Benjamin Döpfner of Vesto talks about cash management strategies and explains how Vesto can help startups manage capital

Benjamin Döpfner of Vesto - Podcast Transcript

Scott:	Welcome to Founders and Friends Podcast. Before we get to our guests, special shout out to Kruze Consulting. We do all your startup accounting, startup taxes, and tons of consulting work. Kind of whatever comes up, like financial models, budget, actuals, maybe some state registration, sales tax, VC due diligence, support, whatever comes up for your company, we’re there for you. 750 clients strong now 10 billion in capital raise by our clients. I can’t believe it. 2 billion this year. It’s been a crazy awesome year. So, check us out at kruzeconsulting.com. And now onto our guest.
Singer::	(Singing) So when your troubles are mounting in tax or accountant, you go to Kruze Founders and Friends, it’s Kruze Consulting Founders and Friends with your host, Scotty Orn.
Scott:	Welcome to Founders and Friends Podcast with Scott Orn at Kruze Consulting. Today, my very special guest, Ben Döpfner of Vesto. Welcome, Ben.
Benjamin:	Yeah, thanks so much for having me. Great to be on.
Scott:	My pleasure. So maybe you can, I’m excited to talk to you and I think this is going to be super beneficial for the Kruze clients, especially those who have a lot of cash on their balance sheet. We have, I think our clients have raised something like $10 or $11 billion now, and I think $2 billion this year already. So that’s a lot of cash that needs to be managed, and that’s what you do. Vesto is a cash management company. Maybe you can just kind of retrace your career and tell everyone how you had the idea for Vesto.
Benjamin:	Totally, yeah, happy to. Yes, I’ve actually been an entrepreneur for as long as I can remember. Sort of built my first business since when I was in school and eventually that sort of turned into more serious businesses. And then eventually I started a SaaS company a few years back. It wasn’t VC backed, it was bootstrap. I literally started it with a couple hundred dollars I had sort of saved up, more of a side project almost. It ended up scaling that super quickly, I think a year or two in, we were doing well above a million dollars a year in revenue. And we weren’t VC backed, so the majority of that was profit. It was like 90 plus percent profit margins. And so, we just had a bunch of cash sitting in a checking account. It was me and I think I hired a few other contractors and that was the team for the first two years. So, we were just stting on a bunch of cash, which we didn’t really know what to do with. And at the time, this was still in Germany for context, I’m originally from Germany. At the time, we still had negative interest rates in Germany, so we were actually paying our bank 50 basis points, half a percent for each euro that was in there, which was not fun. And then on top of that, we obviously had, at the time less crazy inflation, but we still had some inflation, which obviously added on to that. And so yeah, was super frustrated by that. So, sort of looked into ways we could optimize our cash balance, optimize our balance sheet. So, reached out to our bank and were like, “Hey, is there any a cash management offering that you have?” And they didn’t respond for a couple weeks. And then they sort very arrogantly responded that they wouldn’t work with us unless we were this enterprise company. And I think they quoted me, the minimum deposit size was a hundred million dollars or a hundred million euros. And so, I was like, “Oh, that sucks.” So, I sort went around and shopped for other cash management offerings. And it turns out there weren’t really many great offerings out there. A couple banks, money market options, but the yields were terrible. And you had to completely switch everything over to that bank. And it was a slightly sketchy bank, which no one ever heard of. There were a couple banks which were offering their own CDs, lock money for two years. And so really the solutions were just not good. The sort of core theme there was, you couldn’t really do anything unless you’re a big, big company. You can either build it internally or you could go to the big banks and say, “Help, here it’s $200, $300 million.” So that sort of planted the idea in my head. And after a year or two of just being obsessed with that, I eventually started building Vesto. Initially, I actually sort of built our own cash management system internally for that old company, which was not a fun process. It was six months of just boring work with advisors and custodians and stacks and stacks of paperwork. So yeah, ended up building Vesto from that. And yeah, now we’re here.
Scott:	And you solved your own problem. You touched on a bunch of really cool stuff there or really interesting things. The first being that you had cash in the bank and you were emailing your bank asking, can you get a better interest rate? I can’t tell you how many hundreds of Kruze clients over the last probably nine months that I’ve been talking to about that. That’s this weird thing in that it’s not automatic. You have to email them and bug them, get their attention. And guess hat? They don’t really want to raise your interest rates because that’s a direct cost in their business. That’s the biggest cost in their business. So, they don’t usually respond for the first two times. And then there’s two weeks before they get on the phone with you because they’re stretching everything out. And it’s so frustrating. And there are a lot of founders who just give up. They’re like, “Whatever.” But they’re leaving a lot of money on the table. So, it’s amazing that you figured this out at your previous company. And then now that you have your second company, you’re actually building a solution for those people.
Benjamin:	Yeah, I think the average checking account rate in the US the last time I checked is three or four basis points, which is ridiculous when you think about it.
Scott:	That’s 0.03%, not 3%, 0.03% for folks at home. So Vesto’s basically, maybe describe Vesto how it works and how startup founders can use it.
Benjamin:	Yeah. So, we’re a cash treasure management platform for startups. We work with mainly VC backed startups. We basically just help them automate and of invest their cash versus letting it sit idle on a checking account. Earning 0.03% a year. So, we work with those companies. We pretty much just automate the entire labor away. Log manual labor that’s involved with setting this up. And yep, we invest your cash into extremely low risk investment options. We don’t do anything crazy exotic with Stablecoins or Bitcoin or crypto. We invest all of the funds generally into one of these asset classes. It’ll usually be US treasuries, corporate bonds, money market funds, and finally, CDs. Right now, our bread and butter are mainly just US treasuries, because the yields are great and it’s backed by the US government. So, we’ll oftentimes bills are treasury ladders and sometimes we’ll sort of mix and match allocation between treasuries and money markets for out of liquidity. So, there’s a bunch of things that we do. Ultimately, we sort try to work with companies and not just provide a one size fits all solution where we say, “Look, here’s a money market fund, here’s a CD, go buy it.” No matter what your investment and financial situation looks like, we actually have an investment team. We work with companies, we create a proposal for them. Instead of just having this almost in a negative sense, a sort of robo-advisory experience where we’re like, “What’s your burn rate? What’s your cash balance? All right, here’s the perfect solution for you.” That could work well for seed stage companies with a couple hundred thousand dollars in the bank. But once you scale to that later stage, $5 million plus in the bank, you really want to customize solution, matching your financial situation. So yeah, that’s what we do.
Scott:	There’s a bunch of things you said in there. If you don’t mind, I’ll just kind of use it almost like as an agenda. Because it was amazing. The first was low risk, and that’s something I talked to our clients about all the time. Venture capitalists gave you money to build your startup, not to speculate on interest rate derivatives or the Stablecoin, weird conversions and staking all this stuff. If you’re serving startups, your foremost kind of responsibilities, keeping it safe, right?
Benjamin:	Yeah. I mean, that’s what we do. We don’t dabble into anything exotic and we fully agree with that. We think we’re here to provide you with a better yield and do better than your bank. But at the same time, we’re not trying to beat the market and be a crazy hedge fund and give you 50% returns through some crazy strategy that no one’s ever heard of, so.
Scott:	There’s real ramifications for that if you’re a founder. If you speculate and lose the money, you are gonzo, you’re going to be fired for sure. And it’s actually going to be really hard to ever do another VC backed company again.
Benjamin:	Yeah.
Scott:	Because the venture capitalists are fiduciaries of their investor’s money, the big pension funds, endowments, foundations. They cannot let you lose money that way. One of the other things you brought up was an investment policy, or a document that you help the companies put together.
Benjamin:	Yeah.
Scott:	That’s the kind of thing that sophisticated VCs are looking for. Can you talk a little bit more about that?
Benjamin:	Totally, yeah. It really comes into play once you get to Series C and upwards. And when you have the Sequoias of the world on your cap table. And they’re giving you $50 million. They’re not going to be happy with, “Oh, we put it into this money market account.” They want to actually know what’s going on. So yeah, we oftentimes work with later stage companies, build out a sort of investment policy or a sort of standard investment policy statement, as it’s sometimes called. And that just lists out what you’re able to invest in, what you’re not able to invest in, who is the person responsible for checking up on this portfolio, making sure that everything’s running smoothly, things that are completely off boundaries. So, no investing i crypto or no investing in Stablecoins and really just lining everything up. And that’s super important once you get to that sort of later stage Series C and upwards company, and especially when you have a board serve on the company and you have to go to them for board approval, that’s going to be super helpful. So, we help companies with all that. With of somewhat earlier stage companies who don’t yet have a big board and have to go get approval. We’ll oftentimes just sort create an investment proposal for them, which is the one pagers solution of that policy and just lines up, look, here’s what we’re going to invest in, here are the risks, here are the pros and cons, things of that matter.
Scott:	Totally agree. And I love that you have the one-page version of that versus the more extensive. Just the one little thing there. We have tons of companies that are the Sequoia, Andreessen, Horowitz, Menlo Benchmark, all those are Kruze clients who are putting $10 or $15 million into these companies at Series A. So, Series A, it’s not too early to start a Series A with an investment policy discussion with your board. And I am a huge fan of actually getting it ratified by the board. It’s good. It’s like keeps you out of trouble. It’s a smart way of running your company, but actually it will buy you a lot of credibility and good will with your board. If you’re the one bringing that to them and saying, “Hey, we did some work. We’re working with Vesto, they helped us put this together. Does this seem good to you folks? You see a bunch of companies, can we approve this?” That’s the kind of thing that builds a lot of confidence in venture capitalists, so I highly recommend that.
Benjamin:	Totally. Yeah. It’s also a great distribution strategy for us because VCs will see, oh, these guys are doing it the best, so we should have all our other portfolio companies work with them.
Scott:	That is good for you guys. It’s like customer acquisition strategy. I love it.
Benjamin:	Yeah.
Scott:	Another thing you talked about was treasury ladders.
Benjamin:	Yep.
Scott:	Can you give the layman’s terms for what a treasury ladder or any kind of bond ladder is? Can you explain that to folks?
Benjamin:	Yeah, totally. So, it’s basically just a sort of ladder. So, a set of different bonds, in our case. Treasuries, most likely each maturing at different dates. So, Quicken, duty loss, non-bonds, you buy it at a certain date, let’s say December 1st and it matures at a certain date and that’s when you get your principle plus your interest back. So, you could have a one-month T-bill, one-month treasury sort of bill, which matures on December 30th, and you buy it on December 1st. And basically, by creating a ladder, you have many different bonds that are all maturing at different times. So, we could do a treasury ladder with a one-month T-bill with a two-month T-bill with a three-month T-bill. And that allows you to A, get liquidity almost each month or each quarter or each every other year or half a year, however you want to set it up. We can customize that. But it basically ust allows you to A, get liquidity, which you can then use for operating expenses. Or, what you could do is you could roll that over into new, right now in the current environment, higher yielding bonds. So, the Fed is obviously raising rates at the moment. So if you’re putting your money into a five year T-bill, you risk the possibility of locking your money up at today’s yield. But if in two months the Fed raises rates again and all of a sudden, the yield sort of shoots up, you’re missing out on that yield there. So, it helps you take advantage of the current rising rate environment, but it also helps you get more liquidity on a sort of monthly or annual or semi-annual basis.
Scott:	Yep. I always tell clients to keep two to three months of cash in their operating account. Because you just never know what kind of bumps or surprises, liquid cash. And then the rest of it can be put into cash management tools or strategies. And this bond ladder you’re talking about is a very, very standard concept. And basically, if you say you bought 12 different, if say you’re going to have a bond ladder over 12 months, you just partition your money into 12 different maturity aids, one month, two-month, three-month, and that way it just rolls off. And then as it rolls off, it just adds your operating account. So, you spend a month worth of cash, spent paying your employees and software and all that kind of stuff. And then that cash is replenished by the bond that matures that month. That’s kind of how it’s designed to work.
Benjamin:	Hundred percent. Yeah. We often do that with companies. Other times that we’ll do is we’ll have a longer-term bond ladder and that could be 70% of the portfolio. And then we have 30% allocation to daily liquidity money market funds, which are designed so that you can buy and sell them every day at the same price, at $1. And that allows you to get that out of liquidity there and still sort of reap the rewards of longer-term bonds with higher yields.
Scott:	Hey, it’s Scott Orn at Kruze Consulting, taking a quick pit stop to give some of the groups at Kruze a big shout out. First up, is our tax team, amazing. They can do your federal and state income tax returns, R&D tax credits, sales tax help, anything you need for state registrations. They do it all and we’re so grateful for all their awesome work. Also, our finance team is doing amazing work now. They build financial models, budget actuals, and help your company navigate the VC due diligence process. I guess our tax team does that too on the tax side, but the finance team is doing great work. And then I think everyone kind of knows our accounting team is pretty awesome, but want to give them a shout out too. Thanks. And back to the guest. I love it. And then the reason maybe just to, again, we’re explaining this to founders out there who are listening to this podcast who want to help managing their money. You would spread out the maturity dates because interest rates can be different, right, from one month to a 12 month. Can you explain how that works?
Benjamin:	Yeah, so there’s obviously something called of duration risk. So, if you have a very long-term bond, you sort of risk the chance that the basically the federal fund rate goes up and therefore you could a miss out on some of the possible yield that you could be getting. But also, if you, let’s say you have a five-year bond, just one bond, just one T-bill. And after two years you realize, oh, I got to sell this because we have this big expense at the company, then you can actually be losing some of your principle and interest, which obviously something that startups. So, of really short term, ultra-short-term bond ladders is really what’s typically best for companies. But obviously we work with them on a customer by customer basis and see what makes most sense. If you go to later stage really developed enterprise stage companies, oftentimes they’re happy to just go for the highest yield and take some of those longer-term bets. But generally, those sort of ultra short-term bond ladders are best for early stage startups, what we’ve seen so far.
Scott:	Yep. And one of the other points you made when you’re describing Vesto, is that you’re doing this asset allocation or you’re doing it automatically. So, correct me if I’m wrong, but you’re kind of getting rid of this whole, got to email the bank a couple times, the delays. Basically Vesto’s entire business is focusing on making sure you’re in the right securities that are safe, but that generate a yield. So, there’s very little kind of work and there’s not this bank dragging their feet on the other side, right? It’s just kind of happening with Vesto.
Benjamin:	Yeah, there’s a lot of automation not just on the actual execution front and buying and selling certain positions and optimizing it. But also, on the actual reporting layer so that you actually understand what’s going on. So, if you’re a Vesto customer, you’ll have access to the Vesto dashboard where you can actually go in, get real time insights and metrics. Enter your positions in your portfolio, actually understanding what’s going, on versus it just sort of being this black box of, oh, I put my money with X Bank, but I actually have no clue what’s going on a position basis. And so, we also are working cool accounting features to hopefully make accountants, like Kruze life easier and automate a lot of that work as well. So, yeah.
Scott:	I love it. It does make our life easier when it’s organized and easy to understand. There was another thing you talked about, which was the first six months of the business when you started Vesto and got going. You had to do a lot of paperwork and you had to find an entity to hold all the cash, right? Can you talk about that? I forget what it’s called. Where’s the money sit basically?
Benjamin:	Yeah, totally. Yeah. So, we work with a technology partner and also have, through that technology partner indirectly partner up with the Bank of New York, Mellon Pershing, who also are our custodian, at least for the moment, might eventually change that or go for someone else. But I think they’re the world’s largest custodian bank in the world. So, they have, I think the last time I checked it was $47 trillion in assets under custody. So, something ridiculous like that.
Scott:	My God. Amazing.
Benjamin:	Massive institution. So, all your money’s actually held there. It’s not held with Vesto. So that even if we go bankrupt tomorrow and we’re out of the picture, your money’s in your account held there. It’s obviously SIPC insured, so you sort of still have that institutional custodian and not just us actually holding the funds. And this also ensures that we actually just can’t go into your account and take money out of it. So, we can’t actually ever touch the money in that sense. We can route it to investments, but we can’t just take it from your account, pull it to our account. So yeah, that’s something super important.
Scott:	The custodian is really, really important. I remember in the early days there was a similar, it’s really exciting what you’re doing for cash management. There was a similar kind of, a few companies that grew up with 401ks for startups. Guideline, ForUsAll, I think Human Interest, and that was probably five years ago, six years ago, I think seven years ago now. And the custodian was a real important linchpin in the evolution of that. Because like you said, you’re a startup still, I have a lot of confidence in what you’re doing, but to be able to assure the board of directors that the money’s kept with a very large, impressive custodian is really, really important. So, people can get over that hump. They don’t have to worry that, not that you would ever do this, but that Ben’s going to go to Florida and live off the grid or something like that. The money is locked into the custodian.
Benjamin:	Hundred percent.
Scott:	That’s really great. And we kind of skipped over this, but I think it’s worth probably covering. You talked about your previous company years ago and how there’s such a low interest rate or yield. But what’s driving the interest now in Cash Manager? Can you give the synopsis of our current interest rate environment and why a lot of startups are thinking about this now?
Benjamin:	Yeah, I mean, we’re in a really interesting macroeconomic environment where we have super high inflation is most of you are aware of. So, A+ percent inflation currently. And at the same time, obviously the Federal Reserve in the US is trying to calm down that inflation. And their sort of method for combating that is raising interest rates, raising the federal fund rate, which for many years was at 0%, or next to 0%. And now obviously growing to more 4% and upwards, it’s still changing monthly. So, I don’t want to give a number here which will next month be higher. So yeah, therefore, you can actually earn yields on things like US treasuries, which previously were earning maybe a percent or half a percent, are now earning upwards of 4, 4.5%. And are sort of expected by the market to eventually yield upwards of 5% of the Fed continues raising rates. So, yeah, we’re in a real wow environment right now to the point where you can buy extremely low risk investment options like the US Treasury, which is backed by the US government, retain a pretty high level of liquidity and nevertheless actually earn a significant yield on that. Yeah, I think it’s a great time to actually do this. And I was reading this article the other day, which said that by having A+ percent inflation, you’re basically losing a month of your operating runway each month, through inflation. I don’t know if the math on that is correct. Maybe it was more of a headline.
Scott:	Maybe a month, a year or something like that. Something like that.
Benjamin:	Yeah.
Scott:	Yeah, it’s crazy, right? It’s a lot. And it’s happening to everybody and even us, our personnel costs have gone way up just because of the price of gas and food and things like that. People need to make more money. So, we totally feel it too. But that’s great for you because you’re in maybe the hottest sector right now. And everyone’s paying attention to this, it’s really exciting.
Benjamin:	Hundred percent. Yeah. I mean, it’s a very, very easy thing to set up and you don’t have to spend weeks and months working on this and setting this up. So yeah, as some people say, it’s like a no brainer. I don’t want to make that assumption or maybe make that advertisement, but yeah.
Scott:	I love it. I love it. Well, I’m excited for you and I know we’re going to be recommending you to the Kruze clients. And we are actually going to try it out for Kruze money. We’re bootstrapped, so we have less money than a lot of our clients do. But excited to use Vesto and try it out. Maybe you can just tell everyone how to find you, how reach out. And just kind of reiterate the value prop for Vesto.
Benjamin:	Hundred percent. Yeah, I mean, so in terms of reaching out, we’re at getvesto.com, G-E-T V-E-S-T-O. And you can reach out to me at ben@getvesto.com. And then on our website you can schedule a demo with our team. If you’re a VC backed startup and you’re sitting on probably millions and millions of dollars and you’re probably not going to spend that all within the next six to 12 months, check us out. Maybe it’s worth it, giving us a try and sort of optimizing your cash balance and earning some higher yields on it.
Scott:	Ben, pleasure having you. Thanks for educating the audience and super excited about your future.
Benjamin:	Of course, me too. It was great to be on.
Scott:	All right, buddy. Take care. Thank you.
Benjamin:	Thanks.
Singer::	(Singing) So when your troubles are mountain, in tax or accounting, you go to Kruze, from Founders and Friends. It’s Kruze Consulting. Founders and Friends with your host Scotty Orn.

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Benjamin Döpfner of Vesto talks about cash management strategies and explains how Vesto can help startups manage capital

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