began introducing himself to every single person in the room. I found it strange then and although I still find it strange now, I at least can see its utility. It is why Dan focuses on business development at Standard Treasury.

I was particularly annoyed though, when I showed up to my second class, Introduction to Political Philosophy, and there Dan was, introducing himself to everyone in that classroom as well. We were the only two students who took these same two classes.

Despite whatever feelings I might have had that first day, in retrospect, it seems obvious that we were going to have a full and long-lived friendship. We were both from New Jersey, and then, as now, we have a mix of tough-guy go-fuck-yourself, sarcasm as humor, insatiable curiosity, intellectualism, and ambition.

I have this theory that lots of founders have childhood trauma (or, at least, difficulties), that motivates them towards the implausibly difficult task of building a startup.[1] A part of my deepest friendships come from a common, shared understanding of something difficult: in Dan's case, the tragic death of his father and serious injuries to his mother in a car accident when he was an infant, and in my case, my mother's alcoholism and disappearance from my life for ten years.

The important point here isn't the particular personal details of our childhoods, though. As Dan and I got to know each other that summer, we bounded over our similarities in affect, goals, and histories. We spent a lot of the summer together, studied together, explored Cambridge and Boston, and became good friends.

Harvard ended but geography kept our friendship alive. We only lived thirty minutes apart in New Jersey. We would hang out, from time-to-time, throughout our senior year, and like all teenagers of that era, we spent a lot of time chatting on AOL Instant Messenger.

It's hard to understate or understand the intensity of our friendship from there on out. We went to different colleges in different time zones. We saw each other maybe twice a year in person. But Dan was among five or six friends that I talked to nearly every day (and I feel bad that I don't have a reason to write blog posts about them all!), and one of my closest friends.

We usually simplify our friendship by referring to the month we spent together in India in 2006. It's a good synecdoche. I had a fellowship from Brown in the summer (I think I successfully had them pay me, to do what I wanted to for every summer), and Dan was traveling on to Nepal and Tibet with a UChicago group. We visited Delhi, Agra, Jaipur, and Varanasi together as poor college students. We got very sick together, rode elephants together, visited the Taj Mahal together, got lost together. It was fun, but, at times, stressful. We learned a lot about our friendship through that sort of travel. We figured out, I think, that we could work together.

After college, Dan moved to San Francisco, I moved to New York. We pursued what appeared to be quite different career paths. Dan in tech, me in government. But we're both passionate about many subjects and my interests moved closer and closer to data science and civic technology over time.

Dan and I had spoken many times about founding a company together. Whether it was the naive thoughts of two sixteen year olds or the more mature (I hope) reflections of two old friends separated by thousands of miles, it has been often in our minds. So, when I decided that I wanted to move on from the Mayor's office in Newark, NJ, I decided to pursue my interest in technology more directly, by moving out to San Francisco, working at Stripe, and being closer to my old friend Dan.

That inevitably lead us to applying to YC, getting in, and starting Standard Treasury.

Being old friends is one model of finding your co-founder but another is meeting each other through trusted friends and deciding you can work together after getting to know each other quite intensely. That's the story of working with Brent.

Bringing on Brent: Third Co-Founder and CTO

The cornerstone of our team at Standard Treasury is our third co-founder and CTO: Brent Goldman. He joined Dan and I during Y Combinator. He came highly referred from a friend (and many others), studied computer science at Caltech, and worked at Facebook on Platform for four and half years.

If you know Standard Treasury today, you know Brent. Brent and I work together on every product decision, as PM and EM, while Dan sells banks.[2].

Dan and I were first introduced to Brent in February 2013. A friend told me that Brent and Dan were his two smartest friends and that they were both thinking about starting companies.

When we first met, Brent was kicking around some great ideas and, in fact, had another potential co-founder he was working with on them. Dan and I had thoughts about Standard Treasury (then without a name) in ways that were much like our original YC application, which was filled out around the same time.

But, when we met in February, we were all casual. We hadn't incorporated Standard Treasury. Dan was still at Giftly, I was still at Stripe, and Brent was working with another co-founder. It seemed then that the timing would not work out well for the three of us to work together, although we all ended up liking each other a good bit. At the time, I remember being pretty sure that I would be at Stripe for four years!

Despite Brent’s immense interest and experience in platforms, in these early days we were just feeling each other out (and aligning calendars - including a month-long trip to New Zealand). Brent tried to sell us on some of his ideas, but Dan and I knew what we wanted to do as YC had already offered us a YC interview on the idea. I'm not sure we could sell remaking commercial banking well at the time — it is boring to the uninitiated.

What we found, though, was a lot of group chemistry — what we've come to call "founder chemistry." Our skills complemented each other, and ideas were flowing. The only issue was that we didn’t know each other and we didn't know if we could work well together long-term. Founding a company together is like a serious relationship and this was just the first date.

Over the next couple of months, as Dan and I left our respective jobs and got in to YC, Brent, Dan, and I met up every couple weeks to expand on our ideas, swap war stories, and discuss philosophies about what kind of company we wanted to run. Over time we realized that we could work together, and that we could found a company together.

So we joined forces.

Brent fills out our skill sets and together we're all well-complemented. I often joke that on almost everything (technical skill, financial knowledge, desire to talk to investors, ability to write clearly, attention to detail, etc.), that between the three of us, two of us are always at opposite ends of the spectrum, with the third acting as the mediator. It works well — it's just the right level of tension and conversation between us.

Most importantly, Brent puts engineering excellence above almost everything else and has the experience in shipping code and mentoring engineers to back it up. He's instituted a thorough code review process, sets the technical direction, and works with everyone to build sustainable, maintainable systems.

But, despite his perfectionism and attention to detail, he's also a pragmatist who will do whatever it takes to get things done — whether it's re-prioritizing or cutting features, accumulating technical debt (the right kind, with a sound plan to pay it off), or leading the charge to the long hours necessary to meet a tight deadline.

Brent is a force multiplier for engineering productivity and has infused our company with the engineering-focused culture we always knew we wanted. We lucked out in finding the right co-founder to help us build it.

Growing the Team

Just as we were formalizing our relationship with Brent, we finalized two more engineering hires. They are both dedicated and productive, and both snapped to the engineering culture Brent wanted to build. Then Brent brought in an old colleague from Facebook to fill out the core team. It's been the six of us together until our first new hire last month. We've found that we not only have an amazing team but one that is very cohesive.

In my next post I'll talk about how to find a team, what kind of team one needs to build for a successful startup, and how we did it at Standard Treasury.

[1] I even have a half-written, unlikely-to-be-published blog post on this topic, and how much I validated it through my dozens of close friends in YC. It is a hard thing to write about because it's deeply personal and it opens you up to a common line of attack: well, I had or have it worse.

[2] The division of responsibilities and founder relationships is another planned post.

This morning Simple sold for $117M to BBVA. It's great news for the team, and I think it's going to be great news for retail banking.

Simple had amazing potential but also ran into many problems and difficulties caused by being built on top of Bancorp, not owning their own rails, and starting on the retail side. Simple could never build the infrastructure they needed for the product they really wanted to ship because what they have is not a bank account as people understand it. BBVA will change that.

We chatted with Shamir for awhile in Standard Treasury’s early days. Simple walked down the path of trying to get a bank charter but never followed through. It was partially timing — they were looking into buying or becoming a bank at the worst time possible — and partially that they did not build the company's capitalization to allow them to go down that path.

Also, looking at their history, it seems like they didn’t become a bank because along the way, at every step, it appeared to be the wrong choice — why build infrastructure when seemingly there are off-the-shelf options? But when one looks at the course of the company in aggregate and all the trouble they had with their service providers (I think they restarted their integrations three times), it would likely have been easier for them and better for their customers (not to mention their shareholders) if they had gone down the bank route.

It also seems like Simple never considered starting with the business-and-commercial side of banking. From the start (according to Josh’s blog post) they were focused on retail. We think starting on the other side is the right strategy to build a large bank. That’s why Dan and I have written a step-by-step product plan for a commercial bank.

Let me talk about what I see in the idea of building a bank. (Bear in mind, though, that this is not a likely outcome for Standard Treasury).

Building A Bank Directly

Everyday I read the Financial Times because it is wise to study the ways of one’s customers. But it can be depressing. With the headlines focused on bad bets, fines and settlements, price-fixing, and inquiries into malfeasance, it can be hard to focus on what I think of as the positive power of banking. To me banking is not about capital markets, investment banking, "the one percent", or high-frequency trading. Banking's true potential is not even seen in a better retail product experience like Simple. Instead, banking is about making commerce simpler and easier for businesses and consumers alike. It’s about empowering calculated risks and enabling trade in all its forms.

I want to build a bank with the simple mission of making it easier to do business - easier to be a business and easier to be a customer of businesses. Build a bank that had that simple creed at its center and you would make different product decisions and different hiring decisions than most banks do today.

This is not a casual interest of mine (although it’s a side interest to the business I am running now). Standard Treasury builds software for banks. That is the first approximation I can get to making the world I want inside the sanity and capital bounds that most venture capitalists seem to operate under.

We need a small — technology driven — bank.

Dan and I have chatted with former and current regulators at the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency, and the Federal Reserve. We have also chatted with lawyers and bankers in the business of buying and forming banks. There is no doubt that building a bank is hard. It is the ultimate schlep. But it is possible. Every conversation seems to start with people thinking we're a little bit crazy. Every conversation seems to end with an agreement that our dream is not only possible but desirable.

I won't publish our full step-by-step product plan but I do just want to talk about what a bank run like a technology company might mean in the abstract.

Bank As Startup

One key and obvious idea to anyone who works in technology is that banks have way too many people working for them. As Dan reminds the Standard Treasury team and all our customers, the banks that will survive in the future will be those that are most able to alter their cost structures.

One senior banking official recently told us that banks are likely to go through the same type of restructuring that the airlines went through in the 80s and 90s. They had large costs and outdated ways when the money was easy. But when the well dried up and airlines had to remake themselves, many airlines simply died. Well, now, the easy money is drying up for banks, This is the moment to build the Southwest Airlines of banking.

Without focusing in on capital markets, a new bank could defeat banks on product, technology, segmentation, and customer acquisition. The bank could do this with few people (mostly engineers) and a lot of software. This is because today’s business customers don't want to talk to their banker and rarely need a branch. They want to be able to trust their bank, to feel like the goals of the bank and their goals are one, and they’d like a great product experience with a customizable and open ecosystem at its core.

What does this mean in reality? It means the elimination of the physical (“wet”) signature and the start of instant risk determinations, easy to use but powerful tools to manage money laundering and customer identification requirements, and dynamic offerings targeted to the needs of the customer, with simple user interfaces and transparent pricing. In short, the anthesis of today's banking experience.

(Notice that banks are one of only two retail categories where you walk in and cannot find a list of products or their prices. The other is healthcare.)

The Problems

Regulations. Politics. More regulation. Acronym soup. Capital requirements. Passivity requirements. Etc. I won't bore you with the details but this isn't for the faint of heart. I think that most venture capital is ignorant to the nuances of just how complicated (and expensive) this gets, and just how quickly.

We have had a lot of these ideas floating around for awhile as have others, and as we participated in a recent Twitter conversation and after today’s sale, I wonder if maybe someone is willing to take the jump with us.

I've written in earlier blog posts about how I don't think that credit card processing is a particularly good business (Credit Card Processing is a Hard Business and Credit Card Processing as a Commodity Business).

The gist of my argument is that a company in the card processing business has to reach truly massive scale before starting to profit. That is very hard to do. Square, Braintree, Stripe, and WePay prove that one can build valuable businesses but they have all achieved massive scale. Braintree after all was purchased mostly for their consumer product and its network while Stripe is working hard to build out Stripe Checkout so it can store consumer card data and do the same.

I was chatting with Jareau Wade, one of the co-founders of Balanced Payments, to get some idea of comparables on the scale. He pointed out that Vantiv processed roughly $530B last year and currently has a market cap of $5.7B. Heartland Payments processed roughly $120B last year and currently has a $1.6B market cap. At the time of Braintree's acquisition it had a processing run rate of $12B a year and was worth $0.8B. PayPal did not perceive Braintree's value as coming from their processing business, no matter how fast it was growing.

My comments on card processing led me to a thought experiment: maybe a processor could give card processing away and make money some other, higher margin way.

No independent sales organizations (ISO) - such as Stripe or WePay - could make the marginal cost of a charge zero because a huge percentage of the fee they collect goes to the card networks and their member banks (often called, not quite accurately, the interchange fee). In fact, big businesses can often get a card processing fee structure of interchange + some margin (known as "interchange plus" pricing). Maybe these processing business could charge everyone that way and find some other way to make most of their money. They can't quite make it zero margin because the processor does take on some risk but they could run this part of their business at break even.

A business that comes immediately to mind that could do this is Sift Science. They could just give processing away on top of their already profitable product. Sift Science is proving that a ton of businesses will pay them for better credit card fraud protection. They've cracked that nut but their system get better and better as they see more transaction. More data improves their algorithms and their blacklists. One way they could see a lot more transactions is if they just gave the transactional service away for free.

I'm not actually advocating that Sift Science get in to the processing business. They're running a great business and likely don't need a different path to user acquisition. It would certainly burden them to become an ISO with someone like Wells Fargo or Paymenttech. I am using them as an example though of how one could build a business that gives processing away while helping build a profitable core business.

As a contrast take Square, for example. They keep releasing (not particularly successful) products to try to get at bigger margins: Cash, Wallet, Register etc. Rather than running a processing business and then trying to find one's high-margin product it would be better to figure out a high-margin product where dirt cheap processing would be a way to get a lot of people to use it.

Below is the application that Dan and I sent in to YC. Our business model has changed a ton since then and I'm not particularly worried about folks beating us on our combination of technology, relationships, execution and payments/banking knowledge.

Also see my post from Tuesday on our story of applying to YC and my post from yesterday on application advice. Next week I'll share some of the highlights of the summer from getting in to demo day.

Your YC username:

zt

Company name:

bedrock (we're working on it)

Company url, if any:

Phone number(s):

[Redacted].

Please enter the url of a 1 minute unlisted (not private) YouTube video introducing the founders. (Instructions.)

[Redacted].

YC usernames of all founders, including you, zt, separated by spaces. (That's usernames, not given names: "bksmith," not "Bob Smith." If there are 3 founders, there should be 3 tokens in this answer.)

zt dkimerling

YC usernames of all founders, including you, zt, who will live in the Bay Area June through August if we fund you. (Again, that's usernames, not given names.)

zt dkimerling

What is your company going to make?

We are building APIs for commercial banking services by building on top of multiple large banks.

If someone needs advice they can call Goldman. If they just need to transact then they can use one of our APIs. We will build commercial banking middleware that will sit on top of banks just like Twilio sits on top of multiple phone carriers. It is much easier because we'll have (mostly) RESTful APIs with good documentation, etc, and (if we choose) cheaper because of bulks rates.

1) Delivered programmatically, using good APIs - Anything transactional shouldn't involved a human being. Most banks suck at technology and admit that. They're excited to have us resell their services.

2) Narrow to start, but ultimately broad services - We want to abstract away the pain of dealing with banks for transactional services like ACH, F/X, wires, factoring, short-term loans, etc, just as Stripe, Braintree, and others have done for getting a Merchant ID. We are starting with ACH and F/X as foundational products.

3) Multiple banking partners - We're willing to endure the pain of setting up commercial contracts with many banks and then offering the transactional services (via API) in an intelligently routed way. We've gotten verbal agreement from Wells Fargo, and are pretty far along with JPMorgan and Capital One. Will start with other banks shortly.

For each founder, please list: YC username; name; age; year of graduation, school, degree and subject for each degree; email address; personal url, github url, facebook id, twitter id; employer and title (if any) at last job before this startup. Put unfinished degrees in parens. List the main contact first. Separate founders with blank lines. Put an asterisk before the name of anyone not able to move to the Bay Area.

zt Zachary Townsend 27 2009, Brown, AB, Applied Math, Economics ztownsend@gmail.com zactownsend.com http://www.facebook.com/zactownsend @ztownsend I work at Stripe, mostly on Risk

dkimerling Daniel Kimerling 27 2008, UChicago, AB Political Science, AM International Relations, (Also half-way through UChicago Booth MBA) http://www.facebook.com/dkimerling @dkimerling COO, http://www.giftly.com/

Please tell us in one or two sentences about the most impressive thing other than this startup that each founder has built or achieved.

ZT reorganized child welfare investigations in New York City. He got tons and tons of data, wrote R code to analyze it, set up ethnographic research conducted by his team, etc. He sniffed out details, wrote a report, and then helped implement the changes to a staff of 2000, and a budget in the tens of millions.

Dan built Giftly, particular the proprietary stored value product, from a regulatory, legal, risk, etc, perspective.

Please tell us about the time you, zt, most successfully hacked some (non-computer) system to your advantage.

When I started in Newark, I didn't have a computer or an email, and City Hall didn't have wireless. So I tracked down one of the wireless networks I could find - owned by a bails bondsman close to the court, and negotiated with them for their wireless password.

I once spent hours looking at floorplans and historic housing lottery data so that my roommate and I could pick a HUGE double with our own bathroom despite having a terrible pick at Brown.

Please tell us about an interesting project, preferably outside of class or work, that two or more of you created together. Include urls if possible.

http://deciens.com/ We raised the money, we have made investments. We have been to YC demo days and invested in Keychain Logistics.

How long have the founders known one another and how did you meet? Have any of the founders not met in person?

We've known each other since we were 16, when met at Harvard summer school.

Why did you pick this idea to work on? Do you have domain expertise in this area? How do you know people need what you're making?

We started by thinking about ACH, which is a problem that Dan actually had in his work. Zac sees how hard it is for even Stripe to deal with Wells Fargo on F/X, wires, etc.

Dan knows a ton about payments. Zac won finance prizes @ Brown. We both want to disrupt banking and have been talking about it for years.

What's new about what you're making? What substitutes do people resort to because it doesn't exist yet (or they don't know about it)?

When most businesses wants to do something financial they have to call their bank and talk to a person - except for getting a MID. That doesn't make sense. Getting a wire, as an example, often involves twenty minutes, a painful conversation, and $30. Even non-quant hedge funds needing to convert EURO to GBP have to pick up the phone and talk to a bank's trading desk.

No one has built developer friendly bank back-end processing, so you have to deal with banks, which overcharge, are slow, and are not developer friendly. Wells Fargo, for example, does offers an API which costs more than their other options and, well, is not very good.

Who are your competitors, and who might become competitors? Who do you fear most?

Possible competitors: Square, Stripe, Braintree, Wells Fargo, JP Morgan, Bloomberg, Intuit, PayPal

Banks cannot innovate on technology. A senior exec at JPMC told us that even if building good APIs was a Jamie Dimon priority it couldn't get done before 2017.

Commercial banking broadly - including every service we're imagining other than ACH (F/X, Wires, Factoring, Lending, Account Creation/Deletion, etc) - is not something that the innovative payments companies plan to provide to others, although they're all services they, themselves, need. Stripe, for example, is trying to make payments work on the web. We're trying to make commercial banking work in the world. They're both trillion dollar problems, but they're different.

So, who do I fear most? I fear regulators the most. Banks can't beat us on technology but we might be so successful they beat us with the law.

What do you understand about your business that other companies in it just don't get? People who run banks don't care about providing high quality technology services, and the people who care about technology don't want to work with (or buy) a bank. Schlep blindness, as it were.

Also, there is great power in abstracting away thinking about your particular bank. Take ACH: since we are willing to suffer through forming eight banking relationships, we can provide next-day payouts to 80% of checking accounts in the US. Everyone else can only do next-day payouts on their one bank.

How do or will you make money? How much could you make? (We realize you can't know precisely, but give your best estimate.)

We make money on transactions.

For a (very, very) rough guide, profits at ten biggest banks last year were $120b. Let's call 50% of that transactional/FICC/pure commercial banking as we define it.

As for TAM, SAM, SOM, using big-O:

Total addressable market: O(100s of billions)

Serviceable available market through APIs: O(10s of billions)

Share of market: O(10s of billions)

If you've already started working on it, how long have you been working and how many lines of code (if applicable) have you written?

Pre-development. We've incorporated. I'm still at Stripe. Dan's still at Giftly. It didn't make sense to start until one of the banks signalled a willingness to sign a commercial agreement as their was nothing to integrate with. Ready to start now. Raising money because of non-trivial commercial and regulatory costs. Far along with recruiting the rest of the early team and considering raising a seed round.

How far along are you? Do you have a beta yet? If not, when will you? Are you launched? If so, how many users do you have? Do you have revenue? If so, how much? If you're launched, what is your monthly growth rate (in users or revenue or both)?

We're far along on regulatory/commercial contract/legal stuff. Once we have that settled, there is a lot of backend, unsexy stuff to do to make it as pretty/smooth as we'd like: settlement files over SFTP, testing required by the banking partner, automatic underwriting built on Microbilt/LexusNexus/Iovation, etc, and then launch.

If you have an online demo, what's the url? (Please don't password protect it; just use an obscure url.)

No online demo yet. It might be awhile before we have a dashboard and mocking up a fake API for you doesn't seem worth it.

How will you get users? If your idea is the type that faces a chicken-and-egg problem in the sense that it won't be attractive to users till it has a lot of users (e.g. a marketplace, a dating site, an ad network), how will you overcome that?

Working the network, undercutting others on price and (especially) ease, directly reaching out to every startup that needs banking services beyond payments that exists or is founded for traction.

We've focused our user research on three customer segments: (a) Corporate treasury departments (a heretofore undisrupted part of most enterprises) (b) hedge, private equity, and venture funds (minus quants/HF) and their back offices (c) technically inclined SMEs and startups who aren't served well by big banks.

If you're already incorporated, when were you? Who are the shareholders and what percent does each own? If you've had funding, how much, at what valuation(s)?

[Redacted]

If you're not incorporated yet, please list the percent of the company you plan to give each founder, and anyone else you plan to give stock to. (This question is as much for you as us.)

If we fund you, which of the founders will commit to working exclusively (no school, no other jobs) on this project for the next year?

zt dkimerling (we've envisioning this being a, uh, five-ten year project at least)

For founders who can't, why not? What level of commitment are they willing to make?

-

Do any founders have other commitments between June and August 2014 inclusive?

No.

Do any founders have commitments in the future (e.g. finishing college, going to grad school), and if so what?

No.

Where do you live now, and where would the company be based after YC?

SF. SF.

Are any of the founders covered by noncompetes or intellectual property agreements that overlap with your project? Will any be working as employees or consultants for anyone else?

We both have CIIAA's that could cover this work.

Dan's company is pretty far away.

Zac declared this idea when he signed his at Stripe. He's asked Stripe for an IP waiver letter, or whatever it's called.

(I also described this entire idea in a youtube video I sent to you in December before we didn't accept a late interview, so...there is a lot of documentary evidence that I had this IP before Stripe).

Was any of your code written by someone who is not one of your founders? If so, how can you safely use it? (Open source is ok of course.)

No.

If you had any other ideas you considered applying with, please list them. One may be something we've been waiting for. Often when we fund people it's to do something they list here and not in the main application.

Please tell us something surprising or amusing that one of you has discovered. (The answer need not be related to your project.)

"The failure, if it was one, lay in the fact that, having too much to hold on to, they slowly lost what they had. On the whole, it was those who had least who were able to move most freely to the new world which was coming into existence." --That reading The Making of the Middle Ages can make you think of everything from startups to the state of America in the world (this happened in December)

(This is the second of three posts I'm doing this week about applying to YC. Tuesday I wrote about our crazy story of getting in to YC and tomorrow I'll post our application. Early next week — after the application deadline — I'll tell the story of our YC experience from bringing on our amazing third co- founder up to demo day).

I have had a few friends of mine ask me whether they should apply to YC and what advice I can give on the application itself. This is in addition to the 5 people Dan has met with this week about applying to YC.

Let me caveat my thoughts. Getting in to YC is similar to getting in to college. You're never quite sure how (or why) it happened. They don't send you a memo telling you their criteria and most of what you learn about the process is already public.[1]

Should you apply to YC?

I get questions about whether it's worth the equity. Short answer—yes.

YC gives you incredible focus and discipline. You have 100 days until demo day so get moving.

YC is a community. Your class is supportive, helpful, and in the trenches with you. They will always lend an ear or a hand.

YC is a guild. The alumni are incredibly generous with their time. We've gotten specific product feedback, investment, advice, and introductions from the extended YC family.

YC is a guide. The YC partners are successful and helpful. They will kick your ass in every conversation you have with them, improving your business and your thinking.

YC is a mafia (cough) I mean, a union. If someone treats you poorly then PG will treat them poorly.

Do you have advice on my application?

Be yourself.

Be concise.

Be demonstrably committed.

Don't lie. Don't bullshit. Don't exaggerate. Avoid adjectives and pronouncements.

Prove that you and your co-founder likely won't get divorced. This is how most companies die early.

Not-for-profits

Having worked in the social and civic sectors, a ton of my non-profit friends have asked me about applying to YC. I have no special advice to them except that they have to have some plausible story of how the NFP will grow. Startups are growth. YC funds startups.

I'd also suggest reading Glen's thoughts.

[1] This is basically true of all the advice from and operations of YC on some level. Almost all of the knowledge — although very little of the pressure and urgency — are in PG's many essays.

Dan and I had an unusual time applying to Y Combinator.

In September 2012 we started talking about the company that would become Standard Treasury. Primarily we were interested in why there wasn't an API platform that focused on ACH.[1] It's a core payment type and is pretty much a pain in everyone's behind. Things came to head at Thanksgiving time, when Dan and I had dinner at a restaurant in New York City and hashed out a vision we had for a "Twilio for financial services".

After that, though, I interviewed and got an offer from Stripe in the first week of December. Then began a little bit of a dance. John and Patrick Collison were very generous with me while I tried to decide whether to work at Stripe or start my company with Dan. Many long emails were exchanged and the Collisons showed a huge amount of patience as I decided what to do. In the midst of that — in early December, two months after the deadline — Dan and I applied to Y Combinator for the Winter 2013 batch.

But, we didn't hear anything back from YC.

Dan was still working on Giftly and I was really in love with the Stripe team and culture. After a couple amazing phone calls with Patrick, I decided that I should go work at Stripe, really get a feel for startup life, and learn all I could.

I moved to San Francisco and the Friday before I was to start at Stripe we got the following email from Harj:

"thanks for the yc app. do you think you'd be able to make it to PA on Monday [my first day at Stripe] for a late interview? it's the day before YC officially starts but we'd like to meet you in person."

I had literally spent days making this big decision to go work at Stripe, not do my own thing, move to San Francisco (which Stripe paid for) all to have YC want to interview me at the 11th hour! Shit.

We didn't take the interview. It just didn't feel quite right.

But that one little email from YC likely made it destined that I couldn't stay at Stripe for long: that it likely wasn't going to work out for me there. That tiny bit of validation — which really isn't much validation at all when you think about it, they interview a lot of people — propelled Dan and me think about the idea more, to talk about the idea more, and to mention it to friends. Eventually I was bringing it up at Stripe and had a conversation with the General Counsel about how to handle my IP questions.[2] Dan and I would be emailing people at Wells Fargo from our personal computers at night trying to figure out what was possible for our business, while I would be talking to other people at Wells Fargo during the day. We couldn't talk to venture capitalists, but we were socializing the idea with people, some of whom were even investors in Stripe.

That wasn't sustainable.

Stripe taught me a huge number of lessons about engineering culture, transparency, emailing writing, business development, and more. First and foremost though it partially demystified the startup world for me. I had worked in government before and held startups in awe. They are awe-inspiring. Building a company is so implausibly difficult. But in many ways when you're employee 37 at a startup, particularly one that is killing it, you think a lot about starting your own company. It only highlights the idea of being a founder. It only dares you to build a similarly great company.

So we applied to YC again. We got an interview, again. Again, I wavered and wasn’t sure that I wanted to leave a rocket ship. Again, we turned down the interview.

Then it all came together at the same time.

Dan’s company, Giftly, was sold — he knew the deal was coming together. That happened on a Friday. On Monday, Patrick and I had a serious talk where it was decided that I’d likely be happier if I did my own thing. In fact, my one-foot-in, one-foot-out approach hadn’t done Stripe any favors or made me particularly popular within the company, and it turned out to be better for both me and them that I move on.

On Monday night we emailed YC to ask for that interview we were offered. We emailed alums we knew. Several of them told us to “just go down there and wait.” Thankfully we didn’t have to make that decision. On Tuesday morning Kirsty, YC's CFO, emailed us. If we could make it down to Mountain View in an hour then we could interview that morning.

We were very nervous and frantic. We rushed down, driving 85 on the 101. Dan and I are practicing our pitch back and forth. We’re coming up with questions to answer. We are incredibly nervous. We hit traffic — you always hit traffic on the 101 — and we freaked out. We weren’t really prepared at all.

We arrive at YC, check in, and although we’re a minute late, so are they. We sit down to wait. When you’re waiting to interview at YC they have some alumni there to chat with you. To calm you down. They told us we would have a minute or two to present our pitch and then we would get questions. Try to be succinct. You’ll do fine.

We walk in and we shake hands with the partners. We begin to sit down and before our butts even hit the chairs, Sam Altman shoots “Isn’t your business just Dwolla?”. The rest of the ten minutes went by as a blur. [3]

That night I got the phone call. We had gotten in to YC. They made us the offer and I accepted. The phone call finished with Geoff asking, “Can you make our introduction session tomorrow morning?” Another trip to be taken on the 101.

Footnotes

[1] We either weren't aware of or very impressed by some of the existing solutions. 

[2] One of Stripe's secret weapons is their General Counsel. He's a lawyer whose first instinct is "we'll find a way" not to say "no". [

3] During the drive from San Francisco to Mountain View, Dwolla had announced their Series-C led by Andreessen Horowitz