🎧🍌 Flex: The AI Private Bank Silicon Valley Forgot to Build with CEO Zaid Rahman
How Flex went zero to $70M in 2 years fueling the ambition of mid-market America, the importance of being multi-product in fintech, and private credit's AI opportunity
Zaid Rahman is the Co-founder and CEO of Flex, the private bank for high net worth, middle market business owners that power 40% of all US payroll.
Flex just announced their $60 million Series B, as well as their new consumer product, Flex Elite. This pits it head-to-head against Amex for the consumer spending of some of the wealthiest people in America. Flex’s product now spans from when a business owner first generates revenue, all the way to when the owner spends that cash personally.
Invested in Flex three times over the past few years through Banana Capital, getting a front row seat as they quietly avoided the AI hype, navigated the fintech winter, pulled off a Series A in 2023, and quietly built one of the fastest growing companies that Silicon Valley has ignored.
They’ve built a multi-product ecosystem with better adoption than most public fintech companies. And have an unreal payback period due to a clever, localized go-to-market strategy.
This 2.5 hour conversation goes inside how the company scaled from zero to a $70 million revenue run rate in two years, and everything Zaid learned along the way.
Thank you to Eric Bahn at Hustle Fund, Jeff Morris Jr at Chapter One, Andrew Ziperski at General Catalyst, and Jared + Ewan at Flex for helping brainstorming topics for this.
Timestamps to jump in:
1:44 Raising $60m to fix business finance
3:23 Flex Elite: Personal + Business banking
4:48 Jumbo shrimps: powering 40% of US payroll
9:16 The forgotten mid market business
14:01 “Flex fuels ambition”
16:08 How to serve entrepreneurs in middle America
22:58 Flex’s 5-pillar product suite
27:12 Starting Flex to help construction companies
31:51 Using AI to lend to mid-market customers
40:22 Power of multi-product in fintech
43:53 Zero to $3B in volume in 18 months
44:43 Raising a bear market Series A in 2023
51:00 How referrals landed their first big customers
55:07 Flex’s playbook for 85% organic growth
1:01:15 Dissecting various accents
1:04:22 Building a quiet luxury brand
1:09:33 Importance of customer happiness
1:12:43 Why CEO’s should be the top sales person
1:13:58 Building lots of in-house software
1:24:33 PMF is like operating a popular restaurant
1:30:49 How to raise a debt facility
1:34:48 Recruiting is so crucial for startups
1:39:00 Why VC’s hate lending businesses
1:45:14 Underserved vs Underbanked in fintech
1:48:02 Why business owners want personal + business banking
1:54:49 Acquiring Maza, leaning in to M&A
2:02:53 Most fintech companies look the same
2:08:35 Founder group therapy with Eric at Hustle Fund
2:11:50 The Thiel Fellowship’s 10% unicorn hit rate
2:15:52 Lesson from the ruler of Dubai
2:19:24 Building Flex’s risk underwriting engine
2:26:58 Flex’s AI opportunity
Referenced:
Find Zaid on X / Twitter and LinkedIn
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Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Zaid, welcome to the show.
Zaid Rahman:
Thanks for having me.
Turner Novak:
I’m excited. You announced something I think today, the day this comes out, you have announced something. What did you guys just announce?
Zaid Rahman:
Yeah. No. Very excited to announce today that we just closed our $60 million series B, led by Protage Ventures. Protage is a very large fintech dedicated fund. So they led this round and had a bunch of our existing investors and new investors join it.
Turner Novak:
Amazing. And what do you do again for people who don’t know? I know, but I actually forget sometimes because you guys have been adding a lot of different features over the years.
Zaid Rahman:
Yeah. No. It’s a great question. So just taking a step back, right? This is my third company. I’ve been building companies for a while and building these companies over time, you realize the most common frustration you’ll hear from all founders and business owners is that running a business is really, really hard. And the thing that really sucks the most is finance.
Turner Novak:
What’s so hard about finance?
Zaid Rahman:
I mean, if you think about it’s not just having a bank account and counting your money. There’s so much stuff that needs to happen in the back office across managing your working capital, money coming in, money going out, thinking about payroll, your benefits, your insurance, your working capital, thinking about accounting and tax and financial planning. And then if you’re a traditional business owner ... Not everyone’s venture backed, right?
Turner Novak:
Yep.
Zaid Rahman:
The challenge with that situation is you’re intermingling your personal and business finances often together, which is a whole new challenge that adds to this mix.
Turner Novak:
Which you guys just launched that today, right?
Zaid Rahman:
Yeah.
Turner Novak:
So what did you launch?
Zaid Rahman:
So we just launched Flex Elite, which is our newest platform as part of the Flex ecosystem where now we have both business and personal products in one. And so just taking a step back if you’re a business owner, you don’t want to be juggling 20 different products. You just want to use one consolidated ecosystem to manage everything in one place. And so with Flex, we realize that there’s a huge opportunity to build a singular platform that tracks every single dollar in a business owner’s life from the time they make a single dollar of revenue to the time they spend it personally on their lifestyle. That journey, revenue to lifestyle spend is like 25 chapters. And each chapter, we think there’s an opportunity for a new financial product, new agentic automation, new software to help you manage your life better.
And it starts with all the way from credit to business finance, to personal finance, to managing all the payments happening in your back office and all the way down to an ERP that helps your back office do more things.
Turner Novak:
Doesn’t this already exist? If I use Chase or like Bank of America, like they have thousands of branches around the country, every multiple in every neighborhood basically. Can’t people just use those?
Zaid Rahman:
So if you think about it, like B2B fintech, first off, just zooming out and thinking about the B2B fintech market at large, it’s a spectrum, right? On one end of the spectrum, you have these micro businesses. These are like your one or two person companies. Technically an Uber driver, DoorDash driver is a micro business owner. And that’s what the big banks really focus on because they’re effectively consumer accounts. Your Chase, your Capital One, Citi, et cetera, really, really focused on this micro business owner.
Turner Novak:
Why do they focus there?
Zaid Rahman:
Because it’s easy to underwrite, they’re cookie cutter. You can just almost use a consumer-like model.
Turner Novak:
Just report your credit score, like 720, you’re good.
Zaid Rahman:
Yeah, exactly. That type of thing. And there are quite a few of them. There are 10s of millions of these micro business owners. On the complete other end of the spectrum, you have sophisticated enterprises. These are folks that have ... CFO, head of FP&A.
Turner Novak:
So this is like a company like Google or Walmart or something who had 10s of thousands of employees.
Zaid Rahman:
On a complete high and it could be something like a Walmart or Google that is a Fortune 500 business, but it could also be a 500 person company that is super late stage venture back, private equity backed company, all the way to public companies that have auditors and FP&A and CFOs outside tax consultants and those types of things. The types of problems that those companies are solving is very, very different from the micro business owner. And so that’s what some of our peers in fintech, like Ramp, Brex, Navan, SAP Concur. All of those folks have built incredible workflows for those types of teams that have thousands and thousands of employees. The common adage you hear from some of our peers is that they help these companies save money. Well, who cares about saving money? It’s large enterprises.
Turner Novak:
That’s fair. Yeah. They’re all cutting costs right now.
Zaid Rahman:
But there is a business owner that’s neither a micro business or a large business. It’s right in the middle. The phrase we use for these types of business owners internally is jumbo shrimps.
Turner Novak:
Jumbo shrimps. I actually love jumbo shrimp by the way. Like a big shrimp cocktail.
Zaid Rahman:
Yeah, exactly. Exactly. They’re delicious. And the thing about these types of business owners is that their revenue profile, just to give you a picture, can be anywhere between, let’s say $3 million on the low end, can be $100 million business on the high end. But typically it’s owner operated where the owner who started it is still operating it. They own it outright. And they’re probably EBITDA positive where they’re doing on the low end, couple million dollars in EBITDA and the high end could be doing say 20 million in EBITDA. The reality is that if you’re the type of business owner that first off owns your business and secondly is generating millions of dollars a year in profit, you live a pretty fucking good lifestyle. Excuse my language. And so these types of people are the types of people who have, let’s say an Amex black card. They’re the types of people who typically have a relationship with a small regional bank. There are not that many of these people out there. It’s maybe a few hundred thousand business owners, on the high end maybe half a million business owners. What’s really awesome about these half million business owners is that they touch 40% of American payroll.
Turner Novak:
Really?
Zaid Rahman:
So they’re basically the lifeblood of the American economy.
Turner Novak:
How do you get that stat? Is that just something you pulled out of a McKinsey report or how do you get that number?
Zaid Rahman:
No. If you just look at the number of people employed by mid-market businesses and multiply that by the amount of US payroll reported by US census, it’s a fairly substantial number.
Turner Novak:
Yeah. I guess if you say 500K, you assume they each have 50 employees. I don’t know. What does that get you to? Not good at math.
Zaid Rahman:
Tens of millions of people.
Turner Novak:
Yeah. 25 million people.
Zaid Rahman:
25 million people.
Turner Novak:
How many people work in the US? Maybe like 100 million. So maybe they each employ on average like 100 million people. That probably gets you higher.
Zaid Rahman:
Yeah. No. But if you think about there’s some mid-market companies that have hundreds of employees and there’s some that have like 10 employees, right? So you average that out. And then a lot of them touch 1099s because they employ-
Turner Novak:
Contractors.
Zaid Rahman:
Contractors. And then they also do business with other micro businesses. And so if you think about the money flowing from these businesses, it’s a very large amount of dollars and yet no one quite focuses on this mid-market business owner.
Turner Novak:
Why not? If it’s so big, shouldn’t there be a bunch of people trying to build products for them?
Zaid Rahman:
Fantastic question. This is a thing that has puzzled me for a long time. So what’s interesting is a lot of our fintech peers, they focus on the upmarket opportunity. They’re going after very large logos. They’re going after the Nvidias and Apples of the world.
Turner Novak:
Are they more profitable because they’re bigger?
Zaid Rahman:
No. They’re building piecemeal solutions that are intended for very large businesses. You won’t hear an Nvidia adopt a single platform for 20 different workflows. It typically will be the best in class in each workflow because they have the HR sophistication to then go and find the right kind of people for the right tools. Whereas our mid-market business owner, they don’t have the time or energy to put together a finance stack that is best in class in every single category.
Turner Novak:
They might have like one or two finance people and they just do my accounting and my taxes, just do it all.
Zaid Rahman:
Right. No. Exactly. There’s some person in the back office who’s like their catchall accountant, and they’re typically using some tool from the 1990s and or Excel or just keeping a lot of this stuff in their head. So going back to your question of why no one serves the mid-market, what’s funny is that actually there’s a regulatory reason. A lot of banks after 2008 were basically not allowed to lend to mid-market businesses.
Turner Novak:
Why not? They sound like interesting customers.
Zaid Rahman:
Right. It’s super counterintuitive. Well, banks have a lot of reserve requirements on how much capital they have to keep on balance sheet depending on the loans they make as loan loss provisions. And so after Basel III that was passed in 2008, the way that the regulation was structured, the regulation preferred commercial real estate and consumer lending and made it much harder for SMBs. And so this created this world of private credit. And so here a lot of big firms, and you hear even firms like massive, massive asset managers like Apollo and KKR and Blue Owl, and they’re effectively lending to middle market businesses, but they’re going after the larger middle market companies that are-
Turner Novak:
They do a lot of like a PE buyout. They’ll work ... If you think about from a customer relationship, their customer’s really like the PE firm who owns a bunch of smaller businesses underneath.
Zaid Rahman:
Yeah. Exactly. So they’re going after ... Their check sizes are in the 50 to 500 million dollar range. But what about the logistics company that’s making $50 million a year, five million EBITDA, owned by one family, really good, living the American dream. Who is helping that business owner and their needs? Turns out we don’t really have anyone in our space at least directly competing with us with this proposition that we want to manage everything in their life from the time they make a single dollar of revenue to the time they spend it personally in their lifestyle.
Turner Novak:
That’s like the community commercial bank. Used to or is kind of still that or?
Zaid Rahman:
What’s interesting is that we often will come across regional private banks. And so a lot of times people refer to us as like a fintech private bank or an AI native private bank helping these types of business owners that are wealthy. They’re employing dozens of people and they’re growing at a moderate rate year over year and very stable. But yet the only folks helping them are these random regional banks that are hyper local and don’t have the best technology stack and getting a loan from them, for example, takes months and months. It’s like built on incumbent finance stack. So that’s who these people typically deal with.
And then of course, the company that has the largest market share in terms of corporate card and even personal card is Amex. And something like half of the business owners in America use Amex. Most of our customers are on the higher end of credit worthiness. And so 85% of our customers today come from Amex. Amex is an incredible company. They’re really focused on giving you incredible rewards and travel experiences and those types of things. But the reality is that there are some business owners who just don’t care about that. What they care about is making more money. And the way you make more money is running a far more efficient business and getting the right type of private credit to really fuel ambition. And so our tagline at Flex is Flex fuel’s ambition. Some of our peers try to save you money, we try to make you more money. And so that’s how we’re differentiating ourself.
Turner Novak:
So you’re almost selling to the CEO versus selling to the CFO.
Zaid Rahman:
Our customer is the business owner. You will never come across an ad that says, Flex is for finance teams because we are really, really ultra focused on this forgotten segment of business owners, which is why we believe ... Going back to Flex Elite, which we launched today, which is our private banking stack for the business owner. Our vision is that if we serve the business owner well, not only in their business life, but in their personal life, we can maximize their wealth. And so that entails everything from giving them credit cards and bank accounts like a private bank, but also giving them software to manage their family spend like a business. So we’ve built family expense management where you can issue cards to your family members and issue cards your housekeeper and tell them that, “Hey, you can spend a couple of hundred dollars at Costco and that’s the only merchant the card will work at and those types of things.” You can also track your net worth across your public and private assets, which really is helpful for these business owners to really consolidate their entire financial life in a single motherboard, such that then they can go and focus on running their business as opposed to juggling a bunch of tools.
Turner Novak:
So you mentioned there’s maybe hundreds of thousands of companies and people like this around America, these people who own pretty profitable, I don’t know, small businesses. It’s like an offensive word because these aren’t small businesses. These are pretty healthy sized businesses doing seven and eight figures in cashflow. Who are they? What kind of companies are these?
Zaid Rahman:
Yeah. No. It’s a good question. The average customer we come across is, first off, interesting insight, less than 13% of our customers are in New York and California. So these tend to be in middle America. The parts where your glamorous banking services and fintechs are not really focused on. They’re running really stable businesses and they tend to be in service industries like construction, logistics, trucking, even industries like farming or they run a digitally native business that they bootstrap. They might be a-
Turner Novak:
Like an ad agency or something.
Zaid Rahman:
Yeah. Ad agency or they might be a direct to consumer brand or something like that. And so the thing with these folks is that they’re not really being targeted. And so they just go to whatever is the most popular option in that community. Our go to-market motion is like literally building almost like a regional bank hyper localized strategy where we go to these markets left behind. So not New York City, not San Francisco and really target business owners in those local markets and build a community around them and create opportunities for them to meet other business owners like them, which is like unusual for some of these owners because they’re like in their own kind of bubble.
Turner Novak:
Yeah. That’s a very like New York or California type thing though is to go meet other founders in San Francisco or another fintech founder in New York.
Zaid Rahman:
Yeah. Exactly. And who knew, almost creating like city by city distribution strategies the way you would go acquire these customers, who knew that community events actually is the most successful channel to acquire these customers?
Turner Novak:
Yeah. I remember one time you told me events have negative CAC or something like that. So explain to me how that’s even possible.
Zaid Rahman:
Yeah. No. So we do a lot of events. We actually do so many events that we actually decided to build our own events software. So when you sign up to RSVP for a Flex event, you’re basically part of the Flex ecosystem. We think of you as a customer from the point you first learn about Flex, which in this case let’s say is a community dinner we’re organizing in Dallas or Nashville or a place like that. And what’s interesting about that is they’ll come to our event, let’s say there are 20 people at the event, we typically will partner with a service provider to co-host that event with. And often these events are so successful that we have an inbound list of people wanting to co-host it with us and almost sponsor these events. And so what ends up happening is that that engine allows us to significantly reduce our event marketing spend. And often, some of our events are fully break even, which is really interesting from a CAC dynamic standpoint. We’re like very unlike most fintechs I know where we have a very contrarian approach where less than 15% of our total sales and marketing spend goes on to digital marketing.
Almost our entire spend goes on creating these communities and developing our referral strategies with our partner ecosystem. And so that’s been really awesome where you can’t quite do that at a national level. You have to create these hyper targeted strategies that are localized to these communities.
Turner Novak:
So if I wanted to try something like that, let’s say dev tools or maybe ... Pick a category, doesn’t matter. But if I wanted to try doing this, what would you recommend to get started?
Zaid Rahman:
Yeah. No. It’s a good question. Look, the reality is that there’s a certain type of business owner that doesn’t really care what your solution is.
Turner Novak:
What do you mean by that?
Zaid Rahman:
You’re a venture capitalist, you’re busy, you’re meeting founders every day.
Turner Novak:
Recording podcasts.
Zaid Rahman:
You’re recording podcasts. And the reality is that if I come and pitch you like, oh ... I don’t know. I’ll just pick a random example like accounting service for venture capital firms.
Turner Novak:
I actually get that one. I get that more often than you would think.
Zaid Rahman:
Right. The reality is like the average business owner, including yourself, the default response is, “Why do I care?” It’s true. Even if honestly your product or service is 10 times better than what exists, even in that context, it’s really hard to get the attention of the right ICP or right ideal customer profile. And so what we realize is that events and building communities around business owners where business owners are excited to meet other people like them is actually a much better avenue to get their attention.
Turner Novak:
So you’re not even wasting time sending them cold emails, you’re basically having their friends invite them to hang out at dinner or something like that.
Zaid Rahman:
Yeah. Yeah. Absolutely. We’re doing an event next week in Miami. We’ve gotten hundreds and hundreds of people coming to us. A lot of companies will stop at that. They don’t know how to translate that demand into actionable customers. And it also helps if your product is actually solving a problem, which in our case, our speed to value when customers come into our ecosystem is really fast. And the way we do that is we embed credit into their transactions, which immediately provides value to your small business owner. But then how do you build that engine that knows how to convert these cold leads, if you will, into customers and how you build a life cycle around that so that they’re adopting your next product and product number three, four, and so on and so forth.
Turner Novak:
Yeah. How do you do that?
Zaid Rahman:
That’s the growth engine we have built at Flex. One fun stat is our average customer uses four or more products, which is very, very high. We have publicly traded fintech companies where after 10 years of being around and spending hundreds of millions on ads, they’re only now getting to a point where they have three or four products being used by their average customer.
Turner Novak:
Yeah. I think you were like two and a half, less than a year ago, right?
Zaid Rahman:
Yeah. Exactly. Exactly. So the combination of things. One, we’ve shipped a lot of products. We have this five pillar strategy around private credit where we give you short and long duration capital that’s elastic to your needs. Second is a comprehensive business finance stack around banking and cards and expense management at the business level. Third is the personal finance stack, which manages your family transactions. Fourth is payments, so managing accounts receivables, so collecting funds from your customers, and then accounts payable, which is optimizing vendor payments and those types of things. And then finally, we are building an ERP, which is more nascent today, but the idea is to basically be the end-to-end stack for that business owner. Now, the reality is that when a customer enters this journey, it is really important for a multi-product company like ours to build the right life cycle. And so we’ve spent a lot of time on growth engineering and lifecycle hacking to really figure out how we can introduce Flex to the right customer at the right moment with the right product.
Turner Novak:
And so I’m assuming being so modular like multi-product like that, I might be an anti-debt person. I never have debt in my life, but I’m like, “This invoicing thing seems better than what my bank has. I’ll try it.”
Zaid Rahman:
Right. Right. We have customers today who start with our invoicing product, which we give away for free relative to a lot of the invoicing solutions that will charge 1% of every ACH transaction and very high credit card acceptance fees. What ends up happening is that that customer might start with invoicing and then they realize, “Oh, I have a lot of AR built up, a lot of customers who haven’t paid me, and I need some float for 60 days.” Well, we have this 60 day product that does really, really well where every single transaction on our business credit card gets 60 days, and then you can also use that to fund your bill payments to your vendors. And so that’s an example of how a customer started with one part of our ecosystem and over time moved on to a bunch of other things.
Turner Novak:
Because you typically can’t do bill pay on credit, right? You only use ACH.
Zaid Rahman:
Yeah.
Turner Novak:
So if I wanted to use credit, I would have to have a credit card and I’d have to pay the credit card fee typically if I’m doing that and you guys essentially help somebody get around that.
Zaid Rahman:
Most credit card companies think in very boxed ways like, “Hey, I’m a credit card and the use case is X and so on and so forth.” We realized the credit card limit is an abstraction. How it is used is dependent on the products that you have. And so rather than giving you a credit card limit, we give you an account level limit and the way you use it is up to you. So you can use it through our cards, you can use it through our bill pay product, you can use it for future products that we’re launching. And so what ends up happening is that, let’s say you have a situation where you need to pay a vendor and the vendor does not accept credit cards. The way it would work today is you would basically have to send them a wire ACH, or you would have to use a third party payment service that charges a very large transaction fee. What we can do on our end is basically tap into your credit limit and process that transaction. We’ll charge you a small transaction fee for that, but it’ll be much lower than the card acceptance fee that a lot of these platforms charge.
Turner Novak:
And it’s related I think, to how you first started the company. You started in construction, and that’s why I met you. I don’t think you guys had launched yet. You were experimenting.
Zaid Rahman:
Yeah.
Turner Novak:
You’re figuring out what can we do here. So why’d you start with construction originally?
Zaid Rahman:
I’m Indian originally, but I grew up in Dubai. My family runs a medium-sized construction business in Dubai. And so-
Turner Novak:
What kind of stuff do you guys build?
Zaid Rahman:
Just a bunch of very tall buildings in Dubai. So when you see those aerial shots of Dubai ...
Turner Novak:
You think your guy’s name may be on one of those?
Zaid Rahman:
Not quite big enough.
Turner Novak:
I guess medium size.
Zaid Rahman:
Medium size would be what was a service provider on some of those bigger names. So growing up, I would just hear my father complain about finance all the time. In odd way, this is my third startup and in prior companies, I was close to the finance of those companies as well. I think that running a medium-sized construction business is actually a lot harder than running a venture backed startup.
Turner Novak:
Really.
Zaid Rahman:
Right. Because-
Turner Novak:
What’s so hard about it?
Zaid Rahman:
First off, you’re real goods. You’re dealing with inventory.
Turner Novak:
Actually build a physical thing.
Zaid Rahman:
You have to build a wall and you have to get the right materials on time and you have to manage working capital. And then you have a lot of subcontractors and each subcontractor has its own billing practice and there’s a lot of trade credit flowing around.
Turner Novak:
So it’s basically like those open AI deals where it’s like, “I will pay you a million dollars when the building is done in two years.”
Zaid Rahman:
I cannot tell you how great of an analogy that is. There’s so much circular trade credit type stuff happening at these businesses that you can think of a single transaction having 10 different parties involved. And so in many ways, today’s systems are just not designed for that type of customer. But the problem is that business owner is still not the most tech-savvy customer. They often are a construction person as an example that started that business and now building a pretty large business, but they still haven’t built out the tooling they need to be an enterprise level business. And so how do you build enterprise level workflows in a consumer-like user experience? Which is a real challenge.
And so I started in the construction space initially with this company, Flex, and the idea was we’d build an end-to-end fintech for construction businesses. But what’s really interesting is the problems that we solve in construction businesses oftentimes will be problems that other types of companies have as well. One problem was we get paid late. A construction company is an average get paid 60 days late. And so we launched this 60 day credit card where you get 60 days on every single transaction. And if you pay us early, we give you points in cash back. Really successful. You literally have a gamification mechanism where you can drag a slider and if you want-
Turner Novak:
Oh, yeah. I’ve seen that.
Zaid Rahman:
Yeah.
Turner Novak:
I never do it. I just pay it. I pay late as I possibly can.
Zaid Rahman:
Yeah. Exactly. But you have customers who want that flexibility. Some are optimizing for rewards and some are optimizing for just cash conversion cycles. But it turns out this Net 60 program was so successful with construction businesses. They started telling their friends about it. And when we started running ads, we started seeing non-construction businesses coming to us. At one point, we had so many non-construction businesses coming to us that 60% of our leads, about two thirds was literally non-construction businesses. So, at some point we realized that why are we shooting ourself in the foot? We should probably expand our horizon. So, we went horizontal from there and now we are the end-to-end fintech platform, almost like a private bank for middle market business owners.
Turner Novak:
And so that very first product was essentially like a credit card. Is that how you market like a credit card? Was it like a subcontractor most likely or was it like a general contractor?
Zaid Rahman:
Yeah, subcontractors or like smaller general contractors. They’re in the 50 to 100 million revenue range.
Turner Novak:
So why’d you do a credit card specifically? Because you could have sold it other ways.
Zaid Rahman:
What’s funny is that we actually first started with accounts receivable, accounts payable solution for these types of businesses. A venture capitalist, by the way, love that product. For some reason, they think, “Oh, payment workflows, that’s where we need to put money,” especially if it’s a verticalized payment workflow.
Turner Novak:
Yeah, for construction, which is a massive town.
Zaid Rahman:
Oh, my goodness.
Turner Novak:
That’s like 10% of global GDP or something. Big number.
Zaid Rahman:
Big numbers, payment workflows, except that is a vitamin. You know what people really care about? Money in their pocket today. So, we quickly realized that the painkiller was actually working capital. The challenge for these business owners is that navigating credit is really, really complex. A lot of companies in fintech avoid going into the credit space. It’s almost like a version they have to understanding how working capital works, but big banks have done it for decades and decades and they’re very successful.
Turner Novak:
I mean, isn’t there just a massive graveyard of failed SMB lenders in San Francisco? We could probably spend the rest of this podcast just going through all the people that have died trying to do this. Companies, not people, the companies that have died.
Zaid Rahman:
Yeah. I mean, there’s a lot to unpack with that. So, first off, business lending is a very broad spectrum. If you’re lending to a small business owner who’s technically an Uber driver is very, very different than if you’re lending to, let’s say, Blue Owl just did a $30 billion deal with Meta, and it’s technically a private credit transaction. That spectrum is very, very large.
Turner Novak:
So why is that relevant?
Zaid Rahman:
Yeah. So, what I’m saying is that a lot of startups have gone for like, “Okay, let’s build it for the lower end of the market. They’re effectively consumers.” And then when you go deeper into credit, you realize that a lot of these lenders really focus on the subprime market. These are folks that are not credit worthy and they charge very high APRs and those types of things. We don’t want to spend too much energy there because, A, it’s very risky to your point. There are lots of lessons of companies that have tried that and have not worked. What’s really counterintuitive is that most people have avoided this middle market space.
Turner Novak:
Why do you think they avoid it?
Zaid Rahman:
It’s just hard. Underwriting these businesses is not a cookie cutter formula. It’s not like you just look at someone’s FICO and you deliver a result.
Turner Novak:
So you would literally need an analyst at a community. It’s just me and my job, by the way, as a credit analyst at a community bank. There would be like a propane delivery company that did 100 million in revenue that would have... I forget. They had a couple term loans with us, a couple million each, line of credit of like 50 million bucks. It would literally go up throughout the year and they would drop to zero in... I’m trying to remember. It was like in the spring or in the summer when people delivered the propane, when they delivered all the propane to customers or something like that.
Zaid Rahman:
Right. That’s an ICP customer.
Turner Novak:
But you probably needed someone like me to go in and manually figure out if this propane company could actually pay back the loan and then have my boss sitting on top of me who was like the relationship manager at this company.
Zaid Rahman:
Yeah. So, what’s funny is that you’re just describing the exact type of customer that needs this type of service. That customer, by the way, has no other option other than go to a community bank. The community bank oftentimes is just not the most sophisticated operation, right? They don’t really use much technology. That underwriting process would take months.
Turner Novak:
Yeah, probably spend like a good solid 40 hours on that memo to re-underwrite the loan.
Zaid Rahman:
Right, right. Exactly. Now, the only reason why we’re able to do this is to be completely transparent, it’s because of AI. Where a lot of this information, and you’ll recognize this from your credit analysis, is very unstructured. It’s not presented in a singular database that is standardized for every single company. Every company’s financials looks exactly the same as every other company out there.
Turner Novak:
I do remember I had weird... I can’t remember, but the line items you’ll see, different companies are all different.
Zaid Rahman:
Yeah. So, the challenge with middle market private credit is that you actually need to go pretty deep, but how do you do that at scale? And so at the top, the challenge is literally processing that data that you’re getting from these companies, both in terms of structured data via API, looking at their bank transactions, going back several years and looking at their accounting ERPs that they’re using already like a NetSuite or QuickBooks or their revenue accounts, be it like a Toast or a Shopify or whatever, and pairing that with unstructured data that you’re getting from the business owner. So, this could be stuff like their financials like P&Ls and balance sheet and tax statements and whatever they have, their AR aging, AP aging, which is like-
Turner Novak:
I get a lot of that.
Zaid Rahman:
Who hasn’t paid you and what do you need to pay?
Turner Novak:
We’d have a GC. They do high eight figures, low nine figures in revenue, just a bunch of projects. They give us their project pipeline. We got 10, 12 projects we’re working on and this is it. That’s what we’re working with.
Zaid Rahman:
Right, right. So, what do you do with that type of unstructured data and a hodgepodge of information? Well, you need to build a system that actually understands this information. So, what we have spent the past three years doing is really building an end to end engine that actually uses LLMs at every single step of the way to truly understand what’s going on under the hood and then it’s normalizing that data and then we convert that information into our cash models that then spits out a recommendation for then our underwriting team to go and evaluate.
So, an underwriter is only spending a couple of hours looking at a company, but our systems and the back and forth, our gamified data collection system as user experiences is using that to collect as much information as possible from these companies, which is why our credit book performs really, really well relative to even like a much larger credit card business like Amex, right? Because we’re working with these fundamentally credit worthy, cash flowing, high net worth owned business owners and businesses. So, from that context, a lot of the secret sauce here is the unsexy data wrangling engines that we have built, which frankly is very, very hard.
To be honest with you, I think pre-AI could not have been built. It would take us just hiring an army of credit analysts and trying to do this in a tech-enabled way, which even the best case scenario would take many, many weeks for you to process that data. With our systems, we’re able to do it in days and do it at scale.
Turner Novak:
Is that why it hasn’t worked historically is because it just hasn’t been possible?
Zaid Rahman:
Yeah, just historically combination of regulation, companies unwilling to go outside cookie-cutter formulas and just being really difficult to underwrite these middle market businesses. I mean, even if you think about large banks or even like larger fintechs, you could spend all this energy underwriting a business doing $1 billion in revenue, or you could spend underwriting a business doing $20 million in revenue, right? So a lot of larger fintechs would just like focus on the much larger deals.
Turner Novak:
Because you can just lend them more money, which makes you more money, more efficient. Yeah.
Zaid Rahman:
Yeah, yeah. So, there’s a newfound efficiency that we have today that didn’t exist. It’s like our why now.
Turner Novak:
Yeah. It’s interesting too, I remember when you told me about the personal banking, I was like, oh, interesting because you win their business and then you also get their personal, which it’s like when you think of personal consumer banking, the best customers are probably high net worth individuals that own businesses that generate a lot of cash and you acquire them through their business and get them personally. I mean, that’s the model that you might have seen from like Morgan Stanley, Maryland type of Bank of America throughout time.
Zaid Rahman:
Exactly. It’s very counterintuitive and it’s really difficult to do a B2B fintech, let alone a B2B fintech and a consumer fintech. So, we’ve had to do a lot of work to make this work and then build the underlying credit models and internal tooling to do the servicing and processing of these applications in a timely way. But to your point, we are going from this uniwedge ecosystem of being a business credit card to a business finance platform to now an end to end finance platform for high net worth business owners. So, we can acquire them from their business end. We can acquire them from the personal end. You could just start with us just using a personal credit card for your family life and then over time attach onto our net new products.
Turner Novak:
Yeah. It reminds me of I had Will Gaybrick from Stripe on a couple of weeks ago and he spent a lot of time talking about how with Stripe the way it evolved. There’s usually just payments and you probably sign up because you’re a developer and you start using it because it’s the best way to just accept payments. But now they have like a billing product that’s basically replaces your spreadsheet. They have fraud detection and some people just use the fraud detection and they have Stablecoins now.
Some people just use it for Stablecoins, but again, it’s just like a whole suite and it’s the advantage of being multi-product like that where you can acquire people from different wedges or different entry points. Because it’s like if you only needed one product, you have to wait for the customer to need that thing versus they might need one of 10 or 20 or 50 different things that you offer and you can acquire one any day of the month.
Zaid Rahman:
Yeah, no, exactly. Parker Conrad off Rippling, formerly Zenefits, coined this phrase compound startup where if you’re a company that’s building multiple products around a very specific type of customer, where each incremental product actually makes the platform better, which has like a lot of value. The underlying data works better with each other, right? You’re using us for banking and cards and your personal life and you’re giving us credit. All of this is feeding into the engine so that we can give you a higher credit limit, for example.
So, the incremental value you get from the product at large gets better as you use more stuff. Then the other business model advantage is that retention of these customers tend to be much, much higher where in the history of Flex, this is probably too much information, but in our middle market ICP, we’ve only had three customers ever churn for software reasons and all three of those customers were missing integrations that since then we’ve plugged. So, the retention of these customers tend to be really, really high and they stay with you for a lifetime.
Turner Novak:
Yeah. Did you announce any public numbers on how you’re doing in the press release? What’s like the current state of the business?
Zaid Rahman:
So we launched Flex in July of 2023. So, in that time, we’ve gone from zero in TPV, total payments volume analyzed to now we’re doing about $3 billion. So, that business has grown considerably and we are nearing 100 million in analyzed revenue run rate. We think we’ll cross that in early Q1. So, the business is growing something like 15% month over month right now, quadrupling year over year at scale. Then that’s thanks to our multi-product engine where our average customer is using multiple products from us.
Turner Novak:
So you mentioned you’ve launched in, I think you said June or July of ‘23. What was ‘23 like? I mean, we’re talking January of 2023. I mean, tell me about what that year was like for you.
Zaid Rahman:
Flex launched in July of 2023. We had a beta product with few of our friends doing a little bit of ARR in late 2022, early ‘23 prior to our series A. It was an interesting journey. I mean, startups is really like a lesson in how much pain you can withstand, right? The amount of resilience and persistence it takes to get it to the point where it is today, it was crazy just look back at it. Our internal value is like a very counterintuitive one. One of our values is bulldoze, which you have to bulldoze through any blocker that comes up.
So, in early 2023, the bear market just started. So, you had the 2021, 2022 crazy bull market. We know companies in our space that we’re doing half our revenue and raised the $4 billion in valuation and those types of crazy things that happen in Zurp era. Then Zurp goes away and interest rates go up and the bear market starts and fintech funding completely dries up. Our business requires debt facilities. The debt investors also dry up.
Turner Novak:
Yeah, ‘23 was the worst because ‘22, people were still alive and then people started dying in ‘23 because everyone started running out of money.
Zaid Rahman:
Yeah. It was a crazy time looking back at it. It was only like two and a half years ago. So, it was like not that long ago.
Turner Novak:
Well, even Zurp was like a peak was four years ago.
Zaid Rahman:
Yeah, crazy.
Turner Novak:
It literally is November, December ‘25, literally four years back to the top.
Zaid Rahman:
And so just like looking back at that period, we raised a seed round and we had spent a lot of time building this engine and figuring out what customer to go after and what band of revenue we want to focus on and the credit models, specifically on that first product, which was the business credit card that gives you 60 days on every transaction. Then the bear market starts and no series A firm wants to invest in fintech. A lot of our fintech peers were getting significantly revalued with massive valuation haircuts and those types of things.
Turner Novak:
Public comps were down 80, 90% depending on the company sometimes.
Zaid Rahman:
Yeah. Yeah. There was just a lot of misunderstanding. If you look at Affirm and Klarna and those types of companies, they’re doing pretty well now in the public markets. Yet you go back to 2023, 2024. Some people thought that these companies would go bankrupt based on the headlines that CNBC and others were publishing. So, in that period of time, it just took a lot of resilience because we knew that this customer exists.
We knew that our customer is extremely valuable. We knew that if our customer adopts multiple products with us, they’ll stay with us for a long, long time. So, it just took a lot of wrangling of like putting together a series A and putting together that first debt facility. To be completely honest, there’s a high degree of probability we wouldn’t have made it beyond that point.
Turner Novak:
You’re saying if you weren’t able to pull that off?
Zaid Rahman:
Yeah. If we weren’t able to pull off, thanks to our friends who came in the series A and Saxon from Florida, funders who have led that round alongside a couple of investors like New Lens, which is Jan Coombs’ venture fund and companion and a few others. When they came on board, we basically were able to put together enough equity capital that’s needed to go close these debt facilities. Since then, we haven’t looked back. I mean, we’ve gone from near zero in transaction volume in July of 2023 to now we’re doing billions of dollars 4X-ing year over year. So, I think from that standpoint, it just goes to show that this game is about surviving. If you can survive long enough, good things will happen.
Turner Novak:
So one thing you just mentioned was you put together this series A. Was it hard? I guess, of course, it was hard, you just alluded to it, but how did you pull it off? Because it was in the pretty much depths of the fintech payer market.
Zaid Rahman:
To be honest, a lot of venture is who you know. In that context, hearing from my friends who were having difficulty fundraising, running fintech businesses, I actually made the decision at a time, which at the time was pretty controversial. I actually skipped going to a lot of the bigger VC firms and went to people who knew me really well.
Turner Novak:
So this was Florida funders?
Zaid Rahman:
Yeah, yeah. So, specifically Saxon there who I knew well from just a bunch of different contexts, I called him up and said, “Hey, we’re building this company and we have some pretty good beta traction. There’s a pretty formulaic model here where people want this and we need the right equity debt stack to make this happen.” He took a leap of faith and that was like the depth of the bear market trough, if you will. Since then, I think that round was done at like, I want to say, 40 million pre-money or something like that, right?
Turner Novak:
Yup.
Zaid Rahman:
And company has grown considerably since.
Turner Novak:
Yeah. Yeah. I think I invested three different times in three different rounds. I have three line items on my spreadsheet. So, hopefully this works out for me. I’m pretty deep in Flex at this point. I know it was pretty significant to land your first big customer. Did you have “small customers” initially or how did that evolve over time?
Zaid Rahman:
Yeah, no, it’s an interesting story. So, when we first launched, and this is akin to any startup launching their product, right? So you go out and you have a bunch of small customers who are mostly your friends, right? You’re calling whoever you know in your phone book and saying, “Hey, try this thing.” So we had a couple dozen small customers that were just doing a favor. We started seeing early traction where some of these friends were then referring us. So, we realized referral channels was a huge channel of growth for us at the time, referring us to other customers. We got this random very large customer in the logistics industry that does $150 million in revenue at the time. Since then they’ve grown as well.
Turner Novak:
They were referred in?
Zaid Rahman:
And they were referred in. That particular customer came on board and we didn’t know them. We actually did not know anything about their industry. They were in a pretty niche part of logistics and they came on board. They basically helped us build the early version of our expense management product where they wanted us to use our Net60 credit card in tandem with expense management for buying a lot of supplies that they need wholesale. They have this business that’s pretty interesting where they buy stuff wholesale and then they sell at retail to a bunch of smaller retailers. So, not everyone has the ability to buy products in large quantities for very, very large Fortune 500 businesses, like think your large electronics manufacturers and those types of things.
Turner Novak:
So they’re like a middle level wholesaler serving a lot of smaller retailers.
Zaid Rahman:
Exactly, exactly. So, they wanted working capital to further expand their business, but they also really needed expense management. So, they became a marquee client and since then they’ve grown considerably with us, but they then introduced us to 10 of their friends. Then something like six of their friends became customers of ours. They’re all very large and they all happen to be on this one street in Houston.
Turner Novak:
Okay. That was actually where you guys first launched, right? So in Houston, I remember.
Zaid Rahman:
Yes, yes, yes, exactly. Actually, this was embarrassing looking back at it, our initial brand was really terrible. It’s like orange color.
Turner Novak:
We didn’t think it was that bad.
Zaid Rahman:
Yeah.
Turner Novak:
Maybe it was good for construction.
Zaid Rahman:
Yeah. Well, I guess I’m pretty self-critical, but it was like for construction companies and we were like, “Okay, Home Depot is a construction business. Let’s have a variation of that color.”
Turner Novak:
It was like a darker orange than Home Depot, right? Slightly darker.
Zaid Rahman:
And yeah, so they came on board and they started referring us to other customers. That was also our first big non-construction customer because we had a bunch of smaller construction businesses using us at that time. So, that what really paved the way for us to think bigger beyond the construction industry. We also realized from that interaction is if you do well by one of these middle market companies, they will bring 5 to 10 of their friends on board, either directly via in products of distribution, they send an invoice to a customer and/or they pay a customer using our bill pay functionality or they literally tell their friends, word of mouth. So, 85% of our growth happens through organic channels today.
Turner Novak:
So this is events, word of mouth.
Zaid Rahman:
Events, word of mouth, and referral channels.
Turner Novak:
What’s the weirdest part of the customer acquisition strategy? Is it the event?
Zaid Rahman:
Well, there are a bunch of weird things. The entire thesis around Flex is that someone said, “What do you think about product focus?” I said, “I don’t really give a shit about product focus.” Where we really, really care about is customer focus. So, we have a very, very narrow customer profile we serve, which is this middle market business owner, doing call it $3 to $100 million in revenue, right?
Turner Novak:
Why is that so significant? Why that band?
Zaid Rahman:
Yeah. It just happens to be the band beyond which big banks don’t think of you as a small business anymore.
Turner Novak:
So once you cross $3 million revenue, they’re like, “You’re a big company.”
Zaid Rahman:
Yeah, you’re outside our credit box and we need to do real underwriting on you and those types of things.
Turner Novak:
And it’s just not worth it.
Zaid Rahman:
Yeah. Yeah. Then beyond $100 million, bigger banks come back into the picture because it’s big enough that they are interested in those types of companies and there are lots of fintechs building piecemeal workflows for those larger businesses. So, we had this thesis that broad products, very narrow ICP. So, in order to win these customers, you had to do a lot of weird things. So, it is pretty weird to build so many products at once. We got a lot of advice from VCs that, “Hey, you may be building too many things,” which is one of the reasons why we’re winning today is actually because we’ve built this multi-product ecosystem across multiple entirely different workflows that all work well together, which is leading to our average customer using four plus products.
So, the other weird thing we did was we realized that actually spending a lot of money on digital marketing, which we do, is not the best way to acquire customers because the CAC over time just gets worse and worse and worse, right?
Turner Novak:
Plus you’re probably advertising to not the prime borrowers. Somebody Googles, give me a loan and you’re bidding for that ad space.
Zaid Rahman:
Right, right. There’s certainly an adverse selection, right? Now look, we as a company don’t mind saying that we’re not for everybody, right?
Turner Novak:
You turn a lot of people down?
Zaid Rahman:
We turn a lot of people down. Our acceptance rate is 3%.
Turner Novak:
Oh, still. Yeah, I remember it was like 3% a year ago.
Zaid Rahman:
It stayed pretty consistent. I mean, a lot of people have said, “Oh, over time, will you just approve a lot more customers?” We’ve often said no to that. We don’t want to be a platform that can be used by anybody because we want to serve the customers who become customers and go through our whole system really, really, really well, almost like a private bank. So, that thesis has led us to this customer acquisition strategy that is very community based. So, we’ve set up localized, we call it, city managers, where we literally hire city managers in Middle America to go and acquire the seed network of customers in that city. Then those customers then refer net new customers to us.
Turner Novak:
So is that person an account rep? Are they like a lender? Is it like an events organizer? What is an ideal person? If I’m a person in Phoenix or Denver, who would the ideal person look like?
Zaid Rahman:
Well, we’re hiring a bunch of city managers right now. Some are more on earlier part of their career where they’re really good at community management and they have a community-oriented job where they’re hosting events and they’re a pillar of their community. Then we have other folks that are really well known as folks who can solve problems for business owners. We bring them on and give them the resources to really expand that community outreach that they already have and build a much larger ecosystem of customers that they could work with. So, we have a spectrum of people all the way from younger folks in tech working community jobs all the way to bankers from larger regional banks joining us.
Turner Novak:
What seems to be the best fit at those roles? Is it somebody who enjoys talking to people that enjoys problem solving? Who seems to be best fit for those?
Zaid Rahman:
It’s become really popular now, right? The phrase around founder mode, right? We need every single person at Flex to have founder mode abilities, right?
Turner Novak:
What does that mean?
Zaid Rahman:
And so what that means is the ability to see a problem and figure out a solution with absolutely no support whatsoever is a very unique skillset.
Turner Novak:
That could sound miserable to some people trying to do that.
Zaid Rahman:
Right. It sounds very exciting to people who want to start companies. Actually, we tell people all the time that, “Hey, if you want to start a company, come to Flex for a couple of years, do a bunch of founder mode projects, and then go start another company.” So that happens all the time. So, our thought process is that we want these self-starters who can own the mission end to end. I think the founder of Revolut said this phrase, which I really liked, the best people are the types of people that are self-guided missiles.
Turner Novak:
What’s a missile?
Zaid Rahman:
Like a self-guided missile.
Turner Novak:
Oh, missile.
Zaid Rahman:
Okay. Yeah. Did I say that wrong?
Turner Novak:
You said missile.
Zaid Rahman:
Yeah. I think that’s the Indian way of saying missile, right?
Turner Novak:
Oh, fair. Did you grow up speaking English? When did you first learn English?
Zaid Rahman:
No, I went to an English medium school, but my parents speak Hindi. So, my mother tongue is Hindi, right?
Turner Novak:
Oh, fair.
Zaid Rahman:
I moved to the US when I was 18.
Turner Novak:
You have a little bit of maybe British accent?
Zaid Rahman:
Yeah. It’s like a Dubai accent. You have people in Dubai, folks there have this international accent because they went to an international school.
Turner Novak:
I have a couple friends that are British Indian. You have a slight flavor of that, but not quite. I guess to the point, it’s the Dubai accent, which I guess I don’t know too many people that grew up in Dubai.
Zaid Rahman:
Yeah. You’ll find people from Dubai, Hong Kong, Singapore, places like that have this amalgamation of accents.
Turner Novak:
Hong Kong throws me off a bit sometimes because it’s kind of Australian, it’s kind of British, but they also have a little bit of a Chinese accent sometimes because usually you grew up speaking Mandarin or Chinese.
Zaid Rahman:
Yeah, makes sense. Dubai has a lot of Filipinos.
Turner Novak:
Oh, I actually did know that. Yeah.
Zaid Rahman:
Yeah. It’s got a lot of Indians and then a lot of Filipinos and then it’s got a lot of Europeans, and so you blend these things together, it becomes a pretty unusual accent.
Turner Novak:
I actually saw this one. This is a complete sidebar, but I’m going to try to find this video and stick it in the show notes for people. I saw this one. There’s this guy on TikTok who, he finds people’s accents and it’s all Americans. So it’s like an American, and one of the videos was a woman who, I think she was from somewhere in Florida, was west side of the state, middle of the state, Florida, Sarasota maybe.
He pinned down her accent, but she talks and she’s just like, “Where do you think my accent is from?”
And this guy, it’s one of those investigative three minute videos where he did a bunch of analysis and pieced together. And he literally pinpointed two places. He’s like, “I think you’re in Northeastern North Carolina because of this or this part of Florida.”
And she responded, she’s like, “That’s it.”
I was like, “Holy shit, that’s insane.” Even in the US, we have such different accents.
Zaid Rahman:
Wow, that’s crazy.
Turner Novak:
I’m in Michigan, we’re both in Michigan right now.
Zaid Rahman:
I feel like you can tell. I’ve started to gather the American accents. You can tell if someone’s from New York or someone’s from Los Angeles. It’s very, very specific variations. Miami too, you have the Hispanic Spanish, they call it Spanglish, you mix the two.
Turner Novak:
One thing you mentioned actually I wanted to hit on, you guys rebranded the company about six months ago.
Zaid Rahman:
Yeah.
Turner Novak:
It used to be called Flexbase, and now it’s Flex. What was the decision to rebrand? You changed the colors. You’re dark green now. You should be-
Zaid Rahman:
Yeah, no, it’s a really interesting exercise. First off, we had really hard time figuring out what we should call the company when we first started it, right? Initially, we knew we wanted to build something in FinTech, but the first vertical was construction. And so this is the stupidest thing. The way we came about naming it was we thought construction as a base, a foundation. And what if this FinTech was the flexible base to a construction business? That’s how we named it Flexbase. And I’m not making this up, but in 2023 when we just closed our Series A and we’re gearing up to do a rebrand of the colors and those types of things. What was funny was I was listening to the song Rich Flex from Drake.
Turner Novak:
Okay. I haven’t heard that one.
Zaid Rahman:
And I was like, “Why the heck are we called Flexbase? We should just be called Flex.”
And what’s funny is that it was a random moment. And at the time, to be completely transparent, we put very little thought into it, but then it just stuck. Customers like, “Oh, Flex. We get that.” And a lot of customers do think of us as this Flex as in flexible, and that’s grown over time.
So a lot of our products, and in fact, even our user experience where you can gamify the way you pay back your card and those types of things is around this principle around offering flexibility to customers. And then the other thing you asked about colors, this piece we’re pretty methodical about what the feel of the brand should feel like. One of the aspirations we had was this needs to be a consumer grade experience and should have a consumer grade brand feel to it, but we didn’t want to be a brand that was too mass market. We did want to have an affluent feel to it. And so we started researching a lot of brands that described themselves as quiet luxury. These are like clothing companies and whatnot that are going after.
Turner Novak:
That’s an example.
Zaid Rahman:
An example of this is, I’ll give you a random one. I can’t believe I’m talking about this actually. A random example is Wall Street Journal did this article on the most worn shoe billionaires wear on private jets.
Turner Novak:
Okay.
Zaid Rahman:
And it’s the Zegna shoe.
Turner Novak:
Never heard of it.
Zaid Rahman:
Yeah, it’s like this-
Turner Novak:
Quiet luxury, I guess.
Zaid Rahman:
Yeah. The whole point is it’s not super well known. It’s very comfortable and looks good, and it has a premium feel and aesthetic to it. And so a lot of that is being very neutral with your color palette and your typeface, it gives you an immediate recall that this is an institution I can trust, but still have elements of it that is modern and has elements of speed and reliability and it just works. We actually, I think we’re one of the few fintech companies branded in a classic motif.
Turner Novak:
Yeah, that’s a good way to describe it. Yeah, it does because when I think of most fintechs, I say, “Oh, that’s a tech company”
Versus with Flex, I think of like, “Oh, that’s private wealth or a private bank almost.”
Zaid Rahman:
Yeah. And our tagline plays into that as well, where we really believe philosophically that we want to help business owners succeed so our tagline is, “Flex fuels ambition.”
And so when you think about that just from every aspect of the brand, the way the brand looks and feels to the way our products work, it’s all around fueling ambition. And part of that, our business owners, going back to how we started this podcast, right? Our business owners frankly just don’t care about how amazing your solution is because they’re busy people, they’re building incredible companies. Their expectation is your product should just work, the Steve Jobsian thing, it just works. And so it’s really important for us to think about the brand and the product experiences in that like, how can we build the best customer experience that just works for our customer and they don’t need to think twice about it.
Turner Novak:
Is customer happiness something you guys think about a lot?
Zaid Rahman:
A lot. Our first and foremost value is making the customer happy, and we’re willing to do that even if that means working on Thanksgiving.
Turner Novak:
Yeah, this podcast is being recorded the night before Thanksgiving.
Zaid Rahman:
Yeah, exactly, right? And so I see on X all the time working 996. If you’re working 996, something’s wrong with it. You need to work seven days a week.
Turner Novak:
You should be working 9:00 to 12:00, 9/12/7 or something like that.
Zaid Rahman:
Yeah. Well, at least 997, something like that. And so our view is that our customers are really busy people. They’re running affluent businesses. They’re also not the types of people who necessarily are early adopters. They’re not the types of people who are going out of the way to adopt the first new tech thing that came out. And so from that standpoint, it’s really important that our customer success teams do an incredible job of making our customers really happy. And so we have this contrarian thing where we slightly overhire account managers at Flex just to provide incredible customer service.
Our customers, believe it or not, you can make the best piece of UI. You could build agents that do all your taxes for you. The thing that they will remember is when they needed something, they picked up the phone and called a number and someone answered in two rings. We’ve really optimized our entire servicing team for that rapid response and really track time to first response and time to resolution on any issue that pops up. And then over time, building software to completely eliminate that from ever happening again. And so combination of these things is really, really important.
Our Head of Customer Experience, Ewan, who runs that team will tell you that we just spend a lot of time, often at inconvenient times, figuring out how to deal with these customer problems. We’ve had issues where customer wants to send a $10 million wire in the middle of the night to China and they need to make that happen, and so to the extent we’ve been able to provide them the rails to do it, we will do it.
Turner Novak:
Yeah. Ewan was telling me too, who is, I think by the way, my account manager, I’m probably the smallest customer and I also have a direct texting relationship with the Head of Customer Experience, I think his title is.
Zaid Rahman:
Yeah.
Turner Novak:
He was telling me that you’re also the top salesperson at Flex, which I guess he’s like, “Oh, that’s really surprising.” So why are you still jumping in the sales calls all the time, because don’t you have other stuff to do?
Zaid Rahman:
Yeah, no, I’m kind of unusual where I like to be super involved in the weeds of the business. Every founder has a different way of operating, and my whole thing is that there’s so much data that a customer gives you. Every time I have a customer conversation, it’s an opportunity for me to learn what their problems are and I’m trying to figure out if there’s a pattern amongst customers that we can abstract away with new products or new features. And that’s not possible if you’re not really close to the customer. And so in order to be really, really good at product, you need to be really, really good at talking to customers and helping them and retaining them over time. I view my job as talking to customers and building products, and so the only way you can do that is being a pretty good salesperson over time.
Turner Novak:
And a lot of times that’s what sales ultimately is, is just like, what’s your problem? How can I solve it really at the end of the day? Do you guys have any custom tooling that you built on the internal customer getting data point side are you using off the shelf? There’s a lot of these customer service AI tools out there.
Zaid Rahman:
Yeah. You know what’s crazy is that actually this is one of our more contrarian decisions. We’ve done a lot of stuff that, this is not the best practice, why are you doing it? I believe, I was saying that if you’re ever interviewing someone and they use the phrase best practice, they’re probably not a good hire. And so we do a lot of stuff at Flex that often will question what the norm is. One of the norms is that a lot of people will use third party dashboarding tools and use no code solutions to put together an internal tool to manage customers or things like that. Even companies at scale, frankly. And so we were unorthodox where literally at the seed stage, we built this internal platform we call Alfred.
Turner Novak:
Oh, I’ve seen that in the board decks before.
Zaid Rahman:
Yeah. And so if you think about Alfred, it uses the same UI kit our customer products are, so it looks just as good as our customer facing products, but it’s only for internal operations. We do everything from originating loans to approving customers across multitude of products we have, to servicing them, to building gamification so that they use our products further to building new types of risk controls and monitoring fraud and even building LLMs to give us context on customer conversations and transactions customers are doing and how we can help them even better and identifying opportunities to our salespeople to sell more products to our customers. And so all those things is powered by Alfred, which has become an unfair advantage to the companies.
So as we scale, our Alfred team basically is responsible for being the nucleus of the company where a lot of new products wouldn’t be possible if we didn’t have granular control that a non-engineer could log in and manipulate how a customer behaves on the platform. That wouldn’t be possible if we didn’t have this robust internal tooling. It’s a pretty contrarian decision that was even internally non-consensus.
Turner Novak:
Did you want to do it initially?
Zaid Rahman:
Yeah, I actually pushed for it. Some people are like, “Oh, couldn’t we just use something like, nothing against these companies, but couldn’t we use a combination of Salesforce, Airtable and Retool?” Airtable, Retool, incredible Silicon Valley companies. But the problem is that it creates a culture of, if you want to create this vertically integrated platform for your customers, you need to control every single part of that. Like going to the philosophy of an Apple, like that. An iPhone is just as pretty on the inside, which no one sees as it’s on the outside.
Turner Novak:
Is it? I didn’t know that.
Zaid Rahman:
That was the philosophy of Steve Jobs, right?
Turner Novak:
Oh, interesting. Okay.
Zaid Rahman:
Yeah.
Turner Novak:
I got one right here, we could take it apart.
Zaid Rahman:
Yeah. Actually, Jobs believed that you shouldn’t take it apart, so he actually made it really hard for you to open your MacBook and those types of things. And I think the same kind of philosophy applies to banking. If the internal tooling is not good, when a customer calls in the middle of the night and something’s not working and you don’t have the right tooling, foundationally, it’s actually quite hard to help them solve their problems.
Turner Novak:
You almost make it more fun to help them when the products you’re using internally is good. I remember when I worked at the bank, the things we used to look things up were not the most elegant products in the world.
Zaid Rahman:
I can’t-
Turner Novak:
Even remember the names of them because they were nameless, faceless, ugly products, sometimes hard to use. Couldn’t search. For example, I don’t think you could search for transaction. I couldn’t search Burger King or whatever. I’d literally have to go through click page numbers and you’d maybe have to copy and paste into Excel. This was obviously 10 years ago at this point so maybe no one had that back then.
Zaid Rahman:
One of our principles is we like to ship user experiences that have zero UI.
Turner Novak:
What does that mean?
Zaid Rahman:
Basically as little software as possible that’s customer facing to do a specific task. For example, if you want to send a wire, can I send a wire in three clicks? Even the verification of that from a control standpoint is seamless and very simple and feels like you’re doing a Venmo transaction. That’s not possible if you don’t have robust controls that are on the other end of the spectrum where internally you can monitor these transactions and double click on anything that stands out.
The other part of the zero UI experience is, unfortunately or fortunately, our customers are the types of folks that may not even want to open the software because they just want to talk to a human to solve a problem. There’s a certain kind of ICP that is not biased towards just picking up the app or web app and doing something. And in that context, I think there’s a huge opportunity for us where we’re building agents where a customer says something and the agent basically does it using the internal tooling that we’ve built on their account, which is really, really hard to do if to do the right API integrations and those types of things would take a long time. But then you build agentic workflows for the customer support team so that either a human responding or even like an agent responding could resolve a problem much, much faster.
Turner Novak:
It’s me saying, “Hey, I want to send this $10 million wire to China.” And there’s an AI can swap in and it’s also fully connected to all the internal system because it’s all built in a seamless way, so in theory, maybe an AI agent could handle, the software could actually handle that request, not you want it, 2:00 AM, whatever.
Zaid Rahman:
Yeah, exactly. I mean, in that context, we would want you to be the one originating that transaction so we would ask you to log in to confirm your identity, but even in that context, there’s a lot of clicks that happen with these types of basic workflows. I’ll give you a simple one that comes to mind, changing your address. So actually, there’s a lot that happens. There’s a security concern, there’s a user experience problem. Why are you changing the address? Are you just changing your business address? Are you changing the card issued to you as the business owner? Do you want every single employee’s address to change? Simple kind of thing like that.
Turner Novak:
And that’d be a classic, if I hacked into your account, first thing I’m doing is changing email and address so you can’t get any records.
Zaid Rahman:
Exactly, so how do you create user experience that is intuitive, right? It’s as few clicks as possible, especially if you’re using our customer support or something like that. You’re able to do those things without you having to log in and having to figure things out, and so it’s like come handy. The internal tooling has come handy in ways that we didn’t even expect. And the place that where it truly shines is underwriting. When you take all that unstructured content and you feed it into this beautiful user experience, the experience is so robust. It almost looks like an investment bank report on a business, like a sell side report that you’d put together like a memo on a company.
Turner Novak:
I have to do that manually in Word. Spread the financials in, I forget what the name of the software was. Maybe you’d have to make an Excel spreadsheet one off for each customer.
Zaid Rahman:
Yeah. Now imagine doing those one-off Excels and writing these memos on Word where now the software is doing it and there’s the feels for manual input that we’ve built. It’s so good that we realize we actually have a very deep understanding off the business and the business owner. If you have such a deep understanding of the business and business owner, why not tell them those insights so that they can get better? And so early next year, giving something away, we’re launching owner insights, which will take all of this underwriting intel that we have built and package it in a consumer grade experience that reads like a report that business owners get for free with actionable feedback on elements of their business that need to be improved.
Turner Novak:
Interesting. So why don’t you sell this software? Why do you go through this whole headache of acquiring all these customers? You should sell this software to another company that wants to do the same thing.
Zaid Rahman:
Yeah. No, I think maybe it’s a philosophical thing, maybe it’s like a character flaw, not sure. We think that in order to provide incredible user experiences, you need to control the end-to-end workflow. In order to be the best sort of financial advisor, you actually need to be a pretty good credit underwriter, and in order to be a pretty good credit underwriter, you actually need to do credit as an example. So there are also all these interlink pieces and our customers really appreciate that focus on vertical integration, which again, it’s really hard to build these vertically integrated companies. It’s easier to just pick a lane and keep iterating on that lane versus pick a bunch of lanes and figure out how to integrate these lanes together and create these seamless experiences that follow the entire life cycle of the customer.
Turner Novak:
Was there a moment where you felt like you guys finally had product market fit?
Zaid Rahman:
Yeah.
Turner Novak:
I think was there or are you thinking about it right now?
Zaid Rahman:
No, that definitely was. I think we knew even before we launched in... So we launched in July of 2023, we had beta customers starting 2022, right?
Turner Novak:
So what does that mean, beta customers versus actual?
Zaid Rahman:
Yeah, just friends of ours were using an early version of our credit card. There’s so many problems with that early version.
Turner Novak:
And what were some of the issues?
Zaid Rahman:
Opening the kimono here a little bit, I haven’t talked about this for years. The first card was built on just like in the FinTech space, you have all these fintech infrastructure companies that help you launch products really quickly. And in 2021 and 2022, there was a lot of hype about these fintech companies that could help you launch card products and banking products and those types of things. We launched this first credit card product on Stripe completely on their rails with like basically no rails built in-house. And they were just, that experience, no dig on Stripe, they’re an awesome company, but it was really just designed for a very different use case than fitting it into this 60-day credit cycle that we wanted to use for. And so there are occasions where the card would decline because we did something wrong on our end and so on and so forth.
And so that actually meant that we had to completely scrape using third party platforms and actually have to build an in house end-to-end stack that we are the program manager, we control every single element off the transaction and we work with bank partners directly. And so that was like a whole journey itself. It was not an overnight thing. It took a while to go through that transformation, but product market fit, to answer your earlier question, is not like a data point, it’s a feeling.
Turner Novak:
What was the feeling like for you?
Zaid Rahman:
You know it when you have so much demand that you don’t know how to keep up with it, right? You know it when there’s a market pull that it doesn’t feel like you’re rolling a boulder up a mountain. In our business, we offer net 60 credit terms, our wedge product, right? That’s how we started and since then we’ve expanded, but that product required credit. It turns out you need to raise credit facilities for that.
Turner Novak:
What was that like?
Zaid Rahman:
What’s crazy is that we had so much demand that for something like four or five months, we were not able to onboard net new customers.
Turner Novak:
Because you were just funding this off the balance sheet with equity, right?
Zaid Rahman:
We were just using equity balance sheet. And then the 2023 FinTech winter started and that made things really, really challenging. And so we had to effectively pause net new customers for a while and still, we were growing with existing customers. We were using our balance sheet the best we could and paused hiring and those types of things. So really created a actual, almost like financial engineering problem, which was really interesting. But what was clear to us was it felt like imagine like a restaurant, I don’t know, like a bagel shop or something like that, and they’re selling bagel sandwiches. And I don’t know, the New York Times or something like that has written a positive article on them and some famous influencers posted them and now there’s a 10-block line outside that bagel shop. And the cook in that restaurant is like, “I can’t keep up. I don’t have enough ingredients, too many people, I don’t have enough staff.”
We use that analogy a lot at Flex. It felt like we were this hot restaurant that had just a lot of demand and we just couldn’t keep up with that demand. And so I think going back to FinTech companies that don’t work out, right? A lot of our learnings came from companies in 2023 that had to shut down. They were forced to. And the learning there was you also have to manage growth correctly.
In this industry, unfortunately, you could do things that are irreversibly wrong. There’s no way you could come back, so you cannot mess up risk, you cannot mess up legal and compliance. To go fast, you have to go slow first, we had to actually slow down for a few quarters to catch up both in terms of product infrastructure to make sure there was not a super buggy experience. When you swipe your card, it goes through all the time.
Turner Novak:
Declined. Yeah.
Zaid Rahman:
Yeah. And I think you were one of the early beta customers, I don’t know if you remember this, but we emailed you a couple of times that, “Hey, sorry about the card declining. We made a mistake on our end.”
Turner Novak:
That definitely did happen sometimes, yeah.
Zaid Rahman:
Yeah, so in the early days, there’s a lot of stuff like that. So in order to really build a system for scale, once we realized there’s a ton of demand, basically almost shut down the door, kind of like a restaurant shutting down for a quarter to rebuild the kitchen and set up the right kind of processes and infrastructure, and then reopened after the Series A and then just hit the gas from there, and we’ve had gone from zero to several billions of dollars in payment volume pretty rapidly since.
Turner Novak:
And so what is it like raising a credit facility versus raising equity? Is this debt versus equity? Can you just help people understand maybe if they wanted to figure out how to do that, what’s the difference and just like how that works?
Zaid Rahman:
For context, we just closed $60 million, which we just announced today. As our Series B, that brings our total equity financing to date to 105 million, and we’ve raised two credit facilities to date, which would bring our credit funding to $300 million. And so the difference between equity and debt, to answer your question, is equity is all about storytelling. I mean, yes, there’s diligence, yes, you want to look at numbers and you look at a data room and those types of things, but raising from venture capitalists is, are you building a big thing and does this have the possibility to be a hundred billion dollar company as an example, right? With credit-
Turner Novak:
That’s basically what you said to Saxon, you’re like, “This is working. Trust me, we just need some money.”
Zaid Rahman:
Yeah, no, honestly, the conversation with Saxon, it’s actually hilarious. The convo with Saxon was like, “Look, I feel like I have a restaurant that has a lot of demand and I can’t keep up with the demand and I either shut down the restaurant or have the right capital stack to go and solve that problem.”
It was a two-part problem. The one problem was having enough equity because the credit folks are looking at two things. They’re looking at how much equity the company has, what is the balance sheet of that business? And they’re also looking at what is the sort of quality of underwriting of that business. So unlike lots of different types of debt, we play in this very specific niche called asset-based finance where effectively they are funding the underlying receivables that is originating from credit cards and loans and those types of things.
Turner Novak:
So basically, you’re almost like a middleman for them, or you’re helping them reach all your customers really at the end of the day.
Zaid Rahman:
They’re raising billions of dollars from LPs, then they’re giving it to a bunch of fintechs like us and any others in the space that have raised billions of dollars as well. They give them the capital to then go originate and find these smaller sort of buyer of that debt.
Turner Novak:
Logistics company.
Zaid Rahman:
Yeah, random logistics company doing wholesale in Houston, right?
Turner Novak:
Yep.
Zaid Rahman:
The challenge at that point was that we didn’t have the right equity stack, given that there was a VC bear market for FinTech companies, and we didn’t have much performance history on our underwriting and risk and compliance and those types of things. Both of those stories required a lot of leap of faith, but we were able to pull it together. Then over time you build a book and then you show to the debt capital markets that you know what you’re doing. At that point it becomes a numerical thing where once a week, I think every Thursday, we send out a report with all our numbers to these debt investors, and then you use that to then go raise even more debt and reduce your costs of capital and enjoy economies of scale and those types of things.
Turner Novak:
Yeah. Well, you mentioned you’ve done a couple of things maybe that were a little bit non-consensus. Are there any other things you’ve done that you think probably not the most consensus thing?
Zaid Rahman:
It’s hard to answer what is consensus and not consensus.
Turner Novak:
What about in FinTech more broadly? Is there anything you disagree with or...
Zaid Rahman:
First off, in order to build a great FinTech business, you also need to build a great business. The heart of building a great business is hiring the right people. There’s a lot of learnings. This is my third company. I’ve been building startups for 12 years, something like that. In that period of time, there’ve been a lot of highs and lows. The common denominator of low moments turning into high moments was having the right people around you. It’s really, really important to get this recruiting off a company really, really right. There’s just a lot of effort we put into our hiring in general, and we’re the type of company that actually doesn’t like to hire. We have a very high bar and low acceptance rate, if you will.
Every single person at Flex who’s full-time goes through a final interview with me, which often annoys many of my colleagues, but it’s almost like a gamification mechanism where you want to almost create this kind of artificial barrier to just hyper-growth in headcount, where you want to prevent people from hiring way too many people too quickly. And then you also want to ensure that the quality of candidates coming your way is really, really high. You hear folks like Sergey Brin, Mark Zuckerberg, et cetera interviewing people until there were nearly a thousand employees. That’s a lot of interviews, because in terms of final interviews, maybe one in three candidates go through. From that standpoint, I’m saying “No” a lot. You have to literally interview hundreds and hundreds of people every year in order to get to the point you want to be. Does that slow things down? Absolutely, and that maybe is non-consensus, but does that improve the long-term health and quality of the team and long-term durability and endurance of the culture? Absolutely.
Turner Novak:
What is the culture at Flex?
Zaid Rahman:
If I were to pick a single word for Flex culture, it is intense, and if I were to pick a sentence, the culture of Flex is really, really intense with a strong focus on first principles thinking, because there’s so many distinct problems that we’re solving for now. It really requires you to think outside the box and how can you solve for these problems by zooming out and thinking through the first principles. There’s an Elon quote that we really like at Flex: “Everything is a recommendation unless it’s a law of physics.”
From that standpoint, if you think about it, you hear about hiring practices and best practice for this and that. How do you actually question the norms to build stuff that actually works? We’ve made a lot of decisions that, frankly, even in FinTech, for example, even lending, a lot of people want to stay away from credit. There’s no first-principles reason for that. There’s demand for this. People have done well, i.e. big banks and incumbents. Why can’t you do it as well? Building that engine requires a culture that’s willing to question these truths that just percolate and no one questions them.
Turner Novak:
Speaking about lending specifically, because, yeah, it’s a good point, you got that from a lot of investors, right? It’s just we don’t invest in lending businesses, period. We’re not even going to entertain this. Why is that, if you were to dissect why somebody might think it’s not a good company or not a good investment?
Zaid Rahman:
When you think about venture capitalists, venture capitalists are looking for large distribution and large amounts of revenue generated from that large distribution. But what has incredible demand that could generate that incredible amount of distribution? Turns out it is credit. The world works on credit. Every transaction you do has a credit underpinning to it.
Turner Novak:
If every single transaction was required to be settled right now today, the world would be bankrupt.
Zaid Rahman:
Yeah. The world would end. What’s crazy is that what most people don’t realize is that most credit transactions actually are private credit transactions.
Turner Novak:
What does that mean?
Zaid Rahman:
Let’s say that you swipe a credit card. Technically, that’s not a public credit transaction. That’s a private company dealing with a private individual deciding privately if that transaction can go through or not.
Turner Novak:
So if I’m swiping my Flex or Amex, Flex is saying you’re making this purchase at Target or making this purchase at insert whatever, and you’re saying Target will pay you-
Zaid Rahman:
Exactly.
Turner Novak:
... and then this person will pay us back.
Zaid Rahman:
Right, right, or even if let’s say you hire a consulting company and consulting company says, “Pay me net 30,” that is technically a credit transaction as well. Credit runs the world, but there has been this massive philosophical scar, really built on top of scar tissue from failure, where a lot of companies have tried to build lending businesses by doing novel and innovative things around credit and failed. One of our philosophical insights was that, actually, in order to do credit well, you should not innovate. You should just do stuff that works really, really well already.
Turner Novak:
So how have you not innovated?
Zaid Rahman:
It’s like a paradox. You’re saying we’re a tech company and then we’re also saying that we’re not innovating on credit. What that means is that we’re not innovating on credit models, but we are innovating on credit processes. Can you give incredibly great middle-market business owners more credit faster, cheaper, more efficiently, more seamlessly without fundamentally changing the laws of physics around what is credit-worthy and what is not credit-worthy? We really, really focus on super prime borrowers that have incredible cash flows, that have durable businesses, that have survived recessions and survived dot-com bubbles and those types of things and still around, and will be around in 20 years from now. When you do business with those types of companies, the credit risk inherently is much, much lower, and so we’re not really innovating on that credit box. What we are innovating on is, how do you serve these companies far more efficiently?
Turner Novak:
I feel like that’s like what a lot of people say in any of these successful financial services companies that have sprung up over the past... Really, it’s just historically you’re finding new underserved customers or using technology to serve them in a new or different way. So even, what’s a company, Wells Fargo, I think emerged from... I may be getting this story wrong, but they emerged from the San Francisco fire. Basically, San Francisco burnt down, nobody wanted to touch it, and I think it was Wells Fargo that just was like, “We’ll bank these guys.” Now it’s a big public company.
Because you start serving a customer that literally nobody else wants to touch or is able to serve from... There’s probably so many banks were created when America was discovered and there’s all these European legacy institutions back in 1700, 1800s, “We don’t bank American companies.” Well, guess what? JP Morgan becomes one of the richest guys in the world just serving American businesses. Or you look at Chime, probably so many cases where somebody looks at Gen Z and they’re just like, “Who gives a shit about Gen Z? We don’t need an app. Nobody’s going to use phones.” And it turns out everyone uses a phone. Did Chime go public? They went public, right?
Zaid Rahman:
Yeah. They’re public.
Turner Novak:
Yeah. How big of a company is it? I think in the 20s?
Zaid Rahman:
Yeah, it’s a circa eight-to-10 billion market cap.
Turner Novak:
Oh, eight to 10 billion, okay. Still pretty big.
Zaid Rahman:
I might be wrong about that. Revalidate that.
Turner Novak:
I can actually probably double-check right now. That’s I feel like one of the things with anything in financial services. You want to figure out a customer that’s being underserved. What is the ticker of this thing? Chimeric, Chime Financial? There we go. Market cap, 7.5, eight billion.
Zaid Rahman:
Yeah. I got that right.
Turner Novak:
Going down, though.
Zaid Rahman:
Yeah. With consumer FinTech, it’s quite hard. You got to figure out how to acquire customers and then you got to figure out how to retain them long term. But they’re an incredible business. They’ve built a great distribution engine and just a very large customer base. On this note around finding white spaces and then tying it back to lending, what’s interesting is a lot of FinTechs, I think especially in this ZIRP era, 2021, 2022, a lot of these FinTechs emerged that were, oh, we’ll go after the underserved and unbanked segments of the market.
Turner Novak:
What would examples of those things be?
Zaid Rahman:
Underserved would be like, you have a bank account, but the bank has not really tailor-made products for you because you’re in a niche that they don’t quite serve as deeply as other niches. For example, if you think about wealth management, if you have, let’s say, $500 million of liquidity, there are quite a few solutions focused on that segment. But let’s say you have, I don’t know, $3 million of liquidity, actually, you’ll be surprised that there’s a population of these types of individuals that are in this no man’s land where they’re not rich enough to deserve the highest-end wealth management service, but also not poor enough to have just...
Turner Novak:
Robinhood?
Zaid Rahman:
Yeah, Robinhood.
Turner Novak:
You’re probably stuck using Schwab. I started thinking about it’s a premium brokerage or something like that.
Zaid Rahman:
That’s an example of an underserved customer, but then you have customers who are unbanked. These customers straight up don’t have any access to financial services.
Turner Novak:
Maybe an immigrant or a kid?
Zaid Rahman:
Right, right. A lot of FinTechs I think really went after these underserved and unbanked segments. We think that the opportunity in the middle market, like this business owner that’s high-net-worth and already affluent, counterintuitively is in the underserved segment. No one’s really, really focusing on building for them outside the community and regional banks. We think that this underserved segment is counterintuitive because they serve 40% of the bank and payroll.
You would expect 40% of bank and payroll is a large enough market for someone to tap into, but there are structural problems, regulatory problems, and then there’s problems around efficiency of underwriting these, especially pre-AI, and this bias that a lot of Silicon Valley founders have that, “Hey, I’m going to do one product and I’ll do that one product really well,” so it puts you in the silo and you’re not really able to solve the end-to-end problem, problems that acquire vertical integration, and multi-product ecosystems becomes really tough.
Turner Novak:
What do you think was the most crucial product decision that you guys made?
Zaid Rahman:
I think there are two that come to mind. The first was pre-Series A, when we initially were focused on just payments is a problem. Payment in itself is really complicated.
Turner Novak:
So this was the ARAP-type dashboard?
Zaid Rahman:
Yeah, exactly. Managing your accounts receivable and accounts payable, especially if it’s a vertical construction hich has a lot of red tape and a lot of approval, so we thought we’d build way better workflows to manage these processes.
What we learned in that first iteration, that it was not a painkiller enough. It helped a pain point, but it was not necessarily the largest pain point. We realized the biggest problem was cash flow. How can we help alleviate cashflow problems? Well, we realized, what if we give you 60-day credit? That led us to the business credit card. To this date, the 60-day wedge is our best-performing wedge. It’s doing really well. Whenever we run an ad for it, we get thousands and thousands of signups. It’s very efficient product decision.
The second major pivotal product decision for us was last year, when we realized in 2024 that our business owner combines business and personal transactions.
Turner Novak:
What does that mean? That sounds like committing fraud almost.
Zaid Rahman:
No. You have to understand, if you’re in venture, if you have VC investors, you’re technically running a corporation with other people’s money.
Turner Novak:
You can’t just take your balance sheet and just transfer yourself a million bucks. That’s not legal.
Zaid Rahman:
You can’t do that. The boundary wall is far well-defined.
Turner Novak:
Because you just own the company, and if you need money, you just wire people.
Zaid Rahman:
Exactly, versus if you’re a business owner that fully owns the business or if they’re two partners and there’s an agreement between the two partners, that dynamic is very different. We come across a lot of business owners who’ll spend $200,000 in the morning on inventory for their business, and then in the afternoon, check themself into a super nice Four Seasons in Hawaii or something like that, on the same day. In that context, you need to build a lot of products that is not necessarily creating additional boundary walls around the business and personal life, but actually integrate these things into one place. Example of this is, with the Flex Elite Card, which we launched today, you’ll be able to use a single card for all your entities and personal life.
Turner Novak:
That would actually be pretty nice. There’s so many times where... I run a pretty small venture fund. I’m not sitting on a shitload of capital. We’ll have a couple thousand bucks in the personal account. There’ll be insurance goes through, dance class goes through. My wife’s like, “Hey, can you wire more money into the account?” I’m like, “Oh, God, I didn’t realize it went that low.” It’ll be a Friday, you’re going into the weekend, you’re like, man, you don’t want to overdraft going into the weekend. But I have 20 grand sitting there in the other account or you have a million bucks sitting there, and it should all just be one.
Zaid Rahman:
Yeah, no, it’s so infuriating that you’re not able to just mesh these things together. We hear this as a complaint all the time. There’s this use case of like, “Hey, I have 20 accounts, and one account went down to zero, and now there’s a negative balance problem.”
Turner Novak:
And you get charged overdraft fees in a lot of banks.
Zaid Rahman:
Yeah. Why can’t you just reconcile these things? The same thing applies to spend. When you’re spending... Let’s say you and I have dinner right after this conversation, and after the dinner we’re like, “Hey, 50% of the dinner was work-related and 50% was personal.” Well, maybe you could allocate those transactions accordingly. So we build this feature called Flex Allocate where you can literally, via SMS, type the word allocate to us and automatically it’ll show all your entities in your personal account, and you can choose how much you want to put in what.
That simple feature solves so many expense management problems that these co-mingled business owners who co-mingle their personal and business life together have to face. Even the venture fund context, you have your personal life, you have your management entity, you probably have a GP entity, and then you have an LP entity. There may be transactions that may be relevant to more than one entity.
Turner Novak:
Only the management company and personal, because obviously LP, it’s just that is capital. It sits in my fund admin, in that grow.
Zaid Rahman:
Can you just imagine you’re doing a legal expense? Are you putting the legal expense in the management entity or-
Turner Novak:
I actually do pay it all from the management entity. Some people actually expense that to LPs. I’m like, I don’t know. I also am the person who will literally pay the lawyers as little as possible. I will say, “ChatGPT, pretend you’re a professional lawyer who charges $1,000 an hour. Tell me exactly what needs to be said,” and then I will send that to the lawyer and be like, “Can we add this to the docs?” Minimize the cost, and it’s still 20 grand.
Zaid Rahman:
Yeah, no, it’s fascinating. Think about these use cases. You just have so many different problems that a business owner that is transacting in the millions of dollars has to face that doesn’t have... One of our philosophical points that we make internally all the time is, even an enterprise, you have an incredibly sophisticated finance team, but if you’re this middle-market business owner that’s in this no man’s land, they’re not too big to be an enterprise, not too small to be called a small business, in that context, you probably don’t have a really large finance team. You may have one or two accountants.
Turner Novak:
You probably have a controller and then an accountant or something like th at.
Zaid Rahman:
Yeah, and oftentimes they could be one person and their title is ambiguous, like Finance or something like. We even see Office Managers and stuff like that. Imagine giving them the toolset that a larger enterprise would have, but just for their finances across both their business and personal life.
Turner Novak:
Talking about all this personal banking, you guys actually got into this through... you acquired a company, and you did it around when you raised the Series A, too. You can probably explain this a little bit better.
Zaid Rahman:
Yeah, yeah. The context that we did this, again, non-consensus thing. A year after our Series A, we realized that we want to build a consumer platform in addition to our business platform. We had a couple of challenges. The first challenge was, well, in order to build a great consumer FinTech product, you need a consumer fintech DNA. The team was very much designed around a B2B motion. So we noticed through self-awareness, just being introspective, realized that we didn’t have that consumer DNA per se at the time.
The second problem we noticed was that when you think about consumer, customer acquisition, it’s quite different from a B2B motion where you almost need to build a consumer brand. We were lacking that element as well a year ago. We realized that we need to go and bring new teammates on board because we were pretty convinced that this personal wedge in addition to the business net 60 wedge would work really well together.
Turner Novak:
So you thought about hiring some people initially?
Zaid Rahman:
We initially thought about hiring some people. But then what happened was through, I guess, unusual circumstances, one of our friends, they were building a consumer FinTech business that was backed by Andreessen Horowitz and a few others, had built a pretty good platform and initially going after the Latin population in the United States, but they were at a point where they were noticing in their customer base that a lot of the consumers who were coming on board were really using the product for business purposes, stuff like payroll, disbursements of payments of contractors. So they were starting to build a B2B platform.
We were shooting the shit one day and came to the idea that, hey, what if we did an M&A and brought our business platform, which was pretty large in terms of revenue scale, and their consumer platform and merged these things together and created a finance super app? Initially started as a joke, but they actually got pretty excited about this idea. Three months later, we did a full M&A with them and brought that team on board, and now they not only run our consumer team, but they also run our growth team. Luciano and Robbie, they’re great founders themselves. They came on board and joined our exec team.
We realized, in order to build this multi-product ecosystem, we have to lean into this playbook of M&A, not necessarily to grow organically, but just to add net-new capabilities. From a first principle standpoint, we could have figured this out ourself, would have just taken us a year longer to figure out who the right people were and what the right strategy is and so on and so forth. The companies have done this really well. I would say in the HR space, I would say the compound startup is rippling for sure. They’ve done this incredibly well. They have something like 40 founders acting as GMs. Deal...
Turner Novak:
They’ve done some acquisitions.
Zaid Rahman:
They’ve done a few acquisitions, right. If I remember correctly, they’ve done a dozen acquisitions or something like that. So if you think about it, FinTech is such a broad ecosystem, and across our customer, once we acquire these customers, they’re so valuable, why wouldn’t you want to solve every single problem from the time revenue enters their life to the time it leaves it as personal spend? That journey is 25 chapters, and in each chapter, there’s probably a different FinTech solving a piecemeal problem.
We thought about this as, okay, what’s the elements that we can bring on? S we’re building up this M&A playbook in addition to our core product team building net-new products and how we can merge these things together to move even faster so we can achieve things in a quarter of the time than otherwise this would.
Turner Novak:
Why would somebody sell to Flex just because, like Fiserv, publicly traded company, pretty sure they’ve acquired... I think the meme is that it’s just a conglomerate of a thousand acquired products. There’s companies out there that have done it quite a bit more than you guys, have a bigger scale. What’s the value prop that you’d be able to, I don’t know, give to somebody who might want to sell?
Zaid Rahman:
First off, Maza, the company that we brought on, they had multiple offers from much later-stage companies, including public companies, and they chose to go with us. It’s two reasons. First, would you want to go work at a large company that has a large company culture and it’s just another job and you’re just going to the beach for a year while you’re earning your earn-out and those types of things? That’s an outcome, and it’s a respectable outcome.
Turner Novak:
You probably don’t want those people.
Zaid Rahman:
Right, right. Exactly.
Turner Novak:
No offense. That’s a great life, but...
Zaid Rahman:
But if you’re a company that’s ambitious, in our case, we’re very ambitious at Flex, and you want to hire... Hire is not the right word. If you want to team with killers, you almost need to recruit net-new co-founders. In order to recruit net-new co-founders, you need to give them very large missions. And that is attractive to a certain type of founder who’s excited about building very large things and possibly having the resources to do that.
Our playbook and how we have done this is... the way we think about this is that we can bring in a team through this M&A playbook, initially offer a beta list of customers their product over the next, call it, three to six months, but over the course of six to 12 months, completely rebuild their platform with our infrastructure and our tooling, so it’s a completely unified experience. Down the line, you don’t have a situation where you have a thousand distinct startups creating a thousand distinct experiences. So creating that cohesion is really, really important, but this allows you to, when you’re in the market with a product, you’re learning data. Customers tell you what works and what doesn’t.
Even with our consumer product, we’ve had a bunch of consumers, high-net-worth individuals using us for their family spend, and they have told us, “This is stuff that we need,” and this is very distinct qualities of expense management at the family level. We’ve had to learn from those experiences, and now we can do a broader launch.
Turner Novak:
I think one interesting thing about FinTech companies in general is they all look the same under the hood.
Zaid Rahman:
What’s interesting is that the reality is that FinTech in itself is a commodity.
Turner Novak:
Giving money, basically.
Zaid Rahman:
Yeah. Sending a wire is sending a wire. It doesn’t matter if you send it with a big bank or you send it with a FinTech.
Turner Novak:
Sexy FinTech company.
Zaid Rahman:
Right. A card is a card.
Turner Novak:
Does it get declined or not?
Zaid Rahman:
Right. These individual Lego blocks are all commodities. Two hot takes on that is, the first is in order to create something unique, it is really the combination of these Lego blocks brought together in a cohesive user experience such that you’re building a better experience with the customer by integrating these things in a much better way. I think a lot of FinTechs get that wrong where they think that, oh, we’re just going to build this one thing really, really well, but we won’t do 99 other things, and that’ll be a good experience for the customer. Actually, that ends up being a poorer customer experience.
Turner Novak:
So you think you should actually be building a lot of custom tooling and software?
Zaid Rahman:
You should be building a lot of custom tooling and you should be building a lot more net new products that are adjacent to that core product because customers want a multi-product experience where everything works together, at least in the SMB. I think that goes along that is the second hot take there is most fintechs, you’ll be surprised, I’d say 100% of fintechs probably have to solve the same 50% of problems. So, stuff like KYC, KYB, compliance, regulatory licensing, and managing customer disputes and those types of things, which are highly regulated and there’s a lot of legal around it. You’ll be surprised how much of these processes look similar.
Just to give a wild example at, let’s say, a Chime, which is a publicly traded consumer fintech with tens of millions of customers who are consumers and a Ramp that is a $32 billion private market company that serves enterprises with expense management. They both have to do the same compliance and adhere to licensing and those types of things. Of course, they have different customers, so they have to solve slightly different problems. But from a focus standpoint, there’s a lot of overlap.
So, the thing that’s often not said when you talk to fintech VCs is in order to build a great consumer fintech or B2B fintech, you need to build a great financial services business, which big banks have done for decades. So, a lot of this work is really not glamorous, unsexy, and somewhat undifferentiated. You’re doing literally the same thing over and over again.
Turner Novak:
You’re saying each company is just doing the same thing over and over again?
Zaid Rahman:
Yeah, because the underlying hood requires you to do similar things that are undifferentiated. I’ll give you another example. You swipe a card and let’s say that was a fraudulent transaction and you want to report that as a dispute with the networks, i.e. Visa and MasterCard. Well, that process across a bank, a fintech, or a community bank is all the same. Some are better at managing the customer service and maybe the user experience of reporting that dispute, but the backend of that from a process standpoint is very similar. So, it’s actually crazy how much of the work fintechs have to do is unsexy, undifferentiated, boring.
I think the insight is that if you lean into that work and you build a culture that is fine with that work, and to my point earlier, innovating on making things efficient and more simple for customers, but not innovating on things that work in terms of legal, risk, and compliance, I think there’s a lot of edge that can be found. So, you’ll come across these stories in fintech where they underdid the compliance part of their business.
I heard this phrase yesterday where I was at a fintech lunch and we were commenting on another fintech’s fast growth and we were like, “Oh, you want to grow as fast as... Well, you can just fire your head of compliance.” So it’s like that type of thing can get really troubling over time and catches up onto you. That’s hard to, from a narrative standpoint, explain that to future employees, future investors, and so on that there’s a lot of work to be done that’s just like operating.
Turner Novak:
One thing I wanted to ask you about, you mentioned this is your third company, you’ve started some other companies. I actually met you from a mutual friend, Eric Bahn at Hustle Fund. He said that he first met you in like a group therapy session. What were you doing group therapy for?
Zaid Rahman:
Yeah, no, it’s funny. So, I actually recommended, it’s a leadership development thing called PathWise where 10 founders, public market CEOs get together and just talk once a month very honestly about their business and challenges they’re facing and not only in their business, but also in their personal life. The goal of PathWise is to, over a course of several monthly classes, if you will, teach you how to become almost like a mini psychologist yourself. So, I actually first learned about it from Michael Arrington, the founder of TechCrunch.
Turner Novak:
TechCrunch?
Zaid Rahman:
Yeah. So, if you tweeted about it, a lot of incredible founders have gone through it. So, you learn how to not only understand the basics of psychology and personality types and those types of things, but you also get to become more self-aware. The idea is that if you’re more self-aware, you understand your own deficiencies and your own personality type, and then perhaps you can manage it a little bit better. So, you can be a better CEO, better executive, whatever, better investor, and also possibly manage your teammates a little bit better so that the cumulative effectiveness of your organization improves. So, Eric and I, funnily enough, we’re in this group therapy session and yeah, Eric, I think, was our first seed investor.
Turner Novak:
Oh, nice. Amazing. Yeah, I know when he first introduced us, he was like, “Ah, you got to check this guy out.” Actually, when I was looking back, I feel like I’ve gotten some really great founder introductions from Eric over the years.
Zaid Rahman:
Eric is such a nice guy.
Turner Novak:
So yeah, we need to be investing together more often.
Zaid Rahman:
Yeah. Eric is a sleeping giant. He’s invested in a lot of incredible founders who are... He’s great at finding talent that’s under the radar and everyone has their edge. I think your edge is that you’re building up a media empire that could be really interesting in the early state space. Then Eric’s great talent is that finding people that perhaps are not as well discovered.
Turner Novak:
I think I actually found Eric. He did an AMA on Reddit nine years ago, eight years ago, something like that. I was trying to get a job in VC and reach out to him. I think I was already doing this, but he was like, “Oh, you should get really big on Twitter.” I was like, “All right.” I mean, this was a long time ago, but I was already working on it. Yeah. Well, I want to talk about the Thiel Fellows. I’m trying to remember when you did the Thiel Fellowship.
Zaid Rahman:
Yup.
Turner Novak:
What is that like for people who don’t know?
Zaid Rahman:
Peter Thiel started the fellowship in 2012, 2011, and his big contrarian thesis was that you don’t really need college. K-12 is sufficient to help you achieve your goals. College is a huge scam. So, he and his team select 15, 20 people every year to go through the Thiel Fellowship. The premise is they give you $100,000, which after inflation, they’ve increased $200,000.
Turner Novak:
I didn’t know that.
Zaid Rahman:
Okay. With a single condition that you have to drop out of college and they literally don’t take any equity, it’s a grant. Through that program, just for context, over the course of the last, let’s say, 11 or 12 years, there’ve been about 300 Thiel Fellows. From the 300 Thiel Fellows, something like $30 billion companies have emerged. Many very successful companies you’ve probably heard of like Figma, Loom, Ethereum, and a bunch of others.
So, it’s probably the best kept secret in Silicon Valley where point me another program that has a 10% hit rate to hitting a unicorn valuation. So, I went through that. In my class, there were a bunch of very successful founders there, but honestly, when we first started, we were just like these college dropouts. It’s like an interesting experience. We host an annual reunion in Miami every April.
Turner Novak:
This is for every fellow?
Zaid Rahman:
Yeah. Yeah. About 60% come to it. It’s just awesome seeing these folks where the Thiel Fellow could be a billionaire, very successful, with very successful company. Yet, I think the common denominators that we all dropped out of college and went straight into building companies and raised a bunch of capital and those types of things. So, it’s just been a really special bond. It’s the closest thing to a college frat, but it’s not a frat. It’s like just a bunch of builders who are actually opposite of what you would imagine a frat to look like.
Turner Novak:
Yeah. How do you get in or apply? What’s a process generally like for people who don’t know?
Zaid Rahman:
Most people apply. If you are famous on Reddit or something, you’ll be invited. So, most people apply and you go through this interview process. The interview process, it’s not like a YC, right? YC has like, “What’s your company and those types of things?” It’s a bit of that, but it’s also like understanding who you are as a person because the Thiel Fellowship is betting on you, the individual versus you, the company.
Turner Novak:
You don’t go through with like a company idea?
Zaid Rahman:
You do go through a company idea because it’s like representative of how you think and what you think about the world and those types of things. But often there are lots of Thiel Fellows who are successful with their first idea, but often it’s usually the second or third idea that is really the slam dunk. So, when you catch them early, if you will, you can see them over time and see how they develop. Figma, for example, I think Dylan has been working on this idea since he was 18 years old or something like that.
Turner Novak:
Do you have a favorite CEO or business or company or anything you’ve learned from the most over time? I mean, this could be like Napoleon, this can be IBM, insert whatever, but do you have any favorites?
Zaid Rahman:
Yeah, no. I like reading biographies of founders and CEOs in general. I’d say I’ve drawn a lot of lessons from a lot of different leaders. Obviously, there’s definitely first principles, just like learning how to think through first principles that one can learn from an Elon Musk, but then there’s like Jeff Bezos who runs really complicated operationally intensive businesses with a lot of elegance. So, there’s a lot to learn from them. I grew up in Dubai and the ruler of Dubai, this probably doesn’t come up as often as Elon, the ruler of Dubai I think is one of the most underrated CEOs in the world.
Turner Novak:
Why? So I don’t even know who that is.
Zaid Rahman:
First of all, the ruler of Dubai calls himself the CEO of Dubai Incorporated, because he thinks of Dubai as a business. You think about Dubai, right? It’s got incredible tourism, incredible buildings, infrastructure, transportation, the tallest tower in the world.
Turner Novak:
And energy business.
Zaid Rahman:
Well, energy is in sister city, Abu Dhabi, but the country at large has a lot going on and they’re very active in investing in technology and emerging frontier tech and those types of things. So, one of his sayings that really has stuck with me as I grew up is you really need a can do attitude. There’s literally nothing impossible. So, if you think about Dubai, when my family moved to Dubai just to set the picture, it was the ‘90s. In the ‘90s, most of Dubai didn’t exist. It was mostly a desert. Now you go there and you drive through the main highway and you have these really tall 100-story buildings on either side. And they’re even more cranes building even more buildings and just like this entire city that didn’t exist 20 years ago.
So, I think growing up, when you think about it from the lens of psychology, that does something to you where if you will it, you can do it. You will it to existence. So, I think that has really stuck with me, but part of that, drawing this Elon parallel is life is all about just overcoming problems. There’s so many things that go wrong. As a founder, it’s really difficult on a day-to-day basis to just constantly overcome challenges. I think if there’s one learning as a founder and when I think about CEOs and leaders that I respect a lot, the common denominator is never giving up.
Turner Novak:
What’s the hardest thing you’ve had to overcome with building Flex?
Zaid Rahman:
I think we talked about this a little bit, but pre-series A, after a seed and this 2023 bear market, it was really, really hard to get it off the ground, but there have been hard moments since. It’s really difficult. Even so far risk engine, it performs extremely well today. To build this engine, we had to learn a lot and throw a lot of darts at the wall. Just as an example, to bring on a chief risk officer who thinks a startup founder mode person and brings the best of the knowledge from the big banks, we had to go through over 100 interviews for the chief risk officer role.
That’s from hundreds of people that we screened. So, that type of thing just has required a lot of painful lessons, but they’re not necessarily existentially challenging. You’re not dying per se, but they’re still very, very difficult and that continues to compound.
Turner Novak:
It’s an interesting problem where somebody who does risk management, it’s like the opposite of startup hyper growth. Risk management is like removing risk versus startup is attacking risk.
Zaid Rahman:
Yeah. It’s a very, very challenging problem. To be honest, it’s actually a very intellectually stimulating problem. If you’re willing to dive deep into the numbers and understand the fundamentals of these businesses and the underlying individuals running the businesses, it’s a very interesting math problem. So, if you’re a math person, we interview a lot of quants. I say if you’re a math person, you really enjoy Flex. There’s so much math to do.
Turner Novak:
I mean, what’s the math? Isn’t it just like automated pipeline, just spit out some numbers? What’s the math that was in all this?
Zaid Rahman:
The math is just building the models and A/B testing the models on a monthly, quarterly basis to see what works and what doesn’t.
Turner Novak:
What kind of tweaks have you guys been making, like changes? I guess I would’ve thought they were just set and done.
Zaid Rahman:
Yeah, no, what’s interesting is one thing I learned building these things is that the way to think about it is you have to think about use cases and buckets. So, I’ll give you three separate buckets that are credit worthy individuals and businesses, but entirely different underwriting. So, one bucket might be you have a business that it’s selling plumbing supplies and has like 70% gross margin and it grows 20% year over year and has $5 million in the bank and the underlying individual has a FICO of 800, right? That’s one case. Another case might be you have a business that has 5% gross margin, but does $200 million in revenue and has extremely fast revenue growth, right? It sounds like AI company.
Turner Novak:
What company is this?
Zaid Rahman:
Yeah, yeah, yeah. Third might be company has absolutely no profit, but has incredible demand and revenue growth and has not raised outside capital, right?
Turner Novak:
So what might be an example of that company?
Zaid Rahman:
Not to go into specific customer names, but we come across these bootstrap founders that built, I don’t know, let’s use a generic one, like an ice cream brand. They secured a massive deal with Whole Foods and they never raised any outside capital whatsoever. They reinvest every single dollar that comes to the business. So, they run their business with a zero cash balance effectively or as zero as it possibly could be, but they’re doing well. They have a deal with Whole Foods and people seem to be buying their products.
Turner Novak:
You probably could raise outside capital for something like this, but I feel like you change the risk profile of the business by doing that. I mean, you see so many of these bootstrap brands that were no longer bootstrapped and then got fucked.
Zaid Rahman:
Yeah. So, that’s certainly the case, but then there’s some people that just don’t want outside capital, and so we see a lot of that. I’d say 90% of our customers are profitable companies. So, we have a very different appetite. So, you have to build models that are specific to each use case and each flavor of that use case. You have to build mathematical formulas rather than storytelling formulas that is qualitative to figure out a binary decision, “Do we work with this company or not, and at what capacity do we work with them?” It is actually a really interesting problem, and sometimes we get it wrong, but luckily, not too often, but you do it in such a way that it’s within the thresholds that are acceptable.
So, it’s like a constant iterative modeling problem. Then the problem of efficiently collecting all this data is also really, really challenging. So, there again, we have had to build a lot of internal AI models that we have fine-tuned over time that we’re constantly iterating on to figure out how can we normalize the content that we are collecting from our customers across third-party APIs, across data that they send us in an unstructured form, and also through ongoing use of Flex products. The combination of these things is quite challenging.
Turner Novak:
Interesting. Is there anything else you want to try to hit on?
Zaid Rahman:
I think you’ve been very comprehensive. This is probably the most comprehensive, not only podcast, but VC conversation I’ve had. I guess throw this out there. How do you edit this? Is it one conversation?
Turner Novak:
Yeah, so it’s one conversation. I might even leave this part in, this specific part, this last 30-second exchange. I cut a lot of clips up and throw them up on social. So, some of the more interesting two-minute segment, going to post 10 of those on LinkedIn, Twitter, et cetera. Yeah, the full length podcast, I’m trying to think of how long have we been recording for. People are just going to hear most of it. I don’t really cut a whole lot.
Zaid Rahman:
Yeah. Yup. I guess we didn’t talk about AI.
Turner Novak:
We talked about AI a little bit, just went throughout.
Zaid Rahman:
Yeah, yeah, yeah.
Turner Novak:
Is there anything else you think people would want to learn about just generally things that you’ve learned about AI?
Zaid Rahman:
Yeah, no, I think our vision to become AI native is like a three-part vision. So, first is we want to automate all the internal tooling, especially around underwriting and customer servicing. There’s a lot of work to do that because in order to do that, you need to really understand the knowledge that’s coming from our customers. But then the second part of that is if you have a very good understanding of the customer, then can you help them become better business owners?
I think that’s a very interesting problem space where could you be almost like an AI CFO? If you are the AI CFO and that’s the third part, why go to third-party tools to do your accounting and tax and financial planning and budgeting and those types of things? So could you almost generate scenarios where you tell the business owner that, “Hey, in this scenario, this is what’s going to happen to you and this is by the way, your P&L and this is where your balance sheet. Here are a couple of different versions of that in terms of books and here’s like your tax done for you. January 1, you wake up and your tax is already done.”
Turner Novak:
Oh, that’d be nice. Save me a lot of time.
Zaid Rahman:
Yeah. Yeah. All you got to do is just validate. That future is possible and it’s possible because now the LLM models have gotten pretty good and they’re getting much better on stuff like financial data and Claude has pretty good model around financial data and there are a bunch of others working on it. There’s a lot of AI Excel companies coming out and those types of things, but that’s one part of the thing.
The other part is you need to understand and own that data because oftentimes this data is sitting in disparate systems, which is very fragmented. So, in order to do something like taxes, like for us to do taxes where all this information is sitting in one place across your entire life, business and personal, is a pretty exciting opportunity to just consolidate these things and just do it for you.
Turner Novak:
Yeah. I mean, I do have accountants that do a lot of this stuff manually and even then it’s like, “Hey, we figured out... Do you want to contribute 15,000 to the 401k SAP this year, reduce your taxes by 7,000?” And there’s all these different scenarios that they send me and sometimes you’re just like, “No.” But other times, I’m like, “Oh, but what if could I do 4,000 instead or can I do 20,000? What’s that threshold I can hit this year?” So it’s like somebody who can automatically do that back to you. It’s like asking ChatGPT.
Zaid Rahman:
We’re building an agent for Flex Allocate, the feature I described earlier where you can carry a single card and after the fact, allocate that transaction to different entities in your personal life. Imagine the agent was suggesting how to optimize your taxes on that transaction. That could be another use case to make things more efficient for you overtime.
Turner Novak:
Nice. Well, yeah, I mean, there’s been a lot of fun. How can people follow Flex more closely? I feel like you don’t really post much. You maybe LinkedIn a little bit.
Zaid Rahman:
No, to be honest, I’ve always been stealth mode. We’re a couple months out from hitting 100 million run rate and we’ve been very under the radar.
Turner Novak:
You’re like the opposite of me.
Zaid Rahman:
Yeah, yeah. So, well, you’re building a media empire, right? And so no, I think in order to find Flex, our website is www.flex.one, and we are Flex Superapp on all the socials.
Turner Novak:
Awesome. We’ll throw links in the show notes too for all the stuff we talked about. Yeah, this is a lot of fun. Thanks for doing it.
Zaid Rahman:
Awesome. Thank you, Turner. This was really nice.
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