Karat Financial is a startup that provides banking services to content creators. At first glance, you may think this is a non-issue, but consider that popular chess streamer Alexandra Botez was rejected twice when applying for a business credit card, despite bringing in over $100,000 a year through her content. Clearly, investors also agree that this is an issue. Karat has raised over $100 million from top-tier investors such as SignalFire, USV, and GGV.

I had the honor to chat with Eric Wei and Will Kim, the co-founders of Karat. Eric and Will exemplify an ideal co-founder relationship, and I found them to be extremely thoughtful and insightful. Let’s get into it:

ENTREPRENEURIAL BEGINNINGS

Both Eric and Will have been entrepreneurs long before they had even thought up the idea for Karat. I asked them to talk about what their first entrepreneurial endeavors were:

Eric: I was going to say, Will was actually recognized in high school by President Obama for one of his early entrepreneurial efforts. Will, why not share?

Will: Sure. That was in high school. President Obama found out about this micro-lending organization I made, where I was lending money to high school students and underserved areas within the Bay, Oakland, Emeryville in particular, to high school entrepreneurs. I would say, “If I give you 500 bucks to start this business model that you have in mind, you’re going to pay me back after you make the money and we’re all going to be happy.” The lead up into that was just hearing about Kiva in an SAT prep book and thinking, “This is such a cool idea.” Kiva is a micro-lending platform that was taking off back in the early 2010s. I thought, “This is a cool idea. I’m going to intern for them.” I realized pretty quickly that interning for them is not as fun as just doing it myself. So I started my own micro-lending organization within the Bay. I saw the same wealth and equity problems that micro-lending is supposed to solve exist in the Bay, just as in these third-world countries. And I ran with it. What I quickly learned is that it’s actually very hard to execute well on what seems like a great idea. I found out the hard way. It’s easy to give money. It is a lot harder to get the money back. That was a kind of helpful testing ground for me. Eric, we’ve experimented with a number of ideas right before, haven’t we?

Eric: Yes, we have. I can share some quick context, too, from my side. One, just want to say, it’s pretty incredible that Will built a functioning company just as a high school student that continues to operate today. Even some of my Harvard classmates, actually, I remember there’s a guy I knew from Harvard. He graduated and he ended up working there. I was like, “Wow, this guy who was just a high school student built an institution that continues to perform and recruit quality people.” I’m not surprised Obama recognized him. It’s cool to build something that lasts and sustains, that’s trying to improve the financial system, but also something that’s just straight up helping people. I think that’s just really, really cool. I was reading about microfinance models like the Grameen Bank and such, and here Will was actually doing it. So I really, really just love how he did that. It’s one of the things I appreciated about him very early. On my side, similarly to Will, my early entrepreneurial efforts were also aimed at how we improve the financial system as it is. One of the very first things I worked with when I was at Harvard was on income share agreements. Now, they’ve become much more popular in the past, say, five, ten years. The concept is that you can fund your education or whatever vocational training you’d like, not just by taking out loans, but by promising to share a portion of your future income and revenue. And the whole thing is, in many cases, it’s going to be a more favorable repayment structure because, say, for whatever reason, you go through this training, this education, and you don’t end up getting a well-paying job afterwards. Well, it’s not really fair to put this burden, this onerous loan on you that you have to pay back. It might be easier if it’s just a percentage of whatever you did make. And my sophomore, and junior years at Harvard, I put together a team with JP Morgan bankers, and McKinsey consultants to go and pioneer this concept. We even pitched the president of Harvard, Drew Gilpin Faust, at the time. It didn’t work, mainly because it was extremely complicated from a regulatory point of view. Many of the companies also exploring educational ISAs at the time actually ended up pivoting. A great example is this company called Upstart which initially was also focused on this, and has since pivoted back to more traditional lending and just saying, hey, we have a better underwriting model, so we can give you better rates, but still loans rather than ISAs. That’s why, to my earlier point, similarly to Will, it gave me a glimpse into a lot of how this world works. It’s people deciding to give money to each other, where the rich have the most capital and they’re trying to get it to the people that ultimately need it the most. But for the people who need it the most, because they’ve gotten that money through so many layers, it’s so expensive for them. So you can try to improve that by building better underwriting mechanisms or by trying to go more directly from the people with money to those who don’t have it. 

Looking back, I think Will and I both had versions of that as some of our earliest entrepreneurial efforts, which I just think is really cool. And then to Will’s previous point, we worked together on a lot of products before Karat as well. I think it was a shared passion in not only wanting to start something of our own but also something along the lines of, hey, in life, there’s much more that matters than just money. When I met Will, he was coming off an internship at Goldman Sachs and was running a venture firm. I was coming from Blackstone and McKinsey and just starting a tech job. Both of us could have chosen to stay in finance and frankly, made much more on a risk-adjusted basis than any other occupation. And both of us saw something and, hey, but there’s some meaning that I can have in helping others. And what does that look like? So we started to work together, went through a lot of different projects, and ultimately decided to focus on working with creators and helping them navigate the financial system.

THE BUSINESS OF KARAT

I asked why Eric and Will decided to focus on creators and how they went about getting their first customers:

Will: In business, the best way to win is to play games that you make up. We’re trying to make up games in areas where they don’t exist because other people don’t know about them–it’s a secret. For us, that secret was that creators are businesses. And that was really, really compelling. It felt like everyone was writing off these creators as businesses back in 2017/2018 when we were first looking at creators; but, these were real businesses. 

Eric: Very early on, the most important thing was to go to where the creators were and just talk to them. So Will and I would go to conferences like VidCon and TwitchCon, and we just cold approached people and just asked them, hey, what are you most focused on these days? What’s the dream? What are the biggest problems that you’re facing? 

I think there’s an easy tendency to think a lot about overall strategy without just literally talking to people, right? No plan survives first contact with the enemy. And what I realized really early on was that creators are trying really, really hard to figure out how to make content, make money, and build a business.

The creator community has many individuals who are operating businesses, but they have no idea how to handle the business’ financial setup. Through these early insights, Will and I prototyped the first thoughts of what Karat could be. When we finally had actual products, we went back to many of the people we met and asked if they would try them. When they had a good experience, they would share it organically via word of mouth. One thing I’m proud about Karat is that we’ve never really done influencer marketing programs. It’s primarily just been organic and referral-focused. Creators especially are more likely to share because it’s what they do on a day-to-day basis.

Will: I remember Eric was wearing his Instagram shirt. He optimized every single element of this to make sure that we could make something out of nothing, which is incredibly difficult. Eric was pulling out all the tricks out of his bag. 

Eric: I used to work at Instagram. If you wear an Instagram shirt, people are more likely to chat with you. There are tons of hacks to this. For example, you go to a conference and a creator is speaking. At the end of that panel, run up and be the very first one to talk with them. Big creators, a lot of times, have fan meeting greets, where you wait in line. We would use that to pitch them. We would be absolutely shameless, asking very business-focused questions. Some people didn’t like the concepts we were going through. But that means you actually have a firm point of view. If you find something that some people don’t like, but some people actually really do, that’s promising. 

Edwin: I resonate with that. For some of the guests that I’ve had on the interview before, that’s what I had to do. Go to those events and say, hey, I sent you an email. You didn’t respond to it. 

Eric: Even if it rubs them the wrong way, in the end, you’re just trying to build something from scratch. It’s better to try than to not try at all. I greatly admire and respect the determination with which you followed up. When I had a free moment, I remembered and emailed back. And then to have you respond back instantly, I was very impressed. That’s a big reason why I was excited to share more for this newsletter and to build a relationship with you personally.

I really appreciate Eric’s endorsement of my tactics. As a side note, I also find it awkward and difficult to do this kind of cold pitching sometimes, it requires being very vulnerable. However, I have two thoughts about this. Firstly, cold outreach is like a muscle you train, the first time you go to the gym is going to be awkward, and the 100th time is second-nature. Secondly, if you really want to reach someone why wouldn’t you try multiple times, why wouldn’t you try every mode of contact you can find (email, phone call, mail)–this seems like table stakes. Though obviously, please stop if they aren’t interested, and don’t harass anyone.

I was also curious how Eric and Will came up with the business model for Karat, as the intersection of creators and fintech hadn’t been explored much before them:

Eric: From a people perspective, we worked with creators like Alexandra Botez, a top chess streamer who graduated from Stanford, started a company, and has over a million followers on Twitch. She was rejected for a business credit card multiple times because they just didn’t understand what she was doing. When you hear a problem like that, you start questioning if the current system is optimal. The answer is no because making a living as a creator is so new, that the existing financial system, which is built on traditional criteria, doesn’t evaluate it properly. From a systems POV, if everyone is thinking about making content going forward, everyone is learning how to be a creator, every business is learning how to use content, and getting to build the financial picks and shovels that facilitate money moving around could be a huge opportunity. We want every dollar in the creator economy to pass through Karat, whether it’s through our payment systems, credit cards, bank accounts, and more.

Will: When we first realized that creators are businesses, that felt like a secret. But the deeper secret that excites us is that we believe in the future, all businesses will have to have some kind of creator angle. This felt like a massive unlock. Procter & Gamble became a generational company because it capitalized on the advent of cable television. Now, creators own the airways and they have the cheapest distribution to their fanbase. They’re going to be able to out-compete Proctor & Gamble and make the new Proctor & Gambles. That’s very exciting. To Eric’s point, if we can sell the picks and shovels there–if we can be the financial rails, that’s going to crush.

Eric: A really good example of that, for instance, is if you’re familiar with Under the Influence and the seltzer brand Nectar. They’re an example of a company that developed a hard seltzer to compete against White Claw. To advertise it, they developed a podcast. The podcast has become so popular that its hosts were actually signed to an agency. Many of the people who watch the podcast think that the seltzer is just the brand sponsoring the podcast. It was actually the other way around. The podcast is the content marketing arm of a consumer packaged goods company because the founders grew up in social media. To Will’s point, the future Proctor & Gambles are going to be people who are building businesses with content built-in natively from day one.

RUNNING A STARTUP

The next question I asked the duo was how they deal with the mental stress of running a startup:

Will: First of all, I haven’t completely figured it out. I just have to deal with it. The quote I live by and come back to a lot is from Eddie Merckx, one of the world’s fastest cyclists ever. Reporters asked him how it felt to be so fast, and he said, “It doesn’t get easier. You just get faster.” That’s it. As we’ve scaled up, we’ve only run into more issues, and more challenges. Eric loves the quote, “The prize for eating humble pie is eating more humble pie.” I believe that’s true. So, it’s about accepting that’s the reality. Personally, I’ve been sticking to routines like simple stuff. Cold showers are nice. Waking up early is nice. Being able to meditate is nice. Reading Marcus Aurelius is nice. That works for me, and I stick to it. It’s pretty straightforward, but it works for me.

Eric: As founders, we obviously have to care a lot about financial runway, because presumably, we’re building something with a shot at being really big. Early on, it’s going to cost money. But what people forget is the emotional runway. Money is useless and pointless if you’re not in a place to be creative, brave, and determined to try and do things with it. In terms of how you maintain that emotional runway, it’s really different for everyone. For me, one of the things that really helps is my relationship with Will. There are many solo founders out there that I respect and think very highly of. I know confidently that I could not have done Karat without Will. We’re not only co-founders but also co-CEOs, which is why you get both of us here today instead of just one of us. We’ve found that if one of us is feeling very down, the other is usually not feeling as down. It’s very rare we both feel down at the same time, which is bad because then everything just kind of falls apart. But I’ve found him to be very helpful, not only from an emotional point of view, balancing when I’m sad and not sure if something’s going to work, but also when I’m really excited to sort of temper it because, at the start of the plan, everything changes so quickly. But also just to know that there’s someone else who cares just as much, if not more, than I do about this. I think that’s a relieving burden on a founder’s shoulders. Of course, it comes with its own consequences. To be clear, I think there’s also more complexities when you have a co-founder and co-CEO. Nothing in life is just a free lunch. Sure, you get to benefit from each other, but it also means you have to figure out what to do when you disagree.

The fact that Eric and Will were co-CEOs kind of blew my mind because I was taught at a young age that one person should be at the helm of the ship, obviously, I had to ask how they decided to be co-CEOs:

Will: It was pretty simple. We both want to build something cool. We both want to build something big. We have different personalities and skill sets, but we’re aligned on the general values. And why wouldn’t you want to have each other as equals? We’re not hierarchical. It’s not like one of us reports to the other, right? So why not just formalize it if it’s something you truly believe in from a title perspective and an equity perspective?

Edwin: That makes sense. I assume that you guys probably have different strengths. So is there some way that you guys divide the work? Or is it on a case-by-case basis?

Will: I think it’s just case-by-case because our strengths, as a founder, the most important thing is that you scale, that we grow with feedback, that we change with the environment. Stasis is death. And so it’s really, really important for us to always be responsive, not only to the business and the market, but to our own interests, desires, and strengths. For me, I really enjoy thinking about how we can build a system that last. The ideal business to me is one which doesn’t need me, one that already has a large market, that has a system in place, and a product that people want, where I am just icing on top rather than a core element. For me that’s really exciting, so that’s where I like to spend my time.

Eric: Will has always been a really good systems thinker. And again, these are generalities, because both of us have taken opposite approaches from what we’re describing to you now. But for me, there’s a certain satisfaction I get just from going and talking with someone and getting a quick sense if something is going to work or not. This speaks to the nature of a startup. You want to make sure that the people you’re building for actually care, and the fastest way of finding out is to literally go and interact with them. Also, for a venture-scale startup, you need to think about how those initial insights can potentially turn into a billion-dollar business. That needs to be something that can scale into a system.

BEING AUTHENTIC

When researching Eric and Will, one thing that stood out to me was how honest they were with their motivations behind building a company. In articles online, they were very transparent that ego and financial upside were partial motivations for building a company. I asked them how they reached this point of authenticity:

Eric: Something I’ve learned is that there’s literally no point doing anything if you can’t just be immediately straightforward and honest about it. Life’s too short to do things that you’re lying to yourself about or to others. If you care about yourself, you’ll be honest to yourself. If you care about others, you’ll be honest to them. It’s the very same reason I started this call up being like, one, I was super excited. Two, I was impressed by your dedication. And three, here’s something I didn’t love, and here’s why. Because if you want to invest in a relationship with each other, you have to be honest from the start. So, let’s extend this to why build a company. Obviously, Will and I would not be doing this if all we were optimizing for was the financial upside. He would have stayed at Goldman Sachs, I would have stayed at Blackstone. So, there’s a huge motivation around building something that’s better, that can help creators. And to your point, that doesn’t mean our other motivations aren’t real as well. Of course, Will and I are excited about the potential monetary upside of building a successful company, the ego that comes from, hey, we’re going to try to do something new and something of our own. Because from my perspective, that’s real. There’s no shame in that. And I’d much rather present myself as the whole set of motivations I am as a human and as a company. In fact, I don’t trust people who aren’t honest about why they do things. Those are the ones that I’m like, hmm, there’s something you’re hiding from me. If you’re hiding this from me, I don’t know if I can trust you.

Will: When Eric and I were getting close, I started realizing that when I’m talking with Eric, I can be pretty open. I remember at one moment, I just thought, “I can trust Eric with everything. This is the one guy that I can start a business with that would actually make sense.” When we started the business together, it became a really pivotal thing for me because Eric was so vulnerable and shared a lot. We had that kind of relationship that was fully open and transparent. I don’t know why you would ever start a business with someone you don’t trust entirely. In fact, I’d say it to people reading this and thinking about who they partner with: if you don’t trust them, don’t do it. I can say that from personal experience. It’s not worth it. 

Edwin: I think that’s really cool how you guys are very open. I think about how trusting and communicative your relationship is. I took a class in my last quarter at Stanford and basically, the whole point of the class is if people see models of really trusting relationships and open relationships, they’re probably more likely to mimic that and act that way. When you act that way, you’re showing other people to do that, and so on. So that’s really cool that you guys do that. I think there’s a benefit to everyone else beyond just you guys when you do that. 

Will: I hope it goes viral. Viral vulnerability would be very nice where we could all actually trust each other and make the world slightly better. It sucks when you have to always put up this defensive shield. I think frankly, before I met Eric, I walked around life with a defensive shield expecting that everyone’s out there to hurt me. Over time, I realized that if I open myself up, I invite far more excitement, joy in my life, and opportunity as well. 

Eric: I’ll add, if everyone seems to be a giant jerk to you, sometimes that can lead you to put your guard up. But in a weird way, that attracts more people who might not be the best to you because you yourself are not sharing. If you go around and you’re open to people, you’re more likely to find other people who are open. If someone’s open and honest, why would they want to interact with someone who’s hiding things? 

I asked Eric and Will how they extend their mindset around authentic relationships to their relationship with their employees:

Will: We are trying to continue to push this idea of appropriate authenticity in the workplace. The challenge that exists is that there is a power dynamic. Eric and I are peers and so we can be fully open, fully honest, fully transparent. With our team, there is an appropriate level of authenticity. Of course, we want to tell everything about the core business, but is it appropriate for me to say I feel really sad and pissed about all this stuff? Probably not. It creates fear because I’m ultimately their boss. In the beginning, I was fully authentic, expressing exactly how I feel, and that has been at times not the most well-received. So, finding the right balance, it’s a spectrum that we had to find. 

Eric: What I’d add is that in a workplace, if you’re the CEO, you do have managerial power over those you work with. So, in fact, you have to put in more work, you have even more responsibility to try and build safe spaces to receive that feedback. From a hierarchical perspective, they might not feel the same comfort sharing feedback with you that you feel with them. So, you actually have to do more work and shoulder more of a burden to try and make up for that. And again, that’s not to say we have done this super fantastic job. In fact, I think we’re still very much learning as managers. There are many things we have not done well. I say this more from a philosophical standpoint, what drives our intention, and how we think about it.

HOW TO FIND YOUR PURPOSE

I recently spoke to several Asian American high school and college students who don’t really know what they want to do with their lives and don’t really know what excites them, or how to find their passion. This seems to be a big problem among many youth, so I wanted to get Eric and Will’s perspective on what young people should be doing:

Eric: I think Will and I come from a fortunate place where we really followed those routes. Will was at Stanford, Goldman, and I was at Harvard, Blackstone. So, we have the luxury of sitting here and saying that’s really not all that it’s cracked up to be. A lot of that stuff is premised on prestige, wealth, and what other people want, and there’s a clear path on how to get there. It’s easy for me to sit here and say, forget all of that, and just do what you’re passionate about. But I’m saying this as someone who had the privilege of already going through these different experiences.

The most important thing is to feel emotionally in tune with yourself. A lot of what we do when we’re sad or frustrated leads to bad outcomes, and it’s even worse when you’re not even aware you’re sad or frustrated and that’s just fueling your actions and the choices you make. The sooner you accept that there are things you are scared about or insecure about, the sooner you’re going to be able to make decisions that are right for you. Whether that is, “Let me go work in the corporate world for x years and build up the credentials,” or “Now it’s time to leave and do something different,” 

Will: Everyone says “Be yourself” and I found that super frustrating because it’s not like  I’m masquerading as someone else. So, what goes into being yourself? I think it first comes from listening to yourself, even if you don’t trust yourself yet. Be honest about it. Even if it’s just about the prestige, go do it and do it wholeheartedly, and don’t feel any shame about it. Hopefully, that experience builds your trust in yourself. Like, “Oh, when I listened to myself and I followed my intuition, this didn’t work out so hot and that’s okay and this really worked out well so let me lean into that.” I think this is a part of the Asian upbringing. I love my parents a lot, but they didn’t know how to listen to me. They’re like, “You’re a child, I’m going to tell you what to do and you’re going to do it.” And so, I had to listen to my parents and I became my parents and I didn’t like it. In college, I had to unlearn so much of this, and Eric and I actually connected a lot over that unlearning process.

Edwin: I’m curious, I know you guys both use therapy. Has that been a big help in this journey?

Will: Eric is my therapy granddaddy, as in, I was inspired by Eric’s early experiences there and I was like, “Wow, you’re learning so much, you’re growing so much. I envy that, I want that.” I’m inspired by that and so it has been huge for my personal development and I think also my growth. So yes, it’s been crucial.

Eric: I think everyone who can afford therapy should do it. It’s unfortunate therapy is expensive but if not, I think everyone could benefit. In the same way that if you have no idea how to work out, you might have someone help teach you the ways to use your muscles. Guess what, the way you’ve lived your life, raised by your parents, surrounded by your friends and your environment, your mind has learned certain loops and ways in which it thinks. And if you want to be able to become more aware of them and try different ways of thinking, a therapist is really helpful for that.

BEING ASIAN AMERICAN

Eric: In Karat’s early days, to be honest, I wasn’t thinking about it much at all because I was focused on making the company work. Personally, I’ve only thought about it more as time has gone on and Karat’s grown bigger. Going to the Asian Hustle Network last year was super lovely because it helped me realize that I’m Asian American and that’s part of me.

Will: Eric and I used to talk about this quite a bit more in the very early days of our relationship back when we were working in corporate America. Now it’s become more about how we make the business succeed. In my lived experience, I’ve been focusing on things within my control. I really appreciated that about building a business. I just want to build something great, hire the best people, work with people I love, and serve the kind of users that I believe need the most help. That’s been exciting. 

Eric: It’s not like anything became more or less important, but in order to be an Asian American entrepreneur, you have to be an entrepreneur and your company needs to exist. There’s a certain hierarchy there of thinking about survival. 

Will: One thing that Eric and I talked a lot about in the early days was how we felt a lot of existential angst–“Is this the right thing for me?” but very little day-to-day anxiety. In the startup, it flipped. We felt a lot of day-to-day anxiety, but the existential angst vanished. That has been so freeing and so valuable that I wouldn’t want to ever go back. I wonder about the Asian American thing, perhaps that was part of the existential angst that was replaced with the day-to-day anxiety and excitement about how to make the company succeed.

SHOUTOUTS

If you are a creator looking to get a business credit card, please consider using Karat! Also, please go follow Karat on Instagram @trykarat, Eric @erictway, and Will @willikin. Thank you Eric and Will for the interview!

And finally, some parting advice from Eric: 

Advice is usually given to you from people who followed what they’re telling you now or wish they had followed what they’re telling you now. It’s not really based on you. So whenever you get advice, I’d say weigh it primarily based on the person who’s giving it, how much you actually think of yourself as similar to them or want to be them. That applies to the advice we’re giving as well.