In Mountain View (CA), we meet Founder & Chairman of Addepar, Joe Lonsdale. Joe talks about his story how he came up with the idea and founded Addepar, how the current business model works, as well as he provides some advice for young entrepreneurs.

INTRODUCTION

Martin: Hi, today we’re Mountain View of the Addepar office. Hi Joe, who are you and what do you do?

Joe: Thanks for coming today. I’m Joe Lonsdale. I’m the founder and chairman of Addepar and also previously known as the co-founder of Palantir before Addepar.

Martin: Great. Can you elaborate a little more on your background, so what did you before you started Palantir and then your time at Palantir, and then the founding of Addepar?

Joe: Sure, so as you may know I grew up in this area and my friends taught me computer science and I was at Stanford computer science. I got to work at PayPal while I was here at Stanford. I don’t know if you know the PayPal crowd at all?

Martin: Yes.

Joe: So that was kind of cool thing – I was like a kid watching what happens there.

After eBay bought PayPal, one of the jokes (well it’s not very nice one), but the joke they make is that it’s kind of like the communist come in and taking over and all the intellectuals flee. That’s probably the wrong description, because I have a lot of…

I actually really admire Meg, who was running eBay at the time. But there were a lot of people who left to build great companies.So, they wereabout 13, 14, 15 really prominent companies that were built out of PayPal at that time. I felt like I learnt a lot about the world from that.

After that I worked with Peter Teal and helped with his family office, as he did a lot of venture investing. You know, we built macro hedge funds and I learnt a lot about the world from that and then he backed us to start Palantir.

Martin: Great. When did you come up with the business idea for Addepar?

Joe: You know we came with the business idea for Addepar, probably just like Palantir came out of what happened at 9/11. Addepar in a lot of ways, came out (for me) of what happened in the financial crisis of 2008. So we’re working with Palantir on a lot of the really big contracts with the banks, trying to fix their technology. We realized that a lot of the way global finance works is frankly really stupid.

For me it was not shocking that the government technology was really broken because I know why the intends are bad for governments and why governments don’t work well with bureaucracies. And I was actually really surprised how broken global finance is and what I learned is that big institutions, whether they are for profit or the government, there is a lot of structural inefficiencies and a lot of kind of inertia in these very large industries, they can keep things very big things broken for a long time.

It turns out that in finance, you have all these separate kingdoms: big banks all build their own walls and data, and they don’t want to talk to each other, they want to keep everyone in them. So you have these separate wall kingdoms and you have all these ways of doing things with literally tens of thousands of different formats with several thousand custodians in the world: custodians like a Charles Schwab or a fidelity or other big ones.And each of them have their own thousands of transaction codes.

So the world of finance is not work well together. If you go to New York, you see all those building across New Jersey. There are these giant buildings there and you like: “What is every one doing every day in these buildings?” And basically there are people-driven middleware.

So in Silicon Valley middleware is where technology makes everything talk to each other and work automatically, that is so hard in finance. You have hundreds of thousands or millions of people who are effectively acting as middleware, sitting in these building, trying to code things, trying to do things by hand.

So we realised that the global finance is really such a mess and we think there are a lot of the reasons why the crisis was so bad, because it is such a mess in the data and it is so hard to figure out what’s happening.

Martin: Great. How did you then start Addepar? So what was the first step that you take? Did you talk to some bankers and really understand what is the issue there? Or did you just build a product and iterated on it? How was it?

Joe: Well, hopefully a little bit of talking to people, a little bit of coming up with it by ourselves. We always talk about the early start up process that is all about the product and the team, of course. And on the product side, it’s a little bit of a dialectic where on the one hand, you want to have a view of the world, that you help to instantiate and you got to really be confident about it, like Steve Jobs: “I don’t care what anyone says, this is correct”. Then, on the other hand you want to be talking to people and getting feedback. Those are kind of like opposite ideas but they are both true, of course right? And in Addepar’s case, our goal was, if you want influence global finance, let’s basically get root access to global finance. What is root access global finance mean? World of money, right? So there is hundred twenty trillion dollars being managed globally by that nine different types of institutions. It’s obviously like by the big banks and insurance companies, by pensions, sovereign wealth funds, pension endowments, there are family offices, there are a lot of old wealthy families with money, there are a lot of investment advisers in America, they are called RAAs, there are thousands of them.

So all these different groups, they own the money and then all of finance sits on top of this money and does things with it and sends it around. So, the question is: the group who control all the money, how do they know what is going on and how do they get their data, how they do their reporting, how do they see what is happening?

And that’s the area that Addepar realises like that is very broken. If we can fix that, we can fix things on top of it. So we started talking to those people, and think what do you do, how do you manage your reporting and get all your data.

Martin: How did you come to the business name, Joe?

Joe: The business name?

Martin: Yes, Addepar.

Joe: Addepar. Yes, it’s a very funny name. I think these things are difficult to name. In this case it is from a quote, from Ovid’s Metamorphoses. So it’s a common expression in I guess the Roman world, “Adde parvum parvo magnus acervus erit“, which means “Add a little to a little and you’ll have a great amount.” And so it’s a quote about perseverance, but it also applies to both management if you’re adding a little to a little and having a great amount.

So, we thought it was appropriate for what we are doing.

Martin: Cool. And how long did you look for this kind of name?

Joe: I think this was just a couple days around the table. We did not spend too much time on this.

Martin: Okay.

Because for most start-ups, it’s quite hard to first find a name and then a domain as well.

Joe: That’s true, that’s true. Fortunately for enterprise software domain does not matter quite as much, but it’s nice to have one of your own domain so. I agree.

Martin: Okay, great. So, once you’ve had this kind of idea, what you wanted to tackle, what was the next step?

Joe: The next step was really simultaneous step, it was the team – building a team. I think in our space, teams matter more than anything else.That is the team, it’s the culture, it’s the people you attract.So it is the kind of chicken and egg problem, you can’t really attract great people unless you already have great people around you. And once you do, you can grow really fast.

We spent a lot of time at Palantir really focusing on the culture, and I talked about people that came out of PayPal and the companies that really worked out of PayPal, the ones that I thought did extremely well, obviously like YouTube, Yelp, and then LinkedIn. I think there were just a lot of great talent early on at these companies that attract a lot of other great talent, and there was engineering aspect that was really the key.

And so Palantir we were very-very focused on this, my first company and it was that was rated the number one engineering culture in Silicon Valley quite a few times, and so fortunately we already had a great network of people around us.

And you have a few people who you were going to be not working at Palantir or anywhere.

Martin: How do you find a great engineering culture? So what makes it a great engineering culture?

Joe: There are a lot of thoughts.I have a few blogs about it, I’ve tried to write about these things.

So, it’s probably a different answer different day, because’ it’s a more an artistic thing than a scientific thing. I think there are some things that influence the incentives, because I think people should be here because they are passionate about it, they should be here more for the upside in equity than for the cash. And people who come here and say, “I really want to a high cash salary” – that is usually not a good sign. Usually, that make the engineering culture not very good.

One thing we do when we give people offers, we give them three different choices. We say: “How much cash and how much upside do you want?” And it’s almost always the case, in my experience, the best employees show the lowest cash and the highest upside option.

You want to place people that really look into the future, really thinking what do we got to accomplish on our mission for the long term. So I think that the mission driven culture is, for me, how I like to build them.

Martin: Great.

BUSINESS MODEL OF ADDEPAR

Martin: Joe, let’s talk about the business model at Addepar. So what are basically your customer segments and what type of value proposition are you delivering to them?

Joe: Sure, so for Addepar’s customers we started off with the early adopters in the space. So the early adopters of the people who manage money I was talking about more family offices and the RAAs, because those are less institutional, they can try things more quickly. So basically, a typical large RAA, that might buy these six pieces of software and try to make them work together, to run all of their reporting and to hold all their data in one place, do all client access and client notes, they have a lot of different things like managing multicurrency or partnerships.

So there are all these different things that they have to manage, so Addepar places all those softwares within one single platform, and this basically saves people a huge amount of time, and it makes their business work better, makes things be answered more quickly for their clients, and they know everything is accurate.

So that is the first level of that platform. And the next level above that which we have started to figure out is aside from running from all their reporting and helping them run their business, how can we also help them access all those different types of products and services and teach their clients what is best for them using data using the platform.

And then I’d say that the other really important thing that we have just started to work, we’ve started work now with four or five banks and we are starting to work more with the big banks because it used to be that these institutions had better technology and that was a big advantage of theirs, now the family offices and RAAs who have all this new technology are getting ahead, and they are like: “Wait a second, we need this too.” So it is kind of like an arms race and they all are fighting to work with us, which is really lucky. So we are starting to work with a few of them.

Martin: And if you are pitching to those prospects, how are you pitching the value of delivering to them?

Joe: It is interesting because I think a lot of times the best way is not to pitch ourselves but for them (customers) to hear from other people in the community. So we actually want to create and deliver value, communicate it really well to people so at the point where they are all talking about it, and that way it is better.

But for governments for example, they want something to be new and exciting, but they also want it to be very safe, because they are very nervous, very risk-averse.Being at a big institution, this person can get fired if he makes a bad decision, right?So it needs to somehow have a stamp on it, this is safe, it’s okay to buy this and you do that in a lot of different ways. You do that by having other people using it, by having big name advisors and people associated with that you can make them comfortable, but at the same time they want it to be new and exciting.So it is kind of dialectical but they want both, so you have to give that to them somehow.

Martin: Okay. How did you acquire the first customers, because you said you first tried to get the more easier…

Joe: So in this case for example, you would not make your first customer a big prominent bank in New York. You would want to make your first customer a family office that maybe you have done business with you before and who I know and who can give me feedback. So certain family offices and certain RAAs are around here that my friends work with, I’ve worked with and maybe even invested in other companies before.

So I talked to them and they told me about their pain points and we iterated. A big part of the early product design is, these companies again come from the iteration of course. You deliver something to them and they say: “This is great but we can’t use it because of these two reasons.” So you come back as fast as you can and in two weeks, you say: “How about now?” Then they say: “This is wonderful but then these issues…” So we kept iterating, keep iterating, where it eventually gets to the point where they love it and the key thing also is to be iterating with enough early people, right? Because if you are just here with one or two, then it may be the case that they are very different. So you have to make sure that you are iterating with a big group of them, and use your judgement, how do we know what the overall market looks like and it involves talking to a lot of people, building on allies and hopefully making friends who want you to succeed. So we actually got a lot investors as well, so that when they are invested, they want us to succeed more.

Martin: How long did it take until the product market was okay-ish?

Joe: I think it was okay after about two and a half or three years, and that was longer than we thought. That is one of the lessons from both Palantir and Addepar.Frankly, as an investor for other companies I am involved in, enterprise softwares take longer than you think it is going to take, which means you are going to end up having to need more people or more money.

There are maybe two major resource: it is mostly people and money. Talent and money, you always need more of both of those things than you think. In my experience, some people, I know there’s a story that Whatsapp sold for 19 million dollars with not too many people and that’s really impressive. I don’t know how to do that, I always need lots of people and lots of money to make it work.

Martin: What have been the major obstacles over the years?

Joe: Well, those are the big ones, I was getting there. Some people in Palantir which is a 20 billion dollar company now (we are very proud of it) and people don’t realise, people probably see like “Oh, it probably worked.” And there were multiple times in years two, three and four where some of our most important people were threatening to leave and saying that they were already looking for new jobs. This is a company that ultimately worked extremely well, it isover eleven or twelve years now.But it’s really hard to keep people’s morality up, it’s very hard to keep them excited, because you have setbacks and people aren’t really sure if they want to stick around there a couple times.This is rather the people side.

On the money side, there were a couple times Palantir almost couldn’t raise money, because the people would say “Guys, you are crazy, you’re trying to fix mobile intelligence, what are you doing.” So I think Addepar is doing extremely well right now, and I’m really proud of it. But even with Addepar we have this much bigger vision we are driving towards but the current product is a lot to get to work first with these big banks. Sometimes it is frustrating, you have six to nine months to slog through the stuff they need and everyone wants to be working on the more exciting bigger things. So you got to keep the moral up while you are going, taking the troops through the swamp. You got to be able to do that sometimes before you are able to get where you are going.

Martin: And how are you trying to balance this? Are you putting some people more on the long term staff or are you…

Joe: Sometimes, this is like the dynamic with Eric who is very good CEO. I am more sometimes a vision guy, so I really want people to work on long term staff, but he says:”Joe, if you don’t have other people doing short term stuff, we are not going to get to the long term stuff.” Sometimes I think he is right to make sure, you can have big, big visions but you have to have the path work on the way there.

So right now we have very important appointments with very big banks, some contracts for winning there, we have a lot of, three hundred and fifty billion dollars on the platform for customers using us. So if we don’t make it work really well today, there will be no long term. And so hopefully, we can get through the near goals and start working on the bigger things later.

ADVICE TO ENTREPRENEURS FROM JOE LONGDALE

Martin: Joe, you have been involved in PayPal, started Palantir and then Addepar. What have been the major learnings you can share with other people interested in starting their own company? So just that they minimise their stupid mistakes.

Joe: That’s tough. I think, you know it’s an interesting trade-off between having really high-energy junior talent and having more senior executives. This is something I am still learning. I still think that early on in the company, you don’t want the really senior executives. There are certain people for example who’ve been head of sale or head of marketing at a big company, and if you bring them in in the first year or two, that can be really damaging, because what they do for a living and what they have done for twenty years is that they have a machine and they run the machine, and then they know how to do that. But there is no machine to run early on, so you don’t want them yet.

But the other mistake that I think I’ve made, a few times now, is that you have a really great early tech culture that tends to be biased towards being more young, because everyone is late at night hard working, crazy, driving. And then you get to the point where you are starting to have a real sales need and a real marketing need and it is parks to an ore. And at that point you should right away hire the adults, try to hire the person that knows how to run this thing really well and not trying to figure it out for someone who has never done this before. Because it turns out that there are lessons to be learned from people who are doing business for a long time.

I think a lot of people in start-ups, they think: “Oh well, these older people don’t know anything, and we’re just going to just rely on our talent.” But actually, that it is really important to learn from other people around you, who have been through things before and then bring them in at the right time.

Martin: What other type of advice can you provide?

Joe: I guess the other thing that worked well for me, I think the reason Palantir and Addepar, I think, they worked well because of the talent. I think all of us as entrepreneurs, we probably have big egos and we’re overconfident because we’re like, “We’re changing the world.” But it’s not about you changing the world. It’s about the team changing the world. So if you go out and find someone who’s just really, really bright and really hardworking and who you convince to be passionate about the mission, even if that takes you a week and that’s all you did that week, that’s really valuable because now that person is going to be probably… Maybe you’re so confident and you’re the smartest. Even if that person is half of you, it’s worth spending your whole week just getting that person. So people should spend a lot higher percentage of their time recruiting talent than they do. I think that’s a really, really important insight that people miss.

And I guess one other thing, similarly, people tend to really want to hoard equity in on the side and say, “This is my company. I want to take it all.” People get that equation really wrong because let’s say there’s five of the most amazing and talented people out there and you’ve got a big venture company. Let’s say you’re going to give each of them 3% of your company. The math people get wrong. So if you think, “I’m going to give these five people each 3%,” you feel like, “Oh, I’m losing 15%.” It feels like that, but it’s actually not what the math is. The math is that also you’re going to get 15% less of your own stake. And so you have to think, “Now I have five of the most amazing people. If I was going to make a hundred million dollars on this, then I only make 85 million dollars on this.” But those five amazing people, they probably make it much more likely that it’s worth a lot more, right? So people are always very stingy with that. At Palantir and Addepar, I think hopefully we try to be generous in giving lots of good equity to get the very best people. I think that’s something that’s really important to do.

Martin: And how did you spend the time in the first 12 months between really operating the company and finding new talent?

Joe: It’s a really tough trade off, so that’s why it has to be obsessed. When you’re building a really great startup company, I think it’s a lot like trying to train for a gold medal in the Olympics. It’s not something where you say you have a really healthy work-life balance and you spend a lot of time with your family and your kids and you want to visit your parents on the weekends. There’s all things you’re supposed to do and that you want to do. If you have the power to cut out a lot of other stuff, then you’d be absolutely obsessed. You need to both be running things and spending time recruiting, and networking and getting feedback from customers. So I think the answer is that it’s somewhat unhealthy to start a startup. It has to be something you’re really obsessed with and you’re really focused on, and you have to try to fit in both at once somehow.

Martin: When did you find out about your obsession for startups?

Joe: Well, I think from a relatively young age, I had a really strong passion to… I wanted to have a revolution when I was 14 years old. I want to change things and fix things. If I see something broken, then I want to fix it. And I think that that’s what some startups are about. It’s taking something that “Here’s where the world is now, but this is what the world should be,” and you have to run as hard as you can and encourage everyone to come with you and run in that direction.

Martin: Joe, besides being chairman here at Addepar, you’re also running a VC fund. So can you tell us about how this came about and what type of investment criteria you have?

Joe: Sure. Palantir had a lot of trouble raising from VCs, and some I really respect but I thought that maybe there was a little hole missing for certain type of companies. And a lot of my friends started companies after Palantir, just like Paypal and how a lot of these companies came out of it. Palantir had a lot of companies come out of it. I sat with my other friends who were entrepreneurs building things and I ended up… I think almost all of us are angel investors in Silicon Valley. It’s kind of what you do when you’re lucky to have a little bit of success.

So we started investing in a lot of them and helping them. It turned out that I was spending more and more of my time mentoring these new CEOs, helping my friends, and I realized, “Gosh, this is like… I’m doing this anyway. I probably should find a way to organize it.” And so along with a couple of friends, we put together a venture capital fund, and we’ve been really lucky to invest in a lot of great companies. We focused on early growth. We focused on top teams, people running platforms. Mostly what we focused on is something we call smart enterprise, which we think it’s a new way that companies start fixing big industries.

The high level view of that is that there’s been these five waves of companies in Silicon Valley. So a hundred years ago, you had the Radio and TV invented here and you had all the electronics companies and then you had the semiconductor companies, the transistor, and then those guys who built those Fairchild and National. They started the first venture capitalists and they invested in the third wave which is enterprise software. So for the first time, you had computers in all these businesses, and so the guys who invented the viability, they started investing the businesses for how they’re going to use the computers. So that’s enterprise software.

And then you had a networking wave and a consumer wave. Most people around the world, when they think of technology and starting a company, they think of that fifth wave. They think of the consumer wave because that’s where most of the money has been made. There’s Google and Twitter and Facebook. The last 20 years, that’s where most of the money is made. Money was made in other areas. Money was made in other places. I still think the consumer is important and we still do some consumer platforms, but we think the vast majority of the important platforms coming up the next 10 or 20 years are going to be about fixing big industries. So I’m biased because this is more like Palantir and Addepar. But I think so long as my friends are building many more companies that are these types of platforms, and that’s more my focus is helping great teams fix big industries.

Martin: Great. Joe, thank you so much for sharing your knowledge.

Joe: Thank you. I appreciate it.

Martin: Awesome.

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