On this week’s Founded and Funded, we talk to the founders of Sila, Shamir Karkal and Angela Angelovska-Wilson. Managing director, Hope Cochran, talks about why she invested, and the founders share their story of how they came to unite to build Sila. Sila offers banking as a service to companies which are at their core Fintechs or need a Fintech based infrastructure. Moving money on the internet, though envisioned from the very earliest days (do you know what error 402 means?) is not easy. In the US alone there are many regulations at the federal and state levels. Sila has navigated this complex regulatory and technical world to enable their customers to launch quickly and focus on their product. The podcast is available on all platforms and below!
Hope Cochran: [00:00:54] Hello and welcome to the Madrona podcast, Founded and Funded. It is so fun to me to be today with Angela and Shamir. The cofounders of Sila. I found them in my quest to solve financial infrastructure problems as the CFO of many large international companies that had to move lots of money, I was constantly frustrated with the lack of ease in this space.
And so I went in search of someone who understood and knew the problem well, and I found Shamir and Angela. So I am thrilled to be partnering with them, in this quest to solve this very complicated problem, both from a technology perspective and a regulatory perspective. And as I got to know them, I was so taken by their backgrounds and what brought them to this place.
First of all, I’ll just say both of you came from other countries to the United States, you’ve had interesting journeys that led you down the FinTech route. I would love just to hear about those journeys first and foremost, before we get into the vision of Sila So Shamir could you kick us off?
Shamir Karkal: [00:02:05] My journey in financial technology actually started very early. My grandfather on my mother’s side was a banker.
My parents were bankers. And so I could say I’m a third generation banker, And I wrote my first computer program and I wrote my first check both at the age of 10, back in the 80’s. And I realize that’s a really weird upbringing, but it seemed normal at the time. Of course as.
one does, I decided in my teens that I was going to do anything except banking and went off to become a software engineer, did that for a few years, came to the U S And was working as a software engineer, went to business school and business school is really where I first learned about the broader world of business and everything that was out there.
Before business school, I was just happy writing code, like 14 hours a day. And after business school, I ended up becoming a consultant at McKinsey and Company, which is a consulting firm . The first project I got assigned to almost randomly, was in financial technology, doing strategy for a bank processor.
And I just fell into that. It was stuff that I knew and understood well, and spent three and a half years at McKinsey, both in North America, Europe, and in the Middle East, just doing more stuff around financial technology, but very broadly defined, processors , banks, insurers, even one country bail out within 2008.
And so in 2009, a classmate and good friend from business school, Josh Shreesh, started asking me all these questions about banking and the story there was, I was the only person who knew the answers, who would actually talk to him. And he was frustrated with his own personal banking experience.
He was a startup entrepreneur. Sold one business before he came to business school and went back to work in startups, straight from business school. And so he had the entrepreneurial ideas. He sent me an email saying, let’s start a retail bank. And he laid out this vision for how a bank should be tech forward consumer centric, actually helping people manage their finances and, and then building a platform to provide all the other services that people need apart from a checking account and a debit card. And there’s such a compelling vision. I was like, yes, let’s do that. Somebody should do that. And I guess it might just want to be us.
And, you see how crazy I am that in 2009 I thought it was a good idea to leave, McKinsey and go start a bank, which is what we set out to do. and that was my first startup. It was an online neobank called Simple. We started it in New York in 2009, a couple of years later in 2011,
I moved to Portland, and Josh moved over to Portland into how’s an 11 launched simple in 2012.
The story there was, it took three years. From first email to launch, and three years to launch is if you ask anybody in the startup world, it’s just unimaginably slow. and then on the flip side, if you ask anybody in the banking world, that actually seems fast. And that was the, the dichotomy that Simple hit head on is the pace difference between those two worlds.
The real reason was it took us about two and a half years to find a bank partner, find a processor, figured out how to connect them, figured out it was not working. Then redo that and then find five more processors and finally build this kind of internal API layer on top of which we could then build a web and mobile apps that customers saw.
And really at Simple and I think at probably at all, fintechs it’s out there, the consumer facing, or the business facing part of the tech stack that people see is really just like the tip of the iceberg. And we finally figured it out, and launched it. And then a couple of years later, Simple, was acquired by a big Spanish bank, BBVA was back then, and still is I think, a very forward thinking bank. They saw the FinTech revolution coming probably before anybody else. And they wanted to partner with Simple. And then the partnership discussions turned into acquisitions as does happen. A few months after the acquisition, I was in, Madrid talking to the guy who’s now the chairman of, BBA. And they, you mentioned this idea of building an API platform. And my immediate reaction was, yes, please. Do it, the world needs API platforms in banking. If such a thing had existed, Josh and I wouldn’t have spent three years launching simple. We could have launched it in six months.
And then who knows what we could have done any sort of payment and LGV spent building our own, internal infrastructure. And, but please do it right. Don’t screw it up. Quickly realized that it was really just an idea at BBVA. Nobody had even put together a document of any sort. So I did and circulated it internally.
They create an internal venture steam. Fast forward a year later and I was running that business. So built and shipped to API forms at BBVA. Did that for a couple of years, one in Europe, one in, one in the U S but got frustrated by the parts of the organization that I could not control was the back.
So we could build that ship, that deck. And I think the BBB open platform is still a great platform, but we could never onboard customers. And at the speed that I wanted to because of risk compliance, legal and all the internal bank processes. So I left in 2017. Thought about what to do with the rest of my life.
And then, ended up co-founding Cilla with Angela, Alex, and Isaac.
Hope Cochran: [00:07:34] Yeah. And Angela, you have such a tremendous journey and unique background. I really look forward to hearing about it in your words.
Angela Angelovska-Wilson: [00:07:41] thanks. Hope and I, again, thank you for having us on the podcast today. I am a little bit of an unusual, cofounder of a FinTech company, due to the fact that I come from my legal, regulatory background. I started my journey. actually also as an immigrant, I came to the U S when I was 17 as an exchange student and never thought that I would actually stay here and, have my life in the United States.
And definitely did not think that was going to go into, banking or law. Unlike Shamir I come from a family that is everybody is a doctor. I was on the path of becoming a doctor, but that was definitely , not where my heart was. Due to the fact that I’m the year I came to the U S very, bloody civil war developed.
in former Yugoslavia, I actually got stuck in the United States , as I like to say
I was all packed. I was ready to go back. A life for a teenager in the U S when you’re 17 or 18 is not as fun as one in Europe, I have to say. So I was definitely missing my family, my friends, and everybody else. But, It was actually a very interesting time, which kind of set me off on my legal journey because I found myself without a country.
So the country I came to in the United States was the Socialist Federal Republic of Yugoslavia. During my time here that country no longer existed, it had become several different countries. The one country I did have. The right to citizenship, was Serbia, through my mother, but Serbia was the antagonist in the war, and, was under very strict, international sanctions.
So maybe, you’re going to compare it to like Iran, at this time. So , nothing was going in and out. I couldn’t go. And my other country, that I have a right to citizenship where I actually grew up, Macedonia, was not yet to country. So I had to figure out a way to stay legally in the United States, which was quite a challenge because I fit none of the categories.
I was not a refugee because I had not escaped from the war. I was not that nice side lead because I wasn’t afraid to go back. I just couldn’t. So it was the beginning of my legal journey, trying to figure out creative ways of how to make what is in the box and the principles of the laws, fit the unique situations that I was facing.
So the one way to do this was, actually for me to go to university, which was challenging because I never took any entrance exams because I was, not interested in going to university in the U S but through help from my American host family, and many others, I was able to enroll at a university.
Taylor University. And that’s really where my interest and love of technology. And seeing how you can use technology in everyday life and how transformative it’s, what it is in all aspects of life really began. I was a public relations major and, I saw and had an opportunity to really work on, AOL and CompuServe.
And saw that potential. Absolutely loved it. and then moved to, the very beginnings of the internet. I coded in HTML waited until midnight to download the first version of that scape. And, I guess that was the beginning of my entrepreneurial streak in the United States, as well as banking.
I had my own web development company and one of the first projects I did was help a small, very forward looking credit union actually, and offer their services of what is now common place, online banking. And so that was kinda my first thing that I did. And instead of heading to Silicon Valley, at the height of the internet boom, I decided to go to law school. In law school I focused on electronic commerce and the fledging law of the internet.
And then, In my private practice at very prominent law firms, I specialized in financial regulation and technology, and my background and love of tech have really come through, because I have been able to combine the two in order to understand, the principles of regulation, and how they can be really applied to some of the, technological solutions that are being presented.
In 2018, I heard Shamir’s vision about Sila and I said, Oh my gosh. Yes, because for about 20 years of my career, I watched and helped FinTech startups navigate all of the different legal, regulatory problems that they had in order to launch, as, Shamir said, the tech was the easy part.It was, navigating the alphabet soup of regulators and regulations that applied to their innovative services, that were no longer siloed out as they are typically in traditional banks. That really was, the biggest challenge. And plus I passed Shamir’s test, he asked me if I knew what internet code 402 stood for and I
Hope Cochran: [00:13:39] did.
Okay, you’re going to have to tell us, Angela, what does 402 stand for?
Angela Angelovska-Wilson: [00:13:44] It’s a reserved, error code on the internet and it was built at the very beginning of the internet protocols. And it stands for payment not found. So the internet was always meant to have a payment protocol built into it it’s just they never got around to it.
Hope Cochran: [00:14:03] Both of you have such interesting and deep journeys that really brought you together to solve this very complex problem that involves both deep technology understanding, deep banking understanding and deep regulatory world to develop Sila. Shamir, I’d love to hear your description of Stila and the vision you have for it.
Shamir Karkal: [00:14:27] I think really the way I like to talk about Sila is really to start with the problem. And the way we define the problem is that it’s just too hard to program with money. There’s been an explosion over the last 30 years since the internet of people building programmed solutions, startups, applications, and all other sorts of things, Alexa skills, to do things right.
But at the end of it, it comes down to writing code and writing code to do different things. So if you’re a developer and you wake up tomorrow, whether it’s in San Francisco or in Shanghai, and you decide that you want to build any type of online application or you already have a large existing app and you want to embed the email capability into it, for example, that’s you know, that’s easy to do. It’s open protocols, there’s APIs. There’s SDKs. There’s developer tooling There’s whole ecosystems of industries, which will help you manage email on whatever it is.
As soon as you want to program with money, and that might involve building an online FinTech startup or an online bank, like Simple, or you might just want to embed a simple payment or money storage or money movement capability into an existing app.
Suddenly, it really does matter whether you’re in San Francisco or Shanghai and you’ll realize that the internet is not one place when it comes to money. There are no open protocols. There’s almost no APIs or SDKs, at least until silver came along. It really is impossible to do across the internet and that’s what we want to change. We want to make it as easy to program with money as it is to program with email or with any other internet mechanism. Money actually is just a type of messaging network.
The problem is all about the complexity of the existing payment systems and the existing
regulatory structures and figuring out how to build a layer on top of it, which is really useful for programmers. We started with that vision of really, making money programmable, easily programmable and, launched Sila in October of last year.
Our core product is an API platform. It’s really, a developer platform , which allow people to easily plug in and build the applications they want and it’s the modern way of doing that. We offer a few services, in the U S currently, we do, online identity verification.
So if you, if you give us, an individual or a business and give us that information, we can verify that using our APIs and our backend technologies We allow you to securely link a bank account. If you have an account at Chase or Bank of America or Wells or whatever, we can connect to it and securely get the data that we need, which is mainly the routing and account number.
and then we can debit those bank accounts via ACH or credit then via ACH, and do in and out of those bank accounts. One of the unique features of Sila is that we make it as easy to hold money on our platform as it is to move money. And we make it easy to do all combinations of that and program with that, wherever you want to program the it.
Hope Cochran: [00:17:45] Shamir, I think you hit on a really important point there, the ability to not only move money, but to hold money. And it’s a simple statement, but it’s actually really difficult to accomplish that. And that’s where you get into needing the regulatory requirements and whatnot to, allow your business to grow if you’re holding the money. When I think of what Sila is doing, would it be fair to say that you’re really providing banking as a service to companies who just want to get on with their business, but somehow involve moving and holding money?
Shamir Karkal: [00:18:20] That’s exactly the right description. This nuance to distinction between banking and payments. When people think about payment, they think about transferring money between, two bank accounts or from one card to another. And when they think of banking, they think about holding money.
The core of Sila is that those are both flip sides of the same coin, right? If you’re going to transfer money from A to B, then there’s many times where you might want to transfer it from A to X and then transfer some of it to B, and some of it to C and then some of it to D based on some set of rules and that’s what business is all about.
That, we focus on making both of those things as easy as they can be, and then making it seamless, across them. So we automatically create a wallet for every, individual and business on the platform. We automatically hold funds in those wallets and you can hold it for a second and just transfer it in and transfer it out.
And it’s just a payment, or you can hold it for days or weeks or years and do other things with it. It really comes down to what the business logic and the use case is. We focus on making that very easy for developers, but the back end complexity that comes with it, especially on the regulatory side is far from trivial is probably the best way to put it.
Depending on kind of what the funds flow is. It that can be additional regulations, the top of that, and understanding those, supporting our customers who are doing those, making sure that we do all of that client fashion and manage risk well, and in fact, building management into the API, that’s the whole secret sauce of the business.
In the FinTech world that, everybody starts off by focusing on kind of building out a payment flow for an end user, and then eventually realizes that really half the company is doing risk management. The famous quote that I always remember,
it was somebody I think might have been Reid Hoffman who said that in the early days of PayPal, he did some math and then told Peter Thiel that it would be cheaper for them to go to the roof of the office and throw sacks of cash off the roof as quickly as possible, rather than operate the business because they were losing money so quickly to fraud.
So we try to make it as easy for developers as possible.
Hope Cochran: [00:20:40] When I really think of what you are enabling is you’re enabling builders to get their product out there faster. And you’ve got some great examples of that in your customer base today, these startups or young, innovative entrepreneurs who want to get to market and don’t even think about the fact that money is actually an important part, and that really could slow them down for years in terms of trying to solve that problem. For instance, I think of Sloan one of your current customers, that is doing student loans and helping people address their student loans.
Or Dinero, which is addressing the Latin community and trying to help them with rewards from day to day shopping. They have purposes that weren’t really to be in FinTech, they need to move money. And so Sila has been a great solution for them.
Shamir Karkal: [00:21:32] There’s a journey that companies typically go through where they start off and they’re focused around solving a problem for a customer. And what we try to do is to help them stay focused on that problem, right? So for Sloan, what we try to do is to say, Listen, you need to understand your customers’ problems around their student loan payments, how to manage their money, how to most effectively make those student loan payments.
We’d like to remove as many barriers as possible, at least on the programming with money side so that you can get to product market fit as efficiently and quickly as possible, and then scale from there. and this is a journey that, I think a lot of the large, all the large and tech companies, right?
Like Simple or Chime, of course, PayPal, and all of them have gone through. But I also think that a lot of the tech companies have gone through it as well. And I think it’s not always clear. Sometimes you don’t realize whether it’s a large tech company or even a large traditional international company, how much complexity is tied up in large teams of controllers and back end finance people and product managers, just building systems to manage money.
Hope Cochran: [00:22:42] Absolutely. One of the pieces of magic here there that we talked about earlier was the regulatory aspect. Shamir, you addressed a lot of the technical challenges and providing tools to the developers to be able to address those. But really one of the largest hurdles in this world is the regulatory hurdles that you have to go through.
And Angela, this is where you are navigating this. So definitely it’s very impressive. What I appreciate about you, Angela, is that you seem to have this ability to understand the why of what regulatory is meant to do and then navigate within it. So maybe you can talk to us a little bit about the regulatory environment.
It’s one of these environments that’s always changing and adjusting, and I feel like there’s even more change on the horizon. So we’d love to hear your thoughts on that.
Angela Angelovska-Wilson: [00:23:34] One of the things that is very difficult for, especially technology entrepreneurs to understand is that barrier to entry the regulatory moat that exists around financial institutions and even for FinTech providers that have made it, big, And that is, their compliance with the patchwork of regulatory requirements, licenses, compliance obligations, and the rest.
And, around the world, there is a very clear understand. Standing now that the business of banking is really the business of financial technology. Many years ago I had the opportunity to actually work on the Visa IPO. And, if you look at the filings for the Visa IPO, Visa was a financial company.
Financial payments companies is how they describe their business model. Today, they describe themselves as a technology company. And I think the regulation of FinTech is, I would call it the, yeah, the number one priority for regulators around the world. There are two, I would call it, very distinct areas that regulators around the world are being focused on with respect to FinTechs.
And the first one is understanding the various technologies that all these new entrants, all the new fintechs are using in order to provide different types of products and services into the marketplace. They’re trying to understand, how people are using biometrics, how people are using AI. Finance is being run by algorithms, after all these days, how new technologies like distributed ledger, blockchain technologies are impacting some of the thinking and the way that we regulate things.
And then the ability of FinTechs technology is borderless. It is global, at the very beginning, that’s the point of the internet. So the use of all these underlying networks that are global in nature, when we have very local stringent regulations, really provides a very difficult environment for fintechs to operate. Even PayPal after so many years in business is not available as an option in every country of the world. They operate in 50 plus jurisdictions last time I checked. So financial regulators are playing catch up. like every other regulation, typically, regulation is catching up to the marketplace and trying to understand how to prevent disasters.
At the same time, providing innovation and encouraging competition. One of my mentors, I’m based in Washington DC, and one of my mentors here once told me that congress does two things, nothing or overreacts. And I think financial regulators around the world are making sure that they are balancing those two acts of doing nothing versus overreacting and really stifling innovation.
So in the US it’s really difficult. I would say that from a global perspective, the U S is probably one of the most difficult jurisdictions to navigate for FinTechs to offer their services. I have helped many companies, that, made their name and are well known internationally, or they started out in Europe or other parts of the world.
And when they come to the United States, they really have a hard time understanding the regulatory regimes because we have a dual system. We have the federal regulators that have their own regulations and principles and then the state regulators. At the end of the day, like we said at the beginning and you did Hope, regulators are looking for those principles of the regulation, so understanding why certain regulations were inactive. Why the legislature reacted. Best example of this is Dod Frank, right? The 2008 crisis, we got 10,000 pages of regulation that turned into couple hundred thousand pages once it was all written and done.
And, we put it in and now we are, putting it away slowly because we have realized that it has really impeded the ability of some of the financial institutions that it regulates to actually do business. Again, I started from the point of there very few entrepreneurs that start on this journey that are intent on violating law. Being outside the law is never a good business model.
And so when they are trying to navigate all this regulation, it’s difficult for them to understand now I have to really have a calculation on my loan in every single state differently? I can’t do it with just one interest rate? I can’t export that interest rate? Or, if you’re a payments related company, I have to get the license from 49 different states?
And every state is asking me a little bit of a different type of information for my submission? And I’m subject to their oversight and control over the my business every year and I have 49 of them. That seems really unattainable to operate a profitable, forward-moving innovative business, especially when you compare it to the regulations that we have in other jurisdictions like the European Union, with their ability to passport and their ability to have a very streamlined regulation. Even in the Asian countries it’s much easier to comply with things than in the United States.
Hope Cochran: [00:29:58] That’s right. Angela and Shamir, you both articulated so well some of the real practical challenges with the regulatory environment in the US with the federal and then by each state and just how overwhelming that is for an entrepreneur to navigate. And so when I think about Sila, you’re providing that for them so that they can get going on the business that they’re wanting to run which is such a great service to them. Now, one of the things I want to hit on a little bit is the regulatory environment is important as Angela pointed out because you’re moving money and fraud can happen and all of these things.
So there is a reason for it. And so one of the things that I’ve been so impressed with you all is that you vet your customers, and make sure that they have the right purpose, integrity, and intent before you allow them to use your system.
Angela Angelovska-Wilson: [00:30:49] Our customers are subjected to, I would call it best practices in the large financial institutions. Again, our backgrounds allow us to have been able to view the kind of industry best practices and to understand why some of those best practices were put in place to begin with. Also, we’ve been burned once or twice in our careers.
So we’ve learned from some of those experiences and we have tried to make the process, that our customers go through as streamlined as possible. But that does not mean that we are lax in any way, shape or form. We are very stringent about making sure that our customers understand and are compliant with the applicable laws and regulations. That is a key to their success. If they are not, their business will suffer, at the end of the day. And so we want everyone to succeed and in order to be able to succeed, compliance is key.
Hope Cochran: [00:32:02] I’m going to switch gears a little bit as we can’t ignore the current environment that we’re all operating with quarantine and COVID in our midst. You both have been entrepreneurs multiple times running your own businesses. You’ve led people in companies through difficult times. This is not your first difficult period.
What are some suggestions you have for other leaders on how to continue to move forward, bring growth to your company, but also be a great leader during this environment.
Shamir Karkal: [00:32:36] Anytime you start your own business and go on the entrepreneurial journey, it is always hard and the default outcome is failure. And so it requires a certain mindset and a certain sort of willpower to just keep powering through.
And at least if I can look back and I’m like, how was I, how would we be able to make Simple into a success? And even the BVBA open platform and everything else, a lot of luck for sure and probably some skill involved, but I think like just persistence is massively important. Things will get better. You have to be there when they get better. If there’s one thing I’ve realized is, and I realize it more and more every day is how important communication is. When I was able to sit in the office and of course, we always had at least some team members who were remote, most of the team was in the office in Portland, just being able to like sit around and just lean over and have a chat with product, or engineering.
There was a lot of knowledge that got disseminated through kind of osmosis. It’s hard to tell nobody announced it, but within a few hours, everybody in the office knew sort of thing That doesn’t happen anymore and communication is always super important to leadership, but it’s, I think it’s even more important now because unless you make it happen, there’s no default communication happening.
And so you can have just people in the company who just don’t know things because nobody told them and they wouldn’t have found out because nobody is sitting next to them to tell them stuff anymore. There’s no water cooler conversation. I have tried and we have tried to be much more mindful about communications and it reminds me a little bit of Simple went from two to about 300 people by the time I left, and.
When you’re at the 200 person stage, you realize that a large part of an executive’s life is all about communication, and doing that well. And then making sure that not just you telling people stuff, but the right people are talking to each other about the right things and managing that.
Angela Angelovska-Wilson: [00:34:41] .
Yeah, I would agree with all of that. And I think one of the other unique opportunities that COVID and this situation has given us is to assure that we are looking at our coworkers and our team as a window to their everyday life. And being able to see Shamir as our leader in the closet and being interrupted by his children shows everyone that we are all, facing, different, yet the same challenges on working from home.
Getting our work done, getting our families together and dealing with the new normal, whatever that is these days. So I have really cherished the ability to have established a deeper bond with some of our teammates on a personal level during this time, and really understand about who they are as a person and how they want to grow as a person, not just as a team player, not just this part of the company.
But really understand their challenges and then also give them, sometimes leadership can, seem, separated out, but give them a view of we get frustrated. We have to deal with the kids too. These are all things that are okay.
Hope Cochran: [00:36:03] I love it. Persistence is one of my themes as well. There’s been many times when you have to find that grit, so I appreciate that. And intentional communication has been something that I think we’ve all had to embrace and address. And Angela, I love your points about just getting to know each other on a deeper level.
And, I’ll just say I’ve loved working with the two of you and getting to know you on a deeper level as well. And I’m proud to be a part of Sila. So thank you all for this time. And, I appreciate you all listening to Founded and Funded.
Shamir Karkal: [00:36:36] Thank you thank you for having us Hope.
Thanks for joining us at Madrona venture group for founded and funded. We really appreciate you listening. Please subscribe, send any comments you have to me. I’m at firstname.lastname@example.org and it’s E R I K a. At madrona.com. Till next time.