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Navigating Start-up Equity with Vieje Piauwasdy of Secfi

Often one of the key benefits of being a part of a tech start-up is equity in the company, but the process to exercise stock options can be daunting. In this episode we were joined by Vieje Piauwasdy, Senior Director of Equity Strategy at SecFi to talk about why nearly two billion in start-up equity is being left on the table.

Payments & Fintech Insights In This Episode

  • The myths of tech start-up culture.
  • The reasons equity is often ignored by start-up employees.
  • The difference between traditional loans and non-recourse financing.
  • The risks of delaying the decision to exercise stock options.
  • And so much more!

Featured on the Show

Episode Transcript

Heather: Hey, everyone, welcome to “PayPod”. I’m your host, Heather Bodie. And today we are going to be talking about making the most out of startup equity. Joining me today is Vieje Piauwasdy. He’s a senior director of equity strategy at Secfi, the leading provider of equity planning and financing for startup employees. Vieje, welcome to the show.

Vieje: Thank you, Heather. Happy to be here.

Heather: Absolutely. So, I love to start off my conversations with my guests, finding a little bit more about them. We’re gonna talk about the company, of course, and all the wonderful things that Secfi does. But tell us a little bit about you. How did you get into fintech and what led you to this point?

Vieje: Absolutely. So, I went to school up The University of Washington and kind of had a maybe an atypical path to fintech. I actually started my career off at PricewaterhouseCoopers on a tax out of the house. I met this awesome professor that somehow made tax fun, and I loved taxes. I kind of fell in love with it in college and ended up…

Heather: How does that go over at cocktail parties?

Vieje: I don’t know. I think I scared a lot of my dates away, I think, in the early twenties. But no, I actually fell in love with tax. I loved how it was a puzzle. I loved how it was confusing. None of it actually made any sense whatsoever once you start reading the tax code. So, I had a professor at one of those influential professors got me into tax. I end up doing his master’s in tax program at Washington, so I ended up staying an additional year to study the tax code. So that was a very interesting career path and I took a job at PricewaterhouseCoopers, PwC, out in New York, and started my career on the tax compliance and consulting side. My clients are primarily hedge funds and private equity firms, and we effectively help them manage their tax situations, help them minimize their tax bills, and also worked on our tax compliance side. Now, I quickly found out that what you learn in school doesn’t typically apply in to practice in the business world.

Heather: And the irony is thick.

Vieje: I suspect a lot of… Exactly. I suspect many young graduates kind of go through the same realization. So, after a couple of years of a lot of late nights and 80-hour weeks, I started to realize that this wasn’t for me and I started to ponder my next path when I got pulled into a partner meeting and the partner said, “Look, we’re launching effectively a startup within PwC. We’re gonna be implementing tax technology or our hedge fund to private equity clients. And that kind of suited me.

I was always interested in tech and at that moment I was kind of looking towards moving into a startup or potentially starting my own company, and I ended up staying at PwC three more years. It was kind of more my speed. It was a consulting team and we help implement tax technology for hedge funds, effectively helping them minimize their taxes, automate a lot of processes. And I found that super interesting, but I always knew I wanted more. At the end of the day, it was a very large organization, and I knew that I was suited for a startup and that’s how it came into Secfi.

I met these two Dutch guys through a mutual connection that was launching a startup called Secfi and it was at the perfect intersection of pretty much everything I knew. They needed someone that knew taxes that could work with clients, that knew financial products. And that’s the world I was living in, albeit at a very much larger company. So, the stars aligned on this one and I ended up joining Secfi as the sixth employee and the first US employee, and it was just about four years ago at this point. I ended up at Secfi. It’s been an amazing journey ever since launching a startup and helping getting a startup off the ground, I think is the best education anyone can get. And I’ve had a lot of fun doing it.

Heather: I just can’t help myself. I’m so curious. What was the biggest discrepancy between what you thought when you said you wanted to get away from the sort of the big player and move toward the startup? What was the big discrepancy with what you thought startup culture would be like and what it actually was once you got into it?

Vieje: Yeah, it’s a really good question. Everyone has a stereotype that anyone who doesn’t work in tech has a stereotype of, “Oh, startup employees are playing ping pong, hanging out on the roofs, getting free lunch.” And I think TV shows like “Silicon Valley” have perpetuated the stereotypes. But in reality, launching a startup, it’s a grind. Your head’s down. I had an investor tell me this one time, “Going to a startup, it’s the volunteering to get punched in the face, sucker punch in the face, left and right all the time.” And that couldn’t be more true.

I think everyone kind of glorifies building a business and all the wins and all the fun and all the parties that celebrations after raising funding rounds. But in reality, a lot of it is putting your head down, grinding, getting to work, and putting out fires left and right. So that was the biggest change, I think, it was. At PwC, everything we had resources upon resources. Whereas go into a startup, especially at a very early stage startup, you are the person handling everything. So, if something goes wrong, it’s on your desk. You’ve got to find a way to fix it and there may be no path. So, I would say that the grind is probably something that’s not talked about enough, I think, amongst people looking to join startups.

Heather:I had to ask because hearing you say your time at PwC started to wear on you a bit because of the late nights and 80-hour week. So, you were more suited for a startup. I thought, oh, I think at the startup that included a few late nights and 80 or 120-hour weeks. So, yeah.

Vieje: Absolutely. The work hours didn’t change. It was more of the type of work that I was doing. Instead of being a cog in the machine, I was handling much more and having more responsibility. And that’s what I wanted. And I loved it despite of being hard, it’s been rewarding.

Heather: Yeah, and you can see that real-time growth, you’re affecting change on a regular basis and see it. I love that. So, talk to me about Secfi specifically. How does it work and what makes it so special?

Vieje: Absolutely. So, in short, Secfi is the first equity planning platform. We help staff, employees and executives navigate key financial decisions, starting with their equity. And when I say starting with the equity, we’re talking about stock options, RSUs. Key components of equity compensation that quite often are ignored by startup employees. I was actually just reading a study by Charles Schwab two weeks ago and they put out a study saying that over 200 billion of the unicorn employee equity and 76% of startup boys do not exercise their options due to fear of making financial mistakes. So, what we found is that employees are leaving close to $200 billion worth of employee equity on the table. And that’s a gigantic number.

Heather: Shocking. It’s huge.

Vieje: Yeah, and the reason for this, we found this out very early in our journey of Secfi is that stock options are confusing, equity compensation is confusing. When you get a job at a startup, you have this nice cash compensation. That’s easy to understand, right? Everyone gets paid cash. That’s how the world works. But then you’re granted this thing called a stock option usually. And most individuals, they sit down and say, “This is great. I’ve heard my cousins or second cousin got rich from their Facebook stock option. I’m not gonna worry about it now. I’m just gonna leave it on the table. I’m gonna put it on the back burner and I’ll figure it out when time comes.”

Now, unfortunately, for most of these employees, if they are fortunate to work for a great company that grows and turns into a very large company that’s nearing an exit, it’s often too late for them to plan around their equity. So that’s the problem that we’re trying to tackle. It’s our mission here at Secfi to help start employees and executives better manage their staff equity, better understand it, and make better financial decisions with their equity.

So, I’ve said a lot there, but I think in the core function of Secfi, what we do is, first and foremost personalized education. We provide tools, resources so staff, employees can go to Secfi.com, put in their equity, calculate how much taxes they’re gonna owe when they exercise their options, model out different scenarios. What does it look like to exercise today versus waiting until an IPO or exit. And then from there, providing as many resources so they understand their equity as possible, right? We can call it the equity education. We find that a very, very important part because it all starts with education.

Second to all this, unfortunately, for most individuals, sometimes the company has grown a little too fast, right? It’s a good problem to have. A company just grows too fast for them to plan around their equity or individuals are not willing to take on the risk to exercise their options. So, Heather, one key component about stock options, you have to exercise them. And when you exercise them, you have to pay the company the strike price and you potentially will trigger a large tax bill. So, a lot of individuals, they come upon this problem and they say, “Well, I don’t have these thousands, if not tens of thousands, if not hundreds of thousands of dollars exercised my options. I’m just gonna leave them on the table, not worry about it.”

Well, we help individuals exercise their options with the nonrecourse financing solution on top of our financial planning platform. So, taking out a part a little bit effectively, a startup employee can use a Secfi financing to become shareholders in their company. They can exercise their stock options with our financing. We assume the downside risk and the hope is that individual is gonna be able to participate in the upside of the company and be in a win-win scenario when their company eventually goes public.

Heather: I am so curious about the details of how you assume that downside risk. Can you explain the difference? Because I know it sounds when you say financing, the first word that comes to mind is loan, right?

Vieje: Right.

Heather: Can you explain the difference between a loan and non-recourse financing?

Vieje: Yeah, absolutely. Loans are typically recourse, right? And what I mean by that is your personal assets are at risk. So Heather, let’s use this example and if you don’t mind, I’m gonna use you as example here.

Heather: Great.

Vieje: Let’s say you work at a startup and you’re granted a large stock option grant and you need $100,000 to exercise our stock options between taxes and paying the company. There’s a couple of options. If you are able to obtain a loan and I say this way that’s because a lot of banks will not give you a loan against your private company stock. But if you are able to obtain a loan, the bank would give you $100,000 and it’s recourse. So, if something terrible would happen, the company didn’t make it to an exit or the company takes longer to exit, you’re gonna be liable for paying back the $100,000 plus interest and fees one way or another. So, if your shares that you exercise are worth zero, you’re on the hook for coming up with $100,000.

Now, it’s a very, very risky situation when individuals are taking recourse loans. We have seen it. And unfortunately, stocks don’t always go up, as we found out in the last nine months. And you need to be able to service that debt in order to make this worthwhile. And unfortunately, a lot of individuals put themselves in really poor financial positions by taking these loans on.

Now, the difference between the loan and the Secfi financing is we assume the downside risk. So, I will caveat this by saying, unfortunately, we can’t work with every company and we’re typically working with the later-stage companies that are closer to an exit, call it the next three to five years. So, we do have a select group of companies we can work with and not everyone will qualify. But the way this financing works is, Heather, will give you that $100,000 and if something bad would happen with the company, you would not have to pay us back.

Let’s pretend we gave you 100,000 and, unfortunately, your company went bankrupt and your shares are worth zero, you pass back exactly zero in this situation. So, we completely assumed the downside risk associated. In this case, your personal assets are not on the line. If everything does go well, which we hope it will, the company, you’ll pay us back after an IPO or exit, and the fees will be due at that point when you can actually pay the fees.

Heather: Because the exit is complete and you’re paid out on your shares. That’s great. I believe I heard you say earlier, this is the first platform of its kind, right?

Vieje: That’s correct, to my knowledge.

Heather: Great. So, let’s pretend the world is in a state where this is the first platform. Let’s kind of assume that that’s our circumstances. Hearing you say that the banks often won’t loan because it’s so risky and there is recourse. So, if they don’t assume the downside. My question for you is this how did Secfi model their business in order to withstand that level of risk exposure?

Vieje: Absolutely. It’s a really, really good question. So, we have a dedicated investment team that focuses solely on underwriting companies. So, you can kind of think of us as almost a VC lite model. At the end of the day, we’re making an investment in the company. We know that some companies will not perform as expected. It’s not exactly VC. I wouldn’t compare directly to VC where one or two companies in the VC portfolio will return the entire fund.

Our model’s gonna be a little bit different, but we do know that there’s gonna be a level of risk-reward we’re willing to take on, and there’s going to be some aspects of, unfortunately, some companies will not make it. Now, the hope is that most of the portfolio will perform as expected or near as expectation. But to answer your question directly there, Heather, it’s really underwriting every company we work with, we have a rigorous due diligence process. So, we’re not underwriting individual.

In this situation, Heather, if you were looking for financing from Secfi, we would be underwriting the company. So, we review every company we work with, we determine what the reasonable path the exit will be, and we’ll model out a few different scenarios, very much like making a VC investment.

Heather: So, I’m thinking of the customer journey here. Individuals can engage with Secfi as well as companies as a whole. Is this something that… Are some of your clients, companies in general, that are offering your services as a benefit? Or most often you’re working with individuals within the startups?

Vieje: The majority of the individuals and companies we work with come to us as a product, what we call a company program here. So, effectively, we’ve had a lot of especially recently over the last year, a year and a half, a lot of the inbound from companies say, “Look, I want to offer this program for my employees. We’re a pro-employee company. We want our employees to understand their equity. We want them to feel comfortable with their equity, make better decisions. And we wanna offer this solution to them because employees need help exercising, right?”

For an employer, there’s a lot of key benefits in that. It can become a competitive advantage for these employers when they’re trying to retain or hire talent out there that they have a service like Secfi, because for most companies, when they hire an employee, especially a late-stage executive, the stock options just become unaffordable. And it’s what we keep on hearing from Chief People Officer, CFOs that this can be a key benefit for us.

So the majority of deals that we do stem from what we call company programs, which is where we’ll partner with a fast-growing startup. We’ll do a lot of employee education that will come and do equity 101, 102, 103 sessions. Speak to their employees, help them understand their equity, and then offer this financing solution to their employees for those that would need the help exercising their options. So, we’ve had a lot of great success with that and that’s our preferred route, right? We would prefer to partner with past grown companies and it makes things a little bit easier on the client side, on the customer side, because candidly it can be a very confusing product. And when your CFO has reviewed it and determined that is safe to offer your employees, it’s a big, big check in the validation department.

Heather: So, what does the customer journey look like if a company decides to engage with you and offer Secfi services as one of the benefits for their employees? From the moment they say, yes, let’s do this through that underwriting process and then getting to that point where they can actually offer it. What does that timeline look like? Since you said earlier, you’re looking to work with companies that are 3 to 5 years out from an exit. I imagine, on occasion, you get companies that are like 18 months or 12 months or even six months. Looking down to that doorway where that exit is gonna happen. So, my question is, how long does the process take? And when is it too late?

Vieje: Absolutely. Yeah, a really, really good question. You’re absolutely right. I mean, I would say last year it seemed like every week we get an inbound from a company saying we’re going public. Yes, back in about two weeks.

Heather: Underwrite us now. Go.

Vieje: Exactly. It was crazy, Heather. I cannot tell you how much inbound we got and people were…everything was urgent. “We’re raising a new funding round. We’re going public. We need you to underwrite us.” Last year was just absolutely nuts in terms of VC back startups and capital flowing in these startups. But generally speaking, to answer your question, our process is actually fairly quick in the grand scheme of things. I think from that moment the company says, “Yes, let’s work together. We’d love for you to underwrite us.” We typically can get to a decision in terms of allocation, a go or no-go, and terms within a month. So, on average, three to four weeks.

And a lot of the dependencies, there’s variances that go sometimes we go a much, much quicker because of a need. A company is raising a funding round, for example, and they need to move quicker. Sometimes companies take a little bit longer just because they’re busy. So, we move with the speed of the company and depending on their need. But on average, three to four weeks, we have done it as fast as call it 72 hours in the past. Our preference is not to do that every time, but we have done it before. And then sometimes it takes a little bit longer because the companies are just a little too busy to help us with the underwriting or they wanna launch it at a specific moment or quarter-end or after a big event.

Heather: What’s next for Secfi? Are there any exciting new offerings on the horizon? What’s going on behind closed doors over there? Anything you can let us in on?

Vieje: Yeah, I’ll give you a preview.

Heather: Give us the secrets. The keys to the castle.

Vieje: Yeah. So, I’ve been very excited about this, but we are in the process of launching an advisory practice here at Secfi. So, this is something our investors, our board members have been talking about from the start. They’ve mentioned that they want us to eventually go into advisory, financial planning, and wealth space and we’re finally starting to launch that. So right now we’ve been launching a…we’ve been working on a beta program for the last eight months. Sometime next month, we will be going live with our wealth management practice.

I’ll give a quick spiel, Heather, but employees come to us, right, startup employees, executives come to our platform for help planning around our equity and they come to us. They may make good salaries. They may have stock options are worth quite a bit of money. So, they’re what we call paper rich, but they’re not yet liquid rich, right? But they very likely will be in the next three to five years. Lots of these executives, employees are coming to us with wealth for the first time in their lives. And what they’ve always said was, “Look, this is amazing. You guys have built these tools. You’re helping me, you’re providing me resources. You’re potentially providing me a financing. But all this stuff is still so confusing to me. Can I just hire you to handle it for.”

And we get that feedback so often that what we’ve realized is that we really need to launch an advisory practice and on top of that, a modern wealth management platform. So, really, really excited about that. The plan and the goal is to become the wealth management platform for startup employees and executives, right?

Heather: That sounds great. To close us out today, can you leave us…I’m gonna put you on the spot a little bit here. Can you leave us with one piece of advice you would have for someone who is considering fintech as a career path for themselves?

Vieje: Absolutely. I can say, generally, it is potentially not a more exciting time to be in fintech right now. I know we kind of had a fintech heyday in the last call it a year or two, and I know there are public market comps aside. I still believe fintech is still one area where the incumbents are still ruling. The big banks are still out there. We had Uber disrupting taxicabs, for example. Instacart aiming to disrupt grocery stores as we speak. FinTech is kind of one of those industries where we still have the Goldmans and the JP morgan’s and the Morgan Stanley still ruling the world. It’s an industry ripe for disruption, right?

Heather: Yeah. Well, everybody’s functioning on legacy systems that don’t talk to one another. I mean, it is absolutely…

Vieje: Exactly.

Heather: I couldn’t agree more. Yeah.

Vieje: Exactly. And everything’s exciting about it. We have payments. We have infrastructure. The piping of the financial systems is just awful. It’s like we’re using piping that was made in the 1930s, right? It’s absolutely crazy that things have not really improved. So, a lot of exciting times and we have crypto coming into play. We have Defi, which is kind of part of the whole fintech ecosystem. So it’s a really, really exciting time. If you’re thinking about joining fintech start app moving over, I think you’re gonna be hitting a perfect time to be joining where, like I said, an industry ripe for disruption.

Heather: Agreed. If folks wanna get in touch with you or if they wanna learn more about Secfi, where can they find you?

Vieje: So, I tweet occasionally. You can tweet me at ViejeP on Twitter, vieje@Secfi.com, always feel free to send me an email. Always happy to meet people and connect. So, Twitter or email works best for me.

Heather: Fantastic. Thanks again for joining us today. Really appreciate it.

Vieje: Thank you, Heather. This is a lot of fun. Thanks for having me.

Heather: If you enjoyed this episode and wanna hear more, head on over to soarpay.com/podcast to subscribe on your podcast listening platform of choice. That’s soarpay.com/podcast.

Industry Spotlight

Secfi

Secfi is trusted by thousands of startup employees for equity planning and financing. We’re the first to provide a proprietary suite of equity planning tools, 1:1 guidance with licensed equity strategists and a set of financing products that enable employees to own a stake in the company they helped build. We also provide company-wide education for startups at all stages to help their team make the best decision for their own situation. Currently, we have worked with employees from more than 80% of all U.S. unicorns.