Everyone I talked to about Michael Tannenbaum said “he has the best nose for value in fintech.”
Joined Sofi as an early employee, left as CRO.
Employee #1 at Brex, and founder of the modern billboard ad.
He then followed So-fi founder Mike Cagney to Figure, which he joined as CEO in 2025 to take it public.
We talk:
joining Brex as employee #1 when they were working from a kitchen
almost walking away right before the launch
scaling to a $300M+ revenue run rate
the time Masa offered him a billion dollars
why he took the worst job at Sofi
what he’s learned about thinking like a founder
how a lending business works under the hood
taking the cost of mortgages from $12k to $1k
and the gas station test his dad taught him.
This is a great listen for anyone working at a startup who wants to understand how to think more like a founder. Or anyone trying to figure out what startup to join (no pun intended).
Shoutout to Mike Cagney, Art Levy, and Sam Blond for helping brainstorm topics for this conversation!
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Timestamps to jump in:
0:00 From Brex employee #1 to public-company CEO
1:28 Operating vs managing a career
3:23 Why he took the worst business at SoFi
9:33 The Big Rock framework
11:02 How to get real customer feedback
14:58 The best nose for value in fintech
17:49 Why banking the affluent beats down-market
21:12 Figure: cutting mortgage cost from $12k to $1k
25:41 Do you actually need to use blockchain?
28:03 Why memecoins took over crypto
32:17 Masa's billion-dollar offer
36:29 Leaving SoFi for two kids in a kitchen
39:05 Six months from almost quitting to a unicorn
44:09 The finance guy who ran Brex's marketing
47:03 Inside Brex during the SVB collapse
51:09 The two SoFi insights behind Figure
54:40 From direct-to-consumer to B2B marketplace
56:41 AI can’t get you better credit ratings
58:50 Figure is a modern Fannie Mae
1:01:28 Buyers who commit before the loan exists
1:03:59 Following customers into new products
1:06:35 Buying Kiavi, the fix-and-flip leader
1:12:15 Why more fintech’s don't become marketplaces
1:14:46 The AI risk in outsourcing customer acquisition
1:18:23 What going public actually takes
1:20:14 Life as a public-company CEO
1:22:38 Getting shorted
1:24:12 The gas station test
1:25:42 The reverse pyramid of big corporates
Referenced:
Find Michael on X / Twitter and LinkedIn
👉 Stream on YouTube, Spotify, and Apple
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Michael, welcome to the show.
Michael Tannenbaum:
Thanks for having me.
Turner Novak:
Thanks for being here. I think probably one of the most interesting things is that you’re the CEO of a company, but you’re not the founder. That’s a little unique for the guests of this show. So how do you think like a founder when you’re the CEO of a company that you didn’t actually start?
Michael Tannenbaum:
For me it’s relatively easy, because I’ve been on the ground floor of two other companies. The first was SoFi. I joined when it was maybe 75 people, and by the time I left it was over 1,000. So I got to see how that was put together. The second company was Brex, and I joined as the first employee. We were in a kitchen, it wasn’t even called Brex, and it didn’t have a product. So it was really built from the ground up.
I’ve always had this owner’s mentality, act like an owner, and that’s probably the number one thing you hear a lot about. I’ve seen it at the companies I’ve been a part of, where executives come in later and have that more executive mindset, which is more like managing a career versus a founder mindset. It’s more like I’m running a company, not managing a career. Those are really different things, and you optimize for very different things depending on what you’re focused on.
Turner Novak:
That’d be interesting to talk about. So what is the executive mindset, and how is that different from the operator or owner mindset? What have you seen as the biggest differences?
Michael Tannenbaum:
The executive mindset is a lot about people thinking about what they might do next, or how this might look on paper. A really interesting example is the use of vendors. A lot of times executives come in and they have their vendors. When I came to Figure, in any role, I’m like, I don’t have vendors. I don’t have law firms I have to use or people I’m trying to pay. That’s not my focus. I want to use the best thing for the company.
But a lot of times executives come in, and if it’s marketing, they bring their PR firm, they bring their this, they bring their that. It’s kind of about them and their relationships, and they’re always thinking through what they might bring with them wherever they go, versus the company.
Turner Novak:
But you could argue that’s a really good PR agency they’re bringing with them, in theory.
Michael Tannenbaum:
Totally. They could be bringing a good PR agency. But if they’re doing right by the company, they should look into, well, is PR a problem today? Is it going well or not? Just because they were a good agency before doesn’t mean they’re the right thing here. It doesn’t mean executives are bad, that’s not what I’m saying. But it’s a different mindset. It’s “I’ve got my vendors, my way” versus what is right for this company. An operator or founder approach is a bit more first principled, and a first principles approach to vendor selection wouldn’t necessarily come with your existing relationships.
The owner mindset is going to be about the company first. A good example of this actually came up when I was at SoFi. Pretty early on I was the VP of finance. I rose the ranks quickly, and I remember I had this option. I was with Mike Cagney, who’s the founder of Figure and the founder of SoFi, and we were traveling to New York from San Francisco.
I was complaining about other people at the company and saying how great I was, blah, blah, blah. And he was sort of like, “Sure, you’re a great VP of finance, but at the end of the day I don’t really care that much about that. If you want to be great, you’re going to have to run one of the businesses here.”
Turner Novak:
Yep.
Michael Tannenbaum:
And so I said, “Okay, well, give me mortgage,” because it was all screwed up at the time.
Turner Novak:
So it was like the worst business?
Michael Tannenbaum:
Yeah, terrible.
Turner Novak:
So why’d you do mortgage, because it sucks?
Michael Tannenbaum:
Because that was the opportunity. He wasn’t going to give me something that was working.
Turner Novak:
That’s true. You’ve got to prove yourself.
Michael Tannenbaum:
I needed to prove myself. I was probably 27 or 28. I was at least 15 years younger than everybody else at that company in a leadership position. So it was a big bet on me.
And the point is, a lot of people in my network gave me the advice not to do it. They said, “Stay a VP of finance, because VP of finance is a role that every company needs.”
Turner Novak:
Oh, so you’re super marketable.
Michael Tannenbaum:
Any job, you’re so marketable. You’re in San Francisco, there’s a million startups, and all of them need a VP of finance. You go run mortgage, who needs that?
I thought at the time, okay, but it’s a different mindset of how you make decisions. You’re optimizing for your own career, versus for me, I was just thinking, well, this is what the company needs and I’m all in, so I’m just going to do it. And look, I left SoFi, right? So there came a time that I clearly wasn’t all in, but that was then.
A lot of times executives actually manage their career to their detriment, because they can’t ever let themselves fully immerse into the company. They’re always sort of managing. And you also see this at the board level. Another piece of common advice I give founders is just be really careful with the board. People are always looking to add people to the board to make themselves credible.
Turner Novak:
Yep.
Michael Tannenbaum:
But board members, if they have these big reputations, they’re going to protect themselves. I’ve seen that firsthand, and it’s happened at a lot of companies. So you want to be thinking through that dynamic, because it gets to the same executive versus owner mentality. Is it more about preserving your reputation, or is it more about doing whatever it takes to win for the company?
Turner Novak:
Maybe another way to describe it is politics. You’re playing that game a little bit, versus how do you increase free cash flow per share. You’re increasing your own free cash flow per share.
Michael Tannenbaum:
Right. And when you hire executives from big companies, you almost can’t avoid that, because that’s the environment they’re coming from. I recall some past roles where we’ve hired people from large companies, even large tech companies like Meta, and their framework is very much about self-preservation. It’s all about attaching yourself to things that are working and staying as far away from things that are not.
Turner Novak:
So it’s about attaching yourself to success, not creating the success.
Michael Tannenbaum:
Yeah, absolutely. Whatever starts to be working, they run there like little kids playing soccer, chasing the ball and running away from problems. But the way I run my business, I’m focused on the problems. If things are working, I’m like, great, I don’t need to spend time on that.
Turner Novak:
So I know you have a process for getting feedback from the business and from customers. What’s your general process for really getting in the weeds?
Michael Tannenbaum:
I run the company with this big rock framework. I don’t think it’s the only way to do it, but it works for me. Big rocks can be as many as five, but we really have three at Figure. Those are a goal that’s somewhat ephemeral, meaning it doesn’t change every quarter. There may be subgoals or numeric components that change quarterly, but these are things everybody’s working toward that are very clear, and they don’t change quarter to quarter. That’s part of their value.
Each one is a meeting and a Slack channel. It’s a way of organizing everyone cross-functionally against the goal.
Turner Novak:
So there are three big goals at Figure that each have their own recurring meeting and Slack channel that everyone participates in?
Michael Tannenbaum:
And KPI’s and OKR’s, exactly. Those meetings are weekly. The Amazon term for that is a weekly business review. It’s a very effective way to see what’s working, how you’re hitting goals, and what the blockers are.
And then I also just spend a lot of time with customers. That sounds so basic, but it’s not always done.
Turner Novak:
Really? How do people not spend time with customers? What are the ways people are not good at it?
Michael Tannenbaum:
What they do instead is think about strategy, or they may be more product-oriented, constantly going into user flows and tweaking the product, but not necessarily getting customer feedback on that. There are a lot of founders like that. They’re looking through design and screens and coding, coming up with what they think is right. That can work.
In B2B, and we’re almost 90% B2B, listening to your customers is an easier growth strategy. So that’s a big thing for me. Participating, doing a lot of the sales myself, reading customer feedback directly. We have it piped into Slack, where especially negative feedback is available in the channel. That’s a good way to debug a lot of issues.
Turner Novak:
What’s the way of getting feedback? Is it aggregated from the internet, is it emails, is it the customer service tools? How do you get all this?
Michael Tannenbaum:
We have an ability for customers in the product, even the end customers of our private-label customers, to share feedback. It’s basically a CSAT survey, customer satisfaction.
Turner Novak:
So there’s a little button in the product?
Michael Tannenbaum:
Yeah, exactly. And then those results are piped into Slack. We also do QBR’s, quarterly business reviews, with our largest customers. I sit in on those and review the materials, and just make myself generally involved so people know me and feel free to give feedback.
Turner Novak:
And then you actually sometimes go to customer sites and their operation centers, right? What do you get out of that?
Michael Tannenbaum:
What I do, and this is something I kind of made up that I think is working, is our off-sites, which we do as an executive team two times a year, always include a customer visit. So we’ll go to a customer as part of the offsite and see them in their operation.
For me, I’m doing this all the time, but not everybody is. It’s really valuable, because you’d be surprised. Your head of legal, for example, may not actually appreciate what your customer looks like or feels like. Someone like me has a lot of context. I ran the mortgage business at SoFi, I spend all this time with customers. But if you’re trying to generate empathy for that situation, it can be hard if you’ve never actually seen it.
Turner Novak:
That’s an interesting idea, because everyone does the executive offsites. So it’s just tailoring it. Maybe it’s slightly less exciting. You can’t go to the beach because you’ve got to go see customers.
Michael Tannenbaum:
Our upcoming one in July is in Pittsburgh. The one prior was Dallas. We’ve had Charlotte. I try to do them either in Figure offices where we have customers nearby, or in places where we have heavy customer concentration. It’s not like we’re going to Miami Beach.
Turner Novak:
And it’s not like you’re talking to the CEO’s of these companies. You’re trying to get down as far as you can, to the decision-maker?
Michael Tannenbaum:
We’ll usually talk with our decision-maker, which can be the CEO but most often is not. It would be the head of product or capital markets, depending on the company. That’s usually the person we’re meeting with, and they’ll bring more people, because we’re bringing six or eight people.
Turner Novak:
Probably one of the most interesting things about your career, and you hit on it earlier. The guy who introduced us, Sam Blond at Monaco, a prior guest of the show, I asked him, “Hey, anyone else you think I should have on?” And he said, “You’ve got to have me on.” He described you as the best person at seeking out value in financial services, or something like that.
You’ve made some interesting calls. Joining SoFi really early. You were the first employee at Brex, you joined in the kitchen. And then jumping over to Figure too. How do you just find opportunities? These are all technically you joining a new thing. How did you know it was a good idea?
Michael Tannenbaum:
Candidly, part of it is knowing it’s a good idea, and part of it is my contributions to that idea. But also, I could have been spending my time working on things that were going nowhere. It’s not like I joined a taco stand. Not that a taco stand is bad, but it’s clearly not the kind of place I’ve worked. So there’s sort of both.
And that comes from a pretty fundamental understanding of financial services. That’s always been the place I’ve worked. I started out of college as a regional bank M&A banker, so I learned financial services there. I worked in private equity, which was quite painful, but there you learn a lot about how to evaluate a business and what makes a good business. The private equity company I worked at was really focused on high-quality businesses.
So I had that framework. When I was living in San Francisco looking to go to SoFi, I actually met with a bunch of different fintechs. I always wanted to go into the operating space. I specifically chose a private equity job in San Francisco so I could get into fintech. And this has been validated by the time I’ve spent with Mike Cagney: SoFi was one of the unique fintechs at the time, focused on a mass affluent customer. Almost all the fintechs of the 2010 era, LendingClub and Prosper, a lot of these emerging online lenders, were focused on a down-market customer.
Turner Novak:
Really?
Michael Tannenbaum:
They were using either machine learning, which was AI at the time, or new neobanking and new underwriting models to target a generally ignored or less affluent customer.
Turner Novak:
So these are essentially people who probably couldn’t pay back loans on paper.
Michael Tannenbaum:
In theory, in credit card debt. And here’s SoFi refinancing the student loans of people who had graduated and were less risky. So it was a really smart idea, targeting an employed professional group of people.
People miss this, but if you’re trying to do financial services for consumers who don’t have a lot of money, you’re capping the amount of money you can make, because they can only make so much. If someone only has $20,000 to spend for the year, you have to capture all of it to make $20,000, which is impossible. If someone is making $120,000, that becomes six times easier.
Turner Novak:
Right.
Michael Tannenbaum:
That’s something people don’t totally appreciate. So I just applied that framework. People overuse the word first principles, but just looking at companies for what they are and what’s their right to win, as people say now, took me to SoFi. And then similarly with Brex, this idea of a corporate credit card plus expense management, I had lived that.
Because when I was the VP of finance, before I moved into those much riskier waters, I experienced this drama around the corporate card.
Turner Novak:
What’s the drama around it?
Michael Tannenbaum:
Speaking of executives, some executive comes from Google, whatever, and they need a corporate card. They need this, they need that, and they want to run all these expenses, and the AP people are horrified by it, chasing them. They constantly ignore the people and never provide receipts until the CFO has to get involved. It’s a game that happens at every company.
And I knew there were issues around the corporate card, and also who gets to use the rewards points, which is controversial. So I knew this company was onto something, because the reconciliation and the drama around the corporate credit card, from an accounting and finance perspective, was big.
They really wanted me to set up the capital markets, set up the credit policy, figure out how to do all that, and get the banks to approve us, because you can’t issue a credit card without a bank. So that was my role in the beginning, and I thought that would work too.
And then with Figure, when I joined, the company was working. I actually sent out an email when I joined and said, “My first principle in this role is that you guys are successful, so I’m only going to try to improve what I can.” But we’ve grown significantly since I joined. We’re growing about 100% year over year at huge scale, and we’ve turned the company into a marketplace, which I think was a big factor in our IPO. So I had a plan, because the mandate was to go public in a relatively short amount of time. We did it in about 18 months from when I joined. It was already a working business. You didn’t need to be a genius to figure out it was working, but you needed some vision as to how it could be a public company.
Turner Novak:
So what was the vision for Figure? What did you see when you joined? And it might be interesting, we’re about 20 minutes in, what is Figure for someone who’s never come across it before?
Michael Tannenbaum:
There’s probably a lot of people who haven’t. Figure is a company focused on building the future of the capital markets on blockchain rails. Specifically, where we started is in the mortgage space, which I have experience in. We started building a direct-to-consumer home equity line of credit, which has become a bigger product in recent years, and we did the whole thing on blockchain rails ourselves. Then we built a marketplace for those home equity lines of credit, and built it B2B.
Specifically, we have about 380 partners, which could be a bank, credit union, or fintech that wants to originate a home equity line, essentially a type of mortgage. They can do that using our technology and sell it into a capital market that we provide. We take a ton of time and cost out of the system when we do that. We do it for about $1,000 versus a $12,000 industry average, and in about five days versus an industry average of 45. The average time is nine days but can be as fast as five. Three of those days are a government-required rescission or waiting period from the regulators. So it’s a really fast and efficient process, with a very liquid capital market on the back end.
Turner Novak:
So there’s the speed and the cost. How do you make it faster or cheaper? What are you doing differently than if I was using the pre-Figure options?
Michael Tannenbaum:
It comes back to SoFi. When I first joined SoFi, I was on the capital markets team doing securitizations.
Turner Novak:
And you guys were basically buying student loans from people?
Michael Tannenbaum:
Originating student loans. We were refinancing people’s student loans and creating new ones.
Turner Novak:
But they were non-student-loan student loans. You were consolidating them, sort of, right? Was that the pitch?
Michael Tannenbaum:
Yeah. And when we did that, we securitized those student loans, which just means we took a bunch of them and issued bonds against them, to spread the risk around and make them tradable. So instead of buying a single student loan, you’re buying one one-hundredth of a hundred student loans.
Turner Novak:
Because basically mortgage-backed securities caused the financial crisis. But this is for student loans.
Michael Tannenbaum:
Mortgage-backed securities didn’t cause the financial crisis. They exacerbated it by spreading the problem out into a bunch of bondholders. But the problem was that people weren’t paying back their mortgages. That was the fundamental issue, and then mortgage-backed securities took those mortgages that people weren’t paying back and spread them throughout the financial system.
Turner Novak:
Small details.
Michael Tannenbaum:
Details, exactly. So when I was doing that at SoFi, we would validate the same attributes of the loans multiple times. For example, the credit score of the borrower. We would check it at SoFi, then a loan buyer would check it, then the securitization would check it, then the rating agencies would check it. These attributes of a loan get checked so many times.
But with Figure, we take those attributes, like the FICO score, put them on a blockchain day one, and then everyone who buys the loan or evaluates it or lends against it just references that initial hash of the data, rather than checking it each time and paying a huge amount. So we take 80% of the cost of third-party diligence out by using blockchain technology. That’s a very clear example.
Another clear example of how we’re fast and efficient is that we prevent loans from being double-sold or double-pledged, which is a huge way that fraud happens, by tracking a loan and its life on a blockchain. Otherwise, when you’re buying and selling loans, you have no idea that someone didn’t buy or sell the same loans to someone else.
Turner Novak:
That’s pretty common that that happens, or was?
Michael Tannenbaum:
If you look at the bankruptcy that happened this year, Tricolor, JPMorgan lost like $200-300 million because someone was selling the same auto loans to multiple people, and they didn’t figure it out.
Turner Novak:
So this is just straight-up committing fraud. It’s on a publicly available database, a blockchain that anyone can access, and it just says, “Hey, ABC Financial bought this, and this other entity no longer owns it. No one else can buy it.”
Michael Tannenbaum:
Exactly. And because these are mortgages, it goes down to the lien level. There’s a property behind this mortgage, and that property can only have one encumbrance on it, or there can only be one owner of that encumbrance, and we’re tied into that too. If you go into the county record, where you’re from, the county of Washtenaw in Michigan, there’s only going to be one lien holder against that property, unless you have another mortgage on top. But for the dollar amount in that loan, there can only be one holder, and the blockchain connects that to the owner of the loan. And if it’s transferred, that’s tracked on chain.
Turner Novak:
Do you need blockchain to do this?
Michael Tannenbaum:
I guess you don’t. You could use an open-source, permissionless database. But that’s essentially blockchain. If you did it with a traditional database, you get into the question of who owns and maintains that database. The nice thing about blockchain is that there are incentives that allow that to happen without anyone having to own or maintain it. It’s part of the technology. So I think this is a very good use of blockchain.
And that gets to one of the things about Figure, and why our IPO was really unique. We are an example of blockchain technology in a non-crypto use case. We actually add value with blockchain, by preventing double sales and double pledging of loans, and by saving time and money in the process.
Turner Novak:
Because a lot of people would say, they hear Figure, crypto, not interested. Or blockchain, not interested in this.
Michael Tannenbaum:
I hope they don’t say that, but I guess that’s what they’re saying to you.
Turner Novak:
I’m just being funny. But to your point, it actually gives it a use case. They’re just saying, “I’m not interested in learning more about this because I don’t believe in crypto,” or something.
Michael Tannenbaum:
Crypto sort of goes hot and cold, and right now it’s more on the cold side. You could describe it as a winter, at least if you look at Bitcoin pricing. But what’s not cold, and I think this is where you’re seeing a divorce between those two, is tokenization. We’re broadly in the tokenization trend, which is to move real-world assets like loans and equities on chain. That has a lot more momentum.
Stablecoin is not tokenization, but it’s another example of a blockchain use case that is not crypto. If you own a stablecoin, that’s not a cryptocurrency. It’s a stablecoin. It’s using blockchain technology for the transfer of money, but it is not crypto.
Turner Novak:
What do you think happened where this whole thing, crypto coins, meme coins, NFT’s, took over the narrative, where everyone just thought that’s what it was? Do you have an idea of what was going on, where we could have been using it for this kind of stuff, and Figure obviously was, but the rest of the industry was doing other things? Why weren’t more people doing real things with it?
Michael Tannenbaum:
In some ways it’s similar to AI, where you got things like character AI and sex bots. New technologies always attract some type of fraud and grift, and you see a little of that in prediction markets now, and some of the things coming out. But crypto was much larger in scale, and a greater percentage of the projects were related to this.
I think that’s because crypto and blockchain were fundamentally money-oriented technologies. So the opportunity was much greater. In AI, in order to profit off it, you have to monetize somehow. Crypto was self-monetizing, because you’re creating a coin.
Turner Novak:
Yeah, you’re creating money.
Michael Tannenbaum:
Exactly.
Turner Novak:
One thing I wanted to ask you about before we get too far away from SoFi. When I talked to Mike beforehand, he told me a story. He basically said, “Michael, if you want to go anywhere in life, you’ve got to own a P&L.” He gives good advice. So you took over this business, and I think you guys met Masa. What happened when you talked to Masa about SoFi?
Michael Tannenbaum:
This was pre-Vision Fund, 2015. SoftBank was just starting to do some deals. Maybe they were in Uber, a few things, I don’t remember. They’re a telecom company, but they started doing tech investments. And through one of our board members, we got an opportunity to go. We went to San Carlos, so we didn’t actually go to Japan. I did go to Japan with Henrique and Pedro at Brex to meet Masa, but this was virtual. Masa was on this huge screen, like an IMAX.
Turner Novak:
Wait, so you were in the SoftBank office in San Carlos, and Masa was on a screen from Japan? It was like an IMAX movie?
Michael Tannenbaum:
Yeah, and I had my little laptop, trying to make sure I could answer any questions. Mike does the pitch, I obviously don’t talk. And Masa basically says, “I want to give you a billion dollars.” I think we thought we were raising like $200-300 million, maybe $250 million. So I’m thinking, okay.
Turner Novak:
Like, we thought that was going to be our valuation.
Michael Tannenbaum:
Right, exactly, not the amount of money. So then we get in the car, and I’m like...
Turner Novak:
So he just left after the number. He threw out the number.
Michael Tannenbaum:
He says his piece and leaves. It wasn’t like, come meet for coffee. It was take it or leave it. “My guys will do the diligence, but that’s it.” And then we go to the car, which was a Tesla. This is 2015. I’m like, “Are we doing this?” And he’s like, “We’re definitely doing this.” So I start firing up the laptop in the car. It’s one of my signatures, I love to work in the car.
I’m emailing the board, getting stuff moving, and then somehow we get into a car accident. I don’t know exactly what happened. We blew out a tire, a small accident. But the problem was the Tesla.
Turner Novak:
Oh, you couldn’t fix it.
Michael Tannenbaum:
Not that I really knew how, but I couldn’t. I don’t know if Mike did either. We both pretended we could. We’re like, “Oh, yeah, if this was a real car, we’d fix this.” I don’t know that either of us could have. I’d have some sense of jacking the thing, but I think it would fall apart.
Turner Novak:
There’s YouTube. You probably had YouTube on your phone.
Michael Tannenbaum:
Exactly. You would’ve figured it out. I always have to bring up YouTube whenever that happens. So we call the Tesla people, and they’re like, “We’re 45 minutes away.” Not everybody had a Tesla then. So we decided to walk to Denny’s, because that’s nearby. I don’t know if you know what Denny’s is.
Turner Novak:
I’ve been to a Denny’s before.
Michael Tannenbaum:
So we went to Denny’s, and I said to Mike, “We’re the only people who’ve ever raised a billion dollars and gone to Denny’s.” That was definitely an unforgettable moment.
Turner Novak:
But didn’t he threaten you a little bit? What did he say?
Michael Tannenbaum:
He said, “If you don’t take it, I’ll give it to your competitor.”
Turner Novak:
So you kind of had to take it. Is that his move?
Michael Tannenbaum:
That’s his move. And it also happened at Brex, same concept. He picks which one, and now they call it kingmaking, in the podcast circuit. He’s picking his winner, and by virtue of picking the winner and giving all that capital, it reinforces the winning.
Turner Novak:
So he kind of invented kingmaking. Or maybe he brought it to venture capital.
Michael Tannenbaum:
Right, exactly.
Turner Novak:
Were you at SoFi for a couple more years, then? And then you left and went to join these teenagers in a kitchen, essentially. What was that process like?
Michael Tannenbaum:
Till 2017, so a couple more years. They were kids.
Turner Novak:
They weren’t 20 yet, were they?
Michael Tannenbaum:
I think they were 20, 21, early 20s. And I was 28, 29.
Turner Novak:
Did you ever think, after being the junior guy at SoFi, the youngest business manager, now you’re the grown-up as a 29-year-old?
Michael Tannenbaum:
I didn’t think that, but I did want to get onto the ground floor of a company. I was excited by that. I thought the idea was good, I thought they were good, and I was definitely looking for that type of opportunity.
Turner Novak:
So you knew you wanted to do it.
Michael Tannenbaum:
I did. My dad worked in startups, more biotech, because I’m from Boston and that’s the business there. So I grew up with that in the mix. He had actually taken a company public as CFO. I’d always heard about that, the IPO, the roadshow. Mine was actually a lot different from the way he talked about his, which was interesting.
Turner Novak:
Did you go public at SoFi, or was that after you left?
Michael Tannenbaum:
No, Figure. We just went public in September.
Turner Novak:
Oh, with Figure.
Michael Tannenbaum:
Yeah. I know we were talking about SoFi, sorry. I went to Brex because I was focused on starting a company from the ground up. My dad had joined companies early, and I’d seen that success, so I knew it could work. That affected a lot, because if my dad had done it seven times and it never worked, I probably wouldn’t have tried.
Turner Novak:
Like, this is a terrible career move.
Michael Tannenbaum:
This is awful, I’ll go work in insurance or something. So that was a big reason, because I had seen it work. For him it probably worked two out of five times, but that’s enough.
Turner Novak:
That’s a good hit rate.
Michael Tannenbaum:
Absolutely.
Turner Novak:
So what were you specifically looking for? What’s been your framework for finding an opportunity like that? I’m assuming you met a lot of founders super early.
Michael Tannenbaum:
Second-time founders. Mike had done a bunch of stuff before, he was an adult. And even though Henrique and Pedro were young, they had already bought and sold a business before. So that was helpful. But me having a real understanding of the business and why it deserved to be successful is probably the number one thing.
Turner Novak:
So you could tell there wasn’t some founder bullshit. It was a real problem.
Michael Tannenbaum:
Yeah, a hair-on-fire problem. I love that term. You need a hair-on-fire problem.
Turner Novak:
So you joined. What happened next?
Michael Tannenbaum:
At Brex, the beginning was good, because I was setting everything up. They didn’t have anything ready, like the basics. They had a payroll, that kind of thing. But then it was terrible, because we didn’t have a product.
Turner Novak:
Mm.
Michael Tannenbaum:
And what we started to work on was really bad. Because it was a product sold to finance, we had my dad use it.
Turner Novak:
Oh, really?
Michael Tannenbaum:
And he was like, “Mikey, this is shit.” That was a low. I was so mad, because he was just like, “What the hell is this?” I was like, “This sucks.” So that was a rough time. We were building out the product, it wasn’t good, people didn’t like it, we weren’t growing. We had nothing.
And people would ask, “Where do you work?” Very basic question. And I’d say, “I work at this company, it was called Vyond.” I’m like, “I work at Vyond.”
Turner Novak:
Vyond was the original name of it? Was this the VR name?
Michael Tannenbaum:
Yes, exactly, VR. And it was like, “Oh, I work at Vyond.” And people were like, “What’s that?” I just felt so stupid. And someone’s like, “Well, weren’t you the chief revenue officer at SoFi?” And I was like, “Yeah.” And they’re like, “Okay, now you work here.” And I’m like, “Yeah.”
Turner Novak:
That’s kind of a humiliating step down sometimes.
Michael Tannenbaum:
It was, but you just had to deal with it. I felt it for sure, and I felt it from my in-laws. They were definitely not liking it.
Turner Novak:
Like, we raised this child and you just throw your life away to some loser working at some random company.
Michael Tannenbaum:
Correct. We thought you were a big dog, and now you’re nothing. But my wife was pretty good about it. She comes from more of an entrepreneurial family, where they’ve made a lot of money and gone bankrupt, made a lot of money and gone bankrupt. So she’s been through the ups and downs too.
Turner Novak:
So this was just par for the course, going on another cycle.
Michael Tannenbaum:
Just a cycle, exactly. So that was all good. But I was actually almost going to leave, because it wasn’t really moving. I remember right around Thanksgiving, I’d come back to New York for Thanksgiving with my wife’s family, and they were making me feel bad.
Turner Novak:
How long had this been? Like a year?
Michael Tannenbaum:
No, I know I sound weak. It was probably like six months.
Turner Novak:
So you’re just starting to have some doubts.
Michael Tannenbaum:
Just some doubts, and I was like, “I’ll give this a little more, but if it’s not getting better in a couple more months, I’ve got to think about doing something else.” But Henrique and Pedro were smart. They made me invest in the company with my own money up front, and they matched it to give me extra ownership. So I actually had a lot of ownership up front, because I was coming from chief revenue officer at SoFi to this nothing company. And I bought a lot of stock, which ended up being good.
They were smart. They said, “We want you to invest because we don’t want you to leave at the drop of a hat. We want you to have real skin in the game.” Which was smart.
Turner Novak:
So how did that go after Thanksgiving?
Michael Tannenbaum:
By December, First Republic Bank, rest in peace, approached me. They were asking me to run their student loan business, which I would never do. I wasn’t going to compete with SoFi, that’s not my style. But I reverse-sold them and said, “I’m working at this new place. You guys don’t have a credit card. You have a bunch of tech customers. You need to offer this credit card, because otherwise Silicon Valley Bank is going to get those customers.” It’s not like the SVB card was so good. And they said, “Yeah, we do have this problem.”
That kicked off a partnership that started to bring in real volume and real customers, and that changed things for me. By February we raised our Series B, but we hadn’t launched. It was pre-launch, and then we launched in June of 2018. And then we were a unicorn. It happened during my honeymoon, so by August we were already a unicorn.
Turner Novak:
With a billion-dollar valuation. So you went from “I should probably start thinking about leaving because I don’t think this is going to work” to, in eight months, being worth a billion dollars.
Michael Tannenbaum:
Right, this is going nowhere, to being worth a billion dollars.
Turner Novak:
And you had people using the product, right? You hadn’t launched but people were using it?
Michael Tannenbaum:
Yeah, we had people using it. We launched in June and hit unicorn status by August. Which by today’s AI standards is slow, that’s nothing.
Turner Novak:
Yeah, you could’ve joined and been investing at the billion-dollar valuation. You need $100 million bucks just to incorporate as an AI company today.
So I feel like the Brex story is pretty well told, the kind of marketing you did. But what was it like as the finance guy coming in, and it’s like, “All right, let’s spend all this money on marketing”?
Michael Tannenbaum:
Well, I was also marketing.
Turner Novak:
So dedicated listeners of the show have probably heard some of this on the Sam episode. What was it like, the early days, the interesting risks you took on marketing from your perspective?
Michael Tannenbaum:
The biggest risk was having me run it.
Turner Novak:
Why did they have you run it?
Michael Tannenbaum:
I ran it because we had recruited someone who never came. He decided he didn’t want to move to San Francisco. He called us and said, “I’m not coming.” So I said, “Well, I worked at SoFi, they had a good brand, so let me do it.”
I basically took a lot of what we’d done at SoFi. SoFi was known for their ads, they used outdoor ads, and Sam had done that at Zenefits, so we both were believers in it. And the real thing we had at Brex was a very crisp one-liner: the first corporate card for startups. That was so clear, and because startups were so concentrated in San Francisco, we were able to really use that go-to-market, all the press and all the outdoor ads, and create a lot of virality.
Turner Novak:
Is that the most important thing in marketing, a really crisp one-liner that explains the problem and the product all in one?
Michael Tannenbaum:
In that example, that was the most important thing. My experience at Figure has been, at least for B2B marketing, that you just position yourself as differentiated. For us it’s not as crisp of a one-liner, it’s $1,000 versus $12,000, five days versus 45. That’s what I’m saying all the time, and it just gets attention. That’s not the same as saying the first corporate card for startups. That was more about making something for you specifically, whereas at Figure it’s been more about the value proposition. But either way, it’s very important to distill your differentiation down, whether it’s a one-liner or a value proposition.
Turner Novak:
And I think you were still at Brex during SVB.
Michael Tannenbaum:
Oh, yeah.
Turner Novak:
What was it like inside Brex during the SVB collapse? Like Wednesday, Thursday, what started to go down?
Michael Tannenbaum:
So I was a regional bank M&A guy, as I mentioned, so I had some understanding of bank balance sheets. Certainly in the top 1% of the population that knows that.
Turner Novak:
Well, when you think about all the people who were chiming in on SVB, you probably know what you’re talking about versus the average.
Michael Tannenbaum:
Right. So what happened was, this was a big moment because SVB had released some financials that suggested they were insolvent, meaning their liabilities were greater than their assets.
Turner Novak:
It was like a Wednesday. I remember they did this call.
Michael Tannenbaum:
The earnings came out and people were noticing. And then what happened was they announced a capital raise, because they were getting a downgrade. That was the Wednesday.
So there was already drama out there, but people weren’t really focused on it. I had been a little attuned to it, because we had a lot of money there. I was the COO, but I managed finance, and I was like, “Eh.” So we were looking into it, and we actually asked them about it. I had our treasurer ask them, and the response was weak. It was not about what we asked. It wasn’t about the balance sheet, it was about all these other things. And I was like, “This is a weird response, it’s not addressing the problem.”
My ears were perked. Then they announced a capital raise that was unsubscribed. Normally if you’re in distress, you announce your capital raise and it’s done, we’ve raised the money. They announced they were raising money, but it was not subscribed. It was only 20% anchored by General Atlantic, which is a growth equity fund. I was expecting Apollo, someone much more focused on distressed stuff, not a growth company. So I felt like SVB wasn’t really facing the reality of what was happening.
And because the capital raise was not subscribed, it was only 20% done, it was like a falling knife. So that was Thursday. We were coincidentally meeting with SVB about a partnership that day, and there was all this debate about whether to move our money out of SVB.
Turner Novak:
In the meeting?
Michael Tannenbaum:
No, before the meeting, internally. There wasn’t alignment. Like you said, there were a bunch of pundits online saying, “Don’t move the money, because you’re going to harm the relationship.” And I just said, “Guys, we’re moving the money. This is insane. As much as we love them, we need to go.” So we did. And ultimately that flexibility allowed us to be on the offensive, because we were able to attract over a billion dollars of deposits from other startups into the Brex banking product, which was called Brex Cash.
Turner Novak:
So you held deposits at SVB, you just had a bunch of different bank accounts? Did you have banking partners, because Brex was basically a software layer that worked with other banks?
Michael Tannenbaum:
We were actually a broker-dealer that put the money into money market funds, which post-SVB has become much more popular. We were taking the money and putting it into essentially Treasury funds. That’s why we attracted a lot of that money at the time.
Turner Novak:
That was big marketing at the time, 5% rates, and up to $250 million of FDIC insurance because it’s spread out across all these different banks.
Michael Tannenbaum:
Exactly.
Turner Novak:
And then you joined Figure about a year later. Figure was kind of inspired by SoFi, in a way?
Michael Tannenbaum:
Two things. One, the capital markets insight of how often loans are audited and re-audited, and how much money and time is wasted doing that as they move. Loans don’t just get bought and sold once. They move multiple times. They go to a warehouse line, they’re borrowed against, they’re securitized. Each time it’s being checked and rechecked, so it’s a great use case for blockchain. That was insight one.
Turner Novak:
So a lot of people don’t know, a bond is almost like a stock, where you can just buy and sell. People are trading the bonds back and forth. I might give it to you one day, you might give it to me, and we’re paying each other based on what it’s worth.
Michael Tannenbaum:
Right. Or even a loan, a mortgage or a student loan, that loan may be borrowed against by the person who originated it, then it may be sold. That person may pool it with other loans and then sell it or securitize it to someone else. Each time the loan changes ownership, whether in loan form or bond form, someone is paying to diligence the attributes of the loan, like the credit score or the income. That was insight one.
Insight two was around home equity. SoFi has a huge personal loan business, and 80% of those personal loan customers were homeowners. So they have homes and home equity, but they’re taking out high-rate personal loans instead of borrowing against their house. Why? Because it’s so painful to get a mortgage. That was the other big insight. So a lot of Figure was born from SoFi.
Turner Novak:
And HELOC’s were the very first Figure product. How did you go about launching that first HELOC product?
Michael Tannenbaum:
It was direct to consumer, because it’s really hard, and I learned this at Brex and at Figure, to get people to adopt something that’s not working. One of the advantages Figure has, and I like this a lot, is that even though we’re B2B, we can launch products direct to consumer. Partners don’t want to be the guinea pig. It’s really hard to get someone to start something and be the first.
Turner Novak:
Yeah, they want to be the first second person. They want to be the first to try something that’s really working already.
Michael Tannenbaum:
Exactly. So Figure started direct to consumer. That was a hurdle, because it was an unknown brand, but it’s easier to build a brand giving people money than taking people’s money. And this is something both SoFi and Figure had in common, focusing on a more mass affluent demographic.
Turner Novak:
Because every single customer owns a home and has equity in the home.
Michael Tannenbaum:
By virtue of that, you’re dealing with a more affluent customer. Obviously not someone rich, because if they’re so rich they don’t need to borrow. So it’s mass affluent.
Turner Novak:
Yeah, the richest people have a stock portfolio and they’re borrowing against the stock portfolio.
Michael Tannenbaum:
Or they just have cash on hand. They have so much income they’re not doing that. We’re talking about people making, call it $75,000 to $200,000 or $250,000, so mass affluent.
Turner Novak:
So what was the product evolution over time, starting from HELOC’s? What did you do next, and why?
Michael Tannenbaum:
The HELOC started direct to consumer, and then we moved to B2B, which means we took our technology and offered it to other people who were offering HELOC’s, or weren’t. We work with fintechs, and Houzz is a good example. It’s a home improvement and design website. They offer financing through a HELOC from Figure, and they never did mortgage before.
And then we went full marketplace, which launched in June 2024. I joined maybe two or three months before that, and that was a big part of the marketplace approach and a big part of our IPO. We moved from us buying the loans from other people and then selling them, to us just giving people the technology and the capital market so they can originate the loans themselves. These banks or credit unions or fintechs, they fund it, it’s their license, and then they sell it, and we’re just matching. We created a marketplace. And today that’s about 60%-plus of what we do. So it’s gone from zero to 60 in two years.
Turner Novak:
So that way you’re not, before, you had to fund everything or find the partners coming in to fund things.
Michael Tannenbaum:
Exactly. And that changed our positioning very much from an IPO perspective. Marketplaces are really hard to build. They’re hard to disrupt.
Turner Novak:
You can’t vibe-code a marketplace.
Michael Tannenbaum:
No, you can’t. Or I also say, you can’t AI your way into triple A. We’re triple A rated by S&P and Moody’s, and you can’t just AI that. We have a lot of history in what we do.
Turner Novak:
So what does it mean, being triple A, for your business, for somebody who doesn’t know this?
Michael Tannenbaum:
It means the bonds against the mortgages we originate, the HELOC’s, are rated at the top of the stack. The least risky bonds are rated triple A, which is hard to get. And they’re not just rated triple A, they’re rated triple A by S&P and Moody’s, the premier rating agencies.
Turner Novak:
So why are they rated triple A?
Michael Tannenbaum:
Because of how the loans perform, how little they lose or go delinquent.
Turner Novak:
Because the underlying customers have money and they pay back their loans?
Michael Tannenbaum:
The process we use to originate those loans, even though we do it very fast and efficiently, results in a loan that has a high ability to repay, and also repayment history.
Turner Novak:
So what do you do differently from a triple-C rated loan? How do you have a way better product at the end of the day?
Michael Tannenbaum:
It’s about the losses. Actually, the right way to look at it is that mortgage in general, post-crisis, is a very low-risk asset now.
Turner Novak:
Really?
Michael Tannenbaum:
Because there’s the whole Dodd-Frank Act and all these changes to mortgage regulation, and so many people lost so much money that everything has been much more conservative. So the way to look at us is not, what do we do that’s unique to get such good credit quality, because most mortgages perform well. It’s how are we able to maintain that credit quality while taking out a bunch of process.
We have similar credit quality to what Fannie Mae would see, but we’re able to do it at a $1,000 cost to produce versus $12,000. That’s the power.
Turner Novak:
And you have a similar business to Fannie Mae, right? That’s kind of the closest comp.
Michael Tannenbaum:
That’s the closest comp, which is very bold, because people think of Fannie Mae as almost the government.
Turner Novak:
So what is Fannie Mae? I think I might know, but I probably don’t know as well as you. For somebody who doesn’t know, what does Fannie Mae do?
Michael Tannenbaum:
Fannie Mae is a mortgage guarantor. What Fannie Mae does is offer underwriting technology and a capital market, just like Figure.
Turner Novak:
So technology from the government. That’s immediately telling me it’s run on fax machines.
Michael Tannenbaum:
Basically, Fannie Mae gives you a widget into your loan origination process that says what you’re doing is eligible for our marketplace. It’s called approve eligible.
Turner Novak:
And why do you want to be on their marketplace?
Michael Tannenbaum:
Because then you can sell to them, or to any buyer who buys Fannie Mae loans, which is trillions of dollars. They’ve standardized this approach and built this capital market engine. And what’s really interesting, and this ties into blockchain, is they’ve done it in a way that’s relatively homogenous. When you buy a Fannie Mae loan, you don’t care if it was done by your uncle or this bank or that bank. It’s all Fannie Mae. And Figure’s done the same thing, and that standardized approach has been put all on chain. It provides that automated, standardized approach Fannie Mae does, but on modern rails.
Turner Novak:
And maybe if I’m ignorant and don’t understand how blockchain works, couldn’t anyone put loans on the blockchain, or Figure’s blockchain? How does that work exactly?
Michael Tannenbaum:
Anybody could put loans on blockchain, yes. And this is a common misconception with blockchain: just because you put something on a blockchain, or tokenize it, doesn’t mean people want it.
I have people from my investment banking class who are like, “Oh yeah, I’ve got this.” This actually happened. Someone said, “I have this warehouse in Costa Rica, can we put it on the blockchain?” I’m like, “Just because we put it on the blockchain doesn’t mean anybody wants it.” The point is Figure has loans that people want, and we used the fact that people wanted them to move the capital markets to a blockchain future. If people didn’t want the loans, it wouldn’t work. So it’s more about showing the market, through a reference marketplace, that you can save time and money using blockchain technology, by originating loans that people actually want to buy and own on a blockchain.
Turner Novak:
And I think you recently announced this pre-funded pool. What is that, for somebody who’s never heard of it?
Michael Tannenbaum:
Anyone who’s been in fintech knows that you’re always looking for capital for your loans. Even Brex, even Ramp, they need to finance those loans. Ramp and Brex make short-term loans to companies, they pay their bills in advance, and then those companies pay Brex or Ramp back.
Turner Novak:
And they don’t want to fund all that themselves.
Michael Tannenbaum:
Right, so they need to find capital for that. And every fintech, Klarna, Affirm, they all have this problem. What Figure has done is basically tell those people to outsource that problem, at least in the mortgage space and now other spaces, to us. We’re saying we’ll standardize that approach. It would be as if Brex and Ramp and Airwallex all used the same underwriting program and technology, and then we took the capital. That’s what Figure does, except we do it in mortgage, and now in a few other asset classes.
And now we’re telling those same people who trust us with the capital market that we have investors willing to buy the loans even before they’re originated, because they’re so confident in the Figure platform and the standardized approach we take. So it gives you one more reason to work with Figure.
Turner Novak:
And is it because I can’t pull a fast one or sneak something through?
Michael Tannenbaum:
That’s right. And even if the market collapses between the time you made the commitment to the customer and the loan is funded, you know you have that buyer there for you. So it’s a less risky approach for our partners, and we’re always trying to make our partners’ lives better.
Turner Novak:
I guess there’s some duration risk, where if it’s a 45-day process there’s that window, versus you shrink it to five days. Is that a thing that happens?
Michael Tannenbaum:
Absolutely. You’re taking significantly less interest rate risk. Think about 45 days, especially with this Iran war, rates are changing all over the place, and investor appetite for buying risky assets is changing all the time. So not only is a faster process valuable, but having a pre-committed pool of capital is also quite valuable.
Turner Novak:
So how did you think about the order of all the stuff you did at Figure? It started with HELOC’s. How did you figure out the order of operations, and what are you thinking about next?
Michael Tannenbaum:
The way I approach this is to spend about 70% of the time and effort on things that are going to materialize in six months, another 20% on the six-to-18-month horizon, and 10% beyond that. That’s a little compressed because we’re a public company and we have to hit the near-term numbers, though we definitely spend time on moonshots.
We’re also more B2B, so we can follow the product as it gets pulled. That’s a benefit of B2B, we see where our customers are going. A good example is that our product when I joined, home equity HELOC’s, are largely known for being on top of other mortgages.
Turner Novak:
Which is kind of bad, right? You don’t want to be below everyone else, do you?
Michael Tannenbaum:
It’s worse than being first, because it’s more risky. But in today’s world there’s $35 trillion of home equity, so it’s not that risky, and we have really low losses. Anyway, I noticed that some of our customers were using the product in the first-lien position, meaning they weren’t putting it on top of an existing mortgage.
Turner Novak:
So they own their home free and clear?
Michael Tannenbaum:
That, or they were using the product to refinance an existing mortgage, if it was a higher-rate mortgage. That was a very unique thing. At first a lot of people were like, “Oh, that’s bad.” And I was like, “Well, why don’t we look more into that?”
Turner Novak:
Wait, why would it be bad?
Michael Tannenbaum:
Because if you’re in the first-lien position, you’re normally going to get a better rate. So why are these people taking a rate meant for the second-lien position in the first-lien position? Is it because they’re dumb or desperate?
But at the end of the day, it was actually because it was so much faster and easier. And it was really on smaller loans. If you get into a $100,000 loan and it costs you $12,000 to make that loan, that’s not efficient.
Turner Novak:
Yeah.
Michael Tannenbaum:
Whereas if it costs you only $1,000, it’s totally different. So I started to follow that thread and built out the ability for it to pay off more debts and operate more like a traditional mortgage, and now that’s 20% of what we do, which is a lot at the scale we operate at.
Turner Novak:
And didn’t you recently acquire someone? It seemed like it was pretty big, like 10% of your market cap. So who’d you acquire?
Michael Tannenbaum:
It’s a company called Kiavi. They focus on investor loans. We focus on loans to people, they focus on loans to investors, like people improving a house, fixing it up, renting it out.
Turner Novak:
I think fix and flip is the popular term for it.
Michael Tannenbaum:
Fix and flip, yep, that’s the buzzword. And they’re the market leader in that business. It’s a business that has grown nicely and reached profitability. It wasn’t at the scale of Figure, but it’s actually about 40% of our volume. So we paid 10% of our market cap, but it’s 40% of the volume.
Turner Novak:
Are those less profitable loans for you?
Michael Tannenbaum:
It’s more that in the market environment we’re in for fintech, you have different options. I don’t think Kiavi was at the scale to go public, it wasn’t big enough. And there’s significantly less private equity interest right now. Software companies are saying this too. Private equity has experienced more issues with SaaS being questionably valued, and a lot of private equity leaned into SaaS with AI. So that was one of the dynamics.
And Kiavi is not growing as fast as Figure. Figure is about 100%, they’re more in the 20s. So growth-adjusted, it was a pretty sizable acquisition. They’re the market leader, a great company, and I’m super excited about it. Hoping to close in the coming months.
Turner Novak:
Mm.
Michael Tannenbaum:
And it’s also run by a non-founder CEO, who was there when the founder was there, and they selected him to run it. I’m really excited about bringing them on. One of the interesting things we did is we bought it with Sixth Street, which is a private capital firm, and we turned it into a marketplace day one. Sixth Street bought the loans, and is also going to fund an entity that funds the loans and then sells them into our marketplace. And then we take the technology they have and offer it to our existing partners.
So we turned what was once a direct-to-consumer originator, or direct-to-investor originator, into a marketplace day one by using Sixth Street. That structure was really creative, and it mirrored what Figure did, going from DTC to 60%-plus marketplace over the last couple years.
Turner Novak:
One thing you said that I thought was interesting: Figure’s growing about 100% a year, Kiavi was growing 20%. One thing you see a lot with companies is you’ll acquire a faster-growing company to increase your growth rate. This is actually growing slower than you. So what got you excited about it? In theory I could say, “This company is not growing fast, why are you interested?”
Michael Tannenbaum:
One was that they’re the market leader. It’s hard to be the market leader, and that shows so much. That’s very common in the VC world too, people love the market leader.
Turner Novak:
They own Madison Avenue assets.
Michael Tannenbaum:
Sure, or Park. There are a lot of good places to own. Which shows you maybe that’s not the right analogy, because it’s unclear.
Turner Novak:
Blue chip.
Michael Tannenbaum:
Yeah, blue chip assets, exactly. So that was one. Two was a very tangential space. They’re doing a version of mortgage, fast, automated. They have a very active capital market that wants to buy from them, they have a securitization, a deep investor pool, low losses.
But the number one thing, and this gets to the growth point, is we can take what they do and offer it to our partners, and we know our partners want that.
Turner Novak:
This is the 380 customers you mentioned?
Michael Tannenbaum:
Exactly, and these are big customers. So give me an example. Let’s take a bank like Flagstar Bank. We just announced that in our most recent quarterly earnings. It’s a Michigan-based bank, you probably know it because you’re from Michigan.
Turner Novak:
I’ve heard of them, yeah.
Michael Tannenbaum:
They’re based in the Detroit area, but they’ve got branches everywhere, including New York, and they’re using Figure to originate their home equity lines of credit and then selling into our marketplace. They also wouldn’t have the ability to quickly serve a fix-and-flip customer. Flagstar absolutely has deposit customers who do fix and flip, and today they go to a place like Kiavi or somewhere else.
If we can offer this in a seamless way to Flagstar, they’re going to want to do it, because they want to serve their customers and not tell them, “Sorry, we don’t have that product,” since it’s a product you’d expect a bank to offer. And Kiavi’s a market leader, they can do it much faster and cheaper.
The only difference between us and Kiavi is we’ve been a marketplace focus, meaning we offer our technology and the capital market and open it up to everyone, whereas Kiavi said, which is what most fintechs do, “We’re just going to keep this for ourselves.” Affirm doesn’t let other people use Affirm. But we do, and that’s why we’re unique, and that’s why we’re growing 100% but also at 50% margin. We’re rule of 150.
Turner Novak:
So why do more people not do it? Rule of 150 versus rule of 40 sounds incredible. Everyone should turn themselves into a marketplace. Why do more fintechs not do that?
Michael Tannenbaum:
Two reasons. One, you have to give up revenue and EBITDA to do it. When we launched Figure Connect, our marketplace, we turned the economics over to the partner, so they’re making more money, more EBITDA, but we’re making a higher margin. It’s almost like franchising. When you franchise, like Marriott Hotels, they’re making a high-margin piece, but the hotel owner is making all of the revenue and profit, and also taking way more risk.
You could say, “Well, why doesn’t everyone franchise?” Same reason. It’s hard, because you have to give up revenue and EBITDA, and people hate doing that. And it’s really hard to do that in the public eye, which is why we did it prior to going public.
Turner Novak:
Would it have looked really bad?
Michael Tannenbaum:
It would’ve been hard to explain, and it would’ve made us hard to model. Everything in public companies is about the analysts, whether research analysts or hedge fund or mutual fund analysts, and they’re all trying to project what they expect the quarter to be. If they can’t model your business, it’s very challenging. So if you’re moving your P&L around because you’re franchising or turning into a marketplace, that would be hard. So the number one reason people don’t do it is you have to give up revenue and EBITDA, and who wants to do that? You have to give up something in service of a greater good.
And the second reason is people just don’t have that vision. It’s not on their radar. They’re thinking, “My north star is number of customers,” or “My north star is volume,” and they’re not focused on this specific thing Figure’s focused on, which is using our marketplace as a reference for how blockchain can change the capital market.
Turner Novak:
Is there a risk related to outsourcing the lending and underwriting, the quality of the cash flow that’s paying the loan? You’re giving it to someone else, there are multiple layers.
Michael Tannenbaum:
So we maintain the underwriting. Going back to the Fannie Mae example, we’re still doing the underwriting and processing of the loans.
Turner Novak:
Is it Figure software that your customers are punching things into?
Michael Tannenbaum:
Exactly. But the risk, and this is why we keep a direct-to-consumer business too, though it’s much smaller, is something like AI. A good example is a lot of the lending world, not just mortgage, focuses on lead generation platforms like Credit Karma and LendingTree. They’re affiliates, or personal finance websites, that send out leads. If AI disrupts that, how do we know our partners are set up well to make sure they get those leads in that future?
Turner Novak:
Oh, so you’re saying that’s a big risk for you right now?
Michael Tannenbaum:
That’s more the type of risk we take, because we’re not really outsourcing the underwriting, we’re outsourcing the go-to-market.
Turner Novak:
You’re outsourcing the customer acquisition.
Michael Tannenbaum:
Outsourcing customer acquisition, exactly, which is really efficient from a cost perspective. But if there was a paradigm shift like AI, that’s one of the reasons we maintain direct to consumer. Another is so we don’t test stuff on our customers. That’s really important to us, and we’re making sure we’re leveraging cutting-edge AI technology, because we can’t be confident our partners will do that. We can’t take that risk.
Turner Novak:
Have you started to see it show up at all yet?
Michael Tannenbaum:
I have seen it show up in multiple ways. One is exactly the example I gave. The way search is changing is absolutely affecting certain websites that rely on blogs and personal finance information to aggregate eyeballs and then sell them off. That is very much affected, because at the end of the day, if you’re asking Claude or GPT or Gemini, it may only give you one option. So there’s a winner-take-all motion, and the long tail of those is getting hurt.
Another thing we’re doing is using an AI loan officer assistant, someone reaching out and helping schedule and contact people, doing that outbound in a way our partners may not be as ready to adopt. It’s a big pro for Figure, because our process is so simple and cheap that it’s much easier to have an AI loan officer assistant reach out and do some of these tasks.
Turner Novak:
Because when I think about when I got my mortgage, it was send us some docs, back and forth, all that stuff.
Michael Tannenbaum:
It’s a many-weeks process with lots of hours and back and forth. We eliminate all that, and at the same time we can have a loan officer bot trained to work with a loan officer and help facilitate those things and reach out, without having to have a tickler. It just does it automatically.
Turner Novak:
So one thing I wanted to ask you about. You talked a little about what it’s like to be a public company, but what’s the process of going public? You said you joined as it was happening.
Michael Tannenbaum:
I didn’t join as it was happening, I joined with the mandate to do it. I grew up with someone talking about an IPO in my house a lot, so I had a sense of what I thought it was, but I’m not sure that’s as helpful. I’ll just say what it felt like. It’s about a six-month process, and you’re doing a lot of investor meetings up front.
A lot of people put emphasis on the roadshow, but by the time you’re at the roadshow, you’ve met many of the investors two or three times. We did rounds and rounds of what’s called testing-the-waters meetings, to get feedback from investors on our story. We continue to meet with them, and then you flip the switch, you file to go public, and then you launch your offering.
And timing is so important. You have to have the right market. Think about financial companies, there’s interest rate risk. There are times you want to go, times you can’t because your financials are stale, times the government’s been shut down and there’s a war. If you think about the last couple years, the windows are ripe and then they’re stale, and you’ve got to hit that at the right time.
Turner Novak:
So if the timing is not good when you’re a month out, do you have to stop and restart?
Michael Tannenbaum:
You have to pull, or you don’t launch, and you wait for the market to be right. So you want all your documents and materials ready to go, so you can hit that market when it’s ready.
Turner Novak:
And then you went public. What’s the experience like being the CEO of a public company, for somebody who’s never done it?
Michael Tannenbaum:
It’s a lot different. The biggest difference is the quarterly earnings cadence, because you’re really talking to the market in very specific windows, sharing your financials.
Turner Novak:
You’re not allowed to say things during some windows, right?
Michael Tannenbaum:
Right, quiet periods. You’re allowed to say things, but it’s frowned upon, and you need to issue a release. One thing that really stuck out to me is that when you’re giving your earnings, you’re usually halfway through your next quarter. So you’re talking about stuff that happened as far as...
Turner Novak:
Like 45 days ago.
Michael Tannenbaum:
Way longer than that. You could be talking about 135 days ago. So it’s kind of a weird experience.
Turner Novak:
Do you almost have to be like, “This quarter’s not going to be as good as this one,” or, “We’re doing so well right now, I’m super excited about this”?
Michael Tannenbaum:
The natural thing is to incorporate some of how you’re doing or feeling into the release. You want to set up expectations, but you can’t say anything.
A huge thing your audience would find interesting is that when you’re a private company, no matter how well you’re doing, investors are typically respectful. They ask things of you respectfully and treat information like a gift you’re giving them. But once you become public, everyone feels they can have an opinion on what you’re doing.
So I’ve noticed a huge shift. Your compensation is public, everything you’re doing is public, your results are completely public. And everyone from some person on X, to someone you’re sitting at dinner with, to someone who’s been an investor for a long time feels entitled. And maybe they are entitled, because you’ve chosen to go public, so they feel this way for a reason. But it’s a really big change. I get significantly more feedback on everything about the company and what I’m doing, my compensation, all of that is up for discussion in a way it never would have been before.
When they say you’re a public figure, it’s not like all of a sudden I walk down the street and people are chasing me for autographs. It’s more that people who know feel very free and comfortable telling me what they think, and sometimes it’s positive and sometimes it’s not.
Turner Novak:
Do you want to talk about people who short the stock? What is that like?
Michael Tannenbaum:
We had a short report come out in maybe April, a couple months ago. And honestly, that doesn’t bother me. I’m sort of tough, I’ve been through a lot. I was in college during a recession studying mortgage, which was falling apart. So a short sale is not the worst thing that’s happened to me. At SoFi, there were times where I thought we were going to run out of money. And Brex, we started in a kitchen. So I’ve been through a lot of things, and a short report wasn’t such a big deal. But people don’t say nice things in that, and it never feels good.
That’s the risk you take, and one of the negatives of going public. One of the things, though, because I think there are a lot of companies that preach this, never go public, why would you, especially Stripe, they’re pretty vocal about not going public. I would counter that not every company is Stripe. They don’t have to go public because they have tons of investor demand for what they do, and that’s great for them, genuinely. But that’s not every company. So if your business plan is to be Stripe and not go public, Stripe is kind of one of one.
Turner Novak:
One other question. Coming from investor, operator, CEO, you’ve run the gamut, and you have this framework, this test you call the gas station test. What’s the gas station test?
Michael Tannenbaum:
It comes back to when I was younger. I was walking with my dad, who’s an operator, and he told me, “Look, Mikey, look at all these fancy houses. None of these people who live in them could run a gas station.”
And I know what he means. A lot of times you get people, and this gets to some of the people commenting about the company, who have ideas on what you could do better. But you have to be able to run a business if you want to work in the operating world. You have to be the kind of person who could be put in a gas station and know what to do, how to price the gas, and just figure it out. What I’ve tried to do in every role is understand the business from first principles, understand how everything works. Every time, I’ve gotten deep into the operations and made sure I really knew.
Another good test of this, going back to that executive point, I remember this so many times: you see a piece of feedback from a customer, and you should know what they’re talking about.
Turner Novak:
Mm.
Michael Tannenbaum:
If you see people in the company who are like, “What do they mean by this?” it’s like you’re totally out of it. If there’s feedback we’re getting, I’m going to have an idea what they’re talking about 90% of the time. Of course there’s going to be some things, and that could be a bug or something, but a lot of times that’s a real tell.
Turner Novak:
So this pyramid structure of businesses, of management, how do you feel about that?
Michael Tannenbaum:
This also gets to the gas station test. In the investor, consulting, law firm world, you get this pyramid where all the junior people do the work, and the top people relationship-manage and go out to dinner, etc. But in an operating world, it’s the opposite.
Turner Novak:
And you think the best operators embrace that it’s a reverse pyramid?
Michael Tannenbaum:
In terms of the stress, it is a reverse pyramid, for sure. Embrace that. If you want this job, and I always say this to myself, I chose this life. I chose this role. It’s not an easy job, but nobody’s forcing me to do it, and I chose it.
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