WEBVTT - Financial Products for Hedging with Vest Co-Founder Jeff Chang 0:00:02.520 --> 0:00:11.840 Bloomberg Audio Studios, Podcasts, radio news. This is Masters in 0:00:11.920 --> 0:00:15.440 Business with Barry Ritholtz on Bloomberg Radio. 0:00:17.000 --> 0:00:20.079 On the latest Masters in Business podcast, I sit down 0:00:20.120 --> 0:00:23.400 with Jeff Chang. He's co founder and president of vest. 0:00:23.960 --> 0:00:29.200 They are a firm that specializes in defined outcome investing 0:00:29.720 --> 0:00:34.479 buffered ETFs. They try and remove the uncertainty of outcomes 0:00:34.880 --> 0:00:38.839 of your investing by using options and derivatives to come 0:00:38.920 --> 0:00:42.360 up with very very specific products. I thought our conversation 0:00:42.479 --> 0:00:45.159 was fascinating and I think you will also with no 0:00:45.280 --> 0:00:51.879 further ado, my podcast with Jeff Chang. Jeff Chang, Welcome 0:00:52.000 --> 0:00:52.680 to Bloomberg. 0:00:52.800 --> 0:00:54.040 Great to be here and thanks for having me. 0:00:54.200 --> 0:00:56.520 Well, thank you so much for coming. I'm kind of 0:00:57.040 --> 0:01:01.560 always fascinated by people who have unusual or diverse backgrounds. 0:01:02.560 --> 0:01:07.119 You in particular US Naval Academy and then an NBA 0:01:07.280 --> 0:01:10.920 from Georgetown. Is that right? What was the original career plan? 0:01:12.160 --> 0:01:14.000 So I grew up in Annapolis. 0:01:14.680 --> 0:01:17.760 The original career plan was to be, you know, be 0:01:17.840 --> 0:01:21.640 part of the Navy, and unfortunately I got medically discharged 0:01:21.680 --> 0:01:26.560 for asthma and then then decided to pursue more of 0:01:26.600 --> 0:01:30.000 a business path. And that's what kind of led me 0:01:30.040 --> 0:01:34.959 to Georgetown, and then after Georgetown, I actually right after 0:01:35.000 --> 0:01:37.800 I actually always wanted to start my own company. Right. 0:01:37.880 --> 0:01:40.000 In fact, this is kind of a funny thing. Most 0:01:40.040 --> 0:01:43.200 people don't know this. I've never actually said this when 0:01:43.200 --> 0:01:46.479 I first started. I actually started a flat screen TV 0:01:46.680 --> 0:01:50.880 company in twenty twelve, oem ing them from China. And 0:01:51.000 --> 0:01:52.600 do you remember back in the day, like flat screen 0:01:52.640 --> 0:01:53.840 TV's used to be like twenty five. 0:01:53.880 --> 0:01:56.080 Oh yeah, when they first came out, they were crazy. 0:01:56.200 --> 0:01:59.240 Yeah, So I was in DC selling those. In fact, 0:01:59.800 --> 0:02:03.000 I remember selling TVs to Reagan National Airport. So when 0:02:03.000 --> 0:02:04.960 you like, look at what terminal you are back in 0:02:05.000 --> 0:02:08.520 the early two thousands, So those were Jeff Chang TVs 0:02:08.520 --> 0:02:11.600 that were there. I think another client was six Flags. 0:02:11.680 --> 0:02:14.840 Like when you the weak, how long the week? 0:02:14.919 --> 0:02:16.440 Yeah, yeah, exactly exactly. 0:02:17.280 --> 0:02:19.639 But then, you know, as TVs became further and further down, 0:02:19.840 --> 0:02:20.680 I was like, hey, that's not. 0:02:20.639 --> 0:02:21.600 The business I wanted to be in. 0:02:21.639 --> 0:02:23.720 We'll commoditized. I don't want to be there. 0:02:24.080 --> 0:02:27.959 Yeah, all commoditized. So it taught me a lot about 0:02:28.320 --> 0:02:31.919 uh starting a business. On you know that in about 0:02:32.000 --> 0:02:35.880 life is that I realized that I needed actual hard 0:02:35.919 --> 0:02:40.360 skills that created a you know, value add And also 0:02:40.639 --> 0:02:42.880 the other component was I also realized that doing my 0:02:43.040 --> 0:02:45.519 accounting books, I didn't pay too much attention in accounting. 0:02:46.080 --> 0:02:48.480 So I actually, uh, for six months, went and studied 0:02:48.480 --> 0:02:50.520 for the CPA exam and took the CPA exam to 0:02:50.560 --> 0:02:51.519 be accounting. 0:02:51.520 --> 0:02:56.640 Which was actually a twofold kind of reason. 0:02:56.919 --> 0:03:00.760 I think one of my mentors has told me is 0:03:00.760 --> 0:03:03.720 that like, hey, there there is for the better word, 0:03:03.720 --> 0:03:08.560 there's few money and few skills. Right, you don't have 0:03:08.680 --> 0:03:12.120 that money, so make sure you build skills in which 0:03:12.280 --> 0:03:15.040 you're not always beholden to other people. And if you 0:03:15.120 --> 0:03:18.040 thought about it, that you know the two guaranteed things 0:03:18.040 --> 0:03:21.280 in life is death and taxes, right, And so in 0:03:21.360 --> 0:03:24.080 my head was I didn't want to be an undertaker, 0:03:24.120 --> 0:03:27.519 but I could take the CPA exam and sure that 0:03:27.760 --> 0:03:33.000 participate in taxes exactly exactly growth industry. So that was 0:03:33.120 --> 0:03:35.200 the reason why I took the CPA exam, was that, like, hey, 0:03:35.240 --> 0:03:38.160 I know I would never starve because you know, after 0:03:38.240 --> 0:03:40.840 the failure of my first firm, I was like, hey, uh, 0:03:41.280 --> 0:03:43.440 there's you always have to have at least a safety night. 0:03:43.440 --> 0:03:46.520 And that also informed me that when I started a 0:03:46.560 --> 0:03:50.920 new company, accounting is actually extremely important when you're starting 0:03:51.520 --> 0:03:53.120 a firm or even a start for that matter, And 0:03:53.160 --> 0:03:56.480 it actually came to pass that that has been a 0:03:56.640 --> 0:03:59.360 very very important part of my career path as well. 0:03:59.600 --> 0:04:03.440 So it's certainly a useful set of skills. But I'm 0:04:03.440 --> 0:04:06.800 going to assume the first business didn't fail because of 0:04:06.840 --> 0:04:11.680 bad accounting. It's just a hyper competitive market with razor 0:04:11.760 --> 0:04:16.800 thin margins and as stuff as economies of scale came out, 0:04:16.839 --> 0:04:19.240 that's right, the market just dies for that. 0:04:19.640 --> 0:04:22.560 Yeah, And that really informed me is that you have 0:04:22.600 --> 0:04:23.359 to have an edge. 0:04:23.839 --> 0:04:24.520 I think. 0:04:25.960 --> 0:04:29.000 Over the thirteen years of founding this company, I noticed 0:04:29.000 --> 0:04:32.160 that there were actually key features that I noticed, even 0:04:32.200 --> 0:04:34.320 going through y Combinator, of my classmates and people that 0:04:34.600 --> 0:04:40.080 built very successful companies, they had very common characteristics for 0:04:40.120 --> 0:04:40.760 their success. 0:04:41.040 --> 0:04:41.240 Right. 0:04:42.320 --> 0:04:45.920 In fact, I had Asian parents. They optimized for intelligence, 0:04:46.080 --> 0:04:48.640 which was very u you know, you guess trade as 0:04:48.680 --> 0:04:50.560 you play the violin or the piano, and you kind 0:04:50.560 --> 0:04:51.039 of go through that. 0:04:51.200 --> 0:04:54.520 They're optimizing for Ivy League admission is what you're. 0:04:54.320 --> 0:04:59.200 Imploying exactly exactly, and or be a doctor for that matter. 0:04:59.240 --> 0:05:00.760 It's so different Jewish. 0:05:00.480 --> 0:05:03.560 Parents, Yeah, exactly so it was. 0:05:04.320 --> 0:05:07.080 And then as kind of over the years, I realized 0:05:07.120 --> 0:05:11.480 that the optimization like if you know, when I have kids, 0:05:11.960 --> 0:05:14.000 because you know, I don't have kids, always none that 0:05:14.080 --> 0:05:16.600 I know of, but if I did, I would optimize 0:05:16.800 --> 0:05:20.560 for Actually number one is grit like that, and that 0:05:20.680 --> 0:05:23.640 grit is the not giving up, like like you know, 0:05:23.720 --> 0:05:26.000 your company fails, what's the next thing? Like you know, 0:05:26.040 --> 0:05:28.640 you pick up yourself from your bootstraps and you get 0:05:28.720 --> 0:05:31.039 up and go. It's almost like the thing is like, 0:05:31.240 --> 0:05:33.840 as an example, my parents didn't let me play video games, right, 0:05:34.560 --> 0:05:38.880 but I realized video games actually if you introduce grit, 0:05:38.960 --> 0:05:40.880 like you know, if you play Call of Duty, like 0:05:40.960 --> 0:05:42.800 I was the guy that when I play Call Duty 0:05:42.800 --> 0:05:45.320 in my twenties, I would buy the the headphones that 0:05:45.360 --> 0:05:47.479 would let me hear whether or not someone's behind me, 0:05:47.480 --> 0:05:50.599 because whatever it takes to win like that type of 0:05:50.640 --> 0:05:52.479 you ever see that kid that does not want to 0:05:52.520 --> 0:05:55.520 lose that like fails but then gets up and figures 0:05:55.520 --> 0:05:56.240 out a way to win. 0:05:56.480 --> 0:05:57.640 That is grit, And I. 0:05:57.560 --> 0:06:00.200 Think resilience is more important. 0:06:01.000 --> 0:06:03.960 And then the second is I realized that nothing in 0:06:04.000 --> 0:06:08.240 this world can be done alone, that success requires you 0:06:08.360 --> 0:06:12.040 to have partnerships, friendships, and know people that can help 0:06:12.120 --> 0:06:15.359 build great things. Great things don't come by yourself, and 0:06:15.400 --> 0:06:19.240 that's what I think. Second is influence, your ability to 0:06:20.800 --> 0:06:22.960 let people see your dream and believe in your dream. 0:06:23.000 --> 0:06:25.120 Think about this, like if you're starting a company, not 0:06:25.240 --> 0:06:30.280 just selling your product requires influence. Like convincing your first investors, 0:06:30.320 --> 0:06:33.919 your first employees to quit their jobs they're high paying jobs, 0:06:34.320 --> 0:06:36.960 to make almost nothing and take equity. 0:06:37.080 --> 0:06:39.400 That's talk about like selling a dream. That's influence. 0:06:39.440 --> 0:06:41.960 Like think about you know, some of the greatest entrepreneurs 0:06:41.960 --> 0:06:43.920 out there. They you know, you probably heard like Steve 0:06:44.000 --> 0:06:46.000 Jobs is a reality distortion field. 0:06:46.000 --> 0:06:46.720 You know what that is. 0:06:46.760 --> 0:06:48.200 That's influence, right. 0:06:48.240 --> 0:06:50.839 That is one of the key things I think when 0:06:50.920 --> 0:06:53.960 when you're looking at business, influence is such a key 0:06:54.040 --> 0:06:58.120 thing of something that required to have success because, like 0:06:58.120 --> 0:07:01.480 I said, nothing in the world is done loan. This third, 0:07:01.600 --> 0:07:05.560 which comes back to my point, is creativity, the ability 0:07:05.600 --> 0:07:10.920 to spot things that other people don't see, right to 0:07:11.880 --> 0:07:16.160 basically be to see opportunity, to see things, to combine 0:07:16.160 --> 0:07:18.480 things together and have that opportunity. And then the last 0:07:18.480 --> 0:07:21.360 if you combine it is intelligence. If you do all 0:07:21.400 --> 0:07:23.080 four and I can give you examples that people are 0:07:23.120 --> 0:07:26.560 immensely successful just with grit. And by the way, it's 0:07:26.560 --> 0:07:31.680 in that order influence, uh, grit, influence creativity and last 0:07:31.760 --> 0:07:32.560 as intelligence. 0:07:32.840 --> 0:07:34.720 So so I want to I want to stop you 0:07:34.760 --> 0:07:37.920 there for sex because I want to spend time going 0:07:37.960 --> 0:07:41.560 over y combinator. I want to talk about this, but 0:07:41.640 --> 0:07:44.800 before we get there, I mentioned the Naval Academy of 0:07:44.800 --> 0:07:49.240 such an unusual background, talk a little bit about what 0:07:49.280 --> 0:07:53.120 your experiences were like at places like Freddie Mack, the 0:07:53.160 --> 0:07:57.760 World Bank FBR, and pro shares. That's such a diverse 0:07:58.960 --> 0:08:01.880 set of experiences. Is what did you take away from 0:08:01.920 --> 0:08:05.559 that life experience and how did that ultimately lead you 0:08:05.600 --> 0:08:06.680 to launching your own. 0:08:06.560 --> 0:08:09.640 From Yeah, so I could tell you one of the 0:08:09.640 --> 0:08:13.520 best things about what the military teaches you is not 0:08:13.680 --> 0:08:16.560 just teamwork and looking after the people next to you 0:08:16.680 --> 0:08:20.640 and really making a commitment. But there's also another thing 0:08:20.720 --> 0:08:23.240 is work ethic. Like I could tell you that I'm 0:08:23.240 --> 0:08:25.560 a morning person. I didn't grow up a morning person, 0:08:26.080 --> 0:08:28.720 but it's like five am, I'm up. And the funny 0:08:28.720 --> 0:08:30.800 thing is my girlfriend's a night person. She's like, how 0:08:30.840 --> 0:08:34.560 are you like sprightly at five thirty? And I was like, 0:08:34.600 --> 0:08:37.320 that is actually learned behavior, right, So that was like 0:08:37.400 --> 0:08:42.000 kind of the first thing of learning grit and you know, 0:08:42.760 --> 0:08:45.960 tackling the day early on making your bed, things those 0:08:45.960 --> 0:08:48.040 small things in life. I think it had been really 0:08:48.679 --> 0:08:52.439 I say important and you know, kind of keystone in 0:08:53.040 --> 0:08:53.680 that process. 0:08:54.200 --> 0:08:56.559 The second is actually. 0:08:56.240 --> 0:08:59.320 When I first started my first job at the World Bank, 0:08:59.360 --> 0:09:02.960 after trying to start my company, I had to translate 0:09:05.360 --> 0:09:08.280 energy companies in China, and I had two problems. Number 0:09:08.320 --> 0:09:13.319 one was I didn't my Chinese wasn't good enough, and secondly, 0:09:13.360 --> 0:09:16.160 my accounting wasn't good enough. Hence the CPA came and 0:09:16.240 --> 0:09:17.600 I was like, at least I got to learn one. 0:09:18.080 --> 0:09:19.920 And then I cut over to Freddie Mac. And if 0:09:19.960 --> 0:09:22.160 you remember during the two thousand and two two thousand 0:09:22.160 --> 0:09:24.800 and three time frames when Freddy Mack went into restatement 0:09:25.240 --> 0:09:28.199 so as a certified public count and I was extremely 0:09:28.679 --> 0:09:31.160 sought after at that time. So I worked at Freddy 0:09:31.200 --> 0:09:34.320 Mack and I realized that I really wanted to I 0:09:34.400 --> 0:09:38.960 read Liar's Poker by Michael Lewis, and I realized that I, hey, 0:09:38.960 --> 0:09:40.400 I really wanted to trade mortgagees. 0:09:40.520 --> 0:09:44.960 So I started to which by the way, he said, 0:09:45.120 --> 0:09:48.120 he is horrified because he thought this was a portionary 0:09:48.200 --> 0:09:51.000 tale and all it did was encourage more people. 0:09:50.720 --> 0:09:55.000 To do totally totally reading that book really made me 0:09:55.120 --> 0:09:57.200 want to be you know what he said in the 0:09:57.200 --> 0:10:01.880 book big swinging right like everybody. It was just such 0:10:01.920 --> 0:10:05.400 a fun story. It almost painted Wall Street in a 0:10:05.520 --> 0:10:08.720 specific way, but it was just the interesting part. And 0:10:08.800 --> 0:10:11.599 by the way, it also got me into reading Foobozi 0:10:12.040 --> 0:10:16.080 about fixed income, about the mortgage market. And then I 0:10:16.080 --> 0:10:17.920 wanted to be a trader. So, you know, I studied 0:10:17.920 --> 0:10:22.240 for the CFA exam, I got my CFA charter. I 0:10:22.240 --> 0:10:24.440 didn't know that would lead me to over a decade 0:10:24.440 --> 0:10:29.120 of teaching CFA, but that was really fun to do 0:10:29.160 --> 0:10:33.720 that and kind of give back. But so trading mortgages 0:10:34.120 --> 0:10:36.280 Freddy and an FBR I got to trade during two 0:10:36.320 --> 0:10:38.439 thousand and eight. I got to have a front row 0:10:38.600 --> 0:10:45.240 seat to seeing the you know, Bear Stearns Lehman. You know, 0:10:45.240 --> 0:10:49.240 I remember trading Repo during the September eight It's the 0:10:49.720 --> 0:10:53.280 month I lost all my chest hair in one month. 0:10:54.000 --> 0:10:56.080 But it was fascinating. I mean that's what I thought 0:10:56.160 --> 0:10:58.920 finance was like. So then you know, later on I 0:10:58.960 --> 0:11:02.320 cut over to le bonds and options. Then the flash 0:11:02.360 --> 0:11:06.200 crash in twenty ten, which was, by the way, I'd 0:11:06.240 --> 0:11:09.560 never seen an entire trading desk stand up within one 0:11:09.600 --> 0:11:13.040 minute of everybody's like, what's going on? Uh So, yeah, 0:11:13.040 --> 0:11:15.719 I got to see a lot of Wall Street in 0:11:16.240 --> 0:11:20.160 my twenties and thirties. It was It was definitely a 0:11:20.200 --> 0:11:24.040 formative time of understanding, you know, kind of what what 0:11:24.200 --> 0:11:28.360 made capital markets take and understanding and also understanding the 0:11:28.400 --> 0:11:33.120 pitfalls the hubris of finance that you know, well. 0:11:33.000 --> 0:11:36.640 That has to be the big takeaway from eighth nine 0:11:36.920 --> 0:11:42.600 is that markets go up and down, and if you're leveraged, exactly, 0:11:42.640 --> 0:11:45.920 it's a problem. And if you're highly leveraged, it's usually 0:11:45.960 --> 0:11:46.960 pretty fatal. 0:11:46.840 --> 0:11:47.600 Yeah exactly. 0:11:47.679 --> 0:11:53.920 And you know, and disasters are are always clear in hindsight, right, 0:11:53.960 --> 0:11:56.839 And you you look back and you're looking at twenty 0:11:56.880 --> 0:11:59.319 thirty percent of fault rates, you're like, what that would 0:11:59.400 --> 0:12:01.120 that would have been so clear in your mind when 0:12:01.120 --> 0:12:03.880 you started to look at some of the data, And 0:12:03.960 --> 0:12:07.199 so that was really formative. And the other component is 0:12:07.200 --> 0:12:09.160 is kind of like what Warren Buffet says, you always 0:12:09.160 --> 0:12:12.680 know who's not wearing pants when the water goes out. Yeah, exactly, 0:12:12.720 --> 0:12:17.040 and so I always i'd say think about, hey, if 0:12:17.080 --> 0:12:21.000 the tide goes out, make sure the money we manage 0:12:21.120 --> 0:12:23.800 for our clients that were we got pants on. 0:12:24.559 --> 0:12:28.280 Risk management turns out to be more than just a phrase. 0:12:28.360 --> 0:12:31.000 It's really important if you're running other people. 0:12:30.960 --> 0:12:33.800 Exactly, and it's something that you live and breathe and 0:12:33.880 --> 0:12:38.840 what I actually, you know a lot of our investment 0:12:38.880 --> 0:12:41.760 processes to try to get our clients to understand that, 0:12:41.800 --> 0:12:43.840 and you utilize kind of a lot of the tools 0:12:43.840 --> 0:12:46.679 that we build are basically pants like, you know, when 0:12:46.679 --> 0:12:48.560 the water goes out, and make sure that you have 0:12:48.640 --> 0:12:51.280 something there because of uncertainty. 0:12:51.400 --> 0:12:53.880 That's to say the very least. So let's talk a 0:12:53.880 --> 0:12:57.080 little bit about that. You come out of this experience 0:12:57.200 --> 0:13:01.199 on a desk through the financial crisis, you launch vest 0:13:01.240 --> 0:13:04.240 Than twenty twelve. What was the motivator? What led you 0:13:04.320 --> 0:13:06.760 to say, Hey, I think we could do this better. 0:13:07.240 --> 0:13:07.520 Yeah. 0:13:07.559 --> 0:13:10.240 So I had a very short stint at pro Shares 0:13:10.240 --> 0:13:13.480 where I met my co founder Kuran Suit he worked 0:13:13.480 --> 0:13:17.440 on the structuring desk at Barclays, and we talked about, 0:13:18.920 --> 0:13:21.720 you know, like hey, let's start our own firm. And 0:13:21.760 --> 0:13:25.679 then our first idea was going to be you know, 0:13:25.960 --> 0:13:29.880 buffers like downside protection that we saw in the structure 0:13:29.920 --> 0:13:32.840 note market. And by the way, this actually segued into 0:13:32.960 --> 0:13:38.000 the mortgage crisis because in two thousand and eight, the 0:13:38.080 --> 0:13:41.280 largest issue or structure notes was Lehman Brothers. Right like, 0:13:41.400 --> 0:13:44.640 you have a one hundred percent protected note, and then now 0:13:44.640 --> 0:13:48.199 you're standing in bankruptcy court. So that was a big 0:13:48.480 --> 0:13:50.560 change in the industry. I think the structure note industry 0:13:50.559 --> 0:13:52.680 went from one hundred and twenty billion to thirty billion 0:13:53.160 --> 0:13:55.920 in that timeframe from after the two thousand and eight crisis. 0:13:56.000 --> 0:13:58.160 So I'll tell you a funny story. I was a 0:13:58.200 --> 0:14:03.680 market strategist out of brokerage firm in two to three 0:14:04.360 --> 0:14:10.360 and we got pitched a downside protected SMA and I 0:14:10.480 --> 0:14:14.439 was just sitting in a conference room hearing this pitch. 0:14:15.120 --> 0:14:17.960 What are the any questions? And I didn't ask the 0:14:18.000 --> 0:14:21.240 obvious question that I thought, which was well, great, the 0:14:21.360 --> 0:14:24.200 NASA's down eighty one percent, where were you five years ago? 0:14:24.240 --> 0:14:27.360 Who needs this now? But the question I asked and 0:14:27.480 --> 0:14:32.280 got called into the Corporate Council's office for was Hey, 0:14:32.280 --> 0:14:35.720 what about counterparty risk? How do we know that you 0:14:35.760 --> 0:14:39.320 guys are going to be there? To make the trade good. Sir, 0:14:39.480 --> 0:14:41.600 Lehman Brothers has been here for one hundred and eighty 0:14:41.680 --> 0:14:46.840 nine years. It'll be here long after you're gone. I'm like, okay, No, 0:14:47.000 --> 0:14:50.400 it's an actual risk that no one was even discussing. 0:14:50.440 --> 0:14:54.880 It was just assumed. So it turned out that you know, 0:14:55.000 --> 0:14:57.240 counterparty risk is is a real thing. 0:14:57.360 --> 0:14:59.000 Oh it is. It's a very real thing. 0:14:59.120 --> 0:15:01.520 So we're going to talk little more about Vest and 0:15:01.560 --> 0:15:04.200 buffer funds in a moment, but I just want to 0:15:04.200 --> 0:15:06.440 get the timing right and talk a little bit about 0:15:06.480 --> 0:15:10.320 your experiences at y Combinator. You launch Vest with your 0:15:10.360 --> 0:15:15.360 co founder in twenty twelve, you join y Combinator in 0:15:15.520 --> 0:15:20.040 twenty fifteen. What led you to saying, Hey, let's let's 0:15:20.080 --> 0:15:22.360 see if we can hook up with the guys over 0:15:22.400 --> 0:15:23.400 at y Combinator. 0:15:24.120 --> 0:15:24.360 Yeah. 0:15:24.400 --> 0:15:27.760 So that's the thing in finance is there's not too 0:15:27.840 --> 0:15:31.800 much innovation, right because there's a lot of regulation and 0:15:31.840 --> 0:15:34.280 so on and so forth. And so even at our company, 0:15:34.360 --> 0:15:37.320 we we always even our identity today is still you know, 0:15:37.400 --> 0:15:40.200 Silicon Valley meets Wall Street, Right. I always think that, like, 0:15:40.240 --> 0:15:44.520 in my mind, if you know, someone in Silicon Valley 0:15:44.520 --> 0:15:46.400 were to come into our business, they could end up 0:15:46.400 --> 0:15:49.960 in jail, right or if Wall Street ends up in 0:15:51.000 --> 0:15:55.240 Silicon Valley, you know, yeah you might be you know, 0:15:55.360 --> 0:15:57.360 just end up in a dish because you know you'll 0:15:57.600 --> 0:15:58.360 run over for sure. 0:15:58.480 --> 0:15:59.120 Yeah, exactly. 0:15:59.120 --> 0:16:00.640 Because at the end of the day, is you know, 0:16:00.680 --> 0:16:05.120 we went four years with no income. Wow, right, like 0:16:05.480 --> 0:16:07.560 lived off our Wall Street bonuses me and my co 0:16:07.640 --> 0:16:10.840 founder Cronzu, Like we didn't get paid for you know, 0:16:10.960 --> 0:16:12.520 four plus years. 0:16:12.120 --> 0:16:13.160 To found this company. 0:16:13.200 --> 0:16:14.920 Like that's how much you have to the grit and 0:16:14.960 --> 0:16:18.040 the belief in something and that culture really really I 0:16:18.040 --> 0:16:21.520 think comes out of kind of startup kind of the 0:16:21.600 --> 0:16:25.280 Silicon Valley area y Combinator at the time. 0:16:26.840 --> 0:16:28.760 Run by Paul Graham is it. 0:16:29.040 --> 0:16:31.600 Paul Graham at that was the first year Paul Graham 0:16:31.840 --> 0:16:36.120 U stepped down and Sam Ollman when I showed Upcha 0:16:36.280 --> 0:16:41.280 was president of y Combinator. So twenty fifteen, twenty fifteen, yeah, 0:16:41.400 --> 0:16:44.440 Sam was president y Combinator. For the folks out there 0:16:44.440 --> 0:16:48.520 that don't know so why see, uh you know, similar 0:16:48.600 --> 0:16:50.800 to like a college application. You you thought an online 0:16:50.800 --> 0:16:53.120 college application, you actually don't need a company they help 0:16:53.200 --> 0:16:57.200 you form the firm and uh, you know, the companies 0:16:57.200 --> 0:16:59.960 that have come out of that program. You know, Airbnb, Reddit, 0:17:00.120 --> 0:17:03.880 coin based store dash open Ai was funded by YC Research, 0:17:03.920 --> 0:17:07.520 So all of that, all of those firms came out 0:17:07.680 --> 0:17:11.440 of y C. So in fact, I think I read 0:17:11.480 --> 0:17:15.960 a book called The launch Pad which talks about y 0:17:16.080 --> 0:17:19.600 C the companies that they're I mean, the first class 0:17:19.680 --> 0:17:24.520 of YC included Sam Altman, Justin Kahn who found a Twitch, 0:17:24.640 --> 0:17:26.880 and Alexis O'Hannon who founded Reddit. And I think there 0:17:26.960 --> 0:17:31.000 was like, correct, my maybe nine companies. I mean, that's 0:17:31.040 --> 0:17:35.120 an all star cast if you ask me for a class. 0:17:35.960 --> 0:17:38.800 And so it was definitely someplace that we wanted to 0:17:39.000 --> 0:17:42.560 be around. There weren't a lot of finance firms. In fact, 0:17:43.520 --> 0:17:45.879 this is the largest asset manager to merge out of 0:17:45.960 --> 0:17:48.760 y C. Uh So it was definitely something to try 0:17:48.800 --> 0:17:53.280 something different and really and get into the Silicon valley 0:17:53.800 --> 0:17:57.480 and really pushed the innovation, uh within within finance. 0:17:58.000 --> 0:17:59.800 I don't know if this is still the case, but 0:17:59.840 --> 0:18:02.439 a couple of years ago the standard deal was something 0:18:02.640 --> 0:18:05.920 like half a million dollars for seven percent of the company, 0:18:06.240 --> 0:18:10.639 plus a three month program of building, iterating, pitching, et cetera. 0:18:11.119 --> 0:18:12.680 Is that more or less sound right? 0:18:12.760 --> 0:18:15.800 That's right, that's the deal today. Our deal was probably 0:18:15.880 --> 0:18:17.040 close to one fifth of that. 0:18:17.359 --> 0:18:20.680 Oh really yeah, well ten years ago, a lot of 0:18:20.680 --> 0:18:22.280 each over the last second. 0:18:22.400 --> 0:18:26.080 And they have done a great job. I think they 0:18:26.119 --> 0:18:32.520 have maintained their I think the stat was since two 0:18:32.640 --> 0:18:38.320 thy twelve, twenty percent of the super Unicorns were funded. 0:18:38.000 --> 0:18:38.800 By Y Combinator. 0:18:38.840 --> 0:18:39.480 Wow, that's me. 0:18:39.640 --> 0:18:42.439 And then like second place is like three percent and 0:18:42.520 --> 0:18:43.640 plus or something like that. 0:18:43.760 --> 0:18:46.080 And this is like a full on boot camp where 0:18:46.160 --> 0:18:49.360 it's three months and they are really taking you through 0:18:49.359 --> 0:18:52.320 the process. Here's how you build a startup, here's how 0:18:52.320 --> 0:18:56.919 you iterate. When you first joined Y see, did you 0:18:56.960 --> 0:19:01.119 have any idea what the final product a vest was 0:19:01.160 --> 0:19:03.840 going to be or did that experience clarify what you 0:19:03.840 --> 0:19:04.280 want to do. 0:19:04.359 --> 0:19:05.320 There were certain. 0:19:06.640 --> 0:19:10.440 We went in with the idea of buffers and downside protection. 0:19:11.119 --> 0:19:13.800 There were certain pivots as far as like, hey, what's 0:19:13.840 --> 0:19:15.720 the best delivery vehicle to start with? 0:19:16.000 --> 0:19:17.960 Meaning an ETF asposed to an. 0:19:17.840 --> 0:19:22.240 S exactly exactly, But that was the foundational If you 0:19:22.280 --> 0:19:24.159 even look at our application and our pitch, it was 0:19:24.400 --> 0:19:28.080 exactly talking about the need for downside protection, the need 0:19:28.119 --> 0:19:31.560 to you know, fix liquidity and credit risk and other 0:19:31.600 --> 0:19:35.119 types of instruments. Those were kind of the foundational problems 0:19:35.160 --> 0:19:38.120 because YC always says that, like, make something that people want, 0:19:38.560 --> 0:19:41.200 and then don't just come up with the ideas. Start 0:19:41.200 --> 0:19:45.480 with the problem solving your solving, and the problem needs 0:19:45.520 --> 0:19:46.480 to be painful enough. 0:19:46.480 --> 0:19:48.960 And so anybody out there that's ever thinking about starting. 0:19:48.800 --> 0:19:51.439 A startup, always start with the problem first and make 0:19:51.480 --> 0:19:56.240 sure the problem is painful enough for your customer that 0:19:56.240 --> 0:19:59.880 that becomes you know, how you solve it can change 0:20:00.080 --> 0:20:03.680 little bit, but the problem always existed, and we thought 0:20:03.680 --> 0:20:06.840 that that was a noble problem to and. 0:20:08.640 --> 0:20:10.280 Painful enough problem to seek. 0:20:10.560 --> 0:20:16.120 That's a very customer focused approach to building a business. 0:20:16.760 --> 0:20:20.920 I don't know if Wall Street necessarily thinks in those terms. 0:20:21.320 --> 0:20:23.840 There tends to be an attitude of this is how 0:20:23.880 --> 0:20:26.640 it's been, it's been successful. Why do you think you're 0:20:26.640 --> 0:20:29.440 smarter than everybody else, smarter than the market. Like that's 0:20:29.440 --> 0:20:33.760 a sort of pushback you've gotten and that you tend 0:20:33.840 --> 0:20:38.000 to get when you roll out a different approach. How 0:20:38.040 --> 0:20:42.760 has the experience been marrying the Wall Street ethos where 0:20:43.200 --> 0:20:49.159 failure is abhorrent and the Silicon Valley mindset, which is 0:20:49.320 --> 0:20:52.439 hey failure just gets you to the solution. It's just 0:20:52.600 --> 0:20:53.359 one more step. 0:20:54.040 --> 0:20:56.840 And that's where kind of the ethos of our Silicon 0:20:56.880 --> 0:20:59.840 Valley meets Wall Street is that we live in both worlds. 0:21:00.359 --> 0:21:03.919 Like our background me and Kuran's are Wall Street backgrounds. 0:21:04.320 --> 0:21:09.840 That there is no move fast and break things mentality 0:21:10.280 --> 0:21:14.600 on our Wall Street ethos, right, it is measure four 0:21:14.640 --> 0:21:18.159 times cut once. This is people's livelihoods, their their wealth. 0:21:19.160 --> 0:21:23.320 So that part we did not adopt, not like break 0:21:23.359 --> 0:21:26.000 things type mentality that is not hard to. 0:21:25.960 --> 0:21:27.600 Do that when you're highly regulated. 0:21:27.680 --> 0:21:31.080 Its exactly exactly second is that we also realized you 0:21:31.080 --> 0:21:32.879 can't do this alone. It's not like we're starting an 0:21:32.920 --> 0:21:34.840 Airbnb where we can just kind of do x, y 0:21:34.880 --> 0:21:38.919 and z. We needed partnerships. We needed like coming back 0:21:38.960 --> 0:21:41.040 to the point of influence, like we needed people that 0:21:41.359 --> 0:21:44.480