A Simple Tale: The First Pitch
How we pitched Simple to the best VC firm in the world
My own response to Josh Reich’s email has been lost to time, but I remember it as something like — “Regulation can be figured out, but let’s understand the idea better”.
I was actually on vacation in India when Josh sent me that original email. But Josh and I had always chatted on Yahoo Messenger, and thats where we discussed this idea of starting a bank.
Josh asked me how hard it was to start a bank. I pulled the internal McKinsey deck on how to start a bank in the US¹. Raise $10M, hire some engineers, get a core processing system from FIS or Fiserv² , apply for an ILC³ license from Utah, and you’d have a bank in 18 months. So I responded to Josh with : “Pretty much all you need is a license from the Fed and a few computers. And $10M”. None of this seemed impossible to do, so we started to dig into this more.
De Novo banking was dead, and nobody told McKinsey.
We quickly ran into our first problem. Every year between 2000 and 2008, there were between 100 and 250 new bank charters approved; from 2009 to 2016 there were a total of less than 10. There was a whole industry devoted to starting banks in early 2009 — it was called “de novo” banking. Sites such as startabank.com offered a package of services that would help you get your charter and FDIC approval in 18 months. The McKinsey deck was from 2006, and was completely accurate for that era. But we were living in a new era — the Great Recession era.
There was a wave of bank failures starting from the summer of 2008, and the FDIC saw that new banks failed disproportionately compared to old banks. The lesson that they learnt from this was that all innovation in banking was bad, and they hung a “closed for business” sign outside their new charter application window. They couldn’t legally just refuse all applications, but they also weren’t required to approve new charters in any given time-frame. So they just made the process longer. A de novo banking process went from 18–24 months in 2008 to 7–10 YEARS in 2009. If the FDIC could string out the process long enough, eventually even the most determined applicants got the message and gave up.
If you can’t start them, then join them
This seemed to present an insurmountable problem. How could we launch a simpler bank if it took 10 years to get a bank charter? But Josh and I⁴ quickly came up with a solution — we’d just partner with an existing bank. After all, we weren’t trying to do anything innovative with a bank’s balance sheet, or compliance, or regulatory reporting, or anything that regulators really worried about at all. We just wanted to build beautiful usable banking apps that helped customers mange their money on their mobile phone. We should be able to find a partner bank, sign a deal where they handled all the banking stuff, and we handled all the customer facing stuff. Really all we needed was access to their APIs and we could build on top of those.
Yeah, we were fucking naive.
The first pitch deck
By this time it had also become clear to me that it was time for me to leave McKinsey, and I was figuring out what to do. BankSimple⁵ seemed like a crazy idea, but Josh had a ton of experience working in startups, and if we could raise the funding, we felt like we had a shot at making it happen. Josh was consulting for the Pinch Media team, and so he knew the Union Square Ventures team well. They had just hired Albert Wenger, and he wanted to hear the pitch. So I flew to New York, and Josh and I worked on a pitch deck for BankSimple. I had a typical McKinsey 100 page deck drafted, but Josh wanted something a lot simpler and cleaner. We ended up at 18 pages.
On Tuesday, September 22, 2009 Josh and I walked into the Union Square offices in New York and got into a conference room with Albert Wenger. We took him through the following presentation.
Albert listened intently, and asked a few questions. Then he said “We want to do this”. Icing on the cake — they had a potential bank partner they could introduce us too.
¹ Oh yes, McKinsey has an internal knowledge-base with decks on EVERYTHING. Better than the internet in many cases.
² Or Jack Henry, you rebel you.
³ Industrial Loan Company, a special type of bank charter that allows non-bank companies like Square and General Electric to make loans and take deposits through a bank subsidiary.
⁴ More me than Josh on all things banking at Simple. But Jerry Neumann who was cced on the first email suggested it in his response too.
⁵ Josh came up with the name on one of our many chats. Simple seemed an even better name, but no way we were getting simple.com or any of its variants. BankSimple seemed just as powerful, and banksimple.net was available, so we went with that.
Shamir Karkal is the co-founder and CEO of Sila. A software engineer turned finance and banking expert, Shamir previously co-founded Simple and headed the Open Platform at BBVA. As a serial entrepreneur and fintech investor, he’s deeply involved in building the fintech ecosystem and proud to have been an angel investor in TransferWise, EarnUp, MPOWER Financing, Fabric Insurance, and others. He is also a volunteer at iSpirt.
