Introduction

Patrick: [00:00:49] My guest today is Ben Savage, a partner at Clocktower Technology Ventures. Ben is focused on financial technology or fintech investing, which is the topic of our conversation. I've been making the fintech rounds of late and plan on making a few of these conversations public. Ben is the first in what might be a mini-series because of the sheer amount of information I learned in our discussion. We cover all aspects of the fintech ecosystem. I hope you enjoy.

Legibility & Investable Assets

Patrick: [00:01:15] So Ben, we were just having a conversation, we figured we'd just hit record here. Which is about the future state of what we think about maybe thinking first from the perspective of an institution as the market portfolio. So maybe you could just recap what you just told me about how this might evolve, and how that relates to maybe investment opportunities today in the financial technology stack.

Ben: [00:01:36] Sure. So I think an interesting way to think about markets and think about investing is always to push things in time to extremes. So if you imagine the world 100 years ago, 200 years ago, what did markets look like then? And by contrast, what do they look like today, what's different? It seems unlikely to me that there's something fundamental that's changed about human nature over those 200 years. So while capital markets might have changed, it feels less likely that that change is deeply foundational, and it's got more to do with just some curiosity of the rules essentially shifting. You can do the same thing by imagining 100 years forward or 200 years forward. One of the telling departures, I think, over the past 100 years or so is the idea of public and private markets, which I don't think would have been a sensible distinction to somebody investing 100 years ago or 200 years ago, or Isaac Newton kind of thing.

It's really an artifact of a regulatory regime that got created following the Great Depression, which was such an outlier in human history. The degree of suffering that occurs in the Great Depression relative to what was at that point known by economists and regulators was so extraordinary that we said, "Wait a second, let's put some rules around how markets are going to work." Because essentially the great crash destroyed the US economy. It was this feedback loop from markets that had not really been seen in that kind of way before. So we created a regulatory architecture in the United States that stabilized capital markets but also stabilized the economy through the creation of the Fed. Once you get stable economic volatility from the Fed, essentially says, "We're going to dampen the economic volatility," and you get statutory regimen around markets which dampens market volatility, you get the creation of what we think of today as public markets, which are really just liquid and exchange-traded markets. I think it's a useful reference frame to stop talking about public and private markets and talk about liquid or illiquid markets on one axis, and then regulated and unregulated markets on the other.

And so today we have liquid regulated markets as public markets. And it's a huge industry. It's created a spectacular amount of wealth for a lot of people. It's transformed the way Americans ultimately save and invest for themselves and their families over time. And it's done wonders for capital formation in the United States, there's no disagreeing with that. But if you imagine on a different end of the spectrum, you have venture capital, which is essentially a less liquid historically and less regulated historically market. And venture has also done a pretty good job of capital formation and driving innovation in this country. And I think broadly in the future, the world is going to move away from liquid regulated markets to what have historically been less liquid and less regulated markets. This will happen as a function of both regulations getting weaker, I think we've probably hit peak regulation sometime around the election of President Trump. And technology driving more and more liquidity to unlock what were traditionally less liquid markets. It moves the curve. So all the stuff that used to be less liquid, harder to invest in becomes slightly more liquid. At the same time, regulations matter less and less.

And so you get the opening up for investors, whether they're institutional investors or retail investors, of whole segments of risk that were invisible and illegible before, because they were stuck in this quadrant of this imaginary grid I'm drawing of illiquid and less regulated. If you're a big institution or if you're an individual, you're going to look at the world I think in 20 years or 50 years and say, "Most of what's actually interesting to me in terms of generating alpha, and in fact, over time I think where most of the 'market cap' will live or most of the value will actually end up is in what today we would think of today as private markets." And there's some pretty profound implications of that for you as an investor. And whether that means you're an individual trying to save for your family and for your retirement, or you're a very large institutional fiduciary responsible for that task for a much larger quantum of people.

For us as a venture investor in fintech, one of the things that we're particularly excited about is trying to find businesses that are kick-starting that, that are finding asset classes that historically were invisible and illegible, and making them accessible for people to invest in. Which has been the trend, we were talking about before, for a really long time in public markets. The rise of indexing and passive investing is in some sense about taking asset classes, strategies ways of making money that institutions had access to, and democratizing them for individual investors first. And then the institutions catch back up to it.

Patrick: [00:06:19] ETFs would be something very similar.

Ben: [00:06:21] Yeah, ETFs very much. We were talking before about GLD, gold. If you imagine trying to buy gold 25 years ago as an individual investor, it was a huge pain. You had to find some store that would sell you some physical gold. They would mark it up to some price that wasn't actually reflective of the current market at that point in time. They'd probably charge you a big fee in order to do it. And then by the way you're lugging around a bunch of gold, which turns out to not be the most convenient thing in the world. Today you can touch something on your screen and boom, you own GLD as an ETF. What ETF does is it actually adds liquidity to the market for gold. It also dramatically opens up the number of institutions and individuals who can actually go buy the thing. And it takes what was an asset that wasn't especially legible for retail investors, it was hard to deal with, hard to even see it, hard to see the benefit of it in your portfolio. And now millions of people own gold in their portfolios and are happy about that. That's, by the way, been a really good trade for them in the past little bit. It's had really diversifying power and improved ultimately the quality of their portfolio.

Patrick: [00:07:24] There's several avenues I want to explore, first of which is the kinds of businesses that are basically surfacing legibility. Maybe you could give a few examples that are more cutting edge or very new, just so people get a sense for what that means in today's context. What's an example of a business that's making legible and investible assets that five years ago was illegible?

Ben: [00:07:45] I think there's a pretty broad range of these things. At one end, you have LendingClub and Prosper and the variety of businesses that we think of as peer-to-peer lenders. They originally started that way, now they're all essentially institutional platforms. Personal loans as a category, it's a very rapid growing area of our debt landscape. For the investors who are buying securitization of these kinds of things, you couldn't really do that pre-credit crisis. To the extent that the assets even assisted, they were held on bank balance sheets. Today, there's pretty robust securitization market and there's billions and billions of dollars of these loans that are being bought by institutions. Now, those aren't available that much anymore to an individual investor, but this kind of function of taking a set of risks and securitizing them and making them accessible for investors has been happening for a long time. I think Michael Lewis famously writes about it happening in the mortgage market in Liar's Poker. That's a great example of, hey, in the '80s they took this massive market that was fundamentally not accessible to institutional capital and they made it visible through securitization. You see the same function happening today. That's standard fare Wall Street transformation of risk.

But at the other end you see things like we were talking before, StockX is an example or Rally Road, where you can trade snickers and you can trade fractional interest in collectible cars. There are startups that allow you to trade receivables on fresh produce from farmers. CircleUp, which I know came on your podcast and which we're an investor in, allows institutions and accredited individuals to buy into small cap private companies in the consumer market that are taking a set of risk profiles that previously weren't really available for institutions or individuals to easily get to, and now buy those kinds of things and trade those kind of things, and add liquidity to it over time. And virtually, all of these things essentially require you to be an accredited investor in some way, shape, or form, which is an example of what I mean by a huge regulatory distortion that exists in markets, where the SEC said at some point in prehistory, "Okay, we're going to define this group of people as accredited investors," which is essentially a wealth test, it's not even a sophistication test.

As well, if you have money, it probably means you're sophisticated enough to lose money, which is on its face absurd. By the way, the numbers haven't been updated. I mean, there's all kinds of problems with these sorts of tests. And so you have a distortion in the market. Those kinds of distortions will go away, whether it's regulatory pressure or technology solutions which are doing that in pretty real time. And it's these kinds of categories that we think can grow. I'm not saying any one of those specifically we'll look back 50 years and go, "Oh wow, sneaker trading is this massive asset class." But it could be. Certainly 15 years ago, nobody thought trading of cryptocurrencies was going to be a fairly big asset class. I think if you actually pitched what the cryptocurrency world today looks like to virtually anyone in the investment industry 15 years ago, they would have thought you were insane. And yet today there's this surprising amount of that happening, and it's happening all over the world, which is the other piece of this that we didn't talk about earlier. You could sell sneakers or collectible car interests to people not just in the United States in wealthy places, but literally all over the world.

So value changes a great deal when you create a much more connected global market, with more heterogeneous risk functions and preferences. You see this in the art market, which is another example of the kinds of markets that are unregulated, very weird liquidity. And yet there's actually a lot of market cap in art. It's much bigger than those people think. And the trends of what's been appealing in the art market have changed radically over the past 15 years as wealth moves in Asia. So there are whole categories of art that suddenly people are paying attention to as a collectible category that were not meaningfully collectible 15, 20, 30 years ago. I think that's another good example of what happens when you add liquidity to what have historically been illiquid asset classes. It changes the collective preference function, and so it ultimately ends up changing value, because that's all markets are. There's more buyers than sellers, at the end of the day, price goes up.

Patrick: [00:12:03] I love the idea that technology or examples of where technology creates new markets or new places that you couldn't have conceived of before. Everyone always uses the Uber example, if we wouldn't have anticipated this market for random people's driving time. So what I'm interested in is where you see the most interesting things happening in that creation in the investment markets today.

Ben: [00:12:23] I think one really big category that we're far from the only people thinking about is in real estate. I eluded a little while ago to the invention of mortgage securitization in the '80s and the sheer size of that market. One of the things that's funny about just taking the United States, single family owner-occupied houses, it is a massive market, every house in the United States that is individually-owned and not investor-owned. And you go, "Well, what's the capital stack of a typical house?" It's two classes of securities. It's a single tier of common equity. You own your equity in the house, and then a single tier of senior secured debt, which is your mortgage. And that's it for virtually every house. You have some exceptions in things like HELOCs and second liens and stuff like that, but it's a really simply capital stack.

By contrast, if you looked at corporations and you said, "What's the typical capital stack of a corporate?" It is radically more complicated. There's layers and layers of debt, and there's layers of different equity securitization. They've got mezz pieces, and there's options, and there's this incredibly ornate, elaborate superstructure of ways to address and refine the risk profiles inside the corporations.

And you go, "Okay, well that makes sense, corporations have a lot of value. They're very valuable things. So if I have something that's worth $100 billion or $10 billion or even $1 billion, I can carve it up and it's efficient for me to carve it up into other slices of risk. But if I have a house, and it's worth $300,000 or $1 million or even a 3 or $4 million dollar house, is it really going to be efficient for me to take the time to carve that risk stack up and create some mezz security on Patrick's house that's a certain amount of market cap? Who's really going to trade it?" Well, it turns out if you have technology to do this, it actually suddenly becomes efficient. If you imagine rolling up an awful lot of houses into pools of risk, then suddenly they become tradable. That's exactly what happened in the mortgage market. So that pool of senior debt in turn downstream gets hypothecated enormously.

What we're just starting to see now through fintech are companies that are changing the risk profiles at the point of origination, at the asset level rather than at the bundle bubble. So we're investors, for instance, in a company called Landed, which what they fundamentally do is they allow school teachers to buy houses, to buy their first home. The basic idea says, "You're a school teacher. You're actually a tremendous borrower from an underwriter's perspective if you want to give a mortgage, because you're local to a community, you have a very stable job, a very predictable income. We know what you're going to do as a teacher, so you're a good buyer for a home. But a lot of times you haven't been able to save up enough for a down payment, especially in a prime real estate market." So let's say you're a school teacher in Palo Alto, house prices are expensive. What Landed does is they say, "Okay, we'll match your down payment. Simple math, you want to buy a $1 million house, you need 20% down. You put up 100K, we'll put up 100K as Landed, and then we'll help you find the mortgage and do all that." But it's a pretty plain vanilla mortgage. And bang, now you're a homeowner in that house.

The difference is Landed doesn't get half the appreciation on your equity, even though that's what they posted when you ultimately sell the house. They get something less than half. There's a little more refinement to this, but this conceptually is like a piece of Mezz Debt sitting in that capital stack. So you've gone from a very plain vanilla thing of a senior secured debt instrument and a single tier of common equity, you've added this funky mezz strip in the middle of it at the asset level. You didn't do this on a big pool, you did this at the single house level. And this becomes efficient over time, and Landed isn't the only one that does this, there's three or four companies that are doing this. And there's a whole host of other ways that home buying is actually changing at the individual asset level, which only becomes possible because technology both changes the way we can actually look at individual houses and value them. It changes the origination process to make it more efficient and faster than what... If you walk into a bank and try to get a mortgage, it's a 90-day process and incredibly clunky and inefficient. Most banks actually lose money on the outright origination and they have to make it all up on the loan itself because they can't actually originate it at a cost that makes sense, and on and on.

You can imagine this kind of thing happening in lots and lots of asset classes, where, by the way, if you take this kind of mezz strip that Landed and others are creating, and they would hate it that I'm calling a mezz strip, but it's what it looks like. And you roll all those up, suddenly you have a very different risk profile than an institution can buy, if you imagine thousands and thousands of these individual asset level risk pools being created. And suddenly what you've done is you've actually unlocked as an asset class single family, owner-occupied residential real estate, which by the way is you a big institution today, you cannot buy. You can buy investor-owned single family residential, but those properties have a slightly different risk profile, because they're rental properties than ones where owners actually live in it. Those markets will trade differently. A market that's heavily owned by investors will end up trading through cycles over time differently than a market where owners are living there. That makes some degree of intuitive sense.

Again, this is something that's been around a really long time, and we have a lot of intuitions about how the housing market work. I mean, there's millions of Americans who think they're real estate geniuses because they happen to move into markets at the beginning of an interest rate supercycle and have made a ton of money in this. So we all have these intuitions about how the real estate market works. Most of them are wrong, it turns out. But one of the deeply wrong things is that, "Oh, yeah, it's just going to work this way, where people are going to buy my house, and it's going to be an individual, and the rise of iBuyers, the rise of investors buying these kinds of properties is a good example of, "Wait, our intuitions are how the housing market fundamentally works are wrong, and there's actually lots of other things that can happen in that market." This is happening not just in housing though, but broadly across all of real estate, so I think that's a really good example of where you see technology changing the way people invest

Income Share Agreements & Preparing for Innovation

Patrick: [00:18:31] I want to come back to this idea of alpha, which is where we started our conversation before we recorded, and how large professional institutional and other investors think about alpha versus beta, kind of what those concepts mean. I think part of this is identifying new beta and making it cheap and accessible and liquid other than housing, are there other major asset classes that you think jump out as obvious candidates for this sort of trend?

Ben: [00:18:57] The trend being accessing new betas?

Patrick: [00:18:59] Correct.

Ben: [00:19:00] I think there are many. I'll talk about one, that I find a curious one, and I frankly don't know that I have super refined thoughts on it, but I think it's just going to happen over the next generation, and so it's worth talking about, which is income share agreements. ISAs as they're called, are a fascinating financial instrument, and there have been experiments in this thing for a while now. The basic idea is it's typically applied to students. So you can imagine that I make a student loan to you in the conventional way, where I lend you money and there are some terms around that, and then over time you pay it back or you default on it. In the US anyway, we have turned student loan industry into this horrible thing that ends up not really working for anyone over the long run. Collectively, all of us are going to be on the hook for it because so much of our student loan industry has been essentially guaranteed by the government, and it seems almost inexorable that that will not get repaid.

And so as a policy matter, it just doesn't really work. One of the ways that people are thinking about trying to fix it is through an income share agreement where now I lend you the money but it's not really a debt asset. It looks more like an equity type of investment, because the way you're going to repay me is through some percentage of your income over time, what that means is that I might get back significantly more money than I lent you, I also might get back less, so I'm taking more risk in the process of giving you some money. But in aggregate, because on some borrowers I'm going to make more than I ever lent through the income share, it works out for the better from a public policy perspective and from the whole. And so, what happens when you shift from a credit instrument to an equity instrument in capital markets, you are mechanically accessing a different beta. We talk about an equity risk premium, that's different from something that you see in credit, even in something like corporate credit where you're taking a duration bet and a spread bet, you're actually transforming a little bit the nature of that risk profile.

And so here, if you imagine that student loans, if they were priced accurately, which we know because of the government distortion they're not, there were some underlying bet on aggregate economic health that's driving it and then some idiosyncratic thing that's through spread tied to you, which is not at all how these loans price by the way. When you go to income share agreements, it's just might cleaner. The people who do it are actually underwriting you. They're underwriting where you went to school, what your major is, what you tell them you're going to try to do as a career, what grades you get. You can imagine a very extended data set of things. You get higher resolution risk pricing, and that's a thing that I think technology does very, very well, is it creates a much higher granularity at which we can price a risk. And so in ISAs, at least in theory, you can see this where we're underwriting an individual person and we're doing it in a way is hopefully much higher resolution than you would get even just applying for a personal loan.

This exposes investors at scale to a different kind of beta than you've been able to get before, because student loans are pretty large part of the capital ecosystem. You can buy student loans characterization. You can buy student loan debt. If you imagine that I can buy different kinds of income share agreements across different geographies, across different age groups, across different majors, different career choices, I could get exposure to a beta that was the earnings of doctors in the United States. And what an interesting way to express a thesis about healthcare. So today if I have some view of what's going to happen as an alpha view with US regulations around healthcare. There's a basket of stocks that I can buy. There might even be baskets of bonds I can do. There's probably some exotic political derivative I can buy from an investment bank if I'm sophisticated enough. Maybe I just say, "You know what? I think doctor earnings are going to go down?"

How would you ever play that? You couldn't. But if ISAa existed, you couldn't at scale. I think there would be lots and lots of those kinds of things that will be available to you, and so you get both the beta of it. Broadly speaking just wages, wages turns out to be a weird thing. If you wanted to just say, "I think wages in the United States are going to go up." How do you directly express that bet? Well, you're basically going to do it through some kind of inflation instrument. It's not perfectly linked to it. Again, if you're a ...

Patrick: [00:23:07] Short labor-intensive businesses and you don't want to go long tech businesses

Ben: [00:23:11] But can imagine a million of these things. That's actually really a good example. Let's say you wanted to bet on wage inflation in the San Francisco Bay Area, long and short it in New York. You could never make that bet today, but ISAs existed you could at scale I think this will happen because almost every player in the student loan infrastructure doesn't like the way the system's set up today, from the colleges, to the government, the debt providers. The only people who actually like it are the servicers. And even they are starting to realize that the business is starting to topple over under their own weight.

Patrick: [00:23:45] So I really liked Daniel Ek of Spotify's conception of seeing around corners as a business leader, that his job was to anticipate the major state changes two three years down the road and begin preparing for the now. My next question is about professional investors. Let's say it's as a category, big institutions but also wealth intermediaries, so big IRAs or warehouses, financial advisors that are managing money on behalf of others. How would you grade them today in terms of preparing for a lot of the things that we've discussed thus far and beginning to do the work so that they can position their pool of investment assets in this, we'll call it next generation of investible things?

Ben: [00:24:27] Yeah, I love that phrasing. It's actually phrasing we talk about internally of seeing around corners. One of the things we're cognizant of though, is sometimes in venture you can almost see around too many corners and you get too far forward. Because change can be very discontinuous. Some things just keep happening, and 20 years on the trend has been the trend. I mean e-commerce, it's just this steady thing that's been happening for 20 years. Markets didn't price it continuously, markets priced it very discontinuously. But the underlying has been very continuous. Then you see other sorts of changes where you're just never expecting it and you wake up a year or two years later and there's been this enormous inflection, social media probably looks more like that than something like E-Commerce. So, one of the things I would say is the investment industry isn't actually responsible I would say for seeing around two or three corners, unless you're actually running money on a 30-year time scale. And there's very few people, that even formally are charged with running money on a 30-year time scale and then there's a subset of that that are actually succeeding at that mandate of running money on-

Patrick: [00:25:30] Probably name all of them.

Ben: [00:25:31] Yeah, right. Their businesses and their job, in some sense, is just not that kind of time scale. So if you're talking about a five-year return target, which is already... That feels like a really long time for most people. I actually think most of these players are not doing a terrible job. I think they're doing okay. Because a lot of these changes that we've been talking about, I think really we'll obtain over a very, very long period of time. Unless you are in the business of trying to capture alpha associated with those changes. Which we are and other venture investors are, it's less relevant for you.

Let's say you're starting a career in the investment management industry, I think it's very relevant for you. Because if you're saying, "Hey, I want to be an investment professional for 50 years of my life or 30 years of my life, suddenly this stuff does matter." There's not a lot of people today who are really excited to start a career as a discretionary FX trader on Wall Street. Those jobs are vanishing. That was a great path to making a lot of money if you started doing that in the '80s and '90s. Today, all those people are being fired from their jobs. If you're a discretionary bond trader, no one is hiring you. No one's hiring you out of college to do that job. No one's hiring you if you're 10 years, 20 years, 30 years into a career. And so if you're a young person thinking about starting a career, or if you're 10 years into your career, I think these things start to become relevant.

But if you're an IRA and your job is managing a bunch of money for those doctors whose wages may decline over the next generation, I think they largely do a decent job. I think the technology industry has delivered a lot of new solutions for them to access lots of asset classes. I think the challenge in those jobs has actually gone up because there's been such a proliferation of information and of opportunities downstream to people that the complexity as an investor in those jobs has actually gone up a great deal.

At the bottom of it, what do most people actually want? Most people don't really want to beat markets. They just want to make sure that their neighbor's not beating them at the end of the day. I mean that's really what drives most, I think, of retail investments. Somebody's going to show up at a cocktail party about their neighbors are going to talk to them about this super hot stock they're in or this angel investment they're in, maybe it was buying gold when that was a nouveau thing to do, and maybe it will be buying income share agreements at some point. That will be the cocktail party chatter, and then you'll see it become a thing and IRAs will get hit with, "Wait, why aren't in an ISA fund?" And half of the IRAs are like, "What's an ISA fund?" And then, "Funny, you should mention it, I have one on the shelf through this platform." And so on and so forth.

But I think for most people, they're getting something decent, they're just overpaying for it from IRAs and technology will drive all those costs down. I think that's really the challenge for most of the investment industry, is that the fee extraction is really too high for what most people are getting, which is largely a commoditized service. Technology will drive that down, but for some people they're happy to pay the fee because it's functionally like therapy. So I think they're doing an okay job, but there's room for improvement.

FinTech Trends

Patrick: [00:28:35] What are interesting trends to you specifically in the asset management business? We're going to come back to some of the other fintech verticals. But because that's my world, I'm always curious how investors like you think about the landscape, specifically through the technology lens in asset management specifically.

Ben: [00:28:52] Yeah. I think on the one hand things are moving very, very quickly and on the other it's unclear whether it seems to matter. The big thing I would say is the convergence of traditionally discretionary investment strategies with more systematic and quantitative approaches has happened much, much faster than I would have predicted five years ago. Some of that's just been a function of younger people taking on jobs, and anybody who graduates from college today can code effectively. They're getting jobs on Wall Street. That is just a cultural shift in what is expected in any of these jobs across the board relative to the people who've inhabited those jobs for a longer period of time.

I think back on myself, I graduated college as a philosophy in political science double major, didn't know how to code, not especially quantitative. I don't think I can get a job at an investment bank today. Although maybe because those jobs are a lot less desirable today than they were 20 years ago, but the skills are just quite different. So that combined with the fact that most active managers have not done extraordinarily over the past decade, I think has driven a search for, "Well, what are we missing?" It seems like most folks go, "oh, it must be the data. It must be the quants. That's what we're missing. Let's add some quants. Let's add some data." Maybe that will work, maybe it won't, but that seems to be a very real trend in the front office. What are the tools I can deploy to help surface things that are harder for humans to see? Because that's the big difference between discretionary and quantitive and systematic approaches? Is that, humans, I think are always... well, always is a long time, but for the moment, are clearly better at the big thing that's happening in markets, the big trend break, the big themes that are going on. But a system can do things that humans can't. It can identify lots of small things at scale over, and over, and over again reliably.

And the success of quantitive and systematic managers over the past decade or two has really driven a mindset change I think in the way people who think about investing philosophically are approaching the next generation of businesses. You see it in really every asset class, even in venture capital there are firms that are trying to be much more technologically forward and sophisticated, and they're attracting assets. It's a good story, in addition, to probably working.

I think that's the biggest change in the front office. I would say in the middle and back office in asset management, one of the things that's happened partially as a result of blockchains being a meme over the past five years is that there's a renewed focus on, "Wait a second, there seems like a really inefficient and high cost stack here to just execute and settle transactions. Maybe we can drive a lot of cost out of that stuff and free up capital for better productive uses within the investment management, just kind of get back to this war for alpha in the front office that it seems like is largely not gone very well for most folks over the past years. And so we're seeing a tremendous amount of investment there technologically.

And again, this continued lift out of talent. The financial services industry is a big chunk of GDP. It's between 50 and 20% GDP. Part of that is because it's a really lucrative, high-paid sector historically. It's hard to know exactly why it was such a high paid piece of the system, but it seems like you're going to see just tremendous wage pressure in the financial services business.

Patrick: [00:32:13] Downward pressure.

Ben: [00:32:14] Downward pressure, yeah. Tremendous downward pressure across the board, because technology commoditizes a lot of these functions. You get the elimination of a lot of jobs, and then you get a much smaller number of humans required to keep the machine running. Those people end up making a lot of money, and they essentially in some sense will capture the wage that all the other people had to lose. But it ends up being the technology where I think most of that value goes over time, more so than a lot of people pushing paper. That's fundamentally what financial services has been, is a lot of paper pushing. That's just one of the big things happening in the venture world, is that identifying any human paper-based process, that's going to go away through software. It doesn't even have to be fancy AI machine learning stuff, it's just pure workflow software will kill those kind of jobs and kill those kinds of processes over time.

Crypto & Blockchain

Patrick: [00:33:05] You mentioned it, so I have to ask your opinion, what is your take on the current utility and state of the cryptocurrency and blockchain world and markets?

Ben: [00:33:13] Yeah. I mean, I would say we have been wrong about this stuff from inception.

Patrick: [00:33:21] Okay.

Ben: [00:33:21] So I'm a little hesitant to-

Patrick: [00:33:23] Give a strong opinion?

Ben: [00:33:25] Give a high conviction view. What I would say is I've yet to hear ... So I'm so going to circle back to your question which was about cryptocurrency. I don't make a meaningful distinction between... There's some people, "Well, it's not about cryptocurrency, it's about the blockchain." I think that's a silly distinction. Tradable instruments on a blockchain is a specific use case for a blockchain. I think it turns out to actually be the best use case of a blockchain, is some kind of tradable store value. I say that because we have not heard a single pitch in our history, and in fairness, we don't focus that hard on this stuff. We've not heard a single pitch where I heard it and somebody said, "We're going to do X, Y, and Z and we're going to do it on a blockchain." I've said, "Well, if you didn't do it on a blockchain and you just did it in SQL server, is it really that different? What's actually better because you're doing this on a blockchain?"

"We're going to do X, Y, and Z and we're going to do it on a blockchain." I've said, "Well, if you didn't do it on a blockchain and you just did it in SQL server, is it really that different? What's actually better because you're doing this on a blockchain?"

That question seems to throw blockchain people sometimes, but I find it helpful if you substitute the word blockchain anytime you hear it for alternative data-based technology, which is sort of a cheat. Is there a magic in it when you stop saying the word blockchain and suddenly you say alternative data based technology? It turns out I don't think there really is. Because what you get with blockchain, the foundational idea is this idea of a trustless-

Patrick: [00:34:36] Permissionless.

Ben: [00:34:37] Permissionless is maybe a better... All right, there isn't a central authority that's going to be responsible.

Patrick: [00:34:42] Can tell you what you can write to that database.

Ben: [00:34:44] That's right. That's right. That turns out though to be a funny idea. I think of it in terms of markets, and you go, "Well, what do you want from markets? Do you want a centrally-cleared market or not?" And the interesting thing is centrally-cleared markets, there's more liquidity. They're in some sense more efficient, and they're safer places to trade. You pay for that. There is a cost for that. But there are a lot of advantages of centrally-cleared markets, and notwithstanding the point I was making earlier about public markets versus private markets. There is a value in centrally-cleared markets, whether it's a card swipe on a Visa or MasterCard network or it's a futures trade. There's value in this.

So when you put things on a blockchain, and it's a true trustless, permissionless blockchain, it's not, "Oh yeah, it's a blockchain but there's actually five nodes and they're controlled by big companies," which is just a distributed database and not what the real crypto people talk about, it's hard for me to see that many good use cases outside of actually, "Okay, maybe we want to have some store value that can be traded in that way." Bitcoin's actually not terrible for that. I think there's a reason that Bitcoin has the market cap in crypto, because that seems like a reasonable thing, that there exist some digital gold that's outside the fiat currency system, that's outside the banking system, that is really hard to get access to short of me having a gun to your head and forcing you to tell me your keys, which is a whole other set of problems.

This thing's been around a while now. Most of the time with technologies that are actually going to be foundational 10 years in or whatever we are, you would start to see some use cases. And there are some, the banks are doing things on blockchains. Again, I think their versions of the blockchains don't look like the kinds of blockchains that were envisioned in the beginning of truly permissionless, trustless setups. They're still very, very gated. And that might work, but that's just a distributed database with a handful of key masters as opposed to the idea of a truly permissionless.

Anticipating the Market & Fees

Patrick: [00:36:44] You mentioned earlier this idea of Robin Hood. And maybe their brilliance was to take a very well-established trend, which is secularly-declining commissions on trades and just jumpstart it two or three steps down the road to its natural conclusion which was zero. Talk a bit about that idea as a business model for startups and whether or not there are other trends that are inexorable that you think young companies could take advantage of in a similar way?

Ben: [00:37:09] Yeah, I think it is a powerful way for a startup to address a market, to say, take a big existing market and find a trend that's already happening or has been happening for a long period of time and just push it in your mind to the logical conclusion. And then just make that your business model. Just go right to zero commissions, totally free trading. I mean, if I had a long list of these, I'd probably should go build one of those instead of doing what I'm doing. But I think within financial services there are lots of these kinds of trends that you can think about. One of the ones that's already happened is just actually a very similar thing to Robin Hood, it's in banking, where the fees on banking services have largely come way down.

So you see a whole bunch of challenger banks that have said, "No, no, it's zero fee banking, and we'll make money in some other way on the payment scheme." So you've already seen that happen and certainly, Betterment and Wealthfront and Robo advisors like them are examples of this too, of saying, "Wait, passive indexing is going to be a thing. It's already been a thing for 30 years. Let me just jump to the end and say I'll build those portfolios for you for a very low price." I think in, insurance there are probably lots of these kinds of threads that have been working their way through the system, which is more and more refinement of risk pools, I think is a good example of it.

So Geico has been this incredibly successful company because they have both a much lower cost of manufacturing premia and they're just a more efficient operating entity, but they also select a very specific risk pool to be a Geico driver, they are picking the good drivers off, out of the risk pool. I think technology is allowing us to put more and more precisely underwrite and define risk pools in tighter and tighter bands. So I think you will start to see that happen more broadly in the set of insurance risk as an example of that.

I think the other thing in insurance is distribution costs where ... and you've already seen this by the way, that everyone looks at insurance and says, "Wait, why am I going to buy... " I mean young people are very confused about this idea of walking into a state farm branch to buy insurance from an agent. And on the commercial side, people who run small businesses are really confused when a broker shows up and wants to take them out for a steak dinner to sell them a small business policy. So you've seen tons of startups get formed that say, "Well, these people are just never going to buy from brokers, let's try to distribute it totally online and give them that kind of direct to consumer Amazon-like experience."

And that kind of stuff of distribution is a pretty good natural endpoint. I think financial services though are a little bit resistant to some of these trends because ... just think about the word financial services. To the extent you're interested in, you're paying for some kind of service at the end of the day. While the commissions may go to zero through Robin Hood and, Schwab and whoever else, I think Schwab can look at it and say, "All right, we can take commissions to zero." We're still going to make money on a different set of people who are going to pay us something for the advice. The advice isn't free, and that's harder to make free. So there are these kinds of trends, but I think it's just a fruitful path for entrepreneurs to go down.

Patrick: [00:40:16] One of the trends that certainly adjacent or even caused by indexing is the fee reduction on the asset management side. One place where that really hasn't penetrated is in the private market, so VC. It certainly has happened to hedge funds, hedge funds average fees have come down. But as far as I know, private equity firms, even very, very large ones that have scale that could pull a vanguard and pass some of that scale on to their customers in the form of lower management fees let's say, but certainly not in VC, the 2 and 20 model has been incredibly sticky and it's worked-

Ben: [00:40:46] More than 2 and 20. Venture is like at two and half and beyond asset class at this point.

Patrick: [00:40:49] Right. So that's worked because the underlying returns have been phenomenal. So you're taking a piece of a pretty large pie ... what's your view on the future of, we open the conversation by talking about how much more important non-public markets are going to be. These are still very high fee, hard to access places with very non-normally distributed returns. A lot of the best returns come from a couple of firms. So talk about those two ideas and how you think about them.

Ben: [00:41:15] Yeah, so I think all of that is true. I think that will make fee compression in private markets a little slower. So public markets obviously tremendous fee compression. We are involved in a hedge fund world as well as private markets world, substantial decompression and that's not going away. I do think you're starting to see a clearer bifurcation though in liquid markets where the premium alphas actually are going up in price interestingly, because there's a scarcity value to it, they're durable and so there's just more demand than supply, so people can charge whatever they want for it. You might see the same thing happen on the private side but I think the discontinuity in the distribution of returns that you articulate is actually in some ways more extreme than private markets at the moment. So it's harder to identify what that durable source of alpha's going to be.

The dirty secret about the venture industry in particular is that there's almost no institution that's reliable... I mean there's one and it's Sequoia. But very, very few less than 10 for sure institutions that have durably reliably delivered extraordinary results in venture over time. It could just be that somebody got the asset class, it could just be people check out and retire. Who knows why that is? So it's hard to identify which firms could command real premium prices. But I think the flow of capital into private asset and in particular private alternative managers will prevent that free decompression. One of the things that drive free decompression is well, money is walking out the door. Let me lower prices to attract-

Patrick: [00:42:43] It's all supply and demand at the end of the day.

Ben: [00:42:44] Yeah. Right, there's a market for that just like anything else. But I do think you hit on one of my favorite ideas which is, who's trying to build an index of these kinds of markets? If you take venture capital as an asset class, it's not a big asset class. It's like 100 billion a year in the US. So you go, "What would it take to really index that asset class?" And there are lots of allocators that are call it ... I mean I've actually had this conversation with a pension that's a $200 billion pension. I was like, "Let's say you wanted to index not the entirety of the venture asset class, but let's make a simple assumption and say, you as an allocator can figure out whether a manager is in the top half or the bottom half of the quality distribution. That is the only assumption. That's the only prior we're going to make, that you can figure out whether manager A is in the top half or the bottom half of the quality distribution of venture managers. Which feels like, man, if you can't do that, get out of the job.

So if all you did then was say okay, I can determine what the top half of the distribution is. All right, bang. I'm at 50 billion. Okay. So what would it cost to buy 1% of every manager of all that every year? Okay. It's not that much money. It's $500 million, which is a tremendous amount of money. But if you're a $200 billion plan sponsor, $500 million a year over a three-year cycle is 1,500,000,000. That's a 1.5% percent for you, which is not a big position in your aggregate portfolio. In fact, if you were to look at the endowment models where they run anywhere from five to 25% in venture as an asset class, it's still a tiny position. And you could probably execute on this strategy. I don't think it will be a manager that does this kind of thing. Because the way the market works, it would be too hard to actually get to the underlying assets. But an allocator could actually do the indexing work and buy an index of venture. And they could say, "We're going to get out of the manager selection business in this asset class because we don't need to do it. What we really care about is actually just getting the underlying beta of innovation and capital formation in this space."

Now, if somebody does that and you looked at that then, over time you could go, huh? Maybe that could actually be a manager that accomplished that and said, "Hey, I have 500 million bucks a year. I just want to buy tiny pieces of all these companies." And you could show up at startups and do that. I think in some sense, the folks who in the early days of Y Combinator were just saying well backline every YC deal, we're sort of trying to do this in a way. AngelList has tried to do it. I mean, the challenge is venture as an asset class in aggregate, it's not obvious that you'd want to own the entire beta. But again, if you could pick the top half of it, you'd clearly want to own it. And I think that's a reasonable assumption to make that somebody sophisticated could pick the top half.

Patrick: [00:45:40] I mean, it's such an interesting topic because in many ways it's the same topic of every kind of investing. Even if you look at public markets, indexing works and it's driven largely by a very small subset of stocks. So the returns come from, there's a parallel distribution in public markets, just like in privates. The benefit of public markets is no one can stop you from buying those stocks. But if benchmark and Sequoia and founder's fund and a few others have privileged access to that right side of the power law, an index fund can't get those. Then the prospect of an index fund in venture sounds lousy to me. So there's a privilege of access problem that I think would be really hard to overcome because why would those firms give it up? I mean, it's completely fascinating idea and probably is true for all of this stuff you were talking about in terms of making stuff legible, and accessible, and liquid. But it's, I think an important topic for allocators.

Ben: [00:46:26] I think the really interesting thing is that in a typical market, you would go that sort of access privilege which you describe and I think is true, would disappear in the face of a capital flow. Because somebody would just push the price enough and say, "Yes, I understand that you awesome entrepreneur x, you don't really want to sell to me because I'm not as cool as those other people. But what if I just pay you a heck of a lot more?"

Patrick: [00:46:47] Twice as much like.

Ben: [00:46:49] Okay, now maybe I'll sell to you. But what's fascinating is that actually doesn't seem to work in the venture business. And we have a founder in our portfolio who took money from a venture firm at what he internally believed was a 40% discount to the market to get that firm's brand on his cap table. And it wasn't just getting the brand. He thought they were actually over the long run going to be more valuable. But what's fascinating about it is before he did that, he picked up the phone and he called a bunch of entrepreneurs that that same firm had also backed. And they all said, "Yeah, you're going to take a 40% discount here, but you'll make it up on the backend because you'll actually get a premium when you raise your next round of capital."

Now I sort of hear this story. It's obviously impossible to know whether this is true because there aren't good counterfactuals out there in the market because it's always going to be a single idiosyncratic story. It sounds probably not true to me, but the power of some of these brands is strong enough in the minds of entrepreneurs, because it's not that transparent of a market. There's not that much liquidity.

And you don't really know whether somebody is adding value or not, that there's some durability to these franchises, even in the face of steadily increasing price. It remains to be seen though, if that power will persist as the flows get bigger and bigger and bigger. And I believe we're still in that period that the net inflows to venture are going to get bigger and bigger and bigger. And I think by analogy, if you imagine the private equity world in the early 2000s, everyone at a private equity firm was like, wow, this thing's been really big. It's way bigger than we ever thought. And what's going to happen. And sponsors are buying deals from sponsors and they're paying these crazy prices. Fast forward to 2020 from 2000 2001, 2002. And I was doing private equity back then. And it's way bigger than you could have possibly imagined at that point in time. All the limits that anyone would have said about, there's no way private equity can get that big. It's bigger. And I think venture will do something similar.

Future of Fintech

Patrick: [00:48:48] What other interesting verticals in FinTech have you most interested or excited? For example, we haven't talked about really payments or something like that. More specifically, a little bit about banking. What other verticals are super interesting to you today?

Ben: [00:49:01] Yeah, so we think about the landscape as sort of five categories. Payments, insurance, capital markets and investment tech, personal finance, and then kind of banking lending credit. And then we would add margins to that. Some things like eCommerce infrastructure, enterprise financial services, and things like that. At the big level, there's something happening in kind of all of those categories. What tends to be more interesting to us are almost more horizontal themes that work across all of these things. So one big horizontal theme that we think about is if you imagine 50 years ago, what it was like to run a big company, and you think about the financial functions that were involved there. Fast forward to today, a lot of functions that used to be reserved for just really big enterprises have trickled down to small businesses and ultimately to gig workers and freelancers, which is this real big trend that we don't think is going to change. The future of work is going to continue to be a kind of atomization of jobs where you're never going to work for someplace for 40 years, unless it's kind of your own thing most likely. And people will move jobs more and you'll see more and more consulting and freelance type things. So the example we like to use is payroll.

The future of work is going to continue to be a kind of atomization of jobs where you're never going to work for someplace for 40 years, unless it's kind of your own thing most likely. And people will move jobs more and you'll see more and more consulting and freelance type things.

50 years ago, there was a payroll department inside big companies, and there was some warehouse full of people. In the movies, you sort of picture all these women with big glasses, shuffling paper around. And you'd call the payroll department and they'd send you paper checks. And this is complicated calculation. Now it's like you could imagine that you just software does it for you and everyone can run payroll. It doesn't matter what size you are as an individual, you can run payroll and do these kinds of things. But there are more subtle things like accounts payable, corporations still have AP departments, big companies do. And yet technology is making that easier, even at the level of a freelancer where QuickBooks can do this kind of stuff for you.

So one of the things we're cognizant of are what are the functions that still exist? Only big corporates do from a financial perspective that will eventually make their way down to individuals. Finance turns out to be one of those, tax turns out to be one of those. That's kind of interesting. Big corporations have really sophisticated tax and rich people have really sophisticated tax advice. And yet TurboTax, which is an unbelievably good product. And Intuit is sort of a remarkable company, it's still not approximating the same degree of sophistication.

Patrick: [00:51:20] Right. Just look at effective tax rates, the evidence of that.

Ben: [00:51:23] Yeah, totally. So there's all kinds of weird inefficiencies that exist because you've needed historically a degree of scale to deliver these kinds of financial functions. And I think all that stuff will evolve. And we're invested in a bunch of companies that do this, like health savings accounts is a good example of something that if you're a freelancer or a gig worker, that's been sort of difficult for you to set up those kinds of things. But now technology and startups will make things like that easy. So future of work and all the permutations, as it rolls through all of these kinds of things, all of these categories is an area of interest for us. I think another area that we pay some attention to before I do that, just on future of work, one of the things we also think a lot about in regard to this idea of big corporates and so forth, I mentioned payroll.

So there's been a big thing in FinTech over the past couple of years around essentially payroll advances. And you sort of go okay, in investing, we can settle a complex derivatives trade at T plus four, and yet most of us settle payroll at T14. Okay. It doesn't make any sense. My trade with my employer is I'm giving them labor. They're giving me back money for it. And yet that settles T14. So I'm kind of giving them float and I'm taking some risk associated with that. But yet if I call up an investment bank and trade at sort of a very exotic derivative, it's still like T3.

So there's been all these things that are created to try to advance money to you as a worker, a whole bunch of FinTech startups that do this, and we're invested in one. There's something embedded in that that picks up a couple of these threads. And in particular picks up payments of saying, how do we make faster? How do we make more real time? A lot of transactions that historically have taken a couple of days to clear and to settle. And again, back to this idea of central clearing. And payroll is a particularly interesting category of this because it's such an important part of our universe. It's heavily regulated. It's massively protected. We have all these rules around employment that don't exist in any other part of society because collectively, we've acknowledged it is hugely important to the way the world works, that people are going to go to companies and get paid, that you get your health insurance through it in this country.

So we can't discriminate. And there's all these things. You can totally discriminate in your own house, but you can't the people in your house work for you. You don't have to be friends with people from other religions and races and so forth if you don't want to, but you can't do that if you want to hire people. And there's very good reasons for that, by the way, that makes sense. But yet you don't have to pay people necessarily when you're supposed to. I mean, in theory, you could run a company if you wanted to and you chose to pay people T60. It would be a weird state of affairs.

I'm actually sort of surprised at some of the investment banks haven't tried to do this yet where they would just say, "Yeah, you make enough money. You can cover your costs for the partners. We're just going to pay you once at the end of the year, because why not." Anyway, all the stuff that happens at that moment of we're going to transfer your sort of earnings back to you. You could imagine a whole bunch of financial services that happened there at kind of the point where labor and value are actually exchanged. And I think Uber and gig economy is a really good example of how this works, where it's a much tighter transaction of, "I did the ride, I earned X. I can get paid faster. We know exactly what's happened. And now where I'm going to route that money becomes much clearer." For knowledge workers, where it's like, there's a much looser connection between, what is the work you did? And what is the compensation you earned? It sort of doesn't feel as strange that it shows up randomly every two weeks in the bank, because the hours I worked today, the things I did today as a knowledge worker are much less connected to sort of the value of my labor.

But I think over time, and this perhaps connects to some of the things we were talking about earlier around legibility and markets, there's going to be more legibility around who's actually adding value in your company. And what are people doing on a day in day out basis that's actually moving the needle. And all of these things have the potential to really change financial services.

You could imagine a state of affairs where a company says, "Okay, we can actually figure out in real-time who's driving our bottom line and we'll pay you much more tangibly in real-time." And there's something about getting paid faster that people like. I mean, there are literally apps where you just get paid, you pay a fee to get your money faster, even though that's kind of irrational in some ways. So you could imagine it changes incentives in the workplace if you got paid a little bit faster. So payroll and the moment where labor and value kind of exchange feels like an area of focus for us. So that's one category.

The second thing I would say that we're interested in is what I would call emergent financial services. So what I mean by this, as you can imagine software, and we've talked a lot about software so far, that offers financial services almost as an ancillary thing within that context. So a lot of what you're seeing in payments companies are, I'm embedded in some enterprise for one reason or another. And then later I turn on a paying function. So actually, the payroll advanced company that we're involved in mechanically does this. They sell software to a particular category like restaurants and shift work things, and then they're paid SaaS revenue for that. And it's a beautiful piece of software. But then behind that, they can turn on some payments functionality or incremental revenue from managing payments. And there's a lot of that's happening in FinTech right now.

The last horizontal thing I'll mention is actually what I would characterize as almost a vertical play, which is this idea that you can create through technology, more targeted affinity groups as customers. So one of the things I sometimes talk about is a bank for yoga instructors. So you could imagine that at any point 10 years ago, 20 years ago, or today, somebody at JP Morgan could say, "We're going to go build a purpose-built bank for yoga instructors. And whatever it is that the particular financial services needs of yoga instructors are," and they have bespoke needs. I mean, there are software packages that exist for yoga instructors. We're going to go build a bank that just serves yoga instructors perfectly. And you can imagine you spend a bunch of money, you build this bank. And then over time, you get all the yoga instructors in the world to bank with you. Well, that's probably not a good business. The amount of money it would cost you to build that thing is not going to be recouped because the size of the yoga instructor market, while I'm sure it's growing very quickly, is still not big enough historically to have warranted what it would cost to build the bank of yoga instructors.

But what if by contrast, it doesn't actually cost that much money to build the bank for yoga instructors? Because you can outsource the ledger that's going to take the deposits to a whole fleet of infrastructure companies that are being started? And you can outsource the marketing and the cap cost to a bunch of players that are really, really efficient at targeting yoga instructors? And you can outsource the user interface design to some firm that's going to cost you a little bit of money, but you kind of get the joke that if you can build that thing way, way cheaper today than it would have cost a decade ago, which is absolutely true. Maybe suddenly the bank for yoga instructors is actually an economically viable idea. And I think where this becomes conspicuous as you go well, don't build a bank for yoga instructors, but build a bank for healthcare providers. That's a big category. Build a bank for first responders. That's a big category. Build a bank for military professionals, which guess what? That turns out to be a big category. And lots of people have done that. Or build a bank for venture capitalists, which has also kind of been done. And that worked out pretty well.

Patrick: [00:58:43] Is that Silicon Valley Bank?

Ben: [00:58:44] Silicon Valley and First Republic. Yeah, really First Republic. So I think that this kind of idea you'll see this happen more and more, and it changes a little bit of the risk profile if you're Citi or Barclays or Chase or Wells that instead of worrying about the big horizontal players that are going to set that are going to come after you. Now you have to worry about death by a thousand cuts sort of thing. And this is a little bit of a classic kind of innovator's dilemma approach. There's some small group that doesn't seem like a big deal where okay, I can lose those customers, but then you realize that's happening at scale. And you talked about investment management and RIAs and so forth doing a good job. This is a thing that you could imagine where somebody says, "I'm going to build an RIA that just serves police officers. A lot of police officers in this country. You can imagine the marketing campaign that would work for that." And I don't even know what the investment strategies tailored to police officers would look like. I don't know if they're long gun stocks or short gun stocks, but you can imagine somebody spends time and figures this out and figures out how to market to that demographic at scale, how to serve that demographic at scale. And that kind of thing, I think will be a lot of the future of financial service.

Patrick: [00:59:53] Such an interesting set of thoughts. Maybe if I could summarize a lot of the things I've learned from technology investors over the last 150 conversations I've had is focus. And this affinity group kind of crystallizes the thought for me. Focus of the product and focus of the market that they can be smaller seeming at first actually probably leads to better and bigger business outcomes than try to cast a wide net, which is a super interesting.

Ben: [01:00:16] Some of it's just a practical thing too, about how are you going attract capital to keep going, because you're not going to make money that fast necessarily. And if you start with something small and can show it's working, you can show faster growth a lot of the time, which then in turn unlocks incremental capital to let you kind of keep going down those paths. So yeah, very much things start small. And then there's this snowball that just starts compounding. And in some sense, the whole theory of venture capital is look, we're going to allow some business to grow significantly faster than its ROE would otherwise let it grow if it retained earnings and just kind of kept compounding at that rate by just pouring money on the thing to let it grow at not the ROE, but essentially the return on margin, the return on marketing margin. A very, very different kind of cost profile. And in some sort of venture capital fantasy, you don't change anything about the cost margin of a business. And all you're doing with incremental money is just literally pouring it into top-line growth and marketing funnel that then just run through some economic waterfall at the bottom that if anything, you're seeing improving margins to allow the business sort of effective ROE to go up on the business over time.

As a practical matter, what tends to happen with these things as you give them more money, and actually the ROE goes down because they invest more and more in product because they're not optimizing for the bottom line. And that's very much a symptom of a surfeit of capital that exists in the world today. But yeah, if you start with a niche and you stay focused on it, you kind of figure out what the true economics of the business look like in that category. And then you go, "Hey, this worked in this thing. Maybe we can do something else. So we talked earlier about." Landed. We started off focused on school teachers that make sense there, but you can imagine the adjacencies that start growing from that market.

And the best entrepreneurs, the absolute best founders have a way of almost speaking out of both sides of their mouth, where they can sit across the table from an investor and say, "I'm laser-focused on this market. This is what I'm going to do. But by the way, if you just let your mind run a little bit, here's all the other stuff that once I've really crushed this thing, I'm going to take over." And that seems to work over and over again-

Patrick: [01:02:25] I love it. I feel like we could go on for hours, but I know we both have other appointments. So I'll ask my closing question for everybody, which is for the kindest thing that anyone's ever done for you.

Ben: [01:02:33] Kindest thing that anyone's ever done for me. My wife, for marrying me.

Patrick: [01:02:38] A common one.

Ben: [01:02:39] It's hard to put a specific moment on it as I'm kind of reflecting on it. I feel like I'm fortunate enough to have just been exposed to so many different successful people throughout my life, for lack of a better way of putting it. Whether that's personally successful, financially successful, spiritually successful, whatever it is. Who've just been willing to kind of share advice on what's mattered to them and what they've learned, that there's probably a constellation of these kinds of moments where someone said, "Hey, this thing you're doing, that's working or that's not working."

So I think there's probably a handful of moments I can think about where friends have been willing to say, "Let me step out of a comfort zone and tell you something that maybe no one's told you, or maybe you didn't want to hear, or maybe you didn't know about yourself or something you're doing." And I view that ultimately as a sort of act of kindness. I mean, kindness is kind of a funky word. What does it actually even mean to be kind? And one of things I sometimes say is you learn the real truth about people when you ask them to do something and it costs them something, it really cost them something. That's when you really know what somebody is about. Are they going to cost themselves something to help someone else? So maybe that's a good definition of kindness. If kindness costs someone something, you're putting something at risk, whether it's a relationship or some self-image, whatever it is. So I think most of the moments of kindness that I can reflect on have been people willing to put their self-image or our relationship at risk in some way. I don't know that I can come with a specific one on the spot though.

Patrick: [01:04:16] I love it. I don't think anyone's ever given a meta answer like that about defining kindness. So 156 episodes in or whatever this is, really interesting take on it. I loved our conversation. Thank you so much for the time.

Ben: [01:04:27] Yeah, thanks. Really appreciate it.