Invest Like the Best with Patrick O'Shaughnessy
00:06:51 · Micky Malka
[00:06:51] S2: So in 2011, I was finishing my first startup with my co founder, which we had done in altogether around the world in financial services, we're here in Silicon Valley. And we decided that that one in particular called Lemon, it was the first wallet on the App Store. It didn't needed the two of us to be full time CEO. So we've played this role multiple times. So we agreed he will be the CEO and I'll be the chairman. So I get to fire him. Fun job to your co founder. And I spent the whole year just traveling the world and talking to everybody, all the entrepreneurs that we have met or people that we have interacted with or worked with. And one thing was clear, I didn't wanna be a VC and I didn't wanna be called an investor because until then, the whole life was entrepreneurial. I had started four companies, had lived in four different countries, all of these things. And yet I think the foundational mindset was one of saying, where is the passion driving you and where can you be the best version of yourself? So working through that, we wrote some commandments of life on how we wanted to operate. I don't wanna be boxed. As somebody who didn't grow up in America, one of the things that I've learned is that everybody here has a label. They put labels on you. You went to this school. You went to this career. You are a good student. You are good in math. And I did not grow up like that. They... We had no labels. It was as fun and social, and it was a lot more melting pot kind of Latin American vibe than it had been labels. So the first rule for me was no labels. And hence why from day one, some of the principles were, we're not a venture firm. That's why it was called Ribbit Capital, not Ribbit Ventures or whatever. I did not know if we were gonna be early stage investor or late stage investor or public investor. Actually, 2012 when we started, I think we were the only fund that in their documents allow for buying crypto. No one else could do it because they didn't have a permission to do it. We could. We could do anything. We had it structured like that. I looked around Silicon Valley and around the world to all these firms, and they behaved like firms. They were a bunch of partners working together. But were they truly working together or are they all together because combined they can do other stuff that they couldn't do by themselves?
00:09:21 · Micky Malka
Did they really love each other? Were they really engaged in a different way? So for us, it was much more about let's build a company that happens to be in the business of deploying capital. Let's behave like a startup. Let's build systems. Let's open anybody in Ribbit can read anybody else's inbox, email from day one. Everybody at Ribbit has access to the same data. When you align, and as an entrepreneur, anytime you start a company, you put a lot of your set equity and your capital equity to your startup because you fund it. So when we did that and put a lot of bunch of my capital into our first fund, we aligned incentives. The incentive structure of charging fees just to manage capital to me seemed completely broken. It didn't align long term with your partners the same way, so we changed that. We had a budget system. Anybody that joins a team, no matter when they join, they have retroactive looking because you have just one team. So no matter if you join us in 2023 or 2015, you will have exposure to all of it. So it's a bunch of rules around what to invest in, what stage, how do you wanna be known. We have no brand. People don't find... There's no... There's barely a website. You're even contact us on the website. So all of those things were by design from the beginning. They were not accidents. Some of them were, but a lot of them were by design.
00:10:49 · Patrick O'Shaughnessy
[00:10:49] S0: Maybe say a little bit about the first fund or two and what you were seeing and what you were doing because you were extremely early to this big world trend, both crypto and fintech. What did you see in the world that demanded your interest in these solutions that you then backed?
00:11:06 · Micky Malka
[00:11:06] S2: So we had this thesis back then, super early. You walk back a few years before that, two thousand and nine financial crisis, 'eight or 'nine financial crisis. The trust for incumbent brands or for established brands goes to negative. Nobody trusts them, nobody likes them, nobody feels identified with them. They get overly regulated and what happens is their innovation disappears. And in the late nineties and early two thousands, they were building this entire tech stack to run their back ends because before then they were paper. You walk to a branch, bank branch in the nineties, it was still paper based, completely paper based. So they had modernized the back end, but 'eight, 'nine came in a moment where they never built the last mile. And when the app store shows up in two thousand ten, 'eleven, it's a perfect storm of a mobile device with an app store, which allows you to compete as a new channel to acquire attention and customers that incumbents were way behind on. And that infrastructure that they had built in the nineties and two thousands was good enough to find bridges to connect to it and offer the last mile. So our whole thesis in the early days was let's go around the world, finding the teams and the companies that are building that last mile that will touch consumers and businesses with financial services. The crypto angle came as somebody who grew up in Venezuela, as somebody who experienced over max inflation of triple digits in any given year, in your teenagers, as somebody who... As my first startup, I was 17 in financial services in Venezuela. And when I was 20 or 21, half of the banking system collapsed and disappeared. As somebody who saw the dollar devaluate and saw what happened in Argentina and was in Argentina doing business when the Corralito happened, when they took the peso out of the peg of the 1 to one or the Real in Brazil because I also was there. I didn't need to go to school. I already had a life lesson on macro and governments and currencies, more than people have in a life lifetime. So when we saw Bitcoin early two thousand eleven, before even starting Ribbit, it was super obvious that this was something really big. So the first businesses there that we were investing in those early funds were who's gonna connect the fiat rails to the crypto rails.
00:13:32 · Micky Malka, Patrick O'Shaughnessy
And one of the first ones was Coinbase and Brian and Fred and that team there. And so we did all of these things that were in the early days of connecting the last mile of financial services to consumers and businesses. [00:13:46] S0: You're probably the most famous private FinTech investor. And yet last year you told the world that would listen to you that FinTech maybe was dead. Can you explain just that moment in time and what led you to say that?
00:13:46 · Patrick O'Shaughnessy, Micky Malka
[00:13:46] S0: You're probably the most famous private FinTech investor. And yet last year you told the world that would listen to you that FinTech maybe was dead. Can you explain just that moment in time and what led you to say that? [00:13:59] S2: We had a slide in our annual meeting. It had this cemetery and it said fintech and it had a Tom and it says fintech 2012 to 2023. And it was dead. And you could see people's faces were like, what is this team just telling me? And the reality is, I think to play an infinite game, to play a game that you get to reinvent yourself, to play a game that you enjoy, There's no winning or losing. And once you're ahead, you have to change the rules of the game so you fall behind. And we were seeing slowly and slowly that there was... Every other day, somebody else was trying to do something else in the same space. And we look at each other and said, what is this? Should we keep doing this or should we just say, you know what? It's dead. It's done. Everything that needed to get started in this last twelve years did it. So the nice thing about that mentality is to say, yes, we were ahead for a long, long time, but let's change the rules of the game so we fall behind again. Because the game is better played when you're trying to get ahead, not when you are ahead and trying to avoid people from being ahead of you. So changing the rules is the best thing in life.