Welcome to Breaking Banks. The number one brand. Last week, Alec Johnson and I introduced a new series, Killing It.

It’s about entrepreneurs that had to face down the most difficult decision. Was it time to sell, shut down, or exit? Well, on the first official episode, we have a candid conversation with Shamir Karkal, CEO of Sila, formerly co-founder of Simple, or as it was known back in the day, Bank Simple. Shamir and I were compatriots pioneering the neobank space, and both faced down that hard decision when it appeared there would be no more funding.

Shamir shares the agonizing decision he and his co-founder faced when a term sheet materialized at the 11th hour. I think some of this hasn’t been shared publicly before, but Shamir brings a ton of wisdom about the entrepreneurial journey and their wandering through the wilderness. In the second half, Brett King reconnects with Divine, also known as Victor D. Lombard, CEO and founder of Solve It, the tagline, the future is freedom.

You may remember Divine from a 2022 episode when we interviewed him about a venture with Amazon Web Services Impact Accelerator. Today, we add Brent Chandler, CEO, and Eric Lappin, president of FormFree, to the conversation to talk about their new partnership aligned around the mission to empower underserved demographics. The focus is on lending, specifically in the mortgage space, with new products to empower underserved individuals to get access to credit and a new two-sided marketplace, the FormFree Exchange, connecting lenders and borrowers, helping the credit invisibles get loans and institutions to lend without bias.

Tech for good, and you know we love that on Breaking Becks. Shamir, let’s go back to the Wayback Machine here. And the year is early 2013.

I’m guessing this started for you about the same time. We had just gotten the news from our investors at Perk Street that, hey, it’s been a great five years. Time to go sell the business.

And I still remember hearing for the first time you guys were in market at the same time. And we had the upside of, like, we appealed to kind of middle America, but you guys were Silicon Valley rock stars, you know, kind of putting fintech on the map. Walk us through, like, what was going through your mind? What was the process when you and Josh were coming to this realization? It’s like, hey, like, we need to go find an exit.

And you were far from done, you know, with what you’re seeking to accomplish. But what was that process like? Kicking and screaming, if I was to use two words, right? So the way that that ended up happening was we finally got Simple launched in July of 2012, only about two and a half years behind schedule, right? And so we raised a lot of money, about probably about $13 million at that point when we launched. And we had a pretty big team.

We had, like, 30-ish people, I think, when we launched. And we had a burst of growth. And then we figured out that it’s just getting people to sign up doesn’t help if they don’t actually use the product.

And then we started working on solving the kind of, like, activation problem, which – and at this point, we were on backboard. And any time we tried to onboard more than, like, 4,000, 5,000 customers in a month, their system just broke. We would have, like, people stuck in a queue for – like, we’d get, like, more than 1,000 people stuck in a queue where they hadn’t heard a response for a week.

And I’m like – you know, at some point, it starts becoming unacceptable, right? So we were sort of throttled in our growth by Bangkok. And at the same time, we had a huge activation problem where everybody would put $100, spend it, and never do another transaction after the second or third one, right? So we started working on that. And I will say that at the time, it felt like, you know, like the sky is falling down and we got to solve this problem.

Our activation on our internal metric, like, bottomed out at, like, around 15% in September of 12. By January of 13, it was up to, like, 23%, 25%, and it hit 33% at max. And this was an internal metric.

It was not like the industry standard one transaction per customer in the last 30 days. Real metrics. Like, real metrics.

Like, if you were trying to build a business, what you want to put into the Excel model around a real customer, not vanity metrics of they looked at the login to the app. We basically, in like a six-month period, went from possibly the worst activation level to probably the best in the industry, if you looked across it, right? Like, our active customers, that percentage of 30% of the cohort that was active, were doing more than 30 transactions a month on average, right? And so we solved the problem fundamentally by, like, January of 13. But we were almost out of money.

And Facebook had gone public in 2012, and their stock price had tanked, and that led to a VC chill. So we kicked off a fundraise process in January of 13 to raise $15 million for a Series B, then got a term sheet in February in three weeks’ time for $25 million, way more than we wanted, from Warburg Pincus. And then two weeks of due diligence later, they pulled the term sheet.

And we were like, why? And they were like, yeah, we just decided not to do the deal. And we’re like, did we find something in due diligence? And they’re like, no, no, just decided not to do the deal. We’re like, what the? And that’s one of my big learnings was that a PE firm, a term sheet is a little bit more valuable than toilet paper, right? A VC firm which writes a term sheet expects to close on 98% of the term sheets it writes.

A PE firm expects to close on maybe 30% of the term sheets they write, right? The term sheet is their way of getting into the deal. It’s not any indication that they will close it, right? So there we were in sort of early April of 13 with about eight weeks of runway left. A 60% team, because we had to scale customer service like crazy just to keep up with all the broken stuff on the back end.

Business was growing. We had solved the activation problem. Revenue was like profitability at 30% activation was like 6X profitability at 15%.

It was massive, right? Everything was beginning to work, but we were out of money. And there was no time to go raise another round. On the flip side, our inside investors were all sort of seed investors who had stretched to write a Series B to us.

There was no way they could write a Series C. It was impossible, right? So we had to go to them and be like, hey, we need an inside round. And they were like, look, we can give you a couple of million, but we can’t do much more than that. And you have, I mean, we’d always had inbound interest from kind of lots of people.

We just ignored it. We never wanted to sell. They were like, you have to hire a banker and start looking at this inbound interest.

Because we can’t, you know, you have like, how much did we have? We had like more than 30,000 customers at that point, probably 40,000-ish. You can’t take the risk that you just run out of money with like all these people’s money, right? And forget the VC money, right? But at least like customers need a… So we were like, okay, fine. You give us the bridge loan to hide us over for a few months and we’ll hire a banker.

And Josh and I were like, you know, we’ll hit the fundraising road again and find another term sheet. And for us, we were like, we will work with a banker just because that’s what our investors want. We’re going to go work on getting a route together.

So that’s how it actually started in sort of June, July of 13. And when you were, I mean, sort of progressing through that process, I mean, I hear a lot of stories like this where it’s almost like stages of grief in terms of like, we’re not quite to acceptance yet. Like where along that journey of we’re going to talk to a banker, but then, you know, we’re also going to be looking for more sort of VCs to sort of fund another round.

Like when did that flip and you said, okay, now we have to like sell? I can go back and find the exact date, but it was around 6 p.m. on, I think, around January 29th of 2014. That is an incredibly specific date. So what drove that realization? Like what was the switch that kind of flipped at that point? Was it just you couldn’t find investors that were willing to do another round? It was way worse than that.

We, at that point, we had, I mean, it was, we got a offer from BBVA and that was how that happened. There were so many things. Then we spent like months and months in like due diligence where they hired a banking law firm to do the due diligence.

And they, they tried to do it the way that, you know, one bank acquires another bank. And that had no conception of FinTech. I mean, we’d get on calls with like 30 compliance people and now like 3% team, right? I’m like, what the heck? But we had finally gotten to the point by end of January where the number was pretty much locked in at 117 million.

The terms are pretty much locked in. And we were just like a week or two away from signing the final docs and closing the deal. We also had a term sheet from one of the best VC firms on the planet for a 25 million round at a decent valuation.

And so we could have walked away from the deal and taken that. And I still wonder what that alternative world would have looked like, right? Given everything that I know now. And so I, and I was at a conference in Palm Springs and I, I went for dinner to meet one of my wife’s colleagues.

And as happens, she was in their home with my daughter having dinner with them while I was taking calls out, sitting outside in the car. That’s, that’s, that’s all the family things you miss as an entrepreneur, where you’re like, what were you doing when this happened? And I was on the phone talking to somebody. So I was on the phone with that investor and with Josh, and we kind of like, well, trying to negotiate the term sheet a little bit.

And they kind of, they did negotiate it a little bit and gave us a little bit of give. And then they told us like, this is at the max, you kind of have to make a decision. Right.

And that had been in the works too for a couple of three months at that point. Right. And, and so, and then Josh and I kind of like had to, had to bite the bullet and we were like, this is it.

Right. Either we sell in two weeks time or we sign this term sheet and, and, and take the money and keep growing. And, and that’s, we talked and we realized that like, and it wasn’t even an hour long conversation.

It was like a five, 10 minute conversation with Josh. And we were like, can we actually do the term sheet? Right. The entire management team is already counting.

Remember, we took 14 million of that 117 and distributed it to 100 employees, not including the founders. Right. So we explicitly set out to make everybody other than us rich and we succeeded.

There were like customer service people who walked in to the company thinking after the announcement that was being acquired, who thought they were being fired. And then after a conversation with me, they went out and bought houses in Portland. So it was life changing money for not just us, but everybody in the company.

The VCs were bought off. They were like, look, we’re meeting. You thought, you know, six months ago, we were worried that this was going to go to hell in some flaming basket.

And now you’re giving me a four to six X return. I’m in. And it was cash.

It was, it was a good deal. And you’re like, can we walk away from all of that and just take the VC money and keep building? And there was just too much momentum behind the deal already. Right.

It was like it wasn’t really even about us. We were like, we pretty much have to fire a good chunk of the people because they’re just going to be like, wait, I was going to make 300K and now I get nothing. You know, so it just wasn’t realistically possible at that point.

You know, things have things have momentum. Right. And once you get to a certain point in the momentum, it takes a huge amount of effort to stop it, even.

So that’s when we kind of like acknowledge the reality that we probably weren’t going to do this VC and we were probably going to sell. And, yeah, I guess that’s it, Josh. Yeah, yeah, yeah.

It’s not like he was in a different place. I was in a different place. It was a short conversation.

It was a short conversation. We were both like, yeah, you’re in the same place, you’re in the same place. Yeah.

I mean, let’s go sell it then. I’m curious for people who knew you best and even at a great financial exit, but knew that you weren’t done building. How did you start to explain that? The people to whom it was the hardest was employees.

Right. And I mean, there were, you know, the senior folk who knew about the deal and had actually helped with like due diligence and everything. Josh and I could only do so much by ourselves.

Right. And so for them, it wasn’t hard to explain because they knew the trajectory of the funding side of the business. They’d worked on the due diligence with Warburg and seen it fall apart.

I mean, we took the management team along on this journey. And so they knew what was going on and they weren’t like, you know, upset about the sale because they made a ton of money out of it. Right.

The hardest thing, I think, was to talk to the sort of the remaining 90 employees. Right. And Josh and I split it up and we spoke to every employee the day of the announcement, which was February 16th or something.

So it was like two, three weeks after this. Right. And then we had to explain to them that this was kind of the option that made the most sense.

And it wasn’t really anything else that needed to happen. And we truly believe, which was true, we truly did believe that this was the best option for the company. And having BBVA as both a strong bank partner, because a lot of our problems throughout the history of the company.

And now looking back on it on the entire history of like FinTech was that you needed a bank partner and bank partners are heavily regulated. And whatever problems they have with regulation, that might not have anything to do with you. I’m just going to rebound on you and can easily set your business back six months, a year, two years.

And that’s definitely. Three and a half years to be precise. Yep.

And that’s that’s like that’s the case of death for a startup. Right. You measure time lost and you lost a week on this.

You lost a month on that. Just saying that like you lost two years because hire one got into trouble with the regulator. And that now means that Bancorp is swamped.

And I’m like, what’s got that got to do with me? I got my business is doing great. I have no problems with any regulator damage. Doesn’t help.

Right. So that kind of thing. Yeah.

So we truly believe that having a strong bank partner who was funding the company and providing the balance sheet and the compliance coverage would allow us to dramatically grow faster. And, you know, we were never in it to become billionaires. Josh and I from the start were always like, we do want to make money for employees and investors and everybody.

We really want to fix the world of banking. Right. And we were like, we can fix it much better this way.

Maybe naive in hindsight. Right. But that’s what we believe at that point.

So I think employees kind of understood that and trusted us that if Josh and Shamir think the right thing is to sell the business to BBVA, then that must be the right thing to do. Oh, and I’m making 50k. Oh, heck yeah.

I mean, bonus, bonus. And that’s a I think that’s a good way of putting it. Right.

Because like there is an element of like practicality and like financial outcomes for everyone involved. But there’s also like the hundred of you. And I remember this very clearly.

I was a simple customer back in the day. And one thing that always came through very clearly in everything you guys did was you were very mission driven, like you wanted to fix banking. I’m trying to remember the original text that was on the like website when you were just getting signups and it was like, we’re going to build a better bank.

It was something like really simple statement that was like really resonated with like thousands and thousands of people, including me. And like, I think the the carrying the mission forward to the acquirer, that’s a really interesting thing, because some I know some fintech founders that exit, they like know from day one, like this is going to die as soon as it goes into this company. But like we’re doing this for other reasons.

With you guys, you carried that that mission forward and genuinely thought you were going to be able to kind of continue to build on that. Walk us through like what happened next. Like what what were those next? I can’t remember how long you stayed at BBVA after the acquisition, but what was that experience like? So one of the main premises of the acquisition was that we could use BBVA’s backend platform.

Remember, this was long before anything called a BaaS existed. The word BaaS didn’t exist. Actually, at this point, I think somewhere in 2014 is when I first heard the term neobank.

And I didn’t like it back then. I’ve gotten used to it now. But I’m like, so so we kind of had built our own platform on top of a company called TXVR mainly.

And also like using some of Bancorp’s technology. But it was a cobbled together mess that barely functioned at the best of times. And TXVR had been acquired by Google.

So they exited the industry. So that was a massive source of a lot of our problems. Right.

And so then we switched to First Data. But in the middle of that switch got acquired by BBVA. So we switched from TXVR to First Data.

And as soon as that was done, we then switched from First Data to BBVA. And so that’s why we, for like a period of like three years in there, 60 to 90 percent of the energy of the engineering team was just on backend. Like nothing that any customer ever saw.

And the product, frankly, stagnated. Right. There were some improvements and here and there, tweaks and stuff.

And it was still revolutionary and different enough that it just still carried us through that period from like basically 14 to 17. But it also meant that that was the period of time in which like Chime caught up with the company. Chime launched and grew.

Right. And so that I, a lot of the senior management team just basically left after the acquisition and including me. I can’t complain about that when I did it myself.

And I actually left Simple and moved to BBVA, which was totally not an earn out related thing. It wasn’t like my earn out was very much tied to Simple’s outcome, regardless of whether I worked there or not. Right.

And so I went to BBVA and I helped them build the platform that Simple transitioned to, because the idea that Simple would transition to BBVA was great, but BBVA didn’t actually have anything called an API platform or a tech platform. So it was like, how does this actually work? Well, you need to show us APIs. And it’s like, we don’t have any APIs.

We’re going to have to build some. And then somebody came up with the idea, well, if you’re building API, why not do it right and sell it to everybody, not just Simple. And I was like, that’s a great idea.

I became an advisor to that. Then I took over that business and ran it. So we built and launched the open platform at BBVA in the US.

And we also launched another API platform in Europe called, which is a PSD2 style platform in Europe. So that was the first PSD2 style platform in Europe. And the open platform at BBVA was the first mass platform from a bank anywhere in the US, probably anywhere on the planet.

So I can say, and this is between me and Jason, that I launched the first NeoBank. First or second, let’s be honest there. And I can say that I launched the first PSD2 style platform anywhere on the planet, and probably the first mass platform from a bank anywhere on the planet.

And that was before I turned 35. No, before I turned 37, whatever, it doesn’t matter. I’m much older than that now.

And I’ve given up trying to keep track of these things. So we launched the open platform, simple transition to it. It worked.

It was actually one of the smoothest transitions. We launched other businesses on it. We even got other customers like Google to sign up to use the open platform at BBVA.

But the problem was that, and this is one of the things I just now realized, the hardest thing in the venture world, my opinion, is to go from zero to 10 million in revenue. It is very hard to get to that 10 million number. And if you get to 10 million, you’ll probably sail to like 20 to 50.

Everything has its own challenges. Every time you double, it’s the new challenge. But I feel like zero to 10 is the hardest part.

But when you get to 10 million, you’re like probably a series B company, maybe depending on which environment you are, you’re like anywhere from like a 50 to a 500 million company. Maybe if it was 21, you’re a billion dollar company. But 10 million is nothing to a large company.

Like you go to BBVA and they’re like, I can tweak my loan pricing slightly and increase profit in the US by 10 million this quarter. Profit. Yeah, they can find it under the sofa cushions, right? Yeah.

So the thing was that nobody in the company was anything that the innovation team did going to actually move the needle in terms of profits at any point, right? And so the whole like focus that BBVA had on innovation from essentially like 2000, but really from like 2010 to 2020 and trying to kind of take over the world was very much a top down labor of love or really belief in the future, which was very much driven by the leadership they had. FG and Carlos, and they truly believe that FinTech and technology would change the world of finance. And I agree with them, actually.

But it meant also that when times were tough, right, as long as times were good, things were good. But when times were tough, are you going to cut the core business that’s generating billions of profit or are you going to cut these like, you know, hanger on platforms, which even maybe they’re growing great, maybe they’re going from like 10 to 50 million in revenue, but they’re not adding anything to profit. You know, a startup doesn’t even think about profitability till it gets to 100 million in revenue.

Right. So nothing that BBVA is doing on the innovation side was close to that. Even simple in 2018-19 with like, I think, million plus customers, a lot of them active, finally beginning to work again on new product development and everything was just not anywhere close to being profitable and not even close to being the sort of profitability where it would have meant anything to BBVA’s balance sheet.

And then it came along and suddenly BBVA had to find a few tens of billions in under the seat cushions. And this, I think, is part of like the history of BBVA is like their strategy has always been great and sort of visionary like a decade ahead of the rest of the industry, even going back to, you know, decade before. But their timing when they acquire companies and when they sell them is abysmal.

Somehow they always buy at the top and sell at the bottom. So they sold Compass and Simple in like late 2020 in the depth of the pandemic. Right.

When Simple as an independent company would have probably had like a 5 billion plus valuation in late 21. Right. And they basically sold it for nothing to PNC.

And PNC was like, PNC has been a very like sort of non-forward thinking bank, the kind of the opposite of BBVA. They just didn’t want anything to do with Simple and basically told BBVA to shut it down before it came over. Right.

And so BBVA did. But it was really PNC who drove that. And it’s just a disaster because you’re like another 18 months and they could probably have sold Simple and the actual like the other businesses, which were all number one, two, three in their industry.

They were probably sold the whole thing for 10 billion. Just the innovation businesses. Forget the Compass, the traditional bank, which is what they sold for like 14 billion.

Right. So it’s like you acquired Compass in 2007 at the height of the previous boom, invested billions in it and then sold it at the depth of the bust in 2020. If you had bought it in like late 08, you would have gotten it for a third of the price.

And if you had sold it in late 21, you probably have doubled the price. So there was quite a Twitter now X outpouring as people’s Simple accounts were being closed. What was going through your head that this thing that you and Josh had like poured your lifeblood into your dreams and passions? As you said, it wasn’t about making money while that was important and you wanted to change lives as investors, you wanted to fix the system.

And in some regard, you failed, they killed it. Granted, you weren’t there, but how did you feel and how did you begin to reconcile that? In a weird way, it felt with many different feelings because it took a period of months. Early on, it felt like when you get a call from an ex whom you haven’t talked to in years and you realize how much that used to matter to you, but doesn’t anymore.

Because there were all these people, as you said, on Twitter who were all about Simple. And I’m like, oh, my God, so many people still care. And they still associate me with it, even though it’s been like six years since I left now.

Six years since I left Simple. Four, five years since I left BBVA. I have a whole new startup, which I’m working on and trying to raise money for.

And all these people are telling stories about how much they love Simple and also like being pissed off at me. And I’m like, it’s been so long, right? So that was a weird feeling of like, it’s a blast from the past. Then the other part of it was I was still, like Simple was still my primary bank up until like I only switched to like one, like a month before they finally shut down all the accounts.

And actually a few weeks before. So I was basically account number one and probably the last account off the platform. You were going to be an active user right until the very, very end.

I was an active user up until the last month of like the last 30 day period. I was still active in that period. That’s amazing.

And I had to then figure out like, for example, one of the features that we had in Simple, which I don’t think anybody else like really ever copied. I don’t know why. Because we allowed people to add photos to their transactions.

And in the early days, we were almost competing with Instagram. Funnily enough, like we thought people would attach photos of receipts and keep track. And very accounting minded, me and Josh somehow.

But though most of the stuff that people have, we did an analysis once, one of our product guys did it. And nothing to do with receipts. Receipts weren’t even 10% of the photos.

The biggest category of photos that were added to transactions was food. People took photos of the food and attached it to the receipt for the restaurant. I actually used that feature to chronicle the early life of my daughter.

So I had photos of like the food at the hospital when she was born attached to the receipt. Early photos of her. So I had to go back and download all those photos from Simple and make sure that I had them in my Google photos because I wouldn’t have them anymore otherwise.

And she is now 11 years old. So the hardest part for me was actually like the actual shutdown and going through and like reorganizing my finances. And then realizing like this is freaking exactly why we started this.

Because the rest of the shit is so broken. And I didn’t truly realize how well we had actually solved it. But for me personally, right, now my financial life is way worse than it was when I was a Simple customer.

One is great, but then one also got acquired and is part of Walmart now or something. So I’m like, damn it. You know, and I’m like, things have gotten better.

They are still so far from solved. So yeah, for a period of months, it was like, you know, just like, what does this got to do with me? Then being like, oh, yeah, no, this has so much to do with me. That’s amazing.

Who knew the pivot you needed was to be an Instagram play before Instagram was so big? I know you just missed the boat on that one. I mean, it’s still out there, man. I haven’t seen anybody combine Instagram and finances really yet.

I’m surprised Instagram hasn’t tried and I’m surprised like Chime hasn’t tried. Yeah. Go ahead, Jason.

Alex, you go ahead. And then I’ve got one last question to wrap this up. Well, I think our question is probably the same, but I mean, so exiting out of Simple and BBVA, I guess the question I was curious about was just how did you sort of think about yourself, your identity, your sort of passion for entrepreneurship, having gone through all of that? Because as you said, you know, you are now on to your next startup.

It’s, you know, from what I gather, going very well, but like you had to sort of start that whole journey all over again, find a new problem or maybe an extension of a problem that you’d encountered in your last startup to kind of pursue full time. What was what was that sort of emotional journey, sort of jumping back into entrepreneurship? So I think I don’t know about other founders, but I, you know, there’s this quote that comes to mind, right? Like a reasonable man adapts himself to the world around him. An unreasonable man persists in adapting the world around him to himself.

Therefore, all progress is dependent on the unreasonable man. And I have spent, I’d say, you know, whatever, 20 plus years of my life, adult life at least, being very unreasonable. I was determined to fix the world’s problems.

And I never did anything for the money. And by doing so, I have made more than enough money and I’ve done very little to actually fix the world’s problems. So c’est la vie, right? And I kind of think I had this a bit of this hero complex.

I don’t know, but I was like, you know, I am going to fix this. Right. And it is going to make the world a better place.

This this thing is broken and I will fix it. Now, I kind of I’m in my mid 40s now and, you know, definitely don’t have like the energy level of like a 20 something McKinsey consultant. Right.

And I’m like, I slowly come to terms with the fact that the world is in many ways a shitty place. And even when I die, hopefully, like whatever, 40 plus years from now, it will still probably be a shitty place. And if I want to fix the world, forget one lifetime, I’m not even sure 50, 100 lifetimes would be enough.

I guess there’s just so much that’s broken, whether it’s war, climate change, homelessness, like the financial sector itself has like 100 things that are broken about it. Guess what? I realize now that I am, you know, I’m not going to be able to solve any of it, maybe very, very, very little of it. And I’m much more OK with that.

Right. I’m like. I am I am not, you know, I’m not like whomever, right.

Alexander the Great or whatever, the picture who rewrote history, definitely not that person. And I’m like, I’m much more now like thoughtful about like, hey, the people I interact with along the way. Right.

Doing things like, you know, just taking care of myself. There was a period of like I used to do a lot of martial arts when I was a teenager, my early 20s. And then for like a period of like almost 20 years, I did none because work, startups, kids, life just caught up with me.

Now I’m back. I, you know, do more exercise, do more jujitsu. And and I’m like, I’m not going to like I’m going to keep doing that.

I’m going to take care of myself because guess what? Not young anymore. If I don’t, then nobody else will. And I’ve also realized that like my ability to solve like financial and technology problems does not have to be my identity.

Right. My identity is whatever I choose to be today. And today, maybe Shamir doesn’t want to be or doesn’t feel like he’s going to be the greatest fintech founder of all time.

Maybe Shamir today is just going to try and and get the better of this 28 year old ex D1 wrestler on the jujitsu mats. Maybe that’s Shamir’s identity for today. That is such a powerful lesson and ties into something Alex and I were talking about in the opening episode.

Last question for entrepreneurs that have raised money. Maybe it was a small amount, a large amount, but they’re now facing this existential crisis that so much of their identity is wrapped up around this startup and they’re facing the hard decision. And that decision might say, hey, it’s a softer landing and has some silver lining to it, like selling to a major bank and getting a paycheck and some game changing money.

It may also mean, you know, like, hey, giving up on the entrepreneurial dream altogether. Either way, it’s not what you set out to do. For someone who feels like they’re standing at that juncture at the end of a plank, you know, about to step off to the other side.

What advice would you give? It’s OK to fail. It’s OK. The world will not end.

Your life will not end. Most people’s lives will not end because, you know, you had to shut down your startup. Many, many people have done it before.

Many, many people will do it again. You know, you’re not, you know, in Gaza or Ukraine or wherever else fighting some crazy war, like literally lives are on the line. Things could be much, much worse.

We live in one of the greatest nations on the planet. We have the privilege of having people who actually give us money just because they think we’re smart and on the hope that the 10 percent probability that we’ll return that money to them someday. Right.

Not even the 90 percent probability. It’s much less than that. And so the fact that you managed to go on this journey at all is amazing in and of itself.

Right. Where that journey ends, nobody knows. You’ve got to fight the good fight.

So much of it is just luck and timing. Right. And people like to think it’s all about ability.

Heck no. I think you need to have perseverance. Without perseverance, you cannot succeed.

But how much of success is determined by perseverance? Maybe 10 percent. It’s a necessary condition, but not sufficient at all. Right.

So just like maniacally sticking it out. Yeah, that is needed for success. But that doesn’t necessarily mean that you’re going to succeed.

You might still fail despite maniacally sticking it out. And at some point you do have to kind of take care of yourself. So my biggest message to folks is it’s OK to fail.

And you are not defined by your successes. And you are not defined by your failures. Right.

It’s OK to have a 9 to 5 job and have hobbies on the weekends and spend time with family. Not the end of the world. Unemployment is what? Like less than 4 percent.

Any decent startup founder, heck any decent startup person should be able to find a job in six months, I would think, no matter what. Right. So, yeah, it’s OK.

Find a job. Take care of yourself. And maybe take another try in a few years time.

That’s totally fine. Shamir, thank you for the honesty around the journey. And honestly, for as much as you and I have talked both through the process of building and exiting, I even learned some tidbits about the simple journey that I didn’t know.

So thank you. There are so many more. There are so many more.

I feel like I need to write a book. And maybe I finally will one day. That’ll be the next rock that you try to push up the hill.

Exactly. We can’t wait to read that. In the meantime, yeah, Jason, as you said, Shamir, thank you so much for the honesty and for taking the time.

This was great. Pleasure. This show is brought to you by Alloy Labs.

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Banking Unbound. We’ve got a friend of the show back on today. That is Victor Lombardi, also known as aka Divine.

Divine, how have you been, brother? How are you, brother? I’m good, man. I’m great, man. Thanks for having me again.

Yeah, yeah. Last time we spoke to you, you’d won some major startups. You got into a really interesting incubator with your startup, Solvent.

How’s that been going for you? Things are moving, man. We just got into another one, which I’ll talk about later. Yeah, for sure.

You’re introducing us to FormFree, who’s another team that you came through that Solvent angle into a fintech partnership. Joining us also is FormFree with the founder and CEO, Brent Chandler and Eric Lappin, the president. Thanks for joining us, guys.

Thank you, Brent. I’m very, very interested. We’re going to dive right into FormFree’s technology in terms of lending marketplaces and so forth.

I thought I’d start with a story because you guys are in the mortgage space. You do, of course, a bunch of lending. You’re in the mortgage space.

It’s funny. I meet a lot of people in the mortgage business that don’t know this. I’ll tell you that, did you guys know that Sir Thomas Littleton in the 12th century was responsible for putting together the concept of what we now know as a mortgage? Aha, so I got you.

Let me tell you the story. I’m not sure if the listeners have heard this story before either, but it’s a really interesting one. Back in the 11th and 12th century, particularly in Europe, there wasn’t really a concept of land ownership for individuals.

Land was parceled out by the monarchy to people in the court, and then there was sort of common lands around the towns and castles and so forth that the community would live on. Sir Thomas Littleton worked in establishing as one of the lords of the parliament at the time, although pre the legal structure of government as we know it today, but he worked on this concept of private ownership of land for individual citizens. This was essentially the template that has become the way we think about common property ownership or individual property ownership since then.

What was interesting is that he called this vadium mortem in the Latin. He was a legal scholar and so forth. If you know your Latin, then vadium is a sort of pledge or contract, and mortem is death.

I don’t know why death was included in that, but of course, I joke about it on the speaking circuit that it’s the dead pledge, but how that was translated into French, of course, vadium is gage, and death is mort, so you get mort gage or mortgage, and that’s where the word mortgage comes from. That’s very cool. A little bit of history for you guys, and that, of course, is why you only get to pay off your mortgage just before you die, because it’s a dead pledge, right? Anyway.

That’s the 30 year, right? Probably before that, it was life. All right, so Brent, tell me a bit about the Form Free as a startup. Tell me about how you guys came to be.

Where did you get the idea for this as the founder, and how long have you been going, and where’s the company at right now? Sure. Thank you so much. Yeah, it’s really an honor and a pleasure to join you this afternoon.

My brother back here, Divine, he’s really instrumental in making this happen, and it’s really, truly a divine setup. Form Free, I founded Form Free in 2007, and if anybody knows anything about the history of our financial system, 2008 was not a really good time to enter a business venture of any magnitude, let alone in a mortgage space or lending space. But the precursor to that was just, there’s a big part of my story is just how I was brought up and detached from a traditional home front, served six years in the Marine Corps, learned that people were the essence of what we were serving, and then into Wall Street, capital is what I was serving.

And the whole fallout of that, that learning experience was the genesis of Form Free. And Form Free really stood for a nebulous kind of term, the idea meaning free of form, and to really, truly understand a very simple concept that everybody borrows money, and this means everybody in the world borrows money, and everybody has an ability to pay some amount. And we could quantify that empirically and mathematically and really ensure that in a manner of a token.

And so representing a human in the form of financial DNA that could truly assess a person’s ability Now, math, computer science, background in school, formal education, and then on to the Wall Street, risk was always at the subset of everything we did. It was always understanding the source data and could it be reliable. If it was reliable, I could then take an action.

I could buy a car. But the 2008 crisis sort of proves it wasn’t reliable, right? Right. So, you know, unbeknownst to me, the world was coming undone, but I had this great solution and the great solution was simply understanding a consumer’s financial ability to pay.

So that was the onset of it, and it kind of took a course over the last 15, 16 years of proving that out. But the prove out was really kind of a journey through the bowels of the United States lending system, which is governed highly after the crisis by the government. Yeah.

You know, so learning through those trenches and truly pioneering a space where we could collect source data about a consumer. It’s their information. They authorize it.

They provide it for the verification to get that loan. Well, we were the data carrier. We were simply picking up the source data, ensuring the accuracy, the efficacy of that data, and then re-representing it instantaneously to the lending community as a representation of that borrower.

And that had, you know, it had a journey of its own. And so what that served was the initial foray into automated asset income employment verification of the consumer. So if I take it back to your story with Littleton, you know, there was a term that was used back then, which was understanding there was a village banker.

You familiar with the village banker concept? Oh, yeah. We can even go to the Medici days right in the 14th century. Oh, yeah.

So, yeah, the village banker concept was from my perspective, it was really just there was a there was an understanding there was a relationship. People knew each other. We knew your brother, your sister, your family, your father.

So if you didn’t pay the loan, we knew where to go. Right. And we also knew you were in good standing because the village banker knew everything about you and all the people around you.

Well, that concept dissipated over the years and through the auspices of fragmentation in a big system. You have hundreds of companies doing the verifications and compiling all these little fragments of data to assess a person’s ability to pay. Well, in essence, what we did was we took it all the way back to the village banker.

We brought the consumer with a fully encompassed financial DNA representation of risk that represented them in a way that a lender could comprehend that. No, I get that. I get that.

I mean, one of the things that I found in the prep for this, you sent me through some notes and one of the things that’s sort of really critical to understand if we’re going to make housing more affordable and more accessible, particularly for lower-income households, it’s a shocking statistic, but 50 million Americans don’t have a credit score, which then doesn’t enable them to get access to traditional lending. And that’s why we have 22 percent or whatever it is that the FDIC has identified as underbanked in the United States. We’re talking about millions of potential borrowers here that face this key data problem in that they can’t meet the traditional financial services hurdles for this.

And this is a key issue for us because we know today there’s a very clear math behind this that you actually know a credit score is actually not a good predictor of default risk in most instances these days when it comes to lending. So we just need better data models. So maybe Eric, maybe I can just jump to you for a second.

Talk to me about the data models that you’ve built that sort of power your lending engines that are at the core of this. Yeah, so as Brent said, you know, when the business started, it was more about how do we look at source data to determine an ability to pay. And for over a decade, we’ve been looking at data, source data only, whereas the traditional lending system we see today has not done that until just very recently.

And when we’re looking at the data that comes in, it’s first and foremost permission by the consumer, which also brings us into what we were talking about earlier, but we’re starting to see more of a push of how do we have the consumer’s data stay in control of them, share that data when they want to share it and have it be as a valuable use, but on top of that, you have an artificial intelligence that shows what is the ability to pay. So how do we look at that with the way the system is today with determining it? And like you said, with that 50 million people that we have low or no FICO score, it worked when it worked for decades ago, but there are better technologies out now, better uses of artificial intelligence that can remove bias, and there’s better data and that data is the source data that comes permission by the consumer. So we look at that as the impetus of creating an ability to pay by looking at cash flow, looking at discretionary income, but the key here is removing the bias, and that’s one of the biggest issues that we’ve seen historically, that if you have to be in debt to get more debt, it doesn’t work, and it’s definitely not a look at this as what’s been done historically here for decades, is one vector of looking at it, can you handle debt? So there’s a score that tells you that, but there’s a lot of people that don’t want debt, they don’t want to live in that type of environment, they want to utilize their cash and earnings from multiple sources of income to show I can afford this.

One of the things that’s so under appreciated in the U.S. lending market is cash flow data. So, you know, like using the example of Alipay and their SME lending business. So in 2022 they lent to over 50 million small medium enterprise businesses in China.

And they had half of the NPL ratios of the major banks in China. They now own 44% of the SME lending market, and they have this product called 310. Three minutes to apply, one second approval, zero humans involved.

And the way they’re able to do that with such lower risk is because they’re connected into the Alipay wallet ecosystem. Cash flow is where we can really get the insight of affordability. And I’m astonished as to why banks are still asking you for things like financial statements and tax information when all of that cash flow data is readily available for these types of assessments.

We got into bad habits. Go ahead. Yeah.

So in 2010, you know, Dodd-Frank introduced the, it was introduced, 2014 it went into law. But in that law, it reintroduced residual income in lieu of DTI and gross. And in 2011, that’s when we embarked on building our residual income knowledge index.

And essentially, you know, it’s a process in any big system that’s handling, you know, trillions of dollars of lending. But we’ve made some breakthroughs. And so we’re pretty excited about, you know, the future, where Ricky, which is the residual income knowledge index, is going is looking at the holistic human as opposed to just the credit arm, you know, I mean, or their leg or their foot.

So holistic understanding of a human understands discretionary income, residual income. And we can quantify that empirically, mathematically, and literally from the source in immutable data form on chain, store that. So do you guys use do you guys use aggregation services to collect that information or how are you getting that sort of source data? We do.

We do. We actually partner with a group called MX. Yeah.

Yeah. Yeah. I know the founders.

So the founder and CEO is actually on our board. Ryan called. Well, Brian’s a good pal.

Say hello to him. Yeah, he’s awesome. And so, you know, we’ve been, we’ve been partners for some time.

They’re, they’re a phenomenal company. I actually have been in aggregation for over 25 years. So this is where in early 2000, I got engaged in data aggregation with cash edge, which is now right.

Yeah, yeah. Well, I, I worked with the guys on the cash ed stuff as well for a time. So, hey, that’s, that’s great.

You know, you know, there’s two really good stories that illustrate this beyond the cash flow stuff is, is Lending Club was able to show that just knowing when you pay your, whether you pay your phone bill on time was like something like 90 percent better predictor of default risk than a credit score. And the other one, the other one coming out of China, because they don’t, they don’t do credit scoring the way we do in the States, was that people who keep their phone charged a much lower risk profile. by, you know, when they’re looking at people using a, you know, online form or a mobile app to do an application, if they can get the level of phone charge, that was a really, you know, significant indicator of risk tolerance that the individuals have.

And so it’s, it’s interesting. Hey, Devine, you know, last time we spoke to you, you had just been invited in the inaugural cohort of Amazon’s AWS Impact Accelerator for Black Founders. You know, you managed to get some support from Ben Horowitz and, you know, A16Z and so forth in terms of Solvent.

So tell me about how, you know, obviously there’s an overlap here in terms of the audience for Solvent and for Form Free, but tell me how, you know, this partnership came about and, you know, where you enter into the puzzle here. Yeah, yeah. Thank you.

Actually, I met Brent and Eric while I was speaking out at MX, MX Summit in Utah. Yeah, Great experience and I was on stage and Brent had approached me after I was done speaking and he told me some work he was doing with individuals who were incarcerated because, of course, I share my story, my background of being someone who was incarcerated and broke into technology and now being a techpreneur and I eventually went to a meeting with with Eric and Brent and I heard, I heard Brent’s story about what he was building and I was just, I was blown away actually by his personal story and journey to building what he’s building here at Form Free and I immediately saw the synergy and I wanted to explore that. Me and Eric started talking, he has a love for hip-hop music like I do so that led to us connecting on that.

I eventually invited them out to Ben Hall which is Pay Them Full Foundation’s Hip-Hop Grand Master Awards where we were honoring Rakim and Scarface, two legends within hip-hop. They joined me out there. We built this relationship and rapport very, very fast and then the next thing I know I was presented the opportunity to actually come within Form Free as head of culture and it was a no-brainer because as you said earlier we are serving the same demographic, the same target audience.

We want to empower people who are unserved and underserved and a good point that you made earlier when you think about people who are unserved and underserved especially in the black community they live within a cash economy. Everything is cash. Their money is hidden under the bed somewhere.

Their money is in the shoebox. They don’t trust financial institutions for good reasons. However, I saw an opportunity where if I could create something that had credibility that was able to be trusted especially for this demographic that I could start mining and mapping this data in a way that has never been done before for the black community and that could allow us to make better, more innovative and empowering financial technology products.

Such in a sense when we think about what Forum Free is doing with Ricky and Passport. Yeah, no, that sounds great. It’s interesting that you guys came together at the MX Summit.

It’s pretty wild. Brent, I do want to, you know, let’s dive into the model a little bit more in terms of the business. You know, you’ve got that great case study that we talked about earlier, the guild mortgage piece and, you know, the sort of addressable market of what do you call them, the invisibles, right? That don’t, yeah, that aren’t credit invisibles that aren’t seen by the traditional system.

Of course, this overlaps with what Devine is talking about. But just give us an idea of the traction at Form Free. You know, what are your lending partnerships look like? Can you talk about the volume of lending you’re handling today and where that’s going? Just give us a bit of an idea of the traction that you’re getting.

Yeah, sure. Before I do that, I just want to kind of build off of, you know, Devine. Please.

When, you know, Devine, when I, when we were at this conference, we were at a DEI session, and, you know, there were some usuals up on stage and some new folks, and there was one guy in the center that I didn’t recognize. And, you know, it was kind of an early morning setting and, you know, just kind of getting our day started, half paying attention, checking mail, what have you. And I kind of just dozed off a bit, and then I heard something that I’d never heard.

And when Devine started speaking, it was this passion, it was this authenticity. It was different than everything I had heard. So I immediately peaked up, and that was really when I said, I need to know this person.

And that was really the incarnation that, you know, synchronicity brought him to the next meeting, and then the rest is history, as they say. We bonded very closely very early on, and, as you know, we have to think about Form Free as a mission-oriented company. It’s technology with a purpose.

And the mission truly is, as we understood the exclusionary discriminatory practices that are happening in our country, not only since the inception of the country, but even further closer, in 1968, the Fair Housing Act was introduced. Well, the Fair Housing Act, to this point, we have a widening wealth gap between the African-American households and the White households. A widening wealth gap.

Major issues with home ownership, accessibility, and so forth, and it’s just getting worse and worse, right? And so we found the dot. We found the dot. So you have a, whether it’s intentional or unintentional, I would argue one way, but I’ll just leave it for the audience to decide, but you have a three-digit score which represents the divide.

You have 86% of the Black households in this country have a 680 FICO or lower. The average FICO closed in this country in 2022 was a 750 for home ownership. 86% with a 680 or lower, and a 750 was the average.

That’s your gap. So we had to address the gap. Bottom line, we had to jump out of the system and go to the consumer.

So the first three-quarters of our company had been serving the businesses, B2B2C. So the technology was embedded in over 3,500 lenders that produced over $4 trillion in loan verifications. We worked with Rocket Mortgage, the largest UWM, second-largest, and on down the line, Loan Depot, G-Rate, the IMBs, the banks, the credit unions.

We worked with everybody. We also received the world’s first guarantee from the United States government. It’s called Rep and Warrant Relief Day One Certainty from Fannie Mae.

That was also coupled by Freddie Mac. And these continued, these efforts continued, proving out the source data. But what we also saw in COVID, what came out of COVID, we began to see how our residual income knowledge could literally close that gap.

We began to see that bias was absolutely a part of the lending system. But by removing bias, we could look at an individual as a human, without the gender, without the race, without the socioeconomic background. So what we do is we took it out of the bowels of the business and drove it to the consumers.

Since we’ve launched Passport, I’m proud to say that we’ve got 2.2 million interested parties. We’ve just started this week. So the app is brand new.

It’s in the app store. I’d encourage anybody who really is interested in understanding the passport wallet in the app store. It’s truly an encompassing understanding of borrowing power, ability to pay.

We call it know before you go. If you’re ready to go, you can go and get an offer. How does that work? You simply select get offer.

The coolest part about the system is we take that medallion that represents me without my name, without my PII, without any bias associated with it, and we built an exchange. So you tokenize the data? We tokenize the data. It’s built on Bitcoin.

I got it. Anchored on it. So when that medallion, we go, we got to be careful with those words in the mortgage industry, let me tell you, and the banking industry as well.

It’s less about how we do it, it’s more about it’s secure, it’s safe, and it’s immutable. That medallion carries no bias. When it goes into the exchange, lenders can now view these medallions and they can build and fill their portfolios with loans that match their criteria.

So we’re matching on a one-to-one basis a consumer and a lender. Well, guess what? On December 13th, the TCPA ordered by the FCC just decided that the lead generation space is going to change. No longer can you generate one lead and blast it out to 300 lenders who can all robocall you and pummel you for weeks and weeks or months.

So that’s going to come in April. So our one-to-one match preempts that and delivers a TCPA FCC compliant system. That’s a lot of acronyms, Brent, but we get the love.

So, Eric, let’s talk about the marketplace for a bit. I’m a futurist in this space. One of the things I describe frequently is this scenario of walking into a listed property with your smart glasses in a few years and getting a home financing offer as you walk in.

I know for some time you’ve been looking at a property and doing Google searches and a property app on your phone. But this proposes that these marketplaces are no longer run so much as a human applying for a mortgage and then doing matching, but in fact that the AIs are doing that work. We can see a path to that now where AI agents on behalf of the lender are going to work in concert in a marketplace like what Form Free is doing.

Is that too aggressive a view of the roadmap that you guys are looking at or does that describe the potential end state? No, it describes it. As we build a new system in which people are in control of their digital financial lives, we have to look at fixing identity. The greatest part of the internet is democratization of information.

The way we view it is the world today is embraced or fall behind. You have to make sure that anything, especially in the United States, that the regulatory and compliance controls are still in place, which they are. What we’re saying is make sure that that identity stays with me as the consumer and remove the PII.

Loans are given on a holistic view, not on things that can be discriminated against. Remove age, sex, color, tokenize that information. We call it a medallion.

The medallion is generated from passport which educates consumers to understand their borrowing capacity. It complies with FCC regulations first of its kind. People get bombarded.

I’m sure it’s happened to you, Brett. It’s happened to all of us. As soon as you start looking for something in the loan business, 50 phone calls.

It’s absurd. Now we’re saying let’s take this information, go to the top, let the lender present an offer through this exchange and then the consumer can decide I want to go with this offer here. Boom.

There’s a match. The PII is sent. They’re matched and doing business together.

Sounds like a match made in heaven. It is. Awesome.

This is for all lending. As you were talking earlier, 81% of all properties in the market today are considered unaffordable. This is a different problem.

We could have an entire show on housing affordability in the states and real wage growth and inequality and so forth. That’s part of the fabric of this problem that we have to deal with and the problem in the U.S. generally with inequality. It’s too big of a topic for us to tackle on this show, but it is I’m very glad to see you guys making housing and lending and not just it’s not obviously just mortgages because you guys are doing car loans and other things like that, making this more accessible, but not in the way that it was during the subprime crisis, which was just creating more risk to the market and indeed putting a lot more financial pressure on people in the lower income categories.

You guys are doing it in a smart way so they can get access to financing that matches their all of these different income sources they have and the data we have without putting them at risk, which I think is a really wonderful ethical positioning for you guys. So, Brent, if people want to find out more about Form Free, the marketplace and the stuff you’re doing, how would they do that? Absolutely. The Form Free website is formfree.com. Encourage folks that are interested in checking out the app to check it out in the app store, Android.

It’s the passport wallet. We’d love to talk to you. I’m all over LinkedIn as well.

I see you there too. Absolutely. Divine, if people are trying to follow what you’re doing lately, what’s the best way to stay in touch? I’m on social media, Divine, Fourth Letter, as well as JustSolvent.com. Reach out, tap in.

Awesome. Eric, you’re on LinkedIn, I presume? Yeah, on LinkedIn. E-lap in at formfree.com. Look forward to speaking with anyone that wants to learn more.

Fantastic. Well, it’s been great to have you guys on the show. Divine, always wonderful to have you back on, my friend.

Please keep in touch and let us follow the journey. Very interested in the work you guys are doing on the AI front. You have some big advances in that space.

You want to come back and talk about, I think, this marketplace model of this. Look, I think if you guys can develop this out, I could see an Apple or someone else coming along and buying this. If you’re going to be a gatekeeper for offering real-time embedded lending experiences, this is the place it starts.

Good luck with this and sounds really interesting. Thanks for joining us on the show today. Thank you, Thank you, Brett.

Appreciate you, Brett. That’s it for another week of the world’s number one podcast and radio show, Breaking Banks. This episode was produced by our U.S.-based production team, including producer Elizabeth Severance, audio engineer Kevin Hersham.

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