How Rain Grew To A $2B Company | Charles Yoo-Naut

I was looking on Twitter, someone said like 1% of US dollars are now stable coins. So that's still like 100x growth is still possible from where we are now.

And I would say there's probably in terms of actual users even more probably a 1,000 10,000x growth that is going to come from here. So more and more of the financial system is going to become tokenized. That's inevitable to and we're just here to help empower that.

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed.

All right, everyone. Welcome back to Empire. Really excited about this one. We've got Charles Unout who's one of the co-founders, CTO of Rain. You have probably heard about Rain indirectly.

Rob has been mentioning them a lot. A couple weeks ago Rob said, "Look, there's one of our port codes. They're growing like crazy. They've grown like 80x in the last 12 to 18 months." Well, that is Rain.

So I wanted to I don't actually know that much about Rain. I know you guys do stuff in the stable coin space. You just raised 250 million at a $1.95 billion dollar valuation. You started only four four and a half years ago.

Anyways, Charles, welcome to the show. I've got a million questions for you. I'm excited about this.

Yeah, thank you for having me. Yeah, very excited.

Okay, I think my first one, and I don't mean this in an offensive way at all, is you know, you raised 250 million at a $1.95 billion valuation. And like the headline for Rain is like stable coin parts. Why is that a thing to go raise? Why is that such a big, you know, why is that a $2 billion company? Why why do you have to raise $250 million for that?

Yeah, I mean if you think about RAIN broadly, what we're building is stable coin infrastructure to allow any company to allow stable coin embed stable coinbased financial products inside of their application.

So we partner empower over 200 customers right now. So we power etherfy cards, cast avalanche, we announced the western union pro partnership. And stable coin back cards is probably one of our most popular products.

But globally we're seeing this transition where more volume is moving to stable coin and digital assets and tokenized money broadly. And it's really about the infrastructure that's going to power the future of payments.

We feel like the blockchain is our best chance of upgrading the global financial rails and and we're helping to do that.

Nice.

So it's B2B.

Yeah.

Okay. B2B TOC, B2B to B. So, we're empowering other customers to empower their end users.

Yeah. Okay. Who how did you guys go about getting Well, maybe I I want to talk about the founding story a little bit. I think I had heard that you went through on deck. I know Eric Turnberg very well.

So, yeah. Yeah. So, I was on deck 7, Farooq was on deck 2. We met on deck.

For people who don't know, it's like an accelerator.

Yeah. It's like basically like for it's like a pre-acelerator. Meet your founders. Yeah. As for founders that are on deck, you know, you're waiting to do your next thing, trying to figure things out.

So, it's a lot of people that are ambitious, entrepreneurial, they not they're not quite sure what they're going to work on, but it's a great way to network, meet other founders, bounce ideas back and forth.

And we met and I met like 5 years ago through the Slack and and this was early 2021, so you know, still pretty deep into COVID. A lot not a lot of inerson stuff happening.

And on deck had this giant Slack community, thousands of founders, people starting things. And then Fruit just slid into my DMs when I finished on deck and he was winding down his last startup.

And he liked that my background like I sold my last startup to it and I worked at Quickbooks as a principal engineer. So he kind of liked that small business background. He was interested in ideas in the small business space.

And we just kind of jammed on on different ideas. He's a domain hoarder, so he has dozens of domains and and we were trying to do something with one of his domains, which is called signinwire.com.

And the idea was we both had been on both sides of the table as as angel investors and as founders and just the friction with sending you know a check to an inves founder to fund raise for them.

And we just wanted to make a simple site that you could go as a founder, generate all the documents that you need to to, um, raise your seed round and also send one link to an investor where they can sign the documents and wire the money all in in one single place.

And then through that experience and trying to build on top of traditional rails, like we were building the initial MVP on top of AC and there was like a hop in the middle. So it could be five plus days before the founder actually had the money in their bank account and could use it to grow the business.

And then just getting access to AC Rails and and being able to move money was really difficult. You'd have to find a banking partner, sign a big contract with them. It would take months to actually do it.

So going through that process, beta testing it with our friends that were fundraising, we got really frustrated and felt like this is 2021, there should be like better options out there.

And that's when we first started dabbling in in stable coins. Like we had both played around with it a little bit, but this this one use case of investing just seemed like a really perfect use case where you could invest in a founder anywhere in the world and have it settle in seconds for a fraction of a penny.

And it's you don't have to worry about fat fingering the routing number or AC. You can it's traceable. You know when it gets there, you can confirm it. So we introduced that and that was like one of the aha moments that we had.

Well, our first angel investor was actually Bali, the ex CTO of Coinbase. He was writing this article on on mirror tables. So, mirroring cap tables onchain and then he had seen what we had done with signin wire.

Yeah. So, he like mentioned sign wire in that in that paper and part of his research he wanted to invest in signin wire and like use the product. So, he DM'd me like Christmas eve and I think Christmas Eve 2021 was on like a Thursday or Friday.

So like traditional banks were closed then the weekend the banks were going to be closed on like Monday. So I we wouldn't have gotten the funds if he used like a until like Wednesday or Thursday but instead he used sign and wire he sent us we had it in our wallet like just like few minutes after.

Like we did you pick him or did he pick come to you?

He just he just slid he also slid into yeah a lot of rains are just people sliding into my DM then offering me opportunities but yeah he just slid in he's like I heard about S and wire I'm writing this piece like can I invest can I use the product?

So that was like another aha moment where we were like okay this is like actually a 100x better experience than we've had before as founders like this is actually like a huge improvement to traditional rails and that just gave us conviction on going all in into building something in the space before like it was just a side project we were doing for fun as a benefit to to you know the community.

So that's when we really started focusing on on that problem. And one thing that became clear is actually as we talked to more founders who were raising in in stable coins or in in crypto or had large amounts of crypto was actually that part is easy.

The the hard part was that they couldn't really spend the assets that they had especially in in that time like a lot of cryptonnative businesses whether you're a DAO or you're a chain or you're a fund they were underbanked especially they had to move offshore.

They had to deal with like off-ramping all of these complex operations of holding onchain funds and off-chain funds. So it was just really difficult to spend their onchain assets and we realized okay that's a huge opportunity.

That's one of the bottlenecks of actually adopting stable coins is the yach lack of utility and usability of it. If I send it to my mom she's it's just like a nice souvenir, right? There's not a lot of things she could actually do with it in her day-to-day life.

And that's when we decided to focus on that spending problem. And it was clear to us if we wanted to focus on spending, the best way to do that was to leverage the existing networks.

Like instead of going doortodoor and trying to get merchants to accept stable coins, if we can figure out a way to make stable coins spendable on a Visa card, you instantly unlock hundreds of millions of merchants globally and have them accept stable coins without even noticing it.

So that was like the original thing that we focused on with Rain.

Why did you how did you figure out Okay. So once you once you decided you wanted to build in stable coins how did you figure out which part of the stack to approach right because you guys could have said let's go build an issuing bank maybe like a cross river you could have said let's go build I forget what how what's it called a program manager or something like a like a bridge you could have said let's go take on or tether let's build our own stable coin let's maybe attack the payment networks how did you decide where to play there?

Yeah so it's changed over time right initially you guys started as a card for Dow yeah that was like the you know pitch.

Yeah, that was a quick pitch, right? And we started as a B2B product just selling to cryptonnative businesses and like the the pitch was like credit cards for Dows because those were the early adopters of stable coins.

If you go back to 2021, there was there wasn't a ton of people using stable coins. It was like Dows and there was like people in emerging markets that were starting to to use stable coins and of course there was a lot of trading use cases.

But we we just built a pro a product that solved a hair on fire problem for a very niche group of people. There weren't a lot of people in Dows or or in these funds. But to them that problem was very severe.

And when we told them hey we're building this you know ramp for crypto or we're building this neo bank on chain they were like I'll take that right away. And even if the product wasn't that good in the beginning, they just like loved it because it solved a really big problem.

Do you remember who your first couple customers were?

Cabin Dow was like one of our first ones. Like Party Dow was was very early on. Those were like two of our our first customers that we were like super excited about.

We just found them on Twitter. We like saw people complaining about this problem and like reached out to them. Hey, like we're working.

It was that they had stable coins. They couldn't spend the stable coins.

Yeah, exactly. and like it was difficult for them to open up a bank account. In the US especially if you had anything in crypto on your website no bank would would would even open an account for you.

So those were like some of our our earliest customers and they gave us a lot of great feedback and we really iterated on that.

But through that process we just went deeper and deeper down the stack where a lot of our customers were outside the US. So we had to figure out how do you issue to people in like Cayman Islands and British Virgin Islands and all of these places that these Dows and and because of the the administration and the regulation around crypto in the US had to move offshore.

So we've had to figure out how do we issue to all of these different places pretty early on just to solve the problem our customers had. And through that we had to figure out okay how do we settle with the networks onchain using stable coins because now we have all this stable coins and they're expecting fiat.

So how do we actually do that? We had to build our own onchain settlement. We had to build our own smart contracts to to actually be able to settle with. We had to build our own compliance program.

We had to get our own membership with Visa to actually do a lot of this stuff. So just by trying to solve that problem for that initial group of people, we ended up building a lot of infrastructure that became really valuable for other use cases as well.

Yeah. I I heard uh I forget if it was you or F talking about on deck and one of the things you guys mentioned was yeah, we didn't even really want to build something that big. We were just kind of messing around.

And then you know party Dow like cabin these are not huge customers right?

Yeah. Was there a moment in time in the last four cuz now fast forward today you just raised this big series C raised 250 million. Was there a moment in time that you can think of where you're like oh this is this is way bigger than we ever thought it could be. This is a company that will eventually go public and be tens of billions of dollars. Was there a moment in time?

Well, I think initially we definitely didn't set up to build a big company, but when we actually decided to start rain and raise our seed round, like we were had conviction in the space that hey, this is going to be a huge this is going to be a huge space one day.

Maybe it's really small right now and maybe there's just glimpses of it, but that's actually the perfect time to start is when no one's paying attention to it. Everyone's kind of underlooking it or just sees all the risk. We're like, this is actually great. let's just like build in this space and become the leaders and then just slowly grow the TAM over time.

So really early on we had hopes that it would be really big. But I would say two years ago is when we started making the transition to become more of like this infrastructure provider and powering other companies to launch programs on on top of our infrastructure.

And that's when things took off more. Like we were always growing steadily month over month, but once we launched our infrastructure and our APIs is when we really started to see like rapid growth.

So I would say like two years ago is when that it was still small like off of big numbers but where we could see the growth you know we we could see like no limits to the growth at that point.

Yeah. What's your I I'm not sure how much you can share but what's your revenue roughly like are you guys doing 100 million top yet?

Around there. Yeah. 100. Okay. And what is the revenue is it a what's the revenue come from?

So a a few things. one is is big portion of it is from interchange which is basically the fee that merchants pay the networks for accepting a card on on there. So like if you're using Visa card the merchant will pay Visa 2.5%.

And then Visa shares most of that with issuer which is us and then we share that with our our partners as like a rev share for issuing cards through us. So Etherfi who's does Etherfy you guys?

Yeah. Okay. So Ether has these cards. The merchant, someone uses their EtherFi card, they spend hundred bucks. So $2 and a half dollars goes to Visa.

Visa then passes a large portion of that back to you to you guys. So it's like of the 250, it's like 240 gets passed to you and then you do a rev share with Etherfy. So maybe you take 120, they get 120.

I guess what a lot of people don't realize is interchange is actually like in reverse where the the customer would pay us back $100. Let's say there's $100 purchase. customer pays us back $100, then we take our share.

So, let's say we get like $2 of that. So, then we give $98 to Visa, then Visa will give it will take their share and then the merchant only gets back like $97.50.

Oh, I see. Okay. Yeah. Because we're get we're in the settlement flow. So, we're we're the ones who are moving the money from like the customer to and then eventually it gets to the merchant.

So, and then so that that comes to us. So, that's a big portion of our revenue. We charge SAS fees for for our customers to be on the platform for managing it and then there's a lot of SAS fees like big enterprise SAS fees or like small scales.

So we have like three tiers per card or per se or something like that.

Depends. So there's like usage fees that are per KYC per card per transaction and then there's just monthly recurring fees and we have three main tiers.

So we support you know really small startups and then we support big enterprises and those contracts look very different based on their needs.

What is the I like to try to understand a business by trying to figure out what is the leverage point or the negotiating point that your sales team might use in a in a contra in a deal?

Yeah. So when I think about like this etherf example one negotiating point could be how much of how much of the revenue do you actually share with them? Is that a point that?

Yeah, that's definely a point. And then we usually, you know, we'll like raise like minimums if like, okay, like we'll give you more, but you have to commit to more. You have to, you know, this is going to be like your minimum payment per month. So that's like definitely one one leverage point. Interesting.

Okay. Let's a big part of your guys' story is this partnership with Visa. I asked a bunch of your your investors before this. I was like, "Oh, what should I talk to uh Charles about?" And they're like, "You got to talk to them about the Visa story."

So what is this? What is it? You guys are a partner of Visa.

We're a principal. We're a principal member of Visa. Okay. Principal me. So what I understand from this is this is a very hard thing to get.

We've got direct settlement, direct product development with them, a lot of direct control. And the thing that I didn't realize until prepping for this episode was that that's an extremely hard thing to get for a company that's four years old.

So how did this how did you get this?

Yeah, it's a lot of perseverance and luck and and just ingenuity, right? Knowing I think sometimes one we started a long time ago. We started four years ago. So it took a long time to get it and we didn't have it four years ago. We we've got it, you know, over like maybe a year and a half ago to close to two years ago.

So it it took a lot of the company's life just to to build the relationship to the point where where we got it. And then two is you know I would give credit to Visa that they've been pretty aggressive in their crypto partnerships like right you know working the Visa crypto team being part of their stablecoin settlement pilot like they have wanted to figure out what what role does Visa play in this future world of of digital assets and and stable coins so they have been very supportive of us.

But we've also been just really persevere in in figuring out how we how we could get this and you know what regions we can get it, what licenses we needed. Cuz Visa doesn't give you a hand a guide book of like, hey, here's what you have to do and like go do it and you'll have it. You have to kind of drive the process yourself.

So yeah, what's the real story of how you got it? Like did you you know get drinks with Kai or something like what's?

No, I mean not not with Kai. You have to figure out it's really like networking like Visa is a huge right. There's a lot of different parts of Visa. You know Visa crypto team is is one team but there's like different regional teams. There's global teams. there's like a fintech team.

So you have to really navigate the behemoth that is visa and like pull the right press the right buttons in the right order. So it's a lot of just like you know meeting people visa understanding how visa works like getting advice from people who've gone through like similar processes before and yeah it it took a it took a while.

So okay so you get this thing uh when did you get it?

I think we got it in uh early 2024. Got it. Okay. What and what's it called? You're you're a principal principal member.

So it's similar in the US like banks mostly just banks are like JP Morgan is a principal member.

Exactly. Yeah. And then they'll you know if you look at the the Chase card or like a lot of cards um will have a bank sponsoring but in in our world like we're basically equivalent of a bank uh as a principal member without being a bank. So a non-bank um principal member.

What is the unique thing that this gives you?

It allows you to settle directly back to Visa. Yeah, we settled directly with Visa which allowed us to be part of the stable coin pilot because we control the settlement.

And then too like we are the we own the bins. So these are our bins like we're on the hook for compliance for AML for sanction checks. Um, and you know we built the whole program from the ground up to be stable coordinated and everything kind of works uh in unison with each other. the settlement, the compliance, everything kind of it's like you can't have one piece without the other.

You kind of needed all these pieces together to really build a coherent product uh for customers. Like if you just had the principal membership, but you didn't have the onchain infrastructure, the principal membership is more limited, right? Because we're not a deposit taking institution. You know, we don't have like access to banking rails.

But since we have the principal membership and we have onchain infrastructure and we have like this robust compliance program like all these pieces together allows us to offer this product in a way that's resonating with with our customers.

Got it. Okay. So you Huh. Okay. So you can directly settle to Visa. You've got the you're like the lender of record. You've got the BIN sponsorship. So you're basically collapsing the card the stable coin stable coin. What do you call it? Issuance or infrastructure stack.

Just not even the regular fintech is like we think the existing card. Exactly. We're some of our customers, their end users don't even know stable coins are powering the program. The stable coins are doing all the settlement, but the end user is just paying with fiat to their uh to the card issuer and then we're dealing with the stable coin settlement piece.

So, we feel like this is collapsing not just the stable coin issuing stack, but just fintech issuing stack in general.

Why um why doesn't someone just go to Visa for this? Or why doesn't Visa just have I'm I'm sure they do. Do they not have a product where etherfi could just go to Visa?

No, I mean Visa works with through principal members. Oh okay. So they don't issue they don't issue directly. Okay. So they have principal member. Okay.

Who are the biggest principal members pre-stablecoin world pre pre-crypto. Who are the biggest principal members?

A lot of the big banks in the US. So like the built card for example Wells Fargo used to be the the bank for that card. So Wells Fargo has membership with Visa uh with Mastercard in that case. and then built was issued on top of of Wells Fargo.

And then you know Chase is a is a giant like bank a big principal member. They have the Chase Sapphire Reserve card. They have a bunch of products on Visa as well. And then there's there's uh banks that are more I would say fintech or or crypto friendly like there's Lee Bank, Prosper Bank.

These are these are pos popular principal members for fintech startups and for crypto startups to work with because they understand how stable coins work. They'll settle with you in stable coins potentially. They understand your use case. They understand the risk. So they have catered to that market more.

Yeah. So if I think about the stack, there's like the the program managers and then the issuing banks and then I guess payment networks at the top and then at the bottom it'd be like the the card issuers. Yeah. You you guys collapse the middle two things, right? The issue. So you are the issuing bank and the program manager. And the program manager.

So you how do you think about competing with I it's a it's like a hyper competitive especially I feel like uh the the three things that boomed it was like at least the two stable coins and prediction markets maybe the third would be pers yeah those are like the three big narratives and themes of last year how do you compete in such a yeah you're competing with bridge but you're also competing with cross river and you're also competing against nosis pay and lead bank like how do you think about competition?

It's a fintech is a competitive space but it's also a massive space right there's There's room for a lot of players is is how I I like to think about it. There's hundreds of banks in the US that are all competing with each other and there's hundreds of fintech apps. There's mil, you know, billions of people in the world. I don't think anyone's going to own the space completely.

You know, we're trying to be as successful as possible. I think there's some advantages we have against the people that are competing with us. Especially, you know, the fact that we collapse the stack means that there's more for us to share with our customers.

Like we have more leverage and we can give back to our customers and they can use that to incentivize their customers to spend and grow. So just the fact that we're more efficient, we have more control of the program. I think that's a big differentiator, an advantage for us versus some of our competitors.

But I mean, everyone, they also have their own advantages that we all have. Yeah. Um, can you tell me what's broken with the current system? Like if I look at Visa, they can settle what is it 65,000 transactions a second. Yeah. What what's what's wrong with that? What's broken?

I mean, Visa's done a lot of things right. I think people don't like people are always trying to figure out like how to but there's a lot of things that people take for granted with the card networks like disputes, chargebacks, like those those are really beneficial things that you don't get with a wallet to wallet stable coin payment.

But I would say one thing that's common is like on the merchant side, merchants are are really upset about how much they have to pay with with interchange. There's there's constant litigation to to bring that down. In certain countries and and regions, there's like capped interchange limits.

So people always come after interchange, you know, your your margin is like my opportunity is the famous quote. So that's a big fat margin that that people are trying to trying to tick at. And then for us like where we seeing a lot of adoption is a lot of emerging market use cases where stable coins are are expanding right and we're just we're not doing anything different than Visa is we're just allow getting more Visa cards into more people's hands.

Yeah. Um but I would say like if you were to think about what the future would be is like how do you uh probably I would say interchange is going to get compressed uh over time.

Do you think interchange fees will come down?

Yeah. By how much?

I I don't know. It's uh it's hard to say. There's a there's an argument to be made that it will stay the same, but merchants will just get paid faster. Like right now, there's merchant cash advance.

You actually merchants will pay interest to get paid faster, right? Instead of getting paid, you know, T+1 or T+2, they want to get paid now. So, because they'll have cash flow that that will definitely go away. That will go away, right? And like they might pay a premium for that because they're already paying so much money for that.

So, if you can just keep interchange the same, just tell merchants, hey, I'm going to put money in your pocket faster so you can grow your business and have less capital constraints, like they might be happier just paying that 3% 2.7%.

If you're if you're a company, so like Blockworks uses ramp. Yeah. Right. Should we not be using ramp and should we be like event are you competing with ramp eventually?

I think ramp will eventually move to stable coin rails. I And you will be the person that ramp uses for Yeah. Yeah, I think that the way we see it, I feel like there's very few existing money movement flows that wouldn't be faster, cheaper to happen in stable coins.

And to the end user, like you shouldn't have to change what you're used to. You shouldn't have to switch to a new card or like you know instead of you know tapping your your phone, you have to like scan a QR code and download another app, right? Like yeah, it's a pain and and changing consumer habits is so difficult.

Like we think that a lot of the upgrade especially in the next few years is going to happen under the surface. It's like how do you actually upgrade things but keep everything the same? Especially for most consumers in the US they'll tell you that yeah things are pretty good.

Yeah, I can pay for my cup of coffee and just by just tapping my phone I can Venmo my friend money. Like there's not work pretty damn well in the US. Payments work pretty damn well but under the hood there's you know for every dollar you're sending there's like $3 that are like preunded somewhere. like there's a lot of inefficiencies that you can improve with stable coins and that just means that there's more savings.

There's more more rewards that you can offer. There's you know if we can just cut a lot of the inefficiencies out yeah then consumers benefit.

Who's ramp's principal member ramp?

I actually forget who who ramp uses. I don't want to say that wrong but it's it's one of these like fintech focused okay like a cross river or a league one of these. It's like a smaller like smaller bank in like the Midwest or something.

So if you go to RAM, you're you're sitting down with Eric, you know, you're like, "Have you met Have you had conversations with them?"

I've had I I talked to Eric before he started Stripe a long time. Like when he was at Parabus. Oh, yeah. Yeah. What What's your pitch to them?

Well, one, you can go out expand ramp in more markets. So right now, Ramp is mostly like a US based uh you know, B2B card, but there's businesses all over the globe. And you know, we have more of a global footprint. You know, we can issue cards across a lot of Latin America. We're expanding to to other regions pretty aggressively.

So, take your existing stack and we can help you issue cards globally. So, that that's a a big benefit. Because with our infrastructure, the actual money movement scales globally. like we don't have to go and find a new bank in like another country to actually settle with which is like a traditional card issuing model is okay you have your principal number to the US but that only is going to allow you to issue into the US then for each other market you're going to have to find like a similar bank partner to work with and settle in their local currency and um so it really makes it difficult to expand rapidly into other markets versus with us we can get you live in a lot of countries all at once so going global um two is the cost of capital comes down.

Like for us with stablecoin settlement, a traditional issuer has to hold like four days of reserve uh as collateral with the card network to handle long weekend settlement. So let's say you know there was yesterday was Martin Luther King's day so banks were closed. Um so the traditional model the visa wouldn't settle until Tuesday with the car.

So, they want to make sure that come Tuesday, uh, you know, RAIN is has the money to settle with them. They're not short 3 days worth of spending because they're authorizing transactions 24/7 even though settlement only happens during banking hours, right?

So, traditionally, we would have to park 4 days worth of uh spending as