Ever wondered how visionary entrepreneurs turn their ideas into billion-dollar realities? Join us as we uncover the journey of David Snider, the mastermind behind Harness Wealth, and learn how he revolutionized wealth management by empowering advisors with technology. From scaling Compass to a $1.8 billion valuation to writing a game-changing book, David shares his secrets to harnessing an entrepreneurial spirit and strategic networking to build a standout career in finance and tech. This episode promises to inspire those eager to merge innovation with financial savvy.
Explore the crossroads of startups and corporate roles with David’s methodical approach to career progression. He reveals the criteria that guided his decisions, ensuring impactful contributions and growth potential in every role he undertook. We spotlight pivotal moments at Compass, where his strategic insight secured Series A funding and propelled the company towards a successful IPO. Listen to David's recount of the adrenaline-fueled excitement and challenges of steering a fast-growing startup and the invaluable lessons learned along the way.
Discover the intricate world of equity compensation and tax planning for startup employees and founders. David demystifies the complexities of stock options and shares strategies like the 83i election, designed to enhance ownership and financial decision-making. We dive into the nuances of exercising options and the often-debated fairness of standard exercise windows. Packed with actionable insights, this episode aims to equip you with the knowledge to navigate your own financial journey in the world of startups.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This theme of tech-enabling advisors in spaces
where clients still care aboutwho they work with but perhaps
aren't dazzled by the technologyor the things beyond reach.
The advisor's expertise was abig business opportunity that
traditional venture-backedbusinesses across advisory
(00:22):
spaces had generally focused inon how do we eliminate the
advisor, rather than how do wesuperpower, supercharge or give
the advisor superpowers indelivering that.
So I think, thematically,harness came out of that insight
that we had had in the pivotand building the business.
Speaker 2 (00:44):
Today I'm joined by David Snyder, founder and CEO of
Harness Wealth, a platformhelping individuals optimize
their financial futures.
David brings extensiveexperience from scaling Compass
to a $1.8 billion valuation, asCOO and CFO to making
billion-dollar investments inbank capital.
He's also the author ofMoneymakers Inside the New World
of Finance and Business.
(01:04):
We'll dive deeper into David'sentrepreneurial journey, his
insights on scaling businessesand the future of wealth
management.
Let's jump in.
Welcome to Seed to Exit, thepodcast where we uncover the
stories, strategies and insightsthat power the startup
ecosystem.
I'm your host, rhys Keck,founder of MindHire, a talent
acquisition firm specializing inhelping startups build
(01:26):
exceptional teams.
Each week, I sit down withfounders, investors and industry
leaders to explore the journeysbehind iconic companies and
game-changing ideas.
Whether you're building,investing or just curious about
what it takes to succeed in thestartup world, I want this
podcast to be your go-toresource for actionable insights
and inspiring conversations.
Now, if you enjoy the show,please don't forget to subscribe
(01:48):
, leave a review or share itwith your network.
Your support means the worldand really helps bring more
incredible conversations to life.
All right, david, welcome ontothe show, excited to have you.
Thanks for having me Lookingforward to it Likewise.
So we got a lot of interestingstuff to talk about today.
You've written a book, you hadan incredible career at Compass
(02:10):
and now you founded your owntechnology company, harness
Wealth.
So there's a lot that I thinkwe can get into, but I want to
start at a little bit back intothe earlier parts of your career
.
So you wrote a book calledMoneymakers, which was
relatively early in your careerjourney Because, I mean, you
(02:32):
finished at Duke in 2007 forundergrad and you published the
book in 2010.
So when did you actually startwriting it?
Speaker 1 (02:36):
I started writing when I was a senior in college
and it was really a Trojan horseto be able to interview people.
I thought I might wanna workjanhorse to be able to interview
people I thought I might want towork for, to be totally honest,
it was one of these thingswhere I was looking for
something.
I didn't find it and it waslike hey, if I could actually
put together a resource that'dbe valuable for others like me
(02:57):
who believe they want to go intobusiness but have no idea what
the subsectors of that reallyare, look like, how they differ,
who thrives, et cetera.
That could be reallyinteresting.
And I think that punchline ofthe overall experience is I was
successful in that endeavor andthat Macmillan published it.
(03:19):
It was translated into twoforeign languages but I still
would have made more moneybartending on a per hour basis
than the amount that wasinvested in that book.
And again, it wasn't pursued forthe sense that this was going
to be my retirement fund.
But I think sometimes peopleask me about I had this book
idea.
I'm thinking, I'm doing it.
I'm like awesome If it, like itdid for me, creates value for
(03:40):
you in the process.
Fantastic If it's a greatcalling card for your business
or what you're selling, orvalidation awesome.
If you're doing it, you know tomake a ton of dough.
You probably have a lot ofother options that will get you
there a lot faster on a riskadjusted basis, totally makes
sense and that's it's.
Speaker 2 (03:58):
it's really funny you say that because there's a
there's another popular podcastthat I listened to called 20 VC,
if you've heard of it.
And yeah, so the the, the hostbasically has said in interviews
he did the same thing inpodcast form.
He uses a Trojan horse planningon getting a job in VC.
Clearly it worked out for him.
I'm just curious how has thatbook affected your trajectory
(04:21):
over the years?
Speaker 1 (04:22):
Well, I think it's been helpful in some of the key
inflection points that it's hardto quantify definitively, but I
would say that I graduated fromDuke, I went to work at Bain
Company, I moved over to BainCapital on the investing side.
There are a lot of people inprivate equity that apply to
business school.
I think it was definitelyhelpful in differentiating to
(04:45):
some degree that I had had thesegreat professional service
experiences but also haddemonstrated some
entrepreneurial inclination, Ithink.
Similarly, I knew the founderCEO of Compass through a
nonprofit.
In my second year at HBS forbusiness school.
I had been really interested inthe prop tech space it wasn't
(05:08):
called that then, but potentialtech applications within real
estate, either commercial orresidential and he reached out
to me kind of as potentiallysort of a Trojan horse head of
finance candidates, since theyhad a guy who was actually
playing that role at this backin 2012, you know one of New
(05:29):
York's most successful techcompanies at the time and he
wasn't totally sold on him andso he said, hey, come in.
But really it's not aboutconvincing me, it's about
convincing my technical cofounder, ori, and I think my
having had an entrepreneurialexperience.
We started a tiny business thatwe sold during business school
to transition from being a smartbut still kind of clueless
(05:51):
private equity professionalservice person and figuring out
how do you get the mostefficient, lowest cost PEO and
(06:14):
hire a bookkeeping service andraise capital and other stuff
that I definitely not formallydone, albeit with some good
talking points around, helpingto take a Bain portfolio company
, public or something else thatI could speak to Makes sense.
Speaker 2 (06:30):
So in terms of the book, I mean you were able to
interview some really majorplayers like Jamie Dimon at JP
Morgan, for example, davidRubenstein from the Carlyle
Group.
Are there any key insights orkey learnings from those
interviews that you were able toget in a relatively early stage
that have stayed with you overthe last 15 years?
Speaker 1 (06:49):
Yeah, I mean, I think in general, just understanding
or having a sense of the breadthof career paths of people.
The book covered venture,private equity, hedge funds,
fortune 500 companies,management, consulting I feel
like I'm forgetting one othercategory but by being able to
(07:10):
invest in banking, by being ableto speak to people from each of
those areas, it gave a sense of, in some cases, a more winding
path and you didn't have tostart exactly where you thought
you did to get to somethinginteresting.
There are a few specificanecdotes.
I remember, like DavidRubenstein was actually my first
interview and I think, verycritical in my having written
(07:35):
the book, and then I sat next tohim at a lunch for trustees at
Duke where I was an undergrad.
I actually thought I wassitting next to David Gergen
because I was kind of like apolicy guy.
He was like a White Houseadvisor to a bunch of presidents
and started talking to this guy.
I was like this dude is not whoI thought he was and ended up
having a great conversation andgot his card and sent him a note
(07:55):
and he was very kind andgracious to say, sure, I'll do
an interview for this projectyou're saying you're working on,
but I don't really know, and nointerview was ever so easy to
set up.
John Mack moved or canceled atthe then CEO, morgan Stanley,
six times and called me at 7 amout of the blue and all sorts of
challenges.
(08:16):
But I asked David Rubenstein Iwas like, hey, putting
compensation aside, what aresome of the reasons that private
equity resonates or drawstalent or something else?
And he's like, well, david, youknow, asking the question that
way is sort of like asking MrsLincoln how she enjoyed the play
.
You know it sort of misses thepoint.
So there were, you know,stories like that where it sort
(08:39):
of stuck with me of you knowthere's awareness in some of
these areas of what you know,what value they can drive, the
relative importance of impactscale, managing people.
You know, compensation, etcetera.
That definitely was, you know,helpful in formulating views for
me I love that.
Speaker 2 (08:59):
So you had a good.
You had a good, you know,couple of years at Bain and you
eventually then made the jump toCompass, which you were the
first business hire, and thatwas prior pre-series A, so seed
funded at the time, I'm assuming.
Speaker 1 (09:11):
That's right.
So they both based on Robertthe CEO's network and Ori's
success, having sold his lastbusiness to Twitter and a prior
one to Google raised a verylarge.
Really it was a seed round, butreally a pre-seed round, like
them with a deck.
And then I joined a few monthslater as head of finance and
(09:35):
operations I think I was likethe 10th person there, but the
first business person as afull-time hire.
Speaker 2 (09:43):
What made or what motivated you to make that jump,
not only from a largeinstitution to something else,
but also to something that atthe time was, you know, like you
said, a deck.
Speaker 1 (09:54):
Yeah, I mean I think a lot of people went into
business school not totallycertain what I wanted to do, and
I think not that you're askingthis question, but folks that go
in assuming they're just goingto figure it out without a
hypothesis, tend to find it goesby really quickly and you don't
have an answer at the end.
I think those that start withthe hypothesis can quickly
(10:17):
validate you know whether that'strue in some experiences talks,
cases you know, a summerinternship, et cetera.
I took a weekend, I think, atthe end of the first year.
Cases you know, a summerinternship, et cetera.
I took a weekend, I think, atthe end of the first year and,
you know, brought a few booksthat people recommended.
This book that I still think isgreat, called Stumbling on
Happiness.
You know a few other books kindof along that vein to try to
(10:37):
figure out hey, what are mypersonal criteria in selecting
an opportunity?
Because I was getting recruitedby other private equity firms.
Compensation is exciting if itworks out.
A lot of reasons why that, whenyou're being recruited by these
big firms in the physicalcontext seems exciting.
Had some startup ideas, hadsome corporate opportunities.
(11:01):
What was the right way tonavigate that and came up with
six criteria assumed a goodopportunity before and if I was
lucky I'd find one that was likefive of six and the compass
opportunity was six of six andso it made it pretty easy to say
yes.
Was not exclusively focused onkind of that very early stage
(11:23):
opportunity, was looking at alot of different stuff but
checked all the boxes for me andobviously, you know, had a
tremendous professionalexperience, learning experience
et cetera, you know, and takingthat path, Well, I love the
thoughtfulness behind theapproach.
Speaker 2 (11:40):
Can you share what those six were, or at least some
of them?
Speaker 1 (11:43):
Yeah, if I remember, I'll happily give all six, Not
in any particular order, but Ithink number one wanted a role
where I would have impact on thetrajectory of the business, so
not feeling like sort of a cogin the wheel but being able to
drive something from the seatthat I was taking.
Second, ideally either knowingsomeone in the place that I was
(12:05):
going or getting to spend enoughtime with them during the
interview process to feel like Iwas going to avoid working for
someone particularly challenging.
Three geographically, I wasvery focused on ideally New York
, open to some other areas aswell.
Wanted a business that was on apositive growth trajectory,
(12:26):
because I found that they tendto drive the most opportunity
for upper mobility.
Wanted industry that I hadnatural interest in and wanted
compensation that was aligned tothe success of the firm.
Speaker 2 (12:40):
So what were the first couple of days, weeks,
months, like once you started atCompass?
I imagine it was a fairly bigculture shock and learning curve
.
Speaker 1 (12:51):
Yeah, it was sort of like an anti-onboarding
experience in the sense that Iwas still in my second year of
business school.
I started commuting.
It was like Thursday morningsor afternoons.
My schedule worked out suchthat I could be in the office
like Fridays and so I didn'thave to be in person for them
and then to go back.
Obviously, for graduation itwas essentially working
(13:19):
full-time equivalent starting inlate March for the business and
there was just so much to getdone there wasn't a lot of time
to sort of you know, think aboutthe transition.
I mean, obviously it felt verydifferent.
On that compensation note, likeI signed on for a small fraction
of what my comp had been, youknow, pre-mba at Bain Capital,
(13:45):
but was super excited to be inthis environment where we were
experiencing a lot of earlygrowth, very bright folks.
One of the early team membershad a connection to Mike
Bloomberg and he came and spokein the office as part of a New
York tech push very early on.
So it felt exciting and thefounders tasked me with raising
(14:10):
a large Series A very quickly,which we collectively the three
of us were able to do, andthat's what really sort of
catapulted, I think, my role atthe company, from being a head
of finance and operations to theCOO, cfo and really kind of the
third person in the room as wethought about building and
(14:30):
scaling the business.
Speaker 2 (14:31):
For the time that I was there, Was there a moment
and maybe it was this, you knowwhen you signed the term sheet
for the Series A?
But was there a moment when allof the you know, those six
criteria that you were lookingfor felt validated and you're
like, oh shit, this is it.
I made the right move.
Speaker 1 (14:46):
I, luckily, you know, a, I try to be a person where I
make a decision and moveforward and don't spend a lot of
time dwelling on it.
Okay.
But B, you know, I think fromthe outset it felt like I was
getting all the things that Iwanted and in my mind.
While it's obviously riskier tojoin early stage business, I
(15:08):
was fortunate to have all thesegreat logos on the resume.
I was still, you know, notmarried, no kids at the time,
and so, like, if I'm not willingto take a risk, you know, post
great educational credentialsand post some great firms, like
when would I be?
And it wasn't even like thatbig a risk.
I wasn't totally going out formy own, I was doing something
(15:30):
that I could at least speak to,where, from a narrative
standpoint, these were reallysmart folks.
Opportunity, you know, feltreal and obviously great that it
turned out, you know, to be abusiness with a successful IPO
outcome, et cetera at the end ofit.
But I was prepared and okay ifit was just, you know, a couple
of years of tremendous learning,then parlaying that into
(15:52):
something else business building, oriented, entrepreneurial, you
know, tech intersecting, etcetera.
Speaker 2 (15:59):
Maybe I were to phrase it differently.
Was there a moment where youhit an inflection point where,
rather than thinking about itfrom a risk perspective, you
felt like wow, this thing isreally going to take off.
Speaker 1 (16:09):
Yes and no.
I mean, we raised this series Aon a original model that I
think the three of us knew wasnot really working and going to
scale super well, and so therewas a window of time when we're
still growing quickly.
We got to sort of capture thatmomentum and move forward, and
(16:30):
we're able to do that at a veryhigh valuation, which was great,
and then to have the resourcesand the time to transition the
business this is really like thevery end of 2013, beginning of
2014, very rapidly towards thebusiness model the companies had
for basically the last decade,consistently, which is similar
(16:51):
thesis, different application.
Residential real estate needsto get better.
Early thesis being around hey.
The way to real estate needs toget better.
Early thesis being around hey.
The way to do that is to changethe role of the agent.
What it evolved to is actuallygot to change the role of the
brokerage.
The good agents are very good,but they're not getting a lot
from the brokerage that's takinga third of the economics,
empowering them.
We need to be brokerage 2.0 orthis enabling platform for the
(17:16):
agent with technology and otherresources.
So I think, once we got into2014,.
I give the CEO, robert, a lot ofcredit.
He just hustled his way to thefirst group of deals to kind of
prove that this was validatedand then we were able in 2014 to
(17:36):
raise a big Series B round andthen to use that momentum and to
sort of drive exponentialgrowth very, very quickly during
that time.
So I think once you got in thatmotion, it certainly felt good
as we scaled it, but it oftenfelt scary because we were sort
of driving the car against therail of those highway protectors
at high speeds as we scaled it.
But it often felt scary becausewe were sort of driving the car
, you know, against the rail ofthose highway protectors at high
(17:59):
speeds.
And it was sort of my job tomake sure that we weren't
grinding so hard that if therewas a blip in fundraising or
something else, that the carwent off a cliff and you know it
worked out.
There definitely are otherscenarios playing it back.
You know where it may not haveworked out as effectively, but
the ground that it did obviously.
Speaker 2 (18:19):
So I'm curious you mentioned the original model and
that it wasn't that scalableand something related to being
agent-focused.
So what was that model?
And then what was the decisionto?
Speaker 1 (18:28):
pivot was one where, rather than having a traditional
commissioned agent, we wouldhave a neighborhood specialist
in many respects similar to sortof the Redfin model for those
that are familiar with theresidential market whereby
making that a salaried and NPSbonus role and having some of
(18:52):
the components of thetraditional agent
responsibilities scheduling,closing centralized, we could
drive more efficiency.
As long as you got to certainlevels of deal density that that
would make the model workbetter.
Allow us to charge which we didout of the gate a lower rate
(19:14):
than the New York typical feeand create scalable value in a
different model of renting andthen buying real estate.
What we found was lots ofpeople who think that they want
to get their first apartment inSoho realize actually it's what
you get for then $3,000 a monthnow, like $5,000 a month is not
(19:38):
that exciting.
And you actually want to be inwherever Williamsburg, or you
want to be on the Upper WestSide or something, and so no one
wants to repeat themselves intheir search every time, and so
this model of concentratedneighborhood specialist was
challenging in that regard.
It was hard to interface with anindustry that didn't really
want a successful new competitorthat reset people's
(19:59):
expectations to a lower fee.
So there were challenges withthat coordination across the
scheduling, showing, closingside, et cetera.
And again this awareness thatthere are actually some very,
very good agents A lot of themare incredibly hardworking and
play a key role, but that therewas a huge opportunity for
(20:19):
technology to improve the wayagents did their job, the
workflow components of it, theway they interacted with clients
and a whole bunch of valueunlocks that we could hopefully
create over time.
Speaker 2 (20:31):
Love that time, love that so, and I believe it's.
It's larger now, but by thetime that, uh, that you
ultimately left, it was $1.8billion valuation.
Is that correct?
Okay, what would you say fromyour perspective, or from from
your role, was the mostchallenging aspect from going
from that, you know, zerorevenue or the original business
(20:53):
model all the way up to the 1.8when you left, keeping the car
on the rails maybe, like youwere mentioning?
Speaker 1 (21:10):
Yeah, I mean, I think any business that's growing
that really well was trying tofocus in on specifically what
mattered most.
In this case, it was hiring andretaining agents.
I think there's a tension thatcomes especially in the role
that I had of how early, howaggressively, do you need to
(21:34):
think about economic scalability, et cetera, and the tradeoffs
between those two, and so we gotvery fortunate.
The macro environment stayedrelatively consistent and
positive during my time there.
I, you know the company wasfortunate that it raised a lot
(21:54):
of capital in 2017, 2018.
And so you know A it wasactually a great thing for the
business that we work ran into abrick wall when I tried to IPO,
that the public markets had adifferent level of scrutiny and
expectation.
That, I think, helped evenbefore COVID hit, which was the
(22:15):
second massive sort of wave andwake-up call for the business,
that there was a need to focuson some of those things.
Then, getting that balanceright of how aggressively to
expand, how to think about therelative value of a dollar of
revenue, of growth, et cetera,was definitely an area of
tension.
That then trickled down intowhether you thought about
(22:38):
staffing, building capitalraising, operating efficiency et
cetera.
That is like an importanttension, but still a tension and
challenge for scaling abusiness.
Speaker 2 (22:49):
Any key leadership lessons that you learned there
that shaped your approach tothen founding Harness lessons
that you learned there thatshaped your approach to then
founding Harness.
Speaker 1 (22:57):
I think there's a combination.
Whenever someone is a operatorand then goes to become a
founder, I think there's somethings that I took away and said
, wow, that was such a greatinsight.
Number one this theme of techenabling advisors.
In spaces where clients stillcare about who they work with
(23:18):
but perhaps aren't dazzled bythe technology or the things
beyond reach the advisor'sexpertise was a big business
opportunity that traditionalventure-backed businesses across
advisory spaces had generallyfocused in on how do we
eliminate the advisor, ratherthan how do we superpower,
(23:40):
supercharge, you know, or givethe advisor superpowers in
delivering that.
So I think, thematically,harness came out of that insight
that we had had in the pivotand building the business.
I think on the flip side tothat there are things you're
like oh my God, that was messyor hard.
Definitely don't want to dothat again.
And so Compass was a businessthat, because of residential
(24:02):
real estate, we felt like we hadto.
I think we probably did openvery localized offices and build
share distinctively inWashington DC proper and in LA,
and even in LA it's different inBrentwood versus Malibu versus
(24:24):
Beverly Hills, et cetera.
Very operationally intensive,capital intensive, et cetera.
So when I started Harness itwas a pure play services
marketplace and then I think wesaw some limitations in that and
then Evolve.
I've built over the last fewyears a pretty exciting
(24:44):
end-to-end software solutionthat's SaaS, for the tax
advisors to be able to createthis great experience for their
clients, but was willing to rollup the sleeves, be a little bit
more operational to test out,understand all that workflow to
bridge.
So you sort of run towardscertain things, you run away
from other things.
You realize you got to kind ofbalance and find something in
(25:07):
the middle on some of thoseattributes as you scale your own
adventure.
Speaker 2 (25:11):
So, before we get too deep into H, I am curious
because obviously things itsounds like we're going
fantastically well at compass.
You left.
You had a stint, looked likeback to bane as an eir.
Was the?
What was the inspiration forstarting harness?
Did it come out of bane?
Was it something entirelyseparate?
What did that transitionalperiod look like?
Speaker 1 (25:31):
yeah, I mean, I um, there's sort of arcs of
expanding and contractingopportunity and I think you know
, in 2017, I felt like there wasa path of business being
imminently ready to IPO.
There's a sense that that, youknow, made more sense for
everyone's leadership team.
Much further out, I'd beenplaying the COO, cfo role that
(25:51):
was going to have to kind ofprobably narrow as we continue
to scale, and so I was excited,you know, excited about a
different opportunity andchallenge, was fortunate that I
had the opportunity to go backto Bain Capital where I'd been
in a new role there, this sortof executive in residence role,
to think about either buildingor joining, and I was open to
(26:12):
both of those opportunities.
But I think when I got thatlight bulb moment of there was
hey, something that thematicallyfelt very similar, I thought I
had a unique advantage havingbuilt or helped build one
business in that kind oftech-enabled service space
successfully, of doing thatagain.
To run out this as a secondchapter, there was also a
(26:34):
scenario where I became aninvestor, but that always felt
like a much smaller, lessinteresting opportunity, because
I felt like I could probably doit, but I wasn't sure that I
would have some significant edgerelative to where I felt like I
was perhaps more differentiallypositioned to operate or build,
at least for another chapter.
Speaker 2 (26:56):
And so in this second chapter, with Harness, how has
that evolved from the startingof the company to today?
Speaker 1 (27:02):
Yeah.
So, as I mentioned, you know,our business model has expanded.
I would say, you know you couldcall it a pivot, but really
it's just added more and, Ithink, a more nuanced strategy.
So we started as a place fornextgeneration business owners
and equity holders to navigatefinancial complexity with tax
(27:23):
advisory for both individual andbusinesses, financial planning,
holistic wealth management,trust in the state to help
people with service discovery,advisor pairing and some data
enablement.
What we found was that taxtended to be the most demanded
service and it was also the onewhere the supply was the
shallowest in terms of advisorsthat had the expertise that our
(27:45):
clients needed.
The basic tech enablement incybersecurity to create an
experience we thought made sense.
Capacity to take on new clientsat a price point we thought was
reasonable for the demographicthat we sought to serve,
generally this kind of emergingwealth demographic in their 30s,
40s or maybe early 50s and sowe saw an opportunity, after
(28:09):
looking at the problem from afew different angles, to develop
software that would allow bothbreakaway or small solo
practices, as well as boutiques,to be more efficient in the way
they serve clients and createcapacity for themselves, have a
(28:29):
better, more secure digitalexperience for their clients and
that we could also be a conduitfor this next generation
clients looking for great taxadvisors to really have a unique
value proposition on both sidesof the marketplace versus just
a traditional third partyintermediary.
And that has proven to be verysuccessful thus far in expanding
(28:52):
the reach of what we're able todo and, I think, the positive
impact that hopefully we'redriving for our end consumer
clients and tax advisors as well.
Speaker 2 (29:02):
Love that.
So, on the tech side, I want toswitch gears a little bit and
really talk about how bothfounders and startup employees
should be thinking about theirfinances from a tax and equity
perspective as they movethroughout their journey.
So, given how much work you'veharnessed has done with founders
in the past, what would you saysome of the biggest or most
(29:24):
common mistakes that you'recommonly seeing from founders
when it comes to tax andfinancial planning for
themselves?
Speaker 1 (29:31):
Yeah, I mean I think the most important is
understanding the equity thatyou hold, as well as sort of
what the options are and whetheryou need to proactively make a
decision.
In some cases, advocate foryourself.
You're a founder with yourboard, if you're an employee,
with the management, et cetera.
I mean, I spoke to someone thisweek who's a director level
(29:53):
person at a company doingincredibly well, director-level
person at a company doingincredibly well, raising more
capital, who hadn't gotten greatadvice along the way and all of
a sudden feels like he's got 40hours to make a decision on
whether to exercise his equitybecause this is likely the last
opportunity to qualify forSection 1202 QSBS, where the
(30:17):
proceeds, given that he's aCalifornia resident, would be
federally tax-free.
There would still be some stateimplications, but would have
been in a much better positionif he had known all the
opportunities much earlier on.
Companies can, though a lotdon't give employees the
opportunity or founders toexercise through a promissory
(30:40):
note where they're not outlayingcash.
Companies can, though veryseldomly do, offer the
opportunity for employees toexercise through what's called
an 83i election, where theytransition options to stock but
don't have to pay for a numberof years for that transition to
encourage the ownership, etcetera.
(31:00):
So there's a lot out there.
It's very confusing.
It's much easier to not worryabout it, hope for the best
build and feel like, hey, if weget a great outcome, that's
great Nine times out of 10, whensomeone gets there, they're
like, oh my God, you mean Icould have done something
different and saved 22 million.
That's insane.
So it generally is second-timeliquidity.
(31:24):
Beneficiaries, whether they'refounders or something else, that
are much more proactive of youknow, want to get my options
into stock as soon as possible,want to think about you know
when liquidity opportunities arecoming, what are the right way
to generate tax offsets throughparametric funds or charitable
giving or moving stock intotrusts or other activities that
(31:49):
are much more nuanced.
I think there are opportunitiesfor people at a minimum
understand what they have,understand what you know they
could be doing, to navigatethese pieces.
And then it's much easier, whenyou already have a good amount
financially, to do some of thefancier stuff that people get
excited about but may incursignificant costs to create that
(32:11):
out-of-state trust or to have atrustee or to do advanced
planning.
That doesn't have value if thatstock doesn't end up being
liquid down the road and worth alot, but it's still worth
knowing about much earlier on inthe journey.
Speaker 2 (32:27):
Yeah, and a lot of what you just said is probably
gonna go over a lot of people'sheads, because I mean,
ultimately a lot of startupemployees or even founders.
To an extent they have ageneral idea of how options work
.
If they're working in a startup, they generally know strike
price, number of options, apercentage of company if it's
earlier stage.
But very few that I have evertalked to you know know the
(32:49):
difference between, like an NSOor an ISO or really how equity
works beyond that, that basiclevel.
And I'm not suggesting thateverybody should become a deep
tax expert.
But how should employees thinkabout that equity comp, both as
part of their overall packageand also just from a tax
planning perspective?
A?
Speaker 1 (33:09):
few things I'd say.
Number one, when you'rethinking of starting something,
taking a new job, et cetera, iswhen it's top of mind, and so
that is generally when it's bestto make sure that you're doing
enough research.
That's obviously your businessand understanding, whether it's
from the recruiter or from otherresources like hey, how much
(33:31):
information can I gather?
How can I then do some researcharound it?
Our philosophy at HarnessWealth has always been give as
much away as we can to helppeople get up to speed on some
of the nuances, and if and whenthey actually need to talk to
someone, there's a cost for that.
But how do we scale itappropriately?
(33:51):
So there's a whole bunch offree tools and content around
these topics.
I found it surprising that inthe tax industry there was
really no personalized, live,bite-sized way to get an
understanding of specificallywhat do you hold, what are the
implications, et cetera.
So we pioneered this concept ofa one-off, one-hour equity
(34:13):
planning session with a realequity comp expert that someone
can understand what they havewherever they are in the journey
.
It ought to be probably earlierthan it generally is, which is
people kind of imminentlythinking about an exercise,
alternative tax implications, amove, liquidity, et cetera.
And then when you're makingdecisions that have real
(34:36):
complexity to how you thenactually execute your tax
compliance, those same advisorsand a broader base of others can
actually do the return for youonce you've graduated from what
the TurboTax DIYs can provideseamlessly.
But there's definitely noreason that someone should run
out and try to get an Andersontax CPA for $25,000 to
(34:58):
understand their 10,000 ISOgrants for the Series A company
that they're joining.
But the sooner the better injust knowing what you have and
how to think about it.
I mean, a lot of these issuesare ones where there is a
risk-reward benefit Option iswhat the name suggests.
There's a cost to exercise it.
(35:19):
If you exercise it when there'sno tax implications, you're
still outlaying capital in mostinstances and so you've got to
wait the capital outlay relativeto the potential return and
stuff like that.
So there's some no-braineranswers and things and there's
some that are just about youknow making a calculated
decision with your capital andyour equity and you know what
(35:42):
you think makes sense for youroverall portfolio.
Speaker 2 (35:45):
What are your thoughts on the 90 day exercise
window?
That's fairly standard aftersomeone leaves a company.
Do you feel that's fair?
I feel like a lot of peopledon't even realize that that is
the requirement when they taketheir first role at a startup is
the requirement when they taketheir first role at a startup.
Speaker 1 (36:02):
No, it's not fair.
I mean, I think it's aninformation asymmetry arbitrage
where companies, if they doreally well, it either becomes a
golden handcuff retention thingthat employees didn't
appreciate because they thoughtjust by vesting that was what
they had to do to capture value,you know, or become so price
prohibitive in the potential taxand exercise implications that
(36:24):
people just give up the equityand the company gets the benefit
of people that probably oughtto have taken that equity value
with them.
Just don't do it, you know.
As a result of that, weimplemented a promissory note
program.
It's something that got a lotof coverage for a very short
(36:44):
minute because Ryan Breslow atBolt talked about it like he was
the first person to ever createit encouraged employees at a
very late stage to use it.
The company then faltered and soI think that was reinforcing
for someone that's notnecessarily like an
unequivocally good tool.
But, yes, I think longerexercise windows, which
(37:05):
companies absolutely can do.
Yes, after 90 days itautomatically goes from ISO to
non-qual.
But it is the election of thecompany and not any regulation
of saying, hey, you've got 90days to exercise or it's
forfeited First.
You have 90 days to keep it asan ISO at exercise, versus to
have a longer period of time tomake a decision around it.
Speaker 2 (37:28):
And how did that become the norm?
Was it just somebody starteddoing it and everybody followed
the herd?
Was there some?
Speaker 1 (37:34):
Yeah, I mean big corporate.
There are a handful of firmsthat work with the vast majority
of the mainstreamventure-backed companies and
it's to the benefit of thecompany and, by proxy, typically
the founders who have outrightshares or did a 83B election or
something at a minimum cost upfront to keep as much of the
(37:58):
equity pool population whateveras they can.
So, yeah, it's to the benefitof the decision maker.
The law firms work for thecompany.
The company is some combinationof the board and the management
team, founders, et cetera, sothat tends to be self-fulfilling
unless founders feel likethat's just not a policy or the
(38:21):
approach.
I would say that there'sdefinitely some incremental
visibility, that it can make adifference when people are
recruiting, but it's stillpretty limited, I think,
relative to the wider populationas to what the implications are
of a standard four-year vest,one-year cliff, nine-day
exercise versus something moreemployee-friendly.
Speaker 2 (38:44):
Well, and typically employee option pools are 10%
right.
Speaker 1 (38:48):
I mean it can vary widely, but yeah, I would say
that's the most, anywhere from10% to 20%, depending on how
many people there are and whatis being set up for.
But then you'll often haveequity pool refreshes after
every price round and those canbe refreshed back to 5%, 10%,
(39:08):
you know, or higher, dependingon how aggressive the investor
is being to try to minimizefuture dilution.
Speaker 2 (39:17):
So if I get my options from the employee option
pool and I leave the companyand I choose not to exercise
them for whatever reason, dothose options then go back into
the pool, which are then givento another employee, or do they
go back to the larger group?
Speaker 1 (39:33):
The former I mean again mechanically.
A company could obviouslyretroactively change the way
that their option pool is done.
That's less common, but no,it's largely recycling.
That then inhibits having toexpand the pool further down the
road.
Speaker 2 (39:49):
Super interesting.
Okay, all right, before we gettoo technical, I want to ask you
one final question, just tocircle things back to business a
little bit.
Just to circle things back tobusiness a little bit.
If you were to go back in timeand talk to the younger David
that was writing Moneymakers,with the experience that you've
gotten in this 15 plus yearcareer so far, what would you
tell him?
Speaker 1 (40:08):
Well, I would say I feel very fortunate that I've
had a great mix of professionalservice experiences that were
immensely valuable, learning forme.
Like both Bain and Bain Capitalconsulting private equity, I
think, do an incredible job ofgiving you exposure at a very
(40:28):
young age to challengingbusiness problems in a way to
hold yourself professionally andanalyze problems that have
served me very well.
Certainly there are some peoplethat if you go back in time
would be accretive to have knownto interview or focus on 15
years before, maybe in thatpopulation of folks worth
(40:49):
working for because of thesuccess that they've had in
their businesses.
But I think overall I try tocontinue learning from peers
content people far smarter, moresuccessful than I am, to even
for our business, which is lessthan 50 employees, to have both
(41:13):
self-directed learning through alearning and development
incentive program that peoplecan take advantage of and also
to have guest speakers everycouple months.
Today we've got a formercolleague of mine from Compass
who's been a super successfulmarketing executive coming in.
We've had CEOs of AngelList andGreenhouse and others to give
(41:34):
our team a perspective ondifferent journeys and things to
learn that hopefully is helpfulfor them in the work that
they're doing for Harness today,but also how they think about
their broader career journey andwhat they can be learning
day-to-day as well.
Speaker 2 (41:49):
Cool Love that.
Well, you've dropped a ton ofknowledge, both on the business
side scaling and the equitycomponent, so really appreciate
the conversation and thank youfor coming on.
Speaker 1 (41:58):
My pleasure.
Thanks for the great questionsand having me.
Speaker 2 (42:00):
Thank you for tuning in to this episode of Seat to
Exit.
I hope you found today'sconversation insightful and
valuable.
If you enjoyed the episode,please take a moment to
subscribe, leave a review andshare it with your network.
Your support means the worldhelps us continue to grow and
bring more incredible guestsonto the show.
Now for more content andupdates, follow me on LinkedIn
(42:21):
or Twitter, or you can check outMindHire, where we help
startups build exceptional teams.
Thanks again for listening andI'll see you in the next episode
of Seed to Exit.
This theme of tech-enabling advisors in spaces
where clients still care aboutwho they work with but perhaps
aren't dazzled by the technologyor the things beyond reach.
The advisor's expertise was abig business opportunity that
traditional venture-backedbusinesses across advisory
(00:22):
spaces had generally focused inon how do we eliminate the
advisor, rather than how do wesuperpower, supercharge or give
the advisor superpowers indelivering that.
So I think, thematically,harness came out of that insight
that we had had in the pivotand building the business.
Speaker 2 (00:44):
Today I'm joined by David Snyder, founder and CEO of
Harness Wealth, a platformhelping individuals optimize
their financial futures.
David brings extensiveexperience from scaling Compass
to a $1.8 billion valuation, asCOO and CFO to making
billion-dollar investments inbank capital.
He's also the author ofMoneymakers Inside the New World
of Finance and Business.
(01:04):
We'll dive deeper into David'sentrepreneurial journey, his
insights on scaling businessesand the future of wealth
management.
Let's jump in.
Welcome to Seed to Exit, thepodcast where we uncover the
stories, strategies and insightsthat power the startup
ecosystem.
I'm your host, rhys Keck,founder of MindHire, a talent
acquisition firm specializing inhelping startups build
(01:26):
exceptional teams.
Each week, I sit down withfounders, investors and industry
leaders to explore the journeysbehind iconic companies and
game-changing ideas.
Whether you're building,investing or just curious about
what it takes to succeed in thestartup world, I want this
podcast to be your go-toresource for actionable insights
and inspiring conversations.
Now, if you enjoy the show,please don't forget to subscribe
(01:48):
, leave a review or share itwith your network.
Your support means the worldand really helps bring more
incredible conversations to life.
All right, david, welcome ontothe show, excited to have you.
Thanks for having me Lookingforward to it Likewise.
So we got a lot of interestingstuff to talk about today.
You've written a book, you hadan incredible career at Compass
(02:10):
and now you founded your owntechnology company, harness
Wealth.
So there's a lot that I thinkwe can get into, but I want to
start at a little bit back intothe earlier parts of your career
.
So you wrote a book calledMoneymakers, which was
relatively early in your careerjourney Because, I mean, you
(02:32):
finished at Duke in 2007 forundergrad and you published the
book in 2010.
So when did you actually startwriting it?
Speaker 1 (02:36):
I started writing when I was a senior in college
and it was really a Trojan horseto be able to interview people.
I thought I might wanna workjanhorse to be able to interview
people I thought I might want towork for, to be totally honest,
it was one of these thingswhere I was looking for
something.
I didn't find it and it waslike hey, if I could actually
put together a resource that'dbe valuable for others like me
(02:57):
who believe they want to go intobusiness but have no idea what
the subsectors of that reallyare, look like, how they differ,
who thrives, et cetera.
That could be reallyinteresting.
And I think that punchline ofthe overall experience is I was
successful in that endeavor andthat Macmillan published it.
(03:19):
It was translated into twoforeign languages but I still
would have made more moneybartending on a per hour basis
than the amount that wasinvested in that book.
And again, it wasn't pursued forthe sense that this was going
to be my retirement fund.
But I think sometimes peopleask me about I had this book
idea.
I'm thinking, I'm doing it.
I'm like awesome If it, like itdid for me, creates value for
(03:40):
you in the process.
Fantastic If it's a greatcalling card for your business
or what you're selling, orvalidation awesome.
If you're doing it, you know tomake a ton of dough.
You probably have a lot ofother options that will get you
there a lot faster on a riskadjusted basis, totally makes
sense and that's it's.
Speaker 2 (03:58):
it's really funny you say that because there's a
there's another popular podcastthat I listened to called 20 VC,
if you've heard of it.
And yeah, so the the, the hostbasically has said in interviews
he did the same thing inpodcast form.
He uses a Trojan horse planningon getting a job in VC.
Clearly it worked out for him.
I'm just curious how has thatbook affected your trajectory
(04:21):
over the years?
Speaker 1 (04:22):
Well, I think it's been helpful in some of the key
inflection points that it's hardto quantify definitively, but I
would say that I graduated fromDuke, I went to work at Bain
Company, I moved over to BainCapital on the investing side.
There are a lot of people inprivate equity that apply to
business school.
I think it was definitelyhelpful in differentiating to
(04:45):
some degree that I had had thesegreat professional service
experiences but also haddemonstrated some
entrepreneurial inclination, Ithink.
Similarly, I knew the founderCEO of Compass through a
nonprofit.
In my second year at HBS forbusiness school.
I had been really interested inthe prop tech space it wasn't
(05:08):
called that then, but potentialtech applications within real
estate, either commercial orresidential and he reached out
to me kind of as potentiallysort of a Trojan horse head of
finance candidates, since theyhad a guy who was actually
playing that role at this backin 2012, you know one of New
(05:29):
York's most successful techcompanies at the time and he
wasn't totally sold on him andso he said, hey, come in.
But really it's not aboutconvincing me, it's about
convincing my technical cofounder, ori, and I think my
having had an entrepreneurialexperience.
We started a tiny business thatwe sold during business school
to transition from being a smartbut still kind of clueless
(05:51):
private equity professionalservice person and figuring out
how do you get the mostefficient, lowest cost PEO and
(06:14):
hire a bookkeeping service andraise capital and other stuff
that I definitely not formallydone, albeit with some good
talking points around, helpingto take a Bain portfolio company
, public or something else thatI could speak to Makes sense.
Speaker 2 (06:30):
So in terms of the book, I mean you were able to
interview some really majorplayers like Jamie Dimon at JP
Morgan, for example, davidRubenstein from the Carlyle
Group.
Are there any key insights orkey learnings from those
interviews that you were able toget in a relatively early stage
that have stayed with you overthe last 15 years?
Speaker 1 (06:49):
Yeah, I mean, I think in general, just understanding
or having a sense of the breadthof career paths of people.
The book covered venture,private equity, hedge funds,
fortune 500 companies,management, consulting I feel
like I'm forgetting one othercategory but by being able to
(07:10):
invest in banking, by being ableto speak to people from each of
those areas, it gave a sense of, in some cases, a more winding
path and you didn't have tostart exactly where you thought
you did to get to somethinginteresting.
There are a few specificanecdotes.
I remember, like DavidRubenstein was actually my first
interview and I think, verycritical in my having written
(07:35):
the book, and then I sat next tohim at a lunch for trustees at
Duke where I was an undergrad.
I actually thought I wassitting next to David Gergen
because I was kind of like apolicy guy.
He was like a White Houseadvisor to a bunch of presidents
and started talking to this guy.
I was like this dude is not whoI thought he was and ended up
having a great conversation andgot his card and sent him a note
(07:55):
and he was very kind andgracious to say, sure, I'll do
an interview for this projectyou're saying you're working on,
but I don't really know, and nointerview was ever so easy to
set up.
John Mack moved or canceled atthe then CEO, morgan Stanley,
six times and called me at 7 amout of the blue and all sorts of
challenges.
(08:16):
But I asked David Rubenstein Iwas like, hey, putting
compensation aside, what aresome of the reasons that private
equity resonates or drawstalent or something else?
And he's like, well, david, youknow, asking the question that
way is sort of like asking MrsLincoln how she enjoyed the play
.
You know it sort of misses thepoint.
So there were, you know,stories like that where it sort
(08:39):
of stuck with me of you knowthere's awareness in some of
these areas of what you know,what value they can drive, the
relative importance of impactscale, managing people.
You know, compensation, etcetera.
That definitely was, you know,helpful in formulating views for
me I love that.
Speaker 2 (08:59):
So you had a good.
You had a good, you know,couple of years at Bain and you
eventually then made the jump toCompass, which you were the
first business hire, and thatwas prior pre-series A, so seed
funded at the time, I'm assuming.
Speaker 1 (09:11):
That's right.
So they both based on Robertthe CEO's network and Ori's
success, having sold his lastbusiness to Twitter and a prior
one to Google raised a verylarge.
Really it was a seed round, butreally a pre-seed round, like
them with a deck.
And then I joined a few monthslater as head of finance and
(09:35):
operations I think I was likethe 10th person there, but the
first business person as afull-time hire.
Speaker 2 (09:43):
What made or what motivated you to make that jump,
not only from a largeinstitution to something else,
but also to something that atthe time was, you know, like you
said, a deck.
Speaker 1 (09:54):
Yeah, I mean I think a lot of people went into
business school not totallycertain what I wanted to do, and
I think not that you're askingthis question, but folks that go
in assuming they're just goingto figure it out without a
hypothesis, tend to find it goesby really quickly and you don't
have an answer at the end.
I think those that start withthe hypothesis can quickly
(10:17):
validate you know whether that'strue in some experiences talks,
cases you know, a summerinternship, et cetera.
I took a weekend, I think, atthe end of the first year.
Cases you know, a summerinternship, et cetera.
I took a weekend, I think, atthe end of the first year and,
you know, brought a few booksthat people recommended.
This book that I still think isgreat, called Stumbling on
Happiness.
You know a few other books kindof along that vein to try to
(10:37):
figure out hey, what are mypersonal criteria in selecting
an opportunity?
Because I was getting recruitedby other private equity firms.
Compensation is exciting if itworks out.
A lot of reasons why that, whenyou're being recruited by these
big firms in the physicalcontext seems exciting.
Had some startup ideas, hadsome corporate opportunities.
(11:01):
What was the right way tonavigate that and came up with
six criteria assumed a goodopportunity before and if I was
lucky I'd find one that was likefive of six and the compass
opportunity was six of six andso it made it pretty easy to say
yes.
Was not exclusively focused onkind of that very early stage
(11:23):
opportunity, was looking at alot of different stuff but
checked all the boxes for me andobviously, you know, had a
tremendous professionalexperience, learning experience
et cetera, you know, and takingthat path, Well, I love the
thoughtfulness behind theapproach.
Speaker 2 (11:40):
Can you share what those six were, or at least some
of them?
Speaker 1 (11:43):
Yeah, if I remember, I'll happily give all six, Not
in any particular order, but Ithink number one wanted a role
where I would have impact on thetrajectory of the business, so
not feeling like sort of a cogin the wheel but being able to
drive something from the seatthat I was taking.
Second, ideally either knowingsomeone in the place that I was
(12:05):
going or getting to spend enoughtime with them during the
interview process to feel like Iwas going to avoid working for
someone particularly challenging.
Three geographically, I wasvery focused on ideally New York
, open to some other areas aswell.
Wanted a business that was on apositive growth trajectory,
(12:26):
because I found that they tendto drive the most opportunity
for upper mobility.
Wanted industry that I hadnatural interest in and wanted
compensation that was aligned tothe success of the firm.
Speaker 2 (12:40):
So what were the first couple of days, weeks,
months, like once you started atCompass?
I imagine it was a fairly bigculture shock and learning curve
.
Speaker 1 (12:51):
Yeah, it was sort of like an anti-onboarding
experience in the sense that Iwas still in my second year of
business school.
I started commuting.
It was like Thursday morningsor afternoons.
My schedule worked out suchthat I could be in the office
like Fridays and so I didn'thave to be in person for them
and then to go back.
Obviously, for graduation itwas essentially working
(13:19):
full-time equivalent starting inlate March for the business and
there was just so much to getdone there wasn't a lot of time
to sort of you know, think aboutthe transition.
I mean, obviously it felt verydifferent.
On that compensation note, likeI signed on for a small fraction
of what my comp had been, youknow, pre-mba at Bain Capital,
(13:45):
but was super excited to be inthis environment where we were
experiencing a lot of earlygrowth, very bright folks.
One of the early team membershad a connection to Mike
Bloomberg and he came and spokein the office as part of a New
York tech push very early on.
So it felt exciting and thefounders tasked me with raising
(14:10):
a large Series A very quickly,which we collectively the three
of us were able to do, andthat's what really sort of
catapulted, I think, my role atthe company, from being a head
of finance and operations to theCOO, cfo and really kind of the
third person in the room as wethought about building and
(14:30):
scaling the business.
Speaker 2 (14:31):
For the time that I was there, Was there a moment
and maybe it was this, you knowwhen you signed the term sheet
for the Series A?
But was there a moment when allof the you know, those six
criteria that you were lookingfor felt validated and you're
like, oh shit, this is it.
I made the right move.
Speaker 1 (14:46):
I, luckily, you know, a, I try to be a person where I
make a decision and moveforward and don't spend a lot of
time dwelling on it.
Okay.
But B, you know, I think fromthe outset it felt like I was
getting all the things that Iwanted and in my mind.
While it's obviously riskier tojoin early stage business, I
(15:08):
was fortunate to have all thesegreat logos on the resume.
I was still, you know, notmarried, no kids at the time,
and so, like, if I'm not willingto take a risk, you know, post
great educational credentialsand post some great firms, like
when would I be?
And it wasn't even like thatbig a risk.
I wasn't totally going out formy own, I was doing something
(15:30):
that I could at least speak to,where, from a narrative
standpoint, these were reallysmart folks.
Opportunity, you know, feltreal and obviously great that it
turned out, you know, to be abusiness with a successful IPO
outcome, et cetera at the end ofit.
But I was prepared and okay ifit was just, you know, a couple
of years of tremendous learning,then parlaying that into
(15:52):
something else business building, oriented, entrepreneurial, you
know, tech intersecting, etcetera.
Speaker 2 (15:59):
Maybe I were to phrase it differently.
Was there a moment where youhit an inflection point where,
rather than thinking about itfrom a risk perspective, you
felt like wow, this thing isreally going to take off.
Speaker 1 (16:09):
Yes and no.
I mean, we raised this series Aon a original model that I
think the three of us knew wasnot really working and going to
scale super well, and so therewas a window of time when we're
still growing quickly.
We got to sort of capture thatmomentum and move forward, and
(16:30):
we're able to do that at a veryhigh valuation, which was great,
and then to have the resourcesand the time to transition the
business this is really like thevery end of 2013, beginning of
2014, very rapidly towards thebusiness model the companies had
for basically the last decade,consistently, which is similar
(16:51):
thesis, different application.
Residential real estate needsto get better.
Early thesis being around hey.
The way to real estate needs toget better.
Early thesis being around hey.
The way to do that is to changethe role of the agent.
What it evolved to is actuallygot to change the role of the
brokerage.
The good agents are very good,but they're not getting a lot
from the brokerage that's takinga third of the economics,
empowering them.
We need to be brokerage 2.0 orthis enabling platform for the
(17:16):
agent with technology and otherresources.
So I think, once we got into2014,.
I give the CEO, robert, a lot ofcredit.
He just hustled his way to thefirst group of deals to kind of
prove that this was validatedand then we were able in 2014 to
(17:36):
raise a big Series B round andthen to use that momentum and to
sort of drive exponentialgrowth very, very quickly during
that time.
So I think once you got in thatmotion, it certainly felt good
as we scaled it, but it oftenfelt scary because we were sort
of driving the car against therail of those highway protectors
at high speeds as we scaled it.
But it often felt scary becausewe were sort of driving the car
, you know, against the rail ofthose highway protectors at high
(17:59):
speeds.
And it was sort of my job tomake sure that we weren't
grinding so hard that if therewas a blip in fundraising or
something else, that the carwent off a cliff and you know it
worked out.
There definitely are otherscenarios playing it back.
You know where it may not haveworked out as effectively, but
the ground that it did obviously.
Speaker 2 (18:19):
So I'm curious you mentioned the original model and
that it wasn't that scalableand something related to being
agent-focused.
So what was that model?
And then what was the decisionto?
Speaker 1 (18:28):
pivot was one where, rather than having a traditional
commissioned agent, we wouldhave a neighborhood specialist
in many respects similar to sortof the Redfin model for those
that are familiar with theresidential market whereby
making that a salaried and NPSbonus role and having some of
(18:52):
the components of thetraditional agent
responsibilities scheduling,closing centralized, we could
drive more efficiency.
As long as you got to certainlevels of deal density that that
would make the model workbetter.
Allow us to charge which we didout of the gate a lower rate
(19:14):
than the New York typical feeand create scalable value in a
different model of renting andthen buying real estate.
What we found was lots ofpeople who think that they want
to get their first apartment inSoho realize actually it's what
you get for then $3,000 a monthnow, like $5,000 a month is not
(19:38):
that exciting.
And you actually want to be inwherever Williamsburg, or you
want to be on the Upper WestSide or something, and so no one
wants to repeat themselves intheir search every time, and so
this model of concentratedneighborhood specialist was
challenging in that regard.
It was hard to interface with anindustry that didn't really
want a successful new competitorthat reset people's
(19:59):
expectations to a lower fee.
So there were challenges withthat coordination across the
scheduling, showing, closingside, et cetera.
And again this awareness thatthere are actually some very,
very good agents A lot of themare incredibly hardworking and
play a key role, but that therewas a huge opportunity for
(20:19):
technology to improve the wayagents did their job, the
workflow components of it, theway they interacted with clients
and a whole bunch of valueunlocks that we could hopefully
create over time.
Speaker 2 (20:31):
Love that time, love that so, and I believe it's.
It's larger now, but by thetime that, uh, that you
ultimately left, it was $1.8billion valuation.
Is that correct?
Okay, what would you say fromyour perspective, or from from
your role, was the mostchallenging aspect from going
from that, you know, zerorevenue or the original business
(20:53):
model all the way up to the 1.8when you left, keeping the car
on the rails maybe, like youwere mentioning?
Speaker 1 (21:10):
Yeah, I mean, I think any business that's growing
that really well was trying tofocus in on specifically what
mattered most.
In this case, it was hiring andretaining agents.
I think there's a tension thatcomes especially in the role
that I had of how early, howaggressively, do you need to
(21:34):
think about economic scalability, et cetera, and the tradeoffs
between those two, and so we gotvery fortunate.
The macro environment stayedrelatively consistent and
positive during my time there.
I, you know the company wasfortunate that it raised a lot
(21:54):
of capital in 2017, 2018.
And so you know A it wasactually a great thing for the
business that we work ran into abrick wall when I tried to IPO,
that the public markets had adifferent level of scrutiny and
expectation.
That, I think, helped evenbefore COVID hit, which was the
(22:15):
second massive sort of wave andwake-up call for the business,
that there was a need to focuson some of those things.
Then, getting that balanceright of how aggressively to
expand, how to think about therelative value of a dollar of
revenue, of growth, et cetera,was definitely an area of
tension.
That then trickled down intowhether you thought about
(22:38):
staffing, building capitalraising, operating efficiency et
cetera.
That is like an importanttension, but still a tension and
challenge for scaling abusiness.
Speaker 2 (22:49):
Any key leadership lessons that you learned there
that shaped your approach tothen founding Harness lessons
that you learned there thatshaped your approach to then
founding Harness.
Speaker 1 (22:57):
I think there's a combination.
Whenever someone is a operatorand then goes to become a
founder, I think there's somethings that I took away and said
, wow, that was such a greatinsight.
Number one this theme of techenabling advisors.
In spaces where clients stillcare about who they work with
(23:18):
but perhaps aren't dazzled bythe technology or the things
beyond reach the advisor'sexpertise was a big business
opportunity that traditionalventure-backed businesses across
advisory spaces had generallyfocused in on how do we
eliminate the advisor, ratherthan how do we superpower,
(23:40):
supercharge, you know, or givethe advisor superpowers in
delivering that.
So I think, thematically,harness came out of that insight
that we had had in the pivotand building the business.
I think on the flip side tothat there are things you're
like oh my God, that was messyor hard.
Definitely don't want to dothat again.
And so Compass was a businessthat, because of residential
(24:02):
real estate, we felt like we hadto.
I think we probably did openvery localized offices and build
share distinctively inWashington DC proper and in LA,
and even in LA it's different inBrentwood versus Malibu versus
(24:24):
Beverly Hills, et cetera.
Very operationally intensive,capital intensive, et cetera.
So when I started Harness itwas a pure play services
marketplace and then I think wesaw some limitations in that and
then Evolve.
I've built over the last fewyears a pretty exciting
(24:44):
end-to-end software solutionthat's SaaS, for the tax
advisors to be able to createthis great experience for their
clients, but was willing to rollup the sleeves, be a little bit
more operational to test out,understand all that workflow to
bridge.
So you sort of run towardscertain things, you run away
from other things.
You realize you got to kind ofbalance and find something in
(25:07):
the middle on some of thoseattributes as you scale your own
adventure.
Speaker 2 (25:11):
So, before we get too deep into H, I am curious
because obviously things itsounds like we're going
fantastically well at compass.
You left.
You had a stint, looked likeback to bane as an eir.
Was the?
What was the inspiration forstarting harness?
Did it come out of bane?
Was it something entirelyseparate?
What did that transitionalperiod look like?
Speaker 1 (25:31):
yeah, I mean, I um, there's sort of arcs of
expanding and contractingopportunity and I think you know
, in 2017, I felt like there wasa path of business being
imminently ready to IPO.
There's a sense that that, youknow, made more sense for
everyone's leadership team.
Much further out, I'd beenplaying the COO, cfo role that
(25:51):
was going to have to kind ofprobably narrow as we continue
to scale, and so I was excited,you know, excited about a
different opportunity andchallenge, was fortunate that I
had the opportunity to go backto Bain Capital where I'd been
in a new role there, this sortof executive in residence role,
to think about either buildingor joining, and I was open to
(26:12):
both of those opportunities.
But I think when I got thatlight bulb moment of there was
hey, something that thematicallyfelt very similar, I thought I
had a unique advantage havingbuilt or helped build one
business in that kind oftech-enabled service space
successfully, of doing thatagain.
To run out this as a secondchapter, there was also a
(26:34):
scenario where I became aninvestor, but that always felt
like a much smaller, lessinteresting opportunity, because
I felt like I could probably doit, but I wasn't sure that I
would have some significant edgerelative to where I felt like I
was perhaps more differentiallypositioned to operate or build,
at least for another chapter.
Speaker 2 (26:56):
And so in this second chapter, with Harness, how has
that evolved from the startingof the company to today?
Speaker 1 (27:02):
Yeah.
So, as I mentioned, you know,our business model has expanded.
I would say, you know you couldcall it a pivot, but really
it's just added more and, Ithink, a more nuanced strategy.
So we started as a place fornextgeneration business owners
and equity holders to navigatefinancial complexity with tax
(27:23):
advisory for both individual andbusinesses, financial planning,
holistic wealth management,trust in the state to help
people with service discovery,advisor pairing and some data
enablement.
What we found was that taxtended to be the most demanded
service and it was also the onewhere the supply was the
shallowest in terms of advisorsthat had the expertise that our
(27:45):
clients needed.
The basic tech enablement incybersecurity to create an
experience we thought made sense.
Capacity to take on new clientsat a price point we thought was
reasonable for the demographicthat we sought to serve,
generally this kind of emergingwealth demographic in their 30s,
40s or maybe early 50s and sowe saw an opportunity, after
(28:09):
looking at the problem from afew different angles, to develop
software that would allow bothbreakaway or small solo
practices, as well as boutiques,to be more efficient in the way
they serve clients and createcapacity for themselves, have a
(28:29):
better, more secure digitalexperience for their clients and
that we could also be a conduitfor this next generation
clients looking for great taxadvisors to really have a unique
value proposition on both sidesof the marketplace versus just
a traditional third partyintermediary.
And that has proven to be verysuccessful thus far in expanding
(28:52):
the reach of what we're able todo and, I think, the positive
impact that hopefully we'redriving for our end consumer
clients and tax advisors as well.
Speaker 2 (29:02):
Love that.
So, on the tech side, I want toswitch gears a little bit and
really talk about how bothfounders and startup employees
should be thinking about theirfinances from a tax and equity
perspective as they movethroughout their journey.
So, given how much work you'veharnessed has done with founders
in the past, what would you saysome of the biggest or most
(29:24):
common mistakes that you'recommonly seeing from founders
when it comes to tax andfinancial planning for
themselves?
Speaker 1 (29:31):
Yeah, I mean I think the most important is
understanding the equity thatyou hold, as well as sort of
what the options are and whetheryou need to proactively make a
decision.
In some cases, advocate foryourself.
You're a founder with yourboard, if you're an employee,
with the management, et cetera.
I mean, I spoke to someone thisweek who's a director level
(29:53):
person at a company doingincredibly well, director-level
person at a company doingincredibly well, raising more
capital, who hadn't gotten greatadvice along the way and all of
a sudden feels like he's got 40hours to make a decision on
whether to exercise his equitybecause this is likely the last
opportunity to qualify forSection 1202 QSBS, where the
(30:17):
proceeds, given that he's aCalifornia resident, would be
federally tax-free.
There would still be some stateimplications, but would have
been in a much better positionif he had known all the
opportunities much earlier on.
Companies can, though a lotdon't give employees the
opportunity or founders toexercise through a promissory
(30:40):
note where they're not outlayingcash.
Companies can, though veryseldomly do, offer the
opportunity for employees toexercise through what's called
an 83i election, where theytransition options to stock but
don't have to pay for a numberof years for that transition to
encourage the ownership, etcetera.
(31:00):
So there's a lot out there.
It's very confusing.
It's much easier to not worryabout it, hope for the best
build and feel like, hey, if weget a great outcome, that's
great Nine times out of 10, whensomeone gets there, they're
like, oh my God, you mean Icould have done something
different and saved 22 million.
That's insane.
So it generally is second-timeliquidity.
(31:24):
Beneficiaries, whether they'refounders or something else, that
are much more proactive of youknow, want to get my options
into stock as soon as possible,want to think about you know
when liquidity opportunities arecoming, what are the right way
to generate tax offsets throughparametric funds or charitable
giving or moving stock intotrusts or other activities that
(31:49):
are much more nuanced.
I think there are opportunitiesfor people at a minimum
understand what they have,understand what you know they
could be doing, to navigatethese pieces.
And then it's much easier, whenyou already have a good amount
financially, to do some of thefancier stuff that people get
excited about but may incursignificant costs to create that
(32:11):
out-of-state trust or to have atrustee or to do advanced
planning.
That doesn't have value if thatstock doesn't end up being
liquid down the road and worth alot, but it's still worth
knowing about much earlier on inthe journey.
Speaker 2 (32:27):
Yeah, and a lot of what you just said is probably
gonna go over a lot of people'sheads, because I mean,
ultimately a lot of startupemployees or even founders.
To an extent they have ageneral idea of how options work
.
If they're working in a startup, they generally know strike
price, number of options, apercentage of company if it's
earlier stage.
But very few that I have evertalked to you know know the
(32:49):
difference between, like an NSOor an ISO or really how equity
works beyond that, that basiclevel.
And I'm not suggesting thateverybody should become a deep
tax expert.
But how should employees thinkabout that equity comp, both as
part of their overall packageand also just from a tax
planning perspective?
A?
Speaker 1 (33:09):
few things I'd say.
Number one, when you'rethinking of starting something,
taking a new job, et cetera, iswhen it's top of mind, and so
that is generally when it's bestto make sure that you're doing
enough research.
That's obviously your businessand understanding, whether it's
from the recruiter or from otherresources like hey, how much
(33:31):
information can I gather?
How can I then do some researcharound it?
Our philosophy at HarnessWealth has always been give as
much away as we can to helppeople get up to speed on some
of the nuances, and if and whenthey actually need to talk to
someone, there's a cost for that.
But how do we scale itappropriately?
(33:51):
So there's a whole bunch offree tools and content around
these topics.
I found it surprising that inthe tax industry there was
really no personalized, live,bite-sized way to get an
understanding of specificallywhat do you hold, what are the
implications, et cetera.
So we pioneered this concept ofa one-off, one-hour equity
(34:13):
planning session with a realequity comp expert that someone
can understand what they havewherever they are in the journey
.
It ought to be probably earlierthan it generally is, which is
people kind of imminentlythinking about an exercise,
alternative tax implications, amove, liquidity, et cetera.
And then when you're makingdecisions that have real
(34:36):
complexity to how you thenactually execute your tax
compliance, those same advisorsand a broader base of others can
actually do the return for youonce you've graduated from what
the TurboTax DIYs can provideseamlessly.
But there's definitely noreason that someone should run
out and try to get an Andersontax CPA for $25,000 to
(34:58):
understand their 10,000 ISOgrants for the Series A company
that they're joining.
But the sooner the better injust knowing what you have and
how to think about it.
I mean, a lot of these issuesare ones where there is a
risk-reward benefit Option iswhat the name suggests.
There's a cost to exercise it.
(35:19):
If you exercise it when there'sno tax implications, you're
still outlaying capital in mostinstances and so you've got to
wait the capital outlay relativeto the potential return and
stuff like that.
So there's some no-braineranswers and things and there's
some that are just about youknow making a calculated
decision with your capital andyour equity and you know what
(35:42):
you think makes sense for youroverall portfolio.
Speaker 2 (35:45):
What are your thoughts on the 90 day exercise
window?
That's fairly standard aftersomeone leaves a company.
Do you feel that's fair?
I feel like a lot of peopledon't even realize that that is
the requirement when they taketheir first role at a startup is
the requirement when they taketheir first role at a startup.
Speaker 1 (36:02):
No, it's not fair.
I mean, I think it's aninformation asymmetry arbitrage
where companies, if they doreally well, it either becomes a
golden handcuff retention thingthat employees didn't
appreciate because they thoughtjust by vesting that was what
they had to do to capture value,you know, or become so price
prohibitive in the potential taxand exercise implications that
(36:24):
people just give up the equityand the company gets the benefit
of people that probably oughtto have taken that equity value
with them.
Just don't do it, you know.
As a result of that, weimplemented a promissory note
program.
It's something that got a lotof coverage for a very short
(36:44):
minute because Ryan Breslow atBolt talked about it like he was
the first person to ever createit encouraged employees at a
very late stage to use it.
The company then faltered and soI think that was reinforcing
for someone that's notnecessarily like an
unequivocally good tool.
But, yes, I think longerexercise windows, which
(37:05):
companies absolutely can do.
Yes, after 90 days itautomatically goes from ISO to
non-qual.
But it is the election of thecompany and not any regulation
of saying, hey, you've got 90days to exercise or it's
forfeited First.
You have 90 days to keep it asan ISO at exercise, versus to
have a longer period of time tomake a decision around it.
Speaker 2 (37:28):
And how did that become the norm?
Was it just somebody starteddoing it and everybody followed
the herd?
Was there some?
Speaker 1 (37:34):
Yeah, I mean big corporate.
There are a handful of firmsthat work with the vast majority
of the mainstreamventure-backed companies and
it's to the benefit of thecompany and, by proxy, typically
the founders who have outrightshares or did a 83B election or
something at a minimum cost upfront to keep as much of the
(37:58):
equity pool population whateveras they can.
So, yeah, it's to the benefitof the decision maker.
The law firms work for thecompany.
The company is some combinationof the board and the management
team, founders, et cetera, sothat tends to be self-fulfilling
unless founders feel likethat's just not a policy or the
(38:21):
approach.
I would say that there'sdefinitely some incremental
visibility, that it can make adifference when people are
recruiting, but it's stillpretty limited, I think,
relative to the wider populationas to what the implications are
of a standard four-year vest,one-year cliff, nine-day
exercise versus something moreemployee-friendly.
Speaker 2 (38:44):
Well, and typically employee option pools are 10%
right.
Speaker 1 (38:48):
I mean it can vary widely, but yeah, I would say
that's the most, anywhere from10% to 20%, depending on how
many people there are and whatis being set up for.
But then you'll often haveequity pool refreshes after
every price round and those canbe refreshed back to 5%, 10%,
(39:08):
you know, or higher, dependingon how aggressive the investor
is being to try to minimizefuture dilution.
Speaker 2 (39:17):
So if I get my options from the employee option
pool and I leave the companyand I choose not to exercise
them for whatever reason, dothose options then go back into
the pool, which are then givento another employee, or do they
go back to the larger group?
Speaker 1 (39:33):
The former I mean again mechanically.
A company could obviouslyretroactively change the way
that their option pool is done.
That's less common, but no,it's largely recycling.
That then inhibits having toexpand the pool further down the
road.
Speaker 2 (39:49):
Super interesting.
Okay, all right, before we gettoo technical, I want to ask you
one final question, just tocircle things back to business a
little bit.
Just to circle things back tobusiness a little bit.
If you were to go back in timeand talk to the younger David
that was writing Moneymakers,with the experience that you've
gotten in this 15 plus yearcareer so far, what would you
tell him?
Speaker 1 (40:08):
Well, I would say I feel very fortunate that I've
had a great mix of professionalservice experiences that were
immensely valuable, learning forme.
Like both Bain and Bain Capitalconsulting private equity, I
think, do an incredible job ofgiving you exposure at a very
(40:28):
young age to challengingbusiness problems in a way to
hold yourself professionally andanalyze problems that have
served me very well.
Certainly there are some peoplethat if you go back in time
would be accretive to have knownto interview or focus on 15
years before, maybe in thatpopulation of folks worth
(40:49):
working for because of thesuccess that they've had in
their businesses.
But I think overall I try tocontinue learning from peers
content people far smarter, moresuccessful than I am, to even
for our business, which is lessthan 50 employees, to have both
(41:13):
self-directed learning through alearning and development
incentive program that peoplecan take advantage of and also
to have guest speakers everycouple months.
Today we've got a formercolleague of mine from Compass
who's been a super successfulmarketing executive coming in.
We've had CEOs of AngelList andGreenhouse and others to give
(41:34):
our team a perspective ondifferent journeys and things to
learn that hopefully is helpfulfor them in the work that
they're doing for Harness today,but also how they think about
their broader career journey andwhat they can be learning
day-to-day as well.
Speaker 2 (41:49):
Cool Love that.
Well, you've dropped a ton ofknowledge, both on the business
side scaling and the equitycomponent, so really appreciate
the conversation and thank youfor coming on.
Speaker 1 (41:58):
My pleasure.
Thanks for the great questionsand having me.
Speaker 2 (42:00):
Thank you for tuning in to this episode of Seat to
Exit.
I hope you found today'sconversation insightful and
valuable.
If you enjoyed the episode,please take a moment to
subscribe, leave a review andshare it with your network.
Your support means the worldhelps us continue to grow and
bring more incredible guestsonto the show.
Now for more content andupdates, follow me on LinkedIn
(42:21):
or Twitter, or you can check outMindHire, where we help
startups build exceptional teams.
Thanks again for listening andI'll see you in the next episode
of Seed to Exit.
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