How Innovation is Eating Wall Street: Q and A With Sasha Orloff, CEO and Co-Founder of LendUp

In this Q and A, we speak with Sasha Orloff, CEO and Co-FOunder of LendUp and get his perspective on fin tech startups, regulation and what he is looking for when hiring for his startup. Sasha Orloff and three other C-level fin tech executives will be speaking at the next Uncharted Minds: Fin Tech Executives from Aspiration, LendUp, SoFi and Maveron Explain How Innovation is Eating Wall Street.

1. Is all the excitement in fin tech just an investment trend? Or is it driven by fundamental changes in the industry?

Fin tech as an industry has been one of the highest-performing categories in terms of venture returns, but receives some of the lowest amounts of investment in total dollars from venture capitalists. This is understandable, history has shown only a few fin tech grand slams in terms of returns, Paypal and now Lending Club. Financial services is rarely a winner-take-all category. There are very few companies in fintech that dominate their category, like Facebook or AirBnb.

Financial services is one of the biggest industries around, and it appears that software will eat this industry as well. There are a lot of great firms like QED Investors, Ribbit and Core Innovation Capital, who focus almost exclusively on the category, and DST, Google Ventures, and Sequoia have really good fintech portfolios.

My best guess is we will continue to see a wave of investment after Lending Club and OnDeck provided great returns to VCs, and the filings of SoFi, Oportun and Square could attract attention to the importance of this sector for years to come. Because the fin tech business model is now clearly defined.

2. Regulation is a significant hurdle for fin tech companies to overcome, what advice do you have for entrepreneurs to navigate it?

There is a huge opportunity right now for a forward-thinking law firm to align themselves with startups, replicating in the legal area what Silicon Valley Bank did for startups in banking - creating a model that works for early stage, but also getting warrants to absorb the early stage risk, and align their success with a startup’s success. A law firm's business model is structured to keep you out of serious trouble, else they would ruin their reputation and not get more clients - but not completely out of trouble, because they make more money when you need them.

The unfortunate result is we either see a lot of startups not getting off the ground because the legal and compliance concerns create high setup costs, and most VCs traditionally don't want to pay for figuring out a business model. Skimping on the legal portion in the early stage can cost a company a lot more in legal fees later on.

Here is my practical advice, based on what we did at LendUp, in no particular order:

Make friends with startup founders in similar but non-competitive industries to share templates and frameworks for policies and procedures. Founders will tend to be more open to sharing, because they know how hard and expensive this was for them to do.

Find lawyers who will be advisers and take equity, or deferred compensation.

Join an incubator or accelerator that has other fin tech startups. This gives you access to a network, like Y-Combinator or 500Startups

Find a compliance person or young hungry lawyer, and ask them to be your co-founder.

3. What area of financial innovation are you the most excited about? What are you least excited about?

I am super excited about these three ways technology is improving financial services.

The first is accessibility. From Stripe enabling payments to be seamless, or Zenpayroll to provide easy access to your payroll. Fin tech start ups are lowering the barrier to access complex services that were in past reserved for large player, with deep pockets.

The second is transparency. The way Square has brought simplicity to merchant processing pricing or Lending Club pioneered pricing transparency with their "check your price" before you have to apply for a loan system is great. Or how Credit Karma brought credit scores and credit reports to everyone, for free. I mean, how great is that?

And third, I am calling the "better together" models like Prosper or Crowdtilt where technology enables certain efficiencies that bring groups of people together to have a greater impact.

I am least excited about regulators ability to keep up with the pace of innovation in general, and with our current political system, it is really hard and expensive to get anything accomplished, even if it can cause such massively positive impact.  For example, enabling a framework for a national charter for payments or lending, or allowing educated and talented international developers and data scientists to come work here in the US.

Both are solvable and regulation is always catching up with market needs. It’s frustrating because there is so much potential for our government to fuel better financial services, create jobs and enable innovation, but I am not optimistic it will be solved easily when one considers how challenging it is to get anything accomplished in DC these days.

4. What will the financial industry look like in five years time? How about ten?

I have this debate all the time with investors and bankers. I think the banking industry will move back to what they do best - being a custodian of consumer deposits and risk management. Which means startups will be able to build better consumer products, because they have access to newer and more flexible technology.

Startup enabled innovation and forward thinking banks will cash in on the fee revenue associated with the innovation, instead of continuing to invest in failed consumer products.  

Wells Fargo, Webbank, BBVA, Amex and Capital One are doing a the best job of the bunch, but not nearly enough and it is showing in their earnings per employee. The market for customers under 35 is still up for the taking, and I am not sure banks are well positioned to react to their fast changing needs. They have too much legacy technology and an ever increasing regulatory burden to manage. Which only gets more and more challenging, and expensive, as the years go by.

5. What advice do you have for prospective employees who might want to join your company or team? What are three key things that you're looking for from them?

I can only speak for LendUp, we are hiring for a variety of positions. We are different because we are a mission driven company, so take this advice with a grain of salt.

Here is what we look for:

Are you passionate about a mission (ours is bringing credit building opportunities to consumers whose banks won't approve them for credit)? Don't tell me, but show me that you have a greater purpose, and want to make the world a better place. Do it through volunteer work, like experience at a mission driven company, or a non-profit or even a through a passionate blog.

Learn how to code. Take a General Assembly class, or some other code boot camp, or just hack away and build something on your own. Working at a technology company means you will be more effective if you understand how software or databases works. Even if you never code again, it is an important skill set to have.

Show me you know how to execute. I personally hate the words "strategy" and "brand", not because they are not important words, but because they mean you like to think or talk more than you like to deliver results. MBAs are notorious for thinking that because they have an MBA, that they will be successful at a startup, let alone "run a department".

Be honest. if you were an analyst or a manager at a big bank, but said you ran or owned something, be specific with what you actually did. Nobody at big companies can accomplish anything by themselves, being a part of a team is a really valuable skill. But I want to know that I can turn someone loose, let them execute and have lots of ownership. (full disclosure: I have an MBA and worked at some of the largest banks in the world.)

Sasha Orloff and three other C-level fin tech executives will be speaking at the next Uncharted Minds: Fin Tech Executives from Aspiration, LendUp, SoFi and Maveron Explain How Innovation is Eating Wall Street.

Date: Wednesday, September 9, 2015 from 6:00 PM to 9:00 PM (PDT) San Francisco,

Click here or use the code ‘insider’ for 50% off tickets to the event