Alex Song — Crypto on the Balance Sheet
In this episode of The Role Forward podcast, our host Joe Michalowski and Alex Song, Head of Finance and Capital Markets at Ramp, discuss the concept of crypto on the balance sheet. They chat about Ramp's investment in stablecoins, the mindset behind that investment, and how finance can assume a more strategic role in the business.
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Alex Song — Crypto on the Balance Sheet
Cryptocurrency is a hot topic not just in the finance or business world but also in our everyday interactions. But, with all the information available today, it’s still challenging for most of us to understand what it is and how it has and will change the global monetary system.
Luckily, the number of subject matter experts is growing daily, and one of them is our guest, Alex Song, the Head of Finance and Capital Markets at Ramp.
At the beginning of the episode, Alex emphasized that he is not a cryptocurrency expert but is deeply involved in the subject for his current role at Ramp.
However, Alex added considerable value to our show by bringing the concept of one specific cryptocurrency closer to the audience. Alex and our host Joe Michalowski discussed stablecoins, why Ramp invested in them, and how they can benefit Ramp in the long term. Alex and Joe also touched upon the past, present, and future of crypto in a business setting.
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Alex Song is the Head of Finance and Capital Markets at Ramp, a corporate credit card issuer and expense management company based in New York. Prior to joining Ramp in 2020, he spent more than a decade as a private credit and structured credit investor in the hedge fund industry.
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Episode Highlights from John Luttig
6:20 — What Are Stablecoins?
”Stablecoins, as an asset class, are tradable assets. They exist on the blockchain. They don’t look that different from Bitcoins or Ethereum and whatnot. The difference is that there is a currency peg right there. […] Similarly, if you go to Belize or Panama, the local currency sometimes gets pegged to the US Dollar.
That’s also the intent with stablecoins. One coin of this could be USBC, Paxos, or Tara; there are a few stablecoins out there. The idea is basically that this token — we’re going to peg this one for one US dollar. And I think there are a couple of Euro-pegged crypto things out there.
[…] How different stablecoins are set up and constructed, and the peg is maintained, though. That’s where the secret sauce comes from. There’s a lot of differentiation between the different stablecoins out there. How dispensable are some of these pegs? How strong, or how weak are they? That’s the secret sauce. That’s where a lot of diligence goes — into figuring out.”
17:10 — When Investing in Crypto, You Need Subject Matter Experts
”There are a lot of smart people out there, and there are a lot of smart people in the crypto world. Fortunately, some of these are personal or professional connections. Going through every possible avenue, […] which is like the value chain of where these dollars are going or where they are coming out, that’s someone’s job. So getting to know who all these people are, understanding their incentives, and understanding what they do on a day-to-day basis. So that might mean talking to your vendor’s vendor’s vendor.
[…] So the amount of diligence there is probably somewhat surface level for something like this because we are literally starting at square one. We had to essentially establish the entire fact pattern — the ecosystem, who the players are, what their incentives are, and where we fit into that group.”
28:00 — Should Every Company Invest in Stablecoins?
”I think there are a few heuristics that you want to use for something like this. One is strategic. Is this something that you can do that generates some intangible benefits? And for us, as we discussed, it did. It falls into the whole ecosystem of being strategic and impactful in terms of being a good steward of your capital. So for us, it made sense. […]
Let’s say you have a couple of million dollars of cash in your balance sheet, and you allocate X to stablecoins and that you’re making roughly 6, 7, 8, 9% yield on it. You just do the math. What is the outcome of that incremental yield? Is that worth your time going through months of diligence, doing all of this work, and ultimately that Y that winds up being $30,000? Was that worth your time? I would argue that for most entrepreneurs, it probably isn’t. I think you’re very busy building a company and should not be making tactical decisions like that.”
[00:00:00] Alex Song: We knew that if we wanted to be innovative across other facets of corporate balance sheet, corporate finance, et cetera, we knew that would be an engaged and curious audience, right,
[00:00:11] who would be looking to us for thought leadership and whatnot. So, there’s definitely the component of, “Hey, you know, I am a fiduciary, I need to protect my balance sheet and let’s figure out how maybe we this.”
Alex Song Introduction
[00:00:23] Joe Michalowski: Hello and welcome to another episode of The Role Forward podcast. My name is Joe Michalowski, and this episode is brought to you by Mosaic, a strategic finance platform that transforms the way business gets done, and today our guest is Alex Song, Head of Finance and Capital Markets at Ramp.
[00:00:58] Alex, thanks so much for joining us today.
[00:01:00] Alex Song: Yeah, for sure. Thanks for having me.
[00:01:02] Joe Michalowski: Cool. Well, super excited to have you on a Ramp, obviously big in the news as we’re recording this, huge funding round that you guys just landed, you guys are darling of startup media, so this will be a fun one and I know we have a good topic lined up. So, before we get going, though, do you mind just giving us the two-minute background on who you are, how you ended up at Ramp, and kind of what the work is that you’re doing there?
[00:01:22] Alex Song: Yeah,
[00:01:23] definitely. So, like you mentioned, I run finance and capital markets here at Ramp. I’ve been here for just under two years. It’s been a pretty tremendous two years, I have to say.
[00:01:33] I was the first finance hire. I did all of our counting and all of our middle back-office work, as well as, you know, a little bit of the fund-raising, managing the balance sheet, managing our investments and whatnot
[00:01:45] and it’s been absolutely tremendous. I will say though, this actually is my first operating role. Prior to joining Ramp, I spent basically the last 11 or 12 years on Wall Street, actually, predominantly as a FinTech investor focusing on lending specific company. So, a lot of balance sheet, heavy businesses, a lot of businesses that needed some sophistication around managing its cash, managing its capital, et cetera.
[00:02:11] Alex Song: So, if you think about the lending clubs out there, Prosper, Sunrun, Open Door, et cetera, et
[00:02:17] cetera, there’s this very specific class, right, of FinTech companies that need balance sheet,
[00:02:22] and so that’s really where I spent the last number of years in the industry was
[00:02:27] analyzing these companies, investing in them, getting to know them, and kind of in a roundabout fashion, that’s actually how I came across a Ramp as well, right? Because Ramp, and we can get into this, but we also have a quite sophisticated capital markets program, we manage
[00:02:42] balance sheet and it was a nice fit to switch from the investing side to the operating side, kind of now I’m sitting on the other side of the table, but, yeah,
[00:02:50] this is my bread and butter.
Why Invest in Crypto as a Finance Team?
[00:02:52] Joe Michalowski: Yeah. I mean, so I knew, obviously I know a topic we’re talking about and I’m excited about that, but didn’t know the background about all the work that you did with those balance-sheet heavy companies, which makes the topic that we’re going to talk about today make a lot more sense and kind of how this came to be.
[00:03:06] So, what we really brought you on to talk about is crypto on the balance sheet because of the many innovative things that Ramp has done and that you all have done over the last couple of years, one of them, I saw your article, was investing in stable coins as part of a, like, your treasury function, just taking your money and putting it in a very untraditional place at the moment, I would say. So, just right off the top, we’d love to hear the quick background on that,
[00:03:29] Joe Michalowski: like, what made you decide to go down that road as opposed to a more traditional investments?
[00:03:35] Alex Song: Yeah,
[00:03:36] totally. We published that blog article, I want to say maybe three months ago now, right, something
[00:03:40] like that and what’s funny is that was probably one of the most, most kind of engagement-generating, most viewed blog posts pieces that we’d ever published,
[00:03:51] Joe Michalowski: People love crypto
[00:03:53] Alex Song: People love their crypto, right? People love their crypto. They’re super interested. They’re eager. They’re engaged. I probably had a dozen or more several dozen founders in CFOs reach out to me about this topic, just asking like, what’s going on, what’s the deal, but yeah, I mean, long story short, I think we started working with circle on sort of an exploratory basis early last summer,
[00:04:16] so that’s almost a year ago now.
[00:04:18] We started chatting about Stablecoins. We started chatting about USDC. At the time they had no product yet, right? They knew that
[00:04:24] they were going to launch this thing called Circle Yield, but at that moment in time it wasn’t quite built, and so the timing actually worked out pretty well.
[00:04:35] We do, w, we, we did quite a bit of research and diligence into what exactly we were allocating into, meanwhile they were building the product all at the same time. We took our time. They took their time, right, and then finally you right around September, October of last year was when we first put our first dollar out,
[00:04:53] you know,
[00:04:54] Alex Song: when we deployed and we got some USDC on the balance sheet and as you can probably surmise from our blog post, it’s
[00:05:02] been a very nice partnership over the last couple of months.
[00:05:05] We’re generating a pretty high yield on that allocation.
[00:05:09] Alex Song: Yeah,
[00:05:09] I mean, I think the initial impetus really
[00:05:11] was, they were kind of exploring this new product,
[00:05:14] we were looking for investment alternatives and we sort of almost found each other and it’s been a, it’s been a great experience.
[00:05:22] Joe Michalowski: Amazing. I love that you, uh, kind of started down the same path together, that’s a really interesting side of the story ’cause, I mean, the story is interesting in and of itself because it’s so untraditional, but really cool to hear about how you kind of came up as, I would imagine, like, the earliest of adopters with Circle,
[00:05:37] I’m sure they have some other early customers, but really nice to hear that. I want to take a step back ’cause obviously I’m gonna, I’m going to ask more questions about what this process looked like to get this going, for the uninitiated like me, Stablecoin, I hadn’t heard of it until I’ve read this article from you
[00:05:52] and then we started talking about those. So, beyond the basics of, like, I would imagine the name in and of itself would indicate that it’s more stable than something like a Bitcoin, for the uninitiated like me, do you mind explaining what this is in comparison to something like a Bitcoin or more traditional crypto currencies?
What Are Stablecoins?
[00:06:09] Alex Song: Totally. I will caveat this by saying that I am no crypto expert, so what I know is only kind of the reading that I’ve done in the industry research that we’ve done here. So, in a nutshell, Stablecoin or Stablecoins as an asset class, they are, you know, tradable assets, right? They exist on the blockchain,
[00:06:31] I think informant function, they don’t look that different than Bitcoins or Ethereum and whatnot. The difference is that there is a currency peg, right? They’re supposed to be this peg. So, I think that if you go to Belize or if you go to Panama or whatever, like, the local currency sometimes gets pegged to the US dollar, right?
[00:06:49] With Stablecoins that’s also the intent. One coin of this thing, right, it could be USDC, it be GUSD, it could be Paxos, it could be Tara, you know, there’s a few Stablecoins out there. The idea is basically that this thing, this token, we’re
[00:07:05] going to peg this one for one, for a US dollar
[00:07:08] and I think there’s a couple of Euro-pegged crypto things out there as well that are also Stablecoins, but that’s really it. That’s the idea, is you establish a peg and this thing becomes kind of a free-flowing tradable assets, and the, ideally, you know, knock on wood, the peg doesn’t break, right?
[00:07:25] Ideally one USDC equivalent in value to one USD, right? really the main gist of it. How different Stablecoins are set up and constructed and the peg is maintained though,
[00:07:40] Alex Song: that’s where the secret sauce comes from. There’s a lot of differentiation between the different Stablecoins out there,
[00:07:46] how dispensable are some of these pegs? How strong, how weak are, that’s really the secret sauce, right? That’s where there’s a lot of diligence that goes into kind of figuring out, all right, who do you back,
[00:07:57] who do you want on your balance sheet, et cetera?
[00:08:00] Joe Michalowski: Gotcha. We’re going to get into some of those decisions in a little bit, but, right off the top and you’re explaining this and you’re saying that the amount that you know about this topic is really just the research you did to start doing this project, so I’m guessing when you went to leadership, I mean, I’m sure they’re not just like, “Hey Alex, like, here’s some money, like, go invest it as you will,”
[00:08:19] I’m sure there was a tight knit conversation with leadership at Ramp to decide to do this. What do those conversations look like? There must’ve been some decent skepticism when you surf at this or did somebody come to you and, like, give you this idea? What did that look like internally?
[00:08:34] Alex Song: Yeah,
[00:08:34] totally. You’re absolutely right. I mean, this is not a no-brainer. This is
[00:08:38] as far from a no-brainer as you can get, right? It’s untraditional and it’s new and it’s uncomfortable, right? So, what I’ll say is that a couple of things really helped. One is actually there was close knit, I would say a high amount of professional and personal connectivity between our executive team and the executive team at Circle.
[00:08:59] So, one, there was a pre-existing relationship, right? And we knew that they were working on this and they were working on this, they kind of knew that we might’ve been interested in being one of these first pilot customers, almost, of Circle Yield and so that, that component certainly was helpful.
[00:09:15] The second reason why this is helpful is because, and you can probably guess, we’re a FinTech company,
[00:09:20] right? I think that if we were just non-financially oriented, if we’re just, like, a semiconductor or manufacturing or services company, the story might be different, but because we’re a FinTech company dedicated to serving businesses, so, right,
[00:09:36] we sort of view ourselves as we want to be in that seat and take that role of being an early adopter, being a thought leader
[00:09:46] and investigate and unsurface, right, opportunities. So, if you think about what Ramp itself does while we try to on surface, savings opportunities, right, we try to automate things,
[00:09:57] we try to figure out where’s the low-hanging fruit inside of XYZ organization, how can you save money? And so, as part of just driving that thesis, right, we knew that if we wanted to be innovative across other facets of corporate balance sheet, corporate finance, et cetera, we knew that would be an engaged and curious audience, right,
[00:10:18] who would be looking to us for thought leadership and whatnot. So, there’s definitely the component of, “Hey, you know, I am a fiduciary, I need. Protect my balance sheet and let’s figure out how maybe we this.” And then there’s also the component where it’s like, “Well, if we do a really good job here, there could be dozens, if not hundreds of companies, right,
[00:10:37] that follow in our footsteps, so let’s do right by them as well” and that was definitely something that, to their credit, you know, my executive team, board of directors, et cetera, everyone kind of saw that there’s kind of the tangible, and then there’s also really the intangible benefits of pursuing a research project like this.
[00:10:56] I like what you’re saying about thought leadership and this is really the purest, purest form of that, like, this isn’t just like publishing, know an although you did publish the article, but, like, first it requires doing something that is leading an industry. I had a, uh, coworker, ’cause I, I’ve worked on a lot of thought leadership as a content writer in the past and a coworker who used to say, “Uh, everybody wants to be a thought leader, but nobody wants to have the heavy thoughts.”
[00:11:19] Joe Michalowski: so, like, it starts with having this idea that you’re going to kind of go out and do something that is different, and it takes taking a risk, like, you need to go out of the comfort zone, you need to actually do this. And so, when I get the results, I want to get to the, all your articles that you spend four months kind of doing your due diligence on the risks and, like, mitigating factors for all of this. like, I can’t remember how many, there was, like, a laundry list of topics that you had to go through,
[00:11:44] so you the pain, I’m not going to ask you to go through every single one of them, but could you walk through, like, maybe, like, your top couple of considerations that maybe, like, you internally, you had to deliberate on the most to get through this decision?
[00:11:57] Alex Song: Yeah,
[00:11:57] definitely. Definitely. I think, well, I’ll give you one critical juncture, right?
[00:12:01] Our first critical juncture was, “All right, now we’ve identified Stablecoins as maybe our reasonable substitute for just FI and US dollars, right, which stable Stablecoin do you actually pick?” I mean, that’s question number one, right,
[00:12:17] is, we could have gone with variety of them, right, or multiple of them and there’s a lot of different Stablecoin out there. What we found to be especially compelling about USDC, specifically this one, right?
[00:12:29] What we found that was
[00:12:30] nice about it is governed and it is managed rather conservatively.
[00:12:35] So, how USDC works is, I’m being a little over reductive.
[00:12:40] Joe Michalowski: Yeah, This is not a podcast where we can explain every nuance of every crypto topic-known demands, so totally understand you on that, but excited
[00:12:48] to dive into it.
[00:12:49] Alex Song: So, what we liked about USDC is that you, essentially, USDC is run by a consortium of companies, right? Circle is one of them, so they’re
[00:12:58] obviously going to be one of the bigger proponents of this ecosystem, but basically you convert US dollars into USDC and now I have USDC and now there’s US dollars just sitting there somewhere,
[00:13:09] right? And what’s crucial and what’s critical for us is understanding, “Okay, where is the USD actually going?”
[00:13:16] Right? And it
[00:13:17] turns out that for USDC it is easy to verify and it’s audited on a regular basis and there’s an attestation from Grant Thornton, as well as other organizations that indicates that cash, right,
[00:13:31] it’s not being invested in stocks, not being invested in junk bonds, it’s not being invested in all this other
[00:13:36] stuff. It’s basically invested in cash equivalents. So,
[00:13:39] very short-dated US treasuries and stuff like that. It’s not sexy, right? It’s not meant to do anything crazy. It’s really meant to just hold your cash, right,
[00:13:48] for, you know, some amount of time. And so, I think that was important for us. Let’s put it that way, right? Let’s make up a number. I don’t know what the number is today, but let’s suppose there was 30 billion of USDC outstanding,
[00:14:01] then I can say with a high degree of confidence that there is gonna be
[00:14:05] corresponding 30 billion of USD equivalent of very short data liquid, high-quality assets that’s backing that, right, and that’s very, very important. I think, USDC is very good about being transparent. That was our, I would say our very first kind of critical juncture. It’s just underwriting,
[00:14:23] like, “What is the thing that
[00:14:25] Alex Song: we’re buying,” right? I would say that’s pretty important. Area number two, I’ll go quickly on this, area number two is just, how are we actually generating these returns
[00:14:36] and understanding the value chain, right? Because, you know, if you put money in any average FDIC-insured, you know, savings account, you’re getting what? 20 bits, right?
[00:14:47] If you’re lucky, you know, on a good day. So, so if we’re using Circle Yield or any of these other products out there, Stablecoin products out there, how is it that there is a 5%, 7%, you know, 9%,rate of return and understanding that value chain and understanding, okay,
[00:15:03] who’s actually originating some of these
[00:15:06] underlying loans, who are the underlying borrowers,
[00:15:09] and also where, where does the value chain go and where do we sit in it helps us understand the risk reward, and so that in of itself is probably actually the biggest piece of diligence is understanding who’s sitting on the other side of the table, who’s paying us this annualized yield, right,
[00:15:25] that, that took a while.
Vetting Potential Crypto Investments
[00:15:27] Joe Michalowski: I know you said you wanted to go through quickly, but just as a follow-up, like, what if this took months, or if you’re saying it took a while, like, how, what does that process actually look like? Like, how do you go through and verify that? Is it just conversations with Circle? Is it just, is there a numbers process in the background that you need to go through, like, to verify these things?
[00:15:44] Like, what exactly does it mean to go through that process?
[00:15:47] Alex Song: There’s a lot of smart people. There’s a lot of smart people out there and there’s a lot of smart people in the crypto world
[00:15:53] and fortunately some of these are personal, professional connections,
[00:15:56] I think going through every possible avenue, right, I have mentioned a little bit earlier, right,
[00:16:01] which is, like, the value chain of where actually these dollars are going, where are they coming out? There’s someone, right? There’s, that’s someone’s job,
[00:16:09] and so getting to know who all these people are, understanding what their incentives are, understanding what they do on a day-to-day basis,
[00:16:16] right? So, that might mean talking to your vendor’s vendors vendor, right, and making sure that, “Okay.
[00:16:22] well, if I’m wiring funds here, what is here, you know? Is that an overseas entity? Is it located in one of the 50 states? What are the legal and regulatory implications of that? And let’s go talk to the guy, right?
[00:16:34] Let’s talk to the guy who’s pushing the button.” And so we, through the course of these several months, I would say, of the diligence process, not only did we diligence sort of who are partners and their vendors, their vendors and their vendors and their vendors, right? We also looked at a ton of other similar providers in the space as well
[00:16:55] Alex Song: and we talked to all of them, and we talked to their vendors as well. So, it wasn’t as if we jumped the gun. We picked one guy to partner with and, like, “Let’s just do that.” The process itself actually was quite comprehensive and there are a lot, again, a lot of smart people out there and a lot of people were able to essentially assemble a mosaic, right,
[00:17:15] almost a fact patterns and different things where it was like, “Wow, I actually forgot to ask that question of those people, but they gave me this something, jogs something about memory, call, cool, let’s talk about this other topic.” So, it was an extremely, I dunno what the word is, but whatever is the opposite of linear, it was, like, the opposite
[00:17:36] Joe Michalowski: Circular, just like Circle.
[00:17:38] Alex Song: Yeah.
[00:17:39] Exactly. It was never stopping to, never be satisfied, right,
[00:17:43] and because the hurdle is that much higher, right? If I were tell you, “Hey, I’m about to deploy my corporate treasury, just an investment-grade bonds, right, or AAA rated treasuries,” well, okay, well, well there’s an S&P Moody’s rating on the thing.
[00:17:57] Let’s just go buy it, right? So, the amount of kind of diligence there is probably somewhat surface level. For something like this, because we are starting literally at square zero, you know, square one, we really had to essentially establish the entire fact pattern, the ecosystems, who the players are, what their incentives are and where do we fit into that group?
[00:18:18] I want to take a little bit of a tangent and zoom out a little bit because everything you’re talking about is so much of what the theme of our show is supposed to be and it’s really just, like, we want to, like, as a company and as a podcast and, you know, I you and you were talking about being a thought leader, there’s this traditional view of finance as, like, the back-office function, the number crunchers,
[00:18:39] Joe Michalowski: there’s not a lot of, like, stereotypes built into the finance kind of ethos over the last, like, 30 years, but everything you’re talking about, I was like, “I need to go relationships with all of these people.” It’s not a comfort zone for 20-years-ago finance teams, like, seems to be, like, a new kind of strategic path forward.
[00:19:00] So, I’m curious, like, is this the norm for you? Is this how you operate all the time? Are you a big into just relationship-building as a function or was this something where it was like, “Okay, like, I know that in this field in particular versus, like, more traditional investments, I need to go out and I need to do this,”
[00:19:15] or do you just do this all the time for all of the decisions to make?
Ramp and Strategic Finance
[00:19:19] Alex Song: Yeah, that’s a good question. So, I would say maybe three things. One is, this is literally what Ramp is about, right? Ramp is about this concept of taking a lot of the medial, operational tasks of the day-to-day work with month-end close and
[00:19:35] a lot of the payables and automating in a way, right,
[00:19:39] so that everyone on the finance team is empowered to do strategic projects and
[00:19:44] pursue some of these cool, very impactful projects like this, right? So, that, that, what you’re describing is literally, you know, our North Star, right, is we want folks to be impactful, we want folks to have the latitude, the freedom, the creativity to pursue these types of projects,
[00:20:01] right? So, that’s just the first thing which is, that’s literally our North Star. The second thing I’ll say is that we like the fact that we’re building in the open, I mean, if you talk
[00:20:09] to our CEO, our CTO, our executive team, it, we’re all about building in the open. So, research projects any, like, anything that we’re exploring, if something pans out, if something doesn’t pan out,
[00:20:23] you know, we want to be transparent with the world and just say, “Hey, this was our experience doing this,” right? So, So, I think people like the authenticity and they like the transparency of what we do, so, you know, if we went through an audit, we’ll literally just jot down our notes, like, “Here’s what we liked.
[00:20:38] Alex Song: Here’s what we didn’t like. Here’s what, what didn’t go well,” and then we’ll put that out there, right, and hopefully have that act as a manual or as a guide, right, for other folks. So, I think we definitely strongly believe in leading by example, right, and building out in the open. The third thing I would say, going back to your question, is, to be honest, this is actually what I did, right,
[00:20:58] for the last, you know,10 or 11 years,
[00:21:00] worked as an investor, you develop conviction, gather information, develop a thesis, and then you just say yes
[00:21:06] or no, right? And so, I took a lot of my company, from my prior life and I took that with me to, to this experience, which is,
[00:21:13] I should treat this as
[00:21:16] Alex Song: investment committee, right? Because I have to make my case to the people I work for, right? Who do I work for? Shareholders, board of directors, blah, blah, blah, these people, right? And so, I should almost think of it as, do I convey my thesis to them in an effective way and make sure
[00:21:32] I check all the boxes,” right?
[00:21:33] So, I literally put together this thick investment memo, there’s a Q and A I did, here’s all the diligence I did, here are the materials I collected, right, here’s all the people I talk to. And going back to your point, it’s almost second nature to me because that’s literally what I did the last 11 years of my life,
[00:21:48] right? So, I think that
[00:21:50] actually transferred over pretty well. Look, my job is not to be an investor. That’s not my job, right?
[00:21:56] I mean, I’m here to run
[00:21:57] finance. I’m here to make sure we get the bills paid. I’m here to make sure our month-end closes and whatnot, but at least this one piece of it, it was a very nice kind of carry-over from my former life.
[00:22:09] A nice kind of beautiful melding of your two worlds as you’ve kind of transitioned to in-house finance. That’s really great. I love that Ramp and Mosaic very much aligned on what we think, kind of the future of finance looks like, always great to chat with people that are like-minded about that because it’s just been an underserved or underappreciated industry or kind of profession for a long time
[00:22:30] Joe Michalowski: and it’s great that there are companies like Ramp that are helping people surface those strategic capabilities. So, love to hear all that. That’s amazing and I was a little bit of a tangent. We got a little away from the crypto-talk for a minute, but I’m going to get back to that because I do want to know,
[00:22:45] so, it’s been, like, three months since you’ve wrote the article, but you said a year since you invested in Stablecoin, right? Like, you said, you were coming up on a year since
[00:22:53] Joe Michalowski: investing?
[00:22:53] Alex Song: Since
[00:22:54] we started working with the team
[00:22:56] Joe Michalowski: right. Gotcha. So, obviously, like we talked about some of the leadership conversations that went on, but now, like, you, you need to start reporting these investments on the balance sheet, you were talking earlier about being, like, a balance sheet-led sort of company.
[00:23:09] Are there any challenges in reporting as opposed to a more traditional balance sheet? Is it just another line on the balance sheet? Like, what does that look like operationally for your team?
Reporting Crypto on the Balance Sheet
[00:23:21] Alex Song: Great question. I’ll let you know how we get, how this all shakes out. We’re actually in the midst of our, a big four audit right now, so we’ve got
[00:23:28] folks literally poking through financial statements, looking at our, all of our reporting and a lot of this is going to get wrapped up over the course of the next month or so,
[00:23:35] so I will let you know how that
[00:23:37] Joe Michalowski: have to do a part
[00:23:38] Alex Song: Yeah, exactly. Thankfully, here’s what I will say. I think crypto is a little bit more of a known entity these days, right, than it was a few years ago, and so what that means is everything from legal to accounting, to outside consultancies and whatnot, there’s just a lot more expertise within the crypto space
[00:23:57] and so if you want to talk about, you know, just how do you account for crypto on the balance sheet, I mean, there’s a bunch of guys that we know who are pretty good at
[00:24:05] that and so, thankfully, we do have a repertoire of, you know, additional service providers and vendors who are able to help us out on, on stuff like this.
[00:24:14] Really in the-weeds question, maybe too in the weeds, I’m not sure, so just push back on me, but are there any, I know you said USDC was governed, but I don’t know if that means that there are unique regulations that you need to follow as a finance organization?
[00:24:27] Joe Michalowski: Is this, like, early adopter, is this a largely unregulated kind of side of finance? Is there anything they have to consider from a compliance regulatory standpoint that isn’t average for your
[00:24:39] usual balance
[00:24:40] sheet reporting?
[00:24:41] Alex Song: Definitely, the hurdle is pretty high for this sort of stuff.
[00:24:44] Alex Song: By the
[00:24:44] way, like, this is also why, you know, as nice as this is in terms of an allocation, going through the research process and diligence, you know, 95 plus percent of our balance sheet is still invested in traditional assets, right?
[00:24:57] Mutual funds, ETFs, bonds, investment-grade treasuries, whatever it is. So, this is a very small allocation and part of the reason absolutely is just regulatory clarity, right? So, I mean, the SCC, the Fed, all of these people have opined on Stablecoins in the past, but no one’s really come out and said, “Yes, this is good,”
[00:25:15] or, “No, this is definitely not good,” right? So, there’s definitely kind of a gray zone that this is still operating in. I’m hopeful though that I think the regulators will come out with a little bit more crystal, maybe clarity,
[00:25:29] in months or quarters or years
[00:25:31] and I think that would definitely help the industry along. So,
[00:25:34] example, right? I’ll give
[00:25:36] a couple of examples, no one will mistake this for a CD, right, or certificate of deposit. No, one’s going to mistake this for a savings account. There is no FDIC insurance on this
[00:25:45] sort of stuff and I want to make that clear, right?
[00:25:48] Anyone who’s looking at this as a substitute for a savings account, this is not the right place, right? Just to make that clear. So, you know, there’s definitely a whole host of things to consider because of that, right? So, do you put this side by side and do you compare it with the HSBC High Yield savings?
[00:26:05] No, totally different sentences, different conversation even,
[00:26:09] So, that’s one thing I want to be very clear is, you know, as much as I spoken to founders and CFOs and other corporate treasurers about this particular opportunity, one of the first things that you can never overstate the importance of this is that this is not, you know, your garden variety savings account
[00:26:28] and you want to make sure
[00:26:30] that you understand that, that you
[00:26:33] convey that to your
[00:26:33] stakeholders. The worst thing you can do is misrepresent, you know, what exactly you’re allocating to.
[00:26:40] Joe Michalowski: True. It makes total sense. I am looking forward to part two where we go into the audit results ’cause I know our co-founder, Joe, and I said you’re not into the crypto scene, my co-founder, Joe Garafalo, is much the crypto scene, so he was very excited to have this topic come on the podcast
[00:26:57] and so, uh, maybe I’ll drag him on part two and have him ask you some harder questions about how that balance sheet is looking at for now, I think it’s important to address, we talked about it earlier, but the reality is that Ramp has a lot more cash on-hand maybe the average, like, VC-backed company. You guys are doing amazing. Anyone who’s seen startup news knows Ramp, you guys are enormous and just closed, like, another round so I’d imagine that gives you more flexibility to take some of that cash and make this untraditional investment, but if we zoom out just a little bit, I know this is not an investment advice podcasts, not looking for that specifically, but when do you think it makes sense for a company to make this kind of investment?
[00:27:43] Is it about how much cash you have on hand? Is it about in our particular, like, level of maturity in the finance function? Like, how does another company go about making
[00:27:51] this decision?
When Does a Crytpo Investment Make Sense?
[00:27:52] Alex Song: That is a great question. In fact, there’s a, I would say, a rather large cohort of founders that I talk to that
[00:27:58] I’m like, “No, you shouldn’t even be thinking about this,” so you’re absolutely right. I think there’s a few heuristics that you want to use for something like this, is this
[00:28:06] strategic, right?
[00:28:07] Is this something that you can do that generates some intangible benefits? And for us, you know, as we discussed, it did, Right. Because
[00:28:13] Because it
[00:28:14] falls into kind of the whole ecosystem of being strategic, being impactful, in terms of being a good steward of your capital, right? So
[00:28:21] Alex Song: it definitely made sense. The heuristic, I would say is, let’s make sure that the impact is, is actually
[00:28:27] meaningful, right? So, in other words, let’s say you have a couple of million dollars of cash in your balance sheet and you allocate X percent Stablecoins and that you’re making roughly, I dunno, 6, 7, 8, 9% yield on, and you just do the math, right? What is the outcome of that incremental yield, and
[00:28:46] and is that worth your time, you know, going through months of diligence, doing all of this work and then ultimately that y, that winds up being a $30,000 decision, was that worth your time? I would argue that for most entrepreneurs it probably isn’t, right? I think you’re very, very busy building a company,
[00:29:02] Alex Song: right?
[00:29:02] Joe Michalowski: Yeah,
[00:29:02] Alex Song: And you should not be
[00:29:03] making, I would say, tactical decisions like that. Um, as that number swells, right, if you think about the math I just did, as that number goes up and if you think about the uplift in dollar yield, then all of a sudden you’re like, “Wait a minute, in a position where I can this much yield and that
[00:29:19] allows me to hire 10 extra engineers. Okay. Wait a minute. Maybe it becomes a little bit more impactful,” right?
[00:29:24] So, I think that’s probably one way of looking at it, which is just how impactful is this decision at the margin,
[00:29:32] right? If it’s letting you hire a
[00:29:33] whole team of engineers, all right, maybe,
[00:29:36] take some time and then think through it. Uh, and now the second methodology I would think about is a runway, right?
[00:29:42] Access cash in runway. So, I actually, over the last month access, over month and a half or so, I also published another blog piece about drafting the treasury policy,
[00:29:53] building an investment policy, tactical asset allocation
[00:29:56] and as part of that discussion I talked about the concept of liquidity management and runway, right? And I that if you had more than a year or maybe more than a few years access capital that you’re not going to burn through and you have quite a generous amount of runway,
[00:30:12] then what that means is you can probably be a little bit more flexible how you’re allocating capital, whether it’s mutual funds or ETFs or bonds or two-year bonds or five-year bonds, six-month bonds.
[00:30:24] So of flexibility, then you just want to be a little bit more nuanced, right,
[00:30:28] about capital allocation. And so for us, I think, for Ramp, we’re very, very lucky in that, you know, we have a multi-year kind of operating runway with how much cash we have and so what that means is also we can be a little bit more creative and a little bit more nimble with how we’re managing our cash.
[00:30:45] Joe Michalowski: Yeah, it makes total sense. I kind of expected that to be the answer to an extent, but we talked with, oh, and the way, so we’ve mentioned, like, two articles so far, I’ll, for anyone listening, I will make sure they are in the show notes, everybody should go check out what Alex says. Always nice to hear from people who are in the weeds doing the work every day,
[00:31:02] it’s the best kind of content, for sure. So, I’ll make sure that happens. But also had a, an episode recently we published with Brad Silicani, he’s the head of finance at Anrok and he a background in treasury from Dropbox. And so, talk to him about kind of the current market conditions and what people are kind of projecting for the year ahead and he
[00:31:20] Joe Michalowski: gave a lot of insight into how he thinks about investing, from like a treasury perspective and just interesting to kind of marry kind of what you’re saying to what he’s saying and of the main things that he kind of said, he said, “At the end of the day, like, you’re not getting paid to invest,”
[00:31:34] like you said, your job is not investment. Your job is to build a company and to be that steward of capital, so I think it makes total sense to kind of weigh the pros and cons here, like, is the result, like, good enough to actually make a difference in your business because that is your ultimate goal and kind of deciding where that line is for you and where it makes sense to make that investment,
[00:31:54] so I think that’s
[00:31:54] really great,
[00:31:55] Alex Song: you know, advice for people. That is so on-point. I mean, I recently went through one of these exercises where, uh, I sat down and I did a calendar audit of myself, like, what, literally, how it, my time is allocated at any given day,
[00:32:09] any given
[00:32:10] Joe Michalowski: Dangerous.
[00:32:11] Alex Song: Trust me. I mean the amount of time, thankfully, you know, the results are pretty much what I expected, but, yeah,
[00:32:17] I mean,
[00:32:17] you are definitely not hired, and you’re definitely not paid to be an investor. I mean, you
[00:32:22] are recruiting, you’re building, right, you’re setting up processes, you’re managing, right
[00:32:28] Alex Song: hopefully you, you’re working cross-functionally with other teams and so it’s almost embarrassing in the grand scheme of things how, how little time I’ve actually spent on corporate treasury specifically.
[00:32:40] Joe Michalowski: I think Ramp’s is doing just fine. Maybe ’embarrassing’ isn’t the right word, Alex, I think you’re, don’t be so hard on yourself. I think we can cut you some slack. I think you’re doing all right. So, just keep asking you, peppering you with questions all day, I want to get to sort of a bigger-picture lessons learned
[00:32:54] and the biggest question I have for you is really, like, I know it’s early days, like, this is going to take a while to really decide, like, how much this pays off for Ramp with the new round of funding with the new excess cash on hand, how have things gone to this point results-wise? Are you thinking about investing more in this space or was this, like, a fun experiment
[00:33:13] and it’s like, it’s worked out well, but there’s better places that we can spend our time?
[00:33:18] Alex Song: What I would say is that, you know, knock on wood, right, thus far, I think the partnership with Circle has been absolutely tremendous. I think both sides have benefited quite a bit. I mean, we saw an absolutely huge uplift in our corporate treasury yields. I think it’s, I actually wrote this right, in my blog post, which is we basically doubled our corporate treasury yield.
[00:33:39] Joe Michalowski: Yup.
[00:33:40] Alex Song: Which is like, an absurd thing to think about because it’s such a tiny allocation,
[00:33:44] but the impact literally is, is doubling of a multi-hundred-million-dollar investment portfolio. So, from that perspective, we’re obviously very happy. On the Circle side,
[00:33:53] I mean, same exact thing. I mean, we liked that we were early and hopefully they
[00:33:57] also appreciate that we are an early partner. What it means for us is that we almost had, you know, on-demand concierge, white-glove service, right? Whenever we wanted to
[00:34:06] see a new type of reporting, a new type of dashboarding, we’re very communicative, very open with the team at Circle
[00:34:13] and they’re almost, to a certain extent, they’re taking our feedback in real time and sort of building the tool around us, right, which is again, just, you know, something that you don’t really experience every day, so truly, truly appreciate it. And then, on the Ramp side specifically, I would say, I think this is going to be an absolutely massive market. I think particularly if there is more or incremental regulatory clarity, I think that this right now is a million or billion-dollar market, right, only early adopters, only very kind of the first few folks are doing it, but I could definitely see over some, you know, maybe medium to long-term
[00:34:53] this could be a multi-trillion-dollar market. I mean, just think about the Apple, the Google, the Microsoft’s out there sitting on hundreds of billions of cash. Again, if each of these folks only allocated 2%, 5% into this,
[00:35:07] then that’s a hundred X, right, on just how big this ecosystem could potentially get.
[00:35:12] And at the end of the day that’s also one of the key learnings that we had from this experience, is that, I think historically when you think crypto, you think, “Oh, like this is a very alternative thing and it’s very
[00:35:24] fringes of the financial ecosystem and there’s a lot of guys were just trading stuff. They’re day trading, they’re looking at charts and whatnot” I think our historical experience just over the last few months,
[00:35:36] Alex Song: with respect to our, some of our conversations that we’re having today with folks in the space, that the corporate scene is, could be huge. And by the way, the corporate treasury, I mean, that demographic and that ecosystem that looks very different, right?
[00:35:51] This is core to corporate America, conservative, very deliberate with how they make decisions I think if that community, you know, embraces this, I think that could really move the needle and kind of change the constitution of what the crypto community, you know, even looks like.
[00:36:10] Joe Michalowski: Yeah. And Ramp right at the forefront, which is not surprising the way you guys are building a business and just really cool to see your finance function use specifically, not just letting Ramp the company kind of lead the charge in industry, but, you know, applying that to the work that you do as well ’cause that, you know, it all funnels up,
[00:36:27] that’s why Ramp has leader too because every department is working that way. So, really cool, love to hear all that. I think we’ve done a pretty good job of going, uh, in the weeds, some, like, high-level thoughts on crypto on the balance sheet. Okay, Alex, I got one last question for you. It’s a question we ask everybody that comes on and it’s kind of zooming way out from our crypto on the balance sheet chat and just really want to know what’s one thing you know, now that maybe you wish you knew at the start of your career?
Finance Career Advice from Alex Song
[00:37:33] Alex Song: Yeah, I think one of the things, one of maybe many things that I can take away from my career so far, I’ve worked with A-team to the best of your abilities. And the A-team doesn’t just mean your boss or your coworkers or colleagues, it also means your partners, right,
[00:37:48] Alex Song: your partners and your vendors and folks that you work with even outside of your company and your immediate comfort zone. I think that’s something that I’ve been, that I’ve come to appreciate more and more, you know? When you have a highly motivated, highly driven, very ambitious team around you, it’s just so much easier to unblock certain things,
[00:38:07] right? And I can probably pinpoint to one historical experience there. Let’s set Ramp aside because I obviously, I think.
[00:38:14] Joe Michalowski: Great. We already know Ramp is great.
[00:38:15] Alex Song: I worked with only eight plus people. I mean, I think here on Ramp, it’s the perfect illustration of that. But even if you dial this back, maybe a, you know, seven or eight years, my second job out of school, I worked at Bain Capital
[00:38:27] in Boston, you know, large private equity fund, yeah, it was the John Hancock Tower, you know, I was in back day, and I have to say so much about just my work ethic and just even my kind of way of working with people, managing up, managing down, managing external relationships, right, I think it all stems back from, I think the personal professional credibility
[00:38:50] that I was kind of able to kind of learn and glean from my colleagues there, right? I think the folks there, first of all, it’s been seven or eight years since I’ve even worked there and why am I talking? But I think it was a very formative experience. I mean, really sharp, really smart guys, did well by others,
[00:39:05] Everyone was extremely kind, very nice, extremely driven and it really rubbed off on everyone who was there. I, I don’t know a single person that I’ve ever worked with at Bain Capital who, you know, since leaving or who, who’ve stayed, who didn’t have fond memories, who’ve stayed, who didn’t have fond memories of working there. That’s one thing that I hope to emulate here at Ramp. Love that. I think it’s something you don’t realize until you’ve been on one of those teams, like, you don’t think it’s going to be that formative until you get there. I’ve had a similar experience with the team, and you just got to think you’re going to go along in your career and it’s kind of all internal, it’s, “What can I learn and what can I, who can I learn from?”
[00:39:42] But no, I, I feel that completely in, in my line of work as well, just, the people you work with really matter and I think that’s great advice for anybody who’s…
[00:39:50] Alex Song: And the best signaling mechanism is the alumni. If the alumni thinks highly of the place and thinks highly of their ex coworkers, that’s a dream come true.
[00:40:00] Joe Michalowski: No doubt. Hopefully Ramp is on that path for everyone being like that. Hopefully we can do that at Mosaic as well. I think it’s a good goal to have outside of building the company and all that, it’s a nice way to think about things.
[00:40:10] Alex Song: Yeah.
[00:40:11] Joe Michalowski: Love that answer. It’s a unique one. I haven’t heard that one before,
[00:40:14] at least not in that sort of context. This is great. But I just want to kind of wrap things up by saying thank you so much for being here. It’s been great to chat with you, to learn about crypto in the balance sheet, to learn about your career and everything like that, but this is your time to shine, Alex. Where can people go to learn more about you to learn more about the work you’re doing at Ramp,
[00:40:32] Joe Michalowski: anything like that?
[00:40:33] Alex Song: I mean, before I even do that, I mean, I just want to say you guys also are a great example, right, of, of picking the right partners and working with A-team. I know that, um, myself and as well as my FPA and strategic finance team have really enjoyed the partnership with the Mosaic team,
[00:40:48] right? I mean, look, we all have the same North Star, right? Be strategic, automate a way the riffraff, automate away the busy work and make sure we’re creating time to be impactful, right? And you guys are a great example of that as well. I think, on behalf of the rest of my team as well, we deeply appreciate the partnership.
[00:41:05] We don’t take it for granted for sure, for a fact. So, really appreciate your having me on the podcast as well. But, um, yeah, I mean, you can find us on Ramp.com. It’s pretty easy to find us. You can follow us on Twitter, we’re @tryramp and yeah, we’re generally pretty accessible.
[00:41:21] We try to, big story of 2022 is just try to build brand awareness, right, and try to get, getting more companies out there, get our foot in the door and try to build out our customer base.
[00:41:32] Joe Michalowski: Nice. Well, very much appreciate the kind words. I’m going to relay them to the team. I think you might make our co-founder shed a tear or two. He loves hearing these kinds of things. So, just wanted to say thank you again for taking the time, it’s been good, and I will come back to you for part two when that audit is done,
[00:41:47] but it was great having you on The Role Forward and I hope we get to do it again soon.
[00:41:50] Alex Song: That sounds great. Thank you so
[00:41:52] Joe Michalowski: Thanks, Alex.
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