composer-4f4fgec9j_editor-clip_clip_sam-dogen-financial-samurai-roger-lee_2023-aug-17-0438pm_financial_samurai_p
00:00:00.000 | - Hello everybody, it's Sam from the
00:00:02.400 | Financial Samurai Podcast, and in this episode
00:00:04.500 | I have a special guest with me, Roger Lee,
00:00:07.960 | who founded a company called Human Interest,
00:00:10.880 | and he's also the founders of layoffs.fyi.
00:00:14.520 | Welcome to the podcast, Roger.
00:00:16.520 | - Thanks for having me.
00:00:18.000 | - So I'd love to hear about your journey
00:00:20.960 | from college to entrepreneurship,
00:00:24.680 | because your background is you went to Harvard
00:00:26.920 | and you studied applied mathematics,
00:00:29.200 | and then you went to Y Combinator,
00:00:31.640 | and you started a company that turns out was a success.
00:00:35.640 | So how does one go about that?
00:00:37.320 | And first of all, how did you get into Harvard,
00:00:40.560 | and why did you decide to study
00:00:41.760 | applied mathematics in the first place?
00:00:44.120 | - Oh, let's see.
00:00:45.320 | So, you know, I've been really interested in the internet
00:00:48.880 | ever since I was a teenager.
00:00:50.280 | This was sort of the height of the dot-com boom,
00:00:55.680 | you know, 1909, 2000s, and I had a couple friends and I
00:00:58.520 | that were just interested in learning how to program
00:01:01.880 | for the web and build websites that were, you know,
00:01:04.440 | gonna be fun and enjoyable that we thought
00:01:07.600 | my friends and I would find useful.
00:01:10.480 | And so I've been tinkering around building websites
00:01:13.040 | with the internet, you know, from a teenager,
00:01:16.000 | and so I think I'd always had it in my mind
00:01:18.280 | that that was something I wanted to do full-time
00:01:22.320 | once I graduated college and, you know,
00:01:25.040 | was gonna be working.
00:01:26.600 | And it was just, you know, magical
00:01:29.480 | when I was doing this in high school
00:01:31.880 | how much of an impact one could have
00:01:35.160 | with the internet's existence.
00:01:37.200 | You know, we made some websites that reached people
00:01:39.440 | all around the country, you know,
00:01:40.760 | millions of users on these sites.
00:01:43.480 | At one point, we owned three of the top 10
00:01:45.560 | most visited sites by teenagers on the internet.
00:01:48.160 | - In high school?
00:01:49.400 | - Yeah, yeah, yeah.
00:01:50.680 | This was in 2002, 2003.
00:01:52.960 | And it was just surreal how, you know,
00:01:55.960 | a 13, 14, 15-year-old living with his parents
00:01:59.280 | could reach so many people because of the internet.
00:02:03.520 | And, you know, when you're in school,
00:02:05.720 | you kind of tend to think of your community
00:02:08.360 | as just who you know in school,
00:02:10.320 | and your life's borders don't really extend
00:02:12.960 | beyond the school walls.
00:02:14.600 | But with the internet, that's totally different.
00:02:16.040 | You can reach people all across the country,
00:02:17.480 | all around the world, have a bigger impact
00:02:20.360 | and reach more people than, you know,
00:02:21.880 | you could have ever imagined.
00:02:23.280 | And so I was always obsessed with that,
00:02:25.320 | having had that experience in high school.
00:02:27.080 | And that's what led me down the path of entrepreneurship
00:02:29.320 | when I graduated from Harvard.
00:02:31.320 | - Got it.
00:02:32.160 | So do you, I mean, I guess that's pretty unique
00:02:34.400 | for a high schooler to create websites
00:02:36.320 | that actually attracts a lot of people, you know,
00:02:39.280 | not just, you know, 50 people,
00:02:40.640 | your friends and your parents.
00:02:42.160 | So do you feel that that was a big weighting
00:02:44.840 | for how you got into Harvard?
00:02:46.480 | Because now, you know, we talk about,
00:02:48.480 | you know, we have kids now,
00:02:49.640 | and we're thinking about secondary education
00:02:51.840 | and college education,
00:02:53.000 | and you saw that affirmative action ruling.
00:02:55.640 | How, what were the components for you to get into Harvard?
00:03:00.640 | Like grades, like how did that work?
00:03:02.600 | - Yeah, you know, it's tough to say.
00:03:04.480 | I don't know how much of the internet experience
00:03:07.360 | ended up helping me.
00:03:08.720 | I was probably naive about it,
00:03:12.600 | and I don't even know if I ended up writing about it
00:03:15.080 | or putting it on my essays.
00:03:16.400 | I probably should have.
00:03:18.080 | You know, to me, you know, the website stuff
00:03:20.000 | that I was doing in high school was just for fun,
00:03:23.040 | and, you know, I didn't do it kind of, you know,
00:03:25.400 | thinking that it was gonna help me get into college,
00:03:27.200 | and I don't even think I realized
00:03:28.560 | it could have potentially helped me get into college.
00:03:31.480 | So maybe it helped, maybe it didn't.
00:03:33.160 | It's tough to say.
00:03:34.320 | In hindsight, I probably should have emphasized it
00:03:35.920 | more in my essays.
00:03:36.920 | You know, I was a good student, you know, so good grades.
00:03:42.160 | - Everybody's a good student.
00:03:43.000 | - Good SAT score, so no doubt,
00:03:46.560 | the kind of academics helped me get into college.
00:03:50.020 | You know, it's obviously harder now than it was
00:03:53.340 | when I applied to enter a college in 2004,
00:03:56.740 | so who knows if I'd get in today,
00:03:58.780 | but was certainly lucky to have a good outcome back then.
00:04:02.420 | - Okay, so it wasn't like you cured malaria
00:04:04.900 | or, you know, you invented something at 16
00:04:07.860 | that wasn't in the Science Magazine or something?
00:04:10.020 | - I did not do any of those things.
00:04:12.180 | - Okay, 'cause I'm always wondering, I'm like,
00:04:13.980 | what is, I mean, 'cause if you look at the percentage
00:04:15.700 | acceptance rates, it's like 5%.
00:04:17.620 | You know, back then it was like maybe 8%.
00:04:19.100 | It's still really low, and it feels like
00:04:21.300 | it's almost like winning the lottery
00:04:22.900 | because everybody has those high academic standards.
00:04:25.780 | - Yeah, that's right, and also, you know,
00:04:27.100 | I went to a public school growing up
00:04:31.380 | and was also kind of naive in sort of now realizing,
00:04:34.340 | oh, you know, it seems like there's maybe an advantage
00:04:37.140 | potentially if you go to private school
00:04:39.380 | or certain private schools, and there's all these things
00:04:41.540 | that I hear about, you know, kids doing these days
00:04:43.760 | to join this activity or do this extracurricular
00:04:46.900 | or play this sport and essentially kind of, you know,
00:04:50.300 | maximize their chances to get into college
00:04:52.620 | based on what they think is gonna help,
00:04:55.140 | and I feel so lucky that I didn't know any of that
00:05:00.140 | growing up, 'cause I feel like it would have really been
00:05:04.980 | a lot of pressure to, you know, think about
00:05:08.260 | all of these optimizations that I was gonna have to do
00:05:11.400 | to get into a good college, and, you know,
00:05:13.860 | it worked out in the end, and so,
00:05:16.140 | that was, you know, really fortunate,
00:05:18.260 | and I'm glad that it worked out without having to,
00:05:20.740 | you know, go through what it seems like a lot of
00:05:23.860 | kids are going through these days in terms of feeling like
00:05:26.300 | they have to check off these 10 boxes to, you know,
00:05:29.860 | have a chance at going to a good college.
00:05:33.060 | I can't imagine growing up in that environment today.
00:05:35.720 | - Right, right.
00:05:36.680 | So, okay, so after college, you got your degree
00:05:40.140 | in applied mathematics, what did you do?
00:05:43.380 | What was your goal?
00:05:46.280 | And what did you do?
00:05:47.720 | - So, you asked before why I picked applied math
00:05:50.760 | and, as my major, and the reason I chose that
00:05:55.340 | was because I looked at the course catalog
00:05:57.440 | and found the classes that I was most interested in taking,
00:06:01.820 | and chose the major that would allow me to get credit
00:06:06.420 | for the most number of those classes.
00:06:08.440 | So, it turned out I was interested in taking
00:06:10.200 | some math classes, some economics classes,
00:06:12.920 | some computer science classes, and applied math
00:06:15.960 | ended up letting me count all those classes as credits.
00:06:20.400 | And so that's why I picked it.
00:06:22.040 | And, you know, to be honest, I was a good student in college
00:06:26.360 | but I didn't spend a ton of time in class or studying.
00:06:31.360 | I really enjoyed the social experience of kind of
00:06:35.080 | being in college, especially with, you know,
00:06:37.480 | students of a really high caliber at Harvard.
00:06:41.160 | And so I don't know if I had any kind of goal in mind
00:06:44.760 | when I graduated.
00:06:46.680 | You know, I kind of applied to sort of the standard jobs
00:06:50.320 | that other applied math majors did,
00:06:52.320 | which, you know, in 2008 when I graduated,
00:06:55.000 | tended to be kind of finance and management consulting.
00:06:57.480 | So, you know, I interned at J.P. Morgan
00:07:01.000 | my sophomore summer.
00:07:03.280 | I, you know, applied and got accepted to join McKinsey
00:07:07.200 | full-time in New York City after college.
00:07:10.880 | But I ended up not going into either of those fields
00:07:14.280 | and decided to start a startup instead
00:07:18.920 | and try to, you know, do that in a quote unquote real way.
00:07:22.480 | You know, the stuff I did in high school,
00:07:23.840 | it ended up being a business,
00:07:24.980 | but we didn't have any employees,
00:07:26.160 | we didn't have any funding,
00:07:27.140 | there was no business school behind the websites.
00:07:29.380 | It was just for fun.
00:07:31.040 | But when I graduated college, I thought, you know,
00:07:33.760 | I enjoyed creating those websites so much
00:07:36.200 | that if I could do that full-time and support myself,
00:07:40.640 | you know, there's no better job that I could imagine
00:07:42.720 | than one that I enjoyed so much already.
00:07:44.680 | And so I really wanted to see
00:07:46.560 | if I could make that work as a career.
00:07:48.840 | And so I started my, you know,
00:07:50.480 | first quote unquote startup out of college.
00:07:52.760 | - Well, that's interesting because I think a lot of people,
00:07:55.180 | the stat is about 58% of Harvard graduates
00:07:58.460 | go into tech, management consulting, and finance.
00:08:02.420 | And that's really different from, you know,
00:08:04.340 | the people when they were in high school,
00:08:06.360 | when they were applying and they're saying
00:08:07.460 | they want to save the world
00:08:08.560 | and do non-profits and all that.
00:08:09.800 | And I think there's a strong financial component,
00:08:12.280 | a return on education component.
00:08:14.560 | So given you went to Harvard,
00:08:16.740 | was it necessary to go to college to start your startup?
00:08:21.480 | Because you didn't end up going into that route
00:08:24.360 | that, you know, would secure you a six-figure
00:08:27.520 | and eventually maybe a seven-figure income.
00:08:29.960 | - No, that's right.
00:08:31.080 | I mean, when I started that startup out of college,
00:08:33.780 | I think I paid myself 20K or 30K.
00:08:36.200 | So it was by no means a lucrative job.
00:08:39.300 | And certainly if I went into management consulting
00:08:42.160 | or finance, my salary would have been much higher than that.
00:08:46.360 | And so you're right that I, you know,
00:08:48.840 | maybe didn't need to go to Harvard
00:08:50.960 | in order to start a company.
00:08:52.600 | Anybody can do that.
00:08:53.680 | You don't need permission to do it.
00:08:55.440 | You know, I still feel like my college experience
00:09:01.360 | was so positive, maybe from a non-financial perspective.
00:09:05.920 | You know, the friends I made, you know,
00:09:08.380 | how I grew as a person, the experiences and activities
00:09:12.400 | that I was a part of.
00:09:14.200 | I look back at that time and it was just sort of
00:09:15.720 | this magical four years.
00:09:17.320 | And I don't know if it's possible
00:09:19.720 | to kind of put a price tag on it.
00:09:21.160 | So you might be right that, you know,
00:09:23.360 | financially speaking, unless you're, you know,
00:09:26.480 | you're looking to go into one of those high-paying jobs
00:09:28.360 | after college, it might not be worth
00:09:30.720 | going to a high-priced university.
00:09:33.720 | For me, I look at more at the intangibles
00:09:35.920 | of attending college like Harvard
00:09:37.440 | as it being worthwhile, even if it's unclear
00:09:40.500 | whether the financial returns were there.
00:09:43.460 | - Got it.
00:09:44.360 | But you did go through the interview process
00:09:46.220 | with finance and management consulting,
00:09:48.220 | and you got the offers, and obviously
00:09:49.980 | the salaries are pretty decent.
00:09:51.940 | They're definitely decent now.
00:09:53.660 | So how did you decide, okay, you got the offer
00:09:55.580 | and you said, nope, I'm not gonna do this.
00:09:57.500 | Why not take the job, it's like a sure thing,
00:10:00.260 | build your finances, and then work
00:10:01.900 | on your startup on the side?
00:10:03.620 | - Yeah, I think that would have been
00:10:05.700 | a totally viable route, and certainly
00:10:08.480 | I have classmates who did just that
00:10:10.440 | and ended up starting a company later
00:10:12.840 | when they felt more secure.
00:10:14.640 | I think for me, I just really knew
00:10:17.640 | I loved to create websites and build technology,
00:10:22.280 | and I had that experience from a young age.
00:10:24.840 | And so if I knew that was my passion
00:10:28.200 | and that was my calling and that was
00:10:30.160 | what I enjoyed doing and I liked,
00:10:34.000 | why do something else for a few years
00:10:36.620 | and defer what I knew was ultimately
00:10:40.260 | gonna be the path I wanted to pursue?
00:10:42.860 | Why not just start now?
00:10:44.340 | And in fact, the younger you are,
00:10:46.620 | you have less responsibilities,
00:10:48.580 | no family, no kids, no dependents.
00:10:51.660 | You can live on 25K a year.
00:10:54.580 | And I think I maybe feared, and maybe irrationally so,
00:10:58.100 | that if I took one of those high-paying jobs,
00:11:00.860 | I would get sucked in and never end up
00:11:04.160 | leaving to pursue my own path,
00:11:06.360 | and I would've looked back on my life and my career
00:11:09.240 | and felt maybe some regret that I didn't take the leap.
00:11:13.240 | Again, who knows if that's how it would've worked out.
00:11:15.400 | I think it was a little bit more of
00:11:16.560 | just an irrational fear in my head,
00:11:18.120 | but it was a factor in my decision
00:11:22.120 | to forego the more stable jobs
00:11:24.720 | and instead just pursue my startup from the get-go.
00:11:27.520 | So I could never experience the, maybe,
00:11:29.320 | quote-unquote comforts of having a safe job.
00:11:31.480 | And in fact, to this day, I've still never had a stable job.
00:11:34.760 | And so maybe that has helped me get more comfortable
00:11:39.720 | with the uncertainty that comes
00:11:41.120 | with going the startup route.
00:11:43.800 | - Right.
00:11:44.760 | I do think it's unique, though,
00:11:46.280 | to be able to decide with confidence
00:11:49.320 | what you wanna do by age 22, 23, and then just go for it.
00:11:54.320 | I mean, what kind of, did you have any kind of safety net
00:11:56.880 | if you failed?
00:11:57.760 | What was the safety net you thought about?
00:11:59.600 | - Yeah, it's a good point.
00:12:01.560 | And confidence is one way to put it.
00:12:03.880 | That's a generous way to put it.
00:12:05.080 | I think at that age,
00:12:05.920 | maybe hubris was maybe more like it when I was 22,
00:12:09.840 | maybe a bit naive in that regard.
00:12:11.980 | I did have, to be candid, did have some safety net
00:12:16.160 | because of the websites in high school
00:12:18.440 | that I made with my friend.
00:12:20.540 | We did end up monetizing those and attracting advertisers
00:12:25.520 | because we had amassed such a large audience.
00:12:28.840 | And so did end up making money from those websites
00:12:33.360 | over the years that we were in high school and college,
00:12:35.840 | even sold one of those websites.
00:12:37.320 | So did have a financial safety net
00:12:40.620 | in a way that other college graduates didn't.
00:12:42.920 | And I'd be remiss if I didn't mention
00:12:47.200 | that that did play a role in being comfortable,
00:12:50.640 | taking the plunge.
00:12:52.040 | - Got it.
00:12:52.880 | So you started early, had some recurring revenue.
00:12:57.200 | Of course you have your parents.
00:12:58.880 | And you live cheaply, 20, 25 grand, no problem, right?
00:13:02.240 | Worst case, you can kind of move back in
00:13:03.840 | with your parents, I guess.
00:13:05.320 | - Yeah, and just, I live in San Francisco now,
00:13:07.720 | but back then I lived in New Haven, Connecticut
00:13:10.520 | because I started that startup out of college
00:13:13.260 | with some Yale friends.
00:13:14.920 | And so cost of living was pretty low.
00:13:17.040 | - Okay.
00:13:18.160 | And so after college, you started your startup.
00:13:21.520 | When did Y Combinator start?
00:13:24.280 | And was that the start of Captain 401k,
00:13:27.240 | which is now Human Interest?
00:13:28.760 | - Yeah, that's right.
00:13:29.720 | So a few years into my first startup,
00:13:32.760 | which is called Thunder,
00:13:34.680 | I got the idea for what is now Human Interest,
00:13:39.680 | which is a digital 401k provider
00:13:43.400 | for small and medium-sized businesses.
00:13:46.120 | And that idea came out of my own experience
00:13:49.080 | trying to set up a 401k for Thunder.
00:13:52.560 | Where we were hiring,
00:13:55.080 | this is the first startup out of college,
00:13:57.320 | we were hiring experienced engineers
00:14:00.340 | out of big companies like Microsoft,
00:14:02.200 | and 401k was one of their top requests.
00:14:06.120 | And we thought, yeah, that makes sense.
00:14:08.200 | It's already hard enough for a no-name startup
00:14:11.320 | to hire great engineers
00:14:13.000 | and attract them for bigger companies
00:14:14.760 | because the pay is a lot lower from a salary perspective.
00:14:18.360 | It's gonna hurt us even more
00:14:19.560 | if we don't even have basic benefits like a 401k.
00:14:22.560 | And so I thought, okay, we should certainly set one up.
00:14:26.560 | And I'm like you,
00:14:29.080 | I'm also a strong believer in personal finance,
00:14:32.080 | and so I just thought it was the right thing to do.
00:14:33.800 | And so I go online and assume,
00:14:36.480 | okay, I can just look up online 401k,
00:14:38.760 | click a few buttons,
00:14:39.720 | and voila, we'd have a 401k for our small business.
00:14:44.240 | And it turned out to be nowhere near as easy as that
00:14:47.980 | to get a 401k.
00:14:49.480 | I soon found myself in this whole world of brokers
00:14:55.880 | and humans and paperwork
00:15:01.120 | and complex financial jargon about 401ks.
00:15:05.380 | And companies like Fidelity wouldn't even talk to us
00:15:07.680 | because we were too small for them.
00:15:10.020 | And everybody else like John Hancock and so on
00:15:13.120 | required a bunch of calls and meetings and paperwork
00:15:16.860 | and wading through lots of financial jargon
00:15:18.840 | to make all these decisions.
00:15:20.480 | And it was just really painful
00:15:23.180 | even to get a 401k off the ground,
00:15:25.680 | let alone all the ongoing administrative
00:15:28.160 | and compliance work that I learned
00:15:29.960 | we were gonna have to do even once we set up a 401k.
00:15:33.860 | And so despite 401k being the top employee request
00:15:37.920 | that we got at the time,
00:15:39.600 | we never got one.
00:15:42.380 | For years, we did not get a 401k,
00:15:45.820 | we didn't have an HR team or finance team
00:15:48.260 | to do all the administration.
00:15:50.060 | And me and my co-founders,
00:15:51.400 | we were too busy trying to get the company off the ground
00:15:54.460 | to spend time on 401k setup.
00:15:57.040 | And that always made me feel kind of embarrassed
00:16:00.600 | that we were trying to be this legitimate business
00:16:04.520 | and we couldn't offer such a common,
00:16:07.360 | important benefit to our employees.
00:16:09.920 | And then it turned out that,
00:16:11.680 | I realized later that we were not alone.
00:16:14.240 | In fact, even though we think of 401ks as very common,
00:16:18.040 | and it is common across large businesses,
00:16:21.620 | for companies under 100 employees,
00:16:24.640 | only something like only 20% of those businesses
00:16:28.120 | have a 401k.
00:16:29.480 | And meaning 80% of small businesses don't have a 401k.
00:16:33.560 | And that stat was shocking to me when I learned it
00:16:36.640 | because how could it be that this is the way
00:16:40.500 | that Americans are supposed to save for retirement,
00:16:43.400 | yet you have tens of millions of people
00:16:46.280 | who don't even have access to a 401k
00:16:48.400 | because they work for a small business
00:16:50.480 | that doesn't offer one.
00:16:51.920 | - Got it.
00:16:52.760 | I mean, that's a great problem to solve.
00:16:56.260 | - Yeah, and it also, as a technologist,
00:16:59.000 | it also frustrated me that it didn't feel like
00:17:02.080 | these barriers need to exist.
00:17:03.840 | Since 2015, there's no reason it felt that
00:17:07.880 | I needed to wade through all this paperwork
00:17:10.080 | to set up a 401k.
00:17:11.400 | There seemed to be no reason why I had to talk
00:17:13.400 | and have meetings and calls with these brokers
00:17:15.560 | to get one going.
00:17:17.240 | Why couldn't I just do it online?
00:17:18.580 | Everything was possible online at that point in time.
00:17:22.320 | And so it just seemed to me like
00:17:24.920 | if there was a way that we could automate
00:17:26.820 | and digitize the 401k experience,
00:17:29.280 | then more small businesses like my own
00:17:31.680 | would be able to offer that really meaningful benefit
00:17:34.440 | to their employees, and we'd be better off
00:17:36.880 | and maybe make a small dent in this
00:17:39.220 | looming retirement crisis that we face as a country.
00:17:41.740 | - Sure, sure.
00:17:43.180 | Can you explain to the listeners
00:17:46.220 | who are the players in the 401k and how they make money,
00:17:49.500 | including human interest?
00:17:51.280 | - Yes, so there's two ways that 401k providers make money.
00:17:56.280 | One is that they charge the company fees,
00:18:00.220 | monthly fees, annual fees,
00:18:01.900 | kind of like a software as a service model.
00:18:04.820 | - Got it, so Fidelity would charge a big company
00:18:07.860 | a certain fee based on what?
00:18:09.860 | Assets under management, number of employees?
00:18:11.540 | How does it work?
00:18:12.460 | - Yeah, usually number of employees,
00:18:14.780 | but assets do take into account as well.
00:18:18.620 | And that's the second way that 401k providers make money
00:18:21.540 | is off of the assets.
00:18:23.740 | And it's this kind of shady thing
00:18:27.380 | where they will put investment options,
00:18:30.700 | mutual funds in the 401ks that they get kickbacks from.
00:18:35.980 | - Like high fee actively run funds with high expense.
00:18:39.340 | - High fee actively managed mutual funds
00:18:42.820 | that often kick back revenue share to the 401k provider
00:18:47.820 | or the broker or the advisor.
00:18:49.940 | And so that's another revenue stream.
00:18:52.780 | And that of course, we always thought was really bad
00:18:57.220 | because it's a conflict of interest
00:18:58.860 | and ends up hurting the employees
00:19:01.200 | who are saving their hard earned money in the 401k
00:19:04.020 | because they're just getting these fees siphoned off
00:19:06.700 | from the assets that the employees put in
00:19:10.220 | because of this conflict of interest
00:19:13.220 | where there's this kickback revenue share going on.
00:19:15.900 | - Right, right, right.
00:19:18.340 | So if I was Fidelity, would it not be wise for me
00:19:21.580 | to offer the 401k plan to all of Microsoft
00:19:24.200 | and then load the options
00:19:26.060 | only as Fidelity actively run funds?
00:19:28.580 | - Absolutely, absolutely.
00:19:29.740 | - Double revenue?
00:19:30.780 | - Absolutely, yep.
00:19:32.100 | So Fidelity, and I don't wanna speak
00:19:35.060 | for any specific company,
00:19:36.020 | but one of these companies might say to Microsoft,
00:19:39.420 | okay, we'll charge less to the company
00:19:42.540 | because we know we can make more money off of the assets,
00:19:45.460 | especially for someone like Microsoft
00:19:47.660 | who has lots of assets in their 401k plan.
00:19:50.380 | - Right, like huge.
00:19:51.880 | - Yeah, and then try to make money off of the assets.
00:19:55.500 | Now, Microsoft's big enough that they're wise enough
00:19:58.300 | to try to negotiate the investment funds
00:20:01.380 | that they're not gonna put in really high,
00:20:03.140 | or I hope they don't put in really high,
00:20:05.340 | expensive mutual funds that don't make sense to be there.
00:20:09.020 | But a small business doesn't know any better.
00:20:10.580 | And small businesses don't have investment committees
00:20:13.820 | the way that Microsoft does.
00:20:15.460 | And so if you look at the average asset fee
00:20:19.340 | for a small business,
00:20:20.380 | it's way higher, 1%, 2% on average
00:20:25.240 | compared to a large, well-run enterprise like Microsoft,
00:20:28.740 | which often is able to get the asset fees
00:20:31.820 | to just a fraction of a percent.
00:20:35.540 | - I see, so the small business would pay 1% to 2%
00:20:38.180 | to the 401k provider every month or year,
00:20:41.460 | ongoing forever.
00:20:42.820 | - Exactly, exactly.
00:20:44.260 | Whereas the bigger businesses like Microsoft,
00:20:45.980 | they have the bargaining power,
00:20:47.420 | they have the know-how and investment committees
00:20:51.140 | to be able to negotiate that down.
00:20:53.260 | - Got it.
00:20:55.380 | And given we all know that fees are not as good as no fees
00:21:00.380 | and actively run money managers tend to underperform
00:21:04.780 | over the long term versus index funds,
00:21:07.500 | wouldn't it be logical to assume
00:21:10.340 | that all companies would say,
00:21:12.180 | well, give us some variety of index funds,
00:21:15.340 | passively run, low-cost index funds
00:21:17.100 | as part of your portfolio of all funds available?
00:21:21.180 | - Absolutely.
00:21:22.020 | And we are seeing, thankfully,
00:21:23.740 | some pressure moving in that direction
00:21:26.580 | where now most 401k plans do at least have index funds
00:21:31.300 | in the mix, in the menu lined up.
00:21:33.620 | So it's not all actively managed mutual funds
00:21:36.180 | the way that it used to be.
00:21:38.340 | That said, some of these 401k providers
00:21:40.060 | are still pretty sneaky about it.
00:21:41.740 | They'll offer a couple of index funds in there,
00:21:43.900 | but they kind of count on the employee
00:21:47.140 | to know about them and to choose them.
00:21:48.900 | And the default option is still not the index fund
00:21:51.340 | or the index funds are only one or two out of the 20.
00:21:54.580 | And so you have to really know
00:21:55.820 | to look for the expense ratio
00:21:57.220 | to identify the index funds as a participant
00:22:01.140 | to be able to take advantage of that.
00:22:02.340 | And the 401k provider is betting
00:22:04.580 | that the vast majority of employees
00:22:08.060 | aren't gonna realize that
00:22:09.340 | and will just put their money in higher fee funds.
00:22:12.660 | - Got it.
00:22:13.500 | So I guess all listeners listening,
00:22:15.260 | it's important to have a good HR person explain to you
00:22:17.220 | and it's good to review those funds
00:22:19.180 | and x-ray your portfolio for excessive fees
00:22:22.860 | and look at their performance.
00:22:23.900 | I mean, maybe the fees are warranted
00:22:25.380 | if they have a huge, awesome, outperforming track record
00:22:27.980 | over the past 10 years.
00:22:29.980 | So human interest is not,
00:22:31.780 | you guys don't create mutual funds,
00:22:34.180 | you don't offer funds, but you set up 401k plans.
00:22:36.900 | So how do you bring those funds into,
00:22:40.060 | those options into a small business
00:22:42.620 | and then how do you guys make money?
00:22:44.180 | - Yeah, so our primary revenue stream
00:22:46.060 | comes from the monthly fees that the company pays.
00:22:49.900 | We do make a small percentage of revenue off of the assets,
00:22:54.460 | but it's much, much less than what's typical in the industry.
00:22:59.060 | And the reason for that is because
00:23:01.100 | we can bring in any fund that's available.
00:23:04.260 | So we don't have our own funds,
00:23:05.700 | we don't make money off the funds,
00:23:07.780 | which means that the vast majority of the funds
00:23:11.500 | that our customers choose are index funds
00:23:14.540 | from places like Vanguard.
00:23:16.420 | And so there are lower fee index funds
00:23:18.060 | coming from Vanguard and others.
00:23:20.260 | We let the company choose,
00:23:22.620 | so if they wanted to use Fidelity funds, they can,
00:23:24.500 | if they wanna use BlackRock funds, they can.
00:23:27.500 | So we have access to pretty much every fund that's out there
00:23:30.780 | and we buy us and encourage our customers use index funds
00:23:34.940 | because that's going to be the better approach
00:23:37.220 | for their employees in terms of lower fees.
00:23:39.740 | - Okay, so do those fund creators,
00:23:42.460 | do they try to pitch you guys and say,
00:23:44.500 | "Hey, can you include our funds
00:23:45.860 | "in the plans that you set up?"
00:23:48.220 | Or no, how does that work?
00:23:49.860 | - Yeah, initially no, because we were so small
00:23:52.180 | that nobody really cared.
00:23:53.420 | That might be changing as we grow,
00:23:58.020 | as we get more assets, maybe funds do care.
00:24:01.620 | And I remember in the early days,
00:24:03.160 | we did have a couple of companies pitch us,
00:24:05.420 | but we always said no because
00:24:07.420 | they were trying to get their high fee funds in there
00:24:11.060 | and we didn't think that made sense for our customers.
00:24:13.760 | - Okay, so things are changing a little bit now.
00:24:17.260 | And so when you package, is it a package where you say,
00:24:21.500 | "Here is a 401k product that we set up,
00:24:25.100 | "we do the administration and everything,
00:24:27.080 | "and here's the portfolio funds you can choose."
00:24:29.660 | And where does the fund actually, I guess, sit?
00:24:33.580 | - Ah, yes.
00:24:34.420 | We don't actually custody the assets ourselves,
00:24:38.700 | so we do the software part in terms of
00:24:41.220 | automating the setup,
00:24:42.540 | automating the administration and compliance,
00:24:44.980 | integrating with the company's payroll system,
00:24:47.780 | having an account for employees
00:24:49.660 | and administrators to access.
00:24:51.820 | But it's not our funds and we don't hold the money.
00:24:54.900 | The funds are held through a third party custodian,
00:24:58.560 | kind of like a brokerage house or a third party custodian.
00:25:03.560 | - Got it.
00:25:04.980 | So if I was a small business,
00:25:05.920 | one of the 80% of small businesses with no 401k,
00:25:09.260 | how do I, do I just go to humaninterest.com
00:25:12.520 | and fill out the contact form?
00:25:14.840 | - Yep, exactly.
00:25:15.680 | Yeah, you can go to humaninterest.com
00:25:17.560 | and then click get started.
00:25:19.000 | And you should be able to get up and running pretty quickly.
00:25:23.620 | - Got it.
00:25:24.720 | And so just shifting gears a little bit,
00:25:26.360 | so let's say I was working at Human Interest.
00:25:29.400 | What would be, right now,
00:25:30.800 | the most important job at Human Interest?
00:25:34.820 | Is it business development to get more businesses?
00:25:38.240 | What is that job that would be the most lucrative job
00:25:41.200 | and beneficial job to the company of Human Interest?
00:25:43.840 | - That's a great question.
00:25:45.760 | You know, I think there's two, you know,
00:25:49.040 | kind of core areas of priority that I can think of
00:25:52.320 | that we're, you know, working hard on
00:25:55.800 | and the team is working hard on.
00:25:57.720 | One is, of course, getting more customers.
00:26:01.520 | So we now have, I think something's like 15,000
00:26:05.460 | small business customers on Human Interest,
00:26:09.300 | which has, you know, grown a lot over the years,
00:26:12.540 | but is still a tiny, tiny sliver
00:26:15.020 | of the millions of small businesses
00:26:17.060 | that could and should have a 401k.
00:26:20.660 | And so certainly any efforts to get the word out
00:26:23.660 | to make it more known that, you know,
00:26:27.100 | small businesses now have a better way to get a 401k
00:26:30.180 | and it's not possible for them to get a 401k,
00:26:32.860 | that's certainly very important to us.
00:26:34.920 | And then we're also making a ton of investments
00:26:37.540 | to improve the technology experience.
00:26:40.000 | The whole model behind Human Interest is that
00:26:44.080 | by automating every part of the 401k stack,
00:26:47.760 | we can lower the cost for the business,
00:26:50.040 | lower the time it takes for a business to run a 401k
00:26:53.560 | and get more employees to save for retirement.
00:26:56.200 | But there's a reason why it hadn't been done before.
00:26:58.680 | It's because it's really, really hard.
00:27:00.120 | There's a lot of different aspects of a 401k
00:27:04.440 | and to automate every single one
00:27:06.760 | is a pretty big undertaking.
00:27:08.280 | And, you know, we made a lot of progress on that
00:27:10.200 | and there's even more we can do.
00:27:12.580 | And the more we can do of that,
00:27:14.640 | the better experience it's gonna be for customers
00:27:17.720 | and for their employees and the more small businesses
00:27:21.200 | that will be able to offer a 401k.
00:27:23.340 | So those are the two, you know,
00:27:25.800 | two of the main things that the company's working on.
00:27:28.720 | There's definitely other initiatives and projects
00:27:30.160 | that are important as well,
00:27:31.240 | but those are the two that come to mind for me.
00:27:33.340 | - Right.
00:27:34.200 | How important is regulation of the 401k?
00:27:38.640 | And do you foresee any regulatory changes
00:27:42.080 | in the retirement plan of America?
00:27:43.920 | Because I think most of us would prefer pensions for life,
00:27:47.580 | but we have our 401k and it's like 22,500 max to contribute.
00:27:53.720 | And I don't know if that's enough for most people.
00:27:56.640 | - Yeah, regulations do play a key role with 401ks.
00:28:01.280 | You know, they govern everything
00:28:03.400 | from how much an employee is allowed to contribute
00:28:07.000 | and get tax advantages of.
00:28:08.680 | They govern, you know, things like
00:28:11.900 | what investments can be made available
00:28:13.640 | and who's responsible for those.
00:28:15.260 | Even now, there's certain locations and states
00:28:20.760 | that are making a retirement plan mandatory
00:28:23.520 | for small businesses to offer.
00:28:25.280 | And so some of the--
00:28:26.120 | - That's good for you guys.
00:28:27.640 | - Yeah, yeah.
00:28:28.480 | And many of the recent regulations
00:28:30.280 | have been very favorable to human interest
00:28:33.880 | because they promote small businesses
00:28:37.240 | to get a retirement plan.
00:28:38.600 | So for example, there are now these state mandates,
00:28:40.920 | for example, in California,
00:28:43.040 | companies are now required to offer a retirement plan
00:28:45.720 | to their employees and the same is true
00:28:48.000 | in other areas as well.
00:28:49.360 | And then there's been federal legislation
00:28:51.720 | that passed recently, the Secure Act 2.0,
00:28:54.320 | that also provides financial incentives
00:28:56.760 | for small businesses to offer a 401k.
00:28:59.640 | And so essentially, via tax credits,
00:29:02.320 | the small business can offset a huge portion,
00:29:06.400 | if not all of the cost of getting a 401k.
00:29:09.240 | And so the government, you know,
00:29:11.040 | is aware that we have a looming retirement crisis.
00:29:15.040 | They're aware that a big challenge
00:29:17.960 | is getting small businesses to offer a 401k plan.
00:29:21.080 | And so via these state mandates or financial incentives,
00:29:26.080 | they are trying to encourage,
00:29:28.560 | and in some cases require,
00:29:30.040 | more small businesses to offer a 401k,
00:29:32.520 | which we hope, you know,
00:29:33.440 | combined with technology like ours
00:29:35.560 | that makes it easy for them to do so,
00:29:38.120 | will make it possible for more small businesses
00:29:40.120 | to offer a 401k.
00:29:41.520 | - It sounds structurally you guys are in the right direction.
00:29:44.680 | It's kind of like 68% of Americans own homes
00:29:48.680 | and the government wants more home ownership
00:29:52.960 | with through the tax incentives,
00:29:55.360 | the tax-free profit gains of 250,000 to 500,000.
00:29:58.200 | So it sounds like you're in the right spot long-term.
00:30:02.120 | So when you created your pitch deck for YC,
00:30:07.120 | was that part of the main pitch?
00:30:09.720 | How did, 'cause I know like YC doesn't accept anybody,
00:30:12.560 | it's just like really small percentage as well.
00:30:14.480 | So how did you come up with pitch deck
00:30:16.840 | and how many founders did you have?
00:30:19.160 | How did you go about that scenario?
00:30:21.080 | - Yeah, I had one co-founder, Paul, who was our CTO.
00:30:24.080 | And the main pitch to YC was what I had said earlier.
00:30:29.080 | The thesis of the company was that 80% of small businesses
00:30:34.680 | don't offer 401k and as a result,
00:30:37.680 | tens of millions of Americans
00:30:40.280 | don't have access to a retirement plan.
00:30:43.840 | And that both of those numbers could be improved
00:30:46.520 | if we digitize and automated a 401k
00:30:49.560 | and Human Interest was gonna be the company to do that.
00:30:52.800 | - Right, and then obviously they saw your background
00:30:54.640 | and experience, education and experience
00:30:56.440 | building websites before.
00:30:58.600 | How did you find your co-founder?
00:31:01.600 | - Oh, I met him through a mutual friend.
00:31:03.760 | So we hadn't really worked together
00:31:05.440 | or known each other before,
00:31:07.680 | but we were both kind of in a place
00:31:09.600 | where we were both looking to start our next company.
00:31:13.680 | - Okay.
00:31:14.520 | - And Paul, I am very interested
00:31:19.520 | and passionate about personal finance.
00:31:23.400 | Paul was not, but had encountered the 401k problem
00:31:26.760 | firsthand as an employee at Mozilla,
00:31:30.320 | where we looked at his 401k account
00:31:33.360 | and it turned out that all of his 401k savings
00:31:37.000 | through his Mozilla 401k were just in cash.
00:31:40.520 | And it turned out he was not invested at all
00:31:43.360 | despite being a young person
00:31:47.360 | and because cash was the default option
00:31:49.880 | in Mozilla's 401k plan.
00:31:52.120 | And as your listeners probably know,
00:31:56.680 | he should be taking a lot more risk
00:31:59.000 | for his retirement plan, especially given his age.
00:32:02.640 | So we realized that there was actually
00:32:04.760 | sort of a twofold problem in 401k.
00:32:07.720 | One was my own experience as a business owner
00:32:11.200 | failing to be able to set up a 401k
00:32:13.240 | because it was too complicated.
00:32:15.080 | And the second challenge was Paul as an employee
00:32:18.200 | who did have access to a 401k,
00:32:20.280 | but was still making some optimal decisions in it.
00:32:23.640 | And we thought that there would be opportunity
00:32:27.240 | for software to help with both of those problems.
00:32:29.360 | - Got it.
00:32:30.200 | So if he was the CTO, you know,
00:32:32.760 | building the technology, what were you doing?
00:32:35.880 | - Yeah, I was the CEO and in charge of the business side,
00:32:38.640 | I guess, you know, trying to get customers,
00:32:40.200 | trying to get funding.
00:32:42.160 | And kind of playing the role of a product manager
00:32:45.320 | and helping, you know, figure out what we should build,
00:32:48.640 | especially given my knowledge of a 401k
00:32:51.760 | is dating from my previous experience.
00:32:53.480 | - Got it.
00:32:54.320 | And when you applied to YC,
00:32:55.760 | what were the conditions of the investment?
00:32:58.440 | How much did you get and what equity stake did they take?
00:33:01.440 | - Oh, that's a good question.
00:33:03.480 | I can't remember the specifics.
00:33:04.920 | I know it's evolved a bit over the years,
00:33:07.240 | but I wanna say, you know, we gave up 7% of the company
00:33:11.720 | or something around that maybe it was six or eight.
00:33:13.880 | I can't remember the exact number.
00:33:15.440 | And I think the investment amount
00:33:19.080 | was somewhere around 100k or 200k.
00:33:22.360 | - Yeah.
00:33:23.200 | - But again, can't remember the exact specifics.
00:33:24.720 | - Got it.
00:33:25.560 | - I know they've changed the terms, you know,
00:33:27.320 | over the years.
00:33:28.200 | This was in 2015.
00:33:29.680 | - Right.
00:33:30.520 | And so 7% and 150k,
00:33:33.160 | obviously now that your company is a success,
00:33:35.880 | when you look at that number,
00:33:37.880 | 100k or 150k that you gave up,
00:33:40.320 | do you find it was worth it?
00:33:42.200 | - Yeah, I thought YC was worth it.
00:33:46.680 | Not for the investment dollars per se.
00:33:49.400 | You know, I think if you look at that particular deal,
00:33:52.960 | it's pretty clear that that's very favorable for YC
00:33:56.400 | from a, you know, just dollars invested
00:33:59.120 | versus ownership obtained perspective.
00:34:02.040 | And so most of the value in YC is not the actual dollars,
00:34:05.280 | but just sort of the experience that you get
00:34:07.920 | from going through YC.
00:34:09.400 | Everything from the mentorship and advice that you get,
00:34:12.720 | the access to the other YC companies and alumni companies
00:34:17.400 | that could be your first few customers,
00:34:19.800 | the access to investors that you get
00:34:22.320 | at the end of the program during demo day.
00:34:24.400 | There's obviously some brand value,
00:34:27.440 | which helps with early recruiting,
00:34:29.560 | trying to attract your initial few hires
00:34:31.320 | that may, you know, be skeptical otherwise.
00:34:33.920 | Among other reasons, I think those are the reasons
00:34:37.280 | why companies should do YC,
00:34:39.000 | not for the actual investment amount.
00:34:41.480 | - Although the investment amount, if you have zero dollars,
00:34:43.520 | I mean, that's-- - It doesn't hurt, for sure.
00:34:45.640 | It helps you get through the first few months
00:34:47.560 | of, you know, when it's just the founding team.
00:34:50.920 | - Right, right.
00:34:52.320 | Now, so you guys have two founders,
00:34:54.720 | and then so one of the big challenges is to find people,
00:34:58.240 | right, to convince people to join you,
00:35:00.560 | but also to take a lot of risks,
00:35:02.200 | because as you said, joining startups,
00:35:04.440 | your pay is much lower than a standard established
00:35:07.480 | company pay for the hopes that your equity
00:35:09.720 | will turn into something great.
00:35:11.400 | But I know that it seems kind of risky, right?
00:35:15.080 | Like your first 10 employees,
00:35:17.320 | you're taking a huge amount of risk
00:35:18.920 | at the angel round or series A round,
00:35:22.280 | and then the equity percentage is like a percent,
00:35:25.840 | maybe 2%.
00:35:27.360 | Like how would you recommend employees
00:35:30.000 | who wanna join startups think about that calculation?
00:35:33.840 | - I think there's the financial aspect,
00:35:36.400 | and then the non-financial aspect.
00:35:39.600 | With the financial aspect, the deal is,
00:35:42.120 | yeah, your salary is lower, it's a less stable job,
00:35:46.320 | and hopefully the equity becomes worth a lot,
00:35:49.120 | and so it's sort of a high risk, high reward situation.
00:35:53.000 | But I always caution our employees and our hires,
00:35:57.440 | I can't promise you that the equity would be worth anything.
00:35:59.840 | It could work out great and be very financially rewarding,
00:36:02.400 | and certainly there's been many cases of companies
00:36:05.240 | where that's happened to the early employees,
00:36:06.920 | and we hope the same is true for human interest employees.
00:36:11.200 | But at the same time, it is very risky,
00:36:14.600 | and I never wanna mislead folks into thinking
00:36:18.960 | that it's gonna be sort of a sure jackpot, right?
00:36:22.000 | But I think that there are very significant,
00:36:24.360 | for the right person, non-financial benefits
00:36:26.720 | to joining a startup.
00:36:28.360 | The level of ownership that they get,
00:36:30.000 | the ability to make an impact,
00:36:31.680 | the experience they get,
00:36:33.480 | being able to wear different hats
00:36:35.240 | and get exposure throughout the business,
00:36:37.320 | and of course, for folks that are aspiring
00:36:40.400 | to become founders in the future,
00:36:43.120 | that front row seat to the early stages of a growing startup
00:36:47.520 | that can help shape their future entrepreneurial endeavor.
00:36:51.160 | And so I feel like, and for some people,
00:36:54.840 | it's just more fun to be part of an early stage startup,
00:36:57.080 | and they don't like being at a big company.
00:36:59.400 | Yeah, the reason why I decided to go down entrepreneurship
00:37:04.400 | is not because I thought it was gonna be
00:37:06.120 | necessarily more financially rewarding
00:37:07.800 | than taking a big company job,
00:37:09.240 | but just because I knew I enjoyed it more,
00:37:10.800 | and that's what I was passionate about.
00:37:12.800 | And so I think for an early employee
00:37:14.600 | to make sense at an early stage startup,
00:37:17.160 | there has to be some element of that as well.
00:37:18.800 | It can't be a pure sort of dollars and cents calculation.
00:37:23.800 | Oftentimes, the ones who get the most out of it
00:37:28.400 | end up getting value because it helps them
00:37:30.680 | with their career path down the road
00:37:32.880 | because of the experience that they got
00:37:35.240 | when at an early stage startup.
00:37:37.680 | - Right, right, right.
00:37:39.080 | You know, I think a lot about opportunity
00:37:41.560 | at financialsamurai.com,
00:37:42.920 | and I feel like not everybody has the same opportunity.
00:37:45.920 | I feel that one of the ways to increase your opportunity
00:37:48.440 | is to live in a city where there are more opportunities.
00:37:52.840 | So if you wanna do AI, maybe you come to San Francisco.
00:37:56.800 | If you wanna do banking, you go to New York City.
00:37:58.960 | If you wanna do media, you go to Los Angeles.
00:38:02.980 | But I remember when I was in finance,
00:38:05.320 | and I was thinking in 2012,
00:38:06.600 | I was like, I wanna do this startup thing, this tech thing.
00:38:09.720 | But I applied everywhere, and I couldn't get a job anywhere.
00:38:12.880 | Like I saw Airbnb valued at 2.8 billion,
00:38:15.800 | and I was like, this is a no-brainer.
00:38:16.880 | I wanna join.
00:38:17.720 | I couldn't get a job there.
00:38:19.440 | I saw Uber.
00:38:20.640 | I was like, this is a no-brainer.
00:38:21.760 | It wasn't as early stage, but I couldn't get in.
00:38:25.680 | So how do people get in?
00:38:28.600 | Like what is one of the paths to get in?
00:38:30.920 | Because applying to YC is hard,
00:38:33.600 | getting into Harvard's hard.
00:38:34.840 | What about the rest of us?
00:38:37.280 | - Yeah, I think one is to go for a company
00:38:39.880 | that is not gonna be as competitive on talent, right?
00:38:43.560 | You probably weren't the only one
00:38:44.920 | looking to join Airbnb at the time.
00:38:46.680 | They were a hot company, and a very interesting place
00:38:51.120 | to work, and so had probably no shortage of options.
00:38:54.620 | But if you apply to Human Interest back then,
00:38:58.040 | or any of the other sort of companies
00:39:00.280 | that are kind of no-name at the time startups,
00:39:05.280 | I'm sure that the reception could have been
00:39:07.640 | a little bit different, because they don't have access
00:39:10.040 | to the best people, the top talent,
00:39:13.340 | the way that the Airbnbs do.
00:39:15.240 | So I think kind of taking a flyer
00:39:17.560 | on a less competitive startup is certainly one way.
00:39:22.120 | And then looking for companies that have a unique match
00:39:26.260 | to your skill set and experience.
00:39:27.980 | So if you have a finance background,
00:39:30.340 | then maybe looking at a financial technology company,
00:39:33.620 | a FinTech startup might make more sense
00:39:36.060 | than an Airbnb, for example,
00:39:39.460 | just because maybe there's certain skills
00:39:41.020 | that you developed when you were in finance
00:39:43.580 | that a finance company, a FinTech company,
00:39:45.900 | will find valuable in a way that Airbnb might not.
00:39:49.740 | So those are kind of the two things I could think of.
00:39:52.800 | Obviously, it's not easy, though.
00:39:54.680 | And there's no shortage of people looking to get into tech,
00:39:58.260 | especially during the boom times.
00:40:00.920 | That might have changed in more recent years,
00:40:03.200 | so maybe this is a better time to look for a tech job,
00:40:06.880 | in the sense that not as many people
00:40:09.520 | are looking to get into tech,
00:40:10.960 | although also there's fewer jobs in tech
00:40:15.000 | given the current downturn.
00:40:17.040 | So TBD on that.
00:40:19.980 | - Let's, 'cause we met maybe in 2015 or 2016,
00:40:24.180 | and so yeah, you had a company, Captain 401K,
00:40:27.100 | you're probably looking for exposure.
00:40:28.860 | I had Financial Samurai, it's been around since 2009.
00:40:31.380 | But yeah, so for me, I was like,
00:40:33.220 | I never thought, oh, I'm gonna join your company back then.
00:40:37.080 | But I said, I guess in retrospect,
00:40:40.300 | if I said, you know what, that's a great idea,
00:40:41.820 | I wish you had pitched me the story
00:40:43.100 | in terms of that clarity, I'd be like,
00:40:44.620 | oh yeah, that makes a lot of sense.
00:40:46.420 | I would like to join you as, I don't know,
00:40:48.060 | lead business development guy.
00:40:49.380 | So let's say I got 1% equity, right?
00:40:53.300 | It sounds kind of standard.
00:40:54.660 | And I had my, I don't know, 125, $150,000 salary.
00:40:59.780 | And now it's worth a billion, let's say.
00:41:04.140 | So it was worth nothing, now it's worth a billion.
00:41:05.980 | So 1% of a billion is 10 million.
00:41:09.140 | But over those years, let's say eight years,
00:41:11.660 | how much dilution would I have experienced?
00:41:15.140 | Maybe it doesn't have to be specifically your company,
00:41:16.520 | just on average, where what would I actually have
00:41:20.080 | with a billion dollar valuation eight years later
00:41:22.460 | at 1% eight years ago?
00:41:24.300 | - Yeah, it's tough to say.
00:41:26.340 | I mean, I think dilution is important to consider
00:41:28.780 | that the 1% is not gonna stay 1% over time
00:41:31.420 | because companies do need to raise funding to keep going
00:41:34.780 | and they can either grow and expand.
00:41:36.580 | You know, there are kind of dilution calculators
00:41:40.100 | or estimators that you can kind of search out there
00:41:42.200 | to get a rough sense.
00:41:43.380 | You know, I think sort of standard rule of thumb
00:41:46.220 | is that companies will give up somewhere around 20%
00:41:49.980 | in their earlier rounds and that kind of goes down
00:41:52.060 | over time.
00:41:53.460 | So you can kind of make some assumptions about,
00:41:55.420 | you know, how many rounds they're gonna raise
00:41:57.740 | over what period of time to get to, you know,
00:41:59.980 | a certain sort of exit outcome.
00:42:02.100 | It's gonna vary a lot from business to business,
00:42:05.180 | from industry to industry, and of course,
00:42:07.440 | from year to year, just given kind of fundraising
00:42:10.340 | environments and so on.
00:42:11.660 | So, you know, unfortunately, just tough to really
00:42:14.940 | ballpark estimate just because it can vary so much,
00:42:17.780 | but if you wanna get some idea, you know,
00:42:20.540 | companies will typically give up around 20%
00:42:23.580 | in their earlier rounds.
00:42:24.540 | You know, that can go down to 10% or lower
00:42:26.740 | in later rounds.
00:42:27.860 | And you can kind of use that to get a sense.
00:42:31.540 | - So maybe my 1% in 2015 would turn into 0.5%?
00:42:36.540 | - I haven't done the math on it, so.
00:42:40.180 | - Come on, you're an applied mathematician.
00:42:42.380 | - Yeah, yeah.
00:42:43.220 | - But I would say, yeah, 20% dilution, 10%,
00:42:47.180 | four rounds, ah, 50%.
00:42:49.380 | You get 50%.
00:42:50.220 | - Sure, yeah, again, it'll vary a lot
00:42:52.220 | from business to business, but yeah,
00:42:54.620 | you can make different assumptions and kind of see
00:42:56.180 | what it turns out to in different scenarios.
00:42:58.140 | - So I wanna rewind time again, back to 2015,
00:43:01.340 | we're at a meetup.
00:43:02.700 | I was like, Roger, this is such a great idea.
00:43:05.540 | You know, I have this platform, I have my background
00:43:07.940 | in finance for 13 years.
00:43:09.980 | Could I have joined human interest then?
00:43:13.400 | - Ah, I don't know, I can't remember.
00:43:16.880 | - Well, 2015, 2016.
00:43:18.720 | - Yeah, I mean, I'm sure I would've loved to have you.
00:43:22.040 | You know, at that point, you know,
00:43:24.000 | we were probably only a handful of employees,
00:43:25.800 | so, and obviously, you know, had a great background
00:43:30.000 | and knew a lot about personal finance,
00:43:31.480 | so I'm sure we would've found you valuable
00:43:34.000 | in some capacities, so yeah.
00:43:36.440 | - Well, I say this because I think it's fun
00:43:39.440 | to look at things in retrospect,
00:43:41.520 | because there's a lot of opportunity
00:43:42.880 | that's just staring you in the face
00:43:44.920 | that people just don't think to seize
00:43:47.480 | or connect the dots or anything,
00:43:50.320 | and so I think people need to really slow down,
00:43:52.740 | kind of maybe take analysis of who they met,
00:43:55.480 | what are they doing, what you really wanna do,
00:43:57.840 | and be a little bit more intentional
00:43:59.280 | instead of just going on autopilot,
00:44:01.260 | doing the same thing over and over again
00:44:03.280 | for the next 20, 30 years,
00:44:04.760 | 'cause I think that's what happens.
00:44:05.720 | There's this inertia that happens where people say,
00:44:07.960 | I'm just gonna do, I'm gonna write three posts a week
00:44:10.040 | for 10 years, and you have blinders on.
00:44:13.640 | - Yeah, that's true, although it sounds like
00:44:15.320 | you have a pretty good gig going yourself,
00:44:17.360 | so I don't know if it actually would've made sense
00:44:19.320 | for you to join even in 2015.
00:44:20.820 | - Well, yeah, I don't know.
00:44:24.320 | It's always fun to think what if, right?
00:44:27.000 | We can only live one life,
00:44:28.760 | but it's always fun to dream and daydream.
00:44:31.840 | Oh, what if I did this, or all that stuff.
00:44:35.380 | So it sounds like Human Interests is a pretty big success
00:44:39.420 | based on where you guys were in 2015.
00:44:41.680 | I saw a headline, you guys raised a couple hundred million
00:44:44.320 | at a billion dollar valuation.
00:44:45.720 | I don't know when that was.
00:44:46.560 | It was a couple years ago.
00:44:47.800 | So who knows now.
00:44:50.080 | And then you decided your job was done,
00:44:53.080 | and you stepped off, CEO, to do it.
00:44:56.800 | - Yeah, that's right.
00:44:58.000 | So as we're hitting growth stage of the business,
00:45:01.400 | I brought in a CEO to run the business,
00:45:04.920 | and I transitioned to the board of Human Interest.
00:45:09.020 | The CEO, Jeff, was someone who had been on our board
00:45:11.600 | for a couple years of our company's early life,
00:45:15.160 | and who I had actually known socially even before that.
00:45:17.860 | And as a board member, I noticed that he was super helpful
00:45:23.600 | in all the growth stage challenges
00:45:27.480 | that we were about to navigate, or are currently navigating,
00:45:31.320 | and thought that he was the perfect person
00:45:34.960 | to take Human Interest to the next level.
00:45:38.280 | I love building, and I love creating.
00:45:41.940 | At the time, I was feeling pretty burnt out.
00:45:44.780 | We had our first child, Everett, during that process,
00:45:48.180 | and I had not yet adjusted my pace of work
00:45:53.180 | to take into account that we had a newborn.
00:45:57.140 | And that took a lot of toll on me.
00:46:00.540 | And so when I had the opportunity to bring Jeff in as CEO
00:46:05.820 | to run our business, it just made total sense as a win-win.
00:46:10.700 | And under his leadership, the company has grown so much
00:46:14.520 | over the past few years.
00:46:15.580 | And I was able to take a full break
00:46:18.480 | and went on an external paternity leave
00:46:20.440 | when we had our second child, Ellis.
00:46:23.000 | And this was 2020 into 2021.
00:46:26.460 | And so really fortunate that I got to take a step back
00:46:31.180 | personally, be able to spend more time with Ellis,
00:46:34.800 | and then it turned out Everett too,
00:46:36.000 | because preschools were closed during COVID.
00:46:39.000 | So thank God I was no longer working full-time.
00:46:41.360 | And meanwhile, felt like I could trust the company
00:46:45.280 | in Jeff's hands, and he's done a great job with it since.
00:46:48.200 | - Right.
00:46:49.040 | I'm sure some of the listeners thinking,
00:46:52.120 | oh wow, they raised money at a billion dollar valuation,
00:46:55.360 | lots of funding.
00:46:56.600 | Definitely, it sounds like you guys have a long runway.
00:46:59.540 | I don't know about when you're gonna be
00:47:01.320 | operationally profitable and all that.
00:47:03.000 | But as only one of two co-founders,
00:47:05.480 | I think listeners will think, wow, so Roger's set for life.
00:47:09.600 | Sooner or later, there'll be a massive liquidity event.
00:47:12.840 | How do you think about that massive liquidity event?
00:47:15.720 | And do you alter your lifestyle now?
00:47:19.640 | Or I mean, it's kind of like a mind boggling
00:47:22.840 | amount of potential money windfall that will happen.
00:47:25.920 | - We have tried not to.
00:47:31.520 | I think both my wife and I grew up
00:47:35.520 | in a very kind of immigrant frugality mindset.
00:47:39.180 | And we were always taught and raised to save money,
00:47:44.920 | to not overspend.
00:47:46.440 | It's the immigrant mindset of frugality,
00:47:50.000 | and both my wife and I have it.
00:47:52.680 | And even though I took econ classes that said,
00:47:56.960 | hey, you should smooth your consumption,
00:47:59.120 | you only get to live once,
00:48:00.880 | you don't wanna die with a ton of money.
00:48:03.400 | We've tried to adapt accordingly,
00:48:05.880 | but I'd say a lot of our friends will laugh at us
00:48:09.560 | for not adapting nearly to the extent
00:48:11.480 | that they think we probably should.
00:48:13.240 | For example, we still drive a 1998 Toyota Camry
00:48:17.240 | as our primary car.
00:48:18.240 | And we've just gotten used to just, I think,
00:48:24.440 | try to live the life that we wanted,
00:48:28.840 | not get too caught up in buying fancy things and whatever.
00:48:33.120 | And it's just sort of not what we grew up with,
00:48:36.440 | and so it's sort of hard to adapt to that, I guess.
00:48:39.240 | Obviously, we do spend money where we feel like
00:48:42.960 | it's meaningful, so on our children,
00:48:45.560 | and with childcare, all those things.
00:48:49.360 | If we feel like, I'm a big proponent, for example,
00:48:51.840 | of trading money for time when you have money,
00:48:54.760 | but are short on time.
00:48:56.440 | So often pay for things that give me back time
00:48:59.200 | or are more convenient in some way.
00:49:01.080 | But in terms of luxury spending,
00:49:05.480 | I don't think we'll ever do very much of that.
00:49:10.560 | - No, yeah, it's hard to change old habits,
00:49:13.080 | especially if you've grown up in a frugal household.
00:49:15.560 | I've had that mindset for a while as well.
00:49:18.400 | My parents were super frugal,
00:49:19.920 | but I'm kind of forcing myself to spend more.
00:49:22.760 | And you start in baby steps,
00:49:23.960 | so one of the first steps I started
00:49:25.400 | was to spend more on food,
00:49:27.360 | like really great food from all around the world,
00:49:30.080 | 'cause it's not gonna crush your budget,
00:49:31.560 | but it's something that you can be
00:49:32.960 | a little bit more mindful of spending.
00:49:35.200 | That's interesting.
00:49:36.200 | It's always interesting to see how,
00:49:39.480 | if money or a big windfall will change someone.
00:49:43.320 | And it seems like, I think money just amplifies
00:49:46.640 | who you already are, what do you think?
00:49:48.600 | - Yeah, money certainly makes things easier.
00:49:52.920 | It's certainly better to have more money than less money.
00:49:55.320 | Again, you can choose what's meaningful
00:49:58.640 | for you to spend the money on,
00:50:01.080 | and for different people that might mean different things.
00:50:03.680 | But at the same time, I feel like I see these stories
00:50:10.160 | of how billionaires spend their money,
00:50:13.680 | and often think to myself, even if I had that much money,
00:50:17.320 | I don't think I'd ever wanna spend money
00:50:18.800 | on this kind of stuff.
00:50:20.040 | I'm not sure it would really give me much value
00:50:23.840 | at that point, and maybe better to give it away,
00:50:26.800 | or find a better cause for someone
00:50:29.400 | who might be able to get more value
00:50:31.960 | out of that money than for me,
00:50:33.440 | 'cause after a certain point,
00:50:34.520 | I feel like we've got what we need,
00:50:36.160 | and more isn't really gonna make a difference.
00:50:38.760 | - Right.
00:50:40.000 | So you stepped off your CEO role,
00:50:43.080 | and you're still on the board.
00:50:45.040 | And then what happened?
00:50:46.040 | You decided to start another company?
00:50:48.800 | - Yeah, so as of 18 months ago,
00:50:52.240 | I've started now a new business called Comprehensive.io,
00:50:56.760 | which is in the field of compensation management.
00:51:00.320 | So we help companies decide, track,
00:51:03.360 | and communicate employee compensation,
00:51:06.000 | which came from my experience at Human Interest,
00:51:09.720 | where it was crazy to me that even though
00:51:13.720 | compensation was by far, and is still by far,
00:51:16.560 | our biggest expense category,
00:51:18.760 | and even though it's a key driver
00:51:21.440 | of recruiting and retention outcomes for our business,
00:51:25.240 | it's mind-boggling how compensation
00:51:30.680 | is still primarily done via spreadsheets
00:51:32.800 | and ad hoc processes, and is not nearly
00:51:35.320 | the rigorous discipline that you might think it is,
00:51:38.000 | given how important it is.
00:51:39.400 | And as someone who really wanted to use my startups
00:51:47.720 | to help improve people's financial livelihoods,
00:51:51.560 | starting with Human Interest,
00:51:53.720 | I thought, what better way to make a positive impact
00:51:57.800 | on people's financial lives than helping companies
00:52:00.640 | make compensation decisions better?
00:52:02.800 | And hopefully by doing so,
00:52:04.480 | they can make their pay more competitive,
00:52:06.640 | they can get closer to pay equity,
00:52:09.840 | they can make pay more transparent to their employees.
00:52:13.600 | A lot of these big themes that we started to see
00:52:15.840 | in the past couple of years that are very meaningful
00:52:20.840 | from a social perspective, we thought we could accelerate
00:52:25.520 | if we gave companies the tools and software technology
00:52:29.160 | to be able to make those better decisions.
00:52:32.040 | - And in this round, are you self-funding,
00:52:33.840 | or did you raise funds?
00:52:35.720 | - I self-funded it initially, just to develop the prototype,
00:52:40.160 | get our first few early customers,
00:52:42.280 | just confirmed to myself that there was a need here
00:52:45.960 | and that it was worth me diving back in full-time
00:52:48.800 | and committing to.
00:52:50.200 | I wanted to do that before I brought on outside investors
00:52:53.560 | or hired employees because I wanted to be sure of myself
00:52:57.040 | first, but then once I was sure,
00:53:00.400 | then we did raise some outside funding
00:53:02.520 | and started hiring employees.
00:53:04.520 | - How much of starting another company
00:53:06.680 | and funding this company, getting outside funding,
00:53:09.840 | is a desire to prove to yourself that you can do it again?
00:53:14.280 | - I wouldn't think of it like that.
00:53:17.960 | I think for me, for better or worse,
00:53:19.800 | I've just always been passionate about creating
00:53:23.020 | and building technology that can make a positive impact
00:53:27.760 | on people in some way.
00:53:29.080 | And there's no better way I feel like I can contribute,
00:53:35.600 | and so it's very rewarding and fulfilling for me.
00:53:39.080 | And my wife's a doctor, I don't have the skillset
00:53:43.800 | or the composure to be able to do that job.
00:53:46.840 | And so I feel like for me, the best way for me
00:53:49.080 | to make an impact, given my personality and skillset,
00:53:52.760 | is by building technology that can improve people's lives
00:53:56.120 | in some way.
00:53:57.120 | And so that's felt like it's been my calling.
00:54:00.360 | And so as long as I can do that,
00:54:03.880 | that's where I feel like I can most meaningfully
00:54:06.760 | apply my talents.
00:54:09.080 | - Got it.
00:54:09.920 | I do feel that there is, I think,
00:54:11.800 | an underlying core value in you to wanna keep on building,
00:54:15.640 | because then you started layoffs.fyi,
00:54:18.660 | which is not a company really,
00:54:20.160 | but it's just a tracker on the tech industry layoffs.
00:54:23.640 | But I think random people who are,
00:54:27.040 | they've got their day job, they start a company,
00:54:30.640 | they're on the board.
00:54:32.240 | I don't know if random people or the average person
00:54:34.760 | just decides to start layoff.fyi, right?
00:54:37.360 | So I guess, is there this drive to keep on creating?
00:54:41.240 | What's going on inside you where you're like,
00:54:43.120 | I wanna create something else?
00:54:44.560 | - I think so, yeah.
00:54:46.040 | The idea for layoffs.fyi came in March of 2020
00:54:50.520 | when COVID first hit.
00:54:52.060 | And I realized then that because of the shutdown orders
00:54:56.360 | in San Francisco and elsewhere,
00:54:58.480 | likely that meant a lot of businesses in tech
00:55:01.880 | were gonna have to lay off employees
00:55:03.920 | because they weren't gonna be able
00:55:05.640 | to keep operating as usual.
00:55:08.160 | Think kind of companies like Uber and Yelp and Airbnb
00:55:11.760 | and so on that rely on in-person business.
00:55:15.400 | If the economy shut down,
00:55:18.240 | they're not gonna have any customers anymore.
00:55:20.720 | And so I expected that there were gonna be an uptick
00:55:24.520 | in layoffs coming from companies like those.
00:55:27.680 | And meanwhile, I knew that there were other businesses
00:55:29.960 | like human interest that were still hiring
00:55:32.080 | and still looking to grow.
00:55:34.000 | And so the idea for layoffs and FYI came by thinking,
00:55:38.320 | if I can get more visibility to those layoffs,
00:55:41.160 | then maybe companies who are still fortunate to be hiring
00:55:45.400 | could hire the employees that are being laid off.
00:55:48.240 | - So there's synergies there.
00:55:49.600 | - Help these laid off employees find a new role more quickly
00:55:53.280 | and at the same time, help these companies
00:55:55.420 | who are always struggling to find good talent,
00:55:58.440 | here was their opportunity to be able
00:56:00.000 | to fill those open roles.
00:56:02.600 | I was in the early days of my paternity leave,
00:56:08.040 | Ellis was just born the month before.
00:56:10.160 | So I was not looking to start a new business by any means
00:56:14.080 | and kind of just created this website as a weekend project
00:56:18.280 | as sort of my way of trying to do some good
00:56:21.320 | in a very scary and uncertain environment
00:56:23.740 | that was early COVID.
00:56:25.760 | But yeah, the intention was never to make any money off
00:56:28.200 | of it or to turn into a business.
00:56:30.540 | It was just something I thought would be helpful.
00:56:34.520 | And so I made it and unfortunately,
00:56:37.400 | I've continued to keep it running three years later
00:56:40.360 | because tech layoffs have continued to last
00:56:44.760 | beyond the pandemic.
00:56:45.720 | And in fact, the past few quarters,
00:56:48.540 | they've been higher than they were even
00:56:51.000 | in the early pandemic.
00:56:52.000 | And so I've had to keep the site up and running
00:56:55.800 | and I continue to do so as long as it helps people,
00:57:00.240 | even if there's no monetary incentive behind it.
00:57:02.720 | - Yeah.
00:57:04.040 | No, it's interesting.
00:57:06.760 | I think we try to look to the future.
00:57:08.940 | In San Francisco, in my experience has always bounced back.
00:57:12.720 | I was here for the 2000 dot-com bust
00:57:15.960 | and it was really dead for two, three years.
00:57:18.960 | So dead, it was crazy, 2001, 2002, 2003,
00:57:22.560 | but it roared back.
00:57:24.620 | Do you believe that San Francisco will roar back
00:57:28.200 | with the hype of artificial intelligence?
00:57:30.740 | - I do think that the Bay Area will bounce back.
00:57:35.760 | The tech sector as a whole for sure will bounce back.
00:57:39.160 | I wasn't around here during the dot-com boom and crash,
00:57:42.520 | but I know that we have been through,
00:57:45.000 | this is now kind of a third boom and bust cycle, right?
00:57:47.600 | If you think about sort of 2001 with the dot-com boom
00:57:51.600 | and bust, if you think about 2008, 2009
00:57:54.440 | with the great recession, great financial crisis,
00:57:57.140 | and now kind of the current tech downturn,
00:58:02.060 | every time we've been through one of these,
00:58:04.680 | tech has actually come back stronger than ever before
00:58:07.500 | because there's so much long-term potential in tech
00:58:10.280 | to help improve society.
00:58:11.820 | And I know there's places where technology
00:58:16.320 | may actually be harmful
00:58:17.740 | and there's certainly some downsides to technology,
00:58:20.660 | but overall, if you just look at kind of how technology
00:58:23.620 | has fundamentally changed society for the better,
00:58:26.340 | it's been very awe-inspiring to me.
00:58:29.660 | And there's still, I think, plenty of opportunity left,
00:58:33.120 | and whether it's AI or something else,
00:58:35.580 | for technology to keep improving productivity
00:58:37.820 | in people's lives.
00:58:39.740 | And so I'm a strong believer in that,
00:58:41.860 | and I do believe that at some point
00:58:43.700 | we will emerge from the downturn
00:58:45.540 | and tech will once again become stronger than ever
00:58:47.900 | and hopefully the Bay Area with it.
00:58:49.740 | - Yeah, I hope so.
00:58:50.780 | I hope for both of our sakes,
00:58:51.900 | 'cause I plan to be here for another 10 years,
00:58:54.380 | and I'm assuming you will as well, right?
00:58:57.060 | - Mm-hmm, yep.
00:58:58.620 | - All right, Roger, well,
00:58:59.620 | it's been a great hour chatting with you.
00:59:01.980 | I really appreciate your time,
00:59:03.260 | and congratulations for building such a successful company
00:59:06.300 | and trying to figure things out with your life
00:59:08.380 | and being a father and spending time with your family more.
00:59:11.180 | And also, best of luck with your new endeavor.
00:59:14.380 | If people want to see what you're up to,
00:59:16.340 | where should they check out?
00:59:18.660 | - So you can visit comprehensive.io.
00:59:21.740 | That's the compensation site
00:59:23.180 | that's got actually some free data
00:59:25.020 | on what companies are paying their employees.
00:59:27.540 | And then layoffs.fyi if you're looking to track
00:59:32.260 | the layoff activity in the tech sector,
00:59:34.900 | or humaninterest.com if you're looking for a 401k
00:59:37.340 | for your business.
00:59:38.340 | - That's awesome.
00:59:39.300 | Good job, Roger, and I'll see you around.
00:59:41.980 | - All right, appreciate it.
00:59:42.820 | Thanks for the kind words.
00:59:43.980 | - Take care.