How X1 pivoted, launched, built a +600K-long waitlist and fundraised in tough times

 X one has done extraordinarily well since the launch in 2021. I know people love the credit card. You're processing something like 60 million or more in transactions every month, uh, which is just very impressive. Uh, but your journey to get here, I know, has had a lot of twists and turns, and you did this pretty intense pivot at the peak of the pandemic, all these unexpected challenges around actually creating the card, you know, and it wasn't a straightforward path to product market fit.

 Yeah, I'd love to retrace this journey with you and, and dig a bit deeper into some of those critical moments. And so to kick things off, let's rewind to 2018. Um, when you initially launched as Thrive Cash, uh, what, what was Thrive Cash and, and who was it?

 Yeah, uh, that's a great question, and thank you again for having me. Uh, in terms of, uh, we start in the company in, uh, early 2018. Uh, that was where, um, the foundation for the company and the X one card also happened, but, uh, the company was started as a completely different product. the company was started, uh, as Thrive Cash. Uh, the first product, and that was the only product that we were working on, was an unsecured personal loan, that was catered towards college students. We were primarily targeting upperclassmen and graduate students. Um, and the way the product worked was very unique.

Uh, and no one else was doing it. Still to this date, no one else does it. We were basically underwriting, uh, students, uh, Through an awful letter for an upcoming internship or a full-time job. So imagine you were an upperclassman, um, and you're about to graduate, uh, and you have an internship or like a full-time job lined up right after graduation.

Uh, so we would give you an unsecured loan, uh, which would match the timing of your internship or your full-time job. You can get access to the funds when you're in college. You don't have to pay us a single cent until you have graduated. And then as you start getting paid from that internship or full-time job, you could pay us back.

So that was the crux behind the idea. We wanted to go as early as possible in someone's financial journey and then try and capture that audience.

 Got it. And I, I think it was doing pretty well initially, right? You were at several schools and, and you know, underwriting successfully a lot of college students.

 Yeah, I think so. The first time, uh, we started the product in this, in, I think in spring of 2018. Uh, and, uh, we primarily launched the product at NYU in Columbia. And, uh, I think within the first six months we're able to originate about a million dollars of loan, primarily at those two colleges. It was all organic, all done through word of mouth.

So that gave us enough validation that okay, there is a huge market out there. And, uh, in the next school year we started expanding to more and more schools across the east coast. Um, primarily like New York, Massachusetts then made our way towards VAs Coast as well. And I think at the peak right before covid, we're doing about like a 25 million like school year in terms of, 

 I think I, uh, just a little bit about myself. I am a product person. I come from a product background and we were not traditional financial services folks. Uh, we don't have banking or financial, uh, services background. So we wanted to create a product which was more consumer friendly, extremely transparent, and really like fast and sleek.

 Uh, just where if you want access to capital, you open. Uh, within like a couple minutes, you would, uh, go through the entire flow end to end, and then the next business day you will have thousands of dollars in your bank account. No one was doing that, and especially for a college student, if you imagine going back when you were like 21, 22, there was literally no access to that amount of capital that fast.

So I think that was like a huge factor for us. Uh, and you didn't have to go to a bank, you don't have to do complicated like driver's license or face IDs and things of that sort. It was just very, very simple. You log in, you go through a few easy flows from your, uh, putting your assets to your phone number, sending us an awful letter.

Within five minutes you get approved for a line of credit, you can rely on that line of credit as in when you want funds, we would just send you the funds the next day. Uh, so it was, it was very, very

 Yeah. Sounds like a great product. Okay, so you're growing, you're expanding 20 18, 20 19, and then 2020 Covid hits

 So it was very interesting. right up until, I think if I remember about February of 2020, the business was growing really early, rapidly. I think we were almost like doubling month over month. Uh, we were on track to do about 25 million in loan origination across, I think just, I would say like 40 or 50 college at that, that time.

And, um, Then I think the first set of shutdowns started happening. Um, and if you, uh, remember that time it was, uh, no one knew exactly what was going on. I think, uh, SF I remember shut down in the first week of March. Uh, and, um, there was a time where, um, overnight our, uh, demand completely evaporated.

There was not a single, uh, consumer who wanted to, um, get access to fund, just take a loan. They were completely went away. Um, so as we started talking to.

 they weren't traveling or they didn't need, they didn't need the money.

 Yeah, exactly. I think, I think so. It took us a while to understand what was exactly happening, why it was the sudden change. So I think few things happened at that time. If you, uh, remember first thing was, uh, I think immediately the campuses were shut down. Uh, and, uh, people had to go, uh, either leave the campuses, most often had to leave the campuses.

So our entire marketing strategy, our entire word of mouth was built on like campus where people would talk to each other. Uh, so that completely evaporated and no one was doing that. And then two biggest use cases of her product, uh, were, one was travel and second relocation. Uh, travel completely shut down cuz no one knew what was going on.

Uh, and then relocation. Uh, companies had to adapt really, really rapidly, including ourselves. everyone had to go remote. Uh, for first, if you had to start an internship, you might have to move cross country and, uh, then put a deposit on, rent, for an apartment. Or you, uh, might, uh, need like money to go buy your flights or, um, buy laptops and so on and so forth.

All went away, completely went away. You could now just, uh, start an internship from your parents' apartment, uh, or from your dorm. Uh, you can actually start your job in your pajamas, uh, sitting wherever you want. So it completely, uh, changed the equation and. That was the biggest, hit to the business.

It wasn't that people weren't able to pay you back because the economy was so bad. That's what we had anticipated might happen when there is a minor recession, It was a minor blip in the GDP during that quarter. But that was not what, affected us.

 Yeah. Okay. Wow. So that, I mean, it sounds like it happened almost overnight or, or at

 period of days or weeks. So did you do inside the company? When did you start to sort of say, Hey, we've gotta do something different here?

 Yeah, that was the most challenging time for the business, uh, cuz there was so much uncertainty and there was no precedence for something like this. Um, because, uh, we just did not know how long would it take. Uh, and if you remember the videos at that time, people were talking about, uh, U-shaped recoveries, L-shaped recoveries.

Like we shape recoveries. We like just did not know how to maneuver the business waiting for it till I come back. So, um, I think we basically decided to give it a week or two to see if the campuses would shut down. And I think every week it actually got more and more intense. Uh, the only, the first the colleges like I think in California were closed and like, I think the Ivy Leagues closed and people even in like the universities in Texas were shut down in the end.

So there was literally like nowhere for us to go and market the product. And I think that was a good realization at that point. All businesses have some flaws at the end of the day and, uh, While you're working on a startup, you have some duration to start and fix those flaws. I think in our case, the two flaws of the business were one was seasonality and second, it wasn't a daily engagement product cause people were still buying things.

People were still going to grocery stores, they were still buying workout equipment, but they were just not going, traveling or doing relocation. Uh, and they were still living their lives. So I think that accelerated the biggest flow of the business, which was it, it was extremely, uh, seasonal and it was very oriented towards a certain use case.

Um, so I think that took a while to realize, uh, and I think it's, it's, it's an emotional journey. At the end of the day, you're, you're in it. Uh, you don't want to let go of something that was working really, really well that you just raised money for because it was working so well and then just overnight it stopped working.

So you try to kind of hold onto. Uh, I think we, we, we did a good job, I would say within a couple months. We pivoted the entire business, changed the company, uh, did a lot of things and I can, uh, go deeper into all of those.

 Yeah. Well, so, okay. You mentioned you had raised money already, when Covid struck, how much money was in the bank and how many employees did you have?

 yeah, I think so at that point, given the growth was so great, we had about, um, I think around like 16 to 18 employees at that time. Uh, and uh, we had about 3 million in the bank at that 

 Okay. So this was after your seed round, but before your series A.

 yeah, we still had about, uh, 3 million in the bank at that point.

Um, but our bond rate was really high. We were burning about two $50,000 every month. So, uh, cuz the business was going in this one particular direction where we knew, okay, now we're gonna go from 50 colleges to two 50 colleges and go raise money, uh, for the next round. Uh, But then you had to course correct, like dramatically.

So what we had to do, uh, we had to take some, um, just hot steps we had to let go of some people. Uh, but we wanted to like keep as many good folks as possible and they had been with us from day one, so we offered everyone in the company in ability to, uh, get more equity in the company if they would lower their salaries.

Uh, we had a hundred percent participation rate for that. Every single employee, uh, in whatever they could afford from like going lower in salary. Some people went like crazy down, uh, in order to get more equity in the company. And we were able to reduce their burn rate from I think two $50,000 to about a hundred hundred $20,000 more than half, uh, over the next like couple months, which gave us at least 12 months of, uh, runway to be able to figure out what to do next.

 Interesting. And you did this when you had 3 million in the bank still.

 it's, it's kind of like what a lot of founders, I think are thinking about today, like acting very early to try to extend that runway sort of as early as you can is what you

 Yeah, and I think. Absolutely. And I would, I would get credit for all of this to David Sachs. I think he, he was extremely, extremely influential in all of this. I think he was pushing early aggressively. He was like, you have to cut fast, you have to cut really early, deep, uh, and we were hesitant. Uh, so it's one of those things where you're emotional and you wanna make sure you, you're resuming that, oh, things will work out.

Maybe the school year will start in the next few months. But I think in hindsight, he was obviously right. He was like, you have to go very, very deep. You need to give yourself the most amount of time to be able to recover from this. Cuz you, who knows how long this would last and who knows how long it would impact the business at like a, a longer term horizon.

So, um, that he, I, I give him credit for all of it. I think he was very, very helpful throughout this process. And then I think we just completely cut our expenses went in this like development mode cuz we didn't know what we would do next. Uh, cuz the business as we had built it to that day, did not exist basically overnight.

 Yeah, so it's, it's this incredibly intense, it sounds like about two month period where the first thing you had to do was sort of like, let go of the old idea, your attachment to that, and then you figured out how, how we cut costs, and then what did the, beginning of the pivot start to look like. How did you figure out what you were gonna do?

 so. one of the things that I mentioned early on, I think the two, uh, key flaws of the old business, uh, was it was not a daily engagement product. You couldn't use it daily. At the end of the day, it's a loan. You could maybe take it once a school year, uh, maybe twice if you're using it like a line of credit.

 Uh, but we wanted to create something which you could use daily. Um, and the second, uh, aspect was, uh, we had a huge seasonality element. Uh, In order to use the first product you need to a, have an internship or a full-time job, then you needed to have a need for capital if you were relocating or if you were traveling.

So it was very seasonal. spring quarter was huge for us because people were on the like, uh, last set of funds that they might have saved from either previous shops or just like their, like savings or like from their parents and There was a huge demand for cash and spring quarter was huge for us, but the fall wasn't that big.

So, uh, we wanted to fix those two things. and I think one of the things as you, uh, if you now go back in, I think it was May and June when things were starting to open up slowly, you will still, uh, going to restaurants and getting takeout and then going to grocery stores. So people were still spending money every. I was still using my credit card every single day to buy something or the other.

It's just the category of purchases completely changed. Instead of travel, you are ordering dumbbells or pelotons or like workout equipments. Uh, you are ordering a lot of takeout, new people were not going to movies. So the category of spend change, but the spend did not change. I think that was like one of the things which stuck with us where we said we have all this infrastructure to like be able to underwrite consumers really really well, uh, but there needs to be an instrument that they could use on a day to day basis, which is not a personal loan. Uh, I think that was the first insight into moving towards a credit card. Uh, and we always knew that we would need something when a consumer graduates to build a relationship with them.

We just decided to accelerate that. So that's how the, uh, the credit card started to like shape up basically.

 Got it. And so then I, I mean, I imagine building a credit card was a brand new thing for you. What, what, how did you start to figure that out? How that would actually work?

 yeah, it was, uh, it was totally brand new cuz uh, I think the only thing that we, uh, could have taken on from the previous, business was just the underwriting ability, but everything else was completely brand new. Um, and there haven't been that many credit cards, at least, uh, startup credit cards that have been successful or are actually even out there in the market.

So, uh, the sample size to go rely on was really, really, small Um, so I think the next few months was a huge amount of partnership research, uh, talking to companies like Stripe and Marketta to see if they would be able to help us build these programs. Uh, and then just figuring out like how do you even go build a credit card from scratch because, um, if you notice up until, I think even today, uh, almost all like Neobanks in the country are heavily debit card led.

Uh, the two largest neobanks in the country are chime and cash up. They don't even have a credit card. Uh, they're primarily debit cards. So all the infrastructure was, uh, built around debit cards and no one was building credit cards. There was very,

 I think it's extremely complicated to build a credit card, and it took us a while to realize that.

 there are few reasons. Uh, first, when you spend, uh, money on a debit card, uh, it's actually your own money. Uh, you are literally using the money in your deposit account to buy or make a purchase. So it is not as regulated as a credit card because credit card, every single purchase, even though someone like you and I pay it off and full at the end of the month, it is technically still a loan because you have the ability to not pay it off and full at the end of the month.

 So the regulations were very, very, uh, intense. So, You had to figure out how to build the product around those regulations. Uh, the second is the capital constraints. Now, uh, keep in mind our bank balance was going down, uh, rapidly. We had like two, two and a half million dollars at this point. But to build a credit card every time you swipe your credit card is not your own money.

It's someone else's money, uh, that you are, uh, using until you pay them back. Uh, so you had to float all this money, uh, for like 30 days minimum, and then could be like years maximum if someone decides to carry a balance. So the capital and back in p Covid, uh, where, uh, people didn't know if the debt markets would survive and how would they behave?

You didn't know how you would get access to that capital. Um, and I think the third and the most important one in the end was, uh, there wasn't access to a processor, which you can rely on to build the rails of the credit card on. Uh, so companies like Stripe and Marketta, they do not support, uh, consumer credit cards.

 actually all the, all cards out there from Chime to, uh, square and stuff, they use Marketa or uh, Stripe in some shape and form. But neither of those companies offered a consumer credit card, so we had

 basically like you're finding how difficult it is to create a new credit card. What was giving you the confidence that like this was a good thing to do? Like you mentioned that you wanted to kind of get away from some of the seasonality and other things that were impacting Thrive problems that you wanted to solve in the business, but how did you know that consumers actually like wanted a new credit card or there was space for a new credit card?

 this was where we got very, very lucky. Uh, we, uh, had underwritten, uh, thousands of college students, uh, based on like a personal loan product. So, uh, we had access to their credit reports. and we used to monitor their credit reports as a part of just underwriting on a monthly cadence.

 And a lot of, our first or the second batch of the students that we had underwritten, they had graduated. Almost always about like, I would say a hundred percent of the times, uh, within like, uh, the first six months of graduation, uh, people would apply for a credit card and you could just see that they were, uh, getting inquiries for a credit card and a lot of people were actually getting rejected.

That was like a key insight where we saw where a lot of people try to get your Amex or like Chase, Sapphire card and a lot of them, they won't get

 Oh, so you saw what? What you thought were kind of creditworthy, people getting rejected

 Yes, exactly. these were folks who had jobs at Google. These were folks who had like an, uh, job at, uh, Goldman Sachs, and they would apply for an American Express card, uh, right after graduation or during like that time, and they would get rejected.

So they all had to take these, like very low tier cards with really small limits. We actually saw the limits of the cards that they were getting approved for. Uh, and those limits were actually lower than the loan that we had given

 we knew there was like a huge opportunity there where, uh, if you are, uh, graduating from any college and you have a job in consulting, banking, tech, education, uh, Whatever, uh, earnings you were making, they did not have access to those earnings to be able to underwrite your, um, profile.

And they would give you a credit card with a limit of thousand dollars, $3,000, where we could have given them a loan of up to $10,000, even like $15,000 in some cases. So we knew there was a huge mismatch. Uh, we remember talking to this one individual. He was at duty, Austin. Uh, he got a credit, uh, limit of $1,500 and uh, he was a software engineer who wanted to buy a laptop.

Uh, he couldn't buy a Mac on his credit card, uh, cuz the new Mac with, you know, like the core process there, about like 1800 bucks. He, he couldn't do it on his credit card. Uh, this was a person who had a job at Google who was getting paid an engineering salary. Uh, but the credit limit wasn't enough for them to be able to buy a laptop even.

So I think those were some of the things where we started, looking at the data and then talking to the existing customer base. We knew that okay, there's a huge opportunity

 Yeah. What were, what were people saying? Cause it sounds like you saw a lot of signal in the data, like, these people are applying for credit cards, they're either getting rejected or low limits because, you know, the insight is like, you should underwrite these people on their future income rather than, you know, whatever credit history they have.

And so the data was telling you that, but then did you start to actually like, talk to users and, and hear the stories yourself?

 Yeah, I think so. Uh, when we, uh, we did a lot of research. Uh, so again, I think some of the things that benefited us where we had this access to this huge customer base, uh, from the existing business, which was still a relevant customer base for us. Uh, and, uh, we used to turn a lot of surveys, uh, and we had access to this entire college directory.

And you can, if you remember at that point, people didn't have much to do. They were not going out or like doing much. So you would send out surveys and people would fill out surveys on like, how are they deciding the next credit card? Uh, and the teams were very, very common. I think the, apart from the obvious things like rewards and like no annual fee and so on and so forth, uh, the two key things that almost every person wanted was either high limits and like making sure the crowd was extremely transparent.

It was like unanimous. Every survey we ran, uh, apart from points and no exorbitant fees, which was just a given at that point, the two things that they cared about were, uh, limits. Uh, and then credit card that was extremely transparent.

 Yeah. In, in terms of just fees and like interest. It's not predatory.

 You can like access your information online. They are not like trying. Uh, charge your late fees behind the scenes and so on and so forth. So, uh, everyone has heard some stories, which have negative connotations attached to it, so they just wanted to make sure that they are like, uh, working with an instrument that they can truly trust.

 Okay. That makes sense. So how many surveys did you run?

 I would say we had data for thousands of, uh, college students at

 thousands of college students, and then, uh, did a lot of qualitative research as well. Almost every day used to talk to like da. And so, uh, college students, uh, upperclassmen, even people who had graduated and had these jobs who did not have a good credit card, even back even then, they were working at Google, uh, had these like, incredible jobs but had like really bad credit card.

Uh, so that was, that basically gave you motivation and that kind of kept you going even against like all the odd. Where no one had built a credit card. None of the companies that you admire like Stripe are supporting a credit card. You, we did not have capital. Uh, it was heavily regulated and it would have taken at least 18 months to get it out and running.

But, um, I think maybe that was just like a little bit naivety. I don't know what it was, but somehow you just like knew that, okay, whatever we are seeing, there's a unique insight here and we should just keep on following through

 I mean it sounds like you had discovered, gosh, this is gonna be really hard to do, but we've got a ton of conviction that it's a good idea based on the data that we we're seeing in the surveys and talking to people. How did, like at, at one point where you're just like, we know it's hard, but we just have to do this.

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