Show Notes

Cryptocurrency is slowly but surely taking over the world, one blockchain at a time. Unfortunately, the IRS has caught on and isn’t going to let people make money off crypto investments without paying taxes. But the silver lining is a tech startup like ZenLedger, which works to help investors and tax professionals with their tax compliance needs as it relates to cryptocurrency.

In this edition of the Silicon Valley Momentum Podcast, Roland Siebelink spoke with ZenLedger co-founder and CEO Pat Larsen. They discuss ZenLedger’s strengths as a company and Pat’s unique journey to becoming the CEO of a startup:

• How Pat’s time as a chemistry major and Navy pilot led him to become a CEO.
• The challenges of deciding you want to be a CEO before having a use case.
• Why startup leaders should take every meeting they can get when looking for investors.
• Why curiosity is a quality that startups shouldn’t overlook when hiring employees.
• The importance of CEOs accepting that they don’t have all of the answers, as long as they’re looking for answers.

Transcript

Roland Siebelink: Hello and welcome to the Silicon Valley Momentum Podcast. My name is Roland Siebelink, and I'm a scaleup ally for tech founders. I'm so excited today because we have with us the CEO and co-founder of Zen ledger, Pat Larsen. Hello, Pat.

Pat Larsen: Hi, Roland. Thanks for having me.

Roland Siebelink: Absolutely. So glad to have you on. So for those who haven't heard of ZenLedger yet, let's just get started with, what do you do for whom and what difference do you make in the world?

Pat Larsen: Sure. We help cryptocurrency investors and tax professionals with tax compliance. So we bring all of your transactions together across multiple exchanges and wallets into one place, help you clean it up, and help you produce your tax forms and make smarter investments.

Roland Siebelink: So that must have been quite a new gap in the market, if you will. I'm guessing that many of the crypto investors initially thought that none of this would be tax liable.

Pat Larsen: That was the hope. There've been a couple laws in the United States passed that have shed some light on it. But around the world, you know, people kind of look for the friendliest regulations they can. But certainly there was some hope that it would be a hundred percent anonymous and non-taxable. But that doesn't prove to be the case.

Roland Siebelink: Yeah. Society doesn't always work like that, right? I remember when even the Internet just started, betraying my age a little bit there, that people thought everything would be anonymous, not subject to regulation. I think those times are long behind us. So, I think you were saying the clients you target are investors and tax professionals. Is that right?

Pat Larsen: Yes.

Roland Siebelink: Does that mean you're kind of building a two-sided marketplace with your offering?

Pat Larsen: I'd say so. So it's not really B2C because our clients are like small businesses unto themselves. They usually have their own LLC, different assets, run a business, and have been working with tax professionals for quite a while. And that's why they have assets in traditional and crypto. They are familiar with compliance and they don't want to risk audits. But they also have enough assets that they want to invest smartly with tax-loss harvesting and knowing their portfolio, their cost basis, their lots and everything.

Roland Siebelink: Okay, understood. So you're saying that you're already honed in more on the core of people who have professionalized their investment activities a little bit more, even if it's just small companies? Not just individuals, consumers out there that maybe are just dabbling in this sphere?

Pat Larsen: Yeah. For someone who's put, you know, $50, $100 into crypto by the cash app, it's really not going to help them much. It's kind of like the kind of people who would buy Quicken for their home use or something. We also worked with the tax professionals who are either having to adopt this because their clients or their clients' kids high-net-worth practices have to use it or younger tax professionals who are trying to put their stake in the ground and saying, Hey, "I'm a crypto expert. You should come to me. This is my my new book of business, my practice area."

Roland Siebelink: Oh, I love the empathy that you showed there and how the use case is very different for the different generations of tax professionals. It sounds like, on the one hand, people who I think, to quote you, said they have to offer this. That's probably how they feel about it too. And then the younger ones who want to use this as a competitive advantage.

Pat Larsen: Yeah. I think accountants really like to know that they're on firm ground, right? They're not like lawyers where some lawyers are specifically in the practice of going to the extreme edge right? Accountants generally aren't that type of character. They want IRS guidance. They want precedent. They wanna know what's conservative because they're signing the tax returns as well.

Roland Siebelink: So, Pat, tell me a little bit, you know, one thing that investors and coaches often look for, and it's not just product-market fit, but also product-founder fit. So tell us a little bit more about yourself. How did you get into this space? What prompted you to found ZenLedger? And how does this match with who you are and what you've lived through so far?

Pat Larsen: Yeah, I've taken a winding path entrepreneurship. I've always wanted to make my own decisions. I played a lot of sports as a kid. And then I decided to be a pilot. So I went to the US Air Force Academy for undergrad, studied chemistry there, and then was a pilot in the US Navy. Ended up commanding missions, going on a couple of tours. And then I got out, got my MBA at the University of Chicago, mostly on the investment banking track, so accounting and finance. Spent a year in mnAI banking and then transitioned to tech. There were a couple startups, worked at Amazon, and then founded ZenLedger about three years ago. So, by the time I decided to found ZenLedger, I felt like I was ready to be a startup CEO. So let's go find a really good use case. And, you know, I kind of have a FinTech background. None of this stuff is that hard once you've studied chemistry or physics or engineering. You're like, "Okay, I can figure this out if I have enough soft skills and get enough experience and have good advisors. And, you know, in 2017 crypto markets were just going crazy. And a lot of new people were coming into the market and a lot of wealth was being generated. And I kind of wanted to take a risk being on the forefront of tech. Like let's go to the edge. Cause I think I'm comfortable surfing there. Like no one knows what's going to happen, but we'll figure it out as we go. So the thesis was let's look for a very coherent, concrete service we can provide to the currency industry. I didn't feel I was an ICO guy. I didn't feel like I was going to create a new blockchain that was going to be the future standard of etcetera in the world, right?

Roland Siebelink: After we'd had 500 already, right?

Pat Larsen: So it was very much going to be picks and shovels in FinTech. And this use case we came across because all the people we talked to were like, "Oh, I'm writing my own scripts" or "I'm paying my accountant and my lawyer $25,000." Here, take a seed check. So we took the seed capital, put together a team got out, and then released within three months. And then just kept going, raised a couple additional rounds of funding, just kept running the business.

Roland Siebelink: So you've raised about 5 million, I believe in total, last round around a year ago. Is that correct?

Pat Larsen: Yeah. So we raised over five and a half million, closed in December of 2019.

Roland Siebelink: Okay. Awesome. And can you talk a little bit about the kinds of investors that saw your vision, that backed you. And is there a red thread between them?

Pat Larsen: Yeah, I think they all understood technology. Some of them more on the blockchain side. Others more on the FinTech side. But they all kind of respected the team that we built and the expertise we had between me and my CTO, Bryan Starbuck, who has a lot of experience in SAS and building enterprise businesses. And they liked how we were leading the team. And so it was kind of like, "Good team, good use case, could be big market." And at each step the way, we showed the right amount of execution that, you know, we were worth another bet, and another round of financing.

Roland Siebelink: Oh, that's awesome. So many of the founders that we speak to do have trouble raising financing. What would you say are some of the key factors? I think you mentioned a few in between the lines there, of course. But when you compare your own startup to some of the other startups that you must be familiar with, what do you think is the difference in how you were able to raise multiple successful rounds versus where other people just are not able to?

Pat Larsen: Yeah, I would say it completely depends on who you and what you're trying to do. And then you should go find good advice that's pertinent to that. If you're trying to do it in biotech or you're trying to build the next AR, I can't really give you any good advice. What we could do is we said, "Hey, this is a tangible problem. You can all see it. It's plain as day. It's all right here. We don't have to prove the market to you. We have a good team here, very well credentialed and experienced. So here's that." And then in each stage, you know, six months in, 12 months in, 18 months in, we can show our product growth, our revenue growth, our plan for the next 12, 24 months and how we're gonna execute on it. So it was constantly just making promises and then delivering on it. And if you didn't, at least you had learnings and you had a new plan that informed it. So I would say with pitching, you know, practice your pitches. Get good at qualifying the people you pitch. But take all the pitches, right? This was my first time as a CEO. My first time raising capital. So I definitely took some calls where I knew within the first 90 seconds that this was not going to work out well. And it was an awkward, like seven or eight more minutes before you can hang up. But perhaps that person was going to introduce you to the right person. So, never waste an opportunity, right? And I just happened to be pretty good at pitching, and I got better at it. And so just being a good team. I'm not technical. I don't code at all. So it was finding a great technical co-founder to run with this side. And he could execute and build the team on that side. And I'm more external facing, more sales, a bit of strategy. And my job is to go get the resources so that team can build or market, right? So just kind of knowing what kind of founder you are, what kind of pitch you need to deliver to what kind of investor? We had to go find blockchain investors and FinTech investors and get good introductions. And then I had to tune the pitch over time so it resonated with them. And most of the time, you're going to get a no. But get a no for the right reasons, right? Don't get a know because of something that's completely within your control. Fix those no's and then just get no's because, you know, it's not their space or it's not right timing or they just made an investment in space or whatever. Get good no's and get introductions. If you're not getting introductions, then you know something's wrong with your process.

Roland Siebelink: So without mentioning any names, of course, how does the competitive field, what does the competitive field look like for ZenLedger? Is it very crowded? Is it more like you're kind of the only ones with a few players in the margin? What does it feel like?

Pat Larsen: I think there's probably five or six companies that are pretty well-established. But it's a very small, early market. And then there are lots of small competitors that seem to be a one or two person enterprises. So it's kind of hard to gauge how fast the market's growing and what the market share is. But if it feels like five or six have, you know, equal a share and the majority of the market.

Roland Siebelink: Okay. Do you see this in your go-to market, as well as this, that often you're the first to try and persuade somebody to sign up or do you encounter some of your rivals more often?

Pat Larsen: I think the customer behavior is that they'll search for solutions and they'll try a couple out. So the first time they decide like, "Oh, I really need to pay my taxes on crypto," they'll then go and take a survey. And usually they realize there's probably a couple of providers. They will test them out. Otherwise, sometimes we do get customers who through a referral or partnership. It's the first time they've ever thought of it and they just become our customer. We have like a 60 NPS, so we do have referrals in current client base. And our theory is just that we're so early in this, that every customer we have is kind of a thought leader in their investment group on their boards, on their, you know, in their Facebook group, right? So the more we, you know, take care of these early investors, the more referrals we get later on.

Roland Siebelink: Absolutely. That's really an early market in that sense. And the big market, the crossing the chasm is yet to come later, right? Absolutely. I love to see that. So how does this view of your market then also impact your go-to markets tactics, your strategy on that side? How have you even built your go-to market function in ZenLedger?

Pat Larsen: Yeah. I mean, you can't have a rocket ship SaaS that grows a hundred percent per month, right? Like we're not expanding into the e-commerce market or something, right? So, we still make marketing experiments. Like, "Oh, should we reach out to tax professionals more?" Is there some blockchain we can perhaps partner with or market with? It feels a little early to do, you know, M&A type activity. You do see some Apple hires from time to time as well. So there's a couple of different things we look at from a growth strategy. But mostly, it's just build a quality product, take care of your customer, keep costs, you know, reasonable, and just try to keep growing the business.

Roland Siebelink: What's the vision for you for ZenLedger? Like, where do you want to be in, let's say 10 years down the road? How big are you going to be? And what's the impact that you hope to achieve by then?

Pat Larsen: Yeah. Yeah. I very rarely think in 10-year increments. I'm much more a one-to-two-year guy, kind of like surfing. Like, I'm on a wave. I don't control the wave at all. I just control how well I stay on the wave. If I get dashed on the rocks, I just have to admit that's a possibility. But I think in the next couple weeks years, we just want to keep growing market share, organically or inorganically. We want to be there when kind of like the market expands for us. I think in 10 years, I don't expect to be running this single company for 10 years. I'd expect that the most likely outcome is that we sell this company to a larger company. That's generally what happens to, you know, for good outcomes for small companies. But I think that, you know, in the next couple of years with innovations in blockchain and, you know, securities law, we may do like a mini-IPO, right? Like a $50 million IPO or something like that, which would be really interesting. But I think that's certainly becoming more and more of a possibility every day.

Roland Siebelink: Okay. Love to see that. Do you primarily then define your success as like an IPO or an exit, one kind of the other? Or is there also like a, what I would call maybe like a broader purpose in terms of the impact that you want to have in the world? Maybe something that even transcends this particular company for you?

Pat Larsen: Yeah. So I think what we've started to do is just help people save time and reduce their stress. And that comes in the form of tax preparation. We'll keep offering more and more stuff so that they can invest better. And then that's bettering their own lives that way. And I think that has a big impact. Me, personally, the reason I joined the military and the reason I studied chemistry and whatnot is because I love to know how things work. And I love to grow myself personally, like being a military leader and now being a business leader. And continue to just take on challenges. Like I always want to have a positive impact, so whichever way you can do that. So my sister's an organic chemistry PhD, right? Sometimes I think like, "What am I doing with these bits and bytes? I should be messing around with atoms." I'm clearly good at that. But I think in the end it kind of works out. Like, I have a family, raising three kids, a wife, and so that matters, right? And I don't want to lose sight of that. But I think you can continue to, you know, have positive impacts.

Roland Siebelink: Do you see an impact of doing these things on, for example, your ability to recruit good people or to keep them motivated?

Pat Larsen: Yeah, I think so. My joke is that I'm a good leader but a terrible manager. So I don't hire anyone that has to be managed. That's generally a pretty fun person and someone who can think and articulate on their own and self-direct. And so that's who we have in our company. And so we all get along really well. That's how I've hired so far. That's kind of the culture.

Roland Siebelink: Can we delve into that a little bit? How do you figure that out that, say during an interview phase, whether somebody needs to be managed, whether they might be a fit for this leadership style or not?

Pat Larsen: Yeah. I think, you know, like Ben Horowitz has been great at this. And Charlie Munger too. You want to hire someone who's smart and honest and hardworking because if you don't have all three of those, if they're smart and hardworking but not honest, they'll steal everything from you. So you want to look for those things. And curiosity. So I asked like, you know, what are you interested in? What are you interested inside of work? What do you teach yourself? What do you teach yourself outside of work? Where are those passions? Like, show me where you really dug deep into something and took the learning upon yourself. You know, this customer service, have you helped people before? You know, what's that like? In marketing, it's how you built systems? How has the reporting look like? How do you hold yourself accountable? How has it worked out when, you know, a campaign didn't work? So, you know, their resilience. How they bounce back. Did they take on challenges? Just telling the whole story and getting a feel for the, right? I think that's just been pretty helpful. It's really basic stuff. And we actually write a very long job description that we post. We don't want anyone whos not willing to read two pages before they apply. We tell them exactly what we're looking for and we have our customer testimonials, so they get a good sense if they're a fit already. And then, you know, in the interviews, we interview with kind of round-robin style. I've found that, you know, I've hired enough people that are similar enough that I don't have to be the final say anymore. I didn't have anything to add in the final interview. So I'm like, "Okay, I can remove myself from the interview process."

Roland Siebelink: So it feels like you've successfully replicated the culture a little bit in the first batch of hires. So important, right? Was it also a conscious list of values, if you will, the smart, honest, hard-working, and curious values that you just mentioned between you and Bryan when you started the company?

Pat Larsen: Yeah, I think. So Bryan and I were introduced through mutual friend. And within like five minutes, he was like, "That's a great use case. I love it. Like, I was an early investor in Ethereum and I totally get this. I've built FinTech. I've built SaaS. I think this is great." And so, he started architecting it in his head immediately. And so I was like, "Okay, like this guy has a plan. That's exactly what I need." And then, you know, personally, do we get along well? Like, do we both have like a track record of success? And can we, you know, have honest conversations because things are going to get tough. It's just inevitable, right? So, you're gonna have trials and tribulations along the way. You're going to get short on money. You're not gonna know if you're gonna be able to raise that next round or there'll be a government shutdown, so there's no taxes. Or there'll be a pandemic. Or there'll be a macro economic catastrophe, right? Like, you're just going to have to weather all these things regardless. So you kind of have to be, you have to know that your co-founder can do that and you have to commit to doing it yourself as well, right? I'm sure a lot of people just quit along the way. Like, you have to climb the mountain together. And at any point, either of you can wander around or one of you can just sit down and say I'm done climbing, right? So, it's just something you have to be prepared for and you take your best guess. It's just like any relationship. It's day by day. You don't commit to 10 years of being in a relationship. You commit each day to giving one more day.

Roland Siebelink: So, Pat, what struck me in our interview is you decided to be a startup CEO before you had the full use case or before you had the business figured out, right? Was that a good strategy in your mind? And if so, what do you recommend to people who are aspiring to be startup CEOs themselves one day?

Pat Larsen: Yeah. I'd say there's two tracks, right? There's the specialist track and the generalist track. And I was certainly a generalist. And so if you're a specialist, then there's this happy world where you've been preparing for 15 years to be the CEO or CTO. And you're the exact right person for that thing, right? Me, it was more like, look, I know, I was a business junkie, right? So I read all these interviews, talk to all those people. And I'm a smart guy, so when I talk to other smart people, I'm like, you know, I'm just as smart as them. There's no reason they should be doing things that I want to do but am not doing. So I should probably figure out how to go do it, right? And so, three years ago, it was just a thesis of look, "I'm going to go find some interesting thing to try to solve, some problem to try to solve, and I'm going to go try to find investors and a team to go solve it. And I have full confidence that I'm most of the way there. And that I'll be able to learn the rest of the things I need to learn as we go."

Roland Siebelink: That's awesome. What do you feel you learned most while being a startup CEO that you would want to convey to other startup founders, startup CEOs? What are some of the key lessons for you to impart?

Pat Larsen: Yeah, I think you have to keep calm because there's just lots of stress. So you can't let the prospect of your business failing become this existential dread where your heart's pounding and you just think about it all the time and then you focus on that bad outcome, right? So when you find yourself there, take a deep breath, figure out a plan to move ahead and do that. You need to be in constant learning mode. Like, you can not be arrogant. You can not think that you have all the answers and that if people don't get it, it's their fault. It's your fault. You're the communicator. And you're the leader. If they don't get it, that's your fault.

Roland Siebelink: So where do we see ZenLedger evolve in the next, shorter time then? So maybe the next three to six months or so. And what out of all those challenges might be something that our listeners could help you with?

Pat Larsen: Yeah. So you'll see us going through the next tax season, right? In December, there's usually tax-loss harvesting, which is a very important time for most investors where you can rebalance your portfolios. So you'll want to use ZenLedger for that. And then going through into April 15th, which I assume will be the next deadline I don't want to assume too much. Going into April 15th, 2021, just getting all your ducks in a row. Like, we help people who lost crypto on a defunct exchange two years ago. We help people who are getting audited for some other reason, like their LLC or something. But now they have to get their crypto in order and they haven't filed crypto for four years. So now we'll bring all four years of your transactions together or we'll work with your tax professional. So, you know, it looks like the next six months are going to be equally as stressful as the last six months. And I'd say that the last thing you want to deal with is taxes during that time. So, let us help you with that. And you can find us at ZenLedger.io.

Roland Siebelink: Awesome. So, especially if you've already been investing in crypto this year and you'd like to take the benefits of some tax-loss harvesting, then go to ZenLedger.io, sign up. Is there like a free account they can try or what's the preferred sign-up way?

Pat Larsen: Yeah. So you can get a free account if you have smaller transactions. And then we'll also share a coupon with you as well.

Roland Siebelink: Oh, yeah. Well, I'll make a coupon for Scaleup Allies and make sure that people can use that as well. That's awesome. Thank you, Pat. Really appreciate it. Any last words you want to impart to the world?

Pat Larsen: Yeah. So I really appreciate you bringing on the show. It was really fun to chat about it. I'd say if you're interested in being an entrepreneur, you know, go ahead and do it. Study up, do it, learn your lessons. But the world needs more entrepreneurship, so fully encourage you to take a shot.

Roland Siebelink: Couldn't agree more. Thank you so much, Pat from ZenLedger, CEO and founder of ZenLedger for joining us here on the Silicon Valley Momentum Podcast. This was an amazing interview and I'm really glad that this is also one that's providing very concrete, monetary opportunities for some people in the audience. So make sure that ZenLedger takes care of all your cryptocurrency tax-reporting needs. And you'll get a good military benefit out of it. Thank you once again, Pat Larson, and thank you everyone for listening this week.

Roland Siebelink talks all things tech startup and bring you interviews with tech cofounders across the world.