Learning from My Mistakes

“The campaign is global – the dollar ain’t what it used to be
Switch a franc for a dollar, you get like 1.3”
—Ryan Leslie, Swiss Francs

Three years ago I made an investment decision that I have regretted ever since.

My friend Sten Tamkivi told me about a great new company founded by his old Skype colleague, Taavet Hinrikus. Naturally, I reached out to Taavet to hear his pitch.

The basic idea for the business came from a personal need.

Taavet had worked for Skype in Estonia, so was paid in euros, but lived in London. Kristo, his co-founder, worked in London, but had a mortgage in euros back in Estonia. Simply getting money from their paychecks cost them 5%. They thought that was outrageous. Since Taavet and Kristo were friends, they devised a simple scheme to solve their expensive problem. Each month the pair checked that day’s mid-market rate on Reuters to find a fair exchange rate. Kristo put pounds into Taavet’s UK bank account, and Taavet topped up his friend’s euro account with euros. Both got the currency they needed, and neither paid a cent in hidden bank fees. That became the core idea for TransferWise.

Kristo’s background in financial services and Taavet’s background building a very large scale, peer-to-peer software system gave them the perfect backgrounds to tackle the problem. On the one hand, TransferWise was exactly the kind of thing that we like to invest in: two great founders who had discovered an important problem that they were eminently qualified to solve. On the other hand, they were based in London and I could not see how I would have the time to help them start a company from half way across the world, so I passed on the investment. I chose the wrong hand.

After I passed, Taavet and Kristo went straight to work. They built a peer-to-peer foreign currency exchange in the same way that the original Skype was a peer-to-peer phone system. Like the original Skype, Kristo and Taavet built in enough central components to make the network work seamlessly and flawlessly for consumers. Kristo’s banking industry expertise enabled them to complement their peer-to-peer network with an impressive international banking network, which made every currency exchange work and work quickly. Once they got it up and running, it worked beautifully.

A good rule of thumb is that the new product must be at least 10 times better than the old way of doing the same thing or customers will stay with what they have. It’s an easy concept to understand, but sometimes a difficult one to quantify. Not so with TransferWise: A typical FX transaction costs a consumer 5% and TransferWise profitably charges 10 times less for the exact same transaction. Ten times better indeed. In addition, the customer experience is amazing, yielding an 80% NPS score, which is unheard of in financial services.

From a macro perspective, such innovation could not come at a better time. Due to the financial system nearly destroying the global economy in 2008, traditional banks have been under incredible pressure from regulators to reduce their leverage from highs of close to 40:1 to less than 10:1, forcing them to dramatically cut costs to fit into their safer cost structures. As a result, we see little to no innovation from the traditional banking sector, which creates a massive opportunity for new financial institutions like TransferWise.

This all makes my original decision to pass look worse and worse every day. Since launching in early 2011, TransferWise has grown to a team of 250 providing 292 currency routes. They have helped customers transfer £3 billion, saving users over £135 million.

For all these reasons, I am absolutely thrilled to announce that I am correcting my mistake and a16z is leading TransferWise’s $58 million round, the money transfer platform of the future.

The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/.

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