Fintech Startup Proves Longevity Prioritizing Customer Over Capital

[00:00:09.160] – Marshall Smith

And welcome to the next episode of “Ventures in WealthTech”. I’m your host, Marshall Smith. Got a great guest with me today, Robert White, founder CEO of BaseFund. Welcome to the show, Robert.

[00:00:22.760] – Robert White

Marshall, thanks. Good to be here.

[00:00:26.440] – Marshall Smith

So I think we got to start out with the most important thing about yourself, and that clearly is that you’re a Baylor Bear fan. So just tell my podcast audience what it’s like to be a Baylor Bear football fan.

[00:00:40.690] – Robert White

Baylor Bear football fan, you went right for the jugular. It’s hard being a Baylor football fan and super exciting at the same time. I would say I’m so much a Baylor fan that I have a hard time watching Baylor. So I can’t stomach some of the losses, some of the issues, but man, Sick ‘Em Bears.

[00:01:02.060] – Marshall Smith

Well, give me your hot take. What’s the future of the Big Twelve? What’s the future for the Baylor Bear Conference alignment?

[00:01:15.410] – Robert White

Well, after our BYU loss and then coming in, it looks like we may have things well taken care of in the Big Twelve. So I would say best of luck to the Longhorns and the Sooners and I think we’re going to be okay. Let’s not forget about basketball.

[00:01:31.870] – Marshall Smith

Oh, that’s true. That’s true. Men’s and women’s basketball, probably the most prolific team or the women Baylor Bayer basketball team. So alright, now that we got the important topics, our audience is dying to know how the Baylor fans are surviving in this crazy college football world. Let’s jump into some wealthtech. So you and I have connected about your company, BaseFund, but just give me some of the background. Like how did you come to start BaseFund?

[00:02:02.660] – Robert White

That’s a great question. Yeah, super interesting kind of story. I would say just to kind of start, I think I just turned 40 years old, and so I’m coming at technology and career in kind of a unique way, but a lot of people are in that I grew up in kind of this analog generation of life, and then I go to Baylor College and everything converts or starts to convert to a digital world. And so you get this perspective of seeing both realms and then applying both realms to the corporate world has been kind of a fascinating one. One of which that has been met with resistance for sure on changing of old generations or business processes, and also one that’s super exciting seeing what all the younger generations can do much better than I can. For example, my two daughters and son are our IT department of our house. They literally can program and set up things better than my wife and I. We’re mixing these two worlds now in the business world. And so that kind of conceptual background was some of what I applied to my career and day job in baseline to give you a little context.

[00:03:33.160] – Robert White

BaseFund is a fintech platform, software platform in the municipal bond space. And, man, I can tell you, if I start talking about municipal bonds, I can literally see people’s eyes glaze over, and they’re just not the most exciting topic. And I find it somewhat interesting because municipal bonds are actually a ginormous market, $4 trillion market, two thirds of our infrastructure in the United States, it’s financed by municipal bonds. So anything from Golden Gate bridge and the Erie Canal back in time all the way. Fast forwarding today, all your elementary schools and high schools and those amazing football stadiums and high schools that you see in Texas are financed by municipal bonds. And so there’s some cool financial techniques and puzzles that the municipal bond space fills. And so, thankfully, I was a part of a really great team and learned this niche space and saw some of the problems and needs of tech that needed to infiltrate the space.

[00:04:40.760] – Marshall Smith

Yeah, that’s cool. So one of the things I love to hear about when I talk to entrepreneurs is a problem they experience themselves and just like, how that gives them such a unique perspective around the company and the product that they build. Maybe tell us a little bit about maybe the pain and toil that you went through working this municipal bond space and how that informed the way that you built BaseFund.

[00:05:09.930] – Robert White

Yeah, I would say there’s lots of issues in the space, lots of problems that we see, and it’s not exactly hard to pinpoint those problems living in today’s world. So, as an example, I think most of us listening to this podcast and living out there have online banking. We don’t have to call a banker to ask, what is my checking account balance? Or I don’t have to walk into a branch just to do some kind of banking need. We can literally log in onto our phone or onto a website and see everything and do a lot of actions. And so I have that kind of framework, and then I’m seeing a day job in municipal finance where everything is kind of stuck in the only spreadsheets, no databases, and you just do a lot of manual, repetitive work. We used to joke we spend more time formatting than we actually do analyzing. And so there’s just basic tech tools that need to exist to add efficiency to a market that transparency. And then in today’s world, we have cyber risk and cybersecurity issues. And I think a lot of that is targeting just a lack of digital aspects to our business.

[00:06:44.100] – Robert White

So we’re still using paper information and sending it digitally rather than actually having a database that could be protected, encrypted, etc. And so it’s a targeted area in space. And so I think the way to help fight some of these problems is to bring the whole market and industry up to the 21st century.

[00:07:04.010] – Marshall Smith

Yeah. So I follow this guy on Twitter named Nick Huber and he has this podcast called Sweaty Startup and him and one other person, Cody Sanchez. And so they’re kind of like the two most, like, contrarian people that I follow when it comes to like, fintech and startups because they like love to dog on fintech and fast and B2B and how much money you got to get in funding to go build your product one day, make money. They’re always contrarian. And like the example they like to give is find a business where somebody is making money and they use a fax machine and go and compete with them. So like, more or less find a business that’s using antiquated process and technology and the calls are flooding in and a lot of that’s in the service business like plumbing HVAC type businesses. But the point you’re kind of pointing out is like you jumped into an industry in the municipal bond space where spreadsheets and Word documents and PDF sitting on hard drive contains all the key information about those securities. And the people who need to know about them, it sounds like, have to call up their broker, advisor, bank, and whoever it is and say, you know, I need some information on my multimillion dollar fixed income product.

[00:08:34.390] – Marshall Smith

And you’re kind of getting at the same thing. So like, what have you done? Or how did you go about solving that and advancing that forward?

[00:08:45.340] – Robert White

Yeah, so I would say I actually started this whole pursuit in technology and ran into a bit of an issue with a change in tax law that threw my original software idea out the window. And so literally two years of work that we had explored and developed and done changed overnight and you talk about a state of depression is to get super jacked up on ideas that you think are revolutionary. Or if they’re not revolutionary, they are game changers for a market that so desperately needs change and then to see it change for you in the opposite direction is difficult. And so I would say being light on your feet in the entrepreneurship space is key. Surviving long enough so that when the opportunities present themselves, you can attack them. And so, thankfully, I was introduced to some of the best technical folks that I could have imagined having on a team. And so I always like to say, like, if you’re starting a business and you’re needing funding, right, I would personally place a bet on companies that are well funded with expertise and experience over outside capital. And so that was at the heart of what we were building is let’s fund this with someone that knows an industry sector and expertise in that realm for product building and then back that up with someone that has technical chops to build out that dream of change.

[00:10:29.310] – Robert White

And when you pair those two together, then you kind of have a winning formula to then attack a space and be able to pivot and stuff like that. And so, yeah, we’ve had pivot in our story. And again, now I’m starting on the product where I thought I would finish in the product. And that is just welcome to the world, right?

[00:10:50.440] – Marshall Smith

Yeah. That’s cool. I mean, you bring up another concept here. It’s about the entrepreneurial pivot to chase an idea and chase an idea and believe in an idea, but then realize it’s a dead end. The road to take it any further is to kind of waste time and energy. And so not a lot of entrepreneurs like to talk about their failures or their ideas that didn’t turn out to be successful. But in my experience, that demonstrates a humility to want to try things and let data and evidence prove that the idea is successful versus it’s my idea and I want it to be successful. So that’s actually an attribute I love to see in entrepreneurs is tell me about a failure. Tell me about a business idea you ran with or product function or feature you thought would just be amazing and had an entrepreneur office today that basically talked about how he built the whole first version of the product. But then when he brought on a team behind them that were better product engineers and other people, that effectively they threw the whole thing out the window because they needed to start over with new principles and new ideas and a new way of doing it.

[00:11:58.870] – Marshall Smith

And he had to swallow that and be like, you know what? That’s the best way forward. Let’s do it. Yeah. So you brought up this concept of it sounds like a co-founder who has a lot of the technical skills that you don’t have. So maybe tell me a bit about the dynamic with BaseFund and your cofounder and just how you work through splitting up the work, who does what, and what that’s like.

[00:12:25.840] – Robert White

Sure. Yeah. So in getting started working with the technical team, I was working on spreadsheet calculations that I felt like needed to exist for the platform to really function correctly. And as I dove in to these calculations, my spreadsheet got longer and longer. And I learned about coding to some extent through Excel, on if the statements within Excel and making an Excel spreadsheet actually function as if it were software, knowing that it would have a limit of what it could do. But needing to kind of prove that it did work so that I could take it to a team that could then turn it from Excel spreadsheet into code and scale it. And so it was interesting to me. It took me almost a year on product number one to build out the spreadsheet that could solve 1000 different variations of price, yield, and interest calculations. But it took my developer less than a month to code it all in and make it work. And so I saw it through that and seeing the power of what he was doing versus what I was doing. And so some of that mixed in and then from a business perspective, we took a little bit different route.

[00:13:41.710] – Robert White

So the company that ended up developing was actually developing for equity rather than developing for money. And it was an interesting distinction to me because I was trying to keep my day job while building this on the side and having that flexibility with not having to come up with a couple of hundred thousand dollars to get super quality developers to build out a program was clutch. So instead I could give them equity and we could share in the sweat of building a product and the features and whatnot. And so it really worked out for us. Although the first product iteration didn’t work out, grand market had a different idea and so we went a different direction. But now pivoting, I had built this trust with this group of guys and they had built a core tech stack and platform that we could build on top of and use what we built and pivot quickly. And so just through the way they build everything from automated testing to continuous integration and deployment, a lot of these things building straight from the beginning and not having to go back and take a legacy system and add some of these kinds of qualities was huge.

[00:14:58.060] – Robert White

And so we have this kind of cutting edge tech stack and platform and then we’re applying an archaic industry on top of it and it creates magic and it’s fun to see. And now we’re at that point in business where it’s like, okay, we got a good product. And at some point, you need to stop building that product and adding feature after feature after feature on what you think the product needs and the industry needs. And then let the customer base and those clients tell you exactly what the future of the product needs to be and how it needs to be priced, and gather that data that can really help drive growth and scaling of an actual company.

[00:15:36.110] – Marshall Smith

Yeah, love that. So we kind of shifted to technology and how it can be used and getting client feedback over kind of continuous internal hypothesizing of what customers will want. It makes me think about Web 3 because everybody wants to create a Web 3 solution and to some degree there’s people out there basically saying web 3 is a solution without a problem. It’s like a problem, it’s a solution looking for a problem, I should say so. A lot of people have thought about this financial space, the bond space, the security space, and said, blockchain Web 3 decentralization. This is the future. Let’s destroy all ledgers and let’s move to the future with all blockchain, destroy all the old systems. And so I’m curious what you think about that in this municipal bond space. Is it ready for Web 3?

[00:16:45.110] – Robert White

Great question. So tech is so fascinating, right? Some of the new things that we’re all talking about now, even two years, three years ago people would have been like what are you talking about? What’s web 3 and what’s Web 2 oh and what is blockchain? And I think to some extent some of us still have a hard time answering that because we haven’t seen some of the products applied to just our everyday lives. And so we’re conquering some really big problems or trying to conquer big problems with it. And I think sometimes maybe this isn’t always true, but I think it’s going to be true for my space is if you try to go too big too quickly, you have a greater chance of failing at it. And so I always say we’re stuck in web 10 currently in the municipal space. And so what I mean by that is basic kind of websites and Microsoft Office products and so to convert from spreadsheet to blockchain is such a tall ask in order to do. And so I think evolution of taking a web one industry and exposing web 20 to it will allow a better industrialization, so to speak, have that ability to take place and go from web one o to and then go even quicker to web three oh.

[00:18:16.720] – Robert White

And I think Web 3 has a lot of promise and even particular parts of it have an almost perfect fit for a municipal bond space. And so I’m excited. But I think what we’re building has the potential to help transition people from 10 to 30 by placing a 2 product in there and helping some of the middlemen and everybody that helps process deals and bonds in the market except some of the tech to get us there.

[00:18:46.610] – Marshall Smith

Yeah. Wow, that’s interesting. So essentially what I hear is like a practical founder, practical founder, founders think about where is the industry today, where can I move it forward into the future to build a legitimate revenue producing, client impacting, co worker building business like a real business. And I think a lot of the venture capital market can be dominated by people who are driving towards a vision into the future that may be achieved at some point but may be difficult to get them from mainframes or in your cases at least you’re on spreadsheets. A lot of the wealth tech that I deal with is it’s starting on a mainframe so that’s like cobalt and stuff that isn’t even able to be accessed on a laptop or on a phone. And so how do you get it to blockchain is just a massive leap. We’re still working on getting banks and wealth managers off of mainframes and onto cloud deployments and out of it almost be moved forward if it was on their hard drive document. So that seems like a really practical approach to think about how I could solve a problem with Web 2 technology and then one day get to Web 3.

[00:20:13.460] – Marshall Smith

What would be your estimation of when your space municipal bond issuances and payments of those bonds, all the payers and the issues that you’re kind of solving? When would you expect it to get to a blockchain type world?

[00:20:29.740] – Robert White

I wish I could answer that question. I don’t think I can be a prognosticator of that. I think I want to put BaseFund in a position to be the one that can capitalize on it when it’s ready. And I think by exposing and getting into Web 2, it will give you signals of when it’s ready. And so I always like to say let’s target where we want to go or where we think something is going to go. And then work backwards all the way to the very first so that you can build out not only the product, but also the process at which the product may need to take to get it there. And you may be wrong, and so pivot comes in, but at the same time, going through that process will allow you to think through, man, how am I going to convince the whole industry to change to something that’s decentralized and out there? And it’s helpful to them without first telling them what a database actually is and why they need it. And so let’s pull data off your documents and put them in a database. And if we get it down to the most granular level, then we can build more and more features that are helpful in today’s world and let those features evolve into a Web 3.

[00:21:45.260] – Robert White

I hate to even say because, I don’t know, it could be next year or it could be ten years. We’ll see. And so that’s, I guess, my best guess at this point.

[00:21:54.240] – Marshall Smith

Yeah. So maybe orient a little bit to who the different players are in this space. So everybody thinks of municipal bonds, the city’s name, the school district’s name, the state’s names on the bond issuance, but who are the other players in this ecosystem, and then who are you targeting? Who’s your target audience to sell BaseFund to? Yep.

[00:22:18.570] – Robert White

Okay, so BaseFund is a platform, and I think a lot of people overuse the term platform in the software world, and some of these people are actually just building software and in a traditional sense. And so I think a platform needs to be something that connects people together and allows those two people to interact on your software without your help and need in fostering every little thing that’s done. And so baseline is built. It’s kind of a three headed monster of a market on the sell side. And so on the sell side, what I mean by that is the initial primary market issuance process of taking municipalities that want to finance capital improvement plans or projects and putting that into a bond election or a package that needs to be approved by a board or a council and then taking that all the way into financing and locking in rates. And then from there process of making payments on that debt over time and managing debt thereafter. That process is typically handled by three different people. There’s actually a lot of people that are involved but I’ll give you the kind of three main fiduciaries and decision makers on some of the stuff.

[00:23:39.660] – Robert White

And that is you have a municipal advisor which is like a financial advisor or an investment banker. They are contracted by a municipality to help them through the entire process of planning out that financial profile and picture and managing it thereafter. And then you have the municipality, they have the projects that need the money and the capital to finance and finance their growth and their citizens. And then from there, once the bonds are issued and they’re outstanding, you have banks or financial institutions called trustees or paying agent banks. Also terms that are invoicing for the principal and interest payments and then collecting that money to then send over to the buy side where bond holders and pension funds and endowments and stuff and get those payments of interest on those bonds. Baseline exists right in the middle of the financial advisor, the municipality and the paying agent, giving a database a system of record that can exist between all the people, and then it also is a self service platform. So municipal advisors can manage their clients and their debts and their future all on the platform without base on needing to touch or do anything.

[00:24:54.600] – Robert White

And so the same is true for the municipality. It can get the data, it can make payments with the paying agent bank without the need of baseline and paying agent banks can connect and match up and verify data between those two parties all in one solution, again without the need of BaseFund. So BaseFund really in a way is like Uber. It’s like we are the technology that exists to connect a person that needs arrive and a person that’s willing to give a ride. And so we’re software that’s right there as a true platform sitting in the space.

[00:25:25.990] – Marshall Smith

Yeah. So that’s really interesting. You got these three different parties that are really served by the platform. They can all interact and solve problems for each other. So what would you say the key value proposition that you’re going to be able to essentially monetize? So do you go after the municipalities, do you go after the financial advisor, investment bankers or you go after the paying agent bank? So one of the challenges in any fast business is figuring out there may be multiple parties that are enabled or benefit from this business, parties to the transaction, but typically it’s only one of those parties that ends up being the person who pays for the platform. So what does that look like in your space?

[00:26:09.710] – Robert White

Yes, I would say that anytime you have a platform, whether it’s a two person platform or a three person type of platform, you’re going to want to curate all three people, all parties to get economies of scale or network effects within the platform. And so that’s what we are doing is pursuing all three simultaneously but with the main focus on municipal advisors because they typically are the ones that are controlling the financial process and issuance and then the other two parties are the post issuance process. And so we’re attracting more of the originators of how debt comes to the platform and into existence and then giving features and tool sets to the other people to connect and manage it within baseline is literally building features and tools for all three parties simultaneously. But we think that the municipal advisor is probably the better one to pay. There’s less of them that are managing more of the others and so it’s an easier business scale to attack the municipal advisors. And if they’re using it and then they have preexisting relationships with those people then they’re more likely to put those people onto the platform than I will be.

[00:27:24.510] – Robert White

And so it’s a combination of all of those things to really make this platform work. And then from just a basic business model, what you’re looking at is just your typical formula what are the benefits of my software minus the cost or the effort of implementation equals value. And so how can I create value for these people? And so it’s gearing your product and along with your pitch on am I going to be chasing more of the benefits for these people and are those benefits enough? Or if the benefits aren’t quite enough of my product, do I need to really decrease the cost or effort of implementing that product so that they can create value? And so for us it’s a big educational effort on the whole industry, on the bid for tech and proving that to them. And so we’re an interesting use case of applying a lot of different frameworks, business philosophies and technology philosophies under one roof and we’re just hoping that we have enough time to kind of prove viability and take this for a long game.

[00:28:33.710] – Marshall Smith

Cool. Well, just kind of as we wrap up here, one of the questions I like to ask all the guests on the show is just to talk a little bit about getting the mind of an entrepreneur who’s raising capital, who’s growing something new, that’s building a team and all that goes with that. And so First Rate was founded with an impact model that serves to benefit clients and co workers and community through being in business with First Rate Ventures. We’ve added the fourth to that equation, that’s capital. And venture capital doesn’t always have the best reputation when it comes to benefiting clients and coworkers in the communities of where those businesses do business. But we’re trying to figure out how to do it better. So I’d love to hear from you as an entrepreneur who’s raising capital, who’s going out to the market and delivering new solutions, just how venture capital, fundraising, startup life, maybe how could be a bit more redemptive, something that you could see may be challenges you faced, pinches you felt where the stakeholders of the startup world are maybe not best served, and some things that maybe if you could change, you would.

[00:29:49.390] – Robert White

Yeah, that’s such a good question. I think you’re going to get different answers from everybody. But I do think there is this philosophy over the past decade that we’ve seen in media that’s presented to us that VC capital or private equity capital is your end goal once you get that you’ve made it as a business. And while that’s so interesting to look at, it’s also very scary. If you’re sitting as an entrepreneur and your main goal is raising money, then it feels disconnected to the business purpose. And so I would say while it’s so vital and it just really depends on what you’re pursuing and how much capital you would need to actually build your beta versions or your first version so that you actually can try to go prove liability. You have to make this decision on like what is best for me. And it’s hard not to look at how cool it would be to get some big name VCs that look at your software and they believe in it, man. And everybody else is going to believe in it. And I can get a pile of money and I’ll get a huge value and all this stuff, but you just have to be careful.

[00:31:05.140] – Robert White

And so like I said earlier, I really wanted to fund based on with expertise or experience and more of that knowing that we would need funds. But I also just really at my core belief in customer funded business models or capital efficient growth models, meaning let’s take capital and provide some of those constraints, but then let that drive organic growth and let your customers tell you what to do with your product. Let the funds come in from those customers and then create true growth from capital that’s viable from within the business. And the interesting thing about that to me is like if you can capture that, you have a better chance of getting VC capital anyways. I think it’s all about this initial focus and if you have a lot of passion and you believe in what you’re doing, it’s huge. And then if you can attach some expertise and the ability to build something and with some capital you’re giving yourself the opportunity to expose markets and opportunities. There’s just a healthy balance of all of it. And I think First Rate type of organization that they are that you’ve told me about and seen and you all attaching the capital in there is huge because you’ve been through a lot of what you see in startups all the way to operating businesses. And now you’re applying capital. You’re not just a capital first company. And so I think that provides unique benefits to companies out there that’s different than your traditional VC, even though some of those VCs might have guys with those experiences. Their whole goal may be contradictory to what you’re trying to do and growing your business because they have a shorter time frame than you might.

[00:32:46.090] – Marshall Smith

Yeah, what interesting insights. Just the capital efficiency and letting customer demand really drive where that capital goes to the features and functions and capabilities that people actually want. I love that perspective. Sometimes I’ll find these companies that kind of go from accelerator to accelerate, from pitch contest to pitch contest, and I wonder sometimes, are they just really good at raising money? Are they really like that is their key skill set. And essentially by keeping the narrative going, they keep their company alive, and they’re moving from one event to the next to enable that instead of I think what you’re getting at is hunkering down and figuring out what customers want and figuring out what they’ll pay you for it and letting that drive what you do. And that’s a really cool perspective. It’s perhaps a contrarian perspective from companies that are in your space at your stage, but I love it, and I think that’s unique and a really good way to think about how the space can better benefit following the money and not the capital that you can raise following the revenue.

[00:34:06.640] – Robert White

Yeah, well, it’s not important. I’ll tell you this firsthand. I’ve seen it in another company that I was a part of and helped found, and it is if you have really good salesmen. People that probably are really good at raising money right are the same people that are also really good at selling products. And sometimes we can focus too much on perfecting a product and you spend all your money and all your time building what you think you need. And really what you need is someone that can really sell anything. And then once they start selling it, then you can backfill with really great product. So there is a balance that you have to be careful of. And so I will say I’m being a contrary to my own thoughts here.

[00:34:46.240] – Marshall Smith

That’s good. Well, I really enjoyed having you on the podcast today, Robert. We’ll talk to you soon.

[00:34:55.160] – Robert White

Yeah. Thanks, Marshall. I really appreciate it, man. Have a good day.

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