Acquired Season 3 Episode 7 Venmo (live with Andrew Kortina)

In this episode of Acquired, hosts Ben Gilbert and David Rosenthal announce the launch of their Limited Partner (LP) bonus show, offering deeper dives into company-building topics for supporters. They also discuss the history and acquisition of Venmo, featuring insights from co-founder Andrew Cortina. Venmo, originally a peer-to-peer payment app, was acquired first by Braintree and then by PayPal, becoming a key asset in PayPal's strategy to capture the mobile-native consumer market. The discussion includes Venmo's growth challenges, its transformation into a business line within PayPal, and its potential in revolutionizing digital payments by eliminating the need for traditional banking services. Additionally, Cortina shares his post-Venmo venture, Finn, an AI-powered assistant service. The episode concludes with personal recommendations and a special offer for listeners to try Finn.

• Acquired launches a bonus show for $5/month called "Limited Partner."
• The bonus show will cover a range of topics not included in the normal episodes.
• The first LP bonus show discusses the jargon of venture capitalists.

"Today we're launching a bonus show. For $5 a month, you can become what we're calling a limited partner and get access to it."

This quote announces the launch of a new subscription-based bonus show for listeners, introducing a way for fans to support the podcast financially.

• Season three, episode seven of Acquired covers the Venmo acquisition by Braintree and then PayPal.
• Special guest Andrew Cortina, co-founder of Venmo, is featured.
• The episode was recorded live in San Francisco.
• Apologies were made for audio issues due to AV problems at the live show.

"Today we are doing another oft-requested episode, the Venmo acquisition, first by Braintree and then shortly thereafter by PayPal."

This quote sets the stage for the episode's focus on Venmo's acquisition story and introduces the special guest, Andrew Cortina.

• Andrew Cortina is an entrepreneur with a diverse academic background.
• He switched from a CS major to philosophy and creative writing, with minors in computer science and logic.
• Post-Venmo, Cortina co-founded Finn with Sam Lessin.

"As you'll hear on this episode, his constant stream of startup ideas and passion for nailing the experience led him to start countless projects from Filipunk to Venmo."

This quote highlights Cortina's entrepreneurial spirit and diverse interests, leading to the creation of multiple startups including Venmo.

• Pilot is a sponsor of Acquired, providing accounting, tax, and bookkeeping for startups.
• Pilot has grown into a billion-dollar company with prestigious backers.
• The company helps startups focus on their core product by managing financial tasks.

"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact, now is the largest startup-focused accounting firm in the US."

This quote introduces Pilot as a key service provider for startups, emphasizing its role in managing essential yet non-core business functions.

• Cortina was an IT support desk person before meeting his roommate Ikram at Penn.
• He and Ikram took on various projects, including redoing a website and creating a classified site for college students.
• They attempted to interview Craig Newmark with a podcast setup but faced technical difficulties.

"So when I first met Ikram, I was hungover, asleep at, like 01:00 p.m. In the afternoon. And he rolled into our room with his whole family with this van full of people and all this shit and a tennis racket stringer and just all this crazy stuff."

This humorous quote describes Cortina's first impression of his future Venmo co-founder and roommate, Ikram, highlighting the chaos of their initial meeting.

• Cortina and Ikram worked at a Y Combinator company called "I'm in like with you," later known as OMGPop.
• They explored various ideas before Venmo, such as a browser-based POS system and a way for bands to receive money via text at concerts.
• The concept for Venmo evolved from these experiences and the inconvenience of using checks.

"We worked on a lot of different things. One of the first things that we did was this was before square had their point of sale software."

This quote explains how Cortina and Ikram experimented with different ideas, including a point-of-sale system, before settling on the concept that would become Venmo.

• Cortina and Ikram worked part-time on Venmo while holding full-time jobs.
• They sought advice from experienced entrepreneurs like Chris from Ticket Leap and Sam Lessin.
• Sam Lessin and his father were among the first investors in Venmo, allowing Cortina and Ikram to work on it full-time.
• Features like the "trust" system were innovative but were removed post-PayPal acquisition.
• The social aspect of Venmo, including the newsfeed, was inspired by the founders' own use of the app.

"But the newsfeed came out of, like, Ikram and I. When we started Venmo, we had blackberries, and we would use Venmo instead of text messaging."

The quote reveals the origin of Venmo's social newsfeed, which was inspired by how the founders used the app to communicate and share their activities.

• Ben Gilbert and David Rosenthal discuss the origins of Venmo and their reaction to discovering a competitor, Obopay.
• They were initially discouraged by Obopay's $70 million funding but realized the company's presentation and website were not user-friendly.
• This realization led them to believe they could still compete in the mobile payment space.

And we found this company called Obopay, looked them up and we were like, oh, man. Obopay has raised $70 million to do, like, phone payments. We're too late.

The quote reflects the initial discouragement upon discovering a well-funded competitor, highlighting the competitive analysis phase of a startup.

• The mission of Venmo evolved from a music-focused payment service to a general payment platform.
• This shift in vision is compared to that of Rover, which also broadened its scope from a niche market to a wider one.
• The change in mission statement had a significant impact on investor perception and fundraising.

Venmo enables anyone to accept payments for anything, anytime.

This quote shows the pivotal moment when Venmo's mission statement was broadened, which was a strategic move that opened up more opportunities for growth and investment.

• Andrew Cortina recalls the challenges faced during fundraising, including legal hurdles and unfavorable terms due to urgency.
• Venmo's growth strategy was costly, leading to difficult financial situations that required immediate funding to avoid legal issues.

Raising money for Venmo was just like, it always know there was always like some law changing where we needed tons of money immediately or we couldn't pay people or we would be violating some law and end up in jail if we didn't have enough money, which is never a good position to be raising money in.

The quote highlights the precarious financial situations startups can face, especially when rapid growth and legal changes necessitate immediate funding.

• Venmo experienced rapid growth but did not generate revenue while Andrew Cortina was there.
• The plan was to eventually charge businesses for accepting payments through Venmo, following PayPal's model.
• The inherent virality of Venmo was both a strength and a challenge, as it led to increased costs due to credit card interchange fees.

Venmo never. While I was there, we never made any money. We would just be spending tons of money processing transactions.

This quote emphasizes the early-stage growth focus of Venmo, where monetization was not the priority, leading to significant operational costs.

• Venmo actively sought to grow its user base while trying to reduce costs of goods sold (COGS).
• They transitioned from costly credit card transactions to more economical ACH transactions with the help of a banking partner.
• This transition was strategically necessary but temporarily hurt growth metrics during a critical fundraising period.

We did lots of stuff to reduce the spending, and so we would always want more user growth, but lower cogs.

The quote reflects the balance Venmo tried to strike between user growth and managing operational expenses, a common challenge for startups.

• Venmo's team grew through non-traditional means, such as hiring a network of individuals connected to a single encounter.
• The company's culture and hiring practices were unconventional and scrappy, which was necessary due to its lack of recognition and challenging work environment.

We hired, like, ten kids from Columbia just because we were wearing Venmo t shirts.

This quote illustrates the serendipitous and informal hiring practices that contributed to Venmo's early team growth.

• Venmo struggled to raise a Series B round and was running out of money.
• They considered various options, including a low-ball offer from Groupon and talks with Square and Facebook, which did not materialize.
• Braintree's CEO, Bill, saw potential in Venmo and facilitated an acquisition, even providing funds to meet payroll before the deal closed.

It was either like shut down the company or sell it. And we had an offer from Groupon for like a million bucks or something shitty like that.

The quote captures the dire financial situation Venmo faced before being acquired by Braintree, highlighting the make-or-break nature of startup financing.

• The acquisition price of $26.2 million was determined based on the funds Venmo aimed to raise in their Series B.
• Braintree and Venmo complemented each other's business models, with Braintree focusing on merchants and Venmo on consumers.
• This strategic fit ultimately led to the successful acquisition of Venmo by PayPal, which recognized the value of the combined entity.

And we kind of got into this conversation where it was like, oh, we're both trying to get to the same place from different sides. Maybe we should try to do it together.

The quote demonstrates the strategic alignment between Venmo and Braintree, which was a key factor in the acquisition decision.

• Venmo's usage and integration into PayPal's business model is highlighted as a significant success.
• The acquisition by Braintree and subsequently by PayPal is considered a strategic move, especially concerning the millennial market.
• The discussion emphasizes the substantial investment PayPal made in Venmo and the importance of Venmo's growth.

"And I think it's just worth underscoring now that everyone uses Venmo and that it's inside a big, safe company like PayPal, and they're doubling down on Venmo in a huge way, it seems." "It's a huge investment too. I mean, it's probably been like a billion dollars spent on transaction processing fees."

The quotes underline Venmo's success as a widely used payment platform and PayPal's substantial investment in it, reflecting the strategic importance of Venmo to PayPal's business.

• The acquisition process of Venmo by PayPal is discussed, highlighting the due diligence and the concerns about millennials not using PayPal.
• Venmo's position within PayPal is described as strong, but with a focus on not disrupting the existing operations of Braintree.
• The potential for Venmo to be pitched to PayPal during acquisition talks is mentioned, though no definitive answer is provided.

"How much time did they spend with you guys? I mean, what's been reported, at least in CSNar research, is that Braintree is a very nice business within PayPal." "They kept us pretty as far as they're good from the brain street guy. They didn't want to screw up that deal."

These quotes suggest that the acquisition process involved careful consideration of Venmo's role within PayPal and the intention to maintain Braintree's successful operations.

• The discussion covers Venmo's marketing efforts, particularly the "Lucas uses Venmo" ad campaign.
• The campaign's unconventional approach and its success in generating buzz and increasing user signups are noted.
• The strategy of using simple, curiosity-inducing ads to drive word-of-mouth marketing is highlighted.

"So at that time, Braintree was working with this hotshot creative agency to do a big rebranding of the company... And then so we're like, we have to get Bill to approve of this. And then Bill has to get PayPal to approve of it because they spent over $100,000." "This ad campaign was really successful. I mean, there were tons of people... The amount of earned media that we got with this in terms of Twitter, Facebook shares, Reddit threads..."

These quotes illustrate the creative process behind Venmo's marketing campaign and its effectiveness in engaging the public and promoting the brand.

• Venmo's product-market fit is recognized as a key factor in its growth, with the platform's user-friendly design and viral nature being critical.
• The story of the "Lucas uses Venmo" campaign is used to show Venmo's scrappy and experimental approach to marketing and product development.
• The comparison with Airbnb's early strategies is made to emphasize the importance of hands-on, innovative tactics in achieving growth.

"But it wasn't like, even though with all of the twists and turns along the way, it wasn't like overnight Venmo just blew up. You guys actually were really scrappy." "The amount of earned media that we got with this in terms of Twitter, Facebook shares, Reddit threads... Definitely, we looked at the lift in signups in New York versus other cities, and it definitely helped quite a."

The quotes describe Venmo's strategic and iterative approach to growth, highlighting the importance of being scrappy and leveraging earned media for expansion.

• Venmo's contribution to PayPal's overall transaction volume and earnings is discussed, with a significant portion being attributed to Venmo's activities.
• The growth trajectory of Venmo is described, with a focus on the impressive transaction volumes achieved post-acquisition.

"PayPal just reported earnings last week and the first slide of their earnings deck was Venmo's growth chart... Venmo did $17 billion in gross transaction volume last quarter, which is incredible."

This quote emphasizes Venmo's substantial impact on PayPal's financial performance, showcasing the platform's success post-acquisition.

• Statsig is introduced as a feature management and experimentation platform that aids product teams in shipping features faster and understanding their impact.
• The platform's use by notable companies, including Notion and Airbnb, is mentioned, highlighting its utility in managing and testing AI product features.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate A B testing, and see the impact every feature is having on the core business metrics."

The quote explains the purpose and value of Statsig in the product development process, indicating its role in enabling data-driven decisions and efficient feature rollouts.

• The categorization of Venmo's acquisition is debated, with distinctions made between product integration and operating as an independent business line.
• The discussion suggests that while Venmo operates independently, it benefits from PayPal's merchant network and resources.
• The strategic fit of Venmo with PayPal's business model is considered, along with hypothetical scenarios involving other potential acquirers like Stripe.

"The business plan thing is interesting, because Venmo didn't have any business without PayPal. It needed the merchant network... So I think I would say product."

This quote captures the essential role PayPal's infrastructure played in Venmo's success and the rationale behind categorizing the acquisition as a product integration rather than a separate business line.

• Square, known for its payment solutions for merchants, observed Venmo's success in peer-to-peer (P2P) transactions and decided to enter the market.
• They launched Square Cash, now Cash App, with an instant transfer value proposition, which is costlier than the traditional ACH method.
• Square Cash aimed to compete with Venmo by offering quick deposits into bank accounts, as opposed to Venmo's strategy of keeping money within its system.

"So they see the Venmo taking off and saying, oh, we need to be in the peer to peer transaction business, too."

This quote explains Square's motivation to compete with Venmo by launching their own P2P transaction service, Square Cash, to tap into the growing market of instant financial transactions between individuals.

• Venmo's strategy involves users frequently transferring money within the app, minimizing transaction costs for Venmo.
• The dream scenario for Venmo is when users leave money in the app, avoiding bank transfer fees.
• Venmo charges a fee similar to credit card transactions when users pay merchants, capitalizing on this low-cost structure.
• Venmo's business model is likened to PayPal's, where they initially focused on P2P but pivoted to peer-to-commerce transactions.

"Imagine you have what Venmo has, which is two different parties that are transferring money to each other and do so often enough that they're willing to leave money in Venmo."

This quote highlights the ideal situation for Venmo where money circulates within its ecosystem, thus avoiding transaction fees and positioning itself favorably for monetization opportunities with merchants.

• PayPal, with its extensive merchant network, provides a strong foundation for Venmo to grow its merchant-based transactions.
• Venmo's integration with PayPal's merchant network creates synergistic opportunities, as seen with partnerships like Uber accepting Venmo.
• The speakers discuss the historical trend of P2P services pivoting towards commerce to establish a sustainable business model.

"PayPal has 2 million merchants already on there, right?"

This quote signifies the strength of PayPal's existing merchant network, which Venmo can leverage to expand its business model beyond just P2P transactions.

• Square Cash pivoted from a P2P service to serving the underbanked, pushing a debit card to earn interchange fees from transactions.
• Square's existing merchant network contrasts with Venmo's strategy, as Square focuses on monetizing through the debit card side.

"Square and Venmo are sort of taking very different strategies at this point."

This quote outlines the divergent paths of Square and Venmo, with Square evolving its Cash App to function more like a banking service for the underbanked, differentiating from Venmo's approach.

• Venmo's future success hinges on the expansion of its pay with Venmo feature to more merchants and proving out its monetization strategy.
• The speakers express confidence in Venmo's potential but acknowledge the speculative nature of its current position in the market.
• Comparisons are made to Visa's market cap, suggesting that Visa should be wary of PayPal's growth trajectory.

"We just now are starting to see a serious effort in the last two quarters of PayPal deciding to push pay with Venmo to a lot of the merchants on their network."

This quote indicates the recent strategic push by PayPal to expand Venmo's usage among merchants, a critical step towards realizing the app's monetization potential.

• After Venmo, Andrew Cortina and Sam Lessin co-founded Fin, an AI-powered assistant service.
• Fin aims to align phone usage with user goals, countering the distracting nature of smartphones.
• The service combines human and machine intelligence to offer a flexible personal assistant experience.

"So we wanted to build something like, kind of like realize the potential of the phone, which is very high because it's connected to all human knowledge and allows you to communicate with any other person in the world at any time."

This quote explains the mission behind Fin, which is to harness the capabilities of smartphones to serve users in a more purposeful and goal-oriented manner.

• Andrew Cortina recommends "The Myth of Sisyphus" by Albert Camus, a philosophical essay on finding meaning in life.
• The discussion touches on literature, philosophy, and the historical context of startups, with book recommendations that offer insights into startup culture and history.

"It's Camus and it's a treatise on why the meaningless of life does not marry suicide called the myth of Sisyphus."

This quote introduces "The Myth of Sisyphus" as a book that delves into existential philosophy, recommended by Andrew Cortina for its inspirational content.

• The speakers discuss the advancements in computational photography and its impact on the quality and capabilities of digital images.
• They highlight the role of developers and apps like Halide in pushing the boundaries of what smartphone cameras can achieve.
• The conversation reflects on the rapid progress in technology and how it has transformed the startup landscape over the years.

"I think what Apple and Google and companies are doing now that are extending the notion of a photograph far beyond, hey, what was exposed on the film through that glass."

This quote speaks to the technological advancements in computational photography, where companies are enhancing the traditional concept of photography to capture and communicate experiences more effectively.