How Riskalyze CEO Matt Pistone grew Riskalyze to $33.4M revenue and 19K customers in 2017.

Aaron launched risky back in 2011 under underscores the importance of making great hires he's done it 175 times that's his team size to date again they raised 24 million bucks helping over 19,000 paying financial advisers who now are paying 145 bucks a month when they join the platform uh they've got annual retention rate that's in the low 90s so super healthy spending on average 400 bucks to acquire call it an $88,000 lifetime value customer again based there North of San Francisco and Auburn this is episode 728 coming up tomorrow morning you'll learn from David he launched edelman's digital branch and now he's leading artificial intelligence in the marketing world with a brand new product so what's he betting on tune in to find out but first here's today's episode this is the top where I interview entrepreneurs who are number one or number two in their industry in terms of Revenue or customer base you'll learn how much revenue they're making what their marketing funnel looks like and how many customers they have I'm now at $20,000 per talk 5 and6 million he help B on global domination we just broke our 100,000 unit soul Mark and I'm your host Nathan lka hello everyone my guest today is Aaron Klein his career has largely been at the intersection of finance and Technology as co-founder and CEO at risk he led the company to twice being named one of the uh world's top 10 most Innovative companies and finance by fast company magazine today over 150 risk Salyers serve thousands of advisers who have aligned the world's Investments with millions of investors risk numbers we'll talk about what that means here in a second Aaron has served as a Sierra College trustee and in the spare time he co-founded a school project for Orphans and vulnerable kids in Ethiopia investment news has honored him as one of the industry's top 40 under 40 Executives Aon are you ready to take us to the top hey let's do it all right riskalyze Financial Service fintech it's a hot space where do you play what do you do it is you know um our mission and our our our Dream from the very beginning of this company was to uh empower the world to invest fearlessly it's our belief that you know investing is really broken for the average consumer they really struggle to understand what they're invested in and how to how to you know um uh understand the context of of the choices that they're making and you know a big problem is that our psychology works against us as investors right because when markets are up we're feeling optimistic we're excited about putting money to work when markets go down we start getting fearful we want to sort of pull back Warren Buffett probably said it best that you know stocks are the one thing the American Consumer refuses to buy when they're at their cheapest and only wants to buy when they're at their most expensive so we invented this thing called the risk number and the idea is is we can create a short-term framework a score to understand how to react to risk appropriately in the short term and if we can do that using the risk number that allows us to become a long-term investor somewhat counterintuitively the only way to become a long-term investor is to make a bunch of really great short-term decisions along the way so we focus on the short-term very counterintuitive for our industry but it is really transformed how our industry thinks and talks about risk in order to understand and really you know have a lot of confidence behind that statement you have to do cohort analysis over time to actually see if that pans out but you have to kind of gain that because you haven't been around for 80 years so how do you know your current short-term decisions do indeed pan out over the long term well I I'll put it this way um we know that all the harm that comes from in you know from when people make bad investing decisions all that harm comes from short-term decisions what I mean by that is something bad happens in the market we get scared we sell at exactly the wrong time and the reality is what just happened was normal for the kind of portfolio that we've been in so what we need to do is we need the context to understand how to make a good decision in the short term uh and and and generally what we've seen is investors who get in all of a sudden I I'll give you a really good example investors will call advisers who aren't using risk alliz and they'll say um hey my portfolio is down 2% am I okay um the normal behavior for that portfolio is that in a six-month period it could be down 8% it could be up 12% like that's normal for that portfolio that they're in when you equip the investor with that kind of short-term framework and context for what is normal you allow them to like get comfortable and go okay I get it like I've got to be comfortable with my portfolio dropping 8% a six mon time frame where I have no business investing in this portfolio in the first place so why not just go be a keynote speaker and tell the world to expect you know plus or minus 8% fluctuations what what software or Tech value does riskalyze out of the equation well it's a little bit more complicated than that right because everybody's different and that's one of the things that our industry has not done very well is we tend to stereotype People based on their age right so we go well Nathan looks young therefore he must be aggressive or you know this investor sitting in front of me looks a little bit older they must be conservative and then we take that stereotype and a typical question that you'll see in the industry is something along the lines of um well uh if your portfolio was a car what kind of car would it be or do you get a thrill out of investing right well I'll tell you what I got a far greater thrill out of investing over the last few months that I did in say 2008 right that's a market sentiment question so I stereotype you based on your age and then I nudge your stereotype a little bit aggressive or conservative based on your Market sentiment I can call that your risk tolerance tell I'm blue in the face it doesn't make it your risk tolerance what we found actually we had a team of academics delve into the data and the methodology behind the risk number and what they found was that about 52% of of investors age 20 to 29 are aggressive just like The Stereotype but the other 48% are spread across the rest of the risk number Spectrum and so what the technology really does is helps the adviser assess who the client is how much risk they can really handle in a quantitative objective way and then it also brings in almost a quarter of a million different Securities that advisers might invest their clients in and helps them build a portfolio that actually fits that client's risk number so it's really about risk alignment and so I have a bunch more questions about how the tech works but now that we understand kind of what it ises at a high level help us understand how you make money oh we work with financial advisers and equip them I mean what we do is we help them make their clients more successful we help them uh you know demonstrate to their prospective clients why they're going to bring a different approach to investing than the other advisers who are sort of trying to sweep risk under the rug and so you know we're a subscription software kind of business we deliver subscription software services for that technology to advisers okay so it's SAS pure SAS play it's a it's a pure SAS play that is in the middle of expanding because we're launching uh the next generation of our Auto pilot platform and autopilot is all about helping advisers take those decisions that they made for clients in riskalyze and actually Implement those investing decisions with a click so it it certainly is expanding a little bit beyond that but the core of business is a pure SAS play and on average what are these advisers paying you per month I'm sure you have a lot of cohorts but on average yeah so risal Life Starts at 145 bucks a month so it's extremely affordable for an adviser and we found that cost is definitely not an objection is that what most people pay you though is that the average kind of arpo yeah okay got it so and then let's go back here to the founding story quickly so when did you launch the company what year 2011 and walk why like where was your brain at that point you know I I uh before this company I ran Global product for division of an options brokerage firm and I was just struck by how poorly average investors thought about the concept of risk and I I expressed this to uh a buddy of mine who was a financial adviser and he said if you think that's crazy you should see how their advisor think about the concept of risk so from that company was born and he and I are co-founders now did you guys just 5050 yeah start come on Aaron that's that's that's never 5050 is never the right answer how do you get out of a deadlock it was absolutely oh no no no I'm the CEO I've been the CEO since day one he wasn't operationally in the company I thought you were talking about like when we first started carving up the equity but that's that's what I meant you guys SPL the equity 5050 well yeah but we quickly brought in we brought it we li we we acquired some patents as a part of that with stock we actually raised capital from the beginning so none of us started neither of us started out with 5050 so so but you know we we were both on the board and we built a great board around us even before we brought on real investors you know by like institutional capital okay um but our early investors...