Mike Townsend: Inthis interview, I talked to Sean Bennett, the Co-founder of StrongholdStronghold is financial infrastructure company whose powerful tools providefast, secure and accessible financial services. The company has raised roughly7 million in VC funding, and they've dedicated a hundred million dollarinvestment arm into investing in the future of crypto and FinTech projects.

Mike Townsend: Seanand I talked about the origin story, how they started the company, how he methis co-founder. What they see in the market, what the challenges are ofintegrating both crypto and traditional finance worlds together and wherethey're headed in the future. So I hope you enjoy this conversation. If you do,please give us a thumbs up.

Mike Townsend: Ifyou're on YouTube or a share, if you're on the podcast and I hope you enjoyhere is Sean Bennett.

Mike Townsend: Allright, Sean. I was doing some research prior to our pre-show on Stronghold. AndI, I, I wanna ask you, starting with the origin story, you, you and Tammy met I'dlove for you just to articulate. What was it in the early days that you sawthat made you convince this was a. Concept worth diving down and thanks forjoining. I'm excited to chat.

Sean Bennett: Yeah.Thanks for having me, Mike. Yeah. Great, great question. I, I love goingthrough our origin and to, to start off with, you know, I came across Bitcoinback in 2011. It was interesting to see this sort of new programmable money,but at the time to, to myself, enter to my co-founder Tammy, it was very muchan alternative money.

Sean Bennett: Right.We're still used to using those traditional currencies. So it was 2013 cominginto the start of 2014 when ripple actually opensourced their ledger XRPledger. Right. It was actually closed source for, for a while to begin withthat they were starting to push, Hey, let's, let's put other assets on top ofblockchain technology and move those around.

Sean Bennett: Andthey were very interested back then in stablecoin actually. And so now we werestarting to. Some, some small startups moving traditional currencies on top ofblockchain technology. And it was that that really, you know, inspired me and,and got me interested in, in the whole blockchain piece. At the time I wasactually at medical school.

Sean Bennett: And Iwas, you know, slowly tip toeing into the space, but it was that event thatmade me think, okay, this is really what I'm interested and passionate, andlet's, let's take the plunge and, and, and do the startup game in, in this. whywas it that traditional currency movement on top of blockchain was sointeresting.

Sean Bennett: Youknow, my mother's side of the family is from the Philippines. So, you know,remittance was a, a thing that I was used to around the house, right. Sometimeson the way back from going to town, I lived in the country, my mother wouldbring me to, you know, the local post office and she'd go to Western union.

Sean Bennett: Right.And she'd talk about, you know, the exchange rates and the fees that she wasgetting that day. You know, for the, the small amounts of money that were beingsent, those were hugely impactful to her and especially the family receiving iton the other end. So, you know, she'd be trying to time when the exchange rateswere good and, you know, when they had fee promotions and that sort of thing.

Sean Bennett: So I,I, I was always fascinated with cross-border payments from an early age. And sowhen that the prospect of having, you know, New Zealand dollar us dollartransferred over blockchain technology saving. Businesses and consumers costand, and making the process a lot faster and with better access.

Sean Bennett: That'swhen I thought, okay, this is, this is what I care about. Let let's, let's lookat this space. More Tammy at the time was working at ripple. She was theirfirst head of growth, which in mid 2014 had just, you know, Jed McKayla hadjust spun that out of ripple because it was the same technology as ripple,which I had started to build a startup on.

Sean Bennett: Iquickly, you know, met Tammy,

Mike Townsend: Sorry,lemme pause you. Is that, is that stellar you meant to say, or is it ripple?she was head of growth at stellar. She was head of growth at Stellar.

Mike Townsend: Oh,stellar. Okay. You said head of growth at ripple? I just wanna make sure.

Sean Bennett: Oh,sorry. Yeah, she, she was head of growth at stellar, which had just sort ofbranched out of, of ripple at the time.

Sean Bennett: So itwas a, it was similar code based. The technology worked the same. Because I hadalready launched some, some early stable coin products on top of ripple. I wasa day one gateway as, as we call it or anchor on the stellar protocol as well.So, you know, I was looking at doing New Zealand, Australian, us dollar stablecoins for cross-border payments.

Sean Bennett: AndTammy was, you know, promoting the use of stellar to, to consumers and tryingto get partners on. We were, you know, there was quite a geographical distancebetween us. She was, you know, in the us, I was in New Zealand at the time. Butshe, she came to New Zealand for a wedding actually. And so we had our, ourfirst meeting in New Zealand when she came around for that.

Sean Bennett: So itwas quite serendipitous, actually the timing on that piece. And so, you know,we did some early work together. We, we partnered on a few initiatives on topof stellar. But you know, back then it was, it was still too early. It feltright. The rest of. The ecosystem was still coming along. It was very, veryhard to get good banking access back then.

Sean Bennett: I mean,it still is now, but, but especially back then, banking access was incrediblydifficult and businesses were just not ready to adopt it. There also wasn't thesort of institutional investment that we see now venture investment into thespace yet. So while it was a fantastic experience and we had a lot oflearnings, it was just too early to be really, you know, pursuing our, our ownstartup at that.

Sean Bennett: So, youknow, that's, that's sort of where we, we, we met and we did some work in 2014,but it wasn't until a few years later that we, we re we regrouped together and,and, and started Stronghold off in the, in the interim, I, you know, I went offto Australia and, and worked in a compliance startup that I and maybe I get, Igot my love of compliance.

Sean Bennett: And howcompliance can be applied to actually increase access. Interestingly, I thinkin certain industries and, and that ties back to strong heart, we can get backto that. And Tammy went and worked in, in venture capital, you know, greatexperience to have for what we were about to do. So it was in, it was in 2017that we, we came back together, you know, there was sort of a bull market incrypto.

Sean Bennett: A lotof VC funds were putting money into the space we had. I think come out of a lotof the ICO raising, there was still a lot of it going on, but there was thatsort of original wave. And so Tammy and I were interested in, you know,creating a startup to, to help with cross border payments using blockchaintechnology.

Sean Bennett: Sosimilar to what we were looking at a few years earlier, just with betterresourcing, a slightly more mature, you know, investment community andecosystem had evolved. So it felt like a better time to be doing it. And sothat's when we kicked things off.

Mike Townsend: And soStrongholds raised 7 million. What exactly is Stronghold doing in the world?

Sean Bennett: So,yes, we've, we've raised about 7 million to date. Most that in our, our earlyyears Stronghold is very much about giving financial access to businesses. Tobe able to process payments, whether that is through traditional or, you know,blockchain means one of the, the major things that we do is help to bridge thetraditional world where, you know, you have most of the transaction volumetoday with some of the new technologies that you find in blockchain and DeFi.

Sean Bennett: So weare very much interested in, in looking at, at, at DeFi the concepts theretaking bits of those and feeding them back to our customers, whether they'rereally aware that there's actually blockchain being used or. Mm, and for usit's important to not necessarily just put everything on blockchain because wecan, we, we use a lot of, you know, very traditional payment rails where weneed to.

Sean Bennett: So, youknow, we've got normal, old us domestic, ACH wire in there when we need it. Butfor some of our, you know, products where it makes sense, we'll bringblockchain in and, and give that to our customers. So we think of ourselves. Aone stop shop for payments in particular industries. And it's, it's generallyones that have higher compliance burdens as our niche.

Sean Bennett: Butwe're also sort of one foot into the blockchain world for on their behalf.Right. Without them having to worry about how to navigate it.

Mike Townsend:Gotcha. And, and what's working. So like, if you, if you kind of break it down,either by industry demographic, or like, where do you see product market fitthe best? .

Sean Bennett: Yeah.So, you know, one of the big booms for us was during the COVID era where a lotof merchants wanted to, you know, digitize their payments because they werestill very cash heavy. Right. And these were merchants that had for one reasonor another difficulties with banking, good banking or access to capital.

Sean Bennett: So, youknow, examples of these could. Businesses that work with, you know, agerestricted products like alcohol, right? There's no problems about legality,but for banking, there's still an extra layer of a risk in compliance thatthese, these merchants need to go through. Another good example would be likesports betting and gaming.

Sean Bennett: Stillfor, for a lot of, a lot of those businesses, they, they cannot get the bankingaccess that we think they deserve. And for us, it's very much about trying toend financial discrimination by giving access to those particular players. Soworking in those industries to convert a lot of cash in some of their otherpayments over into say, even one step further would be let's take cash and turnit into ACH bank debit from your consumer.

Sean Bennett: Right.That was a, a huge win for them. They had absolutely no access to that. Andit's, you know, it's, it's, it's a sort of boring, it's not that exciting, butthe impact to our customer was immense. And that's where we saw a lot ofrevenue growth in 20. As time goes by and you know, those opportunities areobvious, but we want to keep ourselves sticky with our customers who are, whoare the businesses.

Sean Bennett: We alsodo, you know, have consumer facing products, but it's all about the businesswhere we've seen some recent growth is in taking elements from DeFi. So accessto capital is, is one of our, our big pieces at the moment where thesebusinesses, I mean, you know, they can hardly get banks. They're certainly notgoing to be accessing traditional capital.

Sean Bennett: So, youknow, say a business might want. You know, open a new store or buy someinventory so they can do some promotions or, you know, Hey, we're, we're havingcash flow. Where should we need to pay for our health insurance dues for ouremployees? It was the real case we had recently because we are processing theirpayments.

Sean Bennett: We cangive them cash advances, right. But where do we source that capital from whiletraditional sources? Aren't, it's not going to work. This is outside of theirrisk tolerance, but we have you know, DeFi investors who are totally fine withthese sorts. Merchants, we can access capital there by the time the actualmerchant sees it, it's just an ACH deposit in their bank account.

Sean Bennett: Sothat's sort of how we are, you know, getting value from one side of the house,so to speak, placing it in a business, they make their payments through, youknow, deductions and fees. And we can, you know, remit the payment back to the,the DeFi investor. That's one of the most exciting things I think we are doingright now.

Sean Bennett: Sort ofbridging those two worlds. Yeah.

Mike Townsend: Yeah.Kind of parsing out two, two themes here. One is that the, the fringe businessesout there that ha that struggle to get bank accounts, whether they're in likegambling or, you know, some area that's not illegal, but it's like high risk.That, that makes sense that you guys, and then getting access to liquidity.

Mike Townsend: UsingDeFi on that side is, is helpful. So it's like getting access to DeFi gettingaccess to liquidity there. And then allowing you mentioned one thing I wannajust push, push you on a little bit, or just better understand you said themission is to remove discrimination and banking. I would imagine that there's amore nuanced.

Mike Townsend:Ambition there where like, you know, if, if certainly you want somediscrimination, right? You don't want banks don't want to have illegalbusinesses using them. You know, they don't wanna just be like wide open. Sothey have to discriminate who is worthy of a bank account and who is not. Iwould imagine that the, the, the banking, the banks, and generally allbusinesses would be financially incentivized to take on everyone they possiblycan.

Mike Townsend: And sothat means everyone who's legal to do so. That would include things likegambling, porn gaming, like high risk, violent games, like it, in theoryincludes all those things which are legal. But then the bank restricts that.Why, why do those, why do banks restrict things that don't necessarilyintroduce a financial risk, but have kind of like.

Mike Townsend: Likea, like a, almost like sticky, moral stigma to them, like, yeah. Yeah. I'mcurious. What's going on behind the scenes in banks? Like, are they having thisdebate internally? And are they use, are they being strategically minded withquantitative analysis on this? Or is it more some sort of like politicalbranding exercise?

Sean Bennett:Fantastic question. I, I think there's very much a sort of, both of thosethings are happening. Particularly in, you know, sort of your Neo banks orbanks that are really looking to, to care for new industries or startups. Theyare doing that quantitative analysis on, okay, it's going to cost us this muchto do extra compliance work because, you know, we might need some of it inhouse, but look, our you know, our regulatory authority that oversees us willwant more information and more reporting and Hey, our credit card processorneeds more information.

Sean Bennett: Andmore reporting and, you know, their, it services need more. There's sort ofthese layers of, of different reporting that keep getting added up. And it's,so it's not always just that one firm, it's actually what their partners arereally demanding in terms of, you know, transparency on whatever industriesthey're looking to serve.

Sean Bennett: Sothere's a huge cost involved in that. It it's immense. And, and so for a lot ofcompanies, it is, is the juice worth the squeeze on opening up to. We we'vefound in, you know, one of our major assets is the number of bankingrelationships and the strengths of those that we have. Right. We have certainbanking relationships that will only work with us in certain industries aswell.

Sean Bennett: Right.So we, we have to, you know, juggle and be very careful about, you know, where,where customer money is moving. But we have conversations with them and it isvery much showing them, Hey, here's the, here's the projected revenue that wethink we can bring to you as our banking partner from this particular endeavor.

Sean Bennett: Youknow, you've seen what we've done over here in XYZ industry. Here's the nextthree years in ABC industry. Look, you'll be the first bank to do it, or, youknow, there's huge opportunity for us, but they always have to take that backand do their internal cost analysis. Oftentimes we'll get past that hurdle.

Sean Bennett: butthen the other one and, and the one that we think is a lot more unfair is goingto be that more political, moral stigma piece that definitely exists. So evenif we can show them clearly on the numbers side, Hey, makes sense. From arevenue point of view particularly with deposits, you know, being an issue fora lot of, a lot of the banks out there right now.

Sean Bennett: Westill get stuck with, you know, the, the one word in the application that looksbad. Oh, you know, this. sports betting or, or whatever it happens to. The, thestigma is still huge on that piece. And so that's where we are trying to bringin our own services to get around some of those issues.

Mike Townsend: Isthat stigma there because there's ultimately like a backdoor tethering fromgovernment accountability to the banks.

Mike Townsend: Like Iwould imagine after nine 11, at least in the us, the bank secrecy act reallydeployed this political policy of a regulatory policy. The government has likeread access or admin, admin, admin, admin privileges behind the scenes tobanks. And so if banks take on a customer, that's doing something illegal, likeit's ultimately the banks who are gonna get fined.

Mike Townsend: And soI would imagine that like each one of these things, whether it's gamblingwhether it's like, what else is friends like porn crypto, like these things arecrypto. Yeah. Yeah. I mean, crypto's definitely in there because crypto, they,they each introduce an area that. It, it has in order for it to be sociallyfringe, it has to have a regulatory wall around it, like, you know, porn legalin the, in the us, but not if you're underage crypto legal in the us, but notfor money laundering, gambling, legal, kind of in the us.

Mike Townsend: But ofa certain age in a certain type it's like psychedelic. Legal in the ussometimes for certain brands for certain ages. So there's like, there's a,there's like a navigational channel that companies have to Wade through. And ofcourse, companies are financially incentivized to like push those boundaries,you know, to wanna take on more than is like technically legally.

Mike Townsend:Absolutely. And so it's, it's often interpreted the law is changing and, andthe banks are like, oh man, we're basically taking. Part of the risk of yourdecisions. And I, I would imagine that that's ultimately what's going on. Doesthat make sense to you?

Sean Bennett: Yeah,absolutely. That that's a huge part of it. Every partner along that chain beerstheir own risk, but it, it does ultimately fall back onto who's actually movingthe money and usually that's going to be near, near the bank.

Sean Bennett: It it'sgoing to be them doing it. We, we think that it's not always the AML problem,that that is the major blocker. We've, we've had times when, you know,compliance ticks off from an AML point of view, but somewhere at the boardlevel, someone just really doesn't like it. We, we think that thediscrimination is a little bit more institutionalized than that in some spaces.

Sean Bennett: Butyes, you know, AMLs a very easy excuse to use. We, we, we think is, is, isreally what's happening a lot of the time.

Mike Townsend: Your,your thought is really that there's a lot of banks out there who won't take oncustomers because someone on the board of the bank just. doesn't like theindustry or...

Sean Bennett: Yeah,sure, sure. I, I mean, I shouldn't suggest that it's gonna be, you know, oneperson on a board somewhere, but by the time it comes to a sort of non quant ofdecision, it's sort of, you know, a final check. Like it's almost like a gutcheck from them. There'll be. there'll be a blocker up at that level that maynot be driven by a quantitative decision, right.

Sean Bennett: Or it'snot necessarily a good risk based approach that's being used. It. It is somesort of stigma or, or, you know, other reason dressed as AML or risk.

Mike Townsend: Andwhat do you, what are you seeing or what do you make of the shift from thesekind of centralized or centralized ish banking system to DeFi crypto?

Mike Townsend: Do yousee this as being a relatively smooth process over the medium and long termthat governments kind of put out regulations companies are started eventuallygovernments adopt these more and. These things grow. And then, you know,meanwhile behind the scenes, government Fiat printing machines, just dwindledown, or do you see this heading more towards like a conflict of incentivesbetween the incumbent financial system and the new decentralized system?

Sean Bennett: I, I, Ithink more on the latter I, I think they they're going to survive at odds. Youknow, they'll continue to be at odds with each other, for. For, for a longtime, as far as I'm concerned. I, I think that the way that the industry'sapproaching it right now is still to build sort of it's, it's sort of twodifferent neighborhoods are being built at the same time.

Sean Bennett: Theyare so separate at the moment. And that I think would be my biggest ask for theindustry. If I, if I had to have one, it would be to, we need to think aboutintegrating those two sides now really, really early. I think that a lot ofDeFi is built for DeFi mm-hmm . My, the world that I live in, in Stronghold is,you know, the day to day is very much everything we do is about empowering thebusiness.

Sean Bennett: Greatto have great technology we'll search for that. We'll, you know, tap into itand make use of it. But if there's no easy way to integrate that with what weare doing for real customers in a real transaction volume, it's useless from,from our point of view. So I think there's gonna be great access for individualconsumers in the future to, to use DeFi products.

Sean Bennett: So, youknow, access to payments, access to savings and investment vehicles throughDeFi systems and how regulation will touch those is, is a, is a huge questionthat I, you know, don't have any great answers to, but for most of what aconsumer actually ends up interacting with, you know, via businesses thatthey're using.

Sean Bennett: they'restill going to be, you know, on the, on the separate system and sure. Theymight introduce, you know, blockchain or some decentralization there, you know,CBDs, that sort of thing. My worry is that these two things will be veryseparate going forwards.

Mike Townsend: Thesetwo things, being the banking system and Crypto World?

Sean Bennett: Yes,Particularly DeFi DeFi. I think the crypto payments will integrate a lot betterand we, we are seeing some, some good integration of crypto payments through,you know, traditional banking, but I think DeFi and all the exciting financialservices that can bring is still gonna be somewhere off on the side, or just,just separate.

Mike Townsend: Ialmost see it as, as a difficult integration to make because DeFi inherent. Islike the whole exciting aspect of the proposition is you're controlling.Ultimately you're in control of the, of the money. Whereas if you have kind ofthis blend or hybrid case with, you know, Celsius being the most famousrecently where they're like offering a lot of the benefits of, of DeFi, butthen they're centralized in the control of it.

Mike Townsend: Andyou know, that can clearly go wrong as in their case. It seems like othercompeting company, like block five was another one that kind of. Get the bulleton that, but Nexo is the company also that's out there, it's like a pretty bigcompany that's managing multiple billions and seemingly doing quite well.

Mike Townsend: Do yousee this as a individual fuck up basically on Celsius side, or do you kind, areyou more bullish on the strategic direction of a business that integrates DeFiwith centralized ownership and custody or, or how do you sort of see the actualconnection between the two world?

Sean Bennett: Yeah,that's a, that's a good question.

Sean Bennett: Youknow, obviously we, inside of Stronghold, we have our own own approach to, tohow we bridge, you know, customer money into, what's not customer money intoDeFi. It's more the other way around that's, you know, where we can accesscapital. So it's an easier problem there. We've, we're also experiencing where,you know, we've deployed funds into an Alameda, pull through maple finance.

Sean Bennett: rightwhere strong holders invested its own money, not, not customer funds. And youknow, that was AC actually relatively easy. As long as you are very, very awareof how blockchain works. I think that where the difficulty will, will always beis that the more control the individual user has over the, over their, youknow, their own accounts, their own funds on, on chains say before it even hitsthe particular DeFi networks it's, it's just gonna be very hard to onboard thatuser in it all.

Sean Bennett: I dolike the sound of having those centralized providers that offer access into youknow, DeFi style savings and investments. I think the biggest problem with,with players, like, you know, Celsius is they, they, they were just their ownfunds manager, so to speak. And the user didn't really realize that in a lot ofthe cases, that's, that's just some clear problem with communicating what theactual, you know, use of funds were or what that product.

Sean Bennett: I, I, Iwould disagree with the model entirely if, if it was being, you know, presentedas safe, then, you know, it was an investment fund. If it was being presentedmore as access to DeFi, well, it, it really wasn't. I think that in, in, in myideal world, a hybrid would look like you would help the user get access to theDeFi protocol, but they would still have the com you know, completetransparency.

Sean Bennett: And,and actual ability to, you know, use protocol specific features themselves, butthey're not, you know, going to an exchange, buying stable coins, you know,downloading meter mask, transferring funds in that way, worrying about wheretheir, you know, the fees are coming from that sort of thing. So I thinkthat's, that's probably where I'd like to join, draw that line, but, you know,transparency is, is the main issue there, I think, with, with these big blowupsrecently.

Mike Townsend: Yeah.It does seem like there's not an inherent. Inherently bad business model, butyou have to make it clear what you're doing with people's money. Because if yousay, Hey, we're gonna hold it. and we're gonna make some investments on theside. Like if you know, you're getting into a hedge fund, you know, you say,okay, you know, some percentage of my portfolio is going into this hedge fundhigh risk.

Mike Townsend: Itmight go to zero. It might, you know, drop down 10 X. But to put it in acompany that looks like a bank feels like a bank, you know, it's all aboutinterest. And if you're making, you know, 6% interest, 8% interest, you're not,you're not thinking like high risk investment. And so yeah, totally agree withyou.

Mike Townsend:Absolutely. Yeah. Have you followed the stories there closely with Celia'sblock five Alameda Luna's have there been any yeah. It's in your domain. Has itbeen sort of top of mind? Like what, what goes on in, in private channels? Isthis like earth shattering or do you think this is like a bump in the road

Sean Bennett: So fromStronghold's point of view it's, it's, it's more of a nuisance than anything,right. We, we, we had, we did actually have some money through Strongholdcapital. We, we launched a hundred million fund I think at the end of last yearand, and, and to invest in underrepresented founder funds.

Sean Bennett: Andsome of that money actually ended up going to Alameda through maple. So, youknow, we had our eyes on, on that to see what happened to our deposit there.And maple was fantastic and, and there were no issues. It was, it was totallysafe. The, the main problem for us really is not necessarily market pricing.

Sean Bennett:However, that goes Stronghold. Although we do have a crypto side and we alsohave our own token, we're very much, you know, a, I'd like to say a normalbusiness, right? We have normal revenues that are totally disconnected fromblockchain. And then we pepper in blockchain based services on top to make usmore sticky, extra revenue.

Sean Bennett: Thoseextra revenues are not impacted by a B market. Say. From a perception, point ofview, an ongoing regulation and from a risk management point of view at ourpartner banks and at businesses, having all these stories all over the newsand, and, you know, senators talking about it, that, that sort of thing, that'swhat is problematic for us.

Sean Bennett: Right.And, and progressing discussions with future partners and businesses. So thefact that blockchain or crypto gets talked about like that that's the problemto us. And so we'd like to see less. Less of that going on as much as possible,or at least not to tar the whole industry from a couple, you know, firms, baddecisions.

Mike Townsend: I'mgonna ask about this a hundred million dollar fund. So where did the money comefrom? Why launch it and how is it being deployed?

Sean Bennett: Yeah.Yeah. Great question. So, you know, Tammy having, you know, some expertise in,in the BC space from some, you know, stuff pre pre Stronghold, she was at 500startups where she was very much on the capital raising side actually from,from investors.

Sean Bennett: So theother side of the house than she is now on, you know, raising for StrongholdStronghold capital was, was launched very much to put, you know, money whereour mouth was in terms. targeting, you know, founders and businesses that wefeel are underserved. And I, I think, you know, not, not the generalunderserved or under bank that people are talking about you know, locatingfounders, you know, of, of color or that don't have prestigious backgrounds inthe us, you know, no, you know, fancy university or colleges Tammy's from thesouth.

Sean Bennett: I'mfrom, you know, rural New Zealand felt very important to us. The funds forStronghold capital have come off of, of Strongholds balance sheet. We'vecommitted a hundred million. I, I cannot remember how much we've deployed sofar, but there's been, I think, three or four investments that we've made,which are all public out there.

Sean Bennett: Atleast two of them have been into funds. And to, you know, VC funds that investonwards onto underrepresented founders. And we also made that AME contributionthrough maple. So still early days for deploying the, the money there, butit's, it's very aligned with what Stronghold does as a business itself.

Mike Townsend: Iwanna ask you a little bit about that. So just a pertinent perspective, like ifyou guys started in 2017, raised 7 million, have a team of roughly 25 people.You know, in my experience in, in a past startup, I raised about 25 million. Wehad about 60 people. And we certainly did not have a hundred million in thebank from, from growth.

Mike Townsend: Areyou just seeing absolute rocket ship revenue or is, is there, is there some,like how do you get a hundred million given 7 million rays, 25 people on theteam and four years old or five?

Sean Bennett: Yeah.So for us we, we raised our money. I think the last money came in just prior toCOVID or around that time. From there, you know, with, you know, if you canthink back to March, 2020, and you know, how people were feeling with thatuncertainty, we really made a conscious decision that. We need to focus purelyon, on, on our revenue. 100% raising money is going to be hard. You know, manyof the same conversations that businesses have need to have, you know, thisyear we, we needed to be positioned going into COVID as well like that.

Sean Bennett: So forus, it was important to target that traditional, you know, non blockchain basedrevenue, because at the time we had startups using our platform APIs but wewere incumbent on them to grow their transaction volumes for us to make morerevenue. So that's when we ended up going, you know, sort of direct to businessor direct to you know, point of sale companies or eCommerce.

Sean Bennett: Websitebuilders to integrate with them, and then we could sell onwards to their, theirmerchants. So at that time we went from, you know, running like the traditionalVC model of we can, Hey, grow, grow, grow, burn, burn, burn. We can alwaysraise money based off our metrics to, okay. Let's just totally focus on revenueand profitability.

Sean Bennett: And soby the end of 2020, we were riding that profitability curve. Right. We wereseeing exponential growth on our revenue. And we've only hiring or, you know,burning funds basically to match that. And we've been trying to follow thatever since, which has put us in a fantastic position for the current economic,you know climate because we we've basically still been following that model.

Sean Bennett: So, youknow we we've we've, we have had that growth, which has allowed us to hire. It,do you know, it does limit what we can do, or it means that we have to be very,very focused about what we go about doing. So where does that 100 million comefrom is a fantastic question. If, if we're sort of writing that profitabilitycurve We do have some excess funds based on our growth of, of revenue to deployinto these, these areas.

Sean Bennett: And the100 million is our total commitment. We don't have to draw that all down atonce. So that's a, which is, which is also how VCE contributions work. You havethe capital calls.

Mike Townsend: Yeah.Okay. So this is like, Hey, future projected revenue over 10 years, you know,if you're doing 10 million a year for 10 years, you would say, okay, we have intheory, a hundred million.

Mike Townsend: Is itmore like a, in theory over a long period of time? Or are you doing. Hundredsof millions in revenue. Like what, what is the revenue of the business or what,what like, is that kind of how you're thinking?

Sean Bennett: Yeah,it it's, it's, it's our commitment to the fund so that the fund can call callfor those funds at any time, you know, Tammy is the fund manager, so she can besensible about, you know, when, when those capital calls are being made forinvestments.

Sean Bennett: Andwe've also made onwards commitments to some other funds. And at any time theycan say, Hey, we're about to make, I saw one come across the desk in the lastcouple of weeks. Hey, we're about to make a investment in, you know, such andsuch company. You please send us, you know, your, your. Proportion of, of thefunds that you've committed.

Sean Bennett: Sothat's sort of how that works, right? It's it's as VC funders as any otherfrom, from a growth point of view, you know, some, some public revenue numbers.I think we did 1 million revenue at the end of 20. 20. And we got to 7 millionat the end of last year. So it was, you know, quite a big multiple for us todecline.

Sean Bennett: And youknow, and obviously we are looking to, to, to keep that performance goingthrough this year as well.

Mike Townsend:Gotcha. So the a hundred million has come from outside investors and that wouldbe what she's using to, oh, no,

Sean Bennett: sorry.So no, the, the, the funds have come from our own revenue, essentially. Okay.

Mike Townsend: Sobusiness is doing 7 million in revenue. Some profit margin on that. And then,and the hundred million comes from the commitment of deploying that someday

Sean Bennett: Overtime.

Mike Townsend: Overtime. That's right. Gotcha. Okay. And, and the purpose of doing that is it'skind in a way it's kind of splitting it. Like it's. do you tend to run thecompany and she runs the venture arm?

Mike Townsend: Imean, do you think of these internally as two separate entities? Cause likerunning a venture arm, the only way to be successful is deal flow and to getdeal flow takes time. It's hard to, it's hard to scale venture. I don't thinkI've ever seen it done. Okay. Yeah. Is that or like, and if that is the case,how did the two integrate together?

Sean Bennett: Yeah,both of us are very much, you know, I'd say a hundred percent on Stronghold. Itcan be very much more on the, on the business side, myself, more on from atechnical point of view you know, to make sure we, we, we aren't, you know,using our own time on that. We, we will come across investment opportunitiesjust by matter of running the business, right.

Sean Bennett:Partnership opportunities come by. We're always interested in potential acquisitionswhere that makes sense. So there is some natural deal flow just from running apayment startup, right. You just see the industry and you see other players andyou're, you are trying to work with them. The, the other pieces and I, and Ithink this is maybe where some, there was some confusion earlier.

Sean Bennett: Weinvest also in funds. You know, established VC funds with full time, you know,GPS. They are out there, you know, they're running the VC game, so we're notgoing to be making all of them ourselves. We've also invested in a couple fundsand they're, they will do investment. And when they say, Hey, you know, you'vecommitted the money.

Sean Bennett: Youneed to give some to us. Now we're about to invest in X, Y, Z company. That'swhen we have Toit the funds. So you know, they're, they're out there doingtheir thing and we've just invested in them. Gotcha. So it's not all, not alldirect taking our own time.

Mike Townsend:Gotcha. Okay. Okay. Yeah. I'm curious to ask about this token. So you guys havea token what's, what's the purpose of the token and what, what did you build iton? What, what either. Yeah. And how did you make those decisions? In creatingthe token?

Sean Bennett: Yeah,so the token for us was launched at the end of 2018. It was originally anairdrop to our, we actually had consumer customers at the time direct consumercustomers, and it was airdrops to them as a loyalty token, a thank.

Sean Bennett: It wasa Christmas Eve, you know, St. Nicholas themed. Thanks for being an activemember of Stronghold. You know, you've done your KYC and you've used some ofour products here as 10,000. SHX Stronghold token. The intent was for them to beable to use it very similar to like a, B and B or an exchange token where itreduced their fees on services that we provided.

Sean Bennett: Wedecided to issue it on top of stellar because of our familiarity with that sortof platform. Early on the Stronghold days we were working outta the stellaroffices. You know, we, we, we, we, we knew the team well, and it made a lot ofsense for us to easily issue a token. And we had engaged with that communityalready.

Sean Bennett: So itmade a lot of sense there. And so it was, you know, released onto the ledger.People could withdraw it from our system and it would be on stellar. And then,you know, we really started focusing on, on the business side, the sort of B toB to C business, and it sort of had a bit of a hiatus for a while.

Sean Bennett: In thelast, I think 18 months. After we had reached that, you know, profitabilitypiece on normal non blockchain revenue. We started bringing it back into ourproduct as a stickiness feature for our businesses. So first is rewards, right?Which, you know, it's like airline points, but on your processed payments,right?

Sean Bennett: That'sto encourage both technology integrators, to put our payment system in theirproduct and then merchants themselves to push our particular payment methodthrough. But the sort of goal now is to have that influence our own sort ofDeFi lending and protocol. And so that's what we are looking to do is we expandthe merchant cash advance program.

Mike Townsend: And doyou feel it's a critical part of the trajectory of the business now? Or do youfeel it's kind of a, a part of it that sort of sits on not mission critical?Sometimes I've seen, I've seen some projects where the token. Wasn't intendedto be a core part of the infrastructure, and then it just kind of grows.

Mike Townsend: Andthen the next thing you know, is like their plans are fully decentralized bythe way. Great. On stellar. I, I interviewed the CEO, Danielle at Nell on fewmonths ago on the podcast from stellar. Nice. Yeah. And yeah, love what they'rebilling.

Sean Bennett: Yeah,we, we think it's absolutely fantastic technology. That's I think it'sunderappreciated in the space.

Mike Townsend: Let meask you why, what is it about it from a technical perspective?

Sean Bennett:Stella's been around for a long time. And I, I think that it might be lookedas, as an bit of an old horse, you know, it doesn't have some of the bells andwhistles of smart contracts that a lot of newer protocols does.

Sean Bennett: And ofcourse they're working on improving that and, and, and having, you know, sideprojects that you can use that, you know, plug into the chain to give you thosefeatures. But for a lot of, lot of use cases, you just don't need a lot of, youknow, the features that some of these modern ledgers bring stellar is.

Sean Bennett:Fantastically fast environmentally friendly, cheap to use cheap, to run, easyto integrate with, from a payments point of view. We, I, I, I think thatthey've, you know, got one of the best architects in the space, Jed McKayla,right. He did a good job at ripple. Then he got to rewrite it essentially forstellar.

Sean Bennett:Absolutely fantastic from a technology point of view. And they've got a great.It really is just a pleasure to use. There's a lot of other blockchains aren't.I would not say the same about them when you have the right use case. And Ithink that a lot of the interest in the space has moved to use cases, whichdon't happen to match stellar, but a lot of real world transactional use casesdo.

Sean Bennett: So Ithink that's where there's a big disconnect, right? Everyone wants to writesmart contracts and DeFi composable contracts. These days not think. What feelsmore boring, just, you know, point to point payments.

Mike Townsend: And ifyou were starting a company from scratch, say you're building some DeFi tool,some you know, some insurance DeFi project.

Mike Townsend: How,how would you go about assessing the different. Products that are out there, thelayer ones, layer twos, like how do you, the thing, the landscape changes soquickly, how, how do you, like, how would you make sense of the whole situationto decide what technology to build on? Because so many different projects havethe same message, which is like, Build here, you know, we have the best, this,the best that they they're, they're all in on attracting developers.

Mike Townsend: And sofrom a developer's perspective, you wanna make sure you choose the rightproject. Cause once you're in, you know, it's typically a long road beforeintegrating multi chains and so on and so forth.

Sean Bennett: That'sright. You know, from our point of view, when we've, you know, been workingwith customers who want more direct access to blockchain and they've askedsimilar questions of us, one of, one of them is just longevity.

Sean Bennett: Right.How, how long has that project actually been around? You know, how long has theteam been stable? You know, how have they responded to outages in the past is ahuge one as well. Right? It's easy to point at certain chains and go, okay,it's never had an outage or alternatively that they have had an outage that'sgood or bad and make a judgment over that.

Sean Bennett: Butinevitably, everything's going to break at some stage. How did they respond tothat? How did their team respond to it? So that's a big piece of what we lookat. If they've been around for a long time and they haven't been, you know,forking all, all, all the time and changing features majorly, that's always agood sign.

Sean Bennett: I thinkthat another important thing is how, how close to the chains you actually needto be. Can you extract yourself away a little bit? So you could be portableinternally, you know, we've built products that sit with just a little shimlayer can sit on top of ripple or stellar or Ethereum or whatever it is, right.

Sean Bennett: We'vehad to interact with multiple chains. So not necessarily using a multi chainprotocol, but actually. , you know, bolting down into one of them specifically,but you can yourself move it with little technical effort. Seems like a reallygood thing to do. I, I, I think, you know, if, if you can do the second, thenthat gets rid of a lot of the issue, but for us, yeah.

Sean Bennett: Longevityand stability of feature set is, is really important.

Mike Townsend: Yeah.Go personal, go like non Stronghold, like you're starting Denovo new project.Do you go and like get into discord and yeah. .

Sean Bennett: Yeah,so, you know, I'm, I'm, I'm certainly in, in a lot of discords lurking around ,it's always a great place to find itself on the other side.

Sean Bennett: I'm,I'm really loving a lot of the, the DeFi protocols that are composable and sortof build layers and layers on top of each other. I very much enjoy the curvewars. That's been, that's immense fun. What's going on in there, but if I wasgonna build my own protocol, I'm going to be boring. I think.

Sean Bennett: boringis great in this space. I want more boring blockchain, right? Where there's noexciting news. We're just getting on with it and building businesses. Right. SoI would probably click Ethereum over anything else just for the fact that it,it, it seems like it's safe a bit than a lot of the other protocols out there.

Sean Bennett: I thinkfrom a business point of view, I'd probably overlay it with, okay, what are thepartnership opportunities that might exist? That might call me one way oranother? But if I needed smart contracts, I'm just gonna go for a theory. Butif I don't need. There's a, there's a lot more, you know, Stella's ripples orledges.

Sean Bennett: Greatfor if I'm just doing payments.

Mike Townsend: Do youthink it makes sense? So Ethereum certainly is in a place now where they'regoing through a major change, moving from work to stake. Is that a. Do you seethem as a, a layer to build on? Or do you think it makes more sense? Like ifyou're an average developer saying, Hey, I wanna get into web three.

Mike Townsend: Iwanna, I wanna start building today is the, is the vast majority of servicearea available to you on these layer twos that are. You know, consolidatingtransactions and then, you know, sending them to Ethereum. I think of Ethereumkind of conceptually as like that's the, that's the ultimate reconciliationledger, but then there's easier to interface with cheaper, faster, better inmany cases, depending on the specific gap you're building layer twos.

Mike Townsend: And ,I, I would think intuitively that your, your answer would be like finding oneof those, but does that, does it still make sense? Is it targeting, goingdirect to Ethereum?

Sean Bennett: I, I, Ithink that if I was, you know, a small, a small developer team and I was newerto the space, absolutely work with whatever chain has the easiest to usedeveloper tooling and is feels friendly.

Sean Bennett: Aabsolutely it's gonna matter less. What, what, you know, underlying blockchainyou use. I think if you are looking to do something a little bit moreenterprise scale and that doesn't need to interface with the blockchain, likeyou're gonna have a lot of transactions on internal systems. Anyway, Ethereum'sstill a safer bit.

Sean Bennett: Becauseas you say, it's kind of the ultimate clearing chain. Anyway, there's just toomany layers of additional risk. Every time you add one of these, theseprotocols on top. And I still feel like there, a lot of them are basicallyuntested for a lot of use cases. Some use cases have been done well on them.

Sean Bennett: Butit's, it is just each, each layer adds new bridges, more complexity and, andmore surface area for attack. So I think from a risk management point of view,and remember I'm, I'm talking to. Banks and risk adverse businesses a lot ofthe time. I, I would have to go for that, that safer option. And I know thatthe functionality is there.

Sean Bennett: Yes.It's gonna be a more annoying to interface with currently more. Actually the,the gas prices aren't too bad at the moment. It's a bit more clunky. But if I'mbuilding something robust I, I, I am gonna make that decision. I think.

Mike Townsend: Whatperson or book or podcast or YouTube channel, what, what comes to mind when youthink of a place or a person that you've learned an extraordinarily high degreefrom, or a lot from?

Sean Bennett: I, Ithink for me, I tend to focus less on individuals and I wonder if it's alsopartly cultural you know, coming, coming from New Zealand where.

Sean Bennett: Youknow, we, we, we have a thing called 'Tall Poppy Syndrome', right. Where youdon't, you don't wanna sort of stand out among the rest of your, your peers.Right. So maybe it's more collectivist view. But to me it's always, or it'smore likely. Projects that I think are interesting. And, and the team workingbehind them that I find more inspiring.

Sean Bennett: And Ithink that, you know, one of the big ones has to be early on Ripple, right. Or,or open coin and, and just, you know, going, it felt a little bit against thegrain and doing traditional currencies instead of, you know, new forms of moneyat the time that was, I think, brave when they did it that early.

Sean Bennett: Right.And it's easy to forget that that's actually what they pushed back then. Thebusiness model's very different now. But I, I think that's really, really whereI, I found a lot of early inspiration. I, I couldn't single out anyoneindividual as such, but I think that you know, and, and looking at DeFi reallythe, the only way to.

Sean Bennett: Tolearn about it properly is to jump into the discords and, and, and have a lookat how communication works there. It's fascinating. But that's really where alot of the learning happens as opposed to just listening to what theirspokespeople might be saying. In fact, I think that could be quite dangerous inthe space, to be honest.

Sean Bennett: Yeah.Just in this, you know, in crypto. Yeah.

Mike Townsend: Yeah.So I would imagine, you'd say the difference between the two is that the, thisspokesperson is communicating just the highlights. Whereas discord is thereality.

Sean Bennett:Absolutely. Yeah. And, and, and people are pushing for transparency in a lot ofthose channels. Sometimes quite annoyingly I'm sure for the, the discordadmins, but they, they will push and nag.

Sean Bennett: Andit's interesting to see how these projects even respond to that nagging.

Mike Townsend: Yeah.I mean, there's so much historical momentum in how you build companies whetherit's companies or countries or politics or. You know, internal politics in a,in a company, it tends to hedge, right?

Mike Townsend: Likethe executive team determines what they wanna share. They tend to share goodnews, like rarely do you go on podcasts and say, well, last week we got hackedand you know, we had a fire or five people and I was in depressions like, well,we don't like, we tend to. Screen that, right? That's just, that's humannature.

Mike Townsend: You dothat with your friends. Like we do that when you meet people in all contexts,and then it's like, crypto wants to flip that and be like, show me all the uglystuff. You know, show me the, the loss, right? Some of the transaction timedown is the gas fees, the everything. And it's like, well, when it is public,you, you kind of have to, and, and this, this I feel is almost.

Mike Townsend: Likea, a friction or a rub inside of companies slash projects. When a, a companystarting off as a LLC dev shop builds out a, you know, intentionally DeFi tool,or just generally a decentralized project that all the information is public.All the code is public, the, the discord of public. And so if things go wrong,it's like, it's hard to it's.

Mike Townsend: It'shard to decide what information. And if any, can be strategically withheld forthe process of, you know, determining it, you know, you know, when you have aco-founder you, like, you talk about all the shit that could go wrong and isgoing wrong and people that are going wrong and all the things, and you'relike, you have that engine room, so then you can come out and be like, allright, we got the answers.

Mike Townsend: And ifyou're working through all that in public, it's like, it could be brutal, youknow?

Sean Bennett: Yeah.And dangerous and dangerous. Where, where does that disclosure? Where is, isthe mindset? Yeah, it's a tough one.

Mike Townsend: Coolman. And where are you? Are you on Twitter? Are you writing anywhere publicly,personally?

Sean Bennett: I, I, Ihave a Twitter that I, you know, well, a dev to use more by more not, notexactly prolific on there, but you can find me on Twitter @ItsSeanBennett.

Mike Townsend: Nice.Sean this is fun, man. Thanks for hopping on today and congrats on all the progressof everything..

Sean Bennett: Thanksvery much. Good to talk to you, Mike.

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