Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside The ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICEs exchanges and clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
The concept of using technology to digitize, automate, and improve financial transactions is at the heart of not just ICE and the New York Stock Exchange but all of the world that we know as FinTech. Earlier in my career at First Data, we'd go out to Money 2020 every year in Las Vegas and gape at the latest unicorns rolling out their newest purported disruptions.
As our recent guest on this show, ICEs Chris Edmond said, "I find these markets to be widgets." There's a value, there's a value that's determined when there's a buyer and a seller coming together and agreeing upon a price under a certain set of terms and conditions. That concept, to simply find a way to move those widgets faster with less risk and more transparency has allowed ICE to transform markets here in the United States, in the United Kingdom, and really in all reaches of the globe. Along the way, we see lots of interesting FinTechs doing their own transforming of the way things that have always been done in the FinTech space. And it's always intrigued us when they can both achieve scale and be profitable as they do it.
Our guest today, OakNorth co-founder and CEO, Rishi Khosla, is focused on the widgets that let entrepreneurs of small to medium-size businesses access debt financing. According to the World Bank, companies of that size represent about 90% of businesses and more than 50% of employment worldwide, but still remain underserved by our financial systems. Our conversation with Rishi Khosla on encouraging the next generation of entrepreneurs, the future of FinTech, and providing impactful financing to small and medium businesses through OakNorth is coming up right after this.
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Connecting the opportunity is just part of the hustle.
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Opportunity is using data to create a competitive advantage.
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It's raising capital to help companies change the world.
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It's making complicated financial concepts seem simple.
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Opportunity is making the dream of home ownership a reality.
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Writing new rules and redefining the game.
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And driving the world forward to a greener energy future.
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And charting a course to get there.
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Sometimes the only thing standing between you and opportunity is someone who can make the connection.
Speaker 13:
At ICE, we connect people to opportunity.
Josh King:
Our guest today, Rishi Khosla is the CEO and co-founder of OakNorth. He and his co-founder, Joel Perlman, launched the FinTech company in 2015 after exiting their first venture, Copal Partners, which was acquired by Moody's Corporation, that's NYSE ticker symbol, MCO. In 2019, he was awarded an Order of the British Empire from Her Majesty the Queen for services to business. Welcome Rishi Inside the ICE House.
Rishi Khosla:
Thank you so much for having me.
Josh King:
How's your visit to New York and the New York Stock Exchange? What brings you the side of the pond?
Rishi Khosla:
You know what I wanted to cool off from the weather we're having out in the UK.
Josh King:
Too many burning up highways and things like that?
Rishi Khosla:
There we go, melting roads and the like. My visit to the US so far and to New York specifically, it's been great. And clearly walking the floor at the NYSE, quite special.
Josh King:
Your first visit here, or you've been here before?
Rishi Khosla:
My first visit.
Josh King:
What are your impressions?
Rishi Khosla:
My impressions? Clearly just the history and the significance of the institution in the financial services market overall. It exudes from every corner of the building.
Josh King:
Meanwhile, you leave a country embroiled in its own political tumult, give us a little report from London if you would as well.
Rishi Khosla:
Clearly the UK's had a special time over the last six years now, so you go from the Brexit referendum period to the ups and downs of Theresa May's premiership, to obviously what we are experiencing now. The political turmoil continues.
Josh King:
My colleague, ICE Mortgage Technologies President, Joe Tyrrell, often talks about one week as the aspirational closing time for the mortgage process. Rishi, as you think about it, is there an aspirational benchmark for your corporate loan business, how quickly can get it done?
Rishi Khosla:
I love the question. If you look at the experience at the moment for an average, small, mid-size business, let's say a business which is doing, I don't know, five, 10, $20 million in revenue, that type of level. In the US, over here, it would take them somewhere between 90 to 150 days, typically to go from the point of asking for cash and actually getting a loan. In the UK that period would probably go from, I don't know, 120 days all the way out to probably nine months plus. At OakNorth, our objective has been to get from the point a person says that they'd like to go ahead with a loan, five days to credit approval and getting them cash within another 10 to 15 days thereafter. End to end a 15 to 20 day process.
Josh King:
How much would that shave off the process now you think?
Rishi Khosla:
That would take out 80% plus.
Josh King:
That's amazing.
Rishi Khosla:
That's where we are today. We want to continually do better than that, so the aspirational for us is to get to five to 10 days, but we're at 15 to 20 days today.
Josh King:
Your vision, Rishi, for OakNorth's solutions has been really years in the making. Let's really go back to the start and quickly close in on where we are today. You've said that your work ethic comes from your father. How did you spend time at his London engineering office and how did that really shape the career that was to come?
Rishi Khosla:
Probably since the age of six or seven, I used to spend summer vacations sitting in my father's office for hours on end.
Josh King:
Sounds like a great vacation.
Rishi Khosla:
Great vacation. Let's put it this way, the resources were more limited so we weren't raveling around the world. But I'd learned so much and I'd actually enjoyed so much because I just listened to him in meetings on his conversations and just how he conducted business. And I'd see my father, obviously, complete a full Workday, but then go on to actually work in the evenings typically until way past midnight and 6:00 AM, 7:00 AM be back out again on his way to the office. And I just saw that continually, and he went through so many ups and downs. He had a mechanical engineering business and he used to sell into middle Eastern markets so those markets relatively volatile. If you think about the Kuwait invasion, if you think about the Iran-Iraq wars et cetera.
Josh King:
What was he engineering?
Rishi Khosla:
Actually he was representing actually some large US businesses, so people like Honeywell, Carrier, et cetera. It was really a trading business off engineering supplies and he had an engineering business specifically around earthing and lightning protection equipment. But actually just seeing that work ethic and the resilience in a way as you see whole markets blow up in a way in terms of commercial opportunity to be able to just pick yourself up and find the next thing taught me a lot.
Josh King:
After college you worked for ABN AMRO, GE Capital, and then ran the Mittal family office. How did experiences from doing things like pitching Jack Welch to tracking industry trends by monitoring the tech waves from Silicon Valley to India inspire you to start your own business?
Rishi Khosla:
I think I decided that I wanted to start my own business probably from the age of nine. I viewed everything I did up to that point as almost ongoing education to help me, in a way, become a better entrepreneur. The experience of actually investing, and at the period that I was actually with GE and with Mittal I was spending time across the valley, Europe and India on a monthly basis. It'd literally be a week in each and then repeat.
That just showed how trends evolved in one market, got adapted to other markets, where innovation was actually coming from, what type of innovation was coming from which markets, the difference in entrepreneurial styles, et cetera. And clearly the value was so much more of an evolved entrepreneurial ecosystem and funding ecosystem versus what existed in London, or Munich, or Delhi, or Bombay at that point in time, because we're talking back to 2000, 2001. Just immense learning on that, and, again, if anything that just accentuated my appetite to say, now's the time to go in and actually build a business.
Josh King:
I read one account where you described investing on behalf of the steel magnate Mittal as feeling being forced into an early retirement. What was the inspiration that got you back on the front lines to start Copal?
Rishi Khosla:
Let me put context to that.
Josh King:
Sure. I'm sure the family would like it.
Rishi Khosla:
There we go, exactly. When you're investing, venture investing specifically, well, and private equity, but you're just one step away from the action, you're down at the coal face. How can I put it? The adrenaline really comes from the deal, the entry, the exit, if there's something strategic which you're doing, versus when you're operating, the adrenaline comes every single day. Because it's always about, how do you keep everything running, and how do you actually move things up? There's a totally different level of, I think, intensity, which comes from operating versus investing. And I also think, in reality, to be a great venture investor having built businesses and actually understood what the journey looks like is so important, so that was the context of those comments. And the trigger for myself was really having gone through being involved in businesses which were scaling very successfully and actually realizing how much I'm learning from those businesses versus I'm being able to contribute to those businesses. I was, you know what, now's the time for me to go and actually play our own journey.
Josh King:
All of us face this moment of when we say, I'm going to strike out on my own. And maybe the reality is, I can't really strike out actually on my own, I need someone to be my wing person, I need a partner. I need someone who I really see eye to eye with. You had met Joel Perlman while studying at the LSE and he joined as a co-founder of that first business, Copal. Do you remember your first conversation and was it a case of business partners at first site, or did you take time to realize that your ambitions and skills were uniquely paired for success?
Rishi Khosla:
Vividly, vividly remember the first conversation on this topic. Like you rightly said, Joel and I met at The London School of Economics, we did our masters together and we spent a lot of time together during that period. I'd also invested in Joel's previous company. He had sold that business at the time that I was thinking about actually establishing the first business and I called him up and said, "Joel, will you come to London for two or three weeks and just hang out with me and help me think through this?" And at that point we were ideating so he came over from Miami where he was living at that point in time and we spent time together and one thing went to another and he's never come back to the US to live.
Josh King:
My understanding is that trying to access debt financing for that venture, Copal, was the seed of the idea that would become OakNorth. Can you talk to us about how your conversations with large banks, entrepreneurs and eventually success with Citigroup became the launching thesis of the firm?
Rishi Khosla:
Sure. We started Copal with a very modest amount of money. We started in 2002, 2005 we were growing at a reasonable clip and we had on average call it three weeks of working capital in our bank, which you could say is pretty challenging. We thought it'd be really great to be able to have a line of credit to be able to effectively make payroll in the event that one of our clients doesn't pay literally on the dot and so we don't have to balance so finely. We went to three commercial banks and had the conversation and the feedback was always the same as, computer says no. You don't have the history, you don't have the track record of earnings, et cetera. Yes, your last 12 months looked pretty good, but the previous period to that you're fundamentally a startup.
Until we got to Citi Special Situations desk, and Citi was one of our clients, and we had the conversation, they were, "Have you ever thought about doing a dividend recap?" And we were, "We didn't actually know what a dividend recap was." We educated ourselves and whereas we were trying to get 100 K from the commercial banks we ended up doing a 10 million dividend recap with Citi. And that's a pretty different level of magnitude, you say a commercial bank couldn't give you 100 K, but suddenly an institutional player can give you 10 mil for the same business. And the difference was the commercial bank was putting the money into the company, whereas Citi's money came in and got dividended it out to shareholders.
That was the aha moment for us to say there's a real difference on how smaller commercial companies get treated versus if you were in the institutional bucket, i.e. corporate size, you just get a totally different outcome. And that also made us realize that actually there must be so many entrepreneurs out in the market who just don't get the type of funding they need to truly scale their businesses. And therefore they end up just going slower, they end up maybe selling out earlier, et cetera. That was the original seed back in 2005.
Josh King:
And before we embark further on OakNorth's story, what were your experiences in creating scaling, and then eventually selling to Moodys? What did it all teach you?
Rishi Khosla:
So many lessons. Just everything about building businesses. Copal was fundamentally a services business. We had operations in 13 different countries, we had clients in probably more than 13 countries. Our client base was fundamentally all financial services players, so investment banks, all top 10 of the global investment banks, a number of the major private equity funds, hedge funds, asset managers, et cetera. And guess what, you hit the financial crisis, so what thoughts you think go through our mind? Do we become a cost line item which gets cut because it's an easy cost line item cut, or do institutions actually accelerate what they're doing with us? I'd say that you have so many lessons within that and ultimately all comes to resilience. And one thing, I always summarize this as hunger, if you have the hunger to actually build and continue, you just find ways, you find ways to look around corners, to find opportunities in adversity. I strongly believe that actually you build such strong businesses and your businesses get stronger if you face adversity, versus if you haven't faced adversity.
Josh King:
One of our past episodes we had my old friend Michael Schline, the CEO of Accion here talking about the whole micro lending space. And maybe if the micro lenders and the large lenders are on total opposite ends of the spectrum, what defines the area that you've called, I think, the missing middle, and why were those funding levels underserved and really ripe for disruption?
Rishi Khosla:
Number one, it's the middle of those micro lenders, the guys who'll lend to those SMBs, their mom and pop stores versus the corporate lenders. If you're corporate size and scale, you get serviced incredibly well and there's so much competitiveness in that market. If you look at what's happened on the micro end, and so you go from consumer to micro SMB, the innovation in FinTech has really driven a transformation in that space, a total transformation. If you go back 10 or 15 years ago, there were a handful of lending products out in the market, which are pretty limited. You look at today in the consumer space...
Josh King:
Affirm
Rishi Khosla:
Right. And those guys are fundamentally offering fully customized lending solutions at the point in sale for a particular purchase. If you just go all the way back and you just think to yourself that just never happened. There's been an incredible amount of innovation there. When you look at this piece in the middle, there's, as we like to say, the biggest innovation was Excel, whatever it was, 37 or 38 years ago. That was the biggest innovation which has happened in terms of how you look at credit and make credit decisions in this space. You go back to FinTech, you go back to innovation, et cetera, the whole commercial space, and what we call the missing middle, has been pretty much untouched by true innovation on how you make credit decisions. What has come in is that you have had enterprise software plays, which have actually helped with work flow, which have helped with record keeping like core banking, et cetera. But that's very different from actually helping improve, increase speed, and get better fundamental credit decisions.
Josh King:
We were reading through your recent deals, which really cuts across all sectors, but is there a profile of the type or types of companies that you're looking to support?
Rishi Khosla:
I'd say, look generally, and this is a wide range, one to 100 million in terms of revenue, but fundamentally also growth companies. Companies which are growing are those which end up actually being serviced better by us, because if you're not in growth mode and you're more of a lifestyle business, you know what, waiting the three or four months may be fine for your loan and you may not want to get a loan in 15 to 20 days, it may not make a significant difference to your business. But if you're in growth mode, that does make a difference. If you want a business, if you want to, again, if you're growing, where you plan to be in a year's time or two years time is very different from where you were one or two years ago. And you look at most lenders in this space, they will only look backwards. And if you're only looking backwards, you're only getting a loan for where you've been not for where you're going. The key characteristic is that growth profile of the business, and, again, spanning across CRE and C&I lending.
Josh King:
The conditions that let a challenger bank like OakNorth thrive could also maybe be seen as a threat to London as one of the stalwarts of global finance. Have you been able to work with regulators to make sure the UK is able to stay competitive during the digital revolution that OakNorth really has helped to spearhead?
Rishi Khosla:
There's serendipity here, because when Joel and I were talking through what we're going to do, as we come out to sell Copal we kept on coming back to this gap, in what we call the missing middle. These are businesses which are going through their scale up phase and generally can't find the right capital sources to enable that. And we were thinking through this and we said to ourselves, wouldn't it be great if we could actually set up a bank which focused on this, with new technology which uses heavy use of data, et cetera? And at that point there'd only been one new bank in the UK in 150 years, so you could say relatively limited.
And I think a week or two after Joel and I had that conversation, the UK regulator actually published a document about removing the barriers for competition in the banking market. And we said, "Wow, this is actually quite timely." We decided to go and meet the regulators and say, "You've got a Columbian Jew and an Indian guy who want to go ahead and start a bank and we've read this paper and we believe that you want people to come in and do this, and you want increase competition, et cetera. And we want to take a tech driven approach and a data driven approach, et cetera."
And the support we got and the confidence we got actually is what enabled us to say, "Okay, we're going to invest time, energy, and money to make this happen." Day one, I would say, actually there was a very large driver for us to say, "This is the right time to do this." And then if I look at the last seven years as we've been operating, actually we've had incredibly strong engagement with the regulator, very open channels. And what that enables us to do is just test things very early with them versus having to boil the ocean and then go to them and find out if there's kinks in the plan. I'd say generally very, very supportive.
Josh King:
Speaking of government support of businesses, yesterday a letter was released that called on the British government to do more to support entrepreneurship education. What part of the All Party Parliamentary Group for Entrepreneurship report led you to sign on to the petition?
Rishi Khosla:
Okay. This is something I feel very, very strongly about. I think that the UK, unfortunately doesn't have the same culture that the US does, I think, where entrepreneurialism and entrepreneurship is inbred in terms of the way that communities operate. And if you look, really, during education at school level at colleges or universities, the path of entrepreneurship is not one which is often sided as a credible path. The credible path, your professionals.
Josh King:
You pick it up on the side?
Rishi Khosla:
You pick it up on the side, or if you're unemployed then you end up becoming an entrepreneur which is a very different dynamic to, let's say, the situation that exists at least in many, many spaces.
Josh King:
Stanford, or Harvard, or Duke or whatever.
Rishi Khosla:
Exactly. Because, clearly the clear outcome that most US students want, at least at the colleges that you just called out, is fundamentally to go and build businesses. Whereas, I'm not going to say it's a footnote, but it's not necessarily all the way.
Josh King:
Like what Cambridge and Oxford do in their DNA basically, obviously read letters and laws.
Rishi Khosla:
It's not where the history is. And I think one of the things which drives that is obviously the number of success stories of people actually going all the way through and actually building companies that people can relate to, are not as prominent as they are here in the US. One of my passions is to actually help the education system in the UK to actually teach entrepreneurship, open people's horizons to entrepreneurship and in a way bring that DNA in.
Josh King:
Do you want to drill a little deeper into your own initiative that you're working on with London School of Economics?
Rishi Khosla:
Sure, absolutely. We actually went around and met a number of colleges and universities in the UK to actually identify ones which, in a way, got entrepreneurship. Because, again, academic institutions aren't necessarily the place where you find that core. And it just so happened that the college where both Joel and I went to, in our view, actually got entrepreneurship better than most others. We went and spent some time with them and said, "We'd like to design a joint program to effectively combine mentoring and entrepreneurship," i.e. to actually have people think about entrepreneurship and actually be mentored through that. "And we want to do this all the way through from primary, junior school kids to senior school kids, through to colleges and on."
And we designed a program with them where effectively we've created this almost mentorpreneurship, what we call mentorpreneurship, a combination of mentoring and entrepreneurship, ladder, where you have primary and junior school children being mentored by senior school children or by children at college, et cetera. And so far we've had, I think, over 2,000 students involved in the initiative and we've been going for just over a year now. The objective is to 10 X that in the next two to three years.
Josh King:
The old proverb is, give man a fish, feed him for a day, teach a man to fish, feed him for a lifetime. You recently said that 30,000 jobs in the UK can be traced to OakNorth backed companies. At Davos you said, "We're not a social enterprise, but we're building our business in a very socially minded way." How do you define socially minded?
Rishi Khosla:
This was again interesting and actually the concept or the term socially minded was actually one which I picked up from the LSE itself. The whole concept is build a business, which actually is ultimately trying to do the right thing for your customer, for your teams, for your employees, for other stakeholders, which live around you, your communities, et cetera, where you're just aware of them, you're aware of the impact, you're aware of the outcomes which you're driving on them. And ultimately you can say that's a good business. You do the right thing for your customers, you do the right thing for your teams, you do the right things for any of your other stakeholders and ultimately you build a better business by doing that. But when you're conscious about it, I think it just makes you more front footed about that. But that is incredibly different from social enterprise, because social enterprise is fundamentally where the returns aren't necessarily capitalist returns. If you look at Amazon, Amazon has been incredibly customer obsessed and clearly a pretty capitalist organization.
Josh King:
In an interview a couple of years ago, Rishi, you said, and I'm going to quote you here, "One of the biggest challenges that the FinTech center will need to overcome is to withstand a market correction proving the viability of individual business models and the strength of management teams." And that was speculating into some distant future when there might possibly be a correction. But since then, the market has dealt with COVID shocks and now the 2022 corrections. How do you think this sector's doing?
Rishi Khosla:
The amount of financing across the tech and FinTech sector especially over the last two years has been just immense, in terms of total volumes. And if you look at the businesses, the business models, et cetera, which are being financed, again, an incredible amount of innovation, I think we all realize that not all of those business models are necessarily sustainable business models. And building a business which relies on very heavy investment on an ongoing basis, because you don't necessarily have strong unit economics which can fundamentally drive a long-term sustainable business is something which, let's say, clearly the tide has changed on.
And I think going back to the era of very loose capital for innovation and capital which was really willing to buy into very long-term visions, you are having people who are buying into five, 10 years into the future versus where you are today, which is, we don't believe anything except for what has actually happened. For people who already raised capital, generally they raised a lot of capital, if they raised in the last 12, 18 months, et cetera. And therefore, I think, they're clearly good runway when you speak to a lot of investors in the FinTech space, they say that their companies on average normally have 16 to 20 months of capital runway and most of them are saying they have 36, 40 months of capital runway. Burn rates have come down and you need to make the capital last longer.
Josh King:
Navigating the changing tides and surfing the new economic realities. After the break, Rishi Khosla, the CEO and co-founder of OakNorth and I are going to discuss how his firm is continuing to evolve in using technology to change how finance views risks. That's all coming up right after this.
Speaker 15:
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Speaker 16:
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Josh King:
Welcome back. Before the break, I was talking to Rishi Khosla, the CEO and co-founder of OakNorth about his own career and supporting entrepreneurship through OakNorth and his own personal efforts. Rishi, in the first half of the show you explained why OakNorth is focused on loans to small and medium businesses after your own experiences with Copal. After a dozen years of running Copal, why were you so eager to jump back into another startup?
Rishi Khosla:
I think for both Joel and myself, it wasn't even a question in terms of, would we go and build another business, it was just a question of what?
Josh King:
Had you been keeping a little file of itches that you want to scratch?
Rishi Khosla:
This was a interesting question. We didn't, but when we were coming up to saying, okay, is now the right time to sell? We went through a whole period, probably at least a couple of months where we just white paper, whiteboard, and just start with a blank sheet of paper and think through ideas. And then we started keeping our file around various ideas. The one which we always came back to is fundamentally the OakNorth model. It's the one where we just had passion around it, we had personal experience, we had that, again, just that belief. It's a problem which is worth solving because it actually ultimately helps communities. To a point you mentioned earlier, we helped drive the creation of 30,000 new jobs in the UK. Over a seven year period for a startup that's not bad. That's having a positive impact on communities. Earlier you asked in terms of the types of businesses that we support, we're supporting growth businesses. Guess what? Growth businesses employ more people, they contribute to growth of their communities. Again, all of those things in our view are just positive ramifications off of the core business that we built.
Josh King:
You gave me this stat in the first half of the show about the long span of UK history and the number of new banks that were created and how many fingers would I have been using? I can't remember.
Rishi Khosla:
We were the third new bank in 150 years.
Josh King:
The third new bank in 150 years. In 2015, just four banks controlled 80% of the lending in the UK. How are you able to leverage things like big data and machine learning to compete in such a cornered market?
Rishi Khosla:
When a market's that concentrated, and look, I would say a lot of these dynamics also actually truly apply even here in the US, you've got institutions which aren't using data in any meaningful way. They aren't using technology in any meaningful way.
Josh King:
Using Excel really well.
Rishi Khosla:
There we go, using Excel very, very well, but Excel has its limitations. And it's really Excel and also the individual's experiences and specialisms in those particular areas which clearly has a lot of value, but data can add a lot of insight. When you've got that dynamic, you just have a different level of service which you can ultimately provide to a customer. If you look at the corporate market, if you're looking to borrow 100 million, 500 million, et cetera, you'll have a team of bankers come in and understand your business inside out, they'll build a financial model on the business in incredible depth. And fundamentally, you'll go out to market to get a loan package, which is pretty bespoke to your particular requirements.
You then take the other extreme, and we were talking about this before, the micro landing, where you're borrowing 50,000, maybe $100 thousand. You can do that pretty much online today and get decisions within minutes and even cash within minutes or a day or two days. In this space in between like we discussed, the innovation, there hasn't been innovation. The use of data has been incredibly limited, even though, let's be clear, many banks have incredible data pools. When you try to replicate the experience that a large corporate has using data and technology and bringing that down to those smaller businesses, you're just servicing them in such a different manner that actually our growth has come from referrals from our existing customers. 80% of our volume has been driven from referrals and our average spend on external marketing has been $50,000 a year. We've literally have not needed to spend anything on external marketing because our customers become our biggest advocates because of how differently we're servicing them. To go to your question, how do you break into a concentrated market? You just focus on the customer and you focus on delighting the customer.
Josh King:
Talking about optimizing your marketing spend, OakNorth also has this robust business outside the UK selling a version of the FinTech platform that OakNorth Bank uses. How does the bank side act as customer zero and help shape the platform?
Rishi Khosla:
Sure. We have a platform called Credit Intelligence, OakNorth Credit Intelligence, and we use that within OakNorth Bank very heavily. This is where we create forward looking scenarios for those 273 sub-sectors, which I mentioned. The utility of that within the bank is ultimately what powers our ability to move very, very quickly at depth through a credit decision, but also how we actually monitor our clients on an ongoing basis and make portfolio decisions. Very heavy usage of credit intelligence, but then actually taking credit intelligence and building it into something which other banks can actually get value from has been a process that we've been on for the last two and a half, three years now. And we focus there on working with US banks predominantly, and now today we have about 400 billion worth of USC and iLending on the product, which gives us an incredible data set of US private company data as well. And that ultimately just helps us feed back into our learning models to make those better, to get better at building all these scenarios. It's very much a self-reinforcing cycle.
Josh King:
Sticking on credit intelligence, almost half a trillion dollars of the US commercial lending is processed by OakNorth platforms from several of your customers over here in the states, including many NYSE listed banks, how is the on credit intelligence suite being used in the US to manage risk through these disruptions that we've had over the past two years like COVID?
Rishi Khosla:
The core way and where we started in terms of modules for on credit intelligence, in terms of our third party clients has been really around managing portfolio and portfolio risk and through that identifying sectors, individual borrowers, so really providing early warning indicators for monitoring. If you think about the whole COVID wave, you had a situation where historic risk models fundamentally broke. The need to be able to have a forward look view and accepting that that's not necessarily correlated with the historic view was very, very strong. And then obviously the ebbs and flows of lockdowns and the like, impacted that very significantly. Our clients started onboarding credit intelligence to get a clear view off their loan books to actually understand how they can segment those loan books into different risk categories, and then actually drill down into individual borrowers.
It's a very data driven approach to actually their segmentation and prioritization around which clients needed support the most, versus, let's say, the more traditional approach, which as I like to say is getting all your relationship managers to call every client, writing notes at the back of napkins and then trying to aggregate that back up in determining where things stand. We had banks do that and then using that to actually act almost as a challenge model against their core models and reporting that back out to their own stakeholders, being their shareholders, their board, their shareholders, and their regulator. That's where we started during the COVID period and we'd started building our scenarios related to COVID in January 2020, when really COVID was viewed as a very isolated incident in China.
And it's evolved from there if you think about everything that we've had, the supply chain disruptions, wage inflation, high employment rates, you look at obviously the impact of the Ukraine-Russia war, you put all of those types of events in play, each of those has an impact on an economy which has an impact fundamentally on banks and the lending books. We've been, again, working with our clients through that. Interest rate sensitivities today, to be able to identify what does 100 BPS, 200 BPS, and 300 BPS increase in rates actually do to your overall loan book. And again, where are your at risk clients, et cetera so you can start helping those clients de-leverage and the like.
Josh King:
As we begin to wind our conversation down, Rishi, executing on a vision always requires a core set of values for our audience. Can you talk about OakNorth's values of 10 X and zero base?
Rishi Khosla:
The 10 X one is incremental improvements result in incremental outcomes. If you're fundamentally doing something and you want to move the needle, aim for at least 10 times improvement because then you have a good chance of moving the needle, even if you don't move it all the way to 10 X. The zero base one is actually saying if you've got a particular position today or something is the way it is today, that's not your starting point necessarily. Sometimes it's worth taking a white sheet of paper and rethinking, again, otherwise what you end up with is you just end up with this tower which is built fundamentally on foundations which weren't meant to support it because each decision you've taken on top wasn't conceived when you were building, when you were making the previous decision. The whole concept of just, at times saying, a white sheet of paper and rethinking, what is the best solution here? Again, always with the customer in the center.
Josh King:
I don't think this is unique to OakNorth nor to necessarily your sector, but any technology company is only as successful as it's people. How do you make sure to attract and retain talent beyond what you do is offering ice coffee during the recent heat wave?
Rishi Khosla:
Look, ultimately it comes the culture of the organization and I'd like to think we built a culture, which is very much almost like an ownership culture from very early on. I think up to year two or year three, we had over a third of the organization which had actually invested in cash, the equivalent of one year's net salary into the company on top of any other options, et cetera, that they were given. And that just created, from the very early years, this whole, like I said, true ownership culture. And that just means that people are always focused on having the right ambition, fundamentally, ambition around what makes sense for the customer and for the business versus prioritizing individual ambition on top of the collective. I'd say if there's one defining characteristic, I'd call that out.
Josh King:
As we've had this journey of a conversation over the last 50 minutes or so, we've focused mostly on your work encouraging entrepreneurship through your own efforts and OakNorth's support of these, this forgotten middle, the small to medium businesses, but you also support social development projects through the Rishi and Milan Khosla Foundation. What impact are you hoping to make through those efforts and what have been some of the foundations successes?
Rishi Khosla:
In the foundation we focus really on two different areas very heavily. One has been early childhood development, and the other one has been around medical innovation. The learning which a child goes through from the age of zero to six almost is so defining in terms of what the capacity almost, the capacity of the brain is. And actually to build that capacity at that age is so important to enable fundamentally the learning as you progress thereafter. That's been one area, again, that we have passion over.
And then the other one is around medical innovation and very specifically when you look at rare diseases and you look at each individual rare disease and you look at the non commerciality of that. If you look at rare diseases as a combined, it's a massive, massive dynamic and thinking about how simple things like you use DNA, whole genome screening to identify conditions and the like, and how those things can be rolled out into standard clinical practice, et cetera. There are many different areas that we have thought through and tried to support over the years, but again, having a leveraged impact on, again, predominantly child health.
Josh King:
Next five years, what are you most excited about for both the FinTech sector overall and OakNorth in particular?
Rishi Khosla:
I think there's been so much innovation and so much funding of innovation over the last years that I think that any consumer will turn around and say their experience with their bank or with their financial services provider has changed, and I think that change is going to continue. I think there's going to be more and more blurring between the financial and non-financial aspects of a consumer's life. When I think about OakNorth specifically, look, we want to have a real impact on the missing middle, on these commercial growth companies and enable many, many, hopefully thousands and tens of thousands of those businesses to really scale and start having an overall impact in their own communities.
Josh King:
Tens of thousands of businesses from the missing middle scaling in their communities. What more could we want, Rishi?
Rishi Khosla:
There you go. At hundreds and thousands or millions of jobs.
Josh King:
All right. Thanks so much for joining us Inside the ICE House.
Rishi Khosla:
Thank you so much.
Josh King:
And that's our conversation for this week. Our guest was Rishi Khosla, the CEO and co-founder of OakNorth. If you like what you heard, please rate us on iTunes so other folks know where to find us, and if you've got a comment or a question you'd like one of our experts to tackle on a future show or the kinds of guests we should be having on the show like Rishi, email us at [email protected] or tweet at us at @ICEHousePodcast. Our show is produced by Pete Ash with production assistance and engineering from Ken Abel and Ian Wolf. I'm Josh king, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
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