The following interview is a conversation we had with Colin Luce, CEO & Co-Founder of Basis Theory, on our podcast Category Visionaries. You can view the full episode here: $20 Million Raised to Build the Future of Payments Tokenization
Brett
Welcome to Category Visionaries, the show dedicated to exploring exciting visions for the future from the founders who are on the front lines building it. In each episode, we’ll speak with a visionary Founder who’s building a new category or reimagining an existing one. We’ll learn about the problem they solve, how their technology works, and unpack their vision for the future. I’m your host, Brett Stapper, CEO of Front Lines Media. Now let’s dive right in today’s episode.
Brett
Hey everyone, and welcome back to Category Visionaries. Today we’re speaking with Colin Luce and Co-Founder of Basis Theory, a payments platform that’s raised over 20 million in funding. Colin, welcome to the show.
Colin Luce
Thank you. Game on.
Brett
Super excited to dive in here. Let’s go ahead and talk about what you’re building. Tell us more about Basis Theory and everything that you’re doing there.
Colin Luce
Yeah, so at the highest level, Basis Theory is a tokenization platform. We, or I guess at least myself and my co-founders, all come from the payments and fintech world more broadly. And tokenization is a technology that’s been around for a while. And I should clarify when I say tokenization, it’s not blockchain digital asset tokenization. It is encryption data security tokenization, but it’s a technology that historically has always been buried inside or coupled with a broader payment processing platform. And I think what we saw and continue to see is this unbundling of various products and services from large financial institutions. It’s really the tailwind behind the past decade plus of the fintech revolution. And as that unbundling continues to occur, there is a increased need for data security, for compliance, for customized user interfaces, for unique customer experiences.
Colin Luce
And a lot of that boils down to sharing of sensitive data. And tokenization, for all intents and purposes, is a perfect technology to abstract away those complexities and really put the tools in the developer’s hands without them having to go become data security or compliance experts. And so tokenization as a service is kind of the highest level bit here.
Brett
When you said tokenization, you scared me there. I was going to have to kill our podcast producer. I was like, did we get an ICO guy on this podcast? How is this possible? So appreciate you clarifying there.
Colin Luce
Yeah, yeah. No, those blockchain people stole it from us.
Brett
Why fintech? Sounds like you’ve dedicated your career to fintech. Why?
Colin Luce
Dumb luck is the honest answer. I mean, I could give you a revisionist history story and tell you it was all intentional. And I saw this all coming but the honest answer is dumb luck. I grew up in South Dakota. I did my undergraduate studies in Richmond, Virginia, and post graduation, didn’t want to go back to South Dakota, didn’t want to go to New York and do the Wall street thing. And so I decided to come out to San Francisco on a whim. This was 2008, which, if you recall, was not exactly a robust job market. So I came out here and stumbled into a commercial real estate job where I was wearing a suit and tie every day and cold calling CFO’s trying to sell them office space in the worst recession of the past 2030 years.
Colin Luce
And, well, it was a great learning exercise. It was not how I wanted to spend the rest of my life. And ended up getting a job at a company called Yodlee, which, for those who aren’t familiar with Washington, kind of a plaid v one back in the day. And they were at the forefront of this fintech revolution. And so it was just, again, very fortuitous timing to end up there and get the opportunity to meet with and engage with all of these various founders in kind of this novel fintech space.
Brett
What about your time at Klarna? Anyone listening in has heard of Klarna and knows about Klarna. You were pretty early there, so you joined there in 2014. What was that like at that point?
Colin Luce
Yeah, it was pretty wild. You know, back then it was a swedish invoicing company. This whole buy now, pay later craze didn’t exist. I knew that Michael Moritz and the team at Sequoia were investors, and my strategy then was follow the best investors to the companies they were investing in. And so they obviously saw something. And I had heard rumblings that they were thinking about entering the US market. So I kind of navigated my way in there and, yeah, to your point, ended up joining right around the timing of the Yodlee ipos. It was good timing in that I was ready to leave Yodlee. Klarna was looking for, you know, an early team to build out here in the US. And I flew over to Stockholm, met with the team, and signed on right away.
Colin Luce
The downside of the timing was my now oldest son was, I think, eight weeks old when I started, and I was splitting my time between San Francisco, Stockholm, New York, and Columbus, Ohio. So it was a strain on the family, but it was an awesome experience. And, you know, look, I. Probably not the time now, but I think we made a lot of mistakes entering the us market as a swedish company. Learned a lot. But I think Klarna’s about as well positioned now as they ever have been, which is pretty cool to see.
Brett
Was it obvious back then that they were going to become the giant that they became today?
Colin Luce
Definitely not. Definitely not. And look, frankly, I’ll give Max and his team at a firm a ton of credit. I’ll give the folks at afterpay a ton of credit. I think they helped show us how to enter the us market in a lot of ways. I think it was obvious to me that certainly in northern Europe and probably more broadly throughout Europe, that Klarna was going to be a big thing. It was not obvious to me that they would be in the US. It became more obvious to me as soon as I started talking to merchants and platforms here and better understanding the needs of their payments stack. But no, it was not super obvious.
Brett
We talked a bit there about what Basis Theory does. Let’s talk a little bit more about the actual founding of the company. And that aha moment you had. What was it about this problem, this company that made you say, yep, thats it, lets go build?
Colin Luce
Yeah, I think at the time I was working at a company called Figure, founded by Mike Cagney, who previously founded Sofi. And were building multiple different concurrent businesses at the same time. And one of those was a going back to how we started this conversation about blockchain, a blockchain native neo bank. And we had some ideas about how we could help merchants reduce their cost of acceptance and minimize interchange. And so I started engaging with some of these large merchants who, you know, I knew from my Klarna days.
Colin Luce
And it just kind of all came full circle to me in that the number one thing I continued to hear from these merchants, especially on the strategy and innovation side, was this like nebulous concept of how can we reduce our cost of acceptance, how can we lower our interchange, how can we move payments from being a cost center to a competitive advantage? And yet despite that always being a top one, two or three priority, they kind of always just ended up throwing their hands in the air and saying, well, it doesn’t seem like we have a lot of options were locked into this ecosystem and I just felt like there was a big opportunity to come in and mix things up, break down barriers.
Colin Luce
I mean, I don’t want to go on a tangent about free markets and such too much here, but anytime there’s a technology being used as a lock in mechanism, I think there’s an opportunity to look at that and expose it externally in a way where you shift the power away from the perverse incentives of whoever’s using that technology for lock in and put the power back in the hands of the folks that are really driving and creating value, which for a lot of these cases is the merchants and the platforms. They’re the ones spending the money to go acquire these customers. They’re the ones investing in R and D, to develop shoes made out of sheep wool and all these crazy things. And I just felt like they should be the ones with the power to decide how they thought about payments.
Brett
Robert, how long from when you founded the company until you had your first paying customer?
Colin Luce
Oh man, it was a long time, right? It was probably 16 months after we founded the company. This was a very intensive build. We had to hire security experts, compliance experts, we had to go get PCI compliant SoC, two compliant ISO, all these various requirements. I mean, we had to invest in things that no early stage startup ever should. It’s why we had to raise as much capital early on as we did. And so I think we partly knew what were in for. I think if we knew in earnest exactly what were signing up for, I don’t know if we would have done it. But we knew it was going to be a log slog. I think we had investors, fortunately, who have seen this before and were very patient with us.
Colin Luce
But yeah, it was a long, intensive build, but I think that it was super rewarding too. I mean there wasnt a ton of pressure early on. It gave us the latitude to think very wide and broad about building the platform. Im sure well get into it at some point here in this conversation. But I think the trade offs between building a horizontal platform versus vertical platform are real and we certainly saw some of those challenges, but I think were in a better place today because of it.
Brett
Tell us more about that decision making. When you’re making that decision of horizontal or vertical, what was going on there and how do you lead to a decision or what led to a decision.
Colin Luce
I should say, yeah, I mean look, again, I give my investors a ton of credit. I hired a president very early on, Casey Clegg, who came from Pubnub, and before that, Twilio. He was actually my boss at Yodlee as well back in the day. And so he had a ton of experience with these API first companies. So I give all of them a ton of credit in helping shepherd me towards this. But I think as an early stage Founder, particularly in the 2020, 2021 period, I had stars in my eyes looking at, oh my gosh, there’s this massive opportunity ahead of me and if I can build this horizontal platform, it’s going to be worth tens of billions of dollars. And think about all of the use cases and problem sets and opportunities we can address. And you get caught up in that.
Colin Luce
And I’m not a historian on Silicon Valley the way a lot of folks are, but I can’t imagine there’s been many platforms that didn’t start with some sort of vertical focus, right? I mean, I think rippling today is a good example of a multi product company, but there’s just not that many Parker Conrads out there or folks who can build that. But I think these are important lessons to learn as a Founder as opposed to be told. But I was like, let’s just go build a horizontal platform from day one. And again, that sounds all fine and dandy until you start thinking about product marketing. Go to market motion, bottom up versus top down.
Colin Luce
The challenge has become real and I think with a lack of focus, its nearly impossible to drive any sort of real adoption, especially with a revenue component attached to it.
Brett
What did the early product marketing look like? And then how has it evolved today?
Colin Luce
Yeah, I think if you look at Basis Theory today were very vertically focused on payments and I think thats intentional from our backgrounds, our experience, our networks, but also just the urgency of the problem. I think if you looked at Internet time machine and looked at our first homepage back in 2020 or 2021, it was the tokenization API to essentially secure anything. We had this grand ambition of building a bottoms up developer first platform. And our core KPI or metric that were tracking was developer signups and we had a few thousand of those. But again, the revenue was not trailing the way we thought it would in that motion. And so we had to move more towards a vertical focus. So today it’s payments.
Colin Luce
You know, again, we still have the luxury and the latitude of having a flexible platform that can accommodate various different use cases across healthcare and the complexities associated with HIPAA compliance or I just general PII with all these various data privacy, data residency requirements, whether it be GDPR CCPA. We’re going to have 50 different versions of CCPA here domestically. Whether it’s India’s personal data protection bill, there is going to be increased scrutiny, and rightfully so, around data security and data protection for PII. But I think absent of a hard compliance requirement and certainly enforcement of that compliance requirement, there’s just not a lot of urgency from large organizations. Whereas with payments and PCI it’s really do not pass go unless you have this stamp. So again, we have this platform that can handle all these things, but we’re very vertically focused on payments today.
Brett
What about the go to market theme? What does that look like today?
Colin Luce
Yeah, I’d say it’s much more of a top down traditional sales strategy as opposed to a bottoms up PLG motion. We do have a self serve component to our business and very fortunate to have some amazing companies who come in, sign up, get started, and grow into very large customers for us. But the primary focus is more traditional API first motion, which is a top down sales motion. It is the typical we have two distinct profiles. We have a buyer who tends to be a business or product person, and we have a developer who tends to be a heavy influencer in the decision. And from a sales.org perspective, our primary channel today is outbound. We have an amazing SDR team and we’re playing the long game here too, from a content perspective. But the primary motion has been outbound.
Brett
Outbound’s not dead. I keep seeing that on LinkedIn. Everyone’s saying outbound is dead. Not true.
Colin Luce
Definitely not. I think it’s one of these levers that you just have so much control over it. And I think the beauty of sales and outbound is there’s very strict and inherent data associated with it, and you can pull these different levers. Look, it’s not for everyone, but for us it’s working really well. I think PLG motions are viable. Im very skeptical of those motion scaling for deep infrastructure and certainly deep infrastructure with sensitive data.
Brett
Trey, I cant tell you how many companies I’ve talked to that tried PLG when it was really hot a couple of years ago in these podcast interviews. And then they’re telling me now that, yeah, that was a mistake, then they’re scaling back on those efforts a lot and just going back to similar to what you’re doing. A lot of outbound seems to be the trend, at least from the interviews I have on the show.
Colin Luce
Yeah. And again, I think these are important lessons to learn, not be told. I think trial and error and experimentation are super important for teams to realize. And I think hopefully folks are as lucky as we are to have investors and team members who are all bought in on the mission and rowing in the same direction on that, but totally agree. And look, you mentioned LinkedIn. LinkedIn has been a big unlock for us as well. You know, somewhat of a private person, but my marketing teams convinced me to really engage with LinkedIn and it’s been a big unlock for us on the SDR side.
Brett
What are you guys doing that’s unique or different, would you say? How are you making that a channel that works? You know, what I see or what I typically talk about people is outbound is not dead, but low effort. Outbound is probably dead or it is dying. If you’re just blindly spamming people there, you’re going to just filter that right out. What are you guys doing to rise above all the noise that’s out there? And how are you getting people to answer you? How are you standing out and people’s inboxes?
Colin Luce
Well, I think the answer is inherent in that. There is no great answer, right? I mean, I think it is truly just an act of creativity. I don’t think it’s a single bullet approach. I think you have to have folks who are hungry, motivated and creative. And it’s a mix of spicy emails. It’s a mix of sliding into LinkedIn DM’s, it’s a mix of posting content on LinkedIn. It’s a mix of going to attend live in person events and walking conference floors. It’s a mix of leveraging the San blonde Brec strategy of sending a bottle of champagne or whatever might be relevant to your business, to your top accounts.
Colin Luce
You know, we recently ran a campaign where my friend Sophia wrote this amazing book called the Field Guide to Global Payments, and we bought a bunch of copies of it and sent it to the head of payments at our top 100 accounts. And that was the successful strategy. So I think it’s just requires a lot of creativity, a lot of out of the box thinking and just a lot of everything, frankly.
Brett
Is there anything from a marketing perspective that you’ve stopped doing a tactic or a channel that you tried, you experimented with, and it didn’t work?
Colin Luce
I’d say we’ve pulled back our paid marketing a bit. I think for us it wasn’t a super relevant thing, mostly because what we do is so complex and niche and we’re definitely more in the category creation space as opposed to the rip and replace space. So we still do some paid, but I’d say that’s pulled back, but other than that, not really. I mean, look, we’re taking a very iterative approach to this and we’re continuing to test any and every channel and just monitoring things very closely.
Brett
You mentioned category creation there. That’s obviously a big part of what this podcast is all about. What is the category that you’re creating? When I introduce you that the closest I could get was a payments platform, which I feel like doesn’t come even close to what you guys are doing. What is that category?
Colin Luce
Look, I’m going to somewhat go back on what I said earlier, which is I don’t think I’ve fully evolved or come around to accepting our true vertical focus as it relates to category creation. I think payments is step one in our journey. I think there’s a much bigger opportunity ahead of us, as we talked about, as we start to get into healthcare and data privacy more broadly. So candidly, I’m not exactly sure what that category is. It’s something we’re working on every day. I think whether it’s data security as a service, tokenization as a service, we’re still trying to find that out.
Colin Luce
I think I try and oscillate or vacillate or forget what the right word is between our vertical focus payments today and the future vision of the company, and really just making sure that as we make different decisions, we’re not backing ourselves into any corners. Right? Like, you know, two way doors for everything we do while staying very vertically focused on payments today.
Brett
Maybe a different way to ask about categories about like line items. So when you’re selling to customers, are they creating a totally new line item? Are they pulling from existing line items? Where’s that coming from?
Colin Luce
Yeah, it’s really interesting. It depends because payments as an.org can sit under multiple different business units depending on how that particular company is structured. So we see cases where payments lives under finance, we see cases where payments lives under product, we see cases where payments lives under engineering. And so it drastically depends on where it lives in terms of where the budget comes from and frankly how they think about ROI as well. I’m sure. As you can imagine, when it lives in payments, it’s primarily a cost optimization strategy. When it lives under product. It’s more of a user experience, user interface optimization play. And when it’s in engineering, it tends to be more of a resiliency redundancy play. And so it just depends.
Colin Luce
And I think that also, as I’m sure you can imagine, introduces inherent challenges from a product marketing from a sales perspective. But it also requires us to go very deep and understand how these orgs are structured and who the right folks for us to be talking to are, and then subsequently how we articulate ROI as part of that. One of the things we have done though, has been very intentional about our pricing structure in a way where we don’t charge any per transaction, per API call fees. It’s very structured, just based off of total storage or compute, so that they’re not going through this exercise trying to understand every line item in their cost of acceptance and having to put us in there. It’s very counter to the value prop, particularly again when it’s in the finance.
Colin Luce
And so most of our customers tend to think of us more as infrastructure, akin to AWS. Right. They think about us as a PCI compliant or HIPAA compliant instance of their cloud platform or their database. It typically is how they think about it.
Brett
What would you say has been your biggest go to market lesson so far?
Colin Luce
I think a lot of it is just this vertical focus and this outbound motion. Right. I think those would be the first two things that come to mind.
Brett
What about important decision? What’s the most important go to market decision you’ve made?
Colin Luce
Yeah, but I think proceeding that would be hiring Casey. Right. Like I mentioned earlier, Casey was my first boss back at Yodlee. And just watching the work he did at Twilio and Pubnub and now the work that hes done here, I think that was probably the best decision I’ve made to date.
Brett
How do you think about competition? What the competitive landscape look like?
Colin Luce
I laugh because I think if any of my investors or fellow team members listen to this, they’ll tell you that early on I was way too focused on competition. And I think I’ve come around to the notion now that, well, its important to pay attention to what our competition is doing. I really don’t think about them that much. I think were in such a nascent industry or space or category, and theres so much greenfield opportunity that we want to go pave our own path as opposed to try and follow another one. And so its an area of growth. Im particularly proud of myself in that I really don’t think about competition a lot. Again, of course, I pay attention to what competition is doing. I pay attention to what anyone in our adjacent landscape is doing.
Colin Luce
I think thats important to understand the market, but I don’t pay that close of attention to our competitors.
Brett
Robert, how did you make that happen? Just a lot of nice disconnected walks through the woods and Mill Valley. How did you get it so that you would stop thinking about competition? I have that problem myself. I know a lot of other founders have that problem of people say, don’t worry about your competitors, which sounds okay on paper, but its very difficult to not go to their websites, follow what they’re doing, and get a little bit stressed out and concerned and then do actions and try to counter that. How did you get yourself to just accept that and operationalize that in your own mind?
Colin Luce
A lot of harsh scoldings. You know, one of my investors in particular, Kanye at Kindred Ventures, you know, we have such an amazing relationship. I think he really holds me accountable and when I fall out of line, he puts me back in. But also our team internally, right? I mean, we have a very mature team here at Basis Theory. You know, I think our average age is probably mid to late thirties or something. It’s not a bunch of 20 year olds. And so a lot of the folks here have been around the block. They’ve seen this play out and they too hold me accountable. So I give them a ton of credit in it. Again, look, im not perfect at it, but as I said, I do think ive come around to it. I’ve found a way to do it.
Colin Luce
And its one of those things once you break through and stop thinking about them, you look back and question why you ever did care that much about them.
Brett
What are some other areas that you had to really be intentional about working on to improve and develop?
Colin Luce
I think for me, a lot of it was just confidence. Candidly, I’m a non technical Founder operating in a highly technical space. And so early on it was a lack of confidence. And I think that’s probably the area I’ve spent the most time working on. I think that hyper curiosity helps solve that or is a great antidote to that in a lot of ways, because I come at things with sincere ignorance, which allows me to ask questions of my CTO or our technical team about why things are done a certain way and can they be done a different way where if I had more technical expertise, I might have inherent biases that would preclude me from asking those questions. And I think as part of that, seeing the results of that has just given me a lot of internal confidence.
Colin Luce
Thats probably been one of the biggest areas. And again, I think if you talk to some of my early investors, hopefully they would echo that sentiment.
Brett
Trey, on the topic of investors, what have you learned about fundraising? As I mentioned there in the intro, you’ve raised over 20 million to date. What have been some of those big learnings?
Colin Luce
Look, I tell people all the time that my learnings or my experience is probably not relevant to most folks because a majority of that capital was raised in 2021 during Peak Zurp. And look, I think we deserve a lot of credit, the team in particular, for what we’ve built and what we saw early on. So I don’t want to discredit that. But im also not ignorant to the fact that it was a very different fundraising market. So I caveat it by saying that beyond that, look, I think the most important thing to think about when fundraising or a few of the most important things are one, just knowing that theres at least one investor out there thats going to love what you’re doing. You just got to find that one.
Colin Luce
And you might find ten, you might find 100 if you’re really lucky, but theres definitely going to be one. And you just have to find that one. And I think it requires you to have a really deep and nuanced understanding of what you’re trying to build and where you’re trying to go and what investors out there also believe the same things you do. I think that can make the process a lot easier. I think the other part is momentum is paramount. And so theres a lot of talk in the market about timing of fundraising benchmarks associated with it. Right. Theres this million dollar ARR mark for Series A thats been out there for a long time. Theres this nebulous product market fit thing that everyone says you have to have. And I don’t want to say those aren’t important. Those definitely are.
Colin Luce
But look, I also do a bunch of angel investing and I can tell you those are far from being hard lines. I see companies with much more revenue than that have less than successful fundraises. And I see companies with a lot less revenue than that have very successful fundraises. It all comes down to momentum. And so I think as founders think about when to raise, it really comes back to momentum on your business, predictability, scalability, because, again, I think confidence is so important. And when you have momentum in your business, it just gives you that much more confidence. And everyone can see that confidence as.
Brett
You think ahead to the next round that you’re going to raise, whats the top priority? What are you chasing? What are you doing to prepare for that?
Colin Luce
Trey? I think for us its going to come down to finding the right investor to help us think about the move from single product to multiproduct company, the move from vertical focus to horizontal platform, and all the trade offs associated with those. So we’re series A now. So next round is series B. I think in a lot of ways series B is the time where that stuff just becomes absolutely critical. And so I talk with investors a lot and keep up with them. I think that’s important. And I’m very upfront with them about where we are today, but where we’re going in the future. And I think it the cadence or steps we take to go from where we are to them are going to be so important.
Colin Luce
And so finding the right partner to help us think through those is the most important thing for us.
Brett
Final question for you, lets Zoom out three to five years into the future. Paint a picture for us. Whats the company look like three to five years from today?
Colin Luce
Yeah, I hope people look at us as the company that shook up the payments ecosystem. I talk to our team internally all the time about this concept of arming the rebels. Right. What I want to do is come in, I want to mix things up. I want to move the power away from these legacy platforms and into the hands of the builders and the platforms. And I want people to say, wow, that Basis Theory company really caused a lot of chaos in the ecosystem because I think if we’re successful with that, we’re going to have the opportunity to go in a lot of different directions, all of which could be highly lucrative, highly valuable, and would love to be fortunate enough to have the opportunity to choose from multiple different paths.
Colin Luce
But all of that is predicated on us breaking down some of these barriers, opening up the ecosystem, and adding, switching, combining various different partners across the stack. A reality.
Brett
Amazing. Love it. All right, man, we’re up on time, so we’re going to wrap here. Before we do, if there’s any founders that are listening in and want to follow along with you, where should we send them?
Colin Luce
LinkedIn’s best. I have a Twitter account, but I think I have all of like 47 followers or something. So LinkedIn’s best for me.
Brett
Awesome. Colin, thanks so much. Really appreciate it.
Colin Luce
Awesome. Thanks so much, Brett.
Brett
This episode of Category Visionaries is brought to you by Front Lines Media, Silicon Valley’s leading podcast production studio. If you’re a B2B Founder looking for help launching and growing your own podcast, visit frontlines.io podcast and for the latest episode, search for Category Visionaries on your podcast platform of choice. Thanks for listening, and we’ll catch you on the next episode.
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