How Can FinTech Revolutionize Small Business Finance? - Zaid Rahman | ATC #503

In this episode of the Around The Coin Podcast, host Stephen Sargeant interviews Zaid Rahman, Zaid is the founder and CEO of Flex, the B2B fintech company taking the complexity out of credit and finance management by providing businesses with a credit card and financial ecosystem to expand their business and accelerate growth. A serial entrepreneur and angel investor, he also co-founded 305 Ventures, as well as previously founded two startups - Pilot Labs and Volley. A Thiel Fellow, he exited his first startup at just 19 years old.

Host: Stephen Sargeant

Guest: Zaid Rahman

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Episode Transcript

Stephen: This is your host Stephen Sargeant of the Around The Coin Podcast. What an amazing episode we have for you with Zaid Rahman. He's the CEO and founder of Flex. This is basically an end to end finance platform for small businesses. Realistically, they do everything, whether it's credit worthiness, expense management, payments, account, like they have everything in one platform.

All the things as an entrepreneur, to be quite honest, that you know is holding you back from reaching the full potential. I'm not even trying to sell this company. I was a fan and it's flex www. flex. one. Just an amazing thing for you to check out if you're an entrepreneur or a startup. He's also a Thiel Fellow.

And is a founding and managing director of 305 Ventures, which is basically founders investing in other founders. We even talked to him about his first company, Volley, which was basically trying to teach computers how to understand knowledge. With AI, kind of like chatGPT it's fun to talk to him about his early exposure and maybe being a little early in the AI game.

This is a fun episode. Must listen, check it out and let me know what you think in the comments, rate, review, and definitely subscribe to this podcast and check out Zaid on all his platforms, just an amazing entrepreneur and he drops so many gems. Founders, startup entrepreneurs drop so many gems about the game and how to get investment, especially in these tough times of VC funding. Talk soon.

Stephen: Welcome to another episode of the Around The Coin podcast. Your host, Stephen Sargeant, here with Zaid Rahman, founder and CEO of Flex, which is an end to end finance platform for small and medium sized businesses. But you're also an angel investor. You're, you were part of the fellowship for the Thiel Foundation.

We're going to get into all that. But you also started what I want to start is Volley. Tell me a little bit about Volley. Cause you know, in your LinkedIn description, you mentioned that it was to teach basically computers, how to understand knowledge for, with AI, similar to chat GPT. And that was, you know, quite a few years ago.

So maybe tell me about Bali and what you think about ChatGPT now. Were you on the right track? Could you ever have done maybe what OpenAI has been able to do?

Zaid: Yeah. It's hilarious that you asked that and thank you again for having me on the pod. You know, what's funny is that in some ways we started working on large language models before that was even a phrase.

And so that company was. 2015, so easily like almost a decade ahead of its time. And ultimately that company wasn't a huge slam dunk success story because it was, you know, the timing was a little bit off. But really what we were trying to build was It's a tool to sort of teach computers how to understand knowledge in a way that then it could spit out new types of personalized learning materials.

So for example, you know, I'm a student of biology. I want to learn about photosynthesis. It would ask you a few questions and based on that kind of create personalized resources from across the web and sort of provide you video content and kind of text content. And fundamentally, the thing you need to do in order to do that is actually, you know, do something called ontology learning.

Right? And so we were literally basically like doing what what OpenAI did with you know, 5 where we were effectively trying to infer natural language text and create these models that could then spit out new types of generative Textual content and then ultimately, you know, we figured that the technology was just not good enough to do mass market content.

And so we started focusing on very specialized areas and one specialized area that we had a lot of success in and started generating some revenue for us was actually cyber education. And so we started working with a lot of big Fortune 500s in the banking space, especially, you know, JP Morgan was our biggest customer and then they became our biggest investor.

And basically. So it took over more and more of our product and and so that was sort of an interesting kind of verticalization of what you see today with the state of the art.

Stephen: Is there anything that you think about when you see ChatGPT theory, like, yeah, yeah, we kind of did something like that, or?

Even when you're making scaling it to an actual business where there's VC backing, was there anyone who ever thought like, Hey, we can just use this for ourselves and just be superior, either entrepreneurs thought leaders. We could just really just outpace everyone else in the industry because we have this technology.

Zaid: Yeah, you know, you, you, you see these movies of people like in the 1980s, like working on like their first computer and then like, then you see like, you know, jump cuts to a scene in like 1999 when like, you know, you, you, you have like a super sophisticated Macintosh and whatnot. So, so today's ChatGPT is kinda like the Macintosh, whereas we were working on like calculators, right?

And so the technology was just not there and that's from like a macro perspective, right? Like, you know, AI had just not gotten to that point. And you know, it's crazy. That was just only five to seven years ago. And however, we thought that it was a worthy endeavor because at the time, most people in AI were working on different applications like self driving cars and those types of things.

Nobody was really focused on natural language understanding. In fact, I remember talking to a lot of our venture capitalists. And we were backed by a bunch of interesting people, but even they didn't fully internalize what we were trying to do. In hindsight, of course, when we reconnect with some of those folks they, they, you know, they often comment that, Oh my God, we were just so ahead of our time.

But you know, in business being ahead of time is not really how you win. It's, you know, having all the pieces put together in the right exact way and delivering something that delivers true value. You know, frankly, we, you know, it took OpenAI, maybe 10 separate innovations to sort of, get to that chat GPT experience you're used to today. We were maybe working on one or two of them, so...

Stephen: And they're probably doing a much bigger, a much bigger team, a much bigger team. Yeah, yeah, yeah. Of financial backing, so...

Zaid: Yeah, really the vision was this was carried out by our, you know, chief scientist / CTO and that team that he ran was like maybe like 15 people versus, you know, to be fair, like OpeningEye wasn't a very large company, like they only became, you know, six, 700 people in the last 12 months, you know, the historically they were like a 80 person company.

So, we're not that off, however. We, frankly, did not have billions of dollars in compute resources and Microsoft and all that.

Stephen: Next time you gotta hit up Uncle Elon and pitch him, right?

You were also part of the Thiel Foundation, which is such an interesting concept. Maybe you could explain the concept better than me.

I think everyone understands that. Basically, Peter's giving away $200, 000 to not go to school. Maybe it's as simple as that, and maybe you can provide some insights on that.

Zaid: Yeah, that's basically it. So, you know, Peter Thiel mega sort of personality in the tech space founder of PayPal first investor in Facebook.

A number of very successful kind of you know, companies of significant magnitude have either been started or created by him directly and or friends of his. So, very significant personality in this Silicon Valley ecosystem. He runs this very contrarian program called the Theil Fellowship which effectively gives you a $100, 000 grant.

With no strings attached whatsoever with one condition, you can't go to school for two years. And so a lot of people drop out you know, from their majors to pursue projects and startups. And really the idea is that you know, a lot of talent is being wasted in higher education. And you know, perhaps you don't need higher education for reaching The heights that you can and so, was very lucky to be part of the Theil Fellowship.

You know, it's created quite a few very success, successful stories, you know, Ethereum, Figma, Loom a ton of, you know, really big ideas have been created from the Thiel Fellows. But you know, it's funny. I like to joke that I'm like the least successful amongst them. So, but it's an awesome group.

Stephen: Still a great table to be at, right? To be the least successful of one of the successful tables is always great. Was there something that you heard, maybe, I don't know how, if you speak directly to Peter in these in this kind of cohort, is there something that stuck with you all this time as you're building out businesses, as you are now a VC, you're funding founders, basically, is there any kind of concept or key memory that you're like, oh, this is, I have to kind of live by this principle or ethos as I move on?

Zaid: I think one fundamental kind of thing that you learn is You know, a lot of people think, you know, I come across, you know, first time founders all the time, and they're often like wondering, Oh, how do you learn X, Y, and Z? The reality is that you don't really need a formal education to go attack very big ideas.

In fact, if you look at some of the most successful companies out there, you oftentimes you will see founders who came from outside that industry that came and actually, you know, created something that was substantial and solved very big problems. And so the Thiel Fellowship is really that idea, but on steroids, where you have these people who literally don't have formal education, going and working on very complex problems from, you know, working on cancer research all the way to you know, longevity and problems like self-driving cars and so on and so forth.

And so really the big idea was You know, training yourself on how to think and how to learn pretty much anything at will.

Stephen: Now, before we jump into what you're doing right now at Flex as I mentioned before, you're also a founder and partner of a VC back VC company, right? Like, a venture, and I forget the name.

Zaid: 305 Ventures, yep.

Stephen: 305 Ventures. You're partnered up with some other fellows, Joey from Better. You've invested in a great range of organizations. How, like, what do you see that's different maybe than when you were a first time entrepreneur till now that you're in a different seat? You know, give us that perspective of, you know, how you were pitching VCs now that you're a VC, maybe how you would do it differently, because we have a lot of startup audiences, a lot of entrepreneurs that listen to this podcast, especially in the tech space.

Zaid: Yeah, no, absolutely. You know, you know, one of the great things of being in this kind of Tech ecosystem is that, you know, what's funny is that you don't really see the number of people who are working on really impactful ideas is not a very large number. It's the same kind of thousand people that you see over and over again.

When I started in tech, you know, 10 years ago, you know, you'd hear all these personalities. They're the same personalities still working on big ideas, right? And so, over time, when you spend more and more time in the space, You ultimately realize that it wouldn't be incredible if you started investing in these incredible minds, right?

And so, the 305 Ventures was really this notion of investing in our, kind of, immediate friend group of great, kind of, founders who are working on really interesting ideas. And so me and Joey Levy, who runs Better, we sort of got together and then we recruited Michael Millikian to sort of jump on board and be our kind of full time partner.

And we started writing checks initially our own kind of, you know, putting our own money to work, but over time we realized that there was appetite to add some of our other friends as capital to the mix and became a small fund. And we like to call ourselves angel investors rather than full time VCs because ultimately we are operators investing in companies that happen to invest on the side.

And frankly, at this point, founders want to work with other founders, right? And they don't want to be working with, you know, MBA types on their cap table. Not that there's anything wrong with having an MBA, but more so that they want to work with people who have the empathy of their problems. And so we are the friendliest check that'll ever be on your cap table because we are founders ourselves.

Stephen: That's awesome. You know, one interesting thing maybe about entrepreneurs is, and what you'll see is that, you know, they tend to want to work on a lot of different things, right?

They're, they're, you know, they're on path. And then all of a sudden they hear My First Million Podcast or Around The Coin Podcast talk about this niche, you know, Brazilian casino opportunity.

And then they're like, Hey, we need to switch, you know, some of our aim over there. Do you see a lot of that? I know Alex Hermosia has talked about this, where he says, you know, you should really just niche down on one thing and get more reps

in that one exercise versus trying to do all of these different exercise a few times what are your thoughts about that, do you see that a lot, where the focus might not be 100% there, and maybe how does that play onto the investments that you have made, where you have noticed maybe the focus wasn't there, and which led to maybe less than optimal results?

Zaid: You know, it's interesting, it's a fine balance with like, You know, having focus and also having curiosity to be a generalist, right?

So, there are a couple of kind of quips I can make. So one is that of Charlie Munger who recently passed away, Warren Buffett's business partner. Charlie Munger had this thing called the T shape mind, right? Where you should try to be very deep in one or two areas, so that's the, you know, the bottom end of the tea.

And be very broad in a lot of different things, so that you understand concepts in a lot of different subjects so that then you can be even better in that one or two kind of areas that you're really good at. And so that's sort of the principle that I've applied where, you know, having the curiosity to be constantly learning new things and You never know how the dots will connect, if you will from one concept to the other.

And so one other thing that Peter says a lot in his books Zero to One, if you read it is this notion that, you know, people have a strong fascination with becoming a specialist, right? You know, you know, I'm, I specialize in, you know, internal medicine, right? It makes sense if you're in the kind of human body kind of realm.

You know, you, you hear like people like have the aspiration that academia really pushes you in this direction, that, Hey, I'm gonna be a specialist in x, y, Z literature. Right? Well, what does, what does that really mean? You know, , like, how is that, you know, going to be applicable in a broad sense? And so in my opinion.

The world needs more generalists, and that's particularly becoming relevant in this notion, in this age of AI, where AI knows everything. So, how do you, how do you compete with a being that knows everything, right? And so I think, you know, really focusing on being a generalist and using the creative parts of your brain is going to be even more important.

But at the same time, having the discipline. To be focused on one or two projects that leads to results. So, so those are kind of not mutually exclusive that, hey, I should have kind of T shaped brain, but also have the focus to deliver on, you know, key sort of milestones and objectives. And so another thing that Peter talks about, well, people who work with Peter talk about.

Is that, you know, if Peter's your manager he, he'll often say something along the lines that when you come to work expect to be fired if you don't get that one thing done. So, his whole thing is, you know, people tend to have lots of priorities so that they kind of, Procrastinate on the most important priority and work on like the least important, like least stressful ones.

And so, you know, sometimes it's important to have like a singular thing that you're focused on in terms of priority, but that doesn't mean you switch off your curiosity about all these other things.

Stephen: Have you seen a shift in society, in the tech community, especially there in Silicon Valley, in Florida, where, you know, mental health is playing a lot more bigger of the picture, where it's not like, you know, people are locking themselves in the basement for hours.

Obviously there's gonna be pushes during launches or other things, but have you seen, you know, people just get away and maybe play a little pickleball in the backyard versus I think what seemed like 10 years ago, it was like you were either living and dying of this? Or you weren't going to be considered.

Zaid: You know, what's interesting is that you know, and a lot of people talk about this, you know, Bezos in particular on his recent Lex Friedman podcast, talked about this at length, which I think is an interesting. Episode for founders to listen to is the reality is that if you really, really enjoy your work, your work and life becomes so integrated that, you know, there's no sort of separation.

And in fact, you thrive and enjoy your life even more because of that integration. And so you'll hear, you know, very successful, you know, public company CEOs report that, hey they're in London for, you know, some very important. Partnership meeting, and then, you know, post meeting there with their, you know, there with their kids taking a walk in the park, right?

Those are kind of examples that you really need to sort of, cultivate in your life where your life and work kind of The boundaries go away and you figure out a way to be in harmony such that you know, each aspect is contributing to the other aspect. And so I don't really believe in work life balance.

I don't believe that, you know, at 5 p. m. you switch off your computer and you, you know, get in your car and commute back to your home. And, you know, you switch on Netflix and have dinner. Like, I don't believe in that, right? That's a boring life, in my opinion.

Stephen: That's such a great answer. And I think everyone has their own personal perception about that.

Your comms and marketing team are probably like, yo, we're 17 minutes in. You haven't even mentioned Flex. They're probably like shaking their fists right now.

So let's get to the magic that you're building at Flex. We've talked about all your other previous ventures and your current ventures. But let's talk about Flex.

Give me your, you know, two minute pitch. If someone says, Hey, what's Flex in the elevator? What would you tell them? And how did this come about? Like, I'm always interested in how people come up with ideas. Usually it's from their own situation, right? You need to send a wire from England to Canada because you're moving.

Couldn't do so. And you know, cryptocurrency all of a sudden sounds very interesting as an aspect of their solution. And that's how people get into crypto. Tell me a little bit about Flex and how you got into this domain.

Zaid: No, absolutely. So, you know, even with my own kind of entrepreneurial journey, this is my third company and, you know, I obviously backed a bunch of companies as an investor.

But I come from one of these families these Indian families that It comes from like a bunch of small businesses. So in our family, we have a construction business, we have a small logistics businesses, and these are not, you know, super scale businesses. You have pretty small kind of your immigrant family type businesses that you can kind of imagine.

And so from those kind of experiences, one common denominator across, I saw across the board was that finance sucks, right? Like, nobody really enjoys finance, right? And, you know, there are kind of two sub problems. So one is The finance back office is actually a pretty complex being. It's not just how much money is in your bank account.

It's managing banking, it's credit, it's managing payroll, benefits, insurance, taxes, it's collecting money from your customers. It's sort of chasing your vendors and so on and so forth, right? And so all of these things are time consuming. And the reality is that every single entrepreneur in the world doesn't have time, right?

And you know, in certain cases, you may not even have the resources or the know how to do these things, right? So when you combine these things. What ends up happening is the back office is actually the weakest link of most businesses across the world. And the second problem is working capital, right? You need money to grow your business, especially, you know, in industries like construction and logistics and trucking and e commerce.

You know, they're these industries where you need to spend a lot of money in order to make money. An example of this is, you know, you have a contractor. Contractor is renovating someone's kitchen. And the client will pay them in a couple months, but they need to go buy materials today so that they can collect on those funds in a couple months.

Well, who's paying for that? Turns out there are not that many short term sort of short duration capital providers out there that are elastic and kind of grow as you grow and so on and so forth. And so we realized. That if you combine these two problems with the back office and the working capital, there's a very obvious opportunity to create almost like a finance super app, a finance HQ, where you bring together every single aspect of the back office in terms of financial services, the And so Flex, in a short period of time, has shipped a number of products.

We have a credit card product. We have an expense management product where we manage a company's spend. We have a banking product where we give checking accounts to businesses with yield. We have payments products, where you can manage invoicing and bill pay. And we have the ability to finance some of these things as well.

And we're working on a number of solutions such that we can bring together every single aspect of the back office, every single aspect of the wallet of the business, into one platform. So the business owner can focus on growing their business, as opposed to worrying about finances. And the core product that most customers use, is our credit product, which is sort of our land, if you will, where we offer 60 day terms on every single transaction.

So you get short term float on every purchase you make, with no interest, and if you pay us on time, you never pay us any fees whatsoever. And so a lot of business owners are using our short term credit facility in order to grow their businesses even faster.

Stephen: I think everything you mentioned there is exactly every issue that any entrepreneur or business owner has.

You really just covered, yeah, I'm sure everyone was just shaking their head. I, as soon as you went from one point to the other, they're like, yep, yep, yep, yep, yep. And then you go 60 days and you're like, Oh, of course. Right. Cause I just think as an entrepreneur outside of hosting this podcast, I run a content production agency.

And all of those problems are exactly it. And the credit card is one of those issues. Your credit card's here, you're making payments with vendors, and it's not, and it's just like money's flowing all over the place, except in that, that one little account that you have that says profit. Because you don't even know really where the profit is.

Because, to your point, it would be so great just to log in and say, okay, profit here, expenses here, this is the float we have. And that float is so important.

Why do you think there hasn't been another company that has solved, especially for that 60 day term, where it's like, we just need a couple dollars to hold us over until the vendor pays us and usually 60 days is it?

Why do those traditional financial institutions make it so hard and expensive, right? Even if you were to get that, it's high interest credit cards or something else. Why hasn't there been an easy solution before flex?

Zaid: You know, it's interesting you say that, and you know, as you were saying, a couple things went in my mind, I think the best solutions oftentimes are the most obvious.

So, as I was saying, you know, you were like nodding your head because these are kind of obvious problems that every single entrepreneur. And frankly, you know, it's surprising to me that no one else has really solved it as well, because the, the way you, the way, you know, fintech has evolved, you know, kind of taking a step back, you had these big banks, you know, your big kind of big four, big five banks you know, which everybody knows in the U.S. These banks had a number of solutions that were sort of bundled into one product. But the user experience of these solutions weren't as good as it should have been. You know, the technology utilization wasn't as good. You had to sort of drive to the bank to, you know, make a check deposit and, you know, those types of things.

Right? And so a lot of startups are emerging in the last 10 to 20 years. Unbundling every single aspect of the financial stack. You know, hey, I'm going to be a solution that does corporate cars to startups. Hey, I'm going to be a solution that does payroll for small businesses. Hey, I'm going to be a solution that does insurance for healthcare companies.

Right? And so it's almost like we have unbundled the financial stack to death. And we now need to re bundle every single thing into a kind of FinTech 3. 0. And so that's effectively what we're doing. Some of this has happened in kind of emerging markets. Like if you go to Europe, you have companies like Revolut, you go to Latin America, you have companies like Nubank you go to Asia, you have, you know, a lot of stuff that you know, the big Alibabas and the WeChats of the world are building, and you have South Korea as well.

And, and that's sort of happening in the kind of consumer space in these emerging markets. But nobody quite across the world has done this for businesses, and there's always been this kind of philosophical thing in the US where a super app will, you know, not work. But we think that you know, business owners really care about user experience.

And so if you can bring all of these different aspects and working capital and solve problems immediately for business owners. There is a premium for the user experience kind of upgrade that a user kind of finds himself in where when all of these things are working in conjunction your experiences, you know, orders of magnitude, you know, ten times better than what you're used to.

Stephen: I think you came up with a really great concept, right? We've unbundled everything to death, even when you can think about any type of business. So how many apps, how many plugins do we have? Most people would be like, just give me one to one. I think that's kind of where HubSpot has said, Hey, bring in everything here.

We'll handle everything you need. And that's why they've been so successful. Because people are getting tired of having to log into five, six, six different things just to one run, maybe one marketing campaign.

Zaid: Yeah. And frankly, like in banking in banking, like, you know, we come across users all the time that are using one bank account for their personal needs, one bank account for this business, another bank account for another business.

And then suddenly you're like remembering like four different logins and like, you know, it's like, why can't all of this kind of interconnect and live in one place? That's kind of the fundamental question. The other thing you mentioned earlier that I wanted to also emphasize is, you know, you said that, oh, my prophet lives here.

Expenses live here. Well, one kind of simple heuristic to understand how good of a finance stack a business owner has is simply asking them, asking them the following question, how much profit did you make last month? The reality is most business owners will not be able to answer that question.

Stephen: Me included. Me included. And it's so true. You know, I've read that book Profit First and they, you know, have a good, you know, analogy of how to do that.

But you're too busy doing the work, right? I think that's what you're saying is basically you're giving back small business owners the time to do their work so they don't have to spend so much time focused on this.

And a lot of us have our own bookkeepers or annual accountants. But then even just to organize the information for those people is taking as much time as almost doing it ourselves, but just without the expertise or knowledge. And to have a click of a button and say, okay, we spent this much, we have this much floating.

I think it's the hardest thing to wrap your head around, especially in those first, I'd have to say first four, first, you know, one to five years of operating a business.

When you ask that question to founders that are looking for VC backing, how many of those have their numbers together? Or is it still kind of that blank look that I had when you asked the question?

Zaid: You know, it's surprising, like, I'd say two thirds of founders really don't have the information they need to you know, on hand, which is, you know, oftentimes it can look negative in a deal. But the reality is that, that fundamentally is because their systems are broken, right? And so that, that to me is another opportunity to flex is providing the analytics to these companies so that they can actually provide the data they need.

Not only for you know, investors to sort of invest in the company, but in their day to day, they should know what their kind of runway is and, you know, what they need to sort of get to the next sort of milestone and so on.

Stephen: Do you think, you know, with so many statistics about, you know, the failure of small businesses and how hard it is?

Do you think this might be the core unlock for a lot of the small businesses? Because, realistically, I think a lot of the small business owners know how to do the thing that they were selling, whether it was the product or service, but it was the time, it was being able to organize their finances, it was being able to leverage things like credit.

Do you think this might be the core unlock to kind of help increase the number of small businesses survive, especially in the United States?

Zaid: Yeah, no, absolutely. And we, we fundamentally believe in that, right? So one kind of internal saying that we say is we really want to revive the American dream. And if you think about it entrepreneurs used to be able to dream business ideas and then go and execute on it with, you know, no barriers and so on.

And the reality is that now you just have so much work that you need to do in order to run your company in an efficient way, in a very competitive market. The tools just frankly don't exist, right? And so it's no surprise that less than 0. 01 percent of entrepreneurs are able to get the funding they need to actually go and grow their business.

And so really there's an opportunity to be this kind of deep, embedded financial partner to entrepreneurs in not only venture backed kind of startups, but also mainstreet businesses. To help them grow and sort of provide them the tools and services and the capital so that they can achieve their dreams.

Stephen: You already have 25, 000 small business users, which is seems like maybe not enough to you.

But I think for any entrepreneur having 25, 000 anything users email addresses is a huge accomplishment. Can you talk to me about maybe was this more founder led customers? Talk me through like acquiring those first, maybe hundreds to a thousand customers. They come all at one time. I think a lot of people.

Want a better understanding of how to acquire customers in any, any technology or, you know, traditional entrepreneurship venture that they have.

Zaid: Yeah, you know, frankly the demand we have for our products is so intense that in Q4, we had to actually switch off our paid advertising because we just frankly didn't have the capacity and the resources to serve every single customer signing up for our products.

And the reality is that in some ways. You know, we have benefited from a high interest rate environment whereby offering 0 percent for 60 days is a offering that's almost too good to be true, right? And so as a result, you know, our growth numbers have done really well. And of course, we're making revenue no matter what through interchange and merchant fees.

From the merchant side, but you know, it's enabled us to really hack our growth and as a result, we're seeing, you know, tremendous month on month growth, even after switching off our advertising. But the reality is, you know, kind of zooming out and answering the question and how to think about growth.

You have to solve a problem that has inherent market pull a lot of entrepreneurs work on problems that nobody needs, like a solution in search of a problem, right? And so, you know, we've gone through a few iterations ourselves. You know, when we started, we knew cashflow was a problem, but at first we thought that payments was the answer to that problem.

And as we kind of drilled further down in the IDMAs and started talking to more and more customers and serving them, we realized that the real opportunity was using working capital as a shtick to sort of help customers and then providing them the platform. You manage their business a lot better. And so I think fundamentally a customer doesn't care about your solution if it doesn't solve a core problem of theirs.

And so as an entrepreneur, one must really focus on. Finding that market pull rather than thinking about how to market, if that makes sense.

Stephen: You speak about focus and that market pull, how do you decide which lever that you're going to pull? I'm assuming business is coming to you, the five, six, maybe seven features that you have is not the only things that you're, that you're being asked for.

You kind of do some market research, speak directly with your customers, how you decide, okay, we, they need this. We're gonna focus on getting them this before we get them that, which maybe not as many people need, even though it might be a higher profit margin for maybe your organization. How do you balance all that, all that demand

Zaid: Yes, in our business, we have kind of a unique two team structure where we're dealing with a lot of risk, right? We're providing you credit. We have to underwrite these businesses. We're dealing with fraud. We're dealing with all sorts of KYC, KYB issues and so on and so forth. And so we basically have split our team into two teams.

So one team focuses on making money, and the other team focuses On preventing losses, and their comms accordingly. And so that has sort of enabled us to sort of set up the internal incentive structures in such a way that we're able to prioritize problems accordingly, right? You know, you have to put the customer first, right?

If the customer wants a very specific feature, that's not a super profitable idea, but it will drive customer happiness. That's what you should focus on. And so, you know, if you went and checked our sort of internal ticketing system where we track, you know, product feature requests, there are probably hundreds, if not thousands of things on there.

But we're constantly asking ourselves the question, like, what will fundamentally drive customer happiness? And then if you follow customer happiness You know, profit sort of is a kind of byproduct of that.

Stephen: That's super interesting. And you talked about fraud. You talked about KYC. Those are like saline words to me.

That's a compliance background to my son. What are you dealing with from like a fraud perspective? You know, I can assume that there might be fake IDs, you know modified IDs, synthetic IDs. What's some of the biggest things that you're dealing with from like a compliance side of the program?

Zaid: Yeah, I mean that kind of whole world is absolutely insane. I mean, I didn't frankly realize you could literally invent social security numbers if you wanted to. This is like a kind of a fun fact that I learned through this journey. Where SSN is like totally a made up way of doing identity management and that data is sitting with credit bureaus and, and you could frankly, if you were motivated enough, trick the credit bureaus to think that the SSN exists.

So if you can literally invent a social security number, think about all the other things that you could invent and kind of fake and trick the system, frankly, from an underwriting perspective. And so we have done a lot of work in adopting what are the best practices across our industry, right? So, you know, if you go and look at credit card companies, they're all using certain vendors that, you know, are kind of the low hanging fruit.

So we went and Integrated with all those, then we asked ourself, all right, what are rules that we can set on our side where we can knock out bad applicants and bad actors really, really quickly. And so that was kind of a whole other layer of systems that we had to build internally. And then over time, we now have enough data through very significant number of applications coming on a daily basis and a very significant number of transactions happening on a daily basis.

That we're able to sort of build patterns and then we're able to then surface those patterns to humans who are then able to further investigate certain problems. And so it's not a perfect kind of science. It's a little bit more of an art that you know, you need to constantly iterate and, you know, be on the lookout.

And so when I say we have a team that literally just focuses on preventing losses. They don't get excited about, you know, we closed XYZ revenue deal, et cetera, et cetera. All they're thinking about is how do you prevent. You know, stupid mistakes.

Stephen: How do you keep the millions of dollars you just raised, maybe? Or how do you keep it within the business? That's super interesting. And, you know, banks, crypto exchanges, they haven't really figured it out either. There's not a hundred percent model that you can, that you can go by. Are there other risks?

Zaid: I think the one kind of piece of advice I can give startups that want to get into the space is that a lot of times, as a founder, you think, Oh, there's a better way to do things.

Because that's what your brain is kind of trained to think. You know, over time, I've realized that there are certain kind of non, kind of core areas that it's not worth reinventing the wheel, right? Why is it that certain institutions have the least amount of losses? Well, maybe it's worth like going and looking at what their KYC and kind of credit rules are.

Right. And so, you know, we saw a lot of kind of fintech companies, lending companies, their kind of valuations drop, you know, 50, 60, 70% in the last 24 months, because a lot of them are doing a lot of very novel things when it came to risk. And so, our philosophy is, let's not do anything novel with risk, let's start with what is the status quo.

And then, ask ourself, alright, where can we improve certain levers, where can we sort of optimize certain experiences so the user has the best possible time.

Stephen: Are you utilizing some of maybe the skills you have and other team members have in AI and And LLM, are you using some of this machine learning and some of the, you know, whether it's identifying suspicious activity or getting an analysis of all the applicants that are coming in that maybe see from a marketing perspective, who's your core audience or who's really needing your services? Have you been leveraging AI?

Zaid: Yeah, no. So, you know, on the AI front, this is a conversation that I have with our CTO all the time. You know, we've realized that the best applications for a lot of AI tools are really kind of inwards looking rather than outwards looking in finance. Because the reality is that the problem with LLMs is that, you know, there's a certain kind of fuzzy matching that's happening with the outputs where, you know, in finance, when you ask the system.

One plus one, it better be two and not 2. 2, right? So that's sort of the problem that we have with LLMs. So we have found that it's better to sort of apply these kind of techniques inwards. And so we're definitely utilizing it in every single aspect of the stack, be it, you know, at the point of origination to, you know, ongoing kind of analysis and underwriting and and, you know, transaction monitoring and, Customer support, customer service you know, providing better onboarding tools to customers, et cetera, et cetera.

Stephen: Now, I want to ask you something that I don't think I hear much about on other podcasts or even in general. You talked about family running more traditional businesses, not really looking at VC backing. What's your relationship with them? I'm assuming you're looking at that business, you're like, Okay, we need to run paid ads here.

We need to, you know, you have all the insight.

How do you balance, you know, having the knowledge that you do and respecting that the family probably just wants to run the business? Tell me about that dichotomy. Has there been any issues? Because I don't think entrepreneurs talk about this very much, especially when they're raising millions and sometimes billion dollar valuation.

Zaid: You know, I think what my family's kind of business experience taught me is that You know, zooming out, you really have multiple parts of your brain, right? There's a kind of a right side and left side. And one thing that I've realized is that to be a traditional entrepreneur that has no possibility of receiving equity funding from venture capitalists and so on and so forth.

You really train yourself to think in a very specific way, which is how much money did I bring to the table today, right? And so there's a certain like level of clarity of thought that that type of thinking brings. And so the way that translates now to a venture backed business is being ultra focused on the right metrics.

Because a lot of times what happens with venture backed founders is they think a lot about vanity metrics. And so we've been very sort of deliberate and thoughtful about, you know, not going the route of some of these vanity metrics. One vanity metric that is a pet peeve of mine is headcount. A lot of people will talk about, Oh my God, you know, we hired 200 people this year, but what does that really mean?

Did that contribute to, you know, X in revenue and Y in cash flow and Z in kind of customer happiness? And so we've been very thoughtful about headcount as an example, you know, we're doing for our scale of revenue, we have competitors who have literally hundreds of employees and we have 43 people today.

And so we've been very, very kind of deliberate and that sort of comes from this training that, What are the right metrics to focus on which, you know, goes back to my father saying how much cash should we bring to the table today?

Stephen: I love that. And I think that's, that's hard for an entrepreneur to do, right?

You have the demand, you're turning off paid ads. You know, you could probably, hey, like just times what we have by two and accept twice as many customers. You realize like that there is going to be a diminishing return there and you have to put the nice fundamentals. The processes, the procedures, and the protocols in place before you can do that.

Where some companies, they just say, Hey, like let's times it by two and let it run. Is that, would that be a fair assessment?

Zaid: Yep. Awesome. No, I think, I think like clarity of thought and kind of clarity of focus. And knowing what to focus on. Yeah, really, really important skills.

Stephen: What are some of your predictions?

You know, we're recording this in early January, probably won't be released until February or March. What are some of your early predictions in 2024 that you see in the fintech space or some of the trends that you're keeping your eye on, whether it's regarding Flex or maybe something else?

Zaid: Well, you know, I'll talk about Flex, can't really predict you know, what's going on at other companies too much, but at Flex, you know, I can predict a whole new kind of suite of products that will launch this year to go after even more of the finance stack to help companies run their businesses better.

Stephen: I want to push you, but I'm assuming you wouldn't kind of Can you give us the category that might be in? Is it more on the credit side, the banking side, maybe even more on the loss prevention side?

Zaid: All of the above.

Stephen: I knew I wasn't going to get much more out of you.

What are your thoughts on crypto? I see that, you know, 305 Ventures invested in some NFT companies, Nifties you know, Bether, I don't think is using blockchain, but I'm assuming that would be a great use case for blockchain. You have some other Web3 based companies. What are your thoughts on crypto, NFTs, especially in the US now?

We just saw the Bitcoin spot ETFs get approved by the SEC, and it seems like, okay, the floodgates are open. Let's go 100%. What are your thoughts on crypto.

Zaid: I think one kind of very interesting element of crypto that, you know, if I could bring it back to what we're doing at Flex is faster money movement.

And I think that's an area that nobody has quite figured out at scale, right? And so, I had this experience recently, you know, I was in Dubai over New Year's. And you know, in the, in the U S you have this notion of Venmo and CashApp and Zelle, where, you know, you're splitting the bill and you quickly Venmo each other a hundred bucks and you kind of move on.

Well, it turns out if you're in Dubai, you don't really have, you know, a corresponding user experience for that. And so, you know, however, my friend suggested that, Hey, like let's split the bill. Can you just send me some USDC? And, you know, he pulls out a QR code of his wallet and I'm like, oh my God, so I open up my Coinbase and, you know, instantly sort of transfer some funds to them.

And so I realized at that moment that money movement is going to be the next big thing in crypto where, you know, if we can figure out a way to like, you know, go beyond crypto exchanges, build like a true consumer level. Peer to peer application, and also bring that peer to peer kind of money movement application to business transactions, B2B transactions.

I think there's a lot of interesting things you can do especially as you think about FX where sending, you know, large multi million dollar wires today from, let's say, a Bank of America to, you know, Bank of England you know, like an HSBC is actually a very expensive endeavor. And so there's a lot of optimization you can probably do around that.

Stephen: Expensive, hard, it's complex too. Even just to send a wire 500, something goes wrong. You have to call the bank. The bank's not upset. The I think anyone that's sent a wire transfer has said that, you know, crypto might be just the better way. And I love Dubai personally. You've actually been quoted as saying this, that your best negotiation advice It's to start a negotiation by saying, I am here to make a deal.

I'm not saying that's controversial, but it sounds like, and I've heard other people say, you know, the, the person that wins a negotiation is the person that can sit there and be the most uncomfortable. But yours seems like a different approach. It's like, hey, show me that I'm here to deal. I'm not here to just, you know, go back and forth.

Walk me through that and how has that served maybe you from a VC standpoint? And maybe you as someone that's like, Hey, I want to invest in some of my friends and now they have a huge cap table. They don't need my investment. Maybe that kind of knowledge and impart that to some of our entrepreneurs and startups.

Zaid: Yeah, no, absolutely. That was so, you know, a really good friend of mine was very kind by posting that. You know, a lot of, a lot of people tend to have. A very, like, adversarial style to negotiation and kind of making deals. And it's very kind of high pressure, kind of sales tactics, being aggressive and so on.

And I've found that, you know, the best negotiators don't think in those terms. They think in terms of like, what is a true win win outcome in this conversation. And so I think, you know, if the desire ibdynamics of the conversation and the kind of tone and body language and psychology and. Psychological safety and so on that, you know, enables you to get to the outcome that you wanted in the first place much sooner.

Stephen: I love, as soon as you said body language, that was going to be my question.

Do you notice the body language change? Because me just hearing those words has me feel much more relaxed in any conversation.

Zaid: No, let's just say, you could apply that to like literally anything, right? You could say that, look let's say you're, you're negotiating some sort of enterprise software contract.

Right? And you tell the enterprise software company that look, we'd like to use you guys. Now let's make the pricing work because, you know, the economics matter to us. And then it's like, okay, let's, what's the best we can do to make this happen? They're motivated, right? But then you, you hear these kind of tactics sometimes like, oh my God, we have like We're evaluating five other companies in this space.

Why should we use you? And that sort of can work, but it's like a aggressive tactic that I don't think has the best possible outcome. And frankly, it's also like, you know, creates unnecessary anxiety and stress on both sides.

Stephen: Do you see any tactics like sharp VC world for maybe, maybe not now. The market's kind of soft to be trying these tactics.

Where people would come to 305 Ventures, which it might be a little smaller than maybe your A16Zs or, you know, Sequoias, where they're just trying to get a term sheet from you in order to leverage with other VCs. And they're really not interested in having you as, it's a partnership. If you're investing with them, I'm assuming it's a partnership.

Have you noticed tactics like that? Or is it so hard to get VC funding that those tactics have kind of been removed from the system?

Zaid: Well, you know, fortunately as an investor, like I, I, you know, I act more of an angel or like an operator investor where we're writing such small checks that we're not competitive with anybody.

If anything, we're trying to sort of help entrepreneurs get to other lead investors and so on. And so I don't really kind of face that experience often. One experience I do see you know, founders make all the time is they send out these very arbitrary kind of deadlines. That, hey, you know, we're going to make a decision by, you know, Monday, January 22nd, you know, 9 p.m. Eastern, right? And the reality is that that type of thing, if it's actually, like, not backed by substance, rarely works. And it's, again, one of those things where, like, it creates unnecessary anxieties that most people will just, like, move on, right? And so, you know, that's, that's a, that's another kind of pet peeve of mine.

That you know, you know, and guilty of that mistake. I've made that mistake in the past, in my early days. So it's like not, not like, you know, something that I haven't done myself, but, you know, over time you realize that people really just want to figure out if it's a good relationship and, you know, someone who you'd actually want to work with and an idea that actually makes sense that has market pull and kind of all these fundamental dynamics that makes an investment worthy.

Stephen: Where can people find your socials? I think people are really going to enjoy this episode. I think you touched on everything. The Baldi AI story has me giggling still. Where's the best place to find you? On Twitter? LinkedIn, maybe?

Zaid: Yeah, no, I'm on all the platforms. You know, my social handle is zaidrmn on Twitter and Instagram.

And just my name Zaid Rahman on LinkedIn.

Stephen: If I had to ask you one thing that you would tell maybe those seeking Investment entrepreneurs, now, the market's not that great what is one piece of advice that you would instill in them? Because you've probably seen some, some pretty tough markets. Especially maybe as a person of color, like getting investment is not always the easiest.

What's some advice you can give to someone?

Zaid: Yeah, you know, I think that's a great question. And you know, honestly, like I was just talking to a friend of mine a couple of weeks ago. Historically, even at Flex, we've seen a lot of success in 2023. Historically, it wasn't like that. It was like banging your head on the wall and constantly struggling and getting rejections.

It was, it was hard to even raise kind of some of the initial capital because we have competitors who are going after enterprise opportunities, who are really well capitalized. And so people were asking the question like, oh, X and Y exists, you know, why do you need to exist, right? And so the one kind of lesson that I can have taken away from all of this is that persistence really pays.

Being persistent and not giving up and. You know, iterating upon your business and your pitch and whatever kind of endeavor you're going through is worthy, but at the same time, you know, not giving up is a real premium. Like, when things are really, really dire, just sort of getting up the next day and getting back at it and showing up is what really counts.

Stephen: And I think that's great context, especially when you're like, yeah, we have to turn off pay that because we got so much business coming in. I think that's a really great context because you were persistent and now the market is almost coming to you.

Zaid: Yeah, yeah, yeah.

Stephen: This has been a wonderful conversation. I know everyone's going to enjoy it. We'll put all your social handles there so they can, you know, see some of these more, these, more of these great quotes that you have that I think might spark some really great discussions and thought provoking conversations. We appreciate you being on the Around The Coin podcast.

Zaid: Thank you, Stephen. Really appreciate it.