In this episode of Founded and Funded, Madrona Partner Chris Picardo dives into the world of crypto and Web3 with Sila Co-Founder and CEO Shamir Karkal. Sila is a FinTech platform that provides payment infrastructure as a service, which is critical for all companies that need to integrate with the U.S. Banking system and blockchain quickly and securely — while following all necessary regulations.
Sila has evolved since Madrona invested in its Seed Round in 2020, and it is now sitting at the intersection of crypto rails and traditional financial services infrastructure because as much as some people want to get away from the traditional financial system, crypto still needs to be able to plug into it. Shamir and Chris dive into the importance of this infrastructure, the ups and downs of the crypto market, the trends driving FinTech and crypto, and so much more today. So, I’ll hand it over to them to get started.
This transcript was automatically generated and edited for clarity.
Chris: My name is Chris Picardo. I’m a partner at Madrona, and we’re really excited today to have Shamir Karkal, who’s the founder and CEO of Sila. We are going to talk about all things FinTech, crypto and Web3, which I think is largely a first for the Madrona Founded and Funded podcast. Madrona has been invested in Sila since the Series A, and I think that Shamir and I have known each other for a bit longer than that and really excited to have him join. So, Shamir, welcome to the podcast, and I’d love to start off with just a little bit of background on yourself and your journey here. You’ve been in FinTech, I think since before it was called FinTech or had a name. And I’d love to hear a little bit about that journey and how it all started.
Shamir: Thank you for having me, Chris. It’s a pleasure being here and being part of the Madrona portfolio. So, I used to be a software engineer 15-20 years ago, I came to the U.S., went to business school and became a consultant. That’s really kind of where I fell into financial services. Did a lot of work, for banks, processors, central banks. This was the 08′ period where I went from working on cross-sell strategies for North American banks to country bailouts in the Middle East. And then in 09′, a friend of mine from business school sent me an email saying, let’s start a retail bank. You’ll see how crazy I am that I thought that was a good idea in 09′. And literally, my last engagement at McKinsey before that was best described as trillion-dollar bank bankruptcy. So, I had way more experience shutting down banks than starting them.
But he had this vision of how a better financial world and a better bank could help people manage their finances, and I totally got excited about that, moved back to the U.S. from Europe and started up Simple in 2009. Simple ended up being the first neobank, ever. The word neobank didn’t exist. And I think the word FinTech probably didn’t exist. We just called it financial services back in 2010. It took us three years to launch Simple because nobody had ever done anything like that before. And then in 2014, Simple was acquired by BBVA, which is a large Spanish bank. A $117 million acquisition seemed like a good outcome at the time, but now in hindsight, we probably didn’t quite realize how much potential that was.
I then got excited about building API platforms, and I was like, “The world needs API platforms.” And I persuaded BBVa to build a couple of them and built and launched them — one in Europe and one in the U.S., and launched them, acquired some customers as well, but ultimately just got frustrated with the big bank lifestyle and left in 2017. And then started Sila in 2018. Sometimes it feels to me like I’ve spent the last 12-14 years doing the same thing, which is help people, programmers, developers, innovators, program with money. A lot of that was internal. At Simple, we had to build all the infrastructure so that we could use it ourselves because it didn’t exist. Uh, I tried to build a type of bank platform at BBVA and then that’s what Sila does now. We help our customers program with money and build FinTech and crypto apps to do things like crypto on/off ramps, FinTech, PFM apps, savings, apps, credit apps, and NFT apps, all of it.
Chris: It’s an amazing journey. And I think since I’ve known you, I’ve always thought that you were out in front of all of these next big FinTech trends. I think obviously Simple was a good example of that. You’ve been talking about using crypto infrastructure in banking for a long time — I think before that really got particularly popular. If you think back on that, how did you see those pain points? What drove you to, in the case of Sila, say, “Hey, there is a new way to build this, and we should really be out in front of that”.
Shamir: I think it goes back to this fundamental thing — money is hugely important to people. I mean, it’s what drives society across the world now. If you look at new year’s resolutions every year, they kind of fluctuate, but they all come back to one of two things. It’s either, get healthy and that’s usually when times are good, people are focused on getting more healthy and especially in the last two years. And then when it’s a recession or a depression, then it’s all about getting financially healthy. And the prescription for both is kind of weirdly similar. You want to get healthier, exercise more and eat less. And if you want to get financially healthier, spend less and save more, and if you can, earn more.
But the financial system still operates in this mentality, I think, which is pre-1990s, which is we have a bunch of products, and we are going to sell them to you. I think FinTech is kind of the beginning of it, but especially in the crypto space, folks tend to flip that around and say, “Hey, I’m not trying to build a product and then sell it to customers. I’m trying to understand what customers want. And then I’m trying to build something that solves their problem.” And maybe it does something with money on the back end. But that part doesn’t need to be front and center and it should just be plugged in on the back end. Your access to financial services should be like your access to water. Like you go turn on the tap and it flows and it’s there when you need it. It tends to be a lot harder than that and a lot more complex. So, I think that’s been the driving impetus for me from like the last 12, 14 years is, we need to get the world to that place from where it is today.
And the differences I see between FinTech and crypto — at some level, it’s all just infrastructure. The FinTech guys typically started off by building on top of the existing financial system where the crypto guys are like, “Hey, we are going to build new financial systems, new payment systems around these blockchain economies, these blockchain networks. And some of the major differences I see there is that a lot of the FinTech folks are really very focused on the customer and the use case. And what are the problems you’re solving, which I think is a very good thing to me. The crypto folks tend to be very community first and they’re like, “Hey, we’re going to build a community of like-minded people. And we’re going to use this technology to excite and empower the community. And then the community as a whole is going to tackle and try and solve this problem.” In FinTech, you still see that ” Hey, there’s us, and then there’s our customers.” But in crypto, it’s like, who is a customer? Who is a builder? Those are just roles, which could be the same person.
Chris: I think that’s a really interesting way to put it. And one thing that I’ve always really liked since we first started talking about Sila, probably in 2018, was how you have this really good view of enabling your customers, who are generally developers or companies building new products, to build new products for those customers.
You started with instant ACH and for the FinTech nerds who are listening to this, I think people who spend time in this space know that ACH has been quite a hassle for a long time. And one thing you decided to do early on, which I will admit, I was very skeptical about when we started talking about it, was use versions of, call it early crypto architecture, to enable that. I think Sila at least for us was certainly the first example of a company that was enabling using some crypto infrastructure to enable use cases that may have nothing to do with what we tend to think about as crypto.
Shamir: Sometimes the way I like to think about this is in terms of financial networks. One of the jokes I say is that like old financial networks, like payment systems, just never die. They literally never die. All the oldest payment systems things like coins, cash, checks — anything that was used by a large number of people across a few different geographic areas is still with us today. And so, what ends up happening is, a lot of times in the tech world, you build technology and then you build new technology, and you’re like, you know what, we’re just going to start using the new technology and ignore the old. And you see that a little bit with the internet, like, email was one of the first killer apps with the internet in the ’90s. Email did not need to integrate into the postal service. Right. Uh, email was its own whole thing and it worked great, and it was awesome. And we still use the post. We use them for completely different things. That doesn’t work in financial services every payment system that gets built, gets built as a layer on top of a previous payment system. And then eventually all the users move to the new payment system. And so, when you’re building these new financial worlds, I think A lot of the early crypto people didn’t necessarily understand that they don’t work until they plug into the old — you kind of have to build them on top, integrate them into the old and then build new use cases, new functionality, move the volume over, and then eventually the old will die. You cannot have them exist as two separates — that doesn’t work in financial services. And so, I think the hardest problem in the whole crypto space sometimes is really the infrastructure to connect it into the traditional financial system. Because guess what? The traditional financial system sucks in many ways, and crypto may be way better, but if you can’t plug into the old, then you can’t move the value and the volume and the money. And that’s what we built Sila to do — to be that bridge between payment systems broadly, but especially between, new payment systems and new payment rails, like blockchain ones and the old ones. And to do that well, you have to do both of those well. You have to be plugged into the crypto ecosystem. You also have to have a deep understanding of how to do things like ACH payments and returns and KYC and compliance. Because that is what the old financial system is all about. So that’s what we choose to take on first is to solve not just the pure on-chain problems, not just the pure off-chain problems, but the combination of on and off-chain problems, that is the hardest thing to solve.
And so far, it’s worked. I mean, we have quite a few crypto customers who appreciate that on-chain, they can do lots of things and they can do it really well. But when it’s like, “Hey, how do you build a system and scale it on ACH, and then move that money over into a blockchain?” That’s hard, and they come to us for that. And then we have a bunch of FinTech customers who are like, “Hey, we are a FinTech app and we love being a FinTech app and we are growing and scaling nicely, but we like having the ability to potentially add the ability to buy or sell Bitcoin or Ether, or do NFTs or maybe access DeFi yield somehow.” All of those capabilities are interesting and we see those customers as well.
Chris: I think Sila is a great example, as you pointed out, of sitting right at the intersection of, call it crypto rails and ecosystem and traditional financial services infrastructure. And, to your point, those haven’t talked very nicely to each other, and people have to build the types of products that can reach into both sides of the ecosystems and say, “Hey, I can help you, for lack of a better term, build a bridge here”.
I think one thing that’s always helpful — I’d love you to walk through a customer example that can be hypothetical of what you can enable with Sila. With this kind of approach, you’ve taken that would just be really hard to do in some other way.
Shamir: There’s a few, not all of whom I can talk about. So, I’ll pick one of my favorite customers and they’re not necessarily that large, but they’re really cool and innovative, so I love talking about them. It’s a company called Fabrica and they do NFTs, but they do NFTs for land. So, if you go to www.Fabrica.Land, I think is their URL, you can sign up and they’ll verify your identity, link your bank account, and then you can go and you can buy a piece of land and they have a list of them and you can go buy like two acres of land in Southern California or middle of nowhere in New Mexico or Nevada or whatever. It’s a large country and there’s a lot of land out there. And an acre in Nevada is like, you know, $5 grand or $10 grand. You can buy on Fabrica legal ownership of a piece of land, which is sold to you as an NFT, which I find very cool because there’s this whole explosion of NFTs in the last 24 months. But most of them, when you look at it and you’re like, “Hey, what does this legally give me ownership to?” And it’s not very clear. Does it give you IP rights? Does it give you anything more than bragging rights to a piece of art as an example? And with Fabrica, it does give you legal rights to a piece of land.
They built the infrastructure on the back end, where they create a special purpose trust, move ownership of the land into that trust — the beneficiary of the trust is whoever is holding the NFT. They built all that infrastructure to do that. But on the flip side, when an NFT goes from John Smith to Jane Doe, and maybe Jane Doe goes and builds on the land or sells it onward, that’s her choice. Money has to go the other way, and they use us for that piece of it — for the onboarding, the identity verification, pulling the money out of somebody’s bank account, transferring it to somebody else’s bank account. And now, doing more sort of DeFi-ish sorts of things where it’s like the seller of the land can actually finance it and say, “Hey, instead of paying me $20K, you can do $2,000 bucks a month for 10 months. So, they build the on-chain capability to do that, but use our infrastructure on the back end to do all the money movement and the regulated functions behind that.
Chris: I think that’s a really cool example. And I like that there’s a product that in some ways is extremely crypto in this kind of NFT format. And yet, there’s the realization that you kind of need to use the existing financial infrastructure in an elegant way to be able to do what you want to do here. And Sila really fills that gap and natively can speak both languages. I want to switch gears a little bit here because we’ve talked about Sila for a little bit, but the other thing that you always have a pretty good beat on is the crypto and Web3 market in general. I’d love to understand how you think about the crypto market now and what should we make of the downturn and the noise that’s gone on, and where do you see the category and the overall market going from here?
Shamir: I think it’s actually a very exciting time in crypto. If you look at all the large crypto companies that are out there now and the folks who have real traction, most of them actually got started in the 2017, 2018, early 2019 timeframe. That was the last bust that was the crypto winter in which Sila got started as well. Crypto, especially you tend to see it’s almost like hypercycle, right? Every three, or four years you have a huge boom. And during the boom, a lot of projects end up getting funded — not necessarily from VCs. VCs actually are a late entrance into crypto and Web3— a lot of crypto fundraising has historically been community-driven. But a lot of projects end up getting funded that don’t look like very good ideas definitely in hindsight, but maybe a lot of people even in foresight thought they weren’t in great ideas. And then there’s a market crash and a lot of those ideas end up failing and these projects end up failing. And a lot of people lose money and then a lot of the air, but also a lot of the fluff, gets taken out of the market.
So, I suspect the things that are getting started now and being built now will drive the next boom three, four years from now, or maybe 12 months from now. I don’t know when the next boom will be. I’ve never figured out how to time these things. But we’re definitely in a crypto bust right now. I also am totally convinced that this is the cyclical nature of crypto. It is frustrating sometimes because it makes investment hard — you’re always on a rollercoaster, right. And people are not used to rollercoasters. But the markets will be back, and a lot of good projects will end up getting built now that will drive the next wave. And I think that’s true even in FinTech — the other space that we also operate in heavily. People look at the crypto boom and bust, and I think the FinTech boom of last year was just as big. And maybe the bust is just as big. But I think the same is true for it all. The underlying driver of this is global financial services is something like 20, 25% of global GDP — global GDP is like $100 trillion, a little bit more. So financial services like $20 trillion, and that’s annual revenue. But out of that $20 trillion, it’s like 1 to 2% of that is in FinTech and crypto. I think we are going to see in the next decade, that 1% go to like 10%. Even if you look in the world of the 2030s, like Chase and BofA and BNY Mellon, they’re not going to be gone. They’ll still be giants. They’ll still be doing a ton of business, but more and more of it will move to the new world. And that’s this underlying secular trend that’s driving FinTech, that’s driving crypto and Web3 and driving whole new use cases, products, and industries that we couldn’t even imagine a decade ago.
Chris: That’s a great segue because I was going to ask you on this theme of kind of crypto and Web3 overlapping with FinTech, maybe my personal thesis is: We need to see new and stickier and higher utility use cases emerge so there are good long-term reasons for users to use both of these rails and merge them. One way I’ve thought about it is, so far, the blockchain Web3 ecosystem has come up with one killer use case, which is cryptocurrency. Whether or not there’s volatility, we can say, “Hey, that’s a good use case”. The second use case, maybe it’s DeFi, maybe it’s something to do with NFTs, that’s still emerging.
You are sitting at a great spot where you get to see both sides of this world and your customers are the ones building those use cases. So if you look forward and you say, “Hey, here’s how this kind of crypto, FinTech overlap is going to emerge or going to continue to grow.” You know, what types of those use cases would you be most excited about?
Shamir: I think a lot of what’s going to happen over the next cycle and probably the next couple of cycles is just going to be increasing adoption. So, there was Bitcoin and Ether, and then there was this whole ICO boom, which drove the last boom back in 2016, 2017 — that went bust. And most of those cryptocurrencies went nowhere. Now we can look back on it and a few of them actually survived and built lasting ecosystems, whether it’s, BAND or Solana or whatever, but there were 2,000+ cryptocurrencies of which maybe 10 to 20 turned out to really hold value.
I feel like a lot of that needs to happen in the DeFi and NFT space as well. And when you look at an NFT, it’s like, what is this thing? It’s sort of a programmable token. It’s just a standard — on Ethereum, the ERC-721 is kind of the core of it. It is what you want to make of it. So, you have to really look at each NFT project or issuance and be like, what is this actually getting me? A lot of it early on has been around digital art, because that’s frankly, the easiest thing to move and sell online — you can send people to JPEG. It’s not hard.
The questions around what actual ownership is it giving me? What most people buy and sell in the real world all the time is not digital art. It’s not even physical art, it is phones, cameras, cars, houses, and every other type of real physical asset and virtual asset, whether it’s IP rights, whether it’s music, whether it’s video, all of those things. What NFTs really give you the ability to do is to program with those on a blockchain and build new sorts of applications or uses for them. You could not trade a piece of music across the world a few years ago, right? I feel like it’s those sorts of things that NFTs will get into, but the problem is, the more you get into the real world, the more you run into regulation. All of these markets are heavily regulated. The reason why the internet revolutionized advertising and tech and email is because those were not in regulated markets — it was easy.
All of this, whether it’s Uber with transportation or OpenSea with NFTs or whatever. These are regulated spaces, and if you want to get into them, you have to understand the complex mix of local, federal and international regulations. Because customers —they just want to go online, they want to buy cool stuff and sell cool stuff. And the fact that the buyer is in Nevada and the seller is in Vietnam, they don’t care, they’re part of the same online community — why can’t they sell to each other? The mess of laws between them is the real problem. So I think more infrastructure will get built to solve specific problems that will enable more of these applications and use cases to take off. So, a lot of the future is just more adoption, but what I call real adoption of DeFi and NFTs. I think we’ll see more interesting use cases combining this crypto and Web3-community-first approach with more and more real and virtual communities. Traditional finance wasn’t really designed for that. I think crypto naturally is. I think we’ll see a lot of that over the next, oh, probably 10, 20 years.
Chris: I actually saw a — you would probably know the name of this — I’m forgetting the name of this. There’s a version of NBA Top Shot for Premier League cricket. And I actually went to go try to buy. I was like, that seems like a good idea. I, I take, I own some of those NFTs, and I went to try to buy them, and they’re all sold out and you know, it was like, “Hey, come back at some arbitrary time. And hopefully, we’ll have some more of them.”
Shamir: Yeah, the cricket world tends to be heavily driven out of India. So, you might be in the wrong time zone. You might need to buy those things at like, you know, 2:00 AM Pacific or something and yeah, that’s the thing, right? The cricket following is so huge, but it is global, but it’s not really U.S. centered at all. Who in the U.S. plays cricket or cares about cricket? But a lot of Indians, Sri Lankans, Bangladeshis, Australians, and Britishers — the old British Empire — does.
I think that’s another thing that the U.S. as a country and as an economy is heavily financialized, right? Well over 80% of Americans have bank accounts, and lots of people have credit cards. It’s not like it’s easy to get a mortgage, but you could get one and it’s not super hard either. It’s just painfully processed, and paperwork driven. You look at the rest of the world and 80% of people in Africa or Asia have never had a bank account, and they’re just getting their first smartphones now. A lot of these people have never bought a single stock, never gotten a single loan, and never had a single bank account. And for them, they’re probably going to go straight to the crypto solutions. Because those crypto solutions are designed for them and the communities. They operate in.
Chris: I think that’s a really nice perspective. And I also think it’s good to point out that that’s a huge source of opportunity and can be a blind spot for us in the U.S. where we are so heavily financialized. And some of these tools are very natively, easy, at our disposal, in the traditional world, but for other places or for international things like cricket, that’s not quite the case.
I’d love to wrap up a little bit back on Sila and just more on your journey, which is you’ve been an entrepreneur now for a long time. This is your second, maybe arguably third company, always kind of at the forefront and in these emerging spaces. I’d love to know, if you think back over that career to date, what do you think the biggest lesson that you’ve learned from company building is, or what’s the most interesting thing that you have come across in your journey?
Shamir: I think one of the things that I’ve taken away is that market timing is impossible. I haven’t figured out how to do it at least, but persistence is massively important. Like, you might be a little bit early to a market. You might be a little bit late to a market. Or you might time it perfectly. You don’t know. You only know this in hindsight. Once you go public on the NASDAQ or whatever, you can look back at it in 10 years and say, “Yeah, I really should have started Simple in like 2011, that would’ve been the right thing to do. I’m like — Who knew, right? But if you’re persistent and you keep building and shipping, you just increase the odds of success. And ultimately, it comes down to knowing who your customers are and what value you’re delivering to them and staying close to them. And I try to do that even now at Sila, it’s hugely important because ultimately, that’s what everybody’s here for. They’re here to serve our customers and our customers typically are here to serve their customers. As long as you keep working with good people, doing good things, and keep pushing forward and stay persistent, you are increasing your chances of success. The hard part of it is — I know many people who did that and still failed. And then many people who didn’t necessarily do that that well, but still succeeded. There is a large amount of luck and a large amount of market stuff that drives outcomes in this space. That’s the frustrating part of it. All you can do is just do the things that increase your odds. If you’re around long enough, you’ll get dealt some bad hands, but you’ll get dealt some good hands too.
Chris: I love that. Be persistent, deliver customer value, and increase the odds of your success. I think that’s great advice and feels like a nice place to sort of wrap up. Shamir, I can’t thank you enough for joining the podcast today. It’s been a pleasure to be able to get to work with you for the last couple of years. And I keep looking forward to working together in the future.
Shamir: Same here, Chris. Thank you for having me.
Coral: Thanks for joining us for this week’s episode of Founded and Funded. If you’re interested in learning more about Sila, please visit SilaMoney.com. If you’re interested in learning more about Madonna’s take on crypto and Web3, head to Madrona.com/insights. Thanks again for joining us and tune in in a couple of weeks for our next episode of Founded and Funded.